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EXHIBIT 10.1
Execution Copy
NET2000 COMMUNICATIONS, INC.
SECURITIES PURCHASE AGREEMENT
DATED AS OF
MARCH 27, 2001
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SECURITIES PURCHASE AGREEMENT
Securities Purchase Agreement (the "Agreement"), dated as of
March 27, 2001, by and among Net2000 Communications, Inc., a Delaware
corporation, with headquarters located at 0000 Xxx Xxxx Xxxx, Xxxxxxx, Xxxxxxxx
00000 (the "Company"), and the investors listed on the Schedule of Buyers
attached hereto (each individually, a "Buyer" and, collectively, the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon one or more exemptions from securities registration
afforded by Section 4(2) and/or Rule 506 of Regulation D ("Regulation D") as
promulgated by the United States Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended (the "1933 Act");
B. The Company has authorized the following new series of its
preferred stock, par value $.01 per share: the Company's Series D Convertible
Pay In Kind Preferred Stock (the "Preferred Stock"), which shall be convertible
into shares of the Company's common stock, par value $.01 per share (the "Common
Stock") (as converted, the "Conversion Shares"), in accordance with the terms of
the Certificate of Designations for Series D Convertible Pay In Kind Preferred
Stock, substantially in the form attached hereto as Exhibit A (the "Certificate
of Designations");
C. The Buyers wish to purchase, upon the terms and conditions
stated in this Agreement, an aggregate of up to 65,000 shares of the Preferred
Stock (the "Preferred Shares") in the respective amounts set forth opposite each
Buyer's name on the Schedule of Buyers, and warrants, substantially in the form
attached hereto as Exhibit B (the "Warrants"), to acquire 27 shares of Common
Stock for each Preferred Share purchased (as exercised, collectively, the
"Warrant Shares"); and
D. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement substantially in the form attached hereto as Exhibit C (the
"Registration Rights Agreement") pursuant to which the
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Company has agreed to provide certain registration rights under the 1933 Act and
the rules and regulations promulgated thereunder, and applicable state
securities laws.
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.
(a) Purchase of Preferred Shares and Warrants. Subject to
the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7
below, the Company shall issue and sell to each Buyer and each Buyer severally
agrees to purchase from the Company the respective number of Preferred Shares
set forth opposite such Buyer's name on the Schedule of Buyers, along with the
related Warrants (the "Closing"). The purchase price (the "Purchase Price") of
each Preferred Share and the related Warrants at the Closing shall be $1,000.
(b) The Closing Date. The date and time of the Closing (the
"Closing Date") shall be 10:00 a.m., Eastern Time, within five (5) Business Days
following the date hereof, subject to the satisfaction (or waiver) of the
conditions to the Closing set forth in Sections 6 and 7 (or such later date as
is mutually agreed to by the Company and the Buyers). The Closing shall occur on
the Closing Date at the offices of Xxxxxx, Xxxx & Xxxxxxx, 00 Xxxxx Xxxxxx,
Xxxxxx, Xxxxxxxxxxxxx 00000, or such other location on which the Company and the
Buyers mutually agree. "Business Days" means any day other than Saturday, Sunday
or other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.
(c) Form of Payment. On the Closing Date, (i) each Buyer
shall pay the Purchase Price to the Company for the Preferred Shares and the
related Warrants to be issued and sold to such Buyer by wire transfer of
immediately available funds in accordance with the Company's written wire
instructions, less any amount withheld for expenses pursuant to Section 4(h),
and (ii) the Company shall deliver to each Buyer, stock certificates (in the
denominations as such Buyer shall request) (the "Preferred Stock Certificates")
representing such number of the Preferred Shares which such Buyer is then
purchasing hereunder along with warrants representing the related Warrants, duly
executed on behalf of the Company and registered in the name of such Buyer or
its designee.
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2. BUYERS' REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself that:
(a) Investment Purpose. Such Buyer (i) is acquiring the
Preferred Shares and the Warrants, (ii) upon conversion of the Preferred Shares,
will acquire the Conversion Shares then issuable and (iii) upon exercise of the
Warrants, will acquire the Warrant Shares issuable upon exercise thereof (the
Preferred Shares, the Conversion Shares, the Warrants, the Warrant Shares and
the Dividend Shares (as defined in the Certificate of Designations) collectively
are referred to herein as the "Securities"), for its own account for investment
only and not with a view towards, or for resale in connection with, the public
sale or distribution thereof, except pursuant to sales registered or exempted
under the 1933 Act; provided, however, that by making the representations
herein, such Buyer does not agree to hold any of the Securities for any minimum
or other specific term and reserves the right to dispose of the Securities at
any time in accordance with or pursuant to a registration statement or an
exemption under the 1933 Act.
(b) Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a)(3) of Regulation D.
(c) Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of the United States federal and state
securities laws and that the Company is relying in part upon the truth and
accuracy of, and such Buyer's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of such Buyer set forth herein in
order to determine the availability of such exemptions and the eligibility of
such Buyer to acquire the Securities.
(d) Information. Such Buyer has been furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Securities which have been
requested by such Buyer. Such Buyer has been afforded the opportunity to ask
questions of the Company. Neither such inquiries nor any other due diligence
investigations conducted by such Buyer, or its representatives shall modify,
amend or affect such Buyer's right to rely on the Company's representations and
warranties contained in Sections 3 and 9(m) below. Such Buyer understands that
its investment in the Securities involves a high
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degree of risk. Such Buyer has sought such accounting, legal and tax advice as
it has considered necessary to make an informed investment decision with respect
to its acquisition of the Securities.
(e) No Governmental Review. Such Buyer understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Securities
or the fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
(f) Transfer or Resale. Such Buyer understands that except
as provided in the Registration Rights Agreement: (i) the Securities have not
been and are not being registered under the 1933 Act or any state securities
laws, and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from the registration requirements under
the 1933 Act, or (C) such Buyer provides the Company with reasonable assurances
that such Securities can be sold, assigned or transferred pursuant to Rule 144
promulgated under the 1933 Act (or a successor rule thereto) ("Rule 144"); and
(ii) any sale of the Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and, further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the person through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the 0000 Xxx) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC thereunder.
Notwithstanding the foregoing, the Securities may be pledged in connection with
a bona fide margin account or other loan secured by the Securities.
(g) Legends. Such Buyer understands that the certificates or
other instruments representing the Preferred Shares and the Warrants and, until
such time as the sale of the Conversion Shares and the Warrant Shares have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the stock certificates representing the Conversion Shares and the
Warrant Shares, except as set forth below, shall bear a restrictive
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legend in substantially the following form (and a stop-transfer order may be
placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL,
IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR
(II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED
BY THE SECURITIES.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection with
a sale transaction, such holder provides the Company with an opinion of counsel,
in a generally acceptable form, to the effect that a public sale, assignment or
transfer of the Securities may be made without registration under the 1933 Act,
or (iii) such holder provides the Company with reasonable assurances that the
Securities can be sold pursuant to Rule 144 without any restriction as to the
number of securities acquired as of a particular date that can then be
immediately sold.
(h) Authorization, Enforcement, and Validity. This Agreement
and the Registration Rights Agreement have been duly and validly authorized,
executed and delivered on behalf of such Buyer and are valid and binding
agreements of such Buyer enforceable against such Buyer in accordance with their
terms, subject as to enforceability to general principles of equity and to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
(i) Residency. Such Buyer is a resident of that state
specified in its address on the Schedule of Buyers.
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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
(a) Organization and Qualification. The Company and its
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns capital stock or holds an equity or
similar interest) are duly organized and validly existing in good standing under
the laws of the jurisdiction in which they are organized, and have the requisite
power and authority to own their properties and to carry on their business as
now being conducted. Each of the Company and its Subsidiaries is duly qualified
as a foreign corporation to do business and is in good standing in every
jurisdiction in which its ownership of property or the nature of the business
conducted by it makes such qualification necessary, except to the extent that
the failure to be so qualified or be in good standing would not have a Material
Adverse Effect. As used in this Agreement, "Material Adverse Effect" means any
material adverse effect on the business, properties, assets, operations, results
of operations or financial condition of the Company and its Subsidiaries, if
any, taken as a whole, or on the transactions contemplated hereby or by the
agreements and instruments to be entered into in connection herewith, or on the
authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined below) or the Certificate of Designations. The
Company has no Subsidiaries except as set forth on Schedule 3(a).
(b) Authorization, Enforcement, and Validity. The Company
has the requisite corporate power and authority to enter into and perform its
obligations under this Agreement, the Registration Rights Agreement, the
Irrevocable Transfer Agent Instructions (as defined in Section 5), the Warrants,
the Shelf Registration Rights Agreement (as defined in Section 7) and each of
the other agreements entered into by the parties hereto in connection with the
transactions contemplated by this Agreement (collectively, the "Transaction
Documents"), and to issue the Securities in accordance with the terms hereof and
thereof. The execution and delivery of the Transaction Documents by the Company
and the execution and filing of the Certificate of Designations by the Company
and the consummation by it of the transactions contemplated hereby and thereby,
including without limitation the issuance of the Preferred Shares and the
Warrants and the reservation for issuance and the issuance of the Conversion
Shares and the Warrant Shares issuable upon conversion or exercise thereof, have
been duly authorized by the
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Company's Board of Directors. No further consent or authorization is required by
the Company, its Board of Directors or its stockholders (including, without
limitation any stockholder vote, required by the Nasdaq National Market
("Nasdaq") or otherwise). The Company has described to Nasdaq, in reasonable
detail, the transactions contemplated by the Transaction Documents and has been
advised by Nasdaq that no stockholder approval thereof is required. The
Transaction Documents have been duly executed and delivered by the Company. The
Transaction Documents constitute the valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies. The Certificate of Designations shall have been filed prior
to the Closing Date with the Secretary of State of the State of Delaware and
will be in full force and effect, enforceable against the Company in accordance
with its terms and shall not have been amended unless in compliance with its
terms.
(c) Capitalization. As of the date hereof, the authorized
capital stock of the Company is as set forth on Schedule 3(c). Except as
disclosed in Schedule 3(c), (i) no shares of the Company's capital stock are
subject to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company; (ii) there are no outstanding
debt securities issued by the Company; (iii) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries; (iv) there are no agreements or arrangements
under which the Company or any of its Subsidiaries is obligated to register the
sale of any of their securities under the 1933 Act (except the Registration
Rights Agreement); (v) there are no outstanding securities or instruments of the
Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may
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become bound to redeem a security of the Company or any of its Subsidiaries;
(vi) there are no securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the Securities as described
in this Agreement; and (vii) the Company does not have any stock appreciation
rights or "phantom stock" plans or agreements or any similar plan or agreement.
The Company has furnished to each Buyer true and correct copies of the Company's
Certificate of Incorporation, as amended and as in effect on the date hereof
(the "Charter"), and the Company's By-laws, as amended and as in effect on the
date hereof (the "By-laws"), and the terms of all securities convertible into or
exercisable or exchangeable for Common Stock and the material rights of the
holders thereof in respect thereto.
(d) Issuance of Securities. The Preferred Shares are duly
authorized and, upon issuance in accordance with the terms hereof, shall be (i)
validly issued, fully paid and non-assessable, (ii) free from all taxes, liens
and charges with respect to the issuance thereof and (iii) entitled to the
rights and preferences set forth in the Certificate of Designations. At least
47,503,764 shares of Common Stock (subject to adjustment pursuant to the
Company's covenant set forth in Section 4(f) below) have been duly authorized
and reserved for issuance upon conversion of the Preferred Shares and upon
exercise of the Warrants. Upon conversion or exercise in accordance with the
Certificate of Designations or the Warrants, as the case may be, the Conversion
Shares and the Warrant Shares will be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof, with the holders being entitled to all rights accorded to a
holder of Common Stock. Assuming the truth and accuracy of the representations
and warranties of the Buyers set forth in Section 2 hereof, the issuance by the
Company of the Securities is exempt from registration under the 1933 Act.
(e) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company, the performance by the Company of its
obligations under the Certificate of Designations and the consummation by the
Company of the transactions contemplated hereby and thereby (including, without
limitation, the reservation for issuance and issuance of the Conversion Shares
and the Warrant Shares) will not (i) result in a violation of the Charter or the
By-laws; (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
material agreement, indenture or instrument to
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which the Company or any of its Subsidiaries is a party; or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations and the rules and regulations
of the Principal Market (as defined below)) applicable to the Company or any of
its Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected. Neither the Company nor its Subsidiaries is
in violation of any term of its charter or by-laws, or other governing
documents. Neither the Company or any of its Subsidiaries is in violation of any
term of or in default under any contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its Subsidiaries, except where such
violations and defaults would not result, either individually or in the
aggregate, in a Material Adverse Effect. The business of the Company and its
Subsidiaries is not being conducted, and shall not be conducted, in violation of
any law, ordinance or regulation of any governmental entity, except where such
violations would not result, either individually or in the aggregate, in a
Material Adverse Effect. Except as specifically contemplated by this Agreement
and as required under the 1933 Act, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency or any regulatory or self-regulatory agency
(including but not limited to the Federal Communications Commission) or the
Principal Market in order for it to execute, deliver or perform any of its
obligations under or contemplated by the Transaction Documents or to perform its
obligations under the Certificate of Designations in accordance with the terms
hereof or thereof, except where the failure to obtain such consents,
authorizations or orders or the failure to make such filing or registration
would not result, either individually or in the aggregate, in a Material Adverse
Effect. All consents, authorizations, orders, filings and registrations which
the Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof. The Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company is not in violation of the listing
requirements of the Principal Market, including, without limitation, the
requirements set forth in The Nasdaq Stock Market's Marketplace Rules and has no
knowledge of any facts which would reasonably lead to delisting or suspension of
the Common Stock by the Principal Market in the foreseeable future.
(f) SEC Documents; Financial Statements. Since March 7,
2000, the Company has filed all reports, schedules, forms, statements and other
documents required to be
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filed by it with the SEC pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the "SEC Documents"). A
complete list of the Company's SEC Documents is set forth on Schedule 3(f). As
of their respective dates, the SEC Documents complied in all material respects
with the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents. None of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Buyers which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 2(d), contains any untrue statement of a material fact or
omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstance under which they are or were made, not
misleading. The Company has met since March 7, 2001, and continues to meet, the
requirements for use of Form S-3 for registration of the resale of Registrable
Securities (as defined in the Registration Rights Agreement).
(g) Absence of Certain Changes. Since September 30, 2000,
there have been no material adverse changes and no material adverse developments
in the business, properties, assets, operations, results of operations or
financial conditions of the Company or its Subsidiaries. The Company has not
taken any steps, and does not currently expect to take any
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steps, to seek protection pursuant to any bankruptcy law nor does the Company or
any of its Subsidiaries have any knowledge or reason to believe that its
creditors intend to initiate involuntary bankruptcy proceedings or any actual
knowledge of any fact which would reasonably lead a creditor to do so. Since
September 30, 2000, the Company has not declared or paid any dividends, sold any
assets, individually or in the aggregate, in excess of $250,000 outside of the
ordinary course of business or had capital expenditures outside of the ordinary
course of business, individually or in the aggregate, in excess of $250,000.
(h) Absence of Litigation. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending against the
Company, the Common Stock or any of the Company's Subsidiaries or any of the
Company's or the Company's Subsidiaries' officers or directors in their
capacities as such, and, to the knowledge of the Company or any of its
Subsidiaries, no such action, suit, proceeding, inquiry or investigation is
threatened which would result, either individually or in the aggregate, in a
Material Adverse Effect and, to the knowledge of the Company or any of its
Subsidiaries, no such action, suit, proceeding, inquiry or investigation
affecting the Company, the Common Stock or any of the Company's Subsidiaries or
any of the Company's or the Company's Subsidiaries' officers or directors in
their capacities as such, would result, either individually or in the aggregate,
in a Material Adverse Effect. To the knowledge of the Company, none of the
directors or officers of the Company have been involved in securities related
litigation during the past five years.
(i) Acknowledgment Regarding Buyers' Purchase of Preferred
Shares. The Company acknowledges and agrees that each of the Buyers is acting
solely in the capacity of an arm's length purchaser with respect to the
Transaction Documents and the Certificate of Designations and the transactions
contemplated hereby and thereby. The Company further acknowledges that each
Buyer is not acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to the Transaction Documents and the
Certificate of Designations and the transactions contemplated hereby and thereby
and any advice given by any of the Buyers or any of their respective
representatives or agents in connection with the Transaction Documents and the
Certificate of Designations and the transactions contemplated hereby and thereby
is merely incidental to such Buyer's purchase of the Securities. The
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Company further represents to each Buyer that the Company's decision to enter
into the Transaction Documents has been based solely on the independent
evaluation by the Company and its representatives.
(j) No Undisclosed Events, Liabilities, Developments or
Circumstances. Except for the issuance of the Preferred Stock and Warrants
contemplated by this Agreement and changes in general economic or equity market
conditions, no event, liability, development or circumstance has occurred or
exists, or is contemplated to occur, with respect to the Company or its
Subsidiaries or their respective business, properties, operations or financial
condition, that would be required to be disclosed by the Company under
applicable securities laws on a registration statement on Form S-3 (including
information permitted to be incorporated by reference therein) filed with the
SEC relating to an issuance and sale by the Company of its Common Stock and
which has not been publicly disclosed.
(k) No General Solicitation. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 0000 Xxx) in connection with the offer or sale of the
Securities.
(l) No Integrated Offering. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
issuance by the Company of any of the Securities under the 1933 Act or cause
this offering of the Securities to be integrated with prior offerings by the
Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
any exchange or automated quotation system on which any of the securities of the
Company are listed or designated, nor will the Company or any of its
Subsidiaries take any action or steps that would require registration of the
issuance by the Company of any of the Securities under the 1933 Act or cause the
offering of the Securities to be integrated with other offerings.
(m) Dilutive Effect. The Company understands and
acknowledges that the number of Conversion Shares issuable upon conversion of
the Preferred Shares and the Warrant
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Shares issuable upon exercise of the Warrants will increase in certain
circumstances. Subject to the provisions of the Certificate of Designations and
the Warrants, the Company further acknowledges that its obligation to issue
Conversion Shares upon conversion of the Preferred Shares in accordance with
this Agreement and the Certificate of Designations and its obligation to issue
the Warrant Shares upon exercise of the Warrants in accordance with this
Agreement and the Warrants, is, in each case, absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other stockholders of the Company.
(n) Employee Relations. Neither the Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened. None of the
Company's or its Subsidiaries' employees is a member of a union which relates to
such employee's relationship with the Company, neither the Company nor any of
its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that their relations with their employees
are good. No executive officer (as defined in Rule 501(f) of the 0000 Xxx) has
notified the Company that such officer intends to leave the Company or otherwise
terminate such officer's employment with the Company. No executive officer, to
the best knowledge of the Company and its Subsidiaries, is, or is now expected
to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with respect to
any of the foregoing matters.
(o) Intellectual Property Rights. The Company and its
Subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service xxxx registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and other intellectual property rights (the "IP
Rights") necessary to conduct their respective businesses as now conducted,
except where the failure to own or possess such rights would not result, either
individual or in the aggregate, in a Material Adverse Effect. Except as set
forth on Schedule 3(o), none of the Company's IP Rights (other than licenses for
commercially available software) have expired or terminated, or are expected to
expire or terminate within two years from the date of this Agreement, except
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where such expiration or termination would not result, either individually or in
the aggregate, in a Material Adverse Effect. The Company and its Subsidiaries do
not have any knowledge of any infringement by the Company or its subsidiaries of
IP Rights of others, or of any development of similar or identical trade secrets
or technical information by others and, except as set forth on Schedule 3(o),
there is no claim, action or proceeding being made or brought against, or to the
Company's knowledge, being threatened against, the Company or its Subsidiaries
regarding its IP Rights; and the Company and its Subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing, except
where any of the foregoing would not result, either individually or in the
aggregate, in a Material Adverse Effect. The Company and its Subsidiaries have
taken reasonable security measures to protect the secrecy, confidentiality and
value of all of their intellectual properties.
(p) Environmental Laws. The Company and its Subsidiaries (i)
are in compliance with any and all applicable foreign, federal, state and local
laws and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval where, in each of the three
foregoing cases, the failure to so comply would not result, either individually
or in the aggregate, in a Material Adverse Effect.
(q) Property. Neither the Company nor any of its
Subsidiaries owns any real property. Any real property and facilities held under
lease by the Company and any of its Subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property and
facilities by the Company and its Subsidiaries.
(r) Insurance. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has been
refused any insurance coverage sought or applied for and neither the Company nor
any
16
such Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect, taken as a
whole.
(s) Regulatory Permits. Except the absence of which would
not result, either individually or in the aggregate, in a Material Adverse
Effect, the Company and its Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses, and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit.
(t) Internal Accounting Controls. The Company and each of
its Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(u) No Materially Adverse Contracts, Etc. Neither the
Company nor any of its Subsidiaries is subject to any charter, corporate or
other legal restriction, or any judgment, decree, order, rule or regulation
which in the judgment of the Company's officers has or is expected in the future
to have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is a party to any contract or agreement which in the judgment of
the Company's officers has or is expected to have a Material Adverse Effect.
(v) Tax Status. The Company and each of its Subsidiaries (i)
has made or filed all federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject
(unless and only to the extent that the Company and each of its Subsidiaries has
set aside on its books provisions reasonably adequate for the payment of all
unpaid and unreported taxes), (ii) has paid all taxes and other governmental
assessments and
17
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and for which the Company has made appropriate reserves for on its books, and
(iii) has set aside on its books provisions reasonably adequate for the payment
of all taxes for periods subsequent to the periods to which such returns,
reports or declarations (referred to in clause (i) above) apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim.
(w) Transactions With Affiliates. Except as set forth on
Schedule 3(w) and in the SEC Documents filed at least ten days prior to the date
hereof, and other than the grant of stock options disclosed on Schedule 3(c),
none of the officers, directors or employees of the Company is presently a party
to any transaction with the Company or any of its Subsidiaries (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any such officer, director or employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any such officer, director, or employee has a substantial interest or is
an officer, director, trustee or partner.
(x) Application of Takeover Protections. The Company and its
board of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Charter or the laws of the state of its
incorporation which is or could become applicable to the Buyers as a result of
the transactions contemplated by this Agreement, including, without limitation,
the Company's issuance of the Securities and the Buyers' ownership of the
Securities.
(y) Rights Agreement. The Company has not adopted a
shareholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change in control of the Company.
(z) Registration Rights. Upon execution of the Transaction
Documents and the issuance of the Securities in accordance therewith, the
holders of Registrable Securities (as
18
such term is defined in the Registration Rights Agreement) will have
registration rights superior to all other holders of the Company's securities
such that (x) any request by the holders of the Registrable Securities for the
Company to effect the registration of the Registrable Securities or to include
their Registrable Securities in a registration shall have priority over any
comparable request by the other holders of the Company's securities and (y) in
the event that marketing considerations require a limitation on the number of
shares to be offered in a registration statement, shares belonging to other
holders of the Company's securities, other than those holders listed on Schedule
3(z) whose rights are described on Schedule 3(z) with respect to which the
Company will use its reasonable best efforts to obtain an amendment of such
rights to subordinate them to those of the Registrable Securities, shall be
limited pro rata until all such shares have been withdrawn, before any such
limitation is imposed on the holders of Registrable Securities.
(aa) No Other Agreements. The Company has not, directly or
indirectly, made any agreements with any Buyers relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except
as set forth in the Transaction Documents.
4. COVENANTS.
(a) Best Efforts. Each party shall use its reasonable best
efforts to timely satisfy each of the conditions to be satisfied by it as
provided in Sections 6 and 7 of this Agreement.
(b) Form D and Blue Sky. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for or to qualify the
Securities for, sale to the Buyers at the Closing pursuant to this Agreement
under applicable securities or "Blue Sky" laws of the states of the United
States, and shall provide evidence of any such action so taken to the Buyers on
or prior to the Closing Date. The Company shall make all filings and reports
relating to the offer and sale of the Securities required under applicable
securities or "Blue Sky" laws of the states of the United States following the
Closing Date.
19
(c) Reporting Status. Until the later of (i) the date which
is one year after the date as of which the Investors (as that term is defined in
the Registration Rights Agreement) may sell all of the Conversion Shares and the
Warrant Shares without restriction pursuant to Rule 144(k) promulgated under the
1933 Act (or successor thereto) and (ii) the date which is five (5) years from
the Closing Date (the "Reporting Period"), the Company shall file all reports
required to be filed with the SEC pursuant to the 1934 Act, and the Company
shall not terminate its status as an issuer required to file reports under the
1934 Act even if the 1934 Act or the rules and regulations thereunder would
otherwise permit such termination.
(d) Use of Proceeds. The Company will use the proceeds from
the sale of the Preferred Shares for general corporate purpose including to
finance the growth of the existing business and to finance expected operating
losses.
(e) Financial Information. The Company agrees to send the
following to each Investor (as that term is defined in the Registration Rights
Agreement) during the Reporting Period: (i) within two (2) days after the filing
thereof with the SEC, a copy of its Annual Reports on Form 10-K, its Quarterly
Reports on Form 10-Q, any Current Reports on Form 8-K and any registration
statements (other than on Form S-8) or amendments filed pursuant to the 1933
Act, provided that if any such report is not filed with the SEC through XXXXX
then the Company shall deliver a copy of such report to each Investor by
facsimile on the same day it is filed with the SEC; (ii) on the same day as the
release thereof, facsimile copies or email copies of all press releases issued
by the Company or any of its Subsidiaries; (iii) copies of any notices and other
information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or giving thereof to the
stockholders; and (iv) promptly any other regularly prepared financial and
operational information, as requested from time to time by the Buyers.
(f) Reservation of Shares. The Company shall take all action
necessary to have authorized, and reserved, as of the Closing Date, for the
purpose of issuance, no less than 200% of the number of shares of Common Stock
needed to provide for the issuance of the shares of Common Stock upon conversion
of all outstanding Preferred Shares (without regard to any limitations on
conversions) and 100% of the number of shares of Common Stock needed to
20
provide for the issuance of the shares of Common Stock upon exercise of all
outstanding Warrants (without regard to any limitations on exercises) and at all
times thereafter have authorized, and reserved for the purpose of issuance, no
less than 150% of the number of shares of Common Stock needed to provide for the
issuance of the shares of Common Stock upon conversion of all outstanding
Preferred Shares (without regard to any limitations on conversions) and 100% of
the number of shares of Common Stock needed to provide for the issuance of the
shares of Common Stock upon exercise of all outstanding Warrants (without regard
to any limitations on exercises).
(g) Listing. The Company shall promptly secure the listing
of all of the Registrable Securities (as defined in the Registration Rights
Agreement) upon each national securities exchange and automated quotation
system, if any, upon which shares of Common Stock are then listed (subject to
official notice of issuance) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all Registrable Securities from
time to time issuable under the terms of the Transaction Documents and the
Certificate of Designations. The Company shall maintain the Common Stock's
authorization for quotation on Nasdaq or listing on The New York Stock Exchange,
Inc. ("NYSE") (as applicable, the "Principal Market"). Neither the Company nor
any of its Subsidiaries shall take any action which would be reasonably expected
to result in the delisting or suspension of the Common Stock from the Principal
Market. The Company shall promptly, and in no event later than the following
Business Day, offer to provide to each Buyer copies of any notices it receives
from the Principal Market regarding the continued eligibility of the Common
Stock for listing on such automated quotation system or securities exchange. The
Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section 4(g).
(h) Expenses. The Company shall pay the actual reasonable
expenses of the Buyers in connection with the Closing of the transactions
contemplated by the Transaction Documents, such expenses not to exceed an
aggregate of $250,000, without the prior consent of the Company. The amount of
its expenses shall be withheld by each Buyer from its Purchase Price to be paid
at the Closing.
21
(i) Filing of Form 8-K. On or before the second (2nd)
Business Day following the Closing Date the Company shall file a Current Report
on Form 8-K with the SEC describing the terms of the transactions contemplated
by the Transaction Documents and including as exhibits to such Current Report on
Form 8-K this Agreement, the Certificate of Designations, the Registration
Rights Agreement and the form of Warrant in the form required by the 1934 Act.
At or prior to the time the Company files the Form 8-K referred to in the
previous sentence, the Company shall file a Current Report on Form 8-K with the
SEC which includes as exhibits the Credit Agreements (as defined below) as
amended, as required in Section 7(o).
(j) Approvals. So long as a Buyer beneficially owns any
Preferred Stock, the Company shall not without the approval of at least 55% of
the holders of the Preferred Shares (consisting of at least two unaffiliated
persons), effect any of the transactions listed on Schedule 4(j).
(k) [Intentionally Omitted]
(l) Right of Participation. Subject to the exceptions
described below, each of the Company and its Subsidiaries agrees that during the
period beginning on the date hereof and ending on and including the date which
is 365 days after the Closing Date, neither the Company nor its Subsidiaries
will negotiate or contract with any party for any equity financing (including
any debt financing with an equity component) or issue any equity securities of
the Company or any Subsidiary or securities convertible into or exchangeable or
exercisable for equity securities of the Company or any Subsidiary (including
debt securities with an equity component) in any form (a "Future Offering")
unless it shall have first delivered to each Buyer or a designee appointed by
such Buyer written notice (the "Future Offering Notice") describing the proposed
Future Offering, including the buyer and terms and conditions thereof, and
providing each Buyer an option to purchase up to its Aggregate Percentage (as
defined below) of the securities to be issued in such Future Offering (the
limitations referred to in this and the preceding sentence are collectively
referred to as the "Capital Raising Limitations"). For purposes of this Section
4(l)(i), "Aggregate Percentage" shall mean 50% of the percentage obtained by
dividing (x) the aggregate number of Preferred Shares initially issued to such
Buyer by (y) the aggregate number
22
of Preferred Shares initially issued to all the Buyers. A Buyer can exercise its
option to participate in a Future Offering by delivering written notice to the
Company within ten (10) Business Days after receipt of a Future Offering Notice,
which notice shall state the quantity of securities being offered in the Future
Offering that such Buyer will purchase, up to its Aggregate Percentage, and that
number of securities it is willing to purchase in excess of its Aggregate
Percentage. In the event that one or more Buyers fail to elect to purchase up to
each such Buyer's Aggregate Percentage, then each Buyer which has indicated that
it is willing to purchase a number of securities in such Future Offering in
excess of its Aggregate Percentage shall be entitled to purchase its pro rata
portion (determined in the same manner as described in the preceding second
sentence) of 50% of the securities in the Future Offering which one or more of
the Buyers have not elected to purchase. In the event the Buyers fail to elect
to fully participate in the Future Offering within the periods described in this
Section 4(l)(i), the Company shall have 45 days thereafter to sell the
securities in the Future Offering that the Buyers did not elect to purchase,
upon terms and conditions, no more favorable to the purchasers thereof than
specified in the Future Offering Notice. In the event the Company has not sold
such securities of the Future Offering within such 45 day period, the Company
shall not thereafter issue or sell such securities without first offering such
securities to the Buyers in the manner provided in this Section 4(l)(i). The
Capital Raising Limitations shall not apply to (1) a loan from a commercial bank
which does not have any equity feature, (2) any transaction involving the
Company's issuances of securities (A) as consideration in a merger or
consolidation, (B) in connection with any strategic partnership or joint venture
(the primary purpose of which is not to raise equity capital), or (C) as
consideration for the acquisition of a business, product, license or other
assets by the Company, (3) the issuance of Common Stock in a firm commitment,
underwritten public offering, (4) the issuance of securities upon exercise or
conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof and (5) the grant of additional options or
warrants, or the issuance of additional securities, under any Company stock
option plan, restricted stock plan or stock purchase plan for the benefit of the
Company's employees or directors. The Buyers shall not be required to
participate or exercise their right of participation with respect to a
particular Future Offering in order to exercise their right of participation
with respect to later Future Offerings.
23
(m) Debt and Payment Agreements. So long as any Preferred
Shares or Warrants are outstanding, the Company shall use commercially
reasonable efforts to comply in all respects with the Third Amended and Restated
Credit Agreement by and between the Company and the lenders named therein and
Toronto Dominion (Texas), Inc., as administrative agent, as amended and restated
from time to time (the "Credit Agreement"), and shall use commercially
reasonable efforts to pay immediately all amounts due and owing under the Credit
Agreement. Without the approval of at least 55% of the holders of the Preferred
Shares (consisting of at least two unaffiliated persons), the Company shall not
amend, modify, increase, supplement, renew, extend, restate or refinance the
Credit Agreement, or issue any new debt or enter into any new credit
arrangements, except for amendments, modifications, increases, supplements,
renewals, extensions, restatements, refinancings or new issuances (a
"Refinancing") which do not (i) increase the aggregate amount of debt
outstanding or available under the Credit Agreement as of the date of this
Agreement, (ii) provide for an interest rate which is above reasonable market
rates on the date of such Refinancing, (iii) provide for a shorter term than the
Credit Agreement as in effect on the date of this Agreement, or (iv) have
affirmative or negative financial covenants that are more restrictive than those
in the Credit Agreement as of the date of this Agreement provided however that
in the event that the Company has achieved positive consolidated EBITDA (as
defined below) for one fiscal quarter, the Company shall no longer require the
approval of the holders of Preferred Stock to effect the actions described in
this second sentence of Section 4(m). "EBITDA" consists of income from
continuing operations before deducting interest expense, income taxes,
depreciation and amortization.
(n) Restriction on Equity Issuances.
i. On and after the occurrence of a Triggering Event set
forth in clause (i), (ii) of Section 4(a) of the Certificate of Designations
which in any such case has not been cured, the Company shall not negotiate or
consummate any equity financing or other issuance of equity securities.
ii. Until the one year anniversary of the Closing Date, the
Company shall not, without the prior written consent of at least 55% of the
holders of the Preferred Shares
24
(consisting of at least two unaffiliated persons): (X) effect any issuance or
sale of equity, including the issuance or sale of shares of Common Stock owned
or held by or for the account of the Company, for a consideration per share less
than 80% of the Conversion Price (as defined in the Certificate of Designations)
in effect at such time, (Y) grant or sell any options, the lowest price per
share for which one share of capital stock is issuable upon the exercise of any
such option or upon conversion, exchange or exercise of any convertible
securities issuable upon exercise of such option is less than the 80% of the
Conversion Price (the "lowest price per share for which one share of capital
stock is issuable upon the exercise of any such option or upon conversion,
exchange or exercise of any convertible securities issuable upon exercise of
such option" shall be equal to the sum of the lowest amounts of consideration
(if any) received or receivable by the Company with respect to any one share of
capital stock upon granting or sale of the option, upon exercise of the option
and upon conversion, exchange or exercise of any convertible security issuable
upon exercise of such option) and (Z) effect an issuance or sale of any
convertible securities, the lowest price per share for which one share of
capital stock is issuable upon such conversion, exchange or exercise thereof is
less than the 80% of the Conversion Price (the "lowest price per share for which
one share of capital stock is issuable upon such conversion, exchange or
exercise" shall be equal to the sum of the lowest amounts of consideration (if
any) received or receivable by the Company with respect to any one share of
capital stock upon the issuance or sale of the convertible security and upon the
conversion, exchange or exercise of such convertible security).
(o) Rights Agreements. So long as a Buyer beneficially owns
any Preferred Stock or Warrants, the Company shall not adopt a shareholder
rights plan or similar arrangement relating to accumulations of beneficial
ownership of Common Stock or a change in control of the Company.
(p) Board Visitation Rights. Until such time as Boston
Ventures LP VI ("BV") owns a number of shares of capital stock of the Company
less than 25% of the number of Preferred Shares (on an as converted basis) as
issued to BV (BV shall be deemed to continue to own any shares transferred in
connection with a syndication or issued upon conversion of Preferred Shares)
pursuant to this Agreement then BV shall have the right to appoint one
representative to observe the proceedings of the Company's board of directors
and each of its
25
committees and until such time as Nortel Networks Inc. owns a number of
Preferred Shares (or shares of Common Stock issuable upon conversion thereof),
less than 50% of the number of Preferred Shares (on an as converted basis) as
issued to Nortel Networks Inc. pursuant to this Agreement, then Nortel Networks
Inc. shall have the right to appoint one representative to observe the
proceedings of the Company's board of directors and each of its committees. Each
such representative shall: (i) receive notice of all meetings (both regular and
special) of the board of directors of the Company and each committee of such
board (such notice to be delivered or mailed at the same time as notice is given
to the members of such board and/or committee); (ii) be entitled to attend (or,
in the case of telephone meetings, monitor) all such meetings; (iii) receive all
notices, information and reports which are furnished to the members of any such
board and/or committee at the same time and in the same manner as the same is
furnished to such members; (iv) be entitled to participate in all discussions
conducted at such meetings; and (v) receive as soon as available copies of the
minutes of all such meetings. If any action is proposed to be taken by such
board and/or committee by written consent in lieu of a meeting, the Company will
give written notice thereof to each such representative at the same time and in
the same manner as the same is furnished to such members. The Company will
furnish each such representative with a copy of each such written consent as
soon as possible after it has been signed by its last signatory. Each such
representative shall not constitute a member of such board and/or committee and
shall not be entitled to vote on any matters presented at meetings of such board
and/or committee or to consent to any matter as to which the consent of such
board and/or committee shall have been requested. The Company will pay the
reasonable out-of-pocket expenses of each such representative incurred in
connection with attending meetings of the board of directors of the Company.
(q) Stockholder Approval. The Company shall use reasonable best
efforts to seek the approval of the Company's stockholders as contemplated by
Section 3(g) of the Certificate of Designations and Section 2(f) of the Warrants
in accordance with the rules of the Principal Market as promptly as practicable
(and in any event will seek such approval at its next annual meeting of
stockholders), and the Board of Directors of the Company will recommend that the
stockholders vote in favor thereof.
26
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its transfer agent
in the form attached hereto as Exhibit E (the "Irrevocable Transfer Agent
Instructions"), and any subsequent transfer agent, to issue certificates,
registered in the name of each Buyer or its respective nominee(s), for the
Conversion Shares and the Warrant Shares in such amounts as specified from time
to time by each Buyer to the Company upon conversion of the Preferred Shares or
exercise of the Warrants. Prior to registration of the Conversion Shares and the
Warrant Shares under the 1933 Act, all such certificates shall bear the
restrictive legend specified in Section 2(g) of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5 and stop transfer instructions to
give effect to Section 2(f) hereof (in the case of the Conversion Shares and the
Warrant Shares, prior to registration of the Conversion Shares and the Warrant
Shares under the 0000 Xxx) will be given by the Company to its transfer agent
and that the Securities shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. If a Buyer provides the Company with an opinion
of counsel, in a generally acceptable form, to the effect that a public sale,
assignment or transfer of Securities may be made without registration under the
1933 Act or the Buyer provides the Company with reasonable assurances that the
Securities can be sold pursuant to Rule 144 without any restriction as to the
number of securities acquired as of a particular date that can then be
immediately sold, the Company shall permit the transfer, and, in the case of the
Conversion Shares and the Warrant Shares, promptly instruct its transfer agent
to issue one or more certificates in such name and in such denominations as
specified by such Buyer and without any restrictive legend. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Buyers by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5, that the Buyers shall be entitled,
in addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
27
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company to issue and sell the Preferred Shares and
the Warrants to each Buyer at the Closing is subject to the satisfaction, at or
before the Closing Date, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion by providing each Buyer with prior
written notice thereof:
(a) Such Buyer shall have executed each of the Transaction
Documents to which it is a party and delivered the same to the Company;
(b) Such Buyer shall have delivered to the Company the
Purchase Price (less the amounts withheld for expenses pursuant to Section 4(h))
for the Preferred Shares and the Warrants being purchased by such Buyer at the
Closing by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company;
(c) The representations and warranties of such Buyer shall
be true and correct as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date), and such Buyer shall have performed, satisfied and
complied with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by such Buyer
at or prior to the Closing Date; and
(d) The Company shall have received satisfactory
interpretative advice regarding the transactions contemplated herein from
Nasdaq.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the Preferred Shares
and the Warrants from the Company at the Closing is subject to the satisfaction,
at or before the Closing Date, of each of the following conditions, provided
that these conditions are for each Buyer's sole benefit and may be waived by
such Buyer at any time in its sole discretion by providing the Company with
prior written notice thereof:
(a) The Company shall have executed each of the Transaction
Documents, including but not limited to the Shelf Registration Rights Agreement
by and between certain of
28
the buyers and the Company in the form of Exhibit G hereto (the "Shelf
Registration Rights Agreement"), and delivered the same to such Buyer.
(b) The Certificate of Designations shall have been filed
with the Secretary of State of the State of Delaware, and a copy thereof
certified by the Secretary of State of the State of Delaware shall have been
delivered to such Buyer.
(c) The Common Stock (x) shall be designated for quotation
or listed on the Principal Market and (y) shall not have been suspended by the
SEC or the Principal Market from trading on the Principal Market nor shall
suspension by the SEC or the Principal Market have been threatened either (i) in
writing by the SEC or the Principal Market or (ii) by the Company's falling
below the minimum listing maintenance requirements of the Principal Market; and
the Conversion Shares and the Warrant Shares issuable upon conversion or
exercise of the Preferred Shares and the related Warrants, as the case may be
shall be listed upon the Principal Market.
(d) The representations and warranties of the Company shall
be true and correct as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date) and the Company shall have performed, satisfied and
complied with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by the Company
at or prior to the Closing Date. Such Buyer shall have received a certificate,
executed by the Chief Executive Officer or Chief Financial Officer of the
Company, dated as of the Closing Date, to the foregoing effect and as to such
other matters as may be reasonably requested by such Buyer, including, without
limitation, an update as of the Closing Date regarding the representation
contained in Section 3(c) above.
(e) Such Buyer shall have received the opinion of Xxxxx
Xxxxxxx Xxxxxxx & Xxxxx, LLP dated as of the Closing Date, in form, scope and
substance reasonably satisfactory to such Buyer in substantially the form of
Exhibit D, attached hereto.
(f) The Company shall have executed and delivered to such
Buyer the Preferred Stock Certificates and the Warrants (in such denominations
as such Buyer shall request) for the Preferred Shares and the Warrants being
purchased by such Buyer at the Closing.
29
(g) The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b) above and in a form reasonably
acceptable to such Buyer (the "Resolutions").
(h) As of the Closing Date, the Company shall have reserved
out of its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Preferred Shares and the exercise of the
Warrants, at least 47,503,764 shares of Common Stock.
(i) The Irrevocable Transfer Agent Instructions, in the form
of Exhibit E attached hereto, shall have been delivered to and acknowledged in
writing by the Company's transfer agent.
(j) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the Company and
each Subsidiary in such entity's state of incorporation or organization issued
by the Secretary of State of such state of incorporation or organization as of a
date within five days prior to the Closing Date.
(k) The Company shall have delivered to such Buyer a
certified copy of the Charter as certified by the Secretary of State of the
State of Delaware as of a date within five days prior to the Closing Date.
(l) The Company shall have delivered to such Buyer a
secretary's certificate, dated as of the Closing Date, certifying as to (i) the
Resolutions, (ii) the Charter, (iii) the By-laws and (iv) the incumbency of the
officers of the Company executing the Transaction Documents.
(m) The Company shall have made all filings under all
applicable federal and state securities laws necessary to consummate the
issuance of the Securities pursuant to this Agreement in compliance with such
laws.
(n) The Company shall have delivered to such Buyer a letter
from the Company's transfer agent certifying the number of shares of Common
Stock outstanding as of a date within three days prior to the Closing Date.
30
(o) The Company shall have renegotiated the Credit Agreement
to the Buyers' reasonable satisfaction, including, subject to the terms and
conditions of the Credit Agreement, a commitment from Nortel Networks Inc. for
debt financing in an amount equal to $125 million.
(p) The Buyers shall have agreed to purchase an aggregate of
65,000 Preferred Shares.
(q) The Buyers shall have completed, to their satisfaction,
business and legal due diligence, an audit review and a review of the senior
management team incentive plan.
(r) The person designated by Boston Ventures LP VI for
election to the board of directors of the Company, shall have been elected to
the class of such board whose term expires at the annual meeting of stockholders
in 2001, and shall have been appointed to each committee of the Company,
including appointment to the audit committee of the Company by a resolution of
the Board of Directors of the Company stating that such designee's membership is
required by the best interests of the Company and its shareholders.
(s) Each of the officers, directors and other persons set
forth on Schedule 7(s) hereto, shall have entered in to a lock-up agreement
substantially in the form of (i) Exhibit F-1 hereto, with respect to management,
(ii) Exhibit F-2 hereto, with respect to purchasers of Series A preferred stock
of the Company and (iii) Exhibit F-3 hereto, with respect to purchasers of
Series B, Series C or Series D preferred stock of the Company.
(t) The Company shall have delivered to the Buyers such
other documents relating to the transaction contemplated by the Transaction
Documents as the Buyers or their counsel may reasonably request.
(u) The Company shall have received satisfactory
interpretative advice regarding the transactions contemplated herein from
Nasdaq.
(v) The Company shall have delivered to the Buyers a
certificate from the Company's Treasurer certifying the book value of the Common
Stock as of a date agreed to by the Buyers.
31
8. INDEMNIFICATION.
In consideration of each Buyer's execution and delivery of the
Transaction Documents and acquiring the Securities thereunder and in addition to
all of the Company's other obligations under the Transaction Documents and the
Certificate of Designations, the Company shall defend, protect, indemnify and
hold harmless each Buyer and each other holder of the Securities and all of
their stockholders, partners, members, officers, directors, employees and direct
or indirect investors and any of the foregoing persons' agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby, or
(c) any cause of action, suit or claim brought or made against such Indemnitee
(other than a cause of action, suit or claim which is (x) brought or made by the
Company and (y) is not a stockholder derivative suit) and arising out of or
resulting from (i) the execution, delivery, performance or enforcement of the
Transaction Documents, the Certificate of Designations or any other certificate,
instrument or document contemplated hereby or thereby, (ii) any transaction
financed or to be financed in whole or in part, directly or indirectly, with the
proceeds of the issuance of the Securities or (iii) solely the status of such
Buyer or holder of the Securities as an investor in the Company. To the extent
that the foregoing undertaking by the Company may be unenforceable for any
reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. Except as otherwise set forth herein, the mechanics and
procedures with respect to the rights and obligations under this Section 8 shall
be the same as those set forth in Sections 6(a) and 6(d) of the Registration
Rights Agreement, including,
32
without limitation, those procedures with respect to the settlement of claims
and the Company's rights to assume the defense of claims.
9. GOVERNING LAW; MISCELLANEOUS.
(a) Governing Law; Jurisdiction; Jury Trial. All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of Delaware,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of Delaware or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
Delaware. Each party hereby irrevocably submits to the non-exclusive
jurisdiction of the state and federal courts sitting in the State of Delaware,
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT
OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
(b) Counterparts. This Agreement may be executed in two or
more identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
33
(c) Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
(d) Severability. If any provision of this Agreement shall
be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
(e) Entire Agreement; Amendments. This Agreement supersedes
all other prior oral or written agreements between each Buyer, the Company,
their affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of at least fifty-percent (55%) of the Preferred Shares
on the Closing Date (or their respective assignees) (consisting of at least two
unaffiliated persons) or, if prior to the Closing Date, each of the Buyers, and
no provision hereof may be waived other than by an instrument in writing signed
by the party against whom enforcement is sought. No such amendment shall be
effective to the extent that it applies to less than all of the holders of the
Preferred Shares or Warrants then outstanding. No consideration shall be offered
or paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents or the Certificate of Designations
unless the same consideration also is offered to all of the parties to the
Transaction Documents or holders of Preferred Shares, as the case may be.
(f) Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered: (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one (1) Business Day
after deposit with a
34
nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
Net2000 Communications, Inc.
0000 Xxx Xxxx Xxxx
Xxxxxxx, Xxxxxxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Attention: General Counsel
With a copy to:
Xxxxx Xxxxxxx Xxxxxxx & Xxxxx LLP
Commerce Park III
Suite 610
0000 Xxxxxxxxxx Xxxx Xxxxx
Xxxxxx, XX 00000-0000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Attention: Xxxxx Xxxxxxxx
If to the Transfer Agent:
American Stock Transfer & Trust Company
00 Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Attention: Xxxxx Xxxxx
If to a Buyer, to it at the address and facsimile number set forth on
the Schedule of Buyers, with copies to such Buyer's representatives as set forth
on the Schedule of Buyers, or at such other address and/or facsimile number
and/or to the attention of such other person as the recipient party has
specified by written notice given to each other party five days prior to the
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a nationally recognized overnight
delivery service shall be rebuttable evidence of personal service, receipt by
facsimile or receipt
35
from a nationally recognized overnight delivery service in accordance with
clause (i), (ii) or (iii) above, respectively.
(g) Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Preferred Shares. The Company shall not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of at least 55% of the holders of the Preferred Shares
(consisting of at least two unaffiliated persons) then outstanding, including by
merger or consolidation, except pursuant to a Change of Control (as defined in
the Certificate of Designations) with respect to which the Company is in
compliance with Section 5 of the Certificate of Designations and Section 9 of
the Warrant. A Buyer may assign some or all of its rights hereunder without the
consent of the Company, provided, however, that any such assignment shall not
release such Buyer from its obligations hereunder unless such obligations are
assumed by such assignee and the Company has consented to such assignment and
assumption, which consent shall not be unreasonably withheld. Notwithstanding
anything to the contrary contained in the Transaction Documents, the Buyers
shall be entitled to pledge the Securities in connection with a bona fide margin
account or other loan secured by the Securities.
(h) No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
(i) Survival. Unless this Agreement is terminated under
Section 9(l), the representations and warranties of the Company and the Buyers
contained in Sections 2 and 3, the agreements and covenants set forth in
Sections 4, 5 and 9, and the indemnification provisions set forth in Section 8,
shall survive the Closing. Each Buyer shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.
(j) Publicity. The Company and each Buyer shall have the
right to approve before issuance any press releases or any other public
statements with respect to the transactions contemplated hereby; provided,
however, that the Company shall be entitled, without the prior approval of any
Buyer, to make any press release or other public disclosure with respect to such
transactions as is required by applicable law and regulations (although each
Buyer shall be
36
consulted by the Company in connection with any such press release or other
public disclosure prior to its release and shall be provided with a copy
thereof).
(k) Further Assurances. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(l) Termination. In the event that the Closing shall not
have occurred on or before five (5) Business Days from the date hereof due to
the failure of all of the conditions set forth in Section 6 above to be
satisfied (and the Company shall not have waived such unsatisfied condition(s)),
the Company shall have the option to terminate this Agreement at the close of
business on such date without liability to any other party. In the event that
the Closing shall not have occurred on or before five (5) Business Days from the
date hereof due to the failure of all of the conditions set forth in Section 7
above to be satisfied (and the Buyers shall not have waived such unsatisfied
condition(s)), this Agreement may be terminated by any Buyer at the close of
business on such date without liability to any other party; provided, however,
that the Company shall remain obligated to reimburse any Buyer for the expenses
described in Section 4(h) above to the extent such expenses are actually
incurred.
(m) Placement Agent and Financial Advisors. The Company
acknowledges that it has not engaged any placement agent or financial advisor in
connection with the sale of the Preferred Shares and the Warrants. The Company
shall be responsible for the payment of any placement agent's fees, financial
advisor's fees or brokers' commissions relating to or arising out of the
transactions contemplated hereby. The Company shall pay, and hold each Buyer
harmless against, any liability, loss or expense (including, without limitation,
attorney's fees and out-of-pocket expenses) arising in connection with any such
claim.
(n) No Strict Construction. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
37
(o) Remedies. Each Buyer and each holder of the Securities
shall have all rights and remedies set forth in the Transaction Documents and
the Certificate of Designations 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 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.
(p) Payment Set Aside. To the extent that the Company makes
a payment or payments to any Buyer hereunder or pursuant to the Registration
Rights Agreement, the Certificate of Designations or the Warrants or the Buyers
enforce or exercise their rights hereunder or thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other Person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
38
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
COMPANY: BUYERS:
NET2000 COMMUNICATIONS, INC. BOSTON VENTURES LP VI
By: /s/ Xxxxxxx X. Xxxxxx, Xx. By: /s/Xxxxxxx X. Xxxxxxx
Name: Name: Xxxxxxx X. Xxxxxxx
Title: Title: Managing Director
NORTEL NETWORKS INC.
By: /s/ Xxxxx Xxxxx
Name: Xxxxx Xxxxx
Title: Director
CARLYLE U.S. VENTURE PARTNERS, L.P
By: TCG Ventures, L.L.C., its
General Partner
By: TC Group, L.L.C., its Sole
Member
By: TCG Holdings, L.L.C., its
Managing Member
By: /s/Xxxxxx X. X'Xxxxxxx
Name: Xxxxxx X. X'Xxxxxxx
Title: Managing Member
39
CARLYLE VENTURE COINVESTMENT, L.L.C.
By: TCG Ventures, L.L.C., its
Managing Member
By: TC Group, L.L.C., its Sole
Member
By: TCG Holdings, L.L.C., its
Managing Member
By: /s/Xxxxxx X. X'Xxxxxxx
Name: Xxxxxx X. X'Xxxxxxx
Title: Managing Member
CARLYLE VENTURE PARTNERS, L.P
By: TCG Ventures, Ltd., its General
Partner
By: TCG Ventures, L.L.C., its Sole
Shareholder
By: TC Group, L.L.C., its Sole
Member
By: TCG Holdings, L.L.C., its
Managing Member
By: /s/Xxxxxx X. X'Xxxxxxx
Name: Xxxxxx X. X'Xxxxxxx
Title: Managing Member
C/S VENTURE INVESTORS, L.P
By: TCG Ventures, Ltd., its Managing
General Partner
By: TCG Ventures, L.L.C., its Sole
Shareholder
By: TC Group, L.L.C., its Sole
Member
By: TCG Holdings, L.L.C., its
Managing Member
By: /s/Xxxxxx X. X'Xxxxxxx
Name: Xxxxxx X. X'Xxxxxxx
Title: Managing Member
40
BANCBOSTON CAPITAL INC.
By: /s/M. Xxxxx XxXxxxxxx
Name: M. Xxxxx XxXxxxxxx
Title: Vice President
41
PNC CAPITAL CORP.
By: /s/Xxxxx McL. Xxxxxxx
Name: Xxxxx McL. Xxxxxxx
Title: Executive Vice President
WOOD STREET PARTNERS I
By: /s/Xxxxx McL. Xxxxxxx
Name: Xxxxx McL. Xxxxxxx
Title: Partner
42
SCHEDULE OF BUYERS
Stated Value of Preferred
Buyer Address Shares Purchased
----- ------- ----------------
BOSTON VENTURES LP VI One Xxxxxxx Xxxxxx, 00xx Xxxxx $35,000,000.00
Xxxxxx, XX 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
Attn: Xx. Xxxxxxx Xxxxx
NORTEL NETWORKS INC. Executive Office $10,000,000.00
----------------
000 Xxxxxx Xxx
Xxxxxxxxx, XX
Mail Stop 991 15 A40
0000 Xxxxxxxx Xxxx.
Xxxxxxxxxx, Xxxxx 00000-0000
Attn: Xxxxxxxx X. Xxxxx
Director, Customer Finance
Telephone: 000-000-0000
Telecopy: 000-000-0000
(with a copy to)
Mail Stop 468/05/B40
0000 Xxxxxxxx Xxxx.
Xxxxxxxxxx, Xxxxx 00000-0000
Attn: Xxxxxxxx Xxx
Director, Loan Administration
Telephone: 000-000-0000
Telecopy: 000-000-0000
CARLYLE VENTURE c/o The Carlyle Group $354,813.00
COINVESTMENT, L.L.C. 0000 Xxxxxxxxxxxx Xxxxxx, XX
Xxxxx 000 Xxxxx
Xxxxxxxxxx, XX 00000
fax: (000) 000-0000
Attention: Xxxxxx Xxxxxx
with a copy to:
Xxxxxx & Xxxxxxx
000 00xx Xxxxxx, XX
Xxxxxxxxxx, XX 00000
fax: 000-000-0000
Attention: Xxxxxx X. Xxxxxx
C/S VENTURE INVESTORS, L.P c/o The Carlyle Group $900,576.00
0000 Xxxxxxxxxxxx Xxxxxx, XX
Xxxxx 000 Xxxxx
Xxxxxxxxxx, XX 00000
fax: (000) 000-0000
43
Attention: Xxxxxx Xxxxxx
with a copy to:
Xxxxxx & Xxxxxxx
000 00xx Xxxxxx, XX
Xxxxxxxxxx, XX 00000
fax: 000-000-0000
Attention: Xxxxxx X. Xxxxxx
XXXXXXX VENTURE c/o The Carlyle Group $4,409,761.00
PARTNERS, L.P. 0000 Xxxxxxxxxxxx Xxxxxx, XX
Xxxxx 000 Xxxxx
Xxxxxxxxxx, XX 00000
fax: (000) 000-0000
Attention: Xxxxxx Xxxxxx
with a copy to:
Xxxxxx & Xxxxxxx
000 00xx Xxxxxx, XX
Xxxxxxxxxx, XX 00000
fax: 000-000-0000
Attention: Xxxxxx X. Xxxxxx
XXXXXXX US VENTURE c/o The Carlyle Group $584,850.00
PARTNERS, L.P 0000 Xxxxxxxxxxxx Xxxxxx, XX
Xxxxx 000 Xxxxx
Xxxxxxxxxx, XX 00000
fax: (000) 000-0000
Attention: Xxxxxx Xxxxxx
with a copy to:
Xxxxxx & Xxxxxxx
000 00xx Xxxxxx, XX
Xxxxxxxxxx, XX 00000
fax: 000-000-0000
Attention: Xxxxxx X. Xxxxxx
BANCBOSTON CAPITAL INC. 000 Xxxxxxx Xxxxxx $7,500,000.00
Xxxxxx, XX 00000
Attn: Xxxxxxx Xxxxxx
Fax: 000-000-0000
WOOD STREET PARTNERS I 000 Xxxxxxx Xxxxxx $1,021,875.00
00xx Xxxxx
Xxxxxxxxxx, XX 00000
PNC CAPITAL CORP. 000 Xxxxxxx Xxxxxx $5,228,125.00
00xx Xxxxx
Xxxxxxxxxx, XX 00000
44
SCHEDULES
Schedule 3(a) - Subsidiaries
Schedule 3(c) - Capitalization
Schedule 3(f) - SEC Documents
Schedule 3(o) - Intellectual Property
Schedule 3(w) - Transactions with Affiliates
Schedule 3(z) - Holders of Registration Rights
Schedule 4(j) - Approvals
Schedule 7(s) - Persons Subject to Lock-Up
EXHIBITS
Exhibit A - Form of Certificate of Designations
Exhibit B - Form of Warrant
Exhibit C - Form of Registration Rights Agreement
Exhibit D - Form of Company Counsel Opinion
Exhibit E - Form of Irrevocable Transfer Agent Instructions
Exhibit F-1, F-2 - Form of Lock-Up Agreements
and F-3
Exhibit G - Form of Shelf Registration Rights Agreement
45
SCHEDULE 3(a)
Subsidiaries
1. Net2000 Communications Holdings, Inc.
(Delaware Corporation)
2. Net2000 Communications Group, Inc.
(Delaware Corporation)
3. Net2000 Investments, Inc.
(Delaware Corporation)
4. Net2000 Communications Operations, Inc.
(Delaware Corporation)
5. Net2000 Communications Capital Equipment, Inc.
(Delaware Corporation)
6. Net2000 Communications Services, Inc.
(Delaware Corporation) (fka Net2000 Group, Inc.)
7. Net2000 Communications Real Estate, Inc.
(Delaware Corporation)
8. FreBon International Corporation
(Virginia Corporation)
9. Vision I.T. (California Corporation)
10. Net2000 Communications of Virginia, LLC
(Virginia Limited Liability Company) (fka Ntel Communications, LLC)
46
SCHEDULE 3(c)
Capitalization
Please see Capitalization Table attached hereto.
i. None.
ii. None.
iii. Please see Capitalization Table attached hereto.
iv. Shelf Registration Rights Agreement, dated as of March __, 2001,
by and among the Company and the Stockholders (as defined
therein); and
Registration Rights Agreement, dated as of July 7, 2000, by and
among the Company and Xxxxxx X. Xxxxxx, Xxxx X. Xxxxxxx, Xxxxxx
X. Xxxxx, Xxxxxx Xxxxxxxx, and Xxxxx Xxxxxx.
v. None.
vi. None.
vii. Amended and Restated Net2000 Communications, Inc. 1997 Equity
Incentive Plan.
Net2000 Communications, Inc. 1999 Stock Incentive Plan.
Stock Appreciation Rights Agreement under The Net2000
Communications, Inc. 1999 Stock Incentive Plan, dated as of July
27, 2000, by and between the Company and Associated Resource
Group.
47
SCHEDULE 3(f)
SEC Documents
10-Q (Nov. 14, 2000)
8-K/A (Sept. 20, 2000)
10-Q (Aug. 14, 2000)
8-K (July 18, 2000)
8-K (July 10, 2000)
8-K (July 7, 2000)
10-Q (May 15, 2000)
424B1 (May 15, 2000)
48
SCHEDULE 3(o)
Intellectual Property
None.
49
SCHEDULE 3(w)
Transactions With Affiliates
Stock Pledge Agreement, dated as of December 5, 2000, and as amended January 26,
2001, between Xxxxxxx X. Xxxxxx, Xx. and the Company.
50
SCHEDULE 3(z)
Holders of Registration Rights
Pursuant to the Registration Rights Agreement, dated as of July 7, 2000, by and
among the Company and the Stockholders (as defined therein):
Xxxxxx X. Xxxxxx
Xxxx X. Xxxxxxx
Xxxxxx X. Xxxxx
Xxxxxx Xxxxxxxx
Xxxxx Xxxxxx
51
SCHEDULE 4(j)
Approvals
(i) any transaction or other action that would adversely affect the rights,
preferences, powers and privileges of the Preferred Stock (including any
amendment to the Charter or Bylaws that would have a disproportional, adverse
impact on the Preferred Stock),
(ii) any issuance of equity pari passu or senior to the Preferred Stock,
(iii) any material modification or amendment to the financial plan submitted to
the bank syndicate (copies of which have been delivered to the Buyers) for the
determination and approval of the final loan covenant levels for the Third
Amended and Restated Credit Agreement
(iv) the conducting of operations, making of material investments and hiring of
new personnel beyond current levels in any geographic market outside the
Company's Current Target Area of Operations (other than to reasonably support
current operations within the Company's Current Target Area of Operations, where
"Current Target Area of Operations" shall mean: (x) the following states:
District of Columbia, Delaware, Georgia, Maryland, Massachusetts, New Jersey,
New York, Pennsylvania, Rhode Island and Virginia and (y) metropolitan Los
Angeles, California, San Jose, California, and San Francisco, California, solely
in connection with the acquisition and operation of Vision I.T. and limited to
product offerings other than the provision of local communications services),
and
(v) any issuance of a security containing or entitled to anti-dilution or price
protection provisions;
provided however that in the event that the Company has achieved positive
consolidated EBITDA (as defined below) for one fiscal quarter, the Company shall
no longer require the approval of the holders of Preferred Stock to effect the
actions described in clause (iii) and (iv) of this Schedule 4(j). "EBITDA"
consists of income from continuing operations before deducting interest expense,
income taxes, depreciation and amortization.
52
SCHEDULE 7(t)
Persons Subject to Lock-Up
Management
Xxxxxxx X. Xxxxxx, Xx.
Xxxxx Xxxxxxxxxxx
Xxxx X. Xxxxxx
Xxxxxx X. Xxxxxx
Purchasers of Series A Preferred Stock
Mid Atlantic Venture Fund III, L.P.
Societe Generale Capital Corporation
Blue Water Strategic Fund I, L.L.C.
Purchasers of Series B, C or D Preferred Stock
Carlyle Venture Partners, L.P. (and other Carlyle entities party to this
agreement)
PNC Capital Corporation
Northern Telecom Inc.
Nortel Networks, Inc.
Boston Ventures LP VI
BancBoston Capital Inc.
Mid Atlantic Venture Fund III, L.P.
Societe Generale Capital Corporation
Blue Water Strategic Fund I, L.L.C.
53
EXHIBIT A - FORM OF CERTIFICATE OF DESIGNATIONS
54
EXHIBIT B - FORM OF WARRANT
55
EXHIBIT C - FORM OF REGISTRATION RIGHTS AGREEMENT
56
EXHIBIT D - FORM OF COMPANY COUNSEL OPINION
57
EXHIBIT E - FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
Irrevocable Transfer Agent Instructions
[Letterhead of Net2000]
[Date]
Ladies and Gentlemen:
Reference is made to that certain Securities Purchase Agreement (the "Purchase
Agreement") between Net2000 Communications, Inc., a Delaware corporation (the
"Company"), and the buyers listed on the Schedule of Buyers attached thereto
(the "Buyers") pursuant to which the Company is issuing to the Buyers 65,000
shares of its Series D Pay In Kind Preferred Stock ("Preferred Stock"), par
value $.01 per share (together with any shares of Preferred Stock issued as
dividends, the "Shares"), and 1,755,267 warrants (the "Warrants") to purchase
the Company's common stock, par value $.01 ("Common Stock") having the terms and
conditions set forth in the Purchase Agreement, which such Warrant shall be
exercisable into shares of Common Stock and such Shares shall be convertible
into shares of Common Stock.
The shares of Common Stock issuable upon exercise of the Warrants and the shares
of Common Stock issuable upon conversion of the Shares are collectively referred
to herein as "Underlying Shares."
This letter shall serve as our irrevocable authorization and direction to you
(provided that you are the transfer agent of the Company at such time) to issue
shares of Common Stock upon exercise of the Warrants and/or conversion of the
Shares, from time to time, upon surrender to you of (i) a properly completed and
duly executed Exercise Notice, in the form attached hereto as Exhibit I (for
Warrants) or a properly completed and duly executed Conversion Notice, in the
form attached hereto as Exhibit II (for the Shares), (ii) in the case of the
Warrants, the Warrants being exercised (or an indemnification undertaking with
respect to such share certificates in the case of their loss, theft or
destruction), and (iii) in the case of the Shares, the Shares being converted
(or an indemnification undertaking with respect to such share certificates in
the case of their loss, theft or destruction).
So long as you have previously received an opinion of the Company's outside
counsel (which the Company shall direct be delivered to you by such outside
counsel upon the effectiveness of the registration statement covering Underlying
Shares) stating that a registration statement covering resales of Underlying
Shares has been declared effective by the Securities and Exchange Commission
under the Securities Act of 1933, as amended, and that Underlying Shares may be
resold without any restrictive legend (the "Opinion"), certificates representing
Underlying Shares shall not bear any legend restricting transfer of Underlying
Shares thereby and should not be subject to any stop-transfer restriction,
provided, however, that if you have not previously received a copy of the
Opinion, then the certificates for Underlying Shares shall bear the following
legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS.
and, provided further, that the Company may from time to time notify you to
place stop-transfer restrictions on the
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certificates for Underlying Shares in the event a registration statement
covering Underlying Shares is subject to amendment for events then current.
Please be advised that the Buyers have relied upon this letter as an inducement
to enter into the Purchase Agreement and, accordingly, the Buyers are third
party beneficiaries to these instructions.
Should you have any questions concerning this matter, please contact me at (___)
___-____.
Very truly yours,
Net2000 Communications, Inc.
By:
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Name:
---------------------------------
Title:
--------------------------------
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EXHIBIT I
(insert Exhibit A from Warrant)
EXHIBIT II
(Insert Exhibit I from Certificate of Designations)
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EXHIBIT F-1 - FORM OF MANAGEMENT LOCK-UP AGREEMENT
LOCK-UP AGREEMENT
To the Buyers Named in the Securities Purchase Agreement:
The undersigned, a holder of securities of Net2000 Communications, Inc.,
a Delaware corporation (the "Company"), is entering into this agreement (the
"Lock-Up Agreement") to induce the Buyers listed in the Schedule of Buyers (the
"Buyers") attached to that certain Securities Purchase Agreement dated as of
March __, 2001, by and among the Buyers and the Company (the "Securities
Purchase Agreement") to purchase shares of the Company's Series D Convertible
Pay In Kind Preferred Stock (the "Preferred Stock"), which are convertible into
shares of Common Stock (the "Common Stock") of the Company (the "Transaction").
As of the date hereof, the undersigned owns ____ shares of Common Stock (the
"Holder's Shares").
In consideration of your entering into the Securities Purchase Agreement
and in order to induce you to purchase the Preferred Stock, the undersigned
hereby agrees that he will not, without prior written approval of Boston
Ventures LP VI, directly or indirectly, sell, contract to sell, make any short
sale, pledge, or otherwise dispose of, or enter into any hedging transaction
that could result in a transfer of, any shares of Common Stock (including,
without limitation, any shares of Common Stock acquired pursuant to the exercise
of any stock option or warrant), options or warrants to acquire shares of Common
Stock or securities exchangeable for or convertible into shares of Common Stock
of the Company which the undersigned may own, for a period commencing as of the
date hereof and ending on the date which is one year after [the Closing Date]
(and the undersigned represents that he has not done any of the foregoing since
the date of the Securities Purchase Agreement), provided, however, that this
sentence shall cease to apply to one-quarter of the Holder's Shares on the date
which is one hundred eighty (180) days after [the Closing Date]; and provided
further that this sentence shall cease to apply to an additional one-quarter of
the Holder's Shares on the date which is two hundred seventy (270) days after
[the Closing Date]. [The foregoing sentence shall not apply to shares of Common
Stock sold by the undersigned pursuant to the Section 10b5-1 plan [in effect on
the date hereof and] attached hereto Exhibit 1.] This Lock-Up Agreement will
terminate upon the commencement of any tender offer for 50% or more of the
outstanding Common Stock if such tender offer has been recommended by the
Company's board of directors.
The undersigned acknowledges the sufficiency of the consideration for
this Lock-Up Agreement. The undersigned confirms that the undersigned
understands that the Buyers and the Company will rely upon the representations
set forth in this Lock-Up Agreement in proceeding with the Transaction. The
undersigned further confirms that the agreements of the undersigned are
irrevocable and shall be binding upon the undersigned's heirs, legal
representatives, successors and assigns. The undersigned agrees and consents to
the entry of stop transfer instructions with the Company's transfer agent
against the transfer of securities held by the undersigned except in compliance
with this Lock-Up Agreement.
This Lock-Up Agreement shall be binding on the undersigned and the
undersigned's successors, heirs, personal representatives and assigns.
Very truly yours,
Date: March , 2001
--- ---------------------------------
Print Name:
-------------------------
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EXHIBIT F-2 - FORM OF SERIES A LOCK-UP AGREEMENT
LOCK-UP AGREEMENT
To the Buyers Named in the Securities Purchase Agreement:
The undersigned, a holder of securities of Net2000 Communications, Inc.,
a Delaware corporation (the "Company"), is entering into this agreement (the
"Lock-Up Agreement") to induce the Buyers listed in the Schedule of Buyers (the
"Buyers") attached to that certain Securities Purchase Agreement dated as of
March __, 2001, by and among the Buyers and the Company (the "Securities
Purchase Agreement") to purchase shares of the Company's Series D Convertible
Pay In Kind Preferred Stock (the "Preferred Stock"), which are convertible into
shares of Common Stock (the "Common Stock") of the Company (the "Transaction").
As of the date hereof, the undersigned owns ____ shares of Common Stock (the
"Holder's Shares").
In consideration of your entering into the Securities Purchase Agreement
and in order to induce you to purchase the Preferred Stock, the undersigned
hereby agrees that the undersigned will not, without prior written approval of
Boston Ventures LP VI, directly or indirectly, sell, contract to sell, make any
short sale, pledge, or otherwise dispose of, or enter into any hedging
transaction that could result in a transfer of, any shares of Common Stock
(including, without limitation, any shares of Common Stock acquired pursuant to
the exercise of any stock option or warrant), options or warrants to acquire
shares of Common Stock or securities exchangeable for or convertible into shares
of Common Stock of the Company which the undersigned may own, for a period
commencing as of the date hereof and ending on the date which is one hundred
eighty (180) days after [the Closing Date] (and the undersigned represents that
the undersigned has not done any of the foregoing since the date of the
Securities Purchase Agreement), provided, however, that this sentence shall not
apply to 15% of the Holder's Shares, provided further that this sentence shall
cease to apply to one-half of the Holder's Shares (inclusive of the 15% referred
to in the preceding sentence) on the date which is ninety (90) days after [the
Closing Date], and provided further that, between the date hereof and the date
which is ninety (90) days after [the Closing Date], this sentence shall cease to
apply to one-half of the Holder's Shares (inclusive of the 15% referred to in
the preceding proviso) to the extent the undersigned is able to sell any such
shares on the Nasdaq National Market for a sale price equal to or greater than
$7.50 per share. This Lock-Up Agreement will terminate upon the commencement of
any tender offer for 50% or more of the outstanding Common Stock if such tender
offer has been recommended by the Company's board of directors.
The undersigned acknowledges the sufficiency of the consideration for
this Lock-Up Agreement. The undersigned confirms that the undersigned
understands that the Buyers and the Company will rely upon the representations
set forth in this Lock-Up Agreement in proceeding with the Transaction. The
undersigned further confirms that the agreements of the undersigned are
irrevocable and shall be binding upon the undersigned's heirs, legal
representatives, successors and assigns. The undersigned agrees and consents to
the entry of stop transfer instructions with the Company's transfer agent
against the transfer of securities held by the undersigned except in compliance
with this Lock-Up Agreement.
This Lock-Up Agreement shall be binding on the undersigned and the
undersigned's successors, heirs, personal representatives and assigns.
Very truly yours,
Date: March , 2001
--- ---------------------------------
Print Name:
--------------------------
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EXHIBIT F-3 - FORM OF SERIES B, C AND D LOCK-UP AGREEMENT
LOCK-UP AGREEMENT
To the Buyers Named in the Securities Purchase Agreement:
The undersigned, a holder of securities of Net2000 Communications, Inc.,
a Delaware corporation (the "Company"), is entering into this agreement (the
"Lock-Up Agreement") to induce the Buyers listed in the Schedule of Buyers (the
"Buyers") attached to that certain Securities Purchase Agreement dated as of
March __, 2001, by and among the Buyers and the Company (the "Securities
Purchase Agreement") to purchase shares of the Company's Series D Convertible
Pay In Kind Preferred Stock (the "Preferred Stock"), which are convertible into
shares of Common Stock (the "Common Stock") of the Company (the "Transaction").
In consideration of your entering into the Securities Purchase Agreement
and in order to induce you to purchase the Preferred Stock, the undersigned
hereby agrees that the undersigned will not, without prior written approval of
Boston Ventures LP VI [FOR BV LOCK-UP: HOLDERS OF A MAJORITY OF THE PREFERRED
STOCK NOT HELD BY BOSTON VENTURES LP VI], directly or indirectly, sell, contract
to sell, make any short sale, pledge, or otherwise dispose of, or enter into any
hedging transaction that could result in a transfer of, any shares of Common
Stock (including, without limitation, any shares of Common Stock acquired
pursuant to the exercise of any stock option or warrant), options or warrants to
acquire shares of Common Stock or securities exchangeable for or convertible
into shares of Common Stock of the Company which the undersigned may own, for a
period commencing as of the date hereof and ending on the date which is one
hundred eighty (180) days after [the Closing Date] (and the undersigned
represents that the undersigned has not done any of the foregoing since the date
of the Securities Purchase Agreement). This Lock-Up Agreement will terminate
upon the commencement of any tender offer for 50% or more of the outstanding
Common Stock if such tender offer has been recommended by the Company's board of
directors. Notwithstanding anything to the contrary contained herein, the
undersigned may make a non-sale distribution of shares of Common Stock to the
undersigned's affiliates, provided that each such transferee shall execute as a
condition to such transfer a lock-up agreement in the form hereof.
The undersigned acknowledges the sufficiency of the consideration for
this Lock-Up Agreement. The undersigned confirms that the undersigned
understands that the Buyers and the Company will rely upon the representations
set forth in this Lock-Up Agreement in proceeding with the Transaction. The
undersigned further confirms that the agreements of the undersigned are
irrevocable and shall be binding upon the undersigned's heirs, legal
representatives, successors and assigns. The undersigned agrees and consents to
the entry of stop transfer instructions with the Company's transfer agent
against the transfer of securities held by the undersigned except in compliance
with this Lock-Up Agreement.
This Lock-Up Agreement shall be binding on the undersigned and the
undersigned's successors, heirs, personal representatives and assigns.
Very truly yours,
Date: March , 2001
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Print Name:
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EXHIBIT G - FORM OF SHELF REGISTRATION RIGHTS AGREEMENT
