EXHIBIT 4.34
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SECURITIES PURCHASE AGREEMENT
dated as of December 31, 1999,
among
WAM!NET INC.,
WINSTAR COMMUNICATIONS, INC.,
And
WINSTAR CREDIT CORP.
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TABLE OF CONTENTS
Page
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Section 1. Authorization......................................................1
Section 2. Closing............................................................1
Section 3. Sale and Purchase of Shares........................................1
3.1. Shares......................................................1
3.2. Option......................................................1
Section 4. Representations and Warranties of the Corporation..................3
4.1. Organization; Subsidiaries..................................3
4.2. Qualification; Good Standing................................4
4.3. Corporate Authorization; Enforceability.....................4
4.4. No Conflict.................................................4
4.5. Capitalization..............................................4
4.6. Securities Laws; Applicable Corporation Laws................6
4.7. Financial Information.......................................7
4.8. Absence of Changes; Review of Interim Financials............7
4.9. Initial Budget..............................................9
4.10. Agreements.................................................9
4.11. Title to Assets...........................................11
4.12. Real Property.............................................11
4.13. Intellectual Property Rights; Proprietary Information
of Third Parties..........................................11
4.14. Compliance with Laws; Governmental Authorizations.........12
4.15. Litigation................................................13
4.16. Environmental Matters.....................................13
4.17. Tax Matters...............................................13
4.18. Employee Benefit Plans....................................14
4.19. Insurance.................................................15
4.20. Related Transactions......................................15
4.21. Offering of the Shares....................................15
4.22. Disclosure................................................15
4.23. Investor Sophistication...................................16
4.24. Investment Intent.........................................16
4.25. Brokers and Finders.......................................17
4.26. Year 2000 Compliance......................................17
4.27. Minnesota Business Corporation Act........................17
Section 5. Representations and Warranties of the Purchasers..................18
5.1. Due Authorization..........................................18
5.2. Investment Representations.................................18
5.3. Brokers and Finders........................................19
5.4. Investor Sophistication....................................19
5.5. Winstar Representation.....................................19
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Section 6. Covenants of the Corporation and the Purchasers...................20
6.1. Regulatory Approvals; Reasonable Best Efforts;
Further Assurances.........................................20
6.2. Certain Filings............................................20
6.3. Confidentiality............................................20
6.4. Public Announcements.......................................21
Section 7. Covenants of the Corporation......................................21
7.1. Certificate of Designations................................21
7.2. Restrictions Pending the Closing...........................21
7.3. Reservation of Shares......................................21
7.4. Use of Proceeds............................................22
7.5. Access to Records..........................................22
7.6. Budget.....................................................22
7.7. Financial Reporting and other Information..................22
7.8. Payment of Obligations.....................................23
7.9. Insurance..................................................23
7.10. Certain Notices...........................................23
7.11. Conduct of Business.......................................24
7.12. Related Transactions......................................24
7.13. Internal Controls; Accountants Review.....................24
7.14. Board Designees...........................................25
7.15. Indenture.................................................26
7.16. Tag-Along Agreements......................................26
7.17. [Reserved.]...............................................26
7.18. Consents..................................................26
Section 8. Registration Rights of the Purchasers.............................26
8.1. Demand Registration........................................26
8.2. "Piggy-Back" Registration..................................27
8.3. General Terms..............................................28
8.4. Underwriting Agreement.....................................29
8.5. Road Show..................................................29
8.6. Registration of Winstar Shares.............................29
Section 9. Conditions to Each Closing........................................29
9.1. Conditions of Each Party...................................29
9.2. Conditions to Obligations of the Purchasers................30
9.3. Conditions to Obligations of the Corporation...............31
Section 10. Termination......................................................31
10.1. Effect of Termination.....................................32
Section 11. Miscellaneous....................................................33
11.1. Survival..................................................33
11.2. Indemnification...........................................33
11.3. Fees and Expenses.........................................34
11.4. Assignment; Parties in Interest...........................34
11.5. Entire Agreement..........................................35
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11.6. Notices..................................................35
11.7. Amendments...............................................36
11.8. Counterparts.............................................36
11.9. Headings.................................................36
11.10. Governing Law............................................36
11.11. Jurisdiction.............................................36
11.12. No Waiver................................................37
11.13. Binding Effect...........................................37
11.14. Cumulative Powers........................................37
INDEX........................................................................38
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SECURITIES PURCHASE AGREEMENT, dated as of December 31, 1999, among WAM!NET
INC., a Minnesota corporation (the "Corporation"), Winstar Communications, Inc.,
a Delaware corporation ("Winstar") and Winstar Credit Corp., a Delaware
corporation and a wholly-owned subsidiary of Winstar ("Winstar Sub").
WHEREAS, the Corporation desires to sell to Winstar Sub 50,000 shares (the
"Shares") of its Class E Convertible Preferred Stock, $.01 par value (the "Class
E Preferred Stock"), and Winstar Sub desires to purchase the Shares from the
Corporation upon the terms and subject to the conditions set forth below.
NOW THEREFORE, the parties hereto agree as follows:
Section 1. Authorization.
The Corporation has authorized the issuance and sale, upon the terms and
subject to the conditions set forth in this Agreement, of the Shares for a
purchase price of $1,000 per Share ("Per Share Price") or $50,000,000 in the
aggregate. The powers, designations, preferences and relative, participating,
optional or other rights, and the qualifications, limitations, and restrictions
of the Class E Preferred Stock are set forth in the Statement of Rights and
Preferences of Class E Preferred Stock ("Class E Certificate of Designations")
attached hereto as Exhibit A.
Section 2. Closing.
Unless this Agreement shall have been terminated and the transactions
herein contemplated shall have been abandoned in accordance with this Agreement,
the closing of the sale and purchase of the Shares and the other transactions
contemplated hereby (the "Closing") shall be held at 10:00 a.m. on the date
which is the third business day after the conditions in Section 9 have been
satisfied or waived (other than those of such conditions which are customarily
satisfied at a closing), at the office of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (or at such other time, date and place as the
parties may mutually agree). The date on which the Closing actually occurs is
hereinafter referred to as the "Closing Date."
Section 3. Sale and Purchase of Shares.
3.1. Shares.
At the Closing, the Corporation shall issue, sell and deliver to Winstar
Sub, 50,000 Shares of Class E Preferred Stock and Winstar Sub shall deliver to
the Corporation, as full payment therefor, a certificate, representing the
number of shares of common stock of Winstar as set forth under Column C on
Schedule I, registered in the name of the Corporation (the "Winstar Shares").
3.2. Option.
(a) Option Grant. The Corporation hereby grants to Winstar Sub an
option ("Option") to purchase up to an additional 50,000 shares of Class E
Preferred Stock from the
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Corporation ("Option Shares") at a price equal to the Per Share Price per
Option Share or, if Winstar Sub acquires Option Shares for its own account
and elects to pay Winstar Shares therefor, at the rate of 14.285714 Winstar
Shares per Option Share and otherwise on the same terms and conditions as
pertain to the Shares. Subject to subsection (b) directly below, Winstar
Sub may transfer such Option to a person or persons ("Designee") at any
time, from time to time, prior to the Option Termination Date (as defined
below). Winstar Sub and any Designee, individually and collectively, are
sometimes herein referred to as "Purchaser" or "Purchasers."
(b) Designee. Winstar Sub must furnish notice of its intended
Designee(s) ("Designee Notice") at least 5 business days before
transferring the Option or any portion thereof to such Designee(s). The
Corporation has two (2) business days to notify Winstar Sub of its
non-approval of such Designee, in which event any such approval shall not
be unreasonably withheld. Designees and/or entities that invest in the
telecommunications business, but are not primarily engaged in such
business, however, are not subject to approval by the Corporation.
(c) Exercise of Option. The Option may be exercised by the Purchaser
as to all or any part of the Option at any time, from time to time, until
5:00 p.m. on March 6, 2000 or such other date as may be mutually agreed
upon by the Corporation and Winstar Sub ("Option Termination Date"). The
Purchaser will not be under any obligation to exercise the Option prior to
the Option Termination Date. The Option may be exercised by the giving of
oral notice to the Corporation from the Purchaser, which must be confirmed
by a letter or telecopy setting forth the number of Options purchased, the
Option Closing Date (as defined directly below) and the payment amount for
the number of Series E Preferred Stock purchased upon exercise of the
Options. If a Designee other than Winstar Sub exercises any portion of the
Option, the Corporation agrees to sell the Class E Preferred Stock
underlying the Option to such Designee at the Per Share Price payable
either in immediately available funds or capital stock of such Designee, or
a combination of both, as determined upon mutual consent between the
Designee and the Corporation.
(d) Option Closing. Unless this Agreement shall have been terminated
and the transactions herein contemplated shall have been abandoned in
accordance with this Agreement, the closing of the sale and purchase of the
Option Shares ("Option Closing") shall be held on the date which is the
earlier of (i) six business days from the furnishing of a Designee Notice
to the Corporation and (ii) on the date and at the time mutually agreed
upon between the Purchaser of the Option Shares and the Corporation, but in
no event later than the earlier of (i) six business days from the
furnishing of a Designee Notice to the Corporation and (ii) the Option
Termination Date. The Option Closing shall occur at the offices of ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ & ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇. The date on which
the Option Closing actually occurs is hereinafter referred to as the
"Option Closing Date." Subject to the terms and conditions of this
Agreement, the Option Closing Date shall occur with respect to a Designee
approved by the Corporation, within 10 business days of the Corporation's
receipt of a Designee Notice. Subject to the terms and conditions set forth
herein, on the Option Closing Date, the Designee(s) shall sign a copy of
this Agreement, as amended to reflect the exercise of the Option, and shall
deliver the exercise price for the Options to the Corporation in exchange
for which the Corporation shall issue the Option Shares to such
Designee(s).
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Section 4. Representations and Warranties of the Corporation.
The Corporation hereby represents and warrants to the Purchaser as of the
date hereof, as of the Closing Date and as of the Option Closing Date, if any,
that:
4.1. Organization; Subsidiaries.
(a) Organization. The Corporation and each Subsidiary (as defined
below) is a corporation duly organized and validly existing under the laws
of the jurisdiction of its incorporation and has all requisite corporate
power and authority to own, lease and operate the assets used in its
business, to carry on its business as presently conducted, to enter into
the Documents (as hereinafter defined), to perform its obligations
thereunder, and to consummate the transactions contemplated thereby.
Attached as Schedule 4.1(a) are correct and complete copies of the Articles
of Incorporation of the Corporation including all amendments and
certificates of Designation, and the By-laws of the Corporation and each
Subsidiary, each as in effect on the date hereof (collectively, the
"Organizational Documents"). No amendments, revisions or waivers of any
provisions of any Organizational Documents have occurred, are in the
process of occurring or otherwise have been requested. For purposes of this
Agreement, "Documents" collectively means (i) this Agreement, (ii) the
Class E Certificate of Designations and (iii) the Lock-Up and Restricted
Stock Agreement in the form of Exhibit B ("Lock-up Agreement").
(b) Subsidiaries. Set forth on Schedule 4.1(b) hereto is a complete
list of all of the subsidiaries of the Corporation (each a "Subsidiary").
Except as set forth on Schedule 4.1(b) hereto, the Corporation does not
own, directly or indirectly, any capital stock or other equity securities
of any corporation, nor does the Corporation have any direct or indirect
ownership interest, including interests in partnerships and joint ventures,
in any other entity or business and there are no agreements to acquire such
interests. Each Subsidiary has been duly organized, is validly existing and
in good standing under the laws of its respective jurisdiction of
incorporation and is duly qualified and in good standing as a foreign
corporation, and is authorized to do business, in all jurisdictions in
which the character of its properties or the nature of its businesses
requires such qualification or authorization, except for qualifications and
authorizations the lack of which, individually or in the aggregate, would
not reasonably be expected to result in a material adverse effect upon the
business, prospects, properties, liabilities, assets, operations, results
of operations, condition (financial or otherwise), or affairs of the
Corporation or result in the loss from employment of any Principal
Executive Officer as such term is defined on Schedule II (a "Material
Adverse Effect"). Each Subsidiary has the requisite power and authority to
own and hold its properties and to carry on its business as now being
conducted. Except as disclosed on Schedule 4.1(b) hereto: (i) all of the
outstanding shares of capital stock of each Subsidiary are owned
beneficially and of record by the Corporation, another Subsidiary or any
combination thereof, in each case free and clear of any liens, charges,
restrictions, claims or encumbrances other than restrictions on transfer
imposed by the Securities Act of 1933, as amended (the "Securities Act");
and (ii) there are no outstanding subscriptions, warrants, options,
convertible securities or other rights (contingent or other) pursuant to
which any Subsidiary is or may become obligated to issue any shares of its
capital stock to any person other than the Corporation or a Subsidiary.
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4.2. Qualification; Good Standing.
Each of the Corporation and every Subsidiary is authorized to do business
and is in good standing as a foreign corporation in each jurisdiction the laws
of which require such respective entity to be so authorized, except where the
failure to be so qualified or in good standing could not reasonably be expected
to have a Material Adverse Effect.
4.3. Corporate Authorization; Enforceability.
The Corporation has taken all corporate action necessary to authorize its
execution and delivery of the Documents, the performance of its obligations
thereunder, and its consummation of the transactions contemplated thereby. Each
Document has been executed and delivered by an officer of the Corporation in
accordance with such authorization. Each Document constitutes a valid and
binding obligation of the Corporation, enforceable in accordance with its terms,
subject to applicable bankruptcy, reorganization, fraudulent conveyance,
insolvency, moratorium, and similar laws now or hereafter in effect affecting
creditors' rights generally and to general principles of equity.
4.4. No Conflict.
The execution and delivery by the Corporation of the Documents, its
consummation of the transactions contemplated thereby, and its compliance with
the provisions thereof, will not other than in instances which could not
reasonably be expected to have a Material Adverse Effect, (i) violate or
conflict with any of the Organizational Documents, (ii) violate, conflict with,
result in a breach of, constitute a default under, or give rise to any right of
termination, cancellation, or acceleration (with or without notice or lapse of
time, or both) under any agreement, lease, security, license, permit, or
instrument to which the Corporation or any Subsidiary is a party, or to which it
or any of them or any of their respective assets or businesses are subject,
(iii) result in the imposition of any Encumbrance (as hereinafter defined) on
any asset of the Corporation, (iv) violate or conflict with any Laws applicable
to the Corporation or its properties or assets, or (v) require any consent,
approval or other action of, notice to, or filing with any entity or person
(governmental or private), except for the filing of the Class E Certificate of
Designations and those that have been obtained or made. For purposes of this
Agreement, "Encumbrance" means any security interest, mortgage, lien, pledge,
charge, easement, reservation, clouds, equities, rights of way, options, rights
of first refusal and any other encumbrances, whether or not relating to the
extension of credit or the borrowing of money. For purposes of this Agreement,
"Laws" means all laws, statutes, rules, regulations, ordinances, bylaws, writs,
Permits, Orders and other legislative, administrative or judicial restrictions.
4.5. Capitalization.
(a) Capitalization.
(i) As of the date hereof, the authorized capital stock of the
Corporation consists of 500,000,000 shares, the Designation and
classes of which are set
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forth on Schedule 4.5(a) hereto. The Corporation does not hold any of
its shares in treasury.
(ii) As of the date hereof, 9,494,797 shares of the Corporation's
common stock, par value $.01 per share ("Common Stock"), 115,206
shares of the Corporation's Class A Preferred Stock par value $10.00
per share (the "Class A Preferred Stock"), 5,710,425 shares of the
Corporation's Class B Preferred Stock par value $.01 per share (the
"Class B Preferred Stock"), 878,527 shares of the Corporation's Class
C Preferred Stock, par value $.01 per share (the "Class C Preferred
Stock"), and 2,196,317 shares of the Corporation's Class D Preferred
Stock, par value $.01 per share (the "Class D Preferred Stock") are
issued and outstanding and have been validly issued and are fully paid
and nonassessable and are not subject to preemptive rights. Except as
set forth above, there are no other shares of capital stock of the
Corporation outstanding. As of the date hereof, the Class B Preferred
Stock, Class C Preferred Stock and Class D Preferred Stock are
convertible into 5,710,425, 878,527 and 2,196,317 shares of Common
Stock, respectively. Upon issuance of the Common Stock underlying such
preferred shares, in accordance with their respective Certificates of
Designation, such Common Stock will be validly issued, fully paid and
non-assessable.
(b) Options, Warrants, Convertible Securities. Except as set forth on
Schedule 4.5(a) hereto, as of the date hereof there are no outstanding
subscriptions, options, warrants or other agreements or rights of any kind
to acquire any additional shares of capital stock of the Corporation or
other instruments or securities convertible into or exchangeable for, or
which otherwise confer on the holder thereof any right to acquire, any such
additional shares of capital stock, nor is the Corporation committed to
issue any such option, warrant, right or security. Except as set forth on
Schedule 4.5(b) hereto, the Corporation has no obligation (contingent or
other) to purchase, redeem or otherwise acquire any of its equity
securities or any interest therein or to pay any dividend or make any other
distribution in respect thereof. Schedule 4.5(a) additionally sets forth
(i) all of the outstanding warrants of the Corporation, specifying the
exercise prices and periods of such warrants and amount of Common Stock
issuable upon exercise of such warrants; and (ii) stock options of the
Corporation, specifying the exercise prices and periods of such options and
the amount of Common Stock issuable upon exercise of the stock option held
by each such holder. As of the date hereof, 73,621,344 shares of Common
Stock are issuable upon exercise or conversion of all of the Corporation's
outstanding options, warrants, and other rights of any kind to acquire
shares of the Corporation's Common Stock (not including Class B Warrants
issued in September 1997 to MCI WorldCom, Inc.).
(c) Agreements.
(i) Except as set forth in Schedule 4.5(c)(i), as of the date
hereof, there are no agreements relating to the purchase or sale of
capital stock between the Corporation and any of its shareholders or
affiliates, and to the best of the Corporation's knowledge, there are
no such agreements among any of its shareholders and other parties.
(ii) Except as contemplated hereby and as set forth in Schedule
4.5(c)(ii), there are no agreements or understandings granting to any
person or entity any
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right to cause the Corporation or any Subsidiary to effect a
registration under the Securities Act of 1933, as amended ("Securities
Act"), of any shares of the Corporation's capital stock.
(iii) Except as set forth on Schedule 4.5(c)(iii), there are no
voting trusts, voting agreements, proxies or other agreements,
instruments or understandings with respect to the voting of the
capital stock of the Corporation between the Corporation and any of
its shareholders or affiliates and to the best of the Corporation's
knowledge, there are no such agreements among any of its shareholders
and any other parties.
(d) Due Authorization. The Shares and Option Shares are duly
authorized and, when issued and paid for pursuant to the terms of this
Agreement, will be validly issued, fully paid and nonassessable and will
have the rights, preferences and privileges specified in the Class E
Certificate of Designations. The shares of the Corporation's Common Stock
issuable upon conversion of the Shares and Option Shares ("Conversion
Shares") are duly authorized and have been reserved for issuance and, when
issued upon conversion in accordance with the terms of the Class E
Certificate of Designations, will be validly issued, fully paid and
nonassessable, and will be free and clear of all liens, encumbrances and
restrictions (other than the restrictions on transfer imposed by the
Securities Act or any other applicable federal or state securities laws,
and the rules and regulations promulgated thereunder). Neither the
issuance, sale or delivery of the Shares or Option Shares nor the
contemplated issuance or delivery of the Conversion Shares is subject to or
will trigger any preemptive or other similar right of shareholders of the
Corporation, any anti-dilution right or right of first refusal or other
preemptive or similar right in favor of any person, in each case except for
rights that have been listed on Schedule 4.5(d).
(e) Securityholders. Schedule 4.5(a) sets forth the name and address
of each record holder of more than five-percent of the outstanding shares
of any of the Common Stock, the Class A Preferred Stock, the Class B
Preferred Stock, the Class C Preferred Stock and the Class D Preferred
Stock and the number of such shares of Common Stock or Preferred Stock held
by each such holder.
(f) Reservation of Shares. The Corporation has reserved, and at all
times from and after the date hereof will keep reserved, free from
preemptive rights, out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of all shares of
Class A Preferred Stock, Class B Preferred Stock, Class C Preferred Stock,
Class D Preferred Stock and Class E Preferred Stock, sufficient shares of
Common Stock to provide for the conversion of all such shares of Preferred
Stock.
4.6. Securities Laws; Applicable Corporation Laws.
(a) The sale of the Shares and Option Shares contemplated hereby is
exempt from registration under the Securities Act. The issuance of all
other shares of capital stock of the Corporation on or before the date
hereof has been made in compliance with the Securities Act and all
applicable state securities or blue sky laws.
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(b) The sale of the Shares and Option Shares contemplated hereby and
the other transactions contemplated hereby are in compliance with all
applicable laws, including the Minnesota Business Corporation Act, and any
consents which are required to be obtained pursuant to such laws have
either been obtained or waived in writing.
4.7. Financial Information.
(a) Schedule 4.7 sets forth (i) the audited consolidated balance sheet
of the Corporation at December 31, 1998 (the "Balance Sheet") and the
related statements of operations, shareholders' equity and cash flows of
the Corporation for the 12 months then ended and (ii) the unaudited
consolidated balance sheet of the Corporation at September 30, 1999 (the
"Interim Balance Sheet") and the related unaudited consolidated statements
of operations, shareholders' equity and cash flows for the Corporation for
the 9 months then ended (collectively, the "Financial Statements").
(b) The Financial Statements: (i) present fairly the financial
position of the Corporation and the results of operations, shareholders'
equity and cash flows of the Corporation at the dates and for the periods
indicated, (ii) are in accordance with the books and records of the
Corporation which books and records are complete and correct and fairly
reflect all material transactions of the Corporation's business, and (iii)
have been prepared in accordance with generally accepted accounting
principles ("GAAP") consistently applied (except as set forth in the notes
thereto and subject, in the case of unaudited Financial Statements, to
normal year-end adjustments, and the absence of notes thereto). Except as
incurred under agreements on Schedule 4.10(a) or as set forth on Schedule
4.7, at the date of the Interim Balance Sheet, the Corporation did not have
any material Liability of any nature or any loss contingency (as such term
is used in the Statement of Financial Accounting Standards No. 5 issued by
the Financial Accounting Standards Board in March 1975) that was not
adequately disclosed or provided for on the Interim Balance Sheet,
including the notes thereto. For purposes of this Agreement, "Liability"
means any liability or obligation, whether known or unknown, asserted or
unasserted, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated and whether due or to become due, regardless of when asserted.
4.8. Absence of Changes; Review of Interim Financials.
(a) Since the date of the Interim Balance Sheet there has not been:
(i) any change in the assets, liabilities or financial condition
of the Corporation (on a consolidated basis), except for changes (i)
in the ordinary course of business or (ii) which in the aggregate have
not resulted in and would not reasonably be expected to result in a
Material Adverse Effect;
(ii) any event or change that would reasonably be expected to
result in a Material Adverse Effect, individually or in the aggregate,
whether or not insured against;
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(iii) to the best of the Corporation's knowledge, any damage,
destruction or loss (whether or not covered by insurance) affecting
any asset of the Corporation in excess of $100,000;
(iv) any liability or loss contingency incurred by the
Corporation that would have to be disclosed on financial statements
(including the notes thereto) (on a consolidated basis) in accordance
with GAAP, other than liabilities incurred in the ordinary course of
business consistent with past practice;
(v) to the best of the Corporation's knowledge, any commitment to
borrow money from or provide financial support to any person or entity
entered into by the Corporation;
(vi) any payment or discharge of any Liability by the Corporation
outside the ordinary course of business consistent with past practice
to the best of the Corporation's knowledge;
(vii) any sale, assignment, license, or other disposition of any
asset or right of the Corporation or any Subsidiary outside the
ordinary course of business consistent with past practice;
(viii) any declaration or payment of any dividend or other
distribution with respect to any shares of capital stock of the
Corporation, or the direct or indirect acquisition of any equity
securities by the Corporation;
(ix) any labor trouble, problem or grievance affecting the
business of the Corporation other than such matters which would not
reasonably be expected to have a Material Adverse Effect;
(x) any write-down of the value of any inventory of the
Corporation, or any write-off as uncollectible of any accounts or
notes receivable of the Corporation, which could reasonably be
expected to result in a Material Adverse Effect;
(xi) any increase in the direct or indirect compensation of
senior officers of the Corporation or any Subsidiary (including,
without limitation, any increase pursuant to any bonus, pension,
profit-sharing, deferred compensation, or other plan or commitment),
in excess of 20% above the prior year;
(xii) any capital expenditure or commitment therefor by the
Corporation or any Subsidiary for additions to property, plant or
equipment in excess of $250,000;
(xiii) any change in the accounting or tax methods, practices, or
assumptions followed by the Corporation or any Subsidiary; or
(xiv) any other transaction or event not in the ordinary course
of business consistent with past practice.
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(b) The Corporation's independent accountants have not advised the
Corporation that the Interim Balance Sheet and the related unaudited
financial statements (i) do not comply in all material respects with the
applicable accounting requirements of the Securities Act and the related
published rules and regulations thereunder and (ii) are not in conformity
with GAAP.
4.9. Initial Budget.
The Corporation has delivered to Winstar a copy of the Corporation's
current budget for the year ended December 31, 2000 (the "Initial Budget"). The
projections of future financial and operating performance contained in the
Initial Budget, and the assumptions upon which such projections are based, are
believed by the Corporation to be reasonable as of the date hereof. In addition,
the Corporation is not aware of any facts or circumstances which would render
such projections or assumptions unreasonable or unattainable. Without limiting
the generality of the foregoing, the Purchasers acknowledge that no assurances
can be given that the Corporation will achieve the projections set forth in the
Initial Budget.
4.10. Agreements.
(a) Schedule 4.10(a) sets forth a list of all material written and
oral contracts, agreements, licenses, commitments, instruments and
understandings ("Agreements"), and all Agreements of the following types
regardless of materiality, to which the Corporation or any Subsidiary is a
party ("Disclosed Agreements"):
(i) individually provide for the future purchase by the
Corporation or any Subsidiary of products or services in excess of
$50,000 or call for expenditures of the Corporation or any Subsidiary
in excess of $50,000, which expenditures or commitments have not been
disclosed in the Initial Budget;
(ii) provide for the employment by the Corporation or any
Subsidiary of any director or officer or consultant (other than for
legal or accounting services) earning $100,000 or more for any
engagement or provide for any payments or benefits (including
severance payments or benefits) to any director, officer or employee;
(iii) provide for the borrowing of money or a line of credit by
the Corporation or any Subsidiary, or a leasing transaction of a type
required to be capitalized by the Corporation in accordance with GAAP;
(iv) provide for a strategic relationship regarding the
Corporation or any Subsidiary and a third party, including any joint
venture, partnership or similar arrangement;
(v) provide for the sale, assignment, license, or other
disposition of any asset or any material right of the Corporation with
a value in excess of $30,000;
(vi) provide for the lease by the Corporation or any Subsidiary
of any real property;
9
(vii) provide for the lease by the Corporation or any Subsidiary
of any personal property with a value, or reflecting replacement
costs, in excess of $30,000 or involving lease payments in excess of
$30,000 per year;
(viii) were entered into with any labor union;
(ix) provide for a tax sharing;
(x) provide for any distribution, agency, or licensing
arrangement with the Corporation or any Subsidiary;
(xi) require the Corporation to issue dividends or shares of its
Common Stock upon exercise of warrants;
(xii) restrict the Corporation or any Subsidiary, or any of the
officers or employees listed on Schedule 4.10(a)(ii), from engaging in
any business activity in any way related to the business of the
Corporation anywhere in the world, restrict any such person in the
performance of his or her obligations and responsibilities to the
Corporation or any Subsidiary, or create any other obligation or
liability of any such person, in any way related to the business of
the Corporation, arising from his or her prior employment;
(xiii) grant to any person or entity, other than the Corporation
or any Subsidiary, any right, title, or interest in any invention or
know-how conceived by employees of the Corporation or any Subsidiary
and related to the business of the Corporation;
(xiv) provide for a loan guaranty, surety, indemnity, or other
financial support by the Corporation or any Subsidiary to any person
or entity; or
(xv) grant to any person or entity a security interest in any
asset or right of the Corporation or any Subsidiary.
(b) Each Disclosed Agreement or understanding required to be set forth
on Schedule 4.10(a) is in full force and effect and constitutes a valid and
binding obligation of all parties thereto. Except as set forth on Schedule
4.10(a), the Corporation and, to the extent a Subsidiary is a party, the
Subsidiary has performed in all material respects the obligations required
to be performed by it and is not in material default and has not received
notice alleging it to be in default under any such Disclosed Agreement. To
the knowledge of the Corporation, there exists no event or condition which,
after notice or lapse of time, or both, would constitute such a material
default under any Disclosed Agreement. To the knowledge of the Corporation,
there are no material defaults by any other party to any such Disclosed
Agreement. The Corporation has made available to the Purchaser correct and
complete copies of all Disclosed Agreements set forth on Schedule 4.10(a).
10
4.11. Title to Assets.
Except for properties leased by the Corporation or any Subsidiary, the
Corporation and each Subsidiary has good and marketable title to all assets
reflected on the Interim Balance Sheet as being owned by it, or acquired by it
after the date of the Interim Balance Sheet (except for inventory sold or
otherwise disposed of in the ordinary course of business, and accounts and notes
receivable paid in full, since the date of the Interim Balance Sheet), free and
clear of all Encumbrances, other than Permitted Liens and other than those which
would not reasonably be expected to result in a Material Adverse Effect. Such
assets are in good operating condition and repair, are adequate and suitable for
their intended use in the business of the Corporation and are sufficient for the
conduct of the business except as would not reasonably be expected to result in
a Material Adverse Effect. There does not exist any condition which interferes
with the economic value or use of such assets except as would not reasonably be
expected to result in a Material Adverse Effect. The term "Permitted Liens"
means (i) liens arising by operation of law in the ordinary course of business
that, individually and in the aggregate, do not in any respect interfere with
the use or value of any of the assets subject thereto, (ii) minor imperfections
of title which do not detract from the value of the property affected or impair
the operations of the Corporation, (iii) liens for taxes not yet due and
payable, (iv) liens arising in connection with debt incurred pursuant to and in
accordance with the covenant section, and (v) liens relating to monies borrowed
by the Corporation or any Subsidiary.
4.12. Real Property.
Except as disclosed on Schedule 4.12, neither the Corporation nor any
Subsidiary owns or holds, directly or indirectly, any real property. Neither the
Corporation nor any Subsidiary leases, directly or indirectly, any real property
other than as listed on Schedule 4.12.
4.13. Intellectual Property Rights; Proprietary Information of Third
Parties.
(a) Each of the Corporation and each Subsidiary owns or is licensed to
use all patents, trademarks, copyrights, service marks, and applications
and registrations therefor, and all trade names (including WAM!NET,
WAM!BASE and WAM!PROOF), domain names, URLs, customer lists, trade secrets,
proprietary processes and formulae, inventions, know-how, other
confidential and proprietary information, and other industrial and
intellectual property rights necessary to permit such entities to carry on
their respective business as presently conducted. Schedule 4.13 sets forth
a list of all patents, trademarks, copyrights, service marks, and
applications and registrations therefor, and all trade names, domain names
or URLs held or owned by the Corporation and each Subsidiary and all other
proprietary intellectual property rights of the Corporation and each
Subsidiary. All registered patents, copyrights, trademarks, domain name and
URL rights and service marks listed on Schedule 4.13 are in full force and
effect and are not subject to any taxes or maintenance fees and the
Corporation or a Subsidiary has the right to bring infringement Proceedings
with respect thereto. Neither the Corporation nor any Subsidiary (i)
licenses or grants to anyone other than to the Corporation or any
Subsidiary rights of any nature to use any intellectual property right that
is material to its business, other than certain software and equipment
which is provided to the Corporation's clients which enable them to access
the Corporation's network and avail themselves of the Corporation's
services, (ii)
11
is not obligated to and does not pay royalties to anyone for use of its
intellectual property rights, and (iii) does not market or sell any product
or service that violates any intellectual property right of a third party.
Except as set forth on such Schedule, there is no pending or, to the
knowledge of the Corporation, threatened claim or litigation against the
Corporation or any Subsidiary contesting the right to use its intellectual
property rights, asserting the misuse of any thereof, or asserting the
infringement or other violation of any intellectual property rights of a
third party.
(b) All inventions and know-how conceived by employees of the
Corporation and each Subsidiary, while in the employ of the Corporation or
such Subsidiary, and related to the business of the Corporation or any
Subsidiary were "works for hire," and all right, title, and interest
therein were transferred and assigned to the Corporation or a Subsidiary
and the Corporation or a Subsidiary has maintained all right, title and
interest therein without any Encumbrances thereon. The Corporation has
taken all reasonable security measures to protect the secrecy,
confidentiality, and value of its trade secrets, proprietary processes and
formulae, inventions, know-how and other confidential and proprietary
information.
(c) No third party has claimed or, to the Company's knowledge, has
reason to claim that the Corporation or any Subsidiary has (i) violated or
may be violating any of the terms or conditions of any non-competition or
non-disclosure agreement with such third party, (ii) disclosed or may be
disclosing or utilized or may be utilizing any trade secret or proprietary
information or documentation of such third party or (iii) interfered or may
be interfering in the employment relationship between such third party and
any of its present or former employees. Neither the Corporation or any
Subsidiary has utilized nor proposes to utilize any trade secret or any
information or documentation proprietary to any other person in violation
of existing arrangements with such person, and neither the Corporation or
any Subsidiary has violated any confidential relationship which any such
person may have had with any third party, in connection with the
development, manufacture or sale of any product or the development or sale
of any service of the Corporation or any Subsidiary.
4.14. Compliance with Laws; Governmental Authorizations.
Each the Corporation and each Subsidiary is in compliance in all respects
with all Laws, except for such instances where non-compliance would not result
in a Material Adverse Effect. Each of the Corporation and each Subsidiary has
all permits, licenses, authorizations, registrations, franchises, approvals,
certificates or variances (collectively, "Permits") from each Governmental
Authority that is necessary or advisable in the conduct of its business as
presently conducted and as contemplated in the Initial Budget except in such
cases which would not reasonably be expected to result in a Material Adverse
Effect. For purposes of this Agreement, "Governmental Authority" means any
federal, state, municipal, local or foreign government and any court, tribunal,
administrative agency, commission, board, agency or other governmental or
regulatory authority or agency, whether domestic or foreign. Neither the
Corporation nor any Subsidiary is licensed to provide communication services
under any state, federal or foreign laws nor is any one of them required to be
so licensed.
12
4.15. Litigation.
Except as set forth on Schedule 4.15, there are no (i) actions, suits,
claims, investigations or other proceedings (collectively, "Proceedings") by or
before any Governmental Authority or other arbitration or mediation body,
pending or, to the knowledge of the Corporation, threatened against the
Corporation or any Subsidiary, or (ii) judgments, writs, decrees, injunctions,
compliance agreements, or orders of any Governmental Authority or other
arbitration or mediation body, against the Corporation or any Subsidiary.
4.16. Environmental Matters.
Each of the Corporation and each Subsidiary is in compliance with all Laws
relating to the protection of the environment (the "Environmental Laws"). Except
for the operation of machinery and equipment in the ordinary course of business
in compliance with applicable Environmental Laws, neither the Corporation nor
any Subsidiary has handled, stored or released, or exposed any person to, any
hazardous substance, as defined in 42 U.S.C.A. Section 9601(14) or any other
applicable Environmental Laws (a "Hazardous Substance"). Neither the Corporation
nor any Subsidiary is liable or responsible for clean-up costs, remedial work or
damages in connection with the handling, storage, release, or exposure by it of
any Hazardous Substance except in cases which would not reasonably be expected
to result in a Material Adverse Effect. No claims for clean-up costs, remedial
work or damages have been made by any person or entity in connection with the
handling, storage, release, or exposure by the Corporation and/or any Subsidiary
of any Hazardous Substance.
4.17. Tax Matters.
(a) (i) The Corporation has timely filed or been included in all
required returns, declarations of estimated tax, reports, and statements
relating to any Taxes due and payable by it (collectively, the "Returns");
(ii) all Returns were correct and complete as of the time of filing; (iii)
the Corporation has timely paid all Taxes required to be paid by it through
the date hereof; (iv) the Corporation has made provision on its most recent
interim balance sheet for all Taxes payable by it for all periods prior to
the date of such interim balance sheet for which no Returns have yet been
filed; (v) the Corporation has made provision on its books for all Taxes
payable by it for all periods beginning on or after the date of its most
recent interim balance sheet for which no Returns have yet been filed; (vi)
the Corporation has no knowledge of any pending tax audits of any Returns;
(vii) the Corporation has no knowledge that any deficiency or addition to
any Taxes has been proposed, asserted or assessed in writing against the
Corporation; and (viii) the Corporation has not granted any extension of
the statute of limitations applicable to any Return or other claim for
Taxes.
(b) "Taxes" means, with respect to any person or entity, (i) all
material Federal, state, local, and foreign taxes, including, without
limitation, all taxes on or based upon net income, gross income, income as
specially defined, earnings, profits or selected items of income, earnings,
or profits, and all gross receipts, sales, use, ad valorem, transfer,
franchise, license, withholding, payroll, employment, excise, severance,
stamp, occupation, premium, property, or windfall profits taxes,
alternative or add-on minimum taxes, customs duties, or other
13
taxes, fees, assessments or charges of any kind, together with any
interest, penalties, additions to tax or additional amounts imposed by any
taxing authority on such person or entity, and (ii) any material liability
for the payment of any amount of the type described in the preceding clause
(i) as a result of being a "transferee" (within the meaning of Section 6901
of the Internal Revenue Code of 1986, as amended (the "Code"), or any other
applicable Laws) of another person or entity.
4.18. Employee Benefit Plans.
(a) Schedule 4.18 sets forth a list of all "employee pension benefit
plans" and "employee benefit plans," as defined in Section 3(2) and (3) of
the Employee Retirement Income Security Act of 1974 ("ERISA"), and other
written or formal plans or group arrangements involving direct or indirect
compensation (not including any government-mandated programs) currently or
previously maintained or contributed by the Corporation or any ERISA
Affiliate for the benefit of any employee or former employee thereof under
which the Corporation and/or any Subsidiary has or may have any present or
future obligation or liability (collectively, the "Employee Plans"). "ERISA
Affiliate" means any entity which is a member of (i) a "controlled group of
corporations," as defined in Section 414(b) of the Code, (ii) a group of
entities under "common control," as defined in Section 414(c) of the Code,
or (iii) an "affiliated service group," as defined in Section 414(m) of the
Code, any of which includes the Corporation.
(b) Schedule 4.18 further sets forth a list of all plans, trusts, or
arrangements (written or oral) providing for insurance coverage (including
any self-insured arrangements), workers' compensation, medical benefits,
disability benefits, supplemental unemployment benefits, vacation benefits,
retirement benefits, deferred compensation, profit-sharing, bonuses, stock
options, stock appreciation, or other forms of incentive compensation,
insurance or benefits (collectively, the "Benefit Arrangements") that (i)
are not Employee Plans, (ii) are maintained or contributed to by the
Corporation or any Subsidiary, and (iii) cover any director, officer,
employee, or former employee of the Corporation or any Subsidiary.
(c) Each Employee Plan and Benefit Arrangement has been maintained in
substantial compliance with its terms and with the requirements prescribed
by applicable Laws. There has not been any "accumulated funding
deficiency," as defined in Section 412 of the Code, with respect to any
Employee Plan. There has not been any partial or complete withdrawal by the
Corporation or any Subsidiary with respect to any Employee Plan which is a
"multiemployer plan," as defined in Section 3(37) of ERISA, and the
Corporation has any current plans to withdraw from any such Employee Plan.
Except as set forth on Schedule 4.18, neither the Corporation or any
Subsidiary is in default or alleged to be in default in the payment or
other provision of any benefit under any Employee Plan or Benefit
Arrangement. Except as set forth on Schedule 4.18, no actions have been
taken or are currently planned with respect to any Employee Plan or Benefit
Arrangement that would increase the expense of maintaining or the benefits
provided under such Employee Plan or Benefit Arrangement above the level of
the expense incurred or benefits provided in respect thereof for each of
the years 1999 and 1998.
(d) The execution and delivery by the Corporation of the Documents and
its consummation of the transactions contemplated thereby will not
constitute a triggering event
14
under any Employee Plan or Benefit Arrangement that will, or upon the
occurrence of subsequent events would, accelerate the time of payment or
vesting, or increase the amount of compensation or benefits, for any
director, officer, employee, or former employee of the Corporation.
4.19. Insurance.
The Corporation maintains valid and effective insurance policies, issued by
financially sound and reputable insurers, to insure it against all risks usually
insured against by persons or entities conducting businesses similar to that of
the Corporation or such Subsidiary in the locality in which such businesses are
conducted. The Corporation has paid all due premiums with respect to all
policies of insurance currently maintained by the Corporation.
4.20. Related Transactions.
(a) Except as set forth on Schedule 4.20, and except for compensation
to regular employees, since January 1, 1998, no current director or
executive officer of the Corporation or holder of at least 5% of the
outstanding capital stock of the Corporation has been (i) a party to any
transaction with the Corporation valued in excess of $60,000 during any
twelve-month period, or (ii) the direct or indirect owner of an interest in
any business organization that is or was a competitor, supplier or customer
of the Corporation (other than interests in non-affiliated publicly held
companies).
(b) The Corporation represents and acknowledges that Winstar Sub, by
reason of being a Purchaser or appointing a director to the Corporation's
Board of Directors, is not prohibited from engaging, investing or otherwise
being involved in the telecommunications business, including businesses or
investments which may be competitive or in conflict with the Corporation.
4.21. Offering of the Shares.
The Corporation has not, directly or indirectly, solicited any other offer
to buy or offer to sell, and will not, directly or indirectly, solicit any other
offer to buy or offer to sell, any security which is or would be integrated with
the sale of the Shares or Option Shares in a manner that would require the
Shares or Option Shares to be registered under the Securities Act.
4.22. Disclosure.
The Corporation has filed all required registration statements, reports and
proxy statements with the Securities and Exchange Commission ("SEC Reports")
when due (or within permitted extension periods) in accordance with the
Securities Act and the Securities Exchange Act of 1934, as amended ("Exchange
Act"), as the case may be. As of their respective dates (or, in the case of any
amended SEC Report, as of the date of the amendment), the SEC Reports complied
in all material respects with all applicable requirements of the Securities Act
or the Exchange Act, as the case may be. As of their respective dates (or, in
the case of any amended SEC Report, as of the date of the amendment), none of
the SEC Reports contained any untrue statement of a material fact or omitted to
state a material fact required to be stated or incorporated by reference therein
or necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. This Agreement does
not contain an untrue statement of a material fact nor does it omit to state a
material fact necessary in order to make the statements contained herein or
therein, in
15
light of the circumstances under which they were made, not misleading. None of
the statements, documents, certificates or other items prepared by the
Corporation and supplied to Winstar or its counsel in connection with the
transactions contemplated hereby (other than those relating to (i) projected
financial information, (ii) plans and objectives regarding the Corporation's
future operations, (iii) future economic performance and (iv) assumptions
underlying any of the matters described in (i) through (iii), each as to which
no representation or warranty is given other than, however, that such
representations are reasonable in light of existing or known facts or trends and
were prepared in good faith) contains an untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained therein, in light of the circumstances under which they were made, not
misleading.
4.23. Investor Sophistication.
The Corporation has sufficient knowledge and experience and is capable of
evaluating the merits and risks of its investment in Winstar as contemplated by
this Agreement and is able to bear the economic risk of such investment for an
indefinite period of time . The Corporation has been given access to the
registration statements, reports and proxy statements filed by Winstar with the
Securities and Exchange Commission ("Winstar SEC Reports"). The Corporation has
had the opportunity to ask questions of and receive answers from representatives
of Winstar concerning the terms and conditions of this Agreement, to discuss
Winstar's business, management and financial affairs with Winstar's management
and to obtain any additional information the Corporation desires or deems
relevant.
4.24. Investment Intent.
The Corporation accepts the Winstar Shares for its own account for
investment and not with a view towards the resale, transfer or distribution
thereof, nor with any present intention of distributing the Winstar Shares in
violation of the Securities Act or any other applicable federal or state
securities laws, and the rules and regulations promulgated thereunder. The
Corporation understands and agrees that the Winstar Shares have not been
registered under the Securities Act by reason of their issuance in a transaction
exempt from the registration requirements of the Securities Act. The Corporation
further understands, that the Winstar Shares will bear a legend (and Winstar
will make a notation on its transfer books) to such effect and the Winstar
Shares must be held indefinitely unless subsequently disposed of pursuant to an
effective registration statement under the Securities Act or in a transaction
exempt from, or not subject to, the registration requirements thereof. The
Corporation agrees that if it sells any Winstar Shares pursuant to Rule 144A
under the Securities Act, it will take all necessary steps in order to perfect
the exemption from registration provided thereby, including, without limitation,
obtaining on behalf of Winstar information to enable Winstar to establish a
reasonable belief that the purchaser is a "qualified institutional buyer"
(within the meaning of Rule 144A) and advising such purchaser that Rule 144A is
being relied upon with respect to such resale. The Corporation was not organized
for the specific purpose of accepting the Winstar Shares and is an "accredited
investor" within the meaning of Rule 501(a) of the Securities Act.
16
4.25. Brokers and Finders.
No person or entity acting on behalf or under the authority of the
Corporation is or will be entitled to any broker's, finder's, or similar fee or
commission in connection with the sale of the Shares.
4.26. Year 2000 Compliance.
(a) The Corporation and each Subsidiary has used (or is in the process
of using) appropriate procedures to verify that its software which is
licensed or otherwise provided to its customers and the software used in
its business will recognize and process date fields after the turn of the
century, and perform date-dependent calculations and operations (including
sorting, comparing and reporting) after the turn of the century correctly,
and the Corporation and each Subsidiary has used (or is in the process of
using) reasonable efforts to ensure that such software will not produce
invalid and incorrect results as a result of the change of century (all
without human intervention, other than original data entry of valid dates).
(b) The Corporation has (i) analyzed the operations of the Corporation
and the Subsidiaries that could be adversely affected by failure to become
Year 2000 compliant and (ii) developed a plan for becoming Year 2000
compliant in a timely manner, the implementation of which is on schedule in
all material respects. The Corporation and the Subsidiaries will be Year
2000 compliant for its operations and those of its Affiliates by December
30, 1999 except to the extent that a failure to do so could not reasonably
be expected to have a Material Adverse Effect. The disclosure in the
Corporation's Exchange Act reports (e.g., Form 10-K, 10-Q, etc.) regarding
the progress of the Year 2000 compliance program and Year 2000 remediation
were accurate when made.
(c) Based upon responses to its inquiries to its suppliers and
vendors, the Corporation reasonably believes any suppliers and vendors that
are material to the operations of the Corporation and the Subsidiaries will
be Year 2000 compliant for their own computer applications except to the
extent that a failure to do so could not reasonably be expected to have a
Material Adverse Effect.
4.27. Minnesota Business Corporation Act.
(a) A committee of all "disinterested members" of the Corporation's
Board of Directors (as such term is defined for purposes of Section
302A.673 of the Minnesota Business Corporation Act ("MBCA")) has approved
this Agreement and the transactions contemplated hereby and the Corporation
has completed all other actions and satisfied all other conditions
necessary and sufficient to negate any application of Section 302A.673 to
any of the Purchaser(s).
(b) Sections 302A.671 and 302A.673 of the MBCA do not and will not
apply to the Corporation or any Purchaser as a result of the transactions
contemplated by this Agreement. Both the Purchaser and the Corporation are
excluded from such Sections, and accordingly, Purchaser may purchase more
than 10% of the Corporation's voting stock pursuant
17
to this Agreement and will not further be restricted from purchasing
additional capital stock of the Corporation thereafter by virtue of such
provisions. In addition, an exception applies to Section 302A.671 of the
MBCA such that Winstar Sub's (or any other Purchaser's) acquisition of
twenty percent or more the outstanding voting stock of the Corporation may
be accomplished without approval of the shareholders of the Corporation.
Section 5. Representations and Warranties of the Purchasers.
Each Purchaser represents and warrants to the Corporation on behalf of
itself (and not any other Purchaser) as of the date hereof, the Closing Date and
any Option Closing Date, that:
5.1. Due Authorization.
The Purchaser has taken all action necessary to authorize its execution and
delivery of the Documents to which it is a party, the performance of its
obligations thereunder, and its consummation of the transactions contemplated
thereby. Each Document to which the Purchaser is a party has been executed and
delivered by an officer of the Purchaser in accordance with such authorization
or by the Purchaser. Each Document to which the Purchaser is a party constitutes
a valid and binding obligation of the Purchaser, enforceable in accordance with
its terms, subject to applicable bankruptcy, reorganization, insolvency,
moratorium, and similar laws affecting creditors' rights generally and to
general principles of equity.
5.2. Investment Representations.
(a) The Purchaser is acquiring the Shares or Option Shares, as the
case may be, for its own account, for investment and not with a view to the
distribution thereof, nor with any present intention of distributing the
same.
(b) The Purchaser understands that the Shares or Option Shares, as the
case may be, have not been, and the Conversion Shares will not be,
registered under the Securities Act or applicable state securities laws, by
reason of their issuance in a transaction exempt from the registration
requirements of the Securities Act, and such shares must be held
indefinitely unless subsequent disposition thereof is registered under
applicable securities laws or is exempt from registration.
(c) The Purchaser understands that the exemption from registration
afforded by Rule 144 (the provisions of which are known to the Purchaser)
promulgated under the Securities Act depends on the satisfaction of various
conditions and that, if applicable, Rule 144 may only afford the basis for
sales under certain circumstances and only in limited amounts.
(d) The Purchaser is an "accredited investor," as such term is defined
in Rule 501 (the provisions of which are known to the Purchaser)
promulgated under the Securities Act.
(e) The Purchaser has such knowledge and experience in financial, tax
and business matters so as to enable the Purchaser to utilize the
information made available to the Purchaser in connection with the
investment in the Shares or the Option Shares, as the case may be, to
evaluate the merits and risks of an investment in the Shares or the Option
Shares, as the
18
case may be, and to make an informed investment decision with respect
thereto; provided, however, that the foregoing shall in no way affect,
diminish or derogate from the representations and warranties made by the
Corporation hereunder or the right of the Purchaser to rely thereon and to
seek indemnification hereunder.
(f) The Purchaser has not been formed for the specific purpose of
acquiring the Shares or the Option Shares, as the case may be.
(g) The Purchaser hereby acknowledges that the purchase and sale of
the Shares and the Option Shares, if any, is intended to be exempt from
registration under the Securities Act by virtue of Section 4(2) and/or
Section 3(b) of the Securities Act and, if applicable, in the sole judgment
of the Corporation, the provisions of Regulation D thereunder, which
exemption is dependent upon the truth, completeness and accuracy of the
statements made by the Purchaser herein and in any other documents
furnished by the Purchaser to the Corporation.
5.3. Brokers and Finders.
No person or entity acting on behalf or under the authority of the
Purchasers is or will be entitled to any broker's, finder's, or similar fee or
commission in connection with the transactions contemplated hereby.
5.4. Investor Sophistication.
Purchaser has sufficient knowledge and experience and is capable of
evaluating the merit and risks of its investment in the Corporation as
contemplated by this Agreement and is able to bear the economic risk of such
investment for an indefinite period of time. Purchaser has been given access to
SEC Reports. Purchaser has had the opportunity to ask questions of and receive
answers from representatives of the Corporation concerning the terms and
conditions of this Agreement, to discuss the Corporation's business, management
and financial affairs with the Corporation's management and to obtain any other
additional information Purchaser desires or deems relevant.
5.5. Winstar Representation.
Winstar represents to the Corporation as of the date hereof and as of the
Closing Date, that since January 1, 1997, Winstar has filed all required Winstar
SEC Reports when due (or within permitted extension periods) in accordance with
the Exchange Act. As of their respective dates (or, in the case of any amended
Winstar SEC Report, as of the date of the amendment), the Winstar SEC Reports
complied in all material respects with all applicable requirements of the
Exchange Act or the Securities Act, as the case may be. As of their respective
dates (or, in the case of any amended Winstar SEC Report, as of the date of the
amendment), none of the Winstar SEC Reports contained any untrue statement of a
material fact or omitted to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading.
19
Section 6. Covenants of the Corporation and the Purchasers.
6.1. Regulatory Approvals; Reasonable Best Efforts; Further Assurances.
The Corporation and the Purchaser acknowledge that certain regulatory or
governmental approvals may be required to lawfully consummate the transactions
contemplated by this Agreement. Subject to the terms and conditions of this
Agreement, the Corporation and the Purchaser will, and will cause their
Affiliates to, use their reasonable best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary or desirable
under applicable laws and regulations to consummate the transactions
contemplated by this Agreement. The Corporation and the Purchaser agree to
execute and deliver such other documents, certificates, agreements and other
writings and to take such other actions as may be necessary or desirable in
order to consummate or implement expeditiously the transactions contemplated by
this Agreement.
6.2. Certain Filings.
The Corporation and the Purchaser will, and will cause their Affiliates to,
cooperate with one another (i) in determining whether any action by or in
respect of, or filing with, any governmental body, agency, official or authority
is required, or any actions, consents, approvals or waivers are required to be
obtained from parties to any material contracts, in connection with the
consummation of the transactions contemplated by this Agreement or the
conversion by such Purchaser of such Purchaser's Shares or Option Shares, as the
case may be, and (ii) in taking such actions or making any such filings,
furnishing information required in connection therewith and seeking timely to
obtain any such actions, consents, approvals or waivers. Without limiting the
generality of the foregoing, the Corporation and the Purchaser obligated to file
a notification under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976,
as amended ("HSR Act") shall promptly after the date of this Agreement prepare
and file the notifications required under the HSR Act in connection with the
transactions contemplated by this Agreement. The Corporation and the Purchaser
shall (A) give the other parties prompt notice of the commencement of any
action, suit, litigation, arbitration, preceding or investigation by or before
any governmental body with respect to the transactions contemplated by this
Agreement, (B) keep the other parties informed as to the status of any such
action, suit, litigation, arbitration, preceding or investigation, and (C)
promptly inform the other parties of any communication to or from the Federal
Trade Commission, the Department of Justice or any other governmental body
regarding the transactions contemplated by this Agreement.
6.3. Confidentiality.
Except as set forth in Section 6.4 below and as required by applicable
securities laws upon the advice of counsel, without the consent of the other
party, neither the Corporation nor any Purchaser shall make any public comment,
statement or communication with respect to, or otherwise disclose or permit the
disclosure of the terms of this Agreement and the transactions contemplated
hereby, and each party shall cause its authorized officers, directors, partners,
employees, counsel, accountants, agents and other representatives to strictly
comply with the foregoing.
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6.4. Public Announcements.
Neither party to this Agreement may publicly disseminate a press release or
file a public report (on Form 8-K or otherwise) with the Securities and Exchange
Commission or otherwise publicly announce the transactions contemplated by this
Agreement, unless the other parties consent. Such parties shall not unreasonably
withhold or delay their approval to any such proposed announcements.
Section 7. Covenants of the Corporation.
Unless otherwise indicated, and as long as any of the Shares, Option Shares
or Conversion Shares remain outstanding, the Corporation shall and shall cause
each Subsidiary to abide and perform with respect to the following covenants:
7.1. Certificate of Designations.
Immediately after the execution of this Agreement, the Corporation shall
cause to be filed the Class E Certificate of Designations as required pursuant
to the law of the State of Minnesota.
7.2. Restrictions Pending the Closing.
After the date hereof and prior to the Closing Date, except as expressly
provided for in this Agreement or as consented to in writing by the Purchaser,
the Corporation will not:
(i) amend its certificate of incorporation or bylaws, except to file
the Class E Certificate of Designations;
(ii) split, combine or reclassify any shares of its capital stock
without appropriately adjusting the conversion price and/or ratio
applicable to the Shares prior to their issuance at the Closing;
(iii) declare or pay any dividend or distribution (whether in cash,
stock or property) in respect of its Common Stock;
(iv) take any action, or knowingly omit to take any action, that could
reasonably be expected to result in (A) any of the representations and
warranties of the Corporation set forth in Article 4 becoming untrue or (B)
any of the conditions to the obligations of the Purchasers set forth in
Section 8.1 or 8.2 not being satisfied; or
(v) enter into any agreement or commitment to do any of the foregoing.
7.3. Reservation of Shares.
For so long as any of the Shares or Option Shares are outstanding, the
Corporation shall keep reserved for issuance a sufficient number of shares of
Common Stock to satisfy its conversion obligations under the Class E Certificate
of Designations.
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7.4. Use of Proceeds.
The Corporation shall use the cash proceeds received by it upon the sale of
the Shares to repay all outstanding amounts due to Foothill Capital Corporation
and for general working capital purposes. Additional proceeds from the sale of
the Option Shares shall be used for general working capital purposes.
7.5. Access to Records.
The Corporation shall, and shall cause each Subsidiary to, afford to the
Purchaser and its authorized employees, counsel, accountants and other
representatives, upon reasonable notice and during ordinary business hours, (i)
full access to all books, records and properties of the Corporation and such
Subsidiary, and (ii) the opportunity to interview any officer of the Corporation
or such Subsidiary regarding its affairs; any investigation pursuant to this
Section shall be conducted in a manner that does not interfere unreasonably with
the conduct of the business of the Corporation and such Subsidiary.
7.6. Budget.
Promptly following final preparation thereof, the Corporation shall deliver
to the Purchaser all budgets and revisions thereof prepared by the Corporation,
all of which shall be consistent with the Initial Budget in form, methodology,
and level of detail. Each of the Initial Budget and the budgets referred to in
this Section 7.6 is referred to herein as a "Budget."
7.7. Financial Reporting and other Information.
(a) So long as a Purchaser beneficially owns Shares, Option Shares or
Conversion Shares, the Corporation shall deliver to such Purchaser the
following:
(i) within 30 days after the end of each month, commencing with
the month of December, (A) the unaudited balance sheet of the
Corporation at the end of such month, (B) the unaudited statements of
income and cash flows of the Corporation for such month, (C)
comparative statements of income of the Corporation for the year to
date, the comparable figures for the prior year, the current Budget
for the year to date and projected figures for the year and (D)
textual discussion describing changes from prior periods and
describing operating trends;
(ii) within 45 days after the end of each fiscal quarter,
commencing with the quarterly period ending March 31, 2000, (A) the
unaudited balance sheet of the Corporation at the end of such fiscal
quarter, (B) the unaudited statements of income and cash flows of the
Corporation for such fiscal quarter, and (C) comparative statements of
income of the Corporation for such fiscal quarter and the year to
date, the comparable figures for the corresponding fiscal quarter and
the year to date period of the prior year and the current Budget for
such fiscal quarter and for the year to date; and
(iii) within 90 days after the end of each fiscal year commencing
with the current fiscal year of the Corporation, (A) the audited
balance sheet of the
22
Corporation at the end of such fiscal year, together with comparisons
to the balance sheet of the Corporation at the end of the prior fiscal
year and to the current Budget, (B) the audited statements of income
and cash flows of the Corporation for such fiscal year, together with
comparisons to the statements of income and cash flows of the
Corporation for the prior fiscal year and to the current Budget, and
(C) an audit report of Ernst & Young, independent certified public
accountants, on such balance sheets and statements; and
(iv) any other financial and operating data and other information
relating to the Corporation and each Subsidiary as any Purchaser may
reasonably request;
(v) all information made available to the Corporation's
shareholders or directors, at the same time as such information is
delivered to such persons; and
(vi) monthly management reports in a form reasonably acceptable
to Purchasers.
(b) All financial information to be delivered under this Section shall
be in accordance with the books and records of the Corporation and shall
have been prepared in accordance with GAAP, subject to year-end and audit
adjustments.
7.8. Payment of Obligations.
The Corporation shall, and shall cause each Subsidiary to, pay or discharge
or cause to be paid or discharged all material claims or demands, and all Taxes
levied or imposed upon the Corporation or its Subsidiaries or upon the income,
profits or property of the Corporation or its Subsidiaries; provided, however,
that the Corporation or such Subsidiary shall not be required to pay or
discharge or cause to be paid or discharged any such claim, demand, or Tax the
amount, applicability or validity of which is being contested in good faith by
appropriate proceedings and for which adequate provision has been made.
7.9. Insurance.
The Corporation shall, and shall cause each Subsidiary to, maintain with
financially sound and reputable insurers such insurance as may be required by
law and such other insurance, to such extent and against such hazards and
liabilities, as is customarily maintained by companies similarly situated and
exercising sound business practice.
7.10. Certain Notices.
The Corporation shall promptly notify the Purchaser of (i) the commencement
or notice of any threat of any Proceeding, dispute or grievance against or
affecting the Corporation, which, if adversely determined, might reasonably be
expected to have a Material Adverse Effect, (ii) any material default under any
indebtedness of the Corporation and (iii) any material default or breach under
any of the items required to be listed on Schedule 4.10(a) or any of the items
which would have been required to be listed on Schedule 4.10(a) if such item
were effective prior to the date hereof.
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7.11. Conduct of Business.
The Corporation shall (i) take all actions required to assure that the
Corporation remains duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation, (ii) take all actions
required to assure that the Corporation maintains all Permits to conduct its
business, and (iii) conduct its business in compliance with all Laws.
7.12. Related Transactions.
Excluding any existing arrangements between Silicon Graphics, Inc. and MCI
WorldCom, Inc., the Corporation shall not directly or indirectly enter into any
transaction with any Related Party, other than any transaction entered into in
the ordinary course of business and on terms and conditions not less favorable
to the Corporation as the terms and conditions which would apply in a similar
transaction negotiated on an arms-length basis with a party that is not a
Related Party. "Related Party" means (a) each current or future director or
executive officer of the Corporation, (b) each parent, sibling, spouse, or
descendant of any of the foregoing, (c) each entity of which any of the
foregoing is a director, officer, partner or holder of more than 10% of the
outstanding voting power of any class of capital stock and (d) any person or
entity which is the beneficial owner of 5% or more of the outstanding voting
power of the Corporation.
7.13. Internal Controls; Accountants Review.
(a) Internal Controls.
The Corporation maintains and will continue to maintain a system of
internal accounting controls sufficient to provide reasonable assurances
that: (i) transactions are executed in accordance with management's general
or specific authorization, (ii) transactions are recorded as necessary in
order to permit preparation of financial statements in accordance with
generally accepted accounting principles and to maintain accountability for
assets and (iii) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(b) Accountants Review.
The Corporation will cause its independent accountants to review the
Corporation's unaudited financial statements on a quarterly basis and issue
a certificate to the Corporation certifying that such accounting firm has
read the unaudited financial statements of the Corporation and has made
inquiries of certain officials of the Corporation who have responsibility
for financial and accounting matters regarding the unaudited financial
statements and that based upon the foregoing procedures, nothing has come
to the accounting firm's attention that would lead them to believe that
such unaudited financial statements (A) do not comply as to form in all
material respects with the applicable accounting requirements of the
Securities Act and the related published rules and regulations thereunder
and (B) are not in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the Corporation's
audited financial statements.
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7.14. Board Designees.
The Corporation shall expand the number of members on its Board of
Directors ("Board") by two. Each of the two Purchasers that purchase the largest
number of Class E Preferred Stock pursuant to this Agreement shall be entitled
to appoint one member to the Board for so long as such Purchaser continues to
own Shares and/or Conversion Shares which together represent at least 40% of the
number of shares of Common Stock issuable upon conversion or redemption of the
Class E Preferred Stock initially purchased by such Purchaser (without giving
effect to anti-dilution rights in the Class E Certificate of Designation). The
persons so elected to be members of the Board shall be entitled to serve on each
of the Audit, Compensation, Nominating and any other committee created by the
Board; provided, however, that in the event any such committee fails to satisfy
specific requirements under the rules and regulations of the Securities and
Exchange Commission any exchange or trading system due to such persons
affiliations, such person will agree to serve solely as an observer of such
committee. Such appointed directors shall be entitled to receive the same
compensation that is paid to other non-management Board members and committee
members and shall be entitled to receive reimbursement for all reasonable costs
incurred in attending such meetings, including, but not limited to, food,
lodging and transportation. To the extent permitted by law, the Corporation will
indemnify such persons and the Purchasers who elected such persons for the
actions of such persons as members of the Board and/or any committee thereof,
unless such actions are found by a court of law to have been grossly and
intentionally negligent. As long as such persons remain as members of the Board,
the Corporation will maintain director and officer insurance policies in amounts
and on terms, which are reasonable for companies similarly situated to the
Corporation and, reasonably acceptable to the Purchasers that appointed such
designees. Any vacancy in the position of a director appointed pursuant to this
Section 7.14 shall be filled by and only by the Purchaser that appointed the
director whose position has become vacant. Each such director may, during his or
her term of office, be removed at any time, with or without cause, by and only
by the Purchaser who appointed such director.
In addition, any Purchaser making an initial investment of $20 million or
more of the Class E Preferred Stock who does not have a member of its
organization serving on the Board at the time of such Board or Committee
meeting, will have the right to appoint a non-voting Board observer with full
information rights. This right shall continue for so long as such Purchaser
continues to own Shares and/or Conversion Shares which together represent at
least 20% of the number of shares of Common Stock issuable upon conversion or
redemption of the Class E Preferred Stock initially purchased by such Purchaser
(without giving effect to anti-dilution rights). Such observer shall be entitled
to be reimbursed for all reasonable, customary expenses associated with
attending the Board meetings, but shall not be entitled to any other form of
compensation.
The Corporation shall give written notice, to the Purchaser who nominated a
person to be a Board member and/or observer and to such persons and observers,
of each Board meeting and shall provide to such persons an agenda and minutes of
such Board meeting no later than it gives such notice and provides such items to
the other Board members.
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7.15. Indenture.
The Corporation will not amend, waive, or modify, or seek to amend, waive,
or modify, any provision of the Indenture dated as of March 5, 1998, which
regards the Corporation's 13 1/4% Senior Discount Notes due 2005, without the
prior written consent of Winstar which consent will not be unreasonably
withheld.
7.16. Tag-Along Agreements.
Prior to the Closing the Corporation will use its commercially reasonable
best efforts to cause the Purchasers to be joined as parties to the Tag-Along
Rights Agreements entered into (i) among the Corporation, Silicon Graphics, Inc.
and MCI WorldCom, Inc. dated March 4, 1999; (ii) two separate tag-along
agreements regarding the Corporation, Silicon Graphics, Inc., MCI WorldCom,
Inc., and CCPRE-▇▇▇▇▇ LLC, each dated September 30, 1999; and (iii) the Right of
First Refusal Agreement dated December 16, 1996 among ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇▇▇ and MCI WorldCom, Inc. (collectively "Restricted Stock Agreements").
7.17. [Reserved.]
7.18. Consents.
Prior to the Closing, the Corporation shall use its commercially reasonable
best efforts to obtain all consents and approvals of third parties, if any,
required to consummate the transactions contemplated by this Agreement so that
such consummation shall not conflict with or cause a breach of or default under
any agreement or other obligation binding upon the Corporation, including
without limitation all such consents and approvals required with respect to its
obligations for borrowed money and under its Articles of Incorporation and
Certificates of Designation.
Section 8. Registration Rights of the Purchasers.
8.1. Demand Registration.
(a) Grant of Right. The Corporation agrees to register on two
occasions, upon written demand ("Initial Demand Notice") of any Purchaser,
all or any portion of the Conversion Shares, regardless of whether the
Shares or Option Shares have been converted (the "Registrable Securities").
The Corporation will file a registration statement covering the Registrable
Securities within 60 days after receipt of the Initial Demand Notice and
use its best efforts to have such registration statement declared effective
promptly thereafter. The demand for registration may be made at any time
during a period commencing on the earlier of (i) the six month anniversary
of the consummation of the Corporation's initial public offering of its
Common Stock, and (ii) the one year anniversary of the date Shares are
first issued. The Corporation covenants and agrees to give written notice
of its receipt of any Initial Demand Notice by any Purchaser to all other
Purchasers within ten days from the date of the receipt of any such Initial
Demand Notice.
26
(b) Terms. The Corporation shall bear all fees and expenses attendant
to registering the Registrable Securities, including the expenses of one
legal counsel selected by the Purchasers to represent them in connection
with the sale of the Registrable Securities but not including any and all
underwriting commissions and discounts which will be the responsibility of
the Purchasers participating in the underwriting. The Corporation will
qualify or register the Registrable Securities in such states as are
reasonably requested by the Purchasers. The Corporation shall cause any
registration statement filed pursuant to the demand rights granted under
this Section to remain effective with respect to the Registrable Securities
covered by such registration statement until all such securities have been
sold.
8.2. "Piggy-Back" Registration.
(a) Grant of Right. The Purchasers shall have the right at any time
and from time to time to include the Registrable Securities as part of any
other registration of securities filed by the Corporation (other than
pursuant to Form ▇-▇, ▇▇▇▇ ▇-▇ or any equivalent forms or in connection
with the Corporation's initial public offering to the extent that no other
selling shareholder is included in the registration statement).
Notwithstanding the foregoing, if, in the written opinion of the managing
underwriter or underwriters of a public offering by the Corporation of its
shares of Common Stock, the inclusion of the Registrable Securities, when
added to the securities being registered by the Corporation, will exceed
the maximum amount of the Corporation's securities that can be marketed
without materially and adversely affecting the entire offering, then (i)
the Corporation will include in such registration first, only those
securities, the holders of which as of the date hereof have priority
piggy-back registration rights (as listed on Schedule 8.2), second, the
Registrable Securities allocated (if necessary) among the holders thereof
on a pro rata basis based on the number of Registrable Securities requested
to be included in such registration statement, and third, capital stock of
the Corporation to be sold for the account of others with applicable
piggy-back registration rights, with such priorities among them as the
Corporation shall decide. If, subsequent to the exercise of all of the
demand registration rights referred to in Section 8.1, any Registrable
Securities requested to be included in an offering ("Other Offering")
pursuant to the "piggy-back" rights described in this Section 8.2. are not
so included because of the operation of the first proviso of the preceding
sentence, then the holders of the Registrable Securities shall have the
right to require the Corporation, at its expense, to prepare and file a
registration statement under the Securities Act covering such Registrable
Securities.
(b) Terms. The Corporation shall bear all fees and expenses attendant
to registering the Registrable Securities, including the expenses of any
legal counsel selected by the Holders to represent them in connection with
the sale of the Registrable Securities, but the Purchasers participating in
the registration shall pay any and all discounts and underwriting
commissions. In the event of such a proposed registration, the Corporation
shall furnish the owners of the Registrable Securities with not less than
30 days written notice prior to the proposed date of filing of such
registration statement. Such notice shall continue to be given for each
registration statement filed by the Corporation until such time as all of
the Registrable Securities have been sold by the Purchaser. The owners of
the Registrable Securities shall exercise the "piggy-back" rights provided
for herein by giving written notice within 15 days of the receipt of the
Corporation's notice of its intention to file a registration statement. The
27
Corporation shall cause any registration statement filed pursuant to the
"piggyback" rights granted under this Section to remain effective with
respect to the Registrable Securities covered by such registration
statement until all of the such securities have been sold by the
Purchasers. Notwithstanding the foregoing, in no event shall the
Corporation be obligated to maintain the effectiveness of any registration
statement filed pursuant to Sections 8.1 and 8.2 for a period in excess of
seven years from the initial date of issuance of the Shares.
8.3. General Terms.
(a) Indemnification. The Corporation shall indemnify the owner(s) of
the Registrable Securities to be sold pursuant to any registration
statement hereunder and each person, if any, who controls such person
within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, against all loss, claim, damage, expense or liability
(including all reasonable attorneys' fees and other expenses reasonably
incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Securities
Act, the Exchange Act or otherwise, arising from such registration
statement, except to the extent that any loss, claim, damage, expense or
liability arises out of or relates to written information furnished by or
on behalf of such Purchaser, for inclusion in such registration statement
("Purchaser Information"). The owner(s) of the Registrable Securities to be
sold pursuant to such registration statement, and their successors and
assigns, shall severally, and not jointly, indemnify the Corporation
against all loss, claim, damage, expense or liability (including all
reasonable attorneys' fees and other expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to
which it may become subject under the Securities Act, the Exchange Act or
otherwise, arising from Purchaser Information furnished by or on behalf of
such owner(s).
(b) Exercise of Shares. Nothing contained in this Section 8 shall be
construed as requiring the Purchaser(s) to convert their Shares or Option
Shares, as the case may be, prior to or after the filing of any
registration statement or the effectiveness thereof.
(c) Documents Delivered to Holders. The Corporation shall deliver
promptly to the Purchaser participating in any of the foregoing offerings
who requests it, all correspondence between the Securities and Exchange
Commission and the Corporation, its counsel or auditors and all memoranda
relating to discussions with the Securities and Exchange Commission or its
staff with respect to the registration statement. The Corporation also
shall furnish to the Purchaser participating in any of the foregoing
offerings that are underwritten, and to each underwriter of any such
offering, a signed counterpart, addressed to such Purchaser and
underwriter, of (i) an opinion of counsel to the Corporation, dated the
effective date of such registration statement (and an opinion dated the
date of the closing under the underwriting agreement relating to such
offering), and (ii) a "cold comfort" letter dated the effective date of
such registration statement (and a letter dated the date of the closing
under the underwriting agreement) signed by the independent public
accountants who have issued a report on the Corporation's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement
(and the prospectus included therein) and, in the case of such accountants'
letter, with respect to events subsequent to the date of such financial
statements, as are customarily covered in opinions of issuer's counsel
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and in accountants' letters delivered to underwriters in underwritten
public offerings of securities. In the event that any Purchaser requests
information pursuant to this Section (c), then, prior to furnishing such
information, the Corporation shall have the right to require the Purchaser
to enter into a confidentiality agreement with the Corporation with respect
to any information to be provided to the Purchaser that the Corporation
reasonably considers to be proprietary, non-public or otherwise
confidential.
8.4. Underwriting Agreement.
In the event that the demand registration filed by the Purchasers pursuant
to Section 8.1(a) is for an underwritten offering, then the Purchasers
participating in such registration shall have the right to select the
underwriters of the offering, which underwriters shall be reasonably acceptable
to the Corporation. The Corporation shall enter into an underwriting agreement
with the managing underwriter selected by the Purchasers whose Registrable
Securities are being registered pursuant to Section 8.1. Such agreement shall be
reasonably satisfactory in form and substance to the Corporation, each such
person and such managing underwriter, and shall contain such representations,
warranties and covenants by the Corporation and such other terms as are
customarily contained in agreements of that type used by the underwriter. Such
persons shall be parties to any underwriting agreement relating to an
underwritten sale of their Registrable Securities and may, at their option,
require that any or all of the representations, warranties and covenants of the
Corporation to or for the benefit of such underwriter shall also be made to and
for the benefit of such persons. Such persons shall not be required to make any
representations or warranties to or agreements with the Corporation or the
underwriter except as they may relate to such persons, their shares and their
intended methods of distribution.
8.5. Road Show.
In connection with any underwritten public offering concerning a Purchaser,
the Corporation will participate in road-shows regarding such offering.
8.6. Registration of Winstar Shares.
The Corporation shall have "piggy back" registration rights to include the
Winstar Shares as part of any registration of securities filed by Winstar in the
same manner as the Purchasers have rights with respect to Registrable Securities
pursuant to Sections 8.2 and 8.3. For the purposes of the rights granted to the
Corporation pursuant to this Section 8.6, the provisions of Sections 8.2 and 8.3
shall apply with all references therein to the Purchasers, the Corporation and
Registrable Securities being interpreted as being references to the Corporation,
Winstar and the Winstar Shares, respectively.
Section 9. Conditions to Each Closing.
9.1. Conditions of Each Party.
The respective obligations of each of the Corporation and the Purchaser to
consummate the transactions contemplated hereby are subject to the fulfillment,
at or prior to each of the
29
Closing, and the Option Closing, if any, of each of the following conditions,
any or all of which may be waived in whole or in part to the extent permitted by
applicable law;
(a) All filings required to be made, and all consents, approvals,
permits and authorizations required to be obtained, prior to each of the
Closing and the Option Closing, if any, from any Governmental Authorities
in connection with the execution and delivery by the parties of the
Documents and the consummation of the transactions contemplated thereby
shall have been made or obtained; and
(b) No court or governmental or regulatory authority of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered
any statute, rule, regulation, judgment, decree, injunction or other order
(whether temporary, preliminary or permanent) or taken any action that
prohibits the consummation of the transactions contemplated by this
Agreement; provided, however, that any party invoking this condition shall
use its reasonable best efforts to have any such judgment, decree,
injunction or order vacated.
9.2. Conditions to Obligations of the Purchasers.
The obligations to be performed by the Purchasers under this Agreement at
or after the Closing are subject to the satisfaction at or prior to each of the
Closing and the Option Closing, if any, of the following conditions, unless
waived by the Purchasers:
(a) Material Adverse Effect. There shall not have been any event which
has or is reasonably likely to have a Material Adverse Effect.
(b) Accuracy of Representations and Warranties. Each of the
representations and warranties of the Corporation contained in this
Agreement and in any certificate or other writing delivered by the
Corporation pursuant hereto qualified as to materiality shall be true and
correct, and those not so qualified shall be true and correct in all
material respects, in each case at and as of the Closing Date and the
Option Closing Date, if any, as if made at and as of such respective times
(except to the extent it relates to a particular date).
(c) Performance of Covenants. The Corporation shall have performed in
all material respects all covenants and agreements required to be performed
by it under this Agreement and each other Document.
(d) Class E Certificate of Designations. Prior to the Closing, the
Class E Certificate of Designations shall have been filed with and accepted
by the Secretary of State of the State of Minnesota and shall have become
effective.
(e) Lock-Up Agreement. At the Closing, the Shareholders listed on
Exhibit B hereto, each of whom beneficially own in excess of 10% of the
Corporation's outstanding Common Stock, shall have executed and delivered
to the Corporation, a Lock-Up Agreement in the form attached as Exhibit B
hereto.
30
(f) Stock Certificates. At each of the Closing and the Option Closing,
if any, Stock certificates representing the Class E Preferred Stock sold at
such closing shall have been delivered by the Corporation to the Purchaser
in accordance with Schedule I.
(g) Use of Proceeds. At each of the Closing and the Option Closing, if
any, the Purchaser shall have received a certificate of the Corporation
describing in reasonable detail the proposed use of proceeds received by
the Corporation upon the sale of the Shares and the Option Shares, if any,
including the immediate repayment of all amounts due under the Foothill
Capital Corporation loan.
(h) Legal Opinion. Winstar shall have received an opinion dated as of
the Closing Date and the Option Closing Date, if any, of ▇▇▇▇▇▇▇ ▇▇▇▇ &
▇▇▇▇▇▇▇▇▇, in a form and substance attached hereto as Exhibit C.
(i) Officer's Certificate. At each of the Closing and the Option
Closing, if any, the Purchaser shall receive a certificate from an officer
of the Corporation to the effect that all conditions set forth in this
Section 92 shall have been satisfied.
(j) Required Consents and Approvals. Prior to the Closing Date, the
Corporation shall have received all consents and approvals of third
parties, if any, required to consummate the transactions contemplated by
this Agreement so that such consummation shall not conflict with or cause a
breach of or default under any agreement or other obligation binding upon
the Corporation, including without limitation all such consents and
approvals required with respect to its obligations for borrowed money and
under its Articles of Incorporation and Certificates of Designation.
9.3. Conditions to Obligations of the Corporation.
The obligations to be performed by the Corporation under this Agreement at
or after the Closing are subject to the satisfaction at or prior to the Closing
and the Option Closing, if any, of the following conditions, unless waived by
the Corporation:
(a) Accuracy of Representations and Warranties. Each of the
representations and warranties of the Purchaser contained in this Agreement
and in any certificate or other writing delivered by the Purchaser pursuant
hereto qualified as to materiality shall be true and correct, and those not
so qualified shall be true and correct in all material respects, in each
case at and as of the Closing Date and the Option Closing Date, if any, as
if made at and as of such respective times (except to the extent it relates
to a particular date);
(b) Performance of Covenants. The Purchaser shall have performed in
all material respects all covenants and agreements required to be performed
by it under this Agreement and each other Document to which it is a party.
(c) Legal Opinion. The Corporation shall have received an opinion
dated as of the Closing Date and the Option Closing, if any, of ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ & ▇▇▇▇▇▇, in form and substance attached hereto as Exhibit D.
31
Section 10. Termination.
This Agreement may be terminated and the transactions contemplated hereby
may be abandoned at any time prior to the Closing:
(a) by joint written agreement of the Corporation and the Purchaser;
(b) by the Corporation, if any Purchaser has breached any
representation, warranty, covenant or agreement contained in this Agreement
and has not cured such breach within ten (10) business days after written
notice to Winstar (provided that the Corporation is not then in material
breach of the terms of this Agreement; and provided further that no cure
period shall be required for a breach which by its nature cannot be cured);
(c) by any Purchaser, if the Corporation has breached any
representation, warranty, covenant or agreement contained in this Agreement
and has not cured such breach within ten (10) business days after written
notice to the Corporation (provided that such Purchaser is not then in
material breach of the terms of this Agreement; and provided further that
no cure period shall be required for a breach which by its nature cannot be
cured);
(d) by any party, if the Closing has not occurred on or before March
31, 2000; provided, however, that a party may not terminate this Agreement
pursuant to this Section if the failure of such party to fulfill any of its
obligations hereunder shall have been the principal reason that the Closing
shall not have occurred on or before said date;
(e) by any party if there shall be a change of law or regulation that
makes consummation of the transactions contemplated hereby illegal or
otherwise prohibited or if consummation of the transactions contemplated
hereby would violate any nonappealable, final order, decree or judgment of
any court or governmental body having competent jurisdiction; or
(f) by Winstar Sub if one or more of the other Purchasers defaults in
its or their obligations to purchase the Shares or Option Shares set forth
next to its name on Schedule I, provided, however, that Winstar Sub shall
have a right, but not the obligation, to cure such default by finding an
alternative Purchaser. The Closing Date or Option Closing Date, as the case
may be, shall be delayed an additional five (5) business days to permit
Winstar Sub sufficient time to conduct such search. ("Closing Failure").
The party desiring to terminate this Agreement pursuant to the above-referenced
clauses shall give notice of such termination to the other parties hereto.
10.1. Effect of Termination.
(a) If this Agreement is terminated, such termination shall be without
liability of either party (or any shareholder, director, officer, employee,
agent, consultant or representative of such party) to the other parties to
this Agreement; provided that if such termination shall result from the (i)
willful failure by any party to fulfill a condition to the performance of
the obligations of the other parties, (ii) failure by any party to perform
a covenant of this Agreement, (iii) breach by any party hereto of any
representation, warranty, covenant or agreement contained herein, or
32
(iv) a Closing Failure by any party, such party shall be fully liable for
any and all damages incurred or suffered by the other parties as a result
of such failure or breach.
(b) Several Obligations. The obligations of the Purchasers hereunder
are several. No Purchaser shall be responsible for the obligations of, or
any action taken or omitted by, any other Purchaser hereunder.
Section 11. Miscellaneous
11.1. Survival.
The representations, warranties, covenants and other agreements contained
herein, shall survive the Closing, the Option Closing, if any, and the
consummation of the transactions contemplated hereby. No right of the Purchasers
for indemnification hereunder shall be affected by any examination made for or
on behalf of the Purchasers, the knowledge of any of the Purchasers' officers,
directors, shareholders, employees or agents, or the acceptance by the
Purchasers of any certificate or opinion.
11.2. Indemnification.
(a) The Corporation shall indemnify, defend and hold each Purchaser
and its officers, directors, employees, shareholders, partners, members,
affiliates and agents harmless against all Liability, loss or damage,
together with all reasonable costs and expenses related thereto (including
reasonable legal fees and expenses), relating to or arising from the
untruth, inaccuracy or breach of any of the representations, warranties or
agreements of the Corporation contained in this Agreement.
(b) Each Purchaser shall indemnify, defend and hold the Corporation
and the other Purchasers and their respective officers, directors,
employees, shareholders, partners, members, affiliates and agents harmless
against all Liability, loss or damage, together with all reasonable costs
and expenses related thereto (including reasonable legal fees and
expenses), relating to or arising from the untruth, inaccuracy or breach of
any of the representations, warranties or agreements of such Purchaser
contained in this Agreement.
(c) Promptly after receipt by any party entitled to indemnification
under either Section 11.2(a) or Section 11.2(b) (an "indemnified party") of
notice of the commencement of any action involving a claim which may give
rise to a claim for indemnity under the preceding paragraphs of this
Section, the indemnified party will give written notice to the party
against whom indemnification is sought (the "indemnifying party") of the
commencement of such action. In case any such action is brought against an
indemnified party, the indemnifying party will be entitled to participate
in and to assume the defense thereof, jointly with any other indemnifying
party similarly notified to the extent that it may wish, with counsel
reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not be responsible
for any legal or other expenses subsequently incurred by the indemnified
party in connection with the defense thereof; provided, however, that if
any indemnified party shall have reasonably
33
concluded that there may be one or more legal or equitable defenses
available to it which are additional to or conflict with those available to
the indemnifying party, or that such claim or litigation involves or could
have an effect upon matters beyond the scope of the indemnity agreement
provided in this Section, the indemnifying party shall not have the right
to assume the defense of such action on behalf of the indemnified party and
the indemnifying party shall reimburse the indemnified party and any person
controlling the indemnified party for that portion of the fees and expenses
of any counsel retained by the indemnified party which is reasonably
related to the matters covered by the indemnity agreement provided in this
Section.
(d) If the indemnification provided for in this Section is held by a
court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, claim, damage, liability or action referred to
herein, then the indemnifying party, in lieu of indemnifying the
indemnified party hereunder, shall contribute to the amounts paid or
payable by the indemnified party as a result of such loss, claim, damage,
liability or action in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements or
omissions which resulted in such loss, claim, damage or liability as well
as any other relevant equitable considerations. The amount paid or payable
to an indemnified party as a result of the losses, claims, damages,
liabilities or expenses referred to above shall be deemed to include any
legal or other expenses reasonably incurred in connection with
investigating or defending the same.
(e) The indemnification provided for under this Agreement will remain
in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling
person of the indemnified party and will survive the transfer of
securities.
11.3. Fees and Expenses.
The Corporation shall pay or reimburse the Purchasers for all out-of-pocket
fees and expenses incurred by them in connection with the transactions
contemplated by this Agreement, including reasonable fees and charges of
Winstar's legal counsel and accountants (which out-of-pocket fees and expenses
shall be limited with respect to Winstar and Winstar Sub to a maximum of $30,000
through the Closing or any Option Closing). Such payment or reimbursement shall
be made at the Closing. After the Closing, all out-of-pocket fees and expenses
of any Purchaser in connection with this Agreement shall be paid at the Option
Closing.
11.4. Assignment; Parties in Interest.
This Agreement shall bind and inure to the benefit of the parties and each
of their respective successors and permitted assigns (it being understood that
this Agreement may be assigned by the Purchasers without the consent of any
person solely in connection with the transfer of Shares).
34
11.5. Entire Agreement.
This Agreement (including all Schedules and Exhibits hereby) together with
the other Documents contain the entire understanding of the parties with respect
to the subject matter hereof and supersedes all prior agreements and
understandings among the parties with respect to such subject matter.
11.6. Notices.
All notices, claims, certificates, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered or if sent by nationally-recognized overnight
courier, by telecopy, or by registered or certified mail, return receipt
requested and postage prepaid, addressed as follows:
(a) if to the Corporation:
WAM!NET INC.
▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, III, President
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to the Purchasers:
Winstar Communications, Inc.
Winstar Credit Corp.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Executive Vice President
Or to the addresses of the other Purchasers set forth next to their name
appearing on the signature page hereto.
35
In any case, with a copy to:
▇▇▇▇▇▇▇▇, Mollen & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, Esq.
or to such other address as the party to whom notice is to be given may have
furnished to the other parties in writing in accordance herewith. Any such
notice or communication shall be deemed to have been received (a) in the case of
personal delivery, on the date of such delivery, (b) in the case of
nationally-recognized overnight courier, on the next business day after the date
when sent, (c) in the case of telecopy transmission, when received, and (d) in
the case of mailing, on the date of receipt.
11.7. Amendments.
The terms and provisions of this Agreement may only be modified or amended
pursuant to an instrument signed by all of the parties hereto.
11.8. Counterparts.
This Agreement may be executed in any number of counterparts, and each such
counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
11.9. Headings.
The section and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.10. Governing Law.
Except as to matters governed by the MBCA, this Agreement shall be governed
by and construed in accordance with the domestic laws of the State of New York,
without giving effect to any law or rule that would cause the laws of any
jurisdiction other than the State of New York to be applied.
11.11. Jurisdiction.
The parties hereto agree that any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in connection
with, this Agreement or the transactions contemplated hereby may only be brought
in the United States District Court for the Southern District of New York or any
New York State court sitting in New York City, and each of the parties hereby
consents to the exclusive jurisdiction of such courts (and of the appropriate
appellate courts therefrom) in any such suit, action or proceeding and
irrevocably waives, to the
36
fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such suit, action or proceeding in any
such court or that any such suit, action or proceeding which is brought in any
such court has been brought in an inconvenient forum. Process in any such suit,
action or proceeding may be served on any party anywhere in the world, whether
within or without the jurisdiction of any such court. Without limiting the
foregoing, each party agrees that service of process on such party as provided
in the Section entitled "Notices" shall be deemed effective service of process
on such party.
11.12. No Waiver.
No delay by or on behalf of an Purchaser in exercising any rights conferred
hereunder, and no course of dealing between an Purchaser and the Corporation
shall operate as a waiver of any right granted hereunder, unless expressly
waived in writing by the party whose waiver is alleged.
11.13. Binding Effect
All covenants, representations, warranties and other stipulations in this
Agreement and other documents referred to herein, given by or on behalf of any
of the parties hereto, shall bind and inure to the benefit of the respective
successors, heirs, personal representatives and assigns of the parties hereto.
11.14. Cumulative Powers.
No remedy herein conferred upon the Purchasers or any holder of the Class E
Preferred Stock is intended to be exclusive of any other remedy, and each such
remedy shall be cumulative and in addition to every other remedy given hereunder
or now or hereafter existing at law, or in equity or by statue or otherwise.
37
IN WITNESS WHEREOF, the parties have executed and delivered this Stock
Purchase Agreement on the date first above written.
WAM!NET INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, III
-----------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, III
Title: President
Address: ▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
WINSTAR COMMUNICATIONS, INC.
By: /s/ ▇▇▇▇▇▇▇. ▇. ▇▇▇▇▇▇
-----------------------------------
Name: ▇. ▇. ▇▇▇▇▇▇
Title: Executive Vice President
Address: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
WINSTAR CREDIT CORP.
By: /s/ ▇▇▇▇▇▇▇. ▇. ▇▇▇▇▇▇
-----------------------------------
Name: ▇. ▇. ▇▇▇▇▇▇
Title: President
Address: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
38
Index
-----
Exhibit A Statements of Rights and Preferences of Class
E Preferred Stock
Exhibit B Lock-Up Agreement
Exhibit C ▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ Legal Opinion
Exhibit ▇ ▇▇▇▇▇▇▇▇ Mollen & ▇▇▇▇▇▇ Legal Opinion
Schedule I Purchaser List
Schedule II Certain Management
Schedule 4.1(a) Articles of Incorporation and Bylaws
Schedule 4.1(b) List of Subsidiaries
Schedule 4.5(a) Designation and Classes of Capital Stock
Schedule 4.5(a)(vi) Right of First Refusal Agreements
Schedule 4.5(b) Options, Warrants and Convertible Securities
Schedule 4.5(c)(i) Purchase Agreements
Schedule 4.5(c)(ii) Registration Rights Agreements
Schedule 4.5(e) Record Holders
Schedule 4.7 Financial Statements
Schedule 4.10(a) Material Contracts
Schedule 4.12 Real Property
Schedule 4.13 Intellectual Property
Schedule 4.14 License to Provide Communications Services
Schedule 4.15 Litigation
Schedule 4.18 Employee Pension Benefit Plans
Schedule 4.20 Related Transactions
Schedule 8.2 Piggy-back Registration Rights
SCHEDULE I
----------
Column A Column B Column C
-------- -------- --------
Names and Addresses Class E Preferred Purchase Price
of Purchaser Stock Purchased Paid by Cash Purchase Price In Kind
------------------- ----------------- --------------- ----------------------
Winstar Credit Corp. 50,000 - 0 - $50,000,000 of Winstar
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ Communications, Inc. common
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ stock (which consists of
714,286 shares of Winstar
Communications, Inc. common
stock)