Exhibit 4.5
STOCK PURCHASE AGREEMENT
BY AND AMONG
FOCAL COMMUNICATIONS CORPORATION
AND
MADISON DEARBORN CAPITAL PARTNERS, L.P.
FRONTENAC VI, L.P.
BATTERY VENTURES III, L.P.
XXXXX X. XXXX
XXXX X. XXXXXXXX
XXXXXX XXXXXX
XXXXXX X. XXXXXX, XX.
NOVEMBER 27, 1996
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TABLE OF CONTENTS
Page
1. Authorization and Closings........................................... 2
1A. Authorization of the Class A Common........................... 2
1B. Purchase and Sale of the Class A Common....................... 2
1C. The Initial Closing........................................... 2
1D. The Subsequent Closings....................................... 3
2. Conditions to the Initial Closing.................................... 4
2A. Representations and Warranties; Covenants..................... 4
2B. Amendment of Certificate of Incorporation..................... 4
2C. Amendment of the Company's Bylaws............................. 4
2D. Stockholders Agreement........................................ 4
2E. Executive Stock Agreements.................................... 4
2F. Registration Agreement........................................ 4
2G. Vesting Agreements............................................ 4
2H. Interconnection Agreement and Achievement of Common Carrier
Status....................................................... 4
2I. Sale of Class A Common to Each Investor....................... 5
2J. Securities Law Compliance..................................... 5
2K. Opinion of the Company's Counsel.............................. 5
2L. Proceedings................................................... 5
2M. Expenses...................................................... 5
2N. Compliance with Applicable Laws............................... 5
2O. Initial Closing Documents..................................... 6
2P. Waiver........................................................ 6
3. Conditions to Each Subsequent Closing................................. 6
3A. Authorized by Initial and/or Subsequent Business Plan(s)...... 7
3B. Representations and Warranties................................ 7
3C. No Default.................................................... 7
3D. No Material Adverse Change.................................... 7
3E. Proceedings................................................... 8
3F. Opinion of the Company's Counsel.............................. 8
3G. Expenses...................................................... 8
3H. Subsequent Closing Documents.................................. 8
3I. Waiver........................................................ 8
4. Covenants............................................................. 9
4A. Financial Statements and Other Information.................... 9
4B. Inspection of Property........................................ 11
4C. Restrictions.................................................. 12
4D. Affirmative Covenants......................................... 15
4E. Compliance with Agreements.................................... 16
4F. Current Public Information.................................... 00
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0X. Amendment of Vesting Agreements or Executive Stock
Agreements................................................... 16
4H. Intellectual Property Rights.................................. 16
4I. Public Disclosures............................................ 16
4J. First Refusal Rights.......................................... 17
5. Investors' Put Right................................................. 18
5A. Put Right..................................................... 18
5B. Company Obligation............................................ 18
5C. Repurchase Price.............................................. 18
5D. Repurchase Closing............................................ 19
6. Transfer of Restricted Securities.................................... 19
6A. General Provisions............................................ 19
6B. Opinion Delivery.............................................. 19
6C. Rule 144A..................................................... 19
6D. Legend Removal................................................ 20
7. Representations and Warranties of the Company........................ 20
7A. Organization, Corporate Power and Licenses.................... 20
7B. Capital Stock and Related Matters............................. 20
7C. Authorization; No Breach...................................... 21
7D. Conduct of Business; Absence of Liabilities................... 21
7E. Assets........................................................ 21
7F. No Subsidiaries............................................... 21
7G. Contracts and Commitments..................................... 21
7H. Intellectual Property Rights.................................. 22
7I. Litigation, etc............................................... 22
7J. Brokerage..................................................... 23
7K. Governmental Consent, etc..................................... 23
7L. Compliance with Laws.......................................... 23
7M. Affiliated Transactions....................................... 23
7N. Projections and Pro Forma Financial Statements................ 23
7O. Disclosure.................................................... 24
Section 8. Representations and Warranties of the Institutional
Investors.................................................... 24
8A. Assets........................................................ 24
8B. Initial Business Plan......................................... 24
8C. Authorization................................................. 24
9. Miscellaneous Provisions.............................................. 25
9A. Expenses...................................................... 25
9B. Remedies...................................................... 25
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9C. Investor's Investment Representations......................... 26
9D. Consent to Amendments......................................... 26
9E. Survival of Representations and Warranties.................... 26
9F. Successors and Assigns........................................ 26
9G. Capital and Surplus; Special Reserves......................... 27
9H. Severability.................................................. 27
9I. Counterparts.................................................. 27
9J. Descriptive Headings; Interpretation.......................... 27
9K. Governing Law................................................. 27
9L. Notices....................................................... 28
9M. Understanding among the Investors............................. 28
9N. No Strict Construction........................................ 28
Appendix A - Index of Definitions
Appendix B - Schedule of Investors
Appendix C - Original Offering Memorandum
Exhibits:
Exhibit 1 - The Initial Business Plan
Exhibit 2 - Restated Certificate of Incorporation
Exhibit 3 - Form of Executive Note
Exhibit 4 - Form of Executive Investor Stock Pledge Agreement
Exhibit 5 - Bylaws Amendment
Exhibit 6 - Stockholders Agreement
Exhibit 7 - Form of Executive Stock Agreement and Employment Agreement
Exhibit 8 - Registration Agreement
Exhibit 9 - Form of Vesting Agreement
Exhibit 10 - Interconnection Agreement
Exhibit 11 - Opinion of Xxxxxxxx, Xxxxxx & Xxxxxxx (Initial Closing)
Exhibit 12 - Opinion of Xxxxxxxx, Xxxxxx & Xxxxxxx (Subsequent Closings)
Exhibit 13 - Form of Nondisclosure and Noncompetition Agreement
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Disclosure Schedules
Licenses Schedule
Capitalization Schedule
Liabilities Schedule
Assets Schedule
Contracts Schedule
Intellectual Property Schedule
Litigation Schedule
Consents Schedule
Affiliated Transactions Schedule
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STOCK PURCHASE AGREEMENT
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THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of November
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27, 1996, by and among Focal Communications Corporation, a Delaware corporation
(the "Company"), Madison Dearborn Capital Partners, L.P., a Delaware limited
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partnership ("MDCP"), Frontenac VI, L.P., a Delaware limited partnership
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("Frontenac"), Battery Ventures III, L.P., a Delaware limited partnership ("BV",
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and collectively with MDCP and Frontenac, the "Institutional Investors"), and
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Xxxxxx X. Xxxxxx, Xx. ("Xxxxxx"), Xxxx X. Xxxxxxxx ("Xxxxxxxx"), Xxxxx X. Xxxx
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("Addy") and Xxxxxx Xxxxxx ("Xxxxxx", and, collectively with Xxxxxx, Xxxxxxxx
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and Addy, the "Executive Investors"). The Institutional Investors and the
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Executive Investors are referred to herein collectively as the "Investors" and
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individually as an "Investor." Capitalized terms used herein are defined in the
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Index of Definitions attached hereto as Appendix A, which is hereby made a part
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of this Agreement.
The Company has submitted a business plan in form and substance set
forth in Exhibit 1 attached hereto (the "Initial Business Plan"), which
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contains, among other information, a financial model, with underlying
assumptions, containing a plan to establish the Company's business in the
Chicago xxxxxxxxxxxx xxxxxxxxxxx xxxx ("XXX"). Pursuant to such Initial
---
Business Plan, the Company will require a certain level of capital to establish
itself in the Chicago MSA, such amount having been determined to be $8 million,
$4 million of which the Company will need at the time of the Initial Closing.
Thus, pursuant to the terms and subject to the conditions set forth
herein, this Agreement contemplates an initial transaction in which the
Investors will buy from the Company, and the Company will sell to the Investors,
79,384.62 shares of the Company's Class A Common Stock, par value $.01 per
share (the "Class A Common") for an aggregate purchase price of $4 million, and
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subsequent transactions in which the Investors will make pro rata contributions
to the capital of the Company of up to an additional $21.8 million in the
aggregate (for a total investment, including the $4 million initial purchase, of
up to $25.8 million). Attached as Appendix C hereto is the original offering
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memorandum of the Company, which is included for reference purposes only and
shall in no way be construed as a Subsequent Business Plan (as defined below) or
a proposal therefor, nor considered to obligate any party hereto to approve any
Subsequent Business Plan.
1
Additionally, this Agreement contemplates that after the Initial
Closing hereunder (as defined below), Frontenac's designee(s) (or, if none,
Frontenac) may purchase up to 230.77 shares of Class A Common for a total
initial purchase price of up to $11,627.91, and MDCP's designee(s) (or, if
none, MDCP) may purchase up to 384.61 shares of Class A Common for a total
initial purchase price of $19,379.84 upon entering into a written counterpart to
this Agreement agreeing to be bound by the provisions of such purchases hereof.
All such additional purchasers shall be considered Investors and all such
purchased Class A Common shall be considered Investor Stock; provided that any
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such additional purchaser may prepay its capital contribution commitment to the
Company pursuant to this Agreement at the time of purchase (in the amount of
$325 per share, less the purchase price paid for such shares), upon which
prepayment such additional purchaser shall be under no further obligation to
make subsequent capital contributions hereunder.
NOW, THEREFORE, in consideration of the mutual promises made herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. AUTHORIZATION AND CLOSINGS.
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1.1A. Authorization of the Class A Common. The Company shall
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authorize the issuance and sale to the Investors of 80,000 shares of its Class A
Common, having the rights and preferences set forth in the Restated Certificate
of Incorporation attached hereto as Exhibit 2.
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1.1B. Purchase and Sale of the Class A Common. At the Initial
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Closing (as defined below), subject to the terms and conditions set forth
herein, the Company shall sell to each Investor and each Investor shall purchase
from the Company the number of shares of Class A Common set forth opposite such
Investor's name on the "Schedule of Investors," which is attached hereto as
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Appendix B. The aggregate purchase price to be paid at the Initial Closing by
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each Investor, which is set forth opposite such Investor's name on the Schedule
of Investors, is referred to herein as that Investor's "Initial Contribution."
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The sale of the Class A Common to each Investor at the Initial Closing shall
constitute a separate sale hereunder.
1.1C. The Initial Closing. The closing of the separate initial
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purchases and sales of the Class A Common (the "Initial Closing") shall take
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place at the offices of Xxxxxxxx & Xxxxx at 8:30 a.m. on November 27, 1996, or
at such other place or on such other date as may be mutually agreeable to the
Company and the Investors (the "Initial Closing Date"), but in no event shall
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the Initial Closing Date be later than November 30, 1996. At the Initial
Closing, the Company shall deliver to each Investor stock certificates
evidencing the Class A Common to be purchased by such Investor, registered in
such Investor's name, upon such Investor's delivery to the Company of either of
the following:
(i) in the case of an Institutional Investor, a cashier's or
certified check or wire transfer of immediately available funds to an
account designated by the Company (collectively, "Cash"), in the aggregate
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amount of such Institutional Investor's Initial Contribution, or
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(ii) in the case of an Executive Investor, canceled Company
notes (as well as documentation acceptable in good faith to the
Institutional Investors sufficient to demonstrate such amounts were loaned
to the Company) in the aggregate amount of $6,000, together with Cash, or
if so specified opposite such Executive Investor's name on the Schedule of
Investors, a combination of Cash and a ninety-day promissory note in the
form of Exhibit 3 attached hereto (such Executive Investor's "Note") in the
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proportion specified opposite such Executive Investor's name on the
Schedule of Purchasers, in an aggregate amount equal to such Executive
Investor's Initial Contribution minus $6,000. Each Executive Investor's
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Note (including any such Notes issued at Subsequent Closings, as defined
below) shall be secured by a pledge of all Company securities owned by such
Executive Investor (including any such securities acquired hereafter at any
time that such Note is outstanding, but excluding shares of Class C Common
pledged to an Institutional Investor pursuant to a Vesting Agreement), and
in connection therewith, such Executive Investor will enter into a pledge
agreement in the form of Exhibit 4 attached hereto (the "Executive Investor
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Stock Pledge Agreement").
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1.1D. The Subsequent Closings. Each of the subsequent closings
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hereunder (the "Subsequent Closings") shall, subject to the terms and conditions
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set forth below, occur (i) if the Specified Contribution of each Investor at
such Subsequent Closing, together with the Initial Contribution and the
aggregate Specified Contributions of each such Investor at all prior Subsequent
Closings, will not exceed 80/258 times the maximum commitment set forth opposite
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each such Investor's name on the Schedule of Investors (each such Investor's
"Maximum Commitment"), at a time and place determined by the Company's president
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and set forth in a written notice given to each Investor at least 10 days (or,
if BV does not have immediately available funds sufficient to satisfy its
obligation at such Subsequent Closing, 15 days) prior to the applicable
Subsequent Closing, or (ii) otherwise, at a time and place determined by the
Company's board of directors (the "Board") and set forth in a written notice
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sent to each Investor at least 30 days prior to the applicable Subsequent
Closing. Such notice shall set forth the aggregate amount to be contributed by
the Investors at such Subsequent Closing and the pro rata portion thereof (based
on the Investors' respective Initial Contributions) to be contributed by each
Investor (each Investor's "Specified Contribution" for such Subsequent Closing);
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provided that the aggregate amount of each Investors' Specified Contribution at
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any Subsequent Closing shall not, together with the Initial Contribution and the
aggregate Specified Contributions of each such Investor at all prior Subsequent
Closings, exceed each such Investor's Maximum Commitment. At each Subsequent
Closing, each Investor shall deliver to the Company either of the following:
(i) in the case of an Institutional Investor, Cash in the
aggregate amount of such Institutional Investor's Specified Contribution
for such Subsequent Closing, or
(ii) in the case of an Executive Investor, Cash or, at the
election of such Executive Investor, Cash and a ninety-day Note, in an
aggregate amount equal to such Executive Investor's Specified Contribution
for such Subsequent Closing.
SECTION 2. CONDITIONS TO THE INITIAL CLOSING. The obligation of
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each Investor to purchase and pay for the Class A Common at the Initial Closing
is subject to the satisfaction as of the Initial Closing of the following
conditions:
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2.1A. Representations and Warranties; Covenants. The representations
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and warranties contained in Section 7 and 8 hereof shall be true and correct in
all material respects at and as of the Initial Closing as though then made,
except to the extent of changes caused by the transactions expressly
contemplated herein, and the Company shall have performed in all material
respects all of the covenants required to be performed by it hereunder prior to
the Initial Closing.
2.1B. Amendment of Certificate of Incorporation. The Company's
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Certificate of Incorporation shall have been amended to include the provisions
set forth in Exhibit 2 hereto (as so amended, the "Certificate of
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Incorporation"), shall be in full force and effect under the laws of Delaware as
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of the Initial Closing as so amended, and shall not have been further amended or
modified.
2.1C. Amendment of the Company's Bylaws. The Company's bylaws shall
---------------------------------
have been duly amended to include the provisions set forth in Exhibit 5 hereto
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(as so amended, the "Bylaws"), shall be in full force and effect under the laws
of Delaware as of the Initial Closing as so amended, and shall not have been
further amended or modified.
2.1D. Stockholders Agreement. The Company and the Investors shall
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have entered into a stockholders agreement in form and substance set forth in
Exhibit 6 attached hereto (the "Stockholders Agreement"), and the Stockholders
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Agreement shall be in full force and effect as of the Initial Closing.
2.1E. Executive Stock Agreements. The Company shall have entered
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into an executive stock agreement and employment agreement, in form and
substance substantially similar to Exhibit 7 attached hereto (the "Executive
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Stock Agreements"), with each Executive Investor, and each Executive Stock
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Agreement shall not have been amended or modified and shall be in full force and
effect as of the Initial Closing.
2.1F. Registration Agreement. The Company and the Investors shall
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have entered into a registration agreement in form and substance as set forth in
Exhibit 8 attached hereto (the "Registration Agreement"), and the Registration
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Agreement shall be in full force and effect as of the Initial Closing.
2.1G. Vesting Agreements. The Company and the Executive Investors
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shall have entered into a vesting agreement, in form and substance substantially
similar to Exhibit 9 attached hereto (the "Vesting Agreements"), with each
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Institutional Investor, and each Vesting Agreement shall be in full force and
effect as of the Initial Closing.
2.1H. Interconnection Agreement and Achievement of Common Carrier
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Status. The Company shall have entered into an Interconnection Agreement under
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Sections 251 and 252 of the Telecommunications Act of 1996, with Ameritech
Information Industrial Services, a division of Ameritech Services, Inc., on
behalf of Ameritech Illinois, in form and substance as set forth in Exhibit 10
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attached hereto (the "Interconnection Agreement"), and such Interconnection
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Agreement shall be in full force and effect as of the Initial Closing. In
addition, the Company shall have been certified by the Illinois Commerce
Commission to provide
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facilities-based and resold, switched and dedicated, local exchange services in
the portions of MSA-1 served by Ameritech and Centel, and interexchange services
throughout Illinois ("Chicago Common Carrier Status"), and such certification
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shall not have been conditioned, restricted or withdrawn, and shall not be under
challenge, as of the Initial Closing.
2.1I. Sale of Class A Common to Each Investor. The Company shall
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have simultaneously sold to each Investor the Class A Common to be purchased by
such Investor hereunder at the Initial Closing and shall have received payment
therefor in full as specified in paragraph 1C hereof.
2.1J. Securities Law Compliance. The Company shall have made all
-------------------------
filings under all applicable federal and state securities laws necessary to
consummate the issuance, in compliance with such laws, of the Class A Common to
be issued at the Initial Closing pursuant to this Agreement.
2.1K. Opinion of the Company's Counsel. Each Investor shall have
--------------------------------
received from Bischoff, Kenney, and Xxxxxxx, counsel for the Company, an opinion
with respect to the matters set forth in Exhibit 11 attached hereto, which shall
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be addressed to each Investor, dated the Initial Closing Date, and in form and
substance satisfactory to each Investor.
2.1L. Proceedings. All corporate and other proceedings taken or
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required to be taken by the Company in connection with the transactions to occur
at the Initial Closing shall be consummated at or prior to the Initial Closing
and all documents incident thereto shall be satisfactory in form and substance
to each Institutional Investor and the Institutional Investors' special counsel.
2.1M. Expenses. At the Initial Closing, the Company shall have (i)
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reimbursed the Institutional Investors for their out-of-pocket expenses,
including the fees and expenses of their special counsel and special
telecommunications counsel as provided in paragraph 9A hereof, to the extent
then known, (ii) paid the fees and expenses of the counsel for the Company
related to the transactions contemplated hereby, to the extent then known, and
(iii) reimbursed Xxxxxx for his reasonable expenses incurred in relocating from
Charlotte, North Carolina to Chicago, Illinois, to the extent then known,
provided that such reimbursement to Xxxxxx shall not exceed $25,000.
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2.1N. Compliance with Applicable Laws. The purchase of Class A
-------------------------------
Common by each Investor hereunder at the Initial Closing shall not be prohibited
by any applicable law or governmental rule or regulation and shall not subject
such Investor to any penalty, liability or, in such Investor's reasonable
judgment, other onerous condition under or pursuant to any applicable law or
governmental rule or regulation, and the purchase of the Class A Common by each
Investor hereunder shall be permitted by the laws, rules and regulations of the
jurisdictions and governmental authorities and agencies to which such Investor
is subject.
2.1O. Initial Closing Documents. The Company shall have delivered to
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each Investor all of the following documents:
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(i) an Officer's Certificate, dated as of the Initial Closing
Date, stating that the conditions specified in paragraphs 1A, 2A-2C, 2E,
and 2H-2J, have been fully satisfied;
(ii) certified copies of (a) the resolutions duly adopted by
the Board authorizing the execution, delivery and performance of this
Agreement, the Stockholders Agreement, the Executive Stock Agreements, the
Registration Agreement and each of the other agreements contemplated
hereby, the filing of the amendment to the Company's certificate of
incorporation referred to in paragraph 2B, the amendment to the Company's
bylaws referred to in paragraph 2C, the issuance and sale of the Class A
Common, and the consummation of all other transactions to occur as of the
Initial Closing as contemplated by this Agreement, and (b) the resolutions
duly adopted by the Company's stockholders adopting the amendment to the
certificate of incorporation referred to in paragraph 2B;
(iii) certified copies of the Certificate of Incorporation and
the Bylaws, each as in effect at the Initial Closing;
(iv) certified copies of the Executive Stock Agreements and the
Interconnection Agreement, each as in effect at the Initial Closing;
(v) copies of all third party and governmental consents,
approvals and filings required in connection with the consummation of the
transactions to occur as of the Initial Closing hereunder (including,
without limitation, all blue sky law filings, waivers of all preemptive
rights and rights of first refusal, and certified orders of the Illinois
Commerce Commission certifying the Company for Chicago Common Carrier
Status and approving the Interconnection Agreement);
(vi) such other documents relating to the transactions
contemplated by this Agreement as any Institutional Investor or the
Institutional Investors' special counsel, or any Executive Investor or the
counsel for the Company, may reasonably request.
2.1P. Waiver. Any condition specified in this Section 2 may be
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waived if such waiver is consented to by each Investor; provided that no such
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waiver shall be effective against any Investor unless it is set forth in a
writing executed by such Investor.
SECTION 3. CONDITIONS TO EACH SUBSEQUENT CLOSING. The obligation of
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each Investor to make such Investor's Specified Contribution to the capital of
the Company at each Subsequent Closing is subject to the satisfaction as of such
Subsequent Closing of
(i) if the Specified Contribution of each Investor at such
Subsequent Closing, together with the Initial Contribution and the
aggregate Specified Contributions of each such Investor at all prior
Subsequent Closings, will not exceed 80/258 times such Investor's Maximum
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Commitment, the following condition: As of the date of such Subsequent
Closing, there shall not have been any loss or invalidity of the
Interconnection Agreement or of any similar agreement entered into after
the date hereof, any change in
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the laws or regulations to which the Company is subject that negatively
affects the ability of the Company to conduct its business, nor any
conditioning, restriction, or withdrawal of Chicago Common Carrier Status
or of any similar certification granted after the date hereof; or
(ii) otherwise, all of the following conditions:
3.1A. Authorized by Initial and/or Subsequent Business Plan(s). The
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Specified Contributions of all Investors at such Subsequent Closing shall be
contemplated and authorized under the terms of the Initial Business Plan and/or
any Subsequent Business Plan(s). "Subsequent Business Plan" means a business
------------------------
proposal submitted by Management to the Board setting forth proposed business
activities of the Company during a specified period of time, projections of
income from such business activities, the capital contributions Management deems
necessary to support such business activities during such time, and a budget of
expected expenditures of such capital, where such proposal has been approved by
a majority of the Board and the holders of at least 67% of the Institutional
Investor Stock then outstanding. "Management" means the Executive Investors (so
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long as such individuals are employed by the Company) together with such other
employees of the Company or its Subsidiaries as may be designated by the
Executive Investors and approved by the Board.
3.1B. Representations and Warranties. The representations and
------------------------------
warranties contained in paragraphs 7A, 7B(ii), 7C, 7J, 7K, 7L, and 7O hereof
shall be true and correct in all material respects at and as of such Subsequent
Closing as though then made, except to the extent of changes caused by the
transactions expressly contemplated herein.
3.1C. No Default. The Company shall not be in default of any of its
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obligations to the Investors pursuant to this Agreement, the Stockholders
Agreement, the Registration Agreement, or any Executive Stock Agreement or
Vesting Agreement, and neither the Company nor any of its Subsidiaries (if any)
shall be in material default under any other material agreement to which it is a
party.
3.1D. No Material Adverse Change. The Investors shall not be
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obligated to make their Specified Contributions at a Subsequent Closing if, in
the good faith judgment of all of the Institutional Investors then holding at
least 3% of the Company's outstanding Common Stock, a material adverse change
(other than a change specifically and expressly contemplated in a Subsequent
Business Plan approved prior to the date of such Subsequent Closing) has
occurred after the date hereof and prior to such Subsequent Closing in the
business, financial condition, operations, assets, or business prospects of the
Company or any Subsidiary. Material adverse change shall for the purposes of
this paragraph include, without limitation, the loss or invalidity of any
material contract or agreement to which the Company is a party where such loss
or invalidity negatively affects the ability of the Company to conduct its
business (including, but not limited to, the Interconnection Agreement and any
similar agreement entered into after the date hereof), or the conditioning,
restriction, or withdrawal of Chicago Common Carrier Status or any similar
certification granted after the date hereof.
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3.1E. Proceedings. All corporate and other proceedings taken or
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required to be taken by the Company in connection with the transactions to occur
at the Subsequent Closing as contemplated by this Agreement shall be consummated
at or prior to the Subsequent Closing and all documents incident thereto shall
be reasonably satisfactory in form and substance to each Investor and the
Investors' special counsel.
3.1F. Opinion of the Company's Counsel. The Investors shall have
--------------------------------
received from Bischoff, Kenney, and Xxxxxxx, counsel for the Company, an opinion
with respect to the matters set forth in Exhibit 12 attached hereto, which shall
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be addressed to the Investors, dated the date of the Subsequent Closing, and in
form and substance satisfactory to the holders of at least 67% of the
Institutional Investor Stock then outstanding.
3.1G. Expenses. At such Subsequent Closing, the Company shall have
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reimbursed the Institutional Investors for their out-of-pocket expenses,
including the fees and expenses of their special counsel and their special
telecommunications counsel as provided in paragraph 9A hereof, to the extent
then known, and shall have reimbursed the Executive Investors for all of the
fees and expenses of the Executive Investors' special counsel incurred in
connection with such Subsequent Closing, to the extent then known.
3.1H. Subsequent Closing Documents. The Company shall have delivered
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to the Investors all of the following documents:
(i) an Officer's Certificate, dated the date of the Subsequent
Closing, stating that the conditions specified in paragraphs 3A through 3C,
inclusive, have been fully satisfied;
(ii) certified copies of the resolutions duly adopted by the
Board requesting the capital contributions being made at such Subsequent
Closing; and
(iii) such other documents relating to the transactions to occur
at such Subsequent Closing as any Institutional Investor or the
Institutional Investors' special counsel may reasonably request.
3.1I. Waiver. Any condition specified in this Section 3 may be
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waived if consented to by holders of at least 67% of the Institutional Investor
Stock; provided that the condition in 3G respecting the Company's payment of the
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fees and expenses for the Executive Investors' special counsel may not be waived
without the express written consent of a majority of the Executive Investors.
SECTION 4. COVENANTS.
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4.1A. Financial Statements and Other Information. The Company shall
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deliver (a) to each Executive Investor, so long as such Executive Investor holds
any Investor Stock, the information set forth in subparagraph 4A(iii) below,
and (b) to each Institutional Investor, so long as such Institutional Investor
holds any Investor Stock, and to any subsequent holder of at least
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10% of the Investor Stock then outstanding (each such Institutional Investor and
each such subsequent 10% holder, a "Qualified Holder"), all the information
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described in this paragraph 4A:
(i) as soon as available but in any event within 30 days after
the end of each monthly accounting period in each fiscal year: (a)
unaudited consolidating and consolidated statements of income and cash
flows of the Company and its Subsidiaries for such monthly period and for
the period from the beginning of the fiscal year to the end of such month,
and unaudited consolidating and consolidated balance sheets of the Company
and its Subsidiaries as of the end of such monthly period, setting forth in
each case comparisons to the Company's annual budget and to the
corresponding period in the preceding fiscal year, and all such statements
shall be prepared in accordance with generally accepted accounting
principles, consistently applied and shall be certified by the Company's
chief financial officer, and (b) a status report prepared by the Company's
chief financial officer, indicating whether the Company has met its
budgeted financial goals (including those specified in the Initial Business
Plan or in any Subsequent Business Plan), discussing the reasons for any
variation from such goals, and describing what actions the Company and its
Subsidiaries have taken and propose to take in order to meet budgeted
financial targets in the future;
(ii) within 45 days after the end of each quarterly accounting
period in each fiscal year, an Officer's Certificate stating that the
Company is not in default under this Agreement, the Stockholders Agreement,
the Registration Agreement, or any Executive Stock Agreement or Vesting
Agreement, and that neither the Company nor any of its Subsidiaries is in
default under any of its other material agreements or, if any such default
exists, specifying the nature and period of existence thereof and what
actions the Company and its Subsidiaries have taken and propose to take
with respect thereto;
(iii) within 90 days after the end of each fiscal year,
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such fiscal year, and consolidating and
consolidated balance sheets of the Company and its Subsidiaries as of the
end of such fiscal year, setting forth in each case comparisons to the
Company's annual budget and to the preceding fiscal year, all prepared in
accordance with generally accepted accounting principles, consistently
applied, and accompanied by (a) with respect to the consolidated portions
of such statements, an opinion containing no exceptions or qualifications
(except for qualifications regarding specified contingent liabilities) of
an independent accounting firm of recognized national standing acceptable
to the holders of at least 67% of the Institutional Investor Stock then
outstanding, (b) a certificate from such accounting firm, addressed to the
Board, stating that in the course of its examination nothing came to its
attention that caused it to believe that there was any default specified in
paragraph 4A(ii) in existence or that there was any other default by the
Company or any Subsidiary in the fulfillment of or compliance with any of
the terms, covenants, provisions or conditions of any other material
agreement to which the Company or any Subsidiary is a party or, if such
accountants have reason to believe any such default by the Company or any
Subsidiary exists, a certificate specifying the nature and period of
existence thereof, and (c) a copy of such firm's annual management letter
to the Board;
-9-
(iv) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant
aspects of the Company's operations or financial affairs given to the
Company by its independent accountants (and not otherwise contained in
other materials provided hereunder);
(v) at least 30 days but not more than 90 days prior to the
beginning of each fiscal year, an annual budget prepared on a monthly basis
for the Company and its Subsidiaries for such fiscal year (displaying
anticipated statements of income and cash flows and balance sheets), and
promptly upon preparation thereof any other significant budgets prepared by
the Company and any revisions of such annual or other budgets, and within
30 days after any monthly period in which there is a material adverse
deviation from the annual budget, an Officer's Certificate explaining the
deviation and what actions the Company has taken and proposes to take with
respect thereto;
(vi) promptly (but in any event within five business days)
after the discovery or receipt of notice of any default under any material
agreement to which the Company or any of its Subsidiaries is a party, any
condition or event which is reasonably likely to result in any material
liability under any federal, state or local statute or regulation relating
to public health and safety, worker health and safety or pollution or
protection of the environment or any other material adverse change, event
or circumstance affecting the Company or any Subsidiary (including, without
limitation, the filing of any material litigation against the Company or
any Subsidiary or the existence of any dispute with any Person which
involves a reasonable likelihood of such litigation being commenced), an
Officer's Certificate specifying the nature and period of existence thereof
and what actions the Company and its Subsidiaries have taken and propose to
take with respect thereto;
(vii) within ten days after transmission thereof, copies of all
financial statements, proxy statements, reports and any other general
written communications which the Company sends to its stockholders and
copies of all registration statements and all regular, special or periodic
reports which it files, or (to its knowledge) any of its officers or
directors file with respect to the Company, with the Securities and
Exchange Commission or with any securities exchange on which any of its
securities are then listed, and copies of all press releases and other
statements made available generally by the Company to the public concerning
material developments in the Company's and its Subsidiaries' businesses;
and
(viii) with reasonable promptness, such other information and
financial data concerning the Company and its Subsidiaries as any Qualified
Holder may reasonably request.
Each of the financial statements referred to in subparagraphs 4A(i) and (iii)
shall be true and correct in all material respects as of the dates and for the
periods stated therein, subject in the case of the unaudited financial
statements to changes resulting from normal year-end adjustments for recurring
accruals (none of which would, alone or in the aggregate, be materially adverse
to
-10-
the financial condition, operating results, assets, operations or business
prospects of the Company and its Subsidiaries taken as a whole).
Notwithstanding the foregoing, the provisions of this paragraph 4A shall cease
to be effective so long as the Company (a) is subject to the periodic reporting
requirements of the Securities Exchange Act and continues to comply with such
requirements and (b) promptly provides to each Qualified Holder (and to each
Executive Investor then holding any Investor Stock) all reports and other
materials filed by the Company with the Securities and Exchange Commission
pursuant to the periodic reporting requirements of the Securities Exchange Act;
provided that so long as any Investor Stock remains outstanding, the Company
--------
shall continue to deliver to each Qualified Holder the information specified in
subparagraphs 4A(ii), 4A(iii)(b), 4A(vi), and 4A(viii).
Except as otherwise required by law or judicial order or decree or requested by
any governmental agency or authority, or as specified in the immediately
following proviso, each Person entitled to receive information regarding the
Company and its Subsidiaries under paragraph 4A or 4B shall not disclose any
such information to any third party (other than such Person's advisors or
representatives); provided that such a Person may disclose such information (i)
--------
in connection with the sale or transfer of any Investor Stock if such Person's
transferee agrees in writing to be bound by the provisions hereof, or (ii) if
such information is available to the public other than by reason of such
Person's breach of this provision.
All holdings of Investor Stock or Institutional Investor Stock by Persons who
are Affiliates of each other shall be aggregated for purposes of meeting any
threshold tests under this Agreement.
4.1B. Inspection of Property. To the extent not otherwise prohibited
----------------------
by law or regulation, the Company shall permit any representatives designated by
any Qualified Holder, upon reasonable notice and during normal business hours
and at such other times as any such Qualified Holder may reasonably request to
(i) visit and inspect any of the properties of the Company and its Subsidiaries,
(ii) examine the corporate and financial records of the Company and its
Subsidiaries and make copies thereof or extracts therefrom and (iii) discuss the
affairs, finances and accounts of any such corporations with the directors,
officers, key employees and independent accountants of the Company and its
Subsidiaries. The presentation of an executed copy of this Agreement by any
Qualified Holder to the Company's independent accountants shall constitute the
Company's permission to its independent accountants to participate in
discussions with such Persons.
4.1C. Restrictions. The Company shall not, without the prior written
------------
consent of the holders of at least 67% of the Institutional Investor Stock then
outstanding:
(i) directly or indirectly declare or pay any dividends or
make any distributions upon any of its capital stock;
(ii) directly or indirectly redeem, purchase or otherwise
acquire, or permit any Subsidiary to redeem, purchase or otherwise acquire,
any of the Company's or any Subsidiary's capital stock or other equity
securities (including, without limitation, warrants, options and other
rights to acquire such capital stock or other equity securities,
-11-
and the exercise of first refusal rights under the Stockholders Agreement),
except for: (a) cancellations of the Company's Common Stock pursuant to any
of the Vesting Agreements, (b) repurchases of Investor Stock pursuant to
Section 5 or paragraph 9B(ii) of this Agreement, (c) repurchases of the
Company's capital stock from employees of the Company or its Subsidiaries
(or such employees' transferees) pursuant to the terms of the Executive
Stock Agreements contemplated by this Agreement, or (d) repurchases of
options to acquire the Company's capital stock or of capital stock issued
upon the exercise of such options, pursuant to the terms of any Permitted
Stock Option Plan that may be approved by the Board, as contemplated under
subparagraph 4C(xix) of this Agreement;
(iii) except upon conversion of Class C Common into Class B
Common pursuant to the Certificate of Incorporation, or as expressly
contemplated by this Agreement or the Executive Stock Agreement, authorize,
issue or enter into any agreement providing for the issuance (contingent or
otherwise) of (a) any notes or debt securities containing equity features
(including, without limitation, any notes or debt securities convertible
into or exchangeable for capital stock or other equity securities, issued
in connection with the issuance of capital stock or other equity securities
or containing profit participation features), other than as may be
expressly specified in the Initial Business Plan or any Subsequent Business
Plan, or (b) any capital stock or other equity securities (or any
securities convertible into or exchangeable for any capital stock or other
equity securities);
(iv) make, or permit any Subsidiary to make, any loans or
advances to, guarantees for the benefit of, or Investments in, any Person
(other than a Wholly-Owned Subsidiary established under the laws of a
jurisdiction of the United States or any of its territorial possessions),
except for (a) reasonable advances to employees or customers in the
ordinary course of business and (b) Investments having a stated maturity no
greater than one year from the date the Company makes such Investment in
(1) obligations of the United States government or any agency thereof or
obligations guaranteed by the United States government, (2) certificates of
deposit of commercial banks having combined capital and surplus of at least
$500 million or (3) commercial paper with a rating of at least "Prime-1" by
-------
Xxxxx'x Investors Service, Inc.;
(v) merge or consolidate with any Person or permit any
Subsidiary to merge or consolidate with any Person (other than a merger
between Wholly-Owned Subsidiaries);
(vi) sell, lease or otherwise dispose of, or permit any
Subsidiary to sell, lease or otherwise dispose of, more than 10% of the
consolidated assets of the Company and its Subsidiaries (computed on the
basis of book value, determined in accordance with generally accepted
accounting principles consistently applied, or fair market value,
determined by the Board in its reasonable good faith judgment) in any
transaction or series of related transactions (other than sales in the
ordinary course of business), or sell or permanently dispose of any of its
or any Subsidiary's Intellectual Property Rights;
-12-
(vii) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction (including, without limitation,
any reorganization into a limited liability company, a partnership or any
other non-corporate entity which is treated as a partnership for federal
income tax purposes), except as provided in paragraph 5(d) of the
Stockholders Agreement;
(viii) acquire, or permit any Subsidiary to acquire, any
interest in any company or business (whether by a purchase of assets,
purchase of stock, merger or otherwise), or enter into any joint venture;
(ix) enter into, or permit any Subsidiary to enter into, the
ownership, active management or operation of any business other than the
provision of local exchange telecommunications services or such other
business activities as may be identified in a Subsequent Business Plan;
(x) become subject to, or permit any of its Subsidiaries to
become subject to (including, without limitation, by way of amendment to or
modification of) any agreement or instrument which by its terms would
(under any circumstances) restrict (a) the right of any Subsidiary to make
loans or advances or pay dividends to, transfer property to, or repay any
Indebtedness owed to, the Company or another Subsidiary or (b) the
Company's right to perform the provisions of this Agreement, the
Stockholders Agreement, the Registration Agreement, the Certificate of
Incorporation or the Bylaws (including, without limitation, the provisions
of Section 5 hereof);
(xi) except as expressly contemplated by this Agreement, make
any amendment to the Certificate of Incorporation or the Bylaws, or file
any resolution of the Board with the Delaware Secretary of State containing
any provisions which would adversely affect or otherwise impair the rights
or the relative preferences and priorities of the holders of the Class A
Common under the Certificate of Incorporation;
(xii) enter into, amend, modify or supplement, or permit any
Subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any Subsidiary's
officers, directors, employees or Affiliates or with any individual related
by blood, marriage or adoption to any such individual or with any entity in
which any such Person or individual owns a beneficial interest, except for
customary employment arrangements and benefit programs on reasonable terms
and except as otherwise expressly contemplated by this Agreement;
(xiii) establish or acquire (a) any Subsidiaries other than
Wholly-Owned Subsidiaries or (b) any Subsidiaries organized outside of the
United States and its territorial possessions;
(xiv) create, incur, assume or suffer to exist, or permit any
Subsidiary to create, incur, assume or suffer to exist, Indebtedness
exceeding an aggregate principal amount of $100,000 outstanding at any time
on a consolidated basis (other than
-13-
Indebtedness expressly specified in the Initial Business Plan or any
Subsequent Business Plan);
(xv) create, incur, assume or suffer to exist, or permit any
Subsidiary to create, incur, assume or suffer to exist, any Liens other
than Permitted Liens;
(xvi) make any capital expenditures or permit any Subsidiary to
make any capital expenditures (including, without limitation, payments with
respect to capitalized leases, as determined in accordance with generally
accepted accounting principles consistently applied) exceeding $100,000 in
the aggregate on a consolidated basis during any twelve-month period (other
than capital expenditures expressly specified in the Initial Business Plan
or any Subsequent Business Plan);
(xvii) enter into any leases or other rental agreements
(excluding capitalized leases, as determined in accordance with generally
accepted accounting principles consistently applied) under which the amount
of the aggregate lease payments for all such agreements exceeds $100,000 on
a consolidated basis for any twelve-month period, provided that the Company
--------
shall be allowed to enter into any leasing arrangements that are necessary
to the conduct of its business purpose and expressly specified in the
Initial Business Plan or any Subsequent Business Plan (including, but not
limited to, leasing telecommunications networks);
(xviii) change its fiscal year;
(xix) adopt any new stock option plan or employee stock
ownership plan or issue any shares of Common Stock to its or its
Subsidiaries' employees other than a plan, the terms of which shall be
approved by a majority of the Board and the holders of at least 67% of the
Institutional Investor Stock then outstanding, under which during the four-
year period after the date hereof specified employees of the Company or its
Subsidiaries are granted options to acquire, for fair market value, up to
5% (by value) of the Company's common stock (a "Permitted Stock Option
----------------------
Plan");
----
(xx) issue or sell any shares of the capital stock, or rights
to acquire shares of the capital stock, of any Subsidiary to any Person
other than the Company or a Wholly-Owned Subsidiary; or
(xxi) use the proceeds from the sale of the Class A Common and
the subsequent capital contributions at the Subsequent Closings other than
for working capital and budgeted general corporate purposes or as
contemplated by the Initial Business Plan and any Subsequent Business Plan,
as applicable.
The restrictions of this paragraph 4C shall terminate upon the consummation of a
Public Offering.
4.1D. Affirmative Covenants. So long as any Investor Stock remains
---------------------
outstanding, the Company shall, and shall cause each Subsidiary (if any) to:
-14-
(i) at all times cause to be done all things necessary to
maintain, preserve and renew its corporate existence and all material
licenses, authorizations and permits necessary to the conduct of its
businesses;
(ii) pay and discharge when payable all taxes, assessments and
governmental charges imposed upon its properties or upon the income or
profits therefrom (in each case before the same becomes delinquent and
before penalties accrue thereon) and all material claims for labor,
materials or supplies which if unpaid would by law become a Lien upon any
of its property unless and to the extent that the same are being contested
in good faith and by appropriate proceedings and adequate reserves (as
determined in accordance with generally accepted accounting principles,
consistently applied) have been established on its books with respect
thereto;
(iii) comply with all other material obligations which it incurs
pursuant to any contract or agreement, whether oral or written, express or
implied, as such obligations become due, unless and to the extent that the
same are being contested in good faith and by appropriate proceedings and
adequate reserves (as determined in accordance with generally accepted
accounting principles, consistently applied) have been established on its
books with respect thereto;
(iv) comply in all material respects with all applicable laws,
rules and regulations of the FCC and all other governmental authorities
material to the business of the Company and its Subsidiaries (including,
without limitation, all requirements for maintaining Chicago Common Carrier
Status or any similar certification granted after the date hereof);
(v) apply for and continue in force with good and responsible
insurance companies adequate insurance covering risks of such types and in
such amounts as are customary for well-insured corporations of similar size
engaged in similar lines of business;
(vi) maintain proper books of record and account which present
fairly in all material respects its financial condition and results of
operations and make provisions on its financial statements for all such
proper reserves as in each case are required in accordance with generally
accepted accounting principles, consistently applied; and
(vii) enter into and maintain nondisclosure and noncompete
agreements, in form and substance as set forth in Exhibit 13 hereto, with
----------
all Persons (other than the Executive Investors) who from time to time
become key employees of the Company or any of its Subsidiaries.
4.1E. Compliance with Agreements. The Company shall perform and
--------------------------
observe all of its obligations to the holders of Common Stock as set forth in
the Certificate of Incorporation and the Bylaws, the Stockholders Agreement, the
Vesting Agreements, the Executive Stock Agreements and the Registration
Agreement.
-15-
4.1F. Current Public Information. At all times after the Company has
--------------------------
filed a registration statement with the Securities and Exchange Commission
pursuant to the requirements of either the Securities Act or the Securities
Exchange Act, the Company shall file all reports required to be filed by it
under the Securities Act and the Securities Exchange Act and the rules and
regulations adopted by the Securities and Exchange Commission thereunder and
shall take such further action as any holder or holders of Restricted Securities
may reasonably request, all to the extent required to enable such holders to
sell Restricted Securities pursuant to (i) Rule 144 adopted by the Securities
and Exchange Commission under the Securities Act (as such rule may be amended
from time to time) or any similar rule or regulation hereafter adopted by the
Securities and Exchange Commission or (ii) a registration statement on Form S-2
or S-3 or any similar registration form hereafter adopted by the Securities and
Exchange Commission. Upon request, the Company shall deliver to any holder of
Restricted Securities a written statement as to whether it has complied with
such requirements.
4.1G. Amendment of Vesting Agreements or Executive Stock Agreements.
-------------------------------------------------------------
The Company shall not amend, modify or fail to enforce any provision of any
Vesting Agreement or any Executive Stock Agreement without the prior written
consent of the holders of at least 67% of the Institutional Investor Stock then
outstanding.
4.1H. Intellectual Property Rights. The Company shall, and shall
----------------------------
cause each Subsidiary to, possess and maintain all material Intellectual
Property Rights necessary to the conduct of their respective businesses and own
all right, title and interest in and to, or have a valid license for, all such
Intellectual Property Rights. Neither the Company nor any Subsidiary shall take
any action, or fail to take any action, which would result in the invalidity,
abandonment, misuse or unenforceability of such Intellectual Property Rights or
which would infringe upon or misappropriate any rights of other Persons.
4.1I. Public Disclosures. The Company shall not, nor shall it permit
------------------
any Subsidiary to, disclose any Institutional Investor's name or identity as an
investor in the Company in any press release or other public announcement or in
any document or material filed with any governmental entity, without the prior
written consent of such Institutional Investor, unless such disclosure is
required by applicable law or governmental regulations or by order of a court of
competent jurisdiction, in which case prior to making such disclosure the
Company shall give written notice to such Institutional Investor describing in
reasonable detail the proposed content of such disclosure and shall permit the
Institutional Investor to review and comment upon the form and substance of such
disclosure.
4.1J. First Refusal Rights.
--------------------
(i) Except for issuances of (a) shares of Class A Common pursuant
to this Agreement, shares of Class B Common pursuant to any of the Executive
Stock Agreements contemplated hereby, or shares of Class B Common upon
conversion of Class C Common into such Class B Common pursuant to the
Certificate of Incorporation, (b) options to acquire Common Stock pursuant to
the Permitted Stock Option Plan, or shares of Common Stock upon the exercise of
such options, or (c) any securities pursuant to a Public Offering, if the
Company authorizes the issuance or sale of any shares of Common Stock or any
securities containing
-16-
options or rights to acquire any shares of Common Stock (other than as a pro
rata dividend on the outstanding Common Stock), the Company shall first offer to
sell to each holder of Investor Stock a portion of such stock or securities
equal to the quotient determined by dividing (1) the number of shares of
Investor Stock held by such holder by (2) the total number of shares of Investor
Stock then outstanding. Each holder of Investor Stock shall be entitled to
purchase such stock or securities at the most favorable price and on the most
favorable terms as such stock or securities are to be offered to any other
Persons; provided that if all Persons entitled to purchase or receive such stock
or securities are required to also purchase other securities of the Company, the
holders of Investor Stock exercising their rights pursuant to this paragraph
shall also be required to purchase the same strip of securities (on the same
terms and conditions) that such other Persons are required to purchase. The
purchase price for all stock and securities offered to the holders of the
Investor Stock shall be payable in cash.
(ii) In order to exercise its purchase rights hereunder, a holder of
Investor Stock must within 30 days after receipt of written notice from the
Company describing in reasonable detail the stock or securities being offered,
the purchase price thereof, the payment terms and such holder's percentage
allotment, deliver a written notice to the Company describing such holder's
election hereunder. If all of the securities offered to the holders of Investor
Stock are not fully subscribed by such holders, the remaining stock and
securities shall be reoffered by the Company to the holders purchasing their
full allotment upon the terms set forth in this paragraph, except that such
holders must exercise their purchase rights within five business days after
receipt of such reoffer.
(iii) Upon the expiration of the offering periods described above,
the Company shall be entitled to sell such stock or securities which the holders
of Investor Stock have not elected to purchase during the 180 days following
such expiration on terms and conditions no more favorable to the purchasers
thereof than those offered to such holders. Any stock or securities offered or
sold by the Company after such 180-day period must be reoffered to the holders
of Investor Stock pursuant to the terms of this paragraph.
(iv) The rights of the holders of Investor Stock under this
paragraph shall terminate upon the consummation of a Public Offering.
SECTION 5. INVESTORS' PUT RIGHT.
--------------------
5.1A. Put Right. At any time and from time to time on or after the
---------
seventh anniversary of the Initial Closing Date, but not after the consummation
of a Public Offering, each Institutional Investor shall have the right to
require the Company to repurchase all, but not less than all, of the
outstanding Investor Stock held by such Institutional Investor and its
Affiliates at the Repurchase Price (as defined below) by giving written notice
to the Company of such Institutional Investor's exercise of this right (the
"Exercise Notice"). Within 10 days after receipt of an Exercise Notice, the
---------------
Company shall give written notice (the "Repurchase Notice") to each other holder
-----------------
of Investor Stock, setting forth the identity of the Institutional Investor
tendering such Exercise Notice, the number of shares of Investor Stock to be
repurchased from such Investor, and a reasonable approximation of the fair
market value of the Company's assets (net of any Company liabilities senior in
liquidation preference to the Investor Stock) and of each
-17-
share of Investor Stock at the time of such Repurchase Notice. Each Investor
shall be entitled to join in such repurchase and require the Company to purchase
all, but not less than all, of the Investor Stock held by such Investor and its
Affiliates at the same closing, at the same price, and on the same terms as the
Institutional Investor tendering the Exercise Notice by giving Exercise Notice
within 20 days after the date of the Repurchase Notice. Promptly (but in any
event within 3 business days after the end of this 20-day period), the Company
shall send each Investor written notice updating the information contained in
the Repurchase Notice (the "Revised Repurchase Notice"). The Revised Repurchase
-------------------------
Notice shall also set forth a time (which shall be not less than 5 nor more than
10 business days after the date of such notice) and place for a meeting between
the Company and the holders of a majority of the Investor Stock which the
Company has been requested to repurchase (the "Majority Holders").
----------------
5.1B. Company Obligation. The Company shall do everything within its
------------------
power under the law and the Certificate of Incorporation, including but not
limited to assuming or refinancing debt, recapitalizing the Company, or selling
the Company, to enable the Company to satisfy its repurchase obligations under
this Section 5.
5.1C. Repurchase Price. The repurchase price for each share of
----------------
Investor Stock repurchased by the Company under this Section 5 (the "Repurchase
----------
Price") shall be equal to the greater of (i) the initial purchase price of such
-----
share hereunder and all amounts subsequently contributed to the capital of the
Company with respect to such share pursuant to this Agreement (as adjusted for
stock splits, stock dividends, combinations, or other reorganizations) or (ii)
the fair market value of such share (without any discount for lack of liquidity
or minority status) as of the date of the first Repurchase Notice.
The Company, the Majority Holders, and the holders of a majority of
the Executive Stock then outstanding shall attempt in good faith to agree on the
fair market value of the Investor Stock. If they are unable to reach such
agreement within 20 days after the meeting date set forth in the Revised
Repurchase Notice, the Company and the Majority Holders will each, within 10
days thereafter, appoint one investment banker or other appraiser experienced in
valuing companies like the Company, and the two Persons so appointed shall
within 10 days after their appointment appoint a third investment banker or
appraiser similarly experienced. The three investment bankers/appraisers shall
each appraise the fair market value of the Investor Stock (based on the highest
price reasonably obtainable for the Company in an orderly, arm's length sale to
a willing unaffiliated buyer), and the fair market value for purposes hereof
shall be the average of the two appraisals closest to each other. Such
determination shall be final and binding on all parties hereto. The cost of the
appraisal shall be borne by the Company.
5.1D. Repurchase Closing. At the closing of a Company repurchase
------------------
of Investor Stock pursuant to this Section 0 (xxx "Xxxxxxxxxx Xxxxxxx"), each
------------------
Investor selling Investor Stock shall deliver to the Company all existing stock
certificates evidencing the Investor Stock held by such Investor, upon the
Company's delivery to each such selling Investor of Cash in an aggregate amount
equal to the Repurchase Price of such Investor Stock.
-18-
SECTION 6. TRANSFER OF RESTRICTED SECURITIES.
---------------------------------
6.1A. General Provisions. Restricted Securities are transferable
------------------
only pursuant to (i) public offerings registered under the Securities Act, (ii)
Rule 144 or Rule 144A of the Securities and Exchange Commission (or any similar
rule or rules then in force) if such rule is available, and (iii) subject to the
various conditions and prohibitions set forth in this Agreement, the
Stockholders Agreement, the Vesting Agreements, and the Executive Stock
Agreements, any other legally available means of transfer.
6.1B. Opinion Delivery. In connection with the transfer of any
----------------
Restricted Securities (other than a transfer described in paragraph 6A(i) or
(ii) above), the holder thereof shall deliver written notice to the Company
describing in reasonable detail the transfer or proposed transfer, together with
an opinion of Xxxxxxxx & Xxxxx or other counsel which (to the Company's
reasonable satisfaction) is knowledgeable in securities law matters to the
effect that such transfer of Restricted Securities may be effected without
registration of such Restricted Securities under the Securities Act. In
addition, if the holder of the Restricted Securities delivers to the Company an
opinion of Xxxxxxxx & Xxxxx or such other counsel that no subsequent transfer of
such Restricted Securities shall require registration under the Securities Act,
the Company shall promptly upon such contemplated transfer deliver new
certificates for such Restricted Securities which do not bear the Securities Act
legend set forth in paragraph 9C below. If the Company is not required to
deliver new certificates for such Restricted Securities not bearing such legend,
the holder thereof shall not transfer the same until the prospective transferee
has confirmed to the Company in writing its agreement to be bound by the
conditions contained in this Section 6 and paragraph 9C.
6.1C. Rule 144A. Upon the request of any Investor, the Company shall
---------
promptly supply to such Investor or its prospective transferees all information
regarding the Company required to be delivered in connection with a transfer
pursuant to Rule 144A of the Securities and Exchange Commission.
6.1D. Legend Removal. If any Restricted Securities become eligible
--------------
for sale pursuant to Rule 144(k), the Company shall, upon the request of the
holder of such Restricted Securities, remove the legend set forth in paragraph
9C from the certificates for such Restricted Securities.
SECTION 7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. As a
---------------------------------------------
material inducement to the Investors to enter into this Agreement and purchase
the Class A Common hereunder, the Company hereby represents and warrants that:
7.1A. Organization, Corporate Power and Licenses. The Company is a
------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of Delaware and is qualified to do business in every jurisdiction in which its
ownership of property or conduct of business requires it to qualify. The
Company possesses all requisite corporate power and authority and, except as set
forth in the "Licenses Schedule" attached hereto, all material licenses, permits
-----------------
and authorizations necessary to own and operate its properties, to carry on its
businesses
-19-
as now conducted and presently proposed to be conducted and to carry out the
transactions contemplated by this Agreement. The copies of the Company's
charter documents and Bylaws which have been furnished to the Investors' special
counsel reflect all amendments made thereto at any time prior to the date of
this Agreement and are correct and complete.
7.1B. Capital Stock and Related Matters.
---------------------------------
(i) As of the Initial Closing and immediately thereafter, the
authorized capital stock of the Company (collectively, the "Common Stock") shall
------------
consist of (a) 80,000 shares of Class A Common, of which 79,384.62 shall be
issued and outstanding; (b) 35,000 shares of Class B Common Stock, par value
$.01 per share ("Class B Common"), 20,000 shares of which shall be issued and
--------------
outstanding, and 14,711.54 shares of which shall be reserved for issuance upon
conversion of the Class C Common Stock, par value $.01 per share ("Class C
-------
Common"); and 15,000 shares of Class C Common, of which 14,711.54 shall be
------
issued and outstanding. Except as set forth on the attached "Capitalization
--------------
Schedule," as of the Initial Closing, the Company shall not have outstanding any
--------
stock or securities, nor any options, warrants or other rights to acquire
capital stock or securities of the Company. As of the Initial Closing, all of
the outstanding shares of the Company's capital stock listed on the
Capitalization Schedule shall be validly issued, fully paid and nonassessable.
(ii) The Company has not violated any applicable federal or state
securities laws in connection with the offer, sale or issuance of any of its
capital stock, and the offer, sale and issuance of the Class A Common hereunder
or the Class B Common and Class C Common under the Executive Stock Agreements do
not require registration under the Securities Act or any applicable state
securities laws. To the best of the Company's knowledge, there are no
agreements between the Company's stockholders with respect to the voting or
transfer of the Company's capital stock or with respect to any other aspect of
the Company's affairs, except for the Stockholders Agreement, the Vesting
Agreement, and the Executive Stock Agreements.
7.1C. Authorization; No Breach. The execution, delivery and
------------------------
performance of this Agreement, the Stockholders Agreement, the Registration
Agreement, the Vesting Agreements, the Executive Stock Agreements, and all
other agreements contemplated hereby to which the Company is a party, the filing
of the amendment of the Company's Certificate of Incorporation referred to in
paragraph 2B above, and the amendment of the Company's Bylaws referred to in
paragraph 2C above have been duly authorized by the Company. This Agreement,
the Stockholders Agreement, the Executive Stock Agreements, the Vesting
Agreements, the Registration Agreement, the Certificate of Incorporation, and
all other agreements contemplated hereby to which the Company is a party each
constitutes a valid and binding obligation of the Company, enforceable in
accordance with its terms. The execution and delivery by the Company of this
Agreement, the Stockholders Agreement, the Executive Stock Agreements, the
Vesting Agreements, the Registration Agreement and all other agreements
contemplated hereby to which the Company is a party, the offering, sale and
issuance of the Class A Common hereunder and the Class B Common and Class C
Common under the Executive Stock Agreements, the filing of the amendments to
the Certificate of Incorporation referred to above and the fulfillment of and
compliance with the respective terms hereof and thereof by the Company, do not
and shall not (i) conflict with or result in a breach of the terms, conditions
or provisions of, (ii) constitute a
-20-
default under, (iii) result in the creation of any lien, security interest,
charge or encumbrance upon the Company's or any Subsidiary's capital stock or
assets pursuant to, (iv) give any third party the right to modify, terminate or
accelerate any obligation under, (v) result in a violation of, or (vi) require
any authorization, consent, approval, exemption or other action by or notice or
declaration to, or filing with, any court or administrative or governmental body
or agency pursuant to the charter or Bylaws of the Company, or any law, statute,
rule or regulation to which the Company or any Subsidiary is subject, or any
agreement, instrument, order, judgment or decree to which the Company is
subject.
7.1D. Conduct of Business; Absence of Liabilities. Prior to the
-------------------------------------------
Initial Closing, except as set forth on the attached "Liabilities Schedule," the
--------------------
Company has not conducted any business nor incurred any expenses, obligations or
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise,
whether or not known to the Company and whether due or to become due and
regardless of when asserted).
7.1E. Assets. Except as set forth on the attached "Assets Schedule,"
------ ---------------
the Company does not own or lease any Assets, whether tangible or intangible
(excluding Intellectual Property Rights). The Company has good and marketable
title to, or a valid leasehold interest in, all assets listed on the Assets
Schedule, free and clear of all Liens.
7.1F. No Subsidiaries. The Company does not own or hold, and has
---------------
never owned or held, any rights to acquire any shares of stock or any other
security or interest in any other Person.
7.1G. Contracts and Commitments.
-------------------------
(i) Except as expressly contemplated by this Agreement or as set
forth on the attached "Contracts Schedule," neither the Company nor any
------------------
Subsidiary is a party to or bound by any written or oral contract of any kind,
including but not limited to any agreement, employee benefit plan, employment
contract, insurance contract, loan agreement, guarantee, lease, license,
warranty, or affirmative or restrictive covenant.
(ii) All of the contracts, agreements and instruments set forth on
the Contracts Schedule are valid, binding and enforceable in accordance with
their respective terms.
(iii) The Investors' special counsel has been supplied with a true
and correct copy of each of the written instruments, plans, contracts and
agreements and an accurate written description of each of the oral arrangements,
contracts and agreements which are referred to on the Contracts Schedule,
together with all amendments, waivers or other changes thereto.
7.1H. Intellectual Property Rights. The attached "Intellectual
---------------------------- ------------
Property Schedule" contains a complete and accurate list of all (a) patented or
-----------------
registered Intellectual Property Rights owned or used by the Company or any
Subsidiary, (b) pending patent applications and applications for registrations
of other Intellectual Property Rights filed by the Company or any Subsidiary,
(c) unregistered trade names and corporate names owned or used by the Company or
any Subsidiary and (d) unregistered trademarks and service marks. The
Intellectual Property
-21-
Schedule also contains a complete and accurate list of all licenses and other
rights granted by the Company or any Subsidiary to any third party with respect
to any Intellectual Property Rights and all licenses and other rights granted by
any third party to the Company or any Subsidiary with respect to any
Intellectual Property Rights, in each case identifying the subject Intellectual
Property Rights. Except as set forth on the Intellectual Property Schedule: (a)
the Company or one of its Subsidiaries owns all right, title and interest to, or
has the right to use pursuant to a valid license, all Intellectual Property
Rights necessary for the operation of the businesses of the Company and its
Subsidiaries as presently proposed to be conducted, free and clear of all Liens,
(b) the Company and its Subsidiaries own all right, title and interest in and to
all of the Intellectual Property Rights listed on such schedule, free and clear
of all Liens, (c) there have been no claims made against the Company or any
Subsidiary asserting the invalidity, misuse, or unenforceability of any of such
Intellectual Property Rights, and there are no valid grounds for the same, and
(d) neither the Company nor any Subsidiary has received any notices of, and is
not aware of any facts which indicate the likelihood of, any infringement or
misappropriation by, or conflict with, any third party with respect to such
Intellectual Property Rights (including, without limitation, any demand or
request that the Company or any Subsidiary license any rights from a third
party).
7.1I. Litigation, etc. Except as set forth on the attached
---------------
"Litigation Schedule," there are no actions, suits, proceedings, orders,
-------------------
investigations or claims pending or, to the best of the Company's knowledge,
threatened against or affecting the Company or any Subsidiary (or to the best of
the Company's knowledge, pending or threatened against or affecting any of the
officers, directors or employees of the Company and its Subsidiaries with
respect to their businesses or proposed business activities), or pending or
threatened by the Company or any Subsidiary against any third party, at law or
in equity, or before or by any governmental department, commission, board,
bureau, agency or instrumentality (including, without limitation, any actions,
suit, proceedings or investigations with respect to the transactions
contemplated by this Agreement); neither the Company nor any Subsidiary is
subject to, to the best of the Company's knowledge, any governmental
investigations or inquiries (including, without limitation, inquiries as to the
qualification to hold or receive any license or permit); and, to the best of the
Company's knowledge, there is no basis for any of the foregoing. Neither the
Company nor any Subsidiary is subject to any judgment, order or decree of any
court or other governmental agency, and neither the Company nor any Subsidiary
has received any opinion or memorandum or legal advice from legal counsel to the
effect that it is exposed, from a legal standpoint, to any liability or
disadvantage which may be material to its business.
7.1J. Brokerage. There are no claims for brokerage commissions,
---------
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement binding
upon the Company. The Company shall pay, and hold each Investor (excluding any
Executive Investor that had actual knowledge of such arrangement or agreement
prior to the date hereof) harmless against, any liability, loss or expense
(including, without limitation, reasonable attorneys' fees and out-of-pocket
expenses) arising in connection with any such claim.
7.1K. Governmental Consent, etc. Except as set forth on the attached
-------------------------
"Consents Schedule," no permit, consent, approval or authorization of, or
-----------------
declaration to or filing with, any
-22-
governmental authority is required in connection with the execution, delivery
and performance by the Company of this Agreement or the other agreements
contemplated hereby, or the consummation by the Company of any other
transactions contemplated hereby or thereby.
7.1L. Compliance with Laws. The Company has not violated any law or
--------------------
any governmental regulation or requirement in any material respect.
7.1M. Affiliated Transactions. Except as set forth on the attached
-----------------------
"Affiliated Transactions Schedule," no officer, director, employee or Affiliate
--------------------------------
of the Company or any Subsid iary or any individual related by blood, marriage
or adoption to any such individual or any entity in which any such Person or
individual owns any beneficial interest, is a party to any agreement, contract,
commitment or transaction with the Company or has any material interest in any
material property owned or used by the Company.
7.1N. Projections and Pro Forma Financial Statements.
----------------------------------------------
(i) Included as part of the Initial Business Plan attached hereto
as Exhibit 1 is a true and complete copy of the latest projections of the
consolidated income and cash flows of the Company and its Subsidiaries for the
five consecutive 12-month periods commencing with and following the date hereof.
Such projections have been prepared on the basis of the assumptions set forth
therein, which the Company reasonably believes are fair and reasonable in light
of current and reasonably foreseeable business conditions.
(ii) The pro forma consolidated balance sheets of the Company and
its Subsidiaries as of the end of each of the five consecutive 12-month periods
commencing with and following the date hereof, included as part of the Initial
Business Plan attached hereto as Exhibit 1, is complete and correct in all
material respects and presents fairly in all material respects the consolidated
financial condition of the Company and its Subsidiaries as of such date as if
the transactions contemplated by this Agreement had occurred immediately prior
to such date, and such balance sheet contains all pro forma adjustments
necessary in order to fairly reflect such assumption.
7.1O. Disclosure. Neither this Agreement nor any of the exhibits,
----------
schedules, attachments, written statements, documents, certificates or other
items supplied to any Investor by or on behalf of the Company with respect to
the transactions contemplated hereby contain any untrue statement of a material
fact or omit a material fact necessary to make each statement contained herein
or therein not misleading; provided that with respect to the financial
--------
projections furnished to the Investors by the Company, the Company represents
and warrants only that such projections were based upon assumptions reasonably
believed by the Company to be reasonable and fair as of the date the projections
were prepared in the context of the Company's history and current and reasonably
foreseeable business conditions. There is no fact which the Company has not
disclosed to the Investors in writing and of which any of its officers,
directors or executive employees is aware and which would reasonably be expected
to have a material adverse effect upon the expected financial condition or
business prospects of the Company and its Subsidiaries taken as a whole.
-23-
SECTION 8. REPRESENTATIONS AND WARRANTIES OF THE INSTITUTIONAL
---------------------------------------------------
INVESTORS. As a material inducement to the Company and the Executive Investors
---------
to enter into this Agreement and to engage in the transactions and enter into
the agreements contemplated hereby, each of the Institutional Investors
represents and warrants for itself, severally and not jointly, that:
8.1A. Assets. Such Institutional Investor has sufficient capital and
------
liquidity (including undrawn commitments) to fulfill its capital contribution
obligations under the Initial Business Plan and any Subsequent Business Plan,
pursuant to the terms and subject to the conditions set forth herein.
8.1B. Initial Business Plan. Such Institutional Investor is
---------------------
sophisticated in financial matters and sophisticated in the industry in which
the Company contemplates doing business and has had an opportunity to evaluate
the Initial Business Plan of the Company.
8.1C. Authorization. The execution, delivery and performance of this
-------------
Agreement and the other agreements contemplated hereby to which the such
Institutional Investor is a party by such Institutional Investor and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by all requisite action on the part of such Institutional
Investor and the partners thereof, and no other proceedings on its or their part
(other than giving notice of drawdowns on commitments) is necessary to authorize
the execution, delivery or performance of this Agreement. This Agreement
constitutes, and each of the other agreements contemplated hereby to which such
Institutional Investor is a party will when executed constitute, a valid and
binding obligation of such Institutional Investor, enforceable in accordance
with their terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors' rights
generally and limitations on the availability of equitable remedies.
SECTION 9. MISCELLANEOUS PROVISIONS.
------------------------
9.1A. Expenses. The Company shall pay, and hold each Institutional
--------
Investor harmless against liability for the payment of, the out-of-pocket
expenses of the Institutional Investors, including the reasonable fees and
expenses of MDCP's special counsel, Xxxxxxxx & Xxxxx, and their special
telecommunications counsel, Skadden, Arps, Slate, Xxxxxxx & Xxxx, arising in
connection with (i) the performance of due diligence investigations concerning
the Company, the negotiation and execution of this Agreement, and the
consummation of the transac tions to occur at the Initial Closing or any
Subsequent Closing as contemplated hereby, (ii) any amendments or waivers
(whether or not the same become effective) under or in respect of this
Agreement, the agreements contemplated hereby or the Certificate of
Incorporation, (iii) the enforcement of the rights granted under this Agreement,
the agreements contemplated hereby and the Certificate of Incorporation, (iv)
any filing with any governmental agency with respect to such Institutional
Investor's investment in the Company or in any other filing with any
governmental agency with respect to the Company which mentions such
Institutional Investor, and (v) stamp and other taxes which may be payable by
the Institutional Investors in respect of the execution and delivery of this
Agreement or the issuance, delivery or acquisition of any Investor Stock.
-24-
9.1B. Remedies.
--------
(i) Each holder of Investor Stock shall have all rights and
remedies set forth in this Agreement and the Certificate of Incorporation and
all rights and remedies which such holders have been granted at any time under
any other agreement or contract and all of the rights which such holders have
under any law. Any Person having any rights under any provision of this
Agreement shall be entitled to enforce (upon demonstration of irreparable harm)
such rights specifically (without posting a bond or other security), to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law.
(ii) If at any Subsequent Closing, after all conditions to such
Subsequent Closing set forth in Section 3 hereof have been either satisfied or
waived pursuant to paragraph 3I, any Investor refuses to tender such Investor's
Specified Contribution for such Subsequent Closing, the Company shall have the
right, in addition to the remedies available under subparagraph 9B(i) above, to
repurchase all shares of Investor Stock held by such refusing Investor or its
Affiliates for an aggregate price equal to such Investor's Initial Contribution
and all Specified Contributions made by such Investor at prior Subsequent
Closings, each with respect to such repurchased shares. The Company shall have
the option to pay such repurchase price in the form of a promissory note with
the following terms: (a) principal equal to such Investor's Initial Contribution
and all prior Specified Contributions made by such Investor, each with respect
to such repurchased shares; (b) liquidation preference junior to all senior debt
obligations of the Company then or thereafter incurred, and to the Distribution
Preference of the holders of Class A Common under the Certificate of
Incorporation; (c) simple annual interest equal to the prime rate issued by
Citibank from time to time; and (d) all principal and accrued interest due and
payable on the first to occur of (1) the closing of a Public Offering, (2) a
Sale of the Company (as defined in the Stockholders Agreement), and (3) the
fifth anniversary of the issuance of such note; provided that such note shall
--------
not be repaid until the Distribution Preference of the holders of Class A Common
under the Certificate of Incorporation has been fully satisfied. If an
Investor's holdings of Investor Stock are repurchased pursuant to this
paragraph, such Investor and its Affiliates shall thereafter retain no further
right to enforce or benefit from the provisions of this Agreement or any other
agreement contemplated hereby to which such Investor is a party other than the
promissory note described above, and such Investor and its Affiliates shall
retain no further obligation under this Agreement to make Specified
Contributions at any Subsequent Closing.
9.1C. Investor's Investment Representations. Each Investor hereby
-------------------------------------
represents that it is acquiring the Restricted Securities purchased hereunder or
acquired pursuant hereto for its own account with the present intention of
holding such securities for purposes of investment, and that it has no intention
of selling such securities in a public distribution in violation of the federal
securities laws or any applicable state securities laws; provided that nothing
--------
contained herein shall prevent any Investor and subsequent holders of Restricted
Securities from transferring such securities in compliance with the provisions
of Section 6 hereof. Each certificate or instrument representing Restricted
Securities shall be imprinted with a legend in substantially the following form:
-25-
"The securities represented by this certificate were originally
issued on November 27, 1996, and have not been registered under
the Securities Act of 1933, as amended. The transfer of the
securities represented by this certificate is subject to the
conditions specified in the Stock Purchase Agreement dated as of
November 27, 1996, as amended and modified from time to time,
between the issuer (the "Company") and certain investors. The
Company reserves the right to refuse the transfer of such
securities until such conditions have been fulfilled with respect
to such transfer. A copy of the Stock Purchase Agreement shall be
furnished by the Company to the holder hereof upon written
request and without charge."
9.1D. Consent to Amendments. Except as otherwise expressly provided
---------------------
herein, the provisions of this Agreement may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holders of at least 67% of the Institutional Investor Stock, and the holders of
a majority of the Executive Stock, outstanding at the time such amendment or
waiver becomes effective. No course of dealing between the Company and the
holder of any Investor Stock or any delay by such holder in exercising any
rights hereunder or under the Certificate of Incorporation shall operate as a
waiver of any rights of such holder.
9.1E. Survival of Representations and Warranties. All
------------------------------------------
representations and warranties contained herein or made in writing by any party
in connection herewith shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby,
regardless of any investigation made by any Investor or on its behalf.
9.1F. Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed or
not; provided that a party's obligation to make Specified Contributions at
--------
Subsequent Closings shall be binding on such party's successors and assigns only
to the extent set forth in an express written assignment signed by such party.
In addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for any Investor's benefit as an Investor
or holder of Investor Stock are also for the benefit of, and enforceable by, any
subsequent holder of such Investor Stock. Notwithstanding the foregoing, the
rights of the holders of the Investor Stock under this Agreement, the
Stockholders Agreement or the Registration Agreement shall not be exercisable by
or for the benefit of any subsequent holder of Investor Stock if, directly or
indirectly, the assignment of Investor Stock to such subsequent holder breached
any material provision of this Agreement or the Stockholders Agreement.
9.1G. Capital and Surplus; Special Reserves. The Company agrees that
-------------------------------------
the capital of the Company (as such term is used in Section 154 of the General
Corporation Law of Delaware) in respect of the shares of Class A Common issued
pursuant to this Agreement shall be equal to the aggregate par value of such
shares and that it shall not increase the capital of the Company with respect to
any shares of the Company's capital stock at any time on or after the date of
this Agreement. The Company also agrees that it shall not create any special
reserves
-26-
under Section 171 of the General Corporation Law of Delaware without the prior
written consent of the holders of at least 67% of the outstanding Institutional
Investor Stock.
9.1H. Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
9.1I. Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together shall constitute
one and the same Agreement.
9.1J. Descriptive Headings; Interpretation. The descriptive headings
------------------------------------
of this Agreement are inserted for convenience only and do not constitute a
substantive part of this Agreement. The use of the word "including" in this
Agreement shall be by way of example rather than by limitation.
9.1K. Governing Law. The corporate law of the State of Delaware
-------------
shall govern all issues and questions concerning the relative rights and
obligations of the Company and its stockholders. All other issues and questions
concerning the construction, validity, enforcement and interpretation of this
Agreement and the exhibits and schedules hereto shall be governed by, and
construed in accordance with, the laws of the State of Illinois, without giving
effect to any choice of law or conflict of law rules or provisions (whether of
the State of Illinois or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Illinois.
9.1L. Notices. All notices, demands or other communications to be
-------
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
to the recipient, one business day after they are sent to the recipient by
reputable overnight courier service (charges prepaid) or three business days
after they are mailed to the recipient by certified or registered mail, return
receipt requested and postage prepaid. Such notices, demands and other
communications shall be sent to each Investor at the address indicated on the
Schedule of Investors with a copy to
Xxxxxxxx & Xxxxx
000 Xxxx Xxxxxxxx Xxxxx
Xxxxxxx, XX 00000
Attention: Xxxxx Xxxxxxxx
and to the Company at the address indicated below:
-27-
Focal Communications Corporation
000 X. Xxxxxxxxxx Xxxx., Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attention: President
with a copy to Bischoff, Kenney, and Xxxxxxx
0000 Xxxxx Xxxx Xxxxxx
Xxxxxxxx, Xxxx 00000
Attention: Xxxxxxx Xxxxxxx
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
9.1M. Understanding among the Investors. The determination of each
---------------------------------
Investor to purchase the Investor Stock pursuant to this Agreement has been made
by such Investor independently of any other Investor and independently of any
statements or opinions as to the advisability of such purchase or as to the
properties, business, prospects or condition (financial or otherwise) of the
Company which may have been made or given by any other Investor or by any agent
or employee of any other Investor. In addition, it is acknowledged by each of
the other Investors that MDCP has not acted as an agent of such Investor in
connection with making its investment hereunder and that MDCP shall not be
acting as an agent of such Investor in connection with monitoring its investment
hereunder.
9.1N. No Strict Construction. The parties hereto have participated
----------------------
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
* * * * *
-28-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
/s/ Xxxxx X. Xxxx MADISON DEARBORN CAPITAL PARTNERS, L.P.
----------------------------
Xxxxx X. Xxxx By Madison Dearborn Partners, L.P., its
General Partner
By Madison Dearborn Partners, Inc., its
General Partner
/s/ Xxxx X. Xxxxxxxx By /s/ Xxxxx X. Xxxxx, Xx.
---------------------------- ----------------------------------
Xxxx X. Xxxxxxxx Its Vice President
----------------------------------
/s/ Xxxxxx Xxxxxx
----------------------------
Xxxxxx Xxxxxx FRONTENAC VI, L.P.
By Frontenac Company, its General Partner
/s/ Xxxxxx X. Xxxxxx, Xx. By /s/ Xxxxx X. Xxxxxxxx III
---------------------------- ----------------------------------
Xxxxxx X. Xxxxxx, Xx. Its General Partner
----------------------------------
BATTERY VENTURES III, L.P.
By Battery Partners III, L.P., its General
Partner
By /s/ Xxxxxxx X. Xxxxxxx
-----------------------------------
Its Managing Partner
-----------------------------------
FOCAL COMMUNICATIONS CORPORATION
By /s/ Xxxxxx X. Xxxxxx, Xx.
-----------------------------------
Its President
-----------------------------------
-29-
APPENDIX A
----------
INDEX OF DEFINITIONS
--------------------
For the purposes of this Agreement, the following terms have the
meanings set forth below:
"Addy" has the meaning set forth in the preamble.
----
"Affiliate" of any particular Person means any other Person
---------
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"Agreement" has the meaning set forth in the preamble.
---------
"Xxxxxxxx" has the meaning set forth in the preamble.
--------
"Xxxxxx" has the meaning set forth in the preamble.
------
"Board" has the meaning set forth in paragraph 1D.
-----
"BV" has the meaning set forth in the preamble.
--
"Bylaws" has the meaning set forth in paragraph 2C.
------
"Cash" has the meaning set forth in paragraph 1C.
----
"Certificate of Incorporation" has the meaning set forth in paragraph
----------------------------
2B.
"Chicago Common Carrier Status" has the meaning set forth in paragraph
-----------------------------
2H.
"Class A Common" has the meaning set forth in paragraph 1A.
--------------
"Class B Common" has the meaning set forth in paragraph 7B(i).
--------------
"Class C Common" has the meaning set forth in paragraph 7B(i).
--------------
"Common Stock" has the meaning set forth in paragraph 7B(i).
------------
"Company" has the meaning set forth in the preamble.
-------
"Executive Investor" has the meaning set forth in the preamble.
------------------
"Executive Stock" has the meaning ascribed to such term in the
---------------
Executive Stock Agreements.
-S1-
"Executive Stock Agreements" has the meaning set forth in paragraph
--------------------------
2E.
"Exercise Notice" has the meaning set forth in paragraph 5A.
---------------
"Frontenac" has the meaning set forth in the preamble.
---------
"Indebtedness" means at a particular time, without duplication, (i)
------------
any indebtedness for borrowed money or issued in substitution for or exchange of
indebtedness for borrowed money, (ii) any indebtedness evidenced by any note,
bond, debenture or other debt security, (iii) any indebtedness for the deferred
purchase price of property or services with respect to which a Person is liable,
contingently or otherwise, as obligor or otherwise (including, without
limitation, vendor Financing), (iv) any commitment by which a Person assures a
creditor against loss (including, without limitation, contingent reimbursement
obligations with respect to letters of credit), (v) any indebtedness guaranteed
in any manner by a Person (including, without limitation, guarantees in the form
of an agreement to repurchase or reimburse), (vi) any obligations under
capitalized leases with respect to which a Person is liable, contingently or
otherwise, as obligor, guarantor or otherwise, or with respect to which
obligations a Person assures a creditor against loss, (vii) any indebtedness
secured by a Lien on a Person's assets; and (viii) any unsatisfied obligation
for "withdrawal liability" to a "multiemployer plan" as such terms are defined
under ERISA.
"Initial Business Plan" has the meaning set forth in the preamble.
---------------------
"Initial Closing" has the meaning set forth in paragraph 1C.
---------------
"Initial Closing Date" has the meaning set forth in paragraph 1C.
--------------------
"Initial Contribution" has the meaning set forth in paragraph 1B.
--------------------
"Institutional Investor" has the meaning set forth in the preamble.
----------------------
"Institutional Investor Stock" means (i) the Class A Common issued to
----------------------------
the Institutional Investors hereunder, (ii) any securities repurchased by an
Institutional Investor pursuant to paragraph 3(e)(i) of any Executive Stock
Agreement, and (iii) any securities issued directly or indirectly with respect
to the foregoing securities by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization. As to any particular shares of Institutional Investor
Stock, such shares shall forever cease to be Institutional Investor Stock when
they have (a) been effectively registered under the Securities Act and disposed
of in accordance with the registration statement covering them, (b) been sold
pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act, or (c) been forfeited pursuant to the provisions of any Vesting
Agreement.
"Intellectual Property Rights" means all (i) patents, patent
----------------------------
applications, patent disclosures and inventions, (ii) trademarks, service marks,
trade dress, trade names, logos and corporate names and registrations and
applications for registration thereof together with all of the goodwill
associated therewith, (iii) copyrights (registered or unregistered) and
copyrightable works and registrations and applications for registration thereof,
(iv) mask works and registrations and applications for registration thereof, (v)
computer software, data, data bases and documen-
-A2-
tation thereof, (vi) trade secrets and other confidential information
(including, without limitation, ideas, formulas, compositions, inventions
(whether patentable or unpatentable and whether or not reduced to practice),
know-how, manufacturing and production processes and techniques, research and
development information, drawings, specifications, designs, plans, proposals,
technical data, copyrightable works, financial and marketing plans and customer
and supplier lists and information), (vii) other intellectual property rights
and (viii) copies and tangible embodiments thereof (in whatever form or medium).
"Interconnection Agreement" has the meaning set forth in paragraph 2H.
-------------------------
"Investment" as applied to any Person means (i) any direct or indirect
----------
purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interest (including partnership
interests and joint venture interests) of any other Person and (ii) any capital
contribution by such Person to any other Person.
"Investor" has the meaning set forth in the preamble.
--------
"Investor Stock" means (i) the Class A Common issued hereunder, (ii)
--------------
any securities repurchased by an Institutional Investor pursuant to paragraph
3(e)(i) of an Executive Stock Agreement, and (iii) any securities issued
directly or indirectly with respect to the foregoing securities by way of a
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. As to any
particular shares of Investor Stock, such shares shall forever cease to be
Investor Stock when they have (a) been effectively registered under the
Securities Act and disposed of in accordance with the registration statement
covering them, (b) been sold pursuant to Rule 144 (or any similar provision then
in force) under the Securities Act, or (c) been forfeited pursuant to the
provisions of any Vesting Agreement.
"IRC" means the Internal Revenue Code of 1986, as amended, and any
---
reference to any particular IRC section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.
"IRS" means the United States Internal Revenue Service.
---
"Lien" means any mortgage, pledge, security interest, encumbrance,
----
lien or charge of any kind (including, without limitation, any conditional sale
or other title retention agreement or lease in the nature thereof), any sale of
receivables with recourse against the Company, any Subsidiary or any Affiliate,
any filing or agreement to file a financing statement as debtor under the
Uniform Commercial Code or any similar statute other than to reflect ownership
by a third party of property leased to the Company or any Subsidiaries under a
lease which is not in the nature of a conditional sale or title retention
agreement, or any subordination arrangement in favor of another Person (other
than any subordination arising in the ordinary course of business).
"Majority Holders" has the meaning set forth in paragraph 5A.
----------------
"Management" has the meaning set forth in paragraph 3A.
----------
"Maximum Commitment" has the meaning set forth in paragraph 1D.
------------------
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"MDCP" has the meaning set forth in the preamble.
----
"MSA"has the meaning set forth in the preamble.
---
"Note" has the meaning set forth in paragraph 1C(ii).
----
"Officer's Certificate" means a certificate signed by the Company's
---------------------
president or its chief financial officer, stating that (i) the officer signing
such certificate has made or has caused to be made such investigations as are
reasonably necessary in order to permit him to verify the accuracy of the
information set forth in such certificate and (ii) to the best of such officer's
knowledge, such certificate does not misstate any material fact and does not
omit to state any fact necessary to make the certificate not misleading.
"Permitted Lien" means:
--------------
(i) tax liens with respect to taxes not yet due and payable or
which are being contested in good faith by appropriate proceedings and for
which appropriate reserves have been established in accordance with
generally accepted accounting principles, consistently applied;
(ii) deposits or pledges made in connection with, or to secure
payment of, utilities or similar services, workers' compensation,
unemployment insurance, old age pensions or other social security
obligations;
(iii) purchase money security interests in any property acquired
by the Company or any Subsidiary to the extent permitted by this Agreement;
(iv) interests or title of a lessor under any lease permitted
by this Agreement;
(v) mechanics', materialmen's or contractors' liens or
encumbrances or any similar lien or restriction for amounts not yet due and
payable;
(vi) easements, rights-of-way, restrictions and other similar
charges and encumbrances not interfering with the ordinary conduct of the
business of the Company and its Subsidiaries or detracting from the value
of the assets of the Company and its Subsidiaries; and
(vii) liens outstanding on the date hereof which secure
Indebtedness and which are described in the schedules to this Agreement.
"Permitted Stock Option Plan" has the meaning set forth in paragraph
---------------------------
4C(xix).
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
-A4-
"Public Offering" means any underwritten sale of the company's common
---------------
stock pursuant to an effective registration statement under the Securities Act
filed with the Securities and Exchange Commission on Form S-1 (or a successor
form adopted by the Securities and Exchange Commission); provided that the
--------
following shall not be considered a Public Offering: (i) any issuance of common
stock as consideration or financing for a merger or acquisition, and (ii) any
issuance of common stock or rights to acquire common stock to employees of the
Company or its Subsidiaries as part of an incentive or compensation plan.
"Qualified Holder" has the meaning set forth in paragraph 4A.
----------------
"Registration Agreement" has the meaning set forth in paragraph 2F.
----------------------
"Repurchase Closing" has the meaning set forth in paragraph 5D.
------------------
"Repurchase Notice" has the meaning set forth in paragraph 5A.
-----------------
"Repurchase Price" has the meaning set forth in paragraph 5C.
----------------
"Restricted Securities" means (i) the Class A Common issued hereunder,
---------------------
and (ii) any securities issued with respect to the securities referred to such
Class A Common by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular Restricted Securities, such securities
shall cease to be Restricted Securities when they have (a) been effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering them, (b) become eligible for sale pursuant to
Rule 144 (or any similar provision then in force) under the Securities Act or
(c) been otherwise transferred and new certificates for them not bearing the
Securities Act legend set forth in paragraph 9C have been delivered by the
Company in accordance with paragraph 6B. Whenever any particular securities
cease to be Restricted Securities, the holder thereof shall be entitled to
receive from the Company, without expense, new securities of like tenor not
bearing a Securities Act legend of the character set forth in paragraph 9C.
"Revised Repurchase Notice" has the meaning set forth in paragraph 5A.
-------------------------
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
similar federal law then in force.
"Securities and Exchange Commission" includes any governmental body or
----------------------------------
agency succeeding to the functions thereof.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
-----------------------
as amended, or any similar federal law then in force.
"Specified Contribution" has the meaning set forth in paragraph 1D.
----------------------
"Stockholders Agreement" has the meaning set forth in paragraph 2D.
----------------------
"Subsequent Business Plan" has the meaning set forth in paragraph 3A.
------------------------
-A5-
"Subsequent Closings" has the meaning set forth in paragraph 1D.
-------------------
"Subsidiary" means, with respect to any Person, any corporation,
----------
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or losses or
shall be or control any managing director or general partner of such limited
liability company, partnership, association or other business entity.
"Xxxxxx" has the meaning set forth in the preamble.
------
"Vesting Agreement" has the meaning set forth in paragraph 2G.
-----------------
"Wholly-Owned Subsidiary" means, with respect to any Person, a
-----------------------
Subsidiary of which all of the outstanding capital stock or other ownership
interests are owned by such Person or another Wholly-Owned Subsidiary of such
Person.
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APPENDIX B
----------
SCHEDULE OF INVESTORS
---------------------
Number of Initial Purchase Investor's
Names and Shares of Price for Maximum
Addresses Class A Common Class A Common Commitment
--------- -------------- ---------------- ------------
Madison Dearborn Capital Partners, L.P. 46, 153.85 $2,325,581.40 $15,000,000
Three First Xxxxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Tel. (000) 000-0000
Fax (000) 000-0000
Attention: Xxxxx X. Xxxxx, Xx.
and Xxxx Xxxxxxxx
Frontenac VI, L.P. 21,538.46 $1,085,271.32 $ 7,000,000
000 Xxxxx XxXxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx
Tel. (000) 000-0000
Fax (000) 000-0000
Attention: Xxxxx Xxxxxxxx
Battery Ventures III, L.P. 10, 769.23 $ 542, 635.66 $ 3,500,000
00 Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxx, Xxxxxxxxxxxxx 00000
Tel. (000) 000-0000
Fax (000) 000-0000
Attention: Xxxxxxx Xxxxxxx
Xxxxx X. Xxxx 230.77 $ 11, 627.91 $ 75,000
000 Xxxxxxxxxx Xxxx., Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
(000) 000-0000
Xxxx X. Xxxxxxxx 230.77 $ 11,627.91 $ 75,000
000 Xxxxxxxxxx Xxxx., Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
(000) 000-0000
Xxxxxx Xxxxxx 230.77 $ 11,627.91 $ 75,000
000 Xxxxxxxxxx Xxxx., Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
(000) 000-0000
Xxxxxx X. Xxxxxx, Xx. 230.77 $ 11,627.91 $ 75,000
000 Xxxxxxxxxx Xxxx., Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
(000) 000-0000
--------------- ---------------- ------------
TOTAL 79,384.62 $4,000,000.02 $25,800,000
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