Exhibit 10.24.1
PATHNET, INC.
1015 31st Street NW
Washington, DC 20007
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CONSENT, WAIVER AND AMENDMENT
March 19, 1998
To the holders of shares of
Series A Convertible Preferred Stock,
Series B Convertible Preferred Stock,
Series C Convertible Preferred Stock
and Common Stock of Pathnet, Inc.
Ladies and Gentlemen:
Reference is made to (i) the Restated Certificate of Incorporation
(the "CERTIFICATE OF INCORPORATION") of Pathnet, Inc., a Delaware corporation
(the "COMPANY"); (ii) the Bylaws (the "BYLAWS") of the Company; (iii) the
Investment and Stockholders' Agreement, dated as of August 28, 1995, as amended
(the "SERIES A AGREEMENT"), by and among the Company and certain of its
stockholders signatories thereto; (iv) the Investment and Stockholders'
Agreement, dated as of December 23, 1996, as amended (the "SERIES B AGREEMENT"),
by and among the Company and certain of its stockholders signatories thereto;
and (v) the Investment and Stockholders' Agreement, dated as of October 31, 1997
(the "INVESTMENT AND STOCKHOLDERS' AGREEMENT"), by and among the Company and
certain of its stockholders signatories thereto. All capitalized terms used
herein and not otherwise defined shall have the meanings ascribed to such terms
in the Investment and Stockholders' Agreement.
In order to consummate transactions relating to (i) a proposed
offering (the "OFFERING") by the Company of units (the "UNITS"), each such Unit
consisting of $1,000 principal amount of Senior Notes due 2008 (the "NOTES") of
the Company and
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warrants (each, a "NOTEHOLDER WARRANT") to purchase shares of Common Stock of
the Company, on substantially the terms set forth in the draft preliminary
offering memorandum, dated March 19, 1998, attached hereto as EXHIBIT A (such
preliminary offering memorandum, as it may be hereafter amended, modified or
revised, is herein referred to as the "PRELIMINARY OFFERING MEMORANDUM"), and
(ii) the proposed credit facilities among the Company and/or its subsidiaries,
its equipment vendors and certain other senior lenders (the "VENDOR CREDIT
FACILITY"), on substantially the terms set forth in the term sheets attached
hereto as EXHIBIT B (the "TERM SHEETS"), including, without limitation, the
issuance to NEC Industries, Inc. (or an affiliate thereof) and Andrew
Corporation (or an affiliate thereof) of warrants (the "VENDOR WARRANTS" and,
together with the Noteholder Warrants, the "WARRANTS") to purchase shares of
Common Stock, the Company is seeking from the holders its Common Stock, par
value $.01 per share, Series A Convertible Preferred Stock, par value $.01 per
share, Series B Convertible Preferred Stock, par value $.01 per share, and
Series C Convertible Preferred Stock, par value $.01 per share (collectively,
the "CAPITAL STOCK"), as the case may be, the consents, waivers and amendments
contained herein.
Accordingly, the Company requests the following consents, waivers and
amendments described below to be made by the holders of record of the Capital
Stock of the Company as of the date first written above (the "RECORD DATE"),
such consents, waivers and amendments to be effective subject to the conditions
set forth in paragraph 10 below. In the event any of the following consents,
waivers or amendments is required to be approved by the holders of any shares of
Capital Stock voting separately as a class under Section 242 of the General
Corporation Law of the State of Delaware (the "DGCL") or pursuant to the
Certificate of Incorporation or the Investment and Stockholders' Agreement, this
Consent, Waiver and Amendment shall be deemed to have been made in accordance
with the provisions of Section 228 and Section 242 of the DGCL.
In consideration of the foregoing, and the mutual covenants and
understandings contained herein, the Company and the record holder as of the
Record Date of Capital Stock listed on the signature page hereto hereby agree as
follows:
1. APPROVAL OF OFFERING AND VENDOR CREDIT FACILITY. Such holder of
Capital Stock consents to and approves the terms of (a) the Offering, including
the issuance of the Units, on substantially the terms set forth in the
Preliminary Offering Memorandum, and (b) the Vendor Credit Facility, on
substantially the terms set forth in the Term Sheets; PROVIDED that, in each
case, with such additional or different terms, including, without limitation,
with respect to pricing, as shall be determined by the Board of Directors of the
Company. Such holder of Capital Stock hereby waives the provisions of the
Investment and Stockholders' Agreement, the Series A Agreement, the Series B
Agreement or any other agreement or instrument to which such holder is a party
or by which it is otherwise bound to the extent necessary to permit the Offering
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and the Vendor Credit Facility. Without limiting the generality of the
foregoing, such holder of Capital Stock hereby waives the Company's
non-compliance with the covenants provided in Sections 4.3, 4.5, 4A.1(f), 4A.2,
4A.3 and 4A.6 of the Investment and Stockholders' Agreement in connection with
the Offering.
2. APPROVAL OF AMENDMENT OF CERTIFICATE OF INCORPORATION. Such
holder of Capital Stock consents to and approves a Certificate of Amendment to
the Certificate of Incorporation, in the form attached hereto as EXHIBIT C, to
amend (a) Article III, Section A of the Certificate of Incorporation to increase
the authorized number of shares of Common Stock of the Company to 10,200,000
shares; (b) Article III, Section B.4(f) of the Certificate of Incorporation to
provide that, notwithstanding the provisions for anti-dilution adjustments
contained therein, no anti-dilution adjustment shall result from the issuance by
the Company of the Warrants or the exercise thereof; and (c) Article III,
Section B.5 of the Certificate of Incorporation to provide that, notwithstanding
the provisions for optional redemption contained therein, no optional redemption
of the Series A Preferred Stock, Series B Preferred Stock or Series C Preferred
Stock may be made by the Company prior to 90 days after (i) the final maturity
date of the Notes or (ii) such earlier date (after the redemption date specified
in such section) as the Notes shall be indefeasibly paid in full. Such
Certificate of Amendment shall be filed, if the Board of Directors deems
appropriate, promptly following the receipt of this Consent, Waiver and
Amendment from the holders of a majority of each of the Common Stock, Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock.
3. APPROVAL OF AMENDED AND RESTATED BYLAWS. Such holder of Capital
Stock consents to and approves the Amended and Restated Bylaws, in the form
attached hereto as EXHIBIT D, to add the office of Executive Vice President
which shall have the rights and duties of a Vice President.
4. AMENDMENT OF INVESTMENT AND STOCKHOLDERS' AGREEMENT.
(a) RIGHTS TO PURCHASE. The Company and such holder of Capital
Stock hereby consent and agree to amend the second paragraph of Section 6.1 of
the Investment and Stockholders' Agreement by deleting the word "and" following
clause (iv) of such paragraph and replacing the "." at the end of such paragraph
with the following:
; (vi) issue warrants (the "NOTEHOLDER WARRANTS") to purchase shares of
Common Stock in connection with the Company's offering (the "UNIT
OFFERING") of units, consisting of $1,000 principal amount of Senior Notes
due 2008 of the Company and warrants to purchase shares of Common Stock;
and (vii) issue warrants (the "VENDOR WARRANTS" and together with the
Noteholder Warrants, the "WARRANTS") to purchase shares of Common Stock in
connection
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with the credit facilities among the Company or its subsidiaries, its
equipment vendors and certain other senior lenders (the "VENDOR CREDIT
FACILITY"); and (viii) issues shares of Common Stock upon exercise of the
Warrants.
In addition, the Company and such holder of Capital Stock
hereby consent and agree to add a new sentence to the end of the third paragraph
of Section 6.1 of the Investment and Stockholders' Agreement which will read as
follows:
The Investors further acknowledge that, with respect to the issuance of the
Warrants or the shares of Common Stock upon exercise of the Warrants, they
have waived any preemptive rights granted to them under the Series A
Agreement, Series B Agreement and this Agreement.
(b) RECISSION RIGHTS.
(i) The Company and such holder of Capital Stock hereby
consent and agree to amend the Investment and Stockholders' Agreement by
deleting Section 8.3 of the Investment and Stockholder's Agreement in its
entirety.
(ii) Notwithstanding Section 8.11 of the Investment and
Stockholders' Agreement, for purposes of clarity, if the undersigned is a holder
of Series A Preferred Stock or Series B Preferred Stock, the Company and such
holder of Capital Stock hereby further consent and agree to delete, in its
entirety, Section 8.3 of the Series A Agreement and Section 8.3 of the Series B
Agreement, respectively.
(c) STOCK OPTION GRANTS. The Company and such holder of Capital
Stock hereby consent and agree to amend Section 4.5 of the Investment and
Stockholders' Agreement by adding a new SCHEDULE 4.5A to the Investment and
Stockholders' Agreement which is attached hereto as EXHIBIT E and making the
following modifications to Section 4.5:
(i) The first sentence is Section 4.5 shall be amended by
deleting the phrase "with the terms of the 1995 Plan and the 1997 Plan as in
effect on the Closing Date" and inserting in lieu thereof the following phrase
"with the terms of the Company's 1995 Stock Option Plan (the "1995 Plan") and
the Company's 1997 Stock Incentive Plan, as amended by Amendment No. 1 thereto
(the "1997 Plan), in each case as in effect as of the date hereof."
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(ii) The second sentence of Section 4.5 shall be
amended to delete the reference therein to 950,310 shares and insert in lieu
thereof "1,153,667 shares."
(iii) The following sentence should be inserted
immediately following the existing second sentence of Section 4.5:
"Notwithstanding any of the foregoing, the Company shall be permitted to grant
stock options (and issue stock upon the exercise thereof) of the Company to the
individuals and entities listed on SCHEDULE 4.5A in the amounts and under the
terms and conditions set forth opposite such individual or entity; PROVIDED that
any individual who holds an office of vice president or higher shall have
executed a Non-Disclosure, Assignment of Inventions and Non-Competition
Agreement in the form attached hereto as EXHIBIT C-2.
(iv) The existing third sentence of Section 4.5 shall
be amended by restating it in its entirety to read as follows: "Pursuant to the
terms of the 1995 Plan and the 1997 Plan, qualified incentive stock options and
nonqualified options may be granted to employees, officers, directors and
consultants 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 as of
the date hereof 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 agreeing to be bound by the provisions of Section 4.4
and Section 5 hereof."
(v) The existing fifth sentence of Section 4.5 is
amended by adding the phrase "or Schedule 4.5A" immediately after the phrase
"Schedule 2.3."
(d) EXECUTION OF NON-DISCLOSURE, ASSIGNMENT OF INVENTIONS AND
NON-COMPETITION AGREEMENT.
(i) The Company and such holder of Capital Stock hereby
consent and agree to amend SCHEDULE 2.15 to the Investment and Stockholders'
Agreement by amending footnote 1 thereto to read in its entirety as follows:
(1) The Company will present a revised non-competition agreement,
substantially in the form of EXHIBIT C-2 to this Agreement, to such
employees who hold offices of vice president or higher. Employees who hold
offices lower than vice president will be required to execute a
non-disclosure agreement with the Company, substantially in the form of
EXHIBIT C-1.
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(ii) The Company and such holder of Capital Stock hereby
consent and agree to amend Section 4.6 of the Investment and Stockholders'
Agreement by adding, immediately after "Key Management Employee" and immediately
before "to execute" in clause (iii) of Section 4.6 of the Investment and
Stockholders' Agreement, the following:
, who hold an office of vice president or higher of the Company,
5. CONSENT TO ELECTION OF OFFICERS. Such holder of Capital Stock
consents to and approves the election by the Company's Board of Directors of the
following individuals as officers of the Company:
David Schaeffer: Chairman of the Board and Treasurer
Richard A. Jalkut: President and Chief Executive Officer
Kevin J. Bennis: Executive Vice President, and
President, Communications Services Division
William R. Smedberg, V: Vice President, Finance and Corporate Development
Michael A. Lubin: Vice President, General Counsel and Secretary
Michael L. Brooks: Vice President, Network Development
6. CONSENT TO AMEND THE 1997 STOCK INCENTIVE PLAN. Such holder of
Capital Stock consents to and approves the amendment to the Company's 1997 Stock
Incentive Plan (the "1997 PLAN") substantially in the form attached hereto as
EXHIBIT F. Such holder of Capital Stock further consents and agrees to increase
the authorized shares of Common Stock reserved under the 1997 Plan by an
additional 425,985 shares.
7. CONSENT TO GRANTS UNDER THE 1997 STOCK INCENTIVE PLAN. Such
holder of Capital Stock consents to and approves the grant of stock options to
the individuals listed on EXHIBIT E in the amount and under the terms and
conditions set forth opposite such individual's name.
8. REPRESENTATIONS AND WARRANTIES OF HOLDERS. Such holder of
Capital Stock represents and warrants that (a) as of the date first written
above, such holder owns the shares of Capital Stock set forth below its, his or
her name in the acceptance form hereof; (b) through the date of acceptance of
this Consent, Waiver and Amendment, such holder has not sold, pledged,
encumbered or otherwise transferred or disposed of such shares of Capital Stock
held by such holder; (c) such holder has the sole power to vote such shares of
Capital Stock and has the legal capacity, power and authority to execute and
deliver this Consent, Waiver and Amendment; and (d) this Consent, Waiver and
Amendment has been duly authorized, executed and delivered by, and constitutes
valid and binding consents, waivers and amendments of such holder.
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9. ADDITIONAL CLOSING OF SALE AND PURCHASE OF SERIES C PREFERRED
STOCK. If the undersigned is a holder of Series C Preferred Stock, the
undersigned hereby agrees that, notwithstanding the provisions of Section 1.3(b)
of the Investment and Stockholders' Agreement to the contrary, the Additional
Closing pursuant to Section 1.3(b) of the Investment and Stockholders' Agreement
shall occur "in escrow" on the date specified by Goodwin, Procter & Hoar LLP,
counsel to the holders of Series C Preferred Stock, which date is expected to be
approximately one week prior to the closing of the Offering (the "ESCROW CLOSING
DATE"), and shall be released from escrow simultaneously with, and at the
location of, the closing of the Offering; PROVIDED that if the closing of the
Offering does not occur within 21 days after the Escrow Closing Date, the funds
held in escrow on behalf of the undersigned shall be returned to the
undersigned. In the event the funds held in escrow are returned to the
undersigned, the Additional Closing shall take place in accordance with the
provisions of Section 1.3(b) of the Investment and Stockholders' Agreement.
10. EFFECTIVENESS OF THIS CONSENT, WAIVER AND AMENDMENT. This
Consent, Waiver and Amendment shall become effective with respect to the
undersigned holder of Capital Stock when the Company shall have received
counterparts of this Consent, Waiver and Amendment that, when taken together,
bear the signatures of the Company and the holders of the requisite number of
outstanding shares of Capital Stock to approve the consents, waivers and
amendments set forth herein; PROVIDED that such effectiveness date shall be
within 60 days from the date the Company shall have received a counterpart of
this Consent, Waiver and Amendment from such holder; PROVIDED, FURTHER, that
this Waiver, Consent and Amendment shall be deemed to be void AB INITIO and of
no force or effect in the event that the Offering is not completed on or before
June 30, 1998.
11. GOVERNING LAW. This Consent, Waiver and Amendment shall be
governed by and construed in accordance with the laws of the State of Delaware
regardless of the laws that might otherwise govern under applicable principles
of conflicts of law.
12. COUNTERPARTS. This Consent, Waiver and Amendment may be executed
in two or more counterparts, each of which shall be deemed an original but all
of which taken together shall constitute the same instrument.
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If you are in agreement with the foregoing, please sign the form of
acceptance in the space below provided on a counterpart of this letter and
return the same to the Company whereupon this letter shall become a binding
Consent, Waiver and Amendment of the undersigned subject to the satisfaction of
the conditions to effectiveness set forth above.
Very truly yours,
PATHNET, INC.
By: /s/ Michael A. Lubin
---------------------------------
Name: Michael A. Lubin
Title: Vice President,
General Counsel and Secretary
/s/ David Schaeffer
------------------------------------
David Schaeffer, Individually
SPECTRUM EQUITY INVESTORS, L.P.
By: /s/ Kevin J. Maroni
---------------------------------
Name: Kevin J. Maroni
Title: Partner
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SPECTRUM EQUITY INVESTORS II, L.P.
By: Spectrum Equity Associates II, L. P.
By: /s/ Kevin J. Maroni
---------------------------------
Name: Kevin J. Maroni
Title: General Partner
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: OEA II Management, LLC
By: /s/ Thomas E. Winter
---------------------------------
Name: Thomas E. Winter
Title: General Partner
ONSET ENTERPRISE ASSOCIATES III, L.P.
By: OEA III Management, LLC
By: /s/ Thomas E. Winter
---------------------------------
Name: Thomas E. Winter
Title: Managing Director
CORMAN FOUNDATION, INCORPORATED
By: /s/ James F. Corman
---------------------------------
Name: James F. Corman
Title: President
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IAI INVESTMENT FUNDS VIII, INC. (IAI VALUE
FUND)
By: /s/ R. David Spreng
---------------------------------
Name: R. David Spreng
Title: Senior Vice President
IAI INVESTMENT FUNDS VI, INC. (IAI
BALANCED FUND)
By: /s/ R. David Spreng
---------------------------------
Name: R. David Spreng
Title: Senior Vice President
/s/ Thomas Domencich
------------------------------------
Thomas Domencich, Individually
/s/ Dennis R. Patrick
------------------------------------
Dennis R. Patrick, Individually
GROTECH PARTNERS 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
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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
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 Director
/s/ Shawn J. Colo
---------------------------------------
Shawn J. Colo, Individually
/s/ Benjamin M. Coughlin
---------------------------------------
Benjamin M. Coughlin, Individually
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/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