AGREEMENT OF EXISTING PARTNERS
OF RACKSPACE, LTD. TO FACILITATE PUBLIC OFFERING
This Agreement is made this 27 day of March, 2000, by and between
Rackspace, Ltd. ("Rackspace" or the "Company" or the "Partnership") and all of
its present partners (which include Red Hat, ▇▇▇▇▇▇ ▇▇▇▇▇▇ and Norwest, as
defined below), all of whom are signatories to this Agreement (the "Partners").
▇▇▇▇▇▇▇▇▇.▇▇▇, Inc., a newly formed, Delaware corporation, is also made a party
to this Agreement ("New Rackspace"). In addition, ▇▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇
are made parties to this agreement with respect to the partnership interests
held by them as assignees.
NEW INVESTORS TO BE INCLUDED
Under the terms of the Fourth Amendment to Agreement of Limited
Partnership of Rackspace, Ltd., it is expressly contemplated that the General
Partner may cause Rackspace to issue up to 530,035.34 Class C Units (the
"Additional Units") to one or more additional persons or entities (the "New
Investors"), provided that the aggregate purchase price per Unit is not less
than $5.66 per Unit. The General Partner may also issue to the New Investors a
warrant to purchase an amount of Class C Units determined by dividing $3,000,000
by the greater of the $18.24 or the mid-point in the filing range (the
"Mid-point") set forth in the preliminary prospectus (commonly referred to as
the "red ▇▇▇▇▇▇▇") which is first circulated by the Company. It is the
intention and agreement of the parties hereto that such New Investors shall have
the benefits and obligations of the Holders as set forth herein, and that they
may become signatories to this Agreement without any further consent or
agreement of the parties to this agreement.
CERTAIN REFERENCES
The Agreement of Limited Partnership of Rackspace, Ltd. and the four existing
amendments thereto, are sometimes collectively referred to herein as the
"Partnership Agreement." The Registration Rights Agreement dated November 30,
1999, as amended on February 22, 2000 is referred to as the "Rights Agreement."
The Support Agreement dated December 29, 1998, as amended on November 30, 1999
and again on February 22, 2000 is referred to as the "Support Agreement." For
the purposes of this agreement, ▇▇▇▇▇▇▇ ▇▇▇ is referred to as "Yoo," ▇▇▇ ▇▇▇▇▇▇
is referred to as "▇▇▇▇▇▇," ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ is referred to as "Elmendorf," Trout,
Ltd. is referred to as "Trout," Macroweb, LC is referred to as the "General
Partner," First Inning Investors, L.P., is referred to as "First Inning," ▇▇▇▇
Capital Partners I, L.P. is referred to as "▇▇▇▇," The ▇▇▇▇▇▇▇▇ Companies LLC is
referred to as "▇▇▇▇▇▇▇▇," ▇▇▇▇▇▇▇▇ River Capital LC is referred to as
"▇▇▇▇▇▇▇▇," MiniPat & Company, Ltd. is referred to as "MiniPat," 2M Technology
Ventures, L.P., is referred to as "2M," Trango Capital, L.L.C. is referred to as
"Trango,"Red Hat, Inc. is referred to as "Red Hat," Norwest Venture Partners
VII, L.P. is referred to as "Norwest," Tailwind Capital Partners 2000, L.P. is
referred to as "▇▇▇▇▇▇ ▇▇▇▇▇▇," ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ is referred to as "Weston,"
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ is referred to as
1
"▇▇▇▇▇▇," ▇▇▇▇▇ ▇▇▇▇ is referred to as "▇▇▇▇" and ▇▇▇▇▇ ▇▇▇▇▇▇ is referred to
herein as "▇▇▇▇▇▇." The Partners, ▇▇▇▇, ▇▇▇▇▇▇ and the New Investors are
sometimes collectively referred to herein as the "Holders."
PURPOSE OF AGREEMENT
This Agreement is made by and amongst Rackspace, New Rackspace, the Holders and
the New Investors, if any, to satisfy certain requirements and follow certain
recommendations of the Underwriters (defined below) and to facilitate the
registration and sale of the stock of New Rackspace in a public offering
registered under the Securities Act of 1993 (inclusive of the sale of such
stock, the "IPO") underwritten by Deutsche Bank, Securities, Inc., Bear, ▇▇▇▇▇▇▇
& Co. Inc. and ▇▇▇▇▇▇ ▇▇▇▇▇▇ Partners LLC and certain other underwriters (the
"Underwriters"). The IPO will benefit the Holders as they will become
shareholders of New Rackspace pursuant to the terms of this Agreement. This
Agreement is entered into contemporaneously with the execution of the Fourth
Amendment of the Partnership Agreement, whereby Red Hat, ▇▇▇▇▇▇ ▇▇▇▇▇▇ and
Norwest become Class C Limited Partners of the Partnership.
ACTIONS TO BE TAKEN UNDER THIS AGREEMENT
END OF OPTION RIGHTS. The Underwriters have requested that Weston, Miller,
Condon, Elmendorf and Yoo end their rights under Section 17 of the Second
Amendment to the Partnership Agreement to forego salary and receive options to
acquire additional interests in the Company (and New Rackspace, its successor).
If these rights are not terminated, these individuals will have the right to
acquire a substantial amount of New Rackspace's stock at prices substantially
below market value which will likely result in large earnings charges against
New Rackspace. Weston, Miller, Condon, Elmendorf and Yoo have agreed to waive
these rights.
REGISTRATION RIGHTS. Certain of the Partners have demand and piggyback
registration rights under the terms of the Rights Agreement. Red Hat, Norwest,
▇▇▇▇▇▇ ▇▇▇▇▇▇ and the New Investors do not have such registration rights,
whether demand rights or piggyback rights. The parties desire to amend the
existing Rights Agreement to include Red Hat, Norwest, ▇▇▇▇▇▇ ▇▇▇▇▇▇ and the New
Investors as Investors under the Registration Rights Agreement.
CONVERSION TO CORPORATION. The General Partner has broad powers to cause the
Company to convert to a corporation, including for the purpose of facilitating
an IPO. In order to facilitate the description of the succession of Rackspace
to New Rackspace, the underwriters have suggested that the Holders transfer all
of their interests in the Partnership (the "Units") to New Rackspace, in
exchange for common stock in New Rackspace (the "Common Stock"). The Partners
have agreed to make this exchange
2
pursuant to the terms of this Agreement and agree to allow this exchange,
whether or not the IPO occurs.
AMENDMENT OF SUPPORT AGREEMENT. The parties desire to amend the Support
Agreement to include as Class C Limited Partners, Red Hat, Norwest, ▇▇▇▇▇▇
▇▇▇▇▇▇ and the New Investors.
NOW, THEREFORE, FOR AND IN CONSIDERATION OF THE MUTUAL PROMISES HEREIN
MADE, THE PARTIES AGREE AS FOLLOWS:
OPTIONS
TERMINATION OF OPTION RIGHTS. Provided that the IPO is completed by July 31,
2000, effective April 30, 2000, Miller, Weston, Yoo, Elmendorf and ▇▇▇▇▇▇ will
have no further right to forgo salary and receive options to acquire Units in
the Company (or stock in New Rackspace) under Section 17 of the Second Amendment
to the Partnership Agreement. Miller, Weston, Elmendorf and ▇▇▇▇▇▇ each made an
election on January 1, 2000 to receive options in lieu of salary. Yoo hereby
waives his right to receive options under Section 17 in lieu of salary for the
four-month period ending April 30, 2000. Commencing January 1, 2000 and ending
April 30, 2000, Miller, Weston, Elmendorf and ▇▇▇▇▇▇ will continue to forgo
salary and receive options to acquire Units in accordance with the terms of
Section 17 of the Second Amendment to the Partnership Agreement.
SUPPORT AGREEMENT
AMENDMENT TO SUPPORT AGREEMENT. The Support Agreement, as amended, is further
amended to include, for the purpose of ▇▇▇▇▇▇▇▇▇ ▇, ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇, ▇▇▇▇▇▇
▇▇▇▇▇▇ and the New Investors, as "Class C Limited Partners."
REGISTRATION RIGHTS
1. CORRECTION TO REGISTRATION RIGHTS AGREEMENT. The Rights Agreement
does not include Trango as an "Investor." The Rights Agreement is
hereby amended to include Trango as an Investor, as if it had
initially executed the Rights Agreement.
2. LOCK-UP AGREEMENT. The Underwriters have required that each of
the Holders agree not to sell their stock in New Rackspace for a
period of 180 days following the IPO and the parties to the Rights
Agreement are required to execute the same under the obligations
set forth in the Rights Agreement. Therefore, each of the Holders
agree to enter into the Lock-up Agreement attached as Exhibit A
and deliver the same to the offices of the Company upon the
execution of this Agreement.
3
3. PIGGYBACK AND DEMAND REGISTRATION RIGHTS- RED HAT, ▇▇▇▇▇▇ ▇▇▇▇▇▇,
NEW INVESTORS, NORWEST. The parties agree that Red Hat, Norwest,
New Investors and ▇▇▇▇▇▇ ▇▇▇▇▇▇ shall have piggyback and demand
registration rights in accordance with the provisions of Section 2
and Section 3 of the Rights Agreement with respect to the Units
held by them (and Common Stock acquired incident to the
Exchange), shall be considered Holders of Registrable Securities
with respect to all the Units (and Common Stock acquired incident
to the Exchange) held by them for purposes of the Rights Agreement
and each shall have all the benefits and obligations of an
Investor under the Rights Agreement, the same as if they were
direct signatories to the Rights Agreement. Upon the Exchange (as
defined below), the parties agree that without further act of the
parties, New Rackspace will be substituted in place of the Company
for all purposes of the Rights Agreement.
EXCHANGE OF INTERESTS
EXCHANGE OF INTERESTS. To accomplish various business purposes, the
General Partner of the Partnership has the ability to cause the
Partnership to convert to a corporation. The Partnership Agreement
specifically contemplates that the Company, through a successor entity,
will have an IPO and the General Partner is given broad powers to change
the form of the Company from a limited partnership to a corporation by
merger or contribution of assets and liabilities, in order to effect an
IPO. In addition, if the Company does not have an IPO, the General
Partner has determined that it may nevertheless be beneficial to convert
to a corporation. At the request of the Underwriters, the General
Partner desires that, rather than a merger or contribution of assets and
liabilities, the Holders exchange their Units for Common Stock, and that
this exchange occur with the possibility that the New Rackspace may not
complete the IPO. The exchange will take place on a one Unit for one
share of Common Stock basis, except for Yoo, Elmendorf, Condon, Bell,
▇▇▇▇▇▇ and Macroweb, each of whom will receive slightly less than one
share of Common Stock per Unit exchanged, and except for Trout, which
will receive slightly more than one share of Common Stock per Unit
exchanged. Each of the Holders agree that at such time that the General
Partner contributes all of its Units to New Rackspace, the Units of such
Holder and of all of the Holders, without any further act of the
Holders, shall be transferred to New Rackspace in exchange for Common
Stock in proportion to the Holders' positive Capital Account balances,
adjusted by treating the Partnership as having liquidated and its
property sold at fair market value, and gains and losses allocated in
accordance with Section 11.4 of the Partnership Agreement, which
proportions are set forth below (the "Exchange"). The Common Stock
received from New Rackspace will have an appropriate legend indicating
that it is subject to the restrictions contained in the Partnership
Agreement (which restriction shall be removed after the IPO, if it
occurs), and that it is restricted stock and may not be sold without an
opinion of counsel to the satisfaction of New Rackspace that such sale
will not be in violation of the provisions of the Securities Act of 1933.
The
4
Holders agree that no fractional shares of Common Stock will be issued,
and as a result fractional Units shall be rounded to the nearest whole
number as set forth below:
Partner Units Exchanged Common Stock to be
------- --------------- received upon Exchange
----------------------
Yoo 3,600,000 3,565,714
▇▇▇▇▇▇ 800,000 792,380
Elmendorf 400,000 396,190
▇▇▇▇▇▇ 50,000 49,523
▇▇▇▇ 50,000 49,523
Macroweb 10,000 9,904
Trout 7,232,856.2 7,279,619
First Inning 619,047.61 619,048
▇▇▇▇ 1,219,047.62 1,219,048
▇▇▇▇▇▇▇▇ 476,190.48 476,190
▇▇▇▇▇▇▇▇ 357,142.86 357,143
MiniPat 95,238.10 95,238
2M 119,047.61 119,048
Red Hat 353,356.89 353,357
Norwest 1,015,901 1,015,901
▇▇▇▇▇▇ ▇▇▇▇▇▇ 53,003.53 53,003
--------- ------
Total 16,450,831.94* 16,450,829*
*Subject to adjustment for Units held by the New Investors which will be
exchanged on a one Unit for one share of Common Stock basis and subject
to further adjustment for the exchange of any Units issued pursuant to
the Warrant in favor of Trango Capital, LLC (380,952.38 Units), or any
other option holder, all of which will be exchanged on the basis of one
share of Common Stock for each Unit exchanged.
DIRECTORS/RIGHTS OF PARTNERS/PROXIES
1. DIRECTORS OF NEW RACKSPACE. The Class C Units Holders, The
▇▇▇▇▇▇▇▇ Companies, LLC and Trout have the right to appoint
directors of New Rackspace under the terms of the Second Amendment
to the Partnership Agreement (the "Voting Agreement"). However,
these rights end when and if Trout, Ltd. waives its right to
appoint five of the seven directors. ▇▇▇▇▇▇ and ▇▇▇▇▇▇ are
currently the sole directors of New Rackspace. In order to
timely
5
appoint five additional members to New Rackspace's board of
directors, each of the Holders hereby grant to the General
Partner, their irrevocable proxy to vote all of the shares of
Common Stock in New Rackspace received by them as a result of the
Exchange, to elect and name up to five additional members to the
board of directors of New Rackspace. This proxy will expire on
the earlier to occur of July 31, 2000, the date immediately prior
to the IPO, or the date seven directors are named to New
Rackspace's board of directors. The General Partner agrees to
consult with each of the Partners prior to naming any of the
directors. Effective the date immediately prior to the IPO, the
Voting Agreement will terminate. The General Partner agrees that
it will not exercise the proxies granted under this paragraph in
order to appoint persons who are related to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ or
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇.
2. CONVERSION TO CORPORATION PRIOR TO IPO. It is likely that the
General Partner will determine that it is necessary to convert to
a corporation at a time when it is not certain whether or not the
Company will effect the IPO. The Holders agree that all
pre-emptive rights, rights of first refusal, share transfer
restrictions, re-purchase rights, voting agreements, parallel exit
rights and all other rights contained in the Partnership
Agreement, and the Support Agreement that do not exist as a
consequence of the application of the general corporate provisions
of Delaware corporation law (collectively, the "Rights and
Obligations"), shall be binding on and inure to the benefit of all
New Rackspace's shareholders and on New Rackspace, the same as
such Rights and Obligations are presently binding on the Partners
and the Company; provided that all of such Rights and Obligations
shall terminate immediately prior to the IPO. The parties also
agree that the Support Agreement shall terminate immediately prior
to the IPO. If, however, the IPO does not take place by July 31,
2000, New Rackspace agrees to prepare the documentation necessary
to ensure that all such Rights and Obligations are binding on New
Rackspace, the Holders and all other shareholders of New Rackspace
(such documents are referred to as the "Documents"), with New
Rackspace having the discretion, to the extent reasonably
exercised, to modify such Rights and Obligations to the extent
necessary to accommodate the differences between a limited
partnership and a corporation. The Holders agree to execute
Documents upon receipt so long as the Documents substantially
conform to the Rights and Obligations set forth in the Partnership
Agreement.
3. STOCK PLAN. In order for New Rackspace to adopt a qualified
incentive stock option plan, the shareholders of New Rackspace
must adopt the plan. The General Partner has selected a highly
flexible plan based upon the recommendations of its SEC counsel.
In order to approve the plan prior to the IPO, the Holders each
give the General Partner, their irrevocable proxy to approve the
plan recommended by the Company's counsel. Therefore, each of the
Holders give the General Partner their irrevocable proxy with
respect to the Common Stock received by them incident to the
Exchange, to exercise the voting rights of such stock to approve
any incentive stock option plan
6
(including qualified and non-qualified stock options), employee
stock purchase plan, director option and compensation plan, and
any other plan which is designed to enable New Rackspace to
compensate, reward and/or incentivize its employees, agents,
consultants and directors. This proxy will end on the earlier to
occur of July 31, 2000 or the IPO.
4. INDEMNITY OF GENERAL PARTNER. Upon the Exchange, Macroweb shall
no longer be the general partner of Rackspace, Ltd., but rather
Rackspace Management, LC shall be the new general partner. The
Company acknowledges and agrees that the indemnity obligations
contained in the Partnership Agreement shall continue to be
enforceable by Macroweb and its members, officers and agents,
against the Company and against New Rackspace, with respect to
acts and omissions occurring while Macroweb was the general
partner of the Company.
MISCELLANEOUS
1. REPRESENTATION The parties to this Agreement acknowledge that the
law firm of ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇, P.C. has assisted in the
preparation of this document on behalf of and as counsel for
Trout, Ltd. and the General Partner only, and further acknowledge
that the Partnership will pay the fees and expenses associated
with such services.
2. MULTIPLE COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but
all of which together will constitute one and the same instrument.
Executed as of the date first written above.
RACKSPACE, LTD.
By: Macroweb, LC
Its: General Partner
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Member
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Member
GENERAL PARTNER:
Macroweb, LC
7
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Member
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Member
LIMITED PARTNERS:
/s/ ▇▇▇▇▇▇▇ ▇▇▇
--------------------------------------------------
▇▇▇▇▇▇▇ ▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
--------------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Trout, Ltd.
By: Knightsbridge, L.C., General Partner
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------------
▇▇▇▇ Capital Partners I, L.P.
By: BESK Funding, Inc., General Partner
By: /s/ S. ▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------------
S. ▇▇▇▇▇ ▇▇▇▇▇▇▇, President
First Inning Investors, L.P.
By: Trango Capital L.L.C., General Partner
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇
-------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇, Manager
The ▇▇▇▇▇▇▇▇ Companies LLC
By: /s/ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------------
8
▇▇▇▇▇▇▇▇ River Capital LC (formerly,
Weston Investment Interest, L.L.C.)
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------------------
Title: Member
---------------------------------------
MiniPat & Company, Ltd.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------------------
2M Technology Ventures, L.P.
By: 2M Technology Group, L.L.C.
Its: General Partner
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇
------------------------------------------
Red Hat, Inc.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
------------------------------------------
Norwest Venture Partners VII, L.P.
By: /s/ ▇▇▇▇▇▇ Still, Jr.
------------------------------------------
General Partner
/s/ ▇▇▇▇▇ ▇▇▇▇
---------------------------------------------
▇▇▇▇▇ ▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇
9
Tailwind Capital Partners 2000, L.P.
By: ▇▇▇▇▇▇ ▇▇▇▇▇▇ Capital Partners LLC,
general partner
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, General Counsel
NEW INVESTORS:
10
AGREEMENT OF EXISTING PARTNERS
OF RACKSPACE, LTD. TO FACILITATE PUBLIC OFFERING
Separate Signature Page for New Investors
With respect to the 466,431 Class C Units purchased by Sequoia Capital Franchise
Fund for $2,640,000.
Sequoia Capital Franchise Fund
By: /s/ illegible
--------------------------
With respect to the 63,604 Class C Units purchased by Sequoia Capital Franchise
Partners for $360,000.
Sequoia Capital Franchise Partners
By: /s/ illegible
--------------------------
RACKSPACE, LTD.
By: Macroweb, LC, general partner
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------
Its: Member
--------------------------
11