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EXHIBIT 4.1
STOCKHOLDERS' AGREEMENT
This STOCKHOLDERS' AGREEMENT (the "Agreement") is made as of this ____ day
of __________________, 1999, by and among PATHNET TELECOMMUNICATIONS, INC., a
Delaware corporation (the "Company"); and the undersigned parties identified on
Exhibit A (collectively the "Stockholders").
W I T N E S S E T H:
WHEREAS, the Company has entered into the following contribution agreements
(collectively, the "Contribution Agreements"): (i) Contribution Agreement (the
"BNSF Contribution Agreement") by and among the Company and The Burlington
Northern and Santa Fe Railway Company and certain affiliates thereof
(collectively, "BNSF"); (ii) Contribution Agreement (the "CSX Contribution
Agreement") by and between the Company and CSX Transportation, Inc. ("CSX");
(iii) Contribution Agreement (the "Colonial Contribution Agreement") by and
between the Company and Colonial Pipeline Company, a Delaware and Virginia
corporation ("Colonial"); and (iv) Contribution Agreements (the "Pathnet
Stockholders Contribution Agreements") by and among the Company and the
stockholders (the "Pathnet Stockholders") of Pathnet, Inc., a Delaware
corporation ("Pathnet"). Each of BNSF, CSX, Colonial and certain individual
Pathnet Stockholders, together with Jalkut (as defined below), is a Stockholder
under this Agreement.
WHEREAS, pursuant to the Contribution Agreements, the Company and the
Stockholders have agreed to enter into this Agreement to provide certain rights
to the Stockholders of shares of the Company's Series A Convertible Preferred
Stock (the "Series A Preferred Stock"), Series B Convertible Preferred Stock
(the "Series B Preferred Stock"), Series C Convertible Preferred Stock (the
"Series C Preferred Stock"), Series D Convertible Preferred Stock (the "Series D
Preferred Stock") and Series E Convertible Preferred Stock (the "Series E
Preferred Stock" and, collectively with the other aforementioned series, the
"Series Preferred Stock") in the amounts set forth in Exhibit A, which shall be
convertible into shares of the Company's common stock, $.01 par value per share
(the "Common Stock") in accordance with the terms of the Company's Certificate
of Incorporation.
WHEREAS, the undersigned Stockholders wish to enter into this Agreement in
order better to regulate the conduct of the business of the Company and to
provide for certain voting and stock transfer arrangements both before and after
the conversion of the Series Preferred Stock into shares of the Common Stock as
contemplated in the Certificate of Incorporation of the Company.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained in this Agreement, the parties hereto agree as follows:
SECTION 1 DEFINED TERMS
1.1. Certain Definitions.
For purposes of this Agreement, the following defined terms shall have the
meanings set forth below:
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"Affiliate" of a party or other person (whether a natural person,
corporation, partnership, association, company, or other entity) shall mean (i)
the spouse, child, parent, sibling, or other familial relation of any natural
person, and (ii) any natural person, corporation, partnership, association,
company or other entity, in each case controlled by or operating at the
direction of, under common control or operating in conjunction with, or
controlling or otherwise directing, any such party or other person;
"Board of Directors" shall mean the Board of Directors of the Company, as
duly elected and qualified from time to time;
"Bylaws" shall mean the duly adopted bylaws of the company, as such Bylaws
may be amended from time to time hereafter;
"Certificate of Incorporation" shall mean the Company's Certificate of
Incorporation, as such Certificate may be amended from time to time hereafter;
"Electing Purchasers" shall mean those Eligible Stockholders electing, by
notice in writing to the Company delivered within the thirty-day notice period
set forth in Section 8.1(c) hereof, to purchase additional securities of the
Company pursuant to the exercise of their rights to purchase such additional
securities pursuant to Section 8.1 hereof;
"Eligible Stockholder" shall mean each and all of such of the Series
Preferred Stockholders and the Founder as shall in each case and at the
applicable date continue to own at least fifty percent (50%) of the number of
shares of the Company's voting capital stock (as adjusted for any split,
recombination, stock dividend, or other reclassification of the voting capital
stock of the Company, as may be provided in the Company's Certificate of
Incorporation) as such person owned immediately following the closing of the
initial transactions contemplated in the Contribution Agreements including any
shares of voting capital stock held by Affiliates of such Series Preferred
Stockholder;
"Founder" shall mean ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, an individual resident of Potomac,
Maryland;
"Founder Securities" shall mean shares of Common Stock issued to the
Founder whether initially or by way of a stock dividend, stock split, or in
connection with any combination of shares, recapitalization, merger,
consolidation or other reorganization; provided, however, that the term "Founder
Securities" shall not include any shares of Common Stock that have previously
been registered with the SEC under the provisions of Article 9 or otherwise, or
which have been sold to the public either pursuant to a registration statement
or SEC Rule 144, or that may be sold by the holder thereof pursuant to SEC Rule
144(k);
"Holder" shall mean a holder of Registrable Securities or Founder
Securities;
"IRC" shall mean the Internal Revenue Code of 1986, as amended, and any
reference to any particular IRC section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified;
"Jalkut" shall mean ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, an individual resident of Bedford,
New York ;
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"Jalkut Employment Agreement" shall mean that certain Employment Agreement,
dated as of August 4, 1997, by and between Jalkut and Pathnet, Inc., as amended
and assigned to the Company as of ________, 1999;
"Pathnet" shall have the meaning set forth in the preamble to this
Agreement.
"Person" shall mean an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, a limited liability company and a governmental entity or any
department, agency or political subdivision thereof.
"Pro Rata Share" shall mean that portion of the total number of securities
proposed to be sold or otherwise issued by the Company determined by a fraction
(i) the numerator of which is the aggregate number of shares of Common Stock
owned by such party immediately prior to any proposed sale or other issuance of
securities (assuming the full conversion of any shares of the capital stock of
the Company held by such party that are convertible into shares of Common
Stock); and (ii) the denominator of which is the total number of shares of
Common Stock owned by all such parties owning Common Stock, assuming the
exercise of all outstanding options, warrants, and other rights to acquire
Common Stock (or securities convertible into Common Stock) and the full
conversion of any shares of the capital stock of the Company convertible into
shares of Common Stock;
"Qualified Public Offering" shall mean the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act covering the offer and sale of Common Stock to the
public (i) in which the proceeds received by the Company, net of underwriting
discounts and commissions, equal or exceed $75,000,000; (ii) immediately prior
to the consummation of which the Company is valued (based on the per-share price
paid in such public offering, but without regard to any proceeds to be received
by the Company in connection with such public offering) at greater than
$600,000,000; and (iii) in which the Company uses a nationally recognized
underwriter acceptable to the Board of Directors;
"Registrable Securities" shall have the meaning ascribed to such term in
Section 9.4 hereof;
"Required Holders" shall mean: (i) prior to the first Qualified Public
Offering, the holders at any time and from time to time of at least sixty-seven
percent (67%) of the Registrable Securities; and (ii) after the first Qualified
Public Offering, the holders at any time and from time to time of at least
twenty percent (20%) of the Registrable Securities;
"SEC" shall mean the United States Securities and Exchange Commission, or
any successor entity thereto;
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations from time to time promulgated thereunder;
"Series A Preferred Stockholders" shall mean the holders of the shares of
Series A Preferred Stock;
"Series B Preferred Stockholders" shall mean the holders of the shares of
Series B Preferred Stock;
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"Series C Preferred Stockholders" shall mean the holders of the shares of
Series C Preferred Stock;
"Series D Preferred Stockholders" shall mean the holders of the shares of
Series D Preferred Stock;
"Series E Preferred Stockholders" shall mean the holders of the shares of
Series E Preferred Stock;
"Series Preferred Stockholder" shall mean the holder of any shares of any
one or more of the Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock, the Series D Preferred Stock or the Series E Preferred
Stock;
"Series Preferred Stockholder Director" shall mean any nominee of any of
the Series Preferred Stockholders appointed in accordance with the provisions
hereof and serving from time to time as a director of the Company;
"Shares" shall mean any shares of the capital stock of the Company;
"Stockholder Director" shall mean any of the directors of the Company
appointed pursuant to the provisions of Section 5.1(b)(i) through (v) hereof;
"Stock Incentive Plan" shall mean the Company's 1995 Stock Incentive Plan,
in substantially the form attached as Exhibit B hereto and as contemplated to be
adopted by the Board of Directors as of the date hereof;
"Stock Option Plan" shall mean the Company's 1997 Stock Option Plan, in
substantially the form attached as Exhibit C hereto and as contemplated to be
adopted by the Board of Directors as of the date hereof;
"Subsidiary" shall mean Pathnet and (i) any other corporation of which the
securities having a majority of the ordinary voting power in electing the board
of directors are, at the time as of which any determination is being made, owned
by the Company either directly or through one or more Subsidiaries, (ii) any
partnership, joint venture or similar entity of which or in which such Person,
such Person and one or more of its Subsidiaries, or one or more Subsidiaries of
such Person directly or indirectly own more than 50% of the capital interest or
profits interest, or (iii) any trust, association or other unincorporated
organization of which or in which such Person, such Person and one or more of
its Subsidiaries, or one or more Subsidiaries of such Person directly or
indirectly own more than 50% of the beneficial interest.
"Treasury Regulations" means the United States Treasury Regulations
promulgated under the IRC, and any reference to any particular Treasury
Regulation section shall be interpreted to include any final or temporary
revision of or successor to that section regardless of how numbered or
classified.
"Warrant Registration Rights Agreement" shall mean that certain
Supplemental Warrant Registration Rights Agreement, dated as of
________________, 1999, by and among the Company, the [Permitted Holders] named
therein and the Initial Purchasers named therein, relating to certain Warrants
proposed to be issued by the Company in exchange for certain warrants previously
issued by Pathnet pursuant to the terms of the Warrant Agreement, dated April 8,
1998, by and between
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Pathnet and certain other parties thereto, in connection with the placement of
certain senior indebtedness of Pathnet, all as more fully described in such
Supplemental Warrant Registration Rights Agreement, which Supplemental Warrant
Registration Rights Agreement shall be on terms substantially similar to those
of the Warrant Registration Rights Agreement, dated April 8, 1998, by and
between Pathnet and certain other parties thereto.
1.2. Interpretation of Provisions. The definitions of terms herein shall
apply equally to the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation". The word "will"
shall be construed to have the same meaning and effect as the word "shall".
Unless the context requires otherwise (a) any definition of or reference to any
agreement, instrument or other document herein shall be construed as referring
to such agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference
herein to any person (whether natural, corporate, or otherwise) shall be
construed to include such person's successors and assigns, (c) the words
"herein", "hereof" and "hereunder", and words of similar import, shall be
construed to refer to this Agreement in its entirety and not to any particular
provision hereof, (d) all references herein to Sections, Exhibits and Schedules
shall be construed to refer to Sections of, and Exhibits and Schedules to, this
Agreement and (e) the words "asset" and "property" shall be construed to have
the same meaning and effect and to refer to any and all tangible and intangible
assets and properties, including cash, securities, accounts and contract rights.
SECTION 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce the Stockholders to enter into this Agreement, the Company
represents and warrants, as of the date hereof, to each of the Stockholders as
follows:
2.1. Organization and Corporate Power.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, and is qualified to do
business as a foreign corporation in each jurisdiction in which the failure to
be so qualified would have a material adverse effect on its business, financial
condition or results of operations.
(b) The Company has all required corporate power and authority to
carry on its business as presently conducted, to enter into and perform this
Agreement and to carry out the transactions contemplated hereby.
(c) The Company is not in violation of any term of its Certificate of
Incorporation or Bylaws, each as amended to date, or in violation of any
material term of any agreement, instrument, judgment, decree, order, statute,
rule or government regulation applicable to the Company or to which the Company
is a party, in each case in any manner that could reasonably be expected to have
a material adverse effect on the Company's business, financial condition,
prospects, assets, liabilities or results of operations.
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2.2. Authorization and Non-Contravention.
(a) This Agreement and all documents executed pursuant hereto or
otherwise in connection herewith (including without limitation the Contribution
Agreements and the documents and other agreements executed in connection
therewith) are valid and binding obligations of the Company, enforceable in
accordance with their terms, except as such enforcement may be limited by laws
of general application relating to bankruptcy, reorganization, insolvency,
moratorium or other laws affecting creditors' rights and the availability of
equitable remedies which are subject to the discretion of the court before which
an action may be brought.
(b) The execution, delivery and performance of this Agreement and all
agreements, documents and instruments executed pursuant hereto or otherwise in
connection herewith (including without limitation the Contribution Agreements
and the documents and other agreements executed in connection therewith) have
been duly authorized by all necessary corporate action of the Company.
(c) The execution of this Agreement and the performance of any
transaction contemplated hereby shall not (i) violate, conflict with or result
in a default under any contract or obligation to which the Company or any
Subsidiary is a party or by which it or any Subsidiary or any of their assets
are bound, or any provision of its Certificate of Incorporation or Bylaws, each
as amended to date, or cause the creation of any encumbrance upon any of the
assets of the Company or any Subsidiary; (ii) violate or result in a violation
of, or constitute a default (whether after the giving of notice, lapse of time
or both) under any provision of any law, regulation or rule, or any order of, or
any restriction imposed by, any court or other governmental agency; (iii)
require from the Company or any Subsidiary any notice to, declaration or filing
with, or consent or approval of any governmental authority or other third party;
or (iv) accelerate any obligation under or give rise to a right of termination
of, any material agreement, permit, license or authorization to which the
Company or any Subsidiary is a party or by which the Company or any Subsidiary
is bound.
2.3. Tax-Related Representations.
(a) There is no plan or intention by the Company to dispose of any of
the property contributed to the Company pursuant to the Contribution Agreements
except that the Company may (i) transfer certain contributed property to Pathnet
or another Subsidiary in a transaction that will qualify as a tax-free transfer
pursuant to Section 351, and (ii) effect the conversion of certain shares of
preferred stock of Pathnet into shares of common stock of Pathnet.
(b) There is no current plan or intention on behalf of the Company to
redeem or otherwise reacquire any of the Shares issued pursuant to the
transactions set forth in the Contribution Agreements.
(c) The Company intends that the contributions of property to the
Company in exchange for Shares pursuant to the Contribution Agreements will be
treated as part of a single integrated transaction in which gain or loss will
not be recognized pursuant to IRC Section 351 and, in the case of Persons who
contribute Pathnet stock to the Company in exchange for Shares, the
contributions also will qualify as a tax-free reorganization under IRC Section
368(a)(1)(B) pursuant to which gain or loss will not be recognized.
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SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
In order to induce the other Stockholders and the Company to enter into
this Agreement, their respective Contribution Agreements (between the Company
and such other Stockholders), and the other documents being executed in
connection herewith and therewith, each Stockholder individually represents and
warrants, as of the date hereof, to the Company and to each of the other
Stockholders as follows:
3.1. Organization and Corporate, Partnership and Individual Power.
(a) Such Stockholder is either (i) a partnership or corporation duly
organized, validly existing and in good standing under the laws of its
respective jurisdiction, and is qualified to do business as a foreign
partnership or corporation in each jurisdiction in which the failure to be so
qualified would have a material adverse effect on its business, financial
condition or results of operations, (ii) a natural person whose individual net
worth, or joint net worth with such person's spouse, as of the date hereof
exceeds $1,000,000, or (iii) a natural person who has a preexisting personal or
business relationship with one of the directors of the Company, or by reason of
his or her business or financial experience or the business or financial
experience of his or her professional advisors who are unaffiliated with and who
are not compensated by the Company or any selling agent of the Company, directly
or indirectly, could be reasonably assumed to have the capacity to protect his
or her own interests in connection with the transactions contemplated by this
Agreement.
(b) Such Stockholder, if a partnership or a corporation, has all
required corporate or partnership power and authority to carry on its business
as presently conducted, to enter into and perform this Agreement and the
agreements contemplated hereby to which it is a party and to carry out the
transactions contemplated hereby and thereby; provided, however, that no
representation or warranty is made herein with respect to any agreement by any
Stockholder to contribute any assets to the Company. Such Stockholder, if an
individual, has the capacity to enter into and perform this Agreement and the
agreements contemplated hereby to which he is a party and to carry out the
transactions contemplated hereby and thereby.
3.2. Authorization and Non-Contravention.
(a) This Agreement and all documents executed pursuant hereto or
otherwise in connection herewith (including without limitation the applicable
Contribution Agreement and the documents and other agreements executed in
connection therewith) are valid and binding obligations of such Stockholder,
enforceable in accordance with their terms, except as such enforcement may be
limited by laws of general application relating to bankruptcy, reorganization,
insolvency, moratorium or other laws affecting creditors' rights and the
availability of equitable remedies which are subject to the discretion of the
court before which an action may be brought.
(b) The execution, delivery and performance of this Agreement and all
agreements, documents and instruments executed pursuant hereto or otherwise in
connection herewith (including without limitation the respective Contribution
Agreement and the documents and other agreements executed in connection
therewith) have been duly authorized by all necessary corporate, partnership, or
individual action of such Stockholder, and represent the exercise of such
Stockholder's own free will and have not been executed under any compulsion or
duress.
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(c) The execution of this Agreement and the performance of any
transaction contemplated hereby shall not: (i) violate, conflict with or result
in a default under any contract or obligation to which such Stockholder is a
party or by which it or its assets are bound, or, in the case of any Stockholder
that is a partnership or corporation, any provision of such Stockholder's
certificate of incorporation, bylaws, partnership agreement, or other
organizational or voting documents, each as amended to date, or cause the
creation of any encumbrance upon any of the assets of any Stockholder; (ii)
violate or result in a violation of, or constitute a default (whether after the
giving of notice, lapse of time or both) under any provision of any law,
regulation or rule normally applicable to the transactions contemplated hereby
(and excluding any federal, state or local antitrust, tax, environmental,
health, safety or employment laws or laws, regulations or rules applicable to
such Stockholder solely as a result of its business activities), or any order
of, or any restriction imposed by, any court or other governmental agency; (iii)
require from such Stockholder any notice to, declaration or filing with, or
consent or approval of any governmental authority or other third party; or (iv)
accelerate any obligation under or give rise to a right of termination of, any
material agreement, permit, license or authorization to which such Stockholder
is a party or by which such Stockholder is bound; provided, however, that no
representation or warranty is made herein with respect to the contribution to
the Company by any Stockholder of any assets.
3.3. Tax-Related Representations.
(a) Such Stockholder has no present intention or plan, formally or
informally, on the date hereof, to transfer or dispose of any of the Shares
received by such Stockholder pursuant to its Contribution Agreement.
(b) Each Stockholder intends that the contributions of property to the
Company in exchange for Shares pursuant to the Contribution Agreements will be
treated as part of a single integrated transaction in which gain or loss will
not be recognized and, in the case of Persons who contribute Pathnet stock to
the Company in exchange for Shares, the contributions also will qualify as a
tax-free reorganization under IRC Section 368(a)(1)(B) pursuant to which gain or
loss will not be recognized.
SECTION 4 COVENANTS OF THE COMPANY AND THE STOCKHOLDERS
The Company hereby covenants with and for the benefit of the Series
Preferred Stockholders to comply, and, in order to induce the Series Preferred
Stockholders to enter into this Agreement, all of the undersigned Stockholders
shall, if required, vote their shares of the Company's capital stock in a manner
consistent with the covenants set forth in this Section 4, until the earlier of
the date on which no shares of the Series Preferred Stock remain outstanding or
the Company's first Qualified Public Offering, except as otherwise provided
herein, and until such date the Series Preferred Stockholders hereby agree to
comply with the covenants set forth in Section 4.10.
4.1. Financial Statements and Budgetary Information.
(a) The Company shall deliver to the Stockholders internally prepared
unaudited quarterly financial statements and audited annual financial
statements, as well as annual budgetary information. The quarterly financial
information and reports shall be provided to the Stockholders within forty-five
(45) days after the end of each fiscal quarter of the Company's fiscal year.
Annual financial statements audited by a Big Five accounting firm selected by
the Board of Directors shall
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be provided to the Stockholders within ninety (90) days after the end of each
fiscal year of the Company.
(b) The annual budgetary information for each upcoming fiscal year
shall be presented at the Board of Directors' meeting at least 60 days prior to
each fiscal year-end of the Company and shall be subject to approval by the
Board of Directors. Such budgetary information shall include a budget for the
upcoming fiscal year and the succeeding two years describing in detail, at a
minimum, assumptions with respect to revenues, key operating expenses and
capital expenditures and financing. Any material deviations from the budget for
any fiscal year shall be subject to prior approval by the Board of Directors.
(c) The Company shall deliver to the Stockholders such other periodic
information as it may provide to holders of the Company's outstanding debt
obligations.
4.2. Indemnification and Insurance.
For so long as any of the shares of Series Preferred Stock remain
outstanding, the Certificate of Incorporation shall at all times during which
any Series Preferred Stockholder Director serves as a director of the Company,
provide for indemnification of the directors and limitations on the liability of
the directors to the fullest extent permitted under applicable state law. Upon
the reasonable request of any Series Preferred Stockholder Director, and in any
event prior to the effective date of a public offering by the Company of equity
securities registered pursuant to the Securities Act, the Company shall use its
best efforts to obtain and maintain on reasonable business terms directors and
officers liability insurance coverage at a level reasonably suitable for the
Company but in no event less than $1,000,000 per occurrence, including coverage
of knowing violations under federal and state securities laws, which coverage
shall apply to, but not be limited to, the Company's initial public offering.
4.3. Restrictions on other Agreements.
The Company shall not enter into any agreement with any party which
eliminates, amends or restricts the rights and preferences of the Series
Preferred Stock as set forth in the Certificate of Incorporation or otherwise
take any other action that adversely affects the rights of the Series Preferred
Stockholders or any class of Series Preferred Stock.
4.4. Stock Options.
(a) Except as set forth on Schedule 4.4, the Company shall not issue
stock, grant stock options, warrants, or other rights to purchase stock in the
Company, except pursuant to and in accordance with the terms of the Stock Option
Plan and the Stock Incentive Plan. Unless otherwise approved by the Board of
Directors, the Company shall not issue or grant any of such securities with
respect to the purchase of more than 5.5 million shares of Common Stock, or any
shares of Preferred Stock, under the Stock Option Plan and Stock Incentive Plan
(including options issued in exchange for options for shares of Common Stock of
Pathnet which are issued and outstanding as of the date hereof, and as adjusted
for stock splits, stock dividends, reclassification and similar events).
(b) Notwithstanding any of the foregoing clause 4.4(a), the Company
shall be permitted to grant stock options (and issue Common Stock upon the
exercise thereof) of the Company to the individuals and entities listed on
Schedule 4.4 in the amounts and under the terms
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and conditions set forth opposite such individual or entity. Pursuant to the
terms of the Stock Option Plan and the Stock Incentive Plan, qualified incentive
stock options and nonqualified options may be granted to employees, officers,
directors and consultants of the Company pursuant to and in accordance with the
terms of this Agreement and the terms of the Stock Option Plan and the Stock
Incentive Plan as adopted as of the date hereof, and the exercise of any options
shall be conditioned on the optionee making satisfactory provisions for the
payment of any withholding taxes due on such exercise and agreeing to be bound
by the provisions of Section 5 and Section 7 hereof. Neither the Stock Option
Plan nor the Stock Incentive Plan may be amended, revised or waived after the
date hereof without the consent of a majority of the Series Preferred
Stockholder Directors.
(c) Notwithstanding anything set forth in this Section 4.4 to the
contrary, management may change the composition and compensation and
remuneration of existing management, consultants and employees of the Company
and may hire new management, consultants and employees of the Company, provided
the compensation and remuneration of such new and existing management,
consultants and employees (including any capital stock of the Company issued to
such new existing management, consultants or employees and any vesting schedules
relating to the grant of any such capital stock) is within the ranges
established from time to time by the Board of Directors with the approval of a
majority of the Series Preferred Stockholder Directors. Pursuant to the terms of
the Stock Option Plan and the Stock Incentive Plan, all awards under such plans
must be administered by a "Committee" whose members must be designated by the
Board of Directors.
(d) The Company shall cause Pathnet not to issue or grant any options,
warrants, or other rights to purchase, or securities convertible into or
exchangeable for, shares of the capital stock of Pathnet; provided, however,
that the foregoing covenant shall not apply to the existing rights and
obligations of Pathnet under options, warrants, purchaser rights or convertible
securities that are issued and outstanding on the date hereof.
4.5. Conduct of Business.
(a) The Company shall engage principally in the business of acquiring,
constructing, developing and/or operating telecommunications networks in the
United States or a business or businesses similar or otherwise related or
incidental thereto or reasonably compatible therewith. The Company shall keep in
full force and effect its corporate existence and all intellectual property
rights useful in its business and shall use its best efforts to cause (i) each
existing and new employee to execute a Non-Disclosure Agreement in such form as
may from time to time be approved by the Board of Directors, (ii) each new
engineer and information technology professional to execute a Non-Disclosure and
Assignment of Inventions Agreement in such form as may from time to time be
approved by the Board of Directors, and (iii) each new employee holding an
office of vice president or higher of the Company to execute a Non-Disclosure,
Assignment of Inventions and Non-Competition Agreement in such form as may from
time to time be approved by the Board of Directors.
(b) The Company shall maintain all properties used or useful in the
conduct of its business in good repair, working order and condition, ordinary
wear and tear excepted, as necessary to permit such business to be properly and
advantageously conducted.
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4.6. Payment of Taxes, Compliance with Laws, etc.
The Company shall pay and discharge all lawful taxes, assessments and
governmental charges or levies imposed upon it or upon its income, franchise or
property before the same shall become in default, as well as all lawful claims
for labor, materials and supplies which if not paid when due, might become a
lien or charge upon its property or any part thereof; provided, however, that
the Company shall not be required to pay and discharge any such tax, assessment,
charge, levy or claim so long as the validity thereof is being contested by the
Company in good faith by appropriate proceedings and an adequate reserve
therefor has been established on its books. The Company shall comply with all
applicable laws and regulations in the conduct of its business, including,
without limitation, all applicable federal and state securities laws in
connection with the issuance of any securities.
4.7. Material Events.
The Company will continuously monitor and promptly advise the Series
Preferred Stockholders and the Founder in writing of any event that, in the good
faith judgment of the Company, represents a material adverse change in the
condition, financial or otherwise, or business of the Company, and of each suit
or proceeding commenced or threatened against the Company which, if adversely
determined, in the good faith judgment of the Company, could have a material
adverse effect on the Company or its financial condition, business or prospects.
4.8. Management and Compensation.
The Board of Directors may establish a Compensation Committee, consisting
of such members as the Board shall determine. Subject to the provisions of
applicable law, the Board of Directors may delegate to any such Compensation
Committee all or any part of the authority of the Board of Directors regarding
the employment and compensation of all officers and employees of the Company.
4.9. Inspection.
The Company shall, upon reasonable prior notice to the Company and so long
as not unduly disruptive to the Company's business, permit authorized
representatives of the holders of the Series Preferred Stock to visit and
inspect any of the properties of the Company, including its books or accounts
(and to make copies thereof and take extracts therefrom), and to discuss its
affairs, finances and accounts with its officers, administrative employees and
independent accountants, all at such reasonable times and as often as may be
requested.
4.10. Tax Free Transfers.
(a) The Company and the Stockholders will prepare and file their
Federal and state income tax returns in a manner that characterizes the
contributions set forth in the Contribution Agreements in the manner described
in Sections 2.3(c) and 3.3(b) of this Agreement; provided, however, that neither
the representations in Section 2.3(c) nor the covenants in this Section 4.10
shall apply to any transfers of property or the provision of services to any
Stockholder subsequent to the date of this Agreement.
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(b) The Stockholders agree to file the information required by
Treasury Regulation Section 1.351-3 for their respective Federal income tax
returns for the taxable year of the contribution, and the Company agrees to
furnish to the Stockholders information necessary to enable the Stockholders to
comply with the information reporting requirements of Treasury Regulation
Section 1.351-3.
(c) The Company will exercise reasonable care not to take any action
subsequent to the date hereof that will cause the transfers of property to the
Company in exchange for Shares as set forth in the Contribution Agreements not
to qualify as tax-free transfers pursuant to IRC Sections 351 and 368(a)(1)(B),
as applicable.
(d) Notwithstanding the introductory sentence of this Section 4, the
covenants of the Stockholders and the Company pursuant to this Section 4.10
shall survive the closing of the Company's first Qualified Public Offering and
the conversion of the Series Preferred Stock and shall remain in full force and
effect for a period of 20 years from the date hereof.
SECTION 5 BOARD OF DIRECTORS
5.1. Appointments to the Board of Directors Prior to a Qualified Public
Offering.
Until the earlier of the date on which no shares of the Series Preferred
Stock remain outstanding or the Company's first Qualified Public Offering, the
Company shall comply, and the Stockholders shall vote their shares of the
Company's capital stock in compliance with, and to cause the Company to comply
with, the covenants set forth in this Section 5.1:
(a) Size of Board of Directors. The Company and the Stockholders shall
fix the number of members of the Board of Directors at ten (10) directors.
(b) Composition of Board of Directors
(i) Series A Preferred Stockholder Directors. The holders of the
Series A Preferred Stock shall be entitled to vote as a class
separately from all other classes of stock of the Company in any vote
for the election of directors of the Company, and shall be entitled to
elect by such class vote two directors (the "Series A Stockholder
Directors"), one of which Series A Stockholder Directors shall be
designated by Spectrum Equity Investors, L.P. ("Spectrum") for so long
as it owns shares of Series A Preferred Stock and thereafter by the
holders of a majority of the issued and outstanding shares of Series A
Preferred Stock, and the other of which shall be designated by New
Enterprise Associates VI, Limited Partnership or its affiliates
(collectively, "NEA VI") for so long as it owns shares of Series A
Preferred Stock and thereafter by the holders of a majority of the
issued and outstanding shares of Series A Preferred Stock.
(ii) Series B Preferred Stockholder Director. The holders of the
Series B Preferred Stock shall be entitled to vote as a class
separately from all other classes of stock of the Company in any vote
for the election of directors of the Company, and shall be entitled to
elect by such class vote one director (the "Series B Stockholder
Director"), which shall be designated by Grotech Partners IV, L.P.
("Grotech IV") for
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so long as it owns shares of Series B Preferred Stock, and thereafter
by the holders of a majority of the issued and outstanding shares of
Series B Preferred Stock.
(iii) Series C Preferred Stockholder Director. The holders of the
Series C Preferred Stock shall be entitled to vote as a class
separately from all other classes of stock of the Company in any vote
for the election of directors of the Company and shall be entitled to
elect by such class vote one director (the "Series C Stockholder
Director") to be designated by the holders of a majority of the issued
and outstanding shares of Series C Preferred Stock, provided, however,
that if the holders of a majority of the issued and outstanding shares
of Series C Preferred Stock designate for election as the Series C
Stockholder Director an individual who is not a partner or associate
of a Series C Stockholder or an entity under substantially the same
management as a Series C Stockholder, such designee shall be elected
as a director only with the vote of a majority of the Series A
Stockholder Directors and the Series B Stockholder Director, voting
together. Initially, the Series C Stockholder Director shall be
designated by Toronto Dominion Capital (U.S.A.), Inc. In no event
shall the Series C Stockholder Director be: (A) a partner or associate
of Spectrum or an entity under substantially the same management as
Spectrum for so long as Spectrum has designation rights under this
Section 5.1(b); (B) a partner or associate of NEA VI or an entity
under substantially the same management as NEA VI for so long as NEA
VI has designation rights under this Section 5.1(b); or (C) a partner
or associate of Grotech IV or an entity under substantially the same
management as Grotech IV for so long as Grotech IV has designation
rights under this Section 5.1(b).
(iv) Series D/E Stockholder Directors. The holders of the Series
D Preferred Stock and Series E Preferred Stock, voting together as a
single class, shall be entitled to vote as a class separately from all
other classes of stock of the Company in any vote for the election of
directors of the Company, and shall be entitled to elect by such class
vote three directors (the "Series D/E Stockholder Directors"). The
Series D/E Stockholder Directors shall be designated as follows:
(A) one Series D/E Stockholder Director shall be designated by
CSX for so long as it owns shares of Series D Preferred
Stock, and thereafter shall be designated by the holders of
a majority of the issued and outstanding shares of Series D
Preferred Stock and Series E Preferred Stock, voting
together as a single class;
(B) one Series D/E Stockholder Director shall be designated by
BNSF for so long as it owns shares of Series D Preferred
Stock, and thereafter shall be designated by the holders of
a majority of the issued and outstanding shares of Series D
Preferred Stock and Series E Preferred Stock, voting
together as a single class; and
(C) one Series D/E Stockholder Director shall be designated by
Colonial for so long as it owns shares of Series E Preferred
Stock or Series D Preferred Stock, and thereafter shall be
designated by the holders of a majority of the issued and
outstanding shares of Series D Preferred Stock and Series E
Preferred Stock, voting together as a single class.
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(v) Independent Director. The holders of all classes of Shares,
voting as a single class, shall elect one independent director who is
not an officer or employee of the Company or any Subsidiary and not a
holder or an Affiliate of any holder of Shares of any class as of the
date of such election.
(vi) Chief Executive Officer. The holders of all classes of
Shares, voting as a single class, shall elect the Chief Executive
Officer (and any replacement or successor Chief Executive Officer) as
a director.
5.2. Appointments to the Board of Directors Following a Qualified Public
Offering.
Following the earlier of the date on which no shares of the Series
Preferred Stock remain outstanding or the Company's first Qualified Public
Offering, the Stockholders shall, for so long as they own shares of the
Company's voting capital stock, vote their shares of the Company's voting
capital stock in compliance with the covenants set forth in this Section 5.2;
provided, however, that the terms of this Section 5.2 shall not apply to any
transferee of the shares owned by such Stockholders if such transferee is not an
Affiliate of such Stockholder:
(a) Representative of BNSF. For so long as BNSF shall be the
beneficial owner of not less than five percent (5%) of the outstanding voting
capital stock of the Company, the Stockholders shall cast their votes as the
holders of shares of the voting capital stock of the Company to cause the
designee of BNSF to be elected as a director of the Company.
(b) Representative of CSX. For so long as CSX shall be the beneficial
owner of not less than five percent (5%) of the outstanding voting capital stock
of the Company, the Stockholders shall cast their votes as the holders of shares
of the voting capital stock of the Company to cause the designee of CSX to be
elected as a director of the Company
(c) Representative of Colonial. For so long as Colonial shall be the
beneficial owner of not less than five percent (5%) of the outstanding voting
capital stock of the Company, the Stockholders shall cast their votes as the
holders of shares of the voting capital stock of the Company to cause the
designee of Colonial to be elected as a director of the Company.
5.3. Other Covenants Concerning Officers and Directors.
For so long as a Stockholder is bound by the provisions of Sections 5.1 or
5.2 hereof, such Stockholder shall vote their shares of the Company's capital
stock in compliance with and to cause the Company to comply with the following
covenants:
(a) Selection of Chief Executive Officer. The first Chief Executive
Officer of the Company shall be Jalkut. Upon the termination, resignation, death
or disability of the Chief Executive Officer of the Company, the Company shall
select and hire a successor Chief Executive Officer (and any successor thereto)
by the affirmative vote of a majority of the Board of Directors.
(b) Meetings of Board of Directors. A meeting of the Board of
Directors shall be held at least four times each calendar year at intervals of
not more than three months.
(c) Removal of Directors. Each of the Stockholder Directors shall be
nominated, elected and continued as a director of the Company as provided in
Section 5.1 or Section 5.2, as
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applicable, and shall not be removed for any reason other than in connection
with the designation and election of a successor Series A Stockholder Director
by the Series A Stockholders, a successor Series B Stockholder Director by the
Series B Stockholders, a successor Series C Stockholder Director by the Series C
Stockholders, or a successor Series D/E Stockholder Director by the Series D
Stockholders and Series E Stockholders, as applicable, in each case as provided
in Section 5.1(b) hereof or 5.2 hereof, as applicable. All Stockholders agree to
vote for the removal of a Stockholder Director, if required, by the person or
persons entitled to designate such Stockholder Director, and for the election to
the Board of Directors of a substitute designated by the person or persons
entitled to designate such replacement director under this Section 5.3(c), if
requested by the person or persons entitled to designate such replacement
director.
5.4. Other Matters. For so long as a Stockholder is bound by the
provisions of Section 5.1, 5.2 or 5.3, such Stockholder shall vote all of his or
its shares of the Company and shall take all other necessary or desirable
actions within his or its control in its capacity as a stockholder, (including,
without limitation, attendance at meetings in person or by proxy for purposes of
obtaining a quorum, execution of written consents in lieu of meetings and
placing into nomination the names of the board designees permitted hereunder) to
satisfy its obligations pursuant to this Section 5, and the Company shall take
all necessary or desirable actions within its control (including, without
limitation, calling special board and stockholder meetings and placing into
nomination the names of the board designees permitted hereunder) to enable and
facilitate the satisfaction by the stockholders of their obligations pursuant to
this Section 5 and the election of members of the board of directors as
described herein.
SECTION 6 NEGATIVE COVENANTS OF THE COMPANY
So long as not less than 25% of the shares of Series Preferred Stock
outstanding immediately after the closing of the transactions contemplated in
the Contribution Agreements (as such number may be adjusted for any stock split,
reverse stock split, recombination, reclassification, or other similar
transaction) remain outstanding, the Company shall comply with the following
covenants, except as (i) in the case of Sections 6.1 through 6.5, the holders of
more than two-thirds of the then-outstanding shares of Series Preferred Stock,
voting together as a single class, may otherwise consent, and (ii) in the case
of Section 6.6, as provided therein:
6.1. Mergers, Dispositions, Acquisitions and Other Actions.
The Company shall not: (a) sell, lease or otherwise dispose of (whether in
one transaction or in a series of related transactions) all or substantially all
of its assets; (b) merge with or into or consolidate with another entity; (c)
acquire any other corporation or business concern for more than $5 million,
whether by acquisition of assets, capital stock or otherwise, and whether in
consideration of the payment of cash, the issuance of capital stock or otherwise
whether in one or a series of installments or make any loans to or investments
in any other entities or persons (other than cash equivalents) of more than $5
million in any one or a series of related transactions; (d) voluntarily
liquidate or wind up its operations; (e) issue any shares of its capital stock
which are senior to or on a parity with any shares of Series Preferred Stock
with respect to dividends, liquidation, redemptions or otherwise, or with any
special voting rights; (f) incur, create, assume or become liable in any manner
(by way of guarantee, surety, or otherwise) any new or additional indebtedness
for borrowed money, whether by the issue of notes, other debt securities, or
otherwise, except that the Company may so incur, create, assume or become liable
for: (A) indebtedness (and any refinancing thereof) existing within the Company
or its Subsidiaries upon the completion of the transactions contemplated
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in the Contribution Agreements; or (B) any indebtedness the principal amount of
which so incurred, created, assumed by, or otherwise becoming a liability of,
the Company in any one transaction or series of related transaction is less than
or equal to $5 million; or (C) indebtedness incurred, created, or assumed by the
Company in the ordinary course of its business.
6.2. No Amendments to Certificate of Incorporation or Bylaws.
The Company shall not make any amendment to its Certificate of
Incorporation or Bylaws.
6.3. Restrictions on Other Agreements.
The Company shall not enter into any agreement with any party which by its
terms (a) restricts the payments due the holders of the shares of Series
Preferred Stock, or (b) except as contemplated by Section 10.11, grants any
right relating to the registration of its Common Stock superior to or on a
parity with the rights granted to the Stockholders pursuant to Section 9 hereof.
6.4. Affiliated Transactions.
The Company shall not enter into or amend any transactions, agreements or
arrangements with, or make any payments to, any director, officer or key
employee of the Company or any person or entities which or who are relatives of,
controlled by, or otherwise affiliated with any of the foregoing persons or
entities (an "Affiliate") other than in the ordinary course of business and on
terms no less favorable to the Company than those that would be available from
unaffiliated third parties.
6.5. Issuances of, Distributions on, and Redemptions of, Capital Stock.
Except as otherwise expressly provided in this Agreement and in the
Certificate of Incorporation, the Company shall not authorize or issue, or
obligate itself to issue, any additional shares of capital stock of the Company
of any class, declare or pay any dividends, or make any distributions of cash,
property or securities of the Company with respect to any shares of its Common
Stock or any other class of its capital stock, or directly or indirectly redeem
purchase, or otherwise acquire for consideration, any shares of its Common Stock
or any other class of its capital stock; provided, however, that this
restriction shall not apply to (x) the repurchase of shares of the Common Stock
from individuals and entities who have entered into stockholder agreements when
the Company has the option to repurchase such shares upon the occurrence of
certain events, including the termination of employment and involuntary
transfers by operation of law (and their permitted transferees), provided that
the aggregate amount of repurchase thereunder shall not exceed $250,000 plus the
cash proceeds from the issuance of any stock to employees of the Company other
than pursuant to the Stock Option Plan or the Stock Incentive Plan or (y)
transactions contemplated by the Jalkut Employment Agreement. Any redemption,
repurchase or other acquisition by the Company of any shares of its capital
stock shall be made in compliance with all laws, including but not limited to
federal and state securities laws.
Notwithstanding the foregoing, the Company shall have the right to (i)
enter into and perform the Colonial Option Agreement, including the issuance of
Series E Preferred Stock and Common Stock thereunder, and (ii) issue shares of
the Series D Preferred Stock of the Company in exchange for the contribution of
right-of-way rights on terms acceptable to the Board of Directors of the Company
and add any such purchaser as a "Stockholder" hereunder as contemplated by
Section
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10.11 below, in each case without the consent of the holders of two-thirds of
the shares of Series Preferred Stock as contemplated above, provided, in the
case of clause (ii) above, that such issuance of Series D Preferred Stock in
excess of the amount currently authorized does not materially prejudice the
rights of the existing holders of the Series D Preferred Stock of the Company.
6.6. Adverse Change in Terms or Rights of a Series of Preferred Stock. The
Company shall not modify the terms of any Series of Preferred Stock as set forth
in the Certificate of Incorporation of the Company without, in addition to any
other consent required, the consent of the holders of a majority of such Series
of Preferred Stock. The Company shall not amend the Certificate of Incorporation
or Bylaws in a manner that materially and adversely affects the rights of any
Series of Preferred Stock, relative to the rights of any other Series of
Preferred Stock, without, in addition to any other consent required, the consent
of the holders of a majority of such adversely affected Series of Preferred
Stock. Any increase in the authorized number of any class of shares of the
Company shall not be deemed to be adverse to any Series of Preferred Stock by
reason of the effects of differing levels of protection against dilution as set
forth in the Certificate of Incorporation.
SECTION 7 TRANSFER BY FOUNDER; RIGHTS TO PURCHASE
The following provisions of this Section 7 shall terminate upon the Company's
first Qualified Public Offering:
7.1. General Restrictions on Transfer by the Founder.
(a) The Founder agrees that he will not directly or indirectly offer,
transfer, donate, sell, assign, pledge, hypothecate or otherwise dispose of (any
such action a "Transfer"), all or any portion of the shares of capital stock of
the Company now owned or hereafter acquired by him, except in connection with,
and strictly in compliance with, the conditions of any of the following
(hereinafter "Permitted Transfers"):
(i) Transfers effected pursuant to Section 7.2 and Section 7.3
hereof, in each case made in accordance with the procedures set forth
therein;
(ii) Transfers by the Founder to his spouse or children or to a
trust of which he is the settlor or a trustee for the benefit of his spouse
or children, provided that such trust does not require or permit
distribution of such shares during the term of this Agreement, and
provided, further, that the transferee shall have entered into an
enforceable written agreement satisfactory to the Company and a majority of
the Series Preferred Stockholders (voting together as a single class)
providing that all shares so Transferred shall continue to be subject to
all provisions of this Agreement as if such shares were still held by the
Founder; and
(iii) Transfers upon the Founder's death to his heirs, executors
or administrators or to a trust under his will or Transfers between the
Founder and his guardian or conservator, provided that the transferee shall
have entered into an enforceable written agreement satisfactory to the
Company and the Series Preferred Stockholders, voting together as a single
class, providing that all shares so Transferred shall continue to be
subject to all provisions of this Agreement as if such shares were still
held by the Founder; and
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(iv) Transfers constituting a bona fide pledge, hypothecation or
other granting of a security interest in the Founder Securities to secure a
loan for borrowed money, provided that:
(A) the financial institution making such loan shall have net
assets in excess of $100 million;
(B) neither the purpose nor the effect of such loan shall be to
establish, support, or facilitate any short position in the
Company's securities;
(C) the documentation and structure of such pledge,
hypothecation, or other granting of a security interest and the
underlying loan documentation shall have been reviewed for
compliance with the terms of this Agreement by, and shall be
reasonably satisfactory to, outside counsel to the Company; and
(D) no such Transfer under this clause (iv) shall be permitted
during any period in which the Founder Securities are otherwise
subject to the provisions of Section 9.8 hereof, other than
pursuant to a bona fide pledge, hypothecation or other security
interest outstanding in accordance with the terms of this clause
(iv) on the date that the market stand-off agreement restrictions
imposed by Section 9.8 become effective.
(b) Anything to the contrary in this Agreement notwithstanding,
transferees of the Founder permitted by clauses (ii) and (iii) of Section 7.1(a)
shall take any shares so Transferred subject to all provisions of this Agreement
as if such shares were still held by the Founder, whether or not they so agree
with the Founder.
7.2. Right of Refusal.
If at any time on or after the Closing Date, the Founder (including for all
purposes of this Section 7.2, any permitted transferee of his shares pursuant to
Section 7.1(a)(ii) or Section 7.1(a)(iii)) receives a bona fide offer to
purchase any or all of his shares (the "Offer") from an unaffiliated third party
(the "Offeror") which the Founder wishes to accept (whether initiated by the
Founder or the third party), the Founder may transfer such shares pursuant to
and in accordance with the following provisions of this Section 7.2:
(a) The Founder shall cause the Offer to be reduced to writing and
shall notify the Series Preferred Stockholders in writing of his desire to
accept the Offer and otherwise comply with the provisions of this Section 7.2
and Section 7.3. The Founder's notice shall constitute an irrevocable offer to
sell such shares to the Series Preferred Stockholders at a purchase price equal
to the price contained in, and on the same terms and conditions of, the Offer.
The notice shall be accompanied by a true copy of the Offer (which shall
indemnify the Offeree).
(b) At any time within thirty (30) days after the date of the giving
of notice pursuant to Section 7.2(a) (the "Notice Period"), one or more of the
Series Preferred Stockholders may, subject to the terms hereof, choose to accept
the Offer with respect to all or a portion of the shares covered thereby by
giving written notice to the Founder to such effect; provided, however, that if
two or more Series Preferred Stockholders choose, in the aggregate, to accept
such Offer with respect to an aggregate number of shares which exceeds the
number of shares subject to such Offer
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and available for purchase by the Series Preferred Stockholders taken as a
whole, the number of shares for which the Offer may be accepted by each such
Series Preferred Stockholder shall, in each case, be reduced by the smallest
number of shares as shall be necessary to reduce the aggregate number of shares
for which the Offer may be accepted by the Series Preferred Stockholders as
contemplated herein to the number of shares for which the Offer was made and
which are available for purchase by them; provided, further, that the number of
shares for which any Series Preferred Stockholder may accept such Offer as
contemplated herein shall in no event be reduced to less than the number of
shares which bears the same proportion to the total number of shares for which
the Offer was made and which are available for purchase by the Series Preferred
Stockholders as the number of shares of capital stock of the Company (or other
securities convertible into shares of capital stock of the Company) (any such
shares being referred to hereinafter as "Securities") then held by such Series
Preferred Stockholder bears to the total number of Securities then held by all
Series Preferred Stockholders accepting such Offer; and provided, further, that
the Series Preferred Stockholders who elect to purchase shares may purchase any
shares which other Series Preferred Stockholders do not elect to purchase based
on the relative holdings of such electing Series Preferred Stockholders.
(c) If shares covered by any Offer are purchased pursuant to Section
7.2(b), such purchase shall be (i) at the same price and on the same terms and
conditions as the Offer if the Offer is for cash and/or notes or (ii) if the
Offer includes any consideration other than cash and notes, then at the
equivalent all cash price for such other consideration as determined by the
Board of Directors. The closing of the purchase of the shares subject to an
Offer pursuant to this Section 7.2 shall take place within fifteen (15) days
after the expiration of the Notice Period, or upon satisfaction of any
governmental approval requirements, if later, by delivery by the respective
Series Preferred Stockholders of the purchase price for the shares being
purchased as provided above to the Founder against delivery of the certificates
representing the shares so purchased appropriately endorsed for transfer by the
Founder.
7.3. Sales by the Founder.
Any shares covered by an Offer which are not acquired pursuant to Section
7.2 that the Founder desires to sell following compliance with Section 7.2 may
be sold to the Offeror only during the 90-day period after the expiration of the
Notice Period and only on terms no more favorable to the Founder than those
contained in the Offer. Promptly after such sale, the Founder shall notify the
Series Preferred Stockholders of the consummation thereof and shall furnish such
evidence of the completion and time of completion of such sale and of the terms
thereof as may reasonably be requested by the Series Preferred Stockholders. So
long as the Offeror is neither a party, nor an affiliate or relative of a party
to this Agreement, such Offeror shall take the shares so Transferred free and
clear of the provisions of this Agreement, other than Section 5.1 and 5.3
hereof. If, at the end of such 90-day period, the Founder has not completed the
sale of such shares as aforesaid, all the restrictions on Transfer contained in
this Agreement shall again be in effect with respect to such shares.
SECTION 8 RIGHTS TO PURCHASE
Notwithstanding anything herein to the contrary, the following provisions
of this Section 8 shall not apply to, and shall thereafter terminate immediately
upon, the Company's first Qualified Public Offering.
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8.1 Right to Participate in Certain Sales of Additional Securities.
(a) The Company agrees that it shall not sell or issue any shares of
capital stock of the Company, or other securities convertible into or
exchangeable for capital stock of the Company, or options, warrants or rights
carrying any rights to purchase capital stock of the Company unless the Company
first submits a written offer to each Eligible Stockholder, identifying the
terms of the proposed sale (including cash price, number or aggregate principal
amount of securities and all other material terms).
(b) Pursuant to such notice, the Company shall offer to each Eligible
Stockholder the opportunity to purchase its Pro Rata Share of the securities
proposed to be sold by the Company on terms and conditions, including price, not
less favorable to the Eligible Stockholders than those on which the Company
proposes to sell such securities to a third party. Each Eligible Stockholder
shall have a right of over-allotment such that if any Eligible Stockholder fails
to exercise its right hereunder to purchase its Pro Rata Share, the Electing
Purchasers may purchase the non-purchasing Eligible Stockholder's Pro Rata Share
(allocated among them, pro rata in proportion to the aggregate number of shares
of Common Stock owned by such Electing Purchasers (assuming the full conversion
of any shares of the capital stock of the Company convertible into shares of
Common Stock)).
(c) The Company's offer to the Eligible Stockholders shall remain open
and irrevocable, for a period of thirty (30) days. Any securities so offered
which are not purchased pursuant to such offer may be sold by the Company, at
any time within one hundred twenty (120) days following the termination of the
above-referenced 30-day period, but such securities may not be sold on terms and
conditions, including price, that are more favorable to the purchaser than those
set forth in such offer. No securities may be sold by the Company after such
120-day period without renewed compliance with this Section 8.1.
(d) Notwithstanding the foregoing, the Company may (i) issue options,
warrants or rights to subscribe for shares of its Common Stock (as appropriately
adjusted for stock splits, stock dividend and the like) to officers, employees
and directors of the Company pursuant to the terms of the Stock Option Plan and
the Stock Incentive Plan and Section 4.4 hereof and may issue shares of its
Common Stock upon the exercise of any such stock options, or upon exercise of
warrants outstanding as of the Closing, (ii) issue shares of its Common Stock
upon the conversion of the Series Preferred Stock (as appropriately adjusted for
stock splits, stock dividends and the like); (iii) issue shares of its Common
Stock in connection with the acquisition of another Company approved consistent
with Section 6.1; (iv) issue shares of its Common Stock pursuant to the exercise
of the outstanding options listed on Exhibit D hereto (as appropriately adjusted
for stock splits, stock dividends and the like), and (v) issue shares of its
capital stock as contemplated by the Contribution Agreements and the Colonial
Option Agreement.
SECTION 9 REGISTRATION RIGHTS; STAND-OFF AGREEMENT
9.1. Optional Registrations.
(a) If, at any time or from time to time after the date hereof, the
Company shall determine to register any shares of its capital stock or
securities convertible into capital stock under the Securities Act (whether in
connection with a public offering of securities by the Company (a "primary
offering"), for the account of any security holder or holders of the Company (a
"secondary
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offering"), or both), the Company shall promptly give written notice thereof to
each Series Preferred Stockholder holding Registrable Securities (as hereinafter
defined in Section 9.4 below) then outstanding, Jalkut (for so long as he shall
hold Registrable Securities) and the Founder (for so long as he shall hold
Founder Securities); provided, however, that such notice obligation shall not
apply to any registration:
(i) relating to a public offering pursuant to any demand
registration rights under the Warrant Registration Rights Agreement;
(ii) relating to the registration of any of the Company's
employee benefit plans;
(iii) on any form that does not permit secondary offerings; or
(iv) relating to a corporate reorganization or other transaction
under Rule 145 or any similar rule of the SEC.
(b) If, within thirty (30) days after their receipt of a notice
delivered pursuant to clause (a) of this Section 9.1, one or more Series
Preferred Stockholders, Jalkut or the Founder request the inclusion of some or
all of the Registrable Securities or Founder Securities held by them in such
registration, the Company shall use its best efforts to effect the registration
under the Securities Act of all Registrable Securities and Founder Securities
which such Holders may request in a writing delivered to the Company within such
thirty (30) days.
(c) In the case of the registration of shares of capital stock by the
Company in connection with any underwritten public offering, if the
underwriter(s) shall have informed the Company and the Holders requesting
inclusion in such offering, in writing, that in such underwriter's opinion the
number of Registrable Securities and Founder Securities to be included in the
offering is such as to materially and adversely affect the price at which the
securities can be sold, the Company shall not be required to register
Registrable Securities and Founder Securities of such Holders in excess of the
amount, if any, of shares of the capital stock which the principal underwriter
of such underwritten offering shall reasonably and in good faith agree to
include in such offering in excess of any amount to be registered for the
Company. If any limitation of the number of shares of capital stock to be
registered by the Holders is required pursuant to this clause 9.1(c), the number
of shares that may be included in the registration on behalf of the Holders
shall be allocated among the Holders or the holders of any other registration
rights in proportion, as nearly as practicable, to their relative holdings of
Registrable Securities and Founder Securities, in the aggregate (provided that
for such purpose the Series E Preferred Stockholders shall be deemed to own two
times their actual holdings of Series E Preferred Stock, and provided further
that if any Holder does not register all shares that it is entitled to register
under the foregoing formula, then its unused shares shall be reallocated among
the remaining requesting Holders in proportion to their relative holdings of
Registrable Securities and Founder Securities), after first excluding from such
registration statement all shares of Common Stock, other than Founder
Securities, sought to be included therein by:
(i) any director, officer or employee of the Company, including
Jalkut (unless and until Jalkut has been involuntarily terminated as
an officer of the Company pursuant to Sections 6(d) or 6(f) of the
Jalkut Employment Agreement), pro rata based on the number of shares
of Registrable Securities requested by each such individual to be
included in such registration;
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(ii) any holder thereof not having any such contractual
incidental registration rights; and
(iii) any holder thereof having contractual incidental
registration rights subordinate and junior to the rights of the Series
Preferred Stockholders.
If such underwritten public offering is an initial public offering of the
Company's Common Stock, the Company may limit or exclude, to the extent so
advised by the underwriter as provided above, the amount of Registrable
Securities and Founder Securities to be included in the registration. If such
underwritten public offering is not an initial public offering of the Company's
Common Stock, then the Series Preferred Stockholders holding Registrable
Securities, the Founder, and Jalkut if he has been involuntarily terminated as
an officer of the Company pursuant to Sections 6(d) and 6(f) of the Jalkut
Employment Agreement, shall be allowed to include in the aggregate not less than
thirty-five percent (35%) of the shares subject to such registration statement,
provided, however, that in addition to any limitations imposed by this clause
(c), in connection with any registration that includes securities pursuant to
the Warrant Registration Rights Agreement, the terms of the Warrant Registration
Rights Agreement as in effect on the date hereof shall govern the inclusion (and
limitations on inclusion) of Registrable Securities, Founder Securities and
other securities in such registration.
(d) The Company shall not grant any rights relating to the piggy-back
registration of its capital stock which are superior to or on a parity with the
rights granted to the Series Preferred Stockholders, the Founder and Jalkut in
this Section 9.1 other than pursuant to this Agreement and the Warrant
Registration Rights Agreement.
9.2. Required Registrations.
(a) If on any three (3) occasions after the date hereof the Required
Holders notify the Company in writing that the Required Holders intend to offer
or cause to be offered for public sale all or any portion of its or their
Registrable Securities, the Company shall notify all of the Holders who would be
entitled to notice of a proposed registration under Section 9.1 above of its
receipt of such notification from such Required Holders. Upon the written
request of any such Holder or Holders delivered to the Company within twenty
(20) days after the Company's delivery of such notification to the Holders, the
Company shall either:
(i) elect to make a primary offering, in which case the rights of
such Holders to participate in such offering shall be as set forth in
Section 9.1 above (except that the Company shall not be permitted to
limit the number of shares which may be registered by any Holder, and
Holders holding a majority of the Registrable Securities requested to
be included in such required registration will have the right to
select the underwriter); or
(ii) use its best efforts to cause such of the Registrable
Securities and Founder Securities as may be requested by any Holders
to be registered under the Securities Act in accordance with the terms
of this Section 9.2.
(b) In the event that (i) the Company shall have completed its initial
Qualified Public Offering, and (ii) the registration statement filed by the
Company under the Securities Act in respect of such Qualified Public
Offering shall:
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(A) have ceased to be effective on or before the date which is
thirty (30) days following the expiration of the lock-up
period specified in Section 9.8 hereof; or
(B) not have included pursuant to the provisions of section 9.1
hereof the shares of Common Stock proposed to be registered
by the Founder,
then, in either of such events but only in either of such events (the
"Triggering Event"), the Founder shall have the rights set forth in this Section
9.2(b). If on any one occasion at any time following the Triggering Event, and
subject to the other terms and conditions of this Agreement, the Founder
notifies the Company in writing that the Founder intends to offer or cause to be
offered for public sale all or any portion of his Founder Securities, the
Company shall notify all of the Holders who would be entitled to notice of a
proposed registration under Section 9.1 above of its receipt of such
notification from the Founder. Upon the written request of any such Holder or
Holders delivered to the Company within twenty (20) days after the Company's
delivery of such notification to the Holders, the Company shall either:
(x) elect to make a primary offering, in which case the rights
of all such Holders to participate in such offering shall be
as set forth in Section 9.1 above (except that the Company
shall not be permitted to limit the number of shares which
may be registered by any Holder); or
(y) use its best efforts to cause such of the Registrable
Securities and Founder Securities as may be requested by any
Holders to be registered under the Securities Act in
accordance with the terms of this Section 9.2;
provided, however, that in the event that the notification delivered by the
Founder under this Section 9.2(b) shall have been delivered to the Company on or
before the date which is one year following the completion of the Qualified
Public Offering of the Company, the number of shares of Founder Securities that
may be included in such notification by the Founder hereunder (and in respect of
which the Company shall have the obligations under this Section 9.2(b)) shall be
limited and:
(1) shall not, in the case of an initial Qualified Public
Offering in which shares constituting fewer than fifteen
percent (15%) of the equity capital of the Company on a
fully diluted basis shall have been so registered in
connection with such initial Qualified Public Offering,
exceed thirty percent (30%) of the aggregate number of
shares so registered in connection with such initial
Qualified Public Offering, and
(2) shall not, in all other cases, exceed twenty percent (20%)
of the aggregate number of shares so registered in
connection with such initial Qualified Public Offering.
(c) The Company may postpone the filing of any registration statement
required by this Section 9.2 for a reasonable period of time, not to exceed
sixty (60) days during any twelve month period, if the Company has been advised
by legal counsel that such filing would require a special audit or the
disclosure of a material impending transaction or other matter and the Company
determines reasonably and in good faith that such disclosure would have a
material adverse effect on the Company. The Company shall not be required to
cause a registration statement requested
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pursuant to this Section 9.2 to become effective prior to the later of (i) 90
days following the effective date of a registration statement initiated by the
Company (other than a registration effected solely to implement an employee
benefit plan or a transaction to which Rule 145 or any other similar rule of the
SEC under the Securities Act is applicable), if the request for registration has
been received by the Company subsequent to the giving of written notice by the
Company made in good faith to the Holders holding Registrable Securities and
Founder Securities that the Company is commencing to prepare a Company-initiated
registration statement, and (ii) the end of any 'lock-up" or "black-out" period
imposed on the Company or any of the holders of its securities pursuant to or in
connection with any underwriting or purchase agreement relating to an
underwritten offering under Rule 144A of the Securities Act or a registered
public offering of equity securities of the Company, such period not to exceed
180 days; provided, however, that the Company shall use its best efforts to
achieve such effectiveness promptly following the end of the period set forth in
clause (i) or (ii) of this clause (c), as applicable.
(d) Notwithstanding the provisions of clauses (a), (b) or (c) of
this Section 9.2, the Company shall not be obligated to effect any registration
pursuant to:
(1) Section 9.2(a), if the Required Holders propose to register
Registrable Securities that may be immediately registered on
SEC Form S-3 pursuant to a request made under Section 9.3
hereof;
(2) Section 9.2(a) if the Required Holders do not request that
the offering which is the subject of such registration be
firmly underwritten by underwriters selected by the Required
Holders and reasonably acceptable to the Company;
(3) Section 9.2(b), if the Founder does not request that the
offering which is the subject of such registration be firmly
underwritten by underwriters selected by the Founder and
reasonably acceptable to the Company; or
(4) Section 9.2(a) or 9.2(b), if the Company, after using its
best efforts to do so, is unable to obtain the commitment of
the underwriter selected in clauses (2) or (3) above, as
applicable, to underwrite such offering on a firm commitment
basis.
9.3. Form S-3.
Following its initial public offering, the Company shall timely file all
reports required to be filed with the SEC under the Exchange Act and shall
otherwise use reasonable efforts to qualify for registration on SEC Form S-3 or
any comparable or successor form promulgated by the SEC. If the Company becomes
eligible to use SEC Form S-3 or a comparable successor form, the Company shall
use its best efforts to continue to qualify at all times for registration on
Form S-3 or such successor form. One or more of the Holders other than the
Founder shall have the right to request and have effected one registration per
year of shares of Registrable Securities on Form S-3 or such successor form for
a public offering of shares of Registrable Securities and having an aggregate
proposed offering price exceeding $1,000,000 (such requests shall be in writing
and shall state the number of shares of Registrable Securities to be disposed of
and the intended method of disposition of such shares by such Holder or
Holders). The Company shall give notice to all Holders of the receipt of a
request for registration pursuant to this Section 9.3 and shall provide a
reasonable opportunity for such Holders to participate in the registration. The
Company shall not be required to cause a registration statement requested
pursuant to this Section 9.3 to become effective prior to the later of
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(i) 90 days following the effective date of a registration statement initiated
by the Company (other than a registration effected solely to implement an
employee benefit plan or a transaction to which Rule 145 or any other similar
rule of the SEC under the Securities Act is applicable), if the request for
registration has been received by the Company subsequent to the giving of
written notice by the Company made in good faith to the Holders holding
Registrable Securities and Founder Securities that the Company is commencing to
prepare a Company-initiated registration statement, and (ii) the end of any
"lock-up" or "black out" period imposed on the Company pursuant to or in
connection with any underwriting or purchase agreement relating to an
underwritten SEC Rule 144A or a registered public offering of equity securities
of the Company, such period not to exceed 180 days; provided, however, that the
Company shall use its best efforts to achieve such effectiveness promptly
following the end of the period set forth in clauses (i) or (ii) above, as
applicable, if the request pursuant to this Section 9.3 has been made prior to
the expiration of such period. The Company may postpone the filing of any
registration statement required hereunder for a reasonable period of time, not
to exceed 60 days during any twelve-month period, if the Company has been
advised by legal counsel that such filing would require the disclosure of a
material transaction or other factor and the Company determines reasonably and
in good faith that such disclosure would have a material adverse effect on the
Company. Subject to the foregoing, the Company shall use its best efforts to
effect promptly the registration of all shares of Common Stock on Form S-3 or
such successor form to the extent requested by the Holder or Holders thereof for
purposes of disposition. If so requested by any Holder in connection with a
registration under this Section 9.3, the Company shall take such steps as are
required to register such Holder's Registrable Securities or Founder Securities
for sale on a delayed or continuous basis under SEC Rule 415, and to keep such
registration effective for the shorter of (x) six months or (y) until all of
such Holder's Registrable Securities or Founder Securities registered thereunder
are sold.
9.4. Registrable Securities.
For purposes of this Agreement, the term "Registrable Securities" shall
mean any shares of Common Stock:
(a) purchased by, or issued to, a Series Preferred Stockholder, or
issuable upon conversion of the Series Preferred Stock or other Preferred Stock
of the Corporation;
(b) issued or issuable to Jalkut upon the exercise of options granted
to him by the Company; or
(c) issued by way of a stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization, or any exchange or other replacement of the shares referred to
in clauses (i) or (ii) above;
provided, however, that (x) if a Series Preferred Stockholder owns or holds
shares of Series Preferred Stock (or, in the case of Jalkut, owns or holds
options exercisable for shares of Common Stock), such Series Preferred
Stockholder (or optionholder) shall not be required to cause such shares of
Series Preferred Stock to be converted to Common Stock (or, in the case of
Jalkut, shall not be required to exercise such options) until immediately prior
to the effective date of any applicable registration statement pursuant to which
such shares shall be sold, and (y) notwithstanding any other provision of this
Agreement, the term "Registrable Securities" shall not include any shares of
Common Stock which have previously been registered or which have been sold to
the public either pursuant to a
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registration statement or SEC Rule 144, or that may be sold by the holder
thereof pursuant to SEC Rule 144(k).
9.5. Further Obligations of the Company.
Whenever the Company is required hereunder to register any Registrable
Securities or Founder Securities it agrees that it also shall do the following:
(a) Pay all expenses of such registrations and offerings (exclusive of
underwriting discounts and commissions) and the reasonable fees and expenses,
not to exceed $60,000 per offering, of not more than one independent counsel for
the Holders satisfactory to a majority in interest of the Holders with
Registrable Securities included in such registration, voting as a single class.
(b) Use its best efforts (with due regard to management of the ongoing
business of the Company and the allocation of managerial resources) diligently
to prepare and file with the SEC a registration statement and such amendments
and supplements to said registration statement and the prospectus used in
connection therewith as may be necessary to keep said registration statement
effective for at least 90 days (6 months in the case of a Form S-3 registration
statement under Section 9.3) or such earlier date on which the Holder or Holders
have completed the distribution described in such registration statement, and to
comply with the provisions of the Securities Act with respect to the sale of
securities covered by said registration for the period necessary to complete the
proposed public offering;
(c) Furnish to each selling Holder such copies of each preliminary and
final prospectus and such other documents as such Holder may reasonably request
to facilitate the public offering of its Registrable Securities or Founder
Securities, as the case may be;
(d) Enter into any reasonable underwriting agreement required by the
proposed underwriter for the selling Holders, if any, in such form and
containing such terms as are customary; provided, however, that no Holder shall
be required to make any representations or warranties other than with respect to
its title to the Registrable Securities or Founder Securities, as the case may
be, and if the underwriter requires that representations or warranties be made,
the Company shall make all such representations and warranties relating to the
Company;
(e) Use its best efforts to register or qualify the securities covered
by said registration statement under the securities or blue-sky laws of such
jurisdictions as any selling Holder may reasonably request, provided that the
Company shall not be required to register or qualify the securities in any
jurisdictions which require it to qualify to do business therein or in which the
Company would be required to consent generally to service of process in such
jurisdiction unless the Company is already so subject;
(f) Immediately notify each selling Holder, at any time when a
prospectus relating to his Registrable Securities or Founder Securities, as the
case may be, is required to be delivered under the Securities Act, of the
happening of any event as a result of which such prospectus contains an untrue
statement of a material fact or omits any material fact necessary to make the
statements therein not misleading, and, at the request of any such selling
Holder, prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities and
Founder Securities, as the case may be, such prospectus shall not
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contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading.
(g) Cause all such Registrable Securities and Founder Securities, as
the case may be, to be listed on each securities exchange or quotation system on
which similar securities issued by the Company are then listed or quoted:
(h) Otherwise use its best efforts to comply with the applicable
securities laws of the United States and other applicable jurisdictions and all
applicable rules and regulations of the SEC and comparable governmental agencies
in other applicable jurisdictions and make generally available to its Holders,
in each case as soon as practicable, but not later than 45 days after the close
of the period covered thereby, an earnings statement of the Company which shall
satisfy the provisions of Section 11(a) of the Securities Act;
(i) Use best efforts to obtain and furnish to each selling Holder,
immediately prior to the effectiveness of the registration statement (and, in
the case of an underwritten offering, at the time of delivery of any Registrable
Securities or Founder Securities sold pursuant thereto), a cold comfort letter
from the Company's independent public accountants in customary form and covering
such matters of the type customarily covered by cold comfort letters as the
holders of a majority of the Registrable Securities and Founder Securities being
sold may reasonably request;
(j) Make available appropriate management personnel for participation
in the preparation and drafting of such registration statement, for due
diligence meetings and, to the extent that doing so does not interfere with the
operations and management of the Company, for "road show" meetings, in each case
as reasonably requested by the Holders or the lead managing underwriter; and
(k) Otherwise cooperate with the underwriter or underwriters, the
Commission and other regulatory agencies and take all actions and execute and
deliver or cause to be executed and delivered all documents necessary to effect
the registration of any Registrable Securities and Founder Securities under this
Section 9.
9.6. Indemnification; Contribution.
(a) Incident to any registration statement referred to in this Section
9, and subject to applicable law, the Company shall indemnify and hold harmless
each underwriter, each Holder who offers or sells any such Registrable
Securities or Founder Securities in connection with such registration statement
(including its partners (including partners of partners and stockholders of any
such partners)), and directors, officers, employees and agents of any of them (a
"Selling Holder"), and each person who controls any of them within the meaning
of Section 15 of the Securities Act or Section 20 of the Securities Exchange Act
of 1934, as amended (hereinafter the "Exchange Act") (a "Controlling Person")),
from and against any and all losses, claims, damages, expenses and liabilities,
joint or several (including any investigation, legal and other expenses incurred
in connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claim asserted), to which they, or any of them, may become
subject under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities arise out of or are based on (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement (including any related preliminary or definitive
prospectus, or any amendment or supplement to such registration statement
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or prospectus), (ii) any omission or alleged omission to state in such document
a material fact required to be stated in it or necessary to make the statements
in it not misleading, or (iii) any violation by the Company of the Securities
Act, any state securities or blue sky laws or any rule or regulation thereunder
in connection with such registration; provided, however, that the Company shall
not be liable to the extent that such loss, claim, damage, expense or liability
arises from and is based on an untrue statement or omission or alleged untrue
statement or omission made in reliance on and in conformity with information
furnished in writing to the Company by such underwriter, Selling Holder or
Controlling Person expressly for use in such registration statement. With
respect to such untrue statement or omission or alleged untrue statement or
omission in the information furnished to the Company by such Selling Holder
expressly for use in such registration statement, such Selling Holder shall
indemnify and hold harmless each underwriter, the Company (including its
directors, officers, employees and agents), each other Holder (including its
partners (including partners of partners and stockholders of such partners) and
directors, officers, employees and agents of any of them) whose securities are
so registered, and each person who controls any of them within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages, expenses and liabilities, joint or
several, to which they, or any of them, may become subject under the Securities
Act, the Exchange Act or other federal or state statutory law or regulation, at
common law or otherwise to the same extent provided in the immediately preceding
sentence. In no event, however, shall the liability of a Selling Holder for
indemnification under this Section 9.6(a) in its capacity as such (and not in
its capacity as an officer or director of the Company) exceed the lesser of (i)
that proportion of the total of such losses, claims, damages or liabilities
indemnified against equal to that proportion of the total securities sold under
such registration statement which is being sold by such Selling Holder or (ii)
the proceeds received by such Selling Holder from its sale of Registrable
Securities (or Founder Securities, as the case may be) under such registration
statement.
(b) If the indemnification provided for in Section 9.6(a) above for
any reason is held by a court of competent jurisdiction to be unavailable to an
indemnified party in respect of any losses, claims, damages, expenses or
liabilities referred to therein, then each indemnifying party under this Section
9.6, in lieu of indemnifying such indemnified party thereunder, shall contribute
to the amount paid or payable by such indemnified party as a result of such
losses, claims, damages, expenses or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company, the other
Selling Holders and the underwriters from the offering of the Registrable
Securities and Founder Securities, as applicable, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company, the other
Selling Holders and the underwriters in connection with the statements or
omissions which resulted in such losses, claims, damages, expenses or
liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company, the Selling Holders and the
underwriters shall be deemed to be in the same respective proportions that the
net proceeds from the offering (before deducting expenses) received by the
Company and the Selling Holders and the underwriting discount received by the
underwriters, in each case as set forth in the table on the cover page of the
applicable prospectus, bear to the aggregate public offering price of the
Registrable Securities and Founder Securities, as applicable. The relative fault
of the Company, the Selling Holders and the underwriters shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, the Selling Holders or the
underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
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(c) The Company, the Selling Holders and the underwriters agree that
it would not be just and equitable if contribution pursuant to this Section
9.6(b) were determined by pro rata or per capita allocation or by any other
method of allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. In no event, however, shall
a Selling Holder be required to contribute any amount under this Section 9.6(b)
in excess of the lesser of (i) that proportion of the total of such losses,
claims, damages or liabilities indemnified against equal to that proportion of
the total securities sold under such registration statement which is being sold
by such Selling Holder or (ii) the proceeds received by such Selling Holder from
its sale of Registrable Securities or Founder Securities, as the case may be,
under such registration statement. No person found guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not found guilty of
such fraudulent misrepresentation.
(d) The amount paid by an indemnifying party or payable to an
indemnified party as a result of the losses, claims, damages and liabilities
referred to in this Section 9.6 shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim, payable as the same are incurred. The indemnification and
contribution provided for this Section 9.6 shall remain in full force and effect
regardless of any investigation made by or on behalf of the indemnified parties
or any officer, director, employee, agent or controlling person of the
indemnified parties. Any indemnification of legal fees and costs pursuant to
this Section 9.6 shall be paid by the indemnifying party when and as such fees
and costs are incurred by the indemnified party.
9.7. Rule 144 and Rule 144A Requirements.
In the event that the Company becomes and for so long as it remains subject
to Section 13 or Section 15(d) of the Exchange Act, the Company shall use its
best efforts to take all action as may be required as a condition to the
availability of Rule 144 or Rule 144A under the Securities Act (or any successor
or similar exemptive rules hereafter in effect). The Company shall furnish to
any Series Preferred Stockholder holding Registrable Securities and to the
Founder holding Founder Securities, within fifteen (15) days of a written
request, a written statement executed by the Company as to the steps it has
taken to comply with the current public information requirement of Rule 144 or
Rule 144A or such successor rules.
9.8. Market Stand-off Agreement.
Each and all of the Stockholders party to this Agreement, if so requested
by the underwriter of the Company's securities, shall agree not to sell, pledge,
encumber or otherwise transfer or dispose of any Common Stock (or other
securities) of the Company held by such Stockholders during the 180-day period
following the effective date of the Company's initial public offering or any
other registration statement of the Company in which such Stockholder has
included securities for registration, or during any shorter period agreeable to
the managing underwriter. Such agreement shall be in writing and in a form
reasonably satisfactory to the Company and such underwriter. The Company may
impose stop-transfer instructions with respect to the shares of Common Stock,
Series Preferred Stock, or any other securities of the Company subject to the
foregoing restriction until the end of such period.
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SECTION 10 GENERAL.
10.1. Amendments, Waivers and Consents.
(a) For the purposes of this Agreement and all agreements executed
pursuant hereto, no course of dealing between the Company and any Stockholder
and no delay on the part of any party hereto in exercising any rights hereunder
or thereunder shall operate as a waiver of the rights hereof and thereof. Except
as otherwise provided in Section 10.1(c) hereof, no provision hereof may be
waived otherwise than by a written instrument signed by the party so waiving
such covenant or other provision.
(b) Except as otherwise provided by the terms of this Agreement
(including Section 10(c) hereof), all and any amendments to and consents
required by this Agreement may be made, and compliance with any term, covenant,
condition or provision set forth herein may be omitted or waived (either
generally or in a particular instance and either retroactively or prospectively)
by the consent of the holders of a majority of the issued and outstanding shares
of Series Preferred Stock and Common Stock, voting together as a single class.
(c) No amendment, waiver or consent that adversely affects the Series
A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock,
the Series D Preferred Stock, or the Series E Preferred Stock, or affects any
rights specifically granted to the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock, or
the Series E Preferred Stock shall be approved without the approval of the
holders of a majority of the issued and outstanding Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, or
Series E Preferred Stock, respectively, each voting separately as a class;
provided, however, that any amendment, waiver or consent that adversely affects
one Series Preferred Stockholder, or affects any rights specifically granted to
such Series Preferred Stockholder, in a manner different than all other Series
Preferred Stockholders holding the same series of Series Preferred Stock,
including, but not limited to, the right to designate certain directors set
forth in Sections 5.1 and 5.2 hereof, shall not be approved without such Series
Preferred Stockholder's consent.
(d) No amendment to Articles 7, 8 or 9 hereof that would, relative to
the rights of any other class of Stock, adversely affect any rights granted to
the Founder under this Agreement shall be approved without the Founder's
consent.
(e) Except as otherwise expressly provided by the terms of this
Agreement, any amendment or waiver effected in accordance with this Section 10.1
shall be binding upon:
(i) the Company;
(ii) each holder of the shares Series Preferred Stock at the time
outstanding and each future holder of the shares of Series Preferred Stock;
(iii) the Founder and any transferee of the shares of Common
Stock owned by the Founder as of the date hereof; and
(iv) Jalkut and any transferee of the Shares of Common Stock
owned by Jalkut as of the date hereof.
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10.2. Legend on Securities.
The Company and the Stockholders acknowledge and agree that the following
legend shall be typed on each certificate evidencing any of the shares of
capital stock of the Company issued hereunder held at any time by the
Stockholders.
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR ANY STATE SECURITIES OR BLUE
SKY LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE
ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH
SECURITIES WHICH IS EFFECTIVE UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE
EXEMPTION FROM REGISTRATION UNDER THE ACT RELATING TO THE DISPOSITION OF
SECURITIES AND (3) IN ACCORDANCE WITH APPLICABLE STATE SECURITIES AND BLUE SKY
LAWS. THESE SECURITIES ARE ALSO SUBJECT TO THE PROVISIONS OF A STOCKHOLDERS'
AGREEMENT DATED AS OF ___________, 1999, INCLUDING CERTAIN RESTRICTIONS ON
TRANSFER, INDEMNITY PROVISIONS AND VOTING PROVISIONS SET FORTH THEREIN. A
COMPLETE AND CORRECT COPY OF THIS AGREEMENT IS AVAILABLE FOR INSPECTION AT THE
PRINCIPAL OFFICE OF THE COMPANY AND WILL BE FURNISHED UPON WRITTEN REQUEST AND
WITHOUT CHARGE."
The Company shall be obligated to reissue promptly at the request of any Holder
thereof unlegended certificates if the Holder thereof shall have obtained an
opinion of counsel at such Holder's expense reasonably acceptable to the Company
to the effect that the securities proposed to be disposed of may lawfully be so
disposed of without registration, qualification, or legend, whether pursuant to
Rule 144(k), an effective registration statement, or otherwise.
10.3. Governing Law.
This Agreement shall be deemed to be a contract made under, and shall be
construed in accordance with, the laws of the State of Delaware, without giving
effect to conflict of laws principles thereof.
10.4. Section Headings and Gender.
The descriptive headings in this Agreement have been inserted for
convenience only and shall not be deemed to limit or otherwise affect the
construction of any provision thereof or hereof. The use in this Agreement of
the masculine pronoun in reference to a party hereto shall be deemed to include
the feminine or neuter as the context may require.
10.5. Counterparts.
This Agreement may be executed simultaneously in any number of
counterparts, each of which when so executed and delivered shall be taken to be
an original; but such counterparts shall together constitute but one and the
same document.
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10.6. Notices and Demands.
Any notice or demand which is required or provided to be given under this
Agreement shall be deemed to have been sufficiently given and received for all
purposes when delivered by hand, telecopy, telex or other method of facsimile,
or five business days after being sent by certified or registered mail, postage
and charges prepaid, return receipt requested, or two business days after being
sent by overnight delivery providing receipt of delivery to the following
addresses: If to the Company, at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇,
or at any other address designated by the Company to the Stockholders in
writing; if to a Stockholder, at his or its mailing address as shown on Exhibit
A hereto, or at any other address designated by such Stockholder to the Company
and the Stockholders in writing.
10.7. Severability.
Whenever possible, each provision of this Agreement shall be interpreted in
such a manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be deemed prohibited or invalid under such
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, and such prohibition or invalidity shall not
invalidate the remainder of such provision or the other provisions of this
Agreement.
10.8. Integration.
This Agreement, including the exhibits, documents and instruments referred
to herein or therein, constitutes the entire agreement and supersedes all other
prior agreements and understandings, both written and oral, among the parties
with respect to the subject mater hereof.
10.9. Review with Counsel.
Each party to this Agreement hereby confirms and acknowledges for the
benefit of each and all of the other parties hereto that he has obtained the
advice of counsel with respect to its execution, and that he has entered into
this Agreement of his own free will and not under compulsion or duress.
10.10. Waiver of Jury Trial.
EACH PARTY HERETO HEREBY WAIVES ANY RIGHT WHICH IT MAY OTHERWISE HAVE AT
LAW OR IN EQUITY TO A TRIAL BY JURY IN CONNECTION WITH ANY SUIT OR PROCEEDING AT
LAW OR IN EQUITY BROUGHT BY ANY PARTY HERETO AGAINST ANOTHER WAIVING PARTY OR
WHICH OTHERWISE RELATES TO THIS AGREEMENT.
10.11.Subsequent Series D or E Preferred Stockholders. To the extent that
the Company issues in accordance with the terms hereof any Series D Preferred
Stock or Series E Preferred Stock subsequent to the date hereof, each purchaser
thereof (i) shall be required to become a party to this Agreement, with all of
the benefits, rights and obligations of a Stockholder hereunder by executing a
written agreement between such purchaser and the Company, which agreement shall
not require the execution of the then current Stockholders hereunder, and (ii)
shall make the representations in Section 3, provided that, with respect to
Section 3.3(a), such purchaser shall make the representation of no present
intention or plan as of the date thereof, formally or informally, to transfer or
dispose of any of the purchased shares to any person who is not a member of the
controlling group of
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shareholders for purposes of IRC Section 351. The Company shall provide each
Stockholder notice of any parties added to this Agreement pursuant to the terms
hereof.
10.12. Transferees. Except as specifically set forth in this Agreement, any
transferee of Founder Securities or Series Preferred Stock shall be bound by and
subject to the restrictions and agreements and entitled to the benefits and
rights set forth in Sections 2, 4, 5, 6, 7, 8, 9 and 10 of this Agreement as if
such transferee was a Founder or Series Preferred Stockholder as defined herein.
The relevant Holder or Holders, as the case may be, shall notify the Company at
the time of such transfer. All certificates representing shares held by such
transferees shall bear a legend to such effect. Any transfers of shares subject
to this Agreement shall be effected in compliance with all applicable
requirements of the Federal Communications Commission (the "FCC") and federal
telecommunications law, including any relevant limitations on foreign ownership
of FCC licenses.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
PATHNET TELECOMMUNICATIONS, INC.
By:
---------------------------------
Name:
Title:
STOCKHOLDERS
SPECTRUM EQUITY INVESTORS, L.P.
By:
---------------------------------
Name:
Title:
SPECTRUM EQUITY INVESTORS II, L.P.
By:
---------------------------------
Name:
Title:
-------------------------------------
▇▇▇▇▇ ▇. Colo
-------------------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
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-------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇ ▇▇▇▇
NEW ENTERPRISE ASSOCIATES VI, LIMITED
PARTNERSHIP
By:
---------------------------------
Name:
Title:
ONSET ENTERPRISE ASSOCIATES II, L.P.
By:
---------------------------------
Name:
Title:
ONSET ENTERPRISES ASSOCIATES III, L.P.
By:
---------------------------------
Name:
Title:
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MONTAUK PARTNERS, L.P.
By:
---------------------------------
Name:
Title:
▇▇▇▇ CAPITAL PARTNERS V, L.P.
By:
---------------------------------
Name:
Title:
▇▇▇▇ CAPITAL PARTNERS V (DOMESTIC ANNEX
FUND), L.P.
By:
---------------------------------
Name:
Title:
▇▇▇▇ CAPITAL PARTNERS V INTERNATIONAL, L.P.
By:
---------------------------------
Name:
Title:
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▇▇▇▇ CAPITAL PARTNERS VI, L.P.
By:
---------------------------------
Name:
Title:
PCP ASSOCIATES, L.P.
By:
---------------------------------
Name:
Title:
-------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
TORONTO DOMINION CAPITAL (U.S.A.), INC.
By:
---------------------------------
Name:
Title:
GROTECH PARTNERS IV, L.P.
By:
---------------------------------
Name:
Title:
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UTECH CLIMATE CHALLENGE FUND, L.P.
By:
---------------------------------
Name:
Title:
UTILITY COMPETITIVE ADVANTAGE FUND
By:
---------------------------------
Name:
Title:
FBR TECHNOLOGY VENTURE PARTNERS, L.P.
By:
---------------------------------
Name:
Title:
THE BURLINGTON NORTHERN AND SANTA FE
RAILWAY COMPANY
By:
---------------------------------
Name:
Title:
COLONIAL PIPELINE COMPANY
By:
---------------------------------
Name:
Title:
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CSX TRANSPORTATION, INC.
By:
---------------------------------
Name:
Title:
-------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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