Exhibit 10.2
EXECUTION COPY
THE SYMBOL "**" IS USED THROUGHOUT THIS EXHIBIT TO INDICATE THAT THE
PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
VELOCITA CORP.
SERIES B SENIOR CUMULATIVE CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT
April 12, 2001
TABLE OF CONTENTS
Page
----
1. Purchase and Sale of Stock..................................................1
1.1 Sale and Issuance of Series B Preferred Stock.........................1
1.2 Closing...............................................................1
1.3 Cisco Nominee.........................................................2
2. Representations and Warranties of the Company...............................2
2.1 Organization, Good Standing and Qualification.........................2
2.2 Subsidiaries..........................................................2
2.3 Capitalization and Voting Rights......................................3
2.4 Authorization.........................................................4
2.5 Valid Issuance of Preferred Stock, Common Stock and Cisco Warrants....4
2.6 No Conflict with Laws or Other Instruments; Governmental Consents.....5
2.7 Offering..............................................................5
2.8 Returns and Complaints................................................5
2.9 Litigation............................................................5
2.10 Confidentiality Obligations...........................................6
2.11 Intellectual Property.................................................6
2.12 Compliance with Laws and Instruments..................................7
2.13 Agreements; Action....................................................7
2.14 Related-Party Transactions............................................8
2.15 Permits...............................................................8
2.16 Rights of Way.........................................................8
2.17 Environmental Matters.................................................9
2.18 Business Plan........................................................10
2.19 Registration Rights..................................................10
2.20 Corporate Documents..................................................10
2.21 Title to Property and Assets.........................................10
2.22 Financial Statements.................................................11
2.23 Absence of Certain Changes...........................................11
2.24 Absence of Undisclosed Liabilities...................................12
2.25 Employee Benefit Plans...............................................12
2.26 Tax Returns, Payments and Elections..................................14
2.27 Insurance............................................................15
2.28 Minute Books.........................................................15
2.29 Labor Agreements and Actions.........................................15
2.30 Brokers..............................................................16
2.31 Available Credit.....................................................16
2.32 Private Placement....................................................16
3. Representations and Warranties of the Investors............................16
3.1 Authorization........................................................16
3.2 Purchase Entirely for Own Account....................................17
3.3 Disclosure of Information............................................17
3.4 Investment Experience................................................17
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3.5 Accredited Investor..................................................17
3.6 Restricted Securities................................................17
3.7 Further Limitations on Disposition...................................17
3.8 Legends..............................................................18
4. Conditions of Investor's Obligations at Closing............................18
4.1 Representations and Warranties.......................................19
4.2 Performance; Material Adverse Change.................................19
4.3 Compliance Certificate...............................................19
4.4 Qualifications.......................................................19
4.5 Proceedings and Documents............................................19
4.6 Opinions of Company Counsel..........................................19
4.7 Amended Stockholders Agreement.......................................19
4.8 General Supply Agreement.............................................19
4.9 Credit Agreement and Loan Documents..................................20
4.10 Warrants.............................................................20
4.11 GSA Letter...........................................................20
4.12 Good Standing Certificate............................................20
4.13 Secretary's Certificate..............................................20
4.14 Expenses.............................................................20
4.15 Indemnity Agreement..................................................20
4.16 Consents.............................................................20
5. Conditions of the Company's Obligations at Closing.........................21
5.1 Representations and Warranties.......................................21
5.2 Performance..........................................................21
5.3 Compliance Certificate...............................................21
5.4 Proceedings and Documents............................................21
5.5 Payment of Purchase Price; Minimum Share Purchase....................21
5.6 Qualifications.......................................................21
5.7 Amended Stockholders Agreement.......................................21
5.8 General Supply Agreement.............................................21
5.9 Credit Agreement and Loan Documents..................................21
6. Indemnification............................................................22
6.1 Indemnification by the Company.......................................22
6.2 Indemnification Procedures...........................................22
6.3 General Threshold; Limit.............................................23
6.4 Other Limitations on Liability.......................................23
7. Operations Prior to Closing; Covenants.....................................24
7.1 Permitted Activities Prior to Closing................................24
7.2 Restrictions on Conduct Prior to Closing.............................24
7.3 Form S-8.............................................................26
8. Termination................................................................26
8.1 Termination..........................................................26
8.2 Effect of Termination................................................27
9. Miscellaneous..............................................................28
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9.1 Use of Proceeds......................................................28
9.2 Survival of Representations and Warranties...........................28
9.3 Successors...........................................................28
9.4 Governing Law........................................................28
9.5 Counterparts.........................................................28
9.6 Titles and Subtitles.................................................28
9.7 Notices..............................................................28
9.8 Finder's Fee.........................................................29
9.9 Expenses.............................................................30
9.10 Amendments and Waivers...............................................30
9.11 Severability.........................................................30
9.12 Aggregation of Stock.................................................30
9.13 Entire Agreement.....................................................30
9.14 Publication..........................................................30
9.15 Confidentiality......................................................31
9.16 Exculpation Among Investors..........................................31
9.17 Register of Securities...............................................31
9.18 Removal of Transfer Restrictions.....................................31
9.19 Replacement of Certificates..........................................31
9.20 Interpretation of "Knowledge.".......................................32
SCHEDULE I -- Schedule of Investors
SCHEDULE II -- Wire Instructions
SCHEDULE III -- Schedule of Exceptions
EXHIBIT A -- Amended and Restated Certificate of Incorporation
EXHIBIT B -- Cisco Warrants
EXHIBIT C -- Amended and Restated Stockholders Agreement
EXHIBIT D -- General Supply Agreement
EXHIBIT E -- Amended and Restated Credit Agreement
EXHIBIT F -- Indemnity Agreement
EXHIBIT G -- GSA Letter
EXHIBIT H -- Opinion of Counsel for the Company
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SERIES B SENIOR CUMULATIVE CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT
This Series B Senior Cumulative Convertible Preferred Stock Purchase
Agreement (this "Agreement") is made as of the 12th day of April 2001, by and
among Velocita Corp., a Delaware corporation (the "Company"), and the investors
listed on Schedule I hereto (the "Investors"), each of which is herein referred
to as an "Investor" and collectively as "Investors."
WHEREAS, the Investors wish to purchase from the Company, and the
Company wishes to sell to the Investors, upon the terms and subject to the
conditions set forth herein, an aggregate of ********* shares of the Series B
Senior Cumulative Convertible Preferred Stock, par value $0.01 per share (the
"Series B Preferred Stock"), of the Company, for an aggregate purchase price of
************;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Series B Preferred Stock.
(a) The Company shall adopt and file with the Secretary
of State of the State of Delaware on or before the Closing (as defined below)
the Amended and Restated Certificate of Incorporation (including the
Certificates of Designation thereto) in the form attached hereto as Exhibit A
(the "Restated Certificate").
(b) On or prior to the Closing (as defined below), the
Company shall have authorized (i) the sale and issuance to the Investors of the
Series B Preferred Stock, (ii) the issuance of the shares of Common Stock to be
issued upon conversion of the Series B Preferred Stock (the "Conversion Shares")
and (iii) the issuance of the warrants to be issued to the Investors, the forms
of which are attached hereto as Exhibits B-1 and B-2 (together, the "Cisco
Warrants"). The Series B Preferred Stock and the Conversion Shares shall have
the rights, preferences, privileges and restrictions set forth in the Restated
Certificate.
(c) Upon the terms and subject to the conditions of this
Agreement, each Investor agrees, severally, to purchase at the Closing and the
Company agrees to sell and issue to each Investor at the Closing, that number of
shares of the Company's Series B Preferred Stock set forth opposite such
Investor's name on Schedule I hereto for the purchase price set forth thereon.
1.2 Closing. The purchase and sale of the Series B Preferred
Stock (the "Closing") shall take place at the offices of ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, at 10:00 a.m., on the business day
following the date on which all of the
conditions to closing set forth in Articles 4 and 5 have been satisfied or
waived or at such other time and place as the Company and the Investors may
mutually agree (the "Closing Date"). At the time of the Closing, the Company
shall deliver to each Investor a certificate representing the Series B Preferred
Stock that such Investor is purchasing, as set forth on Schedule I attached
hereto, against payment of the purchase price therefor by wire transfer of
immediately available funds to the account specified by the Company on Schedule
II attached hereto.
1.3 Cisco Nominee. Unless Cisco Systems, Inc. ("Cisco")
notifies the Company that it will hold such shares in its own name, all shares
of Series B Preferred Stock to be issued to Cisco hereunder, and all shares of
Common Stock issuable upon conversion thereof, shall be issued in the name of
the Cisco nominee noted below; provided, however, that any notices issued with
respect to such stock shall be addressed to Cisco at its address as set forth in
Section 9.7 of this Agreement. Cisco's nominee registration information is as
follows: Coastdock & Co., c/o State Street Bank, ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (courier address) or ▇.▇. ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ (mailing address), attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇-▇▇▇-▇▇▇▇ (telephone).
Such shares shall be held on behalf of Cisco by such nominee solely for Cisco's
internal business purposes. Regardless of whether the shares are held by a
nominee, Cisco shall retain all rights and obligations of a stockholder of the
Company (including beneficial ownership, and the sole right to direct the voting
and disposition, of the shares) and all rights, covenants and obligations of
Cisco under the Transaction Agreements (as defined below) or other agreements
and instruments contemplated hereby.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to each Investor that, except as specifically set forth
on any section of the Schedule of Exceptions attached hereto as Schedule III
(the "Schedule of Exceptions") or as to which such exception on its face clearly
relates, which exceptions shall be deemed to be representations and warranties
as if made hereunder:
2.1 Organization, Good Standing and Qualification. The Company
is a corporation duly incorporated, validly existing and in good standing under
the laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business as now conducted and as presently proposed to
be conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on the business, financial condition or results of
operations of the Company and its Subsidiaries (as defined below), taken as a
whole, other than any adverse effect resulting from changes in financial market
conditions generally or from changes affecting the telecommunications industry
generally (a "Material Adverse Effect").
2.2 Subsidiaries. Except as set forth on Schedule 2.2 to the
Schedule of Exceptions, the Company does not own or control, directly or
indirectly, any interest in any other firm, corporation, association or other
business entity. The Company is not a participant in any joint venture,
partnership or similar arrangement. The authorized equity interests of each of
the entities (the "Subsidiaries") identified on Schedule 2.2 to the Schedule of
Exceptions consist solely of the common stock held by the Company or a wholly
owned subsidiary of the Company, which shares of common stock have been duly
authorized, validly issued and fully paid and are non-assessable. Each of the
Subsidiaries other than ▇▇.▇▇▇ Virginia, LLC ("Virginia LLC") is a corporation
duly incorporated, validly existing and in good standing under the laws of the
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jurisdiction of its incorporation and has all requisite corporate power and
authority to carry on its business as now conducted and as presently proposed to
be conducted. Virginia LLC is a limited liability company duly formed, validly
existing and in good standing under the laws of Delaware and has all requisite
power and authority to conduct its business as now conducted and as presently
proposed to be conducted. Each of the Subsidiaries is duly qualified to transact
business and is in good standing in each jurisdiction in which the failure to be
so qualified would have a Material Adverse Effect.
2.3 Capitalization and Voting Rights. The authorized capital
of the Company consists, or will consist immediately prior to the Closing, of:
(a) ******** shares of Preferred Stock, of which
1,250,000 shares have been designated Series A Senior Cumulative Convertible
Preferred Stock (the "Series A Preferred Stock" and, together with the Series B
Preferred Stock, the "Preferred Stock"), all of which are issued and outstanding
immediately prior to the Closing, and ********* shares have been designated
Series B Preferred Stock, none of which are issued and outstanding immediately
prior to the Closing. Upon the Closing, the rights, privileges and preferences
of the Series A Preferred Stock will be as stated in the Restated Certificate.
All of the outstanding shares of Series A Preferred Stock have been duly
authorized.
(b) 400,000,000 shares of Common Stock, 80,000,000
shares of which are issued and outstanding immediately prior to the Closing, and
59,644,812 shares of which have been reserved solely for issuance upon
conversion of Series B Preferred Stock. All of the outstanding shares of Common
Stock have been duly authorized, validly issued, fully paid and are
nonassessable.
(c) The Company has reserved 25,000,000 shares of Common
Stock for issuance to officers, directors, employees and consultants of the
Company pursuant to its 1999 Equity Incentive Plan (as amended and restated
effective as of July 12, 2000) duly adopted by the board of directors and
approved by the stockholders of the Company (the "Stock Plan"). Of such reserved
shares of Common Stock, options to purchase 22,123,075 shares have been granted
and are currently outstanding, and 2,876,925 shares remain available for
issuance to officers, directors, employees and consultants pursuant to the Stock
Plan. No shares of Common Stock have been issued pursuant to the Stock Plan, and
all shares of Common Stock subject to outstanding options may be registered on a
registration statement on Form S-8.
(d) Except as set forth on Schedule 2.3(d) to the
Schedule of Exceptions, as of the date hereof, there are no outstanding options,
warrants, rights (including conversion or preemptive rights, rights of first
refusal or similar rights) or agreements, orally or in writing, for the purchase
or acquisition from the Company of any shares of its capital stock or other
securities.
(e) The Company has authorized the issuance of the Cisco
Warrants.
2.4 Authorization. All corporate action on the part of the
Company and the Subsidiaries and their respective officers, directors and
stockholders (or in the case of
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Virginia LLC, its partners and members) necessary for the authorization,
execution and delivery of this Agreement, the Amended and Restated Stockholders
Agreement, the form of which is attached hereto as Exhibit C (the "Amended
Stockholders Agreement"), the Service Provider Agreement, the form of which is
attached hereto as Exhibit D (the "General Supply Agreement"), the Amended and
Restated Credit Agreement, the form of which is attached hereto as Exhibit E
(the "Credit Agreement"), any documents to be executed in connection with the
Credit Agreement (the "Loan Documents"), the Indemnity Agreements, the form of
which is attached hereto as Exhibit F (the "Indemnity Agreements"), the Service
Provider Agreement letter, the form of which is attached hereto as Exhibit G
(the "GSA Letter") and the Cisco Warrants (collectively with this Agreement, the
Amended Stockholders Agreement, the General Supply Agreement, the Credit
Agreement, the Loan Documents, the Indemnity Agreements, the GSA Letter and the
Cisco Warrants, the "Transaction Documents"), the performance of all obligations
of the Company hereunder and thereunder, and the authorization, issuance (or
reservation for issuance), sale and delivery of the Series B Preferred Stock
being sold hereunder, the Common Stock issuable upon conversion of the Series B
Preferred Stock and the Common Stock issuable upon exercise of any Cisco
Warrants has been taken or will be taken prior to the Closing. Each of the
Transaction Documents constitutes or, when executed and delivered, will
constitute, the Company's valid and legally binding obligation, enforceable
against the Company in accordance with its terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors' rights generally, (b) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies, and (c) to the extent the indemnification
provisions contained in any of the Transaction Documents may be limited by
applicable federal or state securities laws.
2.5 Valid Issuance of Preferred Stock, Common Stock and Cisco
Warrants. The Series B Preferred Stock and the Cisco Warrants that are being
purchased by the Investors hereunder, when issued, sold and delivered in
accordance with the terms of this Agreement for the consideration expressed
herein, will be duly and validly issued, fully paid, nonassessable, free of
restrictions on transfer other than restrictions on transfer under the
Transaction Documents and under applicable state and federal securities laws
and, assuming the accuracy of each Investor's representations and warranties set
forth in Article 3 of this Agreement, will have been issued in compliance with
all applicable state and federal securities laws. Upon the Closing, the rights,
privileges and preferences of the Series B Preferred Stock will be as stated in
the Restated Certificate. The Common Stock issuable upon conversion of the
Series B Preferred Stock and the Cisco Warrants purchased under this Agreement
has been duly and validly reserved for issuance and, upon issuance in accordance
with the terms of the Restated Certificate, will be duly and validly issued,
fully paid, nonassessable, free of restrictions on transfer other than
restrictions on transfer under the Transaction Documents and under applicable
state and federal securities laws and will have been issued in compliance with
all applicable state and federal securities laws. The Common Stock and the
Series A Preferred Stock outstanding as of the date of this Agreement have been
issued in compliance with all applicable state and federal securities laws.
2.6 No Conflict with Laws or Other Instruments; Governmental
Consents. The execution, delivery and performance by the Company and its
Subsidiaries of the Transaction Documents to which each is a party, the
observance by the Company of the terms of
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the Restated Certificate and the consummation of the transactions contemplated
by this Agreement and the other Transaction Documents: (a) will not require from
the board of directors or stockholders of the Company or any of the Subsidiaries
(or in the case of Virginia LLC, its partners or members) any consent or
approval, except such as shall have been obtained prior to the Closing; (b) will
not require any authorization, consent, approval, license, exemption of or
filing or registration with any court or governmental department, commission,
board, bureau, agency or instrumentality of government, except such filings as
may be required under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976,
as amended ("HSR"), and such other consents and approvals such as shall have
been obtained or made prior to the Closing and except as could not reasonably be
expected to have a Material Adverse Effect; (c) subject to the accuracy of the
Investors' representations and warranties contained in Article 3 of this
Agreement, will not cause the Company or any of the Subsidiaries to violate or
contravene (i) any provision of law presently in effect, (ii) any rule or
regulation presently in effect of any agency or government, (iii) any order,
writ, judgment, injunction, decree, determination or award presently in effect,
or (iv) any provision of its certificate of incorporation or bylaws or
equivalent organizational documents, except, in the case of clauses (i) and
(ii), as could not reasonably be expected to have a Material Adverse Effect; (d)
will not violate or be in conflict with, result in a breach of or constitute
(with or without notice or lapse of time or both) a default under, or require
any consent, approval or authorization under, any indenture, loan or credit
agreement, note agreement, deed of trust, mortgage, security agreement or other
agreement, lease, instrument, commitment or arrangement to which the Company or
any of the Subsidiaries is a party or by which the Company or any of the
Subsidiaries or any of their respective properties, assets or rights is bound,
in each case, that is material to the Company and its Subsidiaries, taken as a
whole, except as set forth on Schedule 2.6 to the Schedule of Exceptions; (e)
will not result in the creation or imposition of any lien, encumbrance or other
restriction on any of the properties, assets or rights of the Company or the
Subsidiaries (in each case, other than pursuant to the terms of the Transaction
Documents), except as would not have a Material Adverse Effect; and (f) will not
result in the revocation, impairment, forfeiture or nonrenewal of any Permit (as
defined below), except as would not have a Material Adverse Effect.
2.7 Offering. Subject to the truth and accuracy of each
Investor's representations set forth in Article 3 of this Agreement, the offer,
sale and issuance of the Series B Preferred Stock as contemplated by this
Agreement are exempt from the registration requirements of the Act, and neither
the Company nor any authorized agent acting on its behalf will take any action
hereafter that would cause the loss of such exemption.
2.8 Returns and Complaints. Except as would not have a
Material Adverse Effect, none of the Company and its Subsidiaries has received
any written customer complaints concerning its products and/or services, nor
have any of its products been returned by a purchaser thereof, other than for
minor, nonrecurring warranty problems.
2.9 Litigation. There is no action, suit, proceeding or
investigation pending or, to the Company's knowledge, currently threatened
against the Company or any Subsidiary that questions the validity of the
Transaction Documents or the right of the Company or any Subsidiary to enter
into such agreements, or to consummate the transactions contemplated hereby or
thereby, or that, if determined adversely to the Company or any Subsidiary,
would have a Material Adverse Effect, or result in any change in the current
equity ownership of the
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Company or any Subsidiary. The foregoing includes, without limitation, actions,
suits, proceedings or investigations pending or, to the Company's knowledge,
threatened involving the prior employment of any of the Company's or any
Subsidiary's employees, their use in connection with the Company's or any
Subsidiary's business of any information or techniques allegedly proprietary to
any of their former employers, or their obligations under any agreements with
prior employers. None of the Company and its Subsidiaries is a party or subject
to the provisions of any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company or any Subsidiary currently pending
or that the Company or any Subsidiary intends to initiate.
2.10 Confidentiality Obligations. The Company has taken all
commercially reasonable efforts to protect and preserve the confidentiality of
all trade secrets and other confidential intellectual property owned or being
developed by the Company that is not otherwise protected by patents, patent
applications or copyright ("Confidential Information"). All use, disclosure or
appropriation of Confidential Information owned by the Company by or to a third
party has been made pursuant to the terms of a written agreement between the
Company and such third party. All use, disclosure or appropriation of
Confidential Information not owned by the Company has been made pursuant to the
terms of a written agreement between the Company and the owner of such
Confidential Information or is otherwise lawful.
2.11 Intellectual Property.
(a) The Company has sufficient title and ownership of
all patents, trademarks, service marks, trade names, copyrights, trade secrets,
information, proprietary rights and processes and all other intellectual
property necessary for its and its Subsidiaries' businesses as now conducted and
as proposed to be conducted without any conflict with or infringement of the
rights of others. Except as set forth in Schedule 2.13 to the Schedule of
Exceptions, and except for liens granted pursuant to the Credit Agreement, there
are no outstanding options, licenses, liens, encumbrances or agreements of any
kind relating to the foregoing, nor is the Company or any Subsidiary bound by or
a party to any options, licenses or agreements of any kind with respect to the
patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information, proprietary rights and processes of any other person or
entity, except pursuant to the Transaction Documents and except for licenses for
commercially available off-the-shelf software that involves payments by the
Company or any Subsidiary for less than $100,000 in the aggregate. None of the
Company and the Subsidiaries has received any written communications alleging
that the Company or any Subsidiary has violated or, by conducting its business
as proposed, would violate any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other proprietary rights of any other
person or entity. None of the Company and the Subsidiaries has knowledge that
any of their employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of his or her best efforts to promote the interests of
the Company or any Subsidiary or that would conflict with the Company's or any
Subsidiary's businesses as proposed to be conducted, except as set forth on
Schedule 2.11(a) to the Schedule of Exceptions. None of the execution and
delivery of any of the Transaction Documents, the consummation of the
transactions contemplated thereby, the carrying on of the Company's or
Subsidiaries' businesses by the employees of the Company or any Subsidiary, or
6
the conduct of the Company's or any Subsidiary's business as proposed, will, to
the Company's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated. None
of the Company and the Subsidiaries believes it is or will be necessary to
utilize any inventions of any of its employees (or people it currently intends
to hire) made prior to or outside the scope of their employment by the Company
or any Subsidiary.
(b) Schedule 2.11(b) to the Schedule of Exceptions
lists, as of the date of this Agreement, all patents, trademarks, service marks,
trade names, copyrights and other intellectual property that is the subject of
an application, certificate, filing, registration or other document issued,
filed with, or recorded by any state, government or other public legal authority
and which are owned by, or filed in the name of, the Company. Schedule 2.11(b)
to the Schedule of Exceptions lists, as of the date of this Agreement, the
jurisdictions in which each such intellectual property right has been issued or
registered or in which any application for such issuance and registration has
been filed.
2.12 Compliance with Laws and Instruments. None of the Company
and the Subsidiaries is in violation or default in any respect of any provision
of the Restated Certificate or Bylaws or its equivalent organizational documents
or in any material respect of any instrument, judgment, order, writ, decree,
contract or agreement to which it is a party or by which it is bound, or, to the
best of the Company's knowledge, of any provision of any federal or state
statute, rule or regulation applicable to the Company or the Subsidiaries, as
the case may be.
2.13 Agreements; Action.
(a) Except as set forth on Schedule 2.13(a) to the
Schedule of Exceptions, as of the date of this Agreement, there are no
judgments, orders, writs or decrees ("Orders"), or agreements, instruments,
contracts or other arrangements whether oral or in writing ("Company
Agreements"), to which the Company or any Subsidiary is a party or by which it
is bound that may involve (i) obligations (contingent or otherwise) of, or
payments to the Company or any Subsidiary in the aggregate in excess of either,
********** in any year or ******** in any month (provided that such threshold
does not establish a standard of materiality for any purpose), or (ii) the
license of any patent, copyright, trade secret or other proprietary right to or
from the Company or any Subsidiary, or (iii) provisions restricting or affecting
the development, manufacture or distribution of the Company's or any
Subsidiary's products or services, or (iv) indemnification by the Company or any
Subsidiary with respect to infringements of proprietary rights.
(b) None of the Company and the Subsidiaries has (i)
except as set forth on Schedule 2.13(b) to the Schedule of Exceptions, made any
loans or advances to any person (other than the Company or any Subsidiary),
other than ordinary advances for travel, relocation and similar expenses or
pursuant to Company Agreements set forth on Schedule 2.13(b), or (ii) except as
set forth on Schedule 2.13(c) to the Schedule of Exceptions, sold, exchanged or
otherwise disposed of any of its assets or rights, other than the sale of its
inventory, conduit and dark fiber in the ordinary course of business.
7
(c) For the purposes of Sections 2.13(a) and 2.13(b) of
this Agreement, Company Agreements and Orders involving the same person or
entity (including persons or entities the Company or any Subsidiary has reason
to believe are affiliated therewith) shall be aggregated for the purpose of
meeting the individual minimum dollar amounts of such sections.
2.14 Related-Party Transactions. Except as set forth on
Schedule 2.14 to the Schedule of Exceptions, no employee, officer, director,
partner or member of the Company or any Subsidiary or member of his or her
immediate family is indebted to the Company or any Subsidiary (other than in
respect of ordinary advances for travel, relocation and similar expenses), nor
is the Company or any Subsidiary indebted (or committed to make loans or extend
or guarantee credit) to any of them. Except as set forth on Schedule 2.14 to the
Schedule of Exceptions, to the Company's knowledge, none of such persons has any
direct or indirect ownership interest in any firm or corporation with which the
Company or any Subsidiary has a business relationship, or any firm or
corporation that competes with the Company or any Subsidiary, except that
employees, officers, directors, partners or members of the Company or any
Subsidiary and members of their immediate families may own less than 5% of the
outstanding stock of publicly traded companies that may compete with the
Company. To the Company's knowledge, no member of the immediate family of any
officer, director, partner or member of the Company or any Subsidiary is
directly or indirectly interested in any material contract with the Company or
any Subsidiary, except that such members of the immediate family of any officer,
director, partner or member of the Company or any Subsidiary may own less than
5% of the outstanding stock of publicly traded companies that have material
contracts with the Company or any Subsidiary.
2.15 Permits. Except as set forth on Schedule 2.15 to the
Schedule of Exceptions, the Company and its Subsidiaries collectively own, or
have the right to use, all franchises, permits, licenses and any similar
authority, other than Rights of Way (as defined below) (collectively,
"Permits"), material to the conduct of their business as now being conducted by
them. None of the Company and its Subsidiaries is in default, nor has the
Company or any of its Subsidiaries received any notice of any claim of default,
with respect to any such Permit. The Company believes that it and each of its
Subsidiaries can obtain, without undue burden or expense, any Permits necessary
for the conduct of its business as currently proposed to be conducted.
2.16 Rights of Way. The Company and its Subsidiaries
collectively own, or have the right to use, all right-of-way crossings ("Rights
of Way") material to the conduct of the business of the Company and its
Subsidiaries as currently conducted, other than Rights of Way not yet obtained
for portions of the Company's fiber optic network on which construction has not
yet been constructed. Except as set forth in Schedule 2.16 to the Schedule of
Exceptions and, with respect to clause (a) below, except as would not,
individually or in the aggregate, have a Material Adverse Effect, all Rights of
Way, including all amendments thereto, (a) are in writing and are legal, valid,
binding and enforceable in accordance with their terms, and (b) the validity and
enforceability thereof will not be adversely affected by the consummation of any
of the transactions contemplated by the Transaction Documents. Except as set
forth on Schedule 2.16 to the Schedule of Exceptions, no material default of the
Company or any Subsidiary exists under any of the Rights of Way, and to the
Company's actual knowledge,
8
the parties thereto other than the Company or any Subsidiary have no offsets or
defenses to the enforcement thereof.
2.17 Environmental Matters.
(a) The following terms shall be defined as follows:
(i) "Environmental Laws" shall mean any federal,
state or local laws, ordinances, codes, regulations, rules, policies and orders
that are intended to assure the protection of the environment, or that classify,
regulate, call for the remediation of, require reporting with respect to, or
list or define air, water, groundwater, solid waste, hazardous or toxic
substances, materials, wastes, pollutants or contaminants, or which are intended
to assure the safety of employees, workers or other persons, including the
public.
(ii) "Hazardous Materials" shall mean any toxic or
hazardous substance, material or waste or any pollutant or contaminant, or
infectious or radioactive substance or material, including without limitation,
those substances, materials and wastes regulated under any Environmental Laws.
(iii) "Facilities" shall mean all buildings and
improvements on the Property that are owned or leased by the Company or its
Subsidiaries.
(iv) "Property" shall mean all real property
leased or owned by the Company or any Subsidiary either currently or in the
past, excluding Rights of Way.
The Company represents and warrants as follows: (i) to the Company's
actual knowledge, no methylene chloride or asbestos is contained in or has been
used at or released from the Facilities; (ii) to the Company's actual knowledge,
all Hazardous Materials used by the Company at any of the Facilities have been
disposed of in accordance with all applicable Environmental Laws; (iii) none of
the Company and its Subsidiaries has received any notice of any noncompliance of
the Facilities or the Company's or its Subsidiaries' past or present operations
with Environmental Laws; (iv) no notices, administrative actions or suits are
pending or, to the Company's actual knowledge, threatened relating to a
violation of any Environmental Laws; (v) to the Company's actual knowledge, none
of the Company and its Subsidiaries is a potentially responsible party under the
federal Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA), or state analog statute, arising out of events occurring prior to the
Closing Date; (vi) to the Company's actual knowledge, there have not been in the
past, and are not now, any Hazardous Materials on, under or migrating to or from
the Facilities or Property or, except as would not have a Material Adverse
Effect, to or from Rights of Way, except in compliance with applicable law;
(vii) to the Company's actual knowledge, there have not been in the past, and
are not now, any underground tanks or underground improvements at, on or under
the Property or, except as would not have a Material Adverse Effect, at, on or
under Rights of Way, including without limitation, treatment or storage tanks,
sumps, or water, gas or oil ▇▇▇▇▇; (viii) to the Company's actual knowledge,
there are no polychlorinated biphenyls (PCBs) deposited, stored, disposed of or
located on the Property or Facilities or, except as would not have a Material
Adverse Effect, on the Rights of Way, or any
9
equipment on the Property or, except as would not have a Material Adverse
Effect, on the Rights of Way, containing PCBs at levels in excess of 50 parts
per million; (ix) to the Company's actual knowledge, there is no formaldehyde on
the Property or in the Facilities or, except as would not have a Material
Adverse Effect, at Rights of Way, nor any insulating material containing urea
formaldehyde in the Facilities; (x) to the Company's actual knowledge, the
Facilities and the Company's activities therein have at all times complied in
all material respects with all Environmental Laws; and (xi) the Company and the
Subsidiaries have all the material permits and licenses required to be issued
under federal, state or local laws regarding Environmental Laws and is in full
compliance in all material respects with the terms and conditions of those
permits.
2.18 Business Plan. The Business Plan as amended, supplemented
and previously delivered to each Investor is a true and accurate copy of the
Business Plan adopted by the Company. With respect to projections contained in
the Business Plan, the Company represents only that such projections were
prepared in good faith and that the Company reasonably believes there is a
reasonable basis for such projections, which take into account that the Company
is a development-stage company and is currently building its fiber-optic
network.
2.19 Registration Rights. Except as set forth on Schedule 2.19
to the Schedule of Exceptions, the Company has not granted or agreed to grant
any registration rights, including piggyback rights, to any person or entity.
2.20 Corporate Documents. Except for amendments necessary to
satisfy representations and warranties or conditions contained herein (the forms
of which amendments have been approved by the Investors), the certificate of
incorporation and the bylaws of the Company are in the form previously provided
to special counsel for the Investors.
2.21 Title to Property and Assets. Except as set forth on
Schedule 2.21 to the Schedule of Exceptions and pursuant to the Credit
Agreement, the Company owns the property and assets owned by it free and clear
of all mortgages, liens, loans and encumbrances, except (a) such encumbrances
and liens that arise in the ordinary course of business and do not materially
impair the Company's ownership or use of such property or assets and (b) (i)
liens for taxes, assessments, governmental charges or similar claims not yet due
and payable or being contested in good faith through appropriate proceedings;
(ii) liens to lenders incurred on deposits made in the ordinary course of
business consistent with past practice in connection with maintaining bank
accounts; (iii) liens in the ordinary course of business in connection with
purchase money security interests; (iv) statutory or common law liens of
landlords and carriers, warehousemen, mechanics, suppliers, materialmen,
repairmen and other similar liens, arising in the ordinary course of business
and securing obligations that are not yet delinquent or are being contested; (v)
liens in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security laws or
regulations; (vi) liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory or regulatory obligations, surety and appeal
bonds, government contracts, performance and return-of-money bonds and other
obligations of a similar nature, in each case in the ordinary course of
business, and a bank's unexercised right of set-off with respect to deposits
made in the ordinary course; and (vii) easements, municipal and zoning
ordinances, rights-of-way and similar encumbrances on or defects or other
irregularities of title to real property imposed by law or
10
arising in the ordinary course of business that do not secure any monetary
obligations (other than customary maintenance required by governmental
authorities) and do not materially detract from the value of the affected
property or interfere with the ordinary conduct of business of the Company or
any Subsidiary. The liens described in the foregoing clauses (a) and (b) are
collectively referred to as "Permitted Liens." With respect to the property and
assets it leases, the Company is in compliance with such leases and, to its
knowledge, except as set forth on Schedule 2.21 to the Schedule of Exceptions
and pursuant to the Credit Agreement, holds a valid leasehold interest free of
any liens, claims or encumbrances, other than Permitted Liens.
2.22 Financial Statements. The Company has timely filed all
forms, statements and documents (the "SEC Documents") required to be filed by it
with the Securities and Exchange Commission (the "SEC") and The Nasdaq National
Market since July 17, 2000. All documents required to be filed as exhibits to
the SEC Documents have been so filed, and all material contracts so filed as
exhibits are in full force and effect, except those which have expired in
accordance with their terms, and none of the Company and its Subsidiaries is in
material default thereunder. As of their respective filing dates, the SEC
Documents complied in all material respects with the requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder (collectively, the "Exchange Act"), and the Securities
Act of 1933, as amended, and the rules and regulations promulgated thereunder
(collectively, the "Securities Act"). The financial statements of the Company,
including the notes thereto, included in the SEC Documents (the "Company
Financial Statements") complied as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto as of their respective dates, and were prepared
in accordance with United States generally accepted accounting principles
("GAAP") applied on a basis consistent throughout the periods indicated and
consistent with each other (except as may be indicated in the notes thereto or,
in the case of unaudited statements included in Quarterly Reports on Form 10-Q,
as permitted by Form 10-Q of the SEC). The Company Financial Statements fairly
present in all material respects the consolidated financial condition and
operating results of Company and its subsidiaries at the dates and during the
periods indicated therein (subject, in the case of unaudited statements, to
normal, recurring year-end adjustments). There has been no change in Company
accounting policies since July 17, 2000. Except as set forth in the Company
Financial Statements, the Company and its Subsidiaries have no material
liabilities, contingent or otherwise, other than (a) liabilities incurred in the
ordinary course of business subsequent to July 17, 2000 and (b) obligations
under contracts and commitments incurred in the ordinary course of business and
not required under generally accepted accounting principles to be reflected in
the Company Financial Statements, which, in both cases, individually or in the
aggregate, would not have a Material Adverse Effect. Except as disclosed in the
Company Financial Statements, none of the Company and the Subsidiaries is a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
2.23 Absence of Certain Changes. (a) From December 31, 2000
(the "Company Balance Sheet Date") to the date of this Agreement, the Company
and its Subsidiaries have conducted their businesses in the ordinary course
consistent with past practice and there has not occurred: (a) any change, event
or condition (whether or not covered by insurance) that has resulted in, or
might reasonably be expected to result in, a Material Adverse Effect; (b) any
acquisition, sale or transfer of any material asset of the Company or any of its
Subsidiaries other
11
than in the ordinary course of business and consistent with past practice; (c)
any change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by the Company or any
revaluation by the Company of any of its or any of its Subsidiaries' assets; (d)
any declaration, setting aside, or payment of a dividend or other distribution
with respect to the shares of the Company or any Subsidiary, or any direct or
indirect redemption, purchase or other acquisition by the Company or any
Subsidiary of any of its shares of capital stock; (e) except as set forth on
Schedule 2.23 to the Schedule of Exceptions, the entering into of any material
contract or any material amendment by the Company or any Subsidiary, other than
in the ordinary course of business and as provided to the Investors; (f) any
termination of, or default under, any material contract to which Company or any
Subsidiary is a party or by which it is bound; (g) any amendment or change to
the certificate of incorporation or bylaws or equivalent organizational
documents of the Company or any Subsidiary; (h) any material change in any
compensation arrangement or agreement with any employee of the Company or any
Subsidiary; (i) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties, financial
condition, operating results, prospects or business of the Company (as such
business is presently conducted and as it is proposed to be conducted) and its
Subsidiaries, taken as a whole; (j) any waiver by the Company or any Subsidiary
of a valuable right or of a material debt owed to it; (k) any satisfaction or
discharge of any lien, claim or encumbrance, or payment of any obligation by the
Company or any Subsidiary, except in the ordinary course of business and that is
not material to the assets, properties, financial condition, operating results
or business of the Company (as such business is presently conducted and as it is
proposed to be conducted); (l) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets; (m) any
mortgage, pledge, transfer of a security interest in, or lien, created by the
Company or any Subsidiary, with respect to any of its material properties or
assets, except for Permitted Liens; or (n) any agreement or commitment by the
Company or any Subsidiary to do any of the things described in this Section
2.23.
2.24 Absence of Undisclosed Liabilities. The Company has no
material obligations or liabilities of any nature (matured or unmatured, fixed
or contingent) other than (a) those set forth or adequately provided for in the
consolidated balance sheet and the notes thereto as of December 31, 2000
included in the Company Financial Statements (the "Company Balance Sheet"), (b)
those incurred in the ordinary course of business and not required to be set
forth in the Company Balance Sheet under GAAP, (c) those incurred in the
ordinary course of business since the Company Balance Sheet Date and not
reasonably likely to have a Material Adverse Effect; and (d) those incurred in
connection with the execution of this Agreement.
2.25 Employee Benefit Plans.
(a) Schedule 2.25 to the Schedule of Exceptions lists,
with respect to the Company and any Subsidiary, (i) all material employee
benefit plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), and all such employee plans
maintained or contributed to by any trade or business (whether or not
incorporated) which is treated as a single employer with the Company (each, an
"ERISA Affiliate") within the meaning of Section 414(b), (c), (m) or (o) of the
Code (the "Employee Plans"), (ii) any material stock option, stock purchase,
phantom stock, stock appreciation right, supplemental retirement, severance,
sabbatical, medical, dental, vision care, disability, employee
12
relocation, cafeteria benefit (Code section 125) or dependent care (Code Section
129), life insurance or accident insurance plans, programs or arrangements,
(iii) all material bonus, pension, profit sharing, savings, deferred
compensation or incentive plans, programs or arrangements and (iv) other
material fringe or employee benefit plans, programs or arrangements that apply
to senior management of the Company and that do not generally apply to all
employees (together, the "Employee Plans").
(b) The Company has furnished (or, prior to the Closing
Date, will furnish) to each Investor a copy of each of the Employee Plans
maintained, contributed to or required to be contributed to by the Company or
any Subsidiary (together, the "Company Employee Plans") and related plan
documents (including trust documents, insurance policies or contracts, employee
booklets, summary plan descriptions and other authorizing documents, any
material employee communications relating thereto, and any registration
statements and prospectuses relating thereto) and has, with respect to each
Company Employee Plan which is subject to ERISA reporting requirements, provided
(or, prior to the Closing Date, will provide) copies of any Form 5500 reports
filed for the last three plan years.
(c) Except as would not have, in the aggregate, a
Material Adverse Effect on the Company, (i) none of the Employee Plans promises
or provides retiree medical or other retiree welfare benefits to any person
other than as required under the Consolidated Omnibus Budget Reconciliation Act
of 1985 ("COBRA"); (ii) there has been no "prohibited transaction," as such term
is defined in Section 406 of ERISA and Section 4975 of the Code, with respect to
any Employee Plan; (iii) each Employee Plan has been administered in accordance
with its terms and in compliance with the requirements prescribed by any and all
statutes, rules and regulations (including ERISA and the Code) and the Company
and each Subsidiary or ERISA Affiliate have performed all obligations required
to be performed by them under, are not in any respect in default under or
violation of, and have no knowledge of any default or violation by any other
party to, any of the Employee Plans; (iv) neither the Company nor any Subsidiary
or ERISA Affiliate is subject to any liability or penalty under Sections 4976
through 4980 of the Code or Title I of ERISA with respect to any of the Employee
Plans; (v) all contributions required to be made by the Company or any
Subsidiary or ERISA Affiliate to any Employee Plan have been made on or before
their due dates and a reasonable amount has been accrued for contributions to
each Employee Plan for the current plan years; (vi) each Employee Plan can be
amended, terminated or otherwise discontinued in accordance with its terms,
without liability to the Company or any Subsidiary (other than ordinary
administrative expenses typically incurred in a termination event); (vii) the
Company has prepared in good faith and timely filed all requisite governmental
reports (which were true and correct as of the date filed) and has properly and
timely filed and distributed or posted all notices and reports to employees
required to be filed, distributed or posted with respect to each such Employee
Plan; and (viii) no suit, administrative proceeding, action or other litigation
has been brought, or to the knowledge of the Company is threatened, against or
with respect to any such Employee Plan, including any audit or inquiry by the
Internal Revenue Service or United States Department of Labor.
(d) With respect to each Company Employee Plan, the
Company and each of its Subsidiaries have complied with (i) the applicable
health care continuation and notice provisions of COBRA and the regulations
(including proposed regulations) thereunder except to the extent that such
failure to comply would not, in the
13
aggregate, have a Material Adverse Effect on the Company, (ii) the applicable
requirements of the Family Medical and Leave Act of 1993 and the regulations
thereunder, except to the extent that such failure to comply would not, in the
aggregate, have a Material Adverse Effect on the Company and (iii) the
applicable requirements of the Health Insurance Portability and Accountability
Act of 1996 and the regulations (including proposed regulations) thereunder,
except to the extent that such failure to comply would not, in the aggregate,
have a Material Adverse Effect on the Company.
(e) There has been no amendment to, or written
interpretation or announcement by the Company or any Subsidiary relating to a
change in participation or coverage under, any Company Employee Plan which would
materially increase the expense of maintaining such Company Employee Plan above
the level of expense incurred with respect to that Company Employee Plan for the
most recent fiscal year included in the Company's financial statements (other
than extending coverage under such Company Employee Plan to any Company
employees hired following the last day of the most recent fiscal year included
in the Company's financial statements).
(f) No Employee Plan is intended to be qualified under
Section 401(a) of the Code and no Employee Plan is an employee pension plan
within the meaning of Section 3(2) of ERISA.
(g) None of the Company, any Subsidiary or any ERISA
Affiliate currently maintains, sponsors, participates in or contributes to, nor
has any of them ever maintained, established, sponsored, participated in, or
contributed to, any pension plan (within the meaning of Section 3(2) of ERISA)
which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA
or Section 412 of the Code.
(h) Neither the Company nor any Subsidiary or other
ERISA Affiliate is a party to, or has made any contribution to or otherwise
incurred any obligation under, any "multiemployer plan" as defined in Section
3(37) of ERISA.
(i) No Employee Plan is required to be maintained or
contributed to by the law or applicable custom or rule of a jurisdiction outside
of the United States.
(j) Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will (i) result in
any material payment (including, without limitation, severance, unemployment
compensation, golden parachute, bonus or otherwise) becoming due to any
director, employee or consultant of the Company or any of its Subsidiaries, (ii)
materially increase any benefits otherwise payable by the Company or (iii)
result in the acceleration of the time of payment or vesting of any such
benefits except as required under Code Section 411(d)(3).
2.26 Tax Returns, Payments and Elections. The Company and the
Subsidiaries have filed all tax returns and reports as required by law. These
returns and reports are true and correct in all material respects. Each of the
Company and its Subsidiaries has paid all taxes and other assessments reflected
in all such returns, except those contested by it in good
14
faith that are listed on Schedule 2.26 to the Schedule of Exceptions. The
provision for taxes of the Company and the Subsidiaries as shown in the Company
Financial Statements is adequate for taxes due or accrued as of the date
thereof. The Company has not elected pursuant to the Internal Revenue Code of
1986, as amended (the "Code"), to be treated as a Subchapter S corporation or a
collapsible corporation pursuant to Section 1362(a) or Section 341(f) of the
Code, nor has it made any other elections pursuant to the Code (other than
elections that relate solely to methods of accounting, depreciation or
amortization) that would have a material effect on the Company, its financial
condition, its business as presently conducted or proposed to be conducted or
any of its properties or material assets. None of the Company and its
Subsidiaries has had any tax deficiency proposed or assessed against it or has
executed any waiver of any statute of limitations on the assessment or
collection of any tax or governmental charge. None of the Company's federal
income tax returns and none of its state income or franchise tax or sales or use
tax returns has ever been audited by governmental authorities. Since the date of
the Company Financial Statements, the Company has made adequate provisions on
its books of account for all taxes, assessments and governmental charges with
respect to its business, properties and operations for such period. Each of the
Company and its Subsidiaries has withheld or collected from each payment made to
each of its employees, the amount of all taxes (including, but not limited to,
federal income taxes, Federal Insurance Contribution Act taxes and Federal
Unemployment Tax Act taxes) required to be withheld or collected therefrom, and
has paid the same to the proper tax-receiving officers or authorized
depositaries. The Company is not a member of a consolidated group that includes
any party other than its direct or indirect wholly owned subsidiaries. Schedule
2.26 to the Schedule of Exceptions sets forth each tax-sharing or tax-allocation
agreement to which the Company or any Subsidiary is a party.
2.27 Insurance. Each of the Company and its Subsidiaries has
policies of insurance (including director's and officer's liability insurance)
and bonds of the type and in amounts customarily carried by persons conducting
businesses or owning assets similar to those of the Company and its
Subsidiaries. There is no material claim pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid, and the Company and its Subsidiaries are
otherwise in compliance with the terms of such policies and bonds. The Company
has no knowledge of any threatened termination of, or material premium increase
with respect to, any of such policies.
2.28 Minute Books. The minute books of the Company and the
Subsidiaries provided to the Investors contain a complete summary of all
meetings and actions of directors and stockholders (and in the case of Virginia
LLC, its partners and members) since the time of organization and reflect all
transactions referred to in such minutes accurately in all material respects.
2.29 Labor Agreements and Actions. None of the Company and its
Subsidiaries is bound by or subject to (and none of its assets or properties is
bound by or subject to) any written or oral, express or implied, contract,
commitment or arrangement with any labor union, and no labor union has requested
or, to the Company's knowledge, has sought to represent any of the employees,
representatives or agents of the Company. No strike or other labor dispute
involving the Company or any Subsidiary is pending, or to the Company's
knowledge, threatened, that could have a material adverse effect on the assets,
properties, financial condition,
15
operating results, or business of the Company (as such business is presently
conducted and as it is proposed to be conducted), nor is the Company or any
Subsidiary aware of any labor organization activity involving its employees.
None of the Company and its Subsidiaries has knowledge that any officer or key
employee, or that any group of key employees, intends to terminate their
employment with the Company or any Subsidiary, nor does the Company or any
Subsidiary have a present intention to terminate the employment of any of the
foregoing. The employment of each officer and employee of the Company is
terminable at the will of the Company, except as may otherwise be provided in
any employment agreement set forth on Schedule 2.29 to the Schedule of
Exceptions. Each of the Company and its Subsidiaries has complied in all
material respects with all applicable state and federal equal employment
opportunity and other laws related to employment conditions and practices and
have withheld all amounts required by any applicable Laws to be withheld from
wages or any taxes and paid or adequately reserved on its financial statements
any penalties for failure to comply with any of the foregoing. Except as set
forth in Schedule 2.25 or Schedule 2.29 to the Schedule of Exceptions, none of
the Company and its Subsidiaries is a party to or bound by any currently
effective employment contract, deferred compensation agreement, bonus plan,
incentive plan, profit sharing plan, retirement agreement or other employee
compensation agreement (except pursuant to offer letters to "at-will"
employees). Except as set forth in Schedule 2.29 of the Schedule of Exceptions,
none of the Company and its Subsidiaries has actual knowledge that any
employee's employment violates any commitment to any person or entity not to
compete or not to use or disclose proprietary or confidential information.
2.30 Brokers. None of the Company and its Subsidiaries has any
contract, arrangement or understanding with any broker, finder or similar agent
with respect to the transactions contemplated by this Agreement.
2.31 Available Credit. On the date of this Agreement, the
Company has not less than *********** in cash and available credit.
2.32 Private Placement. No form of general solicitation or
general advertising (as defined in Regulation D under the Securities Act was
used by the Company or any of its respective representatives (other than the
Investors, as to whom the Company makes no representation) in connection with
the offer and sale of the Series B Preferred Stock hereby, including, but not
limited to, articles, notices or other communications published in any
newspaper, magazine, or similar medium or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising. No securities of the same class as the
Series B Preferred Stock have been issued and sold by the Company within the
six-month period immediately prior to the date hereof.
3. Representations and Warranties of the Investors. Each Investor
hereby represents and warrants that:
3.1 Authorization. All corporate action on the part of such
Investor, its officers, directors and stockholders necessary for the
authorization, execution and delivery of each of the Transaction Documents and
the performance of all obligations of such Investor hereunder, has been taken or
will be taken prior to the Closing, and the Transaction Documents constitute its
valid and legally binding obligations, enforceable against it in accordance with
its
16
terms except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally, (b) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies, and (c) to the extent the indemnification provisions contained in the
Transaction Documents may be limited by applicable federal or state securities
laws.
3.2 Purchase Entirely for Own Account. This Agreement is made
by the Company with such Investor in reliance upon such Investor's
representation to the Company, which by such Investor's execution of this
Agreement such Investor hereby confirms, that, except as provided in Section 1.3
of this Agreement, the Series B Preferred Stock to be received by such Investor
and the Common Stock issuable upon conversion thereof (collectively, the
"Securities") will be acquired for investment for such Investor's own account,
not as a nominee or agent, and not with a view to the resale or distribution of
any part thereof, and that such Investor has no present intention of selling,
granting any participation in, or otherwise distributing the same, except in
compliance with applicable federal or state securities laws. By executing this
Agreement, such Investor further represents that such Investor does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Securities.
3.3 Disclosure of Information. Such Investor believes it has
received all the information it considers necessary and appropriate for deciding
whether to purchase the Series B Preferred Stock. Such Investor further
represents that it has had an opportunity to ask questions and receive answers
from the Company regarding the terms and conditions of the offering of the
Series B Preferred Stock and the business, properties, prospects and financial
condition of the Company. The foregoing, however, does not limit or modify the
representations and warranties of the Company in this Agreement or the right of
the Investors to rely thereon.
3.4 Investment Experience. Such Investor is an investor in
securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment, and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Series B
Preferred Stock. If other than an individual, Investor also represents that it
has not been organized for the purpose of acquiring the Series B Preferred
Stock.
3.5 Accredited Investor. Such Investor is an "accredited
investor" within the meaning of SEC Rule 501 of Regulation D, as presently in
effect.
3.6 Restricted Securities. Such Investor understands that the
Securities it is purchasing are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such securities may not be resold without registration
under the Act, except in certain limited circumstances. In this connection, such
Investor represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the Act.
3.7 Further Limitations on Disposition. Without in any way
limiting the representations set forth above, such Investor further agrees not
to make any disposition of all
17
or any portion of the Securities unless and until the transferee has agreed in
writing for the benefit of the Company to be bound by this Article 3 and the
Amended Stockholders Agreement, provided and to the extent this Article 3 and
such agreement are then applicable, and:
(a) There is then in effect a Registration Statement
under the Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) (i) Such Investor shall have notified the Company of
the proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, such Investor shall have furnished the
Company an opinion of counsel, in form and substance reasonably satisfactory to
the Company, that such disposition will not require registration of such shares
under the Act. It is agreed that the Company will not require opinions of
counsel for transactions made pursuant to Rule 144, provided that it receives
appropriate representations from the seller with regard to compliance with Rule
144, except in unusual circumstances.
(c) Notwithstanding the provisions of paragraphs (a) and
(b) above, no such registration statement or opinion of counsel shall be
necessary for (i) a transfer by Cisco pursuant to Section 1.3 of this Agreement,
(ii) a transfer by an Investor that is a partnership or limited liability
company to a partner or member of such partnership or limited liability company
or a retired partner or member of such partnership or limited liability company
who retires after the date of this Agreement, or to the estate of any such
partner or member or retired partner or member or the transfer by gift, will or
intestate succession of any partner to his or her spouse or to the siblings,
lineal descendants or ancestors of such partner or member or his or her spouse
or to entities associated by common ownership, or (iii) a transfer by an
Investor to any entity directly or indirectly controlled by or controlling the
Investor.
3.8 Legends. It is understood that the certificates evidencing
the Securities may bear one or all of the following legends:
(a) "The securities evidenced by this certificate have
not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), and may not be sold or transferred unless there is an
effective registration statement under the Securities Act covering the sale or
transfer of such securities or such sale or transfer is exempt from the
registration and prospectus delivery requirements of the Securities Act. The
securities evidenced by this certificate also are subject to certain other
restrictions on transfer, as set forth in a Stockholders Agreement, dated as of
October 29, 1999, as amended, among the Company and certain stockholders named
therein (the "Stockholders Agreement"). Accordingly, these securities may be
transferred only in compliance with the Stockholders Agreement."
(b) Any legend required by the Blue Sky laws of any
state to the extent such laws are applicable to the shares represented by the
certificate so legended.
4. Conditions of Investor's Obligations at Closing. The obligations
of each Investor under Section 1.1(c) of this Agreement are subject to the
fulfillment on or before the
18
Closing Date of each of the following conditions, the waiver of which shall not
be effective against any Investor who does not consent in writing thereto:
4.1 Representations and Warranties. The representations and
warranties of the Company contained in Article 2 shall be true in all material
respects (except for such representations and warranties that are qualified by
their terms by a reference to materiality, which representation and warranties
as so qualified shall be true and correct in all respects) on and as of the
Closing Date as though such representations and warranties had been made on and
as of the Closing Date.
4.2 Performance; Material Adverse Change. The Company shall
have performed and complied in all material respects with all agreements,
obligations and conditions contained in this Agreement that are required to be
performed or complied with by it on or before the Closing Date. There shall not
have occurred a Material Adverse Effect.
4.3 Compliance Certificate. The Chief Executive Officer or the
Chief Financial Officer of the Company shall deliver to each Investor at the
Closing a certificate stating that the conditions specified in Sections 4.1 and
4.2 of this Agreement have been fulfilled.
4.4 Qualifications. All authorizations, approvals, waivers,
consents or permits, if any, of any governmental authority or regulatory body of
the United States or of any state that are required in connection with the
lawful issuance and sale of the Securities pursuant to this Agreement, including
such as may be required under the Securities Act, under state Blue Sky laws and
under HSR, shall have been duly obtained by and effective as of the Closing.
4.5 Proceedings and Documents. All corporate and other
proceedings taken by the Company and each of the Subsidiaries prior to the
Closing in connection with the transactions contemplated hereby, and all
documents and instruments related thereto, shall be in form and substance
reasonably satisfactory to the Investors, and the Investors shall have received
all such counterpart original and certified or other copies of such documents as
they may reasonably request. The issuance and sale of the Series B Preferred
Stock to the Investors shall have been made in conformity with all applicable
state and federal securities laws.
4.6 Opinions of Company Counsel. Each Investor shall have
received (a) from ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, counsel for the Company, an opinion, dated
as of the Closing Date, in substantially the form attached hereto as Exhibit H
and (b) from ▇▇▇▇▇▇▇ Berlin Shereff ▇▇▇▇▇▇▇▇ LLP, counsel for the Company, an
opinion, dated as of the Closing Date, in form and substance reasonably
satisfactory to such Investor.
4.7 Amended Stockholders Agreement. Each of the Company, the
Subsidiaries and certain stockholders of the Company (to the extent required for
the amendment of the stockholders agreement that it amends and restates) shall
have entered into the Amended Stockholders Agreement.
4.8 General Supply Agreement. ▇▇.▇▇▇ Corp. shall have entered
into the General Supply Agreement.
19
4.9 Credit Agreement and Loan Documents. Each of the Company,
▇▇▇▇ Telecom Ventures, Inc. ("▇▇▇▇") and First Union National Bank shall have
entered into the Credit Agreement in substantially the form attached hereto as
Exhibit E, and any Loan Documents to which it is a party, in each case, with
such changes as the authorized officers of the parties thereto shall have
approved. Consents to the approval of the Credit Agreement and the Loan
Documents shall have been executed and delivered by each lender whose consent is
required under the terms of the Existing Credit Agreement (as defined in the
Credit Agreement)). The Company shall have delivered to Cisco a certificate
executed by the Chief Financial Officer of the Company certifying that all
conditions precedent to the Company's ability to borrow, and the lenders'
obligations to lend, under the Credit Agreement have been satisfied or waived.
The Company shall be entitled to draw down on funds pursuant to the Credit
Agreement in accordance with its terms. All conditions to the full discharge of
the $10,000,000 Nonnegotiable Subordinated Note, dated October 29, 1999, issued
by the Company to ▇▇▇▇, other than the payment and remittance contemplated by
the irrevocable instructions of ▇▇▇▇ to the Company set forth in the letter,
dated as of the date hereof, from ▇▇▇▇ to the Company (the "▇▇▇▇ Letter"), shall
have been satisfied or waived, and the ▇▇▇▇ Letter shall remain in full force
and effect.
4.10 Warrants. The Company shall have executed and delivered
the Cisco Warrants.
4.11 GSA Letter. The Company shall have entered into the GSA
Letter in substantially the form set forth in Exhibit G.
4.12 Good Standing Certificate. The Company shall have
delivered to the special counsel of the Investors Certificates of Good Standing
issued by the Secretary of State of the State of Delaware and of each state
where the Company is authorized to do business.
4.13 Secretary's Certificate. The Company shall have delivered
to the Company a certificate issued by the Secretary of the Company certifying
as to the Company's certificate of incorporation and bylaws and resolutions
and/or consents of the Company's board of directors and stockholders.
4.14 Expenses. Payment to Cisco for the fees and expenses
referred to in Section 9.10 of this Agreement shall have been arranged for.
4.15 Indemnity Agreement. The Company and each member of the
board of directors shall have executed and delivered the Indemnity Agreements or
similar agreements.
4.16 Consents. The Company shall have delivered to Cisco
satisfactory evidence of the consent, approval or waiver of those parties whose
consent, approval or waiver shall be required to enter into any of the
Transaction Documents or to consummate the transactions contemplated thereby,
including pursuant to the contracts set forth on Schedule 2.6 to the Schedule of
Exceptions, except with respect to the transactions specifically contemplated by
Sections 7 and 8 of the Certificate of Designations of the Series B Preferred
Stock contained in the Restated Certificate.
20
5. Conditions of the Company's Obligations at Closing. The
obligations of the Company to each Investor under this Agreement are subject to
the fulfillment on or before the Closing Date of each of the following
conditions by such Investor:
5.1 Representations and Warranties. The representations and
warranties of such Investor contained herein shall be true in all material
respects (except for such representations and warranties that are qualified by
their terms by a reference to materiality, which representation and warranties
as so qualified shall be true and correct in all respects) on and as of the
Closing Date as though such representations and warranties had been made on and
as of the Closing Date.
5.2 Performance. Each Investor shall have performed and
complied in all material respects with all agreements, obligations and
conditions contained in this Agreement that are required to be performed or
complied with by it on or before the Closing Date.
5.3 Compliance Certificate. An officer of each Investor shall
deliver to the Company at the Closing a certificate stating that the conditions
specified in Sections 5.1 and 5.2 of this Agreement have been fulfilled.
5.4 Proceedings and Documents. All corporate and other
proceedings taken by each Investor prior to the Closing in connection with the
transactions contemplated hereby, and all documents and instruments related
thereto, shall be in form and substance reasonably satisfactory to the Company,
and the Company shall have received all such counterpart original and certified
or other copies of such documents as it may reasonably request.
5.5 Payment of Purchase Price; Minimum Share Purchase. The
Investor shall have delivered the purchase price specified in Article 1 of this
Agreement, and the Investors shall collectively have acquired and paid
*********** at the Closing for ********* shares of Series B Preferred Stock.
5.6 Qualifications. All authorizations, approvals, waivers,
consents or permits, if any, of any governmental authority or regulatory body of
the United States or of any state that are required in connection with the
lawful issuance and sale of the Securities pursuant to this Agreement, including
such as may be required under the Securities Act, under state Blue Sky laws and
under HSR, shall be duly obtained and effective as of the Closing.
5.7 Amended Stockholders Agreement. Each of the Investors and
certain stockholders of the Company (to the extent required for the amendment of
the stockholders agreement that it amends and restates) shall have entered into
the Amended Stockholders Agreement.
5.8 General Supply Agreement. Cisco shall have entered into
the General Supply Agreement.
5.9 Credit Agreement and Loan Documents. Each of First Union
National Bank and Cisco Systems Capital Corporation ("CSCC") shall have entered
into the Credit Agreement in substantially the form attached hereto as Exhibit E
and any Loan Documents to which it is a party, in each case, with such changes
as the authorized officers of
21
the parties thereto shall have approved. Consents to the approval of the Credit
Agreement and the Loan Documents shall have been executed and delivered by each
lender whose consent is required pursuant to the terms of the Existing Credit
Agreement. CSCC shall have delivered to the Company confirmation that all
conditions precedent to its obligations to lend under the Credit Agreement have
been satisfied or waived by it.
6. Indemnification.
6.1 Indemnification by the Company. Subject to the provisions
of this Article 6, the Company agrees to indemnify the Investors and their
respective officers, partners, employees, agents or representatives
(collectively, "Investor-indemnified parties") against and to hold the
Investor-indemnified parties harmless from any and all damages, losses,
liabilities and expenses (including, without limitation, reasonable expenses of
investigation and reasonable attorneys' fees and expenses in connection with any
action, claim, suit or proceeding) (collectively, "Damages") incurred or
suffered by the Investor-indemnified parties or Cisco Co-Investors (as defined
in the Stockholders Agreement) arising from or in connection with (a) any
inaccuracy in any representation or the breach of any warranty of the Company or
any Subsidiary under this Agreement (provided that notice of any claim related
to an alleged breach of a representation or warranty is delivered to the Company
on or prior to the last date of the applicable survival period as set forth in
Section 9.2 of this Agreement; or (b) the failure of the Company or any
Subsidiary duly to perform or observe any term, provision, covenant or agreement
to be performed or observed by the Company or any Subsidiary pursuant to this
Agreement.
6.2 Indemnification Procedures.
(a) If the indemnified parties shall seek
indemnification pursuant to this Article 6, the indemnified parties shall give
prompt notice to the Company (as such, the "indemnifying party") of the
assertion of any claim, or the commencement of any action, suit or proceeding,
in respect of which indemnity may be sought hereunder and will give the
indemnifying party such information with respect thereto as the indemnifying
party may reasonably request, but no failure to give such notice shall relieve
the indemnifying party of any liability hereunder, except to the extent of
actual prejudice or damages suffered as a result thereof; provided that no
indemnifying party shall be entitled to indemnification with respect to any
claim related to an alleged breach of a representation or warranty, notice of
which is provided to the Company after the last date of the applicable survival
period as set forth in Section 9.2 of this Agreement. The indemnifying party
may, at its expense, participate in or assume the defense of any such action,
suit or proceeding involving a third party with counsel reasonably acceptable to
the indemnified party. The indemnified party will have the right to employ its
counsel in any such action, but the fees and expenses of such counsel will be at
the expense of such indemnified party unless (i) the employment of counsel by
the indemnified party has been authorized in writing by the indemnifying party,
(ii) named parties include both the indemnified party and the indemnifying
party, and such counsel has advised the indemnified party that there may be
legal defenses available to it that are different from or in addition to those
available to the indemnifying party (in which case the indemnifying party will
not have the right to direct the defense of such action on behalf of the
indemnified party) or (iii) the indemnifying party has not in fact employed
counsel to assume the defense of such action within a reasonable
22
time after receiving notice of the commencement of the action, in each of which
cases the reasonable fees and expenses of counsel will be at the expense of the
indemnifying party, and the indemnifying party shall reimburse or pay such fees
and expenses as they are incurred. Whether or not the indemnifying party chooses
to defend or prosecute any claim involving a third party, all the parties hereto
shall cooperate in the defense or prosecution thereof and shall furnish such
records, information and testimony, and attend such conferences, discovery
proceedings, hearings, trials and appeals, as may be reasonably requested in
connection therewith.
(b) The indemnifying party shall not be liable under
this Article 6 for any settlement effected without its consent of any claim,
litigation or proceedings by a third party in respect of which indemnity may be
sought hereunder, unless the indemnifying party refuses to acknowledge liability
for indemnification under this Section 6.2 and/or declines to defend the
indemnified party in such claim, litigation or proceeding.
6.3 General Threshold; Limit.
(a) Notwithstanding anything herein to the contrary, the
indemnifying party shall not have any liability to any indemnified parties under
Section 6.1(a) of this Agreement unless and until the aggregate amount of
payment that would otherwise be required to be made exceeds ******* (the
"Threshold Amount"), in which case the party entitled to such payment shall be
entitled to receive all such amounts including the Threshold Amount.
(b) Notwithstanding anything herein to the contrary, the
amount of Damages that are subject to indemnification pursuant to Section 6.1(a)
of this Agreement shall not exceed ***********.
6.4 Other Limitations on Liability.
(a) To the extent that any Damages are covered by
insurance or any right to indemnification (other than pursuant to this Article
6) held by such indemnified party, such indemnified party shall be entitled to
indemnification pursuant to Section 6.1 of this Agreement, only with respect to
the amount of Damages that are in excess of the cash proceeds received by such
indemnified party pursuant to such insurance or right to indemnification. If
such indemnified party receives such cash insurance or indemnification proceeds
prior to the time such claim for Damages is paid, then the amount payable by the
indemnifying party pursuant to such claim shall be reduced by the amount of such
proceeds. If such indemnified party receives such cash insurance or
indemnification proceeds after such claim has been paid, then, as promptly as
practicable following the receipt by the indemnified party of any cash proceeds
pursuant to such insurance or right to indemnification, such indemnified party
shall repay any portion of the amount previously paid by the indemnifying party
to such indemnified party in satisfaction of such claim for which such cash
insurance or indemnification proceeds were paid.
(b) Notwithstanding anything herein to the contrary, to
the extent that the Investors or the Company waives satisfaction of one or more
conditions set forth in Section 4.1 and 4.2 or 5.1 and 5.2, respectively, of
this Agreement, which conditions were not
23
satisfied due to one or more events, conditions or circumstances that occurred
after the date of this Agreement and that were specifically disclosed in writing
to the Investors or the Company, respectively, prior to the Closing, the Company
or the Investors, respectively, shall not have any liability hereunder for such
matter or matters but only to the extent so disclosed.
(c) Neither party to this Agreement nor any of its
Affiliates or Representatives shall be liable to any other party hereto or any
of its Affiliates or Representatives for claims for punitive, special, exemplary
or incidental damages, regardless of whether a claim is based on contract, tort
(including negligence), strict liability, violation of any applicable deceptive
trade practices act of similar law or any other legal or equitable principle. No
party shall be entitled to rescission of this Agreement as a result of breach of
any other party's representations, warranties, covenants or agreements, or for
any other matter.
(d) With respect to any matter as to which
indemnification is provided pursuant to this Article 6, such indemnification
shall be the sole remedy available to the indemnified party, other than in
connection with fraud or intentional breaches.
7. Operations Prior to Closing; Covenants.
7.1 Permitted Activities Prior to Closing. During the period
from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Closing Date, the Company agrees, and
agrees to cause each Subsidiary, except to the extent expressly contemplated by
this Agreement or as consented to in writing by the Investor, to carry on its
business and operations in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted. The Company further
agrees, and agrees to cause each Subsidiary, to pay its debts and Taxes when
due, except to the extent of any good faith disputes over such debts or Taxes,
to pay or perform other obligations when due except to the extent of any good
faith disputes, to use commercially reasonable efforts to keep available the
services of the Company's executive officers and key employees and to preserve
the Company's relationships with customers, suppliers, distributors, licensors,
licensees and others having dealings with the Company. Any material tax returns
filed by the Company or its Subsidiaries during the period from the date of this
Agreement to the Closing Date shall be prepared on a basis consistent with past
practice. The Company agrees to promptly notify the Investor of any event or
occurrence known to the Company that is not in the ordinary course of business,
and of any event known to the Company that is reasonably likely to have a
Material Adverse Effect.
7.2 Restrictions on Conduct Prior to Closing. During the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Closing Date, except as set forth in the
Schedule of Exceptions and as expressly contemplated by this Agreement, without
the prior written consent of the Investor, the Company shall not and shall not
allow, cause or permit any of its Subsidiaries to do, cause or permit any of the
following actions:
(a) Charter Documents. Amend its certificate of
incorporation or bylaws or equivalent organizational documents;
24
(b) Dividends; Changes in Capital Stock. Declare or pay
any dividends on or make any other distributions (whether in cash, stock or
property) in respect of its capital stock (except cash distributions consistent
with past practice), or split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock, or repurchase or
otherwise acquire, directly or indirectly, any shares of its capital stock
except from former employees, directors and consultants in accordance with
agreements providing for the repurchase of shares in connection with any
termination of service to it;
(c) Stock Option Plans. Accelerate, amend or change the
period of exercisability or vesting of options or other rights granted under the
Company's stock plans or authorize cash payments in exchange for any options or
other rights granted under any of such plans;
(d) Material Transactions. Take any of the actions
described in Sections 4(a)(viii), 4(a)(ix), 4(a)(x) or 4(a)(xi) of the Amended
Stockholders Agreement or violate (excluding good-faith disputes) or waive any
rights of the Company or a Subsidiary under any material agreements of the
Company or the Subsidiaries or by which any of them is bound;
(e) Issuance of Securities. Issue, deliver or sell or
authorize or propose the issuance, delivery or sale of, or purchase or propose
the purchase of, any shares of the Company's capital stock or securities
convertible into, or subscriptions, rights, warrants or options to acquire, or
other agreements or commitments of any character obligating it to issue any such
shares or other convertible securities, other than the issuance of options to
employees or prospective employees in the ordinary course of business pursuant
to the Company's Stock Plan or the issuance of shares of the Company's Common
Stock pursuant to the exercise of stock options, warrants or other rights
therefor outstanding as of the date of this Agreement, or as expressly
contemplated by this Agreement;
(f) Intellectual Property. Transfer to any person or
entity any rights to its intellectual property other than in the ordinary course
of business consistent with past practice;
(g) Dispositions. Sell, lease, license or otherwise
dispose of or encumber any of the Company's assets, except in the ordinary
course of business consistent with past practice;
(h) Indebtedness. Incur any indebtedness for borrowed
money or guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others, except pursuant to the Existing Credit
Agreement as expressly contemplated by the Transaction Documents;
(i) Payment of Obligations. Pay, discharge or satisfy
any claim, liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) arising other than in the ordinary course of business
and other than the payment, discharge or satisfaction of liabilities reflected
or reserved against in the Company's Financial Statements or as expressly
contemplated by the Transaction Documents;
25
(j) Capital Expenditures. Make any capital expenditures,
capital additions or capital improvements except in the ordinary course of
business consistent with past practice;
(k) Insurance. Materially reduce the amount of any
insurance coverage provided by existing insurance policies;
(m) Employee Benefit Plans. Except as contemplated by
the Transaction Documents, adopt or amend any Employee Plan or other employee
benefit or stock purchase or option plan or arrangement that would constitute an
Employee Plan if in effect on the date hereof, except as required under ERISA or
except as necessary to maintain the qualified status of such plan under the
Code;
(n) Employment Agreements; Special Increases; Severance.
Except as set forth on Schedule 7.2(n) to the Schedule of Exceptions, enter into
any employment agreements (which for the purposes this Section 7.2(n), shall be
deemed not to include offer letters to "at-will" employees) or pay any special
bonus or special remuneration to any employee or director or, except in the
ordinary course of business consistent with past practice, increase the salary
or wage rates of its employees or grant any severance or termination pay to any
director, officer or other employee except payments made pursuant to written
agreements in existence on the date hereof;
(o) Acquisitions; Change of Control. Acquire or agree to
acquire by merging or consolidating with, or by purchasing a substantial portion
of the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof, or
otherwise acquire or agree to acquire any assets which are material,
individually or in the aggregate, to the Company or, except as contemplated by
the Transaction Documents, enter into a transaction that would result in a
change of control of the Company; or
(p) Other. Take or agree in writing or otherwise to
take, any of the actions described in this Section 7.2, or any action which
would make any of its representations or warranties contained in this Agreement
untrue or incorrect in any material respect or prevent it from performing or
cause it not to perform its covenants hereunder.
7.3 Form S-8. The Company agrees that, prior to the issuance
of any shares of Common Stock pursuant to the Stock Plan, the Company shall have
filed with the SEC a registration statement on Form S-8 with respect to such
shares, and shall have taken such other actions in connection with such filing
as may be necessary or appropriate to effect the valid registration and issuance
under the Securities Act of such shares.
8. Termination.
8.1 Termination. At any time prior to the Closing Date, this
Agreement may be terminated:
26
(a) by mutual consent duly authorized by the board of
directors of the Company and by the Investors;
(b) by the Investors, or the Company, if the Closing
shall not have occurred on or before July 31, 2001 (provided, however, that a
later date may be agreed upon in writing by the parties hereto, and provided
further that the right to terminate this Agreement under this Section 8.1(b)
shall not be available to any party whose action or failure to act has been the
cause or resulted in the failure of the Closing to occur on or before such date
and such action or failure to act constitutes a breach of this Agreement);
(c) by the Investors, if the Company or any of the
Subsidiaries shall have breached in any material respect any representation,
warranty, obligation or agreement hereunder and such breach shall not be
susceptible of cure (or if so susceptible, is not the subject of diligent
efforts on the part of the breaching party to cure) within 15 business days of
receipt by the Company or its Subsidiary, as the case may be, of written notice
of such breach; provided that the right of the Investors to terminate this
Agreement under this Section 8.1(c) shall not be available to an Investor that
is at that time in breach of this Agreement;
(d) by the Company, if an Investor shall have breached
in any material respect any representation, warranty, obligation or agreement
hereunder and such breach shall not be susceptible of cure (or if so
susceptible, is not the subject of diligent efforts on the part of the breaching
party to cure) within 15 days following receipt by Investor of written notice of
such breach; provided that the right of the Company to terminate this Agreement
under this Section 8.1(d) shall not be available to the Company if the Company
is at that time in breach of this Agreement;
(e) by an Investor if (i) any permanent injunction or
other order of a court or other competent authority preventing the consummation
of the transactions contemplated hereby shall have become final and
nonappealable or (ii) if any required approval of the stockholders of the
Company shall not have been obtained by reason of the failure to obtain the
required vote by written consent or upon a vote held at a duly held meeting of
stockholders or at any adjournment thereof; or
(f) by the Company if (i) any permanent injunction or
other order of a court or other competent authority preventing the consummation
of the transactions contemplated hereby shall have become final and
nonappealable or (ii) if any required approval of the stockholders of the
Company shall not have been obtained by reason of the failure to obtain the
required vote by written consent or upon a vote held at a duly held meeting of
stockholders or at any adjournment thereof (provided that the right to terminate
this Agreement under this Section 8.1(f) shall not be available to the Company
where the failure to obtain stockholder approval shall have been caused by the
action or failure to act of the Company and such action or failure to act
constitutes a breach by the Company of this Agreement).
8.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 8.1 of this Agreement, this Agreement shall
forthwith become void and there shall be no liability or obligation on the part
of Investor, the Company or any of its Subsidiaries, or their respective
officers, directors, stockholders or affiliates, except to the
27
extent that such termination results from the breach by a party hereto of any of
its representations, warranties or covenants set forth in this Agreement;
provided that the provisions of Sections 9.9, 9.14 and 9.15 of this Agreement,
and this Section 8.2 shall remain in full force and effect and survive any
termination of this Agreement.
9. Miscellaneous.
9.1 Use of Proceeds. The proceeds of the sale of the Series B
Preferred Stock at the Closing shall be used by the Company substantially for
general corporate purposes in connection with the construction of its
fiber-optic network including working capital.
9.2 Survival of Representations and Warranties. Except as
otherwise set forth in this Section 9.2, the representations and warranties of
the Company, the Subsidiaries and the Investors contained in or made pursuant to
this Agreement shall survive for a period of only one year after the
consummation of the transactions contemplated by this Agreement. The
representations and warranties of the Company and the Subsidiaries contained in
or made pursuant to Section 2.26 of this Agreement shall survive for a period of
five years after the consummation of the transactions contemplated by this
Agreement. The representations and warranties of the Company and the
Subsidiaries contained in or made pursuant to Section 2.17 of this Agreement
shall survive until the expiration of the applicable statute of limitations. The
representations and warranties of the Company and the Subsidiaries contained in
or made pursuant to Sections 2.1, 2.2, 2.3, 2.4 or 2.5 of this Agreement and the
representations and warranties of the Investors contained in or made pursuant to
Sections 3.1, 3.2, 3.4, 3.5 and 3.7 of this Agreement shall survive indefinitely
the execution and delivery of this Agreement, any investigation at any time made
by or on behalf of the parties hereto and consummation of the transactions
contemplated by this Agreement.
9.3 Successors. This Agreement shall bind and inure to the
benefit of the respective successors and permitted assigns of each of the
parties under the Stockholders Agreement and hereunder.
9.4 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of New York, without regard to the
principles of conflicts of law thereof.
9.5 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.6 Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
9.7 Notices. All notices required or permitted hereunder shall
be in writing and shall be deemed effectively given: (a) upon personal delivery
to the party to be notified; (b) when sent by confirmed telex or facsimile if
sent during normal business hours of the recipient, if not, then on the next
business day; (c) five (5) days after having been sent by
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registered or certified mail, return receipt requested, postage prepaid; or (d)
one (1) day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt. All
communications shall be sent to the address as set forth below or at such other
address as such party may designate by ten (10) days advance written notice to
the other parties hereto:
i) if to the Company, to:
Velocita Corp.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(ii) if to Cisco, to:
Cisco Systems, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: Senior Vice President, Legal
and Governmental Affairs
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
9.8 Finder's Fee. Each party represents that it neither is nor
will be obligated for any finders' fee or commission in connection with this
transaction. Each party agrees to indemnify and to hold harmless, from any
liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending against such liability or asserted
liability) for which such party or any of its officers, partners, employees, or
representatives is responsible, each other party and such other party's
officers, partners, employees or representatives.
29
9.9 Expenses. Irrespective of whether the Closing is effected,
the Company shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement. Irrespective
of whether the Closing is effected, the Company shall pay any and all fees in
connection with any filings under the HSR Act and, at the Closing, shall pay to
Cisco an amount equal to *******, which amount represents fees and expenses of
Cisco in connection with the transactions contemplated hereby. The parties
hereby agree that Cisco shall be entitled to deduct such amounts from its
payment to the Company of the purchase price for the Series B Preferred Stock.
If any action at law or in equity is necessary to enforce or interpret the terms
of any of the Transaction Documents or the Restated Certificate, the prevailing
party shall be entitled to reasonable attorney's fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.
9.10 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Common Stock issued or issuable upon conversion of the Series
B Preferred Stock. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any securities purchased under
this Agreement at the time outstanding (including securities into which such
securities are convertible), each future holder of all such securities, and the
Company.
9.11 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
9.12 Aggregation of Stock. All shares of the Preferred Stock
held or acquired by affiliated entities or persons shall be aggregated together
for the purpose of determining the availability of any rights under this
Agreement.
9.13 Entire Agreement. This Agreement and the documents
referred to herein constitute the entire agreement among the parties and no
party shall be liable or bound to any other party in any manner by any
warranties, representations, or covenants except as specifically set forth
herein or therein.
9.14 Publication. No party hereto shall use any other party's
name or refer to any other party directly or indirectly in any advertisement,
news release or professional or trade publication, or in any other manner,
unless otherwise required by law or with such party's prior written consent, or
pursuant to this Section 9.14. None of the parties to any of the Transaction
Documents shall issue any press release or other public statement relating to
this Agreement or the transactions contemplated hereby unless advised by counsel
that such disclosure is required by law and, in any case, without first giving
the other parties the opportunity to review and comment upon such statement
unless not reasonably practicable under the circumstances. If the Company
determines that it is required by law to file any document or material with the
SEC that contains a reference to Cisco, it shall, at a reasonable time before
making any such filing, consult with Cisco regarding such filing and seek
confidential treatment for such portions of the document or material as may be
reasonably requested by Cisco.
30
9.15 Confidentiality. Each party hereto agrees that, except
with the prior written permission of the other party, or as permitted by Section
9.14 of this Agreement, it shall at all times keep confidential and not divulge,
furnish or make accessible to anyone any confidential information, knowledge or
data concerning or relating to the business or financial affairs of the other
parties to which such party has been or shall become privy by reason of this
Agreement, discussions or negotiations relating to this Agreement, the
performance of its obligations hereunder or the ownership of Preferred Stock
purchased hereunder. The provisions of this Section 9.15 shall be in addition
to, and not in substitution for, the provisions of any separate nondisclosure
agreement executed by the parties hereto with respect to the transactions
contemplated hereby.
9.16 Exculpation Among Investors. Each Investor acknowledges
that it is not relying upon any person, firm or corporation, other than the
Company and its officers and directors, in making its investment or decision to
invest in the Company. Each Investor agrees that no Investor nor the respective
controlling persons, officers, directors, partners, agents, or employees of any
Investor shall be liable to any other Investor for any action heretofore or
hereafter taken or omitted to be taken by any of them in connection with the
purchase of the Securities.
9.17 Register of Securities. The Company or its duly appointed
agent shall maintain a separate register for the shares of Preferred Stock and
Common Stock in which it shall register the issue and sale of all such shares.
All transfers of securities shall be recorded on the register. The Company shall
be entitled to regard the registered holder of its securities as the holder of
such securities so registered for all purposes until the Company or its agent is
required to record a transfer of such securities on its register. Subject to
Sections 3.6 and 3.7 of this Agreement, the Company or its agent shall be
required to record a transfer when it receives the security to be transferred
duly and properly endorsed by the registered holder thereof or by its attorney
duly authorized in writing.
9.18 Removal of Transfer Restrictions. Any legend endorsed on
a certificate evidencing Company securities and any stop transfer instructions
or notations on the Company's records with respect to such securities pursuant
to Section 3.8 of this Agreement (but not any legend setting forth restrictions
on transfer or other obligations pursuant to the Amended Stockholders Agreement
or the Restated Certificate) shall be removed or lifted and the Company shall
issue a certificate without such legend to the holder of such securities if (a)
the transfer of such securities has been registered under the Securities Act or
(b) upon the reasonable request of the Company, such holder provides the Company
with an opinion of counsel (which counsel and opinion are reasonably
satisfactory to the Company) stating that a public sale or transfer of such
securities may be made without registration under the Securities Act and that
such legend is not required under any applicable state securities laws.
9.19 Replacement of Certificates. Upon receipt of a lost
instrument certificate with indemnity provisions reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of any certificate
representing any Company securities, the Company shall issue a new certificate
representing such securities in lieu of such lost, stolen, destroyed or
mutilated certificate.
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9.20 Interpretation of "Knowledge." Statements herein that are
qualified as to the "knowledge of the Company" or similar statements shall mean
the actual knowledge of the executive officers of the Company, after reasonable
inquiry; provided that any statement qualified as to the "actual knowledge" of
the Company shall mean the actual knowledge of the executive officers of the
Company, without inquiry.
32
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
VELOCITA CORP.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chief Financial Officer
CISCO SYSTEMS, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: President & Chief
Executive Officer