-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KkJEdIThD+9ud5XMD7/Oj6SBurIWBCrpOxCJWBtAV3E0kCJB5mIt/FOu4c1ldNUA ApiWhhu7f5O6KdGr/J+euQ== 0000898430-97-002220.txt : 19970520 0000898430-97-002220.hdr.sgml : 19970520 ACCESSION NUMBER: 0000898430-97-002220 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 33 FILED AS OF DATE: 19970516 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AT HOME CORP CENTRAL INDEX KEY: 0001020620 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 770408542 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-27323 FILM NUMBER: 97610835 BUSINESS ADDRESS: STREET 1: 425 BROADWAY ST CITY: REDWOOD CITY STATE: CA ZIP: 94063 BUSINESS PHONE: 4155695110 MAIL ADDRESS: STREET 1: 425 BROADWAY ST CITY: REDWOOD STATE: CA ZIP: 94063 S-1 1 FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 16, 1997 REGISTRATION NO. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- AT HOME CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 7370 77-0408542 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
---------------- 425 BROADWAY STREET REDWOOD CITY, CALIFORNIA 94063 (415) 569-5000 (ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ---------------- KENNETH A. GOLDMAN CHIEF FINANCIAL OFFICER AT HOME CORPORATION 425 BROADWAY REDWOOD CITY, CALIFORNIA 94063 (415) 569-5000 (NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE) ---------------- COPIES TO: GORDON K. DAVIDSON, ESQ. LARRY W. SONSINI, ESQ. LAIRD H. SIMONS III, ESQ. ALLEN L. MORGAN, ESQ. JEFFERY L. DONOVAN, ESQ. DAVID C. DRUMMOND, ESQ. DOROTHY L. HINES, ESQ. TREVOR J. CHAPLICK, ESQ. FENWICK & WEST LLP PAUL R. TOBIAS, ESQ. TWO PALO ALTO SQUARE WILSON SONSINI GOODRICH & ROSATI, PALO ALTO, CALIFORNIA 94306 PROFESSIONAL CORPORATION (415) 494-0600 650 PAGE MILL ROAD PALO ALTO, CALIFORNIA 94304-1050 (415) 493-9300
---------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] _______________ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] _______________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] ---------------- CALCULATION OF REGISTRATION FEE
- ----------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------- PROPOSED PROPOSED AMOUNT MAXIMUM MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE - ----------------------------------------------------------------------------------------- Series A Common Stock, $.01 par value per share................. 9,200,000 shs. $7.00 $64,400,000 $19,516 - ----------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------
(1) Includes 1,200,000 shares that the Underwriters have the option to purchase to cover over-allotments, if any. (2) Estimated pursuant to Rule 457(a) solely for the purpose of calculating the amount of the registration fee. ---------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- EXPLANATORY NOTE This Registration Statement contains two forms of Prospectus: (i) one to be used in connection with the Company's initial public offering of its Series A Common Stock in the United States and Canada (the "U.S. Prospectus") and (ii) one to be used in a concurrent offering outside the United States and Canada (the "International Prospectus"). The U.S. and International Prospectuses are identical in all material respects except for the front cover page. The form of U.S. Prospectus is included herein and the U.S. Prospectus cover page is followed by the alternate cover page to be used in the International Prospectus. The alternate cover page for the International Prospectus included herein is labeled "Alternate Page for International Prospectus." Final forms of the U.S. Prospectus and the International Prospectus will be filed with the Securities and Exchange Commission under Rule 424(b). ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE + +WOULD BE UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE + +SECURITIES LAWS OF ANY SUCH JURISDICTION. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ PROSPECTUS (Subject to Completion) Issued May 16, 1997 Shares [LOGO OF @HOME NETWORK] At Home Corporation SERIES A COMMON STOCK ---------- OF THE SHARES OF SERIES A COMMON STOCK OFFERED HEREBY, SHARES ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS, AND SHARES ARE BEING OFFERED INITIALLY OUTSIDE OF THE UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITERS." ALL OF THE SHARES OF SERIES A COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY. PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE SERIES A COMMON STOCK OF THE COMPANY. THE COMPANY HAS THREE SERIES OF COMMON STOCK: SERIES A COMMON STOCK, SERIES B COMMON STOCK AND SERIES K COMMON STOCK (COLLECTIVELY, THE "COMMON STOCK"). THE SHARES OF COMMON STOCK ARE SUBSTANTIALLY IDENTICAL, EXCEPT THAT (I) HOLDERS OF SERIES A AND SERIES K COMMON STOCK ARE ENTITLED TO ONE VOTE PER SHARE, AND HOLDERS OF SERIES B COMMON STOCK ARE ENTITLED TO TEN VOTES PER SHARE, ON ALL MATTERS SUBMITTED TO A VOTE OF STOCKHOLDERS, (II) THE HOLDERS OF SERIES A COMMON STOCK VOTE SEPARATELY AS A SERIES TO ELECT TWO DIRECTORS WHO ARE NOT OFFICERS OR EMPLOYEES OF THE COMPANY AND ARE NOT AFFILIATES OR ASSOCIATES OF TELE-COMMUNICATIONS, INC. ("TCI"), COMCAST CORPORATION ("COMCAST") OR COX COMMUNICATIONS, INC. ("COX"), (III) THE HOLDERS OF SERIES B COMMON STOCK VOTE SEPARATELY AS A SERIES TO ELECT FIVE DIRECTORS, OF WHICH, PURSUANT TO A STOCKHOLDERS' AGREEMENT, THREE ARE TO BE DESIGNATED BY TCI, ONE IS TO BE DESIGNATED BY COMCAST AND ONE IS TO BE DESIGNATED BY COX, AND (IV) THE HOLDERS OF SERIES K COMMON STOCK VOTE SEPARATELY AS A SERIES TO ELECT ONE DIRECTOR. EACH SHARE OF SERIES B AND SERIES K COMMON STOCK IS CONVERTIBLE AT THE OPTION OF THE HOLDER INTO ONE SHARE OF SERIES A COMMON STOCK. IMMEDIATELY FOLLOWING THE COMPLETION OF THIS OFFERING, TCI WILL OWN ALL OF THE SERIES B COMMON STOCK AND WILL HAVE APPROXIMATELY % OF THE COMBINED VOTING POWER OF THE OUTSTANDING COMMON STOCK (ASSUMING NO EXERCISE OF THE OVER-ALLOTMENT OPTION GRANTED TO THE U.S. UNDERWRITERS). THEREFORE, TCI WILL HAVE THE ABILITY TO CONTROL MOST SIGNIFICANT MATTERS REQUIRING STOCKHOLDER APPROVAL, INCLUDING THE ELECTION OF A MAJORITY OF THE COMPANY'S DIRECTORS, SUBJECT TO CERTAIN SUPERMAJORITY APPROVAL RIGHTS HELD BY COMCAST AND COX. SEE "PRINCIPAL STOCKHOLDERS" AND "DESCRIPTION OF CAPITAL STOCK." IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $ AND $ PER SHARE. SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE. APPLICATION HAS BEEN MADE TO HAVE THE SERIES A COMMON STOCK APPROVED FOR QUOTATION ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "ATHM." ---------- THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON PAGE 6 HEREOF. ---------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ---------- PRICE $ A SHARE ----------
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS(1) COMPANY(2) -------- -------------- ----------- Per Share................................... $ $ $ Total (3)................................... $ $ $
- ----- (1) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriters." (2) Before deducting expenses of the offering payable by the Company estimated at $ . (3) The Company has granted the U.S. Underwriters an option, exercisable within 30 days of the date hereof, to purchase up to an aggregate of additional Shares at the price to public less underwriting discounts and commissions, for the purpose of covering over-allotments, if any. If the U.S. Underwriters exercise such option in full, the total price to public, underwriting discounts and commissions, and proceeds to Company will be $ , $ and $ , respectively. See "Underwriters." ---------- The Shares are offered, subject to prior sale, when, as and if accepted by the Underwriters named herein and subject to approval of certain legal matters by Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel for the Underwriters. It is expected that delivery of the Shares will be made on or about , 1997 at the office of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor in immediately available funds. ---------- The activities of the Managers are being jointly organized. MORGAN STANLEY & CO. MERRILL LYNCH & CO. Incorporated ---------- ALEX. BROWN & SONS HAMBRECHT & QUIST INCORPORATED , 1997 ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE + +WOULD BE UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE + +SECURITIES LAWS OF ANY SUCH JURISDICTION. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ [Alternate Page for International Prospectus] PROSPECTUS (Subject to Completion) Issued May 16, 1997 Shares [LOGO OF @HOME NETWORK] At Home Corporation SERIES A COMMON STOCK ---------- OF THE SHARES OF SERIES A COMMON STOCK OFFERED HEREBY, SHARES ARE BEING OFFERED INITIALLY OUTSIDE OF THE UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS, AND SHARES ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE "UNDERWRITERS." ALL OF THE SHARES OF SERIES A COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY. PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE SERIES A COMMON STOCK OF THE COMPANY. THE COMPANY HAS THREE SERIES OF COMMON STOCK: SERIES A COMMON STOCK, SERIES B COMMON STOCK AND SERIES K COMMON STOCK (COLLECTIVELY, THE "COMMON STOCK"). THE SHARES OF COMMON STOCK ARE SUBSTANTIALLY IDENTICAL, EXCEPT THAT (I) HOLDERS OF SERIES A AND SERIES K COMMON STOCK ARE ENTITLED TO ONE VOTE PER SHARE, AND HOLDERS OF SERIES B COMMON STOCK ARE ENTITLED TO TEN VOTES PER SHARE, ON ALL MATTERS SUBMITTED TO A VOTE OF STOCKHOLDERS, (II) THE HOLDERS OF SERIES A COMMON STOCK VOTE SEPARATELY AS A SERIES TO ELECT TWO DIRECTORS WHO ARE NOT OFFICERS OR EMPLOYEES OF THE COMPANY AND ARE NOT AFFILIATES OR ASSOCIATES OF TELE-COMMUNICATIONS, INC. ("TCI"), COMCAST CORPORATION ("COMCAST") OR COX COMMUNICATIONS, INC. ("COX"), (III) THE HOLDERS OF SERIES B COMMON STOCK VOTE SEPARATELY AS A SERIES TO ELECT FIVE DIRECTORS, OF WHICH, PURSUANT TO A STOCKHOLDERS' AGREEMENT, THREE ARE TO BE DESIGNATED BY TCI, ONE IS TO BE DESIGNATED BY COMCAST AND ONE IS TO BE DESIGNATED BY COX AND (IV) THE HOLDERS OF SERIES K COMMON STOCK VOTE SEPARATELY AS A SERIES TO ELECT ONE DIRECTOR. EACH SHARE OF SERIES B AND SERIES K COMMON STOCK IS CONVERTIBLE AT THE OPTION OF THE HOLDER INTO ONE SHARE OF SERIES A COMMON STOCK. IMMEDIATELY FOLLOWING THE COMPLETION OF THIS OFFERING, TCI WILL OWN ALL OF THE SERIES B COMMON STOCK AND WILL HAVE APPROXIMATELY % OF THE COMBINED VOTING POWER OF THE OUTSTANDING COMMON STOCK (ASSUMING NO EXERCISE OF THE OVER-ALLOTMENT OPTION GRANTED TO THE U.S. UNDERWRITERS). THEREFORE, TCI WILL HAVE THE ABILITY TO CONTROL MOST SIGNIFICANT MATTERS REQUIRING STOCKHOLDER APPROVAL, INCLUDING THE ELECTION OF A MAJORITY OF THE COMPANY'S DIRECTORS, SUBJECT TO CERTAIN SUPERMAJORITY APPROVAL RIGHTS HELD BY COMCAST AND COX. SEE "PRINCIPAL STOCKHOLDERS" AND "DESCRIPTION OF CAPITAL STOCK." IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $ AND $ PER SHARE. SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE. APPLICATION HAS BEEN MADE TO HAVE THE SERIES A COMMON STOCK APPROVED FOR QUOTATION ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "ATHM." ---------- THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON PAGE 6 HEREOF. ---------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ---------- PRICE $ A SHARE ----------
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS(1) COMPANY(2) -------- -------------- ----------- Per Share................................... $ $ $ Total (3)................................... $ $ $
- ----- (1) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriters." (2) Before deducting expenses of the offering payable by the Company estimated at $ . (3) The Company has granted the U.S. Underwriters an option, exercisable within 30 days of the date hereof, to purchase up to an aggregate of additional Shares at the price to public less underwriting discounts and commissions, for the purpose of covering over-allotments, if any. If the U.S. Underwriters exercise such option in full, the total price to public, underwriting discounts and commissions, and proceeds to Company will be $ , $ and $ , respectively. See "Underwriters." ---------- The Shares are offered, subject to prior sale, when, as and if accepted by the Underwriters named herein and subject to approval of certain legal matters by Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel for the Underwriters. It is expected that delivery of the Shares will be made on or about , 1997 at the office of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor in immediately available funds. ---------- The activities of the Managers are being jointly organized. MORGAN STANLEY & CO. MERRILL LYNCH INTERNATIONAL International ---------- ALEX. BROWN INTERNATIONAL HAMBRECHT & QUIST , 1997 INSIDE GATE-FOLD [PICTURE TO COME] GATE FOLD TWO [COLOR TO COME] PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and the Consolidated Financial Statements and notes thereto appearing elsewhere in this Prospectus. Except as otherwise noted herein, information in this Prospectus (i) assumes no exercise of the U.S. Underwriters' over-allotment option, (ii) includes the April 1997 Series C Preferred Stock financing as though it had occurred as of March 31, 1997 and (iii) assumes the conversion of all outstanding shares of Preferred Stock of the Company into shares of Common Stock of the Company, which will occur upon the closing of this offering. The number of shares of Common Stock shown as outstanding throughout the Prospectus assumes no adjustment to the number of shares of Series A Common Stock issuable upon conversion of the Series C Preferred Stock since any such assumption would be arbitrary prior to the determination of an estimated price range or initial public offering price per share. THE COMPANY @Home Corporation (the "Company") is a leading provider of Internet services over the cable television infrastructure to consumers and businesses. The Company's primary offering, the @Home service, allows subscribers to connect their personal computers via cable modems to a new high-speed "parallel Internet" developed and managed by the Company. This service enables subscribers to receive the "@Home Experience," which includes Internet service at a peak data transmission speed over 300 times faster than typical dial-up connections, "always on" availability and rich multimedia programming through an intuitive graphical user interface. The technology foundation of the @Home Experience is the Company's scalable, distributed, intelligent network architecture (the "@Network"), which optimizes traffic routing, improves security and consistency of service, and facilitates end-to-end network management, enhancing the Company's ability to address performance bottlenecks before they affect the user experience. The content foundation of the @Home Experience is provided by the Company's @Media division, which aggregates content, sells advertising to businesses and will provide premium services to @Home subscribers. For businesses, the Company's @Work services provide a platform for Internet, intranet and extranet connectivity solutions and networked business applications over both cable infrastructure and leased digital telecommunications lines. By combining @Network's distributed architecture with cable, telephone and technology relationships, the @Work services provide a compelling platform for nationwide delivery of network-based business applications. The Company has developed this platform at a low incremental cost by leveraging @Network investment. The Company has entered into distribution arrangements for the @Home service with TCI, Comcast, Cox, Rogers Cablesystems Limited ("Rogers"), Shaw Cablesystems Ltd. ("Shaw"), Marcus Cable Operating Company, L.P. ("Marcus") and InterMedia Partners IV L.P. ("Intermedia"), whose cable systems pass approximately 44 million homes in North America and who have been upgrading these systems to two-way hybrid fiber coaxial cable. The Company has launched its service through TCI, Comcast and Cox in portions of 12 cities and communities (of which 10 have revenue-paying subscribers) in the United States. To expand distribution, the Company is aggressively seeking to work with additional United States and international cable system operators. In order to shorten time to market for cable operators, the Company provides a turnkey solution, which includes not only technology platform, but also marketing, customer service, billing and a national brand. According to Paul Kagan Associates, Inc., cable is available to 97% of the homes in the United States, and, according to Baskerville Communications, there will be approximately 203 million homes passed in Europe and the Asia Pacific region in the year 2000. The Company was founded in March 1995 on the premise that the cable infrastructure could enable the fastest, most cost-effective delivery mechanism for residential Internet services but that the actual speed of these services would ultimately be limited by the fundamental architecture of the Internet. As a result, the Company assembled a team of industry experts to develop an advanced network architecture and the custom hardware and software products that would address these limitations. Prior to launching the @Home service in September 1996, the Company implemented a nationwide backbone, designed and built its Network Operations Center with 24X7 end-to-end management capabilities, deployed regional data centers and headend equipment, implemented an integrated customer management system including billing and support, implemented a customized browser and aggregated the initial multimedia content required to deliver the @Home Experience to its first subscribers. 3 THE OFFERING Total Common Stock outstanding prior to this offering... 108,603,587 Shares(1) Series A Common Stock offered: U.S. offering.......................................... Shares International offering................................. Shares Total................................................ Shares Common Stock to be outstanding after this offering: Series A Common Stock outstanding after this offering.. Shares(1) Series B Common Stock outstanding after this offering.. 15,400,000 shares Series K Common Stock outstanding after this offering.. 14,877,660 shares Total................................................ shares Use of proceeds......................................... For general corporate purposes, including working capital and capital expenditures. See "Use of Proceeds." Proposed Nasdaq National Market symbol.................. ATHM
SUMMARY CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA)
PERIOD FROM THREE MONTHS MARCH 28, 1995 ENDED (INCEPTION) TO YEAR ENDED MARCH 31, DECEMBER 31, DECEMBER 31, ----------------- 1995 1996 1996 1997 -------------- ------------ ------- -------- CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues....................... $ -- $ 676 $ -- $ 806 Total costs and expenses....... 2,886 25,703 3,794 11,747 Loss from operations........... (2,886) (25,027) (3,794) (10,941) Net loss....................... (2,756) (24,513) (3,710) (10,901) Pro forma net loss per share(2)...................... $ $ ======== ======== Pro forma shares used in per share calculations(2)......... ======== ========
MARCH 31, 1997 --------------------------------------- PRO FORMA ACTUAL PRO FORMA(3) AS ADJUSTED(3)(4) ------- ------------ ----------------- CONSOLIDATED BALANCE SHEET DATA: Cash, cash equivalents and short-term cash investments..................... $ 6,427 $54,427 $ Working capital (deficit)............. (2,335) 45,665 Total assets.......................... 26,878 74,878 Capital lease obligations, less current portion, and other long-term liabilities.......................... 8,085 8,085 Stockholders' equity.................. 7,670 55,670
- ------- (1) Based on the number of shares outstanding as of March 31, 1997. Excludes (i) 919,250 Shares of Series A Common Stock then issuable upon the exercise of options outstanding under the Company's 1996 Incentive Stock Option Plan (the "First 1996 Plan") and the Company's 1996 Incentive Stock Option Plan No. 2 (the "Second 1996 Plan" and with the First 1996 Plan, the "1996 Plans") with a weighted average exercise price of $.21 per share, (ii) 1,349,423 additional Shares of Series A Common Stock reserved for issuance under the Company's 1997 Equity Incentive Plan, (iii) 400,000 Shares reserved for issuance under the Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan") and (iv) 200,000 Shares of Series A Common Stock issuable upon the exercise of outstanding warrants with an exercise price of $ . Subsequent to March 31, 1997, the Company (i) issued and sold 240,000 shares of its Series C Preferred Stock at a price of $200 per share, which will convert upon the closing of this offering into Shares of Series A Common Stock, (ii) issued warrants to purchase, commencing December 31, 1997, 100,000 shares of its Series C Preferred Stock at a price of $200 per share, which will convert upon the closing of this offering into warrants to purchase 2,000,000 Shares of Series A Common Stock at a purchase price of $ per share, and (iii) granted options to purchase 183,000 Shares of Series A Common Stock under the 1996 Plans with an exercise price of $1.00 per share. See "Management--Employee Benefit Plans," "Description of Capital Stock" and Notes 5 and 10 of Notes to Consolidated Financial Statements. (2) See Note 1 of Notes to Consolidated Financial Statements for an explanation of the determination of the number of pro forma shares used in per share calculations. (3) Reflects the gross proceeds from the sale on April 11, 1997 of 240,000 shares of the Company's Convertible Series C Preferred Stock at a price of $200 per share. (4) Reflects the sale of the Shares of Series A Common Stock offered hereby at an assumed initial public offering price of $ per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses. See "Use of Proceeds" and "Capitalization." 4 THE COMPANY The Company is a leading provider of Internet services over the cable television infrastructure to consumers and businesses. The Company's primary offering, the @Home service, allows subscribers to connect their personal computers via cable modems to a new high-speed "parallel Internet" developed and managed by the Company. This service enables subscribers to receive the "@Home Experience," which includes Internet service at a peak data transmission speed over 300 times faster than typical dial-up connections, "always on" availability and rich multimedia programming through an intuitive graphical user interface. The technology foundation of the @Home Experience is the @Network, which optimizes traffic routing, improves security and consistency of service, and facilitates end-to-end network management, enhancing the Company's ability to address performance bottlenecks before they affect the user experience. The content foundation of the @Home Experience is provided by the Company's @Media division, which aggregates content, sells advertising to businesses and will provide premium services to @Home subscribers. The Company has entered into distribution arrangements for the @Home service with TCI, Comcast, Cox, Rogers, Shaw, Marcus and Intermedia (collectively, together with their affiliates, the "Cable Partners"), whose cable systems pass approximately 44 million homes in North America and which have been upgrading these systems to two-way hybrid fiber coaxial cable. The Company has launched its service through TCI, Comcast and Cox in portions of 12 cities and communities (of which 10 have revenue-paying subscribers) in the United States. To expand distribution, the Company is aggressively seeking to work with additional United States and international cable system operators. In order to shorten time to market for cable operators, the Company provides a turnkey solution, which includes not only a technology platform, but also marketing, customer service billing and a national brand. According to Paul Kagan Associates, Inc., cable is available to 97% of the homes in the United States, and, according to Baskerville Communications, there will be approximately 203 million homes passed in Europe and the Asia Pacific region in the year 2000. For businesses, @Work services provide a platform for Internet, intranet and extranet connectivity solutions and networked business applications over both cable infrastructure and leased digital telecommunications lines. In order to accelerate deployment of @Work services into major metropolitan areas, the Company has established a strategic relationship with Teleport Communications Group Inc. ("TCG"), the country's largest competitive local exchange carrier, to provide co-location facilities and local telephone circuits for infrastructure and subscriber connectivity. By combining @Network's distributed architecture with cable, telephone and technology relationships, the @Work services provide a compelling platform for nationwide delivery of network-based business applications. The Company has developed this platform at a low incremental cost by leveraging its existing @Network investment. Forrester Research projects that United States business Internet access revenues will climb from $595 million in 1996 to $10.4 billion in 2000. The Internet has emerged as a global communications medium enabling millions of people to share information and conduct business electronically. Much of the potential of the Internet remains unfulfilled due to problems with its performance and reliability. These limitations stem from its basic architecture, which is not optimized for distribution of data-intensive multimedia content. As a network of hundreds of interconnected, separately administered public and commercial networks, problems with any element in the Internet can result in performance bottlenecks slowing data transmission speed to that of the weakest link. A variety of new technologies are being explored to address the performance and reliability problems encountered by users of the Internet. However, each of these new approaches focuses on increasing the speed of transmission along the "last-mile" connection to the user, rather than the fundamental architectural performance problems of the Internet. The Company was founded in March 1995 on the premise that the cable infrastructure would enable the fastest, most cost-effective delivery mechanism for residential Internet services but the actual speed of these services would ultimately be limited by the fundamental architecture of the Internet. As a result, the Company assembled a team of industry experts to develop an advanced network architecture and the custom hardware and software products that would address these limitations. Prior to launching the @Home service in September 1996, the Company implemented a nationwide backbone, designed and built its Network Operations Center with 24X7 end-to-end management capabilities, deployed regional data centers and headend equipment, implemented an integrated customer management system including billing and support, implemented a customized browser and aggregated the multimedia content required to deliver the @Home Experience to its first subscribers. The Company was incorporated in Delaware in March 1995. The Company's executive offices are located at 425 Broadway Street, Redwood City, California 94063. Its telephone number at that location is (415) 569-5000 and its Web site address is http://www.home.net. Information contained in the Company's Web site is not part of this Prospectus. 5 RISK FACTORS In addition to the other information in this Prospectus, the following factors should be considered carefully in evaluating an investment in the shares of Series A Common Stock offered hereby. This Prospectus contains forward-looking statements that involve risks and uncertainties. The Company's actual results may differ materially from the results discussed in such forward-looking statements. Factors that may cause such a difference include, but are not limited to, those discussed below and in the sections entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." Short Operating History; History of Losses; Unproven Business Model; No Assurance of Profitability. The Company was incorporated in March 1995, commenced operations in August 1995 and has incurred substantial net losses in each fiscal period since its inception. As of March 31, 1997, the Company had an accumulated deficit of $38.2 million. In addition, the Company currently intends to increase its capital expenditures and operating expenses in order to expand its network to support additional expected subscribers in existing and future markets and to market and provide the Company's services to a growing number of potential subscribers. As a result, the Company expects to incur additional substantial operating and net losses for the foreseeable future. The profit potential of the Company's business model is unproven, and, to be successful, the Company must, among other things, develop and market products and services that are widely accepted by consumers and businesses at prices that will yield a profit. The Company's @Home service has only recently been launched in portions of 12 cities and communities (of which 10 have revenue-paying subscribers) in the United States, and there can be no assurance that it will achieve broad consumer or commercial acceptance. Currently, the Company has only approximately 5,000 subscribers to its @Home service in these areas. Because it is a consumer service, the success of the Company's @Home service will depend upon the willingness of subscribers to pay the monthly fees and installation costs of the @Home service, both of which are set by local cable system operators ("Affiliated LCOs") affiliated with the Cable Partners and not by the Company. The @Home service is currently priced at a premium to many other online services, and there can be no assurance that large numbers of subscribers will be willing to pay a premium for the @Home service. Accordingly, it is difficult to predict whether the Company's pricing model will prove to be viable, whether demand for the Company's services will materialize at the prices it expects the Affiliated LCOs to charge or whether current or future pricing levels will be sustainable. If such pricing levels are not achieved or sustained or if the Company's services do not achieve or sustain broad market acceptance, the Company's business, operating results and financial condition will be materially adversely affected. The Company's ability to generate future revenues will be dependent on a number of factors, many of which are beyond the Company's control, including, among others, the rate at which its cable partners upgrade their cable infrastructures, the success of the Affiliated LCOs in marketing the @Home service to subscribers in their local cable areas and the prices that the Affiliated LCOs set for the @Home service. Because of the foregoing factors, among others, the Company is unable to forecast its revenues with any degree of accuracy. There can also be no assurance that the Company will ever achieve profitability. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business-- Strategy." Potential Fluctuations in Quarterly Operating Results. The Company's quarterly operating results may fluctuate significantly in the future as a result of a variety of factors, many of which are outside the Company's control. Factors that may affect the Company's quarterly operating results attributable to its @Home service include the timing of Cable Partners' upgrades of their cable infrastructures and rollouts of the @Home service, the rate at which customers subscribe to the Company's Internet services and the prices subscribers pay for such services, subscriber churn rates, changes in the revenue splits between the Company and the Cable Partners, the demand for Internet advertising, the effectiveness of Affiliated LCOs' marketing and other operations, and potential competition with Affiliated LCOs for advertising revenue. Quarterly operating results attributable to the Company's @Work services are dependent on the timing of Cable Partners' upgrades of their cable infrastructures and rollouts of the @Home service, the demand for, and level of acceptance of, the Company's corporate Internet, intranet and extranet connectivity and telecommuting solutions and the introduction of, demand for, and level of acceptance of, the Company's value-added business applications. Additional factors that may affect the Company's quarterly operating results generally include the amount and timing of capital 6 expenditures and other costs relating to the expansion of the Company's network, the introduction of new Internet and telecommuting services by the Company or its competitors, price competition or pricing changes in the Internet, cable and telecommuting industries, technical difficulties or network downtime, general economic conditions and economic conditions specific to the Internet, Internet media, corporate intranet and cable industries. The Company operates with very little backlog, and quarterly sales and operating results are difficult to forecast even in the short term. There can be delays in the commencement and recognition of revenue because the installation of telecommunication lines to implement certain services has lead times that are controlled by third parties. A significant portion of the Company's expenses are fixed in advance based in large part on future revenue forecasts. If revenue is below expectations in any given quarter, the adverse impact of the shortfall on the Company's operating results may be magnified by the Company's inability to adjust spending to compensate for the shortfall. Therefore, a shortfall in actual as compared to estimated revenue would have an immediate adverse effect on the Company's business, financial condition and operating results that could be material. In addition, the Company plans to increase operating expenses to fund additional research and development, sales and marketing, general and administrative activities and infrastructure. To the extent that these expenses are not accompanied by an increase in revenues, the Company's business, operating results and financial condition could be materially affected. Due to all of the foregoing factors, it is likely that the Company's operating results in one or more future quarters will fail to meet or exceed the expectations of securities analysts or investors. In such event, the trading price of the Series A Common Stock would likely be materially adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Control by TCI; Veto Power of Other Principal Stockholders. The purchasers of Series A Common Stock in this offering will have little influence over management decisions concerning the Company. Following this offering, TCI will control approximately % of the voting power of the Company and will have the power to elect a majority of the members of the Company's Board of Directors (the "Board") and the power to control all matters requiring the approval of the holders of the Company's Common Stock voting together as a single class. TCI owns all of the Series B Common Stock, which carries ten votes per share and has the right under the Company's Certificate of Incorporation to elect five directors (the "Series B Common Stock Directors"), of which, pursuant to a Stockholders' Agreement, three are to be designated by TCI, one is to be designated by Comcast and one is to be designated by Cox. All actions of the Board must be approved by a majority of the Series B Common Stock Directors as well as by a majority of the entire Board. So long as TCI owns at least 7,700,000 shares of Series B Common Stock and a majority of the voting power of the Company, TCI will have the power to increase the size of the Board and elect a majority of the Board at any time without a meeting of the stockholders. Accordingly, TCI will have the power to control the Company and to make decisions concerning the operations of the Company, even if the interests of TCI and other stockholders differ. TCI's control of the Company is subject only to fiduciary duties under Delaware law and certain restrictions in the Company's Certificate of Incorporation. These restrictions require that certain significant corporate actions (such as amendments to the Company's Certificate of Incorporation or a merger of the Company and certain other business matters) may be taken only if such actions are approved by a supermajority or, in certain cases, unanimous vote of the directors designated by TCI, Comcast, Cox (collectively, the "Principal Cable Stockholders") and KPCB. Accordingly, any two (or in some cases any one) of the three directors designated by Comcast, Cox and KPCB will have the ability to veto certain corporate actions and can prevent the Company from taking certain actions favored by stockholders holding a majority of the voting power in the Company. See "Management--Board Composition and Procedures," "Certain Transactions" and "Description of Capital Stock." Dependence on Cable Partners for Distribution; Potential Conflicts of Interest with Principal Cable Stockholders. The Cable Partners are expected to provide through certain of their cable systems the principal distribution network for the Company's services to the Company's subscribers (the majority of whom are expected to be subscribers to such Cable Partners' cable television services) and will share the revenue from the @Home services that are derived from such subscribers. Given the contractual and business relationships between the Cable Partners and the Company, the interests of the Cable Partners may not always coincide with the interests of the Company, and conflicts of interest concerning the split of revenues and other matters exist between the Company and the Principal Cable Stockholders, who control the Company. There can be no 7 assurance that transactions between the Company and the Cable Partners will be on arm's-length terms, particularly for transactions with the Principal Cable Stockholders, or that the Company could not have obtained more favorable terms in negotiations with unaffiliated third parties. The Board, which is controlled by TCI, has the power to approve transactions in which the Principal Cable Stockholders have an interest, including a change in revenue splits in favor of the Principal Cable Stockholders. As a result of certain contractual "most favored nation" provisions (the "MFN"), which provide that the cable affiliates of the Principal Cable Stockholders are entitled to distribution arrangements at least as favorable as those obtained by any other cable system operator, the Principal Cable Stockholders could determine to cause the Company to approve more favorable distribution arrangements, including more favorable revenue splits, for one or more cable affiliates in order to receive more favorable distribution arrangements for their respective cable affiliates by virtue of the MFN. See "Management--Board Composition and Procedures." The economic and other terms of the amended and restated master distribution agreement pursuant to which the Principal Cable Stockholders distribute the Company's services ("Master Distribution Agreement") may be less favorable to the Company than those that could have been negotiated had the Company been independent of the Principal Cable Stockholders. Because the Company does not yet have a significant number of subscribers, it is not yet possible to determine whether the revenue splits and the other economic aspects of the distribution of the Company's services will be sufficiently attractive to encourage a sufficient number of cable system operators to enter into distribution agreements with the Company, or to encourage cable system operators, including the Principal Cable Stockholders, to incur the substantial capital expenditures required to upgrade their cable systems to a two-way hybrid fiber-coaxial ("HFC") cable infrastructure and to roll out and vigorously promote the @Home service. Because of their control of the Company, the Principal Cable Stockholders will have the power to change any of the terms of distribution, including the revenue splits with the Company. In addition, Affiliated LCOs are permitted to assume certain customer service functions that are initially to be performed by the Company, and the Principal Cable Stockholders are permitted to make related expense adjustments or adjustments to the revenue splits based upon the level of customer and network service to be provided by each of the Principal Cable Stockholders and the Company. The Principal Cable Stockholders control the Company and effectively determine and can subsequently change the rollout schedule of the @Home service. Moreover, the Principal Cable Stockholders and Rogers and Shaw have certain priority rights with respect to the rollout schedule of the @Home service. This priority could adversely affect the Company because the Company may be required to roll out its services to the Principal Cable Stockholders and Rogers and Shaw, and their respective Affiliated LCOs, before rolling out the services to other cable system operators, even though such other cable system operators may be ready to roll out the @Home service sooner or on terms more favorable for the Company than the Principal Cable Stockholders and Rogers and Shaw, and their respective Affiliated LCOs. See "Business-- Strategic Distribution Relationships--Strategic Relationships with Cable Partners" and "Certain Transactions." Each Principal Cable Stockholder has the right to exclude the promotion of a limited number of specified national content providers from the @Home service offered through such Principal Cable Stockholder's cable systems, subject to an adjustment in the split of premium service revenues between the Principal Cable Stockholder and the Company. In addition, a Principal Cable Stockholder has the right to block access to certain content, including streaming video segments of more than ten minutes in duration, and the Company is obligated to use its best efforts to block such access. The Company is obligated to use reasonable best efforts to consult with and involve each of the Principal Cable Stockholders in the development of requirements for and design of enhancements, new features and new applications of the @Home service and coordinate with respect to the introduction of such enhancements, features and applications that could have a significant effect on the cable operations of a Principal Cable Stockholder. If Principal Cable Stockholders representing a majority of the residential subscribers who subscribe to the @Home service via affiliated LCOs of the Principal Cable Stockholders object to such enhancement, feature or application, the Company has agreed not to implement such enhancement, feature or application in the territories of objecting Principal Cable Stockholders. See "Certain Transactions--Certain Business Relationships." 8 No Obligation of Principal Cable Stockholders to Carry the Company's Services; Limitations on Exclusivity. Although the Principal Cable Stockholders and their Affiliated LCOs are prohibited from obtaining high-speed (greater than 128 Kbps) residential consumer Internet services from any source other than the Company, the Principal Cable Stockholders are under no affirmative obligation to carry any of the Company's services. In addition, the Principal Cable Stockholders' and their Affiliated LCOs' exclusivity obligations in favor of the Company expire on June 4, 2002, and may be terminated sooner under the following circumstances: (i) Comcast may terminate its own exclusivity obligations upon its election after June 4, 1999 if it permits a portion of its equity in the Company to be repurchased by the Company at Comcast's original cost; (ii) Comcast or Cox may terminate all Principal Cable Stockholders' exclusivity obligations at any time if there is a change of control of TCI or after June 4, 1999 if certain subscriber penetration requirements for the @Home services are not met by TCI and its affiliates; (iii) the Principal Cable Stockholders may terminate all exclusivity obligations upon a change in law that materially impairs certain of the Principal Cable Stockholders' rights; and (iv) any Affiliated LCO may terminate its exclusivity obligations if the Company fails to roll out the @Home service in such operator's territory by the deadlines set forth in the rollout schedules. The exclusivity obligations of the Principal Cable Stockholders in the Master Distribution Agreement also are subject to exceptions that would permit the Principal Cable Stockholders and their affiliates to engage in certain activities which could compete, directly or indirectly, with the activities of the Company; for example, each Principal Cable Stockholder and its affiliates is permitted to (i) engage in any business other than the provision of high-speed residential consumer Internet services, including competing with the Company's @Work operations, (ii) maintain voting equity interests of 10% or less in public companies that do directly compete with the Company's @Home service and related Internet backbone connectivity services, (iii) acquire an interest in any business that competes with the Company's high-speed residential consumer Internet services (so long as the competitive business is not such entity's primary business and subject to a limited obligation to divest the competing business on reasonable terms, such divestiture subject to a right of first refusal by the Company), (iv) acquire equity securities that are registered under the Securities Exchange Act of 1934, as amended, of an entity that competes with the Company, provided that the Principal Cable Stockholder does not control (or is not under common control) with such entity, and (v) operate a competing business in any cable system territory where the exclusivity obligations to the Company have been terminated. The Principal Cable Stockholders' exclusivity obligations do not apply to (i) the creation or aggregation of content, (ii) the provision of telephony services, (iii) the provision of services that are primarily work- related, such as @Work services, (iv) the provision of Internet services that do not use the cable television plant, (v) the provision of any local Internet service that does not require use of an Internet backbone outside a single metropolitan area, (vi) the provision of services that are utilized primarily to connect students to schools, colleges or universities, (vii) the provision of Internet telephony, Internet video telephony or Internet video conferencing, (viii) the provision of certain limited Internet services primarily intended for display on a television, (ix) the provision of certain Internet services that are primarily downstream services where the user cannot send upstream commands in real-time, (x) the provision of streaming video services that include video segments longer than ten minutes in duration or (xi) limited testing, trials and similar activities of less than six months. Until the later of such time as the applicable Principal Cable Stockholder ceases to be obligated under the exclusivity provisions set forth above or, if the exclusivity provisions are terminated by reason of TCI's failure to meet specified subscriber penetration requirements, June 4, 2002, the Company has agreed (i) not to offer or provide Internet services at data transmission speeds greater than 128 Kbps to residences in any geographic area served by the cable systems of a Principal Cable Stockholder that remains in compliance with the exclusivity provisions without regard to whether the "Restricted Period," as defined in the agreement, has ended as to such Principal Cable Stockholder (the "Exclusive Territory") and (ii) not to offer, provide, distribute, advertise, promote or market (or carry or otherwise distribute advertising or promotions with respect to) any streaming video transmissions that include video segments longer than ten minutes in duration or any other Internet service that is not a "Restricted Business," as defined in the agreement, to residences in the Exclusive Territory of a Principal Cable Stockholder without its prior written consent. Moreover, no assurance can be given that the Company will have access to the cable infrastructures of the Principal Cable Stockholders or other Cable Partners for such services, and the Company must negotiate a separate agreement with the Principal Cable Stockholders for each portion of such services that the Company seeks to provide over their cable infrastructures. Any such denial of access or exclusion could have a material adverse effect on the Company's 9 business, operating results and financial condition. See "Business--Strategic Distribution Relationships--Strategic Relationships with Principal Cable Partners" and "Certain Transactions." Dependence on Cable Partners to Develop, Upgrade and Maintain Two-Way Cable Infrastructure. Transmission of the @Home service over cable is dependent on the availability of high-speed two-way HFC cable infrastructure. However, only a small portion of existing cable plant in the United States has been upgraded to HFC cable and even less is capable of high-speed two-way transmission. The Cable Partners and other cable system operators have announced and begun to implement major infrastructure investments in order to deploy two-way HFC cable. However, cable system operators have limited experience with these upgrades, and these investments have placed a significant strain on the financial, managerial, operating and other resources of the Cable Partners and other cable system operators, most of which are already highly leveraged, and thus have been, and the Company expects will continue to be, subject to change, delay or cancellation. Although the Company's commercial success depends on the successful and timely completion of these infrastructure upgrades, the Cable Partners are under no obligation to the Company to upgrade systems or to roll out, market or promote the Company's services. In addition, none of the Cable Partners has agreed to any specific schedule for rolling out two-way HFC infrastructure improvements, and the Cable Partners are not contractually required to achieve any specific rollout schedule. Because of the very substantial capital cost of upgrading cable systems for high-speed two-way data transmission, there has been uncertainty in recent months as to the rate at which the Cable Partners and other cable system operators will upgrade their systems. For example, to increase television programming capacity to compete with other modes of multichannel entertainment delivery systems such as direct satellite, the Cable Partners may choose to roll out digital set-top boxes, which do not support high-speed Internet access services, rather than to upgrade their cable infrastructures to two-way HFC cable. The failure of the Cable Partners to complete these upgrades in a timely and satisfactory manner, or at all, would prevent the Company from delivering high-performance Internet access services and would have a material adverse effect on the Company's business, operating results and financial condition. To the extent that the Company is required (because of the lack of upgraded two-way HFC cable connections), or together with the Affiliated LCOs otherwise chooses, to distribute the Company's services through cable systems to the home with a telephone return path for data from the home, the Company's services may not achieve the high speed and quality of experience necessary to attract and retain subscribers to the @Home service. In addition, the Company will be highly dependent on the Cable Partners and any future cable partners to continue to maintain their cable infrastructure in such a manner that the Company will be able to provide consistently high performance and reliable service. Therefore, in addition to the Company's business being subject to general economic and market conditions and factors relating to Internet service providers and online services specifically, the success and future growth of the Company's business will also be subject to economic and other factors affecting the cable television industry generally, particularly its ability to finance substantial capital expenditures. See "Business--Strategy," "--Products and Services," "--@Network Architecture" and "--Strategic Distribution Relationships--Strategic Relationships with Cable Partners." Dependence on Cable Partners to Roll Out, Market, Install, Maintain Infrastructure for, Provide Customer Service for and Bill for the @Home Service. In order to roll out the @Home service in a geographic area, the Cable Partners must have completed the two-way HFC cable infrastructure upgrade in that area. Following the rollout of the @Home service in a service area, the Company's business will be highly dependent on the Affiliated LCO to maintain its cable infrastructure in such a manner as to permit the reliable transmission of the @Home service. Because subscribers of the Company will subscribe to its services through an Affiliated LCO, the Affiliated LCO (and not the Company) will substantially control the customer relationship with the subscriber. Each Affiliated LCO has complete discretion regarding the pricing of @Home service to subscribers in its territory (except for certain premium services contracted for by the Company), and an Affiliated LCO could use the @Home service as a loss leader in order to increase demand for other Affiliated LCO products or services with more attractive terms for the Affiliated LCO. Neither the Cable Partners nor their Affiliated LCOs have any affirmative obligations (other than the payment of revenue splits to the Company) with respect to marketing, installing and maintaining infrastructure for, providing customer service for and billing for the @Home service, and the Company has no remedies against the Cable Partners or their Affiliated LCOs, other than in limited circumstances such as an Affiliated LCO's failure to upgrade its cable system or roll out the @Home service 10 after it has committed to do so. Moreover, the Master Distribution Agreement does not create affirmative obligations on the part of any Principal Cable Stockholder to cause its Affiliated LCOs to perform any of the foregoing activities or to upgrade any of their cable systems. The Company's business model requires that a material number of Affiliated LCOs of all its Cable Partners roll out the @Home service, and if a sufficient number of Affiliated LCOs does not roll out the @Home service, the Company's business model will not be viable. Each of the Principal Cable Stockholders and its Affiliated LCOs is entitled to MFN terms with respect to the distribution of the @Home service, subject to certain exceptions. These terms could limit the Company's ability to negotiate agreements with other cable system operators and otherwise could limit the Company's potential to generate revenue. The Affiliated LCOs are expected to provide general customer service to the Company's subscribers and have the option to provide technical support, rather than utilizing the Company's service and support capabilities. If an Affiliated LCO provides either general customer service or technical support, there could be a revenue split adjustment between the Company and the Affiliated LCO, and the Company would have little or no control over the quality of customer service actually provided to its subscribers. If the customer service and support provided by Affiliated LCOs are unsatisfactory to subscribers, consumer demand for the Company's @Home service will likely be materially adversely affected. See "Business--Strategic Distribution Relationships--Strategic Relationships with Cable Partners." Potential Competition with Cable Partners for Advertising Revenue. While the Company retains 100% of all national advertising revenue delivered on the @Home service, an Affiliated LCO retains 100% of revenue generated from local service offerings that do not require access to an Internet backbone or that relate to programming within the local areas of the browser for the @Home service, such as revenues from local advertising. Moreover, given the national coverage of the combined operations of the Principal Cable Stockholders and their Affiliated LCOs, the Principal Cable Stockholders and their Affiliated LCOs could strike agreements with advertisers that would effectively result in broad-based advertising campaigns throughout most of the United States in competition with the Company's national advertising campaigns, generating revenue only for Affiliated LCOs and not for the Company. Accordingly, the Company may carry in the United States a significant amount of advertising that is national in scope and focus for which it receives no share of the revenues. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Strategic Distribution Relationships--Strategic Relationships with Cable Partners." Dependence on TCG for Local Telecommunications Services for the @Work Services. The Company depends on TCG, which, like the Company, is also controlled by TCI, Comcast and Cox, to provides local telecommunications services and co-location within TCG's facilities on favorable economic terms that enable the Company to provide @Work services to an entire metropolitan area. If the Company were required to obtain comparable telecommunications services from local exchange carriers, it would effectively be limited to providing @Work services to commercial customers within a ten-mile radius of one of the Company's points of presence. As a result, the Company would be required to build multiple points of presence to service an entire metropolitan area, which would substantially increase the Company's capital costs to enter new markets and which could make such market entry uneconomical for the Company. Moreover, if the Company were required to pay standard local exchange carrier rates, the Company's ongoing operating costs for its @Work services would be substantially higher. The loss of the Company's strategic relationship with TCG would have a material adverse effect on the Company's ability to deploy its @Work services and on its business, operating results and financial condition. In addition, TCG has acquired a provider of Internet-related services to businesses and corporate customers and will compete directly with the @Work Internet service, and to the extent TCG acquires or enters into strategic relationships with other Internet service providers ("ISPs"), TCG may reduce its support of the @Work services. Although there are alternative suppliers for TCG's services, it could take a significant period of time to establish similar relationships and equivalent terms might not be available. See "Business--Strategic Distribution Relationships--Strategic Relationship with TCG." Unproven Network Scalability and Speed. Due to the limited deployment of the Company's services, the ability of the @Network to connect and manage a substantial number of online subscribers at high transmission speeds is as yet unknown and the Company faces risks related to the @Network's ability to be scaled up to its expected subscriber levels while maintaining superior performance. While peak downstream data transmission speeds across HFC cable approach 27 megabits per second ("Mbps") in each 6 MHz channel, the actual 11 downstream data transmission speeds over the @Network could be significantly slower and will depend on a variety of factors, including type and location of content, Internet traffic, the number of active subscribers on a given cable network node, the number of 6 MHz channels allocated by the Affiliated LCO (in its discretion) to carry the Company's services, the capability of cable modems used and the service quality of the Affiliated LCOs' two-way HFC cable infrastructures. The upstream transmission data carrier is located in a range not used for broadcast by traditional cable infrastructures and is more susceptible to interference than the downstream channel, resulting in a slower peak data transmission speed. In addition to the factors affecting downstream data transmission speeds, actual upstream data transmission speeds over the @Network can be materially impacted by the level of interference in the Affiliated LCOs' upstream data broadcast range. The actual data delivery speeds that can be realized by subscribers will be significantly lower than peak data transmission speeds due to the subscriber's hardware, operating system and software configurations. To access the @Home service, subscribers need a personal computer with at least a 66 MHz 486 or equivalent microprocessor and 16 megabytes of main memory. There can be no assurance that the @Network will be able to achieve or maintain such a high speed of data transmission, especially as the number of the Company's subscribers grows, and the Company's failure to achieve or maintain high-speed data transmission would significantly reduce consumer demand for its services and have a material adverse effect on its business, operating results and financial condition. See "Business--@Network Architecture." Dependence on High-Quality Content Provision and Acceptance; Developing Market for High-Quality Content. A key component of the Company's strategy is to provide a more compelling interactive experience to Internet users than the experience currently available from dial-up ISPs and online service providers ("OSPs"). The Company believes that, in addition to providing high-speed, high-performance Internet access, it must also promote the development of and aggregate high-quality multimedia content. The Company's success in providing and aggregating such content is dependent on its ability to motivate content providers to create and support high-quality, high-speed multimedia content and its ability to aggregate content offerings in a manner that subscribers find useful and compelling and will be dependent, in part, on the Company's ability to develop a customer base sufficiently large to justify investments in the development of such content. There can be no assurance that the Company will be successful in these endeavors. In addition, the market for high- quality multimedia Internet content has only recently begun to develop and is rapidly evolving, and there is significant competition among ISPs and OSPs for aggregating such content. If the market fails to develop or develops more slowly than expected, or if competition increases, or if the Company's content offerings do not achieve or sustain market acceptance, the Company's business, operating results and financial condition will be materially adversely affected. See "Business--Strategy" and "--Products and Services." Uncertain Acceptance and Maintenance of the "@Home" Brand. The Company believes that establishing and maintaining the "@Home" brand are critical to attract and expand its subscriber base. Promotion of the "@Home" brand will depend, among other things, on the Company's success in providing high-speed, high-quality consumer and business Internet products, services and content, the marketing efforts of the Affiliated LCOs, and the reliability of the Affiliated LCOs' networks, none of which can be assured. If consumers and businesses do not perceive the Company's existing products and services to be of high quality, or if the Company introduces new products or services or enters into new business ventures that are not favorably received by consumers and businesses, the Company will be unsuccessful in promoting and maintaining its brand. To the extent the Company expands the focus of its marketing efforts to geographic areas where the @Home service is not available, the Company risks frustrating potential subscribers who are not able to access the Company's products and services. Furthermore, in order to attract and retain subscribers, and to promote and maintain the "@Home" brand in response to competitive pressures, the Company may find it necessary to increase substantially its financial commitment to creating and maintaining a distinct brand loyalty among customers. If the Company is unable to successfully establish or maintain the "@Home" brand, or if the Company incurs excessive expense in an attempt to improve its offerings or promote and maintain its brand, the Company's business, operating results and financial condition would be materially adversely affected. See "Business--Strategy" and "-- Distribution, Marketing and Sales." 12 Management of Expanded Operations; Dependence on Key Personnel. The Company may not be equipped to successfully manage any future periods of rapid growth or expansion, which could be expected to place a significant strain on the Company's managerial, operating, financial and other resources. The Company is highly dependent upon the efforts of its senior management team, and the Company's future performance will depend, in part, upon the ability of senior management to manage growth effectively, which will require the Company to implement additional management information systems capabilities, to develop further its operating, administrative, financial and accounting systems and controls, to maintain close coordination among engineering, accounting, finance, marketing, sales and operations, and to hire and train additional technical and marketing personnel. There is intense competition for senior management, technical and marketing personnel in the areas of the Company's activities. The loss of the services of any of the Company's senior management team or the failure to attract and retain additional key employees could have a material adverse effect on the Company's business, operating results and financial condition. The Company maintains no key-person life insurance. See "Management." Competition. The markets for consumer and business Internet services and online content are extremely competitive, and the Company expects that competition will intensify in the future. The Company's most direct competitors in these markets are ISPs, national long distance carriers and local exchange carriers, wireless service providers, OSPs and Internet content aggregators. Many of these competitors are offering (or may soon offer) technologies that will attempt to compete with some or all of the Company's high-speed data service offerings. Such technologies include Integrated Services Digital Network ("ISDN") and Digital Subscriber Line ("xDSL"). The Company also competes with other cable-based data services that are seeking to contract with cable system operators to bring their services into geographic areas that are not covered by an exclusive relationship between the Company and its Cable Partners. The bases of competition in these markets include transmission speed, reliability of service, ease of access, price/performance, ease-of-use, content quality, quality of presentation, timeliness of content, customer support, brand recognition, operating experience and revenue sharing. ISPs, such as BBN Corporation ("BBN"), Earthlink Network, Inc. ("Earthlink"), MindSpring Enterprises, Inc. ("MindSpring"), Netcom On-Line Communications Services, Inc. ("Netcom") and PSInet Inc. ("PSInet"), provide basic Internet access to residential consumers and businesses, generally using existing telephone network infrastructures. This method is widely available and inexpensive. Barriers to entry are low, resulting in a highly competitive and fragmented market. Long distance inter-exchange carriers, such as AT&T Corp. ("AT&T"), MCI Communications Corporation ("MCI"), Sprint Corporation ("Sprint") and WorldCom, Inc. ("WorldCom"), have deployed large-scale Internet access networks and sell connectivity to business and residential customers. The regional Bell operating companies ("RBOCs") and other local exchange carriers have also entered this field and are providing price competitive services. Many of such carriers are offering diversified packages of telecommunications services, including Internet access service, to residential customers and could bundle such services together, which could place the Company at a competitive disadvantage. Wireless service providers, including AT&T and Hughes Network Systems, are developing wireless Internet connectivity, such as multichannel multipoint distribution service, local multipoint distribution service and digital broadcast satellite. OSPs include companies such as America Online, Inc. ("America Online"), CompuServe Corporation ("CompuServe"), Microsoft Corporation's Microsoft Network ("MSN"), Prodigy, Inc. ("Prodigy") and WebTV Networks Inc. ("WebTV") (which has agreed to be acquired by Microsoft Corporation) that provide, over the Internet and on proprietary online services, content and applications ranging from news and sports to consumer video conferencing. These services are designed for broad consumer access over telecommunications-based transmission media, which enables the provision of data services to the large group of consumers who have personal computers with modems. In addition, they provide basic Internet connectivity, ease-of-use and consistency of environment. In addition to developing their own content or supporting proprietary third-party 13 content developers, online services often establish relationships with traditional broadcast and print media outlets to bundle their content into the service, such as the relationship of Microsoft Corporation ("Microsoft") with NBC to provide multimedia news and information programming over both cable television and MSN. Content aggregators seek to provide a "one-stop" shop for Internet and online users. Their success depends on capturing audience flow, providing ease-of-use and offering a range of content that appeals to a broad audience. Their business models are predicated on attracting and retaining an audience for their set of offerings. Leading companies in this area include America Online, CompuServe, Excite, Inc. ("Excite"), Microsoft and Yahoo! Inc. ("Yahoo!"). In this market, competition occurs in acquiring both content providers and subscribers. The principal bases of competition in attracting content providers include quality of demographics, audience size, cost- effectiveness of the medium and ability to create differentiated experiences using aggregator tools. The principal bases of competition in attracting subscribers include richness and variety of content and ease of access to the desired content. The proprietary online services such as America Online, CompuServe and MSN have the advantage of a large customer base, industry experience, many content partnerships and significant resources. The Company's competitors in the cable-based services market are those cable companies that have developed their own cable-based services and market those services to unaffiliated cable system operators that are planning to deploy data services and with which the Company would like to work. Several cable system operators, including Time Warner Inc. ("Time Warner") and the Continental Cablevision subsidiary of U S WEST, Inc. ("US West"), have deployed high-speed Internet access services over their existing local HFC networks. Specifically, Time Warner, which is the second largest cable company in the United States, has established its own cable-based ISP with proprietary content, called Road Runner, which features a variety of Time Warner publications and services. Time Warner plans to market the Road Runner service through Time Warner's own cable systems as well as to other cable system operators nationwide. Continental Cablevision has developed another service called Highway One, which offers high-speed Internet services to its existing customers. Others that have publicly announced limited-area trials for their own cable-based Internet services include Adelphia Communications Corporation ("Adelphia"), BellSouth Corporation ("BellSouth") and Jones Intercable, Inc. ("Jones Intercable"). Some of these companies such as Time Warner have their own substantial libraries of multimedia content, which could provide them with a significant competitive advantage. Many of the Company's competitors and potential competitors have substantially greater financial, technical and marketing resources, larger subscriber bases, longer operating histories, greater name recognition and more established relationships with advertisers and content and application providers than the Company. Such competitors may be able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies and devote substantially more resources to developing Internet services or online content than the Company. There can be no assurance that the Company will be able to compete successfully against current or future competitors or that competitive pressures faced by the Company will not materially adversely affect the Company's business, operating results or financial condition. Further, as a strategic response to changes in the competitive environment, the Company may make certain pricing, service or marketing decisions or enter into acquisitions or new ventures that could have a material adverse effect on the Company's business, operating results or financial condition. See "Business--Competition." Risk of System Failure. The Company's operations are dependent upon its ability to support its highly complex network infrastructure and avoid damage from fires, earthquakes, floods, power losses, telecommunications failures and similar events. The occurrence of a natural disaster or other unanticipated problem at the Company's Network Operations Center ("NOC") or at a number of the Company's regional data centers ("RDCs") could cause interruptions in the services provided by the Company. Additionally, failure of the Cable Partners or TCG to provide the data communications capacity required by the Company, as a result of natural disaster, operational disruption or any other reason, could cause interruptions in the services provided by the Company. Any damage or failure that causes interruptions in the Company's operations could have a material adverse effect on the Company's business, operating results and financial condition. See "Business--@Network Architecture." 14 Risks of Technological Change. The markets for consumer and business Internet access services and online content are characterized by rapid technological developments, frequent new product introductions and evolving industry standards. The emerging nature of these products and services and their rapid evolution will require that the Company continually improve the performance, features and reliability of its network, Internet content and consumer and business services, particularly in response to competitive offerings. There can be no assurance that the Company will be successful in responding quickly, cost effectively and sufficiently to these developments. There may be a time-limited market opportunity for the Company's cable-based consumer and business Internet services, and there can be no assurance that the Company will be successful in achieving widespread acceptance of its services before competitors offer products and services with speed and performance similar to the Company's current offerings. In addition, the widespread adoption of new Internet or telecommuting technologies or standards, cable-based or otherwise, could require substantial expenditures by the Company to modify or adapt its network, products and services and could fundamentally affect the character, viability and frequency of Internet-based advertising, either of which could have a material adverse effect on the Company's business, operating results and financial condition. In addition, new Internet or telecommuting services or enhancements offered by the Company may contain design flaws or other defects that could have a material adverse effect on the Company's business, operating results and financial condition. See "Business--Products and Services," "--@Network Architecture" and "-- Product Development and Engineering." Dependence on Two-Way Cable Modems. Each of the Company's subscribers currently must obtain a cable modem from an Affiliated LCO to access the @Home service. The inability of the Affiliated LCOs to obtain a sufficient quantity of cable modems, or the inability of subscribers to otherwise obtain cable modems, at acceptable price and performance levels could delay or impair the expansion of the Company's business. In addition, the Company's Cable Partners currently depend on a limited number of suppliers, principally Motorola, Inc. ("Motorola") and Bay Networks, Inc. ("Bay Networks") for cable modems. The loss of such suppliers or their inability to provide cable modems that meet the requirements of the Company's services, would have a material adverse effect on the Company's business, operating results and financial condition. See "Business--@Network Architecture." Dependence on Key Technology Suppliers. The Company currently depends on a limited number of suppliers for certain key technologies used to build and manage the @Network. In particular, the Company depends on Sun Microsystems, Inc. ("Sun") for high availability servers, Silicon Graphics, Inc. ("SGI") for caching servers, Cisco Systems, Inc. ("Cisco") for network routing and switching hardware, Sprint for national switched ATM backbone services, Objective Systems Integrators, Inc. ("OSI") for network management software, Tivoli Systems Inc. ("Tivoli") for systems management software to operate RDCs remotely, Oracle Corporation ("Oracle") for advanced database management software and Netscape Communications Corporation ("Netscape") for server and browser software. Although the Company believes that there are alternative suppliers for each of these technologies, it could take a significant period of time to establish relationships with alternative suppliers and substitute their technologies into the @Network. The loss of any of the Company's relationships with these suppliers could have a material adverse effect on the Company's business, operating results and financial condition. See "Business-- @Network Architecture." Dependence on the Internet. Market acceptance of the Company's services is substantially dependent upon the adoption of the Internet for commerce, entertainment and communications. As is typical in the case of an emerging industry characterized by rapidly changing technology, evolving industry standards and frequent new product and service introductions, demand for and market acceptance of recently introduced Internet products and services are subject to a high level of uncertainty. In addition, critical issues concerning the commercial use of the Internet remain unresolved and may affect the growth of Internet use, especially in the business and consumer markets targeted by the Company. Despite growing interest in the commercial possibilities for the Internet, many businesses and consumers have been deterred from purchasing Internet access services for a number of reasons, including inconsistent quality of service, lack of availability of cost- effective, high-speed service, a limited number of local access points for corporate users, inability to integrate business applications on the Internet, the need to deal with multiple and frequently incompatible vendors, inadequate protection of the 15 confidentiality of stored data and information moving across the Internet and a lack of tools to simplify Internet access and use. The adoption of the Internet for commerce and communications, particularly by those individuals and enterprises that have historically relied upon alternative means of commerce and communication, generally requires understanding and acceptance of a new way of conducting business and exchanging information. In particular, enterprises that have already invested substantial resources in other means of conducting commerce and exchanging information, or in relationships with other ISPs, may be reluctant and slow to adopt a new strategy that may make their existing personnel, infrastructure and ISP relationship obsolete. If the market fails to develop, develops more slowly than expected or market competition increases, the Company's business, operating results and financial condition may be materially adversely affected. See "Business--Industry Background." Security Risks. Despite the implementation of security measures, the Company's or Affiliated LCOs' networks may be vulnerable to unauthorized access, computer viruses and other disruptive problems. ISPs and OSPs have in the past experienced, and may in the future experience, interruptions in service as a result of the accidental or intentional actions of Internet users, current and former employees or others. Unauthorized access could also potentially jeopardize the security of confidential information stored in the computer systems of the Company and its subscribers, which may result in liability of the Company to its subscribers and also may deter potential subscribers. Although the Company intends to continue to implement industry- standard security measures, such measures have been circumvented in the past, and there can be no assurance that measures implemented by the Company will not be circumvented in the future. Moreover, the Company has no control over the security measures that the Affiliated LCOs adopt. Eliminating computer viruses and alleviating other security problems may require interruptions, delays or cessation of service to the Company's subscribers, which could have a material adverse effect on the Company's business, operating results and financial condition. See "Business--Network Architecture." Government Regulation. Although the Company's services are not directly subject to current regulations of the Federal Communications Commission (the "FCC") or any other federal or state communications regulatory agency, changes in the regulatory environment relating to the Internet connectivity market, including regulatory changes that, directly or indirectly, affect telecommunications costs, limit usage of subscriber-related information or increase the likelihood or scope of competition from the RBOCs or other telecommunications companies, could affect the prices at which the Company may sell its services. For example, proposed regulations by the FCC would require discounted Internet connectivity rates for schools and libraries, which would limit revenues without reducing related costs. The Company cannot predict the impact, if any, that future regulation or regulatory changes might have on its business. In addition, regulation of cable television rates may affect the speed at which the Cable Partners upgrade their cable infrastructures to two- way HFC. Currently, the Affiliated LCOs have generally elected to classify the distribution of the Company's services as "additional cable services" under their respective franchise agreements, and to pay franchise fees in accordance therewith. Local franchise authorities may attempt to subject the Affiliated LCOs to higher or other franchise fees or taxes or otherwise seek to require them to obtain additional franchises in connection with their distribution of the @Home services. There are thousands of franchise authorities in the United States alone, and thus it will be difficult or impossible for the Company, its Cable Partners or their Affiliated LCOs to operate under a unified set of franchise requirements. It is possible that governmental authorities may attempt to impose additional fees or regulations on Affiliated LCOs carrying the Company's services. In the event that the FCC or another governmental agency were to classify the cable system operators as "common carriers" of Internet services, or cable system operators were to seek such classification as a means of protecting themselves against liabilities, the Company's rights as the exclusive ISP over the systems of certain of the Cable Partners could be lost. In addition, if the Company, the Cable Partners or their Affiliated LCOs were classified as common carriers, they could be subject to government- regulated tariff schedules for the amounts they could charge for their services. Rogers and Shaw have informed the Company that, due to certain Canadian regulations, they are required to provide access to their respective networks to third-party ISPs, and that therefore the Company's services may not have exclusive access to such networks. To the extent the Company increases the number of foreign jurisdictions in which it offers its services, the Company will be subject to additional governmental regulation. 16 See "--Risks Associated with International Operations" and "Business-- Strategic Distribution Relationships--Strategic Relationships with Cable Partners." Potential Liability for Defamatory or Indecent Content. The law relating to liability of ISPs and OSPs for information carried on or disseminated through their networks is currently unsettled. A number of lawsuits have sought to impose such liability for defamatory speech and indecent materials. A recent federal statute seeks to impose such liability, in some circumstances, for transmission of obscene or indecent materials. In one case, a court has held that an OSP could be found liable for defamatory matter provided through its service, on the ground that the service provider exercised active editorial control over postings to its service. Other courts have held that ISPs and OSPs may, under certain circumstances, be subject to damages for copying or distributing copyrighted materials. The Telecommunications Act of 1996 prohibits, and imposes criminal penalties and civil liability for using, an interactive computer service for transmitting indecent or obscene communications. A number of states have adopted or are currently considering similar legislation. The anti-indecency provisions of the Telecommunications Act of 1996 have been declared unconstitutional by the United States District Courts for the Eastern District of Pennsylvania and the Southern District of New York, which have issued preliminary injunctions against their enforcement. The United States Supreme Court has heard oral arguments on the appeal of those decisions. The imposition upon ISPs or OSPs of potential liability for materials carried on or disseminated through their systems could require the Company to implement measures to reduce its exposure to such liability, which may require the expenditure of substantial resources or the discontinuation of certain product or service offerings. In addition, the imposition of liability on the Company for information carried on the @Network could have a material adverse effect on the Company's business, operating results and financial condition. Liability for Information Retrieved and Replicated. Because materials will be downloaded and redistributed by subscribers and cached or replicated by the Company in connection with the Company's offering of its services, there is a potential that claims may be made against the Company, the Cable Partners or their Affiliated LCOs under both United States and foreign law for defamation, negligence, copyright or trademark infringement, or other theories based on the nature and content of such materials. Such types of claims have been brought, and sometimes successfully pressed, against OSPs in the past. In particular, copyright and trademark laws are evolving both domestically and internationally, and there is uncertainty concerning how broadly the rights afforded under these laws will be applied to online environments. It is impossible for the Company to determine who all the potential rights holders may be with respect to all materials available through the Company's services. In addition, a number of third-party owners of patents have claimed to hold patents that cover various forms of online transactions or online technology. As with other OSPs, patent claims could be asserted against the Company based upon its services or technologies. Although the Company carries general liability insurance, the Company's insurance may not cover potential claims of the foregoing types, or may not be adequate to indemnify the Company for all liability that may be imposed. Any imposition of liability that is not covered by insurance or is in excess of insurance coverage could have a material adverse effect on the Company's business, operating results and financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Risks Associated with International Operations. A key component of the Company's strategy is expansion into international markets. To date, the Company has developed relationships only with United States and Canadian cable system operators. The Company has extremely limited experience in developing localized versions of its products and services and in developing relationships with international cable system operators. There can be no assurance that the Company will be successful in expanding its product and service offerings into other foreign markets. In addition to the uncertainty regarding the Company's ability to generate revenues from foreign operations and expand its international presence, there are certain risks inherent in doing business on an international level, such as regulatory requirements (including the regulation of Internet access), legal uncertainty regarding liability for information retrieved and replicated in foreign jurisdictions, export and import restrictions, tariffs and other trade barriers, difficulties in staffing and managing foreign operations, longer payment cycles, problems in collecting accounts receivable, political instability, fluctuations in currency 17 exchange rates, seasonal reductions in business activity during the summer months in Europe and certain other parts of the world and potentially adverse tax consequences, which could adversely affect the success of the Company's future international operations. There can be no assurance that one or more of such factors will not have a material adverse effect on the Company's future international operations and, consequently, on the Company's business, operating results and financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business-- Distribution, Marketing and Sales." Intellectual Property; Litigation. The Company regards its technology as proprietary and attempts to protect it with copyrights, trademarks, trade secret laws, restrictions on disclosure and other methods. In addition, the Company has filed one patent application and is in the process of preparing additional patent applications with respect to aspects of its high-bandwidth network technology and online advertising. There can be no assurance that any patent will issue from these applications or that, if issued, any claims allowed will be sufficiently broad to protect the Company's technology. In addition, there can be no assurance that any patents that may be issued will not be challenged, invalidated or circumvented, or that any rights granted thereunder would provide proprietary protection to the Company. Failure of any patents to provide protection to the Company's technology may make it easier for the Company's competitors to offer technology equivalent or superior to the Company's technology. The Company also generally enters into confidentiality or license agreements with its employees and consultants, and generally controls access to and distribution of its documentation and other proprietary information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use the Company's products, services or technology without authorization, or to develop similar technology independently. In addition, effective copyright, trademark and trade secret protection may be unavailable or limited in certain foreign countries, and the global nature of the Internet makes it virtually impossible to control the ultimate destination of the Company's content offerings. Policing unauthorized use of the Company's content offerings is difficult. There can be no assurance that the steps taken by the Company will prevent misappropriation or infringement of its technology. In addition, litigation may be necessary in the future to enforce the Company's intellectual property rights, to protect the Company's trade secrets or to determine the validity and scope of the proprietary rights of others. Such litigation could result in substantial costs and diversion of resources and could have a material adverse effect on the Company's business, operating results and financial condition. From time to time, the Company has received, and may receive in the future, notice of claims of infringement of other parties' proprietary rights, including claims for infringement resulting from the downloading of materials by the online or Internet services operated or facilitated by the Company. There can be no assurance that infringement or invalidity claims (or claims for indemnification resulting from infringement claims) will not be asserted or prosecuted against the Company or that any assertions or prosecutions will not materially adversely affect the Company's business, operating results and financial condition. Irrespective of the validity or the successful assertion of such claims, the Company would incur significant costs and diversion of management time and resources with respect to the defense thereof, which could have a material adverse effect on the Company's business, operating results and financial condition. If any claims or actions are asserted against the Company, the Company may seek to obtain a license under a third party's intellectual property rights. There can be no assurance, however, that under such circumstances a license would be available on commercially reasonable terms, or at all. See "Business--Intellectual Property." Ability of TCI to Transfer Control of the Company. Although each of the Principal Cable Stockholders has agreed not to transfer its shares until six years after the closing date of this offering (subject to certain exceptions), TCI has retained the ability to sell its controlling interest to a third party without providing an opportunity for the holders of Series A Common Stock purchased in this offering to participate in the sale. Comcast, Cox and KPCB have certain "tag along" rights to participate in such a control sale, which rights have not been provided to the purchasers of Series A Common Stock in this offering, and TCI has certain "drag along" rights to cause Comcast, Cox and KPCB to sell their shares in such a control sale. In addition, each Principal Cable Stockholder is permitted to make indirect transfers of up to 49.9% of its equity ownership in the Company by transferring equity interests in the subsidiary of the Principal Cable Stockholder that holds the 18 shares of the Company. Moreover, the Company has elected not to be subject to Section 203 of the Delaware General Corporation Law, which provides certain protections for minority stockholders in the event a person acquires a significant (15% or greater) interest in the Company other than in a transaction approved by the Board and in certain cases by the stockholders of the Company. Accordingly, majority control of the Company could be acquired with no assurance that stockholders other than the Principal Cable Stockholders and KPCB would receive the same amount and type of consideration for their stock in the Company. In addition, TCI's control of the voting stock of the Company may make the Company less attractive as a target for a takeover than it otherwise might be or render more difficult or discourage a merger proposal, a tender offer or a proxy contest, even if such actions were favored by the holders of Series A Common Stock. See "Certain Transactions" and "Description of Capital Stock." Certain Anti-Takeover Provisions. Upon completion of this offering, the Board will have the authority to issue up to 9,650,000 shares of Preferred Stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by the stockholders. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any Preferred Stock that may be issued in the future. The issuance of Preferred Stock, while providing flexibility in connection with possible financings or acquisitions or other corporate purposes, may have the effect of delaying, deferring or preventing a change in control of the Company, may discourage bids for the Company's Series A Common Stock at a premium over the market price of the Series A Common Stock and may adversely affect the market price of, and the voting and other rights of the holders of, the Common Stock. The Company has no current plans to issue shares of Preferred Stock. The Company's Certificate of Incorporation and indemnity agreements provide that the Company will indemnify officers and directors against losses that they may incur in investigations and legal proceedings resulting from their services to the Company. Such provisions may have the effect of preventing changes in the management of the Company. See "Description of Capital Stock." Shares Eligible for Future Sale. Sales of a substantial number of shares of Series A Common Stock in the public market following this offering could adversely affect the prevailing market price of the Company's Series A Common Stock. Following expiration of or earlier release from the 180-day lockup agreements with Morgan Stanley & Co. Incorporated, approximately 103,803,587 shares will become eligible for sale, subject in most cases to compliance with certain volume limitations. The remaining approximately shares held by existing stockholders will become eligible for sale on April 11, 1998. In addition, the Company intends to register on Form S-8, immediately following the effective date of this offering, a total of 1,749,423 shares of Series A Common Stock reserved for issuance under the Company's Purchase Plan and 1997 Equity Incentive Plan and a total of 919,250 shares subject to outstanding options granted under the 1996 Plans. The holders of approximately shares of Common Stock, some of which are currently outstanding and some of which are to be issued upon conversion of outstanding shares of Preferred Stock at the closing of this offering, are also entitled to certain rights with respect to registration of such shares of Common Stock for offer or sale to the public. If such holders, by exercising their registration rights, cause a large number of shares to be registered and sold in the public market, such sales could have a material adverse effect on the market price for the Company's Common Stock. See "Management--Employee Benefit Plans," "Description of Capital Stock--Registration Rights" and "Shares Eligible for Future Sale." Requirements for Additional Capital. The Company is investing significantly in the development of its network infrastructure and hiring new personnel rapidly in anticipation of potential growth in its business, which is still at a very early stage. The Company believes that the net proceeds from this offering, together with existing cash, cash equivalents, short-term cash investments and capital lease financing, will be sufficient to meet its working capital and capital expenditure requirements for at least the next 18 months. However, the Company may need to raise additional funds if its estimates of working capital and/or capital expenditure and/or lease financing requirements change or prove inaccurate or in order for the Company to respond to unforeseen technological or marketing hurdles or to take advantage of unanticipated opportunities. Over the longer term, it is likely that the Company will require substantial additional funds to continue to fund the Company's 19 infrastructure investment, product development, marketing, sales and customer support needs. There can be no assurance that any such funds will be available at the time or times needed, or available on terms acceptable to the Company. If adequate funds are not available, or are not available on acceptable terms, the Company may not be able to continue its network implementation, to develop new products and services or otherwise to respond to competitive pressures. Such inability could have a material adverse effect on the Company's business, operating results and financial condition. The Principal Cable Stockholders have the preemptive right, subject to certain restrictions, to purchase a pro rata portion of any new securities offered by the Company other than securities issued pursuant to a public offering, securities issued pursuant to any incentive plan or agreement for the benefit of the Company's employees, directors or consultants, securities issued by the Company in connection with an acquisition, and securities issued in exchange for interests in a joint venture or other business combination. The existence of this right could adversely affect the Company's ability to raise required capital on a timely basis. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." No Prior Trading Market; Possible Volatility of Stock Price. Prior to this offering, there has been no public market for the Common Stock of the Company, and there can be no assurance that an active trading market will develop or, if one does develop, that it will be maintained. The initial public offering price, which will be established by negotiations between the Company and the representatives of the Underwriters based upon a number of factors, may not be indicative of prices that will prevail in the trading market. See "Underwriters" for a discussion of the factors to be considered in determining the initial public offering price. The stock market has from time to time experienced significant price and volume fluctuations. In addition, the market price of the shares of the Company's Series A Common Stock, similar to that of other Internet companies, is likely to be highly volatile. Factors such as fluctuations in the Company's operating results, announcements of technological innovations or new products by the Company or its competitors, regulatory actions, and general market conditions may have a significant effect on the market price of the Company's Series A Common Stock. Immediate and Substantial Dilution. Investors participating in this offering will incur immediate, substantial dilution in the amount of $ . To the extent that options to purchase the Company's Series A Common Stock are exercised, there will be further substantial dilution. See "Dilution." 20 USE OF PROCEEDS The net proceeds to the Company from the sale of the shares of Series A Common Stock offered hereby are estimated to be approximately $ million (approximately $ million if the U.S. Underwriters' over-allotment option is exercised in full), at an assumed initial public offering price of $ per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses. The Company intends to use the net proceeds for general corporate purposes, including working capital and capital expenditures. A portion of the net proceeds may also be used to acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies. The Company has no current plans, agreements or commitments with respect to any acquisition, and the Company is not currently engaged in any negotiations with respect to any such transaction. Pending such uses, the net proceeds of this offering will be invested in short-term, interest-bearing, investment grade securities. DIVIDEND POLICY The Company has never declared or paid any cash dividends on its capital stock and does not anticipate paying any cash dividends on its capital stock in the foreseeable future. 21 CAPITALIZATION The following table sets forth, as of March 31, 1997, (i) the actual short- term debt and capitalization of the Company, (ii) the pro forma short-term debt and capitalization of the Company giving effect to the gross proceeds from the sale of the 240,000 shares of the Company's Series C Preferred Stock (which were issued on April 11, 1997), as if outstanding on March 31, 1997, and to the conversion of all outstanding shares of Preferred Stock into shares of Common Stock, which will occur upon the closing of this offering and (iii) the pro forma short-term debt and capitalization of the Company as adjusted to give effect to the sale of the shares of Series A Common Stock offered hereby, at an assumed initial public offering price of $ and after deducting estimated underwriting discounts and commissions and estimated offering expenses.
MARCH 31, 1997 -------------------------------- ACTUAL PRO FORMA AS ADJUSTED -------- --------- ----------- (IN THOUSANDS) Current portion of capital lease obligations(1)................................ $ 4,766 $ 4,766 $ 4,766 ======== ======== ======== Capital lease obligations, less current portion, and other long-term liabilities(1)... $ 8,085 $ 8,085 $ 8,085 -------- -------- -------- Stockholders' equity: Convertible preferred stock, $.01 par value; 14,522,613 shares authorized, 4,522,613 shares issued and outstanding actual; 10,000,000 shares authorized, no shares issued and outstanding pro forma and as adjusted(2).................................. 44,993 -- -- Common stock, $.01 par value; 180,277,660 shares authorized, 13,351,327 shares issued and outstanding actual; shares authorized, shares issued and outstanding pro forma, 230,277,660 shares authorized, shares issued and outstanding as adjusted(2)................... 6,212 99,205 Notes receivable from stockholders............ (515) (515) (515) Deferred compensation......................... (4,850) (4,850) (4,850) Accumulated deficit........................... (38,170) (38,170) (38,170) -------- -------- -------- Total stockholders' equity................. 7,670 55,670 -------- -------- -------- Total capitalization..................... $ 15,755 $ 63,755 $ ======== ======== ========
- -------- (1) See Notes 4 and 5 of Notes to Consolidated Financial Statements. (2) Excludes (i) 919,250 shares of Series A Common Stock issuable at a weighted average exercise price of $.21 per share upon exercise of stock options outstanding as of March 31, 1997 under the First 1996 Plan and the Second 1996 Plan, (ii) 1,349,423 additional shares of Series A Common Stock reserved for future issuance under the 1997 Equity Incentive Plan, (iii) 400,000 shares of Series A Common Stock reserved for future issuance under the Purchase Plan and (iv) 200,000 shares of Series A Common Stock issuable upon exercise of outstanding warrants. Subsequent to March 31, 1997, the Company (i) issued and sold 240,000 shares of its Series C Preferred Stock at a price of $200 per share, which will convert upon the closing of this offering into shares of Series A Common Stock, (ii) issued warrants to purchase, commencing December 31, 1997, 100,000 shares of its Series C Preferred Stock at a price of $200 per share, which will convert upon the closing of this offering into warrants to purchase 2,000,000 shares of Series A Common Stock at a purchase price of $ per share and (iii) granted options to purchase 183,000 shares of Series A Common Stock under the 1996 Plans with an exercise price of $1.00 per share. See "Management--Employee Benefit Plans," "Description of Capital Stock" and Notes 5 and 10 of Notes to Consolidated Financial Statements. 22 DILUTION The pro forma net tangible book value of the Company as of March 31, 1997 was approximately $55,670,000, or $ per share of Common Stock. "Pro forma net tangible book value per share" represents the amount of total tangible assets less total liabilities, divided by the number of shares of Common Stock then outstanding (giving pro forma effect to the gross proceeds of the sale of 240,000 shares of the Company's Series C Preferred Stock, as if issued on or prior to March 31, 1997 and the conversion of all then-outstanding shares of Preferred Stock into shares of Common Stock). After giving effect to the sale of the shares of Series A Common Stock offered hereby (at an assumed initial public offering price of $ per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses), the Company's pro forma net tangible book value as of March 31, 1997 would have been $ , or $ per share of Common Stock. This represents an immediate increase in pro forma net tangible book value of $ per share to existing stockholders and an immediate dilution of $ per share to new public investors. The following table illustrates this per share dilution: Assumed initial public offering price per share....................... $ Pro forma net tangible book value per share at March 31, 1997........ $ Increase in pro forma net tangible book value per share attributable to new investors.................................................... --- Pro forma net tangible book value per share after offering............ ---- Dilution per share to new public investors............................ $ ====
The following table summarizes, as of March 31, 1997, on the pro forma basis described above, the difference between the number of shares of Common Stock purchased from the Company, the total consideration paid and the average price per share paid by the existing stockholders and by new public investors purchasing shares of Series A Common Stock in this offering (at an assumed initial public offering price of $ per share and before deducting estimated underwriting discounts and commissions and estimated offering expenses):
SHARES PURCHASED TOTAL CONSIDERATION ------------------- ------------------- AVERAGE NUMBER PERCENT AMOUNT PERCENT PRICE PER SHARE ----------- ------- ----------- ------- --------------- Existing stockholders (Series A, Series B and Series K Common Stock)(1).............. % $94,408,643 % $ New public investors (Series A Common Stock)(2).............. ----------- ----- ----------- ----- Total................. 100.0% $ 100.0% =========== ===== =========== =====
- -------- (1) After conversion of Preferred Stock in connection with this offering. (2) The foregoing computations assume no exercise of stock options outstanding as of March 31, 1997. As of March 31, 1997, there were options outstanding to purchase a total of 919,250 shares of Series A Common Stock at a weighted average exercise price of $.21 per share and warrants to purchase 200,000 shares of Series A Common Stock at an exercise price of $15 per share. To the extent that any of these options are exercised, there will be further dilution to new public investors. Subsequent to March 31, 1997, the Company (i) issued warrants to purchase, commencing December 31, 1997, 100,000 shares of its Series C Preferred Stock at a price of $200 per share and (ii) granted options to purchase 183,000 shares of Series A Common Stock under the 1996 Plans with an exercise price of $1.00 per share. See "Capitalization," "Management--Employee Benefit Plans" and Notes 5 and 10 of Notes to Consolidated Financial Statements. 23 SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data is qualified by reference, and should be read in conjunction with, the Company's Consolidated Financial Statements and the notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Prospectus. The selected consolidated statement of operations data presented below for the period from March 28, 1995 (inception) to December 31, 1995 and the year ended December 31, 1996, respectively, and the selected consolidated balance sheet data as of December 31, 1995 and 1996, are derived from consolidated financial statements of the Company that have been audited by Ernst & Young LLP, independent auditors, and are included elsewhere in this Prospectus. The selected consolidated statement of operations data for the three months ended March 31, 1996 and 1997 and the selected consolidated balance sheet data as of March 31, 1997 are derived from unaudited consolidated financial statements included elsewhere in this Prospectus that have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company's consolidated operating results for such periods and its financial condition as of such date. The operating results for the three months ended March 31, 1997 are not necessarily indicative of the results to be expected for any other interim period or any future fiscal year.
PERIOD FROM MARCH 28, 1995 (INCEPTION) THREE MONTHS TO YEAR ENDED ENDED MARCH 31, DECEMBER 31, DECEMBER 31, ----------------- 1995 1996 1996 1997 -------------- ------------ ------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues....................... $ -- $ 676 $ -- $ 806 Costs and expenses: Operating..................... -- 6,969 679 4,325 Product development and engineering.................. 1,447 6,312 1,286 2,330 Sales and marketing........... 496 6,368 831 2,934 General and administrative.... 943 6,054 998 2,158 ------- -------- ------- -------- Total costs and expenses....... 2,886 25,703 3,794 11,747 ------- -------- ------- -------- Loss from operations........... (2,886) (25,027) (3,794) (10,941) Interest income, net........... 130 514 84 40 ------- -------- ------- -------- Net loss....................... $(2,756) $(24,513) $(3,710) $(10,901) ======= ======== ======= ======== Pro forma net loss per share(1)...................... $ $ ======== ======== Pro forma shares used in per share calculations(1)......... ======== ========
DECEMBER 31, -------------- MARCH 31, 1995 1996 1997 ------ ------- --------- CONSOLIDATED BALANCE SHEET DATA: Cash, cash equivalents and short-term cash investments......................................... $6,907 $16,770 $ 6,427 Working capital (deficit)............................ 6,244 10,573 (2,335) Total assets......................................... 8,124 33,388 26,878 Capital lease obligations, less current portion, and other long-term liabilities......................... -- 7,329 8,085 Stockholders' equity................................. 7,212 18,317 7,670
- -------- (1) For an explanation of the determination of the number of pro forma shares used in per share calculations, see Note 1 of Notes to Consolidated Financial Statements. 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto included elsewhere in this Prospectus. The following discussion contains forward-looking statements. The Company's actual results may differ significantly from those projected in the forward- looking statements. Factors that might cause future actual results to differ materially from the Company's recent results or those projected in the forward-looking statements include, but are not limited to, those discussed in "Risk Factors," "Business" and below. The Company assumes no obligation to update the forward-looking statements or such factors. OVERVIEW The Company is a leading provider of Internet services to consumers and businesses over the cable television infrastructure. The Company was founded in March 1995 on the premise that the cable infrastructure would enable the fastest, most cost-effective delivery mechanism for Internet services. To overcome fundamental architectural limitations of the Internet, the Company has been developing and deploying the @Network, a scalable, distributed network that links its private high-speed nationwide backbone to HFC cable systems. To date, the Company has expended more than $57.7 million on capital expenditures and operating costs and expenses (including deferred compensation) to design and build the @Network and the corporate infrastructure necessary to support the rollout of the @Home and @Work services. As of March 31, 1997, the Company had developed a nationwide backbone, designed and implemented a Network Operations Center with end-to-end management capabilities, deployed regional data centers in 12 geographic areas, implemented an integrated customer management system including billing and support, implemented a customized browser and aggregated the initial multimedia content required to deliver the @Home service to subscribers. The Company's primary offering, the @Home service, allows subscribers to connect their personal computers via cable modems to the Company's new high- speed "parallel Internet." The Company has agreements with seven leading North American cable companies, which have granted the Company the right to distribute high-bandwidth residential consumer Internet services over their cable systems. The @Home service, which currently includes use of a cable modem, is presently offered by TCI, Comcast and Cox to consumers in portions of 12 cities and communities (of which 10 have revenue-paying subscribers) in the United States for a flat monthly fee generally ranging from $35 to $55, although its Cable Partners have the right to alter such fees. Under the current arrangements with its Cable Partners in the United States, the Company receives 35% of such monthly fees, although this percentage is subject to change by the Cable Partners. See "Risk Factors--Dependence on Cable Partners for Distribution; Potential Conflicts of Interest with Principal Cable Stockholders." As of May 15, 1997, the Company had approximately 5,000 subscribers. In the second half of 1997, the Company plans to integrate its @Home service with the Wave interactive service currently provided by Rogers and Shaw in Canada to approximately 5,000 subscribers. The Company anticipates that the subscriber pricing and revenue or royalty splits with cable system operators in Canada and other international markets will differ from those prevailing in the United States based on differences in services and content provided by the Company and the cable system operators. For businesses, @Work services provide a platform for Internet, intranet and extranet connectivity solutions and networked business applications over both cable infrastructure and leased digital telecommunications lines. In order to accelerate deployment of @Work services into major metropolitan areas, the Company has established a strategic relationship with TCG, the country's largest CLEC, to provide co-location facilities and local telephone circuits for infrastructure and subscriber connectivity. The @Work Internet service is currently available in five metropolitan markets: Chicago, Hartford, San Diego, the San Francisco Bay Area and Seattle. The @Work Internet service offers dedicated high-speed Internet access options, which are priced competitively to existing alternatives. The Company currently receives 100% of installation and monthly access fees for these services. Businesses that are passed by two-way HFC cable capable of delivering the @Home service also can connect to the @Work Internet service. Under the revenue and cost arrangements currently contemplated with 25 its U.S. Cable Partners for such HFC connectivity, the Company's revenue generally will depend on the services provided by the respective parties. As of May 15, 1997, the Company was receiving revenues from five customers and had agreements with more than 50 additional business customers to begin to install service. Substantially all of these agreements are for services over telecommunications lines. The Company expects to generate substantially all of its revenues through 1998 from monthly fees from subscribers to the @Home service and the @Work Internet service and from customer services provided to the Cable Partners. The Company believes that a growing subscriber base will generate @Media division advertising revenues, as well as revenues from premium services and transaction processing. The Company has incurred substantial net losses in each fiscal period since its inception and, as of March 31, 1997, had an accumulated deficit of $38.2 million (including deferred compensation). The Company currently intends to increase its capital expenditures and marketing and sales expenditures in order to expand its network to support additional expected subscribers in existing and future markets and to provide the Company's services to a growing number of potential subscribers. As a result, the Company expects to incur additional substantial net losses for the foreseeable future. The Company is in the early stages of executing its business model, and the profit potential of the Company's subscription-based business model is unproven in the Internet industry. Because its success is dependent on the growth of the Internet into a mass market, the Company must, among other things, develop and market products and services that are widely accepted by consumers and businesses at prices that will yield a profit. There can be no assurance that the Company's services will achieve broad consumer or commercial acceptance. See "Risk Factors--Short Operating History; History of Losses; Unproven Business Model; No Assurance of Profitability." The Company's ability to generate future revenues will be dependent on a number of factors, many of which are beyond the Company's control, including, among others, the rate at which its Cable Partners upgrade their cable infrastructures, the success of the Affiliated LCOs in marketing the @Home service to subscribers in their local cable areas and the prices that the Affiliated LCOs set for the @Home service. Because of the foregoing factors, among others, the Company is unable to forecast its revenues with any degree of accuracy. In addition, the Company currently intends to increase its capital expenditures and operating expenses in order to expand its network and customer services to support additional expected subscribers in current and future markets and to market and provide the Company's services to a growing number of potential subscribers. To the extent that such expenses are not accompanied or followed by increased revenues, the Company's business, operating results and financial condition will be materially adversely affected. Accordingly, there can also be no assurance that the Company will ever achieve profitability. See "Risk Factors." As described above, the Company did not commence operations until mid-1995. In late 1996, the Company began generating its first revenues. Because of the Company's significantly different levels of operations during 1995 and 1996, year-to-year comparisons and a comparison of the first quarter of 1997 to the same period in 1996 are not meaningful. The following discussion summarizes the Company's quarterly results of operations in 1996 and the first quarter of 1997. 26 QUARTERLY RESULTS OF OPERATIONS The following table sets forth certain consolidated statement of operations data for the Company's five most recent quarters. This information has been derived from the Company's unaudited consolidated financial statements. In management's opinion, this unaudited information has been prepared on the same basis as the annual consolidated financial statements and includes all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the information for the quarters presented. This information should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Prospectus. The operating results for any quarter are not necessarily indicative of results for any future period.
THREE MONTHS ENDED ------------------------------------------------- MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, 1996 1996 1996 1996 1997 --------- -------- --------- -------- --------- (IN THOUSANDS) Revenues....................... $ -- $ -- $ 141 $ 535 $ 806 Costs and expenses: Operating costs............... 679 1,102 1,968 3,220 4,325 Product development and engineering.................. 1,286 1,520 1,918 1,588 2,330 Sales and marketing........... 831 1,289 1,855 2,393 2,934 General and administrative.... 998 737 1,858 2,461 2,158 ------- ------- ------- ------- -------- Total costs and expenses....... 3,794 4,648 7,599 9,662 11,747 ------- ------- ------- ------- -------- Loss from operations........... (3,794) (4,648) (7,458) (9,127) (10,941) Interest income, net........... 84 79 212 139 40 ------- ------- ------- ------- -------- Net loss....................... $(3,710) $(4,569) $(7,246) $(8,988) $(10,901) ======= ======= ======= ======= ========
REVENUES Revenues consist of monthly subscription fees and fees for customer support activities for cable system operators, both of which are recognized during the period in which services are provided. The Company began recognizing revenues in September 1996. Total revenues were $676,000 and $806,000 for the year ended December 31, 1996 and the quarter ended March 31, 1997, respectively. Substantially all of the revenues to date have been derived from customer services provided to TCI and Comcast. Revenues from related parties (the Principal Cable Stockholders) represented 94% of revenues for the year ended December 31, 1996 and 86% of revenues in the three months ended March 31, 1997. COSTS AND EXPENSES Quarterly expenses for the Company increased sequentially during 1996 and the first quarter of 1997 as a result of increased business activities, initially related to the build-out and testing of the @Network and more recently attributable to subscriber growth for the @Home service commencing in the third quarter of 1996. As the @Home service has been initiated in additional geographic areas, increases in marketing and customer service activities, increased personnel and the additional support of the @Network have contributed to increases in expenses. The Company believes continued expansion of operations as well as its network infrastructure is critical to the achievement of its goals and anticipates that costs and expenses will continue to increase in each quarter for the foreseeable future. Operating Costs. Operating costs are primarily related to providing services to customers and maintaining the @Network infrastructure. These costs include salaries and related expenses for operating and customer service personnel, telecommunications transport costs, content programming and the depreciation, amortization and maintenance of capital equipment. Operating costs for the four quarters of 1996 and the first quarter of 1997 were $679,000, $1.1 million, $2.0 million, $3.2 million and $4.3 million, respectively. Increases in the second and third quarters of 1996 were primarily attributable to increased expenditures to establish the Company's 27 customer operations department as well as the development of additional content programming resources. Increases in the fourth quarter of 1996 and the first quarter of 1997 were principally attributable to additional transport costs to support the rollout of the @Network to additional sites, maintenance and depreciation of capital equipment, increased customer operations expenditures to support the subscriber base and additional expenses for content programming. Operating costs increased from $0 for the period from March 28, 1995 (inception) to December 31, 1995 (the "Inception Period") to $7.0 million for the year ended December 31, 1996. Product Development and Engineering. Product development and engineering expenses consist primarily of salaries and related expenses for personnel, fees to outside contractors and consultants, the allocated cost of facilities, and the depreciation and amortization of capital equipment. Product development and engineering expenses for the four quarters of 1996 and the first quarter of 1997 were $1.3 million, $1.5 million, $1.9 million, $1.6 million and $2.3 million, respectively. The sequential increase in expenses for the first three quarters of 1996 was due primarily to additional personnel costs to support the expansion, development and testing of the @Network. The decrease in expenses in the fourth quarter of 1996 from the previous quarter was due to a reduction in certain royalty payments. The increase in expenses in the first quarter of 1997 over the fourth quarter of 1996 is principally attributable to the increase in personnel and related expenses. Product development and engineering expenses are primarily due to three areas: the design, testing and deployment of the @Network, the development of software tools and enabling platforms for the creation and distribution of enhanced content and applications specifically designed to take advantage of the @Network and the development of @Work services. Product development and engineering costs have been expensed as incurred. Product development and engineering expenses increased from $1.4 million for the Inception Period to $6.3 million for the year ended December 31, 1996. Sales and Marketing. Sales and marketing expenses consist primarily of salaries, commissions and promotional expenses. Sales and marketing expenses for the four quarters of 1996 and the first quarter of 1997 were $831,000, $1.3 million, $1.9 million, $2.4 million and $2.9 million, respectively. The sequential increase in expenses was the result of increased sales and marketing activities to support the expansion of regional deployments of the @Home and @Work services. Sales and marketing expenses have increased primarily due to the expansion of the Company's sales force, related travel and entertainment expenses, expenditures for trade shows and increased marketing activities to attract additional cable partners, subscribers and corporate accounts. The Company and the Cable Partners both market the Company's services to prospective customers and determine the specific costs and expenses to be borne by each party. The Company bears the cost of national sales and marketing programs (such as public relations, distribution, database marketing and acquisition programs); retail distribution; joint Company/Cable Partner market research; and retention and loyalty programs. Expenditures typically borne by the Cable Partners include local sales and marketing programs such as public relations, events and acquisition programs; demonstration sites; market specific research; and cross-cable services database marketing and bundling with core cable programs. Sales and marketing expenses increased from $496,000 for the Inception Period to $6.4 million for the year ended December 31, 1996. General and Administrative. General and administrative expenses consist primarily of administrative and executive personnel costs, fees for professional services and the costs of in-house systems and infrastructure to support the operations of the Company. General and administrative expenses for the four quarters of 1996 and the first quarter of 1997 were $998,000, $737,000, $1.9 million, $2.5 million and $2.2 million, respectively. The quarterly increases beginning with the second quarter of 1996 were primarily related to additions of personnel to support the operations of the Company and their related costs. The increase in general and administrative expenses in the third and fourth quarters of 1996 relates primarily to stock compensation charges resulting from stock options and restricted stock purchase agreements. General and administrative expenses increased from $943,000 for the Inception Period to $6.1 million for the year ended December 31, 1996. INTEREST INCOME, NET Interest income, net was $84,000, $79,000, $212,000, $139,000 and $40,000 for the four quarters of 1996 and the first quarter of 1997, respectively. Interest income, net was $130,000 and $514,000 for the Inception 28 Period and the year ended December 31, 1996, respectively. Interest income, net represents interest earned by the Company on its cash and short-term cash investments, less interest expense on capital lease obligations. INCOME TAXES At December 31, 1996, the Company had net operating loss and research and development tax credit carryforwards for federal and state tax purposes of $16.0 million and $120,000, respectively, which will expire at various times through the year 2011 if not utilized. Certain changes in the ownership of the Company, as defined in the Tax Reform Act of 1986 and similar state provisions, may restrict the utilization of such carryforwards. At December 31, 1996, the Company had net deferred tax assets of $11.0 million relating principally to the net operating loss and research and development credit carryforwards. Realization of deferred tax assets is dependent on future earnings, if any, the timing and amount of which are uncertain. A valuation allowance has been recorded for the entire net deferred tax asset as a result of uncertainties regarding the realization of the asset due to the lack of earnings history of the Company. Accordingly, the Company has not recorded any income tax benefit for net losses incurred for any period from inception through March 31, 1997. See Note 6 of Notes to Consolidated Financial Statements. NET LOSS The Company's net loss was $3.7 million, $4.6 million, $7.2 million, $9.0 million and $11.0 million for the four quarters of 1996 and the first quarter of 1997. The net loss increased to $24.5 million for 1996 from $2.8 million for the Inception Period. The increase in loss was due primarily to increases in expenses as a result of increased business activities. FACTORS AFFECTING OPERATING RESULTS The Company's revenue is difficult to forecast in part because the market for high-bandwidth Internet service is rapidly evolving. The Company's quarterly operating results may fluctuate significantly in the future as a result of a variety of factors, many of which are outside the Company's control. Factors that may affect the Company's quarterly operating results attributable to its @Home service include the timing of Cable Partners' upgrades of their cable infrastructures and rollouts of the @Home service, the rate at which customers subscribe to the Company's Internet services and the prices subscribers pay for such services, subscriber churn rates, changes in the revenue splits between the Company and the Cable Partners, the demand for Internet advertising, the effectiveness of Affiliated LCOs' marketing and other operations, and potential competition with Affiliated LCOs for advertising revenue. Quarterly operating results attributable to the Company's @Work services are dependent on the demand for, and level of acceptance of, the Company's corporate Internet, intranet and extranet connectivity and telecommuting solutions, the introduction of, demand for, and level of acceptance of, the Company's value-added business applications and the timing of Cable Partners' upgrades of their cable infrastructures and rollouts of the @Home service. Additional factors that may affect the Company's quarterly operating results generally include the amount and timing of capital expenditures and other costs relating to the expansion of the Company's network, the introduction of new Internet and telecommuting services by the Company or its competitors, price competition or pricing changes in the Internet, cable and telecommunications industries, technical difficulties or network downtime, general economic conditions and economic conditions specific to the Internet, corporate intranet and cable industries. The Company operates with very little backlog, and quarterly sales and operating results are difficult to forecast even in the short term. There can be delays in the commencement and recognition of revenue because the installation of telecommunication lines to implement certain services have lead times that are controlled by third parties. A significant portion of the Company's expenses are fixed in advance based in large part on future revenue forecasts. If revenue is below expectations in any given quarter, the adverse impact of the shortfall on the Company's operating results may be magnified by the Company's inability to adjust spending to compensate for the shortfall. Therefore, a shortfall in actual as compared to estimated revenue would have an immediate adverse effect on the Company's business, financial condition and operating results that could be material. In addition, the Company plans to increase operating expenses to fund additional research and development, sales and marketing, general and administrative activities 29 and infrastructure. To the extent that these expenses are not accompanied by an increase in revenues, the Company's business, operating results and financial condition could be materially adversely affected. Due to all of the foregoing factors, it is likely that the Company's operating results in one or more future quarters will fail to meet or exceed the expectations of securities analysts or investors. In such event, the trading price of the Series A Common Stock would likely be materially adversely affected. LIQUIDITY AND CAPITAL RESOURCES Since inception, the Company has financed its operations primarily through a combination of private sales of equity securities and capital equipment leases. At March 31, 1997, the principal source of liquidity for the Company was $6.4 million of cash, cash equivalents and short-term cash investments. In April 1997, the Company raised approximately $48.0 million, less issuance costs, from the sale of convertible preferred stock. The Company finances and expects to continue financing its substantial capital equipment expenditures from a variety of sources including direct vendor leasing programs and third party commercial leasing arrangements. The Company has had significant negative cash flows from operating activities in each quarterly period to date. Cash used in operating activities for the Inception period, the year ended December 31, 1996 and the quarter ended March 31, 1997 was $2.1 million, $19.3 million and $8.3 million, respectively. Cash used in operating activities in each of these periods was primarily the result of net losses. Cash used in investing activities for the Inception period and for the year ended December 31, 1996 was $1.0 million and $14.3 million, respectively. Cash used for investing activities in these periods was primarily the result of capital expenditures for equipment, software, furniture and fixtures as well as purchases of net short-term cash investments. For the quarter ended March 31, 1997, cash provided by investing activities was $3.4 million, resulting primarily from sales and maturities of short-term cash investments, partially offset by capital expenditures. Gross capital expenditures for equipment, software, furniture and fixtures in the Inception period, the year ended December 31, 1996 and the quarter ended March 31, 1997 were $963,000, $15.2 million and $4.5 million, respectively, of which $0, $7.9 million and $3.1 million, respectively, were financed through capital leases. The Company expects to expend a minimum of $30.0 million in leasehold improvements, equipment, software and fixtures through the remainder of 1997, much of which will be financed through capital leases. Cash provided by financing activities for the Inception period and the year ended December 31, 1996, was $10.0 million and $36.5 million, respectively, resulting primarily from net proceeds from the sale of Preferred Stock. Cash used in financing activities for the quarter ended March 31, 1997 was $688,000 resulting primarily from payments on capital lease obligations. The Company believes that the net proceeds from this offering, together with existing cash, cash equivalents, short-term cash investments and capital lease financing, will be sufficient to meet its working capital and capital expenditure requirements for at least the next 18 months. Thereafter, if cash generated by operations is insufficient to satisfy the Company's liquidity requirements, the Company may need to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity or convertible debt securities may result in additional dilution to the Company's stockholders. There can be no assurance that the Company will be able to raise any such capital on terms acceptable to the Company or at all. 30 BUSINESS The Company is a leading provider of Internet services over the cable television infrastructure to consumers and businesses. The Company's primary offering, the @Home service, allows subscribers to connect their personal computers via cable modems to a new high-speed "parallel Internet" developed and managed by the Company. This service enables subscribers to receive the "@Home Experience," which includes Internet service at a peak data transmission speed over 300 times faster than typical dial-up connections, "always on" availability and rich multimedia programming through an intuitive graphical user interface. The technology foundation of the @Home Experience is the "@Network," which optimizes traffic routing, ensures security and consistency of service, and facilitates end-to-end network management in order to enhance its ability to address performance bottlenecks before they affect the user experience. The content foundation of the @Home Experience is provided by the Company's @Media division, which aggregates content, sells advertising to businesses and will provide premium services to @Home subscribers. The Company has entered into distribution arrangements for the @Home service with TCI, Comcast, Cox, Rogers, Shaw, Marcus and Intermedia (collectively, together with their affiliates, the "Cable Partners"), whose cable systems pass approximately 44 million homes in North America and who have been upgrading these systems to hybrid fiber coaxial cable. The Company has launched its service through TCI, Comcast and Cox in portions of 12 cities and communities (of which 10 have revenue-paying subscribers) in the United States. To expand distribution, the Company is aggressively seeking to work with additional United States and international cable system operators. In order to shorten time to market for cable operators, the Company provides a turnkey solution, which includes not only a technology platform, but also marketing, customer service, billing and a national brand. According to Paul Kagan Associates, Inc., cable is available to 97% of the homes in the United States, and, according to Baskerville Communications, there will be approximately 203 million homes passed in Europe and the Asia Pacific region in the year 2000. For businesses, @Work services provide a platform for Internet, intranet and extranet connectivity solutions and networked business applications over both cable infrastructure and leased digital telecommunications lines. In order to accelerate deployment of the @Work services into major metropolitan areas, the Company has established a strategic relationship with TCG, the country's largest competitive local exchange carrier, to provide co-location facilities and local telephone circuits for infrastructure and subscriber connectivity. By combining @Network's distributed architecture with cable, telephone and technology relationships, the @Work services provide a compelling platform for nationwide delivery of network-based business applications. The Company has developed this platform at a low incremental cost by leveraging its existing @Network investment. Forrester Research projects that United States commercial Internet access revenues will climb from $595 million in 1996 to $10.4 billion in 2000. The Company was founded in March 1995 on the premise that the cable infrastructure would enable the fastest, most cost-effective delivery mechanism for residential Internet services but the actual speed of these services would ultimately be limited by the fundamental architecture of the Internet. As a result, the Company assembled a team of industry experts to develop an advanced network architecture and the custom hardware and software products that would address these limitations. Prior to launching the @Home service in September 1996, the Company implemented a nationwide backbone, designed and built its Network Operations Center with 24X7 end-to-end management capabilities, deployed regional data centers and headend equipment, implemented an integrated customer management system including billing and support, implemented a customized browser and aggregated the multimedia content required to deliver the @Home Experience to its first subscribers. INDUSTRY BACKGROUND GROWTH OF INTERNET USAGE AND CONTENT The Internet, a network of hundreds of interconnected, separately- administered public and commercial networks, has emerged as a global communications medium enabling millions of people to share information and conduct business electronically. During the past few years, the number of Internet users, advertisers and 31 content developers and businesses online has grown dramatically. With readily- available, low-cost Internet access, consumers and businesses are making increased use of Web browsers, electronic mail, corporate intranets, telecommuting, online advertising and electronic commerce. According to Jupiter Communications, the number of Internet households worldwide will grow from an estimated 23.4 million in 1996 to 66.6 million by 2000. The Company believes that this growth in the number of users will drive more dramatic growth in both Internet advertising, which International Data Corporation ("IDC") estimates will grow from $181 million in 1996 to $2.9 billion in 2000, and Internet commerce, which IDC estimates will grow from $318 million in 1995 to $95 billion in 2000. Internet usage continues to be stimulated by a number of factors, including the emergence of the World Wide Web, the increasing sophistication of Internet browsers and Web-enabled software, the availability of low-cost, flat-rate pricing for Internet access and online services, and the wealth of increasingly-useful information published on the Internet. Increased Internet use and the availability of powerful new tools for the development and distribution of Internet content have led to a proliferation of Internet-based services, such as advertising, online magazines, specialized news feeds, interactive games and educational and entertainment applications, that are increasingly incorporating multimedia information such as video and near-CD- quality audio clips. The Internet has the potential to become a platform through which consumers and businesses easily access rich multimedia information and entertainment, creating new sources of revenue for advertisers, content providers and businesses. The growth of Internet advertising and commerce depends, in part, on the ability of advertisers and online merchants to deliver a compelling multimedia message to attract viewers and potential customers. However, multimedia content and other data-intensive applications require high bandwidth. LIMITATIONS OF INTERNET ARCHITECTURE AND BANDWIDTH The potential of the Internet as a medium for communication, education, entertainment and commerce remains unfulfilled due to problems with its performance and reliability. The Internet's performance limitations stem from its basic architecture, which is not optimized for distribution of data- intensive multimedia content. A limitation associated with any element in the system, whether it is the "last-mile" connection to the user (the "local loop"), the infrastructure of the ISP or OSP, the Internet backbone or the content provider's Web server, can result in performance bottlenecks that slow data transmission speed to that of the weakest link. For example, the Internet frequently becomes overloaded when transmitting the same data streams from popular Web site servers to millions of individual users. In addition, dial-up users frequently encounter busy signals upon attempting to connect to their ISP/OSPs and are unable to readily access quality multimedia content due to the slow speed of their analog modems. Because the Internet is an interconnection of independently operated networks, there is no single point of accountability or management to respond to performance problems or to ensure optimized Internet traffic routing, security or consistency of service. Therefore, no single ISP/OSP offers an end-to-end solution to Internet bottlenecks. Performance limitations of the Internet frustrate and discourage users from fully utilizing it as a convenient and effective information tool, a compelling educational and entertainment resource, or a way to purchase goods and services. TECHNOLOGIES TO INCREASE INTERNET BANDWIDTH Several new technologies attempt to address the performance problems of the Internet. While these technologies increase the transmission speed of data across the local loop, they do not provide an end-to-end solution to the fundamental performance constraints inherent in the Internet architecture. Improved Modem Offerings. In early 1997, dial-up modems offering peak data transmission speeds of 56 Kbps were introduced for use with ISP/OSPs over existing telephone lines, although many ISP/OSPs do not yet support this transmission speed. The lack of a universal standard has slowed the rate of adoption of faster modems. Telecommunications-Based Offerings. Integrated Services Digital Network ("ISDN") technology enables peak data transmission speeds of 128 Kbps between the user and the ISP/OSP over specially conditioned 32 telephone lines. Although ISDN technology has been available for several years, it has not been widely deployed due primarily to its high costs. Asymmetric Digital Subscriber Line ("ADSL") is currently the most prominent implementation of Digital Subscriber Line ("xDSL") technology, an emerging telecommunications protocol originally developed to deliver video on demand. ADSL enables peak data transmission speeds of 8.4 Mbps downstream from the ISP/OSP to the user and 640 Kbps upstream from the user to the ISP/OSP; however, typical implementations realize substantially lower data transmission speeds. ADSL access is priced significantly above other access services and is not expected to be widely available in the near term. Wireless Offerings. Satellite-delivered approaches such as direct broadcast satellite ("DBS") currently provide peak data transmission speeds of approximately 400 Kbps downstream and rely on dial-up modems and the telephony network for upstream transmission ("telephone return"). These approaches have scaling limitations due to the necessity of dividing a finite amount of satellite bandwidth among subscribers in a broad geographic area. Other wireless offerings rely on ground-based radios instead of satellites. Such offerings include multichannel multipoint distribution service ("MMDS") and local multipoint distribution service ("LMDS"), which are one-way and two-way high-bandwidth wireless digital broadcasting systems, respectively. MMDS and LMDS are not yet widely available, require unobstructed "line-of-sight" transmission paths and may require additional radio frequency spectrum allocations, an entirely new distribution infrastructure and new equipment (including specialized radio modems). Cable Offerings. In recent years, cable system operators have been upgrading to hybrid fiber-coaxial ("HFC") cable infrastructure both to compete more effectively with DBS television providers, which offer a large number of television channels with digital audio and video, and to increase revenue by offering digital television, telephony, and data transmission using cable modems through the upgraded infrastructure. Like corporate LANs, the cable infrastructure is "always on" and does not consume network resources when idle, making it well-suited for Internet data transmission. This architecture contrasts with a switched telephone system, which requires a separate completed circuit for each data transmission session. Peak data transmission speeds across HFC cable approach 27 Mbps downstream and 10 Mbps upstream. Modern HFC networks are highly scalable because HFC cable can transmit multiple independent data streams over the fiber optic distribution system that links a single headend (a cable distribution center) to several neighborhoods in a metropolitan area. THE COMPANY'S OPPORTUNITY The Company believes that the rich, multimedia promise of the Internet can be delivered to businesses and consumers through the global deployment of a new network architecture that exploits the performance advantages and "always on" characteristic of the two-way HFC cable infrastructure. Such an architecture would significantly enhance the user's experience by enabling and encouraging the creation and aggregation of compelling, multimedia content that is optimized for a high-bandwidth environment. The Company also believes this network architecture could be leveraged to extend high-speed Internet access to businesses, deliver value-added applications and provide remote access to corporate LANs. For cable system operators, the Company believes a turnkey data transmission solution that provides the data network design capability and other engineering resources required to address the complex problems associated with delivering high-speed Internet services over cable would have strong appeal. THE COMPANY'S SOLUTION The Company is a leading provider of Internet services to consumers and businesses over cable infrastructure. The Company has entered into distribution arrangements for the @Home service with TCI, Comcast, Cox, Rogers, Shaw, Marcus and Intermedia, whose cable systems pass approximately 44 million homes in North America. The Company's two Internet services, @Home for consumers and @Work for businesses, provide an end-to-end solution over the Company's new network architecture (the "@Network"), which is a high- performance "parallel Internet" for high-bandwidth data transmission and content. The @Network leverages the cable infrastructure and other high-speed local-loop technologies, alleviates the bottlenecks inherent 33 in the architecture of the Internet and serves as a platform for a variety of high-bandwidth interactive services. The @Home service combines the technological and programming capabilities of the Company to provide the comprehensive "@Home Experience." The @Home Experience includes the fastest residential Internet access currently available (over 300 times faster than a 28.8 Kbps modem) and is "always on" (eliminating the tedious and unreliable dial-up process). The Company's @Media programming services aggregate high- quality and compelling multimedia content, stimulate the development of new high-bandwidth content and deliver this content through an intuitive graphical user interface. The @Work services offer secure and reliable Internet access through connections between corporate LANs and the @Network, and the ability to create virtual private networks. In addition to providing programming services for the @Home Experience, the Company's @Media division sells advertising and will package premium services. The Company's comprehensive customer and technical service organization supports all of its services on a 24X7 basis. The Company expects that many of its services will be highly transferable to international markets, recognizing that some degree of localization of content will be essential to achieving success. The @Network is a scalable, distributed, intelligent network architecture that combines a private high-speed nationwide backbone with distributed caching. Caching moves frequently accessed information close to the user to avoid multiple transmissions of the same data over the backbone. The @Network is an end-to-end network solution, enabling the Company to manage the network 24 hours a day from a central Network Operations Center ("NOC") and enhancing its ability to address performance bottlenecks before they affect the user experience. All elements of the @Network are readily scalable, enabling it to provide sustainable high performance as usage increases. In order to shorten time to market for cable operators, the Company provides a turnkey solution, which includes not only a technology platform, but also a national brand, marketing, customer service and billing. This solution enables cable operators to leverage their infrastructures to deliver high-bandwidth, interactive data services that represent significant new revenue opportunities. STRATEGY The Company's objective is to leverage the cable infrastructure and other high-speed, local loop transmission technologies to become the leading global provider of branded, high-speed Internet services. The Company's strategy to achieve this objective has the following key elements: Expand Distribution. The Company has strategic relationships with seven leading cable companies whose cable systems pass approximately 44 million homes. To expand distribution, the Company aggressively seeks to form strategic relationships with additional United States and international cable companies to obtain exclusive rights to their coverage areas. In addition, the Company has developed a comprehensive set of step-by-step plans and certification processes to verify that cable companies have upgraded their cable systems to a two-way HFC cable infrastructure that is capable of delivering the Company's services. With these plans and processes, TCI, Comcast and Cox have launched the @Home service in portions of 12 cities and communities (of which 10 have revenue-paying subscribers) in the United States. The Company plans to continue to roll out the @Home service as cable system operators complete two-way HFC upgrades. In addition, to access residences that are not upgraded to two-way HFC cable, the Company is exploring alternative delivery mechanisms, such as the use of one-way HFC cable with telephone return and the use of high-speed telecommunications services for multiple dwelling units ("MDUs"). Drive Penetration by Providing the Most Compelling Internet Experience. The Company strives to provide the most compelling interactive Internet experience available to drive subscriber penetration. The @Home service enables the @Home Experience, which includes the fastest residential Internet access currently available, is "always on" and aggregates high-quality and compelling multimedia Internet content, including video clips and near-CD-quality sound, with an intuitive graphical user interface. The Company is working with leading advertisers and over 100 content providers to develop multimedia content that takes advantage of the high bandwidth and caching and multicasting capabilities of the @Network to provide an enriched interactive experience for the user. For international markets, the Company intends to rely on local cable system operators and content providers to develop high- quality localized content that delivers the @Home Experience abroad. The 34 Company manages the @Network from end to end, 24 hours a day, enhancing its ability to address performance bottlenecks before they affect the user experience. The Company and the Cable Partners have developed a comprehensive approach for managing all subscriber interactions, including installation, billing and transaction management, technical support and customer service, intended to ensure that every customer interaction with the @Home service is a positive experience. Build Brand Awareness. The Company's marketing strategy is to accelerate penetration within its geographic markets by creating awareness for the "@Home" brand to make it synonymous with a compelling online interactive multimedia experience. The Company supports this strategy through cooperative promotional programs with the Cable Partners, which are licensed by the Company to use the "@Home" brand in conjunction with their own brands in the distribution of the Company's services, and through certification of third- party hardware and software products as "@Home Ready." Maintain Technological Leadership. The Company's technology strategy is to continue to develop advanced technological solutions that maximize the inherent advantages of "always on" connectivity, speed, security and reliability afforded by the cable infrastructure and the @Network. The Company continually works to develop: new caching and replicating techniques to improve the performance and efficiency of the @Network; advanced multicasting technologies to provide efficient transport of "one-to-many" content; adaptations of the Company's services for use over non-HFC access technologies; advertisement targeting and content personalization systems to fit desired subscriber profiles; virtual private network technology solutions to enable secure and scalable end-to-end telecommuting and commercial services over the @Network; and other services and technologies designed to enhance the @Home Experience and improve market penetration. Offer Unique Value Proposition to Business Subscribers. The Company's strategy for its @Work services is to provide secure, reliable corporate Internet, intranet and extranet connectivity solutions complemented by a series of network-based business applications. By combining @Network's distributed architecture with cable, telephone and technology relationships, the @Work services provide a compelling platform for nationwide delivery of network-based business applications. The Company has developed this platform at a low incremental cost by leveraging its existing @Network investment. For example, by connecting distance workers to the corporate LAN in areas where the @Home service is available, the Company believes the @Work services can offer a fast, secure and cost-effective solution for telecommuters. The @Work services will also facilitate corporate broadcasting to the desktop, and distributed applications and Web hosting. The Company intends to expand its network reach by leveraging its relationships with TCG (the nation's largest CLEC), cable system operators, other high-speed facility providers and technology suppliers to reach commercial subscribers across the nation. The Company intends to create awareness of the "@Work" brand, making it synonomous with network-based distributed applications. Drive Incremental Revenues from Advertising and Premium Services. The strategy of the Company's @Media division is to leverage the high bandwidth and comprehensive usage-compilation capabilities of the @Network to offer advertisers and content providers a technological platform for the delivery of rich, multimedia advertising and premium content to @Home subscribers. The Company sells advertising that uses the @Home audio/video advertising window to businesses for advertising on national areas of the @Home Guide for the @Home service. The Company also works with content and application providers to deliver specialized content such as high-speed online interactive games, new applications such as near-CD-quality online music, and online transactions where subscribers can automatically purchase and download software or music. The multimedia and technology platforms developed with @Media technologies significantly enhance the @Home Experience. The Company negotiates revenue sharing agreements for such advertising, content and online transactions. PRODUCTS AND SERVICES The Company currently offers two Internet services, @Home for consumers and @Work for businesses. The Company's @Media division complements the @Home service by providing programming, selling advertising and packaging premium services. 35 @HOME SERVICE The Company's primary offering is the @Home service, a comprehensive Internet solution that leverages the two-way HFC cable television infrastructure and the Company's technological and programming capabilities to provide the @Home Experience, which the Company believes is the most compelling consumer Internet experience currently available. By connecting via a cable modem to the @Network through the local cable infrastructure, @Home subscribers' personal computers can achieve peak data transmission speeds over two-way HFC cable of 10 Mbps (10,000 Kbps), over 300 times faster than the peak data transmission speed of a 28.8 Kbps modem. This high bandwidth is critical for enabling sophisticated multimedia applications, advertising, online commerce and online interactive games. In addition, the cable infrastructure is "always on," providing instantaneous access to the Internet and eliminating the need for a tedious dial-up procedure using the telephone network. The Company's programming services, provided by the @Media division, enhance the @Home Experience by aggregating high-quality and compelling multimedia content available on the Internet and delivering this content through an intuitive graphical user interface. The cornerstone of this programming is the @Home Guide, the user's guide to the high-quality multimedia content on the Web. The Company believes the @Home Guide broadens the appeal of online services beyond technology enthusiasts to the mass market by simplifying navigation, increasing the subscriber's knowledge of Internet resources, presenting compelling high-bandwidth content with animated graphics, near-CD- quality audio and video clips, and stimulating persistent usage by promoting current events and interesting new services. The @Home Guide is organized around a series of "channels," which are defined by both topical subjects (such as news, technology, sports or popular culture) and audiences (such as children, game players or shoppers), and which present engaging "best of the Web" editorial content every day. With the @Home Guide, the Company generates and directs regular audience traffic to @Media and content providers' offerings. The @Home Guide includes @Home QuickHits, which takes advantage of the "always on" feature of the @Home service to provide one-click access to personal stock portfolios, local weather and traffic, dining and other useful daily information. The @Home Experience also permits @Home subscribers to access online services, purchase software and engage in multiplayer gaming and interactive shopping. The @Home service, including a cable modem provided by the Cable Partner, is currently offered to consumers for flat monthly fees generally ranging from $35 to $55. Installation of the @Home service is provided by the Cable Partner at a price generally ranging from $75 to $175. Upon installation, each new subscriber's personal computer is configured for the @Home Experience with @Home client software, which provides access to the @Home Guide and an extensive set of online services. The @Home client software includes a customized Netscape browser and other high-performance and multimedia software optimized for the @Home Experience. In addition to making the Internet considerably easier to access for consumers, this software offers advertisers and content and application providers a rich and consistent client environment for delivering multimedia advertising, content and applications. The @Home service is currently offered by TCI, Comcast and Cox in portions of 12 cities and communities in the United States, 10 of which are in commercial service: Arlington Heights (IL), Baltimore (MD), Fremont (CA), Hartford (CT), Orange County (CA), Phoenix (AZ), San Diego (CA), Sarasota (FL), Seattle (WA) and Union County (NJ); and two of which are in test: Detroit (MI) and Philadelphia (PA). Under the current United States Cable Partner arrangements, the Company receives 35% of monthly fees and fees for premium services, and the Cable Partner retains the entire installation payment. In Canada and other international markets, subscriber pricing and revenue or royalty splits with cable system operators may be different from those that prevail in the United States based on differences in services and content provided by the international cable system operators, data transport costs and regulatory environments. For areas where two-way HFC cable is not yet available, the Company has developed a telephone return version of the @Home service, which uses one-way HFC cable for high-speed downstream transmission and an analog telephone line for upstream transmission, and an MDU @Home service offering delivered via a digital telecom-based connection for high-density apartment and condominium complexes. To access the @Home service, subscribers need a personal computer with at least 36 a 66 MHz 486 or equivalent microprocessor and 16 megabytes of main memory. The Company is developing software and a specialized @Home service to enable set- top boxes connected to televisions and cable modems to deliver the @Home Experience to the broad market that does not use computers. @WORK SERVICES @Work services provide a platform for corporate Internet, intranet and extranet connectivity solutions and have the ability to provide a series of networked business applications over both HFC cable and leased digital telecommunications lines that leverage the @Network. In order to accelerate deployment of @Work services into metropolitan areas, the Company has established a strategic partnership with TCG, the country's largest CLEC, to provide targeted co-location and local telephone circuits for infrastructure and subscriber connectivity. The Company offers @Work Internet and plans to offer @Work Remote services. @Work Internet. The @Work Internet service delivers dedicated, high-speed, end-to-end managed Internet connectivity to commercial enterprises over both local telephone circuits and HFC cable. The @Work Internet service offers telecommunications access options at peak data transmission speeds ranging from 56 Kbps to 45 Mbps, which are priced competitively to existing alternatives. Businesses that are passed by two-way HFC cable in areas where the @Home service has been launched can connect to the @Work Internet service without paying for local telephone circuits. The @Work Internet HFC service offers peak data transmission speeds of 10 Mbps downstream and 384 Kbps upstream using the @Network. The @Work Internet service is currently available in five major metropolitan markets: Chicago, Hartford, San Diego, the San Francisco Bay Area and Seattle. @Work Remote. The Company has developed the @Work Remote service to offer secure, high-speed telecommuting solutions via HFC cable and virtual private networks among remote users, branch offices and a corporate LAN. The @Work Remote service includes the network equipment and software needed to connect the corporate LAN securely to the @Network via high-bandwidth local telephone circuits. Users will be able to gain secure access to all of their corporate LAN resources 24 hours a day, seven days a week. The Company offers virtual private network capability between branch offices and corporate headquarters. The Company is currently negotiating arrangements with the Cable Partners to offer the @Work Remote service over the cable infrastructure for telecommuters. The Company's future @Work services offerings are expected to include internal corporate multicasting, "push-based" multimedia content delivery and geographically distributed Web site hosting services. In addition, by designing each RDC to include high-availability, high-performance servers and mass storage, the Company will have the ability to deliver and facilitate next-generation client-server and distributed-object networked business applications. @MEDIA SERVICES AND TECHNOLOGIES The @Media division sells advertising and, in partnership with content providers, packages advertising-supported transaction and premium services which it will offer to @Home subscribers. Advertisers and content providers can utilize @Media technologies that enable them to exploit the high- bandwidth, multimedia capabilities of the @Network. In addition, the @Media division provides the programming services that aggregate the high-quality and compelling multimedia content delivered through the @Home Guide, the cornerstone of the @Home Experience. The @Media division sells advertising through the "B*box," a broadband audio/video advertising space located in the @Home Guide. With the B*box, advertisers are not constrained by the Web banner paradigm and can broaden their creative presentation using video clips, near-CD-quality audio and animation. Advertisers have the ability to enhance their message by using multimedia tools and technologies such as Shockwave, Quicktime Video and Real Audio. The Company has a broad range of revenue-generating advertisers, including CondeNet, General Motors, InsWeb, Toyota and Unilever. Advertisers have reported response rates (click-throughs) 37 substantially greater than they currently experience with traditional Web banner advertisements. The Company believes that advertisers' ability to present more compelling messages to online users will lead to advertising rates greater than those charged for banner advertising on the Web. The Company believes that growth in its subscriber base will be critical to attracting advertisers. In addition to traditional sales and marketing efforts, the Company has developed a variety of compelling programming services delivered through the @Home Guide in order to drive incremental subscriber penetration. In addition to receiving advertising fees, the @Media programming services provide a variety of revenue sources. Examples of @Media programming services include: Real-Time News and Entertainment Services: Continuously-updated, scrolling headlines delivered via the News Carousel in the News, Sports and Business @Home Guide channels, and video clips presenting top stories, sports highlights and movie previews. Current @Media partners include Bloomberg, CNET, CNN, MSNBC, SportsLine, The New York Times and USA Today. Enhanced Search and Directory Services: Leading search and directory services integrated into the @Home Guide. The Company shares in the advertising revenue generated from these services. Current @Media partners include BigBook, Excite, Infospace, Switchboard, WhoWhere, Yahoo! and Zip2. Digital Audio Services: Near-CD-quality audio on various music, talk and event channels (e.g. jazz, rock and 24-hour sports talk) via the Company's TuneIn service. Users can simultaneously listen to TuneIn and browse the Internet without a material degradation in download speeds. Current @Media partners include CNET Radio, Net Radio, SportsLine and TheDJ. Software Purchase with Real-time Downloading: Purchase and download software titles at speeds substantially faster and with greater reliability than a typical dial-up modem. A current @Media partner, CNET, provides its BuyDirect.com service. High-Speed Multiplayer Gaming: Download and play popular Internet games against other online players, delivered via @Home Games, an @Home Guide channel. A current @Media partner, CNET, provide its gamecenter.com service. Interactive Shopping: Evaluate and purchase goods via an interactive multimedia shopping experience. A current partner is iQVC. The @Media division offers a series of technologies to advertisers and content providers in delivering compelling multimedia advertising and premium services, including Replicate, DirectConnect, M-Cast and KnowledgeAPI. Replicate enables the Company's content partners to place copies of their content and applications locally on the @Network. DirectConnect allows content providers to connect directly to the Company's high-speed network without traversing the congested Internet, further accelerating transmission speeds between popular sites and services. M-Cast enables the efficient multicasting of advertising, content and services such as continually updated news and sports information, video clips and audio from one source to many subscribers simultaneously. KnowledgeAPI is software that enables the personalization and targeting of both content and advertising to specific interest groups based on subscriber-provided profile information. For example, for an @Home Games multiplayer online game, the Company could utilize Replicate to enable fast downloading of the game software, DirectConnect to minimize the latency between users and the game server (enabling an interactive "fast-twitch" experience), M-Cast to efficiently distribute realtime game-play positional data to all simultaneous players, and KnowledgeAPI to match gamers with similar interests. @NETWORK ARCHITECTURE The Company designed the @Network on the premise that sustainable, high- performance Internet access requires a new, scalable architecture to alleviate Internet bottlenecks and to enable true end-to-end network management capabilities. The Company has developed and implemented its scalable, distributed intelligent network architecture that links a private high-speed nationwide backbone with Cable Partners' HFC systems and the TCG infrastructure. To ensure compatibility and seamless access to the Internet, this high-performance 38 "parallel Internet" uses the same underlying communications protocols and is effectively one of the world's largest intranets. Residential subscribers access the network primarily through high-speed cable modems, which attach to their personal computers via a standard Ethernet connection, while businesses can also connect through CLEC telecommunications networks. The two key principles of the Company's network strategy are moving data closer to the user and end-to-end network management. Moving Data Closer to the User. The @Network utilizes caching and replication technologies to move the information a subscriber requests close to the subscriber. While communications costs have dropped over time, the cost of processing and storing data has diminished faster. In addition to this fundamental shift in the economics of processing and storage versus communications, local caching dramatically reduces backbone network traffic enabling the @Network to overcome a fundamental weakness of the Internet-- duplicative data transfers. For example, when a subscriber downloads a video clip from a Web site, the user must "pull" data across the Internet from that Web site to the user's ISP and finally to the user's computer. If the user's neighbor requests the same video clip from that Web site, the neighbor pulls the same data across a similar path. In contrast, the Company's approach would move the video clip over its high-speed backbone only once in a given geographic area and retain it in a local cache near the user's home where it could be accessed by every subscriber within that area without retransmission over the backbone. This more cost-effective approach simultaneously improves the end user's performance and reduces traffic volume across the backbone. End-to-End Network Management. End-to-end network management is achieved through the Company's proactive network quality, service and performance management systems. The @Network provides visibility from the Company's servers (or content partners' servers) across the backbone and all the way to the subscriber's home. Because the @Network is centrally managed, the Company can dynamically identify and enhance network quality, service and performance or address issues before they affect the user experience. The primary components of the @Network are the Company's high-speed private national backbone, RDCs, regional networks, headends (including caching servers), network connections and cable modems and the Network Operations Center. 39 [GRAPHIC APPEARS HERE] Graphic depicts the network architecture of the @Network. The graphic illustrates the connections among the various components of the @Network, including network access points (NAPs) to the Internet, private national backbone, regional networks, RDCs, headends and buildings. A caption at the lower left of the graphic illustrates the connections, at the home, among two- way HFC cable, a cable modem, an ethernet card and a personal computer. A legend at the lower right of the graphic identifies the following services depicted as images on the graphic along with the following peak data transmission speeds: (i) @Home (Downstream--up to 27 Mbps; Upstream--up to 10 Mbps); (ii) @Work Remote (Downstream--up to 27 Mbps; Upstream--up to 10 Mbps); and (iii) @Work Internet (up to 45 Mbps). The legend also identifies the Regional Network and its peak data transmission speed of 45-155 Mbps, as well as a line that illustrates the @Work Virtual Private Network capability. 40 Private National Backbone. The Company operates its own private national backbone, which consists of a network of high-speed asynchronous transfer mode ("ATM") communications services that the Company leases to connect its RDCs and regional networks with content providers and the Internet. These services currently operate at a speed of 45 Mbps and can be upgraded to 155 Mbps. This backbone can be viewed as a high-speed "parallel Internet" that connects via the Company's routers to the Internet at multiple network access points ("NAPs") with "Tier-One" peering status, which permits the Company to exchange Internet traffic with other nationwide ISPs. The Company's backbone approach provides a high performance, cost-effective, scalable transport facility that can extend service to new areas without requiring frequent network topology reconfigurations. Regional Data Centers. The RDCs act as service hubs for defined geographic areas, such as major metropolitan areas, providing key services, including e- mail, news groups and chat facilities, to subscribers, proactively managing network performance, replicating content and applications, and providing an economical infrastructure to cache and multicast data throughout a region and to house local content and subscribers' Web pages. The Company uses state-of- the-art "high-availability" servers in its RDCs for these mission-critical activities in order to provide the maximum service availability that consumers and commercial subscribers expect. To date, the Company has deployed RDCs in 12 geographic areas. The Company estimates that to provide the @Home service throughout North America will eventually require it to deploy between 30 and 50 RDCs. Regional Networks. The regional networks consist of network routers and switches that interconnect the Company's RDCs and its national backbone to multiple cable headend facilities at speeds of 45 Mbps to 155 Mbps. These networks generally take advantage of cable operators' fiber optic infrastructures that are normally used to transport cable television signals from a consolidated master headend facility to other headends within a region. This approach allows the Company to frequently avoid the high cost of leasing conventional high-speed communication services from local telephone companies when deploying high-speed connectivity in a region. Headends. The cable system headends are connected to each RDC through the regional network. In order to move data as close to the subscriber as possible and to avoid repetitive transmission of the same data, the headends employ high-performance caching servers which store frequently accessed content locally, thereby greatly reducing the amount of data transmission (and corresponding transport costs) in higher layers of the network. In addition, local caching servers can compile far more comprehensive usage data than is normally attainable on the Internet, which data can be used for network troubleshooting, tuning performance and tailoring the service. Additional caching servers and/or storage capacity can be added economically as penetration in a particular community grows, increasing the ability to support additional service demand without significant capital outlay. Network Connections and Cable Modems. The last leg of the network connection is from the headend to the consumer over a cable operator's HFC cable system. Multiple fiber optic lines carry the signal from the headend out to cable "nodes" in each neighborhood, which in turn connect through traditional coaxial cable to the home. These fiber optic nodes typically service from 300 to 2,000 homes in a relatively modern cable system. In such a system, each television channel requires 6 MHz of the 450-750 MHz of total system capacity. Downstream transmission of the @Home service utilizes a similar channel. Upstream transmission, however, utilizes a frequency range not used for traditional broadcast by cable systems. This range is more prone to interference than downstream channels. In such a two-way system, no use of telephone line facilities in the home is required. In the home, a cable modem connects to the cable television coaxial wiring and attaches to the user's personal computer via standard Ethernet connections. Cable modems are manufactured by a variety of vendors, including Motorola and Bay Networks. The peak data transmission speed of a cable modem depends on the specific model and can approach 27 Mbps downstream and 10 Mbps upstream. Even when cable modems operate at these speeds, however, the performance that subscribers actually experience is often constrained by their operating systems, software and hardware. 41 The @Network is "always on" unlike switched technologies such as dial-up and ISDN. The coaxial cable connection from the neighborhood node to the home is a medium shared among those subscribers attached to a given fiber optic node or a number of combined fiber optic nodes. Proximate users share high-bandwidth access (much like corporate LANs) and may limit the effective bandwidth that is available to a given subscriber at a given time. However, this shared connection is particularly efficient and well suited to the sporadic nature of Internet traffic, where browsing tends to consume bandwidth in discrete bursts intermixed with periods of inactivity. As subscriber penetration increases, the cable operator has multiple cost-effective alternatives to increase capacity, including allocating additional 6 MHz channels for the @Home service or reducing the number of subscribers sharing a given bandwidth by adding lasers and transmitters each of which serve a smaller number of subscribers over the same fiber-optic infrastructure. These approaches allow the cable operator to fine-tune both the amount of bandwidth available and the number of users sharing that bandwidth, and to increase bandwidth incrementally as subscriber penetration in a market increases. Network Operations Center. The Company provides end-to-end network management through its NOC. The NOC uses advanced network management tools and systems to monitor the network infrastructure on a 24X7 basis, enhancing its ability to address performance bottlenecks before they affect the user's experience. From the NOC, the Company can manage the @Network from end-to-end, including the backbone, RDCs, regional networks, headends facilities, servers and other components of the network infrastructure to the user's home. The Company also utilizes certain key technologies from third parties to build and manage the @Network. In particular, the Company has established strategic relationships with Sun for high availability servers, SGI for caching servers, Cisco for network routing and switching hardware, Sprint for national switched ATM backbone services, OSI for network management software, Tivoli for systems management software to operate RDCs remotely, Oracle for advanced database management software and Netscape for server and browser software. See "Risk Factors--Dependence on Key Technology Suppliers." 42 STRATEGIC DISTRIBUTION RELATIONSHIPS Strategic Relationships with Cable Partners. The Company has strategic relationships with seven leading cable companies whose systems pass approximately 44 million homes. Subject to certain exceptions, the Company's Principal Cable Stockholders, TCI, Comcast and Cox, have granted the Company the exclusive right to offer high-bandwidth residential consumer Internet services over their cable systems for an agreed period. Rogers and Shaw have agreed to market and promote the @Home service under the name "Wave@Home" in Canada. In addition, Marcus and Intermedia have entered into agreements to distribute the @Home service through certain of their cable systems. The following table sets forth the number of homes passed by the cable systems of each of the Cable Partners and the principal cities and communities served by their cable systems.
MILLIONS OF PRINCIPAL CITIES AND COMMUNITIES CABLE PARTNER HOMES PASSED SERVED BY CABLE PARTNER'S SYSTEMS - ------------- ------------ --------------------------------- TCI.............. 23.8 Chicago, Dallas, Denver, Hartford, Miami, Pittsburgh, San Francisco Bay Area, Seattle and Washington, D.C. Comcast.......... 7.3 Baltimore, Detroit, Northern New Jersey, Orange County, Philadelphia and Sarasota Cox.............. 5.2 Hampton Roads, Hartford, New Orleans, Oklahoma City, Omaha, Orange County, Phoenix, Providence and San Diego Rogers........... 2.7 London, Ottawa, Toronto, Vancouver and Victoria Shaw............. 2.0 Calgary, Edmonton, Saskatoon, Windsor and Winnipeg Marcus........... 1.9 Fort Worth Intermedia....... 1.4 Asheville, Greenville, Nashville and Spartanburg ---- Total............ 44.3 ====
The Company believes that approximately two million of these homes are currently passed by upgraded two-way HFC cable, and the Cable Partners have announced plans to complete the upgrade of a majority of the systems that pass these homes within five years. The Company has launched the @Home service through TCI, Comcast and Cox in portions of 12 cities and communities (of which 10 have revenue-paying subscribers) in the United States and has approximately 5,000 subscribers. In the second half of 1997, the Company plans to integrate its @Home service with the Wave interactive service currently provided by Rogers and Shaw to approximately 5,000 subscribers in Canada. To date, TCI, Comcast and Cox have launched the @Home service in portions of the cities and communities set forth in the following table.
TCI COMCAST COX --- ------- --- Arlington Heights, IL Baltimore, MD Orange County, CA Fremont, CA Detroit, MI* Phoenix, AZ Hartford, CT Philadelphia, PA* San Diego, CA Seattle, WA Sarasota, FL Union County, NJ
- -------- *In market trials In order to shorten time to market for cable operators, the Company provides a turnkey solution, which includes not only a technology platform, but also a national brand, marketing, customer service and billing. This solution enables the Cable Partners to leverage their respective infrastructures to deliver high-bandwidth interactive data services that represent significant new revenue opportunities. The Company's Cable Partners have the additional opportunity to develop and receive all the revenues derived from local content distributed though the @Network to local subscribers. The Cable Partners bear the cost of upgrading and maintaining their cable systems to provide high- speed two-way data transmission, installing the @Home service in subscribers' homes, procuring the cable modems needed to interface with the @Network and local marketing efforts. 43 The @Home service, including a cable modem provided by the Cable Partner, is currently offered to consumers in the United States for flat monthly fees generally ranging from $35 to $55. Installation of the @Home service is provided by the Cable Partner at a price generally ranging from $75 to $175. Under the current United States Cable Partner arrangements, the Company receives 35% of monthly fees and fees for premium services, and the Cable Partner retains the entire installation payment. In Canada and other international markets, the Company anticipates that the subscriber pricing and revenue or royalty splits with cable system operators will be different from those that prevail in the United States based on differences in services and content provided by the Company and the cable system operators. Strategic Relationship with TCG. The Company has established a strategic relationship with TCG to provide facilities management and telecommunications network services for the local transport requirements of the Company's @Work services. TCG, of which TCI, Comcast and Cox control a majority of the voting stock, is the largest CLEC in the United States, providing high-speed fiber optic telecommunications services to more than 7,700 commercial customer sites in 57 major metropolitan centers in the United States. The Company's access to TCG's fiber optic network and switching infrastructure gives the Company a nationwide opportunity in the commercial marketplace, which the Company believes will accelerate the deployment of the Company's @Work services into major United States markets. As the Company's @Work services grow, the Company believes that its strategic relationship with TCG will provide TCG the benefits of driving additional traffic volumes over TCG's existing networks and generating significant incremental revenues for TCG. See "Risk Factors-- Dependence on TCG for Local Telecommunications Services for the @Work Services." DISTRIBUTION, MARKETING AND SALES The Company has entered into distribution arrangements for the @Home service with TCI, Comcast, Cox, Rogers, Shaw, Marcus and Intermedia, whose cable systems pass approximately 43 million homes in North America. To expand distribution, the Company is aggressively seeking to work with additional United States and international cable companies to obtain exclusive rights to their coverage areas. The Company is also exploring alternative delivery mechanisms such as the use of telephone return and the use of high-speed telecommunications services for MDUs. The Company has developed a comprehensive set of step-by-step plans and certification processes to verify that cable companies have upgraded their cable systems to a two-way HFC cable infrastructure that is capable of delivering the Company's services. The Company's marketing strategy is to accelerate penetration within its geographic markets by creating awareness of the "@Home" brand, making it synonymous with a compelling online interactive multimedia experience. The Company executes this strategy through cooperative promotional programs with the Company's Cable Partners, which are licensed by the Company to use the "@Home" brand in conjunction with their own brands in the distribution of the Company's services. Ultimately, the Company plans to leverage its growing subscriber base by marketing services that provide incremental revenue opportunities such as advertising, premium subscriber services and @Work value-added services. @Home Service. The @Home service is sold to consumer households by the Cable Partners in the markets they serve. While the Cable Partners have the primary responsibility for locally marketing the service, the Company assists them in local market planning and product promotions by providing templates and materials for print, direct mail and broadcast advertising. The Company also believes that retailers and original equipment manufacturers ("OEMs") may provide a major opportunity for the Company to gain exposure to a much wider audience of consumers, provide hands-on demonstrations and increase subscriber penetration by certifying products such as personal computers and cable modems as "@Home Ready" and developing "@Home-branded" products. @Work Services. The Company's sales and marketing strategy for its @Work services utilizes both a direct sales force and indirect sales channels. The Company engages in direct sales through a National Account Team and a Valued Account Team. The National Account Team proactively calls on senior executives and chief information officers at Fortune 1,000 companies in regions where the @Work services are available. These sales are typically complex in nature and involve businesses with significant integration needs and multiple sites. The 44 Valued Account Team consists of both inbound and outbound telesales representatives and focuses on sales to non-Fortune 1,000 companies. This team responds to call activity and leads generated through @Work marketing activities, including direct mail, online Web promotion and advertising, national and regional industry events, @Work seminars, promotional programs and pursuit of favorable industry analyst and press coverage. The indirect sales team works with @Work partner companies to leverage their sales forces to sell @Work services. Indirect sales partners include OEMs, value added resellers and systems integrators. The Company also plans to establish distribution arrangements for the @Work services through its Cable Partners. @Media Services and Technologies. The Company sells advertising to national consumer businesses through a direct sales force and attracts advertisers by providing a series of services and technologies through its Interactive Advertising Group. The Company's Interactive Advertising Group, which consists of advertising production resources, ad program management personnel and a traditional commissioned advertising sales team, works with advertisers to develop compelling advertising for the Internet. The Company's Media Development Team works with leading content and application providers to package access to premium subscription offerings. The Company and its Cable Partners market these offerings to subscribers to the @Home service through online and traditional media. International Markets. The Company believes that international markets will provide a substantial opportunity for its services. Simba Information Inc. projects that there will be 21 million online and Internet users outside North America in 2000. The Company expects that many of its services will be highly transferable to international markets, recognizing that some degree of localization of content will be essential to achieving success. Accordingly, the Company plans to address targeted international markets though local partners that will market, sell and distribute the Company's services in their countries. The international markets that the Company plans to target first are Canada, the United Kingdom, Germany, Japan and France. In March 1997, the Company entered into exclusive arrangements for the distribution of its @Home service under the name "Wave@Home" in Canada through Rogers and Shaw, the two leading cable system operators in Canada, whose systems reach approximately five million homes or 50% of the homes passed by cable in Canada. Through Rogers and Shaw, which have the right to redistribute the Wave@Home service to other cable system operators in Canada, the Company expects to expand the distribution of its service in Canada. CUSTOMER SERVICE AND TECHNICAL SUPPORT The Company believes that inadequate customer service and technical support represent a major shortcoming of Internet access services. The Company and its Cable Partners have developed a comprehensive approach for managing all subscriber interactions, including installation, billing and transaction management, technical support and customer service, intended to ensure that every interaction a subscriber has with the Company's services is a positive experience. The @Home service is typically installed in the subscriber's home by a trained computer technician and a cable technician both provided by the Cable Partner. The Company assists the Cable Partners in training the service installers, provides automated installation processes and collateral materials and, in some cases, coordinates installation schedules. To ensure ongoing customer satisfaction, the Company and the Cable Partners provide three tiers of customer service and technical support: general customer service (Tier 1); technical support (Tier 2); and network management support (Tier 3). Tier 1 support, including billing, is typically the responsibility of the Cable Partner, although the Company offers the full range of service and support as a complete outsourced solution, and the Cable Partner has the option of contracting with the Company for Tier 1 support at the Company's cost. Alternatively, the Cable Partner may elect to provide Tier 2 support and reduce the revenue split paid to, or otherwise be compensated by, the Company. The Company provides an open "ServiceAPI" for cable operators to integrate their existing billing, service and support systems with the Company's systems. All of these programs are supported by "@Home University," which provides a comprehensive set of education services to assist the Cable Partner in training installers and customer service representatives and training developers on implementing the ServiceAPI. The Company's technical support personnel are co-located with the Company's NOC staff, who are responsible for monitoring the performance of the @Network from end-to-end on a 24X7 basis. The co-location 45 of these two organizations facilitates close collaboration between the two groups to resolve subscriber problems more rapidly and to anticipate potential problems before they can affect the user experience. The Company utilizes customized network tools that enable its technical support staff to deliver solutions that would otherwise require advanced engineering analysis. The Company is also developing a state-of-the-art knowledge-base system to capture and organize the latest information to meet the needs of the Company's technical support staff, cable partners and subscribers. By leveraging its integrated subscriber management systems and technical support database, the Company plans to provide an online customer support service known as "Help@Home," which will enable comprehensive access to its service and support knowledge base by both subscribers and cable operators through the Web, e-mail or interactive voice response. COMPETITION The markets for consumer and business Internet services and online content are extremely competitive, and the Company expects that competition will intensify in the future. The Company's most direct competitors in this market are ISPs, national long distance carriers, local exchange carriers, wireless service providers, OSPs and Internet content aggregators. Many of these competitors are offering (or may soon offer) technologies that will attempt to compete with some or all of the Company's high-speed data service offerings. Such technologies include ISDN and xDSL. The Company also competes with other cable-based data services that are seeking to contract with cable system operators to bring their services into geographic areas that are not covered by an exclusive relationship between the Company and its Cable Partners. The bases of competition in these markets include transmission speed, reliability of service, ease of access, price/performance, ease-of-use, content quality, quality of presentation, timeliness of content, customer support, brand recognition, operating experience and revenue sharing. The Company believes that it compares favorably with its competitors with respect to each of these factors, except brand recognition, which the Company is starting to build. However, many of the Company's competitors and potential competitors have substantially greater resources than the Company, and there can be no assurance that the Company will be able to compete effectively in its target markets. Internet Service Providers. ISPs, such as BBN, Earthlink, MindSpring, Netcom and PSInet, provide basic Internet access to residential consumers and businesses, generally using existing telephone network infrastructures. This method is widely available and inexpensive, but performance is limited. Barriers to entry are low, resulting in a highly competitive and fragmented market. National Long Distance Carriers and Local Exchange Carriers. Long distance inter-exchange carriers, such as AT&T, MCI, Sprint and WorldCom, have deployed large-scale Internet access networks and sell connectivity to business and residential customers. The RBOCs and other local exchange carriers have also entered this field and are providing price competitive services. Wireless Service Providers. Wireless service providers, including AT&T and Hughes Network Systems, are developing wireless Internet connectivity, such as MMDS, LMDS and DBS. MMDS and LMDS are not yet available and will require radio frequency spectrum auctions before service is possible. They will also require an entirely new distribution infrastructure, and new equipment including specialized modems. Online Service Providers. OSPs include companies such as America Online, CompuServe, MSN, Prodigy and WebTV that provide, over the Internet and on proprietary online services, content and applications ranging from news and sports to consumer video conferencing. These services are designed for broad consumer access over telecommunications-based transmission media, which enables the provision of data services to the large group of consumers who have personal computers with modems. In addition, they provide basic Internet connectivity, ease-of-use and consistency of environment. In addition to developing their own content or supporting proprietary third-party content developers, online services often establish relationships with traditional broadcast and print media outlets to bundle their content into the service, such as Microsoft's relationship with NBC to provide multimedia news and information programming over both cable television and MSNBC. Internet Content Aggregators. Content aggregators seek to provide a "one- stop" shop for Internet and online users. Their success depends on capturing audience flow, providing ease-of-use and offering a range of 46 content that appeals to a broad audience. Their business models are predicated on attracting and retaining an audience for their set of offerings. Leading companies in this area include America Online, CompuServe, Excite, Microsoft and Yahoo!. In this market, competition occurs in acquiring both content providers and subscribers. The principal bases of competition in attracting content providers include quality of demographics, audience size, cost- effectiveness of the medium and ability to create differentiated experiences using aggregator tools. The principal bases of competition in attracting subscribers include richness and variety of content and ease of access to the desired content. The proprietary online services such as America Online, CompuServe and MSN have the advantage of a large customer base, industry experience, many content partnerships and substantial resources. Cable-Based Data Services. The Company's competitors in the cable-based services market are those cable companies that have developed their own cable- based services and market those services to unaffiliated cable system operators that are planning to deploy data services and with which the Company would like to work. Several cable system operators, including Time Warner and US West's Continental Cablevision subsidiary, have deployed high-speed Internet access services over their existing local HFC networks. Specifically, Time Warner, which is the second largest cable company in the United States, has established its own cable-based ISP with proprietary content service, called Road Runner, which features a variety of Time Warner publications and services. Time Warner plans to market the Road Runner service through Time Warner's own cable systems as well as to other cable system operators nationwide. Continental Cablevision has developed another service called Highway One, which offers high-speed Internet services to its existing customers. Others that have publicly announced limited-area trials for their own cable-based Internet services include Adelphia, BellSouth and Jones Intercable. Some of these companies such as Time Warner have their own substantial libraries of multimedia content, which could provide them with a significant competitive advantage. Many of the Company's competitors and potential competitors in the Internet have substantially greater financial, technical and marketing resources, larger subscriber bases, longer operating histories, greater name recognition and more established relationships with advertisers and content and application providers than the Company. Such competitors may be able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies and devote substantially more resources to developing Internet services or online content than the Company. There can be no assurance that the Company will be able to compete successfully against current or future competitors or that competitive pressures faced by the Company will not materially adversely affect the Company's business, operating results or financial condition. Further, as a strategic response to changes in the competitive environment, the Company may make certain pricing, service or marketing decisions or enter into acquisitions or new ventures that could have a material adverse effect on the Company's business, operating results or financial condition. See "Risk Factors--Competition." PRODUCT DEVELOPMENT AND ENGINEERING The Company's product development and engineering efforts focus on the design and development of new technologies and products to increase the speed and efficiency of the @Network and to facilitate the development and distribution of high bandwidth over its network. The principal areas of current product development and engineering include: . enhancing caching and replication techniques to improve network performance and efficiency; . advancing multicasting technologies to provide efficient transport of "one-to-many" content; . adapting the Company's network services for use over non-HFC access technologies, such as xDSL, and conventional twisted-pair ethernet wiring in MDUs; . developing advertisement targeting and content personalization systems to fit desired subscriber profiles; . developing virtual private network technology solutions to enable secure and scalable end-to-end telecommuting and commercial services over the @Network; . enhancing the Company's advanced network management capabilities to identify and address network performance issues before they could affect the subscriber's experience; 47 . developing advanced directory and certification services to enable the Company's subscribers to perform electronic commerce and access information and premium resources securely; and . defining application programming interfaces for TV-based Internet devices that can browse and interact with the Web without requiring the use of a personal computer. The Company's product development and engineering expenses for the period from March 28, 1995 (inception) to December 31, 1995, 1996 and the first quarter of 1997 were $1.4 million, $6.3 million and $2.3 million, respectively. INTELLECTUAL PROPERTY The Company regards its technology as proprietary, attempts to protect it with copyrights, trademarks, trade secret laws, restrictions on disclosure and other methods, and has filed one patent application and is in the process of preparing additional patent applications with respect to aspects of its high- bandwidth network technology and online advertising. There can be no assurance that any patent will issue from these applications or that, if issued, any claims allowed will be sufficiently broad to protect the Company's technology. In addition, there can be no assurance that any patents that may be issued will not be challenged, invalidated or circumvented, or that any rights granted thereunder would provide proprietary protection to the Company. Failure of any patents to provide protection to the Company's technology may make it easier for the Company's competitors to offer technology equivalent or superior to the Company's technology. The Company also generally enters into confidentiality or license agreements with its employees and consultants, and generally controls access to and distribution of its documentation and other proprietary information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use the Company's products, services or technology without authorization, or to develop similar technology independently. In addition, effective copyright, trademark and trade secret protection may be unavailable or limited in certain foreign countries, and the global nature of the Internet makes it virtually impossible to control the ultimate destination of the Company's content offerings. Policing unauthorized use of the Company's content offerings is difficult. There can be no assurance that the steps taken by the Company will prevent misappropriation or infringement of its technology. In addition, litigation may be necessary in the future to enforce the Company's intellectual property rights, to protect the Company's trade secrets or to determine the validity and scope of the proprietary rights of others. Such litigation could result in substantial costs and diversion of resources and could have a material adverse effect on the Company's business, operating results and financial condition. From time to time, the Company has received, and may receive in the future, notice of claims of infringement of other parties' proprietary rights, including claims for infringement resulting from the downloading of materials by the online or Internet services operated or facilitated by the Company. There can be no assurance that infringement or invalidity claims (or claims for indemnification resulting from infringement claims) will not be asserted or prosecuted against the Company or that any assertions or prosecutions will not materially adversely affect the Company's business, operating results and financial condition. Irrespective of the validity or the successful assertion of such claims, the Company would incur significant costs and diversion of resources with respect to the defense thereof, which could have a material adverse effect on the Company's business, operating results and financial condition. If any claims or actions are asserted against the Company, the Company may seek to obtain a license under a third party's intellectual property rights. There can be no assurance, however, that under such circumstances a license would be available on commercially reasonable terms, or at all. LEGAL PROCEEDINGS On April 18, 1997, Netcom filed a complaint in Superior Court of the State of California in and for the County of Santa Clara against the Company and its Senior Vice President and General Manager, @Work Group, Donald P. Hutchison. The complaint alleges that the Company misappropriated Netcom's trade secrets by hiring several former Netcom employees and that Mr. Hutchison violated a proprietary information agreement with Netcom by disclosing trade secrets and soliciting Netcom's employees to work for the Company. Netcom seeks 48 compensatory and punitive damages, as well as injunctive relief to prohibit the Company from hiring any employee from Netcom and from misappropriating Netcom's trade secrets. Discovery has just commenced. The Company denies that allegations contained in the complaint and intends to contest the litigation vigorously. The Company believes that any judgment for Netcom in the litigation would not have a material adverse effect on the Company's business, operating results and financial condition. EMPLOYEES As of March 31, 1997, the Company had 246 employees, excluding temporary personnel and consultants. Of the total, 60 were employed in networking engineering, 75 supporting the @Home service including customer support and related activities, 27 supporting the @Work services, 53 in the @Media division and 31 in general and administration. None of the Company's employees is represented by a labor union, and the Company considers its relations with its employees to be good. The Company's ability to achieve its financial and operational objectives depends in large part upon the continued service of its senior management and key technical personnel and its continuing ability to attract and retain highly qualified technical and managerial personnel. Competition for such qualified personnel in the Company's industry and geographical location in the San Francisco Bay Area is intense, particularly in software development, network engineering, cable engineering and product management personnel. See "Risk Factors--Management of Growth and Expansion; Dependence on Key Personnel." FACILITIES The Company is currently headquartered in Mountain View, California, where it occupies approximately 33,000 square feet of administrative facilities under a lease expiring in 2001. During the second quarter of 1997, the Company plans to relocate its headquarters to new facilities consisting of approximately 133,000 square feet in Redwood City, California, which the Company will occupy under a 12-year lease. In connection with this lease, the Company is obligated to reimburse the landlord for leasehold improvements totaling approximately $5.5 million. In addition, the Company has three separate options to require the landlord to build a total of approximately 400,000 additional square feet of facilities on adjacent property, subject to certain conditions. The Company would then occupy these buildings under leases of 12 years with base rent to be determined based on the cost of construction of the buildings. The Company anticipates that the Redwood City facilities will be adequate for the foreseeable future. Upon relocation to Redwood City, the Company will vacate the Mountain View facilities and sublet them for the remaining term of the lease. 49 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The executive officers and directors of the Company, and their ages and positions, are as follows:
NAME AGE POSITION - ---- --- -------- Thomas A. Jermoluk(1)... 40 Chairman of the Board, President and Chief Executive Officer David P. Bagshaw........ 44 Senior Vice President, @Media Group Dean A. Gilbert......... 40 Senior Vice President and General Manager, @Home Group Kenneth A. Goldman...... 47 Senior Vice President and Chief Financial Officer Donald P. Hutchison..... 40 Senior Vice President and General Manager, @Work Group John L. O'Farrell....... 38 Senior Vice President, International Milo S. Medin........... 34 Vice President, Networks David G. Pine........... 38 Vice President, General Counsel and Secretary William R. Hearst 47 Vice Chairman III(1)(2).............. James L. Barksdale(1)... 54 Director Brendan R. Clouston(4).. 44 Director L. John Doerr(1)(3)..... 45 Director John C. Malone.......... 56 Director Bruce W. 47 Director Ravenel(2)(3)(4)....... Brian L. Roberts........ 37 Director Edward S. Rogers........ 63 Director Larry E. Romrell(4)..... 57 Director David M. Woodrow(2)..... 51 Director
- -------- (1) Member of .Com Committee (2) Member of the Audit Committee (3)Member of the Compensation Committee (4)Member of the Series B Committee THOMAS A. JERMOLUK has served as Chairman, President and Chief Executive Officer of the Company since he joined the Company in July 1996. From 1994 to July 1996, he was President, and from 1992 to July 1996 he was Chief Operating Officer, of Silicon Graphics, Inc. ("SGI"), a visual computing company. From 1991 to 1994, Mr. Jermoluk was Executive Vice President of SGI, and, from 1988 to 1991, he was Vice President and General Manager of SGI's Advanced System Division. From October 1993 to August 1996, he was a member of the board of directors of SGI. Prior to joining SGI in 1986, Mr. Jermoluk managed a variety of hardware and software development projects at Hewlett-Packard Company and Bell Laboratories. He currently serves on the boards of directors of Pure Atria Corporation and Forte Software, Inc. Mr. Jermoluk holds B.S. and M.S. degrees in Computer Science from Virginia Tech. DAVID P. BAGSHAW has served as the Senior Vice President of the Company's @Media Group since he joined the Company in September 1996. From August 1991 to August 1996, he served as Vice President of Marketing of SGI, where he was responsible for various marketing organizations and activities, including communications, public relations, business development, application developer support and product marketing. From 1987 to August 1991, he served as a product manager and as a director of marketing at SGI. Mr. Bagshaw holds B.S. and M.S. degrees in Mechanical Engineering from Stanford University and an M.B.A. degree from the Stanford University Graduate School of Business. DEAN A. GILBERT has served as Senior Vice President and General Manager of the Company's @Home Group since November 1996 and was Senior Vice President, Marketing and Sales of the Company from February 1996 to November 1996. From September 1994 to February 1996, he served as President and Chief Executive Officer of Positive Communications, Inc., a provider of paging products and services. From 1991 to September 1994, Mr. Gilbert was Executive Vice President, Group Operations and from 1989 to 1991 was Senior Vice President, Marketing, Programming and Business Development of KBLCOM, Incorporated, a cable television provider. He holds B.A. and M.A. degrees in Telecommunications from Michigan State University. 50 KENNETH A. GOLDMAN has served as Senior Vice President and Chief Financial Officer of the Company since he joined the Company in July 1996. From July 1992 to July 1996 he was Senior Vice President and Chief Financial Officer of Sybase, Inc., a database software and services company. From 1989 to July 1992, Mr. Goldman was Vice President of Finance and Administration and Chief Financial Officer at Cypress Semiconductor Corporation, a semiconductor manufacturer. From 1983 to 1989, he was Vice President and Chief Financial Officer of VLSI Technology Inc. Mr. Goldman serves on the boards of directors of Global Village Inc. and Unison Software, Inc. He holds a B.S. degree in Electrical Engineering from Cornell University and an M.B.A. degree from the Harvard University Graduate School of Business. DONALD P. HUTCHISON has served as Senior Vice President and General Manager of the Company's @Work Group since he joined the Company in February 1997. Prior to that time, he served as Senior Vice President, Strategic Partnerships from March 1996 to November 1996, Senior Vice President, Sales from August 1995 to March 1996 and Vice President, Sales and Marketing from May 1994 to August 1995 of Netcom On-Line Communications Services, Inc., an Internet access service provider. From 1989 to May 1994, Mr. Hutchison was Director of Sales and Marketing at TAU Corporation, a digital video imaging company. From 1987 to 1989, he was Director of Sales and Business Planning for Pixar, and, prior to that time, he held various sales and management positions with Prime Computer and Data General Corporation. Mr. Hutchison holds a B.A. degree in Business Economics from the University of California at Santa Barbara and an M.B.A. degree from Loyola Marymount University. JOHN L. O'FARRELL has served as Senior Vice President, International of the Company since he joined the Company in April 1997. From August 1995 to April 1997, he was President of U S WEST Interactive Services, Inc., an Internet content development company. Prior to that time, Mr. O'Farrell was Vice President, Corporate Strategy of U S WEST, Inc., a telephone and cable network operator, from May 1994 to August 1995 and as Executive Director, Corporate Strategy from 1992 to May 1994. Before joining U S WEST, Inc., he held general management, marketing and consulting positions in the United States and Europe with Telecom Ireland (Ireland), Booz, Allen & Hamilton (U.S.), the Commission of European Communities (Luxembourg), Digital Equipment Corporation and Siemens AG (both Germany). Mr. O'Farrell holds a B.E.E. degree from University College Dublin, Ireland and an M.B.A. degree from the Stanford University Graduate School of Business. MILO S. MEDIN has served as Vice President, Networks of the Company since he joined the Company as its first employee in June 1995. From 1985 to June 1995, he was employed at the NASA Ames Research Center ("NASA Ames"), where he was responsible for a variety of wide area networking projects, including the use of Internet technology to interconnect NASA facilities and researchers at over 200 sites in 16 countries. In 1989, Mr. Medin developed the architecture for the first Internet interconnect at NASA Ames, linking the major government backbones together. He also managed the National Research and Educational network project at NASA Ames, which, in concert with the United States Department of Energy, deployed the first non-experimental 155 Mbps Internet backbone using switched ATM services to interconnect supercomputing and data archive facilities across the United States. Prior to joining NASA, he was employed by Science Applications Inc. as a programmer for defense program activities at the Lawrence Livermore National Laboratory and at the Los Alamos National Laboratory. In addition, Mr. Medin has been active in the development of Internet routing protocols and standards, primarily in the Internet Engineering Task Force, the leading Internet development and standards organization, for more than 10 years. He studied Computer Science at the University of California at Berkeley. DAVID G. PINE has served as Vice President and General Counsel of the Company since he joined the Company in April 1996 and as Secretary of the Company since July 1996. From 1990 to March 1996, he served as Vice President, General Counsel and Secretary of Radius Inc., a manufacturer of computer peripherals. Before that, Mr. Pine was in private law practice with Fenwick & West LLP. Mr. Pine holds an A.B. degree in Government from Dartmouth College and a J.D. degree from the University of Michigan Law School. WILLIAM R. HEARST III has been a director of the Company since August 1995 and has served as Vice Chairman of the Board of Directors since July 1996. He has been a general partner of KPCB, a venture capital 51 firm, since January 1995. From May 1995 to July 1996, he was the founding Chief Executive Officer of the Company. Before joining KPCB, Mr. Hearst was editor and publisher of the San Francisco Examiner for ten years. He is a Fellow of the American Association for the Advancement of Science and a Trustee of the Carnegie Institute of Washington and the California Academy of Sciences. Mr. Hearst holds an A.B. degree in Mathematics from Harvard University. JAMES L. BARKSDALE has been a director of the Company since August 1995. He has been President and Chief Executive Officer of Netscape, an Internet software company, since January 1995. He has served as a director of Netscape since October 1994. Mr. Barksdale served as President and Chief Operating Officer of AT&T Wireless Services (formerly, McCaw Cellular Communications, Inc.) from 1992 to September 1994 and as its Chief Executive Officer from September 1994 to January 1995. From 1983 to January 1992, he served as Executive Vice President and Chief Operating Officer of Federal Express Corporation. From 1979 to 1983, Mr. Barksdale served as Chief Information Officer of Federal Express Corporation. Mr. Barksdale also serves on the boards of directors of 3Com Corporation, Harrah's Entertainment, Inc., Navio Communications Inc. and Robert Mondavi Corp. He holds a B.S. degree in Business Administration from the University of Mississippi. BRENDAN R. CLOUSTON has been a director of the Company since August 1996. He has been Executive Vice President of TCI since January 1994, Chief Financial Officer of TCI from March 1997 to April 1997, President and Chief Executive Officer of TCI Communications, Inc. ("TCIC") from October 1994 to March 1997, and Executive Vice President and Chief Operating Officer of TCIC from March 1992 to October 1994. Prior to joining TCIC, he held various executive positions with United Artists Entertainment Company and its predecessor, United Artists Communications, Inc., most recently as Executive Vice President and Chief Financial Officer. Mr. Clouston also serves on the board of directors of TCG. He holds a B.A. degree from the University of Toronto and an M.B.A. degree from the University of Western Ontario. L. JOHN DOERR has been a director of the Company since August 1995. He has been a general partner of KPCB since September 1980. Prior to joining KPCB, Mr. Doerr was employed by Intel Corporation for five years. He serves on the boards of directors of Amazon.com, Inc., Intuit Inc., Macromedia, Inc., Netscape, Platinum Software Corporation, Shiva Corporation and Sun Microsystems, Inc. Mr. Doerr holds B.S.E.E. and M.E.E. degrees from Rice University and an M.B.A. degree from the Harvard University Graduate School of Business. JOHN C. MALONE has been a director of the Company since April 1997. He has served as Chairman and Chief Executive Officer of TCI since November 1996 and as President and Chief Executive Officer of TCI from 1973 through November 1996. Dr. Malone also serves on the boards of directors of Tele-Communications International, Inc., TCI Satellite Entertainment, Inc., BET Holdings, Inc., Discovery Communications, Inc. and the Bank of New York Company, Inc. He holds a B.S. degree in Electrical Engineering and Economics from Yale University and an M.S. degree in Industrial Management and a Ph.D. in Operations Research from Johns Hopkins University. BRUCE W. RAVENEL has been a director of the Company since August 1995. Since January 1996, he has served as President and Chief Executive Officer of TCI.NET, Inc. and Senior Vice President of TCI Communications, Inc., both wholly owned subsidiaries of TCI, where he has been responsible for all Internet-related business activities of TCI. From March 1994 to January 1996, Mr. Ravenel was Senior Vice President and Chief Operating Officer of TCI Technology Ventures, Inc., a division of TCI. From March 1992 to March 1994, he served as Vice President of TCI Technology, Inc., a subsidiary of TCI. He serves on the board of directors of Acclaim Entertainment, Inc. Mr. Ravenel holds a B.A. degree in Economics from the University of Colorado. BRIAN L. ROBERTS has been director of the Company since August 1996. He has served as President of Comcast since February 1990 and as a director of Comcast since 1987. Prior to becoming President, Mr. Roberts spent eight years in various management positions with Comcast. He is also a member of the boards of directors of Comcast UK Cable Partners Limited, Storer Communications, Inc. and TCG. Mr. Roberts holds a B.S. degree in Economics from the Wharton School of Finance of the University of Pennsylvania. 52 EDWARD S. ROGERS has been a director of the Company since April 1997. He has served as President and Chief Executive Officer and a director of Rogers, a telecommunications company, since 1979 and as Acting President and Chief Executive Officer of Rogers Cablesystems Limited, a cable company and a wholly owned subsidiary of Rogers Communications, since April 1996. Mr. Rogers founded Rogers Cable TV (now Rogers Cablesystems Limited) in 1967, Rogers Radio Broadcasting Limited (now Rogers Broadcasting Limited) in 1969 and Cantel, Inc. (now Rogers Cantel, Inc.) in 1983 and has served in various management positions with Rogers related entities during the last 30 years. Mr. Rogers serves on the boards of directors of Rogers Cantel Mobile Communications Inc. and the Toronto-Dominion Bank. He holds a B.A. in Political Science and Economics from the University of Toronto and an LL.B from Osgoode Hall Law School. LARRY E. ROMRELL has been a director of the Company since August 1995. He has served as Executive Vice President of TCI since January 1994 and President and Chief Executive Officer of TCI Technology Ventures since September 1994. From 1991 to October 1994, Mr. Romrell was Senior Vice President of TCI. He serves on the boards of directors of General Communication, Inc., TCG and United Video Satellite Group, Inc. DAVID M. WOODROW has been a director of the Company since August 1996. He has served as Senior Vice President of Broadband Services for Cox since April 1994. Mr. Woodrow joined Cox in 1982 as Director, Business Development, and was promoted to Western Regional Manager in 1984, to Vice President and General Manager of Cox Cable Santa Barbara, Inc. in 1985 and to Senior Vice President, Operations in 1989. Prior to joining Cox, he was employed by the Technology Components Group of Exxon Enterprises from 1976 to 1982 and by Pitney Bowes, Inc. from 1970 to 1976. Mr. Woodrow serves on the board of directors of TCG and is a director of the Cellular Telephone Industry Association. He holds B.S. and M.S. degrees in Mechanical Engineering from Purdue University and an M.B.A. degree from the University of Connecticut. Directors are elected by the stockholders at each annual meeting of stockholders to serve until the next annual meeting of stockholders or until their successors are duly elected and qualified. The existing directors were elected pursuant to provisions in the Certificate of Incorporation, a stockholders' agreement and a voting agreement that will be modified or replaced effective upon the closing of this offering. See "Board Composition and Procedures," "Certain Transactions" and "Description of Capital Stock" below. Executive officers are elected by, and serve at the discretion of, the Board. Members of the Board do not receive compensation for their services as directors. BOARD COMPOSITION AND PROCEDURES Immediately following the closing of this offering, the Board will consist of 11 directors. Under the Company's Certificate of Incorporation, the holders of the Series B Common Stock, all of which will be owned by a subsidiary of TCI immediately following this offering, have the right to elect five members of the Board (the "Series B Common Stock Directors"). TCI has initially designated Messrs. Clouston, Ravenel and Romrell as Series B Common Stock Directors. Subject to certain conditions, TCI has also agreed to elect one representative designated by Comcast and one representative designated by Cox as Series B Common Stock Directors. Mr. Roberts is the current representative of Comcast, and Mr. Woodrow is the current representative of Cox. The holders of the Series K Common Stock, the substantial majority of which is controlled by KPCB, have the right to elect one director (the "Series K Common Stock Director"), who is currently Mr. Doerr. So long as the holders of Series B Common Stock or Series K Common Stock are entitled to elect any Series B Common Stock Director or any Series K Common Stock Director, the holders of Series A Common Stock have the right to elect two directors (the "Series A Common Stock Directors") who are not officers or employees of the Company and are not affiliates or associates of TCI, Comcast or Cox ("Outside Directors"). Messrs. Barksdale and Hearst are the current Series A Common Stock Directors. Immediately following this offering, TCI, Comcast and Cox will own approximately %, % and %, respectively, of the outstanding Series A Common Stock, and TCI together with either Comcast or/and Cox will have the ability to elect both of the Series A Common Stock Directors. The remaining three directors are elected by all of the stockholders voting together. Since TCI holds more than 50% of the outstanding voting power of the Company's capital stock, it has the power to elect all three of these directors. However, TCI, Comcast, Cox and KPCB have 53 agreed to vote for the election of the Chief Executive Officer of the Company to the Board. Subject to certain conditions, TCI, Comcast and Cox have also agreed to vote for the election to the Board of one representative jointly designated by Rogers and Shaw, who is currently Mr. Rogers. TCI has elected Dr. Malone to the remaining position on the Board. Under the Certificate of Incorporation, a committee consisting of the Series B Common Stock Directors who are officers, directors or employees of TCI or any subsidiary of TCI (the "Series B Committee") has the power, exercisable at any time, so long as TCI holds at least 7,700,000 shares of Series B Common Stock and a majority of the voting power of the Company, to increase the size of the Board up to 17 directors and to elect up to six additional directors to fill any vacancies created by the increase. Since three of the five Series B Common Stock Directors and four of the eleven current directors are officers of TCI or a subsidiary of TCI, TCI has the power, without a meeting of the stockholders, to increase the size of the Board up to 17 directors and appoint a total of 10 members, constituting at least a majority of the Board, without a meeting of the stockholders. See "Description of Capital Stock." Under the Certificate of Incorporation, all actions of the Board must be approved by (i) a majority of the members of the Board present at a meeting at which a quorum is present or unanimous written consent of all members of the Board and (ii) so long as TCI owns at least 7,700,000 shares of Series B Common Stock and securities representing a majority of the outstanding voting power of the Company, a majority of the Series B Common Stock Directors. Accordingly, because TCI has the right to elect three of the five Series B Common Stock Directors, TCI has the power to prevent the Board from taking any action that is not approved by its designated Series B Common Stock Directors. In addition, to the extent that TCI exercises its power to elect a majority of the entire Board, TCI will be able to control all Board decisions, subject to the supermajority and unanimous vote requirements discussed below. In addition, certain actions of the Board require the approval of a of at least 75% (currently five of six) of the total number of Series B and Series K Common Stock Directors, and certain other actions of the Board require the unanimous approval of all of the Series B and Series K Common Stock Directors. Accordingly, with the current composition of the Board, actions that require supermajority approval cannot be taken without the approval of at least two of the three directors designated by Comcast, Cox and KPCB, and actions that require unanimous approval cannot be taken without the approval of all three of such directors and the Series B Common Stock Directors designated by TCI. The Company actions that require supermajority approval by the Series B and Series K Directors are: (i) a merger, consolidation or other business combination; (ii) the acquisition of assets having a value greater than 20% of the value of the Company's assets; (iii) the disposition of assets having an aggregate value greater than 50% of the value of the Company's assets; (iv) the acquisition by the Company of assets in exchange for capital stock that would constitute more than 16 2/3% of its fully diluted shares (other than a sale of stock solely for cash); (v) the appointment or removal of the Chief Executive Officer; (vi) voluntary dissolution or liquidation or the initiation of voluntary bankruptcy proceedings; (vii) any amendment of the Certificate of Incorporation or Bylaws of the Company other than the filing of a Certificate of Designation establishing a series of Preferred Stock; (viii) the creation or issuance of any additional class or series of capital stock having more than one vote per share or entitled to vote as a separate class or series on any matter subject to certain exceptions; (ix) any increase in the number of shares reserved for issuance to management of the Company in excess of 16,000,000 shares plus an amount equal to the greater of (a) 7.5% of the number of shares issued by the Company after August 1, 1996 or (b) 4% per year of the total fully diluted shares outstanding on August 1, 1996; (x) the declaration of dividends on or certain repurchases of Common Stock, (xi) the adoption of any budget for the Company that does not provide for a substantially pro rata rollout of the Company's services to TCI, Comcast and Cox in proportion to the number of qualifying homes passed made available by them to the Company and (xii) the appointment of any Outside Directors to the .Com Committee other than the current members of the .Com Committee. The Company actions that require unanimous approval by the Series B and Series K Directors are: (i) the authorization or issuance of any shares of Series AX, AM, AT and T Preferred Stock other than pursuant to the power granted to the Board in the Certificate of Incorporation; (ii) any amendments to or modifications of the actions requiring supermajority or unanimous approval of the Series B and Series K Directors; (iii) any increase 54 in the number of Series B or Series K Common Stock Directors; (iv) any modifications of the rights of the holders of Series B or Series K Common Stock to designate and elect directors; (v) the appointment of any directors to the .Com Committee other than the Chief Executive Officer, the other directors who are currently members of the .Com Committee and any additional Outside Directors elected to the .Com Committee by supermajority vote; and (vi) any amendment to the specifications and standards for the @Home service that would require the operator facilities of any affiliate of a Principal Cable Stockholder to be capable of distributing or providing streaming video transmissions that include video segments longer than ten minutes in duration. The Certificate of Incorporation specifies certain requirements for the approval of certain transactions between the Company and any holder of more than 5% of the voting power of the Company or any affiliate of such holder. First, such a related party transaction must be approved by a majority of the members of the Board present at a meeting for which the notice sets forth the related party transaction and a reasonably detailed description of the matter, or by unanimous written consent of the Board following such a meeting. In addition, so long as the holders of Series B Common Stock are entitled to elect a Series B Common Stock Director, the related party transaction must also be approved either (i) by a majority of the Series B and Series K Common Stock Directors who are disinterested with respect to the transaction and by a majority of all Series B Common Stock Directors regardless of whether they are disinterested with respect to the transaction or (ii) by all of the Series B Common Stock Directors regardless of whether they are disinterested with respect to the transaction. These requirements do not apply to (i) transactions involving an aggregate amount less than $1,000,000 that are entered into in the ordinary course of business on arms'-length terms, (ii) the entering into of LCO Agreements and other agreements for the provision of ancillary or related services that are on terms no more favorable to the related party than the terms of similar agreements then currently offered by the Company to affiliates of each other Principal Cable Stockholder without regard to size, identity or ownership of securities of the Company, (iii) the entering into or performance under any .Com Agreement or Promotional Agreement discussed below or (iv) any actions taken by the Series B Committee. .COM COMMITTEE The Company's Certificate of Incorporation establishes a committee of the Board referred to as the ".Com Committee" consisting of the Chief Executive Officer of the Company and the other members of the Board who are not affiliated with TCI, Comcast or Cox (currently Messrs. Jermoluk, Barksdale, Doerr and Hearst) to review and approve certain content and promotional agreements (".Com Agreements" and "Promotional Agreements") between the Company and content providers that are affiliates of the Principal Cable Stockholders. It is the Company's policy to maintain a position of openness and non-exclusion with regard to entering into such agreements and that such content providers will not be unfairly advantaged or disadvantaged in their ability to obtain carriage or promotion on the Company's services by reason of their relationship with a Principal Cable Stockholder. Accordingly, any .Com Agreement or Promotional Agreement between the Company and any affiliate of a Principal Cable Stockholder may be approved by any one of three methods, to be chosen by the applicable Principal Cable Stockholder: (i) by the authorized officers of the Company on the Company's standard terms and conditions, (ii) by a majority of the .Com Committee or (iii) by a majority of the entire Board including all of the Series B Common Stock Directors. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Company's Compensation Committee was formed in July 1996 to review and approve the compensation and benefits for the Company's key executive officers, administer the Company's stock purchase and stock option plans and make recommendations to the Board regarding such matters. The Compensation Committee is currently composed of Messrs. Ravenel and Doerr. No interlocking relationship exists between the Board or Compensation Committee and the board of directors or compensation committee of any other company, nor has any such interlocking relationship existed in the past. 55 AUDIT COMMITTEE The Board has established an Audit Committee to meet with and consider suggestions from members of management and the Company's internal audit staff, as well as the Company's independent accountants, concerning the financial operations of the Company. The Audit Committee also has the responsibility to review audited financial statements of the Company and consider and recommend the employment of, and approve the fee arrangements with, independent accountants for both audit functions and for advisory and other consulting services. Messrs. Hearst, Ravenel and Woodrow are the members of the Audit Committee. EXECUTIVE COMPENSATION The following table sets forth certain summary information concerning the compensation awarded to, earned by, or paid for services rendered to the Company in all capacities during 1996 by the Company's present and former Chief Executive Officers and the four most highly compensated executive officers, other than the Chief Executive Officers, who were serving as executive officers at the end of 1996 and whose compensation for 1996 was in excess of $100,000 (collectively, the "Named Executive Officers"). SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL COMPENSATION AWARDS ------------------------- --------------- OTHER ANNUAL RESTRICTED OTHER NAME AND PRINCIPAL POSITION SALARY COMPENSATION STOCK AWARDS(1) COMPENSATION(2) - --------------------------- -------- ------------ --------------- --------------- Thomas A. Jermoluk, Chairman, President and Chief Executive Officer................ $209,985 -- -- (3) $272 William R. Hearst III, Former Chief Executive Officer................ -- (4) -- -- (5) -- Sean Doherty, Former President, @Work Group.................. 217,869 -- -- (6) 257 Dean A. Gilbert, Senior Vice President and General Manager, @Home Group.................. 201,643 $30,000 (7) -- (8) 425 Milo S. Medin, Vice President, Networks.... 154,744 -- -- (9) 257 Kenneth A. Goldman, Senior Vice President and Chief Financial Officer................ 104,664 50,000 (7) -- (10) 464
- -------- (1) All shares reflected in this column were purchased at their fair market value on the date of purchase. With the exception of Mr. Hearst's shares, which were immediately vested, all shares are restricted shares that vest over a period of four years so long as the individual remains continuously employed by the Company. The Company has the right to repurchase unvested restricted shares at cost upon the termination of the executive's employment. (2) Represents life insurance premiums paid by the Company. (3) Mr. Jermoluk was employed by the Company in July 1996. On July 31, 1996, he purchased 3,000,000 shares of the Company's Series A Common Stock for $150,000 in cash and 50,000 shares of the Company's Series K Preferred Stock for $500,000 in cash. As at December 31, 1996, he held vested and unvested restricted shares with aggregate values of $812,500 and $2,437,500, respectively. See "--Employment Agreement." (4) Mr. Hearst, a general partner of KPCB, served on an interim basis as Chief Executive Officer without compensation. (5) Mr. Hearst purchased 400,000 shares of the Company's Series A Common Stock on July 31, 1996 for $20,000 in cash. As of December 31, 1996, the aggregate value of all shares held by Mr. Hearst was $100,000. (6) Mr. Doherty purchased 500,000 shares of the Company's Series A Common Stock on May 31, 1996 in exchange for a promissory note in the amount of $25,000. As of December 31, 1996, he held vested and 56 unvested restricted shares with aggregate values of $44,312 and $80,688, respectively. Mr. Doherty resigned his employment with the Company in February 1997, and the Company repurchased the 301,850 shares that were unvested at the time of his resignation for their original purchase price by reducing the outstanding principal and interest due under the promissory note. (7) Represents amounts paid in connection with the Company's employment of these individuals. (8) Mr. Gilbert was employed by the Company in February 1996. Mr. Gilbert purchased 440,000 shares of the Company's Series A Common Stock on May 31, 1996 in exchange for a promissory note in the amount of $22,000. As of December 31, 1996, Mr. Gilbert held no vested restricted shares and held unvested restricted shares with an aggregate value of $110,000. (9) Mr. Medin purchased 600,000 shares of the Company's Series A Common Stock on May 31, 1996 in exchange for a promissory note in the amount of $30,000. As of December 31, 1996, Mr. Medin held vested and unvested restricted shares with aggregate values of $56,310 and $93,690, respectively. (10) Mr. Goldman was employed by the Company in July 1996. Mr. Goldman purchased 550,000 shares of the Company's Series A Common Stock on July 29, 1996 for $27,500 in cash. As of December 31, 1996, Mr. Goldman held no vested restricted shares and held unvested restricted shares with an aggregate value of $137,500. The Company granted no stock options to the Named Executive Officers through December 31, 1996. EMPLOYEE BENEFIT PLANS 1996 Incentive Stock Option Plan. In January 1996, the Board adopted the 1996 Incentive Stock Option Plan (the "First 1996 Plan"), which was amended in May 1996. Under the First 1996 Plan, up to 3,000,000 shares of Series A Common Stock were reserved for issuance. As of March 31, 1997, options to purchase 2,559,426 shares had been exercised (net of repurchases), options to purchase an additional 175,000 shares of Series A Common Stock at an exercise price of $.05 were outstanding and 265,574 shares remained available for future grants. Following the closing of this offering, no additional options will be granted under the First 1996 Plan. Options granted under the First 1996 Plan are subject to terms substantially similar to those described below with respect to options to be granted under the 1997 Equity Incentive Plan. The First 1996 Plan does not provide for issuance of restricted stock or stock bonus awards. 1996 Incentive Stock Option Plan No. 2. In July 1996, the Board adopted the 1996 Incentive Stock Option Plan No. 2 (the "Second 1996 Plan"), which was amended in October 1996. Under the Second 1996 Plan, up to 13,000,000 shares of Series A Common Stock were reserved for issuance, provided that such number is reduced by the number of restricted shares sold outside of the First 1996 Plan and Second 1996 Plan (6,825,150 such shares were sold through March 31, 1997 (net of repurchases)). As of March 31, 1997, options to purchase 3,946,751 shares had been exercised (net of repurchases), options to purchase 744,250 shares were outstanding at exercise prices ranging from $.05 to $.25 per share, and 1,483,849 shares were available for grant. Following the closing of this offering, no additional options will be granted under the Second 1996 Plan. Options granted under the Second 1996 Plan are subject to terms substantially similar to those described below with respect to options to be granted under the 1997 Equity Incentive Plan. The Second 1996 Plan does not provide for issuance of restricted stock or stock bonus awards. 1997 Equity Incentive Plan. In May 1997, the Board adopted and the stockholders approved the 1997 Equity Incentive Plan, under which the total number of shares of Series A Common Stock reserved for issuance is 16,000,000 less: (a) the total number of shares issued by the Company under (i) restricted stock purchase agreements entered into prior to the effective date of the 1997 Equity Incentive Plan with employees, officers, directors, consultants, independent contractors or advisors of the Company and (ii) the First 1996 Plan or the Second 1996 Plan (the "1996 Plans") pursuant to the exercise of options granted on or before the effective date of the 1997 Equity Incentive Plan; (b) shares that are issuable as of the effective date of the 1997 Equity Incentive Plan upon exercise of options granted under the 1996 Plans; and (c) shares reserved for issuance at any time under the Company's 1997 Employee Stock Purchase Plan. 57 Shares that: (a) are subject to issuance upon exercise of an option granted under the 1996 Plans or under the 1997 Equity Incentive Plan that cease to be subject to such option for any reason other than exercise of such option; (b) are subject to an award granted under restricted stock purchase agreements entered into prior to the effective date of the 1997 Equity Incentive Plan with employees, officers, directors, consultants, independent contractors or advisors of the Company, the 1996 Plans, or the 1997 Equity Incentive Plan, that are forfeited or are repurchased by the Company at the original issue price; or (c) are subject to any other award granted under the 1996 Plans or under the 1997 Equity Incentive Plan that otherwise terminates without shares being issued, will again be available for grant and issuance under the 1997 Equity Incentive Plan. In addition, on August 1, 1997, the number of shares reserved for issuance under the 1997 Equity Incentive Plan will automatically increase by 4,200,000 shares. The 1997 Equity Incentive Plan will become effective on the effective date of the Registration Statement for this offering and will serve as the successor to the 1996 Plans. The 1997 Equity Incentive Plan will terminate in May 2007, unless sooner terminated by the Board. The 1997 Equity Incentive Plan authorizes the award of options, restricted stock awards and stock bonuses (each an "Award"). No person will be eligible to receive more than 1,000,000 shares in any calendar year pursuant to Awards under the 1997 Equity Incentive Plan other than a new employee of the Company who will be eligible to receive no more than 2,000,000 shares in the calendar year in which such employee commences employment. The 1997 Equity Incentive Plan is administered by a committee appointed by the Board, currently the Compensation Committee, currently consisting of Messrs. Doerr and Ravenel, both of whom are "disinterested persons" under applicable federal securities laws and "outside directors" as defined under applicable federal tax laws. The committee has the authority to construe and interpret the 1997 Equity Incentive Plan and any agreement made thereunder, grant Awards and make all other determinations necessary or advisable for the administration of the 1997 Equity Incentive Plan. The 1997 Equity Incentive Plan provides for the grant of both incentive stock options ("ISOs") that qualify under Section 422 of the Code and nonqualified stock options ("NQSOs"). ISOs may be granted only to employees of the Company or of a parent or subsidiary of the Company. NQSOs may be granted to employees, officers, directors, consultants, independent contractors and advisors of the Company or any parent or subsidiary of the Company, provided such consultants, independent contractors and advisors render bona fide services not in connection with the offer and sale of securities in a capital- raising transaction ("Eligible Service Providers"). The exercise price of ISOs must be at least equal to the fair market value of the Company's Series A Common Stock on the date of grant. (The exercise price of ISOs granted to ten percent stockholders must be at least equal to 110% of that value.) The exercise price of NQSOs must be at least equal to 85% of the fair market value of the Company's Series A Common Stock on the date of grant. The maximum term of options granted under the 1997 Equity Incentive Plan is ten years. Options granted under the 1997 Equity Incentive Plan may not be transferred in any manner other than by will or by the laws of descent and distribution and may be exercised during the lifetime of the optionee only by the optionee. Options granted under the 1997 Equity Incentive Plan generally expire three months after the termination of the optionee's service to the Company or a parent or subsidiary of the Company, except in the case of death or disability, in which case the options generally may be exercised up to 12 months following the date of death or termination of service. Options will generally terminate one month after termination for cause. Opportunities to purchase shares of the Company's Series A Common Stock ("Restricted Stock Awards"), and awards of shares of the Company's Series A Common Stock ("Stock Bonuses"), either of which may be subject to a right of repurchase in favor of the Company or other restrictions on ownership or transfer, may be given to Eligible Service Providers. The administrator of the 1997 Equity Incentive Plan has the authority to determine the restrictions applied to the stock. The sum of (i) Restricted Stock Awards, (ii) Stock Bonuses and (iii) options with an exercise or purchase price below fair market value issued under the 1997 Equity Incentive Plan may not exceed 20% of the total number of shares reserved for issuance under the 1997 Equity Incentive Plan as of any date. If the Company is acquired under certain circumstances, any or all outstanding Awards may be assumed or replaced by the successor corporation. If Awards are not assumed, the vesting of such Awards will accelerate 58 and all outstanding options will become exercisable in full prior to the consummation of the transaction. Any options not exercised prior to the transaction will expire. 1997 Employee Stock Purchase Plan. In May 1997, the Board adopted and the stockholders approved the 1997 Employee Stock Purchase Plan (the "Purchase Plan") and reserved a total of 400,000 shares of the Company's Series A Common Stock for issuance thereunder. The Purchase Plan will become effective upon the effective date of the Registration Statement for this offering and will permit eligible employees to acquire shares of the Company's Series A Common Stock through payroll deductions. Eligible employees may select a rate of payroll deduction between 2% and 10% of their compensation and are subject to certain maximum purchase limitations described in the Purchase Plan. Except for the first offering, each offering under the Purchase Plan will be for a period of 24 months (the "Offering Period") and will consist of four six-month purchase periods (each a "Purchase Period"). The first Offering Period is expected to begin on the first business day following the effective date of this Registration Statement and, depending on the effective date of this Registration Statement, may be greater or less than 24 months long. Offering Periods thereafter will begin on February 15 and August 15. The purchase price for the Company's Series A Common Stock purchased under the Purchase Plan is 85% of the lesser of the fair market value of the Company's Series A Common Stock on the first day of the applicable Offering Period and the last day of the applicable Purchase Period. The Board has the power to change the duration of Offering Periods and Purchase Periods without stockholder approval, if such change is announced at least 15 days prior to the beginning of the Offering or Purchase Period to be affected. The Purchase Plan is intended to qualify as an "employee stock purchase plan" under Section 423 of the Code. 401(k) Plan. The Board maintains the @Home 401(k) Plan (the "401(k) Plan"), a defined contribution plan intended to qualify under Section 401 of the Code. All employees who are at least 21 years old and have been employed by the Company for one month are eligible to participate in the 401(k) Plan. An eligible employee of the Company may begin to participate in the 401(k) Plan on the first day of January, April, July or October of the Plan year coinciding with or following the date on which such employee meets the eligibility requirements. A participating employee may make pre-tax contributions of a percentage (not less than 2% and not more than 20%) of his or her eligible compensation and up to 100% of any cash bonus, subject to limitations under the federal tax laws. Employee contributions and the investment earnings thereon are fully vested at all times. The Company does not make matching or profit-sharing contributions. EMPLOYMENT AGREEMENT On July 31, 1996, the Board elected Thomas A. Jermoluk as President, Chief Executive Officer and Chairman of the Board of the Company pursuant to an employment agreement dated July 19, 1996. Under the employment agreement, the Company has agreed to pay Mr. Jermoluk an annual base salary of $500,000 per year, and Mr. Jermoluk is eligible to receive a bonus of $200,000 per year based on the performance of the Company with respect to its annual operating plan. On July 31, 1996, the Company sold to Mr. Jermoluk a total of 3,000,000 shares of Series A Common Stock at a purchase price of $.05 per share for a total of $150,000 and a total of 50,000 shares of the Company's Series K Preferred Stock at a purchase price of $10 per share for a total of $500,000. Of these shares, 25% were immediately vested on July 22, 1996, and an additional 2.08% will vest each month on August 22, 1997 and each subsequent month of Mr. Jermoluk's continuous employment. The Series K Preferred Stock will be converted upon the closing of this offering into 1,000,000 shares of Series K Common Stock. Under the terms of Mr. Jermoluk's employment agreement, so long as Mr. Jermoluk is employed by the Company, and for 90 days thereafter if his employment is terminated without cause, to the extent that Mr. Jermoluk sells any of his vested shares during the five-year period beginning on July 22, 2000 at an average price less than $5 per share, the Company is obligated to pay Mr. Jermoluk the excess of $5 per share over such average price for each share sold. The Company must repurchase any unvested shares at Mr. Jermoluk's cost upon the termination of his employment. If the Company terminates Mr. Jermoluk's employment without cause, the Company will be obligated to pay Mr. Jermoluk's base salary and bonus for six months after the date of such termination, and the Company's right to repurchase any unvested shares will lapse at the date of such termination. 59 INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY The Company's Certificate of Incorporation includes a provision that eliminates, to the fullest extent permitted by the Delaware General Corporation Law (the "Delaware Law"), the personal liability of its directors for monetary damages for breach of fiduciary duty as a director. As permitted by Section 145 of the Delaware Law, the Company's Certificate of Incorporation provides that (i) the Company is required to indemnify its directors and officers to the fullest extent permitted by the Delaware Law, (ii) the Company is required to advance expenses, as incurred, to its directors and officers in connection with a legal proceeding after receipt of an undertaking by such directors or officers to repay all amounts to which they are ultimately determined not to be entitled, (iii) to the extent that the Company is obligated to indemnify a person who is serving at its request as a director, officer, employee or agent of another entity, the Company's obligation will be reduced by any amount the indemnitee collects from such other entity and (iv) the rights conferred in the Company's Certificate of Incorporation are not exclusive. The Company has entered into Indemnification Agreements with each of its current directors and intends to enter into such Indemnification Agreements with each of its executive officers to give such directors and officers additional contractual assurances regarding the scope of the indemnification set forth in the Company's Certificate of Incorporation and to provide additional procedural protections. At present, except as disclosed in "Business--Legal Proceedings," there is no pending litigation or proceeding involving a director, officer or employee of the Company for which indemnification is sought, nor is the Company aware of any threatened litigation that may result in claims for indemnification. 60 CERTAIN TRANSACTIONS Since March 28, 1995, the Company's inception date, there has not been nor is there currently proposed, any transaction or series of similar transactions to which the Company or any of its subsidiaries was or is to be a party in which the amount involved exceeds $60,000 and in which any director, executive officer, holder of more than 5% of the Common Stock of the Company or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest other than (i) compensation agreements, which are described where required in "Management," and (ii) the transactions described below. TRANSACTIONS WITH DIRECTORS, EXECUTIVE OFFICERS AND 5% SECURITY HOLDERS The Company has financed its operations to date through a series of private Preferred Stock financings. Upon the closing of this offering, all shares of Preferred Stock will be converted into shares of Common Stock at a conversion rate of 20 shares of Common Stock for each share of Preferred Stock subject to adjustment of the Series C Preferred Stock conversion rate if the offering price is less than $10 per share of Series A Preferred Stock. Shares of Series T Preferred Stock will be converted into shares of Series B Common Stock. Shares of Series K Preferred Stock will be converted into shares of Series K Common Stock. Shares of all other series of Preferred Stock will be converted into shares of Series A Common Stock. See "Description of Capital Stock." Initial Financings from TCI and KPCB. On August 29, 1995 and May 9, 1996, the Company sold shares of its Series T Preferred Stock to a wholly owned subsidiary of TCI and shares of its Series K Preferred Stock to venture capital funds affiliated with KPCB, in each case at a cash purchase price of $10 per share, as follows:
PURCHASER DATE TYPE OF STOCK SHARES TOTAL PURCHASE PRICE --------- ------- ------------------------- ------- -------------------- TCI............. 8/29/95 Series T Preferred Stock 770,000 $ 7,700,000 KPCB............ 8/29/95 Series K Preferred Stock 230,000 2,300,000 TCI............. 5/9/96 Series T Preferred Stock 770,000 7,700,000 KPCB............ 5/9/96 Series K Preferred Stock 230,000 2,300,000
1996 Financing from TCI, Comcast, Cox and KPCB. On August 1, 1996, the Company issued 770,000 shares of its Series AT Preferred Stock to a wholly owned subsidiary of TCI in exchange for the cancellation of 770,000 shares of the Company's Series T Preferred Stock and sold additional shares of its Preferred Stock to wholly owned subsidiaries of TCI, Comcast and Cox and purchasers affiliated with KPCB (the "KPCB Purchasers"), in each case at a cash purchase price of $10 per share, as follows:
PURCHASER TYPE OF STOCK SHARES TOTAL PURCHASE PRICE --------- ------------------------- ------- -------------------- TCI..................... Series AT Preferred Stock 783,000 $ 7,830,000 Comcast................. Series AM Preferred Stock 727,865 7,278,650 Cox..................... Series AX Preferred Stock 727,865 7,278,650 KPCB Purchasers......... Series K Preferred Stock 233,883 2,338,830
1997 Financing from Rogers, Shaw and Other Strategic Partners. On April 11, 1997, the Company sold an aggregate of 240,000 shares of its Series C Preferred Stock at a cash purchase price of $200 per share to certain companies with which the Company has established a strategic commercial relationship and to James L. Barksdale, who is a director of the Company and the Chief Executive Officer of Netscape. Among the purchasers were the following:
PURCHASER TYPE OF STOCK SHARES TOTAL PURCHASE PRICE --------- ------------------------- ------- -------------------- Rogers.................. Series C Preferred Stock 75,000 $15,000,000 Shaw.................... Series C Preferred Stock 75,000 15,000,000 Netscape................ Series C Preferred Stock 20,000 4,000,000 James L. Barksdale...... Series C Preferred Stock 5,000 1,000,000
61 In connection with the Series C Preferred Stock financing, the Company entered into agreements with Rogers and Shaw granting them exclusive rights to distribute the @Home service in Canada under the "Wave@Home" brand and the right to license other cable companies to distribute the service in Canada. In addition, on April 11, 1997, the Company granted to Rogers and Shaw transferable warrants to purchase up to an aggregate of 100,000 shares of Series C Preferred Stock each at a purchase price of $200 per share (which warrants will be converted into the right to purchase up to an aggregate of 2,000,000 shares of Series A Common Stock at $ per share following this offering). These warrants will become exercisable on April 11, 2004 or earlier upon the achievement of certain performance milestones with respect to the distribution of the Wave@Home service in Canada. Pursuant to a Voting Agreement entered into with Rogers and Shaw on April 11, 1997, TCI, Comcast and Cox have agreed (i) to use their reasonable best efforts to cause a single representative designated jointly by Rogers and Shaw to be nominated for election to the Board and an additional representative designated jointly by Rogers and Shaw to be afforded the right to attend all meetings of the Board as a nonvoting observer and (ii) to vote all voting securities of the Company controlled by them in favor of election of the designee of Rogers and Shaw to the Board. The Voting Agreement will terminate on the earlier to occur of the date that (i) neither Rogers nor Shaw continues to offer the Wave@Home service on an exclusive basis or (ii) Rogers and Shaw together with their controlled affiliates cease to own at least 2,000,000 shares of Series A Common Stock plus either an additional 500,000 shares of Series A Common Stock or warrants to purchase an additional 500,000 shares of Series A Common Stock. Stockholders' Agreement. On August 1, 1996, TCI, Comcast, Cox and the KPCB Purchasers (collectively, the "Principal Stockholders") and the Company entered into a Stockholders' Agreement, which they have agreed to amend upon the closing of this offering (as amended, the "Stockholders' Agreement"), which provides for certain voting agreements, restrictions on transfer of Company securities, rights of first offer, tag-along and drag-along rights and preemptive rights. The following summary description of the Stockholders' Agreement does not purport to be complete and is qualified in its entirety by reference to the text of the Stockholders' Agreement, which is filed as an exhibit to the Registration Statement of which this Prospectus forms a part. Furthermore, there can be no assurance that the parties will not cause the Stockholders' Agreement to be amended, modified or terminated or cause the Company to waive any provision of the Stockholders' Agreement. The Stockholders' Agreement provides that each Principal Stockholder will vote all of its shares of Company voting stock in favor of any action required by the Stockholders' Agreement, including the election of the Chief Executive Officer of the Company to its Board, and that any holder of Series B Common Stock (all of which is currently owned by TCI) will vote all such shares in favor of the election of certain designees of TCI, Comcast and Cox to the Board (the "Series B Common Stock Directors") as follows: Comcast will be entitled to designate one director so long as it owns at least 5,000,000 shares of Common Stock; Cox will be entitled to designate one director so long as it owns at least 5,000,000 shares of Common Stock; and TCI will be entitled to designate three directors so long as it owns at least 7,700,000 shares of Series B Common Stock, two directors so long as it owns at least 6,350,000 shares of Series B Common Stock and one director so long as it owns at least 5,000,000 shares of Series B Common Stock. The Stockholders' Agreement, with certain exceptions, restricts transfers of Company securities by the Principal Stockholders until the earliest to occur of (i) June 4, 2006, (ii) the fifth anniversary of the termination of the exclusive period applicable to any Principal Cable Stockholder and (iii) the sixth anniversary of this offering. To the extent transfers of Series B and K Common Stock are permitted, the holders of such shares generally must convert them to Series A Common Stock prior to consummating such transfers. Following the first anniversary of this offering, each Principal Stockholder will be permitted to sell its Company securities in the public market if it first offers to each other Principal Stockholder the right of first offer to purchase such securities. Following the closing of this offering, the restrictions on transfer will not apply to any constituent partner of KPCB. The restrictions on transfer do not apply to a transfer of Company securities that would result in an unaffiliated third party acquiring a majority of the voting stock of the Company (a "Control Block Sale"). In the event of a Control Block Sale, all Principal Stockholders that continue to own at least 25% of the Company 62 securities they now hold (the "Eligible Principal Stockholders") will be permitted to participate in the Control Block Sale by selling a pro rata portion of their Company securities to the third party (the "Tag-Along Right"). If any group of Principal Stockholders consisting of TCI and any two other Eligible Principal Stockholders proposes to make a Control Block Sale, that group will have the right to require the other Principal Stockholders to sell a pro rata portion of their Company securities to the third party in the Control Block Sale (the "Drag-Along Right"). The Stockholders' Agreement provides that, if the number of homes passed by a Principal Cable Stockholder's cable systems that are subject to (or have been released from) the exclusivity provisions of the Master Distribution Agreement with the Company described below falls below 80% of the Principal Cable Stockholder's base homes passed as of June 4, 1996, then such Principal Cable Stockholder must offer to sell a proportionate amount of its Company securities to the other Principal Stockholders at a price equal to the average closing price of the Company's Series A Common Stock over the most recent 20 trading days preceding the event. The Stockholders' Agreement gives each Eligible Principal Stockholder the preemptive right to purchase a pro rata portion of any new securities offered by the Company other than securities issued pursuant to a public offering, securities issued pursuant to any incentive plan or agreement for the benefit of the Company's employees, directors or consultants, securities issued by the Company in connection with an acquisition, and securities issued in exchange for interests in a joint venture or other business combination. The Stockholders' Agreement will terminate on the earliest of (i) June 4, 2021, (ii) when there are no Eligible Principal Stockholders and no Principal Cable Stockholders subject to exclusivity obligations under the Master Distribution Agreement, (iii) a merger in which the Company is not the surviving entity or (iv) when there are no shares of Common Stock or Preferred Stock of the Company outstanding. Registration Rights Agreement. All of the current holders of Preferred Stock have certain registration rights with respect to their shares of Series A Common Stock following this offering. See "Description of Capital Stock-- Registration Rights." Officer Loans. In connection with the exercise of stock options granted under the Second 1996 Plan, the Company permitted two executive officers, Donald P. Hutchison and John L. O'Farrell to purchase shares of Series A Common Stock in exchange for promissory notes in the amounts of $96,000 and $66,000, respectively. Each note is secured by the shares purchased with that note. The notes bear interest at the rates of 6.31% and 6.42%, respectively, and are due and payable on March 15, 2002 and April 28, 2002, respectively. The Company has approved loans to Messrs. Hutchison and O'Farrell of $100,000 and $200,000, respectively, to assist each of them in the purchase of a home. The loans will be secured by the homes purchased by Messrs. Hutchison and O'Farrell, respectively. The loans, which have not yet been issued, will have a five-year term and bear interest at the minimum rate sufficient to avoid imputation of taxable income. CERTAIN BUSINESS RELATIONSHIPS Master Distribution Agreement with TCI, Comcast and Cox. In May 1997, the Company and its Principal Cable Stockholders (TCI, Comcast and Cox) entered into the Master Distribution Agreement. The following summary description of the Master Distribution Agreement does not purport to be complete and is qualified in its entirety by reference to the text of the Master Distribution Agreement, which is filed as an exhibit to the Registration Statement of which this Prospectus forms a part. Furthermore, there can be no assurance that the parties will not cause the Master Distribution Agreement to be amended, modified or terminated or cause the Company to waive any portion of the Master Distribution Agreement. Under the terms of the Master Distribution Agreement, in connection with the Company's periodic budgets and business plans, the parties have agreed to cooperate in good faith to establish a master rollout schedule for 63 the deployment of the @Home service within the cable system territories of the respective Principal Cable Stockholders, and the Company is obligated to use commercially reasonable efforts to cause the @Home service to be made available to the qualifying upgraded homes passed of the Principal Cable Stockholders on a substantially pro rata basis in accordance with the master roll-out schedule. While the Master Distribution Agreement provides that the Principal Cable Stockholders will be subject to certain exclusivity obligations described below, there is no affirmative obligation on the part of the Principal Cable Stockholders to upgrade their cable plants to two-way HFC cable or to offer the @Home service over their cable systems. The Master Distribution Agreement contemplates that the Company will enter into agreements ("LCO Agreements") with the local cable operators affiliated with the Principal Cable Stockholders ("Affiliated LCOs") for the distribution of the @Home service, although no LCO Agreements have been executed to date. The Company and the Principal Cable Stockholders have established the principal terms of the LCO Agreements, including the payment to the Company of 35% of the basic and premium service revenue received by Affiliated LCOs from subscribers to the @Home service. There can be no assurance that the parties will not cause the LCO Agreements to be amended, modified or terminated or cause the Company to waive any provision of the LCO Agreements. Until June 4, 2002 or such earlier time as the exclusivity provisions described below terminate as to a Principal Cable Stockholder (the "Restricted Period"), each Principal Cable Stockholder has agreed not to conduct, participate in or have a material beneficial ownership in any business within the United States (a "Restricted Business") that involves (i) the provision of a residential Internet service over the cable television plant of the Principal Cable Stockholder at data transmission speeds greater than 128 Kbps and whose primary purpose is the provision to consumers of entertainment, information content, transactional services or electronic mail, chat and news groups (a "Consumer Purpose"), (ii) the connection by the Principal Cable Stockholder of its cable television plant directly or indirectly to any Internet backbone for a Consumer Purpose at data transmission speeds greater than 128 Kbps or (iii) the provision of an Internet backbone service. These exclusivity provisions do not apply to (i) the creation or aggregation of content, (ii) the provision of telephony services, (iii) the provision of services that are primarily work-related such as the @Work services, (iv) the provision of Internet services that do not use the cable television plant, (v) the provision of any local Internet service that does not require use of an Internet backbone outside a single metropolitan area, (vi) the provision of services that are utilized primarily to connect students to schools, colleges or universities, (vii) the provision of Internet telephony, Internet video telephony or Internet video conferencing, (viii) the provision of certain limited Internet services for display on a television, (ix) the provision of certain Internet services that are primarily downstream services where the user cannot send upstream commands in "real-time," as referenced in the Master Distribution Agreement, (x) the provision of streaming video transmissions that include video segments longer than ten minutes in duration or (xi) limited testing, trials and similar activities of less than six months. The exclusivity provisions described in the preceding paragraph may be terminated under the following circumstances: (i) Comcast may terminate its exclusivity obligations at its election after June 4, 1999 if it permits a portion of its equity in the Company to be repurchased by the Company at Comcast's original cost; (ii) Comcast or Cox may terminate all Principal Cable Stockholders' exclusivity obligations if there is a change of control of TCI at any time or if certain subscriber penetration levels for the @Home services are not achieved by TCI and its affiliates on June 4, 1999 or any anniversary thereof; (iii) the Principal Cable Stockholders may terminate all exclusivity obligations upon a change in law that materially impairs certain of the Principal Stockholders' rights under the Master Distribution Agreement; and (iv) any Affiliated LCO may terminate its exclusivity obligations if the Company fails to roll out the @Home service in such operator's territory by mutually agreed dates in a schedule set forth in an LCO Agreement. Until the later of (i) such time as the applicable Principal Cable Stockholder ceases to obligated under the exclusivity provisions set forth above or (ii) if the exclusivity provisions are terminated by reason of TCI's failure to meet specified subscriber penetration requirements, June 4, 2002, the Company has agreed (a) not to offer or provide Internet services at data transmission speeds greater than 128 Kbps to residences in the geographic area served by the cable systems of a Principal Cable Stockholder that remains in compliance with the exclusivity provisions without regard to whether the Restricted Period has ended as to such Principal Cable Stockholder (the 64 "Exclusive Territory") and (b) not to offer, provide, distribute, advertise, promote or market (or carry or otherwise distribute advertising or promotions with respect to) any streaming video transmissions that include video segments longer than ten minutes in duration or any other Internet service that is not a Restricted Business to residences in the Exclusive Territory of a Principal Cable Stockholder without its prior written consent. In addition, the Company has agreed that it will not offer, provide, distribute, advertise, promote or market any streaming video transmissions that include video segments longer than ten minutes in duration in any "area of dominant influence" as defined by the FCC ("ADI") that includes an Exclusive Territory of a Principal Cable Stockholder without the prior consent of the affected Principal Cable Stockholders having two-thirds of the cable television subscribers of all Principal Cable Stockholders having an Exclusive Territory in the ADI. Each Principal Cable Stockholder and its controlled affiliates are entitled to "most favored nation" ("MFN") terms and conditions of carriage with respect to the distribution of the Company's services and with respect to the terms and conditions of any related trademark license agreement or ancillary services arrangements, including all direct and indirect benefits as a result of a transaction with the Company that are no less favorable than those offered to any other cable operator individually or collectively from time to time. This MFN provision requires identical treatment of the Principal Cable Stockholders and their controlled affiliates without regard to size or identity with respect to each other and with respect to the terms and conditions provided to unaffiliated third parties (except as to exclusivity and certain other terms applicable to third parties). The Principal Cable Stockholders and their affiliates are entitled to create, author, promote and otherwise engage in the business of local content offerings, and will retain all revenue from such local content offerings and associated advertising. The Company is responsible for the aggregation and promotion of national content offerings as part of the @Home service and will retain all revenues from associated advertising. Each Principal Cable Stockholder has the right to exclude the promotion of a limited number of specified national content providers from the @Home service offered through such Principal Cable Stockholder's cable systems, subject to an adjustment in the split of premium service revenues between the Principal Cable Stockholder and the Company. In addition, a Principal Cable Stockholder has the right to block access to content that (i) includes streaming video segments of more than ten minutes in duration, (ii) is pornographic or overly violent or (iii) could adversely affect a cable operator's franchise to deliver cable television service or the @Home service, and the Company is obligated to use its best efforts to block such access. The Company is obligated to use reasonable best efforts to consult with and involve each of the Principal Cable Stockholders in the development of requirements for and design of enhancements, new features and new applications of the @Home service and coordinate with respect to the introduction of such enhancements, features and applications that could have a significant effect on the cable operations of a Principal Cable Stockholder. If Principal Cable Stockholders representing a majority of the residential subscribers of the @Home service object to such enhancement, feature or application, the Company has agreed not to implement such enhancement, feature or application in the territories of objecting Principal Cable Stockholders. Services Provided by Affiliates of Principal Stockholders. During 1995, KPCB advanced $210,000 of general and administrative expenses to the Company. The Company repaid $117,000 of these advances in 1995 and the remainder in 1996. During 1995, the Company made expense-sharing payments in the amount of $109,000 to an affiliate of TCI. During 1995 and 1996, the Company contracted for development and system integration of back office systems in the amounts of $291,000 and $2,631,000, respectively, from a company in which TCI has a 30% ownership interest. During 1995 and 1996, the Company contracted for $123,000 and $77,000, respectively, of prototype development for the @Home user interface from a company owned by TCI. Agreement with Rogers and Shaw. In March 1997, in connection with the equity investment in the Company by Rogers and Shaw, the Company, Rogers and Shaw entered into an agreement for the distribution by Rogers and Shaw in Canada of a localized version of the @Home service referred to as "Wave@Home." The Company has granted Rogers and Shaw the exclusive rights for an initial period of six years, subject to achievement of certain performance milestones, to distribute, market and promote the service in Canada either 65 directly in jurisdictions where they are licensed to operate cable systems or indirectly through the sublicensing of other cable operators in Canada. During the term of the exclusivity of such licenses, Rogers and Shaw have each agreed, subject to the same exceptions to exclusivity available to the Principal Cable Stockholders, not to market, promote or control any other residential Internet service (other than dial-up services at data transmission speeds of 128 Kbps or less). However, Rogers and Shaw are not precluded from distributing other residential Internet Services. Rogers and Shaw will be responsible, among other things, for (i) upgrading their cable systems for two-way data transmission services, (ii) providing the necessary cable data routers and cable modems, (iii) providing the telecommunications systems necessary to connect their subscribers to cable headends or fiber nodes, to connect such headends or fiber nodes to the Company's RDCs in Canada and to connect such RDCs to the nearest points of presence of the @Home backbone in the United States, (iv) providing customer installation, billing, customer service and technical support, (v) providing the Company with space to co- locate its RDCs and related equipment within Rogers' and Shaw's network distribution facilities, (vi) providing necessary modifications to billing, subscriber and network management systems to interface with the Company, (vii) distributing and promoting the Wave@Home Service and (viii) programming local content and customizing certain national content for the Canadian market. The Company will be responsible under the Agreement, among other things, for: (i) treating Rogers and Shaw with a priority equal to TCI, Comcast and Cox in matters of deployment, (ii) granting Rogers and Shaw access to the Company's broadband networks, (iii) installing and maintaining an optimal number of RDCs and providing the same level of performance received by the Principal Cable Stockholders, (iv) providing software necessary for the Wave@Home Service, (v) providing the telecommunications facilities connecting the nearest points of presence of the Company's backbone in the United States to the @Network, (vi) providing network support, (vii) providing general engineering, operations, marketing and management support, when reasonably requested, (viii) providing training programs, (ix) providing access and automated exchange of data from the Company to Rogers and Shaw necessary for billing and subscriber management, (x) working with Rogers and Shaw to develop a network architecture that minimizes inter-city data transport within Rogers' and Shaw's networks, (xi) developing and maintaining the user interface and page templates for national content and (xii) providing the same or additional content platform technologies provided to the Principal Cable Stockholders. The Company is restricted from offering, promoting, marketing or providing (or carrying third-party advertising or promotion with respect to) any streaming video transmissions that include video segments longer than ten minutes in duration. Agreement with TCG. In April 1997, the Company and TCG, of which TCI, Comcast and Cox collectively hold a majority of the voting stock, entered into a Master Communications Services Agreement, with an initial term of five years, under which TCG has agreed to provide the Company with facilities management and telecommunications network services for the local telecommunications transport requirements of the Company's services. TCG is the largest CLEC in the United States, providing high-speed fiber optic telecommunications to more than 7,700 commercial customer sites in 57 metropolitan centers in the United States. In markets served by TCG networks, TCG will provide the Company with (i) the ability to co-locate its RDCs within TCG's network distribution facilities and (ii) all intralata and interlata transport access facilities to and from the co-located RDC, including all services provided completely on TCG's network and services provided through a combination of TCG's network and the network of a third-party local exchange carrier. In market areas not served by TCG, TCG will serve as a facility manager to procure co-location space and intralata and interlata transport facilities. The agreement provides the Company with such telecommunications services at rates generally at or below those of competing carriers, and the ability to co-locate the Company's RDCs within TCG's network distribution facilities at favorable rates. Agreement with Netscape. Pursuant to an OEM Software License Agreement, Netscape has granted the Company a nonexclusive, worldwide license to use certain Netscape Internet client, Internet server and Internet applications software internally, distribute the Netscape Internet client software to subscribers of the Company's services, and distribute the Netscape Internet server and Internet applications software to the Company's cable affiliates until December 31, 1998. Under the terms of the agreement, the Company paid Netscape $1,338,000 66 during 1996 and is obligated to pay Netscape an additional $2,331,222 during 1997 as nonrefundable license fees and prepaid support and service fees. James L. Barksdale, a director of the Company, is the Chief Executive Officer of Netscape. The Company believes that the terms of each of the transactions described above, taken as a whole, were no less favorable than the Company could have obtained from unaffiliated third parties. 67 PRINCIPAL STOCKHOLDERS The following table sets forth certain information with respect to the beneficial ownership of the Company's Common Stock as of April 11, 1997 and as adjusted to reflect the sale of the shares of Series A Common Stock offered hereby by: (i) each person who is known by the Company to own beneficially more than 5% of the Company's Common Stock, (ii) each director of the Company, (iii) each of the Named Executive Officers and (iv) all directors and executive officers of the Company as a group.
PERCENTAGE OF PERCENTAGE OF NUMBER OF SHARES COMMON STOCK VOTE OF ALL SERIES OF BENEFICIALLY OWNED (1) BENEFICIALLY OWNED(1) COMMON STOCK(1) -------------------------------- --------------------- --------------------- BEFORE AFTER BEFORE AFTER NAME OF BENEFICIAL OWNER SERIES A SERIES B SERIES K OFFERING OFFERING (2) OFFERING OFFERING (2) - ------------------------ ---------- ---------- ---------- -------- ------------ -------- ------------ TCI(3).................. 31,060,000 15,400,000 -- 42.8% % 74.9% % Brendan R. Clouston John C. Malone Bruce W. Ravenel Larry E. Romrell Comcast(4).............. 14,557,300 -- -- 13.4 5.9 Brian L. Roberts Cox(5).................. 14,557,300 -- -- 13.4 5.9 David M. Woodrow KPCB(6)................. 400,000 -- 12,877,660 11.9 5.2 L. John Doerr William R. Hearst III Thomas A. Jermoluk(7)... 3,000,000 -- 1,000,000 3.7 1.6 Rogers(8)............... 1,500,000 -- -- 1.4 * Edward S. Rogers Milo S. Medin(9)........ 600,000 -- -- * * Kenneth A. Goldman(10).. 550,000 -- -- * * James L. Barksdale(11).. 500,000 -- -- * * Netscape Dean A. Gilbert(12)..... 440,000 -- -- * * Sean Doherty............ 198,150 -- -- * * All directors and executive officers as a group (18 persons)(13).. 68,589,600 15,400,000 13,877,660 90.1 95.7
- -------- * Less than 1% of the Company's outstanding Common Stock (1) Percentage ownership is based on 108,603,587 shares outstanding as of April 11, 1997, after conversion of all outstanding Preferred Stock into Common Stock in connection with this offering, and shares outstanding after the offering (assuming no adjustment to the number of shares of Series A Common Stock issuable upon the conversion of the Series C Preferred Stock). Unless otherwise indicated below, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. (2) Assumes the U.S. Underwriters' over-allotment option to purchase up to shares of Series A Common Stock is not exercised. (3) Represents shares held of record by TCI Internet Holdings, Inc., a wholly owned subsidiary of TCI. Messrs. Clouston, Malone, Ravenel and Romrell are officers of TCI or its affiliates. Messrs. Clouston, Ravenel and Romrell serve as TCI's designees as Series B Common Stock Directors. The address of TCI and Messrs. Clouston, Malone, Ravenel and Romrell is TCI, 5619 DTC Parkway, Englewood, Colorado 80111. (4) Represents shares held of record by Comcast PC Investments, Inc., a wholly owned subsidiary of Comcast. Mr. Roberts is the President of Comcast and serves as its designee as a Series B Common Stock Director. The address of Comcast and Mr. Roberts is Comcast, 1500 Market Street, 35th Floor, Philadelphia, Pennsylvania 19102. 68 (5) Represents shares held of record by Cox @Home, Inc., a wholly owned subsidiary of Cox. Mr. Woodrow is the Senior Vice President of Broadband Services of Cox and serves as its designee as a Series B Common Stock Director. The address of Cox and Mr. Woodrow is Cox @Home, Inc., 1400 Lake Hearn Drive, Atlanta, Georgia 30319. (6) Represents 12,555,720 shares of Series K Common Stock held of record by Kleiner Perkins Caufield & Byers VII, 321,940 shares of Series K Common Stock held of record by KPCB Information Sciences Zaibatsu Fund II and 400,000 shares of Series A Common Stock held of record by Mr. Hearst. Messrs. Doerr and Hearst, directors of the Company, are general partners of KPCB, which is the general partner of the general partner of these funds. Mr. Doerr serves as the designee of the Series K Common Stock on the Board. Mr. Hearst is Vice Chairman of the Company. The address of KPCB and Messrs. Doerr and Hearst is Kleiner Perkins Caufield & Byers, 2750 Sand Hill Road, Menlo Park, California 94025. (7) Mr. Jermoluk is the Chairman, President and Chief Executive Officer of the Company. Of these shares, 3,000,000 were subject to repurchase at April 11, 1997. (8) Represents 1,500,000 shares held of record by Rogers, a wholly owned subsidiary of Rogers Communications, Inc. Mr. Rogers is the President and Chief Executive Officer of Rogers Communications, Inc. and the designee of Rogers and Shaw on the Board. (9) Mr. Medin is the Vice President, Networks of the Company. Of these shares, 324,600 were subject to repurchase at April 11, 1997. (10) Mr. Goldman is a Senior Vice President and the Chief Financial Officer of the Company. Of these shares 513,333 were subject to repurchase at April 11, 1997. (11) Represents 100,000 shares held of record by Mr. Barksdale and 400,000 shares held of record by Netscape. Mr. Barksdale, a director of the Company, is the President and Chief Executive Officer of Netscape. Mr. Barksdale disclaims beneficial ownership of the shares held of record by Netscape. (12) Mr. Gilbert is a Senior Vice President and the General Manager, @Home Group of the Company. Of these shares, 311,608 were subject to repurchase at April 11, 1997. (13) Includes all of the shares shown in the table and an additional 1,425,000 shares of Series A Common Stock held of record by four other executive officers. DESCRIPTION OF CAPITAL STOCK As of April 11, 1997, assuming the conversion of all outstanding shares of Preferred Stock into shares of Common Stock, there were outstanding shares of Series A Common Stock held of record by approximately 254 stockholders, 15,400,000 shares of Series B Common Stock held of record by one stockholder, 14,877,660 shares of Series K Common Stock held of record by five stockholders, options to purchase 919,250 shares Series A of Common Stock and warrants to purchase 2,200,000 shares of Series A Common Stock. The following summary of certain provisions of the Common Stock and Preferred Stock does not purport to be complete and is subject to, and qualified in its entirety by, the provisions of the Company's Certificate of Incorporation, which is included as an exhibit to the Registration Statement, of which this Prospectus forms a part, and by the provisions of applicable law. COMMON STOCK The Company is authorized to issue 230,277,660 shares of Common Stock, $.01 par value, of which 200,000,000 have been designated Series A Common Stock, 15,400,000 have been designated Series B Common Stock and 14,877,660 have been designated Series K Common Stock. Subject to preferences that may be applicable to any Preferred Stock outstanding at the time, the holders of outstanding shares of Common Stock are entitled to receive dividends out of assets legally available therefor at such times and in such amounts as the Board may from time to time determine. Holders of Series A Common Stock and Series K Common Stock are entitled to one vote for each share held, and holders of Series B Common Stock are entitled to ten votes for each share held, on all matters presented to stockholders. The Series A Common Stock is the only series of Common 69 Stock that is registered in this offering. Each share of Series B Common Stock and Series K Common Stock is convertible, at the option of the holder, into one share of Series A Common Stock. Shares of Series A Common Stock are not convertible into shares of Series B or Series K Common Stock. All other rights and privileges are equal with respect to holders of Series A, B and K Common Stock, except that, so long as there are at least 5,000,000 shares of Series B Common Stock outstanding, the holders of Series B Common Stock, voting separately as single series, have the right to elect five directors to the Board; so long as there are at least 5,000,000 shares of Series K Common Stock outstanding, the holders of Series K Common Stock, voting separately as a single series, have the right to elect one director to the Board; so long as the holders of Series B Common Stock or Series K Common Stock are entitled to elect any Series B Common Stock Director or any Series K Common Stock Director, the holders of Series A Common Stock, voting separately as a single series, have the right to elect two directors who are not officers (other than the Vice Chairman) or employees of the Company and are not affiliates or associates of TCI, Comcast or Cox. The Common Stock is not entitled to preemptive rights and is not subject to redemption. Upon liquidation, dissolution or winding-up of the Company, the assets legally available for distribution to stockholders are distributable ratably among the holders of the Common Stock and any participating Preferred Stock outstanding at that time after payment of liquidation preferences, if any, on any outstanding Preferred Stock and payment of other claims of creditors. Each outstanding share of Common Stock is, and all shares of Common Stock to be outstanding upon completion of this offering will be duly and validly issued, fully paid and nonassessable. See "Management--Board Composition and Procedures." PREFERRED STOCK Upon the closing of this offering, all outstanding shares of Preferred Stock will be converted into shares of Common Stock at a conversion rate of 20 shares of the applicable series of Common Stock for each share of Preferred Stock. The Preferred Stock so converted will be retired and may not be reissued. See Notes 5 and 10 of Notes to Financial Statements for a description of the Preferred Stock. The Board is authorized, subject to any limitation prescribed by Delaware law, to issue, from time to time, in one or more series, up to 9,650,000 additional shares of Preferred Stock, with such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall be stated and expressed in a Board resolution or resolutions providing for the issue of such series without any further vote or action by the stockholders. The Board may authorize the issuance of such Preferred Stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of Common Stock. Thus, the issuance of Preferred Stock may have the effect of delaying, deferring or preventing a change in control of the Company. The Company has no current plan to issue any shares of Preferred Stock. REGISTRATION RIGHTS Following this offering, the holders of approximately shares of Series A Common Stock issued or issuable upon conversion of the Preferred Stock (and other series of Common Stock) and holders of warrants to purchase a total of 2,200,000 shares of Series A Common Stock will have certain rights to cause the Company to register those shares (the "Registrable Shares") under the Securities Act at any time after the first anniversary of the closing date of this offering. Thereafter, the Company may be required to effect up to four registrations requested by the TCI stockholder group, two registrations requested by the Comcast stockholder group, two registrations requested by the Cox stockholder group, two registrations requested by the KPCB stockholder group and two registrations requested by the Series C Preferred stockholder group. Stockholder groups not part of the initial registration demand are entitled to notice of such registration and are entitled to include shares of Registrable Securities therein. These registration rights are subject to certain conditions and limitations, including (i) the right, under certain circumstances, of the underwriters of an offering to limit the number of shares included in such registration and (ii) the right of the Company to delay the filing of a registration statement for not more than 120 days after receiving the registration demand. Notwithstanding the foregoing, the exercise of the Principal Stockholders' registration rights are subject to the other Principal Stockholders' rights of first offer as set forth in the Stockholders' Agreement, unless specifically exempted therefrom. If any stockholder group requests registration of at least 500,000 Registrable Shares, the Company is obligated to pay all registration 70 expenses incurred in connection with such registration (other than underwriters' discounts and commissions and stock transfer fees or expenses) and the fees and expenses of a single counsel to the selling stockholders. These demand registration rights expire with respect to the Series C Preferred stockholder group upon the fifth anniversary of the closing of this offering. In addition, if the Company proposes to register any of its equity securities under the Securities Act, whether or not for sale for its own account, other than in connection with a Company employee benefit plan or a corporate reorganization, the holders of Registrable Shares are entitled to notice of such registration and are entitled to include Registrable Shares therein. These rights are subject to certain conditions and limitations, including the right of the underwriters of an offering to limit the number of shares included in such registration under certain circumstances and the right of the Company to delay or withdraw any such registration. The Company is obligated to pay all registration expenses incurred in connection with such registration other than underwriters' discounts and commissions, stock transfer fees or expenses, the pro rata share of the incremental filing fee under the Securities Act attributable to the applicable Registrable Shares and the fees and disbursements of counsel to the holders of the Registrable Shares. These "piggyback" registration rights expire with respect to the Series C Preferred stockholder group upon the fifth anniversary of the closing of this offering. DELAWARE TAKEOVER STATUTE The Company is not subject to Section 203 of the Delaware Law which, subject to certain exceptions, prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that such stockholder became an interested stockholder. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Company's Common Stock is . The Transfer Agent's telephone number is . SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no public market for the Series A Common Stock of the Company. Future sales of substantial amounts of Series A Common Stock in the public market could materially and adversely affect prevailing market prices from time to time. Furthermore, since no shares will be available for sale shortly after this offering because of certain contractual and legal restrictions on resale (as described below), sales of substantial amounts of Series A Common Stock of the Company in the public market after these restrictions lapse could materially and adversely affect the prevailing market price and the ability of the Company to raise equity capital in the future. Upon completion of this offering, the Company will have outstanding an aggregate of shares of Common Stock (based upon shares outstanding at April 11, 1997), assuming no exercise of the U.S. Underwriters' over-allotment option and no exercise of outstanding options or warrants. Of these shares, all of the shares sold in this offering will be freely tradeable without restriction or further registration under the Securities Act, unless such shares are purchased by "affiliates" of the Company as that term is defined in Rule 144 under the Securities Act (the "Affiliates"). The remaining shares of Common Stock held by existing stockholders are "restricted securities" as that term is defined in Rule 144 under the Securities Act ("Restricted Shares"). Restricted Shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144 or 701 promulgated under the Securities Act, which rules are summarized below. All officers, directors, stockholders and option holders of the Company have agreed not to offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly (or enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of), any shares of Common Stock or any securities convertible into or exercisable or 71 exchangeable for shares of Common Stock, for a period of 180 days after the date of this Prospectus, without the prior written consent of Morgan Stanley & Co. Incorporated. As a result of the contractual restrictions described below and the provisions of Rule 144 and 701, the Restricted Shares will be available for sale in the public market as follows: (i) no shares will be eligible for immediate sale on the date of this Prospectus; (ii) shares will be eligible for sale upon expiration of the lock-up agreements 180 days after the date of this Prospectus, subject in most instances to the volume limitations of Rule 144, and (iii) the remaining shares will become eligible for sale on April 11, 1998, subject to the volume limitation of Rule 144. In general, under Rule 144 as currently in effect, beginning 90 days after the date of this Prospectus, a person (or persons whose shares are aggregated) who has beneficially owned Restricted Shares for at least one year (including the holding period of any prior owner except an Affiliate) would be entitled to sell within any three-month period a number of shares that does not exceed the greater of: (i) 1% of the number of shares of Common Stock then outstanding (which will equal approximately shares immediately after this offering); or (ii) the average weekly trading volume of the Common Stock on the Nasdaq National Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale. Sales under Rule 144 are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about the Company. Under Rule 144(k), a person who is not deemed to have been an Affiliate of the Company at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years (including the holding period of any prior owner except an Affiliate), is entitled to sell such shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144; therefore, unless otherwise restricted, "144(k) shares" may be sold immediately upon the completion of this offering. In general, under Rule 701 of the Securities Act as currently in effect, any employee, consultant or advisor of the Company who purchases shares from the Company in connection with a compensatory stock or option plan or other written agreement is eligible to resell such shares 90 days after the effective date of this offering in reliance on Rule 144, but without compliance with certain restrictions, including the holding period, contained in Rule 144. Upon completion of this offering, the holders of shares of Common Stock issuable upon conversion of Preferred Stock, or their transferees, will be entitled to certain rights with respect to the registration of such shares under the Securities Act. See "Description of Capital Stock--Registration Rights." Registration of such shares under the Securities Act would result in such shares becoming freely tradeable without restriction under the Securities Act (except for share purchases by Affiliates) immediately upon the effectiveness of such registration. The Company intends to file a registration statement under the Securities Act covering approximately 2,668,673 shares of Common Stock reserved for issuance under the Company's 1997 Equity Incentive Plan or the Stock Purchase Plan and the shares subject to outstanding options under the 1996 Plans. As of March 31, 1997, options to purchase 919,250 shares of Series A Common Stock were issued and outstanding under the 1996 Plans. Subsequent to March 31, 1997, the Board granted options to purchase an additional 183,000 shares of Series Common Stock under the 1996 Plans. See "Management--Employee Benefit Plans." Such registration statement is expected to be filed and become effective as soon as practicable after the effective date of this offering. Accordingly, shares registered under such registration statement will, subject to Rule 144 volume limitations applicable to Affiliates, be available for sale in the open market, unless such shares are subject to vesting restrictions with the Company or the lock-up agreements described above. 72 UNDERWRITERS Under the terms and subject to conditions in the Underwriting Agreement dated the date hereof (the "Underwriting Agreement"), the U.S. Underwriters named below for whom Morgan Stanley & Co. Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Alex. Brown & Sons Incorporated and Hambrecht & Quist LLC are acting as U.S. Representatives, and the International Underwriters named below for whom Morgan Stanley & Co. International Limited, Merrill Lynch International, Alex. Brown International and Hambrecht & Quist LLC are acting as International Representatives, have severally agreed to purchase, and the Company has agreed to sell to them, severally, the respective number of shares of Series A Common Stock set forth opposite the names of such Underwriters below:
NUMBER OF NAME SHARES ---- --------- U.S. Underwriters: Morgan Stanley & Co. Incorporated................................... Merrill Lynch, Pierce, Fenner & Smith Incorporated....................................................... Alex. Brown & Sons Incorporated..................................... Hambrecht & Quist LLC............................................... ---- Subtotal.......................................................... ---- International Underwriters: Morgan Stanley & Co. International Limited.......................... Merrill Lynch International......................................... Alex. Brown International........................................... Hambrecht & Quist LLC............................................... Subtotal.......................................................... ---- Total........................................................... ====
The U.S. Underwriters and the International Underwriters, and the U.S. Representatives and the International Representatives, are collectively referred to as the "Underwriters" and "Representatives," respectively. The Underwriting Agreement provides that the obligations of the several Underwriters to pay for and accept delivery of the shares of Common Stock offered hereby are subject to the approval of certain legal matters by their counsel and to certain other conditions. The Underwriters are obligated to take and pay for all of the shares of Common Stock offered hereby (other than those covered by the U.S. Underwriters' over-allotment option described below) if any such shares are taken. Pursuant to the Agreement between U.S. and International Underwriters, each U.S. Underwriter has represented and agreed that, with certain exceptions: (i) it is not purchasing any Shares (as defined herein) for 73 the account of anyone other than a United States or Canadian Person (as defined herein) and (ii) it has not offered or sold, and will not offer or sell, directly or indirectly, any Shares or distribute any prospectus relating to the Shares outside the United States or Canada or to anyone other than a United States or Canadian Person. Pursuant to the Agreement between U.S. and International Underwriters, each International Underwriter has represented and agreed that, with certain exceptions: (i) it is not purchasing any Shares for the account of any United States or Canadian Person and (ii) it has not offered or sold, and will not offer or sell, directly or indirectly, any Shares or distribute any prospectus relating to the Shares in the United States or Canada or to any United States or Canadian Person. With respect to any Underwriter that is a U.S. Underwriter and an International Underwriter, the foregoing representations and agreements (i) made by it in its capacity as a U.S. Underwriter apply only to it in its capacity as a U.S. Underwriter and (ii) made by it in its capacity as an International Underwriter apply only to it in its capacity as an International Underwriter. The foregoing limitations do not apply to stabilization transactions or to certain other transactions specified in the Agreement between U.S. and International Underwriters. As used herein, "United States or Canadian Person" means any national or resident of the United States or Canada, or any corporation, pension, profit-sharing or other trust or other entity organized under the laws of the United States or Canada or of any political subdivision thereof (other than a branch located outside the United States and Canada of any United States or Canadian Person), and includes any United States or Canadian branch of a person who is otherwise not a United States or Canadian Person. All shares of Series A Common Stock to be purchased by the Underwriters are referred to herein as the "Shares." Pursuant to the Agreement between U.S. and International Underwriters, sales may be made between the U.S. Underwriters and International Underwriters of any number of Shares as may be mutually agreed. The per share price of any Shares sold shall be the public offering price set forth on the cover page hereof, in United States dollars, less an amount not greater than the per share amount of the concession to dealers set forth below. Pursuant to the Agreement between U.S. and International Underwriters, each U.S. Underwriter has represented that it has not offered or sold, and has agreed not to offer or sell, any Shares, directly or indirectly, in any province or territory of Canada or to, or for the benefit of, any resident of any province or territory of Canada in contravention of the securities laws thereof and has represented that any offer or sale of Shares in Canada will be made only pursuant to an exemption from the requirement to file a prospectus in the province or territory of Canada in which such offer or sale is made. Each U.S. Underwriter has further agreed to send to any dealer who purchases from it any of the Shares a notice stating in substance that, by purchasing such Shares, such dealer represents and agrees that it has not offered or sold, and will not offer or sell, directly or indirectly, any of such Shares in any province or territory of Canada or to, or for the benefit of, any resident of any province or territory of Canada in contravention of the securities laws thereof and that any offer or sale of Shares in Canada will be made only pursuant to an exemption from the requirement to file a prospectus in the province or territory of Canada in which such offer is made, and that such dealer will deliver to any other dealer to whom it sells any of such Shares a notice containing substantially the same statement as is contained in this sentence. Pursuant to the Agreement between U.S. and International Underwriters, each International Underwriter has represented and agreed that (i) it has not offered or sold and, prior to the date six months after the closing date for the sale of Shares to the International Underwriters, will not offer or sell, any Shares to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the Shares in, from or otherwise involving the United Kingdom; and (iii) it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the offering of the Shares to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such document may otherwise lawfully be issued or passed on. Pursuant to the Agreement between U.S. and International Underwriters, each International Underwriter has further represented that it has not offered or sold, and has agreed not to offer or sell, directly or indirectly, in 74 Japan or to or for the account of any resident thereof, any Shares acquired in connection with the distribution contemplated hereby, except for offers or sales to Japanese International Underwriters or dealers and except pursuant to any exemption from the registration requirements of the Securities and Exchange Law and otherwise in compliance with applicable provisions of Japanese law. Each International Underwriter has further agreed to send to any dealer who purchases from it any of the Shares a notice stating in substance that, by purchasing such Shares, such dealer represents and agrees that it has not offered or sold, and will not offer or sell, any of such Shares, directly or indirectly, in Japan or to or for the account of any resident thereof except for offers or sales to Japanese International Underwriters or dealers and except pursuant to any exemption from the registration requirements of the Securities and Exchange Law and otherwise in compliance with applicable provisions of Japanese law, and that such dealer will send to any other dealer to whom it sells any of such Shares a notice containing substantially the same statement as is contained in this sentence. The Underwriters initially propose to offer part of the shares of Series A Common Stock directly to the public at the public offering price set forth on the cover page hereof and part to certain dealers at a price that represents a concession not in excess of $ a share under the public offering price. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ a share to other Underwriters or to certain dealers. After the initial offering of the Series A Common Stock, the offering price and other selling terms may from time to time be varied by the Representatives. Pursuant to the Underwriting Agreement, the Company has granted to the U.S. Underwriters an option, exercisable for 30 days from the date of this Prospectus, to purchase up to an aggregate of additional shares of Series A Common Stock at the public offering price set forth on the cover page hereof, less underwriting discounts and commissions. The U.S. Underwriters may exercise such option to purchase solely for the purpose of covering over- allotments, if any, made in connection with the offering of the shares of Series A Common Stock offered hereby. To the extent such option is exercised, each U.S. Underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of such additional shares of Series A Common Stock as the number set forth next to such U.S. Underwriter's name in the preceding table bears to the total number of shares of Series A Common Stock set forth next to the names of all U.S. Underwriters in the preceding table. See "Shares Eligible for Future Sale" for a description of certain arrangements by which all officers, directors, stockholders and option holders of the Company have agreed not to sell or otherwise dispose of Common Stock or convertible securities of the Company for up to 180 days after the date of this Prospectus without the prior consent of Morgan Stanley & Co. Incorporated. The Company has agreed in the Underwriting Agreement that it will not, directly or indirectly, without the prior written consent of Morgan Stanley & Co. Incorporated, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of any shares of Common Stock or any securities convertible into or exchangeable for Common Stock, for a period of 180 days after the date of this Prospectus, except under certain circumstances. The Representatives have informed the Company that they do not intend sales to discretionary accounts to exceed five percent of the total number of shares of Series A Common Stock offered by them. The Underwriters have reserved for sale, at the initial public offering price, up to shares of the Series A Common Stock offered hereby for certain individuals who have expressed an interest in purchasing such shares of Series A Common Stock in the offering. The number of shares available for sale to the general public will be reduced to the extent such persons purchase such reserved shares. Any reserved shares not so purchased will be offered by the Underwriters to the general public on the same basis as other shares offered hereby. In order to facilitate the offering of the Series A Common Stock, the Underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the Series A Common Stock. Specifically, the Underwriters may over-allot in connection with the offering, creating a short position in the Series A 75 Common Stock for their own account. In addition, to cover over-allotments or to stabilize the price of the Series A Common Stock, the Underwriters may bid for, and purchase, shares of Series A Common Stock in the open market. Finally, the underwriting syndicate may reclaim selling concessions allowed to an Underwriter or a dealer for distributing the Series A Common Stock in the offering, if the syndicate repurchases previously distributed Series A Common Stock in transactions to cover syndicate short positions, in stabilization transactions or otherwise. Any of these activities may stabilize or maintain the market price of the Series A Common Stock above independent market levels. The Underwriters are not required to engage in these activities, and may end any of these activities at any time. The Company and the Underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. PRICING OF THE OFFERING Prior to this offering, there has been no public market for the Series A Common Stock or any other securities of the Company. The initial public offering price for the Series A Common Stock will be determined by negotiations among the Company and the Representatives. Among the factors to be considered in determining the initial public offering price will be the future prospects of the Company and its industry in general, sales, earnings and certain other financial and operating information of the Company in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to those of the Company. The estimated initial public offering price range set forth on the cover page of this Preliminary Prospectus is subject to change as a result of market conditions and other factors. LEGAL MATTERS The validity of the shares of Series A Common Stock offered hereby will be passed upon for the Company by Fenwick & West LLP, Palo Alto, California. Certain legal matters will be passed upon for the Underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California. EXPERTS The consolidated financial statements of At Home Corporation as of December 31, 1995 and 1996, and for the period from March 28, 1995 (inception) to December 31, 1995 and the year ended December 31, 1996, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. CHANGE IN INDEPENDENT AUDITORS Effective April 1, 1997, the Company selected Ernst & Young LLP as its principal independent auditors to replace KPMG Peat Marwick LLP, who were dismissed as auditors of the Company on that date. The decision to change independent auditors was approved by the Board. In connection with the audit for the period from March 28, 1995 (inception) to December 31, 1995, and the subsequent interim periods through April 1, 1997, there were no disagreements with KPMG Peat Marwick LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which, if not resolved to the satisfaction of KPMG Peat Marwick LLP, would have caused them to make reference to the matter in their report. The former accountant's report for the period from March 28, 1995 (inception) to December 31, 1995 is not a part of the financial statements of the Company included in this Prospectus. The report of KPMG Peat Marwick LLP on the financial statements of the Company for the period from March 28, 1995 (inception) to December 31, 1995 did not contain any adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles. 76 ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1 under the Securities Act, of which this Prospectus forms a part, with respect to the shares of Series A Common Stock offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits thereto. Certain items are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and the Series A Common Stock offered hereby, reference is made to the Registration Statement and the exhibits thereto. Statements contained in this Prospectus regarding the contents of any contract or any other document to which reference is made are not necessarily complete, and, in each instance, reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. A copy of the Registration Statement, and the exhibits thereto, may be inspected without charge at the public reference facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices located at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York 10048, and copies of all or any part of the Registration Statement may be obtained from such offices upon the payment of the fees prescribed by the Commission. The Commission maintains a World Wide Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of the site is http://www.sec.gov. 77 AT HOME CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Ernst & Young LLP, Independent Auditors........................... F-2 Consolidated Balance Sheets................................................. F-3 Consolidated Statements of Operations....................................... F-4 Consolidated Statements of Stockholders' Equity............................. F-5 Consolidated Statements of Cash Flows....................................... F-6 Notes to Consolidated Financial Statements.................................. F-7
F-1 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Stockholders At Home Corporation We have audited the accompanying consolidated balance sheets of At Home Corporation as of December 31, 1995 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for the period from March 28, 1995 (inception) to December 31, 1995 and for the year ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of At Home Corporation at December 31, 1995 and 1996, and the consolidated results of its operations and its cash flows for the period from March 28, 1995 (inception) to December 31, 1995 and for the year ended December 31, 1996, in conformity with generally accepted accounting principles. San Jose, California May 1, 1997, except for Note 10, as to which the date is May , 1997 - ------------------------------------------------------------------------------- Neither a share price nor a range has been determined for common shares in this offering, which precludes management from calculating the pro forma net loss per share under the method discussed in Note 1 to the consolidated financial statements. The foregoing report is in the form that will be signed upon determination of the share price, if no other events have occurred from May 1, 1997 to the date of such determination that would affect the consolidated financial statements and notes thereto. ERNST & YOUNG LLP San Jose, California May 1, 1997 F-2 AT HOME CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
PRO FORMA STOCKHOLDERS' DECEMBER 31, EQUITY ----------------- MARCH 31, MARCH 31, 1995 1996 1997 1997 ------- -------- ----------- ------------- (UNAUDITED) (UNAUDITED) ASSETS Current assets: Cash and cash equivalents........ $ 6,844 $ 9,709 $ 4,067 Short-term cash investments...... 63 7,061 2,360 ------- -------- -------- Total cash, cash equivalents and short-term cash investments..... 6,907 16,770 6,427 Accounts receivable.............. -- 164 81 Accounts receivable--related parties......................... -- 640 445 Other current assets............. 249 741 1,835 ------- -------- -------- Total current assets............... 7,156 18,315 8,788 Property, equipment and improvements, net................. 921 14,328 17,343 Other assets....................... 47 745 747 ------- -------- -------- Total assets....................... $ 8,124 $ 33,388 $ 26,878 ======= ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................. $ 392 $ 1,946 $ 2,859 Accounts payable--related parties......................... 431 1,482 665 Accrued compensation and related expenses........................ 89 248 366 Other accrued liabilities........ -- 885 2,467 Current portion of capital lease obligations..................... -- 3,181 4,766 ------- -------- -------- Total current liabilities.......... 912 7,742 11,123 Capital lease obligations, less current portion................... -- 5,654 6,410 Other long-term liabilities........ -- 1,675 1,675 Commitments and contingencies Stockholders' equity: Convertible preferred stock, $0.01 par value: Authorized shares--14,522,613 Issued and outstanding shares-- 1,000,000 in 1995 and 4,522,613 in 1996 and 1997 (pro forma--none)............. 9,968 44,993 44,993 $ -- Common stock, $0.01 par value: Authorized shares--180,277,660 Issued and outstanding shares-- none in 1995, 11,855,088 in 1996 and 13,351,327 in 1997... -- 1,035 6,212 51,205 Notes receivable from stockholders.................... -- (170) (515) (515) Deferred compensation............ -- (272) (4,850) (4,850) Accumulated deficit.............. (2,756) (27,269) (38,170) (38,170) ------- -------- -------- -------- Total stockholders' equity......... 7,212 18,317 7,670 $ 7,670 ------- -------- -------- ======== Total liabilities and stockholders' equity............................ $ 8,124 $ 33,388 $ 26,878 ======= ======== ========
See accompanying notes. F-3 AT HOME CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PERIOD FROM MARCH 28, 1995 THREE MONTHS ENDED (INCEPTION) TO YEAR ENDED MARCH 31, DECEMBER 31, DECEMBER 31, ----------------------- 1995 1996 1996 1997 -------------- ------------ ----------- ----------- (UNAUDITED) (UNAUDITED) Revenues (1).............. $ -- $ 676 $ -- $ 806 Costs and expenses: Operating costs......... -- 6,969 679 4,325 Product development and engineering............ 1,447 6,312 1,286 2,330 Sales and marketing..... 496 6,368 831 2,934 General and administrative......... 943 6,054 998 2,158 ------- -------- ------- -------- Total costs and expenses.. 2,886 25,703 3,794 11,747 ------- -------- ------- -------- Loss from operations...... (2,886) (25,027) (3,794) (10,941) Interest income, net...... 130 514 84 40 ------- -------- ------- -------- Net loss.................. $(2,756) $(24,513) $(3,710) $(10,901) ======= ======== ======= ======== Pro forma net loss per share.................... $ $ ======== ======== Pro forma shares used in per share calculations... ======== ======== - -------- (1)Revenues from related parties $ -- $ 634 $ -- $ 690
See accompanying notes. F-4 AT HOME CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
CONVERTIBLE NOTES PREFERRED STOCK COMMON STOCK RECEIVABLE TOTAL ----------------- ----------------- FROM DEFERRED ACCUMULATED STOCKHOLDERS' SHARES AMOUNT SHARES AMOUNT STOCKHOLDERS COMPENSATION DEFICIT EQUITY --------- ------- ---------- ------ ------------ ------------ ----------- ------------- Issuance of preferred stock, less issuance costs of $32........... 1,000,000 $ 9,968 -- $ -- $ -- $ -- $ -- $ 9,968 Net loss................ -- -- -- -- -- -- (2,756) (2,756) --------- ------- ---------- ------ ----- ------- -------- -------- BALANCES AT DECEMBER 31, 1995................... 1,000,000 9,968 -- -- -- -- (2,756) 7,212 Issuance of preferred stock, less issuance costs of $232.......... 3,522,613 35,025 -- -- -- -- -- 35,025 Series A common stock issued under stock option plans and restricted stock agreements, net of repurchases............ -- -- 11,855,008 689 (170) -- -- 519 Deferred compensation related to grant of stock options.......... -- -- -- 346 -- (346) -- -- Amortization of deferred compensation........... -- -- -- -- -- 74 -- 74 Net loss................ -- -- -- -- -- -- (24,513) (24,513) --------- ------- ---------- ------ ----- ------- -------- -------- BALANCES AT DECEMBER 31, 1996................... 4,522,613 44,993 11,855,008 1,035 (170) (272) (27,269) 18,317 Series A common stock issued under stock option plans and restricted stock agreements, net of repurchases (unaudited)............ -- -- 1,496,319 440 (345) -- -- 95 Deferred compensation related to grant of stock options (unaudited)............ -- -- -- 4,737 -- (4,737) -- -- Amortization of deferred compensation (unaudited)............ -- -- -- -- -- 159 -- 159 Net loss (unaudited).... -- -- -- -- -- -- (10,901) (10,901) --------- ------- ---------- ------ ----- ------- -------- -------- BALANCES AT MARCH 31, 1997 (UNAUDITED)....... 4,522,613 $44,993 13,351,327 $6,212 $(515) $(4,850) $(38,170) $ 7,670 ========= ======= ========== ====== ===== ======= ======== ========
See accompanying notes. F-5 AT HOME CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
PERIOD FROM MARCH 28, 1995 THREE MONTHS (INCEPTION) TO YEAR ENDED ENDED MARCH 31, DECEMBER 31, DECEMBER 31, ----------------------- 1995 1996 1996 1997 -------------- ------------ ----------- ----------- (UNAUDITED) (UNAUDITED) Cash and cash equivalents, beginning of period...... $ -- $ 6,844 $ 6,844 $ 9,709 CASH USED IN OPERATING ACTIVITIES Net loss.................. (2,756) (24,513) (3,710) (10,901) Adjustments to reconcile net loss to cash used in operating activities: Amortization of deferred compensation............ -- 74 -- 159 Depreciation and amortization............ 42 1,829 75 1,452 Changes in assets and liabilities: Accounts receivable...... -- (804) -- 278 Other assets............. (296) (1,190) 186 (1,096) Accounts payable......... 823 2,605 (33) 96 Accrued compensation and related expenses........ 89 159 91 118 Other accrued liabilities............. -- 885 264 1,582 Other long-term liabilities............. -- 1,675 -- -- ------- -------- ------- ------- Cash (used in) operating activities............... (2,098) (19,280) (3,127) (8,312) CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES Purchase of short-term cash investments......... (63) (8,998) -- (299) Sales and maturities of short-term cash investments.............. -- 2,000 -- 5,000 Purchase of property, equipment and improvements............. (963) (7,320) (1,274) (1,343) ------- -------- ------- ------- Cash provided by (used in) investing activities..... (1,026) (14,318) (1,274) 3,358 CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES Proceeds from issuance of convertible preferred stock.................... 9,968 35,025 -- -- Proceeds from sale of common stock............. -- 519 -- 95 Proceeds from capital lease financing.......... -- 1,500 -- -- Payments on capital lease obligations.............. -- (581) -- (783) ------- -------- ------- ------- Cash provided by (used in) financing activities..... 9,968 36,463 -- (688) ------- -------- ------- ------- Net increase (decrease) in cash and cash equivalents.............. 6,844 2,865 (4,401) (5,642) ------- -------- ------- ------- Cash and cash equivalents, end of period............ 6,844 9,709 2,443 4,067 Short-term cash investments, end of period................... 63 7,061 63 2,360 ------- -------- ------- ------- Total cash, cash equivalents and short- term cash investments, end of period............ $ 6,907 $ 16,770 $ 2,506 $ 6,427 ======= ======== ======= ======= SUPPLEMENTAL DISCLOSURES Interest paid............ $ -- $ 143 $ -- $ 134 ======= ======== ======= ======= Acquisition of equipment under capital leases.... $ -- $ 7,916 $ -- $ 3,124 ======= ======== ======= ======= Notes receivable from stockholders issued in connection with exercise of stock options and restricted stock purchases............... $ -- $ 170 $ -- $ 345 ======= ======== ======= =======
See accompanying notes. F-6 AT HOME CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED) 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company At Home Corporation (the "Company") was incorporated in the state of Delaware on March 28, 1995. The Company provides Internet services to consumers and businesses over the cable television infrastructure. As of December 31, 1996, the Company's services were available through cable systems in a limited number of cities in the United States. Dependence on Cable Companies The Company has strategic relationships with seven major cable companies which are expected to provide through their cable systems the principal distribution network for the Company's services to its subscribers. The Company's three principal cable stockholders have granted the Company the exclusive right to offer high-speed residential consumer Internet services over their cable systems, subject to certain exceptions. However, the principal cable stockholders are under no obligation to carry the Company's services. In addition, the principal cable stockholders' exclusivity obligations in favor of the Company expire in June 2002, and may be terminated prior to that date under certain circumstances. Transmission of data over cable is dependent on the availability of high- speed two-way hybrid fiber coaxial cable infrastructure. Currently, a substantial majority of existing cable plants in the United States have not been upgraded from coaxial cable to hybrid fiber-coaxial cable and, in addition, are not capable of two-way transmission. Cable system operators have announced and begun to implement major infrastructure investments in order to deploy data-over-cable services. However, there can be no assurance that such infrastructure improvements will be completed. Dependence on Key Technology Suppliers The Company currently depends on a limited number of suppliers for certain key technologies used to build and manage the Company's services. Although the Company believes that there are alternative suppliers for each of these technologies, the Company has established favorable relationships with each of its current suppliers, and it could take a significant period of time to establish relationships with alternative suppliers and substitute their technologies. The loss of any of the Company's relationships with its current suppliers could have a material adverse effect on the Company's financial condition and results of operations. Basis of Presentation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All significant intercompany transactions and balances have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported results of operations during the reporting period. Actual results could differ from those estimates. F-7 AT HOME CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED) 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Interim Financial Information The interim financial information as of March 31, 1997 and for the three months ended March 31, 1996 and 1997 is unaudited but includes all adjustments, consisting only of normal recurring adjustments, that the Company considers necessary for a fair presentation of its financial position at such date and the results of operations and cash flows for those periods. Operating results for the three months ended March 31, 1997 are not necessarily indicative of results that may be expected for any future periods. Revenue Recognition Monthly customer subscription revenue is recognized in the period in which subscription services are provided. The Company also earns revenue from cable system operators for providing certain support services, such as customer support, local area content development and pre-commercial deployment fees. Revenue from cable system operators is recognized as the services are performed. For the period from March 28, 1995 (inception) to December 31, 1995 and the year ended December 31, 1996, such revenue was derived from cable system operators that are also stockholders of the Company. Revenues also include the sale of online advertising primarily based on fixed-fee charter programs. Property, Equipment and Improvements Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method over the shorter of the estimated useful life of the asset or the lease term. The Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," effective January 1, 1996. The adoption did not have a material impact on the Company's financial statements. Income Taxes The Company accounts for income taxes under the liability method. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Stock-Based Compensation The Company accounts for stock-based awards to employees in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB Opinion No. 25") and has adopted the disclosure-only alternative of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"). Pro Forma Net Loss Per Share Except as noted below, pro forma net loss per share is computed using the weighted average number of common shares outstanding and also gives effect to the assumed conversion of all outstanding shares of convertible preferred stock into common stock upon the closing of the Company's initial public offering (using the as-if-converted method). Common equivalent shares are excluded from the computation as their effect is antidilutive, except that pursuant to applicable Securities and Exchange Commission Staff Accounting Bulletins, common and common equivalent shares (from stock options and warrants) issued during the period commencing F-8 AT HOME CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED) 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) twelve months prior to the initial filing date of the proposed public offering at prices below the assumed public offering price have been included in the calculation as if they were outstanding for all periods presented (using the treasury stock method). Historical net loss per share is not presented since such amounts are not considered meaningful as a result of the significant change in the Company's capital structure (Note 5) that will occur in connection with the initial public offering of its common stock. In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share" ("FAS 128"), which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings (loss) per share and to restate such amounts previously reported. Under the new requirements for calculating primary (basic) earnings (loss) per share, the dilutive effect of stock options and warrants and convertible preferred stock will be excluded. Fully diluted earnings per share will include the dilutive effect of common stock equivalents. The Company has not determined what the impact of FAS 128 will be on the calculation of primary and fully diluted net loss per share. 2. FINANCIAL INSTRUMENTS Cash and Cash Equivalents Cash equivalents are highly liquid investments with insignificant interest rate risk and maturities of three months or less and are stated at amounts that approximate fair value, based on quoted market prices. Cash equivalents consist principally of investments in interest-bearing demand deposit accounts with financial institutions and highly liquid debt securities of corporations and the U.S. Government. The Company includes in cash and cash equivalents all short-term, highly liquid investments that mature within three months of their acquisition date. Short-Term Cash Investments The Company has classified all short-term cash investments as available-for- sale. Available-for-sale securities are carried at amounts that approximate fair market value based on quoted market prices. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in interest income. Interest on securities classified as available-for-sale is also included in interest income. F-9 AT HOME CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED) 2. FINANCIAL INSTRUMENTS (CONTINUED) Short-Term Cash Investments (continued) The following is a summary of available-for-sale securities (in thousands):
DECEMBER 31, --------------- 1995 1996 ------- ------- Commercial paper.......................................... $ -- $ 1,003 U.S. government obligations............................... -- 4,000 Money market instruments.................................. 63 9,933 ------- ------- 63 14,936 Included in cash and cash equivalents..................... -- 7,875 ------- ------- Included in short-term cash investments................... $ 63 $ 7,061 ======= =======
Unrealized gains and losses at December 31, 1995 and 1996 and realized gains and losses for the periods then ended were not material. Accordingly, the Company has not made a provision for such amounts in its consolidated balance sheets. The cost of securities sold is based on the specific identification method. 3. PROPERTY, EQUIPMENT AND IMPROVEMENTS The components of property, equipment and improvements are as follows (in thousands):
DECEMBER 31, --------------- ESTIMATED 1995 1996 USEFUL LIVES ------- ------- ------------ Computer equipment and software............. $ 763 $13,952 3 years Furniture and fixtures...................... 200 1,881 5 years Leasehold improvements...................... -- 366 lease term ------- ------- 963 16,199 Less accumulated depreciation and amortization............................... 42 1,871 ------- ------- $ 921 $14,328 ======= =======
Equipment and improvements include amounts for assets acquired under capital leases, principally computer equipment and software and furniture and fixtures of $0 and $9,949,000 at December 31, 1995 and 1996, respectively. Accumulated amortization of these assets was $817,000 at December 31, 1996. 4. LEASE OBLIGATIONS The Company leases certain office facilities under non-cancelable operating leases that expire at various dates through 2009, and which require the Company to pay operating costs, including property taxes, insurance, and maintenance. These facility leases generally contain renewal options and provisions adjusting the lease payments based upon changes in the consumer price index and increases in real estate taxes and operating expenses or in fixed increments. Rent expense is reflected on a straight-line basis over the terms of the leases. The Company also has obligations under a number of capital equipment leases. F-10 AT HOME CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED) 4. LEASE OBLIGATIONS (CONTINUED) Future minimum lease payments under non-cancelable operating and capital leases having terms in excess of one year as of December 31, 1996 are as follows (in thousands):
OPERATING CAPITAL LEASES LEASES --------- ------- Year Ending December 31, 1997................................................... $ 1,843 $ 3,739 1998................................................... 2,854 3,439 1999................................................... 2,850 2,316 2000................................................... 2,835 379 2001................................................... 2,834 -- Thereafter............................................. 18,859 -- -------- ------- Total minimum lease payments......................... $ 32,075 9,873 ======== Less amounts representing interest..................... (1,038) ------- Present value of minimum capital lease obligations..... 8,835 Less current portion................................... (3,181) ------- Noncurrent portion..................................... $ 5,654 =======
The Company is also committed under an operating lease to make expenditures for tenant improvements estimated to be approximately $5,500,000 in 1997. Facility rent expense for the period from March 28, 1995 (inception) to December 31, 1995 and for the year ended December 31, 1996 amounted to $98,000 and $600,000, respectively. 5. STOCKHOLDERS' EQUITY Preferred Stock Preferred stock consists of the following at December 31, 1996:
SHARES SHARES ISSUED LIQUIDATION SERIES AUTHORIZED AND OUTSTANDING PREFERENCE ------ ---------- --------------- ----------- AT.................................... 1,553,000 1,553,000 $15,530,000 AX.................................... 727,865 727,865 7,278,650 AM.................................... 727,865 727,865 7,278,650 K..................................... 743,883 743,883 7,438,830 T..................................... 770,000 770,000 7,700,000 Undesignated.......................... 10,000,000 -- -- ---------- --------- ----------- 14,522,613 4,522,613 $45,226,130 ========== ========= ===========
F-11 AT HOME CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED) 5. STOCKHOLDERS' EQUITY (CONTINUED) Preferred Stock (continued) Shares of Series AT, AX and AM preferred stock are convertible into Series A common stock. Shares of Series T preferred stock are convertible into Series B common stock, and shares of Series K preferred stock are convertible into Series K common stock, each on a 20-for-1 basis, subject to antidilution provisions. Conversion is at the option of the holder, or mandatorily as determined by the appropriate members of the Board of Directors, and automatic upon the Company's initial public offering of common stock unless the appropriate number of members of the Board of Directors vote not to require such automatic conversion. Holders of the Company's Series AT, AX, AM, K and T preferred stock are entitled to receive noncumulative dividends in the amount of 10% of the original issuance price per year in preference to holders of common stock at the discretion of the Board of Directors. No such dividends have been declared since the inception of the Company. In the event of the liquidation of the Company, holders of Series AT, AX, AM, K and T preferred stock are entitled to receive an amount per share equal to the original issuance price plus declared and unpaid dividends, prior and in preference to any distribution of assets to holders of common stock. The holder of Series T preferred stock has the right, for 60 days after August 29, 2001 and each anniversary thereof until August 29, 2005, to purchase all Series K preferred stock at fair market value (the "Call") and, during the same period and certain other periods, the holder of Series K preferred stock has the right to require the holder of Series T preferred stock to purchase all of the Series K preferred stock at fair market value (the "Put"). The holder of Series T preferred stock has the right to require an initial public offering of the Company's common stock in lieu of purchasing Series K preferred stock pursuant to the Put. The Call and the Put expire upon the Company's initial public offering. Upon the exercise of the Call or Put, all other holders of Series AT, AX, AM and K preferred stock will have the right to participate in the purchase of the affected securities on a pro rata basis, and such preferred stockholders will also have the right to exercise a put to the holder of Series T preferred stock with terms similar to those provided by the put as described above. Holders of preferred stock are entitled to the same number of votes per share as the common shares into which the preferred shares are convertible. As of December 31, 1996, one principal cable stockholder controlled approximately 76% of the voting power of the Company as a result of ownership of convertible preferred stock. Common Stock Common stock consists of the following at December 31, 1996:
SHARES SHARES ISSUED SERIES AUTHORIZED AND OUTSTANDING ------ ----------- --------------- A............................................. 150,000,000 11,855,008 B............................................. 15,400,000 -- K............................................. 14,877,660 -- ----------- ---------- 180,277,660 11,855,008 =========== ==========
F-12 AT HOME CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED) 5. STOCKHOLDERS' EQUITY (CONTINUED) Common Stock (continued) The holders of Series A, B and K common stock have one, ten and one vote(s) per share, respectively. Each share of Series B and K common stock is convertible into one share of Series A common stock at the option of the holders. Stock Splits In August 1996, the Company completed a one-for-ten reverse stock split of the outstanding shares of Series K and T preferred stock and a two-for-one stock split of the outstanding shares of Series A common stock. All share and per share amounts in the accompanying consolidated financial statements have been retroactively adjusted to reflect the stock splits. Stock Purchase Agreements During 1996, the Company entered into stock purchase agreements with certain employees, officers, directors and consultants under which the Company issued 7,527,000 shares of Series A common stock at prices ranging from $0.01 to $0.10 per share, and 50,000 shares of Series K preferred stock at $10.00 per share. Proceeds from the issuance of the restricted stock were received in the form of cash or five-year secured promissory notes bearing interest at a rate of approximately 5.9% per annum. Certain of the agreements provide that the unvested shares are subject to repurchase by the Company upon termination of employment at the original price paid for the shares. The shares generally vest at the rate of 25% after one year and ratably on a monthly basis for three years thereafter. During the year ended December 31, 1996, the Company repurchased 400,000 shares of common stock pursuant to such agreements. Under the terms of an employment agreement with an executive officer, so long as the officer is employed by the Company, and for 90 days thereafter if his employment is terminated without cause, to the extent the officer sells any of his vested common shares during a five-year guarantee period beginning in July 2000 at an average price less than $5 per share, if the Company's stock is publicly traded, the Company is obligated to pay the officer the difference between $5 per share and the average price for each share sold. At December 31, 1996, the officer owns 3,000,000 shares of Series A common stock and 50,000 shares of Series K common stock (convertible into 1,000,000 shares of Series K common stock upon completion of an initial public offering of the Company's common stock). During the year ended December 31, 1996 the Company accrued compensation expense of $1,675,000 in connection with this agreement, which amount is included in other long-term liabilities in the consolidated balance sheet. Warrants In October 1996, the Company issued a warrant to its facilities lessor that gives the lessor the right to purchase 200,000 shares of Series A common stock for $15 per share. The warrant is exercisable for a five-year period beginning in October 1997, or immediately upon an initial public offering of the Company's common stock. The Company deemed the warrant to have insignificant fair value at the time of issuance. Stock Options In January 1996, the Company adopted the 1996 Incentive Stock Option Plan, and in July 1996, the Company adopted the 1996 Incentive Stock Option Plan No. 2. The plans provide for incentive stock options, as defined by the Internal Revenue Code, to be granted to employees, at an exercise price not less than 100% of the fair value at the grant date as determined by the Board of Directors. The plans also provide for nonqualified stock options to be issued to nonemployee officers, directors and consultants at an exercise price of not less than 85% of the fair value at the grant date. F-13 AT HOME CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED) 5. STOCKHOLDERS' EQUITY (CONTINUED) Stock Options (continued) The options are exercisable immediately upon issuance and generally have a term of ten years. The Company reserves the right of first refusal to purchase all shares held by the participant upon termination. Unvested shares may be repurchased by the Company at the original purchase price. Fully vested shares may be repurchased by the Company at the higher of the original purchase price or the fair market value of the shares as determined by the Board of Directors. The vesting schedule is determined by the Board of Directors at the time of issuance. Stock options generally vest at the rate of 25% after one year and ratably on a monthly basis for three years thereafter. The repurchase right for vested shares expires upon the completion of an initial public offering of the Company's common stock. The Company has reserved 16,000,000 shares of Series A common stock (less the number of shares purchased by employees, officers, directors and consultants outside of the plans) for issuance under the plans. A summary of activity under the Company's stock option plans is as follows:
OPTIONS OUTSTANDING ----------------------------------- WEIGHTED AVERAGE NUMBER OF EXERCISE PRICE EXERCISE SHARES PER SHARE PRICE ---------- -------------- -------- Balance at December 31, 1995............ -- -- -- Options granted........................ 5,296,500 $0.05 - $0.10 $0.06 Options exercised (nonvested shares)... (4,875,500) $0.05 - $0.10 $0.06 Options forfeited...................... (198,000) $0.05 - $0.10 $0.05 ---------- ------------- ----- Balance at December 31, 1996............ 223,000 $0.05 - $0.10 $0.06 Options granted........................ 2,591,501 $0.25 $0.25 Options exercised (nonvested shares)... (1,894,251) $0.05 - $0.25 $0.25 Options forfeited...................... (1,000) $0.10 $0.10 ---------- ------------- ----- Balance at March 31, 1997............... 919,250 $0.05 - $0.25 $0.21 ========== ============= =====
The following table summarizes information about options outstanding at March 31, 1997, all of which were exercisable upon grant into shares of nonvested stock:
WEIGHTED AVERAGE WEIGHTED REMAINING AVERAGE NUMBER CONTRACTUAL EXERCISE EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE --------------- ----------- ------------ -------- $0.05...................................... 175,000 9.5 $0.05 $0.10...................................... 27,000 9.8 $0.10 $0.25...................................... 717,250 9.9 $0.25 ------- --- ----- $0.05 - $0.25.............................. 919,250 9.5 $0.21 ======= === =====
At March 31, 1997, outstanding options to purchase 41,720 shares were vested and 5,569,071 shares of nonvested common stock issued pursuant to exercises of options were subject to repurchase at the Company's option in the event of employee termination. F-14 AT HOME CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED) 5. STOCKHOLDERS' EQUITY (CONTINUED) The Company has recorded deferred compensation expense of $346,000 during the year ended December 31, 1996 and $4,737,000 during the three months ended March 31, 1997 for the difference between the exercise or purchase price and the deemed fair value of certain of the Company's stock options granted and stock issued under stock purchase agreements. These amounts are being amortized by charges to operations over the vesting periods of the individual stock options and stock purchase agreements, which are generally four years. A portion of the shares issued under certain stock purchase agreements during the year ended December 31, 1996 vested immediately. As a result the related compensation charge for the vested shares was recorded in the period in which the shares were issued. Pro Forma Disclosures of the Effect of Stock-Based Compensation Plans Pro forma information regarding results of operations and loss per share is required by FAS 123 for stock-based awards to employees as if the Company had accounted for such awards using a valuation method permitted under FAS 123. From inception through December 31, 1995, the Company made no stock-based awards to employees. Stock-based awards to employees under stock options and stock purchase agreements during the year ended December 31, 1996 were valued using the minimum value method, assuming no expected dividends, a weighted- average expected life of four years and a weighted-average risk-free interest rate of 6.5%. Should the Company complete an initial public offering of its common stock, stock-based awards granted thereafter will be valued using the Black-Scholes option pricing model. Among other things, the Black-Scholes model considers the expected volatility of the Company's stock price, determined in accordance with FAS 123, in arriving at an estimated fair value. The minimum value method does not consider stock price volatility. Further, certain other assumptions necessary to apply the Black-Scholes model may differ significantly from assumptions used to calculate the value of stock- based awards under the minimum value method. The weighted-average minimum values of options and nonvested shares issued to employees during 1996 were each $0.01. For pro forma purposes, the estimated minimum value of the Company's stock-based awards to employees is amortized over the vesting period of the underlying instruments. The results of applying FAS 123 to the Company's stock-based awards to employees was not material to the Company's results of operations or loss per share reflected in the accompanying consolidated statement of operations for the year ended December 31, 1996. Unaudited Pro Forma Stockholders' Equity Unaudited pro forma stockholders' equity at March 31, 1997 gives effect to the conversion into common stock of outstanding shares of preferred stock that will convert to common stock upon the closing of the Company's initial public offering of its common stock. 6. INCOME TAXES The Company's income tax provision (benefit) differs from the income tax benefit determined by applying the U.S. federal statutory rate to the net loss as follows (in thousands):
1995 1996 ----- ------- Tax provision (benefit) at U.S. statutory rate............. $(937) $(8,334) Net operating losses and temporary differences not recognized................................................ 937 8,334 ----- ------- Total.................................................. $ -- $ -- ===== =======
F-15 AT HOME CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED) 6. INCOME TAXES (CONTINUED) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities for federal and state income taxes are as follows (in thousands):
DECEMBER 31, ----------------- 1995 1996 ------- -------- Deferred tax assets: Net operating loss carryforwards........................ $ 525 $ 6,568 Tax credit carryforwards................................ 13 120 Capitalized start-up costs.............................. 574 4,284 Accrued expenses, not currently deductible.............. 31 525 ------- -------- Total gross deferred tax assets........................... 1,143 11,497 Less valuation allowance................................ (1,143) (10,977) ------- -------- Deferred tax assets..................................... -- 520 Deferred tax liabilities: Property and equipment.................................. -- (520) ------- -------- Total gross deferred tax liabilities...................... -- (520) ------- -------- Net deferred tax assets................................... $ -- $ -- ======= ========
Realization of deferred tax assets is dependent on future earnings, if any, the timing and amount of which are uncertain. Accordingly, a valuation allowance, in an amount equal to the net deferred tax assets as of December 31, 1995 and 1996, has been established to reflect these uncertainties. At December 31, 1996, the Company has net operating loss and research and development tax credit carryforwards for federal and state tax purposes of approximately $16,002,000 and $120,000, respectively, that will begin to expire at various dates beginning in years 2003 through 2011, if not utilized. Certain changes in ownership of the Company, as defined in the Tax Reform Act of 1996 and similar state provisions, may restrict the utilization of such carryforwards. 7. RELATED PARTY TRANSACTIONS For the period from March 28, 1995 (inception) to December 31, 1995 and for the year ended December 31, 1996, the Company purchased services of approximately $733,000 and $2,726,000 respectively, from certain preferred stockholders. The Company entered into an OEM software license agreement under which the Company paid the vendor $1,388,000 during 1996 and is obligated to pay an additional $2,331,000 during 1997 as nonrefundable license fees, prepaid support and services. A member of the Company's Board of Directors is also an executive officer of the vendor. Related party transactions with principal cable stockholders are described in Note. 1 8. RETIREMENT PLAN The Company has a retirement plan under Section 401(k) of the Internal Revenue Code. Under the retirement plan, participating employees may defer a portion of their pretax earnings up to the Internal Revenue Service annual contribution limit. The Company may make contributions to the plan at the discretion of the Board of Directors. To date, no such contributions have been made by the Company. F-16 AT HOME CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED) 9. LITIGATION On April 18, 1997, Netcom filed a complaint in Superior Court of the State of California in and for the County of Santa Clara against the Company and an officer of the Company. The complaint alleges that the Company misappropriated Netcom's trade secrets by hiring several former Netcom employees and that the officer violated a proprietary information agreement with Netcom by disclosing trade secrets and soliciting Netcom's employees to work for the Company. Netcom seeks compensatory and punitive damages, as well as injunctive relief to prohibit the Company from hiring any employee from Netcom and from misappropriating Netcom's trade secrets. Discovery has just commenced. The Company denies the allegations contained in the complaint and intends to contest the litigation vigorously. The Company believes that any judgment for Netcom in the litigation would not have a material adverse effect on the Company's business, results of operations and financial condition. 10. SUBSEQUENT EVENTS Series C Preferred Stock Financing In April 1997, the Company issued 240,000 shares of Series C convertible preferred stock to investors at $200 per share, resulting in cash proceeds of $48,000,000, less issuance costs. In connection with the issuance, the Company authorized the designation of 350,000 shares of authorized Series C preferred shares. Holders of Series C preferred stock are entitled to noncumulative annual dividends equal to 10% of the issue price if and when declared by the Board of Directors. Each share of Series C preferred stock is convertible into 20 shares of Series A common stock at the option of the holder, subject to certain adjustments. Each share of Series C preferred stock will automatically convert into Series A common stock upon the closing date of an initial public offering of the Company's common stock. If the offering price per share of the Series A common stock in an initial public offering is less than the effective price per share paid for the Series A common stock upon conversion of the Series C preferred stock, the conversion rate will be adjusted so that the effective price per share of the Series A common stock issued upon such conversion will equal the offering price. The Company also issued warrants to purchase 100,000 additional shares of Series C preferred stock at a price of $200 per share to certain of the Series C preferred stock investors that are also cable system operators. The warrants are exercisable from June 2004 or earlier, subject to certain performance standards being met by the cable systems operators, as specified in the agreement. The exercise price per share of the warrants will be reduced to the extent the offering price per share in an initial public offering of the Company's common stock is less than the exercise price of the warrants on as- if-converted basis. Proposed Public Offering of Common Stock In May 1997, the Board of Directors authorized management of the Company to file a Registration Statement with the Securities and Exchange Commission permitting the Company to sell shares of its common stock to the public. In addition, the Company's Board of Directors authorized an increase in the number of authorized shares of Series A common stock from 150,000,000 to 200,000,000, subject to stockholder approval. 1997 Equity Incentive Plan The Company's 1997 Equity Incentive Plan was adopted by the Board of Directors and stockholders in May 1997 to be effective upon the completion of the Company's initial public offering of its common stock. The 1997 Plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock awards and stock bonuses to employees, directors and consultants of the Company. The total number of shares of F-17 AT HOME CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED) 10. SUBSEQUENT EVENTS (CONTINUED) Series A common stock reserved for issuance under the 1997 Plan is 16,000,000 less the total number of shares issued or issuable to employees, officers, directors and consultants under restricted stock purchase agreements and the 1996 Incentive Stock Option Plans (Note 5) and shares reserved for issuance under the 1997 Employee Stock Purchase Plan. 1997 Employee Stock Purchase Plan The Company's 1997 Employee Stock Purchase Plan was adopted by the Board of Directors and stockholders in May 1997 to be effective upon the completion of the Company's initial public offering of its common stock. The Company has reserved a total of 400,000 shares of Series A common stock for issuance under the plan. Eligible employees may purchase common stock at 85% of the lesser of the fair market value of the Company's common stock on the first day of the applicable offering period or the last day of the applicable purchase period. F-18 INSIDE BACK COVER [PICTURE TO COME] LOGO PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The expenses to be paid by the Registrant in connection with this offering are as follows. All amounts other than the SEC registration fee, NASD filing fee and Nasdaq National Market application fee are estimates. SEC Registration Fee................................................ $19,516 NASD Filing Fee..................................................... 6,940 Nasdaq National Market Application Fee.............................. 50,000 Printing............................................................ * Legal Fees and Expenses............................................. * Accounting Fees and Expenses........................................ * Director and Officer Liability Insurance............................ * Blue Sky Fees and Expenses.......................................... * Custodial Fees...................................................... * Transfer Agent and Registrar Fees................................... * Miscellaneous....................................................... * ------- Total............................................................. $ * =======
- -------- * To be filed by amendment ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation's Board of Directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended (the "Securities Act"). Article V, Section C of the Registrant's Third Amended and Restated Certificate of Incorporation provides that, to the fullest extent permitted by the Delaware General Corporation Law, a director of the Company shall not be liable to the Company or any of its stockholders for monetary damages for breach of fiduciary duty as a director. Such section further provides for mandatory indemnification, to the fullest extent permitted by applicable law, for any person who is or was a director or officer of the Company, or a person who is a legal representative of such director or officer, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys' fees) reasonably incurred by such person. Indemnity of any person who was or is serving at the Company's request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or nonprofit entity must be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or nonprofit entity. In addition, the Registrant has entered into Indemnification Agreements with each of its directors and intends to do so with its executive officers. Reference is also made to Article VIII of the Underwriting Agreement, which provides for the indemnification of officers, directors and controlling persons of the Registrant against certain liabilities. The indemnification provision in the Company's Third Amended and Restated Certificate of Incorporation and the Indemnification Agreements may be sufficiently broad to permit indemnification of the Registrant's directors for liabilities arising under the Securities Act. The Registrant, with approval by the Registrant's Board of Directors, has applied for, and expects to obtain, directors' and officers' liability insurance with a per claim and annual aggregate coverage limit of $ . II-1 Reference is made to the following documents filed as exhibits to this Registration Statement regarding relevant indemnification provisions described above and elsewhere herein:
DOCUMENT EXHIBIT NUMBER -------- -------------- Underwriting Agreement (draft dated May 15, 1997)........... 1.01 Third Amended and Restated Certificate of Incorporation of Registrant................................................. 3.01 Form of Indemnification Agreement........................... 10.09
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. The following table sets forth information regarding all securities sold by the Registrant since March 28, 1995, the Company's inception date.
AGGREGATE DATE TITLE OF NUMBER PURCHASE FORM OF CLASS OF PURCHASER OF SALE SECURITIES OF SHARES PRICE CONSIDERATION - ------------------ -------- --------------------------- --------- ----------- ----------------- TCI Internet Services, Inc. .................. 8/29/95 Series T Preferred Stock 770,000(1) $ 7,700,000 Cash 3 venture capital funds.................. 8/29/95 Series K Preferred Stock 230,000(1) $ 2,300,000 Cash TCI Internet Holdings, Inc. .................. 5/9/96 Series T Preferred Stock 770,000(1)(2) $ 7,700,000 Cash 2 venture capital funds.................. 5/9/96 Series K Preferred Stock 230,000(1) $ 2,300,000 Cash One company............. 7/19/96 Series A Common Stock 20,000 $ 1,000 Property(3) TCI Internet Holdings, Inc. .................. 8/1/96 Series AT Preferred Stock 783,000(1) $ 7,830,000 Cash Cox @Home, Inc. (formerly known as Cox Teleport Providence, Inc.).................. 8/1/96 Series AX Preferred Stock 727,865(1) $ 7,278,650 Cash Comcast PC Investments, Inc. .................. 8/1/96 Series AM Preferred Stock 727,865(1) $ 7,278,650 Cash 2 venture capital funds, one Company officer and one individual......... 8/1/96 Series K Preferred Stock 283,883(1) $ 2,838,830 Cash Company's landlord...... 10/18/96 Warrant to purchase -- $ 3,000 Cash 200,000 shares of Series A Common Stock 2 foreign companies, 4 domestic companies and one Company director... 4/11/97 Series C Preferred Stock 240,000(1) $48,000,000 Cash 2 foreign companies..... 4/11/97 Warrants to purchase -- $ 2,000 Cash 100,000 shares of Series C Preferred Stock 17 officers and employees.............. 5/31/96- Series A Common Stock 7,527,000(4) $ 400,800(5) Cash and notes(5) 10/1/96 (restricted stock purchases) 236 officers and employees.............. 8/14/96- Series A Common Stock 6,769,751(6) $ 780,713(7) Cash and notes(7) 3/31/97 (stock option purchases)
- -------- (1) Upon the closing of the Company's initial public offering, each share of Preferred Stock will convert automatically into 20 shares of the appropriate series of Common Stock subject to adjustment of the Series C Preferred Stock conversion rate if the offering price is less than $10.00 per share. (2) These shares were subsequently exchanged for a like number of shares of Series AT Preferred Stock. (3) The Registrant issued these shares in exchange for an Internet domain name. (4) Of these shares, 701,850 have been repurchased by the Registrant. (5) Each individual paid a portion or all of the purchase price in cash (aggregating $272,010). Four officers and six other employees paid most of their respective purchase prices with promissory notes (aggregating $128,790). (6) Of these shares, 263,574 have been repurchased by the Registrant. (7) Each individual paid a portion or all of the purchase price in cash (aggregating $541,313). Two executive officers and four other employees paid most of their respective purchase prices with promissory notes (aggregating $239,400). All sales of Series A Common Stock made pursuant to the exercise of stock options granted under the Registrant's stock option plans or pursuant to restricted stock purchase agreements were made pursuant to the exemption from the registration requirements of the Securities Act afforded by Rule 701 promulgated under the Securities Act. The sales to two foreign companies of Series C Prefered Stock and warrants to purchase Series C Preferred Stock were made in reliance on Regulation S. All other sales were made in reliance on Section 4(2) of the Securities Act and/or Regulation D promulgated under the Securities Act. These sales were made without general solicitation or advertising. Each purchaser was a sophisticated investor with access to all relevant information necessary to evaluate the investment who represented to the Registrant that the shares were being acquired for investment. II-2 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) The following exhibits are filed herewith:
EXHIBIT NUMBER EXHIBIT TITLE ------- ------------- 1.01 Underwriting Agreement (draft dated May 15, 1997). 3.01 Third Amended and Restated Certificate of Incorporation of Registrant filed August 14, 1996. 3.02 Certificate of Amendment of Third Amended and Restated Certificate of Incorporation of Registrant filed April 11, 1997. 3.03 Certificate of Designation of Series C Convertible Participating Preferred Stock of Registrant filed April 11, 1997. 3.04 Form of Certificate of Amendment of the Third Amended and Restated Certificate of Incorporation of Registrant to be effective upon the closing of this offering.* 3.05 Form of Second Amended and Restated Bylaws of Registrant to be effective upon the closing of this Offering.* 4.01 Third Amended and Restated Registration Rights Agreement, dated April 11, 1997, among Registrant and the parties indicated therein. 4.02 Letter Agreement relating to Tag-Along/Drag-Along Rights, dated April 11, 1997, among Registrant and the parties indicated therein. 4.03 Canadian Purchase Letter Agreement, dated April 11, 1997, among Registrant and the parties indicated therein. 4.04 Form of Amended and Restated Stockholders' Agreement, dated August 1, 1996, among Registrant and the parties indicated therein, as amended on May , 1997.* 4.05 Form of certificate of Registrant's Series A Common Stock.* 5.01 Opinion of Fenwick & West LLP regarding legality of the securities being registered.* 9.01 Voting Agreement, dated April 11, 1997, among Registrant, TCI Internet Holdings, Inc., Comcast PC Investments, Inc., Cox Teleport Providence, Inc., Rogers Cablesystems Limited and Shaw Cablesystems Ltd. 10.01 Stock Purchase Agreement, dated August 29, 1995, among Registrant, TCI Internet Services, Inc., Kleiner Perkins Caufield & Byers VII, KPCB VII Founders Fund and KPCB Information Sciences Zaibatsu Fund II. 10.02 Letter Agreement, dated May 9, 1996, among Registrant, TCI Internet Holdings, Inc., Kleiner Perkins Caufield & Byers VII, KPCB VII Founders Fund and KPCB Information Sciences Zaibatsu Fund II. 10.03 Stock Purchase and Exchange Agreement, dated August 1, 1996, among Registrant, TCI Internet Holdings, Inc., Kleiner Perkins Caufield & Byers VII, KPCB Information Sciences Zaibatsu Fund II, James Clark, Comcast PC Investments, Inc. and Cox Teleport Providence, Inc. 10.04 Term Sheet, dated June 4, 1996, among Registrant, TCI Internet Holdings, Inc., Kleiner Perkins Caufield & Byers VII. KPCB Information Sciences Zaibatsu Fund II, KPCB VII Founders Fund, Comcast PC Investments, Inc. and Cox Teleport Providence, Inc. 10.05 Stock Purchase Agreement, dated April 11, 1997, among Registrant, Rogers Cablesystems Limited, Shaw Cablesystems Ltd., Sun Microsystems, Inc., Netscape Communications Corporation, James Barksdale, Motorola, Inc. and Bay Networks, Inc. 10.06 Term Sheet dated March 18, 1997 among Registrant and Shaw Cablesystems Ltd. and Rogers Cablesystems Limited.** 10.07 Master Communications Services Agreement dated April 2, 1997 between Registrant and Teleport Communications Group Inc.** 10.08 Lease, dated October 17, 1996, between Registrant and Martin/Campus Associates, L.P. 10.09 Form of Indemnification Agreement entered into by Registrant with each of its directors and executive officers. 10.10 Registrant's 1996 Incentive Stock Option Plan. 10.11 Registrant's 1996 Incentive Stock Option Plan No. 2. 10.12 Registrant's 1997 Equity Incentive Plan.
II-3
EXHIBIT NUMBER EXHIBIT TITLE ------- ------------- 10.13 Registrant's 1997 Employee Stock Purchase Plan. 10.14 Restricted Stock Purchase Agreement dated July 31, 1996 between Registrant and Thomas A. Jermoluk for purchase of Series A Common Stock. Restricted Stock Purchase Agreement dated July 31, 1996 between Registrant and Thomas A. Jermoluk for purchase of Series K Preferred 10.15 Stock. 10.16 Restricted Stock Purchase Agreement dated July 31, 1996 between Registrant and William R. Hearst III for purchase of Series A Common Stock. 10.17 Restricted Stock Purchase Agreement dated July 29, 1996 between Registrant and Ken Goldman for purchase of Series A Common Stock. 10.18 Form of Restricted Stock Purchase Agreement and Promissory Note between Registrant and other officers for purchase of Series A Common Stock. 10.19 Employment Letter Agreement dated July 19, 1996 between Registrant and Thomas A. Jermoluk. 10.20 Form of Master Distribution Agreement Term Sheet among Registrant and the parties indicated therein.* 10.21 Form of Term Sheet for Form of LCO Agreement among Registrant and the parties indicated therein.* 11.01 Statement regarding the computation of net loss and of pro forma net loss per share.* 16.01 Letter regarding change in certifying accountant.* 21.01 Subsidiaries of Registrant. 23.01 Consent of Fenwick & West, LLP (included in Exhibit 5.01).* 23.02 Consent of Ernst & Young LLP. 24.01 Form of power of attorney executed by each officer and director whose signature has been conformed on the signature page appearing on page II-6 of the Registration Statement. 27.01 Financial data schedule.
- -------- * To be supplied by amendment. ** Confidential treatment is being sought with respect to certain portions of this agreement. Such portions have been omitted from this filing and have been filed separately with the Securities and Exchange Commission. (b)All financial statement schedules are omitted because the information called for is not required or is shown either in the financial statements or the notes thereto. II-4 ITEM 17. UNDERTAKINGS. The undersigned Registrant hereby undertakes to provide to the Underwriter at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriter to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described under Item 14 above, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE REDWOOD CITY, STATE OF CALIFORNIA, ON THE 15TH DAY OF MAY, 1997. AT HOME CORPORATION By: /s/ Thomas A. Jermoluk ---------------------------------- THOMAS A. JERMOLUK CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER In accordance with the requirements of the Securities Act, this Registration Statement was signed by the following persons in the capacities and on the dates indicated. NAME TITLE DATE PRINCIPAL EXECUTIVE OFFICER: /s/ Thomas A. Jermoluk - ----------------------------- Chairman, President and THOMAS A. JERMOLUK Chief Executive Officer May 15, 1997 PRINCIPAL FINANCIAL AND PRINCIPAL ACCOUNTING OFFICER: /s/ Kenneth A. Goldman - ----------------------------- Senior Vice President and KENNETH A. GOLDMAN Chief Financial Officer May 15, 1997 DIRECTORS: /s/ William R. Hearst III - ----------------------------- Vice Chairman May 15, 1997 WILLIAM R. HEARST III /s/ James L. Barksdale - ----------------------------- Director May 15, 1997 JAMES L. BARKSDALE /s/ Brendan R. Clouston - ----------------------------- Director May 15, 1997 BRENDAN R. CLOUSTON /s/ L. John Doerr - ----------------------------- Director May 15, 1997 L. JOHN DOERR /s/ John C. Malone - ----------------------------- Director May 15, 1997 JOHN C. MALONE /s/ Bruce W. Ravenel - ----------------------------- Director May 15, 1997 BRUCE W. RAVENEL /s/ Brian L. Roberts - ----------------------------- Director May 15, 1997 BRIAN L. ROBERTS /s/ Edward S. Rogers - ----------------------------- Director May 15, 1997 EDWARD S. ROGERS /s/ Larry E. Romrell - ----------------------------- Director May 15, 1997 LARRY E. ROMRELL /s/ David M. Woodrow - ----------------------------- Director May 15, 1997 DAVID M. WOODROW II-6 EXHIBIT INDEX
SEQUENTIALLY EXHIBIT NUMBERED NUMBER EXHIBIT TITLE PAGE ------- ------------- ------------ 1.01 Underwriting Agreement (draft dated May 15, 1997). 3.01 Third Amended and Restated Certificate of Incorporation of Registrant filed August 14, 1996. 3.02 Certificate of Amendment of Third Amended and Restated Certificate of Incorporation of Registrant filed April 11, 1997. 3.03 Certificate of Designation of Series C Convertible Participating Preferred Stock of Registrant filed April 11, 1997. 3.04 Form of Certificate of Amendment to the Third Amended and Restated Certificate of Incorporation of Registrant to be effective upon the closing of this offering.* 3.05 Form of Second Amended and Restated Bylaws of Registrant to be effective upon the closing of this Offering.* 4.01 Third Amended and Restated Registration Rights Agreement, dated April 11, 1997, among Registrant and the parties indicated therein. 4.02 Letter Agreement relating to Tag-Along/Drag-Along Rights, dated April 11, 1997, among Registrant and the parties indicated therein. 4.03 Canadian Purchase Letter Agreement, dated April 11, 1997, among Registrant and the parties indicated therein. 4.04 Form of Amended and Restated Stockholders' Agreement, dated August 1, 1996, among Registrant and the parties indicated therein, as amended on May , 1997.* 4.05 Form of certificate of Registrant's Series A Common Stock.* 5.01 Opinion of Fenwick & West LLP regarding legality of the securities being registered.* 9.01 Voting Agreement, dated April 11, 1997, among Registrant, TCI Internet Holdings, Inc., Comcast PC Investments, Inc., Cox Teleport Providence, Inc., Rogers Cablesystems Limited and Shaw Cablesystems Ltd. 10.01 Stock Purchase Agreement, dated August 29, 1995, among Registrant, TCI Internet Services, Inc., Kleiner Perkins Caufield & Byers VII, KPCB VII Founders Fund and KPCB Information Sciences Zaibatsu Fund II. 10.02 Letter Agreement, dated May 9, 1996, among Registrant, TCI Internet Holdings, Inc., Kleiner Perkins Caufield & Byers VII, KPCB VII Founders Fund and KPCB Information Sciences Zaibatsu Fund II. 10.03 Stock Purchase and Exchange Agreement, dated August 1, 1996, among Registrant, TCI Internet Holdings, Inc., Kleiner Perkins Caufield & Byers VII, KPCB Information Sciences Zaibatsu Fund II, James Clark, Comcast PC Investments, Inc. and Cox Teleport Providence, Inc. 10.04 Term Sheet, dated June 4, 1996, among Registrant, TCI Internet Holdings, Inc., Kleiner Perkins Caufield & Byers VII. KPCB Information Sciences Zaibatsu Fund II, KPCB VII Founders Fund, Comcast PC Investments, Inc. and Cox Teleport Providence, Inc. 10.05 Stock Purchase Agreement, dated April 11, 1997, among Registrant, Rogers Cablesystems Limited, Shaw Cablesystems Ltd., Sun Microsystems, Inc., Netscape Communications Corporation, James Barksdale, Motorola, Inc. and Bay Networks, Inc. 10.06 Term Sheet dated March 18, 1997 among Registrant and Shaw Cablesystems Ltd. and Rogers Cablesystems Limited.** 10.07 Master Communications Services Agreement dated April 2, 1997 between Registrant and Teleport Communications Group Inc.** 10.08 Lease, dated October 17, 1996, between Registrant and Martin/Campus Associates, L.P. 10.09 Form of Indemnification Agreement entered into by Registrant with each of its directors and executive officers. 10.10 Registrant's 1996 Incentive Stock Option Plan.
SEQUENTIALLY EXHIBIT NUMBERED NUMBER EXHIBIT TITLE PAGE ------- ------------- ------------ 10.11 Registrant's 1996 Incentive Stock Option Plan No. 2. 10.12 Registrant's 1997 Equity Incentive Plan. 10.13 Registrant's 1997 Employee Stock Purchase Plan. 10.14 Restricted Stock Purchase Agreement dated July 31, 1996 between Registrant and Thomas A. Jermoluk for purchase of Series A Common Stock. 10.15 Restricted Stock Purchase Agreement dated July 31, 1996 between Registrant and Thomas A. Jermoluk for purchase of Series K Preferred Stock. 10.16 Restricted Stock Purchase Agreement dated July 31, 1996 between Registrant and William R. Hearst III for purchase of Series A Common Stock. 10.17 Restricted Stock Purchase Agreement dated July 29, 1996 between Registrant and Ken Goldman for purchase of Series A Common Stock. 10.18 Form of Restricted Stock Purchase Agreement and Promissory Note between Registrant and other officers for purchase of Series A Common Stock. 10.19 Employment Letter Agreement dated July 19, 1996 between Registrant and Thomas A. Jermoluk. 10.20 Form of Master Distribution Agreement Term Sheet among Registrant and the parties indicated therein.* 10.21 Form of Term Sheet for Form of LCO Agreement among Registrant and the parties indicated therein.* 11.01 Statement regarding the computation of net loss and of pro forma net loss per share.* 16.01 Letter regarding change in certifying accountant.* 21.01 Subsidiaries of Registrant. 23.01 Consent of Fenwick & West, LLP (included in Exhibit 5.01).* 23.02 Consent of Ernst & Young LLP. 24.01 Form of power of attorney executed by each officer and director whose signature has been conformed on the signature page appearing on page II-6 of the Registration Statement. 27.01 Financial data schedule.
- -------- * To be supplied by amendment. ** Confidential treatment is being sought with respect to certain portions of this agreement. Such portions have been omitted from this filing and have been filed separately with the Securities and Exchange Commission. EX-1.01 2 UNDERWRITING AGREEMENT (DRAFT 5/15/97) EXHIBIT 1.01 [_________] Shares AT HOME CORPORATION Series A Common Stock, $.01 par value UNDERWRITING AGREEMENT _________, 1997 _______, 1997 Morgan Stanley & Co. Incorporated Merrill Lynch, Pierce, Fenner & Smith Incorporated Alex. Brown & Sons Incorporated Hambrecht & Quist LLC as Representatives of the several Underwriters named in Schedule I hereto c/o Morgan Stanley & Co. Incorporated 1585 Broadway New York, New York 10036 Morgan Stanley & Co. International Limited Merrill Lynch International Alex. Brown International Hambrecht & Quist LLC c/o Morgan Stanley & Co. International Limited 25 Cabot Square Canary Wharf London E14 4QA England Dear Sirs and Mesdames: At Home Corporation, a Delaware corporation (the "Company"), proposes to issue and sell to the several Underwriters (as defined below) an aggregate of [_________] shares of its Series A Common Stock ($.01 per share par value) (the "Firm Shares"). It is understood that, subject to the conditions hereinafter stated, [__________] Firm Shares (the "U.S. Firm Shares") will be sold to the several U.S. Underwriters named in Schedule I hereto (the "U.S. Underwriters") in connection with the offering and sale of such U.S. Firm Shares in the United States and Canada to United States and Canadian Persons (as such terms are defined in the Agreement Between U.S. and International Underwriters of even date herewith), and [__________] Firm Shares (the "International Shares") will be sold to the several International Underwriters named in Schedule II hereto (the "International Underwriters") in connection with the offering and sale of such International Shares outside the United States and Canada to persons other than United States and Canadian Persons. Morgan Stanley & Co. Incorporated, Merrill Lynch & Co., Alex. Brown & Sons Incorporated and Hambrecht & Quist LLC shall act as representatives (the "U.S. Representatives") of the several U.S. Underwriters, and Morgan Stanley & Co. International Limited, Merrill Lynch & Co. International, Alex. Brown International and Hambrecht & Quist LLC shall act as representatives (the "International Representatives") of the several International Underwriters. The U.S. Underwriters and the International Underwriters are hereinafter collectively referred to as the Underwriters. The Company also proposes to issue and sell to the several U.S. Underwriters not more than an additional [_______] shares of its Series A Common Stock ($.01 per share par value) (the "Additional Shares"), if and to the extent that the U.S. Representatives shall have determined to exercise, on behalf of the U.S. Underwriters, the right to purchase such shares of Common Stock granted to the U.S. Underwriters in Article II hereof. The Firm Shares and the Additional Shares are hereinafter collectively referred to as the "Shares." The shares of Series A Common Stock ($.01 per share par value) of the Company to be outstanding after giving effect to the sales contemplated hereby are hereinafter referred to as the "Series A Common Stock." All shares of Common Stock of the Company outstanding after the issuance of Series A Common Stock, together with the shares of Series A Common Stock, are hereinafter collectively referred to as the "Common Stock". The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement, relating to the Shares. The registration statement contains two prospectuses to be used in connection with the offering and sale of the Shares: the U.S. prospectus, to be used in connection with the offering and sale of Shares in the United States and Canada to United States and Canadian Persons, and the international prospectus, to be used in connection with the offering and sale of Shares outside the United States and Canada to persons other than United States and Canadian Persons. The international prospectus is identical to the U.S. prospectus except for the outside front cover page. The registration statement as amended at the time it becomes effective, including the information (if any) deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A under the Securities Act of 1933, as amended (the "Securities Act"), is hereinafter referred to as the "Registration Statement;" the U.S. prospectus and the international prospectus in the respective forms first used to confirm sales of Shares are hereinafter collectively referred to as the "Prospectus." If the Company has filed an abbreviated registration statement to register additional shares of Common Stock pursuant to Rule 462(b) under the Securities Act (the "Rule 462 Registration Statement"), then any reference herein to the term "Registration Statement" shall be deemed to include such Rule 462 Registration Statement. As part of the offering contemplated by this Agreement, Morgan Stanley & Co. Incorporated ("Morgan Stanley") has agreed to reserve out of the Shares set forth opposite its name on Schedule I to this Agreement, up to ____________ shares, for sale to the Company's employees, officers, and directors and other parties associated with the Company (collectively, "Participants"), as set forth in the Prospectus under the heading "Underwriting" (the "Directed Share Program"). The Shares to be sold by Morgan Stanley pursuant to the Directed Share Program (the "Directed Shares") will be sold by Morgan Stanley pursuant to this Agreement at the public offering price. Any Directed Shares not orally confirmed for purchase by any Participants by the end of the first business day after the date on which this Agreement is executed will be offered to the public by Morgan Stanley as set forth in the Prospectus. I. The Company represents and warrants to and agrees with each of the Underwriters that: (a) The Registration Statement has become effective, no stop order suspending the effectiveness of the Registration Statement is in effect, and no proceedings for such purpose are pending before or threatened by the Commission. (b) (i) The Registration Statement, when it became effective, did not contain and, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) the Registration Statement and the Prospectus comply and, as amended or supplemented, if applicable, will comply in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder and (iii) the Prospectus does not contain and, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this paragraph (b) do not apply to statements or omissions in the Registration Statement or the Prospectus based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein. -2- (c) The Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the State of Delaware, has the corporate power and authority to own its property and to conduct its business as described in the Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and the Subsidiary (as defined below), taken as a whole. (d) The Company has only one subsidiary, athome.net (the "Subsidiary"), which has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business as described in the Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and the Subsidiary, taken as a whole. All of the issued shares of capital stock of the Subsidiary have been duly and validly authorized and issued, are fully paid and non-assessable, and are owned directly by the Company, free and clear of all liens, encumbrances, equities or claims. The Company does not own, directly or indirectly, an interest in any corporation, partnership, business, trust or other entity required to be set forth in Exhibit 21.01 to the Registration Statement. (e) The Company and the Subsidiary have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and the Subsidiary, taken as a whole, in each case free and clear of all liens, encumbrances and defects except such as are described in the Prospectus or such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and the Subsidiary; and any real property and buildings held under lease by the Company and the Subsidiary are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and the Subsidiary, in each case except as described in or contemplated by the Prospectus. (f) The authorized capital stock of the Company conforms as to legal matters to the description thereof contained in the Prospectus. (g) The shares of Common Stock outstanding prior to the issuance of the Shares to be sold by the Company have been duly authorized and are validly issued, fully paid and non-assessable. Except as set forth in the Prospectus, neither the Company nor the Subsidiary has outstanding any options to purchase, or any preemptive rights or other rights to subscribe for or to purchase, any securities or obligations convertible into, or any contracts or commitments to issue or sell, shares of its capital stock or any such options, rights, convertible securities or obligations. All outstanding shares of capital stock of the Company and options and other rights to acquire capital stock have been issued in compliance with the registration and qualification provisions of all applicable federal and state securities laws and were not issued in violation of any preemptive rights, rights of first refusal or other similar rights. (h) The Shares have been duly authorized and, when issued and delivered in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable, and the issuance of such Shares will not be subject to any preemptive rights, rights of first refusal or similar rights. (i) This Agreement has been duly authorized, executed and delivered by the Company. -3- (j) The execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement will not contravene any provision of applicable law or the certificate of incorporation or by- laws of the Company or the Subsidiary or any agreement or other instrument binding upon the Company or the Subsidiary that is material to the Company and the Subsidiary, taken as a whole, or any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or the Subsidiary, and no consent, approval, authorization or order of or qualification with any governmental body or governmental agency is required for the performance by the Company of its obligations under this Agreement, except as may be required by the securities or Blue Sky laws of the various states and foreign jurisdictions in connection with the offer and sale of the Shares by the U.S. Underwriters or by the rules and regulations of the NASD. (k) There has not occurred any material adverse change, or any development involving a prospective material adverse change, in the condition, financial or otherwise, or in the earnings, business or operations of the Company and the Subsidiary, taken as a whole, from that set forth in the Prospectus (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement). (l) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, (i) the Company and the Subsidiary have not incurred any material liability or obligation, direct or contingent, nor entered into any material transaction not in the ordinary course of business; (ii) the Company has not purchased any of its outstanding capital stock, nor declared, paid or otherwise made any dividend or distribution of any kind on its capital stock other than ordinary and customary dividends; and (iii) there has not been any material change in the capital stock, short-term debt or long-term debt of the Company and the Subsidiary, except in each case as described in or contemplated by the Prospectus. (m) There are no legal or governmental proceedings pending or, to the best of the Company's knowledge, threatened to which the Company or the Subsidiary is a party or to which any of the properties of the Company or the Subsidiary is subject that are required to be described in the Registration Statement or the Prospectus and are not so described or any statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not described or filed as required. (n) Each of the Company and the Subsidiary has all necessary consents, authorizations, approvals, orders, certificates and permits of and from, and has made all declarations and filings with, all federal, state, local, foreign and other governmental or regulatory authorities, all self- regulatory organizations and all courts and other tribunals, to own, lease, license and use its properties and assets and to conduct its business in the manner described in the Prospectus, except to the extent that the failure to obtain or file would not have a material adverse effect on the Company and the Subsidiary taken as a whole. Neither the Company nor the Subsidiary has received any notice of proceedings related to the revocation or modification of any such consent, authorization, approval, order, certificate or permit which, singly or in the aggregate, if the subject of any unfavorable decision, ruling or finding, would result in a material adverse change in the condition, financial or otherwise, or in the earnings, business or operations of the Company and the Subsidiary, taken as a whole, except as described in or contemplated by the Prospectus. (o) Each preliminary prospectus filed as part of the registration statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 or Rule 462 under the Securities Act, complied when so filed in all material respects with the Securities Act and the rules and regulations of the Commission thereunder, except for the omission of a price range and other information derived therefrom. -4- (p) The Company is not and, after giving effect to the offering and sale of the Shares and the application of the proceeds thereof as described in the Prospectus will not be, an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. (q) Except as described in the Prospectus, there are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Securities Act with respect to any securities of the Company or to require the Company to include such securities with the Shares registered pursuant to the Registration Statement. (r) The Company and the Subsidiary are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which they are engaged; neither the Company nor the Subsidiary has been refused any insurance coverage sought or applied for; and neither the Company nor the Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not materially and adversely affect the condition, financial or otherwise, or the earnings, business or operations of the Company and the Subsidiary, taken as a whole, except as described in or contemplated by the Prospectus. (s) The Company and the Subsidiary (i) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (collectively, "Environmental Laws"), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, singly or in the aggregate, have a material adverse effect on the Company and the Subsidiary, taken as a whole. (t) There are no costs or liabilities associated with Environmental Laws (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties) which would, singly or in the aggregate, have a material adverse effect on the Company and the Subsidiary, taken as a whole. (u) Except as disclosed in the Prospectus, (i) the Company and the Subsidiary own or possess, or can acquire on reasonable terms, adequate licenses or other rights to use all material patents, copyrights, trademarks, service marks, trade names, technology and know-how currently employed by them to conduct the irrespective businesses in the manner described in the Prospectus, (ii) neither the Company nor the Subsidiary has received any notice of infringement or conflict with (and neither the Company nor the Subsidiary knows of any infringement or conflict with) asserted rights of others with respect to any patents, copyrights, trademarks, service marks, trade names, trade secrets, technology or know- how which could reasonably be expected to result in any material adverse effect upon the Company and the Subsidiary, taken as a whole, and (iii) the discoveries, inventions, products or processes of the Company and the Subsidiary referred to in the Prospectus do not, to the best knowledge of the Company or the Subsidiary, infringe or conflict with any right or patent of any third party, or any discovery, invention, product or process which is the subject of a published patent application filed by any third party, known to the Company or the Subsidiary which could reasonably be expected to have a material adverse effect on the Company and the Subsidiary, taken as a whole. -5- (v) Each of the Company and the Subsidiary maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (w) No material labor dispute with the employees of the Company or the Subsidiary exists, except as described in or contemplated by the Prospectus, or, to the best knowledge of the Company, is imminent; and, without conducting any independent investigation, the Company is not aware of any existing, threatened or imminent labor disturbance by the employees of any of its principal suppliers, manufacturers or contractors that could reasonably be expected to have a material adverse effect on the Company and the Subsidiary, taken as a whole. (x) All outstanding shares of Common Stock, and all securities convertible into or exercisable or exchangeable for Common Stock, are subject to valid, binding and enforceable agreements (collectively, the "Lock-up Agreements") that restrict the holders thereof from selling, making any short sale of, granting any option for the purchase of, or otherwise transferring or disposing of, any of such shares of Common Stock, or any such securities convertible into or exercisable or exchangeable for Common Stock, for a period of 180 days after the date of the Prospectus without the prior written consent of the Company or Morgan Stanley & Co. Incorporated. (y) The Company (i) has notified each holder of a currently outstanding option issued under either the 1996 Incentive Stock Option Plan No. 1 or the 1996 Incentive Stock Option Plan No. 2 (collectively, the "Option Plan") and each person who has acquired shares of Common Stock pursuant to the exercise of any option granted under the Option Plan that pursuant to the terms of the Option Plan, none of such options or shares may be sold or otherwise transferred or disposed of for a period of 180 days after the date of the initial public offering of the Shares and (ii) has imposed a stop-transfer instruction with the Company's transfer agent in order to enforce the foregoing lock-up provision imposed pursuant to the Option Plan. (z) As of the date the Registration Statement becomes effective, the Series A Common Stock will be authorized for listing on the Nasdaq National Market upon official notice of issuance. (aa) The Company has complied with all provisions of Section 517.075, Florida Statutes, relating to doing business with the Government of Cuba or any person or affiliate located in Cuba. Furthermore, the Company represents and warrants to Morgan Stanley that (i) the Registration Statement, the Prospectus and any preliminary prospectus comply, and any further amendments or supplements thereto will comply, with any applicable laws or regulations of foreign jurisdictions in which the Prospectus or any preliminary prospectus, as amended or supplemented, if applicable, are distributed in connection with the Directed Share Program, and that (ii) no authorization, approval, consent, license, order, registration or qualification of or with any government, governmental instrumentality or court, other that such as have been obtained, is necessary under the securities laws and regulations of foreign jurisdictions in which the Directed Shares are offered outside the United States. II. The Company hereby agrees to sell to the several Underwriters, and each Underwriter, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agrees, -6- severally and not jointly, to purchase from the Company the respective numbers of Firm Shares set forth in Schedule I and Schedule II hereto opposite the name of such Underwriter at U.S.$______ a share (the "Purchase Price"). On the basis of the representations and warranties contained in this Agreement, and subject to its terms and conditions, the Company agrees to sell to the U.S. Underwriters the Additional Shares, and the U.S. Underwriters shall have a one-time right to purchase, severally and not jointly, up to [_____________] Additional Shares at the Purchase Price. If the U.S. Representatives, on behalf of the U.S. Underwriters, elect to exercise such option, the U.S. Representatives shall so notify the Company in writing not later than 30 days after the date of this Agreement, which notice shall specify the number of Additional Shares to be purchased by the U.S. Underwriters and the date on which such shares are to be purchased. Such date may be the same as the Closing Date (as defined below) but not earlier than the Closing Date nor later than ten business days after the date of such notice. Additional Shares may be purchased as provided in Article IV hereof solely for the purpose of covering over-allotments made in connection with the offering of the Firm Shares. If any Additional Shares are to be purchased, each U.S. Underwriter agrees, severally and not jointly, to purchase the number of Additional Shares (subject to such adjustments to eliminate fractional shares as the U.S. Representatives may determine) that bears the same proportion to the total number of Additional Shares to be purchased as the number of U.S. Firm Shares set forth in Schedule I hereto opposite the name of such U.S. Underwriter bears to the total number of U.S. Firm Shares. The Company hereby agrees that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not, during the period ending 180 days after the date of the Prospectus, (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (i) the Shares to be sold hereunder and (ii) the Company's issuance of Common Stock upon the exercise of warrants and stock options that are presently outstanding and described as such in the Prospectus, or any other issuances of Common Stock hereafter under the option or equity incentive plans described in the Prospectus, and (iii) the Company's issuance of Common Stock under the employee stock purchase plan described in the Prospectus. III. The Company is advised by you that the Underwriters propose to make a public offering of their respective portions of the Shares as soon after the Registration Statement and this Agreement have become effective as in your judgment is advisable. The Company is further advised by you that the Shares are to be offered to the public initially at U.S.$_____________ a share (the "Public Offering Price") and to certain dealers selected by you at a price that represents a concession not in excess of U.S.$______ a share under the Public Offering Price, and that any Underwriter may allow, and such dealers may reallow, a concession, not in excess of U.S.$_____ a share, to any Underwriter or to certain other dealers. IV. Payment for the Firm Shares shall be made to the Company in Federal or other funds immediately available in New York City against delivery of such Firm Shares for the respective accounts of the several Underwriters at 10:00 A.M., New York City time, on [___________, 1997], or at such other time on the same or -7- such other date, not later than [_________, 1997], as shall be designated in writing by you. The time and date of such payment are hereinafter referred to as the Closing Date. Payment for any Additional Shares shall be made to the Company in Federal or other funds immediately available in New York City against delivery of such Additional Shares for the respective accounts of the several Underwriters at 10:00 A.M., New York City time, on the date specified in the notice described in Article II or at such other time on the same or on such other date, in any event not later than [_______, 1997] as shall be designated in writing by the U.S. Representatives. The time and date of such payment are hereinafter referred to as the "Option Closing Date." Certificates for the Firm Shares and Additional Shares shall be in definitive form and registered in such names and in such denominations as you shall request in writing not later than one full business day prior to the Closing Date or the Option Closing Date, as the case may be. The certificates evidencing the Firm Shares and Additional Shares shall be delivered to you on the Closing Date or the Option Closing Date, as the case may be, for the respective accounts of the several Underwriters, with any transfer taxes payable in connection with the transfer of the Shares to the Underwriters duly paid, against payment of the Purchase Price therefor. V. The obligations of the Company to sell the Shares to the Underwriters and the several obligations of the Underwriters to purchase and pay for the Shares on the Closing Date are subject to the condition that the Registration Statement shall have become effective not later than 5:30 P.M. (New York City time) on the date hereof. The several obligations of the Underwriters hereunder are subject to the following further conditions: (a) Subsequent to the execution and delivery of this Agreement and prior to the Closing Date: (i) there shall not have occurred any downgrading, nor shall any notice have been given of any intended or potential downgrading or of any review for a possible change that does not indicate the direction of the possible change, in the rating accorded any of the Company's securities by any "nationally recognized statistical rating organization," as such term is defined for purposes of Rule 436(g)(2) under the Securities Act, and (ii) there shall not have occurred any change, or any development involving a prospective change, in the condition, financial or otherwise, or in the earnings, business or operations, of the Company and the Subsidiary, taken as a whole, from that set forth in the Prospectus (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement) that, in your judgment, is material and adverse and that makes it, in your judgment, impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus. (b) The Underwriters shall have received on the Closing Date a certificate, dated the Closing Date and signed by the chief executive officer and the chief financial officer of the Company on behalf of the Company, to the effect set forth in clause (a) above, and to the effect that the representations and warranties of the Company contained in this Agreement are true and correct in all material respects as of the Closing Date and that the Company has complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied hereunder on or before the Closing Date. -8- The officers signing and delivering such certificate may rely upon the best of their knowledge as to proceedings threatened. (c) You shall have received on the Closing Date an opinion of Fenwick & West LLP counsel for the Company, dated the Closing Date, to the effect that: (i) the Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the State of Delaware, has the corporate power and corporate authority to own its property and to conduct its business as described in the Prospectus and is duly qualified to transact business and is in good standing in __________, __________, __________. All of the issued shares of capital stock of the Subsidiary have been duly and validly authorized and issued, are fully paid and non-assessable and, to such counsel's knowledge, are owned directly by the Company, free and clear of all liens, encumbrances, equities or claims; (ii) the Subsidiary has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and corporate authority to own its property and to conduct its business as described in the Prospectus and is duly qualified to transact business and is in good standing in __________, __________, __________; (iii) the authorized capital stock of the Company conforms in all material respects as to legal matters to the description thereof contained in the Prospectus; (iv) the shares of Common Stock outstanding prior to the issuance of the Shares have been duly authorized, are validly issued and non-assessable and to such counsel's knowledge, are fully paid; (v) the Shares have been duly authorized, and, when issued and delivered in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable, and, to such counsel's knowledge, the issuance of such Shares will not be subject to any preemptive rights, rights of first refusal or similar rights; (vi) to such counsel's knowledge, no shares of Common Stock are required pursuant to any agreement or other right to be registered under the Registration Statement, and no person or entity has any right to cause Common Stock to be registered under the Registration Statement, which rights have not been validly waived; (vii) this Agreement has been duly authorized, executed and delivered by the Company; (viii) the execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement will not contravene any provision of the certificate of incorporation or by-laws of the Company or the Subsidiary, to such counsel's knowledge, any agreement or other instrument binding upon the Company or the Subsidiary that is material to the Company and the Subsidiary (where such agreements and instruments have been identified to such counsel by the Company as all material agreements and instruments binding on the Company and the Subsidiary), taken as a whole, or, to such counsel's knowledge, any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or the Subsidiary, and no consent, approval, authorization or order of or qualification with any governmental body or governmental agency is required for the performance by the Company of its obligations under this Agreement, except such as may be required by the securities -9- or Blue Sky laws of the various states in connection with the offer and sale of the Shares by the U.S. Underwriters or the rules and regulations of the NASD (as to which such counsel need not express any opinion); (ix) the statements (1) in the Prospectus under the captions "Risk Factors -- Shares Eligible for Future Sale," "Dividend Policy," "Certain Transactions," "Description of Capital Stock," "Shares Eligible for Future Sale" and, to the extent such statements summarize this Agreement, "Underwriters" and (2) in the Registration Statement in Items 14 and 15, in each case insofar as such statements constitute summaries of the legal matters, documents or proceedings referred to therein, fairly present the information called for with respect to such legal matters, documents and proceedings and fairly summarize the matters referred to therein; (x) such counsel does not know of any legal, regulatory or governmental proceeding pending or threatened to which the Company or the Subsidiary is a party or to which any of the properties of the Company or the Subsidiary is subject that are required to be described in the Registration Statement or the Prospectus and are not so described or of any statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not described or filed as required; (xi) the Company is not and, after giving effect to the offering and sale of the Shares and the application of the net proceeds therefrom as described in the Prospectus will not be, an "investment company" as such term is defined in the Investment Company Act of 1940, as amended; (xii) to such counsel's knowledge: (1) based solely on oral advice of the Staff of the Commission, the Registration Statement has become effective under the Securities Act; (2) no stop order proceedings with respect to the Registration Statement have been instituted or are pending or threatened under the Securities Act and nothing has come to such counsel's attention to lead it to believe that such proceedings are contemplated; and (3) any required filing of the Prospectus and any supplement thereto pursuant to Rule 424(b) under the Securities Act has been made in the manner and within the time period required by such Rule 424(b); (xiii) the Shares to be sold under this Agreement to the Underwriters are duly authorized for quotation on the Nasdaq National Market; and (xiv) such counsel (1) is of the opinion that the Registration Statement and Prospectus (except for financial statements and schedules and other financial and statistical data included therein as to which such counsel need not express any opinion) comply as to form in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder, (2) has no reason to believe that (except for financial statements and schedules and other financial and statistical data as to which such counsel need not express any belief) the Registration Statement and the prospectus included therein at the time the Registration Statement became effective contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (3) has no reason to believe that (except for financial statements and schedules and other financial and statistical data as to which such counsel need not express any belief) the Prospectus contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. -10- The opinion of Fenwick & West LLP described in this paragraph (C) above shall be rendered to the Underwriters at the request of the Company, and shall so state therein. (d) The Underwriters shall have received on the Closing Date an opinion of Wilson Sonsini Goodrich & Rosati, counsel for the Underwriters, dated the Closing Date, covering the matters referred to in subparagraphs (v), (vii), (ix) (but only as to the statements in the Prospectus under "Description of Capital Stock" and "Underwriters"), (xi) and (xv) of paragraph (C) above. With respect to subparagraph (xv) of paragraph (c) above, Fenwick & West LLP and Wilson Sonsini Goodrich & Rosati may state that their opinion and belief are based upon their participation in the preparation of the Registration Statement and Prospectus and any amendments or supplements thereto and review and discussion of the contents thereof, but are without independent check or verification except as specified. (e) The Underwriters shall have received, on each of the date hereof and the Closing Date, a letter dated the date hereof or the Closing Date, as the case may be, in form and substance satisfactory to the Underwriters, from Ernst & Young LLP, independent public accountants, containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement and the Prospectus; provided that the letter delivered on the Closing Date shall use a "cut-off date" not earlier than the date hereof. (f) The Lock-Up Agreements, each substantially in the form of Exhibit A hereto, between the Underwriters and certain stockholders, officers and directors of the Company relating to sales and certain other dispositions of shares of Common Stock or certain other securities, delivered to you on or before the date hereof, shall be in full force and effect on the Closing Date. (g) The shares of Series A Common Stock of the Company shall have received approval for listing, upon official notice of issuance, on the Nasdaq National Market. All the agreements, opinions, certificates and letters mentioned above or elsewhere in this Agreement shall be deemed in compliance with the provisions hereof only if Wilson Sonsini Goodrich & Rosati, counsel for the Underwriters, shall be reasonably satisfied that they comply in form and scope. The several obligations of the U.S. Underwriters to purchase Additional Shares hereunder are subject to the delivery to the U.S. Representatives on the Option Closing Date of such documents as they may reasonably request with respect to the good standing of the Company, the due authorization and issuance of the Additional Shares and other matters related to the issuance of the Additional Shares. VI. In further consideration of the agreements of the Underwriters herein contained, the Company covenants with each Underwriter as follows: (a) To furnish to you, without charge, four (4) signed copies of the Registration Statement (including exhibits thereto) and for delivery to each other Underwriter a conformed copy of the Registration Statement (without exhibits thereto), and to furnish to you in New York City, without charge, prior to 5:00 P.M. New York City time on the business day next succeeding the date of this Agreement and during the period mentioned in paragraph (C) below, as many copies of the Prospectus and any supplements and amendments thereto or to the Registration Statement as you may reasonably request. -11- (b) Before amending or supplementing the Registration Statement or the Prospectus, to furnish to you a copy of each such proposed amendment or supplement and not to file any such proposed amendment or supplement to which you reasonably object, and to file with the Commission within the applicable period specified in Rule 424(b) under the Securities Act any prospectus required to be filed pursuant to such Rule. (c) If, during such period after the first date of the public offering of the Shares as in the reasonable opinion of Wilson Sonsini Goodrich & Rosati, counsel for the Underwriters, the Prospectus is required by law to be delivered in connection with sales by an Underwriter or dealer, any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, or if, in the reasonable opinion of counsel for the Underwriters, it is necessary to amend or supplement the Prospectus to comply with applicable law, forthwith to prepare, file with the Commission and furnish, at its own expense, to the Underwriters and to the dealers (whose names and addresses you will furnish to the Company) to which Shares may have been sold by you on behalf of the Underwriters and to any other dealers upon request, either amendments or supplements to the Prospectus so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances when the Prospectus is delivered to a purchaser, be misleading or so that the Prospectus, as amended or supplemented, will comply with law. (d) To endeavor to qualify the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as you shall reasonably request. (e) To make generally available to the Company's security holders and to you as soon as practicable an earning statement covering the twelve- month period ending September 30, 1998 that satisfies the provisions of Section 11(a) of the Securities Act and the rules and regulations of the Commission thereunder. (f) During a period of three years from the effective date of the Registration Statement, the Company will furnish to you copies of (i) all reports to its stockholders and (ii) all reports, financial statements and proxy or information statements filed by the Company with the Commission or any national securities exchange. (g) The Company will apply the proceeds from the sale of the Shares as set forth under in "Use of Proceeds" in the Prospectus. (h) The Company will use its best efforts to obtain and maintain in effect the quotation of the Shares on the Nasdaq National Market and will take all necessary steps to cause the Shares to be included on the Nasdaq National Market as promptly as practicable and to maintain such inclusion for a period of three years after the date hereof or until such earlier date as the Shares shall be listed for regular trading privileges on another national securities exchange approved by you. (i) The Company will file with the Commission such reports on Form SR as may be required pursuant to Rule 463 under the Securities Act. (j) The Company will comply with all registration, filing and reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which may from time to time be applicable to the Company. (k) The Company will comply with all provisions of all undertakings contained in the Registration Statement. -12- (l) Prior to the Closing Date, the Company will not, directly or indirectly, issue any press release or other communication and will not hold any press conference with respect to the Company, or its financial condition, results of operations, business, properties, assets, or prospects or this offering, without your prior written consent. (m) If at any time during the 25-day period after the Registration Statement becomes effective any rumor, publication or event relating to or affecting the Company shall occur as a result of which in your opinion the market price for the Common Stock has been or is likely to be materially affected (regardless of whether such rumor, publication or event necessitates a supplement to or amendment of the Prospectus), the Company will, after written notice from you advising the Company to the effect set forth above, forthwith prepare, consult with you concerning the substance of, and disseminate a press release or other public statement, reasonably satisfactory to you, responding to or commenting on such rumor, publication or event. (n) The Company agrees: (i) to enforce the terms of each Lock-up Agreement and (ii) issue stop-transfer instructions to the transfer agent for the Common Stock with respect to any transaction or contemplated transaction that would constitute a breach of or default under the applicable Lock-up Agreement. In addition, except with the prior written consent of Morgan Stanley, the Company agrees (i) not to amend or terminate, or waive any right under, any Lock-up Agreement, or take any other action that would directly or indirectly have the same effect as an amendment or termination, or waiver of any right under, any Lock-up Agreement, that would permit any holder of shares of Common Stock, or securities convertible into or exercisable or exchangeable for Common Stock, to sell, make any short sale of, grant any option for the purchase of, or otherwise transfer or dispose of, any of such shares of Common Stock or other securities prior to the expiration of 180 days after the date of the Prospectus, and (ii) not to consent to any sale, short sale, grant of an option for the purchase of, or other disposition or transfer of shares of Common Stock, or securities convertible into or exercisable or exchangeable for Common Stock, subject to a Lock-up Agreement. (o) The Company will place a restrictive legend on any shares of Common Stock acquired pursuant to the exercise, after the date hereof and prior to the expiration of the 180-day period after the date of the initial public offering of the Shares, of any option granted under the Option Plan, which legend shall restrict the transfer of such shares prior to the expiration of such 180-day period. In addition, the Company agrees that, without the prior written consent of Morgan Stanley, it will not release any stockholder or option holder from the market standoff provision imposed by the Company pursuant to the terms of the Option Plan earlier than 180 days after the date of the initial public offering of the Shares. (p) In connection with the Directed Share Program, the Company will ensure that the Directed Shares will be restricted to the extent required by the National Association of Securities Dealers, Inc. (the "NASD") or the NASD rules from sale, transfer, assignment, pledge or hypothecation for a period of three months following the date of the effectiveness of the Registration Statement. Morgan Stanley will notify the Company as to which Participants will need to be so restricted. The Company will direct the transfer agent to place stop transfer restrictions upon such securities for such period of time. (q) The Company will pay all fees and disbursements of counsel incurred by the Underwriters in connection with the Directed Share Program and stamp duties, similar taxes or duties or other taxes, if any, incurred by the Underwriters in connection with the Directed Share Program. -13- Furthermore, the Company covenants with Morgan Stanley that the Company will comply with all applicable securities and other applicable laws, rules and regulations in each foreign jurisdiction in which the Directed Shares are offered in connection with the Directed Share Program. VII. The Company agrees, whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, to pay or cause to be paid all expenses incident to the performance of its obligations under this Agreement, including: (i) the fees, disbursements and expenses of the Company's counsel and the Company's accountants in connection with the registration and delivery of the Shares under the Securities Act and all other fees or expenses in connection with the preparation and filing of the Registration Statement, any preliminary prospectus, the Prospectus and amendments and supplements to any of the foregoing, including all printing costs associated therewith, and the mailing and delivering of copies thereof to the Underwriters and dealers, in the quantities hereinabove specified, (ii) all costs and expenses related to the transfer and delivery of the Shares to the Underwriters, including any transfer or other taxes payable thereon, (iii) the cost of printing or producing any Blue Sky or Legal Investment memorandum in connection with the offer and sale of the Shares under state securities laws, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection with the Blue Sky or Legal Investment memorandum, (iv) all filing fees and the reasonable fees and disbursements (including filing fees) of counsel to the Underwriters incurred in connection with the review and qualification of the offering of the Shares by the NASD (v) all fees and expenses in connection with the preparation and filing of the registration statement on Form 8-A relating to the Common Stock and all costs and expenses incident to listing the Shares on the Nasdaq National Market, (vi) the cost of printing certificates representing the Shares, (vii) the costs and charges of any transfer agent, registrar or depositary, (viii) the costs and expenses of the Company relating to investor presentations on any "road show" undertaken in connection with the marketing of the offering of the Shares, including, without limitation, expenses associated with the production of road show slides and graphics, fees and expenses of any consultants engaged in connection with the road show presentations with the prior approval of the Company, travel and lodging expenses of the representatives and officers of the Company and any such consultants, and the cost of any aircraft chartered in connection with the road show, and (ix) all other costs and expenses incident to the performance of the obligations of the Company hereunder for which provision is not otherwise made in this Article VII. It is understood, however, that except as provided in this Article VII, Article VIII and the last paragraph of Article X below, the Underwriters will pay all of their costs and expenses, including fees and disbursements of their counsel, stock transfer taxes payable on resale of any of the Shares by them and any advertising expenses connected with any offers they may make. VIII. (a) The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereof, any preliminary prospectus or the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any -14- Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein; and provided further that the foregoing indemnity agreement with respect to any preliminary prospectus shall not inure to the benefit of any Underwriter from whom the person asserting any such losses, claims, damages or liabilities purchased Shares, or any person controlling such Underwriter, if a copy of the Prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such Underwriter to such person at or prior to the written confirmation of the sale of the Shares to such person, and if the Prospectus (as so amended or supplemented) would have cured the defect giving rise to such losses, claims, damages or liabilities. (b) The Company agrees to indemnify and hold harmless Morgan Stanley and each person, if any, who controls Morgan Stanley within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act ("Morgan Stanley Entities"), from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) (i) caused by any untrue statement or alleged untrue statement of a material fact contained in the prospectus wrapper material prepared by or with the consent of the Company for distribution in foreign jurisdictions in connection with the Directed Share Program attached to the Prospectus or any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, when considered in conjunction with the Prospectus or any applicable preliminary prospectus, not misleading; (ii) caused by the failure of any Participant to pay for and accept delivery of the shares which, immediately following the effectiveness of the Registration Statement, were subject to a properly confirmed agreement to purchase; or (iii) related to, arising out of, or in connection with the Directed Share Program, provided that, the Company shall not be responsible under this clause (iii) for any losses, claim, damages or liabilities (or expenses relating thereto) that are finally judicially determined to have resulted form the bad faith or gross negligence of Morgan Stanley Entities. (c) Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, the directors of the Company, the officers of the Company who sign the Registration Statement and each person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the indemnity from the Company to such Underwriter set forth in paragraph (a) of this Article VIII, but only with reference to information relating to such Underwriter furnished to the Company in writing by or on behalf of such Underwriter through you expressly for use in the Registration Statement, any preliminary prospectus, the Prospectus or any amendments or supplements thereto. (d) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to paragraph (a), (b) or (c) of this Article VIII, such person (the "Indemnified Party") shall promptly notify the person against whom such indemnity may be sought (the "Indemnifying Party") in writing and the Indemnifying Party, upon request of the Indemnified Party, shall retain counsel reasonably satisfactory to the Indemnified Party to represent the Indemnified Party and any others the Indemnifying Party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any Indemnified Party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (i) the Indemnifying Party and the Indemnified Party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the Indemnifying Party and the Indemnified Party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the Indemnifying Party shall not, in respect of the legal expenses of any Indemnified Party in connection -15- with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all such Indemnified Parties and that all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by Morgan Stanley in the case of parties indemnified pursuant to paragraph (a) of this Article VIII, and by the Company in the case of parties indemnified pursuant to the paragraph (c) of this Article VIII. Notwithstanding anything contained herein to the contrary, if indemnity may be sought pursuant to paragraph (b) of this Article VIII in respect of such action or proceeding, then in addition to such separate firm for the Indemnified Parties, the Indemnifying Party shall be liable for the reasonable fees and expenses of not more that one separate firm (in addition to any local counsel) for Morgan Stanley for the defense of any losses, claims, damages and liabilities arising out of the Directed Share Program, and all persons, if any who control Morgan Stanley within the meaning of either Section 15 of the Act or Section 20 of the Exchange Act. The Indemnifying Party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Party agrees to indemnify the Indemnified Party from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified Party shall have requested an Indemnifying Party to reimburse the Indemnified Party for fees and expenses of counsel as contemplated by the second and third sentences of this paragraph, the Indemnifying Party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such Indemnifying Party of the aforesaid request and (ii) such Indemnifying Party shall not have reimbursed the Indemnified Party in accordance with such request prior to the date of such settlement. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such proceeding. (e) To the extent the indemnification provided for in paragraph (a), (b) or (c) of this Article VIII is unavailable to an Indemnified Party or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Party under such paragraph, in lieu of indemnifying such Indemnified Party thereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Shares or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and of the Underwriters on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other hand in connection with the offering of the Shares shall be deemed to be in the same respective proportions as the net proceeds from the offering of the Shares (before deducting expenses) received by the Company and the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover of the Prospectus, bear to the aggregate Public Offering Price of the Shares. The relative fault of the Company on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Underwriters' respective obligations to contribute pursuant to this Article VIII are several in proportion to the respective number of Shares they have purchased hereunder, and not joint. -16- (f) The Company and the Underwriters agree that it would not be just or equitable if contribution pursuant to this Article VIII were determined by pro rata allocation (even if the Underwriters were treated as one entity --- ---- for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (e) of this Article VIII. The amount paid or payable by an Indemnified Party as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Article VIII, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The remedies provided for in this Article VIII are not exclusive and shall not limit any rights or remedies which may otherwise be available to any Indemnified Party at law or in equity. (g) The indemnity and contribution provisions contained in this Article VIII and the representations, warranties and other statements of the Company contained in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter or by or on behalf of the Company, its officers or directors or any person controlling the Company and (iii) acceptance of and payment for any of the Shares. IX. This Agreement shall be subject to termination by notice given by you to the Company, if (a) after the execution and delivery of this Agreement and prior to the Closing Date (i) trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange, the American Stock Exchange, the National Association of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any securities of the Company shall have been suspended on any exchange or in any over-the-counter market, (iii) a general moratorium on commercial banking activities in New York shall have been declared by either Federal or New York State authorities, or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis that, in your judgment, is material and adverse and (b) in the case of any of the events specified in clauses (a)(i) through (iv), such event singly or together with any other such event makes it, in your judgment, impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus. X. This Agreement shall become effective upon execution and delivery hereof by the parties hereto. If, on the Closing Date or the Option Closing Date, as the case may be, any one or more of the Underwriters shall fail or refuse to purchase Shares that it has or they have agreed to purchase hereunder on such date, and the aggregate number of Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate number of the Shares to be purchased on such date, the other Underwriters shall be obligated severally in the proportions that the number of Firm Shares -17- set forth opposite their respective names in Schedule I or Schedule II bears to the aggregate number of Firm Shares set forth opposite the names of all such non-defaulting Underwriters, or in such other proportions as you may specify, to purchase the Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date; provided that in no event shall the -------- number of Shares that any Underwriter has agreed to purchase pursuant to this Agreement be increased pursuant to this Article X by an amount in excess of one- ninth of such number of Shares without the written consent of such Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Firm Shares and the aggregate number of Firm Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Firm Shares to be purchased, and arrangements satisfactory to you and the Company for the purchase of such Firm Shares are not made within 36 hours after such default, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter or the Company. In any such case either you or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and in the Prospectus or in any other documents or arrangements may be effected. If, on the Option Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Additional Shares and the aggregate number of Additional Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Additional Shares to be purchased, the non-defaulting Underwriters shall have the option to (i) terminate their obligation hereunder to purchase Additional Shares or (ii) purchase not less than the number of Additional Shares that such non-defaulting Underwriters would have been obligated to purchase in the absence of such default. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. If this Agreement shall be terminated by the Underwriters, or any of them, because of any failure or refusal on the part of the Company to comply with the terms or to fulfill any of the conditions of this Agreement, or if for any reason the Company shall be unable to perform its obligations under this Agreement, the Company will reimburse the Underwriters or such Underwriters as have so terminated this Agreement with respect to themselves, severally, for all out-of-pocket expenses (including the fees and disbursements of their counsel) reasonably incurred by such Underwriters in connection with this Agreement or the offering contemplated hereunder. This Agreement may be signed in two or more counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. -18- This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York. Very truly yours, AT HOME CORPORATION By:_______________________________________ Thomas A. Jermoluk Chairman of the Board, President and Chief Executive Officer Accepted as of the date hereof Morgan Stanley & Co. Incorporated Merrill Lynch, Pierce, Fenner & Smith Incorporated Alex. Brown & Sons Incorporated Hambrecht & Quist LLC Acting severally on behalf of themselves and the several U.S. Underwriters named in Schedule I hereto By: Morgan Stanley & Co. Incorporated By:______________________________________ William R. Salisbury, Principal Morgan Stanley & Co. International Limited Merrill Lynch International Alex. Brown International Hambrecht & Quist LLC Acting severally on behalf of themselves and the several International Underwriters named in Schedule II hereto. By: Morgan Stanley & Co. International Limited By:_______________________________________ Name: Title: -19- SCHEDULE I ---------- U.S. Underwriters -----------------
NUMBER OF U.S. FIRM SHARES UNDERWRITER TO BE PURCHASED - ---------------------------------------------------- ------------------- Morgan Stanley & Co. Incorporated................... Merrill Lynch, Pierce, Fenner & Smith Incorporated.. Alex. Brown & Sons Incorporated..................... Hambrecht & Quist LLC............................... Total U.S. Firm Shares...............
-20- SCHEDULE II ----------- International Underwriters --------------------------
NUMBER OF INTERNATIONAL SHARES UNDERWRITER TO BE PURCHASED - ------------------------------------------- --------------- Morgan Stanley & Co. International Limited. Merrill Lynch International................ Alex. Brown International.................. Hambrecht & Quist LLC...................... ------- Total International Shares.. =======
-21- EXHIBIT A AT HOME CORPORATION FORM OF LOCK-UP AGREEMENT May __ ,1997 Morgan Stanley & Co. Incorporated Merrill Lynch, Pierce, Fenner & Smith Incorporated Hambrecht & Quist LLC Alex. Brown & Sons Incorporated c/o Morgan Stanley & Co. Incorporated 1585 Broadway New York, NY 10036 Morgan Stanley & Co. International Limited Merrill Lynch International Limited Hambrecht & Quist LLC Alex. Brown International c/o Morgan Stanley & Co. International Limited 25 Cabot Square Canary Wharf London E 14 4QA England Dear Sirs and Mesdames: The undersigned understands that Morgan Stanley & Co. Incorporated ("Morgan Stanley") and Morgan Stanley & Co. International Limited ("MSEL"), as Representatives of the several Underwriters, propose to enter into an Underwriting Agreement (the "Underwriting Agreement") with At Home Corporation, a Delaware corporation (the "Company") providing for the initial public offering (the "Public Offering") by the several Underwriters, including Morgan Stanley and MSIL (the "Underwriters"), of Series A Common Stock, $.01 par value per share, of the Company (the "Common Stock"). To induce the Underwriters that may participate in the Public Offering to continue their efforts in connection with the Public Offering, the undersigned hereby agrees that, without the prior written consent of Morgan Stanley on behalf of the Underwriters, it will not, during the period commencing on the date hereof and ending 180 days after the date of the final prospectus relating to the Public Offering (the "Prospectus"), (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities Morgan Stanley & Co. Incorporated May 16, 1997 Page 2 convertible into or exercisable or exchangeable for Common Stock (collectively, the "Shares") (provided that such Shares are either now owned by the undersigned or are hereafter acquired prior to or in connection with the Public Offering), or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Shares, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to the sale of any Shares to the Underwriters pursuant to the Underwriting Agreement. In addition, the undersigned agrees that, without the prior written consent of Morgan Stanley on behalf of the Underwriters, it will not, during the period commencing on the date hereof and ending 180 days after the date of the Prospectus, make any demand for, or exercise any right with respect to, the registration of any shares of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock. Notwithstanding the foregoing, if the undersigned is an individual, he or she may transfer any or all of the Shares either during his or her lifetime or on death by gift, will or intestacy to his immediate family or to a trust the beneficiaries of which are exclusively the undersigned and/or a member or members of his or her immediate family; provided, however, that in any such case, it shall be a condition to the transfer that the transferee execute an agreement stating that the transferee is receiving and holding the Shares subject to the provisions of this Agreement, and there shall be no further transfer of such Shares except in accordance with this Agreement. For purposes of this paragraph, "immediate family" shall mean spouse, lineal descendant, father, mother, brother or sister of the transferor. In addition, notwithstanding the foregoing, if the undersigned is a partnership, the partnership may transfer any Shares to a partner of such partnership or a retired partner of such partnership who retires after the date hereof, or to the estate of any such partner or retired partner, and any partner who is an individual may transfer any such Shares by gift, will or intestate succession to his or her spouse or lineal descendants or ancestors; if the undersigned is a trust, the trust may transfer any Shares to any beneficiary of such trust or to the estate of any such beneficiary, and any beneficiary who is an individual may transfer any such Shares by gift, will or intestate succession to his or her spouse or lineal descendants or ancestors; and if the undersigned is a corporation, the corporation may transfer any Shares to any shareholder of such corporation, and any shareholder who is an individual may transfer any such Shares by gift, will or intestate succession to his or her spouse or lineal descendant or ancestors; provided, however, that in any such case, it shall be a condition to the transfer that the transferee execute an agreement stating that the transferee is receiving and holding the Shares subject to the provisions of this Agreement, and there shall be no further transfer of such Shares except in accordance with Agreement. Whether or not the Public Offering actually occurs depends on a number of factors, including market conditions. Any Public Offering will only be made pursuant to an Underwriting Agreement, the terms of which are subject to agreement between the Company and the Underwriters. This Agreement shall terminate and be of no further effect if the Registration Statement for the Public Offering -2- Morgan Stanley & Co. Incorporated May 16, 1997 Page 3 is not declared effective by the Securities and Exchange Commission by December 31, 1997. The undersigned agrees and consents to the entry of stop transfer instructions with the Company's transfer agent against the transfer of securities of the Company held by the undersigned except in compliance with the terms and conditions of this Agreement. Very truly yours, ______________________________________ (Name) ______________________________________ (Address) -3- EX-3.01 3 THIRD AMENDED & RESTATED CERT. OF INCORPORATION EXHIBIT 3.01 THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF AT HOME CORPORATION AT HOME CORPORATION, a corporation organized and existing under the laws of the State of Delaware (the "CORPORATION"), hereby certifies as follows: FIRST. The name of the Corporation is At Home Corporation. The original Certificate of Incorporation of the Corporation was filed on March 28, 1995. An Amended and Restated Certificate of Incorporation was filed on August 29, 1995, a Second Amended and Restated Certificate of Incorporation was filed on August 1, 1996, and a Certificate of Retirement was filed on August 2, 1996. The name under which the Corporation was originally incorporated is "at Home Corporation." SECOND. Pursuant to Section 242(b) of the Delaware General Corporation Law (the "DGCL") the Board of Directors of the Corporation has duly adopted by unanimous written consent in accordance with DGCL Section 141(f), and a majority of each class of the outstanding stock entitled to vote as a class has approved by written consent in accordance with DGCL Section 228(d), this Third Amended and Restated Certificate of Incorporation of the Corporation, which amends and restates the Second Amended and Restated Certificate of Incorporation of the Corporation. THIRD. Pursuant to Sections 242 and 245 of the DGCL, the text of the Second Amended and Restated Certificate of Incorporation is hereby restated to read in its entirety as follows: ARTICLE I NAME The name of the Corporation is At Home Corporation. ARTICLE II REGISTERED OFFICE The address of the registered office of the Corporation in the State of Delaware is One Rodney Square, 10th Floor, Tenth and King Streets, in the City of Wilmington, County of New Castle, 19801. The name of its registered agent at such address is RL&F Service Corp. ARTICLE III PURPOSE The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the DGCL. ARTICLE IV AUTHORIZED STOCK The total number of shares of capital stock which the Corporation shall have authority to issue is one hundred ninety-four million eight hundred thousand two hundred seventy-three (194,800,273) shares, of which one hundred eighty million two hundred seventy-seven thousand six hundred sixty (180,277,660) shares shall be common stock with a par value of $.01 per share ("COMMON STOCK"), and fourteen million five hundred twenty-two thousand six hundred thirteen (14,522,613) shares shall be preferred stock with a par value of $.01 per share ("PREFERRED STOCK"). Said shares of Common Stock and Preferred Stock shall be divided into the following series: (a) One hundred fifty million (150,000,000) shares of Common Stock shall be of a series designated as "SERIES A COMMON STOCK"; (b) Fifteen million four hundred thousand (15,400,000) shares of Common Stock shall be of a series designated as "SERIES B COMMON STOCK"; (c) Fourteen million eight hundred seventy-seven thousand six hundred sixty (14,877,660) shares of Common Stock shall be of a series designated as "SERIES K COMMON STOCK"; (d) Seven hundred twenty-seven thousand eight hundred sixty-five (727,865) shares of Preferred Stock shall be of a series designated as "Series AM Convertible Participating Preferred Stock" (the "SERIES AM PREFERRED STOCK"); (e) One million five hundred fifty-three thousand (1,553,000) shares of Preferred Stock shall be of a series designated as "Series AT Convertible Participating Preferred Stock" (the "SERIES AT PREFERRED STOCK"); (f) Seven hundred twenty-seven thousand eight hundred sixty-five (727,865) shares of Preferred Stock shall be of a series designated as "Series AX Convertible Participating Preferred Stock" (the "SERIES AX PREFERRED STOCK"); (g) Seven hundred forty-three thousand eight hundred eighty-three (743,883) shares of Preferred Stock shall be of a series designated as "Series K Convertible Participating Preferred Stock" (the "SERIES K PREFERRED STOCK"); (h) Seven hundred seventy thousand (770,000) shares of Preferred Stock shall be of a series designated as "Series T Convertible Participating Preferred Stock" (the "SERIES T PREFERRED STOCK"); and (i) Ten million (10,000,000) shares of Preferred Stock, which are undesignated as to series and are issuable in accordance with the provisions of Section D of this Article IV (the "SERIES PREFERRED STOCK"). -2- The description of the Common Stock and the Preferred Stock of the Corporation, and the relative rights, preferences, privileges and limitations thereof, or the method of fixing and establishing the same, are as hereinafter in this Article IV set forth: SECTION A CERTAIN DEFINITIONS Unless the context otherwise requires, the terms defined in this Section A shall have, for all purposes of this Certificate, the meanings herein specified: "BOARD OF DIRECTORS" or "BOARD" shall mean the Board of Directors of the Corporation and, unless the context indicates otherwise, shall also mean, to the extent permitted by law, any committee thereof authorized, with respect to any particular matter, to exercise the power of the Board of Directors of the Corporation with respect to such matter. "BUSINESS DAY" shall mean any day other than a Saturday, Sunday or a day on which banking institutions in New York, New York are not required to be open. "CAPITAL STOCK" shall mean any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) corporate stock. "CERTIFICATE" shall mean this Third Amended and Restated Certificate of Incorporation of the Corporation, as it may from time to time hereafter be amended or restated. "CONVERTIBLE COMMON STOCK" shall mean the Series B Common Stock and the Series K Common Stock, collectively. "CONVERTIBLE PREFERRED STOCK" shall mean the Series A Preferred Stock, the Series K Preferred Stock and the Series T Preferred Stock, collectively. "IPO" shall mean the closing of an initial public offering of the Series A Common Stock. "1933 ACT" shall mean the Securities Act of 1933, as amended. "PERSON" shall mean any individual, corporation, partnership, limited liability company, joint venture, association, joint stock company, trust, unincorporated organization, government or agency or political subdivision thereof, or other entity, whether acting in an individual, fiduciary or other capacity. "SELECTED PREFERRED STOCK" shall mean, collectively, the Series AM Preferred Stock, the Series AX Preferred Stock and the Series T Preferred Stock. "SELECTED PREFERRED STOCK DIRECTORS" shall mean, collectively, the Series AM Preferred Stock Director, if any, the Series AX Preferred Stock Director, if any, and the Series T Preferred Stock Directors, if any. -3- "SERIES A COMMON STOCK" shall mean the Series A Common Stock, par value $.01 per share, of the Corporation. "SERIES A PREFERRED STOCK" shall mean, collectively, the three separate series of Preferred Stock designated as the Series AM Preferred Stock, the Series AT Preferred Stock and the Series AX Preferred Stock. "SERIES B COMMON STOCK" shall mean the Series B Common Stock, par value $.01 per share, of the Corporation. "SERIES K COMMON STOCK" shall mean the Series K Common Stock, par value $.01 per share, of the Corporation. SECTION B SERIES A, SERIES B AND SERIES K COMMON STOCK Each share of the Series A Common Stock, each share of the Series B Common Stock and each share of Series K Common Stock shall, except as otherwise provided in this Section B, be identical in all respects and shall have equal rights and privileges. 1. Voting Rights. ------------- (a) General Voting Rights. --------------------- Holders of Series A Common Stock shall be entitled to one vote for each share of such stock held, holders of Series B Common Stock shall be entitled to ten votes for each share of such stock held, and holders of Series K Common Stock shall be entitled to one vote for each share of such stock held on all matters presented to the holders of Common Stock of the Corporation. Except as otherwise provided in this Certificate and except as may otherwise be required by the DGCL or, with respect to any series of Series Preferred Stock, in any resolution or resolutions providing for the establishment of such series pursuant to authority vested in the Board of Directors by this Certificate, the holders of shares of Series A Common Stock, the holders of shares of Series B Common Stock, the holders of shares of Series K Common Stock and the holders of shares of each series of Preferred Stock entitled to vote thereon, if any, shall vote as one class with respect to the election of directors and with respect to all other matters to be voted on by stockholders of the Corporation (including, without limitation, any proposed amendment to this Certificate that would increase the number of authorized shares of Series A Common Stock, of Series B Common Stock, of Series K Common Stock or of any other class or series of stock or decrease the number of authorized shares of any such class or series of stock (but not below the number of shares thereof then outstanding)), and no separate vote or consent of the holders of shares of Series A Common Stock, the holders of shares of Series B Common Stock, the holders of shares of Series K Common Stock or the holders of shares of any such series of Preferred Stock shall be required for the approval of any such matter. -4- (b) Election of Convertible Common Stock Directors. ---------------------------------------------- (i) In the event that the holders of the Selected Preferred Stock were entitled to elect Selected Preferred Stock Directors immediately prior to the Mandatory Conversion (as hereinafter defined), then upon and after such Mandatory Conversion, so long as there are not less than 5,000,000 shares of Series B Common Stock outstanding, the holders of Series B Common Stock, voting separately as a single series, shall have the exclusive right, acting by written consent given in accordance with paragraph 1(b)(vi) below or by vote at a meeting called for that purpose, to elect five directors to the Board of Directors (such directors elected by the holders of the Series B Common Stock are hereinafter collectively referred to as the "SERIES B COMMON STOCK DIRECTORS"). In the event the holders of the Series K Preferred Stock were entitled to elect a Series K Preferred Stock Director immediately prior to the Mandatory Conversion, then, upon and after such Mandatory Conversion, so long as there are not less than 5,000,000 shares of Series K Common Stock outstanding, the holders of Series K Common Stock, voting separately as a single series, shall have the exclusive right, acting by written consent given in accordance with paragraph 1(b)(vi) below or by vote at a meeting called for that purpose, to elect one director to the Board of Directors (such director elected by the holders of the Series K Common Stock is hereinafter referred to as the "SERIES K COMMON STOCK DIRECTOR," and together with the Series B Common Stock Directors, the "CONVERTIBLE COMMON STOCK DIRECTORS"). (ii) The initial Convertible Common Stock Directors will be those persons first elected, by written consent given in accordance with paragraph 1(b)(vi) or by vote at a meeting called for that purpose, of the holders of the series of Convertible Common Stock entitled to vote for such directors on or after the date on which holders of such series of Convertible Common Stock are first entitled to elect such Convertible Common Stock Directors in accordance with paragraph 1(b)(i). (iii) At any meeting having as a purpose the election of directors by holders of the Series B Common Stock and/or holders of the Series K Common Stock, as the case may be, the presence, in person or by proxy, of the holders of a majority of the shares of the applicable series of Convertible Common Stock entitled to vote in such election then outstanding shall be required and be sufficient to constitute a quorum of such series for the election of any director by such holders. Each Convertible Common Stock Director to be elected at such meeting shall be elected by a plurality of the votes of the shares of the applicable series of Convertible Common Stock present in person or represented by proxy at such meeting and entitled to vote in the election of such Convertible Common Stock Director or by written consent of the holders of such -5- shares given in accordance with paragraph 1(b)(vi) below. At any such meeting or adjournment thereof, (i) the absence of a quorum of such holders of Series B Common Stock or Series K Common Stock, as the case may be, shall not prevent the election of the directors to be elected by the holders of shares other than the series of Convertible Common Stock the holders of which do not constitute a quorum for such election at such meeting, and the absence of a quorum of holders of shares other than the Series B Common Stock or Series K Common Stock shall not prevent the election of the directors to be elected by the holders of the Series B Common Stock or Series K Common Stock, as the case may be, and (ii) in the absence of a quorum of holders of (x) shares of the Series B Common Stock or Series K Common Stock, (y) shares other than the Series B Common Stock or Series K Common Stock, or (z) shares of all such classes and series, holders of a majority of the shares, present in person or by proxy, of each class or series of stock which lack a quorum shall have power to adjourn the meeting for the election of directors which such class or series is entitled to elect, from time to time, without notice (subject to applicable law) other than announcement at the meeting, until a quorum shall be present. (iv) Except as provided in paragraph 1(b)(v), any vacancy in the office of a Convertible Common Stock Director occurring during the effectiveness of the applicable provisions of paragraph 1(b)(i) shall be filled solely by the holders of the series of Convertible Common Stock entitled to vote for such Convertible Common Stock Director by vote of such holders as provided in paragraph 1(b)(iii) above at a meeting called for such purpose or by written consent of such holders given in accordance with paragraph 1(b)(vi) below. (v) A Convertible Common Stock Director may be removed without cause by the vote or by written consent of the holders of a majority of the outstanding shares of Series B Common Stock or Series K Common Stock, as the case may be, which elected such Convertible Common Stock Director. Any vacancy in the office of a Convertible Common Stock Director shall be filled by the affirmative vote of the holders of a majority of the outstanding shares of the applicable series of Convertible Common Stock entitled to elect the Convertible Common Stock Director so removed at a meeting, which may be the same meeting at which the removal of such Convertible Common Stock Director was voted upon, or by written consent of the holders of such series of Convertible Common Stock given in accordance with paragraph 1(b)(vi) below. Any director elected to fill a vacancy shall serve the same remaining term as that of his or her predecessor and until his or her successor has been chosen and has qualified. (vi) With respect to actions by the holders of the Series B Common Stock or the Series K Common Stock upon those matters on -6- which such holders are each entitled to vote separately as a separate series, such actions may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares of Series B Common Stock or Series K Common Stock, as the case may be, having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of such series of Series B Common Stock or Series K Common Stock entitled to vote thereon were present and voted, and shall be delivered to the Corporation as provided in the DGCL. Notice shall be given in accordance with the applicable provisions of the DGCL of the taking of corporate action without a meeting by less than unanimous written consent. (vii) The right of the holders of the Convertible Common Stock to elect the Convertible Common Stock Directors shall be in addition to their right to vote, together as a single class, with the holders of the Series A Common Stock and/or any series of Preferred Stock so entitled to vote, in the election of all other members of the Board of Directors (other than any directors to be elected solely by the holders of Preferred Stock as provided in paragraph 7 of Section C of this Article IV or by any series of Series Preferred Stock). 2. Conversion Rights. ----------------- Each share of Series B Common Stock shall be convertible at any time, at the option of the holder thereof, into one share of Series A Common Stock. Each share of Series K Common Stock shall be convertible at any time, at the option of the holder thereof, into one share of Series A Common Stock. Any such conversion may be effected by any holder of any series of Convertible Common Stock by surrendering such holder's certificate or certificates for the series of Convertible Common Stock to be converted, duly endorsed, at the office of the Corporation or any transfer agent for the Convertible Common Stock, together with a written notice to the Corporation at such office that such holder elects to convert all or a specified number of shares of such series of Convertible Common Stock represented by such certificate and stating the name or names in which such holder desires the certificate or certificates for Series A Common Stock to be issued. If so required by the Corporation, any certificate for shares surrendered for conversion shall be accompanied by instruments of transfer, in form satisfactory to the Corporation, duly executed by the holder of such shares or the duly authorized representative of such holder. Promptly thereafter, the Corporation shall issue and deliver to such holder or such holder's nominee or nominees, a certificate or certificates for the number of shares of Series A Common Stock to which such holder shall be entitled as herein provided (provided that the Corporation will use commercially reasonable efforts to make such delivery within two Business Days after receipt of the certificate or certificates, notice, and if required, instruments of transfer referred to above). Such conversion shall be deemed to have been made at the close of business on the date of receipt by the Corporation or any such transfer agent of the certificate or certificates, notice and, if required, instruments of transfer referred to above, and the Person or Persons entitled to receive the Series A Common Stock issuable on such conversion shall be treated for all purposes as the record holder or holders of such Series A Common Stock -7- on that date; provided, however, that the conversion may, at the option of any -------- ------- holder surrendering Convertible Common Stock for conversion, be conditioned upon the IPO or upon notice by such holder to the Corporation of the occurrence of any other specified event. A number of shares of Series A Common Stock equal to the number of shares of Series B Common Stock and Series K Common Stock, respectively, outstanding from time to time shall be set aside and reserved for issuance upon conversion of shares of Series B Common Stock and of Series K Common Stock, respectively. Shares of Series B Common Stock and Series K Common Stock that have been converted hereunder shall be retired and shall not be reissued. Shares of Series A Common Stock shall not be convertible into shares of Series B Common Stock or Series K Common Stock. 3. Dividends. Subject to paragraph 4 of this Section B, whenever a --------- dividend is paid to the holders of one series of Common Stock, the Corporation also shall pay to the holders of all other series of Common Stock a dividend per share equal to the dividend per share paid to the holders of such first series of Common Stock. Dividends shall be payable only if, as and when declared by the Board of Directors out of the assets of the Corporation legally available therefor. 4. Share Distributions. If at any time a distribution paid in ------------------- Series A Common Stock, Series B Common Stock, Series K Common Stock or any other securities of the Corporation or any other Person (hereinafter sometimes called a "SHARE DISTRIBUTION") is to be made with respect to the Series A Common Stock, Series B Common Stock or Series K Common Stock, such share distribution may be declared and paid only as follows: (a) a share distribution consisting of shares of Series A Common Stock (or any securities of the Corporation that are convertible into, or exercisable or exchangeable for, or evidence the right to purchase shares of Series A Common Stock) to holders of Series A Common Stock, Series B Common Stock and Series K Common Stock, on an equal per share basis; or consisting of shares of Series A Common Stock (or securities of the Corporation that are convertible into, or exercisable or exchangeable for, or evidence the right to purchase shares of Series A Common Stock) to holders of Series A Common Stock and, on an equal per share basis, shares of Series B Common Stock (or securities of the Corporation that are convertible into, or exercisable or exchangeable for, or evidence the right to purchase shares of Series B Common Stock) to holders of Series B Common Stock and, on an equal per share basis, shares of Series K Common Stock (or securities of the Corporation that are convertible into, or exercisable or exchangeable for, or evidence the right to purchase shares of Series K Common Stock) to holders of Series K Common Stock; and (b) a share distribution consisting of any class or series of securities of the Corporation or any other Person other than as described in paragraph 4(a) above, on the basis of a distribution of identical securities, on an equal per share basis, to holders of Series A Common Stock, Series B Common Stock and Series K Common Stock or on the basis of a distribution of different classes or series of securities to holders of Series A Common Stock, Series B Common Stock and Series K Common Stock, provided that (i) the securities so distributed (and, if applicable, the securities into which the distributed securities are convertible, or for which they are exercisable or exchangeable, or which the distributed securities evidence the right to purchase) do not differ in any respect other than their relative voting rights and -8- related differences in designation, conversion and share distribution provisions, (ii) such rights and provisions shall not differ to a greater extent than the corresponding differences in voting rights, designation, conversion and share distribution provisions among the Series A Common Stock, the Series B Common Stock and the Series K Common Stock and (iii) in each case such distribution is otherwise made on an equal per share basis. The Corporation shall not reclassify, subdivide or combine any series of Convertible Common Stock without reclassifying, subdividing or combining all other series of Convertible Common Stock, on an equal per share basis. 5. Liquidation and Dissolution. In the event of a liquidation, --------------------------- dissolution or winding up of the Corporation, whether voluntary or involuntary, after payment or provision for payment of the debts and liabilities of the Corporation and subject to the prior payment in full of the preferential amounts to which any series of Preferred Stock (including the Convertible Preferred Stock) is entitled, the holders of Series A Common Stock, the holders of Series B Common Stock, the holders of Series K Common Stock and the holders of any class or series of Preferred Stock entitled to participate in such distribution shall share equally, on a share for share basis (on an as converted into Common Stock basis with respect to any shares of Preferred Stock which are convertible into Common Stock, unless the designations, preferences, rights and qualifications, limitations or restrictions of such Preferred Stock provide otherwise), in the assets of the Corporation remaining for distribution to holders of Common Stock. Neither the consolidation or merger of the Corporation with or into any other Person or Persons nor the sale, transfer or lease of all or substantially all of the assets of the Corporation shall itself be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this paragraph 5. 6. Limitation on Issuance of Series B Common Stock and of Series K --------------------------------------------------------------- Common Stock. No shares of Series B Common Stock shall be issued except - ------------ pursuant to paragraph 4 of this Section B, upon conversion of shares of Series T Preferred Stock or shares of any series of Series Preferred Stock which have been authorized in accordance with this Certificate, having the right to convert into shares of Series B Common Stock. No shares of Series K Common Stock shall be issued except pursuant to paragraph 4 of this Section B, upon conversion of shares of Series K Preferred Stock or shares of any series of Series Preferred Stock, which have been authorized in accordance with this Certificate, having the right to convert into shares of Series K Common Stock. SECTION C SERIES AM, SERIES AT, SERIES AX, SERIES K AND SERIES T PREFERRED STOCK The Convertible Preferred Stock shall have the following preferences, limitations and relative rights: 1. Certain Definitions. Unless the context otherwise requires, the ------------------- terms defined in this paragraph 1 shall have, for all purposes of this Certificate, the meanings herein specified: -9- "@HOME REPURCHASE RIGHT" has the meaning given to such term in the Master Distribution Agreement. "CABLE PARENT" shall mean, as applicable, each of (i) TCI Internet Services, Inc., a Colorado corporation ("TCI SERVICES"), TCI Communications, Inc., a Delaware corporation, and TCI Cable Investments Inc., a Delaware corporation (TCI Communications, Inc., TCI Cable Investments, Inc. and TCI Services collectively being a single Cable Parent), (ii) Comcast On-Line Communications, Inc., a Delaware corporation, and Comcast Cable Communications, Inc., a Delaware corporation (collectively being a single Cable Parent) and (iii) Cox Communications, Inc., a Delaware corporation. "COMMON STOCK" shall mean any series of Common Stock of the Corporation. "COMCAST" shall mean Comcast Corporation, a Pennsylvania corporation. "COMCAST STOCKHOLDER GROUP" has the meaning given to such term in the Stockholders' Agreement. "COMCAST SUB" shall mean Comcast PC Investments, Inc., a Delaware corporation, and any Controlled Affiliate of Comcast to which Company Securities are transferred in accordance with the terms of the Stockholders' Agreement. "COMPANY SECURITIES" has the meaning given to such term in the Stockholders' Agreement. "CONTROL" shall mean the direct or indirect power to direct the management and policies of any Person, whether through the ownership of voting securities, by contract, management agreement or otherwise. "CONTROLLED AFFILIATE" shall mean, as to any Person, any other Person which is Controlled by such Person; provided, however, that the Corporation -------- ------- shall not be deemed to be a Controlled Affiliate of any Parent or such Parent's Controlled Affiliates. "CONVERTIBLE SECURITIES" shall mean securities, other than shares of Series B Common Stock or Series K Common Stock, that are convertible into, or exercisable or exchangeable for, or evidence the right to purchase, shares of Series A Common Stock, Series B Common Stock or Series K Common Stock. "COX SUB" shall mean Cox Teleport Providence, Inc. a Delaware corporation, and any Controlled Affiliate of Cox Communications, Inc. to which Company Securities are transferred in accordance with the terms of the Stockholders' Agreement. "DIVIDEND PAYMENT DATE" shall mean the first day of January, April, July and October in each year commencing on the first Dividend Payment Date after the Filing Date, or if any such day is not a Business Day, then on the next succeeding Business Day, as and if designated by the Board of Directors. -10- "DIVIDEND PERIOD" shall mean any three-month period from and including any Dividend Payment Date to (but not including) the next successive Dividend Payment Date; provided, however, that the first Dividend Period shall be the -------- ------- period (even if less than three months) from and including the Filing Date to (but not including) the first Dividend Payment Date. "FILING DATE" shall mean the date on which this Certificate is filed with the Secretary of State of the State of Delaware. "ISSUE PRICE" of a share of Convertible Preferred Stock shall initially be $10.00, and shall be appropriately adjusted to take into account any stock splits, reverse splits and the like occurring after the Filing Date. "JUNIOR STOCK" shall mean, as the context requires, (i) the Common Stock, (ii) any other class or series of capital stock, whether now existing or hereafter created, of the Corporation, other than (A) the Convertible Preferred Stock, (B) any class or series of Parity Stock (except to the extent provided under clause (iii) hereof) and (C) any Senior Stock, and (iii) any class or series of Parity Stock to the extent that it ranks junior to the Convertible Preferred Stock as to dividend rights, rights of redemption and/or rights on liquidation, as the case may be. For purposes of clause (iii) above, a class or series of Parity Stock shall rank junior to the Convertible Preferred Stock as to dividend rights, rights of redemption and/or rights on liquidation if the holders of shares of Convertible Preferred Stock shall be entitled to dividend payments, payments on redemption or payments of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in preference or priority to the holders of shares of such class or series. "KPCB AFFILIATES" shall mean collectively, Kleiner, Perkins, Caufield & Byers VII and KPCB Information Sciences Zaibatsu Fund II, each a California partnership, and James Clark. "LIQUIDATION PRICE" measured per share of the Convertible Preferred Stock as of the date in question (the "DETERMINATION DATE"), shall mean an amount equal to the sum of (a) $10.00, as appropriately adjusted to take into account any stock splits, reverse splits and the like occurring after the Filing Date, plus (b) an amount equal to all dividends which have theretofore been declared but which are unpaid as of the Determination Date on such share of Convertible Preferred Stock. In the event that the Special Directors and the Special K Director determine by a Supermajority Vote not to require the Mandatory Conversion (as defined below) upon the IPO, then upon the IPO the amount in clause (a) of this definition shall be deemed to be $.01 (as appropriately adjusted to take into account any stock splits, reverse splits and the like occurring after the Filing Date), unless the Special Directors and the Special K Director have determined by a Supermajority Vote not to so reduce the Liquidation Price. In connection with the determination of the Liquidation Price of a share of Convertible Preferred Stock upon any liquidation, dissolution or winding up of the Corporation, the Determination Date shall be the record date for the distribution of amounts payable to stockholders in connection with any such liquidation, dissolution or winding up. -11- "MASTER DISTRIBUTION AGREEMENT" shall mean the provisions of Article VII of the Term Sheet, including any other provisions or definitions in other sections of the Term Sheet which are referenced in Article VII; provided that if the matters set forth in Article VII of the Term Sheet are superseded by a definitive agreement which is executed by the applicable parties to the Term Sheet, such definitive agreement will constitute the Master Distribution Agreement for all purposes hereunder. "PARENT" has the meaning given to such term in the Stockholders' Agreement. "PARITY STOCK" shall mean, as the context requires, any class or series of capital stock, whether now existing or hereafter created, of the Corporation ranking on a parity basis with the Convertible Preferred Stock as to dividend rights, rights of redemption and/or rights on liquidation, as the case may be. Capital stock of any class or series shall rank on a parity as to dividend rights, rights of redemption or rights on liquidation with the Convertible Preferred Stock, whether or not the dividend rates, dividend payment dates, redemption or liquidation prices per share or sinking fund or mandatory redemption provisions, if any, are different from those of the Convertible Preferred Stock, if the holders of shares of such class or series shall be entitled to dividend payments, payments on redemption or payments of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in proportion to their respective accrued and unpaid dividends, redemption prices or liquidation prices, respectively, without preference or priority, one over the other, as between the holders of shares of such class or series and the holders of Convertible Preferred Stock. No class or series of capital stock that ranks junior to the Convertible Preferred Stock as to rights on liquidation shall rank or be deemed to rank on a parity basis with the Convertible Preferred Stock as to dividend rights or rights of redemption, unless the instrument creating or evidencing such class or series of capital stock otherwise expressly provides. The Series AM Preferred Stock, the Series AT Preferred Stock, the Series AX Preferred Stock, the Series K Preferred Stock and the Series T Preferred Stock shall each be deemed to be Parity Stock as to each of the other such series. "PUBLIC COMPANY" shall mean the Corporation shall be deemed to be a "Public Company" at such time as the Series A Common Stock is (i) registered under Section 12(b) or 12(g), or such entity is required to file reports pursuant to Section 15(d), of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") (or any successor or comparable provisions of the federal securities laws), and (ii) actively traded. "RECORD DATE" for the dividends payable on any Dividend Payment Date shall mean the fifteenth day of the month preceding the month during which such Dividend Payment Date shall occur, or if any such day is not a Business Day, then on the next succeeding Business Day, as and if designated by the Board of Directors. "SENIOR STOCK" shall mean, as the context requires, any class or series of capital stock, whether now existing or hereafter created, of the Corporation ranking prior to the Convertible Preferred Stock as to dividend rights, rights of redemption and/or rights on liquidation, as the case may be. Capital stock of any class or series shall rank prior to the Convertible Preferred Stock as to dividend rights, rights of redemption or rights on liquidation if the holders of shares of such class or series shall be entitled to dividend payments, payments on redemption or payments of amounts distributable upon dissolution, liquidation or winding up of -12- the Corporation, as the case may be, in preference or priority to the holders of shares of Convertible Preferred Stock. No class or series of capital stock that ranks on a parity basis with or junior to the Convertible Preferred Stock as to rights on liquidation shall rank or be deemed to rank prior to the Convertible Preferred Stock as to dividend rights or rights of redemption, notwithstanding that the dividend rate, dividend payment dates, sinking fund provisions, if any, or redemption provisions thereof are different from those of the Convertible Preferred Stock, unless the instrument creating or evidencing such class or series of capital stock otherwise expressly provides. Notwithstanding the foregoing, any class or series of capital stock which requires the Corporation to cumulate or accrue dividends on such shares, or to pay such dividends in shares of capital stock in the event such dividends are not declared and paid during any dividend period applicable to such class or series, or to add any such unpaid dividends to the liquidation or redemption price of any such class or series of capital stock, shall constitute Senior Stock. "SPECIAL DIRECTORS" shall mean (i) the Selected Preferred Stock Directors prior to the Mandatory Conversion and (ii) following the Mandatory Conversion, the Series B Common Stock Directors. "SPECIAL K DIRECTOR" shall mean (i) the Series K Preferred Stock Director prior to the Mandatory Conversion and (ii) following the Mandatory Conversion, the Series K Common Stock Director. "SPECIAL VOTING STOCK" shall mean any class or series of capital stock of the Corporation established or authorized after the Filing Date (including pursuant to the authority granted herein to the Board to establish the designations, preferences, rights and qualifications, limitations and restrictions of any series of Series Preferred Stock pursuant to Board Action) having voting rights deemed senior to those of the holders of Series A Preferred Stock or Series K Preferred Stock. A class or series of capital stock shall be deemed to have senior voting rights and to be Special Voting Stock if holders of such security (x) are entitled to more than one vote per share (determined on an as-converted into Common Stock basis) when voting with the holders of Common Stock or (y) are entitled to vote as a separate class or series upon any matter submitted to a vote of all of the stockholders of the Corporation other than (i) as required by Section 242(b) of the DGCL, (ii) with respect to the creation or issuance of a class or series of capital stock which is to rank senior to such capital stock as to liquidation rights or rights relating to dividends, distributions, repurchases and redemptions, (iii) with respect to amendments to the terms and provisions of such securities, or (iv) such additional matters as would be customary or appropriate in the context of the issuance of such class or series of capital stock in a financing transaction with a third party (as opposed to a strategic transaction) in light of the circumstances under which such financing transaction is being consummated. "STOCKHOLDERS' AGREEMENT" shall mean that certain Amended and Restated Stockholders' Agreement, dated as of August 1, 1996, by and among the Corporation, TCI Sub, Comcast Sub, Cox Sub and the KPCB Affiliates and certain Affiliates of such Persons, as such agreement may be amended from time to time. "SUBJECT SHARES" has the meaning given to such term in the Master Distribution Agreement. -13- "SUBSIDIARY" of any Person shall mean (i) a corporation a majority of the capital stock of which, having voting power under ordinary circumstances to elect directors, is at the time, directly or indirectly, owned by such Person and/or one or more Subsidiaries of such Person and (ii) any other Person (other than a corporation) in which such Person and/or one or more Subsidiaries of such Person, directly or indirectly, has (x) a majority ownership interest or (y) the power to elect or direct the election of a majority of the members of the governing body of such first-named Person. "SUPERMAJORITY VOTE" has the meaning given to such term in Section B(4)(a) of Article V of this Certificate. "TCI" shall mean Tele-Communications, Inc., a Delaware corporation, or any related Spin Off Parent (as defined in the Stockholders' Agreement). "TCI SUB" shall mean TCI Internet Holdings, Inc., a Colorado corporation, and any Controlled Affiliate of TCI, to which Company Securities are transferred in accordance with the terms of the Stockholders' Agreement. "TERM SHEET" shall mean the Term Sheet, dated June 4, 1996, as amended by the Stockholders' Agreement as of August 1, 1996, among the Corporation, Comcast Sub, Cox Sub, and certain of their respective affiliates, as the same may be amended from time to time. "UNANIMOUS VOTE" has the meaning given to such term in Section B(4)(b) of Article V of this Certificate. 2. Dividends. --------- (a) Dividend Rights; Dividend Payment Dates. Subject to the --------------------------------------- prior preferences and other rights of any Senior Stock and the provisions of this Article IV, the holders of Convertible Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors, in its discretion, but prior and in preference to any declaration or payment of dividends on any Junior Stock, out of unrestricted funds legally available therefor, quarterly cash dividends per share at the rate of 10.0% per annum of the Issue Price (the "CONVERTIBLE PREFERRED DIVIDEND"). The Convertible Preferred Dividend shall be noncumulative; that is, the Convertible Preferred Dividend shall be paid only when, as and if declared by the Board of Directors, it being intended that a Convertible Preferred Dividend not declared in any quarter will not be carried over to a future quarter. (b) Dividends on Junior Stock. In addition, following the ------------------------- payment of the Convertible Preferred Dividend for any period, in the event that the Board of Directors proposes, subject to the provisions of this paragraph, to declare or pay a dividend on any Junior Stock in cash or consisting of assets, property or securities other than Common Stock, then the holders of Convertible Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors, an additional dividend amount (the "PARTICIPATING DIVIDEND") determined as follows: (i) in the event that a dividend is declared with respect to Junior Stock (other than Common Stock (or any other security that is convertible into, or exercisable or exchangeable for, -14- Common Stock)), the Participating Dividend payable to the holders of the Convertible Preferred Stock shall equal an amount per share equal to the dividend to be paid on each share or other unit of Junior Stock multiplied by a fraction, the numerator of which is the Liquidation Price of a share of Convertible Preferred Stock and the denominator of which is the lowest of (x) the liquidation price (if applicable), (y) the redemption price (if applicable) and (z) the price at which such share or unit was originally purchased (as adjusted for stock splits, stock dividends and the like occurring after the Filing Date), of a share or other unit of such Junior Stock; or (ii) in the event that a dividend is declared with respect to Junior Stock which is Common Stock or such Junior Stock is convertible into, or exercisable or exchangeable for, Common Stock, then the amount of the Participating Dividend per share of Convertible Preferred Stock shall be (x) (1) the amount of the dividend to be paid on a single share of Common Stock, or (2) if such Junior Stock is convertible into, or exercisable or exchangeable for, Common Stock, such amount as would be payable on each share of Common Stock into which such Junior Stock is convertible into or exercisable or exchangeable for, multiplied by (y) the number of shares of Common Stock into which a share of Convertible Preferred Stock may then be converted. Dividends payable on the Convertible Preferred Stock shall be calculated on the basis of a 360-day year of twelve 30-day months. Dividends on the Convertible Preferred Stock will be payable, as provided in paragraph 2(e) below, to the holders of record of the Convertible Preferred Stock as of the close of business on the Record Date for such dividend payment. (c) Dividends on Parity Stock. So long as any shares of Convertible ------------------------- Preferred Stock are outstanding and dividends on such shares of Convertible Preferred Stock have not been (or are not contemporaneously) declared and paid in full for the two immediately preceding Dividend Periods, no dividends shall be declared or paid or set apart for payment by the Corporation upon any Parity Stock; provided, however, that a dividend may be declared and paid (regardless -------- ------- of whether such dividends have been paid for any preceding Dividend Period) pro rata with respect to all Convertible Preferred Stock and Parity Stock then outstanding such that the amounts of any dividends declared per share on the Convertible Preferred Stock and such Parity Stock shall in all cases bear to each other the same ratio that the Convertible Preferred Dividend (assuming such dividend had been declared by the Board) and, if applicable, any Participating Dividend (collectively, the "CONVERTIBLE FULL DIVIDEND") per share of Convertible Preferred Stock for the then-current Dividend Period and dividends on shares of such other Parity Stock for the then-current Dividend Period (excluding any accumulated or accrued dividends on such Parity Stock) bear to each other. (d) Other Limitations on Dividends and Repurchases. If the ----------------------------------------------- Convertible Full Dividend has not been declared and paid or set apart for payment for the Dividend Payment Date falling in the then-current Dividend Period, then, with respect to such then-current Dividend Period, (i) the Corporation shall not declare or pay any dividend on, or make any distribution with respect to, any Junior Stock or set aside any money or assets for such purpose and (ii) the Corporation shall not repurchase, redeem or otherwise acquire for value any shares of its Junior Stock, any equity securities of any Subsidiary of the Corporation or any options, warrants or other rights to acquire such securities; provided, however, that the Corporation may at any -------- ------- time, out of funds legally available therefor, repurchase (x) from employees, directors or consultants of the Corporation or any Subsidiary thereof, shares of equity securities of the Corporation, equity securities of any Subsidiary of the Corporation or options, warrants or other rights to acquire such securities issued to such employees, directors or -15- consultants provided that such repurchase is pursuant to repurchase or redemption rights contained in the instrument pursuant to which such securities were originally issued and (y) from the Comcast Stockholder Group any Subject Shares upon the Corporation's exercise of the @Home Repurchase Right pursuant to the Master Distribution Agreement (the right or obligation of the Corporation to so repurchase or redeem such securities pursuant to the foregoing clauses (x) and (y), is hereinafter referred to as a "PERMITTED REPURCHASE"). (e) Special Record Date. Dividends may be declared and paid at any ------------------- time (subject to the rights of any Senior Stock and, if applicable, to the concurrent satisfaction of any dividend arrearages then existing with regard to any Parity Stock which ranks on a parity basis with the Convertible Preferred Stock as to the payment of dividends) without reference to the regular Dividend Payment Date, to holders of record as of the close of business on such date, not more than 45 days nor less than 10 days preceding the payment date thereof, as may be fixed by the Board of Directors (the "SPECIAL RECORD DATE"). Notice of each Special Record Date shall be given, not more than 45 days nor less than 10 days prior thereto, to the holders of record of the shares of Convertible Preferred Stock. (f) Pro Rata Payment. All dividends paid with respect to the shares ---------------- of Convertible Preferred Stock pursuant to this paragraph 2 shall be paid pro rata to all the holders of shares of Convertible Preferred Stock outstanding on the applicable Record Date or Special Record Date, as the case may be. (g) Termination of Convertible Preferred Dividend Right. In the event --------------------------------------------------- that the Special Directors and the Special K Director determine by a Supermajority Vote not to require the Mandatory Conversion upon the IPO, then upon the IPO, unless the Special Directors and the Special K Director have also determined by a Supermajority Vote not to terminate the Convertible Preferred Dividend right, the provisions of paragraph 2(a), (b), (c) and (d) shall terminate and the holders of Convertible Preferred Stock shall be entitled to receive dividends if, as and when the Board shall declare dividends on the Common Stock other than dividends payable in Common Stock pursuant to which such Convertible Preferred Stock is entitled to an adjustment pursuant to paragraph 6(c) below. The amount of such dividend per share of Convertible Preferred Stock shall be the amount of the dividend to be paid on a single share of Common Stock multiplied by the number of shares of Common Stock into which a share of Convertible Preferred Stock may then be converted. 3. Distributions Upon Liquidation, Dissolution or Winding Up. --------------------------------------------------------- (a) Liquidation Preference Prior to IPO. Prior to the IPO and subject ----------------------------------- to the prior payment in full of the preferential amounts to which any Senior Stock is entitled, in the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of Convertible Preferred Stock shall be entitled to receive from the assets of the Corporation available for distribution to stockholders, before any payment or distribution shall be made to the holders of any Junior Stock, an amount in cash (and, to the extent sufficient cash is not available for such payment, property at its fair market value) per share, equal to the Liquidation Price of such share of Convertible Preferred Stock as of the date of payment or distribution, which payment or distribution shall be made pari passu with any such payment or ---- ----- distribution made to the holders of any Parity Stock ranking on a parity basis with the -16- Convertible Preferred Stock with respect to distributions upon liquidation, dissolution or winding up of the Corporation. Except as provided in paragraph 3(b) below, the holders of Convertible Preferred Stock shall be entitled to no other or further distribution of or participation in any remaining assets of the Corporation after receiving the Liquidation Price per share. If, upon distribution of the Corporation's assets in liquidation, dissolution or winding up, the assets of the Corporation to be distributed among the holders of the Convertible Preferred Stock and to all holders of any Parity Stock ranking on a parity basis with the Convertible Preferred Stock with respect to distributions upon liquidation, dissolution or winding up shall be insufficient to permit payment in full to such holders of the respective preferential amounts to which they are entitled, then the entire assets of the Corporation to be distributed to holders of the Convertible Preferred Stock and such Parity Stock shall be distributed pro rata to such holders based upon the aggregate of the full preferential amounts to which the shares of Convertible Preferred Stock and such Parity Stock would otherwise respectively be entitled. Neither the consolidation or merger of the Corporation with or into any other corporation or corporations nor the sale, transfer or lease of all or substantially all of the assets of the Corporation shall itself be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this paragraph 3. Notice of the liquidation, dissolution or winding up of the Corporation shall be given, not less than 20 days prior to the date on which such liquidation, dissolution or winding up is expected to take place or become effective, to the holders of record of the shares of Convertible Preferred Stock, during which 20 day period such holders shall continue to be entitled to exercise their conversion rights as set forth in paragraph 6 of this Section C. (b) Liquidation Preference After IPO. In the event that the Special -------------------------------- Directors and the Special K Director determine by a Supermajority Vote not to require the Mandatory Conversion upon the IPO, then upon the IPO, unless the Special Directors and the Special K Director have also determined by a Supermajority Vote not to change the Liquidation Price of the Convertible Preferred Stock as described in paragraph 1 of this Section C, subject to prior payment in full of the Liquidation Price (as changed as described in paragraph 1 of this Section C) on each outstanding share of Convertible Preferred Stock and if there are any assets of the Corporation available for distribution to stockholders, such remaining assets shall be distributed among the holders of the then outstanding Common Stock and Convertible Preferred Stock pro rata according to the number of shares of Common Stock held by each holder thereof (where, for this purpose, holders of shares of Convertible Preferred Stock will be deemed to hold the greatest whole number of shares of Common Stock then issuable upon conversion in full of such shares of Convertible Preferred Stock). 4. Limitations on Dividends and Redemptions. So long as any shares ---------------------------------------- of Convertible Preferred Stock are outstanding, the Corporation shall not, absent the requisite Board Action and the approval of the holders of the Convertible Preferred Stock, as required pursuant to paragraph 7(c) of this Section C, (a) declare or pay any dividend, or make any distribution, on, or (b) repurchase, redeem or otherwise acquire for value any shares of, any Junior Stock, any equity securities of any Subsidiary of the Corporation or any options, warrants or other rights to acquire such securities other than (i) the payment of dividends on any Junior Stock solely in shares of Junior Stock or the redemption, purchase or other acquisition of Junior Stock solely in exchange for (together with a cash adjustment for fractional shares, if any) shares of Junior Stock; or (ii) a repurchase or redemption of equity securities of the Corporation, any equity securities of any -17- Subsidiary of the Corporation, or any options, warrants or other rights to acquire any such securities which is a Permitted Repurchase. 5. Status of Reacquired Convertible Preferred Stock. In the event ------------------------------------------------ that the Corporation repurchases or otherwise reacquires shares of Convertible Preferred Stock, such shares shall be retired and shall not be reissued. 6. Conversion. ---------- (a) Optional and Mandatory Conversion. Each outstanding share of ---------------------------------- Series AM Preferred Stock shall be convertible at the option of the holder at any time into fully paid and non-assessable full shares of Series A Common Stock at the then effective Conversion Rate (as defined below) for such shares. Each outstanding share of Series AT Preferred Stock shall be convertible at the option of the holder at any time into fully paid and non-assessable full shares of Series A Common Stock at the then effective Conversion Rate for such shares. Each outstanding share of Series AX Preferred Stock shall be convertible at the option of the holder at any time into fully paid and non-assessable full shares of Series A Common Stock at the then effective Conversion Rate for such shares. Each outstanding share of Series K Preferred Stock shall be convertible at the option of the holder at any time into fully paid and non-assessable full shares of Series K Common Stock at the then effective Conversion Rate for such shares. Each outstanding share of Series T Preferred Stock shall be convertible at the option of the holder at any time into fully paid and non-assessable full shares of Series B Common Stock at the then effective Conversion Rate for such shares. In addition, unless the Special Directors and the Special K Director determine by a Supermajority Vote not to require conversion of all outstanding shares of Convertible Preferred Stock upon the IPO, then, subject to the receipt of any required regulatory consents or approvals or the filing of any required notices with any governmental entities and the expiration of any waiting period related thereto, the holders of all shares of Convertible Preferred Stock shall be deemed to have converted such shares into shares of Series A Common Stock, Series B Common Stock or Series K Common Stock (whichever series of Common Stock such shares of Convertible Preferred Stock are initially convertible into) immediately prior to the IPO (or at such earlier or later time as is determined by a Unanimous Vote) (such conversion upon the IPO or such earlier or later time is referred to herein as the "MANDATORY CONVERSION"). All such conversions of Convertible Preferred Stock shall be effected in such manner and upon such terms and conditions as hereinafter provided in this paragraph 6. In case cash, securities or property other than Series A Common Stock, Series B Common Stock or Series K Common Stock, as applicable, shall be payable, deliverable or issuable upon conversion as provided herein, then all references to Series A Common Stock, Series B Common Stock or Series K Common Stock in this paragraph 6 shall be deemed to apply, so far as appropriate and as nearly as may be, to such cash, property or other securities. Notwithstanding anything to the contrary in this Article IV, subject to the provisions for adjustment hereinafter set forth in this paragraph 6, any provisions in this Article that refer to a conversion of the Convertible Preferred Stock shall mean, (i) in the case of the Series T Preferred Stock, the conversion of the Series T Preferred Stock into the Series B Common Stock, (ii) in the case of the Series K Preferred Stock, the conversion of the Series K Preferred Stock into the Series K Common Stock, and (iii) in the case of the Series A Preferred Stock, the conversion of the Series A Preferred Stock into the Series A Common Stock. -18- (b) Initial Conversion Rates. Subject to the provisions for ------------------------- adjustment hereinafter set forth in this paragraph 6, (i) each series of the Series A Preferred Stock may be converted into Series A Common Stock at the initial conversion rate of twenty fully paid and non-assessable shares of Series A Common Stock for each share of Series A Preferred Stock so converted; (ii) the Series K Preferred Stock may be converted into Series K Common Stock at the initial conversion rate of twenty fully paid and non-assessable shares of Series K Common Stock for each share of Series K Preferred Stock so converted; and (iii) the Series T Preferred Stock may be converted into Series B Common Stock at the initial conversion rate of twenty fully paid and non-assessable shares of Series B Common Stock for each share of Series T Preferred Stock so converted. (This conversion rate as from time to time adjusted cumulatively pursuant to the provisions of this paragraph is hereinafter referred to as the "CONVERSION RATE"). (c) Adjustments for Stock Splits, Stock Dividends, Etc. In case after --------------------------------------------------- the Filing Date the Corporation shall (i) pay a dividend or make a distribution on its outstanding shares of Series A Common Stock, Series B Common Stock or Series K Common Stock in shares of its Common Stock, (ii) subdivide the then outstanding shares of Series A Common Stock, Series B Common Stock or Series K Common Stock into a greater number of shares of Series A Common Stock, Series B Common Stock or Series K Common Stock, (iii) combine the then outstanding shares of Series A Common Stock, Series B Common Stock or Series K Common Stock into a smaller number of shares of Series A Common Stock, Series B Common Stock or Series K Common Stock, or (iv) issue by reclassification of its shares of Series A Common Stock, Series B Common Stock or Series K Common Stock any shares of any other class of capital stock of the Corporation (including any such reclassification in connection with a merger in which the Corporation is the continuing corporation), then the Conversion Rate in effect immediately prior to the opening of business on the record date for such dividend or distribution or the effective date of such subdivision, combination or reclassification shall be adjusted so that the holder of each share of the Convertible Preferred Stock thereafter surrendered for conversion shall be entitled to receive the number and kind of shares of capital stock of the Corporation that such holder would have owned or been entitled to receive immediately following such action had such shares of Convertible Preferred Stock been converted immediately prior to such time into the series of Common Stock into which such series of Convertible Preferred Stock is initially convertible. An adjustment made pursuant to this paragraph 6(c) for a dividend or distribution shall become effective immediately after the record date for the dividend or distribution and an adjustment made pursuant to this paragraph 6(c) for a subdivision, combination or reclassification shall become effective immediately after the effective date of the subdivision, combination or reclassification. Such adjustment shall be made successively whenever any action listed above shall be taken. For purposes of this paragraph 6(c), in the event the Corporation takes any of the actions described in clauses (i) through (iv) above with respect to the Series A Common Stock at a time when no shares of Series B Common Stock or Series K Common Stock are issued and are outstanding such that a corresponding dividend, subdivision, combination or reclassification with respect to the Series B Common Stock or Series K Common Stock is not required in accordance with paragraph 4 of Section B of this Certificate, then the Conversion Rate of the Convertible Preferred Stock shall be adjusted in accordance with the foregoing provisions of this paragraph 6(c) as if shares of Series B Common Stock and/or Series K Common Stock were outstanding on the record date for such dividend or distribution or the effective date for such subdivision, combination or reclassification and the Corporation otherwise satisfied its obligations under paragraph 4 of Section B of this Certificate. -19- (d) Adjustments for Reclassification, Merger, Etc. In case of any ---------------------------------------------- reclassification or change in the Series A Common Stock, Series B Common Stock or Series K Common Stock (other than any reclassification or change referred to in paragraph 6(c) and other than a change in par value) or in case of any consolidation of the Corporation with any other corporation or any merger of the Corporation into another corporation or of another corporation into the Corporation (other than a merger in which the Corporation is the continuing corporation and which does not result in any reclassification or change (other than a change in par value or any reclassification or change to which paragraph 6(c) is applicable) in the outstanding Series A Common Stock, Series B Common Stock or Series K Common Stock), or in case of any sale or transfer to another corporation or entity (other than by mortgage or pledge) of all or substantially all of the properties and assets of the Corporation, in any such case after the Filing Date, the Corporation (or its successor in such consolidation or merger) or the purchaser of such properties and assets shall make appropriate provision so that the holder of a share of the Convertible Preferred Stock shall have the right thereafter to convert such share into the kind and amount of shares of stock and other securities and property that such holder would have owned immediately after such reclassification, change, consolidation, merger, sale or transfer if such holder had converted such share into Series A Common Stock, Series B Common Stock or Series K Common Stock, as applicable, immediately prior to the effective date of such reclassification, change, consolidation, merger, sale or transfer (assuming for this purpose (to the extent applicable) that such holder failed to exercise any rights of election and received per share of Series A Common Stock, Series B Common Stock or Series K Common Stock, as applicable, the kind and amount of shares of stock and other securities and property received per share by a plurality of the non-electing shares), and the holders of the Convertible Preferred Stock shall have no other conversion rights under these provisions; provided, that effective provision shall be made, in the Articles or Certificate of Incorporation of the resulting or surviving corporation or otherwise or in any contracts of sale or transfer, so that the provisions set forth herein for the protection of the conversion rights of the Convertible Preferred Stock shall thereafter be made applicable, as nearly as reasonably may be to any such other shares of stock and other securities and property deliverable upon conversion of the Convertible Preferred Stock remaining outstanding or other convertible preferred stock or other Convertible Securities received by the holders of Convertible Preferred Stock in place thereof; and provided, further, that any such resulting or surviving corporation or purchaser shall expressly assume the obligation to deliver, upon the exercise of the conversion privilege, such shares, securities or property as the holders of the Convertible Preferred Stock remaining outstanding, or other convertible preferred stock or other convertible securities received by the holders in place thereof, shall be entitled to receive pursuant to the provisions hereof, and to make provisions for the protection of the conversion rights as above provided. (e) Notice of Adjustments in Conversion Rates. Whenever the ------------------------------------------ Conversion Rate or the conversion privilege shall be adjusted as provided in paragraphs 6(c) or (d), the Corporation shall promptly cause a notice to be mailed to the holders of record of the Convertible Preferred Stock describing the nature of the event requiring such adjustment, the Conversion Rate in effect immediately thereafter and the kind and amount of stock or other securities or property into which the Convertible Preferred Stock shall be convertible after such event. Where appropriate, such notice may be given in advance and included as a part of a notice required to be mailed under the provisions of paragraph 6(g). -20- (f) Calculation and Timing of Adjustments. The Corporation may, but -------------------------------------- shall not be required to, make any adjustment of the Conversion Rate if such adjustment would require an increase or decrease of less than 1% in such Conversion Rate; provided, however, that any adjustments which by reason of this paragraph 6(f) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this paragraph 6 shall be made to the nearest 1/100th of a share. In any case in which this paragraph 6(f) shall require that an adjustment shall become effective immediately after a record date for such event, the Corporation may defer until the occurrence of such event (x) issuing to the holder of any shares of Convertible Preferred Stock converted after such record date and before the occurrence of such event the additional shares of Series A Common Stock, Series B Common Stock or Series K Common Stock or other capital stock issuable upon such conversion by reason of the adjustment required by such event over and above the shares of Series A Common Stock, Series B Common Stock or Series K Common Stock or other capital stock issuable upon such conversion before giving effect to such adjustment and (y) paying to such holder cash in lieu of any fractional interest to which such holder is entitled pursuant to paragraph 6(l); provided, however, that, if requested by such holder, the Corporation shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares of Series A Common Stock, Series B Common Stock or Series K Common Stock or other capital stock, and such cash, upon the occurrence of the event requiring such adjustment. (g) Notice of Certain Events. In case at any time: ------------------------- (i) the Corporation shall take any action which would require an adjustment in the Conversion Rate pursuant to this paragraph 6; (ii) there shall be any capital reorganization or reclassification of the Common Stock (other than a change in par value), or any consolidation or merger to which the Corporation is a party and for which approval of any stockholders of the Corporation is required, or any sale, transfer or lease of all or substantially all of the properties and assets of the Corporation, or a tender offer for shares of Common Stock representing at least a majority of the total voting power represented by the outstanding shares of Common Stock which has been recommended by the Board of Directors as being in the best interests of the holders of Common Stock; or (iii) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation; then, in any such event, the Corporation shall give written notice to the holders of the Convertible Preferred Stock at their respective addresses as the same appear on the books of the Corporation, at least twenty days (or ten days in the case of a recommended tender offer as specified in clause (ii) above) prior to any record date for such action, dividend or distribution or the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property, if any, deliverable upon such reorganization, reclassification, consolidation, merger, sale, transfer, lease, tender offer, -21- dissolution, liquidation or winding up, during which period such holders may exercise their conversion rights; provided, however, that any notice required by any event described in clause (ii) of this paragraph 6(g) shall be given in the manner and at the time that such notice is given to the holders of Common Stock. Without limiting the obligations of the Corporation to provide notice of corporate actions hereunder, the failure to give the notice required by this paragraph 6(g) or any defect therein shall not affect the legality or validity of any such corporate action of the Corporation or the vote upon such action. (h) Procedures for Conversion. Before any holder of Convertible -------------------------- Preferred Stock shall be entitled to convert the same into Series A Common Stock, Series B Common Stock or Series K Common Stock, as applicable (or, in the case of the Mandatory Conversion, before any holder of Convertible Preferred Stock so converted shall be entitled to receive a certificate or certificates evidencing the shares of Series A Common Stock, Series B Common Stock or Series K Common Stock, as applicable, issuable upon such conversion), such holder shall surrender the certificate or certificates for such Convertible Preferred Stock at the office of the Corporation or at the office of the transfer agent for the Convertible Preferred Stock, which certificate or certificates, if the Corporation shall so request, shall be duly endorsed to the Corporation or in blank or accompanied by proper instruments of transfer to the Corporation or in blank (such endorsements or instruments of transfer to be in form satisfactory to the Corporation), and shall give written notice to the Corporation at said office that such holder elects to convert all or a part of the shares represented by said certificate or certificates (or, in the case of the Mandatory Conversion, that such holder is surrendering the same) in accordance with the terms of this paragraph 6, and shall state in writing therein the name or names in which such holder wishes the certificates for Series A Common Stock, Series B Common Stock or Series K Common Stock, as applicable, to be issued. Every such notice of election to convert shall constitute a contract between the holder of such Convertible Preferred Stock and the Corporation, whereby the holder of such Convertible Preferred Stock shall be deemed to subscribe for the amount of Series A Common Stock, Series B Common Stock or Series K Common Stock, as applicable, which such holder shall be entitled to receive upon conversion of the number of shares of Convertible Preferred Stock to be converted, and, in satisfaction of such subscription, to deposit the shares of Convertible Preferred Stock to be converted, and thereby the Corporation shall be deemed to agree that the surrender of the shares of Convertible Preferred Stock to be converted shall constitute full payment of such subscription for Series A Common Stock, Series B Common Stock or Series K Common Stock, as applicable, to be issued upon such conversion. The Corporation will as soon as practicable after such deposit of a certificate or certificates for Convertible Preferred Stock, accompanied by the written notice and the statement above prescribed, issue and deliver at the office of the Corporation or of said transfer agent to the Person for whose account such Convertible Preferred Stock was so surrendered, or to his nominee(s) or, subject to compliance with applicable law, transferee(s), a certificate or certificates for the number of full shares of Series A Common Stock, Series B Common Stock or Series K Common Stock, as applicable, to which such holder shall be entitled, together with cash in lieu of any fraction of a share as hereinafter provided together with an amount in cash equal to the full amount of any cash dividend declared (or required to be declared) on the Convertible Preferred Stock which, as of the date of such conversion, remains unpaid (provided that the Corporation will use commercially reasonable efforts to make such delivery within two Business Days after such deposit and such notice and statement). If surrendered certificates for Convertible Preferred Stock are converted only in part, the Corporation will issue and deliver to -22- the holder, or to his nominee(s), without charge therefor, a new certificate or certificates representing the aggregate of the unconverted shares. Such conversion shall be deemed to have been made as of the date of such surrender of the Convertible Preferred Stock to be converted or immediately prior to the Mandatory Conversion; and the Person or Persons entitled to receive the Series A Common Stock, Series B Common Stock or Series K Common Stock, as applicable, issuable upon conversion of such Convertible Preferred Stock shall be treated for all purposes as the record holder or holders of such Series A Common Stock, Series B Common Stock or Series K Common Stock, as applicable, on such date; provided, however, that the conversion may, at the option of any holder - -------- ------- surrendering Convertible Preferred Stock for conversion, be conditioned upon the IPO or upon notice by such holder to the Corporation of the occurrence of any other specified event, as the case may be. (i) Transfer Taxes. The issuance of certificates for shares of Series --------------- A Common Stock, Series B Common Stock or Series K Common Stock, as applicable, upon conversion of shares of Convertible Preferred Stock shall be made without charge for any issue, stamp or other similar tax in respect of such issuance, provided, however, if any such certificate is to be issued in a name other than that of the registered holder of the share or shares of Convertible Preferred Stock converted, the Person or Persons requesting the issuance thereof shall pay to the Corporation the amount of any tax which may be payable in respect of any transfer involved in such issuance or shall establish to the satisfaction of the Corporation that such tax has been paid. (j) Reservation of Shares. The Corporation shall reserve and keep ---------------------- available at all times thereafter, solely for the purpose of issuance upon conversion of the outstanding shares of Convertible Preferred Stock, such number of shares of Series A Common Stock, Series B Common Stock and Series K Common Stock as shall be issuable upon the conversion of all outstanding shares of Convertible Preferred Stock, provided that nothing contained herein shall be construed to preclude the Corporation from satisfying its obligations in respect of the conversion of the outstanding shares of Convertible Preferred Stock by delivery of shares of Series A Common Stock, Series B Common Stock or Series K Common Stock which are held in the treasury of the Corporation. The Corporation shall take all such corporate and other actions as from time to time may be necessary to insure that all shares of Series A Common Stock, Series B Common Stock and Series K Common Stock issuable upon conversion of shares of Convertible Preferred Stock at the Conversion Rate in effect from time to time will, upon issue, be duly and validly authorized and issued, fully paid and nonassessable and free of any preemptive or similar rights. (k) Retirement of Convertible Preferred Stock. All shares of ------------------------------------------ Convertible Preferred Stock received by the Corporation upon conversion thereof into Series A Common Stock, Series B Common Stock or Series K Common Stock, as applicable, shall be retired and shall not be reissued. (l) Payment in Lieu of Fractional Shares. The Corporation shall not ------------------------------------- be required to issue fractional shares of Series A Common Stock, Series B Common Stock or Series K Common Stock or scrip upon conversion of the Convertible Preferred Stock. As to any final fraction of a share of Series A Common Stock, Series B Common Stock or Series K Common Stock, as applicable, which a holder of one or more shares of Convertible Preferred -23- Stock would otherwise be entitled to receive upon conversion of such shares in the same transaction, the Corporation shall pay a cash adjustment in respect of such final fraction in an amount equal (I) if the Corporation is a Public Company, to the same fraction of the market value of a full share of Series A Common Stock or (II) if the Corporation is not a Public Company, to the same fraction of the fair market value of a share of Series A Common Stock, Series B Common Stock or Series K Common Stock, as applicable, as determined in good faith by the Board of Directors. For the purpose of any computation under this paragraph 6 requiring the determination of the current market value per share of Series A Common Stock, if the Corporation is a Public Company, such value at any date shall be deemed to be the average of the daily closing prices for a share of Series A Common Stock for the ten (10) consecutive trading days before the day in question. The closing price for each day shall be the last reported sale price regular way or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case on the composite tape, or if the shares of Series A Common Stock are not quoted on the composite tape, on the principal United States securities exchange registered under the Exchange Act, on which the shares of Series A Common Stock are listed or admitted to trading, or if they are not listed or admitted to trading on any such exchange, the last reported sale price (or the average of the quoted closing bid and asked prices if there were no reported sales) as reported by the National Association of Securities Dealers Automated Quotation System ("NASDAQ") or any comparable system, or if the Series A Common Stock is not quoted on Nasdaq or any comparable system, the average of the closing bid and asked prices as furnished by any member of the National Association of Securities Dealers, Inc. selected from time to time by the Corporation for that purpose or, in the absence of such quotations, such other method of determining market value as the Board of Directors shall from time to time deem to be fair. (m) Regulatory Matters. If any shares of Series A Common Stock, ------------------ Series B Common Stock or Series K Common Stock which would be issuable upon conversion of shares of Convertible Preferred Stock require registration with or approval of any governmental authority before such shares may be issued upon conversion, the Corporation will in good faith and as expeditiously as possible cause such shares to be duly registered or approved, as the case may be. Without limiting the foregoing, if the conversion of shares of Convertible Preferred Stock shall be subject to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder (the "HSR ACT AND RULES"), the Corporation shall promptly comply with any applicable filing or notice requirements under the HSR Act and Rules and use its reasonable commercial efforts to furnish the information required in connection therewith to the Federal Trade Commission and the Antitrust Division of the Department of Justice. If applicable, the Corporation shall use its reasonable commercial efforts to list (i) the shares of Series A Common Stock issuable upon conversion of the Series A Preferred Stock, (ii) the shares of Series A Common Stock issuable upon conversion of the Series K Common Stock required to be delivered upon conversion of the Series K Preferred Stock, and (iii) the shares of Series A Common Stock issuable upon conversion of the Series B Common Stock required to be delivered upon conversion of the Series T Preferred Stock, in each case prior to delivery of such shares of Series A Common Stock upon such conversion, on the principal national securities exchange (including, but not limited to, the Nasdaq National Market) on which the outstanding Series A Common Stock is listed at the time of such delivery. -24- 7. Voting. ------ (a) General Voting Rights. In connection with any matter as to --------------------- which the holders of Common Stock are entitled to vote including, but not limited to, the election of Common Stock Directors (as hereinafter defined), each share of Convertible Preferred Stock issued and outstanding as of the record date for such meeting shall have (and the holder of record thereof shall be entitled to cast) the number of votes equal to the number of votes such holder would have been entitled to cast had it converted its shares of Convertible Preferred Stock into shares of Series A Common Stock (in the case of Series A Preferred Stock), Series B Common Stock (in the case of shares of Series T Preferred Stock), or Series K Common Stock (in the case of Series K Preferred Stock) immediately prior to the record date for the determination of stockholders entitled to vote upon such matter. Except as provided below and in paragraph 1 of Section B of this Article IV and except as otherwise may be required by law, the holders of Common Stock, the holders of Convertible Preferred Stock and the holders of any other series of Series Preferred Stock shall be entitled to notice of and to attend any meeting of stockholders and to vote together as a single class. (b) Election of Preferred Stock Directors. ------------------------------------- (i) The holders of the Series AM Preferred Stock, voting separately as a single series, shall have the exclusive right, acting by written consent given in accordance with paragraph 7(b)(vi) below or by vote at a meeting called for that purpose, to elect one director to the Board of Directors so long as there are at least 250,000 shares of Series AM Preferred Stock (as adjusted for stock splits, stock dividends and the like occurring after the Filing Date) outstanding (such director elected by the holders of the Series AM Preferred Stock is hereinafter referred to as the "SERIES AM PREFERRED STOCK DIRECTOR"). The holders of the Series AT Preferred Stock, voting separately as a single series, shall have the exclusive right, acting by written consent given in accordance with paragraph 7(b)(vi) below or by vote at a meeting called for that purpose, to elect (x) two directors to the Board of Directors so long as at least 750,000 shares of Series AT Preferred Stock remain outstanding or (y) one director to the Board of Directors in the event that less than 750,000 shares of Series AT Preferred Stock remain outstanding but so long as at least 250,000 shares of Series AT Preferred Stock remain outstanding, in each case as adjusted for stock splits, stock dividends and the like occurring after the Filing Date (such directors elected by the holders of the Series AT Preferred Stock are hereinafter referred to as the "SERIES AT PREFERRED STOCK DIRECTORS"). The holders of the Series AX Preferred Stock, voting separately as a single series, shall have the exclusive right, acting by written consent given in accordance with paragraph 7(b)(vi) below or by vote at a meeting called for that purpose, to elect one director to the Board of Directors so long as there are at least 250,000 shares of Series AX -25- Preferred Stock (as adjusted for stock splits, stock dividends and the like occurring after the Filing Date) outstanding (such director elected by the holders of the Series AX Preferred Stock is hereinafter referred to as the "SERIES AX PREFERRED STOCK DIRECTOR," and the Series AX Preferred Stock Director, the Series AM Preferred Stock Director and the Series AT Preferred Stock Directors are hereinafter referred to as the "SERIES A PREFERRED STOCK DIRECTORS"). The holders of the Series K Preferred Stock, voting separately as a single series, shall have the exclusive right, acting by written consent given in accordance with paragraph 7(b)(vi) below or by vote at a meeting called for that purpose, to elect one director to the Board of Directors so long as there are at least 250,000 shares of Series K Preferred Stock (as adjusted for stock splits, stock dividends and the like occurring after the Filing Date) outstanding (such director elected by the holders of the Series K Preferred Stock is hereinafter referred to as the "SERIES K PREFERRED STOCK DIRECTOR"). The holders of the Series T Preferred Stock, voting separately as a single series, shall have the exclusive right, acting by written consent given in accordance with paragraph 7(b)(vi) below or by vote at a meeting called for that purpose, to elect (x) three directors to the Board of Directors so long as at least 385,000 shares of Series T Preferred Stock remain outstanding; (y) two directors to the Board of Directors in the event that less than 385,000 shares of Series T Preferred Stock remain outstanding but so long as at least 317,500 shares of Series T Preferred Stock remain outstanding; or (z) one director to the Board of Directors in the event that less than 317,500 shares of Series T Preferred Stock remain outstanding but so long as at least 250,000 shares of Series T Preferred Stock remain outstanding, in each case as adjusted for stock splits, stock dividends and the like occurring after the Filing Date (such directors elected by the holders of the Series T Preferred Stock are hereinafter referred to as the "SERIES T PREFERRED STOCK DIRECTORS," and together with the Series A Preferred Stock Directors and the Series K Preferred Stock Director, the "PREFERRED STOCK DIRECTORS"). (ii) Each of the Preferred Stock Directors will be that person elected, by written consent given in accordance with paragraph 7(b)(vi) below or by vote at a meeting called for that purpose, of the holders of the series of Preferred Stock entitled to vote for such director. (iii) At any meeting having as a purpose the election of directors by holders of the Series AM Preferred Stock, the Series AT Preferred Stock, the Series AX Preferred Stock, the Series K Preferred Stock and/or holders of the Series T Preferred Stock, as the case may be, the presence, in person or by proxy, of the holders of a majority of the shares of the applicable series of Convertible Preferred Stock entitled to vote in such -26- election then outstanding shall be required and be sufficient to constitute a quorum of such series for the election of any director by such holders. Each Preferred Stock Director to be elected at such meeting shall be elected by a plurality of the votes of the shares of the series of Convertible Preferred Stock present in person or represented by proxy at such meeting and entitled to vote in the election of such Preferred Stock Director or by written consent of the holders of the shares of such series given in accordance with paragraph 7(b)(vi) below. At any such meeting or adjournment thereof, (i) the absence of a quorum of such holders of Series AM Preferred Stock, Series AT Preferred Stock, Series AX Preferred Stock, Series K Preferred Stock or Series T Preferred Stock, as the case may be, shall not prevent the election of the directors to be elected by the holders of shares other than the series of Convertible Preferred Stock the holders of which do not constitute a quorum for such election at such meeting, and the absence of a quorum of holders of shares other than the Series AM Preferred Stock, Series AT Preferred Stock, Series AX Preferred Stock, Series K Preferred Stock or Series T Preferred Stock shall not prevent the election of the directors to be elected by the holders of the Series AM Preferred Stock, Series AT Preferred Stock, Series AX Preferred Stock, the Series K Preferred Stock or the Series T Preferred Stock, as the case may be, and (ii) in the absence of a quorum of holders of any of (x) shares of the Series AM Preferred Stock, the Series AT Preferred Stock, the Series AX Preferred Stock, the Series K Preferred Stock or Series T Preferred Stock, (y) shares other than the Series AM Preferred Stock, the Series AT Preferred Stock, the Series AX Preferred Stock, the Series K Preferred Stock or the Series T Preferred Stock, or (z) shares of all such classes and series, holders of a majority of the shares, present in person or by proxy, of each class or series of stock which lack a quorum shall have power to adjourn the meeting for the election of directors which such class or series is entitled to elect, from time to time, without notice (subject to applicable law) other than announcement at the meeting, until a quorum shall be present. (iv) Except as provided in paragraph 7(b)(v), any vacancy in the office of a Preferred Stock Director occurring during the effectiveness of the applicable provisions of paragraph 7(b)(i) shall be filled solely by the holders of the series of Convertible Preferred Stock entitled to elect such Preferred Stock Director by vote of such holders as provided in paragraph 7(b)(iii) above at a meeting called for such purpose or by written consent of such holders given in accordance with paragraph 7(b)(vi) below. (v) A Preferred Stock Director elected by a specified series of Convertible Preferred Stock may be removed without cause by the vote or by written consent of the holders of a majority of the outstanding shares of such series of Convertible Preferred Stock which elected such Preferred Stock Director. Any vacancy in the office of a Preferred Stock Director shall be filled by the affirmative vote of the holders of a majority of the -27- outstanding shares of the applicable series of Convertible Preferred Stock entitled to elect the Preferred Stock Director so removed at a meeting, which may be the same meeting at which the removal of such Preferred Stock Director was voted upon, or by written consent of the holders of such series of Preferred Stock given in accordance with paragraph 7(b)(vi) below. Any director elected to fill a vacancy shall serve the same remaining term as that of his or her predecessor and until his or her successor has been chosen and has qualified. (vi) With respect to actions by the holders of the Series AM Preferred Stock, the Series AT Preferred Stock, the Series AX Preferred Stock, the Series K Preferred Stock or the Series T Preferred Stock upon those matters on which such holders are entitled to vote as a separate series, such actions may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares of Series AM Preferred Stock, Series AT Preferred Stock, Series AX Preferred Stock, Series K Preferred Stock or Series T Preferred Stock, as the case may be, having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of such series of Convertible Preferred Stock entitled to vote thereon were present and voted, and shall be delivered to the Corporation as provided in the DGCL. Notice shall be given in accordance with the applicable provisions of the DGCL of the taking of corporate action without a meeting by less than unanimous written consent. (vii) The right of the holders of Convertible Preferred Stock to elect the Preferred Stock Directors shall be in addition to their right to vote, on an as-converted basis (in the case of the Series A Preferred Stock into Series A Common Stock, in the case of Series K Preferred Stock into Series K Common Stock and in the case of the Series T Preferred Stock into Series B Common Stock), with the holders of the Common Stock and any other series of Series Preferred Stock so entitled to vote, together as a single class, in the election of all other members of the Board of Directors (other than the Series B and Series K Common Stock Directors). (c) Protective Covenants. Notwithstanding the rights and -------------------- privileges of any class or series of Preferred Stock then outstanding, so long as any shares of Convertible Preferred Stock shall remain outstanding, the Corporation shall not, without first obtaining the affirmative vote (or, except with respect to clause (iii) below, the written consent) of the holders of not less than a majority of the outstanding shares of the Convertible Preferred Stock (with the holders of the Series AM Preferred Stock, the Series AT Preferred Stock, the Series AX Preferred Stock, the Series K Preferred Stock and the Series T Preferred Stock voting together as a single class except as otherwise provided in clause (i) below): (i) adopt, amend, alter or repeal any provision of the Certificate or any resolution of the Board of Directors or any other -28- instrument establishing and designating the Convertible Preferred Stock, any series of Series Preferred Stock or any Common Stock and determining the relative voting powers, designations, preferences, rights and qualifications, limitations and restrictions thereof, so as to effect any adverse change in the voting powers, designations, preferences, rights and qualifications, limitations and restrictions of the holders of the Convertible Preferred Stock; provided, however, that the -------- ------- Corporation will not make any such amendment, alteration or repeal which would affect adversely the voting powers, designations, preferences, rights and qualifications, limitations or restrictions of the shares of one or more series of Convertible Preferred Stock without the consent of the holders of a majority of the outstanding shares of each such series of Preferred Stock so affected, each voting separately as a separate series of Preferred Stock (or, if such amendment, alteration or repeal would affect adversely the voting powers, designations, preferences, rights and qualifications, limitations or restrictions of the shares of all series of Convertible Preferred Stock in the same manner, without the consent of the holders of a majority of the outstanding shares of Convertible Preferred Stock voting as a single class); (ii) create, designate or issue any capital stock which is Special Voting Stock; (iii) (a) consolidate with, or merge with or into, any Person or enter into a binding share exchange or similar transaction with any person (other than a merger of the Corporation with a wholly owned Subsidiary thereof which does not effect a change in the capital stock of the Corporation) (b) dispose of assets or properties in one transaction or a series of related transactions having an aggregate value in excess of 50% of the fair market value of the consolidated assets of the Corporation other than a transfer to a wholly-owned Subsidiary of the Corporation or (c) consent to any liquidation, dissolution or winding up of the Corporation or any of its material Subsidiaries; or (iv) (a) declare or pay any dividend on, or make any distribution to holders of, Junior Stock or equity securities of any Subsidiary of the Corporation or (b) purchase, redeem or otherwise acquire for value any Junior Stock, any equity securities of any Subsidiary of the Corporation or any options, warrants or other rights to acquire such securities (other than a repurchase or redemption of shares of Junior Stock, any equity securities of any Subsidiary of the Corporation or any options, warrants or other rights to acquire such securities which is a Permitted Repurchase). Any approval obtained pursuant to this paragraph 7(c) with respect to any matter described in clause (iii) above shall not be valid unless such matter shall have been presented to the holders of the Convertible Preferred Stock for a vote at a meeting held on not -29- less than thirty (30) days' prior written notice, which notice shall have described in detail each such matter to be voted upon. 8. Waiver. Unless otherwise provided in this Certificate, any ------ provision which, for the benefit of the holders of the Convertible Preferred Stock or any series thereof, prohibits, limits or restricts actions by the Corporation, or imposes obligations on the Corporation, may be waived in whole or in part, or the application of all or any part of such provision in any particular circumstance or generally may be waived, in each case only pursuant to (i) a waiver which has been approved by Board Action (as if the subject of such waiver were a Supermajority Item (or a Unanimous Item if the matter that is the subject of such waiver would otherwise be a Unanimous Item)) and (ii) the consent of the holders of a majority (or such greater percentage thereof as may be required by applicable law or any applicable rules of any national securities exchange or national interdealer quotation system) of the outstanding shares of (x) each series of Convertible Preferred Stock, each consenting separately as a separate series of Preferred Stock, or (y) if such waiver would affect adversely the voting powers, designations, preferences, rights and qualifications, limitations or restrictions of the shares of all series of Convertible Preferred Stock in the same manner, all series of Convertible Preferred Stock consenting together as a single class of Preferred Stock. Any such waiver shall be binding on all holders, including any subsequent holders, of the Convertible Preferred Stock. 9. Method of Giving Notices. Any notice required or permitted ------------------------ hereby to be given to the holders of shares of Convertible Preferred Stock shall be deemed duly given if deposited in the United States mail, first class mail, postage prepaid, and addressed to each holder of record at the holder's address appearing on the books of the Corporation or supplied by the holder in writing to the Corporation for the purpose of such notice. 10. Exclusion of Other Rights. Except as provided in the Bylaws of ------------------------- the Corporation or as may otherwise be required by law and except for the equitable rights and remedies which may otherwise be available to holders of Convertible Preferred Stock, the shares of Convertible Preferred Stock shall not have any designations, preferences, limitations or relative rights other than those specifically set forth herein. 11. Heading of Subdivisions. The headings of the various ----------------------- subdivisions hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof. SECTION D SERIES PREFERRED STOCK The Series Preferred Stock may be issued, from time to time, in one or more series, with such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall be stated and expressed in a resolution or resolutions providing for the issue of such series adopted pursuant to Board Action (as hereinafter defined); the Series Preferred Stock may rank senior to, junior to or on a parity with the Convertible Preferred Stock with respect to (i) rights upon liquidation, dissolution or winding up of the Corporation, (ii) the payment of dividends or (iii) distributions on, or the repurchase or redemption of any other shares of capital stock of the Corporation. The -30- Convertible Preferred Stock will rank on a parity with any Series Preferred Stock that is not by its terms made senior or junior to the Convertible Preferred Stock. Subject to the provisions of paragraph 7(c)(ii) of Section C, the Board of Directors, in such resolution or resolutions (a copy of which shall be filed and recorded as required by law), is also expressly authorized to fix: (i) the distinctive serial designations and the division of such shares into series and the number of shares of a particular series, which may be increased or decreased, but not below the number of shares thereof then outstanding, by a certificate made, signed, filed and recorded as required by law; (ii) the dividend rate or amounts, if any, for the particular series, the date or dates from which dividends on all shares of such series shall be cumulative, if dividends on stock of the particular series shall be cumulative and the relative rights of priority, if any, or participation, if any, with respect to payment of dividends on shares of that series; (iii) the rights of the shares of each series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of each series; (iv) the right, if any, of the holders of a particular series to convert or exchange such stock into or for other classes or series of a class of stock or indebtedness of the Corporation, and the terms and conditions of such conversion or exchange, including provision for the adjustment of the conversion or exchange rate in such events as the Board of Directors shall determine; provided that no series of Series Preferred Stock shall have the right to convert into Series B Common Stock; (v) the voting rights, if any, of the holders of a particular series; (vi) the terms and conditions, if any, for the Corporation to purchase or redeem shares of a particular series; and (vii) any other relative rights, powers, preferences and limitations of a particular series of the Series Preferred Stock. The Board of Directors, acting through Board Action, is authorized to exercise its authority with respect to fixing and designating various series of the Series Preferred Stock and determining the relative rights, powers and preferences thereof to the full extent permitted by applicable law, subject to any stockholder vote that may be required by this Certificate. All shares of any one series of the Series Preferred Stock shall be alike in every particular. Except to the extent otherwise provided in the resolution or resolutions providing for the issue of any series of Series Preferred Stock, the holders of shares of such series shall have no voting rights except as may be required by the laws of the State of Delaware. Further, unless otherwise expressly provided in the Certificate of Designation for a series of Series Preferred Stock, no consent or vote of the holders of shares of Series Preferred Stock or any series thereof -31- shall be required for any amendment to this Certificate that would increase the number of authorized shares of Series Preferred Stock or the number of authorized shares of any series thereof or decrease the number of authorized shares of Series Preferred Stock or the number of authorized shares of any series thereof (but not below the number of shares of Series Preferred Stock or of such series, as the case may be, then outstanding). Except as may be provided by the Board of Directors in a Certificate of Designation or by law, shares of any series of Series Preferred Stock that have been redeemed (whether through the operation of a sinking fund or otherwise) or purchased by the Corporation, or which, if convertible or exchangeable, have been converted into or exchanged for shares of stock of any other class or classes shall be retired and shall not be reissued. ARTICLE V DIRECTORS SECTION A NUMBER AND DESIGNATION The governing body of the Corporation shall be a Board of Directors which shall consist of not less than three (3) and not more than fifteen (15) directors, with the exact number to be specified from time to time by resolution of the Board of Directors in accordance with this Certificate. 1. Preferred Stock Directors. The Preferred Stock Directors shall ------------------------- be elected by the holders of the Convertible Preferred Stock, subject to, and in the manner provided in, Article IV of this Certificate. 2. Convertible Common Stock Directors. The Convertible Common Stock ---------------------------------- Directors shall be elected by the holders of the Convertible Common Stock, subject to, and in the manner provided in, Article IV of this Certificate. 3. Common Stock Directors. Directors of the Corporation other than ---------------------- the Convertible Common Stock Directors, Preferred Stock Directors, and directors elected by any holders of any series of Series Preferred Stock entitled to elect such directors, shall be elected by the holders of the Common Stock and Convertible Preferred Stock, subject to, and in the manner provided in, Article IV of this Certificate, and shall be designated as "COMMON STOCK DIRECTORS." SECTION B BOARD ACTIONS 1. Definitions. Unless the context otherwise requires, the terms ----------- defined in this paragraph 1 shall have, for all purposes of this Certificate, the meanings herein specified: "AFFILIATE" means, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries Controls, is Controlled by, or is under common Control with such Person. -32- "ASSOCIATE" shall have the meaning set forth in Rule 405 under the Securities Act. "@HOME SERVICES" means the business of providing Internet connectivity service and Internet "backbone" service, which includes substantially the following: (i) direct connectivity to the Internet through the development, packaging, marketing and distribution of a suite of branded Internet connectivity services and certain branded applications, including one or more custom browsers, for use by subscribers and information providers, together with connections to various on-line hosting services (such as America Online, Prodigy, CompuServe and MSN) and information providers, both in the United States and internationally (in countries where the Corporation is capable of providing such service), (ii) directory services and navigation services to content created by third parties, provided, however, that it is not contemplated -------- ------- that the Corporation would itself be a creator of content (other than with respect to content created as part of the Corporation's navigation services (such as the "video barker" and "templates" for the creation of navigation home pages), the aggregation and organization of content created by third parties and technological assistance to such third party creators), and (iii) systems for (a) "backbone" transmission, (b) network management, and (c) billing and associated support functions. ".COM AGREEMENT" means any agreement between the Corporation (or any Cable Parent or a Controlled Affiliate thereof acting in the capacity of a sales agent by and on behalf of the Corporation pursuant to a sales agency agreement to be entered into by such Cable Parent or Controlled Affiliate and the Corporation, which agreement will, among other things, specify the terms and conditions upon which such Person may act as a sales agent for the Corporation, including specification of the terms upon which such Person may enter into a .Com Agreement on the Corporation's behalf) and a content provider which provides (i) physical connectivity and access to the @Home Network (as defined in the Master Distribution Agreement) and (ii) for compensation, if any, to the Corporation in accordance with its charges therefor. "BOARD ACTION" means, with respect to any matter considered by the Board of Directors or any committee thereof, the action of the Board or such committee with respect thereto for purposes of Section 141 of the DGCL, which action shall be deemed taken: (i) in the case of action by the Board of Directors, by the approval of such action by: (a) with respect to any matter that is not a Related Party Transaction or a Related Party .Com Agreement or Related Party Promotional Agreement, (x) a majority of the members of the Board present at a meeting at which a quorum of the Board is present or a written consent to such action executed by all the members of the Board and (y) so long as the holders of any series of Common Stock or Preferred Stock are entitled to elect a Special Director, (1) as to matters that are not Supermajority Items or Unanimous Items, so long as the Special Directors are entitled to exercise the Special Director Approval Right, a majority of the Special Directors or (2) with respect to any matter that is a Supermajority Item or a Unanimous Item, a Supermajority Vote or Unanimous Vote of the Special Directors and the Special K Director, if any; -33- (b) with respect to any matter that is a Related Party Transaction, either (I)(x) a majority of the Disinterested Directors present at a meeting at which a quorum of the Board is present or a written consent to such action executed by all of the members of the Board; (y) a majority of the members of the Board present at a meeting at which a quorum of the Board is present or a written consent to such action executed by all of the members of the Board; and (z) so long as the holders of any series of Common Stock or Preferred Stock are entitled to elect a Special Director, a majority of the Special Directors and Special K Director, if any, who are Disinterested Directors; provided, however, that, so long as the holders of any series of Common Stock or Preferred Stock are entitled to elect a Special Director, in addition to the requirements set forth above in this paragraph (b)(I), (A) if the Related Party Transaction is a Supermajority Item, the approval of such Related Party Transaction shall require the affirmative vote or written consent of seventy-five (75%) (rounded up to the nearest whole number of directors) (or two-thirds if there are only three such directors) of the total number of Special Directors and Special K Director, if any, who are Disinterested Directors; and (B) if the Related Party Transaction is a Unanimous Item, the approval of such Related Party Transaction shall require the affirmative vote or written consent of the total number of Special Directors and Special K Director, if any (regardless of whether or not such directors are Disinterested Directors); or (II)(x) a majority of the members of the Board present at a meeting at which a quorum of the Board is present or a written consent to such action executed by all of the members of the Board and (y) so long as the holders of any series of Common Stock or Preferred Stock are entitled to elect a Special Director, all of the Special Directors (regardless of whether or not such Special Directors are Disinterested Directors); or (c) with respect to the approval of a Related Party .Com Agreement or Related Party Promotional Agreement, approval in accordance with clauses (y) or (z) of paragraph 5 below (but subject to paragraph 7 below), provided that no Board Action is required for such approval in the circumstances specified in clause (x) of paragraph 5; (ii) in the case of action by any committee of the Board of Directors (other than the .Com Committee), by the approval of such action by: (a) either a majority of the members of such committee present at a meeting at which a quorum of such committee is present or a written consent to such action executed by all the members of such committee; and (b) so long as the holders of any series of Common Stock or Preferred Stock are entitled to elect a Special Director and the Special Directors are entitled to exercise the Special Director Approval Right, a majority of the Special Directors; provided, however, that the approval of the Special Directors -------- ------- shall not be required in connection with the approval of any matter as to which the Board of Directors and the Special Directors have specifically provided in the specification of powers and duties of such committee by resolution or Bylaw approved by Board Action, that the approval of the Special Directors shall not be required; and -34- (iii) in the case of the .Com Committee, either (1) a majority of the total number of members of the .Com Committee or (2) a written consent to such action executed by all of the members of the .Com Committee. "CLOSING AGREEMENTS" means the Stock Purchase and Exchange Agreement among the Corporation and the purchasers that are parties thereto, the First Amended and Restated Registration Rights Agreement among the Corporation and the stockholders and investors that are parties thereto, each dated as of August 1, 1996, and the Stockholders' Agreement. "DISINTERESTED DIRECTORS" means any member of the Board of Directors who is not an interested director for purposes of DGCL Section 144(a); provided, -------- however, that (i) any director who is an officer, director, employee or partner - ------- of a Related Party shall, notwithstanding the fact that such director is not otherwise personally interested in a Related Party Transaction, be deemed interested in such Related Party Transaction and (ii) any Person elected exclusively by the holders of a series of Convertible Preferred Stock shall be considered to be a Disinterested Director unless such Person is an officer, director, employee or partner of such Related Party or a Related Party Affiliate or is otherwise personally interested in the Related Party Transaction. "LCO AGREEMENT" means the provisions of Article VIII of the Term Sheet, including any other provisions or definitions in other sections of the Term Sheet which are referenced in Article VIII; provided that if the matters set forth in Article VIII of the Term Sheet are superseded by a definitive agreement which is executed by the applicable parties to the Term Sheet, such definitive agreement will constitute the LCO Agreement for all purposes hereunder. "OUTSIDE DIRECTOR" means any director of the Corporation who (i) is not any officer or director of, or employed by, the Corporation or its Subsidiaries and (ii) is not an Affiliate or Associate of any of Cox Enterprises, Inc., a Delaware corporation, Comcast or TCI or any of their respective Controlled Affiliates (other than the Corporation and its Subsidiaries). "PROMOTIONAL AGREEMENT" means an agreement entered into between a content provider and the Corporation (individually and not through an agency relationship with a Cable Parent or any of its Controlled Affiliates) providing for the promotion of such content or content provider on the @Home Services (e.g., through button or hot link placement on the browsers, home pages or theme pages in the National Area (as defined in the Master Distribution Agreement), by the @Home video barker or otherwise) as the Corporation and such content provider shall agree, at which point such promotional activity shall become a part of the @Home Services, subject, however, to the Cable Parent Exclusion Right (as defined in the Master Distribution Agreement). "SPECIAL DIRECTOR APPROVAL RIGHT" means the requirement for certain Board Actions that a majority of the Special Directors have approved such matter, which requirement shall continue in effect so long as TCI Sub beneficially owns at least (i) 385,000 shares of Series T Preferred Stock or 7,700,000 shares of Series B Common Stock (or any combination thereof aggregating 7,700,000 shares of Series B Common Stock on an as converted basis) (in each case, which shares are Company Securities and as adjusted for stock splits, stock dividends and the -35- like occurring after the Filing Date), and (ii) securities representing a --- majority of the outstanding voting power of the Corporation. 2. Vote Required for Actions of the Board or Committees. ---------------------------------------------------- (a) Except as otherwise provided by law or this Certificate and subject to the rights of approval set forth in paragraphs 3, 4, 5 and 7 below, any action or approval by the Board of Directors or any committee thereof shall require that approval therefor be obtained by Board Action. (b) Any approval of the Special Directors may be evidenced by the affirmative vote of such Special Directors (i) at the Board meeting or committee meeting at which such action is approved, (ii) by unanimous written consent of the Board or a committee thereof including such Special Directors, or (iii) by a separate approval granted at a meeting of such Special Directors or by written consent of a majority of such Special Directors. The requirements for Special Director approval herein and the procedures thereof are included by virtue of the authority contained in Section 141(a) of the DGCL. (c) Except as specifically provided in paragraph 6 below with respect to the powers of the .Com Committee, no committee of the Board shall have the power to act on any Related Party Transaction, Supermajority Item, Unanimous Item or any Related Party .Com Agreement or Related Party Promotional Agreement . 3. Related Party Transactions. -------------------------- (a) Any Related Party Transaction must be approved by a Board Action. (b) A "RELATED PARTY" shall mean (1) any holder of any series of Convertible Preferred Stock or a Related Party Affiliate of such holder or (2) any holder of more than 5% of the voting power of the Corporation (on an as- converted into Common Stock (whichever series such security is initially convertible into or exercisable or exchangeable for) basis) or a Related Party Affiliate of such holder. The term "RELATED PARTY TRANSACTION" shall mean any transaction between the Corporation and a Related Party; provided, however, that the following transactions will not be Related Party Transactions: (i) any transaction or series of related transactions, that (x) are in the ordinary course of business, (y) are on arms' length terms, and (z) involve an aggregate amount that is less than $1,000,000; (ii) the entering into of LCO Agreements and other agreements for the provision of ancillary or related services by the Corporation, between a Related Party or its Related Party Affiliates, on the one hand, and the Corporation, on the other hand, provided that the terms of such -------- LCO Agreements or such other agreements are no more favorable to such Related Party and its Related Party Affiliates than the terms of similar agreements then currently offered by or generally available from the Corporation to each other Cable Parent or its Controlled Affiliates (without regard to the size (through volume discounts or otherwise) or identity of such Cable Parent or its ownership of securities of the Corporation); and (iii) the entering into or performance under any .Com Agreement or Promotional Agreement. The term "RELATED PARTY AFFILIATE" shall mean, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person; provided, -------- that (i) any -36- Person owning, directly or indirectly, in excess of 25% of the equity interests (on a fully diluted basis) of any other Person shall be deemed to Control such other Person, (ii) the Corporation will not be deemed to be a Related Party Affiliate of any Parent or such Parent's Related Party Affiliates, and (iii) the Microsoft Network, L.L.C. ("MSN") will be deemed a Related Party of TCI Sub so long as a Related Party Affiliate of TCI Sub retains substantially all of its current ownership interest in MSN. 4. Supermajority and Unanimous Approval Requirements. ------------------------------------------------- (a) Supermajority Items. For purposes of determining whether or ------------------- not there has been Board Action with respect to any of the following matters ("SUPERMAJORITY ITEMS"), so long as the holders of any series of Common Stock or Preferred Stock are entitled to elect a Special Director or a Special K Director, the affirmative vote or written consent of seventy-five percent (75%) (rounded up to the nearest whole number of directors) of the total number of (x) the Special Directors and (y) the Special K Director, if any, voting separately from the other directors of the Corporation shall be required (such vote or consent, a "SUPERMAJORITY VOTE"): (1) The merger, consolidation or other business combination by the Corporation or any Controlled Affiliate of the Corporation into or with any other entity, other than any transaction involving only the Corporation and/or one or more directly or indirectly wholly owned Subsidiaries of the Corporation; provided, however, that the provisions of this paragraph shall not -------- ------- apply to transactions which have been approved in accordance with subparagraphs (2) or (4) below, or which would not otherwise require approval thereunder. (2) The acquisition (other than an acquisition covered by subparagraph (4) below) by the Corporation or any Controlled Affiliate of the Corporation of any assets or properties (including stock or other equity interests of a third party) in one transaction or a series of related transactions, which assets or properties have an aggregate purchase price or value in excess of 20% of the fair market value of the assets of the Corporation (on a consolidated basis). (3) The disposition by the Corporation or any Controlled Affiliate of the Corporation of any assets or properties (including stock or other equity interests of a third party) in one transaction or a series of related transactions having an aggregate value in excess of fifty percent (50%) of the fair market value of the assets of the Corporation (on a consolidated basis). (4) The acquisition by the Corporation or any Controlled Affiliate of the Corporation of any assets or properties in exchange for or in consideration of the sale or issuance to any Person of capital stock of the Corporation which sale or issuance would constitute in excess of 16-2/3% of the fully diluted shares of the Corporation (on a common stock equivalent basis) (including such shares to be issued or sold); provided, however, that the provisions of this subparagraph (4) shall not be deemed to apply to any issuances or sales of capital stock solely for cash. -37- (5) The approval of the Chief Executive Officer of the Corporation, and the removal of any Chief Executive Officer and the appointment of any successor thereto. (6) Any actions resulting in the voluntary dissolution or liquidation of the Corporation, or the initiation of any proceedings relating to the voluntary bankruptcy of the Corporation. (7) Any amendment, alteration or repeal of any provision of this Certificate or the Bylaws of the Corporation, other than (A) the filing of any Certificate of Designation or amendment to this Certificate establishing any class or series of Series Preferred Stock of the Corporation, the establishment, issuance and sale of which would not require a Supermajority Vote pursuant to subparagraph (8) below, (B) any amendment to or a modification of this Certificate which is necessary in order to implement any action which has been otherwise approved by a Supermajority Vote, (C) any amendment to this Certificate which is reasonably necessary in connection with the IPO and which does not have an adverse effect upon the holders of any series of Convertible Preferred Stock which effect is different from the effect of such an amendment upon the holders of one or more other series of Convertible Preferred Stock. (8) The (A) establishment, creation or designation of any additional class or series of capital stock or any security having a direct or indirect equity participation in the Corporation, (B) sale or issuance of (i) shares of capital stock or securities having a direct or indirect equity participation in the Corporation, or (ii) warrants, options or rights to acquire shares of capital stock or securities having a direct or indirect equity participation in the Corporation or securities convertible into or exchangeable for capital stock or any security having a direct or indirect equity participation in the Corporation, in each case, which capital stock or other security constitutes Special Voting Stock; provided that subject to the -------- requirements of law, this Certificate and the Bylaws of the Corporation, it is intended that the Board of Directors would be entitled, without a Supermajority Vote or a Unanimous Vote, to create, designate and issue shares of Series Preferred Stock that are not Special Voting Stock which rank senior to or pari ---- passu with the Convertible Preferred Stock as to liquidation rights and rights - ----- relating to dividends, distributions, repurchases and redemptions; and provided -------- further, however, that no capital stock of the Corporation, the issuance of - -------- ------- which would, in accordance with this paragraph 4, require a Unanimous Vote of the Special Directors and the Special K Director, shall be issued without such Unanimous Vote of the Special Directors and the Special K Director. (9) Any increase in the aggregate number of shares of Series A Common Stock issued or reserved for issuance to management (including shares reserved for issuance upon exercise of options, warrants or other rights) pursuant to all incentive compensation plans (collectively, the "MANAGEMENT STOCK PLAN") in excess of an aggregate amount calculated at the time of such proposed increase equal to (i) 16,000,000 (as adjusted for stock splits, stock dividends and the like occurring after the Filing Date), plus (ii) the greater ---- of (x) 0.075 multiplied by the number of shares of Series A Common Stock (or options, warrants or other rights to acquire shares) issued by the Corporation subsequent to August 1, 1996 (other than shares (or options, warrants or other rights to acquire shares) issued pursuant to the Management Stock Plan or shares issued upon conversion of shares of Convertible Preferred -38- Stock) and (y) the number of shares (or options, warrants or other rights to acquire shares) the issuance of which would represent a dilution of the fully diluted equity of the Corporation (including the assumed issuance of all shares in the Management Stock Plan prior to such increase) of four percent (4%) per year from August 1, 1996 to the date of such proposed increase. (10) (A) The declaration or payment of any dividend on, or the making of any distribution to holders of, Junior Stock or equity securities of any Controlled Affiliate of the Corporation (other than a wholly owned Subsidiary) or (B) the purchase, redemption or other acquisition for value of any Junior Stock or equity securities of any Controlled Affiliate of the Corporation or any options, warrants or other rights to acquire such securities (other than a Permitted Repurchase). (11) The adoption of any budget which is or contains a Non- Pro Rata Roll-Out Budget (as defined in the Master Distribution Agreement). (12) Any action by the Corporation which would have the effect of increasing the percentage of (x) Basic Service Revenues (as defined in the LCO Agreement) to which the Corporation is entitled under the LCO Agreement, or (y) Premium Service Revenues (as defined in the LCO Agreement) to which the Corporation is entitled under the LCO Agreement. (13) The appointment of any Outside Directors to the .Com Committee following the IPO (other than the Corporation's Chief Executive Officer and the members of the .Com Committee immediately prior to the IPO). (b) Unanimous Items. For purposes of determining whether or not ---------------- there has been Board Action with respect to the following matters ("UNANIMOUS ITEMS"), so long as the holders of any series of Common Stock or Preferred Stock are entitled to elect a Special Director or a Special K Director, the affirmative vote or written consent of 100% of the total number of (x) the Special Directors and (y) the Special K Director, if any, voting separately from the other directors of the Corporation (such vote or consent, a "UNANIMOUS VOTE") shall be required: (1) The incurrence by the Corporation of any indebtedness for borrowed money which provides for recourse against a Stockholder without the consent of such Stockholder. (2) The authorization or issuance of any shares of Convertible Preferred Stock following consummation of the transactions contemplated by the Closing Agreements. (3) Any amendments to or modifications of the items listed in this paragraph 4 or the requisite vote or consent for approval thereof. -39- (4) Any increase in the number of the Series AM, Series AT, Series AX, Series K, or Series T Preferred Stock Directors, or the Series B or Series K Common Stock Directors. (5) Any modification of the rights of the holders of the Series AM, Series AT, Series AX, Series K or Series T Preferred Stock or Series B or Series K Common Stock to designate and elect directors. (6) The appointment of any directors (other than the Corporation's Chief Executive Officer and the other initial members thereof elected following the Filing Date or, following the IPO, any Outside Directors elected in accordance with subparagraph (a)(13) above), to the .Com Committee. (7) Any amendment or modification to the Specifications and Standards (as defined in the Master Distribution Agreement) which would require the Operator Facilities (as defined in the Master Distribution Agreement) of any Cable Parent to be capable of delivering video clips in excess of ten (10) minutes. 5. Approval of .Com and Promotional Agreements. The execution, ------------------------------------------- delivery and performance of any .Com Agreement or Promotional Agreement between a Related Party or its Related Party Affiliates, on the one hand, and the Corporation or its Affiliates, on the other hand (a "RELATED PARTY .COM AGREEMENT" or a "RELATED PARTY PROMOTIONAL AGREEMENT," respectively), may be approved by the Corporation pursuant to any of the following methods: (x) approval by the authorized officers of the Corporation (without the approval of the Board of Directors) to the extent such agreement contains the Corporation's standard terms and conditions for agreements of that sort to the extent such standard terms and conditions exist (i.e., the Corporation's applicable "rate card"), (y) approval of a majority of the total number of members of the .Com Committee or (z) approval by a majority of the Board of Directors, including all of the Special Directors so long as the holders of any series of Common Stock or Preferred Stock are entitled to elect a Special Director. The Cable Parent which is, or whose Related Party Affiliate is, such Related Party shall be entitled to select which of the foregoing methods pursuant to which such approval will be sought, or if more than one method is to be sought, the priority therefor. All decisions of the .Com Committee shall be made in accordance with the policies and provisions for the .Com Agreements and Promotional Agreements set forth in the Stockholders' Agreement. A Stockholder who is or whose Related Party Affiliate is the Related Party whose .Com Agreement or Promotional Agreement has been disapproved by the .Com Committee or the Board pursuant to clause (y) or (z) above, as the case may be, shall be entitled to a written explanation from the members of the .Com Committee or the Board, as the case may be, voting against such approval. Nothing contained in this section shall limit the right of the Directors under applicable law to inspect any .Com Agreements or Promotional Agreements. 6. .Com Committee. There is hereby established a .Com Committee, -------------- which shall have the power and authority provided herein, and the Board of Directors shall cause members to be elected thereto pursuant to paragraphs 2 and 4 above. The .Com Committee shall have the following powers: to approve the execution, delivery and performance of any Related Party .Com Agreement or Related Party Promotional Agreement submitted to the .Com Committee pursuant to paragraph 5 above. The .Com Committee shall report all of its actions to -40- the Board of Directors. The authorization to the .Com Committee shall not extend to the approval of any .Com Agreement or Promotional Agreement that is not a Related Party .Com Agreement or Related Party Promotional Agreement. 7. Powers of Board with Respect to Certain Committees. Except upon -------------------------------------------------- the vote of a majority of the Board of Directors (including, so long as the holders of any series of Common Stock or Preferred Stock are entitled to elect a Special Director, all of the Special Directors), the Board of Directors shall not (i) rescind, amend, repeal, supplement or otherwise modify any action or determination made by the .Com Committee, (ii) remove any member of the .Com Committee, (iii) amend any of the provisions of this Certificate (including this paragraph 7 and the preceding paragraph (6)) or the Bylaws of this Corporation with respect to the .Com Committee, or (iv) dissolve or terminate the .Com Committee. SECTION C LIMITATION ON LIABILITY AND INDEMNIFICATION 1. Limitation On Liability. ----------------------- To the fullest extent permitted by the DGCL as the same exists or may hereafter be amended, a director of the Corporation shall not be liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director. Any repeal or modification of this paragraph 1 shall be prospective only and shall not adversely affect any limitation, right or protection of a director of the Corporation existing at the time of such repeal or modification. 2. Indemnification. --------------- (a) Right to Indemnification. The Corporation shall indemnify ------------------------ and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any Person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "PROCEEDING") by reason of the fact that he, or a Person for whom he is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys' fees) reasonably incurred by such Person. Such right of indemnification shall inure whether or not the claim asserted is based on matters which antedate the adoption of this Section C. The Corporation shall be required to indemnify a Person in connection with a proceeding (or part thereof) initiated by such Person only if the proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. (b) Prepayment of Expenses. The Corporation shall pay the ---------------------- expenses (including attorneys' fees) incurred in defending any proceeding in advance of its final disposition, provided, however, that the payment of expenses incurred by a director or officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the director or officer to repay all amounts advanced if it should be ultimately -41- determined that the director or officer is not entitled to be indemnified under this paragraph or otherwise. (c) Claims. If a claim for indemnification or payment of ------ expenses under this paragraph is not paid in full within 60 days after a written claim therefor has been received by the Corporation, the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification or payment of expenses under applicable law. (d) Non-Exclusivity of Rights. The rights conferred on any ------------------------- Person by this paragraph shall not be exclusive of any other rights which such Person may or hereafter acquire under any statute, provision of this Certificate, the Bylaws of the Corporation, agreement, vote of stockholders or disinterested directors or otherwise. (e) Other Indemnification. The Corporation's obligation, if any, --------------------- to indemnify any Person who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or nonprofit entity shall be reduced by any amount such Person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or nonprofit entity. 3. Amendment or Repeal. ------------------- Any repeal or modification of the foregoing provisions of this Section C shall not adversely affect any right or protection hereunder of any Person in respect of any act or omission occurring prior to the time of such repeal or modification. SECTION D AMENDMENT OF BYLAWS In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors, by action taken in accordance with the provisions of the Bylaws of the Corporation is hereby expressly authorized and empowered to adopt, amend or repeal any provision of the Bylaws of the Corporation. ARTICLE VI TERM The term of existence of the Corporation shall be perpetual. ARTICLE VII STOCK NOT ASSESSABLE The capital stock of the Corporation shall not be assessable. It shall be issued as fully paid, and the private property of the stockholders shall not be liable for the debts, obligations or liabilities of the Corporation. This Certificate shall not be subject to amendment in this respect. -42- ARTICLE VIII DGCL SECTION 203 The Corporation shall not be governed by Section 203 of the DGCL. Upon the filing of this Certificate with the Secretary of State of the State of Delaware, each share of Series A Common Stock outstanding immediately before such time shall be automatically converted into two shares of Series A Common Stock having the rights, preferences and privileges set forth herein. The shares of Series AM Preferred Stock, Series AT Preferred Stock, Series AX Preferred Stock, Series K Preferred Stock and Series T Preferred Stock outstanding upon the filing of this Certificate shall remain unchanged following the filing of this Certificate. The terms of the Corporation's capital stock set forth in this Certificate reflect the reclassification of the outstanding shares of Series A Common Stock effected hereby, and such reclassification will not cause any change in the terms of this Certificate or any adjustments in conversion, voting or other rights and powers of capital stock. -43- IN WITNESS WHEREOF, the undersigned has executed this Amended and Restated Certificate of Incorporation on this 13th day of August, 1996. AT HOME CORPORATION By: /s/ Thomas A. Jermoluk ----------------------------------- Name: Thomas A. Jermoluk Title: President Attest: /s/ David G. Pine ---------------------------- Name: David G. Pine Title: Secretary -44- EX-3.02 4 CERTIFICATE OF AMENDMENT EXHIBIT 3.02 CERTIFICATE OF AMENDMENT OF THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF AT HOME CORPORATION (a Delaware corporation) At Home Corporation, a Delaware corporation, does hereby certify that the following amendment to the corporation's Third Amended and Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law. I. Article IV, Section C, paragraph 3(a) is hereby amended to read in its entirety as follows: 3. Distributions Upon Liquidation, Dissolution or Winding Up. --------------------------------------------------------- (a) Liquidation Preference Prior to IPO. Prior to the IPO and ----------------------------------- subject to the prior payment in full of the preferential amounts to which any Senior Stock is entitled, in the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of Convertible Preferred Stock shall be entitled to receive from the assets of the Corporation available for distribution to stockholders, before any payment or distribution shall be made to the holders of any Junior Stock, an amount in cash (and, to the extent sufficient cash is not available for such payment, property at its fair market value) per share, equal to the Liquidation Price of such share of Convertible Preferred Stock as of the date of payment or distribution, which payment or distribution shall be made pari passu with any such payment or distribution made to the holders of any Parity Stock ranking on a parity basis with the Convertible Preferred Stock with respect to distributions upon liquidation, dissolution or winding up of the Corporation. Except as provided in paragraph 3(b) below, the holders of Convertible Preferred Stock shall be entitled to no other or further distribution of or participation in any remaining assets of the Corporation after receiving the Liquidation Price per share. If, upon distribution of the Corporation's assets in liquidation, dissolution or winding up, the assets of the Corporation to be distributed among the holders of the Convertible Preferred Stock and to all holders of any Parity Stock ranking on a parity basis with the Convertible Preferred Stock with respect to distributions upon liquidation, dissolution or winding up shall be insufficient to permit payment in full to such holders of the respective preferential amounts to which they are entitled, then the entire assets of the Corporation to be distributed to holders of the Convertible Preferred Stock and such Parity Stock shall be distributed pro rata to such holders based upon the aggregate of the full preferential amounts to which the shares of Convertible Preferred Stock and such Parity Stock would otherwise respectively be entitled. In the event of (i) a consolidation or merger of the Corporation with or into any other corporation or other entity in which the holders of all of the Corporation's outstanding shares of capital stock immediately before the effectiveness of such transaction do not, immediately after the effectiveness of such transaction, own capital stock representing a majority of the voting power of the surviving corporation or other entity of such transaction (or the immediate parent of such surviving corporation or other entity), or (ii) a sale of all or substantially all of the assets of the Corporation other than in connection with a Related Business Transaction (as defined below), the holders of a majority of the outstanding shares of each series of the Corporation's Preferred Stock, voting separately as a series (or consenting in writing), shall be entitled to deem, solely as to the series of Preferred Stock which has so voted or consented, such merger, consolidation or sale of assets to be a liquidation, dissolution or winding up of the Corporation within the meaning of this paragraph 3, provided, that written notice of such vote or such written consents must be received by the Corporation at least five (5) days prior to the effectiveness of such transaction; and provided further, that the Corporation shall have provided holders of Convertible Preferred Stock with the notice required to be delivered to them pursuant to paragraph 6(g) of Section C of this Article IV of such deemed liquidation, dissolution or winding up of the Corporation. For purposes of this Certificate, a "RELATED BUSINESS TRANSACTION" shall mean any sale or other disposition of all or substantially all of the properties and assets of the Corporation in which (i) the Corporation receives as proceeds of such disposition primarily equity securities (including, without limitation, capital stock, convertible securities, partnership or limited partnership interests and other types of equity securities, without regard to the voting power or contractual or other management or governance rights related to such equity securities) of the purchaser or acquiror of such properties and assets of the Corporation, including but not limited to any entity which succeeds (by merger, formation of a joint venture enterprise or otherwise) to such properties and assets of the Corporation (or the immediate parent of such purchaser or acquiror), and (ii) the securities received by the Corporation, immediately after the effectiveness of such transaction, have a majority of the voting power of the purchaser or acquiror of such properties and assets of the Corporation, including but not limited to any entity which succeeds (by merger, formation of a joint venture enterprise or otherwise) to such properties and assets of the Corporation (or the immediate parent of such purchaser or acquiror). Notice of the liquidation, dissolution or winding up of the Corporation shall be given, not less than 20 days prior to the date on which such liquidation, dissolution or winding up or merger or sale of assets is expected to take place or become effective, to the holders of record of the shares of Convertible Preferred Stock, during which 20 day period such holders shall continue to be entitled to exercise their conversion rights as set forth in paragraph 6 of this Section C. II. The last full paragraph of Article IV, Section B, paragraph 4(b) is hereby amended to read in its entirety as follows: The Corporation shall not reclassify, subdivide or combine any series of Common Stock without reclassifying, subdividing or combining all other series of Common Stock on an equal per share basis. * * * * * * * * * * -2- IN WITNESS WHEREOF, said corporation has caused this Certificate of Amendment to be executed and attested by its duly authorized officers this 11th day of April, 1997. AT HOME CORPORATION. By: /s/ Thomas A. Jermoluk ------------------------------------- Thomas A. Jermoluk President and Chief Executive Officer ATTEST: /s/ David G. Pine - ------------------------------- David G. Pine, Secretary -3- EX-3.03 5 CERTIFICATE OF DESIGNATION / SERIES C CONVER EXHIBIT 3.03 CERTIFICATE OF DESIGNATION OF SERIES C CONVERTIBLE PARTICIPATING PREFERRED STOCK OF AT HOME CORPORATION Pursuant to Section 151 of the Delaware General Corporation Law At Home Corporation, a Delaware corporation (the "Corporation"), does ----------- hereby certify that, pursuant to the authority contained in Article IV, Section D of its Third Amended and Restated Certificate of Incorporation, and in accordance with the provisions of Section 151 of the Delaware General Corporation Law, the Corporation's Board of Directors (the "BOARD") has duly adopted the following resolution creating a series of Series Preferred Stock (as defined in such Third Amended and Restated Certificate of Incorporation) designated as Series C Convertible Participating Preferred Stock: RESOLVED, that the Corporation does hereby designate and create a series of the authorized Series Preferred Stock designated as Series C Convertible Participating Preferred Stock as follows: ARTICLE I DESIGNATION AND AMOUNT Of the 10,000,000 shares of Series Preferred Stock authorized to be issued by the Corporation, 350,000 shares are hereby designated as "Series C Convertible Participating Preferred Stock," par value of $.01 per share (the "SERIES C PREFERRED STOCK"). The Series C Preferred Stock shall rank on a parity basis with the Corporation's Series AM Convertible Participating Preferred Stock, Series AT Convertible Participating Preferred Stock, Series AX Convertible Participating Preferred Stock, Series K Convertible Participating Preferred Stock and Series T Convertible Participating Preferred Stock as to dividend rights, rights of redemption and rights on liquidation, and shall be deemed to be Parity Stock (as defined in the Corporation's Third Amended and Restated Certificate of Incorporation) as to each of such series. The preferences, and relative, participating, optional and other special rights and qualifications, limitations and restrictions of the Series C Preferred Stock are as set forth in Article II hereof. ARTICLE II SERIES C PREFERRED STOCK The Series C Preferred Stock shall have the following preferences, limitations and relative rights: 1. Certain Definitions. Each capitalized term used without ------------------- definition in the Certificate of Designation (as defined below) shall have the meaning given in the Certificate (as defined below). Unless the context otherwise requires, the terms defined in this paragraph 1 shall have, for all purposes of the Certificate of Designation, the meanings herein specified: "CERTIFICATE" shall mean the Third Amended and Restated Certificate of Incorporation of the Corporation filed on August 14, 1996, as it may from time to time hereafter be amended or restated. "CERTIFICATE OF DESIGNATION" shall mean the Certificate of Designation filed with the Secretary of State of the State of Delaware which includes these resolutions, as it may from time to time hereafter be amended or restated. "COMMON STOCK" shall mean any series of Common Stock of the Corporation. "CONVERSION PRICE" of the Series C Preferred Stock shall initially be $10.00 per share, and shall be adjusted from time to time cumulatively pursuant to the provisions of paragraph 6. "FILING DATE" shall mean, with respect to the Series C Preferred Stock, the date on which the Certificate of Designation is filed with the Secretary of State of the State of Delaware. "IPO" shall mean the closing of an initial public offering of the Series A Common Stock. "ISSUE PRICE" of a share of Series C Preferred Stock shall initially be $200.00 and shall be appropriately adjusted to take into account any stock splits, reverse splits and the like occurring after the Filing Date. "LIQUIDATION PRICE" measured per share of the Series C Preferred Stock as of the date in question (the "DETERMINATION DATE"), shall mean an amount equal to the sum of (a) $200.00, as appropriately adjusted to take into account any stock splits, reverse splits and the like occurring after the Filing Date, plus (b) an amount equal to all dividends which have theretofore been declared but which are unpaid as of the Determination Date on such share of Series C Preferred Stock. In connection with the determination of the Liquidation Price of a share of Series C Preferred Stock upon any liquidation, dissolution or winding up of the Corporation, the Determination Date shall be -2- the record date for the distribution of amounts payable to stockholders in connection with any such liquidation, dissolution or winding up. "SERIES A COMMON STOCK" shall mean the Series A Common Stock, par value $.01 per share, of the Corporation. 2. Dividends. --------- (a) Dividend Rights; Dividend Payment Dates. Subject to the --------------------------------------- prior preferences and other rights of any Senior Stock and the provisions of Article IV of the Certificate and Article II of the Certificate of Designation, the holders of Series C Preferred Stock shall be entitled to receive, when, as and if declared by the Board, in its discretion, but prior and in preference to any declaration or payment of dividends on any Junior Stock, out of unrestricted funds legally available therefor, quarterly cash dividends per share at the rate of 10.0% per annum of the Issue Price (the "SERIES C PREFERRED DIVIDEND"). The Series C Preferred Dividend shall be noncumulative; that is, the Series C Preferred Dividend shall be paid only when, as and if declared by the Board, it being intended that a Series C Preferred Dividend not declared in any quarter will not be carried over to a future quarter. (b) Dividends on Junior Stock. In addition, following the ------------------------- payment of the Series C Preferred Dividend for any period, in the event that the Board proposes, subject to the provisions of this paragraph, to declare or pay a dividend on any Junior Stock in cash or consisting of assets, property or securities other than Common Stock, then the holders of Series C Preferred Stock shall be entitled to receive, when and as declared by the Board, an additional dividend amount (the "SERIES C PARTICIPATING DIVIDEND") determined as follows: (i) in the event that a dividend is declared with respect to Junior Stock (other than Common Stock (or any other security that is convertible into, or exercisable or exchangeable for, Common Stock)), the Series C Participating Dividend payable to the holders of the Series C Preferred Stock shall equal an amount per share equal to the dividend to be paid on each share or other unit of Junior Stock multiplied by a fraction, the numerator of which is the Liquidation Price of a share of Series C Preferred Stock and the denominator of which is the lowest of (x) the Liquidation Price (if applicable), (y) the redemption price (if applicable) and (z) the price at which such share or unit was originally purchased (as adjusted for stock splits, stock dividends and the like occurring after the Filing Date), of a share or other unit of such Junior Stock; or (ii) in the event that a dividend is declared with respect to Junior Stock which is Common Stock or such Junior Stock is convertible into, or exercisable or exchangeable for, Common Stock, then the amount of the Series C Participating Dividend per share of Series C Preferred Stock shall be (x) (1) the amount of the dividend to be paid on a single share of Common Stock, or (2) if such Junior Stock is convertible into, or exercisable or exchangeable for, Common Stock, such amount as would be payable on each share of Common Stock into which such Junior Stock is convertible into or exercisable or exchangeable for, multiplied by (y) the number of shares of Common Stock into which a share of Series C Preferred Stock may then be converted. Dividends payable on the Series C Preferred Stock shall be calculated on the basis of a 360-day year of twelve 30-day months. Dividends on the -3- Series C Preferred Stock will be payable, as provided in paragraph 2(e) below, to the holders of record of the Series C Preferred Stock as of the close of business on the Record Date for such dividend payment. (c) Dividends on Parity Stock. So long as any shares of ------------------------- Series C Preferred Stock are outstanding and dividends on such shares of Series C Preferred Stock have not been (or are not contemporaneously) declared and paid in full for the two immediately preceding Dividend Periods, no dividends shall be declared or paid or set apart for payment by the Corporation upon any Convertible Preferred Stock or Parity Stock; provided, however, that a dividend may be declared and paid (regardless of -------- ------- whether such dividends have been paid for any preceding Dividend Period) pro rata with respect to all Series C Preferred Stock, Convertible Preferred Stock and Parity Stock then outstanding such that the amounts of any dividends declared per share on the Series C Preferred Stock and such Convertible Preferred Stock and Parity Stock shall in all cases bear to each other the same ratio that (i) the Series C Preferred Dividend (assuming such dividend had been declared by the Board) and, if applicable, any Series C Participating Dividend (collectively, the "SERIES C FULL DIVIDEND") per share of Series C Preferred Stock for the then-current Dividend Period, (ii) the Convertible Full Dividend per share of Convertible Preferred Stock, and (iii) dividends on shares of such other Parity Stock for the then-current Dividend Period (excluding any accumulated or accrued dividends on such Parity Stock), respectively, bear to each other. (d) Other Limitations on Dividends and Repurchases. If the ----------------------------------------------- Series C Full Dividend has not been declared and paid or set apart for payment for the Dividend Payment Date falling in the then-current Dividend Period, then, with respect to such then-current Dividend Period, (i) the Corporation shall not declare or pay any dividend on, or make any distribution with respect to, any Junior Stock or set aside any money or assets for such purpose and (ii) the Corporation shall not repurchase, redeem or otherwise acquire for value any shares of its Junior Stock, any equity securities of any Subsidiary of the Corporation or any options, warrants or other rights to acquire such securities; provided, however, -------- ------- that the Corporation may at any time, out of funds legally available therefor, make any Permitted Repurchase. (e) Special Record Date. Dividends may be declared and paid ------------------- at any time (subject to the rights of any Senior Stock and, if applicable, to the concurrent satisfaction of any dividend arrearages then existing with regard to any Convertible Preferred Stock and any Parity Stock which ranks on a parity basis with the Series C Preferred Stock as to the payment of dividends) without reference to the regular Dividend Payment Date, to holders of record as of the close of business on any Special Record Date. Notice of each Special Record Date shall be given, not more than 45 days nor less than 10 days prior thereto, to the holders of record of the shares of Series C Preferred Stock. (f) Pro Rata Payment. All dividends paid with respect to ---------------- the shares of Series C Preferred Stock pursuant to this paragraph 2 shall be paid pro rata to all -4- the holders of shares of Series C Preferred Stock outstanding on the applicable Record Date or Special Record Date, as the case may be. 3. Distributions Upon Liquidation, Dissolution or Winding Up. --------------------------------------------------------- Subject to the prior payment in full of the preferential amounts to which any Senior Stock is entitled, in the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of Series C Preferred Stock shall be entitled to receive from the assets of the Corporation available for distribution to stockholders, before any payment or distribution shall be made to the holders of any Junior Stock, an amount in cash (and, to the extent sufficient cash is not available for such payment, property at its fair market value) per share, equal to the Liquidation Price of such share of Series C Preferred Stock as of the date of payment or distribution, which payment or distribution shall be made pari passu with any such payment or distribution made to the ---- ----- holders of any Convertible Preferred Stock and any Parity Stock ranking on a parity basis with the Series C Preferred Stock with respect to distributions upon liquidation, dissolution or winding up of the Corporation. The holders of Series C Preferred Stock shall be entitled to no other or further distribution of or participation in any remaining assets of the Corporation after receiving the Liquidation Price per share. If, upon distribution of the Corporation's assets in liquidation, dissolution or winding up, the assets of the Corporation to be distributed among the holders of the Series C Preferred Stock, the Convertible Preferred Stock and all holders of any Parity Stock ranking on a parity basis with the Series C Preferred Stock with respect to distributions upon liquidation, dissolution or winding up shall be insufficient to permit payment in full to such holders of the respective preferential amounts to which they are entitled, then the entire assets of the Corporation to be distributed to holders of the Series C Preferred Stock, the Convertible Preferred Stock and such Parity Stock shall be distributed pro rata to such holders based upon the aggregate of the full preferential amounts to which the shares of Series C Preferred Stock, Convertible Preferred Stock and such Parity Stock would otherwise respectively be entitled. In the event of (i) a consolidation or merger of the Corporation with or into any other corporation or other entity in which the holders of all of the Corporation's outstanding shares of capital stock immediately before the effectiveness of such transaction do not, immediately after the effectiveness of such transaction, own capital stock representing a majority of the voting power of the surviving corporation or other entity of such transaction (or the immediate parent of such surviving corporation or other entity), or (ii) a sale of all or substantially all of the assets of the Corporation other than in connection with a Related Business Transaction (as defined below), the holders of a majority of the outstanding shares of Series C Preferred Stock, voting separately as a series (or consenting in writing), shall be entitled to deem, solely as to the Series C Preferred Stock, such merger, consolidation or sale of assets to be a liquidation, dissolution or winding up of the Corporation within the meaning of this paragraph 3, provided, that written notice of such vote or such written consents must be received by the Corporation at least five (5) days prior to the effectiveness of such transaction; and provided further, that the Corporation shall have provided holders of Series C Preferred Stock with the notice required to be delivered to them pursuant to paragraph 6(h) below of such deemed liquidation, dissolution or winding up of the -5- Corporation. For purposes of this Certificate, a "RELATED BUSINESS TRANSACTION" shall mean any sale or other disposition of all or substantially all of the properties and assets of the Corporation in which (i) the Corporation receives as proceeds of such disposition primarily equity securities (including, without limitation, capital stock, convertible securities, partnership or limited partnership interests and other types of equity securities, without regard to the voting power or contractual or other management or governance rights related to such equity securities) of the purchaser or acquiror of such properties and assets of the Corporation, including but not limited to any entity which succeeds (by merger, formation of a joint venture enterprise or otherwise) to such properties and assets of the Corporation (or the immediate parent of such purchaser or acquiror), and (ii) the securities received by the Corporation, immediately after the effectiveness of such transaction, have a majority of the voting power of the purchaser or acquiror of such properties and assets of the Corporation, including but not limited to any entity which succeeds (by merger, formation of a joint venture enterprise or otherwise) to such properties and assets of the Corporation (or the immediate parent of such purchaser or acquiror). Notice of the liquidation, dissolution or winding up of the Corporation shall be given, not less than 20 days prior to the date on which such liquidation, dissolution or winding up or merger or sale of assets is expected to take place or become effective, to the holders of record of the shares of Series C Preferred Stock, during which 20 day period such holders shall continue to be entitled to exercise their conversion rights as set forth in paragraph 6 of this Article II. 4. [Intentionally omitted] 5. Status of Reacquired Series C Preferred Stock. In the event --------------------------------------------- that the Corporation repurchases or otherwise reacquires shares of Series C Preferred Stock, such shares shall be retired and shall not be reissued. 6. Conversion. ---------- (a) Optional and Mandatory Conversion. Each outstanding ---------------------------------- share of Series C Preferred Stock shall be convertible at the option of the holder at any time into fully paid and non-assessable full shares of Series A Common Stock at the then effective Conversion Rate (as defined below) for such shares. In addition, subject to the receipt of any required regulatory consents or approvals or the filing of any required notices with any governmental entities and the expiration of any waiting period related thereto, the holders of all shares of Series C Preferred Stock that are outstanding immediately prior to the IPO shall be deemed to have converted such shares into shares of Series A Common Stock immediately prior to the IPO (after giving effect to the adjustments in this paragraph 6 (such conversion upon the IPO is referred to herein as the "MANDATORY CONVERSION"). All such conversions of Series C Preferred Stock shall be effected in such manner and upon such terms and conditions as hereinafter provided in this paragraph 6. In case cash, securities or property other than Series A Common Stock shall be payable, deliverable or issuable upon conversion as provided herein, then all references to Series A Common Stock in this paragraph 6 shall be deemed to apply, so far as appropriate and as nearly as may be, to such cash, property or other securities. -6- Notwithstanding anything to the contrary in this Article II, subject to the provisions for adjustment hereinafter set forth in this paragraph 6, any provisions in this Article II that refer to a conversion of the Series C Preferred Stock shall mean the conversion of the Series C Preferred Stock into the Series A Common Stock. (b) Conversion Rate and Conversion Price. Subject to the ------------------------------------- provisions for adjustment hereinafter set forth in this paragraph 6, the Series C Preferred Stock may be converted into Series A Common Stock at a conversion rate of that number of fully paid and non-assessable shares of Series A Common Stock for each share of Series C Preferred Stock so converted that is equal to the Issue Price of the Series C Preferred Stock divided by the Conversion Price determined in accordance with this paragraph 6. This conversion rate as from time to time adjusted cumulatively pursuant to the provisions of this paragraph 6 is hereinafter referred to as the "CONVERSION RATE." (c) Adjustments for Stock Splits, Stock Dividends, Etc. In --------------------------------------------------- case after the Filing Date the Corporation shall (i) pay a dividend or make a distribution on its outstanding shares of Series A Common Stock in shares of its Common Stock, (ii) subdivide the then outstanding shares of Series A Common Stock into a greater number of shares of Series A Common Stock, (iii) combine the then outstanding shares of Series A Common Stock into a smaller number of shares of Series A Common Stock, or (iv) issue by reclassification of its shares of Series A Common Stock any shares of any other class of capital stock of the Corporation (including any such reclassification in connection with a merger in which the Corporation is the continuing corporation), then the Conversion Price in effect immediately prior to the opening of business on the record date for such dividend or distribution or the effective date of such subdivision, combination or reclassification shall be adjusted so that the holder of each share of the Series C Preferred Stock thereafter surrendered for conversion shall be entitled to receive the number and kind of shares of capital stock of the Corporation that such holder would have owned or been entitled to receive immediately following such action had such shares of Series C Preferred Stock been converted immediately prior to such time into shares of Series A Common Stock. An adjustment made pursuant to this paragraph 6(c) for a dividend or distribution shall become effective immediately after the record date for the dividend or distribution and an adjustment made pursuant to this paragraph 6(c) for a subdivision, combination or reclassification shall become effective immediately after the effective date of the subdivision, combination or reclassification. Such adjustment shall be made successively whenever any action listed above shall be taken. (d) Adjustments for Reclassification, Merger, Etc. In case ---------------------------------------------- of any reclassification or change in the Series A Common Stock (other than any reclassification or change referred to in paragraph 6(c) and other than a change in par value) or in case of any consolidation of the Corporation with any other corporation or any merger of the Corporation into another corporation or of another corporation into the Corporation (other than a merger in which the Corporation is the continuing corporation and which does not result in any reclassification or change (other than a change in par value or any reclassification or change to which paragraph 6(c) is applicable) in the outstanding Series A Common Stock), or in case of any sale or transfer to another -7- corporation or entity (other than by mortgage or pledge) of all or substantially all of the properties and assets of the Corporation, in any such case after the Filing Date, the Corporation (or its successor in such consolidation or merger) or the purchaser of such properties and assets shall make appropriate provision so that the holder of a share of the Series C Preferred Stock shall have the right thereafter to convert such share into the kind and amount of shares of stock and other securities and property that such holder would have owned immediately after such reclassification, change, consolidation, merger, sale or transfer if such holder had converted such share into Series A Common Stock, immediately prior to the effective date of such reclassification, change, consolidation, merger, sale or transfer (assuming for this purpose (to the extent applicable) that such holder failed to exercise any rights of election and received per share of Series A Common Stock the kind and amount of shares of stock and other securities and property received per share by a plurality of the non-electing shares), and the holders of the Series C Preferred Stock shall have no other conversion rights under these provisions; provided, that effective provision shall be made, in the Articles or Certificate of Incorporation of the resulting or surviving corporation or otherwise or in any contracts of sale or transfer, so that the provisions set forth herein for the protection of the conversion rights of the Series C Preferred Stock shall thereafter be made applicable, as nearly as reasonably may be to any such other shares of stock and other securities and property deliverable upon conversion of the Series C Preferred Stock remaining outstanding or other convertible preferred stock or other Convertible Securities received by the holders of Series C Preferred Stock in place thereof; and provided, further, that any such resulting or surviving corporation or purchaser shall expressly assume the obligation to deliver, upon the exercise of the conversion privilege, such shares, securities or property as the holders of the Series C Preferred Stock remaining outstanding, or other convertible preferred stock or other convertible securities received by the holders in place thereof, shall be entitled to receive pursuant to the provisions hereof, and to make provisions for the protection of the conversion rights as above provided. (e) Sale of Shares Below Conversion Price. ------------------------------------- (i) Adjustment Upon IPO. If the Corporation issues or ------------------- sells shares of Series A Common Stock in the IPO for an IPO Effective Price (as hereinafter defined) that is less than the Conversion Price for the Series C Preferred Stock, then, and in such case, the Conversion Price for the Series C Preferred Stock that is in effect immediately prior to the IPO shall be reduced, immediately prior to the IPO, to the IPO Effective Price at which such shares of Series A Common Stock are so issued or sold upon the IPO. The "IPO EFFECTIVE PRICE" at which shares of Series A Common Stock sold by the Corporation upon the IPO shall mean the quotient determined by dividing the total number of shares of Series A Common Stock which are sold by the Corporation upon the IPO, into the Aggregate Consideration Received by the Corporation for the issue of such shares of Series A Common Stock. The "AGGREGATE CONSIDERATION RECEIVED" by the Corporation for Series A Common Stock in the IPO shall be computed at the gross amount of cash received by the Corporation before deduction of any underwriting or similar commissions, compensation or concessions paid or allowed by -8- the Corporation in connection with such issue or sale and without deduction of any expenses payable by the Corporation. (ii) Weighted Average Adjustment Formula. If at any ----------------------------------- time or from time to time after the Filing Date the Corporation issues or sells, or is deemed by the provisions of this paragraph 6(e) to have issued or sold, Additional Shares of Series A Common Stock (as hereinafter defined), otherwise than in connection with an action as provided in paragraph 6(c) or a reclassification, merger, IPO, other change or issuance as provided in paragraph 6(d), at an Effective Price (as hereinafter defined) that is less than the Conversion Price for the Series C Preferred Stock in effect immediately prior to such issue or sale, then and in each such case, the Conversion Price for the Series C Preferred Stock shall be reduced, as of the close of business on the date of such issue or sale, to the price obtained by multiplying such Conversion Price by a fraction (x) the numerator of which shall be the sum of (I) the number of Series A Common Stock Equivalents Outstanding (as hereinafter defined) immediately prior to such issue or sale of Additional Shares of Series A Common Stock plus (II) the quotient obtained by dividing the Aggregate Consideration Received (as hereinafter defined) by the Corporation for the total number of Additional Shares of Series A Common Stock so issued or sold (or deemed so issued and sold), by the Conversion Price for the Series C Preferred Stock in effect immediately prior to such issue or sale and (y) the denominator of which shall be the sum of (I) the number of Series A Common Stock Equivalents Outstanding immediately prior to such issue or sale plus (II) the number of Additional Shares of Series A Common Stock so issued or sold (or deemed so issued and sold). (iii) Certain Definitions. For the purpose of making ------------------- any adjustment required under this paragraph 6(e): (A) "Additional Shares of Series A Common ------------------------------------ Stock" shall mean all shares of Series A Common Stock issued by the ----- Corporation, other than: (I) shares of Series B Common Stock issuable upon conversion of shares of Series T Preferred, shares of Series A Common Stock issued or issuable upon conversion of shares of Series B Common Stock, Series K Common Stock, Series AM Preferred Stock, Series AT Preferred Stock, Series AX Preferred Stock or Series C Preferred Stock, shares of Series K Common Stock issued or issuable upon the conversion of shares of Series K Preferred, or any other shares of Series A Common Stock issuable upon conversion or exercise of any subscription, option, warrant, right, convertible security or other agreement, instrument, or commitment of any character that is outstanding immediately after the date on which shares of Series C Preferred Stock are first issued obligating (contingently or absolutely) the Corporation to issue or sell any shares of Series A Common Stock; (II) shares of Series A Common Stock (or options, warrants or rights therefor) or other capital stock of the Corporation issued to employees, officers, or directors of, or contractors, consultants, lenders, vendors or advisors to, the Corporation, or to other persons with a similar business relationship to the Corporation pursuant to stock purchase or stock option plans, stock bonuses or awards, warrants, contracts or other arrangements that are approved by the Board; (III) any options, stock or other -9- securities issued by the Corporation to a business or corporation, or to principals, officers, directors or stockholders of such business or corporation (whether or not they are subsequently employed by the Corporation), in connection with a joint venture or business combination or the acquisition of another corporation, business, product or technology or distribution commitment by the Corporation, whether by merger, purchase of assets or stock, reorganization, or similar transaction, if approved by the Board; and (IV) securities issued in a transaction which is not otherwise included in (I), (II) or (III) above if the holders of a majority of the outstanding Series C Preferred Stock agree in writing that the issuance of such securities shall not result in an adjustment to the Conversion Price. Notwithstanding the provision of clause (II) above, for purposes of clause (II) above, Additional Shares of Series A Common Stock shall include shares of Series A Common Stock or options, warrants or rights to acquire shares of Series A Common Stock which are issued primarily for the purpose of raising equity capital to fund the business of the Corporation, but shall not include any such issuances made to provide inducements in connection with bona fide debt financing transactions with banks, savings and loan associations or other institutional lenders. (B) The "Aggregate Consideration Received" by the -------------------------------- Corporation for any issue or sale (or deemed issue or sale) of securities shall (I) to the extent it consists of cash, be computed at the gross amount of cash received by the Corporation before deduction of any underwriting, broker, placement agency or similar commissions, compensation or concessions paid or allowed by the Corporation in connection with such issue or sale and without deduction of any expenses payable by the Corporation; (II) to the extent it consists of property other than cash, be computed at the fair value of that property as determined in good faith by the Board; and (III) if Additional Shares of Series A Common Stock, Convertible Securities or Rights or Options to purchase either Additional Shares of Series A Common Stock or Convertible Securities are issued or sold together with other stock or securities or other assets of the Corporation for a consideration which covers both, be computed as the portion of the consideration so received that may be reasonably determined in good faith by the Board to be allocable to such Additional Shares of Series A Common Stock, Convertible Securities or Rights or Options. (C) "Series A Common Stock Equivalents --------------------------------- Outstanding" shall mean the number of shares of Series A Common Stock that ----------- is equal to the sum of (I) all shares of Series A Common Stock of the Corporation that are outstanding at the time in question, plus (II) all shares of Series A Common Stock of the Corporation issuable upon conversion of all shares of Preferred Stock or other Convertible Securities that are outstanding at the time in question, plus (III) all shares of Series A Common Stock of the Corporation that are issuable upon the exercise of Rights or Options that are outstanding at the time in question assuming the full conversion or exchange into Series A Common Stock of all such Rights or Options that are Rights or Options to purchase or acquire Convertible Securities convertible into or exchangeable for Series A Common Stock. -10- (D) "Convertible Securities" shall mean stock or ---------------------- other securities convertible directly or indirectly into or exchangeable for shares of Series A Common Stock. (E) The "Effective Price" of Additional Shares of --------------- Series A Common Stock shall mean the quotient determined by dividing the total number of Additional Shares of Series A Common Stock issued or sold, or deemed to have been issued or sold, by the Corporation under this paragraph (e), into the Aggregate Consideration Received, or deemed to have been received, by the Corporation under this paragraph (e), for this issue of such Additional Shares of Series A Common Stock; and (F) "Rights or Options" shall mean warrants, ----------------- options or other rights to purchase or acquire shares of Series A Common Stock or Convertible Securities. (iv) Deemed Issuances. For the purpose of making any ---------------- adjustment to the Conversion Price of the Series C Preferred Stock required under this paragraph (e), if the Corporation issues or sells any Rights or Options or Convertible Securities and if the Effective Price of the shares of Series A Common Stock issuable upon exercise of such Rights or Options and/or the conversion or exchange of Convertible Securities (computed without reference to any additional or similar protective or antidilution clauses) is less than the Conversion Price then in effect for the Series C Preferred Stock, then the Corporation shall be deemed to have issued, at the time of the issuance of such Rights or Options or Convertible Securities, that number of Additional Shares of Series A Common Stock that is equal to the maximum number of shares of Series A Common Stock issuable upon exercise or conversion of such Rights or Options or Convertible Securities upon their issuance and to have received, as the Aggregate Consideration Received for the issuance of such shares, an amount equal to the Aggregate Consideration Received, if any, by the Corporation for the issuance of such Rights or Options or Convertible Securities, plus, in the case of such Rights or Options, the minimum amount of consideration, if any, payable to the Corporation upon the exercise in full of such Rights or Options, plus, in the case of Convertible Securities, the minimum amounts of consideration, if any, payable to the Corporation (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) upon the conversion or exchange thereof; provided that: -------- ---- (A) if the minimum amounts of such consideration cannot be ascertained, but are a function of antidilution or similar protective clauses, then the Corporation shall be deemed to have received the minimum amounts of consideration without reference to such clauses; (B) if the minimum amount of consideration payable to the Corporation upon the exercise of Rights or Options or the conversion or exchange of Convertible Securities is reduced over time or upon the occurrence or non-occurrence of specified events other than by reason of antidilution or similar protective -11- adjustments, then the Effective Price shall be recalculated using the figure to which such minimum amount of consideration is reduced; and (C) if the minimum amount of consideration payable to the Corporation upon the exercise of such Rights or Options or the conversion or exchange of Convertible Securities is subsequently increased, then the Effective Price shall again be recalculated using the increased minimum amount of consideration payable to the Corporation upon the exercise of such Rights or Options or the conversion or exchange of such Convertible Securities. No further adjustment of the Conversion Price, adjusted upon the issuance of such Rights or Options or Convertible Securities, shall be made as a result of the actual issuance of shares of Series A Common Stock on the exercise of any such Rights or Options or the conversion or exchange of any such Convertible Securities. If any such Rights or Options or the conversion rights represented by any such Convertible Securities shall expire without having been fully exercised, then the Conversion Price as adjusted upon the issuance of such Rights or Options or Convertible Securities shall be readjusted to the Conversion Price which would have been in effect had an adjustment been made on the basis that the only shares of Series A Common Stock so issued were the shares of Series A Common Stock, if any, that were actually issued or sold on the exercise of such Rights or Options or rights of conversion or exchange of such Convertible Securities, and such shares of Series A Common Stock, if any, were issued or sold for the consideration actually received by the Corporation upon such exercise, plus the consideration, if any, actually received by the Corporation for the granting of all such Rights or Options, whether or not exercised, plus the consideration received for issuing or selling all such Convertible Securities actually converted or exchanged, plus the consideration, if any, actually received by the Corporation (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) on the conversion or exchange of such Convertible Securities, provided that such readjustment shall not apply to prior conversions of Series C Preferred Stock. (f) Notice of Adjustments in Conversion Rates. Whenever the ------------------------------------------ Conversion Price or the Conversion Rate or the conversion privilege shall be adjusted as provided in paragraphs 6(c) or (d), the Corporation shall promptly cause a notice to be mailed to the holders of record of the Series C Preferred Stock describing the nature of the event requiring such adjustment, the Conversion Price and Conversion Rate in effect immediately thereafter and the kind and amount of stock or other securities or property into which the Series C Preferred Stock shall be convertible after such event. Where appropriate, such notice may be given in advance and included as a part of a notice required to be mailed under the provisions of paragraph 6(g). (g) Calculation and Timing of Adjustments. The Corporation -------------------------------------- may, but shall not be required to, make any adjustment of the Conversion Price if such adjustment would require an increase or decrease of less than 1% in such Conversion Price; provided, however, that any adjustments which by reason of this paragraph 6(f) are not required to be made shall be carried forward and taken into account in any subsequent -12- adjustment. All calculations under this paragraph 6 shall be made to the nearest 1/100th of a share. In any case in which this paragraph 6(f) shall require that an adjustment shall become effective immediately after a record date for such event, the Corporation may defer until the occurrence of such event (x) issuing to the holder of any shares of Series C Preferred Stock converted after such record date and before the occurrence of such event the additional shares of Series A Common Stock or other capital stock issuable upon such conversion by reason of the adjustment required by such event over and above the shares of Series A Common Stock or other capital stock issuable upon such conversion before giving effect to such adjustment and (y) paying to such holder cash in lieu of any fractional interest to which such holder is entitled pursuant to paragraph 6(l); provided, however, that, if requested by such holder, the Corporation shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares of Series A Common Stock or other capital stock, and such cash, upon the occurrence of the event requiring such adjustment. (h) Notice of Certain Events. In case at any time: ------------------------- (i) the Corporation shall take any action which would require an adjustment in the Conversion Price or Conversion Rate pursuant to this paragraph 6; (ii) there shall be any capital reorganization or reclassification of the Common Stock (other than a change in par value), or any consolidation or merger to which the Corporation is a party and for which approval of any stockholders of the Corporation is required, or any sale, transfer or lease of all or substantially all of the properties and assets of the Corporation, or a tender offer for shares of Common Stock representing at least a majority of the total voting power represented by the outstanding shares of Common Stock which has been recommended by the Board as being in the best interests of the holders of Common Stock; or (iii) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation, including without limitation any consolidation or merger, or sale of all or substantially all of the assets of the Corporation, that could entitle a holder of Series C Preferred Stock to treat such transaction as a liquidation under the provisions of paragraph 3; then, in any such event, the Corporation shall give written notice to the holders of the Series C Preferred Stock at their respective addresses as the same appear on the books of the Corporation, at least twenty days (or ten days in the case of a recommended tender offer as specified in clause (ii) above) prior to any record date for such action, dividend or distribution or the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property, if any, deliverable upon such reorganization, reclassification, consolidation, merger, sale, transfer, lease, tender offer, dissolution, liquidation or winding up, during which period such holders may exercise their conversion rights; provided, however, that -13- any notice required by any event described in clause (ii) of this paragraph 6(g) shall be given in the manner and at the time that such notice is given to the holders of Common Stock. Without limiting the obligations of the Corporation to provide notice of corporate actions hereunder, the failure to give the notice required by this paragraph 6(g) or any defect therein shall not affect the legality or validity of any such corporate action of the Corporation or the vote upon such action. (i) Procedures for Conversion. Before any holder of Series -------------------------- C Preferred Stock shall be entitled to convert the same into Series A Common Stock (or, in the case of the Mandatory Conversion, before any holder of Series C Preferred Stock so converted shall be entitled to receive a certificate or certificates evidencing the shares of Series A Common Stock issuable upon such conversion), such holder shall surrender the certificate or certificates for such Series C Preferred Stock at the office of the Corporation or at the office of the transfer agent for the Series C Preferred Stock, which certificate or certificates, if the Corporation shall so request, shall be duly endorsed to the Corporation or in blank or accompanied by proper instruments of transfer to the Corporation or in blank (such endorsements or instruments of transfer to be in form satisfactory to the Corporation), and shall give written notice to the Corporation at said office that such holder elects to convert all or a part of the shares represented by said certificate or certificates (or, in the case of the Mandatory Conversion, that such holder is surrendering the same) in accordance with the terms of this paragraph 6, and shall state in writing therein the name or names in which such holder wishes the certificates for Series A Common Stock to be issued. Every such notice of election to convert shall constitute a contract between the holder of such Series C Preferred Stock and the Corporation, whereby the holder of such Series C Preferred Stock shall be deemed to subscribe for the amount of Series A Common Stock which such holder shall be entitled to receive upon conversion of the number of shares of Series C Preferred Stock to be converted, and, in satisfaction of such subscription, to deposit the shares of Series C Preferred Stock to be converted, and thereby the Corporation shall be deemed to agree that the surrender of the shares of Series C Preferred Stock to be converted shall constitute full payment of such subscription for Series A Common Stock to be issued upon such conversion. The Corporation will as soon as practicable after such deposit of a certificate or certificates for Series C Preferred Stock, accompanied by the written notice and the statement above prescribed, issue and deliver at the office of the Corporation or of said transfer agent to the Person for whose account such Series C Preferred Stock was so surrendered, or to his nominee(s) or, subject to compliance with applicable law, transferee(s), a certificate or certificates for the number of full shares of Series A Common Stock to which such holder shall be entitled, together with cash in lieu of any fraction of a share as hereinafter provided together with an amount in cash equal to the full amount of any cash dividend declared (or required to be declared) on the Series C Preferred Stock which, as of the date of such conversion, remains unpaid (provided that the Corporation will use commercially reasonable efforts to make such delivery within two Business Days after such deposit and such notice and statement). If surrendered certificates for Series C Preferred Stock are converted only in part, the Corporation will issue and deliver to the holder, or to his nominee(s), without charge therefor, a new certificate or certificates representing the -14- aggregate of the unconverted shares. Such conversion shall be deemed to have been made as of the date of such surrender of the Series C Preferred Stock to be converted or immediately prior to the Mandatory Conversion; and the Person or Persons entitled to receive the Series A Common Stock issuable upon conversion of such Series C Preferred Stock shall be treated for all purposes as the record holder or holders of such Series A Common Stock on such date; provided, however, that the conversion may, at the -------- ------- option of any holder surrendering Series C Preferred Stock for conversion, be conditioned upon the IPO or upon notice by such holder to the Corporation of the occurrence of any other specified event, as the case may be. (j) Transfer Taxes. The issuance of certificates for shares --------------- of Series A Common Stock upon conversion of shares of Series C Preferred Stock shall be made without charge for any issue, stamp or other similar tax in respect of such issuance, provided, however, if any such certificate is to be issued in a name other than that of the registered holder of the share or shares of Series C Preferred Stock converted, the Person or Persons requesting the issuance thereof shall pay to the Corporation the amount of any tax which may be payable in respect of any transfer involved in such issuance or shall establish to the satisfaction of the Corporation that such tax has been paid. (k) Reservation of Shares. The Corporation shall reserve ---------------------- and keep available at all times thereafter, solely for the purpose of issuance upon conversion of the outstanding shares of Series C Preferred Stock, such number of shares of Series A Common Stock as shall be issuable upon the conversion of all outstanding shares of Series C Preferred Stock, provided that nothing contained herein shall be construed to preclude the Corporation from satisfying its obligations in respect of the conversion of the outstanding shares of Series C Preferred Stock by delivery of shares of Series A Common Stock which are held in the treasury of the Corporation. The Corporation shall take all such corporate and other actions as from time to time may be necessary to insure that all shares of Series A Common Stock issuable upon conversion of shares of outstanding Series C Preferred Stock at the Conversion Rate in effect from time to time will, upon issue, be duly and validly authorized and issued, fully paid and nonassessable and free of any preemptive or similar rights. (l) Retirement of Series C Preferred Stock. All shares of --------------------------------------- Series C Preferred Stock received by the Corporation upon conversion thereof into Series A Common Stock shall be retired and shall not be reissued. All shares of Series C Preferred Stock that are authorized but unissued as of the IPO shall be retired as of the IPO and the Mandatory Conversion and shall not be reissued, and the Corporation shall use its best efforts to file a certificate of elimination to eliminate all matters set forth in the certificate of incorporation of the Corporation with respect to the Series C Preferred Stock. (m) Payment in Lieu of Fractional Shares. The Corporation ------------------------------------- shall not be required to issue fractional shares of Series A Common Stock or scrip upon conversion of the Series C Preferred Stock. As to any final fraction of a share of Series A Common Stock which a holder of one or more shares of Series C Preferred Stock would -15- otherwise be entitled to receive upon conversion of such shares in the same transaction, the Corporation shall pay a cash adjustment in respect of such final fraction in an amount equal (I) if the Corporation is a Public Company, to the same fraction of the market value of a full share of Series A Common Stock or (II) if the Corporation is not a Public Company, to the same fraction of the fair market value of a share of Series A Common Stock as determined in good faith by the Board. For the purpose of any computation under this paragraph 6 requiring the determination of the current market value per share of Series A Common Stock, if the Corporation is a Public Company, such value at any date shall be deemed to be the average of the daily closing prices for a share of Series A Common Stock for the ten (10) consecutive trading days before the day in question. The closing price for each day shall be the last reported sale price regular way or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case on the composite tape, or if the shares of Series A Common Stock are not quoted on the composite tape, on the principal United States securities exchange registered under the Exchange Act, on which the shares of Series A Common Stock are listed or admitted to trading, or if they are not listed or admitted to trading on any such exchange, the last reported sale price (or the average of the quoted closing bid and asked prices if there were no reported sales) as reported by the National Association of Securities Dealers Automated Quotation System ("NASDAQ") or any comparable system, or if the Series A Common Stock is not quoted on Nasdaq or any comparable system, the average of the closing bid and asked prices as furnished by any member of the National Association of Securities Dealers, Inc. selected from time to time by the Corporation for that purpose or, in the absence of such quotations, such other method of determining market value as the Board shall from time to time deem to be fair. (n) Regulatory Matters. If any shares of Series A Common ------------------ Stock which would be issuable upon conversion of shares of Series C Preferred Stock require registration with or approval of any governmental authority before such shares may be issued upon conversion, the Corporation will in good faith and as expeditiously as possible cause such shares to be duly registered or approved, as the case may be. Without limiting the foregoing, if the conversion of shares of Series C Preferred Stock shall be subject to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder (the "HSR ACT AND RULES"), the Corporation shall promptly comply with any applicable filing or notice requirements under the HSR Act and Rules and use its reasonable commercial efforts to furnish the information required in connection therewith to the Federal Trade Commission and the Antitrust Division of the Department of Justice. If applicable, the Corporation shall use its reasonable commercial efforts to list the shares of Series A Common Stock issuable upon conversion of the Series C Preferred Stock prior to delivery of such shares of Series A Common Stock upon such conversion, on the principal national securities exchange (including, but not limited to, the Nasdaq National Market) on which the outstanding Series A Common Stock is listed at the time of such delivery. 7. VOTING. ------ -16- (a) General Voting Rights. In connection with any matter as --------------------- to which the holders of Common Stock are entitled to vote including, but not limited to, the election of Common Stock Directors, each share of Series C Preferred Stock issued and outstanding as of the record date for such meeting shall have (and the holder of record thereof shall be entitled to cast) the number of votes equal to the number of votes such holder would have been entitled to cast had it converted its shares of Series C Preferred Stock into shares of Series A Common Stock immediately prior to the record date for the determination of stockholders entitled to vote upon such matter. Except as provided below and in paragraph 1 of Section B of Article IV and paragraphs 7(b) and 7(c) of Section C of Article IV of the Certificate and except as otherwise may be required by law, the holders of Common Stock, the holders of Convertible Preferred Stock, the holders of Series C Preferred Stock, and the holders of any other series of Series Preferred Stock shall be entitled to notice of and to attend any meeting of stockholders and to vote together as a single class. (b) Election of Series C Preferred Director. --------------------------------------- (i) The holders of the Series C Preferred Stock, voting separately as a single series, shall have the exclusive right, acting by written consent given in accordance with paragraph 7(b)(vi) below or by vote at a meeting called for that purpose, to elect one director to the Board so long as there are at least 100,000 shares of Series C Preferred Stock (as adjusted for stock splits, stock dividends and the like occurring after the Filing Date) outstanding (such director elected by the holders of the Series C Preferred Stock is hereinafter referred to as the "SERIES C PREFERRED STOCK DIRECTOR"). (ii) The Series C Preferred Stock Director will be that person elected, by written consent given in accordance with paragraph 7(b)(vi) below or by vote at a meeting called for that purpose, of the holders of the Series C Preferred Stock entitled to vote for such director. (iii) At any meeting having as a purpose the election of a director by holders of the Series C Preferred Stock, the presence, in person or by proxy, of the holders of a majority of shares of Series C Preferred Stock entitled to vote in such election then outstanding shall be required and be sufficient to constitute a quorum of such series for the election of any director by such holders. The Series C Preferred Stock Director to be elected at such meeting shall be elected by a plurality of the votes of the shares of Series C Preferred Stock present in person or represented by proxy at such meeting and entitled to vote in the election of such Series C Preferred Stock Director or by written consent of the holders of the shares of Series C Preferred Stock given in accordance with paragraph 7(b)(vi) below. At any such meeting or adjournment thereof, (i) the absence of a quorum of such holders of Series C Preferred Stock shall not prevent the election of the directors to be elected by the holders of shares other than the Series C Preferred Stock, and the absence of a quorum of holders of shares other than the Series C Preferred Stock shall not prevent the election of the director to -17- be elected by the holders of the Series C Preferred Stock, and (ii) in the absence of a quorum of holders of shares of the Series C Preferred Stock, holders of a majority of the shares of Series C Preferred Stock, present in person or by proxy, shall have power to adjourn the meeting for the election of the Series C Preferred Stock Director, from time to time, without notice (subject to applicable law) other than announcement at the meeting, until a quorum shall be present. (iv) Except as provided in paragraph 7(b)(v), any vacancy in the office of the Series C Preferred Stock Director occurring during the effectiveness of the applicable provisions of paragraph 7(b)(i) shall be filled solely by the holders of the Series C Preferred Stock entitled to elect such Series C Preferred Stock Director by vote of such holders as provided in paragraph 7(b)(iii) above at a meeting called for such purpose or by written consent of such holders given in accordance with paragraph 7(b)(vi) below. (v) A Series C Preferred Stock Director may be removed without cause by the vote or by written consent of the holders of a majority of the outstanding shares of the Series C Preferred Stock. Any vacancy in the office of the Series C Preferred Stock Director shall be filled by the affirmative vote of the holders of a majority of the outstanding shares of Series C Preferred Stock entitled to elect the Series C Preferred Stock Director so removed at a meeting, which may be the same meeting at which the removal of such Series C Preferred Stock Director was voted upon, or by written consent of the holders of Series C Preferred Stock given in accordance with paragraph 7(b)(vi) below. Any Series C Preferred Stock director elected to fill a vacancy shall serve the same remaining term as that of his or her predecessor and until his or her successor has been chosen and has qualified. (vi) With respect to actions by the holders of the Series C Preferred Stock upon those matters on which such holders are entitled to vote as a separate series, such actions may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares of Series C Preferred Stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of such series of Series C Preferred Stock entitled to vote thereon were present and voted, and shall be delivered to the Corporation as provided in the Delaware General Corporation Law (the "DGCL"). Notice shall be given in accordance with the applicable provisions of the DGCL of the taking of corporate action without a meeting by less than unanimous written consent. (c) Protective Covenants. Notwithstanding the rights and -------------------- privileges of any class or series of Preferred Stock then outstanding, so long as any shares of Series C Preferred Stock shall remain outstanding, the Corporation shall not, without first obtaining the affirmative vote (or the written consent) of the holders of not less than a majority of the outstanding shares of the Series C Preferred Stock, adopt, amend, alter -18- or repeal any provision of the Certificate of Designation or any resolution of the Board or any other instrument establishing and designating the Series C Preferred Stock and determining the relative voting powers, designations, preferences, rights and qualifications, limitations and restrictions thereof, so as to (i) effect any change in the voting powers, designations, preferences, rights and qualifications, limitations and restrictions of the shares of the Series C Preferred Stock that would affect such shares adversely in a manner different from the shares of other series of Preferred Stock, or (ii) increase the authorized number of shares of Series C Preferred Stock. 8. Waiver. Unless otherwise provided in the Certificate of ------ Designation or the Certificate, any provision which, for the benefit of the holders of the Series C Preferred Stock, prohibits, limits or restricts actions by the Corporation, or imposes obligations on the Corporation, may be waived in whole or in part, or the application of all or any part of such provision in any particular circumstance or generally may be waived, in each case only pursuant to the consent of the holders of a majority (or such greater percentage thereof as may be required by applicable law or any applicable rules of any national securities exchange or national interdealer quotation system) of the outstanding shares of the Series C Preferred Stock. Any such waiver shall be binding on all holders, including any subsequent holders, of the Series C Preferred Stock. 9. Method of Giving Notices. Any notice required or permitted ------------------------ hereby to be given to the holders of shares of Series C Preferred Stock shall be deemed duly given if deposited in the United States mail, first class mail, postage prepaid, and addressed to each holder of record at the holder's address appearing on the books of the Corporation or supplied by the holder in writing to the Corporation for the purpose of such notice. 10. Exclusion of Other Rights. Except as provided in the Bylaws ------------------------- of the Corporation or as may otherwise be required by law and except for the equitable rights and remedies which may otherwise be available to holders of Series C Preferred Stock, the shares of Series C Preferred Stock shall not have any designations, preferences, limitations or relative rights other than those specifically set forth in the Certificate and in this Certificate of Designation. 11. Heading of Subdivisions. The headings of the various ----------------------- subdivisions hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof. [Continued on next page] -19- IN WITNESS WHEREOF, said corporation has caused this Certificate of Designation to be signed and attested by its duly authorized officers this 11th day of April, 1997. AT HOME CORPORATION By: /s/ Thomas A. Jermoluk ------------------------------------- Name: Thomas A. Jermoluk Title: President ATTEST: By: /s/ David G. Pine ------------------------------- Name: David G. Pine Title: Secretary -20- EX-4.01 6 THIRD AMENDED & RESTATED REGISTRATION RIGHTS EXHIBIT 4.01 THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT ----------------------------- THIS THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT") is dated as of April 11, 1997, and is entered into by and among AT HOME CORPORATION, a Delaware corporation ("@HOME"), TCI INTERNET HOLDINGS, INC., a Colorado corporation ("TCI SUB"), KLEINER, PERKINS, CAUFIELD & BYERS VII, KPCB INFORMATION SCIENCES ZAIBATSU FUND II, each a California limited partnership of which KPCB VII Associates, a California limited partnership ("KPCB"), is the general partner and JAMES CLARK (collectively, the "KPCB AFFILIATES"), COMCAST PC INVESTMENTS, INC. ("COMCAST SUB"), a Delaware corporation and an indirect wholly owned subsidiary of Comcast Corporation, COX TELEPORT PROVIDENCE, INC. ("COX SUB"), a Delaware corporation and a wholly owned subsidiary of Cox Communications, Inc., MARTIN/CAMPUS ASSOCIATES, L.P., a Delaware limited partnership ("DEVELOPER") and the purchasers of @Home's Series C Preferred Stock and warrants to purchase @Home's Series C Preferred Stock listed on the signature pages hereof. Capitalized terms not otherwise defined herein will have the meaning given them in Section 1 of this Agreement. BACKGROUND ---------- A. @Home, TCI Sub, and certain of the KPCB Affiliates are parties to the 1995 Purchase Agreement, which relates to the purchase (i) by certain of the KPCB Affiliates of 2,300,000 shares of Series K Preferred and (ii) by TCI Sub of 7,700,000 shares of Series T Preferred. B. @Home, TCI Sub and certain of the KPCB Affiliates are parties to the May 1996 Purchase Agreement, which relates to the purchase (i) by certain of the KPCB Affiliates of an additional 2,300,000 shares of Series K Preferred and (ii) by TCI Sub of an additional 7,700,000 shares of Series T Preferred. C. @Home, TCI Sub, the KPCB Affiliates, Comcast Sub and Cox Sub are also parties to the August 1996 Purchase Agreement and certain other agreements dated the same date as the August 1996 Purchase Agreement, providing for the purchase of certain shares of Series K Preferred, Series T Preferred, and Series A Preferred, as described in the August 1996 Purchase Agreement, and in connection with that transaction, the shares of Series K Preferred and Series T Preferred referred to in recitals A and B above were reverse split on a 1-for-10 basis. D. The then-outstanding shares of Series A Common Stock were forward split on a 2-for-1 basis on August 14, 1996. E. @Home granted the Developer Warrant to Developer on October 17, 1996. F. @Home and each Series C Preferred Investor (as defined below) are parties to the Series C Purchase Agreement, providing for the purchase of certain shares of Series C Preferred. G. @Home intends to issue the Canadian MSO Warrants (as defined below) to the Canadian MSO's (as defined below), subject to their purchase of Series C Preferred. H. All of such shares of Preferred Stock and the shares of Series B Common Stock, Series K Common Stock and Series A Common Stock issuable upon conversion thereof or upon exercise of the Developer Warrant and the Canadian MSO Warrants constitute "restricted securities" (as defined in Rule 144 under the Securities Act), and @Home has agreed to provide the Stockholders and the members of each Stockholder's Stockholder Group with the registration rights set forth herein. In consideration of the premises and of the mutual agreements and covenants hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Certain Definitions. ------------------- 1995 PURCHASE AGREEMENT: The Stock Purchase Agreement, dated as of August 29, 1995, entered into by and among @Home, TCI Sub and certain of the KPCB Affiliates, providing for the purchase of shares of Series T Preferred and Series K Preferred as described in recital A above. @HOME: At Home Corporation, a Delaware corporation. AGREEMENT: This Third Amended and Restated Registration Rights Agreement. APPLICABLE TIME PERIOD: As defined in Section 4(c)(iv). AUGUST 1996 PURCHASE AGREEMENT: The Stock Purchase and Exchange Agreement dated as of August 1, 1996 by and among @Home, the KPCB Affiliates, TCI Sub, Comcast Sub, and Cox Sub, as described in recital C above, and as such agreement may be amended from time to time. BUSINESS DAY: Any day other than a Saturday, Sunday or other day on which commercial banking institutions in New York, New York are required or authorized by law to be closed. CABLE PARENT: (i) With respect to TCI Sub, TCI Internet Services, Inc., TCI Communications, Inc. and TCI Cable Investments Inc., (such entities collectively being a single Cable Parent), (ii) with respect to Comcast Sub, Comcast On-Line Communications, Inc. and Comcast Cable Communications, Inc., (such entities collectively being a single Cable Parent) and (iii) with respect to Cox Sub, Cox Communications, Inc. 2 CABLE PARTNER: Each of TCI Sub, Comcast Sub and Cox Sub. Such entities are referred to collectively as the "CABLE PARTNERS." CABLE PUT: As defined in the Stockholders' Agreement. CANADIAN MSO'S: Each of Rogers Cablesystems Limited, a Canadian corporation ("ROGERS") and Shaw Cablesystems Ltd., a Canadian corporation ("SHAW") or any other entity affiliated with Rogers and/or Shaw purchasing the Canadian MSO Warrants directly from the Company in lieu of purchase by Rogers and/or Shaw. CANADIAN MSO WARRANTS: Those certain warrants to purchase up to an aggregate of 2,000,000 shares of Series A Common Stock issuable upon conversion of Series C Preferred (or, upon certain conditions, Series A Common Stock directly) (subject to adjustment for stock splits, stock dividends, reverse stock splits, recapitalizations and the like after the date hereof), dated the date hereof, issued to the Canadian MSO's, and any warrant issued upon a partial exercise or permitted assignment thereof. COMCAST SUB: As defined in the Preamble. COMMISSION: The Securities and Exchange Commission, or any other federal agency at the time administering the Securities Act or the Exchange Act. COMPANY INDEMNIFIED PARTIES: @Home, its officers, directors, employees and agents, and each Person, if any, who controls @Home within the meaning of either the Securities Act or the Exchange Act. COMPANY NOTICE: As defined in Section 2(b)(i). CONTROL: The direct or indirect power to direct the management and policies of any Person, whether through the ownership of voting securities, by contract, management agreement or otherwise. CONTROLLED AFFILIATE: As to any Person, any other Person (i) which now or in the future is Controlled by such Person, (ii) which now or in the future (directly or indirectly through one or more wholly-owned subsidiaries) owns 100% of the outstanding capital stock of such Person (a "PARENT"), or (iii) of which now or in the future more than 50% of the equity interests and voting power of its outstanding capital stock is owned by a Parent of such Person; provided, however, that @Home will not be deemed to be a Controlled Affiliate of any Parent or such Parent's Controlled Affiliates. CONVERSION SHARES: As defined below in the definition of "Registrable Shares." COX SUB: As defined in the Preamble. DEMAND NOTICE: As defined in Section 2(b)(i). DEMAND REGISTRATION: As defined in Section 2(a). 3 DEMAND REGISTRATION RIGHT: As defined in Section 2(a). DESIGNATED REPRESENTATIVE: As defined in Section 9.2. DEVELOPER: As defined in the Preamble. DEVELOPER'S STOCKHOLDER GROUP: (i) Developer; (ii) Martin/Redwood Partners, L.P., a California limited partnership ("REDWOOD"); (iii) J. David Martin; (iv) Michael A. Covarrubias; (v) Cathy Greenwold; (vi) Richardson L. Watkins; (vii) Edmund B. Taylor; (viii) Lynn M. Tolin; (ix) Daniel E. Siri; (x) David Wright; (xi) Farallon/Campus Warrants, LLC, a Delaware limited liability company (or if such entity is dissolved, the members of such entity); and (xii) any revocable living trust established by any of the persons in the preceding clauses (iii) to (x) inclusive for the benefit of any such person's immediate family. DEVELOPER WARRANT: That certain warrant to purchase up to 200,000 shares of Series A Common Stock (subject to adjustment for stock splits, stock dividends, reverse stock splits, recapitalizations and the like after October 17, 1996), dated October 17, 1996, issued to Developer, and any warrant issued upon a partial exercise or permitted assignment thereof. DISADVANTAGEOUS CONDITION: The determination by @Home, in its reasonable business judgment as set forth in a resolution of its Board of Directors, that a registration, or offering or sale of shares pursuant to a registration, would materially interfere with or otherwise adversely affect in any material respect any financing, acquisition, corporate reorganization, or other material transaction or development involving @Home, or would require the disclosure of a previously undisclosed material development involving @Home which disclosure would have a material adverse effect on @Home. ELIGIBLE STOCKHOLDER: As defined in the Stockholders' Agreement. EXCHANGE ACT: The Securities Exchange Act of 1934, as amended, or any successor federal statute, and the rules and regulations of the Commission promulgated thereunder, as they each may, from time to time, be in effect. INCIDENTAL REGISTRATION: As defined in Section 3(a). INDEMNIFIED PARTY: A party claiming a right to indemnification pursuant to Section 6 of this Agreement. INDEMNIFYING PARTY: A party required to provide indemnification pursuant to Section 6 of this Agreement. INITIATING HOLDERS: The Original Initiating Holder, together with any other Stockholders joining in the Demand Registration initiated by the Original Initiating Holder, as described in Section 2(b) of this Agreement. IPO: @Home's initial public offering of Series A Common Stock registered under the Securities Act. 4 IPO ELECTION: As defined in the Stockholders' Agreement. KPCB: As defined in the Preamble. KPCB AFFILIATES: As defined in the Preamble. KPCB PUT: As defined in the Stockholders' Agreement. LOSSES: Any losses, claims, damages or liabilities, and any related legal or other fees and expenses. MAY 1996 PURCHASE AGREEMENT: The letter purchase agreement, dated May 9, 1996, executed by @Home, TCI Sub and certain of the KPCB Affiliates providing for the purchase of additional shares of Series T Preferred and Series K Preferred as described in recital B above. MINIMUM DEMAND SHARES: As defined in Section 5(a). ORIGINAL INITIATING HOLDER: As defined in Section 2(b). OTHER STOCKHOLDER GROUP: As defined in Section 2(b)(i). PARENT: As defined in the Stockholders' Agreement. PERSON: Any individual, corporation, partnership, limited partnership, limited liability partnership, limited liability company, trust, association, organization or other entity. PREFERRED STOCK: The shares of Series A Preferred, Series C Preferred, Series K Preferred and Series T Preferred. PRIOR REGISTRATION AGREEMENT: The Second Amended and Restated Registration Rights Agreement dated as of October 17, 1996, by and among @Home, TCI Sub, the KPCB Affiliates, Comcast Sub, Cox Sub and Developer. PROSPECTUS: The prospectus included in a Registration Statement as of the date it becomes effective under the Securities Act and, in the case of references to the Prospectus as of a date subsequent to the effective date of the Registration Statement, as amended or supplemented as of such date, including all documents incorporated by reference therein, each as amended, and each applicable prospectus supplement relating to the offering and sale of any of the Registrable Shares pursuant to such Registration Statement. REGISTRABLE SHARES: (i) Shares of Series A Common Stock ("CONVERSION SHARES") (u) issued or issuable upon conversion of shares of Series B Common Stock issuable upon conversion of shares of Series T Preferred, (v) issued or issuable upon conversion of shares of Series K Common Stock issuable upon conversion of shares of Series K Preferred, (w) issued or issuable upon conversion of shares of Series A Preferred, (x) except for purposes of Sections 7 and 8, issued or issuable upon conversion of shares of Series C Preferred (including but not 5 limited to shares of Series C Preferred issued or issuable upon exercise of the Canadian MSO Warrants), (y) except for purposes of Sections 7 and 8, issued or issuable upon exercise of any of the Canadian MSO Warrants or (z) except for purposes of Sections 2 and 8, issued or issuable upon exercise of the Developer Warrant; (ii) any other shares of Series A Common Stock (including those shares issued or issuable upon exercise or conversion of any securities exercisable for or convertible into shares of Series A Common Stock) howsoever acquired by a Stockholder's Stockholder Group (other than Developer's Stockholder Group or the Series C Preferred Holders' Stockholder Group); and (iii) any other shares of capital stock of @Home issued in respect of (or that become issuable upon conversion of such shares of Series B Common Stock, Series K Common Stock (or other such securities in lieu of)) such shares of Series A Common Stock issued or issuable pursuant to the preceding clauses (i) and/or (ii) as a result of stock splits, reverse stock splits, stock dividends or other distributions, reclassifications, recapitalizations, mergers, consolidations, reorganizations or similar events. References in this Agreement to amounts or percentages of Registrable Shares as of or on any particular date shall be deemed to refer to amounts or percentages after giving effect to any applicable events contemplated by the preceding sentence. Any Registrable Share will cease to be a Registrable Share when (i) a registration statement covering such Registrable Share has been declared effective by the Commission and such Registrable Share has been disposed of pursuant to such effective registration statement or (ii) such Registrable Share is sold in a transaction in which such Stockholder's rights hereunder with respect to such Registrable Share are not assigned to the transferee thereof in accordance with the terms and provisions hereof. REGISTRABLE SHARES THEN OUTSTANDING: The sum of (i) the number of shares of Series A Common Stock (or other securities of @Home) outstanding that are Registrable Shares and (ii) the number of shares of Series A Common Stock (or other securities of @Home) that would be Registrable Shares upon the exercise or conversion of other outstanding securities of @Home for or into shares of such Series A Common Stock (or other securities of @Home). REGISTRATION EXPENSES: As defined in Section 5(a). REGISTRATION STATEMENT: A registration statement of @Home under the Securities Act on any form for which @Home then qualifies and which permits the sale thereunder of the number and type of Registrable Shares (and any other securities of @Home) to be included therein in accordance with this Agreement by the applicable sellers in the manner described therein. The term "Registration Statement" shall also include all exhibits and financial statements and schedules and documents incorporated by reference in such Registration Statement when it becomes effective under the Securities Act, and in the case of the references to the Registration Statement as of a date subsequent to the effective date, as amended or supplemented as of such date. SECURITIES ACT: The Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations of the Commission promulgated thereunder, as they each may, from time to time, be in effect. SELLING STOCKHOLDER: Any Stockholder whose Registrable Shares are included at the request of such Stockholder in any Registration Statement pursuant to Section 2 or Section 3. 6 SERIES A COMMON STOCK: The Series A Common Stock, par value $.01 per share, of @Home. SERIES A PREFERRED: Collectively, the Series AM Convertible Participating Preferred Stock, the Series AT Convertible Participating Preferred Stock and the Series AX Convertible Participating Preferred Stock, each par value $.01 per share, of @Home. SERIES B COMMON STOCK: The Series B Common Stock, par value $.01 per share, of @Home. SERIES C PREFERRED: The Series C Convertible Participating Preferred Stock, par value $.01 per share, of @Home. SERIES C PREFERRED HOLDERS: The Series C Preferred Investors and each transferee thereof who becomes a party to this Agreement in accordance with the terms hereof. SERIES C PREFERRED INVESTORS: The purchasers of an aggregate of up to $50,000,000 of Series C Preferred who become parties to a Series C Purchase Agreement and who execute a counterpart signature page to this Agreement as a "Series C Preferred Investor." A "Series C Preferred Investor" also includes the Canadian MSO's as purchasers of Series C Preferred under such a Series C Purchase Agreement and as purchasers of the Canadian MSO Warrants, who execute a counterpart signature page to this Agreement as a "Series C Preferred Investor." SERIES C PURCHASE AGREEMENT: The Stock Purchase Agreements, dated as of even date herewith, entered into by and among @Home and any of the Series C Preferred Investors, and any other substantially identical Stock Purchase Agreement between @Home and any of the Series C Preferred Investors, for the purchase collectively of an aggregate of up to $50,000,000 of Series C Preferred, as such agreements may be amended from time to time. SERIES K COMMON STOCK: The Series K Common Stock, par value $.01 per share, of @Home. SERIES K PREFERRED: The Series K Convertible Participating Preferred Stock, par value $.01 per share, of @Home. SERIES T PREFERRED: The Series T Convertible Participating Preferred Stock, par value $.01 per share, of @Home. SPECIAL DEMAND REGISTRATION RIGHT: As defined in Section 2(g). STOCKHOLDER: Each of (i) TCI Sub, Cox Sub and Comcast Sub, individually, and the KPCB Affiliates, collectively, (ii) except for purposes of Sections 2 and 8, Developer and (iii) except for purposes of Sections 7 and 8, the Series C Preferred Holders. In addition, the term "Stockholder" shall also include any other person or entity to which Registrable Shares are transferred (i) by any Stockholder (other than the Series C Preferred Holders and Developer and their respective permitted transferees) in accordance with the applicable provisions of the 7 Stockholders' Agreement (x) to which the applicable Stockholder has assigned its rights hereunder in accordance with the provisions hereof with respect to such Registrable Shares and (y) which has executed a counterpart hereof in connection with the transfer of such Registrable Shares and (ii) by the Series C Preferred Holders and Developer and their respective permitted transferees (x) to which the applicable Stockholder has assigned its rights hereunder in accordance with the provisions hereof with respect to such Registrable Shares and (y) which has executed a counterpart hereof in connection with the transfer of such Registrable Shares. STOCKHOLDER GROUP: With respect to Comcast Sub, Cox Sub, the KPCB Affiliates and TCI Sub, as defined in the Stockholders' Agreement; and, except for purposes of Sections 2 and 8, with respect to Developer, Developer's Stockholder Group; and, except for purposes of Sections 7 and 8, with respect to the Series C Preferred Holders, all of the Series C Preferred Holders as a single group. STOCKHOLDER INDEMNIFIED PARTIES: Each Selling Stockholder, its officers, directors, employees and agents, each Person (if any) who controls such Selling Stockholder within the meaning of either the Securities Act or the Exchange Act, and the officers, directors, employees and agents of the foregoing parties. STOCKHOLDERS' AGREEMENT: The Amended and Restated Stockholders' Agreement, dated as of August 1, 1996, by and among @Home, the KPCB Affiliates, TCI Sub, Cox Sub, Comcast Sub, and certain members of their respective Stockholder Groups, as such agreement may be amended from time to time. TCI SUB: As defined in the Preamble. 2. Demand Registration. ------------------- (a) Demand Registration Rights. Subject to Section 2(g) below, at any -------------------------- time on or after the first anniversary of the closing date of the IPO, each Stockholder Group shall have the right (a "DEMAND REGISTRATION RIGHT") to request that @Home register under the Securities Act all or a portion of the Registrable Shares held by the Stockholder Group upon the terms and subject to the conditions and limitations set forth herein (a "DEMAND REGISTRATION"). The number of Demand Registrations to which each Stockholder Group shall be entitled shall be as follows: TCI Sub's Stockholder Group shall be entitled to four Demand Registrations, Comcast Sub's Stockholder Group shall be entitled to two Demand Registrations, Cox Sub's Stockholder Group shall be entitled to two Demand Registrations, the KPCB Affiliates' Stockholder Group shall be entitled to two Demand Registrations, and the Series C Preferred Holders' Stockholder Group shall be entitled to two Demand Registrations. (b) Procedures for Demand Registrations. ----------------------------------- (i) A Stockholder Group holding Registrable Shares (the "ORIGINAL INITIATING HOLDER") may elect to exercise a Demand Registration Right pursuant to this Section 2 by furnishing @Home with written notice of such request (a "DEMAND NOTICE") which sets forth the number of Registrable Shares requested to be so registered and such Stockholder Group's preferred method of distribution of such Registrable Shares; provided, that a Demand -------- 8 Registration may be made by the Series C Preferred Holders' Stockholder Group only upon written request of the Series C Preferred Holders holding at least twenty-five percent (25%) of the Registrable Shares issued or issuable upon conversion of the Series C Preferred (including but not limited to shares of Series C Preferred issued or issuable upon exercise of the Canadian MSO Warrants) and requesting registration of Registrable Shares with an anticipated aggregate public offering price (before any underwriting or brokerage discounts and commissions) of not less than $10,000,000. Upon receipt by @Home of a Demand Notice, @Home shall promptly notify the Designated Representative of each other Stockholder Group (the "OTHER STOCKHOLDER GROUPS") in writing of such request for registration and the Original Initiating Holder's preferred method of distribution. Upon receipt of such notice from @Home (the "COMPANY NOTICE"), the Designated Representative of each such Other Stockholder Group may give @Home a written request to register in the registration described in the Company Notice any or all of the Registrable Shares of the Stockholders in such Other Stockholder Group; provided, that (i) such written request is given within ten -------- (10) Business Days after the date on which the Company Notice is given (with such request stating (A) the amount of Registrable Shares to be so included, (B) such Other Stockholder Group's preferred method of distribution of such Registrable Shares, and (C) any other information that the Company Notice reasonably requests to be included in such notice from such Other Stockholder Group), (ii) no Series C Preferred Holder may join as an Initiating Holder in any Demand Registration initiated by any Stockholder Group other than the Series C Preferred Holders' Stockholder Group (but nonetheless may exercise rights as to an Incidental Registration with respect to such Demand Registration to the extent permitted pursuant to Section 3) and (iii) no Stockholder that is not a member of the Series C Preferred Holders' Stockholder Group may join as an Initiating Holder in any Demand Registration initiated by the Series C Preferred Holders' Stockholder Group (but nonetheless may exercise rights as to an Incidental Registration with respect to such Demand Registration to the extent permitted pursuant to Section 3). (ii) @Home shall as soon as reasonably practicable after the date on which the Company Notice is given, file with the Commission and use commercially reasonable efforts to cause to become effective as promptly as practicable (but in no event prior to the date agreed to in writing by the Original Initiating Holder), a Registration Statement which shall cover the Registrable Shares requested to be registered in the manner set forth above. Subject to the provisions of Section 2(c) below, each Registration Statement may also include securities to be sold for the account of @Home or for any other stockholder not holding Registrable Shares. (iii) Provided that at least 75% of the Registrable Shares requested to be registered by the Original Initiating Holder are included in such registration, such Original Initiating Holder shall be deemed to have utilized one of its Demand Registration Rights in respect thereof. The Initiating Holders other than the Original Initiating Holder shall not be deemed to have exercised a Demand Registration Right; provided, however, that for -------- purposes of determining the expenses of registration to be paid by the Selling Stockholders, such registration shall be considered a Demand Registration with respect to all of the Initiating Holders. (c) Underwriters; Limitation on Inclusion of Registrable Shares. The ----------------------------------------------------------- Original Initiating Holder shall have the right to select the managing underwriter(s) for any underwritten public offering in connection with a Demand Registration, which managing underwriter(s) shall 9 be reasonably acceptable to @Home. Each Selling Stockholder electing to participate in a Demand Registration involving an underwritten public offering shall, as a condition to @Home's obligation hereunder to include such Selling Stockholder's Registrable Shares in such Demand Registration, enter into and perform its obligations under an underwriting agreement or other similar arrangement in customary form with the managing underwriter(s) of such offering. If the lead managing underwriter of any underwritten public offering in connection with a Demand Registration determines in good faith that the aggregate number of Registrable Shares to be offered exceeds the number of shares that could be sold without having an adverse effect on such offering (including the price at which the Registrable Shares may be sold), then the number of Registrable Shares to be offered for the accounts of the Selling Stockholders in such offering shall be reduced or limited on such basis as the Selling Stockholders shall agree or, absent such an agreement, on a pro rata basis in proportion to the respective numbers of Registrable Shares requested to be included in such offering by such Selling Stockholders, to the extent necessary to reduce the total number of shares to be included in such offering to the amount recommended by such lead managing underwriter; provided, that if -------- in connection with such Demand Registration, securities other than Registrable Shares are being offered (whether for the account of @Home or for any stockholder of @Home not exercising rights under this Section 2), such reduction shall be made (i) first, from such securities held by Persons that are not Initiating Holders (including without limitation securities being offered for the account of @Home) and (ii) second, from the number of Registrable Shares requested to be included in such offering by the applicable Initiating Holders, on such basis as such Initiating Holders shall agree, or absent such an agreement, on a pro rata basis, based on the number of Registrable Shares requested to be included in the registration. (d) Postponement of Registration. @Home shall be entitled to ---------------------------- postpone, for a reasonable period of time not in excess of one hundred twenty (120) days after its receipt of a Demand Notice, the filing of any Registration Statement, if (i) at any time prior to the filing of such Registration Statement the Board of Directors of @Home determines that such registration, or offering or sale of shares thereunder, would result in a Disadvantageous Condition, and (ii) @Home gives the Selling Stockholders written notice of such postponement; provided, that with respect to a particular registration pursuant to a Demand Notice, @Home may postpone its obligations under this Agreement (whether before the filing of the registration statement, pursuant to this Section 2(d), or after the filing of the registration statement and/or following the declaration of effectiveness of the registration statement, pursuant to Section 4(b) hereof) by reason of the existence of one or more Disadvantageous Conditions only once per period of twelve consecutive calendar months with respect to any given Original Initiating Holder. In the event of such postponement, @Home shall notify all Selling Stockholders and file such Registration Statement as soon as practicable after the Board of Directors of @Home shall determine, in its reasonable business judgment, that such registration, offering and sale would not result in such Disadvantageous Condition (but in no event later than one hundred twenty (120) days after the date of the applicable Demand Notice). If @Home shall postpone its obligations under this Agreement by reason of a Disadvantageous Condition as described above, the Original Initiating Holder shall have the right to withdraw its request for such Demand Registration by giving notice to @Home at any time following said notice by @Home. Such withdrawal request shall be deemed to apply to all Selling Stockholders that had requested to participate in such 10 registration. No Stockholder Group shall make a demand for registration during the period of any such postponement (or if the Original Initiating Holder should withdraw its demand for registration, until the Company notifies all Stockholders of the end of the Disadvantageous Condition). Notice from @Home of the existence of a Disadvantageous Condition shall be limited to a certified extract of the Board resolution declaring the existence of a Disadvantageous Condition without further detail unless reasonable further detail is specifically requested by a Selling Stockholder. (e) Withdrawal. A Demand Registration shall not be deemed to have ---------- been effected until the applicable Registration Statement shall have been effective under the Securities Act (and not subject to any stop order, injunction or other order or requirement of the Commission or other governmental agency or court for any reason) for the period specified in Section 2(f). Each Selling Stockholder may, no less than five (5) Business Days before any Registration Statement becomes effective, withdraw its Registrable Shares from inclusion therein, should the terms of the proposed distribution not be satisfactory to such Selling Stockholder. If the Original Initiating Holder elects to withdraw such Registration Statement, such Registration Statement shall be withdrawn (if necessary) and such registration shall not be deemed to have been a Demand Registration for purposes of the limitations on the number of Demand Registrations hereunder contained in this Section 2; provided, that the -------- Original Initiating Holder agrees to bear the Registration Expenses incurred by @Home in connection with such Demand Registration (unless at the time of such withdrawal, the Original Initiating Holder has learned of a material adverse change in the operating results, financial condition or business of @Home or @Home has suspended its obligations under Section 4(b) as a result of a Disadvantageous Condition, of which the Original Initiating Holder was not aware as of the time of the Demand Notice and has withdrawn such request promptly following the disclosure by @Home of such material adverse change or Disadvantageous Condition, in which case, the Original Initiating Holder shall not be obligated to pay such Registration Expenses in order to avoid being deemed to have used a Demand Registration). If (i) the Registration Statement does not remain effective under the Securities Act for the period specified in the first sentence of this paragraph (e) due to a stop order, injunction or other order of the Commission or other governmental agency, (ii) the Original Initiating Holder has not sold at least 75% of the Registrable Shares registered under such Registration Statement and (iii) such Registration Statement continues not to be effective for such reasons for a period exceeding ten days, then the Original Initiating Holder may elect to withdraw such Registration Statement by prompt written notice to the Company; and in such an event, such registration shall not be deemed to have been a Demand Registration for purposes of the limitations on the number of Demand Registrations hereunder contained in Section 2.1(a), and the Company shall bear the Registration Expenses incurred in connection with such registration. (f) Effectiveness of Registration Statement. In connection with any --------------------------------------- Demand Registration pursuant to this Section 2, @Home will use commercially reasonable efforts to prepare and file with the Commission any amendments and supplements to the Registration Statement and to the Prospectus used in connection therewith, and to take any other actions, as may be necessary to keep the Registration Statement and the Prospectus current and in compliance with the provisions of the Securities Act, until the sooner to occur of (i) the sale of all of the Registrable Shares covered by such Registration Statement in accordance with the 11 intended methods of distribution thereof or (ii) the 120th day following the effective date of such Registration Statement. (g) Special Demand Registration Right. Notwithstanding the provisions --------------------------------- of Section 2(a) hereof, in the event that TCI Sub has made the IPO Election in accordance with the provisions of the Stockholders' Agreement, in addition to any rights it may have under the Stockholders' Agreement with respect to causing the Company to make an initial public offering of its Series A Common Stock, TCI Sub shall have the right, exercisable during the time periods specified in the Stockholders' Agreement for it to make the IPO Election, to exercise its Demand Registration Right hereunder regardless of the condition set forth in Section 2(a) that a demand for registration may not be made prior to the first anniversary of the IPO (the "SPECIAL DEMAND REGISTRATION RIGHT"). Such registration shall not otherwise accelerate any Stockholder Group's right to exercise a Demand Registration pursuant to this Agreement. In the case of the exercise of the Special Demand Registration Right, TCI Sub shall be the Original Initiating Holder pursuant to Section 2(b) and the other Stockholders (other than the Series C Preferred Holders) shall have the rights granted to the Other Stockholder Groups in accordance with Section 2(b), and the Company shall otherwise comply with its obligations with respect to a Demand Registration in accordance with the terms of this Agreement. 3. Incidental Registration. ------------------------ (a) Notice of Incidental Registration. If at any time following the --------------------------------- closing date of the IPO, @Home proposes to register under the Securities Act any shares of Series A Common Stock or other equity securities of @Home (whether in an underwritten public offering or otherwise and whether or not for the account of @Home or for any selling stockholder) (other than a registration statement on Form S-4 or Form S-8 or any successor or comparable forms or a shelf registration statement registering a continuous offering of securities pursuant to Rule 415 or a registration pursuant to the Special Demand Registration Right) in a manner which would permit the registration under the Securities Act of Registrable Shares for sale to the public, @Home shall give written notice to each Stockholder of its intention to do so not later than twenty (20) Business Days prior to the anticipated filing date of the applicable Registration Statement. Upon receipt of any such notice, each Stockholder may elect to participate in such registration by giving @Home a written request to register any or all of such Stockholder's Registrable Shares in connection with the registration described in such written notice from @Home within ten (10) Business Days after such notice has been given by @Home (with such request stating (i) the amount of Registrable Shares to be included in such registration by such Stockholder and (ii) any other information that @Home reasonably requests be included in such registration statement) (such registration, an "INCIDENTAL REGISTRATION"). Upon receipt of such request, @Home will, subject to the provisions of Section 3(b) below, cause all such Registrable Shares requested to be included in such Incidental Registration to be so included. (b) Limitation on Inclusion of Registrable Shares. If the proposed --------------------------------------------- method of distribution in connection with such an Incidental Registration is an underwritten public offering and the managing underwriter thereof determines in good faith that the number of such Registrable Shares to be included in such offering would adversely affect such offering, the number of Registrable Shares to be offered for the account of the Selling Stockholders shall be 12 reduced or limited in proportion to the number of Registrable Shares to be so offered by such Selling Stockholders to the extent necessary to reduce the total number of shares to be included in such offering to the amount recommended by such managing underwriter; provided, that (i) if securities are being offered -------- for the account of other persons or entities (other than, or in addition to, @Home) such reduction shall be made pro rata from the securities intended to be offered by such other persons or entities and the Selling Stockholders, but no such reduction shall be made from the securities to be offered for the account of @Home, (ii) if securities are being offered in connection with a Demand Registration for the account of Initiating Holders (other than any Series C Preferred Holder), such reduction shall be made pro rata from the securities intended to be offered by the Series C Preferred Holders before any such reduction is made from the securities intended to be offered for the account of such Initiating Holders and (iii) if securities are being offered in connection with a Demand Registration for the account of any Series C Preferred Holders that are Initiating Holders, such reduction shall be made pro rata from the securities intended to be offered by the Selling Stockholders (other than such Series C Preferred Holders) before any such reduction is made from the securities intended to be offered for the account of such Initiating Holders. (c) Delay or Withdrawal of Registration. @Home may, without the ----------------------------------- consent of any Stockholder, delay, suspend, abandon or withdraw any Incidental Registration and any related proposed offering or other distribution in which any Stockholder has requested inclusion of such Stockholder's Registrable Shares pursuant to this Section 3; provided, that the applicable Selling Stockholders -------- shall be entitled to continue such registration as a Demand Registration pursuant to Section 2 following any such withdrawal by @Home to the extent that such registration by the Selling Stockholders making such election would otherwise satisfy the requirements of Section 2. (d) Withdrawal by Selling Stockholder. Any Selling Stockholder may --------------------------------- elect to withdraw its respective Registrable Shares from inclusion in an Incidental Registration at any time prior to five (5) Business Days prior to the then anticipated effective date of the applicable Registration Statement. No such withdrawal shall relieve any withdrawing Selling Stockholder of its obligation to pay expenses under Section 5. (e) Underwriting Agreement. In connection with any Incidental ---------------------- Registration involving an underwritten public offering of securities of @Home for the account of @Home, each Selling Stockholder electing to participate in such Incidental Registration shall, as a condition to @Home's obligation hereunder with respect to such Selling Stockholder's Registrable Shares, enter into and perform its obligations under an underwriting agreement or other similar arrangement in customary form with the managing underwriter of such offering. 4. Obligations with Respect to Registration. ---------------------------------------- (a) Obligations of @Home. Whenever @Home is obligated by the -------------------- provisions of this Agreement to effect the registration of any Registrable Shares under the Securities Act, @Home shall: 13 (i) Subject to the provisions of Section 4(b), use commercially reasonable efforts to cause the applicable Registration Statement to become effective, and to prepare and file with the Commission any amendments and supplements to the Registration Statement and to the Prospectus used in connection therewith as may be necessary to keep the Registration Statement and the Prospectus current and in compliance with the provisions of the Securities Act, during the periods when @Home is required by this Agreement to keep the Registration Statement effective and current. (ii) At least three (3) Business Days prior to filing a Registration Statement or Prospectus or any amendment or supplement thereto, furnish to each Selling Stockholder and each underwriter, if any, of the Registrable Shares covered by such Registration Statement copies of such Registration Statement or Prospectus as proposed to be filed (including documents to be incorporated by reference therein), which documents will be subject to the reasonable review and comments of such Selling Stockholders (and their respective counsel) during such three-Business-Day period, and @Home will not file any Registration Statement or any Prospectus or any amendment or supplement thereto (or any such documents incorporated by reference) containing any statements with respect to such Selling Stockholders or the distribution of the Registrable Shares to be included in such Registration Statement if a Selling Stockholder shall reasonably object in writing. Thereafter, @Home will furnish to such Selling Stockholder and each underwriter, if any, such number of copies of such Registration Statement, each amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein), the Prospectus included in such Registration Statement (including each preliminary Prospectus), and such other documents as such Selling Stockholder or underwriter may reasonably request in order to facilitate the disposition of the Registrable Shares owned by such Selling Stockholder. (iii) After the filing of the Registration Statement, promptly notify each Selling Stockholder of Registrable Shares covered by such Registration Statement of the effectiveness thereof and of any stop order issued or threatened by the Commission and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered and promptly notify such Selling Stockholder of such lifting or withdrawal of such order. (iv) Subject to the provisions of Section 4(c)(iv), immediately notify each Selling Stockholder holding Registrable Shares covered by the applicable Registration Statement at any time when a Prospectus relating thereto is required to be delivered under the Securities Act, of (i) the determination that a Disadvantageous Condition exists, or (ii) the occurrence of an event requiring the preparation of a supplement or amendment to such Prospectus so that, as thereafter delivered to the purchasers of such Registrable Shares, such Prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and promptly make available to each such Selling Stockholder any such supplement or amendment, and subject to the provisions of this Agreement regarding the existence of a Disadvantageous Condition, @Home will promptly prepare and furnish to each such Selling Stockholder a supplement to or an amendment of such Prospectus so that, as thereafter delivered to the purchasers of such Registrable Shares, such Prospectus will not contain any untrue statement of 14 material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. (v) Enter into customary agreements (including an underwriting agreement in customary form including customary indemnification provisions) and perform its obligations under any such agreement(s) and shall take such other actions as are reasonably required in order to expedite or facilitate the disposition of such Registrable Shares. (vi) Make available for inspection by any Selling Stockholder covered by such Registration Statement, any underwriter participating in any disposition pursuant to such Registration Statement and any attorney, accountant or other professional retained by any such Selling Stockholder or underwriter, all financial and other records, pertinent corporate documents and properties of @Home as shall be reasonably necessary to enable them to exercise their due diligence responsibility in connection therewith, and cause @Home's officers, directors and employees to supply all information reasonably requested by any of such persons in connection with such Registration Statement. Information which @Home determines, in good faith, to be confidential and which it notifies such persons is confidential shall not be disclosed by such persons unless (i) the disclosure of such information is necessary to avoid or correct a misstatement or omission in such Registration Statement, (ii) the release of such information is ordered pursuant to a subpoena or other order from a court of competent jurisdiction or (iii) such information becomes public other than through a breach by such persons of the confidentiality obligations of such persons. Each such Selling Stockholder agrees that information obtained by it as a result of such inspections shall be deemed confidential and shall not be used by it as the basis for any market transactions in the securities of @Home unless and until such information is made generally available to the public. (vii) Furnish, in the case of an underwritten public offering, to each Selling Stockholder and to each underwriter a signed counterpart of (A) an opinion or opinions of counsel to @Home addressed to such Selling Stockholder and underwriter (on which opinion both such Selling Stockholder and such underwriter are entitled to rely) and (B) a comfort letter or comfort letters from @Home's independent public accountants, each in customary form and covering such matters of the type customarily covered by opinions or comfort letters, as the case may be, as the holders of a majority of the Registrable Shares included in such Registration Statement or the managing underwriter therefor reasonably requests. (viii) Prepare and file with the Commission promptly upon the request of any Selling Stockholder, any amendments or supplements to such Registration Statement or the applicable Prospectus which, in the reasonable opinion of counsel for such Stockholders, is required under the Securities Act or the rules and regulations thereunder in connection with the distribution of the Registrable Shares by such Selling Stockholders. (ix) Register or qualify the Registrable Shares covered by a Registration Statement under the securities or blue sky laws of such jurisdictions in the United States as the Selling Stockholders shall reasonably request, and do any and all other acts and things which may be necessary to enable each Selling Stockholder to consummate the disposition in such jurisdictions of such Registrable Shares in accordance with a method of distribution 15 described in such Registration Statement; provided, however, that @Home shall in -------- ------- no event be required to qualify to do business as a foreign corporation or as a dealer in any jurisdiction where it is not otherwise required to be so qualified, to conform its capitalization or the composition of its assets at the time to the securities or blue sky laws of such jurisdiction, to execute or file any general consent to service of process under the laws of any jurisdiction, to take any action that would subject it to service of process in suits other than those arising out of the offer and sale of the Registrable Shares covered by such Registration Statement, or to subject itself to taxation in any jurisdiction where it has not theretofore done so. (x) Cause such Registrable Shares covered by a Registration Statement to be listed on the principal exchange or exchanges or qualified for trading on the principal over the counter market on which the Series A Common Stock is then listed or traded upon the sale of such Registrable Shares pursuant to such Registration Statement. (xi) Following the date that securities of @Home become registered under the Exchange Act, make and keep information publicly available relating to @Home so as to satisfy the corresponding requirements of Rule 144 under the Securities Act (or any successor or corresponding rule) and file with the Commission all reports and other documents required of @Home under the Securities Act and the Exchange Act in a timely manner. (b) Disadvantageous Conditions. Notwithstanding anything to the -------------------------- contrary contained herein, if at any time after the filing of a Registration Statement or after it is declared effective by the Commission, @Home determines, in its reasonable business judgment, that such registration, or offering and sale of shares pursuant thereto, would result in a Disadvantageous Condition, then @Home may, subject to the limitations set forth in Section 2(d), require the suspension by each Selling Stockholder of the distribution of any of the Registrable Shares by giving notice to such effect to each Selling Stockholder. In the event that such notice is given, then until @Home has determined that such registration, offering and sale no longer would result in a Disadvantageous Condition, @Home's obligations under Section 2(b) and Section 4(a)(i), if the Registration Statement has not become effective, or under Section 4(a)(i) and (iv), if the Registration Statement has become effective, will be suspended (for a total period not to exceed 120 days in the case of a Demand Registration). In the event of a suspension pursuant to this Section 4(b) or otherwise after a Registration Statement has been declared effective, the period of effectiveness of such Registration Statement referred to in Section 4(a)(i) will be extended by a number of days equal to the total number of days for which the distribution of Registrable Shares included in such Registration Statement by the Selling Stockholder has been suspended under this Section 4(b) or otherwise. If @Home suspends its obligations under Section 2(d) or the distribution of Registrable Shares under this Section 4(b) as to any Selling Stockholder, @Home shall suspend such obligations and distributions as to all Selling Stockholders. (c) Selling Stockholders' Obligations. @Home's obligations under this --------------------------------- Agreement to a Selling Stockholder shall be conditioned upon such Selling Stockholder's compliance with the following: (i) Such Selling Stockholder shall cooperate with @Home in connection with the preparation of the Registration Statement, and for so long as @Home is 16 obligated to keep the Registration Statement effective, such Selling Stockholder will provide to @Home, in writing, for use in the Registration Statement, all information regarding such Selling Stockholder, its intended method of disposition of the applicable Registrable Shares, and such other information as @Home may reasonably request to prepare the Registration Statement and Prospectus covering the Registrable Shares and to maintain the currency and effectiveness thereof; (ii) Such Selling Stockholder agrees that, upon receipt of any notice from @Home of the happening of any event of the kind described in Section 4(a)(iv), such Selling Stockholder will forthwith discontinue disposition of Registrable Shares pursuant to the applicable Registration Statement until such Selling Stockholder's receipt of either notice from @Home that a Disadvantageous Condition no longer exists (but for no longer than 120 days in the case of a Demand Registration), or the copies of the supplemented or amended Prospectus contemplated by Section 4(a)(iv), and, if so directed by @Home, such Stockholder will deliver to @Home all copies in its possession of the most recent Prospectus covering such Registrable Shares at the time of receipt of such notice. (iii) Such Selling Stockholder agrees to convert all shares to be sold by such Selling Stockholder pursuant to any Registration Statement filed pursuant to this Agreement into shares of Series A Common Stock immediately before the closing of such sale. (iv) With respect to any sales of Registrable Shares made by a Selling Stockholder more than sixty (60) days after the applicable Registration Statement is declared effective, such Selling Stockholder shall give prior written notice to @Home of any such proposed sale of Registrable Shares under the Registration Statement and thereafter shall not sell any shares, if @Home responds within the Applicable Time Period by delivering a notice pursuant to Section 4(a)(iv), until @Home has notified such Selling Stockholder either that the Disadvantageous Condition no longer exists or has made available copies of the supplemented or amended Prospectus contemplated by Section 4(a)(iv). A sale notice by a Selling Stockholder shall be effective for a period that ends at 5:00 p.m., New York time on the 10th business day after the end of the Applicable Time Period. For purposes of this Section, the "APPLICABLE TIME PERIOD" shall lapse (x) at 12:00 noon New York time on the second Business Day after the Business Day on which the notice is delivered to @Home if such notice is received by @Home at or before 12:00 noon New York time or (y) at 9:00 a.m. New York time on the third Business Day after the Business Day on which the notice is delivered to @Home if such notice is received by @Home after 12:00 noon New York time. (d) Limits on Other Public Sales or Distributions. @Home agrees (i) --------------------------------------------- not to effect any public sale or distribution of any of its equity securities or of any security convertible into or exchangeable or exercisable for any equity security of @Home during the fourteen (14) days prior to, and during the sixty (60) day period beginning on, the effective date of any Demand Registration (except as part of such registration) and (ii) that any agreement entered into after the date of this Agreement pursuant to which @Home agrees to register or to permit the participation in the registration of any securities of @Home shall contain a provision under which holders of any such securities agree not to effect any public sale or distribution of any such 17 securities during the periods described in clause (i) above, in each case including a sale pursuant to Rule 144. (e) Underwriting Agreement. Neither @Home nor any Stockholder may ---------------------- participate in any underwritten public offering in connection with a Demand Registration or an Incidental Registration unless such person or entity (i) agrees to sell its securities on the basis provided in any underwriting arrangements approved by the party selecting the managing underwriter for such offering and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements and this Agreement. (f) Stockholder Market Stand-Off Agreement. Each Stockholder hereby -------------------------------------- agrees that (except as permitted herein in connection with any Special Demand Registration Right) it shall not, to the extent specified by @Home and the applicable managing underwriter(s) of Series A Common Stock (or other securities) of @Home offered and sold in the IPO, sell, offer to sell, contract to sell (including without limitation any short sale), grant any option to purchase or otherwise transfer or dispose of any equity securities of @Home (other than transfers of securities to a member of the Stockholder's Stockholder Group or another Stockholder or members of its Stockholder Group; provided that in each case, each transferee agrees in writing to be subject to the terms of this Section 4(f) to the same extent as if the transferee were an original Stockholder hereunder) during a reasonable and customary period of time following the effective date of the IPO, as agreed to by @Home and the applicable managing underwriter(s), not to exceed one (1) year following the effective date of the IPO if the IPO occurs within four years after the date of this Agreement or 180 days following the effective date of the IPO if the IPO occurs more than four years after the date of this Agreement; provided that (except as permitted herein in connection with any Special Demand Registration Right) in no event shall such period of time with respect to the Series C Preferred Holders' Stockholder Group, TCI Sub's Stockholder Group, Comcast Sub's Stockholder Group, Cox Sub's Stockholder Group and the KPCB Affiliates' Stockholder Group, respectively, be longer than such period of time with respect to any other of such Stockholder Groups. 5. Expenses of Registration. ------------------------ (a) Registration Expenses. So long as the Original Initiating Holder --------------------- requests registration of not less than 500,000 Registrable Shares, as adjusted for stock splits, reverse stock splits, stock dividends, recapitalizations and the like occurring after the date hereof (the "MINIMUM DEMAND SHARES"), then except as provided in paragraphs (b) and (c) below, all Registration Expenses incurred in connection with any Demand Registration or Incidental Registration and the distribution of any Registrable Shares in connection therewith shall be borne by @Home. For purposes of this Agreement, the term "REGISTRATION EXPENSES" shall mean all (i) registration, qualification and filing fees, (ii) fees and expenses of compliance with securities or blue sky laws, (iii) printing expenses (or comparable duplication expenses) and escrow fees, (iv) fees and disbursements of counsel for @Home, (v) customary fees and expenses for independent certified public accountants retained by @Home (including the expenses of any comfort letters or costs associated with the delivery by independent certified public accountants of a comfort letter or comfort letters), (vi) fees and expenses of any special experts retained by 18 @Home in connection with such registration, (vii) fees and expenses of listing the Registrable Shares on a securities exchange, and (viii) in the case of a Demand Registration only, the fees and expenses of a single counsel for the Selling Stockholders. If the Original Initiating Holder requests registration of less than the Minimum Demand Shares, then all Registration Expenses (including, without limitation, all fees and expenses of counsel to @Home) shall be borne by the Initiating Holders in proportion to the number of shares held by each of them with respect to which such Initiating Holders have requested registration; provided, however, that @Home shall bear all Registration Expenses in connection - -------- with the exercise of the Special Demand Registration Right regardless of the number of Registrable Shares requested to be registered by the Original Initiating Holder. (b) Selling Stockholder Expenses. Each Selling Stockholder shall pay ---------------------------- all stock transfer fees or expenses (including the cost of all transfer tax stamps), if any, and all underwriting or brokerage discounts and commissions attributable to the distribution of the Registrable Shares of such Selling Stockholder. (c) Incidental Registrations. In connection with any Incidental ------------------------ Registration, each Selling Stockholder shall also pay its pro rata share (based on the number of shares sold by such Selling Stockholder in the registration) of the incremental filing fee under the Securities Act attributable to the applicable Registrable Shares, and @Home shall not be responsible for the fees and disbursements of counsel for the Selling Stockholders. (d) Internal Expenses of @Home. Notwithstanding any other provision -------------------------- of this Agreement, @Home shall be obligated to bear all internal expenses of @Home in connection with any Demand Registration or Incidental Registration (including, without limitation, all salaries of its officers and employees performing accounting and legal functions and related expenses). 6. Indemnification. --------------- (a) By @Home. @Home agrees to indemnify and hold harmless each -------- Stockholder Indemnified Party from and against any Losses, joint or several, to which such Stockholder Indemnified Party may become subject under the Securities Act, state securities or blue sky laws, common law or otherwise, insofar as such Losses (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the applicable Registration Statement or Prospectus, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or the breach or violation of any common law rule or regulation applicable to @Home and relating to action required of or inaction by @Home in connection with such Registration Statement or Prospectus; and @Home will reimburse each such Stockholder Indemnified Party for any reasonable fees and expenses of a single outside legal counsel for all Stockholder Indemnified Parties, or in the event any Stockholder is advised by counsel that there may be a conflict of interest between Stockholders with respect to such matter, two separate outside legal counsel for all Stockholder Indemnified Parties, or other expenses reasonably incurred by them, as incurred, in connection with investigating or defending any such claims; provided, that -------- @Home will not 19 indemnify or hold harmless any Stockholder Indemnified Party from or against any such Losses (including any related expenses) to the extent the untrue statement, omission or allegation thereof upon which such Losses (including any related expenses) are based (x) was made in reliance upon and in conformity with written information provided by or on behalf of the applicable Selling Stockholder specifically for use or inclusion in the applicable Registration Statement or Prospectus or (y) was made in any Prospectus used after such time as @Home advised such Selling Stockholder that the filing of a post-effective amendment or supplement thereto was required, except the Prospectus as so amended or supplemented. (b) By Selling Stockholders. Each Selling Stockholder, individually ----------------------- and not jointly, agrees to indemnify and hold harmless each Company Indemnified Party and each other Stockholder Indemnified Party from and against any Losses, joint or several, to which such Company Indemnified Party or any other Stockholder Indemnified Party may become subject, insofar as such Losses (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the applicable Registration Statement or the Prospectus, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, if the statement or omission was made in reliance upon and in conformity with written information provided by or on behalf of such Selling Stockholder or any person who controls such Selling Stockholder specifically for use or inclusion in the applicable Registration Statement or Prospectus; provided, that such Selling Stockholder will not indemnify or hold harmless any - -------- Company Indemnified Party or other Stockholder Indemnified Party from or against any such Losses (including any related expenses) (i) to the extent the untrue statement, omission or allegation thereof upon which such Losses (including any related expenses) are based was made in any Prospectus used after such time as such Selling Stockholder advised @Home that the filing of a post-effective amendment or supplement thereto was required, except the Prospectus as so amended or supplemented, or (ii) in an amount that exceeds the net proceeds received by such Selling Stockholder from the sale of Registrable Shares pursuant to such Registration Statement. (c) Procedures. Each Indemnified Party shall give notice to each ---------- Indemnifying Party promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and the Indemnifying Party may participate at its own expense in the defense, or if it so elects, assume the defense of any such claim and any action or proceeding resulting therefrom, including the employment of counsel and the payment of all expenses. The failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party from its obligations to indemnify such Indemnified Party, except to the extent the Indemnified Party's failure to so notify actually prejudices the Indemnifying Party's ability to defend against such claim, action or proceeding. In the event that the Indemnifying Party elects to assume the defense in any action or proceeding, an Indemnified Party shall have the right to employ separate counsel in any such action or proceeding and to participate in the defense thereof, but such Indemnified Party shall pay the fees and expenses of such separate counsel unless (i) the Indemnifying Party has agreed to pay such fees and expenses or (ii) the named parties to any such action or proceeding (including any impleaded parties) include such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall have been advised by counsel that there may be a conflict of interest between such Indemnified Party and 20 the Indemnifying Party in the conduct of the defense of such action (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not assume the defense of such action or proceeding on such Indemnified Party's behalf, it being understood, however, that the Indemnifying Party shall not, in connection with any one such action or proceeding or separate but substantially similar or related actions or proceedings arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys at any time for all Indemnified Parties, which firm shall be designated in writing by the applicable Indemnified Parties). No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of the Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. (d) Contribution. If the indemnification provided for under this ------------ Section 6 is unavailable to or insufficient to hold the Indemnified Party harmless under subparagraphs (a) or (b) above in respect of any Losses referred to therein for any reason other than as specified therein, then the Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses (i) in such proportion as is appropriate to reflect the relative benefits received by the Indemnifying Party, on the one hand, and such Indemnified Party, on the other, from the subject offering or distribution and the relative fault of the Indemnifying Party, on the one hand, and such Indemnified Party, on the other, in connection with the statements or omissions which resulted in such Losses, as well as any other relevant equitable considerations. The relative benefits received by the Indemnifying Party, on the one hand, and the Indemnified Party, on the other, shall be deemed to be in the same proportion as the net proceeds of the offering or other distribution received by the Indemnifying Party bears to the net proceeds of the offering or other distribution received by the Indemnified Party. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by (or omitted to be supplied by) the Indemnifying Parties or Indemnified Parties, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission, the relative benefits received by each party from the sale of the Registrable Shares, and any other equitable considerations appropriate under the circumstances. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 7. Limitation on Other Registration Rights. Notwithstanding any other --------------------------------------- provision of this Agreement, without the prior written consent of Stockholders holding in the aggregate 66-2/3% of the Registrable Shares then outstanding, @Home shall not grant to any stockholder of @Home (or the holder of any securities of @Home convertible into or exchangeable or exercisable for any other securities) any "piggy-back" or other similar right to participate in any Demand Registration, other than any rights specifically granted in this Agreement. 8. Registration Rights Subject to Stockholders' Right of First Offer. ----------------------------------------------------------------- Notwithstanding the foregoing, the exercise of a Stockholder's registration rights with respect to 21 Registrable Shares pursuant to this Agreement shall be subject to the other Stockholders' Right of First Offer (as set forth in the Stockholders' Agreement), unless specifically exempted therefrom in accordance with the terms of the Stockholders' Right of First Offer (as set forth in the Stockholders' Agreement). 9. Miscellaneous. ------------- 9.1 Notices. All notices, requests, demands, waivers and other -------- communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally, mailed, certified or registered mail with postage prepaid, or sent by reliable overnight courier, or telecopier, as follows: (a) @Home: At Home Corporation 385 Ravendale Drive Mountain View, CA 94043 Attention: David G. Pine, General Counsel Facsimile: (415) 944-8500 with a copy to: Fenwick & West LLP Two Palo Alto Square Suite 800 Palo Alto, CA 94306 Attention: Gordon K. Davidson, Esq. Facsimile: (415) 494-1417 (b) Stockholders: (i) TCI Internet Holdings, Inc. 5750 DTC Parkway Englewood, Colorado 80111 Attention: Bruce Ravenel President Facsimile: (303) 712-5707 with a copy to: Baker & Botts, L.L.P. 599 Lexington Avenue New York, New York 10022-6030 Attention: Frederick H. McGrath, Esq. Facsimile: (212) 705-5125 22 (ii) Comcast PC Investments, Inc. 1105 North Market Street, Suite 1219 Wilmington, DE 19801 Attention: General Counsel Facsimile: (302) 427-7664 with a copy to: Comcast Corporation 1500 Market Street Philadelphia, PA 19102-2148 Attention: Robert S. Pick Vice President Facsimile: (215) 981-7794 and to: Wolf, Block, Schorr and Solis-Cohen Packard Building, 7th Floor 15th and Chestnut Streets Philadelphia, PA 19012 Attention: Jason M. Shargel, Esq. Facsimile: (215) 977-2334 (iii) Cox Teleport Providence, Inc. c/o Cox Communications, Inc. 1400 Lake Hearn Drive, NE Atlanta, GA 30319 Attention: David M. Woodrow Senior Vice President Facsimile: (404) 843-6352 with a copy to: Dow Lohnes & Albertson P.L.L.C. 1200 New Hampshire Ave., N.W. Suite 800 Washington, D.C. 20036 Attention: Stuart A. Sheldon, Esq. Facsimile: (202) 776-2222 23 (vi) KPCB VII Associates 2750 Sand Hill Road Menlo Park, CA 94205 Attention: L. John Doerr Facsimile: (415) 233-0323 with a copy to: Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, CA 94304 Attention: Allen Morgan, Esq. Facsimile: (415) 496-4092 and to: (vii) any other Stockholders, at the address and the facsimile number listed on the signature pages hereto. or to such other person or address as any party shall specify by notice in writing to the other party. All notices and other communications given to a party in accordance with the provisions of this Agreement shall be deemed to have been given (i) three Business Days after the same are sent by certified or registered mail, postage prepaid, return receipt requested, (ii) when delivered by hand or transmitted by telecopy (confirmation received) or (iii) one Business Day after the same are sent by a reliable overnight courier service, with acknowledgment of receipt requested. Notwithstanding the preceding sentence, notice of change of address shall be effective only upon actual receipt thereof. 9.2 Actions by Members of a Stockholder Group. All actions and ----------------------------------------- determinations by, and all notices by or to, a Stockholder Group or any member thereof shall be deemed validly taken or made (in the case of actions or determinations) or given (in the case of notices), if taken, made or given, as the case may be, by or to the Designated Representative of its Stockholder Group, which shall initially be (i) TCI Sub (in the case of its Stockholder Group), (ii) KPCB VII Associates (in the case of its Stockholder Group), (iii) Cox Sub (in the case of its Stockholder Group), (iv) Comcast Sub (in the case of its Stockholder Group), (v) Redwood (in the case of Developer's Stockholder Group), or (vi) the person named on the signature page hereof as the Designated Representative of the Series C Preferred Holders (in the case of the Series C Preferred Holders' Stockholder Group), and such actions, determinations and notices shall be binding upon all members of any such Stockholder Group for all purposes of this Agreement. If any of TCI Sub, KPCB VII Associates, Cox Sub or Comcast Sub (or any successor thereto pursuant to this sentence) is no longer in existence or no longer beneficially owns any Registrable Shares, but its Stockholder Group (or a successor or permitted assign thereof) continues to have rights and/or obligations hereunder, then such Stockholder shall appoint one such continuing entity as its replacement as Designated Representative of its Stockholder Group; provided that if no such appointment is made, such Stockholder's Parent (as 24 defined in the Stockholders' Agreement) shall be deemed to be such replacement. The Designated Representative of Developer's Stockholder Group shall automatically (without any further action) be: (i) Redwood for as long as Redwood is the general partner of Developer, and (ii) when Redwood is no longer the general partner of Developer, the person or entity which is from time to time the general partner of Developer, upon such person's or entity's written notice to @Home. If the Designated Representative of the Series C Preferred Holders (or any successor thereto pursuant to this sentence) is no longer in existence or no longer beneficially owns any Registrable Shares, but its Stockholder Group (or a successor or permitted assign thereof) continues to have rights and/or obligations hereunder, then such Stockholder Group shall appoint one such continuing entity as the replacement Designated Representative of the Series C Preferred Holders' Stockholder Group; provided that if no such -------- appointment is made, then such continuing entity holding the greatest number of Registrable Shares shall be deemed to be such replacement. The Designated Representative of the Series C Preferred Holders' Stockholder Group shall act only upon the written instructions of Series C Preferred Holders holding at least a majority of the Registrable Shares issued or issuable upon conversion of the Series C Preferred (including but not limited to shares of Series C Preferred issued or issuable upon exercise of the Canadian MSO Warrants). Each member of another Stockholder Group may rely upon the notification or advice of a Designated Representative with respect to any matter relating to the members of such Designated Representative's Stockholder Group. To the extent any party to this Agreement is required to take any action hereunder, it agrees to use its reasonable best efforts to cause the other members of its Stockholder Group to take such action. 9.3 Amendment. Any provision of this Agreement may be amended or ---------- modified in whole or in part at any time by an agreement in writing among @Home and the Designated Representatives of each of the parties hereto, executed in the same manner as this Agreement (other than (i) the Designated Representative of Developer and its permitted transferees hereunder, which, together with @Home, shall have the right to amend, modify or waive only those provisions of this Agreement applicable only to Developer and (ii) the Designated Representative of the Series C Preferred Holders and their permitted transferees hereunder, which, together with @Home, shall have the right to amend, modify or waive only those provisions of this Agreement applicable only to the Series C Preferred Holders and shall have no right to vote on any other amendments, modifications or waivers under this Agreement); provided that the provisions of -------- Section 4(f) of this Agreement may be amended to extend the time periods specified therein (which extended time period shall be the same for each Stockholder) by an agreement in writing among @Home and the Designated Representative of the TCI Sub Stockholder Group and (x) so long as each of the Comcast Sub Stockholder Group, the Cox Sub Stockholder Group and the KPCB Stockholder Group include an Eligible Stockholder, the Designated Representatives of any two of such three Stockholder Groups, (y) so long as only two of such three Stockholder Groups include an Eligible Stockholder, the Designated Representative of either one of such two Stockholder Groups which contain an Eligible Stockholder, and (z) so long as only one of such three Stockholder Groups includes an Eligible Stockholder, no approval of any of the Designated Representatives of such Stockholder Groups will be required, and any such amendment shall be binding on all holders of Registrable Shares. No consent, waiver or similar act shall be effective unless in writing. 25 9.4 Entire Agreement. This Agreement constitutes the entire ----------------- agreement among the parties hereto and supersedes all prior agreements and understandings, oral and written, among the parties hereto with respect to the subject matter hereof, including without limitation the Prior Registration Agreement, which shall be superseded in its entirety by this Agreement effective upon execution of this Agreement. 9.5 Counterparts. This Agreement may be executed in two or more ------------- counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 9.6 Governing Law. This Agreement shall be governed by and -------------- interpreted in accordance with the internal laws of the State of Delaware, without giving effect to principles of conflicts of laws. 9.7 Assignment. No party hereto may assign its rights under this ----------- Agreement without the prior written consent of @Home, other than (i) in the case of parties other than the Series C Preferred Holders, to a member of the party's Stockholder Group or to another Stockholder or members of its Stockholder Group, (ii) in the case of any Series C Preferred Holder, to any transferee of such Series C Preferred Holder (including without limitation a Controlled Affiliate of the Series C Preferred Holder) receiving at least twenty-five percent (25%) of the shares of Series C Preferred (or Series A Common Stock issued upon conversion of the Series C Preferred) that were originally purchased, and/or that were originally issuable upon exercise of the Canadian MSO Warrants, by the relevant Series C Preferred Investor under the Series C Purchase Agreements and the Canadian MSO Warrants, respectively or (iii) in connection with the transfer by a Canadian MSO of Registrable Shares to Additional Canadian MSO's, as that term is defined in the letter agreement, dated as of the date hereof among the Company and the Canadian MSO's with respect to the sale of the Canadian MSO Warrants; provided, however, that no Person may be assigned any of the foregoing -------- ------- rights unless the Company is given written notice by the assigning party at the time of such assignment stating the name and address of the assignee and identifying the securities of the Company as to which the rights in question are being assigned; and provided, further, that any such assignee shall receive such -------- ------- assigned rights subject to all the terms and conditions of this Agreement, including, without limitation, the provisions of this Section 9.7. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 9.8 Termination of Certain Company Obligations. The Company shall ------------------------------------------ have no obligations pursuant to Sections 2 and 3 with respect to any Registrable Shares proposed to be registered or sold by a Series C Preferred Holder after the fifth anniversary of the closing of the IPO. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 26 IN WITNESS WHEREOF, @Home, the Series C Preferred Investors and each of the required Designated Representatives of the other parties hereto have executed this Agreement as of the date first above written. AT HOME CORPORATION By: /s/ Thomas A. Jermoluk ------------------------------------- Name: Thomas A. Jermoluk Title: President/CEO TCI INTERNET HOLDINGS, INC. By: /s/ Bruce W. Ravenel ------------------------------------- Name: Bruce W. Ravenel Title: President/CEO KPCB VII ASSOCIATES By: /s/ William R. Hearst, III ------------------------------------- Name: William R. Hearst, III Title: General Partner COMCAST PC INVESTMENTS, INC. By: /s/ Brian L. Roberts ------------------------------------- Name: Brian L. Roberts Title: President COX TELEPORT PROVIDENCE, INC. By: /s/ David M. Woodrow ------------------------------------- Name: David M. Woodrow Title: V.P. [SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT] 27 Series C Preferred Investors: ---------------------------- ROGERS CABLE SYSTEMS LIMITED By: /s/ David Samuel ------------------------------------- Name: David Samuel Title: President, Rogers Wave By: /s/ M.L. Daly ------------------------------------- Name: M.L. Daly Title: Vice President, Treasurer Address of Series C Preferred Investor: Address: Suite 6400 Scotia Plaza 40 King St. W. Toronto M5H 3Y2 Attention: Chief Executive Officer Facsimile: (416) 864-2395 Designated Representative of the Series C Preferred Holders: ROGERS COMMUNICATIONS Address: Ste. 6400 Scotia Plaza 40 King St. W. Box 1007 Toronto M5H 3Y2 Attention: Vice President, Law and General Counsel Facsimile: (416) 864-2395 with a copy to: David Miller, Esq. Vice President, Law and General Counsel Suite 6400, Scotia Plaza 40 King St. W. Toronto, Ontario M5H 3Y2 [SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT] 28 Series C Preferred Investors: ---------------------------- SHAW CABLESYSTEMS LTD. By: /s/ Jim Shaw, Jr. ------------------------------------- Name: Jim Shaw, Jr. Title: President, Shaw CableSystems Ltd. By: /s/ Margot M. Micallef ------------------------------------- Name: Margot M. Micallef Title: Secretary Address of Series C Preferred Investor: Address: Suite 900, 630-3rd Avenue S.W. Calgary, Alberta T2P 4L4 Attention: Jim Shaw Jr., President Facsimile: (403) 750-4531 Designated Representative of the Series C Preferred Holders: Name:___________________________________ Address:________________________________ ________________________________________ Attention:______________________________ Facsimile:______________________________ With a copy to: Margot M. Micallef, Esq. Corporate Counsel Shaw Cablesystem Ltd. Suite 900, 630 3rd Avenue S.W. Calgary, Alberta T2P4L4 [SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT] 29 Series C Preferred Investors: ---------------------------- SUN MICROSYSTEMS, INC. Name: /s/ Michael Lehman ----------------------------------- By: Michael Lehman, Title: Vice President & Chief Financial Officer Address of Series C Preferred Investor: Address: 2550 Garcia Avenue, MS PALI-530 Mt. View, CA 94043 Attention: General Counsel Facsimile: (415) 336-0530 Designated Representative of the Series C Preferred Holders: Name:___________________________________ Address:________________________________ ________________________________________ Attention:______________________________ Facsimile:______________________________ [SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT] 30 Series C Preferred Investors: ---------------------------- Name: /s/ Peter Currie ----------------------------------- By: SR. VP & CFO ------------------------------------- Name: Peter Currie Title: Senior Vice President & Chief Financial Officer Address of Series C Preferred Investor: Address: Netscape Communications Corp. 501 E. Middlefield Rd. Mt. View, CA 94043 Attention: Peter L.S. Currie Facsimile: (415) 523-4139 Designated Representative of the Series C Preferred Holders: Name:___________________________________ Address:________________________________ _________________________________________ Attention:_______________________________ Facsimile:_______________________________ [SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT] 31 Series C Preferred Investors: ---------------------------- Name: James Barksdale ----------------------------------- By: /s/ James Barksdale ------------------------------------- Name: James Barksdale Title: Address of Series C Preferred Investor: Address: c/o Netscape Communications Corp. 487 E. Middlefield Rd. Mt. View, CA 94043 Attention:______________________________ Facsimile: (415) 528-4126 Designated Representative of the Series C Preferred Holders: Name:___________________________________ Address:________________________________ ________________________________________ Attention:______________________________ Facsimile:______________________________ [SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT] 32 Series C Preferred Investors: ---------------------------- Motorola, Inc. By: /s/ John W. Battin ------------------------------------- Name: John W. Battin Title: Senior Vice President and General Manager, Multimedia Group Address of Series C Preferred Investor: Address: 3436 N. Kennicott, Suite 150 Arlington Heights, IL 60004 Attention: Douglas M. Robertson Facsimile: (847) 632-3164 Designated Representative of the Series C Preferred Holders: Name:___________________________________ Address:________________________________ ________________________________________ Attention:______________________________ Facsimile:______________________________ with a copy to: Motorola, Inc. Attn: General Counsel 1303 E. Algonquin Road Schaumburg, IL 60196 [SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT] 33 Series C Preferred Investors: ---------------------------- Name: Bay Networks, Inc. By: /s/ David Rynne ------------------------------------- Name: David Rynne Title: Chief Financial Officer Address of Series C Preferred Investor: Address: 4401 Great America Parkway Santa Clara, CA 95054 Attention: David Rynne ------------------------------ Facsimile: (408) 495-1400 ------------------------------ Designated Representative of the Series C Preferred Holders: Name:___________________________________ Address:________________________________ ________________________________________ Attention:______________________________ Facsimile:______________________________ [SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT] 34 EX-4.02 7 LETTER AGREEMENT / TAG-ALONG & DRAG-ALONG RIGHTS EXHIBIT 4.02 TCI INTERNET HOLDINGS, INC. KLEINER PERKINS CAUFIELD & BYERS COX TELEPORT PROVIDENCE, INC. COMCAST PC INVESTMENTS, INC. April 11, 1997 Rogers Cablesystems Limited Shaw Cablesystems Ltd. James Barksdale Netscape Communications Corporation Sun Microsystems, Inc. Bay Networks, Inc. Motorola, Inc. Re: Tag-Along/Drag-Along Agreement ------------------------------ Ladies and Gentlemen: Reference is made to the Amended and Restated Stockholders' Agreement (the "Stockholders Agreement"), dated as of August 1, 1996, among TCI Internet Holdings, Inc. ("TCI Sub"), Comcast PC Investments, Inc. ("Comcast Sub"), Cox Teleport Providence, Inc. ("Cox Sub", and together with TCI Sub and Comcast Sub, the "Cable Stockholders"), Kleiner Perkins Caufield & Byers VII ("KPCB"), certain of their respective affiliates, and At Home Corporation ("@Home"). @Home is entering into a stock purchase agreement (the "Stock Purchase Agreement") with Rogers Cablesystems Limited ("Rogers"), Shaw Cablesystems Ltd. ("Shaw"), James Barksdale ("Barksdale"), Netscape Communications Corporation ("Netscape"), Bay Networks, Inc. ("Bay"), Motorola, Inc. ("Motorola") and Sun Microsystems, Inc. ("Sun") (Rogers, Shaw, Barksdale, Netscape, Bay, Motorola and Sun are each referred to herein as an "Original Investor"), and certain other related agreements providing for among other things, the purchase by the Original Investors of shares of @Home's Series C Convertible Preferred Stock, par value $.01 per share (the "Series C Preferred Stock"). In addition, pursuant to the term sheet, dated as of March 18, 1997, among Rogers, Shaw and @Home (the "Term Sheet"), each of Rogers and Shaw have agreed, among other things, to purchase certain warrants (the "Warrants") to purchase shares of Series C Preferred Stock and to market and promote, on an exclusive basis, @Home's Service in Canada. In order to induce (i) the Original Investors to consummate the purchase of the shares of Series C Preferred Stock and (ii) Rogers and Shaw to consummate the purchase of the shares of Series C Preferred Stock and the transactions referred to in the Term Sheet, each of TCI Sub, Comcast Sub, Cox Sub and KPCB is entering into this letter agreement and agreeing, on behalf of itself and its related Stockholder Group, to provide to the Original Investors the rights set forth herein, and in consideration of the grant to them of the rights and benefits specified herein, each Original Investor, on behalf of itself and any Controlled Affiliate (as defined below) to which such Original Investor transfers Subject Securities (as defined below) in accordance with this letter agreement, is entering into this letter agreement and providing the Cable Stockholders with the rights set forth herein. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Stockholders Agreement. In consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Participation Right. In the event of any Control Block Sale or other ------------------- similar sale, transfer or other disposition of Company Securities by a Cable Stockholder's Stockholder Group to an Unaffiliated Third Party, in which the members of the TCI Stockholder Group, the Cox Stockholder Group or the Comcast Stockholder Group are entitled to participate and sell Company Securities (other than to the Company (or its designee) or to another Stockholder Group) pursuant to the Tag-Along Right set forth in the Stockholders Agreement or, in the event the Stockholders Agreement is no longer in effect, any similar provision enabling a non-controlling Stockholder to participate in any such transaction set forth in an agreement (such other agreement, a "Parties Agreement") relating to the securities of @Home to which TCI Sub, Comcast Sub and Cox Sub, or the members of their respective Stockholder Groups then owning Company Securities, are parties (such Control Block Sale or such other sale, transfer or disposition, a "Control Sale Transaction" which term shall not include (x) any Qualified Spin Off Transaction or (y) any transaction which the holders of Series C Preferred Stock elect to deem as a liquidation of @Home pursuant to Section 3 of the Certificate of Designation for the Series C Preferred Stock), then each of TCI Sub, on behalf of itself and the TCI Stockholder Group, Comcast Sub, on behalf of itself and the Comcast Stockholder Group, and Cox Sub, on behalf of itself and the Cox Stockholder Group, agree that, to the extent it is a member of the Control Block Group, it will not participate in such Control Sale Transaction unless each Qualified Investor (as defined below) is provided with the right to participate with respect to its Subject Securities on a pro rata basis in such transaction upon the same terms and conditions as the members of the TCI Stockholder Group, the Comcast Stockholder Group and the Cox Stockholder Group, as applicable, having Tag-Along Rights are entitled to participate. 2. Drag-Along Right. In the event any of TCI Sub, Comcast Sub or Cox ---------------- Sub, or any member of its Stockholder Group to which Company Securities have been transferred, has a right pursuant to the Stockholders Agreement or a Parties Agreement to require any other Cable Stockholder (or the members of its related Stockholder Group) to sell Company Securities in connection with a Control Sale Transaction, then the Stockholder having the right to cause other Stockholders to sell Company Securities in such transaction shall also have the right to require each Original Investor and any Controlled Affiliate to which such Original Investor has transferred Subject Securities, to sell a pro rata portion of the Subject Securities beneficially owned by it in such transaction upon the same terms and conditions as the other Stockholders so required to sell are selling their Company Securities. 2 3. Definitions. As used in this letter agreement, the following terms ----------- shall have the following definitions: (A) Subject Securities: Without duplication, (i) the shares of Series ------------------ C Preferred Stock purchased by each Original Investor at the closing of the transactions contemplated by the Stock Purchase Agreement, (ii) shares of Series C Preferred Stock issued upon exercise of the Warrants, (iii) shares of Series A Common Stock issuable upon conversion of the shares of Series C Preferred Stock described in clauses (i) and (ii) above, (iv) any New Capital Stock (as defined in the Stock Purchase Agreement) acquired by an Original Investor (or its Controlled Affiliate) pursuant to the exercise of preemptive rights granted pursuant to the Stock Purchase Agreement, but excluding any Rights or Options which, as of the applicable date of determination, have not been exercised, and (v) any Subject Securities acquired by an Original Investor or its Controlled Affiliates directly from another Original Investor or its Controlled Affiliate pursuant to clause (iii) of Section 4.1(b) of the Stock Purchase Agreement. (B) Qualified Investor: An Original Investor which owns, of record ------------------ and beneficially, not less than 50% of the shares of Series C Preferred Stock originally purchased by it pursuant to the Stock Purchase Agreement (or shares of Series A Common Stock issuable upon conversion thereof), or any Controlled Affiliate of such Original Investor to which such amount of securities have been transferred, so long as such Controlled Affiliate (i) entered into, at the time of the transfer of securities to it, an instrument agreeing to be bound hereunder in accordance with Section 5 hereof and (ii) at all times following the transfer of securities to it has continued to be, and at the time of the Control Sale Transaction is, a Controlled Affiliate of such Original Investor; provided, however, that for purposes of the -------- ------- foregoing, each of Rogers and Shaw shall be deemed to be a Qualified Investor so long as it owns, of record and beneficially, shares of Series C Preferred Stock, Warrants or shares of Series A Common Stock (either issued or issuable upon the conversion of shares of Series C Preferred Stock or exercise of Warrants, whether or not then vested and exercisable), equal to, on a Series A Common Stock equivalent basis and without duplication, at least 50% of the shares originally purchased by it pursuant to the Stock Purchase Agreement and the Canadian Purchase Agreement (as defined in the Stock Purchase Agreement) (on a fully diluted basis). (C) Controlled Affiliate: A "Controlled Affiliate" of an Original -------------------- Investor shall mean any Person (i) which is Controlled by such Original Investor, (ii) which owns (directly or indirectly through one or more wholly owned subsidiaries) 100% of the outstanding capital stock of such Original Investor as of the date of 3 this Agreement (a "Parent"), or (iii) of which more than 50% of the equity interests and voting power of its outstanding capital stock is owned by a Parent of such Original Investor. "Control" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, management agreement or otherwise. 4. Termination. This letter agreement and all of the rights and ----------- obligations of the parties shall terminate and be of no further force and effect upon the first to occur of (x) the closing of @Home's IPO and (y) such time as neither Rogers nor Shaw is offering the Wave@Home Service on an exclusive basis in accordance with the exclusive license referred to in Section 2.1(A) or (B), as applicable, of the Term Sheet (or in accordance with any analogous provisions with respect to distribution of the Wave@Home Service by Rogers and Shaw contained in any definitive agreement superseding the Term Sheet). 5. Binding Effect. The terms and provisions of this letter agreement -------------- shall be binding upon and enforceable against TCI Sub and each member of the TCI Stockholder Group, Comcast Sub and each member of the Comcast Stockholder Group, and Cox Sub and each member of the Cox Stockholder Group, and each of TCI Sub, Comcast Sub and Cox Sub agrees that it will not sell, assign or transfer any Company Securities to another member of its Stockholder Group unless such member of its Stockholder Group agrees to be bound by the provisions of this letter agreement. The provisions of this letter agreement shall be binding upon and enforceable by and against each Original Investor and any Controlled Affiliate of an Original Investor to which shares of Series C Preferred Stock, Warrants, or shares of Series A Common Stock have been transferred, provided that at the time of the transfer of securities to it such Controlled Affiliate enters into an instrument, substantially in the form of Exhibit A hereto, agreeing to be bound by the provisions of this letter agreement. 6. No Rights With Respect to Other Agreements. Each Original Investor, ------------------------------------------ by its execution and delivery of this letter agreement, acknowledges and agrees, on behalf of itself and any transferee of shares of Series C Preferred Stock or Series A Common Stock or Warrants, that neither such Original Investor nor any such transferee shall have or obtain any rights or benefits (including as a third party beneficiary) under the Stockholders Agreement or any Parties Agreement entered into by the Cable Stockholders, and that the parties to the Stockholders Agreement or any Parties Agreement shall have the right to amend, modify or waive any rights or obligations thereunder, or terminate any such agreement, without the consent or approval of any Original Investor or its transferee, and that no Original Investor will have any rights to enforce any of the terms and provisions of the Stockholders Agreement or any Parties Agreement, as a third party beneficiary or otherwise. The agreements set forth in this letter agreement shall be considered the separate and independent agreements and undertaking of the parties hereto. 7. Miscellaneous. (A) This letter agreement will be governed by, and ------------- construed in accordance with, the laws of the State of Delaware, without regard to the conflicts of law rules of such state. 4 (B) The parties hereto agree that irreparable damage would occur in the event any provision of this letter agreement was not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof in addition to any other remedy at law or in equity. (C) This letter agreement may be executed in counterparts, each of which shall be deemed an original and all of which shall constitute one and the same instrument. (D) Each party hereto severally represents to each of the other parties hereto that this letter agreement has been duly authorized, executed and delivered by such party and constitutes the legal, valid and binding obligation of such party and the members of such party's Stockholder Group, as applicable, enforceable against such party in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the rights of creditors generally and by general principles of equity. (E) In connection with any of the transactions contemplated by Sections 1 or 2 above, the Stockholder initiating such Control Sale Transaction shall provide written notice of the proposed transaction to each Original Investor at such time as notice is provided to the other Cable Stockholders, which notice will set forth the relevant terms and conditions of such transaction. In the case of any transaction which is subject to Section 1 above, any Original Investor desiring to participate in such transaction shall deliver written notice to the Control Block Group accepting such offer within the period specified in such first notice (which period shall be no less than the number of days granted to the other Cable Stockholders for their acceptance of such offer). In the case of any transaction which is subject to Section 2 above, the Cable Stockholder desiring to exercise the Drag-Along Right pursuant thereto shall provide to each Original Investor required to sell Subject Securities in such transaction notice of such exercise together with instructions relating to the delivery of Subject Securities in connection with such transaction. (F) KPCB, on behalf of itself and the KPCB Stockholder Group, hereby consents to the execution and delivery of this letter agreement by each of the Cable Stockholders and to the transactions contemplated by this letter agreement. 5 If the foregoing is in accordance with your understanding please indicate your agreement by signing below, at which time this letter will constitute a binding agreement among us. Very truly yours, TCI INTERNET HOLDINGS, INC. By: /s/ Bruce W. Ravenel ------------------------------- Name: Bruce W. Ravenel Title: President/CEO COX TELEPORT PROVIDENCE, INC. By:/s/ David M. Woodrow ------------------------------- Name: David M. Woodrow Title: VP COMCAST PC INVESTMENTS, INC. By:/s/ Brian L. Roberts ------------------------------- Name: Brian L. Roberts Title: President KLEINER PERKINS CAUFIELD & BYERS VII By: /s/ William R. Hearst, III ---------------------------- Name: William R. Hearst, III Title: General Partner Accepted and Agreed as of this 11 day of April, 1997: ROGERS CABLESYSTEMS LIMITED By: /s/ David Miller and David Samuel --------------------------------- Name: David Miller and David Samuel Title: VP President Rogers Wave SHAW CABLESYSTEMS LTD. By: /s/ Jim Shaw, Jr. ------------------------------------ Name: Jim Shaw, Jr., President By: /s/ Margot M. Micallef ------------------------------------ Name: Margot M. Micallef, Secretary JAMES BARKSDALE By: /s/ JAMES BARKSDALE ----------------------------- NETSCAPE COMMUNICATIONS CORPORATION By: /s/ Peter Currie --------------------------- Name: Peter Currie Title: SVP & CFO BAY NETWORKS, INC. By: /s/ David Rynne --------------------------- Name: David Rynne Title: Executive Vice President and Chief Financial Officer SUN MICROSYSTEMS, INC. By: /s/ Michael Lehman --------------------------- Name: Michael Lehman Title: Vice President & Chief Financial Officer MOTOROLA, INC. By: /s/ John W. Battin --------------------------- Name: John W. Battin Title: Senior Vice President and General Manager, Multimedia Group [SIGNATURE PAGE TO LETTER AGREEMENT] EX-4.03 8 CANADIAN PURCHASE AGREEMENT EXHIBIT 4.03 AT HOME CORPORATION 425 Broadway Redwood City, CA 94063 April 11, 1997 Shaw Cablesystems Ltd. Suite 900 630 Third Avenue SW Calgary, Alberta Canada T2P 4L4 Rogers Cablesystems Limited Suite 6400, Scotia Plaza 40 King Street W Toronto, Ontario Canada M5H 3Y2 Re: Canadian Purchase Agreement --------------------------- Ladies and Gentlemen: Reference is made to that certain Stock Purchase Agreement, dated of even date herewith, among At Home Corporation (the "COMPANY") and the purchasers listed on Exhibit A thereto, which include Rogers Cablesystems Limited, a corporation incorporated under the laws of Ontario ("ROGERS"), and Shaw Cablesystems Ltd., a corporation incorporated under the federal laws of Canada ("SHAW"), with respect to the purchase by, and sale to, each of Rogers and Shaw of $15,000,000 of Series C Convertible Preferred Stock, par value U.S. $0.01 per share ("SERIES C PREFERRED") of the Company (the "PURCHASE AGREEMENT") out of a total offering of up to $50,000,000. Capitalized terms used in this letter agreement (this "AGREEMENT") without definition shall have the meanings given to them in the Purchase Agreement. In connection with the purchase of Series C Preferred by Rogers and Shaw, the Company has agreed to grant certain warrants and provide certain rights to Rogers and Shaw, as described below. 1. Purchase and Sale of Warrants. Subject to the terms and conditions of ----------------------------- the Purchase Agreement and this Agreement, the Company agrees to issue and sell to each of Rogers and Shaw, and each of Rogers and Shaw agrees, severally and not jointly, to purchase from the Company, at the Closing, (i) a warrant in the form attached hereto as Exhibit A (each, a "WARRANT 1") to purchase 32,500 --------- shares of Series C Preferred which are initially convertible into 650,000 shares of Series A Common Stock; (ii) a warrant in the form attached hereto as Exhibit ------- B (each, a "WARRANT 2") to purchase 4,000 shares of Series C Preferred which - - are initially convertible into 80,000 shares of Series A Common Stock; and (iii) a warrant in the form attached hereto as Exhibit C (each, a "WARRANT 3") to purchase 13,500 shares of --------- Series C Preferred which are initially convertible into 270,000 shares of Series A Common Stock. The aggregate purchase price for each Warrant 1 will be $650.00. The aggregate purchase price for each Warrant 2 will be $80.00. The aggregate purchase price for each Warrant 3 will be $270.00. Each Warrant 1, Warrant 2 and Warrant 3 are collectively referred to herein as the "WARRANTS." 2. Additional Representations, Warranties and Covenants of the Company. ------------------------------------------------------------------- In addition to the Company's representations, warranties and covenants in Section 2 of the Purchase Agreement, which are hereby incorporated herein by reference with the same force and effect as if set forth herein, the Company hereby represents and warrants to, and covenants with, each of Rogers and Shaw (each, a "CANADIAN PURCHASER") as follows, except as set forth in the Additional Schedule of Exceptions ("ADDITIONAL SCHEDULE OF EXCEPTIONS") attached to this Agreement as Exhibit E (which Additional Schedule of Exceptions shall be deemed --------- to be representations and warranties to the Canadian Purchasers by the Company under this Section 2): 2.1 Authorization; Consents and Approvals; No Conflict. This -------------------------------------------------- Agreement, the Warrants issued to such Canadian Purchaser, and the Canadian Voting Agreement (as hereinafter defined) shall be deemed included within the definition of "Transaction Agreements" with respect to such Canadian Purchaser for purposes of Section 2.7 of the Purchase Agreement. This Agreement, the Warrants issued to such Canadian Purchaser, the Canadian Voting Agreement and that certain letter agreement of even date herewith among the Canadian Purchasers, the Cable Stockholders (as hereinafter defined) and Kleiner, Perkins, Caufield & Byers VII with respect to certain resales of the Company's stock (the "TAG/DRAG AGREEMENT") shall be deemed included in the definition of "Transaction Agreements" with respect to such Canadian Purchaser for purposes of Section 2.8 of the Purchase Agreement. 2.2 Valid Issuance of Warrants and Warrant Stock. The Warrants, when -------------------------------------------- issued, sold and delivered in accordance with the terms of this Agreement to such Canadian Purchaser, will be duly authorized and validly issued, free of any liens, claims, charges, security interests, pledges or encumbrances of any kind (other than restrictions on transfer or voting created in this Agreement, the Purchase Agreement, such Warrants, the Registration Rights Agreement, the Canadian Voting Agreement or the Tag/Drag Agreement or by such Canadian Purchaser or as a result of applicable state and federal securities laws). The shares issuable upon exercise of the Warrants (the "WARRANT STOCK") will have been duly and validly reserved for issuance prior to the Closing and, upon issuance in accordance with the terms of the Warrants, the Certificate of Designation and the Restated Certificate, will be duly authorized, validly issued, fully paid and nonassessable, free of any liens, claims, charges, security interests, pledges or encumbrances of any kind (other than restrictions on transfer or voting created in this Agreement, the Purchase Agreement, such Warrants, the Registration Rights Agreement, the Canadian Voting Agreement or the Tag/Drag Agreement or by such Canadian Purchaser or as a result of applicable state and federal securities laws). 2.3 No Registration Required. Based in part on the representations ------------------------ made by such Canadian Purchaser in Section 6 hereof, the Purchased Shares and the Warrants and (assuming no change in applicable law and no unlawful distribution of Purchased Shares or -2- Warrants by such Canadian Purchaser or other parties) the Conversion Shares or Warrant Stock, respectively, will be issued in full compliance with either (i) Rule 903 of Regulation S under the U.S. Securities Act of 1933, as amended (the "SECURITIES ACT") or (ii) another applicable exemption from the registration requirements of the Securities Act, and the registration and qualification requirements of the securities laws of the States of California and Delaware (provided that, with respect to the Conversion Shares and Warrant Stock, no -------- ---- commission or other remuneration is paid or given, directly or indirectly, for soliciting the issuance of Conversion Shares upon the conversion of the Purchased Shares or Warrant Stock upon the exercise of the Warrants and no additional consideration is paid for the Conversion Shares other than surrender of the applicable Purchased Shares upon conversion thereof in accordance with the Certificate of Designation and the Restated Certificate or for the Warrant Stock other than delivery of the applicable exercise price thereof). 3. Additional Representations, Warranties and Covenants of the ----------------------------------------------------------- Purchasers. In addition to each Canadian Purchaser's representations, warranties - ---------- and covenants in Section 3 of the Purchase Agreement, which are hereby incorporated herein by reference with the same force and effect as if set forth herein, each Canadian Purchaser, on behalf of itself and not jointly with the other Canadian Purchaser, hereby represents and warrants to, and covenants with, the Company as follows: 3.1 Authorization; Consents and Approvals; No Conflict. The Warrants -------------------------------------------------- issued to such Canadian Purchaser, the Canadian Voting Agreement and the Tag/Drag Agreement shall be deemed included within the definition of "Transaction Agreements" with respect to such Canadian Purchaser for purposes of Sections 3.5 and 3.6 of the Purchase Agreement. 3.2 Disclosure of Information. The Warrants issued to such Canadian ------------------------- Purchaser shall be deemed included within the definition of "Purchased Shares" with respect to such Canadian Purchaser for purposes of Section 3.7 of the Purchase Agreement. 4. Conditions to Rogers' and Shaw's Obligations at Closing. In addition ------------------------------------------------------- to the closing conditions in Section 6 of the Purchase Agreement, which are hereby incorporated herein by reference with the same force and effect as if set forth herein, the obligation of each Canadian Purchaser to purchase and/or acquire Purchased Shares and Warrants at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following additional conditions, any of which may be waived by such Canadian Purchaser, respectively, by written notice to the Company pursuant to Section 10.6 of the Purchase Agreement: 4.1 Correctness of Representations and Warranties. The --------------------------------------------- representations and warranties of the Company set forth or incorporated by reference in this Agreement shall, if specifically qualified by materiality, be true and correct and, if not so qualified, be true and correct in all material respects in each case as of the date of this Agreement and as of the Closing Date with the same effect as if made on and as of the Closing Date, and such Canadian Purchaser shall have received a certificate to such effect from the Company, signed by its duly authorized officer. -3- 4.2 Performance of Agreements. The Company shall have performed and ------------------------- complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing Date, and such Canadian Purchaser shall have received a certificate to such effect from the Company, signed by its duly authorized officer. 4.3 Securities Exemption. The offer and sale of the Purchased Shares -------------------- and the Warrants to such Canadian Purchaser pursuant to this Agreement (and, with respect to the Purchased Shares, pursuant to the Purchase Agreement) shall be in compliance with Rule 903 of Regulation S under the Securities Act or exempt from the registration requirements of the Securities Act, the qualification requirements of the California Securities Law and the registration and/or qualification requirements of all other applicable state securities laws. 4.4 No Material Litigation. There shall not be pending on the ---------------------- Closing Date any lawsuit, claim, proceeding or other legal action by or before any court or other regulatory, administrative or governmental authority that seeks to restrain, restrict or prohibit or impose substantial penalties or damages with respect to (or any other materially adverse relief or remedy in connection with), and there shall not be in effect on the Closing Date any injunction or other order of any governmental authority or arbitration panel that restrains, restricts, prohibits or imposes substantial penalties or damages with respect to (or any other materially adverse relief or remedy in connection with), the consummation of the transactions contemplated hereby. 4.5 Government Approvals and Consents. All governmental consents --------------------------------- required in connection with the consummation of the transactions contemplated by this Agreement shall have been obtained and shall be in full force and effect and all governmental filings required in connection with the consummation of the transactions contemplated by this Agreement shall have been made, and all waiting periods, if any, applicable to the consummation of such transactions imposed by any governmental entity shall have expired, other than those which, if not obtained, in force or effect, made or expired (as the case may be) would not, whether individually or in the aggregate, have a material adverse effect on the transactions contemplated by the Purchase Agreement and this Agreement. 4.6 Proceedings and Documents. All corporate and other proceedings ------------------------- in connection with the transactions contemplated hereby at the Closing, and all documents and instruments incident to these transactions, shall be reasonably satisfactory in substance to such Canadian Purchaser and its counsel and such Canadian Purchaser shall have received all such counterpart originals and certified or other copies of such documents as such Canadian Purchaser may reasonably request. 4.7 Delivery of Warrants. The Company shall have delivered to such -------------------- Canadian Purchaser an original executed copy of each Warrant to be purchased by such Canadian Purchaser pursuant to Section 1 of this Agreement. 4.8 Waiver of Existing Rights. On or before the Closing, any ------------------------- preemptive rights, rights of first refusal and other rights (including but not limited to, the right to receive notice of the transactions contemplated by this Agreement) of the parties to the Stockholders' -4- Agreement (and their respective Stockholder Groups, as defined in the Stockholders' Agreement) under the Stockholders' Agreement shall have been waived as and to the extent such rights apply to the issuance and sale of the Warrants and the Warrant Stock hereunder and the other transactions contemplated hereby and by the Transaction Agreements. 4.9 Board of Directors; Canadian Voting Agreement. At the Closing, --------------------------------------------- the authorized number of directors of the Company shall be eleven, and such Canadian Purchaser shall have received from TCI Internet Holdings, Inc., Cox Teleport Providence, Inc. and Comcast PC Investments, Inc. (the "CABLE STOCKHOLDERS"), the Company and the other Canadian Purchaser executed counterparts of the Voting Agreement in the form attached as Exhibit D hereto --------- (the "CANADIAN VOTING AGREEMENT"). 4.10 Minimum Investment. The other Canadian Purchaser shall purchase ------------------ 75,000 shares of Series C Preferred, a Warrant 1 to purchase 32,500 shares of Series C Preferred, a Warrant 2 to purchase 4,000 shares of Series C Preferred and a Warrant 3 to purchase 13,500 shares of Series C Preferred. 5. Conditions to the Company's Obligations at Closing. In addition to the -------------------------------------------------- closing conditions in Section 7 of the Purchase Agreement, which are hereby incorporated herein by reference with the same force and effect as if set forth herein, the obligation of the Company to issue and sell the Purchased Shares and the Warrants to each Canadian Purchaser at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following additional conditions: 5.1 Correctness of Representations and Warranties. The --------------------------------------------- representations and warranties of such Canadian Purchaser contained in this Agreement and the Warrants shall, if specifically qualified by materiality, be true and correct and, if not so qualified, be true and correct in all material respects in each case as of the date of this Agreement and as of the Closing Date with the same effect as if made on and as of the Closing Date, and the Company shall have received a certificate to such effect from such Canadian Purchaser, signed by its duly authorized officer. 5.2 Performance of Agreements. Such Canadian Purchaser shall have ------------------------- performed and complied with all covenants, agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing Date, and the Company shall have received a certificate to such effect from such Canadian Purchaser, signed by its duly authorized officer. 5.3 No Material Litigation. There shall not be pending on the ---------------------- Closing Date any lawsuit, claim, proceeding or other legal action by or before any court or other regulatory, administrative or governmental authority that seeks to restrain, restrict or prohibit or impose substantial penalties or damages with respect to (or any other materially adverse relief or remedy in connection with), and there shall not be in effect on the Closing Date any injunction or other order of any governmental authority or arbitration panel that restrains, restricts, prohibits or imposes substantial penalties or damages with respect to (or any other materially adverse relief or remedy in connection with), the consummation of the transactions contemplated hereby. -5- 5.4 Securities Exemption. The offer and sale of the Purchased Shares -------------------- and the Warrants to such Canadian Purchaser pursuant to this Agreement shall be in compliance with Rule 903 of Regulation S under the Securities Act or exempt from the registration requirements of the Securities Act, the qualification requirements of the California Securities Law and the registration and/or qualification requirements of all other applicable state securities laws, provided that the Company shall be obligated to use its commercially reasonable efforts to make all filings and take all such other actions required to perfect such exemptions. 5.5 Government Approvals and Consents. All governmental consents --------------------------------- required in connection with the consummation of the transactions contemplated by this Agreement shall have been obtained and shall be in full force and effect and all governmental filings required in connection with the consummation of the transactions contemplated by this Agreement shall have been made, and all waiting periods, if any, applicable to the consummation of such transactions imposed by any governmental entity shall have expired, other than those which, if not obtained, in force or effect, made or expired (as the case may be) would not, whether individually or in the aggregate, have a material adverse effect on the transactions contemplated by this Agreement and the Purchase Agreement. 5.6 Proceedings and Documents. All corporate and other proceedings ------------------------- in connection with the transactions contemplated hereby at the Closing, and all documents and instruments incident to these transactions, shall be reasonably satisfactory in substance to the Company and its counsel and they shall each have received all such counterpart originals and certified or other copies of such documents as they may reasonably request. 5.7 Payment of Purchase Price. Such Canadian Purchaser shall have ------------------------- delivered to the Company the purchase price for each of the Warrants specified in Section 1 of this Agreement. 5.8 Waiver of Existing Rights. On or before the Closing, any ------------------------- preemptive rights, rights of first refusal and other rights (including but not limited to, the right to receive notice of the transactions contemplated by this Agreement) of the parties to the Stockholders' Agreement (and their respective Stockholder Groups, as defined in the Stockholders' Agreement) under the Stockholders' Agreement shall have been waived as and to the extent such rights apply to the issuance and sale of the Warrants and the Warrant Stock hereunder and the other transactions contemplated hereby and by the Transaction Agreements. 5.9 Minimum Investment. Each of Rogers and Shaw shall purchase a ------------------ minimum of 75,000 shares of Series C Preferred, a Warrant 1 to purchase 32,500 shares of Series C Preferred, a Warrant 2 to purchase 4,000 shares of Series C Preferred and a Warrant 3 to purchase 13,500 shares of Series C Preferred. 6. Compliance with U.S. Securities Laws. ------------------------------------ 6.1 Compliance with Regulation S. Rogers and Shaw acknowledge that ---------------------------- the offer and sale by the Company to them of the Series C Preferred and the Warrants, and the securities that are issuable upon exercise of the Warrants and conversion of the Series C -6- Preferred (collectively the "SECURITIES") are being made in part in reliance on the parties' compliance with Rule 903 of Regulation S under the Securities Act, which provides an exemption from the registration requirements of the Securities Act for certain "offshore transactions" in which (i) the offer is not made to a person in the United States, (ii) at the time the buy order is originated, the buyer is outside the United States and is not a U.S. person within the meaning of Regulation S, (iii) certain resale restrictions are imposed on the securities being sold and (iv) the offer and sale is made pursuant to the conditions specified in Rule 903(c)(3)(iii)(B) of Regulation S. 6.2 Representations of Rogers and Shaw. Each of Rogers and Shaw ---------------------------------- severally represents and agrees that: a) It is not a "U.S. person" within the meaning of Regulation S; b) It is not acquiring the Securities for the account of or benefit of any U.S. person; c) The offer to purchase the Securities was not made to it in the United States; d) To the best of its knowledge, the offer and sale of the Securities is being made in an "offshore transaction" complying with the provisions of Rule 903 of Regulation S under the Securities Act; e) It is acquiring the Securities for investment and not with a view to the sale or other distribution thereof within the meaning of the Act; and f) It will resell or transfer the Securities only in accordance with the provisions of Regulation S, pursuant to registration under the Securities Act, or pursuant to another available exemption from registration. 6.3 Restrictions on Resale. Notwithstanding anything to the contrary ---------------------- in the Purchase Agreement or the Warrants, each of Rogers and Shaw agrees severally that until two years after the Closing or such earlier time as may be permitted under Regulation S (the "RESTRICTED PERIOD"), it will not offer or sell any of the Securities in the United States or to any U.S. person unless the Securities are registered under the Securities Act or an exemption from the registration requirements under the Securities Act is available. Rogers and Shaw acknowledge that (i) any resale or transfer of the Securities during the Restricted Period, unless registered under the Securities Act or made pursuant to an applicable exemption from registration under the Securities Act, must be made in an "offshore transaction" complying with the provisions of Rule 904 of Regulation S, (ii) no directed selling efforts may be made in the United States by the seller, an affiliate or any person acting on their behalf, and (iii) no selling concession, fee or other remuneration may be paid in connection with any such offer or sale except as permitted by Regulation S. 6.4 Refusal to Transfer. Rogers and Shaw acknowledge that the ------------------- Company is required to refuse, and will refuse, to register any transfer of the Securities not made in -7- accordance with the provisions of Regulation S or pursuant to an applicable exemption from registration under the Securities Act, and that the Securities will bear a legend in substantially the following form (in lieu of the legend required by Section 4.4(a) of the Purchase Agreement) stating that transfer of the Securities is prohibited except in accordance with the provisions of Regulation S or pursuant to an applicable exemption from registration under the Securities Act: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATES OF THE UNITED STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD IN THE UNITED STATES OR TO U.S. PERSONS EXCEPT AS PERMITTED UNDER REGULATION S PROMULGATED UNDER THE ACT, PURSUANT TO REGISTRATION UNDER THE ACT OR PURSUANT TO ANOTHER EXEMPTION THEREFROM, AND EXCEPT AS PERMITTED UNDER APPLICABLE STATE SECURITIES LAWS. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. In addition to the legends required by Section 4.4 of the Purchase Agreement, the Securities shall include a conspicuously noted legend in substantially the following form: THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THAT CERTAIN CANADIAN PURCHASE AGREEMENT DATED AS OF APRIL 11, 1997 AMONG THE COMPANY AND THE OTHER PARTIES THERETO CONTAINING, AMONG OTHER THINGS, RESTRICTIONS ON THE SALE, TRANSFER OR OTHER DISPOSITION OF SUCH SECURITIES. A COUNTERPART OF SUCH AGREEMENT HAS BEEN DEPOSITED WITH THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS, AND THE COMPANY SHALL FURNISH A COPY OF SUCH AGREEMENT TO THE RECORD HOLDER HEREOF, WITHOUT CHARGE, UPON WRITTEN REQUEST. 6.5 Binding on Transferees. The restrictions set forth in this ---------------------- Section 6 will be binding on any transferee of the Securities in the same manner as set forth in this Section 6 with respect to Rogers and Shaw. 7. Exception to Transfer Restrictions. ---------------------------------- 7.1 Exception. Notwithstanding the restrictions on dispositions of --------- Purchased Shares and Conversion Shares set forth in Sections 4.1 and 4.2 of the Purchase Agreement or on dispositions of Warrants and Warrant Stock set forth in Sections 4.1 and 4.2 of each of the Warrants, but subject to compliance with applicable securities laws and the provisions of Section 6 of this Agreement, each of Rogers and Shaw may transfer the Purchased Shares, Conversion Shares, Warrants, and Warrant Stock, in minimum amounts of 1,000 shares of Series -8- C Preferred Stock (or 20,000 shares of Series A Common Stock) to, in the aggregate for both Rogers and Shaw and their permitted transferees, up to twelve Additional Canadian MSOs who are not "U.S. persons" within the meaning of Regulation S; provided that in each case, each transferee agrees in writing to -------- be subject to the terms of Section 4 of the Purchase Agreement or Section 4 of the Warrant, as applicable, and Section 6 of this Agreement to the same extent as if the transferee were Rogers or Shaw, as applicable, under the Purchase Agreement and/or the Warrant and this Agreement. 7.2 Definitions. For purposes of this Section 7 and Section 8, the ----------- following terms have the following meanings: "ADDITIONAL CANADIAN MSO" means any cable system operator in Canada (other than Rogers and Shaw and their respective Controlled Affiliates) who agrees in writing with Rogers or Shaw, as applicable, to distribute the Wave@Home Service on an exclusive basis in Canada in accordance with the Canadian Distribution Agreement. "CANADIAN DISTRIBUTION AGREEMENT" means the provisions of Articles 2, 3 and 6 of the Term Sheet, including any other provisions or definitions in other sections of the Term Sheet which are referenced in Articles 2, 3 and 6; provided that if the matters set forth in Articles 2, 3 and 6 of the Term Sheet are superseded by a definitive agreement which is executed by the applicable parties to the Term Sheet, such definitive agreement will constitute the Canadian Distribution Agreement for all purposes hereunder. "TERM SHEET" means the Term Sheet, dated March 18, 1997, among the Company, Rogers and Shaw, as amended, modified or supplemented from time to time. "WAVE@HOME SERVICE" has the meaning given to such term in the Canadian Distribution Agreement. 7.3 Covenant. In the event that Rogers or Shaw makes a permitted -------- transfer of a Warrant that is not then fully exercisable at the time of transfer, the Company and Rogers or Shaw as appropriate agree to negotiate in good faith those adaptations to the exercisability provisions of such Warrant as necessary for such Warrant to include performance criteria that are consistent with the parties' shared objectives for distribution of the Company's service in Canada. 8. Nomination of Canadian Purchasers' Board Designee; Board Observer ----------------------------------------------------------------- Rights. - ------ 8.1 Ownership Condition. Certain of the rights of Rogers and Shaw ------------------- specified in this Section 8 are subject to the condition (the "OWNERSHIP CONDITION") that Rogers and Shaw (and/or Controlled Affiliates of either Rogers or Shaw) collectively own beneficially (x) at least 2,000,000 shares of issued and outstanding Series A Common Stock (and/or shares of Series C Preferred Stock that is then convertible into such number of shares of Series A Common Stock) and (y) in addition to (and without duplication of) the shares referred to in clause (x) above, any one of the following (with the references in this Section 8 to numbers of shares appropriately adjusted to give effect to any stock splits, reverse splits, stock dividends or similar events occurring after the date hereof): -9- (1) 500,000 or more shares of Series A Common Stock; or (2) that number of shares of Series C Preferred Stock that is then convertible into at least 500,000 shares of Series A Common Stock; or (3) that number of Warrants which upon exercise will (either immediately or upon conversion of shares of Series C Preferred Stock issuable upon the exercise thereof) result in the issuance of at least 500,000 shares of Series A Common Stock. 8.2 Nomination Rights. ----------------- (a) Series C Preferred Director. The Company hereby covenants that, --------------------------- for so long as the holders of Series C Preferred Stock are entitled as a separate series, under the Company's Certificate of Incorporation or any Certificate of Designation, to elect a member of the Board of Directors of the Company (the "SERIES C PREFERRED DIRECTOR"), the Company will, in connection with any meeting of stockholders held, or in connection with any written consent of stockholders solicited, for the purpose of electing the Series C Preferred Director, use its reasonable best efforts to cause to be nominated for election to the Board the nominee designated in writing by holders of a majority of the shares of Series C Preferred Stock issued and outstanding on the record date for such meeting or written consent. (b) Common Stock Director. The Company hereby covenants that from and --------------------- after such time as there are no shares of Series C Preferred Stock outstanding, for so long as (i) the Ownership Condition is satisfied and (ii) either Rogers or Shaw or both hold the exclusive licenses referred to in Sections 2.1(A) and (B), as applicable, of the Term Sheet (or in accordance with any analogous provisions with respect to distribution of the Wave@Home Service by Rogers and Shaw contained in the Canadian Distribution Agreement), the Company will, in connection with any meeting of stockholders held, or in connection with any written consent of stockholders solicited, for the purpose of electing any Common Stock Directors (as defined in the Company's Certificate of Incorporation), use its reasonable best efforts to cause to be nominated for election to the Board as a Common Stock Director a nominee jointly designated by Rogers and Shaw (the "ROGERS/SHAW DESIGNEE"). At such time as the foregoing conditions are no longer satisfied, Rogers and Shaw will cause such person to resign as a director and, if necessary or appropriate, request the Cable Stockholders to cooperate in such person's removal. Rogers and Shaw agree to provide promptly upon the reasonable request of the Company written notice to the Company and to each of the Cable Stockholders of the name of the Rogers/Shaw Designee and shall provide such information relating to such Rogers/Shaw Designee as may be necessary to comply with applicable law in connection with the IPO, subsequent proxy statements to be mailed to stockholders and other securities filings to be made by the Company. 8.3 Observer Rights. In the event that Rogers and Shaw have exercised --------------- their right to jointly designate a nominee in accordance with Section 8.2(b) but such nominee is not elected as a Common Stock Director (an "ELECTION LOSS"), the Company will use its reasonable best efforts to permit such jointly designated nominee to attend, and participate in the discussion at, all meetings of the Board in a non-voting observer capacity subject to the terms and conditions of this Section 8.3. In addition, so long as (i) the Ownership Condition is satisfied -10- and (ii) both Rogers and Shaw hold the exclusive licenses referred to in Sections 2.1(A) and (B), as applicable, of the Term Sheet (or in accordance with any analogous provisions with respect to distribution of the Wave@Home Service by Rogers and Shaw contained in the Canadian Distribution Agreement), then the Company will use its reasonable best efforts to permit one additional representative designated jointly by Rogers and Shaw to attend, and participate in the discussion in, all meetings of the Board in a non-voting observer capacity subject to the terms and conditions of this Section 8.3. Such non- voting observer or observers (each, a "NON-VOTING OBSERVER") will, to the extent permitted by law, have the right to participate fully in all aspects of meetings of the Board and discussions among directors (other than the right to vote as a director), including without limitation the right to be provided with copies of all notices, minutes and other materials that the Company provides to its directors with respect to such meetings subject to the following terms and conditions: (a) Rogers, Shaw and such Non-Voting Observer(s) shall hold in strict confidence all information and materials that any of them may receive or be given access to in connection with meetings of the Board and will act in a fiduciary manner with respect to all information so provided; (b) Such Non-Voting Observer(s) may be excluded from certain sessions of the Board or certain portions of a Board meeting, or may not receive certain documents otherwise provided to the Board, if the presence of such Non- Voting Observer(s) or the delivery of such documents would, in the opinion of the Company's legal counsel, jeopardize the Company's attorney-client privilege; and (c) Rogers, Shaw and such Non-Voting Observer(s) shall comply with all policies of the Company with respect to "insider trading" of the Company's securities that are applicable from time to time to the Company's directors and affiliates. In addition, the Company agrees that, at such future time as the Company expands the authorized number of directors or establishes the authorized number of directors as a number greater than the number of authorized directors as of the date of the Closing, in exercising its reasonable best efforts to cause to be determined the person to be nominated to fill any such vacancy or vacancies, the Company will take into consideration the experience of the Non- Voting Observer(s) concerning the Company and its business, together with the other qualifications of such Non-Voting Observer(s) with the understanding that the decision to nominate any person to fill such vacancy or vacancies shall remain with the Company and the Board. 8.4 Qualification. Rogers and Shaw hereby agree that (i) the Series ------------- C Preferred Director (so long as Rogers and/or Shaw hold a sufficient number of shares of Series C Preferred Stock to elect the Series C Preferred Director), (ii) the Rogers/Shaw Designee and (iii) any Non-Voting Observer, (x) shall, if such person is a director, meet any legal requirements to serve on the Board and (y) shall be, at the time of such designation and election and so long as such person is the Series C Preferred Director elected by Rogers and/or Shaw, the Rogers/Shaw Designee, or a Non-Voting Observer, respectively, an officer, director, or employee of either Rogers or Shaw, and upon such person ceasing to be an officer, director or employee of Rogers -11- or Shaw, Rogers and Shaw will cause such person to resign as a Series C Preferred Director, Rogers/Shaw Designee, or Non-Voting Observer, respectively, and, if necessary or appropriate, request the Cable Stockholders to cooperate in such person's removal or replacement, and thereafter Rogers and Shaw shall designate a successor to such person, which person shall satisfy the foregoing eligibility standards in accordance with the foregoing. 9. Miscellaneous. ------------- 9.1 Governing Law. This Agreement shall be governed by, and ------------- construed in accordance with, in all respects the laws of the State of Delaware, without regard to the conflicts of law rules of such State. 9.2 Survival. The representations and warranties made herein shall -------- survive any investigation made by any Canadian Purchaser and the closing of the transactions contemplated hereby for a period of fifteen (15) months after the Closing. 9.3 Successors and Assigns. Except as provided in Section 7 with ---------------------- respect to a transfer of Purchased Shares, Conversion Shares, Warrants and Warrant Stock, neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by the Company or a Canadian Purchaser without the prior written consent of such Canadian Purchaser or the Company, respectively. Any assignment or delegation in contravention of this Agreement shall be void and shall not relieve the assigning or delegating party of any obligation hereunder. Except as set forth in the preceding sentences, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. 9.4 Limitation on Rights of Others. Nothing in this Agreement, ------------------------------ whether express or implied, shall be construed to give any person, other than the parties hereto, any legal or equitable right, remedy or claim under or in respect of this Agreement. 9.5 Counterparts. This Agreement may be executed in any number of ------------ counterparts with the same effect as if all parties hereto had signed the same document. Each counterpart shall be enforceable against the parties actually executing such counterpart, and all counterparts shall be construed together and shall constitute one instrument. 9.6 Severability. In the event that any provision of this Agreement ------------ becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the economic benefit of this letter agreement to any party. 9.7 Obligations Several, Not Joint. Each of Rogers and Shaw shall be ------------------------------ obligated hereunder only with respect to the purchase of the number of Warrants set forth in Section 1 of this Agreement, and neither Rogers and nor Shaw shall have any liability with respect to the other's obligations hereunder. 9.8 Currency. All monetary amounts in this Agreement are stated in -------- United States Dollars. -12- 9.9 Interpretation. In the event of any conflict or inconsistency -------------- between this Agreement and the Purchase Agreement, the provisions of this Agreement shall be controlling. 9.10 Integration. This Agreement and the Purchase Agreement supersede ----------- Sections 1.0, 2.8 (except for the third sentence thereof), 4.0 and 7.0 (except for Sections 7.1 and 7.5 to 7.10 inclusive), and Schedules B and C, of the Term Sheet, dated March 18, 1997, among the Company, Rogers and Shaw. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -13- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. AT HOME CORPORATION By: /s/ Thomas A.Jermoluk ------------------------------- Name: Thomas A.Jermoluk Title:President/CEO ROGERS CABLESYSTEMS LIMITED By: /s/ David Miller ------------------------------- Name: D. Miller Title: Vice President By: /s/ D. Samuel ------------------------------- Name: D. Samuel Title: President, Rogers Wave SHAW CABLESYSTEMS LTD. By: /s/ Jim Shaw ------------------------------- Name: Jim Shaw, Jr. Title: President By: /s/ Margot M. Micallef ------------------------------- Name: Margot M. Micallef Title: Secretary Attachments: - ----------- Exhibit A - Form of Warrant 1 Exhibit B - Form of Warrant 2 Exhibit C - Form of Warrant 3 Exhibit D - Voting Agreement Exhibit E - Additional Schedule of Exceptions -14- EX-9.01 9 VOTING AGREEMENT DATED APRIL 11, 1997 EXHIBIT 9.01 [LETTERHEAD APPEARS HERE] April 11, 1997 Rogers Cablesystems Limited Suite 6400, Scotia Plaza 40 King Street W Toronto, Ontario Canada M5H 3Y2 Shaw Cablesystems Ltd. Suite 900 630 3rd Avenue S.W. Calgary, Alberta Canada T2P 4L4 Re: @Home Voting Agreement ---------------------- Ladies and Gentlemen: Reference is made to the Term Sheet (the "Term Sheet"), dated March 18, 1997, among At Home Corporation ("@Home"), Rogers Cablesystems Limited ("Rogers") and Shaw Cablesystems Ltd. ("Shaw"), in which, among other things, each of Rogers and Shaw have agreed to purchase shares of @Home's Series C Convertible Preferred Stock, par value $.01 per share ("Series C Preferred Stock"), and warrants (the "Warrants") to purchase shares of Series C Preferred Stock, and to market and promote, on an exclusive basis, @Home's Service in Canada, and @Home has agreed to sell such shares of Series C Preferred Stock and Warrants to Rogers and Shaw and to grant each of them an exclusive license to market and promote @Home's Service in Canada, all as more fully described in the Term Sheet, and in each case, upon the terms and subject to the conditions set forth therein or in any subsequent definitive agreements which supersede all or a portion of the provisions of the Term Sheet. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Term Sheet. The Term Sheet provides that it is a condition to the obligation of Rogers and Shaw to consummate the transactions contemplated by the Term Sheet that TCI Internet Holdings, Inc. ("TCI Sub"), an indirect wholly owned subsidiary of Tele-Communications, Inc., on behalf of the TCI Stockholder Group (as defined in the Amended and Restated Stockholder Agreement dated as of August 1, 1996 (the "Stockholders Agreement")), agree to vote any shares of @Home it may own in favor of and use commercially reasonable best efforts to cause to be elected and maintained in office one person designated jointly by Rogers and Shaw as a Common Stock Director (the "Rogers/Shaw Designee") of the Board of Directors of @Home (the "Board") so long as Rogers and Shaw fulfill certain requirements as set forth herein. Subsequent to the execution of the Term Sheet, the parties have modified certain of their arrangements with respect to the designee of Rogers and Shaw becoming a member of the Board to provide that prior to the mandatory conversion of their shares of Series C Preferred Stock in connection with the IPO (as defined in the Certificate of Designation of the Series C Preferred Stock) the holders of the Series C Preferred Stock, voting as a separate series, will be entitled to elect a separate member to the Board (the "Series C Director"), and that following the IPO and such mandatory conversion, each of TCI Sub, Cox Teleport Providence, Inc. ("Cox Sub"), an indirect wholly owned subsidiary of Cox Communications, Inc., and Comcast PC Investments, Inc. ("Comcast Sub", and together with TCI Sub and Cox Sub, the "Cable Stockholders"), an indirect wholly owned subsidiary of Comcast Corporation, would, on behalf of itself and its related Stockholder Group, be obligated subject to the terms and conditions set forth herein, to vote their respective Voting Securities (as defined below) as provided in this letter agreement. Currently, (i) TCI Sub is the record and beneficial owner of shares of @Home's Series T Convertible Participating Preferred Stock, par value $.01 per share, and Series AT Convertible Participating Preferred Stock, par value $.01 per share, (ii) Cox Sub is the record and beneficial owner of shares of @Home's Series AX Convertible Participating Preferred Stock, par value $.01 per share and (ii) Comcast Sub is the record and beneficial owner of shares of @Home's Series AM Convertible Participating Preferred Stock, par value $.01 per share. Subject to the conditions set forth in this letter agreement, each of TCI Sub, Cox Sub and Comcast Sub agrees: (x) to use reasonable best efforts to cause each of its Stockholder Designees (as defined in the Stockholders Agreement) to vote in favor of the nomination of the Rogers/Shaw Designee as a Common Stock Director at any Board meeting at which Common Stock Directors are to be nominated in connection with the IPO and the mandatory conversion of the Series C Preferred Stock and at meetings of the Board subsequent to the Trigger Date (as defined below) at which Common Stock Directors are to be nominated; (y) to use reasonable best efforts to cause each of its Stockholder Designees to permit any Non-Voting Observer (as defined in the letter agreement dated of even date herewith among @Home, Rogers, and Shaw with respect to purchase of the Warrants and related matters (the "Canadian Purchase Agreement")) to attend all meetings of the Board, and to participate fully in all aspects of meetings of the Board and discussions among directors (other than the right to vote as a director), in each case subject to the terms and conditions of Section 8.3 of the Canadian Purchase Agreement; and (z) to the extent that such Cable Stockholder has the power to vote or direct the voting of (or to consent or cause the holder to consent with respect to) any Voting Securities beneficially owned by it, to (1) vote all such Voting Securities at any annual or special meeting of stockholders of @Home occurring subsequent to the date of the mandatory conversion of the Series C Preferred Stock in connection with the IPO (the "Trigger Date") at which Common Stock Directors are to be elected in favor of, or duly consent in writing (in accordance with @Home's Certificate of Incorporation and Bylaws) to, the election of the Rogers/Shaw Designee as a Common Stock Director, and (2) use reasonable best efforts to cause the Rogers/Shaw Designee to be elected as a Common Stock 2 Director and to continue as a Common Stock Director, in each case subsequent to the Trigger Date, unless otherwise requested by Rogers and Shaw and so long as such Rogers/Shaw Designee fulfills the qualifications set forth below to be a Common Stock Director. In addition, each of TCI Sub, Cox Sub and Comcast Sub agrees to (A) use reasonable best efforts to cause each of its Stockholder Designees to vote in favor of (i) the removal from nomination of such Rogers/Shaw Designee in the event that Rogers and Shaw together request such removal by written notice to each of the Cable Stockholders and (ii) the nomination subsequent to the Trigger Date as a Common Stock Director of any replacement or successor jointly designated by Rogers and Shaw to fill the vacancy created by the removal of the Rogers/Shaw Designee or the death, disability or registration of the Rogers/Shaw Designee, and (B) vote all such Voting Securities in favor of, or to duly consent in writing (in accordance with @Home's Certificate of Incorporation and Bylaws) to, in each case to the extent permitted by @Home's Certificate of Incorporation and Bylaws, (i) the removal (with or without cause) from the Board of Directors of such Rogers/Shaw Designee in the event that Rogers and Shaw together request such removal by written notice to each of the Cable Stockholders, and (ii) the election or appointment subsequent to the Trigger Date as a Common Stock Director of any replacement or successor jointly designated by Rogers and Shaw to fill the vacancy created by the removal of the Rogers/Shaw Designee or the death, disability or resignation of the Rogers/Shaw Designee. Rogers and Shaw hereby agree that (a) each person designated by them as the Rogers/Shaw Designee shall meet any legal requirements to serve on the @Home Board and shall be, at the time of such designation, nomination and election and so long as such person is the Rogers/Shaw Designee, an officer, director, or employee of either Rogers or Shaw, (b) any Non-Voting Observer shall be, at the time of appointment, and so long as such person is the Non-Voting Observer, an officer, director or employee of either Rogers or Shaw, and (c) upon such Rogers/Shaw Designee or Non-Voting Observer, as the case may be, ceasing to be an officer, director or employee of Rogers or Shaw, Rogers and Shaw will (i) cause the Rogers/ Shaw Designee to resign as a director and, if necessary or appropriate, request the Cable Stockholders to cooperate in such person's removal or replacement, as provided above, and (ii) take such actions (including requesting the Cable Stockholders to cooperate in the taking of any action) as may be necessary to cause such Non-Voting Observer to cease to attend Board meetings, as applicable, and thereafter Rogers and Shaw shall designate a successor to such person, which person shall satisfy the foregoing eligibility standards in accordance with the foregoing. Rogers and Shaw agree to provide promptly upon the reasonable request of @Home written notice to @Home and to each of the Cable Stockholders of the name of the Rogers/Shaw Designee and the Non-Voting Observer and shall provide such information relating to such Rogers/Shaw Designee and the Non-Voting Observer as may be necessary to comply with applicable law in connection with the IPO, subsequent proxy statements to be mailed to stockholders and other securities filings to be made by @Home. In the event that both Rogers and Shaw (each, a "Canadian Purchaser") do not then hold the exclusive licenses referred to in Sections 2.1(A) and (B), as applicable, of the Term Sheet (or in accordance with any analogous provisions with respect to distribution of the Wave@Home Service by Rogers and Shaw contained in any definitive agreement superceding the relevant portions of the Term Sheet), then the Canadian Purchaser that then holds one of such exclusive licenses, if any, shall have the right, acting alone, to designate the Rogers/Shaw Designee. 3 The agreements set forth in this letter agreement and the Cable Stockholders' obligations hereunder shall terminate on the earlier to occur of the date that (i) neither Rogers nor Shaw continues to offer the Wave@Home Service on an exclusive basis in accordance with the exclusive license referred to in Section 2.1(A) or (B), as applicable, of the Term Sheet (or in accordance with any analogous provisions with respect to distribution of the Wave@Home Service by Rogers and Shaw contained in any Definitive Agreement) or (ii) Rogers and Shaw together with their respective Controlled Affiliates (as such term is defined in the Stock Purchase Agreement, of even date herewith, among @Home, Rogers, Shaw and the other purchasers of Series C Preferred Stock) cease collectively to own beneficially (x) at least 2,000,000 shares of issued and outstanding Series A Common Stock (and/or shares of Series C Preferred Stock convertible into such number of shares of Series A Common Stock) and (y) in addition to (and without duplication of) the shares referred to in clause (x) above, any one of the following: (1) 500,000 or more shares of Series A Common Stock; or (2) that number of shares of Series C Preferred Stock which upon conversion will result in the issuance of at least 500,000 shares of Series A Common Stock; or (3) that number of Warrants which upon exercise will (either immediately or upon conversion of shares of Series C Preferred Stock issuable upon the exercise thereof) result in the issuance of at least 500,000 shares of Series A Common Stock. The foregoing references to numbers of shares shall be appropriately adjusted to give effect to any stock splits, reverse splits, stock dividends or similar events occurring after the date hereof. Each of Rogers and Shaw agrees to notify each of the Cable Stockholders promptly upon (or to the extent practicable, in advance of) the occurrence of any event which would result in the termination of Rogers' or Shaw's right to designate the Rogers/Shaw Designee or the Non-voting Observer. Upon the termination of this letter agreement and the Cable Stockholders' obligations hereunder, each of Rogers and Shaw agrees to cooperate with @Home and the Cable Stockholders in causing the Rogers/Shaw Designee to be removed from the Board and the Non-Voting Observer to cease attending Board meetings. As used herein the following terms shall have the following meanings: (i) "Certificate of Incorporation" means @Home's Certificate of Incorporation, as amended from time to time; (ii) "Bylaws" means @Home's Bylaws, as amended from time to time; (iii) "Common Stock Director" means any member of the Board of Directors of @Home who is not elected or appointed solely by the holders of a specified class or series of Preferred Stock or by the holders of @Home's Series B Common Stock or Series K Common Stock; (iv) "Voting Securities" means all shares of Preferred Stock and Common Stock (each as defined in @Home's Certificate of Incorporation) the holders of which are entitled to vote or consent with respect to the election 4 of Common Stock Directors; (v) "Series A Common Stock" means the Series A Common Stock, par value $.01 per share, of @Home; and (vi) "owned beneficially" shall have a meaning correlative to that of "beneficial owner" as set forth in Rule 13d-3 under the Securities Exchange Act of 1934, as amended. In addition, except as expressly provided herein, any provision in this Agreement requiring a Cable Stockholder to use its reasonable best efforts to cause its Stockholder Designees to take any action shall require such Cable Stockholder to (i) instruct each of its Stockholder Designees to vote in favor of such action, or to consent in writing to the taking of such action, and (ii) take such other actions (including without limitation the removal and replacement of its Stockholder Designees) as may be reasonably necessary to cause such action to be taken. Each of TCI Sub, Cox Sub and Comcast Sub represents and warrants to each of Rogers and Shaw that, as of the date hereof, it is the record and beneficial owner of all Voting Securities held by its respective Stockholder Group (as defined in the Stockholders Agreement). Each party hereto, severally, represents to each of the other parties hereto that this letter agreement has been duly authorized, executed and delivered by such party and constitutes the legal, valid and binding obligation of such party, enforceable against such party in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the rights of creditors generally and by general principals of equity. The provisions of this agreement shall be binding upon and enforceable against each member of the TCI Stockholder Group, the Cox Stockholder Group and the Comcast Stockholder Group, in each case, holding Voting Securities of @Home, and each of TCI Sub, Cox Sub and Comcast Sub agrees that it will not sell, assign or transfer any Voting Securities to any member of its Stockholder Group unless such member of its Stockholder Group assumes and agrees to perform the obligations of such Cable Stockholder under this Agreement. This letter agreement will be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to the conflicts of law rules of such state. The parties hereto agree that irreparable damage would occur in the event any provision of this letter agreement was not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof in addition to any other remedy at law or in equity. 5 This letter agreement may be executed in counterparts, each of which shall be deemed an original and all of which shall constitute one and the same instrument. If the foregoing is in accordance with your understanding please indicate your agreement by signing below, at which time this letter will constitute a binding agreement among us. Very truly yours, TCI INTERNET HOLDINGS, INC. By:/s/ Bruce W. Ravenel ----------------------------------- Name: Bruce W. Ravenel Title: President/CEO COX TELEPORT PROVIDENCE, INC. By:/s/ David M. Woodrow ----------------------------------- Name: David M. Woodrow Title: VP COMCAST PC INVESTMENTS, INC. By:/s/ Brian L. Roberts ----------------------------------- Name: Brian L. Roberts Title: President Accepted and Agreed as of this 11 day of April, 1997: ROGERS CABLESYSTEMS LIMITED By:/s/ D. Miller and D. Samuel ------------------------------------- Name: D. Miller D. Samuel Title: VP Pres. Rogers Wave SHAW CABLESYSTEMS LTD. By:/s/ Jim Shaw, Jr. ------------------------------------- Name: Jim Shaw, Jr. Title: President SHAW CABLESYSTEMS LTD. By:/s/ Margot M. Micallef -------------------------------------- Name: Margot M. Micallef Title: Secretary The modification to the Term Sheet provided herein is hereby accepted and agreed: AT HOME CORPORATION By:/s/ Thomas A. Jermoluk ---------------------- Name: Thomas A. Jermoluk Title: President/CEO EX-10.01 10 STOCK PURCHASE AGREEMENT EXHIBIT 10.01 AT HOME CORPORATION STOCK PURCHASE AGREEMENT August 29, 1995 TABLE OF CONTENTS -----------------
Page ---- 1. Purchase and Sale of Stock ............................................................. 1 -------------------------- 1.1 Sale and Issuance of Series K Convertible Preferred Stock and Series T ---------------------------------------------------------------------- Convertible Preferred Stock........................................................ 1 --------------------------- 1.2 Closing............................................................................ 1 ------- 2. Representations, Warranties and Covenants of the Company................................ 2 -------------------------------------------------------- 2.1 Organization, Good Standing and Qualification..................................... 2 --------------------------------------------- 2.2 Restated Certificate.............................................................. 2 -------------------- 2.3 Capitalization.................................................................... 2 -------------- 2.4 Initial Board..................................................................... 3 ------------- 2.5 Authorization..................................................................... 3 ------------- 2.6 Consents and Approvals; No Conflict............................................... 3 ----------------------------------- 2.7 Valid Issuance of Preferred and Conversion Shares................................. 4 ------------------------------------------------- 2.8 Litigation........................................................................ 4 ---------- 2.9 Brokers or Finders................................................................ 4 ------------------ 2.10 Registration Rights Agreement..................................................... 5 ----------------------------- 2.11 Stockholders' Agreement........................................................... 5 ----------------------- 2.12 Hart-Scott-Rodino Act............................................................. 5 --------------------- 2.13 Reasonable Efforts................................................................ 5 ------------------ 2.14 Additional Issuances of Preferred Stock........................................... 5 --------------------------------------- 3. Representations, Warranties and Covenants of the Purchasers............................. 5 ----------------------------------------------------------- 3.1 Experience......................................................................... 6 ---------- 3.2 Investment......................................................................... 6 ---------- 3.3 Restricted Securities.............................................................. 6 --------------------- 3.4 Authorization...................................................................... 6 ------------- 3.5 Consents and Approvals; No Conflict................................................ 7 ----------------------------------- 3.6 Brokers or Finders................................................................. 7 ------------------ 3.7 Registration Rights Agreement...................................................... 7 ----------------------------- 3.8 Stockholders' Agreement............................................................ 7 ----------------------- 3.9 Reasonable Efforts................................................................. 8 ------------------ 4. Additional Representations and Covenant of the KPCB Purchasers.......................... 8 -------------------------------------------------------------- 5. Legends; Notations...................................................................... 8 ------------------ 6. Conditions to the Purchasers' Obligations at Closing.................................... 9 ---------------------------------------------------- 6.1 Correctness of Representations and Warranties...................................... 9 --------------------------------------------- 6.2 Performance of Agreements.......................................................... 9 -------------------------
-i- TABLE OF CONTENTS ----------------- (continued)
Page ---- 6.3 Registration Rights Agreement...................................................... 9 ----------------------------- 6.4 Stockholders' Agreement............................................................ 9 ----------------------- 6.5 Assignment Agreement............................................................... 9 -------------------- 6.6 Restated Certificate............................................................... 10 -------------------- 6.7 Proceedings and Documents.......................................................... 10 ------------------------- 6.8 Other.............................................................................. 10 ----- 6.9 Simultaneous Closing............................................................... 10 -------------------- 7. Conditions to the Company's Obligations at Closing...................................... 10 -------------------------------------------------- 7.1 Correctness of Representations and Warranties...................................... 10 --------------------------------------------- 7.2 Performance of Agreements.......................................................... 10 ------------------------- 7.3 No Material Litigation............................................................. 10 ---------------------- 7.4 Registration Rights Agreement...................................................... 11 ----------------------------- 7.5 Stockholders' Agreement............................................................ 11 ----------------------- 7.6 Assignment Agreement............................................................... 11 -------------------- 7.7 Proceedings and Documents.......................................................... 11 ------------------------- 8. Miscellaneous........................................................................... 11 ------------- 8.1 Governing Law...................................................................... 11 ------------- 8.2 Survival........................................................................... 11 -------- 8.3 Successors and Assigns............................................................. 11 ---------------------- 8.4 Limitation on Rights of Others..................................................... 11 ------------------------------ 8.5 Entire Agreement; Amendment........................................................ 12 --------------------------- 8.6 Notices, Etc....................................................................... 12 ------------ 8.7 Delays or Omissions................................................................ 13 ------------------- 8.8 Expenses........................................................................... 13 -------- 8.9 Counterparts....................................................................... 13 ------------ 8.10 Severability....................................................................... 13 ------------ 8.11 Obligations Several, Not Joint..................................................... 14 ------------------------------
Exhibit A Amended and Restated Certificate of Incorporation Exhibit B Registration Rights Agreement Exhibit C Stockholders' Agreement Exhibit D Assignment Agreement -ii- STOCK PURCHASE AGREEMENT ------------------------ THIS STOCK PURCHASE AGREEMENT is made as of the ____ day of August, 1995, by and among AT HOME CORPORATION, a Delaware corporation (the "Company"), TCI INTERNET SERVICES, INC., a Colorado corporation ("TCI Sub"), and KLEINER, PERKINS, CAUFIELD & BYERS VII, KPCB VII FOUNDERS FUND and KPCB INFORMATION SERVICES ZAIBATSU FUND II, each a California limited partnership (each, a "KPCB Purchaser" and together, the "KPCB Purchasers") (TCI Sub, on one hand, and the KPCB Purchasers (collectively), on the other hand, are referred to hereinafter separately as a "Purchaser" or together as the "Purchasers"). THE PARTIES HEREBY AGREE AS FOLLOWS: 1. Purchase and Sale of Stock. -------------------------- 1.1 Sale and Issuance of Series K Convertible Preferred Stock and ------------------------------------------------------------- Series T Convertible Preferred Stock. ------------------------------------ (a) Subject to the terms and conditions of this Agreement, (i) the Company agrees to issue and sell to TCI Sub, and TCI Sub agrees to purchase from the Company, at the Closing, 7,700,000 shares of the Company's Series T Convertible Preferred Stock, par value $.01 per share (the "Series T Preferred"), for an aggregate purchase price of $7,700,000 and (ii) the Company agrees to issue and sell to the KPCB Purchasers, and the KPCB Purchasers, jointly and severally, agree to purchase from the Company, at the Closing, an aggregate of 2,300,000 shares of the Company's Series K Convertible Preferred Stock, par value $.01 per share (the "Series K Preferred" and, together with the Series T Preferred, sometimes referred to herein as the "Shares"), for an aggregate purchase price of $2,300,000. 1.2 Closing. The closing of the purchase and sale of the Shares (the ------- "Closing") shall take place at the offices of Baker & Botts, L.L.P., 885 Third Avenue, Suite 1900, New York, New York, at 10:00 a.m., New York City time, on August ___, 1995, or at such other time and place as the Company and the Purchasers shall mutually agree. The date on which the Closing occurs is referred to herein as the "Closing Date." At the Closing, the Company shall deliver (a) to TCI Sub a certificate or certificates registered in the name of TCI Sub representing 7,700,000 shares of Series T Preferred against payment of the purchase price therefor in cash or by wire transfer in immediately available funds and (b) to the KPCB Purchasers certificates registered in the name of the KPCB Purchasers representing an aggregate of 2,300,000 shares of Series K Preferred (in such relative amounts as the KPCB Purchasers may request) against payment of the purchase price therefor in cash or by wire transfer in immediately available funds. -2- 2. Representations, Warranties and Covenants of the Company. The Company -------------------------------------------------------- hereby represents and warrants to, and covenants with, each of the Purchasers as follows: 2.1 Organization, Good Standing and Qualification. The Company is a --------------------------------------------- corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as currently conducted and as currently proposed to be conducted. The Company agrees that it shall qualify to do business in each jurisdiction in which the failure to so qualify would have a material adverse effect on its business, properties, prospects or financial condition. The Company has delivered to each of the Purchasers true and accurate copies of the Company's Certificate of Incorporation and Bylaws, each as amended through, and in effect on, the date hereof. Other than the filing of the Restated Certificate (as defined below), there shall be no amendments to, or other actions taken with respect to, the Certificate of Incorporation or the Bylaws of the Company prior to the Closing. 2.2 Restated Certificate. The Board of Directors of the Company has -------------------- duly approved and adopted the Amended and Restated Certificate of Incorporation of the Company in the form attached hereto as Exhibit A (the "Restated --------- Certificate") pursuant to Section 241 of the Delaware General Corporation Law (the "DGCL") and the Company agrees to cause the Restated Certificate to be duly filed with the Secretary of State of Delaware prior to the Closing. 2.3 Capitalization. As of the date of this Agreement, the authorized -------------- capital stock of the Company consists of 1,000 shares of common stock, par value $1.00 per share, none of which shares are issued and outstanding. Upon the filing of the Restated Certificate with the Secretary of State of Delaware pursuant to Section 2.2 of this Agreement, the authorized capital stock of the Company shall consist of 150,000,000 shares of common stock, par value $.01 per share (the "Common Stock"), and 75,000,000 shares of preferred stock, par value $.01 per share ("Preferred Stock"). The authorized shares of Common Stock shall be allocated as follows: (i) 75,000,000 shares shall be designated as "Series A Common Stock", and (ii) 75,000,000 shares shall be designated as "Series B Common Stock". The authorized shares of Preferred Stock shall be allocated as follows: (i) 7,000,000 shares shall be designated as Series K Preferred, (ii) 25,000,000 shares shall be designated as Series T Preferred and (iii) 43,000,000 shares shall be undesignated as to series and shall be issuable pursuant to authority granted in the Restated Certificate to the Board of Directors (the "Series Preferred Stock"). Prior to the Closing, the Company shall reserve and at all times keep reserved such number of shares of Series B Common Stock as is sufficient to provide for the conversion of the Shares outstanding from time to time and shall reserve and at all times keep reserved such number of shares of Series A Common Stock as is sufficient to provide for the conversion of the shares of Series B Common Stock outstanding from time to time. Except as expressly provided herein, in the Restated Certificate and in the other Transaction Agreements, there are no other outstanding rights, options, warrants, preemptive rights, rights of first refusal or similar rights for the purchase or acquisition from the Company of any -2- securities of the Company nor are there any commitments to issue or execute any such rights, options, warrants, preemptive rights or rights of first refusal. 2.4 Initial Board. As of the date hereof, the Company's Board of ------------- Directors consists of the following persons, each of whom has been duly elected or appointed in accordance with the Bylaws of the Company: John Doerr, Bruce Ravenel, Larry Romrell, Chris Coles, James Barksdale and William Randolph Hearst III. 2.5 Authorization. The Company has full power and authority to ------------- execute, deliver and perform its obligations under each of this Agreement, the Registration Rights Agreement (as hereinafter defined), the Stockholders' Agreement (as hereinafter defined) and the Assignment Agreement (as hereinafter defined) (the Registration Rights Agreement, the Stockholders Agreement, the Assignment Agreement and this Agreement are hereinafter referred to collectively as the "Transaction Agreements"). All corporate action on the part of the Company necessary for the authorization, execution and delivery of the Transaction Agreements and the performance of all obligations of the Company hereunder and thereunder have been taken or will be taken prior to Closing. Each of the Transaction Agreements, when executed and delivered by the Company, assuming the due execution and delivery thereof by the other parties hereto or thereto, shall constitute a valid and legally binding obligation of the Company, enforceable against it in accordance with its terms, subject to: (i) judicial principles limiting the availability of specific performance, injunctive relief and other equitable remedies and (ii) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect generally relating to or affecting creditors' rights. 2.6 Consents and Approvals; No Conflict. Except as set forth on ----------------------------------- Schedule 2.6 and except as could not reasonably be expected, individually or in the aggregate, to have a material adverse effect on the Company, the execution, delivery and performance of each of the Transaction Agreements and the consummation of each of the transactions contemplated thereby (including the offering, sale and issuance of the Shares and the issuance of the Conversion Shares (as hereinafter defined)) do not and will not (a) conflict with or result in a breach of the terms, conditions or provisions of, (b) constitute a default under, (c) result in the creation of any lien, security interest, charge or encumbrance upon the Company's capital stock or assets pursuant to, (d) give any third party the right to accelerate any obligation under, (e) result in a violation of, or (f) require any order, qualification, waiver, permit, authorization, consent, approval, exemption or other action by or from, or any registration, notice, declaration, application or filing to or with, any court or administrative or governmental body pursuant to (i) the Restated Certificate or the Bylaws of the Company, (ii) any agreement to which the Company is a party or is bound or to which its assets are subject or (iii) any law, statute, rule or regulation to which the Company is subject; provided, however, that with -------- ------- respect to clause (f) of this Section 2.6, no representation or warranty is made as to any such requirements applicable to the Company as a result of the specific legal or regulatory status of any other party to this Agreement or as a result of any other facts that specifically relate to any such party, any business in which any such party has engaged or -3- proposes to engage or any financing arrangements or transactions entered into or proposed to be entered into by or on behalf of any such party. 2.7 Valid Issuance of Preferred and Conversion Shares. The Shares to ------------------------------------------------- be purchased by the Purchasers hereunder, when issued, sold and delivered in accordance with the terms of this Agreement will be duly authorized, validly issued, fully paid and nonassessable, free of any liens, claims, charges, security interests, pledges or encumbrances of any kind (other than any of the foregoing created herein or by the applicable Purchaser or in the Stockholders' Agreement or as a result of applicable state and federal securities laws) and will possess all of the rights, privileges and preferences provided therefor in the Restated Certificate. Each of the shares of Series B Common Stock issuable upon conversion of the Shares, and the shares of Series A Common Stock issuable upon conversion of such shares of Series B Common Stock (such shares of Series B Common Stock issuable upon conversion of the Shares and the shares of Series A Common Stock issuable upon the conversion of such shares of Series B Common Stock are referred to collectively as the "Conversion Shares"), will have been duly and validly reserved for issuance prior to the Closing and, upon issuance in accordance with the terms of the Restated Certificate, will be duly authorized, validly issued, fully paid and nonassessable, free of any liens, claims, charges, security interests, pledges or encumbrances of any kind (other than any of the foregoing created herein or by the applicable Purchaser, or in the Stockholders' Agreement or as a result of applicable state and federal securities laws) and will possess all of the rights and powers provided therefor in the Restated Certificate. 2.8 Litigation. Except as set forth in Schedule 2.8, there is no ---------- action, suit or proceeding pending or, to the best of the Company's knowledge, any investigation pending or any action, suit, proceeding or investigation threatened against, involving or affecting the Company or any of its properties, nor is there any judgment, decree, injunction, rule or order of any court, governmental department, commission, agency, instrumentality or arbitrator outstanding against the Company which questions the validity of any of the Transaction Agreements or the right of the Company to enter into any of them, or to consummate the transactions contemplated hereby or thereby, or which could have, either individually or in the aggregate, a material adverse effect on the condition (financial or otherwise), business, property, results of operations, assets or liabilities of the Company. 2.9 Brokers or Finders. There is no investment banker, broker, ------------------ agent, financial advisor or other person or entity which has been retained by or is authorized to act on behalf of the Company who is or will be entitled to any fee, commission, reimbursement of expenses or other similar charge upon consummation of or otherwise in connection with this Agreement or any of the transactions contemplated hereby. The Company agrees to indemnify and hold each of the Purchasers harmless from and against any and all claims, liabilities or obligations with respect to any such fees, commissions, expenses or claims (including the costs, expenses and legal fees of defending against such liability) for which the Company, or any of its employees or representatives, is responsible. -4- 2.10 Registration Rights Agreement. The Company agrees to enter into ----------------------------- the Registration Rights Agreement in substantially the form attached hereto as Exhibit B (the "Registration Rights Agreement") at or prior to the Closing. - ------- - 2.11 Stockholders' Agreement. The Company agrees to enter into the ----------------------- Stockholders' Agreement in substantially the form attached hereto as Exhibit C ------- - (the "Stockholders' Agreement") at or prior to the Closing. 2.12 Hart-Scott-Rodino Act. If any Purchaser reasonably believes --------------------- that its conversion of Shares would be subject to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules and regulations thereunder (the "HSR Act and Rules"), the Company and such Purchaser shall promptly comply with any applicable requirements under the HSR Act and Rules relating to filing and furnishing of information (the "HSR Report") to the Federal Trade Commission (the "FTC") and the Antitrust Division of the Department of Justice. Without limiting the foregoing, such Purchaser and the Company shall file the HSR Report and take all other action required by the HSR Act and Rules and shall use their respective commercially reasonable efforts to (a) coordinate with respect to the filing of the HSR Reports of such Purchaser and the Company (and exchanging drafts thereof), so as to present all required HSR Reports to the FTC and the Department of Justice at the time selected by such Purchaser, and to avoid substantial errors or inconsistencies among such HSR Reports in the description of the transaction, (b) comply with any additional request for documents or information made by the FTC or the Department of Justice or by a court and to assist the other parties to so comply and (c) cause all persons which are part of the same "person" (as defined for purposes of the HSR Act and rules) as the Company to cooperate and assist in such filing and compliance. Each of the Company and such Purchaser shall bear and pay any costs or expenses that it incurs in complying with this Section 2.12. 2.13 Reasonable Efforts. The Company agrees to use its commercially ------------------ reasonable efforts to cause each condition to the Closing set forth in Section 6 hereof, insofar as satisfaction of such condition requires any action by or otherwise is in the control of the Company, to be satisfied as soon as reasonably practicable and, in general, to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as reasonably practicable the purchase and sale of the Shares in accordance with the terms of this Agreement. 2.14 Additional Issuances of Preferred Stock. The Company agrees that --------------------------------------- (i) no additional shares of Series T Preferred will be issued other than to TCI Sub or its respective affiliates without the prior written consent of TCI Sub and (ii) no additional shares of Series K Preferred will be issued without the prior written consent of the KPCB Purchasers. 3. Representations, Warranties and Covenants of the Purchasers. Each ----------------------------------------------------------- Purchaser, on behalf of itself and not jointly with the other Purchaser, hereby represents and warrants to, and covenants with, the Company as follows: -5- 3.1 Experience. Such Purchaser is experienced in evaluating start-up ---------- companies such as the Company, and has such knowledge and experience in financial and business matters to enable such Purchaser to evaluate the merits and risks of Purchaser's prospective investment in the Company, and such Purchaser has the ability to bear the economic risks of such investment. 3.2 Investment. Such Purchaser is acquiring the Shares and any ---------- Conversion Shares solely for the purpose of investment for such Purchaser's own account and not with a view to, or for offer or sale in connection with, any distribution thereof in any transaction which would be in violation of the securities laws of the United States of America or any state thereof. Such Purchaser does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to any third person with respect to any of the Shares or the Conversion Shares. Such Purchaser understands that the Shares and the Conversion Shares have not been registered under the Securities Act of 1933, as amended (the "Securities Act") by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent as expressed herein. 3.3 Restricted Securities. Such Purchaser understands that the --------------------- Shares and any Conversion Shares may not be sold, transferred or otherwise disposed of without registration under the Securities Act or the availability of an exemption therefrom, and that in the absence of an effective registration statement covering such stock or an available exemption from registration, the Shares and any Conversion Shares must be held indefinitely. In the absence of an effective registration statement under the Securities Act with respect to the Shares or any Conversion Shares such Purchaser shall notify the Company of any proposed disposition by such Purchaser of any Shares or any Conversion Shares, shall furnish the Company with a statement of the circumstances surrounding the proposed disposition and, if reasonably requested by the Company, shall furnish the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require the registration of such Shares or such Conversion Shares under the Securities Act. Such Purchaser shall not sell, transfer or otherwise dispose of any Shares or any Conversion Shares except in a manner fully consistent with its representations contained in this Section 3 and otherwise in full compliance with the terms and conditions of this Agreement and the Stockholders' Agreement and the provisions of applicable law. 3.4 Authorization. Such Purchaser is a corporation or partnership ------------- duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and has full power and authority to execute, deliver and perform its obligations under each of the Transaction Agreements to which it is a party. Such Purchaser has taken all corporate or partnership action necessary to authorize the execution, delivery and performance of its obligations under each of the Transaction Agreements to which it is a party, and each such Transaction Agreement, when executed and delivered by such Purchaser, assuming the due execution and delivery thereof by the other parties hereto or thereto, shall constitute a -6- valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, subject to: (i) judicial principles respecting election of remedies or limiting the availability of specific performance, injunctive relief, and other equitable remedies; and (ii) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect generally relating to or affecting creditors' rights. 3.5 Consents and Approvals; No Conflict. Except as set forth on ----------------------------------- Schedule 3.5 and except as could not reasonably be expected, individually or in the aggregate, to have a material adverse effect on such Purchaser, the execution, delivery and performance of each of the Transaction Agreements to which such Purchaser is a party and the consummation of each of the transactions contemplated hereby or thereby do not and will not (a) conflict with or result in a breach of the terms, conditions or provisions of, (b) constitute a default under, (c) result in the creation of any lien, security interest, charge or encumbrance upon any material properties or assets pursuant to, (d) give any third party the right to accelerate any obligation under, (e) result in a violation of, or (f) require any order, qualification, waiver, permit, authorization, consent, approval, exemption or other action by or from, or any registration, notice, declaration, application or filing to or with, any court or administrative or governmental body pursuant to (i) the Articles of Incorporation, Bylaws, partnership agreement (or other governing documents) of such Purchaser, (ii) any agreement to which such Purchaser is a party or is bound or to which its assets are subject or (iii) any law, statute, rule or regulation to which such Purchaser is subject; provided, however, that with -------- ------- respect to clause (f) of this Section 3.5, no representation or warranty is made as to any such requirements applicable to such Purchaser as a result of the specific legal or regulatory status of any other party to this Agreement or as a result of any other facts that specifically relate to any such other party, any business in which any such party has engaged or proposes to engage or any financing arrangements or transactions entered into or proposed to be entered into by or on behalf of any such other party. 3.6 Brokers or Finders. There is no investment banker, broker, ------------------ agent, financial advisor or other person or entity which has been retained by or is authorized to act on behalf of such Purchaser who is or will be entitled to any fee, commission, reimbursement of expenses or other similar charge upon consummation of or otherwise in connection with this Agreement or any of the transactions contemplated hereby. Such Purchaser agrees to indemnify and hold harmless the Company from and against any and all claims, liabilities or obligations with respect to any such fees, commissions, expenses or claims (including the costs, expenses and legal fees of defending against such liability) for which such Purchaser, or any of its partners, employees or representatives, is responsible. 3.7 Registration Rights Agreement. Such Purchaser agrees to enter ----------------------------- into the Registration Rights Agreement at or prior to the Closing. 3.8 Stockholders' Agreement. Such Purchaser agrees to enter into the ----------------------- Stockholders' Agreement at or prior to the Closing. -7- 3.9 Reasonable Efforts. Such Purchaser agrees to use its ------------------ commercially reasonable efforts to cause each condition to the Closing set forth in Section 7 hereof, insofar as satisfaction of such condition requires any action by or otherwise is in the control of such Purchaser, to be satisfied as soon as reasonably practicable and, in general, to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as reasonably practicable the purchase and sale of the Shares in accordance with the terms of this Agreement. 4. Additional Representations and Covenant of the KPCB --------------------------------------------------- Purchasers. ---------- (a) The KPCB Purchasers hereby covenant with the Company to use their best efforts to cause to be executed and delivered by the appropriate parties, the Assignment Agreement in substantially the form attached hereto as Exhibit D ------- - (the "Assignment Agreement") at or prior to the Closing. (b) Each KPCB Purchaser represents and warrants that KPCB VII Associates, a California limited partnership (the "KPCB Partner"), is a general partner of each of the KPCB Purchasers and that each of John Doerr and William Randolph Hearst III is a general partner of the KPCB Partner. 5. Legends; Notations. The certificates evidencing the Shares or any ------------------ shares of Common Stock shall be endorsed with the legends set forth below: (a) a conspicuously noted legend in substantially the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, SUCH SALE, TRANSFER, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM REGISTRATION OR IS OTHERWISE IN COMPLIANCE WITH THE ACT AND SUCH LAWS"; (b) any legend required by any applicable state securities law; and (c) a conspicuously noted legend in substantially the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THAT CERTAIN STOCKHOLDERS' AGREEMENT, DATED AS OF _________________, 1995 (THE "STOCKHOLDERS' AGREEMENT"), AMONG THE -8- COMPANY AND THE OTHER PARTIES THERETO CONTAINING, AMONG OTHER THINGS, RESTRICTIONS ON THE SALE, TRANSFER OR OTHER DISPOSITION OF SUCH SECURITIES. A COUNTERPART OF SUCH AGREEMENT HAS BEEN DEPOSITED WITH THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS, AND THE COMPANY SHALL FURNISH A COPY OF SUCH AGREEMENT TO THE RECORD HOLDER HEREOF WITHOUT CHARGE UPON WRITTEN REQUEST." The Company shall make a notation on its stock books regarding the restrictions on transfer of the Shares and any Conversion Shares and will transfer securities on the books of the Company only to the extent not inconsistent therewith. 6. Conditions to the Purchasers' Obligations at Closing. The obligation ---------------------------------------------------- of TCI Sub, on the one hand, and the KPCB Purchasers, on the other hand, to purchase Shares at the Closing is several and not joint and such obligation as to TCI Sub, on the one hand, and the KPCB Purchasers, on the other hand, is subject to the satisfaction, at or prior to the Closing, of each of the following conditions, any of which may be waived by TCI Sub, on the one hand, or the KPCB Purchasers, on the other hand: 6.1 Correctness of Representations and Warranties. The --------------------------------------------- representations and warranties of the Company set forth in this Agreement shall, if specifically qualified by materiality, be true and correct and, if not so qualified, be true and correct in all material respects in each case as of the date of this Agreement and as of the Closing Date with the same effect as if made on and as of the Closing Date, and such Purchaser shall have received a certificate to such effect from the Company, signed by its duly authorized officer. 6.2 Performance of Agreements. Each other party to this Agreement ------------------------- shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing Date, and such Purchaser shall have received a certificate to such effect from each such party, signed by its duly authorized officer. 6.3 Registration Rights Agreement. The Registration Rights Agreement ----------------------------- shall have been duly executed and delivered by each party thereto. 6.4 Stockholders' Agreement. The Stockholders' Agreement shall have ----------------------- been duly executed and delivered by each party thereto. 6.5 Assignment Agreement. As to the obligation of TCI Sub only, -------------------- the Assignment Agreement shall have been duly executed and delivered by the applicable parties thereto, and the transactions contemplated thereby to be consummated at or prior to the Closing shall have been consummated. -9- 6.6 Restated Certificate. The Restated Certificate shall have been -------------------- filed with, and accepted for filing by, the Secretary of State of Delaware and shall be in full force and effect under the Delaware General Corporation Law. 6.7 Proceedings and Documents. All corporate and other proceedings ------------------------- in connection with the transactions contemplated at the Closing hereby, and all documents and instruments incident to these transactions, shall be reasonably satisfactory in substance to such Purchaser and its counsel. 6.8 Other. TCI Sub, on the one hand, and the KPCB Purchasers, on ----- the other hand, shall be reasonably satisfied that all conditions to (a) the other Purchaser's obligation to purchase and pay for the Shares to be purchased by such Purchaser and (b) the Company's obligation to sell the Shares to be sold to the other Purchaser, shall have been satisfied or waived. 6.9 Simultaneous Closing. Each Purchaser shall purchase and pay for -------------------- the Shares to be purchased by such Purchaser simultaneously with the purchase of and payment for the Shares to be purchased by the other Purchaser. 7. Conditions to the Company's Obligations at Closing. The obligations -------------------------------------------------- of the Company to issue and sell Shares to the Purchasers at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions: 7.1 Correctness of Representations and Warranties. The --------------------------------------------- representations and warranties of the Purchasers contained in this Agreement shall, if specifically qualified by materiality, be true and correct and, if not so qualified, be true and correct in all material respects in each case as of the date of this Agreement and as of the Closing Date with the same effect as if made on and as of the Closing Date, and the Company shall have received a certificate to such effect from each Purchaser, signed by its duly authorized officer. 7.2 Performance of Agreements. The Purchasers shall have performed ------------------------- and complied with all covenants, agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by them on or before the Closing Date, and the Company shall have received a certificate to such effect from each Purchaser, signed by its duly authorized officer. 7.3 No Material Litigation. There shall not be pending on the ---------------------- Closing Date any lawsuit, claim, proceeding or other legal action by or before any court or other regulatory, administrative or governmental authority that seeks to restrain, restrict or prohibit or impose substantial penalties or damages with respect to (or any other materially adverse relief or remedy in connection with), and there shall not be in effect on the Closing Date any injunction or other order of any governmental authority or arbitration panel that restrains, restricts, prohibits or imposes substantial penalties or damages with respect to (or any other materially -11- adverse relief or remedy in connection with), the consummation of any of the transactions contemplated hereby or by any of the other Transaction Agreements. 7.4 Registration Rights Agreement. The Registration Rights Agreement ----------------------------- shall have been duly executed and delivered by each party hereto. 7.5 Stockholders' Agreement. The Stockholders' Agreement shall have ----------------------- been duly executed and delivered by each party hereto. 7.6 Assignment Agreement. The Assignment Agreement shall have been -------------------- duly executed and delivered by the applicable parties (other than the Company), and the transactions contemplated thereby to be consummated at or prior to the Closing shall have been consummated. 7.7 Proceedings and Documents. All corporate and other proceedings ------------------------- in connection with the transactions contemplated by this Agreement to occur at or prior to the Closing, and all documents and instruments incident to these transactions, shall be reasonably satisfactory in substance to the Company and its counsel. 8. Miscellaneous. ------------- 8.1 Governing Law. This Agreement shall be governed by, and construed ------------- in accordance with, in all respects the laws of the State of New York, without regard to the conflicts of law rules of such State. 8.2 Survival. The representations, warranties, covenants and -------- agreements made herein shall survive any investigation made by any Purchaser and the closing of the transactions contemplated hereby. 8.3 Successors and Assigns. Neither this Agreement nor any of the ---------------------- rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of each of the other parties hereto; provided, however, that a -------- ------- Purchaser shall be entitled to assign its rights under Section 2.12 hereof to any transferee of such Purchaser's Shares. Any assignment or delegation in contravention of this Agreement shall be void and shall not relieve the assigning or delegating party of any obligation hereunder. Subject to the foregoing provisions of this Section 8.3, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. 8.4 Limitation on Rights of Others. Nothing in this Agreement, ------------------------------ whether express or implied, shall be construed to give any person, other than the parties hereto, any legal or equitable right, remedy or claim under or in respect of this Agreement. -11- 8.5 Entire Agreement; Amendment. This Agreement and the other --------------------------- documents delivered pursuant hereto constitute the full and entire understanding and agreement among the parties with regard to the subjects hereof and thereof and supersede all prior agreements and understandings, both written and oral, among the parties with regard to the subject matter hereof. Neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought. 8.6 Notices, Etc. All notices and other communications required or ------------ permitted to be given by any provision of this Agreement shall be in writing and mailed (certified or registered mail, postage prepaid, return receipt requested) or sent by hand or overnight courier, or by facsimile transmission (with acknowledgment received), charges prepaid and addressed to the intended recipient as follows, or to such other address or number as may be specified from time to time by like notice to the parties: (a) If to TCI Sub: TCI Internet Services, Inc. 5619 DTC Parkway Englewood, CO 80111 Telecopy: (303) 488-3221 Attention: Bruce Ravenel with copies to: Baker & Botts, L.L.P. 885 Third Avenue New York, New York 10022-4834 Telecopy: (212) 705-5125 Attention: Frederick H. McGrath, Esq. (b) If to the KPCB Purchasers or the Company: Kleiner Perkins Caufield & Byers 2750 Sand Hill Road Menlo Park, CA 94025 Telecopy: (415) 233-0323 Attention: John Doerr -12- with copies to: Fenwick & West Two Palo Alto Square Suite 800 Palo Alto, CA 94306 Telecopy: (415) 857-0361 Attention: Gordon K. Davidson, Esq. Any party may from time to time specify a different address for notices by like notice to the other parties. All notices and other communications given in accordance with the provisions of this Agreement shall be deemed to have been given and received (i) four (4) business days after the same are sent by certified or registered mail, postage prepaid, return receipt requested, (ii) when delivered by hand or transmitted by facsimile (with acknowledgment received and, in the case of a facsimile only, a copy of such notice is sent no later than the next business day by a reliable overnight courier service, with acknowledgment or receipt) or (iii) one (1) business day after the same are sent by a reliable overnight courier service, with acknowledgment of receipt. 8.7 Delays or Omissions. No delay or omission to exercise any ------------------- right, power or remedy accruing to any holder of any Shares upon any breach or default of the Company under this Agreement shall impair any such right, power or remedy of such holder, nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any holder of any breach or default under this Agreement, or any waiver on the part of any holder of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing or as provided in this Agreement. All remedies, either under this Agreement or by law or otherwise afforded to any holder, shall be cumulative and not alternative. 8.8 Expenses. Each of the Company and each Purchaser shall bear its -------- own expenses and legal fees incurred on its behalf in connection with this Agreement and the transactions contemplated hereby. 8.9 Counterparts. This Agreement may be executed in any number of ------------ counterparts with the same effect as if all parties hereto had signed the same document. Each counterpart shall be enforceable against the parties actually executing such counterpart, and all counterparts shall be construed together and shall constitute one instrument. 8.10 Severability. In the event that any provision of this Agreement ------------ becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this -13- Agreement shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party. 8.11 Obligations Several, Not Joint. Each Purchaser shall be (i) ------------------------------ obligated hereunder only with respect to the purchase of the number and kind of Shares set forth in Section 1.1 of this Agreement, and no Purchaser shall have any liability with respect to the other Purchaser's obligations hereunder and (ii) separately and independently entitled to rely on the representations and warranties of the other Purchaser and the Company made to such Purchaser in this Agreement and to the benefit of all covenants and agreements of the other Purchaser and the Company made with such Purchaser herein. -14- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. AT HOME CORPORATION By:/s/ WILLIAM R. HEARST III -------------------------- Name: Title: TCI INTERNET SERVICES, INC. By:/s/ B. RAVENEL ---------------------------- Name: BRUCE RAVENEL Title:SR. VP & COO KLEINER, PERKINS, CAUFIELD & BYERS VII By: KPCB VII ASSOCIATES, its General Partner By:/s/ L. JOHN DOERR ---------------------------- Name: Title: KPCB VII FOUNDERS FUND By: KPCB VII ASSOCIATES, its General Partner By:/s/ L. JOHN DOERR ----------------------------- Name: Title: KPCB INFORMATION SERVICES ZAIBATSU FUND II By: KPCB VII ASSOCIATES, its General Partner By:/s/ L. JOHN DOERR ----------------------------- Name: Title: -15- ASSIGNMENT AGREEMENT -------------------- Effective as of August 29, 1995 (the "Effective Date"), at Home Corporation, a Delaware corporation (the "Purchaser") has, pursuant to this --------- Assignment Agreement (the "Agreement"), purchased from athome.net, a California --------- corporation (the "Company") and the Company has sold, an aggregate of 1 share of ------- the Company's common stock (the "Restricted Securities") for the aggregate --------------------- purchase price of $2,500.00 in cash. 1. REPRESENTATIONS AND WARRANTIES OF PURCHASER. ------------------------------------------- Purchaser represents and warrants to the Company that: (A) PURCHASE FOR OWN ACCOUNT FOR INVESTMENT. Purchaser is purchasing --------------------------------------- the Restricted Securities for Purchaser's own account for investment purposes only and not with a view to, or for sale in connection with, a distribution of the Restricted Securities within the meaning of the Securities Act of 1933, as amended (the "1933 Act"). Purchaser has no present intention of selling or -------- otherwise disposing of all or any portion of the Restricted Securities and no one other than Purchaser has any beneficial ownership of any of the Restricted Securities. (B) UNDERSTANDING OF RISKS. Purchaser is fully aware of: (i) the ---------------------- highly speculative nature of the investment in the Restricted Securities; (ii) the financial hazards involved; (iii) the lack of liquidity of the Restricted Securities and the restrictions on transferability of the Restricted Securities (e.g., that Purchaser may not be able to sell or dispose of the Restricted ---- Securities or use them as collateral for loans); (iv) the qualifications and backgrounds of the management of the Company; and (v) the tax consequences of investment in the Restricted Securities. (C) PURCHASER'S QUALIFICATIONS. Purchaser has a preexisting personal -------------------------- or business relationship with the Company and/or certain of its officers and/or directors of a nature and duration sufficient to make Purchaser aware of the character, business acumen and general business and financial circumstances of the Company and/or such officers and directors. By reason of Purchaser's business or financial experience, Purchaser is capable of evaluating the merits and risks of this investment, has the ability to protect Purchaser's own interests in this transaction and is financially capable of bearing a total loss of this investment. (D) NO GENERAL SOLICITATION. At no time was Purchaser presented with ----------------------- or solicited by any publicly issued or circulated newspaper, mail, radio, television or other form of general advertising or solicitation in connection with the offer, sale and purchase of the Restricted Securities. (E) COMPLIANCE WITH SECURITIES LAWS. Purchaser understands and ------------------------------- acknowledges that, in reliance upon the representations and warranties made by Purchaser herein, the Restricted Securities are not being registered with the Securities and Exchange Commission ("SEC") under the 1933 Act or being qualified --- under the California Corporate Securities Law of 1968, as amended (the "Law"), --- but instead are being issued under an exemption or exemptions from the registration and qualification requirements of the 1933 Act and the Law or other applicable state securities laws which impose certain restrictions on Purchaser's ability to transfer the Restricted Securities. (F) RESTRICTIONS ON TRANSFER. Purchaser understands that Purchaser ------------------------ may not transfer any Restricted Securities unless such Restricted Securities are registered under the 1933 Act or qualified under the Law or unless, in the opinion of counsel to the Company, exemptions from such registration and qualification requirements are available. Purchaser understands that only the Company may file a registration statement with the SEC or the California Commissioner of Corporations and that the Company is under no obligation to do so with respect to the Restricted Securities. Purchaser has also been advised that exemptions from registration and qualification may not be available or may not permit Purchaser to transfer all or any of the Restricted Securities in the amounts or at the times proposed by Purchaser. (G) RULE 144. In addition, Purchaser has been advised that SEC Rule -------- 144 promulgated under the 1933 Act, which permits certain limited sales of unregistered securities, is not presently available with respect to the Restricted Securities and, in any event, requires that the Restricted Securities be held for a minimum of two years, and in certain cases three years, after they have been purchased and paid for (within the meaning of Rule 144), before they ------------ may be resold under Rule 144. 2. REPRESENTATIONSAND WARRANTIES OF COMPANY ---------------------------------------- Company represents and warrants to the Purchaser that: (A) CAPITALIZATION. Immediately after the issuance of one share of --------------- common stock contemplated by this Agreement: (a) the capitalization of the Company will consist solely of ten million authorized shares of common stock, no par value, of which one share will be issued and outstanding to Purchaser and a total five million authorized shares of preferred stock, no par value, of which no shares will be outstanding; and (b) except for the one share of common stock to be issued pursuant to the Stock Purchase Agreement, there are no options, warrants, or rights, or other shares of capital stock outstanding or issuable by the Company, nor are there any rights of first refusal or other rights to purchase any such option, warrant, right, or other share of capital stock (whether in favor of the Company or any other person), pursuant to any agreement or commitment of the Company. 3. LEGENDS AND STOP-TRANSFER ORDERS. -------------------------------- Purchaser understands that certificates or other instruments representing any of the Restricted Securities acquired by Purchaser will bear legends substantially similar to the following, in addition to any other legends required by federal or state laws: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY -2- NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. A STATEMENT CONTAINING THE RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS OF THE CORPORATION'S PREFERRED AND COMMON STOCK MAY BE OBTAINED, WITHOUT CHARGE, AT THE CORPORATION'S OFFICE. The undersigned agrees that, in order to ensure and enforce compliance with the restrictions imposed by applicable law and those referred to in the foregoing legends, or elsewhere herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, with respect to any certificate or other instrument representing Restricted Securities, or if the Company transfers its own securities, that it may make appropriate notations to the same effect in the Company's records. IN WITNESS WHEREOF, The Company has caused this Agreement to be executed by its duly authorized representative and Purchaser has executed this Agreement as of the Effective Date. "COMPANY" "PURCHASER" ATHOME.NET AT HOME CORPORATION By: /s/ L. John Doerr By: /s/ Will Hearst ------------------------ ---------------------- L. John Doerr, President Will Hearst, President Address:________________________ Address:__________________ ________________________ __________________ ________________________ __________________ Signature page to athome.net Stock Purchase Agreement -3- EX-10.02 11 LETTER AGREEMENT DATED AUGUST 1, 1996 EXHIBIT 10.02 May 9, 1996 AT HOME CORPORATION 385 Ravendale Drive Mountain View, CA 94043 TCI Internet Holdings, Inc. 5619 DTC Parkway Terrace Tower II Englewood, Colorado 80111-3000 Kleiner, Perkins, Caufield & Byers VII KPCB VII Founders Fund KPCB Information Services Zaibatsu Fund II 2750 Sand Hill Road Menlo Park, CA 94025 Gentlemen: Reference is made to the Stock Purchase Agreement, dated as of August 29, 1995 (the "Prior Agreement"), among (i) At Home Corporation, a Delaware corporation (the "Company"), (ii) TCI Internet Holdings, Inc., a Delaware corporation ("TCI Sub"), and (iii) Kleiner, Perkins, Caufield & Byers VII, KPCB VII Founders Fund, and KPCB Information Services Zaibatsu Fund II, each of which is a California limited partnership (such limited partnerships are hereinafter referred to collectively as the "KPCB Purchasers" and individually as a "KPCB Purchaser"), pursuant to which (a) TCI Sub purchased an aggregate of 7,700,000 shares (the "Initial TCI Shares") of the Company's Series T Convertible Participating Preferred Stock, par value $.01 per share (the "Series T Preferred Stock") and (b) the KPCB Purchasers purchased an aggregate of 2,300,000 shares (the "Initial KPCB Shares") of the Company's Series K Convertible Participating Preferred Stock, par value $.01 per share (the "Series K Preferred Stock"). In order to provide additional funding to -1- the Company to continue the expansion of its business, TCI Sub and the KPCB Purchasers desire to purchase additional shares of the Series T Preferred Stock and the Series K Preferred Stock, respectively, upon the terms and subject to the conditions set forth, or incorporated by reference in, this letter agreement (this "Agreement"). TCI Sub, on one hand, and the KPCB Purchasers (collectively), on the other hand, are referred to hereinafter separately as a "Purchaser" or together as the "Purchasers". 1. PURCHASE AND SALE OF STOCK. -------------------------- (A) Sale and Issuance of Series T Preferred Stock and Series K ---------------------------------------------------------- Preferred Stock Subject to the terms and conditions of this Agreement, (I) the - --------------- Company agrees to issue and sell to TCI Sub, and TCI Sub agrees to purchase from the Company, at the Closing (as defined below), 7,700,000 shares of the Series T Preferred Stock, for an aggregate purchase price of $7,700,000 and (II) the Company agrees to issue and sell to the KPCB Purchasers, and the KPCB Purchasers, jointly and severally, agree to purchase from the Company, at the Closing, an aggregate of 2,300,000 shares of the Series K Preferred Stock, for an aggregate purchase price of $2,300,000. The Series K Preferred Stock and the Series T Preferred Stock being purchased pursuant to this Agreement are sometimes referred to herein as the "Shares." Upon the issuance and sale and receipt of the purchase price therefor in accordance with the terms of this Agreement, such Shares will be duly authorized, validly issued and outstanding and will be fully paid and non-assessable. (B) Closing. The closing of the purchase and sale of the ------- Shares (the "Closing") shall take place at the offices of Baker & Botts, L.L.P., 599 Lexington Avenue, New York, New York, at 10:00 a.m., New York City time, on May 9, 1996, or at such other time and place as the Company and the Purchasers shall mutually agree. The date on which the Closing occurs is referred to herein as the "Closing Date." At the Closing, the Company shall deliver (I) to TCI Sub a certificate or certificates registered in the name of TCI Sub representing 7,700,000 shares of Series T Preferred Stock against payment of the purchase price therefor in cash or by wire transfer in immediately available funds and (II) to the KPCB Purchasers certificates registered in the name of the KPCB Purchasers representing an aggregate of 2,300,000 shares of Series K Preferred Stock (in such relative amounts as the KPCB Purchasers may request) against payment of the purchase price therefor in cash or by wire transfer in immediately available funds. -2- 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. -------------------------------------------------------- The Company hereby represents and warrants to, and covenants with, each of the Purchasers as follows: (A) Each of the representations and warranties of the Company contained in Sections 2.4, 2.6, 2.7, 2.8, 2.9, 2.13 and 2.14 (the "Prior Agreement Sections") of the Prior Agreement is true and correct, with the same force and effect as if each of such representations and warranties (together, subject to Section 2(b) hereof, with the definitions of all terms used therein which are defined in the Prior Agreement) were set forth at length herein and made directly to the Purchasers on and as of the date hereof and as if each Exhibit and Appendix referred to therein and attached to the Prior Agreement were attached to and made a part of this Agreement, except that for purposes of this Agreement (i) all references to Schedules in the Prior Agreement Sections shall be deemed to be references to Schedules to this Agreement and such Schedules shall be prepared with respect to and attached to this Agreement (labeled with the respective Prior Agreement Section number) and (ii) the reference in Section 2.13 to "Section 6" shall be deemed to refer to Section 5 hereof. With respect to any covenants or agreements of the Company set forth in the Prior Agreement Sections, the Company covenants and agrees to perform its obligations related thereto in accordance with the terms of the Prior Agreement Sections, as if such covenants and agreements were set forth at length herein, and made directly to the Purchasers on and as of the date hereof. (B) In the event that any term contained in any of the Prior Agreement Sections is defined in the Prior Agreement (the "Incorporated Definitions") and is also defined in this Agreement, then for purposes of this Section 2 (but not for purposes of any other provision of this Agreement, except as otherwise specifically provided herein) such term will have the meaning assigned to it in the Prior Agreement, except that for purposes of this Agreement all references in the Prior Agreement Sections and the Incorporated Definitions to (i) the "Shares" will be deemed to be references to the Shares (as defined in this Agreement), (ii) the "Transaction Agreements" will be deemed to be references to the Transaction Agreements (as defined in this Agreement), (iii) the "Closing" will be deemed to be references to the Closing (as defined in this Agreement), and (iv) the "Restated Certificate" and the "Bylaws" will be deemed to be references to the Restated Certificate and the Bylaws (each as defined in this Agreement). (C) In addition to the foregoing, the Company makes the following representations and warranties to the Purchasers: -3- (I) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as currently conducted and as currently proposed to be conducted. The Company is qualified and in good standing to do business in each jurisdiction in which the failure to so qualify would have a material adverse effect on its business, properties, prospects or financial condition. The Company has delivered to each of the Purchasers true and accurate copies of the Company's Amended and Restated Certificate of Incorporation and Bylaws, each as amended through, and in effect on, the date hereof (the "Restated Certificate" and the "Bylaws"). (II) The authorized capital stock of the Company consists of (x) 150,000,000 shares of common stock, par value $.01 per share (the "Common Stock"), of which 75,000,000 shares have been designated as Series A Common Stock (the "Series A Common Stock") and 75,000,000 shares have been designated as Series B Common Stock (the "Series B Common Stock"), and (y) 75,000,000 shares of preferred stock, par value $.01 per share (the "Preferred Stock"), of which (1) 25,000,000 shares have been designated as Series T Preferred Stock, (2) 7,000,000 shares have been designated as Series K Preferred Stock, and (3) 43,000,000 shares are undesignated as to series and shall be issuable pursuant to authority granted in the Restated Certificate to the Board of Directors (the "Series Preferred Stock"). As of the date hereof, (x) no shares of Series A Common Stock or Series B Common Stock have been issued or are outstanding, (y) other than the Initial TCI Shares and the Initial KPCB Shares, no shares of Series T Preferred Stock or Series K Preferred Stock have been issued or are outstanding, and (z) no shares of Series Preferred Stock have been designated as a series or class of Preferred Stock (nor has any action been taken to so designate any shares of Series Preferred Stock), and no shares of Series Preferred Stock have been issued or are outstanding. All such issued and outstanding shares have been duly authorized and validly issued and are fully paid and nonassessable and have been issued in compliance with all applicable state and federal laws concerning the issuance of securities. The Company has reserved, and agrees that it will at -4- all times keep reserved, such number of shares of Series B Common Stock as is sufficient to provide for the conversion of all shares of the Series T and Series K Preferred Stock (including the Shares to be issued pursuant to this Agreement) outstanding from time to time, and has reserved, and agrees that it will at all times keep reserved, such number of shares of Series A Common Stock as is sufficient to provide for the conversion of all shares of Series B Common Stock then issued and outstanding or issuable upon the conversion, exercise or exchange of any security (including the shares of Series B Common Stock to be issued upon conversion of the Shares) outstanding from time to time. In addition to the foregoing, the Company has reserved for issuance such number of shares of Series A Common Stock as are issuable upon exercise of the stock options granted or to be granted as listed on Schedule 2(c) hereto. Except for the transactions contemplated by this Agreement or the Prior Agreement (including the transactions contemplated by the Stockholders' Agreement and the Registration Rights Agreement (each as defined in the Prior Agreement)), or as set forth on Schedule 2(c) hereto, (x) there are: (i) no outstanding warrants, options, rights (including conversion or preemptive rights), or agreements to subscribe for or purchase any capital stock or other securities from the Company; (ii) to the knowledge of the Company, no voting trusts or voting agreements among, or irrevocable proxies executed by, stockholders of the Company; (iii) no existing rights of stockholders to require the Company to register any securities of the Company or to participate with the Company in any registration by the Company of its securities; and (iv) to the knowledge of the Company, no agreements among stockholders providing for the purchase or sale of the Company's capital stock, and (y) the Company has not taken any action that would result in a stock split, stock dividend, reverse split, recapitalization or reclassification affecting its capital stock or the designation of the Series Preferred Stock as a series or class of Preferred Stock of the Company. (III) The Company has full power and authority to execute, deliver and perform its obligations under this Agreement, the Registration Rights Amendment (as defined below) and the Stockholders' Agreement Amendment (as defined below) (collectively, the "Transaction Agreements"). All -5- corporate action on the part of the Company, its directors and its stockholders necessary for the authorization, execution, delivery and performance of this Agreement and the other Transaction Agreements by the Company, the authorization, sale, issuance and delivery of the Shares, and the performance of all of the Company's obligations hereunder and thereunder has been taken. Each of the Transaction Agreements, when executed and delivered by the Company, and assuming the due execution and delivery thereof by the other parties hereto or thereto, shall constitute a valid and legally binding obligation of the Company, enforceable against it in accordance with its terms, subject to: (x) judicial principles limiting the availability of specific performance, injunctive relief and other equitable remedies and (y) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect generally relating to or affecting creditors' rights. (IV) Since August 29, 1995, neither the Restated Certificate, the Bylaws, the Registration Rights Agreement, nor the Stockholders' Agreement has been amended in any way, and except as specified in this Agreement, no action has been taken and no action is contemplated to be taken in respect of any amendment to the foregoing documents. 3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASERS. ----------------------------------------------------------- Each Purchaser, on behalf of itself and not jointly with the other Purchaser, hereby represents and warrants to, and covenants with, the Company as follows: (A) Each of the representations and warranties of the Purchaser contained in Sections 3.1, 3.2, 3.3, 3.4, 3.5, 3.6 and 3.9 of the Prior Agreement (the "Purchaser Prior Agreement Sections") is true and correct, with the same force and effect as if each of such representations and warranties (together, subject to Section 3(b) hereof, with the definitions of all terms used therein which are defined in the Prior Agreement) were set forth at length herein and made directly to the Company on and as of the date hereof and as if each Exhibit and Appendix referred to therein and attached to the Prior Agreement were attached to and made a part of this Agreement, except that for purposes of this Agreement (i) all references to Schedules in the Purchaser Prior Agreement Sections shall be deemed to be references to Schedules to this Agreement and such Schedules shall be prepared with respect to and attached to this Agreement (labeled with the -6- respective Purchaser Prior Agreement Section number) and (ii) the reference in Section 3.9 to "Section 7" shall be deemed to refer to Section 4 hereof. With respect to any covenants or agreements of the Purchaser set forth in the Purchaser Prior Agreement Sections, the Purchaser covenants and agrees to perform its obligations related thereto in accordance with the terms of the Purchaser Prior Agreement Sections, as if such covenants and agreements were set forth at length herein and made directly to the Company on and as of the date hereof. (B) In the event that any term contained in any of the Purchaser Prior Agreement Sections is defined in the Prior Agreement (the "Purchaser Incorporated Definitions") and is also defined in this Agreement, then for purposes of this Section 3 (but not for purposes of any other provision of this Agreement, except as otherwise specifically provided herein) such term will have the meaning assigned to it in the Prior Agreement, except that for purposes of this Agreement all references in the Purchaser Prior Agreement Sections and the Purchaser Incorporated Definitions (i) to the "Shares" will be deemed to be references to the Shares (as defined in this Agreement), (ii) to the "Transaction Agreements" will be deemed to be references to the Transaction Agreements (as defined in this Agreement), (iii) to the "Closing" will be deemed to be references to the Closing (as defined in this Agreement) and (iv) to the "Restated Certificate" and the "Bylaws" will be deemed to be references to the Restated Certificate and the Bylaws (each as defined in this Agreement). (C) In addition to the foregoing, each KPCB Purchaser represents and warrants to the Company that KPCB VII Associates, a California limited partnership (the "KPCB Partner"), is a general partner of each of the KPCB Purchasers and that each of L. John Doerr and William R. Hearst III is a general partner of the KPCB Partner. 4. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The obligation -------------------------------------------------- of the Company to issue and sell Shares to the Purchasers at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions: (A) Correctness of Representations and Warranties(a).Correctness of --------------------------------------------- Representations and Warranties . The representations and warranties of the Purchasers contained in this Agreement (including the representations and warranties incorporated from the Prior Agreement) shall, if specifically qualified by materiality, be true and correct and, if not so qualified, be true and correct in all material respects in each case as of the date of this Agreement and as of the Closing Date with the same effect as if made -7- on and as of the Closing Date, and the Company shall have received a certificate to such effect from each Purchaser, signed by its duly authorized officer. (B) Performance of Agreements and Covenants The Purchasers shall --------------------------------------- have performed and complied with all covenants, agreements, obligations and conditions contained in this Agreement (including those incorporated from the Prior Agreement) that are required to be performed or complied with by them on or before the Closing Date, and the Company shall have received a certificate to such effect from each Purchaser, signed by its duly authorized officer. (C) No Material Litigation. There shall not be pending on the ----------------------- Closing Date any lawsuit, claim, proceeding or other legal action by or before any court or other regulatory, administrative or governmental authority that seeks to restrain, restrict or prohibit or impose substantial penalties or damages with respect to (or any other materially adverse relief or remedy in connection with), and there shall not be in effect on the Closing Date any injunction or other order of any governmental authority or arbitration panel that restrains, restricts, prohibits or imposes substantial penalties or damages with respect to (or any other materially adverse relief or remedy in connection with), the consummation of any of the transactions contemplated hereby. (D) Registration Rights Agreement. Each Purchaser shall have duly ------------------------------ executed and delivered the Amendment No. 1 to the Registration Rights Agreement, substantially in the form of Exhibit A hereto (such amendment, the "Registration Rights Amendment"). (E) Stockholders' Agreement(e).Stockholders' Agreement . Each --------------------------------------------------- Purchaser shall have duly executed and delivered the Amendment No. 1 to the Stockholders' Agreement, substantially in the form of Exhibit B hereto (such amendment, the "Stockholders' Agreement Amendment"). (F) Proceedings and Documents. All corporate and other proceedings ------------------------- in connection with the transactions contemplated by this Agreement to occur at or prior to the Closing, and all documents and instruments incident to these transactions, shall be reasonably satisfactory in substance to the Company and its counsel. 5. CONDITIONS TO THE PURCHASERS' OBLIGATIONS AT CLOSING. The obligation ---------------------------------------------------- of TCI Sub, on the one hand, and the KPCB Purchasers, on the other hand, to purchase Shares at the Closing is several and not joint and such obligation -8- as to TCI Sub, on the one hand, and the KPCB Purchasers, on the other hand, is subject to the satisfaction, at or prior to the Closing, of each of the following conditions, any of which may be waived by TCI Sub, on the one hand, or the KPCB Purchasers, on the other hand: (A) Correctness of Representations and Warranties. The --------------------------------------------- representations and warranties of the Company set forth in this Agreement (including the representations and warranties incorporated from the Prior Agreement) shall, if specifically qualified by materiality, be true and correct and, if not so qualified, be true and correct in all material respects in each case as of the date of this Agreement and as of the Closing Date with the same effect as if made on and as of the Closing Date, and such Purchaser shall have received a certificate to such effect from the Company, signed by its duly authorized officer. (B) Performance of Agreements and Covenants. Each other party to this --------------------------------------- Agreement shall have performed and complied with all agreements, covenants, obligations and conditions contained in this Agreement (including those incorporated from the Prior Agreement) that are required to be performed or complied with by it on or before the Closing Date, and such Purchaser shall have received a certificate to such effect from each such party, signed by its duly authorized officer. (C) Registration Rights Amendment and Stockholders Agreement -------------------------------------------------------- Amendment. Each of the Registration Rights Amendment and the Stockholders' - --------- Agreement Amendment shall have been duly executed and delivered by each other party thereto. (D) Proceedings and Documents. All corporate and other proceedings ------------------------- in connection with the transactions contemplated at the Closing hereby, and all documents and instruments incident to these transactions, shall be reasonably satisfactory in substance to such Purchaser and its counsel. (E) Other. TCI Sub, on the one hand, and the KPCB Purchasers, on the ----- other hand, shall be reasonably satisfied that all conditions to (i) the other Purchaser's obligation to purchase and pay for the Shares to be purchased by such Purchaser and (ii) the Company's obligation to sell the Shares to be sold to the other Purchaser, shall have been satisfied or waived. (F) Simultaneous Closing. Each Purchaser shall purchase and pay for -------------------- the Shares to be purchased by such Purchaser simultaneously with the purchase of and payment for the Shares to be purchased by the other Purchaser. -9- 6. LEGENDS; NOTATIONS.The certificates evidencing the Shares and any ------------------ Conversion Shares (as defined in the Prior Agreement) shall be endorsed with the legends set forth below: (A) a conspicuously noted legend in substantially the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, SUCH SALE, TRANSFER, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM REGISTRATION OR IS OTHERWISE IN COMPLIANCE WITH THE ACT AND SUCH LAWS"; (B) any legend required by any applicable state securities law; and (C) a conspicuously noted legend in substantially the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THAT CERTAIN STOCKHOLDERS' AGREEMENT, DATED AS OF AUGUST 29, 1995, AS AMENDED (THE "STOCKHOLDERS' AGREEMENT"), AMONG THE COMPANY AND THE OTHER PARTIES THERETO CONTAINING, AMONG OTHER THINGS, RESTRICTIONS ON THE SALE, TRANSFER OR OTHER DISPOSITION OF SUCH SECURITIES. A COUNTERPART OF SUCH AGREEMENT HAS BEEN DEPOSITED WITH THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS, AND THE COMPANY SHALL FURNISH A COPY OF SUCH AGREEMENT TO THE RECORD HOLDER HEREOF WITHOUT CHARGE UPON WRITTEN REQUEST." The Company shall (or shall instruct its transfer agent to) make a notation on the stock books regarding the restrictions on transfer of the Shares and the Conversion Shares and will transfer (or will instruct its transfer agent to transfer) securities on the books of the Company only to the extent not inconsistent therewith. The legend will be removed by the Company (or, if applicable, the -10- Company will instruct its transfer agent to remove the legend), upon delivery to it of an opinion of counsel in form and substance reasonably satisfactory to the Company that a registration statement under the Securities Act of 1933, as amended, is at the time in effect with respect to the legend security or that such security can be freely transferred without such registration statement being in effect. 7. EXPENSES. Whether or not the transactions contemplated hereby are -------- consummated, each of the Company and each Purchaser will bear its own expenses incurred on its behalf with respect to this Agreement and the transactions contemplated hereby. 8. SURVIVAL. The representations, warranties, covenants and agreements -------- made herein, including the representations and warranties incorporated from the Prior Agreement, will survive any investigation made by any Purchaser and will survive the Closing. 9. SUCCESSORS AND ASSIGNS. Neither this Agreement nor any of the rights, ---------------------- interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of each of the other parties hereto, provided, however, that any -------- ------- Purchaser may assign this Agreement or any or all of its rights, interests, or obligations hereunder to a wholly owned subsidiary of such party, but such assignment shall not relieve such assigning party of its obligations hereunder in the event such assignee fails to perform such obligations. Any assignment or delegation in contravention of this Agreement shall be void and shall not relieve the assigning or delegating party of any obligation hereunder. Subject to the foregoing provisions of this Section 9, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. 10. NOTICES, ETC. All notices and other communications required or ------------- permitted to be given by any provision of this Agreement shall be in writing and mailed (certified or registered mail, postage prepaid, return receipt requested) or sent by hand or overnight courier, or by facsimile transmission (with acknowledgment received), charges prepaid and addressed to the intended recipient as follows, or to such other address or number as may be specified from time to time by like notice to the parties: (A) If to the Company: -11- At Home Corporation 385 Ravendale Drive Mountain View, CA 94043 Telecopy: (415) 944-8500 Attention: William R. Hearst III with copies to: Fenwick & West Two Palo Alto Square Suite 800 Palo Alto, CA 94306 Telecopy: (415) 857-0361 Attention: Gordon K. Davidson, Esq. (B) If to the KPCB Purchasers: Kleiner Perkins Caufield & Byers 2750 Sand Hill Road Menlo Park, CA 94025 Telecopy: (415) 233-0323 Attention: L. John Doerr (C) If to TCI Sub: TCI Internet Holdings, Inc. 5619 DTC Parkway Englewood, CO 80111 Telecopy: (303) 488-3221 Attention: Bruce W. Ravenel with copies to: Baker & Botts, L.L.P. 599 Lexington Avenue New York, New York 10022-6030 Telecopy: (212) 705-5125 Attention: Frederick H. McGrath, Esq. Any party may from time to time specify a different address for notices by like notice to the other parties. All notices and other communications given in -12- accordance with the provisions of this Agreement shall be deemed to have been given and received (i) four (4) business days after the same are sent by certified or registered mail, postage prepaid, return receipt requested, (ii) when delivered by hand or transmitted by facsimile (with acknowledgment received and, in the case of a facsimile only, a copy of such notice is sent no later than the next business day by a reliable overnight courier service, with acknowledgment or receipt) or (iii) one (1) business day after the same are sent by a reliable overnight courier service, with acknowledgment of receipt. The names and addresses for notices set forth above shall be deemed to amend the corresponding provisions of the Prior Agreement. 11. DELAYS OR OMISSIONS. Except as expressly provided herein, no delay ------------------- or omission to exercise any right, power or remedy accruing to any holder of any Shares, upon any breach or default of the Company under this Agreement, will impair any such right, power or remedy of such holder nor will it be construed to be a waiver of any such breach or default, or an acquiescence therein, or in any similar breach or default thereafter occurring; nor will any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any holder of any breach or default under this Agreement, or waiver on the part of any holder of any provisions or conditions of this Agreement, must be in writing and will be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any holder, will be cumulative and not alternative. 12. OBLIGATIONS SEVERAL, NOT JOINT. Each Purchaser shall be (i) obligated ------------------------------ hereunder only with respect to the purchase of the number and kind of Shares set forth in Section 1(a) of this Agreement, and no Purchaser shall have any liability with respect to the other Purchaser's obligations hereunder and (ii) separately and independently entitled to rely on the representations and warranties of the other Purchaser made to the Company in this Agreement and to the benefit of all covenants and agreements of the other Purchaser made with the Company herein. 13. COUNTERPARTS. This Agreement may be executed in any number of ------------ counterparts, each of which will be enforceable against the parties actually executing such counterparts, and all of which together will constitute one instrument. 14. SEVERABILITY. In the event that any provision of this Agreement ------------ becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement will continue in full force and effect without -13- said provision; provided, however, that no such severability will be effective -------- if it materially changes the economic benefits of this Agreement to the Company or to either Purchaser. 15. TITLES AND SUBTITLES. The titles and subtitles used in this Agreement -------------------- are used for convenience only and are not considered in construing or interpreting this Agreement. 16. ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Prior Agreement and --------------------------- each of the other agreements and instruments contemplated by this Agreement and the Prior Agreement, constitute the full and entire understanding and agreement between the parties with regard to the subject hereof and thereof, and supersede all prior agreements and understandings, both written and oral, among the parties with regard to the subject matter hereof and thereof, and no party will be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought. 17. GOVERNING LAW. This Agreement will be governed by and construed in ------------- all respects in accordance with the laws of the State of New York, without regard to its principles of conflicts of laws. -14- If the foregoing is acceptable to you, please execute the copy of this Letter Agreement in the space below, at which time this letter will constitute a binding agreement among us. Very truly yours, AT HOME CORPORATION /s/ William Randolph Hearst, III By: ---------------------------------- Name: William Randolph Hearst, III Title: President Accepted and agreed as of the date first above written: TCI INTERNET HOLDINGS, INC. KLEINER, PERKINS, CAUFIELD & BYERS VII By:/s/ Bruce W. Ravenel By: KPCB VII ASSOCIATES, ----------------------------- Name: Bruce W. Ravenel its General Partner Title: President and Chief Executive Officer By:/s/ L. John Doerr ------------------------------- Name: L. John Doerr Title: Partner KPCB VII FOUNDERS FUND KPCB INFORMATION SERVICES ZAIBATSU FUND II By: KPCB VII ASSOCIATES, By: KPCB VII ASSOCIATES, its General Partner its General Partner By: /s/ L. John Doerr By: /s/ L. John Doerr ------------------------- ------------------------- Name: L. John Doerr Name: L. John Doerr Title: Partner Title: Partner -15- EX-10.03 12 STOCK PURCHASE & EXCHANGE AGREEEMENT EXHIBIT 10.03 AT HOME CORPORATION STOCK PURCHASE AND EXCHANGE AGREEMENT August 1, 1996 TABLE OF CONTENTS -----------------
Page ---- 1. Purchase, Sale and Exchange of Stock............................................... 1.1 Sale and Issuance of Series A Convertible Preferred........................... Stock and Series K Convertible Preferred Stock................................ 1.2 Exchange of Shares of Series T Preferred Stock for Series A Preferred......... 1.3 Closing....................................................................... 2. Representations, Warranties and Covenants of the Company........................... 2.1 Organization, Good Standing and Qualification................................. 2.2 Restated Certificate.......................................................... 2.3 Restated Bylaws............................................................... 2.4 Capitalization................................................................ 2.5 Outstanding Securities........................................................ 2.6 Current Board................................................................. 2.7 Subsidiaries.................................................................. 2.8 Authorization................................................................. 2.9 Consents and Approvals; No Conflict........................................... 2.10 Valid Issuance of Purchased and Conversion Shares............................. 2.11 No Registration Required...................................................... 2.12 Litigation.................................................................... 2.13 Status of Proprietary Assets and Agreements................................... 2.14 Registration Rights........................................................... 2.15 Title to Property and Assets.................................................. 2.16 Financial Statements; Undisclosed Liabilities;................................ No Material Adverse Changes................................................ 2.17 Disclosure.................................................................... 2.18 ERISA Plans................................................................... 2.19 Tax Returns and Payments...................................................... 2.20 Labor Agreements and Actions.................................................. 2.21 Governmental Consents......................................................... 2.22 Actions Requiring Certain Pre-Closing Consents................................ 2.23 Brokers or Finders............................................................ 2.24 Registration Rights Agreement................................................. 2.25 Stockholders' Agreement....................................................... 2.26 Reasonable Efforts............................................................ 2.27 Additional Issuances of Preferred Stock....................................... 2.28 Voting Agreements............................................................. 3. Representations, Warranties and Covenants of the Purchasers........................ 3.1 Experience.................................................................... 3.2 Investment.................................................................... 3.3 Accredited Purchaser Status................................................... 3.4 Restricted Securities.........................................................
i 3.5 Authorization................................................................... 3.6 Consents and Approvals; No Conflict............................................. 3.7 Disclosure of Information....................................................... 3.8 Information Concerning Purchaser................................................ 3.9 Brokers or Finders.............................................................. 3.10 Registration Rights Agreement................................................... 3.11 Stockholders' Agreement......................................................... 3.12 Reasonable Efforts.............................................................. 4. Additional Representations of the KPCB Purchasers.................................... 5. Legends; Notations................................................................... 6. Hart-Scott-Rodino Act................................................................ 7. Conditions to the Purchasers' Obligations at Closing................................. 7.1 Correctness of Representations and Warranties................................... 7.2 Performance of Agreements....................................................... 7.3 Restated Certificate............................................................ 7.4 Restated Bylaws................................................................. 7.5 Securities Exemption............................................................ 7.6 No Material Litigation.......................................................... 7.7 Government Approvals and Consents............................................... 7.8 Proceedings and Documents....................................................... 7.9 Board of Directors.............................................................. 7.10 Opinion of Company Counsel...................................................... 7.11 Stockholders' Agreement......................................................... 7.12 Registration Rights Agreement................................................... 7.13 Other........................................................................... 7.14 Simultaneous Closing............................................................ 7.15 Delivery of Stock Certificates.................................................. 8. Conditions to Obligations of Comcast Sub and Cox Sub at Closing;..................... Covenants of TCI Sub and the KPCB Purchasers........................................ 9. Conditions to the Company's Obligations at Closing................................... 9.1 Correctness of Representations and Warranties................................... 9.2 Performance of Agreements....................................................... 9.3 No Material Litigation.......................................................... 9.4 Restated Certificate............................................................ 9.5 Restated Bylaws................................................................. 9.6 Securities Exemption............................................................ 9.7 Government Approvals and Consents............................................... 9.8 Proceedings and Documents....................................................... 9.9 Stockholders' Agreement......................................................... 9.10 Registration Rights Agreement...................................................
ii 9.11 Simultaneous Closing........................................................... 9.12 Payment of Purchase Price...................................................... 10. Miscellaneous....................................................................... 10.1 Governing Law.................................................................. 10.2 Survival....................................................................... 10.3 Successors and Assigns......................................................... 10.4 Limitation on Rights of Others................................................. 10.5 Entire Agreement; Amendment.................................................... 10.6 Notices, Etc................................................................... 10.7 Delays or Omissions............................................................ 10.8 Expenses....................................................................... 10.9 Counterparts................................................................... 10.10 Severability.................................................................. 10.11 Obligations Several, Not Joint................................................
iii EXHIBITS - -------- Exhibit A Certificate of Retirement Exhibit B Schedule of Exceptions Exhibit C Second Amended and Restated Certificate of Incorporation Exhibit D Amended and Restated Bylaws Exhibit E First Amended and Restated Registration Rights Agreement Exhibit F Financial Statements Exhibit G Amended and Restated Stockholders' Agreement Exhibit H-1 and H-2 Opinions of Counsel Exhibit I Information Concerning Purchasers Exhibit J Purchasers' Affiliates Exhibit K Written Consent of Stockholders SCHEDULES - --------- Schedule 3.6 Purchaser Consents, Approvals and Conflicts iv STOCK PURCHASE AND EXCHANGE AGREEMENT ------------------------------------- THIS STOCK PURCHASE AND EXCHANGE AGREEMENT ("AGREEMENT") is made as of August 1, 1996, by and among AT HOME CORPORATION, a Delaware corporation (the "COMPANY"), TCI INTERNET HOLDINGS, INC., a Colorado corporation ("TCI SUB"), KLEINER, PERKINS, CAUFIELD & BYERS VII and KPCB INFORMATION SCIENCES ZAIBATSU FUND II, each a California limited partnership and James Clark (each, a "KPCB PURCHASER" and together, the "KPCB PURCHASERS"), COMCAST PC INVESTMENTS, INC., a Delaware corporation ("COMCAST SUB"), and COX TELEPORT PROVIDENCE, INC., a Delaware corporation ("COX SUB"). (Each of the KPCB Purchasers, TCI Sub, Comcast Sub and Cox Sub is referred to hereinafter separately as a "PURCHASER" or together as the "PURCHASERS".) THE PARTIES HEREBY AGREE AS FOLLOWS: 1. Purchase, Sale and Exchange of Stock. ------------------------------------ 1.1 Sale and Issuance of Series AM, Series AT, Series AX and Series K ----------------------------------------------------------------- Convertible Preferred Stock. Subject to the terms and conditions of this - --------------------------- Agreement, (a) the Company agrees to issue and sell to TCI Sub, and TCI Sub agrees to purchase from the Company, at the Closing, 783,000 shares of the Company's Series AT Convertible Participating Preferred Stock, par value $.01 per share (the "SERIES AT PREFERRED"), for an aggregate purchase price of $7,830,000, (b) the Company agrees to issue and sell to the KPCB Purchasers, and the KPCB Purchasers, jointly and severally, agree to purchase from the Company, at the Closing, an aggregate of 233,883 shares/*/ of the Company's Series K Convertible Participating Preferred Stock, par value $.01 per share (the "SERIES K PREFERRED"), for an aggregate purchase price of $2,338,830, (c) the Company agrees to issue and sell to Comcast Sub, and Comcast Sub agrees to purchase from the Company, at the Closing, 727,865 shares of the Company's Series AM Convertible Participating Preferred Stock, par value $.01 per share (the "SERIES AM PREFERRED") for an aggregate purchase price of $7,278,650, and (d) the Company agrees to issue and sell to Cox Sub, and Cox Sub agrees to purchase from the Company, at the Closing, 727,865 shares of the Company's Series AX Convertible Participating Preferred Stock, par value $.01 per share (the "SERIES AX PREFERRED") for an aggregate purchase price of $7,278,650. The Series AM Preferred, the Series AT Preferred and the Series AX Preferred are collectively referred to herein as the "SERIES A PREFERRED." 1.2 Exchange of Shares of Series T Preferred Stock for Series AT ------------------------------------------------------------ Preferred. Subject to the terms and conditions of this Agreement, the Company - --------- agrees to issue to TCI Sub, and TCI Sub agrees to acquire from the Company, at the Closing, 770,000 shares of Series AT Preferred in consideration of and in exchange for 770,000 shares/*/ of Series T Preferred Stock, par value $.01 per share ("SERIES T PREFERRED") owned by TCI Sub, which shares of Series T Preferred shall be canceled and shall not be reissued by the Company. Subsequent to the Closing, the Company shall promptly file a Certificate of Retirement in the form of Exhibit A attached hereto (the "CERTIFICATE OF --------- RETIREMENT") to reduce the number of authorized shares of Series T Preferred to 770,000 shares./*/ (The exchange of shares of Series T Preferred for shares ______________________ * After effecting a 10-to-1 reverse stock split of the Company's outstanding Series T Preferred and Series K Preferred by filing the Second Amended and Restated Certificate of Incorporation of the Company. of Series AT Preferred by TCI Sub is referred to herein as the "TCI EXCHANGE." The shares of Series A Preferred and Series K Preferred being acquired pursuant to this Agreement are collectively referred to herein as the "PURCHASED SHARES.") 1.3 Closing. The closing of the purchase, sale and exchange of the ------- Purchased Shares (the "CLOSING") shall take place at the offices of Baker & Botts L.L.P., 599 Lexington Avenue, New York, New York, or such other place as the Company and the Purchasers shall mutually agree, at 10:00 a.m., local time, on a mutually agreed date occurring no later than the 10th day following the satisfaction or waiver of the conditions to Closing set forth in Sections 7, 8 and 9 hereof (other than any such conditions which are capable of being satisfied only as of the Closing), but in no event later than August 15, 1996. The date on which the Closing occurs is referred to herein as the "CLOSING DATE." At the Closing, the Company shall deliver (a) to TCI Sub a certificate or certificates registered in the name of TCI Sub representing 783,000 shares of Series AT Preferred against payment of the purchase price therefor in cash or by wire transfer in immediately available funds and a certificate or certificates registered in the name of TCI Sub representing 770,000 shares of Series AT Preferred against delivery of a certificate or certificates representing 770,000 shares of Series T Preferred duly endorsed for transfer or accompanied by a duly executed Stock Assignment Separate From Certificate, (b) to the KPCB Purchasers certificates registered in the name of the KPCB Purchasers representing an aggregate of 233,883 shares of Series K Preferred (in such relative amounts as the KPCB Purchasers may request) against payment of the purchase price therefor in cash or by wire transfer in immediately available funds, (c) to Comcast Sub a certificate or certificates registered in the name of Comcast Sub representing 727,865 shares of Series AM Preferred against payment of the purchase price therefor in cash or by wire transfer in immediately available funds, and (d) to Cox Sub a certificate or certificates registered in the name of Cox Sub representing 727,865 shares of Series AX Preferred against payment of the purchase price therefor in cash or by wire transfer in immediately available funds. 2. Representations, Warranties and Covenants of the Company. The Company -------------------------------------------------------- hereby represents and warrants to, and covenants with, each of the Purchasers as follows, except as set forth in the Schedule of Exceptions ("SCHEDULE OF EXCEPTIONS") attached to this Agreement as Exhibit B (which Schedule of --------- Exceptions shall be deemed to be representations and warranties to the Purchasers by the Company under this Section 2): 2.1 Organization, Good Standing and Qualification. The Company and --------------------------------------------- the Subsidiary (as hereinafter defined) are corporations duly organized, validly existing and in good standing under the laws of the States of Delaware and California, respectively, and have all requisite corporate power and authority to carry on their respective businesses as currently conducted and as currently proposed to be conducted. The Company and the Subsidiary each have qualified to do business in each jurisdiction in which the failure to so qualify would have a material adverse effect on the business, properties, prospects or financial condition of the Company and the Subsidiary taken as a whole. The Company has delivered to each of the Purchasers true and accurate copies of (i) the Company's Certificate of Incorporation and Bylaws, and (ii) the Subsidiary's Articles of Incorporation and Bylaws, each as amended through, and in effect on, the date hereof. Other than the filing of the Restated Certificate (as defined below) and the adoption of the Restated Bylaws (as defined below), there shall be no amendments to, or other actions taken with respect to, the Certificate of Incorporation or the Bylaws of the Company prior to the Closing. 2 2.2 Restated Certificate. The Board of Directors of the Company has -------------------- duly approved and adopted the Second Amended and Restated Certificate of Incorporation of the Company in the form attached hereto as Exhibit C (the --------- "RESTATED CERTIFICATE") pursuant to Section 242 of the Delaware General Corporation Law (the "DGCL") and has obtained or will obtain prior to the Closing the approval of the Restated Certificate by the required vote of the Company's stockholders. 2.3 Restated Bylaws. The Board of Directors of the Company has duly --------------- approved and adopted the Amended and Restated Bylaws of the Company in the form attached hereto as Exhibit D (the "RESTATED BYLAWS") pursuant to Section 109 of --------- the DGCL and has obtained or will obtain prior to the Closing the approval of the Restated Bylaws by the required vote of the Company's stockholders. 2.4 Capitalization. Upon the filing of the Restated Certificate with -------------- the Secretary of State of Delaware, the authorized capital stock of the Company shall consist of 90,138,830 shares of common stock, par value $.01 per share (the "COMMON STOCK"), and 15,292,613 shares of preferred stock, par value $.01 per share ("PREFERRED STOCK"). The authorized shares of Common Stock shall be allocated as follows: (a) 75,000,000 shares shall be designated as "Series A Common Stock," (b) 7,700,000 shares shall be designated as "Series B Common Stock," and (c) 7,438,830 shares shall be designated as "Series K Common Stock." The authorized shares of Preferred Stock shall be allocated as follows: (i) 727,865 shares shall be designated as Series AM Preferred, (ii) 1,553,000 shares shall be designated as Series AT Preferred, (iii) 727,865 shares shall be designated as Series AX Preferred, (iv) 743,883 shares shall be designated as Series K Preferred, (v) 1,540,000 shares shall be designated as Series T Preferred and (vi) 10,000,000 shares shall be undesignated as to series and shall be issuable pursuant to authority granted in the Restated Certificate to the Board of Directors (the "SERIES PREFERRED STOCK"). Prior to the Closing, the Company shall have reserved and shall thereafter at all times keep reserved (x) such number of shares of Series B Common Stock as is sufficient to provide for the conversion of the Series T Preferred outstanding from time to time, (y) such number of shares of Series K Common Stock as is sufficient to provide for the conversion of the Series K Preferred outstanding from time to time, and (z) such number of shares of Series A Common Stock as is sufficient to provide for the conversion of the Series A Preferred outstanding from time to time, the Series B Common Stock outstanding from time to time or issuable upon conversion of the Series T Preferred, and the Series K Common Stock outstanding from time to time or issuable upon conversion of the Series K Preferred. (The shares of Series A Common Stock, Series B Common Stock and Series K Common Stock issuable upon conversion of the Purchased Shares and the shares of Series A Common Stock issuable upon conversion of such shares of Series B Common Stock and Series K Common Stock are sometimes referred to herein as the "CONVERSION SHARES.") The authorized capital stock of the Subsidiary consists of 10,000,000 shares of common stock, without par value, and 5,000,000 shares of preferred stock, without par value. 2.5 Outstanding Securities. As of the date of this Agreement, the ---------------------- outstanding securities of the Company consist of 3,411,000 shares of Series A Common Stock, 5,100,000 shares of Series K Preferred (before effecting a 10-to-1 reverse stock split by filing the Restated Certificate), 15,400,000 shares of Series T Preferred (before effecting a 10-to-1 reverse stock split by filing the Restated Certificate) and options to purchase an aggregate of 1,865,750 shares of Series A Common Stock. The Company has reserved for issuance pursuant to its 1996 3 Incentive Stock Option Plan and its 1996 Incentive Stock Option Plan No. 2 (collectively, the "OPTION PLANS") an aggregate of 6,500,000 shares of Series A Common Stock for issuance to employees, officers, directors, consultants and independent contractors of the Company (less the number of shares of Series A ---- Common Stock purchased outside the Option Plans by employees, officers, directors, consultants and independent contractors of the Company, whether such purchases occur before and after the dates of the Plans, unless specifically provided otherwise in a resolution adopted by the Company's Board of Directors at the time it approves the sale of Series A Common Stock to such employee, officer, director, consultant or independent contractor, and plus the number of ---- shares of Series A Common Stock repurchased by the Company upon termination of any such person's employment or service relationship with the Company or upon exercise of the Company's right of first refusal upon transfers by such persons); the number of shares available for issuance under the Option Plans as of the date of this Agreement is 1,144,250 shares. As of the date of this Agreement, the outstanding securities of the Subsidiary consist of one (1) share of common stock, which is owned by the Company. Except as expressly provided herein, in that certain August 29, 1995 Stockholders' Agreement among the Company, TCI Sub and the KPCB Purchasers, as amended as of May 9, 1996 (the "1995 STOCKHOLDERS' AGREEMENT"), in the Restated Certificate and in the other Transaction Agreements (as defined below), there are no other outstanding rights, options, warrants, preemptive rights, rights of first refusal or similar rights for the purchase or acquisition from the Company or the Subsidiary of any securities of the Company or the Subsidiary nor are there any commitments to issue or execute any such rights, options, warrants, preemptive rights or rights of first refusal. 2.6 Current Board. Immediately prior to the Closing, the Company's -------------- Board of Directors consists of the following persons, each of whom has been duly elected or appointed in accordance with the Bylaws of the Company: L. John Doerr, Bruce Ravenel, Larry Romrell, Thomas A. Jermoluk, James Barksdale and William Randolph Hearst III; and the Subsidiary's Board of Directors consists of the following person who has been duly elected or appointed in accordance with the Bylaws of the Subsidiary: Thomas A. Jermoluk. 2.7 Subsidiaries. Except for its wholly-owned subsidiary athome.net, ------------ a California corporation (the "SUBSIDIARY"), the Company does not presently own or control, directly or indirectly, any interest in any other corporation, partnership, trust, joint venture, association or other entity. 2.8 Authorization. The Company has full power and authority to ------------- execute, deliver and perform its obligations under each of this Agreement, the Registration Rights Agreement (as defined in Section 2.14 below), the Stockholders' Agreement (as defined in Section 2.25 below), and those provisions of Article VII of the Term Sheet, dated June 4, 1996, as amended as of the Closing Date, among the parties hereto and certain of their affiliates (the "TERM SHEET"), including any other provisions or definitions in other sections of the Term Sheet which are referenced in Article VII (such provisions are hereafter collectively the "MASTER DISTRIBUTION AGREEMENT"; provided that if the matters set forth in Article VII of the Term Sheet are superseded by a definitive agreement which is executed by the applicable parties to the Term Sheet, such definitive agreement will constitute the Master Distribution Agreement for all purposes hereunder) (the Registration Rights Agreement, the Stockholders' Agreement, the Master Distribution Agreement and this Agreement are hereinafter referred to collectively as the "TRANSACTION AGREEMENTS"). All corporate action on the part of the Company necessary for the 4 authorization, execution and delivery of the Transaction Agreements and the performance of all obligations of the Company hereunder and thereunder has been taken or will be taken prior to Closing. Each of the Transaction Agreements, when executed and delivered by the Company, assuming the due execution and delivery thereof by the other parties hereto or thereto, shall constitute a valid and legally binding obligation of the Company, enforceable against it in accordance with its terms, subject to: (a) judicial principles limiting the availability of specific performance, injunctive relief and other equitable remedies, (b) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect generally relating to or affecting creditors' rights, and (c) limitations on the enforceability of the indemnification and contribution provisions of the Registration Rights Agreement imposed by law or public policy. 2.9 Consents and Approvals; No Conflict. The execution, delivery and ----------------------------------- performance of each of the Transaction Agreements and the consummation of each of the transactions contemplated hereby and thereby (including the offering, sale and issuance of the Purchased Shares and the issuance of the Conversion Shares) do not and will not (a) conflict with or result in a breach of the terms, conditions or provisions of, (b) constitute a default under, (c) result in the creation of any lien, security interest, charge or encumbrance upon the Company's or the Subsidiary's capital stock or assets pursuant to, (d) give any third party the right to accelerate any obligation under, (e) result in a violation of, or (f) require any order, qualification, waiver, permit, authorization, consent, approval, exemption or other action by or from, or any registration, notice, declaration, application or filing to or with, any court or administrative or governmental body pursuant to (i) the Restated Certificate or the Restated Bylaws of the Company or the Articles of Incorporation or the Bylaws of the Subsidiary, (ii) any agreement to which the Company or the Subsidiary is a party or is bound or to which either of their assets are subject or (iii) any law, statute, rule or regulation to which the Company or the Subsidiary is subject; provided, however, that with respect to clause (f) of -------- ------- this Section 2.9, no representation or warranty is made as to any such requirements applicable to the Company as a result of the specific legal or regulatory status of any Purchaser (including without limitation any agreements between any Purchaser or its affiliate and any local or municipal government related to the provision of cable television services within a local area) or as a result of any other facts that specifically relate to any Purchaser, any business in which any such Purchaser has engaged or proposes to engage or any financing arrangements or transactions entered into or proposed to be entered into by or on behalf of any such Purchaser. 2.10 Valid Issuance of Purchased and Conversion Shares. The Purchased ------------------------------------------------- Shares, when issued, sold and delivered in accordance with the terms of this Agreement will be duly authorized, validly issued, fully paid and nonassessable, free of any liens, claims, charges, security interests, pledges or encumbrances of any kind (other than any of the foregoing created herein or by the applicable Purchaser or in the Stockholders' Agreement or the Master Distribution Agreement or as a result of applicable state and federal securities laws) and will possess all of the rights, privileges and preferences provided therefor in the Restated Certificate. The Conversion Shares will have been duly and validly reserved for issuance prior to the Closing and, upon issuance in accordance with the terms of the Restated Certificate, will be duly authorized, validly issued, fully paid and nonassessable, free of any liens, claims, charges, security interests, pledges or encumbrances of any kind (other than any of the foregoing created herein or by the applicable Purchaser, or in the Stockholders' Agreement or the Master Distribution Agreement or as a result of applicable state and federal securities laws) and will possess all of the rights and powers provided therefor in the Restated Certificate. 5 2.11 No Registration Required. Based in part on the representations ------------------------ made by the Purchasers in Section 3 hereof, the Purchased Shares and (assuming no change in applicable law and no unlawful distribution of Purchased Shares by Purchasers or other parties) the Conversion Shares will be issued in full compliance with the registration and prospectus delivery requirements of the U.S. Securities Act of 1933, as amended (the "SECURITIES ACT") and the registration and qualification requirements of the securities laws of the States of California, Colorado, Georgia and Delaware (provided that, with respect to -------- ---- the Conversion Shares, no commission or other remuneration is paid or given, directly or indirectly, for soliciting the issuance of Conversion Shares upon the conversion of the Purchased Shares and no additional consideration is paid for the Conversion Shares other than surrender of the applicable Purchased Shares upon conversion thereof in accordance with the Restated Certificate). 2.12 Litigation. There is no action, suit or proceeding pending or, ---------- to the best of the Company's knowledge, any investigation pending or any action, suit, proceeding or investigation threatened against, involving or affecting the Company or the Subsidiary or any of their respective properties, nor is there any judgment, decree, injunction, rule or order of any court, governmental department, commission, agency, instrumentality or arbitrator outstanding against the Company or the Subsidiary, which questions the validity of any of the Transaction Agreements or the right of the Company to enter into any of them, or to consummate the transactions contemplated hereby or thereby, or which could have, either individually or in the aggregate, a material adverse effect on the condition (financial or otherwise), business, property, results of operations, assets or liabilities of the Company and the Subsidiary taken as a whole. 2.13 Status of Proprietary Assets and Agreements. ------------------------------------------- (a) Status. To the best of the Company's knowledge, the Company ------ and the Subsidiary each have full title and ownership of, or are duly licensed under or otherwise have the right to use, all patents, patent applications, trademarks, service marks, trade names, copyrights, mask works, trade secrets, confidential and proprietary information, designs and proprietary rights used in their business as now conducted or as contemplated to be conducted (all of the foregoing collectively hereinafter referred to as the "PROPRIETARY ASSETS") without any conflict with or infringement of the rights of others. The Company has not received any written notice asserting that it or the Subsidiary is infringing any proprietary rights of any third party. Section 2.13(a) of the Schedule of Exceptions sets forth a list of all pending applications for and issued patents, trademark and service mark registrations and copyright registrations. (b) Licenses; Other Agreements Relating to Proprietary Assets. --------------------------------------------------------- Neither the Company nor the Subsidiary has granted any options, licenses or agreements relating to any Proprietary Asset of the Company or the Subsidiary, nor is the Company or the Subsidiary obligated to pay any royalties or other payments to third parties with respect to the marketing, sale, distribution, manufacture, license or use of any Proprietary Asset. (c) List of Other Agreements. Section 2.13(c) of the Schedule of ------------------------ Exceptions sets forth a complete list of all contracts, leases, licenses and other agreements to which the Company or the Subsidiary is a party or by which either of them is bound ("LISTED AGREEMENTS"); provided that for purposes of -------- this Section 2.13(c) only, no agreement, other than a .Com Agreement or Promotional Agreement (each as defined in the Restated Certificate), that involves the receipt or payment of funds by the Company or the Subsidiary or a liability, contingent or otherwise, of the Company or the Subsidiary, in the amount of $100,000 or less 6 will be required to be listed on Section 2.13(c) of the Schedule of Exceptions. Section 2.13(c) of the Schedule of Exceptions separately identifies those Listed Agreements entered into in respect of a Related Party Transaction (as defined in the Restated Certificate). 2.14 Registration Rights. Except as provided in the First Amended ------------------- and Restated Registration Rights Agreement, in the form of Exhibit E attached --------- hereto (the "REGISTRATION RIGHTS AGREEMENT") to be entered into at or prior to the Closing and except as provided in that certain August 29, 1995 Registration Rights Agreement, as amended as of May 9, 1996, which is to be replaced and superseded in its entirety by the Registration Rights Agreement, neither the Company nor the Subsidiary has granted or agreed to grant to any person or entity any rights (including piggyback registration rights) to have any securities of the Company or the Subsidiary registered with the United States Securities and Exchange Commission ("SEC") or any other governmental authority. 2.15 Title to Property and Assets. The properties and assets the ---------------------------- Company or the Subsidiary owns are owned by the Company or the Subsidiary, respectively, free and clear of all mortgages, deeds of trust, liens, encumbrances and security interests except for statutory liens for the payment of current taxes that are not yet delinquent and liens, encumbrances and security interests which arise in the ordinary course of business and which do not materially affect properties and assets of the Company and the Subsidiary taken as a whole. With respect to the property and assets they lease, the Company and the Subsidiary each have a valid leasehold interest in such property and assets and are in material compliance with such leases. 2.16 Financial Statements; Undisclosed Liabilities; No Material ---------------------------------------------------------- Adverse Changes. --------------- (a) Financial Statements. Attached to this Agreement as Exhibit -------------------- ------- F is an unaudited consolidated balance sheet of the Company dated June 30, 1996 - - (the "BALANCE SHEET DATE") and an unaudited consolidated income statement of the Company for the six-month period ended June 30, 1996 (such consolidated financial statements being collectively referred to herein as the "FINANCIAL STATEMENTS"). The Financial Statements (a) are in accordance with the books and records of the Company, (b) are true, correct and complete and present fairly the financial condition of the Company at the date or dates therein indicated and the results of operations for the period or periods therein specified, and (c) have been prepared in accordance with generally accepted accounting principles applied on a consistent basis, except for the omission of notes thereto and normal year-end audit adjustments. (b) No Material Undisclosed Liabilities. Neither the Company nor ----------------------------------- the Subsidiary has any liability, contingent or otherwise, that is material to the financial condition of the Company and the Subsidiary taken as a whole, which is not reflected on or provided for in the Financial Statements, except as set forth on the Schedule of Exceptions. (c) No Material Adverse Changes. Since the Balance Sheet Date, --------------------------- there has not been any event or change which materially and adversely affects the financial condition of the Company and the Subsidiary taken as a whole, except that, since the Balance Sheet Date, the Company has continued to incur substantial expenses and operating losses in the ordinary course of its business. 7 2.17 Disclosure. The representations and warranties made by the ---------- Company in this Agreement, including the Exhibits hereto and the Schedule of Exceptions (when read together), do not contain any untrue statement of a material fact and do not omit to state a material fact necessary to make the statements herein as a whole not misleading. 2.18 ERISA Plans. Neither the Company nor the Subsidiary has any ----------- Employee Pension Benefit Plan as defined in Section 3 of the Employee Retirement Income Security Act of 1974, as amended. 2.19 Tax Returns and Payments. The Company and the Subsidiary have ------------------------ timely filed all tax returns and reports required by law and have never been audited by any state or federal taxing authority. All tax returns and reports of the Company and the Subsidiary are true and correct in all material respects. All taxes shown on such returns as due have been paid. 2.20 Labor Agreements and Actions. Neither the Company nor the ---------------------------- Subsidiary is bound by or subject to any contract, commitment or arrangement with any labor union, and to the Company's best knowledge, no labor union has requested, sought or attempted to represent any employees, representatives or agents of the Company or the Subsidiary. There is no strike or other labor dispute involving the Company or the Subsidiary pending nor, to the Company's best knowledge, threatened, nor is the Company aware of any labor organization activity involving its or the Subsidiary's employees. Neither the Company nor the Subsidiary has committed any unfair labor practice. 2.21 Governmental Consents. No consent, approval, order or --------------------- authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company or the Subsidiary is required in connection with the consummation of the transactions contemplated by this Agreement, except for: (i) the filing of ------ --- a Notice of Transaction pursuant to Section 25102(f) of the California Corporate Securities Law of 1968, as amended, and the rules thereunder (the "CALIFORNIA SECURITIES LAW"), which filing will be effected within the time prescribed by law; (ii) such other qualifications or filings under the Securities Act and the regulations thereunder and all other applicable securities laws as may be required in connection with the transactions contemplated by this Agreement, including, without limitation, filings under state "blue sky" securities laws in connection with the conversion of the Purchased Shares and issuance of the Conversion Shares; and (iii) any agreements between any Purchaser or its affiliates and any local or municipal government related to the provision of cable television services within a local area. All such qualifications and filings will, in the case of qualifications, be effective on the Closing and will, in the case of filings, be made within the time prescribed by law. 2.22 Actions Requiring Certain Pre-Closing Consents. No actions have ---------------------------------------------- been taken on or after June 4, 1996 and prior to the Closing by the Company or the Subsidiary (other than adoption and approval of the Restated Certificate and Restated Bylaws and the other Transaction Agreements) that, if taken after the Closing, would have required the consent or approval of (a) either or both of Comcast Sub and Cox Sub (as if the Closing had occurred and such Purchaser(s) were then stockholders of the Company) or (b) the .Com Committee (as defined in the Restated Certificate), unless such pre-Closing action was consented to or approved by such of TCI Sub, the KPCB Purchasers, Comcast Sub and/or Cox Sub (or their respective designees on the Company's Board of Directors) or by the .Com Committee as would have been required had the Closing already occurred. 8 2.23 Brokers or Finders. There is no investment banker, broker, ------------------ agent, financial advisor or other person or entity which has been retained by or is authorized to act on behalf of the Company who is or will be entitled to any fee, commission, reimbursement of expenses or other similar charge upon consummation of or otherwise in connection with this Agreement or any of the transactions contemplated hereby. The Company agrees to indemnify and hold each of the Purchasers harmless from and against any and all claims, liabilities or obligations with respect to any such fees, commissions, expenses or claims (including the costs, expenses and legal fees of defending against such liability) for which the Company or the Subsidiary, or any of the employees or representatives thereof, is responsible. 2.24 Registration Rights Agreement. Subject to fulfillment of the ----------------------------- applicable conditions to Closing, the Company agrees to enter into the Registration Rights Agreement in the form attached hereto as Exhibit E at or --------- prior to the Closing. 2.25 Stockholders' Agreement. Subject to fulfillment of the ----------------------- applicable conditions to Closing, the Company agrees to enter into the Amended and Restated Stockholders' Agreement in the form attached hereto as Exhibit G --------- (the "STOCKHOLDERS' AGREEMENT") at or prior to the Closing. 2.26 Reasonable Efforts. The Company agrees to use its commercially ------------------ reasonable efforts to cause each condition to the Closing set forth in Sections 7 and 8 hereof, insofar as satisfaction of such condition requires any action by or otherwise is in the control of the Company, to be satisfied as soon as reasonably practicable and, in general, to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as reasonably practicable the purchase and sale of the Purchased Shares in accordance with the terms of this Agreement. 2.27 [Intentionally omitted] 2.28 Voting Agreements. In consideration of the purchase of the ----------------- Purchased Shares by the Purchasers, the Company hereby covenants and agrees that it will cause at any time and from time to time those officers and directors of the Company holding not less than 50.1% of the outstanding shares of Series A Common Stock (other than shares issued upon conversion of shares of Series A Preferred, Series K Preferred, Series T Preferred, Series B Common Stock or Series K Common Stock), to enter into a written agreement providing that with respect to any matter upon which the separate vote of the holders of the Company's Series A Common Stock is required under Section 242(b) of the Delaware General Corporation law prior to the closing of the Company's initial public offering of Series A Common Stock pursuant to a registration statement filed with and declared effective by the SEC (the "COMPANY IPO"), each such individual will cast all votes attributable to his shares in the same proportion as the holders of the Company's outstanding shares of Series A, Series K and Series T Preferred Stock cast their votes upon such matter, or, if there are no shares of such Preferred Stock outstanding, in the same manner as the holders of the Company's outstanding shares of Series B Common Stock cast their votes upon such matter. Such agreements shall further provide that the obligations described in this Section shall be binding on any transferee to whom the shares of Series A Common Stock are transferred by such individual or any subsequent transferee and that, as a condition of any transfer of the shares prior to the Company IPO, such individual shall require any transferee, and any such transferee shall require his transferee, to agree to be bound by the provisions of such agreement in the same manner as such individual is bound. 9 3. Representations, Warranties and Covenants of the Purchasers. Each ----------------------------------------------------------- Purchaser, on behalf of itself and not jointly with the other Purchasers, hereby represents and warrants to, and covenants with, the Company as follows: 3.1 Experience. Such Purchaser is experienced in evaluating start- ---------- up companies such as the Company, and has such knowledge and experience in financial and business matters to enable such Purchaser to evaluate the merits and risks of such Purchaser's prospective investment in the Company, and such Purchaser has the ability to bear the economic risks of such investment. 3.2 Investment. Such Purchaser is acquiring the Purchased Shares and ---------- any Conversion Shares solely for the purpose of investment for such Purchaser's own account, not as a nominee or agent, and not with a view to, or for offer or sale in connection with, any distribution thereof in any transaction which would be in violation of the securities laws of the United States of America or any state thereof. Such Purchaser does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to any third person with respect to any of the Purchased Shares or the Conversion Shares. Such Purchaser understands that the Purchased Shares and the Conversion Shares have not been registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent as expressed herein. 3.3 Accredited Purchaser Status. Such Purchaser is an "accredited --------------------------- investor" within the meaning of Regulation D promulgated under the 1933 Act. 3.4 Restricted Securities. Such Purchaser understands that the --------------------- Purchased Shares and any Conversion Shares may not be sold, transferred or otherwise disposed of without registration under the Securities Act or the availability of an exemption therefrom, and that in the absence of an effective registration statement covering such stock or an available exemption from registration, the Purchased Shares and any Conversion Shares must be held indefinitely. In the absence of an effective registration statement under the Securities Act with respect to the Purchased Shares or any Conversion Shares such Purchaser shall notify the Company of any proposed disposition by such Purchaser of any Purchased Shares or any Conversion Shares, shall furnish the Company with a statement of the circumstances surrounding the proposed disposition and, if reasonably requested by the Company, shall furnish the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require the registration of such Purchased Shares or such Conversion Shares under the Securities Act. Such Purchaser shall not sell, transfer or otherwise dispose of any Purchased Shares or any Conversion Shares except in a manner fully consistent with its representations contained in this Section 3 and otherwise in full compliance with the terms and conditions of this Agreement and the Stockholders' Agreement and the provisions of applicable law. Such Purchaser understands that no public market now exists for any of the Purchased Shares and that the Company is under no obligation to register any of the securities sold hereunder except as provided in the Registration Rights Agreement. 3.5 Authorization. Such Purchaser is a corporation or partnership ------------- duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and has full power and authority to execute, deliver and perform its obligations under each of the Transaction Agreements to which it is a party. Such Purchaser has taken all corporate or 10 partnership action necessary to authorize the execution, delivery and performance of its obligations under each of the Transaction Agreements to which it is a party, and each such Transaction Agreement, when executed and delivered by such Purchaser, assuming the due execution and delivery thereof by the other parties hereto or thereto, shall constitute a valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, subject to: (i) judicial principles respecting election of remedies or limiting the availability of specific performance, injunctive relief, and other equitable remedies; and (ii) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect generally relating to or affecting creditors' rights. 3.6 Consents and Approvals; No Conflict. Except as set forth on ----------------------------------- Schedule 3.6 and except as could not reasonably be expected, individually or in the aggregate, to have a material adverse effect on such Purchaser, the execution, delivery and performance of each of the Transaction Agreements to which such Purchaser is a party and the consummation of each of the transactions contemplated hereby or thereby do not and will not (a) conflict with or result in a breach of the terms, conditions or provisions of, (b) constitute a default under, (c) result in the creation of any lien, security interest, charge or encumbrance upon any material properties or assets pursuant to, (d) give any third party the right to accelerate any obligation under, (e) result in a violation of, or (f) require any order, qualification, waiver, permit, authorization, consent, approval, exemption or other action by or from, or any registration, notice, declaration, application or filing to or with, any court or administrative or governmental body pursuant to (i) the Certificate (or Articles) of Incorporation, Bylaws, partnership agreement (or other governing documents) of such Purchaser, (ii) any agreement to which such Purchaser is a party or is bound or to which its assets are subject or (iii) any law, statute, rule or regulation to which such Purchaser is subject; provided, however, that -------- ------- with respect to clause (f) of this Section 3.6, no representation or warranty is made as to any such requirements applicable to such Purchaser as a result of the specific legal or regulatory status of any other party to this Agreement (including without limitation any agreements between any Purchaser or its affiliates and any local or municipal government related to the provision of cable television services within a local area) or as a result of any other facts that specifically relate to any such other party, any business in which any such other party has engaged or proposes to engage or any financing arrangements or transactions entered into or proposed to be entered into by or on behalf of any such other party. 3.7 Disclosure of Information. Such Purchaser has received or has ------------------------- had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the Purchased Shares to be purchased by such Purchaser under this Agreement. Such Purchaser further has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Purchased Shares and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to such Purchaser or to which such Purchaser had access. The foregoing, however, does not in any way limit or modify the representations and warranties made by the Company in Section 2. 3.8 Information Concerning Purchaser. Exhibit I hereto sets forth -------------------------------- --------- such Purchaser's jurisdiction of organization, the location of said Purchaser's principal office and the jurisdiction in which such Purchaser will accept the Company's offer to sell the Purchased Shares and will purchase the Purchased Shares. Exhibit J also sets forth for each Purchaser (i) the --------- 11 Purchaser's Parent and Ultimate Parent (each as defined in the Stockholders' Agreement), (ii) if applicable, the Purchaser's Cable Parent (as defined in the Stockholders' Agreement) and (iii) the ownership relationship among the Purchaser, its Parent, its Ultimate Parent and its Cable Parent, if any. 3.9 Brokers or Finders. There is no investment banker, broker, ------------------ agent, financial advisor or other person or entity which has been retained by or is authorized to act on behalf of such Purchaser who is or will be entitled to any fee, commission, reimbursement of expenses or other similar charge upon consummation of or otherwise in connection with this Agreement or any of the transactions contemplated hereby. Such Purchaser agrees to indemnify and hold harmless the Company from and against any and all claims, liabilities or obligations with respect to any such fees, commissions, expenses or claims (including the costs, expenses and legal fees of defending against such liability) for which such Purchaser, or any of its partners, employees or representatives, is responsible. 3.10 Registration Rights Agreement. Subject to fulfillment of the ----------------------------- applicable conditions to Closing, such Purchaser agrees to enter into the Registration Rights Agreement in the form attached hereto as Exhibit E at or --------- prior to the Closing. 3.11 Stockholders' Agreement. Subject to fulfillment of the ----------------------- applicable conditions to Closing, such Purchaser agrees to enter into the Stockholders' Agreement in the form attached hereto as Exhibit G at or prior to --------- the Closing. 3.12 Reasonable Efforts. Such Purchaser agrees to use its ------------------ commercially reasonable efforts to cause each condition to the Closing set forth in Section 9 hereof, insofar as satisfaction of such condition requires any action by or otherwise is in the control of such Purchaser, to be satisfied as soon as reasonably practicable and, in general, to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as reasonably practicable the purchase and sale of the Purchased Shares in accordance with the terms of this Agreement. 4. Additional Representation of the KPCB Purchasers. Each KPCB Purchaser ------------------------------------------------ represents and warrants that KPCB VII Associates, a California limited partnership (the "KPCB PARTNER"), is a general partner of each of the KPCB Purchasers that is a partnership and that each of L. John Doerr and William Randolph Hearst III is a general partner of the KPCB Partner. 5. Legends; Notations. The certificates evidencing the Purchased Shares ------------------ or any Conversion Shares shall be endorsed with the legends set forth below: (a) a conspicuously noted legend in substantially the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANS FERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, SUCH SALE, TRANSFER, PLEDGE, HYPOTHECATION OR OTHER 12 DISPOSITION IS EXEMPT FROM REGISTRATION OR IS OTHERWISE IN COMPLIANCE WITH THE ACT AND SUCH LAWS"; (b) any legend required by any applicable state securities law; and (c) a conspicuously noted legend in substantially the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THAT CERTAIN STOCKHOLDERS' AGREEMENT AND THAT CERTAIN STOCK PURCHASE AND EXCHANGE AGREEMENT, EACH DATED AS OF AUGUST 1, 1996 AMONG THE COMPANY AND THE OTHER PARTIES THERETO CONTAINING, AMONG OTHER THINGS, RESTRICTIONS ON THE SALE, TRANSFER OR OTHER DISPOSITION OF SUCH SECURITIES AND RESTRICTIONS UPON AND COMMITMENTS TO VOTE ON CERTAIN MATTERS. A COUNTERPART OF EACH SUCH AGREEMENT HAS BEEN DEPOSITED WITH THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS, AND THE COMPANY SHALL FURNISH A COPY OF EACH SUCH AGREEMENT TO THE RECORD HOLDER HEREOF WITHOUT CHARGE UPON WRITTEN REQUEST." The Company shall make a notation on its stock books regarding the restrictions on transfer of the Purchased Shares and any Conversion Shares and will transfer securities on the books of the Company only to the extent not inconsistent therewith. 6. Hart-Scott-Rodino Act. If any Purchaser reasonably believes that its --------------------- conversion of the Purchased Shares would be subject to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules and regulations thereunder (the "HSR ACT AND RULES") prior to such conversion and following such Purchaser's notice to the Company of such Purchaser's intention to convert, the Company and such Purchaser shall promptly comply with any applicable requirements under the HSR Act and Rules relating to filing and furnishing of information (the "HSR REPORT") to the Federal Trade Commission (the "FTC") and the Antitrust Division of the Department of Justice. Without limiting the foregoing, such Purchaser and the Company shall file the HSR Report and take all other action required by the HSR Act and Rules and shall use their respective commercially reasonable efforts to (a) coordinate with respect to the filing of the HSR Reports of such Purchaser and the Company (and exchanging drafts thereof), so as to present all required HSR Reports to the FTC and the Department of Justice at the time selected by such Purchaser, and to avoid substantial errors or inconsistencies among such HSR Reports in the description of the transaction, (b) comply with any additional request for documents or information made by the FTC or the Department of Justice or by a court and to assist the other parties to so comply and (c) cause all persons which are part of the same "person" (as defined for purposes of the HSR Act and Rules) as the Company to cooperate and assist in such filing and compliance. Each of the Company and such Purchaser shall bear and pay any costs or expenses that it incurs in complying with this Section 6. 7. Conditions to the Purchasers' Obligations at Closing. The obligation ---------------------------------------------------- of each Purchaser to purchase and/or acquire Purchased Shares at the Closing is several and not joint and such obligation is subject to the satisfaction, at or prior to the Closing, of each of the following conditions, any of which may be waived by a Purchaser by written notice to the Company pursuant to Section 10.6 of this Agreement, but any such waiver shall not be effective against a Purchaser unless consented to by such Purchaser: 13 7.1 Correctness of Representations and Warranties. The --------------------------------------------- representations and warranties of the Company set forth in this Agreement shall, if specifically qualified by materiality, be true and correct and, if not so qualified, be true and correct in all material respects in each case as of the date of this Agreement and as of the Closing Date with the same effect as if made on and as of the Closing Date, and such Purchaser shall have received a certificate to such effect from the Company, signed by its duly authorized officer. 7.2 Performance of Agreements. Each other party to this Agreement ------------------------- shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing Date, and such Purchaser shall have received a certificate to such effect from each such party, signed by its duly authorized officer. 7.3 Restated Certificate. The Restated Certificate shall have been -------------------- duly adopted by the Company by all necessary corporate action of its Board of Directors and stockholders, and shall have been duly filed with and accepted by the Secretary of State of the State of Delaware and shall be in full force and effect under the DGCL. 7.4 Restated Bylaws. The Restated Bylaws shall have been duly --------------- adopted by the Company by all necessary corporate action of its Board of Directors and stockholders and shall be in full force and effect under the DGCL. 7.5 Securities Exemption. The offer and sale of the Purchased -------------------- Shares to the Purchasers pursuant to this Agreement shall be exempt from the registration requirements of the Securities Act, the qualification requirements of the California Securities Law and the registration and/or qualification requirements of all other applicable state securities laws. 7.6 No Material Litigation. There shall not be pending on the ---------------------- Closing Date any lawsuit, claim, proceeding or other legal action by or before any court or other regulatory, administrative or governmental authority that seeks to restrain, restrict or prohibit or impose substantial penalties or damages with respect to (or any other materially adverse relief or remedy in connection with), and there shall not be in effect on the Closing Date any injunction or other order of any governmental authority or arbitration panel that restrains, restricts, prohibits or imposes substantial penalties or damages with respect to (or any other materially adverse relief or remedy in connection with), the consummation of any of the transactions contemplated hereby or by any of the other Transaction Agreements. 7.7 Government Approvals and Consents. All governmental consents --------------------------------- required in connection with the consummation of the transactions contemplated by this Agreement shall have been obtained and shall be in full force and effect and all governmental filings required in connection with the consummation of the transactions contemplated by this Agreement shall have been made, and all waiting periods, if any, applicable to the consummation of such transactions imposed by any governmental entity shall have expired, other than those which, if not obtained, in force or effect, made or expired (as the case may be) would not, whether individually or in the aggregate, have a material adverse effect on the transactions contemplated by this Agreement. 7.8 Proceedings and Documents. All corporate and other proceedings ------------------------- in connection with the transactions contemplated hereby at the Closing, and all documents and 14 instruments incident to these transactions, shall be reasonably satisfactory in substance to such Purchaser and its counsel and each Purchaser shall have received all such counterpart originals and certified or other copies of such documents as such Purchaser may reasonably request. Such documents shall include (but not be limited to) the following: (a) Certified Charter Documents. A copy of the Restated --------------------------- Certificate and the Restated Bylaws of the Company (as amended through the date of the Closing), certified by the Secretary of the Company as true and correct copies thereof as of the Closing. (b) Corporate Actions. A copy of the resolutions of the Board ----------------- of Directors and the stockholders of the Company evidencing the adoption and approval of the Restated Certificate and the Restated Bylaws, the authorization of issuance and sale of the Purchased Shares, the approval of this Agreement and the other Transaction Agreements, and the other matters contemplated hereby and thereby. (c) Good Standing Certificates. Certificates of corporate -------------------------- standing issued by the Secretary of State of the States of California and Delaware. 7.9 Board of Directors. At the Closing, the authorized number of ------------------ directors of the Company shall be nine, and the holders of each series of Convertible Preferred Stock shall have the right to elect its director by executing the written consent of stockholders in substantially the form attached hereto as Exhibit K. --------- 7.10 Opinion of Company Counsel. Each Purchaser shall have received -------------------------- an opinion from Fenwick & West LLP, counsel for the Company, dated as of the date of the Closing, in the form attached hereto as Exhibit H-1 and an opinion ----------- from Richards, Layton & Finger, P.A., special counsel to the Company in Delaware, dated as of the date of the Closing, in the form attached hereto as Exhibit H-2. - ----------- 7.11 Stockholders' Agreement. The Company and each Purchaser (other ----------------------- than the Purchaser whose obligation to perform is dependent upon satisfaction of such condition) shall have executed and delivered the Stockholders' Agreement. 7.12 Registration Rights Agreement. The Company and each Purchaser ----------------------------- (other than the Purchaser whose obligation to perform is dependent upon satisfaction of such condition) shall have executed and delivered the Registration Rights Agreement. 7.13 Other. Each Purchaser shall be reasonably satisfied that all ----- conditions to (a) the other Purchasers' obligation to purchase and pay for the Purchased Shares to be purchased by such other Purchasers, and (b) the Company's obligation to sell the Purchased Shares to be sold to the other Purchasers, shall have been satisfied or waived. 7.14 Simultaneous Closing. All Purchasers shall perform all of their -------------------- respective covenants and obligations required to be performed under this Agreement on or before the Closing and shall purchase and pay for the respective Purchased Shares to be purchased by each Purchaser simultaneously with the purchase of and payment for the Purchased Shares to be purchased by the other Purchasers. 15 7.15 Delivery of Stock Certificates. The Company shall have ------------------------------ delivered to each Purchaser the stock certificate specified for such Purchaser in Section 1.1 and/or Section 1.2. 8. Condition to Obligations of Comcast Sub and Cox Sub at Closing; --------------------------------------------------------------- Covenants of TCI Sub and the KPCB Purchasers. Comcast Sub and Cox Sub hereby - -------------------------------------------- consent to and approve each of the actions set forth in Section 2.22 of the Schedule of Exceptions. On or before the Closing, any preemptive rights, rights of first refusal and other rights (including but not limited to, the right to receive notice of the transactions contemplated by this Agreement) of TCI Sub, and the KPCB Partner and the KPCB Purchasers, and their respective Stockholder Groups (as defined in the Stockholders' Agreement) under the Stockholders' Agreement, dated as of August 29, 1995, among the Company, the KPCB Partner, the KPCB Purchasers, and TCI Sub, as amended as of May 9, 1996, or otherwise, shall have been waived as and to the extent such rights apply to the TCI Exchange and the issuance and sale of the Purchased Shares and the Conversion Shares hereunder and the other transactions contemplated hereby. 9. Conditions to the Company's Obligations at Closing. The obligations -------------------------------------------------- of the Company to issue and sell the Purchased Shares to the Purchasers at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions: 9.1 Correctness of Representations and Warranties. The --------------------------------------------- representations and warranties of the Purchasers contained in this Agreement shall, if specifically qualified by materiality, be true and correct and, if not so qualified, be true and correct in all material respects in each case as of the date of this Agreement and as of the Closing Date with the same effect as if made on and as of the Closing Date, and the Company shall have received a certificate to such effect from each Purchaser, signed by its duly authorized officer. 9.2 Performance of Agreements. The Purchasers shall have ------------------------- performed and complied with all covenants, agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by them on or before the Closing Date, and the Company shall have received a certificate to such effect from each Purchaser, signed by its duly authorized officer. 9.3 No Material Litigation. There shall not be pending on the ---------------------- Closing Date any lawsuit, claim, proceeding or other legal action by or before any court or other regulatory, administrative or governmental authority that seeks to restrain, restrict or prohibit or impose substantial penalties or damages with respect to (or any other materially adverse relief or remedy in connection with), and there shall not be in effect on the Closing Date any injunction or other order of any governmental authority or arbitration panel that restrains, restricts, prohibits or imposes substantial penalties or damages with respect to (or any other materially adverse relief or remedy in connection with), the consummation of any of the transactions contemplated hereby or by any of the other Transaction Agreements. 9.4 Restated Certificate. The Restated Certificate shall have -------------------- been duly adopted by the Company by all necessary corporate action of its Board of Directors and stockholders and shall have been duly filed with and accepted by the Secretary of State of the State of Delaware and shall be in full force and effect under the DGCL. 16 9.5 Restated Bylaws. The Restated Bylaws shall have been duly --------------- adopted by the Company by all necessary corporate action of its Board of Directors and stockholders and shall be in full force and effect under the DGCL. 9.6 Securities Exemption. The offer and sale of the Purchased -------------------- Shares to the Purchasers pursuant to this Agreement shall be exempt from the registration requirements of the Securities Act, the qualification requirements of the California Securities Law and the registration and/or qualification requirements of all other applicable state securities laws, provided that the Company shall be obligated to use its commercially reasonable efforts to make all filings and take all such other actions required to perfect such exemptions. 9.7 Government Approvals and Consents. All governmental --------------------------------- consents required in connection with the consummation of the transactions contemplated by this Agreement shall have been obtained and shall be in full force and effect and all governmental filings required in connection with the consummation of the transactions contemplated by this Agreement shall have been made, and all waiting periods, if any, applicable to the consummation of such transactions imposed by any governmental entity shall have expired, other than those which, if not obtained, in force or effect, made or expired (as the case may be) would not, whether individually or in the aggregate, have a material adverse effect on the transactions contemplated by this Agreement. 9.8 Proceedings and Documents. All corporate and other ------------------------- proceedings in connection with the transactions contemplated hereby at the Closing, and all documents and instruments incident to these transactions, shall be reasonably satisfactory in substance to the Company and its counsel and they shall each have received all such counterpart originals and certified or other copies of such documents as they may reasonably request. 9.9 Stockholders' Agreement. The Stockholders' Agreement shall ----------------------- have been duly executed and delivered by each party thereto other than the Company. 9.10 Registration Rights Agreement. The Registration Rights ----------------------------- Agreement shall have been duly executed and delivered by each party thereto other than the Company. 9.11 Simultaneous Closing. All Purchasers shall perform all of -------------------- their respective covenants and obligations required to be performed under this Agreement on or before the Closing and shall purchase and pay for the respective Purchased Shares to be purchased by each such Purchaser simultaneously with the purchase of and payment for the Purchased Shares to be purchased by the other Purchasers. 9.12 Payment of Purchase Price. Each Purchaser shall have ------------------------- delivered to the Company the purchase price specified for such Purchaser in Section 1.1 and TCI Sub shall have delivered the consideration described in Section 1.2 with respect to the TCI Exchange. 10. Miscellaneous. ------------- 10.1 Governing Law. This Agreement shall be governed by, and ------------- construed in accordance with, in all respects the laws of the State of Delaware, without regard to the conflicts of law rules of such State. 17 10.2 Survival. The representations and warranties made herein -------- shall survive any investigation made by any Purchaser and the closing of the transactions contemplated hereby for a period of fifteen (15) months after the Closing. 10.3 Successors and Assigns. Neither this Agreement nor any of ---------------------- the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of each of the other parties hereto. Any assignment or delegation in contravention of this Agreement shall be void and shall not relieve the assigning or delegating party of any obligation hereunder. Subject to the foregoing provisions of this Section 10.3, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. 10.4 Limitation on Rights of Others. Nothing in this Agreement, ------------------------------ whether express or implied, shall be construed to give any person, other than the parties hereto, any legal or equitable right, remedy or claim under or in respect of this Agreement. 10.5 Entire Agreement; Amendment. This Agreement and the other --------------------------- Transaction Agreements supersede the provisions of the Term Sheet except as specified in the Stockholders' Agreement. This Agreement, the other Transaction Agreements and the other documents delivered pursuant hereto, constitute the full and entire understanding and agreement among the parties with regard to the subjects hereof and thereof and supersede all prior agreements and understandings, both written and oral, among the parties with regard to the subject matter hereof. Neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought. 10.6 Notices, Etc. All notices and other communications required ------------ or permitted to be given by any provision of this Agreement shall be in writing and mailed (certified or registered mail, postage prepaid, return receipt requested) or sent by hand or overnight courier, or by facsimile transmission (with acknowledgment received), charges prepaid and addressed to the intended recipient as follows, or to such other address or number as may be specified from time to time by like notice to the parties: (a) If to TCI Sub: ------------- TCI Internet Holdings, Inc. 5750 DTC Parkway Englewood, CO 80111 Telecopy: (303) 712-5707 Attention: Bruce W. Ravenel President with copies to: Baker & Botts, L.L.P. 599 Lexington Avenue New York, New York 10022 Telecopy: (212) 705-5125 Attention: Frederick H. McGrath, Esq. 18 (b) If to the KPCB Purchasers: ------------------------- Kleiner Perkins Caufield & Byers 2750 Sand Hill Road Menlo Park, CA 94025 Telecopy: (415) 233-0323 Attention: L. John Doerr with copies to: Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, CA 94304 Telecopy: (415) 496-4092 Attention: Allen Morgan, Esq. (c) If to Comcast Sub: ----------------- Comcast PC Investments, Inc. 1105 North Market Street Suite 1219 Wilmington, DE 19801 Telecopy: (302) 427-7664 Attention: General Counsel with copies to: Comcast Corporation 1500 Market Street Philadelphia, PA 19102-2148 Telecopy: (215) 981-7794 Attention: Robert S. Pick, Vice President and to: Wolf, Block, Schorr and Solis-Cohen Packard Building, 7th Floor 15th and Chestnut Streets Philadelphia, PA 19012 Telecopy: (215) 977-2334 Attention: Jason M. Shargel, Esq. 19 (d) If to Cox Sub: ------------- Cox Teleport Providence, Inc. c/o: Cox Communications, Inc. 1400 Lake Hearn Drive, NE Atlanta, GA 30319 Telecopy: (404) 843-6352 Attention: David M. Woodrow Senior Vice President with copies to: Dow Lohnes & Albertson P.L.L.C. 1200 New Hampshire Ave., N.W. Suite 800 Washington, D.C. 20036 Telecopy: (202) 776-2222 Attention: Stuart A. Sheldon, Esq. (e) If to the Company: ----------------- At Home Corporation 385 Ravendale Drive Mountain View, CA 94043 Telecopy: (415) 944-8500 Attention: David G. Pine, Esq. with copies to: Fenwick & West LLP Two Palo Alto Square Suite 800 Palo Alto, CA 94306 Telecopy: (415) 494-1417 Attention: Gordon K. Davidson, Esq. Any party may from time to time specify a different address for notices by like notice to the other parties. All notices and other communications given in accordance with the provisions of this Agreement shall be deemed to have been given and received (i) four (4) business days after the same are sent by certified or registered mail, postage prepaid, return receipt requested, (ii) when delivered by hand or transmitted by facsimile (with acknowledgment received and, in the case of a facsimile only, a copy of such notice is sent no later than the next business day by a reliable overnight courier service, with acknowledgment of receipt) or (iii) one (1) business day after the same are sent by a reliable overnight courier service, with acknowledgment of receipt. 10.7 Delays or Omissions. No delay or omission to exercise any ------------------- right, power or remedy accruing to any party upon any breach or default of any other party under this Agreement shall impair any such right, power or remedy of such first party, nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any 20 similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing or as provided in this Agreement. All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative. 10.8 Expenses. Each of the Company and each Purchaser shall bear -------- its own expenses and legal fees incurred on its behalf in connection with this Agreement and the transactions contemplated hereby. 10.9 Counterparts. This Agreement may be executed in any number ------------ of counterparts with the same effect as if all parties hereto had signed the same document. Each counterpart shall be enforceable against the parties actually executing such counterpart, and all counterparts shall be construed together and shall constitute one instrument. 10.10 Severability. In the event that any provision of this ------------ Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party. 10.11 Obligations Several, Not Joint. Each Purchaser shall be (i) ------------------------------ obligated hereunder only with respect to the purchase of the number and kind of Purchased Shares set forth in Section 1 of this Agreement, and no Purchaser shall have any liability with respect to any other Purchaser's obligations hereunder and (ii) separately and independently entitled to rely on the representations and warranties of the other Purchasers and the Company made to such Purchaser in this Agreement and to the benefit of all covenants and agreements of the other Purchasers and the Company made with such Purchaser herein. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 21 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. AT HOME CORPORATION By: /s/ THOMAS A. JERMOLUK ------------------------------------------- Name:THOMAS A JERMOLUK Title: PRESIDENT AND CEO TCI INTERNET HOLDINGS, INC. By: /s/ B. RAVENEL ------------------------------------------- Name:BRUCE W. RAVENEL Title:PRESIDENT AND CEO COMCAST PC INVESTMENTS, INC. By: /s/ ARTHUR R. BLOCK ------------------------------------------- Name: ARTHUR R. BLOCK Title: VICE PRESIDENT COX TELEPORT PROVIDENCE, INC. By: /s/ DAVID M. WOODROW ------------------------------------------- Name: DAVID M WOODROW Title: PRES. KLEINER, PERKINS, CAUFIELD & BYERS VII By: KPCB VII ASSOCIATES, its General Partner By: /s/ L. JOHN DOERR ------------------------------------------- Name: L. JOHN DOERR Title: GENERAL PARTNER KPCB INFORMATION SCIENCES ZAIBATSU FUND II By: KPCB VII ASSOCIATES, its General Partner By: /s/ L. JOHN DOERR ------------------------------------------- Name: L. JOHN DOERR Title: GENERAL PARTNER [SIGNATURE PAGE TO STOCK PURCHASE AND EXCHANGE AGREEMENT] 22 /s/ JAMES CLARKE ----------------------------------------- James Clark [SIGNATURE PAGE TO STOCK PURCHASE AND EXCHANGE AGREEMENT] 23 CERTIFICATE OF RETIREMENT OF SERIES T PREFERRED STOCK OF AT HOME CORPORATION (PURSUANT TO SECTION 243(B) OF THE DELAWARE GENERAL CORPORATION LAW) At Home Corporation, a Delaware corporation (the "Company"), hereby certifies: 1. That the Board of Directors of the Company has duly adopted a resolution retiring the following shares of capital stock of the Company which are no longer outstanding: 770,000 shares of Series T Convertible Participating Preferred Stock, par value of $0.01 per share. 2. That the Second Amended and Restated Certificate of Incorporation ("Restated Certificate") of the Company prohibits the reissuance of the shares of Preferred Stock so retired; and pursuant to the provisions of Section 243 of the Delaware General Corporation Law, upon the effective date of filing of this certificate, the Certificate of Incorporation of the Company shall be amended so as to effect a reduction in the authorized number of shares of the Company's capital stock to the extent of 770,000 shares of Series T Preferred Stock so that the total number of authorized shares of Series T Preferred Stock is 770,000 and the total number of authorized shares of Preferred Stock is 14,522,613. Capitalized terms used herein and not defined herein shall have the definitions set forth in the Restated Certificate. IN WITNESS WHEREOF, said corporation has caused this Certificate of Retirement to be signed by its duly authorized officer this 2nd day of --- August, 1996. At Home Corporation By: /s/ Thomas A. Jermoluk --------------------------- Thomas A. Jermoluk, President EXHIBIT I INFORMATION CONCERNING PURCHASERS
JURISDICTION IN WHICH PURCHASER WILL ACCEPT THE LOCATION OF COMPANY'S OFFER TO JURISDICTION OF PURCHASER'S PRINCIPAL SELL THE PURCHASED NUMBER OF SHARES PURCHASER ORGANIZATION OFFICE SHARES PURCHASED - ------------------------------------------------------------------------------------------------------------------------------ Comcast PC Investments, Inc. Delaware Delaware Delaware 727,865 shares of Series AM Preferred Stock Cox Teleport Providence, Inc. Delaware Georgia Georgia 727,865 shares of Series AX Preferred Stock Kleiner, Perkins, Caufield & California California California 179,286 shares of Series K Byers VII Preferred Stock KPCB Information Sciences California California California 4,597 shares of Series K Zaibatsu Fund II Preferred Stock James Clark California California California 50,000 shares of Series K Preferred Stock TCI Internet Holdings, Inc. Colorado Colorado Colorado 783,000 shares of Series AT Preferred Stock for cash; and 770,000 shares of Series AT Preferred Stock in the Exchange
EXHIBIT J PURCHASERS' AFFILIATES
CABLE PARENT RELATIONSHIPS TO PURCHASER (IF APPLICABLE) PARENT ULTIMATE PARENT PURCHASER ----------------------------------------------------------------------------------------------------------------------------------- Comcast PC Investments, Comcast Cable Comcast Corporation, a Comcast Comcast Cable and Inc., a Delaware Communications, Inc., a Pennsylvania corporation Comcast On-Line corporation ("COMCAST Delaware corporation ("COMCAST") directly own 0% and SUB") ("COMCAST CABLE") and 100%, respectively, of Comcast On-Line the voting equity Communications, Inc., a securities of Comcast Delaware corporation Sub. Comcast directly ("COMCAST ON-LINE") owns 100% and 100% of (collectively being a the voting equity single Cable Parent) securities of Comcast Cable and Comcast On-Line, respectively. Cox Teleport Providence, Cox Communications, CCI Cox Enterprises, CCI directly owns 100% Inc., a Delaware Inc., a Delaware Inc., a Delaware of the voting equity corporation ("COX SUB") corporation ("CCI") corporation ("CEI") securities of Cox Sub. CEI indirectly owns through three susbsidiaries 75.3% of the voting equity securities of CCI. Kleiner, Perkins, Caufield N/A KPCB VII Associates, a N/A KPCB is the general & Byers VII California partnership partner of the ("KPCB") Purchaser. KPCB Information Sciences N/A KPCB N/A KPCB is the general Zaibatsu Fund II partner of the Purchaser.
James Clark N/A N/A N/A N/A TCI Internet Holdings, TCI Internet Services, Tele-Communications, Inc., TCI TCI Services, TCI Inc., a Colorado Inc., a Colorado a Delaware corporation Communications and TCI corporation (formerly corporation ("TCI ("TCI") Investments directly named TCI Internet SERVICES"); TCI own 100%, 0% and 0%, Services, Inc.) ("TCI Communications, Inc., a respectively, of the SUB") Delaware corporation voting equity ("TCI COMMUNICATIONS"); securities of TCI Sub. and TCI Cable TCI directly owns 100% Investments, Inc., a and 100% of the voting Delaware corporation equity securities of ("TCI INVESTMENTS") TCI Services and TCI (collectively being a Investments, single Cable Parent) respectively. TCI owns 100% of the outstanding common stock of TCI Communications, and third parties own preferred stock of TCI Communications, which preferred stock is exchangeable into stock of TCI and not of TCI Communications.
EX-10.04 13 TERM SHEET DATED JUN2 4, 1996 EXHIBIT 10.04 AT HOME CORPORATION 385 RAVENDALE DRIVE MOUNTAIN VIEW, CA 94043 June 4, 1996 To: The Persons Signatory hereto Reference is made to the Term Sheet attached hereto regarding, among other things the equity securities of At Home Corporation ("@Home"), the stockholders agreement among us and certain arrangements relating to the distribution of the @Home services, all as more fully described in the Term Sheet. The Term Sheet contemplates that the agreements contained therein will be superseded by definitive agreements and instruments which will contain provisions incorporating and expanding upon the agreements set forth therein, together with other provisions customary in the case of transactions of this type, and such other provisions as are reasonable and appropriate in the context of the transactions contemplated hereby. Notwithstanding the foregoing, the parties expressly acknowledge and agree that the Term Sheet and this letter will constitute a binding agreement among them, subject to the terms and conditions set forth in this letter agreement and the Term Sheet, until such definitive agreements are executed and delivered. If such definitive agreements are not executed and delivered within 60 days from the date of this letter agreement, then the Term Sheet and this letter agreement shall constitute such definitive agreements. Each party hereto shall use commercially reasonable efforts to consummate the transactions contemplated by the Term Sheet, including, without limitation, the satisfaction of the respective conditions to the parties' obligations to consummate such transactions and the completion of such definitive agreements. Notwithstanding the foregoing, this letter agreement and the Term Sheet and the respective obligations of the parties hereunder shall terminate in the event that the Additional Investors (as defined in the Term Sheet) shall not have purchased shares hereunder on or before August 15, 1996, but such termination shall not in any way limit or restrict the right of any party hereto to pursue any and all of its remedies against any party hereto which fails to perform any of its obligations or commitments under this letter agreement or the Term Sheet. This letter agreement and the Term Sheet attached hereto, shall be governed by and construed in accordance with the laws of the State of New York (without regard to its laws pertaining to conflicts of law) applicable to agreements executed in and to be fully performed entirely in such state. June 4, 1996 If the foregoing is acceptable to you, please execute the copy of this agreement in the space below, at which time this instrument will constitute a binding agreement among us. Very truly yours, AT HOME CORPORATION By: /s/ William R. Hearst, III -------------------------- Name: William R. Hearst, III Title: President 2 June 4, 1996 ACCEPTED AND AGREED this 4th day of June, 1996 Each of the following executes this letter agreement only in its capacity as a Stockholder (as defined in the Term Sheet): TCI INTERNET HOLDINGS, INC. COX TELEPORT PROVIDENCE, INC. By: /s/Bruce W. Ravenel By: /s/David M. Woodrow --------------------------------- --------------------------- Name: Bruce W. Ravenel Name: David M. Woodrow Title: President and Chief Executive Officer Title: Vice President COMCAST PC INVESTMENTS, INC. KLEINER, PERKINS, CAUFIELD & BYERS VII By: KPCB VII Associates, its General Partner By: /s/ Brian L. Roberts By: /s/ L. John Doerr --------------------------------- --------------------------- Name: Brian L. Roberts Name: L. John Doerr Title: President Title: Partner KPCB VII FOUNDERS FUND KPCB INFORMATION SERVICES ZAIBATSU FUND II By: KPCB VII Associates, By: KPCB VII Associates, its General Partner its General Partner By: /s/ L. John Doerr By: /s/ L. John Doerr --------------------------------- --------------------------- Name: L. John Doerr Name: L. John Doerr Title: Partner Title: Partner 3 June 4, 1996 ACCEPTED AND AGREED this 4th day of June, 1996 Each of the following executes this letter agreement only in its capacity as a Cable Parent (as defined in the Term Sheet): TCI INTERNET SERVICES, INC. TCI COMMUNICATIONS, INC. By: /s/ Bruce W. Ravenel By: /s/ Brendan R. Clouston --------------------------------- --------------------------- Name: Bruce W. Ravenel Name: Brendan R. Clouston Title: President and Chief Title: President and Chief Executive Officer Executive Officer TCI CABLE INVESTMENTS INC. COMCAST CABLE COMMUNICATIONS, INC. By: /s/ Brendan R. Clouston By: /s/ Brian L. Roberts --------------------------------- --------------------------- Name: Brendan R. Clouston Name: Brian L. Roberts Title: President Title: Vice Chairman COX COMMUNICATIONS, INC. By: /s/ David M. Woodrow --------------------------------- Name: David M. Woodrow Title: Senior Vice President 4 EXHIBIT 10.04 AT HOME CORPORATION TERM SHEET JUNE 4, 1996 I. GENERAL. ------- ISSUER: At Home Corporation ("@Home"), a Delaware corporation, the stockholders of which are TCI Internet Holdings, Inc., a Colorado corporation ("TCI Sub") and an indirect wholly owned subsidiary of Tele-Communications, Inc. ("TCI"), and certain affiliates of Kleiner, Perkins, Caufield & Byers, a California partnership ("KPCB"). The affiliates (each of which is a partnership of which KPCB VII Associates, a California limited partnership, is the general partner) of KPCB which purchased shares of @Home are hereinafter referred to collectively as the "KPCB Affiliates" and TCI Sub and the KPCB Affiliates are hereinafter referred to collectively as the "Founders." BUSINESS: @Home was formed primarily to engage in the business of providing Internet connectivity service and Internet "backbone" service. It is contemplated that such services would include (without limitation) (i) direct connectivity to the Internet through the development, packaging, marketing and distribution of a suite of branded Internet connectivity services and certain branded applications, including one or more custom browsers, for use by subscribers and information providers, together with connections to various on-line hosting services (such as America Online, Prodigy, CompuServe and The Microsoft Network) and information providers, both in the United States and internationally (in countries where @Home is capable of providing such service), (ii) directory services and navigation services to content created by third parties, provided, however, that it is not contemplated that @Home -------- ------- would itself be a creator of content (other than with respect to content created as part of @Home's navigation services (such as the "video barker" and "templates" for the creation of navigation home pages), the aggregation and organization of content created by third parties and technological assistance to such third party creators), and (iii) systems for (a) "backbone" transmission, (b) network management, and (c) billing and associated support functions (collectively, the "@Home Services"). The @Home Services will be provided over cable, telephone or other wireline or wireless delivery systems which would be accessible by subscribers through personal computers and similar electronic devices (such as PDAs), set-top boxes, dedicated game platforms and other network termination devices. FINANCING: It is presently intended that @Home would commence business as a private company and initially finance its operations through strategic investment by third parties and internally generated working capital. At the earliest appropriate time (as determined by the Board of Directors based upon, among other things, market conditions and @Home's financing requirements), it is anticipated that @Home would make an initial public offering ("IPO") of its Series A Common Stock and that the Series A Common Stock would thereafter be listed and traded on a national securities market. II. PURCHASE OF SHARES. ------------------ CAPITALIZATION:/*/ Series A Common Stock: 75,000,000 shares authorized; no shares issued and outstanding. Series B Common Stock: 7,700,000 shares authorized; no shares issued and outstanding. Convertible Participating Preferred Stock, Series K (the "Series K Preferred Stock"): 693,883 shares authorized; 460,000 shares issued and outstanding, all of which are held by the KPCB Affiliates. Convertible Participating Preferred Stock, Series T (the "Series T Preferred Stock"): 1,540,000 shares authorized; 1,540,000 shares issued and outstanding, all of which are held by TCI Sub. Convertible Participating Preferred Stock, Series A (the "Series A Preferred Stock"): 3,008,730 shares authorized; no shares issued and outstanding. Series Preferred Stock (blank check): 10,000,000 shares authorized; no series designated and no shares issued and outstanding. The Series A Common Stock and the Series B Common Stock (together, the "Common Stock") are identical in all respects, except that the holders of shares of the Series B Common Stock (i) generally will be entitled to ten (10) votes per share on all matters with respect to which the holders of the Common Stock of @Home are entitled to vote, while the holders of the shares of Series A Common Stock will be entitled to one vote per share upon such matters and (ii) will be entitled to elect the Series B Common Directors (as defined below). Except as may otherwise be required by the Delaware General Corporation Law (the "DGCL"), the holders of the Series A and Series B Common Stock will vote together as a single class on all matters. Each share of Series B Common Stock will be convertible at any time at the option of the holder into one share of Series A Common Stock. Prior to the consummation of the purchase of the shares of Series A Preferred Stock by the Additional Investors described below, the Amended and Restated Certificate of Incorporation of @Home will be amended (as amended, the "Charter") to (i) effect a reverse split of the authorized and issued shares of Series K and Series T Preferred Stock on a 10 to 1 basis, (ii) establish the rights, designations and preferences of the Series A Preferred Stock, (iii) amend the rights, designations and preferences of the Series K Preferred Stock and Series T Preferred Stock to make such rights, designations and preferences identical to those of the Series A Preferred Stock, except as otherwise specifically provided herein, (iv) amend the rights, designations and preferences of the Series K Preferred Stock to provide that the shares of Series K Preferred Stock will be convertible only into Series A Common Stock and (v) amend the rights, designations and preferences of the Convertible Preferred Stock in accordance with the provisions set forth opposite the caption "Rights of Holders of Convertible Preferred Stock following the IPO." In addition, simultaneously with the purchase by the Additional Investors, TCI Sub will exchange (the "TCI Exchange") 770,000 shares of its Series T Preferred Stock for 770,000 newly-issued shares of Series A Preferred Stock; the 770,000 shares of Series T Preferred Stock received by @Home in such exchange shall be cancelled and shall not be reissued as shares of Series T Preferred Stock and @Home will thereafter promptly file a certificate of retirement reducing the number of authorized shares of Series T Preferred Stock to 770,000 shares. The Series K Preferred Stock, the Series T Preferred Stock and the Series A Preferred Stock are herein sometimes referred to collectively as the "Convertible Preferred Stock." The shares of Convertible Preferred Stock and the shares of any series of Series Preferred Stock are hereinafter sometimes referred to collectively as the "Preferred Stock". The shares of Series T Preferred Stock will be initially convertible at the option of the holder into shares of Series B Common Stock of @Home, at an initial conversion ratio of 10 shares of Series B Common Stock for each share of Series T Preferred Stock, subject to anti-dilution adjustments. The shares of Series K and Series A Preferred Stock will be initially convertible at the option of the holder into shares of Series A Common Stock of @Home, at an initial conversion ratio of 10 shares of Series A Common Stock for each share of Series K or Series A Preferred Stock, as the case may be, subject to anti-dilution adjustments. The anti-dilution adjustments for each series of Convertible Preferred Stock will be identical (other than with respect to the series of Common Stock into which such series of Convertible Preferred Stock is initially convertible). The Series Preferred Stock would be issuable, from time to time, in one or more series, with such designations, preferences and relative participating, optional or other special rights, qualifications, limitations or restrictions as shall be stated in resolutions of the Board of Directors setting forth the designation thereof or in an amendment to the Charter establishing the terms of any such series of Preferred Stock. Unless the Series K and Series A Directors (each as defined below) determine by a Supermajority Vote (as defined in Exhibit A) to the 3 contrary, subject to the receipt of any required regulatory consents or approvals or the filing of any required notices with any governmental entities and the expiration of any waiting period related thereto, the holders of all shares of Series T, Series A and Series K Preferred Stock and any shares of any series of Series Preferred Stock then outstanding which are convertible into Common Stock will be required to convert such shares into shares of Series A Common Stock or Series B Common Stock (whichever series such shares are initially convertible into) in connection with @Home's initial public offering. No shares of Series B Common Stock shall be issued, except upon conversion of shares of Series T Preferred Stock or other shares of Series Preferred Stock (which have been authorized in accordance with the provisions of Exhibit A) having the right to convert into shares of Series B Common Stock. SECURITIES TO BE PURCHASED BY FOUNDERS AND ADDITIONAL INVESTORS: Subject to the satisfaction or waiver of the conditions to closing specified below, (i) the KPCB Affiliates will purchase 233,883 additional shares of Series K Preferred Stock, (ii) TCI Sub will effect the exchange referred to above of 770,000 shares of Series T Preferred Stock for an equal number of shares of Series A Preferred Stock and will purchase an additional 783,000 shares of Series A Preferred Stock, (iii) Comcast PC Investments, Inc., a wholly owned subsidiary of Comcast Cable Communications Inc. ("Comcast Sub") will purchase 727,865 shares of Series A Preferred Stock and (iv) Cox Teleport Providence, Inc., a wholly owned subsidiary of Cox Communications, Inc. ("Cox Sub"), will purchase 727,865 shares of Series A Preferred Stock. The purchase price for such shares of Series K or Series A Preferred Stock, as the case may be, to be purchased shall be $10 per share. The shares theretofore purchased by the KPCB Affiliates and TCI Sub (other than the shares delivered by TCI Sub in the TCI Exchange), together with the additional shares to be purchased by the KPCB Affiliates and TCI Sub referred to above (including, without duplication, the shares received by TCI Sub in the TCI Exchange), shall be considered to be the aggregate number of shares of Convertible Preferred Stock originally purchased by such entity for all purposes herein (including, but not limited to, the calculation of such entity's "Original Amount"). Each of TCI Sub and KPCB will waive its preemptive rights under the Stockholders Agreement (as defined below) in connection with the proposed issuance and sale of shares of Series A Preferred Stock and the TCI Exchange. The additional shares purchased by TCI Sub and by the KPCB Affiliates referred to above and the shares purchased by Comcast Sub and Cox Sub are herein referred to as the "Additional Shares." The consummation of the purchases of Convertible Preferred Stock referred to above (the "Closing") will occur on a mutually agreed date occurring no later than the 10th day following the satisfaction or waiver of the 4 conditions to Closing set forth below (other than any such conditions which are capable of being satisfied only as of the Closing), but in no event later than August 15, 1996 (such date, the "Closing Date"). Comcast Sub and Cox Sub are referred to herein collectively as the "Additional Investors," and individually as an Additional Investor. TCI Sub, Comcast Sub and Cox Sub are hereinafter referred to collectively as the "Cable Partners" and individually as a "Cable Partner." "Cable Parent" shall mean (i) TCI Internet Services, Inc. ("TCI Services"), TCI Communications, Inc. and TCI Cable Investments Inc. (TCI Communications, Inc. and TCI Cable Investments, Inc. (collectively, "TCIC") and TCI Services collectively being a single Cable Parent (of which TCI Sub is a wholly owned subsidiary of TCI Services)), (ii) Comcast Cable Communications, Inc. ("Comcast Cable"), and (iii) Cox Communications, Inc. ("CCI"). TCI, Cox Enterprises, Inc. ("CEI"), Comcast Corporation ("Comcast") and KPCB are hereinafter referred to collectively as the "Parents" and individually as a "Parent". Each Cable Partner, individually, and the KPCB Affiliates, collectively, are referred to as a "Stockholder", which term shall also include any transferee which is a member of such Stockholder's Stockholder Group acquiring securities in accordance with the provisions set forth in clause (iii) of the first sentence of the section captioned "Transfer Restrictions" contained herein which is, or is required to become, a party to the Stockholders Agreement. Each Stockholder and (except as to KPCB) its Cable Parent, together with their respective Controlled Affiliates, is hereinafter referred to collectively as a "Stockholder Group". A chart outlining the foregoing relationships is attached hereto as Schedule 1. A "Controlled Affiliate" of any Person shall be any corporation, partnership or other entity which is Controlled by such Person; provided, -------- however, that @Home will not be deemed to be a Controlled ------- Affiliate of any Parent or such Parent's Controlled Affiliates. The term "Control" shall mean the direct or indirect power to direct the management and policies of any Person, whether through the ownership of voting securities, by contract, management agreement or otherwise. OWNERSHIP: Assuming consummation of the purchase of Additional Shares by each of Comcast Sub and Cox Sub, and the purchase of the Additional Shares by TCI Sub and the KPCB Affiliates, the ownership of the outstanding equity interests of @Home (determined after giving effect to the issuance of up to 6.5 million shares of Series A Common Stock or common stock equivalents to management as incentive compensation (the "Management Pool Shares")) would be as set forth on Schedule 2 hereto. As a condition to the grant of Management Pool Shares, certain recipients thereof (who shall (i) be executive officers of @Home and (ii) hold in the aggregate no less than 50.1% of the outstanding shares of Series A Common Stock) will be required to enter into an agreement with @Home pursuant to which each such holder will agree (and will agree to cause any transferee of its shares to agree as a condition of any such transfer) that, with respect to any matter upon which the vote of the 5 holders of Series A Common Stock is required under Section 242(b) of the DGCL prior to the consummation of @Home's IPO, such holder will cast all votes attributable to its shares in the same proportion as the holders of the Convertible Preferred Stock (or if there are no such shares outstanding, the Series B Common Stock) cast their votes upon such matter. CLOSING CONDITIONS: The obligations of each of @Home, the Founders and the Additional Investors to consummate the transactions contemplated hereby are subject to the satisfaction at or prior to the Closing of each of the following conditions available to such Person, any or all of which may be waived in whole or in part by such party, to the extent permitted by applicable law: 1. Amendment of Charter. The Amended and Restated -------------------- Certificate of Incorporation of @Home shall have been amended as contemplated by this Term Sheet, and the form and terms of such amendments shall be reasonably satisfactory to each of @Home, the Founders and the Additional Investors, and the Charter shall have been filed with the Delaware Secretary of State in accordance with the DGCL and become effective under the DGCL. 2. Amendment of By-Laws. The By-Laws of @Home shall have -------------------- been amended as contemplated by this Term Sheet, and the form and terms of such amendments shall be reasonably satisfactory to each of @Home, the Founders and the Additional Investors. 3. Receipt of Governmental Approvals and Consents. All ---------------------------------------------- governmental consents as are required in connection with the consummation of the transactions contemplated hereby as to each of @Home, the Founders and the Additional Investors shall have been obtained and shall be in full force and effect and all governmental filings as are required in connection with the consummation of such transactions shall have been made, and all waiting periods, if any, applicable to the consummation of such transactions imposed by any governmental entity shall have expired, other than those which, if not obtained, in force or effect, made or expired (as the case may be) would not, either individually or in the aggregate, have a material adverse effect on the transactions contemplated hereby. 4. No Unsatisfied Conditions. All other conditions herein ------------------------- with respect to the obligation of each of @Home, the Founders and the Additional Investors to consummate the issuance and sale of the shares contemplated hereby shall have been satisfied or waived by such party. 6 5. Additional Matters. Each person purchasing @Home ------------------ securities hereunder shall have received (i) an instrument containing such representations and (ii) such closing certificates, in each case as may be customary in transactions of this nature. 6. Each of the parties hereto shall have performed all of its obligations and commitments hereunder including, without limitation, those required to be performed at the Closing. In addition, it shall be a further condition of the obligations of Cox Sub and Comcast Sub to close that no actions have been taken by @Home (other than any actions relating to the amendments to the Charter provided for in the following paragraph), which actions, if taken after the Closing, would have required the consent or approval of one or more of the Additional Investors (as if the Closing had occurred and such Additional Investors were then Stockholders) or the .Com Committee, without the consent or approval of such of TCI Sub, KPCB, Comcast Sub and/or Cox Sub (or their respective designees on the Board of Directors) or the .Com Committee as would have been required had the Closing occurred. Each of TCI Sub and KPCB agrees to cause @Home not to take any of such actions described in the previous sentence without such consent or approval (to the extent required). Notwithstanding the foregoing, prior to the Closing, TCI Sub and KPCB shall be entitled to purchase up to 783,000 additional shares of Series T Preferred Stock and 233,883 additional shares of Series K Preferred Stock, respectively, on the terms described herein (determined after giving effect to the amendments to the Amended and Restated Certificate of Incorporation of @Home described herein), the purchase of which shares shall reduce the obligation of such parties to purchase shares from @Home at the Closing on a share-for-share basis and, in the case of TCI Sub, which shares of Series T Preferred Stock shall be exchanged on a share-for-share basis as part of the TCI Exchange at the Closing for shares of Series A Preferred Stock (such purchase, the "Interim Financing"). III. RIGHTS, DESIGNATIONS AND PREFERENCES OF CONVERTIBLE PREFERRED -------------------------------------------------------------- STOCK TO BE SET FORTH IN THE CHARTER. ------------------------------------ RANKING: The shares of Convertible Preferred Stock will rank pari ---- passu with the shares of any series of Series Preferred ----- Stock which is not by its terms made senior to the Convertible Preferred Stock, and senior to all other classes and series of capital stock of @Home, with respect to, as applicable, (y) payments upon the liquidation, dissolution or winding up of @Home and (z) the payment of dividends or the making of distributions on, or the repurchase or redemption of, any other shares of capital stock of @Home. In addition to the approval right of the holders of Convertible Preferred Stock to be set forth in the Charter, the 7 By-Laws of @Home will provide that, without the approval by a Supermajority Vote of the Series K and Series A Directors (as defined below) (such approval, a "Supermajority Approval"), @Home will not create, designate or issue any class or series of capital stock having voting rights senior to those of the holders of the Series A Preferred Stock or Series K Preferred Stock (any such capital stock, the "Special Voting Stock"). A class or series of capital stock shall be deemed to be Special Voting Stock if the holders of such security (x) are entitled to more than one vote per share when voting with the holders of the Common Stock or (y) are entitled to vote as a separate class or series upon any matter presented to stockholders of @Home, other than (i) as required by Section 242(b) of the DGCL, (ii) with respect to the creation or issuance of any other class or series of capital stock which is to rank senior to such capital stock as to liquidation rights and rights relating to dividends, distributions, repurchases and redemptions, (iii) with respect to amendments to the terms or provisions of such securities, or (iv) such additional matters as would be customary or appropriate in the context of the issuance of such class or series of capital stock in a financing transaction with a third party (as opposed to a strategic transaction) in light of the circumstances under which such financing transaction is being consummated. Subject to the requirements of this paragraph, it is intended that the Board of Directors would be entitled to create, designate and issue shares of Series Preferred Stock which rank senior to or pari passu with the Convertible Preferred Stock as to ---- ----- liquidation rights and rights relating to dividends, distributions, repurchases and redemptions. Notwithstanding anything herein contained, no capital stock of @Home, the issuance of which would, in accordance with Exhibit A, require a Unanimous Vote of the Series K and Series A Directors, shall be issued without such Unanimous Vote of the Series K and Series A Directors. LIQUIDATION Subject to the rights of any holders of capital stock PREFERENCE: ranking senior to ("Senior Stock") or pari passu with ---- ----- ("Parity Stock") the Convertible Preferred Stock, upon any liquidation, dissolution or winding up of @Home, the holders of the Convertible Preferred Stock, with equal priority among shares of Series A, Series K and Series T Preferred Stock, shall be entitled to receive from assets available for distribution to stockholders, before any payment or distribution to holders of any capital stock which is not expressly made senior or pari passu with the Convertible ---- ----- Preferred Stock ("Junior Stock"), an amount in cash (and to the extent sufficient cash is not available for such payment, property at its fair market value) per share, equal to the Liquidation Price of a share of Convertible Preferred Stock as of the date of payment or distribution. The "Liquidation Price" of any share of Convertible Preferred Stock as of any date will be the sum of (i) the Issue Price (which initially will be the $10 per share purchase price of the Convertible Preferred Stock, and shall be appropriately adjusted in the event of stock splits, reverse splits or similar events affecting the Convertible Preferred Stock), plus (ii) an amount equal to all dividends which have theretofore been declared on 8 such shares of Convertible Preferred Stock, but which are unpaid as of the determination date. DIVIDEND RATE AND PAYMENT DATES: The dividend rate on the Convertible Preferred Stock, with equal priority among shares of Series A, Series K and Series T Preferred Stock, will be 10% per annum of the Issue Price. Dividends (the "Preferred Dividend") will be payable quarterly in cash as, when and if declared by the Board of Directors of @Home (the "Board") in its discretion, and shall not cumulate. Following the declaration and payment of the Preferred Dividend for any quarter, and subject to the provisions of this paragraph, @Home shall be permitted to declare and pay dividends on any Junior Stock; provided, however, that in addition to the foregoing quarterly dividend, the holders of the Convertible Preferred Stock, with equal priority among shares of Series A, Series K and Series T Preferred Stock, shall be entitled to receive as an additional dividend (a "Participating Dividend") the amount of any dividend or any other distribution which is declared and paid or made on the Junior Stock. In the event the Junior Stock receiving such dividend is Common Stock (or another security which is convertible into or exercisable or exchangeable for Common Stock), the Participating Dividend will equal the amount to be paid per share of Common Stock or equivalent multiplied by the number of shares of Common Stock into which a share of Convertible Preferred Stock is then convertible. In the event the Junior Stock receiving such dividend is a security other than Common Stock (and which is not convertible into or exercisable or exchangeable for Common Stock), the amount of the Participating Dividend shall be an amount per share equal to the dividend to be paid on each share of Junior Stock multiplied by a fraction, the numerator of which is the Liquidation Price and the denominator of which is the lowest of (x) the liquidation price (if any), (y) the redemption price (if any) and (z) the issue price (as adjusted for stock splits, stock dividends and the like), of a share of such Junior Stock. So long as any shares of Convertible Preferred Stock are outstanding and dividends on such shares of Convertible Preferred Stock have not been (or are not contemporaneously) declared and paid in full for the two immediately preceding quarters, no dividends shall be declared or paid upon any Parity Stock; provided, however, that a dividend may be -------- ------- declared and paid during any quarter (regardless of whether such dividends have been paid for any preceding quarter) pro rata with respect to the Convertible Preferred Stock and Parity Stock then outstanding such that the amounts of any dividends declared per share on the Convertible Preferred Stock and such Parity Stock shall in all cases bear to each other the same ratio that the Preferred Dividend (assuming such dividend had been declared by the Board) and, if applicable, any Participating Dividend per share of Convertible Preferred Stock for such current quarter and dividends on shares of such other Parity Stock for 9 such quarter (excluding any accumulated or accrued dividends on such Parity Stock) bear to each other. If the Preferred Dividend and any Participating Dividend have not been declared and paid for the then-current quarter, then, with respect to such then-current quarter, @Home shall not (i) declare or pay any dividend on, or make any distribution with respect to, any Junior Stock or (ii) repurchase, redeem, or otherwise acquire any shares of Junior Stock (or options, warrants or other rights to acquire Junior Stock), other than the repurchase, redemption or other acquisition of such shares (or options, warrants or other rights to acquire such shares) from employees, directors or consultants pursuant to repurchase or redemption rights contained in the instrument pursuant to which such securities were originally issued. VOTING RIGHTS: Holders of Convertible Preferred Stock will be entitled to notice of and to attend all meetings of stockholders of @Home. The Charter will provide that, except as otherwise required by the DGCL, the holders of Convertible Preferred Stock will be entitled to vote together, as a single class and on an as-converted basis (in the case of the Series K and Series A Preferred Stock, into Series A Common Stock, and in the case of the Series T Preferred Stock, into Series B Common Stock), with the holders of the Common Stock and any other series of Series Preferred Stock entitled to vote thereon upon any matters presented to the holders of the Common Stock for their approval or consent, including, but not limited to, the election of directors (other than those directors to be elected by the holders of the Convertible Preferred Stock). RIGHTS OF HOLDERS OF CONVERTIBLE PREFERRED STOCK FOLLOWING THE IPO: The Charter will provide that in the event the Series K and Series A Directors determine by a Supermajority Vote not to require all shares of Convertible Preferred Stock to be converted into Common Stock in connection with the IPO, then, unless the Series K and Series A Directors have also determined by a Supermajority Vote not to implement the following changes in the Convertible Preferred Stock, then upon the IPO the rights, designations and preferences of the Convertible Preferred Stock will be changed as follows: (i) the Liquidation Price of a share of Convertible Preferred Stock shall be reduced to $.01 per share, and, following the payment in full of all amounts owing to the holders of securities (including the Convertible Preferred Stock) ranking senior to the Common Stock, the holders of the Convertible Preferred Stock shall be entitled to share ratably, on an as-converted basis, with the holders of the Common Stock as to any amounts remaining for distribution to such holders upon the liquidation, dissolution or winding up of @Home and (ii) the Preferred Dividend shall be terminated and cease to exist, and thereafter the holders of Convertible Preferred Stock shall be entitled only to receive dividends, 10 on an as-converted basis, when, as and if such dividends are declared and paid on the Common Stock. Except as provided above, the other rights, designations and preferences of the Convertible Preferred Stock set forth herein shall remain unchanged. CONVERTIBLE PREFERRED STOCK DIRECTORS: So long as there remain outstanding at least 250,000 shares of Series K Preferred Stock, the holders of the Series K Preferred Stock shall be entitled to elect one member of the Board of Directors (the "Series K Director"). So long as there remain outstanding at least 500,000 shares of the Series T Preferred Stock, the holders of the Series T Preferred Stock shall be entitled to elect two members of the Board of Directors (the "Series T Directors"), provided, -------- that at any time that there remain outstanding less than 500,000 shares of Series T Preferred Stock, then so long as there remain outstanding at least 250,000 shares of Series T Preferred Stock, the holders thereof will be entitled to elect one Series T Director. The holders of Series A Preferred Stock shall be entitled to elect a total of five directors (each, a "Series A Director"); provided, however, -------- ------- that with respect to Comcast Sub and Cox Sub, each such holder shall be entitled to elect a director only so long as it beneficially owns at least 250,000 shares of Series A Preferred Stock; and provided, further, that TCI Sub shall -------- ------- be entitled to elect three directors only so long as it beneficially owns at least 750,000 shares of Series A Preferred Stock; and if TCI Sub ceases to beneficially own at least 750,000 shares of Series A Preferred Stock, then it shall be entitled to elect two directors until such time as it ceases to beneficially own at least 500,000 shares of Series A Preferred Stock, and if it thereafter ceases to own at least 500,000 such shares, it shall be entitled to elect one director so long as it beneficially owns at least 250,000 shares of Series A Preferred Stock. In the event that Comcast Sub, Cox Sub or TCI Sub should cease to be entitled to elect a Series A Director (or, in the case of TCI Sub, shall become entitled to elect a lesser number of such directors), then the total number of Series A Directors shall be appropriately reduced. With respect to the foregoing Series A Preferred Stock ownership requirements, the references to Comcast Sub, Cox Sub and TCI Sub as a holder of Convertible Preferred Stock shall be deemed to include transferees which are members of their respective Stockholder Groups. The Charter will also provide that so long as TCI Sub is entitled to elect a majority of the Series A Directors, the Series A Directors will be the Special Directors (as defined below) and will be entitled to the special approval rights of the Special Directors with respect to actions by the Board of Directors as described opposite the caption "Management - Governance." The Series K Director, the Series T Directors and the Series A Directors are hereinafter sometimes referred to collectively as the "Preferred Stock Directors." So long as TCI Sub is entitled to elect a majority of the Series A Directors to the Board, the term "Special Directors" as used herein shall refer exclusively to the Series A Directors. At such time as TCI Sub is no longer entitled to elect a majority of the Series A Directors, then so long as TCI Sub beneficially 11 owns securities of @Home constituting a majority of the outstanding voting power of @Home on an as-converted into Series A Common Stock or Series B Common Stock (whichever series into which such shares are initially convertible) basis and is entitled to elect any Series B Common Directors, such Series B Common Directors shall be the "Special Directors." The right of the holders of Convertible Preferred Stock to elect the Preferred Stock Directors shall be in addition to their right to vote, on an as-converted basis (in the case of the Series K and Series A Preferred Stock, into Series A Common Stock and in the case of the Series T Preferred Stock, into Series B Common Stock), with the holders of the Common Stock and any other series of Series Preferred Stock so entitled to vote, together as a single class, in the election of all other members of the Board. SERIES B COMMON DIRECTORS: The Charter will provide that at any time following @Home's IPO at which (x) there are not less than 3,850,000 shares of Series B Common Stock outstanding, (y) there are no shares of Series T Preferred Stock outstanding and (z) the holders of the Series A Preferred Stock are not entitled to elect any Series A Directors, then the holders of the Series B Common Stock will be entitled to elect (voting as a separate series) two directors to the Board of Directors (the "Series B Common Directors"). The right of the holders of the Series B Common Stock to elect the Series B Common Directors shall be in addition to their right to vote with the holders of the Series A Common Stock and any series of Series Preferred Stock so entitled to vote, together as a single class, in the election of all other members of the Board. SPECIAL CONVERTIBLE PREFERRED STOCK VOTING RIGHTS: So long as any shares of Convertible Preferred Stock remain outstanding, @Home shall not, without first obtaining the affirmative vote (or, except with respect to clause (iii) below, the written consent) of the holders of not less than a majority of the outstanding shares of the Convertible Preferred Stock, voting together as a single class: (i) adopt, amend, alter or repeal any provision of the Charter or any resolution of the Board of Directors or any other instrument establishing and designating the Convertible Preferred Stock, any series of Series Preferred Stock or any Common Stock and determining the relative rights and preferences thereof, so as to effect any adverse change in the rights, privileges, powers or preferences of the holders of the Convertible Preferred Stock; (ii) create, designate or issue any capital stock which is Special Voting Stock; (iii) (a) consolidate with, or merge with or into, any person or entity or enter into a binding share exchange or similar transaction 12 with any person (other than a merger of @Home with a wholly owned subsidiary thereof which does not effect a change in the capital stock of @Home), (b) dispose of assets or properties in one transaction or a series of related transactions having an aggregate value in excess of 50% of the fair market value of the consolidated assets of @Home, or (c) consent to any liquidation, dissolution or winding up of @Home or any of its material subsidiaries; or (iv) (a) declare or pay any dividend on, or make any distribution to holders of, Junior Stock or equity securities of any subsidiary of @Home or (b) purchase, redeem or otherwise acquire for value any Junior Stock or equity securities of any subsidiary of @Home or any options, warrants or other rights to acquire such securities (other than the repurchase by @Home pursuant to repurchase rights contained in the instrument pursuant to which such securities were originally granted of shares of Junior Stock or options, warrants or other rights to acquire shares of Junior Stock, issued to employees, directors or consultants of @Home). Any approval obtained with respect to any matter described in clause (iii) above shall not be valid unless such matter shall have been presented to the holders of the Convertible Preferred Stock for a vote at a meeting held on not less than thirty (30) days' prior written notice, which notice shall have described in detail each such matter to be voted upon. ANTI-DILUTION RIGHTS: The "conversion ratio" of the Convertible Preferred Stock shall be proportionately adjusted in the event of any stock split, reverse split, combination, reclassification or similar event. IV. REGISTRATION RIGHTS AGREEMENT ----------------------------- @Home and the Stockholders agree that upon the Closing, the existing Registration Rights Agreement shall be deemed amended to provide that each Stockholder and the members of its Stockholder Group shall have the following rights to require (i) the shares of Series A Common Stock (or other securities) (the "Conversion Shares") (x) issued or issuable upon conversion of the shares of Series B Common Stock issuable upon conversion of the shares of Series T Preferred Stock or (y) issued or issuable upon conversion of the shares of Series K or Series A Preferred Stock, or (ii) any other shares of Series A Common Stock (including those shares issued or issuable upon exercise or conversion of any securities exercisable for or convertible into shares of Series A Common Stock) howsoever acquired by such Stockholder's Stockholder Group, to be registered under the Securities Act of 1933, as amended (the "Securities Act"); provided, that in connection with any sale pursuant to such a registration, the applicable Stockholder shall be required to convert all shares to be sold into shares of Series A Common Stock immediately prior to the closing of such sale: (i) Commencing on or after the first anniversary of the closing date of the IPO, TCI Sub shall be entitled to four demand 13 registrations, Comcast Sub shall be entitled to two demand registrations, Cox Sub shall be entitled to two demand registrations, and KPCB shall be entitled to two demand registrations. Immediately following the receipt of any request to exercise a demand registration, @Home shall notify each other Stockholder, and each such other Stockholder shall be entitled to join in such demand (the Stockholder originally initiating such demand (the "Original Initiating Holder"), together with any other Stockholders joining therein, are hereinafter referred to collectively as the "Initiating Holders"). In the event that any shares requested to be registered are required to be excluded from such registration, the determination of the number of shares to be excluded from each Initiating Holder shall be made pro rata in relation to the number of shares requested to be registered. Provided that at least 75% of the shares requested to be registered by the Original Initiating Holder are included in such registration, such Original Initiating Holder shall be deemed to have utilized one of its demand registration rights in respect thereof. The Initiating Holders other than the Original Initiating Holder shall not be deemed to have exercised a demand right, but instead shall be deemed to have exercised their piggyback registration rights; provided, however, that for purposes of determining -------- ------- the expenses of registration to be paid by the selling Stockholders, such registration shall be considered a demand registration. The shares requested to be registered by the Initiating Holders shall have priority over the shares requested to be registered by @Home or by any other holder, in that @Home or such other holder shall not be permitted to include shares in such registration if the effect of such inclusion would be to cause any of the shares requested to be registered by the Initiating Holders to be excluded from such registration. @Home shall use its commercially reasonable efforts to keep the registration statement with respect to any such demand registration effective until the first to occur of the sale of all shares subject to such registration or 120 days following the effectiveness of such registration statement. (ii) Subject to the priorities set forth above and to any "holdback" provisions agreed to between @Home and the managing underwriter, following the date the IPO is consummated, the Stockholders will have unlimited piggyback registration rights with respect to all primary and secondary registrations of equity securities of @Home (other than any "shelf registration" or registrations on Forms S-8 or S-4). The foregoing registration rights will be subject to customary terms and conditions, including certain "holdback" provisions, if so requested by the managing underwriter. So long as the Original Initiating Holder is seeking to register not less than 250,000 (the "Minimum Demand 14 Shares") Equivalent Shares (as defined below), then all expenses of the registrations described in clause (i) above, including securities and blue sky filing fees, the fees and disbursements of a single counsel for the selling stockholders, and printing, accounting and other customary expenses, shall be borne by @Home; provided, that -------- underwriting discounts and commissions and any transfer taxes attributable to the shares sold by the selling stockholders shall be borne by the stockholders selling shares in such offering. In the event that the Original Initiating Holder is seeking to register less than the Minimum Demand Shares, then all such expenses (as well as the fees and expenses of counsel to @Home) shall be borne by such Initiating Holders in proportion to their pro rata share of the number of shares with respect to which such Initiating Holders have requested registration. In connection with any registration pursuant to clause (ii) above, the stockholders selling shares in such offering shall pay the underwriting discounts and commissions and any transfer taxes attributable to the shares sold by the selling stockholders and shall pay their pro rata share of the incremental registration filing fees attributable to their shares being registered, and shall be responsible for the fees and disbursements of counsel to the selling stockholders. The term "Equivalent Shares" shall mean shares of Series A Common Stock theretofore issued upon conversion of shares of Convertible Preferred Stock (or Series B Common Stock, as applicable) and shares issuable upon the conversion of then outstanding shares of Convertible Preferred Stock (or Series B Common Stock, as applicable). Notwithstanding the foregoing, the exercise of a Stockholder's registration rights hereunder shall be subject to the other Stockholders' Right of First Offer, unless specifically exempted therefrom in accordance with the terms thereof. In addition, notwithstanding the foregoing, TCI Sub will not be deemed to have exercised a demand registration right in the event that it makes the IPO Election (as defined below) in response to an exercise of the KPCB Put or the Cable Put. V. MANAGEMENT. ---------- GOVERNANCE: The business of @Home will be managed and controlled by the Board; subject, however, to the approval rights of the ------- ------- Special Directors specified herein and the special approval requirements of the Series K and Series A Directors set forth in Exhibit A. It is anticipated that the Board would meet quarterly, and/or establish a regular meeting schedule. The By-laws of @Home will provide that (i) (a) any director who is an officer or director of, or otherwise affiliated with or is elected or appointed by, (1) a holder of any series of Preferred Stock (including the Convertible Preferred Stock) or an affiliate of such holder or (2) any holder of more than 5% of the voting power of @Home (on an as-converted into Common Stock (whichever series such security is initially convertible into or exercisable or exchangeable for) basis) or an affiliate of such holder (any such holder or affiliate referred to in clauses 15 (1) or (2), a "Related Party") must abstain from voting with respect to a Related Party Transaction involving such Related Party, and (b) in the event that a majority of the Special Directors would be required to abstain from voting on such Related Party Transaction, then the separate approval of the Special Directors shall not be required with respect to the taking of any action regarding such Related Party Transaction and (ii) those matters listed on Exhibit A hereto must be approved by the percentage of Series K and Series A Directors specified therein, in accordance with the By-Laws and the special procedures set forth in Exhibit A. Any such Related Party Transaction must be approved by a majority of the Series A Directors, Series T Directors and Series K Directors not required to abstain from voting with respect thereto in accordance with the provisions of the previous sentence. The term "Related Party Transaction" shall mean any transaction between @Home and a Related Party; provided, however, that the following transactions -------- ------- will not be Related Party Transactions: (i) the entering into and performance under agreements listed on Schedule X attached hereto; (ii) any transaction or series of related transactions, that (x) are in the ordinary course of business, (y) are on arms' length terms, and (z) involve an aggregate amount that is less than $1,000,000; (iii) transactions in which all of the Series A Directors would otherwise be required to abstain, which transaction is approved by each Cable Partner; (iv) the entering into of LCO Agreements (as defined below) and other agreements for the provision of ancillary or related services by @Home, between a Related Party and its affiliates, on the one hand, and @Home, on the other hand, provided that the terms of such LCO Agreements or such other agreements are no more favorable to such Related Party and its affiliates than the terms of similar agreements then currently offered by or generally available from @Home to each other Cable Parent and its Controlled Affiliates (without regard to the size (through volume discounts or otherwise) or identity of such Cable Parent or its ownership of @Home securities); and (v) the entering into or performance under any .Com Agreement or Promotional Agreement. For purposes of determining whether any person is a Related Party, for purposes of the definition of a Related Party Transaction, and with respect to the entering into of .Com Agreements or Promotional Agreements as provided in the following section, the term "affiliate" shall mean, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first Person; provided, that (i) -------- any Person owning, directly or indirectly, in excess of 25% of the equity interests (on a fully diluted basis) of any other Person shall be deemed to control such other Person, (ii) @Home will not be deemed to be an affiliate of any Parent or such Parent's affiliates and (iii) the Microsoft Network, L.L.C. ("MSN") will be deemed a Related Party of TCI Sub so long as an affiliate of TCI Sub retains substantially all of its current ownership interest in MSN. 16 CONTENT PROVIDER AGREEMENTS: @Home acknowledges and agrees that its policy and practices with respect to its willingness to negotiate and enter into all .Com Agreements and all Promotional Agreements with content providers that meet @Home's reasonable standards relating to obscene or offensive material, is one of openness and non-exclusion, regardless of the identity of such content provider and its relationship with @Home, and that it is in the best interest of @Home and its stockholders for @Home to enter into as many such agreements as is practicable. The terms and conditions of .Com Agreements and Promotional Agreements shall not take into account the identity of the affiliates or associates of such content provider nor shall the identity of the affiliates or associates of any such content provider result in either the exclusion of such content provider or such content provider gaining promotion at the expense of others. Therefore, because the Parents and the Cable Parents each have significant investments in a wide variety of content providers and do not want such content providers' ability to obtain carriage and promotion on the @Home Services to be unfairly advantaged or disadvantaged, the parties have determined that the entering into of .Com and Promotional Agreements shall not be considered Related Party Transactions regardless of the ownership of such content provider or its relationship with any Stockholder or such Stockholder's affiliates, but that the entering into of such agreements shall be governed by the following procedure. The execution, delivery and performance of any .Com Agreement or Promotional Agreement between a Related Party or its affiliates, on the one hand, and @Home or its affiliates, on the other hand, may be approved by @Home pursuant to any of the following methods (a) approval by the authorized officers of @Home (without the approval of the Board of Directors) to the extent such agreement contains @Home's standard terms and conditions for agreements of that sort to the extent such standard terms and conditions exist (i.e., the applicable @Home "rate card"), (b) approval by a majority vote of the ".Com Committee" or (c) approval by all of the Series A Directors. The Cable Parent which is or whose affiliate is, such Related Party shall be entitled to select which of the foregoing methods pursuant to which such approval will be sought, or if more than one method is to be sought, the priority therefor. The .Com Committee shall be a committee of the Board and shall consist of (i) the CEO, (ii) the Series K Director (if any), (iii) Will Hearst and James Barksdale (so long as such persons are directors and are not affiliated with a Cable Parent or any of its Controlled Affiliates other than @Home), (iv) following the IPO, those "outside directors" appointed to the .Com Committee by a Supermajority Vote of the Series A and Series K Directors, and (v) such other directors as may be approved from time to time by a Unanimous Vote of the Series A and Series K Directors. All decisions of the .Com Committee shall be made in accordance with the policies and provisions of the preceding paragraph. A Stockholder whose .Com Agreement or Promotional 17 Agreement has been disapproved by the .Com Committee or the Board of Directors pursuant to (b) or (c) above, as the case may be, shall be entitled to a written explanation from the members of the .Com Committee or the Board of Directors, as the case may be, voting against such approval. Nothing contained in this section shall limit the right of the Directors under applicable law to inspect any .Com Agreements or Promotional Agreements. SPECIAL DIRECTORS APPROVAL RIGHT: The Charter will provide generally that, so long as the conditions relating to Special Directors set forth opposite the caption "Convertible Preferred Stock Directors" are satisfied, any action or approval by the Board of Directors shall require the approval of both (i) either (x) a majority of the members of the Board present at a meeting at which there is a quorum or (y) a written consent to such action executed by all of the members of the Board of Directors, and (ii) a majority of the total number of Special Directors; provided, however, that the approval of the -------- ------- Special Directors shall not be required in connection with the approval of (x) any Related Party Transaction in which a majority of the Special Directors are required to abstain from voting or (y) any of the actions specified in Exhibit A (provided that such actions have been approved in accordance with the other terms set forth herein). Such approval may be evidenced by the affirmative vote of such Special Directors (i) at the Board meeting at which such action is approved, (ii) by written consent of the Board executed by such Special Directors or (iii) by a separate approval granted at a meeting of the Special Directors or by written consent. References herein to actions approved, taken or consented to by the Board shall be deemed to refer to actions which have been approved, taken or consented to by the Board and which have also received the approval or consent of a majority of the total number of the Special Directors, to the extent required. REVISED BUSINESS PLAN AND BUDGETS: Prior to the date hereof, the Board has adopted an initial business plan covering the initial three fiscal years of @Home, including an actual budget ("Actual Budget") for the first such fiscal year and projected budgets for the following two such fiscal years ("Projected Budgets"). Prior to the start of each fiscal year after the first fiscal year of the initial business plan, management of @Home will prepare and the Board would approve, a revised business plan for the succeeding three fiscal years which would include an Actual Budget for the next fiscal year and Projected Budgets for each of the two subsequent fiscal years. INITIAL BOARD: The By-Laws will specify that @Home will have a Board consisting of not less than three (3) nor more than fifteen (15) directors, with the exact number to be specified in a resolution of the Board. The number of Directors constituting the entire Board will initially be set at nine (9), of 18 which eight (8) shall be Preferred Stock Directors. The parties anticipate that upon the purchase of the shares of Convertible Preferred Stock by the Additional Investors, the Board will consist of the following persons: Series K Director: John Doerr Series T Directors: Jim Barksdale Will Hearst Series A Directors: Bruce Ravenel Larry Romrell Brendan Clouston Comcast Designee David Woodrow Common Stock Director: Permanent CEO ADDITIONAL STRATEGIC INVESTORS: Subject to the pre-emptive rights granted to the Stockholders, @Home will be permitted to offer and sell additional equity interests to third party investors, strategic partners and/or other multiple cable system operators in order to finance the expansion of the business of @Home and to provide additional working capital. It is anticipated that such additional equity interests will consist of Series A Common Stock or one or more additional series of Preferred Stock, each of which series of Preferred Stock would have such rights, powers, privileges and preferences as determined by the Board, subject to certain limitations specified herein. VI. STOCKHOLDERS AGREEMENT MATTERS. ------------------------------ Upon the Closing, the existing stockholders agreement among each of the Founders and @Home shall be deemed to be amended in accordance with the provisions of this Term Sheet (as so amended, the "Stockholders Agreement") to include Cox Sub and Comcast Sub and their respective Stockholder Groups and make such changes to the original stockholders agreement as are necessary and appropriate to provide for the inclusion of such additional parties thereto, including, but not limited to, the following: TCI CALL: TCI Sub will have the right (the "TCI Call"), exercisable by written notice (the "Call Notice") during the sixty-day period following the fifth anniversary of the date of the execution of this Term Sheet (the "Execution Date") or, if not previously exercised, exercisable during the sixty-day period following each subsequent anniversary thereof, to and including the ninth anniversary of the Execution Date, to purchase (or to cause its designee to purchase) all, but not less than all, of the KPCB Constituents' equity interests in @Home at the Fair Market Value (as defined below) thereof determined as of the date of the Call Notice. The remaining Eligible Stockholders (other than any Stockholder exercising the Cable Put (as defined below) in connection with the applicable Call Notice) shall have the right (but not the obligation) to participate with 19 TCI Sub (on a pro rata basis) in the purchase of shares pursuant to the TCI Call. The term "KPCB Constituents" shall mean each KPCB Affiliate, any wholly owned subsidiary to which such KPCB Affiliate shall have transferred its shares in accordance with the terms hereof and any general or limited partners to whom such KPCB Affiliate or such subsidiary shall have transferred shares in accordance with the terms set forth opposite the caption "Transfer Restrictions," below. KPCB PUT: KPCB will have the right, exercisable by written notice (the "KPCB Put Notice") during the sixty-day period following the fifth anniversary of the Execution Date or, if not previously exercised, exercisable during the sixty-day period following each subsequent anniversary thereof, to and including the ninth anniversary of the Execution Date, to require TCI Sub to purchase all, but not less than all, of the KPCB Constituents' equity interests in @Home at the Fair Market Value thereof determined as of the date on which the KPCB Put Notice is delivered to TCI Sub. In addition, in the event that (x) any of the transactions described in paragraph (iii) opposite the caption "Special Voting Rights of Convertible Preferred Stock" have been approved by the requisite vote(s) of the Convertible Preferred Stock and (y) on the record date for the determination of stockholders entitled to vote upon such matter and at the time of the meeting at which such action is voted upon, the KPCB Constituents collectively hold not less than 80% of the aggregate amount of the shares of Series K Preferred Stock sold to the KPCB Affiliates (including the purchase of additional shares of Series K Preferred Stock made at the time of the purchase of Series A Preferred Stock by the Additional Investors) (as adjusted for stock splits, recapitalizations and the like) (the "KPCB Original Amount") and have voted all shares of Series K Preferred Stock held by them "against" (with any failure to vote or abstention from voting not considered a vote "against") such transaction, KPCB will have the right (the "Special KPCB Put"), exercisable by written notice to TCI Sub not later than the close of business on the date of the meeting at which such transactions are voted upon, to require TCI Sub to purchase all, but not less than all, of the KPCB Constituents' equity interests in @Home at the Fair Market Value thereof determined on the date of such meeting. The right of KPCB to require TCI Sub to purchase such equity interests in @Home pursuant to this paragraph (including the Special KPCB Put) is hereinafter referred to as the "KPCB Put." Notwithstanding the exercise of the KPCB Put (including the Special KPCB Put), TCI Sub will be relieved of its obligation to purchase any securities pursuant to the KPCB Put (as well as pursuant to any exercise of the Cable Put in connection therewith) in the event that @Home makes an initial public offering of its Common Stock in accordance with the provisions of this paragraph. TCI Sub may elect to require @Home to make an initial public offering in lieu of purchasing securities pursuant to the KPCB Put (the "IPO Election") by delivering written notice to KPCB, each other Stockholder, and @Home not later than 20 20 business days following the determination of the Fair Market Value of @Home (the "IPO Election Notice"). Following delivery of the IPO Election Notice, the Stockholders agree to use commercially reasonable efforts to cause @Home to file with the Securities and Exchange Commission (the "Commission") a registration statement in respect of the registration of the Series A Common Stock under the Securities Act. In such case, the Stockholders and @Home agree to cooperate in all respects with the preparation and filing of such registration statement with the Commission and causing such registration statement to become and remain effective during the time periods specified herein. If (x) such registration is abandoned before it is declared effective, (y) a registration statement has not been filed on or before the 90th day after the delivery of the IPO Election Notice, or (z) such registration statement is filed, but the IPO has not been consummated on or before the 183rd day following the date of the IPO Election Notice, then the IPO Election shall terminate and the KPCB Put Notice shall be deemed to have been reinstated as of such date of termination, and TCI Sub shall thereafter be obligated to purchase the securities pursuant to the KPCB Put; provided, however, that the minimum period in which -------- ------- such sale shall be required to be consummated shall be 60 days from the date the KPCB Put Notice is deemed reinstated. In the event the KPCB Put Notice is deemed reinstated pursuant to the previous sentence, TCI Sub shall pay to KPCB and to any Cable Partners which exercise the Cable Put, in addition to the Fair Market Value of the shares to be purchased, interest thereon at the prime rate, which shall accrue from the date of reinstatement of the KPCB Put Notice to the date immediately preceding the date of consummation of such sale, and shall be payable upon consummation of such sale. In the event TCI Sub elects to purchase (or to cause its designee to purchase) shares pursuant to the KPCB Put rather than making an IPO Election, the remaining Eligible Stockholders (other than any Stockholder exercising the Cable Put in connection with the applicable KPCB Put Notice) shall have the right (but not the obligation) to participate with TCI Sub (on a pro rata basis) in the purchase of shares pursuant to the KPCB Put; provided, however, that no -------- ------- exercise of such right of participation shall have the effect of extending any of the periods set forth in the preceding paragraph. CABLE PUT: In connection with the exercise of the TCI Call or the KPCB Put (other than any exercise of the Special KPCB Put), Comcast Sub and Cox Sub shall have the right, but not the obligation, (the "Cable Put") to require TCI Sub to purchase all, but not less than all, of the equity interests in @Home held by such Stockholder's Stockholder Group simultaneously with TCI Sub's purchase from the KPCB Constituents pursuant to the KPCB Put or the TCI Call in the manner, upon the same terms and conditions, and under the circumstances described opposite the captions "TCI Call" and "KPCB Put" (including TCI Sub's right to be released from its obligation to purchase by making the IPO Election) by giving 21 written notice to such effect to each other Stockholder during the ten day period following the giving of the KPCB Put Notice or the Call Notice. CONSIDERATION PAYABLE IN RESPECT OF TCI CALLOR KPCB PUT: The purchase price for any equity securities to be purchased by a Stockholder pursuant to the TCI Call or the KPCB Put (as well as the Cable Put) shall be payable, at the option of such Stockholder, in cash or in equity securities of (or securities convertible into or exercisable for), as applicable, TCI, in the case of TCI Sub, Comcast, in the case of Comcast Sub or CCI, in the case of Cox Sub, or, in any case, any subsidiary thereof; provided that securities -------- of the same class or series as the class or series of equity securities to be so issued, or the class or series of securities which such security is convertible into or exercisable for, are publicly traded on the Nasdaq National Market or a national securities exchange at the time of such delivery. Such equity securities shall be valued at the average market price thereof over the period of twenty trading days prior to their delivery. In the event a Stockholder elects to pay such purchase price by delivering equity securities, such Stockholder will cause the issuer of such publicly traded securities to grant to KPCB, for the benefit of the KPCB Constituents (and to any Cable Partner exercising the Cable Put in connection therewith and receiving such equity securities), customary rights with respect to the registration of such securities under the Securities Act. Such registration rights shall provide the KPCB Constituents (and any such Cable Partner exercising the Cable Put) with two demand registrations, one of which shall be exercisable such that such registration statement would be effective no later than the tenth day following the date of delivery and each of which shall be (i) at the expense of the applicable issuer and (ii) exercisable by KPCB (or by any such Cable Partner exercising the Cable Put) with respect to the registration of not less than 20% of the equity securities of such issuer issued to KPCB (or to any such Cable Partner exercising the Cable Put) in payment of such purchase price; provided, however, that in lieu of -------- ------- causing such shares to be registered pursuant to such demand registration, such Stockholder (or the applicable issuer) shall have the option to purchase all, but not less than all, of the shares for which registration is requested, at a price per share equal to the average market price of such shares over the twenty trading days prior to the delivery of the demand notice. The purchase price for such equity securities to be purchased by a designee of a Cable Parent shall be payable only in cash. In the event that the equity securities to be purchased by a Stockholder pursuant to the TCI Call, the KPCB Put or the Cable Put include options, warrants or other rights to acquire securities of @Home which require payment of additional consideration in respect of the exercise thereof, the purchase price of such options, warrants, or other rights shall equal the Fair Market Value thereof, less the additional consideration payable in respect of the exercise thereof. 22 TRANSFER RESTRICTIONS: Prior to the earliest to occur of (I) the tenth anniversary of the Execution Date, (II) the fifth anniversary of the termination of the Restricted Period as to any Cable Parent and (III) the sixth anniversary of the IPO, no Stockholder shall assign, transfer, sell, distribute, pledge, encumber or grant a security interest in (collectively, "Transfer") its shares of Convertible Preferred Stock or any shares or securities into which such Convertible Preferred Stock may be convertible, as applicable, except for (i) a Transfer to a third party or to members of one or more other Stockholders' Stockholder Groups, in either case, pursuant to the Right of First Offer procedure specified below, (ii) a Transfer of a Controlling Interest (as defined below), (iii) the Transfer of all, but not less than all, of such Stockholder's equity interests in @Home to such Stockholder's Parent or any of such Parent's Controlled Affiliates, and (iv) in the case of KPCB only, Transfers from a Stockholder to its general or limited partners (and if such general or limited partners are partnerships or limited partnerships, to the constituent general or limited partners thereof), which Transfers constitute interim or liquidating distributions to such partners; provided, -------- however, that in connection with any Transfers pursuant to clauses (iii) or (iv) above, (A) each transferee shall, as a condition to such Transfer, become a party to the Stockholders Agreement and (B) if such transferee ceases to be a member of such Stockholder's Stockholder Group, such transferee shall be required to transfer such shares to the original Stockholder or another member of the original Stockholder's Stockholder Group; provided, further, that -------- ------- notwithstanding anything to the contrary contained herein, (1) no KPCB Constituent which has received shares of Convertible Preferred Stock in a Transfer permitted pursuant to clause (iv) above shall make any further Transfer of such shares unless it shall have first converted all such shares to be so transferred into Series A Common Stock, and (2) following both the IPO and the conversion of such shares to Series A Common Stock, all restrictions upon Transfer set forth in this Term Sheet shall terminate and cease to be effective as to any KPCB Constituents which have received or receive shares in a Transfer permitted pursuant to clause (iv) above. For purposes of the Transfer Restrictions and Rights of First Offer set forth herein, a Change of Control of a Stockholder shall constitute a Transfer of such Stockholder's shares. For purposes of this Term Sheet, a "Change of Control of a Stockholder" shall be deemed to have occurred at such time as such Stockholder's Parent ceases to own, directly or indirectly, securities constituting a majority of the outstanding voting power and equity interests of such Stockholder, other than as a result of a Qualified Spin Off Transaction. A "Qualified Spin Off Transaction" shall mean any transaction or series of related transactions in which (i) a majority of the outstanding equity interests of the Stockholder are distributed, directly or indirectly, to the stockholders of the Parent, (ii) any Person or group of Persons which Controlled the Parent immediately prior to such transaction Control the Stockholder (or any successor entity) following such transaction and (iii) the Persons or group of Persons which Controlled the Parent immediately prior to such transaction hold immediately after such transaction, a direct or indirect proportionate 23 equity interest in such Stockholder of more than 50% of the proportionate equity interest that such Person or group of Persons held in the Parent on the record date for such distribution. DEEMED TRANSFER: In the event that at any time during the Restricted Period the number of Exclusive Homes Passed (as defined below) of a Cable Parent fails to equal or exceed such Cable Parent's Minimum Exclusive Homes Passed (as defined below), then such Cable Parent shall be deemed to have made a Transfer (the "Deemed Transfer") of a number of shares equal to the Proportionate Transferred Shares (as defined below). Upon the occurrence of a Deemed Transfer, the Cable Parent of such Stockholder shall be required to cause the Stockholder in question to offer to sell to the other Stockholders (on a pro rata basis) a number of shares owned by such Stockholder equal to the Proportionate Transferred Shares at a price per share, payable in cash, equal to the Fair Market Value thereof (which, if such offer occurs subsequent to the IPO, shall mean the average trading price of a share of Series A Common Stock over the twenty trading days ending on the day prior to the occurrence of such Deemed Transfer). If all such offered Proportionate Transferred Shares are not accepted by such other Stockholders, any remaining shares shall be offered pro rata to Stockholders electing to purchase in such initial offering. Such other Stockholders which elect to accept such offer shall purchase such Proportionate Transferred Shares in accordance with mutually acceptable procedures which are consistent with the provisions of this Term Sheet; provided, however, that any -------- ------- offered Proportionate Transferred Shares which are not purchased by the Stockholders pursuant to this paragraph shall thereafter cease to be Proportionate Transferred Shares for this and any subsequent Deemed Transfer. Following the first occurrence of circumstances giving rise to a Stockholder's obligation to offer the Proportionate Transferred Shares to the other Stockholders, successive offerings of the Proportionate Transferred Shares shall be made from time to time in accordance with the provisions of this section; provided, that any such offering of Proportionate Transferred Shares otherwise required hereby shall be deferred until the number of Proportionate Transferred Shares to be offered, together with any Proportionate Transferred Shares whose offering has been previously deferred, constitutes, in the aggregate, an amount equal to at least 1% of the number of Total Shares held by such Stockholder's Stockholder Group. For purposes of the foregoing: (i) "Exclusive Homes Passed" means as of the date of determination, the sum of (A) the number of Homes Passed (as defined below) in cable systems of such Cable Parent or its Controlled Affiliates which are subject to the Cable Parent Exclusivity Provisions (as defined below) or which are subject to any agreement requiring that the Operator (or any other entity of which such Operator is a Controlled Affiliate) thereof operate such cable system in accordance with such Cable Parent Exclusivity Provisions during the Restricted Period and (B) any Homes Passed of such Cable Parent or its Controlled Affiliate located in an Operator Territory (or portion thereof) which has been released from the Cable Parent Exclusivity Provisions or which is then entitled to be 24 released from such provisions pursuant to the terms of any LCO Agreement; (ii) "Minimum Exclusive Homes Passed" means a number of Homes Passed which is equal to 80% of the number of Homes Passed of the applicable Cable Parent and its Controlled Affiliates as of the date of this Term Sheet (the "Base Homes Passed"); and (iii) "Proportionate Transferred Shares" means a number of Total Shares which is equal to (A) the aggregate number of Total Shares held by such Stockholder and its Stockholder Group, multiplied by (B) a fraction, the numerator of which is the difference between the Base Homes Passed and the Exclusive Homes Passed, and the denominator of which is the Base Homes Passed, less (C) any Total Shares of such Stockholder which have previously been Proportionate Transferred Shares (whether such shares were purchased by another Stockholder or released from the provisions hereof). "Total Shares" shall mean the number of shares of Convertible Preferred Stock (or shares of Series A Common Stock or other securities issuable upon the conversion of such shares of Convertible Preferred Stock) together with all securities purchased pursuant to the exercise of such Stockholder's Stockholder Group's pre- emptive rights with respect thereto. CONVERSION RESTRICTIONS: Notwithstanding anything to the contrary contained herein, prior to any Transfer permitted hereunder, other than Transfers pursuant to clauses (ii) or (iii) set forth opposite the caption "Transfer Restrictions" above, the Stockholder transferring such securities shall be required to convert any shares of Convertible Preferred Stock or Series B Common Stock to be transferred into shares of Series A Common Stock prior to such Transfer. In addition, TCI Sub or its permitted transferee may convert shares of Series T Preferred Stock into Series B Common Stock at its option and without the consent of the other Stockholders, but neither TCI Sub nor any permitted transferee thereof shall convert shares of Series B Common Stock to Series A Common Stock without first offering to exchange (the "Series B Exchange") with the remaining Cable Partners (on a pro rata basis) such shares of Series B Common Stock proposed to be converted for an equal number of shares of Series A Common Stock. RIGHT OF FIRST OFFER: In addition to the right described below opposite the caption "Special Right of First Offer Procedure Following an IPO," following the earlier to occur of (i) the fifth anniversary of the Execution Date and (ii) the termination of the Restricted Period as to any Cable Parent, each Stockholder will be entitled to sell all but not less than all of its equity interest in @Home to an unaffiliated third party in a bona fide transaction, provided that such selling Stockholder shall first have offered to sell its equity interest in @Home to the other Stockholders (on a pro rata basis) for cash and upon other customary terms and conditions; provided, however, that the provisions of this -------- ------- section shall not apply in the case of a Transfer of a Controlling Interest. If all such offered securities are not accepted by the other Stockholders, any remaining securities shall be offered pro rata to Stockholders electing to purchase in such initial offering. If the other Stockholders elect to purchase such 25 securities, the selling Stockholder shall not convert such securities prior to the transfer thereof to the purchasing Stockholders. In the event that such other Stockholders do not elect to purchase all of such Stockholder's equity interest in @Home, then such Stockholder shall be entitled to sell all, and not less than all, of its equity interest in @Home to an unaffiliated third party upon terms no more beneficial to such third party than the terms upon which such securities were offered to the other Stockholders (such sale to be consummated within a period of 120 days following the conclusion of the right of first offer procedure, subject to extension (not to exceed an additional 60 days) in connection with the receipt of regulatory approvals which the purchaser is using commercially reasonable efforts to obtain). In the event that such securities are to be sold to an unaffiliated third party, the selling Stockholder will be required, prior to the consummation of any such sale, to convert all such securities to be sold into shares of Series A Common Stock prior to any such sale, subject, however, in the case of TCI Sub and its permitted transferees to its obligation to offer to make the Series B Exchange. An unaffiliated third party purchaser acquiring shares of Series A Common Stock in accordance with the foregoing procedures shall acquire such shares free and clear of any obligations, and shall have no rights under, the Stockholders Agreement. For purposes of this Right of First Offer, upon a Change of Control of a Stockholder, the Parent of such Stockholder shall be required to cause all of the equity interests in @Home held by such Stockholder to be offered to the other Stockholders (on a pro rata basis) prior to the consummation of the transaction resulting in such Change of Control at a price equal to the Fair Market Value of such shares, payable in cash and otherwise in the manner provided by the previous paragraph, mutatis mutandis. ------- -------- SPECIAL RIGHT OF FIRST OFFER PROCEDURE FOLLOWING AN IPO: In addition to the foregoing, following the first anniversary of the IPO, a Stockholder shall be entitled to sell all or a portion of its shares of Series A Common Stock pursuant to the exercise of its registration rights or an exemption from registration under the Securities Act provided it has satisfied its obligations under this section. In the event a Stockholder elects to exercise its demand registration right, it shall, simultaneously with the delivery of its notice to @Home requesting such registration, offer to sell such shares proposed to be registered to the other Stockholders on a pro rata basis, with any shares remaining after the first such offer to be offered to those Stockholders initially electing to so purchase. Similarly, any Stockholder electing to exercise its piggyback registration rights shall be deemed to have offered to sell those shares for which it has requested registration in accordance with the same procedure. The shares shall be deemed to be offered to the other Stockholders for a price in cash equal to (i) in the case of a demand registration by any Initiating Holder, the closing market price of a share of Series A Common Stock on the date prior to the date the Original 26 Initiating Holder elects to exercise such demand registration right, and (ii) in the case of a piggyback registration, the closing market price of a share of Series A Common Stock on the date prior to the date that the electing Stockholder elects to exercise its piggyback registration right, in each case, less the anticipated underwriting discounts or commissions or brokerage charges (such market price less the related costs of sale, the "Net Price"). If the other Stockholders fail to deliver written notice of acceptance of such offer to purchase all such offered shares within three business days following such offer, then the registration of such shares shall proceed. In the event a Stockholder seeks to sell shares of Series A Common Stock following the first anniversary of the IPO pursuant to Rule 144 or any similar exemption from registration for sales of shares into a public market (an "Exempt Offering"), then such selling Stockholder shall first offer to sell such shares to the other Stockholders (pro rata) at the Net Price (using the closing market price on the date prior to the date such request is made) per share, payable in cash, and, in order to exercise their rights hereunder, such Stockholders shall be required to deliver written notice of acceptance of such offer by 5:00 p.m. New York time on the business day following the delivery of the sale notice. Such Stockholders shall be entitled to accept such offer on a pro rata basis, with any accepting Stockholders being entitled to purchase their pro rata portion of any remaining shares. If the other Stockholders fail to accept such offer to purchase all such offered shares, then such right of first offer shall be deemed satisfied and such selling Stockholder may sell such offered shares in the Exempt Offering without regard to the actual sale price of such shares, provided that such sale takes place within five business days of the date the other Stockholders fail to accept such offer to purchase. RIGHTS OF TRANSFEREE: Any third party acquiring shares of Series A Common Stock from a Stockholder following the conclusion of the Right of First Offer procedure set forth above shall acquire such shares free and clear of any rights or obligations under the Stockholders Agreement. TAG-ALONG RIGHT: In the event that any Stockholder or group of Stockholders proposes to sell a Controlling Interest (as defined below) to an unaffiliated third party, such Stockholder(s) shall be required, as a condition to such sale, to offer to each other Stockholder that is an Exclusive Stockholder (as defined below) or an Eligible Stockholder (as defined below) the right to participate in such sale (on a pro rata basis) on the same terms and conditions as were offered by such unaffiliated third party including, without limitation, direct and indirect forms of consideration offered by such unaffiliated third party included in such terms and conditions. An "Exclusive Stockholder" shall mean a Cable Partner which is a Stockholder, whose Cable Parent has complied with at all times since the Execution Date, and remains in compliance with, the Cable Parent 27 Exclusivity Provisions (without regard to whether the Restricted Period has ended as to such Cable Partner). DRAG-ALONG RIGHT: Any group of Stockholders composed of TCI Sub and any other two Stockholders (so long as such Stockholders are Eligible Stockholders and neither of such Stockholders is a member of the same Stockholder Group as the other such Stockholder or as TCI Sub) which proposes to sell a Controlling Interest in @Home to any unaffiliated third party shall have the right to require that each remaining Stockholder participate in such sale to such third party (on a pro rata basis with respect to the percentage of its securities to be sold) upon terms and conditions no less favorable than those obtained by such selling Stockholders including, without limitation, direct and indirect consideration offered by such unaffiliated third party included in such terms and conditions. A "Controlling Interest" sale shall mean the sale, in one transaction or a series of related transactions by one or more Stockholders and the other members (if any) of their selling group, of equity securities of @Home which, together with any equity securities of @Home owned by the purchaser prior to such transaction or transactions, would result in such purchaser owning securities representing a majority of the outstanding voting power of @Home. PRE-EMPTIVE RIGHTS: In the event that @Home proposes to issue, offer or sell shares, or securities convertible into or exercisable or exchangeable for shares (other than (w) in connection with the exercise or conversion of outstanding securities of @Home pursuant to the terms thereof, (x) pursuant to a registered public offering by @Home, (y) in connection with an acquisition of any assets or business or a joint venture, business combination or acquisition, or (z) pursuant to incentive stock plans or agreements for employees, directors and consultants), of any class or series of its capital stock, @Home shall first offer to each Eligible Stockholder the right, on terms no less favorable to it than the terms on which such shares (or other securities) are to be issued or sold to third parties, to purchase such number of such shares (or other securities) as is sufficient to permit it to maintain its proportionate equity interest in @Home (on a fully diluted basis). DETERMINATION OF FAIR MARKET VALUE: The applicable fair market value of @Home shall be determined in accordance with the provisions set forth in the Stockholders Agreement, which will generally provide that the "Fair Market Value" of @Home will be the price at which a willing seller would sell and a willing buyer would buy a comparable business as an ongoing business in an arm's length transaction (as a sale of all of the stock or, if applicable, other equity interests), determined as if @Home were a public company and the Series A Common Stock were publicly traded and widely held at the time of such determination and without consideration of any restrictions, encumbrances or contractual rights relating to the equity securities 28 thereof and without consideration of the minority voting position in @Home represented by the Series A Common Stock, and assuming all of the outstanding stock, or if applicable, other equity interests are to be sold in a single transaction. The Fair Market Value will be determined by agreement of the selling Stockholders and the remaining Stockholders electing to purchase such shares, or if they cannot agree, then by a mutually acceptable investment banking firm (or if the parties cannot agree upon a single investment banking firm, such Fair Market Value will be determined by one investment banking firm selected by the proposed buyer(s) in such transaction and one investment banking firm selected by the proposed seller(s), and a third investment banking firm selected by the first two such investment banking firms). The purchase price of the equity interest to be purchased shall be an amount equal to the Fair Market Value of @Home multiplied by the percentage of the fully diluted equity (which shall include in-the-money options, warrants and other rights to acquire shares) of @Home represented by such equity interest. Fair Market Value will be determined as of the date of the notice which requires such determination, except in the event of the exercise of the Special KPCB Put, in which case the Fair Market Value shall be determined as of the date the matter in question is approved by the holders of the Convertible Preferred Stock. ELIGIBLE STOCKHOLDER: Except as otherwise provided herein, a Stockholder and its Stockholder Group will cease to have any rights under the Stockholders Agreement, but will continue to be subject to the obligations thereunder, at such time as such Stockholder and its Stockholder Group cease to own an Attributable Interest (as defined below) equal to (i) in the case of TCI Sub, 5,807,500 Equivalent Shares, (ii) in the case of KPCB, 1,734,708 Equivalent Shares, or (iii) in the case of Cox Sub or Comcast Sub, 1,819,617 Equivalent Shares. Any Stockholder which is part of a Stockholder Group which possesses rights under the Stockholders Agreement is herein referred to as an "Eligible Stockholder." "Attributable Interest" shall mean, with respect to any Stockholder Group, the sum of, without duplication, (i) a Stockholder's direct equity economic interest in equity securities of @Home and (ii) to the extent the Parent of such Stockholder Group owns equity securities of @Home indirectly, the sum of such Parent's indirect equity economic interest in such securities through one or more unbroken chains of subsidiaries, which interest shall be quantified in amount by a series of percentage multiplications commencing with the equity interest in shares of the subsidiary of such Parent which holds the equity securities of @Home directly and multiplying that by the next most proximate equity interest in the entity which is the parent entity of such subsidiary and multiplying in turn each succeeding equity interest in the order of their progression away from the entity directly holding equity securities of @Home by the result of the immediately preceding multiplication until the percentage interest of such Parent in the equity securities of @Home is determined. 29 PERMANENT CEO: The chief executive officer of @Home shall be selected by the Board of Directors. Each Stockholder will agree to vote in favor of the election of the chief executive officer to the Board of Directors of @Home. SERIES A DIRECTOR DESIGNEES: So long as a holder of Series A Preferred Stock is entitled to designate one or more Series A Directors, each Stockholder owning Series A Preferred Stock agrees that it shall vote all of its shares of Series A Preferred Stock in favor of the election (and if the Stockholder designating such Series A Director requests that such designee be removed as a director, then in favor of such removal and the election of a successor designated by such Stockholder) of the Series A Director designees of the Stockholders holding Series A Preferred Stock. UNANIMOUS AND SUPERMAJORITY PROVISIONS: Prior to the consummation of @Home's IPO, none of the actions set forth on Exhibit A hereto shall be taken unless such action shall have been approved by the requisite percentage of the Series K and Series A Directors as provided in Exhibit A. In the event that the taking of any such action also requires the approval of one or more classes or series of the capital stock of @Home, each Stockholder agrees to vote all shares of capital stock of @Home owned by such Stockholder's Stockholder Group in a manner consistent with the action approved by the Series K and Series A Directors. Notwithstanding the foregoing, the KPCB Affiliates shall be entitled to vote their shares of Series K Preferred Stock against any of the actions specified in paragraph (iii) of the matters set forth opposite the caption "Special Convertible Preferred Stock Voting Rights". Each Stockholder agrees that, until the consummation of @Home's IPO, in the event that there are less than two Series A Directors which are not elected by TCI or its Controlled Affiliates, it will cause all of its representatives on the Board of Directors not to vote for or execute a written consent approving the taking of any action by @Home with respect to any matter identified on Exhibit A as requiring a Supermajority Vote unless the taking of such action by @Home with respect to such matter is approved by all Series A Directors. BY-LAWS OF @HOME: In addition to setting forth the Unanimous and Supermajority Provisions discussed above, the By-Laws of @Home shall also contain such other provisions as may be reasonably necessary to protect each Stockholder's rights under the Stockholders Agreement, including but not limited to, requiring that the notice of meeting for any Board meeting at which any of the matters set forth on Exhibit A are to be considered shall so state and include a reasonably detailed description of the actions to be considered. TERMINATION OF CERTAIN PUT AND CALL RIGHTS: Unless sooner terminated in connection with the termination of the Stockholders Agreement, the TCI Call, the KPCB Put, and the Cable Put will terminate upon the consummation of @Home's IPO. 30 AMENDMENT TO STOCKHOLDERS AGREEMENT FOLLOWING @HOME IPO: The Stockholders Agreement shall be deemed amended upon the consummation of @Home's IPO to reflect the following agreements among the Stockholders: (i) Directors. In the event that all shares of --------- Convertible Preferred Stock are required to be converted into Common Stock in connection with the IPO, the Stockholders agree that: (a) each Stockholder shall be entitled to nominate for election a number of directors equal to the number of Preferred Stock Directors such Stockholder was entitled to designate immediately prior to the IPO, which directors shall be deemed Series A, Series K or Series T Directors, as the case may be, for all purposes under this Term Sheet and under such Stockholders Agreement, as so amended; (b) each Stockholder will vote all shares of Common Stock owned by such Stockholder in favor of the election of a number of designees of each other Stockholder equal to the number of Preferred Stock Directors which such Stockholder was entitled to designate immediately prior to the IPO, subject to reduction in such number of directors to which such Stockholder is entitled pursuant to subparagraph (c) below; and (c) the provisions of the Charter relating to the number of shares of Convertible Preferred Stock which such Stockholder would be required to continue to own in order to be entitled to designate a Preferred Stock Director shall be incorporated into the Stockholders Agreement so as to require that such Stockholder continue to own a number of shares of Common Stock equal to the number of shares of Common Stock issuable upon conversion of such shares of Convertible Preferred Stock in order to maintain its right to designate such number of directors and, with respect to any Stockholder entitled to elect more than one Preferred Stock Director, the reduction in the number of such Preferred Stock Directors as a result of dispositions of shares shall also be appropriately adjusted. (ii) Supermajority and Unanimous Vote; Required Vote to -------------------------------------------------- Approve Related Party Transactions. The provisions ---------------------------------- in the Bylaws relating to the requirement that certain actions be approved by a Supermajority or Unanimous Vote, and that approval of Related 31 Party Transactions requires a specified vote (the "Related Party Vote"), shall be terminated, and the Stockholders Agreement will be amended to provide that prior to the taking of any action which would have required a Supermajority or Unanimous Vote, or a Related Party Vote, the Stockholders will hold a meeting at which such action would be considered, with each Stockholder entitled to cast a number of votes equal to the number of Series A or Series K Directors (and, if applicable, Series T Directors) such Stockholder would have been entitled to designate based upon the number of shares of Series A, Series K or Series T Preferred Stock such Stockholder would have owned had such shares of Convertible Preferred Stock not been converted (such determination to be based upon the number of shares of Common Stock beneficially owned by it at such time), and if such action is approved by the number of votes which would otherwise be required for passage upon a Supermajority or Unanimous Vote (or, if applicable, a Related Party Vote) (assuming that such Stockholders were then entitled to designate Series A Directors or Series K Directors), then each Stockholder shall be required to use its reasonable best efforts to cause each of its designees on the Board of Directors to vote in accordance with such determination (subject to fiduciary duties) and, if necessary, to vote all of its shares in favor of such action, and if such action is not so approved, each Stockholder will use its reasonable best efforts to cause each of its designees on the Board of Directors to vote against the taking of such action by @Home (subject to fiduciary duties) and, if necessary, to vote all of its shares against such taking of such action by @Home. The Stockholders Agreement shall also be amended to provide that after such time as there are less than two Series A Directors which are not elected by TCI or its Controlled Affiliates, each Stockholder thereafter shall be required to use its reasonable best efforts to cause each of its designees on the Board of Directors to vote against any matter that would have required a Supermajority Vote or a Related Party Vote unless all Cable Partners shall have consented to the taking of such action with respect to such matter by @Home. For purposes of this paragraph, a Stockholder's "reasonable best efforts" shall include the replacement of any director designee which does not vote in accordance with such determination of the Stockholders. (iii) Voting Generally. Except as provided above with ---------------- respect to the election of directors and Supermajority and Unanimous Vote and Related Party Vote items, following the IPO, each Stockholder shall be entitled to vote all of its shares of Common Stock as it shall determine in its sole discretion. (iv) Other Amendments. The Stockholders Agreement will be ---------------- further amended to reflect any other provisions contained herein 32 which specifically reference amendments or changes to the Stockholders Agreement following the IPO. In all other respects, the Stockholder's Agreement will be deemed to be ratified and confirmed and will remain enforceable in accordance with its terms. In connection with @Home's IPO, the Stockholders agree to take such other steps as may be reasonably necessary to ensure that the Board includes at least two independent directors. TERMINATION OF STOCKHOLDERS AGREEMENT: The Stockholders Agreement will terminate on the twenty- fifth anniversary of the Execution Date. Notwithstanding the foregoing, immediately following consummation of the IPO, all restrictions on transfers by a KPCB Constituent shall be deemed terminated with respect to transfers by such Person following the IPO. VII. MASTER DISTRIBUTION AGREEMENT. ----------------------------- The Cable Parents and @Home agree to the following terms and conditions relating to the roll-out of the @Home Services in areas served by cable television systems owned by the Cable Parents and their respective Controlled Affiliates: DEFINITIONS: "Affiliated Operator" means an Operator which is a Cable Parent or a Controlled Affiliate of a Cable Parent. "@Home Facilities" means all equipment (including owned and leased facilities), hardware, software and technology to the Point of Demarcation at each Operator Facility; provided, -------- however, that any software or technology licensed or leased ------- by @Home to the Operator for use in the Operator Facilities or within the customer premises of such Operator shall remain the property of @Home. "@Home First Page" means the home page of the @Home Service as it appears to subscribers upon each start up of the @Home Service. "@Home Network" means the @Home Facilities and the applicable Operator Facilities. "@Home Specified Remedy" means the actual costs incurred by @Home in connection with the Network Upgrade, which costs are directly related to @Home's fulfillment of its obligation to an Affiliated Operator to make the @Home Services available to the Offered Homes Passed on the Projected Commencement Date in accordance with the LCO Agreement; provided, however, that @Home shall at all times -------- ------- be required to mitigate any such damages to the extent reasonably possible following notice to it by an Affiliated Operator or Cable Parent as to any 34 delay in making the Offered Homes Passed available by the Projected Commencement Date in accordance with the LCO Agreement and/or changes to the Master Roll-Out Schedule or applicable LCO Agreement (including changes of the Projected Commencement Date) subsequent to the date of adoption of the Master Roll-Out Schedule or the execution of the LCO Agreement, as applicable. "Cable Parent Access Block Right" means the right of a Cable Parent to block subscriber access to certain information providers, which are otherwise accessible over the @Home Service. "Cable Parent Exclusion Right" means the right of any Cable Parent to exclude from presentation in the National Area as presented to the subscribers of such Cable Parent's Affiliated Operators, promotional activities or presentations relating to content providers, as set forth in this Term Sheet. "Cable System Upgrade" means the construction and upgrade of the Operator Facilities required in order to distribute the @Home Services in accordance with the Specifications and Standards. A cable system which has been upgraded in accordance with the Specifications and Standards is hereinafter referred to as an "Upgraded System." ".Com Agreement" means any agreement between @Home (or any Cable Parent or a Controlled Affiliate acting in the capacity of a sales agent by and on behalf of @Home pursuant to a sales agency agreement to be entered into by such Cable Parent or Controlled Affiliate and @Home, which agreement will, among other things, specify the terms and conditions upon which such person may act as a sales agent for @Home, including specification of the terms upon which such person may enter into a .Com Agreement on @Home's behalf) and a content provider which provides (i) physical connectivity and access to the @Home Network and (ii) for compensation, if any, to @Home in accordance with its charges therefor. "Commencement Date" means the date upon which specified Offered Homes Passed are actually made available for distribution of the @Home Services. "Homes Passed" means the number of residential homes that can be connected to a cable distribution system (provided, that each residential unit in a multiple dwelling unit shall be counted as one Home Passed). "Internet Backbone" means a network which (x) can or does (i) assign IP addresses or manage IP address assignments for machines or networks to which it is connected, (ii) accept or deliver IP datagrams from machines or networks to which it is connected, or (iii) maintain IP packet traffic to other machines or networks; and (y) provides IP connectivity on a regional, national or international basis, provided, -------- however, that such a ------- 34 network which provides connectivity solely within a single metropolitan area shall not be deemed an Internet Backbone. "Internet Backbone Service" means a communications service provided over an Internet Backbone. "Internet Service" means a communications service provided over a network which can or does (i) assign IP addresses or manage IP address assignments for machines or networks to which it is connected, (ii) accept or deliver IP datagrams from machines or networks to which it is connected, or (iii) maintain IP packet traffic to other machines or networks. "IP" means the Internet Protocols as defined by the document titled RFC-791, by John Pastell of the University of ------- Southern California, dated 1981, or subsequent revisions thereof. "Local Area" shall mean that portion of the @Home First Page programmed by the Operator, which portion as to an Affiliated Operator, shall consist of one browser user interface button (the "BUI Button") and 50% of the area of the @Home First Page (or such lesser portion as such Affiliated Operator shall elect to program). "Local Content" means any content offering which is transported primarily on a Local Service. "Local Service" means a communications service connected, directly or indirectly, to the Operator's cable system by means that do not use or require transmission, directly or indirectly, over an Internet Backbone. "National Area" shall mean the @Home First Page (other than the Local Area) and the rest of the @Home web site, including, without limitation, any thematic pages. "Network Upgrade" means the construction or upgrade of the @Home Facilities necessary to connect to a specific Upgraded System at the Point of Demarcation in order to provide delivery of the @Home Services, including, but not limited to, the acquisition of hardware and software required in order to distribute the @Home Services to such Upgraded System, all in accordance with the Specifications and Standards. The portion of the @Home Network which has been so upgraded is referred to herein as the "Upgraded Network Portion." "Non-Pro Rata Roll-Out Budget" means any Roll-Out Budget which fails to provide an allocation of funds or other resources for the Network Upgrade reasonably necessary to provide for the roll-out during the applicable planning period (such planning period to be not greater than 12 months) (a "Planning Period") of the @Home Services to a proportionate number of the Qualifying Offered Homes Passed proposed by a Cable Parent in such Planning Period. The determination as to 35 whether such roll-out is proportionate to such Cable Parent shall be made based upon (i) the relationship that the Qualifying Offered Homes Passed by such Cable Parent bears to the Qualifying Offered Homes Passed of all such Cable Parents for such Planning Period and (ii) the relationship of the projected date for the completion of the applicable Network Upgrade to the date or dates projected by the applicable Cable Parent for the availability of the applicable Qualifying Offered Homes Passed during such Planning Period. "Offered Homes Passed" means, without duplication, the number of Homes Passed which a Cable Parent proposes to include in the Master Roll-Out Schedule for a given Planning Period. "Operator" means the corporation, partnership or other entity which owns and operates a cable television system that agrees to distribute the @Home Services in accordance with the terms of an LCO Agreement. "Operator Facilities" means the cable television system facilities in an Upgraded System owned or leased by an Operator from each Point of Demarcation to and including the cable modem at the location of each subscriber (whether or not such cable modem is owned by the Operator); provided, -------- that Operator Facilities shall not include the ownership of any software or other intellectual property rights licensed by @Home to such Operator (other than rights related to such license). "Performance Default" shall occur if, as of the indicated date, the High C Performance Ratio exceeds the product of (I) two times (II) the TCI Performance Ratio. The "High C Performance Ratio" shall be the greater of (i) the amount equal to (x) the aggregate number of Residential Subscribers to the @Home Service of Comcast Cable and its Controlled Affiliates, divided by (y) the aggregate number of Homes Passed by Qualifying Systems owned by Comcast Cable and its Controlled Affiliates and (ii) the amount equal to (a) the aggregate number of Residential Subscribers to the @Home Service of CCI and its Controlled Affiliates, divided by (b) the aggregate number of Homes Passed by Qualifying Systems owned by CCI and its Controlled Affiliates, in each such case as of the end of the calendar month preceding the date of determination (the Cable Partner with respect to whom such amount is greater as of the applicable date of determination being referred to herein as the "High C"). The TCI Performance Ratio shall be an amount equal to (A) the aggregate number of Residential Subscribers to the @Home Service of TCI and its Controlled Affiliates, divided by (B) the aggregate number of Homes Passed by Qualifying Systems owned by TCI and its Controlled Affiliates, in each case as of the end of the calendar month preceding the date of determination. "Point of Demarcation" means the interface between the Operator Facilities and the @Home Facilities which interface shall, unless otherwise agreed, be located on the @Home side of the cable data router at each applicable cable system head-end or regional head-end. 36 "Pro Rata Roll-Out Budget" means any Roll-Out Budget which is not a Non-Pro Rata Roll-Out Budget. "Projected Commencement Date" means the date specified by a Cable Parent as the date by which the Cable Parent proposes to have completed the specified portions of the applicable Cable System Upgrade and therefore make the related number of Offered Homes Passed available for distribution of the @Home Services for inclusion in the Master Roll-Out Schedule. "Promotional Agreement" means an agreement entered into between a content provider and @Home (individually and not through an agency relationship with a Cable Parent or any of its Controlled Affiliates) providing for the promotion of such content or content provider on the @Home Services (e.g., through button or hot link placement on the browsers, home pages or theme pages in the National Area, by the @Home video barker or otherwise) as @Home and such content provider shall agree, at which point such promotional activity shall become a part of the @Home Services, subject, however, to the Cable Parent Exclusion Right. "Qualifying Offered Homes Passed" means, without duplication, Offered Homes Passed located in Qualifying Systems. "Qualifying System" means one or more cable television systems owned by a Cable Parent or any of its Controlled Affiliates which are contiguous or clustered in an area and which system or systems represent in the aggregate not less than 50,000 Homes Passed, or such lesser number as the Board shall hereafter establish as being the minimum number of Homes Passed by such related cable systems as is necessary in order to justify, on an economic and resource allocation basis, a roll-out of the @Home Services solely to such cable systems. "Residential Subscriber" shall mean a residential subscriber to the @Home Service (i) whose account is 60 days or less past due, (ii) who has been receiving the @Home Service for at least 60 consecutive days, and (iii) who has paid for at least one month's @Home Service at standard rates. "Restricted Period" means the period of time commencing on the Execution Date and terminating upon the first to occur of (w) as to each Cable Parent, the termination of the Cable Parent Exclusivity Provisions as to such Cable Parent, (x) the sixth anniversary of the Execution Date and (y) the effectiveness of any change in law, statute or regulation or the entering of any adverse judicial decision or injunction or other action, in each case which materially impairs the enforceability (in accordance with their respective terms) of any of the Cable Parent Exclusivity Provisions, @Home Exclusivity Provisions, MFN Provisions or the Content Tag- Along Right. 37 "Roll-Out Budget" means that portion of @Home's budget for any applicable Planning Period relating to the costs and expenses of the Network Upgrade committed to by @Home in order to make the @Home Services available for distribution by the Projected Commencement Dates of those Qualifying Offered Homes Passed to which @Home is scheduled to commence distribution within such Planning Period. "Specifications and Standards" means, collectively, the specifications and standards for the Operator Facilities and the technical requirements for distribution of the @Home Services as set forth in Exhibit C attached hereto. "TCI Change of Control" shall be deemed to have occurred at such time as (i) any Person or a group of Persons acting in concert (including a natural person or any form of business entity but excluding Bob Magness, John C. Malone, their respective lineal descendants, any estate or trust for beneficiaries of any of the foregoing or any stockholder that was a member of the controlling group of stockholders of TCI as of the date of this Term Sheet, and any employee stock purchase or similar plan) owns an amount of stock representing in excess of 50% of the voting power of the outstanding common stock of TCI and, (ii) as a result of achieving such ownership, at any time prior to the first anniversary of achieving such ownership the Persons who were members of the Board of Directors of TCI as of the date of achieving such ownership, plus any additional directors not designated by such Persons or group of Persons described in clause (i) which are approved by a majority of the directors who were directors as of the date of achieving such ownership, no longer constitute a majority of the entire Board of Directors of TCI. CREATION OF MASTER ROLL-OUT SCHEDULE: In connection with the establishment of @Home's periodic budget and business plan and the periodic amendments to @Home's Business Plan contemplated hereby, each Cable Parent shall deliver to @Home a list of Offered Homes Passed (and the related cable systems) and Projected Commencement Dates for such Offered Homes Passed. Such list shall include, by separate designation, those Offered Homes Passed which are Qualifying Offered Homes Passed. Thereafter, the Cable Parents and @Home shall cooperate in good faith to establish a timetable and schedule in order to coordinate the Cable System Upgrade plans of each Cable Parent with the Network Upgrade plans of @Home so as to attempt to make the @Home Services available to the Offered Homes Passed on or before the applicable Projected Commencement Date in an efficient and economical manner; provided, however, that such -------- ------- timetable and schedule shall be determined (i) by giving priority to making the @Home Services available to those Offered Homes Passed which are Qualifying Offered Homes Passed, (ii) in accordance with the respective 38 Projected Commencement Dates relating to such Qualifying Offered Homes Passed and (iii) in proportion to the respective number of Qualifying Offered Homes Passed of such Cable Parents. The schedule determined and approved by the Board of @Home in accordance with the foregoing criteria shall be the "Master Roll-Out Schedule" (together with any modifications and adjustments within the applicable Planning Period agreed to by @Home and the applicable Cable Parent following the adoption of the Master Roll-Out Schedule), which shall include, for each Cable Partner, specific plans related to the cable systems to be upgraded, the number of Offered Homes Passed and Qualifying Offered Homes Passed therein and the Proposed Commencement Date therefor, together with such additional information as the parties may agree. Subject to any subsequent adjustments within the applicable Planning Period as may be agreed to by the applicable Cable Parent and @Home, the information set forth therein (x) as to a Cable Parent, shall constitute its representation to @Home that such Cable Parent reasonably believes that the applicable Offered Homes Passed will be made available for distribution of the @Home Services by the applicable Projected Commencement Dates, and (y) as to @Home, shall constitute @Home's agreement to use commercially reasonable efforts to cause the @Home Network to be upgraded in such a way as is necessary in order to cause the @Home Services to be available for distribution to such Qualifying Offered Homes Passed by the applicable Projected Commencement Dates. EXECUTION OF LOCAL CABLE OPERATOR DISTRIBUTION AGREEMENTS: Immediately following the establishment of the Master Roll- Out Schedule for each Planning Period, each Cable Parent shall cause those of its Affiliated Operators which own and operate cable systems serving the Offered Homes Passed which have a Projected Commencement Date during such Planning Period to enter into a Local Cable Operator Distribution Agreement ("LCO Agreement") with @Home. Each such LCO Agreement shall incorporate therein the relevant matters from the Master Roll-Out Schedule, including but not limited to, the number of Offered Homes Passed for such Operator Territory and the related Projected Commencement Dates. The terms and provisions of the standard form of LCO Agreement are set forth in Section VIII hereof. BUDGETS: @Home will use commercially reasonable efforts to cause the @Home Services to be available to all Qualifying Offered Homes Passed of the Cable Parents having Projected Commencement Dates within such Planning Period and will use commercially reasonable efforts to comply with the Master Roll-Out Schedule for such Planning Period. The adoption of a Non-Pro Rata fRoll-Out Budget shall require a Supermajority Vote. A Stockholder who has been treated in a non-pro rata manner with respect to a Roll Out Budget and has not voted in favor of such Non-Pro Rata Roll- Out Budget, shall be entitled to a written 39 explanation of such treatment from the Chief Executive Officer and each director who has voted in favor of such Non Pro Rata Roll-Out Budget. In the event a Cable Parent believes that any Roll-Out Budget approved by a majority of the Board of Directors constitutes a Non-Pro Rata Roll-Out Budget, such Cable Parent shall promptly notify the Board of Directors of @Home of such belie and present evidence of such claim. CABLE PARENT EXCLUSIVITY PROVISIONS: (a) During the Restricted Period, no Cable Parent will, and each Cable Parent will cause any Person that is or shall become a Controlled Affiliate not to, directly or indirectly (i) conduct or engage in any Restricted Business (as defined below), (ii) participate (whether by means of a management, advisory, operating, consulting or similar agreement or arrangement) in any Restricted Business, or (iii) have any record or beneficial equity interest, either as a principal, trustee, stockholder, partner, joint venturer or otherwise, in any Person which so conducts, engages in or participates in, any Restricted Business. Notwithstanding the foregoing, (x) this section shall not prevent the beneficial ownership for investment purposes of 10% or less of any class of equity securities of any such Person which is registered under the Exchange Act, (y) this section shall not prevent any Exempt Acquisition (as defined below), the operation of any Exempt Restricted Assets (as defined below) or any Non- Control Acquisition (as defined below) (in each case, subject to compliance with the other provisions hereof); and (z) the provisions of this section shall not be applicable to any Restricted Business in which a Cable Parent or its Controlled Affiliate engages or participates in, or in which such Cable Parent or Controlled Affiliate beneficially owns any equity interests, in each case as of the date hereof, provided that the level or scope that the level or scope of -------- such person's engagement, participation or equity ownership is not increased during the Restricted Period other than in accordance with instruments or agreements which are in effect on the date hereof, and provided, further, that the -------- applicable Cable Parent shall have set forth on Schedule Z details regarding such level and scope and other matters regarding such Cable Parent's engagement, participation or beneficial ownership thereof as of the date hereof. In addition, the provisions of this section shall not be applicable with respect to any Operator Territory to the extent that the Cable Parent Exclusivity Provisions have been terminated as to such Operator Territory or following the expiration of the Term (as defined below) of the applicable LCO Agreement; provided, however, that regardless -------- ------- of any release of an Operator under an LCO Agreement, the restrictions set forth in clause (iii) of the first sentence of this paragraph (a) shall continue to be applicable to such released Operator for the applicable Restricted Period. For purposes of this section the term (i) "Non-Control Acquisition" shall mean any acquisition of beneficial ownership of equity securities of any Person which are registered under the Exchange Act, if none of such Cable Parent or any Controlled Affiliate of such Cable Parent shall control or be under common control with such 40 Person, (ii) "control" when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract, management agreement or otherwise, and the terms "controlling" and "controlled" shall have meanings correlative to the foregoing, (iii) "Restricted Business" shall mean (A) the provision of a residential Internet Service over the cable television plant or equipment of any Cable Parent or its Controlled Affiliates at bit rate speeds greater than 128 kbps whose primary purpose is the provision to consumers of entertainment, information content, transactional services or e-mail, chat and news groups or substantially similar services (a "Consumer Purpose"), (B) the connection by any Cable Parent or any Controlled Affiliate thereof of its cable television plant and equipment directly or indirectly to any Internet Backbone for a Consumer Purpose at bit rate speeds greater than 128 kbps, or (C) the business of providing or engaging in any Internet Backbone Service, in each of the above cases of clauses (A), (B) and (C), (x) other than any such service to be offered by @Home and (y) within the United States of America. Notwithstanding the provisions of clauses (A) and (B) of subsection (iii) of the immediately preceding sentence, the term "Restricted Business" shall not include: (i) the creation or aggregation of content; (ii) the provision by any Cable Parent of telephony services (i.e., the provision of conventional telephone service, including POTS and ISDN) to its subscribers, provided that any use of or connection to any Internet Service in connection with the provision of such telephony services shall be (x) pursuant to a subscriber dial-up of an Internet Service provider and (y) at bit rate speeds of 128 kbps and below; (iii) the provision of services which are primarily work-related; (iv) the provision of any Internet Services not using a Cable Parent's cable television plant; (v) the provision of any Internet Service that is a Local Service; (vi) the provision of services which are primarily utilized to connect students to schools, colleges and universities; and (vii) the provision of Internet telephony, Internet video telephony, or Internet video conferencing. (b) In the event that, during the Restricted Period, any Cable Parent or any of its Controlled Affiliates desires to enter into or conduct any business in the United States which would not be a Restricted Business but which requires the utilization or other implementation of both the cable plant of such Cable Parent or its Controlled Affiliates and an Internet Backbone Service, then such Cable Parent or its Controlled Affiliate shall first offer to @Home the opportunity to provide such Internet Backbone Service in accordance with the provisions of this paragraph (b); provided that neither such Cable Parent nor its Controlled -------- Affiliate shall be obligated to make such offer if the business to be conducted or entered into would involve obtaining the Internet Backbone Service from a Person or group of Persons that is offering to provide such service or cause such service to be provided only in a package with other products or services that are integral to such other business. Notwithstanding the foregoing proviso, nothing herein contained shall be deemed to modify any Cable Parent's obligations pursuant to paragraph 41 (a) of this section. Such offer shall include a specification of the requirements for such Internet Backbone Service and a good faith estimate of the most favorable terms and conditions on which such Internet Backbone Service is available to such Cable Parent or its Controlled Affiliate from third parties. If @Home proposes to provide such Internet Backbone Service within a reasonable period of time following such offer, then, the Cable Parent or its Controlled Affiliate and @Home will negotiate in good faith the terms and conditions under which @Home would provide such Internet Backbone Service. Unless the terms and conditions upon which @Home is to provide such service following such negotiation are less favorable to such Cable Parent or its Controlled Affiliate than those available from a third party, then such Cable Parent or Controlled Affiliate shall select @Home to provide such Internet Backbone Service on such terms and conditions so offered. In consideration of the Cable Parent's agreement to provide @Home such opportunity, @Home agrees that it will not propose to provide such Internet Backbone Service unless it reasonably believes that it is able to provide the Internet Backbone Service so requested. (c) (i) In the event that at any time during the Restricted Period, a Cable Parent and/or any Person that is or shall become a Controlled Affiliate of such Cable Parent, shall acquire beneficial ownership of at least a majority of the then outstanding voting power of any Person, which such Person is not principally engaged in any Restricted Business, but nonetheless, directly or indirectly, owns, leases or otherwise operates facilities (the "Exempt Restricted Assets") which, if operated independently, would constitute a Restricted Business (an "Exempt Acquisition"), the provisions of this subsection (c) shall be applicable to such Exempt Restricted Assets. In the event that at any time during the Restricted Period, a Non-Control Acquisition shall occur and if at any time during the Restricted Period the beneficial ownership of equity securities giving rise thereto shall cease to qualify as a Non- Control Acquisition for any reason, a "Control Acquisition" shall have occurred and then the provisions of this subsection (c) shall be applicable to the assets and business of the Person which is the subject of such Control Acquisition which, if operated independently would constitute a Restricted Business (the "Control Restricted Assets," and together with any Exempt Restricted Assets, the "Restricted Assets"). (ii) In the event of any Exempt Acquisition or any Control Acquisition, the applicable Cable Parent will (and will cause any Person which is or shall become a Controlled Affiliate of such Cable Parent to) use reasonable commercial efforts to divest any Restricted Assets so 42 acquired unless such divestiture would be adverse to the tax structure of any Exempt Acquisition or Control Acquisition; provided, however, that such Cable Parent shall be required to use reasonable commercial efforts to divest such assets within a reasonable period following the time such divestiture would not be adverse to the tax structure of such acquisition, in which event all parties would reasonably cooperate to cause such divesture to be accomplished on a tax-efficient basis. Such reasonable commercial efforts shall be deemed to include an auction of such Restricted Assets. Notwithstanding the foregoing, such Cable Parent will not be required to dispose of such Restricted Assets if it would not realize the fair market value thereof (it being agreed that the fair market value thereof will be computed by reference to the overall acquisition price in the Exempt Acquisition or Control Acquisition). The provisions of clauses (iii), (iv) and (v) of this subsection (c) shall apply to any such disposition. (iii) Such Cable Parent shall not, and shall not permit any Person which is or shall become a Controlled Affiliate of such Cable Parent to, sell, transfer or otherwise dispose of all or any substantial portion of such Restricted Assets, unless prior to any such sale, transfer or other disposition, such Cable Parent shall have offered by written notice to sell to @Home (or its Controlled Affiliate) all or such portion of the Restricted Assets at a specified price (the "Offer Price") and shall have allowed such offer to remain open and available for acceptance for a period of at least 30 calendar days. In the event that such offer is not accepted within such 30-day period, such Cable Parent or such Controlled Affiliate shall be free to offer such Restricted Assets to any other Person, provided, however, -------- ------- that such Cable Parent shall not, and shall not permit any Person which is or shall become a Controlled Affiliate of such Cable Parent to, offer to sell, transfer or otherwise dispose of such Restricted Assets, and shall not sell, transfer or otherwise dispose of any of such Restricted Assets, for a price less than the Offer Price or on terms which are more favorable to such offeree than the terms on which such Restricted Assets were offered to @Home, in either case without first complying again with the provisions of this clause (iii). (iv) In the event that @Home shall accept any such offer described in clause (iii), the closing of the purchase of the Restricted Assets shall take place at the principal office of such Cable Parent on the later of (x) the fifth 43 business day after the expiration of the 30-day period after the giving of the notice set forth in clause (iii), and (y) the fifth business day after the receipt of any required governmental approval or the expiration or termination of any waiting period, including any waiting period pursuant to the HSR Act. (v) The foregoing provisions of this subsection (c) shall be applicable to successive transfers or other dispositions of all or any portion of the Restricted Assets by such Cable Parent or any Person which is or shall become a Controlled Affiliate of such Cable Parent. The provisions of this section are referred to in this Term Sheet as the "Cable Parent Exclusivity Provisions." The obligations under the foregoing Cable Parent Exclusivity Provisions shall automatically terminate as to the applicable Operator Territory upon the consummation of the sale or transfer of such cable television system by a Cable Parent or its Controlled Affiliate to a third party (other than a third party which is a Cable Parent or a Controlled Affiliate of a Cable Parent). COMCAST NON-EXCLUSIVITY PROVISIONS: At any time following the third anniversary of the Execution Date, Comcast Cable, by 90 days advance written notice to each other Stockholder and @Home, shall have the right ("Comcast Non-Exclusive Right") to terminate the Cable Parent Exclusivity Provisions as to itself and its Controlled Affiliates; provided, that in the event that Comcast Cable exercises the Comcast Non-Exclusive Right, @Home shall have the right (the "@Home Repurchase Right") to repurchase from the Comcast Stockholder Group the Subject Shares. The term "Subject Shares" shall mean, as of the time periods specified below, the number of shares of Series A Preferred Stock (or shares of Series A Common Stock or other securities issuable upon the conversion of such shares of Series A Preferred Stock) specified opposite such time periods, together with the amount of securities which is proportionate thereto and which were purchased pursuant to the exercise of the Comcast Stockholder Group's pre-emptive rights as set forth herein at the applicable Subject Shares Purchase Price upon the exercise of the Comcast Non- Exclusive Right during the periods indicated below:
NUMBER OF SHARES OF DATE OF EXERCISE OF COMCAST SERIES A PREFERRED NON-EXCLUSIVE RIGHT SUBJECT TO REPURCHASE ------------------------------------ --------------------- After third anniversary until and 400,326 including fourth anniversary After fourth anniversary until and 218,360 including fifth anniversary After fifth anniversary until and 72,786 including sixth anniversary
44 The "Subject Shares Purchase Price" shall mean: (i) $10 per share of Series A Preferred Stock, (ii) $1 per share of Series A Common Stock, (iii) the price at which any Subject Shares purchased pursuant to the Comcast Stockholder Group's exercise of its pre-emptive rights were originally purchased, (iv) with respect to any other securities issued pursuant to the exercise of rights, options or warrants, the exercise price thereof (together with any consideration paid in respect of the grant of such option, warrant or right) or (v) with respect to any securities received as a stock dividend, the par value thereof. The number of Subject Shares and the purchase price thereof shall be subject to appropriate adjustment from time to time in the event of any stock split, reverse split, stock dividend or other reclassification of the capital stock of @Home. The @Home Repurchase Right may only be exercised by @Home in the event that Comcast Cable exercises the Comcast Non- Exclusive Right; any other termination of the Cable Parent Exclusivity Provisions shall not entitle @Home to exercise the @Home Repurchase Right and such other termination of the Cable Parent Exclusivity Provisions shall automatically terminate the @Home Repurchase Right as to all Subject Shares held by the Comcast Stockholder Group (except to the extent that the @Home Repurchase Right has been previously exercised or is then exercisable as to any of such Subject Shares in connection with the exercise of the Comcast Non- Exclusive Right). In the event that Comcast elects to irrevocably terminate its right to exercise the Comcast Non- Exclusive Right at any time prior to such time as the @Home Repurchase Right has become exercisable as a result of the exercise of the Comcast Non-Exclusive Right, it shall deliver an instrument to such effect to @Home whereupon the @Home Repurchase Right and Comcast's right to exercise the Comcast Non-Exclusive Right shall terminate. Notwithstanding any other provision contained in this Term Sheet or in the Stockholders Agreement, until the earlier to occur of (i) such time as none of the Subject Shares would be subject to the @Home Repurchase Right in the event of an exercise of the Comcast Non-Exclusive Right or (ii) such time as Comcast irrevocably terminates its right to exercise the Comcast Non-Exclusive Right pursuant to the previous sentence, neither Comcast Sub nor any member of the Comcast Stockholder Group shall be entitled to Transfer (other than to another member of the Comcast Stockholder Group that agrees to be bound by the provisions of this section and the Stockholders Agreement) any Subject Shares that would be subject to the @Home Repurchase Right were Comcast Cable to exercise the Comcast Non-Exclusive Right. Nothing herein shall limit the right of any member of the Comcast Stockholder Group to sell shares of Series A Preferred Stock or Series A Common Stock pursuant to the provisions under the caption "Tag Along Right" without regard to whether such shares are Subject Shares, 45 and the @Home Repurchase Right shall terminate as to any such shares so sold; provided, that the shares sold pursuant to such tag-along right shall be deemed to be vested shares that are not Subject Shares to the extent practicable. After such a sale, the @Home Repurchase Right shall continue as to any Subject Shares not so sold and the Comcast Non-Exclusive Right shall remain in effect without modification. @HOME EXCLUSIVITY PROVISIONS: Until the later to occur of (i) such time as the applicable Cable Partner ceases to be an Exclusive Stockholder (except as a result of the event specified in clause (ii) below) or (ii) in the event the applicable Cable Partner ceases to be an Exclusive Stockholder as a direct result of a termination of the Cable Parent Exclusivity Provisions in connection with a TCI Performance Default, the sixth anniversary of the Execution Date, but subject to the requirements of applicable law and the other terms and conditions of the Agreement, @Home agrees that neither it nor its Controlled Affiliates will offer or provide Internet Services (or any comparable services with comparable capabilities) at bit rate speeds of greater than 128 kbps to residences in the geographic area served by the cable systems owned by such Cable Parent and its Controlled Affiliates other than through the use of the Operator Facilities of such Cable Parent and its Controlled Affiliates pursuant to, or as otherwise contemplated by, this Term Sheet (the "@Home Exclusivity Provisions"). In addition, the provisions of this section shall not be applicable with respect to any Operator Territory to the extent that the @Home Exclusivity Provisions have been terminated as to such Operator Territory or following the expiration of the Term (as defined below) of the applicable LCO Agreement. NON-PERFORMANCE OF TCI: In the event that TCI shall be in Performance Default on the third anniversary of the Execution Date (the "First Determination Date"), then the applicable Triggering Cable Parent (as defined below), if any, shall, by written notice to @Home, TCI and each other Cable Parent, delivered within 60 days of the First Determination Date, be entitled to terminate the Cable Parent Exclusivity Provisions as to all Cable Parents and their Controlled Affiliates, such termination to be effective as of the date of such notice. In the event that there is a Performance Default on the First Determination Date but the applicable Triggering Cable Parent does not elect to terminate the Cable Parent Exclusivity Provisions within the period specified above, then following each succeeding anniversary thereafter during the Restricted Period (each such anniversary, a "Subsequent Determination Date") upon which TCI shall be in Performance Default, the applicable Triggering Cable Parent, if an Eligible Cable Parent, shall have the right, exercisable by written notice to @Home, TCI and each other Cable Parent, delivered within 60 days of such Subsequent Determination Date to terminate the Cable Parent Exclusivity Provisions. The term "Triggering Cable Parent" shall mean the High C as of the applicable date of determination or, if one of Comcast Cable or CCI (a) is no longer an Eligible Cable Parent or (b) is 46 acquired by TCI, the remaining Eligible Cable Parent or Cable Parent not acquired by TCI, as the case may be, between Comcast Cable and CCI. An "Eligible Cable Parent" shall mean any Cable Parent which is a member of a Stockholder Group which includes an Eligible Stockholder. MOST FAVORED NATIONS PROVISIONS: Each Cable Parent (as defined below) and its Controlled Affiliates will be entitled to "most favored nation" ("MFN") terms and conditions of carriage with respect to the distribution (which shall not include the distribution or promotion of a content provider's services) of the @Home Services and with respect to the terms and conditions of the Trademark License Agreement (as defined below) and any Ancillary Services Arrangements (as defined below), in each case, including all direct and indirect benefits as a result of a transaction with @Home that are no less favorable than those offered to any other Operator, individually or collectively from time to time. Such MFN status shall require identical treatment of all Cable Parents and their respective Controlled Affiliates (without regard to the size (through volume discounts or otherwise) or identity of such Cable Parent or its ownership of @Home securities) (x) with respect to the terms of the distribution arrangements (including the Trademark License Agreement and any Ancillary Services Arrangements) (other than the duration of any distribution agreement arising from the provisions of the Term of the LCO Agreement) granted to any Cable Parent and its Controlled Affiliates and (y) with respect to all of the terms of such distribution arrangements provided to third party providers which are not members of a Stockholder Group (an "Unaffiliated Third Party"), other than with respect to (i) whether @Home requires that an unaffiliated Operator agree to provisions similar to the Cable Parent Exclusivity Provisions as to the applicable Operator Territory, (ii) the level of commitment related to the Cable System Upgrade and the remedies of @Home in the event of any failure to upgrade such systems by the Projected Commencement Date, (iii) percentage splits granted to Unaffiliated Third Parties in the event the Board of @Home, by Supermajority Vote, elects to increase the percentage split to @Home (in which case the percentage split to @Home would be so increased with respect to all future periods with respect to all Operators which are Cable Parents or Controlled Affiliates of a Cable Parent with respect to any existing LCO Agreement (regardless of the existing provisions thereof) or any LCO Agreement entered into in the future, while the LCO Agreements of Unaffiliated Third Parties in effect at the time of such change would not be so affected), and (iv) the duration of any distribution agreement. In addition, each Cable Parent and its Controlled Affiliates shall be entitled to MFN status with respect to the terms of any sales agency agreement pursuant to which it is authorized to enter into .Com Agreements on behalf of @Home. CHANGE OF CONTROL OF TCI: Following the occurrence of a TCI Change of Control, either CCI or Comcast Cable, so long as it is an Exclusive Stockholder, shall be 47 entitled to elect to terminate the Restricted Period as to all Cable Parents and their Controlled Affiliates by giving written notice to such effect to each other Stockholder and @Home, in which case no Cable Parent or its Controlled Affiliate shall have any remaining obligations under the Cable Parent Exclusivity Provisions. CHANGES IN MASTER ROLL-OUT SCHEDULE: If a Cable Parent determines that it or one of its Controlled Affiliates will not be able to fulfill its commitment with respect to the commencement of the availability of the @Home Services as of the Projected Commencement Date, it will immediately notify @Home, and, if such notice is given at least 180 days prior to the applicable Projected Commencement Date, the Cable Parent may substitute one or more other cable systems having substantially the same number of Homes Passed as were required to be delivered by such date for commencement of the @Home Services on that Projected Commencement Date, subject to the approval of @Home, which will not be unreasonably withheld so long as the substitute systems have similar characteristics in terms of number of Homes Passed and will not cause a material increase in @Home's expenses or have a material adverse impact on @Home's ability to meet its other commitments under the Master Roll-Out Schedule. For purposes of the foregoing sentence, the substitution of any cable systems that are not Qualifying Systems will be deemed to have such an impact unless such cable systems are located in an area included in the current Master Roll-Out Schedule or in which @Home has already commenced offering the @Home Services. Any changes to the Master Roll-Out Schedule pursuant to this paragraph shall be incorporated in the affected LCO Agreements, and the applicable Cable Parent shall cause the Operator of any such substituted cable system to enter into an LCO Agreement. LOCAL CONTENT PROGRAMMING: Each Operator, as to its cable system, or each Cable Parent, as to one, several or all cable systems owned by it and its Controlled Affiliates, shall be entitled to create, author, promote and otherwise engage in the business related to Local Content offerings. Within the @Home First Page, each Affiliated Operator shall be allocated the Local Area. Each Affiliated Operator or Cable Parent, as the case may be, shall be entitled to program its Local Area as it shall determine in its sole discretion, subject only to the Style Guidelines (as defined below). @HOME PROGRAMMING: @Home shall be entitled to create, author and promote such content provider offerings as it shall determine, and shall have the right to program the National Area in its sole discretion, subject to the Cable Parent Exclusion Right and the Cable Parent Access Blocking Right. @Home and each Cable Parent will use commercially reasonable efforts to cooperate with each other in the creation of the @Home First Page (including the coordination of the programming of the National Area and each Local Area) so as to optimize the consumer appeal of the @Home web site. 48 EXECUTION OF PROMOTIONAL AGREEMENTS AND EXERCISE OF CABLE PARENT EXCLUSION RIGHT: Each Promotional Agreement shall provide that such content provider's right to presentation on the National Area shall be subject to the exercise of the Cable Parent's Exclusion Right. Upon execution of a Promotional Agreement, @Home shall provide written notice thereof by fax or e-mail to a designated contact person at each Cable Parent. Such written notice shall include (i) the identity of the content provider, (ii) a description outlining in reasonable detail the content to be offered by such provider, (iii) the position in the National Area to be assigned to such content provider, and (iv) an outline of the other terms and conditions of such Promotional Agreement. Each Cable Parent will thereafter have the right to exercise its Cable Parent Exclusion Right with respect to Specified Promotions as to some or all of its Affiliated Operators distributing the @Home Service. In order to exercise such right, the Cable Parent shall deliver reasonable notice of its exercise of the Cable Parent Exclusion Right to @Home which will become effective within a reasonable period of time after such notice. An exercise of the Cable Parent Exclusion Right shall result in (x) the exclusion from the National Area of any or all Specified Promotions (as defined below) with respect to a Specified Brand (as designated by the applicable Cable Parent) and (y) the replacement of such promotions (e.g., replacement of the excluded "button") by other promotions of the same type (e.g., replacement of an excluded button with another button) as selected by @Home. The term "Specified Promotions" shall mean any or all promotions in the National Area relating to the Specified Brand of a content provider (as designated by the applicable Cable Parent). A "Content Provider Group" shall mean a content provider that has entered into one or more Promotional Agreements for the purpose of placing Specified Promotions in the National Area with respect to a number of Specified Brands. The term "Specified Brand" means one or more substantially similar brand names utilized by a content provider in connection with the promotion of its business identified by such brand name(s). By way of example, Turner Broadcasting System, Inc. ("TBS") and its subsidiaries would be considered a Content Provider Group; WTBS and TNT would be considered to be two Specified Brands because they represent distinct brand names (albeit in the same line of business). A Cable Parent electing to exercise its Cable Parent Exclusion Right with respect to WTBS and TNT would be deemed to have excluded two Specified Promotions to the extent that it elected to exclude both WTBS and TNT. Similarly, a Cable Parent electing to exercise its Cable Parent Exclusion Right with respect to a content provider which elected to use only one Specified Brand to promote several related sites using substantially similar brand names (for example, QVC Diamonds, QVC Clothes, QVC 49 Electronics, etc.) would be deemed to have exercised its exclusion right with respect to one Specified Brand. A Cable Parent shall be entitled to exercise its Cable Parent Exclusion Right from time to time in its sole discretion. In the event that the number of Specified Brands excluded by a Cable Parent exceeds its Exclusion Limit, then the Cable Parent Premium Service Revenue Split shall be subject to adjustment as provided below. The exercise of the Cable Parent Exclusion Right with respect to a Specified Brand will be counted toward the Exclusion Limit regardless of whether such Cable Parent exercises the exclusion right with respect to some or all of its Affiliated Operators or with respect to some or all of the Specified Promotions as to such Specified Brand. For purposes of the determination of whether or not a Cable Parent has exceeded its Exclusion Limit, there shall not be included as Specified Brands (i) a single Competitor Exclusion (as defined below) or (ii) any exclusions which are Discretionary Exclusions (as defined below). A "Competitor Exclusion" shall mean the exclusion of the Specified Promotion(s) as to a single Specified Brand provider or service which is a competitor to a content provider or service which is an affiliate of such Cable Parent; provided that, if Comcast Cable elects to use its -------- ---- Competitor Exclusion with respect to Specified Promotions of the Home Shopping Network, Inc. ("HSN"), such exclusion shall be deemed to apply to all electronic retailing businesses of HSN without regard to brand name. A "Discretionary Exclusion" shall mean an exclusion based upon (i) such Cable Parent's good faith determination that the content to be offered constitutes pornographic or other immoral or overly violent subject matter, (ii) such Cable Parent's reasonable determination that the content to be offered may adversely impact an Affiliated Operator's franchise to deliver cable television service and/or the @Home Service or (iii) the fact that such promotions relate to video clips which exceed ten minutes in duration. The "Exclusion Limit" of each Cable Parent shall be three Specified Brands, which Specified Brands may be changed by the applicable Cable Parent at any time upon reasonable advance notice to @Home. In the event a Cable Parent exceeds its Exclusion Limit, then during the monthly billing period in which such Cable Parent has exceeded its Exclusion Limit the Premium Service Revenue Split (as defined below) between the Operators that are Controlled Affiliates of such Cable Parent and @Home shall be adjusted to (x) decrease the Premium Service Revenue Split to such Operators and (y) increase the Premium Service Revenue Split to @Home from such Affiliated Operators in accordance with the following schedule: 50
The Highest Number by Operator's @Home's which such Cable Parent's Adjusted Adjusted Exclusion of Specified Premium Premium Brands Exceeds its Service Service Exclusion Limit in a Revenue Revenue billing month Split Split ------------------------- ----------- -------- 1 56% 44% 2 51% 49% 3 45% 55% 4 38% 62% 5 29% 71% 6 17% 83% 7 6% 94% 8+ 0% 100%
In connection with any change to the Premium Service Revenue Splits which has been approved in accordance with the provisions of this Term Sheet, the above revenue splits shall be correspondingly adjusted. EXECUTION OF .COM AGREEMENTS AND EXERCISE OF CABLE PARENT ACCESS BLOCKING RIGHT: Each .Com Agreement and Promotional Agreement shall provide that the content provider's right to connectivity over the @Home Service to subscribers of any Affiliated Operators shall be subject to the exercise of the Cable Parent Access Blocking Right. Upon execution of a .Com Agreement, @Home or any Cable Parent or Controlled Affiliate acting as a sales agent on behalf of @Home, shall provide written notice thereof by fax or e-mail to a designated contact person at @Home and each other Cable Parent, as applicable. Such written notice shall include (i) the identity of the content provider and (ii) a description outlining in reasonable detail the content to be offered by such provider. Upon exercise of its Cable Parent Access Blocking Right, such Cable Parent shall deliver reasonable notice of its exercise of such right to @Home and the other Cable Parents which will become effective within a reasonable period of time after such notice. Subject to the other terms of this section, such Cable Parent shall thereafter have the right to block the access by its subscribers of the @Home Service to (i) any content offering with respect to which such Cable Parent would have been entitled to exercise its Cable Parent Exclusion Right as a Discretionary Exclusion (a "Discretionary Access Exclusion") and (ii) any content provider which is attempting to provide video clips exceeding the duration limit set forth in the Specifications and Standards. The exercise of the Cable Parent Access Blocking Right shall be the sole responsibility of the Cable Parent so exercising it (including, but not limited to, the determination of the technological means to block such access), and each Cable Parent agrees that its exercise of such blocking right will be done in such a way that it does not otherwise interfere in 51 any significant way with the delivery and presentation of the @Home Service. Each Cable Parent agrees to indemnify and hold @Home and each other Stockholder harmless from all damages, costs and expenses (including reasonable legal fees) incurred by @Home or each other Stockholder as a result of any claims, actions, suits or other proceedings (including investigations related thereto) of any third party or governmental or regulatory entity (other than a party to a .Com Agreement or a Promotional Agreement) arising out of or relating to the exercise by such Cable Parent of the Cable Parent Access Blocking Right with respect to a Discretionary Access Exclusion. @Home shall assist the Cable Parent in the exercise of such Cable Parent Access Blocking Right so long as @Home is not required to expend substantial effort in respect thereof. @Home acknowledges and agrees that each .Com Agreement and each Promotional Agreement entered into following the Execution Date will contain a provision in which each content provider acknowledges and agrees to the existence and exercise of such Cable Parent Access Blocking Right and Cable Parent Exclusion Right, and agrees that it will not sue or threaten to sue, or seek or attempt to cause any person to commence or threaten any governmental or regulatory action or investigation against @Home or any Cable Parent as a result of or in connection with the exercise of the Cable Parent Access Blocking Right or Cable Parent Exclusion Right. CONTENT TAG- ALONG RIGHT: Each Parent agrees that neither it nor any of its Controlled Affiliates will obtain any Additional Benefit (as defined below) unless it has complied with the provisions of this section. In the event that any Parent or its Controlled Affiliate seeks to enter into a transaction with a third party in which such Parent or Controlled Affiliate may or will receive any Additional Benefit as a condition of or as a result of such third party's entering into a transaction with @Home, then such Parent or Controlled Affiliate will provide written notice to each Cable Parent thereof describing such transaction and the Additional Benefit to be received by such Parent or Controlled Affiliate. Such written notice shall also constitute an offer by such Parent (the "Offeror") to each Cable Parent (each, an "Offeree") to participate in such transaction upon the same terms and conditions as the Offeror (which, in the event any such Additional Benefit is of a limited amount or type, shall mean the right to participate in such transaction pro rata based upon each such accepting Offeree's ownership of equity securities of @Home and otherwise upon the same terms and conditions as such Offeror), which offer may be accepted by such Offeree by written notice to such Offeror, each other Offeree and @Home delivered to such persons not later than the twentieth business day following the date of receipt of such notice; provided that the Offeror may require an earlier response (but not less than five business days following the receipt of such notice) by so 52 specifying in the written notice to the extent such earlier response is reasonably necessary. In the event that it is not reasonably practicable to offer participation in the Additional Benefit as described above, the Offeror shall promptly make payments in cash to the Offerees so that the Offeror and Offeree share in the value of the Additional Benefit pro rata based solely upon their respective ownership of equity securities of @Home. In the event that the consideration to be paid (or Additional Benefit to be received) by any Offeror in connection with such transaction is to consist of assets, securities or other property or services, then the price at which any Offeree may accept such offer shall be or, if applicable, the amount of cash payments by the Offeror, the fair market value of such assets, securities, property or services, which if the parties are unable to agree, shall be the appraised value thereof as determined by a mutually agreed upon investment banking firm. The term "Additional Benefit" shall mean (i) securities or options, warrants or rights to acquire securities, (ii) assets or (iii) other property or benefits of any type, in each case to be received by a Parent or a Controlled Affiliate thereof in a transaction between such Parent or Controlled Affiliate and such third party which transaction is conditioned upon or otherwise contingent upon such third party's entering into such transaction with @Home and is upon terms and conditions which are less favorable to @Home than @Home's regular charges or other terms for such services, or is otherwise on terms which are not arm's-length. The exercise of any rights by a Cable Parent under this section shall be in addition to any rights that a Cable Parent may have with respect to the applicable transaction under the provisions opposite the caption "Most Favored Nations Provisions." PARENT UNDERTAKING: Each of TCI, as to TCIC and TCI Services, CEI, as to CCI, and Comcast, as to Comcast Cable, hereby undertakes that, in the event that such Parent entity acquires control of any cable television systems which are not Controlled Affiliates of the applicable Cable Parent, such Parent will cause such cable television systems to comply with the terms of this agreement, including the Cable Parent Exclusivity Provisions, as if such cable television systems were parties hereto; provided, that such Parent shall not be obligated to terminate (other than in accordance with the terms and provisions of the applicable agreement) the distribution of any residential Internet Services distributed by such cable system prior to such time as the applicable agreement expires or otherwise may be terminated by such Parent without the incurrence of any material liability or additional obligations thereunder. @Home hereby undertakes that, while the @Home Exclusivity Provisions are in effect, in the event it provides Internet Services (or any comparable services with comparable capabilities) at bit rate speeds 53 greater than 128 kbps through arrangements with an alternate distribution provider (an "Alternative Arrangement") to residences in a geographic area in which a Cable Parent or its Controlled Affiliate subsequently acquires a cable television system that is capable of distributing such services in the geographic area, @Home will use commercially reasonable efforts (i) to offer such services through such cable television system when such system is upgraded in accordance with the Specifications and Standards and scheduled for commencement of service on the Master Roll-Out Schedule and (ii) to terminate @Home's obligations under such Alternative Arrangements in such geographic area; provided, that @Home shall not be obligated to terminate (other than in accordance with the terms and provisions of the applicable agreement) the distribution of such services under such Alternative Arrangements in such geographic area prior to such time as the applicable agreement expires or otherwise may be terminated by @Home (i) without the incurrence of any material liability or additional obligations thereunder and (ii) without any material adverse impact on the economics to @Home of providing such services to residences in the geographic area. OTHER SERVICES: Any broadband local transport services provided by Operator to @Home as part of the @Home Facilities, including connectivity to content providers, will be the subject of a separate agreement between the parties, the terms and provisions of which (including the compensation payable thereunder to Operator) shall be mutually agreeable to the parties. In addition, to the extent that new and different devices to connect to the Internet are developed in the future, in the event that any Cable Parent so requests, @Home and such Cable Partner agree to enter into good faith negotiations regarding modifications to the basic terms of the distribution of the @Home Service as well as modifications to the @Home Service itself in order to provide connectivity through such devices upon terms which further the economic benefits to both @Home and such Cable Partner. TERM: The Master Distribution Agreement shall terminate as to each Cable Parent at the end of the Term of the last to terminate of the LCO Agreements in effect between @Home and such Cable Parent or its Controlled Affiliates entered into pursuant to the Master Distribution Agreement (including any extension or renewal thereof). 54 VIII. TERMS OF LCO AGREEMENTS. ----------------------- This Section VIII of the Term Sheet is intended to set forth the terms and conditions of the LCO Agreements to be entered into between @Home and the Affiliated Operators of the Cable Parents pursuant to which such Affiliated Operators would distribute the @Home Service. These provisions are also intended to serve as the basis upon which @Home would seek to negotiate LCO Agreements with Operators which are not Controlled Affiliates of any Cable Parent. With respect to LCO Agreements between @Home and such Affiliated Operators, the following provisions are intended to provide a summary of the terms and conditions of such LCO Agreements. With respect to LCO Agreements to be entered into with Operators which are not Controlled Affiliates of any Cable Parent, however, such terms and conditions are intended to form a basis upon which @Home may negotiate such agreements, and therefore, subject to the MFN provisions in the Master Distribution Agreement, @Home may vary such terms and conditions granted to such Operators from the terms and conditions set forth below. A. ROLL-OUT OF THE @HOME SERVICES OPERATOR TERRITORY: The LCO Agreement will provide that the @Home Services initially will be made available as and to the extent provided in the Master Roll-Out Schedule (the relevant portions of which shall be incorporated into the LCO Agreement (referred to below as the "Roll-Out Schedule")) in that portion of the geographic area covered by the LCO Agreement where Operator is providing cable television service through Operator's distribution facilities (the "Operator Territory"). @HOME ROLL OUT COMMITMENT: @Home will use commercially reasonable efforts to complete the Network Upgrade in the Operator Territory containing the Offered Homes Passed set forth in the LCO Agreement on or before the Projected Commencement Date in accordance with the applicable provisions of the Roll-Out Schedule (and thereafter as may be required to make available to Operator the @Home Services (including at any additional applicable Point of Demarcation) in connection with the commencement of the provision of the @Home Services to subscribers in additional portion(s) of the Operator Territory), in each case subject to the Operator having completed the Cable System Upgrade. Subject to the requirements of the Roll-Out Schedule, @Home and Operator shall negotiate in good faith and use commercially reasonable efforts to coordinate the timing of the completion of the Cable System Upgrade and the Network Upgrade in each applicable portion of the Operator Territory. FAILURE BY @HOME TO ROLL-OUT: In the event that @Home does not complete the Network Upgrade in the Operator Territory on or prior to the date which is 120 days after the Projected Commencement Date, then, Operator shall have the right to terminate the Cable Parent Exclusivity Provisions as to the Operator Territory. 55 In the event that @Home does not complete the Network Upgrade in the Operator Territory on or prior to the date which is 180 days after the Projected Commencement Date, then, Operator shall have the right to either (x) continue the election made above and, at such time as the @Home Services become available for distribution in such area, distribute the @Home Services in accordance with the terms of the LCO Agreement (other than the Cable Parent Exclusivity Provisions as to the Operator Territory) or (y) terminate the LCO Agreement; provided however, that if -------- ------- Operator terminates the LCO Agreement and @Home completes the Network Upgrade in the Operator Territory within the otherwise applicable Term of such LCO Agreement had such LCO Agreement not been terminated, Operator may then elect to reinstate the LCO Agreement (without, however, giving effect to the Cable Parent Exclusivity Provisions as to the Operator Territory). In the event that @Home fails to complete the Network Upgrade with respect to any portion of the Operator Territory, then Operator's remedies described above will only be exercisable with respect to such portion of the Operator Territory, unless such failure relates to a material portion of the Operator Territory, in which case such remedies shall apply to the entire Operator Territory. The availability of remedies to Operator hereunder shall be subject to Operator's satisfaction of its obligations set forth below. OPERATOR ROLL-OUT COMMITMENT: Operator will use commercially reasonable efforts to complete the Cable System Upgrade of the required Operator Facilities no later than the Projected Commencement Date, such that the number of Homes Passed in the Operator Territory capable of receiving the @Home Services equals or exceeds the number of Homes Passed specified in the Roll-Out Schedule for the applicable Planning Period, subject to @Home having completed the Network Upgrade in the applicable portions of the Operator Territory. Notwithstanding any other provisions contained herein, upon not less than 180 days notice prior to the Projected Commencement Date, an Operator may terminate or defer the Projected Commencement Date without any liability hereunder, as to the portion of the Operator Territory applicable to such Projected Commencement Date. FAILURE BY OPERATOR TO ROLL-OUT: Subject to the right to terminate or defer the Projected Commencement Date set forth in the preceding paragraph, in the event that Operator does not complete the Cable System Upgrade of the required Operator Facilities on or prior to the date which is 180 days after the Projected Commencement Date set forth on the Roll-Out Schedule, then (i) Operator shall be required to pay to @Home, as liquidated damages and not as a penalty, the @Home Specified Remedy and (ii) @Home shall be entitled to terminate its obligations under the @Home Exclusivity 56 Provisions with respect to those portions of the Operator Territory where @Home reasonably determines, after consultation with Operator, that Operator has ceased to use commercially reasonable efforts to complete the Cable System Upgrade so as to comply with the Roll-Out Schedule. To the extent that any failure by Operator to complete a Cable System Upgrade results from the failure by Operator to timely obtain any regulatory or third party consent or approval required on the part of Operator in order to so complete the Cable System Upgrade in any portion of the Operator Territory, the obligations of each party under the LCO Agreement shall be suspended until such time as Operator obtains any such regulatory or third party consent or approval; provided, that Operator shall continue to use all reasonable efforts to obtain any such consent or approval; and provided further, that (i) the obligations of @Home under the @Home Exclusivity Provisions with respect to any affected portion(s) of the Operator Territory shall terminate to the extent any such suspension lasts for more than 180 days after the Projected Commencement Date and (ii) either party shall be entitled to terminate the LCO Agreement as to the affected portion(s) of the Operator Territory in the event of any such suspension that lasts for more than 270 days after the Projected Commencement Date. EXTENSIONS OF TIME: The time for a party's performance (including any cure period for a failure to perform) under the LCO Agreement shall be extended day-for-day by (i) in the event of a concurrent failure to perform by the other party, the number of days of any resulting delay in such party's ability to perform or (ii) the number of days such party's performance was prevented or delayed by the occurrence of a Force Majeure Event (as defined below). SOLE REMEDIES: The remedies described herein will be the sole remedies available to the parties with respect to a party's failure to meet its obligations under the Roll-Out Schedule. TESTING: As soon as practicable following notification by Operator to @Home that the Cable System Upgrade has been completed in any designated portion of the Operator Territory, @Home and Operator shall agree upon a test date for such Operator Facilities and the applicable @Home Facilities, if any, which testing shall verify that the applicable Operator Facilities and, if applicable, @Home Facilities, perform in accordance with the Specifications and Standards. COMMENCEMENT OF SERVICES: Following such testing and the agreement of the parties that the applicable Operator Facilities and @Home Facilities comply with the Specifications and Standards, @Home shall make the @Home Services available to Operator for distribution by Operator to subscribers in those portions of the Operator Territory served by such Operator Facilities, and Operator shall commence offering and providing the @Home Services to subscribers in such portions of the Operator Territory. 57 OWNERSHIP AND MAINTENANCE: As between @Home and Operator, @Home will, at its own expense, provide, install, maintain, repair, inspect, replace or remove, operate and control the @Home Facilities necessary to provide the @Home Services to subscribers in the Operator Territory up to the Point of Demarcation in accordance with the Specifications and Standards. As between @Home and Operator, Operator will, at its own expense, provide, install, maintain, repair, inspect, replace or remove, operate and control the Operator Facilities necessary to distribute the @Home Services from the Point of Demarcation to subscribers in the Operator Territory in accordance with the Specifications and Standards. As between Operator and @Home (i) Operator shall retain full ownership and operating control of, and will be fully responsible for operating and maintaining, the Operator Facilities, and (ii) @Home shall retain full ownership and operating control of, and will be fully responsible for operating and maintaining, the @Home Facilities. Subject to the foregoing, @Home will be responsible for the management of the @Home Network, including but not limited to, the collection of data necessary to provide for the billing of Premium Service Revenues and surveillance over the @Home Network regarding hardware or software problems or failures. Notwithstanding the foregoing and subject to all applicable laws, all subscriber data shall remain the property of the applicable Operator and @Home shall deliver to Operator, on a regular basis, all subscriber data relating to subscribers of the @Home Services located within the Operator Territory collected by it in the course of its management of the @Home Network, subject, however, to the right of @Home to ------- ------- aggregate and categorize such subscriber data (i.e., in a manner which does not identify specific subscribers) for use in promotional efforts and @Home Network management. PERFORMANCE STANDARDS: Operator shall operate and maintain the Operator Facilities in accordance with the applicable requirements of the Specifications and Standards. @Home shall operate and maintain the @Home Facilities so that such facilities are capable of delivering the @Home Services to Operator for distribution to subscribers in the Operator Territory in accordance with the applicable requirements of the Specifications and Standards. B. MARKETING; CUSTOMER SERVICE. MARKETING: Operator and @Home will enter into a Joint Marketing Agreement which will provide, among other things, that (i) to the extent that @Home engages in any national marketing campaign with respect to the @Home Services, @Home shall provide marketing support of substantially similar quality and quantity and on no less favorable terms and conditions to Operator as provided to operators of similarly situated 58 cable systems, (ii) Operator will use commercially reasonable efforts to cooperate and participate in such national marketing efforts, and (iii) Operator may engage in local marketing efforts with respect to @Home and the @Home Services, and @Home shall use its commercially reasonable efforts to cooperate and participate in such efforts. BRANDING: The @Home Services will be marketed and provided by @Home and Operator under the @Home brands pursuant to the form of trademark license agreement (the "Trademark License Agreement") to be entered into between @Home and Operator (such brands to be used alone or in conjunction with Operator's "cable" brand), subject to the quality standards and usage guidelines set forth in such agreement. The @Home brands will be prominently displayed on the browsers. HOME PAGE: @Home will provide Operator with a selection of first screen templates for use in developing and configuring Operator's local home page and any local "theme" pages. Operator may customize these templates; provided, that the home page and any such theme pages comply with the look and feel, configuration and quality guidelines to be established by @Home to insure a consistent image and quality standard for the @Home Services to support national branding of the @Home Services (the "Style Guidelines"). NATIONAL/LOCAL With the exception of the Local Area (including the BUI CONTENT: Button), the content received by a subscriber upon startup of the @Home Services, any thematic linked pages thereto, the browsers and all related navigation devices shall be programmed by @Home, and each Operator shall be required to accept the @Home Services as so programmed (subject, however, to the Specifications and Standards), including, but not limited to, any promotional-type content, special hot-links, video barker and the content and organization of such pages, subject, however, to the Cable Parent Exclusion Right and the Cable Parent Access Blocking Right. CUSTOMER SERVICE: Operator shall have the exclusive first opportunity to provide all customer service required in connection with the provision of the @Home Services to subscribers in the Operator Territory receiving the @Home Services through the Operator Facilities. At Operator's election (pursuant to procedures set forth in the LCO Agreement), Operator may allocate all or part of such customer service responsibility to @Home, in which case @Home may be entitled to compensation from Operator as set forth below for the provision of such services based on standard charges established by the LCO Agreement (which charges shall be based on @Home's cost of providing such services, plus a reasonable return). 59 C. COMPENSATION AND BILLING. ALLOCATION OF BILLING RESPONSIBILITY: Operator shall be responsible for the billing and collection of monthly subscription fees (including the allocable portion of any charges related to bundled services) from subscribers to the @Home Services in the Operator Territory which receive the @Home Services through the Operator Facilities. Notwithstanding the foregoing, as between @Home and Operator, the collection of fees and charges relating to the utilization by subscribers of Premium Services shall be the responsibility of the party contracting with the applicable provider of such Premium Services regarding the provision of such services. PRICING: Operator shall have complete discretion as to the pricing of the @Home Services and any Premium Services (as to which Operator is the contracting party) to subscribers in the Operator Territory receiving the @Home Services through the Operator Facilities. COMPENSATION: Operator shall make monthly payments (the "Monthly Payments") to @Home in respect of each month during the Term in an amount equal to (i) 35% of aggregate Basic Service Revenues collected by Operator during such month from the provision of the @Home Services to subscribers using the Operator Facilities (the "Basic Service Revenue Split") plus (ii) 35% of Premium Service Revenues collected by Operator during such month from the provision of Premium Services to subscribers accessing such services using the Operator Facilities (to the extent that Operator is responsible for the collection of such charges). Exhibit B sets forth the services @Home shall provide to the Operator in return for the Basic Service Revenue Split. The Basic Service Revenue Split is based on the assumption that Operator will provide Tier I customer service and that @Home will provide Tier II and Tier III customer service (as such terms are defined in Exhibit B). To the extent that such customer service is provided other than in accordance with the foregoing allocation, and Operator directs @Home to provide all or any portion of Tier I customer service, @Home will be entitled to compensation from Operator for the provision of such services based on standard charges established by the LCO Agreement, which charges shall be based on @Home's cost of providing such services plus a reasonable return. In the event that Operator elects to perform all or part of Tier II customer service, such Operator will receive a credit against the amount it would otherwise owe to @Home pursuant to this paragraph equal to @Home's cost of providing such services plus a reasonable return. @Home shall make payments to Operator on a monthly basis in an amount equal to 65% of Premium Service Revenues collected by @Home during such month from the provision of Premium Services to subscribers in the Operator Territory accessing such services using the 60 Operator Facilities (to the extent that @Home is responsible for the collection of such charges). The percentage of Premium Service Revenues to which Operator is entitled pursuant to the preceding two paragraphs is referred to herein as the "Premium Service Revenue Split." The Premium Service Revenue Split will be subject to adjustment in accordance with the provisions under the caption "Execution of Promotional Agreements and Exercise of Cable Parent Exclusion Right." As used herein, "Basic Service Revenues" means revenues from the @Home Services collected by Operator (other than Premium Service Revenues) including any amounts received by Operator in respect of the provision of cable modems to subscribers but excluding any fees collected for installation, and "Premium Service Revenues" means the net revenues retained by Operator or @Home, as the case may be, derived from its performance pursuant to .Com Agreements and Promotional Agreements, including service fees, content provider charges, transaction fees, subscriber fees, advertising and promotional revenue or other transaction value (including barter payments or advertising avails), from the provision of the @Home Services to customers in the Operator Territory. Notwithstanding the foregoing, any fees or other amounts received by @Home which relate to the programming of the National Area, including service fees, content provider charges, transaction fees, advertising and promotional revenue or other transaction value (including barter payments or advertising avails) shall not be included within the definition of either Basic Service Revenues or Premium Service Revenues, and @Home shall be entitled to retain all amounts collected by it in respect of such activities. The foregoing Basic Service Revenue Split and Premium Service Revenue Split (collectively the "Revenue Splits") shall be subject to adjustment from time to time by the Board of Directors of @Home as provided below: 1. The Revenue Splits to @Home may be decreased by the Board and increased by a Supermajority Vote of the Board with respect to all existing LCO Agreements with an Affiliated Operator and all LCO Agreements to be entered into with an Affiliated Operator. 2. In connection with the @Home IPO, the Board will review the Revenue Splits in connection with @Home's preparations for the IPO. Notwithstanding the foregoing, any fees or other amounts received by Operator which relate to, the programming of the Local Area or the provision of Local Service, including service fees, content provider 61 charges, transaction fees, advertising and promotional revenue or other transaction value (including advertising avails and barter payments) shall not be included within the definition of either Basic Service Revenues or Premium Service Revenues, and Operator shall be entitled to retain all amounts collected by it in respect of such activities; provided, that @Home shall be entitled to reasonable compensation for network management services provided by @Home and any caching and replicating (including, but not limited to, technical assistance and, if applicable, the lease of capacity in the @Home Facilities) provided by @Home with respect to such Local Service in connection with the provision of such Local Service and/or the connection of such Local Content provider to the @Home Network (based on @Home's cost of providing such services, plus a reasonable return) for such services requested by Operator. In the event that Operator makes the Operator Facilities available to @Home in connection with the provision of Internet Services to large business customers, the revenues attributable to the provision of such services using Operator's HFC plant (e.g., "Work @Home" revenues) ("@Work Service Revenues") shall be allocated 70% to Operator and 30% to @Home. MONTHLY PAYMENT PROCEDURES: Not later than 30 days following the last day of each month, Operator shall deliver to @Home a certificate containing Operator's calculation of the amount of the Monthly Payment due to @Home in respect of such month and the basis for such calculation, which calculation shall have been certified by an officer or authorized designee of Operator as true and correct and as having been made in accordance with the provisions set forth above. Not later than 30 days after the last day of each month Operator shall deliver to @Home the Monthly Payment in respect of such month. Operator shall maintain detailed records relating to the 62 usage of the Premium Services and the calculation of Premium Service Revenues, and shall permit Operator access to such records at reasonable times upon reasonable notice to make copies of such records and to discuss the calculation of the Premium Service Revenues with officers and employees of @Home. Operator and @Home shall meet in good faith to resolve any disagreements regarding the calculations of all such amounts. ANCILLARY SERVICES: @Home shall provide Operator with a schedule of its charges related to the provision by it of ancillary services to Operators, such as customer support and service, network management, and Local Service-related fees, which schedule shall be updated periodically. With respect to those services which Operator may elect to purchase, Operator shall notify @Home of such election and agreement to pay such fees, and @Home shall as soon as practicable thereafter and as agreed with Operator, commence providing such services to Operator in accordance with such schedule of fees. @Home shall bill Operator on a regular basis for such optional services elected by Operator and for those services, such as fees for network management, which are required to be purchased by Operator, and Operator shall remit such payment promptly to @Home. The arrangements contemplated by the foregoing paragraph are referred to in this Term Sheet as the "Ancillary Services Arrangements." Ancillary Service Arrangements do not include those services specified in Exhibit B that are provided to the Operator in return for the Basic Service Revenue Split. TAXES: The billing party agrees to pay any sales, use, gross receipts, excise or other local, state and federal taxes, fees or charges, however designated (excluding taxes on the other party's income) imposed on or based upon the provision, sale or use of Basic Services, Premium Services or @Work Service Revenues, if any; provided, that such amounts will not be included in Basic Service Revenues, Premium Service Revenues or @Work Service Revenues, but will be separately stated on each monthly statement to the other party. D. MISCELLANEOUS. REGULATORY: Each party will at its own expense use all commercially reasonable efforts to obtain all regulatory consents, authorizations and approvals that are necessary for it to obtain in connection with its execution and performance of the LCO Agreement and the provision of the @Home Services using the Operator Facilities in the Operator Territory. CONFIDENTIALITY: Each party will, and will cause its respective officers, directors, employees and advisors to, maintain in confidence all confidential and proprietary information and data of the other party ("Confidential Information"), and will not disclose Confidential Information to any other person, subject to customary exceptions. 63 INDEMNIFICATION: Each party shall indemnify the other party against, and hold the other party harmless from, any claim, demand, loss, damage, liability or expense (including reasonable attorneys' fees and disbursements) arising out of or resulting from such party's breach of this Term Sheet or negligence or intentional act committed in connection with the transactions contemplated by this Term Sheet. FORCE MAJEURE: The parties agree that upon the occurrence of events making a party's timely performance under this Term Sheet impracticable due to, among other matters, hardware or software shortages, equipment shortages or failures (in each case resulting other than from such party's negligence), or through acts of God or other events beyond its control (a "Force Majeure Event"), such party's performance of its obligations hereunder shall be suspended during such period; provided, that each party shall be obligated to use commercially reasonable efforts to cure any such failure to perform as promptly as possible to the extent it relates to its portion of the @Home Network; and, provided further, that either party shall be entitled to terminate its obligations as to the affected portions of the Operator Territory in the event any such failure to perform is not cured in all material respects so as to permit the resumption of the provision of the @Home Services in the affected portion of the Operator Territory within 180 days. CONDEMNATION: If all or any portion of the Operator's Facilities are taken or proposed to be taken for any public or quasi-public purpose by any governmental authority by the exercise of right of eminent domain, Operator will so notify @Home, and will use commercially reasonable efforts to reroute or replace the affected area in accordance with the Specifications and Standards within 180 days of the taking. In the event the affected facilities are not so rerouted or replaced within such 180 day period, @Home or Operator (but only to the extent Operator has used commercially reasonable efforts in accordance with the previous sentence) will be entitled to terminate its obligations as to the affected portions of the Operator Territory without further liability or obligation to either party. TERM: The term (the "Term") of an LCO Agreement entered into with any Affiliated Operator (including any Operators which have entered into LCO Agreements prior to the date such Operator becomes a Controlled Affiliate, provided that such Operator's original LCO Agreement does not specify a longer term) shall begin on the Commencement Date and shall end on the latest to occur of (i) the third anniversary of the applicable Commencement Date, (ii) the earlier to occur of (A) the sixth anniversary of the Execution Date and (B) 90 days following the termination of the Restricted Period as to the Cable Parent of the applicable Affiliated Operator, and (iii) 90 days following written notice from the applicable Stockholder that it has ceased to be an Exclusive Stockholder; provided, that, at any time following the effectiveness of its 64 exercise of the Comcast Non-Exclusive Right, Comcast Cable, by 90 days written notice, shall have the right to terminate all LCO Agreements entered into by it and its Controlled Affiliates (in which case either of @Home or Comcast Cable shall have the right to extend the Term for an additional 90 days by written notice to such effect given to the other party within 30 days following Comcast Cable's notice of its exercise of its right pursuant to this proviso). Operator shall also have the right to renew the term of the LCO Agreement for an additional period of three years by written notice to such effect given to @Home not later than 90 days prior to the end of the Term. TERMINATION: Each party may terminate the LCO Agreement (i) following a material breach by the other party that has not been cured after 30 days written notice thereof (other than a breach for which the applicable remedies available to the non- breaching party are otherwise specified by the LCO Agreement), (ii) upon the occurrence of events specified herein granting a party the right to terminate such agreement, or (iii) upon the bankruptcy or insolvency of the other party. REPRESENTATIONS: The LCO Agreement shall contain representations and warranties of the parties that are customary and appropriate in the context of the transactions contemplated thereby. IX. GENERAL ------- REASONABLE COMMERCIAL EFFORTS: Any reference in this Term Sheet to an obligation to use "all commercially reasonable efforts," "reasonable commercial efforts" or any similar level of effort shall mean an obligation to use commercially reasonable efforts, and no difference in the language expressing any such level of effort shall imply any substantively different obligation. AMENDMENTS TO THIS TERM SHEET: The provisions of this Term Sheet may not be amended, modified, supplemented or superseded unless approved in writing by each Stockholder and @Home. 65 EXHIBIT A --------- SUPERMAJORITY ITEMS - ------------------- The By-Laws of @Home shall provide that no action may be taken with respect to any of the following matters without the affirmative vote or written consent of 75% (rounded up to the nearest whole number of Directors) of the total number of Series K and Series A Directors, voting as a separate class of Directors (such vote or consent, a "Supermajority Vote"); provided, however, that any action with respect to the following matters which would also constitute a Related Party Transaction shall require the affirmative vote or written consent of 75% (rounded up to the nearest whole number of Directors) (or two-thirds if there are only three such Directors) of the total number of Series K, Series T, and Series A Directors not required to abstain with respect to such matter, voting as a separate class of Directors. 1. The merger, consolidation or other business combination by @Home or any subsidiary of @Home into or with any other entity, other than any transaction involving only @Home and/or one or more directly or indirectly wholly owned subsidiaries of @Home; provided, however, that the provisions of -------- ------- this paragraph shall not apply to transactions which have been approved in accordance with paragraphs 2 and 4 below, or which would not otherwise require approval thereunder. 2. The acquisition (other than an acquisition covered by paragraph 4 below) by @Home or any subsidiary of @Home of any assets or properties (including stock or other equity interests of a third party) in one transaction or a series of related transactions, which assets or properties have an aggregate purchase price or value in excess of twenty percent (20%) of the fair market value of the consolidated assets of @Home. 3. The disposition by @Home or any subsidiary of @Home of any assets or properties (including stock or other equity interests of a third party) in one transaction or a series of related transactions having an aggregate value in excess of fifty percent (50%) of the fair market value of the consolidated assets of @Home. 4. The acquisition by @Home or any subsidiary of @Home of any assets or properties in exchange for or in consideration of the sale or issuance to any person of capital stock of @Home which sale or issuance would constitute in excess of 16b% of the fully diluted shares of @Home (on a common stock equivalent basis) (including such shares to be issued or sold). 5. If a person other than the person previously interviewed by Cox and Comcast is appointed prior to Closing, the approval of the Chief Executive Officer and, thereafter, the removal of any Chief Executive Officer and the appointment of any successor thereto. 6. Any actions resulting in the voluntary dissolution or liquidation of @Home, or the initiation of any proceedings relating to the voluntary bankruptcy of @Home. 7. Any amendment to or modification of any provision of the Charter or By-Laws, other than (a) the filing of any Certificate of Designation or amendment to the Charter establishing any class or series of preferred stock of @Home, the establishment, issuance and sale of which would not violate paragraph 8 below, (b) any amendment to or a modification of the Charter which is necessary in order to implement any action which has been otherwise approved by a Supermajority Vote, (c) any amendment to the Charter which is reasonably necessary in connection with @Home's IPO and which does not have an adverse effect upon a holder of Convertible Preferred Stock which effect is different from the effect of such amendment upon other holders of Convertible Preferred Stock and (d) any amendments to the Charter which are specifically contemplated by the provisions of the Term Sheet (including in connection with any Interim Financing). 8. The (a) establishment or creation of any additional class of capital stock or any security having a direct or indirect equity participation in @Home, (b) sale or issuance of (i) shares of capital stock or securities having a direct or indirect equity participation in @Home, or (ii) warrants, options or rights to acquire shares of capital stock or securities having a direct or indirect equity participation in @Home or securities convertible into or exchangeable for capital stock or any security having a direct or indirect equity participation in @Home, in each case, which capital stock or other security constitutes Special Voting Stock. 9. Any increase in the aggregate number of Management Pool Shares issued or reserved for issuance to management (including shares reserved for issuance upon exercise of options, warrants or other rights) pursuant to all incentive compensation plans (collectively, the "Management Stock Plan") in excess of an aggregate amount calculated at the time of such proposed increase equal to (i) 8,000,000, plus (ii) the greater of (x) 0.075 multiplied by the ---- number of shares of Series A Common Stock (or options, warrants or other rights to acquire shares) issued by @Home subsequent to the closing of the transaction contemplated by this Term Sheet (other than shares (or options, warrants or other rights to acquire shares) issued pursuant to the Management Stock Plan or shares issued upon conversion of shares of Convertible Preferred Stock) and (y) the number of shares (or options, warrants or other rights to acquire shares) the issuance of which would represent a dilution of the fully diluted equity of @Home (including the assumed issuance of all shares in the Management Stock Plan prior to such increase) of 4% per year from the closing of the transaction contemplated by this Term Sheet to the date of such proposed increase. 10. (a) The declaration or payment of any dividend on, or the making of any distribution to holders of, Junior Stock or equity securities of any subsidiary of @Home (other than a wholly owned subsidiary) or (b) the purchase, redemption or other acquisition for value of any Junior Stock or equity securities of any subsidiary of @Home or any options, warrants or other rights to acquire such securities (other than the repurchase by @Home of shares of Junior Stock, or options, warrants or other rights to acquire shares of Junior Stock, issued to employees, directors or consultants pursuant to repurchase rights contained in the instrument pursuant to which such securities were originally granted). 11. The adoption of any budget which is or contains a Non-Pro Rata Roll-out Budget. 12. Any action by @Home which would have the effect of increasing the percentage of (x) Basic Service Revenues payable by an Operator to @Home or (y) Premium Service Revenues payable by an Operator to @Home pursuant to @Home's standard form of LCO Agreement. 13. The appointment of any outside directors to the .Com Committee following the IPO (other than CEO, the Series K Director, Will Hearst and Jim Barksdale). UNANIMOUS ITEMS - --------------- The following items are required to be approved by all of the Series K and Series A Directors: 1. The incurrence by @Home of any indebtedness for borrowed money which provides for recourse against a Stockholder without the consent of such Stockholder. 2 2. The authorization or issuance of any shares of Convertible Preferred Stock following consummation of the transactions contemplated by this Term Sheet. 3. Any amendments to or modifications of the items listed on this Exhibit or the requisite vote or consent for approval thereof. 4. Any increase in the number of Series A or Series K Directors. 5. Any modification of the rights of the holders of the Series A or Series K Preferred Stock to designate and elect directors, except for any amendments or modifications contemplated by the Term Sheet. 6. Any amendments to or modifications of any provision of the By-Laws which set forth the Supermajority Voting and Unanimous Voting provisions set forth on this Exhibit, except for any amendments or modifications contemplated by the Term Sheet. 7. The appointment of any directors (other than the CEO, the Series K Director, Will Hearst, Jim Barksdale or any outside directors) to the .Com Committee. 8. Any amendment or modification to the Specifications and Standards which would require the Operator Facilities of any Cable Parent to be capable of delivering video clips in excess of 10 minutes. 3 EXHIBIT B @HOME RESPONSIBILITIES Below is a list of the responsibilities of @Home. 1. NATIONAL BACKBONE AND REGIONAL DATA CENTER ------------------------------------------ a. Provide interconnection of headends/hubs to the RDC. The expected speed of interconnection will be equal to or greater than 45 Mbps (DS3) speeds or equivalent bandwidth capable of creating the same user experience. b. Connect RDC with the @Home Internet Backbone. c. Develop the Internet Backbone. d. Provide network management to include elements of the cable plant including the cable modem. Also included is the integration of the network management, provisioning, and subscriber management systems. e. Provide technical support for backbone (7x24). f. Provide outage statistics coming from network management including, to the extent practicable, real time notification to the Operator. g. Provide Quality of Service capability at the backbone level when available. 2. CONNECTIVITY SERVICES --------------------- a. Provide Internet IP addresses for @Home service users. b. Interconnect the @Home backbone to the rest of the Internet through a high speed connection to certain Network Access Points (NAPs). The speed of the connection is expected to be equal to or greater than 45 Mbps. c. Provide peering agreements for NAP interconnection. d. Provide Internet mail (IMAP compatible) and chat service (IRC compatible). e. Provide connectivity to other on-line hosting services. f. Provide dial-up access for traveling subscribers at an additional cost to the subscriber based on usage above a minimum. 3. SOFTWARE -------- a. Provide client software to include the following: * Browsers with free upgrades. * TCP/IP stack (where needed) that is multicast enabled. * Application Plug-ins to enhance the surfing experience (i.e., AVI, Real Audio, VRML viewer). b. Provide IMAP or POP compatible mail services including an email server. c. Provide DNS service. d. Provide software for caching, replication and proxy servers. e. Provide single copies of client and server documentation for training of cable personnel. f. Provide installation scripts. g. Provide a customized, broadbanded browser. 4. HARDWARE -------- a. Provides all hardware required for the @Home broadband service on @Home's side of the Point of Demarcation as set forth in the Term Sheet. b. Authorize, where possible, MSO to purchase hardware collectively with @Home. c. Provide necessary hardware for interconnection of headends/hubs and the RDC and for the routers that enable connectivity to the Internet at large, including security. d. Provide project cutover team for new market launches. e. Integration of HE cable data router and customer modem into customer network management and provisioning. MSO will cover the headend modem costs. 5. CONTENT AND MARKETING --------------------- a. Provide all funds for national marketing in accordance with the Term Sheet. b. Provide support and tie-ins for local marketing in accordance with the Term Sheet. c. Negotiate all national content agreements. 2 6. CUSTOMER SERVICE ---------------- a. Provide 7X24 technical support for Tier II and Tier III. b. Provide software and documentation for @Home installation (including guidelines for modem & AO installation). c. Provide technical support for MSO technicians. d. Work with MSO to design and specify the interface for billing and MSO Tier I customer support. 3 @HOME CUSTOMER SERVICE TIER DESCRIPTIONS TIER I - ------ Tier I customer service is the "front line" of the @Home/MSO product offerings. The responsibility of Tier I service is to provide information to the customer, initiation and changes of service, billing inquiries and some low-level trouble shooting, and frequently asked questions. Tier I will include the following: . Start, stop and changes of service. . Determination of service eligibility. . Product information. . Provisioning and initial setup script - IP address generation, logins, email setup, password capturing, etc. . Service installation and dispatch scheduling and setup. . Trouble ticket status reporting. . Initial problem resolution. Tier I will include reasonably simple scripted troubleshooting (based on script provided by @Home) and cable network related problem diagnosis. . Billing and pricing questions. TIER II - ------- Tier II customer service is the diagnostic and problem resolution layer of the @Home/MSO customer service offering. In this layer, the symptoms of the problems are understood and recorded, the problem(s) are determined and action is taken to resolve problem(s). This group will have advanced technical troubleshooting skills and tools. Support from this group will include: . Desktop OS support. . @Home network information. . @Home delivered software support. . Problem diagnosis and resolution. . Build knowledge base and on-line information systems. . Handle Web and E-mail support. 4 TIER III - -------- Tier III will provide customer service and network operations support. This group will handle any call not able to be resolved by Tier II. In addition to resolving the more difficult customer problems, this group will be doing ongoing network monitoring. 5 Schedule 1
FOUNDERS ADDITIONAL CABLE CABLE PARENT STOCKHOLDER STOCKHOLDER GROUP - -------- ----- ----- ------ ----------- ----------------- INVESTORS PARTNERS PARENT --------- -------- ------ TCI Sub Comcast Sub TCI Sub TCI Services and TCI TCI Sub TCI Sub, TCI TCIC Services and TCIC and their respective controlled affiliates KPCB Cox Sub Comcastub Comcast Cable Comc ast Comcast Sub Comcast Sub, Comcast Cable and their respective controlled affiliates Cox Sub CCI CEI Cox Sub Cox Sub, CCI and their respective controlled affiliates KPCB KPCB KPCB Affiliates, Affiliates KPCB and their respective (collectively) controlled affiliates
Schedule 2 @ HOME EQUITY & VOTING
Investor Series T Percent of Series K Percent of Series A Percent of Preferred Series T Preferred Series K Preferred Series A TCI Sub * 770,000.00 100.00% 1,553,000.00 51.62% KPCB Affiliates ** 693,883.00 100.00% 0.00 0.00% Comcast Sub 727,865.00 24.19% Cox Sub 727,865.00 24.19% Management Total Shares 770,000.00 100.00% 693,883.00 100.00% 3,008,730.00 100.00% Shares of Con. Percent of Common Percent of Voting Percent No. of Pref. Con. Pref. Equivalent Equity Directors TCI Sub 2,323,000.00 51.94% 23,230,000.00 45.35% 76.77% 5 KPCB Affiliates 693,883.00 15.51% 6,938,883.00 13.55% 5.76% 1 Comcast Sub 727,865.00 16.27% 7,278,650.00 14.21% 6.04% 1 Cox Sub 727,865.00 16.27% 7,278,650.00 14.21% 6.04% 1 Management 6,500,000.00 12.69% 5.39% 1 Total Shares 4,472,613.00 100.00% 51,226,183.00 100.00% 100.00% 9
* Currently owns 15.4 mill.; to be reverse split 10 to 1 and 770,000 shares of Series T Preferred to be exchanged for Series A Preferred. TCI Sub to buy additional 783,000 shares of Series A Preferred. ** Currently owns 4.6 mill.; to be reverse split to 460,000; KPCB Affiliates to purchase additional 233,883 shares; Series K to convert into Series A Common. Schedule X 1. Master Services Agreement dated August 21, 1995 entered into between SSDS, Inc. and At Home Corporation concerning the development and system integration of back office systems for @Home. 2. Invoice issued by AND Interactive Communications Corporation to At Home Corporation dated December 14, 1995 to provide prototype development of the @Home user interface. Exhibit C Standards and Specifications I. Objective This document is to provide a baseline criteria for the @Home Cable Partners to identify qualified systems for submission to the Master Roll- Out Schedule. II. Standards and Specifications 1. Cable network architecture will be based on Hybrid Fiber Coax; with fiber optic facilities feeding distribution nodes that revert to coaxial cable in to the home. 2. Bandwidth allocation for the service will be at least one 6 MHz channel in the downstream direction. 3. MSO will test and provide performance information as to the condition of the plant. 4. MSO will provide a minimum rack space configuration of three six foot racks for cable data router equipment and servers; totaling 180" to 200" for this launch configuration. 5. MSO will take reasonable steps to protect the headend from fire, loss of power, deviations in climate requirements and intrusion. 6. MSO will not be required to carry video clips in excess of 10 minutes. Schedule Z A. Cox Restricted Businesses High Speed Internet Access operations in Phoenix, AZ B. TCI Restricted Businesses The TCI cable system in East Lansing, Michigan is offering consumer Internet services on a commercial basis. This system has been providing these services since April of 1995 and currently has a subscriber count of almost 400; 65% of whom are residential users. The service is priced in two tiers; tier 1 is $44.95 per month on Zenith cable modems and tier 2 is $69.95 on LANcity cable modems. C. Comcast Restricted Businesses Trials in Philadelphia, PA Sarasota on-line in Sarasota, Florida Work at home trial in Northern, New Jersey. Table of Contents Page ---- I.General1 ------- Issuer1 Business1 Financing2 II.Purchase of Shares2 ------------------ Capitalization2 Securities to be Purchased by Founders and Additional Investors5 Ownership7 Closing Conditions8 III.Rights, Designations and Preferences of Convertible Preferred Stock to be ------------------------------------------------------------------------- Set Forth in the Charter.10 ------------------------ Ranking10 Liquidation Preference11 Dividend Rate and Payment Dates12 Voting Rights14 Rights of Holders of Convertible Preferred Stock Following the IPO14 Convertible Preferred Stock Directors15 Series B Common Directors16 Special Convertible Preferred Stock Voting Rights17 Anti-Dilution Rights18 IV. Registration Rights Agreement18 ----------------------------- V.Management.21 ---------- Governance21 Content Provider Agreements23 Special Directors Approval Right24 Revised Business Plan and Budgets25 Initial Board25 Additional Strategic Investors26 VI.Stockholders Agreement Matters.26 ------------------------------ TCI Call26 KPCB Put27 Cable Put29 Consideration Payable in Respect of TCI Call or KPCB Put30 Transfer Restrictions31 Deemed Transfer32 Conversion Restrictions34 Right of First Offer35 Special Right of First Offer Procedure Following an IPO36 Rights of Transferee37 Tag-Along Right38 Drag-Along Right38 Pre-Emptive Rights39 Determination of Fair Market Value39 Eligible Stockholder40 Permanent CEO41 Series A Director Designees41 Unanimous and Supermajority Provisions41 By-Laws of @Home42 Termination of Certain Put and Call Rights42 Amendment to Stockholders Agreement Following @Home IPO42 Termination of Stockholders Agreement45 VII.Master Distribution Agreement46 ----------------------------- Definitions46 Creation of Master Roll-Out Schedule53 Execution of Local Cable Operator Distribution Agreements54 Budgets54 Cable Parent Exclusivity Provisions55 Comcast Non-Exclusivity Provisions61 @Home Exclusivity Provisions63 Non-Performance of TCI64 Most Favored Nations Provisions64 Change of Control of TCI66 Changes in Master Roll-Out Schedule66 Local Content Programming66 @Home Programming67 Execution of Promotional Agreements and Exercise of Cable Parent Exclusion Right67 Execution of .Com Agreements and Exercise of Cable Parent Access Blocking Right70 Content Tag-Along Right72 Parent Undertaking73 Other Services74 VIII.Terms of LCO Agreements75 ----------------------- A.Roll-Out of the @Home Services75 Operator Territory75 @Home Roll Out Commitment:75 Failure by @Home to Roll-Out76 Operator Roll-Out Commitment77 Failure by Operator to Roll-Out77 Extensions of Time78 Sole Remedies78 Testing78 Commencement of Services78 Ownership and Maintenance79 Performance Standards80 B.Marketing; Customer Service.80 Marketing80 Branding80 Home Page80 ii National/Local Content81 Customer Service81 C.Compensation and Billing.81 Allocation of Billing Responsibility81 Pricing82 Compensation82 Monthly Payment Procedures85 Ancillary Services86 Taxes86 D.Miscellaneous.86 Regulatory86 Confidentiality87 Indemnification87 Force Majeure87 Condemnation87 Term88 Termination88 Representations89 IX.General89 ------- Reasonable Commercial Efforts89 Index of Defined Terms .Com Agreement47 .Com Committee24 @Home1, 1 @Home Exclusivity Provisions63 @Home Facilities46 @Home First Page46 @Home Network46 @Home Repurchase Right61 @Home Services2 @Home Specified Remedy46 @Work Service Revenues85 Actual Budget25 Additional Benefit73 Additional Investors6 Additional Shares6 affiliate22 Affiliated Operator46 against27, 28 all commercially reasonable efforts89 Alternative Arrangement74 Ancillary Services Arrangements86 Attributable Interest40 backbone1, 2 iii Base Homes Passed34 Basic Service Revenue Split82 Basic Service Revenues83 Board12 BUI Button48 button68 cable80 Cable Parent6 Cable Parent Access Block Right47 Cable Parent Exclusion Right47 Cable Parent Exclusivity Provisions60 Cable Partner6 Cable Partners6 Cable Put29 Cable System Upgrade47 Call Notice26 CCI7 CEI7 Change of Control of a Stockholder32 Charter3 Closing6 Closing Date6 Comcast7 Comcast Cable6 Comcast Non-Exclusive Right61 Comcast Sub5 Commencement Date47 Commission28 Common Stock3 Competitor Exclusion69 Confidential Information87 Consumer Purpose56 Content Provider Group68 control56 Control 7 Control Acquisition58 Control Restricted Assets58 controlled56 Controlled Affiliate7 controlling56 Controlling Interest38 conversion ratio18 Conversion Shares18 Convertible Preferred Stock4 Cox Sub6 Deemed Transfer32 DGCL3 Discretionary Access Exclusion71 Discretionary Exclusion69 Eligible Cable Parent64 iv Eligible Stockholder40 Equivalent Shares20 Exclusion Limit69 Exclusive Homes Passed33 Exclusive Stockholder38 Execution Date26 Exempt Acquisition58 Exempt Offering37 Exempt Restricted Assets58 Fair Market Value39 First Determination Date64 Force Majeure Event87 Founders1 front line4 High C50 High C Performance Ratio50 holdback20 Homes Passed47 HSN69 Initiating Holders19 Interim Financing10 Internet Backbone48 Internet Backbone Service48 Internet Service48 IP48 IPO2 IPO Election28 IPO Election Notice28 Junior Stock11 KPCB1 KPCB Affiliates1 KPCB Constituents27 KPCB Original Amount27 KPCB Put28, 29 KPCB Put Notice27 LCO Agreement54 Liquidation Price12 Local Area48 Local Content48 Local Service48 Management Pool Shares7 Management Stock PlanA-2 Master Roll-Out Schedule53 MFN64 Minimum Demand Shares20 Minimum Exclusive Homes Passed34 Monthly Payments82 most favored nation64 Most Favored Nations Provisions73 MSN23 v National Area49 Net Price37 Network Upgrade49 Non-Control Acquisition56 Non-Pro Rata Roll-Out Budget49 Offer Price59 Offered Homes Passed49 Offeree72 Offeror72 Operator49 Operator Facilities50 Operator Territory75 Original Amount6 Original Initiating Holder19 outside directors24 Parent7 Parents7 Parity Stock11 Participating Dividend12 Performance Default50 Planning Period49 Point of Demarcation50 Preferred Dividend12 Preferred Stock4 Preferred Stock Directors16 Premium Service Revenue Split83 Premium Service Revenues83 Pro Rata Roll-Out Budget50 Projected Budgets25 Projected Commencement Date51 Promotional Agreement51 Proportionate Transferred Shares34 Qualified Spin Off Transaction32 Qualifying Offered Homes Passed51 Qualifying System51 rate card24 reasonable best efforts45 reasonable commercial efforts89 Related Party21 Related Party Transaction22 Related Party Vote43 Residential Subscriber51 Restricted Assets59 Restricted Business56 Restricted Period52 Revenue Splits84 Roll-Out Budget52 Roll-Out Schedule75 Securities Act18 Senior Stock11 vi Series A Director15 Series A Preferred Stock3 Series B Common Directors16 Series B Exchange35 Series K Director15 Series K Preferred Stock2 Series T Directors15 Series T Preferred Stock3 shelf registration20 Special Directors16 Special KPCB Put28 Special Voting Stock10 Specifications and Standards52 Specified Brand68 Specified Promotions68 Stockholder7 Stockholder Group7 Stockholders Agreement26 Style Guidelines81 Subject Shares61 Subject Shares Purchase Price61 Subsequent Determination Date64 Supermajority Approval10 Supermajority VoteA-1 TBS68 TCI1 TCI Call26, 29 TCI Change of Control52 TCI Exchange4 TCI Services6 TCI Sub1 TCIC6 templates1 Term88 theme80 Total Shares34 Trademark License Agreement80 Transfer31 Transfer Restrictions7, 27 Triggering Cable Parent64 Unaffiliated Third Party65 Upgraded Network Portion49 Upgraded System47 video barker1 Work @Home84 vii EX-10.05 14 STOCK PURCHASE AGREEMENT DATED APRIL 11, 1997 EXHIBIT 10.05 AT HOME CORPORATION STOCK PURCHASE AGREEMENT April 11, 1997 TABLE OF CONTENTS -----------------
Page ---- 1. Purchase and Sale of Stock.............................................. 1 1.1 Sale and Issuance of Series C Convertible Preferred Stock........ 1 1.2 Closing.......................................................... 1 2. Representations, Warranties and Covenants of the Company................ 1 2.1 Organization, Good Standing and Qualification.................... 1 2.2 Certificate of Designation and Certificate of Amendment.......... 2 2.3 Capitalization................................................... 2 2.4 Outstanding Securities........................................... 3 2.5 Current Board.................................................... 3 2.6 Subsidiaries..................................................... 4 2.7 Authorization.................................................... 4 2.8 Consents and Approvals; No Conflict.............................. 4 2.9 Valid Issuance of Purchased and Conversion Shares................ 5 2.10 No Registration Required......................................... 5 2.11 Litigation....................................................... 5 2.12 Status of Proprietary Assets..................................... 6 2.13 Registration Rights.............................................. 6 2.14 Title to Property and Assets..................................... 6 2.15 Financial Statements; Undisclosed Liabilities; No Material Adverse Changes.................................... 7 2.16 Disclosure....................................................... 7 2.17 ERISA Plans...................................................... 7 2.18 Tax Returns and Payments......................................... 8 2.19 Labor Agreements and Actions..................................... 8 2.20 Governmental Consents............................................ 8 2.21 Brokers or Finders............................................... 8 2.22 Registration Rights Agreement.................................... 9 2.23 Reasonable Efforts............................................... 9 2.24 Material Agreements.............................................. 9 2.25 Compliance with Law.............................................. 9 2.26 Environmental Matters............................................ 9 2.27 Insurance........................................................ 10 2.28 Employee Confidentiality Agreement............................... 10 2.29 Dividends........................................................ 10 3. Representations, Warranties and Covenants of the Purchasers............. 10 3.1 Experience....................................................... 10 3.2 Investment....................................................... 10 3.3 Accredited Purchaser Status...................................... 11 3.4 Restricted Securities............................................ 11 3.5 Authorization.................................................... 11
i TABLE OF CONTENTS ----------------- (Continued)
Page ---- 3.6 Consents and Approvals; No Conflict.............................. 12 3.7 Disclosure of Information........................................ 12 3.8 Information Concerning Purchaser................................. 12 3.9 Brokers or Finders............................................... 12 3.10 Registration Rights Agreement.................................... 13 3.11 Reasonable Efforts............................................... 13 4. Transfer Restrictions; Preferred Stockholder's Right of First Refusal; Company Right of First Offer; Legends; Notations........................ 13 4.1 Transfer Restrictions............................................ 13 4.2 Company Right of First Offer..................................... 15 4.3 Voting Agreement................................................. 16 4.4 Legends; Notations............................................... 16 5. Hart-Scott-Rodino Act................................................... 17 6. Conditions to the Purchasers' Obligations at Closing.................... 17 6.1 Correctness of Representations and Warranties.................... 18 6.2 Performance of Agreements........................................ 18 6.3 Certificate of Designation and Certificate of Amendment.......... 18 6.4 Securities Exemption............................................. 18 6.5 No Material Litigation........................................... 18 6.6 Government Approvals and Consents................................ 18 6.7 Proceedings and Documents........................................ 18 6.8 Opinion of Company Counsel....................................... 19 6.9 Registration Rights Agreement.................................... 19 6.10 Delivery of Stock Certificates................................... 19 6.11 Waiver of Existing Rights........................................ 19 6.12 Minimum Investment............................................... 19 7. Conditions to the Company's Obligations at Closing...................... 19 7.1 Correctness of Representations and Warranties.................... 19 7.2 Performance of Agreements........................................ 20 7.3 No Material Litigation........................................... 20 7.4 Securities Exemption............................................. 20 7.5 Government Approvals and Consents................................ 20 7.6 Proceedings and Documents........................................ 20 7.7 Registration Rights Agreement.................................... 20 7.8 Payment of Purchase Price........................................ 21 7.9 Minimum Investment............................................... 21
ii TABLE OF CONTENTS ----------------- (Continued)
Page ---- 8. Preemptive Rights....................................................... 21 8.1 Certain Definitions.............................................. 21 8.2 Preemptive Rights................................................ 22 8.3 Termination of Preemptive Rights................................. 24 9. Certain Agreements of the Company....................................... 24 9.1 Information Rights............................................... 24 9.2 Support for Rule 144 Transfers................................... 25 9.3 Issuances to Officers............................................ 25 10.Miscellaneous........................................................... 25 10.1 Governing Law.................................................... 25 10.2 Survival......................................................... 25 10.3 Successors and Assigns........................................... 25 10.4 Limitation on Rights of Others................................... 26 10.5 Entire Agreement; Amendment...................................... 26 10.6 Notices, Etc..................................................... 27 10.7 Delays or Omissions.............................................. 27 10.8 Expenses......................................................... 27 10.9 Counterparts..................................................... 28 10.10 Severability..................................................... 28 10.11 Obligations Several, Not Joint................................... 28 10.12 Currency......................................................... 28
iii EXHIBITS - -------- Exhibit A Schedule of Purchasers Exhibit B-1 Certificate of Designation Exhibit B-2 Certificate of Amendment Exhibit C Third Amended and Restated Registration Rights Agreement Exhibit D Information Concerning Purchasers Exhibit E Opinion of Counsel Exhibit F Opinion of Richards, Layton & Finger, P.A. SCHEDULES - --------- Schedule 3.6 Purchaser Consents, Approvals and Conflicts iv STOCK PURCHASE AGREEMENT ------------------------ THIS STOCK PURCHASE AGREEMENT ("AGREEMENT") is made as of April 11, 1997, by and among AT HOME CORPORATION, a Delaware corporation (the "COMPANY"), and the parties listed on Exhibit A to this Agreement (each, a "PURCHASER" and --------- collectively, the "PURCHASERS"). THE PARTIES HEREBY AGREE AS FOLLOWS: 1. Purchase and Sale of Stock. -------------------------- 1.1 Sale and Issuance of Series C Convertible Preferred Stock. --------------------------------------------------------- Subject to the terms and conditions of this Agreement, (a) the Company agrees to issue and sell to each Purchaser, and each Purchaser agrees, severally and not jointly, to purchase from the Company, at the Closing, the number of shares of the Company's Series C Convertible Participating Preferred Stock, par value $.01 per share (the "SERIES C PREFERRED"), set forth beside each Purchaser's name on Exhibit A, at a price of $200.00 per share. (The shares of Series C Preferred - --------- being acquired pursuant to this Agreement are collectively referred to herein as the "PURCHASED SHARES"). 1.2 Closing. The closing of the purchase and sale of the Purchased ------- Shares (the "CLOSING") shall take place at the offices of Fenwick & West LLP, 2 Palo Alto Square, Palo Alto, California 94306, or such other place as the Company and the Purchasers who have agreed to purchase a majority of the Purchased Shares listed on Exhibit A shall mutually agree, at 10:00 a.m., local --------- time, on a mutually agreed date occurring no later than the 10th day following the satisfaction or waiver of the conditions to Closing set forth in Sections 6 and 7 hereof (other than any such conditions which are capable of being satisfied only as of the Closing), but in no event later than April 16, 1997. The date on which the Closing occurs is referred to herein as the "CLOSING DATE." At the Closing, the Company shall deliver to each Purchaser a certificate or certificates registered in the name of such Purchaser representing the number of Purchased Shares that such Purchaser has agreed to purchase hereunder as shown in Exhibit A against payment of the purchase price --------- therefor in cash or by wire transfer in immediately available funds. 2. Representations, Warranties and Covenants of the Company. The Company -------------------------------------------------------- hereby represents and warrants to, and covenants with, each of the Purchasers as follows, except as set forth in the Schedule of Exceptions ("SCHEDULE OF EXCEPTIONS") delivered to the Purchasers (which Schedule of Exceptions shall be deemed to be representations and warranties to the Purchasers by the Company under this Section 2): 2.1 Organization, Good Standing and Qualification. The Company and --------------------------------------------- the Subsidiary (as hereinafter defined) are corporations duly organized, validly existing and in good standing under the laws of the States of Delaware and California, respectively, and have all requisite corporate power and authority to carry on their respective businesses as currently conducted and as currently proposed to be conducted. The Company and the Subsidiary each have qualified to do business and are in good standing for tax purposes in each jurisdiction in which the failure to so qualify and remain in good standing for tax purposes would have a material adverse effect on the business, properties, prospects or financial condition of the Company and the Subsidiary taken as a whole. The Company has delivered to each of the Purchasers true and accurate copies of (i) the Company's Third Amended and Restated Certificate of Incorporation, as amended by the Certificate of Amendment to Third Amended and Restated Certificate of Incorporation in the form delivered to the Purchasers, which will be filed before the Closing (collectively, the "RESTATED CERTIFICATE") and Amended and Restated Bylaws (the "RESTATED BYLAWS"), and (ii) the Subsidiary's Articles of Incorporation and Bylaws, each as amended through, and in effect on, the date hereof. Other than the filing of the Certificate of Designation (as defined below) and the Certificate of Amendment (as defined below), there shall be no amendments to, or other actions taken with respect to, the Restated Certificate or the Restated Bylaws prior to the Closing. 2.2 Certificate of Designation and Certificate of Amendment. The ------------------------------------------------------- Board of Directors and the stockholders of the Company have duly approved and adopted the Certificate of Designation of the Company attached hereto as Exhibit ------- B-1 setting forth the preferences, and relative, participating, optional and - --- other special rights and qualifications, limitations and restrictions of the Series C Preferred (the "CERTIFICATE OF DESIGNATION") pursuant to the Restated Certificate and Section 151 of the Delaware General Corporation Law (the "DGCL") and the Board of Directors and stockholders of the Company have duly approved and adopted the Certificate of Amendment attached hereto as Exhibit B-2 pursuant ----------- to Section 242 of the DGCL (the "CERTIFICATE OF AMENDMENT"). 2.3 Capitalization. Upon the filing of the Certificate of -------------- Designation with the Secretary of State of Delaware, the authorized capital stock of the Company shall consist of 180,277,660 shares of common stock, par value $.01 per share (the "COMMON STOCK"), and 14,522,613 shares of preferred stock, par value $.01 per share (the "PREFERRED STOCK"). The authorized shares of Common Stock shall be allocated as follows: (a) 150,000,000 shares shall be designated as "Series A Common Stock," (b) 15,400,000 shares shall be designated as "Series B Common Stock," and (c) 14,877,660 shares shall be designated as "Series K Common Stock." The authorized shares of Preferred Stock shall be allocated as follows: (i) 727,865 shares shall be designated as Series AM Convertible Participating Preferred Stock, par value $.01 per share (the "SERIES AM PREFERRED"), (ii) 1,553,000 shares shall be designated as Series AT Convertible Participating Preferred Stock, par value $.01 per share (the "SERIES AT PREFERRED"), (iii) 727,865 shares shall be designated as Series AX Convertible Participating Preferred Stock, par value $.01 per share (the "SERIES AX PREFERRED" and together with the Series AM Preferred and the Series AT Preferred, the "SERIES A PREFERRED"), (iv) 350,000 shares shall be designated as Series C Preferred, (v) 743,883 shares shall be designated as Series K Convertible Participating Preferred Stock, par value $.01 per share (the "SERIES K PREFERRED"), (vi) 770,000 shares shall be designated as Series T Convertible Participating Preferred Stock (the "SERIES T PREFERRED") and (vii) 9,650,000 shares shall be undesignated as to series and shall be issuable pursuant to authority granted in the Restated Certificate to the Board of Directors (the "SERIES PREFERRED STOCK"). Prior to the Closing, the Company shall have reserved and shall thereafter at all times keep reserved (x) such number of shares of Series B Common Stock as is sufficient to provide for the conversion of the Series T Preferred outstanding from time to time, (y) such number of shares of Series K Common Stock as is sufficient to provide for the conversion of the Series K Preferred outstanding from time to time, and (z) such number of shares of Series A Common Stock as is sufficient to provide for the conversion of the Series A Preferred and the Series C Preferred outstanding from time to time, the Series B Common Stock outstanding from time to time or issuable upon conversion of the Series T Preferred, and the Series K Common Stock outstanding from time to time or issuable upon conversion of the Series K Preferred. (The shares 2 of Series A Common Stock issuable upon conversion of the Purchased Shares are sometimes referred to herein as the "CONVERSION SHARES.") The authorized capital stock of the Subsidiary consists of 10,000,000 shares of common stock, without par value, and 5,000,000 shares of preferred stock, without par value. 2.4 Outstanding Securities. As of the date of this Agreement, the ---------------------- outstanding securities of the Company consist of 13,356,327 shares of Series A Common Stock, 727,865 shares of the Series AM Preferred, 1,553,000 shares of the Series AT Preferred, 727,865 shares of the Series AX Preferred, 743,883 shares of the Series K Preferred, 770,000 shares of the Series T Preferred, options to purchase an aggregate of 737,500 shares of Series A Common Stock, a warrant to purchase 200,000 shares of Series A Common Stock and warrants to be sold to Rogers Cablesystems Limited ("ROGERS") and Shaw Cablesystems Ltd. ("SHAW") or any other entity affiliated with Rogers and/or Shaw (collectively, the "CANADIAN PURCHASERS") to purchase 100,000 shares of the Series C Preferred initially convertible into an aggregate of 2,000,000 shares of Series A Common Stock (the "CANADIAN MSO WARRANTS"), subject to purchase by the Canadian Purchasers of Series C Preferred hereunder. The Company has reserved for issuance pursuant to its 1996 Incentive Stock Option Plan and its 1996 Incentive Stock Option Plan No. 2 (collectively, the "OPTION PLANS") an aggregate of 16,000,000 shares of Series A Common Stock for issuance to employees, officers, directors, consultants and independent contractors of the Company (less the number of ---- shares of Series A Common Stock purchased outside the Option Plans by employees, officers, directors, consultants and independent contractors of the Company, whether such purchases occur before or after the dates of the Plans, unless specifically provided otherwise in a resolution adopted by the Company's Board of Directors at the time it approves the sale of Series A Common Stock to such employee, officer, director, consultant or independent contractor, and plus the ---- number of shares of Series A Common Stock repurchased by the Company upon termination of any such person's employment or service relationship with the Company or upon exercise of the Company's right of first refusal upon transfers by such persons); the number of shares available for issuance under the Option Plans as of the date of this Agreement is 1,709,423 shares. As of the date of this Agreement, the outstanding securities of the Subsidiary consist of one (1) share of common stock, which is owned by the Company. Except as expressly provided herein, in that certain August 1, 1996 Amended and Restated Stockholders' Agreement among the Company, the stockholders of the Company set forth on Schedule I attached thereto and certain affiliates of such stockholders which are signatories thereto (the "STOCKHOLDERS' AGREEMENT"), in the Restated Certificate, in the Certificate of Amendment and in the Certificate of Designation, there are no other outstanding rights, options, warrants, preemptive rights, rights of first refusal or similar rights for the purchase or acquisition from the Company or the Subsidiary of any securities of the Company or the Subsidiary nor are there any commitments to issue or execute any such rights, options, warrants, preemptive rights, rights of first refusal or similar rights. The Company has delivered to the Purchasers a true and complete listing of the holders of the Company's outstanding stock, options, warrants and other securities, including the number of shares held, or issuable upon exercise, by each holder as of the date of this Agreement. 2.5 Current Board. Immediately prior to the Closing, the Company's -------------- Board of Directors consists of the following persons, each of whom has been duly elected or appointed in accordance with the Restated Bylaws: James Barksdale, Brendan Clouston, L. John Doerr, William Randolph Hearst III, Thomas A. Jermoluk, Bruce Ravenel, Brian L. Roberts, Larry Romrell and David Woodrow. Effective upon the Closing, subject to the purchase by the 3 Canadian Purchasers of an aggregate of $30,000,000 of Series C Preferred, the Company's Board of Directors shall consist of eleven members, which shall consist of the individuals listed in the immediately preceding sentence, plus one nominee of TCI Internet Holdings, Inc. and one nominee of Rogers and Shaw jointly. Immediately prior to the Closing, the Subsidiary's Board of Directors consists of the following person who has been duly elected or appointed in accordance with the Bylaws of the Subsidiary: Thomas A. Jermoluk. 2.6 Subsidiaries. Except for its wholly-owned subsidiary athome.net, ------------ a California corporation (the "SUBSIDIARY"), the Company does not presently own or control, directly or indirectly, any interest in any other corporation, partnership, trust, joint venture, association or other entity. 2.7 Authorization. The Company has full power and authority to ------------- execute, deliver and perform its obligations under each of this Agreement and the Registration Rights Agreement (as defined in Section 2.13 below) (the Registration Rights Agreement and this Agreement are hereinafter referred to collectively as the "TRANSACTION AGREEMENTS"). All corporate action on the part of the Company necessary for the authorization, execution and delivery of the Transaction Agreements and the performance of all obligations of the Company hereunder and thereunder has been taken or will be taken prior to Closing. Each of the Transaction Agreements, when executed and delivered by the Company, assuming the due execution and delivery thereof by the other parties hereto or thereto, shall constitute a valid and legally binding obligation of the Company, enforceable against it in accordance with its terms, subject to: (a) judicial principles limiting the availability of specific performance, injunctive relief and other equitable remedies, (b) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect generally relating to or affecting creditors' rights, and (c) limitations on the enforceability of the indemnification and contribution provisions of the Registration Rights Agreement imposed by law or public policy. 2.8 Consents and Approvals; No Conflict. The execution, delivery and ----------------------------------- performance of each of the Transaction Agreements and the consummation of each of the transactions contemplated hereby and thereby (including the offering, sale and issuance of the Purchased Shares and the issuance of the Conversion Shares) do not and will not (a) conflict with or result in a breach of the terms, conditions or provisions of, (b) with or without notice or lapse of time or both, constitute a default under, (c) result in the creation of any lien, security interest, charge or encumbrance upon the Company's or the Subsidiary's capital stock or assets pursuant to, (d) with or without notice or lapse of time or both, give any third party the right to accelerate, cancel or terminate any obligation under, (e) result in a violation of, or (f) require any order, qualification, waiver, permit, authorization, consent, approval, exemption or other action by or from, or any registration, notice, declaration, application or filing to or with, any court or administrative or governmental body or any other person or entity pursuant to (i) the Restated Certificate, the Certificate of Amendment, the Certificate of Designation or the Restated Bylaws of the Company or the Articles of Incorporation or the Bylaws of the Subsidiary, (ii) any agreement to which the Company or the Subsidiary is a party or is bound or to which either of their assets are subject or (iii) any law, statute, rule or regulation to which the Company or the Subsidiary is subject; provided, however, -------- ------- that with respect to clause (f) of this Section 2.8, such representation and warranty is made to the actual knowledge of the Company (without any investigation) as to any such requirements applicable to the Company as a result of the specific legal or regulatory status of any Purchaser or as a result of any other facts that specifically relate 4 to any Purchaser, any business in which any such Purchaser has engaged or proposes to engage or any financing arrangements or transactions entered into or proposed to be entered into by or on behalf of any such Purchaser. 2.9 Valid Issuance of Purchased and Conversion Shares. The Purchased ------------------------------------------------- Shares, when issued, sold and delivered in accordance with the terms of this Agreement will be duly authorized, validly issued, fully paid and nonassessable, free of any liens, claims, charges, security interests, pledges or encumbrances of any kind (other than restrictions on voting or transfer created herein and in the Registration Rights Agreement, or created by the applicable Purchaser or as a result of applicable state and federal securities laws) and will possess all of the rights, privileges and preferences provided therefor in the Certificate of Designation, the Certificate of Amendment and the Restated Certificate. The Conversion Shares will have been duly and validly reserved for issuance prior to the Closing and, upon issuance in accordance with the terms of the Certificate of Designation, the Certificate of Amendment and the Restated Certificate, will be duly authorized, validly issued, fully paid and nonassessable, free of any liens, claims, charges, security interests, pledges or encumbrances of any kind (other than restrictions on voting or transfer created herein and in the Registration Rights Agreement, or created by the applicable Purchaser or as a result of applicable state and federal securities laws) and will possess all of the rights and powers provided therefor in the Certificate of Designation, the Certificate of Amendment and the Restated Certificate. 2.10 No Registration Required. Based in part on the representations ------------------------ made by the Purchasers in Section 3 hereof, the Purchased Shares and (assuming no change in applicable law and no unlawful distribution of Purchased Shares by Purchasers or other parties) the Conversion Shares will be issued in full compliance with the registration and prospectus delivery requirements of the U.S. Securities Act of 1933, as amended (the "SECURITIES ACT") and the registration and qualification requirements of the securities laws of the States of California, Delaware and the appropriate U.S. jurisdictions listed on Exhibit ------- D (provided that, with respect to the Conversion Shares, no commission or other - - -------- ---- remuneration is paid or given, directly or indirectly, for soliciting the issuance of Conversion Shares upon the conversion of the Purchased Shares and no additional consideration is paid for the Conversion Shares other than surrender of the applicable Purchased Shares upon conversion thereof in accordance with the Certificate of Designation, the Certificate of Amendment and the Restated Certificate). 2.11 Litigation. The Schedule of Exceptions sets forth any action, ---------- suit or proceeding pending or, to the best of the Company's knowledge, any investigation pending or any action, suit, proceeding or investigation threatened against, involving or affecting the Company or the Subsidiary or either of their respective properties. There is no action, suit or proceeding pending or, to the best of the Company's knowledge, any investigation pending or any action, suit, proceeding or investigation threatened against, involving or affecting the Company or the Subsidiary or any of their respective properties, nor is there any judgment, decree, injunction, rule or order of any court, governmental department, commission, agency, instrumentality or arbitrator outstanding against the Company or the Subsidiary, which questions the validity of any of the Transaction Agreements or the right of Company to enter into any of them, or to consummate the transactions contemplated hereby or thereby, or which could have, either individually or in the aggregate, a material adverse effect on the condition (financial or otherwise), business, property, results of operations, assets or liabilities of the Company and the Subsidiary taken as a whole. 5 2.12 Status of Proprietary Assets. ---------------------------- (a) Status. To the best of the Company's knowledge, the Company ------ and the Subsidiary each have full title and ownership of, or are duly licensed under or otherwise have the right to use, all patents, patent applications, trademarks, service marks, trade names, copyrights, mask works, trade secrets, confidential and proprietary information, designs and proprietary rights material to and used in their business as now conducted or as contemplated to be conducted (all of the foregoing collectively hereinafter referred to as the "PROPRIETARY ASSETS"), free and clear of any adverse claims, liens or encumbrances of any kind (except for statutory liens for the payment of current taxes that are not yet delinquent and liens, encumbrances and security interests which arise in the ordinary course of business and which do not materially affect the Proprietary Assets of the Company and the Subsidiary taken as a whole), without any conflict with or infringement of the rights of others, and such Proprietary Assets are sufficient to allow the Company to conduct its business as now conducted and as contemplated to be conducted. The Company has not received any notice asserting that it or the Subsidiary is infringing any proprietary rights of any third party. To the best of the Company's knowledge without having made any independent investigation, no third party is infringing any Proprietary Asset, except for such infringements, if any, as would not, either individually or in the aggregate, have a material adverse effect on the condition (financial or otherwise), business, property, results of operations, assets or liabilities of the Company and the Subsidiary taken as a whole. Section 2.12(a) of the Schedule of Exceptions sets forth a list of all pending applications for and issued patents, trademark and service mark registrations and copyright registrations that are material to the Company and the Subsidiary taken as a whole. (b) Licenses; Other Agreements Relating to Proprietary Assets. --------------------------------------------------------- Neither the Company nor the Subsidiary has granted any material options, licenses or agreements relating to any Proprietary Asset of the Company or the Subsidiary, nor is the Company or the Subsidiary obligated to pay any royalties or other payments to third parties with respect to the marketing, sale, distribution, manufacture, license or use of any Proprietary Asset. 2.13 Registration Rights. Except as provided in the Third Amended ------------------- and Restated Registration Rights Agreement, in the form of Exhibit C attached --------- hereto (the "REGISTRATION RIGHTS AGREEMENT") to be entered into at or prior to the Closing and except as provided in that certain October 17, 1996 Second Amended and Restated Registration Rights Agreement (the "PRIOR REGISTRATION RIGHTS AGREEMENT"), which is to be replaced and superseded in its entirety by the Registration Rights Agreement, neither the Company nor the Subsidiary has granted or agreed to grant to any person or entity any rights (including piggyback registration rights) to have any securities of the Company or the Subsidiary registered with the United States Securities and Exchange Commission ("SEC") or any other governmental authority. 2.14 Title to Property and Assets. The properties and assets the ---------------------------- Company or the Subsidiary owns are owned by the Company or the Subsidiary, respectively, free and clear of all adverse claims, mortgages, deeds of trust, liens, encumbrances and security interests except for statutory liens for the payment of current taxes that are not yet delinquent and liens, encumbrances and security interests which arise in the ordinary course of business and which do not materially affect properties and assets of the Company and the Subsidiary taken as a whole, and such properties and assets are, to the best of the Company's knowledge, sufficient to allow the Company to conduct its business as now conducted and as contemplated to be conducted. 6 With respect to the property and assets they lease, the Company and the Subsidiary each have a valid leasehold interest in such property and assets and are in material compliance with such leases. 2.15 Financial Statements; Undisclosed Liabilities; No Material ---------------------------------------------------------- Adverse Changes. --------------- (a) Financial Statements. The Company has separately delivered -------------------- to the Purchasers an unaudited consolidated balance sheet of the Company dated December 31, 1996 (the "BALANCE SHEET DATE"), an unaudited consolidated balance sheet of the Company dated December 31, 1996, an audited consolidated balance sheet of the Company dated December 31, 1995, an unaudited consolidated income statement of the Company for the year ended December 31, 1996 and an audited consolidated income statement of the Company for the year ended December 31, 1995 (such consolidated financial statements being collectively referred to herein as the "FINANCIAL STATEMENTS"). The Financial Statements (a) are in accordance with the books and records of the Company, (b) are true, correct and complete and present fairly the financial condition of the Company and the Subsidiary at the date or dates therein indicated and the results of operations for the period or periods therein specified, and (c) have been prepared in accordance with generally accepted accounting principles applied on a consistent basis, except, as to the unaudited financial statements, for the omission of notes thereto and normal year-end audit adjustments which in the aggregate will not be material. (b) No Material Undisclosed Liabilities. Neither the Company ----------------------------------- nor the Subsidiary has any liability, individually or in the aggregate, contingent or otherwise, that is material to the financial condition of the Company and the Subsidiary taken as a whole, which is not reflected on or provided for in the Financial Statements, except as set forth on the Schedule of Exceptions. (c) No Material Adverse Changes. Since the Balance Sheet Date, --------------------------- there has not been any event or change which could reasonably be expected to materially and adversely affect the condition (financial or otherwise), business, property, results of operations, assets or liabilities of the Company and the Subsidiary taken as a whole, except that since the Balance Sheet Date, the Company has continued to incur substantial expenses and operating losses in the ordinary course of its business. 2.16 Disclosure. The representations and warranties made by the ---------- Company in this Agreement, including the Exhibits hereto, the Schedule of Exceptions and the Confidential Offering Memorandum dated January 13, 1997 (the "OFFERING MEMORANDUM") and the Supplement to Confidential Offering Memorandum dated April 1, 1997 (the "SUPPLEMENT"), when read together, do not contain any untrue statement of a material fact and do not omit to state a material fact necessary to make the statements herein or therein, in light of the circumstances under which they were made, not misleading. 2.17 ERISA Plans. Neither the Company nor the Subsidiary has any ----------- Employee Pension Benefit Plan as defined in Section 3 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The Company is not, nor was it at any time, obligated to contribute to any employee pension benefit plan which is or was a multi-employer plan within the meaning of Section 3(37) of ERISA. 7 2.18 Tax Returns and Payments. The Company and the Subsidiary have ------------------------ timely filed all tax returns and reports required by law that are material to the Company and the Subsidiary taken as a whole and have never been audited as to any material matter by any state or federal taxing authority. All tax returns and reports of the Company and the Subsidiary are true and correct in all material respects. The Company and the Subsidiary have paid all taxes required by law, except for such, if any, as, together with any related interests or penalties, could not, either individually or in the aggregate, reasonably be expected to have a material adverse effect on the condition (financial or otherwise), business, property, results of operations, assets or liabilities of the Company and the Subsidiary taken as a whole. 2.19 Labor Agreements and Actions. Neither the Company nor the ---------------------------- Subsidiary is bound by or subject to any contract, commitment or arrangement with any labor union, and to the best of the Company's knowledge, no labor union has requested, sought or attempted to represent any employees, representatives or agents of the Company or the Subsidiary. There is no strike or other labor dispute involving the Company or the Subsidiary pending nor, to the best of the Company's knowledge, threatened, nor is the Company aware of any labor organization activity involving its or the Subsidiary's employees. Neither the Company nor the Subsidiary has committed any unfair labor practice. 2.20 Governmental Consents. No consent, approval, order or --------------------- authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company or the Subsidiary is required in connection with the consummation of the transactions contemplated by this Agreement, except for: (i) the filing of ------ --- a Notice of Transaction pursuant to Section 25102(f) of the California Corporate Securities Law of 1968, as amended, and the rules thereunder (the "CALIFORNIA SECURITIES LAW"), which filing will be effected within the time prescribed by law; and (ii) such other qualifications or filings under the Securities Act and the regulations thereunder and all other applicable securities laws as may be required in connection with the transactions contemplated by this Agreement, including, without limitation, filings under state "blue sky" securities laws in connection with the conversion of the Purchased Shares and issuance of the Conversion Shares. All such qualifications and filings will, in the case of qualifications, be effective on the Closing and will, in the case of filings, be made within the time prescribed by law. 2.21 Brokers or Finders. There is no investment banker, broker, ------------------ agent, financial advisor or other person or entity which has been retained by or is authorized to act on behalf of the Company who is or will be entitled to any fee, commission, reimbursement of expenses or other similar charge upon consummation of or otherwise in connection with this Agreement or any of the transactions contemplated hereby, other than Deutsche Morgan Grenfell. The Company agrees to indemnify and hold each of the Purchasers and their respective agents, officers, directors and employees harmless from and against any and all claims, liabilities or obligations with respect to any such fees, commissions, expenses or claims (including the costs, expenses and legal fees of defending against such liability) for which the Company or the Subsidiary, or any of the employees or representatives thereof, is responsible, including all amounts payable to Deutsche Morgan Grenfell in connection with the consummation of the transactions contemplated hereby. 8 2.22 Registration Rights Agreement. Subject to fulfillment of the ----------------------------- applicable conditions to Closing set forth in Section 7, the Company agrees to enter into the Registration Rights Agreement in the form attached hereto as Exhibit C at or prior to the Closing. - --------- 2.23 Reasonable Efforts. The Company agrees to use its commercially ------------------ reasonable efforts to cause each condition to the Closing set forth in Sections 6 and 7 hereof, insofar as satisfaction of such condition requires any action by or otherwise is in the control of the Company, to be satisfied as soon as reasonably practicable and, in general, to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as reasonably practicable the purchase and sale of the Purchased Shares in accordance with the terms of this Agreement. 2.24 Material Agreements. Section 2.24 of the Schedule of Exceptions ------------------- sets forth each contract, lease, license and other agreement to which the Company or the Subsidiary is a party or by which either of them is bound that is material to the business of the Company, including without limitation any employment, consulting or other agreement between the Company and any of its directors or executive officers in which the annual amount involved exceeds $60,000.00 ("MATERIAL AGREEMENTS") (i) that has not previously been delivered to special counsel to the Purchasers, or (ii) that, if based on a form of agreement previously delivered to special counsel to the Purchasers, contains different terms resulting in a materially different economic effect from the terms set forth in such forms of agreement. To the best of the Company's knowledge, there is no written contract currently under negotiation by the Company (i) as to which the Company believes negotiations are substantially complete and (ii) which, when entered into, could reasonably be expected to have a material effect on the condition (financial or otherwise), business, property, results of operations, assets or liabilities of the Company and the Subsidiary taken as a whole, other than those contracts under negotiation that have been disclosed to special counsel for the Purchasers. To the best of the Company's knowledge, the Company has not breached, nor does the Company have any knowledge of any claim or threat by a third party that the Company has breached, any term or condition of (i) any Material Agreement, or (ii) any other agreement, contract, lease, license, instrument or commitment which breaches, individually or in the aggregate, would have a material adverse effect on the condition (financial or otherwise), business, property, results of operations, assets or liabilities of the Company and the Subsidiary taken as a whole. Each Material Agreement is in full force and effect and, to the best of the Company's knowledge, no other party to such Material Agreement is in material default thereunder. 2.25 Compliance with Law. The Company is in compliance with all ------------------- applicable statutes, laws, regulations and executive orders of the United States of America and all states, foreign countries or other governmental bodies and agencies having jurisdiction over the Company's business or properties except for any violations that could not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the condition (financial or otherwise), business, property, results of operations, assets or liabilities of the Company and the Subsidiary, taken as a whole. 2.26 Environmental Matters. To the best of the Company's knowledge, --------------------- throughout its existence, the Company has, in all material respects, (i) complied with, and continues to comply with, all applicable local, state and federal environmental laws, ordinances, 9 regulations and orders (collectively, "ENVIRONMENTAL LAWS"), (ii) disposed of its waste products and effluents in accordance with all applicable Environmental Laws, and (iii) distributed its products in accordance with all Environmental Laws. During the time that the Company has owned or leased its properties and facilities, there has been no litigation brought or threatened against the Company, or any settlement reached by the Company with any party or parties, alleging the presence, disposal, release or threatened release of any Hazardous Materials (as defined below) on, from or under any of such properties or facilities. For the purpose of this Section, "Hazardous Materials" shall mean any hazardous or toxic substance, material or waste which is or becomes prior to the Closing regulated under, or defined as a "hazardous substance," "pollutant," "contaminant," "toxic chemical," "hazardous material," "toxic substance," or "hazardous chemical" under (1) the Comprehensive Environment Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et -- seq., as amended ("CERCLA"); (2) the Emergency Planning and Community - --- Right-to-Know Act, 42 U.S.C. Section 1801, et seq.; (3) the Toxic Substances -- --- Control Act, 14 U.S.C. Section 2601 et seq.; (4) the Occupational Safety and -- --- Health Act of 1970, 27 U.S.C. Section 651 et seq.; (5) regulations promulgated -- --- under any of the above statutes; or (6) any applicable state or local statute, ordinance, rule, or regulation that has a scope or purpose similar to those statutes identified above. 2.27 Insurance. The Schedule of Exceptions sets forth a list of the --------- material policies of insurance that are applicable to the Company or the Subsidiary. The Company has made available to counsel to the Purchasers true and complete copies of such insurance policies. 2.28 Employee Confidentiality Agreement. The Company has obtained ---------------------------------- from each employee with access to confidential or proprietary information of the Company a confidentiality agreement substantially in the form made available to special counsel to the Purchasers, except for such failures, if any, to obtain such agreements from such employees as could not, either individually or in the aggregate, reasonably be expected to have a material adverse effect on the condition (financial or otherwise), business, property, results of operations, assets or liabilities of the Company and the Subsidiary taken as a whole. 2.29 Dividends. The Company has not declared or paid any dividends, --------- or authorized or made any distributions upon or with respect to, any class or series of its capital stock. 3. Representations, Warranties and Covenants of the Purchasers. Each ----------------------------------------------------------- Purchaser, on behalf of itself and not jointly with the other Purchasers, hereby represents and warrants to, and covenants with, the Company as follows: 3.1 Experience. Such Purchaser is experienced in evaluating start-up ---------- companies such as the Company, and has such knowledge and experience in financial and business matters to enable such Purchaser to evaluate the merits and risks of such Purchaser's prospective investment in the Company, and such Purchaser has the ability to bear the economic risks of such investment. 3.2 Investment. Such Purchaser is acquiring the Purchased Shares and ---------- any Conversion Shares solely for the purpose of investment for such Purchaser's own account, not as a nominee or agent, and not with a view to, or for offer or sale in connection with, any 10 distribution thereof in any transaction which would be in violation of the securities laws of the United States of America or any state thereof. Such Purchaser does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to any third person with respect to any of the Purchased Shares or the Conversion Shares. Such Purchaser understands that the Purchased Shares and the Conversion Shares have not been registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent as expressed herein. 3.3 Accredited Purchaser Status. Such Purchaser is an "accredited --------------------------- investor" within the meaning of Regulation D promulgated under the 1933 Act. 3.4 Restricted Securities. Such Purchaser understands that the --------------------- Purchased Shares and any Conversion Shares may not be sold, transferred or otherwise disposed of without registration under the Securities Act or the availability of an exemption therefrom, and that in the absence of an effective registration statement covering such stock or an available exemption from registration, the Purchased Shares and any Conversion Shares must be held indefinitely. In the absence of an effective registration statement under the Securities Act with respect to the Purchased Shares or any Conversion Shares such Purchaser shall notify the Company of any proposed disposition by such Purchaser of any Purchased Shares or any Conversion Shares, shall furnish the Company with a statement of the circumstances surrounding the proposed disposition and, if reasonably requested by the Company, shall furnish the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require the registration of such Purchased Shares or such Conversion Shares under the Securities Act. Such Purchaser shall not sell, transfer or otherwise dispose of any Purchased Shares or any Conversion Shares except in a manner fully consistent with its representations contained in this Section 3 and otherwise in full compliance with the terms and conditions of this Agreement and the provisions of applicable law. Such Purchaser understands that no public market now exists for any of the Purchased Shares and that the Company is under no obligation to register any of the securities sold hereunder except as provided in the Registration Rights Agreement. 3.5 Authorization. Such Purchaser is a corporation or partnership ------------- duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and has full corporate or partnership power and authority to execute, deliver and perform its obligations under each of the Transaction Agreements to which it is a party. Such Purchaser has taken all corporate or partnership action necessary to authorize the execution, delivery and performance of its obligations under each of the Transaction Agreements to which it is a party, and each such Transaction Agreement, when executed and delivered by such Purchaser, assuming the due execution and delivery thereof by the other parties hereto or thereto, shall constitute a valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, subject to: (i) judicial principles respecting election of remedies or limiting the availability of specific performance, injunctive relief, and other equitable remedies; (ii) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect generally relating to or affecting creditors' rights; and (iii) limitations on the enforceability of the indemnification and contribution provisions of the Registration Rights Agreement imposed by law or public policy. 11 3.6 Consents and Approvals; No Conflict. Except as set forth on ----------------------------------- Schedule 3.6 and except as could not reasonably be expected, individually or in the aggregate, to have a material adverse effect on such Purchaser's ability to perform its obligations hereunder, the execution, delivery and performance of each of the Transaction Agreements to which such Purchaser is a party and the consummation of each of the transactions contemplated hereby or thereby do not and will not (a) conflict with or result in a breach of the terms, conditions or provisions of, (b) with or without notice or lapse of time or both, constitute a default under, (c) result in the creation of any lien, security interest, charge or encumbrance upon any material properties or assets pursuant to, (d) with or without notice or lapse of time or both, give any third party the right to accelerate, cancel or terminate any obligation under, (e) result in a violation of, or (f) require any order, qualification, waiver, permit, authorization, consent, approval, exemption or other action by or from, or any registration, notice, declaration, application or filing to or with, any court or administrative or governmental body or any other person or entity pursuant to (i) the Certificate (or Articles) of Incorporation, Bylaws, partnership agreement (or other governing documents) of such Purchaser, (ii) any agreement to which such Purchaser is a party or is bound or to which its assets are subject or (iii) any law, statute, rule or regulation to which such Purchaser is subject; provided, however, that with respect to clause (f) of this Section 3.6, -------- ------- such representation and warranty is made to the actual knowledge of such Purchaser as to any such requirements applicable to such Purchaser as a result of the specific legal or regulatory status of any other party to this Agreement or as a result of any other facts that specifically relate to any such other party, any business in which any such other party has engaged or proposes to engage or any financing arrangements or transactions entered into or proposed to be entered into by or on behalf of any such other party. 3.7 Disclosure of Information. Such Purchaser has received or has ------------------------- had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the Purchased Shares to be purchased by such Purchaser under this Agreement, including but not limited to the Term Sheet dated as of June 4, 1996, the Stock Purchase and Exchange Agreement, dated as of August 1, 1996, and the Amended and Restated Stockholders' Agreement, dated as of August 1, 1996, in each case among the Company, certain of its stockholders and certain affiliates of such stockholders, the Prior Registration Rights Agreement, the Offering Memorandum and the Supplement. Such Purchaser further has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Purchased Shares and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to such Purchaser or to which such Purchaser had access. The foregoing, however, does not in any way limit or modify the representations and warranties made by the Company in Section 2 or any of the other Transaction Agreements. 3.8 Information Concerning Purchaser. Exhibit D hereto sets forth -------------------------------- --------- such Purchaser's jurisdiction of organization, the location of said Purchaser's principal office and the jurisdiction in which such Purchaser will accept the Company's offer to sell the Purchased Shares and will purchase the Purchased Shares. 3.9 Brokers or Finders. There is no investment banker, broker, ------------------ agent, financial advisor or other person or entity which has been retained by or is authorized to act on behalf of such Purchaser who is or will be entitled to any fee, commission, reimbursement of 12 expenses or other similar charge upon consummation of or otherwise in connection with this Agreement or any of the transactions contemplated hereby. Such Purchaser agrees to indemnify and hold harmless the Company and its agents, officers, directors and employees from and against any and all claims, liabilities or obligations with respect to any such fees, commissions, expenses or claims (including the costs, expenses and legal fees of defending against such liability) for which such Purchaser, or any of its partners, employees or representatives, is responsible. 3.10 Registration Rights Agreement. Subject to fulfillment of the ----------------------------- applicable conditions to Closing set forth in Section 6, such Purchaser agrees to enter into the Registration Rights Agreement in the form attached hereto as Exhibit C at or prior to the Closing. - --------- 3.11 Reasonable Efforts. Such Purchaser agrees to use its ------------------ commercially reasonable efforts to cause each condition to the Closing set forth in Sections 6 and 7 hereof, insofar as satisfaction of such condition requires any action by or otherwise is in the control of such Purchaser, to be satisfied as soon as reasonably practicable and, in general, to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as reasonably practicable the purchase and sale of the Purchased Shares in accordance with the terms of this Agreement. 4. Transfer Restrictions; Preferred Stockholders' Right of First Refusal; ---------------------------------------------------------------------- Company Right of First Offer; Voting; Legends; Notations. - -------------------------------------------------------- 4.1 Transfer Restrictions. --------------------- (a) Subject to the terms of the Canadian Purchase Agreement (as defined in the Schedule of Exceptions) with respect to the Purchased Shares and Conversion Shares held by the Canadian Purchasers and their permitted transferees, in consideration for the issuance of the Purchased Shares, each Purchaser shall not sell, transfer or otherwise dispose of all or any portion of the Purchased Shares or the Conversion Shares until the earlier of: (i) the closing of the Company's initial public offering of Series A Common Stock (or any other equity security) pursuant to a registration statement filed with and declared effective by the SEC (the "COMPANY IPO"); or (ii) June 4, 2001; provided, however that if the Company IPO has not occurred prior to June 4, 2001, from June 4, 2001 to the earlier of (A) the Company IPO or (B) June 4, 2006, then any transfer of Purchased Shares or Conversion Shares by a Purchaser shall be subject to a right of first offer in favor of the Company or the Company's assignee, as more fully described in Section 4.2. (b) Notwithstanding the restrictions on disposition set forth above in this Section 4.1, a Purchaser may without complying with Sections 4.1 and 4.2, make a disposition of all or any portion of the Purchased Shares or the Conversion Shares (i) to any Controlled Affiliate of such Purchaser, (ii) in connection with a merger of the Company in which the outstanding securities of the Company are converted into or exchanged for securities of the acquiring entity (or its parent), (iii) subject to compliance with the procedures described in Section 4.1(c) below, to one or more other stockholders of the Company, or (iv) in connection with the liquidation or sale of all or substantially all of the assets of such Purchaser; provided, -------- 13 that in each case, each transferee agrees in writing to be subject to the terms of this Section 4 to the same extent as if the transferee were an original Purchaser hereunder. A "CONTROLLED AFFILIATE" of a Purchaser shall mean any Person (i) which now or in the future is Controlled by such Purchaser, (ii) which now or in the future owns (directly or indirectly through one or more wholly owned subsidiaries) 100% of the outstanding capital stock of such Purchaser as of the date of this Agreement (a "PARENT"), or (iii) of which now or in the future more than 50% of the equity interests and voting power of its outstanding capital stock is owned by a Parent of such Purchaser. "CONTROL" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, management agreement or otherwise. (c) If at any time after the Closing a Purchaser proposes to make a sale, transfer or other disposition of the Purchased Shares or Conversion Shares pursuant to clause (iii) of Section 4.1(b) above to another stockholder of the Company who is not a Purchaser of Purchased Shares, the Purchaser shall first notify the Company of its desire to enter into such a transaction (such notice, a "ROFR NOTICE"). Each ROFR Notice shall constitute an offer by such Purchaser to sell to the other holders of Preferred Stock of the Company (the "ROFR STOCKHOLDERS") all of the Purchased Shares and/or Conversion Shares such Purchaser proposes to sell, transfer or otherwise dispose of (such securities, the "ROFR SHARES"). The Company shall promptly deliver the ROFR Notice to each ROFR Stockholder, together with a statement of such ROFR Stockholder's pro rata portion of the ROFR Shares. Each ROFR Notice shall set forth the type and amount of ROFR Shares such Purchaser proposes to sell, transfer or otherwise dispose of and shall specify the price per share (determined on an as converted into Series A Common Stock basis) and other terms at which such Purchaser will sell, transfer or otherwise dispose of the ROFR Shares. The price for the ROFR Shares shall be payable in cash. (d) Each ROFR Stockholder shall have the right to purchase all of such ROFR Stockholder's pro rata portion of the ROFR Shares, based on the proportion that the number of shares of Series A Common Stock held by such ROFR Stockholder (determined on an as-converted basis) bears to the total number of shares of Series A Common Stock (determined on an as-converted basis) held by all ROFR Stockholders. If a ROFR Stockholder desires to accept the offer set forth in the ROFR Notice, the ROFR Stockholder shall deliver a notice (the "ROFR ACCEPTANCE NOTICE") to the Company within twenty (20) days after the date the Company delivers the ROFR Notice. The ROFR Acceptance Notice shall constitute the ROFR Stockholder's binding agreement to purchase the amount of its pro rata portion of the ROFR Shares set forth in such ROFR Stockholder's ROFR Acceptance Notice on the terms set forth in the ROFR Notice. (e) The closing of the purchase and sale of the ROFR Shares with respect to which ROFR Acceptance Notices have been received shall take place at a time and place determined by the Company within forty-five (45) days after expiration of the twenty (20) day period referred to in the preceding paragraph (subject to extension for a maximum of sixty (60) additional days to the extent required to obtain all required governmental, regulatory and other third party consents and approvals, provided the parties to such transaction are each using commercially reasonable efforts to obtain such consents and approvals). As to ROFR Shares which are not purchased pursuant to such ROFR Acceptance Notices, the Purchaser shall have the right, at any time during the ninety (90) day period beginning after expiration of the twenty (20) day period referred to in the preceding paragraph, to enter into a binding agreement to sell 14 all of such ROFR Shares to a third party purchaser on terms and conditions no more favorable to such third party purchaser than those set forth in the ROFR Notice, and thereafter (within the period specified below) to sell all of the ROFR Shares to such third party purchaser pursuant to such agreement. If the Purchaser does not enter into such an agreement during such ninety (90) day period, or does not close the sale thereunder within one hundred twenty (120) days from the expiration of the twenty (20) day period referred to in the preceding paragraph (subject to extension for a maximum of sixty (60) additional days to the extent required to obtain all required governmental, regulatory and other third party consents and approvals, provided the parties to such transaction are each using commercially reasonable efforts to obtain such consents and approvals), the procedure set forth above with respect to the ROFR Notice shall be repeated with respect to any subsequent proposed transfer of Purchased Shares or Conversion Shares pursuant to clause (C) of the second paragraph of Section 4.1(b) above to another stockholder of the Company who is not a Purchaser of Purchased Shares. 4.2 Company Right of First Offer. ---------------------------- (a) In the event a Purchaser proposes to make a sale, transfer or other disposition of the Purchased Shares or Conversion Shares, which sale, transfer or other disposition is subject to the Company's right of first offer pursuant to the proviso to Section 4.1(a)(ii) above, the Purchaser shall first notify the Company of its desire to enter into such a transaction (such notice, a "ROFO NOTICE"). Each ROFO Notice shall constitute an offer by such Purchaser to sell to the Company, or the Company's assignee, all of the Purchased Shares and/or Conversion Shares such Purchaser proposes to sell, transfer or otherwise dispose of (such securities, the "ROFO SHARES"). Each ROFO Notice shall set forth the type and amount of ROFO Shares such Purchaser proposes to sell, transfer or otherwise dispose of and shall specify the price per share (determined on an as converted into Series A Common Stock basis) at which such Purchaser will sell, transfer or otherwise dispose of the ROFO Shares. Unless otherwise agreed by the Purchaser and the Company (or its assignee), the price for the ROFO Shares shall be payable in cash. (b) If the Company (or its assignee) desires to accept the offer set forth in the ROFO Notice as to all but not less than all of the ROFO Shares, the Company (or its assignee) shall, within ten Business Days (as defined in Section 8.1, below) of its receipt of the ROFO Notice, notify the Purchaser in writing of its agreement to acquire the ROFO Shares. (c) In the event the Company (or its assignee) rejects the offer contained in the ROFO Notice, which rejection shall be deemed to have occurred in the event the Company (or its assignee) (i) has not accepted the offer contained in the ROFO Notice within ten (10) Business Days following its receipt of the ROFO Notice, or (ii) if the Company is not able to close the sale pursuant to the ROFO Notice after timely accepting the offer contained in the ROFO Notice, within one hundred twenty (120) days from acceptance (subject to extension for a maximum of sixty (60) additional days to the extent required to obtain all required governmental, regulatory and other third party consents and approvals, provided the Purchaser and the Company are each using commercially reasonable efforts to obtain such consents and approvals), then the Purchaser shall have the right, at any time during the sixty (60) day period beginning on the date that the Purchaser's offer of the ROFO Shares is, or is deemed, rejected or the expiration date of such 120-day period (as may be extended) above (such applicable date, the "ROFO DATE"), to enter into a binding agreement to sell all of the ROFO Shares to a third party purchaser on terms 15 conditions no more favorable to such third party purchaser than those set forth in the ROFO Notice, and thereafter (within the period specified below in this Section 4.2(c)) to sell all of the ROFO Shares to such third party purchaser pursuant to such agreement. If the Purchaser does not enter into such an agreement during such sixty (60) day period, or does not close the sale thereunder within one hundred twenty (120) days from the ROFO Date (subject to extension for a maximum of sixty (60) additional days to the extent required to obtain all required governmental, regulatory and other third party consents and approvals, provided the Purchaser and the third party purchaser are each using commercially reasonable efforts to obtain such consents and approvals), the procedure set forth above with respect to the ROFO Notice shall be repeated with respect to any subsequent proposed transfer of Purchased Shares or Conversion Shares. (d) An unaffiliated third party purchaser acquiring Purchased Shares or Conversion Shares in accordance with the foregoing procedures shall acquire such shares free and clear of any obligations under this Section 4.2 but subject to the other obligations of transferees under this Agreement. 4.3 Voting Agreement. In consideration of the sale of the Purchased ---------------- Shares by the Company to each Purchaser, such Purchaser hereby agrees that, with respect to any matter upon which the separate vote of the holders of the Company's Series A Common Stock is required under Section 242(b) of the Delaware General Corporation Law prior to the closing of the Company IPO, such Purchaser will cast all votes attributable to such Purchaser's shares of Series A Common Stock in the same proportion as the holders of the Company's outstanding shares of such Series AM, Series AT, Series AX, Series K and Series T Preferred Stock or any other series of stock designated in the Restated Certificate, as amended from time to time, as Convertible Preferred Stock (the "CONVERTIBLE PREFERRED STOCK") cast their votes upon such matter, or, if there are no such shares of Convertible Preferred Stock outstanding, in the same manner as the holders of the Company's outstanding shares of Series B Common Stock cast their votes upon such matter. Each Purchaser hereby irrevocably appoints the Secretary of the Company, or any other person designated by the Secretary of the Company, to act as such Purchaser's proxy until the Company IPO to cast all votes attributable to such Purchaser's shares of Series A Common Stock as specified in this Section 4.3. The obligations of this Section 4.3 shall be binding on any transferee to whom the Purchased Shares or such shares of Series A Common Stock are transferred by such Purchaser and any subsequent transferee. As a condition of any transfer of the Purchased Shares or Conversion Shares prior to the Company IPO, each Purchaser shall require its transferee, and any such transferee shall require its transferee, to agree to be bound by the provisions of this Section 4.3 in the same manner as such Purchaser is bound. 4.4 Legends; Notations. The certificates evidencing the Purchased ------------------ Shares or any Conversion Shares shall be endorsed with the legends set forth below: (a) a conspicuously noted legend in substantially the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY 16 TO THE COMPANY, SUCH SALE, TRANSFER, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM REGISTRATION OR IS OTHERWISE IN COMPLIANCE WITH THE ACT AND SUCH LAWS"; (b) any legend required by any applicable state securities law; and (c) a conspicuously noted legend in substantially the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THAT CERTAIN STOCK PURCHASE AGREEMENT DATED AS OF APRIL 11, 1997 AMONG THE COMPANY AND THE OTHER PARTIES THERETO CONTAINING, AMONG OTHER THINGS, RESTRICTIONS ON THE SALE, TRANSFER OR OTHER DISPOSITION OF SUCH SECURITIES AND RESTRICTIONS UPON AND COMMITMENTS TO VOTE ON CERTAIN MATTERS. A COUNTERPART OF SUCH AGREEMENT HAS BEEN DEPOSITED WITH THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS, AND THE COMPANY SHALL FURNISH A COPY OF EACH SUCH AGREEMENT TO THE RECORD HOLDER HEREOF, WITHOUT CHARGE, UPON WRITTEN REQUEST." The Company shall make a notation on its stock books regarding the restrictions on transfer of the Purchased Shares and any Conversion Shares and will transfer securities on the books of the Company only to the extent not inconsistent therewith. 5. Hart-Scott-Rodino Act. If any Purchaser, or in the case of a --------------------- mandatory conversion of the Purchased Shares, the Purchaser or the Company, reasonably believes that such Purchaser's conversion of the Purchased Shares would be subject to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules and regulations thereunder (the "HSR ACT AND RULES") prior to such conversion and following such Purchaser's notice to the Company of such Purchaser's intention to convert or the Company's notice to such Purchaser of such a mandatory conversion, the Company and such Purchaser shall promptly comply with any applicable requirements under the HSR Act and Rules relating to filing and furnishing of information (the "HSR REPORT") to the Federal Trade Commission (the "FTC") and the Antitrust Division of the Department of Justice. Without limiting the foregoing, such Purchaser and the Company shall file the HSR Report and take all other action required by the HSR Act and Rules and shall use their respective commercially reasonable efforts to (a) coordinate with respect to the filing of the HSR Reports of such Purchaser and the Company (and exchanging drafts thereof), so as to present all required HSR Reports to the FTC and the Department of Justice at the time selected by such Purchaser, or in the case of such a mandatory conversion, the Company, and to avoid substantial errors or inconsistencies among such HSR Reports in the description of the transaction, (b) comply with any additional request for documents or information made by the FTC or the Department of Justice or by a court and to assist the other parties to so comply and (c) cause all persons which are part of the same "person" (as defined for purposes of the HSR Act and Rules) to cooperate and assist in such filing and compliance. Each of the Company and such Purchaser shall bear and pay any costs or expenses that it incurs in complying with this Section 5. 6. Conditions to the Purchasers' Obligations at Closing. The obligation ---------------------------------------------------- of each Purchaser to purchase and/or acquire Purchased Shares at the Closing is several and not joint and such obligation is subject to the satisfaction, at or prior to the Closing, of each of the following 17 conditions, any of which may be waived by a Purchaser by written notice to the Company, but no such waiver shall be effective against a Purchaser unless consented to by such Purchaser. 6.1 Correctness of Representations and Warranties. The --------------------------------------------- representations and warranties of the Company set forth in this Agreement shall, if specifically qualified by materiality, be true and correct and, if not so qualified, be true and correct in all material respects in each case as of the date of this Agreement and as of the Closing Date with the same effect as if made on and as of the Closing Date, and such Purchaser shall have received a certificate to such effect from the Company, signed by its duly authorized officer. 6.2 Performance of Agreements. The Company shall have performed and ------------------------- complied with all agreements, obligations and conditions contained in this Agreement and in the other Transaction Agreement that are required to be performed or complied with by it on or before the Closing Date, and such Purchaser shall have received a certificate to such effect from the Company, signed by its duly authorized officer. 6.3 Certificate of Designation and Certificate of Amendment. The ------------------------------------------------------- Certificate of Designation and the Certificate of Amendment shall have been duly adopted by the Company by all necessary corporate action of its Board of Directors and stockholders, as applicable, and shall have been duly filed with and accepted by the Secretary of State of the State of Delaware and shall be in full force and effect under the DGCL. 6.4 Securities Exemption. The offer and sale of the Purchased Shares -------------------- to the Purchasers pursuant to this Agreement shall be exempt from the registration requirements of the Securities Act, the qualification requirements of the California Securities Law and the registration and/or qualification requirements of all other applicable state securities laws. 6.5 No Material Litigation. There shall not be pending on the ---------------------- Closing Date any lawsuit, claim, proceeding or other legal action by or before any court or other regulatory, administrative or governmental authority that seeks to restrain, restrict or prohibit or impose penalties or damages with respect to (or any other materially adverse relief or remedy in connection with), and there shall not be in effect on the Closing Date any injunction or other order of any governmental authority or arbitration panel that restrains, restricts, prohibits or imposes substantial penalties or damages with respect to (or any other materially adverse relief or remedy in connection with), the consummation of the transactions contemplated hereby or by the other Transaction Agreement. 6.6 Government Approvals and Consents. All governmental consents --------------------------------- required in connection with the consummation of the transactions contemplated by this Agreement shall have been obtained and shall be in full force and effect and all governmental filings required in connection with the consummation of the transactions contemplated by this Agreement shall have been made, and all waiting periods, if any, applicable to the consummation of such transactions imposed by any governmental entity shall have expired. 6.7 Proceedings and Documents. All corporate and other proceedings ------------------------- in connection with the transactions contemplated hereby at the Closing, and all documents and instruments incident to these transactions, shall be reasonably satisfactory in substance to such Purchaser and its counsel and such Purchaser shall have received all such counterpart originals 18 and certified or other copies of such documents as they may reasonably request. Such documents shall include (but not be limited to) the following: (a) Certified Charter Documents. A copy of the Restated --------------------------- Certificate, the Certificate of Amendment, the Certificate of Designation and the Restated Bylaws, certified by the Secretary of the Company as true and correct copies thereof as of the Closing. (b) Corporate Actions. A copy of the resolutions of the Board ----------------- of Directors and, as applicable, the stockholders, of the Company evidencing the adoption and approval of the Certificate of Designation and the Certificate of Amendment, the authorization of issuance and sale of the Purchased Shares, the issuance of the Conversion Shares, the approval of this Agreement and the other Transaction Agreement, and the other matters contemplated hereby and thereby. (c) Good Standing Certificates. Certificates of corporate -------------------------- standing and payment of franchise taxes issued by the Secretary of State of the States of California and Delaware with respect to the Company and the Subsidiary. 6.8 Opinion of Company Counsel. Each Purchaser shall have received -------------------------- an opinion from Fenwick & West LLP, counsel for the Company, dated as of the date of the Closing, in the form attached hereto as Exhibit E, and an opinion --------- from Richards, Layton & Finger, P.A., special Delaware counsel for the Company, dated as of the date of the Closing, the form attached hereto as Exhibit F. --------- 6.9 Registration Rights Agreement. The Company and the requisite ----------------------------- parties to the Prior Registration Rights Agreement shall have executed and delivered the Registration Rights Agreement as necessary to amend and restate the Prior Registration Rights Agreement. 6.10 Delivery of Stock Certificates. The Company shall have ------------------------------ delivered to such Purchaser the stock certificate specified for such Purchaser in Section 1.1. 6.11 Waiver of Existing Rights. On or before the Closing, any ------------------------- preemptive rights, rights of first refusal and other rights (including but not limited to, the right to receive notice of the transactions contemplated by this Agreement) of the parties to the Stockholders' Agreement (and their respective Stockholder Groups, as defined in the Stockholders' Agreement) under the Stockholders' Agreement shall have been waived as and to the extent such rights apply to the issuance and sale of the Purchased Shares and the Conversion Shares hereunder and the other transactions contemplated hereby and by the other Transaction Agreement. 6.12 Minimum Investment. The Purchasers shall purchase a minimum of ------------------ at least 150,000 shares of Series C Preferred at the Closing. 7. Conditions to the Company's Obligations at Closing. The obligations -------------------------------------------------- of the Company to issue and sell the Purchased Shares to each of the Purchasers at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions: 7.1 Correctness of Representations and Warranties. The --------------------------------------------- representations and warranties of such Purchaser contained in this Agreement shall, if specifically qualified by materiality, be true and correct and, if not so qualified, be true and correct in all material respects 19 in each case as of the date of this Agreement and as of the Closing Date with the same effect as if made on and as of the Closing Date, and the Company shall have received a certificate to such effect from such Purchaser, signed by its duly authorized officer or other duly authorized representative of any Purchaser that is not a corporation. 7.2 Performance of Agreements. Such Purchaser shall have performed ------------------------- and complied with all covenants, agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing Date, and the Company shall have received a certificate to such effect from such Purchaser, signed by its duly authorized officer. 7.3 No Material Litigation. There shall not be pending on the ---------------------- Closing Date any lawsuit, claim, proceeding or other legal action by or before any court or other regulatory, administrative or governmental authority that seeks to restrain, restrict or prohibit or impose substantial penalties or damages with respect to (or any other materially adverse relief or remedy in connection with), and there shall not be in effect on the Closing Date any injunction or other order of any governmental authority or arbitration panel that restrains, restricts, prohibits or imposes substantial penalties or damages with respect to (or any other materially adverse relief or remedy in connection with), the consummation of the transactions contemplated hereby or by the other Transaction Agreement. 7.4 Securities Exemption. The offer and sale of the Purchased Shares -------------------- to such Purchaser pursuant to this Agreement shall be exempt from the registration requirements of the Securities Act, the qualification requirements of the California Securities Law and the registration and/or qualification requirements of all other applicable state securities laws, provided that the Company shall be obligated to use its commercially reasonable efforts to make all filings and take all such other actions required to perfect such exemptions. 7.5 Government Approvals and Consents. All governmental consents --------------------------------- required in connection with the consummation of the transactions contemplated by this Agreement shall have been obtained and shall be in full force and effect and all governmental filings required in connection with the consummation of the transactions contemplated by this Agreement shall have been made, and all waiting periods, if any, applicable to the consummation of such transactions imposed by any governmental entity shall have expired, other than those which, if not obtained, in force or effect, made or expired (as the case may be) would not, whether individually or in the aggregate, have a material adverse effect on the transactions contemplated by this Agreement. 7.6 Proceedings and Documents. All corporate and other proceedings ------------------------- in connection with the transactions contemplated hereby at the Closing, and all documents and instruments incident to these transactions, shall be reasonably satisfactory in substance to the Company and its counsel and they shall each have received all such counterpart originals and certified or other copies of such documents as they may reasonably request. 7.7 Registration Rights Agreement. The Registration Rights Agreement ----------------------------- shall have been duly executed and delivered by such Purchaser and the requisite parties to the Prior Registration Rights Agreement necessary to amend and restate the Prior Registration Rights Agreement. 20 7.8 Payment of Purchase Price. Such Purchaser shall have delivered ------------------------- to the Company the purchase price specified for such Purchaser in Section 1.1. 7.9 Minimum Investment. The Purchasers shall purchase a minimum of ------------------ at least 150,000 shares of Series C Preferred at the Closing. 8. Preemptive Rights. ----------------- 8.1 Certain Definitions. For the purposes of this Section 8 only ------------------- (and, for "Business Day" and "Person," Section 4), the following terms have the following meanings: "BUSINESS DAY" means any day other than a Saturday, Sunday or a day on which banking institutions in New York, New York are not required to be open. "COMMON STOCK" means any of the Series A Common Stock, the Series B Common Stock or the Series K Common Stock. "NEW CAPITAL STOCK" means shares of Common Stock, Preferred Stock or other equity securities of the Company (including Rights) which the Company proposes to offer, issue or sell following the Closing; provided, however, that -------- ------- the following shall be excluded from the definition of "New Capital Stock": (i) shares of Series B Common Stock issuable upon conversion of shares of Series T Preferred, shares of Series A Common Stock issued or issuable upon conversion of shares of Series B Common Stock, Series K Common Stock, Series AM Preferred, Series AT Preferred, Series AX Preferred or Series C Preferred, or shares of Series K Common Stock issued or issuable upon the conversion of shares of Series K Preferred, or any other securities issuable upon conversion or exercise of Rights of the Company outstanding as of the Closing; (ii) securities to be issued pursuant to any public offering by the Company registered with the SEC or any other Federal agency at the time administering the Securities Act or the Securities Exchange Act of 1934, as amended; (iii) securities to be issued in accordance with the Restated Certificate, the Certificate of Amendment, the Certificate of Designation and the Restated Bylaws (each as amended to the date in question) pursuant to any incentive stock or other plan or agreement of the Company for the benefit of its employees, directors or consultants, including any securities issuable pursuant to the exercise of any Rights issued pursuant to such plans or agreements; (iv) securities to be issued by the Company in connection with an acquisition (including, without limitation, by way of merger, consolidation or binding share exchange) by the Company of the capital stock, other equity interests or assets of another Person in a transaction pursuant to which all or part of the consideration payable in connection with such acquisition consists of securities of the Company or Rights to acquire securities of the Company; (v) securities to be issued by the Company in exchange for the receipt of equity interests in another entity in connection with a joint venture or other business combination; (vi) securities to be issued upon any exercise or conversion of Rights the issuance of which was subject to or exempt from the preemptive rights set forth in this Section 8; (vii) securities issued by the Company in connection with any stock split, stock dividend, reverse stock split, recapitalization or the like occurring after the Closing; or (viii) securities issuable upon exercise of the Canadian MSO Warrants or upon conversion of the shares of Series C Preferred issuable upon exercise of the Canadian MSO Warrants. "PERSON" means any individual, corporation, limited liability company, partnership, joint venture, association, joint stock company, trust, unincorporated organization, 21 government or agency or political subdivision thereof, or other entity, whether acting in an individual, fiduciary or other capacity. "PREFERRED STOCK" means the Preferred Stock of the Company authorized for issuance pursuant to the Restated Certificate (as amended to the date in question), and shall, unless the context otherwise requires, include the Series AM Preferred, the Series AT Preferred, the Series AX Preferred, the Series C Preferred, Series K Preferred and the Series T Preferred. "RIGHTS" means, with respect to any Person, any subscription, option, warrant, right, convertible security or other agreement, instrument, or commitment of any character obligating (contingently or absolutely) such Person to issue or sell any capital stock or other securities. 8.2 Preemptive Rights. ----------------- (a) If at any time after the Closing, the Company at any time or from time to time makes any public or non-public offering of New Capital Stock, each Purchaser shall first be offered the opportunity to acquire from the Company for the same price and on the same terms as such securities are proposed to be offered to others, up to the amount of New Capital Stock as is required to enable it to maintain its proportionate interest in the Company. The amount of New Capital Stock each Purchaser shall be entitled to purchase (or, in the case of Rights, Rights to acquire a number of shares of New Capital Stock) shall be determined by multiplying (x) the total number of such offered shares, or, in the case of Rights, the total number of such shares covered by Rights, by (y) a fraction, the numerator of which is the number of shares of Purchased Shares (determined on an as converted into Series A Common Stock basis) and Conversion Shares held by such Purchaser and, if such Purchaser is a Canadian Purchaser, the number of shares of Series C Preferred (determined on an as converted into Series A Common Stock basis) and Series A Common Stock issued upon exercise of the Canadian MSO Warrants, and the denominator of which is the number of shares of Common Stock then outstanding; provided, however, that for purposes of -------- ------- determining the number of shares of Common Stock outstanding, such amount shall include, without duplication, shares of Common Stock issuable upon the conversion of outstanding shares of Preferred Stock or other outstanding convertible equity securities of the Company and shares of Common Stock issuable upon the exercise of outstanding Rights to purchase Common Stock (or other securities of the Company). (b) Notwithstanding the foregoing, no Person shall be entitled to any preemptive rights in respect of the issuance of shares of New Capital Stock issued to satisfy Rights theretofore issued and as to which such Person theretofore had the opportunity to exercise preemptive rights pursuant to this Section 8. (c) In the event the Company proposes to offer New Capital Stock, it shall give each Purchaser written notice of its intention, describing the type of New Capital Stock to be offered, and the price and other terms upon which the Company proposes to offer the same. Such notice shall constitute an offer to each Purchaser to purchase such New Capital Stock. Each Purchaser shall have twenty (20) days from the date of receipt of any such notice to notify the Company in writing that it intends to exercise such preemptive rights and as to the amount of New Capital Stock such Purchaser desires to purchase, up to the maximum amount calculated pursuant to subsection (a). Such notice shall constitute an agreement of such Purchaser to 22 purchase the amount of New Capital Stock so specified upon the price and other terms set forth in the Company's notice to it. (d) If any Purchaser exercises its preemptive right hereunder, the closing of the purchase of the New Capital Stock with respect to which such right has been exercised shall take place within forty-five (45) calendar days after the Purchaser's giving of notice of such exercise, which period of time shall be extended for a maximum of one hundred thirty-five (135) days in order to comply with applicable laws and regulations. Each of the Company and any Purchaser which has agreed to purchase New Capital Stock agrees to use its commercially reasonable efforts to secure any regulatory approvals or other consents, and to comply with any law or regulation necessary in connection with the offer, sale and purchase of, such New Capital Stock. (e) In the event any Purchaser fails to exercise its preemptive rights provided in this Section 8.2 within said twenty (20) day period or, if so exercised, such Purchaser is unable to consummate such purchase within the time period specified in paragraph (d) above because of its failure to obtain any required regulatory consent or approval, the Company shall thereafter be entitled during the period of ninety (90) days following the conclusion of the applicable period to sell or enter into an agreement (pursuant to which the sale of the New Capital Stock covered thereby shall be consummated, if at all, within thirty (30) days from the date of said agreement) to sell the New Capital Stock or Rights not elected to be purchased pursuant to this Section 8.2 or which such electing Purchaser is unable to purchase because of such failure to obtain any such consent or approval, at a price and upon terms no more favorable to the purchasers of such securities than were specified in the Company's notice to the Purchasers. Notwithstanding the foregoing, if such sale is subject to the receipt of any regulatory approval or expiration of any waiting period, the time period during which such sale may be consummated shall be extended until the expiration of five Business Days after all such approvals have been obtained or waiting periods expired, but in no event shall such time period exceed one hundred eighty (180) days from the date of the applicable agreement with respect to such sale. In the event the Company has not sold the New Capital Stock or entered into an agreement to sell the New Capital Stock within said ninety (90) day period (or sold and issued New Capital Stock in accordance with the foregoing within thirty (30) days from the date of said agreement (as such period may be extended in the manner described above for a period not to exceed 180 days from the date of said agreement)), the Company shall not thereafter offer, issue or sell such New Capital Stock without again offering such securities to the Purchasers in the manner provided above. (f) All actions and determinations by, and all notices by or to, any Controlled Affiliate of a Canadian Purchaser, or Additional Canadian MSO, that is a permitted transferee of Rogers or Shaw, respectively, with respect to the preemptive rights in this Section 8 shall be deemed validly taken or made (in the case of actions or determinations) or given (in the case of notices), if taken, made or given, as the case may be, by or to Rogers or Shaw, respectively (or their respective successors), and such actions, determinations and notices shall be binding upon all such Controlled Affiliates or Additional Canadian MSO's for all purposes of this Section 8. 23 8.3 Termination of Preemptive Rights. -------------------------------- The rights granted to each Purchaser pursuant to Section 8.2 shall terminate as to a Purchaser upon the earliest to occur of: (i) such time as such Purchaser (together with such Purchaser's Controlled Affiliates) ceases to be the record or beneficial owner of at least twenty-five percent (25%) of the shares of Series C Preferred (or Series A Common Stock issued upon conversion of Series C Preferred) originally purchased by such Purchaser under this Agreement (until such time, an "ELIGIBLE HOLDER"); and (ii) immediately prior to the closing of the Company IPO. 9. Certain Agreements of the Company. --------------------------------- 9.1 Information Rights. ------------------ (a) Financial Information. The Company covenants and agrees --------------------- that, commencing on the date of this Agreement, for so long as any Purchaser remains an Eligible Holder, the Company will: (i) furnish to such Purchaser, as soon as practicable and in any event within 120 days after the end of each fiscal year of the Company, a consolidated Balance Sheet as of the end of such fiscal year, a consolidated Statement of Income and a consolidated Statement of Cash Flows of the Company and its subsidiaries for such year, setting forth in each case in comparative form the figures from the Company's previous fiscal year, all prepared in accordance with generally accepted accounting principles and practices and audited by nationally recognized independent certified public accountants; and (ii) furnish to such Purchaser as soon as practicable, and in any event within forty-five (45) days of the end of each fiscal quarter of the Company (except the last quarter of the Company's fiscal year), quarterly unaudited financial statements, including an unaudited Balance Sheet, an unaudited Statement of Income and an unaudited Statement of Cash Flows of the Company and its subsidiaries, all prepared in accordance with generally accepted accounting principles and practices and certified by the chief financial officer of the Company. (b) Investor Meetings. The Company covenants and agrees that, ----------------- commencing on the Closing, for so long as any Purchaser remains an Eligible Holder, such Purchaser shall be entitled to attend a quarterly investor meeting (the "INVESTOR MEETING"), at which the management of the Company will review the operational plans and financial results of the Company, the Company's customer demographics and usage patterns, the Company's product architecture and the Company's hardware and software requirements. Investor Meetings shall be held within sixty days following the end of each fiscal quarter of the Company, except for the Investor Meeting following the last quarter of the Company's fiscal year, which shall be held within 135 days after the end of such fiscal year. The date, time and location of each Investor Meeting shall be set by the Company, which shall give written notice to each Purchaser entitled to attend the Investor Meeting no less than ten days prior to such Investor Meeting. (c) Confidentiality. Each Purchaser agrees to hold all --------------- information received pursuant to this Section 9 in confidence, and not to use or disclose any of such information to any third party (other than a Controlled Affiliate of the Purchaser or counsel, a financial advisor or similar agent of the Purchaser or a permitted transferee pursuant to Section 10.3(a)), except to the extent such information (i) is not confidential or proprietary (provided that tangible embodiments received of such information shall be deemed non- confidential unless the same are marked to indicate that they are confidential or proprietary), (ii) has been made publicly 24 available by the Company, or (iii) is being disclosed by Purchaser after Purchaser has been advised by its outside legal counsel that such disclosure is compelled by applicable legal requirements; provided that such Controlled Affiliates, agents and permitted transferees shall be informed of the confidential nature of such information and the Purchaser shall cause such persons to observe the provisions of this Section 9.1(c) and shall remain responsible and be liable for any failure of such persons to comply with this Section 9.1(c). Before a Purchaser discloses any such information pursuant to clause (iii) of the preceding sentence, Purchaser shall use commercially reasonable efforts to give prior notice to the Company concerning the circumstances of the intended disclosure and shall use commercially reasonable efforts to attempt to cooperate with the Company to minimize the amount and nature of disclosure of such information, consistent with such Purchaser's legal obligations. (d) Termination of Information Rights. The Company's --------------------------------- obligations under Section 9.1(a) and (b) above shall terminate upon the closing of the Company IPO. 9.2 Support for Rule 144 Transfers. At such time as any of the ------------------------------ Purchased Shares or Conversion Shares is eligible for transfer under Rule 144(k) promulgated under the Securities Act, the Company will remove any restrictive legend relating to resale under the Securities Act from the certificates evidencing such shares upon request and at no cost to the holder of such shares upon such holder's presentation to the Company of a written statement of circumstances reasonably satisfactory to the Company and its counsel that indicates that Rule 144(k) is available for such holder. 9.3 Issuances to Officers. The Company covenants and agrees that, --------------------- commencing on the date of this Agreement, any shares of Series A Common Stock or options, warrants or other rights to acquire Series A Common Stock issued to any officers of the Company shall be subject to (i) vesting restrictions as determined by the Company's Board of Directors and (ii) until the Company IPO, a right of first refusal held by the Company. 10. Miscellaneous. ------------- 10.1 Governing Law. This Agreement shall be governed by, and ------------- construed in accordance with, in all respects the laws of the State of Delaware, without regard to the conflicts of law rules of such State. 10.2 Survival. The representations and warranties made herein shall -------- survive any investigation made by any Purchaser and the closing of the transactions contemplated hereby for a period of fifteen (15) months after the Closing, except that the representations and warranties set forth in Sections 2.18 and 2.26 shall survive for the applicable limitations periods set forth in applicable tax and environmental statutes, respectively. 10.3 Successors and Assigns. ---------------------- (a) Transfer of Preemptive Rights, Information Rights and ----------------------------------------------------- Meeting Rights. Each Purchaser shall be entitled to transfer its rights to - -------------- receive financial information pursuant to Section 9.1(a) to any transferee of such Purchaser receiving at least twenty-five percent (25%) of the shares of Series C Preferred (or Series A Common Stock issued upon conversion of Series C Preferred) originally purchased by such Purchaser under this Agreement; provided, however, that no person may be assigned any of the foregoing rights - -------- ------- unless the 25 Company is given written notice by the assigning party at the time of such assignment stating the name and address of the assignee and identifying the securities of the Company as to which the rights in question are being assigned; and provided, further, that any such assignee shall receive such assigned rights -------- ------- subject to all the terms and conditions of this Agreement, including, without limitation, the provisions of this Section 10.3. No Purchaser shall be entitled to transfer its preemptive rights pursuant to Section 8, other than (i) to a Controlled Affiliate of such Purchaser in connection with a transfer of Purchased Shares or Conversion Shares to such Controlled Affiliate, provided -------- that such Controlled Affiliate agrees in writing to be bound by this Section 10.3 and provided further that such Controlled Affiliate shall not be entitled ---------------- to such rights at such time as it is no longer a Controlled Affiliate of such Purchaser, and (ii) as to the Canadian Purchasers, to any Additional Canadian MSO (as defined in the Canadian Purchase Agreement) receiving in a transfer permitted by the Canadian Purchase Agreement at least twenty-five percent (25%) of the shares of Series C Preferred (or Series A Common Stock issued upon conversion of Series C Preferred) originally purchased by such Canadian Purchaser under this Agreement and issuable under the Canadian MSO Warrants issued to such Canadian Purchaser, provided that such Additional Canadian MSO -------- agrees in writing to be bound by this Section 10.3. No Purchaser shall be entitled to transfer its rights to attend quarterly investor meetings pursuant to Section 9.1(b), other than to a Controlled Affiliate of such Purchaser in connection with a transfer of Purchased Shares or Conversion Shares to such Controlled Affiliate; provided that such Controlled Affiliate agrees in writing -------- to be bound by this Section 10.3 and provided further that such Controlled ---------------- Affiliate shall not be entitled to such rights at such time as it is no longer a Controlled Affiliate of such Purchaser. (b) Assignment. Except as provided in Section 4 with respect to ---------- a transfer of Purchased Shares or Conversion Shares, or in Section 10.3(a), neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by the Company or any Purchaser, respectively, (whether by operation of law or otherwise) without the prior written consent of such Purchaser or the Company, respectively. Any assignment or delegation in contravention of this Agreement shall be void and shall not relieve the assigning or delegating party of any obligation hereunder. (c) Except as set forth in Sections 10.3(a) and 10.3(b), this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. 10.4 Limitation on Rights of Others. Except as provided pursuant to ------------------------------ Section 10.3(a), nothing in this Agreement, whether express or implied, shall be construed to give any person, other than the parties hereto, any legal or equitable right, remedy or claim under or in respect of this Agreement. 10.5 Entire Agreement; Amendment. This Agreement, the other --------------------------- Transaction Agreement, the other documents delivered pursuant hereto, any non- disclosure agreements between the Company and any Purchaser, the Canadian MSO Warrants and other written agreements between the Company and the Canadian Purchasers effective at the Closing constitute the full and entire understanding and agreement among the parties with regard to the subjects hereof and thereof and supersede all prior agreements and understandings, both written and oral, among the parties with regard to the subject matter hereof. Neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written 26 instrument signed by the Company and the holders of a majority of the aggregate number of shares of Series A Common Stock into which the Purchased Shares then are convertible and/or have been converted (excluding any of such shares that have been sold to the public (including those sold pursuant to SEC Rule 144 promulgated under the Securities Act)); provided, however, that no amendment, -------- ------- waiver, discharge or termination of this Agreement that affects a Purchaser adversely in a manner different from other Purchasers (other than due to the nature of the entity of the Purchaser) may be enforced against such Purchaser without the written consent of such Purchaser. 10.6 Notices, Etc. All notices and other communications required or ------------ permitted to be given by any provision of this Agreement shall be in writing and mailed (certified or registered mail, postage prepaid, return receipt requested) or sent by hand or overnight courier, or by facsimile transmission (with acknowledgment received), charges prepaid and addressed to the intended recipient to the address indicated for such party on Exhibit A or, in the case --------- of the Company, to At Home Corporation, 425 Broadway, Redwood City, CA 94063, Telecopy: (415) 944-8500, Attention: David G. Pine, Esq., with a copy to Fenwick & West LLP, Two Palo Alto Square, Suite 800, Palo Alto, CA 94306, Telecopy: (415) 494-1417, Attention: Gordon K. Davidson, Esq., and with a copy to Wilson Sonsoni Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo Alto, CA 94304, Telecopy: (415) 493-6811, Attention: Allen Morgan, Esq., or to such other address or number as may be specified from time to time by like notice to the parties. Any party may from time to time specify a different address for notices by like notice to the other parties. All notices and other communications given in accordance with the provisions of this Agreement shall be deemed to have been given and received (i) four (4) business days after the same are sent by certified or registered mail, postage prepaid, return receipt requested, (ii) when delivered by hand or transmitted by facsimile (with acknowledgment received and, in the case of a facsimile only, a copy of such notice is sent no later than the next business day by a reliable overnight courier service, with acknowledgment of receipt) or (iii) one (1) business day after the same are sent by a reliable overnight courier service, with acknowledgment of receipt. 10.7 Delays or Omissions. No delay or omission to exercise any ------------------- right, power or remedy accruing to any party upon any breach or default of any other party under this Agreement shall impair any such right, power or remedy of such first party, nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing or as provided in this Agreement. All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative. 10.8 Expenses. Each of the Company and each of the Purchasers shall -------- bear its own expenses and legal fees incurred on its behalf in connection with this Agreement and the transactions contemplated hereby; provided, however, that if the Closing is consummated, the Company shall pay the reasonable legal fees and expenses of Wilson Sonsini Goodrich & Rosati, 27 Professional Corporation, special counsel to the Purchasers, incurred by that firm in connection with this Agreement and the transactions contemplated hereby. 10.9 Counterparts. This Agreement may be executed in any number of ------------ counterparts with the same effect as if all parties hereto had signed the same document. Each counterpart shall be enforceable against the parties actually executing such counterpart, and all counterparts shall be construed together and shall constitute one instrument. 10.10 Severability. In the event that any provision of this ------------ Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party. 10.11 Obligations Several, Not Joint. Each Purchaser shall be (i) ------------------------------ obligated hereunder only with respect to the purchase of the number of Purchased Shares set forth on Exhibit A beside such Purchaser's name, and no Purchaser shall have any liability with respect to any other Purchaser's obligations hereunder, and (ii) separately and independently entitled to rely on the representations and warranties of the other Purchasers and of the Company made to such Purchaser in this Agreement and to the benefit of all covenants and agreements of the other Purchasers and the Company made with such Purchaser herein. 10.12 Currency. All monetary amounts in this Agreement are stated in -------- United States Dollars. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 28 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. COMPANY: -------- AT HOME CORPORATION By: /s/ Thomas A. Jermoluk ------------------------------ Name: Thomas A. Jermoluk Title: President/CEO PURCHASERS: ----------- ROGERS CABLESYSTEMS LIMITED By: /s/ David Samuel ------------------------------ Name: David Samuel Title: President, Rogers Wave By: /s/ M. L. Daly ----------------------------- Name: M.L. Daly Title: Vice President, Treasurer SHAW CABLESYSTEMS LTD. By: /s/ Jim Shaw ----------------------------- Name: Jim Shaw, Jr. Title: President By: /s/ Margot M. Micallef ----------------------------- Name: Margot M. Micallef Title: Secretary SUN MICROSYSTEMS, INC. By: /s/ Michael Lehman ----------------------------- Name: Michael Lehman Title: Vice President & Chief Financial Officer NETSCAPE COMMUNICATIONS CORPORATION By: /s/ Peter L.S. Currie ----------------------------- Name: Peter L.S. Currie Title: SVP & CFO [SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT] 29 PURCHASERS By: /s/ James Barksdale ----------------------------- Name: James Barksdale Title: MOTOROLA, INC. By: /s/ John W. Battin ----------------------------- Name: John W. Battin Title: Senior Vice President and General Manager, Multimedia Group BAY NETWORKS, INC. By: /s/ David Rynne ----------------------------- Name: David Rynne Title: Chief Financial Officer [SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT] 30 EXHIBIT A --------- PURCHASERS ----------
Name and Address of Purchaser Number of Shares of Series Aggregate - ----------------------------- C Preferred to be Purchased Purchase Price --------------------------- -------------- ROGERS CABLESYSTEMS LIMITED 75,000 $15,000,000.00 Suite 6400, Scotia Plaza 40 King Street W Toronto, Ontario Canada M5H 3Y2 Attn: Chief Executive Officer Fax: (416) 864-2395 SHAW CABLESYSTEMS LTD. 75,000 $15,000,000.00 Suite 900 630 Third Avenue SW Calgary, Alberta Canada T2P 4L4 Attn: Mr. Jim Shaw Jr. and Margot M. Micallef, Esq. Fax: (403) 750-4531 SUN MICROSYSTEMS, INC. 25,000 $ 5,000,000.00 2550 Garcia Avenue, MS PALI-530 Mountain View, CA 94043 Attn: General Counsel Fax: (415) 336-0530
NETSCAPE COMMUNICATIONS CORPORATION 20,000 $ 4,000,000.00 487 E. Middlefield Road Mountain View, CA 94043 Attn: Mr. Peter Currie Chief Financial Officer and Mr. J. Quincy Smith Fax: (415) 528-4139 and to Attn: Roberta R. Katz, Esq. Fax: (415) 528-4132 and to Attn: Larry W. Sonsini, Esq. and Jim Strawbridge, Esq. Wilson, Sonsini, Goodrich and Rosati Fax: (415) 493-6811
Name and Address of Purchaser Number of Shares of Series Aggregate - ----------------------------- C Preferred to be Purchased Purchase Price --------------------------- -------------- JAMES BARKSDALE 5,000 $ 1,000,000.00 c/o Netscape Communications Corporation 487 E. Middlefield Road Mountain View, CA 94043 Fax: (415) 528-4126 MOTOROLA, INC. 25,000 $ 5,000,000.00 Multimedia Group 1303 East Algonquin Road Schaumburg, IL 60196-1065 Attn: General Counsel Fax: (847) 576-3628 and to Attn: Mr. Douglas M. Robertson Director of Business Development and Marketing Fax: (847) 632-3164 BAY NETWORKS, INC. 15,000 $ 3,000,000.00 ------ -------------- 4401 Great America Parkway Santa Clara, CA 95054 Attn: Mr. David Rynne Fax: (408) 495-1400 TOTAL 240,000 $48,000,000.00
EXHIBIT D --------- INFORMATION CONCERNING PURCHASERS
Jurisdiction in which Purchaser Jurisdiction of Location of Purchaser's will accept the Company's Offer to Purchaser Organization Principal Office Sell the Purchased Shares --------- ------------ ----------------------- ---------------------------------- Rogers Cablesystems Ontario Ontario, Canada Ontario, Canada Limited Shaw Cablesystems Ltd. Federal law of Alberta, Canada Alberta, Canada Canada Sun Microsystems, Inc. Delaware California California Netscape Communications Delaware California California Corporation James Barksdale California N/A California Resident Motorola, Inc. Delaware Illinois Illinois Bay Networks, Inc. Delaware California California
EX-10.06 15 TERM SHEET DATED MARCH 18, 1997 EXHIBIT 10.06 ** Confidential treatment has been requested with respect to certain information contained in this document. Confidential portions have been omitted from the public filing and have been filed separately with the Securities and Exchange Commission. TERM SHEET ---------- BETWEEN AT HOME CORPORATION AND SHAW CABLESYSTEMS LTD. AND ROGERS CABLESYSTEMS LIMITED March 18, 1997 INTRODUCTION A. This term sheet sets out the terms under which the parties have agreed that Shaw Cablesystems Ltd. ("Shaw") and Rogers Cablesystems Ltd. ("Rogers") will distribute in Canada under the co-brand name Wave@Home or at their option jointly exercised by Rogers and Shaw under the brand name @Home, a high speed residential Internet service which shall be created by At Home Corporation ("@Home"), Rogers and Shaw and which shall be based on the Residential Internet Service (the "Service") created and to be provided by @ Home which includes the @Home division and the @Media division as described in the Confidential Offering Memorandum (as defined below); B. The parties acknowledge that Canada offers a unique opportunity which the parties wish to jointly develop by licensing Rogers and Shaw to create a service (the "Wave@Home Service") based on the Service and developing a business relationship that will ensure the success of the Wave@Home Service in Canada taking into consideration Canada's unique market, geographic and regulatory characteristics; and C. Terms commencing with capital letters and not defined in the body of this Term Sheet or in any schedule shall bear the meaning ascribed to them in Schedule "A" attached hereto. 1.0 EQUITY INVESTMENT 1.1 PURCHASE OF SHARES AND WARRANTS: Rogers and Shaw shall each purchase ------------------------------- U.S.$15,000,000 of Series C Convertible Preferred Stock (the "Series C Shares") of @Home as outlined in the confidential offering memorandum related to the Series C Shares ("Confidential Offering Memorandum") in respect of the Series C Shares as amended by a supplementary offering memorandum providing that each of the Series C Shares shall be convertible into 20 shares of Series A Common Stock and the purchase price per Series C Share shall be $200.00. As a result of the purchase of such Series C Shares, Rogers and Shaw will purchase the warrants as outlined in Schedule "B" (the "Warrants"). The stock purchase agreement of the Series C Shares will provide that such shares are transferable to Canadian MSO's who are sub-distributors of Wave@Home. 1.2 RESTRICTIONS ON THE TRANSFER OF SERIES C SHARES: The parties recognize ----------------------------------------------- that restrictions on transfer of the Series C Shares and Series A Shares into which they may be converted and restrictions on exercise of the Warrants may be required by U.S. securities laws to enable @Home to fulfill its financing plans as disclosed to Rogers and Shaw. The parties agree to negotiate the terms of such restrictions in good faith prior to the closing with a view to facilitating both @ Home's financing plans and Rogers' and Shaw's marketing and distribution plans for the Wave@Home Service, including the entering into of sub-distribution agreements. 1.3 BOARD REPRESENTATION AND OBSERVER STATUS: As part of the closing ---------------------------------------- procedures @Home shall take such actions as are necessary to enable it to comply with Schedule "C". 2.0 GRANT OF LICENSE AND TERMS OF DISTRIBUTION AGREEMENT 2.1 EXCLUSIVE LICENSE: Subject to the proviso set out below, effective at the ----------------- closing contemplated by Section 4 @Home hereby grants, solely for Canada, to: (A) Rogers, an exclusive license to distribute, market and promote that portion of the Service which as contemplated in paragraph A above forms part of the Wave@Home Service in those jurisdictions in which Rogers is licensed from time to time by the Canadian Radio-television and Telecommunications Commission (the "CRTC") to operate a cable distribution undertaking; (B) Shaw, an exclusive license to distribute, market and promote that portion of the Service which as contemplated in paragraph A above forms part of the Wave@Home Service in those jurisdictions in which Shaw is licensed from time to time by the CRTC to operate a cable distribution undertaking; and (C) Rogers and Shaw jointly, an exclusive license to distribute, market and promote directly or through the grant of sub-licenses, that portion of the Service which as contemplated in paragraph A above forms part of the Wave@Home Service in Canada in addition to those jurisdictions referred to in sub-paragraph 2.1(A) and (B) above. The licenses referred to above are individually referred to as a "License" and collectively as the "Licenses". The Licenses shall include the exclusive, nontransferable (except as permitted by this term sheet) right and license to use all present and future @Home trade marks, technology, processes, know-how, documentation and techniques together with all related Intellectual Property Rights as may be developed, owned, acquired or licensed by @Home and as may be necessary in providing the Wave@Home Service in accordance with this term sheet and the right to use such trade marks with any other trade mark owned by Rogers or Shaw, or their sub- distributors, including the trade mark "Wave"; all in accordance with @Home's written trade mark standards and customary licensing guidelines a copy of which shall be appended to the definitive agreement to be entered into by the parties as contemplated in paragraph 7.1 below. Provided that, the exclusivity of the Licenses shall terminate at @Home's option to be exercised within 90 days of the relevant event (such loss of exclusivity shall be @Home's sole remedy): (i) in the case of the License granted to Rogers, if: 1. Rogers fails to reach the number of Homes Passed provided for in Schedule "D" attached hereto; or 2 ** Confidential treatment has been requested with respect to certain information contained in this document. Confidential portions have been omitted from the public filing and have been filed separately with the Securities and Exchange Commission. 2. of the number of Homes Passed provided for in Schedule "D" Rogers has not attained subscribers to the Wave@Home Service equal to the Penetration Percentage set out in Schedule "D" by the end of the relevant year set out opposite thereto; (ii) in the case of the License granted to Shaw, if: 1. Shaw fails to reach the number of Homes Passed provided for in Schedule "D" attached hereto; or 2. of the number of Homes Passed provided for in Schedule "D" Shaw has not attained subscribers to the Wave@Home Service equal to the Penetration Percentage set out in Schedule "D", by the end of the relevant year set out opposite thereto; (iii) [**] The time for performance of Rogers' and/or Shaw's obligations as set out above, shall be extended day-for-day by (1) to the extent that such failure is as a result of a failure by @Home to complete its obligations set out in this term sheet, the number of days of any resulting delay in Rogers' and/or Shaw's performance of its obligations set out above; or (2) the number of days Rogers' or Shaw's performance was prevented or delayed by the occurrence of a Force Majeure event; or (3) a cure period of six (6) months following notice by @Home to Rogers or Shaw as applicable in the event of the failure to meet the levels referred to above. In the event of a loss of the exclusivity of the License, there shall be a three (3) month transitional period following such loss of exclusivity during which period @Home shall not use or license any third party to use the trade mark @Home but may work with other service providers. 2.2 MASTER ROLL-OUT PLAN: Rogers and Shaw shall distribute the Wave@Home -------------------- Service in accordance with the terms of the Licenses and substantially as determined by agreement of @Home, Rogers and Shaw in the Master Roll-Out Plan. The "Master Roll-Out Plan" means the plan of the parties which sets forth the first commercial deployment date, the upgrade schedule and the network architecture to enable the launch of the Wave@Home Service by Rogers and Shaw. @Home, Rogers and Shaw shall prepare the Master Roll-Out Plan taking into account the particular characteristics of the Canadian market which in their respective view is relevant to the distribution of the Wave@Home Service. 3 2.3 SUB-DISTRIBUTION AGREEMENTS: Any agreement entered into by Rogers or Shaw --------------------------- (directly or indirectly through an entity controlled by Rogers and Shaw) with a sub-distributor shall: (A) be substantially in the standard form of sub-distributor or affiliation agreement to be approved by the parties hereto and shall not be altered in any material respect without the prior written consent of @Home, which consent shall not be unreasonably withheld. Provided that, such sub-distribution agreements shall be entered into only with sub-distributors in accordance with sub-distribution guidelines, which shall be mutually agreed upon by the parties hereto; (B) provide for such management fees to be paid by such sub-distributor to Rogers and/or Shaw, as applicable, for establishing and managing the relationship with such sub-distributor. Such management fee will be set by the Rogers and Shaw and shall be approved by @Home, acting reasonably, and shall be sufficient to cover at least Rogers' and Shaw's costs and investment in connection with such establishment and management. Rogers and/or Shaw, as applicable, may charge additional fees to the sub-distributors for additional or incremental services such as billing or customer support; and (C) provide that the rights granted to sub-distributors which require performance by @Home, shall be no greater than the rights granted to Rogers and Shaw by @Home and that such sub-distributors shall be subject to performance standards in order to maintain exclusivity. Rogers and Shaw shall promptly notify @Home of any material breach under any such sub-distributor or affiliation agreement. Each of Rogers and Shaw (directly or indirectly through an entity controlled by Rogers and Shaw) will diligently enforce the provisions of any sub-distributor or affiliation agreement. 2.4 REGULATORY CONSIDERATIONS: Rogers and Shaw will distribute the Service in ------------------------- accordance with all applicable laws, ordinances, regulations and policies of any governmental agency or regulatory authority having jurisdiction. The parties acknowledge that Rogers and Shaw are required by the CRTC to provide access to their respective networks to third party Internet Service providers. @Home shall provide to each of Rogers and Shaw, as applicable, at @Home's cost, system upgrades such as introduction of source based routing to enable Rogers and Shaw to provide such access to such third parties and Rogers and/or Shaw, as applicable, shall pay a reasonable fee to @Home for the use of any of @Home's technology related to such system upgrades by Rogers and/or Shaw to enable them to provide such access to third parties. Nothing in this paragraph is intended to derogate from any benefit to which @Home is entitled pursuant to the terms hereof nor from the obligation of Rogers and Shaw to use its commercially reasonable efforts to distribute, market and promote the Wave@Home Service. 2.5 RECIPROCAL EXCLUSIVITY: During the term of the exclusivity of the ---------------------- respective Licenses, other than the provision of the Wave@Home Service, and provided that @Home is not in default of its obligation under the Master Roll-Out Plan, Rogers and Shaw, as applicable, 4 ** Confidential treatment has been requested with respect to certain information contained in this document. Confidential portions have been omitted from the public filing and have been filed separately with the Securities and Exchange Commission. shall not [**] However, nothing in this paragraph is intended to and does not restrict either Rogers or Shaw or their sub-distributors from promoting, over an Internet Backbone, programming and content (such as Yahoo, YTV Canada Inc. and Canoe). Provided that, the time for performance of @Home's obligation set out in the Master Roll-Out Plan shall be extended day-for-day by (1) to the extent that such failure is as a result of a failure by Rogers and/or Shaw to complete its obligations set out in the Master Roll-Out Plan; the number of days of any resulting delay in @Home's performance of its obligations set out in this term sheet; or (2) the number of days @Home's performance was prevented or delayed by the occurrence of a Force Majeure event; or (3) a cure period of six (6) months following notice by Rogers and/or Shaw as applicable in the event of the failure by @Home to perform its obligations under the Master Roll-Out Plan. 2.6 COVENANTS OF ROGERS AND SHAW: Rogers and Shaw, each individually with ---------------------------- respect to its own facilities and systems, and severally with respect to the obligation to include the same in agreements with sub-distributors, covenant and agree with @Home that it will: (A) upgrade and maintain its respective HFC plant to enable it to operate two-way data transmission services in accordance with the Master Roll- Out Plan and the Standards and Specifications; (B) acquire, install and maintain cable modem termination system (also known as a cable data router) and cable modems necessary to provide the Wave@Home Service; (C) provide such telecommunications facilities necessary to connect their respective subscribers to headends and/or fibre nodes, connect such headends and/or fibre nodes to @Home's Regional Data Centres ("RDC") in Canada and to connect these RDC's to the nearest POP on the U.S. side of the border (the "U.S. POP"); (D) be solely responsible for its customers and will provide in any sub- distributor agreements that the sub-distributors shall be responsible for such sub-distributor's customers including responsibility for billing, installation of the hardware and software required to enable the customer to receive and use the Wave@Home Service, Tier I Customer Support and Tier II Technical Support. Provided that Rogers and Shaw may retain @Home to assist it in providing any of the above services on terms and at such reasonable fees as the parties shall agree; (E) allow @Home to co-locate RDC's, proxy servers and related equipment at such of Rogers' and Shaw's network distribution facilities at no charge for the use of such space to @Home. Provided that @Home will use commercially reasonable efforts to optimize space and other requirements consistent with its practice with its U.S. Cable Partners; 5 (F) subject to @Home complying with sub-paragraph 2.7(I) provide necessary modifications to its billing, subscriber management, and network management systems to adequately interface with @Home's support and network management system. @Home shall work with Rogers and Shaw to help them, to at least the same degree as the level of assistance given by @Home to its U.S. Cable Partners, to minimize their costs for the foregoing; and (G) use commercially reasonable, diligent efforts to distribute, market and promote the Wave@Home Service, on a local, regional and national level including promoting the Wave@Home Service to potential sub- distributors. 2.7 COVENANTS OF @HOME: In order to facilitate the distribution of the ------------------ Wave@Home Service by Rogers, Shaw and the sub-distributors, in accordance with the Master Roll-out Plan, @Home covenants and agrees with each of Rogers and Shaw that in addition to the grant of the Licenses, it will, in Canada, subject to the other terms and conditions herein: (A) grant access to Shaw, Rogers and the sub-distributors and their respective subscribers customers or content providers to @Home's broadband network; (B) install and maintain IP data routers and proxy servers as mutually agreed upon; (C) install and maintain that number of RDCs that the parties mutually agree is required to maximize the efficient use of Rogers', Shaw's and the sub-distributors' transport infrastructure but in any event such number of RDC's shall, together with the proxy servers installed, deliver the same level of performance as enjoyed by the U.S. Cable Partners; (D) provide the software necessary for use by and to enable Rogers', Shaw's and the sub-distributors' Wave@Home subscribers to receive and use the Wave@Home Service, including the customized Internet browser, TCP\IP stack and application plug-ins; (E) provide all of the telecommunications facilities connecting the U.S. POP to the @Home Network; (F) provide Tier III Network Support; (G) provide such general engineering, operations, marketing and management, consultation and support to Rogers, Shaw and the sub- distributors when reasonably requested; (H) provide training programs to train personnel from or determined by Rogers and Shaw to enable such persons to then train others, provide scripts and other materials designed to assist Rogers, Shaw and the sub-distributors with Tier I Customer Support and Tier II Technical Support; (I) provide access to @Home's subscriber management systems and the API's reasonably necessary to automate the exchange of data from such systems 6 to Rogers, Shaw and the sub-distributors (such as IP addresses, log-in names, computer configuration, etc.) that are necessary for billing and subscriber management;` (J) work with Rogers and Shaw to develop network architecture that minimizes inter-city data transport within Rogers' Shaw's and the sub- distributors' networks. In carrying out its obligations @Home shall treat Rogers, Shaw and the sub- distributors in a manner and with a priority that is equal to that afforded to its U.S. Cable Partners. 2.8 DUE DILIGENCE AND ACCESS: Following the execution of this term sheet by ------------------------ all parties, the parties shall conduct their respective due diligence review of the assets, operations and the capital structure, as applicable, of the other. The parties shall coordinate closely with the officers of the other all such activities and shall conduct any such inquiries with appropriate discretion and sensitivity to the relationships of the other; employees, customers, suppliers and distributors. The parties agree to hold information obtained in confidence in accordance with the terms of the confidentiality agreement entered into between each of Shaw and Rogers and @Home and to use the information so obtained only for the purpose of evaluating efficacy of the transaction contemplated herein. During this time the parties and their advisors and representatives shall, subject to confidentiality obligations to third parties, have access during normal business hours to such of the other's properties, books, contracts, documents, records and personnel related to the Service and the ability of any of the parties to fulfill their respective obligations under this term sheet and the other may reasonably request. In the event that the transactions contemplated herein are not completed, the parties shall return all such information in written form and any copies thereof to its owner, and destroy all notes, working papers and schedules based on such confidential information. @Home, Rogers and Shaw shall complete their due diligence within a reasonable time, which shall not exceed 20 business days following execution of this term sheet by all parties. In the event that the results of the due diligence conducted by parties gives rise to the condition set out under paragraphs 4.1(E), 4.2(E) or 4.3(C), the applicable party shall be entitled to terminate the arrangements contemplated herein. 2.9 STANDARDS AND SPECIFICATIONS: The parties will comply with mutually agreed ---------------------------- to Specifications and Standards that will include minimum cable plant performance standards, @Home Network infrastructure standards, and certification criteria. In particular, Rogers and Shaw will meet certain minimum requirements for upstream and downstream bandwidth and @Home will provide for certain minimum caching rates assuming a specified subscriber level. 2.10 RIGHTS TO PURCHASE FROM @HOME VENDORS: @Home will use reasonable ------------------------------------- commercial efforts to allow Rogers, Shaw and their sub-distributors to purchase hardware and software for Wave@Home on an aggregate basis with @Home and/or the U.S. Cable Partners so that Rogers, Shaw and the sub- distributors can thereby enjoy advantageous terms and pricing. 7 2.11 @MEDIA PROGRAMMING RESPONSIBILITIES: The parties envision that the user ----------------------------------- interface for Wave@Home will feature a Local Area and a National Area as follows: (A) Rogers, Shaw or a sub-distributor, as the case may be, will program the Local Area and all Local Content. Local Content shall consist solely of content that is intended for a specific geographic area, such as a city, town, municipality or metropolitan area (a "Geographic Area") (for example, a local restaurant guide or real estate listing service). Shaw and Rogers will program the Local Area only with Local Content; and (B) Content that is promoted in more than one Geographic Area will be included in the National Area. Rogers, Shaw and @Home will jointly program the National Area and all National Content in accordance with paragraph 2.12 below. Rogers and Shaw and the sub-distributors will develop relationships with Canadian content partners to provide National Content and @Home will utilize its relationships with U.S. content partners for the same purpose. 2.12 PROGRAMMING THE NATIONAL AREA: The following principles shall apply: ----------------------------- (A) The parties acknowledge the desire to present a distinctly Canadian service consistent with the spirit of Canadian cultural policy while balancing the desire to use as much of the content forming part of the Service as is possible. Accordingly, Rogers and Shaw at their cost shall be entitled to modify, augment, or replace National Content programmed by @Home in order to comply with Canadian law, cultural policies and/or industry requirements or expectations and to ensure that it is relevant to the Canadian market. Provided that Rogers and Shaw shall act reasonably and in good faith in order to minimize such changes. The principles described in this paragraph 2.12(A) shall be referred to as the "Programming Principles"; (B) Rogers and Shaw at their cost may make editorial changes in the National Area and in the National Content as either of them determines is appropriate for the Wave@Home Service, consistent with the Programming Principles. For example, the parties will frequently change the lead news story, sports scores, weather conditions and other editorial content appearing on the news, sports and business guide pages so that it is oriented toward the Canadian market; (C) Rogers and Shaw at their cost may supplement or replace third party content provided by @Home as it determines is appropriate for the Wave@Home Service consistent with the Programming Principles. For example, Rogers and Shaw may elect to add TSN to supplement or replace ESPN. Rogers and Shaw will first use commercially reasonable efforts to supplement such content provided by @Home by adding additional third party content of its choice. If this approach is inadequate or is not practical, Rogers and Shaw may replace such content but will consult with @Home prior to doing so; (D) @Home shall develop and maintain the underlying user interface and page templates for the Wave@Home Service (the "Programming Structure"). @Home 8 ** Confidential treatment has been requested with respect to certain information contained in this document. Confidential portions have been omitted from the public filing and have been filed separately with the Securities and Exchange Commission. will use commercially reasonable efforts to make the Programming Structure as flexible as possible so that Rogers and Shaw can achieve the Programming Principles without a need for modifications to the Programming Structure. A change to a Programming Structure would for example be replacing a shopping page which features an anchor tenant and four other vendors with a page modified to feature only the anchor tenant. If Rogers and Shaw believe that such a modification is necessary to achieve the Programming Principles, Rogers and Shaw will request that @Home implement the same, at Rogers' and Shaw's cost. @Home agrees that it will implement such modifications unless such modifications would jeopardize the technological integrity of the overall Programming Structure; in which case, @Home shall endeavour to recommend reasonable alternatives to achieve the goals or satisfy the concerns of Rogers and Shaw. Such requests for modifications are anticipated to be infrequent and normally not necessary to achieve the Programming Principles; (E) Except as may be otherwise required by any regulatory authority, Rogers and Shaw will have the limited right to block the promotion of any programming forming part of the National Content provided by @Home which is competitive with any form of programming service owned or controlled by Rogers or Shaw (e.g.: YTV vs. Nickelodeon) without reference to the Programming Principles; provided however that Rogers and Shaw may each block the promotion of only two such programs, in their respective licensed territories, at any given time; and (F) @Home will make available to Rogers and Shaw the same content platform technologies that it makes available to its U.S. Cable Partners, including multi casting and replication technologies. To the extent that Rogers and Shaw require content platform technologies (such as advertising insertion tools) that are not required by the U.S. Cable Partners, @Home will license such content platform technologies to Rogers and to Shaw on commercially reasonable terms. 2.13 @MEDIA REVENUE: All revenue derived from the Local Area will be retained -------------- by Rogers, Shaw or the sub-distributor responsible for programming the Local Area. All revenue derived from the National Area will be allocated as follows: (A) The party responsible for generating the revenue from advertising, a promotional link, an on-line transaction or other @Media services (the "Additional Revenue") shall retain [**]% of such Additional Revenue as a sourcing commission. The remaining Additional Revenue (i.e. [**]% of the Additional Revenue) will be aggregated on a quarterly basis and allocated in proportion to the Additional Revenue (less the sourcing commission) generated by each party in that quarter. However, in no event shall any party be entitled to less than [**]% nor more than [**]% of the remaining Additional Revenue; and (B) Revenue from Premium Services will be allocated on a case by case basis in proportion to the contributions made by each party. "Premium Services" are services that require Rogers' and/or Shaw's active participation in marketing, sales, billing and/or customer support. 9 The parties shall reassess the above allocations following the third anniversary of the execution of this term sheet. 2.14 ADVERTISING PRACTICES: --------------------- (A) Rogers and Shaw shall schedule all advertising content forming part of the National Area on a non-discriminatory manner and so as to maximize overall advertising revenue. Rogers and Shaw shall sell advertising to businesses in Canada for insertion in the Wave@Home Service and @Home shall sell advertising to businesses in the United States for insertion in the Wave@Home Service. Rogers and Shaw on the one hand and @Home on the other shall share leads (for which an appropriate commission shall be paid) but shall not sell any such advertising to businesses operating in the other's territory. All sales of advertising to be inserted in the Wave@Home Service shall be made in accordance with an advertising rate card for the Wave@Home Service; and (B) From time to time Rogers and/or Shaw may bundle advertising on the Wave@Home Service with other media offerings by entities which it controls. In such instance, any discount from the applicable rate card associated with bundling shall be allocated on an equitable basis. 2.15 RESEARCH & DEVELOPMENT: @Home shall use its commercially reasonable ---------------------- efforts to conduct Canadian based research and development in matters regarding the Service and the Wave@Home Service. 2.16 BRANDING: The Service will be marketed and distributed by Rogers and Shaw -------- under the co-brand "Wave@Home" or the brand "@Home". Rogers' and Shaw's local loop (i.e. the infrastructure required to deliver the Wave@Home Service to the subscriber from the RDC's) will be referred to as the "Wave". Rogers and Shaw and the sub-distributor may use a tag line to identify Wave@Home as a product of Rogers, Shaw or the sub-distributor. Rogers and Shaw shall grant to @Home a non-exclusive license to use the appropriate trade marks owned by either of them to market and promote the Wave@Home Service. Provided that nothing set out in this paragraph shall give Rogers or Shaw any ownership rights to the trade mark "@Home". 2.17 FEES: The following fees shall apply to the Licenses: ---- (A) Wave@Home will be offered to Rogers' and Shaw's and their sub- distributors' subscribers at basic subscription rates (which may be based on a month-to-month or longer term subscriptions), cable modem rates, and installation rates determined by Rogers, Shaw and their sub-distributors in their sole discretion. The basic subscription rate shall include local loop transport fees and Internet Service provider fees and may be allocated between local loop transport fees and Internet Service provider fees in any manner that Rogers and Shaw deem appropriate subject to any applicable legal requirements relating to the pricing of these services; and 10 ** Confidential treatment has been requested with respect to certain information contained in this document. Confidential portions have been omitted from the public filing and have been filed separately with the Securities and Exchange Commission. (B) In consideration of the License granted hereunder and the performance of @Home's obligations, Rogers and Shaw will pay @Home [**]% (the "Fee Percentage") of the Wave@Home basic subscription rate revenue, including any portion allocated to local loop transport (the "Wave@Home Services Revenue") billed by Rogers, Shaw and its sub- distributors. The parties acknowledge that the Wave@Home Service Revenue is presently set out in the High Speed Internet Access Tariff filed by each of Rogers and Shaw with the CRTC. The tariffs do not include installation charges, any sales, use, gross receipts, excise, franchise or other local, provincial and federal taxes, fees or charges, however designated (excluding taxes on the other party's income) imposed on or based upon the provision or use of Wave@Home Services, management fees described in paragraph 2.3(B), @Media revenue described in paragraph 2.13, or any incremental fees collected for additional content or programming or the fees charged for the sale or rental of cable modems, all of which amounts shall in all cases be excluded from the calculation of the Wave@Home Service Revenue. Rogers and Shaw will not and the sub-distribution agreements will provide that the sub-distributors shall not artificially allocate costs between the Wave@Home Service Revenue and the other fee categories excluded above in order to lower Rogers' and Shaw's payments to @Home. All payments under this term sheet will be net 30 days from the calendar month end; and (C) Rogers, Shaw or any sub-distributor will be entitled to include the Wave@Home Service in a bundled offer with other products or services offered by such party or other ("Bundled Offer") and sold to subscribers at a single discounted price. If Rogers or Shaw wish to include that Wave@Home in a Bundled Offer such party may request that @Home agree that the Wave@Home Service Revenue for the purpose of section 2.17(B) will be equal to the discounted price for the Wave@Home Service included in the Bundled Offer. The discounted price will be determined by dividing (i) the price for the Bundled Offer by (ii) the sum of the standard price for each service included in the Bundled Offer and multiplying the resulting percentage by the un- discounted Wave@Home Service Revenue. @Home will act reasonably in giving its consent and will take into consideration the likely benefits of the Wave@Home Service being included in the Bundled Offer. Failing such consent if Rogers or Shaw proceeds with the Bundled Offer, the Wave@Home Service Revenue will be calculated without reference to any discount. All fees or other payments by one party to the other as contemplated herein shall be reduced by all statutory withholding obligations imposed on such party including any taxes required to be withheld pursuant to Canadian or U.S. laws. 2.18 PERFORMANCE BASED INCREASE IN @HOME SERVICE FEES: The fees payable to ------------------------------------------------ @Home shall be increased in the manner set out in Schedule "E" attached hereto. 2.19 TERM: The initial terms of the Licenses and this term sheet (or the ---- definitive distribution agreement if executed and as such supersedes the term sheet) will be six years. Rogers and Shaw shall each have the right to renew this agreement for two additional six year 11 terms subject to reaching agreement with @Home with respect to the overall economics of the contractual arrangements for any such renewal period. At the end of the fifth and eleventh year the parties will review the overall economics of the contractual arrangements and negotiate in good faith any amendments sought to the contractual arrangements by any of the parties for any renewal term. 2.20 TRANSITION PERIOD: If the contractual arrangements set out herein ----------------- terminate as a result of the: (A) failure of the parties to reach agreement on the economic terms to take effect on renewal as contemplated in paragraph 2.19 above, there will be a twelve month transitional period following such termination or such shorter period of time as shall be agreed upon by the parties; and (B) the breach of one of the parties, and subject to the requirements of Section 2.1(i), (ii) and (iii), there will be a transition period of such duration as shall be mutually agreed upon, not to exceed nine months provided however that the party in breach shall use all its reasonable commercial efforts to remedy the breach and shall continue to fulfill its other contractual obligations. During the transitional periods described above Rogers and Shaw may, but need not, continue to use the "Wave@Home" co-brand or "@Home" brand, as the case may be. During the transition period the parties will otherwise be bound by their obligations set out in this term sheet including the payment of fees and the exclusivity obligation of the parties (subject to the right of the parties to prepare to contract with an alternative provider). In addition during the transition period, the parties will co-operate and work together in good faith to effect a smooth and orderly transition from the facilities, networks, technology and services provided by each of the parties hereunder to the separate facilities, networks, technology and services required by each of the parties after the end of the transition period. 3.0 ADDITIONAL VENTURES 3.1 @HOME COMMERCIAL SERVICES: @Home, Rogers and Shaw will negotiate in good ------------------------- faith until December 31, 1997 with a view to signing a distribution agreement granting Rogers and Shaw an exclusive license in Canada covering @Home's commercial services (such as @Work Remote for telecommuters and @Work Internet access service). Nothing in this paragraph is intended to prohibit either party from entering into any arrangement with any other party to provide such commercial services in Canada. However, in the event that @Home offers a commercial product with another Internet Service provider, @Home shall not use "@Home" as the product name for such service and shall use its good faith efforts to disassociate the @Home name or trade mark with such service. It being agreed that regardless of the success of the negotiations regarding these @Home commercial services, nothing herein shall limit the ability of Rogers and Shaw to distribute, market and promote the Wave@Home Service to any residence in Canada even if such customer might also work from his or her residence. 12 4.0 CONDITIONS PRECEDENT TO CLOSING 4.1 The obligation of Rogers to complete the transactions referred to above is conditional on the following: (A) the representations and warranties of @Home set out in Part 5 below shall be true on the closing date as if made at and as of such date; (B) Obtaining the approval of the board of directors of Rogers on or before March 17,1997; (C) No action or proceeding shall be pending or threatened by any person, company, firm, governmental authority, regulatory body or agency to enjoin or prohibit the purchase by Rogers or the sale by @Home of the Series C Shares and the Warrants or the grant of the Licenses to Rogers; (D) As part of the closing procedures regarding the transactions contemplated herein, @Home shall execute and deliver the form of stock purchase agreement distributed in connection with @Home's Series C Convertible Preferred Stock offering for the purchase of the Series C Shares and the Warrants and related documents providing the customary representations and warranties and covenants generally provided to a purchaser of shares from an issuer provided that the form of stock purchase agreement and other definitive documents for the sale and issuance of the Series C Shares and the Warrants are subject to the final approval of the Board of Directors of Rogers; (E) Rogers shall have completed its due diligence to the extent set out in paragraph 2.8 above and the due diligence shall not have revealed any fact, matter, omission or misstatement of such a material nature as to lead a prudent person operating an Internet Service in circumstances similar to those of Rogers and involved in a transaction such as the one contemplated herein to conclude in its own best interests, that the transaction should not be completed; and (F) Simultaneously with the closing of the transactions set out herein by Rogers, Shaw shall complete its obligations set out herein. 4.2 The obligation of Shaw to complete the transactions referred to above is conditional upon: (A) the representations and warranties of @Home set out in Part 5 below shall be true on closing date as if made at and as of such date; (B) Obtaining the approval of the board of directors of Shaw on or before March 17, 1997; (C) No action or proceeding shall be pending or threatened by any person, company, firm, governmental authority, regulatory body or agency to enjoin or prohibit the 13 purchase by Shaw or the sale by @Home of the Series C Shares and the Warrants or the grant of the Licenses to Shaw; (D) As part of the closing procedures regarding the transactions contemplated herein, @Home shall execute and deliver the form of stock purchase agreement distributed in connection with @Home's Series C Convertible Preferred Stock offering for the purchase of the Series C shares and the Warrants and related documents providing the customary representations and warranties and covenants generally provided to a purchaser of shares from an issuer provided that the form of stock purchase agreement and other definitive documents for the sale and issuance of the Series C Shares and the Warrants are subject to the final approval of the Board of Directors of Shaw; (E) Shaw shall have completed its due diligence to the extent set out in paragraph 2.8 above and the due diligence shall not have revealed any fact, matter, omission or misstatement of such a material nature as to lead a prudent person operating an Internet Service in circumstances similar to those of Shaw and involved in a transaction such as the one contemplated herein to conclude in its own best interests, that the transaction should not be completed; and (F) Simultaneously with the closing of the transactions set out herein by Shaw, Rogers shall complete its obligations set out herein. 4.3 The obligation of @Home to complete the transactions referred to above is conditional upon: (A) Obtaining the approval of the board of directors of @Home on or before March 20, 1997; (B) No action or proceeding shall be pending or threatened by any person, company, firm, government authority, regulatory body or agency to enjoin or prohibit the purchase by Rogers or Shaw or the sale by @Home of the Series C Shares and the Warrants or the grant of the Licenses to Rogers and Shaw; (C) @Home shall have completed its due diligence to the extent set out in paragraph 2.8 above and the due diligence shall not have revealed any fact, matter, omission or misstatement of such a material nature as to lead a prudent person operating an Internet Service in circumstances similar to those of @Home and involved in a transaction such as the one contemplated herein to conclude in its own best interests, that the transaction should not be completed; (D) the representations and warranties of Rogers and Shaw set out in Part 5 below shall be true on the closing date as if made at and as of such date; (E) Simultaneously with the closing of the transactions set out herein by @Home, Rogers and Shaw shall complete their respective obligations set out herein; and 14 (F) As part of the closing procedures regarding the transaction contemplated herein, Rogers and Shaw shall execute and deliver the form of stock purchase agreement distributed in connection with @Home's Series C Convertible Preferred Stock offering for the purchase of the Series C Shares and Warrants and related documents providing customary representations and warranties and covenants generally provided by a purchaser to an issuer of shares, provided that the definitive documents for the sale and issuance of the Series C Shares and related documents of the Warrants are subject to final approval of @Home's Board of Directors prior to the closing. 4.4 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF ALL OF THE PARTIES: The ------------------------------------------------------------- obligations of the parties to complete the transactions contemplated herein is conditional upon the receipt on or before closing of all necessary approvals from all regulatory authorities having jurisdiction with respect to the subject matter hereof. 5.0 REPRESENTATIONS AND WARRANTIES 5.1 REPRESENTATIONS AND WARRANTIES OF @HOME: @Home represents and warrants to --------------------------------------- each of Rogers and Shaw that: (A) @Home has the power and authority to enter into this term sheet and to fully perform its respective obligations hereunder, including the right to grant the Licenses in Canada on the terms set out in this term sheet; (B) @Home is not under any contractual or other legal obligation which will in any way interfere with the full, prompt and complete performance of its obligations pursuant to this term sheet; and (C) The @Home Facilities and the Services (collectively called the "@Home Property") are and will remain the sole and exclusive property of @Home and its suppliers (and where the @Home Property is the sole and exclusive property of @Home's suppliers, @Home has the necessary license to use such property for the purposes contemplated in this term sheet). @Home's ownership rights include but are not limited to: 1. Intellectual Property Rights held by @Home in the @Home Property; and 2. All modifications to and derivative works based upon such Intellectual Property Rights. 5.2 REPRESENTATIONS AND WARRANTIES OF ROGERS AND SHAW: Each of Rogers and Shaw ------------------------------------------------- severally represent and warrant to @Home that: (A) Each of Rogers and Shaw has the power and authority to enter into this term sheet and to fully perform its respective obligations hereunder; 15 (B) Neither Rogers nor Shaw is under any contractual or other legal obligation which will in any way interfere with the full, prompt and complete performance of its obligations pursuant to this term sheet; and (C) Rogers' and Shaw's facilities and all Intellectual Property Rights therein are and will remain the sole and exclusive property of each of Rogers and Shaw, as applicable, and their respective suppliers (and where the Rogers or Shaw Facilities or Intellectual Property Rights are the sole and exclusive property of Rogers' or Shaw's suppliers, Rogers or Shaw has the necessary license to use such Facilities or Intellectual Property Rights for the purposes contemplated in this term sheet). Rogers' and Shaw's respective ownership rights include but are not limited to: 1. Intellectual Property Rights held by Rogers or Shaw, as applicable, in the facilities; 2. All modifications to and derivative works based upon such Intellectual Property Rights. 6.0 INDEMNITIES 6.1 INDEMNITY OF @HOME: @Home will defend, indemnify and hold harmless each of ------------------ Rogers and Shaw, their respective affiliated companies and partners and their respective officers, directors, employees and agents from all liabilities, damages, costs and expenses (including without limitation, reasonable counsel fees and expenses) incurred in connection with any third party claim against Rogers or Shaw relating to the use by either Rogers or Shaw of the Intellectual Property Rights of @Home which results or may result in the infringement of any Intellectual Property Rights of any third party. 6.2 INDEMNITY OF ROGERS AND SHAW: Each of Rogers and Shaw severally only agree ---------------------------- that they shall defend, indemnify and hold harmless @Home, its affiliated companies and partners and their respective officers, directors, employees and agents from all liabilities, damages, costs and expenses (including without limitation, reasonable counsel fees and expenses) incurred in connection with any third party claim against @Home relating to the use by @Home of the Intellectual Property Rights of either Rogers or Shaw, which results or may result in the infringement of any Intellectual Property Rights of any third party. 6.3 CONSEQUENTIAL DAMAGES: NONE OF THE PARTIES HERETO WILL BE LIABLE TO ANY OF --------------------- THE OTHER PARTIES FOR ANY INCIDENTAL, CONSEQUENTIAL OR SPECIAL DAMAGES (SUCH AS, BUT NOT LIMITED TO, LOSS OF PROFITS OR REVENUE AND DAMAGE TO OR LOSS OF PERSON PROPERTY), WHETHER ARISING IN CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE. 7.0 CLOSING PROCEDURES 7.1 BINDING NATURE OF AGREEMENT: The term sheet is binding on the parties. --------------------------- The parties shall acting in good faith complete and execute all formal documentation customary in a transaction of this nature, all of which must be satisfactory to each of Rogers, Shaw and 16 @Home, acting reasonably, including without limitation, a stock purchase, a distribution and trade mark licence agreement which shall be consistent with and reflect the terms of this term sheet and shall contain the usual covenants, indemnities, warranties and representations with respect to certain matters affecting @Home, its capital and the Service. 7.2 THE COMPLETION DATE: The transactions contemplated herein shall be ------------------- completed two business days following the completion of due diligence. Provided that the parties shall extend the time for completion to enable the parties to obtain any required approvals. 7.3 STRUCTURES OF THE TRANSACTION: The parties agree that Rogers and Shaw have ----------------------------- yet to determine the structure of the entity which will conclude the transactions contemplated herein with @Home. The parties agree to cooperate with each other to determine and establish the structure entity which will conclude the transactions contemplated herein in such a manner so as to enable Rogers and Shaw to minimize the taxes otherwise payable, as a result of this transaction, by each of them without altering the economic substance of the transactions to @Home. Rogers and Shaw shall determine and advise @Home of the proposed structure of the transactions by April 5, 1997. If Rogers and Shaw create a new entity to be owned by them jointly aimed at exploiting the License referred to in paragraph 2.1(C) or facilitating the programming of National Content they shall discuss with @Home its possible equity or warrant participation in such entity. 7.4 ESCROW CLOSING: If it is reasonably determined by a responsible senior -------------- officer of @Home that the Series C Convertible Preferred Stock offering proposed by @Home will likely close prior to the date established herein for completion of due diligence, Rogers and Shaw shall on the date established pursuant to the stock purchase agreement as the completion date, purchase the Series C Shares in escrow, by depositing with an escrow agent, acceptable to all of the parties, an amount equal to the purchase price for such Series C Shares and the Warrants described in Schedule "B" and @Home shall deposit with the same escrow agent the corresponding certificates for the Series C Shares and Warrants, to be released to the appropriate party upon completion of due diligence and satisfaction of the conditions precedent or termination of the contractual obligations set out herein. 7.5 PUBLIC DISCLOSURE: Each of Rogers, Shaw and @Home shall maintain in ----------------- confidence the matters referred to in this term sheet and shall not make any public disclosure, except to the extent required by applicable law, regulation, or policies of any governmental or regulatory authority (including the TSE and applicable U.S. securities exchanges) of the terms of this term sheet without the consent of the other, such consent not to be unreasonably withheld. The parties shall consult with each other regarding the wording of all press announcements. 7.6 ASSIGNMENT: Except as otherwise provided in this term sheet, (i) each of ---------- Rogers and Shaw may assign their respective rights and obligations, in whole or in part, under this term sheet to one of their wholly-owned direct or indirect subsidiaries or to an entity owned jointly by Rogers and Shaw (whether now existing or created subsequent to the date of this term sheet) and (ii) @Home may assign its rights and obligations, in whole or 17 in part, under this term sheet to a wholly owned direct or indirect Canadian subsidiary created subsequent to the date of this term sheet but, if such assignment takes place, the assignor shall continue to be liable to the other parties hereunder for any default in the performance of the assignee. This term sheet shall not otherwise be assignable by any party hereto. 7.7 ENUREMENT: The term sheet shall be binding upon and shall enure to the --------- benefit of and be enforceable by Rogers, Shaw and @Home and their respective successors and Rogers' and Shaw's permitted assigns. 7.8 NOTICES: Any notice, direction or other instrument required or permitted ------- to be given or made hereunder shall be in writing and shall be sufficiently given or made if delivered in person to the address set forth below or if telecopied or sent by other means of recorded electronic communication confirmed by delivery as soon as practicable or if dispatched, fees prepaid, by overnight courier. Notices to @Home shall be addressed as follows: At Home Corporation 425 Broadway Redwood City, CA 94063 Attention: Tom Jermoluk, Chairman and CEO Fax: 415-944-8500 with a copy to: David Pine, General Counsel Fax: 415-944-8500 Notices to Rogers shall be addressed as follows: Rogers Cablesystems Limited Suite 6400 Scotia Plaza 40 King Street W Toronto, Ontario Attention: Chief Executive Officer With a copy to: David Miller, Vice-President Law and General Counsel Fax: 416-864-2395 18 Notice to Shaw shall be addressed as follows: Shaw Cablesystems Ltd. Suite 900, 630 - 3rd Avenue S.W. Calgary, Alberta T2P 4L4 Attention: The President with a copy to: Margot M. Micallef, Corporate Counsel Fax: (403) 750-4531 Any notice, direction or other communication so given or made shall be deemed to have been given or made and to have been received on the day of delivery, if delivered, or on the day of sending if sent by telecopier or other means of recorded electronic communications (provided such day of delivery or sending is a business day and, if not, then on the first business day thereafter). Either party hereto may change its address for notice to the other party by notice given in the manner aforesaid. 7.8 GOVERNING LAW: This term sheet and the rights and obligations of the ------------- parties hereto shall be governed and construed in accordance with the laws of the Province of Ontario. 7.10 COUNTERPART: This term sheet may be signed in counterparts that together ----------- shall be deemed to constitute one valid and binding document with effect from the date the last of the counterpart copies is signed and returned in accordance with the delivery provisions set out below and delivery of the counterparts may be effected by means of facsimile transmission. 19 7.11 TERMINATION: The contractual obligations set out in this term sheet shall ----------- terminate and be of no further force and effect if the conditions precedents set out herein are not satisfied or waived on or before June 15, 1997. AT HOME CORPORATION PER: /s/ Thomas A. Jermoluk - ------------------------------- /s/ David G. Pine - ------------------------------- ROGERS CABLESYSTEMS LIMITED PER: /s/ David Samuel - ------------------------------- /s/ David Miller - ------------------------------- SHAW CABLESYSTEMS LTD. PER: /s/ Michael D. [ILLEGIBLE] - ------------------------------- /s/ R.D. [ILLEGIBLE] - ------------------------------- 20 SCHEDULE A DEFINITIONS To the extent not inconsistent with this term sheet, terms with initial capital letters not defined in the body of the term sheet shall have the meaning set forth below. All references to "MSO" in the term sheet and these definitions shall refer to each of Rogers, Shaw, and the sub-distributors, as applicable. 1. Definitions (a) "@HOME FIRST PAGE" means the first page of the Wave@Home Service user interface as it appears to subscribers upon the "start up" of the Wave@Home Service. (b) "DATA-READY CABLE SYSTEM" means the construction or upgrade of MSO Facilities to allow distribution of Wave@Home Service in accordance with the Specifications and Standards. (c) "FACILITIES" means any and all facilities, equipment, and technology that is owned, leased or licensed by a party hereto that is necessary to deliver the Wave@Home Service. (d) "FORCE MAJEURE" event means any of the following events: (i) the failure of any equipment or software under the control of a person, firm or entity not affiliated with such party; (ii) fire, flood, earthquake, or other natural disaster; (iii) a change in law or governmental regulation; or (iv) any other cause beyond the reasonable control of such party. In any such case, the parties' time for performance under the term sheet, to the extent affected by any of the foregoing, will be correspondingly extended. (e) "HOMES PASSED" means the number of residential dwelling units that are or can be connected to the MSO's Data-Ready Cable System. For the purposes of this paragraph, a residential dwelling unit "can be connected" to the MSO's Data-Ready Cable System if the residential dwelling unit is located within 250 feet of an upgraded data-ready distribution line. Each residential unit in a multiple dwelling unit shall be counted as one Home Passed. (f) "IP" means the Internet Protocols as defined by the document titled RFC-91, by John Postell of the University of Southern California, dated 1981, or subsequent revisions thereof. (g) "INTELLECTUAL PROPERTY RIGHTS" means all patent rights, copyright rights (including, but not limited to, rights in music and audiovisual works and moral rights), trademark rights, trade secret rights, and any other intellectual property rights recognized by the law of each applicable jurisdiction. (h) "INTERNET BACKBONE" means a wireline or wireless network which: (i) can or does (a) assign IP addresses or manage IP address assignments for machines or networks to which it is connected, (b) accept or deliver IP datagrams from machines or networks to which it is connected, or (c) maintain IP packet traffic to other machines or networks; and (ii) provides IP connectivity on a regional, national or international basis. (i) "INTERNET SERVICE" means any information, entertainment or communication service provided over an Internet Backbone regardless of the method by which it is accessed by the user (i.e. personal computer, set top box, television, hand held device, etc.). (j) "LOCAL AREA" shall mean that area (or channel(s)) of the @Home First Page customarily designated by @Home for programming by an MSO. (k) "LOCAL CONTENT" means any and all content that may be accessed on- line by customers through the Local Area. (l) "NATIONAL AREA" shall mean that area (or channel(s)) of the @Home First Page other than the Local Area. (m) "NATIONAL CONTENT" means any and all content that may be accessed on-line by customers through the National Area. (n) "RESIDENTIAL INTERNET SERVICE" means an Internet Service that is sold to residential subscribers; even if such subscribers might also work from their residences. (o) "SPECIFICATIONS AND STANDARDS" means, collectively, the specifications and standards for the MSO Facilities and the @Home Facilities and the technical requirements for distribution of the Wave@Home Service, as are mutually agreed to in writing by Rogers, Shaw and @Home. (p) "TIER I CUSTOMER SUPPORT," "TIER II TECHNICAL SUPPORT," and "TIER III NETWORK SUPPORT" shall have the meaning set forth in Schedule "A-1" attached hereto. (q) "U.S. CABLE PARTNERS" means any of Comcast PC Investments, Inc., Cox Teleport Providence, Inc., and TCI Internet Holdings, Inc. 2 SCHEDULE B ---------- SUMMARY OF TERMS ---------------- WARRANTS TO PURCHASE SERIES C CONVERTIBLE PREFERRED STOCK Issuer: At Home Corporation, a Delaware corporation (the "Company"). Assumptions: The following terms assume (a) the purchase by each of Rogers and Shaw of US $15,000,000 of the Company's Series C Preferred Stock ("Series C Preferred Stock") at $200 per share in connection with the issuance of the Warrants described below and (b) that each share of Series C Preferred Stock shall, as presently constituted, be convertible into 20 shares of Series A Common Stock of the Company ("Series A Common Stock") at an effective price of $10 per share of Series A Common Stock. If Rogers or Shaw purchases less than $15,000,000 of Series C Preferred Stock each, the number of shares subject to the Warrants will be reduced as may be agreed by the parties. Exercise Price: The Exercise Price of each Warrant shall equal the original issue price of the Series C Preferred Stock ($200 per share of Series C Preferred Stock, which is equivalent to $10 per share of Series A Common Stock), and shall be appropriately adjusted to maintain a constant total exercise price in the event such Warrant becomes exercisable for Series A Common Stock or some other series or class of the Company's capital stock. Purchase Price: The purchase price of each Warrant shall be 0.01% of the aggregate Exercise Price of such Warrant. Such purchase price shall be paid in cash at the Closing. Warrants: Warrant 1: Rogers and Shaw will each be granted such --------- number of warrants so as to entitle each of Rogers and Shaw to purchase shares of Series C Preferred Stock convertible into 650,000 shares of Series A Common Stock ("Warrant 1"). Warrant 2: Rogers and Shaw will each be granted such number --------- of warrants so as to entitle each of Rogers and Shaw to purchase shares of Series C Preferred Stock convertible into 80,000 shares of Series A Common Stock ("Warrant 2"). Warrant 3: Rogers and Shaw will each be granted such number --------- of warrants so as to entitle each of Rogers and Shaw to purchase shares of Series C Preferred Stock convertible into 270,000 shares of Series A Common Stock ("Warrant 3"). ** Confidential treatment has been requested with respect to certain information contained in this document. Confidential portions have been omitted from the public filing and have been filed separately with the Securities and Exchange Commission. The foregoing Warrants, which represent the right to purchase shares of Series C Preferred Stock that are convertible into an aggregate of 2,000,000 shares of Series A Common Stock, are collectively referred to as the "Warrants." The number of shares of Series A Common Stock that are issuable upon exercise of a Warrant and conversion of the Series C Preferred Stock are referred to as "Series A Common Stock equivalent shares." Exercisability: Warrant 1: Each Warrant 1 will become exercisable with --------- respect to that number of Series A Common Stock equivalent shares equal to the product of [**] Notwithstanding the foregoing, each Warrant 1 shall become fully exercisable in any event on the seventh anniversary of issuance thereof. Warrant 2: Each Warrant 2 shall become exercisable with --------- respect to [**] Notwithstanding the foregoing, each Warrant 2 will become fully exercisable in any event on the seventh anniversary of issuance thereof. Warrant 3: Each Warrant 3 shall become exercisable with --------- respect to that number of shares equal to the product of [**] Notwithstanding the foregoing, each Warrant 3 shall become fully exercisable in any event on the seventh anniversary of issuance thereof. Term: Each Warrant will expire sixty days after the seventh anniversary of issuance of the Warrant. Transfer Warrants (and underlying Series C Preferred Stock and Restrictions: Series A Common Stock) will not be transferable until the earlier of June 4, 2001 or the closing date of the Company's IPO, subject to 2 exceptions for transfers to controlled affiliates or transfers in connection with liquidation of an Investor. If the IPO has not occurred on or before June 4, 2001, any transfer by an Investor will be subject to a right of first offer in favor of the Company or the Company's assignee until the earlier of June 4, 2006 or the IPO. Notwithstanding the foregoing two sentences each Warrant 1, Warrant 2 and Warrant 3 (and the underlying Series C Preferred Stock or Series A Common Stock) may be transferred free of such restrictions, subject to compliance with applicable securities laws, in minimums of 1,000 shares of Series C Preferred Stock (20,000 shares of Series A Common Stock), to up to six Additional Canadian MSOs who are "accredited investors" within the meaning of Regulation D under the U.S. Securities Act of 1933, as amended. Transferees will be bound by the transfer restrictions. Underwriter Lockup: The shares issued directly or indirectly upon exercise of the Warrants will be subject to an underwriter lockup of up to one year following the IPO and if transferred to such Additional Canadian MSO such shares shall be transferred subject to such lockup. Registration Shares of Series A Common Stock issued upon conversion of Rights: Series C Preferred Stock issued upon exercise of the Warrants by the original holders of the Warrants shall have the same registration rights provided to the other holders of Series C Preferred Stock. Such registration rights will be transferable only to persons acquiring at least 25% of the number of shares of Series C Preferred Stock originally issuable upon exercise of the Warrants issued to Rogers or Shaw, respectively, plus the number of shares of Series C Preferred Stock purchased by Rogers or Shaw, respectively, at the closing. Effect of Conversion of Series C Preferred Stock: Upon any conversion of all outstanding shares of Series C Preferred Stock into shares of Series A Common Stock, whether as a result of the Company's initial public offering or otherwise, each Warrant shall thereafter be exercisable (but shall remain subject o the exercisability conditions described above) only for shares of Series A Common Stock as if the then-unexercised portion of such Warrant were exercised for shares of Series C Preferred Stock and such shares were immediately converted into Series A Common Stock at the rate of 20 shares of Series A Common Stock per share of Series C Preferred Stock. Regulatory If any Warrant holder or holder of Series C Preferred Compliance: Stock issued upon exercise of any Warrant, or in the case of a mandatory conversion of the Series C Preferred Stock, such holder or the Company, reasonably believes that exercise of the Warrant or 3 conversion of such Series C Preferred Stock would be subject to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, any relevant Canadian antitrust legislation and the rules and regulations thereunder (the "Antitrust Law") prior to such exercise or conversion and following such holder's notice to the Company of such holder's intention to exercise or convert or the Company's notice to such holder of such a mandatory conversions, the Company and such holder shall promptly use commercially reasonable efforts to comply with any applicable requirements under the Antitrust Law relating to filing and furnishing of information to the Federal Trade Commission, the Antitrust Division of the Department of Justice and Canadian antitrust authorities. Each of the Company and such holder shall bear and pay any costs or expenses that it incurs in compliance with this requirement. Definitions: "Upgraded Homes Passed" means the number of residential dwelling units that are or can be connected to the MSO's Data-Ready Cable System (as defined in the term sheet for distribution of the Wave@Home Service). For purposes of this paragraph, a residential dwelling unit "can be connected" to the MSO's Data-Ready Cable System if the residential dwelling unit is located within 250 feet of an upgraded data-ready distribution line. Each residential unit in a multiple dwelling unit shall be counted as one Upgraded Home Passed. 4 SCHEDULE A-1 WAVE@HOME CUSTOMER SERVICE TIER DESCRIPTIONS Tier I Customer Support - ----------------------- Tier I customer service is the "front line" of the Wave@Home Service. All customer inquiries initially will be directed to Tier I customer service representatives ("CSRs"). The tasks listed below are typically provided by Tier I CSRs. However, if the MSO delegates Tier I service responsibility to @Home, MSO and @Home will review these tasks to determine whether MSO can perform some of these functions without the assistance of @Home technical service representatives ("TSRs"). Providing information about the Wave@Home Service. Determining service eligibility (i.e. correct geographic location and computer configuration) of potential subscribers. Providing support for Data and RF technicians during the installation process at the subscriber's home. Processing all start, stop and change requests for the Wave@Home Service. Establishing IP addresses, logins, email, passwords, and related customer identifications and other records for use by @Home and MSO as permitted by the Agreement. Addressing billing and pricing questions. Responding to all customer problems relating to basic desktop support: ----- . All desktop hardware and software support will be handled by Tier I CSRs. . Such support will be provided via email, phone and on-site visits. . By way of example, all known "bugs", operating system configuration issues, and @Home software installation and upgrade questions would be handled by Tier I CSRs. . MSO and @Home anticipate that in excess of 80% of all customer calls relating to desktop problems will be resolved by Tier I CSRs without the assistance of Tier II TSRs. Maintaining trouble ticket status reports and cataloging customer problems and problem resolutions. Tier II Technical Support - ------------------------- Tier II customer service is the advanced diagnostic and problem resolution layer of the Wave@Home Service and includes the tasks set forth below. Tier II TSRs are not responsible for answering initial customer inquiries but may from time- to-time have customer calls transferred to them. The tasks listed below are typically provided by Tier II TSRs: Collecting network information and informing Tier I CSRs of service outages caused by network problems. Providing advanced desktop support by assisting Tier I CSRs with -------- approximately 20% of the customer calls that require additional problem diagnosis and resolution. Developing and maintaining an on-line information system for Tier I CSRs. Tier III Network Support - ------------------------ Tier III customer service will address Tier II escalations from TSRs relating to network problems and perform ongoing network monitoring and maintenance. Tier III technicians will not interact with subscribers directly. 2 SCHEDULE C BOARD REPRESENTATIONS: TCI Internet Holdings, Inc. ("TCI Sub") (on behalf of itself and the "TCI" Stockholder Group" as defined in the Company's Stockholders' Agreement dated as of August 1, 1996) will enter into a voting agreement with Rogers and Shaw, pursuant to which TCI Sub on behalf of the TCI Stockholder Group will agree to vote any shares of @Home they may own in favour of and use commercially reasonable best efforts to cause to be elected and maintained in office one Common Stock Director nominated jointly by Rogers and Shaw, so long as Rogers and/or Shaw continues to offer the Wave@Home Service on an exclusive basis in accordance with their distribution agreement with the company and (ii) Rogers and Shaw collectively beneficially own at least 2,000,000 Series A Common Shares or that number of Series C Shares which upon conversion will equal at least 2,000,000 Series A Common Shares; and (b) in addition to the shares described in subparagraph (a) above, any one of the following: 1. 500,000 Series A Common Shares; or 2. That number of Series C Shares which upon conversion will equal at least 500,000 Series A Common Shares; or 3. That number of Warrants which upon conversion will (immediately or if converted into Series C Shares upon conversion of those shares) equal at least 500,000 Series A Common Shares. The party that continues to hold the exclusive license contemplated in either paragraph 2.1(A) or 2.1(B) of the term sheet shall have the right to designate the Board nominee. If both Rogers and Shaw hold both of the exclusive licenses referred to above, they shall determine their board nominee in such manner as they may determine. In addition, so long as Rogers and Shaw have the right to a Board nominee under the preceding paragraph and both Rogers and Shaw continue to hold the exclusive licenses referred to above, they shall also have the joint right to designate a single observer who will have the right to receive notice of an attend and participate in the discussion in all meetings of the Board of Directors of the Company. ** Confidential treatment has been requested with respect to certain information contained in this document. Confidential portions have been omitted from the public filing and have been filed separately with the Securities and Exchange Commission. SCHEDULE D EXCLUSIVITY 1. In order to retain the exclusivity of the license granted to Rogers in Paragraph 2.1 (A) of the Term Sheet, Rogers shall reach the number of Homes Passed (HHP) and the Penetration Percentages set out in Table 1 and Table 3.
YEAR TOTAL CABLED % REBUILT HOMES PASSED YE PENETRATION END HOMES PERCENTAGE - ------------------------------------------------------------------------------- 1999 2,774,000 [**]% [**] [**]% - ------------------------------------------------------------------------------- 2000 2,816,000 [**]% [**] [**]% - ------------------------------------------------------------------------------- 2001 2,856,000 [**]% [**] [**]% - ------------------------------------------------------------------------------- 2002 2,901,000 [**]% [**] [**]% - -------------------------------------------------------------------------------
TABLE 1: ROGERS HHP AND PENETRATION PERCENTAGE TARGETS 2. In order to retain the exclusivity of the license granted to Shaw in Paragraph 2.1 (B) of the Term Sheet, Shaw shall reach the number of Homes Passed and the Penetration Percentages set out in Table 2 and Table 3.
YEAR TOTAL CABLED % REBUILT HOMES PASSED YE PENETRATION END HOMES PERCENTAGE - ------------------------------------------------------------------------------- 1999 2,029,000 [**]% [**] [**]% - ------------------------------------------------------------------------------- 2000 2,060,000 [**]% [**] [**]% - ------------------------------------------------------------------------------- 2001 2,091,000 [**]% [**] [**]% - ------------------------------------------------------------------------------- 2002 2,122,000 [**]% [**] [**]% - -------------------------------------------------------------------------------
TABLE 2: SHAW HHP AND PENETRATION PERCENTAGE TARGETS
YEAR ROGERS INCREMENTAL YE SHAW INCREMENTAL YE END HOMES PASSED PENETRATION HOMES PASSED PENETRATION PERCENTAGE PERCENTAGE - -------------------------------------------------------------------------------- 1999 [**] [**]% [**] [**]% - -------------------------------------------------------------------------------- 2000 [**] [**]% [**] [**]% - -------------------------------------------------------------------------------- 2001 [**] [**]% [**] [**]% - -------------------------------------------------------------------------------- 2002 [**] [**]% [**] [**]% - --------------------------------------------------------------------------------
TABLE 3: INCREMENTAL HHP AND PENETRATION PERCENTAGE TARGETS 3. Provided that, in determining if Rogers and/or Shaw, as applicable, has reached the number of Homes Passed and the Penetration Percentages set out in Table 3, the following shall apply: (a) that number of Homes Passed and Penetration Percentages reached by Rogers in excess of those numbers and percentages set out in Table 1, and reached by Shaw in excess of those numbers and percentages set out in Table 2, shall be attributed to the numbers of Homes Passed and Penetration Percentages for the purpose of determining compliance with Table 3; and (b) that number of Homes Passed and Penetration Percentages reached by the sub- distributors or others in Canada (whether or not their relationship with @Home is direct or indirect) shall be attributed to the number of Homes Passed and Penetration Percentages set out in Table 3 as if 60% of such Homes Passed and 60% of such Penetration Percentages reached by such persons were reached by Rogers and as if 40% of such Homes Passed and 40% of such Penetration Percentages reached by such persons were reached by Shaw; and (c) if after making the calculations set out in sub-paragraph 3 (a) and (b) above, it is determined that either Rogers or Shaw has satisfied the performance obligations set out in, the case of Rogers in Tables 1 and 3, and in the case of Shaw in Tables 2 and 3, but the other has not, that number of Homes Passed and the Penetration Percentage in excess of the targets imposed shall be attributed to such of the parties who has failed to meet the required number of Homes Passed and Penetration Percentages; and (d) further, homes which are fully 2way capable or telco return capable will be included as if such homes were Homes Passed, and any subscriber to the WAVE@Home Service, whether on 2way cable or telco return, will be counted as a subscriber to the WAVE@Home Service, for the purpose of calculating the Penetration Percentages set out in Table 3. 4. The number of Homes Passed above will be adjusted for any system divestiture by Rogers or Shaw over the course of the term of the term sheet or any renewal thereof. The % Rebuilt specified in Tables 1 and 2 above will remain constant in the event of any system divestiture. In the event of a substantial divestiture, Rogers and Shaw will use all reasonable efforts to appoint such purchaser as a subdistributor of the WAVE@Home Service in the purchased systems. ** Confidential treatment has been requested with respect to certain information contained in this document. Confidential portions have been omitted from the public filing and have been filed separately with the Securities and Exchange Commission. SCHEDULE E PERFORMANCE BASED PAYMENTS TO @HOME (1) The performance based payments to @Home will be based on actual year-over- year growth in monthly average subscriber penetration in excess of the year-over-year monthly average subscriber growth contained in the WAVE Base Case set out below. These performance payments will be calculated separately for Rogers and Shaw. Subject to the limits in section 3 below, @Home will receive a one-time payment of $[**] for each WAVE@Home subscriber above the WAVE Year-Over-Year Target Subscriber growth contemplated in the WAVE Base Case for the years 2000, 2001 and 2002.
WAVE BASE CASE - ------------------------------------------------------------------------------- YEAR WAVE MONTHLY AVERAGE WAVE YEAR-OVER-YEAR PENETRATION ASSUMPTIONS TARGET SUBSCRIBER GROWTH - ------------------------------------------------------------------------------- 1999 [**]% -- - ------------------------------------------------------------------------------- 2000 [**]% [**]% - ------------------------------------------------------------------------------- 2001 [**]% [**]% - ------------------------------------------------------------------------------- 2002 [**]% [**]% - -------------------------------------------------------------------------------
(2) Two sample performance payment calculations for the year 2001 are calculated below for illustrative purposes only. EXAMPLE 1 [**] EXAMPLE 2 [**] ** Confidential treatment has been requested with respect to certain information contained in this document. Confidential portions have been omitted from the public filing and have been filed separately with the Securities and Exchange Commission. [**] (3) This performance payment will be subject to each of the following conditions: [**] (4) The performance payment, if any, will be paid by April 30 of the year following the year in which the performance payment is earned. (5) Monthly average subscribers will be determined by adding the total number of subscribers at the end of each month in the relevant year and dividing the total by 12. All amounts are in Canadian dollars. EX-10.07 16 AGREEMENT DATED APRIL 2, 1997 / TELEPORT COMM EXHIBIT 10.7 ** Confidential treatment has been requested with respect to certain information contained in this document. Confidential portions have been omitted from the public filing and have been filed separately with the Securities and Exchange Commission. MASTER COMMUNICATIONS --------------------- SERVICES AGREEMENT ------------------ THIS AGREEMENT made this 2nd day of April, 1997 between Teleport Communications Group Inc., a Delaware corporation, with a place of business at 429 Ridge Road, Dayton, NJ 08810 ("TCG") and At Home Corporation, a Delaware corporation having a place of business located at 385 Ravendale Drive, Mountain View, CA 94043 ("Customer"). PRELIMINARY STATEMENT --------------------- TCG is an authorized provider of telecommunications services which may be provided and used separately or in combination with the telecommunications services provided by other entities. Customer and TCG wish to set forth terms and conditions which will be applicable to such telecommunications services of TCG as may be ordered and furnished from time to time as herein provided. NOW THEREFORE, in consideration of the promises and the mutual covenants herein contained, the parties agree as follows: 1. Communication Service. --------------------- (a) Addendum A, attached hereto and by this reference specifically incorporated herein, sets forth certain telecommunications services generally offered by TCG (the "Services"). TCG agrees to provide the Services, as requested by Customer, at the prices for such services set forth in Addendum A (the "Standard Pricing Principles"). Addendum A may be modified by mutual agreement of the parties to list additional services to be made available by TCG to Customer pursuant to this Agreement. The Services will be provided in various metropolitan areas by an entity that is either an affiliate or subsidiary of TCG and/or which TCG manages or is otherwise contractually affiliated with, and by the employees, consultants, agents and contractors of such affiliates or subsidiaries. (b) Some Services offered under this Agreement may be offered by TCG pursuant to effective tariffs filed with the state Public Service or Public Utility Commissions (each a "PSC") and the Federal Communications Commission ("FCC") ("Tariffed Services"). Orders for Tariffed Services shall be made in accordance with the applicable provisions of the tariffs. In the event that provisions set forth in this Agreement, including any Addendums hereto, differ from those set forth in the applicable federal and/or state tariffs, the terms of this Agreement shall be deemed to waive or modify the terms of the applicable tariff, to the extent permitted by law; provided, however, TCG shall not, unless required by law, apply for any tariff or take any intentional action that shall cause the applicable tariff to affect the Terms of this Agreement, and -1- TCG shall cooperate with Customer in objecting to any petition or other action intended to cause the terms herein to be modified by any applicable State or Federal tariffs. 2. Service Supplements and Collocation Agreements. ---------------------------------------------- (a) The Services provided to Customer shall be set forth in Service Supplement(s), in the form of Addendum B, Collocation Agreement(s), in the form of Addendum C, such Addenda attached hereto and by this reference specifically incorporated herein, executed by Customer and accepted by TCG from time to time during the Term. Each Service Supplement shall include a description of the Services, the location(s) which they are going to serve or at which they are to be provided, the charges, the estimated service commencement date, the period for which they are to be provided and such other terms and conditions as maybe set forth therein. Each Collocation Agreement shall set forth the site of the requested collocation, the rack, space and power requirements, the requested service commencement date, the period for which the collocation is to be provided, and such other terms and conditions as maybe set forth therein (b) When executed by Customer and TCG, each Service Supplement and Collocation Agreement shall be deemed a separate contract with all the rights and obligations as provided for herein. All provisions of this Agreement applicable to the Services described in each Service Supplement and Collocation Agreement shall be incorporated into and made part of each such Services Supplement and Collocation Agreement, except as may be otherwise expressly provided in such Service Supplement and Collocation Agreement. (c) In the event of a conflict or inconsistency between the provisions set forth in this Agreement, and those set forth in a Service Supplement or Collocation Agreement, the provisions of the Service Supplement or Collocation Agreement shall be given precedence. 3. Service Date. ------------ At such time as TCG completes installation or connection of the necessary fiber optic facilities and/or equipment to provide the Services, TCG shall conduct appropriate tests thereon. Upon successful completion of such tests TCG shall notify Customer that such Services are available for use, and the date of such notice shall be called the "Service Date". TCG shall use reasonable efforts, subject to the other provisions hereof, to make the Services available by the estimated service date specified in the Service Supplement or Collocation Agreement. TCG shall not be liable for any damages whatsoever resulting from delays in meeting any Service Dates due to delays resulting from normal construction procedures and otherwise not within the control of TCG; provided, --------- however the terms of any Service Supplement or Collocation Agreement shall - ------- provide that Customer may elect to terminate such agreement without penalty at any time after thirty (30) days following the Service Date but prior to the date such Services are made available. Such delays shall include, but not be limited to, delays in obtaining necessary regulatory approvals for construction, delays in obtaining right-of-way approvals and delays in actual construction work. In the event that there is a Customer delay, and such delay continues for thirty (30) days after the estimated service date for any Services, TCG may commence billing Customer for the Services effective on such a date. -2- 4. Payment. ------- (a) TCG will provide Customer with an itemized monthly bill (each an "Invoice") which separately lists all charges for Service provided during the periods covered by such Invoice. Customer shall pay all charges listed on any Invoice within thirty (30) days of the date of the Invoice; billing shall commence upon installation. Any amount not received within thirty (30) days of the date of the Invoice will be subject to TCG's standard late charge of 1 1/2% per month. Customer agrees to review each Invoice promptly and to notify TCG of any discrepancies within 45 days of receipt of each Invoice. If Customer delivers to TCG a notice of objection to all or any portion of an Invoice within thirty (30) days following the receipt of such Invoice, the amount in question will not be subject to TCG's standard late charge until forty-five (45) days following the parties resolution of such objection. Following any such objection, the parties shall work in good faith to promptly resolve such objection and shall determine the applicability of any late fee to the disputed amount. Customer shall timely pay any portion of each Invoice that is not disputed. (b) Customer shall pay all sales, use, gross receipts, excise, access, bypass or other local, state and Federal taxes or charges, however designated, imposed on or based upon the provision, sale or use of the Services (excluding taxes on any income of TCG, TCG subsidiaries or TCG Affiliates). Such taxes shall be separately stated on the applicable Invoice. 5. Term. ---- This Agreement shall commence as of the date hereof and continue for an initial period of five (5) years and shall thereafter continue in effect for additional one (1) year period(s) unless terminated by either applicable party by written notice given to the other party no less than one hundred twenty (120) days prior to the expiration of such initial period or any addition period ("Term"). In no event shall the minimum term of any Service Supplement be less than three (3) months. 6. Use. --- (a) Subject to the provisions hereof, Customer may use the Services for any lawful purpose for which they are intended, provided that Customer and TCG will not use the Services (i) so as to unreasonably interfere with or impair service over any of the facilities and associated equipment of the other, or so as to impair the privacy of any communications over such facilities and associated equipment, (ii) so as to interfere with or impair service over any of the facilities and associated equipment comprising the fiber optic cable network and associated equipment utilized by TCG in the provision of the Services, or (iii) so as to impair the privacy of any communications over such network and equipment. In the case of local and regional services resold by TCG, Customer's use of such Services shall also be subject to any applicable restrictions in the underlying providers' publicly available tariffs. TCG will not provide, offer or -3- promote Services that would violate TCG's Amended and Restated Articles of Incorporation. (b) Customer may only use the Services for its own internal purposes or for the purpose of providing Customer's own service to its customers, which shall include without limitation, providing @Home and @Work enhanced Internet access and services via cable and telecommunications systems, together with any and all content, products or services of Customer and third parties as Customer may from time to time provide in connection with providing such enhanced Internet access and services. Customer shall not resell any Service provided hereto. 7. Maintenance. ----------- TCG's maintenance services of its facilities and equipment are included in the monthly recurring charges. At Customer's request, and to the extent possible, TCG shall perform diagnostic or troubleshooting maintenance services by telephone at no additional charge. TCG shall have no responsibility for nonstandard maintenance and repair, i.e., repair and maintenance of any kind with respect to equipment and facilities not provided by TCG. TCG will assess Customer its standard charges for any maintenance visits with respect to Service problems which are determined to arise from equipment or facilities not provided by TCG. 8. Rights-of-Way. ------------- (a) TCG shall directly or through third parties use its best efforts to obtain where economically feasible, and, subject to clause (b) below, maintain all rights-of-way necessary for installation of fiber optic facilities used to provide the Services. Except as otherwise provided herein, any and all costs associated with acquiring the rights-of-way up to the termination point, including but not limited to, the costs of installing conduit or of altering the structure to permit installation of TCG provided facilities, shall be borne entirely by TCG. If TCG does not have adequate rights of way to install and maintain the TCG equipment and facilities necessary to provide Services at any commercial site owned or controlled by a customer of Customer and TCG cannot acquire such right, then Customer shall obtain and be responsible for any and all costs associated with obtaining and maintaining the rights-of-way from the point of entry to the termination point of such sites, provided that TCG shall be responsible for the costs of installing conduit or of altering the structure to permit installation of TCG provided facilities. (b) Customer may use TCG's rights-of-way , provided that Customer's use of such rights-of-way shall in all respects be subject to the terms, conditions and restrictions of such rights-of-way and of agreements between TCG and such third parties relating thereto, including without limitation, the duration applicable to and the condemnation of such rights-of-way, and shall not be in violation of any applicable governmental ordinance, law, rule, regulation or restriction. Where applicable, Customer agrees that it shall assist TCG in the procurement and maintenance of such right-of-way, provided that Customer shall not be required to incur an additional cost or liability in doing so. 9. Access to Site. -------------- -4- At sites where both (i) TCG does not have and cannot acquire access and (ii) Customer is responsible for obtaining the rights-of-way pursuant to Sections 8 above. Customer shall also arrange access to such rights of way so that TCG's authorized personnel, employees, or agents may install, repair, maintain inspect, replace or remove any and all facilities and associated equipment provided by TCG. Access to such sites shall be made available at a time mutually agreeable to Customer and TCG. Customer acknowledges that, when repair work is required to restore Services after interruption, such repairs may require access on a twenty-four hour, seven day a week basis. Subject to any necessary third party consents, TCG shall also have the right to obtain access to the cable installed in Customer provided conduit at any splice or junction box. 10. Provision of Safe Place to Work. ------------------------------- Customer shall provide a safe place to work which complies with all laws and regulations regarding the working conditions along the rights-of-way and in the equipment space that (i) Customer is responsible for obtaining pursuant to Section 11, below (and to the extent that Customer controls third party space, pursuant to Section 8, above), and (ii) TCG authorized personnel, employees, or agents may be installing, inspecting, maintaining, replacing, repairing or removing the fiber optic cable of the other facilities and equipment. 11. Provision of Equipment Space, Conduit, and Electrical Power. ----------------------------------------------------------- Customer shall provide the necessary equipment space, conduit, electrical power and suitable environmental conditions required to provide the Services, as specified by TCG, at each Customer termination point owned or controlled by Customer without charge or cost to TCG. Customer agrees to take good care of premise equipment and building wiring provided by TCG as part of the Services (the "TCG Equipment"). Customer agrees to return such TCG Equipment to TCG at the expiration of the applicable term in its original condition, ordinary wear and tear excepted. Customer shall bear the risk of any loss or damage to any TCG Equipment located in Customer's premise, except where such loss or damage is caused by TCG. Customer shall be responsible for insuring that the TCG Equipment and any other equipment, wiring, space and associated facilities, conduit and rights-of-way located at each Customer termination point is protected against fire, theft, vandalism or other casualty, and that the use thereof complies with the applicable laws, rules and regulations and with all applicable lease or other contractual agreements. TCG shall install such TCG Equipment as reasonably directed by Customer to comply with lease or other contractual obligations to which Customer is a party, and Customer shall bear the cost of installation for any such requested TCG Equipment. 12. Credit Allowances. ----------------- A credit allowance will be given on a per line basis for any period during which any line subscribed to by Customer hereunder and/or, if applicable, ------------- TCG provided station equipment attached thereto is Out of Service, except as specified below. Out of Service conditions are defined as complete loss of call origination and/or receipt capability. Additionally, for Teleport -5- Centrex-type services, the loss of feature capability exceeding 50% of contracted-for lines will constitute an Out of Service condition. Credit allowances, if any, shall be deducted from the charges payable by Customer hereunder and shall be expressly indicated on the next bill to Customer. An interruption period begins when Customer reports a malfunction in service to TCG or TCG otherwise actually becomes aware of such malfunction. A malfunction period ends when the affected line and/or associated station equipment is fully operative. (a) Credit Allowances do not apply to interruptions (I) caused by Customer; (ii) due to failure of power or equipment provided by Customer or others; (iii) during any period in which TCG is not given access to the service premises if such access is necessary to diagnose or repair the interruption; and (iv) due to scheduled maintenance and repair, provided that TCG shall make best efforts to give Customer advance written notice of such maintenance and repair. (b) The following table sets forth the credit allowances for interruptions of 24 Hours or Less for Switched Services: Length of Service Interruption Credit ------------------------------ ------ Less than 4 hours None 4 hours up to but not including 8 hours 1/3 of a day 8 hours up to but not including 12 hours 1/2 of a day 12 hours up to but not including 16 hours 2/3 of a day 16 hours up to but not including 24 hours One day Two or more service interruptions of the same type to the same line/equipment which in the aggregate constitute 2 hours or more during any one twenty-four hour period shall be considered as one interruption. In no event shall such interruption credits for any one line/equipment exceed one day's fixed recurring charges for such line/equipment in any 24-hour period. (c) Service interruptions of Switched Services over 24 hours will be credited 4 hours for each 4 hour period or fraction thereof. No more than one full day's credit will be allowed in any 24 hour period. (d) The following table sets forth the credit allowances for interruptions of 24 Hours or Less for Private Line Services (except Video): Interruption Length Credit ------------------- ------ -6- Less than 30 min None 30 min - 2 hr 59 min 1/10 3 hr - 5 hr 59 min 1/5 6 hr - 8 hr 59 min 2/5 day 9 hr - 11 hr 59 min 3/5 day 12 hr - 14 hr 59 min 4/5 day 15 hr - 23 hr 59 min one day (e) Interruption of 24 Hours or Less for Video Services: Video Services Credit -------------- ------ Less than 5 minutes None 5 minutes 1/12 of hourly charge Each additional minute 1/60 of hourly charge (f) Interruptions over 24 hours for private line and video services will be credited 1/5 day for each 3 hour period or fraction thereof. No more than one full day's credit will be allowed in any 24 hour period. 13. Title. ----- Except as to their use for the Services, Customer shall not have, nor shall it assert, any right, title or interest in all the fiber optic or other facilities and associated equipment provided by TCG hereunder. 14. Exclusivity. ----------- The arrangement described herein between TCG and Customer is non-exclusive. Notwithstanding the foregoing, Customer agrees that it will utilize the Services of TCG for its telecommunication needs into and out of TCG sites subject to a Collocation Agreement, except to the extent that MSO facilities or services are available or otherwise exist at such site. Nothing in this Agreement shall prevent TCG from entering into identical or similar arrangements with any other entity or otherwise providing Services to any other entity. For purposes of this Section 14, "MSO" shall mean a multiple cable system operator whom Customer has contracted with to provide @Home Network services. -7- 15. Other Carriers. -------------- TCG shall have no responsibility with respect to billings, charges or disputes related to services used by Customer which are not included in the Services herein, including, without limitation, any local, regional and long distance services not offered by TCG. Customer shall be fully responsible for the payment of any bills for such services and for the resolution of any disputes or discrepancies with the service provider. 16. Moves, Adds and Changes. ----------------------- Upon receipt of written notice from Customer, TCG will add, delete or change locations or features of specific telephone lines and station equipment. TCG shall charge Customer at its current rates for such service. In the event and to the extent that in excess of 10% of the lines and equipment that were installed are deleted, Customer will be subject to TCG's standard termination charges. 17. Customer Equipment Compatibility. -------------------------------- Subject to any applicable rules and regulations of the FCC and PSC, Customer hereby agrees that it will submit to TCG a complete manufacturer's specification sheet for each item of equipment that is not provided by TCG and which shall be attached to TCG's facilities. TCG shall approve the use of such item(s) of equipment unless such item is technically incompatible with TCG's facilities. 18. Governmental Authorizations. --------------------------- (a) The provision of the Services is contingent upon the obtaining and retaining such approvals, consents, governmental authorizations, licenses and permits, including those of the FCC and PSC, as may be required or be deemed necessary by TCG in order to effectuate this Agreement. TCG shall use best efforts to obtain and keep in effect all such approvals, consents, authorizations, licenses and permits that may be required to be obtained by it. TCG shall be entitled to take, and shall have no liability whatsoever for, any action necessary to bring the Services into conformance with any FCC and PSC rules, regulations, orders, decisions, or directives. However, TCG shall make best efforts to notify Customer prior to any required modification to or disconnection of Customer's equipment, and Customer shall fully cooperate in and take such action as may be requested by TCG to comply with any FCC or PSC rules, regulations, orders, decisions or directives. (b) Customer shall be responsible for obtaining and continuing in effect all approvals, consents, authorizations, licenses, and permits as may be required to permit Customer to comply with its obligations hereunder. 19. Interface and Resale of Local and Intra LATA Long Distance Services. ------------------------------------------------------------------- -8- (a) TCG will use reasonable efforts to obtain and monitor services which are requested by Customer and which are obtainable only from a dominate local exchange carrier ("LEC"). (b) TCG will use commercially reasonable efforts to obtain a sufficient quantity of telephone numbers to meet Customer's requirements. Should Customer request that TCG reserve additional numbers for future requirements regarding Centrex services, Customer shall pay associated reservation charges imposed by TCG until such time as those numbers are in actual use. If Customer uses DID trunking, Customer shall pay the associated reservation charges imposed by TCG throughout the Term of this Agreement. (c) The pricing structure for this Agreement shall be as set forth in Addendum A hereto. In the event and to the extent that certain pricing matters are not addressed by Addendum A, the following special provisions shall apply to TCG's resale to Customer and Customer's use of local and intra LATA long distance communications services obtained from the LEC (the "Resale Services"): (i) Customer's use of the Resale Services shall be subject to all applicable terms and provisions contained in the applicable LEC tariffs as the same may be amended from time to time (the "Tariffs") to the same extent as if the Tariffs were those of TCG. (ii) In the event of a rate increases in the Tariffs for Resale Services, TCG shall have the option to increase its rates to Customer to recover fully such rate increase from Customer, notwithstanding anything to the contrary in any other agreement between Customer and TCG. (iii) In the event of a rate decrease in the Tariffs for Resale Services, TCG shall decrease its rates to Customer to permit Customer to fully enjoy such rate decrease, notwithstanding anything to the contrary in any other agreement between Customer and TCG. (iv) TCG explicitly makes no representations, warranties or guarantees regarding the quality, availability or restoration of the Resale Services. Customer's sole remedy in the event that such Resale Services are of poor quality, are unavailable, or are not installed or repaired on a timely basis are such credits as TCG actually recovers from the LEC in respect of the Resale Services. Any special termination rights contained in this Master Services relating to quality or availability or maintenance shall not apply to the Resale Services; provided however, such termination rights in any Service Supplement and Collocation Agreements shall so apply. 20. Defaults. -------- If Customer (a) fails to pay any amount required under this Agreement and such failure continues for ten (10) days after written notice thereof to Customer, or (b) fails to comply with any other provision of this Agreement and such noncompliance continues for thirty (30) days after written notice thereof to Customer, or (c) then, as to the applicable Services, TCG, at its sole discretion, may elect to pursue one or more of the following courses of action: (i) terminate this Agreement whereupon all future payments hereunder shall become immediately due and payable (discounted to present value at 6%), (ii) take appropriate action to enforce payment, including suspension of all or any part of the applicable Services, and/or (iii) pursue any other remedies as may be provided at law or in equity. -9- 21. Events of Termination. --------------------- (a) Condemnation. If at any time during the Term all or any significant ------------ portion of the fiber optic or other facilities or associated equipment used to provide the Services to Customer shall be taken for any public or quasi-public purpose by any lawful power or authority by the exercise of the right of condemnation or eminent domain, TCG shall be entitled to elect to terminate this Agreement or the applicable portions hereof upon written notice to Customer. (b) Casualty. If at any time during the Term all or any significant -------- portion of the fiber optic or other facilities or associated equipment used to provide the Services to Customer shall, in TCG's judgment, be made inoperable and beyond economically or technologically feasible repair, TCG shall promptly inform Customer thereof in writing and TCG shall be entitled to elect to terminate this Agreement or the applicable portions hereof. In the event that the casualty is capable of repair, TCG shall effect such repair as soon as reasonably possible. Such repairs shall be at TCG's sole expense, except that if such casualty is caused by the willful misconduct or negligence of Customer or by Customer's noncompliance with its obligations under this Agreement, then such repairs shall be at Customer's expense. 22. Limitation of Liability. ----------------------- (a) Liability for Service Interruptions. To the extent that all or part or ----------------------------------- portion of the Services is unavailable, interrupted, degraded or otherwise unsatisfactory for any reason, TCG's sole and exclusive responsibility shall be that which is set forth Section 12. (b) Liability for Damages to Property. TCG and Customer shall each not be --------------------------------- liable for any damages whatsoever to property resulting from the installation, maintenance, repair or removal of equipment and associated wiring unless the damage is caused by such party's willful misconduct or negligence. (c) Liability for Services and Equipment Not Provided by the Parties. TCG ----------------------------------------------------------------- and Customer shall not be liable to the other for any damages whatsoever associated with service, facilities, or equipment not furnished by them, respectively, or for any act or omission of the other party or any other entity furnishing service, facilities or equipment used for or in conjunction the Services. (d) Liability for Force Majeure Events. TCG and Customer shall not be ---------------------------------- liable to the other for any failure of performance due to causes beyond its control, including but not limited to: acts of God, fire, flood or other catastrophes; any law, order regulation, direction, action or request of the United States Government, or of any other government, including state and local governments having or claiming jurisdiction over either or both of them or of any department, agency, commission, bureau, corporation, or other instrumentality of any federal, state, or local government, or of any civil or military authority; national emergencies; unavailability of materials or rights- of-way; insurrections; riots; wars; or strikes, lock-outs, work stoppages, or other labor difficulties. -10- (e) Liability for Negligence or Fault of other Party. TCG and Customer ------------------------------------------------ each shall not be liable for any interruptions or damages or losses due to the fault or negligence of the other party or equipment or services provided by the other party. (f) Liability for Other Carriers. TCG shall have no responsibility with ---------------------------- respect to billings, charges or disputes related to services used by Customer which are not included in the Services provided by TCG hereunder, including, without limitation, any local, regional or long distance services not offered by TCG. Customer shall be fully responsible for the resolution of any dispute or discrepancies with such service providers. Customer shall have no responsibility with respect to billings, charges or disputes related to services used by TCG, except as expressly agreed otherwise in writing. Unless so agreed, TCG shall be fully responsible for the resolution of any dispute or discrepancies with such service providers . (g) NO SPECIAL DAMAGES. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ------------------ SPECIAL, CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE DAMAGES AS A RESULT OF ITS PERFORMANCE OR NONPERFORMANCE OF THIS AGREEMENT. 23. Nondisclosure of Confidential and Proprietary Information. --------------------------------------------------------- Each party acknowledges that, in the course of the performance of this Agreement, it may have access to confidential or proprietary information claimed to be unique, secret, and confidential, and which constitutes the exclusive property and trade secrets of the other party ("Proprietary Information"). This information may be presented in documents or during oral discussions, at which time representatives of the disclosing party shall specify that the information is confidential or proprietary. Each party agrees to maintain the confidentiality of the Proprietary Information and to use the same degree of care as it uses with regard to its own confidential and proprietary information to prevent the disclosure, publication or unauthorized use of the Proprietary Information. Neither party may duplicate or copy Proprietary Information of the other party other than to the extent necessary for legitimate business uses in connection with this Agreement. Upon request of either party, the other party shall be excused from these nondisclosure provisions if the Proprietary Information has been, or is subsequently, made public by the other party or is independently developed by such party or if the other party gives its express, prior written consent to the disclosure of the Proprietary Information. 24. Indemnification. --------------- (a) Customer shall indemnify, defend and hold TCG and its directors, officers, employees, affiliates and agents harmless from and against and in respect of any and all claims, suits, proceedings, demands, losses, costs, expenses, obligations, liabilities, damages, recoveries and deficiencies, including, without limitation, interest, penalties, court costs and attorneys' fees, that any such person shall incur or suffer, which arise, result from or relate to any claim, litigation, investigation or proceeding (whether or not such person is a party thereto) relating to any breach of this Agreement by Customer; provided, however, that in no event shall Customer -------- ------- -11- be liable for special, consequential, exemplary or punitive damages under this Section 24(a). (b) TCG shall indemnify, defend and hold Customer and its directors, officers, employees, affiliates and agents harmless from and against and in respect of any and all claims, suits, proceedings, demands, losses, costs, expenses, obligations, liabilities, damages, recoveries and deficiencies, including, without limitation, interest, penalties, court costs and attorneys' fees, that any such person shall incur or suffer, which arise, result from or relate to any claim, litigation, investigation or proceeding (whether or not such person is a party thereto) relating to any breach by TCG of this Agreement; provided, however, that in no event shall TCG be liable for special, - -------- ------- consequential, exemplary or punitive damages under this Section 24(b); and, provided, further, that in no event shall TCG be liable for any service - -------- ------- interruptions except as set forth in Section 22 (a). (c) Each person entitled to indemnification under this Section 24 (the "Indemnified Person") shall give notice to the person required to provide indemnification (the "Indemnifying Person") promptly after such Indemnified Person has actual knowledge of any claim as to which indemnify may be sought, and shall permit the Indemnifying Person has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Person, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Person (whose approval shall not unreasonably be withheld). The Indemnified Person may participate in such defense at such person's expense; provided, however, that the Indemnifying Person shall bear the expense of such - -------- ------- defense of the Indemnified Person if, in the reasonable opinion of the Indemnified Person, representation of both parties by the same counsel would be inappropriate due to actual or potential conflicts of interest. The failure of any Indemnified Person to give notice as provided herein shall not relieve the Indemnifying Person of its obligations under this Agreement, unless such failure is prejudicial to the ability of the Indemnifying Person to defend the action. No Indemnifying Person, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Person, consent to entry of any judgement or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Person of a release from all liability in respect of such claim or litigation. 25. Waiver of Terms or Consent to Breach Must be in Writing. ------------------------------------------------------- No term or provision of this Agreement shall be waived and no breach excused, unless such waiver or consent shall be in writing and signed by duly authorized officer of the waiving party. Any consent by either party to, or waiver of, a breach by the other party shall not constitute a waiver or consent to any subsequent or different breach. If either party shall fail to enforce a breach of this Agreement by the other party, such failure to enforce shall not be considered a consent to, or a waiver of, said breach or any subsequential breach for any purpose whatsoever. 26. Assignment. ---------- Either party may assign this Agreement to (i) an entity owned and controlled by or -12- owning and controlling the original party to this Agreement, (ii) an entity that is owned and controlled by the party or parties that own or control the original party to this Agreement, or (iii) any entity in connection with the sale of substantially all of the assets of such party. Other than as set forth in the preceding sentence, TCG shall not, without prior written consent of Customer, which consent shall not be unreasonably withheld, assign, transfer, or in any other manner dispose of, any of its rights, privileges, or obligations under this Agreement, and any attempt to make such an assignment, transfer, disposition without such consent shall be null and void. Other than as set forth in the first sentence of this Section 26, Customer shall not, without prior written consent of TCG, which consent shall not be unreasonably withheld, assign, transfer, or in any other manner dispose of, any of its rights, privileges, or obligations under this Agreement, and any attempt to make such an assignment, transfer, disposition without such consent shall be null and void. 27. Binding Effect. -------------- All representations, covenants and agreements contained in this Agreement by and on behalf of either party shall bind and inure to the benefit of the respective successors and permitted assigns of the parties hereto, whether so expressed or not. Except as otherwise expressly provided herein, nothing in this Agreement is intended to confer upon any other person or entity any rights or remedies hereunder. 28. Relationship Not Partnership or an Agency. ----------------------------------------- The relationship between TCG and Customer shall not be that of partners or agents for one or the other obtained through this Agreement, and shall not be deemed to constitute a partnership or agency agreement between them. 29. Notices. ------- All notices, requests, demands, statements, reports and other communications under this Agreement shall be in writing and deemed to be duly delivered, if delivered in person or by certified or registered mail: a. If to TCG, to: Teleport Communications Group Inc. 429 Ridge Road Dayton, NJ 08810 Attention: Senior Vice President, Operations b. with a copy to: Teleport Communications Group Inc. 429 Ridge Road Dayton, NJ 08810 -13- Attention: Vice President and General Counsel c. If to Customer, to: @ Home Network__ 385 Ravendale Drive Mountain View, CA 94043 Attention: David Pine, Vice President and General Counsel Either party hereto may change its mailing address by giving notice to the other pursuant to the provisions of this Section. 30. Miscellaneous. ------------- (a) WARRANTIES. THERE ARE NO AGREEMENTS, WARRANTIES, OR REPRESENTATIONS, ---------- EXPRESS OR IMPLIED EITHER IN FACT OR BY OPERATION OF LAW, STATUTORY OR OTHERWISE, INCLUDING WARRANTIES OR MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE OR USE, EXCEPT THOSE EXPRESSLY SET FORTH HEREIN (b) Interpretation. This Agreement has been negotiated at arm's length -------------- and each party has had an opportunity to be represented by independent counsel. Therefore, each party hereby waives any benefit under any rule of law or legal decision that would require interpretation of any ambiguities in this Agreement against the party drafting it. The provisions of this Agreement shall be interpreted in a reasonable manner to effect the purposes of the parties to this Agreement. (c) Entire Agreement. This Agreement, including the Addendums hereto, ---------------- constitutes the sole and entire agreement of the parties with respect to the subject matter hereof. All Addendums hereto are hereby incorporated herein by reference. (d) Governing Law. This Agreement and the rights and obligations of the ------------- parties hereunder shall be governed by and construed and enforced in accordance with the laws of the State of New York. (e) Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (f) Severability. If any provision of this Agreement shall be declared ------------ void or unenforceable by a judicial or administrative authority, the validity of any other provision and of the entire Agreement shall not be affected thereby. (g) Gender. All pronouns and all variations thereof shall be deemed to ------ refer to the masculine, feminine or neuter, singular or plural, as the identity of the person or persons, thing or entity may require. -14- (h) Headings. The headings contained in this Agreement are for reference -------- purposes only and shall not affect in any way the meaning or interpretation of this Agreement. SIGNED by the parties on the dates below indicated. AT HOME CORPORATION TELEPORT COMMUNICATIONS GROUP INC. BY: Donald P. Hutchison BY: Terry Wingfield ------------------------------ ----------------------------- TITLE:Sr. VP and General Manager TITLE: Vice President ----------------------------- ---------------------------- DATE: 4/2/97 DATE: 4/2/97 ------------------------------ ---------------------------- -15- ** Confidential treatment has been requested with respect to certain information contained in this document. Confidential portions have been omitted from the public filing and have been filed separately with the Securities and Exchange Commission. ADDENDUM A I. SERVICES 1. In markets served by TCG networks, TCG will provide (i) Collocation Space, including all environmentals (power, AC, heat, etc.) and (ii) all intralata and interlata transport access facilities to or from the Collocation Space, including all "type 1" services (completely on TCG's network) and "type 2" services (a combination of TCG network and resold LEC network). TCG will be responsible for the maintenance and repair as necessary of all transport access facilities. 2. In market areas not served by TCG, TCG will serve as a facility manager to procure Collocation Space and intralata and interlata transport facilities. 3. The attached diagrams illustrate the pricing elements referred to below (said diagrams are based upon Pacific Bell rates as of April 1997, but are intended to have general applicability) . 4. In addition, TCG will provide to Customer all other telecommunications services offered by TCG at rates to e determined on an individual case basis, but in no event greater than the LEC tariffed rate. II. STANDARD PRICING 1. In markets served by TCG networks, TCG will provide all DS1 or higher speed, intralata channel terminations at rates based on the LEC tariffed rate discounted according to the following monthly volume discount table. Monthly volume refers to all monthly recurring transport service billing by TCG to Customer:
Discount from LEC Month-to-Month Monthly Volume ($000) Tariff Rates [ ** ] [**]% [ ** ] [ **]% [ ** ] [ **]% [ ** ] [ **]% [ ** ] [ **]%
DS0 services in these markets will be billed at LEC tariffed rates; however, all DS1 to DS0 multiplexing requirements will be billed on a per DS0 basis as they are required (i.e., DS1/0 mux rate divided by 24). 2. In markets served by TCG networks, TCG will provide Collocation Space at a per year, per square foot rate of $[ ** ]. 3. In market areas not served by TCG, TCG will (i) provide intralata transport services (DS0 or higher speed) at the LEC tariffed rates and (ii) provide facility management services for [ ** ] percent ([**]%) of the LEC tariffed rate for the service provided. The rate for Collocation Space will be developed on an individual case basis (ICB). Price principle is that TCG will pass through its 1. ** Confidential treatment has been requested with respect to certain information contained in this document. Confidential portions have been omitted from the public filing and have been filed separately with the Securities and Exchange Commission. cost for such space to Customer. 4. TCG will match the LEC tariffed rates for all interoffice channel services in all markets. 5. TCG will match LEC tariffed rates for non-recurring installation charges in all markets. 6. TCG will provide all interlata transport services at [ ** ] percent ([**]) less than [**] tariffed rate. III. FIRST YEAR PROMOTIONAL PRICING For a period of one year from the initial turnup of Service in each TCG market, TCG agrees to offer the following monthly recurring price principles for intercity, intralata DS1 and DS0 services in markets served by TCG networks:
Price Principle vs. LEC DS1 Rate Element Month-to-Month Tariffed Rate Intercity DS1 [ ** ] DS1 Chan Term [ ** ] DS1 Local Miles [ ** ]
DS1 local miles refers to mileage between TCG's node in which Customer is collocated (collocated node) and the Customer termination point. Intercity DS1 refers to the DS1 channel between a collocated node and a Customer RDC.
Price Principle vs. LEC DS0 Rate Element Month-to-Month Tariffed Rate Intercity DS0 [ ** ] DS0 Chan Term [ ** ] DS1 Local Miles [ ** ]
Standard pricing would apply for all DS3 or higher speed services. This offer is contingent upon TCG having type 1 service capacity available between the collocated node and the existing Customer node (see Diagrams 2, 3 and 4). The promotional pricing will be extended after the expiration of the one year period if and only as long as the volume of services between the Customer node and the designated collocated node is equal to or greater than [**]. 2. ** Confidential treatment has been requested with respect to certain information contained in this document. Confidential portions have been omitted from the public filing and have been filed separately with the Securities and Exchange Commission. PHASE I TCG REFERENCE DIAGRAM - BACKHAUL Graphic follows: a diagram of a typical backhaul with example of the pricing calculation using specified rates and other assumptions. Confidential treatment is requested for this calculation. 3. ** Confidential treatment has been requested with respect to certain information contained in this document. Confidential portions have been omitted from the public filing and have been filed separately with the Securities and Exchange Commission. PHASE II TCG REFERENCE DIAGRAM - CO-LOCATION Graphic follows: a diagram of a typical co-location with example of the pricing calculation using specified rates and other assumptions. Confidential treatment is requested for this calculation. 4. ** Confidential treatment has been requested with respect to certain information contained in this document. Confidential portions have been omitted from the public filing and have been filed separately with the Securities and Exchange Commission. PHASE II TCG REFERENCE DIAGRAM - CO-LOCATION BACKHAUL Graphic follows: a diagram of a typical co-location backhaul with example of the pricing calculation using specified rates and other assumptions. Confidential treatment is requested for this calculation. 5. ** Confidential treatment has been requested with respect to certain information contained in this document. Confidential portions have been omitted from the public filing and have been filed separately with the Securities and Exchange Commission. EXAMPLE "TYPE I CUSTOMER + CO-LO NODE-TO NODE" Graphic follows: a diagram of a typical customer and co-lo node to node with example of the pricing calculation using specified rates and other assumptions. Confidential treatment is requested for this calculation. 6. ADDENDUM B ================================================================================ TCG SERVICE SUPPLEMENT to the Master Service Agreement dated ___________ - -------------------------------------------------------------------------------- CUSTOMER INFORMATION - -------------------------------------------------------------------------------- Company Name: Contact Name: - -------------------------------------------------------------------------------- Address: Phone Number: City/State/Zip PO #: - -------------------------------------------------------------------------------- SERVICE INFORMATION - -------------------------------------------------------------------------------- Customer Desired Due Date: Regulatory Jurisdiction: Service/Subservice Code: Quantity: [_] Interstate [_] Intrastate ____ ____ - ____ ____ - -------------------------------------------------------------------------------- Service Type: [_] DS3 [_] DS1 [_] DS0 [_] E1 [_] Video Other: [_] OC3 [_] OC3C [_] OC12 [_] OC48 (Requires Approval) - -------------------------------------------------------------------------------- SPECIAL INSTRUCTIONS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Please see the attached Circuit Feature Sheet for technical detail. To ensure an accurate installation, this form must be completed before an order can be processed. - -------------------------------------------------------------------------------- SERVICE LOCATION INFORMATION (TERMINATION POINTS) - -------------------------------------------------------------------------------- FROM (ACTL) TO (SPOT) - -------------------------------------------------------------------------------- [_] New [_] Existing [_] Common Space CLLI:_____ [_] New [_] Existing [_] Common Space CLLI:_____ - -------------------------------------------------------------------------------- [_] Type I Capacity: Y or N "T" Job___ [_] Type I Capacity: Y or N "T" Job___ [_] Type II Colo:__________ [_] Type II Colo:________ - -------------------------------------------------------------------------------- Company Name: Company Name: - -------------------------------------------------------------------------------- Address: Address: - -------------------------------------------------------------------------------- Floor/Room Floor/Room - -------------------------------------------------------------------------------- City/State/Zip: City/State/Zip: - -------------------------------------------------------------------------------- NPA/NSS Zone: NPA/NSS Zone: - -------------------------------------------------------------------------------- CONTACT INFORMATION - -------------------------------------------------------------------------------- Initiator: Phone: Fax: - -------------------------------------------------------------------------------- Design: Phone: Fax: - -------------------------------------------------------------------------------- Location 1 (From): Phone: Fax: - -------------------------------------------------------------------------------- Location 2 (To): Phone: Fax: ================================================================================ ================================================================================ TCG SERVICE SUPPLEMENT (Continued) - -------------------------------------------------------------------------------- CHARGES / TERM - -------------------------------------------------------------------------------- CHARGES: Mileage: EXPLANATION: - -------------------------------------------------------------------------------- Monthly Recurring: - -------------------------------------------------------------------------------- Installation: - -------------------------------------------------------------------------------- Expedite: - -------------------------------------------------------------------------------- Other: (Please explain) - -------------------------------------------------------------------------------- TERM: [_] 12 Month [_] 36 Month [_] 60 Month [_] Other (Requires Approval) ================================================================================ AUTHORIZATIONS - -------------------------------------------------------------------------------- This Agreement is a Service Supplement as defined in the Master Services Agreement dated _______, 19___, entered into between the parties and is subject to all the terms and conditions thereof. Upon expiration of the term set forth above, Customer shall continue to receive services on a month-to-month basis (subject to termination by either party 30 day prior written notice) at the monthly charges set forth herein. - -------------------------------------------------------------------------------- CUSTOMER TCG - -------------------------------------------------------------------------------- Signature: Signature: - -------------------------------------------------------------------------------- Print Name: Date: Print Name: Date: - -------------------------------------------------------------------------------- Title: Title: - -------------------------------------------------------------------------------- TCG TECHNICAL SUPPORT AUTHORIZATION - -------------------------------------------------------------------------------- Signature: - -------------------------------------------------------------------------------- Print Name: Title: Date: - -------------------------------------------------------------------------------- Telephone Number: ( ) ================================================================================ For TCG Internal Use Only - -------------------------------------------------------------------------------- ASR Number: Account Executive: - -------------------------------------------------------------------------------- TCG Account Number (BAN): Account Executive ID#: - -------------------------------------------------------------------------------- Secondary Account Number (SAN) Phone Number: - -------------------------------------------------------------------------------- CONTRACT: [_] MMG001 [_] MVP001 [_] MRV001 [_] MO9999 [_]___________ (Enter 6 character Rate Plan) ================================================================================ Please be sure to attach Circuit Feature Sheet Effective as of: 2/21/97 2 ADDENDUM C TCG MASTER COLLOCATION AGREEMENT -------------------------------- This TCG Master Collocation Agreement (the "Agreement") is made as of the ________ day of April, 1997 by and between TCG __________, a ________________ having an office and place of business at ___________________________________________("TCG"), and At Home Corporation, a Delaware corporation having an office and place of business at 285 Ravendale Road, Mountain View, California 94043 ("Customer"). WHEREAS, by certain leases (the "Leases") by and between certain landlords (the "Landlords") and TCG, TCG is leasing from the Landlords certain premises in certain cities and states (the "Premises"); and WHEREAS, Customer and TCG entered into a Master Communications Services Agreement on the _________ day of March, 1997, (the "MSA") setting forth the terms and conditions under which TCG would provide certain telecommunications services to Customer; and WHEREAS, Pursuant to said MSA, Customer and TCG desire to enter into an agreement so that Customer may place certain equipment in a portion of the Premises (the "Space"); NOW, THEREFORE, in consideration of the mutual covenants herein, it is agreed as follows: 1. SPACE. ----- (a) This Agreement shall become effective between Customer and TCG only upon both parties' execution of a "Collocation Schedule," the form of which is -------------------- attached hereto as Exhibit A (as it may be amended), which sets forth the terms --------- and conditions applicable to an individual Space. Each Collocation Schedule, when dated and signed by Customer and TCG, will be deemed to incorporate the terms and conditions of this Agreement. In the event of any conflict or inconsistency between this Agreement and the terms set forth in a Collection Schedule, the terms of the Collocation Schedule shall govern, but only for the Space identified in such Collocation Schedule. (b) TCG agrees to allow Customer to place certain equipment (the "Equipment") as defined in Exhibit A, attached hereto and made a part hereof, in the Space subject and subordinate to the terms and provisions of the applicable Lease and the applicable Collocation Schedule. Such Equipment shall be approved or rejected by TCG, in TCG's reasonable business discretion, within three (3) business days of submission by Customer to TCG of a list of Equipment and prior to installation in the Space and shall not exceed the Standard Dimensions identified on Exhibit A. The Equipment placed in the Space shall be limited to no more than requested or reserved. (c) Upon sixty 60 days' prior written notice or less in the event of an emergency, TCG may require Customer to relocate the Equipment within the Premises; provided, however, the site of relocation shall afford comparable technical and environmental conditions for the Equipment and comparable accessibility to the Equipment. All costs of relocating the Equipment shall be borne by TCG. TCG and Customer will cooperate to minimize any disruption of Customer's services as a result of such relocation. If, in the reasonable judgment of Customer, improvements need to be made to the space to which the Equipment is relocated in order for the new space to be technically and environmentally comparable to the existing Space, Customer will have the right to terminate the applicable Collocation Schedule between TCG and Customer. 2. TERM. ---- (a) The date on which the Customer's license to occupy the Space commences and the term of the Customer's license to occupy the Space are set forth in the Collocation Schedule(s) (the "Initial Term") and is subject to earlier termination as may be provided herein and/or in the applicable Lease. (b) Subject to the conditions specified in Paragraphs (c) and (d) below, Customer shall have the option, upon ninety (90) days' prior written notice to TCG, to renew its license to occupy the Space for the period of time (the "Renewal Periods") and on the terms and conditions which are set forth in this Agreement and the Collocation Schedule relevant thereto. The Initial Term and any Renewal Period(s) are sometimes collectively referred to as the "Term." (c) Customer's option to renew its license to occupy the Space shall be contingent on the election by TCG to continue to lease the Premises in which the Space is located for the duration of the Renewal Period(s) and such election to be exercised at the sole discretion of TCG. (d) Following the expiration of the Initial terms or any renewal periods stated in the Collocation Schedule(s), or failure of the parties to enter into any Renewal Periods, Customer's license shall continue in effect on a month-to- month basis upon the same terms and conditions specified herein, unless terminated by either Customer or TCG upon thirty (30) days' prior written notice. (e) Notwithstanding the foregoing, TCG reserves the right in its sole discretion to terminate this Agreement upon sixty (60) days written notice to Customer. 3. CONSIDERATION. Customer agrees to pay TCG at the address first stated ------------- above, the amount described in the applicable Collocation Schedule, attached hereto and incorporated herein. This amount is payable on the first day of each month. 4. CONDITION OF PREMISES. Customer acknowledges that, except as provided in --------------------- this Agreement, TCG has no obligation to make alterations, improvements or additions, decorations or changes within the Premises, Space or any part thereof. 5. ASSIGNMENT. Except for assignment to a subsidiary or an entity ---------- controlling, controlled by, or under common control with Customer or to an entity that acquires all or 4 substantially all of the assets of Customer, Customer agrees that it will not in any way assign or transfer this Agreement and that, except as provided in this Agreement, it will not permit the Space to be used by others without prior written consent of TCG. 6. TERMINATION OR EXPIRATION. Customer shall leave the Space in as good ------------------------- condition (except for normal wear and tear) as it was in the beginning of the term of this Agreement, and shall remove any property which it is obligated or permitted to remove pursuant to the terms of the applicable Lease on or before the termination or expiration thereof. 7. SERVICES. -------- (a) Network Traffic: TCG shall serve as the Customer's supplier for all --------------- IntraLATA and InterLATA transport and switched telephone services originating from or terminating in the Space. (b) Services. TCG shall provide to Customer: -------- i. The Space as set forth in Exhibit A. ii. Access to 110V AC power outlet for test equipment. iii. Transmission cabling to the Space. TCG will be responsible for wiring to a common DSX cross connect. This will serve as the demarcation point between the TCG network and the Customer's network. TCG will then extend Customer's demarcation point within the Space to Customer's racks using modular RJ484 patch panels to be rack-mounted in Customer's racks. iv. Grounding for racks. v. Labor required to anchor racks to floor. vi. Labor required to run power feeds to rack; and vii. Environmental conditions of approximately 70 degrees (F) and a 50% humidity level. (c) Electricity: TCG shall supply Customer with two (2), twenty (20) amp ----------- AC power feeds per rack at no additional cost. Power requirements in excess shall be charged to Customer at the rate of $6.00 per amp per month. (d) Treatment of Customer Equipment. TCG shall not remove any labels from, ------------------------------- touch, move, disturb, block access to, rearrange, alter, modify, add to or grant a lien or security interest in the Equipment without Customer's written consent; provided that, in the event of an emergency during which the Equipment or its condition is threatened, and notwithstanding the terms of Section 4, TCG agrees to inform Customer immediately about the emergency and the protective steps taken. (e) Maintenance; Power Outages. -------------------------- i. Scheduled Maintenance and Planned Power Outages. TCG shall ----------------------------------------------- provide Customer with at least ten (10) calendar days advance notice for (A) scheduled maintenance that could result in a noticeable loss of power, service, or connectivity and (B) planned power outages. 5 ii. Unscheduled Maintenance and Unplanned Power Outages. If TCG (A) --------------------------------------------------- must engage in unscheduled maintenance work, or (B) has an unplanned power outage, TCG shall notify Customer's Network Operations Center immediately upon determining that such maintenance is necessary or that such outage has occurred. 8. DEFAULT. In the event of either party's breach of any term or condition ------- under this Agreement, and if the defaulting party has not cured the breach within thirty (30) days after receipt of written notice from the non-defaulting party, the non-defaulting party shall have the right in its sole discretion to immediately terminate this Agreement and/or any of the other agreements between the parties in additional to any and all other remedies afforded to the non- defaulting party under the law or equity. 9. INDEMNIFICATION. In addition to and not in lieu of the provisions --------------- contained in the MSA, Customer covenants and agrees to indemnify and hold TCG harmless from and against any and all suits, actions, claims, damages, charges and expenses, including reasonable attorney fees, for damages or injuries to the Space or premises, and/or for any personal injury or loss of life occurring or claimed to have occurred in, upon, or about the Space or Premises as a result of Customer's negligence or willful misconduct either in operating its Equipment or in use of the Space, unless arising from the negligence or willful misconduct of TCG. TCG shall be liable to Customer for any damages or losses due to the failure or malfunction of any Equipment or facilities located in the Space only if such damages are caused by TCG's negligence or willful misconduct. 10. CASUALTY OR EMINENT DOMAIN. In the event of any taking of eminent domain -------------------------- or damage by fire or other casualty to the Premises and/or Space, Customer shall acquiesce and be bound by any action taken by or agreement entered into between TCG and Landlord with respect thereto. 11. NO BROKER. Customer represents that it has not dealt with any broker in --------- connection with this Agreement and that Customer shall hold TCG harmless from and against any and all claims for brokerage commissions in connection therewith. 12. NOTICES. Any and all legal notices or communications which either party ------- may desire or be required to give to the other shall be provided as set forth in the MSA. 13. GOVERNING LAW. This Agreement shall be governed by the laws of the state ------------- in which the applicable Space is located. 14. INSURANCE. Customer covenants and agrees to provide, on or before the date --------- of the commencement of the terms of this Agreement, and to keep in force and effect during the terms thereof for the benefit of Customer and TCG, a policy of comprehensive liability insurance or a certificate evidencing the existence thereof, conforming to the requirements of the applicable provisions of the applicable Lease. 6 15. LIMITATION OF LIABILITY. In no event will either party be liable for ----------------------- special, consequential, incidental, lost profit, exemplary, or punitive damages as a result of its performance or nonperformance under this Agreement. 16. INCORPORATION. Except as specifically provided for herein, the MSA and all ------------- provisions contained therein are by reference specifically incorporated herein and made a part hereof as if restated herein. IN WITNESS WHEREOF, Customer and TCG have respectively signed this Agreement as of the day and year first above written. TCG ________________________________ Customer: ________________________________ Sign:_______________________________ Sign:_____________________________________ Name: ______________________________ Name: ____________________________________ Title: VP/GM Title: ___________________________________ ----------------------------- 7 EXHIBIT A TO TCG MASTER COLLOCATION AGREEMENT BETWEEN AT HOME CORPORATION AND TCG _________ COLLOCATION SCHEDULE This Collocation Schedule is made as of _____________ (the "Effective Date") and incorporates all definitions, terms and conditions of that certain TCG Master Collocation Agreement, dated ____________ (the "Agreement") by and between TCG _______________ ("TCG"), and At Home Corporation ("Customer"). 1. Address of TCG Space: _____________________________________________________ _______________________________________________________________________________ 2. TCG Landlord and Lease Information, if applicable: ________________________ _______________________________________________________________________________ _______________________________________________________________________________ 3. Initial Term: ________ Months 4. Renewal Period: ____________ 5. Requested Service Date: _________ 6. Description of Equipment to be Installed: (List of Equipment to be attached to this Collocation Schedule by Customer) 7. Delineation of Space: (Floor plan to be attached to this Collocation Schedule by TCG) 8. Customer 24 Hour Maintenance Number: 9. Estd. start date: __________ Estd. completion date: __________ 10. Rack/Space/Power and MDF Requirements: RACK/SPACE REQUIREMENTS POWER & MDF REQUIREMENTS Number of Racks requested:_______ Is -48 VDC required? [_] Yes [_] No Does Customer wish to (TCG provides two, 20-amp AC power feeds per reserve rack space? rack) (Rack reservation charge applies) [_] Yes [_] No Current:_____________amps Number of Racks reserved_________ Does equipment require 120 VAC? Customer [will/will not] have [_] Yes [_] No first right of refusal for any Current:_____________amps space that is contiguous with the Space. Number of Demarc positions required: Dimensions of Equipment (Standard __________________. Dimensions) Width: ________ Height" ________ Depth: ________ Weight: ________ *Cabinet requires TCG prior approval. Cage Required? [_] Yes [_] No (min: 5 racks/max: 9 racks) (floor space charges apply) 8 11. Customer's forecast of capacity for DS1s, DS3s, etc. in year 1, and in years 3 and 5 if applicable. ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ 12. Access to Space. TCG shall allow Customer and Customer's designees unimpeded access to the Space via two (2) electronic card keys twenty four (24) hours per day, seven (7) days per week, for Customer and Customer's designees to provide installation, testing, and ongoing and emergency maintenance. Such access will be provided at no charge to Customer. Customer shall report a card lost or stolen to TCG as soon as discovered. 13. General Description of Work Tasks: a. TCG Work Tasks b. Customer Work Tasks NOTE: Installation and material charges apply to equipment installed by TCG. All installations must meet TCG Installation Standards. All customer specifications or drawings must be attached to this form. Customer TCG _______________________ By:_________________________ By: ______________________________ Title:______________________ VP/GM _______ Initials TCG VP/Ops 9 EX-10.08 17 LEASE DATED OCTOBER 17, 1996 / MARTIN-CAMPUS ASSOC EXHIBIT 10.08 LEASE ----- by and between MARTIN/CAMPUS ASSOCIATES, L.P. "Landlord" and AT HOME CORPORATION "Tenant" For the approximately 133,632 Premises at 425 Broadway, Redwood City, CA 94063 LEASE SUMMARY ------------- Lease Date: October 17, 1996 Landlord: Martin/Campus Associates, L.P. Address of Landlord: 100 Bush Street, 26th Floor San Francisco, CA 94104 Tenant: At Home Corporation Address of Tenant: Before Commencement Date 385 Ravendale Drive Mountain View, CA 94043 After Commencement Date At Home Corporation 401 Broadway Redwood City, CA Contact: Kenneth Goldman Telephone: (408) 944-7200 Building Addresses: 425 Broadway Redwood City, California Total Building Square Footage: Approximately 135,284 square feet Anticipated Commencement Date: March 15, 1997 Term: approximately twelve (12) years (see Paragraph 4.A.) -------------- Monthly Rent: Months 1-6: $ 94,698.80 Months 7-12: $189,397.60 Remainder of Term, subject to adjustment; see Paragraphs 4.C and 5.B Security Deposit: $568,192.80 (see Paragraph 7) Exhibit A Initial Premises Exhibit B: Work Letter Agreement Exhibit C: Site Plan for Project Exhibit D: Commencement Date Memorandum Exhibit E: Floor Plan of Early Occupancy Premises Exhibit F: Sears Site Exhibit G: Subordination, Nondisturbance and Attornment Agreement Exhibit H: Option to Purchase Terms TABLE OF CONTENTS -----------------
PAGE ---- 1. Parties............................................................... 5 2. Premises.............................................................. 5 A. Description.................................................... 5 B. Initial Occupancy.............................................. 5 3. Definitions........................................................... 6 A. Affiliate...................................................... 6 B. Alterations.................................................... 6 C. Building....................................................... 6 D. Capital Improvements........................................... 6 E. CC&Rs.......................................................... 6 F. Collateral Agreements.......................................... 6 G. Commencement Date.............................................. 7 H. Common Area.................................................... 7 I. Common Area Maintenance Costs.................................. 7 J. Existing Buildings............................................. 10 K. Existing Project Space......................................... 10 L. Final Plans.................................................... 10 M. Fixed Charge Ratio............................................. 10 N. HVAC........................................................... 10 O. Impositions.................................................... 10 P. Improvements................................................... 11 Q. Index.......................................................... 11 R. Interest Rate.................................................. 11 S. Landlord Delay................................................. 11 T. Landlord's Agents.............................................. 12 U. Monthly Rent................................................... 12 V. Parking Area................................................... 12 W. INTENTIONALLY OMITTED.......................................... 12 X. Person......................................................... 12 Y. Premises....................................................... 12 Z. Project........................................................ 13 AA Real Property Taxes............................................ 13 BB Rent........................................................... 14 CC. Rentable Area.................................................. 14 DD. Second Half Commencement Date.................................. 14 EE. Security Deposit............................................... 14 FF. Sublet......................................................... 14 GG. Subrent........................................................ 15
i TABLE OF CONTENTS (CONT'D) --------------------------
PAGE ---- HH. Subtenant...................................................... 15 II. Tenant Delay................................................... 15 JJ. Tenant Improvements............................................ 15 KK. Tenant's Percentage Share...................................... 15 LL. Tenant's Personal Property..................................... 16 MM. Term........................................................... 16 4. Lease Term............................................................ 16 A. Term........................................................... 16 B. Delays in Completion........................................... 16 C. Options to Extend.............................................. 17 (i) Grant to Options......................................... 17 (ii) Manner of Exercise....................................... 17 (iii) Terms and Rent........................................... 18 (iv) Determination of Rent.................................... 18 (v) Landlord's Initial Determination......................... 19 (vi) Arbitration.............................................. 19 D. Early Occupancy................................................ 21 (i) Early Occupancy Period; Expansion........................ 21 (ii) Terms of Early Occupancy................................. 21 5. Rent and Additional Charges........................................... 22 A. Monthly Rent................................................... 22 B. Adjustments to Monthly Rent.................................... 23 C. Management Fee................................................. 23 D. Common Area Maintenance Costs.................................. 23 (i) Estimated Payments....................................... 23 (ii) Adjustment............................................... 24 (iii) Last Year................................................ 24 (iv) Audit.................................................... 25 E. Additional Rent................................................ 25 F. INTENTIONALLY OMITTED.......................................... 25 G. Prorations..................................................... 25 H. Interest....................................................... 25 6. Late Payment Charges.................................................. 25 7. Security Deposit...................................................... 26 A. Deposit Required............................................... 26 (i) Reduction or Replacement................................. 26 (ii) Consequences of Default.................................. 27 (iii) Form of L-C.............................................. 27
ii TABLE OF CONTENTS (CONT'D) --------------------------
PAGE ---- 8. Holding Over.......................................................... 28 A. General Provisions............................................. 28 B. Holdover Extension............................................. 28 9. Tenant Improvements................................................... 29 10. Condition of Premises................................................. 29 A. Capital Improvements........................................... 29 B. Acceptance of Premises......................................... 29 C. Landlord's Representations and Warranties...................... 30 11. Use of the Premises and Common Area................................... 31 A. Tenant's Use................................................... 31 B. Hazardous Materials............................................ 31 (i) Hazardous Materials Defined.............................. 31 (ii) Environmental Laws Defined............................... 32 (iii) Use of Hazardous Materials............................... 32 (iv) Hazardous Materials Report; When Required................ 33 (v) Hazardous Materials Report; Contents..................... 33 (vi) Release of Hazardous Materials; Notification and Cleanup................................. 34 (vii) Inspection and Testing by Landlord....................... 35 (viii)Indemnity................................................ 36 (ix)Survival................................................... 37 C. Specific Provisions Relating to The Americans With Disabilities Act of 1990....................................... 37 (i) Allocation of Responsibility to Landlord................. 37 (ii) Allocation of Responsibility to Tenant................... 37 (iii) General.................................................. 38 D. Use and Maintenance of Common Areas............................ 38 12. Quiet Enjoyment....................................................... 38 13. Alterations........................................................... 38 A. Alteration Rights.............................................. 38 B. Performance of Alterations..................................... 39 C. Trade Fixtures................................................. 39 14. Surrender of the Premises............................................. 40
iii TABLE OF CONTENTS (CONT'D) --------------------------
PAGE ---- 15. Impositions and Real Property Taxes................................... 40 A. Payment by Tenant.............................................. 40 (i) Tax Parcels.............................................. 41 (ii) Payment.................................................. 41 B. Taxes on Tenant Improvements and Personal Property.............................................. 42 C. Proration...................................................... 42 16. Utilities and Services................................................ 42 17. Repair and Maintenance................................................ 43 A. Landlord's Obligations......................................... 43 B. Tenant's Obligations........................................... 44 C. Conditions Applicable to Repairs............................... 45 D. Landlord's Rights.............................................. 45 E. Compliance with Governmental Regulations....................... 45 18. Liens................................................................. 45 19. Landlord's Right to Enter the Premises................................ 46 20. Signs................................................................. 46 21. Insurance............................................................. 47 A. Indemnification................................................ 47 B. Tenant's Insurance............................................. 48 C. Premises Insurance............................................. 48 D. Increased Coverage............................................. 49 E. Failure to Maintain............................................ 49 F. Insurance Requirements......................................... 50 G. Waiver and Release............................................. 50 22. Waiver of Subrogation................................................. 50 23. Damage or Destruction................................................. 51 A. Landlord's Obligation to Rebuild............................... 51 B. Right to Terminate............................................. 51 C. Limited Obligation to Repair................................... 52 D. Abatement of Rent.............................................. 52 E. Damage Near End of Term........................................ 52 24. Condemnation.......................................................... 53
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PAGE ---- 25. Assignment and Subletting............................................. 54 A. Landlord's Consent.............................................. 54 B. Tenant's Notice................................................. 54 C. Information to be Furnished..................................... 54 D. Landlord's Alternatives......................................... 54 E. Proration....................................................... 55 F. Parameters of Landlord's Consent................................ 55 G. Permitted Transfers............................................. 56 26. Default............................................................... 56 A. Tenant's Default................................................ 56 B. Remedies........................................................ 57 C. Landlord's Default.............................................. 59 27. Subordination......................................................... 59 A. Subordination................................................... 59 B. Attornment...................................................... 60 C. Non-Disturbance................................................. 60 28. Notices............................................................... 61 29. Attorneys' Fees....................................................... 61 30. Estoppel Certificates................................................. 61 31. Transfer of the Premises by Landlord.................................. 62 32. Landlord's Right to Perform Tenant's Covenants........................ 62 33. Tenant's Remedy....................................................... 63 34. Mortgage Protection................................................... 63 35. Brokers............................................................... 63 36. Acceptance............................................................ 63 37. Parking............................................................... 64 38. INTENTIONALLY OMITTED................................................. 64 39. INTENTIONALLY OMITTED................................................. 64
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PAGE ---- 40. Option to Purchase.................................................... 64 A. Option to Purchase Premises..................................... 64 B. Process......................................................... 65 C. Option and Rights Personal...................................... 65 41. General............................................................... 65 A. Captions........................................................ 65 B. Executed Copy................................................... 65 C. Time............................................................ 66 D. Separability.................................................... 66 E. Choice of Law................................................... 66 F. Gender; Singular, Plural........................................ 66 G. Binding Effect.................................................. 66 H. Waiver.......................................................... 66 I. Entire Agreement................................................ 66 J. Authority....................................................... 66 K. Exhibits........................................................ 67 L. Lease Summary................................................... 67
vi LEASE ----- 1. Parties. ------- THIS LEASE (the "Lease"), dated as of October 8, 1996, is entered into ----- by and between MARTIN/CAMPUS ASSOCIATES, L.P., a Delaware limited partnership ("Landlord"), whose address is 100 Bush Street, San Francisco, CA 94104, and AT - ---------- HOME CORPORATION, a Delaware corporation ("Tenant"), whose address is 385 ------ Ravendale Drive, Mountain View, CA 94043. 2. Premises. -------- A. Description. Landlord hereby leases to Tenant and Tenant hereby ----------- leases from Landlord those certain premises consisting of a total area of approximately One Hundred Thirty-Five Thousand Two Hundred Eighty-Four (135,284) square feet, which comprises the entire Rentable Area (as defined below) of that certain building commonly known as 401 Broadway (the "Building"), in the City of -------- Redwood City, County of San Mateo, State of California, as more particularly shown on Exhibit A (the "Premises"). On or before the Commencement Date, --------- -------- Landlord shall measure the Rentable Area of the Premises in accordance with BOMA Standard (ANSI Z65.1 1980) for full floor office occupancy, and Landlord and Tenant shall amend this Lease if necessary to reflect any discrepancy in the size of the Premises disclosed by Landlord's measurement of the Premises by Landlord's architect. The Premises also includes the appurtenant right to use in common with other tenants of the Project (as defined below) the Common Area (as defined below) of the Project owned by Landlord. B. Initial Occupancy. As of the Commencement Date, Tenant shall ----------------- occupy that area of the Premises that is hatched on Exhibit A (the "First Half --------- ---------- Space"). On or after the ninetieth (90th) day following the Commencement Date, - ----- Tenant may, upon not less than one hundred twenty (120) days' prior written notice to Landlord, elect to occupy that area of the Premises that is cross- hatched on Exhibit A (the "Second Half Space"), but only if the Final Plans for --------- ----------------- the Improvements to the Second Half Space have previously been approved by Landlord and Tenant pursuant to the Work Letter. Tenant's occupancy of the Second Half Space prior to the Second Half Commencement Date shall be subject to all of the terms and conditions of this Lease, except for the payment of Monthly Rent under Paragraph 5.A; except as set forth in Paragraph 4.D, Tenant shall not ------------- ------------- be required to pay Monthly Rent for the Second Half Space until the Second Half Commencement Date. If Tenant occupies any portion of the Second Half Space prior to the Second Half Commencement Date, then commencing on the date that Tenant first occupies all or any portion of the Second Half Space, Tenant's Percentage Share shall be adjusted as provided in Paragraph 3.KK below. -------------- Landlord shall use reasonable 5 efforts to deliver the Second Half Space to Tenant within one hundred twenty (120) days after Tenant delivers to Landlord written notice of its election to occupy the Second Half Space. 3. Definitions. ----------- The following terms shall have the following meanings in this Lease: A. Affiliate. Any Person that controls, or is controlled by or is --------- under common control with, Landlord or Tenant. No Person shall be deemed in control of another simply by virtue of being a partner, director, officer or holder of voting securities of any Person. For purposes of this Paragraph 3.A, ------------- "control" shall mean the ownership of, and/or the right to vote, stock, partnership interests, membership interests, or other indicia of ownership possessing at least fifty-one percent (51%) of either the total combined interests in a Person, or the voting power of all classes of a Person's capital stock, partnership interests, membership interests, or other indicia of ownership, that have been issued, outstanding, and (if applicable) are entitled to vote. B. Alterations. Any alterations, additions or improvements made in, ----------- on or about the Premises after the substantial completion of the Improvements, including, but not limited to, lighting, heating, ventilating, air conditioning, electrical, partitioning, drapery and carpentry installations. C. Building. The term "Building" shall have the meaning set forth in -------- Paragraph 2.A above. - ------------- D. Capital Improvements. Those certain improvements to the Building -------------------- to be constructed by Landlord pursuant to Paragraph 10.A and the Work Letter -------------- Agreement attached to this Lease as Exhibit B (the "Work Letter"). --------- ----------- E. CC&Rs. Any declaration of conditions, covenants and/or ----- restrictions, or similar instrument, that now encumbers, or may in the future encumber the Project or the Premises, as adopted by Landlord or its successors in interest from time to time, and any modifications or amendments thereto. F. Collateral Agreements. The following agreements: (i) that certain --------------------- Option Agreement (Bay Road) by and between Landlord and Tenant, dated as of the date of this Lease, (ii) that certain Option Agreement (build-to-suit) by and between Landlord and Tenant, dated as of the date of this Lease, (iii) that certain Agreement Granting Rights of First Offer, by and between Landlord and Tenant dated as of the date of this Lease, (iv) that certain Warrant to Purchase Series A Common Stock of At Home Corporation and that certain Second Amended and Restated 6 Registration Rights Agreement, executed by Landlord, Tenant and certain other parties (collectively, the "Warrant Agreement"), and (v) any leases at any time executed by Tenant arising out of Tenant's exercise of any of its rights set forth in the agreements described in items (i) - (iii) above. G. Commencement Date. The Commencement Date of this Lease shall be ----------------- the first day of the Term determined in accordance with Paragraph 4.A. ------------- H. Common Area. All areas and facilities within the Project not ----------- appropriated to the exclusive occupancy of tenants, including the Parking Area, the sidewalks, pedestrian ways, driveways, signs, pools, ponds, service delivery facilities, common storage areas, common utility facilities and all other areas in the Project established by Landlord and/or its successors for non-exclusive use. Landlord may, by written notice to Tenant, elect in its sole discretion to increase and/or decrease the Common Area from time to time during the Term for any reason whatsoever (including without limitation an election by Landlord and/or its successors in their sole discretion to make changes to the buildings situated in the Project, and/or to subdivide, sell, exchange, dispose of, transfer, or change the configuration of all or any portion of the Common Area from time to time), so long as Landlord neither unreasonably interferes with ingress to or egress from the Building, nor permanently reduces the number of parking spaces available for Tenant's use below the minimum requirements set forth in Paragraph 37. No such subdivision, sale, exchange, disposition, ------------ transfer, or change to the configuration of all or any portion of the Common Area shall cause the Common Area to be increased or decreased unless and until Landlord has given Tenant written notice of such increase or decrease. I. Common Area Maintenance Costs. The total of all costs and ----------------------------- expenses paid or incurred by Landlord in connection with the operation, maintenance, ownership and repair of the Common Area, and the performance of Landlord's obligations under Paragraphs 17.A and 17.E. Without limiting the --------------- ---- generality of the foregoing, Common Area Maintenance Costs include all costs of and expense for: (i) maintenance and repairs of the Common Area; (ii) resurfacing, resealing, remarking, painting, repainting, striping or restriping the Parking Area; (iii) maintenance and repair of all public or common facilities; (iv) maintenance, repair and replacement of sidewalks, curbs, paving, walkways, Parking Area, Project signs, landscaping, planting and irrigation systems, trash facilities, loading and delivery areas, lighting, drainage and common utility facilities, directional or other signs, markers and bumpers, and any fixtures, equipment and personal property located on the Common Area; (v) wages, salaries, benefits, payroll burden fees and charges of personnel employed by Landlord and the charges of all independent 7 contractors retained by Landlord (to the extent that such personnel and contractors are utilized by Landlord) for the maintenance, repair, management and/or supervision of the Project, and of any security personnel retained by Landlord in connection with the operation and maintenance of the Common Area (although Landlord shall not be required to obtain security services); (vi) maintenance, repair and replacement of security systems and alarms installed by Landlord (if any); (vii) depreciation or amortization (or in lieu thereof, rental payments) on all tools, equipment and machinery used in the operation and maintenance of the Common Area; (viii) premiums for Comprehensive General Liability Insurance or Commercial General Liability Insurance, casualty insurance, workers compensation insurance or other insurance on the Common Area, or any portion thereof or interest therein, and any deductibles payable with respect to such insurance policies; (ix) all personal property or real property taxes and assessments levied or assessed on the Project, or any portion thereof or interest therein, including without limitation the Real Property Taxes for the Project, if applicable under Paragraph 15.A; (x) cleaning, collection, -------------- storage and removal of trash, rubbish, dirt and debris, and sweeping and cleaning the Common Area; (xi) legal, accounting and other professional services for the Project, including costs, fees and expenses of contesting the validity or applicability of any law, ordinance, rule, regulation or order relating to the Building, and of contesting, appealing or otherwise attempting to reduce any Real Property Taxes assessed against the Project; (xii) any alterations, additions or improvements required to be made to the Common Area in order to reduce Common Area Maintenance Costs or to protect the health or safety of occupants of the Project, provided that the cost of any such alterations, additions, improvements or capital improvements, together with interest at the Interest Rate, shall be amortized over the useful life of the alteration, addition, improvement or capital improvement in question and included in Common Area Maintenance Costs for each year over which such costs are amortized; (xiii) all costs and expenses of providing, creating, maintaining, repairing, managing, operating, and supervising an amenity center for the Project, which may include without limitation a dining facility (provided, however, that Landlord shall not be required to provide or create such an amenity center), which costs and expenses may include without limitation rent charged by Landlord for the space occupied by such amenity center; (xiv) all costs and expenses incurred by Landlord in performing its obligations under Paragraphs 17.A or 17.E, including ----------------------- without limitation all costs and expenses incurred in performing any alterations, additions or improvements required to be made to the Building in order to comply with applicable laws, ordinances, rules, regulations and orders and all capital improvements required to made in connection with the operation, maintenance and repair of the Building, provided that the cost of any such alterations, additions, improvements or capital improvements, together with 8 interest at the Interest Rate, shall be amortized over the useful life of the alteration, addition, improvement or capital improvement in question and included in Common Area Maintenance Costs for each year over which such costs are amortized; (xv) all costs and expenses incurred in performing any alterations, additions or improvements required to be made to the Common Area in order to comply with applicable laws, ordinances, rules, regulations and orders and all capital improvements required to made in connection with the operation, maintenance and repair of the Common Area, provided that the cost of any such alterations, additions, improvements or capital improvements, together with interest at the Interest Rate, shall be amortized over the useful life of the alteration, addition, improvement or capital improvement in question and included in Common Area Maintenance Costs for each year over which such costs are amortized; (xvi) any and all payments due and owing on behalf of the Project or any portion thereof with respect to any CC&Rs, including without limitation any and all assessments and association dues; and (xvii) any other cost or expense which this Lease expressly characterizes as a Common Area Maintenance Cost. However, notwithstanding the foregoing or anything to the contrary in this Lease, Common Area Maintenance Costs shall not include the cost of or expenses for the following: (A) leasing commissions, attorneys' fees or other costs or expenses incurred in connection with negotiations or disputes with other tenants of the Project; (B) depreciation of buildings in the Project; (C) payments of principal, interest, late fees, prepayment fees or other charges on any debt secured by a mortgage covering the Project, or rental payments under any ground lease or underlying lease; (D) any penalties incurred due to Landlord's violation of any governmental rule or authority (but not excluding the cost of compliance therewith, if such cost is chargeable to Tenant pursuant to this Lease); (E) any Real Property Taxes or costs for which Landlord is separately and directly reimbursed by Tenant or any other tenant of the Project which are assessed against the Premises or the premises leased by such other tenant(s); (F) items for which Landlord is reimbursed by insurance; (G) all costs arising from monitoring, cleaning up and otherwise remediating any release of Hazardous Materials at the Premises that has been specifically identified by Landlord and Tenant in writing as of the date of the Lease; (H) all costs associated with the operation of the business of the entity which constitutes "Landlord", as distinguished from the costs of operations, including, but not limited to, costs of partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee (except as the actions of Tenant may be in issue), costs of selling, syndicating, financing, mortgaging, or hypothecating any of the Landlord's interest in the Project and/or Common Area, or any portion thereof, costs of any disputes between Landlord and its employees, costs of disputes of Landlord with Building management or costs paid in connection with disputes with Tenant or any other tenants; (I) all costs 9 (including permit, license and inspection fees) incurred in renovating or otherwise improving or decorating, painting or redecorating space for other tenants in the Project; (J) the creation of any reserves for equipment or capital replacement (but not the expenditure of any funds from such reserves); and (K) all costs arising from monitoring, cleaning up and otherwise remediating any release of Hazardous Materials at the Premises to the extent that Landlord (who shall use reasonable efforts to obtain reimbursement) is actually reimbursed by third parties for such costs (but not the costs of collection incurred by Landlord, unless such costs of collection are also reimbursed by third parties). J. Existing Buildings. Those buildings currently situated within ------------------ the Project and commonly known as 401 Broadway, 525-555 Broadway, 565 Broadway, 575-595 Broadway, 475 Broadway and 2945 Bay Road; provided, however, that if at any time Landlord sells, exchanges, disposes of, or otherwise transfers its interest in any such building, then effective upon the date of such sale, exchange, disposition, or other transfer, the building shall cease to be an Existing Building for the purposes of this Lease; and provided further, that if at any time Landlord demolishes any Existing Building, neither the demolished building nor any new building constructed on or about the location of the demolished building (even if such new building uses the same address as the demolished building) shall be considered to be an Existing Building for the purposes of this Lease. K. Existing Project Space. All Rentable Area located within the ---------------------- Existing Buildings. L. Final Plans. As defined in the Work Letter. ----------- M. Fixed Charge Ratio. Tenant's consolidated earnings before income ------------------ taxes, depreciation and amortization during the fiscal year in question, divided by the sum of (i) all interest charges occurring during the fiscal year in question, and (ii) all of Tenant's scheduled debt amortization payable during the fiscal year in question. N. HVAC. Heating, ventilating and air conditioning. ---- O. Impositions. Taxes, assessments, charges, excises and levies, ----------- business taxes, license, permit, inspection and other authorization fees, transit development fees, assessments or charges for housing funds, service payments in lieu of taxes and any other fees or charges of any kind at any time levied, assessed, charged or imposed by any federal, state or local entity, (i) upon, measured by or reasonably attributable to the cost or value of Tenant's equipment, furniture, fixtures or other personal property located in the Premises, or the cost or value of any Alterations; (ii) upon, or measured by, any Rent payable 10 hereunder, including any gross receipts tax; (iii) upon, with respect to or by reason of the development, possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof; or (iv) upon this Lease transaction, or any document to which Tenant is a party creating or transferring any interest or estate in the Premises. Impositions do not include franchise, transfer, inheritance or capital stock taxes, or income taxes measured by the net income of Landlord from all sources, except to the extent any such taxes are levied or assessed against Landlord as a substitute for, in whole or in part, any item that would otherwise be deemed an Imposition under this paragraph. P. Improvements. Collectively, the Tenant Improvements and the ------------ Capital Improvements. Q. Index. The Consumer Price Index, All Urban Consumers, All Items, ----- published by the U.S. Department of Labor, Bureau of Labor Statistics for the San Francisco-Oakland-San Jose Metropolitan Area (1982-84=100). If the Base Year of the Index is changed, then all calculations pursuant to this Lease which require the use of the Index shall be made by using the appropriate conversion factor published by the Bureau of Labor Statistics (or successor agency) to correlate to the Base Year of the Index herein specified. If no such conversion factor is published, then Landlord shall, if possible, make the necessary calculation to achieve such conversion. If such conversion is not in Landlord's good-faith, business judgment possible, or if publication of the Index is discontinued, or if the basis of calculating the Index is materially changed, then the term "Index" shall mean comparable statistics on the cost of living, as ----- computed either (i) by an agency of the United States Government performing a function similar to the Bureau of Labor Statistics, or (ii) if no such agency performs such function, by a substantial and responsible periodical or publication of recognized authority most closely approximating the result which would have been achieved by the Index, as may be determined by Landlord in the exercise of its reasonable good faith business judgment. R. Interest Rate. Either (i) the greater of (a) twelve percent ------------- (12%) per annum, or (b) the reference rate, or succeeding similar index, announced from time to time by the Bank of America's main San Francisco office, plus three percent (3%) per annum; or (ii) the maximum rate of interest permitted by law, whichever is less. S. Landlord Delay. The term "Landlord Delay" shall mean only the -------------- following: (i) a delay specifically described as a Landlord Delay in the Work Letter, or (ii) an actual delay in the completion of construction of the Improvements caused solely by Landlord's failure to perform any provision of this Lease or the 11 Work Letter. Notwithstanding any provision of this Lease to the contrary (except as expressly set forth in the Work Letter), no Landlord Delay shall be deemed to have occurred under this Lease unless and until Tenant has given written notice to Landlord specifying the action or inaction which Tenant contends constitutes a Landlord Delay (a "Delay Notice"). If such action or inaction does in fact constitute a Landlord Delay and is not cured within two (2) business days after Landlord's receipt of such Delay Notice, then a Landlord Delay, as set forth in such Delay Notice, shall be deemed to have occurred commencing as of the date Landlord received such Delay Notice and continuing for the number of days the substantial completion of the Improvements was in fact delayed as a direct result of such action or inaction. T. Landlord's Agents. Landlord's authorized agents, partners, ----------------- subsidiaries, directors, officers, and employees. U. Monthly Rent. The rent payable pursuant to Paragraphs 4.D and ------------ ------------------ 5.A., as adjusted from time to time pursuant to the terms of this Lease. - ---- V. Parking Area. All Common Area (except sidewalks and service ------------ delivery facilities) now or hereafter designated by Landlord for the parking or access of motor vehicles, including roads, traffic lanes, vehicular parking spaces, landscaped areas and walkways, and including any parking structure constructed during the Term. Landlord and/or its successors may, by written notice to Tenant, elect in their sole discretion to increase and/or decrease the Parking Area from time to time during the Term for any reason whatsoever (including without limitation an election by Landlord and/or its successors in their sole discretion to make changes to the buildings situated in the Project, and/or to subdivide, sell, exchange, dispose of, transfer, or change the configuration of all or any portion of the Parking Area from time to time), so long as such changes to the Parking Area do not permanently reduce the number of parking spaces available for Tenant's use below the minimum requirements set forth in Paragraph 37. No such subdivision, sale, exchange, disposition, ------------ transfer, or change to the configuration of all or any portion of the Parking Area shall cause the Parking Area to be increased or decreased unless and until Landlord has given Tenant written notice of such increase or decrease. W. INTENTIONALLY OMITTED X. Person. Any individual, partnership, firm, association, ------ corporation, limited liability company, trust, or other form of business or legal entity. Y. Premises. The term "Premises" shall have the meaning set forth -------- in Paragraph 2 above. ----------- 12 Z. Project. That certain real property shown on Exhibit C, upon ------- --------- which are currently located the Building and five (5) other buildings, currently consisting of a total building square footage of approximately Four Hundred Four Thousand Seven Hundred Ten (404,710) square feet of Rentable Area. Landlord and/or its successors may, by written notice to Tenant, elect in their sole discretion to increase and/or decrease the number of buildings and/or the amount of Rentable Area situated in the Project from time to time during the Term for any reason whatsoever. AA. Real Property Taxes. Taxes, assessments and charges now or ------------------- hereafter levied or assessed upon, or with respect to, the Project, or any personal property of Landlord used in the operation thereof or located therein, or Landlord's interest in the Project or such personal property, by any federal, state or local entity, including: (i) all real property taxes and general and special assessments; (ii) charges, fees or assessments for transit, housing, day care, open space, art, police, fire or other governmental services or benefits to the Project, including assessments, taxes, fees, levies and charges imposed by governmental agencies for such purposes as street, sidewalk, road, utility construction and maintenance, refuse removal and for other governmental services; (iii) service payments in lieu of taxes; (iv) any tax, fee or excise on the use or occupancy of any part of the Project, or on rent for space in the Project; (v) any other tax, fee or excise, however described, that may be levied or assessed as a substitute for, or as an addition to, in whole or in part, any other Real Property Taxes; and (vi) reasonable consultants' and attorneys' fees and expenses incurred in connection with proceedings to contest, determine or reduce Real Property Taxes. Real Property Taxes do not include: (A) franchise, transfer, inheritance or capital stock taxes, or income taxes measured by the net income of Landlord from all sources, unless any such taxes are levied or assessed against Landlord as a substitute for, in whole or in part, any Real Property Tax; (B) Impositions and all similar amounts payable by tenants of the Project under their leases; and (C) penalties, fines, interest or charges due for late payment of Real Property Taxes by Landlord. If any Real Property Taxes are payable, or may at the option of the taxpayer be paid, in installments, such Real Property Taxes shall, together with any interest that would otherwise be payable with such installment, be deemed to have been paid in installments, amortized over the maximum time period allowed by applicable law. If the tax statement from a taxing authority does not allocate Real Property Taxes to the Building, Landlord shall make the determination of the proper allocation of such Real Property Taxes based, to the extent possible, upon records of the taxing authority and, if not so available, then on an equitable basis. 13 BB. Rent. Monthly Rent plus the Additional Rent as defined in ---- Paragraph 5.E. - ------------- CC. Rentable Area. The aggregate square footage in any one or more ------------- buildings in the Project, as appropriate, as reasonably determined by Landlord's architect from time to time in accordance with BOMA Standard (ANSI Z65.1 1980) for full floor office occupancy. DD. Second Half Commencement Date. The date defined in Paragraph ----------------------------- --------- 5.A. - --- EE. Security Deposit. That amount paid by Tenant pursuant to ---------------- Paragraph 7. - ----------- FF. Sublet. Any transfer, sublet, assignment, license or concession ------ agreement, change of ownership, mortgage, or hypothecation of this Lease or the Tenant's interest in the Lease or in and to all or a portion of the Premises. As used herein, a Sublet includes the following: (i) if Tenant is a partnership or a limited liability company, a transfer, voluntary or involuntary, of all or any part of any interest in such partnership or limited liability company, or the dissolution of the partnership or limited liability company, whether voluntary or involuntary; (ii) if Tenant is a corporation, any dissolution, merger, consolidation or other reorganization of Tenant, or the transfer, either by a single transaction or in a series of transactions, of a controlling percentage of the stock of Tenant (except that a Sublet shall not include any such transfer of a controlling percentage of the stock of Tenant occurring at a time when the stock of Tenant is publicly traded on a nationally recognized stock exchange or over the counter), or the sale, by a single transaction of or series of transaction, within any one (1) year period, of corporate assets equaling or exceeding twenty percent (20%) of the total value of Tenant's assets (except in connection with an initial public offering of the stock of Tenant on a nationally recognized stock exchange or over the counter); (iii) if Tenant is a trust, the transfer, voluntarily or involuntarily, of all or any part of the controlling interest in such trust; and (iv) if Tenant is any other form of entity, a transfer, voluntary or involuntary, of all or any part of any interest in such entity. As used herein, the phrases "controlling percentage" and "controlling interest" means the ownership of, and/or the right to vote, stock, partnership interests, membership interests, or other indicia of ownership possessing at least fifty-one percent (51%) of either the total combined interests in Tenant, or the voting power of all classes of Tenant's capital stock, partnership interests, membership interests, or other indicia of ownership, that have been issued, outstanding, and (if applicable) are entitled to vote. 14 GG. Subrent. Any consideration of any kind received, or to be ------- received, by Tenant from a subtenant if such sums are related to Tenant's interest in this Lease or in the Premises, including without limitation bonus money and payments (in excess of book value) for Tenant's assets, including without limitation its trade fixtures, equipment and other personal property, goodwill, general intangibles, and any capital stock or other equity ownership of Tenant. HH. Subtenant. The person or entity with whom a Sublet agreement is --------- proposed to be or is made. II. Tenant Delay. Any delay that Landlord may encounter in the ------------ performance of Landlord's obligations under the Lease because of any act or omission of any nature by Tenant or its agents or contractors, including without limitation any (i) delay attributable to the postponement of any Improvements at the request of Tenant; (ii) delay by Tenant in the submission of information or the giving of authorizations or approvals within the time limits set forth in the Lease or the Work Letter; (iii) delay attributable to the failure of Tenant to pay, when due, any amounts required to be paid by Tenant pursuant to the Lease or the Work Letter; and (iv) delay resulting from any change order request initiated or requested by Tenant. JJ. Tenant Improvements. Those certain improvements to the Premises ------------------- to be constructed by Landlord pursuant to Exhibit B, other than the Capital --------- Improvements. The Tenant Improvements shall at all times be the property of Landlord and shall not be deemed Tenant's Personal Property. KK. Tenant's Percentage Share. The ratio (expressed as a percentage) ------------------------- of the total Rentable Area of the Premises to the total Rentable Area of all of the buildings at the Project owned by Landlord from time to time, which as of the Commencement Date shall equal 16.6% (i.e., the Rentable Area of the First Half Space divided by the Rentable Area of the buildings at the Project owned by Landlord as of the date of this Lease). Tenant's Percentage Share shall be recalculated each and every time that the amount of Rentable Area contained in Premises is adjusted, or the Premises is expanded, or Tenant occupies the Second Half Space, or there is a change in the total Rentable Area of those buildings in the Project owned by Landlord, or Landlord sells, exchanges, or otherwise transfers any or all of the buildings situated in the Project (including without limitation the Building). The parties acknowledge and agree that the total Rentable Area of all of the buildings in the Project owned by Landlord may increase and/or decrease from time to time during the Term, since Landlord may elect in its sole discretion to sell a building or buildings or to make changes to the buildings it owns in the Project (so long as Landlord does not 15 unreasonably interfere with ingress to or egress from the Premises). LL. Tenant's Personal Property. Tenant's trade fixtures, furniture, -------------------------- equipment and other personal property in the Premises. MM. Term. The Term of this Lease set forth in Paragraph 4.A., as it ---- -------------- may be extended hereunder pursuant to any options to extend granted herein. 4. Lease Term. ---------- A. Term. The Term shall commence on March 15, 1997 (the ---- "Commencement Date"), and shall terminate on the date which is twelve (12) years - ------------------ from the Commencement Date. Notwithstanding the foregoing, if the date of substantial completion of the Improvements for the First Half Space is delayed solely as a result of a Landlord Delay, then the Commencement Date shall be extended one (1) day for each one (1) day of such Landlord Delay. B. Delays in Completion. Tenant agrees that if Landlord, for any -------------------- reason whatsoever, is unable to substantially complete the Improvements in the First Half Space on or before the Estimated Commencement Date, Landlord shall not be liable to Tenant for any loss or damage therefrom, nor shall this Lease be void or voidable. In such event, the Commencement Date, the termination date and all other dates of this Lease shall not be extended and Tenant shall be --- ----- obligated to pay Monthly Rent and all other sums allocable to the Premises and due to Landlord hereunder, except as expressly set forth in Paragraph 5.A with ------------- respect to a delay of the Commencement Date solely attributable to a Landlord Delay, in which event the Commencement Date and the termination date shall be calculated in the manner set forth in Paragraph 5.A above. Landlord and Tenant ------------- estimate that the Commencement Date shall be March 15, 1997 (the "Estimated --------- Commencement Date"). Upon the establishment of the actual Commencement Date, - ----------------- Landlord and Tenant shall execute a Commencement Date Memorandum in the form set forth in Exhibit D. Notwithstanding the foregoing, if Landlord has not --------- commenced construction of the Improvements with respect to the First Half Space on or before April 1, 1997, except as a result of Tenant Delays or causes beyond the reasonable control of Landlord, then Tenant shall have the right to terminate the Lease by delivering written notice to Landlord (a "Termination Notice") at any time before commencement of construction of such Improvements, which termination shall be effective upon Landlord's receipt of such Termination Notice; provided, however, that Tenant shall have no right to deliver a Termination Notice to Landlord pursuant to this sentence at any time after Landlord has commenced construction of the Improvements in the First Half Space. Tenant shall pay any and all costs and expenses incurred by Landlord 16 which result from any Tenant Delay, including, without limitation, any and all costs and expenses attributable to increases in the cost of labor or materials. C. Options to Extend. ----------------- (i) Grant of Options. Landlord hereby grants to Tenant two ---------------- (2) options (each, an "Option to Extend", and together, the "Options to Extend") ---------------- ----------------- to extend the Term of this Lease, for an additional term of five (5) years each. The first five-year option term (the "First Extended Term") shall commence upon ------------------- the expiration of the initial Term, and the second five-year option term (the "Second Extended Term") shall commence upon the expiration of the First Extended - --------------------- Term. The First Extended Term and the Second Extended Term shall hereafter each be referred to from time to time as an "Extended Term". The Options to Extend ------------- are each expressly conditioned upon Tenant's not being in default under any term or condition of this Lease after the expiration of any applicable cure period granted by this Lease, either at the time the Option to Extend is exercised or at the time the applicable Extended Term would commence. Tenant may not exercise the Option to Extend the Term for the Second Extended Term unless it has previously exercised the Option to Extend the Term for the First Extended Term in compliance with the provisions of this Paragraph 4.C. The Options to ------------- Extend shall be personal to the Tenant originally named in this Lease, and shall not be assigned, sold, conveyed or otherwise transferred to any other party (including without limitation any assignee or sublessee of such Tenant) without the prior written consent of Landlord, which consent may be withheld in Landlord's sole discretion; provided, however, that the Options to Extend may be transferred to the transferee pursuant to a Permitted Transfer without Landlord's consent. The Options to Extend shall be exercisable only so long as the Lease remains in full force and effect and shall be an interest appurtenant to and not separable from Tenant's estate under the Lease. Under no circumstances shall Landlord be required to pay any real estate commission to any party with respect to Tenant's exercise of the Options to Extend. (ii) Manner of Exercise. Tenant may exercise the Option to ------------------ Extend the Lease for the First Extended Term only by giving Landlord written notice not less than one (1) year prior to the expiration of the Term. Tenant may exercise the Option to Extend the Lease for the Second Extended Term only by giving Landlord written notice not less than one (1) year prior to the expiration of the First Extended Term. If Tenant fails to exercise an Option to Extend prior to the applicable 12-month period, then such Option to Extend automatically shall lapse and thereafter Tenant shall have no right to exercise such Option to Extend. 17 (iii) Terms and Rent. The initial Monthly Rent for the Premises -------------- for the First Extended Term shall be equal to the greater of (w) ninety-five percent (95%) of the fair market rent, as determined below, for the Premises as of the commencement of the First Extended Term, or (x) an amount equal to the Monthly Rent payable during the eleventh (11th) year of the Term, multiplied by the greater of (A) the lesser of (I) a fraction, the numerator of which is the Index published most recently before the eleventh (11th) anniversary of the Commencement Date, and the denominator of which is the Index published most recently before the tenth (10th) anniversary of the Commencement Date, or (II) one hundred sixteen percent (116%), or (B) one hundred seven percent (107%). The initial Monthly Rent for the Premises for the Second Extended Term shall be equal to the greater of (y) ninety-five percent (95%) of the fair market rent, as determined below, for the Premises as of the commencement of the Second Extended Term, or (z) an amount equal to the Monthly Rent payable during the seventeenth (17th) year of the Term, multiplied by the greater of (A) the lesser of (I) a fraction, the numerator of which is the Index published most recently before the seventeenth (17th) anniversary of the Commencement Date, and the denominator of which is the Index published most recently before the sixteenth (16th) anniversary of the Commencement Date, or (II) one hundred sixteen percent (116%), or (B) one hundred seven percent (107%). During the Extended Terms the Monthly Rent shall continue to be subject to adjustment in accordance with the provisions of Paragraph 5.B below. All other terms and conditions of the Lease, ------------- as amended from time to time by the parties in accordance with the provisions of the Lease, shall remain in full force and effect and shall apply during the Extended Terms; provided, however, that neither the Option to Extend the Term for the First Extended Term nor Landlord's obligations under the Work Letter shall be of any force or effect during the First Extended Term; and provided further, that neither the Options to Extend nor Landlord's obligations under the Work Letter shall be of any force or effect during the Second Extended Term. (iv) Determination of Rent. For the purposes of calculating --------------------- the Monthly Rent for the Extended Terms, the fair market rent shall be equal to the net effective rent per rentable square foot being charged for leases executed within the preceding twelve (12) months for comparable space (in buildings with 2 - 4 stories) at either the Project (if any), or if there are none, for comparable space (in buildings with 2 - 4 stories) in office and research and development complexes located in the Redwood Shores area or the Menlo Oaks Business Park (located in Menlo Park, California), with terms comparable to the terms contained in this Lease, taking into consideration relevant factors such as the presence or absence of tenant improvement contributions by the lessor, and the fact that the Monthly Rent during the Extended Terms shall be subject to adjustment under 18 Paragraph 5.B. Any value added to the Premises by the Tenant Improvements and - ------------- any Alterations paid for by Tenant shall not be considered or included in the determination of the fair market rent. The fair market rent shall be determined by mutual agreement of the parties or, if the parties are unable to agree within thirty (30) days after Tenant's exercise of an Option, then fair market rent shall be determined pursuant to the procedure set forth in Paragraphs 4.C.(v) ------------------ and 4.C.(vi). - ------------ (v) Landlord's Initial Determination. If the parties are unable -------------------------------- mutually to agree upon the fair market rent pursuant to Paragraph 4.C.(iv), then ------------------ the fair market rent initially shall be determined by Landlord by written notice ("Landlord's Notice") given to Tenant promptly following the expiration of the ----------------- 30-day period set forth in Paragraph 4.C.(iv). If Tenant disputes the amount of ------------------ fair market rent set forth in Landlord's Notice, then, within thirty (30) days after the date of Landlord's Notice, Tenant shall send Landlord a written notice ("Tenant's Notice") which specifically (a) disputes the fair market rent set --------------- forth in Landlord's Notice, (b) demands arbitration pursuant to Paragraph --------- 4.C.(vi), and (c) states the name and address of the person who shall act as - -------- arbitrator on Tenant's behalf. Tenant's Notice shall be deemed defective, and not given to Landlord, if it fails strictly to comply with the requirements and time period set forth above. If Tenant does not send Tenant's Notice within thirty (30) days after the date of Landlord's Notice, or if Tenant's Notice fails to contain all of the required information, then the Monthly Rent for that Extended Term shall equal ninety-five percent (95%) of the fair market rent specified in Landlord's Notice. If Tenant sends Tenant's Notice in the proper form within thirty (30) days after the date of Landlord's Notice, then the Monthly Rent for that Extended Term shall be determined by arbitration pursuant to Paragraph 4.C(vi) below. If the arbitration is not concluded prior to the ----------------- commencement of the applicable Extended Term, then Tenant shall pay Monthly Rent equal to one hundred twenty-five percent (125%) of the Monthly Rent payable immediately prior to the commencement of the applicable Extended Term. If the fair market rent determined by arbitration differs from that paid by Tenant pending the results of arbitration, then any adjustment required to adjust the amount previously paid shall be made by payment by the appropriate party within ten (10) days after the determination of fair market rent. (vi) Arbitration. The arbitration shall be conducted in the ----------- City of San Francisco in accordance with the then prevailing rules of the American Arbitration Association (or its successor) for the arbitration of commercial disputes, except that the procedures mandated by such rules shall be modified as follows: 19 (a) Each arbitrator must be a real estate appraiser with at least five (5) years of full-time commercial appraisal experience who is familiar with the fair market rent of office and research and development complexes located in the vicinity of the Premises. Within ten (10) business days after receipt of Tenant's Notice, Landlord shall notify Tenant of the name and address of the person designated by Landlord to act as arbitrator on Landlord's behalf. (b) The two arbitrators chosen pursuant to Paragraph --------- 4.C.(vi)(a) shall meet within ten (10) business days after the second arbitrator - ----------- is appointed and shall either agree upon the fair market rent or appoint a third arbitrator possessing the qualifications set forth in Paragraph 4.C.(vi)(a). If --------------------- the two arbitrators agree upon the fair market rent within such ten (10) business day period, the Monthly Rent for the applicable Extended Term shall equal ninety-five percent (95%) of such fair market rent. If the two arbitrators are unable to agree upon the fair market rent and are unable to agree upon the third arbitrator within five (5) business days after the expiration of such ten (10) business day period, the third arbitrator shall be selected by the parties themselves. If the parties do not agree on the third arbitrator within five (5) business days after the expiration of such five (5) business day period, then either party, on behalf of both, may request appointment of the third arbitrator by the Association of South Bay Brokers. The three arbitrators shall decide the dispute, if it has not been previously resolved, by following the procedures set forth in Paragraph 4.C.(vi)(c). Each --------------------- party shall pay the fees and expenses of its respective arbitrator and both shall share the fees and expenses of the third arbitrator. Each party shall pay its own attorneys' fees and costs of witnesses. (c) The three arbitrators shall determine the fair market rent in accordance with the following procedures. Each of Landlord's arbitrator and Tenant's arbitrator shall state, in writing, his or her determination of the fair market rent, supported by the reasons therefor, and shall make counterpart copies for the other arbitrators. All of the arbitrators shall arrange for a simultaneous exchange of the proposed resolutions within ten (10) business days after appointment of the third arbitrator. If any arbitrator fails to deliver his or her own determination to the other arbitrators within such ten (10) business day period, then the fair market rent shall equal the average of the resolutions submitted by the other arbitrators. If all three (3) arbitrators deliver their determinations to the other arbitrators within such ten (10) business day period, then the two (2) closest determinations of the arbitrators shall be averaged, and the resulting quotient shall be the fair market rent, and the Monthly Rent for the applicable Extended Term shall equal ninety-five percent (95%) of such fair market rent; provided, however, that if the 20 determination of one (1) of the arbitrators (the "Average Determination") is --------------------- equal to the average of the determinations of the other two (2) arbitrators, then the Average Determination shall be the fair market rent. However, the arbitrators shall not attempt to reach a mutual agreement of the fair market rent; each arbitrator shall independently arrive at his or her proposed resolution. (d) The arbitrators shall have the right to consult experts and competent authorities for factual information or evidence pertaining to a determination of fair market rent, but any such consultation shall be made in the presence of both parties with full right on their part to cross-examine. The arbitrators shall render the decision and award in writing with counterpart copies to each party. The arbitrators shall have no power to modify the provisions of this Lease. In the event of a failure, refusal or inability of any arbitrator to act, his or her successor shall be appointed by him or her, but in the case of the third arbitrator, his or her successor shall be appointed in the same manner as that set forth herein with respect to the appointment of the original third arbitrator. D. Early Occupancy. During the Early Occupancy Period (as defined --------------- below), Tenant shall be permitted to occupy up to Thirty Thousand (30,000) square feet of Rentable Area within that portion of the Building cross-hatched on Exhibit E attached hereto (the "Potential Early Occupancy Premises"). Tenant --------- ---------------------------------- shall give Landlord written notice specifying that portion of the Potential Early Occupancy Premises that Tenant desires to occupy (the "Early Occupancy --------------- Premises"), and the date on which the Early Occupancy Period shall commence, - -------- which date (the "Early Occupancy Commencement Date") shall not be less than --------------------------------- thirty (30) days after Landlord receives Tenant's notice. (i) Early Occupancy Period; Expansion. Tenant shall be --------------------------------- permitted to occupy the Early Occupancy Premises during the period of time commencing on the Early Occupancy Commencement Date and continuing until Tenant fully vacates the Early Occupancy Premises (the "Early Occupancy Period"). As of ---------------------- February 15, 1997, Tenant shall be permitted to expand the Early Occupancy Premises to an aggregate of up to Sixty Thousand (60,000) square feet of Rentable Area within the Potential Early Occupancy Premises. Tenant shall give Landlord written notice specifying that additional portion of the Potential Early Occupancy Premises that Tenant desires to occupy pursuant to this Paragraph 4.D.(i) (if any), and the date on which Tenant desires to occupy such - ----------------- additional portion of the Potential Early Occupancy Premises, which date shall not be less than thirty (30) days after Landlord receives Tenant's notice. (ii) Terms of Early Occupancy. Tenant's occupancy of the Early ------------------------ Occupancy Premises during the Early 21 Occupancy Period shall be subject to all of the terms and conditions of this Lease, except for the payment of Monthly Rent under Paragraph 5.A; provided, ------------- however, that no such early occupancy by Tenant shall have any effect upon the Commencement Date or the Second Half Commencement Date, which shall continue to be governed by the definition thereof set forth in Paragraphs 4.A and 5.A. ---------------------- Tenant shall not occupy or use the Early Occupancy Premises in a manner that interferes with or impedes the construction of Landlord's Work. Tenant shall occupy the Early Occupancy Premises in its then condition, "AS IS, WHERE IS" and with all faults, and Landlord shall have no obligation to make any alterations, improvements, repairs or changes to the Early Occupancy Premises by reason of, or to accommodate, Tenant's early occupancy thereof pursuant to this Paragraph --------- 4.D. Without reduction or offset in any other Rent payable by Tenant under the - --- Lease, commencing on the later of April 15, 1997 or the substantial completion of construction of the Improvements for the First Half Space, and continuing until the expiration of the Early Occupancy Period, Tenant shall be required to pay to Landlord as Monthly Rent, in addition to Monthly Rent payable pursuant to Paragraph 5.A, an amount equal to One and 40/100ths Dollars ($1.40) multiplied - ------------- by the greater of (x) the amount of Rentable Area actually occupied by Tenant in the Early Occupancy Premises, as reasonably estimated by Landlord, or (y) Sixty Thousand (60,000) square feet; provided, however, that if the Early Occupancy Premises contain only space on one (1) floor of the Building, then the amount set forth in this item (y) shall be deemed to be Thirty Thousand (30,000) square feet. 5. Rent and Additional Charges. --------------------------- A. Monthly Rent. Tenant shall pay to Landlord, in lawful money of ------------ the United States, Monthly Rent as follows: commencing on the Commencement Date, and continuing through the Second Half Commencement Date, defined below, the Monthly Rent shall equal Ninety-Four Thousand Six Hundred Ninety-Eight and 80/100ths Dollars ($94,698.80); and, commencing on the Second Half Commencement Date, and continuing throughout the balance of the Term (subject to adjustment pursuant to Paragraph 5.B), the Monthly Rent shall equal One Hundred Eighty-Nine ------------- Thousand Three Hundred Ninety-Seven and 60/100ths Dollars ($189,397.60). The term "Second Half Commencement Date" shall mean September 15, 1997, provided, however, that if the date of substantial completion of the Improvements for the Second Half Space is delayed solely as a result of a Landlord Delay, then the Second Half Commencement Date shall be extended for one (1) day for each one (1) day of such Landlord Delay. Monthly Rent shall be paid in advance, on the first day of each calendar month during the Term, without abatement, deduction, claim, offset, prior notice or demand. The sum of Ninety-Four Thousand Six Hundred Ninety- Eight and 80/100ths 22 Dollars ($94,698.80), representing an advance payment of Monthly Rent for the Premises, shall be paid by Tenant to Landlord upon the execution of this Lease by Landlord and Tenant. Additionally, Tenant shall pay, as and with the Monthly Rent, the management fee described in Paragraph 5.C., Tenant's Percentage Share -------------- of Common Area Maintenance Costs pursuant to Paragraph 5.D, the Real Property ------------- Taxes and Impositions payable by Tenant pursuant to Paragraph 15, and the -------------- monthly cost of insurance premiums required pursuant to Paragraph 21.C. B. Adjustments to Monthly Rent. The Monthly Rent shall be increased, --------------------------- but not decreased, as of the first day of the month which is twenty-five (25) months from the Commencement Date and every twenty-four (24) months thereafter during the Term (including without limitation the Extended Terms) (each, an "Adjustment Date") by the greater of (i) the percentage increase in the Index - ---------------- from the previous Adjustment Date (or, for the first Adjustment Date, from the Commencement Date), up to a maximum of sixteen percent (16%), or (ii) seven percent (7%). If, however, the last Adjustment Date occurs at any time after the first day of a calendar month, the first Adjustment Date shall be the first day of the immediately following calendar month. On each Adjustment Date, the total aggregate amount of Monthly Rent then in effect shall be multiplied by the greater of (x) the lesser of (A) a fraction, the numerator of which is the Index published most recently before the applicable Adjustment Date, and the denominator of which is the Index published most recently before the prior Adjustment Date (or, in the case of the first Adjustment Date, the Index published most recently before the Commencement Date), or (B) one hundred sixteen percent (116%), or (y) one hundred seven percent (107%); and the corresponding product shall be the Monthly Rent in effect until the next Adjustment Date. In no event shall the Monthly Rent in effect after an Adjustment Date be less than one hundred seven percent (107%) of the Monthly Rent in effect immediately prior to such Adjustment Date. If no Index is published for either of the months set forth above, the Index for the next preceding month shall be used. C. Management Fee. Tenant shall pay to Landlord monthly, as -------------- Additional Rent, a management fee equal to three and one-half percent (3.5%) of the then Monthly Rent. D. Common Area Maintenance Costs. ----------------------------- (i) Estimated Payments. Commencing on the Commencement Date ------------------ and continuing throughout the entire Term, Tenant shall pay Tenant's Percentage Share of all Common Area Maintenance Costs paid or payable by Landlord in each year; provided, however, that Tenant shall pay one hundred percent (100%) of those Common Area Maintenance Costs arising from Landlord's performance of its obligations under Paragraphs 17.A --------------- 23 and Tenant's obligations under Paragraph 17.D. Before commencement of the Term -------------- and during December of each calendar year or as soon thereafter as practicable, Landlord shall give Tenant notice of its estimate of amounts payable under this Paragraph 5.D.(i) for the ensuing calendar year. Such notice shall show in - ----------------- reasonable detail the basis on which the estimate was determined. On or before the first day of each month during the ensuing calendar year, Tenant shall pay to Landlord one-twelfth (1/12th) of such estimated amounts, provided that if such notice is not given in December, Tenant shall continue to pay on the basis of the prior year's estimate until the month after such notice is given. If at any time or times it appears to Landlord, in its reasonable judgment, that the amounts payable under this Paragraph 5.D.(i) for the current calendar year will ----------------- vary from its then-current estimate by more than five percent (5%), Landlord may, in its sole discretion, by notice to Tenant, showing in reasonable detail the basis for such variance, revise its estimate for such year, in which case subsequent payments by Tenant for such year shall be based upon such revised estimate. Landlord's election not to give the notice described in the foregoing sentence shall not affect Landlord's ability to charge Tenant for, nor Tenant's liability to pay for, any shortfall in the estimated payments for such calendar year previously made by Tenant, as set forth in Paragraph 5.D.(ii). ------------------ (ii) Adjustment. Within one hundred twenty (120) days after the ---------- close of each calendar year or as soon after such 120-day period as reasonably practicable, Landlord shall deliver to Tenant a reasonably detailed statement of Common Area Maintenance Costs for such calendar year, certified by Landlord or its property manager, subject to Tenant's right to audit as hereinafter provided. At that time, Landlord shall also deliver to Tenant a statement, certified as correct by Landlord, of the adjustments to be made pursuant to Paragraph 5.D.(i) above. If Landlord's statement shows that Tenant owes an - ----------------- amount that is less than the estimated payments for such calendar year previously made by Tenant, Landlord may elect, in its sole discretion, to either refund such excess to Tenant within thirty (30) days after delivery of the statement, or offset such overpayment against Rent due or remaining due under this Lease; provided that if no Rent remains due, Landlord shall refund such excess to Tenant within thirty (30) days after delivery of the statement. If such statement shows that Tenant owes an amount that is more than the estimated payments for such calendar year previously made by Tenant, Tenant shall pay the deficiency to Landlord within thirty (30) days after delivery of the statement. (iii) Last Year. If this Lease shall terminate on a day other --------- than the last day of a calendar year, the adjustment in Rent applicable to the calendar year in which such termination shall occur shall be prorated on the basis which the number of days from the commencement of such calendar year to and 24 including such termination date bears to three hundred sixty (360). The termination of this Lease shall not affect the obligations of Landlord and Tenant pursuant to Paragraph 5.D.(ii) to be performed after such termination. ------------------ (iv) Audit. Within one hundred eighty (180) days after receipt ----- of Landlord's statement of Common Area Maintenance Costs as provided in Paragraph 5.D.(ii), Tenant or its designee, on not less than five (5) days' - ------------------ prior written notice to Landlord, shall have the right to, at Tenant's sole cost and expense, audit, examine and copy Landlord's books and records with respect to the Common Area Maintenance Costs for the calendar year pertaining to the year for which the Landlord's statement pertains. Landlord shall cooperate with Tenant in any such examination of its books and records. E. Additional Rent. All monies required to be paid by Tenant under --------------- this Lease, including, without limitation, the Tenant Improvement costs pursuant to Exhibit B, the management fee described in Paragraph 5.D, Tenant's --------- ------------- Percentage Share of Common Area Maintenance Costs pursuant to Paragraph 5.D, ------------- Real Property Taxes and Impositions pursuant to Paragraph 15, and the monthly ------------ cost of insurance premiums required pursuant to Paragraph 21.C, shall be deemed -------------- Additional Rent. F. INTENTIONALLY OMITTED G. Prorations. If the Commencement Date or the Second Half ---------- Commencement Date is not the first (1st) day of a month, or if the termination date of this Lease is not the last day of a month, a prorated installment of Monthly Rent based on a 30-day month shall be paid for the fractional month during which such date occurs or the Lease terminates. H. Interest. Any amount of Rent or other charges provided for under -------- this Lease due and payable to Landlord which is not paid when due shall bear interest at the Interest Rate from the date that is (i) five (5) days after the date such Rent is due until such Rent is paid, or (ii) ten (10) days after Tenant receives written notice from Landlord that any other charge provided for under this Lease (other than Rent) is due and payable, until such other charge is paid. 6. Late Payment Charges. -------------------- Tenant acknowledges that late payment by Tenant to Landlord of Rent and other charges provided for under this Lease will cause Landlord to incur costs not contemplated by this Lease, the exact amount of such costs being extremely difficult or impracticable to fix. Therefore, if any installment of Rent or any other charge due from Tenant (excluding late release of the Set-Aside Funds pursuant to the Work Letter) is not received by Landlord within three (3) days after the date such Rent or other charge is due, Tenant shall pay to Landlord an additional 25 sum equal to seven percent (7%) of the amount overdue as a late charge for every month or portion thereof that the Rent or other charges remain unpaid. The parties agree that this late charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of the late payment by Tenant. Initials: - -------- __________________________________ ___________________________________ Landlord Tenant 7. Security Deposit. ---------------- A. Deposit Required. Tenant shall deposit with Landlord upon the ---------------- execution of this Lease by Landlord and Tenant, the sum of Sixty-Eight Thousand One Hundred Ninety-Two and 80/100ths Dollars ($68,192.80) as the "Security -------- Deposit" for the full and faithful performance of every provision of this Lease - ------- to be performed by Tenant. For the purposes of this Lease, the term "Security Deposit" shall include the initial sum deposited by Tenant as the Security Deposit and any other sum deposited by Tenant as the Security Deposit and any other sum deposited by Tenant towards the Security Deposit pursuant to this Paragraph 7.A. At Tenant's option, the Security Deposit may be in the form of - ------------- an irrevocable standby letter of credit ("L-C"). On or before the first to --- occur of (x) October 1, 1997, or (y) Landlord's delivery to Tenant of written notice that Tenant has committed a default with respect to any provision of this Lease, Tenant shall increase the Security Deposit to a total aggregate sum of Five Hundred Sixty-Eight Thousand One Hundred Ninety-Two and 80/100ths Dollars ($568,192.80), by depositing with Landlord the amount of Five Hundred Thousand Dollars ($500,000.00) as an addition to the Security Deposit. Landlord shall not be required to segregate the Security Deposit from Landlord's general funds; Landlord's obligations with respect to the Security Deposit shall be those of a debtor and not a trustee, and Tenant shall not be entitled to any interest on the Security Deposit. Invocation by Landlord of its rights hereunder shall not constitute a waiver of nor relieve Tenant from any liability or obligation for any default by Tenant under this Lease. (i) Reduction or Replacement. So long as Tenant has not ------------------------ committed any default under this Lease, then if Tenant can demonstrate to the reasonable satisfaction of Landlord that Tenant has maintained a Fixed Charge Ratio of at least 1.25 to 1 for a period of four (4) consecutive fiscal years at any time after the Commencement Date, then Tenant may elect to reduce the Security Deposit to a sum equal to the then-current amount of Monthly Rent. For the purposes of this Paragraph 7, in order for Tenant to demonstrate that it has maintained the required Fixed 26 Charge Ratio for the fiscal year or years in question, Tenant must at a minimum deliver to Landlord an audited financial statement of Tenant, showing that Tenant has maintained the required Fixed Charge Ratio for the fiscal year or years in question. If Tenant is entitled to and does elect to reduce the amount of the Security Deposit pursuant to this Paragraph 7.A.(i), and Tenant delivers to ----------------- Landlord written notice of its election to so reduce the amount of the Security Deposit and the financial statement described in the foregoing grammatical paragraph, then either (x) if the Security Deposit is in the form of cash, Landlord shall pay to Tenant the excess amount of the Security Deposit, without interest, within thirty (30) days after Landlord's receipt of such notice and statement; or (y) if the Security Deposit is in the form of an L-C, then Tenant may, not less than ten (10) days after Landlord's receipt of such notice and statement, replace the L-C with an L-C in an amount equal to the reduced amount of the Security Deposit. (iii) Consequences of Default. If Tenant defaults with respect ----------------------- to any provision of this Lease, after the expiration of any applicable cure or grace periods expressly provided for in this Lease, Landlord may apply all or any part of the Security Deposit for the payment of any Rent or other sum in default, the repair of such damage to the Premises or the payment of any other amount which Landlord may spend or become obligated to spend by reason of Tenant's default or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant's default to the full extent permitted by law. If any portion of a cash Security Deposit is so applied, or any portion of an L-C posted as the Security Deposit, if applicable, is drawn upon, by Landlord for such purposes, Tenant shall either, within ten (10) days after written demand therefor, deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount or deposit a replacement L-C with Landlord in the amount of the original L-C. If Tenant is not otherwise in default, the Security Deposit or any balance thereof shall be returned to Tenant within thirty (30) days of termination of the Lease. (iv) Form of L-C. If at any time Tenant elects to deposit ----------- an L-C as the Security Deposit, the L-C shall be issued by a bank reasonably acceptable to Landlord, shall be issued for a term of at least twelve (12) months and shall be in a form and with such content reasonably acceptable to Landlord. Tenant shall either replace the expiring L-C with an L-C in an amount equal to the original L-C or renew the expiring L-C, in any event no later than thirty (30) days prior to the expiration of the term of the L-C then in effect. If Tenant fails to deposit a replacement L-C or renew the expiring L-C, Landlord shall have the right to draw upon the expiring L-C for the full amount 27 thereof and hold the same as the Security Deposit; provided, however, that if Tenant provides a replacement L-C that meets the requirements of this Paragraph, then Landlord shall return to Tenant promptly in cash that amount of the L-C that had been drawn upon by Landlord. Drawing upon the L-C shall be conditioned upon the presentation to the issuer of the L-C of a certified statement executed by a general partner of Landlord that (i) Tenant is in default under the Lease and Landlord is exercising its right to draw upon so much of the L-C as is necessary to cure Tenant's default, or (ii) Tenant has not renewed or replaced an expiring L-C as required by this Lease and Landlord is authorized to draw upon the L-C prior to its expiration. The L-C shall not be mortgaged, assigned or encumbered in any manner whatsoever by Tenant without the prior written consent of Landlord. The use, application or retention of the L-C, or any portion thereof, by Landlord shall not prevent Landlord from exercising any other right or remedy provided by this Lease or by law, it being intended that Landlord shall not first be required to proceed against the L-C, and such use, application or retention shall not operate as a limitation on any recovery to which Landlord may otherwise be entitled. 8. Holding Over. ------------ A. General Provisions. If Tenant remains in possession of all or any ------------------ part of the Premises after the expiration of the Term, with the express or implied consent of Landlord, such tenancy shall be at sufferance only, and shall not constitute a renewal or extension for any further term. If Tenant remains in possession after the expiration of the Term, either with or without Landlord's consent, Rent shall be payable at a rental equal to one hundred thirty percent (130%) of the Monthly Rent payable during the last month of the Term (which rental shall be due and payable at the same time as Monthly Rent is due under this Lease), and any other sums due under this Lease shall be payable in the amount and at the times specified in this Lease. Such holdover tenancy shall be subject to every other term, condition, and covenant contained herein; provided, however, that neither the Holdover Option (as defined below) nor Landlord's obligations under the Work Letter shall be of any force or effect during any such holdover tenancy. B. Holdover Extension. Notwithstanding anything to the contrary set ------------------ forth in Paragraph 8.A, Tenant may extend the Term of this Lease for up to a ------------- maximum of six (6) months (the "Holdover Option") under the following terms and --------------- conditions: (i) the Holdover Option is expressly conditioned upon Tenant's not being in default under any term or condition of this Lease after the expiration of any applicable cure period granted by this Lease, either at the time the Holdover Option is exercised or at the time the Holdover Option term would commence; (ii) the Holdover Option shall be personal to the Tenant originally named 28 in this Lease, and shall not be assigned, sold, conveyed or otherwise transferred to any other party (including without limitation any assignee or sublessee of such Tenant) without the prior written consent of Landlord, which consent may be withheld in Landlord's sole discretion (provided, however, that the Holdover Option may be transferred to the transferee pursuant to a Permitted Transfer without Landlord's consent), and the Holdover Option shall be exercisable only so long as the Lease remains in full force and effect and shall be an interest appurtenant to and not separable from Tenant's estate under the Lease; (iii) under no circumstances shall Landlord be required to pay any real estate commission to any party with respect to Tenant's exercise of the Holdover Option; (iv) Tenant may exercise the Holdover Option to extend the Lease only by giving Landlord written notice not less than twelve (12) months prior to the expiration of the Term, which notice shall specify the length of time of the Holdover Option term (up to a maximum of six (6) months); (v) if Tenant fails to exercise the Holdover Option prior to the applicable twelve (12) month period, then the Holdover Option automatically shall lapse and thereafter Tenant shall have no right to exercise the Holdover Option; (vi) Monthly Rent shall be increased to an amount equal to one hundred thirty percent (130%) of the Monthly Rent payable during the last month of the Term; and (vii) all other terms and conditions of the Lease, as amended from time to time by the parties in accordance with the provisions of the Lease, shall remain in full force and effect and shall apply during the Holdover Option term, provided, however, that neither the Holdover Option nor Landlord's obligations under the Work Letter shall be of any force or effect during the Holdover Option term. 9. Tenant Improvements. ------------------- Landlord agrees to construct the Tenant Improvements pursuant to the terms of Exhibit B. --------- 10. Condition of Premises. --------------------- A. Capital Improvements. Landlord shall complete the Capital -------------------- Improvements to the First Half Space, and Landlord shall complete the Capital Improvements to the Second Half Space, all in accordance with the terms of Exhibit B. Except for its obligation to perform the Capital Improvements and - --------- the Tenant Improvements as set forth in this Lease and the Work Letter, Landlord shall have no obligation whatsoever to do any work or perform any improvements whatsoever to any portion of the Premises or the Building. B. Acceptance of Premises. Within ten (10) days after completion of ---------------------- the Tenant Improvements with respect to the First Half Space or with respect to the Second Half Space, as the case may be, Tenant shall conduct a walk-through inspection of the 29 Premises with Landlord and complete a punch list of items needing additional work. Other than the items specified in the punch list, if any, and subject to Landlord's representations and warranties described below, by taking possession of the Premises, Tenant shall be deemed to have accepted the Premises in good, clean and completed condition and repair, subject to all applicable laws, codes and ordinances. Any damage to the Premises caused by Tenant's move-in shall be repaired or corrected by Tenant, at its sole cost and expense, which repair or corrective work shall not be paid for out of the Tenant Improvements Allowance. Tenant acknowledges that neither Landlord nor Landlord's Agents have made any representations or warranties as to the suitability or fitness of the Premises for the conduct of Tenant's business or for any other purpose, nor has Landlord or Landlord's Agents agreed to undertake any Alterations or construct any Improvements to the Premises except as expressly provided in this Lease. If Tenant fails to submit a punch-list to Landlord within such 10-day period, it shall be deemed that there are no Improvement items needing additional work or repair. Landlord's contractor shall complete all reasonable punch-list items within thirty (30) days after the walk-through inspection or as soon as practicable thereafter. Upon completion of such punch-list items, Tenant shall approve such completed items in writing to Landlord. If Tenant fails to approve such items within fourteen (14) days of completion, such items shall be deemed approved by Tenant. C. Landlord's Representations and Warranties. Landlord represents ----------------------------------------- and warrants to Tenant as follows: (i) Landlord is the fee simple owner of all the buildings and the land included in the Project; (ii) Landlord holds an unconditional option to purchase the so-called "Sears site," as further described on Exhibit F attached to this Lease; and (iii) Landlord has delivered --------- to Tenant copies of, or made available for Tenant's inspection, all relevant and material documents in Landlord's possession or under Landlord's control regarding the environmental condition of the Project. In addition to the foregoing, Landlord represents and warrants (the "Condition Warranties") to Tenant that as of the Commencement Date the following portions of the Building shall be in good condition (i.e. in an operable (but not new) state of repair, free of defects that would adversely affect Tenant's operation of its business in the Premises): (i) the curtain wall and exterior windows of the Building, (ii) the roof of the Building, (iii) the main electrical supply to a main distribution point in the Building, (iv) the working sanitary sewer stub to the Building, (v) water service to the Building, and (vi) the existing elevator in the Building. The Condition Warranties shall terminate on a date thirty (30) days after the Commencement Date, except to the extent that Tenant has delivered to Landlord within such 30-day period a written notice specifying in detail any defaults by Landlord under the Condition Warranties (a "Violation Notice"), 20 and Landlord shall thereafter have absolutely no liability to Tenant for the inaccuracy of any Condition Warranty, except to the extent set forth in a Violation Notice. Landlord's liability for the correction of any defects described in a Violation Notice shall be subject to Landlord's reasonable right to dispute the claims set forth in any Violation Notice. Landlord's sole liability with respect to any breach of any Condition Warranty that is properly set forth in a timely delivered Violation Notice shall be to promptly correct such defect; Landlord shall have no liability for any other loss, cost, damage, expense or lost profit in connection with such breach, and Tenant shall have no right to any abatement or offset of Rent in connection with such breach. 11. Use of the Premises and Common Area. ----------------------------------- A. Tenant's Use. Tenant shall use the Premises only for general ------------ office, research and development, marketing, sales, and storage related to such activities, and any other legal use consistent with any CC&Rs. Tenant shall not use the Premises or suffer or permit anything to be done in or about the Premises which will in any way conflict with any law, statute, zoning restriction, ordinance or governmental law, rule, regulation or requirement of public authorities now in force or which may hereafter be in force, relating to or affecting the condition, use or occupancy of the Premises. Tenant shall not commit any public or private nuisance or any other act or thing which might or would disturb the quiet enjoyment of any other tenant of Landlord or any occupant of nearby property. Tenant shall place no loads upon the floors, walls or ceilings in excess of the maximum designed load determined by a licensed structural engineer or which endanger the structure; nor place any harmful liquids in the drainage systems; nor dump or store waste materials or refuse or allow waste materials or refuse to remain outside the Building proper, except in the enclosed trash areas provided. Tenant shall not store or permit to be stored or otherwise placed any other material of any nature whatsoever outside the Building, except on a temporary basis. B. Hazardous Materials. ------------------- (i) Hazardous Materials Defined. As used herein, the term --------------------------- "Hazardous Materials" shall mean any wastes, materials or substances (whether in ------------------- the form of liquids, solids or gases, and whether or not air-borne), which are or are deemed to be (a) pollutants or contaminants, or which are or are deemed to be hazardous, toxic, ignitable, reactive, corrosive, dangerous, harmful or injurious, or which present a risk to public health or to the environment, or which are or may become regulated by or under the authority of any applicable local, state or federal laws, judgments, ordinances, orders, rules, regulations, codes or other governmental restrictions, guidelines or requirements, any 31 amendments or successor(s) thereto, replacements thereof or publications promulgated pursuant thereto, including, without limitation, any such items or substances which are or may become regulated by any of the Environmental Laws (as hereinafter defined); (b) listed as a chemical known to the State of California to cause cancer or reproductive toxicity pursuant to Section 25249.8 of the California Health and Safety Code, Division 20, Chapter 6.6 (Safe Drinking Water and Toxic Enforcement Act of 1986); or (c) a pesticide, petroleum, including crude oil or any fraction thereof, asbestos or any asbestos-containing material, a polychlorinated biphenyl, radioactive material, or urea formaldehyde. (ii) Environmental Laws Defined. In addition to the laws -------------------------- referred to in Paragraph 11.B.(i) above, the term "Environmental Laws" shall be ------------------ ------------------ deemed to include, without limitation, 33 U.S.C. Section 1251 et seq., 42 U.S.C. ------ Section 6901 et seq., 42 U.S.C. Section 7401 et seq., 42 U.S.C. Section 9601 et ------ ------ -- seq., and California Health and Safety Code Section 25100 et seq., and 25300 et - --- ------ seq., California Water Code, Section 13020 et seq., or any successor(s) thereto, - --- ------ all local, state and federal laws, judgments, ordinances, orders, rules, regulations, codes and other governmental restrictions, guidelines and requirements, any amendments and successors thereto, replacements thereof and publications promulgated pursuant thereto, which deal with or otherwise in any manner relate to, air or water quality, air emissions, soil or ground conditions or other environmental matters of any kind. (iii) Use of Hazardous Materials. Tenant agrees that during the -------------------------- Term of this Lease, Tenant shall not use, or permit the use of, nor store, generate, treat, manufacture or dispose of Hazardous Materials on, from or under the Premises (individually and collectively, "Hazardous Use") except to the ------------- extent that, and in accordance with such conditions as, Landlord may have previously approved in writing in its sole and absolute discretion. Notwithstanding the foregoing, Tenant shall be entitled to use and store only those Hazardous Materials which are (a) set forth in a list prepared by Tenant and approved in writing by Landlord, which shall be deemed given with respect to the Approved Hazardous Materials (hereinafter defined), (b) necessary for Tenant's business, but then only in the amounts and for the purposes previously disclosed in writing to and approved in writing by Landlord, and (c) in full compliance with Environmental Laws, and all judicial and administrative decisions pertaining thereto. All Hazardous Materials approved in writing by Landlord as provided in the preceding sentence shall collectively be referred to as the "Approved Hazardous Materials". Within thirty (30) days after request by ---------------------------- Landlord, Tenant shall deliver to Landlord a list of the Approved Hazardous Materials. Tenant shall not be entitled to install any tanks under, on or about the Premises for the storage of Hazardous 32 Materials without the express written consent of Landlord, which may be given or withheld in Landlord's sole discretion. For the purposes of this Paragraph --------- 11.B.(iii), the term Hazardous Use shall include Hazardous Use(s) on, from or - ---------- under the Premises by Tenant, any Subtenant occupying all or any portion of the Premises during the Term, or any of their directors, officers, employees, shareholders, partners, invitees, agents, contractors or occupants (collectively, "Tenant's Parties"), whether known or unknown to Tenant, ---------------- occurring during the Term of this Lease. The term "Tenant's Parties" shall not ---------------- include any tenants of the Project other than Tenant, except that the term "Tenant's Parties" shall include any Subtenant occupying all or portion of the ---------------- Premises during the Term. (iv) Hazardous Materials Report; When Required. Tenant shall ----------------------------------------- submit to Landlord a written report with respect to Hazardous Materials ("Report") in the form prescribed in Paragraph 11.B.(v) below on the following ------ ------------------ dates: (a) At any time within ten (10) days after written request by Landlord, and (b) At any time when there has been a violation of any Environmental Law, or in connection with any proposed request for Landlord's consent to any change in the list of Approved Hazardous Materials or for an increase in the intensity of usage or storage of such Approved Hazardous Materials. (v) Hazardous Materials Report; Contents. The Report shall ------------------------------------ contain, without limitation, the following information: (a) Whether on the date of the Report and (if applicable) during the period since the last Report there has been any Hazardous Use on, from or under the Premises, other than the use of Approved Hazardous Materials. (b) If there was such Hazardous Use, the exact identity of the Hazardous Materials (other than the Approved Hazardous Materials), the dates upon which such materials were brought upon the Premises, the dates upon which such Hazardous Materials were removed therefrom, and the quantity, location, use and purpose thereof. (c) If there was such Hazardous Use, any governmental permits maintained by Tenant with respect to such Hazardous Materials, the issuing agency, original date of issue, renewal dates (if any) and expiration date. Copies of any such permits and applications therefor shall be attached. 33 (d) If there was such Hazardous Use, any governmental reporting or inspection requirements with respect to such Hazardous Materials, the governmental agency to which reports are made and/or which conducts inspections, and the dates of all such reports and/or inspections (if applicable) since the last Report. Copies of any such Reports shall be attached. (e) If there was such Hazardous Use, identification of any operation or business plan prepared for any government agency with respect to Hazardous Use. (f) Any liability insurance carried by Tenant with respect to Hazardous Materials, if any, the insurer, policy number, date of issue, coverage amounts, and date of expiration. Copies of any such policies or certificates of coverage shall be attached. (g) Any notices of violation of Environmental Laws, written or oral, received by Tenant from any governmental agency since the last Report, the date, name of agency, and description of violation. Copies of any such written notices shall be attached. (h) Any knowledge, information or communication which Tenant has acquired or received relating to (x) any enforcement, cleanup, removal or other governmental or regulatory action threatened or commenced against Tenant or with respect to the Premises pursuant to any Environmental Laws; (y) any claim made or threatened by any person or entity against Tenant or the Premises on account of any alleged loss or injury claimed to result from any alleged Hazardous Use on or about the Premises; or (z) any report, notice or complaint made to or filed with any governmental agency concerning any Hazardous Use on or about the Premises. The Report shall be accompanied by copies of any such claim, report, complaint, notice, warning or other communication that is in the possession of or is available to Tenant. (i) Such other pertinent information or documents as are reasonably requested by Landlord in writing. (vi) Release of Hazardous Materials; Notification and Cleanup. -------------------------------------------------------- (a) At any time during the Term, if Tenant knows or believes that any release of any Hazardous Materials has come or will come to be located upon, about or beneath the Premises, then Tenant shall immediately, either prior to the release or following the discovery thereof by Tenant, give verbal and follow-up written notice of that condition to Landlord. 34 (b) At its sole cost and expense, Tenant covenants to investigate, clean up and otherwise remediate any release of Hazardous Materials which were caused or created by Tenant or any of Tenant's Parties. Such investigation, clean-up and remediation shall be performed only after Tenant has obtained, if practicable, Landlord's written consent, which shall not be unreasonably withheld; provided, however, that Tenant shall be entitled to respond immediately to an emergency without first obtaining Landlord's written consent. All clean-up and remediation shall be done in compliance with Environmental Laws and to the reasonable satisfaction of Landlord. (c) Notwithstanding the foregoing, Landlord shall have the right, but not the obligation, in Landlord's sole and absolute discretion, exercisable by written notice to Tenant, to undertake within or outside the Premises all or any portion of any reasonable investigation, clean-up or remediation with respect to any Hazardous Use of such Hazardous Materials by Tenant or any of Tenant's Parties (or, once having undertaken any of such work, to cease same, in which case Tenant shall perform the work), all at Tenant's sole cost and expense, which shall be paid by Tenant as Additional Rent within ten (10) days after receipt of written request therefor by Landlord (and which Landlord may require to be paid prior to commencement of any work by Landlord); provided, however, that Tenant's obligation to pay for such work shall only be applicable if Tenant fails to perform its obligations under this Paragraph 11 ------------ (including without limitation the obligations described in Paragraph --------- 11.B.(vi)(b)). No such work by Landlord shall create any liability on the part - ------------- of Landlord to Tenant or any other party in connection with such Hazardous Materials by Tenant or any of Tenant's Parties or constitute an admission by Landlord of any responsibility with respect to such Hazardous Materials. (d) It is the express intention of the parties hereto that Tenant shall be liable under this Paragraph 11.B.(vi) for any and all ------------------- conditions covered hereby which were or are caused or created by Tenant or any of Tenant's Parties, whether occurring prior to, on, or after the Commencement Date. Tenant shall not enter into any settlement agreement, consent decree or other compromise with respect to any claims relating to any Hazardous Materials in any way connected to the Premises without first (x) notifying Landlord of Tenant's intention to do so and affording Landlord the opportunity to participate in any such proceedings, and (y) obtaining Landlord's written consent, which shall not be unreasonably withheld. (vii) Inspection and Testing by Landlord. Landlord shall have ---------------------------------- the right at all times during the Term of this Lease to (a) inspect the Premises, as well as such of Tenant's books and records pertaining to the Premises and the conduct of Tenant's business therein, and to (b) conduct tests 35 and investigations to determine whether Tenant is in compliance with the provisions of this Paragraph 11.B. Except in case of emergency, Landlord shall -------------- give reasonable notice to Tenant before conducting any inspections, tests, or investigations in accordance with Paragraph 19, shall provide Tenant with a work plan describing any testing that shall be performed at the Premises, and shall use reasonable efforts to minimize interference with the conduct of Tenant's business at the Premises caused by any such inspections, tests, or investigations. The cost of all such inspections, tests and investigations shall be borne by Tenant. Neither any action nor inaction on the part of Landlord pursuant to this Paragraph 11.B.(vii) shall be deemed in any way to release -------------------- Tenant from, or in any way modify or alter, Tenant's responsibilities, obligations, and liabilities incurred pursuant to Paragraph 11.B hereof. -------------- (viii) Indemnity. Tenant shall indemnify, defend, protect, hold --------- harmless, and, at Landlord's option (with such attorneys as Landlord may approve in advance and in writing), defend Landlord, Landlord's Agents, and Landlord's officers, directors, shareholders, partners, employees, contractors, property managers, agents and mortgagees and other lien holders, from and against any and all Losses (as defined below), whenever such Losses arise, arising from or related to: (a) any violation or alleged violation by Tenant or any of Tenant's Parties of any of the requirements, ordinances, statutes, regulations or other laws referred to in this Paragraph 11.B, including, without limitation, the -------------- Environmental Laws, whether such violation or alleged violation occurred prior to, on, or after the Commencement Date; (b) any breach of the provisions of this Paragraph 11.B by Tenant or any of Tenant's Parties; or (c) any Hazardous Use - -------------- on, about or from the Premises by Tenant or any of Tenant's Parties of any Hazardous Materials (whether or not approved by Landlord under this Lease), whether such Hazardous Use occurred prior to, on, or after the Commencement Date. The term "Losses" shall mean all claims, demands, expenses, actions, ------ judgments, damages (whether consequential, direct or indirect, known or unknown, foreseen or unforeseen), penalties, fines, liabilities, losses of every kind and nature (including, without limitation, property damage, diminution in value of Landlord's interest in the Premises, damages for the loss of restriction on use of any space or amenity within the Premises, damages arising from any adverse impact on marketing space in the Premises, sums paid in settlement of claims and any costs and expenses associated with injury, illness or death to or of any person), suits, administrative proceedings, costs and fees, including, but not limited to, attorneys' and consultants' fees and expenses, and the costs of cleanup, remediation, removal and restoration, that are in any way related to any matter covered by the foregoing indemnity. 36 (ix) Survival. The provisions of this Paragraph 11.B shall -------- -------------- survive the expiration or earlier termination of this Lease. C. Special Provisions Relating to The Americans With Disabilities Act of --------------------------------------------------------------------- 1990. - ---- (i) Allocation of Responsibility to Landlord. As between Landlord and ---------------------------------------- Tenant, Landlord shall be responsible that the Common Area owned by Landlord complies with the requirements of Title III of the Americans with Disabilities Act of 1990 (42 U.S.C. 12181, et seq., The Provisions Governing Public Accommodations and Services Operated by Private Entities), and all regulations promulgated thereunder, and all amendments, revisions or modifications thereto now or hereafter adopted or in effect in connection therewith (hereinafter collectively referred to as the "ADA"), and to take such actions and make such --- alterations and improvements as are necessary for such compliance; provided, however, that to the extent such requirements arise from the construction of any Alterations to the Premises made by or on behalf of Tenant, then as between Landlord and Tenant, Tenant shall be responsible that the Common Area complies with the requirements of the ADA, and to take such actions and make such alterations and improvements as are necessary for such compliance. (ii) Allocation of Responsibility to Tenant. Except as expressly -------------------------------------- provided in the Work Letter, as between Landlord and Tenant, Tenant, at its sole cost and expense, shall be responsible that the Premises (and all modifications made by Tenant of access to the Premises from the street), and all alterations and improvements in the Premises (including without limitation the Tenant Improvements), and Tenant's use and occupancy of the Premises, and Tenant's performance of its obligations under this Lease, comply with the requirements of the ADA, and to take such actions and make such alterations and improvements as are necessary for such compliance; provided, however, that Tenant shall not make any such alterations or improvements except upon Landlord's prior written consent (which shall not be unreasonably withheld) pursuant to the terms and conditions of this Lease. If Tenant fails diligently to take such actions or make such alterations or improvements as are necessary for such compliance, Landlord may, but shall not be obligated to, take such actions and make such alterations and improvements and may recover all of the costs and expenses of such actions, alterations and improvements from Tenant as Additional Rent. Tenant shall be entitled to utilize the Tenant Improvements Allowance to pay for the cost of any improvements required by ADA that are triggered by the construction of the Tenant Improvements. 37 (iii) General. Notwithstanding anything in this Lease contained ------- to the contrary, no act or omission of either party, including any approval, consent or acceptance by it or its agents, employees or other representatives, shall be deemed an agreement, acknowledgment, warranty, or other representation by it that the other party has complied with the ADA as provided under Paragraphs 11.C.(i) or 11.C.(ii) or that any action, alteration or improvement - ------------------- --------- by it complies or will comply with the ADA as provided under Paragraphs 11.C.(i) ------------------- or 11.C.(ii) or constitutes a waiver by it of the other party's obligations to --------- comply with the ADA under Paragraphs 11.C.(i) or 11.C.(ii) of this Lease or ------------------- --------- otherwise. Any failure of either party to comply with its obligations of the ADA under Paragraphs 11.C.(i) or 11.C.(ii) shall not relieve such party from any ------------------- --------- obligations under this Lease or in the case of Landlord's failure to comply under Paragraph 11.C.(i), constitute or be construed as a constructive or other ------------------ eviction of Tenant or disturbance of Tenant's use and possession of the Premises. D. Use and Maintenance of Common Area. Tenant and its employees and ---------------------------------- invitees shall have the non-exclusive right to use the Common Area in common with other persons during the Term of this Lease, subject to the CC&Rs and such reasonable rules and regulations as may from time to time be deemed necessary or advisable in Landlord's reasonable discretion for the proper and efficient operation and maintenance of the Common Area. Such rules and regulations may include, among other things, the hours during which the Common Area shall be open for use. Landlord shall maintain and operate the Common Area from time to time owned by Landlord in good condition, provided that any damage thereto, other than normal wear and tear, occasioned by the act of Tenant or its employees or invitees shall be paid by Tenant upon demand by Landlord. 12. Quiet Enjoyment. --------------- Landlord covenants that Tenant, upon performing the terms, conditions and covenants of this Lease, shall have quiet and peaceful possession of the Premises as against any person claiming the same by, through or under Landlord. 13. Alterations. ----------- A. Alteration Rights. After the Commencement Date, Tenant shall not ----------------- make or permit any Alterations in, on or about the Premises, except for nonstructural Alterations (which shall not include any modifications to the mechanical or electrical systems of the Building, nor any penetration of the Building's roof) not exceeding Ten Thousand Dollars ($10,000.00) in aggregate cost during any period of twelve (12) consecutive months, without the prior written consent of Landlord, and according to plans and specifications approved in writing by 38 Landlord, which consent shall not be unreasonably withheld. Notwithstanding the foregoing Tenant shall not, without the prior written consent of Landlord, make any: (i) Alterations to the exterior of the Building; (ii) Alterations to the roof of the Building; and (iii) Alterations visible from outside the Building, to which Landlord may withhold Landlord's consent on wholly aesthetic grounds. B. Performance of Alterations. All Alterations shall be installed at -------------------------- Tenant's sole expense, in compliance with all applicable laws, by a licensed contractor, shall be done in a good and workmanlike manner conforming in quality and design with the Premises existing as of the Commencement Date, and shall not diminish the value of either the Building or the Premises. All Alterations made by Tenant shall be and become the property of Landlord upon installation and shall not be deemed Tenant's Personal Property, and Tenant shall not remove any Alterations from the Premises unless Tenant has first obtained Landlord's written consent to such removal. Landlord may require Tenant to remove, at Tenant's expense, any Alterations from the Premises at the expiration or earlier termination of this Lease; provided, however, that at the time any Alterations are constructed, Tenant shall have the right to request Landlord's written approval (which shall not be unreasonably withheld or delayed) that Landlord will not require the removal of such Alterations at the expiration or earlier termination of this Lease. Notwithstanding any other provision of this Lease, Tenant shall be solely responsible for the maintenance and repair of any and all Alterations made by it to the Premises. Tenant shall give Landlord written notice of Tenant's intention to perform work on the Premises at least ten (10) days prior to the commencement of such work to enable Landlord to post and record a Notice of Nonresponsibility or other notice deemed proper before the commencement of any such work. C. Trade Fixtures. Landlord acknowledges that Tenant may lease from -------------- or finance with a third party (collectively, a "Trade Fixture Lessor") all or a portion of Tenant's Personal Property. Landlord shall duly execute and properly deliver any waivers or consents which may reasonably be required by any proposed Trade Fixture Lessor in connection with the leasing or financing of such Tenant's Personal Property, so long as such waivers and consents shall include the following: (i) the Trade Fixture Lessor shall agree to repair any damage to the Premises caused by the Trade Fixtures Lessor's removal of Tenant's Personal Property from the Premises, and (ii) Landlord's waiver and consent shall be of no force or effect after the thirtieth 39 (30th) day following the end of the Term or earlier termination of this Lease. 14. Surrender of the Premises. ------------------------- Upon the expiration or earlier termination of the Term, Tenant shall surrender the Premises to Landlord in its condition existing as of the date of substantial completion of the Improvements, normal wear and tear and fire or other casualty excepted, with all interior walls repaired if damaged, all broken, marred or nonconforming acoustical ceiling tiles replaced, all windows washed, the plumbing and electrical systems and lighting in good order and repair, including replacement of any burned out or broken light bulbs or ballasts, the HVAC equipment serviced and repaired by a reputable and licensed service firm, and all floors cleaned, all to the reasonable satisfaction of Landlord. Tenant shall remove from the Premises all of Tenant's Alterations required to be removed pursuant to Paragraph 13, and all Tenant's Personal ------------ Property, and repair any damage and perform any restoration work caused by such removal. If Tenant fails to remove such Alterations and Tenant's Personal Property, and such failure continues after the expiration or earlier termination of this Lease, Landlord may retain such Alterations and Tenant's Property and all rights of Tenant with respect to it shall cease, or Landlord may place all or any portion of such Alterations and Tenant's Property in public storage for Tenant's account. Tenant shall be liable to Landlord for costs of removal of any such Alterations and Tenant's Personal Property and storage and transportation costs of same, and the cost of repairing and restoring the Premises, together with interest at the Interest Rate from the date of expenditure by Landlord. If the Premises are not so surrendered at the expiration or earlier termination of this Lease, Tenant shall indemnify Landlord and Landlord's Agents against all loss or liability, including reasonable attorneys' fees and costs, resulting from delay by Tenant in so surrendering the Premises. Normal wear and tear, for the purposes of this Lease, shall be construed to mean wear and tear caused to the Premises by a natural aging process which occurs in spite of prudent application of the best standards for maintenance, repair and janitorial practices. It is not intended, nor shall it be construed, to include items of neglected or deferred maintenance which would have or should have been attended to during the Term of the Lease if the best standards had been applied to properly maintain and keep the Premises at all times in good condition and repair. 15. Impositions and Real Property Taxes. ----------------------------------- A. Payment by Tenant. Tenant shall pay all Impositions prior to ----------------- delinquency. If billed directly, Tenant 40 shall pay such Impositions and concurrently present to Landlord satisfactory evidence of such payments. If any Impositions are billed to Landlord or included in bills to Landlord for Real Property Taxes, then Tenant shall pay to Landlord all such amounts within fifteen (15) days after receipt of Landlord's invoice therefor. If applicable law prohibits Tenant from reimbursing Landlord for an Imposition, but Landlord may lawfully increase the Monthly Rent to account for Landlord's payment of such Imposition, the Monthly Rent payable to Landlord shall be increased so that the amount of such increased Monthly Rent, together with any accompanying increases in the Real Property Taxes payable by Tenant with respect to such Imposition, are sufficient to net to Landlord the same return without reimbursement of such Imposition as would have been received by Landlord with reimbursement of such Imposition. In addition, on or before April 10 and December 10 of each year of the Term, Tenant shall pay directly to the San Mateo County assessor the Real Property Taxes for the Premises as set forth on the assessor's tax bill for the Premises. If, however, the Premises are not a separate parcel for tax purposes but constitute a portion of a larger tax parcel or parcels, the Real Property Taxes payable by Tenant under this Lease shall be a percentage of the Real Property Taxes payable for such parcel or parcels, which percentage shall be determined by dividing the Rentable Area of the Building by the total Rentable Area of all buildings on such parcel or parcels and multiplying the result by 100, which Real Property Taxes shall be payable by Tenant to Landlord monthly as part of the Common Area Maintenance Costs. (i) Tax Parcels. If Landlord determines in its reasonable discretion ----------- that the configuration of tax parcels within the Project (including without limitation the tax parcel on which the Premises is situated) causes the allocation of Real Property Taxes between the affected tax parcels to be unfair or inequitable, Landlord reserves the right to internally reallocate the Real Property Taxes assessed against such affected tax parcels in a manner that reasonably addresses such unfairness or inequity. If Landlord effects any such reallocation, then the Real Property Taxes payable by Tenant under this Lease shall be those Real Property Taxes allocated to the Premises pursuant to this Paragraph 15.A.(i). - ------------------ (ii) Payment. Promptly following payment of the Real Property Taxes, ------- Tenant shall provide Landlord with copies of paid receipts or other documentary evidence that the Real Property Taxes have been paid by Tenant. If Tenant fails to pay the Real Property Taxes on or before April 10 and December 10, respectively, or if Tenant fails to pay its share of Real Property Taxes as part of the Common Area Maintenance Costs, Tenant shall pay to Landlord any penalty incurred by such late payment. In addition, Tenant shall pay any Real Property Tax not included within the county tax assessor's tax bill within ten 41 (10) days after being billed for same by Landlord. The foregoing dates are based on the dates established by the county as the dates on which Real Property Taxes become delinquent if not paid. If such delinquency dates change, the dates on which Tenant must pay the Real Property Taxes for the Premises shall be at least ten (10) days prior to the new delinquency dates. Assessments, taxes, fees, levies and charges may be imposed by governmental agencies for such purposes as fire protection, street, sidewalk, road, utility construction and maintenance, refuse removal and for other governmental services which may formerly have been provided without charge to property owners or occupants. It is the intention of the parties that all new and increased assessments, taxes, fees, levies and charges are to be included within the definition of Real Property Taxes for the purposes of this Lease. B. Taxes on Tenant Improvements and Personal Property. Tenant shall -------------------------------------------------- pay any increase in Real Property Taxes resulting from any and all Alterations and Tenant Improvements of any kind whatsoever placed in, on or about the Premises for the benefit of, at the request of, or by Tenant. Tenant shall pay prior to delinquency all taxes assessed or levied against Tenant's Personal Property in, on or about the Premises or elsewhere. When possible, Tenant shall cause its Personal Property to be assessed and billed separately from the Premises and the real property or Personal Property of Landlord. C. Proration. Tenant's liability to pay Real Property Taxes shall be --------- prorated on the basis of a 360-day year to account for any fractional portion of a fiscal tax year included at the commencement or expiration of the Term. In addition, before the Second Half Commencement Date, Tenant's liability to pay Real Property Taxes shall be prorated based on the Rentable Area of the First Half Space divided by the Rentable Area of the entire Premises. With respect to any assessments which may be levied against or upon the Premises on all or any portion of the Project, or which under the laws then in force may be evidenced by improvements or other bonds or may be paid in annual installments, only the amount of such annual installment (with appropriate proration for any partial year) and interest due thereon shall be included within the computation of the annual Real Property Taxes levied against the Premises or such portion of the Project, as applicable. 16. Utilities and Services. ---------------------- Tenant shall be responsible for and shall pay promptly all charges for water, gas, electricity, telephone, refuse pick-up, janitorial service and all other utilities, materials and services furnished directly to or used by Tenant in, on or about the Premises during the Term, together with any taxes thereon. If any utility, material or service is not separately 42 charged or metered to any portion of the Premises, Tenant shall pay to Landlord, within ten (10) days after written demand therefor, Tenant's pro rata share of the total cost thereof as may be determined by Landlord. Landlord shall not be liable in damages or otherwise for any failure or interruption of any utility service or other service furnished to the Premises, except that resulting from the gross negligence or willful misconduct of Landlord. Tenant shall have the right to contract directly with vendors for janitorial and maintenance services, provided such vendors must be approved in advance by Landlord, which approval shall not be unreasonably withheld; and provided further, that Tenant shall have no right to contract with any vendor to maintain the Building's HVAC system, which shall be the sole responsibility of Landlord as set forth in Paragraph --------- 17.A. - ---- 17. Repair and Maintenance. ---------------------- A. Landlord's Obligations. Landlord shall keep in good order, ---------------------- condition and repair the structural parts of the Building, which structural parts consist only of the foundation, subflooring, exterior walls (excluding the interior of all walls and the exterior and interior of all windows, doors, ceilings, and plate glass), and roof of the Building, and all plumbing and electrical facilities leading up to (but not situated within) the Building, except for any damage thereto caused by the negligence or willful acts or omissions of Tenant or of Tenant's agents, employees or invitees, or by reason of the failure of Tenant to perform or comply with any terms of this Lease, or caused by Alterations made by Tenant or by Tenant's agents, employees or contractors. It is an express condition precedent to all obligations of Landlord to repair and maintain that Tenant shall have notified Landlord of the need for such repairs or maintenance. Tenant waives the provisions of Sections 1941 and 1942 of the California Civil Code and any similar or successor law regarding Tenant's right to make repairs and deduct the expenses of such repairs from the Rent due under this Lease. Landlord shall keep in good order, condition, repair and maintenance the Building's HVAC system and roof, and shall maintain an HVAC system preventive maintenance service contract from a qualified vendor for the purpose of maintaining the Building's HVAC system, and a roof maintenance service contract from a qualified vendor for the purpose of maintaining the Building's roof. Landlord shall determine in its sole discretion whether any such vendor is qualified. Any and all costs of any maintenance or repair of the HVAC system or the roof (including without limitation the cost of maintaining HVAC system preventative maintenance contracts and roof maintenance service contracts) shall be included in the Common Area Maintenance Costs payable solely by Tenant for the year in which such cost is incurred. Landlord may elect, in its sole discretion, to paint the exterior of the Building and/or to replace or perform capital improvements to any area or aspect of the Building which Landlord 43 is required keep in good order, condition and repair. If Landlord decides, in its sole discretion, to replace the roof of the Building during the Term, then the cost of so replacing the roof, together with interest at the Interest Rate, shall be amortized on a straight-line basis over the useful life of the roof (as determined by Landlord in its sole discretion) (the "Useful Life"), and the ----------- entire amount of such amortized costs and interest shall be included in the monthly Common Area Maintenance Costs payable solely by Tenant during the entire period over which such costs are amortized, until Tenant has paid to Landlord that proportion of the total amount of such amortized costs equal to (a) the number of months remaining during the Term as of the date such roof replacement was completed, divided by (b) the number of months of the Useful Life; provided that in no event shall such proportion exceed one hundred percent (100%). For the purposes of example only and not by way of limitation, if the Building's roof is replaced twenty-four (24) months before the end of the Term, at a cost of Fifty Thousand Dollars ($50,000.00), and the Useful Life is one hundred twenty (120) months, then (a) the cost of such replacement shall be amortized at the rate of Four Hundred Sixteen and 67/100ths Dollars ($416.67) per month, with interest at the Interest Rate, and (b) the amount to be included in the monthly Common Area Maintenance Costs payable solely by Tenant for the balance of the Term shall equal Four Hundred Sixteen and 67/100ths Dollars ($416.67), with interest at the Interest Rate, until Tenant has paid to Landlord a total aggregate amount of Ten Thousand Dollars ($10,000.00), together with interest at the Interest Rate, towards such amortized costs (i.e., Fifty Thousand Dollars ($50,000.00) multiplied by [Twenty-Four (24) months divided by One Hundred Twenty (120) months]). If Tenant exercises an Option to Extend, the total length of the Term (i.e., the initial Term and each Extended Term) shall be utilized to calculate the maximum amount of such amortized costs that shall be includable in the monthly Common Area Maintenance Costs payable solely by Tenant pursuant to this Paragraph 17.A. -------------- It is the express intent of the parties that except as specifically set forth in this Paragraph 17.A, Landlord shall have no obligation whatsoever -------------- to repair or maintain the Building, and that Tenant shall be responsible for performing all repair, operation, and maintenance of the Building except for those tasks specifically described in this Paragraph 17.A. -------------- B. Tenant's Obligations. Tenant shall at all times and at its sole -------------------- cost and expense clean, keep and maintain in good order, condition and repair (and replace, if necessary) every part of the Premises which is not within Landlord's obligation pursuant to Paragraph 17.A. Tenant's repair and -------------- maintenance obligations shall include without limitation all plumbing and electrical facilities situated within the Building, fixtures, interior walls and ceiling, floors, windows, window frames, 44 doors, entrances, plate glass, showcases, skylights, all lighting fixtures, lamps, fans and any exhaust equipment and systems, all mechanical systems (but not the HVAC system), any automatic fire extinguisher equipment within the Building, all security systems and alarms, all electrical motors and all other appliances and equipment of every kind and nature located in, upon or about the Building or the Premises. Tenant shall also be responsible for all pest control within the Premises. C. Conditions Applicable to Repairs. All repairs, replacements and -------------------------------- reconstruction made by or on behalf of Tenant or any person claiming through or under Tenant shall be made and performed (i) at Tenant's sole cost and expense, in a good and workmanlike manner and at such time and in such manner as Landlord may reasonably designate, (ii) by contractors approved in advance by Landlord, (iii) so that the repairs, replacements or reconstruction shall be at least equal in quality, value and utility to the original work or installation, (iv) in accordance with such reasonable requirements as Landlord may impose with respect to insurance and bonds to be obtained by Tenant in connection with the proposed work, and (v) in accordance with any rules and regulations for the Building as may be adopted by Landlord from time to time and in accordance with all applicable laws and regulations of governmental authorities having jurisdiction over the Premises. D. Landlord's Rights. If Tenant fails to perform Tenant's ----------------- obligations under Paragraph 17.B, Landlord may in its sole discretion give -------------- Tenant notice of such work as is reasonably required to fulfill such obligations. If Tenant fails to commence the work within thirty (30) days after receipt of such notice and diligently prosecute the work to completion, then Landlord shall have the right (but not the obligation) to do such acts or expend such funds at the expense of Tenant as are reasonably required to perform such work. Any amount so expended by Landlord shall be paid by Tenant to Landlord promptly after demand with interest at the Interest Rate. Landlord shall have no liability to Tenant for any damage to, or interference with Tenant's use of, the Premises, or inconvenience to Tenant as a result of performing any such work. E. Compliance with Governmental Regulations. Tenant shall, at its ---------------------------------------- sole cost and expense, comply with, including the making by Tenant of any Alteration to the Premises, all present and future regulations, rules, laws, ordinances, and requirements of all governmental authorities (including, without limitation state, municipal, county and federal governments and their departments, bureaus, boards and officials) applicable to the Premises or the Building. 18. Liens. ----- 45 Tenant shall keep the Building and the Premises free from any liens arising out of any work performed, materials furnished or obligations incurred by or on behalf of Tenant and hereby agrees to indemnify, defend, protect and hold Landlord and Landlord's Agents harmless from and against any and all loss, claim, damage, liability, cost and expense, including attorneys' fees and costs, in connection with or arising out of any such lien or claim of lien. Tenant shall cause any such lien imposed to be released of record by payment or posting of a proper bond acceptable to Landlord within ten (10) days after written request by Landlord. Tenant shall give Landlord written notice of Tenant's intention to perform work on the Premises which might result in any claim of lien at least ten (10) days prior to the commencement of such work to enable Landlord to post and record a Notice of Nonresponsibility or any such other notice(s) as Landlord may deem appropriate. If Tenant fails to so remove any such lien within the prescribed ten 10-day period, then Landlord may do so at Tenant's expense and Tenant shall reimburse Landlord for such amounts upon demand. Such reimbursement shall include all costs incurred by Landlord including Landlord's reasonable attorneys' fees with interest thereon at the Interest Rate. 19. Landlord's Right to Enter the Premises. -------------------------------------- Tenant shall permit Landlord and Landlord's Agents to enter the Premises at all reasonable times with reasonable notice, except for emergencies in which case no notice shall be required, to inspect the same, to post Notices of Nonresponsibility and similar notices, and real estate "For Sale" signs, to show the Premises to interested parties such as prospective lenders and purchasers, to make necessary repairs, to discharge Landlord's obligations under this Lease, to discharge Tenant's obligations under this Lease when Tenant has failed to do so within a reasonable time after written notice from Landlord, and at any reasonable time within one hundred and eighty (180) days prior to the expiration of the Term, to place upon the Building ordinary "For Lease" signs and to show the Premises to prospective tenants. 20. Signs. ----- Subject to Tenant obtaining all necessary approvals from the City of Redwood City and subject to Landlord's review and approval of plans and specifications for any proposed signage, which approval may be withheld only in Landlord's commercially reasonable judgment, Tenant shall have the exclusive right to install identification signage on the exterior of the Building, so long as such signage complies with Landlord's project sign program. Tenant shall have no right to maintain any Tenant identification sign in any other location in, on or about the Building or the Premises and shall not display or erect any other Tenant identification sign, display or other advertising 46 material that is visible from the exterior of the Building. Any changes to the size, design, color or other physical aspects of Tenant's identification sign(s) shall be subject to the Landlord's prior written approval, which shall not be unreasonably withheld, and any appropriate municipal or other governmental approvals. The cost of Tenant's sign(s) and their installation, maintenance and removal shall be Tenant's sole cost and expense. If Tenant fails to maintain its sign(s), or, if Tenant fails to remove its sign(s) upon termination of this Lease, Landlord may do so at Tenant's expense and the amounts expended by Landlord in doing so shall be immediately payable by Tenant to Landlord as Additional Rent. 21. Insurance. --------- A. Indemnification. Tenant shall indemnify, defend, protect and hold --------------- Landlord harmless of and from any and all loss, liens, liability, claims, causes of action, damage, injury, cost or expense arising out of or in connection with, or related to (i) the making of Alterations, or (ii) injury to or death of persons or damage to property occurring or resulting directly or indirectly from: (A) the use or occupancy of, or the conduct of business in, the Premises; (B) the use, storage, release or disposal by Tenant or Tenant's employees, agents, contractors, licensees or invitees, of any Hazardous Materials in or about the Premises or any other portion of the Project; (C) any other occurrence or condition in or on the Premises; and (D) acts, neglect or omissions of Tenant, its officers, directors, agents, employees, invitees or licensees in or about any portion of the Project. Tenant's indemnity obligation includes reasonable attorneys' fees and costs, investigation costs and all other reasonable costs and expenses incurred by Landlord. If Landlord disapproves the legal counsel proposed by Tenant for the defense of any claim indemnified against hereunder, Landlord shall have the right to appoint its own legal counsel, the reasonable fees, costs and expenses of which shall be included as part of Tenant's indemnity obligation hereunder. The indemnification contained in this Section 21.A shall extend to the officers, directors, shareholders, ------------ partners, employees, agents and representatives of Landlord. The obligations assumed by Tenant herein shall survive this Lease. Notwithstanding the foregoing, Landlord shall have the right, in its sole discretion, but without being required to do so, to defend, adjust, settle or compromise any claim, obligation, debt, demand, suit or judgment against Landlord arising out of or in connection with the matters covered by the foregoing indemnity and, in such event, Tenant shall reimburse Landlord for all reasonable charges and expenses incurred by Landlord in connection therewith, including reasonable attorneys' fees; provided, however, that Landlord shall not undertake any unilateral action or settlement so long as Tenant or an insurance company, at its or their sole expense, is contesting in good faith, diligently and with continuity such claim, action, obligation, demand or suit, and so long as such claim, action, 47 obligation, demand or suit does not have or threaten to have a material adverse impact on Landlord's assets, reputation or business affairs. B. Tenant's Insurance. Tenant agrees to maintain in full force and ------------------ effect at all times during the Term, at its sole cost and expense, for the protection of Tenant and Landlord, as their interests may appear, policies of insurance issued by a responsible carrier or carriers acceptable to Landlord which afford the following coverages: (i) Commercial general liability insurance in an amount not less than Three Million and no/100ths Dollars ($3,000,000.00) combined single limit for both bodily injury and property damage which includes blanket contractual liability broad form property damage, personal injury, completed operations, and products liability, which policy shall name Landlord and Landlord's Agents as additional insureds and shall contain a provision that "the insurance provided Landlord hereunder shall be primary and non-contributing with any other insurance available to Landlord with respect to any damage, loss, liability or expense covered by Tenant's indemnity obligations under Paragraph 21.A of the -------------- Lease." (ii) Causes of loss-special form property insurance (including, without limitation, vandalism, malicious mischief, inflation endorsement, and sprinkler leakage endorsement) on Tenant's Personal Property located on or in the Premises. Such insurance shall be in the full amount of the replacement cost, as the same may from time to time increase as a result of inflation or otherwise. As long as this Lease is in effect, the proceeds of such policy shall be used for the repair and replacement of such items so insured. Landlord shall have no interest in the insurance proceeds on Tenant's Personal Property. Notwithstanding the foregoing, Tenant shall have the right, at its election, to self-insure with respect to any loss or damage to Tenant's Personal Property. (iii) Boiler and machinery insurance, including steam pipes, pressure pipes, condensation return pipes and other pressure vessels and HVAC equipment, including miscellaneous electrical apparatus, in an amount satisfactory to Landlord. (iv) Workers compensation insurance in the manner and to the extent required by applicable law and with limits of liability not less than the minimum required under applicable law, covering all employees of Tenant having any duties or responsibilities in or about the Premises. C. Premises Insurance. During the Term Landlord shall maintain ------------------ causes of loss-special form property insurance (including inflation endorsement, sprinkler leakage endorsement, and, at Landlord's option, earthquake and flood coverage) on the Building, excluding coverage of all Tenant's Personal Property located on or in the Premises, but including the Tenant Improvements. Such insurance shall also include insurance against loss of rents, including, at Landlord's option, coverage for earthquake and flood, in an amount equal to the Monthly Rent and Additional Rent, and any other sums payable under the Lease, for a period of at least twelve (12) months commencing on the date of loss. Such insurance shall name Landlord and Landlord's Agents as named insureds and include a lender's loss payable endorsement in favor of Landlord's lender (Form 438 BFU Endorsement). Tenant shall reimburse Landlord monthly, as Additional Rent, for one-twelfth (12th) of the annual cost of such insurance on the first day of each calendar month of the Term, prorated for any partial month, or on such other periodic basis as Landlord shall elect. If the insurance premiums are increased after the Commencement Date for any reason, including without limitation due to an increase in the value of the Building or its replacement cost, or due to Tenant's use of the Premises or any improvements installed by Tenant, Tenant shall pay such increase within ten (10) days of notice of such increase. Landlord may, in its sole discretion, maintain the insurance coverage described in this Paragraph 21.C as part of an umbrella insurance policy covering other -------------- properties owned by Landlord. Notwithstanding the foregoing, so long as the original Landlord under this Lease continues to be the Landlord under this Lease, and subject to the following conditions, Tenant may elect to carry the insurance required by this Paragraph 21.C if Tenant is able to obtain the -------------- coverage required hereunder at a cost less than that charged by Landlord's insurer. Tenant's right to carry such insurance shall be subject to the following conditions: (i) all Holders, defined below, shall have approved Tenant's right to carry such insurance, (ii) such insurance shall name Landlord, and all parties designated by Landlord, as additional insureds, and (iii) such insurance shall provide Landlord with at least the same coverage and rights as Landlord would be entitled to receive if Landlord had obtained such insurance. D. Increased Coverage. Upon demand, Tenant shall provide Landlord, ------------------ at Tenant's expense, with such increased amount of existing insurance, and such other insurance as Landlord or Landlord's lender may reasonably require to afford Landlord and Landlord's lender adequate protection. E. Failure to Maintain. If Tenant fails to maintain any insurance ------------------- coverage that Tenant is required to maintain under this Paragraph 21, and ------------ Landlord incurs any liability to its insurance carrier arising out of Tenant's failure to so maintain such insurance coverage, then any and all loss or damage Landlord shall sustain by reason thereof, including attorneys' fees and costs, shall be borne by Tenant and shall be immediately paid by Tenant upon its receipt of a bill therefor and evidence of such 49 loss. Nothing contained in this Paragraph 21.E shall be deemed to limit or -------------- affect any other remedies or rights available to Landlord under this Lease that arise from Tenant's failure to so maintain such insurance coverage. F. Insurance Requirements. All insurance shall be in a form ---------------------- satisfactory to Landlord and shall be carried in companies that have a general policy holder's rating of not less than "A" and a financial rating of not less than Class "X" in the most current edition of Best's Insurance Reports; and ------------------------ shall provide that such policies shall not be subject to material alteration or cancellation except after at least thirty (30) days' prior written notice to Landlord. The policy or policies, or duly executed certificates for them, together with satisfactory evidence of payment of the premiums thereon shall be deposited with Landlord prior to the Commencement Date, and upon renewal of such policies, not less than thirty (30) days prior to the expiration of the term of such coverage. If Tenant fails to procure and maintain the insurance it is required to maintain under this Paragraph 21, Landlord may, but shall not be ------------ required to, order such insurance at Tenant's expense and Tenant shall reimburse Landlord therefor. Such reimbursement shall include all costs incurred by Landlord in obtaining such insurance including Landlord's reasonable attorneys' fees, with interest thereon at the Interest Rate. G. Waiver and Release. Except to the extent due to the negligence or ------------------ willful misconduct of Landlord, Landlord shall not be liable to Tenant or Tenant's employees, agents, contractors, licenses or invitees for, and Tenant waives as against and releases Landlord and Landlord's Agents from, all claims for loss or damage to any property or injury, illness or death of any person in, upon or about the Premises and/or any other portion of the Project, arising at any time and from any cause whatsoever (including without limitation any claim caused in whole or in part by the act, omission, or neglect of other tenants, contractors, licensees, invitees or other occupants of the Project or their agents or employees; and any claim arising from any construction activities taking place in, upon or about the Premises and/or any other portion of the Project). Landlord and Landlord's Agents shall not be liable for any latent defect in the Premises. 22. Waiver of Subrogation. --------------------- Landlord and Tenant each hereby waive all rights of recovery against the other on account of loss or damage occasioned by such waiving party to its property or the property of others under its control, to the extent that such loss or damage would be covered by any causes of loss-special form policy of insurance or its equivalent required to be or actually carried under Paragraph 21. Tenant and Landlord shall, upon obtaining 50 policies of insurance required hereunder, give notice to the insurance carrier that the foregoing mutual waiver of subrogation is contained in this Lease and Tenant and Landlord shall cause each insurance policy obtained by such party to provide that the insurance company waives all right of recovery by way of subrogation against either Landlord or Tenant in connection with any damage covered by such policy. 23. Damage or Destruction. --------------------- A. Landlord's Obligation to Rebuild. If all or any part of the -------------------------------- Building is damaged or destroyed, Landlord shall promptly and diligently repair the same unless it has the right to terminate this Lease as provided herein and it elects to so terminate. B. Right to Terminate. Landlord shall have the right to terminate ------------------ this Lease in the event any of the following events occur: (i) insurance proceeds from the insurance Landlord is required to carry pursuant to Paragraph 21.C, or that Landlord actually carries, are not -------------- available to pay one hundred percent (100%) of the cost of such repair, excluding the deductible for which Tenant shall be responsible; provided, however, that if Tenant pays to Landlord, in immediately available funds, within thirty (30) days after such casualty, any shortfall in such insurance proceeds, as reasonably determined by Landlord, then Landlord shall have no right to terminate the Lease pursuant to this item (i); (ii) the Building cannot, with reasonable diligence, be fully repaired by Landlord within three hundred sixty (360) days after the date of the damage or destruction; or (iii) the Building cannot be safely repaired because of the presence of hazardous factors, including, but not limited to, earthquake faults, radiation, Hazardous Materials and other similar dangers. If Landlord elects to terminate this Lease, Landlord may give Tenant written notice of its election to terminate within thirty (30) days after such damage or destruction, and this Lease shall terminate fifteen (15) days after the date Tenant receives such notice and both Landlord and Tenant shall be released of all further liability under this Lease (except to the extent any provision of this Lease expressly survives termination and except that Landlord shall return to Tenant the Security Deposit). If Landlord elects not to terminate the Lease, subject to Tenant's termination right set forth below, Landlord shall promptly commence the process of obtaining necessary permits and approvals and repair of the Building as soon as practicable, and 51 this Lease will continue in full force and affect. All insurance proceeds from insurance under Paragraph 21, excluding proceeds for Tenant's Personal Property, ------------ shall be disbursed and paid to Landlord. Tenant shall be required to pay to Landlord the amount of any deductibles payable in connection with any insured casualties, unless the casualty was caused by the sole negligence or willful misconduct of Landlord. Tenant shall have the right to terminate this Lease if the Building cannot, with reasonable diligence, be fully repaired within three hundred sixty (360) days from the date of damage or destruction. The determination of the estimated repair periods in this Paragraph 23 shall be made by an independent, ------------ licensed contractor or engineer within thirty (30) days after such damage or destruction. Landlord shall deliver written notice of the repair period to Tenant after such determination has been made and Tenant shall exercise its right to terminate this Lease, if at all, within ten (10) days of receipt of such notice from Landlord. Upon such termination both Landlord and Tenant shall be released of all further liability under this Lease (except to the extent any provision of this Lease expressly survives termination). C. Limited Obligation to Repair. Landlord's obligation, should it ---------------------------- elect or be obligated to repair or rebuild, shall be limited to the basic Building and the Tenant Improvements and shall not include any Alterations made by Tenant. D. Abatement of Rent. Rent shall be temporarily abated ----------------- proportionately, during any period when, by reason of such damage or destruction there is substantial interference with Tenant's use of the Premises, having regard to the extent to which Tenant may be required to discontinue Tenant's use of the Premises. Such abatement of Rent shall be proportional to the extent of such interference with Tenant's use of the Premises reasonably attributable to such damage or destruction (with the extent of such interference to be reasonably determined by Landlord), and shall commence upon such damage or destruction and end upon substantial completion by Landlord of the repair or reconstruction which Landlord is obligated or undertakes to perform. Tenant shall not be entitled to any compensation or damages from Landlord for loss of the use of the Premises, damage to Tenant's Personal Property or any inconvenience occasioned by such damage, repair or restoration. Tenant hereby waives the provisions of Section 1932, Subdivision 2, and Section 1933, Subdivision 4, of the California Civil Code, and the provisions of any similar law hereinafter enacted. E. Damage Near End of Term. Anything herein to the contrary ----------------------- notwithstanding, if the Building is destroyed or materially damaged during the last twelve (12) months of the Term 52 (unless Tenant has properly exercised an Option to Extend), then either Landlord or Tenant may, at its option, cancel and terminate this Lease as of the date of the occurrence of such damage, by delivery of written notice to the other party and, in such event, upon such termination both Landlord and Tenant shall be released of all further liability under this Lease (except to the extent any provision of this Lease expressly survives termination). If neither Landlord nor Tenant elects to terminate this Lease, the repair of such damage shall be governed by Paragraphs 23.A and 23.B. --------------- ---- 24. Condemnation. ------------ If title to all of the Premises is taken for any public or quasi- public use under any statute or by right of eminent domain, or so much thereof is so taken so that reconstruction of the Premises will not, in Landlord's sole discretion, result in the Premises being reasonably suitable for Tenant's continued occupancy for the uses and purposes permitted by this Lease, this Lease shall terminate as of the date that possession of the Premises or part thereof is taken, and upon such termination both Landlord and Tenant shall be released of all further liability under this Lease (except to the extent any provision of this Lease expressly survives termination). A sale by Landlord to any authority having the power of eminent domain, either under threat of condemnation or while condemnation proceedings are pending, shall be deemed a taking under the power of eminent domain for all purposes of this Paragraph 24. ------------ If any part of the Premises is taken and the remaining part is reasonably suitable for Tenant's continued occupancy for the purposes and uses permitted by this Lease, this Lease shall, as to the part so taken, terminate as of the date that possession of such part of the Premises is taken, and upon such termination both Landlord and Tenant shall be released of all further liability under this Lease with respect to that portion of the Premises that is taken (except to the extent any provision of this Lease expressly survives termination and except that Landlord shall return to Tenant the Security Deposit). The Rent and other sums payable hereunder shall be reduced in the same proportion that Tenant's use and occupancy of the Premises is reduced. If any portion of the Common Area is taken, Tenant's Rent shall be reduced only if such taking materially interferes with Tenant's use of the Common Area and then only to the extent that the fair market rental value of the Premises is diminished by such partial taking. If the parties disagree as to the amount of Rent reduction, the matter shall be resolved by arbitration and such arbitration shall comply with and be governed by the California Arbitration Act, Sections 1280 through 1294.2 of the California Code of Civil Procedure. Each party hereby waives the provisions of Section 1265.130 of the California Code of Civil Procedure allowing either party to petition the Superior Court to 53 terminate this Lease in the event of a partial taking of the Premises. All compensation or damages awarded or paid for any taking hereunder shall belong to and be the property of Landlord, whether such compensation or damages are awarded or paid as compensation for diminution in value of the leasehold, the fee or otherwise, except that Tenant shall be entitled to any award allowed to Tenant for the taking of Tenant's Personal Property, for the interruption of Tenant's business, for its moving costs, or for the loss of its good will. Except for the foregoing allocation, no award for any partial or entire taking of the Premises shall be apportioned between Landlord and Tenant, and Tenant assigns to Landlord its interest in the balance of any award which may be made for the taking or condemnation of the Premises, together with any and all rights of Tenant arising in or to the same or any part thereof. 25. Assignment and Subletting. ------------------------- A. Landlord's Consent. Subject to the provisions of Paragraph 25.G ------------------ -------------- below, Tenant shall not enter into a Sublet without Landlord's prior written consent, which consent shall not be unreasonably withheld. Any attempted or purported Sublet without Landlord's prior written consent shall be void and confer no rights upon any third person and, at Landlord's election, shall terminate this Lease. Each Subtenant shall agree in writing, for the benefit of Landlord, to assume, to be bound by, and to perform the terms, conditions and covenants of this Lease to be performed by Tenant, as such terms, conditions and covenants apply to the Sublet premises. Notwithstanding anything contained herein, Tenant shall not be released from liability for the performance of each term, condition and covenant of this Lease by reason of Landlord's consent to a Sublet unless Landlord specifically grants such release in writing. B. Tenant's Notice. If Tenant desires at any time to Sublet all or --------------- any portion of the Premises, Tenant shall first notify Landlord in writing of its desire to do so. C. Information to be Furnished. If Tenant desires at any time to --------------------------- Sublet all or any portion of the Premises, then Tenant shall submit in writing to Landlord: (i) the name of the proposed Subtenant; (ii) the nature of the proposed Subtenant's business to be carried on in the Premises; (iii) the terms and provisions of the proposed Sublet and a copy of the proposed form of Sublet agreement containing a description of the subject premises; and (iv) such financial information, including financial statements, as Landlord may reasonably request concerning the proposed Subtenant. 54 D. Landlord's Alternatives. At any time within ten (10) days after ----------------------- Landlord's receipt of the information specified in Paragraph 25.C., Landlord --------------- may, by written notice to Tenant, elect: (i) to consent to the Sublet by Tenant; or (ii) to refuse its consent to the Sublet. If Landlord consents to the Sublet, Tenant may thereafter enter into a valid Sublet of the Premises or applicable portion thereof, upon the terms and conditions and with the proposed Subtenant set forth in the information furnished by Tenant to Landlord, subject, however, at Landlord's election, to the condition that the following percentages of any excess of the Subrent (the "Excess Subrent") over the Rent required to be paid by Tenant under this Lease (or, if only a portion of the Premises is Sublet, the pro rata share of the Rent attributable to the portion of the Premises being Sublet) less reasonable attorneys' fees, leasing commissions, improvement costs required for such Sublet (which shall not include the cost of any trade fixtures, equipment or personal property) and other reasonable subletting costs paid by Tenant on the Sublet, shall be paid to Landlord. Tenant shall pay the following percentages of Excess Subrent to Landlord in the following circumstances: (i) to the extent the Excess Subrent (for the entire term of the applicable Sublet) is payable on a monthly basis (as opposed to one or more lump sums) and to the extent the Excess Subrent is less than or equal to $0.25/month/square foot of Rentable Area of the portion of the Premises being Sublet, then Tenant shall pay to Landlord one-third (1/3) of the Excess Subrent; (ii) to the extent the Excess Subrent (for the entire term of the applicable Sublet) is payable on a monthly basis (as opposed to one or more lump sums) and to the extent the Excess Subrent is greater than $0.25/month/square foot of Rentable Area of the portion of the Premises being Sublet, then Tenant shall pay to Landlord fifty percent (50%) of the Excess Subrent; (iii) to the extent the Excess Subrent (for the entire term of the applicable Sublet) is not payable on a monthly basis, then Tenant shall pay to Landlord fifty percent (50%) of the Excess Subrent; and (iv) to the extent the Excess Subrent is applicable to any period during an Extended Term, then Tenant shall pay to Landlord fifty percent (50%) of the Excess Subrent. E. Proration. If a portion of the Premises is Sublet, the pro rata --------- share of the Rent attributable to such partial area of the Premises shall be determined by Landlord by dividing the Rent payable by Tenant hereunder by the total square footage of the Premises and multiplying the resulting quotient (the per square foot rent) by the number of square feet of the Premises which are Sublet. F. Parameters of Landlord's Consent. Landlord shall have the right -------------------------------- to base its consent to any Sublet hereunder upon such factors and considerations as Landlord reasonably deems relevant or material to the proposed Sublet and the best interests of the Project's operations. Without limiting the 55 generality of the foregoing, Tenant acknowledges that it shall be reasonable for Landlord to withhold its consent to any Sublet hereunder if Tenant has not demonstrated that: (i) the proposed Subtenant is financially responsible, with sufficient net worth and net current assets, properly and successfully to operate its business in the Premises and meet the financial and other obligations of this Lease; (ii) the proposed Subtenant possesses sound and good business judgment, reputation and experience, and proven management skills in the operation of a business or businesses substantially similar to the uses permitted in the Premises under Paragraph 11.A; and (iii) the use of the -------------- Premises proposed by such Subtenant conforms to the permitted uses specified under Paragraph 11.A, and involves either no Hazardous Use or only such -------------- Hazardous Use as shall be acceptable to Landlord in its sole discretion. G. Permitted Transfers. Notwithstanding the provisions of Paragraph ------------------- --------- 25.A above, Tenant shall have the right to enter into a Sublet, and Landlord - ---- shall not withhold its consent thereto (provided that all of the conditions set forth in clauses (A) and (B) below shall be met), if such Sublet is one of the following "Permitted Transfers": (i) a Sublet to the surviving entity of a merger or consolidation involving the corporate entity constituting the Tenant under this Lease; or (ii) a Sublet to any subsidiary or Affiliate of the Tenant originally named in this Lease. However, the foregoing Permitted Transfers shall be exempt from the requirement of Landlord's consent only if all of the following conditions shall be met: (A) there shall be no change in the use or operation of the Premises; (B) Tenant shall have provided to Landlord all information to allow Landlord to determine, and Landlord shall have determined, that the proposed transfer is a Permitted Transfer which is exempt from the requirement of Landlord's consent; and (C) as of the effective date of such Sublet, the proposed Subtenant has a net worth and net current assets equal to or greater than those of the original Tenant under this Lease as of the date of this Lease. No Sublet of the type described in this Paragraph 25.G, nor any -------------- other transfer of all or any portion of Tenant's interest in the Lease or the Premises, shall release Tenant of its obligations under this Lease. 26. Default. ------- A. Tenant's Default. A default under this Lease by Tenant shall ---------------- exist if any of the following occurs: (i) If Tenant fails to pay within five (5) days after written notice from Landlord any Rent or any other sum required to be paid hereunder when due, including, without limitation, any Tenant Improvement costs payable by Tenant under Exhibit B; or --------- 56 (ii) If Tenant fails to perform any term, covenant or condition of this Lease except those requiring the payment of money, and Tenant fails to cure such breach within thirty (30) days after written notice from Landlord where such breach could reasonably be cured within such 30-day period; provided, however, that where such failure could not reasonably be cured within the 30-day period, that Tenant shall not be in default if it commences such performance within the 30-day period and diligently thereafter prosecutes the same to completion; or (iii) If Tenant assigns its assets for the benefit of its creditors; or (iv) If the sequestration or attachment of or execution on any material part of Tenant's Personal Property essential to the conduct of Tenant's business occurs, and Tenant fails to obtain a return or release of such Tenant's Personal Property within thirty (30) days thereafter, or prior to sale pursuant to such sequestration, attachment or levy, whichever is earlier; or (v) If Tenant vacates or abandons the Premises; or (vi) If a court makes or enters any decree or order other than under the bankruptcy laws of the United States adjudging Tenant to be insolvent; or approving as properly filed a petition seeking reorganization of Tenant; or directing the winding up or liquidation of Tenant and such decree or order shall have continued for a period of sixty (60) days; or (vii) If Tenant fails to cure within any applicable grace period any default by Tenant under any of the Collateral Agreements. B. Remedies. Upon a default, Landlord shall have the following -------- remedies, in addition to all other rights and remedies provided by law or otherwise provided in this Lease, to which Landlord may resort cumulatively or in the alternative: (i) Landlord may continue this Lease in full force and effect, and this Lease shall continue in full force and effect as long as Landlord does not terminate this Lease, and Landlord shall have the right to collect Rent when due. Without limiting the foregoing, Landlord has the remedy set forth in Section 1951.4 of the California Civil Code. (ii) Landlord may terminate Tenant's right to possession of the Premises at any time by giving written notice to that effect, and relet the Premises or any part thereof. Tenant shall be liable immediately to Landlord for all costs Landlord incurs in reletting the Premises or any part thereof, 57 including, without limitation, broker's commissions, expenses of cleaning and redecorating the Premises required by the reletting and like costs. Reletting may be for a period shorter or longer than the remaining Term of this Lease. No act by Landlord other than giving written notice of termination to Tenant shall terminate this Lease. Neither acts of maintenance, nor efforts to relet the Premises, nor the appointment of a receiver on Landlord's initiative to protect Landlord's interest under this Lease shall not constitute a termination of Tenant's right to possession. On termination, Landlord has the right to remove all Tenant's Personal Property and store the same at Tenant's sole cost and expense and to recover from Tenant as damages: (a) The worth at the time of award of the unpaid Rent and other sums due and payable which had been earned at the time of termination; plus (b) The worth at the time of award of the amount by which the unpaid Rent and other sums due and payable which would have been payable after termination until the time of award exceeds the amount of such Rent loss that Tenant proves could have been reasonably avoided; plus (c) The worth at the time of award of the amount by which the unpaid rent and other sums due and payable for the balance of the Term after the time of award exceeds the amount of such Rent loss that Tenant proves could be reasonably avoided; plus (d) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform Tenant's obligations under this Lease, or which, in the ordinary course of things, would be likely to result therefrom, including, without limitation, any costs or expenses incurred by Landlord: (i) in retaking possession of the Premises; (ii) in maintaining, repairing, preserving, restoring, replacing, cleaning, altering or rehabilitating the Premises or any portion thereof, including such acts for reletting to a new tenant or tenants; (iii) for leasing commissions; or (iv) for any other costs necessary or appropriate to relet the Premises; plus (e) At Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by the laws of the State of California. The "worth at the time of award" of the amounts referred to in Paragraphs 26.B.(ii)(a) and 26.B.(ii)(b) is computed by allowing interest at the - ----------------------- ------------ Interest Rate on the unpaid rent and other sums due and payable from the termination date through the date of award. The "worth at the time of award" of the amount referred to in Paragraph 26.B.(ii)(c) is computed by ---------------------- 58 discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). Tenant waives redemption or relief from forfeiture under California Code of Civil Procedure Sections 1174 and 1179, or under any other present or future law, in the event Tenant is evicted or Landlord takes possession of the Premises by reason of any default of Tenant hereunder. (iii) Landlord may, with or without terminating this Lease, re- enter the Premises and remove all persons and property from the Premises; such property may be removed and stored in a public warehouse or elsewhere at the cost of and for the account of Tenant. No reentry or taking possession of the Premises by Landlord pursuant to this Paragraph 26.B.(iii) shall be construed as -------------------- an election to terminate this Lease unless a written notice of such intention is given to Tenant . C. Landlord's Default. Landlord shall not be deemed to be in default ------------------ in the performance of any obligation required to be performed by it hereunder unless and until it has failed to perform such obligation within thirty (30) days after receipt of written notice by Tenant to Landlord specifying the nature of such default; provided, however, that if the nature of Landlord's obligation is such that more than thirty (30) days are required for its performance, then Landlord shall not be deemed to be in default if it shall commence such performance within such 30-day period and thereafter diligently prosecute the same to completion. 27. Subordination. ------------- A. Subordination. This Lease is or may become subject and ------------- subordinate to underlying leases, mortgages, deeds of trust, easements, and CC&Rs (collectively, "Encumbrances") which may now or hereafter affect the ------------ Premises, and to all renewals, amendments, modifications, consolidations, replacements and extensions thereof; provided, however, if the holder or holders of any such Encumbrance (collectively, "Holder") shall require that this Lease ------ be prior and superior thereto, within fifteen (15) days of written request of Landlord to Tenant, Tenant shall execute, have acknowledged and deliver any and all documents or instruments, in the form presented to Tenant, which Landlord or Holder deems reasonably necessary or desirable for such purposes. Subject to Paragraph 27.C below, Landlord shall have the right to cause this Lease to be - -------------- and become and remain subject and subordinate to any and all Encumbrances which are now or may hereafter be executed covering the Premises or any renewals, modifications, consolidations, replacements or extensions thereof, for the full amount of all advances made or to be made thereunder and without regard to the time or character of such advances, together with interest thereon and subject to all the terms and provisions thereof; provided only, that in the event of 59 termination of any such lease or upon the foreclosure of any such mortgage or deed of trust, so long as Tenant is not in default, Holder agrees to recognize Tenant's rights under this Lease as long as Tenant shall pay the Rent and observe and perform all the provisions of this Lease to be observed and performed by Tenant. Within fifteen (15) days after Landlord's written request, Tenant shall execute any and all documents reasonably required by Landlord or the Holder to make this Lease subordinate to any lien of the Encumbrance (including, without limitation, subordination to all CC&Rs), including without limitation a Subordination, Non-Disturbance and Attornment Agreement in the form attached hereto as Exhibit G ("SNDA"). Subject to Paragraph 27.C below, if --------- -------------- Tenant fails to do so, such failure shall constitute a default under this Lease, and it shall be deemed that this Lease is subordinated to such Encumbrance. B. Attornment. Notwithstanding anything to the contrary set forth in ---------- this Paragraph 27, Tenant hereby attorns and agrees to attorn to any entity ------------ purchasing or otherwise acquiring the Premises at any sale or other proceeding or pursuant to the exercise of any other rights, powers or remedies under such Encumbrance; provided only, that so long as Tenant is not in default, any such purchasing or acquiring entity agrees to recognize Tenant's rights under this Lease as long as Tenant shall pay the Rent and observe and perform all the provisions of this Lease to be observed and performed by Tenant. C. Non-Disturbance. Notwithstanding anything to the contrary in this --------------- Lease, if an Encumbrance, other than any CC&R's, is created after the execution of this Lease, as a condition to the subordination of this Lease thereto under Paragraph 27.A above, Landlord shall obtain from the Holder of such Encumbrance, - -------------- other than CC&R's, a SNDA in a form reasonably requested by such Holder. Without in any way limiting the type or form of SNDA that may be required by such Holder, Tenant hereby agrees that a SNDA in the form attached to this Lease as Exhibit G shall be reasonable. Only upon Landlord's delivery of a SNDA in --------- the form of Exhibit G or in a form reasonably requested by the Holder, shall --------- this Lease be automatically subject and subordinate to such Encumbrance, other than CC&R's. Within fifteen (15) days after full execution of this Lease, Landlord shall use reasonable efforts to provide Tenant with a SNDA in a form reasonably requested by each Holder of any Encumbrance in effect as of the date of this Lease. If Landlord fails to deliver the required SNDA(s) within the 15- day period, then, as Tenant's sole and exclusive remedy, Tenant shall have the one-time right to terminate this Lease by giving Landlord a written notice of termination within three (3) business days after expiration of such 15-day period, upon which Landlord shall promptly return to Tenant any Rent paid in advance, the Security Deposit and any warrants delivered pursuant to the Warrant Agreement. If Tenant does not exercise such termination right within such 3- business 60 day period, then Tenant shall have no further right to terminate this Lease pursuant to this Paragraph 27.C and Tenant shall have no other rights or -------------- remedies with respect to Landlord's failure to deliver such SNDA(s). 28. Notices. ------- Any notice or demand required or desired to be given under this Lease shall be in writing and shall be personally served or in lieu of personal service may be given by certified mail, facsimile, or overnight courier service. All notices or demands under this Lease shall be deemed given, received, made or communicated on the date personal delivery is effected; or, if sent by certified mail, on the delivery date or attempted delivery date shown on the return receipt; or, if sent by facsimile, on the date sent by the sender; or, if sent by overnight courier service, on the delivery date or attempted delivery date shown on such service's records. At the date of execution of this Lease, the addresses of Landlord and Tenant are as set forth in Paragraph 1. After the ----------- Commencement Date, the address of Tenant shall be the address of the Premises. Either party may change its address by giving notice of same in accordance with this Paragraph 28. ------------ 29. Attorneys' Fees. --------------- If either party brings any action or legal proceeding for damages for an alleged breach of any provision of this Lease, to recover Rent, or other sums due, to terminate the tenancy of the Premises or to enforce, protect or establish any term, condition or covenant of this Lease or right of either party, the prevailing party shall be entitled to recover as a part of such action or proceedings, or in a separate action brought for that purpose, reasonable attorneys' fees and costs, including without limitation any and all costs and expenses arising from (i) collection efforts, (ii) any appellate proceedings, and (iii) any bankruptcy, insolvency or arbitration proceedings. 30. Estoppel Certificates. --------------------- Tenant shall within fifteen (15) days following written request by Landlord: (i) Execute and deliver to Landlord any documents, including estoppel certificates, in the form prepared by Landlord (a) certifying that this Lease is unmodified and in full force and effect or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect and the date to which the Rent and other charges are paid in advance, if any, and (b) acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord, or, if there are uncured defaults on the part 61 of the Landlord, stating the nature of such uncured defaults, (c) evidencing the status of the Lease as may be required either by a lender making a loan to Landlord to be secured by deed of trust or mortgage covering the Premises or a purchaser of the Premises from Landlord, and (d) such other matters as may be reasonably requested by Landlord. Tenant's failure to deliver an estoppel certificate within fifteen (15) days after delivery of Landlord's written request therefor shall be conclusive upon Tenant (a) that this Lease is in full force and effect, without modification except as may be represented by Landlord, (b) that there are now no uncured defaults in Landlord's performance, and (c) that no Rent has been paid in advance. If Tenant fails to so deliver a requested estoppel certificate within the prescribed time it shall be conclusively presumed that this Lease is unmodified and in full force and effect except as represented by Landlord. (ii) Deliver to Landlord the current financial statements of Tenant, and financial statements of the two (2) years prior to the current financial statements year, with an opinion of a certified public accountant, including a balance sheet and profit and loss statement for the most recent prior year, all prepared in accordance with generally accepted accounting principles consistently applied. 31. Transfer of the Premises by Landlord. ------------------------------------ In the event of any conveyance of the Premises and assignment by Landlord of this Lease, Landlord shall be and is hereby entirely released from all liability under any and all of its covenants and obligations contained in or derived from this Lease occurring after the date of such conveyance and assignment, and Tenant agrees to attorn to such transferee provided such transferee assumes Landlord's obligations under this Lease. 32. Landlord's Right to Perform Tenant's Covenants. ---------------------------------------------- If Tenant shall at any time fail to make any payment or perform any other act on its part to be made or performed under this Lease, and such failure shall continue after the expiration of any applicable grace or cure periods provided in this Lease, Landlord may, but shall not be obligated to (and without waiving or releasing Tenant from any obligation of Tenant under this Lease), make such payment or perform such other act to the extent Landlord may deem desirable, and in connection therewith, pay expenses and employ counsel. All sums so paid by Landlord and all penalties, interest, expenses and costs in connection therewith shall be due and payable by Tenant on the next day after any such payment by Landlord, together with interest thereon at the Interest Rate from such date to the date of payment by Tenant to Landlord, plus collection costs and 62 attorneys' fees. Landlord shall have the same rights and remedies for the nonpayment thereof as in the case of default in the payment of Rent. 33. Tenant's Remedy. --------------- Landlord shall never be personally liable under this Lease, and Tenant shall look solely to the net cash flow received by Landlord from its ownership of the Building, for recovery of any damages for breach of this Lease by Landlord or on any judgment in connection therewith. None of the persons or entities comprising or representing Landlord (whether partners, shareholders, officers, directors, trustees, employees, beneficiaries, agents or otherwise) shall ever be personally liable under this Lease or for any such damages or judgment, and Tenant shall have no right to effect any levy of execution against any assets of such persons or entities on account of any such liability or judgment. Any lien obtained by Tenant to enforce any such judgment, and any levy of execution thereon, shall be subject and subordinate to all Encumbrances as specified in Paragraph 27 above. ------------ 34. Mortgagee Protection. -------------------- If Landlord defaults under this Lease, Tenant shall give written notice of such default to any beneficiary of a deed of trust or mortgagee of a mortgage covering the Premises, and offer such beneficiary or mortgagee a reasonable opportunity to cure the default, including time to obtain possession of the Premises by power of sale or a judicial foreclosure, if such should prove necessary to effect a cure. 35. Brokers. ------- Landlord and Tenant acknowledge and agree that they have utilized the services of real estate brokers (with Colliers Parrish International and AMB Corporate Real Estate Advisors representing Tenant, and BT Commercial representing Landlord) with respect to the transactions between Landlord and Tenant that are represented by this Lease. Tenant warrants and represents that it has had no dealings with any other real estate broker or agent in connection with the negotiation of this Lease, and that it knows of no other real estate broker or agent who is or might be entitled to a commission in connection with this Lease. 36. Acceptance. ---------- This Lease shall only become effective and binding upon full execution hereof by Landlord and delivery of a signed copy to Tenant. Neither party shall record this Lease nor a short form memorandum thereof. 63 37. Parking. ------- Tenant shall have the non-exclusive right, in common with any other tenants or occupants of the Project, to use up to 3.33 unassigned parking spaces per each one thousand (1,000) square feet of Rentable Area in the Premises, upon terms and conditions, as may from time to time be reasonably established by Landlord. Should parking charges or surcharges of any kind be imposed on the parking facilities by a governmental agency, Tenant shall reimburse Landlord for such charges and/or surcharges or, if possible, shall pay such charges and/or surcharges directly to the governmental agency and, in such event, Tenant shall provide Landlord with proof that such charges and/or surcharges have been paid by Tenant. Parking on that portion of the Project cross-hatched on Exhibit C --------- shall be subject such reciprocal easement agreements affecting the such portion of the Project as Landlord may adopt from time to time. 38. INTENTIONALLY OMITTED 39. INTENTIONALLY OMITTED 40. Option to Purchase. ------------------ A. Option to Purchase Premises. Landlord shall use reasonable --------------------------- efforts to subdivide the Project so that the Building becomes situated on its own legal parcel (the "Broadway Parcel") separate and apart from any areas of --------------- the Project. If Landlord so creates the Broadway Parcel in a configuration acceptable to Landlord, then at any time prior to December 1, 1997, Tenant shall have the option to elect to acquire, on an all cash basis, in the manner set forth in Paragraph 40.B, fee title to the Broadway Parcel, together with the -------------- improvements situated thereon, including Landlord's interest in the Lease, for a purchase price of Twenty Million Three Hundred Twelve Thousand Dollars ($20,312,000.00). In order to elect to exercise its option to acquire the Broadway Parcel, Tenant shall deliver to Landlord, on or before December 1, 1997, a written notice setting forth Tenant's exercise of such option (the "Broadway Option Notice"). The Broadway Option Notice shall not be effective - ----------------------- unless the Broadway Option Notice includes the following: (i) immediately available funds in an amount equal to One Million Fifteen Thousand Six Hundred Dollars ($1,015,600.00) (the "Deposit"), and (ii) an original of the liquidated damage provision set forth in Exhibit H attached to this Lease, executed by --------- Tenant. The Deposit shall be held by the Title Company, defined in Exhibit H, --------- in an interest bearing account and shall constitute liquidated damages, and shall be paid to Landlord in the event Tenant fails to consummate the purchase of the Broadway Parcel in accordance with the terms of this Paragraph 40, other ------------ than as a direct result of Landlord's failure to perform its obligations under this Paragraph 40 or Exhibit H. Escrow for the sale of the ------------ --------- 64 Broadway Parcel to Tenant shall close sixty (60) days after Landlord's receipt of the Broadway Option Notice, or such other date as Landlord and Tenant shall mutually agree, but in no event later than January 31, 1998. Tenant's acquisition of the Broadway Parcel shall be subject to the provisions of Paragraph 40.B. If Tenant does not deliver the Broadway Option Notice to - -------------- Landlord on or before December 1, 1997, then Tenant's option to purchase the Broadway Parcel shall terminate and cease to be of any force or effect. All closing, title insurance and transfer costs, including applicable sales and transfer taxes, associated with Tenant's acquisition of the Broadway Parcel shall be paid by Landlord and Tenant in accordance with the custom in San Mateo County. B. Process. Should Tenant exercise its option to acquire the ------- Broadway Parcel within the applicable period of time set forth in this Paragraph --------- 40, Tenant's acquisition of the Broadway Parcel shall be carried out on (i) the - -- terms and conditions described in this Paragraph 40 (the "Agreed Terms"), and ------------ ------------ (ii) the terms and conditions set forth on Exhibit H attached to this Agreement --------- (the "Standard Terms"). To the extent there is any discrepancy between the -------------- Agreed Terms and the Standard Terms, the Agreed Terms shall be controlling. C. Option and Rights Personal. The option described in Paragraph -------------------------- --------- 40.A shall be personal to the Tenant originally named in this Lease, and shall - ---- not be assigned, sold, conveyed or otherwise transferred to any other party (including without limitation any assignee or sublessee of such Tenant) without the prior written consent of Landlord, which consent may be withheld in Landlord's sole discretion; provided, however, that the option described in Paragraph 40.A may be transferred to the transferee pursuant to a Permitted - -------------- Transfer without Landlord's consent. Tenant's rights under this Paragraph 40 ------------ shall be exercisable only so long as the Lease remains in full force and effect and shall be an interest appurtenant to and not separable from Tenant's estate under the Lease. Under no circumstances shall Landlord be required to pay any real estate commission to any party with respect to Tenant's exercise of the option described in Paragraph 40.A . -------------- 41. General. ------- A. Captions. The captions and headings used in this Lease are for -------- the purpose of convenience only and shall not be construed to limit or extend the meaning of any part of this Lease. B. Executed Copy. Any fully executed copy of this Lease shall be ------------- deemed an original for all purposes. 65 C. Time. Time is of the essence for the performance of each term, ---- condition and covenant of this Lease. D. Separability. If one or more of the provisions contained herein, ------------ except for the payment of Rent, is for any reason held invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this Lease, but this Lease shall be construed as if such invalid, illegal or unenforceable provision had not been contained herein. E. Choice of Law. This Lease shall be construed and enforced in ------------- accordance with the laws of the State of California. The language in all parts of this Lease shall in all cases be construed as a whole according to its fair meaning and not strictly for or against either Landlord or Tenant. F. Gender; Singular, Plural. When the context of this Lease ------------------------ requires, the neuter gender includes the masculine, the feminine, a partnership or corporation or joint venture, and the singular includes the plural. G. Binding Effect. The covenants and agreement contained in this -------------- Lease shall be binding on the parties hereto and on their respective successors and assigns to the extent this Lease is assignable. H. Waiver. The waiver by Landlord of any breach of any term, ------ condition or covenant, of this Lease shall not be deemed to be a waiver of such provision or any subsequent breach of the same or any other term, condition or covenant of this Lease. The subsequent acceptance of Rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach at the time of acceptance of such payment. No covenant, term or condition of this Lease shall be deemed to have been waived by Landlord unless such waiver is in writing signed by Landlord. I. Entire Agreement. This Lease is the entire agreement between the ---------------- parties, and there are no agreements or representations between the parties except as expressed herein. Except as otherwise provided herein, no subsequent change or addition to this Lease shall be binding unless in writing and signed by the parties hereto. J. Authority. If Tenant is a corporation or a partnership, each --------- individual executing this Lease on behalf of said corporation or partnership, as the case may be, represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of said entity in accordance with its corporate bylaws, statement of partnership or certificate of limited partnership, as the case may be, and that this Lease is 66 binding upon said entity in accordance with its terms. Landlord, at its option, may require a copy of such written authorization to enter into this Lease. K. Exhibits. All exhibits, amendments, riders and addenda attached -------- hereto are hereby incorporated herein and made a part hereof. L. Lease Summary. The Lease Summary attached to this Lease is ------------- intended to provide general information only. In the event of any inconsistency between the Lease Summary and the specific provisions of this Lease, the specific provisions of this Lease shall prevail. 67 THIS LEASE is effective as of the date the last signatory necessary to execute the Lease shall have executed this Lease. TENANT: Dated: ____________________ AT HOME CORPORATION, a Delaware corporation By: /s/ Kenneth A. Goldman ---------------------- Its: SVP Finance & CFO ------------------ By: ______________________ Its: _____________________ LANDLORD: Dated: ____________________ MARTIN/CAMPUS ASSOCIATES, L.P., a Delaware limited partnership By: Martin/Redwood Associates, partnership, its General Partner By: The Martin Group of Companies, Inc., a California corporation, its General Partner By: /s/ Michael A. Covarrubias -------------------------- Its: President --------- 68 EXHIBIT A --------- INITIAL PREMISES ---------------- EXHIBIT B --------- WORK LETTER AGREEMENT --------------------- THIS WORK LETTER ("Agreement") is made and entered into by and between Landlord and Tenant as of the date of the Lease. This Agreement shall be deemed a part of the Lease to which it is attached. Capitalized terms which are used herein and defined in the Lease shall have the meanings given in the Lease. 1. General. ------- 1.1. Capital Improvements. At Landlord's sole cost and expense, -------------------- Landlord shall do the following (collectively, the "Capital Improvements"): -------------------- . Remove all existing interior improvements in the Building including all existing restrooms (excluding existing stairs, elevator and the main fire sprinkler line). . Provide new HVAC equipment with sufficient capacity and performance to meet the needs of office users typical of the mid- Peninsula office market (not more than one (1) ton HVAC per 375 square feet of space). As part of the Capital Improvements, the supply and return ducting shall be run from the HVAC equipment on the roof to and from two (2) central locations on each floor (for a total of four (4) locations in the Building). All other ducting, distribution, and controls shall be part of Tenant Improvements. . Provide 3,000 amp. 480 volt electrical service to a main electrical panel to be located inside the Building, with capacity to provide power to the main HVAC equipment plus a total of seven (7) watts per square foot for lighting and power. All conduit, wiring devices, and controls downstream of the main panel shall be part of the Tenant Improvements. Conduit and wiring to the main HVAC equipment on the roof will be a Capital Improvement. . Remove window screens on exterior and place commercial quality solar film on windows. . Upgrade landscaping. . Repair and restripe parking areas adjacent to the Building and provide outside lighting. . Perform any exterior ADA and exterior code-related work required by the City of Redwood City in connection with the initial construction of the Premises. . Remove all interior asbestos except non-friable asbestos within the existing transite panel assembly, which shall remain in its current location. . Provide two (2) 4-inch conduits (sufficient to accommodate 1,200 pair copper telephone lines) to a telephone closet on the ground floor of the Building, at the end of the Building closest to the point of origin. . Repair all elements of the exterior shell of the Building as required by the City of Redwood City, including the roof, doors, curtain wall, sidewalks and exterior lighting. . perform seismic work to generally achieve the objectives described in the September 12, 1996 letter to Landlord from Cabak, Rooney & Associates, Landlord's seismic engineer. Except for its obligation to perform the Capital Improvements and the Tenant Improvements as set forth in this Lease and the Work Letter, Landlord shall have no obligation whatsoever to do any work or perform any improvements whatsoever to any portion of the Premises or the Building; provided, however, that the Tenant Improvements shall be performed at the sole cost and expense of Tenant. Landlord shall cause Contractor (as defined below) to perform all initial leasehold improvements, in accordance with the approved Final Plans and as otherwise may be required to comply with applicable law (collectively, the "Tenant Improvements"). The parties acknowledge and agree that the Capital - -------------------- Improvements and the Tenant Improvements constitute all of the work required to enable Tenant to occupy, and operate its business in, the Premises. Landlord shall consult with Tenant regarding solar film to be used in connection with such construction. In addition, if Landlord materially alters the current landscape, parking and lighting plans for the Project before the Commencement Date, then Landlord shall consult with Tenant regarding such modification, but Tenant shall have no approval rights regarding such modification. Before the date of this Lease, Landlord submitted to the City of Redwood City for approval plans for the construction of a portion of the Capital Improvements; such plans did not include any HVAC work or seismic work. 1.2. Tenant Improvement Costs. The cost of performing the Tenant ------------------------ Improvements, including without limitation the costs described in Paragraph 6 ----------- below (collectively, the "Tenant ------ Improvement Costs") shall be paid by Tenant in the manner set forth in Paragraph - ----------------- --------- 5 below. - - 1.3. Seismic. Landlord shall provide Tenant with copies of any ------- existing seismic analyses and evaluations of the Building for Tenant's information and review. Landlord hereby confirms to Tenant that to the best of Landlord's knowledge as of the date of the Lease, the foundation of the Building is currently in good condition and repair. 2. Approval of Plans for Tenant Improvements. ----------------------------------------- 2.1. Architect. Tenant has selected Studios Architects ("Architect") --------- --------- for the design and preparation of plans for the Tenant Improvements. Tenant shall retain Architect's administrative services throughout the performance of the Tenant Improvements. 2.2. Submittal of Plans. ------------------ 2.2.1. Preliminary Plans. Tenant shall cause Architect to prepare ----------------- preliminary plans (the "Preliminary Plans") for the Tenant Improvements to be ----------------- performed at the Premises. Tenant shall cause Architect to deliver the Preliminary Plans to Landlord on or before October 25 1996. Within five (5) days after Landlord's receipt of the Preliminary Plans, Landlord shall either approve or disapprove the Preliminary Plans, which approval shall not be unreasonably withheld. Failure of Landlord to approve or disapprove the Preliminary Plans within such five-day period shall constitute grounds for the assertion of a Landlord Delay, and Tenant shall have the right to deliver a Delay Notice to Landlord as early as two (2) business days before expiration of such 5-day period. If Landlord disapproves the Preliminary Plans, then Landlord shall state in reasonable detail the changes which Landlord requires to be made thereto. Tenant shall submit to Landlord revised Preliminary Plans within five (5) days after Tenant's receipt of Landlord's disapproval notice. Following Landlord's receipt of the revised Preliminary Plans from Tenant, Landlord shall have the right to review and approve the revised Preliminary Plans pursuant to this Paragraph 2.2.1. Landlord shall give Tenant written notice of its approval or - --------------- disapproval of the revised Preliminary Plans within five (5) days after the date of Landlord's receipt thereof. Failure of Landlord to approve or disapprove the Preliminary Plans within such five-day period shall constitute grounds for the assertion of a Landlord Delay, and Tenant shall have the right to deliver a Delay Notice to Landlord as early as two (2) business days before expiration of such 5-day period. If Landlord disapproves the revised Preliminary Plans, then Landlord and Tenant shall continue to follow the procedures set forth in this Paragraph 2.2.1 until Landlord and Tenant reasonably approve the Preliminary - --------------- Plans in accordance with this Paragraph 2.2.1. --------------- 2.2.2. Preliminary Budget. Landlord has retained Devcon ------------------ Construction ("Contractor") as the general contractor for the construction of ---------- the Tenant Improvements. Tenant shall have the right to approve the construction contract between Landlord and Contractor for the construction of the Tenant Improvements, which approval shall not be unreasonably withheld or delayed; provided, however, that Tenant shall have no right to disapprove such construction contract if such construction contract substantially conforms with the applicable AIA form contract and general conditions. Ten (10) days after approval by Landlord and Tenant of the Preliminary Plans, Contractor shall prepare a preliminary budget for the Tenant Improvements based upon the approved Preliminary Plans, which Contractor shall submit to Tenant for its review and approval. Within three (3) days after Tenant's receipt of the preliminary budget, Tenant shall either approve or disapprove the preliminary budget. If Tenant reasonably rejects such preliminary budget, Landlord shall, within five (5) days of Landlord's receipt of Tenant's written rejection notice, require Architect to revise the Preliminary Plans to reduce the cost of the Tenant Improvements. Following Landlord's instructions to the Architect, Landlord and Tenant shall again follow the procedures set forth in Paragraph 2.2.1 and this --------------- Paragraph 2.2.2 with respect to the approval of the Preliminary Plans and to the - --------------- submission and approval of the preliminary budget from Contractor. 2.2.3. Final Plans. Upon the earlier to occur of (i) ten (10) ----------- days after approval by Landlord and Tenant of the preliminary budget for the Tenant Improvements, or (ii) November 18, 1996, Tenant shall cause Architect to commence preparing complete plans, specifications and working drawings which incorporate and are consistent with the approved Preliminary Plans and preliminary budget, and which show in detail the intended design, construction and finishing of all portions of the Tenant Improvements described in the Preliminary Plans (collectively, the "Final Plans"). Tenant shall cause ----------- Architect to deliver the Final Plans to Landlord, for Landlord's review and approval, no later than December 6, 1996. Within five (5) days after Landlord's receipt of the Final Plans, Landlord shall either approve or disapprove the Final Plans, which approval shall not be unreasonably withheld. Landlord's failure to approve or disapprove the Final Plans within such five-day period shall constitute grounds for the assertion of a Landlord Delay, and Tenant shall have the right to deliver a Delay Notice to Landlord as early as two (2) business days before expiration of such 5-day period. If Landlord disapproves the Final Plans, then Landlord shall state in reasonable detail the changes which Landlord requires to be made thereto. Tenant shall submit to Landlord revised Final Plans within five (5) days after Tenant's receipt of Landlord's disapproval notice. Following Landlord's receipt of the revised Final Plans from Tenant, Landlord shall have the right to review and approve the revised Final Plans pursuant to this Paragraph 2.2.3. Landlord shall give Tenant --------------- written notice of its approval or disapproval of the revised Final Plans within five (5) days after the date of Landlord's receipt thereof. Landlord's failure to approve or disapprove the Final Plans within such five-day period shall constitute grounds for the assertion of a Landlord Delay, and Tenant shall have the right to deliver a Delay Notice to Landlord as early as two (2) business days before expiration of such 5-day period. If Landlord disapproves the revised Final Plans, then Landlord and Tenant shall continue to follow the procedures set forth in this Paragraph 2.2.3 until Landlord and Tenant --------------- reasonably approve such Final Plans in accordance with this Paragraph 2.2.3. --------------- 3. Construction Budget. Upon approval by Landlord and Tenant of the ------------------- Final Plans, Landlord shall instruct Contractor to obtain competitive bids for the Tenant Improvements from at least three (3) qualified subcontractors for each of the major subtrades (excluding the mechanical and electrical trades, which shall be on a design/build basis, unless Landlord elects to competitively bid these trades) and to submit the same to Landlord and Tenant for their review and approval. Upon selection of the subcontractors and approval of the bids, Contractor shall prepare a cost estimate for the Tenant Improvements described in such Final Plans, based upon the bids submitted by the subcontractors selected. Contractor shall submit such cost estimate to Landlord and Tenant for their review and approval. Landlord or Tenant may each approve or reject such cost estimate in their reasonable sole discretion. If either Landlord or Tenant rejects such cost estimate, Landlord shall resolicit bids based on such Final Plans, in accordance with the procedures specified above. Following any resolicitation of bids by Landlord pursuant to this Paragraph 3, Landlord and ----------- Tenant shall again follow the procedures set forth in this Paragraph 3 with ----------- respect to the submission and reasonable approval of the cost estimate from Contractor. 4. Landlord to Construct. Landlord shall cause Contractor to construct --------------------- the Tenant Improvements in a good and workmanlike manner, in accordance with the approved Final Plans and in compliance with all applicable laws. Architect shall be responsible for obtaining all necessary building permits and approvals and other authorizations from governmental agencies required in connection with the Tenant Improvements. The cost of all such permits and approvals, including inspection and other building fees required to obtain the permits for the Tenant Improvements, shall be included as part of the Tenant Improvement Costs. Tenant shall have the benefit of any warranties provided by Contractor, the subcontractors and suppliers in connection with the Tenant Improvements. 5. Payment for Tenant Improvements. The Tenant Improvement Costs shall ------------------------------- be paid solely by Tenant as follows: 5.1. Set-Aside Funds. Within five (5) days after the parties have --------------- mutually agreed upon the cost estimate for the Tenant Improvements pursuant to Paragraph 3 above, Tenant shall deposit into a separate account with any - ----------- financial institution designated by Landlord, in Tenant's name, subject to restrictions in favor of such financial institution, an amount (the "Set-Aside --------- Funds") equal to the Tenant Improvement Costs for the portion of the Tenant - ----- Improvements that Landlord then intends to commence, based on the assumption that the Tenant Improvement Costs shall equal such cost estimate. Landlord shall instruct such financial institution to hold the Set-Aside Funds in a separate interest-bearing account with interest to accrue for Tenant's account, and shall utilize the Set-Aside Funds to pay for the Tenant Improvement Costs in the manner set forth in this Paragraph 5. Before commencement of construction ----------- of any subsequent portion of the Tenant Improvements, Tenant shall deposit in such account an additional amount equal to the Tenant Improvement Cost for such subsequent Tenant Improvements. 5.2. Payment. As and when any Tenant Improvement Costs become due ------- and payable, Landlord shall request such financial institution to utilize the remaining Set-Aside Funds to pay such amounts; provided, however, that if at any time there are insufficient Set-Aside Funds to pay any amount of the Tenant Improvement Costs, Tenant shall pay any and all such Tenant Improvement Costs to Landlord within ten (10) days after the date of Tenant's receipt of Landlord's written request therefor. Any failure by Tenant to pay any Tenant Improvement Costs as and when required under this Agreement shall constitute a default by Tenant under the Lease. 5.3. Penalties. To the extent that any contractor or subcontractor --------- working on the Tenant Improvements imposes upon Landlord any penalty or late charge due to Tenant's failure to pay to Landlord any amount due under this Paragraph 5.3 as and when such amount is due, Tenant shall be solely responsible - ------------- for paying such penalty or late charge; provided, however, that if Tenant disputes the imposition of such penalty or late charge, Tenant shall not be required to pay the penalty or late charge until the dispute has been settled or otherwise resolved; provided further, that if any penalty or late charge is imposed due to Tenant's exercise of its rights under this Paragraph 5.3, Tenant ------------- shall pay such penalty or late charge as provided in this Paragraph 5.3. ------------- 6. Tenant Improvement Costs. The Tenant Improvement Costs shall include ------------------------ all reasonable costs incurred in connection with the Tenant Improvements (but not the Capital Improvements), as determined by Landlord in its reasonable discretion, including the following: (a) All costs of space plans and other architectural and engineering plans and specifications for the Tenant Improvements, including engineering costs associated with completion of the State of California energy utilization calculations under Title 24 legislation required in connection with the Tenant Improvements; (b) All costs of obtaining building permits and other necessary authorizations from the City of Redwood City; (c) All costs of interior design and finish schedule plans and specifications, including as-built drawings by Architect; (d) All direct and indirect costs of procuring, constructing and installing the Tenant Improvements in the Premises, including, but not limited to, the construction fee payable to the Contractor for overhead and profit, and the cost of all on-site supervisory and administrative staff, office, equipment and temporary services rendered by Contractor in connection with construction of the Tenant Improvements; (e) All fees payable to Architect and Landlord's engineering firm if they are required by Tenant to redesign any portion of the Tenant Improvements following Tenant's approval of the Final Plans; (f) Sewer connection fees (if any); (g) All costs of installing an emergency power supply systems in each of the Buildings, which emergency power supply shall include emergency HVAC for Tenant's computer rooms; (h) All direct and indirect construction costs associated with complying with Title 24 legislation and ADA compliance for all interior improvements (including the reconstruction of all restrooms); and (i) A construction management fee payable to Landlord equal to three percent (3%) of the total Tenant Improvement Costs. (Landlord shall either provide, or cause a third party to provide, construction management services in connection with the construction of the Tenant Improvements, and the foregoing fee shall be the sole compensation for such services). 7. Change Requests. No revisions to the approved Final Plans shall be --------------- made by either Landlord or Tenant unless approved in writing by both parties. Landlord agrees to make all changes (i) required by any public agency to conform with governmental regulations, or (ii) requested in writing by Tenant and approved in writing by Landlord, which approval shall not be unreasonably withheld. Any costs related to such changes shall be added to the Tenant Improvement Costs and shall be paid for in accordance with Paragraph 5. The ----------- billing for such additional costs shall be accompanied by evidence of the amounts billed as is customarily used in the business. Costs related to changes shall include, without limitation, any architectural, structural engineering, or design fees, and the Contractor's price for effecting the change. Any change order which may extend the date of substantial completion of the Tenant Improvements may be disapproved by Landlord unless Tenant agrees that for all purposes under this Lease, the Tenant Improvements shall be deemed to have been substantially completed on that date on which such Tenant Improvements would have been substantially completed without giving effect to the change order in question. 8. Early Access. So long as such entry does not in any way interfere ------------ with or delay Landlord's construction of the Improvements, Tenant shall have the right to enter the Premises before the Commencement Date for the purpose of installing cable T.V., telephones, telecommunications cabling, furniture and other similar items. Such entry shall be subject to all of the terms and conditions of the Lease, other than the obligation to pay Rent. LANDLORD: TENANT: MARTIN/CAMPUS ASSOCIATES, L.P., AT HOME CORPORATION, a Delaware limited partnership a Delaware corporation By: Martin/Redwood Associates, By: _________________________ L.P., a California limited Its: _________________________ partnership, its General Partner By: _________________________ By: The Martin Group of Its: _________________________ Companies, Inc., a California corporation, its General Partner By: ____________________ Its: ____________________ EXHIBIT C --------- SITE PLAN FOR PROJECT --------------------- EXHIBIT D --------- COMMENCEMENT DATE MEMORANDUM ---------------------------- LANDLORD: Martin/Campus Associates, L.P. TENANT: ___________________________ LEASE DATE: ___________________________ PREMISES: ___________________________________________ Pursuant to Paragraph 4.A. of the above referenced Lease, the commencement date -------------- is hereby established as _________________ for _______________________________, Redwood City, CA 94063. The Commencement Date as defined in Paragraph 4.A shall ------------- be __________________. TENANT: Dated____________________ AT HOME CORPORATION, a Delaware corporation By: __________________________ Its: __________________________ By: __________________________ Its: __________________________ LANDLORD: Dated_________________ MARTIN/CAMPUS ASSOCIATES, L.P., a Delaware limited partnership By: Martin/Redwood Associates, partnership, its General By: The Martin Group of Companies, Inc., a California corporation, its General Partner By: ____________________ Its: ____________________ EXHIBIT E --------- FLOOR PLAN OF EARLY OCCUPANCY PREMISES -------------------------------------- EXHIBIT F --------- SEARS SITE ---------- EXHIBIT G --------- SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT EXHIBIT H --------- STANDARD TERMS FOR OPTION TO PURCHASE ------------------------------------- This Exhibit H sets forth certain standard terms that shall be --------- applicable to the purchase of the Broadway Parcel pursuant Paragraph 40 of the ------------ Lease. This Exhibit shall be deemed a part of the Lease to which it is attached. Capitalized terms which are used herein and defined in the Lease shall have the meanings given in the Lease. 1. Sale and Purchase; Title Company. -------------------------------- 1.1. General. In the event Tenant acquires the Broadway Parcel ------- (the "Option Property"), Landlord shall sell to Tenant, and Tenant shall --------------- purchase from Landlord, all of the "Property" (as defined below). 1.2. The Property. As used in this Agreement, the term ------------ "Property" includes the Option Property and all of the items referred to in -------- Paragraphs 1.2.1 through 1.2.4. - ---------------- ----- 1.2.1. Personal Property. All of Landlord's right, title ----------------- and interest in and to any and all personal property located at the Option Property which is owned by Landlord and which is used in the operation and maintenance of the Option Property (the "Personal Property"). ----------------- 1.2.2. Rights and Privileges. All of Landlord's right, --------------------- title and interest, if any, in and to all rights, privileges, tenements, hereditaments, rights-of-way, easements, appurtenances, mineral rights, development rights, air rights and riparian or littoral rights belonging or appertaining to the Option Property. 1.2.3. Contracts and Leases. All of Landlord's right, -------------------- title and interest in and to (i) all service, maintenance, construction, management and other contracts relating to the Option Property (collectively, "Contracts"), and (ii) all leases, tenancy and occupancy agreements for all or --------- any portion of the Option Property (collectively, "Leases"). ------ 1.2.4. Permits and Warranties. All of Landlord's right, ---------------------- title and interest in and to (i) all licenses, permits and approvals, if any, affecting or pertaining to the Option Property which, if assignable, are to be assigned to Tenant at the Closing (as defined below), and (ii) all warranties, if any, affecting or pertaining to the Option Property which, if assignable, are to be assigned to Tenant at the Closing. 1.3. Title Company. The purchase and sale of the Property shall be ------------- accomplished through an escrow which Landlord has established or will establish with Chicago Title Insurance Company, One Kaiser Plaza, Oakland, California (the "Title Company"). ------------- 2. Title. Title to the Property shall be conveyed from Landlord to ----- Tenant by grant deed (the "Deed"), subject to: (i) liens to secure payment of ---- real estate taxes and assessments not delinquent; (ii) applicable zoning and use laws, ordinances, rules and regulations of any municipality, township, county, state or other governmental agency or authority; (iii) all matters that would be disclosed by a physical inspection or survey of the Option Property or that are actually known to Tenant; (iv) any exceptions or matters created by Tenant, its agents, employees or representatives; (v) all exceptions of record that were in existence as of the date of the Lease and all CC&Rs recorded by Landlord; (vi) all Leases and Contracts; and (vii) such other exceptions as Tenant may approve in writing. The foregoing exceptions to title are referred to collectively as the "Conditions of Title". Conclusive evidence of delivery of title in accordance ------------------- with the foregoing shall be the willingness of Title Company to issue to Tenant, upon payment of its regularly scheduled premium, its CLTA owner's policy of title insurance, in the amount of the Purchase Price, showing title to the Option Property vested of record in Tenant, subject only to the Conditions of Title (and the standard printed exceptions and conditions in the policy of title insurance). If Landlord for any reason is unable to deliver title to the Property subject only to the Conditions of Title, then Tenant's sole remedy shall be to terminate this Agreement and receive a return of any Deposit (but not the Option Deposit), and neither Landlord nor Tenant shall thereafter have any further rights or obligations under this Agreement, except Tenant's obligation to perform the Continuing Obligations (as defined below). Tenant shall have no right to commence any action for damages, specific performance or other relief as a result of Landlord's inability to deliver title to the Property subject only to the Conditions of Title; provided, however, that if Landlord intentionally fails to consummate the conveyance of the Option Property to Tenant in accordance with the terms of the Lease, then Tenant shall have the right to commence any actions for damages, specific performance or other relief as a result of Landlord's intentional breach. 3. Damage, Destruction or Taking. If at any time prior to the Closing, ----------------------------- Landlord determines that the Option Property has been destroyed or damaged by earthquake, flood or other casualty and that such damage will require more than One Million Dollars ($1,000,000.00) to repair (a "Casualty"), or if a -------- proceeding is instituted for the taking of all or any material portion of the Option Property under the power of eminent domain (a "Taking"), then Tenant ------ shall have the right by giving written notice to Landlord and Title Company within fifteen (15) days after the date of receipt of written notice of any such Casualty or Taking, either to: (i) consummate the purchase of the Property in accordance with the Lease, in which event Landlord shall assign to Tenant at the Closing (A) any insurance proceeds payable to Landlord on account of such Casualty, or (B) any award payable to Landlord by reason of the Taking, as the case may be; or (ii) terminate Landlord's obligations under Paragraph 40 of the Lease and this Exhibit H, effective as of the date such notice of termination is given. If Tenant fails to give such notice within such 15-day period, then Tenant shall be deemed to have elected to terminate Landlord's obligations under Paragraph 40 of the Lease and this Exhibit H, pursuant to this Paragraph 3. The Closing Date shall be --------- ----------- deferred, if necessary, to permit Tenant to have the 15-day period following receipt of notice of a Casualty or a Taking to make the election specified hereinabove. If Tenant terminates Landlord's obligations under Paragraph 40 of the Lease and this Exhibit H, pursuant to this Paragraph 3, then any Deposit --------- ----------- (but not the Option Deposit) shall be returned to Tenant, and neither Landlord nor Tenant shall have any further obligations under Paragraph 40 of the Lease or ------------ this Exhibit H. Nothing herein shall be deemed to constitute an obligation on --------- the part of Landlord to carry or maintain any insurance of any kind whatsoever pertaining to the Property. 4. Landlord's Disclaimer; Release and Indemnification of Landlord. -------------------------------------------------------------- 4.1. Landlord's Disclaimer. Tenant acknowledges and agrees that the --------------------- sale of the Property to Tenant is made without any warranty or representation of any kind by Landlord, either express or implied, with respect to any aspect, portion or component of the Property, including: (i) the physical condition, nature or quality of the Property, including the quality of the soils on and under the Property and the quality of the labor and materials included in any buildings or other improvements, fixtures, equipment or personal property comprising a portion of the Property; (ii) the fitness of the Property for any particular purpose; (iii) the presence or suspected presence of hazardous materials on, in, under or about the Property (including the soils and groundwater on and under the Property); or (iv) existing or proposed governmental laws or regulations applicable to the Property, or the further development or change in use thereof, including environmental laws and laws or regulations dealing with zoning or land use. Tenant further agrees and acknowledges that, as of the Closing, Tenant shall have made such feasibility studies, investigations, environmental studies, engineering studies, inquiries of governmental officials, and all other inquiries and investigations, which Tenant shall deem necessary to satisfy itself as to the condition, nature and quality of the Property and as to the suitability of the Property for Tenant's purposes. Tenant further agrees and acknowledges that, in purchasing the Property, Tenant shall rely entirely on its own investigation, examination and inspection of the Property, and not upon any representation or warranty of Landlord, or any agent or representative of Landlord. Tenant further agrees and acknowledges that Tenant has leased and occupied the Option Property prior to the Closing, by reason of such tenancy, possession and occupancy, Tenant is fully aware of the condition of the Option Property. THEREFORE, TENANT AGREES THAT, IN CONSUMMATING THE PURCHASE OF THE PROPERTY PURSUANT TO THIS LEASE, TENANT SHALL ACQUIRE THE PROPERTY IN ITS THEN CONDITION, "AS IS, WHERE IS" AND WITH ALL FAULTS, AND SOLELY IN RELIANCE ON TENANT'S OWN INVESTIGATION, EXAMINATION, INSPECTION, ANALYSIS AND EVALUATION OF THE PROPERTY. The agreements and acknowledgments contained in this Paragraph 4.1 constitute a conclusive admission that Tenant, ------------- as a sophisticated, knowledgeable investor in real property, shall acquire the Property solely upon its own judgment as to any matter germane to the Property or to Tenant's contemplated use of the Property, and not upon any statement, representation or warranty by Landlord, or any agent or representative of Landlord, which is not expressly set forth in this Agreement. At the Closing, upon the request of Landlord, Tenant shall execute and deliver to Landlord a certificate of Tenant reaffirming the foregoing. 4.2. Tenant's Release of Landlord. Tenant hereby waives, releases ---------------------------- and forever discharges Landlord and its officers, directors, employees and agents from any and all claims, actions, causes of action, demands, liabilities, damages, costs, expenses or compensation whatsoever, whether direct or indirect, known or unknown, foreseeable or unforeseeable, which Tenant may have at the Closing or which may arise in the future on account of or in any way arising out of or connected with the Property, including: (i) the physical condition, nature or quality of the Property (including the soils and groundwater on and under the Option Property); (ii) the presence or release in, under, on or about the Property (including the soils and groundwater on and under the Option Property) of any hazardous materials; and (iii) the ownership, management or operation of the Property, but excluding claims to the extent based on Landlord's fraud or intentional misrepresentation. At the Closing, upon the request of Landlord, Tenant shall deliver to Landlord a certificate of Tenant reaffirming the foregoing. Tenant hereby waives the protection of California Civil Code Paragraph 1542, which reads as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." Tenant's Initials: _______________________ 4.3. Tenant's Indemnification of Landlord. Tenant shall indemnify, ------------------------------------ defend, protect and hold Landlord harmless from and against any and all claims, actions, causes of action, demands, liabilities, damages, costs and expenses (including attorneys' fees), whether direct or indirect, known or unknown, foreseeable or unforeseeable, which may be asserted against or suffered by Landlord at any time after the Closing on account of or in any way arising out of or connected with the Property, including: (i) the physical condition, nature or quality of the Property (including the soils and groundwater on and under the Option Property); (ii) the presence or release in, under, on or about the Property (including the soils and groundwater on and under the Option Property) of any hazardous materials; and (iii) the ownership, management or operation of the Property, including any claim or demand by any tenant for the refund or return of any security deposit or other deposit, but excluding claims to the extent based on Landlord's fraud or intentional misrepresentation. At the Closing, upon the request of Landlord, Tenant shall deliver to Landlord a certificate reaffirming the foregoing. 4.4. Flood Hazard Zone. Tenant acknowledges that if the Option ----------------- Property is located in an area which the Secretary of HUD has found to have special flood hazards, then pursuant to the National Flood Insurance Program, Tenant will be required to purchase flood insurance in order to obtain any loan secured by the Option Property from any federally regulated financial institution or a loan insured or guaranteed by an agency of the United States government. Tenant shall have sole responsibility to determine whether the Option Property is located in an area which is subject to the National Flood Insurance Program. 4.5. Inspections. Subject to obtaining Landlord's prior written ----------- consent, which shall not be unreasonably withheld or delayed, Tenant shall have the right to conduct such inspections, investigations, borings, samplings and other tests of the Property that Tenant deems to be useful or necessary for the conduct of Tenant's due diligence in connection with the acquisition of the Property. Upon request by Tenant, Landlord shall make available to Tenant for inspection all material documents and reports in Landlord's possession relating to the condition of the Property. Tenant shall indemnify, defend, protect and hold Landlord harmless from and against any and all loss, cost, damage, injury, claim (including claims of lien for work or labor performed or materials or supplies furnished), liability or expense (including attorneys' fees) as a result of, arising out of, or in any way connected with the exercise of Tenant's (or its agents', contractors', employees' or authorized representatives') inspection rights pursuant to this Paragraph 4.5 or the performance of Tenant's ------------- due diligence. Tenant shall promptly repair any damage to the Property caused by its due diligence. 5. Closing. ------- 5.1. Closing. The transaction contemplated by this Exhibit H shall ------- --------- be consummated through escrow at the office of Title Company on the date described in Paragraph 5.1.1 below, or on such other date as shall be mutually --------------- agreed upon by Landlord and Tenant (each, a "Closing Date"). For purposes of ------------ this Exhibit H, the term "Closing" shall mean the consummation of the sale and --------- ------- conveyance of the Property to Tenant as evidenced by recordation of the Deed (as defined below). 5.1.1. Closing Dates. The Closing Date shall be no later than ------------- the date that is sixty (60) days after Landlord receives the Broadway Option Notice; provided, however, that the Closing Date shall in no event be later than January 31, 1998. 5.2. Landlord's Delivery Into Escrow. Landlord shall deliver the ------------------------------- following items into escrow: 5.2.1. Deed. The Deed, duly executed and acknowledged by ---- Landlord, except that the amount of any transfer tax shall not be shown on the Deed, but shall be set forth on a separate affidavit or instrument which, after recordation of the Deed, shall be attached thereto so that the amount of such transfer tax shall not be of record. 5.2.2. Other Documents. Such other documents or instruments as --------------- may be reasonably required to consummate this transaction in accordance with the terms and conditions herein contained, such as appropriate escrow instructions to Title Company. 5.3. Tenant's Delivery Into Escrow. Tenant shall deliver the ----------------------------- following items into escrow: 5.3.1. Cash. Immediately available funds in the following ---- amounts: (i) the balance of the Purchase Price, less the amount of the Deposit; (ii) such amount, if any, as is necessary for Tenant to pay Tenant's share of the closing costs and prorations specified in Paragraphs 5.5 and 5.6; and (iii) -------------- --- any other amounts required to close escrow in accordance with the terms of this Exhibit H. - --------- 5.3.2. Other Documents. Such other documents and instruments --------------- as may be reasonably required in order to consummate this transaction in accordance with the terms and conditions of this Exhibit H and the Lease, such --------- as appropriate escrow instructions to Title Company. 5.3.3. Evidence of Authorization. Such evidence as shall ------------------------- reasonably establish that Tenant's performance of its obligations under the Lease and this Exhibit H have been duly --------- authorized and that the person or persons executing all documents on behalf of Tenant have been duly authorized and empowered to do so. 5.4. Landlord's and Tenant's Joint Delivery Into Escrow. Landlord -------------------------------------------------- and Tenant jointly shall deliver the following items into escrow: 5.4.1. Assignment and Assumption Agreements. A document by ------------------------------------ which Landlord assigns to Tenant, and Tenant assumes, the Leases, Contracts, permits and warranties which will survive the Closing. 5.4.2. Other Documents. Such other documents and instruments --------------- as may be reasonably required to consummate this transaction in accordance with the terms and conditions of this Agreement. 5.5. Closing Prorations. At the Closing, all items of income and ------------------ expense of the Property shall be prorated as provided in this Paragraph 5.5 on ------------- the basis of a 360-day year, actual days elapsed for the month in which the Closing occurs, as of midnight on the day immediately preceding the Closing Date. Except as provided in this Paragraph 5.5, income and expenses ------------- attributable to the period prior to the Closing Date shall be for the account of Landlord, and income and expenses attributable to the period on and after the Closing Date shall be for the account of Tenant. Property taxes and assessments shall be prorated through escrow, and all other items of income and expense shall be prorated outside of escrow on the Closing Date by the parties. Without limiting the generality of the foregoing, the following items shall be prorated through escrow as described above: (a) Current rents collected by Landlord under the Leases. With respect to any rent receivables carried by Landlord under the Leases as of the Closing, Tenant shall pay Landlord full value in immediately available funds at the Closing and Landlord shall execute and deliver to Tenant at the Closing an assignment of all of Landlord's right, title and interest with respect thereto. (b) Amounts paid or payable in respect of the Contracts which Tenant assumes at the Closing. 5.6. Closing Costs. Landlord shall pay the following closing costs: ------------- (i) all fees and costs for releasing all encumbrances, liens and security interests of record which are not Conditions of Title; and (ii) county documentary or other transfer taxes payable upon recordation of the Deed. Tenant shall pay the following closing costs: (a) the premium for Tenant's policy of title insurance; (b) any and all costs, fees, title insurance premiums and other charges payable in connection with any financing obtained by Tenant to acquire the Property, including all escrow fees relating to the funding and/or recordation of such financing; and (c) all escrow fees. Each party shall pay one-half of any escrow cancellation fee charged by Title Company in connection with the purchase and sale of the Property in accordance with this Exhibit H. All other closing costs --------- shall be paid by the parties in accordance with the custom then prevailing in San Mateo County. 5.7. Security Deposits. With respect to all Leases which are in ----------------- effect at the Closing, Landlord shall give Tenant at the Closing, through Escrow, a credit in the amount of all security deposits and other deposits then held by Landlord under such Leases. 5.8. Possession. Subject to the rights of tenants under the Leases, ---------- Landlord shall deliver exclusive possession of the Property to Tenant at the Closing. 5.9. Closing Procedure. Title Company shall close escrow when it is ----------------- in a position to: (i) pay to Landlord, in immediately available funds, the amount of the Purchase Price, as such amount may be increased or decreased as a result of the allocation of the closing costs and prorations as specified in Paragraphs 5.5 and 5.6 and Landlord's obligations with respect to security - -------------- --- deposits as specified in Paragraph 5.7; and (ii) issue to Tenant the policy of ------------- title insurance referred to in Paragraph 2. ----------- 5.10. Escrow. Upon delivery of the Broadway Option Notice, Tenant ------ and Landlord shall deposit an executed counterpart of this Exhibit H with the --------- Title Company and this Exhibit H shall serve as instructions to the Title --------- Company for consummation of the purchase and sale contemplated hereby. Landlord and Tenant shall execute such supplemental escrow instructions as may be appropriate to enable the Title Company to comply with the terms of this Exhibit ------- H, provided such supplemental escrow instructions are not in conflict with this - - Exhibit H. In the event of any conflict between the provisions of this Exhibit - --------- ------- H and any supplementary escrow instructions signed by Tenant and Landlord, the - - terms of this Exhibit H shall control. --------- 5.11. Compliance. The Title Company shall comply with all applicable ---------- federal, state and local reporting and withholding requirements relating to the close of the transactions contemplated herein. Without limiting the generality of the foregoing, to the extent the transactions contemplated by this Exhibit H --------- involve a real estate transaction within the purview of Section 6045 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), Title --------------------- Company shall have sole responsibility to comply with the requirements of Section 6045 of the Internal Revenue Code (and any similar requirements imposed by state or local law). For purposes of this Paragraph 5.11, Landlord's tax -------------- identification number is 94-3236971. Title Company shall hold Tenant, Landlord and their counsel free and harmless from and against any and all liability, claims, demands, damages and costs, including reasonable attorney's fees and other litigation expenses, arising or resulting from the failure or refusal of Title Company to comply with such reporting requirements. 6. Survival of Provisions. Notwithstanding any other provision of ---------------------- this Exhibit H to the contrary, each representation, warranty, covenant or --------- agreement contained in this Exhibit H (including Tenant's obligations pursuant --------- to Paragraph 4.3) shall survive and be binding and enforceable following the ------------- Closing and shall not be deemed to be merged into, or waived by delivery or recordation of, the Deed or any other instruments delivered at the Closing. 7. Exchange. At the option of either party, such party may elect to -------- consummate the transaction hereunder in whole or in part as a like-kind exchange pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended. If either party (the "Exchanging Party") so elects, the other party (the ---------------- "Cooperating Party") shall cooperate with the Exchanging Party, executing such - ------------------ documents and taking such action as may be reasonably necessary in order to effectuate this transaction as a like-kind exchange; provided, however, that (i) the Cooperating Party's cooperation hereunder shall be without cost, expense or liability to the Cooperating Party of any kind or character, including, without limitation, any attorneys' fees, costs or expense incurred in connection with the review or preparation of documentation in order to effectuate such like-kind exchange, and the Cooperating Party shall have no obligation to take title to any real property; (ii) the Exchanging Party shall assume all risks in connection with the designation, selection and setting of terms of the purchase or sale of any exchange property; (iii) the Exchanging Party shall bear all costs and expenses in connection with any such exchange transaction in excess of the costs and expenses which would have otherwise been incurred in acquiring or selling the Property by means of a straight purchase, so that the net effect to the Cooperating Party shall be identical to that which would have resulted had this Exhibit H closed on a purchase and sale; (iv) any documents to effectuate --------- such exchange transaction are consistent with the terms and conditions contained in this Exhibit H; and (v) the Exchanging Party shall indemnify, defend and hold --------- the Cooperating Party harmless from any and all claims, demands, penalties, loss, causes of action, suits, risks, liability, costs or expenses of any kind or nature (including, without limitation, reasonable attorneys' fees) which the Cooperating Party may incur or sustain, directly or indirectly, related to or in connection with, or arising out of, the consummation of this transaction as a like-kind exchange as contemplated hereunder. 8. Liquidated Damages. TENANT ACKNOWLEDGES THAT THE CLOSING OF THE ------------------ SALE OF THE PROPERTY TO TENANT, ON THE TERMS AND CONDITIONS AND WITHIN THE TIME PERIOD SET FORTH IN THIS EXHIBIT H AND THE LEASE, IS MATERIAL TO LANDLORD. TENANT ALSO ACKNOWLEDGES THAT SUBSTANTIAL DAMAGES WILL BE SUFFERED BY LANDLORD IF SUCH TRANSACTION IS NOT SO CONSUMMATED DUE TO TENANT'S DEFAULT. TENANT FURTHER ACKNOWLEDGES THAT, AS OF THE DATE OF TENANT'S DELIVERY OF THE BROADWAY OPTION NOTICE, LANDLORD'S DAMAGES WOULD BE EXTREMELY DIFFICULT OR IMPOSSIBLE TO COMPUTE IN LIGHT OF THE UNPREDICTABLE STATE OF THE ECONOMY AND OF GOVERNMENTAL REGULATIONS, THE FLUCTUATING MARKET FOR REAL ESTATE AND REAL ESTATE LOANS OF ALL TYPES, AND OTHER FACTORS WHICH DIRECTLY AFFECT THE VALUE AND MARKETABILITY OF THE PROPERTY. IN LIGHT OF THE FOREGOING AND ALL OF THE OTHER FACTS AND CIRCUMSTANCES SURROUNDING THIS TRANSACTION, AND FOLLOWING NEGOTIATIONS BETWEEN THE PARTIES, TENANT AND LANDLORD AGREE THAT THE AMOUNT OF THE DEPOSIT REPRESENTS A REASONABLE ESTIMATE OF THE DAMAGES WHICH LANDLORD WOULD SUFFER BY REASON OF TENANT'S DEFAULT HEREUNDER. ACCORDINGLY, TENANT AND LANDLORD HEREBY AGREE THAT, IN THE EVENT OF SUCH DEFAULT BY TENANT, LANDLORD MAY TERMINATE ITS OBLIGATIONS UNDER PARAGRAPH 40 OF THE LEASE AND THIS EXHIBIT H BY GIVING NOTICE TO TENANT. IN THE EVENT OF SUCH TERMINATION, LANDLORD SHALL RETAIN THE DEPOSIT AS LIQUIDATED DAMAGES IN LIEU OF ANY OTHER CLAIM LANDLORD MAY HAVE AT LAW OR IN EQUITY (INCLUDING, WITHOUT LIMITATION, SPECIFIC PERFORMANCE) ARISING BY REASON OF TENANT'S FAILURE TO PURCHASE THE PROPERTY PURSUANT TO THIS EXHIBIT H. LANDLORD'S RETENTION OF THE DEPOSIT PURSUANT TO THIS PARAGRAPH 8 SHALL IN NO WAY LIMIT ANY OF LANDLORD'S RIGHTS OR REMEDIES UNDER THE LEASE WITH RESPECT TO ANY DEFAULT BY TENANT UNDER THE LEASE. THE PARTIES HAVE INITIALED THIS PARAGRAPH 8 ----------- TO ESTABLISH THEIR INTENT SO TO LIQUIDATE DAMAGES. NOTWITHSTANDING THE FOREGOING, NOTHING CONTAINED IN THIS PARAGRAPH 8 SHALL BE DEEMED TO LIMIT: (i) ----------- TENANT'S OBLIGATIONS UNDER THE LEASE; OR (ii) TENANT'S INDEMNIFICATION OBLIGATIONS CONTAINED IN THIS EXHIBIT H. Landlord's Tenant's Initials: /s/ MAC Initials: /s/ KAG ------- ------- TENANT: Dated____________________ AT HOME CORPORATION, a Delaware corporation By: /s/ Kenneth A. Goldman -------------------------- Its: CFO ------------------------- By: __________________________ Its: __________________________ LANDLORD: Dated 10/24/96 MARTIN/CAMPUS ASSOCIATES, L.P., ----------- a Delaware limited partnership By: Martin/Redwood Associates, By: The Martin Group of Companies, Inc., a California corporation, its General Partner By: /s/ Michael A.Covarrubias ------------------------- Its: President ---------------------- EX-10.09 18 FORM OF IDEMNIFICATION AGREEMENT EXHIBIT 10.09 INDEMNIFICATION AGREEMENT This Agreement, made and entered into this ___ day of ________________, 1996 ("Agreement"), by and between At Home Corporation, a Delaware corporation ("Company"), and _____________________________ ("Indemnitee"): WHEREAS, highly competent persons have become more reluctant to serve privately- and publicly-held corporations as directors or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation; and WHEREAS, directors, officers, and other persons in service to corporations or business enterprises are being increasingly subjected to expensive and time- consuming litigation relating to, among other things, matters that traditionally would have been brought only against the Company or business enterprise itself; and WHEREAS, the uncertainties relating to such insurance and to indemnification have increased the difficulty of attracting and retaining such persons; and WHEREAS, the Board of Directors of the Company (the "Board") has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Company's stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future; and WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify such persons to the fullest extent permitted by applicable law so that they will service or continue to serve the Company free from undue concern that they will not be so indemnified; and WHEREAS, this Agreement is a supplement to and in furtherance of the Certificate of Incorporation and the Bylaws of the Company and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder; and WHEREAS, the Certificate of Incorporation, the Bylaws and the Delaware director indemnification statute each is nonexclusive, and therefore each contemplates that contracts may be entered into with respect to indemnification of directors, officers and employees; and WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified; and WHEREAS, Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he be so indemnified; NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows: Section 1. Services by Indemnitee. Indemnitee agrees to serve and/or ---------------------- continue to serve as a director, officer, employee and/or agent of the Company and, and at the request of the Company, as a director, officer, employee, agent and/or fiduciary of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise. Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or any obligation imposed by operation of law), in which event the Company shall have no obligation under this Agreement to continue Indemnitee in such position. This Agreement shall not be deemed an employment contract between the Company (or any of its subsidiaries) and Indemnitee. Indemnitee specifically acknowledges that Indemnitee's employment with the Company (or any of its subsidiaries), if any, is at will, and that Indemnitee may be discharged at any time for any reason, with or without cause, except as may be otherwise provided in any written employment contract between Indemnitee and the Company (or any of its subsidiaries), other applicable formal severance policies duly adopted by the Board, or, with respect to service as a director of the Company, by the Company's Certificate of Incorporation, Bylaws, and the General Corporation Law of the State of Delaware. The foregoing notwithstanding, this Agreement shall continue in force after Indemnitee has ceased to serve as an officer, director, employee and/or agent of the Company or as a director, officer, employee, agent and/or fiduciary of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise. Section 2. Indemnification - General. The Company shall indemnify, and ------------------------- advance Expenses (as hereinafter defined) to, Indemnitee (a) as provided in this Agreement and (b) (subject to the provisions of this Agreement) to the fullest extent permitted by applicable law in effect on the date hereof and as amended from time to time. The rights of Indemnitee provided under the preceding sentence shall include, but shall not be limited to, the rights set forth in the other Sections of this Agreement. Section 3. Proceedings Other Than Proceedings by or in the Right of the ------------------------------------------------------------ Company. Indemnitee shall be entitled to the rights of indemnification provided - ------- in this Section 3 if, by reason of his Corporate Status (as hereinafter defined), he is, or is threatened to be made, a party to or a participant in any threatened, pending, or completed Proceeding (as hereinafter defined), other than a Proceeding by or in the right of the Company. Pursuant to this Section 3, Indemnitee shall be indemnified against all Expenses, judgments, penalties, fines and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, penalties, fines and amounts paid in settlement) actually and reasonably incurred by him or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal Proceeding, had no reasonable cause to believe his conduct was unlawful. -2- Section 4. Proceedings by or in the Right of the Company. Indemnitee --------------------------------------------- shall be entitled to the rights of indemnification provided in this Section 4 if, by reason of his Corporate Status, he is, or is threatened to be made, a party to or a participant in any threatened, pending or completed Proceeding brought by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section, Indemnitee shall be indemnified against all Expenses (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses) actually and reasonably incurred by him or on his behalf in connection with such Proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company; provided, however, that, if applicable law so -------- ------- provides, no indemnification against such Expenses shall be made in respect of any claim, issue or matter in such Proceeding as to which Indemnitee shall have been adjudged to be liable to the Company unless and to the extent that the Court of Chancery of the State of Delaware, or the court in which such Proceeding shall have been brought or is pending, shall determine that such indemnification may be made. Section 5. Partial Indemnification. Notwithstanding any other provision ----------------------- of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a party to (or a participant in) and is successful, on the merits or otherwise, in defense of any Proceeding, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful in defense of such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter. If Indemnitee is entitled under any provision of this agreement to indemnification by the Company for some or a portion of the Expenses, judgments, penalties, fines and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, penalties, fines and amounts paid in settlement) actually and reasonably incurred by him or on his behalf in connection with such Proceeding or any claim, issue or matter therein, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion to which Indemnitee is entitled. Section 6. Indemnification for Additional Expenses. --------------------------------------- (a) The Company shall indemnify Indemnitee against any and all Expenses and, if requested by Indemnitee, shall (within twenty (20) business days of such request) advance such Expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for (i) indemnification or advance payment of Expenses by the Company under this Agreement or any other agreement or bylaw of the Company now or hereafter in effect; or (ii) recovery under any directors' and officers' liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance expense payment or insurance recovery, as the case may be. -3- (b) Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. Section 7. Advancement of Expenses. The Company shall advance all ----------------------- reasonable Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding within twenty (20) days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by an undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately be determined that Indemnitee is not entitled to be indemnified against such Expenses. Notwithstanding the foregoing, the obligation of the Company to advance Expenses pursuant to this Section 7 shall be subject to the condition that, if, when and to the extent that the Company determines that Indemnitee would not be permitted to be indemnified under applicable law, the Company shall be entitled to be reimbursed, within thirty (30) days of such determination, by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid; provided, however, that if Indemnitee has commenced or -------- ------- thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Company that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any advance of Expenses until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Section 8. Procedure for Determination of Entitlement to Indemnification. ------------------------------------------------------------- (a) To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board in writing that Indemnitee has requested indemnification. (b) Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 8(a) hereof, a determination, if required by applicable law, with respect to Indemnitee's entitlement thereto shall be made in the specific case: (i) if a Change in Control (as hereinafter defined) shall have occurred, by Independent Counsel (as hereinafter defined) in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee; or (ii) if a Change of Control shall not have occurred, (A) by a majority vote of the Disinterested Directors (as hereinafter defined), even though less than a quorum of the Board, or (B) if there are no such Disinterested Directors or, if such Disinterested Directors so direct, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee or (C) if so directed by the Board, by the stockholders of the Company; and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within seven -4- (7) business days after such determination. Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee's entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or expenses (including reasonable attorneys' fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee's entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom. (c) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 8(b) hereof, the Independent Counsel shall be selected as provided in this Section 8(c). If a Change of Control shall not have occurred, the Independent Counsel shall be selected by the Board of Directors, and the Company shall give written notice to Indemnitee advising him of the identity of the Independent Counsel so selected. If a Change of Control shall have occurred, the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board of Directors, in which event the preceding sentence shall apply), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within ten (10) days after such written notice of selection shall have been given, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection; provided, however, that -------- ------- such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of "Independent Counsel" as defined in Section 17 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit. If, within twenty (20) days after submission by Indemnitee of a written request for indemnification pursuant to Section 8(a) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition the Court of Chancery of the State of Delaware for resolution of any objection which shall have been made by the Company or Indemnitee to the other's selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the Court or by such other person as the Court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 8(b) hereof. The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in connection with acting pursuant to Section 8(b) hereof, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 8(c), regardless of the manner in which such Independent Counsel was selected or appointed. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 10(a)(iii) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing). -5- (d) The Company shall not be required to obtain the consent of Indemnitee to the settlement of any Proceeding which the Company has undertaken to defend if the Company assumes full and sole responsibility for such settlement and such settlement grants Indemnitee a complete and unqualified release in respect of the potential liability. The Company shall not be liable for any amount paid by Indemnitee in settlement of any Proceeding that is not defended by the Company, unless the Company has consented in writing to such settlement, which consent shall not be unreasonably withheld. (e) In the event the Company shall be obligated to advance the expenses for any Proceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, upon the delivery to Indemnitee of written notice of its election to do so. After delivery of such notice and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same Proceeding, provided that (a) Indemnitee shall have the right to employ his own counsel in any such proceeding at Indemnitee's expense; (b) Indemnitee shall have the right to employ his own counsel in connection with any such Proceeding, at the expense of the Company, if such counsel serves in a review, observer, advice and counseling capacity and does not otherwise materially control or participate in the defense of such Proceeding; and (c) if (i) the employment of counsel by Indemnitee has been previously authorized by the Company, (ii) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense or (iii) the Company shall not, in fact, have employed counsel to assume the defense of such Proceeding, then the reasonable fees and expenses of Indemnitee's counsel shall be at the expense of the Company. Section 9. Presumptions and Effect of Certain Proceedings. ---------------------------------------------- (a) In making a determination with respect to entitlement to indemnification or the advancement of expenses hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification or advancement of expenses under this Agreement if Indemnitee has submitted a request for indemnification or the advancement of expenses in accordance with Section 8(a) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption. Neither the failure of the Company (including the Board or independent legal counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including the Board or independent legal counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct. (b) If the person, persons or entity empowered or selected under Section 8 of this Agreement to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made -6- and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee's statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such 60-day period -------- ------- may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto; and provided, further, that the foregoing provisions of this Section -------- ------- 9(b) shall not apply (i) if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 8(b) of this Agreement and if (A) within fifteen (15) days after receipt by the Company of the request for such determination the Board of Directors has resolved to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within seventy-five (75) days after such receipt and such determination is made thereat, or (B) a special meeting of stockholders is called within fifteen (15) days after such receipt for the purpose of making such determination, such meeting is held for such purpose within sixty (60) days after having been so called and such determination is made thereat, or (C) a written consent of stockholders is solicited within fifteen (15) days after such receipt for the purpose of making such determination, and such consent is obtained within sixty (60) days after such solicitation, or (ii) if the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 8(b) of this Agreement. (c) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful. (d) For purposes of any determination of "good faith," Indemnitee shall be deemed to have acted in "good faith" if Indemnitee's action is based on the records or books of account of the Company or relevant enterprise, including financial statements, or on information supplied to Indemnitee by the officers of the Company or relevant enterprise in the course of their duties, or on the advice of legal counsel for the Company or relevant enterprise or on information or records given or reports made to the Company or relevant enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Company or relevant enterprise. The provisions of this Section 9(d) shall not be deemed to be exclusive or to limit in any way the other circumstances in which Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement. (e) The knowledge and/or actions, or failure to act, of any other director, officer, agent or employee of the Company or relevant enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement. -7- Section 10. Remedies of Indemnitee. ---------------------- (a) In the event that (i) a determination is made pursuant to Section 8 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 7 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 8(b) of this Agreement within ninety (90) days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 5 or 6 of this Agreement within twenty (20) days after receipt by the Company of a written request therefor, or (v) payment of indemnification is not made within seven (7) business days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication by the Court of Chancery of the State of Delaware of his entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within one hundred eighty (180) days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 10(a); provided, however, that the foregoing clause -------- ------- shall not apply in respect of a proceeding brought by Indemnitee to enforce his rights under Section 5 of this Agreement. (b) In the event that a determination shall have been made pursuant to Section 8(b) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 10 shall be conducted in all respects as a de novo trial, or -- ---- arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. If a Change of Control shall have occurred, in any judicial proceeding or arbitration commenced pursuant to this Section 10, the Company shall have the burden of proving that Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be. (c) If a determination shall have been made pursuant to Section 8(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 10, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee's statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law. (d) In the event that Indemnitee, pursuant to this Section 10, seeks a judicial adjudication of or an award in arbitration to enforce his rights under, or to recover damages for breach of, this Agreement, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company against, any and all expenses (of the types described in the definition of Expenses in Section 17 of this Agreement) actually and reasonably incurred by him in such judicial adjudication or arbitration, but only if he prevails therein. If it shall be determined in said judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the indemnification or advancement of expenses sought, the expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be appropriately prorated. -8- The Company shall indemnify Indemnitee against any and all Expenses and, if requested by Indemnitee, shall (within twenty (20) days after receipt by the Company of a written request therefor) advance such expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advance of Expenses from the Company under this Agreement or under any directors' and officers' liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of Expenses or insurance recovery, as the case may be. (e) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 10 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement. Section 11. Non-Exclusivity; Survival of Rights; Insurance; Subrogation. ----------------------------------------------------------- (a) The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Certificate of Incorporation, the Bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in the General Corporation Law of the State of Delaware, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded currently under the Company's Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy. (b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or agents of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person serves at the request of the Company, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, employee or agent under such policy or policies. (c) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights. -9- (d) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise. (e) The Company's obligation to indemnify or advance expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, employee, agent and/or fiduciary of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise. Section 12. Duration of Agreement. This Agreement shall continue until --------------------- and terminate upon the later of: (a) ten (10) years after the date that Indemnitee shall have ceased to serve as a director, officer, employee and/or agent of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which Indemnitee served at the request of the Company; or (b) the final termination of any Proceeding then pending in respect of which Indemnitee is granted rights of indemnification or advancement of expenses hereunder and of any proceeding commenced by Indemnitee pursuant to Section 10 of this Agreement relating thereto. This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of Indemnitee and his heirs, executors and administrators. Section 13. Severability. If any provision or provisions of this ------------ Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby. Section 14. Exception to Right of Indemnification or Advancement of ------------------------------------------------------- Expenses. Except as provided in Section 6(a) of this Agreement, Indemnitee - -------- shall not be entitled to indemnification or advancement of Expenses under this Agreement with respect to any Proceeding brought by Indemnitee (other than a Proceeding by Indemnitee to enforce his rights under this Agreement), or any claim therein prior to a Change in Control, unless the bringing of such Proceeding or making of such claim shall have been approved by the Board of Directors. Section 15. Identical Counterparts. This Agreement may be executed in one ---------------------- or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. -10- Section 16. Headings. The headings of the paragraphs of this Agreement -------- are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof. Section 17. Definitions. For purposes of this Agreement: ----------- (a) "Change in Control" means a change in control of the Company occurring after the Effective Date of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934, as amended (the "Act"), whether or not the Company is then subject to such reporting requirement; provided, however, that, -------- ------- without limitation, such a Change in Control shall be deemed to have occurred if after the Effective Date (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities without the prior approval of at least two-thirds of the members of the Board in office immediately prior to such person attaining such percentage interest; and provided, further, that a Change -------- ------- in Control shall not be deemed to occur as a result of a transfer of Company securities from a stockholder to any direct or indirect affiliate or general or limited partner of such stockholder; or (ii) there occurs a proxy contest, or the Company is a party to a merger, consolidation, sale of assets, plan of liquidation or other reorganization not approved by at least two-thirds of the members of the Board then in office, as a consequence of which members of the Board in office immediately prior to such transaction or event constitute less than a majority of the Board thereafter. (b) "Corporate Status" describes the status of a person who is or was a director, officer, employee, fiduciary or agent of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the request of the Company. (c) "Disinterested Director" means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee. (d) "Effective Date" means ______________, 1996. (e) "Expenses" shall include all reasonable attorneys' fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding. (f) "Independent Counsel" means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party, or (ii) any other party to the Proceeding giving rise to a claim for indemnification here- -11- under. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee's rights under this Agreement. The Company agrees to pay the reasonable fees of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. (g) "Proceeding" includes any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought by or in the right of the Corporation or otherwise and whether civil, criminal, administrative or investigative, in which Indemnitee was, is, may be or will be involved as a party or otherwise, by reason of the fact that Indemnitee is or was a director, officer, employee and/or agent of the Company, by reason of any action taken by him or of any inaction on his part while acting as director, officer, employee and/or agent of the Company, or by reason of the fact that he is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise; in each case whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification or advancement of expenses can be provided under this Agreement; except one (i) initiated by an Indemnitee pursuant to Section 10 of this Agreement to enforce his rights under this Agreement or (ii) pending on or before the Effective Date. Section 18. Enforcement. ----------- (a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director, officer, employee and/or agent of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director, officer, employee and/or agent of the Company. (b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof. Section 19. Modification and Waiver. No supplement, modification or ----------------------- amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. Section 20. Notice by Indemnitee. Indemnitee agrees promptly to notify -------------------- the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification or advancement of Expenses covered hereunder. The failure of Indemnitee to so -12- notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise. Section 21. Notices. All notices, requests, demands and other ------- communications hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, (ii) mailed by certified or registered mail, return receipt requested, with postage prepaid, on the third business day after the date on which it is so mailed, (iii) dispatched by recognized overnight courier with fees prepaid, on the first business day after dispatch or (iv) transmitted by facsimile (confirmed by first class mail), on the date of transmission: (a) If to Indemnitee, to the address and facsimile number listed on the signature page hereto. (b) If to the Company to: At Home Corporation 385 Ravendale Drive Mountain View, CA 94043 Facsimile: (415) 944-8500 Attention: David G. Pine, Esq. with a copy to: Fenwick & West LLP Two Palo Alto Square Suite 800 Palo Alto, CA 94306 Facsimile: (415) 494-1417 Attention: Gordon K. Davidson, Esq. or to such other address or facsimile number as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be. Section 22. Contribution. To the fullest extent permissible under ------------ applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s). -13- Section 23. Governing Law; Submission to Jurisdiction; Appointment of --------------------------------------------------------- Agent for Service of Process. This Agreement and the legal relations among the - ---------------------------- parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 10(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the "Delaware Court"), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) appoint, to the extent such party is not a resident of the State of Delaware, irrevocably RL&F Service Corp., One Rodney Square, 10th Floor, 10th and King Streets, Wilmington, Delaware 19801 as its agent in the State of Delaware as such party's agent for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or otherwise inconvenient forum. Section 24. Miscellaneous. Use of the masculine pronoun shall be deemed ------------- to include usage of the feminine pronoun where appropriate. -14- IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. ATTEST AT HOME CORPORATION By:___________________________ By:_________________________ Name: Name: Title: Title: INDEMNITEE ____________________________ Signature ____________________________ Print Name Address: ____________________________ ____________________________ ____________________________ Facsimile:( ) ---------------------------- -15- EX-10.10 19 REGISTRANT'S 1996 INCENTIVE STOCK OPTION PLAN EXHIBIT 10.10 AT HOME CORPORATION 1996 INCENTIVE STOCK OPTION PLAN -------------------------------- As Adopted January 12, 1996 and as amended May 16, 1996 1. PURPOSE. The purpose of this Plan is to provide incentives to attract, ------- retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, its Parent and Subsidiaries, by offering them an opportunity to participate in the Company's future performance through awards of Options. Capitalized terms not defined in the text of this Plan are defined in Section 21. This Plan is intended to be a written compensatory benefit plan within the meaning of Rule 701 promulgated under the Securities Act and is intended to comply with Section 25102(o) of the California Corporations Code. Any provision of this Plan which is inconsistent with Section 25102(o) shall, without further act or amendment by the Company or the Board, be reformed to comply with the requirements of Section 25102(o). 2. SHARES SUBJECT TO THIS PLAN. --------------------------- 2.1 Number of Shares Available. Subject to Sections 2.2 and 16, -------------------------- the total number of Shares reserved and available for grant and issuance pursuant to this Plan shall be 1,500,000 Shares. Subject to Sections 2.2 and 16, Shares that: (a) are subject to issuance upon exercise of an Option under this Plan but cease to be subject to such Option for any reason other than the purchase of such Shares upon exercise of such Option; or (b) are subject to an Option that otherwise terminates or expires without such Shares being issued, shall again be available for grant and issuance in connection with future grants of Options under this Plan. 2.2 Adjustment of Shares. In the event that the number of the -------------------- outstanding shares of the Company's Common Stock is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company without consideration, then (a) the number of Shares reserved for issuance under this Plan, and (b) the Exercise Prices of and number of Shares subject to outstanding Options shall be proportionately adjusted, subject to any required action by the Board or the shareholders of the Company and compliance with applicable securities laws; provided, however, that fractions of a Share shall -------- ------- not be issued but shall either be (i) replaced by a cash payment equal to the Fair Market Value of such fractional shares in lieu thereof, or (ii) rounded up to the nearest whole Share, as determined by the Committee. 3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted only ----------- to employees (including officers and directors who are also employees) of the Company or of a Parent or Subsidiary of the Company. All other Options may be granted to employees, officers, directors or consultants of the Company or any Parent or Subsidiary of the Company; provided such consultants render bona fide -------- services not in connection with the offer and sale of securities in a capital- raising transaction. A person may be granted more than one Option under this Plan. 4. ADMINISTRATION. -------------- 4.1 Committee Authority. This Plan shall be administered by the ------------------- Committee or the Board acting as the Committee. Subject to the general purposes, terms and conditions of -1- this Plan, and to the direction of the Board, the Committee shall have full power and authority to implement and carry out this Plan, including without limitation the authority to: (a) construe and interpret this Plan, any Stock Option Agreement and any other agreement or document executed pursuant to this Plan; (b) prescribe, amend and rescind rules and regulations relating to this Plan; (c) select persons to receive Options; (d) determine the form and terms of Options; (e) determine the number of Shares subject to Options; (f) determine whether Options will be granted singly, in combination, in tandem with, in replacement of, or as alternatives to, other Options under this Plan or any other incentive or compensation plan of the Company or any Parent or Subsidiary of the Company; (g) grant waivers of Plan or Option conditions; (h) determine the vesting, exercisability and payment terms of Options; (i) correct any defect, supply any omission, or reconcile any inconsistency in this Plan, any Option or any Stock Option Agreement; (j) determine whether an Option has vested or been earned; and (k) make all other determinations necessary or advisable for the administration of this Plan. 4.2 Committee Discretion. Any determination made by the Committee -------------------- with respect to any Option shall be made in its sole discretion at the time of grant of the Option or, unless in contravention of any express term of this Plan or Option, at any later time, and such determination shall be final and binding on the Company and all persons having an interest in any Option under this Plan. The Committee may delegate to one or more officers of the Company the authority to grant an Option under this Plan to Participants who are not Insiders of the Company. 4.3 Exchange Act Requirements. If the Company is subject to the ------------------------- Exchange Act, the Company will take appropriate steps to comply with the disinterested director requirements of Section 16(b) of the Exchange Act, including but not limited to, the appointment by the Board of a Committee consisting of not less than two persons (who are members of the Board), each of whom is a Disinterested Person. 5. OPTIONS. The Committee may grant Options to eligible persons and ------- shall determine whether such Options shall be Incentive Stock Options within the meaning of the Code ("ISOS") or Nonqualified Stock Options ("NQSOS"), the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may be exercised, and all other terms and conditions of the Option, subject to the following: -2- 5.1 Form of Option Grant. Each Option granted under this Plan -------------------- shall be evidenced by an option grant agreement which shall expressly identify the Option as an ISO or NQSO ("STOCK OPTION AGREEMENT"), and be in such form and contain such provisions (which need not be the same for each Participant) as the Committee shall from time to time approve, and which shall comply with and be subject to the terms and conditions of this Plan. 5.2 Date of Grant. The date of grant of an Option shall be the ------------- date on which the Committee makes the determination to grant such Option, unless otherwise specified by the Committee. The Stock Option Agreement and a copy of this Plan will be delivered to the Participant within a reasonable time after the granting of the Option. 5.3 Exercise Period. Options shall be exercisable within the times --------------- or upon or after the occurrence of the events determined by the Committee as set forth in the Stock Option Agreement; provided, however, that no Option shall be -------- ------- exercisable after the expiration of ten (10) years from the date such Option is granted; and provided further that no ISO granted to a person who directly or by -------- ------- attribution owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary of the Company ("TEN PERCENT SHAREHOLDER") shall be exercisable after the expiration of five (5) years from the date the Option is granted. The Committee also may provide for the exercise of Options to become exercisable at one time or from time to time, periodically or otherwise, in such number or percentage as the Committee determines. Subject to earlier termination of an Option as provided herein, each Participant shall have the right to exercise such Participant's Option at the rate of at least twenty percent (20%) per year over five (5) years from the date such Option is granted. 5.4 Exercise Price. The Exercise Price shall be determined by the -------------- Committee when the Option is granted and may be not less than 85% of the Fair Market Value of the Shares on the date of grant; provided that (i) the Exercise -------- Price of an ISO shall be not less than 100% of the Fair Market Value of the Shares on the date of grant and (ii) the Exercise Price of any Option granted to a Ten Percent Shareholder shall not be less than 110% of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased may be made in accordance with Section 6 of this Plan. 5.5 Method of Exercise. Options may be exercised only by delivery ------------------ to the Company of a written stock option exercise agreement (the "EXERCISE AGREEMENT") in a form approved by the Committee (which need not be the same for each Participant), stating the number of Shares being purchased, the restrictions imposed on the Shares, if any, and such representations and agreements regarding Participant's investment intent and access to information and other matters, if any, as may be required or desirable by the Company to comply with applicable securities laws, together with payment in full of the Exercise Price for the number of Shares being purchased in the manner permitted by the terms of such Option, as determined under Section 6.1. 5.6 Termination. Notwithstanding the exercise periods set forth in ----------- the Stock Option Agreement, subject to the provisions of Section 5.9, exercise of an Option shall be subject to the following: (a) If the Participant is Terminated for any reason except death or Disability, then Participant may exercise such Participant's Options (only to the extent -3- that such Options would have been exercisable upon the Termination Date) no later than three (3) months after the Termination Date (or such shorter time period not less than thirty (30) days as may be specified in the Stock Option Agreement), but in any event no later than the expiration date of the Options, provided, that once the Company is subject -------- to the reporting requirements of the Exchange Act, the Company may permit any Participant who is an executive officer of the Company within the meaning of Section 16(b) of the Exchange Act to exercise an Option up to seven (7) months after the Termination Date (but no later than the expiration date of the Option); provided, however, that any unexercised ISO that remains -------- ------- exercisable after three (3) months after the Termination Date shall be deemed a NQSO. (b) If the Participant is Terminated because of death or Disability (or the Participant dies within three months of such Termination), then Participant's Options may be exercised only to the extent that such Options would have been exercisable by Participant on the Termination Date and must be exercised by Participant (or Participant's legal representative or authorized assignee) no later than twelve (12) months after the Termination Date (or such shorter time period not less than six (6) months as may be specified in the Stock Option Agreement), but in any event no later than the expiration date of the Options; provided, -------- however, that in the event of Termination due to Disability other ------- than as defined in Section 22(e)(3) of the Code, any unexercised ISO that remains exercisable after three (3) months after the Termination Date shall be deemed a NQSO. 5.7 Limitations on Exercise. The Committee may specify a ----------------------- reasonable minimum number of Shares that may be purchased on any exercise of an Option, provided that such minimum number will not prevent Participant from -------- exercising the Option for the full number of Shares for which it is then exercisable. 5.8 Limitations on ISOs. The aggregate Fair Market Value ------------------- (determined as of the date of grant) of Shares with respect to which ISOs are exercisable for the first time by a Participant during any calendar year (under this Plan or under any other incentive stock option plan of the Company or any Parent or Subsidiary of the Company) shall not exceed $100,000. If the Fair Market Value of Shares on the date of grant with respect to which ISOs are exercisable for the first time by a Participant during any calendar year exceeds $100,000, then the Options for the first $100,000 worth of Shares to become exercisable in such calendar year shall be ISOs and the Options for the amount in excess of $100,000 that become exercisable in that calendar year shall be NQSOs. In the event that the Code or the regulations promulgated thereunder are amended after the Effective Date of this Plan to provide for a different limit on the Fair Market Value of Shares permitted to be subject to ISOs, then such different limit shall be automatically incorporated herein and shall apply to any Options granted after the effective date of such amendment. 5.9 Modification, Extension or Renewal. The Committee may modify, ---------------------------------- extend or renew outstanding Options and authorize the grant of new Options in substitution therefor, provided that any such action may not, without the -------- written consent of Participant, impair any of Participant's rights under any Option previously granted. Any outstanding ISO that is modified, -4- extended, renewed or otherwise altered shall be treated in accordance with Section 424(h) of the Code. The Committee may reduce the Exercise Price of outstanding Options without the consent of affected Participants by a written notice to them; provided, however, that the Exercise Price may not be reduced -------- ------- below the minimum Exercise Price that would be permitted under Section 5.4 of this Plan for Options granted on the date the action is taken to reduce the Exercise Price. 5.10 No Disqualification. Notwithstanding any other provision in ------------------- this Plan, no term of this Plan relating to ISOs shall be interpreted, amended or altered, nor shall any discretion or authority granted under this Plan be exercised, so as to disqualify this Plan under Section 422 of the Code or, without the consent of the affected Participants, to disqualify any ISO under Section 422 of the Code. 6. PAYMENT FOR SHARE PURCHASES. --------------------------- 6.1 Payment. Payment for Shares purchased upon exercise of an Option ------- pursuant to this Plan may be made in cash (by check) or, where expressly approved for the Participant by the Committee and where permitted by law: (a) by cancellation of indebtedness of the Company to the Participant; (b) by surrender of Shares that either: (1) have been owned by Participant for more than six (6) months and have been paid for within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such Shares); or (2) were obtained by Participant in the public market; (c) by tender of a full recourse promissory note having such terms as may be approved by the Committee and bearing interest at a rate sufficient to avoid imputation of income under Sections 483 and 1274 of the Code; provided, however, that Participants who are -------- ------- not employees of the Company shall not be entitled to purchase Shares with a promissory note unless the note is adequately secured by collateral other than the Shares; and provided -------- further, that the portion of the Purchase Price equal to the par ------- value of the Shares, if any, must be paid in cash; and provided -------- further, that the promissory note shall be secured as provided in ------- Section 12 of this Plan; (d) by waiver of compensation due or accrued to Participant for services rendered; (e) by tender of property; (f) provided that a public market for the Company's stock then -------- exists; (1) through a "same day sale" commitment from Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an "NASD DEALER") whereby the Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay for the Exercise Price, and whereby the -5- NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or (2) through a "margin" commitment from Participant and an NASD Dealer whereby Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the exercise price directly to the Company; or (g) by any combination of the foregoing. 6.2 Loan Guarantees. The Committee may help the Participant pay for --------------- Shares purchased under this Plan by authorizing a guarantee by the Company of a third-party loan to the Participant. 7. WITHHOLDING TAXES. ----------------- 7.1 Withholding Generally. Whenever Shares are to be issued upon the --------------------- exercise of Options granted under this Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares. Whenever, under this Plan, payments in satisfaction of Options are to be made in cash, such payment shall be net of an amount sufficient to satisfy federal, state, and local withholding tax requirements. 7.2 Stock Withholding. When, under applicable tax laws, a Participant ----------------- incurs tax liability in connection with the exercise or vesting of any Option or exercise of an Option that is subject to tax withholding and the Participant is obligated to pay the Company the amount required to be withheld, the Committee may allow the Participant to satisfy the minimum withholding tax obligation by electing to have the Company withhold from the Shares to be issued that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld, determined on the date that the amount of tax to be withheld is to be determined (the "TAX DATE"). All elections by a Participant to have Shares withheld for this purpose shall be made in writing in a form acceptable to the Committee and shall be subject to the following restrictions: (a) the election must be made on or prior to the applicable Tax Date; (b) once made, then except as provided below, the election shall be irrevocable as to the particular Shares as to which the election is made; (c) all elections shall be subject to the consent or disapproval of the Committee; (d) if the Participant is an Insider and if the Company is subject to Section 16(b) of the Exchange Act: (1) the election may not be made within six (6) months of the date of grant of the Option, except as otherwise permitted by SEC Rule 16b-3(e) under the Exchange Act, and (2) either (A) the election to use stock withholding must be irrevocably made at least -6- six (6) months prior to the Tax Date (although such election may be revoked at any time at least six (6) months prior to the Tax Date) or (B) the exercise of the Option or election to use stock withholding must be made in the ten (10) day period beginning on the third (3rd) day following the release of the Company's quarterly or annual summary statement of sales or earnings; and (e) in the event that the Tax Date is deferred until six (6) months after the delivery of Shares under Section 83(b) of the Code, the Participant shall receive the full number of Shares with respect to which the exercise occurs, but such Participant shall be unconditionally obligated to tender back to the Company the proper number of Shares on the Tax Date. 8. PRIVILEGES OF STOCK OWNERSHIP. ----------------------------- 8.1 Voting and Dividends. No Participant shall have any of the -------------------- rights of a shareholder with respect to any Shares until the Shares are issued to the Participant. After Shares are issued to the Participant, the Participant shall be a shareholder and have all the rights of a shareholder with respect to such Shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares; provided, that if such -------- Shares are subject to repurchase restrictions or other restrictions ("RESTRICTED STOCK"), then any new, additional or different securities the Participant may become entitled to receive with respect to such Shares by virtue of a stock dividend, stock split or any other change in the corporate or capital structure of the Company shall be subject to the same restrictions as the Restricted Stock; provided, further, that the Participant shall have no right to retain -------- ------- such stock dividends or stock distributions with respect to Shares that are repurchased at the Participant's original Purchase Price pursuant to Section 10. 8.2 Financial Statements. The Company shall provide fiscal year end -------------------- financial statements to each Participant prior to such Participant's purchase of Shares under this Plan, and to each Participant annually during the period such Participant has Options outstanding; provided, however, the Company shall not be -------- ------- required to provide such financial statements to Participants whose services in connection with the Company assure them access to equivalent information. 9. TRANSFERABILITY. Options granted under this Plan, and any interest --------------- therein, shall not be transferable or assignable by Participant, and may not be made subject to execution, attachment or similar process, otherwise than by will or by the laws of descent and distribution. During the lifetime of the Participant an Option shall be exercisable only by the Participant who holds such Option, and any elections with respect to an Option, may be made only by the Participant who holds such Option. 10. RESTRICTIONS ON SHARES. At the discretion of the Committee, the ---------------------- Company may reserve to itself and/or its assignee(s) in the Stock Option Agreement (a) a right of first refusal to purchase all Shares that a Participant (or a subsequent transferee) may propose to transfer to a third party, and/or (b) a right to repurchase all Shares (or, with the consent of the Participant, a portion of the Shares) held by a Participant following such Participant's Termination at any time within ninety (90) days after Participant's Termination Date for cash or cancellation of purchase money indebtedness of Purchaser to the Company, at: (A) with respect -7- to Shares that are "Vested" (as defined in the Stock Option Agreement), the higher of: (l) the Participant's original Purchase Price, or (2) the Fair Market Value of such Shares on the Participant's Termination Date, provided such right -------- of repurchase terminates when the Company's securities become publicly traded; or (B) with respect to Shares that are not "Vested" (as defined in the Stock Option Agreement), at the Participant's original Purchase Price, provided, that -------- the right to repurchase at the original Purchase Price lapses at the rate of at least 20% per year over 5 years from the date the Shares were purchased. If such right of repurchase of Shares that are not "Vested" is assigned, the assignee must pay the Company upon assignment of the right (unless the assignee is a one hundred percent (100%) owned Subsidiary of the Company or is the Parent of the Company owning one hundred percent (100%) of the Company) cash equal to the difference between the Exercise Price and the Fair Market Value of the Shares, if the Exercise Price is less than the Fair Market Value of the Shares. 11. CERTIFICATES. All certificates for Shares or other securities ------------ delivered under this Plan shall be subject to such stock transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system upon which the Shares may be listed. 12. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a ------------------------ Participant's Shares, the Committee may require the Participant to deposit all certificates representing Shares, together with stock powers or other instruments of transfer approved by the Committee, appropriately endorsed in blank, with the Company or an officer or an agent designated by the Company to hold in escrow until such restrictions have lapsed or terminated, and the Committee may cause a legend or legends referencing such restrictions to be placed on the certificates. Any Participant who is permitted to execute a promissory note as partial or full consideration for the purchase of Shares under this Plan shall be required to pledge and deposit with the Company all or part of the Shares so purchased as collateral to secure the payment of Participant's obligation to the Company under the promissory note; provided, -------- however, that the Committee may require or accept other or additional forms of - ------- collateral to secure the payment of such obligation and, in any event, the Company shall have full recourse against the Participant under the promissory note notwithstanding any pledge of the Participant's Shares or other collateral. In connection with any pledge of the Shares, Participant shall be required to execute and deliver a written pledge agreement in such form as the Committee shall from time to time approve. The Shares purchased with the promissory note may be released from the pledge on a pro rata basis as the promissory note is paid. 13. EXCHANGE AND BUYOUT OF OPTIONS. The Committee may, at any time or ------------------------------ from time to time, authorize the Company, with the consent of the respective Participants, to issue new Options in exchange for the surrender and cancellation of any or all outstanding Options. The Committee may at any time buy from a Participant an Option previously granted with payment in cash, Shares (including Restricted Stock) or other consideration, based on such terms and conditions as the Committee and the Participant shall agree. 14. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Option shall not ---------------------------------------------- be effective unless such Option is granted by the Committee and is exercisable in compliance with all applicable federal and state securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed, as they are in effect on the date of grant of the Option -8- and also on the date of exercise or other issuance. Notwithstanding any other provision in this Plan, the Company shall have no obligation to issue or deliver certificates for Shares under this Plan prior to (a) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable, and/or (b) completion of any registration or other qualification of such Shares under any state or federal law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company shall be under no obligation to register the Shares with the SEC or to effect compliance with the registration, qualification or listing requirements of any state securities laws, stock exchange or automated quotation system, and the Company shall have no liability for any inability or failure to do so. 15. NO OBLIGATION TO EMPLOY. Nothing in this Plan or in any Option ----------------------- granted under this Plan shall confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Parent, Subsidiary of the Company or limit in any way the right of the Company or any Parent, or Subsidiary of the Company to terminate Participant's employment or other relationship at any time, with or without cause. 16. CORPORATE TRANSACTIONS. ---------------------- 16.1 Assumption or Replacement of Options by Successor. In the ------------------------------------------------- event of: (a) a merger or consolidation in which the Company is not the surviving corporation (other than (i) a merger or consolidation ----- ---- of the Company with a wholly-owned subsidiary, (ii) a reincorporation of the Company in a different jurisdiction or (iii) an other transaction in which there is no substantial change in the shareholders of the Company and their respective stockholdings in the successor corporation and the Options granted under this Plan are assumed or replaced by the successor corporation in a manner that is binding on all Participants); (b) a reverse triangular merger in which the Company survives but following which the shareholders of the Company (other than any ----- ---- shareholder that (i) merges with the Company in such reverse triangular merger or (ii) is an affiliate of another corporation that merges with the Company in such reverse triangular merger) cease to own their shares or other equity interests in the Company as a result of such merger; (c) a dissolution or liquidation of the Company; (d) the sale of substantially all of the assets of the Company; or (e) any other transaction which qualifies as a "corporate transaction" under Section 424(a) of the Code or regulations thereunder wherein the shareholders of the Company give up all of their equity interest in the Company, any or all outstanding Options may be assumed or replaced by the successor corporation (if any), which assumption or replacement shall be binding on all Participants. In the alternative, the successor corporation may substitute equivalent stock options or provide substantially similar consideration to Participants as was provided to shareholders (after taking into account the -9- existing provisions of the Options). The successor corporation may also issue, in place of outstanding Shares of the Company held by the Participant, substantially similar shares or other property subject to repurchase restrictions no less favorable to the Participant. If such successor corporation (if any) refuses to assume, replace or substitute Options as provided above pursuant to a transaction described in this Section 16.1, then such Options shall expire upon the consummation of such transaction at such time and on such conditions as the Board shall determine. 16.2 Other Treatment of Options. Subject to any greater rights -------------------------- granted to Participants under the foregoing provisions of this Section 16, in the event of the occurrence of any transaction described in Section 16.1, any outstanding Options shall be treated as provided in the applicable agreement or plan of merger, consolidation, dissolution, liquidation, sale of assets or other "corporate transaction." 16.3 Assumption of Options by the Company. The Company, from time to ------------------------------------ time, also may substitute or assume outstanding stock options granted by another company, whether in connection with an acquisition of such other company or otherwise, by either (a) granting an Option under this Plan in substitution of such other company's stock option, or (b) assuming such award as if it had been granted under this Plan if the terms of such assumed stock option could be applied to an Option granted under this Plan. Such substitution or assumption shall be permissible if the holder of the substituted or assumed stock option would have been eligible to be granted an Option under this Plan if the other company had applied the rules of this Plan to such grant. In the event the Company assumes a stock option granted by another company, the terms and conditions of such stock option shall remain unchanged (except that the exercise ------ price and the number and nature of Shares issuable upon exercise of any such option will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Option rather than assuming an existing stock option, such new Option may be granted with a similarly adjusted Exercise Price. 17. ADOPTION AND SHAREHOLDER APPROVAL. This Plan shall become effective --------------------------------- on the date that it is adopted by the Board (the "EFFECTIVE DATE"). This Plan shall be approved by the shareholders of the Company (excluding Shares issued pursuant to this Plan), consistent with applicable laws, within twelve months before or after the Effective Date. Upon the Effective Date, the Board may grant Options pursuant to this Plan; provided, however, that: (a) no Option may -------- ------- be exercised prior to initial shareholder approval of this Plan; and (b) in the event that shareholder approval is not obtained within the time period provided herein, all Options granted hereunder without such approval shall be canceled. After the Company becomes subject to Section 16(b) of the Exchange Act, the Company will comply with the requirements of Rule 16b-3 (or its successor), as amended, with respect to shareholder approval. 18. TERM OF PLAN. This Plan will terminate ten (10) years from the ------------ Effective Date or, if earlier, the date of initial shareholder approval of this Plan. 19. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate -------------------------------- or amend this Plan in any respect, including without limitation amendment of any form of Stock Option Agreement or instrument to be executed pursuant to this Plan; provided, however, that the Board shall not, without the approval of the -------- ------- shareholders of the Company, amend this Plan in any manner that requires such shareholder approval pursuant to the Code or -10- the regulations promulgated thereunder as such provisions apply to ISO plans or (if the Company is then subject to the Exchange Act) pursuant to the Exchange Act or Rule 16b-3 (or its successor), as amended, thereunder. 20. NONEXCLUSIVITY OF THIS PLAN. Neither the adoption of this Plan by the --------------------------- Board, the submission of this Plan to the shareholders of the Company for approval, nor any provision of this Plan shall be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options and bonuses otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in specific cases. 21. DEFINITIONS. As used in this Plan, the following terms shall have the ----------- following meanings: "BOARD" means the Board of Directors of the Company. "CODE" means the Internal Revenue Code of 1986, as amended. "COMMITTEE" means the committee of the Board appointed by the Board to administer this Plan, or if no such committee is appointed, the Board. "COMMON STOCK" means the Company's Series A Common Stock. "COMPANY" means At Home Corporation, a corporation organized under the laws of the State of Delaware, or any successor corporation. "DISABILITY" means a disability, whether temporary or permanent, partial or total, as determined by the Committee. "DISINTERESTED PERSON" means a director who has not, during the period that person is a member of the Committee and for one year prior to service as a member of the Committee, been granted or awarded equity securities pursuant to this Plan or any other plan of the Company or any Parent or Subsidiary of the Company, except in accordance with the requirements set forth in Rule 16b- 3(c)(2)(i) (and any successor regulation thereto) as promulgated by the SEC under Section 16(b) of the Exchange Act, as such rule is amended from time to time and as interpreted by the SEC. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXERCISE PRICE" means the price at which a holder of an Option may purchase the Shares issuable upon exercise of the Option. "FAIR MARKET VALUE" means, as of any date, the value of a share of the Company's Common Stock determined as follows: (a) if such Common Stock is then quoted on the Nasdaq National Market, its last reported sale price on the Nasdaq National Market or, if no such reported sale takes place on such date, the average of the closing bid and asked prices; -11- (b) if such Common Stock is publicly traded and is then listed on a national securities exchange, the last reported sale price or, if no such reported sale takes place on such date, the average of the closing bid and asked prices on the principal national securities exchange on which the Common Stock is listed or admitted to trading; (c) if such Common Stock is publicly traded but is not quoted on the Nasdaq National Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on such date, as reported by The Wall Street Journal, for the over-the-counter market; or (d) if none of the foregoing is applicable, by the Board of Directors of the Company in good faith. "INSIDER" means an officer or director of the Company or any other person whose transactions in the Company's Common Stock are subject to Section 16 of the Exchange Act. "OPTION" means an option to purchase Shares granted pursuant to this Plan. "PARENT" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if at the time of the granting of an Option under this Plan, each of such corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "PARTICIPANT" means a person who receives an Option under this Plan. "PLAN" means this At Home Corporation 1996 Incentive Stock Option Plan, as amended from time to time. "SEC" means the Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SHARES" means shares of the Company's Common Stock reserved for issuance under this Plan, as adjusted pursuant to Sections 2 and 16, and any successor security. "SUBSIDIARY" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of granting of the Award, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "TERMINATION" or "TERMINATED" means, for purposes of this Plan with respect to a Participant, that the Participant has ceased to provide services as an employee, director, or consultant, to the Company or a Parent or Subsidiary of the Company, except in the case of sick leave, military leave, or any other leave of absence approved by the Committee, provided, that such leave is for a -------- period of not more than three (3) months, or reinstatement upon the expiration of such leave is guaranteed by contract or statute. The Committee shall have sole discretion to -12- determine whether a Participant has ceased to provide services and the effective date on which the Participant ceased to provide services (the "TERMINATION DATE"). -13- EX-10.11 20 REGISTRANT'S 1996 INCENTIVE STOCK PLAN NO. 2 EXHIBIT 10.11 AT HOME CORPORATION 1996 INCENTIVE STOCK OPTION PLAN NO. 2 -------------------------------------- As Adopted July 16, 1996 1. PURPOSE. The purpose of this Plan is to provide incentives to attract, ------- retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, its Parent and Subsidiaries, by offering them an opportunity to participate in the Company's future performance through awards of Options. Capitalized terms not defined in the text of this Plan are defined in Section 21. This Plan is intended to be a written compensatory benefit plan within the meaning of Rule 701 promulgated under the Securities Act and is intended to comply with Section 25102(o) of the California Corporations Code. Any provision of this Plan which is inconsistent with Section 25102(o) shall, without further act or amendment by the Company or the Board, be reformed to comply with the requirements of Section 25102(o). 2. SHARES SUBJECT TO THIS PLAN. --------------------------- 2.1 Number of Shares Available. Subject to Sections 2.2 and 16, the -------------------------- total number of Shares reserved and available for grant and issuance pursuant to this Plan shall be 5,000,000 Shares (less the number of Shares purchased outside ---- this Plan and outside the Company's 1996 Incentive Stock Option Plan (adopted January 12, 1996 and amended May 16, 1996) by employees, officers, directors or consultants of the Company, whether such purchases occur before or after the Effective Date (as defined in Section 17 below), unless specifically provided otherwise in a resolution adopted by the Board at the time it approves the sale of Shares to such employee, officer, director or consultant, and plus the number ---- of Shares repurchased by the Company upon termination of any person's employment or service relationship with the Company or upon exercise of the Company's right of first refusal upon transfers by such persons); provided that the number of ------------- Shares issued hereunder shall not exceed 5,000,000. Subject to Sections 2.2 and 16, Shares that: (a) are subject to issuance upon exercise of an Option under this Plan but cease to be subject to such Option for any reason other than the purchase of such Shares upon exercise of such Option; or (b) are subject to an Option that otherwise terminates or expires without such Shares being issued, shall again be available for grant and issuance in connection with future grants of Options under this Plan. 2.2 Adjustment of Shares. In the event that the number of the -------------------- outstanding shares of the Company's Common Stock is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company without consideration, then (a) the number of Shares reserved for issuance under this Plan, and (b) the Exercise Prices of and number of Shares subject to outstanding Options shall be proportionately adjusted, subject to any required action by the Board or the shareholders of the Company and compliance with applicable securities laws; provided, however, that fractions of a Share shall -------- ------- not be issued but shall either be (i) replaced by a cash payment equal to the Fair Market Value of such fractional shares in lieu thereof, or (ii) rounded up to the nearest whole Share, as determined by the Committee. -1- 3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted only ----------- to employees (including officers and directors who are also employees) of the Company or of a Parent or Subsidiary of the Company. All other Options may be granted to employees, officers, directors or consultants of the Company or any Parent or Subsidiary of the Company; provided such consultants render bona fide -------- services not in connection with the offer and sale of securities in a capital- raising transaction. A person may be granted more than one Option under this Plan. 4. ADMINISTRATION. -------------- 4.1 Committee Authority. This Plan shall be administered by the ------------------- Committee or the Board acting as the Committee. Subject to the general purposes, terms and conditions of this Plan, and to the direction of the Board, the Committee shall have full power and authority to implement and carry out this Plan, including without limitation the authority to: (a) construe and interpret this Plan, any Stock Option Agreement and any other agreement or document executed pursuant to this Plan; (b) prescribe, amend and rescind rules and regulations relating to this Plan; (c) select persons to receive Options; (d) determine the form and terms of Options; (e) determine the number of Shares subject to Options; (f) determine whether Options will be granted singly, in combination, in tandem with, in replacement of, or as alternatives to, other Options under this Plan or any other incentive or compensation plan of the Company or any Parent or Subsidiary of the Company; (g) grant waivers of Plan or Option conditions; (h) determine the vesting, exercisability and payment terms of Options; (i) correct any defect, supply any omission, or reconcile any inconsistency in this Plan, any Option or any Stock Option Agreement; (j) determine whether an Option has vested or been earned; and (k) make all other determinations necessary or advisable for the administration of this Plan. 4.2 Committee Discretion. Any determination made by the Committee -------------------- with respect to any Option shall be made in its sole discretion at the time of grant of the Option or, unless in contravention of any express term of this Plan or Option, at any later time, and such determination shall be final and binding on the Company and all persons having an interest in any Option under this Plan. The Committee may delegate to one or more officers of the Company the authority to grant an Option under this Plan to Participants who are not Insiders of the Company. -2- 4.3 Exchange Act Requirements. If the Company is subject to the ----------------------------- Exchange Act, the Company will take appropriate steps to comply with the disinterested director requirements of Section 16(b) of the Exchange Act, including but not limited to, the appointment by the Board of a Committee consisting of not less than two persons (who are members of the Board), each of whom is a Disinterested Person. 5. OPTIONS. The Committee may grant Options to eligible persons and shall ------- determine whether such Options shall be Incentive Stock Options within the meaning of the Code ("ISOS") or Nonqualified Stock Options ("NQSOS"), the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may be exercised, and all other terms and conditions of the Option, subject to the following: 5.1 Form of Option Grant. Each Option granted under this Plan shall be -------------------- evidenced by an option grant agreement which shall expressly identify the Option as an ISO or NQSO ("STOCK OPTION AGREEMENT"), and be in such form and contain such provisions (which need not be the same for each Participant) as the Committee shall from time to time approve, and which shall comply with and be subject to the terms and conditions of this Plan. 5.2 Date of Grant. The date of grant of an Option shall be the date on ------------- which the Committee makes the determination to grant such Option, unless otherwise specified by the Committee. The Stock Option Agreement and a copy of this Plan will be delivered to the Participant within a reasonable time after the granting of the Option. 5.3 Exercise Period. Options shall be exercisable within the times or --------------- upon or after the occurrence of the events determined by the Committee as set forth in the Stock Option Agreement; provided, however, that no Option shall be -------- ------- exercisable after the expiration of ten (10) years from the date such Option is granted; and provided further that no ISO granted to a person who directly or by -------- ------- attribution owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary of the Company ("TEN PERCENT SHAREHOLDER") shall be exercisable after the expiration of five (5) years from the date the Option is granted. The Committee also may provide for the exercise of Options to become exercisable at one time or from time to time, periodically or otherwise, in such number or percentage as the Committee determines. Subject to earlier termination of an Option as provided herein, each Participant shall have the right to exercise such Participant's Option at the rate of at least twenty percent (20%) per year over five (5) years from the date such Option is granted. 5.4 Exercise Price. The Exercise Price shall be determined by the -------------- Committee when the Option is granted and may be not less than 85% of the Fair Market Value of the Shares on the date of grant; provided that (i) the Exercise Price of an ISO shall be not less than 100% of the Fair Market Value of the Shares on the date of grant and (ii) the Exercise Price of any Option granted to a Ten Percent Shareholder shall not be less than 110% of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased may be made in accordance with Section 6 of this Plan. 5.5 Method of Exercise. Options may be exercised only by delivery to ------------------ the Company of a written stock option exercise agreement (the "EXERCISE AGREEMENT") in a form approved by the Committee (which need not be the same for each Participant), stating the -3- number of shares being purchased, the restrictions imposed on the shares, if any, and such representations and agreements regarding participant's investment intent and access to information and other matters, if any, as may be required or desirable by the company to comply with applicable securities laws, together with payment in full of the exercise price for the number of shares being purchased in the manner permitted by the terms of such option, as determined under section 6.1. 5.6 Termination. Notwithstanding the exercise periods set forth in the ----------- Stock Option Agreement, subject to the provisions of Section 5.9, exercise of an Option shall be subject to the following: (a) If the Participant is Terminated for any reason except death or Disability, then Participant may exercise such Participant's Options (only to the extent that such Options would have been exercisable upon the Termination Date) no later than three (3) months after the Termination Date (or such shorter time period not less than thirty (30) days as may be specified in the Stock Option Agreement), but in any event no later than the expiration date of the Options, provided, that once the Company is subject -------- to the reporting requirements of the Exchange Act, the Company may permit any Participant who is an executive officer of the Company within the meaning of Section 16(b) of the Exchange Act to exercise an Option up to seven (7) months after the Termination Date (but no later than the expiration date of the Option); provided, however, that any unexercised ISO that remains -------- ------- exercisable after three (3) months after the Termination Date shall be deemed a NQSO. (b) If the Participant is Terminated because of death or Disability (or the Participant dies within three months of such Termination), then Participant's Options may be exercised only to the extent that such Options would have been exercisable by Participant on the Termination Date and must be exercised by Participant (or Participant's legal representative or authorized assignee) no later than twelve (12) months after the Termination Date (or such shorter time period not less than six (6) months as may be specified in the Stock Option Agreement), but in any event no later than the expiration date of the Options; provided, -------- however, that in the event of Termination due to Disability other ------- than as defined in Section 22(e)(3) of the Code, any unexercised ISO that remains exercisable after three (3) months after the Termination Date shall be deemed a NQSO. 5.7 Limitations on Exercise. The Committee may specify a reasonable ----------------------- minimum number of Shares that may be purchased on any exercise of an Option, provided that such minimum number will not prevent Participant from exercising - -------- the Option for the full number of Shares for which it is then exercisable. 5.8 Limitations on ISOs. The aggregate Fair Market Value (determined ------------------- as of the date of grant) of Shares with respect to which ISOs are exercisable for the first time by a Participant during any calendar year (under this Plan or under any other incentive stock option plan of the Company or any Parent or Subsidiary of the Company) shall not exceed $100,000. If -4- the Fair Market Value of Shares on the date of grant with respect to which ISOs are exercisable for the first time by a Participant during any calendar year exceeds $100,000, then the Options for the first $100,000 worth of Shares to become exercisable in such calendar year shall be ISOs and the Options for the amount in excess of $100,000 that become exercisable in that calendar year shall be NQSOs. In the event that the Code or the regulations promulgated thereunder are amended after the Effective Date of this Plan to provide for a different limit on the Fair Market Value of Shares permitted to be subject to ISOs, then such different limit shall be automatically incorporated herein and shall apply to any Options granted after the effective date of such amendment. 5.9 Modification, Extension or Renewal. The Committee may modify, ---------------------------------- extend or renew outstanding Options and authorize the grant of new Options in substitution therefor, provided that any such action may not, without the -------- written consent of Participant, impair any of Participant's rights under any Option previously granted. Any outstanding ISO that is modified, extended, renewed or otherwise altered shall be treated in accordance with Section 424(h) of the Code. The Committee may reduce the Exercise Price of outstanding Options without the consent of affected Participants by a written notice to them; provided, however, that the Exercise Price may not be reduced below the minimum - -------- ------- Exercise Price that would be permitted under Section 5.4 of this Plan for Options granted on the date the action is taken to reduce the Exercise Price. 5.10 No Disqualification. Notwithstanding any other provision in this ------------------- Plan, no term of this Plan relating to ISOs shall be interpreted, amended or altered, nor shall any discretion or authority granted under this Plan be exercised, so as to disqualify this Plan under Section 422 of the Code or, without the consent of the affected Participants, to disqualify any ISO under Section 422 of the Code. 6. PAYMENT FOR SHARE PURCHASES. --------------------------- 6.1 Payment. Payment for Shares purchased upon exercise of an Option ------- pursuant to this Plan may be made in cash (by check) or, where expressly approved for the Participant by the Committee and where permitted by law: (a) by cancellation of indebtedness of the Company to the Participant; (b) by surrender of Shares that either: (1) have been owned by Participant for more than six (6) months and have been paid for within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such Shares); or (2) were obtained by Participant in the public market; (c) by tender of a full recourse promissory note having such terms as may be approved by the Committee and bearing interest at a rate sufficient to avoid imputation of income under Sections 483 and 1274 of the Code; provided, however, that Participants who are -------- ------- not employees of the Company shall not be entitled to purchase Shares with a promissory note unless the note is adequately secured by collateral other than the Shares; and provided -------- further, that the portion of the Purchase Price equal to the par ------- value of the Shares, if any, must be paid in cash; and provided -------- further, that ------- -5- the promissory note shall be secured as provided in Section 12 of this Plan; (d) by waiver of compensation due or accrued to Participant for services rendered; (e) by tender of property; (f) provided that a public market for the Company's stock then -------- exists; (1) through a "same day sale" commitment from Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an "NASD DEALER") whereby the Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay for the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or (2) through a "margin" commitment from Participant and an NASD Dealer whereby Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the exercise price directly to the Company; or (g) by any combination of the foregoing. 6.2 Loan Guarantees. The Committee may help the Participant pay for --------------- Shares purchased under this Plan by authorizing a guarantee by the Company of a third-party loan to the Participant. 7. WITHHOLDING TAXES. ----------------- 7.1 Withholding Generally. Whenever Shares are to be issued upon the --------------------- exercise of Options granted under this Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares. Whenever, under this Plan, payments in satisfaction of Options are to be made in cash, such payment shall be net of an amount sufficient to satisfy federal, state, and local withholding tax requirements. 7.2 Stock Withholding. When, under applicable tax laws, a ----------------- Participant incurs tax liability in connection with the exercise or vesting of any Option or exercise of an Option that is subject to tax withholding and the Participant is obligated to pay the Company the amount required to be withheld, the Committee may allow the Participant to satisfy the minimum withholding tax obligation by electing to have the Company withhold from the Shares to be issued that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld, determined on the date that the amount of tax to be withheld is to be determined (the "TAX DATE"). All elections by a Participant to have Shares withheld for this purpose shall be -6- made in writing in a form acceptable to the Committee and shall be subject to the following restrictions: (a) the election must be made on or prior to the applicable Tax Date; (b) once made, then except as provided below, the election shall be irrevocable as to the particular Shares as to which the election is made; (c) all elections shall be subject to the consent or disapproval of the Committee; (d) if the Participant is an Insider and if the Company is subject to Section 16(b) of the Exchange Act: (1) the election may not be made within six (6) months of the date of grant of the Option, except as otherwise permitted by SEC Rule 16b-3(e) under the Exchange Act, and (2) either (A) the election to use stock withholding must be irrevocably made at least six (6) months prior to the Tax Date (although such election may be revoked at any time at least six (6) months prior to the Tax Date) or (B) the exercise of the Option or election to use stock withholding must be made in the ten (10) day period beginning on the third (3rd) day following the release of the Company's quarterly or annual summary statement of sales or earnings; and (e) in the event that the Tax Date is deferred until six (6) months after the delivery of Shares under Section 83(b) of the Code, the Participant shall receive the full number of Shares with respect to which the exercise occurs, but such Participant shall be unconditionally obligated to tender back to the Company the proper number of Shares on the Tax Date. 8. PRIVILEGES OF STOCK OWNERSHIP. ----------------------------- 8.1 Voting and Dividends. No Participant shall have any of the -------------------- rights of a shareholder with respect to any Shares until the Shares are issued to the Participant. After Shares are issued to the Participant, the Participant shall be a shareholder and have all the rights of a shareholder with respect to such Shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares; provided, that if such -------- Shares are subject to repurchase restrictions or other restrictions ("RESTRICTED STOCK"), then any new, additional or different securities the Participant may become entitled to receive with respect to such Shares by virtue of a stock dividend, stock split or any other change in the corporate or capital structure of the Company shall be subject to the same restrictions as the Restricted Stock; provided, further, that the Participant shall have no right to retain -------- ------- such stock dividends or stock distributions with respect to Shares that are repurchased at the Participant's original Purchase Price pursuant to Section 10. 8.2 Financial Statements. The Company shall provide fiscal year end -------------------- financial statements to each Participant prior to such Participant's purchase of Shares under this Plan, and to each Participant annually during the period such Participant has Options outstanding; provided, however, the Company shall not be -------- ------- required to provide such financial statements to -7- Participants whose services in connection with the Company assure them access to equivalent information. 9. TRANSFERABILITY. Options granted under this Plan, and any --------------- interest therein, shall not be transferable or assignable by Participant, and may not be made subject to execution, attachment or similar process, otherwise than by will or by the laws of descent and distribution. During the lifetime of the Participant an Option shall be exercisable only by the Participant who holds such Option, and any elections with respect to an Option, may be made only by the Participant who holds such Option. 10. RESTRICTIONS ON SHARES. At the discretion of the Committee, the ---------------------- Company may reserve to itself and/or its assignee(s) in the Stock Option Agreement (a) a right of first refusal to purchase all Shares that a Participant (or a subsequent transferee) may propose to transfer to a third party, and/or (b) a right to repurchase all Shares (or, with the consent of the Participant, a portion of the Shares) held by a Participant following such Participant's Termination at any time within ninety (90) days after Participant's Termination Date for cash or cancellation of purchase money indebtedness of Purchaser to the Company, at: (A) with respect to Shares that are "Vested" (as defined in the Stock Option Agreement), the higher of: (l) the Participant's original Purchase Price, or (2) the Fair Market Value of such Shares on the Participant's Termination Date, provided such right of repurchase terminates when the -------- Company's securities become publicly traded; or (B) with respect to Shares that are not "Vested" (as defined in the Stock Option Agreement), at the Participant's original Purchase Price, provided, that the right to repurchase at -------- the original Purchase Price lapses at the rate of at least 20% per year over 5 years from the date the Shares were purchased. If such right of repurchase of Shares that are not "Vested" is assigned, the assignee must pay the Company upon assignment of the right (unless the assignee is a one hundred percent (100%) owned Subsidiary of the Company or is the Parent of the Company owning one hundred percent (100%) of the Company) cash equal to the difference between the Exercise Price and the Fair Market Value of the Shares, if the Exercise Price is less than the Fair Market Value of the Shares. 11. CERTIFICATES. All certificates for Shares or other securities ------------ delivered under this Plan shall be subject to such stock transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system upon which the Shares may be listed. 12. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a ------------------------ Participant's Shares, the Committee may require the Participant to deposit all certificates representing Shares, together with stock powers or other instruments of transfer approved by the Committee, appropriately endorsed in blank, with the Company or an officer or an agent designated by the Company to hold in escrow until such restrictions have lapsed or terminated, and the Committee may cause a legend or legends referencing such restrictions to be placed on the certificates. Any Participant who is permitted to execute a promissory note as partial or full consideration for the purchase of Shares under this Plan shall be required to pledge and deposit with the Company all or part of the Shares so purchased as collateral to secure the payment of Participant's obligation to the Company under the promissory note; provided, -------- however, that the Committee may require or accept other or additional forms of - ------- collateral to secure the payment of such obligation and, in any event, the Company shall have full recourse against the Participant -8- under the promissory note notwithstanding any pledge of the Participant's Shares or other collateral. In connection with any pledge of the Shares, Participant shall be required to execute and deliver a written pledge agreement in such form as the Committee shall from time to time approve. The Shares purchased with the promissory note may be released from the pledge on a pro rata basis as the promissory note is paid. 13. EXCHANGE AND BUYOUT OF OPTIONS. The Committee may, at any time or ------------------------------ from time to time, authorize the Company, with the consent of the respective Participants, to issue new Options in exchange for the surrender and cancellation of any or all outstanding Options. The Committee may at any time buy from a Participant an Option previously granted with payment in cash, Shares (including Restricted Stock) or other consideration, based on such terms and conditions as the Committee and the Participant shall agree. 14. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Option shall not ---------------------------------------------- be effective unless such Option is granted by the Committee and is exercisable in compliance with all applicable federal and state securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed, as they are in effect on the date of grant of the Option and also on the date of exercise or other issuance. Notwithstanding any other provision in this Plan, the Company shall have no obligation to issue or deliver certificates for Shares under this Plan prior to (a) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable, and/or (b) completion of any registration or other qualification of such Shares under any state or federal law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company shall be under no obligation to register the Shares with the SEC or to effect compliance with the registration, qualification or listing requirements of any state securities laws, stock exchange or automated quotation system, and the Company shall have no liability for any inability or failure to do so. 15. NO OBLIGATION TO EMPLOY. Nothing in this Plan or in any Option ----------------------- granted under this Plan shall confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Parent, Subsidiary of the Company or limit in any way the right of the Company or any Parent, or Subsidiary of the Company to terminate Participant's employment or other relationship at any time, with or without cause. 16. CORPORATE TRANSACTIONS. ---------------------- 16.1 Assumption or Replacement of Options by Successor. In the event ------------------------------------------------- of: (a) a merger or consolidation in which the Company is not the surviving corporation (other than (i) a merger or consolidation ----- ---- of the Company with a wholly-owned subsidiary, (ii) a reincorporation of the Company in a different jurisdiction or (iii) an other transaction in which there is no substantial change in the shareholders of the Company and their respective stockholdings in the successor corporation and the Options granted under this Plan are assumed or replaced by the successor corporation in a manner that is binding on all Participants); -9- (b) a reverse triangular merger in which the Company survives but following which the shareholders of the Company (other than any ----- ---- shareholder that (i) merges with the Company in such reverse triangular merger or (ii) is an affiliate of another corporation that merges with the Company in such reverse triangular merger) cease to own their shares or other equity interests in the Company as a result of such merger; (c) a dissolution or liquidation of the Company; (d) the sale of substantially all of the assets of the Company; or (e) any other transaction which qualifies as a "corporate transaction" under Section 424(a) of the Code or regulations thereunder wherein the shareholders of the Company give up all of their equity interest in the Company, any or all outstanding Options may be assumed or replaced by the successor corporation (if any), which assumption or replacement shall be binding on all Participants. In the alternative, the successor corporation may substitute equivalent stock options or provide substantially similar consideration to Participants as was provided to shareholders (after taking into account the existing provisions of the Options). The successor corporation may also issue, in place of outstanding Shares of the Company held by the Participant, substantially similar shares or other property subject to repurchase restrictions no less favorable to the Participant. If such successor corporation (if any) refuses to assume, replace or substitute Options as provided above pursuant to a transaction described in this Section 16.1, then such Options shall expire upon the consummation of such transaction at such time and on such conditions as the Board shall determine. 16.2 Other Treatment of Options. Subject to any greater rights -------------------------- granted to Participants under the foregoing provisions of this Section 16, in the event of the occurrence of any transaction described in Section 16.1, any outstanding Options shall be treated as provided in the applicable agreement or plan of merger, consolidation, dissolution, liquidation, sale of assets or other "corporate transaction." 16.3 Assumption of Options by the Company. The Company, from time to ------------------------------------ time, also may substitute or assume outstanding stock options granted by another company, whether in connection with an acquisition of such other company or otherwise, by either (a) granting an Option under this Plan in substitution of such other company's stock option, or (b) assuming such award as if it had been granted under this Plan if the terms of such assumed stock option could be applied to an Option granted under this Plan. Such substitution or assumption shall be permissible if the holder of the substituted or assumed stock option would have been eligible to be granted an Option under this Plan if the other company had applied the rules of this Plan to such grant. In the event the Company assumes a stock option granted by another company, the terms and conditions of such stock option shall remain unchanged (except that the exercise ------ price and the number and nature of Shares issuable upon exercise of any such option will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company -10- elects to grant a new Option rather than assuming an existing stock option, such new Option may be granted with a similarly adjusted Exercise Price. 17. ADOPTION AND SHAREHOLDER APPROVAL. This Plan shall become effective --------------------------------- on the date that it is adopted by the Board (the "EFFECTIVE DATE"). This Plan shall be approved by the shareholders of the Company (excluding Shares issued pursuant to this Plan), consistent with applicable laws, within twelve months before or after the Effective Date. Upon the Effective Date, the Board may grant Options pursuant to this Plan; provided, however, that: (a) no Option may -------- ------- be exercised prior to initial shareholder approval of this Plan; and (b) in the event that shareholder approval is not obtained within the time period provided herein, all Options granted hereunder without such approval shall be canceled. After the Company becomes subject to Section 16(b) of the Exchange Act, the Company will comply with the requirements of Rule 16b-3 (or its successor), as amended, with respect to shareholder approval. 18. TERM OF PLAN. This Plan will terminate ten (10) years from the ------------ Effective Date or, if earlier, the date of initial shareholder approval of this Plan. 19. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate -------------------------------- or amend this Plan in any respect, including without limitation amendment of any form of Stock Option Agreement or instrument to be executed pursuant to this Plan; provided, however, that the Board shall not, without the approval of the -------- ------- shareholders of the Company, amend this Plan in any manner that requires such shareholder approval pursuant to the Code or the regulations promulgated thereunder as such provisions apply to ISO plans or (if the Company is then subject to the Exchange Act) pursuant to the Exchange Act or Rule 16b-3 (or its successor), as amended, thereunder. 20. NONEXCLUSIVITY OF THIS PLAN. Neither the adoption of this Plan by the --------------------------- Board, the submission of this Plan to the shareholders of the Company for approval, nor any provision of this Plan shall be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options and bonuses otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in specific cases. 21. DEFINITIONS. As used in this Plan, the following terms shall have the ----------- following meanings: "BOARD" means the Board of Directors of the Company. "CODE" means the Internal Revenue Code of 1986, as amended. "COMMITTEE" means the committee of the Board appointed by the Board to administer this Plan, or if no such committee is appointed, the Board. "COMMON STOCK" means the Company's Series A Common Stock. "COMPANY" means At Home Corporation, a corporation organized under the laws of the State of Delaware, or any successor corporation. -11- "DISABILITY" means a disability, whether temporary or permanent, partial or total, as determined by the Committee. "DISINTERESTED PERSON" means a director who has not, during the period that person is a member of the Committee and for one year prior to service as a member of the Committee, been granted or awarded equity securities pursuant to this Plan or any other plan of the Company or any Parent or Subsidiary of the Company, except in accordance with the requirements set forth in Rule 16b- 3(c)(2)(i) (and any successor regulation thereto) as promulgated by the SEC under Section 16(b) of the Exchange Act, as such rule is amended from time to time and as interpreted by the SEC. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXERCISE PRICE" means the price at which a holder of an Option may purchase the Shares issuable upon exercise of the Option. "FAIR MARKET VALUE" means, as of any date, the value of a share of the Company's Common Stock determined as follows: (a) if such Common Stock is then quoted on the Nasdaq National Market, its last reported sale price on the Nasdaq National Market or, if no such reported sale takes place on such date, the average of the closing bid and asked prices; (b) if such Common Stock is publicly traded and is then listed on a national securities exchange, the last reported sale price or, if no such reported sale takes place on such date, the average of the closing bid and asked prices on the principal national securities exchange on which the Common Stock is listed or admitted to trading; (c) if such Common Stock is publicly traded but is not quoted on the Nasdaq National Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on such date, as reported by The Wall Street Journal, for the over-the-counter market; or (d) if none of the foregoing is applicable, by the Board of Directors of the Company in good faith. "INSIDER" means an officer or director of the Company or any other person whose transactions in the Company's Common Stock are subject to Section 16 of the Exchange Act. "OPTION" means an option to purchase Shares granted pursuant to this Plan. "PARENT" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if at the time of the granting of an Option under this Plan, each of such corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. -12- "PARTICIPANT" means a person who receives an Option under this Plan. "PLAN" means this At Home Corporation 1996 Incentive Stock Option Plan, as amended from time to time. "SEC" means the Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SHARES" means shares of the Company's Common Stock reserved for issuance under this Plan, as adjusted pursuant to Sections 2 and 16, and any successor security. "SUBSIDIARY" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of granting of the Award, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "TERMINATION" or "TERMINATED" means, for purposes of this Plan with respect to a Participant, that the Participant has ceased to provide services as an employee, director, or consultant, to the Company or a Parent or Subsidiary of the Company, except in the case of sick leave, military leave, or any other leave of absence approved by the Committee, provided, that such leave is for a -------- period of not more than three (3) months, or reinstatement upon the expiration of such leave is guaranteed by contract or statute. The Committee shall have sole discretion to determine whether a Participant has ceased to provide services and the effective date on which the Participant ceased to provide services (the "TERMINATION DATE"). -13- EX-10.12 21 REGISTRANT'S 1997 EQUITY INCENTIVE PLAN EXHIBIT 10.12 AT HOME CORPORATION 1997 EQUITY INCENTIVE PLAN As Adopted May 15, 1997 1. PURPOSE. The purpose of this Plan is to provide incentives to ------- attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, its Parent and Subsidiaries, by offering them an opportunity to participate in the Company's future performance through awards of Options, Restricted Stock and Stock Bonuses. Capitalized terms not defined in the text are defined in Section 23. 2. SHARES SUBJECT TO THE PLAN. -------------------------- 2.1 Number of Shares Available. Subject to Sections 2.2 and -------------------------- 18, the total number of Shares reserved and available for grant and issuance pursuant to this Plan will be 16,000,000 Shares, less: (a) the total number of Shares issued by the Company under (i) restricted stock purchase agreements entered into prior to the Effective Date of this Plan with employees, officers, directors, consultants, independent contractors or advisors of the Company and (ii) the Company's 1996 Incentive Stock Option Plan or 1996 Incentive Stock Option Plan No. 2 (the "PRIOR PLANS") pursuant to the exercise of options granted on or before the Effective Date; (b) Shares that are issuable as of the Effective Date upon exercise of options granted under the Prior Plans; and (c) Shares issued as of any date under the Company's 1997 Employee Stock Purchase Plan adopted contemporaneously with this Plan. Subject to Sections 2.2 and 18 hereof, Shares that: (a) are subject to issuance upon exercise of an option granted under the Prior Plans or under this Plan that cease to be subject to such option for any reason other than exercise of such option; (b) are subject to an award granted under restricted stock purchase agreements entered into prior to the Effective Date of this Plan with employees, officers, directors, consultants, independent contractors or advisors of the Company, the Prior Plans, or this Plan, that are forfeited or are repurchased by the Company at the original issue price; or (c) are subject to any other award granted under the Prior Plans or under this Plan that otherwise terminates without Shares being issued, will again be available for grant and issuance in connection with future Awards under this Plan. The number of Shares reserved and available for grant and issuance pursuant to this Plan shall automatically be increased by 4,200,000 shares on August 1, 1997. At all times the Company shall reserve and keep available a sufficient number of Shares as shall be required to satisfy the requirements of all outstanding Options granted under this Plan and all other outstanding but unvested Awards granted under this Plan. The sum of (a) Restricted Stock Awards, (b) Stock Bonus Awards, or (c) Options with a Purchase Price or Exercise Price, as the case may be, below Fair Market Value issued under this Plan may not exceed 20% of the total number of Shares reserved for grant and issuance pursuant to this Plan as of any date. 2.2 Adjustment of Shares. In the event that the number of -------------------- outstanding Shares is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company without consideration, then (a) the number of Shares reserved for issuance under this Plan, (b) the Exercise Prices of and number of Shares subject to outstanding Options, and (c) the number of Shares subject to other outstanding Awards will be proportionately adjusted, subject to any required action by the Board or the stockholders of the Company and compliance with applicable securities laws; provided, however, that -------- ------- fractions of a Share will not be issued but will either be replaced by a cash payment equal to the Fair Market Value of such fraction of a Share or will be rounded up to the nearest whole Share, as determined by the Committee. 3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted ----------- only to employees (including officers and directors who are also employees) of the Company or of a Parent or Subsidiary of the Company. All other Awards may be granted to employees, officers, directors, consultants, independent contractors and advisors of the Company or any Parent or Subsidiary of the Company; provided such consultants, contractors and -------- advisors render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction. No person will be eligible to receive more than 1,000,000 Shares in any calendar year under this Plan pursuant to the grant of Awards hereunder, other than new employees of the Company or of a Parent or Subsidiary of the Company (including new employees who are also officers and directors of the Company or any Parent or Subsidiary of the Company) who are eligible to receive up to a maximum of 2,000,000 Shares in the calendar year in which they commence their employment. A person may be granted more than one Award under this Plan. 4. ADMINISTRATION. -------------- 4.1 Committee Authority. This Plan will be administered by ------------------- the Committee or by the Board acting as the Committee. Subject to the general purposes, terms and conditions of this Plan, and to the direction of the Board, the Committee will have full power to implement and carry out this Plan. Without limitation, the Committee will have the authority to: (a) construe and interpret this Plan, any Award Agreement and any other agreement or document executed pursuant to this Plan; (b) prescribe, amend and rescind rules and regulations relating to this Plan or any Award; (c) select persons to receive Awards; (d) determine the form and terms of Awards; (e) determine the number of Shares or other consideration subject to Awards; (f) determine whether Awards will be granted singly, in combination with, in tandem with, in replacement of, or as alternatives to, other Awards under this Plan or any other incentive or compensation plan of the Company or any Parent or Subsidiary of the Company; (g) grant waivers of Plan or Award conditions; (h) determine the vesting, exercisability and payment of Awards; (i) correct any defect, supply any omission or reconcile any inconsistency in this Plan, any Award or any Award Agreement; (j) determine whether an Award has been earned; and (k) make all other determinations necessary or advisable for the administration of this Plan. 4.2 Committee Discretion. Any determination made by the -------------------- Committee with respect to any Award will be made in its sole discretion at the time of grant of the Award or, unless in contravention of any express term of this Plan or Award, at any later time, and such determination will be final and binding on the Company and on all persons having an interest in any Award under this Plan. The Committee may delegate to one or more officers of the Company the authority to grant an Award under this Plan to Participants who are not Insiders of the Company. 5. OPTIONS. The Committee may grant Options to eligible persons and ------- will determine whether such Options will be Incentive Stock Options within the meaning of the Code ("ISO") or Nonqualified Stock Options ("NQSOS"), the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may be exercised, and all other terms and conditions of the Option, subject to the following: -2- 5.1 Form of Option Grant. Each Option granted under this Plan -------------------- will be evidenced by an Award Agreement which will expressly identify the Option as an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be in such form and contain such provisions (which need not be the same for each Participant) as the Committee may from time to time approve, and which will comply with and be subject to the terms and conditions of this Plan. 5.2 Date of Grant. The date of grant of an Option will be the ------------- date on which the Committee makes the determination to grant such Option, unless otherwise specified by the Committee. The Stock Option Agreement and a copy of this Plan will be delivered to the Participant within a reasonable time after the granting of the Option. 5.3 Exercise Period. Options may be exercisable within the --------------- times or upon the events determined by the Committee as set forth in the Stock Option Agreement governing such Option; provided, however, that no Option will -------- ------- be exercisable after the expiration of ten (10) years from the date the Option is granted; and provided further that no ISO granted to a person who directly or -------- ------- by attribution owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary of the Company ("TEN PERCENT STOCKHOLDER") will be exercisable after the expiration of five (5) years from the date the ISO is granted. The Committee also may provide for Options to become exercisable at one time or from time to time, periodically or otherwise, in such number of Shares or percentage of Shares as the Committee determines. 5.4 Exercise Price. The Exercise Price of an Option will be -------------- determined by the Committee when the Option is granted and may be not less than 85% of the Fair Market Value of the Shares on the date of grant; provided that: (i) the Exercise Price of an ISO will be not less than 100% of the Fair Market Value of the Shares on the date of grant; and (ii) the Exercise Price of any ISO granted to a Ten Percent Stockholder will not be less than 110% of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased may be made in accordance with Section 8 of this Plan. 5.5 Method of Exercise. Options may be exercised only by ------------------ delivery to the Company of a written stock option exercise agreement (the "EXERCISE AGREEMENT") in a form approved by the Committee (which need not be the same for each Participant), stating the number of Shares being purchased, the restrictions imposed on the Shares purchased under such Exercise Agreement, if any, and such representations and agreements regarding Participant's investment intent and access to information and other matters, if any, as may be required or desirable by the Company to comply with applicable securities laws, together with payment in full of the Exercise Price for the number of Shares being purchased. 5.6 Termination. Notwithstanding the exercise periods set ----------- forth in the Stock Option Agreement, exercise of an Option will always be subject to the following: (a) If the Participant is Terminated for any reason except death or Disability, then the Participant may exercise such Participant's Options only to the extent that such Options would have been exercisable upon the Termination Date no later than three (3) months after the Termination Date (or such shorter or longer time period not exceeding five (5) years as may be determined by the Committee, with any exercise beyond three (3) months after the Termination Date deemed to be an NQSO), but in any event, no later than the expiration date of the Options. (b) If the Participant is Terminated because of Participant's death or Disability (or the Participant dies within three (3) months after a Termination other than because of Participant's death or disability), then Participant's Options may be exercised only to the extent that such Options would have been exercisable by Participant on the Termination Date and must be exercised by Participant (or Participant's legal representative or authorized assignee) no later than twelve (12) months after the Termination Date (or such shorter or longer time period not exceeding five (5) years as may be determined by the Committee, with any such exercise beyond (a) three (3) months after the Termination Date when the Termination is for any reason other than the Participant's death or Disability, or -3- (b) twelve (12) months after the Termination Date when the Termination is for Participant's death or Disability, deemed to be an NQSO), but in any event no later than the expiration date of the Options. (c) If a Participant is terminated for Cause, then the Participant may exercise such Participant Options only to the extent that such Options would have been exercisable upon the Termination Date no later than one (1) month after the Termination Date (or such shorter period as may be determined by the Committee), but in any event, no later than the expiration date of the Options. In making such determination, the Board shall give the Participant an opportunity to present to the Board evidence on his behalf. For the purpose of this paragraph, termination of service shall be deemed to occur on the date when the Company dispatches notice or advice to the Participant that his service is terminated. 5.7 Limitations on Exercise. The Committee may specify a ----------------------- reasonable minimum number of Shares that may be purchased on any exercise of an Option, provided that such minimum number will not prevent Participant from exercising the Option for the full number of Shares for which it is then exercisable. 5.8 Limitations on ISO. The aggregate Fair Market Value ------------------ (determined as of the date of grant) of Shares with respect to which ISO are exercisable for the first time by a Participant during any calendar year (under this Plan or under any other incentive stock option plan of the Company, Parent or Subsidiary of the Company) will not exceed $100,000. If the Fair Market Value of Shares on the date of grant with respect to which ISO are exercisable for the first time by a Participant during any calendar year exceeds $100,000, then the Options for the first $100,000 worth of Shares to become exercisable in such calendar year will be ISO and the Options for the amount in excess of $100,000 that become exercisable in that calendar year will be NQSOs. In the event that the Code or the regulations promulgated thereunder are amended after the Effective Date of this Plan to provide for a different limit on the Fair Market Value of Shares permitted to be subject to ISO, such different limit will be automatically incorporated herein and will apply to any Options granted after the effective date of such amendment. 5.9 Modification, Extension or Renewal. The Committee may ---------------------------------- modify, extend or renew outstanding Options and authorize the grant of new Options in substitution therefor, provided that any such action may not, without the written consent of a Participant, impair any of such Participant's rights under any Option previously granted. Any outstanding ISO that is modified, extended, renewed or otherwise altered will be treated in accordance with Section 424(h) of the Code. The Committee may reduce the Exercise Price of outstanding Options without the consent of Participants affected by a written notice to them; provided, however, that the Exercise Price may not be reduced -------- ------- below the minimum Exercise Price that would be permitted under Section 5.4 of this Plan for Options granted on the date the action is taken to reduce the Exercise Price. 5.10 No Disqualification. Notwithstanding any other provision ------------------- in this Plan, no term of this Plan relating to ISO will be interpreted, amended or altered, nor will any discretion or authority granted under this Plan be exercised, so as to disqualify this Plan under Section 422 of the Code or, without the consent of the Participant affected, to disqualify any ISO under Section 422 of the Code. 6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the ---------------- Company to sell to an eligible person Shares that are subject to restrictions. The Committee will determine to whom an offer will be made, the number of Shares the person may purchase, the price to be paid (the "PURCHASE PRICE"), the restrictions to which the Shares will be subject, and all other terms and conditions of the Restricted Stock Award, subject to the following: 6.1 Form of Restricted Stock Award. All purchases under a ------------------------------ Restricted Stock Award made pursuant to this Plan will be evidenced by an Award Agreement ("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. The offer of Restricted Stock will be accepted by the Participant's execution and delivery of the Restricted Stock Purchase Agreement and full payment for the Shares to the Company within thirty (30) days from the date the Restricted Stock Purchase Agreement is delivered to the person. If such person does not execute and deliver the Restricted Stock Purchase -4- Agreement along with full payment for the Shares to the Company within thirty (30) days, then the offer will terminate, unless otherwise determined by the Committee. 6.2 Purchase Price. The Purchase Price of Shares sold -------------- pursuant to a Restricted Stock Award will be determined by the Committee on the date the Restricted Stock Award is granted, except in the case of a sale to a Ten Percent Stockholder, in which case the Purchase Price will be 100% of the Fair Market Value. Payment of the Purchase Price may be made in accordance with Section 8 of this Plan. 6.3 Terms of Restricted Stock Awards. Restricted Stock Awards -------------------------------- shall be subject to such restrictions as the Committee may impose. These restrictions may be based upon completion of a specified number of years of service with the Company or upon completion of the performance goals as set out in advance in the Participant's individual Restricted Stock Purchase Agreement. Restricted Stock Awards may vary from Participant to Participant and between groups of Participants. Prior to the grant of a Restricted Stock Award, the Committee shall: (a) determine the nature, length and starting date of any Performance Period for the Restricted Stock Award; (b) select from among the Performance Factors to be used to measure performance goals, if any; and (c) determine the number of Shares that may be awarded to the Participant. Prior to the payment of any Restricted Stock Award, the Committee shall determine the extent to which such Restricted Stock Award has been earned. Performance Periods may overlap and Participants may participate simultaneously with respect to Restricted Stock Awards that are subject to different Performance Periods and having different performance goals and other criteria. 6.4 Termination During Performance Period. If a Participant ------------------------------------- is Terminated during a Performance Period for any reason, then such Participant will be entitled to payment (whether in Shares, cash or otherwise) with respect to the Restricted Stock Award only to the extent earned as of the date of Termination in accordance with the Restricted Stock Purchase Agreement, unless the Committee will determine otherwise. 7. STOCK BONUSES. ------------- 7.1 Awards of Stock Bonuses. A Stock Bonus is an award of ----------------------- Shares (which may consist of Restricted Stock) for services rendered to the Company or any Parent or Subsidiary of the Company. A Stock Bonus may be awarded for past services already rendered to the Company, or any Parent or Subsidiary of the Company pursuant to an Award Agreement (the "STOCK BONUS AGREEMENT") that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. A Stock Bonus may be awarded upon satisfaction of such performance goals as are set out in advance in the Participant's individual Award Agreement (the "PERFORMANCE STOCK BONUS AGREEMENT") that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. Stock Bonuses may vary from Participant to Participant and between groups of Participants, and may be based upon the achievement of the Company, Parent or Subsidiary and/or individual performance factors or upon such other criteria as the Committee may determine. 7.2 Terms of Stock Bonuses. The Committee will determine the ---------------------- number of Shares to be awarded to the Participant. If the Stock Bonus is being earned upon the satisfaction of performance goals pursuant to a Performance Stock Bonus Agreement, then the Committee will: (a) determine the nature, length and starting date of any Performance Period for each Stock Bonus; (b) select from among the Performance Factors to be used to measure the performance, if any; and (c) determine the number of Shares that may be awarded to the Participant. Prior to the payment of any Stock Bonus, the Committee shall determine the extent to which such Stock Bonuses have been earned. Performance Periods may overlap and Participants may participate simultaneously with respect to Stock Bonuses that are subject to different Performance Periods and different performance goals and other criteria. The number of Shares may be fixed or may vary in accordance with such performance goals and criteria as may be determined by the Committee. The Committee may adjust the performance goals applicable to the Stock Bonuses to take into account changes in law and accounting or tax rules and to make such adjustments as the Committee deems necessary or appropriate to reflect the impact of extraordinary or unusual items, events or circumstances to avoid windfalls or hardships. -5- 7.3 Form of Payment. The earned portion of a Stock Bonus may --------------- be paid currently or on a deferred basis with such interest or dividend equivalent, if any, as the Committee may determine. Payment may be made in the form of cash or whole Shares or a combination thereof, either in a lump sum payment or in installments, all as the Committee will determine. 8. PAYMENT FOR SHARE PURCHASES. --------------------------- 8.1 Payment. Payment for Shares purchased pursuant to this ------- Plan may be made in cash (by check) or, where expressly approved for the Participant by the Committee and where permitted by law: (a) by cancellation of indebtedness of the Company to the Participant; (b) by surrender of shares that either: (1) have been owned by Participant for more than six (6) months and have been paid for within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares); or (2) were obtained by Participant in the public market; (c) by tender of a full recourse promissory note having such terms as may be approved by the Committee and bearing interest at a rate sufficient to avoid imputation of income under Sections 483 and 1274 of the Code; provided, however, that Participants who are -------- ------- not employees or directors of the Company will not be entitled to purchase Shares with a promissory note unless the note is adequately secured by collateral other than the Shares; (d) by waiver of compensation due or accrued to the Participant for services rendered; (e) with respect only to purchases upon exercise of an Option, and provided that a public market for the Company's stock exists: (1) through a "same day sale" commitment from the Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an "NASD DEALER") whereby the Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay for the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or (2) through a "margin" commitment from the Participant and a NASD Dealer whereby the Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or (f) by any combination of the foregoing. 8.2 Loan Guarantees. The Committee may help the Participant --------------- pay for Shares purchased under this Plan by authorizing a guarantee by the Company of a third-party loan to the Participant. 9. WITHHOLDING TAXES. ----------------- 9.1 Withholding Generally. Whenever Shares are to be issued --------------------- in satisfaction of Awards granted under this Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares. Whenever, under this Plan, payments in satisfaction of Awards are to be made in cash, such payment will be net of an amount sufficient to satisfy federal, state, and local withholding tax requirements. -6- 9.2 Stock Withholding. When, under applicable tax laws, a ----------------- Participant incurs tax liability in connection with the exercise or vesting of any Award that is subject to tax withholding and the Participant is obligated to pay the Company the amount required to be withheld, the Committee may in its sole discretion allow the Participant to satisfy the minimum withholding tax obligation by electing to have the Company withhold from the Shares to be issued that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld, determined on the date that the amount of tax to be withheld is to be determined. All elections by a Participant to have Shares withheld for this purpose will be made in accordance with the requirements established by the Committee and be in writing in a form acceptable to the Committee 10. PRIVILEGES OF STOCK OWNERSHIP. ----------------------------- 10.1 Voting and Dividends. No Participant will have any of the -------------------- rights of a stockholder with respect to any Shares until the Shares are issued to the Participant. After Shares are issued to the Participant, the Participant will be a stockholder and have all the rights of a stockholder with respect to such Shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares; provided, that if such -------- Shares are Restricted Stock, then any new, additional or different securities the Participant may become entitled to receive with respect to such Shares by virtue of a stock dividend, stock split or any other change in the corporate or capital structure of the Company will be subject to the same restrictions as the Restricted Stock; provided, further, that the Participant will have no right to -------- ------- retain such stock dividends or stock distributions with respect to Shares that are repurchased at the Participant's original Purchase Price pursuant to Section 12. 10.2 Financial Statements. The Company will provide financial -------------------- statements to each Participant prior to such Participant's purchase of Shares under this Plan, and to each Participant annually during the period such Participant has Awards outstanding; provided, however, the Company will not be -------- ------- required to provide such financial statements to Participants whose services in connection with the Company assure them access to equivalent information. 11. TRANSFERABILITY. Awards granted under this Plan, and any --------------- interest therein, will not be transferable or assignable by Participant, and may not be made subject to execution, attachment or similar process, otherwise than by will or by the laws of descent and distribution or as determined by the Committee and set forth in the Award Agreement with respect to Awards that are not ISOs. During the lifetime of the Participant an Award will be exercisable only by the Participant, and any elections with respect to an Award may be made only by the Participant unless otherwise determined by the Committee and set forth in the Award Agreement with respect to Awards that are not ISOs. 12. RESTRICTIONS ON SHARES. At the discretion of the Committee, the ---------------------- Company may reserve to itself and/or its assignee(s) in the Award Agreement a right to repurchase a portion of or all Unvested Shares held by a Participant following such Participant's Termination at any time within ninety (90) days after the later of Participant's Termination Date and the date Participant purchases Shares under this Plan, for cash and/or cancellation of purchase money indebtedness, at the Participant's Exercise Price or Purchase Price, as the case may be. 13. CERTIFICATES. All certificates for Shares or other securities ------------ delivered under this Plan will be subject to such stock transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system upon which the Shares may be listed or quoted. 14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a ------------------------ Participant's Shares, the Committee may require the Participant to deposit all certificates representing Shares, together with stock powers or other instruments of transfer approved by the Committee, appropriately endorsed in blank, with the Company or an agent designated by the Company to hold in escrow until such restrictions have lapsed or terminated, and the Committee may cause a legend or legends referencing such restrictions to be placed on the certificates. Any Participant who is permitted to execute a promissory note as partial or full consideration for the purchase of Shares -7- under this Plan will be required to pledge and deposit with the Company all or part of the Shares so purchased as collateral to secure the payment of Participant's obligation to the Company under the promissory note; provided, -------- however, that the Committee may require or accept other or additional forms of - ------- collateral to secure the payment of such obligation and, in any event, the Company will have full recourse against the Participant under the promissory note notwithstanding any pledge of the Participant's Shares or other collateral. In connection with any pledge of the Shares, Participant will be required to execute and deliver a written pledge agreement in such form as the Committee will from time to time approve. The Shares purchased with the promissory note may be released from the pledge on a pro rata basis as the promissory note is paid. 15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or ----------------------------- from time to time, authorize the Company, with the consent of the respective Participants, to issue new Awards in exchange for the surrender and cancellation of any or all outstanding Awards. The Committee may at any time buy from a Participant an Award previously granted with payment in cash, Shares (including Restricted Stock) or other consideration, based on such terms and conditions as the Committee and the Participant may agree. 16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will ---------------------------------------------- not be effective unless such Award is in compliance with all applicable federal and state securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed or quoted, as they are in effect on the date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any other provision in this Plan, the Company will have no obligation to issue or deliver certificates for Shares under this Plan prior to: (a) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable; and/or (b) completion of any registration or other qualification of such Shares under any state or federal law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company will be under no obligation to register the Shares with the SEC or to effect compliance with the registration, qualification or listing requirements of any state securities laws, stock exchange or automated quotation system, and the Company will have no liability for any inability or failure to do so. 17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award ----------------------- granted under this Plan will confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Parent or Subsidiary of the Company or limit in any way the right of the Company or any Parent or Subsidiary of the Company to terminate Participant's employment or other relationship at any time, with or without cause. 18. CORPORATE TRANSACTIONS. ---------------------- 18.1 Assumption or Replacement of Awards by Successor. In the ------------------------------------------------ event of (a) a dissolution or liquidation of the Company, (b) a merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation with a wholly-owned subsidiary, a reincorporation of the Company in a different jurisdiction, or other transaction in which there is no substantial change in the stockholders of the Company or their relative stock holdings and the Awards granted under this Plan are assumed, converted or replaced by the successor corporation, which assumption will be binding on all Participants), (c) a merger in which the Company is the surviving corporation but after which the stockholders of the Company immediately prior to such merger (other than any stockholder that merges, or which owns or controls another corporation that merges, with the Company in such merger) cease to own their shares or other equity interest in the Company, (d) the sale of substantially all of the assets of the Company, or (e) the acquisition, sale, or transfer of more than 50% of the outstanding shares of the Company by tender offer or similar transaction, any or all outstanding Awards may be assumed, converted or replaced by the successor corporation (if any), which assumption, conversion or replacement will be binding on all Participants. In the alternative, the successor corporation may substitute equivalent Awards or provide substantially similar consideration to Participants as was provided to stockholders (after taking into account the existing provisions of the Awards). The successor corporation may also issue, in place of outstanding Shares of the Company held by the Participant, substantially similar shares or other property subject to repurchase restrictions no less favorable to the Participant. In the event such successor corporation (if any) refuses to assume or substitute Awards, as provided above, pursuant to a transaction described in this Subsection 18.1, the vesting of all Awards will accelerate and the Options will become exercisable in full prior to the consummation of such event at such times -8- and on such conditions as the Committee determines, and if such Options are not exercised prior to the consummation of the corporate transaction, they shall terminate in accordance with the provisions of this Plan. 18.2 Other Treatment of Awards. Subject to any greater rights ------------------------- granted to Participants under the foregoing provisions of this Section 18, in the event of the occurrence of any transaction described in Section 18.1, any outstanding Awards will be treated as provided in the applicable agreement or plan of merger, consolidation, dissolution, liquidation, or sale of assets. 18.3 Assumption of Awards by the Company. The Company, from ----------------------------------- time to time, also may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either; (a) granting an Award under this Plan in substitution of such other company's award; or (b) assuming such award as if it had been granted under this Plan if the terms of such assumed award could be applied to an Award granted under this Plan. Such substitution or assumption will be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under this Plan if the other company had applied the rules of this Plan to such grant. In the event the Company assumes an award granted by another company, the terms and conditions of such award will remain unchanged (except that the exercise price and the number and nature of Shares ------ issuable upon exercise of any such option will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Option rather than assuming an existing option, such new Option may be granted with a similarly adjusted Exercise Price. 19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become --------------------------------- effective on the date on which the registration statement filed by the Company with the SEC under the Securities Act registering the initial public offering of the Company's Series A Common Stock is declared effective by the SEC (the "EFFECTIVE DATE"). This Plan shall be approved by the stockholders of the Company (excluding Shares issued pursuant to this Plan), consistent with applicable laws, within twelve (12) months before or after the date this Plan is adopted by the Board. Upon the Effective Date, the Board may grant Awards pursuant to this Plan; provided, however, that: (a) no Option may be exercised -------- ------- prior to initial stockholder approval of this Plan; (b) no Option granted pursuant to an increase in the number of Shares subject to this Plan approved by the Board will be exercised prior to the time such increase has been approved by the stockholders of the Company; and (c) in the event that stockholder approval of such increase is not obtained within the time period provided herein, all Awards granted hereunder will be canceled, any Shares issued pursuant to any Award will be canceled, and any purchase of Shares hereunder will be rescinded. 20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as -------------------------- provided herein, this Plan will terminate ten (10) years from the date this Plan is adopted by the Board or, if earlier, the date of stockholder approval. This Plan and all agreements thereunder shall be governed by and construed in accordance with the laws of the State of California. 21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time -------------------------------- terminate or amend this Plan in any respect, including without limitation amendment of any form of Award Agreement or instrument to be executed pursuant to this Plan; provided, however, that the Board will not, without the approval -------- ------- of the stockholders of the Company, amend this Plan in any manner that requires such stockholder approval. 22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by -------------------------- the Board, the submission of this Plan to the stockholders of the Company for approval, nor any provision of this Plan will be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options and bonuses otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in specific cases. 23. DEFINITIONS. As used in this Plan, the following terms will have ----------- the following meanings: "AWARD" means any award under this Plan, including any Option, Restricted Stock or Stock Bonus. -9- "AWARD AGREEMENT" means, with respect to each Award, the signed written agreement between the Company and the Participant setting forth the terms and conditions of the Award. "BOARD" means the Board of Directors of the Company. "CAUSE" means the commission of an act of theft, embezzlement, fraud, dishonesty or a breach of fiduciary duty to the Company or a Parent or Subsidiary of the Company. "CODE" means the Internal Revenue Code of 1986, as amended. "COMMITTEE" means the Compensation Committee of the Board. "COMPANY" means At Home Corporation or any successor corporation. "DISABILITY" means a disability, whether temporary or permanent, partial or total, within the meaning of Section 22(e)(3) of the Code, as determined by the Committee. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXERCISE PRICE" means the price at which a holder of an Option may purchase the Shares issuable upon exercise of the Option. "FAIR MARKET VALUE" means, as of any date, the value of a share of the Company's Series A Common Stock determined as follows: (a) if such Series A Common Stock is then quoted on the Nasdaq National Market, its closing price on the Nasdaq National Market on the date of determination as reported in The Wall Street --------------- Journal; ------- (b) if such Series A Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the date of determination on the principal national securities exchange on which the Series A Common Stock is listed or admitted to trading as reported in The Wall Street Journal; ----------------------- (c) if such Series A Common Stock is publicly traded but is not quoted on the Nasdaq National Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported in The Wall Street Journal; ----------------------- (d) in the case of an Award made on the Effective Date, the price per share at which shares of the Company's Series A Common Stock are initially offered for sale to the public by the Company's underwriters in the initial public offering of the Company's Series A Common Stock pursuant to a registration statement filed with the SEC under the Securities Act; or (d) if none of the foregoing is applicable, by the Committee in good faith. "INSIDER" means an officer or director of the Company or any other person whose transactions in the Company's Common Stock are subject to Section 16 of the Exchange Act. "OPTION" means an award of an option to purchase Shares pursuant to Section 5. "PARENT" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if each of such corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. -10- "PARTICIPANT" means a person who receives an Award under this Plan. "PERFORMANCE FACTORS" means the factors selected by the Committee from among the following measures to determine whether the performance goals established by the Committee and applicable to Awards have been satisfied: (a) Net revenue and/or net revenue growth; (b) Earnings before income taxes and amortization and/or earnings before income taxes and amortization growth; (c) Operating income and/or operating income growth; (d) Net income and/or net income growth; (e) Earnings per share and/or earnings per share growth; (f) Total shareholder return and/or total shareholder return growth; (g) Return on equity; (h) Operating cash flow return on income; (i) Adjusted operating cash flow return on income; (j) Economic value added; and (k) Individual confidential business objectives. "PERFORMANCE PERIOD" means the period of service determined by the Committee, not to exceed five years, during which years of service or performance is to be measured for Restricted Stock Awards or Stock Bonuses. "PLAN" means this At Home Corporation 1997 Equity Incentive Plan, as amended from time to time. "RESTRICTED STOCK AWARD" means an award of Shares pursuant to Section 6. "SEC" means the Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SHARES" means shares of the Company's Series A Common Stock reserved for issuance under this Plan or any other compensatory arrangement of the Company, as adjusted pursuant to Sections 2 and 18, and any successor security. "STOCK BONUS" means an award of Shares, or cash in lieu of Shares, pursuant to Section 7. "SUBSIDIARY" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. -11- "TERMINATION" or "TERMINATED" means, for purposes of this Plan with respect to a Participant, that the Participant has for any reason ceased to provide services as an employee, officer, director, consultant, independent contractor, or advisor to the Company or a Parent or Subsidiary of the Company. An employee will not be deemed to have ceased to provide services in the case of (i) sick leave, (ii) military leave, or (iii) any other leave of absence approved by the Committee, provided, that such leave is for a period of not more than 90 days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute or unless provided otherwise pursuant to formal policy adopted from time to time by the Company and issued and promulgated to employees in writing. In the case of any employee on an approved leave of absence, the Committee may make such provisions respecting suspension of vesting of the Award while on leave from the employ of the Company or a Subsidiary as it may deem appropriate, except that in no event may an Option be exercised after the expiration of the term set forth in the Option agreement. The Committee will have sole discretion to determine whether a Participant has ceased to provide services and the effective date on which the Participant ceased to provide services (the "TERMINATION DATE"). "UNVESTED SHARES" means "Unvested Shares" as defined in the Award Agreement. "VESTED SHARES" means "Vested Shares" as defined in the Award Agreement. -12- EX-10.13 22 REGISTRANT'S 1997 EMPLOYEE STOCK PURCHASE PLAN EXHIBIT 10.13 AT HOME CORPORATION 1997 EMPLOYEE STOCK PURCHASE PLAN As Adopted May 15, 1997 1. ESTABLISHMENT OF PLAN. At Home Corporation (the "COMPANY") proposes to grant options for purchase of the Company's Series A Common Stock to eligible employees of the Company and its Participating Subsidiaries (as hereinafter defined) pursuant to this Employee Stock Purchase Plan (this "PLAN"). For purposes of this Plan, "PARENT CORPORATION" and "SUBSIDIARY" (collectively, "PARTICIPATING SUBSIDIARIES") shall have the same meanings as "parent corporation" and "subsidiary corporation" in Sections 424(e) and 424(f), respectively, of the Internal Revenue Code of 1986, as amended (the "CODE"). "PARTICIPATING SUBSIDIARIES" are Parent Corporations or Subsidiaries that the Board of Directors of the Company (the "BOARD") designates from time to time as corporations that shall participate in this Plan. The Company intends this Plan to qualify as an "employee stock purchase plan" under Section 423 of the Code (including any amendments to or replacements of such Section), and this Plan shall be so construed. Any term not expressly defined in this Plan but defined for purposes of Section 423 of the Code shall have the same definition herein. A total of 400,000 shares of the Company's Series A Common Stock is reserved for issuance under this Plan. Such number shall be subject to adjustments effected in accordance with Section 14 of this Plan. 2. PURPOSE. The purpose of this Plan is to provide eligible employees of the Company and Participating Subsidiaries with a convenient means of acquiring an equity interest in the Company through payroll deductions, to enhance such employees' sense of participation in the affairs of the Company and Participating Subsidiaries, and to provide an incentive for continued employment. 3. ADMINISTRATION. This Plan shall be administered by the Compensation Committee of the Board (the "COMMITTEE"). Subject to the provisions of this Plan and the limitations of Section 423 of the Code or any successor provision in the Code, all questions of interpretation or application of this Plan shall be determined by the Board and its decisions shall be final and binding upon all participants. Members of the Board shall receive no compensation for their services in connection with the administration of this Plan, other than standard fees as established from time to time by the Board for services rendered by Board members serving on Board committees. All expenses incurred in connection with the administration of this Plan shall be paid by the Company. 4. ELIGIBILITY. Any employee of the Company or the Participating Subsidiaries is eligible to participate in an Offering Period (as hereinafter defined) under this Plan except the following: (a) employees who are not employed by the Company or Participating Subsidiaries fifteen (15) days before the beginning of such Offering Period, except that employees who are employed on the effective date of the registration statement filed by the Company with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as amended (the "SECURITIES ACT") registering the initial public offering of the Company's Series A Common Stock shall be eligible to participate in the first Offering Period under the Plan; (b) employees who are customarily employed for twenty (20) hours or less per week; (c) employees who are customarily employed for five (5) months or less in a calendar year; (d) employees who, together with any other person whose stock would be attributed to such employee pursuant to Section 424(d) of the Code, own stock or hold options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or any of its Participating Subsidiaries or who, as a result of being granted an option under this Plan with respect to such Offering Period, would own stock or hold options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or any of its Participating Subsidiaries; and (e) individuals who provide services to the Company or any of its Participating Subsidiaries as independent contractors whether or not reclassified as common law employees, unless the Company or a Participating Subsidiary withholds or is required to withhold U.S. Federal employment taxes for such individuals pursuant to Section 3402 of the Code. 5. OFFERING DATES. The offering periods of this Plan (each, an "OFFERING PERIOD") shall be of twenty-four (24) months duration commencing on February 15 and August 15 of each year and ending on August 14 and February 14 of each year; provided, however, that notwithstanding the foregoing, the first -------- ------- such Offering Period shall commence on the first business day on which price quotations for the Company's Series A Common Stock are available on the Nasdaq National Market (the "FIRST OFFERING DATE") and shall end on August 14, 1999. Except for the first Offering Period, each Offering Period shall consist of four (4) six-month purchase periods (individually, a "PURCHASE PERIOD") during which payroll deductions of the participants are accumulated under this Plan. The first Offering Period shall consist of no fewer than three Purchase Periods, any of which may be greater or less than six months as determined by the Committee. The first business day of each Offering Period is referred to as the "OFFERING DATE". The last business day of each Purchase Period is referred to as the "PURCHASE DATE". The Board shall have the power to change the duration of Offering Periods or Purchase Periods with respect to offerings without stockholder approval if such change is announced at least fifteen (15) days prior to the scheduled beginning of the first Offering Period or Purchase Period to be affected. 6. PARTICIPATION IN THIS PLAN. Eligible employees may become participants in an Offering Period under this Plan on the first Offering Date after satisfying the eligibility requirements by delivering a subscription agreement to the Company's treasury department (the "TREASURY DEPARTMENT") not later than fifteen (15) days before such Offering Date unless a later time for filing the subscription agreement authorizing payroll deductions is set by the Board for all eligible employees with respect to a given Offering Period. An eligible employee who does not deliver a subscription agreement to the Treasury Department by such date after becoming eligible to participate in such Offering Period shall not participate in that Offering Period or any subsequent Offering Period unless such employee enrolls in this Plan by filing a subscription agreement with the Treasury Department not later than fifteen (15) days preceding a subsequent Offering Date. Once an employee becomes a participant in an Offering Period, such employee will automatically participate in the Offering Period commencing immediately following the last day of the prior Offering Period unless the employee withdraws or is deemed to withdraw from this Plan or terminates further participation in the Offering Period as set forth in Section 11 below. Such participant is not required to file any additional subscription agreement in order to continue participation in this Plan. 7. GRANT OF OPTION ON ENROLLMENT. Enrollment by an eligible employee in this Plan with respect to an Offering Period will constitute the grant (as of the Offering Date) by the Company to such employee of an option to purchase on the Purchase Date up to that number of shares of Series A Common Stock of the Company determined by dividing (a) the amount accumulated in such employee's payroll deduction account during such Purchase Period by (b) the lower of (i) eighty-five percent (85%) of the fair market value of a share of the Company's Series A Common Stock on the Offering Date (but in no event less than the par value of a share of the Company's Series A Common Stock), or (ii) eighty-five percent (85%) of the fair market value of a share of the Company's Series A Common Stock on the Purchase Date (but in no event less than the par value of a share of the Company's Series A Common Stock), provided, however, that the -------- ------- number of shares of the Company's Series A Common Stock subject to any option granted pursuant to this Plan shall not exceed the lesser of (a) the maximum number of shares set by the Board pursuant to Section 10(c) below with respect to the applicable Purchase Date, or (b) the maximum number of shares which may be purchased pursuant to Section 10(b) below with respect to the applicable Purchase Date. The fair market value of a share of the Company's Series A Common Stock shall be determined as provided in Section 8 hereof. 8. PURCHASE PRICE. The purchase price per share at which a share of Series A Common Stock will be sold in any Offering Period shall be eighty-five percent (85%) of the lesser of: -2- (a) The fair market value on the Offering Date; or (b) The fair market value on the Purchase Date. For purposes of this Plan, the term "FAIR MARKET VALUE" means, as of any date, the value of a share of the Company's Series A Common Stock determined as follows: (a) if such Series A Common Stock is then quoted on the Nasdaq National Market, its closing price on the Nasdaq National Market on the date of determination as reported in The Wall -------- Street Journal; -------------- (b) if such Series A Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the date of determination on the principal national securities exchange on which the Series A Common Stock is listed or admitted to trading as reported in The Wall Street --------------- Journal; ------- (c) if such Series A Common Stock is publicly traded but is not quoted on the Nasdaq National Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported in The Wall Street Journal; or ----------------------- (d) if none of the foregoing is applicable, by the Board in good faith, which in the case of the First Offering Date will be the price per share at which shares of the Company's Series A Common Stock are initially offered for sale to the public by the Company's underwriters in the initial public offering of the Company's Series A Common Stock pursuant to a registration statement filed with the SEC under the Securities Act. 9. PAYMENT OF PURCHASE PRICE; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE OF SHARES. (a) The purchase price of the shares is accumulated by regular payroll deductions made during each Offering Period. The deductions are made as a percentage of the participant's compensation in one percent (1%) increments not less than two percent (2%), nor greater than fifteen percent (10%) or such lower limit set by the Committee. Compensation shall mean base salary that is not in excess of $250,000 per calendar year, provided however, that for purposes of determining a participant's base salary, any election by such participant to reduce his or her regular cash remuneration under Sections 125 or 401(k) of the Code shall be treated as if the participant did not make such election. Payroll deductions shall commence on the first payday following the Offering Date and shall continue to the end of the Offering Period unless sooner altered or terminated as provided in this Plan. (b) A participant may lower (but not increase) the rate of payroll deductions during an Offering Period by filing with the Treasury Department a new authorization for payroll deductions, in which case the new rate shall become effective for the next payroll period commencing more than fifteen (15) days after the Treasury Department's receipt of the authorization and shall continue for the remainder of the Offering Period unless changed as described below. Such change in the rate of payroll deductions may be made at any time during an Offering Period, but not more than one (1) change may be made effective during any Offering Period. A participant may increase or decrease the rate of payroll deductions for any subsequent Offering Period by filing with the Treasury Department a new authorization for payroll deductions not later than fifteen (15) days before the beginning of such Offering Period. (c) All payroll deductions made for a participant are credited to his or her account under this Plan and are deposited with the general funds of the Company. No interest accrues on the payroll deductions. All payroll deductions received or held by the Company may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions. (d) On each Purchase Date, so long as this Plan remains in effect and provided that the participant has not submitted a signed and completed withdrawal form before that date which notifies the Company that the participant wishes to withdraw from that Offering Period under this Plan and have all payroll deductions accumulated in the account maintained on behalf of the participant as of that date returned to the participant, the Company shall apply the -3- funds then in the participant's account to the purchase of whole shares of Series A Common Stock reserved under the option granted to such participant with respect to the Offering Period to the extent that such option is exercisable on the Purchase Date. The purchase price per share shall be as specified in Section 8 of this Plan. Any cash remaining in a participant's account after such purchase of shares shall be refunded to such participant in cash, without interest; provided, however that any amount remaining in such participant's account on a Purchase Date which is less than the amount necessary to purchase a full share of Series A Common Stock of the Company shall be carried forward, without interest, into the next Purchase Period or Offering Period, as the case may be. In the event that this Plan has been oversubscribed, all funds not used to purchase shares on the Purchase Date shall be returned to the participant, without interest. No Series A Common Stock shall be purchased on a Purchase Date on behalf of any employee whose participation in this Plan has terminated prior to such Purchase Date. (e) As promptly as practicable after the Purchase Date, the Company shall issue shares for the participant's benefit representing the shares purchased upon exercise of his or her option. (f) During a participant's lifetime, such participant's option to purchase shares hereunder is exercisable only by him or her. The participant will have no interest or voting right in shares covered by his or her option until such option has been exercised. 10. LIMITATIONS ON SHARES TO BE PURCHASED.__ (a) No participant shall be entitled to purchase stock under this Plan at a rate which, when aggregated with his or her rights to purchase stock under all other employee stock purchase plans of the Company or any Subsidiary, exceeds $25,000 in fair market value, determined as of the Offering Date (or such other limit as may be imposed by the Code) for each calendar year in which the employee participates in this Plan. (b) No more than two hundred percent (200%) of the number of shares determined by using eighty-five percent (85%) of the fair market value of a share of the Company's Series A Common Stock on the Offering Date as the denominator may be purchased by a participant on any single Purchase Date. (c) No participant shall be entitled to purchase more than the Maximum Share Amount (as defined below) on any single Purchase Date. Not less than thirty (30) days prior to the commencement of any Offering Period, the Committee may, in its sole discretion, set a maximum number of shares which may be purchased by any employee at any single Purchase Date (hereinafter the "MAXIMUM SHARE AMOUNT"). Until otherwise determined by the Committee, there shall be no Maximum Share Amount. In no event shall the Maximum Share Amount exceed the amounts permitted under Section 10(b) above. If a new Maximum Share Amount is set, then all participants must be notified of such Maximum Share Amount prior to the commencement of the next Offering Period. Once the Maximum Share Amount is set, it shall continue to apply with respect to all succeeding Purchase Dates and Offering Periods unless revised by the Committee as set forth above. (d) If the number of shares to be purchased on a Purchase Date by all employees participating in this Plan exceeds the number of shares then available for issuance under this Plan, then the Company will make a pro rata allocation of the remaining shares in as uniform a manner as shall be reasonably practicable and as the Committee shall determine to be equitable. In such event, the Company shall give written notice of such reduction of the number of shares to be purchased under a participant's option to each participant affected thereby. (e) Any payroll deductions accumulated in a participant's account which are not used to purchase stock due to the limitations in this Section 10 shall be returned to the participant as soon as practicable after the end of the applicable Purchase Period, without interest. 11. WITHDRAWAL. (a) Each participant may withdraw from an Offering Period under this Plan by signing and delivering to the Treasury Department a written notice to that effect on a form provided for such purpose. Such withdrawal may be elected at any time at least fifteen (15) days prior to the end of an Offering Period. -4- (b) Upon withdrawal from this Plan, the accumulated payroll deductions shall be returned to the withdrawn participant, without interest, and his or her interest in this Plan shall terminate. In the event a participant voluntarily elects to withdraw from this Plan, he or she may not resume his or her participation in this Plan during the same Offering Period, but he or she may participate in any Offering Period under this Plan which commences on a date subsequent to such withdrawal by filing a new authorization for payroll deductions in the same manner as set forth above for initial participation in this Plan. (c) If the purchase price on the first day of any current Offering Period in which a participant is enrolled is higher than the purchase price on the first day of any subsequent Offering Period, the Company will automatically enroll such participant in the subsequent Offering Period. Any funds accumulated in a participant's account prior to the first day of such subsequent Offering Period will be applied to the purchase of shares on the Purchase Date immediately prior to the first day of such subsequent Offering Period. A participant does not need to file any forms with the Company to automatically be enrolled in the subsequent Offering Period 12. TERMINATION OF EMPLOYMENT. Termination of a participant's employment for any reason, including retirement, death or the failure of a participant to remain an eligible employee of the Company or of a Participating Subsidiary, immediately terminates his or her participation in this Plan. In such event, the payroll deductions credited to the participant's account will be returned to him or her or, in the case of his or her death, to his or her legal representative, without interest. For purposes of this Section 12, an employee will not be deemed to have terminated employment or failed to remain in the continuous employ of the Company or of a Participating Subsidiary in the case of sick leave, military leave, or any other leave of absence approved by the Board; provided that such leave is for a period of not more than ninety (90) days or - -------- reemployment upon the expiration of such leave is guaranteed by contract or statute. 13. RETURN OF PAYROLL DEDUCTIONS. In the event a participant's interest in this Plan is terminated by withdrawal, termination of employment or otherwise, or in the event this Plan is terminated by the Board, the Company shall promptly deliver to the participant all payroll deductions credited to such participant's account. No interest shall accrue on the payroll deductions of a participant in this Plan. 14. CAPITAL CHANGES. Subject to any required action by the stockholders of the Company, the number of shares of Series A Common Stock covered by each option under this Plan which has not yet been exercised and the number of shares of Series A Common Stock which have been authorized for issuance under this Plan but have not yet been placed under option (collectively, the "RESERVES"), as well as the price per share of Series A Common Stock covered by each option under this Plan which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued and outstanding shares of Series A Common Stock of the Company resulting from a stock split or the payment of a stock dividend (but only on the Series A Common Stock) or any other increase or decrease in the number of issued and outstanding shares of Common Stock effected without receipt of any consideration by the Company; provided, however, that conversion of any convertible securities of the Company - --------- -------- shall not be deemed to have been "effected without receipt of consideration". Such adjustment shall be made by the Committee, whose determination shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Series A Common Stock subject to an option. In the event of the proposed dissolution or liquidation of the Company, the Offering Period will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Committee. The Committee may, in the exercise of its sole discretion in such instances, declare that the options under this Plan shall terminate as of a date fixed by the Committee and give each participant the right to exercise his or her option as to all of the optioned stock, including shares which would not otherwise be exercisable. In the event of (i) a merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation with a wholly-owned subsidiary, a reincorporation of the Company in a different jurisdiction, or other transaction in which there is no substantial change in the stockholders of the Company or their relative stock holdings and the options under this Plan are assumed, converted or replaced by the successor corporation, which assumption will be binding on all participants), (ii) a merger in which the Company is the surviving corporation but after which the stockholders of the Company immediately prior to such merger (other than any stockholder that merges, or which owns or controls another corporation that merges, with the Company in such merger) cease to own their shares or other equity interest in the -5- Company, (iii) the sale of substantially all of the assets of the Company or (iv) the acquisition, sale, or transfer of more than 50% of the outstanding shares of the Company by tender offer or similar transaction, each option under this Plan may be assumed or an equivalent option may be substituted by such successor corporation or a parent or subsidiary of such successor corporation. In the event such surviving corporation refuses to assume or substitute options under this Plan, (i) this Plan will terminate upon the consummation of such transaction, unless otherwise provided by the Committee and (ii) the Committee may declare that the options under this Plan shall terminate as of a date fixed by the Committee and give each participant the right to exercise his or her option as to all of the optioned stock. If the Committee makes an option fully exercisable in the event of a merger, consolidation or sale of assets, the Committee shall notify the participant that the option shall be fully exercisable for a certain period, and the option and this Plan will terminate upon the expiration of such period. The Committee may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per share of Series A Common Stock covered by each outstanding option, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of shares of its outstanding Series A Common Stock, or in the event of the Company being consolidated with or merged into any other corporation. 15. NONASSIGNABILITY. Neither payroll deductions credited to a participant's account nor any rights with regard to the exercise of an option or to receive shares under this Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 22 hereof) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be void and without effect. 16. REPORTS. Individual accounts will be maintained for each participant in this Plan. Each participant shall receive promptly after the end of each Purchase Period a report of his or her account setting forth the total payroll deductions accumulated, the number of shares purchased, the per share price thereof and the remaining cash balance, if any, carried forward to the next Purchase Period or Offering Period, as the case may be. 17. NOTICE OF DISPOSITION. Each participant shall notify the Company if the participant disposes of any of the shares purchased in any Offering Period pursuant to this Plan if such disposition occurs within two (2) years from the Offering Date or within one (1) year from the Purchase Date on which such shares were purchased (the "NOTICE PERIOD"). Unless such participant is disposing of any of such shares during the Notice Period, such participant shall keep the certificates representing such shares in his or her name (and not in the name of a nominee) during the Notice Period. The Company may, at any time during the Notice Period, place a legend or legends on any certificate representing shares acquired pursuant to this Plan requesting the Company's transfer agent to notify the Company of any transfer of the shares. The obligation of the participant to provide such notice shall continue notwithstanding the placement of any such legend on the certificates. 18. NO RIGHTS TO CONTINUED EMPLOYMENT. Neither this Plan nor the grant of any option hereunder shall confer any right on any employee to remain in the employ of the Company or any Participating Subsidiary, or restrict the right of the Company or any Participating Subsidiary to terminate such employee's employment. 19. EQUAL RIGHTS AND PRIVILEGES. All eligible employees shall have equal rights and privileges with respect to this Plan so that this Plan qualifies as an "employee stock purchase plan" within the meaning of Section 423 or any successor provision of the Code and the related regulations. Any provision of this Plan which is inconsistent with Section 423 or any successor provision of the Code shall, without further act or amendment by the Company or the Board, be reformed to comply with the requirements of Section 423. This Section 19 shall take precedence over all other provisions in this Plan. 20. NOTICES. All notices or other communications by a participant to the Company under or in connection with this Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 21. TERM; STOCKHOLDER APPROVAL. After this Plan is adopted by the Board, this Plan will become effective on the date that is the First Offering Date (as defined above). This Plan shall be approved by the stockholders of the Company, in any manner permitted by applicable corporate law, within twelve (12) months before or after the date this Plan is adopted by the Board. No purchase of shares pursuant to this Plan shall occur prior to such stockholder -6- approval. This Plan shall continue until the earlier to occur of (a) termination of this Plan by the Board (which termination may be effected by the Board at any time), (b) issuance of all of the shares of Series A Common Stock reserved for issuance under this Plan, or (c) ten (10) years from the adoption of this Plan by the Board. 22. DESIGNATION OF BENEFICIARY. (a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under this Plan in the event of such participant's death subsequent to the end of an Purchase Period but prior to delivery to him of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under this Plan in the event of such participant's death prior to a Purchase Date. (b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under this Plan who is living at the time of such participant's death, the Company shall deliver such shares or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. 23. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act, the Securities Exchange Act of 1934, the rules and regulations promulgated thereunder, and the requirements of any stock exchange or automated quotation system upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. 24. APPLICABLE LAW. The Plan shall be governed by the substantive laws (excluding the conflict of laws rules) of the State of California. 25. AMENDMENT OR TERMINATION OF THIS PLAN. The Board may at any time amend, terminate or extend the term of this Plan, except that any such termination cannot affect options previously granted under this Plan, nor may any amendment make any change in an option previously granted which would adversely affect the right of any participant, nor may any amendment be made without approval of the stockholders of the Company obtained in accordance with Section 21 hereof within twelve (12) months of the adoption of such amendment (or earlier if required by Section 21) if such amendment would: (a) increase the number of shares that may be issued under this Plan; or (b) change the designation of the employees (or class of employees) eligible for participation in this Plan. -7- EX-10.14 23 RESTRICTED STOCK PURCHASE AGREEMENT EXHIBIT 10.14 RESTRICTED STOCK PURCHASE AGREEMENT (FOR PURCHASES PAID FOR WITH CASH) This Agreement is made and entered into as of July 31, 1996 (the "Effective --------- Date") between AT HOME CORPORATION, a Delaware corporation (the "Company"), and - ---- ------- Thomas A. Jermoluk ("Purchaser"). --------- RECITALS -------- A. The Company desires to provide equity incentives to certain key employees pursuant to this Restricted Stock Purchase Agreement, which agreement is intended to qualify as a compensatory benefit plan or agreement within the meaning of Rule 701 under the Securities Act of 1933, as amended. B. Purchaser is the President and Chief Executive Officer of the Company and possesses sufficient business and financial experience, and/or sufficient knowledge of and/or relationship to the Company and its management to enable the Company to lawfully issue shares of its Common Stock to Purchaser without the need for registration or qualification of such shares under the Securities Act of 1933, as amended, and all applicable state "blue sky" laws. C. The Company desires to sell to Purchaser, and Purchaser desires to purchase from the Company, shares of the Company's Series A Common Stock. NOW, THEREFORE, the parties agree as follows: 1. PURCHASE OF SHARES. On the Effective Date and subject to the terms ------------------- and conditions of this Agreement, Purchaser hereby purchases from the Company, and the Company hereby sells to Purchaser, an aggregate of 1,500,000 shares of the Company's Series A Common Stock, $0.01 par value (the "Shares"), at an ------ aggregate purchase price of $150,000.00 (the "Purchase Price") or $0.10 per -------------- Share (the"Purchase Price Per Share"). As used in this Agreement, the term ------------------------ "Shares" refers to the Shares purchased under this Agreement and includes all securities received (a) in replacement of the Shares, (b) as a result of stock dividends or stock splits in respect of the Shares, and (c) in replacement of the Shares in a recapitalization, merger, reorganization or the like. 2. PAYMENT OF PURCHASE PRICE; CLOSING. ----------------------------------- (A) DELIVERIES BY PURCHASER. Purchaser hereby delivers to the ------------------------ Company the full Purchase Price by delivery of a check made out to the order of the Company in the amount of $150,000.00 in payment of the aggregate Purchase Price of the Shares, a copy of which is attached hereto as Exhibit 1. --------- Purchaser also hereby delivers to the Company two (2) copies of a blank Stock Power and Assignment Separate from Stock Certificate in the form of Exhibit 2 --------- attached hereto (the "Stock Powers"), duly executed by Purchaser and his spouse. ------------ (B) DELIVERIES BY THE COMPANY. Upon its receipt of the entire -------------------------- Purchase Price and the documents to be executed and delivered by Purchaser to the Company under Section 2(a), the Company will issue a duly executed stock certificate evidencing the Shares in the name of Purchaser, with such certificate to be placed in escrow as provided in Section 9 until expiration or termination of both the Company's Repurchase Obligation and Right of First Refusal described in Sections 5 and 6. 3. REPRESENTATIONS AND WARRANTS OF PURCHASER. Purchaser represents and ------------------------------------------ warrants to the Company that: (A) PURCHASE FOR OWN ACCOUNT FOR INVESTMENT. Purchaser is ---------------------------------------- purchasing the Shares for Purchaser's own account for investment purposes only and not with a view to, or for sale in connection with, a distribution of the Shares within the meaning of the Securities Act of 1933, as amended (the "1933 ---- Act"). Purchaser has no present intention of selling or otherwise disposing of - --- all or any portion of the Shares and no one other than Purchaser has any beneficial ownership of any of the Shares. (B) ACCESS TO INFORMATION. Purchaser has had access to all ---------------------- information regarding the Company and its present and prospective business, assets, liabilities and financial condition that Purchaser reasonably considers important in making the decision to purchase the Shares, and Purchaser has had ample opportunity to ask questions of the Company's representatives concerning such matters and this investment. (C) UNDERSTANDING OF RISKS. Purchaser is fully aware of: (i) the ----------------------- highly speculative nature of the investment in the Shares; (ii) the financial hazards involved; (iii) the lack of liquidity of the Shares and the restrictions on transferability of the Shares (e.g., that Purchaser may not be able to sell ---- or dispose of the Shares or use them as collateral for loans); (iv) the qualifications and backgrounds of the management of the Company; and (v) the tax consequences of investment in the Shares. (D) PURCHASER'S QUALIFICATIONS. Purchaser has a preexisting --------------------------- personal or business relationship with the Company and/or certain of its officers and/or directors of a nature and duration sufficient to make Purchaser aware of the character, business acumen and general business and financial circumstances of the Company and/or such officers and directors. By reason of Purchaser's business or financial experience, Purchaser is capable of evaluating the merits and risks of this investment, has the ability to protect Purchaser's own interests in this transaction and is financially capable of bearing a total loss of this investment. (E) NO GENERAL SOLICITATION. At no time was Purchaser presented ------------------------ with or solicited by any publicly issued or circulated newspaper, mail, radio, television or other form of general advertising or solicitation in connection with the offer, sale and purchase of the Shares. (F) COMPLIANCE WITH SECURITIES LAWS. Purchaser understands and -------------------------------- acknowledges that, in reliance upon the representations and warranties made by Purchaser herein, the Shares are not being registered with the Securities and Exchange Commission ("SEC") under the 1933 Act or being qualified under the --- California Corporate Securities Law of 1968, as 2 amended (the "Law"), but instead are being issued under an exemption or --- exemptions from the registration and qualification requirements of the 1933 Act and the Law or other applicable state securities laws which may impose certain restrictions on Purchaser's ability to transfer the Shares. (G) RESTRICTIONS ON TRANSFER. Purchaser acknowledges and agrees ------------------------- that the Company, in its discretion, may elect to issue the Shares under one or more of several different exemptions from the registration and qualification requirements of the 1933 Act and the Law and that Purchaser's ability to transfer the Shares in compliance with such laws will be affected by the Company's choice of exemption. Purchaser further understands that the Company's choice of exemptions may not be definitively made until a later date and the Company is entirely free in its discretion to choose which exemption or exemptions it will rely upon to exempt the sale of Shares to Purchaser. Purchaser understands that Purchaser may not transfer any Shares unless such Shares are registered under the 1933 Act or qualified under the Law or unless, in the opinion of counsel to the Company, exemptions from such registration and qualification requirements are available. Purchaser understands that only the Company may file a registration statement with the SEC or the California Commissioner of Corporations and that the Company is under no obligation to do so with respect to the Shares. Purchaser has also been advised that exemptions from registration and qualification may not be available or may not permit Purchaser to transfer all or any of the Shares in the amounts or at the times proposed by Purchaser. (H) RULE 144. Purchaser acknowledges that SEC Rule 144 promulgated --------- under the 1933 Act, which permits certain limited sales of unregistered securities, is not presently available with respect to the Shares and, in any event, may require that the Shares be held for a minimum of two years, and in certain cases three years, after they have been purchased and paid for (within -------- the meaning of Rule 144), before they may be resold under Rule 144. Purchaser understands that Rule 144 will remain unavailable indefinitely with respect to transfers of the Shares so long as Purchaser remains an "affiliate" of the Company and "current public information" about the Company (as defined in Rule 144) is not publicly available. In addition, Purchaser understands that all public resales of the Shares by Purchaser at a time when Purchaser is an affiliate of the Company must comply with the provisions of Rule 144. (I) RULE 701. If the Shares are issued pursuant to the exemption --------- provided by Rule 701 promulgated under the 1933 Act, then the Shares will become freely tradable by persons who are non-affiliates of the Company under SEC Rule 701 promulgated under the 1933 Act, subject to limited conditions regarding the method of sale, 90 days after the first sale of common stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the SEC, subject to any transfer restrictions imposed by applicable state securities laws, the lengthier market standoff agreement contained in this Agreement or any other agreement entered into by Purchaser. Under Rule 701, affiliates must comply with the provisions (other than the holding period requirements) of Rule 144. (J) RULE 504. If the Company elects to issue the Shares to --------- Purchaser under the exemption provided by Rule 504 of Regulation D promulgated under the 1933 Act, then the Shares should be freely tradable by non-affiliates of the Company under the 1933 Act, subject to any transfer restrictions imposed by applicable state securities laws, the lengthier market stand-off agreement contained in this Agreement or any other contractual restrictions contained in this 3 Agreement or in any other agreement entered into by Purchaser. However, affiliates of the Company must continue to comply with the provisions (other than the holding period requirements) of Rule 144. As noted above, Rule 144 is not presently available. (K) TERMS OF PURCHASE AGREEMENT ACCEPTED. Purchaser has received a ------------------------------------- copy of this Agreement, has read and understands the terms of this Agreement, and agrees to be bound by its terms and conditions. Purchaser acknowledges that there may be adverse tax consequences upon purchase and disposition of the Shares, and that Purchaser should consult a tax adviser prior to such purchase or disposition. 4. MARKET STANDOFF AGREEMENT. Purchaser agrees in connection with any -------------------------- registration of the Company's securities under the 1933 Act that, upon the request of the Company or the underwriters managing any registered public offering of the Company's securities, Purchaser will not sell or otherwise dispose of any Shares without the prior written consent of the Company or such managing underwriters, as the case may be, for a period of time (not to exceed one year) after the effective date of such registration requested by such managing underwriters and subject to all restrictions as the Company or the managing underwriters may specify for employee-shareholders generally. 5. COMPANY'S REPURCHASE OBLIGATION. Upon the occurrence of certain -------------------------------- events, the Company has the obligation to repurchase all of the Unvested Shares (as defined below) on the terms and conditions set forth in this Section (the "Repurchase Obligation"). - ---------------------- (A) DEFINITION OF "EMPLOYED BY THE COMPANY"; "TERMINATION DATE". For ------------------------------------------------------------ purposes of this Agreement, Purchaser will be considered to be "employed by the --------------- Company" if the Board of Directors of the Company determines that Purchaser is - ------- rendering substantial services as an officer, employee or consultant to the Company or to any parent, subsidiary or affiliate of the Company. In case of any dispute as to whether Purchaser is employed by the Company, the Board of Directors of the Company will have discretion to determine whether Purchaser has ceased to be employed by the Company or any parent, subsidiary or affiliate of the Company and the effective date on which Purchaser's employment terminated (the "Termination Date"). ---------------- (B) UNVESTED AND VESTED SHARES. "Unvested Shares" are Shares which --------------------------- --------------- are subject to the Company's Repurchase Obligation. "Vested Shares" are Shares ------------- which are no longer subject to the Company's Repurchase Obligation. On the Effective Date, 375,000 of the Shares will be "Vested Shares" and 1,125,000 of the Shares will be "Unvested Shares". If Purchaser has been continuously employed by the Company at all times from the Effective Date until August 31, 1997 (the "First Vesting Date"), then on the First Vesting Date an additional ------------------ two point zero eight percent (2.08%) of the Shares will become Vested Shares; and thereafter, for so long (and only for so long) as Purchaser remains continuously employed by the Company at all times after the First Vesting Date, an additional two point zero eight percent (2.08%) of the Shares will become Vested Shares upon the last day of each succeeding calendar month that elapses after the First Vesting Date. Notwithstanding the foregoing, no Shares will become Vested Shares after the Termination Date, except as provided in (f) below. 4 (C) ADJUSTMENTS. The number of Shares that are Vested Shares or ------------ Unvested Shares will be proportionally adjusted to reflect any stock dividend, stock split, reverse stock split or recapitalization of the Series A Common Stock of the Company occurring after the Effective Date. (D) REPURCHASE AT ORIGINAL PRICE. If Purchaser shall cease to be ----------------------------- employed by the Company due to voluntary termination, termination by the Company with "cause", death or disability, the Company shall repurchase all Unvested Shares of Purchaser from Purchaser (or Purchaser's personal representative as the case may be) at the Purchaser's original Purchase Price Per Share (as adjusted to reflect any stock dividend, stock split, reverse stock split or recapitalization of the Series A Common Stock of the Company occurring after the Effective Date). (E) PAYMENT OF REPURCHASE PRICE. The repurchase price payable to ---------------------------- purchase Unvested Shares will be payable, at the option of the Company or its assignee(s), by check or by cancellation of all or a portion of any outstanding indebtedness of Purchaser to the Company (or to such assignee) or by any combination thereof. The repurchase price will be paid without interest within ninety (90) days after the Termination Date. (F) VESTING UPON TERMINATION WITHOUT "CAUSE". If Purchaser shall ---------------------------------------- cease to be employed by the Company due to termination by the Company without "cause", all of the Shares shall become Vested Shares as of the Termination Date and the Company shall not be required or entitled to repurchase any Shares from Purchaser. Termination without "cause" shall mean termination of Purchaser's employment by Company for any reason other than "cause", voluntary termination, death or disability. Termination shall be regarded as for "cause" only upon (i) Purchaser's willful and continued failure to substantially perform his duties with the Company after there is delivered to Purchaser by the Board of Directors a written demand for substantial performance which sets forth in detail the specific respects in which it believes Purchaser has not substantially performed his duties; (ii) Purchaser willfully engaging in gross misconduct which is materially detrimental to the Company; (iii) Purchaser committing a felony or an act of fraud against the Company or its affiliates; or (iv) Purchaser breaching materially the terms of Purchaser's employee confidentiality and proprietary information agreement with the Company or any other similar agreement that may be in effect from time to time. No act, or failure to act, by Purchaser shall be considered "willful" if done, or omitted to be done, by Purchaser in good faith in Purchaser's reasonable belief that his act or omission was in the best interests of the Company and/or required by applicable law. Purchaser shall not be deemed to have been terminated for cause under clause (i), (ii) or (iv) unless and until there shall have been delivered to Purchaser a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board of Directors at a meeting of the Board of Directors called and held for that purpose (after reasonable notice to and an opportunity for Purchaser, together with Purchaser's counsel, to be heard before the Board of Directors), finding that in the good faith opinion of the Board of Directors, Purchaser is guilty of conduct set forth in such clauses and specifying the particulars thereof in detail. A resignation by Purchaser for any of the following reasons shall not be deemed to be a voluntary termination and instead shall be deemed to be a termination of Purchaser's employment by the Company without "cause": (w) Purchaser shall be placed in a lower stature position than the position described in Recital B. 5 above; (x) Purchaser's base salary shall be reduced by more than twenty percent without Purchaser's consent; (y) Purchaser shall cease to be the Chief Executive Officer of the Company reporting to the Board of Directors; or (z) the Company shall otherwise breach the material terms of that certain letter agreement between the Company and Purchaser dated July 19, 1996 (the "Employment Letter ----------------- Agreement"). - ---------- (G) RIGHT OF TERMINATION UNAFFECTED. Nothing in this Agreement will -------------------------------- be construed to limit or otherwise affect in any manner whatsoever the right or power of the Company (or any parent, subsidiary or affiliate of the Company) to terminate Purchaser's employment at any time for any reason or no reason, with or without cause. 6. RIGHT OF FIRST REFUSAL. Unvested Shares may not be sold or otherwise ----------------------- transferred by Purchaser without the Company's prior written consent. Before any Vested Shares held by Purchaser or any transferee of such Shares (either being sometimes referred to herein as the "Holder") may be sold or otherwise ------ transferred (including without limitation a transfer by gift or operation of law), the Company and/or its assignee(s) will have a right of first refusal to purchase the Vested Shares to be sold or transferred (the "Offered Shares") on -------------- the terms and conditions set forth in this Section (the "Right of First -------------- Refusal"). (A) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares will ---------------------------- deliver to the Company a written notice (the "Notice") stating: (i) the ------ Holder's bona fide intention to sell or otherwise transfer the Offered Shares; (ii) the name, address and phone/fax number of each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number of Offered Shares to be --------------------- transferred to each Proposed Transferee; (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Offered Shares (the "Offered Price") and (unless waived by the Company) a brief ------------- written explanation, signed by the Holder and the Proposed Transferee, of how the Offered Price was arrived at; and (v) that the Holder will offer to sell the Offered Shares to the Company and/or its assignee(s) at the Offered Price as provided in this Section. A true and correct copy of the Proposed Transferee's bona fide offer shall be provided to the Company together with the Notice. (B) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within sixty ----------------------------------- (60) days after the date of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all (but not less than all) of the Offered Shares proposed to be transferred to any one or more of the Proposed Transferees named in the Notice, at the purchase price determined in accordance with subsection (c) below. (C) PURCHASE PRICE. The purchase price for the Offered Shares --------------- purchased under this Section will be the Offered Price. If the Offered Price includes consideration other than cash, then the value of the non-cash consideration as determined in good faith by the Company's Board of Directors will conclusively be deemed to be the cash equivalent value of such non-cash consideration. (D) PAYMENT. Payment of the purchase price for Offered Shares will -------- be payable, at the option of the Company and/or its assignee(s) (as applicable), by check or by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or 6 to such assignee, in the case of a purchase of Offered Shares by such assignee) or by any combination thereof. The purchase price will be paid without interest within sixty (60) days after the Company's receipt of the Notice, or, at the option of the Company and/or its assignee(s), in the manner and at the time(s) set forth in the Notice. (E) HOLDER'S RIGHT TO TRANSFER. If all of the Offered Shares --------------------------- proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Offered Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that -------- such sale or other transfer is consummated within 120 days after the date of the Notice, and provided further, that: (i) any such sale or other transfer is -------- ------- effected in compliance with all applicable securities laws; and (ii) the Proposed Transferee agrees in writing that the provisions of this Section will continue to apply to the Offered Shares in the hands of such Proposed Transferee. If the Offered Shares described in the Notice are not transferred to the Proposed Transferee within such 120 day period, then a new Notice must be given to the Company, and the Company will again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. (F) EXEMPT TRANSFERS. Notwithstanding anything to the contrary in ----------------- this Section, the following transfers of Shares will be exempt from the Right of First Refusal: (i) the transfer of any or all of the Shares during Purchaser's lifetime by gift or on Purchaser's death by will or intestacy to Purchaser's "immediate family" (as defined below) or to a trust for the benefit of Purchaser or Purchaser's immediate family, provided that each transferee or other recipient agrees in a writing satisfactory to the Company that the provisions of this Section will continue to apply to the transferred Shares in the hands of such transferee or other recipient; (ii) any transfer of Shares made pursuant to a statutory merger or statutory consolidation of the Company with or into another corporation or corporations (except that the Right of First Refusal will continue to apply thereafter to such Shares, in which case the surviving corporation of such merger or consolidation shall succeed to the rights of the Company under this Section unless the agreement of merger or consolidation expressly otherwise provides); (iii) any transfer of Shares pursuant to the winding up and dissolution of the Company; or (iv) any transfer of Shares made in accordance with Section 5 of this Agreement or this Section 6. As used herein, the term "immediate family" will mean Purchaser's spouse, lineal ---------------- descendant or antecedent, father, mother, brother or sister, adopted child or grandchild, or the spouse of any child, adopted child, grandchild or adopted grandchild of Purchaser. (G) TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First -------------------------------------- Refusal will terminate as to all Shares on the effective date of the first sale of common stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the SEC under the 1933 Act (other than a registration statement relating solely to the issuance of common stock pursuant to a business combination or an employee incentive or benefit plan). (H) ENCUMBRANCES ON SHARES. Purchaser may grant a lien or security ----------------------- interest in, or pledge, hypothecate or encumber Vested Shares only if the Company or its successors and assigns do not hold a lien or security interest in such shares and only if each party to whom such lien or security interest is granted, or to whom such pledge, hypothecation or other encumbrance 7 is made, agrees in a writing satisfactory to the Company that: (i) such lien, security interest, pledge, hypothecation or encumbrance will not apply to such Vested Shares after they are acquired by the Company and/or its assignees under this Section; and (ii) the provisions of this Section will continue to apply to such Vested Shares in the hands of such party and any transferee of such party. Purchaser may not grant a lien or security interest in, or pledge, hypothecate or encumber any Unvested Shares. 7. GUARANTEES. The provisions of Section 5(b) and Section 5(c) of the ---------- Employment Letter Agreement regarding the First Guarantee and the Second Guarantee are hereby incorporated into and shall form a part of this Agreement. The term "Restricted Stock" as used in the Employment Letter Agreement shall have the same meaning as the term "Shares" used herein. Both terms refer to the shares of Series A Common Stock purchased hereunder. 8. RIGHTS AS SHAREHOLDER. Subject to the terms and conditions of this ---------------------- Agreement, Purchaser will have all of the rights of a shareholder of the Company with respect to the Shares from and after the date that Purchaser delivers payment of the Purchase Price until such time as Purchaser disposes of the Shares or the Company and/or its assignee(s) exercise(s) the Right of First Refusal or the Company is required to repurchase the Shares pursuant to Section 5 above or pursuant to the Employment Letter Agreement. Upon an exercise of the Right of First Refusal or a termination of Purchaser's employment that triggers the Repurchase Obligation, Purchaser will have no further rights as a holder of the Shares, except the right to receive payment for the Shares so purchased in accordance with the provisions of this Agreement, and Purchaser will promptly surrender the stock certificate(s) evidencing the Shares so purchased to the Company for transfer or cancellation. 9. ESCROW. As security for Purchaser's faithful performance of this ------- Agreement, Purchaser agrees, immediately upon receipt of the stock certificate(s) evidencing the Shares, to deliver such certificate(s), together with the Stock Powers executed by Purchaser and by Purchaser's spouse, if any (with the date and number of Shares left blank), to the Secretary of the Company or other designee of the Company ("Escrow Holder"), who is hereby appointed to ------------- hold such certificate(s) and Stock Powers in escrow and to take all such actions and to effectuate all such transfers and/or releases of such Shares as are in accordance with the terms of this Agreement. Purchaser and the Company agree that Escrow Holder will not be liable to any party to this Agreement (or to any other party) for any actions or omissions unless Escrow Holder is grossly negligent or intentionally fraudulent in carrying out the duties of Escrow Holder under this Section. Escrow Holder may rely upon any letter, notice or other document executed by any signature purported to be genuine and may rely on the advice of counsel and obey any order of any court with respect to the transactions contemplated by this Agreement. The Shares will be released from escrow upon termination of the Right of First Refusal or upon all Shares becoming Vested Shares, whichever is later. 10. TAX CONSEQUENCES. Purchaser hereby acknowledges that Purchaser has ----------------- been informed that, unless an election is filed by the Purchaser with the Internal Revenue Service (and, if necessary, the proper state taxing authorities), within 30 days of the purchase of the Shares, electing pursuant to -------------- Section 83(b) of the Internal Revenue Code (and similar state tax provisions, if applicable) to be taxed currently on any difference between the Purchase Price of 8 the Shares and their fair market value on the date of purchase, there will be a recognition of taxable income to the Purchaser, measured by the excess, if any, of the fair market value of the Vested Shares, at the time they cease to be Unvested Shares, over the purchase price for such Shares. Purchaser represents that Purchaser has consulted any tax adviser(s) Purchaser deems advisable in connection with Purchaser's purchase of the Shares and the filing of the election under Section 83(b) and similar tax provisions. A form of Election under Section 83(b) is attached hereto as Exhibit 3 for reference. PURCHASER --------- HEREBY ASSUMES ALL RESPONSIBILITY FOR FILING SUCH ELECTION AND PAYING ANY TAXES RESULTING FROM SUCH ELECTION OR FOR FAILING TO FILE THE ELECTION AND PAYING TAXES RESULTING FROM THE LAPSE OF THE REPURCHASE RESTRICTIONS ON THE UNVESTED SHARES. PURCHASER UNDERSTANDS THAT PURCHASER MAY SUFFER ADVERSE TAX CONSEQUENCES AS A RESULT OF PURCHASER'S PURCHASE OR DISPOSITION OF THE SHARES. PURCHASER REPRESENTS THAT PURCHASER HAS CONSULTED WITH ANY TAX ADVISER PURCHASER DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE SHARES AND THAT PURCHASER IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE. 11. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS. --------------------------------------------- (A) LEGENDS. Purchaser understands and agrees that the Company will -------- place the legends set forth below or similar legends on any stock certificate(s) evidencing the Shares, together with any other legends that may be required by state or federal securities laws, the Company's Certificate of Incorporation or Bylaws, any other agreement between Purchaser and the Company or any agreement between Purchaser and any third party: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. A STATEMENT OF THE RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS GRANTED TO OR IMPOSED UPON EACH CLASS OR SERIES OF AUTHORIZED SHARES OF THE COMPANY MAY BE 9 OBTAINED UPON REQUEST AND WITHOUT CHARGE, FROM THE COMPANY'S SECRETARY AT THE COMPANY'S PRINCIPAL OFFICES. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON PUBLIC RESALE, TRANSFER, REPURCHASE, IRREVOCABLE PROXY AND VOTING PROVISIONS, AND A RIGHT OF FIRST REFUSAL OPTION HELD BY THE ISSUER AND/OR ITS ASSIGNEE(S) AS SET FORTH IN A RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH PUBLIC SALE AND TRANSFER RESTRICTIONS, REPURCHASE, IRREVOCABLE PROXY AND VOTING PROVISIONS, AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES. (B) STOP-TRANSFER INSTRUCTIONS. Purchaser agrees that, in order to --------------------------- ensure compliance with the restrictions imposed by this Agreement, the Company may issue appropriate "stop-transfer" instructions to its transfer agent, if any, and if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. (C) REFUSAL TO TRANSFER. The Company will not be required (i) to -------------------- transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares, or to accord the right to vote or pay dividends, to any purchaser or other transferee to whom such Shares have been so transferred. 12. COMPLIANCE WITH LAWS AND REGULATIONS. The issuance and transfer of ------------------------------------- the Shares will be subject to and conditioned upon compliance by the Company and Purchaser with all applicable state and federal laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Company's common stock may be listed or quoted at the time of such issuance or transfer. 13. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights ----------------------- under this Agreement, including its rights to repurchase Shares under the Right of First Refusal. This Agreement will be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement will be binding upon Purchaser and Purchaser's heirs, executors, administrators, successors and assigns. 14. GOVERNING LAW; SEVERABILITY. This Agreement will be governed by and ---------------------------- construed in accordance with the internal laws of the State of California, excluding that body of laws pertaining to conflict of laws. If any provision of this Agreement is determined by a court of law to be illegal or unenforceable, then such provision will be enforced to the maximum extent possible and the other provisions will remain fully effective and enforceable. 15. NOTICES. Any notice required or permitted hereunder will be given in -------- writing and will be deemed effectively given upon personal delivery, three (3) days after deposit in the 10 United States mail by certified or registered mail (return receipt requested), one (1) business day after its deposit with any return receipt express courier (prepaid), or one (1) business day after transmission by telecopier, addressed to the other party at its address (or facsimile number, in the case of transmission by telecopier) as shown below its signature to this Agreement, or to such other address as such party may designate in writing from time to time to the other party. 16. FURTHER INSTRUMENTS. The parties agree to execute such further -------------------- instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this Agreement. 17. HEADINGS. The captions and headings of this Agreement are included --------- for ease of reference only and will be disregarded in interpreting or construing this Agreement. Unless specifically indicated otherwise, all references herein to Sections will refer to Sections of this Agreement. 18. ENTIRE AGREEMENT. This Agreement, together with Section 5(b) and ----------------- Section 5(c) of the Employment Letter Agreement and all Exhibits to this Agreement, constitutes the entire agreement and understanding of the parties with respect to the subject matter of this Agreement, and supersedes all prior understandings and agreements, whether oral or written, between the parties hereto with respect to the specific subject matter hereof. 19. FINANCIAL STATEMENTS. The Company shall provide fiscal year end -------------------- financial statements to Purchaser on an annual basis at such times as they are available for distribution to stockholders. 20. VOTING AGREEMENT. In consideration of the sale of the Shares by the ---------------- Company to Purchaser, Purchaser hereby agrees that, with respect to any matter upon which the separate vote of the holders of the Company's Series A Common Stock is required under Section 242(b) of the Delaware General Corporation Law prior to the closing of the Company's initial public offering of Series A Common Stock pursuant to a registration statement filed with and declared effective by the SEC (the "Company IPO"), Purchaser will cast all votes attributable to ----------- Purchaser's Shares in the same proportion as the holders of the Company's outstanding shares of Series A, Series K and Series T Preferred Stock or any other series of stock designated in the Certificate of Incorporation of the Company as Convertible Preferred Stock (the "Convertible Preferred Stock") cast --------------------------- their votes upon such matter, or, if there are no such shares of Convertible Preferred Stock outstanding, in the same manner as the holders of the Company's outstanding shares of Series B Common Stock cast their votes upon such matter. Purchaser hereby irrevocably appoints the Secretary of the Company, or any other person designated by the Secretary of the Company, to act as Purchaser's proxy until the Company IPO to cast all votes attributable to Purchaser's Shares as specified in this Section. The obligations of this Section shall be binding on any transferee to whom the Shares are transferred by Purchaser or any subsequent transferee. As a condition of any transfer of the Shares prior to the Company IPO, Purchaser shall require any transferee, and any such transferee shall require its transferee, to agree to be bound by the provisions of this Section in the same manner as Purchaser is bound. 11 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in duplicate by its duly authorized representative and Purchaser has executed this Agreement in duplicate, as of the Effective Date. AT HOME CORPORATION PURCHASER By: /s/ David G. Pine /s/ Thomas A. Jermoluk ---------------------------------- -------------------------------- Thomas A. Jermoluk Title:Vice President, General Counsel ------------------------------- Address: 385 Ravendale Drive Address:________________________ Mountain View, CA 94043 ________________________________ Fax:____________________________ LIST OF EXHIBITS - ---------------- Exhibit 1: Purchaser's check in the amount of $150,000.00 Exhibit 2: Stock Power and Assignment Separate from Stock Certificate Exhibit 3: Election Under Section 83(b) of the Internal Revenue Code 12 EXHIBIT 1 --------- COPY OF PURCHASER'S CHECK ------------------------- EXHIBIT 2 --------- STOCK POWER AND ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED and pursuant to that certain Restricted Stock Purchase Agreement dated as of July 31, 1996 (the "Agreement"), the undersigned hereby --------- sells, assigns and transfers unto __________________, ___________ shares of the Series A Common Stock of AT HOME CORPORATION, a Delaware corporation (the "Company"), standing in the undersigned's name on the books of the Company ------- represented by Certificate No(s). _____ delivered herewith, and does hereby irrevocably constitute and appoint the Secretary of the Company as the undersigned's attorney-in-fact, with full power of substitution, to transfer said stock on the books of the Company. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND THE EXHIBITS THERETO. Dated:_________________ PURCHASER /s/ Thomas A. Jermoluk ---------------------------- _____________________________ (Purchaser's Spouse) INSTRUCTION: Please do not fill in any blanks other than the signature lines. - ----------- --- The purpose of this Stock Power and Assignment is to enable the Company and/or its assigns to exercise its "Right of First Refusal" or implement its "Repurchase Obligation" set forth in the Agreement without requiring additional signatures on the part of the Purchaser. EXHIBIT 3 --------- ELECTION UNDER SECTION 83(B) OF THE INTERNAL REVENUE CODE The undersigned Taxpayer hereby elects, pursuant to Section 83(b) of the Internal Revenue Code, to include in gross income for the Taxpayer's current taxable year the excess, if any, of the fair market value of the property described below at the time of transfer over the amount paid for such property, as compensation for services. 1. TAXPAYER'S NAME: Thomas A. Jermoluk TAXPAYER'S ADDRESS: 892 St. Joseph Ave ------------------------------- Los Altos, CA 94024 ------------------------------- SOCIAL SECURITY NUMBER: ###-##-#### ------------------------------- 2. The property with respect to which the election is made is described as follows: 1,500,000 shares of Series A Common Stock of AT HOME CORPORATION, a Delaware corporation (the "Company"), which is Taxpayer's employer or the ------- corporation for whom the Taxpayer performs services. 3. The date on which the shares were transferred was July 31, 1996 and this election is made for calendar year 1996. 4. The shares are subject to the following restrictions: The Company must repurchase all or a portion of the shares at the Taxpayer's original purchase price under certain conditions at the time of Taxpayer's termination of employment or services. 5. The fair market value of the shares (without regard to restrictions other than restrictions which by their terms will never lapse) was $0.10 per share at the time of transfer. 6. The amount paid for such shares was $0.10 per share. 7. The Taxpayer has submitted a copy of this statement to the Company. THIS ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE ("IRS"), AT THE --- OFFICE WHERE THE TAXPAYER FILES ANNUAL INCOME TAX RETURNS, WITHIN 30 DAYS AFTER -------------- THE DATE OF TRANSFER OF THE PROPERTY, AND MUST ALSO BE FILED WITH THE TAXPAYER'S INCOME TAX RETURNS FOR THE CALENDAR YEAR. THE ELECTION CANNOT BE REVOKED WITHOUT THE CONSENT OF THE IRS. Dated: July 31, 1996 /s/ Thomas A. Jermoluk ----------------------------- Thomas A. Jermoluk EX-10.15 24 RESTRICTED STOCK PURCHASE AGREEMENT - T.A. JERMOLUK EXHIBIT 10.15 RESTRICTED STOCK PURCHASE AGREEMENT (FOR PURCHASES PAID FOR WITH CASH) This Agreement is made and entered into as of July 31, 1996 (the "Effective --------- Date") between AT HOME CORPORATION, a Delaware corporation (the "Company"), and - ---- ------- Thomas A. Jermoluk ("Purchaser"). --------- RECITALS -------- A. The Company desires to provide equity incentives to certain key employees pursuant to this Restricted Stock Purchase Agreement. B. Purchaser is the President and Chief Executive Officer of the Company and possesses sufficient business and financial experience, and/or sufficient knowledge of and/or relationship to the Company and its management to enable the Company to lawfully issue shares of its Series K Preferred Stock to Purchaser without the need for registration or qualification of such shares pursuant to Section 4(2) of and/or Regulation D promulgated under the Securities Act of 1933, as amended, and all applicable state "blue sky" laws. C. The Company desires to sell to Purchaser, and Purchaser desires to purchase from the Company, shares of the Company's Series K Preferred Stock. NOW, THEREFORE, the parties agree as follows: 1. PURCHASE OF SHARES. On the Effective Date and subject to the terms ------------------- and conditions of this Agreement, Purchaser hereby purchases from the Company, and the Company hereby sells to Purchaser, an aggregate of 500,000/1/ shares of the Company's Series K Preferred Stock, $0.01 par value, which are convertible into an aggregate of 500,000 shares of Series A Common Stock (the "Shares"), at ------ an aggregate purchase price of $500,000.00 (the "Purchase Price") or $1.00/2/ -------------- per Share (the "Purchase Price Per Share"). As used in this Agreement, the term ------------------------ "Shares" refers to the Shares purchased under this Agreement and includes all securities received (a) in replacement of the Shares, (b) as a result of stock dividends or stock splits in respect of the Shares, and (c) in replacement of the Shares in a recapitalization, merger, reorganization or the like. 2. PAYMENT OF PURCHASE PRICE; CLOSING. ----------------------------------- (A) DELIVERIES BY PURCHASER. Purchaser hereby delivers to the Company ------------------------ the full Purchase Price by delivery of a check made out to the order of the Company in the amount of $500,000.00 in payment of the aggregate Purchase Price of the Shares, a copy of which is ____________________ /1/ 50,000 shares of Series K Preferred Stock after giving effect to the 10 to 1 reverse split of the Series K Preferred Stock scheduled to occur on August 1, 1996 /2/ $10.00 per share after giving effect to the 10 to 1 reverse split of the Series K Preferred Stock scheduled to occur on August 1, 1996 attached hereto as Exhibit 1. Purchaser also hereby delivers to the Company two --------- (2) copies of a blank Stock Power and Assignment Separate from Stock Certificate in the form of Exhibit 2 attached hereto (the "Stock Powers"), duly executed by --------- Purchaser and his spouse. (B) DELIVERIES BY THE COMPANY. Upon its receipt of the entire -------------------------- Purchase Price and the documents to be executed and delivered by Purchaser to the Company under Section 2(a), the Company will issue a duly executed stock certificate evidencing the Shares in the name of Purchaser, with such certificate to be placed in escrow as provided in Section 9 until expiration or termination of both the Company's Repurchase Obligation and Right of First Refusal described in Sections 5 and 6. 3. REPRESENTATIONS AND WARRANTS OF PURCHASER. Purchaser represents and ------------------------------------------ warrants to and covenants with the Company that: (A) PURCHASE FOR OWN ACCOUNT FOR INVESTMENT. Purchaser is ---------------------------------------- purchasing the Shares for Purchaser's own account for investment purposes only and not with a view to, or for sale in connection with, a distribution of the Shares within the meaning of the Securities Act of 1933, as amended (the "1933 ---- Act"). Purchaser has no present intention of selling or otherwise disposing of - --- all or any portion of the Shares and no one other than Purchaser has any beneficial ownership of any of the Shares. (B) ACCESS TO INFORMATION. Purchaser has had access to all ---------------------- information regarding the Company and its present and prospective business, assets, liabilities and financial condition that Purchaser reasonably considers important in making the decision to purchase the Shares, and Purchaser has had ample opportunity to ask questions of the Company's representatives concerning such matters and this investment. (C) UNDERSTANDING OF RISKS. Purchaser is fully aware of: (i) the ----------------------- highly speculative nature of the investment in the Shares; (ii) the financial hazards involved; (iii) the lack of liquidity of the Shares and the restrictions on transferability of the Shares (e.g., that Purchaser may not be able to sell ---- or dispose of the Shares or use them as collateral for loans); (iv) the qualifications and backgrounds of the management of the Company; and (v) the tax consequences of investment in the Shares. (D) PURCHASER'S QUALIFICATIONS. Purchaser has a preexisting --------------------------- personal or business relationship with the Company and/or certain of its officers and/or directors of a nature and duration sufficient to make Purchaser aware of the character, business acumen and general business and financial circumstances of the Company and/or such officers and directors. By reason of Purchaser's business or financial experience, Purchaser is capable of evaluating the merits and risks of this investment, has the ability to protect Purchaser's own interests in this transaction and is financially capable of bearing a total loss of this investment. (E) NO GENERAL SOLICITATION. At no time was Purchaser presented ------------------------ with or solicited by any publicly issued or circulated newspaper, mail, radio, television or other form of general advertising or solicitation in connection with the offer, sale and purchase of the Shares. 2 (F) COMPLIANCE WITH SECURITIES LAWS. Purchaser understands and -------------------------------- acknowledges that, in reliance upon the representations and warranties made by Purchaser herein, the Shares are not being registered with the Securities and Exchange Commission ("SEC") under the 1933 Act or being qualified under the --- California Corporate Securities Law of 1968, as amended (the "Law"), but instead --- are being issued under an exemption or exemptions from the registration and qualification requirements of the 1933 Act and the Law or other applicable state securities laws which may impose certain restrictions on Purchaser's ability to transfer the Shares. (G) RESTRICTIONS ON TRANSFER. Purchaser acknowledges and agrees ------------------------- that the Company, in its discretion, may elect to issue the Shares under one or more of several different exemptions from the registration and qualification requirements of the 1933 Act and the Law and that Purchaser's ability to transfer the Shares in compliance with such laws will be affected by the Company's choice of exemption. Purchaser further understands that the Company's choice of exemptions may not be definitively made until a later date and the Company is entirely free in its discretion to choose which exemption or exemptions it will rely upon to exempt the sale of Shares to Purchaser. Purchaser understands that Purchaser may not transfer any Shares unless such Shares are registered under the 1933 Act or qualified under the Law or unless, in the opinion of counsel to the Company, exemptions from such registration and qualification requirements are available. Purchaser understands that only the Company may file a registration statement with the SEC or the California Commissioner of Corporations and that the Company is under no obligation to do so with respect to the Shares. Purchaser has also been advised that exemptions from registration and qualification may not be available or may not permit Purchaser to transfer all or any of the Shares in the amounts or at the times proposed by Purchaser. (H) RULE 144. Purchaser acknowledges that SEC Rule 144 promulgated --------- under the 1933 Act, which permits certain limited sales of unregistered securities, is not presently available with respect to the Shares and, in any event, may require that the Shares be held for a minimum of two years, and in certain cases three years, after they have been purchased and paid for (within ------------ the meaning of Rule 144), before they may be resold under Rule 144. Purchaser understands that Rule 144 will remain unavailable indefinitely with respect to transfers of the Shares so long as Purchaser remains an "affiliate" of the Company and "current public information" about the Company (as defined in Rule 144) is not publicly available. In addition, Purchaser understands that all public resales of the Shares by Purchaser at a time when Purchaser is an affiliate of the Company must comply with the provisions of Rule 144. (I) TERMS OF PURCHASE AGREEMENT ACCEPTED. Purchaser has received a ------------------------------------- copy of this Agreement, has read and understands the terms of this Agreement, and agrees to be bound by its terms and conditions. Purchaser acknowledges that there may be adverse tax consequences upon purchase and disposition of the Shares, and that Purchaser should consult a tax adviser prior to such purchase or disposition. (j) CONVERSION OF SHARES. Purchaser covenants and agrees that if he -------------------- converts the Shares into any intermediate shares of stock of the Company that are then convertible into shares of Series A Common Stock of the Company, he will immediately convert such intermediate shares of stock into shares of Series A Common Stock of the Company. 3 4. MARKET STANDOFF AGREEMENT. Purchaser agrees in connection with any -------------------------- registration of the Company's securities under the 1933 Act that, upon the request of the Company or the underwriters managing any registered public offering of the Company's securities, Purchaser will not sell or otherwise dispose of any Shares without the prior written consent of the Company or such managing underwriters, as the case may be, for a period of time (not to exceed one year) after the effective date of such registration requested by such managing underwriters and subject to all restrictions as the Company or the managing underwriters may specify for employee-shareholders generally. 5. COMPANY'S REPURCHASE OBLIGATION. Upon the occurrence of certain -------------------------------- events, the Company has the obligation to repurchase all of the Unvested Shares (as defined below) on the terms and conditions set forth in this Section (the "Repurchase Obligation"). - ---------------------- (A) DEFINITION OF "EMPLOYED BY THE COMPANY"; "TERMINATION DATE". For ------------------------------------------------------------ purposes of this Agreement, Purchaser will be considered to be "employed by the --------------- Company" if the Board of Directors of the Company determines that Purchaser is - ------- rendering substantial services as an officer, employee or consultant to the Company or to any parent, subsidiary or affiliate of the Company. In case of any dispute as to whether Purchaser is employed by the Company, the Board of Directors of the Company will have discretion to determine whether Purchaser has ceased to be employed by the Company or any parent, subsidiary or affiliate of the Company and the effective date on which Purchaser's employment terminated (the "Termination Date"). ---------------- (B) UNVESTED AND VESTED SHARES. "Unvested Shares" are Shares which --------------------------- --------------- are subject to the Company's Repurchase Obligation. "Vested Shares" are Shares ------------- which are no longer subject to the Company's Repurchase Obligation. On the Effective Date, 125,000/3/ of the Shares will be "Vested Shares" and 375,000/4/ of the Shares will be "Unvested Shares". If Purchaser has been continuously employed by the Company at all times from the Effective Date until August 31, 1997 (the "First Vesting Date"), then on the First Vesting Date an additional ------------------ two point zero eight percent (2.08%) of the Shares will become Vested Shares; and thereafter, for so long (and only for so long) as Purchaser remains continuously employed by the Company at all times after the First Vesting Date, an additional two point zero eight percent (2.08%) of the Shares will become Vested Shares upon the last day of each succeeding calendar month that elapses after the First Vesting Date. Notwithstanding the foregoing, no Shares will become Vested Shares after the Termination Date, except as provided in (f) below. (C) ADJUSTMENTS. The number of Shares that are Vested Shares or ------------ Unvested Shares will be proportionally adjusted to reflect any stock dividend, stock split, reverse stock split or recapitalization of the Series K Preferred Stock of the Company occurring after the Effective Date. _________________________ /3/12,500 shares after giving effect to the 10 to 1 reverse split of the Series K Preferred Stock scheduled to occur on August 1, 1996 /4/37,500 shares after giving effect to the 10 to 1 reverse split of the Series K Preferred Stock scheduled to occur on August 1, 1996 4 (D) REPURCHASE AT ORIGINAL PRICE. If Purchaser shall cease to be ----------------------------- employed by the Company due to voluntary termination, termination by the Company with "cause", death or disability, the Company shall repurchase all Unvested Shares of Purchaser from Purchaser (or Purchaser's personal representative as the case may be) at the Purchaser's original Purchase Price Per Share (as adjusted to reflect any stock dividend, stock split, reverse stock split or recapitalization of the Series K Preferred Stock of the Company occurring after the Effective Date). (E) PAYMENT OF REPURCHASE PRICE. The repurchase price payable to ---------------------------- purchase Unvested Shares will be payable, at the option of the Company or its assignee(s), by check or by cancellation of all or a portion of any outstanding indebtedness of Purchaser to the Company (or to such assignee) or by any combination thereof. The repurchase price will be paid without interest within ninety (90) days after the Termination Date. (F) VESTING UPON TERMINATION WITHOUT "CAUSE". If Purchaser shall ---------------------------------------- cease to be employed by the Company due to termination by the Company without "cause", all of the Shares shall become Vested Shares as of the Termination Date and the Company shall not be required or entitled to repurchase any Shares from Purchaser. Termination without "cause" shall mean termination of Purchaser's employment by Company for any reason other than "cause", voluntary termination, death or disability. Termination shall be regarded as for "cause" only upon (i) Purchaser's willful and continued failure to substantially perform his duties with the Company after there is delivered to Purchaser by the Board of Directors a written demand for substantial performance which sets forth in detail the specific respects in which it believes Purchaser has not substantially performed his duties; (ii) Purchaser willfully engaging in gross misconduct which is materially detrimental to the Company; (iii) Purchaser committing a felony or an act of fraud against the Company or its affiliates; or (iv) Purchaser breaching materially the terms of Purchaser's employee confidentiality and proprietary information agreement with the Company or any other similar agreement that may be in effect from time to time. No act, or failure to act, by Purchaser shall be considered "willful" if done, or omitted to be done, by Purchaser in good faith in Purchaser's reasonable belief that his act or omission was in the best interests of the Company and/or required by applicable law. Purchaser shall not be deemed to have been terminated for cause under clause (i), (ii) or (iv) unless and until there shall have been delivered to Purchaser a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board of Directors at a meeting of the Board of Directors called and held for that purpose (after reasonable notice to and an opportunity for Purchaser, together with Purchaser's counsel, to be heard before the Board of Directors), finding that in the good faith opinion of the Board of Directors, Purchaser is guilty of conduct set forth in such clauses and specifying the particulars thereof in detail. A resignation by Purchaser for any of the following reasons shall not be deemed to be a voluntary termination and instead shall be deemed to be a termination of Purchaser's employment by the Company without "cause": (w) Purchaser shall be placed in a lower stature position than the position described in Recital B. above; (x) Purchaser's base salary shall be reduced by more than twenty percent without Purchaser's consent; (y) Purchaser shall cease to be the Chief Executive Officer of the Company reporting to the Board of Directors; or (z) the Company shall otherwise breach the material terms of that certain letter agreement between the Company and Purchaser dated July 19, 1996 (the "Employment Letter Agreement"). --------------------------- 5 (G) RIGHT OF TERMINATION UNAFFECTED. Nothing in this Agreement -------------------------------- will be construed to limit or otherwise affect in any manner whatsoever the right or power of the Company (or any parent, subsidiary or affiliate of the Company) to terminate Purchaser's employment at any time for any reason or no reason, with or without cause. 6. RIGHT OF FIRST REFUSAL. Unvested Shares may not be sold or otherwise ----------------------- transferred by Purchaser without the Company's prior written consent. Before any Vested Shares held by Purchaser or any transferee of such Shares (either being sometimes referred to herein as the "Holder") may be sold or otherwise ------ transferred (including without limitation a transfer by gift or operation of law), the Company and/or its assignee(s) will have a right of first refusal to purchase the Vested Shares to be sold or transferred (the "Offered Shares") on -------------- the terms and conditions set forth in this Section (the "Right of First -------------- Refusal"). - ------- (A) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares will ---------------------------- deliver to the Company a written notice (the "Notice") stating: (i) the Holder's ------ bona fide intention to sell or otherwise transfer the Offered Shares; (ii) the name, address and phone/fax number of each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number of Offered Shares to be --------------------- transferred to each Proposed Transferee; (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Offered Shares (the "Offered Price") and (unless waived by the Company) a brief written explanation, ------------- by the Holder and the Proposed Transferee, of how the Offered Price was arrived at; and (v) that the Holder will offer to sell the Offered Shares to the Company and/or its assignee(s) at the Offered Price as provided in this Section. A true and correct copy of the Proposed Transferee's bona fide offer shall be provided to the Company together with the Notice. (B) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within sixty ----------------------------------- (60) days after the date of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all (but not less than all) of the Offered Shares proposed to be transferred to any one or more of the Proposed Transferees named in the Notice, at the purchase price determined in accordance with subsection (c) below. (C) PURCHASE PRICE. The purchase price for the Offered Shares --------------- purchased under this Section will be the Offered Price. If the Offered Price includes consideration other than cash, then the value of the non-cash consideration as determined in good faith by the Company's Board of Directors will conclusively be deemed to be the cash equivalent value of such non-cash consideration. (D) PAYMENT. Payment of the purchase price for Offered Shares will -------- be payable, at the option of the Company and/or its assignee(s) (as applicable), by check or by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or to such assignee, in the case of a purchase of Offered Shares by such assignee) or by any combination thereof. The purchase price will be paid without interest within sixty (60) days after the Company's receipt of the Notice, or, at the option of the Company and/or its assignee(s), in the manner and at the time(s) set forth in the Notice. 6 (E) HOLDER'S RIGHT TO TRANSFER. If all of the Offered Shares --------------------------- proposed in the Notice to be given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Offered Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other -------- transfer is consummated within 120 days after the date of the Notice, and provided further, that: (i) any such sale or other transfer is effected in - -------- ------- compliance with all applicable securities laws; and (ii) the Proposed Transferee agrees in writing that the provisions of this Section will continue to apply to the Offered Shares in the hands of such Proposed Transferee. If the Offered Shares described in the Notice are not transferred to the Proposed Transferee within such 120 day period, then a new Notice must be given to the Company, and the Company will again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. (F) EXEMPT TRANSFERS. Notwithstanding anything to the contrary in ----------------- this Section, the following transfers of Shares will be exempt from the Right of First Refusal: (i) the transfer of any or all of the Shares during Purchaser's lifetime by gift or on Purchaser's death by will or intestacy to Purchaser's "immediate family" (as defined below) or to a trust for the benefit of Purchaser or Purchaser's immediate family, provided that each transferee or other recipient agrees in a writing satisfactory to the Company that the provisions of this Section will continue to apply to the transferred Shares in the hands of such transferee or other recipient; (ii) any transfer of Shares made pursuant to a statutory merger or statutory consolidation of the Company with or into another corporation or corporations (except that the Right of First Refusal will continue to apply thereafter to such Shares, in which case the surviving corporation of such merger or consolidation shall succeed to the rights of the Company under this Section unless the agreement of merger or consolidation expressly otherwise provides); (iii) any transfer of Shares pursuant to the winding up and dissolution of the Company; or (iv) any transfer of Shares made in accordance with Section 5 of this Agreement or this Section 6. As used herein, the term "immediate family" will mean Purchaser's spouse, lineal ---------------- descendant or antecedent, father, mother, brother or sister, adopted child or grandchild, or the spouse of any child, adopted child, grandchild or adopted grandchild of Purchaser. (G) TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First -------------------------------------- Refusal will terminate as to all Shares on the effective date of the first sale of common stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the SEC under the 1933 Act (other than a registration statement relating solely to the issuance of common stock pursuant to a business combination or an employee incentive or benefit plan). (H) ENCUMBRANCES ON SHARES. Purchaser may grant a lien or security ----------------------- interest in, or pledge, hypothecate or encumber Vested Shares only if the Company or its successors and assigns do not hold a lien or security interest in such shares and only if each party to whom such lien or security interest is granted, or to whom such pledge, hypothecation or other encumbrance is made, agrees in a writing satisfactory to the Company that: (i) such lien, security interest, pledge, hypothecation or encumbrance will not apply to such Vested Shares after they are acquired by the Company and/or its assignees under this Section; and (ii) the provisions of this Section will continue to apply to such Vested Shares in the hands of such party and any 7 transferee of such party. Purchaser may not grant a lien or security interest in, or pledge, hypothecate or encumber any Unvested Shares. 7. GUARANTEES. The provisions of Section 5(b) and Section 5(c) of the ---------- Employment Letter Agreement regarding the First Guarantee and the Second Guarantee are hereby incorporated into and shall form a part of this Agreement. The term "Series K Stock" as used in the Employment Letter Agreement shall have the same meaning as the term "Shares" used herein. Both terms refer to the shares of Series K Preferred Stock purchased hereunder. 8. RIGHTS AS SHAREHOLDER. Subject to the terms and conditions of this ---------------------- Agreement, Purchaser will have all of the rights of a shareholder of the Company with respect to the Shares from and after the date that Purchaser delivers payment of the Purchase Price until such time as Purchaser disposes of the Shares or the Company and/or its assignee(s) exercise(s) the Right of First Refusal or the Company is required to repurchase the Shares pursuant to Section 5 above or pursuant to the Employment Letter Agreement. Upon an exercise of the Right of First Refusal or a termination of Purchaser's employment that triggers the Repurchase Obligation, Purchaser will have no further rights as a holder of the Shares, except the right to receive payment for the Shares so purchased in accordance with the provisions of this Agreement, and Purchaser will promptly surrender the stock certificate(s) evidencing the Shares so purchased to the Company for transfer or cancellation. 9. ESCROW. As security for Purchaser's faithful performance of this ------- Agreement, Purchaser agrees, immediately upon receipt of the stock certificate(s) evidencing the Shares, to deliver such certificate(s), together with the Stock Powers executed by Purchaser and by Purchaser's spouse, if any (with the date and number of Shares left blank), to the Secretary of the Company or other designee of the Company ("Escrow Holder"), who is hereby appointed to ------------- hold such certificate(s) and Stock Powers in escrow and to take all such actions and to effectuate all such transfers and/or releases of such Shares as are in accordance with the terms of this Agreement. Purchaser and the Company agree that Escrow Holder will not be liable to any party to this Agreement (or to any other party) for any actions or omissions unless Escrow Holder is grossly negligent or intentionally fraudulent in carrying out the duties of Escrow Holder under this Section. Escrow Holder may rely upon any letter, notice or other document executed by any signature purported to be genuine and may rely on the advice of counsel and obey any order of any court with respect to the transactions contemplated by this Agreement. The Shares will be released from escrow upon termination of the Right of First Refusal or upon all Shares becoming Vested Shares, whichever is later. 10. TAX CONSEQUENCES. Purchaser hereby acknowledges that Purchaser has ----------------- been informed that, unless an election is filed by the Purchaser with the Internal Revenue Service (and, if necessary, the proper state taxing authorities), within 30 days of the purchase of the Shares, electing pursuant to -------------- Section 83(b) of the Internal Revenue Code (and similar state tax provisions, if applicable) to be taxed currently on any difference between the Purchase Price of the Shares and their fair market value on the date of purchase, there will be a recognition of taxable income to the Purchaser, measured by the excess, if any, of the fair market value of the Vested Shares, at the time they cease to be Unvested Shares, over the purchase price for such Shares. Purchaser represents that Purchaser has consulted any tax adviser(s) Purchaser deems 8 advisable in connection with Purchaser's purchase of the Shares and the filing of the election under Section 83(b) and similar tax provisions. A form of Election under Section 83(b) is attached hereto as Exhibit 3 for reference. --------- PURCHASER HEREBY ASSUMES ALL RESPONSIBILITY FOR FILING SUCH ELECTION AND PAYING ANY TAXES RESULTING FROM SUCH ELECTION OR FOR FAILING TO FILE THE ELECTION AND PAYING TAXES RESULTING FROM THE LAPSE OF THE REPURCHASE RESTRICTIONS ON THE UNVESTED SHARES. PURCHASER UNDERSTANDS THAT PURCHASER MAY SUFFER ADVERSE TAX CONSEQUENCES AS A RESULT OF PURCHASER'S PURCHASE OR DISPOSITION OF THE SHARES. PURCHASER REPRESENTS THAT PURCHASER HAS CONSULTED WITH ANY TAX ADVISER PURCHASER DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE SHARES AND THAT PURCHASER IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE. 11. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS. --------------------------------------------- (A) LEGENDS. Purchaser understands and agrees that the Company will -------- place the legends set forth below or similar legends on any stock certificate(s) evidencing the Shares, together with any other legends that may be required by state or federal securities laws, the Company's Certificate of Incorporation or Bylaws, any other agreement between Purchaser and the Company or any agreement between Purchaser and any third party: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. A STATEMENT OF THE RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS GRANTED TO OR IMPOSED UPON EACH CLASS OR SERIES OF AUTHORIZED SHARES OF THE COMPANY MAY BE OBTAINED UPON REQUEST AND WITHOUT CHARGE, FROM THE COMPANY'S SECRETARY AT THE COMPANY'S PRINCIPAL OFFICES. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON PUBLIC RESALE, TRANSFER, 9 REPURCHASE, IRREVOCABLE PROXY AND VOTING PROVISIONS, AND A RIGHT OF FIRST REFUSAL OPTION HELD BY THE ISSUER AND/OR ITS ASSIGNEE(S) AS SET FORTH IN A RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH PUBLIC SALE AND TRANSFER RESTRICTIONS, REPURCHASE, IRREVOCABLE PROXY AND VOTING PROVISIONS, AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES. (B) STOP-TRANSFER INSTRUCTIONS. Purchaser agrees that, in order to --------------------------- ensure compliance with the restrictions imposed by this Agreement, the Company may issue appropriate "stop-transfer" instructions to its transfer agent, if any, and if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. (C) REFUSAL TO TRANSFER. The Company will not be required (i) to -------------------- transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares, or to accord the right to vote or pay dividends, to any purchaser or other transferee to whom such Shares have been so transferred. 12. COMPLIANCE WITH LAWS AND REGULATIONS. The issuance and transfer of ------------------------------------- the Shares will be subject to and conditioned upon compliance by the Company and Purchaser with all applicable state and federal laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Company's common stock may be listed or quoted at the time of such issuance or transfer. 13. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights ----------------------- under this Agreement, including its rights to repurchase Shares under the Right of First Refusal. This Agreement will be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement will be binding upon Purchaser and Purchaser's heirs, executors, administrators, successors and assigns. 14. GOVERNING LAW; SEVERABILITY. This Agreement will be governed by and ---------------------------- construed in accordance with the internal laws of the State of California, excluding that body of laws pertaining to conflict of laws. If any provision of this Agreement is determined by a court of law to be illegal or unenforceable, then such provision will be enforced to the maximum extent possible and the other provisions will remain fully effective and enforceable. 15. NOTICES. Any notice required or permitted hereunder will be given in -------- writing and will be deemed effectively given upon personal delivery, three (3) days after deposit in the United States mail by certified or registered mail (return receipt requested), one (1) business day after its deposit with any return receipt express courier (prepaid), or one (1) business day after transmission by telecopier, addressed to the other party at its address (or facsimile number, in the case of transmission by telecopier) as shown below its signature to this Agreement, or to such other address as such party may designate in writing from time to time to the other party. 10 16. FURTHER INSTRUMENTS. The parties agree to execute such further -------------------- instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this Agreement. 17. HEADINGS. The captions and headings of this Agreement are included --------- for ease of reference only and will be disregarded in interpreting or construing this Agreement. Unless specifically indicated otherwise, all references herein to Sections will refer to Sections of this Agreement. 18. ENTIRE AGREEMENT. This Agreement, together with Section 5(b) and ----------------- Section 5(c) of the Employment Letter Agreement and all Exhibits to this Agreement, constitutes the entire agreement and understanding of the parties with respect to the subject matter of this Agreement, and supersedes all prior understandings and agreements, whether oral or written, between the parties hereto with respect to the specific subject matter hereof. 19. FINANCIAL STATEMENTS. The Company shall provide fiscal year end -------------------- financial statements to Purchaser on an annual basis at such times as they are available for distribution to stockholders. 20. VOTING AGREEMENT. In consideration of the sale of the Shares by the ---------------- Company to Purchaser, Purchaser hereby agrees that, with respect to any matter upon which the separate vote of the holders of the Company's Series A Common Stock is required under Section 242(b) of the Delaware General Corporation Law prior to the closing of the Company's initial public offering of Series A Common Stock pursuant to a registration statement filed with and declared effective by the SEC (the "Company IPO"), Purchaser will cast all votes attributable to ----------- Purchaser's Shares in the same proportion as the holders of the Company's outstanding shares of Series A, Series K and Series T Preferred Stock or any other series of stock designated in the Certificate of Incorporation of the Company as Convertible Preferred Stock (the "Convertible Preferred Stock") cast --------------------------- their votes upon such matter, or, if there are no such shares of Convertible Preferred Stock outstanding, in the same manner as the holders of the Company's outstanding shares of Series B Common Stock cast their votes upon such matter. Purchaser hereby irrevocably appoints the Secretary of the Company, or any other person designated by the Secretary of the Company, to act as Purchaser's proxy until the Company IPO to cast all votes attributable to Purchaser's Shares as specified in this Section. The obligations of this Section shall be binding on any transferee to whom the Shares are transferred by Purchaser or any subsequent transferee. As a condition of any transfer of the Shares prior to the Company IPO, Purchaser shall require any transferee, and any such transferee shall require its transferee, to agree to be bound by the provisions of this Section in the same manner as Purchaser is bound. 11 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in duplicate by its duly authorized representative and Purchaser has executed this Agreement in duplicate, as of the Effective Date. AT HOME CORPORATION PURCHASER By: /s/ David G. Pine /s/ Thomas A. Jermoluk ---------------------------------- ------------------------------- Thomas A. Jermoluk Title:Vice President, General Counsel ------------------------------- Address: 385 Ravendale Drive Address:_______________________ Mountain View, CA 94043 _______________________________ Fax:___________________________ LIST OF EXHIBITS - ---------------- Exhibit 1: Purchaser's check in the amount of $500,000.00 Exhibit 2: Stock Power and Assignment Separate from Stock Certificate Exhibit 3: Election Under Section 83(b) of the Internal Revenue Code 12 EXHIBIT 1 --------- COPY OF PURCHASER'S CHECK ------------------------- EXHIBIT 2 --------- STOCK POWER AND ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED and pursuant to that certain Restricted Stock Purchase Agreement dated as of July 31, 1996 (the "Agreement"), the undersigned hereby --------- sells, assigns and transfers unto _____________________, ______________ shares of the Series K Preferred Stock of AT HOME CORPORATION, a Delaware corporation (the "Company"), standing in the undersigned's name on the books of the Company ------- represented by Certificate No(s). _____ delivered herewith, and does hereby irrevocably constitute and appoint the Secretary of the Company as the undersigned's attorney-in-fact, with full power of substitution, to transfer said stock on the books of the Company. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND THE EXHIBITS THERETO. Dated: ___________________199___ PURCHASER /s/ Thomas A. Jermoluk ------------------------------ ______________________________ (Purchaser's Spouse) INSTRUCTION: Please do not fill in any blanks other than the signature lines. - ----------- --- The purpose of this Stock Power and Assignment is to enable the Company and/or its assigns to exercise its "Right of First Refusal" or implement its "Repurchase Obligation" set forth in the Agreement without requiring additional signatures on the part of the Purchaser. EXHIBIT 3 --------- ELECTION UNDER SECTION 83(B) OF THE INTERNAL REVENUE CODE The undersigned Taxpayer hereby elects, pursuant to Section 83(b) of the Internal Revenue Code, to include in gross income for the Taxpayer's current taxable year the excess, if any, of the fair market value of the property described below at the time of transfer over the amount paid for such property, as compensation for services. 1. TAXPAYER'S NAME: Thomas A. Jermoluk TAXPAYER'S ADDRESS: 892 St. Joseph Ave. ------------------------------ Los Altos, CA 94024 ------------------------------ SOCIAL SECURITY NUMBER: ###-##-#### ------------------------------ 2. The property with respect to which the election is made is described as follows: 500,000 shares of Series K Preferred Stock of AT HOME CORPORATION, a Delaware corporation (the "Company"), which is Taxpayer's ------- employer or the corporation for whom the Taxpayer performs services. 3. The date on which the shares were transferred was July 31, 1996 and this election is made for calendar year 1996. 4. The shares are subject to the following restrictions: The Company must repurchase all or a portion of the shares at the Taxpayer's original purchase price under certain conditions at the time of Taxpayer's termination of employment or services. 5. The fair market value of the shares (without regard to restrictions other than restrictions which by their terms will never lapse) was $1.00 per share at the time of transfer. 6. The amount paid for such shares was $1.00 per share. 7. The Taxpayer has submitted a copy of this statement to the Company. THIS ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE ("IRS"), AT THE --- OFFICE WHERE THE TAXPAYER FILES ANNUAL INCOME TAX RETURNS, WITHIN 30 DAYS AFTER -------------- THE DATE OF TRANSFER OF THE PROPERTY, AND MUST ALSO BE FILED WITH THE TAXPAYER'S INCOME TAX RETURNS FOR THE CALENDAR YEAR. THE ELECTION CANNOT BE REVOKED WITHOUT THE CONSENT OF THE IRS. Dated: July 31, 1996 /s/ Thomas A. Jermoluk ------------------------------------ Thomas A. Jermoluk EX-10.16 25 RESTRICTED STOCK PURCHASE AGREEMENT - WM. R. HEARST EXHIBIT 10.16 RESTRICTED STOCK PURCHASE AGREEMENT (FOR PURCHASES PAID FOR WITH CASH) This Agreement is made and entered into as of July 31, 1996 (the "Effective --------- Date") between AT HOME CORPORATION, a Delaware corporation (the "Company"), and - ---- ------- William R. Hearst, III ("Purchaser"). --------- RECITALS -------- A. Purchaser possesses sufficient business and financial experience, and/or sufficient knowledge of and/or relationship to the Company and its management, as to enable the Company to lawfully issue shares of its Common Stock to Purchaser without the need for registration or qualification of such shares under the Securities Act of 1933, as amended, and all applicable state "blue sky" laws. B. The Company desires to sell to Purchaser, and Purchaser desires to purchase from the Company, the shares of the Company's Series A Common Stock. NOW, THEREFORE, the parties agree as follows: 1. PURCHASE OF SHARES. On the Effective Date and subject to the terms ------------------- and conditions of this Agreement, Purchaser hereby purchases from the Company, and Company hereby sells to Purchaser, an aggregate of 200,000 shares of the Company's Series A Common Stock, $0.01 par value (the "Shares") at an aggregate ------ purchase price of $20,000.00 (the "Purchase Price") or $0.10 per Share (the -------------- "Purchase Price Per Share"). As used in this Agreement, the term "Shares" - ------------------------- refers to the Shares purchased under this Agreement and includes all securities received (a) in replacement of the Shares, (b) as a result of stock dividends or stock splits in respect of the Shares, and (c) in replacement of the Shares in a recapitalization, merger, reorganization or the like. 2. PAYMENT OF PURCHASE PRICE; CLOSING. ----------------------------------- (A) DELIVERIES BY PURCHASER. Purchaser hereby delivers to the ------------------------ Company (i) a check made out to the order of the Company in an amount equal to $20,000.00 in payment of the aggregate Purchase Price of the Shares, a copy of which is attached hereto as Exhibit 1, and (ii) two (2) copies of a blank Stock --------- Power and Assignment Separate from Stock Certificate in the form of Exhibit 2 --------- attached hereto (the "Stock Powers") duly executed by Purchaser and (if ------------ applicable) Purchaser's spouse. (B) DELIVERIES BY THE COMPANY. Upon its receipt of the entire -------------------------- Purchase Price and all the documents to be executed and delivered by Purchaser to the Company under Section 2(a), the Company will issue a duly executed stock certificate evidencing the Shares in the name of Purchaser, with such certificate to be placed in escrow as provided in Section 7 until expiration or termination of the Right of First Refusal described in Section 5. 3. REPRESENTATIONS AND WARRANTS OF PURCHASER. Purchaser represents and ------------------------------------------ warrants to the Company that: (A) PURCHASE FOR OWN ACCOUNT FOR INVESTMENT. Purchaser is purchasing ---------------------------------------- the Shares for Purchaser's own account for investment purposes only and not with a view to, or for sale in connection with, a distribution of the Shares within the meaning of the Securities Act of 1933, as amended (the "1933 Act"). -------- Purchaser has no present intention of selling or otherwise disposing of all or any portion of the Shares and no one other than Purchaser has any beneficial ownership of any of the Shares. (B) ACCESS TO INFORMATION. Purchaser has had access to all ---------------------- information regarding the Company and its present and prospective business, assets, liabilities and financial condition that Purchaser reasonably considers important in making the decision to purchase the Shares, and Purchaser has had ample opportunity to ask questions of the Company's representatives concerning such matters and this investment. (C) UNDERSTANDING OF RISKS. Purchaser is fully aware of: (i) the ----------------------- highly speculative nature of the investment in the Shares; (ii) the financial hazards involved; (iii) the lack of liquidity of the Shares and the restrictions on transferability of the Shares (e.g., that Purchaser may not be able to sell ---- or dispose of the Shares or use them as collateral for loans); (iv) the qualifications and backgrounds of the management of the Company; and (v) the tax consequences of investment in the Shares. (D) PURCHASER'S QUALIFICATIONS. Purchaser has a preexisting personal --------------------------- or business relationship with the Company and/or certain of its officers and/or directors of a nature and duration sufficient to make Purchaser aware of the character, business acumen and general business and financial circumstances of the Company and/or such officers and directors. By reason of Purchaser's business or financial experience, Purchaser is capable of evaluating the merits and risks of this investment, has the ability to protect Purchaser's own interests in this transaction and is financially capable of bearing a total loss of this investment. (E) NO GENERAL SOLICITATION. At no time was Purchaser presented with ------------------------ or solicited by any publicly issued or circulated newspaper, mail, radio, television or other form of general advertising or solicitation in connection with the offer, sale and purchase of the Shares. (F) COMPLIANCE WITH SECURITIES LAWS. Purchaser understands and -------------------------------- acknowledges that, in reliance upon the representations and warranties made by Purchaser herein, the Shares are not being registered with the Securities and Exchange Commission ("SEC") under the 1933 Act or being qualified under the --- California Corporate Securities Law of 1968, as amended (the "Law"), but instead --- are being issued under an exemption or exemptions from the registration and qualification requirements of the 1933 Act and the Law or other applicable state securities laws which may impose certain restrictions on Purchaser's ability to transfer the Shares. (G) RESTRICTIONS ON TRANSFER. Purchaser acknowledges and agrees that ------------------------- the Company, in its discretion, may elect to issue the Shares under one or more of several different exemptions from the registration and qualification requirements of the 1933 Act and the Law and that Purchaser's ability to transfer the Shares in compliance with such laws will be affected by the Company's choice of exemption. Purchaser further understands that the Company's choice of exemptions may not be definitively made until a later date and the Company is entirely free in its discretion to choose which exemption or exemptions it will rely upon to exempt the sale of Shares to Purchaser. Purchaser understands that Purchaser may not transfer any Shares unless such Shares are registered under the 1933 Act or qualified under the Law or unless, in the opinion of counsel to the Company, exemptions from such registration and qualification requirements are available. Purchaser understands that only the Company may file a registration statement with the SEC or the California Commissioner of Corporations and that the Company is under no obligation to do so with respect to the Shares. Purchaser has also been advised that exemptions from registration and qualification may not be available or may not permit Purchaser to transfer all or any of the Shares in the amounts or at the times proposed by Purchaser. (H) RULE 144. Purchaser acknowledges that SEC Rule 144 promulgated --------- under the 1933 Act, which permits certain limited sales of unregistered securities, is not presently available with respect to the Shares and, in any event, may require that the Shares be held for a minimum of two years, and in certain cases three years, after they have been purchased and paid for (within ------------ the meaning of Rule 144), before they may be resold under Rule 144. Purchaser understands that Rule 144 will remain unavailable indefinitely with respect to transfers of the Shares so long as Purchaser remains an "affiliate" of the Company and "current public information" about the Company (as defined in Rule 144) is not publicly available. In addition, Purchaser understands that all public resales of the Shares by Purchaser at a time when Purchaser is an affiliate of the Company must comply with the provisions of Rule 144. (I) RULE 701. If the Shares are issued pursuant to the exemption --------- provided by Rule 701 promulgated under the 1933 Act, then the Shares will become freely tradable by persons who are non-affiliates of the Company under SEC Rule 701 promulgated under the 1933 Act, subject to limited conditions regarding the method of sale, 90 days after the first sale of common stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the SEC, subject to any transfer restrictions imposed by applicable state securities laws, the lengthier market standoff agreement contained in this Agreement or any other agreement entered into by Purchaser. Under Rule 701, affiliates must comply with the provisions (other than the holding period requirements) of Rule 144. (J) RULE 504. If the Company elects to issue the Shares to Purchaser --------- under the exemption provided by Rule 504 of Regulation D promulgated under the 1933 Act, then the Shares should be freely tradable by non-affiliates of the Company under the 1933 Act, subject to any transfer restrictions imposed by applicable state securities laws, the lengthier market stand-off agreement contained in this Agreement or any other contractual restrictions contained in this Agreement or in any other agreement entered into by Purchaser. However, affiliates of the Company must continue to comply with the provisions (other than the holding period requirements) of Rule 144. As noted above, Rule 144 is not presently available. (K) TERMS OF PURCHASE AGREEMENT ACCEPTED. Purchaser has received a ------------------------------------- copy of this Agreement, has read and understands the terms of this Agreement, and agrees to be bound by its terms and conditions. Purchaser acknowledges that there may be adverse tax consequences upon purchase and disposition of the Shares, and that Purchaser should consult a tax adviser prior to such purchase or disposition. 4. MARKET STANDOFF AGREEMENT. Purchaser agrees in connection with any -------------------------- registration of the Company's securities under the 1933 Act that, upon the request of the Company or the underwriters managing any registered public offering of the Company's securities, Purchaser will not sell or otherwise dispose of any Shares without the prior written consent of the Company or such managing underwriters, as the case may be, for a period of time (not to exceed one year) after the effective date of such registration requested by such managing underwriters and subject to all restrictions as the Company or the managing underwriters may specify for employee-shareholders generally. 5. RIGHT OF FIRST REFUSAL. Before any Shares held by Purchaser or any ----------------------- transferee of such Shares (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including without limitation a - ------- transfer by gift or operation of law), the Company and/or its assignee(s) will have a right of first refusal to purchase the Shares to be sold or transferred (the "Offered Shares") on the terms and conditions set forth in this Section -------------- (the "Right of First Refusal"). ---------------------- (A) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares will ---------------------------- deliver to the Company a written notice (the "Notice") stating: (i) the ------ Holder's bona fide intention to sell or otherwise transfer the Offered Shares; (ii) the name, address and phone/fax number of each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number of Offered Shares to be ------------------- transferred to each Proposed Transferee; (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Offered Shares (the "Offered Price") and (unless waived by the Company) a brief written explanation, ------------- signed by the Holder and the Proposed Transferee, of how the Offered Price was arrived at; and (v) that the Holder will offer to sell the Offered Shares to the Company and/or its assignee(s) at the Offered Price as provided in this Section. A true and correct copy of the Proposed Transferee's bona fide offer shall be provided to the Company together with the Notice. (B) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within sixty ----------------------------------- (60) days after the date of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all (but not less than all) of the Offered Shares proposed to be transferred to any one or more of the Proposed Transferees named in the Notice, at the purchase price determined in accordance with subsection (c) below. (C) PURCHASE PRICE. The purchase price for the Offered Shares --------------- purchased under this Section will be the Offered Price. If the Offered Price includes consideration other than cash, then the value of the non-cash consideration as determined in good faith by the Company's Board of Directors will conclusively be deemed to be the cash equivalent value of such non-cash consideration. (D) PAYMENT. Payment of the purchase price for Offered Shares will -------- be payable, at the option of the Company and/or its assignee(s) (as applicable), by check or by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or to such assignee, in the case of a purchase of Offered Shares by such assignee) or by any combination thereof. The purchase price will be paid without interest within sixty (60) days after the Company's receipt of the Notice, or, at the option of the Company and/or its assignee(s), in the manner and at the time(s) set forth in the Notice. (E) HOLDER'S RIGHT TO TRANSFER. If all of the Offered Shares --------------------------- proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Offered Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that -------- such sale or other transfer is consummated within 120 days after the date of the Notice, and provided further, that: (i) any such sale or other transfer is -------- ------- effected in compliance with all applicable securities laws; and (ii) the Proposed Transferee agrees in writing that the provisions of this Section will continue to apply to the Offered Shares in the hands of such Proposed Transferee. If the Offered Shares described in the Notice are not transferred to the Proposed Transferee within such 120 day period, then a new Notice must be given to the Company, and the Company will again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. (F) EXEMPT TRANSFERS. Notwithstanding anything to the contrary in ----------------- this Section, the following transfers of Shares will be exempt from the Right of First Refusal: (i) the transfer of any or all of the Shares during Purchaser's lifetime by gift or on Purchaser's death by will or intestacy to Purchaser's "immediate family" (as defined below) or to a trust for the benefit of Purchaser or Purchaser's immediate family, provided that each transferee or other recipient agrees in a writing satisfactory to the Company that the provisions of this Section will continue to apply to the transferred Shares in the hands of such transferee or other recipient; (ii) any transfer of Shares made pursuant to a statutory merger or statutory consolidation of the Company with or into another corporation or corporations (except that the Right of First Refusal will continue to apply thereafter to such Shares, in which case the surviving corporation of such merger or consolidation shall succeed to the rights or the Company under this Section unless the agreement of merger or consolidation expressly otherwise provides); (iii) any transfer of Shares pursuant to the winding up and dissolution of the Company; or (iv) any transfer of Shares made in accordance with this Section 5. As used herein, the term "immediate family" ---------------- will mean Purchaser's spouse, lineal descendant or antecedent, father, mother, brother or sister, adopted child or grandchild, or the spouse of any child, adopted child, grandchild or adopted grandchild of Purchaser. (G) TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First -------------------------------------- Refusal will terminate as to all Shares on the effective date of the first sale of common stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the SEC under the 1933 Act (other than a registration statement relating solely to the issuance of common stock pursuant to a business combination or an employee incentive or benefit plan). (H) ENCUMBRANCES ON SHARES. Purchaser may grant a lien or security ----------------------- interest in, or pledge, hypothecate or encumber Shares only if the Company or its successors and assigns do not hold a lien or security interest in such shares and only if each party to whom such lien or security interest is granted, or to whom such pledge, hypothecation or other encumbrance is made, agrees in a writing satisfactory to the Company that: (i) such lien, security interest, pledge, hypothecation or encumbrance will not apply to such Shares after they are acquired by the Company and/or its assignees under this Section; and (ii) the provisions of this Section will continue to apply to such Shares in the hands of such party and any transferee of such party. 6. RIGHTS AS SHAREHOLDER. Subject to the terms and conditions of this ---------------------- Agreement, Purchaser will have all of the rights of a shareholder of the Company with respect to the Shares from and after the date that Purchaser delivers payment of the Purchase Price until such time as Purchaser disposes of the Shares or the Company and/or its assignee(s) exercise(s) the Right of First Refusal. Upon an exercise of the Right of First Refusal, Purchaser will have no further rights as a holder of the Shares so purchased upon such exercise, except the right to receive payment for the Shares so purchased in accordance with the provisions of this Agreement, and Purchaser will promptly surrender the stock certificate(s) evidencing the Shares so purchased to the Company for transfer or cancellation. 7. ESCROW. As security for Purchaser's faithful performance of this ------- Agreement, Purchaser agrees, immediately upon receipt of the stock certificate(s) evidencing the Shares, to deliver such certificate(s), together with the Stock Powers executed by Purchaser and by Purchaser's spouse, if any (with the date and number of Shares left blank), to the Secretary of the Company or other designee of the Company ("Escrow Holder"), who is hereby appointed to ------------- hold such certificate(s) and Stock Powers in escrow and to take all such actions and to effectuate all such transfers and/or releases of such Shares as are in accordance with the terms of this Agreement. Purchaser and the Company agree that Escrow Holder will not be liable to any party to this Agreement (or to any other party) for any actions or omissions unless Escrow Holder is grossly negligent or intentionally fraudulent in carrying out the duties of Escrow Holder under this Section. Escrow Holder may rely upon any letter, notice or other document executed by any signature purported to be genuine and may rely on the advice of counsel and obey any order of any court with respect to the transactions contemplated by this Agreement. The Shares will be released from escrow upon termination of the Right of First Refusal. 8. TAX CONSEQUENCES. PURCHASER UNDERSTANDS THAT PURCHASER MAY SUFFER ----------------- ADVERSE TAX CONSEQUENCES AS A RESULT OF PURCHASER'S PURCHASE OR DISPOSITION OF THE SHARES. PURCHASER REPRESENTS THAT PURCHASER HAS CONSULTED WITH ANY TAX ADVISER PURCHASER DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE SHARES AND THAT PURCHASER IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE. 9. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS. --------------------------------------------- (A) LEGENDS. Purchaser understands and agrees that the Company will -------- place the legends set forth below or similar legends on any stock certificate(s) evidencing the Shares, together with any other legends that may be required by state or federal securities laws, the Company's Certificate of Incorporation or Bylaws, any other agreement between Purchaser and the Company or any agreement between Purchaser and any third party: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. A STATEMENT OF THE RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS GRANTED TO OR IMPOSED UPON EACH CLASS OR SERIES OF AUTHORIZED SHARES OF THE COMPANY MAY BE OBTAINED UPON REQUEST AND WITHOUT CHARGES, FROM THE COMPANY'S SECRETARY AT THE COMPANY'S PRINCIPAL OFFICES. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON PUBLIC RESALE AND TRANSFER, IRREVOCABLE PROXY AND VOTING PROVISIONS, AND A RIGHT OF FIRST REFUSAL OPTION HELD BY THE ISSUER AND/OR ITS ASSIGNEE(S) AS SET FORTH IN A RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH PUBLIC RESALE AND TRANSFER RESTRICTIONS, IRREVOCABLE PROXY AND VOTING PROVISIONS, AND RIGHT OF FIRST REFUSAL OPTION ARE BINDING ON TRANSFEREES OF THESE SHARES. (B) STOP-TRANSFER INSTRUCTIONS. Purchaser agrees that, in order to --------------------------- ensure compliance with the restrictions imposed by this Agreement, the Company may issue appropriate "stop-transfer" instructions to its transfer agent, if any, and if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. (C) REFUSAL TO TRANSFER. The Company will not be required (i) to -------------------- transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares, or to accord the right to vote or pay dividends, to any purchaser or other transferee to whom such Shares have been so transferred. 10. COMPLIANCE WITH LAWS AND REGULATIONS. The issuance and transfer of ------------------------------------- the Shares will be subject to and conditioned upon compliance by the Company and Purchaser with all applicable state and federal laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Company's common stock may be listed or quoted at the time of such issuance or transfer. 11. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights ----------------------- under this Agreement, including its rights to repurchase Shares under the Right of First Refusal. This Agreement will be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement will be binding upon Purchaser and Purchaser's heirs, executors, administrators, successors and assigns. 12. GOVERNING LAW; SEVERABILITY. This Agreement will be governed by and ---------------------------- construed in accordance with the internal laws of the State of California, excluding that body of laws pertaining to conflict of laws. If any provision of this Agreement is determined by a court of law to be illegal or unenforceable, then such provision will be enforced to the maximum extent possible and the other provisions will remain fully effective and enforceable. 13. NOTICES. Any notice required or permitted hereunder will be given in -------- writing and will be deemed effectively given upon personal delivery, three (3) days after deposit in the United States mail by certified or registered mail (return receipt requested), one (1) business day after its deposit with any return receipt express courier (prepaid), or one (1) business day after transmission by facsimile, addressed to the other party at its address (or facsimile number, in the case of transmission by facsimile) as shown below its signature to this Agreement, or to such other address as such party may designate in writing from time to time to the other party. 14. FURTHER INSTRUMENTS. The parties agree to execute such further -------------------- instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this Agreement. 15. HEADINGS. The captions and headings of this Agreement are included --------- for ease of reference only and will be disregarded in interpreting or construing this Agreement. All references herein to Sections will refer to Sections of this Agreement. 16. ENTIRE AGREEMENT. This Agreement, together with all its Exhibits, ----------------- constitutes the entire agreement and understanding of the parties with respect to the subject matter of this Agreement, and supersedes all prior understandings and agreements, whether oral or written, between the parties hereto with respect to the specific subject matter hereof. 17. FINANCIAL STATEMENTS. The Company shall provide fiscal year end -------------------- financial statements to Purchaser on an annual basis at such times as they are available for distribution to stockholders. 18. VOTING AGREEMENT. In consideration of the sale of the Shares by the ---------------- Company to Purchaser, Purchaser hereby agrees that, with respect to any matter upon which the separate vote of the holders of the Company's Series A Common Stock is required under Section 242(b) of the Delaware General Corporation Law prior to the closing of the Company's initial public offering of Series A Common Stock pursuant to a registration statement filed with and declared effective by the SEC (the "Company IPO"), Purchaser will cast all votes attributable to ----------- Purchaser's Shares in the same proportion as the holders of the Company's outstanding shares of Convertible Preferred Stock designated in the Certificate of Incorporation of the Company (the "Convertible Preferred Stock") cast their --------------------------- votes upon such matter, or, if there are no such shares of Convertible Preferred Stock outstanding, in the same manner as the holders of the Company's outstanding shares of Series B Common Stock cast their votes upon such matter. Purchaser hereby irrevocably appoints the Secretary of the Company, or any other person designated by the Secretary of the Company, to act as Purchaser's proxy until the Company IPO to cast all votes attributable to Purchaser's Shares as specified in this Section. The obligations of this Section shall be binding on any transferee to whom the Shares are transferred by Purchaser or any subsequent transferee. As a condition of any transfer of the Shares prior to the Company IPO, Purchaser shall require any transferee, and any such transferee shall require its transferee, to agree to be bound by the provisions of this Section in the same manner as Purchaser is bound. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in duplicate by its duly authorized representative and Purchaser has executed this Agreement in duplicate, as of the Effective Date. AT HOME CORPORATION PURCHASER By: /s/ THOMAS A. JERMOLUK /s/ WILLIAM R. HEARST, III ------------------------- ---------------------------- William R. Hearst, III Title:______________________ Address: 385 Ravendale Drive Address: 2440 Vallejo Street Mountain View, CA 94043 San Francisco, CA 94123 LIST OF EXHIBITS - ---------------- Exhibit 1: Purchaser's check in the amount of $20,000.00 in payment of the Purchase Price of the Shares Exhibit 2: Stock Power and Assignment Separate from Stock Certificate ____________________________________ Continued from the previous page EXHIBIT 1 --------- COPY OF PURCHASER'S CHECK ------------------------- EXHIBIT 2 --------- STOCK POWER AND ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED and pursuant to that certain Stock Purchase Agreement dated as of July 31, 1996, (the "Agreement"), the undersigned hereby sells, --------- assigns and transfers unto _____________________, ______________ shares of the Series A Common Stock of AT HOME CORPORATION, a Delaware corporation (the "Company"), standing in the undersigned's name on the books of the Company - -------- represented by Certificate No(s). _____ delivered herewith, and does hereby irrevocably constitute and appoint the Secretary of the Company as the undersigned's attorney-in-fact, with full power of substitution, to transfer said stock on the books of the Company. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND THE EXHIBITS THERETO. Dated: ____________, 199___ PURCHASER ________________________________ William R. Hearst, III ________________________________ (Purchaser's Spouse) INSTRUCTION: Please do not fill in any blanks other than the signature line. - ----------- --- The purpose of this Stock Power and Assignment is to enable the Company and/or its assigns to exercise its "Right of First Refusal" set forth in the Agreement without requiring additional signatures on the part of the Purchaser. EX-10.17 26 RESTRICTED STOCK PURCHASE AGREEMENT - K.A. GOLDMAN EXHIBIT 10.17 RESTRICTED STOCK PURCHASE AGREEMENT This Agreement is made and entered into as of July 29, 1996 (the "Effective Date") between AT HOME CORPORATION, a Delaware corporation (the - --------------- "Company"), and Ken Goldman ("Purchaser"). - -------- --------- RECITALS -------- A. The Company desires to provide equity incentives to certain key employees pursuant to this Restricted Stock Purchase Agreement, which agreement is intended to qualify as a compensatory benefit plan or agreement within the meaning of Rule 701 under the Securities Act of 1933, as amended. B. Purchaser possesses sufficient business and financial experience, and/or sufficient knowledge of and/or relationship to the Company and its management, as to enable the Company to lawfully issue shares of its Common Stock to Purchaser without the need for registration or qualification of such shares under the Securities Act of 1933, as amended, and all applicable state "blue sky" laws. C. The Company desires to sell to Purchaser, and Purchaser desires to purchase from the Company, the shares of the Company's Series A Common Stock. NOW, THEREFORE, the parties agree as follows: 1. PURCHASE OF SHARES. On the Effective Date and subject to the ------------------- terms and conditions of this Agreement, Purchaser hereby purchases from the Company, and Company hereby sells to Purchaser, an aggregate of 275,000 shares of the Company's Series A Common Stock, $0.01 par value (the "Shares") at an ------ purchase price of $27,500.00 (the "Purchase Price") or $0.10 per Share (the -------------- "Purchase Price Per Share"). As used in this Agreement, the term "Shares" - ------------------------- refers to the Shares purchased under this Agreement and includes all securities received (a) in replacement of the Shares, (b) as a result of stock dividends or stock splits in respect of the Shares, and (c) in replacement of the Shares in a recapitalization, merger, reorganization or the like. 2. PAYMENT OF PURCHASE PRICE; CLOSING. ----------------------------------- (A) DELIVERIES BY PURCHASER. Purchaser hereby delivers to the ------------------------ Company (i) a check made out to the order of the Company in the amount of $27,500.00 in payment of the Purchase Price of the Shares, a copy of which is attached hereto as Exhibit 1; and (ii) two (2) copies of a blank Stock Power and --------- Assignment Separate from Stock Certificate in the form of Exhibit 2 attached --------- hereto (the "Stock Powers"), duly executed by Purchaser and (if applicable) ------------ Purchaser's spouse. (B) DELIVERIES BY THE COMPANY. Upon its receipt of the entire -------------------------- Purchase Price and all the documents to be executed and delivered by Purchaser to the Company under Section 2(a), the Company will issue a duly executed stock certificate evidencing the Shares in the name of Purchaser, with such certificate to be placed in escrow as provided in Section 8 until expiration or termination of both the Company's Repurchase Option and Right of First Refusal described in Sections 5 and 6. 3. REPRESENTATIONS AND WARRANTS OF PURCHASER. Purchaser represents ------------------------------------------ and warrants to the Company that: (A) PURCHASE FOR OWN ACCOUNT FOR INVESTMENT. Purchaser is ---------------------------------------- purchasing the Shares for Purchaser's own account for investment purposes only and not with a view to, or for sale in connection with, a distribution of the Shares within the meaning of the Securities Act of 1933, as amended (the "1933 Act"). Purchaser has no present intention of selling or ---- --- otherwise disposing of all or any portion of the Shares and no one other than Purchaser has any beneficial ownership of any of the Shares. (B) ACCESS TO INFORMATION. Purchaser has had access to all ---------------------- information regarding the Company and its present and prospective business, assets, liabilities and financial condition that Purchaser reasonably considers important in making the decision to purchase the Shares, and Purchaser has had ample opportunity to ask questions of the Company's representatives concerning such matters and this investment. (C) UNDERSTANDING OF RISKS. Purchaser is fully aware of: (i) ----------------------- the highly speculative nature of the investment in the Shares; (ii) the financial hazards involved; (iii) the lack of liquidity of the Shares and the restrictions on transferability of the Shares (e.g., that Purchaser may not be ---- able to sell or dispose of the Shares or use them as collateral for loans); (iv) the qualifications and backgrounds of the management of the Company; and (v) the tax consequences of investment in the Shares. (D) PURCHASER'S QUALIFICATIONS. Purchaser has a preexisting --------------------------- personal or business relationship with the Company and/or certain of its officers and/or directors of a nature and duration sufficient to make Purchaser aware of the character, business acumen and general business and financial circumstances of the Company and/or such officers and directors. By reason of Purchaser's business or financial experience, Purchaser is capable of evaluating the merits and risks of this investment, has the ability to protect Purchaser's own interests in this transaction and is financially capable of bearing a total loss of this investment. (E) NO GENERAL SOLICITATION. At no time was Purchaser ------------------------ presented with or solicited by any publicly issued or circulated newspaper, mail, radio, television or other form of general advertising or solicitation in connection with the offer, sale and purchase of the Shares. (F) COMPLIANCE WITH SECURITIES LAWS. Purchaser understands and -------------------------------- acknowledges that, in reliance upon the representations and warranties made by Purchaser herein, the Shares are not being registered with the Securities and Exchange Commission ("SEC") under the 1933 Act or being qualified under the --- California Corporate Securities Law of 1968, as amended (the "Law"), but instead --- are being issued under an exemption or exemptions from the registration and qualification requirements of the 1933 Act and the Law or other applicable state securities laws which may impose certain restrictions on Purchaser's ability to transfer the Shares. (G) RESTRICTIONS ON TRANSFER. Purchaser acknowledges and ------------------------- agrees that the Company, in its discretion, may elect to issue the Shares under one or more of several different exemptions from the registration and qualification requirements of the 1933 Act and the Law and that Purchaser's ability to transfer the Shares in compliance with such laws will be affected by the Company's choice of exemption. Purchaser further understands that the Company's choice of exemptions may not be definitively made until a later date and the Company is entirely free in its discretion to choose which exemption or exemptions it will rely upon to exempt the sale of Shares to Purchaser. Purchaser understands that Purchaser may not transfer any Shares unless such Shares are registered under the 1933 Act or qualified under the Law or unless, in the opinion of counsel to the Company, exemptions from such registration and qualification requirements are available. Purchaser understands that only the Company may file a registration statement with the SEC or the California Commissioner of Corporations and that the Company is under no obligation to do so with respect to the Shares. Purchaser has also been advised that exemptions from registration and qualification may not be available or may not permit Purchaser to transfer all or any of the Shares in the amounts or at the times proposed by Purchaser. (H) RULE 144. Purchaser acknowledges that SEC Rule 144 --------- promulgated under the 1933 Act, which permits certain limited sales of unregistered securities, is not presently available with respect to the Shares -2- and, in any event, may require that the Shares be held for a minimum of two years, and in certain cases three years, after they have been purchased and paid -------- for (within the meaning of Rule 144), before they may be resold under Rule 144. - --- Purchaser understands that Rule 144 will remain unavailable indefinitely with respect to transfers of the Shares so long as Purchaser remains an "affiliate" of the Company and "current public information" about the Company (as defined in Rule 144) is not publicly available. In addition, Purchaser understands that all public resales of the Shares by Purchaser at a time when Purchaser is an affiliate of the Company must comply with the provisions of Rule 144. (I) RULE 701. If the Shares are issued pursuant to the exemption --------- provided by Rule 701 promulgated under the 1933 Act, then the Shares will become freely tradable by persons who are non-affiliates of the Company under SEC Rule 701 promulgated under the 1933 Act, subject to limited conditions regarding the method of sale, 90 days after the first sale of common stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the SEC, subject to any transfer restrictions imposed by applicable state securities laws, the lengthier market standoff agreement contained in this Agreement or any other agreement entered into by Purchaser. Under Rule 701, affiliates must comply with the provisions (other than the holding period requirements) of Rule 144. (J) RULE 504. If the Company elects to issue the Shares to --------- Purchaser under the exemption provided by Rule 504 of Regulation D promulgated under the 1933 Act, then the Shares should be freely tradable by non-affiliates of the Company under the 1933 Act, subject to any transfer restrictions imposed by applicable state securities laws, the lengthier market stand-off agreement contained in this Agreement or any other contractual restrictions contained in this Agreement or in any other agreement entered into by Purchaser. However, affiliates of the Company must continue to comply with the provisions (other than the holding period requirements) of Rule 144. As noted above, Rule 144 is not presently available. (K) TERMS OF PURCHASE AGREEMENT ACCEPTED. Purchaser has ------------------------------------- received a copy of this Agreement, has read and understands the terms of this Agreement, and agrees to be bound by its terms and conditions. Purchaser acknowledges that there may be adverse tax consequences upon purchase and disposition of the Shares, and that Purchaser should consult a tax adviser prior to such purchase or disposition. 4. MARKET STANDOFF AGREEMENT. Purchaser agrees in connection with -------------------------- any registration of the Company's securities under the 1933 Act that, upon the request of the Company or the underwriters managing any registered public offering of the Company's securities, Purchaser will not sell or otherwise dispose of any Shares without the prior written consent of the Company or such managing underwriters, as the case may be, for a period of time (not to exceed one year) after the effective date of such registration requested by such managing underwriters and subject to all restrictions as the Company or the managing underwriters may specify for employee-shareholders generally. 5. COMPANY'S REPURCHASE OPTION. The Company has the option to ---------------------------- repurchase all or a portion of the Unvested Shares (as defined below) on the terms and conditions set forth in this Section (the "Repurchase Option"). ----------------- (A) DEFINITION OF "EMPLOYED BY THE COMPANY"; "TERMINATION DATE". ----------------------------------------------------------- For purposes of this Agreement, Purchaser will be considered to be "employed by ----------- the Company" if the Board of Directors of the Company determines that Purchaser - ----------- is rendering substantial services as an officer or employee to the Company or to any parent, subsidiary or affiliate of the Company. In case of any dispute as to whether Purchaser is employed by the Company, the Board of Directors of the Company will have discretion to determine whether Purchaser has ceased to be employed by the Company or any parent, subsidiary or affiliate of the Company and the effective date on which Purchaser's employment terminated (the "Termination Date"). ---------------- -3- (B) UNVESTED AND VESTED SHARES. "Unvested Shares" are Shares --------------------------- --------------- which are subject to the Company's Repurchase Option. "Vested Shares" are Shares ------------- which are no longer subject to the Company's Repurchase Obligation. On the Effective Date, all of the Shares will be Unvested Shares. Shares will become Vested Shares as follows: (i) If Purchaser has been continuously employed by the Company at all times from the Effective Date until July 29, 1997 (the "Standard Vesting ---------------- Date"), then on the Standard Vesting Date 55,000 of the Shares will become - ---- Vested Shares; and thereafter, for so long (and only for so long) as Purchaser remains continuously employed by the Company at all times after the Standard Vesting Date, an additional 4,583.33 of the Shares will become Vested Shares upon the 29th day of each succeeding month that elapses after the Standard Vesting Date until July 29, 2000. (ii) If Purchaser has been continuously employed by the Company at all times from the Effective Date until January 29, 1997 (the "Special ------- Vesting Date"), then on the Special Vesting Date 13,750 of the Shares will - ------------ become Vested Shares; and thereafter, for so long (and only for so long) as Purchaser remains continuously employed by the Company at all times after the Special Vesting Date, an additional 2,291.67 of the Shares will become Vested Shares upon the 29th day of each succeeding month that elapses after the Special Vesting Date until July 29, 1998. Notwithstanding the foregoing, no Shares will become Vested Shares after the Termination Date. (C) ADJUSTMENTS. The number of Shares that are Vested Shares or ------------ Unvested Shares will be proportionally adjusted to reflect any stock dividend, stock split, reverse stock split or recapitalization of the Series A Common Stock of the Company occurring after the Effective Date. (D) EXERCISE OF REPURCHASE OPTION AT ORIGINAL PRICE. At any ------------------------------------------------ time within ninety (90) days after the Termination Date, the Company may elect to repurchase any or all of the Unvested Shares by giving Purchaser written notice of exercise of the Repurchase Option. The Company and/or its assignee(s) will then have the option to repurchase from Purchaser (or from Purchaser's personal representative as the case may be) any or all of the Unvested Shares at the Purchaser's original Purchase Price Per Share (as adjusted to reflect any stock dividend, stock split, reverse stock split or recapitalization of the Series A Common Stock of the Company occurring after the Effective Date). (E) PAYMENT OF REPURCHASE PRICE. The repurchase price payable to ---------------------------- purchase Unvested Shares upon exercise of the Repurchase Option will be payable, at the option of the Company or its assignee(s), by check or by cancellation of all or a portion of any outstanding indebtedness of Purchaser to the Company (or to such assignee) or by any combination thereof. The repurchase price will be paid without interest within ninety (90) days after the Termination Date. (F) RIGHT OF TERMINATION UNAFFECTED. Nothing in this Agreement -------------------------------- will be construed to limit or otherwise affect in any manner whatsoever the right or power of the Company (or any parent, subsidiary or affiliate of the Company) to terminate Purchaser's employment at any time for any reason or no reason, with or without cause. 6. RIGHT OF FIRST REFUSAL. Unvested Shares may not be sold or ----------------------- otherwise transferred by Purchaser without the Company's prior written consent. Before any Vested Shares held by Purchaser or any transferee of such Shares (either being sometimes referred to herein as the "Holder") may be sold or ------ otherwise transferred (including without limitation a transfer by gift or operation of law), the Company and/or its assignee(s) -4- will have a right of first refusal to purchase the Vested Shares to be sold or transferred (the "Offered Shares") on the terms and conditions set forth in this -------------- Section (the "Right of First Refusal"). ---------------------- (A) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares will ---------------------------- deliver to the Company a written notice (the "Notice") stating: (i) the ------ Holder's bona fide intention to sell or otherwise transfer the Offered Shares; (ii) the name, address and phone/fax number of each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number of Offered Shares to be ------------------- transferred to each Proposed Transferee; (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Offered Shares (the "Offered Price") and (unless waived by the Company) a brief written explanation, ------------- signed by the Holder and the Proposed Transferee, of how the Offered Price was arrived at; and (v) that the Holder will offer to sell the Offered Shares to the Company and/or its assignee(s) at the Offered Price as provided in this Section. A true and correct copy of the Proposed Transferee's bona fide offer shall be provided to the Company together with the Notice. (B) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within ----------------------------------- sixty (60) days after the date of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all (but not less than all) of the Offered Shares proposed to be transferred to any one or more of the Proposed Transferees named in the Notice, at the purchase price determined in accordance with subsection (c) below. (C) PURCHASE PRICE. The purchase price for the Offered Shares --------------- purchased under this Section will be the Offered Price. If the Offered Price includes consideration other than cash, then the value of the non-cash consideration as determined in good faith by the Company's Board of Directors will conclusively be deemed to be the cash equivalent value of such non-cash consideration. (D) PAYMENT. Payment of the purchase price for Offered Shares -------- will be payable, at the option of the Company and/or its assignee(s) (as applicable), by check or by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or to such assignee, in the case of a purchase of Offered Shares by such assignee) or by any combination thereof. The purchase price will be paid without interest within sixty (60) days after the Company's receipt of the Notice, or, at the option of the Company and/or its assignee(s), in the manner and at the time(s) set forth in the Notice. (E) HOLDER'S RIGHT TO TRANSFER. If all of the Offered Shares --------------------------- proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Offered Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that -------- such sale or other transfer is consummated within 120 days after the date of the Notice, and provided further, that: (i) any such sale or other transfer is -------- ------- effected in compliance with all applicable securities laws; and (ii) the Proposed Transferee agrees in writing that the provisions of this Section will continue to apply to the Offered Shares in the hands of such Proposed Transferee. If the Offered Shares described in the Notice are not transferred to the Proposed Transferee within such 120 day period, then a new Notice must be given to the Company, and the Company will again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. (F) EXEMPT TRANSFERS. Notwithstanding anything to the contrary ----------------- in this Section, the following transfers of Shares will be exempt from the Right of First Refusal: (i) the transfer of any or all of the Shares during Purchaser's lifetime by gift or on Purchaser's death by will or intestacy to Purchaser's "immediate family" (as defined below) or to a trust for the benefit of Purchaser or Purchaser's immediate family, provided that each transferee or other recipient agrees in a writing satisfactory to the Company that the provisions of this Section will continue to apply to the transferred Shares in the hands of such transferee or other recipient; (ii) any transfer of Shares made pursuant to a statutory merger or statutory consolidation of the Company with or into another corporation or corporations (except that the Right of First Refusal will continue to apply thereafter to such Shares, -5- in which case the surviving corporation of such merger or consolidation shall succeed to the rights or the Company under this Section unless the agreement of merger or consolidation expressly otherwise provides); (iii) any transfer of Shares pursuant to the winding up and dissolution of the Company; or (iv) any transfer of Shares made in accordance with Section 5 or 6 of this Agreement. As used herein, the term "immediate family" will mean Purchaser's spouse, lineal ---------------- descendant or antecedent, father, mother, brother or sister, adopted child or grandchild, or the spouse of any child, adopted child, grandchild or adopted grandchild of Purchaser. (G) TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First -------------------------------------- Refusal will terminate as to all Shares on the effective date of the first sale of common stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the SEC under the 1933 Act (other than a registration statement relating solely to the issuance of common stock pursuant to a business combination or an employee incentive or benefit plan). (H) ENCUMBRANCES ON VESTED SHARES. Purchaser may grant a lien ------------------------------ or security interest in, or pledge, hypothecate or encumber Vested Shares only if the Company or its successors and assigns do not hold a lien or security interest in such share and only if each party to whom such lien or security interest is granted, or to whom such pledge, hypothecation or other encumbrance is made, agrees in a writing satisfactory to the Company that: (i) such lien, security interest, pledge, hypothecation or encumbrance will not apply to such Vested Shares after they are acquired by the Company and/or its assignees under this Section; and (ii) the provisions of this Section will continue to apply to such Vested Shares in the hands of such party and any transferee of such party. Purchaser may not grant a lien or security interest in, or pledge, hypothecate or encumber any Unvested Shares. 7. RIGHTS AS SHAREHOLDER. Subject to the terms and conditions of ---------------------- this Agreement, Purchaser will have all of the rights of a shareholder of the Company with respect to the Shares from and after the date that Purchaser delivers payment of the Purchase Price until such time as Purchaser disposes of the Shares or the Company and/or its assignee(s) exercise(s) the Repurchase Option or Right of First Refusal. Upon an exercise of the Repurchase Option or the Right of First Refusal, Purchaser will have no further rights as a holder of the Shares so purchased upon such exercise, except the right to receive payment for the Shares so purchased in accordance with the provisions of this Agreement, and Purchaser will promptly surrender the stock certificate(s) evidencing the Shares so purchased to the Company for transfer or cancellation. 8. ESCROW. As security for Purchaser's faithful performance of this ------- Agreement, Purchaser agrees, immediately upon receipt of the stock certificate(s) evidencing the Shares, to deliver such certificate(s), together with the Stock Powers executed by Purchaser and by Purchaser's spouse, if any (with the date and number of Shares left blank), to the Secretary of the Company or other designee of the Company ("Escrow Holder"), who is hereby appointed to ------------- hold such certificate(s) and Stock Powers in escrow and to take all such actions and to effectuate all such transfers and/or releases of such Shares as are in accordance with the terms of this Agreement. Purchaser and the Company agree that Escrow Holder will not be liable to any party to this Agreement (or to any other party) for any actions or omissions unless Escrow Holder is grossly negligent or intentionally fraudulent in carrying out the duties of Escrow Holder under this Section. Escrow Holder may rely upon any letter, notice or other document executed by any signature purported to be genuine and may rely on the advice of counsel and obey any order of any court with respect to the transactions contemplated by this Agreement. The Shares will be released from escrow upon termination of both the Repurchase Option and the Right of First Refusal. 9. TAX CONSEQUENCES. Purchaser hereby acknowledges that Purchaser ----------------- has been informed that, unless an election is filed by the Purchaser with the Internal Revenue Service (and, if necessary, the proper state taxing authorities), within 30 days of the purchase of the Shares, electing pursuant to -------------- Section 83(b) of the Internal Revenue Code (and similar state tax provisions, if applicable) to be taxed currently on any difference -6- between the Purchase Price of the Shares and their fair market value on the date of purchase, there will be a recognition of taxable income to the Purchaser, measured by the excess, if any, of the fair market value of the Vested Shares, at the time they cease to be Unvested Shares, over the purchase price for such Shares. Purchaser represents that Purchaser has consulted any tax adviser(s) Purchaser deems advisable in connection with Purchaser's purchase of the Shares and the filing of the election under Section 83(b) and similar tax provisions. A form of Election under Section 83(b) is attached hereto as Exhibit 3 for --------- reference. PURCHASER HEREBY ASSUMES ALL RESPONSIBILITY FOR FILING SUCH ELECTION AND PAYING ANY TAXES RESULTING FROM SUCH ELECTION OR FOR FAILING TO FILE THE ELECTION AND PAYING TAXES RESULTING FROM THE LAPSE OF THE REPURCHASE RESTRICTIONS ON THE UNVESTED SHARES. PURCHASER UNDERSTANDS THAT PURCHASER MAY SUFFER ADVERSE TAX CONSEQUENCES AS A RESULT OF PURCHASER'S PURCHASE OR DISPOSITION OF THE SHARES. PURCHASER REPRESENTS THAT PURCHASER HAS CONSULTED WITH ANY TAX ADVISER PURCHASER DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE SHARES AND THAT PURCHASER IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE. 10. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS. --------------------------------------------- (A) LEGENDS. Purchaser understands and agrees that the Company will -------- place the legends set forth below or similar legends on any stock certificate(s) evidencing the Shares, together with any other legends that may be required by state or federal securities laws, the Company's Certificate of Incorporation or Bylaws, any other agreement between Purchaser and the Company or any agreement between Purchaser and any third party: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. A STATEMENT OF THE RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS GRANTED TO OR IMPOSED UPON EACH CLASS OR SERIES OF AUTHORIZED SHARES OF THE COMPANY MAY BE OBTAINED UPON REQUEST AND WITHOUT CHARGE, FROM THE COMPANY'S SECRETARY AT THE COMPANY'S PRINCIPAL OFFICES. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON PUBLIC RESALE AND TRANSFER, IRREVOCABLE PROXY AND VOTING PROVISIONS, AND RIGHT OF FIRST REFUSAL AND REPURCHASE OPTIONS HELD BY THE ISSUER AND/OR ITS ASSIGNEE(S) AS SET FORTH IN A RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH PUBLIC RESALE AND TRANSFER RESTRICTIONS, IRREVOCABLE PROXY AND VOTING PROVISIONS, AND THE RIGHT OF REPURCHASE AND RIGHT OF FIRST REFUSAL OPTIONS ARE BINDING ON TRANSFEREES OF THESE SHARES. -7- (B) STOP-TRANSFER INSTRUCTIONS. Purchaser agrees that, in order to --------------------------- ensure compliance with the restrictions imposed by this Agreement, the Company may issue appropriate "stop-transfer" instructions to its transfer agent, if any, and if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. (C) REFUSAL TO TRANSFER. The Company will not be required (i) to -------------------- transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares, or to accord the right to vote or pay dividends, to any purchaser or other transferee to whom such Shares have been so transferred. 11. COMPLIANCE WITH LAWS AND REGULATIONS. The issuance and transfer of ------------------------------------- the Shares will be subject to and conditioned upon compliance by the Company and Purchaser with all applicable state and federal laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Company's common stock may be listed or quoted at the time of such issuance or transfer. 12. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights ----------------------- under this Agreement, including its rights to repurchase Shares under the Repurchase Option and the Right of First Refusal. This Agreement will be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement will be binding upon Purchaser and Purchaser's heirs, executors, administrators, successors and assigns. 13. GOVERNING LAW; SEVERABILITY. This Agreement will be governed by and ---------------------------- construed in accordance with the internal laws of the State of California, excluding that body of laws pertaining to conflict of laws. If any provision of this Agreement is determined by a court of law to be illegal or unenforceable, then such provision will be enforced to the maximum extent possible and the other provisions will remain fully effective and enforceable. 14. NOTICES. Any notice required or permitted hereunder will be given in -------- writing and will be deemed effectively given upon personal delivery, three (3) days after deposit in the United States mail by certified or registered mail (return receipt requested), one (1) business day after its deposit with any return receipt express courier (prepaid), or one (1) business day after transmission by facsimile, addressed to the other party at its address (or facsimile number, in the case of transmission by facsimile) as shown below its signature to this Agreement, or to such other address as such party may designate in writing from time to time to the other party. 15. FURTHER INSTRUMENTS. The parties agree to execute such further -------------------- instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this Agreement. 16. HEADINGS. The captions and headings of this Agreement are included --------- for ease of reference only and will be disregarded in interpreting or construing this Agreement. All references herein to Sections will refer to Sections of this Agreement. 17. ENTIRE AGREEMENT. This Agreement, together with all its Exhibits, ----------------- constitutes the entire agreement and understanding of the parties with respect to the subject matter of this Agreement, and supersedes all prior understandings and agreements, whether oral or written, between the parties hereto with respect to the specific subject matter hereof. 18. FINANCIAL STATEMENTS. The Company shall provide fiscal year end -------------------- financial statements to Purchaser on an annual basis at such times as they are available for distribution to stockholders. -8- 19. VOTING AGREEMENT. In consideration of the sale of the Shares by the ---------------- Company to Purchaser, Purchaser hereby agrees that, with respect to any matter upon which the separate vote of the holders of the Company's Series A Common Stock is required under Section 242(b) of the Delaware General Corporation Law prior to the closing of the Company's initial public offering of Series A Common Stock pursuant to a registration statement filed with and declared effective by the SEC (the "Company IPO"), Purchaser will cast all votes attributable to ----------- Purchaser's Shares in the same proportion as the holders of the Company's outstanding shares of Convertible Preferred Stock designated in the Certificate of Incorporation of the Company (the "Convertible Preferred Stock") cast their --------------------------- votes upon such matter, or, if there are no such shares of Convertible Preferred Stock outstanding, in the same manner as the holders of the Company's outstanding shares of Series B Common Stock cast their votes upon such matter. Purchaser hereby irrevocably appoints the Secretary of the Company, or any other person designated by the Secretary of the Company, to act as Purchaser's proxy until the Company IPO to cast all votes attributable to Purchaser's Shares as specified in this Section. The obligations of this Section shall be binding on any transferee to whom the Shares are transferred by Purchaser or any subsequent transferee. As a condition of any transfer of the Shares prior to the Company IPO, Purchaser shall require any transferee, and any such transferee shall require its transferee, to agree to be bound by the provisions of this Section in the same manner as Purchaser is bound. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in duplicate by its duly authorized representative and Purchaser has executed this Agreement in duplicate, as of the Effective Date. AT HOME CORPORATION PURCHASER By: /s/ WILLIAM R. HEARST III /s/ KEN GOLDMAN -------------------------- --------------- Ken Goldman Title: ----------------------- Address: 385 Ravendale Drive Address: 441 Walsh Road Mountain View, CA 94043 Atherton, CA 94027 -9- LIST OF EXHIBITS - ---------------- Exhibit 1: Purchaser's check in the amount of $27,500.00 in payment of the Purchase Price of the Shares Exhibit 2: Stock Power and Assignment Separate from Stock Certificate Exhibit 3: Election Under Section 83(b) of the Internal Revenue Code -10- EXHIBIT 1 --------- COPY OF PURCHASER'S CHECK ------------------------- EXHIBIT 2 --------- STOCK POWER AND ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED and pursuant to that certain Restricted Stock Purchase Agreement dated as of July 29, 1996, (the "Agreement"), the undersigned hereby --------- sells, assigns and transfers unto _____________________, ______________ shares of the Series A Common Stock of AT HOME CORPORATION, a Delaware corporation (the "Company"), standing in the undersigned's name on the books of the ------- Company represented by Certificate No(s). _____ delivered herewith, and does hereby irrevocably constitute and appoint the Secretary of the Company as the undersigned's attorney-in-fact, with full power of substitution, to transfer said stock on the books of the Company. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND THE EXHIBITS THERETO. Dated: ______________________, 199___ PURCHASER ______________________________ Ken Goldman ______________________________ (Purchaser's Spouse) INSTRUCTION: Please do not fill in any blanks other than the signature line. - ----------- --- The purpose of this Stock Power and Assignment is to enable the Company and/or its assigns to exercise its "Repurchase Option" and/or "Right of First Refusal" set forth in the Agreement without requiring additional signatures on the part of the Purchaser. EXHIBIT 3 --------- ELECTION UNDER SECTION 83(B) OF THE INTERNAL REVENUE CODE The undersigned Taxpayer hereby elects, pursuant to Section 83(b) of the Internal Revenue Code, to include in gross income for the Taxpayer's current taxable year the excess, if any, of the fair market value of the property described below at the time of transfer over the amount paid for such property, as compensation for services. 1. TAXPAYER'S NAME: Ken Goldman -------------------------------- TAXPAYER'S ADDRESS: 441 Walsh Road -------------------------------- Atherton, CA 94027 -------------------------------- SOCIAL SECURITY NUMBER: ________________________________ 2. The property with respect to which the election is made is described as follows: 275,000 shares of Series A Common Stock of AT HOME CORPORATION, a Delaware corporation (the "Company"), which is Taxpayer's employer or ------- the corporation for whom the Taxpayer performs services. 3. The date on which the shares were transferred was July 29, 1996 and this election is made for calendar year 1996. 4. The shares are subject to the following restrictions: The Company may repurchase all or a portion of the shares at the Taxpayer's original purchase price under certain conditions at the time of Taxpayer's termination of employment or services. 5. The fair market value of the shares (without regard to restrictions other than restrictions which by their terms will never lapse) was $0.10 per share at the time of transfer. 6. The amount paid for such shares was $0.10 per share. 7. The Taxpayer has submitted a copy of this statement to the Company. THIS ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE ("IRS"), AT THE --- OFFICE WHERE THE TAXPAYER FILES ANNUAL INCOME TAX RETURNS, WITHIN 30 DAYS -------------- AFTER THE DATE OF TRANSFER OF THE PROPERTY, AND MUST ALSO BE FILED WITH THE TAXPAYER'S INCOME TAX RETURNS FOR THE CALENDAR YEAR. THE ELECTION CANNOT BE REVOKED WITHOUT THE CONSENT OF THE IRS. Dated: July 29, 1996 ______________________________ Ken Goldman EX-10.18 27 FORM OF RESTRICTED PURCHASE AGREEMENT EXHIBIT 10.18 FORM OF RESTRICTED STOCK PURCHASE AGREEMENT (FOR PURCHASES PAID FOR WITH A PROMISSORY NOTE) This Agreement is made and entered into as of ____________ (the "Effective --------- Date") between AT HOME CORPORATION, a Delaware corporation (the "Company"), and - ---- ------- __________ ("Purchaser"). --------- RECITALS -------- A. The Company desires to provide equity incentives to certain key employees pursuant to this Restricted Stock Purchase Agreement, which agreement is intended to qualify as a compensatory benefit plan or agreement within the meaning of Rule 701 under the Securities Act of 1933, as amended. B. Purchaser possesses sufficient business and financial experience, and/or sufficient knowledge of and/or relationship to the Company and its management, as to enable the Company to lawfully issue shares of its Common Stock to Purchaser without the need for registration or qualification of such shares under the Securities Act of 1933, as amended, and all applicable state "blue sky" laws. C. The Company desires to sell to Purchaser, and Purchaser desires to purchase from the Company, the shares of the Company's Series A Common Stock. NOW, THEREFORE, the parties agree as follows: 1. PURCHASE OF SHARES. On the Effective Date and subject to the terms ------------------- and conditions of this Agreement, Purchaser hereby purchases from the Company, and Company hereby sells to Purchaser, an aggregate of ________ shares the Company's Series A Common Stock, $0.01 par value (the "Shares") at an aggregate ------ purchase price of $_________ (the "Purchase Price") or $0.10 per Share (the -------------- "Purchase Price Per Share"). As used in this Agreement, the term "Shares" refers ------------------------ to the Shares purchased under this Agreement and includes all securities received (a) in replacement of the Shares, (b) as a result of stock dividends or stock splits in respect of the Shares, and (c) in replacement of the Shares in a recapitalization, merger, reorganization or the like. 2. PAYMENT OF PURCHASE PRICE; CLOSING. ----------------------------------- (A) DELIVERIES BY PURCHASER. Purchaser hereby delivers to the ------------------------ Company the full Purchase Price by delivery of: (i) a check in the amount of $_________ in payment of the aggregate par value of the Shares, a copy of which is attached hereto as Exhibit 1; and (ii) by delivery to the Company of a --------- Secured Full Recourse Promissory Note of Purchaser in the principal amount of $_________ in the form of Exhibit 2, duly executed by Purchaser (the "Note"). --------- ---- Purchaser also hereby delivers to the Company: (i) two (2) copies of a blank Stock Power and Assignment Separate from Stock Certificate in the form of Exhibit 3 attached hereto (the "Stock Powers"), duly executed by Purchaser and - --------- ------------ (if applicable) Purchaser's spouse; and (ii) a Stock Pledge Agreement in the form of Exhibit 4, duly executed by Purchaser (the "Pledge Agreement"). --------- ---------------- (B) DELIVERIES BY THE COMPANY. Upon its receipt of the entire -------------------------- Purchase Price and all the documents to be executed and delivered by Purchaser to the Company under Section 2(a), the Company will issue a duly executed stock certificate evidencing the Shares in the name of Purchaser, with such certificate to be placed in escrow as provided in Section 8 until expiration or termination of both the Company's Repurchase Option and Right of First Refusal described in Sections 5 and 6 and payment in full to the Company of all sums due under the Note. 3. REPRESENTATIONS AND WARRANTS OF PURCHASER. Purchaser represents and ------------------------------------------ warrants to the Company that: (A) PURCHASE FOR OWN ACCOUNT FOR INVESTMENT. Purchaser is purchasing ---------------------------------------- the Shares for Purchaser's own account for investment purposes only and not with a view to, or for sale in connection with, a distribution of the Shares within the meaning of the Securities Act of 1933, as amended (the "1933 Act"). -------- Purchaser has no present intention of selling or otherwise disposing of all or any portion of the Shares and no one other than Purchaser has any beneficial ownership of any of the Shares. (B) ACCESS TO INFORMATION. Purchaser has had access to all ---------------------- information regarding the Company and its present and prospective business, assets, liabilities and financial condition that Purchaser reasonably considers important in making the decision to purchase the Shares, and Purchaser has had ample opportunity to ask questions of the Company's representatives concerning such matters and this investment. (C) UNDERSTANDING OF RISKS. Purchaser is fully aware of: (i) the ----------------------- highly speculative nature of the investment in the Shares; (ii) the financial hazards involved; (iii) the lack of liquidity of the Shares and the restrictions on transferability of the Shares (e.g., that Purchaser may not be able to sell ---- or dispose of the Shares or use them as collateral for loans); (iv) the qualifications and backgrounds of the management of the Company; and (v) the tax consequences of investment in the Shares. (D) PURCHASER'S QUALIFICATIONS. Purchaser has a preexisting personal --------------------------- or business relationship with the Company and/or certain of its officers and/or directors of a nature and duration sufficient to make Purchaser aware of the character, business acumen and general business and financial circumstances of the Company and/or such officers and directors. By reason of Purchaser's business or financial experience, Purchaser is capable of evaluating the merits and risks of this investment, has the ability to protect Purchaser's own interests in this transaction and is financially capable of bearing a total loss of this investment. (E) NO GENERAL SOLICITATION. At no time was Purchaser presented with ------------------------ or solicited by any publicly issued or circulated newspaper, mail, radio, television or other form of general advertising or solicitation in connection with the offer, sale and purchase of the Shares. (F) COMPLIANCE WITH SECURITIES LAWS. Purchaser understands and -------------------------------- acknowledges that, in reliance upon the representations and warranties made by Purchaser herein, the Shares are not being registered with the Securities and Exchange Commission ("SEC") under the 1933 Act or being qualified under the --- California Corporate Securities Law of 1968, as amended (the "Law"), but instead --- are being issued under an exemption or exemptions from the registration and qualification requirements of the 1933 Act and the Law or other applicable state securities laws which may impose certain restrictions on Purchaser's ability to transfer the Shares. (G) RESTRICTIONS ON TRANSFER. Purchaser acknowledges and agrees that ------------------------- the Company, in its discretion, may elect to issue the Shares under one or more of several different exemptions from the registration and qualification requirements of the 1933 Act and the Law and that Purchaser's ability to transfer the Shares in compliance with such laws will be affected by the Company's choice of exemption. Purchaser further understands that the Company's choice of exemptions may not be definitively made until a later date and the Company is entirely free in its discretion to choose which exemption or exemptions it will rely upon to exempt the sale of Shares to Purchaser. Purchaser understands that Purchaser may not transfer any Shares unless such Shares are registered under the 1933 Act or qualified under the Law or unless, in the opinion of counsel to the Company, exemptions from such registration and qualification requirements are available. Purchaser understands that only the Company may file a registration statement with the SEC or the California Commissioner of Corporations and that the Company is under no obligation to do so with respect to the Shares. Purchaser has also -2- been advised that exemptions from registration and qualification may not be available or may not permit Purchaser to transfer all or any of the Shares in the amounts or at the times proposed by Purchaser. (H) RULE 144. Purchaser acknowledges that SEC Rule 144 promulgated --------- under the 1933 Act, which permits certain limited sales of unregistered securities, is not presently available with respect to the Shares and, in any event, may require that the Shares be held for a minimum of two years, and in certain cases three years, after they have been purchased and paid for (within ------------ the meaning of Rule 144), before they may be resold under Rule 144. PURCHASER --------- UNDERSTANDS THAT SHARES PAID FOR WITH A NOTE MAY NOT BE DEEMED TO BE FULLY "PAID - -------------------------------------------------------------------------------- FOR" WITHIN THE MEANING OF RULE 144 UNLESS CERTAIN CONDITIONS ARE MET AND THAT, - ------------------------------------------------------------------------------- ACCORDINGLY, THE RULE 144 HOLDING PERIOD OF SUCH SHARES MAY NOT BEGIN TO RUN - ---------------------------------------------------------------------------- UNTIL SUCH SHARES ARE FULLY PAID FOR WITHIN THE MEANING OF RULE 144. Purchaser - ------------------------------------------------------------------- understands that Rule 144 will remain unavailable indefinitely with respect to transfers of the Shares so long as Purchaser remains an "affiliate" of the Company and "current public information" about the Company (as defined in Rule 144) is not publicly available. In addition, Purchaser understands that all public resales of the Shares by Purchaser at a time when Purchaser is an affiliate of the Company must comply with the provisions of Rule 144. (I) RULE 701. If the Shares are issued pursuant to the exemption --------- provided by Rule 701 promulgated under the 1933 Act, then the Shares will become freely tradable by persons who are non-affiliates of the Company under SEC Rule 701 promulgated under the 1933 Act, subject to limited conditions regarding the method of sale, 90 days after the first sale of common stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the SEC, subject to any transfer restrictions imposed by applicable state securities laws, the lengthier market standoff agreement contained in this Agreement or any other agreement entered into by Purchaser. Under Rule 701, affiliates must comply with the provisions (other than the holding period requirements) of Rule 144. (J) RULE 504. If the Company elects to issue the Shares to Purchaser --------- under the exemption provided by Rule 504 of Regulation D promulgated under the 1933 Act, then the Shares should be freely tradable by non-affiliates of the Company under the 1933 Act, subject to any transfer restrictions imposed by applicable state securities laws, the lengthier market stand-off agreement contained in this Agreement or any other contractual restrictions contained in this Agreement or in any other agreement entered into by Purchaser. However, affiliates of the Company must continue to comply with the provisions (other than the holding period requirements) of Rule 144. As noted above, Rule 144 is not presently available. (K) TERMS OF PURCHASE AGREEMENT ACCEPTED. Purchaser has received a ------------------------------------- copy of this Agreement, has read and understands the terms of this Agreement, and agrees to be bound by its terms and conditions. Purchaser acknowledges that there may be adverse tax consequences upon purchase and disposition of the Shares, and that Purchaser should consult a tax adviser prior to such purchase or disposition. 4. MARKET STANDOFF AGREEMENT. Purchaser agrees in connection with any -------------------------- registration of the Company's securities under the 1933 Act that, upon the request of the Company or the underwriters managing any registered public offering of the Company's securities, Purchaser will not sell or otherwise dispose of any Shares without the prior written consent of the Company or such managing underwriters, as the case may be, for a period of time (not to exceed one year) after the effective date of such registration requested by such managing underwriters and subject to all restrictions as the Company or the managing underwriters may specify for employee-shareholders generally. 5. COMPANY'S REPURCHASE OPTION. The Company has the option to repurchase ---------------------------- all or a portion of the Unvested Shares (as defined below) on the terms and conditions set forth in this Section (the "Repurchase Option") if Purchaser ----------------- ceases to be employed by the Company (as defined -3- herein) for any reason, or no reason, including without limitation Purchaser's death, disability, voluntary resignation or termination by the Company with or without cause. (A) DEFINITION OF "EMPLOYED BY THE COMPANY"; "TERMINATION DATE". For ------------------------------------------------------------ purposes of this Agreement, Purchaser will be considered to be "employed by the --------------- Company" if the Board of Directors of the Company determines that Purchaser is - ------- rendering substantial services as an officer or employee to the Company or to any parent, subsidiary or affiliate of the Company. In case of any dispute as to whether Purchaser is employed by the Company, the Board of Directors of the Company will have discretion to determine whether Purchaser has ceased to be employed by the Company or any parent, subsidiary or affiliate of the Company and the effective date on which Purchaser's employment terminated (the "Termination Date"). - ----------------- (B) UNVESTED AND VESTED SHARES. Shares that are not Vested Shares (as --------------------------- defined in this Section) are "Unvested Shares". On the Effective Date, all of --------------- the Shares will be Unvested Shares. If Purchaser has been continuously employed by the Company at all times from the Effective Date ________ (the "First Vesting ------------- Date"), then on the First Vesting Date twenty-five percent (25%) of the Shares - ---- will become Vested Shares; and thereafter, for so long (and only for so long) as Purchaser remains continuously employed by the Company at all times after the First Vesting Date, an additional two point zero nine percent (2.09%) of the Shares will become Vested Shares upon each succeeding month that elapses after the First Vesting Date. Notwithstanding the foregoing, no Shares will become Vested Shares after the Termination Date. (C) ADJUSTMENTS. The number of Shares that are Vested Shares or ------------ Unvested Shares will be proportionally adjusted to reflect any stock dividend, stock split, reverse stock split or recapitalization of the Series A Common Stock of the Company occurring after the Effective Date. (D) EXERCISE OF REPURCHASE OPTION AT ORIGINAL PRICE. At any time ------------------------------------------------ within ninety (90) days after the Termination Date, the Company may elect to repurchase any or all of the Unvested Shares by giving Purchaser written notice of exercise of the Repurchase Option. The Company and/or its assignee(s) will then have the option to repurchase from Purchaser (or from Purchaser's personal representative as the case may be) any or all of the Unvested Shares at the Purchaser's original Purchase Price Per Share (as adjusted to reflect any stock dividend, stock split, reverse stock split or recapitalization of the Series A Common Stock of the Company occurring after the Effective Date). (E) PAYMENT OF REPURCHASE PRICE. The repurchase price payable to ---------------------------- purchase Unvested Shares upon exercise of the Repurchase Option will be payable, at the option of the Company or its assignee(s), by check or by cancellation of all or a portion of any outstanding indebtedness of Purchaser to the Company (or to such assignee) or by any combination thereof. The repurchase price will be paid without interest within ninety (90) days after the Termination Date. (F) RIGHT OF TERMINATION UNAFFECTED. Nothing in this Agreement will -------------------------------- be construed to limit or otherwise affect in any manner whatsoever the right or power of the Company (or any parent, subsidiary or affiliate of the Company) to terminate Purchaser's employment at any time for any reason or no reason, with or without cause. 6. RIGHT OF FIRST REFUSAL. Unvested Shares may not be sold or otherwise ----------------------- transferred by Purchaser without the Company's prior written consent. Before any Vested Shares held by Purchaser or any transferee of such Shares (either being sometimes referred to herein as the "Holder") may be sold or otherwise ------ transferred (including without limitation a transfer by gift or operation of law), the Company and/or its assignee(s) will have a right of first refusal to purchase the Vested Shares to be sold or transferred (the "Offered Shares") on -------------- the terms and conditions set forth in this Section (the "Right of First -------------- Refusal"). -4- (A) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares will ---------------------------- deliver to the Company a written notice (the "Notice") stating: (i) the Holder's ------ bona fide intention to sell or otherwise transfer the Offered Shares; (ii) the name, address and phone/fax number of each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number of Offered Shares to be ------------------- transferred to each Proposed Transferee; (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Offered Shares (the "Offered Price") and (unless waived by the Company) a brief written explanation, ------------- signed by the Holder and the Proposed Transferee, of how the Offered Price was arrived at; and (v) that the Holder will offer to sell the Offered Shares to the Company and/or its assignee(s) at the Offered Price as provided in this Section. A true and correct copy of the Proposed Transferee's bona fide offer shall be provided to the Company together with the Notice. (B) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within sixty ----------------------------------- (60) days after the date of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all (but not less than all) of the Offered Shares proposed to be transferred to any one or more of the Proposed Transferees named in the Notice, at the purchase price determined in accordance with subsection (c) below. (C) PURCHASE PRICE. The purchase price for the Offered Shares --------------- purchased under this Section will be the Offered Price. If the Offered Price includes consideration other than cash, then the value of the non-cash consideration as determined in good faith by the Company's Board of Directors will conclusively be deemed to be the cash equivalent value of such non-cash consideration. (D) PAYMENT. Payment of the purchase price for Offered Shares will be -------- payable, at the option of the Company and/or its assignee(s) (as applicable), by check or by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or to such assignee, in the case of a purchase of Offered Shares by such assignee) or by any combination thereof. The purchase price will be paid without interest within sixty (60) days after the Company's receipt of the Notice, or, at the option of the Company and/or its assignee(s), in the manner and at the time(s) set forth in the Notice. (E) HOLDER'S RIGHT TO TRANSFER. If all of the Offered Shares --------------------------- proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Offered Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that -------- such sale or other transfer is consummated within 120 days after the date of the Notice, and provided further, that: (i) any such sale or other transfer is -------- ------- effected in compliance with all applicable securities laws; and (ii) the Proposed Transferee agrees in writing that the provisions of this Section will continue to apply to the Offered Shares in the hands of such Proposed Transferee. If the Offered Shares described in the Notice are not transferred to the Proposed Transferee within such 120 day period, then a new Notice must be given to the Company, and the Company will again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. (F) EXEMPT TRANSFERS. Notwithstanding anything to the contrary in ----------------- this Section, the following transfers of Shares will be exempt from the Right of First Refusal: (i) the transfer of any or all of the Shares during Purchaser's lifetime by gift or on Purchaser's death by will or intestacy to Purchaser's "immediate family" (as defined below) or to a trust for the benefit of Purchaser or Purchaser's immediate family, provided that each transferee or other recipient agrees in a writing satisfactory to the Company that the provisions of this Section will continue to apply to the transferred Shares in the hands of such transferee or other recipient; (ii) any transfer of Shares made pursuant to a statutory merger or statutory consolidation of the Company with or into another corporation or corporations (except that the Right of First Refusal will continue to apply thereafter to such Shares, in which case the surviving corporation of such merger or consolidation shall succeed to the rights or the Company under this Section unless the agreement of merger or consolidation expressly otherwise provides); (iii) any transfer of Shares pursuant to the winding up and dissolution of the Company; or (iv) any transfer of Shares made in accordance with -5- Section 5 of this Agreement or this Section 6. As used herein, the term "immediate family" will mean Purchaser's spouse, lineal descendant or ---------------- antecedent, father, mother, brother or sister, adopted child or grandchild, or the spouse of any child, adopted child, grandchild or adopted grandchild of Purchaser. (G) TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First -------------------------------------- Refusal will terminate as to all Shares on the effective date of the first sale of common stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the SEC under the 1933 Act (other than a registration statement relating solely to the issuance of common stock pursuant to a business combination or an employee incentive or benefit plan). (H) ENCUMBRANCES ON VESTED SHARES. Purchaser may grant a lien or ------------------------------ security interest in, or pledge, hypothecate or encumber Vested Shares only if the Company or its successors and assigns do not hold a lien or security interest in such share and only if each party to whom such lien or security interest is granted, or to whom such pledge, hypothecation or other encumbrance is made, agrees in a writing satisfactory to the Company that: (i) such lien, security interest, pledge, hypothecation or encumbrance will not apply to such Vested Shares after they are acquired by the Company and/or its assignees under this Section; and (ii) the provisions of this Section will continue to apply to such Vested Shares in the hands of such party and any transferee of such party. Purchaser may not grant a lien or security interest in, or pledge, hypothecate or encumber any Unvested Shares. 7. RIGHTS AS SHAREHOLDER. Subject to the terms and conditions of this ---------------------- Agreement, Purchaser will have all of the rights of a shareholder of the Company with respect to the Shares from and after the date that Purchaser delivers payment of the Purchase Price until such time as Purchaser disposes of the Shares or the Company and/or its assignee(s) exercise(s) the Repurchase Option or Right of First Refusal. Upon an exercise of the Repurchase Option or the Right of First Refusal, Purchaser will have no further rights as a holder of the Shares so purchased upon such exercise, except the right to receive payment for the Shares so purchased in accordance with the provisions of this Agreement, and Purchaser will promptly surrender the stock certificate(s) evidencing the Shares so purchased to the Company for transfer or cancellation. 8. ESCROW. As security for Purchaser's faithful performance of this ------- Agreement, Purchaser agrees, immediately upon receipt of the stock certificate(s) evidencing the Shares, to deliver such certificate(s), together with the Stock Powers executed by Purchaser and by Purchaser's spouse, if any (with the date and number of Shares left blank), to the Secretary of the Company or other designee of the Company ("Escrow Holder"), who is hereby appointed to ------------- hold such certificate(s) and Stock Powers in escrow and to take all such actions and to effectuate all such transfers and/or releases of such Shares as are in accordance with the terms of this Agreement. Purchaser and the Company agree that Escrow Holder will not be liable to any party to this Agreement (or to any other party) for any actions or omissions unless Escrow Holder is grossly negligent or intentionally fraudulent in carrying out the duties of Escrow Holder under this Section. Escrow Holder may rely upon any letter, notice or other document executed by any signature purported to be genuine and may rely on the advice of counsel and obey any order of any court with respect to the transactions contemplated by this Agreement. The Shares will be released from escrow upon termination of both the Repurchase Option and the Right of First Refusal provided, however, that the Shares will be retained in escrow so long as -------- ------- they are subject to the Pledge Agreement. 9. TAX CONSEQUENCES. Purchaser hereby acknowledges that Purchaser has ----------------- been informed that, unless an election is filed by the Purchaser with the Internal Revenue Service (and, if necessary, the proper state taxing authorities), within 30 days of the purchase of the Shares, electing pursuant to -------------- Section 83(b) of the Internal Revenue Code (and similar state tax provisions, if applicable) to be taxed currently on any difference between the Purchase Price of the Shares and their fair market value on the date of purchase, there will be a recognition of taxable income to the Purchaser, measured by the excess, if any, of the fair market value of the Vested Shares, at the time they cease to be Unvested Shares, over the purchase price for such Shares. Purchaser represents that Purchaser has consulted -6- any tax adviser(s) Purchaser deems advisable in connection with Purchaser's purchase of the Shares and the filing of the election under Section 83(b) and similar tax provisions. A form of Election under Section 83(b) is attached hereto as Exhibit 5 for reference. PURCHASER HEREBY ASSUMES ALL RESPONSIBILITY --------- FOR FILING SUCH ELECTION AND PAYING ANY TAXES RESULTING FROM SUCH ELECTION OR FOR FAILING TO FILE THE ELECTION AND PAYING TAXES RESULTING FROM THE LAPSE OF THE REPURCHASE RESTRICTIONS ON THE UNVESTED SHARES. PURCHASER UNDERSTANDS THAT PURCHASER MAY SUFFER ADVERSE TAX CONSEQUENCES AS A RESULT OF PURCHASER'S PURCHASE OR DISPOSITION OF THE SHARES. PURCHASER REPRESENTS THAT PURCHASER HAS CONSULTED WITH ANY TAX ADVISER PURCHASER DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE SHARES AND THAT PURCHASER IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE. 10. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS. --------------------------------------------- (A) LEGENDS. Purchaser understands and agrees that the Company will -------- place the legends set forth below or similar legends on any stock certificate(s) evidencing the Shares, together with any other legends that may be required by state or federal securities laws, the Company's Certificate of Incorporation or Bylaws, any other agreement between Purchaser and the Company or any agreement between Purchaser and any third party: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. A STATEMENT OF THE RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS GRANTED TO OR IMPOSED UPON EACH CLASS OR SERIES OF AUTHORIZED SHARES OF THE COMPANY MAY BE OBTAINED UPON REQUEST AND WITHOUT CHARGE, FROM THE COMPANY'S SECRETARY AT THE COMPANY'S PRINCIPAL OFFICES. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON PUBLIC RESALE AND TRANSFER, IRREVOCABLE PROXY AND VOTING PROVISIONS, AND RIGHT OF FIRST REFUSAL AND REPURCHASE OPTIONS HELD BY THE ISSUER AND/OR ITS ASSIGNEE(S) AS SET FORTH IN A RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH PUBLIC RESALE AND TRANSFER RESTRICTIONS, IRREVOCABLE PROXY AND VOTING PROVISIONS, AND THE RIGHT OF REPURCHASE AND RIGHT OF FIRST REFUSAL OPTIONS ARE BINDING ON TRANSFEREES OF THESE SHARES. (B) STOP-TRANSFER INSTRUCTIONS. Purchaser agrees that, in order to --------------------------- ensure compliance with the restrictions imposed by this Agreement, the Company may issue appropriate "stop- -7- transfer" instructions to its transfer agent, if any, and if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. (C) REFUSAL TO TRANSFER. The Company will not be required (i) to -------------------- transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares, or to accord the right to vote or pay dividends, to any purchaser or other transferee to whom such Shares have been so transferred. 11. COMPLIANCE WITH LAWS AND REGULATIONS. The issuance and transfer of ------------------------------------- the Shares will be subject to and conditioned upon compliance by the Company and Purchaser with all applicable state and federal laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Company's common stock may be listed or quoted at the time of such issuance or transfer. 12. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights ----------------------- under this Agreement, including its rights to repurchase Shares under the Repurchase Option and the Right of First Refusal. This Agreement will be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement will be binding upon Purchaser and Purchaser's heirs, executors, administrators, successors and assigns. 13. GOVERNING LAW; SEVERABILITY. This Agreement will be governed by and ---------------------------- construed in accordance with the internal laws of the State of California, excluding that body of laws pertaining to conflict of laws. If any provision of this Agreement is determined by a court of law to be illegal or unenforceable, then such provision will be enforced to the maximum extent possible and the other provisions will remain fully effective and enforceable. 14. NOTICES. Any notice required or permitted hereunder will be given in -------- writing and will be deemed effectively given upon personal delivery, three (3) days after deposit in the United States mail by certified or registered mail (return receipt requested), one (1) business day after its deposit with any return receipt express courier (prepaid), or one (1) business day after transmission by facsimile, addressed to the other party at its address (or facsimile number, in the case of transmission by facsimile) as shown below its signature to this Agreement, or to such other address as such party may designate in writing from time to time to the other party. 15. FURTHER INSTRUMENTS. The parties agree to execute such further -------------------- instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this Agreement. 16. HEADINGS. The captions and headings of this Agreement are included --------- for ease of reference only and will be disregarded in interpreting or construing this Agreement. All references herein to Sections will refer to Sections of this Agreement. 17. ENTIRE AGREEMENT. This Agreement, together with all its Exhibits, ----------------- constitutes the entire agreement and understanding of the parties with respect to the subject matter of this Agreement, and supersedes all prior understandings and agreements, whether oral or written, between the parties hereto with respect to the specific subject matter hereof. 18. FINANCIAL STATEMENTS. The Company shall provide fiscal year end -------------------- financial statements to Purchaser on an annual basis at such times as they are available for distribution to stockholders. 19. VOTING AGREEMENT. In consideration of the sale of the Shares by the ---------------- Company to Purchaser, Purchaser hereby agrees that, with respect to any matter upon which the separate vote of the -8- holders of the Company's Series A Common Stock is required under Section 242(b) of the Delaware General Corporation Law prior to the closing of the Company's initial public offering of Series A Common Stock pursuant to a registration statement filed with and declared effective by the SEC (the "Company IPO"), ----------- Purchaser will cast all votes attributable to Purchaser's Shares in the same proportion as the holders of the Company's outstanding shares of Convertible Preferred Stock designated in the Certificate of Incorporation of the Company (the "Convertible Preferred Stock") cast their votes upon such matter, or, if --------------------------- there are no such shares of Convertible Preferred Stock outstanding, in the same manner as the holders of the Company's outstanding shares of Series B Common Stock cast their votes upon such matter. Purchaser hereby irrevocably appoints the Secretary of the Company, or any other person designated by the Secretary of the Company, to act as Purchaser's proxy until the Company IPO to cast all votes attributable to Purchaser's Shares as specified in this Section. The obligations of this Section shall be binding on any transferee to whom the Shares are transferred by Purchaser or any subsequent transferee. As a condition of any transfer of the Shares prior to the Company IPO, Purchaser shall require any transferee, and any such transferee shall require its transferee, to agree to be bound by the provisions of this Section in the same manner as Purchaser is bound. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in duplicate by its duly authorized representative and Purchaser has executed this Agreement in duplicate, as of the Effective Date. AT HOME CORPORATION PURCHASER By:________________________________ ___________________________________ Title:_____________________________ Address: 385 Ravendale Drive Address:___________________________ Mountain View, CA 94043 ___________________________________ Fax: ______________________________ LIST OF EXHIBITS - ---------------- Exhibit 1: Purchaser's check in the amount of $________ in payment of the aggregate par value of the Shares Exhibit 2: Secured Full Recourse Promissory Note Exhibit 3: Stock Power and Assignment Separate from Stock Certificate Exhibit 4: Stock Pledge Agreement Exhibit 5: Election Under Section 83(b) of the Internal Revenue Code -9- EXHIBIT 1 --------- COPY OF PURCHASER'S CHECK ------------------------- EXHIBIT 2 --------- SECURED FULL RECOURSE PROMISSORY NOTE ------------------------------------- Mountain View, California $__________ July 16, 1996 1. OBLIGATION. In exchange for the issuance to the undersigned ----------- ("Purchaser") of ________ shares (the "Shares") of the Series A Common Stock of --------- ------ AT HOME CORPORATION, a Delaware corporation (the "Company"), receipt of which is ------- hereby acknowledged, Purchaser hereby promises to pay to the order of the Company on or before May 31, 2001, at the Company's principal place of business at 385 Ravendale Drive, Mountain View, California 94043, or at such other place as the Company may direct, the principal sum of ________________ Dollars ($________) together with interest on unpaid principal compounded annually at the rate of Five point Eight Eight percent (5.88%), which rate is not less than the minimum rate established pursuant to Section 1274(d) of the Internal Revenue Code of 1986, as amended, on the earliest date on which there was a binding contract in writing for the purchase of the Shares; provided, however, that the -------- ------- rate at which interest will accrue on unpaid principal under this Note will not exceed the highest rate permitted by applicable law. 2. SECURITY. Payment of this Note is secured by a security interest in --------- the Shares granted to the Company by Purchaser under a Stock Pledge Agreement dated of even date herewith between the Company and Purchaser (the "Pledge ------ Agreement"). This Note is being tendered by Purchaser to the Company in partial - --------- payment of the purchase price of the Shares pursuant to that certain Restricted Stock Purchase Agreement between Purchaser and the Company dated of even date with this Note (the "Purchase Agreement"). ------------------ 3. DEFAULT; ACCELERATION OF OBLIGATION. Purchaser will be deemed to be ------------------------------------ in default under this Note and the principal sum of this Note, together with all interest accrued thereon, will immediately become due and payable in full: (a) upon Purchaser's failure to make any payment when due under this Note; (b) in the event Purchaser ceases to be employed by the Company (as defined in the Purchase Agreement) for any reason; (c) upon any transfer of any of the Shares; (d) upon the filing by or against Purchaser of any voluntary or involuntary petition in bankruptcy or any petition for relief under the federal bankruptcy code or any other state or federal law for the relief of debtors; or (e) upon the execution by Purchaser of an assignment for the benefit of creditors or the appointment of a receiver, custodian, trustee or similar party to take possession of Purchaser's assets or property. 4. REMEDIES ON DEFAULT. Upon any default of Purchaser under this Note, -------------------- the Company will have, in addition to its rights and remedies under this Note and under the Pledge Agreement, full recourse against any real, personal, tangible or intangible assets of Purchaser, and may pursue any legal or equitable remedies that are available to it. 5. RULE 144 HOLDING PERIOD. SUBJECT (TO THE EXTENT RULE 701 IS ------------------------ APPLICABLE TO THE SHARES) TO ANY CONTRARY PROVISIONS OF RULE 701 UNDER THE SECURITIES ACT OF 1933, PURCHASER UNDERSTANDS THAT THE HOLDING PERIOD SPECIFIED UNDER RULE 144(d) OF THE SECURITIES AND EXCHANGE COMMISSION WILL NOT BEGIN TO RUN WITH RESPECT TO SHARES PURCHASED WITH THIS NOTE UNTIL EITHER (A) THE PURCHASE PRICE OF SUCH SHARES IS PAID IN FULL IN CASH OR BY OTHER PROPERTY ACCEPTED BY THE COMPANY, OR (B) THIS NOTE IS SECURED BY COLLATERAL, OTHER THAN THE SHARES THAT HAVE NOT BEEN FULLY PAID FOR IN CASH, HAVING A FAIR MARKET VALUE AT LEAST EQUAL TO THE AMOUNT OF PURCHASER'S THEN OUTSTANDING OBLIGATION UNDER THIS NOTE (INCLUDING ACCRUED INTEREST). 6. PREPAYMENT. Prepayment of principal and/or interest due under this ----------- Note may be made at any time without penalty. Unless otherwise agreed in writing by the Company, all payments will be made in lawful tender of the United States and will be applied first to the payment of accrued interest, and the remaining balance of such payment, if any, will then be applied to the payment of principal. If Purchaser prepays all or a portion of the principal amount of this Note, Purchaser intends that the Shares paid for by the portion of principal so paid will continue to be held in pledge under the Pledge Agreement to serve as independent collateral for the outstanding portion of this Note for the purpose of commencing the holding period under Rule 144(d) of the Securities and Exchange Commission with respect to other Shares purchased with this Note. 7. GOVERNING LAW; WAIVER. The validity, construction and performance of ---------------------- this Note will be governed by the internal laws of the State of California, excluding that body of law pertaining to conflicts of law. Purchaser hereby waives presentment, notice of non-payment, notice of dishonor, protest, demand and diligence. 8. ATTORNEYS' FEES. If suit is brought for collection of this Note, ---------------- Purchaser agrees to pay all reasonable expenses, including attorneys' fees, incurred by the holder in connection therewith whether or not such suit is prosecuted to judgment. IN WITNESS WHEREOF, Purchaser has executed this Note as of the date and year first above written. __________________________ -2- EXHIBIT 3 --------- STOCK POWER AND ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED and pursuant to that certain Restricted Stock Purchase Agreement dated as of July 16, 1996, (the "Agreement"), the undersigned hereby --------- sells, assigns and transfers unto _____________________, ______________ shares of the Series A Common Stock of AT HOME CORPORATION, a Delaware corporation (the "Company"), standing in the undersigned's name on the books of the Company ------- represented by Certificate No(s). _____ delivered herewith, and does hereby irrevocably constitute and appoint the Secretary of the Company as the undersigned's attorney-in-fact, with full power of substitution, to transfer said stock on the books of the Company. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND THE EXHIBITS THERETO. Dated: _____________________, 199___ PURCHASER ______________________________ ______________________________ (Purchaser's Spouse) INSTRUCTION: Please do not fill in any blanks other than the signature line. - ----------- --- The purpose of this Stock Power and Assignment is to enable the Company and/or its assigns to acquire the shares upon a default under Purchaser's Note and to exercise its "Repurchase Option" and/or "Right of First Refusal" set forth in the Agreement without requiring additional signatures on the part of the Purchaser. EXHIBIT 4 --------- STOCK PLEDGE AGREEMENT ---------------------- This Agreement is made and entered into as of ________ between AT HOME CORPORATION, a Delaware corporation (the "Company"), and ____________ ------- ("Pledgor"). ------- R E C I T A L S - - - - - - - - A. In exchange for Pledgor's Secured Full Recourse Promissory Note to the Company of even date herewith (the "Note") and a cash payment of ____________ ---- Dollars ($________), the Company has issued and sold to Pledgor ________ shares of its Series A Common Stock (the "Shares") pursuant to the terms and conditions ------ of that certain Stock Purchase Agreement between the Company and Pledgor dated of even date herewith (the "Purchase Agreement"). ------------------ B. Pledgor has agreed that repayment of the Note will be secured by the pledge of the Shares pursuant to this Agreement. NOW, THEREFORE, the parties agree as follows: 1. CREATION OF SECURITY INTEREST. Pursuant to the provisions of the ------------------------------ California Commercial Code, Pledgor hereby grants to the Company, and the Company hereby accepts, a first and present security interest in the Shares as collateral to secure the payment of Pledgor's obligation to the Company under the Note. Pledgor herewith delivers to the Company Series A Common Stock certificate(s) No(s). ____representing all the Shares, together with one stock power for each certificate in the form attached as an Exhibit to the Purchase Agreement, duly executed (with the date and number of shares left blank) by Pledgor and Pledgor's spouse, if any. For purposes of this Agreement, the Shares pledged to the Company hereby, together with any additional collateral pledged pursuant to Section 5 hereof, will hereinafter be collectively referred to as the "Collateral." Pledgor agrees that the Collateral pledged to the ---------- Company will be deposited with and held by the Escrow Holder (as defined in the Purchase Agreement) and that, notwithstanding anything to the contrary in the Purchase Agreement, for purposes of carrying out the provisions of this Agreement, Escrow Holder will act solely for the Company as its agent. 2. REPRESENTATIONS AND WARRANTIES. Pledgor hereby represents and ------------------------------- warrants to the Company that Pledgor has good title (both record and beneficial) to the Collateral, free and clear of all claims, pledges, security interests, liens or encumbrances of every nature whatsoever, and that Pledgor has the right to pledge and grant the Company the security interest in the Collateral granted under this Agreement. Pledgor further agrees that, until the entire principal sum and all accrued interest due under the Note has been paid in full, Purchaser will not, without the Company's prior written consent, (i) sell, assign or transfer, or attempt to sell, assign or transfer, any of the Collateral, or (ii) grant or create, or attempt to grant or create, any security interest, lien, pledge, claim or other encumbrance with respect to any of the Collateral. 3. RIGHTS ON DEFAULT. In the event of default (as defined in the Note) ------------------ by Pledgor under the Note, the Company will have full power to sell, assign and deliver the whole or any part of the Collateral at any broker's exchange or elsewhere, at public or private sale, at the option of the Company, in order to satisfy any part of the obligations of Pledgor now existing or hereinafter arising under the Note. On any such sale, the Company or its assigns may purchase all or any part of the Collateral. In addition, at its sole option, the Company may elect to retain all the Collateral in full satisfaction of Pledgor's obligation under the Note, in accordance with the provisions and procedures set forth in the California Commercial Code. 4. ADDITIONAL REMEDIES. The rights and remedies granted to the Company -------------------- herein upon default under the Note will be in addition to all the rights, powers and remedies of the Company as a secured creditor or otherwise under the California Commercial Code and applicable law and such rights, powers and remedies will be exercisable by the Company with respect to all of the Collateral. Pledgor agrees that the Company's reasonable expenses of holding the Collateral, preparing it for resale or other disposition, and selling or otherwise disposing of the Collateral, including attorneys' fees and other legal expenses, will be deducted from the proceeds of any sale or other disposition and will be included in the amounts Pledgor must tender to redeem the Collateral. All rights, powers and remedies of the Company will be cumulative and not alternative. Any forbearance or failure or delay by the Company in exercising any right, power or remedy hereunder will not be deemed to be a waiver of any such right, power or remedy and any single or partial exercise of any such right, power or remedy hereunder will not preclude the further exercise thereof. 5. DIVIDENDS; VOTING. All dividends hereinafter declared on or payable ------------------ with respect to the Collateral during the term of this pledge (excluding only ordinary cash dividends, which will be payable to Pledgor so long as Pledgor is not in default under the Note) will be immediately delivered to the Company to be held in pledge under this Agreement. Notwithstanding this Agreement, so long as Pledgor owns the Shares and is not in default under the Note, Pledgor will be entitled to vote any shares comprising the Collateral, subject to any the proxy granted by Pledgor and subject to the voting provisions of the Purchase Agreement. 6. ADJUSTMENTS. In the event that during the term of this pledge, any ------------ stock dividend, reclassification, readjustment, stock split or other change is declared or made with respect to the Collateral, or if warrants or any other rights, options or securities are issued in respect of the Collateral, then all new, substituted and/or additional shares or other securities issued by reason of such change or by reason of the exercise of such warrants, rights, options or securities, will be immediately pledged to the Company to be held under the terms of this Agreement in the same manner as the Collateral is held hereunder. 7. RIGHTS UNDER PURCHASE AGREEMENT. Pledgor understands and agrees that -------------------------------- the Company's rights to repurchase the Collateral under the Purchase Agreement will continue for the periods and on the terms and conditions specified in the Purchase Agreement, whether or not the Note has been paid during such period of time, and that to the extent that the Note is not paid during such period of time, the repurchase by the Company of the Collateral may be made by way of cancellation of all or any part of Pledgor's indebtedness under the Note. 8. REDELIVERY OF COLLATERAL. Upon payment in full of the entire ------------------------- principal sum and all accrued interest due under the Note, and subject to the terms and conditions of the Purchase Agreement, the Company will immediately redeliver the Collateral to Pledgor and this Agreement will terminate; provided, -------- however, that all rights of the Company to retain possession of the Shares - ------- pursuant to the Purchase Agreement will survive termination of this Agreement. 9. SUCCESSORS AND ASSIGNS. This Agreement will inure to the benefit of ----------------------- the respective heirs, personal representatives, successors and assigns of the parties hereto. 10. GOVERNING LAW; SEVERABILITY. This Agreement will be governed by and ---------------------------- construed in accordance with the internal laws of the State of California, excluding that body of law relating to conflicts of law. Should one or more of the provisions of this Agreement be determined by a court of law to be illegal or unenforceable, the other provisions nevertheless will remain effective and will be enforceable. 11. MODIFICATION; ENTIRE AGREEMENT. This Agreement will not be amended ------------------------------- without the written consent of both parties hereto. This Agreement and Section 8 of the Purchase Agreement constitute the -2- entire agreement of the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings related to such subject matter. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. AT HOME CORPORATION PLEDGOR By:_____________________________ ______________________________ Title___________________________ -3- EXHIBIT 5 --------- ELECTION UNDER SECTION 83(B) OF THE INTERNAL REVENUE CODE The undersigned Taxpayer hereby elects, pursuant to Section 83(b) of the Internal Revenue Code, to include in gross income for the Taxpayer's current taxable year the excess, if any, of the fair market value of the property described below at the time of transfer over the amount paid for such property, as compensation for services. 1. TAXPAYER'S NAME: _________________________ TAXPAYER'S ADDRESS: _________________________ _________________________ SOCIAL SECURITY NUMBER: _________________________ 2. The property with respect to which the election is made is described as follows: _________ shares of Series A Common Stock of AT HOME CORPORATION, a Delaware corporation (the "Company"), which is Taxpayer's employer or the ------- corporation for whom the Taxpayer performs services. 3. The date on which the shares were transferred was _______ and this election is made for calendar year 1996. 4. The shares are subject to the following restrictions: The Company may repurchase all or a portion of the shares at the Taxpayer's original purchase price under certain conditions at the time of Taxpayer's termination of employment or services. 5. The fair market value of the shares (without regard to restrictions other than restrictions which by their terms will never lapse) was $0.10 per share at the time of transfer. 6. The amount paid for such shares was $0.10 per share. 7. The Taxpayer has submitted a copy of this statement to the Company. THIS ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE ("IRS"), AT THE --- OFFICE WHERE THE TAXPAYER FILES ANNUAL INCOME TAX RETURNS, WITHIN 30 DAYS AFTER -------------- THE DATE OF TRANSFER OF THE PROPERTY, AND MUST ALSO BE FILED WITH THE TAXPAYER'S INCOME TAX RETURNS FOR THE CALENDAR YEAR. THE ELECTION CANNOT BE REVOKED WITHOUT THE CONSENT OF THE IRS. Dated: ______________________________ EX-10.19 28 EMPLOYMENT LETTER AGREEMENT DATED 7/19/96 EXHIBIT 10.19 [LETTERHEAD OF @HOME NETWORK] July 19, 1996 Tom A. Jermoluk Dear Tom: It gives me great pleasure to offer you the position of President and Chief Executive Officer of At Home Corporation (the "Company"), effective July 22, ------- 1996 (the "Effective Date"). The Board of Directors intends to elect you -------------- Chairman as of the first Board of Directors meeting after the Effective Date. The terms of your employment are as follows: 1. Base Compensation. Your base salary will be $500,000 per year. Your base ----------------- salary shall be reviewed annually by the Board of Directors or its Compensation Committee and any annual increase will be effective as of the date determined appropriate by the Board or its Compensation Committee. 2. Bonuses. You will be eligible for a bonus of $200,000 per year based on ------- the performance of the Company with a minimum bonus to be determined by the Board of Directors or its Compensation Committee. The exact bonus formula will be determined by October 1, 1996. Performance measurements will be based on the Company's annual operating plan. 3. Restricted Stock Award. ---------------------- (a) You will be granted the right to purchase one million five hundred thousand (1,500,000) shares of restricted Series A common stock of the Company (the "Restricted Stock") at the fair market value per share of the Company's ---------------- common stock at the first Board of Directors meeting after the Effective Date, which is currently expected to be ten cents ($.10) per share. You also will be granted the right to purchase fifty thousand (50,000) shares of restricted Series K preferred stock of the Company (the "Series K Stock") at $10.00 per -------------- share at the first Board of Directors meeting after the Effective Date. (The 50,000 shares of Series K Stock are convertible into five hundred thousand (500,000) shares of restricted Series A common stock of the Company, and for purposes of paragraph 3 of this Agreement it shall be assumed that such shares of Series K Stock are converted into Series A common stock). The vesting start date for the grant of the Restricted Stock and the Series K Stock will be your first date of employment. Twenty-five (25%) percent of your Restricted Stock and Series K Stock will vest on the Effective Date. After the first twelve full calendar months from the date of grant vestingrestrictions will lapse at the rate of 2.08% per month on the last day of each calendar month thereafter. (b) If you are an employee of the Company on or after the second anniversary of the Effective Date, the Company will guarantee (the "First ----- Guarantee") for a period of two years so long as the Company is not publicly - --------- traded and you continue to be employed by the Company (the "First Guarantee --------------- Period") that the Restricted Stock and Series K Stock shall have an aggregate - ------ fair market value of $10,000,000 (the "First Guaranteed Value") as follows: ---------------------- (i) At any time during the First Guarantee Period on which you elect to sell vested shares of Restricted Stock or Series K Stock, you may cause the Company to purchase such shares, in which case the product obtained by multiplying the First Guaranteed Value by the Applicable Percentage shall be paid by the Company in exchange for such shares of Restricted Stock and Series K Stock. (ii) For purposes of this paragraph 3(b), the Applicable Percentage as of any date shall be equal to the number of shares of Restricted Stock and Series K Stock sold by you on such date divided by 2,000,000. (iii) The First Guarantee shall continue until the earliest to occur of (A) the termination of your employment at any time pursuant to paragraphs 5(a) or 5(b) below; or (B) ninety days after the termination of your employment pursuant to paragraph 5(c) or 5(d). (c) If you are an employee of the Company on or after the fourth anniversary of the Effective Date, the Company will guarantee (the "Second ------ Guarantee") for a period of five years so long as you continue to be employed by - --------- the Company (the "Second Guarantee Period") that the Restricted Stock and Series ----------------------- K Stock shall have an aggregate fair market value of $20,000,000 (the "Second ------ Guaranteed Value") as follows: - ---------------- (i) At any time that you sell vested shares of Restricted Stock or Series K Stock during the Second Guarantee Period, the Company shall pay to you the excess, if any, of (A) the product obtained by multiplying (x) the Second Guaranteed Value by (y) the Applicable Percentage over (B) the sales price of any such shares of Restricted Stock and Series K Stock sold by you; provided, however, that in no event shall the Company make a payment to you if the sum of the amounts received by you upon the sale of all shares of Restricted Stock and Series K Stock on or prior to such date or pursuant to payments on the Second Guarantee equal or exceed the Second Guaranteed Value multiplied by a fraction, the numerator of which is the number of shares of Restricted Stock and Series K Stock sold by you during the Second Guarantee Period, and the denominator of which is 2,000,000. (ii) For purposes of this paragraph 3(c), the Applicable Percentage as of any date shall be equal to the number of shares of Restricted Stock and Series K Stock sold by you on such date divided by 2,000,000. (iii) The Second Guarantee shall continue until the earliest to occur of (A) the termination of your employment at any time pursuant to paragraphs 5(a) or 5(b) below; or (B) ninety days after the termination of your employment pursuant to paragraph 5(c) or 5(d). (iv) If the Company is not publicly traded on the date during the Second Guarantee Period on which you elect to sell vested shares of Restricted Stock or Series K Stock, you may cause the Company to purchase such shares, in which case the product obtained by multiplying the Second Guaranteed Value by the Applicable Percentage shall be paid by the Company in exchange for such shares of Restricted Stock and Series K Stock. (v) Notwithstanding anything in this paragraph 3 to the contrary, (A) in the event your employment terminates on or prior to the fourth anniversary of the Effective Date as a result of your death or permanent disability as shall be defined in the Company's long-term disability income plan, you shall be eligible for the Second Guarantee pursuant to the foregoing provisions, except that the Second Guaranteed Value shall be multiplied by a fraction, the numerator of which is the number of whole months from the Effective Date to the date your employment terminates, and the denominator of which is forty-eight and (B) in the event your employment terminates pursuant to paragraph 5(c) or 5(d) below, the Second Guarantee shall commence on such termination of employment and shall continue for ninety days. 4. Indemnification. The Company agrees to provide you with standard --------------- indemnification for directors and officers. 5. Termination and Termination Payments. ------------------------------------ (a) You have the right to terminate your employment at any time upon not less than one month's written notice to the Company. In such event, the Company shall pay you all compensation (including base salary and pro rata bonus) due to you to the date of termination. The Company shall repurchase all unvested shares of Restricted Stock and Series K Stock owned by you on the date of your termination of employment within ninety days of your termination at your original purchase price for such Restricted Stock and Series K Stock. (b) The Company shall have the right to terminate your employment with "cause" upon written notice to you. In such event, the Company shall pay you all compensation (including base salary and accrued vacation but excluding bonus) due to you on the date of termination. The Company shall repurchase all unvested shares of Restricted Stock and Series K Stock owned by you on the date of your termination of employment within ninety days of your termination at your original purchase price for such Restricted Stock and Series K Stock. For purposes of this Agreement, termination of your employment with the Company shall be regarded as a termination for "cause" only upon (i) your willful and continued failure to substantially perform your duties with the Company after there is delivered to you by the Board of Directors a written demand for substantial performance which sets forth in detail the specific respects in which it believes you have not substantially performed your duties; (ii) your willfully engaging in gross misconduct which is materially detrimental to the Company; (iii) your committing a felony or an act of fraud against the Company or its affiliates; or (iv) your breaching materially the terms of your employee confidentiality and proprietary information agreement with the Company or any other similar agreement that may be in effect from time to time. No act, or failure to act, by you shall be considered "willful" if done, or omitted to be done by you in good faith and in your reasonable belief that your act or omission was in the best interests of the Company and/or required by applicable law. You shall not be deemed to have been terminated for cause under clause (i), (ii) or (iv) of this paragraph 5(b) unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board of Directors at a meeting of the Board of Directors called and held for that purpose (after reasonable notice to and an opportunity for you, together with your counsel, to be heard before the Board of Directors), finding that in the good faith opinion of the Board of Directors, you are guilty of conduct set forth in such clauses and specifying the particulars thereof in detail. (c) The Company shall have the right to terminate your employment for any reason without "cause" upon not less than one month's written notice to you. If the Company terminates your employment for any reason without "cause" (i) the Company shall pay you all compensation (including base salary and bonus) due to you at the date of your termination and continue to pay you in equal installments an amount equal to the sum of your then current monthly base salary plus bonus for a period of six months after the date of such termination and (ii) all vesting restrictions with respect to the Restricted Stock and Series K Stock shall lapse on the date of such termination. (d) If you resign for any of the following reasons, it shall be deemed to be a termination of your employment by the Company without "cause": (i) You shall be placed in a lower stature position than the position described in this Agreement; (ii) Your base salary hereunder shall be reduced by more than twenty percent without your consent; (iii) You shall cease to be the Chief Executive Officer of the Company reporting to the Board of Directors; or (iv) the Company shall otherwise breach the material terms of this Agreement. 6. Vacation. You shall be entitled to paid vacation in accordance with the -------- Company's vacation policy for employees, as in effect from time to time. 7. Benefits. The Company will provide you with benefits as part of its -------- standard employee benefits package. 8. Nondisclosure. Both you and the Company agree to keep the terms of this ------------- Agreement confidential except as may otherwise be required by law. 9. Entire Agreement. This Agreement represents the entire agreement between ---------------- you and the Company concerning the matters addressed herein, and supersedes all prior agreements and understanding on such matters. _____________________________ To indicate your acceptance of this offer, please sign this letter. We are pleased to have you as At Home Corporation's President and Chief Executive Officer. Sincerely, FOR THE BOARD OF DIRECTORS OF AT HOME CORPORATION /s/ L. John Doerr L. John Doerr Director AGREED TO AND ACCEPTED: /s/ Thomas A. Jermoluk Date: 22 JUL 96 - --------------------------------- ------------------- EX-21.01 29 SUBSIDIARY OF REGISTRANT EXHIBIT 21.01 SUBSIDIARIES OF REGISTRANT THE REGISTRANT HAS ONE SUBSIDIARY, ATHOME.NET, A CALIFORNIA CORPORATION. EX-23.02 30 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23.02 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated May 1, 1997, in the Registration Statement (Form S- 1) and related Prospectus of At Home Corporation for the registration of 9,200,000 shares of its Series A common stock. San Jose, California May, 1997 - -------------------------------------------------------------------------------- The foregoing report is in the form that will be signed upon determination of the share price for common shares in this offering and calculation of pro forma net loss per share, if no other events have occurred from May 1, 1997 to the date of such determination that would affect the consolidated financial statements and notes thereto. Ernst & Young LLP San Jose, California May 15, 1997 EX-24.01 31 POWERS OF ATTORNEY EXHIBIT 24.01 POWERS OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that the undersigned constitutes and appoints Thomas A. Jermoluk, Kenneth A. Goldman and David G. Pine, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to the Registration Statement on Form S-1 filed by At Home Corporation, and to sign any registration statement for the same offering covered by such Registration Statement that is to be effective upon filing pursuant to Rule 462 promulgated under the Securities Act, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in- fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. By: * -------------------------------------- Print Name ______________________________ Title ___________________________________ * Executed by each officer and director whose signature has been conformed on the signature page appearing at page II-6 of the Registration Statement. EX-27.01 32 FINANCIAL DATA SCHEDULE
5 1,000 OTHER YEAR DEC-31-1995 DEC-31-1996 MAR-28-1995 JAN-01-1996 DEC-31-1995 DEC-31-1996 6,844 9,709 63 7,061 0 164 0 0 0 0 7,156 18,315 963 16,199 42 1,871 8,124 33,388 912 7,742 0 7,329 0 0 9,968 44,993 0 1,035 (2,756) (27,711) 8,124 33,388 0 0 0 676 0 0 0 6,969 2,886 18,734 0 0 0 179 (2,756) (24,513) 0 0 (2,756) (24,513) 0 0 0 0 0 0 (2,756) (24,513) 0 0 0 0
EX-27.02 33 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 4,067 2,360 81 0 0 8,788 20,666 3,323 26,878 11,123 8,085 0 44,993 6,212 (43,535) 26,878 0 806 0 4,325 7,422 0 114 (10,901) 0 (10,901) 0 0 0 (10,901) 0 0
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