EXHIBIT 4.1
===============================================================================
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
SBC COMMUNICATIONS INC.
AND
COVAD COMMUNICATIONS GROUP, INC.
===============================================================================
SEPTEMBER 10, 2000
TABLE OF CONTENTS
Page
-----
Article I Defined Terms................................................... 1
Article II Terms of Purchase and Sale..................................... 7
2.1 Conveyance of Shares.................................... 7
2.2 Purchase Price for the Shares........................... 7
2.3 Number of Shares to be Issued at the Closing............ 7
2.4 The Closing............................................. 7
2.5 Deliveries by SBC....................................... 7
2.6 Deliveries by Covad..................................... 8
Article III Conditions to Covad's Obligations............................. 8
3.1 Consents................................................ 9
3.2 Litigation.............................................. 9
3.3 SBC Representations; Compliance with Covenants.......... 9
3.4 Deliveries.............................................. 9
Article IV Conditions to SBC's Obligations................................ 9
4.1 Consents................................................ 10
4.2 Litigation.............................................. 10
4.3 Covad's Representations; Compliance with Covenants...... 10
4.4 Covad Change in Control Event........................... 10
4.5 Representation and Warranty Relating to Covad
Change in Control Event.............................. 10
4.6 Adverse Developments.................................... 10
4.7 Deliveries.............................................. 11
Article V Representations and Warranties of SBC........................... 11
5.1 Organization and Standing............................... 11
5.2 Authorization by SBC.................................... 11
5.3 Litigation.............................................. 11
5.4 Finders' and Brokers' Fees.............................. 12
5.5 Investment Intent; Qualification........................ 12
5.6 Current Ownership....................................... 12
5.7 Representations Not Misleading.......................... 13
Article VI Representations and Warranties of Covad........................ 13
6.1 Organization and Standing of Covad...................... 13
6.2 Authorization by Covad; Consents........................ 13
6.3 Corporate Documents..................................... 14
6.4 Licenses; Qualification................................. 14
6.5 Litigation.............................................. 15
6.6 Exclusive Dealing....................................... 15
i
Page
-----
6.7 Compliance with Applicable Laws......................... 15
6.8 Title to Shares; Absence of Liens....................... 16
6.9 Financial Statements.................................... 16
6.10 Conduct of Business in Ordinary Course.................. 16
6.11 No Material Adverse Effect.............................. 17
6.12 Absence of Defaults..................................... 17
6.13 Capital Stock of Covad.................................. 17
6.14 Finder's and Brokers' Fees.............................. 17
6.15 Taxes................................................... 17
6.16 Subsidiaries............................................ 18
6.17 Covad Change in Control Event........................... 18
6.18 Representations Not Misleading.......................... 18
Article VII Covenants of SBC.............................................. 18
7.1 Cooperation............................................. 18
7.2 Compliance with Securities Laws......................... 18
7.3 Confidentiality; Press Releases......................... 18
7.4 Lock-Up Period.......................................... 19
7.5 Further Assurances...................................... 19
7.6 Rights of First Offer and Refusal....................... 19
7.7 Board of Directors...................................... 21
7.8 Disposition............................................. 22
7.9 Standstill.............................................. 23
Article VIII Covenants of Covad........................................... 23
8.1 Cooperation............................................. 24
8.2 Access to Covad Information............................. 24
8.3 Operation of Covad Business............................. 24
8.4 Confidentiality; Press Releases......................... 24
8.5 Notification of Change in Control Event................. 24
8.6 Registration Rights..................................... 25
8.7 Listing................................................. 30
8.8 Further Assurances...................................... 30
Article IX Termination.................................................... 30
9.1 Terminating Events...................................... 30
9.2 Effect on Obligations................................... 31
Article X Indemnification................................................. 31
10.1 Indemnification by Covad................................ 31
10.2 Indemnification by SBC.................................. 32
10.3 Losses.................................................. 33
10.4 Survival................................................ 33
10.5 Procedures Relating to Third Party Claims............... 34
10.6 Exclusivity............................................. 35
ii
Page
-----
Article XI Miscellaneous.................................................. 35
11.1 Dispute Resolution...................................... 35
11.2 Entire Agreement; Amendment............................. 35
11.3 Successors and Assigns.................................. 36
11.4 Rights and Remedies..................................... 36
11.5 Counterparts............................................ 36
11.6 Modification and Waiver................................. 36
11.7 Expenses................................................ 37
11.8 Notices................................................. 37
11.9 Severability............................................ 38
11.10 Governing Law........................................... 39
11.11 Rules of Construction................................... 39
11.12 Ownership Limitation.................................... 39
11.13 Representations and Warranties.......................... 39
SCHEDULES:
6.2 CONSENTS
6.4 LICENSES
6.5 LITIGATION
6.8 SUBSIDIARIES' OUTSTANDING CAPITAL STOCK
6.10 DEBTS AND LIENS
6.11 MATERIAL ADVERSE EFFECT
6.13 CAPITAL STOCK
6.16 SUBSIDIARIES
EXHIBITS:
A FORM OF CORPORATE LEGAL OPINION
B FORM OF DELAWARE LEGAL OPINION
iii
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement"), dated as of September 10,
2000, is made by and between SBC Communications Inc., a Delaware corporation
having its principal office at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
("SBC"), and Covad Communications Group, Inc., a Delaware corporation having its
principal office at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ("Covad").
SBC and Covad are individually each a "Party" and collectively are the
"Parties."
RECITALS
WHEREAS, Covad wishes to sell, and SBC wishes to purchase, shares of common
stock of Covad;
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement, SBC and Covad agree as follows:
ARTICLE I
DEFINED TERMS
The following terms shall have the following meanings in this Agreement:
"AFFILIATE" means, with respect to a Person, any other Person directly or
indirectly Controlling, Controlled by or under common Control with such
Person.
"AGREEMENT" shall have the meaning set forth in the preamble to this
Agreement.
"ANCILLARY AGREEMENTS" means the Resale and Marketing Agreement, the
Collocation Agreement, the Network and Product Planning Agreement, the
Amended Interconnection Agreements, the Settlement Agreement and General
Release and the Dispute Resolution Agreement, in each case as entered into
between Covad and SBC on the date of this Agreement.
"APPLICABLE LAW" means, with respect to any Party, any statute, law,
regulation, ordinance, rule, judgment, rule of common law, order, decree,
award, concession, grant, franchise, license agreement or other
governmental restriction of any similar form or decision or determination
by, or any interpretation or administration of any of the foregoing by, any
Governmental Authority, whether in effect as of the date of this Agreement
or thereafter, and in each case as amended, applicable to such Party or its
Affiliates or their respective assets.
"ASSETS" means the contracts, Covad Licenses, personal property,
intellectual property and real property, and all other assets, rights and
properties, tangible and intangible, of Covad and used or held for use in
the Covad Business, including (without limitation) cash, cash equivalents
and accounts receivable.
1
"BASIS" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act or transaction that forms or could reasonably be expected to
form the basis for any specified consequences.
"BENEFICIAL OWNER" means, with respect to any security, a Person that
Beneficially Owns such security.
"BENEFICIALLY OWN," and variants thereof, means having the right to vote or
dispose of, or "beneficially own" as determined pursuant to Rule 13d-3
under the Exchange Act as in effect on the date of this Agreement,
including pursuant to any agreement, arrangement or understanding.
"BUSINESS DAY" means a day other than (i) a Saturday or Sunday or (ii) a
day on which banking institutions are authorized or required by law or
executive order to remain closed in the domicile of SBC or Covad.
"CLOSING" means the consummation of the transactions contemplated by this
Agreement in accordance with the provisions of Article II.
"CLOSING DATE" shall have the meaning set forth in Section 2.4 of this
Agreement.
"COMMON STOCK" means, collectively, the common stock of Covad.
"COMMUNICATIONS ACT" means the Communications Act of 1934, 47 U.S.C.
Section 151 ET SEQ., as amended and in effect from time to time.
"COMPANY CONTROL PERSON" shall have the meaning set forth in Section 10.2
of this Agreement.
"CONSENTS" means all of the consents, permits or approvals of Governmental
Authorities and other Persons necessary or required to consummate the
transactions contemplated by this Agreement.
"CONTROL" means the possession, directly or indirectly, of the power to
direct or cause the direction of management and policies by one Person or
group of Persons acting in concert, provided, however, that the legal
ownership or Beneficial Ownership, directly or indirectly, by one Person or
group of Persons acting in concert of more than 50% of the Voting
Securities shall always be deemed Control.
"CONTROL PERSON" shall have the meaning set forth in Section 10.1 of this
Agreement.
"CONVERTIBLE SECURITIES" means any securities convertible into,
exchangeable for or bearing a right to acquire Common Stock.
"COVAD" shall have the meaning set forth in the preamble to this Agreement.
2
"COVAD BUSINESS" means Covad's business as conducted in the United States
in accordance with Covad's existing operations and business plans.
"COVAD CHANGE IN CONTROL EVENT" shall be deemed to have occurred if there
shall be consummated (i) any consolidation or merger of Covad with another
Person, other than a transaction in which, immediately after such
transaction, all or substantially all of the Beneficial Owners of Covad's
Voting Securities immediately prior to such transaction own, directly or
indirectly, securities representing a majority of the Total Voting Power of
the entity surviving or resulting from any such transaction or such
entity's parent entity, (ii) any sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of all, or
substantially all, of the Assets of Covad to another Person, or (iii) the
acquisition of Control of Covad by another Person, other than a transaction
in which, immediately after such transaction, all or substantially all of
the Beneficial Owners of Covad's Voting Securities immediately prior to
such transaction own, directly or indirectly, securities representing a
majority of the Total Voting Power of the entity surviving or resulting
from any such transaction or such entity's parent entity.
"COVAD FINANCIAL STATEMENTS" means the consolidated balance sheets
(including related notes and schedules, if any) of Covad as of June 30,
2000 and as of December 31, 1999 and the related consolidated statements of
income, shareholders' equity and cash flows (including related notes and
schedules, if any).
"COVAD LICENSES" means all Section 214 authorizations or microwave and
other spectrum licenses issued by the FCC, and all certificates of public
convenience and necessity or comparable authorizations issued by any state
public utilities commission or comparable regulatory authority, and held by
Covad.
"ENFORCEABILITY EXCEPTIONS" shall have the meaning set forth in Section
5.2.1 of this Agreement.
"FCC" means the Federal Communications Commission or any successor thereto.
"FCC RULES" means Title 47 of the Code of Federal Regulations, as amended
at any time and from time to time, and FCC decisions issued pursuant to the
adoption of such regulations.
"FULLY DILUTED" means, with respect to the number of Shares outstanding on
a fully diluted basis, the number of Shares which would be outstanding at
the time of determination assuming the conversion, exchange or exercise of
all Convertible Securities (irrespective of any legal or contractual
restriction on such exercise, exchange or conversion), and any reference in
this Agreement to the number of Shares outstanding shall mean the number of
Shares outstanding assuming no conversion, exchange or exercise of
Convertible Securities.
"GAAP" means generally accepted accounting principles consistent with the
past practices of Covad.
3
"GOVERNMENTAL AUTHORITY" means (i) the United States, any state,
commonwealth, territory, or possession thereof and any political
subdivision or quasi-governmental authority of any of the same, including
but not limited to courts, tribunals, departments, commissions, boards,
bureaus, agencies, counties, municipalities, provinces, parishes, and other
instrumentalities, and (ii) any foreign (as to the United States) sovereign
entity, including but not limited to nations, states, republics, kingdoms
and principalities, any province, commonwealth, territory or possession
thereof, and any political subdivision, quasi-governmental authority, or
instrumentality of any of the same.
"HOLDER" means SBC and each transferee of SBC's rights under this Agreement
that is a Wholly-Owned SBC Subsidiary and any other transferee of SBC's
rights under this Agreement to which Covad consents pursuant to the terms
of this Agreement.
"HSR ACT" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976,
as amended and in effect from time to time.
"INDEMNIFIED PARTY" shall have the meaning set forth in Section 10.5 of
this Agreement.
"IRS" means the Internal Revenue Service and any governmental body or
agency succeeding to the functions thereof.
"JUDGMENT" means any judgment, writ, order, injunction, award or decree of
any court, judge, justice or magistrate, including any bankruptcy court, or
arbiter, and any order of or by any other Governmental Authority.
"KNOWLEDGE" means, with respect to a particular matter, the actual
knowledge of officers, directors and management employees with managerial
or supervisory authority over that matter.
"LEGAL REQUIREMENTS" means applicable common law and any applicable
statute, ordinance, code or other law, rule, regulation, order, technical
or other standard, requirement or procedure enacted, adopted, promulgated
or applied by any Governmental Authority, including any Judgment.
"LIEN" means any security agreement, financing statement filed with any
Governmental Authority, conditional sale or other title retention
agreement, any lease, consignment or bailment given for the purpose of
security, any lien, mortgage, indenture, pledge, option, encumbrance,
restriction on transfer (other than restrictions on transfer imposed by
this Agreement or the Ancillary Agreements or by Federal or State
securities laws), adverse interest, constructive trust or other trust,
claim, attachment, exception to or defect in title or other ownership
interest (including but not limited to reservations, rights of entry,
possibilities of reverter, encroachments, easements, rights-of-way,
restrictive covenants, leases and licenses) of any kind, which otherwise
constitutes an interest in or claim against property, whether arising
pursuant to any Legal Requirement, contract or otherwise.
4
"LITIGATION" means any claim, action, suit, proceeding, arbitration,
investigation, hearing or other activity or procedure that could result in
a Judgment, and any notice of any of the foregoing.
"LOSSES" means any losses, liabilities, damages, Liens, penalties, costs,
fines and expenses, whether in connection with any Litigation or otherwise,
including but not limited to interest which may be imposed in connection
therewith, expenses of investigation, reasonable fees and disbursements of
counsel and other experts, and the cost to any Person making a claim or
seeking indemnification under this Agreement with respect to funds expended
by such Person by reason of the occurrence of any event with respect to
which indemnification is sought.
"MATERIAL ADVERSE EFFECT" means a material adverse change in the financial
condition or financial results of operations of Covad and its Subsidiaries
taken as a whole or the occurrence of any event or combination of events
that is reasonably likely to result in a material adverse change in the
financial condition or financial results of operations of Covad and its
Subsidiaries taken as a whole. When the phrase "material adverse" is used
in this Agreement and is not used as a capitalized term and in the phrase
"Material Adverse Effect," such "material adverse" reference shall not be
defined or construed as provided in the immediately preceding sentence or
in the context of Covad and its Subsidiaries taken as a whole but instead
shall mean a material adverse effect, change or consequences only as to the
matter with respect to which the phrase "material adverse" is utilized.
"NASDAQ" means Nasdaq National Market.
"OUTSTANDING" with respect to the number of Shares outstanding on a fully
diluted basis, shall have the meaning set forth in the definition of the
term, "Fully Diluted."
"PARTY" shall have the meaning set forth in the preamble to this Agreement.
"PERMITTED REGISTRATION DATE" means the date that is one year from the
Closing Date.
"PERSON" means any natural person, Governmental Authority, corporation,
general or limited partnership, limited liability company, limited
liability partnership, joint venture, trust, estate, association,
organization or unincorporated entity of any kind.
"PURCHASE PRICE" means One Hundred Fifty Million Dollars ($150,000,000).
"REGISTRATION STATEMENT" shall have the meaning set forth in Section
8.6.1(a) of this Agreement.
"SBC" shall have the meaning set forth in the preamble to this Agreement.
"SEC" shall mean the Securities and Exchange Commission and any
governmental body or agency succeeding to the functions thereof.
5
"SEC REPORTS" means (a) the most recent Form 10-K that Covad filed with the
SEC, (b) the most recent Form S-4 that Covad filed with the SEC, (c) the
Forms 10-Q that Covad filed with the SEC for the quarters ended March 31,
2000 and June 30, 2000, and (d) all Forms 8-K that Covad filed with SEC in
the year 2000 prior to the date of this Agreement, not including in (a)
through (d) above the exhibits thereto or the documents incorporated
therein.
"SECURITIES ACT" means the Securities Act of 1933, as amended and in effect
from time to time.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended and in effect from time to time.
"SELLING SHAREHOLDER" shall have the meaning set forth in Section 8.6.1 of
this Agreement.
"SIGNIFICANT COMPETITOR" means Rhythms Netconnections Inc., NorthPoint
Communications Group, Inc., their Affiliates and any current or future
comparable competitors of Covad.
"SUBSIDIARY" of any corporation means any other corporation, limited
liability company, general or limited partnership, limited liability
partnership, joint venture, trust or other entity of which the outstanding
capital stock possessing a majority of voting power in the election of
directors (otherwise than as the result of a default) is owned or
Controlled by such corporation directly or indirectly through Subsidiaries.
"TAXES" means all levies and assessments of any kind or nature imposed on
Covad by any Governmental Authority, including but not limited to all
income, sales, use, AD VALOREM, value added, franchise, severance, net or
gross proceeds, withholding, payroll, employment, excise or property taxes,
together with any interest thereon and any penalties, additions to tax or
additional amounts applicable thereto.
"THIRD PARTY CLAIM" shall have the meaning set forth in Section 10.5 of
this Agreement.
"TOTAL VOTING POWER" means the aggregate number of votes which may be cast
by holders of Voting Securities in respect of Voting Securities.
"VOTING SECURITIES" means securities of Covad ordinarily having the power
to vote for the election of directors of Covad, provided, that when the
term "Voting Securities" is used with respect to any other Person, it means
the capital stock or other equity interests of any class or kind ordinarily
having the power to vote for the election of directors or other members of
the governing body of such Person.
"WHOLLY-OWNED SUBSIDIARY" means, with respect to a Person, any corporation,
limited liability company, general or limited partnership, limited
liability partnership, joint venture, trust or other entity of which the
outstanding capital stock or other equity interest is wholly owned directly
or indirectly by such Person, and which is formed for business
6
purposes that are unrelated to the ability of such entity to receive any
rights or interests under or associated with this Agreement.
ARTICLE II
TERMS OF PURCHASE AND SALE
2.1 CONVEYANCE OF SHARES.
Subject to the terms and conditions of this Agreement, Covad shall issue at
the Closing to SBC, free and clear of all Liens, the number of shares of
its Common Stock set forth in Section 2.3 of this Agreement (the "Shares").
2.2 PURCHASE PRICE FOR THE SHARES.
The aggregate purchase price for the Shares (the "Purchase Price") shall be
One Hundred Fifty Million Dollars ($150,000,000.00).
2.3 NUMBER OF SHARES TO BE ISSUED AT THE CLOSING.
The number of shares of Shares to be acquired by SBC at the Closing shall
be 9,373,169.
2.4 THE CLOSING.
Upon the terms and subject to the conditions contained in this Agreement
(each Party agreeing to notify the other when all closing conditions have
occurred), the Closing shall take place at the offices of ▇▇▇▇▇▇ & ▇▇▇▇▇▇
in Washington, D.C., at 10:00 a.m. local time on the date (the "Closing
Date") which is five (5) Business Days after each of the conditions set
forth in Article III and Article IV have been satisfied or waived, or any
other mutually agreed upon time.
2.5 DELIVERIES BY SBC.
On the Closing Date, SBC shall deliver to Covad the following, in form and
substance reasonably satisfactory to Covad and its counsel:
2.5.1 The Purchase Price by wire transfer in the form of immediately
available funds to an account designated by Covad;
2.5.2 A certificate, dated as of the Closing Date, executed by an officer
of SBC, certifying that the conditions set forth in Article III have
been fulfilled;
2.5.3 A certificate, dated as of the Closing Date, executed by SBC's
Secretary certifying that the execution of this Agreement and the
consummation of the transaction contemplated by this Agreement have
been authorized and approved by all necessary corporate action of SBC,
which remains in full force and effect
7
and has not been modified or amended;
2.5.4 Such other documents and instruments as shall be reasonably necessary
to effect the intent of this Agreement and consummate the transactions
contemplated by this Agreement.
2.6 DELIVERIES BY COVAD.
On the Closing Date, Covad shall deliver to SBC the following, in form and
substance reasonably satisfactory to SBC and its counsel:
2.6.1 A certificate or certificates for all of the Shares;
2.6.2 A certificate, dated as of the Closing Date, executed by an officer
of Covad, certifying that all the conditions set forth in Article IV
have been fulfilled;
2.6.3 A certificate, dated as of the Closing Date, executed by the
Secretary of Covad, certifying that the resolutions, as attached to
such certificate, were duly adopted by the Board of Directors of Covad
authorizing and approving the execution of this Agreement and the
consummation of the transactions contemplated by this Agreement, and
that such resolutions remain in full force and effect and have not
been modified or amended;
2.6.4 An opinion, dated as of the Closing Date, of outside counsel to Covad
(which counsel shall be reasonably satisfactory to SBC) substantially
in the form of Exhibit A to this Agreement;
2.6.5 An opinion, dated as of the Closing Date, of outside state regulatory
counsel to Covad (which counsel shall be reasonably satisfactory to
SBC) in form and substance reasonably satisfactory to SBC.
2.6.6 An opinion, dated as of the Closing Date, of outside Delaware counsel
to Covad (which counsel shall be reasonably satisfactory to SBC)
substantially in the form of Exhibit B to this Agreement;
2.6.7 Such other documents and instruments as shall be reasonably necessary
to effect the intent of this Agreement and consummate the transactions
contemplated by this Agreement.
ARTICLE III
CONDITIONS TO COVAD'S OBLIGATIONS
The obligations of Covad to sell the Shares and effect the Closing shall be
subject to the satisfaction by SBC, or waiver thereof by Covad, on or prior
to the Closing Date of all of the following conditions:
8
3.1 CONSENTS.
All waiting periods under the HSR Act applicable to this Agreement or the
transactions contemplated by this Agreement shall have expired or been
terminated, and all other Consents shall have been obtained.
3.2 LITIGATION.
No Litigation shall be pending, and no Legal Requirement shall have been
enacted, entered, promulgated or issued, or shall have become or be deemed
applicable, to any of the transactions contemplated by this Agreement by
any Governmental Authority, that would (i) prohibit SBC's ownership of the
Shares or prohibit Covad's operation of the Covad Business in any material
respect as it is being operated as of the date of this Agreement or (ii)
prevent, make illegal, or subject Covad to material damages in respect of,
the consummation of the transactions contemplated by this Agreement, EXCEPT
FOR Litigation in which there is neither (x) a Governmental Authority as a
party nor (y) a material likelihood that the outcome would be either (i) or
(ii) above.
3.3 SBC REPRESENTATIONS; COMPLIANCE WITH COVENANTS.
SBC's representations and warranties in Article V shall be accurate in all
material respects without regard to any materiality qualifiers contained
therein when made and at and as of the Closing with the same effect as
though such representations and warranties had been made at and as of the
Closing (except to the extent that any such representation and warranty
speaks as of an earlier date), and SBC shall have in all material respects
performed and complied with all covenants and agreements and conditions
required by this Agreement to be performed or complied with by it prior to
or at the Closing, provided that this condition shall be satisfied if the
inaccuracy of any representation or warranty, or the nonperformance or
noncompliance with any covenant, agreement or condition, individually or in
the aggregate, does not have a material adverse effect on SBC.
3.4 DELIVERIES.
SBC shall have made or stand willing and able to make all of the deliveries
to Covad set forth in Section 2.5 of this Agreement.
ARTICLE IV
CONDITIONS TO SBC'S OBLIGATIONS
The obligations of SBC to purchase the Shares and effect the Closing shall
be subject to the satisfaction, or waiver by SBC, on or prior to the
Closing Date of all of the following conditions:
9
4.1 CONSENTS.
All waiting periods under the HSR Act applicable to this Agreement or the
transactions contemplated by this Agreement shall have expired or been
terminated, and all other Consents shall have been obtained.
4.2 LITIGATION.
No Litigation shall be pending, and no Legal Requirement shall have been
enacted, entered, promulgated or issued, or shall have become or be deemed
applicable, to any of the transactions contemplated by this Agreement by
any Governmental Authority, that would (i) prohibit SBC's ownership of the
Shares or prohibit Covad's operation of the Covad Business in any material
respect as it is being operated as of the date of this Agreement or (ii)
prevent, make illegal, or subject SBC or Covad to material damages in
respect of, the consummation of the transactions contemplated by this
Agreement, EXCEPT FOR Litigation in which there is neither (x) a
Governmental Authority as a party nor (y) a material likelihood that the
outcome would be either (i) or (ii) above.
4.3 COVAD'S REPRESENTATIONS; COMPLIANCE WITH COVENANTS.
Covad's representations and warranties in Article VI shall be accurate in
all respects without regard to any materiality qualifiers contained therein
when made and at and as of the Closing with the same effect as though such
representations and warranties had been made at and as of the Closing
(except to the extent that any such representation and warranty speaks as
of an earlier date), and Covad shall have in all material respects
performed and complied with all covenants and agreements and conditions
required by this Agreement to be performed or complied with by it prior to
or at the Closing Date, provided that this condition shall be satisfied if
the inaccuracy of any representation or warranty, or the nonperformance or
noncompliance with any covenant, agreement or condition, individually or in
the aggregate, does not have a Material Adverse Effect.
4.4 COVAD CHANGE IN CONTROL EVENT.
No Covad Change in Control Event shall have occurred.
4.5 REPRESENTATION AND WARRANTY RELATING TO COVAD CHANGE IN CONTROL EVENT.
Covad's representations and warranties in Section 6.17 of this Agreement
shall be accurate at and as of the Closing (notwithstanding the fact that
it speaks as of the date of this Agreement) with the same effect as though
such representations and warranties had been made at and as of the Closing.
4.6 ADVERSE DEVELOPMENTS.
Since the date of this Agreement, there shall not have occurred any change,
or any development involving a prospective change in or affecting the
business, operations, properties, Assets or prospects of Covad (except for
changes or conditions generally
10
affecting the industries in which Covad operates or changes in general
economic, regulatory or political conditions or changes affecting the
financial markets generally) that has had or reasonably could be expected
to have a Material Adverse Effect.
4.7 DELIVERIES.
Covad shall have made or stand willing and able to make all of the
deliveries to SBC set forth in Section 2.6 of this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SBC
SBC hereby represents and warrants to Covad as follows:
5.1 ORGANIZATION AND STANDING.
SBC is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite corporate
power and authority to execute and deliver this Agreement and to perform
its obligations under this Agreement.
5.2 AUTHORIZATION BY SBC.
5.2.1 This Agreement has been duly authorized and validly executed and
delivered by SBC and constitutes the legal, valid and binding
obligation of SBC enforceable against SBC in accordance with its
terms, except as such enforceability may be limited by (i) bankruptcy,
insolvency, or other similar laws affecting the enforcement of
creditors' rights generally or (ii) general principles of equity
(collectively, the "Enforceability Exceptions").
5.2.2 Except for the filing required by the HSR Act and the expiration of
the waiting period associated with such filing, and except for the
Consents as set forth in Schedule 6.2, the execution, delivery and
performance of this Agreement by SBC will not, with or without the
giving of notice or the lapse of time, or both, (i) violate any Legal
Requirements to which SBC is subject, (ii) conflict with or result in
a breach of the terms, conditions or provisions of, or constitute a
default under, the charter or by-laws of SBC or any material agreement
or commitment to which SBC is a party or by which SBC or any of SBC's
assets, may be bound or affected, or (iii) require SBC to obtain any
authorization, consent, approval or waiver from, or to make any filing
with, any Governmental Authority or non-governmental third party.
Covad has informed SBC that no Consents are required for consummation
of the transactions contemplated by this Agreement except as set forth
in Section 6.2 of this Agreement.
5.3 LITIGATION. There is no Litigation pending against SBC or, to SBC's
Knowledge, any Basis for Litigation or threatened Litigation against SBC
which seeks to enjoin or obtain
11
material damages in respect of the consummation of the transactions
contemplated by this Agreement, EXCEPT for Litigation in which there is
neither (x) a Governmental Authority as a party nor (y) a material
likelihood that the outcome would be an injunction of or material damages
in respect of the consummation of the transactions contemplated by this
Agreement. SBC is not a party to or involved in any Litigation which has a
material adverse effect on SBC's ability to consummate, or would prevent
the consummation of, the transactions contemplated by this Agreement.
5.4 FINDERS' AND BROKERS' FEES.
Neither SBC, nor anyone on behalf of SBC, has any obligations to any
broker, finder or agent, or agreed to pay any brokerage fee, finder's fee
or commission in connection with this Agreement or the transactions
contemplated by this Agreement.
5.5 INVESTMENT INTENT; QUALIFICATION.
5.5.1 SBC is acquiring the Shares solely for its own account, for
investment purposes only, and not with a view to, or for sale in
connection with, any distribution thereof, in whole or in part, within
the meaning of the Securities Act or any applicable state securities
laws. SBC acknowledges that the Shares are not registered under the
Securities Act, and that the Shares may not be resold by SBC unless
registered pursuant to the Securities Act and any applicable state
securities laws or unless an exemption therefrom is available. SBC
acknowledges that Covad will rely upon the truth of the
representations made in this Section 5.5 in determining that an
exemption from the registration requirements of the securities laws is
available in connection with the sale of the Shares pursuant to this
Agreement. SBC acknowledges that the certificate(s) representing the
Shares will bear an appropriate legend that states that the Shares
have not been registered under the Securities Act and are subject to
the restrictions on transferability under the Securities Act and this
Agreement.
5.5.2 SBC has the ability to evaluate the merits and risks associated with
its investment in the Shares on the basis of SBC's knowledge and
experience in financial and business matters. SBC is an "accredited
investor" as defined in Rule 501 of the General Rules and Regulations
under the Securities Act. SBC has not relied upon any representation
or warranty made by Covad, or by any person on behalf of Covad, other
than the representations and warranties contained in this Agreement.
SBC has been afforded access to information regarding Covad and its
financial condition, operating results, properties, liabilities,
operations and management sufficient to enable it to evaluate the
risks and merits of its investment in the Shares.
5.6 CURRENT OWNERSHIP.
SBC does not Beneficially Own any shares of Common Stock.
12
5.7 REPRESENTATIONS NOT MISLEADING.
The representations made by SBC in this Agreement do not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF COVAD
Covad hereby represents and warrants to SBC as follows:
6.1 ORGANIZATION AND STANDING OF COVAD.
Covad is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware with all requisite power
and authority (corporate and other) to own its properties and conduct its
business as now being conducted, and is duly qualified to do business as a
foreign corporation in good standing in each jurisdiction where the
ownership of its properties or the conduct of its business makes such
qualification necessary, except to the extent that failure to be so
qualified would not reasonably be expected to have a Material Adverse
Effect. Each Subsidiary of Covad is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation with all requisite power and authority (corporate and other)
to own its properties and conduct its business as now being conducted, and
is duly qualified to do business as a foreign corporation in good standing
in each jurisdiction where the ownership of its properties or the conduct
of its business makes such qualification necessary, except to the extent
that a failure to be so qualified would not reasonably be expected to have
a Material Adverse Effect.
6.2 AUTHORIZATION BY COVAD; CONSENTS.
6.2.1 Covad has all requisite corporate power and authority to execute,
deliver and perform its obligations under this Agreement. Covad has
taken all corporate action necessary to authorize this Agreement and
the issue, sale and delivery of the Shares. This Agreement has been
duly authorized, executed and delivered by Covad and is a legal, valid
and binding obligation of Covad enforceable in accordance with its
terms, except as such enforceability may be limited by the
Enforceability Exceptions.
6.2.2 Except for the filing required by the HSR Act and the expiration of
the waiting period associated with such filing, and except for the
Consents set forth in Schedule 6.2, the execution, delivery and
performance of this Agreement by Covad will not, with or without the
giving of notice or the lapse of time, or both, (i) violate any Legal
Requirements to which Covad is subject, (ii) conflict with or result
in a breach of the terms, conditions or provisions of, or constitute a
default under, the Certificate of Incorporation or By-Laws of Covad,
or any Covad
13
License, any material contract to which Covad is a party or by which Covad
may be bound or affected, except for such violation, conflict breach or
default (other than any of the foregoing arising pursuant to the
Certificate of Incorporation or By-Laws of Covad) which would not
reasonably be expected to have a Material Adverse Effect or prejudice in
any material respect the rights of SBC under this Agreement, or (iii)
require Covad to obtain any authorization, consent, approval or waiver
from, or to make any filing with, any Governmental Authority or other
Person, except for authorizations, consents, approvals or waivers or
filings that are immaterial to the consummation of the transactions
contemplated by this Agreement.
6.3 CORPORATE DOCUMENTS.
True and correct copies of the Certificate of Incorporation and the By-Laws
of Covad, certified by an appropriate officer of Covad, have been delivered
to SBC and such Certificate of Incorporation and By-Laws have not been
amended since the respective dates of certification thereof, nor has the
Board of Directors or the shareholders of Covad taken any action for the
purpose of effecting the amendment or modification of such Certificate of
Incorporation or By-Laws.
6.4 LICENSES; QUALIFICATION.
6.4.1 Covad or its Subsidiaries hold all the Covad Licenses listed in
Schedule 6.4 to this Agreement in its corporate name. The Covad
Licenses listed in Schedule 6.4 are all of the Licenses which are
required in connection with the current operation of the Covad
Business, except for Licenses the failure of which to obtain would not
be reasonably expected to have a Material Adverse Effect. Except as
set forth on Schedule 6.4, all Covad Licenses are currently in full
force and effect and there are no pending or, to the Knowledge of
Covad, threatened revocation proceedings which would have a Material
Adverse Effect on the operation of the Covad Business, nor, to the
Knowledge of Covad, is there any Basis for any such proceeding. Covad
has made available to SBC for SBC's review, accurate and complete
copies of all Covad Licenses.
6.4.2 All fees due and payable to Governmental Authorities pursuant to the
Covad Licenses have been paid (except for fees due and payable which
are being contested in good faith or with respect to which the failure
to pay would not reasonably be expected to have a Material Adverse
Effect) and, except as set forth on Schedule 6.4, no event has
occurred which, with or without the giving of notice or the lapse of
time or both, would constitute grounds for revocation of the Covad
Licenses. Except as set forth on Schedule 6.4, Covad is in compliance
in all material respects with the terms of the Covad Licenses, and
there is no condition, event or occurrence existing, nor is there any
proceeding being conducted of which Covad has received notice, nor, to
Covad's Knowledge, is there any proceeding threatened, by any
Governmental Authority, which would cause the termination, suspension,
cancellation or nonrenewal of any of the Covad
14
Licenses, or the imposition of any material penalty or fine by any
Governmental Authority, nor, to the Knowledge of Covad, is there any
Basis for any such proceeding, in any case, which would reasonably be
expected to have a Material Adverse Effect.
6.4.3 Except as set forth on Schedule 6.4, to Covad's Knowledge, all
applications, reports, fees, filings and other submissions required by
any Governmental Authority have been made or paid in a timely fashion,
except where the failure to do so would not reasonably be expected to
have a Material Adverse Effect on Covad.
6.5 LITIGATION.
There is no Litigation pending against Covad or any of its Subsidiaries,
or, to the Knowledge of Covad, a Basis for Litigation or threatened
Litigation against Covad or any of its Subsidiaries which seeks to enjoin
or obtain material damages in respect of the consummation of the
transactions contemplated by this Agreement, EXCEPT for Litigation in which
there is neither (x) a Governmental Authority as a party nor (y) a material
likelihood that the outcome would be an injunction of or material damages
in respect of the consummation of the transactions contemplated by this
Agreement. Except for those matters disclosed on Schedule 6.5, or as
discussed in the SEC Reports, as of the date of this Agreement there is no
Litigation or, to the Knowledge of Covad, Basis for Litigation, against
Covad or any of its Subsidiaries (including proceedings concerning labor
disputes or grievances, civil rights discrimination cases and affirmative
action proceedings) nor is there any governmental investigation pending or,
to Covad's Knowledge, Basis for governmental investigation or threatened
governmental investigation relating to Covad or any of its Subsidiaries or
to which Covad or any such Subsidiary is a party, nor is there any Judgment
relating to Covad or any of its Subsidiaries or to which Covad or any of
its Subsidiaries is a party which is unsatisfied or requires continuing
compliance, in any case, which would reasonably be expected to have a
Material Adverse Effect. Neither Covad nor any of its Subsidiaries is a
party to or involved in any Litigation which has a material adverse effect
upon Covad's ability to consummate, or would prevent the consummation of,
the transactions contemplated by this Agreement.
6.6 EXCLUSIVE DEALING.
Except as disclosed in the SEC Reports, as of the date hereof, neither
Covad nor any of its Affiliates is a party to any currently effective
agreement, written or oral, involving the sale of any Covad securities, a
material portion of Covad's Assets, or a material part of the Covad
Business to any Person other than SBC.
6.7 COMPLIANCE WITH APPLICABLE LAWS.
Covad and each of its Subsidiaries has complied and presently is in
compliance with all applicable Legal Requirements, except where the failure
to do so would not reasonably be expected to have a Material Adverse
Effect.
15
6.8 TITLE TO SHARES; ABSENCE OF LIENS.
6.8.1 The Shares have been duly authorized for issuance and, upon the
consummation of the transactions contemplated by this Agreement, will
be validly issued, fully paid and nonassessable. None of the Shares
has been issued in violation of, or is subject to, any preemptive or
subscription or similar rights. Except as disclosed on Schedule 6.8 or
in the SEC Reports, there are no outstanding options or rights of any
kind to acquire or subscribe for any Shares nor are there any
obligations to issue, sell or otherwise cause to become outstanding
any such options, rights, capital stock or securities. Except as
disclosed on Schedule 6.8 or in the SEC Reports, Covad is not a party
to, and does not have any Knowledge of, any voting trusts, proxies,
voting agreements or other agreements with respect to the voting of
the capital stock of Covad.
6.8.2 SBC will acquire at the Closing good title to the Shares, free and
clear of all Liens.
6.8.3 Except as disclosed on Schedule 6.8, Covad owns all of the issued and
outstanding capital stock of each of its Subsidiaries, excluding
directors' qualifying shares.
6.9 FINANCIAL STATEMENTS.
The unaudited Covad Financial Statements for June 30, 2000 are included in
Covad's Form 10-Q for the three months ended June 30, 2000, and the audited
financial statements for the year ended December 31, 1999 are included in
Covad's most recent Form 10-K. The Covad Financial Statements have been
prepared by Covad in accordance with GAAP and present fairly the financial
position of Covad and its Subsidiaries as of the dates of such statements
(subject, in the case of unaudited financial statements, to the absence of
footnotes and normal year-end audit adjustments). Covad does not have
Knowledge of any material contingent liabilities that are not disclosed on
the Covad Financial Statements or in the SEC Reports.
6.10 CONDUCT OF BUSINESS IN ORDINARY COURSE.
From December 31, 1999 through the date of this Agreement, except as set
forth on Schedule 6.10 or as disclosed in the SEC Reports, Covad has
conducted the Covad Business only in the ordinary course and consistent
with past practices. Since December 31, 1999, except as set forth on
Schedule 6.10 or as disclosed in the SEC Reports, Covad has not: (i)
incurred any indebtedness or Liens except in the ordinary course and
consistent with past practices; (ii) paid any dividends; or (iii) waived
any material rights of Covad under any material contract or Covad License.
The Parties acknowledge that Covad periodically engages in financings and
that such financings are in the ordinary course and consistent with past
practices.
16
6.11 NO MATERIAL ADVERSE EFFECT.
Since December 31, 1999, except as set forth in Schedule 6.11 to this
Agreement or the SEC Reports, there has been no Material Adverse Effect
(except for changes or conditions generally affecting the industries in
which Covad operates or changes in general economic, regulatory or
political conditions or changes affecting the financial markets generally).
6.12 ABSENCE OF DEFAULTS.
Except as disclosed on Schedule 6.12, neither Covad nor any of its
Subsidiaries is in material default under or in material violation of any
provision of its Certificate of Incorporation or By-Laws or contained in
any other agreement or instrument to which it is a party or by which it is
bound or to which any of its properties is subject, and neither Covad nor
any of its Subsidiaries is in material violation of any statute, order,
rule or regulation of any court or governmental agency or body having
jurisdiction over it or any of its properties, in any such case, which
would reasonably be expected to have a Material Adverse Effect.
6.13 CAPITAL STOCK OF COVAD.
The authorized capital stock of Covad as of the date of this Agreement is
as set forth on Schedule 6.13, and no other shares are issued or
outstanding. Each issued and outstanding share of Common Stock is duly and
validly authorized and issued and is fully paid and nonassessable. As of
the date hereof, there is no existing option, warrant, call or commitment
of any kind relating to the capital stock of Covad or securities
convertible into capital stock of Covad, except as set forth on Schedule
6.13 or the SEC Reports. The Shares are not and will not at the time of
issuance be subject to any preemptive right of any shareholder.
6.14 FINDER'S AND BROKERS' FEES.
Neither Covad, nor anyone on behalf of Covad, has any obligations to any
broker, finder or agent, or agreed to pay any brokerage fee, finder's fee
or commission in connection with this Agreement and the transactions
contemplated by this Agreement.
6.15 TAXES.
Covad and each of its Subsidiaries has filed or caused to be filed all
federal, state and local tax returns which are required to be filed by it,
and has paid or caused to be paid all taxes shown to be due and payable on
such returns or on any assessments received by it (other than assessments
being contested in good faith), including payroll taxes, except in each
case where the failure to file or pay would not reasonably be expected to
have a Material Adverse Effect.
17
6.16 SUBSIDIARIES.
Other than as set forth on Schedule 6.16 to this Agreement, Covad has no
Subsidiaries.
6.17 COVAD CHANGE IN CONTROL EVENT.
As of the date of this Agreement, Covad does not presently contemplate a
Covad Change in Control Event, and Covad has no Knowledge of circumstances
existing as of the date of this Agreement that have a reasonable
possibility of resulting in a Covad Change in Control Event (except for
changes or conditions generally affecting the industries in which Covad
operates or changes in general economic, regulatory or political conditions
or changes affecting the financial markets generally).
6.18 REPRESENTATIONS NOT MISLEADING.
The representations made by Covad in this Agreement do not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements in this Agreement, in light of
the circumstances under which they were made, not misleading.
ARTICLE VII
COVENANTS OF SBC
SBC hereby covenants and agrees with Covad as follows:
7.1 COOPERATION.
SBC will use commercially reasonable efforts and cooperate with Covad to
secure promptly all necessary Consents and to prepare and file promptly all
notifications under the HSR Act in connection with this Agreement and to
respond as promptly as practicable to any inquiries received from the
Federal Trade Commission and the Antitrust Division of the Department of
Justice for additional information or documentation and to respond as
promptly as practicable to all inquiries and requests received from any
State Attorney General or other Governmental Authority in connection with
antitrust matters.
7.2 COMPLIANCE WITH SECURITIES LAWS.
SBC will not sell or otherwise dispose of any Shares except in compliance
with the provisions of the Securities Act, the SEC's regulations thereunder
and other applicable federal and state securities and Blue Sky laws.
7.3 CONFIDENTIALITY; PRESS RELEASES.
No press release or public disclosure, either written or oral, of the
existence or terms of this Agreement shall be made by SBC without the prior
consent of Covad, which consent
18
shall not be unreasonably withheld, and SBC shall furnish to Covad advance
copies of any release which it proposes to make public concerning this
Agreement or the transactions contemplated by this Agreement and the date
upon which SBC proposes to make such press release. This provision shall
not, however, be construed to prohibit SBC from making any disclosures to
any Governmental Authority or other Person which it is required to make
under any Legal Requirement or to obtain any Consents.
7.4 LOCK-UP PERIOD.
Notwithstanding anything to the contrary in this Agreement, for a period of
one year from the Closing Date, SBC shall not, without Covad's prior
written consent, directly or indirectly, sell, pledge, contract to sell,
transfer or otherwise dispose of any of the Shares or any interest therein,
unless there has been a Covad Change in Control Event. Any attempted sale,
pledge, transfer or other disposition by SBC which is not in compliance
with this Section 7.4 shall be null and void.
7.5 FURTHER ASSURANCES.
At any time or from time to time after the Closing Date, SBC shall execute
and deliver any further instruments or documents, and take all such further
action as Covad may reasonably request, in order to effect this Agreement
and issue and deliver the Shares to SBC free and clear of all Liens.
7.6 RIGHTS OF FIRST OFFER AND REFUSAL.
7.6.1 Prior to any sale, transfer or other disposition of Shares (a
"Sale"), SBC shall first give written notice (a "First Offer Notice")
to Covad stating the intention of SBC to cause such a Sale, the name
and address of the proposed transferee, if any, the consideration
which SBC propose to have paid by a transferee (the "First Offer
Price") and the other material terms upon which such Sale is proposed.
If the consideration specified in the First Offer Notice is other than
cash, the First Offer Price shall be the fair market value of the
non-cash consideration.
7.6.2 Upon receipt of the First Offer Notice, Covad shall have an
irrevocable non-transferable option (the "First Offer") to purchase
the Shares that are the subject of the First Offer Notice at the First
Offer Price in cash and upon the same terms and conditions as those
proposed by SBC. The First Offer Notice shall specify that the closing
of the purchase by Covad shall occur not later than ten (10) Business
Days after the offer is accepted (or, if any Consents are required,
the later of ten (10) Business Days after the offer is accepted and
five (5) Business Days after the receipt of any such Consents). Covad
shall have ten (10) Business Days to accept or reject the First Offer.
If Covad accepts the First Offer, Covad shall send written notice of
such acceptance to SBC (the "Acceptance Notice") and shall be
obligated to purchase the Shares subject to the First Offer on the
terms and conditions set forth in the First Offer Notice.
19
7.6.3 Upon exercise by Covad of its right of First Offer, Covad and SBC
shall be legally obligated to consummate the purchase contemplated
thereby and shall use their reasonable commercial efforts to secure
any Government Approvals required, to comply as soon as reasonably
practicable with all Applicable Law and to take all such other actions
and to execute such additional documents as are reasonably necessary
or appropriate in connection therewith.
7.6.4 If the First Offer is not accepted, or if Covad has exercised its
right of First Offer but the transaction fails to close, then SBC
shall be free, for a period of one hundred twenty (120) days from the
earlier of (i) the expiration of the acceptance period with respect to
such First Offer pursuant to Section 7.6.2 of this Agreement and (ii)
the date SBC shall have received written notice from Covad stating
that Covad does not intend to accept the First Offer to sell the
Shares subject to the First Offer to one or more third parties for
consideration equal to or greater than the First Offer Price on no
more favorable terms to the third party than were contained in the
First Offer Notice.
7.6.5 If the third party to whom SBC proposes to sell the Shares is a
Significant Competitor of Covad, SBC shall give written notice (a
"First Refusal Notice") to Covad stating the intention of SBC to cause
such a Sale, the name and address of the proposed transferee, the
consideration which SBC propose to have paid by a transferee (the
"First Refusal Price") and the other material terms upon which such
Sale is proposed. If the consideration specified in the First Refusal
Notice is other than cash, then the First Refusal Price shall be the
fair market value of the non-cash consideration. SBC shall comply with
Sections 7.6.5 to 7.6.8 of this Agreement even if SBC already has
complied with Sections 7.6.1 to 7.6.4 of this Agreement with respect
to the same Shares.
7.6.6 Upon receipt of the First Refusal Notice, Covad shall have an
irrevocable non-transferable option (the "First Refusal") to purchase
the Shares that are the subject of the First Refusal Notice at the
First Refusal Price in cash and upon the same terms and conditions as
those proposed by SBC. The First Refusal Notice shall specify that the
closing of the purchase shall occur not later than ten (10) Business
Days after the offer is accepted (or, if any Government Approvals are
required, the later of ten (10) Business Days after the offer is
accepted and five (5) Business Days after the receipt of any such
Government Approvals). Covad shall have ten (10) Business Days to
accept or reject the First Refusal. If Covad accepts the First
Refusal, Covad shall send written notice of such acceptance to SBC and
shall be obligated to purchase the Shares subject to the First Refusal
on the terms and conditions set forth in the First Refusal Notice.
7.6.7 Upon exercise by Covad of its right of First Refusal, Covad and SBC
shall be legally obligated to consummate the purchase contemplated
thereby and shall use their reasonable commercial efforts to secure
any Government Approvals required, to comply as soon as reasonably
practicable with all Applicable Law and to take all such other actions
and to execute such additional documents as are
20
reasonably necessary or appropriate in connection therewith.
7.6.8 If the First Refusal is not accepted, then SBC shall be free, for a
period of sixty (60) days from the earlier of (i) the expiration of
the acceptance period with respect to such First Refusal pursuant to
Section 7.6.6 of this Agreement and (ii) the date SBC shall have
received written notice from Covad stating that Covad does not intend
to accept the First Refusal to sell the Shares to the third party
identified in the First Refusal Notice for the First Refusal Price.
7.7 BOARD OF DIRECTORS.
7.7.1 From and after the date of this Agreement and until the fifth
anniversary of the Closing Date, SBC will vote, or cause to be voted
(or grant consents to vote in any action to be taken by written
consent), the Shares and any other shares of Common Stock that SBC or
its Affiliates may acquire or Beneficially Own (collectively, the
Shares and any such other shares shall be referred to as the "SBC
Shares") for nominees to Covad's Board of Directors either (i) as
recommended by Covad's Board of Directors or (ii) in proportion to the
votes cast by other holders of Voting Securities of Covad, at SBC's
choice.
7.7.2 SBC agrees that all SBC Shares will be represented, in person or by
proxy, at all meetings of holders of Voting Securities of which SBC
has actual notice, so that all SBC Shares may be counted for the
purpose of determining the presence of a quorum at such meetings (it
being acknowledged that even if SBC has chosen to vote in proportion
to the votes cast by other holders of Voting Securities of Covad with
respect to the election of directors, all SBC Shares (as opposed to
simply a portion of the SBC Shares corresponding to the proportion of
the other shares of Common Stock represented in such vote) will be
voted with respect to the election of directors in proportion to votes
cast by the other holders of Voting Securities). Whenever stockholders
act by written consent with respect to the election of directors, if
SBC chooses to act in proportion to the consents of other stockholders
it shall consent to such action with respect to a percentage of the
SBC Shares equal to the percentage of outstanding shares other than
SBC Shares that consent to such action.
7.7.3 SBC hereby revokes any and all previous proxies granted with respect
to the SBC Shares that are inconsistent with the voting agreement set
forth in this Section 7.7. By entering into this Agreement, SBC hereby
grants a proxy appointing ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇. (or if he ceases to
be Chief Executive Officer of Covad, the person holding the office of
Chief Executive Officer of Covad from time to time) as SBC's
attorney-in-fact and proxy, with full power of substitution, for and
in SBC's name, to be represented at meetings of holders of Voting
Securities and to vote or consent or otherwise to utilize such voting
power solely in the manner contemplated by this Section 7.7. The proxy
granted by SBC pursuant to this Section 7.7.3 is irrevocable until the
fifth anniversary of the Closing Date, except in the case of a Sale,
and is coupled with an interest and is granted in
21
consideration of Covad entering into this Agreement and consummating
the Closing under this Agreement and as security for the obligations
of SBC herein.
7.7.4 If SBC is not the record owner of any SBC Shares as to which it or
any of its Affiliates is the Beneficial Owner, SBC agrees to cause or
direct the record holder to act in respect of such SBC Shares in
accordance with the terms of this Agreement or, to the extent
permitted by law, to provide a proxy to Covad with respect thereto.
7.7.5 SBC hereby covenants and agrees that it shall not, nor shall it
permit its Affiliates to, enter into any voting agreement or grant a
proxy or power of attorney or take any other action with respect to
the SBC Shares which is inconsistent with this Agreement.
7.7.6 SBC hereby covenants and agrees that SBC will not, nor shall it
permit its Affiliates to, sell, transfer, pledge or otherwise dispose
of any of the SBC Shares or any interest therein to a Significant
Competitor unless (i) such sale, transfer, pledge or disposition is
permitted under this Agreement and (ii) such sale, transfer, pledge or
disposition is to a Significant Competitor (other than a Significant
Competitor who, without prearranging such purchase with SBC or its
Affiliates, purchases SBC Shares in the public markets pursuant to and
in compliance with the restrictions of Section 7.8) that agrees in
writing to be bound by the terms and conditions of this Agreement on
terms satisfactory to Covad in its reasonable discretion.
7.7.7 SBC will execute and deliver, or cause to be executed and delivered,
all further documents and instruments and use all reasonable efforts
to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable to take the actions
required to be taken by SBC under this Agreement. SBC agrees, at the
request of Covad, to enter into such other arrangement, agreement or
proxy with respect to the voting of the SBC Shares to effect the
intent of this Section 7.7.
7.8 DISPOSITION.
SBC shall seek to effect any transfer of Shares (other than through a
private resale in a transaction exempt from the registration requirements
of the Securities Act) in a manner that will avoid material harm to the
market price of the Common Stock. SBC and Covad shall negotiate in good
faith reasonable restrictions, including volume limitations, on such
transfers to seek to avoid material harm to the market price of the Common
Stock.
22
7.9 STANDSTILL.
From and after the date of this Agreement and until the fifth anniversary
of the Closing Date, unless specifically invited in writing by Covad,
neither SBC nor any of its Affiliates (excluding officers and members of
the board of directors of SBC or any of its Affiliates acting in their
individual capacity) shall, directly or indirectly, (a) acquire any
additional securities (or Beneficial Ownership thereof) or Assets of Covad
or any of its Subsidiaries (other than acquisitions of securities of Covad
which are de minimis in relation to the holdings of such class of
securities by SBC and its Affiliates), (b) initiate or cause any other
Person to initiate, or participate with any other Person in initiating or
sustaining, any tender or exchange offer, merger or other business
combination involving Covad, (c) initiate or cause any other Person to
initiate, or participate with any other Person in initiating or sustaining,
any recapitalization, restructuring, liquidation, dissolution or other
extraordinary transaction with respect to Covad or any of its Subsidiaries,
(d) initiate or cause any other Person to initiate, or participate with any
other Person in initiating or sustaining, any "solicitation" of "proxies"
(as such terms are used in the proxy rules of the SEC) or consents to vote
any Voting Securities of Covad, (e) grant any proxies with respect to Covad
Voting Securities to any Person or deposit any Voting Securities in a
voting trust or enter into any other arrangement or agreement with respect
to the voting thereof, (f) form, join or participate in a "group" (as
defined in the Securities Exchange Act) with respect to Covad with respect
to the matters set forth in (a) to (h), (g) seek or cause any other Person
to seek representation on the Covad Board of Directors or seek or cause
other Persons to seek the removal of any member of the Covad Board of
Directors, or (h) take any action which would reasonably be expected to
force Covad to make a public announcement regarding any of the types of
matters set forth in (a) to (c) above; provided, however, that nothing this
Section 7.9 shall be construed to prohibit SBC from discussing, with
Covad's consent, any of the matters set forth in (a) to (e) or (g) with
Covad, its Subsidiaries and their representatives so long as such
discussions are not proposed or disclosed by SBC or its Affiliates in a
public manner or conducted in a manner which would reasonably be expected
to force Covad to make a public announcement of such discussions or
proposal; provided, further, that once a Person (without the participation
or assistance of SBC or its Affiliates) initiates or proposes to initiate
matters set forth in (b), (c), (d) or (g) which, if consummated, would
constitute a Covad Change in Control Event, SBC shall have no further
obligations under this Section 7.9 unless such a matter set forth in such
clauses is not consummated, in which case this Section 7.9 shall become
applicable for the remainder of the period until the fifth anniversary of
the Closing Date.
ARTICLE VIII
COVENANTS OF COVAD
Covad hereby covenants and agrees with SBC as follows:
23
8.1 COOPERATION.
Covad will use commercially reasonable efforts and cooperate with SBC to
secure promptly all necessary Consents and to prepare and file promptly all
notifications under the HSR Act in connection with this Agreement and to
respond as promptly as practicable to any inquiries received from the
Federal Trade Commission and the Antitrust Division of the Department of
Justice for additional information or documentation and to respond as
promptly as practicable to all inquiries and requests received from any
State Attorney General or other Governmental Authority in connection with
antitrust matters.
8.2 ACCESS TO COVAD INFORMATION.
During the period prior to Closing, subject to reasonable confidentiality
restraints, Covad will grant to SBC and its representatives reasonable
access to all the premises, books, records, inventory, and physical plant
relating to Covad. Covad shall cause its representatives and independent
auditors to furnish to SBC such financial and other data and information
with respect to Covad as SBC and/or its independent accountants and counsel
shall reasonably request, to the extent already in existence and permitted
by law.
8.3 OPERATION OF COVAD BUSINESS.
Except as contemplated by this Agreement, between the date of the Agreement
and the Closing, Covad (i) shall, in all material respects, operate the
Covad Business, serve its customers, and preserve and maintain the Assets
of Covad and relationships with customers, vendors and employees in a
reasonable and prudent manner and (ii) shall, in all material respects,
conduct the Covad Business within the lines of business contemplated by
Covad's current business plan. Through the Closing Date, Covad will use its
best efforts to maintain the current status of the Covad Licenses.
8.4 CONFIDENTIALITY; PRESS RELEASES.
No press release or public disclosure, either written or oral, of the
existence or terms of this Agreement shall be made by Covad without the
consent of SBC, which consent shall not be unreasonably withheld, and Covad
shall furnish to SBC advance copies of any release which it proposes to
make public concerning this Agreement or the transactions contemplated by
this Agreement and the date upon which Covad proposes to make such press
release. This provision shall not, however, be construed to prohibit Covad
from making any disclosures to any Governmental Authority or other Person
which it is required to make under any Legal Requirement, or to obtain any
Consents or from making any public disclosures as may be required to comply
with Applicable Law or the rules and regulations of any stock exchange or
of Nasdaq.
8.5 NOTIFICATION OF CHANGE IN CONTROL EVENT.
From and after the date of this Agreement and until the first anniversary
of the Closing Date, Covad shall promptly notify SBC upon the occurrence of
any Covad Change in Control Event. Such notification may be effected
through public disclosure.
24
8.6 REGISTRATION RIGHTS.
8.6.1 (a) At any time in the five (5) years after the Permitted
Registration Date, any Holder or Holders holding, in the
aggregate, at least 51 percent of the Shares eligible for
registration pursuant to Section 8.6.7 of this Agreement shall
have the right, on one occasion only, by written request of one
or more Holders (the "Selling Shareholders") to Covad, to require
Covad to prepare a registration statement (the "Registration
Statement") on the appropriate form under the Securities Act with
respect to some or all of the Shares then owned by such Selling
Shareholders.
(b) If the Selling Shareholders so elect, the offering of such Shares
pursuant to such Registration Statement shall be in the form of
an underwritten offering. A majority in interest of the Selling
Shareholders shall have the right to select the managing
underwriters and any additional investment bankers and managers
to be used in connection with such offering, subject to Covad's
approval, which approval shall not be unreasonably withheld.
(c) The Selling Shareholders will inform Covad of the time and manner
of any disposition of Shares, and agree to reasonably cooperate
with Covad in effecting the disposition of the Shares in a manner
that does not unreasonably disrupt the public trading market for
the Common Stock.
(d) Covad will have the right to preempt any Registration Statement
with a primary registration by delivering written notice (within
ten (10) business days after Covad has received a request for
such Registration Statement) of such intention to SBC indicating
that Covad intends to file a registration statement with respect
to such a primary registration within 90 days of such notice and
complete the sale as soon as practicable thereafter. In the
ensuing primary registration, the Holders will have such
piggyback registration rights as are set forth in Section 8.6.2
of this Agreement. Upon Covad's preemption of a requested
Registration Statement, such requested registration will not
count as the one demand registration pursuant to this Section
8.6.1; PROVIDED that the demand registration will not be deemed
preempted if the Holders are permitted to sell all requested
securities in connection with the ensuing primary offering by
exercising their piggyback registration rights as set forth in
Section 8.6.2 of this Agreement. Covad may exercise the right to
preempt only twice in any 360-day period; PROVIDED, that
notwithstanding this Section 8.6.1(d) or Section 8.6.4(a) of this
Agreement during any 360-day period there shall be at least two
periods of at least 90 consecutive days during which the Selling
Shareholders may effect a demand registration under this Section
8.6.1.
8.6.2 If, at any time in the five (5) years after the Permitted
Registration Date, Covad shall propose to prepare on its own behalf or
on behalf of any holders of any of its
25
Common Stock a registration statement in connection with an
underwritten public offering of any shares of such Common Stock (other
than a registration statement on Form S-4 or S-8 or such other form as
shall be prescribed under the Securities Act for the same purposes),
then Covad shall give each Holder written notice at least twenty (20)
or, in case of a registration statement proposed to be filed pursuant
to Rule 415 of the Securities Act (other than a registration statement
covering shares issued in acquisitions pursuant to Section 4(2) under
the Securities Act or covering shares pursuant to the exercise of
demand registration rights of other holders of securities of Covad),
ten (10) Business Days before the anticipated filing date of such
registration statement. Should any Holder desire to have any Shares
included in such registration statement, such Holder shall so notify
Covad in writing no later than ten (10) or, in the case of a
registration statement proposed to be filed pursuant to Rule 415 of
the Securities Act, five (5) Business Days after Covad's notice is
given, setting forth the number of Shares which such Holder requests
to be included in the registration statement and providing any other
information requested by Covad in its original notice relating to
inclusion in the registration statement. Any such registration
statement that includes Shares is hereinafter included in the term
"Registration Statement," and each Holder who owns Shares included in
a Registration Statement shall be a Selling Shareholder with respect
to such Registration Statement. If Covad shall determine in its sole
discretion not to register or to delay the proposed offering, Covad
may, at its election, provide written notice of such determination to
the Holders and (i) in the case of a determination not to effect the
proposed offering, shall thereupon be relieved of the obligation to
register such Shares in connection therewith, and (ii) in the case of
a determination to delay a proposed offering, shall thereupon be
permitted to delay registering such Shares for the same period as the
delay in respect of the proposed offering. As between Covad and the
Selling Shareholders, Covad shall be entitled to select the
underwriters in connection with any piggyback registration under this
Section 8.6.2. The Holders' exercise of their piggyback registration
rights under this Section 8.6.2 shall not extinguish their demand
registration rights under Section 8.1.1(a) of this Agreement.
8.6.3 In connection with a Holder's request for registration of Shares
pursuant to Section 8.6.2 of this Agreement, Covad may refuse to
include Shares in a registration statement if in Covad's reasonable
judgment, based on the advice of its investment banker, inclusion of
such Shares would have a material adverse effect on Covad's ability to
complete such underwritten public offering or on the price, timing or
distribution of the offering (a "Cutback"). In the event of a Cutback,
Covad will include in such registration statement, to the extent of
the number which Covad is so advised can be sold in such offering
without having a material adverse effect on the ability of Covad to
complete such offering or on the price, timing or distribution of the
offering, first, shares of Common Stock requested to be included in
such registration by shareholders exercising demand registration
rights, second securities Covad proposes to sell for its own account,
26
and, subject to the rights existing as of the date of this Agreement
of holders of registration rights with respect to securities of Covad,
third Shares and fourth other securities of Covad included in such
registration by the holders thereof. Prior to any Cutback, Covad shall
provide to the Holders that have requested that Shares be included in
the registration statement pursuant to Section 8.6.2 of this Agreement
a letter from Covad's investment banker explaining why inclusion of
such Shares would have a material adverse effect on Covad's ability to
complete such underwritten public offering. If the Holders' investment
banker believes that the Shares can be included in the registration
statement without having a material adverse effect on Covad's ability
to complete such underwritten public offering, Covad's investment
banker and the Holders' investment banker shall within ten (10) days
appoint a third investment banker who shall determine within ten (10)
days whether such Shares can be included in the registration statement
without having a material adverse effect on Covad's ability to
complete such underwritten public offering.
8.6.4 With respect to any Registration Statement under this Section 8.6 of
this Agreement, Covad will:
(a) prepare and file with the SEC the Registration Statement within
120 days after a Selling Shareholder's notice requesting
registration or inclusion in a proposed registration, and use its
reasonable efforts to cause the securities covered by such
Registration Statement to become registered and such Registration
Statement to be declared effective as expeditiously as possible
under the Securities Act or other applicable federal law and
regulations (and cause to be prepared and file any amendments or
supplements thereto as may be necessary to comply with applicable
federal law and regulations); PROVIDED, that if Covad shall
furnish to SBC a certificate signed by Covad's Chairman,
President or any Vice-President stating that in his or her good
faith judgment it would be materially detrimental or otherwise
materially disadvantageous to Covad or its stockholders for any
Registration Statement under this Section 8.6 to be filed
(because, for example, the sale of Shares covered by such
Registration Statement or the disclosure of information in any
related prospectus or prospectus supplement would materially
interfere with any acquisition, financing or other material event
or transaction which is then prejudicial to Covad), Covad may
postpone the filing or postpone or suspend the effectiveness of a
Registration Statement for a period of not more than 120 days;
PROVIDED, that notwithstanding this Section 8.6.4(a) or Section
8.6.1(d) of this Agreement during any 360-day period there shall
be two periods of at least 90 consecutive days during which Covad
will make the Registration Statement available for Holders; and
PROVIDED FURTHER, that if (i) the effective date of any
Registration Statement filed pursuant to Section 8.6.1 of this
Agreement would otherwise be at least 45 calendar days, but fewer
than 90 calendar days, after the end of Covad's fiscal year, and
(ii) the Securities Act requires Covad to include audited
27
financials as to the end of such fiscal year, Covad may delay the
effectiveness of such registration statement for such period as
is reasonably necessary to include therein its audited financial
statements for such fiscal year;
(b) use its reasonable efforts to cause to be registered or qualified
the securities covered by such Registration Statement under such
securities or Blue Sky laws in such jurisdictions within the
United States as any Selling Shareholder may reasonably request;
provided, however, that Covad reserves the right, in its sole
discretion, not to cause to be registered or qualified such
securities in any jurisdiction where Covad would be required in
connection therewith to execute a general consent to service or
to qualify as a foreign corporation or to subject itself to
taxation;
(c) maintain the effectiveness of any Registration Statement for a
period of at least 30 days;
(d) promptly notify each Selling Shareholder of the happening of any
event as a result of which any preliminary or final prospectus or
prospectuses included in any Registration Statement includes an
untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make
the statements not misleading in light of the circumstances then
existing;
(e) furnish, at the request of any underwriter or other third party,
an opinion, dated the date the Registration Statement became
effective, of counsel representing Covad (which may be in-house
counsel) for the purposes of such registration, addressed to the
underwriter or third party and to such Selling Shareholder as to
such customary legal matters as such underwriter or third party
shall reasonably request; and
(f) furnish, at the request of any underwriter or other third party,
a letter, dated the date the Registration Statement became
effective, of independent certified public accountants of Covad,
addressed to the underwriter or other third party and to such
Selling Shareholder as to such customary accounting matters as
such Selling Shareholder shall reasonably request.
8.6.5 The obligations of Covad to cause a Registration Statement to be
prepared pursuant to the provisions of this Section 8.6 and each
Selling Shareholder's right to have shares of Common Stock included in
any Registration Statement pursuant to the provisions of this Section
8.6 shall be subject to the following conditions:
(a) Each Selling Shareholder shall furnish to Covad in writing such
information and documents as, in the opinion of Covad's counsel,
may be reasonably required to properly cause to be prepared such
Registration Statement in accordance with applicable provisions
of the Securities Act
28
and the SEC's regulations thereunder or federal or state
securities or Blue Sky laws and regulations then in effect;
(b) If a Selling Shareholder desires to sell and distribute Shares
over a period of time, or from time to time, pursuant to a
Registration Statement prepared pursuant to the provisions of
this Section 8.6, then such Selling Shareholder shall execute and
deliver to Covad such written undertakings as Covad and its
counsel may reasonably require in order to assure full compliance
with the relevant provisions of the Securities Act and the SEC's
regulations thereunder or other federal or state securities or
Blue Sky laws and regulations as then in effect; and
(c) Upon receipt of any notice from Covad of the occurrence of any
event of the kind described in Section 8.6.4(d) of this
Agreement, the Selling Shareholders will forthwith discontinue
the offer and sale of Shares pursuant to the Registration
Statement covering such Shares until receipt by the Selling
Shareholders and any underwriters of the offering of a notice
from the Company that the use of the Registration Statement may
be resumed and, if applicable, such persons have received copies
of any supplemented or amended prospectus and, if so directed by
Covad, the Selling Shareholders will deliver to Covad all copies,
other than permanent file copies then in the possession of
Selling Shareholders, of the most recent prospectus covering such
Shares at the time of receipt of such notice. In the event Covad
shall give such notice described in Section 8.6.4(d) of this
Agreement and such Registration Statement is already effective,
Covad shall extend the period during which such Registration
Statement shall be maintained effective as provided in Section
8.6.4(c) of this Agreement by the number of days during the
period from and including the date of the delivering of such
certificate or giving of such notice to the date when Covad shall
notify the Selling Shareholders that sales under the Registration
Statement may be resumed and make available to the Selling
Shareholders any such supplemented or amended prospectus.
8.6.6 The Selling Shareholder will pay or cause to be paid all fees and
expenses (including all Blue Sky and National Association of
Securities Dealers, Inc. filing and registration fees, accounting fees
and disbursements, printing costs, attorneys' fees and disbursements)
arising out of the preparation, filing, amending and supplementing of
a Registration Statement pursuant to Section 8.6.1 of this Agreement
in which only the Selling Shareholder participates, or a proportionate
portion thereof if Covad or other holders participate in such
Registration Statement filed pursuant to Section 8.6.1 of this
Agreement. Covad shall pay all fees and expenses (including all Blue
Sky and National Association of Securities Dealers, Inc. filing and
registration fees, accounting fees and disbursements, printing costs,
attorneys' fees and disbursements) arising out of the preparation,
filing, amending and supplementing of a Registration Statement
pursuant to
29
Section 8.6.2 of this Agreement. Notwithstanding the foregoing, the
Selling Shareholders shall pay (i) any underwriting fees, discounts or
commissions attributable to the sale of the Shares, (ii) fees and
expenses of counsel for the Selling Shareholders and (iii) any
out-of-pocket expenses of the Selling Shareholders.
8.6.7 Particular shares shall no longer be eligible for registration under
this Section 8.6 as soon as they (i) have been sold or otherwise
disposed of pursuant to a registration statement that was filed with
the SEC and declared effective under the Securities Act, (ii) have
been sold or otherwise disposed of pursuant to Rule 144 under the
Securities Act, or (iii) have been otherwise sold, transferred or
disposed of by a Holder to any Person that is not a Holder.
8.6.8 Notwithstanding anything in this Section 8.6 to the contrary, the
registration rights granted by Covad to SBC and the obligations of
Covad under this Section 8.6 shall be subject to, and, to the extent
inconsistent with, shall be deemed modified to the minimum extent
necessary so as not to be inconsistent with, any registration rights
of holders of Covad securities in existence as of the date of this
Agreement.
8.7 LISTING.
Upon SBC's request, Covad will use its best efforts, and diligently take
all steps necessary, to list the Shares for trading on the Nasdaq or any
other securities exchange on which the Common Stock is traded.
8.8 FURTHER ASSURANCES.
At any time or from time to time after the Closing Date, Covad shall
execute and deliver any further instruments or documents, and take all such
further action as SBC may reasonably request, in order to effect this
Agreement and to issue to SBC the Shares free and clear of all Liens,
except for Liens as SBC may cause to attach to the Shares.
ARTICLE IX
TERMINATION
9.1 TERMINATING EVENTS.
This Agreement may be terminated prior to Closing:
9.1.1 By the mutual written consent of Covad and SBC; or
9.1.2 By Covad, by ten (10) Business Days written notice to SBC (if Covad
is not then materially in default or breach of this Agreement), if SBC
shall default in any material respect in the performance of any of its
obligations under this Agreement
30
or the Ancillary Agreements, and such default or breach has not been
cured by SBC within seven (7) Business Days following receipt of
written notice from Covad of Covad's intention to terminate this
Agreement; or
9.1.3 By SBC, by ten (10) Business Days written notice to Covad (if SBC is
not then materially in default or breach of this Agreement), if Covad
shall default in any material respect in the performance of any of its
obligations under this Agreement or the Ancillary Agreements, and such
default or breach has not been cured by Covad within seven (7)
Business Days following receipt of written notice from SBC of SBC's
intention to terminate this Agreement; or
9.1.4 By either SBC or Covad if the Closing has not occurred on or before
December 31, 2000, provided that such date shall be extended in
monthly increments (but not beyond February 28, 2001) at the election
of either party if the conditions specified in Sections 3.1 and 4.1 of
this Agreement are the only conditions that would not be satisfied if
the Closing were to occur on the date such election is made (provided
further that the right to terminate this Agreement under this Section
9.1.4 shall not be available to any Party whose breach of any
obligation under this Agreement has been a cause of or resulted in the
failure of the Closing to occur on or before such date); or
9.1.5 By either SBC or Covad, in the event that SBC or Covad receives a
final and nonappealable written statement from any Governmental
Authority that states that such Governmental Authority has disapproved
or will not give approval to this Agreement, which disapproval would
cause the Parties to be unable to consummate the transactions
contemplated by this Agreement or would make a condition to the
terminating Party's obligation to consummate this transaction
impossible to satisfy; PROVIDED, that no Party may terminate this
Agreement pursuant to the terms of this Section 9.1.5 if such Party is
in material breach of this Agreement.
9.2 EFFECT ON OBLIGATIONS. In the event of any termination of this Agreement
pursuant to Section 9.1.1, 9.1.4 or 9.1.5 of this Agreement, neither SBC
nor Covad shall have any further liability under this Agreement, except
with respect to the confidentiality provisions of this Agreement. In the
event of a termination under Section 9.1.2 or 9.1.3 of this Agreement, both
Parties shall retain all their rights at law or in equity.
ARTICLE X
INDEMNIFICATION
10.1 INDEMNIFICATION BY COVAD.
10.1.1 Covad hereby agrees to indemnify SBC and its Affiliates and their
respective officers and directors against and hold them harmless from
any Losses suffered or
31
incurred by any such Indemnified Party for or on account of or arising
from or in connection with any breach of any representation, warranty
or covenant of Covad contained in this Agreement, without regard to
any materiality qualifiers contained therein, provided, however, that
Covad shall not have any liability under this Section 10.1 unless the
aggregate of all Losses relating thereto exceed on a cumulative basis
Six Million Dollars ($6,000,000). Covad's maximum liability under this
Section 10.1.1 shall not exceed One Hundred Fifty Million Dollars
($150,000,000).
10.1.2 Covad agrees to indemnify and hold harmless each Selling Shareholder
and each Person, if any, who controls (within the meaning of Section
15 of the Securities Act and Section 20 of the Securities Exchange
Act) such Selling Shareholder (a "Control Person") against any Losses
to which such Selling Shareholder or any such Control Person may
become subject, insofar as such Losses arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in any preliminary or final Registration Statement prepared
pursuant to Section 8.6 of this Agreement or prospectus with respect
thereto, or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that Covad will
not be liable in any case (i) to the extent that any such Losses arise
out of or are based upon an untrue statement or alleged untrue
statement or omission or alleged omission from any of such documents
in reliance upon and in conformity with written information furnished
by or on behalf of such Selling Shareholder or any such Control Person
specifically for use in the preparation thereof, or (ii) insofar as
Covad has notified such Holder of a suspension period, as described in
Section 8.6.5(c) of this Agreement, and the Holder has sold Shares
notwithstanding receipt of such notice; PROVIDED, HOWEVER, that Covad
shall not be liable in any such case to the extent that any such loss,
claim, damage, liability or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged
omission in the Registration Statement, the prospectus included
therein, or any document incorporated therein by reference (the
"Prospectus"), if such untrue statement or alleged untrue statement,
omission or alleged omission is corrected in an amendment or
supplement to the Prospectus and if, having previously been furnished
by or on behalf of Covad with copies of the Prospectus as so amended
or supplemented it required to be delivered, such Holder thereafter
fails to deliver such Prospectus as so amended or supplemented, prior
to or concurrently with the sale of a Prospectus to the Person
asserting such loss, claim, damage, liability or expense who purchased
such Prospectus which is the subject thereof from such Holder.
10.2 INDEMNIFICATION BY SBC.
10.2.1 SBC hereby agrees to indemnify Covad and its Affiliates and their
respective officers and directors against and hold them harmless from
any Losses suffered or
32
incurred by any such Indemnified Party for or on account of or arising
from or in connection with any breach of any representation, warranty
or covenant of SBC contained in this Agreement, without regard to any
materiality qualifiers contained therein, provided, however, that SBC
shall not have any liability under this Section 10.2 unless the
aggregate of all Losses relating thereto exceed on a cumulative basis
Six Million Dollars ($6,000,000) (but such limitation shall not apply
to Losses suffered or incurred for or on account of any breach of
SBC's obligation under this Agreement to pay the Purchase Price).
SBC's maximum liability under this Section 10.2.1 shall not exceed One
Hundred Fifty Million Dollars ($150,000,000).
10.2.2 SBC and any other Selling Shareholder to whom SBC's rights under
this Agreement have been transferred will, severally and not jointly,
indemnify and hold harmless Covad and each of its directors, officers
and each Person, if any, who controls (within the meaning of Section
15 of the Securities Act and Section 20 of the Securities Exchange
Act) Covad (a "Company Control Person") to the same extent as set
forth in the foregoing indemnity from Covad to each Selling
Shareholder set forth in Section 10.1.2 of this Agreement, but only
with reference to written information included in any preliminary or
final Registration Statement prepared pursuant to Section 8.6 of this
Agreement or prospectus with respect thereto, or amendment or
supplement thereto, furnished by or on behalf of such Selling
Shareholder specifically for use in the preparation of such documents.
10.3 LOSSES.
The amount of any Losses for which indemnification is provided under this
Article X shall be net of any amounts recovered or recoverable by the
Indemnified Party under insurance policies with respect to such Losses and
shall be increased to take account of any Tax cost to the Indemnified Party
and reduced to take account of any Tax benefit to the Indemnified Party
arising from the incurrence or payment of any Losses.
10.4 SURVIVAL.
The representations and warranties made by Covad contained in Article VI of
this Agreement, and the obligation of Covad to indemnify SBC pursuant to
Section 10.1 of this Agreement, shall survive the execution and delivery of
this Agreement, any examination or due diligence inquiry by SBC and the
Closing until the date which is 18 months after the Closing Date, except
that the representations and warranties made by Covad in Section 6.8 of
this Agreement (Title to Shares; Absence of Liens) shall survive for the
applicable statute of limitations. The representations and warranties made
by SBC contained in Article V of this Agreement, and the obligation of SBC
to indemnify SBC pursuant to Section 10.2 of this Agreement, shall survive
the execution and delivery of this Agreement, any examination or due
diligence inquiry by Covad and the Closing until the date which is 18
months after the Closing Date. The obligations to indemnify and hold
harmless a Party, pursuant to Section 10.1 and Section 10.2 of this
Agreement, shall
33
survive only until the expiration of the applicable survival period for the
representation and warranty or covenant under which the claim for
indemnification is being made; provided, however, that such obligations to
indemnify and hold harmless shall not terminate with respect to any item as
to which the Person to be indemnified shall have, before the expiration of
the applicable period, previously made a claim by delivering a notice
(stating in reasonable detail the basis of such claim) to the Party to be
providing the indemnification.
10.5 PROCEDURES RELATING TO THIRD PARTY CLAIMS
10.5.1 In order for a party (the "Indemnified Party") to be entitled to any
indemnification provided for under this Agreement in respect of,
arising out of or involving a claim or demand made by any Person
against the Indemnified Party (a "Third Party Claim"), such
Indemnified Party must notify the indemnifying party in writing of the
Third Party Claim within ten (10) Business Days after receipt by such
Indemnified Party of written notice of the Third Party Claim;
provided, however, that failure to give such notification shall not
affect the indemnification provided under this Agreement except to the
extent the indemnifying party shall have been actually prejudiced as a
result of such failure (except that the indemnifying party shall not
be liable for any expenses incurred during the period in which the
Indemnified Party failed to give such notice). Thereafter, the
Indemnified Party shall deliver to the indemnifying party, within five
(5) Business Days after the Indemnified Party's receipt thereof copies
of all notices and documents (including court papers) received by the
Indemnified Party relating to the Third Party Claim.
10.5.2 If a Third Party Claim is made against an Indemnified Party, the
indemnifying party will be entitled to participate in the defense
thereof and upon notice to the Indemnified Party to assume the defense
thereof provided that (i) the indemnifying party's counsel is
reasonably satisfactory to the Indemnified Party and (ii) the
indemnifying party shall thereafter consult with the Indemnified Party
upon the Indemnified Party's request for such consultation from time
to time with respect to such suit, action or proceeding. If the
indemnifying party assumes such defense, the Indemnified Party shall
have the right (but not the duty) to participate in the defense
thereof and to employ counsel, at its own expense, separate from the
counsel employed by the indemnifying party. The indemnifying party
shall be liable for the fees and expenses of counsel employed by the
Indemnified Party for any period during which the indemnifying party
has not assumed the defense thereof. Should the indemnifying party so
elect to assume the defense of a Third Party Claim, the indemnifying
party will not be liable to the Indemnified Party for any legal
expenses subsequently incurred by the Indemnified Party in connection
with the defense thereof. Whether or not the indemnifying party
chooses to defend or prosecute any Third Party Claim, the Parties
shall cooperate in the defense or prosecution thereof. Such
cooperation shall include the retention and (upon the indemnifying
party's request) the provision to the indemnifying party of records
and information which are reasonably relevant to such Third Party
Claim,
34
and making employees available on a mutually convenient basis to
provide additional information and explanation of any material
provided under this Agreement. Whether or not the indemnifying party
shall have assumed the defense of a Third Party Claim, the Indemnified
Party shall not admit any liability with respect to, or settle,
compromise or discharge, such Third Party Claim without the
indemnifying party's prior written consent. The indemnifying party
will not be subject to any liability for any settlement made without
its consent, but such consent will not be unreasonably withheld.
10.5.3 Any payment pursuant to this Section 10.5 shall be made not later
than fifteen (15) days after receipt by the indemnifying party of
written notice from the Indemnified Party stating that any Third Party
Claim has been paid by any Indemnified Party and the amount thereof
and the indemnity payment requested.
10.6 EXCLUSIVITY.
Except as specifically set forth in this Agreement, and except in the case
of fraud, effective as of the Closing, SBC waives any rights and claims SBC
may have against Covad, whether in law or equity, relating to the
investment in the Shares. The rights and claims waived by SBC include,
without limitation, claims for breach of contract, breach of representation
or warranty, negligent misrepresentation and all other claims for breach of
duty. After the Closing, Section 10.1 of this Agreement will provide the
exclusive remedy for any misrepresentation, breach of warranty, covenant or
other agreement or other claim arising out of this Agreement, except in the
case of fraud.
ARTICLE XI
MISCELLANEOUS
11.1 DISPUTE RESOLUTION.
Any disputes between the Parties arising under this Agreement shall be
resolved in accordance with the procedures set forth in the Dispute
Resolution Agreement entered into by Covad and SBC on the same date as this
Agreement.
11.2 ENTIRE AGREEMENT; AMENDMENT.
This Agreement (including the attached Schedules and Exhibits) constitutes
the sole understanding of the parties with respect to the subject matter of
this Agreement, and supersedes all prior oral or written agreements,
commitments or understandings with respect to such matters. No amendment,
modification or alteration of the terms or provisions of this Agreement
shall be binding unless the same shall be in writing and duly executed by
the Parties.
35
11.3 SUCCESSORS AND ASSIGNS.
This Agreement may not be assigned by either Covad or SBC without the
consent of the other Party (which consent shall not be unreasonably
withheld) except to any Wholly-Owned Subsidiary of either Covad or SBC that
agrees to be bound by all of the terms of this Agreement, and provided that
no such permitted assignment shall relieve the Parties of any liability for
a breach of this Agreement by such Party or its assignee. This Agreement
shall be binding upon and shall inure to the benefit of the Parties and
their respective heirs or successors in interest. A Wholly-Owned Subsidiary
of Covad shall have the right to perform all or a part of the obligation
under this Agreement to sell the Shares to SBC provided that Covad receives
the prior written consent (which shall not be unreasonably withheld) of SBC
(it being recognized that SBC shall have the right to withhold its consent
if it determines in its reasonable discretion that the rights afforded it
under such alternative sale would be less than those afforded it absent
such alternative sale or if such alternative sale would delay or adversely
affect the consummation of the transactions contemplated by this
Agreement).
11.4 RIGHTS AND REMEDIES.
Unless otherwise provided in this Agreement, the rights and remedies of the
Parties under this Agreement shall not be mutually exclusive, and the
exercise of one or more provisions of this Agreement shall not preclude the
exercise of any other provisions. Each of the Parties confirms that damages
at law may be an inadequate remedy for a breach or threatened breach of any
provision of this Agreement. The respective rights and obligations under
this Agreement shall be enforceable by specific performance, injunction or
other suitable remedy, it being the intention of this Section 11.4 to make
clear the agreement of the Parties that their respective rights and
obligations under this Agreement shall be enforceable in equity as well as
at law or otherwise.
11.5 COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which
shall for all purposes be deemed to be an original and all of which shall
constitute the same instrument.
11.6 MODIFICATION AND WAIVER.
At any time on or prior to the Closing Date, the Parties by mutual
agreement may (a) extend the time for the performance of any of the
obligations or other acts of the other Parties, (b) waive any inaccuracies
in the representations and warranties contained in this Agreement or in any
document delivered pursuant to this Agreement, or (c) waive compliance with
any of the agreements or conditions contained in this Agreement. Any
agreement on the part of a Party to any such extension or waiver shall only
be valid if set forth in an instrument in writing signed on behalf of such
Party.
36
11.7 EXPENSES.
Except as specifically provided in this Agreement, SBC and Covad shall each
pay all costs and expenses incurred by it or on its behalf in connection
with this Agreement and the transactions contemplated by this Agreement,
including, without limiting the generality of the foregoing, fees and
expenses of its own consultants, accountants and counsel.
11.8 NOTICES.
Any notice, request, instruction or other document to be given under this
Agreement by any Party to the other Party shall be in writing and shall be
deemed given upon receipt if delivered personally or by telex or facsimile,
the next day if by express mail or three days after being sent by
registered or certified mail, return receipt requested, postage prepaid to
the following addresses (or at such other address for a party as shall be
specified by like notice provided that such notice shall be effective only
after receipt thereof):
If to SBC: ▇▇▇▇▇ ▇▇▇▇▇
Senior Vice President -
Corporate Development
SBC Communications Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Voice: ▇▇▇-▇▇▇-▇▇▇▇
With a copy (which shall ▇▇▇▇▇ ▇▇▇▇▇
not constitute notice) to: VP & Ass't General Counsel
SBC Communications Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Voice: ▇▇▇-▇▇▇-▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
General Attorney
SBC Communications Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Voice: ▇▇▇-▇▇▇-▇▇▇▇
37
If to Covad: ▇▇▇▇▇ ▇. ▇▇▇▇
EVP-External Affairs
Covad Communications
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Voice: ▇▇▇-▇▇▇-▇▇▇▇
With a copy (which shall ▇▇▇▇▇ ▇▇▇▇▇▇
not constitute notice) to: General Counsel
Covad Communications
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Voice: ▇▇▇-▇▇▇-▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Senior Corporate Counsel
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Voice: ▇▇▇-▇▇▇-▇▇▇▇
11.9 SEVERABILITY.
In case any one or more of the provisions contained in this Agreement shall
for any reason be held to be invalid, illegal or unenforceable in any
respect by a court or other authority of competent jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other
provision of this Agreement, and this Agreement shall be construed as if
such invalid, illegal or unenforceable provision had never been contained
in this Agreement and, in lieu of each such illegal, invalid or
unenforceable provision, there shall be added automatically as a provision
of this Agreement as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and
enforceable, it being the intent of the parties to maintain the benefit of
the bargain for all Parties.
38
11.10 GOVERNING LAW.
This Agreement shall be construed in accordance with and governed by the
laws of the State of Delaware applicable to agreements made and to be
performed wholly within such jurisdiction.
11.11 RULES OF CONSTRUCTION.
Words used in this Agreement, regardless of the gender and number
specifically used, shall be deemed and construed to include any other
gender and any other number as the context requires. As used in this
Agreement, the word "including" is not limiting, and the word "or" is not
exclusive. Except as specifically otherwise provided in this Agreement in a
particular instance, a reference to a Section, Schedule or Exhibit is a
reference to a Section of this Agreement or a Schedule or Exhibit to this
Agreement, and the terms "this Agreement," "hereof," "herein," and other
like terms refer to this Agreement as a whole, including the Schedules to
this Agreement, and not solely to any particular part of this Agreement.
The descriptive headings in this Agreement are inserted for convenience of
reference only and are not intended to be part of or to affect the meaning
or interpretation of this Agreement. The Parties do not intend that any
other Person shall obtain any rights as third party beneficiaries of this
Agreement.
11.12 OWNERSHIP LIMITATION.
Notwithstanding anything else to the contrary in this Agreement, nothing
set forth in this Agreement shall be construed or interpreted to provide
SBC with the right to Beneficially Own any shares of Common Stock or other
class of capital stock of Covad to the extent that it would violate any
Legal Requirements of the FCC or any other Governmental Authority.
11.13 REPRESENTATIONS AND WARRANTIES.
Notwithstanding anything in this Agreement to the contrary, the disclosure
of any information on any schedule to this Agreement shall be deemed to
constitute the disclosure of such information for all other schedules to
this Agreement to the extent that
39
it is clear from a reading of such information that it is applicable to
and satisfies the disclosure requirements of such other schedules.
[Signature Page Follows]
40
IN WITNESS WHEREOF, the Parties have caused this Stock Purchase Agreement
to be executed by their respective authorized representatives as of the date
first written above.
SBC COMMUNICATIONS INC. COVAD COMMUNICATIONS GROUP, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇ ▇▇▇▇
----------------------------- ----------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ Name: ▇▇▇▇▇ ▇. ▇▇▇▇
Title: Title: Executive Vice-President
--------------------------
41
EXHIBIT A
___________, 2000
SBC Communications Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
We have acted as counsel for Covad Communications Group, Inc., a
Delaware corporation, ("Covad") in connection with a Stock Purchase Agreement
(the "Agreement"), dated as of September __, 2000, by and between SBC
Communications Inc. ("SBC") and Covad.
This opinion letter is furnished pursuant to Section 2.7.4 of the
Agreement. Capitalized terms used but not defined herein shall have the meanings
ascribed to such terms in the Agreement. In rendering our opinion, we have
examined the following:
1. the Restated Certificate of Incorporation of Covad,
filed January 27, 1999, and the Certificate of Amendment, as filed
with the Secretary of State of the State of Delaware on July 14, 2000,
as certified by the Secretary of State of the State of Delaware on
____________ (collectively, the "Certificate of Incorporation");
2. the By-Laws of Covad, as in effect on the date hereof, as
certified by the Secretary of Covad as of the date hereof (the
"By-Laws");
3. photocopies of executed originals or counterparts of the
Agreement;
4. resolutions of the Board of Directors of Covad adopted at a
meeting held on _____________, 2000 and resolutions of the Pricing
Committee of the Board of Directors of Covad by unanimous written
consent dated as of September __, 2000, as in effect as of the date
hereof (collectively, the "Resolutions");
5. the certificate of an officer of Covad dated as of the date
hereof as to certain factual matters, a copy of which is attached
hereto as EXHIBIT A (the "Officer's Certificate");
6. the certificate of the Secretary of Covad dated as of the date
hereof certifying as to (A) the Certificate of Incorporation, (B) the
By-Laws, (C) the Resolutions and (D) a specimen of the certificate
representing the Shares (the "Secretary's Certificate"), a copy of
which is attached hereto as EXHIBIT B; and
7. the certificates, statements and representations made by officers
of Covad in the closing documents delivered pursuant to the Agreement
(the "Closing Certificates").
In our examination of the foregoing, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified,
photostatic or facsimile copies and the authenticity of the originals of such
latter documents, and the legal capacity of natural persons. We have also
assumed the absence of any agreement or understanding or document that would
modify, supplement or amend any of the documents reviewed by us.
As to any facts material to the opinions expressed herein, and as to the
materiality of certain facts, we have relied without independent verification,
among other things, upon the representations made by Covad and SBC in the
Agreement, certificates of public officials, the Closing Certificates, the
Officer's Certificate and the Secretary's Certificate. Our opinion in paragraph
1 as to the good standing of Covad in Delaware and the qualification of Covad as
a foreign corporation is based upon certificates from the appropriate officials
of the states listed on Schedule 1 concerning such status and qualification. Our
opinion in paragraph 5 as to the authorized capital stock of Covad is based upon
the Certificate of Incorporation. All of the opinions referenced in this
paragraph are rendered as of the respective dates of such certificates. We also
have made such inquiry of officers and representatives of Covad as we determined
to be necessary in order to give such opinions.
In rendering this opinion, we have assumed that each party (other than
Covad) that has executed or will execute an agreement to which Covad is a party
has all requisite power and authority and has taken all necessary action to
execute and deliver such agreement and to perform the transactions contemplated
thereby, and that each such agreement is the legal, valid and binding obligation
of such party (other than Covad) enforceable against such party in accordance
with its terms.
In basing our opinions and other matters set forth herein on "our
knowledge" or matters "known to us," the words "our knowledge" or "known to us,"
or other words to that effect, signify that, in the course of our representation
of Covad in connection with the Agreement, no information has come to the
attention of the individual attorneys at the firm providing such representation
that would give them actual knowledge that any such opinions or other matters
are not accurate or that any of the information on which we have relied is not
accurate and complete. Except as otherwise stated herein, we have undertaken no
investigation or verification of such matters. No inference as to our knowledge
of such matters should be drawn from our representation of Covad in this or any
other instance.
Based upon the foregoing and subject to the limitations and qualifications
hereinafter set forth, we are of the opinion that:
1. Covad is a corporation validly existing and in good standing under the
laws of the State of Delaware with all requisite corporate power and
authority to own its properties and conduct its business as it is now
being conducted, and is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction
2
where the ownership of its properties or the conduct of its business
makes such qualification necessary, except in those jurisdictions
where failure to be so qualified or in good standing would not, in our
judgment, be expected to have a Material Adverse Effect.
2. Covad has all requisite corporate power and authority to execute,
deliver and perform its obligations under the Agreement. Covad has
taken all corporate action necessary to authorize the Agreement and
the issue, sale and delivery of the Shares.
3. The Shares are duly authorized and, when issued and delivered to SBC
pursuant to the Agreement, will be duly and validly issued and fully
paid and nonassessable. To our knowledge, the Shares are not and will
not at the time of issuance be subject to any preemptive or
subscription or similar rights of any shareholder contained in the
Certificate of Incorporation, the Bylaws, or any agreement identified
to us by the Company as containing any such rights. To our knowledge
based on agreements identified to us by the Company, there are no
outstanding options or rights of any kind to acquire or subscribe for
any Shares to be issued and sold pursuant to the Agreement nor to our
knowledge are there any obligations to issue, sell or otherwise cause
to become outstanding any such options or rights. To our knowledge
based on agreements identified to us by the Company, Covad is not a
party to any voting trusts, proxies, voting agreements or other
agreements with respect to the voting of the capital stock of Covad.
4. Neither the execution and delivery by Covad of the Agreement, nor the
consummation of the purchase and sale of the Shares contemplated
thereby, nor compliance by Covad with its obligations thereunder,
will, with or without the giving of notice or the lapse of time, or
both: (i) conflict with, or result in a breach or violation of, or
constitute a default under, any provision of the Certificate of
Incorporation or By-Laws or, to our knowledge, any law, rule or
regulation customarily applicable to transactions of the type
contemplated by the Agreement, order, injunction or decree of any
court, administrative authority or arbitrator applicable to Covad or,
to our knowledge, any property or Assets of Covad, or will conflict
with, or result in a breach or violation of or constitute a default in
the performance, observance or fulfillment of any obligation under, or
constitute, or, with the giving of notice or lapse of time or both,
would constitute, an event of default by Covad, or result in the
acceleration of any obligation, or require any consent or approval,
under, any agreement or instrument identified on Schedule 2 hereto to
which Covad is a party or by which it or any of its properties or
Assets are bound, except where such conflicts, breaches, violations,
defaults or events of default or the absence of such required consents
or approvals (other than with respect to the Certificate of
Incorporation and Bylaws) would not, in our judgment, be expected to
have a Material Adverse Effect; or (ii) require any action, consent or
approval of, or filing with, any Governmental Authority customarily
applicable to transactions of the type contemplated by the Agreement,
except for the filing required by the HSR Act and the expiration of
the waiting periods associated with such filing and for such actions,
consents, approvals or filings that have been made prior to the
Closing or
3
with respect to which the failure to make would not, in our judgment,
be expected to have a Material Adverse Effect.
5. The authorized capital stock of Covad as of the date hereof is as set
forth on Schedule ____ of the Agreement.
6. Based solely on the representations, warranties and agreements of
Covad and SBC, and on the truth and accuracy of the representations
and agreements deemed to be made by Covad and SBC, in the Agreement,
it is not necessary in connection with the offer, sale and delivery of
the Shares to SBC under the Agreement to register the Shares under the
Securities Act or register or qualify the Shares under state
securities laws; provided, however, that we express no opinion with
respect to the conditions under which the Shares may be further
resold.
The foregoing opinions are, with your concurrence, predicated upon and
qualified by the following:
1. The foregoing opinions are based upon and are limited to the \
published compilations of the General Corporation Law of the State of
Delaware and the relevant laws of the United States of America,
excluding in all cases (i) all regulatory laws, regulations, orders,
rules, pronouncements and other matters relating to compliance with
regulatory matters, including without limitation the Communications
Act of 1934, as amended (including amendments made by the
Telecommunications Act of 1996), 47 U.S.C.ss151 ET SEQ., as well as
the regulations, rules, policies and published decisions of the
Federal Communications Commission, and any court's interpretation of
same, and the statutory laws, regulations, rules, policies and
published decisions of the public utilities commissions and similar
regulatory agencies and any court's interpretation of same of any of
the United States of America and (ii) all matters relating to
antitrust laws. We render no opinion with respect to the laws of any
other jurisdiction.
2. Our opinions are limited to the matters set forth in this letter, and
no other opinions should be inferred beyond the matters expressly
stated.
This opinion letter is solely for the benefit of the addressee shown on the
first page hereof and may be relied upon solely by such addressee for the
purposes for which it is being furnished. Without our express permission, this
opinion letter may not be used, circulated, quoted or otherwise referred to for
any purpose except as stated herein.
Very truly yours,
4
SCHEDULE 1
LIST OF FOREIGN QUALIFICATIONS
5
EXHIBIT B
[Letterhead of Morris, Nichols, Arsht & ▇▇▇▇▇▇▇]
(Date)
SBC Communications Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
You have requested our opinion as to the enforceability under Delaware law
of the obligations of Covad Communications Group, Inc., a Delaware corporation
(the "Company"), under the Stock Purchase Agreement dated__________, 2000 (the
"Agreement") between the Company and SBC Communications Inc., a Delaware
corporation ("SBC"). Capitalized terms not defined herein shall have the
meanings given them in the Agreement.
For purposes of rendering our opinion, Irell & ▇▇▇▇▇▇▇, counsel to the
Company, has provided to us and we have reviewed the Agreement. We have not
reviewed any other documents in connection with rendering our opinion and have
assumed that there are none that are contrary to or inconsistent with our
opinion. We have also assumed that each of the Company and SBC is duly
organized, validly existing and in good standing under the laws of Delaware;
that the issuance of the Shares pursuant to the Agreement has been duly
authorized by all necessary corporate action; that the Company will have a
sufficient number of shares of Common Stock authorized by its certificate of
incorporation that have not been issued, subscribed for, or otherwise committed
to be issued, in order to permit the Company to issue the Shares pursuant to the
terms of the Agreement; that the purchase price per share of the Shares
SBC Communications Inc.
[Date]
Page 2
is greater than the par value per share of Common Stock; that each party to the
Agreement has the corporate power to execute, deliver and perform its
obligations under the Agreement; that the Agreement has been duly authorized,
executed and delivered by each party thereto; and that the Agreement constitutes
the legal, valid and binding obligation of SBC, enforceable against SBC in
accordance with its terms. We express no opinion with respect to the Delaware
Securities Act, 6 DELAWARE CODE Section 7301 ET SEQ., or any rules or
regulations promulgated thereunder, or to any agreements, exhibits, schedules or
other documents referred to or incorporated by reference in the Agreement other
than the Agreement itself.
Based upon and subject to the foregoing and to the qualifications set forth
below, and limited in all respects to matters of Delaware law, it is our opinion
that the Agreement constitutes the legal, valid and binding obligation of the
Company, enforceable against it in accordance with its terms, except as such
enforceability may be limited by (i) bankruptcy, insolvency, moratorium,
fraudulent conveyance, receivership and other laws affecting the rights and
remedies of creditors generally, (ii) the application of equitable principles
(whether in a proceeding at law, at equity or otherwise), and (iii) standards of
good faith, fair dealing, course of dealing, materiality and reasonableness that
may be applied by a court to the exercise of rights and remedies generally.
Our opinion is subject to the following qualifications:
1. We express no opinion as to the Company's obligations with respect to
indemnification, or any waivers by the Company, except to the extent permitted
by applicable law.
2. We express no opinion as to any obligation of the Company to repurchase
the Shares, as set forth in Section 7.6 of the Agreement, to the extent it lacks
sufficient surplus, as defined under Delaware law, to make such repurchase.
3. We express no opinion with respect to Section 10.4 of the Agreement to
the extent it purports to extend any otherwise applicable statute of
limitations.
The opinions set forth above are solely for your benefit in connection with
the entry into the Agreement by the
SBC Communications Inc.
[Date]
Page 3
Company and may not be relied upon for any other purpose or by any other person
or entity without our prior written consent.
Very truly yours,