Exhibit 10.24
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PATHNET, INC.
2,819,549 Shares of Series C
Convertible Preferred Stock
INVESTMENT AND STOCKHOLDERS' AGREEMENT
As of October 31, 1997
PATHNET, INC.
INVESTMENT AND STOCKHOLDERS' AGREEMENT
As of October 31, 1997
TABLE OF CONTENTS
PAGE
SECTION 1. TERMS OF PURCHASE . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Description of Securities . . . . . . . . . . . . . . . . . . . . 2
1.2 Sale and Purchase . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3 Closings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
FOUNDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Organization and Corporate Power. . . . . . . . . . . . . . . . . 4
2.2 Authorization and Non-Contravention . . . . . . . . . . . . . . . 5
2.3 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Subsidiaries; Investments . . . . . . . . . . . . . . . . . . . . 7
2.5 Reports and Financial Statements. . . . . . . . . . . . . . . . . 7
2.6 Absence of Undisclosed Liabilities. . . . . . . . . . . . . . . . 7
2.7 Absence of Certain Developments . . . . . . . . . . . . . . . . . 8
2.8 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . 8
2.9 Title to Properties . . . . . . . . . . . . . . . . . . . . . . . 9
2.10 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.11 Certain Contracts and Arrangements. . . . . . . . . . . . . . . .10
2.12 Intellectual Property Rights; Employee Restrictions . . . . . . .11
2.13 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . .12
2.14 Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . .12
2.15 Labor Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . .13
2.16 Hazardous Waste, Etc. . . . . . . . . . . . . . . . . . . . . . .13
2.17 Business; Compliance with Laws. . . . . . . . . . . . . . . . . .13
2.18 Investment Banking; Brokerage . . . . . . . . . . . . . . . . . .13
2.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
2.20 Transactions with Affiliates. . . . . . . . . . . . . . . . . . .14
2.21 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . .14
2.22 Small Business Concern. . . . . . . . . . . . . . . . . . . . . .15
Section 2A. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS . . . . . . . . .15
SECTION 3. CONDITIONS OF PURCHASE. . . . . . . . . . . . . . . . . . . . . .16
3.1 Satisfaction of Conditions. . . . . . . . . . . . . . . . . . . .17
3.2 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . .17
3.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . .17
(i)
3.4 Material Adverse Change . . . . . . . . . . . . . . . . . . . . .17
3.5 All Proceedings Satisfactory. . . . . . . . . . . . . . . . . . .18
3.6 Investors' Fees . . . . . . . . . . . . . . . . . . . . . . . . .18
3.7 No Violation of Injunction. . . . . . . . . . . . . . . . . . . .18
3.8 Consents and Waivers. . . . . . . . . . . . . . . . . . . . . . .18
3.9 Election of Directors . . . . . . . . . . . . . . . . . . . . . .18
SECTION 4. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
4.1 Financial Statements and Budgetary Information. . . . . . . . . .19
4.2 Indemnification and Insurance . . . . . . . . . . . . . . . . . .20
4.3 Restrictions on other Agreements. . . . . . . . . . . . . . . . .20
4.4 Board of Directors. . . . . . . . . . . . . . . . . . . . . . . .20
4.5 Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . .22
4.6 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . .23
4.7 Payment of Taxes, Compliance with Laws, etc.. . . . . . . . . . .24
4.8 Material Adverse Changes. . . . . . . . . . . . . . . . . . . . .24
4.9 Management and Compensation . . . . . . . . . . . . . . . . . . .24
4.10 Inspection. . . . . . . . . . . . . . . . . . . . . . . . . . . .25
4.11 Small Business Concern Documents. . . . . . . . . . . . . . . . .25
SECTION 4A. NEGATIVE COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . .26
4A.1 Mergers, Dispositions, Acquisitions and Other Actions . . . . . .26
4A.2 No Amendments to Charter or Bylaws. . . . . . . . . . . . . . . .26
4A.3 Restrictions on Other Agreements. . . . . . . . . . . . . . . . .26
4A.4 No Change in Accounting Policies. . . . . . . . . . . . . . . . .26
4A.5 Affiliated Transactions . . . . . . . . . . . . . . . . . . . . .27
4A.6 Issuances of, Distributions on, and Redemptions of, Capital
Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
4A.7 Restrictions on Outside Businesses. . . . . . . . . . . . . . . .27
SECTION 5. TRANSFER BY FOUNDER; RIGHTS TO PURCHASE . . . . . . . . . . . . .28
5.1 General Restrictions on Transfer by the Founder . . . . . . . . .28
5.2 Right of Refusal. . . . . . . . . . . . . . . . . . . . . . . . .28
5.3 Right of Co-Sale. . . . . . . . . . . . . . . . . . . . . . . . .29
5.4 Sales by the Founder. . . . . . . . . . . . . . . . . . . . . . .31
5.5 Assignment/Miscellaneous. . . . . . . . . . . . . . . . . . . . .31
SECTION 6. RIGHTS TO PURCHASE. . . . . . . . . . . . . . . . . . . . . . . .31
6.1 Right to Participate in Certain Sales of Additional Securities. .31
6.2 Assignment of Rights. . . . . . . . . . . . . . . . . . . . . . .32
SECTION 7. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . .33
7.1 Optional Registrations. . . . . . . . . . . . . . . . . . . . . .33
7.2 Required Registrations. . . . . . . . . . . . . . . . . . . . . .33
7.3 Form S-3. . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
(ii)
7.4 Registrable Securities. . . . . . . . . . . . . . . . . . . . . .35
7.5 Further Obligations of the Company. . . . . . . . . . . . . . . .35
7.6 Indemnification; Contribution . . . . . . . . . . . . . . . . . .37
7.7 Rule 144 and Rule 144A Requirements . . . . . . . . . . . . . . .39
7.8 Transfer of Registration Rights . . . . . . . . . . . . . . . . .39
7.9 Market Stand-off Agreement. . . . . . . . . . . . . . . . . . . .39
SECTION 8. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
8.1 Amendments, Waivers and Consents. . . . . . . . . . . . . . . . .40
8.2 Indemnification; Expenses . . . . . . . . . . . . . . . . . . . .40
8.3 Rescission Rights . . . . . . . . . . . . . . . . . . . . . . . .42
8.4 Survival of Representations; Warranties and Covenants;
Assignability of Rights . . . . . . . . . . . . . . . . . . . . .43
8.5 Legend on Securities. . . . . . . . . . . . . . . . . . . . . . .43
8.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . .44
8.7 Section Headings and Gender . . . . . . . . . . . . . . . . . . .44
8.8 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . .44
8.9 Notices and Demands . . . . . . . . . . . . . . . . . . . . . . .44
8.10 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . .44
8.11 Integration . . . . . . . . . . . . . . . . . . . . . . . . . . .45
8.12 Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . . . . .45
8.13 Amendment of Series A Agreement and Series B Agreement. . . . . .45
(iii)
INVESTMENT AND STOCKHOLDERS' AGREEMENT
THIS INVESTMENT AND STOCKHOLDERS' AGREEMENT (this "Agreement") made as of
this 31st day of October, 1997, by and among PATHNET, INC., a Delaware
corporation (the "Company"), the investors named in EXHIBIT A hereto
(collectively, the "Series C Investors," and each individually, a "Series C
Investor"), the Series A Investors (as defined below), the Series B Investors
(as defined below) (the Series A Investors, the Series B Investors and the
Series C Investors being collectively referred to herein as the "Investors" and
each an "Investor") and David Schaeffer for purposes of SECTION 2, SECTION 3.9,
SECTION 4.4, SECTION 5, SECTION 6, SECTION 7.9 and SECTION 8.5 (the "Founder").
Unless the context otherwise requires, all references herein to the Company
shall refer to the Company and its subsidiaries on a consolidated basis.
RECITALS
A. Pursuant to that certain Investment and Stockholders' Agreement
dated as of August 28, 1995 (the "Series A Agreement") by and among the Company
and the investors named in EXHIBIT A thereto (the "Series A Investors"), (i) the
Company sold and the Series A Investors purchased that number of shares of the
Company's Series A Convertible Preferred Stock (the "Series A Preferred Stock"),
as set forth in EXHIBIT A thereto under the caption, "Number of Initial Shares"
(and the parties thereto agreed, under certain circumstances, to sell and
purchase, respectively, the Subsequent Shares, as defined in the Series A
Agreement), and (ii) the Series A Investors agreed to make available to the
Company, under certain circumstances, bridge loans in the aggregate principal
amount of $500,000.
B. Pursuant to that certain Amendment No. 1 to Investment and
Stockholders' Agreement dated as of February 8, 1996 ("Amendment No. 1") by and
among the Company and the Series A Investors, the Company, among other things,
sold and the Series A Investors purchased the Subsequent Shares.
C. Pursuant to that certain Amendment No. 2 to Investment and
Stockholders' Agreement dated as of August 2, 1996 ("Amendment No. 2") by and
among the Company and the Series A Investors, the Series A Investors, among
other things, increased the amount of their bridge loan commitments to the
Company to an aggregate principal amount of $700,000, and advanced bridge loans
to the Company in such amount, such loans evidenced by bridge loan notes
(collectively, the "Bridge Loan Notes"). In addition, the Series A Investors
agreed to make available to the Company, upon the occurrence of certain events,
additional bridge loans in the aggregate principal amount of $300,000 (the
"Additional Bridge Loan Commitment"). Pursuant to the Series B Agreement (as
defined below), the Series A Investors acquired that number of shares of
Series B Preferred Stock (as defined below) equal to the quotient of the
Additional Bridge Loan Commitment ($300,000) divided by the purchase price of
$2.3944 per share of Series B Preferred Stock.
D. Pursuant to that certain Investment and Stockholders Agreement,
dated as of December 23, 1996 (the "Series B Agreement") by and among the
Company and the investors set forth on EXHIBIT A thereto, (the "Series B
Investors"), the Company sold and the Series B Investors purchased that number
of shares of the Company's Series B Convertible Preferred Stock (the "Series B
Preferred Stock"), as set forth in EXHIBIT A thereto under the captions "Number
of Shares at Initial Closing," "Number of Shares at Additional Closing," and
"Number of B Shares on Conversion of Bridge Loan and Payment of Additional
Bridge Loan Amount."
E. Pursuant to that certain Amendment No. 3 to Investment and
Stockholders' Agreement dated as of December 23, 1996 ("Amendment No. 3") by and
among the Company and the Series A Investors the Series A Investors and the
Company agreed to certain amendments and modifications to the Series A Agreement
in connection with the execution and delivery of the Series B Agreement.
F. The Series A Investors, the Series B Investors, the Series C
Investors, the Founder and the Company desire to amend and restate in their
entirety Sections 4, 4A, 5, 6 and 7 of each of the Series A Agreement and the
Series B Agreement on the terms and conditions set forth in this Agreement, and
Sections 4, 4A, 5, 6 and 7 of this Agreement will supersede each such section of
the Series A Agreement and Series B Agreement.
G. The Series C Investors, severally, desire to purchase, and the
Company desires to sell, the Series C Shares (as defined below) on the terms and
subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained in this Agreement, the parties hereto agree as follows:
SECTION 1. TERMS OF PURCHASE
1.1 DESCRIPTION OF SECURITIES.
The Company has authorized the issuance and sale to the Series C Investors
of up to 2,819,549 shares (the "Series C Shares") of its authorized but unissued
Series C Convertible Preferred Stock, $0.01 par value per share (the "Series C
Preferred Stock"), having the rights, preferences and other terms substantially
as set forth in the form of Restated Certificate of Incorporation of the Company
attached hereto as EXHIBIT B (the "Restated Charter"). The Company has
authorized and has reserved, and covenants to continue to reserve, a sufficient
number of shares of its common stock, $.01 par value per share (the "Common
Stock"), to satisfy the rights of conversion of the holders of the Series C
Shares. Any shares of Common Stock or any successor class of capital stock of
the Company hereafter issued or issuable upon conversion of the Series C Shares
are herein referred to as "Series C Conversion Shares," and the Series C Shares
and the Series C Conversion Shares are herein collectively referred to as the
"Series C Securities."
2
1.2 SALE AND PURCHASE.
Subject to the terms and conditions herein, at each closing provided for in
SECTION 1.3 hereof, the Company shall issue and sell to the Series C Investors
acquiring Series C Shares at such closing, and each such Series C Investor shall
purchase from the Company, the applicable number of Series C Shares set forth
opposite the name of such Series C Investor in EXHIBIT A hereto. The purchase
price for each Series C Share shall be $10.64. The Company and the Series C
Investors agree that the Series C Preferred Stock is a common stock for federal
income tax purposes and the Company and the Series C Investors agree to file all
reports, returns, statements and other documents consistently with the foregoing
and otherwise to treat the Series C Preferred Stock as a common stock for
federal income tax purposes.
1.3 CLOSINGS.
(a) An initial closing (the "Initial Closing') shall take place
at the offices of Goodwin, Procter & Hoar LLP, Exchange Place, Boston, MA
02109-2881 on the date hereof or on such other date, time and place as shall be
mutually agreed upon by the Company and the Series C Investors (the date of the
Initial Closing being called, the "Closing Date"). At the Initial Closing, the
Company and the Investors shall execute and deliver this Agreement and the other
documents, instruments and agreements contemplated by this Agreement. At the
Initial Closing, the Company shall deliver to each Series C Investor a
certificate or certificates in the Series C Investor's name or in the name of
its nominee representing the number of Series C Shares listed opposite such
Series C Investor's name in EXHIBIT A under the caption "Shares Purchased at
Initial Closing" against payment to the Company by or on behalf of each Series C
Investor of the full purchase price therefor listed opposite such Investor's
name in EXHIBIT A under the caption "Aggregate Purchase Price for Initial
Closing," by wire transfer in immediately available funds or by good check.
(b) In the event that (i) (A) the Company has executed
definitive agreements, having terms and conditions which are approved by a
majority of the Investor Directors, with NEC Industries, Inc. (or an affiliate
of NEC Industries, Inc.) ("NEC") or the Prudential Insurance Company of America
("Prudential") and New York Life Insurance Company ("New York Life"), relating
to the Credit Facilities between the Company and NEC and the Company and
Prudential and New York Life, respectively or (B) the Company closes a private
offering of high yield debt, having terms and conditions which are approved by a
majority of the Investor Directors, (ii) the Company has executed Fixed Point
Microwave Services Agreements or Agreements to Create and Manage a
Telecommunications Network with at least four (4) "Incumbents," as such term is
defined in such agreements, having terms and conditions which are substantially
the same as the terms and conditions of similar agreements previously approved
by a majority of the Series A Investor Directors and Series B Investor Director,
voting together, (iii) neither the Company nor the Founder are then in breach of
any material terms of this Agreement or the Series A Agreement or Series B
Agreement and (iv) the conditions set forth in SECTION 3 are fulfilled,
3
within thirty (30) days after the execution of such definitive agreements or
closing of the high yield debt offering, as the case may be, an additional
closing (the "Additional Closing") shall take place at the offices of Goodwin,
Procter & Hoar LLP, Exchange Place, Boston, MA 02109-2881 on a date within such
thirty (30) day period as agreed to by the Company and the Series C Investors or
on such other date, time and place as shall be mutually agreed upon by the
Company and the Series C Investors (the date of the Additional Closing being
called, the "Additional Closing Date"). At the Additional Closing, the Company
shall deliver to each Series C Investor a certificate or certificates in the
Series C Investor's name or in the name of its nominee representing the number
of Series C Shares listed opposite such Series C Investor's name in EXHIBIT A
under the caption "Shares purchased at Additional Closing" against payment to
the Company by or on behalf of each Series C Investor of the full purchase price
therefore listed opposite such Series C Investor's name in EXHIBIT A under the
caption "Aggregate Purchase Price for Additional Closing" by wire transfer in
immediately available funds or by good check. Any sale of Series C Shares
pursuant to the foregoing provision shall be made pursuant to the provisions of
this Agreement and the Additional Closing shall be deemed to be a closing under
this Agreement and the dates thereof a "Closing Date". Notwithstanding the
foregoing, nothing in this Section 1.3 shall be construed to require any
Investor in connection with any subsequent investment in the Company to violate
any applicable law.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE FOUNDER
In order to induce the Investors to enter into this Agreement, each of the
Company and the Founder represent and warrant to each of the Investors the
following. For purposes of this Section 2, references to the "Company" shall
mean and refer to PathNet, Inc., a Delaware Corporation, and its subsidiaries
and predecessors, as the context requires, except that references to the
"Company" in Section 2.2, Section 2.3 and Section 2.4 shall refer to PathNet,
Inc.
2.1 ORGANIZATION AND CORPORATE POWER.
4
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and is qualified to do
business as a foreign corporation in each jurisdiction in which the failure to
be so qualified would have a material adverse effect on its business, condition
or results of operations. The Company has all required corporate power and
authority to carry on its business as presently conducted, to enter into and
perform this Agreement and the agreements contemplated hereby to which it is a
party and to carry out the transactions contemplated hereby and thereby,
including the issuance of the Series C Shares, the Series A Shares, any shares
of Common Stock or any successor class of capital stock of the Company hereafter
issued or issuable upon the conversion of the Series A Shares (the "Series A
Conversion Shares") and the Series B Shares and any shares of Common Stock or
any successor class of capital stock of the Company hereafter issued or issuable
upon the conversion of the Series B Shares (the "Series B Conversion Shares").
The Series A Shares, Series A Conversion Shares, Series B Shares, Series B
Conversion Shares, Series C Shares and Series C Conversion Shares are
collectively referred to herein as the "Securities." The copies of the Restated
Charter and Amended and Restated Bylaws of the Company (the "Restated Bylaws"),
which have been furnished to counsel for the Investors by the Company, are
correct and complete at the date hereof. On the Closing Date or the Additional
Closing Date, as the case may be, the Company is not in violation of any term of
its Restated Charter or Restated Bylaws, or in violation of any material term of
any agreement, instrument, judgment, decree, order, statute, rule or government
regulation applicable to the Company or to which the Company is a party.
5
2.2 AUTHORIZATION AND NON-CONTRAVENTION.
This Agreement and all documents executed pursuant hereto are valid and
binding obligations of the Company, enforceable in accordance with their terms,
except as such enforcement may be limited by laws of general application
relating to bankruptcy, reorganization, insolvency, moratorium or other laws
affecting creditors' rights and the availability of equitable remedies which are
subject to the discretion of the court before which an action may be brought.
The execution, delivery and performance of this Agreement, all agreements,
documents and instruments contemplated hereby and the issuance of (i) the
Series C Shares, (ii) upon the conversion of the Series C Shares, the Series C
Conversion Shares, (iii) upon conversion of the Series A Shares, the Series A
Conversion Shares, and (iv) upon conversion of the Series B Shares, the Series B
Conversion Shares have been duly authorized by all necessary corporate action of
the Company. The execution of this Agreement, the issuance and delivery of (i)
the Series C Shares, (ii) upon the conversion of the Series C Shares, the
Series C Conversion Shares, (iii) upon conversion of the Series A Shares, the
Series A Conversion Shares, and (iv) upon conversion of the Series B Shares, the
Series B Conversion Shares and the performance of any transaction contemplated
hereby will not (i) violate, conflict with or result in a default under any
contract or obligation to which the Company is a party or by which it or its
assets are bound, or any provision of the Restated Charter or Restated Bylaws of
the Company, or cause the creation of any encumbrance upon any of the assets of
the Company; (ii) violate or result in a violation of, or constitute a default
(whether after the giving of notice, lapse of time or both) under, any provision
of any law, regulation or rule, or any order of, or any restriction imposed by,
any court or other governmental agency; (iii) require from the Company any
notice to, declaration or filing with, or consent or approval of any
governmental authority or other third party; or (iv) accelerate any obligation
under or give rise to a right of termination of, any material agreement, permit,
license or authorization to which the Company is a party or by which the Company
is bound.
2.3 CAPITALIZATION.
6
As of the Closing Date or the Additional Closing Date, as the case may be,
and after giving effect to the transactions contemplated by this Agreement, the
authorized capital stock of the Company will consist only of (a) 7,500,000
shares of Common Stock, of which 1,000,000 shares will have been issued to the
Founder and outstanding, (b) 1,000,000 shares of the Series A Preferred Stock,
all of which will have been issued to the Series A Investors and outstanding,
(c) 1,651,046 shares of Series B Preferred Stock, all of which will have been
issued to the Series B Investors and outstanding and (d) 2,819,549 shares of
Series C Preferred Stock, 939,850 of which will have been issued to the Series C
Investors and outstanding as of the Closing Date and 2,819,549 of which will
have been issued to the Series C Investors and outstanding as of the Additional
Closing Date. Except for stock options to purchase up to 173,170 shares of
Common Stock, which have been granted under the 1995 Plan (as defined below) on
the terms set forth in SCHEDULE 2.3 hereto and an additional 777,140 shares of
Common Stock reserved for issuance under the PathNet Inc. 1995 Stock Option Plan
(the "1995 Plan") and the PathNet, Inc. 1997 Stock Incentive Plan (the "1997
Plan"), the Company has not issued or agreed to issue and is not obligated to
issue any outstanding warrants, options or other rights to purchase or acquire
any shares of its capital stock, nor any outstanding securities convertible into
such shares or any warrants, options or other rights to acquire any such
convertible securities. As of the Initial Closing or the Additional Closing, as
the case may be, and after giving effect to the transactions contemplated
hereby, all of the outstanding shares of capital stock of the Company (including
the shares of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock issued and outstanding (collectively, the "Preferred Shares"))
will have been duly and validly authorized and issued and will be fully paid and
nonassessable and will have been offered, issued, sold and delivered in
compliance with applicable federal and state securities laws and not subject to
any preemptive rights other than those set forth in SECTION 6.1 of this
Agreement. The relative rights, preferences and other provisions relating to
the Preferred Shares and the Common Stock are as set forth in the Restated
Charter. The Company has authorized and reserved for issuance upon conversion
of the Series A Shares not less than 1,000,000 shares of its Common Stock
(subject to adjustments for stock splits, stock dividends and the like), and the
Series A Conversion Shares issuable upon such conversion will be duly and
validly authorized and issued, fully paid and nonassessable and not subject to
any preemptive rights and will be issued in compliance with federal and state
securities laws. The Company has authorized and reserved for issuance upon
conversion of the Series B Shares not less than 1,651,046 shares of its Common
Stock (subject to adjustments for stock splits, stock dividends and the like),
and the Series B Conversion Shares issuable upon such conversion will be duly
and validly authorized and issued, fully paid and nonassessable and not subject
to any preemptive rights and will be issued in compliance with federal and state
securities laws. The Company has authorized and reserved for issuance upon
conversion of the Series C Shares not less than 2,819,549 shares of its Common
Stock (subject to adjustments for stock splits, stock dividends and the like),
and the Series C Conversion Shares issuable upon such conversion will be duly
and validly authorized and issued, fully paid and nonassessable and not subject
to any preemptive rights and will be issued in compliance with federal and state
securities laws. There are no preemptive rights with respect to the issuance,
sale or redemption of the Company's capital stock other than rights to which the
Investors are entitled under this Agreement. There are no rights of first
refusal, put or call rights or obligations or
7
anti-dilution rights with respect to the issuance, sale or redemption of the
Company's capital stock, other than (i) rights to which the Investors are
entitled as set forth in this Agreement and the Restated Charter (ii) rights to
which the "Participants" are entitled under the 1995 Plan and the 1997 Plan and
(iii) rights to which Richard A. Jalkut is entitled pursuant to his Employment
Agreement with the Company, dated as of August 4, 1997 (the "Employment
Agreement"). Except as set forth in SCHEDULE 2.3 hereto and in the Employment
Agreement and other than the rights granted to the Investors herein there are no
rights to have the Company's capital stock registered for sale to the public in
connection with the laws of any jurisdiction, no agreements relating to the
voting of the Company's voting securities, and no restrictions on the transfer
of the Company's capital stock. As of the Closing Date or the Additional
Closing Date, as the case may be, and having given effect to the transactions
contemplated by this Agreement, the outstanding shares of Common Stock are held
beneficially and of record by the persons identified in SCHEDULE 2.3 hereto in
the amounts indicated thereon.
2.4 SUBSIDIARIES; INVESTMENTS.
As of the Closing Date or the Additional Closing Date, as the case may be,
the Company has no subsidiaries, except as set forth on SCHEDULE 2.4 hereto.
All corporations, joint ventures, partnerships or other entities in which the
Company has any interest are set forth on SCHEDULE 2.4 hereto. Except as set
forth in SCHEDULE 2.4 hereto, no such entity is material to the business or
financial condition of the Company.
2.5 REPORTS AND FINANCIAL STATEMENTS.
(a) The Company has previously furnished to the Investors
complete and correct copies, including exhibits, of its consolidated balance
sheets and income statements as at and for the year ended December 31, 1996,
together with the report thereon of Coopers & Lybrand L.L.P., independent
certified public accountants, and its unaudited unconsolidated balance sheet and
income statement as at and for the periods ended March 31, 1997, June 30, 1997
and August 31, 1997.
(b) The financial statements referred to in SECTION 2.5(A)
hereof were prepared in conformity with generally accepted accounting principles
applied on a consistent basis, are complete, correct and consistent in all
material respects with the books and records of the Company and fairly and
accurately present the consolidated financial position of the Company as at the
dates thereof and the consolidated results of operations and cash flows of the
Company for the periods shown therein, except that the unaudited consolidated
balance sheet and income statements as of and for the periods ended March 31,
1997, June 30, 1997 and August 31, 1997 are subject to the absence of footnotes
and to normal year-end audit adjustments which will not be material. The
projections which have been separately disclosed in writing to the Investors
represent good faith estimates of the Company's future performance based upon
assumptions which are set forth therein and which were in good faith believed to
be reasonable when made
8
and continue to be reasonable as of the Closing Date or the Additional Closing
Date, as the case may be.
2.6 ABSENCE OF UNDISCLOSED LIABILITIES.
Except as and to the extent reflected or reserved against in the unaudited
consolidated balance sheet of the Company at August 31, 1997 contained in the
financial statements referred to in SECTION 2.5(A), including the footnotes and
schedules thereto (the "Base Balance Sheet"), the Company does not have (i) any
material accrued or contingent liability or liabilities arising out of any
transaction or state of facts existing prior to the Closing Date or the
Additional Closing Date, as the case may be or (ii) any other liabilities
arising other than in the ordinary course of business since the date of the Base
Balance Sheet.
2.7 ABSENCE OF CERTAIN DEVELOPMENTS.
Since the date of the Base Balance Sheet there has not been any: (i)
material adverse change in the financial condition of the Company or in the
assets, liabilities, properties, business or prospects of the Company, (ii)
declaration, setting aside or payment of any dividend or other distribution with
respect to, or any direct or indirect redemption or acquisition of, any of the
capital stock of the Company, (iii) waiver of any valuable right of the Company
or cancellation of any debt or claim held by the Company, (iv) loss, destruction
or damage to any property which is material to the assets, liabilities,
properties, business or prospects of the Company, whether or not insured, (v)
acquisition or disposition of any assets (or any contract or arrangement
therefor) or other transaction by the Company, other than in the ordinary course
of business, (vi) loan by the Company to any officer, director, employee or
Founder of the Company, or any agreement or commitment therefor, (vii) increase,
direct or indirect, in the compensation paid or payable to any officer,
director, employee or agent of the Company, (viii) material loss of personnel of
the Company, material change in the terms and conditions of the employment of
the Company's key personnel or any labor trouble involving the Company, (ix)
arrangements relating to any royalty, dividend or similar payment based on the
sales volume of the Company, whether as part of the terms of the Company's
capital stock or by any separate agreement, other than pursuant to any Fixed
Point Microwave Services Agreement System by and between the Company and an
"Incumbent" or any Agreement to Create and Manage a Telecommunications System by
and between the Company and an "Incumbent" or the Consulting Agreement among the
Company and Stephen A. Smaby, dated September 9, 1997, (x) any agreement with
respect to the endorsement of the Company's products, other than pursuant to any
Fixed Point Microwave Services Agreement System by and between the Company and
an "Incumbent" or any Agreement to Create and Manage a Telecommunications System
by and between the Company and an "Incumbent," (xi) loss or any development that
could result in a loss of any significant customer, account or employee of the
Company, or (xii) any agreement with respect to any of the foregoing actions,
other than pursuant to any Fixed Point Microwave Services Agreement or any
Agreement to Create and Manage a Telecommunications System entered into by the
Company.
9
2.8 ACCOUNTS RECEIVABLE.
All of the accounts receivable of the Company, whether shown or reflected
on the Base Balance Sheet or otherwise, represent bona fide completed sales made
in the ordinary course of business, are valid and enforceable claims, are
subject to no known set-offs or counterclaims, and are, in the best judgment of
the Company, fully collectible in the normal course of business after deducting
the reserve set forth in the Base Balance Sheet and adjusted since that date,
which reserve is a reasonable estimate of the Company's uncollectible accounts.
2.9 TITLE TO PROPERTIES.
SCHEDULE 2.9 hereto sets forth the addresses and uses of all real property
that the Company owns, leases or subleases. The Company has good, valid and (if
applicable) marketable title to all of its assets including, without limitation,
all rights to those assets reflected on the Base Balance Sheet or acquired by it
after the date thereof (except for properties disposed of since that date in the
ordinary course of business), free and clear of all liens, claims or
encumbrances of any nature, except as set forth in SCHEDULE 2.9 hereto. All
equipment included in such properties which is necessary to the business of the
Company is in good condition and repair (ordinary wear and tear excepted) and
all leases of real or personal property to which the Company is a party are
fully effective and afford the Company peaceful and undisturbed possession of
the subject matter of the lease. The property and assets of the Company are
sufficient for the conduct of its business as presently conducted. The Company
is not in violation of any zoning, building or safety ordinance, regulation or
requirement or other law or regulation applicable to the operation of its owned
or leased properties, which violation would have a material adverse effect on
the assets, liabilities, properties, business or prospects of the Company, nor
has it received any notice of any such violation. There are no defaults by the
Company or to the best knowledge of the Company, by any other party, which might
curtail in any material respect the present use of the Company's property listed
on SCHEDULE 2.9 hereof. The performance by the Company of this Agreement will
not result in the termination of, or in any increase of any amounts payable
under any lease listed on SCHEDULE 2.9 hereof.
10
2.10 TAX MATTERS.
The Company has filed all federal, state, local and foreign income, excise
and franchise tax returns, real estate and personal property tax returns, sales
and use tax returns and other tax returns required to be filed by it where the
failure to file such returns would have a material adverse effect on the assets,
liabilities, properties, business or prospects of the Company and has paid all
taxes owing by it, except taxes which have not yet accrued or otherwise become
due, for which adequate provision has been made in the pertinent financial
statements referred to in SECTION 2.5 above or which will not have a material
adverse effect on the business or financial condition of the Company. The
provision for taxes on the Base Balance Sheet is sufficient as of its date for
the payment of all accrued and unpaid federal, state, county and local taxes of
any nature of the Company, and any applicable taxes owing to any foreign
jurisdiction, whether or not assessed or disputed. All taxes and other
assessments and levies which the Company is required to withhold or collect have
been withheld and collected and have been paid over to the proper governmental
authorities, except where the failure to withhold or collect and pay over would
not have a material adverse effect on the assets, liabilities, properties,
business or prospects of the Company. With regard to the federal income tax
returns of the Company, the Company has never received notice of any audit or of
any proposed deficiencies from the Internal Revenue Service. There are in
effect no waivers of applicable statutes of limitation with respect to any taxes
owed by the Company for any year. Neither the Internal Revenue Service nor any
other taxing authority is now asserting or, to the best knowledge of the
Company, threatening to assert against the Company any deficiency or claim for
additional taxes or interest thereon or penalties in connection therewith.
2.11 CERTAIN CONTRACTS AND ARRANGEMENTS.
Except as set forth in SCHEDULE 2.11 hereto (with true and correct copies
delivered to the Investors) the Company is not a party or subject to or bound
by:
(a) any plan or contract providing for collective bargaining or
the like, or any contract or agreement with any labor union;
(b) any contract, lease or agreement creating any obligation of
the Company to pay to any third party $10,000 or more with respect to any single
such contract or agreement, except for purchase orders entered into in the
ordinary course of business;
(c) any contract or agreement for the sale, license, lease or
disposition of products in excess of $10,000;
(d) any contract containing covenants directly or explicitly
limiting the freedom of the Company to compete in any line of business or with
any person or entity;
(e) any license agreement (as licensor or licensee);
11
(f) any contract or agreement for the purchase of any leasehold
improvements, equipment or fixed assets for a price in excess of $10,000;
(g) any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for borrowing in excess of $10,000 or
any pledge or security arrangement;
(h) any material joint venture, partnership, manufacturing,
development or supply agreement;
(i) any employment contracts, or agreements with officers,
directors, employees or stockholders of the Company or persons or organizations
related to or affiliated with any such persons;
(j) any stock redemption or purchase agreements or other
agreements affecting or relating to the capital stock of the Company, including,
without limitation, any agreement with any Founder of the Company which includes
without limitation, anti-dilution rights, registration rights, voting
arrangements, operating covenants or similar provisions;
(k) any pension, profit sharing, retirement or stock options
plans;
(l) any royalty, dividend or similar arrangement based on the
sales volume of the Company;
(m) any acquisition, merger or similar agreement;
(n) any contract with a governmental body under which the
Company may have an obligation for renegotiation; or
(o) any other contract not executed in the ordinary course of
business.
All of the Company's contracts and commitments are in full force and effect
and neither the Company, nor, to the knowledge of the Company, any other party
is in material default thereunder (nor, to the knowledge of the Company, has any
event occurred which with notice, lapse of time or both would constitute a
material default thereunder), except to the extent that any such default would
not have a material adverse effect on the assets, liabilities, properties,
business or proposals of the Company, and the Company has not received notice of
any alleged default under any such contract, agreement, understanding or
commitment.
12
2.12 INTELLECTUAL PROPERTY RIGHTS; EMPLOYEE RESTRICTIONS.
Except as set forth in SCHEDULE 2.12 hereto:
(a) The Company has exclusive ownership of, with the right to
use, sell, license, dispose of, and bring actions for infringement of, all
Intellectual Property Rights (as hereinafter defined) material to the conduct of
its business as presently conducted (the "Company Rights"), which rights are
exclusive to the Company and sufficient for the conduct of its business as
presently conducted;
(b) The business of the Company as presently conducted and the
manufacture, marketing, licensing, use and servicing of any products of the
Company, do not violate any agreements which the Company has with any third
party, or infringe any patent, trademark, copyright or trade secret rights of
any third parties or, to the best knowledge of the Company, any other
Intellectual Property Rights of any third parties;
(c) No claim is pending or, to the best knowledge of the
Company, threatened against the Company nor has the Company received any notice
or other claim from any person asserting that any of the Company's present or
contemplated activities infringe or may infringe any Intellectual Property
Rights of such person, and the Company is not aware of any infringement by any
other person of any rights of the Company under any Intellectual Property
Rights; and
(d) The Company has taken all commercially reasonable steps
required to establish and preserve its ownership of all of the Company Rights;
except as set forth on SCHEDULE 2.12, each current and former Key Management
Employee (as defined below) of the Company, the Founder and each of the
Company's consultants and independent contractors involved in development of any
of the Company Rights, has executed an agreement regarding confidentiality,
proprietary information and assignment of inventions and copyrights to the
Company, and, to the best knowledge of the Company, none of such employees,
consultants or independent contractors is in violation of any agreement or in
breach of any agreement or arrangement with former or present employers relating
to proprietary information or assignment of inventions.
As used herein, the term "Intellectual Property Rights" shall mean all
intellectual property rights, including, without limitation, all of the
registered rights set forth on SCHEDULE 2.12 hereto and all patents, patent
applications, patent rights, trademarks, trademark applications, trade names,
service marks, service mark applications, copyrights, copyright applications,
computer programs and other computer software, inventions, designs, samples,
specifications, schematics, know-how, trade secrets, proprietary processes and
formulae, all source and object code, algorithms, architecture, structure,
display screens, layouts, development tools, promotional materials, customer
lists, supplier and dealer lists and marketing research, and all documentation
and media constituting, describing or relating to the foregoing, including
13
without limitation, manuals, memoranda and records, SCHEDULE 2.12 hereto
contains a list and brief description of all Intellectual Property Rights owned
by or registered in the name of the Company or of which the Company is the
licensor or a licensee of a material right or in which the Company has any
material right and, in each case, a brief description of the nature of the
right.
2.13 LITIGATION.
There is no litigation or governmental proceeding or investigation pending,
or, to the best knowledge of the Company, threatened against the Company or
affecting any of its properties or assets or against any officer, director or
key employee of the Company in his or her capacity as an officer, director or
employee of the Company, or which may call into question the validity or hinder
the enforceability of this Agreement or the agreements or transactions
contemplated hereby; nor to the best knowledge of the Company, has there
occurred any event nor does there exist any condition on the basis of which any
such litigation, proceeding or investigation might be properly instituted or
commenced.
2.14 EMPLOYEE BENEFIT PLANS.
Other than as set forth on SCHEDULE 2.14, the Company does not maintain or
contribute to any employee benefit plan, stock option, bonus or incentive plan,
severance pay policy or agreement deferred compensation agreement, or any
similar plan or agreement (an "Employee Benefit Plan"). There are no unfunded
obligations of the Company under any retirement, pension, profit sharing,
deferred compensation plan or similar program. Other than pursuant to the
Guardian Health Insurance Plan, the Company is not required to make any payments
or contributions to any Employee Benefit Plan pursuant to any collective
bargaining agreement or, to the knowledge of the Company, any applicable labor
relations law. The Company has never maintained or contributed to any Employee
Benefit Plan providing or promising any health or other nonpension benefits to
terminated employees.
2.15 LABOR LAWS.
Except as set forth in SCHEDULE 2.15 hereto, each of the officers of the
Company and each key employee of the Company (as designated by the Board of
Directors (a "Key Management Employee")) has executed a Non-Disclosure,
Assignment of Inventions and Non-Competition Agreement in the form attached
hereto as EXHIBIT C-2 and such agreements are in full force and effect. No Key
Management Employee of the Company has advised the Company (orally or in
writing) that he intends to terminate employment with the Company. The current
Key Management Employees are listed on SCHEDULE 2.15. The Company has complied
in all material respects with all applicable laws relating to the employment of
labor, including provisions relating to wages, hours, equal opportunity,
collective bargaining and the payment of Social Security and other taxes. To
the best of the Company's knowledge, there is no strike, labor dispute or union
organization activities pending or threatened between it and its employees.
14
2.16 HAZARDOUS WASTE, ETC.
Other than pursuant to the agreements and documents set forth on
SCHEDULE 2.16, no hazardous wastes, substances or materials or oil or petroleum
products have been generated, transported, used, disposed, stored or treated by
the Company. No hazardous wastes, substances or materials, or oil or petroleum
products have been released, discharged, disposed, transported, placed or
otherwise caused to enter the soil or water in, under or upon any real property
owned, leased or operated by the Company.
2.17 BUSINESS; COMPLIANCE WITH LAWS.
The Company has all necessary franchises, permits, licenses and other
rights and privileges necessary to permit it to own its property and to conduct
its business as it is presently or contemplated to be conducted. The Company
is, and since its incorporation has been, in compliance in all material respects
with all federal, state, local and foreign laws and regulations and applicable
laws of countries in which the Company does or has done business, including
without limitation all laws administered by or promulgated by the Federal
Communications Commission and Federal Trade Commission.
2.18 INVESTMENT BANKING; BROKERAGE.
Except as set forth on SCHEDULE 2.18 hereto, there are no claims for
investment banking fees, brokerage commissions, finder's fees or similar
compensation (exclusive of professional fees to lawyers and accountants) in
connection with the transactions contemplated by this Agreement based on any
arrangement or agreement made by or on behalf of the Company, and the Company
agrees to indemnify the Investors and hold them harmless against any claims for
brokerage fees or commissions payable to any broker or finder claiming through
the Company or any of its Subsidiaries in connection with the financing
contemplated by this Agreement, including, without limitation, the brokerage
fees and commissions which may be payable to any broker or finder identified in
SCHEDULE 2.18 hereto, which shall be payable by the Company out of the proceeds
from the financing contemplated by this Agreement.
2.19 INSURANCE.
The Company has fire, casualty, commercial liability, business interruption
and other insurance policies, with extended coverage, sufficient in amount to
allow it to replace any of its material properties which might be damaged or
destroyed or sufficient to cover liabilities to which the Company may reasonably
become subject, and such types and amounts of other insurance with respect to
its business and properties, on both a per occurrence and an aggregate basis, as
are customarily carried by persons engaged in the same or similar business as
the Company. There is no default or event which could give rise to a default
under any such policy.
15
2.20 TRANSACTIONS WITH AFFILIATES.
Except as set forth on SCHEDULE 2.20 hereto, there are no loans, leases or
other continuing transactions between the Company and the Founder or any
officer, director or five percent (5%) shareholder of the Company or any family
member or affiliate of the foregoing persons.
2.21 DISCLOSURE.
The representations and warranties made or contained in this Agreement, the
schedules and exhibits hereto and the certificates and statements executed or
delivered in connection herewith, and the information concerning the business of
the Company delivered to the Investors in connection with or pursuant to this
Agreement (including any confidential or private placement memorandum delivered
to the Investors regarding the Company) when taken together, do not and shall
not contain any untrue statement of a material fact and do not and shall not
omit to state a material fact required to be stated therein or necessary in
order to make such representations, warranties or other material not misleading
in light of the circumstances in which they were made or delivered. To the best
of the Company's and the Founder's knowledge, there is no material fact directly
relating to the business, operations or condition of the Company (other than
facts which relate to general economic or telecommunications industry trends or
conditions) that materially adversely affects or in the future in the reasonable
business judgment of the Company, (so far as the Company may now foresee based
upon material facts of which they are now aware) is likely to materially
adversely affect the same that has not been set forth in this Agreement or in
the Schedules hereto. Neither the Founder nor any of his affiliates has been:
(a) subject to voluntary or involuntary petition under the federal bankruptcy
laws or any state insolvency law or the appointment of a receiver, fiscal agent
or similar office by a court for his business or property; (b) convicted in a
criminal proceeding or named as a subject of a pending criminal proceeding
(excluding traffic violations and other minor offenses); (c) subject to any
order, judgment, or decree (not subsequently reversed, suspended or vacated) of
any court of competent jurisdiction permanently or temporarily enjoining him
from, or otherwise imposing limits or conditions on his, engaging in any
securities, investment advisory, banking, insurance or other type of business or
acting as an officer or director of a public company; or (d) found by a court of
competent jurisdiction in a civil action or by the Securities and Exchange
Commission or the Commodity Futures Trading Commission to have violated any
federal or state commodities, securities or unfair trade practices law, which
such judgment or finding has not been subsequently reversed, suspended, or
vacated.
16
2.22 SMALL BUSINESS CONCERN.
The Company acknowledges that Toronto Dominion Capital (U.S.A.), Inc. ("TD
(U.S.A.)") is a federally licensed Small Business Investment Company under the
1958 Act (an "SBIC"). The information set forth in documents provided to the
Investors pursuant to Section 4.11 below is accurate and complete. The Company
does not presently engage in, nor does it anticipate engaging in, any
activities, nor shall the Company use the proceeds received from the sale of the
Series C Shares directly or indirectly for any purposes, for which an SBIC is
prohibited from providing funds by the SBIC Regulations.
2.23 QUALIFIED SMALL BUSINESS STOCK. The Company is a "qualified small
business," constitutes an "active business" and engages in a "qualified trade or
business," each as defined in Section 1202 of the Internal Revenue Code of 1986,
as amended.
Section 2A. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
(a) Each Investor is either (i) a partnership or corporation
duly organized, validly existing and in good standing under the laws of its
respective jurisdiction, and is qualified to do business as a foreign
corporation in each jurisdiction in which the failure to be so qualified would
have a material adverse effect on its business, condition or results of
operations (each a "Corporate Investor"), (ii) a natural person whose individual
net worth, or joint net worth with such person's spouse, as of the date hereof
exceeds $1,000,000 or (iii) is a natural person who has a preexisting personal
or business relationship with one of the directors of the Company, or by reason
of his or her business or financial experience or the business or financial
experience of his or her professional advisors who are unaffiliated with and who
are not compensated by the Company or any selling agent of the Company, directly
or indirectly, could be reasonably assumed to have the capacity to protect his
or her own interests in connection with the transactions contemplated by this
Agreement (the natural persons in clause (ii) and clause (iii) being
collectively referred to herein as "Individual Investors"). Each Corporate
Investor has all required corporate or partnership power and authority to carry
on its business as presently conducted, to enter into and perform this Agreement
and the agreements contemplated hereby to which it is a party and to carry out
the transactions contemplated hereby and thereby. Each Individual Investor has
the capacity to enter into and perform this Agreement and the agreements
contemplated hereby to which it is a party and to carry out the transactions
contemplated hereby and thereby.
(b) This Agreement and all documents executed pursuant hereto to
which the Investors are parties are valid and binding obligations of each of the
Investors, enforceable in accordance with their terms, except as such
enforcement may be limited by (i) applicable bankruptcy, reorganization,
insolvency, moratorium or other laws affecting creditors' rights, generally,
(ii) equitable rules or principles affecting the convenience of obligations
generally, whether in law or in equity, or (iii) the exercise of the
discretionary powers of any court before
17
whom may be brought any proceeding seeking equitable remedies, including,
without limitation, specific performance and injunctive relief.
(c) Each Investor represents that it has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of the investment contemplated by this Agreement and making
an informed investment decision with respect thereto. Each Investor represents
that it is an "accredited investor" as such term is defined in Rule 501 under
the Securities Act (as hereinafter defined).
(d) Each Investor represents that it has had the opportunity to
ask questions and receive answers concerning the terms and conditions of the
offering of securities purchased hereunder, as well as the opportunity to obtain
additional information necessary to verify the accuracy of information furnished
in connection with such offering which the Company possesses or can acquire
without unreasonable effort or expense. Notwithstanding the foregoing, the
Investors have relied upon the representations and warranties of the Company set
forth in this Agreement, and this SECTION 2A shall not be interpreted to limit
that reliance.
(e) Each Investor represents that there are no claims for
investment banking fees, brokerage commissions, finder's fees or similar
compensation (exclusive of professional fees to lawyers and accountants) in
connection with the transactions contemplated by this Agreement based on any
agreement made by such Investor.
SECTION 3. CONDITIONS OF PURCHASE
Each Series C Investor's obligation to purchase and pay for the Series C
Shares shall be subject to compliance by the Company with its agreements herein
contained and to the fulfillment to the Series C Investor's satisfaction, or the
waiver by the Series C Investors, on or before the Closing Date or the
Additional Closing Date, as the case may be, of the following conditions:
3.1 SATISFACTION OF CONDITIONS.
The representations and warranties of the Company contained in this
Agreement shall be true and correct on and as of the Closing Date or the
Additional Closing Date, as the case may be; each of the conditions specified in
this SECTION 3 shall have been satisfied or waived in writing by the Series C
Investors; and, on the Closing Date or the Additional Closing Date, as the case
may be, certificates to such effect executed by the President and Chief
Executive Officer of the Company or by the Chairman of the Board of the Company
shall have been delivered to the Series C Investors.
18
3.2 OPINION OF COUNSEL.
The Investors shall have received from counsel for the Company, Shaw,
Pittman, Potts & Trowbridge, an opinion dated as of the Closing Date or the
Additional Closing Date, as the case may be, substantially in the form attached
hereto as EXHIBIT D.
3.3 AUTHORIZATION.
(a) With respect to the Initial Closing and the Additional
Closing, the Board of Directors of the Company and, to the extent required, the
stockholders of the Company, shall have duly adopted resolutions in the form
reasonably satisfactory to the Series C Investors, and shall have taken all
action necessary for the purpose of authorizing the Company to consummate the
transactions contemplated hereby in accordance with the terms hereof;
(b) With respect to the Initial Closing only, the Board of
Directors of the Company and, to the extent required, the stockholders of the
Company, shall have duly adopted resolutions in the form reasonably satisfactory
to the Series C Investors, and shall have taken all action necessary to cause
the Restated Charter to be filed and accepted with the Secretary of State of the
State of Delaware; and
(c) With respect to the Initial Closing and the Additional
Closing, the Series C Investors shall have received a certificate of the
Secretary of the Company setting forth a copy of the resolutions described in
clause (a) and clause (b) above and the Restated Charter and Restated Bylaws of
the Company.
3.4 MATERIAL ADVERSE CHANGE.
As of the Closing Date or the Additional Closing Date, as the case may be,
there shall not have occurred any event or Series of related events which,
individually or in the aggregate, have materially and adversely affected or
could reasonably be anticipated to materially and adversely affect the assets,
liabilities, properties, business or prospects of the Company.
3.5 ALL PROCEEDINGS SATISFACTORY.
All corporate and other proceedings taken prior to or at the Initial
Closing or the Additional Closing, as the case may be, in connection with the
transactions contemplated by this Agreement, and all documents and evidences
incident thereto, shall be reasonably satisfactory in form and substance to the
Series C Investors. The issuance and sale of the Series C Shares shall be made
in compliance with all applicable federal and state laws and evidence thereof
shall have been provided to the Series C Investors.
19
3.6 INVESTORS' FEES.
The Company shall have paid on behalf of the Series C Investors all legal
fees and related expenses incurred by the Series C Investors in connection with
the transactions contemplated by this Agreement including expenses related to
the Initial Closing and Additional Closing, up to a maximum aggregate amount of
$37,000, as described in Section 8.2(d).
3.7 NO VIOLATION OF INJUNCTION.
As of the Closing Date or the Additional Closing Date, as the case may be,
the consummation of the transactions contemplated by this Agreement shall not be
in violation of any law or regulation, and shall not be subject to any
injunction, stay or restraining order.
3.8 CONSENTS AND WAIVERS.
As of the Closing Date or the Additional Closing Date, as the case may be,
the Company shall have obtained all consents or waivers necessary to execute
this Agreement and the other agreements and documents contemplated herein, to
issue the Securities, and to carry out the transactions contemplated hereby and
thereby. As of the Closing Date or the Additional Closing Date, as the case may
be, all corporate and other action and governmental filings necessary to
effectuate the terms of this Agreement and other agreements and instruments
executed and delivered by the Company in connection herewith and to issue the
Securities shall have been made or taken.
3.9 ELECTION OF DIRECTORS.
With respect to the Initial Closing only, the Company and the Founder shall
have caused the election Steve Reinstadtler as the Series C Investor Director as
set forth in SECTION 4.4 hereof.
SECTION 4. COVENANTS
20
The Company and, with respect to SECTION 4.4 below, the Investors and the
Founder, shall comply with the following covenants so long as any of the
Preferred Shares remain outstanding and until the closing date of the Company's
first Qualified Public Offering (as defined below), except as otherwise provided
herein. A "Qualified Public Offering" shall mean the first firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended (the "Securities Act" ), covering
the offer and sale of Common Stock to the public (i) in which the proceeds
received by the Company, net of underwriting discounts and commissions, equal or
exceed $20,000,000; (ii) immediately prior to the consummation of which the
Company is valued (based on the per-share price paid in such public offering,
but without regard to any proceeds to be received by the Company in connection
with such public offering) at greater than $50,000,000; and (iii) in which the
Company uses a nationally recognized underwriter acceptable to the Board of
Directors, including a majority of the Investor Directors (as defined below).
4.1 FINANCIAL STATEMENTS AND BUDGETARY INFORMATION.
The Company will deliver to the Investors internally prepared unaudited
bi-monthly and quarterly financial statements and audited annual financial
statements, as well as annual budgetary information. The Company shall also
provide the Investors with monthly marketing reports, which shall specify sales
contacts made during the previous month, the status of executed contracts and
contracts under review, along with sales prospects going forward. The
bi-monthly and monthly financial information and the quarterly marketing reports
will be provided to the Investors within 30 days after the end of each month and
quarter, respectively. Annual financial statements audited by a Big Six
accounting firm, with offices located in Washington, D.C., selected by the Board
of Directors, with the approval of Investors holding a majority of the
outstanding Preferred Shares, will be provided to the Investors within 90 days
after each fiscal year-end of the Company. The quarterly and annual financial
statements delivered to Investors shall be accompanied by a certificate that the
Company and the Founder are not in breach of this Agreement or the Restated
Charter or, if there is such a breach, describing such breach in reasonable
detail, which shall be signed by the Company's Chairman of the Board or Chief
Executive Officer and, with respect to the annual statements, the Company's
accountants.
The annual budgetary information for each upcoming fiscal year will be
presented at a Board of Directors' meeting at least 60 days prior to each fiscal
year-end of the Company and will be subject to approval by the Board of
Directors, including the approval, voting together, of a majority of the
Series A Investor Directors (as hereinafter defined) and the Series B Investor
Director (as hereinafter defined) and the Series C Investor Director (as
hereinafter defined) (the Series A Investor Directors, the Series B Investor
Director and the Series C Investor Director being collectively hereinafter
called, the "Investor Directors"). Such budgetary information shall include a
budget for the upcoming fiscal year and the succeeding two years describing in
detail, at a minimum, assumptions with respect to revenues, key operating
expenses and capital expenditures and financings. Any material deviations from
the budget for any fiscal year will be
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subject to prior approval by the Board of Directors, including the approval of a
majority of the Investor Directors. The Board of Directors by a majority vote,
including the affirmative vote of a majority of the Investor Directors, shall be
responsible for approving the Company's operating budget proceeds from the sale
of the Series C Shares, and, until such approval is obtained, none of the
proceeds from the sale may be disbursed, except for the payment of transaction
costs associated with the negotiation and consummation of the transactions
contemplated by this Agreement.
The Company's principal office in Washington, D.C. may only be relocated
outside the Washington, D.C. area with the approval of the Founder and Investors
holding a majority of the then outstanding Preferred Shares.
4.2 INDEMNIFICATION AND INSURANCE.
For so long as any of the Preferred Shares remain outstanding, the Restated
Charter or Restated Bylaws of the Company will at all times during which any
nominee of any of the Investors serves as director of the Company, provide for
indemnification of the directors and limitations on the liability of the
directors to the fullest extent permitted under applicable state law. Upon the
reasonable request of any of the Investor Directors, the Company will use its
best efforts to obtain and maintain on reasonable business terms directors and
officers' liability insurance coverage of at least $1,000,000 per occurrence,
including knowing violations under federal and state securities laws.
4.3 RESTRICTIONS ON OTHER AGREEMENTS.
The Company will not enter into any agreement with any party which
eliminates, amends or restricts the rights and preferences of the Preferred
Shares as set forth in the Restated Charter or otherwise take any other action
that affects adversely the rights of holders of Preferred Shares.
4.4 BOARD OF DIRECTORS.
(a) SIZE OF BOARD OF DIRECTORS. The Company, the Investors and
the Founder shall fix the number of members of the Board of Directors at seven
(7) directors.
(b) COMPOSITION OF BOARD OF DIRECTORS.
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(i) INVESTOR DIRECTORS. The holders of the Series A
Preferred Stock shall be entitled to vote as a class separately from all other
classes of stock of the Company in any vote for the election of directors of the
Company, and shall be entitled to elect by such class vote two directors (the
"Series A Investor Directors"), one of which Series A Investor Directors to be
designated by Spectrum Equity Investors, L.P. ("Spectrum") for so long as it
owns shares of Series A Preferred Stock and thereafter by the holders of a
majority of the issued and outstanding shares of Series A Preferred Stock, and
the other to be designated by New Enterprise Associates VI, Limited Partnership
or its affiliates (collectively, "NEA VI") for so long as it owns shares of
Series A Preferred Stock and thereafter by the holders of a majority of the
issued and outstanding shares of Series A Preferred Stock. The holders of the
Series B Preferred Stock shall be entitled to vote as a class separately from
all other classes of stock of the Company in any vote for the election of
directors of the Company, and shall be entitled to elect by such class vote one
director (the "Series B Investor Director") to be designated by Grotech Capital
Group IV, LLC ("Grotech IV") for so long as it owns shares of Series B Preferred
Stock and thereafter by the holders of a majority of the issued and outstanding
shares of Series B Preferred Stock. The holders of the Series C Preferred Stock
shall be entitled to vote as a class separately from all other classes of stock
of the Company in any vote for the election of directors of the Company, and
shall be entitled to elect by such class vote one director (the "Series C
Investor Director") to be designated by the holders of a majority of the issued
and outstanding shares of Series C Preferred Stock; provided, however, that if
the holders of a majority of the issued and outstanding shares of Series C
Preferred Stock designate for election as the Series C Investor Director an
individual who is not a partner or associate of a Series C Investor or an entity
under substantially the same management as a Series C Investor, such designee
shall be elected as a director only with the vote of a majority of the Common
Stock Directors and Investor Directors, voting together. Initially, the Series
C Investor Director shall be designated by TD (U.S.A.). In no event shall the
Series C Investor Director be (i) a partner or associate of Spectrum or an
entity under substantially the same management as Spectrum for so long as
Spectrum has designation rights under this SECTION 4.4(B)(I), (ii) a partner or
associate of NEA VI or an entity under substantially the same management as NEA
VI for so long as NEA VI has designation rights under this SECTION 4.4(B)(I), or
(iii) a partner or associate of Grotech IV or an entity under substantially the
same management as Grotech IV for so long as Grotech IV has designation rights
under this SECTION 4.4(B)(I).
(ii) COMMON STOCK DIRECTORS. The holders of Common Stock
shall be entitled to vote as a class separately from all other classes in any
vote for the election of directors of the Company, and shall be entitled to
elect by such class vote two directors (the "Common Stock Directors").
(iii) APPOINTMENT OF CHIEF EXECUTIVE OFFICER/OFFICER
DIRECTOR. Upon the termination or resignation of the Chief Executive Officer of
the Company, the Company will select and hire a successor Chief Executive
Officer (and any successor thereto) by the affirmative vote of a majority of the
Common Stock Directors, the Series A Investor Directors, the Series B Investor
Director and the Series C Investor Director, voting together. The Chief
Executive
23
Officer (and any replacement or successor Chief Executive Officer) as so
selected and hired shall be elected to the Company's Board of Directors by the
holders of the Preferred Shares and the Common Stock voting together as a single
class (the "Officer Director"). David Schaeffer may serve as Chief Executive
Officer of the Company in the discretion of the Board of Directors, but in no
event shall David Schaeffer be elected as the Officer Director.
(c) REMOVAL OF DIRECTORS. The removal of any director of the
Company shall be as set forth in the Bylaws of the Company.
(d) MEETING OF BOARD OF DIRECTORS. The Company shall cause
meeting of the Board of Directors to be held at least six times in the first
twelve months immediately following the Initial Closing and four times each year
thereafter at intervals of not more than three months.
(e) FEES AND EXPENSES OF DIRECTORS. If, at any time, any
Directors are paid fees or reimbursed for expenses incurred in connection with
attending meetings or other functions of the Board of Directors or any
committees thereof, the Investor Directors shall receive the same fees and be
reimbursed for any and all such expenses.
(f) Each of the Company, the Founder and the Investors will take
such action (including the voting of their respective shares of the capital
stock of the Company) as may be necessary or appropriate to cause each of the
Investor Directors to be nominated, elected and continued as a director of the
Company and not to be removed for any reason other than in connection with the
designation and election of a successor Series A Investor Director by the
Series A Investors, a successor Series B Investor Director by the Series B
Investors, or a successor Series C Investor Director by the Series C Investors,
as applicable. The Founder agrees to vote his shares of Common Stock (and any
other shares over which he exercises voting control) for the removal of an
Investor Director, if requested by the person or persons entitled to designate
such Investor Director, and for the election to the Board of Directors of a
substitute designated by the person or persons entitled to designate such
replacement director under this SECTION 4.4, if requested by the person or
persons entitled to designate such replacement director. Similarly, the
Investors agree to vote their Securities for the removal of a Common Stock
Director, upon request by the Founder, and an Investor Director, if requested by
the person or persons entitled to designate such Investor Director, and for the
election to the Board of Directors of a substitute designated by the person or
persons entitled hereunder to designate such replacement director, if requested
by the person or persons entitled to designate such replacement director.
(g) NOTICE AND VISITATION RIGHTS OF CERTAIN INVESTORS. In
addition to the rights set forth in this SECTION 4 and in the Restated Charter,
two other individuals affiliated with or designated by the Series A Investors,
one other individual affiliated with or designated by each of Grotech IV (or
such other Investor as specified above) and TD (U.S.A.), and each Investor not
represented on the Board of Directors (for so long as such Investor owns
Preferred Shares) shall have notice and visitation rights with respect to all
meetings of the Board of Directors. Two
24
individuals designated by the Founder shall likewise have notice and visitation
rights with respect to all meetings of the Board of Directors.
4.5 STOCK OPTIONS.
Except as set forth on SCHEDULE 4.5, the Company will not issue stock,
grant stock options, warrants, or other rights to purchase stock in the Company,
except pursuant to and in accordance with the terms of the 1995 Plan and the
1997 Plan as in effect on the Closing Date. The Company shall not grant options
to purchase more than 950,310 shares of Common Stock shares of Common Stock
under the 1995 Plan and 1997 Plan (including options for 173,170 shares of
Common Stock which are issued and outstanding and as adjusted for stock splits
stock dividends, reclassification and similar events) and, except as set forth
on SCHEDULE 4.5, shall not grant options under the 1995 Plan or the 1997 Plan to
the Founder. Pursuant to the terms of the 1995 Plan and the 1997 Plan,
qualified incentive stock options and nonqualified options (issued at not less
than 85% of fair market value) may be granted to employees and officers of the
Company pursuant to and in accordance with the terms of this Agreement and the
terms of the 1995 Plan and the 1997 Plan as in effect on the Closing Date and
the exercise of any options shall be conditioned on the optionee making
satisfactory provisions for the payment of any withholding taxes due on such
exercise, and in the case of options issued pursuant to the 1995 Plan agreeing
to be bound by the provisions of SECTION 4.4 and SECTION 5 hereof and in the
case of options issued pursuant to the 1997 Plan agreeing to be bound by the
terms and conditions of the 1997 Plan and the Option Agreement executed in
connection with the award of such options. Neither the 1995 Plan nor the 1997
Plan may be amended, revised or waived after the Closing Date without the
consent of a majority of the Investor Directors. Other than options set forth
on SCHEDULE 2.3, all options granted under the 1995 Plan or the 1997 Plan shall
be subject to vesting in equal installments over at least a four-year period
after the date of the grant. Notwithstanding anything set forth herein to the
contrary, management may change the composition and compensation and
remuneration of existing management, consultants and employees of the Company
and may hire new management, consultants and employees of the Company, provided
the compensation and remuneration of such new and existing management,
consultants and employees (including any capital stock of the company or its
subsidiaries issued to such new existing management, consultants or employees
and any vesting schedules relating to the grant of any such capital stock) is
within the ranges set forth in the Management Compensation and Hiring Proposal
approved by the Compensation Committee and approved by the holders of a majority
in interest of the Securities. Pursuant to the terms of the 1995 Plan and the
1997 Plan all awards under such plans must be administered by a "Committee."
Any such "Committee" administering the 1995 Plan or the 1997 Plan, as the case
may be, shall contain at least one member designated by the holders of a
majority of the Series A Shares then outstanding.
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4.6 CONDUCT OF BUSINESS.
The Company will continue to engage principally in the business now
conducted by the Company or a business or businesses similar thereto or
reasonably compatible therewith. The Company will keep in full force and effect
its corporate existence and all intellectual property rights useful in its
business and shall use its best efforts to cause each existing employee, and
shall cause (i) each new employee, to execute a Non-Disclosure Agreement in the
form attached hereto as EXHIBIT C-1 or in such other form approved by the Board
of Directors, (ii) each new engineer to execute a Non-Disclosure and Assignment
of Inventions Agreement in the form attached hereto as EXHIBIT C-2 or in such
other form approved by the Board of Directors and (iii) each new Key Management
Employee to execute a Non-Disclosure, Assignment of Inventions and
Non-Competition Agreement in the form attached hereto as EXHIBIT C-3 or in such
other form approved by the Board of Directors. The Company will maintain all
properties used or useful in the conduct of its business in good repair, working
order and condition, ordinary wear and tear excepted, as necessary to permit
such business to be properly and advantageously conducted.
4.7 PAYMENT OF TAXES, COMPLIANCE WITH LAWS, ETC.
The Company will pay and discharge all lawful taxes, assessments and
governmental charges or levies imposed upon it or upon its income or property
before the same shall become in default, as well as all lawful claims for labor,
materials and supplies which, if not paid when due, might become a lien or
charge upon its property or any part thereof; PROVIDED, HOWEVER, that the
Company shall not be required to pay and discharge any such tax, assessment,
charge, levy or claim so long as the validity thereof is being contested by the
Company in good faith by appropriate proceedings and an adequate reserve
therefor has been established on its books. The Company will comply with all
applicable laws and regulations in the conduct of its business, including,
without limitation, all applicable federal and state securities laws in
connection with the issuance of any securities.
4.8 MATERIAL ADVERSE CHANGES.
The Company will continuously monitor and promptly advise the Investors of
any event which represents a material adverse change in the condition or
business, financial or otherwise, of the Company, and of each suit or proceeding
commenced or threatened against the Company which, if adversely determined, in
the reasonable judgment of the Company, could have a material adverse effect on
the Company or its financial condition, business or prospects. The Company will
also continuously monitor and promptly notify the Investors of any facts which,
if such facts had existed at the Initial Closing or the Additional Closing, as
the case may be, would have constituted a breach of the representations and
warranties contained herein.
26
4.9 MANAGEMENT AND COMPENSATION.
The Board of Directors shall establish a Compensation Committee, consisting
of one Series A Investor Director, one other Investor Director, and one Common
Stock Director (other than the Founder), and delegate all authority regarding
the employment and compensation of all officers and employees of the Company to
such committee. In addition, compensation paid by the Company to its Key
Management Employees will be comparable to compensation paid to management in
companies in the same or similar businesses of similar size and maturity and
with comparable financial performance and shall be initially as set forth on
SCHEDULE 4.9 hereto. In furtherance of the foregoing, the Company hereby agrees
that there shall be no change in the composition of the management of the
Company and, except as presently set forth in SCHEDULE 4.9 hereto, no
compensation or other remuneration at an annualized rate in excess of $50,000
shall be paid to, nor shall any capital stock of the Company be issued to, or
options to purchase any of its capital stock granted to any director, officer or
employee of, or any consultant to, the Company or any of its subsidiaries,
without the approval of the holders of a majority in interest of the Securities,
voting as a single class. Notwithstanding anything set forth herein to the
contrary, management may change the composition and compensation and
remuneration of existing management, consultants and employees of the Company
and may hire new management, consultants and employees of the Company, provided
the compensation and remuneration of such new and existing management,
consultants and employees (including any capital stock of the company or its
subsidiaries issued to such new existing management, consultants or employees
and any vesting schedules relating to the grant of any such capital stock) is
within the ranges set forth in the Management Compensation and Hiring Proposal
approved by the Compensation Committee and approved by the holders of a majority
in interest of the Securities.
4.10 INSPECTION.
The Company will, upon reasonable prior notice to the Company and so long
as it is not unduly disruptive to the Company's business, permit authorized
representatives of the Investors to visit and inspect any of the properties of
the Company, including its books of account (and to make copies thereof and take
extracts therefrom), and to discuss its affairs, finances and accounts with its
officers, administrative employees and independent accountants, all at such
reasonable times and as often as may be reasonably requested.
27
4.11 SMALL BUSINESS CONCERN DOCUMENTS.
The Company shall have executed and delivered to TD (U.S.A.) and to each
other Investor who requests them and an Assurance of Compliance on SBA Form 652
(Parts A and B) and shall have provided to TD (U.S.A.) and to each other
Investor who so requests, information necessary for the preparation of a
Portfolio Financing Report on SBA Form 1031. The Company agrees that TD (U.S.A.)
and any SBA examiner shall have the rights of access and information specified
in Section 620 of Title 13 of the Code of Federal Regulations (1996) (and any
successor provision).
4.12 QUALIFIED SMALL BUSINESS STOCK. The Company shall submit to its
stockholders (including the Investors) and to the Internal Revenue Service any
reports that may be required under Section 1202(d)(1)(C) of the Code and any
related Treasury Regulations. In addition, within ten (10) days after any
Investor has delivered to the Company a written request therefor, the Company
shall deliver to such Investor a written statement informing the Investor
whether the Company is an "active business" and engages in a "qualified trade or
business" as defined in Section 1202 of the Code. The Company's obligation to
furnish a written statement pursuant to this Section 4.12 shall continue
notwithstanding the fact that a class of the Company's stock may be traded on an
established securities market.
SECTION 4A. NEGATIVE COVENANTS OF THE COMPANY
So long as (i) any Preferred Shares are outstanding, the Company shall
comply with the following covenants, except as the holders of a majority of the
Securities, voting together as a single class may otherwise consent in writing,
(ii) any Series A Shares are outstanding, the Company shall comply with the
following covenants, except as the holders of a majority of the Series A Shares,
voting together as a single class may otherwise consent in writing, (iii) any
Series B Shares are outstanding, the Company shall comply with the following
covenants, except as the holders of a majority of the Series B Shares, voting
together as a single class may otherwise consent in writing, and (iv) any Series
C Shares are outstanding, the Company shall comply with the following covenants,
except as the holders of a majority of the Series C Shares, voting together as a
single class may otherwise consent in writing.
4A.1 MERGERS, DISPOSITIONS, ACQUISITIONS AND OTHER ACTIONS.
28
The Company will not: (a) sell, lease or otherwise dispose of (whether in
one transaction or a series of related transactions) all or substantially all of
its assets, (b) merge with or into or consolidate with another entity, (c)
acquire any other corporation or business concern, whether by acquisition of
assets, capital stock or otherwise, and whether in consideration of the payment
of cash, the issuance of capital stock or otherwise or make any loans to or
investments in any other entities or persons (other than cash equivalent), (d)
voluntarily liquidate or wind up its operations, (e) issue any shares of its
capital stock which are senior to or on a parity with the Preferred Shares with
respect to dividends, liquidation, redemptions or otherwise, or with any special
voting rights, issue any shares of its capital stock which are senior to or on a
parity with the Preferred Shares or (f) issue any indebtedness (other than trade
payables and accrued taxes issued in the ordinary course of business).
4A.2 NO AMENDMENTS TO CHARTER OR BYLAWS.
The Company will not make any amendment to its Restated Charter or Restated
Bylaws.
4A.3 RESTRICTIONS ON OTHER AGREEMENTS.
The Company will not enter into any agreement with any party which by its
terms (a) restricts the payments due the holders of Preferred Shares or (b)
grants any right relating to the registration of its Common Stock superior to or
on a parity with the rights granted to the Investors pursuant to SECTION 7
hereof.
4A.4 NO CHANGE IN ACCOUNTING POLICIES.
The Company will not change its present method of accounting or introduce
any new method of accounting which differs in any substantive respect from the
accounting as reflected in the financial statements delivered to the Investors
hereunder.
4A.5 AFFILIATED TRANSACTIONS.
The Company shall not enter into or amend any transactions, agreements or
arrangements with, or make any payments to, the Founder, any director, officer
or key employee of the Company or any persons or entities who are relatives of,
controlled by or otherwise affiliated with any of the foregoing persons or
entities (an "Affiliate").
4A.6 ISSUANCES OF, DISTRIBUTIONS ON, AND REDEMPTIONS OF, CAPITAL STOCK.
29
Except as otherwise expressly provided in this Agreement and in the
Restated Charter, the Company will not authorize or issue, or obligate itself to
issue, any additional shares of capital stock of the Company of any class,
declare or pay any dividends or make any distributions of cash, property or
securities of the Company with respect to any shares of its Common Stock or any
other class of its capital stock, or directly or indirectly redeem, purchase, or
otherwise acquire for consideration any shares of its Common Stock or any other
class of its capital stock; PROVIDED, HOWEVER, that this restriction shall not
apply to (i) the repurchase of shares of the Common Stock from individuals and
entities who have entered into stockholder agreements under which the Company
has the option to repurchase such shares upon the occurrence of certain events,
including the termination of employment and involuntary transfers by operation
of law (and their permitted transferees), provided that the aggregate amount of
repurchases thereunder shall not exceed $50,000 plus the cash proceeds from the
issuance of any stock to employees of the Company other than pursuant to the
1995 Plan or the 1997 Plan and (ii) transactions contemplated by the Employment
Agreement. Any redemption, repurchase or other acquisition by the Company of
any shares of its capital stock shall be made in compliance with all laws,
including but not limited to federal and state securities laws.
4A.7 RESTRICTIONS ON OUTSIDE BUSINESSES.
Neither the Founder nor any Key Management Employee may pursue, engage in
or have an interest in other business ventures or opportunities which arise out
of, are similar to or competitive with the business of the Company, whether or
not such business venture is contemplated by the Company's business plan. In
addition, the Founder and any Key Management Employee shall be obligated to
present any telecommunications business or investment opportunity arising out of
the Company's operations to the Company, and the Company shall have the
exclusive right to pursue such business or investment opportunity. To the
extent that it has not already done so, the Company shall enter into
Non-Disclosure, Assignment of Inventions and Non-Competition Agreements with the
Founder and each of its current Key Management Employees in the form attached
hereto as EXHIBIT C-2 or in such other form approved by the Board of Directors
in an effort to seek compliance with the foregoing covenant. The Company shall
also use its best efforts to obtain such agreements with its future officers and
Key Management Employees.
30
SECTION 5. TRANSFER BY FOUNDER; RIGHTS TO PURCHASE
The following provisions of this SECTION 5 shall terminate concurrently
with the closing of a Qualified Public Offering.
5.1 GENERAL RESTRICTIONS ON TRANSFER BY THE FOUNDER.
(a The Founder agrees that he will not directly or indirectly
offer, transfer donate, sell, assign, pledge, hypothecate or otherwise dispose
of (any such action a "Transfer"), all or any portion of the shares of capital
stock of the Company now owned or hereafter acquired by him, except in
connection with, and strictly in compliance with the conditions of, any of the
following (hereinafter "Permitted Transfers"):
(i) Transfers effected pursuant to SECTION 5.2,
SECTION 5.3 and SECTION 5.4 hereof, in each case made in accordance with
the procedures set forth therein;
(ii) Transfers by the Founder to his spouse or children or
to a trust of which he is the settlor or a trustee for the benefit of his
spouse or children, PROVIDED that such trust does not require or permit
distribution of such shares during the term of this Agreement, and PROVIDED
FURTHER that the transferee shall have entered into an enforceable written
agreement satisfactory to the Company and the Investors, providing that all
shares so Transferred shall continue to be subject to all provisions of
this Agreement as if such shares were still held by the Founder; and
(iii) Transfers upon the Founder's death to his heirs,
executors or administrators or to a trust under his will or Transfers
between the Founder and his guardian or conservator, PROVIDED that the
transferee shall have entered into an enforceable written agreement
satisfactory to the Company and the Investors, providing that all shares so
Transferred shall continue to be subject to all provisions of this
Agreement as if such shares were still held by the Founder.
(b Anything to the contrary in this Agreement notwithstanding,
transferees of the Founder permitted by clauses (ii) and (iii) of SECTION 5.1(A)
shall take any shares so Transferred subject to all provisions of this Agreement
as if such shares were still held by the Founder, whether or not they so agree
with the Founder.
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5.2 RIGHT OF REFUSAL.
If at any time on or after the Closing Date, the Founder (including for all
purposes of this SECTION 5.2, any permitted transferee of his shares pursuant to
SECTION 5.1(A)(II) or SECTION 5.1(A)(III) receives a bona fide offer to purchase
any or all of his shares (the "Offer") from an unaffiliated third party (the
"Offeror") which the Founder wishes to accept (whether initiated by the Founder
or the third party), the Founder may transfer such shares pursuant to and in
accordance with the following provisions of this SECTION 5.2:
(a The Founder shall cause the Offer to be reduced to writing
and shall notify the Investors in writing of his desire to accept the Offer and
otherwise comply with the provisions of this SECTION 5.2, SECTION 5.3 and
SECTION 5.4. The Founder's notice shall constitute an irrevocable offer to sell
such shares to the Investors at a purchase price equal to the price contained
in, and on the same terms and conditions of, the Offer. The notice shall be
accompanied by a true copy of the Offer (which shall identify the Offeror).
(b At any time within 45 days after the date of the giving of
notice pursuant to SECTION 5.2(A) (the "Notice Period"), one or more of the
Investors may, subject to the terms hereof, choose to accept the Offer with
respect to all or a portion of the shares covered thereby by giving written
notice to the Founder to such effect; provided that if two or more Investors
choose, in the aggregate, to accept such Offer with respect to an aggregate
number of shares which exceeds the number of shares subject to such Offer and
available for purchase by the Investors, the number of shares for which the
Offer may be accepted by each such Investor shall, in each case, be reduced by
the smallest number of shares as shall be necessary to reduce the aggregate
number of shares for which the Offer may be accepted by the Investors as
contemplated herein to the number of shares for which the Offer was made and
which are available for purchase by them; PROVIDED, FURTHER, that the number of
shares for which any Investor may accept such Offer as contemplated herein shall
in no event be reduced to less than the number of shares which bears the same
proportion to the total number of shares for which the Offer was made and which
are available for purchase by the Investors as the number of Securities then
held by such Investor bears to the total number of Securities then held by all
Investors accepting such Offer; and PROVIDED FURTHER, that the Investors who
elect to purchase shares may purchase any shares which other Investors do not
elect to purchase based on the relative holdings of such electing Investors.
(c If shares covered by any Offer are purchased pursuant to
SECTION 5.2(B), such purchase shall be (i) at the same price and on the same
terms and conditions as the Offer if the Offer is for cash and/or notes or (ii)
if the Offer includes any consideration other than cash and notes, then at the
equivalent all cash price for such other consideration. The closing of the
purchase of the shares subject to an Offer pursuant to this SECTION 5.2 shall
take place within 15 days after the expiration of the Notice Period, or upon
satisfaction of any governmental approval requirements, if later, by delivery by
the respective Investors of the purchase price for the shares
32
being purchased as provided above to the Founder against delivery of the
certificates representing the shares so purchased, appropriately endorsed for
transfer by the Founder.
5.3 RIGHT OF CO-SALE.
33
In the event the Founder proposes to sell any shares, including following
the receipt of an Offer wherein any of the shares subject thereto are not
purchased pursuant to SECTION 5.2, the Founder may transfer the shares subject
thereto only following compliance with this SECTION 5.3 and SECTION 5.4 below.
In such event, immediately following the last day of the Notice Period, the
Founder shall give an additional notice of the proposed sale to the Investors,
once again enclosing a copy of the Offer, if applicable, which shall identify
the Offeror and the number of shares proposed to be sold (the "Co-Sale Notice").
Each of the Investors thereupon shall have the right, and exercisable upon
written notice to the Founder within 20 days after delivery to it of the Co-Sale
Notice (the "Co-Sale Notice Period"), to participate in the sale on the terms
and conditions stated in the Offer and in the Co-Sale Notice, except that
Investors may elect to sell Securities, as applicable, as then held by them on
an as converted basis. Each of the Investors shall have the right to sell all
or any portion of its Securities on the terms and conditions in the Co-Sale
Notice, with the maximum number of Securities equal to the product obtained by
multiplying the number of shares to be sold by the Founder as described in the
Co-Sale Notice by a fraction, the numerator of which is the number of Securities
owned by such Investor on the date of the Co-Sale Notice, as the case may be,
and the denominator of which is the sum of the number of shares of the Common
Stock owned by the Founder and the number of Securities owned by all of the
Investors, as of the date of the Co-Sale Notice, calculated on a fully diluted
basis. To the extent one or more Investors elect not to sell the full amount of
its Securities of any class which they are entitled to sell pursuant to this
SECTION 5.3, the other participating Investors' rights to sell shares shall be
increased proportionately to their relative holdings of Securities, such that
the Investors shall have the right to sell the full number of Securities
allocable to them in any transaction subject to this SECTION 5.3 even if some
Investors elect not to participate. Within five days after the expiration of
the Co-Sale Notice Period, the Founder shall notify each participating Investor
of the number of shares held by the Investor that will be included in the sale
and the date on which the sale will be consummated, which shall be no later than
the later of (i) 30 days after the delivery of the Co-Sale Notice by the Founder
and (ii) the satisfaction of all governmental approval requirements, if any.
Each of the Investors may effect its participation in any Offer hereunder by
delivery to the Offeror, or to the Founder for transfer to the Offeror, of one
or more instruments, certificates and/or option agreements, properly endorsed
for transfer, representing the shares it elects to sell therein. At the time of
consummation of the Offer, the Offeror shall remit directly to each Investor
that portion of the sale proceeds to which each Investor is entitled by reason
of its participation therein. All costs and expenses in connection with any
sales pursuant to this SECTION 5.3 shall be paid for by the sellers of shares on
a pro rata basis (based on participation rather than holdings) or otherwise as
they may have agreed; PROVIDED, HOWEVER, that all costs and expenses in
connection with any sale pursuant to this SECTION 5.3 that relate specifically
or incrementally to participation therein by an Investor (including the fees and
expenses of counsel to such selling Investor, if any) shall be paid for by such
Investor. No shares may be purchased by the Offeror from the Founder unless the
Offeror simultaneously purchases from the Investors all of the shares that they
have elected to sell pursuant to this SECTION 5.3.
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5.4 SALES BY THE FOUNDER.
Any shares covered by an Offer which are not acquired pursuant to
SECTION 5.2 that the Founder desires to sell following compliance with
SECTION 5.2 and SECTION 5.3 may be sold to the Offeror only during the 90-day
period after the expiration of the Co-Sale Notice Period and only on terms no
more favorable to the Founder than those contained in the Offer. Promptly after
such sale, the Founder shall notify the Investors of the consummation thereof
and shall furnish such evidence of the completion and time of completion of such
sale and of the terms thereof as may reasonably be requested by the Investors.
So long as the Offeror is neither a party, nor an affiliate or relative of a
party to this Agreement, such Offeror shall take the shares so Transferred free
and clear of the provisions of this Agreement, other than SECTION 4.4 hereof.
If, at the end of such 90-day period, the Founder has not completed the sale of
such shares as aforesaid, all the restrictions on Transfer contained in this
Agreement shall again be in effect with respect to such shares.
5.5 ASSIGNMENT/MISCELLANEOUS.
Each Investor shall have the right to assign its rights under this
SECTION 5 to any transferee of all or any portion of its Securities, or to any
fund managed by or associated with such Investor, who thereupon shall be deemed
an Investor hereunder. Any transferee of shares of the Founder (other than a
transferee in accordance with SECTION 5.4 except as provided therein) shall be
bound by and subject to the restrictions and agreements set forth in this
SECTION 5 for the benefit of the Investors and all certificates representing
shares held by the Founder shall bear a legend to such effect. Any transfers of
shares of Common Stock or Securities by or to the Investors or the Founder under
this SECTION 5 shall comply with all applicable requirements of the Federal
Communications Commission (the "FCC") and federal telecommunications law,
including any relevant limitations on foreign ownership of FCC licenses.
SECTION 6. RIGHTS TO PURCHASE
Notwithstanding anything herein to the contrary, the following provisions
of this SECTION 6 shall terminate immediately prior to the closing of a
Qualified Public Offering.
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6.1 RIGHT TO PARTICIPATE IN CERTAIN SALES OF ADDITIONAL SECURITIES.
The Company agrees that it will not sell or issue any shares of capital
stock of the Company, or other securities convertible into or exchangeable for
capital stock of the Company, or options, warrants or rights carrying any rights
to purchase capital stock of the Company unless the Company first submits a
written offer to the Founder and the Investors identifying the terms of the
proposed sale (including cash price, number or aggregate principal amount of
securities and all other material terms), and offers to the Founder and each
Investor the opportunity to purchase its Pro Rata Share (as hereinafter defined)
of the securities (subject to increase for over-allotment if the Founder or some
Investors do not fully exercise their rights) on terms and conditions, including
price, not less favorable to the Founder and the Investors than those on which
the Company proposes to sell such securities to a third party. The Founder's
and each Investor's "Pro Rata Share" of such securities shall be based on the
ratio which all of the shares of capital stock of the Company owned by such
party bears to all the issued and outstanding shares of capital stock of the
Company owned by the Founder and the Investors, and Common Stock equivalents of
the Company, calculated, in each case, on a fully-diluted basis. The Company's
offer to the Founder and the Investors shall remain open and irrevocable for a
period of 30 days, and those parties who elect to purchase ("Electing
Purchasers") shall have the first right to take up and purchase any shares which
other parties do not elect to purchase, based on the relative holdings of the
Electing Purchasers. Any securities so offered which are not purchased pursuant
to such offer may be sold by the Company but only on the terms and conditions
set forth in the initial offer to the Founder and Investors, at any time within
120 days following the termination of the above-referenced 30-day period but may
not be sold to any other person or on terms and conditions, including price,
that are more favorable to the purchaser than those set forth in such offer or
after such 120-day period without renewed compliance with this SECTION 6.1.
Notwithstanding the foregoing, the Company may (i) issue options to
purchase 148,418 shares of Common Stock to the Founder, which options shall have
terms and conditions which are approved by a majority of the Investor Directors,
(ii) issue, or issue options, warrants or rights to subscribe for, up to an
aggregate of 801,892 shares of its Common Stock (as appropriately adjusted for
stock splits, stock dividend and the like) to officers, employees and directors
of the Company other than the Founder pursuant to the terms of the 1995 Plan and
the 1997 Plan and SECTION 4.5 hereof and may issue shares of its Common Stock
upon the exercise of any such stock options, or upon exercise of warrants
outstanding as of the Closing, (iii) issue Series C Preferred Stock at the
Additional Closing, (iv) issue Series A Conversion Shares, Series B Conversion
Shares and Series C Conversion Shares upon the conversion of the Preferred
Shares, (as appropriately adjusted for stock splits, stock dividend and the
like); and (v) issue shares of its Common Stock in connection with the
acquisition of another Company.
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The Series A Investors and Series B Investors acknowledge that, with
respect to the issuance of the Series C Preferred Stock, they have either
exercised (and are purchasing shares of Series C Preferred Stock hereunder) or
waived any preemptive rights granted to them under the Series A Agreement and
Series B Agreement.
6.2 ASSIGNMENT OF RIGHTS.
Each Investor may assign its rights under this SECTION 6 to either any
transferee of its shares or any fund affiliated or associated with such
Investor, thereupon shall be deemed an Investor hereunder.
SECTION 7. REGISTRATION RIGHTS
7.1 OPTIONAL REGISTRATIONS.
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If at any time or times after the date hereof, the Company shall seek to
register any shares of its capital stock or securities convertible into capital
stock under the Securities Act (whether in connection with a public offering of
securities by the Company (a "primary offering"), a public offering of
securities by Founders of the Company (a "secondary offering"), or both), the
Company will promptly give written notice thereof to each Investor holding
Registrable Securities (as hereinafter defined in SECTION 7.4 below) then
outstanding (the "Holders"). If within 30 days after their receipt of such
notice one or more Investors request the inclusion of some or all of the
Registrable Securities owned by them in such registration, the Company will use
its best efforts to effect the registration under the Securities Act of all
Registrable Securities which such Investors may request in a writing delivered
to the Company within 30 days after the notice given by the Company. In the
case of the registration of shares of capital stock by the Company in connection
with any underwritten public offering, if the underwriter(s) determines that
marketing factors require a limitation on the number of Registrable Securities
to be offered, the Company shall not be required to register Registrable
Securities of the Investors in excess of the amount, if any, of shares of the
capital stock which the principal underwriter of such underwritten offering
shall reasonably and in good faith agree to include in such offering in excess
of any amount to be registered for the Company. If any limitation of the number
of shares of capital stock to be registered by the Investors is required
pursuant to this SECTION 7.1, the number of shares that may be included in the
registration on behalf of the Investors shall be allocated among the Investors
or the holders of any other registration rights in proportion, as nearly as
practicable, to their respective holdings of Registrable Securities, after first
excluding from such registration statement all shares of Common Stock sought to
be included therein by (i) any director, officer or employee of the Company,
(ii) any holder thereof not having any such contractual incidental registration
rights, and (iii) any holder, thereof having contractual, incidental
registration rights subordinate and junior to the rights of the Investors. In
any event, if such underwritten public offering is not an initial public
offering, then the Investors holding Registrable Securities shall be allowed to
include not less than thirty-five percent (35%) of the shares subject to such
registration statement. The Company will not grant any rights relating to the
piggy-back registration of its capital stock which are superior to or on a
parity with the rights granted to the Investors in this SECTION 7.1. The
provisions of this SECTION 7.1 will not apply to a registration effected solely
to implement (i) an employee benefit plan, or (ii) a transaction to which Rule
145 or any other similar rule of the Securities and Exchange Commission (the
"SEC") under the Securities Act is applicable.
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7.2 REQUIRED REGISTRATIONS.
If on any three (3) occasions after the date hereof the Investors holding a
majority of the Registrable Securities held by all Investors notify the Company
in writing that the Investors intend to offer or cause to be offered for public
sale all or any portion of its or their Registrable Securities, the Company will
notify all of the Investors who would be entitled to notice of a proposed
registration under SECTION 7.1 above of its receipt of such notification from
such Investor or Investors and any other holder of piggyback registration
rights. Upon the written request of any such Investor delivered to the Company
within 20 days after receipt from the Company of such notification, the Company
will either (i) elect to make a primary offering in which case the rights of
such Investors to participate in such offering shall be as set forth in
SECTION 7.1 above (except that the Company shall not be permitted to limit the
number of shares which may be registered by any Investor and such Investor will
have the right to select the underwriter), or (ii) use its best efforts to cause
such of the Registrable Securities as may be requested by any Investors to be
registered under the Securities Act in accordance with the terms of this
SECTION 7.2. The Company may postpone the filing of any registration statement
required hereunder for a reasonable period of time, not to exceed 60 days during
any twelve-month period, if the Company has been advised by legal counsel that
such filing would require a special audit or the disclosure of a material
impending transaction or other matter and the Company determines reasonably and
in good faith that such disclosure would have a material adverse effect on the
Company. The Company shall not be required to cause a registration statement
requested pursuant to this SECTION 7.2 to become effective prior to 90 days
following the effective date of a registration statement initiated by the
Company, if the request for registration has been received by the Company
subsequent to the giving of written notice by the Company, made in good faith,
to the Investors holding Registrable Securities that the Company is commencing
to prepare a Company-initiated registration statement (other than a registration
effected solely to implement an employee benefit plan or a transaction to which
Rule 145 or any other similar rule of the SEC under the Securities Act is
applicable); PROVIDED, HOWEVER, that the Company shall use its best efforts to
achieve such effectiveness promptly.
7.3 FORM S-3.
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If the Company becomes eligible to use Form S-3 under the Securities Act or
a comparable successor form, the Company shall use its best efforts to continue
to qualify at all times for registration on Form S-3 or such successor form.
One or more of the Investors holding Registrable Securities shall have the right
to request and have effected one registration per year of shares of Registrable
Securities on Form S-3 or such successor form for a public offering of shares of
Registrable Securities having an aggregate proposed offering price exceeding
$500,000 (such requests shall be in writing and shall state the number of shares
of Registrable Securities to be disposed of and the intended method of
disposition of such shares by such Investor or Investors). The Company shall
not be required to cause a registration statement requested pursuant to this
SECTION 7.3 to become effective prior to 90 days following the effective date of
a registration statement initiated by the Company, if the request for
registration has been received by the Company subsequent to the giving of
written notice by the Company, made in good faith, to the Investors holding
Registrable Securities to the effect that the Company is commencing to prepare a
Company-initiated registration statement (other than a registration effected
solely to implement an employee benefit plan or a transaction to which Rule 145
or any other similar rule of the Commission under the Securities Act is
applicable); PROVIDED, HOWEVER, that the Company shall use its best efforts to
achieve such effectiveness promptly following such 90-day period if the request
pursuant to this SECTION 7.3 has been made prior to the expiration of such
90-day period. The Company may postpone the filing of any Registration
Statement required hereunder for a reasonable period of time, not to exceed 60
days during any twelve-month period, if the Company has been advised by legal
counsel that such filing would require the disclosure of a material transaction
or other factor and the Company determines reasonably and in good faith that
such disclosure would have a material adverse effect on the Company. The
Company shall give notice to all Investors holding Registrable Securities of the
receipt of a request for registration pursuant to this SECTION 7.3 and shall
provide a reasonable opportunity for such Investors to participate in the
registration. Subject to the foregoing, the Company will use in best efforts to
effect promptly the registration of all shares of Common Stock on Form S-3 or
such successor form to the extent requested by the Investor or Investors thereof
for purposes of disposition. If so requested by any Investor in connection with
a registration under this SECTION 7.3, the Company shall take such steps as are
required to register such Investor's Registrable Securities for sale on a
delayed or continuous basis under Rule 415, and to keep such registration
effective for the shorter of (a) six months or (b) until all of such Investor's
Registrable Securities registered thereunder are sold.
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7.4 REGISTRABLE SECURITIES.
For the purposes this SECTION 7, the term "Registrable Securities" shall
mean any shares of the Common Stock purchased by, or issued to, an Investor, or
issuable upon conversion of the Preferred Shares, including without limitation
any Series A Conversion Shares, Series B Conversion Shares or Series C
Conversion Shares issued or issuable upon conversion of any and all of the
Preferred Shares and including any Common Stock issued by way of a stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization; provided,
however, that if an Investor owns Preferred Shares, the Investor shall not be
required to cause such Preferred Shares to be converted to Common Stock until
immediately prior to the effective date of any applicable registration statement
pursuant to which such shares will be sold.
7.5 FURTHER OBLIGATIONS OF THE COMPANY.
Whenever the Company is required hereunder to register any Registrable
Securities, it agrees that it shall also do the following:
(a Pay all expenses of such registrations and offerings
(exclusive of underwriting discounts and commissions) and the reasonable fees
and expenses, not to exceed $60,000 per offering, of not more than one
independent counsel for the Investors satisfactory to a majority in interest of
the Securities, voting as a single class.
(b Use its best efforts (with due regard to management of the
ongoing business of the Company and the allocation of managerial resources)
diligently to prepare and file with the SEC a registration statement and such
amendments and supplements to said registration statement and the prospectus
used in connection therewith as may be necessary to keep said registration
statement effective at least 90 days and to comply with the provisions of the
Securities Act with respect to the sale of securities covered by said
registration for the period necessary to complete the proposed public offering;
(c Furnish to each selling Investor such copies of each
preliminary and final prospectus and such other documents as such Investor may
reasonably request to facilitate the public offering of its Registrable
Securities;
(d Enter into any reasonable underwriting agreement required by
the proposed underwriter for the selling Investors, if any, in such form and
containing such terms as are customary; PROVIDED, HOWEVER, that no Investor
shall be required to make any representations or warranties other than with
respect to its title to the Registrable Securities and any written information
provided by the Investors to the Company, and if the underwriter requires that
representations or warranties be made, the Company shall make all such
representations and warranties relating to the Company;
41
(e Use its best efforts to register or qualify the securities
covered by said registration statement under the securities or blue-sky laws of
such jurisdictions as any selling Investor may reasonably request, provided that
the Company shall not be required to register or qualify the securities in any
jurisdictions which require it to qualify to do business therein;
(f Immediately notify each selling Investor, at any time when a
prospectus relating to his Registrable Securities is required to be delivered
under the Securities Act, of the happening of any event as a result of which
such prospectus contains an untrue statement of a material fact or omits any
material fact necessary to make the statements therein not misleading, and, at
the request of any such selling Investor, prepare a supplement or amendment to
such prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain any untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(g Cause all such Registrable Securities to be listed on each
securities exchange or quotation system on which similar securities issued by
the Company are then listed or quoted;
(h Otherwise use its best efforts to comply with the securities
laws of the United States and other applicable jurisdictions and all applicable
rules and regulations of the SEC and comparable governmental agencies in other
applicable jurisdictions and make generally available to its holders, in each
case as soon as practicable, but not later than 45 days after the close of the
period covered thereby, an earnings statement of the Company which will satisfy
the provisions of Section 11(a) of the Securities Act;
(i Obtain and furnish to each selling Investor, immediately
prior to the effectiveness of the registration statement (and, in the case of an
underwritten offering, at the time of delivery of any Registrable Securities
sold pursuant thereto), a cold comfort letter from the Company's independent
public accountants in customary form and covering such matters of the type
customarily covered by cold comfort letters as the holders of a majority of the
Registrable Securities being sold may reasonably request; and
(j Otherwise cooperate with the underwriter or underwriters,
the Commission and other regulatory agencies and take all actions and execute
and deliver or cause to be executed and delivered all documents necessary to
effect the registration of any Registrable Securities under this SECTION 7.
7.6 INDEMNIFICATION; CONTRIBUTION.
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(a Incident to any registration statement referred to in this
SECTION 7, and subject to applicable law, the Company will indemnify and hold
harmless each underwriter, each Investor who offers or sells any such
Registrable Securities in connection with such registration statement (including
its partners (including partners of partners and stockholders of any such
partners)), and directors, officers, employees and agents of any of them (a
"Selling Investor"), and each person who controls any of them within the meaning
of Section 15 of the Securities Act or Section 20 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") (a "Controlling Person")), from and
against any and all losses, claims, damages, expenses and liabilities, joint or
several (including any investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claim asserted), to which they, or any of them, may become
subject under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities arise out of or are based on (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement (including any related preliminary or definitive
prospectus, or any amendment or supplement to such registration statement or
prospectus), (ii) any omission or alleged omission to state in such document a
material fact required to be stated in it or necessary to make the statements in
it not misleading, or (iii) any violation by the Company of the Securities Act,
any state securities or blue sky laws or any rule or regulation thereunder in
connection with such registration; PROVIDED, HOWEVER, that the Company will not
be liable to the extent that such loss, claim, damage, expense or liability
arises from and is based on an untrue statement or omission or alleged untrue
statement or omission made in reliance on and in conformity with information
furnished in writing to the Company by such underwriter, Selling Investor or
Controlling Person expressly for use in such registration statement. With
respect to such untrue statement or omission or alleged untrue statement or
omission in the information furnished in writing to the Company by such Selling
Investor expressly for use in such registration statement, such Selling Investor
will indemnify and hold harmless each underwriter, the Company (including its
directors, officers, employees and agents), each other Investor (including its
partners (including partners of partners and stockholders of such partners)) and
directors, officers, employees and agents of any of them) so registered, and
each person who controls any of them within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, damages, expenses and liabilities, joint or several, to which
they, or any of them, may become subject under the Securities Act, the Exchange
Act or other federal or state statutory law or regulation, at common law or
otherwise to the same extent provided in the immediately preceding sentence. In
no event, however, shall the liability of a Selling Investor for indemnification
under this SECTION 7.6(A) in its capacity as such (and not in its capacity as an
officer or director of the Company) exceed the lesser of (i) that proportion of
the total of such losses, claims, damages or liabilities indemnified against
equal to the proportion of the total securities sold under such registration
statement which is being sold by such Selling Investor or (ii) the proceeds
received by such Selling Investor from its sale of Registrable Securities under
such registration statement.
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(b If the indemnification provided for in SECTION 7.6(a) above
for any reason is held by a court of competent jurisdiction to be unavailable to
an indemnified party in respect of any losses, claims, damages, expenses or
liabilities referred to therein, then each indemnifying party under this
SECTION 7.6, 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, expenses or liabilities (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company, the
other Selling Investors and the underwriters from the offering of the
Registrable Securities 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, the other Selling Investors and the underwriters
in connection with the statements or omissions which resulted in such losses,
claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company, the
Selling Investors and the underwriters shall be deemed to be in the same
respective proportions that the net proceeds from the offering (before deducting
expenses) received by the Company and the Selling Investors and the underwriting
discount received by the underwriters, in each case as set forth in the table on
the cover page of the applicable prospectus, bear to the aggregate public
offering price of the Registrable Securities. The relative fault of the
Company, the Selling Investors and the underwriters 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, the Selling Investors or the
underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company, the Selling Investors and the underwriters agree that it would
not be just and equitable if contribution pursuant to this SECTION 7.6(b) were
determined by pro rata or per capita allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. In no event, however, shall a
Selling Investor be required to contribute any amount under this SECTION 7.6(b)
in excess of the lesser of (i) that proportion of the total of such losses,
claims, damages or liabilities indemnified against equal to the proportion of
the total Registrable Securities sold under such registration statement which
are being sold by such Selling Investor or (ii) the proceeds received by such
Selling Investor from its sale of Registrable Securities under such registration
statement. No person found 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 found guilty of such fraudulent
misrepresentation.
(c The amount paid by an indemnifying party or payable to an
indemnified party as a result of the losses, claims, damages and liabilities
referred to in this SECTION 7.6 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, payable as the same are incurred. The indemnification and
contribution provided for in this SECTION 7.6 will remain in full force and
effect regardless of any investigation
44
made by or on behalf of the indemnified parties or any officer, director,
employee, agent or controlling person of the indemnified parties.
7.7 RULE 144 AND RULE 144A REQUIREMENTS.
In the event that the Company becomes subject to Section 13 or
Section 15(d) of the Exchange Act, the Company shall use its best efforts to
take all action as may be required as a condition to the availability of Rule
144 or Rule 144A under the Securities Act (or any successor or similar exemptive
rules hereafter in effect). The Company shall furnish to any Investor holding
Registrable Securities, within 15 days of a written request, a written statement
executed by the Company as to the steps it has taken to comply with the current
public information requirement of Rule 144 or Rule 144A or such successor rules.
The Founder agrees not to sell or otherwise transfer or dispose of any
securities of the Company following the effective date of any registration
statement of the Company for such period of time as may be agreed to by a
majority in interest of the Investors or as otherwise requested in good faith by
the Company or the underwriter in connection with the applicable offering.
7.8 TRANSFER OF REGISTRATION RIGHTS.
The registration rights and related obligations under this SECTION 7 of the
Investors with respect to their Registrable Securities may be assigned to any
transferee of Registrable Securities held by them, and upon such transfer the
relevant transferee shall be deemed to be included within the definition of an
Investor, for purposes of this SECTION 7. The relevant Investor as the case may
be, shall notify the Company at the time of such transfer.
7.9 MARKET STAND-OFF AGREEMENT.
The Investors and the Founder, if requested by the underwriter of the
Company's securities, shall agree not to sell, pledge, encumber or otherwise
transfer or dispose of any Common Stock (or other securities) of the Company
held by such Investors and the Founder during the 180-day period following the
effective date of the Company's initial public offering or any subsequent
underwritten offering hereunder in which the Investors are participating. Such
agreement shall be in writing in form reasonably satisfactory to the Company and
such underwriter. The Company may impose stop-transfer instructions with
respect to the shares (or securities) subject to the foregoing restriction until
the end of such 180-day period.
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SECTION 8. GENERAL
8.1 Amendments, Waivers and Consents.
For the purposes of this Agreement and all agreements executed pursuant
hereto, no course of dealing between the Company and any Investor and no delay
on the part of any party hereto in exercising any rights hereunder or thereunder
shall operate as a waiver of the rights hereof and thereof. No provision hereof
may be waived otherwise than by a written instrument signed by the party so
waiving such covenant or other provision; PROVIDED, HOWEVER, changes in or
additions to, and any consents required by, this Agreement may be made, and
compliance with any term, covenant, condition or provision set forth herein may
be omitted or waived (either generally or in a particular instance and either
retroactively or prospectively) by a consent of the holders of a majority of the
Preferred Shares; PROVIDED that any amendment, waiver or consent that adversely
affects the Series A Investors, the Series B Investors or the Series C Investors
or affects any rights specifically granted to the Series A Investors, the Series
B Investors or the Series C Investors shall not be approved without the approval
of the holders of a majority of the issued and outstanding Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock, respectively;
PROVIDED FURTHER, that any amendment, waiver or consent that adversely affects
one Investor, or affects any rights specifically granted to such Investor, in a
manner different than all other Investors holding the same series of Preferred
Shares, including, but not limited to, the right to designate certain directors
set forth in SECTION 4.4 and the right to be appointed to the Compensation
Committee set forth in SECTION 4.5, shall not be approved without such
Investor's consent. Any amendment or waiver effected in accordance with this
SECTION 8.1 shall be binding upon each holder of the Preferred Shares at the
time outstanding, each future holder of Preferred Shares and Securities and the
Company.
46
8.2 INDEMNIFICATION; EXPENSES.
(a Without limitation of any other provision of this Agreement,
the Company agrees to defend, indemnify and hold the Investors and their
affiliates and their respective direct and indirect partners, members,
stockholders, directors, officers, employees and agents and each person who
controls any of them within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act (parties receiving the benefit of the
indemnification agreement herein shall be referred to collectively as
"Indemnified Parties" and individually as an "Indemnified Party") harmless from
and against any and all losses, claims, damages, obligations, liens,
assessments, judgments, fines, liabilities, and other costs and expenses
(including, without limitation, interest, penalties and any investigation, legal
and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted, as the same
are incurred) of any kind or nature whatsoever which may be sustained or
suffered by any such Indemnified Party, without regard to any investigation by
any of the Indemnified Parties, based upon, arising out of, by reason of or
otherwise in respect of or in connection with (a) any inaccuracy in or breach of
any representation or warranty made by the Company in this Agreement or in any
agreement or instrument or other document delivered pursuant to this Agreement,
(b) any breach of any covenant or agreement made by the Company in this
Agreement or in any agreement or instrument delivered pursuant to this Agreement
and (c) any action taken or omitted to be taken or alleged to have been taken or
omitted to have been taken by any Indemnified Party as Founder, director, agent,
representative or controlling person of the Company including, without
limitation, any and all losses, claims, damages, expenses and liabilities, joint
or several (including any investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claim asserted, as the same may be incurred) arising or
alleged to arise under the Securities Act, the Exchange Act or other federal or
state statutory law or regulation, at common law or otherwise; provided,
however, that the Company will not be liable to the extent that such loss,
claim, damage, expense or liability arises from and is based on (i) an untrue
statement or omission or alleged untrue statement or omission in a registration
statement or prospectus which is made in reliance on and in conformity with
written information furnished to the Company in an instrument duly executed by
or on behalf of such Indemnified Party specifically stating that it is for use
in the preparation thereof or (ii) a knowing and willful violation of the
federal securities laws by an Indemnified Party, as finally determined by a
court of competent jurisdiction.
(b If the indemnification provided for in SECTION 8.2(A) above
for any reason is held by a court of competent jurisdiction to be unavailable to
a Indemnified Party in respect of any losses, claims, damages, expenses or
liabilities referred to therein, then the Company, 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, expenses or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Investors, 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
47
referred to in clause (i) above but also the relative fault of the Company and
the Investors in connection with the action or inaction which resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In connection with any registration of the Company's
securities, the relative benefits received by the Company and the Investors
shall be deemed to be in the same respective proportions that the net proceeds
from the offering (before deducting expenses) received by the Company and the
Investors, in each case as set forth in the table on the cover page of the
applicable prospectus, bear to the aggregate public offering price of the
securities so offered. The relative fault of the Company and the Investors
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 the
Investors and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Investors agree that it would not be just and equitable
if contribution pursuant to this SECTION 8.2(b) were determined by pro rata or
per capita allocation or by any other methods of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraph. In connection with the registration of the Company's securities, in
no event shall a Investor be required to contribute any amount under this
SECTION 8.2(b) in excess of the lesser of (i) that proportion of the total of
such losses, claims, damages or liabilities indemnified against equal to the
proportion of the total securities sold under such registration statement which
is being sold by such Investor or (ii) the proceeds received by such Investor
from its sale of securities under such registration statement. No person found
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 found guilty of such fraudulent misrepresentation.
(c The indemnification and contribution provided for in this
SECTION 8.2 will remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Parties or any officer, director,
employee, agent or controlling person of the Indemnified Parties.
(d The provisions of this SECTION 8.2, are in addition to and
shall supplement those set forth in SECTION 7.5, which shall apply in the case
of the registration and sale of Registrable Securities held by any of the
Investors registered pursuant to SECTION 7 hereof.
(e Subject to the consummation of the Initial Closing, the
Company agrees to pay and hold the Investors harmless against liability for
payment of all reasonable costs and expenses incurred prior to or in connection
with their investment in the Company, including the fees and disbursements of
counsel and other professionals, including all costs and expenses that they
incur with respect to the registration, execution, delivery and performance of
this Agreement in an aggregate amount up to $37,000. In addition, the Company
agrees to pay any and all stamp, transfer and other similar taxes (together in
each case with interest and penalties, if any)
48
payable or determined to be payable in connection with the execution and
delivery of this Agreement and the issuance of securities hereunder.
8.3 RESCISSION RIGHTS.
If at any time there shall have occurred any material breach by the Company
or the Founder of any of the representations, warranties and statements made or
contained in this Agreement or in the documents, certificates, Schedules and
Exhibits hereto, or in the information concerning the business of the Company or
the Founder given or delivered to the Investors prior to the Closing Date
(without limitation of the Investors' rights in connection with any matter
constituting such a breach that becomes manifest subsequent to the Closing Date
or Additional Closing Date, as the case may be) in connection with and pursuant
to this Agreement, the Company shall immediately repay to the Investors the full
purchase price of the Securities owned by such Investor together with interest
calculated at the rate of ten percent (10%) per annum from the Closing Date or
Additional Closing Date, as the case may be, to the date payment is made under
this SECTION 8.3 in respect of the Securities. Notwithstanding anything
contained herein to the contrary, the remedy described above is not intended to
be and shall not be the exclusive remedy of any Investor and is in addition to
any other remedies which any Investor may have under this Agreement or
otherwise, whether in law or in equity.
8.4 SURVIVAL OF REPRESENTATIONS; WARRANTIES AND COVENANTS;
ASSIGNABILITY OF RIGHTS.
All covenants, agreements, representations and warranties of the Company
and, to the extent applicable, the Founders, made herein and to be performed
prior to or at the Initial Closing or Additional Closing, as the case may be,
and in the certificates, lists, exhibits, schedules or other written information
delivered or furnished to any Investor in connection herewith (a) shall be
deemed to have been relied upon by such Investor, and shall survive for a period
of 36 months after the Closing Date and (b) shall bind the Company's and the
Founders' successors and assigns, whether so expressed or not, and, except as
otherwise provided in this Agreement, all such covenants, agreements,
representations and warranties shall inure to the benefit of the Investors'
successors and assigns and to transferees of the Securities, whether so
expressed or not. For purposes of this Agreement, the Company's successors
shall include any corporation in to which the Company is merged in connection
with its reincorporation, and as a condition to the consummation of such a
transaction, the Investors shall receive an opinion of counsel that the
successor corporation will be bound by his Agreement and that the Investors may
tack their holding period with respect to the Securities for purposes of Rule
144.
8.5 LEGEND ON SECURITIES.
The Company, the Investors and the Founder acknowledge and agree that the
following legend shall be typed on each certificate evidencing any of the
Securities issued hereunder held at any time by the Investors or the Founder:
49
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE ACT) OR ANY STATE SECURITIES OR BLUE SKY
LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE
ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH
SECURITIES WHICH IS EFFECTIVE UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE
EXEMPTION FROM REGISTRATION UNDER THE ACT RELATING TO THE DISPOSITION OF
SECURITIES AND (3) IN ACCORDANCE WITH APPLICABLE STATE SECURITIES AND BLUE SKY
LAWS. THESE SECURITIES ARE ALSO SUBJECT TO THE PROVISIONS OF A CERTAIN
INVESTMENT AND STOCKHOLDERS' AGREEMENT DATED AS OF OCTOBER 31, 1997, INCLUDING
CERTAIN RESTRICTIONS ON TRANSFER, INDEMNITY PROVISIONS AND VOTING PROVISIONS SET
FORTH THEREIN. A COMPLETE AND CORRECT COPY OF THIS AGREEMENT IS AVAILABLE FOR
INSPECTION AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE FURNISHED UPON
WRITTEN REQUEST AND WITHOUT CHARGE."
8.6 GOVERNING LAW.
This Agreement shall be deemed to be a contract made under, and shall be
construed in accordance with, the laws of the State of Delaware, without giving
effect to conflict of laws principles thereof.
8.7 SECTION HEADINGS AND GENDER.
The descriptive headings in this Agreement have been inserted for
convenience only and shall not be deemed to limit or otherwise affect the
construction of any provision thereof or hereof. The use in this Agreement of
the masculine pronoun in reference to a party hereto shall be deemed to include
the feminine or neuter, as the context may require.
8.8 COUNTERPARTS.
This Agreement may be executed simultaneously in any number of
counterparts, each of which when so executed and delivered shall be taken to be
an original; but such counterparts shall together constitute but one and the
same document.
50
8.9 NOTICES AND DEMANDS.
Any notice or demand which is required or provided to be given under this
Agreement shall be deemed to have been sufficiently given and received for all
purposes when delivered by hand, telecopy, telex or other method of facsimile,
or five days after being sent by certified or registered mail, postage and
charges prepaid, return receipt requested, or two days after being sent by
overnight delivery providing receipt of delivery, to the following addresses:
If to the Company, at 1015 31st Street, N.W., Washington, D.C. 2007, or at any
other address designated by the Company to the Investors in writing; if to an
Investor, at its or his mailing address as shown on EXHIBIT A hereto, or at any
other address designated by such Investor to the Company and the Investors in
writing.
8.10 SEVERABILITY.
Whenever possible, each provision of this Agreement shall be interpreted in
such a manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be deemed prohibited or invalid under such
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, and such prohibition or invalidity shall not
invalidate the remainder of such provision or the other provisions of this
Agreement.
8.11 INTEGRATION.
This Agreement, including the exhibits, documents and instruments referred
to herein or therein, constitutes the entire agreement, and supersedes all other
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof including, without limitation, the
Term Sheet between the parties hereto in respect of the transactions
contemplated herein, the Series A Agreement, as amended and the Series B
Agreement, which Term Sheet, Series A Agreement and Series B Agreement,
respectively shall be completely superseded by the representations, warranties
and covenants of the Company contained herein.
8.12 WAIVER OF JURY TRIAL.
EACH PARTY HERETO HEREBY WAIVES ANY RIGHT WHICH IT MAY OTHERWISE HAVE AT
LAW OR IN EQUITY TO A TRIAL BY JURY IN CONNECTION WITH ANY SUIT OR PROCEEDING AT
LAW OR IN EQUITY BROUGHT BY ANY PARTY HERETO AGAINST ANOTHER WAIVING PARTY OR
WHICH OTHERWISE RELATES TO THIS AGREEMENT.
51
8.13 AMENDMENT OF SERIES A AGREEMENT AND SERIES B AGREEMENT.
The Series A Investors and Series B Investors, respectively, agree that
Sections 4, 4A, 5, 6 and 7 of this Agreement shall amend and restate in their
entirety Sections 4, 4A, 5, 6 and 7 of each of the Series A Agreement and the
Series B Agreement.
52
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
PATHNET, INC.
By: /s/ Richard A. Jalkut
-----------------------------------------------
Name: Richard A. Jalkut
Title: President and Chief Executive Officer
/s/ David Schaeffer
-----------------------------------------------
David Schaeffer, Individually (for purposes of
Sections 2, 3.9, 4.4, 5, 6, 7.9 and 8.5 hereof)
INVESTORS:
SPECTRUM EQUITY INVESTORS, L.P.
By: Spectrum Equity Associates, L.P.
By: /s/ Kevin Maroni
--------------------------------------------
Name: Kevin Maroni
Title: Attorney-In-Fact
SPECTRUM EQUITY INVESTORS II, L.P.
By: Spectrum Equity Associates II, L.P.
By: /s/ Kevin Maroni
--------------------------------------------
Name: Kevin Maroni
Title: General Partner
53
NEW ENTERPRISE ASSOCIATES VI, LIMITED PARTNERSHIP
By: NEA Partners VI, Limited Partnership
By: /s/ Peter J. Barris
--------------------------------------------
Name: Peter J. Barris
Title: General Partner
ONSET ENTERPRISE ASSOCIATES II, L.P.
By: /s/ Thomas Winter
--------------------------------------------
General Partner of its General Partner
ONSET ENTERPRISE ASSOCIATES III, L.P.
By: /s/ Thomas Winter
--------------------------------------------
Managing Director, OEA III Management, LLC
The General Partner of ONSET Enterprise
Associates III, L.P.
CORMAN FOUNDATION, INCORPORATED
By: /s/ James F. Corman
-----------------------------------------------
Name: James F. Corman
Title: President
IAI INVESTMENT FUNDS VIII, INC. (IAI VALUE FUND)
By: /s/ Susan Haedt
-----------------------------------------------
Name: Susan Haedt
Title: Vice President
54
/s/ Thomas Domencich
--------------------------------------------------
Thomas Domencich, Individual
/s/ Dennis R. Patrick
--------------------------------------------------
Dennis R. Patrick, Individually
GROTECH CAPITAL GROUP IV, L.P.
By: Grotech Capital Group IV, LLC, General
Partner
By: /s/ Patrick J. Kerins
--------------------------------------------
Name: Patrick J. Kerins
Title: Managing Director
TORONTO DOMINION CAPITAL (U.S.A.), INC.
By: /s/ Martha L. Gariepy
-----------------------------------------------
Name: Martha L. Gariepy
Title: Secretary/Treasurer
UTECH CLIMATE CHALLENGE FUND, L.P.
By: ARETE CLIMATE CHALLENGE PARTNERS, L.L.C.
General Partner
By: ARETE VENTURES, INC.
Managing Member
By: /s/ William T. Heflin
-----------------------------------------
Name: William T. Heflin
Title: Vice President
55
UTILITY COMPETITIVE ADVANTAGE FUND, L.L.C.
By: ARETE COMPETITIVE ADVANTAGE PARTNERS, L.L.C.
General Partner
By: ARETE VENTURES, L.L.C.
By: /s/ William T. Heflin
-----------------------------------------
Name: William T. Heflin
Title: Managing Director
FBR TECHNOLOGY VENTURE PARTNERS L.P.
By: FBR Venture Capital Managers, Inc., its
General Partner
By: /s/ Gene Riechers
--------------------------------------------
Name: Gene Riechers
Title: Managing Direct
56
/s/ Shawn J. Colo
--------------------------------------------------
Shawn J. Colo, Individually
/s/ Benjamin M. Coughlin
--------------------------------------------------
Benjamin M. Coughlin, Individually
/s/ Michael J. Kennealy
--------------------------------------------------
Michael J. Kennealy, Individually
/s/ Matthew N. Mochary
--------------------------------------------------
Matthew N. Mochary, Individually
/s/ Robert A. Nicholson
--------------------------------------------------
Robert A. Nicholson, Individually
/s/ Fred Wang
--------------------------------------------------
Fred Wang, Individually
57