EXHIBIT 10.5
COVAD COMMUNICATIONS GROUP, INC.
SERIES C PREFERRED STOCK AND WARRANT
SUBSCRIPTION AGREEMENT
(HIGH YIELD OFFERING)
DATED AS OF FEBRUARY 20, 1998
TABLE OF CONTENTS
PAGE
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SECTION 1 Authorization and Sale of Preferred Stock and Issuance of Warrants.............. 1
1.1 Authorization.................................................................. 1
1.2 Sale of Shares of Series C Preferred to Intel.................................. 1
1.3 Company Right to Sell to Warburg and Crosspoint................................ 2
1.4 Issuance of Warrants in Consideration of Commitment............................ 3
1.5 Amendment and Restatement of the Stockholder Rights Agreement.................. 3
SECTION 2 Closing Dates; Delivery......................................................... 3
2.1 Closing Dates.................................................................. 3
2.2 Delivery....................................................................... 4
SECTION 3 Representations and Warranties of the Company................................... 4
3.1 Organization of the Company.................................................... 4
3.2 Company Capital Structure...................................................... 5
3.3 Subsidiaries................................................................... 6
3.4 Authority...................................................................... 6
3.5 No Conflict.................................................................... 6
3.6 Consents....................................................................... 7
3.7 Company Financial Statements................................................... 7
3.8 No Undisclosed Liabilities..................................................... 7
3.9 No Changes..................................................................... 7
3.10 Tax Matters.................................................................... 9
3.11 Restrictions on Business Activities............................................10
3.12 Title of Properties; Absence of Liens and Encumbrances.........................10
3.13 Intellectual Property..........................................................10
3.14 Agreements, Contracts and Commitments..........................................11
3.15 Interested Party Transactions..................................................12
3.16 Governmental Authorization.....................................................13
3.17 Litigation.....................................................................13
3.18 Employees; Employee Compensation...............................................13
3.19 Minute Books...................................................................14
3.20 Environmental Matters..........................................................14
3.21 Brokers' and Finders' Fees; Third Party Expenses...............................15
3.22 Registration Rights............................................................15
3.23 No Interference or Conflict....................................................15
3.24 Insurance......................................................................15
3.25 Regulatory Matters.............................................................15
3.26 Complete Copies of Materials...................................................16
3.27 Representations Complete.......................................................16
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SECTION 4 Representations and Warranties of the Purchasers.......................... 17
4.1 Investment Representations and Covenants of the Purchasers............... 17
4.2 No Public Market......................................................... 18
4.3 Domicile................................................................. 18
4.4 Authority................................................................ 18
SECTION 5 Conditions to Closing of Purchasers....................................... 19
5.1 Conditions to Closing of Intel........................................... 19
5.2 Conditions to Closing of Warburg and Crosspoint.......................... 19
SECTION 6 Conditions to Closing of Company.......................................... 20
SECTION 7 Miscellaneous............................................................. 20
7.1 Governing Law............................................................ 20
7.2 Survival................................................................. 20
7.3 Successors and Assigns................................................... 21
7.4 Entire Agreement; Amendment.............................................. 21
7.5 Notices, etc............................................................. 21
7.6 Delays or Omissions...................................................... 21
7.7 California Corporate Securities Law...................................... 21
7.8 Expenses................................................................. 22
7.9 Counterparts............................................................. 22
7.10 Severability............................................................. 22
7.11 Gender................................................................... 22
7.12 Confidentiality.......................................................... 22
7.13 Enforceability; Specific Performance; Damages............................ 22
7.14 Jurisdiction and Venue................................................... 22
7.15 Termination.............................................................. 23
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TABLE OF CONTENTS
(CONTINUED)
PAGE
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EXHIBITS
A. Schedule of Purchasers
B. Amended and Restated Certificate of Incorporation
C. Form of Series C Warrant
D. Form of Common Warrant
E. Amended and Restated Stockholder Rights Agreement
F. Exceptions to Representations and Warranties
G. Form of Opinion of Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, P.C.
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COVAD COMMUNICATIONS GROUP, INC.
SERIES C PREFERRED STOCK AND WARRANT SUBSCRIPTION AGREEMENT
This Agreement is made as of February 20, 1998 among Covad Communications
Group, Inc., a Delaware corporation (the "COMPANY"), with its principal office
at 0000 Xxxxxxx Xxxxxx, Xxxxx Xxxxx, Xxxxxxxxxx 00000, and Warburg, Xxxxxx
Ventures, L.P. ("WARBURG"), Crosspoint Venture Partners 1996 ("CROSSPOINT") and
Intel Corporation ("INTEL") (individually, a "PURCHASER" and collectively, the
"PURCHASERS").
WHEREAS, the Company intends to make a private offering of units consisting
of senior notes due 2005 and warrants to purchase Common Stock with aggregate
gross proceeds of at least $100,000,000 (the "HIGH YIELD OFFERING"); and
WHEREAS, as a condition to the High Yield Offering the placement agents,
Bear, Xxxxxxx & Co. Inc. and BT Alex. Xxxxx Incorporated (collectively the
"INITIAL PURCHASERS") have required that the Company obtain from Warburg and
Crosspoint a binding commitment for an investment in Series C Preferred Stock of
the Company in the aggregate amount of $16,000,000 to be made within one year
after the closing of the High Yield Offering; and
WHEREAS, the Company desires to sell, and Intel desires to purchase, an
aggregate of $1 million of shares of Series C Preferred Stock concurrently with
the closing of the High Yield Offering; and
WHEREAS, the Company and the Purchasers wish to set forth the terms and
conditions upon which the Company will sell, and the Purchasers will purchase,
shares of Series C Preferred Stock.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1
Authorization and Sale of Preferred Stock and Issuance of Warrants
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1.1 Authorization. The Company has authorized the sale and issuance of
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3,716,429 shares of its Series C Preferred Stock ("SERIES C PREFERRED"),
including 1,675,000 shares issuable upon exercise of the Series C Warrants (as
defined in Section 1.3 below), having the rights, restrictions, privileges and
preferences as set forth in the Company's Amended and Restated Certificate of
Incorporation attached to this Agreement as Exhibit B (the "AMENDED CERTIFICATE
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OF INCORPORATION").
1.2 Sale of Shares of Series C Preferred to Intel. Subject to the terms
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and conditions hereof, the Company will issue and sell to Intel, and Intel will
buy from the Company, the number of shares (the
"SHARES") of Series C Preferred and Series C Warrants (as defined below)
specified opposite Intel's name on the Schedule of Purchasers attached hereto as
Exhibit A, for the aggregate purchase price specified opposite its name on the
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Schedule of Purchasers; provided, that the purchase and sale of such Series C
Warrants to Intel shall be conditioned upon, and the delivery of such Series C
Warrants to Intel shall be made concurrently with, the Second Closing (as
defined below). It is understood that no additional consideration shall be due
with respect to the delivery of the Series C Warrants to Intel at such Second
Closing. The Company's agreement with Intel is separate from its agreements with
the other Purchasers hereunder, and the sale of the Series C Preferred and the
Series C Warrants to Intel is separate from the Company's sale of Series C
Preferred and Series C Warrants to the other Purchasers hereunder.
1.3 Company Right to Sell to Warburg and Crosspoint.
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(a) Subject to the terms and conditions hereof, the Company shall have
the unequivocal right to sell to Warburg and Crosspoint, and Warburg and
Crosspoint shall have the unequivocal obligation to purchase, severally and not
jointly, the number of Shares and the number of warrants to purchase Series C
Preferred (the "SERIES C WARRANTS") specified opposite their respective names on
the Schedule of Purchasers, for the aggregate purchase price specified opposite
their respective names on the Schedule of Purchasers, at any time from and after
the closing of the High Yield Offering to that date which is one year from the
date of the closing of the High Yield Offering (the "FINAL CLOSING DATE"). The
Company may exercise its right at any time by delivering a written notice to
each of Warburg and Crosspoint stating that the Company has exercised its right
to sell the Shares and the Series C Warrants to Warburg and Crosspoint and
setting forth the closing date as provided in Section 2.1 (the "EXERCISE
NOTICE"). The Company's determination to exercise the foregoing right shall be
made in the sole discretion of the independent members of the Board of Directors
of the Company (excluding the directors affiliated with Warburg and Crosspoint)
(the "INDEPENDENT DIRECTORS"). In the event that the Company has not delivered
the Exercise Notice or completed a Replacement Financing (as defined in Section
1.3(b) below) before the Final Closing Date, then the Company shall sell, and
Warburg and Crosspoint shall purchase, the Shares and the Series C Warrants on
the Final Closing Date. The aggregate number of Series C Warrants shall be
1,675,000. The Series C Warrants shall be in the form of Exhibit C.
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(b) The Company may in its discretion elect not to exercise its right
to sell Series C Preferred and Series C Warrants to Warburg and Crosspoint and
may complete an alternative equity financing in the aggregate amount of $16
million or greater of Common Stock or Preferred Stock in lieu thereof (the
"REPLACEMENT FINANCING"); provided that (i) if the terms of such Replacement
Financing are at the same or a higher price per share (i.e., valuation) and are
pari passu or more favorable to the Company than the terms of the Series C
Preferred set forth in the Amended Certificate of Incorporation, the
determination as to whether to complete such Replacement Financing shall be in
the sole discretion of the Independent Directors; and (ii) if the terms of such
Replacement Financing are at a lower price per share (i.e., valuation) and are
less favorable to the Company than such Series C Preferred, the determination as
to whether to complete such Replacement Financing shall be made by the unanimous
approval of the whole Board of Directors. Each of Warburg and Crosspoint agrees
that if the Company elects an alternative equity financing pursuant to the
foregoing sentence, it will vote its shares of
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Series B Preferred Stock as necessary to enable the Company to complete such
financing, provided such action shall not amend the terms of the Series B
Preferred Stock.
1.4 Issuance of Warrants in Consideration of Commitment. In consideration
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of the commitment of each of the Purchasers to purchase Series C Preferred and
Series C Warrants pursuant to this Agreement, the Company shall deliver to the
Purchasers concurrently with the execution of this Agreement warrants to
purchase an aggregate of 600,000 shares of Common Stock, $.001 par value, at a
purchase price of $.01 per share. The warrants shall be in the form of Exhibit
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D to this Agreement (the "COMMON WARRANTS") and the number of Common Warrants
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delivered to each Purchaser shall be as set forth opposite such Purchaser's name
on the Schedule of Purchasers.
1.5 Amendment and Restatement of the Stockholder Rights Agreement.
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Concurrently with the execution and delivery of this Agreement and the issuance
of the Common Warrants, the Company and each of the Purchasers shall execute and
deliver the Amended and Restated Stockholder Rights Agreement in the form
attached hereto as Exhibit E (the "AMENDED AND RESTATED STOCKHOLDER RIGHTS
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AGREEMENT").
SECTION 2
Closing Dates; Delivery
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2.1 Closing Dates.
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(a) First Closing Date. The closing of the purchase and sale of the
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Series C Preferred to Intel hereunder (the "FIRST CLOSING") shall be held
concurrently with the closing of the High Yield Offering on the date of the
closing of the High Yield Offering (provided that such closing date occurs on or
before April 30, 1998) or on such later date as the Company and Intel may
mutually agree (the "FIRST CLOSING DATE"). The place of the First Closing
(including the place of delivery to Intel by the Company of the certificates
evidencing all shares of Series C Preferred being purchased by Intel and the
place of payment to the Company by Intel of the purchase price therefor) shall
be the offices of Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, 000 Xxxx Xxxx Xxxx, Xxxx
Xxxx, Xxxxxxxxxx 00000-0000, or such other place as Intel and the Company may
mutually agree.
(b) Second Closing Date. The closing of the purchase and sale of the
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Series C Preferred and Series C Warrants hereunder to Warburg and Crosspoint and
the closing of the sale of the Series C Warrants to Intel (the "SECOND CLOSING")
shall be held at 1:00 p.m., California Time, on the fifteenth (15th) day after
delivery of the Exercise Notice (or if such date is not a business day then on
the next business day thereafter) or on such later date as the Company and the
Purchasers may mutually agree to, but in any event no later than the Final
Closing Date (the date of such Closing being referred to as the "SECOND CLOSING
DATE"). The place of the Second Closing (including the place of delivery to
Warburg and Crosspoint by the Company of the certificates evidencing all shares
of Series C Preferred and Series C Warrants being purchased by them and the
place of payment to the Company by Warburg
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and Crosspoint of the purchase price therefor and the place of delivery to Intel
by the Company of the Series C Warrants being purchased by Intel) shall be the
offices of Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, 000 Xxxx Xxxx Xxxx, Xxxx Xxxx,
Xxxxxxxxxx 00000-0000, or such other place as such Purchasers and the Company
may mutually agree.
2.2 Delivery.
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(a) First Closing. At the First Closing, the Company will deliver to
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Intel a certificate or certificates representing the number of Shares designated
on the Schedule of Purchasers to be purchased by Intel, against payment of the
purchase price therefor, by check or wire transfer, in the amount specified on
the Schedule of Purchasers.
(b) Second Closing. At the Second Closing, the Company will deliver
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to each of Warburg and Crosspoint a certificate or certificates representing the
number of Shares and a Series C Warrant evidencing the number of Series C
Warrants designated on the Schedule of Purchasers to be purchased by such
Purchaser, against payment of the purchase price therefor, by check or wire
transfer, in the amount specified on the Schedule of Purchasers. At the Second
Closing, the Company will also deliver to Intel a Series C Warrant evidencing
the number of Series C Warrants designated on the Schedule of Purchasers
purchased by Intel.
SECTION 3
Representations and Warranties of the Company
---------------------------------------------
The Company hereby represents and warrants, subject to such exceptions as
are specifically disclosed in the disclosure letter (referencing the appropriate
section and paragraph numbers) supplied by the Company and attached hereto as
Exhibit F (the "DISCLOSURE LETTER") and dated as of the date hereof, as follows:
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3.1 Organization of the Company. Each of the Company and its wholly-owned
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subsidiaries Covad Communications Company, a California corporation, and DIECA
Communications, Inc., a Virginia corporation (collectively, the "SUBSIDIARIES")
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation. Each of the Company and each of
the Subsidiaries has the corporate power to own its properties and to carry on
its business as now being conducted and as proposed to be conducted and is duly
qualified to do business and in good standing as a foreign corporation in each
jurisdiction in which the failure to be so qualified would have a material
adverse effect on the business, assets (including intangible assets), financial
condition, results of operations or prospects of the Company and the
Subsidiaries, taken as a whole (hereinafter referred to as a "MATERIAL ADVERSE
EFFECT"). The Company has delivered a true and correct copy of its Certificate
of Incorporation and Bylaws, each as amended to date, to the Purchasers.
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3.2 Company Capital Structure.
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(a) The authorized capital stock of the Company consists of 30,000,000
shares of authorized Common Stock, $.001 par value, of which 3,787,068 shares
are issued and outstanding, and 15,000,000 shares of Preferred Stock, $.001 par
value, of which 250,000 shares are designated Series A Preferred Stock, all of
which are outstanding, 5,700,001 shares are designated Series B Preferred, all
of which are outstanding, and 3,716,429 shares are designated Series C
Preferred, none of which are outstanding (collectively, the "COMPANY CAPITAL
STOCK"). All outstanding shares of Company Capital Stock are duly authorized,
validly issued, fully paid and non-assessable, are not subject to preemptive
rights created by statute, the Certificate of Incorporation or Bylaws of the
Company or any agreement to which the Company is a party or by which it is bound
and have been issued in compliance with federal and state securities laws. The
Company has no other capital stock authorized, issued or outstanding.
(b) The Series C Preferred to be purchased by the Purchasers
hereunder, when issued, sold and delivered in accordance with the terms of this
Agreement for the consideration expressed herein, the Series C Preferred
issuable upon exercise of the Series C Warrants, when issued, sold and delivered
in accordance with the terms of the Series C Warrants for the consideration
expressed therein, and the Common Stock issuable upon exercise of the Common
Warrants when issued, sold and delivered in accordance with the terms of the
Common Warrants for the consideration expressed therein and the Series C
Warrants and the Common Warrants when issued, sold and delivered in accordance
with the terms of the Agreement for the consideration expressed herein, will be
duly and validly issued, fully paid and nonassessable, and will be free of
restrictions on transfer other than restrictions on transfer under this
Agreement and any Related Agreement (as defined in Section 3.4 hereof) and under
applicable state and federal securities laws. The Common Stock issuable upon
conversion of the Series C Preferred being purchased under this Agreement and
issuable upon exercise of the Series C Warrants and issuable upon exercise of
the Common Warrants has been duly and validly reserved for issuance and, upon
issuance in accordance with the terms of the Certificate of Incorporation or the
Common Warrants, as applicable, will be duly and validly issued, fully paid and
nonassessable and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and any Related Agreement and
under applicable state and federal securities laws.
(c) Except for the Company's 1997 Stock Option Plan (the "OPTION
PLAN"), the Company has never adopted or maintained any stock option plan or
other plan providing for equity compensation of any person. The Company has
reserved 1,756,750 shares of Company Capital Stock for issuance to employees,
directors and consultants pursuant to the Option Plan, 1,531,950 of which are
subject to outstanding options under the Option Plan. Except for the Series C
Warrants, the Common Warrants, and the warrants to purchase Common Stock to be
issued in connection with the High Yield Offering, there are no options,
warrants, calls, rights, commitments or agreements of any character, written or
oral, to which the Company is a party or by which it is bound obligating the
Company to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of the capital stock of the
Company or obligating the Company to grant, extend, accelerate the vesting of,
change the price of, otherwise amend or enter into any such option, warrant,
call, right, commitment or agreement. There are no outstanding or authorized
stock appreciation,
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phantom stock, profit participation, or other similar rights with respect to the
Company. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting stock of the Company.
3.3 Subsidiaries. The Company does not have, and never has had, any
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subsidiaries or affiliated companies other than the Subsidiaries and does not
otherwise own, and has not otherwise owned, any shares in the capital of or any
interest in, or control, directly or indirectly, any other corporation,
partnership, association, joint venture, limited liability company or other
business entity. The Company owns all outstanding shares of stock of the
Subsidiaries, free and clear of all liens, pledges, charges, claims, restriction
on transfer, mortgages, security interests or other encumbrances of any sort
(collectively, "LIENS"). All outstanding shares of the Subsidiaries are owned
by the Company and are duly authorized, validly issued, fully paid and
nonassessable. There are no options, warrants, calls, rights, commitments or
agreements of any character, written or oral, to which any Subsidiary is a party
or by which it is bound obligating such Subsidiary to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any shares of the capital stock of any Subsidiary or obligating any
Subsidiary to grant, extend, accelerate the vesting of, change the price of,
otherwise amend or enter into any such option, warrant, call, right, commitment
or agreement.
3.4 Authority. The Company has all requisite power and authority to enter
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into this Agreement, the Series C Warrants, the Common Warrants, and each of the
Related Agreements to which it is a party and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement,
the Series C Warrants, the Common Warrants and the Related Agreements and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of the Company, and no
further action is required on the part of the Company or any of their respective
officers, directors, or stockholders to authorize the Agreement, the Series C
Warrants, the Common Warrants, the Related Agreements and the transactions
contemplated hereby and thereby. This Agreement, the Series C Warrants, the
Common Warrants and the Related Agreements have been duly executed and delivered
by the Company and, assuming the due authorization, execution and delivery by
the other parties hereto and thereto, constitute the valid and binding
obligation of the Company, enforceable in accordance with their respective
terms, subject to the laws of general application relating to bankruptcy,
insolvency and the relief of debtors and to rules of law governing specific
performance, injunctive relief or other equitable remedies. The "RELATED
AGREEMENTS" shall mean all such ancillary agreements required in this Agreement
to be executed and delivered in connection with the transactions contemplated
hereby, including the Amended and Restated Stockholder Rights Agreement.
3.5 No Conflict. The execution and delivery of this Agreement, the Series
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C Warrants, the Common Warrants and the Related Agreements by the Company do
not, and the consummation of the transactions contemplated hereby and thereby
will not, conflict with, or result in any violation of, or default under (with
or without notice or lapse of time, or both), or give rise to a right of
termination, cancellation, modification or acceleration of any obligation or
loss of any benefit under (any such event, a "CONFLICT") (i) any provision of
the Certificate or Articles of Incorporation and Bylaws of the Company or any
Subsidiary, (ii) any mortgage, indenture, lease, contract or other agreement
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or instrument, permit, concession, franchise or license to which the Company or
any Subsidiary or any of their respective properties or assets are subject, or
(iii) any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or the Subsidiaries or their respective properties or
assets.
3.6 Consents. No consent, waiver, approval, order or authorization of, or
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registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or other foreign governmental
authority, instrumentality, agency or commission ("GOVERNMENTAL ENTITY") or any
third party, including a party to any agreement with the Company or any
Subsidiary (so as not to trigger any Conflict), is required by or with respect
to the Company or any Subsidiary in connection with the execution and delivery
of this Agreement, the Series C Warrants, the Common Warrants and the Related
Agreements or the consummation of the transactions contemplated hereby and
thereby, except for such consents, waivers, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
securities laws, which will be timely filed within the applicable periods
therefor. The Company has not offered shares of its Series C Preferred or any
substantially similar securities of the Company for sale to, or solicited any
offers to buy from, or otherwise approached or negotiated in respect thereof
with, any person other than the Purchasers, and the Company will not take any
action that will cause the issuance and delivery of the shares of its Series C
Preferred and Common Stock as contemplated hereby to constitute a violation of
the Securities Act or the California Corporate Securities Law of 1968, as
amended.
3.7 Company Financial Statements. Section 3.7 of the Disclosure Letter
----------------------------
sets forth the Company's balance sheets as of December 31, 1997, (the "CURRENT
BALANCE SHEET") and the related audited statements of income and cash flow for
the twelve-month period ended December 31, 1997, (collectively the "COMPANY
FINANCIALS"). The Company Financials are correct in all material respects and
have been prepared in accordance with U.S. generally accepted accounting
principles consistent with the reporting practices and principles ("GAAP"),
applied on a basis consistent throughout the periods indicated and consistent
with each other. The Company Financials present fairly the financial condition,
operating results and cash flows of the Company as of the dates and during the
periods indicated therein.
3.8 No Undisclosed Liabilities. Except as set forth in Section 3.8 of the
--------------------------
Disclosure Letter, the Company does not have any liability, indebtedness,
obligation, expense, claim, deficiency, guaranty or endorsement of any type,
whether accrued, absolute, contingent, matured, unmatured or other (whether or
not required to be reflected in financial statements in accordance with GAAP),
which individually or in the aggregate (i) has not been reflected in the Current
Balance Sheet, or (ii) has not arisen in the ordinary course of business
consistent with past practices since December 31, 1997.
3.9 No Changes. Except as set forth in Section 3.9 of the Disclosure
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Letter or as contemplated by this Agreement, since December 31, 1997, there has
not been, occurred or arisen any:
(a) transaction by the Company or any Subsidiary except in the
ordinary course of business as conducted on that date and consistent with past
practices;
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(b) amendments or changes to the Certificate of Incorporation or
Bylaws of the Company or the Articles of Incorporation or Bylaws of any
Subsidiary;
(c) capital expenditure or commitment by the Company or the
Subsidiaries, either individually or in the aggregate, exceeding $50,000.
(d) destruction of, damage to or loss of any material assets, business
or customer of the Company or the Subsidiaries (whether or not covered by
insurance);
(e) labor trouble or claim of wrongful discharge or other unlawful
labor practice or action;
(f) change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by the Company or the
Subsidiaries;
(g) revaluation by the Company or the Subsidiaries of any of their
respective assets;
(h) declaration, setting aside or payment of a dividend or other
distribution with respect to the Company Capital Stock, or any direct or
indirect redemption, purchase or other acquisition by the Company of any of its
Common Stock;
(i) increase in the salary or other compensation payable or to become
payable by the Company or the Subsidiaries to any of their respective officers,
directors, employees or advisors, or the declaration, payment or commitment or
obligation of any kind for the payment, by the Company or the Subsidiaries of a
bonus or other additional salary or compensation to any such person;
(j) any agreement, contract, lease or commitment (collectively a
"COMPANY AGREEMENT") or any extension or modification the terms of any Company
Agreement which (i) involves the payment by the Company or the Subsidiaries of
greater than $50,000 per annum or which extends for more than one (1) year, (ii)
involves any payment or obligation to any affiliate of the Company, or (iii)
involves the sale of any material assets of the Company or the Subsidiaries;
(k) sale, lease, license or other disposition of any of the assets or
properties of the Company or the Subsidiaries, or any creation of any security
interest in such assets or properties except in the ordinary course of business
as conducted on that date and consistent with past practices;
(l) amendment or termination of any material contract, agreement or
license to which the Company or any Subsidiary is a party or by which it is
bound;
(m) loan by the Company or any Subsidiary to any person or entity,
incurring by the Company or any Subsidiary of any indebtedness, guaranteeing by
the Company or any Subsidiary of any indebtedness, issuance or sale of any debt
securities of the Company or any Subsidiary or guaranteeing
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of any debt securities of others, except for advances to employees for travel
and business expenses in the ordinary course of business, consistent with past
practices;
(n) waiver or release of any right or claim of the Company or any
Subsidiary, including any write-off or other compromise of any account
receivable of the Company or such Subsidiary;
(o) the commencement or notice or threat of commencement of any
lawsuit or proceeding against the Company or the Subsidiaries or their
respective affairs;
(p) notice of any claim of ownership by a third party of any
Intellectual Property (as defined in Section 3.13 below) of the Company or the
Subsidiaries or of infringement by the Company or any Subsidiary of any third
party's Intellectual Property rights;
(q) issuance or sale, or contract to issue or sell, by the Company or
any Subsidiary of any of its shares of capital stock, or securities
exchangeable, convertible or exercisable therefor, or of any other of its
securities except pursuant to the Company's incentive stock plans;
(r) change in pricing or royalties set or charged by the Company or
any Subsidiary to their respective customers or licensees or in pricing or
royalties set or charged by persons who have licensed Intellectual Property (as
defined in Section 3.13 below) to the Company or the Subsidiaries;
(s) any event or condition of any character that has had a Material
Adverse Effect on the Company or the Subsidiaries; or
(t) negotiation or agreement by the Company or any Subsidiary or any
officer or employees thereof to do any of the things described in the preceding
clauses (a) through (s) (other than negotiations with the Purchasers and their
representatives regarding the transactions contemplated by this Agreement).
3.10 Tax Matters. Each of the Company and the Subsidiaries has timely
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filed all tax returns and reports (federal, state and local) as required by law.
These returns and reports are true and correct in all material respects. The
Company and the Subsidiary have paid all taxes and other assessments due, except
those contested by them in good faith and which are described in Section 3.10 of
the Disclosure Letter. The provision for taxes of the Company or the
Subsidiaries as shown in the Financial Statements is adequate for taxes due or
accrued as of the date thereof. Neither the Company nor any Subsidiary has
elected pursuant to the Internal Revenue Code of 1986, as amended ("CODE"), to
be treated as an S corporation or a collapsible corporation pursuant to Section
1362(a) or Section 341(f) of the Code, nor have they 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 business, properties, prospects, or financial condition of the Company and
the Subsidiaries, taken as a whole. Neither the Company nor the Subsidiaries has
ever had any tax deficiency proposed or assessed against it, nor have they
executed any waiver of any statute of limitations on the assessment or
collection of any
-9-
tax or governmental charge. None of the Company's or the Subsidiaries' federal
income tax returns and none of their state income or franchise tax or sales or
use tax returns have ever been audited by governmental authorities. Since the
date of the 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. The Company
and the Subsidiaries have 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
have paid the same to the proper tax receiving officers or authorized
depositaries. Neither the Company nor any Subsidiary is a real property holding
corporation within the meaning of Section 897(c)(2) of the Code and any
regulations promulgated thereunder.
3.11 Restrictions on Business Activities. There is no agreement
-----------------------------------
(noncompetition or otherwise), commitment, judgment, injunction, order or decree
to which the Company or any Subsidiary is a party or otherwise binding upon the
Company or any Subsidiary that has or may have the effect of prohibiting or
impairing any business practice of the Company or the Subsidiaries, any
acquisition of property (tangible or intangible) by the Company or the
Subsidiaries or the conduct of business by the Company or the Subsidiaries.
Without limiting the foregoing, neither the Company nor any Subsidiary has
entered into any agreement under which the Company or such Subsidiary is
restricted from manufacturing or selling any product or providing services to
customers or potential customers or any class of customers, in any geographic
area, during any period of time or in any segment of the market.
3.12 Title of Properties; Absence of Liens and Encumbrances.
------------------------------------------------------
(a) Neither the Company nor any Subsidiary owns any real property, nor
has either the Company or any Subsidiary ever owned any real property. Section
3.12(a) of the Disclosure Letter sets forth a list of all real property
currently leased by the Company or the Subsidiaries, the name of the lessor, the
date of the lease and each amendment thereto and, with respect to any current
lease, the aggregate annual rental and/or other fees payable under any such
lease. All such current leases are in full force and effect, are valid and
effective in accordance with their respective terms, and there is not, under any
of such leases, any existing default or event of default (or event which with
notice or lapse of time, or both, would constitute a default).
(b) The Company and the Subsidiaries have good and valid title to, or,
in the case of leased properties and assets, valid leasehold interests in, all
of their respective tangible properties and assets, real, personal and mixed,
used or held for use in their respective businesses, free and clear of any
Liens, except as reflected in the Current Balance Sheet and except for liens for
taxes not yet due and payable and such imperfections of title and encumbrances,
if any, which are not material in character, amount or extent, and which do not
detract from the value, or interfere with the present use, of the property
subject thereto or affected thereby.
3.13 Intellectual Property. To the knowledge of the Company, the Company
---------------------
or the Subsidiaries own and possess or are licensed under all patents, patent
applications, licenses, trademarks,
-10-
trade secrets, trade names, brand names, inventions and copyrights or other
proprietary rights ("INTELLECTUAL PROPERTY") employed in the operation of their
respective businesses as now conducted, and as currently planned to be
conducted, and to the knowledge of the Company, with no infringement of or
conflict with the rights of others respecting any of the same. Section 3.13 of
the Disclosure Letter sets forth all of the patents applied for by the Company
as of the date hereof. Neither the Company nor any Subsidiary has received any
communications alleging that the Company or any Subsidiary has violated any of
the Intellectual Property of any other person or entity, nor is the Company
aware of any basis for the foregoing. Reasonable security measures have been
taken by the Company and the Subsidiaries to protect the secrecy,
confidentiality and value of the Company's and the Subsidiaries' trade secrets,
including their respective know-how, technology, concepts and other technical
data for the development, processing, manufacture and sale of its products. Each
employee of and consultant to the Company or the Subsidiaries has executed an
invention assignment and confidentiality agreement substantially in the form
provided to the Purchasers.
3.14 Agreements, Contracts and Commitments.
-------------------------------------
(a) Except as set forth on Section 3.14(a) of the Disclosure Letter or
the Financial Statements, neither the Company nor any Subsidiary has or is bound
by:
(i) any contract, license or agreement to which the Company or
any Subsidiary is a party (A) with respect to Intellectual Property of the
Company licensed or transferred to any third party or (B) pursuant to which a
third party has licensed or transferred any Intellectual Property to the Company
or any Subsidiary, with a potential value or cost in excess of $50,000;
(ii) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or
consulting or sales agreement, contract or commitment with a firm or other
organization;
(iii) any agreement or plan, including, without limitation,
any stock option plan, stock appreciation rights plan or stock purchase plan,
any of the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement;
(iv) any fidelity or surety bond or completion bond;
(v) any lease of personal property with fixed annual rental
payments in excess of $50,000;
(vi) any contract, license or agreement between the Company
or any Subsidiary and any third party wherein or whereby the Company or such
Subsidiary has agreed to, or assumed, any obligation or duty to warrant,
indemnify, hold harmless or otherwise assume or incur any
-11-
obligation or liability with respect to the infringement or misappropriation by
the Company or such Subsidiary or such third party of the Intellectual Property
of any third party;
(vii) any agreement, contract or commitment containing any
covenant limiting the freedom of the Company or any Subsidiary to engage in any
line of business or to compete with any person;
(viii) any agreement, contract or commitment relating to
capital expenditures and involving future payments in excess of $50,000;
(ix) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise
outside the ordinary course of the Company's or the Subsidiaries' businesses;
(x) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the borrowing
of money or extension of credit;
(xi) any purchase order or contract for the purchase of
materials involving $50,000 or more;
(xii) any construction contracts;
(xiii) any distribution, joint marketing or development
agreement; or
(xiv) any other agreement, contract or commitment that
involves $50,000 or more or is not cancelable without penalty within thirty (30)
days.
(b) Each of the Company and each of the Subsidiaries is in compliance
with and has not breached, violated or defaulted under, or received notice that
it has breached, violated or defaulted under, any of the terms or conditions of
any agreement, contract, license or commitment to which it is a party or by
which it is bound (any such agreement, contract, license or commitment, a
"CONTRACT"), and neither the Company nor any Subsidiary is aware of any event
that would constitute such a breach, violation or default with the lapse of
time, giving of notice or both. Each Contract is in full force and effect and,
except as otherwise disclosed in Section 3.14(b) of the Disclosure Letter, to
the knowledge of the Company, all other parties to each Contract are in
compliance with, and have not breached any term of, such Contract. The Company
and the Subsidiaries have obtained, or will obtain prior to the Closing Date,
all necessary consents, waivers and approvals of parties to any Contract as are
required to remain in effect without modification after the Closing.
3.15 Interested Party Transactions. To the knowledge of the Company, no
-----------------------------
officer, director or stockholder of the Company or the Subsidiary (nor any
ancestor, sibling, descendant or spouse of any of such persons, or any trust,
partnership or corporation in which any of such persons has or has had an
interest), has or has had, directly or indirectly, (i) any interest in any
entity that furnished or sold, or
-12-
furnishes or sells, services or products that the Company or any Subsidiary
furnishes or sells, or proposes to furnish or sell, or (ii) any interest in any
entity that purchases from or sells or furnishes to the Company or such
Subsidiary any goods or services or (iii) a beneficial interest in any Contract;
provided, however, that ownership of no more than one percent (1%) of the
outstanding voting stock of a publicly traded corporation and no more than five
percent (5%) of the outstanding equity of any other entity shall not be deemed
an "INTEREST IN ANY ENTITY" for purposes of this Section 3.15.
3.16 Governmental Authorization. The Company or one of the Subsidiaries
--------------------------
holds all consents, licenses, permits, grants or other authorizations by a
governmental entity (i) pursuant to which the Company or such Subsidiary
currently operates or holds any interest in any of its properties or (ii) which
is required for the operation of their business or the holding of any such
interest except where the failure to hold such consent, license, permit, grant
or other authorization would not have a Material Adverse Effect on the Company
and its Subsidiaries taken as a whole (herein collectively called "COMPANY
AUTHORIZATIONS"). The Company Authorizations are in full force and effect and
constitute all Company Authorizations required to permit the Company and its
Subsidiaries to operate or conduct their business or hold any interest in their
properties or assets, except where the failure to have such Company
Authorizations would not have a Material Adverse Effect on the Company and its
Subsidiaries taken as a whole.
3.17 Litigation. There is no action, suit or proceeding of any nature
----------
pending, or to the knowledge of the Company, threatened against the Company or
any Subsidiary, their respective properties or any of their respective officers
or directors, nor, to the knowledge of the Company, is there any reasonable
basis therefor. There is no investigation pending or, to the knowledge of the
Company, threatened against the Company or any Subsidiary, their respective
properties or any of their respective officers or directors (nor, to the
knowledge of the Company, is there any reasonable basis therefor) by or before
any governmental entity. No governmental entity has at any time challenged or
questioned the legal right of the Company or any Subsidiary to conduct their
respective operations as presently or previously conducted.
3.18 Employees; Employee Compensation. To the Company's knowledge, there
--------------------------------
is no strike, labor dispute or union organization activities pending or
threatened between it and its employees. None of the Company's or the
Subsidiaries' employees belongs to any union or collective bargaining unit. To
the Company's knowledge, the Company and the Subsidiaries have complied in all
material respects with all applicable state and federal equal opportunity and
other laws related to employment. To the Company's knowledge, no employee of
the Company or any Subsidiary is or will be in violation of any judgment,
decree, or order, or any term of any employment contract, patent disclosure
agreement, or other contract or agreement relating to the relationship of any
such employee with the Company or such Subsidiary, or any other party because of
the nature of the business conducted or presently proposed to be conducted by
the Company or the Subsidiaries or to the use by the employee of his or her best
efforts with respect to such business. Neither the Company nor any Subsidiary
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. The Company is
not aware that any officer or key employee, or that any group of key employees,
intends to terminate
-13-
their employment with the Company or a Subsidiary, nor do the Company or any
Subsidiary have a present intention to terminate the employment of any of the
foregoing. Subject to general principles related to wrongful termination of
employees, the employment of each officer and employee of the Company or the
Subsidiaries is terminable at the will of the Company or any such Subsidiary.
3.19 Minute Books. The minute books of the Company and the Subsidiaries
------------
made available to counsel for Purchasers are the only minutes of the Company and
the Subsidiaries and contain a reasonably accurate summary of all meetings of
the Board of Directors (or committees thereof) of the Company and the
Subsidiaries and their respective stockholders or actions by written consent
since the incorporation of the Company and the Subsidiaries.
3.20 Environmental Matters.
---------------------
(a) Hazardous Material. Neither the Company nor any Subsidiary has:
(i) operated any underground storage tanks at any property that the Company or
such Subsidiary has at any time owned, operated, occupied or leased; or (ii)
illegally released any substance that has been designated by any Governmental
Entity or by applicable federal, state or local law to be radioactive, toxic,
hazardous or otherwise a danger to health or the environment, including, without
limitation, PCBs, asbestos, petroleum, and urea-formaldehyde and all substances
listed as hazardous substances pursuant to the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, or defined as a
hazardous waste pursuant to the United States Resource Conservation and Recovery
Act of 1976, as amended, and the regulations promulgated pursuant to said laws
(a "HAZARDOUS MATERIAL"), but excluding office and janitorial supplies properly
and safely maintained. No Hazardous Materials are present as a result of the
deliberate actions of the Company or any Subsidiary or, to the Company's
knowledge, as a result of any actions of any third party or otherwise, in, on or
under any property, including the land and the improvements, ground water and
surface water thereof, that the Company or any Subsidiary has at any time owned,
operated, occupied or leased.
(b) Hazardous Materials Activities. Neither the Company nor any
Subsidiary has transported, stored, used, manufactured, disposed of, released or
exposed its employees or others to Hazardous Materials in violation of any law
in effect on or before the date hereof, nor has the Company or any Subsidiary
disposed of, transported, sold, or manufactured any product containing a
Hazardous Material (any or all of the foregoing being collectively referred to
as "HAZARDOUS MATERIALS ACTIVITIES") in violation of any rule, regulation,
treaty or statute promulgated by any Governmental Entity in effect prior to or
as of the date hereof to prohibit, regulate or control Hazardous Materials or
any Hazardous Material Activity.
(c) Permits. The Company or a Subsidiary currently holds all
environmental approvals, permits, licenses, clearances and consents (the
"ENVIRONMENTAL PERMITS") necessary for the conduct of the Company's or the
Subsidiaries' Hazardous Materials Activities and other businesses of the Company
and the Subsidiaries as such activities and businesses are currently being
conducted except where the failure to hold such Environmental Permits would not
have a Material Adverse Effect on the Company and the Subsidiaries taken as a
whole.
-14-
(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
Company's knowledge, threatened concerning any Environmental Permit, Hazardous
Material or any Hazardous Materials Activity of the Company or the Subsidiaries.
The Company is not aware of any fact or circumstance which could involve the
Company or any Subsidiary in any environmental litigation or impose upon the
Company or such Subsidiary any environmental liability.
3.21 Brokers' and Finders' Fees; Third Party Expenses. Neither the Company
------------------------------------------------
nor any Subsidiary has incurred, nor will incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with the Agreement or any transaction contemplated hereby.
3.22 Registration Rights. Other than as granted pursuant to the
-------------------
Stockholder Rights Agreement, the Company has not granted or agreed to grant any
rights to register, as that term is defined in the Stockholder Rights Agreement,
including piggyback registration rights, to any person or entity.
3.23 No Interference or Conflict. To the knowledge of the Company, no
---------------------------
shareholder, officer, employee or consultant of the Company or any Subsidiary is
obligated under any contract or agreement or subject to any judgment, decree or
order of any court or administrative agency, that would interfere with such
person's efforts to promote the interests of the Company or the Subsidiaries or
that would interfere with the Company's or the Subsidiaries' business. Neither
the execution nor delivery of this Agreement, nor the carrying on of the
Company's or the Subsidiaries' business as presently conducted or proposed to be
conducted nor any activity of such officers, directors, employees or consultants
in connection with the carrying on of the Company's or the Subsidiaries'
business as presently conducted or proposed to be conducted, 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 or
agreement under which any of such officers, directors, employees or consultants
are currently bound.
3.24 Insurance. Section 3.24 of the Disclosure Letter lists all insurance
---------
policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company and the
Subsidiaries. There is no claim by the Company or the Subsidiary 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 Affiliates are otherwise in compliance with the terms of such policies and
bonds (or other policies and bonds providing substantially similar insurance
coverage). The Company has no knowledge of any threatened termination of, or
premium increase with respect to, any of such policies.
3.25 Regulatory Matters.
------------------
(a) (i) The execution and delivery of this Agreement by the Company,
the performance of the Company's obligations hereunder, and the consummation of
the transactions contemplated hereby and thereby, do not violate (1) the
Communications Act of 1934 (the
-15-
"COMMUNICATIONS ACT") or interpreted as of this date, (2) the Telecommunications
Act of 1996 (the "TELECOM ACT OF 1996") or interpreted as of this date, (3) any
rules or regulations of the Federal Communications Commission (the "FCC")
applicable to the Company or the Subsidiary or interpreted as of this date, or
(4) any rules or regulations of the California Public Utilities Commission, New
York Public Service Commission, Massachusetts Department of Public Utilities,
Washington Utilities and Transportation Commission, Illinois Commerce Commission
or the Oregon Public Utilities Commission (the "STATE COMMISSIONS") or
interpreted as of this date, and (ii) no authorization of or filing with the FCC
or any of the State Commissions is necessary for the execution and delivery of
this Agreement by the Company and consummation of the transactions contemplated
hereby in accordance with the terms hereof;
(b) (i) The Company and each Subsidiary in all material respects (1)
have made all reports and filings, and paid all fees, required by the FCC and
any of the State Commissions; and (2) have all certificates, orders, permits,
licenses, authorizations, consents and approvals of and from, and have made all
filings and registrations with, the FCC and any of the State Commissions
necessary to own, lease, license and use their properties and assets and to
conduct their businesses as presently conducted and as proposed to be conducted;
and (ii) neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificates,
orders, permits, licenses, authorizations, consents or approvals, or the
qualification or rejection of any such filing or registration, the effect of
which would have a Material Adverse Effect on the Company and the Subsidiaries
taken as a whole;
(c) To the Company's knowledge, neither the Company nor any Subsidiary
is in violation of, or in default under, the Communications Act, as amended by
the Telecom Act of 1996, the rules or regulations of the FCC, or the rules or
regulations of any of the State Commissions, the effect of which, singly or in
the aggregate, would have a Material Adverse Effect on Company and the
Subsidiaries taken as a whole; and
(d) (i) no decree or order of the FCC or any of the State Commissions
is outstanding against the Company or the Subsidiary and (ii) to the Company's
knowledge, no formal litigation, proceeding, inquiry or investigation has been
commenced or threatened, and no formal notice of violation or order to show
cause has been issued, against the Company or the Subsidiary before the FCC or
any of the State Commissions.
3.26 Complete Copies of Materials. The Company has delivered or made
----------------------------
available true and complete copies of each document (or summaries of same) that
has been requested by the Purchasers or their counsel.
3.27 Representations Complete. None of the representations or warranties
------------------------
made by the Company (as modified by the Disclosure Letter), nor any statement
made in any schedule or certificate furnished by the Company pursuant to this
Agreement, contains any untrue statement of a material fact, or omits to state
any material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
-16-
SECTION 4
Representations and Warranties of the Purchasers
------------------------------------------------
Each Purchaser, severally but not jointly, hereby represents and warrants
to the Company with respect to its purchase of the Shares, the Series C Warrants
and the Common Warrants, as follows:
4.1 Investment Representations and Covenants of the Purchasers.
----------------------------------------------------------
(a) This Agreement is made by the Company with each Purchaser in
reliance upon such Purchaser's representations and covenants made in this
Section 4, which by its execution of this Agreement each Purchaser hereby
confirms. Such Purchaser represents that the Shares, the Common Warrants and
the Series C Warrants to be received will be acquired for investment for its own
account, not as a nominee or agent, and not with a view to the sale or
distribution of any part thereof, and that it has no present intention of
selling, granting any participation in or otherwise distributing the same.
(b) Such Purchaser understands and acknowledges that the offering of
the Shares, the Common Warrants and the Series C Warrants pursuant to this
Agreement will not, and any issuance of Common Stock on conversion or exercise
thereof may not, be registered under the Securities Act on the ground that the
sale provided for in this Agreement and the issuance of securities hereunder is
exempt pursuant to Section 4(2) of the Securities Act, and that the Company's
reliance on such exemption is predicated on the Purchasers' representations set
forth herein.
(c) Such Purchaser represents that it is experienced in evaluating
companies such as the Company, is able to fend for itself in transactions such
as the one contemplated by this Agreement, has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of its prospective investment in the Company.
(d) Such Purchaser acknowledges and understands that the Shares, the
Common Warrants and the Series C Warrants, and any Common Stock acquired upon
the conversion or exercise thereof, must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available, and that, except as otherwise provided in the Related
Agreements, the Company is under no obligation to register either the Shares,
the Common Warrants and the Series C Warrants or Common Stock issuable upon
conversion or exercise thereof.
(e) Such Purchaser acknowledges that it has received and reviewed a
copy of Rule 144 promulgated under the Securities Act, which permits limited
public resales of securities acquired in a non-public offering, subject to the
satisfaction of certain conditions. Such Purchaser understands that before the
Shares, or any Common Stock issued upon conversion thereof, may be sold under
Rule 144, the following conditions must be fulfilled, except as otherwise
described below: (i) certain public information about the Company must be
available; (ii) the sale must occur at least one year after the later of the
date the Shares were sold by the Company or the date they were sold by an
-17-
affiliate of the Company; (iii) the sale must be made in a broker's transaction;
and (iv) the number of Shares sold must not exceed certain volume limitations.
If, however, the sale occurs at least two years after the Shares were sold by
the Company or an affiliate of the Company, and if the Purchaser is not an
affiliate of the Company, the foregoing conditions will not apply. The
Purchaser understands that the time period for resale of Shares or Common Stock
issued upon exercise of the Common Warrants or the Series C Warrants does not
begin until the Warrants are exercised unless the net exercise provisions of the
Warrants are used. Such Purchaser understands that the current information
referred to above is not now available and the Company has no present plans to
make such information available.
(f) Such Purchaser acknowledges that in the event the applicable
requirements of Rule 144 are not met, registration under the Securities Act or
compliance with another exemption from registration will be required for any
disposition of its stock. Such Purchaser understands that although Rule 144 is
not exclusive, the Securities and Exchange Commission has expressed its opinion
that persons proposing to sell restricted securities received in a private
offering other than in a registered offering or pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales and that such persons and the brokers who
participate in the transactions do so at their own risk.
(g) Such Purchaser covenants that, in the absence of an effective
registration statement covering the stock in question, it will sell, transfer or
otherwise dispose of the Shares, the Common Warrants, the Common Warrants and
any Common Stock issued on conversion or exercise thereof only in a manner
consistent with its representations and covenants set forth in this Section. In
connection therewith such Purchaser acknowledges that the Company shall make a
notation on its stock books regarding the restrictions on transfer set forth in
this Section and shall transfer shares and warrants on the books of the Company
only to the extent not inconsistent therewith.
(h) Such Purchaser represents that it is an "ACCREDITED INVESTOR" as
such term is defined in Rule 501 under the Securities Act.
4.2 No Public Market. Such Purchaser understands that no public market
----------------
now exists for any of the securities issued by the Company.
4.3 Domicile. Warburg, Xxxxxx Ventures, L.P. is domiciled in the state of
--------
New York. The remainder of the Purchasers are domiciled in the state of
California.
4.4 Authority. Each Purchaser has all requisite power and authority to
---------
enter into this Agreement, the Series C Warrants, the Common Warrants, and each
of the Related Agreements to which it is a party and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of
this Agreement, the Series C Warrants (in the case of Warburg and Crosspoint),
the Common Warrants and the Related Agreements and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate or partnership action on the part of the Purchaser, and no
further action is required on the part of the Purchaser, or any of Purchaser's
respective officers, directors, stockholders, limited partners or general
partners, to authorize the Agreement, the
-18-
Series C Warrants, the Common Warrants, the Related Agreements and the
transactions contemplated hereby and thereby. This Agreement and the Related
Agreements have been duly executed and delivered by the Purchaser and, assuming
the due authorization, execution and delivery by the Company, constitute the
valid and binding obligation of the Purchaser, enforceable in accordance with
their respective terms, subject to the laws of general application relating to
bankruptcy, insolvency and the relief of debtors and to rules of law governing
specific performance, injunctive relief or other equitable remedies.
SECTION 5
Conditions to Closing of Purchasers
-----------------------------------
5.1 Conditions to Closing of Intel. Intel's obligations to purchase the
------------------------------
Shares at the First Closing and, if applicable, the Series C Warrants at the
Second Closing are, at the option of Intel, subject to the fulfillment on or
prior to the First Closing Date of the following conditions:
(a) Opinion of Company's Counsel. Intel shall have received from
----------------------------
counsel to the Company an opinion addressed to it in a form customary for
preferred equity venture financings, dated the First Closing Date, in the form
of Exhibit G-1.
-----------
(b) Blue Sky. The Company shall have obtained all necessary Blue Sky
--------
law permits and qualifications, or secured an exemption therefrom, required by
any state for the offer and sale of the Shares and the Common Stock issuable
upon conversion of the Shares.
(c) Certificate of Incorporation. The Amended Certificate of
----------------------------
Incorporation shall have been filed with the Secretary of State of the State of
Delaware prior to the First Closing.
(d) Stock Certificates. The Company shall have delivered to Intel a
------------------
certificate for the number of shares of Series C Preferred set forth opposite
its name on the Schedule of Purchasers.
(e) High Yield Offering. The Company shall have completed the High
-------------------
Yield Offering on or before April 30, 1998 on terms approved by the Board of
Directors of the Company with aggregate gross proceeds of at least $100,000,000.
(f) Equity Commitment. This Agreement shall not have been terminated
-----------------
by either the Company, Warburg or Crosspoint and the obligations of the Company,
Warburg and Crosspoint hereunder shall continue to be in full force and effect.
5.2 Conditions to Closing of Warburg and Crosspoint. Warburg's and
-----------------------------------------------
Crosspoint's respective obligations to purchase the Shares and the Series C
Warrants at the Second Closing are, at the option of each such Purchaser,
subject to the fulfillment on or prior to the Second Closing Date of the
following conditions:
-19-
(a) Opinion of Company's Counsel. Such Purchasers shall have received
----------------------------
from counsel to the Company, an opinion addressed to them, dated the Second
Closing Date, in the form of Exhibit G-2.
-----------
(b) Blue Sky. The Company shall have obtained all necessary Blue Sky
--------
law permits and qualifications, or secured an exemption therefrom, required by
any state for the offer and sale of the Shares and the Series C Warrants and the
Common Stock issuable upon conversion of the Shares and the Series C Warrants.
(c) Certificate of Incorporation. The Amended Certificate of
----------------------------
Incorporation shall have been filed with the Secretary of State of the State of
Delaware prior to the Closing.
(d) Stock Certificates and Series C Warrants. The Company shall have
----------------------------------------
delivered to such Purchaser a certificate for the number of shares of Series C
Preferred and a Series C Warrant for the number of Series C Warrants set forth
opposite such Purchaser's name on the Schedule of Purchasers.
(e) High Yield Offering. The Company shall have completed the High
-------------------
Yield Offering on or before April 30, 1998 on terms approved by the Board of
Directors of the Company with aggregate gross proceeds of at least $100,000,000.
SECTION 6
Conditions to Closing of Company
--------------------------------
There shall be no conditions to the Company's obligation to sell and issue
the Series C Preferred to Intel at the First Closing and the Series C Warrants
to Intel at the Second Closing, and there shall be no conditions to the
Company's obligation to sell and issue the Series C Preferred and the Series C
Warrants to Warburg and Crosspoint at the Second Closing if the Company has
delivered the Exercise Notice.
SECTION 7
Miscellaneous
-------------
7.1 Governing Law. This Agreement shall be governed in all respects by
-------------
the laws of the State of California as applied to contracts entered into solely
between residents of and to be performed entirely in such state.
7.2 Survival. The representations, warranties, covenants and agreements
--------
made herein shall survive any investigation made by any Purchaser and the
closing of the transactions contemplated hereby. Each Purchaser hereby agrees
and acknowledges that the representations and warranties of the
-20-
Company shall only be made as of the date of the Agreement and shall not be made
as of any subsequent date, including but not limited to as of any closing.
7.3 Successors and Assigns. Except as otherwise provided herein, the
----------------------
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto,
provided, however, that the obligations of a Purchaser to purchase Shares and
Series C Warrants shall not be assignable.
7.4 Entire Agreement; Amendment. This Agreement and the other documents
---------------------------
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
Neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
7.5 Notices, etc. All notices and other communications required or
-------------
permitted hereunder shall be in writing and shall be deemed effectively given
upon delivery to the party to be notified in person or by courier service or
five days after deposit with the United States mail, by registered or certified
mail, postage prepaid, addressed (a) if to a Purchaser, at such Purchaser's
address set forth in Exhibit A, or at such other address as such Purchaser shall
---------
have furnished to the Company in writing, or (b) if to any other holder of any
Shares or Series C Warrants, at such address as such holder shall have furnished
the Company in writing, or, until any such holder so furnishes an address to the
Company, then to and at the address of the last holder of such Shares or Series
C Warrants who has so furnished an address to the Company, or (c) if to the
Company to its address set forth on the cover page of this Agreement and
addressed to the attention of the Corporate Secretary, or at such other address
as the Company shall have furnished to the Purchasers.
7.6 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to any holder of any Shares or Series C Warrants, upon
any breach or default of the Company under this Agreement, shall impair any such
right, power or remedy of such holder nor shall it be construed to be a waiver
of any such breach or default, or an acquiescence therein, or of or in any
similar breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of any holder of any breach or default under
this Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
7.7 California Corporate Securities Law. THE SALE OF THE SECURITIES WHICH
-----------------------------------
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO
SUCH QUALIFICATION IS UNLAWFUL UNLESS AN
-21-
EXEMPTION FROM SUCH QUALIFICATION IS AVAILABLE. THE RIGHTS OF ALL PARTIES TO
THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED,
OR SUCH EXEMPTION BEING AVAILABLE.
7.8 Expenses. The Company and the Purchasers shall each bear their own
--------
expenses and legal fees with respect to this Agreement and the transactions
contemplated hereby; provided the Company will pay at the execution of this
Agreement the reasonable legal fees and expenses of the Purchasers, including
the reasonable legal fees and expenses of counsel to Intel (up to a maximum of
$20,000).
7.9 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which may be executed by less than all of the Purchasers,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
7.10 Severability. In the event that any provision of this Agreement
------------
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
7.11 Gender. The use of the neuter gender herein shall be deemed to
------
include the masculine and the feminine gender, if the context so requires.
7.12 Confidentiality. Each party hereto agrees that, except with the prior
---------------
written permission of the other parties, 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.
7.13 Enforceability; Specific Performance; Damages. Each of the Purchasers
---------------------------------------------
acknowledges that (i) the commitment of the Purchaser to purchase Series C
Preferred and, in the case of Warburg and Crosspoint, Series C Warrants
contained in this Agreement is required for the Company to complete the High
Yield Offering; (ii) the Company has relied on such commitment in completing the
High Yield Offering; and (iii) a breach of any commitment or any other provision
of this Agreement will result in irreparable harm and damages to the Company
which cannot be adequately compensated by a monetary award. Accordingly, it is
expressly agreed that in addition to all other remedies available at law or in
equity, including a remedy for damages, the Company shall be entitled to the
immediate remedy of such other form of injunctive or equitable relief as may be
used by any court of competent jurisdiction to specifically enforce the
provisions hereof.
7.14 Jurisdiction and Venue. Each party agrees that the Federal courts for
----------------------
the Northern District of California [San Xxxx] shall have the exclusive
jurisdiction and venue for any disputes under this Agreement including the
Company's rights under Section 7.13. Each Purchaser hereby consents to the
personal jurisdiction in such Northern District of California [San Xxxx]. Each
Purchaser agrees
-22-
that a judgment in such courts shall be enforceable in any other jurisdiction
where Purchaser may reside or be located.
7.15 Termination. This Agreement may not be terminated by any Purchaser or
-----------
the Company, except that the Company or any Purchaser may terminate this
------ ----
Agreement upon written notice of such party to all other parties (i) at any time
after April 30, 1998, if the High Yield Offering has not been completed by such
date or (ii) solely with respect to the obligations of the Company and Warburg
and Crosspoint with respect to their respective obligations under Section 1.3
hereof, at any time after the closing of the High Yield Offering if the Company
has completed a Replacement Financing.
-23-
The foregoing Series C Preferred Stock and Warrant Subscription Agreement
is hereby executed as of the date first above written.
"COMPANY" COVAD COMMUNICATIONS GROUP, INC.
a Delaware corporation
By: /s/ Xxxxxxx X. XxXxxx
------------------------------------
Name:
---------------------------------
Title:
--------------------------------
PURCHASERS: WARBURG, XXXXXX VENTURES, L.P.
By: Warburg Pincus & Co., its General
Partner
By: /s/ Xxxxx Xxxxxxx
------------------------------
Partner
CROSSPOINT VENTURE PARTNERS 1996
By: /s/ Xxxx Xxxxxxx
------------------------------------
Name: Xxxx Xxxxxxx
---------------------------------
Title: General Partner
--------------------------------
INTEL CORPORATION
By: /s/ Xxxxxx Xxxxxxx
------------------------------------
Name: Xxxxxx Xxxxxxx
---------------------------------
Title: Treasurer
--------------------------------
-24-
EXHIBIT A
---------
Schedule of Purchasers
----------------------
High Yield Commitment
Number of Number of
Number of Shares of Series C
Common Stock Series C Preferred Aggregate
Name and Address Warrants Preferred Stock Warrants Purchase Price
------------------------------------- ------------ --------------- ---------- --------------
Warburg, Xxxxxx Ventures, L.P. 451,773 1,537,105 1,261,200 $12,804,084.65
c/o X.X. Xxxxxxx, Xxxxxx & Co., LLC
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000-0000
Crosspoint Venture Partners 1996. 112,943 384,276 315,300 $ 3,201,019.08
The Pioneer Hotel Building
0000 Xxxxxxxx Xxxx
Xxxxxxxx, XX 00000
Intel Corporation 35,284 120,048 98,500 $ 999,999.84
0000 Xxxxxxx Xxxxxxx Xxxxxxxxx
Mail Stop SC4-210
Xxxxx Xxxxx, XX 00000-0000
Attn: Treasurer
600,000 2,041,429 1,675,000 $17,005,103.57
-25-
EXHIBIT B
---------
Amended and Restated Certificate of Incorporation
(See Exhibit 3.1 to the Registration Statement)
EXHIBIT C
Warrant No. PC-____
THIS WARRANT AND THE SHARES OF STOCK ISSUABLE UPON EXERCISE HEREOF ARE
SUBJECT TO RESTRICTIONS ON TRANSFERABILITY SET FORTH HEREIN AND IN THE
STOCKHOLDER RIGHTS AGREEMENT, A COPY OF WHICH IS AVAILABLE FROM THE
SECRETARY OF THE COMPANY.
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. NO
SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER,
SATISFACTORY TO THE COMPANY, THAT SUCH REGIS REGISTRATION IS NOT REQUIRED
UNDER THE ACT OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION.
THE SALE OF THESE SECURITIES HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS SUCH SALE OR
TRANSFER IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF
THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS
WARRANT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED
UNLESS THE SALE IS SO EXEMPT.
THIS WARRANT MAY NOT BE EXERCISED EXCEPT IN COMPLIANCE WITH ALL APPLICABLE
FEDERAL AND STATE SECURITIES LAWS TO THE REASONABLE SATISFACTION OF THE
COMPANY AND LEGAL COUNSEL FOR THE COMPANY.
Void after _________, 200__
COVAD COMMUNICATIONS GROUP, INC.
WARRANT TO PURCHASE UP TO ____ SHARES OF SERIES C PREFERRED STOCK
__________
THIS CERTIFIES THAT, for value received, ____ is entitled at any time prior
to expiration of this Warrant to subscribe for and purchase up to ____ shares of
the fully paid and nonassessable Series C Preferred Stock of Covad
Communications Group, Inc., a Delaware corporation (hereinafter called the
"COMPANY"), at the price of $8.33 per share (such price and such other price as
shall result, from time to time, from the adjustments specified in paragraph 4
hereof is herein
referred to as the "WARRANT PRICE"), subject to the provisions and upon the
terms and conditions hereinafter set forth. As used herein, the terms "SERIES C
PREFERRED" and "SHARES" shall mean the Company's presently authorized Series C
Preferred Stock, and any stock into or for which such Series C Preferred Stock
may hereafter be converted or exchanged, and the term "DATE OF GRANT" shall mean
____________, 199__.
1. TERM.
This Warrant is exercisable, in whole or in part, at any time and from
time to time from the Date of Grant through __________, 200__.
2. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT.
(a) Subject to paragraph 1 hereof, the purchase right represented by
this Warrant may be exercised by the Holder hereof, in whole or in part, by the
surrender of this Warrant (with the notice of exercise form attached hereto as
EXHIBIT A duly executed) at the principal office of the Company and (i) by the
payment to the Company, by check, of an amount equal to the then applicable
Warrant Price per share multiplied by the number of Shares then being purchased,
or (ii) on or after the date on which the Company's Common Stock becomes
publicly traded or in conjunction with a Merger or Consolidation, by surrender
of the right to receive upon exercise hereof a number of Shares equal to the
value (as determined below) of the Shares with respect to which this Warrant is
being exercised, in which case the number of shares to be issued to the Holder
upon such exercise shall be computed using the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Common to be issued to the Holder.
Y = the number of shares of Common with respect to which this Warrant
is being exercised.
A = the fair market value of one share of Common.
B = Warrant Price.
As used herein, "MERGER OR CONSOLIDATION" shall mean the merger or
consolidation of the corporation into or with another corporation in which this
corporation shall not survive and the stockholders of this corporation shall own
less than 50% of the voting securities of the surviving corporation or the sale,
transfer or lease (but not including a transfer or lease by pledge or mortgage
to a bona fide lender) of all or substantially all of the assets of the
corporation.
(b) As used herein, "FAIR MARKET VALUE OF ONE SHARE OF COMMON" shall
mean, as of any date, the value of Common Stock determined as follows:
-2-
(i) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the Nasdaq National
Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, "fair market
value of one share of Common" shall be the closing sales price for such stock
(or the closing bid, if no sales were reported) as quoted on such exchange or
system for the last market trading day prior to the time of determination, as
reported in The Wall Street Journal or such other source as the Administrator
deems reliable; or
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, "fair market value of one
share of Common" shall be the mean of the closing bid and asked prices for the
Common Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable; or
(iii) In conjunction with a Merger or Consolidation, then the
"fair market value of one share of Common" shall be the value received by the
holders of the Company's Common Stock pursuant to such transaction for each
share of Common Stock, and such purchase shall be effective upon the closing of
such transaction, subject to the due, proper and prior surrender of this
Warrant; provided, however, that should such Merger or Consolidation or such
offering not be consummated, the Company shall refund to the holder the Warrant
Price and the Holder may exercise the purchase right represented by this
Warrant, in whole or in part, at any time and from time to time during the
remainder of its term.
(iv) In conjunction with the initial underwritten public offering of
the Company's Common Stock pursuant to a registration statement filed under the
Securities Act of 1933, the "fair market value of one share of Common" shall be
the price at which registered shares are sold to the public in such offering,
and such purchase shall be effective upon the date of such offering, subject to
the due, proper and prior surrender of this Warrant and the closing of the
offering.
(c) In the event of any exercise of the purchase right represented by
this Warrant, certificates for the shares of stock so purchased shall be
delivered to the holder hereof within thirty days of the effective date of such
purchase and, unless this Warrant has been fully exercised or expired, a new
Warrant representing the portion of the Shares, if any, with respect to which
this Warrant shall not then have been exercised shall also be issued to the
holder hereof within such thirty day period. Upon the effective date of such
purchase, the Holder shall be deemed to be the holder of record of the Shares,
notwithstanding that Certificates representing the Shares shall not then be
actually delivered to such Holder or that such Shares are not then set forth on
the stock transfer books of the Company.
3. STOCK FULLY PAID; RESERVATION OF SHARES.
All Shares which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be fully paid and
nonassessable, and free from all taxes, liens and charges with respect to the
issue thereof. During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized, and
reserved for the
-3-
purpose of the issue upon exercise of the purchase rights evidenced by this
Warrant, a sufficient number of shares of its Series C Preferred to provide for
the exercise of the rights represented by this Warrant and of shares of Common
Stock issuable from time to time upon conversion of such Series C Preferred
Stock.
4. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES.
The number and kind of securities purchasable upon the exercise of
this Warrant and the Warrant Price shall be subject to adjustment from time to
time upon the occurrence of certain events, as follows:
(a) Reclassification or Merger. In case of any reclassification or
change of outstanding securities of the class issuable upon exercise of this
Warrant (other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision or combination),
or in case of any merger of the Company with or into another corporation
(other than a merger with another corporation in which the Company is a
continuing corporation and which does not result in any reclassification or
change of outstanding securities issuable upon exercise of this Warrant), or in
case of any sale of all or substantially all of the assets of the Company, the
Company shall, as condition precedent to such transaction, execute a new Warrant
or cause such successor or purchasing corporation, as the case may be, to
execute a new Warrant, providing that the holder of this Warrant shall have the
right to exercise such new Warrant and upon such exercise to receive, in lieu of
each share of Series C Preferred theretofore issuable upon exercise of this
Warrant, the kind and amount of shares of stock, other securities, money and
property receivable upon such reclassification, change or merger by a holder of
one share of Series C Preferred. Such new Warrant shall provide for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this paragraph 4. The provisions of this subparagraph (a) shall
similarly apply to successive reclassifications, changes, mergers and transfers.
(b) Subdivision or Combination of Shares. If the Company at any time
while this Warrant remains outstanding and unexpired shall subdivide or combine
its Series C Preferred, the Warrant Price shall be proportionately decreased in
the case of a subdivision or increased in the case of a combination.
(c) Stock Dividends. If the Company at any time while this Warrant is
outstanding and unexpired shall pay a dividend with respect to Series C
Preferred payable in, or make any other distribution with respect to Series C
Preferred (except any distribution specifically provided for in the foregoing
subparagraph (a) and (b)) of, Series C Preferred then the Warrant Price shall be
adjusted, from and after the date of determination of stockholders entitled to
receive such dividend or distribution, to that price determined by multiplying
the Warrant Price in effect immediately prior to such date of determination by a
fraction (a) the numerator of which shall be the total number of shares of
Series C Preferred outstanding immediately prior to such dividend or
distribution, and (b) the denominator of which shall be the total number of
shares of Series C Preferred outstanding immediately after such dividend or
distribution.
-4-
(d) Adjustment of Number of Shares. Upon each adjustment in the
Warrant Price, the number of Shares of Series C Preferred purchasable hereunder
shall be adjusted, to the nearest whole share, to the product obtained by
multiplying the number of Shares purchasable immediately prior to such
adjustment in the Warrant Price by a fraction, the numerator of which shall be
the Warrant Price immediately prior to such adjustment and the denominator of
which shall be the Warrant Price immediately thereafter.
5. NOTICE OF ADJUSTMENTS.
Whenever any Warrant Price shall be adjusted pursuant to paragraph 4
hereof, the Company shall make a certificate signed by its chief financial
officer setting forth, in reasonable detail, the event requiring the adjustment,
the amount of the adjustment, the method by which such adjustment was
calculated, and the Warrant Price or Prices after giving effect to such
adjustment, and shall cause copies of such certificate to be mailed (by first
class mail, postage prepaid) to the holder of this Warrant.
6. NOTICE OF CERTAIN ACTIONS. In the event that this corporation shall
propose at any time:
(a) to declare any dividend or distribution upon any class or series
of its stock, whether in cash, property, stock or other securities, whether or
not a regular cash dividend and whether or not out of earnings or earned
surplus;
(b) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights;
(c) to effect any reclassification or recapitalization of its Common
Stock outstanding involving a change in the Common Stock; or
(d) to merge or consolidate with or into any other corporation, or
sell, lease or convey all or substantially all its assets or property, or to
liquidate, dissolve or wind up, whether voluntary or involuntary;
(e) to amend or repeal any provision of, or add any provision to, the
Company's Certificate of Incorporation or Bylaws if such action would alter or
change the preferences, rights, privileges or powers of, or the restrictions
provided for the benefit of, Series C Preferred or increase or decrease the
number of shares of the Series C Preferred authorized;
(f) to authorize or issue shares of any class or series of stock
having any preference or priority as to dividends or assets superior to or on a
parity with any such preference or priority of the Series C Preferred, or
authorize or issue any bonds, debentures, notes or other obligations convertible
into or exchangeable for, or having preferences or priority as to dividends or
assets superior to or on a parity with any such performance or priority of the
Series C Preferred;
-5-
(g) to reclassify any Common Stock or Series C Preferred into shares
having any preference or priority as to dividends or assets superior to or on a
parity with any such preference or priority of the Series C Preferred;
then, in connection with each such event, this Company shall send to the holders
of the Warrants:
(1) at least 10 days' prior written notice of the date on which a
record shall be taken for such dividend, distribution or subscription rights
(and specifying the date on which the holders of Common Stock shall be entitled
thereto) or for determining rights to vote in respect of the matters referred to
in (a) and (b) above;
(2) in the case of the matters referred to in (c) through (g)
above, at least 10 days' prior written notice of the date for the determination
of stockholders entitled to vote thereon (and specifying the date on which the
holders of Common Stock shares shall be entitled to exchange their Common Stock
for securities or other property deliverable upon the occurrence of such event);
and
(3) prompt notice of any material change in the terms of the
transactions described in (a) through (g) above.
Each such written notice shall be delivered personally or given by first
class mail, postage prepaid, addressed to the holders of the Warrants at the
address for each such holder as shown on the books of this corporation.
7. FRACTIONAL SHARES.
No fractional shares of Series C Preferred will be issued in
connection with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Warrant
Price then in effect.
8. COMPLIANCE WITH SECURITIES ACT; NON-TRANSFERABILITY OF WARRANT.
(a) Compliance with Securities Act. The holder of this Warrant, by
acceptance hereof, agrees that this Warrant and the shares of Series C Preferred
to be issued upon exercise hereof are being acquired for investment and that he
will not offer, sell or otherwise dispose of this Warrant or any shares of
Series C Preferred to be issued upon exercise hereof except under circumstances
which will not result in a violation of the Securities Act of 1933, as amended
(the "ACT"). Upon exercise of this Warrant, the holder hereof shall confirm in
writing, in a form of Exhibit B, that the shares of Series C Preferred so
purchased are being acquired for investment and not with a view toward
distribution or resale. In addition, the holder shall provide such additional
information regarding such holder's financial and investment background as the
Company may reasonably request. This Warrant and all shares of Series C
Preferred issued upon exercise of this Warrant (unless registered under the Act)
shall be stamped or imprinted with a legend in substantially the following form:
-6-
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMPANY AND WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER,
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE ACT OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION."
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER INCLUDING A 180-DAY LOCKUP IN CONNECTION WITH
AN INITIAL PUBLIC OFFERING AND A RIGHT OF FIRST REFUSAL HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE STOCKHOLDER RIGHTS
AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES,
A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER.
SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON
TRANSFEREES OF THESE SHARES."
(b) Non-transferability of Warrant. This Warrant and the shares
acquired upon exercise thereof may not be transferred or assigned in whole or in
part except in compliance with (i) the Amended and Restated Stockholder Rights
Agreement between the original Holder and the Company dated February ___, 1998
(the "STOCKHOLDER RIGHTS AGREEMENT") and (ii) applicable federal and state
securities laws.
(c) Stop-Transfer Notices. In order to ensure compliance with the
restrictions referred to herein, the Company may issue appropriate "stop
transfer" instructions to its transfer agent, if any, and, if the Company
transfers its own securities, it may make appropriate notations to the same
effect in its own records.
(d) Refusal to Transfer. The Company shall not be required (i) to
transfer on its books the Warrant or any Shares that have been sold or otherwise
transferred in violation of any of the provisions of this Warrant or the
Stockholder Rights Agreement or (ii) to treat as owner of such Shares or to
accord the right to vote or pay dividends to any purchaser or other transferee
to whom such Shares shall have been so transferred.
9. RIGHTS OF STOCKHOLDERS.
No holder of the Warrant or Warrants shall be entitled to vote or
receive dividends or be deemed the holder of Series C Preferred or any other
securities of the Company which may at any time be issuable on the exercise
hereof for any purpose, nor shall anything contained herein be construed to
confer upon the holder of this Warrant, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stock holders at any meeting thereof, or to give
or withhold consent to any corporate action (whether upon
-7-
any recapitalization, issuance of stock, reclassification of stock, change of
par value or change of stock to no par value, consolidation, merger, conveyance,
or otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until the Warrant or Warrants shall have been
exercised and the Shares purchasable upon the exercise hereof shall have become
deliverable, as provided herein.
10. REGISTRATION AND OTHER RIGHTS.
The shares of Series C Preferred obtained upon exercise of this
Warrant shall have the registration and other rights set forth in the
Stockholder Rights Agreement and, effective as of the Date of Grant, the term
"Registrable Securities" as defined in the Stockholder Rights Agreement shall
include the Common Stock issuable upon conversion of the Series C Preferred
obtained upon exercise of this Warrant.
11. GOVERNING LAW.
The terms and conditions of this Warrant shall be governed by and
construed in accordance with Delaware law.
12. MISCELLANEOUS.
The headings in this Warrant are for purposes of convenience and
reference only, and shall not be deemed to constitute a part hereof. Neither
this Warrant nor any term hereof may be changed, waived, discharged or
terminated orally but only by an instrument in writing signed by the Company and
the registered holder hereof. All notices and other communications from the
Company to the holder of this Warrant shall be mailed by first-class registered
or certified mail or recognized commercial courier service, postage prepaid, to
the address furnished to the Company in writing by the last holder of this
Warrant who shall have furnished an address to the Company in writing.
____________, 1998 COVAD COMMUNICATIONS GROUP, INC.
_________________________________
Signature of Authorized Signatory
_________________________________
Print Name and Title
-8-
EXHIBIT C-A
NOTICE OF EXERCISE
TO: COVAD COMMUNICATIONS GROUP, INC.
1. The undersigned hereby elects to purchase ___________ shares of Series
C Preferred Stock of Covad Communications Group, Inc. pursuant to the terms of
the attached Warrant, and tenders herewith payment of the purchase price of such
shares in full, together with all applicable transfer taxes, if any.
2. Please issue a certificate or certificates representing said shares of
Series C Preferred Stock in the name of the undersigned or in such other name as
is specified below:
_________________________________
(Name)
_________________________________
_________________________________
(Address)
3. The undersigned represents that the aforesaid shares of Series C
Preferred Stock are being acquired for the account of the undersigned for
investment and not with a view to, or for resale in connection with, the
distribution thereof and that the undersigned has no present intention of
distributing or reselling such shares. In support thereof, the undersigned has
executed an Investment Representation Statement attached hereto as EXHIBIT B.
______________________________
Name of Warrantholder
______________________________
Signature of Authorized Signatory
______________________________
Print Name and Title
________________________
Date
EXHIBIT C-B
INVESTMENT REPRESENTATION STATEMENT
PURCHASER : ____
COMPANY : COVAD COMMUNICATIONS GROUP, INC.
SECURITY : SERIES C PREFERRED STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed securities and underlying
Common Stock (the "SECURITIES"), I, the Purchaser, represent to the Company the
following:
(a) I am aware of the Company's business affairs and financial condition,
and have acquired sufficient information about the Company to reach an informed
and knowledgeable decision to acquire the Securities. I am purchasing these
Securities for my own account for investment purposes only and not with a view
to, or for the resale in connection with, any "distribution" thereof for
purposes of the Securities Act of 1933 ("SECURITIES ACT").
(b) I understand that the Securities have not been registered under the
Securities Act in reliance upon a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of my investment intent
as expressed herein. In this connection, I understand that, in the view of the
Securities and Exchange Commission ("SEC"), the statutory basis for such
exemption may be unavailable if my representation was predicated solely upon a
present intention to hold these Securities for the minimum capital gains period
specified under tax statutes, for a deferred sale, for or until an increase or
decrease in the market price of the Securities, or for a period of one year or
any other fixed period in the future.
(c) I further understand that the Securities must be held indefinitely
unless subsequently registered under the Securities Act or unless an exemption
from registration is otherwise available. Moreover, I understand that the
Company is under no obligation to register the Securities except as set forth in
the Stockholder Rights Agreement. In addition, I understand that the
certificate evidencing the Securities will be imprinted with a legend which
prohibits the transfer of the Securities unless they are registered or such
registration is not required in the opinion of counsel for the Company.
(d) I am aware of the provisions of Rule 144, promulgated under the
Securities Act, which, in substance, permits limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions.
(e) I further understand that at the time I wish to sell the Securities
there may be no public market upon which to make such a sale.
(f) I further understand that in the event all of the requirements of Rule
144 are not satisfied, registration under the Securities Act, compliance with
Regulation A, or some other registration exemption will be required; and that,
notwithstanding the fact that Rule 144 is not exclusive, the Staff of the SEC
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rule 144 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk.
_______________________________
Name of Purchaser
_______________________________
Signature of Authorized Signatory
_______________________________
Print Name and Title
_______________________________
Date
-2-
EXHIBIT D
Warrant No. C-____
THIS WARRANT AND THE SHARES OF STOCK ISSUABLE UPON EXERCISE HEREOF ARE
SUBJECT TO RESTRICTIONS ON TRANSFERABILITY SET FORTH HEREIN AND IN THE
STOCKHOLDER RIGHTS AGREEMENT, A COPY OF WHICH IS AVAILABLE FROM THE
SECRETARY OF THE COMPANY.
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. NO
SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER,
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE ACT OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE
COMMISSION.
THE SALE OF THESE SECURITIES HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS SUCH SALE OR
TRANSFER IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF
THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS
WARRANT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED
UNLESS THE SALE IS SO EXEMPT.
THIS WARRANT MAY NOT BE EXERCISED EXCEPT IN COMPLIANCE WITH ALL APPLICABLE
FEDERAL AND STATE SECURITIES LAWS TO THE REASONABLE SATISFACTION OF THE
COMPANY AND LEGAL COUNSEL FOR THE COMPANY.
Void after February 20, 2003
COVAD COMMUNICATIONS GROUP, INC.
WARRANT TO PURCHASE UP TO ____ SHARES OF COMMON STOCK
__________
THIS CERTIFIES THAT, for value received, 3 is entitled at any time prior to
expiration of this Warrant to subscribe for and purchase up to 2 shares of the
fully paid and nonassessable Common Stock of Covad Communications Group, Inc., a
Delaware corporation (hereinafter called the "COMPANY"), at the price of $0.01
per share (such price and such other price as shall result, from time to time,
from the adjustments specified in paragraph 4 hereof is herein
referred to as the "WARRANT PRICE"), subject to the provisions and upon the
terms and conditions hereinafter set forth. As used herein, the terms "COMMON
STOCK" and "SHARES" shall mean the Company's presently authorized Common Stock,
and the term "DATE OF GRANT" shall mean February 20, 1998.
1. TERM.
This Warrant is exercisable, in whole or in part, at any time and from
time to time from the Date of Grant through February 20, 2003; provided,
however, that this Warrant must be either exercised or the Warrant terminates
immediately before the closing of a firmly underwritten public offering of
Common Stock or other equity security of the Company; provided that the Company
has given the holder of this Warrant at least fifteen (15) days prior written
notice of such closing.
2. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT.
(a) Subject to paragraph 1 hereof, the purchase right represented by
this Warrant may be exercised by the Holder hereof, in whole or in part, by the
surrender of this Warrant (with the notice of exercise form attached hereto as
EXHIBIT A duly executed) at the principal office of the Company and (i) by the
payment to the Company, by check, of an amount equal to the then applicable
Warrant Price per share multiplied by the number of Shares then being purchased,
or (ii) on or after the date on which the Company's Common Stock becomes
publicly traded or in conjunction with a Merger or Consolidation, by surrender
of the right to receive upon exercise hereof a number of Shares equal to the
value (as determined below) of the Shares with respect to which this Warrant is
being exercised, in which case the number of shares to be issued to the Holder
upon such exercise shall be computed using the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Common to be issued to the Holder.
Y = the number of shares of Common with respect to which this Warrant
is being exercised.
A = the fair market value of one share of Common.
B = Warrant Price.
As used herein, "MERGER OR CONSOLIDATION" shall mean the merger or
consolidation of the corporation into or with another corporation in which this
corporation shall not survive and the stockholders of this corporation shall own
less than 50% of the voting securities of the surviving corporation or the sale,
transfer or lease (but not including a transfer or lease by pledge or mortgage
to a bona fide lender) of all or substantially all of the assets of the
corporation.
-2-
(b) As used herein, "FAIR MARKET VALUE OF ONE SHARE OF COMMON" shall
mean, as of any date, the value of Common Stock determined as follows:
(i) In conjunction with a Merger or Consolidation, then the "fair
market value of one share of Common" shall be the value received by the holders
of the Company's Common Stock pursuant to such transaction for each share of
Common Stock, and such purchase shall be effective upon the closing of such
transaction, subject to the due, proper and prior surrender of this Warrant;
provided, however, that should such Merger or Consolidation or such offering not
be consummated, the Company shall refund to the holder the Warrant Price and the
Holder may exercise the purchase right represented by this Warrant, in whole or
in part, at any time and from time to time during the remainder of its term.
(ii) In conjunction with the initial underwritten public offering
of the Company's Common Stock pursuant to a registration statement filed under
the Securities Act of 1933, the "fair market value of one share of Common" shall
be the price at which registered shares are sold to the public in such offering,
and such purchase shall be effective upon the date of such offering, subject to
the due, proper and prior surrender of this Warrant and the closing of the
offering.
(c) In the event of any exercise of the purchase right represented by
this Warrant, certificates for the shares of stock so purchased shall be
delivered to the holder hereof within thirty days of the effective date of such
purchase and, unless this Warrant has been fully exercised or expired, a new
Warrant representing the portion of the Shares, if any, with respect to which
this Warrant shall not then have been exercised shall also be issued to the
holder hereof within such thirty day period. Upon the effective date of such
purchase, the Holder shall be deemed to be the holder of record of the Shares,
notwithstanding that Certificates representing the Shares shall not then be
actually delivered to such Holder or that such Shares are not then set forth on
the stock transfer books of the Company.
3. STOCK FULLY PAID; RESERVATION OF SHARES.
All Shares which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be fully paid and
nonassessable, and free from all taxes, liens and charges with respect to the
issue thereof. During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized, and
reserved for the purpose of the issue upon exercise of the purchase rights
evidenced by this Warrant, a sufficient number of shares of its Common Stock to
provide for the exercise of the rights represented by this Warrant.
-3-
4. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES.
The number and kind of securities purchasable upon the exercise of
this Warrant and the Warrant Price shall be subject to adjustment from time to
time upon the occurrence of certain events, as follows:
(a) Reclassification or Merger. In case of any reclassification or
change of outstanding securities of the class issuable upon exercise of this
Warrant (other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision or combination),
or in case of any merger of the Company with or into another corpora tion
(other than a merger with another corporation in which the Company is a
continuing corporation and which does not result in any reclassification or
change of outstanding securities issuable upon exercise of this Warrant), or in
case of any sale of all or substantially all of the assets of the Company, the
Company shall, as condition precedent to such transaction, execute a new Warrant
or cause such successor or purchasing corporation, as the case may be, to
execute a new Warrant, providing that the holder of this Warrant shall have the
right to exercise such new Warrant and upon such exercise to receive, in lieu of
each share of Common Stock theretofore issuable upon exercise of this Warrant,
the kind and amount of shares of stock, other securities, money and property
receivable upon such reclassification, change or merger by a holder of one share
of Common Stock. Such new Warrant shall provide for adjustments which shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this paragraph 4. The provisions of this subparagraph (a) shall similarly apply
to successive reclassifications, changes, mergers and transfers.
(b) Subdivision or Combination of Shares. If the Company at any time
while this Warrant remains outstanding and unexpired shall subdivide or combine
its Common Stock, the Warrant Price shall be proportionately decreased in the
case of a subdivision or increased in the case of a combination.
(c) Stock Dividends. If the Company at any time while this Warrant is
outstanding and unexpired shall pay a dividend with respect to Common Stock
payable in, or make any other distribution with respect to Common Stock (except
any distribution specifically provided for in the foregoing subparagraph (a) and
(b)) of, shares of Common Stock, then the Warrant Price shall be adjusted, from
and after the date of determination of stockholders entitled to receive such
dividend or distribution, to that price determined by multiplying the Warrant
Price in effect immediately prior to such date of determination by a fraction
(a) the numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution, and (b) the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution.
(d) Adjustment of Number of Shares. Upon each adjustment in the
Warrant Price, the number of Shares of Common Stock purchasable hereunder shall
be adjusted, to the nearest whole share, to the product obtained by multiplying
the number of Shares purchasable immediately prior to such adjustment in the
Warrant Price by a fraction, the numerator of which shall be the
-4-
Warrant Price immediately prior to such adjustment and the denominator of which
shall be the Warrant Price immediately thereafter.
5. NOTICE OF ADJUSTMENTS.
Whenever any Warrant Price shall be adjusted pursuant to paragraph 4
hereof, the Company shall make a certificate signed by its chief financial
officer setting forth, in reasonable detail, the event requiring the adjustment,
the amount of the adjustment, the method by which such adjustment was
calculated, and the Warrant Price or Prices after giving effect to such
adjustment, and shall cause copies of such certificate to be mailed (by first
class mail, postage prepaid) to the holder of this Warrant.
6. NOTICE OF CERTAIN ACTIONS. In the event that this corporation shall
propose at any time:
(a) to declare any dividend or distribution upon any class or series
of its stock, whether in cash, property, stock or other securities, whether or
not a regular cash dividend and whether or not out of earnings or earned
surplus;
(b) to effect any reclassification or recapitalization of its Common
Stock outstanding involving a change in the Common Stock; or
(c) to merge or consolidate with or into any other corporation, or
sell, lease or convey all or substantially all its assets or property, or to
liquidate, dissolve or wind up, whether voluntary or involuntary;
then, in connection with each such event, this Company shall send to the holders
of the Warrants:
(1) at least 10 days' prior written notice of the date on which a
record shall be taken for such dividend, distribution or subscription rights
(and specifying the date on which the holders of Common Stock shall be entitled
thereto) or for determining rights to vote in respect of the matters referred to
in (a) above;
(2) in the case of the matters referred to in (c) above, at least
10 days' prior written notice of the date for the determination of stockholders
entitled to vote thereon (and specifying the date on which the holders of Common
Stock shares shall be entitled to exchange their Common Stock for securities or
other property deliverable upon the occurrence of such event); and
(3) prompt notice of any material change in the terms of the
transactions described in (a) through (c) above.
Each such written notice shall be delivered personally or given by first
class mail, postage prepaid, addressed to the holders of the Warrants at the
address for each such holder as shown on the books of this corporation.
-5-
7. FRACTIONAL SHARES.
No fractional shares of Common Stock will be issued in connection with
any exercise hereunder, but in lieu of such fractional shares the Company shall
make a cash payment therefor upon the basis of the Warrant Price then in effect.
8. COMPLIANCE WITH SECURITIES ACT; NON-TRANSFERABILITY OF WARRANT.
(a) Compliance with Securities Act. The holder of this Warrant, by
acceptance hereof, agrees that this Warrant and the shares of Common Stock to be
issued upon exercise hereof are being acquired for investment and that he will
not offer, sell or otherwise dispose of this Warrant or any shares of Common
Stock to be issued upon exercise hereof except under circumstances which will
not result in a violation of the Securities Act of 1933, as amended (the "ACT").
Upon exercise of this Warrant, the holder hereof shall confirm in writing, in a
form of Exhibit B, that the shares of Common Stock so purchased are being
acquired for investment and not with a view toward distribution or resale. In
addition, the holder shall provide such additional information regarding such
holder's financial and investment background as the Company may reasonably
request. This Warrant and all shares of Common Stock issued upon exercise of
this Warrant (unless registered under the Act) shall be stamped or imprinted
with a legend in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMPANY AND WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER,
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE ACT OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION."
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER INCLUDING A 180-DAY LOCKUP IN CONNECTION WITH
AN INITIAL PUBLIC OFFERING AND A RIGHT OF FIRST REFUSAL HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE STOCKHOLDER RIGHTS
AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES,
A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER.
SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON
TRANSFEREES OF THESE SHARES."
(b) Non-transferability of Warrant. This Warrant and the shares
acquired upon exercise thereof may not be transferred or assigned in whole or in
part except in compliance with (i) the Amended and Restated Stockholder Rights
Agreement between the original Holder and the Company dated February 20, 1998
(the "STOCKHOLDER RIGHTS AGREEMENT") and (ii) applicable federal and state
securities laws.
-6-
(c) Stop-Transfer Notices. In order to ensure compliance with the
restrictions referred to herein, the Company may issue appropriate "stop
transfer" instructions to its transfer agent, if any, and, if the Company
transfers its own securities, it may make appropriate notations to the same
effect in its own records.
(d) Refusal to Transfer. The Company shall not be required (i) to
transfer on its books the Warrant or any Shares that have been sold or otherwise
transferred in violation of any of the provisions of this Warrant or the
Stockholder Rights Agreement or (ii) to treat as owner of such Shares or to
accord the right to vote or pay dividends to any purchaser or other transferee
to whom such Shares shall have been so transferred.
9. RIGHTS OF STOCKHOLDERS.
No holder of the Warrant or Warrants shall be entitled to vote or
receive dividends or be deemed the holder of Common Stock or any other
securities of the Company which may at any time be issuable on the exercise
hereof for any purpose, nor shall anything contained herein be construed to
confer upon the holder of this Warrant, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stock holders at any meeting thereof, or to give
or withhold consent to any corporate action (whether upon any recapitalization,
issuance of stock, reclassification of stock, change of par value or change of
stock to no par value, consolidation, merger, conveyance, or otherwise) or to
receive notice of meetings, or to receive dividends or subscription rights or
otherwise until the Warrant or Warrants shall have been exercised and the Shares
purchasable upon the exercise hereof shall have become deliverable, as provided
herein.
10. REGISTRATION AND OTHER RIGHTS.
The shares of Common Stock obtained upon exercise of this Warrant
shall have the registration and other rights set forth in the Stockholder Rights
Agreement and, effective as of the Date of Grant, the term "Registrable
Securities" as defined in the Stockholder Rights Agreement shall include the
Common Stock obtained upon exercise of this Warrant.
11. GOVERNING LAW.
The terms and conditions of this Warrant shall be governed by and
construed in accordance with Delaware law.
-7-
12. MISCELLANEOUS.
The headings in this Warrant are for purposes of convenience and
reference only, and shall not be deemed to constitute a part hereof. Neither
this Warrant nor any term hereof may be changed, waived, discharged or
terminated orally but only by an instrument in writing signed by the Company and
the registered holder hereof. All notices and other communications from the
Company to the holder of this Warrant shall be mailed by first-class registered
or certified mail or recognized commercial courier service, postage prepaid, to
the address furnished to the Company in writing by the last holder of this
Warrant who shall have furnished an address to the Company in writing.
February 20, 1998 COVAD COMMUNICATIONS GROUP, INC.
_________________________________
Signature of Authorized Signatory
_________________________________
Print Name and Title
EXHIBIT D-A
NOTICE OF EXERCISE
TO: COVAD COMMUNICATIONS GROUP, INC.
1. The undersigned hereby elects to purchase ___________ shares of Common
Stock of Covad Communications Group, Inc. pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full, together with all applicable transfer taxes, if any.
2. Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
_________________________________
(Name)
_________________________________
_________________________________
(Address)
3. The undersigned represents that the aforesaid shares of Common Stock
are being acquired for the account of the undersigned for investment and not
with a view to, or for resale in connection with, the distribution thereof and
that the undersigned has no present intention of distributing or reselling such
shares. In support thereof, the undersigned has executed an Investment
Representation Statement attached hereto as EXHIBIT B.
______________________________
Name of Warrantholder
______________________________
Signature of Authorized Signatory
______________________________
Print Name and Title
________________________
Date
EXHIBIT D-B
INVESTMENT REPRESENTATION STATEMENT
PURCHASER : ____
COMPANY : COVAD COMMUNICATIONS GROUP, INC.
SECURITY : COMMON STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed securities (the
"SECURITIES"), I, the Purchaser, represent to the Company the following:
(a) I am aware of the Company's business affairs and financial condition,
and have acquired sufficient information about the Company to reach an informed
and knowledgeable decision to acquire the Securities. I am purchasing these
Securities for my own account for investment purposes only and not with a view
to, or for the resale in connection with, any "distribution" thereof for
purposes of the Securities Act of 1933 ("SECURITIES ACT").
(b) I understand that the Securities have not been registered under the
Securities Act in reliance upon a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of my investment intent
as expressed herein. In this connection, I understand that, in the view of the
Securities and Exchange Commission ("SEC"), the statutory basis for such
exemption may be unavailable if my representation was predicated solely upon a
present intention to hold these Securities for the minimum capital gains period
specified under tax statutes, for a deferred sale, for or until an increase or
decrease in the market price of the Securities, or for a period of one year or
any other fixed period in the future.
(c) I further understand that the Securities must be held indefinitely
unless subsequently registered under the Securities Act or unless an exemption
from registration is otherwise available. Moreover, I understand that the
Company is under no obligation to register the Securities except as set forth in
the Stockholder Rights Agreement. In addition, I understand that the
certificate evidencing the Securities will be imprinted with a legend which
prohibits the transfer of the Securities unless they are registered or such
registration is not required in the opinion of counsel for the Company.
(d) I am aware of the provisions of Rule 144, promulgated under the
Securities Act, which, in substance, permits limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions.
(e) I further understand that at the time I wish to sell the Securities
there may be no public market upon which to make such a sale.
(f) I further understand that in the event all of the requirements of Rule
144 are not satisfied, registration under the Securities Act, compliance with
Regulation A, or some other registration exemption will be required; and that,
notwithstanding the fact that Rule 144 is not exclusive, the Staff of the SEC
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rule 144 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk.
_______________________________
Name of Purchaser
_______________________________
Signature of Authorized Signatory
_______________________________
Print Name and Title
_______________________________
Date
-2-
EXHIBIT E
---------
COVAD COMMUNICATIONS GROUP, INC.
AMENDED AND RESTATED STOCKHOLDER RIGHTS AGREEMENT
(Subsequently amended and restated March 11, 1998;
See Exhibit 4.6 to the Registration Statement)
EXHIBIT F
[COVAD LETTERHEAD]
February 20, 1998
Warburg, Xxxxxx Ventures, L.P.
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000-0000
Attention: Xxxxxx X. Xxxxx
Crosspoint Venture Partners 1996
The Pioneer Hotel Building
0000 Xxxxxxxx Xxxx
Xxxxxxxx, XX 00000
Attention: Xxxx Xxxxxxx
Intel Corporation
0000 Xxxxxxx Xxxxxxx Xxxxxxxxx
Xxxxx Xxxxx, XX 00000-0000
Attention: Xxxxx X. XxXxxx
Re: Disclosure Letter for the Series C Preferred Stock and Warrant
Subscription Agreement by and among Covad Communications Group,
Inc., Warburg Pincus Ventures, L.P., Crosspoint Venture Partner
1996 and Intel Corporation
Gentlemen:
This Disclosure Letter is provided pursuant to Section 3 of the Series C
Preferred Stock and Warrant Subscription Agreement dated February 20, 1998 (the
"Agreement") by and among Covad Communications Group, Inc. (the "Company"),
Warburg Pincus Ventures, L.P., Crosspoint Venture Partners 1996 and Intel
Corporation. The Section numbers in this Disclosure Letter correspond to the
Section numbers in the Agreement. Any information disclosed under any Section
number of this Disclosure Letter shall be deemed disclosed under and
incorporated into any other Section number under the Agreement where such
disclosure would be appropriate. Any terms defined in the Agreement have the
same meaning when used in this Disclosure Letter unless the context otherwise
requires.
3.2(a) Pursuant to Section 15 of that certain Stockholder Rights Agreement
dated as of July 16, 1997, as amended, the Company has granted the
Investors preemptive rights with respect to the issuance of any new
securities.
3.2(c) 1. The Company has, subject to the achievement of certain subscriber
levels, agreed to provide options to purchase shares of Common
Stock to Xxxxx Xxxxxxx, for the calendar year 1997-1998, as
follows: 1 share per subscriber for which Subsidiary obtains a
commitment to take the Subsidiary's service by July 1, 1998 for
the first 10,000 California subscribers, 2 shares per subscriber
for which
Disclosure Letter
February 20, 1998
Page 2
Subsidiary obtains a commitment to take Subsidiary's service by
July 1, 1998 for the next 10,000 California subscribers, and a
10,000 shares bonus upon reaching 20,000 subscribers. For every
subscriber commitment obtained in excess of 20,000 subscribers up
to 50,000 subscribers, 2 shares per subscriber. Shares for
subscribers in excess of 50,000 will be determined by the Board
of Directors if this situation occurs. For the entire plan,
shares will only be provided for subscribers that are "paying
subscribers" - i.e. subscribers for whom Subsidiary receives
payment that is booked as revenues to Subsidiary consistent with
GAAP. One half of these shares vests upon Subsidiary's obtaining
the commitment for such subscribers and the other half of these
shares vests upon the commencement of provision of service to
these subscribers which must occur before December 31, 1998.
2. The Company offered an option to purchase 5,500 shares of Common
Stock in options to Xxxxxx Xxxx & Associates ("Xxxxxx Xxxx") in
the event Xxxxxx Xxxx successfully completes a search for the
Subsidiary's Chief Financial Officer position. Xxxxxx Xxxx did
not identify the CFO hired by the Company, was paid in full, and
the Company does not believe that Xxxxxx Xxxx continues to have a
claim for any shares, and nor does the Company expect Xxxxxx Xxxx
to assert any such claim.
3. The Company has offered and granted an option to purchase 4,000
shares of Common Stock to Xxxxx Xxxx in consideration for
recruiting engineering personnel.
4. The Company has offered an option to purchase up to a maximum of
5,000 shares of Common Stock to Xxxxx Thapetta, Esq., based on
250 shares to be granted for every patent filed by Mr. Thapetta
in 1998.
5. The Company has offered Xxxxxxxx & Struggles ("H&S") up to one-
third of the first year stock options granted to the Chief
Operating Officer of the Company to be hired by the Company as
the result of H&S's efforts.
3.5 The issuance of the shares of Series C Preferred, the Series C
Preferred Warrants and the Common Warrants require the consent of the
Investors and the holders of the outstanding Preferred Stock under the
Stockholder Rights Agreement and the protective provisions of the
Company's Certificate of Incorporation.
3.7 The Company Financials are included in the Preliminary Offering
Memorandum of the Company relating to the High Yield Offering and are
incorporated herein by reference.
Disclosure Letter
February 20, 1998
Page 3
3.8 On February 5, 1998, the California Subsidiary sent to Pacific Xxxx a
notice of the California Subsidiary's intent to arbitrate Pacific
Xxxx'x breach of contract because of its failure to timely deliver
operational physical collocation spaces and to challenge its present
physical collocation procedures and practices. The Company plans to
assert numerous claims against Pacific Xxxx to obtain Pacific Xxxx'x
compliance with the Company's agreement with Pacific Xxxx, damages and
obtain more favorable collocation procedures, pricing and
availability. The Company is not aware of any plans by Pacific Xxxx to
assert any counter claims. If this matter proceeds to arbitration, the
prevailing Party will be entitled to recover fees and costs.
3.9(b) On February 11, 1998, the Company amended its Certificate of
Incorporation to increase the number of authorized shares of Series B
Preferred Stock to 5,700,001.
3.9(c) In the ordinary course of business, the Company's California
Subsidiary continues to order physical collocation facilities from
Pacific Xxxx and GTE, purchase a variety of equipment from Diamond
Lane Communications, Cisco, Pulsecom and have a variety of
installation work performed and transmission lines, loops and services
provided by vendors such as Pacific Xxxx, GTE, Xxxxxx, Chat, MFS,
Xxxxxx Fiber and others. Also in the ordinary course of its business,
the Company has purchased or licensed software and software
development services from such vendors as Oracle Corporation,
Nightfire Software, Object Mart Inc., GeoSystems Global Corporation.
These expenditures in aggregate are well over $100,000 and
individually in many cases exceed $50,000.
3.9(g) On February 19, 1998, the Board of Directors determined that the fair
market value of the Company's Common Stock as of that date was $1.20
per share.
3.90(j) 1. In January 1998, the Board of Directors of the Company authorized
the Company to enter into indemnification agreements with each of
its directors and executive officers. On February 2, 1998, the
Board of Directors authorized the Company to indemnify Xxxxx
Xxxxxx, the Company's General Counsel, for liabilities resulting
from Xx. Xxxxxx'x opinion to be delivered in connection with the
High Yield Debt Offering.
2. In January 1998, the Board of Directors of the Company authorized
the Company to amend its existing option agreements and
restricted stock agreements to provide for accelerated vesting
under certain circumstances in the event of a change of control
of the Company.
3.9(m) The Company has borrowed $1.0 million under a secured line of credit
agreement which the Company intends to repay and cancel with the
proceeds of the High Yield Offering. The Company has granted a
security interest in its tangible assets in
Disclosure Letter
February 20, 1998
Page 4
connection with financings under a line of credit agreement with
Charter Financial and Silicon Valley Bank.
3.9(q) The Company issued 33,334 shares of Series B Preferred at $3.00 per
share in February 1998.
3.10 The Subsidiary had no income in 1996 and did not file any tax returns
for that year.The Subsidiary was an S corporation through June 30,
1997.
3.12(a)
3.12.a. Lease Information/1/
------------------------------------------------------------------------------------------------------------------------------------
Property Address Lessor Date of Lease Annual Rent Other Fees
------------------------------------------------------------------------------------------------------------------------------------
0000 Xxxxxxx Xxxxxx Intevac, Inc. 08/15/97 $237,600 None
Xxxxx Xxxxx, XX 00000 (Sublandlord)
------------------------------------------------------------------------------------------------------------------------------------
000 Xxxxxx Xxxxxx, Xxxxx 000 The Travelers Insurance 09/01/97 $10,560 None
Mountain View, CA Company
------------------------------------------------------------------------------------------------------------------------------------
00 Xxxxx Xxxxxx Xxxxxx, Xxxxx 0000 Market-Post Tower, Inc. 08/30/97 $57,5101 None
Xxx Xxxx, XX 00000
------------------------------------------------------------------------------------------------------------------------------------
3-12(b) The Subsidiary has received numerous items of hardware and software on
a trial basis for evaluation from a variety of xDSL equipment
suppliers and suppliers of routers and other networking equipment
which have not been paid for by the Subsidiary or the Company, and for
which no payment is due and no invoices or demands for payment have
been received to date.
3.13 Neither the Subsidiary nor the Company has applied for any patents as
of the date hereof. A company by the name of Telespeed OPS based in
Flushing NY that sells video broadcast equipment in Eastern Europe has
asserted an ownership interest in the Telespeed name. Matrix
Marketing, a telemarketing and customer service subsidiary of
Cincinnati Xxxx, has registered the Telespeed name with respect to
telemarketing services.
3.14(a) See exceptions noted in 3.9 above.
The California Subsidiary has entered into material contracts with
Pacific Xxxx, GTE California, and New York Telephone Company; the
California Subsidiary has also adopted the interconnection agreement
of GTE Northwest with MCI as its own
___________________
/1/ Rent increases approximately 4% per annum
Disclosure Letter
February 20, 1998
Page 5
agreement ("Interconnection Agreements"). The agreement with New
York Telephone Company is pending approval at the New York Public
Service Commission. The agreement with GTE Northwest is yet to be
submitted to the Washington Utilities and Transportation
Commission. These Interconnection Agreements contain mutual
indemnification provisions, including indemnification for
infringement of intellectual property rights. All employees have
signed confidentiality agreements, including inventions
assignments clauses, with the Company or its California
Subsidiary.
The Company has entered into (i) restricted stock purchase
agreements with Xxxxxxx X. XxXxxx, Xxxxx Xxxxxx, Xxxxxxx X. Xxxx,
Xxxxxx X. Xxxxxxxx, Xxxxxx Xxxxx, Xxx Xxxxxxxxx, Xxxxxxx Xxxxx
and Xxxxx Xxxxxxxx for common stock in the amount of shares set
forth in Exhibit A to the Amended and Restated Stockholder Rights
Agreement; (ii) preferred stock Series A subscription agreements
with Xxxxxxx X. XxXxxx, Xxxxx Xxxxxx, Xxxxxxx X. Xxxx, and Xxxxxx
Xxxxx for the sale of Series A preferred stock in the amount of
shares set forth in Exhibit A to the Amended and Restated
Stockholder Rights Agreement; and (iii) preferred stock Series B
agreements with Warburg Pincus Ventures, L.P., Crosspoint Venture
Partners 1996 and Intel Corporation in the amount of shares set
forth in Exhibit A to the Amended and Restated Stockholder Rights
Agreement.
The Company has also entered into stock option agreements with
its employees and certain consultants as set forth in Attachment
1 hereto, which is incorporated herein by reference.
The Company and/or its California Subsidiary have also entered
into a number of agreements with a variety of vendors as noted in
3.9(c) above which in aggregate far exceed $100,000 and in many
instances individually exceed $50,000.
The Company has entered into a secured line of credit agreement
with Silicon Valley Bank up to the amount of $1.5 million, and a
sale lease-back equipment financing agreement with Charter
Financial under which the Company is obligated to make aggregate
future payments of $834,000.
The Company has agreed to enter into indemnification agreements
with each of its officers and directors. The Company has agreed
to indemnify Xxxxx Xxxxxx, Esq., its General Counsel, against
liabilities arising out of the opinions to be delivered by Xx.
Xxxxxx in connection with the High Yield Offering.
3.14(b) The California Subsidiary has signed an Interconnection Agreement
with GTE California based on a prior agreement GTE entered into
with AT&T for the state of California. Similarly, the Subsidiary
has entered into an agreement with GTE
Disclosure Letter
February 20, 1998
Page 6
Northwest for Washington based on a prior agreement GTE has
entered into with MCI. It is GTE's legal position that the
Subsidiary's Interconnection Agreements with GTE are subject to
all of the claims and appeals asserted by GTE in Federal District
Court against GTE's interconnection agreement with AT&T in
California and with MCI in Washington as ordered by the CPUC and
the Washington Utilities and Transportation Commission,
respectively. Should the Federal District Courts or further
courts of appeal uphold GTE's positions, the Subsidiary's
Interconnection Agreements with GTE may be correspondingly
affected, and thus subject to further review and revision by the
respective state commissions. In addition, all of the
Subsidiary's Interconnection Agreements may in the interim be
modified by or be subject to modification by rulings by the
respective state regulatory commissions, the Federal
Communications Commission ("FCC") and courts. In addition, the
Interconnection Agreements as well as the Subsidiary's status as
competitive local exchange carrier and its certification as a
telephone company by state regulatory commissions are subject to
ongoing changes in telecommunication laws and regulation. There
is also some uncertainty with respect to the jurisdictional
character of the services the Subsidiary provides which will
affect the surcharges, taxes and other fees that may be levied on
the Subsidiary as well as its costs of regulatory compliance in
the state and federal jurisdictions.
3.15 The Company has a sale-lease back financing arrangement with
Charter Financial, in which Warburg Pincus Ventures, L.P. is
affiliated. (Warburg owns a majority of the stock of Charter
Financial.) The Company is obligated to make future payments of
$834,000 under the sale-lease back transaction. Through December
31, 1997, total lease payments to Charter Financial, including
principal and interest payments, were approximately $26,000. The
Company believes that the terms of the lease financing with
Charter Financial were completed at rates similar to those
available from alternative providers.
The Company purchases equipment from Diamond Lane Communications,
in which Crosspoint Venture Partners 1996 is affiliated.
(Crosspoint owns approximately 12% of the capital stock of
Diamond Lane Communications.) The Company's payments to Diamond
Lane through December 31, 1997 totaled approximately $140,000.
The Company believes that the terms of its transactions with
Diamond Lane were completed at rates similar to those available
from alternative vendors.
The Company sells its TeleSpeed(SM) services to Intel, which has
an ownership interest in the Company.
3.16 The California Subsidiary is certificated telephone company in
the states of California, Washington, New York, Illinois, Oregon
and Massachusetts.The Subsidiary's Interconnection Agreements
with Pacific Xxxx and GTE California are
Disclosure Letter
February 20, 1998
Page 7
effective and sufficient for the Subsidiary to provide its
services within Pacific Xxxx'x and GTE's service territory in
California, subject to limitations in the availability Pacific
Xxxx'x and GTE's own facilities and services. The Subsidiary's
Interconnection Agreement with New York Telephone Company is
signed but not yet effective or approved by the New York
commission. The Subsidiary has adopted the GTE Northwest-MCI
agreement for the state of Washington and that agreement is yet to
be submitted to the Washington commission for its approval. Other
than the above-stated states and agreements, the Subsidiary is not
certificated as a telephone company and does not currently have
any interconnection agreement with any other incumbent local
exchange carriers ("ILECs") in California or any other state. The
Virginia Subsidiary has certification applications pending in
Virginia, Maryland, and the District of Columbia. The Subsidiaries
are in negotiations with Ameritech for Illinois and Xxxx Atlantic
for Massachusetts, among other negotiations.
3.18 1. The Company has entered into employment agreements with Xxxxx
Xxxxxx, Xxx Xxxxxxxxx, Xxx Xxxxx and Xxx Xxxxxxx.
2. The Company maintains a 1997 Stock Plan and has reserved 1,756,750
shares of Common Stock for stock and option grants thereunder.
3. The Company has adopted a bonus plan for its officers based on the
number of end users served by the Subsidiaries.
3.22 The Company expects to grant registration rights in connection
with the High Yield Offering.
3.24 Policy No. 57 XXXXX0000. Activity Date 2/15/97-2/15/98. ITT
Hartford Multiflex Policy with Business Liability limits:
General Aggregate Limit (Other than Products-Completed Operations) $2,000,000
Products-Completed Operations Aggregate Limit $1,000,000
Each Occurrence Limit $1,000,000
Personal and Advertising injury $1,000,000
Fire Damage Any One Fire $ 300,000
Medical Expense Limit (Any One Person) $ 10,000
Umbrella $4,000,000
Disclosure Letter
February 20, 1998
Page 8
Worker's Compensation Insurance meets applicable legal requirements.
Sincerely,
COVAD COMMUNICATIONS GROUP, INC.
By: /s/ Xxxxx Xxxxxx
-----------------------------------
Xxxxx Xxxxxx
Vice President and General Counsel
Disclosure Letter
February 20, 1998
Page 9
Attachment 1
------------
Name Share Amount
Xxxxx Xxxxxxx 40,000
Xxx X. Xxxxx 80,000
Xxxx Xxxxxx 80,000
Xxxxxxx X. (Dick) Xxxxxx 102,000
Xxxx Xxxxxx 102,000
Xxxx X. Xxxxx 75,000
Xxxxxxxxxx Xxxxxxxxxxxx 40,000
Xxxx Xxxx 200,000
Xxx Xxxxxxx 4,000
Core Competence, Inc. 4,000
Xxxxxx Xxxxxx 4,000
Xxxxxxx X. Xxxx 4,000
Xxxxx Xxxxxx 4,000
Xxxxx Xxxxxxxx 4,000
Xxxx Xxxxxxxx 4,000
Xxxxxx Xxxxx 4,000
The XxXxxxx Group 3,750
Xxxx Xxxxx 2,000
Xxxx Xxxxxx 20,000
Xxxxx X. Xxxxxx 70,000
Xxxxx M'Guinness 7,000
Xxxx Xxxxx 1,000
Xxxxxxxxx Xxxxxxxx 1,000
Xxxxx X. Xxxx 7,500
Xxxxx Xxxxxxxxx 5,000
Xxxxx Xxxxx 24,000
Xxxxx Xxxx 50,000
Xxx Xxxxxxx 20,000
Xxxxxx Xxxxx 1,000
Xxxxxxxxxx Xxxxxxxxx 15,000
Xxxx Xxxxxxxxxx 70,000
Xxxx Xxxxxxx 15,000
Xxxx X. Xxxxx 20,000
Xxxx Xxxxxxxx 15,000
Xxxx Xxxxxx 3,500
Xxxx Xxxxxx 7,500
Xxxxx Xxxxxxxxxxxx 7,500
Xxxx Sans 7,500
Disclosure Letter
February 20, 1998
Page 10
Xxx Xxxxxx 10,000
Xxxxxx Xxxx Xxxxxxx 12,500
Xxxxxxxxxxx Xxxxx 10,000
Xxxx X. Xxxx 50,000
Xxxxxx Xxxxx Xxxxxxx 50,000
Xxxxxx Xxxxxxxxx 15,000
Xxxxx Xxxxx 2,500
Xxxxx Xxxx 2,000
Xxxxxx Xxxxxxxxx 7,500
Xxxxx Xxxxxx 12,750
Yan Or 20,000
Xxxxxxxx Xxxxxx 3,750
Xxxxxxxxx Xxxxxx 4,000
Xxxxxx Xxxxxx 4,000
R. Xxxxxxx Xxxxxx 3,000
Xxxxx Xxxxxxxxxx 20,000
Xxxxxx X. Xxxx 15,000
Xxxxxx Xxxxxxxxxx 25,000
Xxxxxx Xxxxx 15,000
Xxxxxxx Xxxxx 6,100
Xxxx Xxxxxxx 12,000
Xxxx Xxxx 30,000
Xxxxxx Xxxxxxxxxx 10,000
Xxxxxx Xxxxxxxxx 10,000
Xxxxx Xxxxxx 4,000
Xxxxx M'Guinness #2 3,000
Xxxxx Xxxxxxxxx #2 5,000
Xxx Xxxxxxx #2 10,000
Xxxxxx Xxxx Xxxxxxx #2 2,500
Xxxxxx Xxxxxx 5,000
Mimi Van Son 10,000
Xxxxx Xxxxxxxx 8,000
Xxxxxxxx Xxxxx 15,000
Xxxxx X. X'Xxxxx 2,500
Xxxxx Xxxxxx 20,000
Xxxxx Xxxxxxx 1,600
Xxxxx Xxxxxxxxx 6,000
Xxxxxxxxx X. Xxxxxx 3,000
Xxxxx Xxxx #2 2,000
EXHIBIT G1
----------
[XXXXXX XXXXXXX XXXXXXXX & XXXXXX XXXXXXXXXX]
Xxxxx 00, 0000
Xxxxxxx, Xxxxxx Ventures, L.P.
c/o X.X. Xxxxxxx, Xxxxxx & Co., LLC
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000-0000
Crosspoint Venture Partners 1996
0 Xxxxx Xxxxxx
Xxx Xxxxx, XX 00000
RE: COVAD COMMUNICATIONS GROUP, INC.
SERIES C PREFERRED STOCK AND WARRANT SUBSCRIPTION AGREEMENT
Ladies and Gentlemen:
Reference is made to the Series C Preferred Stock and Warrant Subscription
Agreement dated as of February 20, 1998 (the "Agreement"), complete with all
listed exhibits thereto, by and among Covad Communications Group, Inc., a
Delaware corporation (the "Company"), and the entities listed in Exhibit A to
the Agreement (the "Purchasers"), which provides for, among other things, the
issuance by the Company to the Purchasers of shares of Series C Preferred Stock
of the Company (the "Series C Shares"), warrants to purchase shares of Series C
Preferred Stock (the "Series C Warrants") and warrants to purchase shares of
Common Stock (the "Common Warrants" and together with the Series C Shares and
the Series C Warrants, the "Securities"). This opinion is rendered to you
pursuant to Section 5.1(a) of the Agreement, and all terms used herein have the
meanings defined for them in the Agreement unless otherwise defined herein.
We have acted as counsel for the Company in connection with the negotiation
of the Agreement and the issuance of the Securities. As such counsel, we have
made such legal and factual examinations and inquiries as we have deemed
advisable or necessary for the purpose of rendering this opinion. In addition,
we have examined originals or copies of such corporate records of the Company,
certificates of public officials and such other documents which we consider
necessary or advisable for the purpose of rendering this opinion. In such
examination we have assumed the genuineness of all signatures on original
documents, the legal capacity of all natural persons, the authenticity and
completeness of all documents submitted to us as originals, the conformity to
original documents of all copies submitted to us and the due execution and
delivery of all documents (except as to due execution and delivery by the
Company) where due execution and delivery are a prerequisite to the
effectiveness thereof.
Warburg, Xxxxxx Ventures, L.P.
Crosspoint Venture Partners 1996
Page 2
As used in this opinion, the expressions "to our knowledge," "known to us"
or similar language with reference to matters of fact mean that, after an
examination of documents made available to us by the Company, and after
inquiries of officers of the Company, but without any further independent
factual investigation, we find no reason to believe that the opinions expressed
herein are factually incorrect. Further, the expressions "to our knowledge",
"known to us" or similar language with reference to matters of fact refer to the
current actual knowledge of the attorneys of this firm who have devoted a
substantial amount of time to matters for the Company. Except to the extent
expressly set forth herein or as we otherwise believe to be necessary to our
opinion, we have not undertaken any independent investigation to determine the
existence or absence of any fact, and no inference as to our knowledge of the
existence or absence of any fact should be drawn from our representation of the
Company or the rendering of the opinion set forth below.
For purposes of this opinion, we are assuming that you have all requisite
power and authority, and have taken any and all necessary corporate action, to
execute and deliver the Agreement, and we are assuming that the representations
and warranties made by the Purchasers in the Agreement are true and correct. We
are also assuming that each Purchaser has purchased its Securities for value, in
good faith and without notice of any adverse claims, and has taken delivery of
its securities, each with an effective endorsement to such Purchaser, all within
the meaning of the California Uniform Commercial Code.
The opinions hereinafter expressed are subject to the following
qualifications:
(a) We express no opinion as to the effect of applicable bankruptcy,
insolvency, reorganization, moratorium or other similar federal or state laws
affecting the rights of creditors;
(b) We express no opinion as to the effect of rules of law governing
specific performance, injunctive relief or other equitable remedies (regardless
of whether any such remedy is considered in a proceeding at law or in equity);
(c) We express no opinion as to compliance or non-compliance with the
anti-fraud provisions of applicable securities laws;
(d) We express no opinion as to the enforceability of the
indemnification provisions of Section 10 of the Amended and Restated Stockholder
Rights Agreement dated February 20, 1998 (the "Stockholder Rights Agreement") to
the extent the provisions thereof may be subject to limitations of public policy
and the effect of applicable statutes and judicial decisions;
Warburg, Xxxxxx Ventures, L.P.
Crosspoint Venture Partners 1996
Page 3
(e) We are members of the Bar of the State of California and we
express no opinion as to any matter relating to the laws of any jurisdiction
other than the federal laws of the United States of America and the laws of the
State of California and the Delaware General Corporation Law. In particular, we
express no opinion as to the state securities or "blue sky" laws of any state
other than California.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized and validly existing
under, and by virtue of, the laws of the State of Delaware and is in good
standing as a domestic corporation under the law of such state. The Company has
the corporate power and authority to own its property and conduct its business
as currently conducted. The Company is duly qualified to transact business and
is in good standing in each jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on the Company on a consolidated basis.
2. The Company has all requisite legal and corporate power and authority
to enter into this Agreement, the Series C Warrants, the Common Warrants and the
Stockholder Rights Agreement, to sell and issue the Securities, to issue the
Common Stock issuable upon conversion of the Series C Shares and the Series C
Preferred issuable upon exercise of the Series C Warrants and upon exercise of
the Common Warrants, to issue the Series C Preferred upon exercise of the Series
C Warrants and to carry out and perform its obligations under the terms of the
Agreement.
3. As of February 15, 1998, the authorized capital stock of the Company
consisted of 30,000,000 shares of authorized Common Stock, $.001 par value, of
which 3,787,068 shares were issued and outstanding, and 15,000,000 shares of
Preferred Stock, $.001 par value, of which 250,000 shares were designated Series
A Preferred Stock, all of which were outstanding, 5,700,001 shares were
designated Series B Preferred, all of which are outstanding, and 3,716,429
shares were designated Series C Preferred, none of which were outstanding. All
outstanding shares of the Company's capital stock were duly authorized, validly
issued, fully paid and non-assessable. The Company had no other capital stock
authorized, issued or outstanding. To our knowledge, except as set forth in the
Agreement (including the Disclosure Letter attached as Exhibit E thereto), there
were no options, warrants, convertible securities or other rights to issue or
purchase any of the Company's authorized but unissued capital stock.
4. The Series C Shares and the Common Warrants issued under the Agreement
are validly issued, fully paid and nonassessable, free of any liens,
encumbrances and preemptive or similar rights contained in the Certificate of
Incorporation or Bylaws of the Company or, to our knowledge, in any
Warburg, Xxxxxx Ventures, L.P.
Crosspoint Venture Partners 1996
Page 4
agreement to which the Company is a party, except as specifically provided in
the Agreement, the Common Warrants and the Stockholder Rights Agreement. The
Series C Warrants, when issued in accordance with the terms of the Agreement for
the consideration expressed therein, will be duly and validly issued, fully paid
and nonassessable. The Series C Preferred issuable upon exercise of the Series C
Warrants has been duly and validly reserved and, when issued, sold and delivered
in accordance with the terms of the Series C Warrants, will be validly issued,
fully paid and nonassessable. The Common Stock issuable upon exercise of the
Common Warrants and upon conversion of the Series C Shares and the Series C
Preferred issuable upon exercise of the Series C Warrants has been duly and
validly reserved and, when issued, sold and delivered in accordance with the
terms of the Common Warrants or the Company's Certificate of Incorporation, as
the case may be, will be duly and validly issued, fully paid and nonassessable.
5. The certificates representing the Series C Shares are in due and
proper form and the certificates have been duly and validly executed by the
officers of the Company named thereon.
6. All corporate action on the part of the Company, its directors and
stockholders necessary for the authorization, execution, delivery and
performance of the Agreement and the Stockholder Rights Agreement by the
Company, the authorization, sale, issuance and delivery of the Securities (and
the Common Stock or Series C Preferred Stock issuable upon conversion or
exercise thereof) and the performance of the Company's obligations under the
Agreement and the Stockholder Rights Agreement have been taken. The Agreement,
the Common Warrants and the Stockholder Rights Agreement have been duly and
validly executed and delivered by the Company and constitute valid and binding
obligations of the Company, enforceable against the Company in accordance with
its terms.
7. The execution, delivery and performance of and compliance with the
Agreement and the Stockholder Rights Agreement, and the issuance of the
Securities and the shares of Series C Preferred or Common Stock issuable upon
conversion thereof, do not conflict with, or constitute a default under any
terms of the Company's Certificate of Incorporation or Bylaws. To our
knowledge, the execution, delivery and performance of and compliance with this
Agreement and the Stockholder Rights Agreement, and the issuance of the
Securities (and the shares of Series C Preferred Stock or Common Stock issuable
upon conversion or exercise thereof), do not materially violate or conflict
with, or constitute a material default under any material contract, agreement,
instrument, judgement or decree binding upon the Company.
8. To our knowledge, there are no actions, suits, proceedings or
investigations pending against the Company or its properties before any court or
governmental agency which would, if adversely determined, have a material
adverse effect on the Company.
Warburg, Xxxxxx Ventures, L.P.
Crosspoint Venture Partners 1996
Page 5
9. No consent, approval or authorization of, or filing, registration or
qualification with, any governmental or regulatory authority or body is required
in connection with or as a condition to the execution and delivery of the
Agreement, the Common Warrants, the Series C Warrants or the Stockholder Rights
Agreement or the consummation of the transactions contemplated thereby
(including, without limitation, the offer, issuance, sale or delivery of the
Securities), except for (a) filing of the Amended and Restated Certificate of
Incorporation in the Office of the Secretary of State of the State of Delaware
and (b) qualification (or taking such action as may be necessary to secure an
exemption from qualification) under the California Corporate Securities Law and
other applicable blue sky laws of the offer and sale of the Securities (and the
Series C Preferred Stock and Common Stock issuable upon exercise or conversion
thereof). The filing referred to in clause (a) above has been accomplished and
is effective. Our opinion herein is otherwise subject to the timely and proper
completion of all filings and other actions contemplated herein where such
filings and actions are to be undertaken on or after the date hereof.
10. Subject to the accuracy of each Purchaser's representations in Section
4 of the Agreement and its responses (if any) to the Company's inquiries, we are
of the opinion that the offer, sale and issuance of the Securities in conformity
with the terms of the Agreement constitute transactions exempt from the
registration requirements of Section 5 of the Securities Act of 1933, as
amended.
This opinion is furnished to you solely for your benefit in connection with
the purchase of the Securities, and may not be relied upon by any other person
or for any other purpose without our prior written consent. We would expect
any person or entity to whose receipt hereof we consented to be bound by this
paragraph.
Very truly yours,
WILSON, SONSINI, XXXXXXXX & XXXXXX
Professional Corporation
/s/ XXXXXX XXXXXXX XXXXXXXX & XXXXXX, P.C.
EXHIBIT G2
----------
[XXXXXX XXXXXXX XXXXXXXX & XXXXXX LETTERHEAD]
March 11, 1998
Intel Corporation
0000 Xxxxxxx Xxxxxxx Xxxxxxxxx
Xxxxx Xxxxx, XX 00000-0000
Ladies and Gentlemen:
Reference is made to the Series C Preferred Stock and Warrant Subscription
Agreement dated as of February 20, 1998 (the "Agreement"), complete with all
listed exhibits thereto, by and among Covad Communications Group, Inc., a
Delaware corporation (the "Company"), and the entities listed in Exhibit A to
the Agreement (the "Purchasers"), which provides for, among other things, the
issuance by the Company to Intel Corporation ("Intel") of 120,048 shares of
Series C Preferred Stock of the Company (the "Intel Shares"), warrants to
purchase 98,500 shares of Series C Preferred Stock (the "Intel Series C
Warrants") and warrants to purchase 35,284 shares of Common Stock (the "Intel
Common Warrants" and together with the Intel Shares and the Intel Series C
Warrants, the "Intel Securities"). This opinion is rendered to you pursuant to
Section 5.1(a) of the Agreement, and all terms used herein have the meanings
defined for them in the Agreement unless otherwise defined herein.
We have acted as counsel for the Company in connection with the negotiation
of the Agreement and the issuance of the Intel Securities. As such counsel, we
have made such legal and factual examinations and inquiries as we have deemed
advisable or necessary for the purpose of rendering this opinion. In addition,
we have examined originals or copies of such corporate records of the Company,
certificates of public officials and such other documents which we consider
necessary or advisable for the purpose of rendering this opinion. In such
examination we have assumed the genuineness of all signatures on original
documents, the legal capacity of all natural persons, the authenticity and
completeness of all documents submitted to us as originals, the conformity to
original documents of all copies submitted to us and the due execution and
delivery of all documents (except as to due execution and delivery by the
Company) where due execution and delivery are a prerequisite to the
effectiveness thereof.
As used in this opinion, the expressions "to our knowledge," "known to us"
or similar language with reference to matters of fact mean that, after an
examination of documents made available to us by the Company, and after
inquiries of officers of the Company, but without any further independent
factual investigation, we find no reason to believe that the opinions expressed
herein are factually incorrect. Further, the expressions "to our knowledge",
"known to us" or similar language with reference to matters of fact refer to the
current actual knowledge of the attorneys of this firm who have devoted a
substantial
Intel Corporation
Page 2
amount of time to matters for the Company. Except to the extent expressly set
forth herein or as we otherwise believe to be necessary to our opinion, we have
not undertaken any independent investigation to determine the existence or
absence of any fact, and no inference as to our knowledge of the existence or
absence of any fact should be drawn from our representation of the Company or
the rendering of the opinion set forth below.
For purposes of this opinion, we are assuming that you have all requisite
power and authority, and have taken any and all necessary corporate action, to
execute and deliver the Agreement, and we are assuming that the representations
and warranties made by Intel in the Agreement are true and correct. We are also
assuming that Intel has purchased the Intel Securities for value, in good faith
and without notice of any adverse claims within the meaning of the California
Uniform Commercial Code.
The opinions hereinafter expressed are subject to the following
qualifications:
(a) We express no opinion as to the effect of applicable bankruptcy,
insolvency, reorganization, moratorium or other similar federal or state laws
affecting the rights of creditors;
(b) We express no opinion as to the effect of rules of law governing
specific performance, injunctive relief or other equitable remedies (regardless
of whether any such remedy is considered in a proceeding at law or in equity);
(c) We express no opinion as to compliance or non-compliance with the
anti-fraud provisions of applicable securities laws;
(d) We express no opinion as to the enforceability of the
indemnification provisions of Section 10 of the Amended and Restated Stockholder
Rights Agreement dated February 20, 1998 (the "Stockholder Rights Agreement") to
the extent the provisions thereof may be subject to limitations of public policy
and the effect of applicable statutes and judicial decisions;
(e) We are members of the Bar of the State of California and we
express no opinion as to any matter relating to the laws of any jurisdiction
other than the federal laws of the United States of America and the laws of the
State of California and the Delaware General Corporation Law. In particular, we
express no opinion as to the state securities or "blue sky" laws of any state
other than California.
Based upon and subject to the foregoing, we are of the opinion that:
Intel Corporation
Page 3
1. The Company is a corporation duly organized and validly existing
under, and by virtue of, the laws of the State of Delaware and is in good
standing as a domestic corporation under the law of such state.
2. The Company has all requisite legal and corporate power and authority
to enter into this Agreement, the Series C Warrants, the Common Warrants and the
Stockholder Rights Agreement, to sell and issue the Intel Securities, to issue
the Common Stock issuable upon conversion of the Intel Shares and the Series C
Preferred issuable upon exercise of the Series C Warrants and upon exercise of
the Intel Common Warrants, to issue the Series C Preferred upon exercise of the
Series C Warrants and to carry out and perform its obligations under the terms
of the Agreement.
3. The authorized capital stock of the Company consists of 30,000,000
shares of authorized Common Stock, $.001 par value, of which 3,787,068 shares
are issued and outstanding, and 15,000,000 shares of Preferred Stock, $.001 par
value, of which 250,000 shares are designated Series A Preferred Stock, all of
which are outstanding, 5,700,001 shares are designated Series B Preferred, all
of which are outstanding, and 3,716,429 shares are designated Series C
Preferred, none of which are outstanding. All outstanding shares of the
Company's capital stock are duly authorized, validly issued, fully paid and non-
assessable. The Company has no other capital stock authorized, issued or
outstanding. To our knowledge, except as set forth in the Agreement (including
the Disclosure Letter attached as Exhibit E thereto), there are no options,
warrants, convertible securities or other rights to issue or purchase any of the
Company's authorized but unissued capital stock.
4. The Intel Shares and the Intel Common Warrants issued under the
Agreement are validly issued, fully paid and nonassessable, free of any liens,
encumbrances and preemptive or similar rights contained in the Certificate of
Incorporation or Bylaws of the Company or, to our knowledge, in any agreement to
which the Company is a party, except as specifically provided in the Agreement,
the Intel Common Warrants and the Stockholder Rights Agreement. The Intel
Series C Warrants, when issued in accordance with the terms of the Agreement for
the consideration expressed therein, will be duly and validly issued, fully paid
and nonassessable. The Series C Preferred issuable upon exercise of the Intel
Series C Warrants has been duly and validly reserved and, when issued, sold and
delivered in accordance with the terms of the Intel Series C Warrants, will be
validly issued, fully paid and nonassessable. The Common Stock issuable upon
exercise of the Intel Common Warrants and upon conversion of the Intel Shares
and the Series C Preferred issuable upon exercise of the Intel Series C Warrants
has been duly and validly reserved and, when issued, sold and delivered in
accordance with the terms of the Common Warrants or the Company's Certificate of
Incorporation, as the case may be, will be duly and validly issued, fully paid
and nonassessable.
Intel Corporation
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5. The certificates representing the Intel Shares are in due and proper
form and the certificates have been duly and validly executed by the officers of
the Company named thereon.
6. All corporate action on the part of the Company, its directors and
stockholders necessary for the authorization, execution, delivery and
performance of the Agreement and the Stockholder Rights Agreement by the
Company, the authorization, sale, issuance and delivery of the Intel Securities
(and the Common Stock or Series C Preferred Stock issuable upon conversion or
exercise thereof) and the performance of the Company's obligations under the
Agreement and the Stockholder Rights Agreement have been taken. The Agreement,
the Intel Common Warrants and the Stockholder Rights Agreement have been duly
and validly executed and delivered by the Company and constitute valid and
binding obligations of the Company, enforceable against the Company in
accordance with its terms.
7. The execution, delivery and performance of and compliance with the
Agreement and the Stockholder Rights Agreement, and the issuance of the Intel
Securities and the shares of Series C Preferred or Common Stock issuable upon
conversion thereof, do not conflict with, or constitute a default under any
terms of the Company's Certificate of Incorporation or Bylaws. To our
knowledge, the execution, delivery and performance of and compliance with this
Agreement and the Stockholder Rights Agreement, and the issuance of the Intel
Securities (and the shares of Series C Preferred Stock or Common Stock issuable
upon conversion or exercise thereof), do not materially violate or conflict
with, or constitute a material default under any material contract, agreement,
instrument, judgement or decree binding upon the Company.
8. To our knowledge, there are no actions, suits, proceedings or
investigations pending against the Company or its properties before any court or
governmental agency which would, if adversely determined, have a material
adverse effect on the Company.
9. No consent, approval or authorization of, or filing, registration or
qualification with, any governmental or regulatory authority or body is required
in connection with or as a condition to the execution and delivery of the
Agreement, the Intel Common Warrants, the Intel Series C Warrants or the
Stockholder Rights Agreement or the consummation of the transactions
contemplated thereby (including, without limitation, the offer, issuance, sale
or delivery of the Intel Securities), except for (a) filing of the Amended and
Restated Certificate of Incorporation in the Office of the Secretary of State of
the State of Delaware and (b) qualification (or taking such action as may be
necessary to secure an exemption from qualification) under the California
Corporate Securities Law and other applicable blue sky laws of the offer and
sale of the Intel Securities (and the Series C Preferred Stock and Common Stock
issuable upon exercise or conversion thereof). The filing referred to in clause
(a) above has been accomplished and is effective. Our opinion herein is
otherwise subject to the timely and proper
Intel Corporation
Page 5
completion of all filings and other actions contemplated herein where such
filings and actions are to be undertaken on or after the date hereof.
10. Subject to the accuracy of each Purchaser's representations in Section
4 of the Agreement and its responses (if any) to the Company's inquiries, we are
of the opinion that the offer, sale and issuance of the Intel Securities in
conformity with the terms of the Agreement constitute transactions exempt from
the registration requirements of Section 5 of the Securities Act of 1933, as
amended.
This opinion is furnished to Intel solely for its benefit in connection
with the purchase of the Intel Securities, and may not be relied upon by any
other person or for any other purpose without our prior written consent.
Very truly yours,
WILSON, SONSINI, XXXXXXXX & XXXXXX
Professional Corporation
/s/ XXXXXX XXXXXXX XXXXXXXX & XXXXXX, P.C.
