Exhibit 10.2
STOCK PURCHASE AGREEMENT
This is a Stock Purchase Agreement (the "Agreement"), dated July 20,
1998, among XXXXXXXXXX X. XXXXXXXX, an individual residing at 00 Xxxxxx
Xxxxxxxx, Xxxxxxxx, Xxx Xxxx 00000 ("Purchaser"), XXXXXX X. XXXXXXXX, an
individual residing at 00 Xxxxxxxxx Xxx, Xxxxxx, Xxx Xxxx 00000 ("Seller"),
PAETEC CORP., a Delaware corporation with its principal place of business at 000
Xxxxxxxxx Xxxxx, Xxxxxxxx, Xxx Xxxx 00000 (the "Company"), and PAETEC
COMMUNICATIONS, INC., a Delaware corporation and wholly-owned subsidiary of the
Company with its principal place of business at 000 Xxxxxxxxx Xxxxx, Xxxxxxxx,
Xxx Xxxx 00000 (the "Subsidiary").
RECITALS
A. The Company has 110,000,000 shares of authorized capital stock,
10,000,000 of which are designated preferred stock, 75,000,000 of which are
designated Class A common stock, and 25,000,000 of which are designated Class B
common stock.
B. Seller is one of the founding shareholders of the Company and an
employee of the Subsidiary. The Company has issued to Seller 2,500,000 shares of
Class B common stock at a purchase price of $.48 per share, subject to certain
restrictions.
C. Purchaser, who is also an employee of Subsidiary, desires to
purchase, and Seller agrees to sell, 50,000 shares of the Class B common stock
of the Company, subject to the terms and conditions of this Agreement.
D. Purchaser, Seller, the Company, and the Subsidiary enter into this
Agreement for the purpose of confirming the terms of sale of the 50,000 shares
to Purchaser by Seller and outlining the rights of and restrictions imposed by
the Company with respect to the shares.
NOW, THEREFORE, in consideration of the following mutual promises, the
parties agree as follows:
1. Purchase of Shares. Seller hereby agrees to sell 50,000 shares of
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Class B common stock (the "Shares") to Purchaser at a price of $.48 per share,
payable in full upon execution of this Agreement. Upon receipt of this executed
Agreement and payment in full of the purchase price, Seller shall return to the
Company his stock certificate evidencing 2,500,000 shares, and the Company shall
issue two new certificates, one to Seller evidencing his remaining 2,450,000
shares, and one to Purchaser evidencing his 50,000 Shares.
2. Representations and Warranties of Purchaser. In order to induce
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the Company to issue the Shares, Purchaser represents and warrants to the
Company as follows:
(a) Purchaser (i) understands that an investment in the Shares is
speculative due to factors including (but not limited to) the start-up nature of
the Company and the risk of economic loss from the operations of the Company,
but believes that such an investment is suitable for Purchaser based upon
Purchaser's financial needs, (ii) can withstand a complete loss of the
investment in the Shares, and (iii) has the net worth to undertake these risks.
(b) Purchaser is acquiring the Shares for the personal account of
Purchaser, with no present intention of reselling, distributing or otherwise
transferring the Shares or any portion of the Shares to anyone else.
(c) Purchaser understands and acknowledges that the Shares are being
offered and sold under one or more exemptions provided in the Securities Act of
1933, as amended (the "Securities Act"), Regulation D promulgated thereunder and
applicable state securities laws, and that this transaction has not been
reviewed or passed upon by the United States Securities and Exchange Commission,
or any other federal or state agency.
(d) Purchaser realizes that Purchaser must bear the economic risk of
investment for an indefinite period of time because (i) the Shares have not been
registered under the Securities Act and cannot be resold by Purchaser unless
they are subsequently registered under the Securities Act or an exemption from
registration is available, and (ii) there currently is no public market for the
Shares, and Purchaser may not be able to liquidate the investment in the Shares
in the event of an emergency. Purchaser has no need for liquidity of investment
with respect to the Shares.
(e) Purchaser has substantial experience in evaluating and investing
in companies similar to the Company, and is capable of evaluating the merits and
risks of his investment in the Company and has the capacity to protect his own
interests.
(f) Purchaser is fully familiar with the business of the Company and
its present and proposed operations. Purchaser has been given reasonable
opportunity to ask representatives of the Company questions concerning the
Company and making an investment in the Shares. Purchaser has obtained
sufficient information to evaluate the merits and risks of an investment in the
Shares.
(g) Purchaser confirms that Purchaser has been advised to rely on
professional accounting, tax, legal and financial advisers with respect to an
investment in the Shares and has obtained, to the extent Purchaser deems it
necessary, professional advice with respect to the risks inherent in an
investment in the Shares and the suitability of an investment in the Shares in
light of Purchaser's financial condition and investment needs.
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3. Restriction on Transfer of Shares. Purchaser may not sell,
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transfer, pledge, assign, transfer, or otherwise encumber or dispose of, in any
manner or by any means, any Shares that are subject to the Company's Purchase
Option described in Section 4 of this Agreement. This restriction on transfer
does not apply to any Shares that, pursuant to Section 4, no longer are subject
to the Company's Purchase Option or to any additional shares of capital stock of
the Company that Purchaser might acquire in the future.
4. Purchase of Shares by Company upon Termination of Employment with
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Subsidiary. Upon termination of Purchaser's employment with the Subsidiary, the
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Company shall have an option, but shall not be obligated, to purchase (the
"Purchase Option") from Purchaser or Purchaser's personal representative all or
a portion of Purchaser's Shares, as set forth in the following subparagraphs.
(a) If Purchaser's employment with the Subsidiary terminates due
to voluntary separation or dismissal for Cause (as defined below), the number of
Shares that are subject to the Company's Purchase Option shall be determined as
follows:
(i) The Company shall have the option to purchase up to
100% of the Shares should Purchaser's employment terminate at any time prior to
the first anniversary of Purchaser's employment with the Subsidiary.
(ii) The Company shall have the option to purchase up to
60% of the Shares should Purchaser's employment terminate on the first
anniversary date, or at any time between the first and second anniversary dates,
of Purchaser's employment with the Subsidiary.
(iii) The Company shall have the option to purchase up to
40% of the Shares should Purchaser's employment terminate on the second
anniversary date, or at any time between the second and third anniversary dates,
of Purchaser's employment with the Subsidiary.
(iv) The Company shall have the option to purchase up to
20% of the Shares should Purchaser's employment terminate on the third
anniversary date, or at any time between the third and fourth anniversary dates,
of Purchaser's employment with the Subsidiary.
(b) If Purchaser's employment with the Subsidiary terminates
because of Purchaser's death or disability, Purchaser or Purchaser's personal
representative may negotiate a transfer of all or a portion of Purchaser's
Shares to the Company at any time. With respect to Shares that were subject to
the Company's Purchase Option and that are not transferred to the Company, the
transfer restrictions set forth in Section 3 above shall apply to the same
extent that they would have applied if Purchaser's employment had continued.
This restriction on transfer does not apply to any Shares that would no longer
have been subject to
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the Company's Purchase Option, or to any additional shares of capital stock of
the Company that Purchaser might acquire in the future.
(c) In the event that Purchaser's employment with the Subsidiary
terminates for any reason not addressed in subparagraphs (a) and (b) above, the
Company's Purchase Option, together with all transfer restrictions set forth in
Section 3, shall fully expire effective as of the date of termination.
(d) The Company's Purchase Option shall fully expire on the
fourth anniversary of Purchaser's employment with the Subsidiary. Shares as to
which the Company's Purchase Option has expired are no longer subject to the
transfer restrictions set forth in Section 3.
(e) To exercise its Purchase Option, the Company must notify
Purchaser or Purchaser's personal representative of its intention to exercise
its Purchase Option within 60 days after the date of termination of Purchaser's
employment with the Subsidiary. Should the Company fail to exercise the Purchase
Option within such 60-day period, the Shares shall no longer be subject to the
transfer restrictions set forth in Section 3.
(f) In the event of a consolidation or merger of the Company
with or into any other person or entity, a sale of all or substantially all of
the assets of the Company to another person or entity, or an acquisition of more
than 50% of the capital stock of the Company by another person or entity, the
Company's Purchase Option shall be terminated as of the effective date of the
transfer. Notwithstanding the foregoing, the Company's Purchase Option shall not
be terminated or in any other way affected by an initial public offering of
stock by the Company.
5. Company's Purchase Price and Payment Terms. The price for all
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Shares purchased by the Company pursuant to the Purchase Option shall be $.48
per Share. Payment shall be made in full for all purchased Shares within 30
days after the date on which the Company delivers notice of its intention to
exercise the Purchase Option. Upon payment, Purchaser or Purchaser's personal
representative shall deliver all stock certificates for purchased Shares,
properly endorsed in blank, to the Company or its designee.
6. Proxy. Concurrently with the execution of this Agreement and the
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issuance of the Shares, Purchaser is executing and delivering an irrevocable
proxy appointing Xxxxxx X. Xxxxxxxx Purchaser's attorney-in-fact and proxy to
vote all Shares now or hereafter owned by Purchaser at any meeting of
shareholders, regular or special, whenever called, and for whatever purpose. A
copy of the proxy shall be filed with the Secretary of the Company and
registered in the stock books of the Company. Any transfer of the Shares is
subject to the terms of this irrevocable proxy.
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7. Legends. Each certificate for Shares owned by Purchaser shall
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bear the following legends:
(a) The shares represented by this certificate were issued
to the shareholder with restrictions. Neither the shares,
nor any interest in them, may be sold, transferred, assigned,
pledged, hypothecated, or otherwise disposed of, if restricted
pursuant to a stock purchase agreement between the shareholder
and the Company, a copy of which is on file at the office of
the Company in Fairport, New York.
(b) The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be transferred in the absence of such registration
unless the Company receives an opinion of counsel reasonably
acceptable to it stating the such sale or transfer is exempt
from registration.
(c) The shares represented by this certificate are subject
to an irrevocable proxy in favor of Xxxxxx X. Xxxxxxxx, a
copy of which is on file with the Company. Any transferee of
the shares represented by this certificate shall take the
shares subject to the terms of the irrevocable proxy.
With respect to Shares that are subject to the Purchase Option described in
Section 4 of this Agreement, however, Purchaser shall be entitled to a
certificate without the legend set forth in subparagraph (a), evidencing any
Shares as to which the Company's Purchase Option has expired.
8. Confidentiality; Non-Competition.
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(a) (i) Purchaser acknowledges that the Company has acquired
and developed and will continue to acquire and develop techniques, plans,
processes, computer programs, equipment, and lists of customers and their
particular requirements that may pertain to Company-related services and
equipment, and related trade secrets, know-how, research, and development, which
are proprietary and confidential in nature and are and will continue to be of
unique value to the Company and its business (all referred to as "Confidential
Information"). Purchaser shall keep and maintain as confidential and proprietary
to the Company all Confidential Information known or in the possession of
Purchaser.
(ii) Purchaser shall not (A) disclose any Confidential
Information at any time, directly or indirectly, in any manner to any person or
firm, except to other employees of the Company on a "need to know" basis, or (B)
solicit any officer,
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director, employee or agent of the Company or any affiliate of the Company to
become an officer, director, employee or agent of Purchaser or anyone else.
(iii) Upon termination of employment with the Subsidiary for
any reason, Purchaser shall, without demand therefor, deliver to the Company all
Confidential Information in Purchaser's possession. The obligations of this
subparagraph (a) shall survive the termination of this Agreement indefinitely.
(b) (i) For a period of one year after termination of
Purchaser's employment with the Subsidiary (regardless of the reason for
termination), Purchaser shall not, directly or indirectly:
(A) solicit or serve clients or customers of the
Company or any affiliate of the Company (including the Subsidiary), whether for
Purchaser's own account or as an employee, shareholder, partner, officer,
member, manager, director, consultant, or other representative of any third
party;
(B) direct any business from, or enter into
competition with, the Company or any affiliate of the Company (including the
Subsidiary) in any line of business in which the Company or such affiliate was
conducting operations during Purchaser's employment; or
(C) serve as an employee, shareholder, partner,
officer, member, manager, director, consultant or other representative of any
third party which engages in any line of business competitive with the Company
or any affiliate of the Company (including the Subsidiary) anywhere in the
world.
Purchaser acknowledges that the limitations of this subparagraph (b)(i) are
reasonable in time and scope and agrees not to raise any objection to the
reasonableness of the foregoing in any action or proceeding to enforce the terms
of this Section.
(ii) As consideration for the non-competition covenant set
forth in subparagraph (b)(i) above, the Subsidiary agrees that, if Purchaser's
employment is terminated by the Subsidiary without Cause, Subsidiary shall pay
Purchaser or Purchaser's personal representative during the one-year period in
which the covenant is in effect an amount equal to the annualized base salary
paid to Purchaser immediately prior to termination of Purchaser's employment.
Payment shall be made in accordance with the Subsidiary's customary payroll
practices. Continued payment of Purchaser's base salary under this subparagraph
(b)(ii) shall not be made if termination of Purchaser's employment is due to
Purchaser's death, disability, voluntary resignation or withdrawal or
termination for "Cause" (as defined below).
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(iii) As additional consideration for the non-competition
covenant set forth in subparagraph (b)(i) above, the Company agrees that (A) in
the event Purchaser's employment terminates due to the death or disability of
Purchaser or is terminated by Subsidiary without Cause, the one-year period
during which the non-competition covenant is to be in effect shall be counted as
a year of employment with Subsidiary for purposes of determining the percentage
of Shares that is subject to the Company's Purchase Option, and (B) in the event
Purchaser's employment is terminated by the Subsidiary for Cause or terminates
due to the voluntary resignation or withdrawal of Purchaser, the Company shall
have the option of (1) waiving the non-competition covenant set forth in
subparagraph (b)(i) above or (2) counting the one-year period during which the
non-competition covenant is to be in effect as a year of employment for purposes
of determining the percentage of Shares that is subject to the Company's
Purchase Option.
(c) (i) Should Purchaser violate the terms of the non-
competition covenant set forth in subparagraph (b)(i), the Company, the Company
shall notify Purchaser in writing of the alleged violation that constitutes a
breach of this Agreement, and Purchaser shall have 10 business days to cure the
breach. If the breach is not cured to the satisfaction of the Company, then in
addition to any other remedies available under law, the Company may (A)
discontinue any payments being made to Purchaser pursuant to subparagraph
(b)(ii) hereof, and (B) exercise its Purchase Option with respect to any
additional Shares that would have been subject to the Purchase Option had the
one-year period of the non-competition covenant not been counted as an
additional year of employment pursuant to the terms of subparagraph (b)(iii)
hereof. Exercise of the Purchase Option with respect to such additional Shares
shall be made in accordance with the terms of Sections 3 and 4 hereof, except
that the Company may exercise the Purchase Option at any time within 60 days
after the Company first becomes aware of Purchaser's violation of subparagraph
(b)(i).
(ii) In the event that the Company fails to make any
payment due to Purchaser pursuant to subparagraph (b)(ii) above, Purchaser shall
notify the Company in writing of the alleged failure to make payment that
constitutes a breach of this Agreement, and the Company shall have 5 business
days to cure the breach. If the breach is not cured to the satisfaction of
Purchaser, then the non-competition covenant set forth in subparagraph (b)(i)
shall be null and void and of no further force and effect.
(d) For purposes of subparagraph (b) above, termination for
"Cause" shall mean termination of Purchaser's employment with the Subsidiary due
to: (i) material failure or refusal to perform the duties assigned to Purchaser,
(ii) refusal of Purchaser to follow the reasonable directives of the Board of
Directors or Chief Executive Officer of the Subsidiary, (iii) conviction of a
felony, (iv) misappropriation of any funds or property of the Company or any
affiliate of the Company (including the Subsidiary), or (v) commission of any
act which could materially injure the business or reputation of, or materially
adversely affect the interests of Company or any affiliate of the Company
(including the Subsidiary).
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(e) Purchaser acknowledges that his/her services are unique and
extraordinary and are not readily replaceable, and hereby expressly agrees that,
in the event of a violation of the confidentiality covenant set forth in
subparagraph (a) or the non-competition covenant set forth in subparagraph (b),
the Company and its affiliates (including Subsidiary) will be irreparably harmed
and the remedy of damages or other remedy at law will be inadequate. Therefore,
Purchaser agrees that, in the event of a threatened or actual violation of the
confidentiality or non-competition covenant, the Company shall be entitled to
obtain from any court of competent jurisdiction, an injunction restraining
Purchaser from committing the violation, without the necessity of proving actual
damage and in addition to any other relief available under this Agreement or at
law.
(f) The Company and Purchaser believe that the covenants of this
Section 8 are reasonable. However, if at any time it shall be determined by any
court of competent jurisdiction that this Section 8 or any portion of it, as
written, is unenforceable because the restrictions are unreasonable, the Company
and Purchaser agree that such portions as shall have been determined to be
unreasonably restrictive shall be deemed so amended as to make the restrictions
reasonable in the determination of the court, and the covenants, as so modified,
shall be enforceable to the same extent as if the amendments had been made prior
to the date of any alleged breach of these covenants.
9. Piggy-Back Registration Rights.
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(a) If at any time or from time to time the Company shall
determine to register any of its equity securities, either for its own account
or the account of a security holder or holders (other than a registration of
securities relating solely to employee benefit plans or to effect a merger or
other reorganization), the Company will promptly give to Purchaser written
notice thereof and, upon the written request of Purchaser, include in such
registration (and any related qualification under blue sky laws or other
compliance), and in any underwriting involved therein, all the Shares specified
in the written request made within 10 days after receipt of such written notice
from the Company.
(b) If the registration of which the Company gives notice is for
a registered public offering involving an underwriting, the Company shall so
advise Purchaser as a part of the written notice given to Purchaser. In such
event the right of any Purchaser to registration pursuant to this Section 9
shall be conditioned upon Purchaser's participation in such underwriting, and
the inclusion of Shares in the underwriting shall be limited to the extent
provided herein. Purchaser (together with the Company and the other holders
distributing their securities through such underwriting) shall enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by the Company. Notwithstanding any other provision of
this Section 9, if the managing underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the managing
underwriter may exclude some or all of the Shares or securities of other holders
of similar registration rights from such registration. The Company shall so
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advise Purchaser and other stockholders distributing their securities through
such underwriting, and the number of Shares or securities of other holders of
similar registration rights that may be included in the registration and
underwriting, as determined by the managing underwriter, shall be allocated on a
pro rata basis. If Purchaser disapproves of the terms of any such underwriting,
Purchaser may elect to withdraw therefrom by written notice to the Company and
the managing underwriter. Any securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration, and shall continue to be
subject to the terms of this Section.
(c) The Company shall have the right to terminate or withdraw
any registration initiated by it under this Section 9 prior to the effectiveness
of such registration whether or not Purchaser has elected to include securities
in such registration.
(d) All expenses associated with the registration (including,
without limitation, registration, qualification and filing fees, printing
expenses, blue sky fees, and fees and disbursements of counsel and accountants
for the Company) shall be borne by the Company. Selling expenses, including
underwriters' discounts, shall be borne by Purchaser pro rata in proportion to
the number of securities being registered.
(e) In the case of each registration under this Section, the
Company will:
(i) prepare and file a registration statement with respect
to such securities and use its best efforts to cause such registration statement
to become and remain effective for at least 45 days or until the distribution
described in the registration statement has been completed, whichever first
occurs;
(ii) furnish to Purchaser such reasonable number of copies
of the registration statement, preliminary prospectus, final prospectus and such
other documents as Purchaser may reasonably request in order to facilitate the
public offering of the Shares; and
(iii) use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as shall be reasonably requested by
Purchaser, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify as a foreign corporation or as a
dealer in securities or to file a general consent to service of process in any
such states or jurisdictions in which it has not already done so and except as
may be required by the Securities Act.
(f) The Company will indemnify Purchaser against all expenses,
claims, losses, damages or liabilities (or actions in respect thereof), arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or
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supplement thereto, incident to any such registration, or based on any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, or any violation by the
Company of the Securities Act of 1933, the Securities Exchange Act of 1934,
state securities law or any rule or regulation promulgated under such laws
applicable to the Company in connection with any such registration,
qualification or compliance, and the Company will reimburse Purchaser for any
legal and any other expenses reasonably incurred, as such expenses are incurred,
in connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission, or alleged untrue
statement or omission, made in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by
Purchaser.
(g) Purchaser will, if Shares held by such Purchaser are
included in the securities as to which such registration is being effected,
indemnify the Company, each of its directors and officers, each underwriter, if
any, of the Company's securities covered by such a registration statement
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company, such Purchasers, such directors, officers, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred, as such
expenses are incurred, in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by Purchaser and stated to be specifically for use therein.
(h) Purchaser shall furnish to the Company such information
regarding Purchaser, the Shares held by Purchaser, and the distribution proposed
by Purchaser as the Company may request in writing and as shall be required in
connection with any registration referred to in this Agreement.
(i) The registration rights granted to Purchaser in this Section
shall expire at such time (if ever) as Purchaser is free to sell the Shares
under Rule 144 promulgated under the Securities Act (or any successor thereto)
without limitation as to volume or manner of sale restrictions.
10. Notices. All notices and communications under this Agreement
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shall be in writing and shall be given by personal delivery or by registered or
certified mail, return
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receipt requested, addressed to the respective residences of Purchaser and
Seller set forth at the beginning of this Agreement, and to the principal
offices of the Company and the Subsidiary. Notice shall be deemed given upon
personal delivery or upon receipt.
11. Miscellaneous.
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(a) This Agreement may be modified or amended only upon the
written consent of the parties to this Agreement.
(b) This Agreement shall be interpreted, construed, and enforced
in accordance with the laws of the State of New York.
(c) Neither this Agreement, nor any rights or obligations under
it, may be assigned by any party without the prior written consent of the other
parties.
(d) This Agreement shall benefit and be binding upon the parties
and their successors, heirs, executors, personal representatives, and assigns.
(e) This Agreement sets forth the entire understanding and
agreement of the parties with respect to its subject matter and supersedes all
prior letters, agreements, covenants, communications, understandings,
representations, or warranties, whether oral or written, by any officer,
employee, or representative of either party.
(f) The waiver of any provision of this Agreement, or of any
breach of this Agreement, shall not constitute a subsequent waiver of any
provision or breach.
(g) Except as otherwise specifically set forth in subparagraph
8(f) of this Agreement, if at any time any of the provisions of this Agreement
shall be deemed by a court or other body having jurisdiction over this Agreement
to be illegal, invalid, or unenforceable, those provisions shall be deemed
severed from this Agreement. The remaining provisions of this Agreement shall be
valid and binding as if this Agreement had never contained any illegal, invalid,
or otherwise unenforceable provisions, without the requirement that the
amendment be recorded in a writing signed by the parties.
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The parties' assent to the terms of this Agreement is confirmed by
their signatures below.
/s/ Xxxxxxxxxx X. Xxxxxxxx
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Xxxxxxxxxx X. Xxxxxxxx
/s/ Xxxxxx X. Xxxxxxxx
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Xxxxxx X. Xxxxxxxx
PAETEC CORP.
By: /s/ Xxxxxx X. Xxxxxxxx
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Title: President
PAETEC COMMUNICATIONS, INC.
By: /s/ Xxxxxx X. Xxxxxxxx
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Title: President
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