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EXHIBIT 10.36
SERIES A CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT
BROADBANDNOW, INC.
JANUARY 27, 2000
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TABLE OF CONTENTS
Page
1. Purchase and Sale........................................................................................1
2. Closing of Purchase and Sale.............................................................................1
2.1 Closing; Closing Date...........................................................................1
2.2 Transactions at Closing.........................................................................1
3. Representations and Warranties of Company................................................................1
3.1 Organization, Standing and Qualification........................................................1
3.2 Capitalization..................................................................................2
3.3 Validity of Stock...............................................................................3
3.4 Subsidiaries....................................................................................3
3.5 Financial Statements............................................................................3
3.6 Absence of Undisclosed Liabilities..............................................................4
3.7 Absence of Certain Changes......................................................................4
3.8 Authorization; Approvals........................................................................5
3.9 No Conflict with Other Instruments..............................................................5
3.10 Labor Agreements and Actions....................................................................6
3.11 Employee Matters................................................................................6
3.12 Title to Properties; Liens and Encumbrances.....................................................6
3.13 Compliance with Corporate Instruments...........................................................7
3.14 Patents, Trademarks and Other Intangible Assets.................................................7
3.15 Trade Secrets and Customer Lists................................................................8
3.16 Tax Matters.....................................................................................8
3.17 Litigation......................................................................................9
3.18 Minute Books....................................................................................9
3.19 Insurance.......................................................................................9
3.20 Fees and Commissions............................................................................9
3.21 Employee Benefit Plans.........................................................................10
3.22 Material Contracts and Commitments.............................................................12
3.23 Conflict of Interest Transactions..............................................................13
3.24 Environmental Matters..........................................................................13
3.25 Other Transactions.............................................................................14
3.26 No Bankruptcies................................................................................14
3.27 Year 2000 Compliance...........................................................................14
3.28 Disclosure.....................................................................................14
3.29 Legal Compliance...............................................................................15
3.30 Small Business Concern.........................................................................15
3.31 Small Business Administration Documentation....................................................15
3.32 Prior Sales of Series A Convertible Preferred Stock............................................15
4. Representations, Warranties and Covenants of Purchasers.................................................15
4.1 Organization and Good Standing.................................................................15
4.2 Authorization; Approvals.......................................................................16
4.3 No Conflict with Other Instruments.............................................................16
4.4 Investment Representations.....................................................................16
4.5 Investment Experience; Access to Information...................................................16
4.6 Absence of Registration........................................................................16
4.7 Restrictions on Transfer.......................................................................17
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4.8 Transfer Instructions..........................................................................19
4.9 Economic Risk..................................................................................19
4.10 Fees and Commissions...........................................................................19
5. Conditions to Closing of the Purchasers.................................................................19
5.1 Representations and Warranties.................................................................19
5.2 Performance....................................................................................19
5.3 Company Consents, etc..........................................................................19
5.4 Compliance Certificates........................................................................20
5.5 Government Actions.............................................................................20
5.6 The Certificate of Designation.................................................................20
5.7 The Articles of Incorporation..................................................................20
5.8 Legal Opinion..................................................................................20
5.9 Company Deliveries.............................................................................20
6. Conditions to Closing of Company........................................................................21
6.1 Representations and Warranties.................................................................21
6.2 Performance....................................................................................21
6.3 Purchaser Consents, etc........................................................................21
6.4 Compliance Certificates........................................................................21
7. Affirmative Covenants...................................................................................21
7.1 Financial Information..........................................................................21
7.2 Use of Proceeds................................................................................22
7.3 Confidentiality................................................................................22
7.4 Right of First Refusal.........................................................................22
7.5 Sale of the Company............................................................................26
7.6 Right of Co-Sale...............................................................................28
7.7 Observers......................................................................................28
7.8 Key Man Insurance..............................................................................28
7.9 Access to Information..........................................................................28
7.10 Restricted Corporate Actions...................................................................29
7.11 Shareholder and Director Information...........................................................30
7.12 Reserve for Conversion Shares..................................................................30
7.13 Rule 144A Information..........................................................................30
7.14 Sale of Series A Convertible Preferred Stock...................................................30
7.15 Termination of Covenants.......................................................................30
8. Expenses................................................................................................31
9. Survival of Agreements..................................................................................31
10. Notices.................................................................................................31
11. Modifications; Waiver...................................................................................32
12. Entire Agreement........................................................................................32
13. Successors and Assigns..................................................................................33
14. Enforcement.............................................................................................33
14.1 Remedies at Law or in Equity...................................................................33
14.2 Remedies Cumulative; Waiver....................................................................33
15. Execution and Counterparts..............................................................................33
16. Governing Law and Severability..........................................................................33
17. Headings................................................................................................34
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EXHIBITS
Exhibit A - Certificate of Incorporation
Exhibit B - Bylaws
Exhibit C - Form of Certificate of Designation for the Series A Convertible
Preferred Stock
Exhibit D - Placement Memorandum
Exhibit E - Form of Registration Rights Agreement
Exhibit F - Form of Opinion of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.
SCHEDULES
Schedule 1 Purchasers
Schedule 3.1 Jurisdictions
Schedule 3.2 Capitalization
Schedule 3.4 Subsidiaries
Schedule 3.5 Financial Statements
Schedule 3.7 Absence of Certain Changes
Schedule 3.9 No Conflict with Other Instruments
Schedule 3.11 Employee Matters
Schedule 3.12 Title to Properties; Liens and Encumbrances
Schedule 3.14 Patents, Trademarks and Other Intangible Assets
Schedule 3.15 Trade Secrets and Customer Lists
Schedule 3.16 Tax Matters
Schedule 3.19 Insurance
Schedule 3.21 Employee Benefit Plans
Schedule 3.22 Material Contracts and Commitments
Schedule 3.23 Conflict of Interest Transactions
Schedule 3.29 Legal Compliance
Schedule 4.6 Registration Rights
Schedule 7.5 Prior Stock Purchase Agreement
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SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
This Series A Convertible Preferred Stock Purchase Agreement (this
"AGREEMENT"), dated as of January 27, 2000 is by and among BroadbandNOW, Inc., a
Delaware corporation (the "COMPANY"), and the purchasers identified in SCHEDULE
1 hereto (hereinafter referred to individually as a "PURCHASER" and collectively
as the "PURCHASERS").
NOW, THEREFORE, the Company and the Purchasers agree as follows:
1. Purchase and Sale. Subject to the provisions of this Agreement, on
the Closing Date (as hereinafter defined), the Company will sell to each of the
Purchasers, severally and not jointly, and each of the Purchasers, severally and
not jointly, will purchase from the Company, the number of shares of Series A
Convertible Preferred Stock, par value $0.001 per share (the "SERIES A
CONVERTIBLE PREFERRED STOCK"), set forth opposite each such Purchaser's name in
SCHEDULE 1 annexed hereto at a price per share of Eighteen and 80/100 Dollars
($18.80).
2. Closing of Purchase and Sale.
2.1 Closing; Closing Date. The purchase and sale of the Series
A Convertible Preferred Stock (the "CLOSING") shall take place at the
offices of the Company at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, at
10:00 a.m., local time, on January 27, 2000 (the "CLOSING DATE") or at
such other place or time as may be agreed upon by the Company and the
Purchasers.
2.2 Transactions at Closing. At the Closing, the Company shall
deliver to each Purchaser a certificate or certificates for the shares
of Series A Convertible Preferred Stock to be issued and sold to such
Purchaser at the Closing, duly registered in such Purchaser's name,
against payment in full by such Purchaser of the aggregate purchase
price set forth opposite such Purchaser's name in SCHEDULE 1 hereto by
a wire transfer of funds made to the order of "BroadbandNOW, Inc." in
the amount of such aggregate purchase price. The Company shall also
deliver to the Purchasers those items required to be delivered to them
by the Company as described in ARTICLE 5 of this Agreement. The
Purchasers shall also deliver to the Company those items required to be
delivered to the Company by the Purchasers as described in ARTICLE 6 of
this Agreement.
3. Representations and Warranties of Company. The Company represents
and warrants to the Purchasers that:
3.1 Organization, Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware, has all requisite corporate power
and authority to own its property and assets and to carry on its
business as it is presently being conducted and as it proposes to carry
on its business. The Company has all requisite corporate power and
authority to execute and deliver this Agreement and the other
agreements contemplated herein, to issue and sell the Series A
Convertible Preferred Stock hereunder, to issue shares of Class A
Common Stock (as hereinafter defined) upon conversion of the Series A
Convertible
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Preferred Stock, and to carry out the transactions contemplated by this
Agreement and the other agreements contemplated herein. The Certificate
of Incorporation and Bylaws, copies of which are attached hereto as
EXHIBITS A and B, respectively, are true, correct and complete. The
Company is duly qualified and in good standing as a foreign corporation
authorized to do business in each of the jurisdictions in which the
failure to be so qualified would have a material adverse effect on the
Company. SCHEDULE 3.1 sets forth the jurisdictions in which the Company
is qualified.
3.2 Capitalization. The authorized capital stock of the
Company, as of the Closing Date, will consist of: (a) 100,000,000
shares of Class A Common Stock, par value $0.001 per share (the "CLASS
A COMMON STOCK"), of which 4,684,400 shares are issued and outstanding,
(b) 25,000,000 shares of Class B Common Stock, par value $0.001 per
share (the "CLASS B COMMON STOCK"), of which 4,979,777 shares are
issued and outstanding, (c) 25,000,000 shares of Class C Common Stock,
par value $0.001 per share (the "CLASS C COMMON STOCK"), of which
2,074,464 shares are issued and outstanding, and (d) 6,900,000 shares
of Preferred Stock, all of which have been designated as Series A
Convertible Preferred Stock, of which 3,756,420 shares are issued and
outstanding. The relative rights, preferences, restrictions and other
provisions relating to the Series A Convertible Preferred Stock are as
set forth in the Certificate of Designations, Preferences and Relative
Rights (the "CERTIFICATE OF DESIGNATION"), attached hereto as EXHIBIT
C. The Class A Common Stock, Class B Common Stock and Class C Common
Stock are hereinafter collectively referred to as the "COMMON STOCK".
SCHEDULE 3.2 sets forth the name and, to the Company's knowledge, the
current address of each holder of Common Stock and Series A Convertible
Preferred Stock and number and class of shares so held by each holder.
Of the Class A Common Stock, (i) 4,979,777 shares are reserved for
issuance on the conversion of the Class B Common Stock, (ii) 2,074,464
shares are reserved for issuance on the conversion of the Class C
Common Stock, (iii) 4,893,617 shares are reserved for issuance on the
conversion of the Series A Convertible Preferred Stock, and (iv)
5,961,220 shares are reserved for issuance pursuant to employee stock
purchase or stock option plans adopted or to be adopted by the Company
for key employees and prior stock option grants. All of the outstanding
shares of the Common Stock are duly authorized and validly issued in
accordance with applicable law, fully paid and non-assessable.
Except as set forth on SCHEDULE 3.2 hereto, or as otherwise
contemplated by this Agreement, as of the date hereof there are, and
immediately following the Closing, there will be (i) no outstanding
options, warrants, agreements, conversion rights, preemptive rights or
other rights to subscribe for, purchase or acquire any issued or
unissued shares of capital stock of the Company, or any securities
convertible or exchangeable for such stock, and (ii) no restrictions
upon the voting or transfer of any shares of capital stock of the
Company pursuant to its Certificate of Incorporation, Bylaws or other
governing documents or any agreement or other instruments to which it
is a party or by which it is bound, and (iii) there are no agreements
to which the Company is a party or of which the Company has knowledge
regarding the issuance, registration, voting or transfer of or
obligation (contingent or otherwise) of the Company to repurchase or
otherwise acquire
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or retire or redeem any of its outstanding shares of capital stock. No
dividends are accrued but unpaid on any capital stock of the Company.
3.3 Validity of Stock. The Series A Convertible Preferred
Stock, when issued, sold and delivered in accordance with the terms of
this Agreement, will be duly and validly authorized and issued, fully
paid, non-assessable and free and clear of all encumbrances or
restrictions on transfer except those imposed by applicable securities
laws, the Certificate of Incorporation, the Certificate of Designation
and this Agreement. The Class A Common Stock issuable upon conversion
of the Series A Convertible Preferred Stock, when issued, sold and
delivered in accordance with the terms of this Agreement, will be duly
and validly authorized and issued, fully paid, non-assessable and free
and clear of all encumbrances or restrictions on transfer except those
imposed by applicable securities laws, the Certificate of
Incorporation, the Certificate of Designation and this Agreement. All
existing preemptive rights have been waived for purposes of the
issuance of the Series A Convertible Preferred Stock.
3.4 Subsidiaries. Except as set forth on SCHEDULE 3.4 hereto,
the Company does not control, directly or indirectly, or own any equity
interest in, any other corporation, partnership, joint venture,
association or business entity. The Company owns all of the issued and
outstanding capital stock of the corporation listed on Schedule 3.4
(the "SUBSIDIARY"). The Company has no assets or liabilities other than
the stock of the Subsidiary and holds a note from the Subsidiary
secured by the real property used as the Company's and the Subsidiary's
corporate headquarters. All issued and outstanding capital stock of the
Subsidiary has been duly and validly authorized and issued and is fully
paid and non-assessable and free and clear of all encumbrances. As of
the date hereof there are, and immediately following the Closing there
will be, no outstanding options, warrants, agreements, conversion
rights, preemptive rights or other rights to subscribe for, purchase or
acquire any issued or unissued shares of capital stock of the
Subsidiary, or any securities convertible into or exchangeable for such
stock. The Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of the State of Texas, has all
requisite corporate power and authority to own its property and assets
and to carry on its business as it is presently being conducted and as
it proposes to carry on its business. The Subsidiary is duly qualified
and in good standing as a foreign corporation authorized to do business
in each of the jurisdictions in which the failure to be so qualified
would have a material adverse effect on the Subsidiary. SCHEDULE 3.4
sets forth the jurisdictions in which the Subsidiary is qualified.
3.5 Financial Statements. Attached hereto as SCHEDULE 3.5 are
the unaudited balance sheets as at December 31, 1997 and September 30,
1999 and unaudited statements of income, changes in stockholders
equity, and cash flow of the Subsidiary for the year ended December 31,
1997 and the quarter ended September 30, 1999, and the audited balance
sheet as at December 31, 1998, and audited statements of income,
changes in stockholders equity, and cash flow of the Subsidiary for the
year ended December 31, 1998 (collectively, the "FINANCIAL
STATEMENTS"). The Financial Statements have been prepared in accordance
with the books and records of the Subsidiary and generally accepted
accounting principles ("GAAP") (except the
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September 30, 1999 financial statements and the September 30, 1999
balance sheet (the "BALANCE SHEET") are subject to normal and recurring
year-end audit adjustments which are not expected to be material in
amount) and fairly and accurately reflect the financial condition and
the results of operations (except for the year ended December 31, 1997)
of the Subsidiary as of the respective dates thereof or for the periods
covered in accordance with GAAP.
3.6 Absence of Undisclosed Liabilities. Except as provided in
the Financial Statements, neither the Company nor the Subsidiary has
any material debt, liability or obligation, absolute or contingent
(including without limitation obligations in any capacity as guarantor
or surety), other than obligations incurred in the ordinary course of
business since September 30, 1999 (the "BALANCE SHEET DATE"). Without
limiting the generality of the foregoing, the Company knows of no basis
for the assertion against the Company or the Subsidiary as of the date
hereof of any material liabilities (not reflected in the Financial
Statements) of the Company or the Subsidiary.
3.7 Absence of Certain Changes. Except as set forth in
SCHEDULE 3.7, since the Balance Sheet Date, neither the Company nor the
Subsidiary has:
suffered any material adverse change, whether or not
caused by any deliberate act or omission of the Company or any
shareholder of the Company, or the Subsidiary, in their
respective condition (financial or otherwise), operations,
assets, liabilities, business or prospects, taken as a whole;
contracted for the purchase of any capital assets
having a cost in excess of $500,000 or paid any capital
expenditures in excess of $500,000;
incurred any indebtedness for borrowed money or
issued or sold any debt securities in excess of $150,000;
incurred or discharged any liabilities or
obligations, except in the ordinary course of business;
mortgaged, pledged or subjected to any security
interest, lien, lease or other charge or encumbrance any of
its properties or assets other than equipment financing liens
incurred in the ordinary course of business;
suffered any damage or destruction to or loss of any
assets (whether or not covered by insurance) that has
materially and adversely affected, or could reasonably be
expected to, materially and adversely affect, its business;
acquired or disposed of any assets except in the
ordinary course of business;
waived any material rights or forgiven any material
claims;
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lost, terminated or, to the Company's knowledge,
experienced any change in the relationship with any employee,
customer or supplier, which termination or change has
materially and adversely affected, or could reasonably be
expected to materially and adversely affect, its business or
assets;
loaned any money to any person or entity in excess of
$100,000;
redeemed, purchased or otherwise acquired, or sold,
granted or otherwise disposed of, directly or indirectly, any
of its capital stock or securities or any rights to acquire
such capital stock or securities, or agreed to change the
terms and conditions of any such rights or paid any dividends
or made any distribution to the holders of the Company's
capital stock other than stock options granted to employees
under the Company's Incentive Stock Option Plan; or
committed to do any of the foregoing.
3.8 Authorization; Approvals. All corporate action on the part
of the Company and its shareholders necessary for the authorization,
execution, delivery, and performance of all its obligations under this
Agreement, and for the authorization, issuance, and delivery of the
Series A Convertible Preferred Stock being sold under this Agreement
and of the Class A Common Stock issuable upon conversion of the Series
A Convertible Preferred Stock has been taken. This Agreement
constitutes a valid and legally binding obligation of the Company
legally enforceable against it in accordance with its terms, subject as
to enforcement to bankruptcy, insolvency, reorganization and other laws
of general applicability relating to or affecting creditors' rights and
to general principles of equity. The Company has obtained or will
obtain prior to the Closing Date all necessary consents,
authorizations, approvals and orders from any federal, state or other
relevant governmental authority and from any individual, corporation,
partnership, trust, incorporated or unincorporated association, joint
venture, joint stock company or other entity, and has made all
registrations, qualifications, designations, declarations or filings
with all federal, state, or other relevant governmental authorities,
all as may be required on the part of the Company in connection with
the consummation of the transactions contemplated by this Agreement,
except for filings pursuant to applicable securities laws which will be
made after the Closing Date.
3.9 No Conflict with Other Instruments. Except as set forth on
SCHEDULE 3.9, the execution, delivery and performance of this Agreement
will not result in any violation of, be in conflict with, or constitute
a default under any terms or provision of (a) the Company's Certificate
of Incorporation or Bylaws; (b) any Commitments (as hereinafter
defined); or (c) any judgment, decree or order or any statute, rule or
governmental regulation applicable to the Company or the Subsidiary.
Subject to the truth and accuracy of each Purchaser's representations
and warranties herein and the Company making any required filings which
the Company agrees to do, the offer and sale of the Series A
Convertible Preferred Stock to each Purchaser will be in compliance
with all federal and state securities laws.
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3.10 Labor Agreements and Actions. Neither the Company nor the
Subsidiary is bound by or subject to (and none of their respective
assets or properties is bound by or subject to) any written or oral,
express or implied, contract, commitment or arrangement with any labor
union, and no labor union has requested or, to the Company's knowledge,
sought to represent any of the employees, representatives or agents of
the Company or the Subsidiary. There is no strike or other labor
dispute involving the Company or the Subsidiary pending, or, to the
Company's knowledge, threatened, which could have a material adverse
effect on the financial condition, operating results, or business of
the Company and the Subsidiary taken as a whole, nor is the Company
aware of any labor organization activity involving its employees of the
Company or the Subsidiary.
3.11 Employee Matters. SCHEDULE 3.11 contains a complete and
accurate list of the names, titles and Cash Compensation (as
hereinafter defined) of all members of executive management of the
Company, regardless of compensation levels, and other employees who are
currently compensated at a rate in excess of $100,000 per year or who
earned in excess of $100,000 during the Company's preceding fiscal
year. For purposes of this SECTION 3.11, "CASH COMPENSATION" shall mean
wages, salaries, bonuses (discretionary or otherwise) and other
compensation paid or payable in cash. Except as disclosed in SCHEDULE
3.11, neither the Company nor the Subsidiary has any employment
agreements, employee leasing agreements, employee service agreements,
or noncompetition agreements.
3.12 Title to Properties; Liens and Encumbrances.
Except as disclosed on SCHEDULE 3.12(a), each of the
Company and the Subsidiary has good and marketable title to
its assets, including, without limitation, those reflected on
the Balance Sheet (other than those since disposed of in the
ordinary course of business), free and clear of all security
interests, liens, charges and other encumbrances, except for
(i) liens for taxes not yet due and payable or being contested
in good faith in appropriate proceedings, and (ii)
encumbrances that are incidental to the conduct of their
respective businesses or ownership of property, not incurred
in connection with the borrowing of money or the obtaining of
credit, and which do not in the aggregate materially detract
from the value of the assets affected or materially impair
their use by the Company or the Subsidiary. With respect to
the assets of the Company or the Subsidiary that are leased,
the Company or the Subsidiary is in compliance with all
material provisions of such leases. All facilities, machinery,
equipment, fixtures, vehicles and other properties owned,
leased or used by the Company or the Subsidiary are in good
operating condition and repair, normal wear and tear excepted,
and are adequate and sufficient for the business of the
Company and the Subsidiary.
The Company or the Subsidiary enjoys peaceful and
undisturbed possession under all real property leases under
which the Company or the Subsidiary is operating, and all such
leases are valid and subsisting and none of them is in
default. A listing of said real property leases, their terms
and total lease payments is attached hereto as SCHEDULE
3.12(b).
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Except as disclosed in SCHEDULE 3.12(c), neither the
Company nor the Subsidiary owns any real property.
3.13 Compliance with Corporate Instruments. The Company is not
in violation of any provision of its Certificate of Incorporation,
Bylaws of the Company or Certificate of Designation, and neither the
Company nor the Subsidiary is in default or violation of any Commitment
to which the Company or the Subsidiary is a party or by which any of
their respective property is bound, the default or violation of which
would materially and adversely affect the Company's business,
prospects, condition, affairs or operations of the Company and the
Subsidiary taken as a whole.
3.14 Patents, Trademarks and Other Intangible Assets.
SCHEDULE 3.14(a) hereto sets forth the true and
correct list of all registered patents, trademarks and
copyrights (or applications therefor) held by the Company or
the Subsidiary. Except as set forth on SCHEDULE 3.14(a), the
Company or the Subsidiary possesses ownership or has the right
to use all patents, copyrights, trademarks, service marks,
trade secrets and other proprietary intellectual property
rights necessary for the operation of its business except
where the failure of the Company or the Subsidiary to own or
have such right to use such intellectual property would not
have a material adverse effect on the Company and the
Subsidiary, taken as a whole (the "INTELLECTUAL PROPERTY"). To
the Company's knowledge, neither the Company nor the
Subsidiary (a) is infringing upon the intellectual property
rights of others in connection with its business; (b) requires
the consent of any person which has not been obtained (all of
such consents being set forth in SCHEDULE 3.14(a)) to use the
Intellectual Property; (c) is restricted from freely
transferring the Intellectual Property (other than as set
forth in SCHEDULE 3.14(a)); or (d) has received any written
notice of conflict with respect to the intellectual property
rights of any other person or entity. All of the Intellectual
Property is valid and subsisting, has not been canceled,
abandoned or otherwise terminated and, if applicable, has been
duly issued or filed. The employees and consultants of the
Company or the Subsidiary, who, either alone or in concert
with others, developed, invested, discovered, derived,
programmed or designed any of the Intellectual Property owned
by the Company or the Subsidiary have entered into written
agreements to protect the confidentiality of such Intellectual
Property and to assign to the Company or the Subsidiary all
rights therein.
The Company has no knowledge of any claim that, or
inquiry as to whether, any product, activity or operation of
the Company or the Subsidiary infringes upon or involves, or
has resulted in the infringement of, any proprietary right of
any other person, corporation or other entity; and no
proceedings have been instituted, are pending or are
threatened that challenge the rights of the Company or the
Subsidiary with respect thereto. Any agreement of
indemnification by the Company or the Subsidiary for any
Intellectual Property as
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to any license granted by it or any property manufactured,
used or sold by it is set forth in SCHEDULE 3.14(b).
3.15 Trade Secrets and Customer Lists. The Company or the
Subsidiary has the right to use, free and clear of any claims or rights
of others, except claims or rights specifically set forth in SCHEDULE
3.15, all trade secrets, customer lists and proprietary information
required for the marketing of all merchandise and services formerly or
presently sold or marketed by the Company or the Subsidiary. To the
Company's knowledge, neither it nor the Subsidiary is using, or in any
way making use of, any confidential information or trade secrets of any
third party, including, without limitation, any past or present
employee of the Company or the Subsidiary, except under valid and
existing license agreements (all such license agreements being set
forth in SCHEDULE 3.15).
3.16 Tax Matters.
All required foreign, federal, state, local and other
tax returns, notices and reports (including, without
limitation, income, property, sales, use, franchise, capital
stock, excise, added value, employees' income withholding,
social security and unemployment tax returns) of the Company
and the Subsidiary have been accurately prepared in all
material respects and duly and timely filed, and all foreign,
federal, state, local and other taxes required to be paid with
respect to the periods covered by such returns have been paid.
Neither the Company nor the Subsidiary is or has been
delinquent in the payment of any tax, assessment or
governmental charge. Neither the Company nor the Subsidiary is
a party to any agreement, contract, arrangement or plan that
has resulted or would result, separately or in the aggregate,
in the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code. Neither the Company nor
the Subsidiary has or has had a permanent establishment in any
foreign country, as defined in any applicable tax treaty or
convention between the United States and such foreign country.
Except as set forth in SCHEDULE 3.16, neither the
Company nor the Subsidiary has had any tax deficiency proposed
or assessed against it and has not executed any waiver of any
statute of limitations on the assessment or collection of any
tax or governmental charge. Except as set forth in SCHEDULE
3.16, and except for sales tax audits, none of the Company's
or the Subsidiary's franchise tax returns has ever been
audited by governmental authorities. No tax audit, action,
suit, proceeding, investigation or claim is now pending nor,
to the best knowledge of the Company, threatened against the
Company or the Subsidiary, and no issue or question has been
raised (and is currently pending) by any taxing authority in
connection with any of the Company's or the Subsidiary's tax
returns or reports.
To the Company's knowledge, the reserves for taxes,
assessments and governmental charges reflected on the Balance
Sheet are and will be sufficient for the payment of all unpaid
taxes and governmental charges payable by the
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Company or the Subsidiary with respect to the period ended on
the Balance Sheet Date. Since the Balance Sheet Date, the
Company or the Subsidiary has made adequate provisions on its
books of account for all taxes, assessments and governmental
charges with respect to business, properties and operations
for such period. The Company or the Subsidiary withheld or
collected from each payment made to its employees, the amount
of all taxes (including, but not limited to, federal income
taxes, Federal Insurance Contribution Act taxes and Federal
Unemployment Tax Act taxes) required to be withheld or
collected therefrom, and has paid the same to the proper tax
receiving officers or authorized depositories.
3.17 Litigation. No action, proceeding or investigation is
pending or threatened against the Company, the Subsidiary or any of
their respective properties before any court, arbitration board or
tribunal or administrative or other governmental agency (including,
without limitation, unfair labor practices or discrimination charges or
complaints), that might result, either individually or in the
aggregate, in any material adverse change in the business, prospects,
condition, affairs, operations, or assets of the Company and the
Subsidiary, taken as a whole, or in any material liability on the part
of the Company or the Subsidiary. The foregoing includes, without
limiting its generality, actions pending or threatened involving the
prior employment of any of the Company's or the Subsidiary's employees
or use by any of them in connection with the Company's or the
Subsidiary's business of any information, property or techniques
allegedly proprietary to any of their former employers.
3.18 Minute Books. The minute books of the Company and the
Subsidiary have been made available to the counsel for the Purchasers
and contain a complete summary of all meetings of directors and
shareholders since the time of incorporation and reflect all
transactions referred to in such minutes accurately in all material
respects.
3.19 Insurance. The Company and/or the Subsidiary carries
property, liability, workers' compensation and such other types of
insurance as is customary in the Company's and/or the Subsidiary's
industry. A list and brief description of all insurance policies of the
Company and the Subsidiary are set forth in SCHEDULE 3.19. All of such
policies are valid and enforceable policies, issued by insurers of
recognized responsibility in amounts and against such risks and losses
as are customary in the Company's and/or the Subsidiary's industry. All
casualty insurance is sufficient in amount to allow the Company or the
Subsidiary to replace any of its properties that might be damaged or
destroyed.
3.20 Fees and Commissions. The Company has retained ▇▇▇▇▇▇▇▇▇,
Lufkin & ▇▇▇▇▇▇▇▇ ("DLJ") as financial advisor and placement agent in
connection with the transactions contemplated by this Agreement. The
Company shall pay all fees owed DLJ in connection with the transactions
contemplated by this Agreement from the proceeds of the sale of the
Preferred Stock (the "OFFERING") pursuant to the Placement Memorandum
(as hereinafter defined). The Company represents and warrants that
other than as stated in this SECTION 3.20, neither it nor the
Subsidiary has retained any finder, broker, agent, financial adviser or
other intermediary in connection with the transactions contemplated
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14
by this Agreement. The Company agrees to indemnify and hold harmless
the Purchasers for any brokerage commissions, finder's fees or similar
compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by the Company or
the Subsidiary.
3.21 Employee Benefit Plans.
SCHEDULE 3.21 contains true, complete and correct
information as to any bonus, incentive, insurance (including
any self-insured arrangements), compensation plan, welfare,
retirement, defined benefit, 401(k), pension, profit sharing,
salary reduction, deferred compensation, stock purchase, stock
option, workers' compensation, disability benefits,
supplemental unemployment benefits (including without
limitation any "voluntary employees' beneficiary association"
as defined in Section 501(c)(9) of the Code) (as hereinafter
defined), vacation, holiday and sick pay or other similar
benefit plans, programs or arrangements (whether written or
oral) (said plans, programs or arrangements being referred to
as the "PLANS") in which any employees of the Company or the
Subsidiary participate. All Plans are listed on the attached
SCHEDULE 3.21. All obligations of the Company or the
Subsidiary, whether arising by operation of law, by contract
or by past custom, for payment by it to trusts, retirement
plans or other funds or any governmental agency with respect
to unemployment compensation benefits, social security
benefits or any other benefits for employees of the Company or
the Subsidiary have been paid or shall be paid by the Company
or the Subsidiary at the time the Company or the Subsidiary is
obligated to make such payments. All benefits payable directly
to the Company's or the Subsidiary's employees have been paid
or shall be paid by the Company or the Subsidiary at the time
the Company or the Subsidiary is obligated to make such
payments. All reasonably anticipated obligations of the
Company or the Subsidiary, whether arising by operation of
law, by contract or by past custom, for vacation and holiday
pay, bonuses and other forms of compensation or benefits which
are or may become payable to employees or any of them have
been paid, or shall be paid, in accordance with the provisions
of applicable laws, regulations, benefit plans or policies.
True, complete and correct copies of all relevant
documents with respect to the Plans, including, but not
limited to, each of the following documents: (i) a copy of the
Plan and each related trust or other funding agreement,
including insurance contracts (and all amendments thereto);
(ii) the last filed Form 5500, where applicable; (iii) the
most recent determination letter received from the Internal
Revenue Service with respect to each Plan that is intended to
be qualified under Section 401 of the Internal Revenue Code of
1986, as amended (the "CODE"); and (iv) the summary plan
descriptions and all material modifications thereto, have been
delivered to Purchasers.
All Plans, related trust agreements, annuity
contracts or other funding arrangements comply in all
substantial respects and the Company or the
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Subsidiary has administered and operated each such Plan,
related trust agreements, annuity contracts or other funding
arrangements in substantial compliance with the requirements
of applicable law, including, without limitation, the Employee
Retirement Income Security Act of 1974 as amended ("ERISA"),
and the Code, and no such Plan that is subject to Part 3 of
Subtitle B of Title I of ERISA has incurred any "accumulated
funding deficiency" within the meaning of Section 302 of ERISA
or Section 412 of the Code, whether or not waived.
Neither the Company nor the Subsidiary maintains or
is required to contribute to any multi-employer plan (as
defined in Section 3(37) of ERISA) for the benefit of
employees or former employees of the Company or the
Subsidiary. Neither the Company nor the Subsidiary maintains a
self-insured "multiple employer welfare arrangement" as
defined in Section 3(40) of ERISA.
The Pension Benefit Guaranty Corporation ("PBGC") has
not instituted proceedings to terminate any of the Company's
or the Subsidiary's defined benefit plans and no condition
exists that presents a risk that such proceedings shall be
instituted. There has been no "reportable event" within the
meaning of Section 4043(b) of ERISA with respect to any
defined benefit plan and no defined benefit plan has been
terminated within the preceding six years or is expected to be
terminated. No liability (other than for the payment of
premiums) to the PBGC has been or is expected to be incurred
by the Company or the Subsidiary or any officer, director,
shareholder or employee of the Company or the Subsidiary with
respect to any defined benefit plan.
Neither the Company nor the Subsidiary has any
liability with respect to any transaction which relates to any
Plan and which is in violation of Sections 404 or 406 of ERISA
or constitutes a "prohibited transaction," as defined in
Section 4975(c)(1) of the Code, and for which no exemption
exists under Section 408 of ERISA or Section 4975(c)(2) or (d)
of the Code. To the Company's knowledge, neither the Company
nor the Subsidiary has participated in a violation of Part 4
of Title I, Subtitle B of ERISA by any plan fiduciary of any
Plan and has no unpaid civil penalty under Section 502(1) of
ERISA.
There is no material action, order, writ, injunction,
judgment or decree outstanding or claim, suit, litigation,
proceeding, arbitral action, governmental audit or
investigation (including, without limitation, any such audit
or investigation by the Internal Revenue Service, Department
of Labor, or PBGC) relating to or seeking benefits under any
Plan that is pending or, to the Company's knowledge,
threatened or anticipated against the Company or the
Subsidiary other than routine claims for benefits.
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3.22 Material Contracts and Commitments.
Material Contracts and Commitments. Except as set
forth in SCHEDULE 3.22, neither the Company nor the Subsidiary
has entered into, nor is the capital stock, the assets or the
business of the Company or the Subsidiary bound by, whether or
not in writing, any
deed of trust securing a lien in any real
property owned by the Company or the Subsidiary;
security agreement granting a security
interest in connection with the Company's or the
Subsidiary's incurrence of indebtedness for borrowed
money;
guaranty or suretyship agreement or
performance bond, in each case involving a contingent
obligation of the Company or the Subsidiary in excess
of $100,000;
consulting or compensation agreement or
similar arrangement that is not an Employment
Agreement and that involves compensation payable by
the Company or the Subsidiary in excess of $100,000
annually or an agreement relating to the election or
retention in office of any director or officer;
debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed
money;
money lent or to be lent by the Company or
the Subsidiary to another in an amount in excess of
$10,000;
lease of real property, whether as lessor,
lessee, sublessor or sublessee (excluding the real
estate leases set forth on SCHEDULE 3.12);
lease of personal property, whether as
lessor, lessee, sublessor or sublessee involving
lease payments in an annual amount in excess of
$50,000;
any agreement for the acquisition of
services, supplies, equipment or other personal
property (excluding leases of real or personal
property) and involving more than $100,000 in the
aggregate;
contracts containing noncompetition
covenants restricting the Company's or the
Subsidiary's ability to compete in the
Telecommunications Business (as hereinafter defined);
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agreement providing for the purchase from a
supplier of all or substantially all of the
requirements of the Company or the Subsidiary of a
particular product or service; or
agreement or commitment a copy of which
would be required to be filed with the Securities and
Exchange Commission (the "COMMISSION") as an exhibit
to a registration statement on Form S-1, or a
successor form, pursuant to Paragraph 10 of Item 601
of Regulation S-K, if the Company were registering
securities under the Securities Act of 1933, as
amended (the "Securities Act").
All of the documents listed on SCHEDULE 3.22 hereof are
hereinafter collectively referred to as the "COMMITMENTS."
True, correct and complete copies of the written Commitments
have heretofore been made available to Purchasers. To the
knowledge of the Company, the Commitments are in full force
and effect and are valid and enforceable obligations of the
parties thereto in accordance with their respective terms
(except as may be limited by the laws of bankruptcy,
insolvency or creditors rights generally and subject to the
enforceability and availability of equitable remedies), and to
the knowledge of the Company, no defenses, off-sets or
counterclaims have been asserted by any party thereto, nor has
the Company or the Subsidiary waived in writing any rights
thereunder, except as described in SCHEDULE 3.22. Neither the
Company nor the Subsidiary has received written notice of any
default with respect to any Commitment.
No Cancellation or Termination of Commitments.
Neither the Company nor the Subsidiary has received written
notice of any plan or intention of any other party to any
Commitment to exercise any right to cancel or terminate any
Commitment.
3.23 Conflict of Interest Transactions. Except as set forth on
SCHEDULE 3.23, no director, Common Stock holder, member of management
of the Company, or their spouses or children, owns directly or
indirectly, on an individual or joint basis, any interests, has any
investment in or serves as an officer, partner or director in any
corporation, business or other person that is a customer, supplier or
competitor of the Company or the Subsidiary, or that has a material
contract or arrangement with the Company or the Subsidiary or their
competitor, other than the ownership of less than one percent (1%) of
the securities of any company that are publicly traded on any national
exchange or over the counter market.
3.24 Environmental Matters. To the Company's knowledge,
neither the Company nor the Subsidiary nor any of their respective
assets is currently in material violation of, or subject to any
material existing, pending or threatened investigation or inquiry by
any governmental authority or to any remedial obligations under any
environmental laws, and this representation and warranty would continue
to be true and correct following disclosure to the applicable
governmental authorities of all relevant facts, conditions and
circumstances, if any, pertaining to the assets and operations of the
Company and the
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Subsidiary. To the Company's knowledge, the assets of the Company and
the Subsidiary have never been used in a manner that would be in
material violation of any of the environmental laws. To the Company's
knowledge, neither the Company nor the Subsidiary is required to obtain
any permits, licenses or similar authorizations to construct, occupy,
operate or use any buildings, improvements, fixtures and equipment
owned or leased by the Company or the Subsidiary by reason of any
environmental laws. None of the assets owned or leased by the Company
or the Subsidiary are on any federal or state "Superfund" list or
subject to any environmentally related liens.
3.25 Other Transactions. Other than the offering and sale of
the Series A Convertible Preferred Stock hereunder, the Company has not
entered into any agreements or arrangements and has no knowledge of any
pending or possible offers or discussions concerning or providing for
the merger or consolidation of the Company or the Subsidiary or the
sale of all or any substantial portion of their respective assets, the
sale by the Company or any material shareholder of the Company of any
Securities of the Company or the Subsidiary or any similar transaction
affecting the Company or the Subsidiary or their respective security
holders.
3.26 No Bankruptcies. For the past five years, neither the
Company nor the Subsidiary nor any of their respective officers,
directors or affiliates, have voluntarily sought, consented to or
acquiesced in the benefits of, or become the subject of a proceeding
under the Bankruptcy Code of the United States or any other applicable
liquidation, conservatorship, bankruptcy, moratorium, rearrangement,
receivership, insolvency, reorganization or similar debtor relief laws
from time to time in effect affecting the rights of creditors
generally.
3.27 Year 2000 Compliance. To the Company's knowledge, the
computer systems used by the Company and the Subsidiary are Year 2000
compliant, meaning that such systems will continue to function, and
functionality and accuracy will not be affected as a result of the run
date or the dates being processed in the twentieth or twenty-first
century, including the advent of the Year 2000, or from the extra day
occurring in any leap year.
3.28 Disclosure. To the Company's knowledge, this Agreement
and the exhibits and schedules hereto, when taken as a whole with other
documents and certificates furnished by the Company to the Purchasers
or their counsel, do not contain any untrue statement of material fact
or omit any material fact necessary in order to make the statements
therein not misleading; provided, however, certain materials provided
to the Purchasers contain projections and estimates of future events,
and such projections and estimates are subject to the statements in the
Placement Memorandum (as hereinafter defined), including, without
limitation, the statements set forth on page 42 thereof. There is no
fact known to the Company that has not been disclosed to the Purchasers
prior to the date of this Agreement that materially and adversely
affects the business, assets, properties, prospects or condition
(financial or otherwise) of the Company and the Subsidiary, taken as a
whole, or the ability of the Company to perform under this Agreement or
the other agreements contemplated hereby or to consummate the
transactions contemplated hereby or thereby. For purposes of this
SECTION 3.28 only, "to the Company's knowledge" shall
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include any information the Company would have known except for its
reckless disregard for the accuracy of any material fact.
3.29 Legal Compliance. Except as set forth on SCHEDULE 3.29,
(a) each of the Company and the Subsidiary has all material franchises,
permits, licenses and other rights and privileges necessary to permit
it to own its respective properties and to conduct its respective
businesses as presently conducted (all of which such items are set
forth on SCHEDULE 3.29) and (b) the Company, the Subsidiary and the
business and operations of the Company and the Subsidiary, have been
and are being conducted in all material respects in accordance with all
applicable laws, rules and regulations (including, without limitation,
all employment, labor practices, safety and health laws and
regulations), and the Company is not in violation of any judgment,
order or decree. There is no existing law, rule, regulation or order
which would prohibit or restrict the Company or the Subsidiary from, or
otherwise materially adversely affect the Company or the Subsidiary in,
conducting its business in any jurisdiction in which it is now
conducting business or, to the Company's knowledge, in which it
proposes to conduct business.
3.30 Small Business Concern. The Company, taken together with
its "affiliates" (as that term is defined in Section 121.401 of Title
13 of the Code of Federal Regulations) is a "Small Business Concern"
within the meaning of Section 103(5) of the Small Business Investment
Act of 1958, as amended (the "SBIC Act"), and the regulations
thereunder, including Title 13, Code of Federal Regulations, Section
121.3, and meets the applicable size and eligibility criteria set forth
in Title 13, Code of Federal Regulations, Section 121.802(a)(2).
Neither the Company nor any of its subsidiaries, if any, presently
engages in any activity for which a small business investment company
is prohibited from providing funds by the SBIC Act and the regulations
thereunder, including Title 13, Code of Federal Regulations, Section
107.
3.31 Small Business Administration Documentation. The Company
has provided Purchasers, who have requested, a Small Business
Administration "SBA" Form 480 (Size Status Declaration) and SBA Form
652 (Assurance of Compliance), of such Forms, which have been completed
and executed by the Company, and SBA Form 1031 (Portfolio Finance
Report), Part A of which has been completed by the Company.
3.32 Prior Sales of Series A Convertible Preferred Stock. All
shares of Series A Convertible Preferred Stock sold by the Company or
sold by the Subsidiary and converted into or exchanged for Series A
Convertible Preferred Stock of the Company have been sold on
substantially the same terms as set forth in this Agreement for the
Purchasers.
4. Representations, Warranties and Covenants of Purchasers.
4.1 Organization and Good Standing. Each Purchaser severally
represents and warrants that, if a corporation, partnership, trust or
other form of business entity, it is duly organized, validly existing
and in good standing under the laws of the state of its organization,
has all requisite power and authority to own its property and assets
and to
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carry on its business as it is presently being conducted and as it
proposes to carry on its business, is duly qualified and in good
standing and authorized to do business in each of the jurisdictions in
which the failure to be so qualified would have a material adverse
effect on the Purchaser.
4.2 Authorization; Approvals. Each Purchaser severally
represents and warrants that the execution and delivery of this
Agreement has been duly authorized by such Purchaser and this Agreement
is a valid and legally binding obligation of such Purchaser legally
enforceable against it in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting creditor's rights and
general principles of equity. Each Purchaser, if a corporation,
partnership, trust or other form of business entity, is duly qualified
to purchase and hold the Series A Convertible Preferred Stock sold
hereunder. Each Purchaser represents and warrants that the information
set forth on SCHEDULE 1 hereto regarding such Purchaser's business and
residence addresses, telephone numbers, citizenship and taxpayer
identification number is true, accurate and complete. Each Purchaser
severally represents and warrants that it has obtained, or will obtain
prior to the Closing Date, all necessary consents, authorizations,
approvals and orders required on the part of such Purchaser in
connection with the consummation of the transactions contemplated by
this Agreement.
4.3 No Conflict with Other Instruments. The execution,
delivery and performance of this Agreement will not result in any
violation of, be in conflict with, or constitute a default under any
terms or provisions of (a) if a corporation, partnership, trust or
other form of business entity, the applicable charter documents of such
Purchaser; (b) any material contract, indenture or other agreement to
which the Purchaser is a party; or (c) any judgment, decree or order or
any material statute, rule or governmental regulation applicable to the
Purchaser.
4.4 Investment Representations. Each Purchaser severally
represents and warrants that it is acquiring the Series A Convertible
Preferred Stock to be purchased by it (and any Class A Common Stock
into which it may be converted) for its own account, for investment and
not with a view to, or for sale in connection with, any distribution of
such stock or any part thereof.
4.5 Investment Experience; Access to Information. Each
Purchaser severally represents and warrants that it (a) is an
"accredited investor" as that term is defined in Rule 501(a)
promulgated under the Securities Act (or any successor provision), (b)
has such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of this investment,
(c) has the ability to bear the economic risks of this investment for
an indefinite period of time, and (d) has received a copy of the
Private Placement Memorandum and any supplements thereto (collectively,
the "PLACEMENT MEMORANDUM") attached hereto as EXHIBIT D.
4.6 Absence of Registration. Each Purchaser understands that:
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The Series A Convertible Preferred Stock to be sold
and issued hereunder and the Class A Common Stock into which
it may be converted have not been registered under the
Securities Act or any other securities laws on the basis that
the sale of such stock to the Purchaser is exempt from
registration under the Securities Act and such other
securities laws, and the Purchaser may be required to hold
such stock indefinitely unless it is subsequently registered
under the Securities Act and any other applicable securities
laws, or exemptions from such registration are available.
The Company's reliance on the exemptions referred to
in SECTION 4.6(a) above is predicated in part upon the
Purchaser's representations and warranties contained in this
ARTICLE 4.
Except as provided in that certain Registration
Rights Agreement, to be executed at the Closing, by and among
the Company and the Purchasers (the "REGISTRATION RIGHTS
AGREEMENT"), attached hereto as EXHIBIT E and as noted in
SCHEDULE 4.6 hereto, the Company is under no obligation to
file a registration statement with the Commission or any other
securities regulatory agency with respect to the Series A
Convertible Preferred Stock or the Class A Common Stock into
which it may be converted.
Rule 144 promulgated under the Securities Act or any
successor provision ("RULE 144"), which provides for certain
limited sales of unregistered securities, is not presently
available with respect to the Series A Convertible Preferred
Stock or the Class A Common Stock into which it may be
converted, and the Company is under no obligation to make Rule
144 available.
4.7 Restrictions on Transfer. Each Purchaser agrees that: (a)
it will not offer, sell, pledge, hypothecate, or otherwise dispose of
the Series A Convertible Preferred Stock or the Class A Common Stock
into which it may be converted unless such offer, sale, pledge,
hypothecation or other disposition is in accordance with the
Certificate of Designation and this Agreement and is (i) registered
under the Securities Act and any other applicable securities laws, or
(ii) in compliance with an opinion of counsel to such Purchaser,
delivered to the Company and reasonably acceptable to it, to the effect
that such offer, sale, pledge, hypothecation or other disposition
thereof does not violate the Securities Act or such other securities
laws; and (b) the certificate(s) representing the Series A Convertible
Preferred Stock (and any Class A Common Stock into which it may be
converted) shall bear a legend stating in substance:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER
APPLICABLE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER SAID ACT OR SUCH LAWS OR, IN THE
OPINION OF COUNSEL IN FORM AND SUBSTANCE
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SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER,
SALE OR TRANSFER, PLEDGE OR HYPOTHECATION DOES NOT VIOLATE THE
PROVISIONS THEREOF.
In addition, the certificates evidencing the Series A Convertible
Preferred Stock shall bear legends stating in substance:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ALSO ARE
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AND
OBLIGATIONS, TO WHICH ANY TRANSFEREE AGREES BY HIS ACCEPTANCE
HEREOF, AS SET FORTH IN THE STOCK PURCHASE AGREEMENT BETWEEN
THE ISSUER AND INITIAL PURCHASER, A COPY OF WHICH MAY BE
OBTAINED FROM THE COMPANY. NO TRANSFER OF SUCH SHARES WILL BE
MADE ON THE BOOKS OF THE COMPANY UNLESS ACCOMPANIED BY
EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH AGREEMENT AND BY
AN AGREEMENT OF THE TRANSFEREE TO BE BOUND BY THE RESTRICTIONS
SET FORTH IN SAID STOCK PURCHASE AGREEMENT.
THE ISSUER IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OR
SERIES OF CAPITAL STOCK. A STATEMENT OF THE POWERS,
DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING OPTIONAL
OR OTHER SPECIAL RIGHTS OF EACH CLASS OR SERIES OF CAPITAL
STOCK AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF
SUCH PREFERENCES AND/OR RIGHTS (TO THE EXTENT ESTABLISHED) IS
ON FILE WITH THE SECRETARY OF STATE OF THE STATE OF DELAWARE.
THE ISSUER WILL FURNISH A COPY OF SUCH STATEMENT TO ANY
SHAREHOLDER OF RECORD, WITHOUT CHARGE, UPON THE WRITTEN
REQUEST TO THE ISSUER AT ITS PRINCIPAL PLACE OF BUSINESS OR
REGISTERED OFFICE.
Upon request of a holder of Series A Convertible Preferred
Stock or the Class A Common Stock into which it has been converted, the
Company shall remove the legend set forth above from the certificates
evidencing such Series A Convertible Preferred Stock or Class A Common
Stock or issue to such holder new certificates therefor free of such
legend, if with such request the Company shall have received an opinion
of counsel selected by the holder and reasonably satisfactory to the
Company, in form and substance reasonably satisfactory to the Company,
to the effect that a transfer by said holder of such Series A
Convertible Preferred Stock or Class A Common Stock will not violate
the Securities Act or any other applicable securities laws.
Notwithstanding the provisions above, no such registration or
opinion of counsel shall be necessary for a pro rata transfer by a
Purchaser which is a corporation to an
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23
affiliate of such corporation, or a Purchaser which is a partnership to
a partner of such partnership or a retired partner of such partnership
who retires after the date hereof without the payment of compensation
by such partner, or to the estate of any such partner or retired
partner or the transfer by gift, will or intestate succession of any
partner to his spouse or lineal descendants or ancestors, if the
transferee agrees in writing to be subject to the terms hereof to the
same extent as if such transferee were an original Purchaser hereunder,
including without limitation, the representations, warranties,
covenants and agreements contained in SECTIONS 4.1 to 4.7 hereto,
inclusive.
4.8 Transfer Instructions. Each Purchaser agrees that the
Company may place and make appropriate notations in its record books
against the transfer of the shares of Series A Convertible Preferred
Stock to be purchased by it and any Class A Common Stock into which
such shares may be converted, and may take any other actions which it
deems necessary to prevent any violations of the Securities Act or any
other securities laws by reason of the delivery of such stock or any
subsequent transaction with respect to such stock.
4.9 Economic Risk. Each Purchaser understands that it must
bear the economic risk of the investment represented by the purchase of
Series A Convertible Preferred Stock and any Class A Common Stock into
which it may be converted for an indefinite period.
4.10 Fees and Commissions. Each Purchaser represents and
warrants that it has retained no finder, broker, agent, financial
advisor or other intermediary (hereinafter collectively referred to as
"INTERMEDIARY") in connection with the transactions contemplated by
this Agreement and agrees to indemnify and hold harmless the Company
from liability for any compensation to any Intermediary retained by
such Purchaser and the fees and expenses of defending against such
liability or alleged liability.
5. Conditions to Closing of the Purchasers. The obligation of each
Purchaser on the Closing Date to consummate the transactions contemplated by
this Agreement shall be subject to each of the following conditions precedent,
any one or more of which may be waived by such Purchaser:
5.1 Representations and Warranties. The representations and
warranties made by the Company herein shall be true and accurate on and
as of the Closing Date.
5.2 Performance. The Company shall have performed and complied
with all agreements, conditions and covenants contained herein or in
any other ancillary documents incident to the transactions contemplated
by this Agreement required to be performed or complied with by it prior
to or at the Closing.
5.3 Company Consents, etc. The Company shall have secured all
permits, consents and authorizations that shall be necessary or
required lawfully to consummate
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this Agreement, to issue the Series A Convertible Preferred Stock to be
purchased by the Purchasers and to issue the Class A Common Stock into
which it may be converted.
5.4 Compliance Certificates. The Company shall have delivered
to each Purchaser or its representative at the Closing an Officer's
Certificate to the effect that the representations and warranties of
the Company continue to be true and accurate in all material respects
on the Closing Date, and that all conditions specified in SECTIONS 5.1
to 5.3 hereof, inclusive, have been fulfilled and that there has been
no materially adverse change in the business, affairs, prospects,
operations or condition of the Company since the Balance Sheet Date.
5.5 Government Actions. No action, suit or proceeding shall
have been instituted before any court, governmental or regulatory body
or arbitral tribunal, or instituted or threatened by any governmental
or regulatory body to restrain, modify or prevent the carrying out of
the transactions contemplated hereby or to seek damages or a discovery
order in connection with such transactions.
5.6 The Certificate of Designation. Each Purchaser shall have
received evidence that the Company shall have duly authorized and filed
the Certificate of Designation with the Secretary of State of the State
of Delaware, substantially in the form attached hereto as EXHIBIT C;
5.7 The Certificate of Incorporation. Each Purchaser shall
have received a copy of the Certificate of Incorporation of the Company
and all amendments thereto, certified by the Secretary of State of
Delaware, which shall include evidence that the Company shall have duly
authorized and filed the Certificate of Incorporation with the
Secretary of State of the State of Delaware, substantially in the form
attached hereto as EXHIBIT A;
5.8 Legal Opinion. Counsel for the Company, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
& ▇▇▇▇▇▇, P.C., shall have delivered to the Purchasers a legal opinion,
dated as of the Closing Date and substantially in the form attached
hereto as EXHIBIT F;
5.9 Company Deliveries. The Company shall have delivered to
the Purchasers:
(i) copies of the resolutions of the Company's Board
of Directors authorizing and approving this Agreement and all
of the transactions and agreements contemplated hereby and
thereby, (ii) the Bylaws of the Company and (iii) the names of
the officer or officers of the Company authorized to execute
this Agreement and any and all documents, agreements and
instruments contemplated herein, all certified by the
Secretary of the Company to be true, correct, complete and in
full force and effect and unmodified as of the Closing Date;
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a certificate of good standing for the Company from
the Secretary of State of the State of Delaware and a
certificate of existence for the Subsidiary from the State of
Texas;
a certificate of account status for the Subsidiary
from the Comptroller of the State of Texas; and
certificates from each state where the Company or the
Subsidiary is required to be qualified as a foreign
corporation showing such qualification, dated as of a date
within ten (20) days of the Closing Date; and
a Registration Rights Agreement in substantially the
form attached hereto as EXHIBIT E.
6. Conditions to Closing of Company. The obligation of the Company on
the Closing Date to consummate the transactions contemplated by this Agreement
with respect to a particular Purchaser shall be subject to the following
conditions precedent, any one or more of which may be waived by the Company:
6.1 Representations and Warranties. The representations and
warranties made by such Purchaser herein shall be true and accurate on
and as of the Closing Date.
6.2 Performance. Such Purchaser shall have performed and
complied with all agreements and conditions contained herein or in any
other ancillary documents incident to the transactions contemplated by
this Agreement required to be performed or complied with by such
Purchaser prior to or at the Closing.
6.3 Purchaser Consents, etc. Such Purchaser shall have secured
all permits, consents, waivers and authorizations that shall be
necessary or required lawfully to consummate this Agreement.
6.4 Compliance Certificates. Such Purchaser shall have
delivered to the Company at the Closing an Officer's Certificate to the
effect that the representations and warranties of such Purchaser
continue to be true and accurate in all material respects on the
Closing Date, and that all conditions specified in SECTIONS 6.1 to 6.3
hereof, inclusive, have been fulfilled.
7. Affirmative Covenants.
7.1 Financial Information. The Company will deliver to each
Purchaser for the Company and the Subsidiary on a consolidated basis:
within forty five (45) days of the end of each
calendar quarter, quarterly and year-to-date balance sheet and
statements of income, changes in stockholders equity, and cash
flow prepared in accordance with GAAP and certified by the
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Company's Chief Financial Officer, except such financial
statements shall not contain normal and recurring year-end
audit adjustments.
within one hundred twenty (120) days after the fiscal
year end, an annual independent certified audit from an
outside accounting firm reasonably designated by the Company;
as soon as practicable, but no later than thirty (30)
days after the beginning of each fiscal year, beginning
January 1, 2000, the Company shall provide to the Purchasers a
copy of the annual budget and plan for such year which shall
include, without limitation, plans for incurrences of
indebtedness for borrowed money and projections regarding
types of sources of funds, monthly projected capital and
operating expense budgets and cash flow projections.
7.2 Use of Proceeds. The Company shall use the proceeds from
the sale of Series A Convertible Preferred Stock for the purposes of
capital expenditures and general corporate purposes, including working
capital.
7.3 Confidentiality. Any information provided pursuant to this
Agreement shall be used by a Purchaser solely in furtherance of its
interests as an investor in the Company, and each Purchaser shall
(except as otherwise required by law) maintain the confidentiality of
all non-public information of the Company in accordance with this
SECTION 7.3. Each Purchaser will have no obligation to maintain
confidentiality of any information which (i) at the time of disclosure
or thereafter is generally available to and known by the public (other
than as a result of a disclosure directly or indirectly by a Purchaser
or the Purchaser's representatives), (ii) was available to a Purchaser
on a nonconfidential basis from a source other than the Company or its
advisors, provided that such source is not and was not directly or
indirectly bound by a confidentiality agreement with the Company or
otherwise prohibited from transmitting the information to such
Purchaser or the Purchaser's representatives by a contractual, legal or
fiduciary obligation, or (iii) has been independently acquired or
developed by a Purchaser without violating any of such Purchaser's
obligations under this Agreement or any other agreement such Purchaser
has with the Company or its agents.
7.4 Right of First Refusal. Except in the event of and after
the consummation of an Approved Offering (as hereinafter defined) and
with respect to dispositions to any direct or indirect parent or
subsidiary of a Purchaser who agrees to be bound by the terms of this
Agreement, no Purchaser shall be permitted to dispose of any shares of
the Series A Convertible Preferred Stock unless such shares shall have
been offered for sale in writing first to the Company and then to the
other shareholders of the Company (including the other Purchasers) pro
rata as set forth in this SECTION 7.4. In the event a shareholder
desires to transfer any Series A Convertible Preferred Stock, the
shareholder desiring to make such transfer (the "TRANSFERRING
SHAREHOLDER") shall deliver written notice (the "OFFER NOTICE") to the
Company and to all other shareholders (including the other Purchasers)
at least ninety (90) days prior to the proposed transfer. The Offer
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Notice will disclose in reasonable detail the proposed number of shares
to be transferred, the proposed transferee and the proposed price,
terms and conditions of the transfer.
Upon receipt of the Offer Notice, the Company shall
have the option (the "COMPANY'S OPTION") for a period of
thirty (30) days to purchase or otherwise acquire all or part
of the shares described in the Offer Notice for an aggregate
amount (such aggregate amount being hereinafter referred to as
the "OPTION PRICE") equal to the bona fide purchase price to
be paid by the proposed purchaser as described in the Offer
Notice (which amount shall be zero if the proposed transfer
would take the form of a gift or other gratuitous transfer).
The Company shall notify in writing all then current holders
of Series A Convertible Preferred Stock as to whether it will
exercise, partially exercise or not exercise the Company's
Option before the expiration of the Company's Option.
In the event that the Company does not elect to fully
exercise the Company's Option within thirty (30) days after
receipt of the Offer Notice, the remaining holders of Series A
Convertible Preferred Stock shall have the option (each a
"SERIES A SHAREHOLDER'S OPTION") for a period of ten (10) days
from the earlier of (i) their receipt of written notice from
the Company of its decision not to exercise or to only
partially exercise the Company's Option, or (ii) the
expiration of the Company's Option (the "SERIES A SHAREHOLDER
ELECTION PERIOD"), to purchase or otherwise acquire all or
part of the remaining shares which the Company does not choose
to purchase pursuant to the Company's Option, in proportion to
their respective ownership of shares of Series A Convertible
Preferred Stock which, for purposes of such determination,
shall include without duplication all outstanding options,
warrants or other rights owned by such shareholders that are
convertible into shares of Series A Convertible Preferred
Stock as of the date of such notice from the Company (or the
expiration of the Company's Option), for an amount equal to
the applicable portion of the Option Price. Each holder of
Series A Convertible Preferred Stock shall notify in writing
all then current holders of Series A Convertible Preferred
Stock as to whether such shareholder will exercise, partially
exercise or not exercise the Series A Shareholder's Option
before the expiration of the Series A Shareholder Election
Period.
(c) For a period of ten (10) days from the earlier of
(i) the receipt by the other holders of Series A Convertible
Preferred Stock of a written notice from a holder of Series A
Convertible Preferred Stock that it does not want to exercise
its option or will only partially exercise its option, or (ii)
the expiration of the Series A Shareholder Election Period,
the other holders of Series A Convertible Preferred Stock
shall have the right (the "SERIES A SHAREHOLDER'S SECOND
OPTION") to purchase or otherwise acquire such shareholder's
portion of the shares described in the Offer Notice in
proportion to their respective ownership of shares of Series A
Convertible Preferred Stock (determined as described in
SECTION 7.4(b) above).
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In the event that the holders of Series A Convertible
Preferred Stock do not elect to fully exercise the Series A
Shareholder's Second Option before the expiration of the
Series A Shareholder's Second Option, the remaining
shareholders shall have the option (each a "SHAREHOLDER'S
OPTION") for a period of ten (10) days from the earlier of (i)
their receipt of written notice from the holders of the Series
A Convertible Preferred Stock of their decision not to
exercise or to only partially exercise the Series A
Shareholder's Second Option, or (ii) the expiration of the
Series A Shareholder's Second Option (the "OTHER SHAREHOLDER
ELECTION PERIOD"), to purchase or otherwise acquire all or
part of the remaining shares which the holders of Series A
Convertible Preferred Stock do not choose to purchase pursuant
to the Series A Shareholder's Second Option, in proportion to
their respective ownership of shares which, for purposes of
such determination, shall include without, duplication all
outstanding options, warrants or other rights owned by such
shareholders that are convertible into shares as of the date
of such notice from the holders of the Series A Convertible
Preferred Stock (or the expiration of the Series A
Shareholder's Second Option), for an amount equal to the
applicable portion of the Option Price. Each shareholder shall
notify in writing all then current shareholders as to whether
such shareholder will exercise, partially exercise or not
exercise the Shareholder's Option before the expiration of the
Other Shareholder Election Period.
For a period of ten (10) days from the earlier of (i)
the receipt by the other shareholders of a written notice from
a shareholder that it does not want to exercise its option or
will only partially exercise its option, or (ii) the
expiration of the Other Shareholder Election Period, the other
shareholders shall have the right to purchase or otherwise
acquire such shareholder's portion of the shares described in
the Offer Notice in proportion to their respective ownership
of shares (determined as described in SECTION 7.4(d) above).
If shares of a Transferring Shareholder remain unsold
after compliance with the procedures set forth in this SECTION
7.4, the Company shall have the final option for ten (10) days
to purchase or otherwise acquire all of the remaining shares
proposed to be transferred for an amount equal to the
applicable portion of the Option Price. If, however, the
Company and the other shareholders do not individually or
collectively elect to purchase all of the shares being
offered, the Transferring Shareholder may, within thirty (30)
days after the expiration of the Other Shareholder Election
Period (subject to the provisions of SECTION 7.4(h) below),
transfer all of the shares specified in the Offer Notice to
the transferee identified in the Offer Notice at the price and
terms stated in the Offer Notice. Any shares so transferred
thereupon shall continue to be subject to this Agreement, and
the transferee shall have the rights and obligations set forth
in this Agreement hereunder with respect to such shares. If
the Transferring Shareholder fails to consummate such transfer
within the thirty (30) day period after the expiration of the
Other Shareholder Election Period, any transfer of the shares
thereafter shall again be subject to the provisions of this
SECTION 7.4.
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Unless otherwise agreed in writing, signed by the
person against whom such writing is sought to be enforced, the
closing of any acquisition of Series A Convertible Preferred
Stock hereunder pursuant to the Company's Option, a Series A
Shareholder's Option, or a Shareholder's Option shall take
place within forty-five (45) days of an applicable option's
exercise. If any such closing does not take place within such
forty-five (45) day period, then the shares that were to be
acquired shall be offered in accordance with this SECTION 7.4
as though the applicable option had not been exercised.
Notwithstanding the foregoing provisions of this
SECTION 7.4, the following shall apply in the event of any
Involuntary Transfer of Series A Convertible Preferred Stock.
An "INVOLUNTARY TRANSFER" shall mean any transfer caused by
the death of a shareholder, as well as any transfer,
proceeding or action by, through, as a consequence of, or in
which a shareholder shall be deprived or divested of any
right, title or interest in or to any of the Series A
Convertible Preferred Stock of the Company, including, without
limitation, any seizure under levy, attachment or execution,
any transfer in connection with bankruptcy (whether pursuant
to a filing of a voluntary or an involuntary petition under
the United States Bankruptcy Code, or any amendments,
modifications, revisions or successor statutes thereto) or
other court proceeding to a debtor-in-possession, trustee in
bankruptcy or receiver or other officer or agency, any
transfer to a state or to a public officer or agency pursuant
to any statute pertaining to escheat or abandoned property,
any transfer pursuant to a separation agreement, equitable
distribution agreement or community property distribution
agreement, or the entry of a final court order in a divorce
proceeding from which there is no further right of appeal.
In the event of any Involuntary Transfer, the Company
shall give written notice to each shareholder upon the
occurrence, or prospective occurrence, of such Involuntary
Transfer within fifteen (15) days of the date on which the
Company is notified of the occurrence or prospective
occurrence of such Involuntary Transfer. The foregoing
provisions of this SECTION 7.4 then shall apply, except (i)
the Option Price shall be the value of the Company as
determined by a qualified representative of a nationally
recognized investment banking or accounting firm mutually
agreeable to the Company and the shareholder who made, or may
make, the Involuntary Transfer, multiplied by the percentage
of all equity interests in the Company that is then
represented by the shares that are the subject of the
Involuntary Transfer, such independent appraised value to take
into account the earnings and book value of the Company, and
(ii) the appraiser shall deliver written notice of such
valuation to the Company and to all other shareholders
promptly following his completion of such valuation, and such
written notice shall be considered the Option Notice for
purposes of this SECTION 7.4. The cost of the appraisal shall
be shared equally by the Company and the shareholder who made,
or may make, the Involuntary Transfer.
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At the closing of any purchase by the Company or any
shareholders pursuant to this SECTION 7.4(g), the involuntary
transferee shall deliver certificates representing the Series
A Convertible Preferred Stock being purchased, duly endorsed
for transfer and accompanied by all requisite stock transfer
taxes, and such shares shall be conveyed free and clear of any
liens, claims, options, charges, encumbrances or rights of
others arising through the action or inaction of the
involuntary transferee, and the involuntary transferee shall
so represent and warrant. The involuntary transferee shall
further represent and warrant that he is the beneficial owner
of such shares.
In the event the provisions of this SECTION 7.4(g)
shall be held to be unenforceable with respect to any
particular Involuntary Transfer of Series A Convertible
Preferred Stock, or if all of the shares subject to the
Involuntary Transfer are not purchased by the Company and/or
one or more shareholders, and if the involuntary transferee
subsequently desires to transfer such Series A Convertible
Preferred Stock, the involuntary transferee shall be deemed to
be a "Transferring Shareholder" under this SECTION 7.4 and
shall be bound by the other provisions of this Agreement.
Notwithstanding anything to the contrary contained in
this SECTION 7.4, no shareholder shall transfer any Series A
Convertible Preferred Stock at any time if such action would
constitute a violation of any federal or state securities laws
or a breach of the conditions to any exemption from
registration of the shares under any such laws or a breach of
any undertaking or agreement of such shareholder entered into
pursuant to such laws or in connection with obtaining an
exemption thereunder. Each shareholder agrees that any shares
purchased or acquired by such shareholder shall bear
appropriate legends restricting the sale or other transfer of
such shares in accordance with applicable federal and state
securities laws, in addition to a legend referring, to the
restrictions set forth in this Agreement.
The Certificate of Incorporation shall contain
provisions similar to the foregoing provisions of SECTION 7.4
by which all of the holders of the Common Stock grant a
similar right of first refusal to purchase the shares of such
holders to the Company and the holders of the Series A
Convertible Preferred Stock, and such provisions may not be
amended without the consent or approval of the holders of a
majority of the outstanding shares of the Series A Convertible
Preferred Stock.
7.5 Sale of the Company. At any time after April 4,
2001, and before the consummation of an Approved Offering, if
a bona fide offer is made by any person (other than I 3S
Funding I, L.L.C. ("FUNDING"), Blue Ridge Investors Limited
Partnership ("BLUE RIDGE") and Spotswood Capital, LLC
("SPOTSWOOD"), or any person or entity related to or
affiliated with Funding, Blue Ridge and Spotswood), to
purchase all or substantially all of the assets or shares of
stock of the Company, and Funding gives the Company written
notice that it desires such
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offer to be accepted, the Company shall either accept the
offer and consummate the sale on the terms and conditions of
the offer (in which case, if the transaction is a stock sale
or merger, Spotswood and Blue Ridge also shall sell all of
their equity interests in the Company on those terms and
conditions), or, subject to the last paragraph of this SECTION
7.5, the Company shall acquire all the equity interests owned
by Funding, Spotswood and Blue Ridge in the Company on the
same terms and conditions as the offer; provided, however,
that if such offer is made prior to April 4, 2003, the Company
shall have no such obligation unless the total consideration
of such offer is at least $350,000,000. If at any time Funding
approves the sale of substantially all of the assets or shares
of stock of the Company or if the transaction is a stock sale
or merger, Blue Ridge and Spotswood shall sell all of their
equity interests in the Company on the terms and conditions so
approved. If the Company accepts an offer to sell the Company
made after April 4, 2001, the Purchasers and any person that
acquires the Series A Convertible Preferred Stock shall sell
their shares of Series A Convertible Preferred Stock (and
Class A Common Stock, if the shares of Preferred Stock have
been converted) and/or vote in favor of the proposed
transaction (as the case may be) so long as the holders of the
Series A Convertible Preferred Stock shall receive for their
shares of Preferred Stock an amount in cash equal to the
aggregate Liquidation Preference (as defined in the
Certificate of Designation of the Series A Convertible
Preferred Stock) plus accrued and unpaid dividends for such
shares of Series A Convertible Preferred Stock, in preference
to any other holders of capital stock of the Company. At least
twenty (20) days prior to the consummation of any such sale,
the Company shall give the holders of the Series A Convertible
Preferred Stock written notice of the material terms of the
proposed sale. The holders of the outstanding shares of Series
A Convertible Preferred Stock shall have the right to convert
their shares into shares of Class A Common Stock prior to or
concurrently with the consummation of any such sale and
thereby be entitled to receive their pro rata share of the
proceeds of the sale that would otherwise be payable to the
holders of the Class A Common Stock (assuming for such
calculation the conversion of such shares of Series A
Convertible Preferred Stock as have exercised such right to
convert). The exercise of such right to convert by a holder of
Series A Convertible Preferred Stock shall be in lieu of any
right to receive such Liquidation Preference plus accrued and
unpaid dividends as a holder of such Series A Convertible
Preferred Stock or otherwise. In determining the total
consideration for purposes of the foregoing, any deferred
payment shall be discounted to present value at a discount
rate of eight percent (8%) per annum.
Under its agreements with Funding, the Company has the right to avoid
the required sale of the Company, as described in this SECTION 7.5, by redeeming
the outstanding shares of Class B Common Stock and Class C Common Stock held by
Funding, Blue Ridge and Spotswood. The Company acknowledges and agrees that it
may not redeem such shares without first obtaining the consent or approval of
the holders of a majority of the outstanding shares of Series A Convertible
Preferred Stock, as required by the Certificate of Designation.
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7.6 Right of Co-Sale. At any time prior to the consummation of
an Approved Offering, the Purchasers and the holders of Series A
Convertible Preferred Stock, Class B Common Stock and Class C Common
Stock shall have the right to participate pro rata to the fullest
extent of their equity interest in the Company in any sale or transfer
of stock (with each share of Series A Convertible Preferred Stock being
treated for such purposes as the number of shares of Class A Common
Stock into which it could then be converted), by any holder of shares
of Class A Common Stock to any third party.
7.7 Observers. Each Purchaser who purchases at least 531,915
shares of Series A Convertible Preferred Stock, and so long as such
Purchaser continues to beneficially own at least 531,915 shares of
Series A Convertible Preferred Stock or Common Stock (as adjusted for a
Recapitalization Event), may designate one person to serve as an
observer (an "OBSERVER"). An observer shall be entitled (i) to receive
the same notice in respect of all meetings (both regular and special)
of the Board of Directors and each committee thereof (other than the
Audit Committee and Compensation Committee) as required to be furnished
to members of the Board of Directors of such committee by law or by the
Certificate of Incorporation or the Bylaws of the Company, (ii) to
attend all meetings of the Board of Directors and each committee
thereof (other than the Audit Committee and Compensation Committee),
(iii) to receive all information and reports which are furnished to
members of the Board of Directors and each committee thereof (including
the Audit Committee and Compensation Committee) at the time so
furnished, and (iv) to participate in all discussions conducted at
meetings of the Board of Directors and each committee thereof (other
than the Audit Committee and Compensation Committee). In the event that
the directors are discussing or voting on matters that directly relate
to any business dealings between the Company and (i) any Purchaser
beneficially owning at least 531,915 shares of Series A Convertible
Preferred Stock or (ii) any other vendor that competes with a Purchaser
that has observer rights hereunder, the Board may recuse all (but not
less than all) of the Observers until such matters have been concluded.
An Observer may share any information gained from presence at such
meetings with the Purchaser that designated such Observer and such
Purchaser's employees, officers, directors, attorneys and advisors
(collectively, the "PURCHASER'S REPRESENTATIVES"), but such information
shall otherwise be kept confidential by the Observer, Purchaser and
Purchaser's Representatives to the same extent that financial
information or other confidential information with regard to the
Company is required to be kept confidential in accordance with SECTION
7.3.
7.8 Key Man Insurance. The Company has obtained and will
maintain (so long as they are officers of the Company) a "key man life
insurance policy" in the amount of $1,000,000 each on the lives of
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇. and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇.
7.9 Access to Information. The Company will permit the
Purchasers to inspect at the Purchasers' expense any of the properties
or books and records of the Company, and to discuss the affairs and
condition of the Company with representatives of the Company, except
for information that (i) relates to any of the business dealings
between the Company and any of the Purchasers, (ii) relates to any
other vendor that
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competes with any of the Purchasers, or (iii) is subject to any
obligation of the Company to maintain the confidentiality of such
information, during normal business hours and upon at least 24 hours
prior notice to the Company, but no more frequent than once each
calendar quarter.
7.10 Restricted Corporate Actions. The Company will not,
without the vote or written approval of the holders of a majority of
the outstanding Series A Convertible Preferred Stock, take or permit
the Subsidiary to take, any of the following actions:
engage in any business outside the Telecommunications
Business. For purposes of this SECTION 7.10(a) and as
otherwise used in this Agreement, "TELECOMMUNICATIONS
BUSINESS" shall mean the business of (i) transmitting, or
providing services relating to the transmission of, voice,
data or video through owned or leased transmission facilities,
(ii) constructing, creating, developing or marketing
communications-related network equipment, software and other
devices for use in a telecommunications business or (iii)
evaluating, participating or pursuing any other activity or
opportunity that is primarily related to those identified in
clauses (i) or (ii) above;
make any loans to any officers, directors or
affiliates of the Company in an aggregate amount exceeding
$100,000, other than commission advances and travel or
miscellaneous cash advances in the ordinary course of business
and loans to employees seeking to exercise stock options
issued pursuant to any of the Plans, the proceeds of which are
used to exercise such options;
(c) enter into any business arrangement or agreement
(other than a stock option agreement in accordance with the
Plans) with any officer, director or affiliate of the Company
or the Subsidiary on terms less favorable to the Company or
the Subsidiary than an arms-length transaction;
(d) acquire substantially all of the assets,
properties or capital stock of other persons or entities in
one or more transactions for an aggregate total consideration
consisting of an amount of cash exceeding ten percent (10%) of
the total purchase price paid to the Company for the original
issuance of all of the Series A Convertible Preferred Stock;
or
(e) issue any stock, options, warrants, or securities
convertible into the capital stock of the Company with
exercise prices, in the case of options or warrants, or issue
prices, in the case of stock or convertible securities, at
less than fair market value, as determined in good faith by
the Company's Board of Directors, as of the date of grant in
the case of options or warrants or the date of issuance in the
case of stock or securities convertible into the capital stock
of the Company. No such restriction shall apply upon the
issuance of capital stock pursuant to the exercise of options
or warrants or the conversion of convertible securities of the
Company.
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7.11 Shareholder and Director Information. At the request of
the Purchasers, the Company shall promptly deliver to the Purchasers
information regarding the security holders, officers and directors of
the Company, including, without limitation, names, addresses, types of
securities held and terms of securities held.
7.12 Reserve for Conversion Shares. The Company shall at all
times reserve and keep available out of its authorized but unissued
shares of Common Stock, for the purpose of effecting the conversion of
the Series A Convertible Preferred Stock and otherwise complying with
the terms of this Agreement, such number of its duly authorized shares
of Common Stock as shall be sufficient to effect the conversion of the
Series A Convertible Preferred Stock from time to time outstanding or
otherwise to comply with the terms of this Agreement. If at any time
the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of the Series A Convertible
Preferred Stock or otherwise to comply with the terms of this
Agreement, the Company will forthwith take such corporate action as may
be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such
purposes. The Company will obtain any authorization, consent, approval
or other action by or make any filing with any court or administrative
body that may be required under applicable state securities laws in
connection with the issuance of shares of Common Stock upon conversion
of the Series A Convertible Preferred Stock.
7.13 Rule 144A Information. The Company shall, at all times
during which it is neither subject to the reporting requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), nor exempt from reporting pursuant to Rule
12g3-2(b) under the Exchange Act, provide in writing, upon the written
request of the Purchasers or a prospective buyer of the Series A
Convertible Preferred Stock or shares of Common Stock issued upon
conversion of the Series A Convertible Preferred Stock from the
Purchasers, all information required by Rule 144A(d)(4)(i) of the
General Regulations promulgated by the Commission under the Securities
Act ("RULE 144A INFORMATION"). The Company's obligations under this
SECTION 7.13 shall at all times be contingent upon the Purchasers
obtaining from the prospective buyer of Series A Convertible Preferred
Stock or shares of Common Stock issued upon conversion of the Series A
Convertible Preferred Stock a written agreement to take all reasonable
precautions to safeguard the Rule 144A Information from disclosure to
anyone other than a person who will assist such buyer in evaluating the
purchase of any Series A Convertible Preferred Stock or of Common Stock
issued upon conversion of the Series A Convertible Preferred Stock.
7.14 Sale of Series A Convertible Preferred Stock. The Company
agrees that any additional shares of Series A Convertible Preferred
Stock sold by the Company after the Closing will be sold on
substantially the same terms as set forth in this Agreement for the
Purchasers.
7.15 Termination of Covenants. The covenants set forth in
SECTIONS 7.1, 7.4, 7.5, 7.6, 7.7, 7.8, 7.9, 7.10, 7.11, 7.12, 7.13 AND
7.14 hereof shall terminate and be of no
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further force or effect on the earlier of the consummation of the first
underwritten public offering of common stock of the Company pursuant to
a registration statement filed with the Commission under the Securities
Act with a concurrent listing on the New York Stock Exchange, the
American Stock Exchange, or the Nasdaq Stock Market, Inc. at an initial
offering price of at least $20.00 per share (as adjusted for a
Recapitalization Event) that results in gross proceeds to the Company
(before deduction of underwriting discounts and expenses of sale) of
not less than $30,000,000 (an "APPROVED OFFERING"). For purposes of
this Agreement, a "RECAPITALIZATION EVENT" means an event described
under Section 2.5 of the Certificate of Designation of the Series A
Convertible Preferred Stock.
8. Expenses. Whether or not the transactions contemplated hereby are
consummated, the Company will pay: (a) all the costs and expenses of the
reproduction of the Placement Memorandum, this Agreement, of all agreements and
documents referred to herein and of the certificates for the Series A
Convertible Preferred Stock and the Class A Common Stock into which it may be
converted; (b) all taxes (if any) payable with respect to this Agreement and the
issuance of the Series A Convertible Preferred Stock and the Class A Common
Stock into which it may be converted; (c) all costs of complying with the
securities or Blue Sky laws of any jurisdiction with respect to the offering or
sale of the Series A Convertible Preferred Stock and the Class A Common Stock
into which it may be converted; (d) the cost of delivering to such address as
each Purchaser shall specify the certificates for the Series A Convertible
Preferred Stock purchased by each such Purchaser and the certificates for the
Class A Common Stock into which the Series A Convertible Preferred Stock may be
converted; (e) the fees, expenses and disbursements of the Company's counsel in
connection with the Closing; and (f) the fees and expenses incurred with respect
to any amendments to this Agreement or the Certificate of Incorporation of the
Company proposed by the Company (whether or not the same become effective).
9. Survival of Agreements. All agreements, representations and
warranties contained herein or made in writing in connection with the
transactions contemplated hereby shall survive the execution and delivery of
this Agreement (despite any investigation at any time made by the parties hereto
or on their behalf) and any disposition of the Series A Convertible Preferred
Stock or of the Class A Common Stock issued upon conversion thereof and shall
continue to survive for a period of time expiring on the earlier of (a) the
consummation of an Approved Offering, or (b) June 30, 2001. All statements
contained in any certificate or other instrument executed and delivered by the
parties hereto or their duly authorized officers or representatives pursuant
hereto in connection with the transactions contemplated hereby shall be deemed
representations hereunder, and no officer or representative of such parties
shall have personal liability for such statements unless such officer or
representative shall make such statement in a grossly negligent manner, in bad
faith, fraudulently or pursuant to willful misconduct.
10. Notices. All notices, requests, consents and other communications
herein (except as stated in the last sentence of this SECTION 10) shall be in
writing and shall be mailed by first class or certified mail, postage prepaid,
sent by a nationally recognized overnight delivery service, or personally
delivered, as follows:
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If to the Company:
BroadbandNOW, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇., President
with a copy which shall not constitute notice to:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
If to the Purchasers at the address set forth on SCHEDULE 1 hereto.
or such other addresses as each of the parties hereto may provide from time to
time in writing to the other parties. For purposes of computing the time periods
set forth in ARTICLE 7 hereof, the date of mailing shall be deemed to be the
delivery date. The financial statements required by ARTICLE 7 hereof may be
mailed by first-class regular mail.
11. Modifications; Waiver. Neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated orally or in writing,
except that any provision of this Agreement may be amended and the observance of
any such provision may be waived (either generally or in a particular instance
and either retroactively or prospectively) with (but only with) the written
consent of (a) the Company, and (b) holders of at least 66 2/3% of the
outstanding shares of the Series A Convertible Preferred Stock acting together
as a single class; provided, however, that prior to the Closing Date, this
Agreement may not be amended with respect to any Purchaser without the consent
of such Purchaser. Additionally, SECTION 9 of this Agreement may not be amended,
in any manner, without the unanimous consent of the holders of the outstanding
shares of the Series A Convertible Preferred Stock.
12. Entire Agreement. This Agreement and the Registration Rights
Agreement contain the entire agreement between the parties with respect to the
transactions contemplated hereby, and supersedes all negotiations, agreements,
representations, warranties and commitments relating to the transactions
contemplated hereby, whether in writing or oral, prior to the date hereof,
except for those certain Confidentiality Agreements entered into by the
Purchasers with ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ on behalf of the Company.
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13. Successors and Assigns. The Company may not assign or delegate any
of its rights or duties under this Agreement. Except as otherwise provided in
this Agreement, all of the terms of this Agreement including the agreements,
representations and warranties set forth herein shall be binding upon and inure
to the benefit of and be enforceable by the respective successors and assigns of
the parties hereto, except that the rights set forth in the Registration Rights
Agreement may only be transferred in accordance with Section 12 of the
Registration Rights Agreement.
14. Enforcement.
14.1 Remedies at Law or in Equity. If any party shall default
in any of its obligations under this Agreement or if any representation
or warranty made by or on behalf of such party in this Agreement or in
any certificate, report or other instrument delivered under or pursuant
to any term hereof shall be untrue or misleading in any material
respect as of the date of this Agreement or as of the Closing Date or
as of the date it was made, furnished or delivered, any party damaged
may proceed to protect and enforce its rights by suit in equity or
action at law, whether for the specific performance of any term
contained in this Agreement or the Certificate of Incorporation of the
Company (including the Certificate of Designation) or for an injunction
against the breach of any such term or in furtherance of the exercise
of any power granted in this Agreement or such Certificate (including
the Certificate of Designation), or to enforce any other legal or
equitable right of such party or to take any one or more of such
actions. The prevailing party in such dispute shall be entitled to
recover from the losing party all fees, costs and expenses of enforcing
any right of such prevailing party under or with respect to this
Agreement or the Certificate of Incorporation (including the
Certificate of Designation) of the Company, including without
limitation reasonable fees and expenses of attorneys and accountants,
which shall include, without limitation, all fees, costs and expenses
of appeals.
14.2 Remedies Cumulative; Waiver. No remedy referred to herein
is intended to be exclusive, but each shall be cumulative and in
addition to any other remedy referred to above or otherwise available
at law or in equity. No express or implied waiver of any default shall
be a waiver of any future or subsequent default. The failure or delay
in exercising any rights granted hereunder shall not constitute a
waiver of any such right and any single or partial exercise of any
particular right shall not exhaust the same or constitute a waiver of
any other right provided herein.
15. Execution and Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, and such counterparts together shall constitute one
instrument. Each party shall receive a duplicate original of the counterpart
copy or copies executed by it and by the Company.
16. Governing Law and Severability. THIS AGREEMENT SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF TEXAS AS APPLIED TO AGREEMENTS ENTERED INTO AND TO BE
PERFORMED ENTIRELY WITHIN TEXAS. To the maximum extent practicable, this
Agreement will be deemed to call for performance in Dallas
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County, Texas. In the event any provision of this Agreement or the application
of any such provision to any party shall be held by a court of competent
jurisdiction to be contrary to law, the remaining provisions of this Agreement
shall remain in full force and effect.
17. Headings. The descriptive headings of the Sections hereof and the
Schedules and Exhibits hereto are inserted for convenience only and do not
constitute a part of this Agreement.
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This Agreement is hereby executed as of the date first above written.
THE COMPANY
BROADBANDNOW, INC.
By:
-------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
Vice President of Corporate Development and
Chief Financial Officer
[PURCHASER SIGNATURE ON FOLLOWING PAGE]
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THE PURCHASER:
ARCHSTONE COMMUNITIES INVESTMENT
LLC-I
By:
--------------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
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41
EXHIBIT A
CERTIFICATE OF INCORPORATION
42
EXHIBIT B
BYLAWS
43
EXHIBIT C
FORM OF CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RELATIVE RIGHTS FOR THE
SERIES A CONVERTIBLE PREFERRED STOCK
44
EXHIBIT D
PLACEMENT MEMORANDUM
45
EXHIBIT E
FORM OF REGISTRATION RIGHTS AGREEMENT
46
EXHIBIT F
FORM OF OPINION OF ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.
47
SCHEDULE I
THE PURCHASERS
No. of
Shares of
Series A
Convertible Aggregate
Preferred Purchase Copy of Notices
Name of Purchasers Notice Address Stock Price Must be sent to
------------------------- -------------------------------------- -------------- -------------- --------------------------------
Archstone Communities ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 26,596 $500,000 ▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇
Investment LLC-I Suite 100 ▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇