Exhibit 10.3
STOCK PURCHASE AGREEMENT
by
and
between
USinternetworking, Inc.
and
US WEST COMMUNICATIONS, INC.
-------------------------
Dated as of June ____, 1998
TABLE OF CONTENTS
PAGE
----
ARTICLE 1. DEFINITIONS.......................................................1
1.1. DEFINITIONS.................................................1
1.2. ACCOUNTING TERMS; FINANCIAL STATEMENTS......................4
1.3. KNOWLEDGE STANDARD..........................................4
1.4. OTHER DEFINED TERMS.........................................4
ARTICLE 2. AUTHORIZATION OF PREFERRED SHARES; PURCHASE AND SALE OF PREFERRED
SHARES...........................................................5
2.1. PREFERRED SHARES............................................5
2.2. PURCHASE AND SALE OF PREFERRED SHARES.......................5
2.3. CLOSING.....................................................6
2.4. FEES AND EXPENSES...........................................6
ARTICLE 3. CONDITIONS TO THE OBLIGATION OF THE PURCHASER TO PURCHASE THE
PREFERRED SHARES.................................................6
3.1. REPRESENTATIONS AND WARRANTIES..............................6
3.2. COMPLIANCE WITH TERMS AND CONDITIONS OF THIS
AGREEMENT..................................................6
3.3. DELIVERY OF CERTIFICATES EVIDENCING THE SHARES..............6
3.4. CLOSING CERTIFICATES........................................7
3.5. SECRETARY'S CERTIFICATES....................................7
3.6. DOCUMENTS...................................................7
3.7. PURCHASE PERMITTED BY APPLICABLE LAWS.......................7
3.8. CONSENTS AND APPROVALS......................................7
3.9. AMENDMENT TO SHAREHOLDERS'AGREEMENT.........................7
3.10. NO MATERIAL JUDGMENT OR ORDER..............................8
3.11. LEGAL OPINION..............................................8
3.12. ISSUANCE OF SHARES.........................................8
ARTICLE 4. CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE..............8
4.1. REPRESENTATIONS AND WARRANTIES..............................8
4.2. COMPLIANCE WITH THIS AGREEMENT..............................8
4.3. CLOSING CERTIFICATE.........................................8
4.4. ISSUANCE PERMITTED BY APPLICABLE LAWS.......................9
4.5. PAYMENT OF PURCHASE PRICE...................................9
4.6. CONSENTS AND APPROVALS......................................9
4.7. AMENDMENT TO SHAREHOLDERS'AGREEMENT.........................9
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4.8. NO MATERIAL JUDGMENT OR ORDER...............................9
ARTICLE 5. REPRESENTATIONS AND WARRANTIESOF THE COMPANY......................9
5.1. CORPORATE EXISTENCE AND AUTHORITY..........................10
5.2. CORPORATE AUTHORIZATION; NO CONTRAVENTION..................10
5.3. GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENTS...........10
5.4. BINDING EFFECT.............................................10
5.5. CAPITALIZATION.............................................10
5.6. PRIVATE OFFERING...........................................11
5.7. LITIGATION.................................................12
5.8. FINANCIAL STATEMENTS.......................................12
5.9. TITLE AND CONDITION OF ASSETS..............................12
5.10. CONTRACTUAL OBLIGATIONS...................................12
5.11. TAX MATTERS...............................................12
5.12. SEVERANCE ARRANGEMENTS....................................12
5.13. INVESTMENT COMPANY/GOVERNMENT REGULATIONS.................13
5.14. BROKER'S, FINDER'S OR SIMILAR FEES........................13
5.15. LABOR RELATIONS AND EMPLOYEE MATTERS......................13
5.16. EMPLOYEE BENEFITS MATTERS.................................13
5.17. OUTSTANDING BORROWINGS....................................13
5.18. INSURANCE SCHEDULE........................................13
5.19. SOLVENCY..................................................14
5.20. NO OTHER AGREEMENTS TO SELL THE ASSETS OR
CAPITAL STOCK OF THE COMPANY..............................14
5.21. KEY EMPLOYEES.............................................14
5.22. COMPLIANCE WITH LAW.......................................14
5.23. DISCLOSURE................................................14
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER..................15
6.1. LIMITED LIABILITY EXISTENCE AND AUTHORITY..................15
6.2. ORGANIZATION; AUTHORIZATION; NO CONTRAVENTION..............15
6.3. BINDING EFFECT.............................................15
6.4. PURCHASE FOR OWN ACCOUNT...................................15
6.5. FINANCIAL CONDITION........................................16
6.6. RECEIPT OF INFORMATION.....................................16
6.7. BROKER'S, FINDER'S OR SIMILAR FEES.........................16
6.8. GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENT............17
6.9. LITIGATION.................................................17
ARTICLE 7. COVENANTS WITH RESPECT TO THE PERIOD FOLLOWING THE CLOSING......17
7.1. RESERVATION OF SHARES......................................17
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7.2. RIGHT OF FIRST OFFER.......................................17
7.3. RIGHT OF FIRST REFUSAL.....................................18
7.4. REGULATORY COMPLIANCE......................................18
ARTICLE 8. INDEMNIFICATION..................................................21
8.1. INDEMNIFICATION............................................21
8.2. NOTIFICATION...............................................22
ARTICLE 9. MISCELLANEOUS....................................................22
9.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.................22
9.2. NOTICES....................................................23
9.3. SUCCESSORS AND ASSIGNS.....................................24
9.4. AMENDMENT AND WAIVER.......................................24
9.5. COUNTERPARTS...............................................24
9.6. HEADINGS...................................................24
9.7. GOVERNING LAW..............................................24
9.8. JURISDICTION...............................................25
9.9. SEVERABILITY...............................................25
9.10. RULES OF CONSTRUCTION.....................................25
9.11. ENTIRE AGREEMENT..........................................25
9.12. PUBLICITY.................................................25
9.13. FURTHER ASSURANCES........................................26
9.14. WAIVER OF JURY TRIAL......................................26
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as of this
_____ day of June, 1998, by and between USinternetworking, Inc., a Delaware
corporation (the "Company") and US WEST Communications, Inc., a Colorado
corporation (the "Purchaser").
RECITALS:
A. Upon the terms and subject to the conditions set forth in this
Agreement, the Company proposes to issue and sell to the Purchaser, and the
Purchaser desires to purchase and acquire from the Company, a total of 5,833.33
shares of the Company's Series A Preferred Stock (as defined below).
B. The Purchaser and the Company desire to set forth the objectives and
agreements that will govern their relations and responsibilities with respect to
each other by entering into concurrently with the sale and purchase of
securities hereunder an amendment to the Shareholders' Agreement (as defined
below) in the form attached hereto as Exhibit A (the "Amendment").
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt and adequacy
of which is hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1.
DEFINITIONS
1.1. DEFINITIONS.
As used in this Agreement, and unless the context requires a different
meaning, the following terms have the meanings indicated:
"AFFILIATE" means, with respect to any specified Person, any Person that,
directly or indirectly, controls, is controlled by, or is under common control
with, such specified Person, whether by contract, through one or more
intermediaries, or otherwise.
"BUDGET" means a fiscal year operating budget, which shall include monthly
capital and operating expense budgets, cash flow statements, capital expenditure
budgets, profit and loss projections and employee hiring projections.
"BUSINESS DAY" shall mean a day other than a Saturday or Sunday or any
federal holiday.
"COMMISSION" means the Securities and Exchange Commission or any similar
agency then having jurisdiction to enforce the Securities Act (as defined
below).
"COMMON STOCK" means the common stock, par value $.001 per share, of the
Company, or any other capital stock of the Company into which such stock is
reclassified or reconstituted.
"CONDITION OF THE COMPANY" means the assets, business, properties,
operations, financial condition or prospects of the Company.
"EMPLOYEE PLANS" means all benefits arrangements, pensions plans or welfare
plans adopted by the Company for its employees.
"EMPLOYEE STOCK OPTION PLAN" means an employee stock option plan adopted by
the Compensation Committee of the Board of Directors of the Company providing
for the issuance to certain employees of the Company of options to purchase a
certain number of shares of Common Stock at a certain exercise price per share
the total number of shares of Common Stock which may be issued under such plan
shall not exceed 6.5% of the total number of outstanding shares of common stock
calculated on a fully diluted basis, not including the options and shares
issuable or issued on exercise of options pursuant to the Employee Stock Option
Plan.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission thereunder.
"GAAP" means United States generally accepted accounting principles, in
effect from time to time, consistently applied.
"GOVERNMENTAL AUTHORITY" means the government of any nation, state, city,
locality or other political subdivision of any thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"HOLDERS" means the Persons (other than the Purchaser) listed as
"Shareholders" on the signature page to the Shareholders Agreement.
"INDEBTEDNESS" means, as to any Person: (a) all obligations, whether or not
contingent, of such Person for borrowed money (including, without limitation,
reimbursement and all other obligations with respect to surety bonds, letters of
credit and bankers' acceptances, whether or not matured), (b) all obligations of
such Person evidenced by notes, bonds, debentures or similar instruments, (c)
all obligations of such Person representing the balance of deferred purchase
price of property or services, except trade accounts payable and accrued
commercial or trade liabilities arising in the ordinary course of business, (d)
all interest rate and currency swaps, caps, collars and similar agreements or
hedging devices under which payments are obligated to be made by such Person,
whether periodically or upon the happening of a contingency, (e) all
indebtedness created or arising under any conditional sale or other title
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retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property), (f)
all obligations of such Person under leases which have been or should be, in
accordance with GAAP, recorded as capital leases, (g) all indebtedness secured
by any Lien (other than Liens in favor of lessors under leases other than leases
included in clause (f)) on any property or asset owned or held by that Person
regardless of whether the indebtedness secured thereby shall have been assumed
by that Person or is non-recourse to the credit of that Person, and (h) all
Indebtedness of any other Person referred to in clauses (a) through (f) above,
guaranteed, directly or indirectly, by that Person.
"KEY EMPLOYEES" means the individuals listed on Schedule B.
"LIEN" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other) or other security interest of
any kind or nature whatsoever (excluding preferred stock or equity related
preferences) including, without limitation, those created by, arising under or
evidenced by any conditional sale or other title retention agreement, the
interest of a lessor under a capital lease obligation, or any financing lease
having substantially the same economic effect as any of the foregoing.
"OUTSTANDING BORROWINGS" means all Indebtedness of the Company for borrowed
money (including, without limitation, reimbursement and all other obligations
with respect to surety bonds, letters of credit and bankers' acceptances,
whether or not matured).
"PERSON" means any individual, firm, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
Governmental Authority or other entity of any kind, and shall include any
successor (by merger or otherwise) of such entity.
"REGULATORY AFFILIATE" has the meaning set forth in Section 7.4.
"REQUIREMENTS OF LAW" means, as to any Person, the provisions of the
Certificate of Incorporation and By-laws or other organizational or governing
documents of such Person, and any law, treaty, rule, regulation, right,
privilege, qualification, license or franchise, order, judgment, or
determination of an arbitrator or a court or other Governmental Authority, in
each case, applicable or binding upon such Person or any of its property or to
which such Person or any of its property is subject or applicable to any or all
of the transactions contemplated by or referred to in the Transaction
Agreements.
"SALE OF THE COMPANY" means (i) the sale or all or substantially all of the
Company's assets in a single transaction or series of related transactions, or
(ii) the sale of all or a controlling interest in the Company's capital stock in
a single transaction or a series of related transactions pursuant to a sale or
issuance of securities or a merger, consolidation, or other business
combination.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder.
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"SERIES A PREFERRED STOCK" means the 8% Series A Convertible Preferred
Stock, par value $.01 per share, of the Company, or any other capital stock of
the Company into which such stock is reclassified or reconstituted.
"SHAREHOLDERS AGREEMENT" means the Shareholders Agreement dated May 28,
1998 among the Company, the purchasers of the Company's Series A Preferred Stock
and other stockholders of the Company.
"TRANSACTION AGREEMENTS" means collectively, this Agreement, the Amendment
and the Shareholders Agreement.
"TRANSACTION EXPENSES" means any and all reasonable out-of-pocket (i) legal
expenses incurred by the Purchaser in connection with the negotiation and
preparation of the Transaction Agreements, the consummation of the transactions
contemplated thereby and preparation for any of the foregoing, including,
without limitation, travel expenses, reasonable fees, charges and disbursements
of counsel and any similar or related legal costs and legal expenses, and (ii)
other expenses incurred by the Purchaser in connection with the negotiation and
preparation of the Transaction Agreements.
1.2. ACCOUNTING TERMS; FINANCIAL STATEMENTS.
All accounting terms used herein not expressly defined in this Agreement
shall have the respective meanings given to them in accordance with sound
accounting practice. The term "sound accounting practice" shall mean such
accounting practice as, in the opinion of the independent certified public
accountants regularly retained by the Company conforms at the time to GAAP
applied on a consistent basis except for changes with which such accountants
concur.
1.3. KNOWLEDGE STANDARD.
When used herein, the phrase "to the knowledge of" any Person, "to the best
knowledge of" any Person or any similar phrase shall mean, (i) with respect to
any individual, the actual knowledge of such Person, (ii) with respect to any
corporation, the actual knowledge of the officers and directors of such
corporation and the knowledge of such facts that such persons should have in the
exercise of their duties after reasonable inquiry, and (iii) with respect to a
partnership, the actual knowledge of the officers and directors of the general
partner of such partnership and the knowledge of such facts that such persons
should have in the exercise of their duties after reasonable inquiry.
1.4. Other Defined Terms.
The following terms shall have the meanings specified in the Sections set
forth below:
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TERM SECTION
---- -------
Actions 5.7
Certificate of Incorporation 2.1
Certificate 2.1
Certificate of Designation 2.1
Closing Date 2.2
Closing 2.3
Debt Documents 7.4
Indemnified Party 8.2
Indemnifying Party 8.2
Liabilities 8.1
Preferred Shares 2.1
Purchase Price 2.2
Purchasing Indemnified Party 9.1
Purchasing Indemnifying Party 9.1
Selling Indemnified Party 9.1
Selling Indemnifying Party 9.1
ARTICLE 2.
AUTHORIZATION OF PREFERRED SHARES;
PURCHASE AND SALE OF PREFERRED SHARES
2.1. PREFERRED SHARES.
On or before the Closing Date, the Board of Directors of the Company shall
have authorized the issuance and sale of 5,833.33 shares of Series A Preferred
Stock (the "Preferred Shares") to the Purchaser and has duly adopted resolutions
establishing the rights, preferences, privileges and restrictions of the Series
A Preferred Stock. The Preferred Shares will have the respective rights,
preferences and privileges set forth in the Company's Amended and Restated
Certificate of Incorporation, as it will be in effect on the Closing Date (the
"Certificate of Incorporation") and the Certificate of Designations,
Preferences, and Other Special Rights of Preferred Stock and Qualifications,
Limitations and Restrictions Thereof attached as EXHIBIT C hereto (the
"Certificate of Designation" and together with the Certificate of Incorporation,
the "Certificate").
2.2. PURCHASE AND SALE OF PREFERRED SHARES.
Upon the terms and subject to the conditions herein contained, on the day
two Business Days after all of the conditions to Closing set forth in Articles 3
and 4 have been satisfied or such other date as the parties may agree (the
"Closing Date"), the Company shall issue to the Purchaser, and the Purchaser
shall acquire from the Company, a total of 5,833.33 Preferred Shares for a cash
purchase price of $600 per Preferred Share (the "Purchase Price").
5
2.3. CLOSING.
The closing of the sale to and purchase by the Purchaser of the Preferred
Shares (the "Closing") shall occur at 11 o'clock A.M., local time on the Closing
Date at the offices of the Company, 000 Xxxxxxx Xxxxxxxx Xxxxx, Xxxxxxxxx,
Xxxxxxxx. At the Closing, (i) the Company shall deliver to the Purchaser a
certificate evidencing the Preferred Shares being purchased by the Purchaser,
free and clear of any Liens of any nature whatsoever, other than those created
by the Certificate or the Shareholders Agreement, registered in the Purchaser's
name, and (ii) the Purchaser shall deliver to the Company the Purchase Price, by
cashier's or certified check or wire transfer of immediately available funds.
2.4. FEES AND EXPENSES.
Concurrently with the Closing, the Company shall reimburse the
Purchaser for the Transaction Expenses, which payment shall be made by wire
transfer of immediately available funds to an account or accounts designated by
the Purchaser or, at the option of the Purchaser, may be deducted from the
Purchase Price.
ARTICLE 3.
CONDITIONS TO THE OBLIGATION OF THE
PURCHASER TO PURCHASE THE PREFERRED SHARES
The obligation of the Purchaser to purchase the Preferred Shares, to pay
the Purchase Price therefor and to perform any of its obligations hereunder on
the Closing Date (unless otherwise specified) shall be subject to the
satisfaction of the following conditions on or before the Closing Date:
3.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company contained in Section 5
hereof shall be true and correct in all material respects at and as of the
Closing Date, as if made at and as of such date.
3.2. COMPLIANCE WITH TERMS AND CONDITIONS OF THIS AGREEMENT.
The Company shall have performed and complied with all of the agreements
and conditions set forth herein that are required to be performed or complied
with by the Company on or before the Closing Date.
3.3. DELIVERY OF CERTIFICATES EVIDENCING THE SHARES.
The Company shall have delivered to the Purchaser the certificates
evidencing the Preferred Shares as set forth in Section 2.3.
6
3.4. CLOSING CERTIFICATES.
The Company shall have delivered to the Purchaser a certificate executed by
an authorized officer of the Company, certifying that the representations and
warranties of the Company are true and correct in all material respects on and
as of the Closing Date, and that the conditions set forth in this Section 3 to
be satisfied by the Company have been satisfied on and as of the Closing Date.
3.5. SECRETARY'S CERTIFICATES.
The Purchaser shall have received a certificate from the Company, dated as
of the Closing Date and signed by the Secretary or an Assistant Secretary of the
Company, certifying that the attached copies of the Certificate of
Incorporation, Certificate of Designation, By-laws of the Company, and
resolutions of the Board of Directors of the Company approving the Transaction
Agreements and the transactions referred to therein, are all true, complete and
correct and remain unamended and in full force and effect.
3.6. DOCUMENTS.
The Purchaser shall have received true, complete and correct copies of such
documents and such other information as it may have reasonably requested in
connection with or relating to the sale of the Preferred Shares and the
transactions required to be performed by the Transaction Agreements.
3.7. PURCHASE PERMITTED BY APPLICABLE LAWS.
The acquisition of and payment for the Preferred Shares to be acquired by
the Purchaser hereunder and the consummation of this Agreement (a) shall not be
prohibited by any Requirements of Law, and (b) shall not conflict with or be
prohibited by any contractual obligation of the Company.
3.8. CONSENTS AND APPROVALS.
All consents, exemptions, authorizations, or other actions by, or notices
to, or filings with, Governmental Authorities and other Persons in respect of
all Requirements of Law and with respect to those material Contractual
Obligations of the Company necessary or required in connection with the
execution, delivery or performance (including, without limitation, the issuance
of the Preferred Shares and the issuance of the Common Stock upon conversion of
the Preferred Shares) by the Company shall have been obtained and be in full
force and effect and all waiting periods shall have lapsed without extension or
the imposition of any conditions or restrictions.
3.9. AMENDMENT TO SHAREHOLDERS' AGREEMENT.
The Company and the other parties thereto shall have duly executed and
delivered to the Purchaser the Amendment.
7
3.10. NO MATERIAL JUDGMENT OR ORDER.
There shall not be any judgment or order of a court of competent
jurisdiction or any ruling of any Governmental Authority [or any condition
imposed under any Requirement of Law] which, in the reasonable judgment of the
Purchaser, would (i) prohibit the purchase of the Preferred Shares hereunder,
(ii) subject the Purchaser to any penalty if the Preferred Shares were to be
purchased hereunder, or (iii) question the validity or legality of the
transactions required to be performed under this Agreement.
3.11. LEGAL OPINION.
The Purchaser shall have received an opinion of counsel for the Company in
the form attached as Exhibit B hereto.
3.12. ISSUANCE OF SHARES.
The Company shall have issued (i) an additional 833.33 Preferred Shares in
the aggregate to Blue Chip Capital Fund II Limited Partnership and Miami Valley
Venture Fund L.P., and (ii) an additional 4,166.67 Preferred Shares in the
aggregate to Grotech Partners IV L.P. and Grotech Partners V L.P.
ARTICLE 4.
CONDITIONS TO THE OBLIGATION OF
THE COMPANY TO CLOSE
The obligation of the Company to issue and sell the Preferred Shares and
the other obligations of the Company hereunder shall be subject to the
satisfaction of the following conditions on or before the Closing Date:
4.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Purchaser contained in Section 6
hereof shall be true and correct in all material respects at and as of the
Closing Date as if made at and as of such date.
4.2. COMPLIANCE WITH THIS AGREEMENT.
The Purchaser shall have performed and complied with all of the agreements
and conditions set forth herein that are required to be performed or complied
with by the Purchaser on or before the Closing Date.
4.3. CLOSING CERTIFICATE.
The Purchaser shall have delivered to the Company a certificate executed by
the Purchaser certifying that the representations and warranties of the
Purchaser contained in this Agreement are true and correct in all material
respects on and as of the Closing Date and that the
8
conditions contained in this Section 4 to be satisfied by the Purchaser have
been satisfied on and as of the Closing Date.
4.4. ISSUANCE PERMITTED BY APPLICABLE LAWS.
The issuance of the Preferred Shares to be issued by the Company hereunder
and the consummation of this Agreement (a) shall not be prohibited by any
Requirements of Law, and (b) shall not conflict with or be prohibited by any
Contractual Obligations of the Purchaser.
4.5. PAYMENT OF PURCHASE PRICE.
The Purchaser shall have tendered to the Company the Purchase Price as set
forth in Section 2.
4.6. CONSENTS AND APPROVALS.
All consents, exemptions, authorizations, or other actions by, or notices
to, or filings with, Governmental Authorities and other Persons in respect of
all Requirements of Law and with respect to those material Contractual
Obligations of the Purchaser necessary or required in connection with the
execution, delivery or performance by the Purchaser shall have been obtained and
be in full force and effect and all waiting periods shall have lapsed without
extension or imposition of any conditions or restrictions.
4.7. AMENDMENT TO SHAREHOLDERS' AGREEMENT.
The Purchaser shall have duly executed and delivered to the Company the
Amendment.
4.8. NO MATERIAL JUDGMENT OR ORDER.
There shall not be any judgment or order of a court of competent
jurisdiction or any ruling of any Governmental Authority or any condition
imposed under any Requirements of Law which, in the reasonable judgment of the
Company would (i) prohibit the sale of the Preferred Shares or the consummation
of the other transactions hereunder, (ii) subject the Company to any penalty if
the Preferred Shares were to be sold hereunder or (iii) question the validity or
legality of the transactions required to be performed under this Agreement.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to, and covenants with, the Purchaser
as of the date hereof and as of the Closing Date as follows:
9
5.1. CORPORATE EXISTENCE AND AUTHORITY.
The Company was incorporated on January 14, 1998 and (a) is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, (b) has all requisite corporate power and authority to own
and operate its property, to lease the property it operates as lessee and to
conduct the business in which it is currently, or is currently proposed to be,
engaged, and (c) has the corporate power and authority to execute, deliver and
perform its obligations under each Transaction Agreement to which it is or will
be a party.
5.2. CORPORATE AUTHORIZATION; NO CONTRAVENTION.
The execution, delivery and performance by the Company of each of the
Transaction Agreements and the consummation of the transactions contemplated
thereby, including, without limitation, the issuance of the Preferred Shares,
(a) on or before the Closing Date, shall have been duly authorized by all
necessary corporate action, including, if required, stockholder action, (b) do
not conflict with or contravene the terms of the Certificate or the By-laws of
the Company, or any amendment thereof; and (c) will not violate, conflict with
or result in any material breach or contravention of (i) any Contractual
Obligation of the Company or (ii) any Requirements of Law applicable to the
Company.
5.3. GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENTS.
No approval, consent, compliance, exemption, authorization, or other action
by, or notice to, or filing with, any Governmental Authority or any other Person
in respect of any applicable Requirements of Law in effect on the date hereof,
and no lapse of a waiting period under any applicable Requirements of Law in
effect on the date hereof, is necessary or required in connection with the
execution and delivery of the Transaction Agreements by the Company or the
performance by the Company or enforcement against the Company of any material
obligation by the Company under the Transaction Agreements or the transactions
to be performed hereunder.
5.4. BINDING EFFECT.
This Agreement has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as enforceability may
be limited by applicable bankruptcy, insolvency or other similar laws affecting
the enforcement of creditors' rights generally and by general principles of
equity relating to enforceability.
5.5. CAPITALIZATION.
(a) On the Closing Date, assuming the consummation of the transactions
contemplated hereby, the capital stock of the Company shall consist of One
Hundred Fifty Million (150,000,000) shares of Common Stock and One Hundred
Thousand (100,000) shares of preferred stock, with such shares including the
Preferred Shares. Of the 150,100,000 authorized shares of capital stock of the
Company, immediately after the Closing, there will be
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(i) 15 million shares of Common Stock issued and outstanding; (ii) Five Million
(5,000,000) shares of Common Stock reserved for issuance pursuant to the
Employee Stock Option Plan; (iii) 52,000 shares of Series A Preferred Stock
issued and outstanding; and (iv) 108,600,000 fully diluted shares of Common
Stock outstanding, assuming conversion of all of the outstanding shares of
Series A Preferred Stock into 93,600,000 shares of common stock, but not
including any shares authorized pursuant to the Employee Stock Option Plan. As
of the Closing Date, all outstanding shares of capital stock of the Company,
including the Preferred Shares, and the shares of Common Stock issuable upon
conversion of the Preferred Shares (when issued in accordance with the
conversion terms thereof), will be duly authorized and validly issued, fully
paid, nonassessable and free and clear of any Liens, preferential rights,
priorities, claims, options, charges or other encumbrances or restrictions other
than those created by the Certificate, the Bylaws, and the Shareholders'
Agreement.
(b) SCHEDULE 5.5 sets forth the name of each holder of the issued and
outstanding capital stock of the Company, the number of shares of such capital
stock held beneficially or of record by each such holder, the name of each
Person holding any options or other rights to purchase any capital stock of the
Company (except as may be permitted under the Shareholders Agreement), the
number, class and series of shares of capital stock subject to each such option
or right and the exercise price of each such option or right. Except for the
options under the Employee Stock Option Plan and the Preferred Shares, and
except as identified in Section 7.4, there are no outstanding securities
convertible into or exchangeable for capital stock of the Company or options,
warrants or other rights to purchase or subscribe to capital stock of the
Company or contracts, commitments, agreements, understandings or arrangements of
any kind to which the Company or any Holder is a party relating to the issuance
of any capital stock of the Company, any such convertible or exchangeable
securities or any such options, warrants or rights. The Company has no
subsidiaries.
(c) Except as set forth on SCHEDULE 5.5 and as may be provided in the
Shareholders Agreement, no Person has any preemptive rights, rights of first
refusal, "tag along" rights, rights of co-sale or any similar rights with
respect to the issuance of the Preferred Shares contemplated hereby or the
issuance of any additional shares of stock by the Company. SCHEDULE 5.5
identifies all Persons holding any such rights and describes the material terms
of all such rights.
5.6. PRIVATE OFFERING.
No form of general solicitation or general advertising was used by the
Company or its representatives in connection with the offer or sale of the
Preferred Shares. No registration of the Preferred Shares pursuant to the
provisions of the Securities Act or any state securities or "blue sky" laws will
be required by the offer, sale or issuance of the Preferred Shares pursuant to
this Agreement. The Company agrees that neither it, nor anyone authorized to act
on its behalf, will offer or sell the Preferred Shares or any other security so
as to require the registration of the Preferred Shares pursuant to the
provisions of the Securities Act or any state securities or "blue sky" laws,
unless such Preferred Shares are so registered.
11
5.7. LITIGATION.
The Company has not received any notice of any governmental charge,
complaint or action or court order, writ, injunction, judgment or decree
outstanding or any claim, suit, litigation, legal proceeding, (collectively,
"Actions") which if adversely determined would have a material adverse effect on
(i) the Company or the Condition of the Company (ii) the transactions required
to be performed by the Company under this Agreement or the Transaction
Agreements and, to the Company's knowledge, there is no valid basis therefor,
and no Action is threatened against the Company.
5.8. FINANCIAL STATEMENTS.
The Company was incorporated on January 14, 1998, and has not yet commenced
business operations. As of the date hereof, it has no assets, except as
described below, and has not prepared financial statements. SCHEDULE 5.8(A) sets
forth all expenditures by or on behalf of the Company since its formation in
excess of $25,000, in any one case, or $200,000, in the aggregate. The Company's
projections attached hereto as SCHEDULE 5.8(B) were prepared by the Company's
management in good faith, are based on reasonable assumptions, represent
management's best estimates of the Company's predicted operations and
performance under its business plan and reflect actual subjective expectations
of the Company's management. The Company has no reason to believe that the
results reflected in such projections are not attainable.
5.9. TITLE AND CONDITION OF ASSETS.
The Company currently has no assets (other than cash) except as listed on
SCHEDULE 5.9. The Company has a valid and enforceable leasehold interest in its
leases listed on SCHEDULE 5.9 pursuant to the terms of the lease agreements and
is not in default thereunder.
5.10. CONTRACTUAL OBLIGATIONS.
The Company has not entered into any contracts or agreements or incurred
any material liabilities, other than (i) pursuant to the Transaction Agreements,
(ii) contracts and agreements that do not obligate the Company to make
expenditures in excess of $25,000 over the life of the contract, and (iii) the
contracts and agreements listed on SCHEDULE 5.10.
5.11. TAX MATTERS.
The Company has duly filed all tax reports and returns required to be filed
by it, including all federal, state, local and foreign tax returns and reports
and paid all taxes due with respect thereto.
5.12. SEVERANCE ARRANGEMENTS.
Except as set forth on SCHEDULE 5.12, the Company has not entered into any
severance or similar arrangement in respect of any present or former employee of
the Company
12
that will result in any obligation (absolute or contingent) of the
Company to make any payment to such present or former employee of the Company
following termination of employment.
5.13. INVESTMENT COMPANY/GOVERNMENT REGULATIONS.
Immediately following the Closing, after giving effect to the transactions
contemplated by the Transaction Agreements, neither the Company nor any Person
controlling, controlled by or under common control with the Company will be an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended. The Company is not subject to regulation under the Public Utility
Holding Company Act of 1935, as amended, the Federal Power Act, or any federal
or state statute or regulation limiting its ability to incur Indebtedness.
5.14. BROKER'S, FINDER'S OR SIMILAR FEES.
There are no brokerage commissions, finder's fees or similar fees or
commissions payable in connection with the transactions contemplated hereby
based on any agreement, arrangement or understanding with the Company or any
officer, director, shareholder, or Affiliate of the Company or any action taken
by any such person.
5.15. LABOR RELATIONS AND EMPLOYEE MATTERS.
(a) The Company is not and has not engaged in any unfair labor practice.
(b) Except as set forth on SCHEDULE 5.10, the Company is not a party to any
employment agreement (other than "at will" employment relationships), collective
bargaining agreement or covenant not to compete.
(c) No complaint under any statute or regulation relating to employment has
been filed against the Company.
5.16. EMPLOYEE BENEFITS MATTERS.
Except as set forth on SCHEDULE 5.16, the Company has not adopted or
implemented any Employee Plan.
5.17. OUTSTANDING BORROWINGS.
SCHEDULE 5.17 lists the amount of all Outstanding Borrowings as of the date
hereof and the name of each lender thereof.
5.18. INSURANCE SCHEDULE.
SCHEDULE 5.18 accurately summarizes all of the Company's insurance policies
or programs in effect as of the date hereof and indicates the insurer's name and
policy number and also indicates any self-insurance program that is in effect.
13
5.19. SOLVENCY.
The Company has not (i) made a general assignment for the benefit of its
creditors, (ii) filed any voluntary petition in bankruptcy or suffered the
filing of any involuntary petition in bankruptcy by its creditors, (iii)
suffered the appointment of a receiver to take possession of all or
substantially all of its assets or properties, (iv) suffered the attachment or
other judicial seizure of all or substantially all of its assets or (v) admitted
in writing its inability to pay its debts as they come due.
5.20. NO OTHER AGREEMENTS TO SELL THE ASSETS OR CAPITAL STOCK OF THE
COMPANY.
Other than as otherwise set forth in this Agreement, the Company has no
legal obligation, absolute or contingent, other than the obligations of the
Company under the Transaction Agreements, to any person or firm to (i) sell any
capital stock of the Company or, outside of the ordinary course of business,
assets, or effect any merger, consolidation or other reorganization of the
Company or (ii) enter into any agreement with respect any of the foregoing.
5.21. KEY EMPLOYEES.
The performance by the Key Employees of their duties for the Company as
contemplated by the Company's business plan will not violate any provision of
any agreement to which any of such persons or the Company is a party, including
any agreement with any former employer of any such person, or give rise to any
obligation or liability of the Company to any third party or limit in any way
the Company's ability to conduct its business. None of the Key Employees is
engaged, directly or indirectly, or has any interest (other than as a
shareholder of a public company) in any entity which is engaged in competition
with the Company in its planned activities.
5.22. COMPLIANCE WITH LAW.
In its conduct of its business and affairs since its formation, the Company
has complied in all material respects with all applicable Requirements of Law.
5.23. DISCLOSURE.
The Company has, to the best of its knowledge, fully responded to all
requests for information, and the Company has accurately answered all questions
from the Purchaser concerning the Condition of the Company, and has not
knowingly withheld any facts relating thereto which it reasonably believes to be
material with respect to its Condition. No information in this Agreement or in
any Exhibit or Schedule attached to this Agreement, contains or will contain any
untrue statement of a material fact or when considered together with all such
information delivered to the Purchaser omits to state any material fact. The
disclosures made in writing by the Company in connection with this Agreement
when read in the light of the circumstances when made and taken as a whole, did
not when made contain any untrue statement of a material fact.
14
ARTICLE 6.
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as of the date
hereof as follows:
6.1. LIMITED LIABILITY EXISTENCE AND AUTHORITY.
The Purchaser (a) is a Colorado corporation duly organized, validly
existing and in good standing under the laws of Colorado (b) has all requisite
power and authority to own its assets and operate its business, and (c) has all
requisite power and authority to execute, deliver and perform its obligations
under each of the Transaction Agreements to which it is or will be a party.
6.2. ORGANIZATION; AUTHORIZATION; NO CONTRAVENTION.
The execution, delivery and performance by the Purchaser of the Transaction
Agreements to which it is a party and the consummation of the transactions
contemplated thereby, including, without limitation, the acquisition of the
Preferred Shares: (a) is within the Purchaser's limited liability company
authority, and has been duly authorized by all necessary action on the part of
the Purchaser; (b) does not conflict with or contravene the terms of the
Purchaser's Articles of Organization or Operating Agreement or by-laws, as
applicable; and (c) will not violate, conflict with or result in any material
breach or contravention of (i) any Contractual Obligation of the Purchaser, or
(ii) the Requirements of Law or any order or decree applicable to the Purchaser
(provided, however, that to the extent this representation and warranty relates
to the Telecommunications Act of 1996 or the Communications Act of 1934, such
representation and warranty is made to the Purchaser's best knowledge).
6.3. BINDING EFFECT.
This Agreement has been duly executed and delivered by the Purchaser, and
this Agreement constitutes the legal, valid and binding obligation of the
Purchaser, enforceable against it in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency, or similar
laws affecting the enforcement of creditors' rights generally or by equitable
principles relating to enforceability.
6.4. PURCHASE FOR OWN ACCOUNT.
The Preferred Shares, and the shares of Common Stock to be issued upon
conversion of the Preferred Shares, are being or will be acquired by the
Purchaser for its own account and with no intention of distributing or reselling
such securities or any part thereof in any transaction that would be in
violation of the securities laws of the United States of America, or any state,
without prejudice, however, to the rights of the Purchaser at all times to sell
or otherwise dispose of all or any part of the Preferred Shares or the shares of
Common Stock issuable upon conversion of the Preferred Shares under an effective
registration statement under
15
the Securities Act, or under an exemption from such registration available under
the Securities Act, and subject, nevertheless, to the disposition of the
Purchaser's property being at all times within its control. If the Purchaser
should in the future decide to dispose of any of the Preferred Shares or the
shares of Common Stock issuable upon conversion of the Preferred Shares, the
Purchaser understands and agrees that it may do so only in compliance with the
Securities Act and applicable state securities laws, as then in effect. The
Purchaser agrees to the imprinting, so long as required by law, of a legend on
certificates representing all of the Preferred Shares or the shares of Common
Stock to be issued upon conversion of the Preferred Shares to the following
effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT OR SUCH LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN RESTRICTIONS SET FORTH IN A SHAREHOLDERS' AGREEMENT (AS
AMENDED) DATED AS OF MAY 28, 1998. A COPY OF SUCH AGREEMENT MAY BE OBTAINED FROM
THE COMPANY UPON REQUEST."
6.5. FINANCIAL CONDITION.
The Purchaser's financial condition is such that it is able to bear the
risk of holding the Preferred Shares for an indefinite period of time and can
bear the loss of its entire investment in the Preferred Shares. The Purchaser
has such knowledge and experience in financial and business matters and in
making high risk investments of this type that it is capable of evaluating the
merits and risks of the purchase of the Preferred Shares.
6.6. RECEIPT OF INFORMATION.
The Purchaser has been furnished access to the business records of the
Company and such additional information and documents as the Purchaser has
requested and has been afforded an opportunity to ask questions of and receive
answers from representatives of the Company concerning the terms and condition
of this Agreement, the purchase of the Preferred Shares, the prospective
operations, market potential, capitalization, financial conditions, and
prospects of the business to be conducted by the Company, and all other matters
deemed relevant by the Purchaser.
6.7. BROKER'S, FINDER'S OR SIMILAR FEES.
There are no brokerage commissions, finder's fees or similar fees or
commissions payable in connection with the transactions contemplated hereby
based on any agreement, arrangement or understanding with the Purchaser or any
action taken by the Purchaser.
16
6.8. GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENT.
No approval, consent, compliance, exemption, authorization, or other action
by, or notice to, or filing with, any Governmental Authority or any other Person
in respect of any Requirements of Law, and no lapse of a waiting period under
any Requirements of Law, is necessary or required in connection with the
execution, delivery or performance by the Purchaser (including, without
limitation, the acquisition of the Preferred Shares) or enforcement against the
Purchaser of this Agreement or the Transaction Agreements to which it is a party
or the transactions contemplated thereby.
6.9. LITIGATION.
No Actions are pending, or to the best knowledge of the Purchaser,
threatened relating to or affecting the transactions required to be performed by
the Purchaser under the Transaction Agreements.
ARTICLE 7.
COVENANTS WITH RESPECT
TO THE PERIOD FOLLOWING THE CLOSING
Until the Purchaser ceases to hold any Preferred Shares or shares of Common
Stock issued upon conversion thereof and until the payment by the Company of all
other amounts due to the Purchaser under the Transaction Agreements or the
Certificate of Designation, the Company and the Purchaser hereby covenant and
agree as follows:
7.1. RESERVATION OF SHARES.
The Company shall at all times reserve and keep available out of its
authorized Common Stock, solely for the purpose of issue or delivery upon
conversion of the Preferred Shares as provided in the Certificate, the maximum
number of shares of Common Stock that may be issuable or deliverable upon such
conversion. Such shares of Common Stock shall, when issued or delivered in
accordance with the provisions of the Certificate, be duly authorized, validly
issued and fully paid and non-assessable. The Company shall issue such Common
Stock in accordance with the provisions of the Certificate and shall otherwise
comply with the terms thereof.
7.2. RIGHT OF FIRST OFFER.
In the event that the Company proposes to effect a Sale of the Company
prior to consummation of its initial public offering of Common Stock, for a
period of 90 days prior to engaging in any discussions with any third party
concerning such transaction, the Company shall provide the Purchaser with a
summary of the economic terms on which the Company desires to effect such
transaction and shall negotiate in good faith with the Purchaser regarding the
terms of such transaction. In the event that the parties are unable to agree
upon the terms of such transaction within such 90-day period, the Company shall
be permitted within 180 days thereafter to enter into a definitive agreement
with a third party regarding a Sale of the Company
17
on economic terms that, in the aggregate, are no less favorable to the Company
and its stockholders than the terms of the last good faith offer made by the
Purchaser in writing with respect to such transaction. In the event that the
Company is unable to enter into such a definitive agreement within such 180-day
period or to close such transaction within 60 days thereafter, the Company shall
again be required to comply with the provisions of this Section 7.2 prior to
effecting a Sale of the Company.
7.3. RIGHT OF FIRST REFUSAL.
In the event that the Company shall receive an offer from a third party
regarding a Sale of the Company prior to consummation of the Company's initial
public offering of Common Stock and the Company wishes to accept such offer, the
Company shall cause such offer to be reduced to writing by such third party and
shall promptly provide the Purchaser with a copy of such offer. The Purchaser
shall have a period of 30 days following receipt of such offer to commit to
effect such Sale of the Company on the material terms and conditions set forth
in such third party offer. Thereafter, the parties agree to negotiate in good
faith a definitive agreement for such transaction. In the event that the
Purchaser does not exercise its right of first refusal, the Company shall be
permitted within 180 days thereafter to enter into a definitive agreement
regarding a Sale of the Company on economic terms that, in the aggregate, are no
less favorable to the Company and its stockholders than the terms set forth in
the third-party offer. In the event that the Company is unable to enter into
such a definitive agreement within such 180-day period or to close such
transaction within 60 days thereafter, the Company shall again be required to
comply with the provisions of this Section 7.3 prior to effecting a Sale of the
Company.
7.4. REGULATORY COMPLIANCE.
(a) CERTAIN REDEMPTIONS AND ACQUISITIONS. The Company shall give the
Purchaser not less than 15 days' prior written notice of any redemption or
repurchase of its equity securities (including options, warrants and convertible
securities) and shall not redeem or repurchase any of its equity securities to
the extent that such redemption or repurchase would cause the Purchaser to hold
more than 10.0% of the Company's Common Stock (after giving effect to the
conversion of all outstanding shares of Series A Preferred Stock and all other
convertible securities of the Company) or otherwise cause the Company to become
a Regulatory Affiliate (as defined below). The Purchaser shall give the Company
15 days' prior written notice of any acquisition by it of the Company's equity
securities (including options, warrants and convertible securities) and shall
not acquire any of the Company's equity securities (whether from the Company or
from a third party) to the extent that such acquisition would cause the
Purchaser to hold more than 10.0% of the Company's Common stock (after giving
effect to the conversion of all outstanding shares of Series A Preferred Stock
and all other convertible securities of the Company) or otherwise cause the
Company to become a Regulatory Affiliate. Any transaction in violation of this
subsection shall be void. To the extent such transaction has taken place before
either the Company or the Purchaser was aware that it violated this subsection,
the parties agree to use their best commercially reasonable efforts to cause the
18
transaction to be rescinded. In any event, the provisions of subsection (b)
below will apply to the extent that the Company has become a Regulatory
Affiliate.
(b) PUT AND CALL RIGHTS. In the event that the Company at any time after
the Closing Date becomes an "Affiliate" of the Purchaser, as that term is
defined in Section 3(1) of the Communications Act of 1934, as amended, 47 U.S.C.
Section 153(1)(for the purposes of this Agreement, a "Regulatory Affiliate"), by
virtue of the Purchaser's ownership of an equity interest in the Company, then
the Purchaser shall have the right to cause the Company to purchase its "Excess
Shares" (as defined below) (the "Purchaser Put") and the Company shall have the
right to cause the Purchaser to sell to the Company its Excess Shares (the
"Company Call" and, collectively with the Purchaser Put, the "Regulatory
Rights") on the following terms and conditions:
(i) The party seeking to exercise the Regulatory Rights shall give
notice to the other party promptly after the Company has become a Regulatory
Affiliate and in no event later than 30 days after such party first becomes
aware of the fact that the Company has become a Regulatory Affiliate. In the
event that the other party disagrees that the Company has become a Regulatory
Affiliate, that party shall provide notice of such disagreement within three
Business Days of the notice from the party, and both parties' regulatory counsel
shall thereupon consult with each other to come to an agreement on whether or
not the Company has become a Regulatory Affiliate seeking to exercise the
Regulatory Rights. In the event that the regulatory counsel do not reach an
agreement within ten (10) days, the matter will be submitted to expedited
arbitration by a counsel mutually agreeable to the other two counsel. The
closing of the sale of the Excess Shares shall take place within five Business
Days of the original notice (assuming no regulatory consents are required) if
the party not seeking to exercise the Regulatory Rights has not timely objected
to the notice; if the party not seeking to exercise the Regulatory Rights had
timely objected to the notice, then the closing shall take place within five
Business Days of the arbitral resolution of the dispute. In the event that the
Company exercises the Company Call and the purchase price for the Excess Shares
is not paid entirely in cash, the Purchaser shall have the right, for a period
of 60 days from the date of consummation of the purchase of the Excess Shares,
to cause the Company to sell the Excess Shares to Purchaser's designee for a
purchase price equal to the purchase price in fact paid by the Company for such
shares (that is, including the Company's promissory note as set forth in
subparagraph (iii) below as well as cash to the extent cash was included in
payment of the purchase price).
(ii) The Excess Shares shall be the minimum amount of shares of the
Company's equity securities that are required to be disposed of in order that
the Company not be deemed a Regulatory Affiliate.
(iii) The purchase price per share for the Excess Shares shall be the
Quoted Price (as defined in the Certificate of Designation, determined without
reference to the Conversion Price, as defined therein). The purchase price shall
be paid (A) in cash to the extent of the lesser of (X) the amount of cash and
marketable securities on hand on the date for closing as calculated pursuant to
subparagraph (i) above, treating for this purpose as cash on hand the amount, if
any, that can then be borrowed under the Company's revolving credit
19
facilities consistent with the terms of any indentures governing the Company's
debt and the terms of any of the Company's senior and subordinated credit
facilities (collectively, the "Debt Documents"), and (Y) the amount that can
permissibly be paid to Purchaser for the Excess Shares under the terms of the
Debt Documents; and (B) the balance of the purchase price, if the purchase price
has not been paid fully in cash, shall be paid in the form of the Company's
promissory note in favor of Purchaser (the "Note"), which Note shall (w) bear
interest at a rate of 12% per annum, (x) be for a term equal to the term of the
longest of the Company's outstanding indebtedness plus one day, subject to
mandatory prepayment in the event of a Sale of the Company or the refinancing of
all or substantially all of the Company's indebtedness, (y) be freely
transferable (subject to applicable securities laws) and convertible at the
option of the holder (to the extent that the Company would not become a
Regulatory Affiliate as a result thereof) into a number of Preferred Shares
determined by dividing the unpaid principal amount of such Note by the price per
Preferred Share utilized in connection with the exercise of the Purchaser Put or
the Company Call resulting in the issuance of such Note (and the accrued but
unpaid interest shall be payable in cash), and (z) be subordinated (including as
to the payment of interest) to the minimum extent required by the Company's
senior and subordinated lenders and the terms of the Company's indentures.
(c) CERTAIN TRANSFERS. In the event that the Purchaser is required by
applicable law to dispose of some or all of the Company's equity securities that
it then holds in order to prevent the Company from becoming a Regulatory
Affiliate, the parties shall take all commercially reasonable actions to
restructure the Purchaser's investment in the Company in a manner that will
cause the Company not to be deemed a Regulatory Affiliate. In the event that
such a restructuring cannot be effectuated, the Company shall waive the
restrictions set forth in Section 2(b) of the Shareholders' Agreement to the
extent that the proposed transferee is not a direct competitor of the Company.
In any event, the provisions of subsection (b) above will apply to the extent
that the Company has become a Regulatory Affiliate.
(d) COOPERATION. In the event of any challenge by any regulatory
authority or any third party to the transactions contemplated by this Agreement,
the parties agree to vigorously defend against such challenge, to cooperate in
such defense and to provide the other party such information as it may
reasonably request to assist in such defense
7.5. ADDITIONAL PUT RIGHT.
In the event that the Company and the Purchaser shall fail to enter into a
definitive marketing agreement on or prior to September 1, 1998, the Purchaser
shall have the right, by notice given no later than October 1, 1998, to require
the Company to repurchase all, but not fewer than all, of the Preferred Shares
acquired by Purchaser hereunder, and the Company shall have the right to
purchase from the Purchaser all, but no fewer than all, of the Preferred Shares
acquired by Purchaser hereunder, at a purchase price per share equal to the
Quoted Price (determined without reference to the Conversion Price), payable on
the same terms and conditions as set forth in Section 7.4(b)(iii) above.
20
ARTICLE 8.
INDEMNIFICATION
8.1. INDEMNIFICATION.
(a) In addition to all other sums due hereunder or provided for in
this Agreement, the Company (the "Selling Indemnifying Party") shall defend,
indemnify and hold harmless the Purchaser and its Affiliates and their
respective officers, directors, agents, employees, subsidiaries, partners and
assigns (each a "Purchasing Indemnified Party") to the fullest extent permitted
by law from and against any and all losses, costs, claims, damages, expenses
(including reasonable fees, disbursements and other charges of counsel, as
limited by Section 8.2 below) and other liabilities (collectively,
"Liabilities") incurred or suffered by any Purchasing Indemnified Party
resulting from or arising out of (i) any breach by any Selling Indemnifying
Party of any representation or warranty, covenant or agreement of the Selling
Indemnifying Party in this Agreement; provided, however, that no Selling
Indemnifying Party shall be liable under this Section 8.1 to any Purchasing
Indemnified Party to the extent that it is finally judicially determined that
such Liabilities resulted primarily from the material breach by such Purchasing
Indemnified Party of any representation, warranty, covenant or other agreement
of such Purchasing Indemnified Party contained in this Agreement or (ii) any
material liability of the Company on the Closing Date not disclosed in this
Agreement.
(b) In addition to all other sums due hereunder or provided for in
this Agreement, the Purchaser (the "Purchasing Indemnifying Party"), severally
and not jointly, shall defend, indemnify and hold harmless the Company and its
Affiliates and its officers, directors, agents, employees, subsidiaries,
partners and assigns (each a "Selling Indemnified Party") to the fullest extent
permitted by law from and against any and all Liabilities incurred or suffered
by such Selling Indemnified Parties resulting from or arising out of any breach
of any representation, warranty, covenant or agreement of any Purchasing
Indemnifying Party in this Agreement; provided, however, that the Purchasing
Indemnifying Party shall not be labile under this Section 8.1 to a Selling
Indemnified Party to the extent that it is finally judicially determined that
such Liabilities resulted primarily from the material breach by such Selling
Indemnified Party of any representation, warranty, covenant or other agreement
of such Selling Indemnified Party contained in this Agreement.
(c) If and to the extent that any indemnification provided for in this
Agreement is unenforceable for any reason, the Indemnifying Parties (as defined
below) obligated to indemnify any Indemnified Party (as defined below) shall
make the maximum contribution to the payment and satisfaction of such
indemnified liability which shall be permissible under applicable laws. In
connection with the obligation of the Indemnifying Parties to indemnify for
expenses as set forth herein, the Indemnifying Parties further agree, upon
presentation of appropriate invoices containing reasonable detail, to reimburse
each Indemnified Party for all such expenses (including reasonable fees,
disbursements and other charges of counsel, as limited by Section 8.2 below) as
they are incurred by such Indemnified Party.
21
8.2. NOTIFICATION.
If any action or proceeding (including any governmental investigation or
inquiry) shall be brought or asserted against any party entitled to
indemnification pursuant to this Section 8 (an "Indemnified Party") in respect
of which indemnity may be sought from any party required to indemnify such
Indemnified Party (an "Indemnifying Party"), such Indemnified Party shall
promptly notify the Indemnifying Party in writing, and such Indemnifying Party
shall assume the defense thereof, including the employment of counsel selected
by such Indemnifying Party and reasonably satisfactory to such Indemnified Party
and the payment of all expenses; PROVIDED, HOWEVER, that any failure to so
notify such Indemnifying Party shall not impair obligations hereunder except and
only to the extent that such failure results in actual prejudice to such
Indemnifying Party. Such Indemnified Party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall be the expense of such
Indemnified Party unless (a) such Indemnifying Party agreed to pay such fees and
expenses or (b) such Indemnifying Party shall have failed to assume the defense
of such action or proceeding or has failed to employ counsel reasonably
satisfactory to such Indemnified Party in any such action or proceeding or (c)
the named parties to any such action or proceeding (including any impleaded
parties) include both such Indemnified Party and such Indemnifying Party, and
such Indemnified Party shall have been advised by counsel that there may be one
or more legal defenses available to such Indemnified Party which are different
from or additional to those available to such Indemnifying Party (in which case,
such Indemnifying Party shall employ separate counsel at the expense of such
Indemnifying Party, it being understood, however, that such Indemnifying Party
shall not, in connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys at any
time for such Indemnified Party and any other Indemnified Parties). No
Indemnifying Party shall be liable for any settlement of any such action or
proceeding effected without its written consent (which shall not be withheld
unreasonably), but if settled with its written consent, or if there be a final
judgment for the plaintiff in any such action or proceeding, such Indemnifying
Party agrees to indemnify and hold harmless such Indemnified Party from and
against any Liabilities by reason of such settlement or judgment. No
Indemnifying Party shall agree to any settlement of any third party claim
without the consent of the Indemnified Party, which shall not be withheld if
such settlement provides only for the payment of money to be paid by the
Indemnifying Party.
ARTICLE 9.
MISCELLANEOUS
9.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All of the representations and warranties made herein shall survive the
Closing.
22
9.2. NOTICES.
All notices, demands and other communications provided for or permitted
hereunder shall be made in writing and shall be by registered or certified
first-class mail, return receipt requested, courier service or personal delivery
or via facsimile:
(a) if to the Purchaser:
US WEST Communications, Inc.
0000 Xxxxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx Xxxx
with copies to:
US WEST Communications, Inc.
0000 Xxxxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
Attention: Law Department, Strategic Transactions
Group
Xxxxxxxxxx Hyatt Xxxxxx & Xxxxxxxxxx, P.C.
000 Xxxxxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
Attention: Xxxx X. Xxxxxxx, Esq.
(b) if to the Company:
USinternetworking, Inc.
000 Xxxxxxx Xxxxxxxx Xxxxx
Xxxxx 000
Xxxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxxxxxx X. XxXxxxxx
with a copy to:
Xxxxxx & Xxxxxxx
0000 Xxxxxxxxxxxx Xxxxxx, X.X.
Xxxxx 0000
Xxxxxxxxxx, X.X. 00000-0000
Attention: Xxxxx X. Xxxxxx, Esq.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by
23
commercial overnight courier service; if delivered by facsimile, upon
confirmation of such transmission; and five business days after being deposited
in the mail, postage prepaid, if mailed.
9.3. SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding upon the
successors and permitted assigns of the parties hereto. This Agreement may be
assigned by the Purchaser to any permitted transferee of all or part of the
Preferred Shares or the Common Stock issued upon conversion thereof. The Company
may not assign any of its rights under this Agreement without the written
consent of the Purchaser. Except as provided in this Section 9.3, no Person
other than the parties hereto and their successors and permitted assigns is
intended to be a beneficiary of any of the Transaction Agreements.
9.4. AMENDMENT AND WAIVER.
(a) No failure or delay on the part of the Company or the Purchaser in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the Company or
the Purchaser at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any provision
of this Agreement, any waiver of any provision of this Agreement, and any
consent to any departure by any party from the terms of any provision of this
Agreement, shall be effective (i) only if it is made or given in writing and
signed by the Company (if applicable) and the Purchaser, and (ii) only in the
specific instance and for the specific purpose for which made or given. Except
where notice is specifically required by this Agreement, no notice to or demand
on any party in any case shall entitle any party hereto to any other or further
notice or demand in similar or other circumstances.
9.5. COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by the
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
9.6. HEADINGS.
The headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof.
9.7. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Maryland, without regard to the principles of conflicts of
law of such state.
24
9.8. ARBITRATION.
Any claim, controversy or dispute arising under this Agreement between the
parties, their employees, officers directors or affiliated agents (a "Dispute")
shall be resolved by arbitration conducted in Washington, D.C. by a single
arbitrator engaged in the practice of law and specializing in the applicable
areas of law under the then-current commercial arbitration rules of the American
Arbitration Association. The Federal Arbitration Act (and not state law) shall
govern the arbitrability of all Disputes. The arbitrator of any Dispute shall
have authority to award compensatory damages only. The arbitrator's award shall
be final and binding and may be enforced by any court having jurisdiction
thereof. Each party shall bear its own costs and attorneys' fees, and shall
share equally in the fees and expenses of the arbitrator. It is expressly agreed
that either party may seek injunctive relief in an appropriate court of law or
equity pending an award in arbitration.
9.9. SEVERABILITY.
If any one or more of the provisions contained herein, or the application
thereof in any circumstance, is held invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions hereof shall
not be in any way impaired, unless the provisions held invalid, illegal or
unenforceable shall substantially impair the benefits of the remaining
provisions hereof.
9.10. RULES OF CONSTRUCTION.
Unless the context otherwise requires, "or" is not exclusive, and
references to sections or subsections refer to sections or subsections of this
Agreement.
9.11. ENTIRE AGREEMENT.
This Agreement, together with the exhibits and schedules hereto and the
other Transaction Agreements, is intended by the parties as a final expression
of their agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein or
therein. This Agreement, together with the exhibits hereto, and the other
Transaction Agreements supersede all prior agreements and understandings between
the parties with respect to such subject matter.
9.12. PUBLICITY.
Except as may be required by applicable law, none of the parties hereto
shall issue a publicity release or announcement or otherwise make any public
disclosure concerning this Agreement or the transactions contemplated hereby,
without prior approval by the other parties hereto. If any announcement is
required by law to be made by any party hereto, prior to making such
announcement such party will deliver a draft of such announcement to the other
party and shall give the other party an opportunity to comment thereon.
Notwithstanding the foregoing,
25
the Purchaser shall have the right to approve all future disclosures by the
Company to Governmental Authorities, to the public or to existing or prospective
lenders or investors that refer to the Purchaser or to the Company's
relationship with the Purchaser, provided, HOWEVER, that this right shall not
prevent the Company from making any disclosures to any Governmental Authorities
or prospective lenders or investors that are required by applicable law, and any
objections to or comments on the Company's proposed disclosures must be
reasonable and made in good faith.
9.13. FURTHER ASSURANCES.
Each of the parties shall execute such documents and perform such further
acts (including, without limitation, obtaining any consents, exemptions,
authorizations, or other actions by, or giving any notices to, or making any
filings with, any Governmental Authority or any other Person) as may be
reasonably required or desirable to carry out or to perform the provisions of
this Agreement.
9.14. WAIVER OF JURY TRIAL.
EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS SECTION.
26
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized as
of the date first above written.
USINTERNETWORKING, INC.
By: [illegible]
--------------------------------
Name:
------------------------------
Title:
-----------------------------
US West COMMUNICATIONS, INC.
By: [illegible]
--------------------------------
Name:
------------------------------
Title:
-----------------------------
27
TABLE OF EXHIBITS AND SCHEDULES
EXHIBITS
EXHIBIT A FORM OF AMENDMENT TO SHAREHOLDERS AGREEMENT
EXHIBIT B FORM OF CERTIFICATE OF DESIGNATIONS, PREFERENCES AND OTHER
SPECIAL RIGHTS OF PREFERRED STOCK AND QUALIFICATIONS,
LIMITATIONS AND DESIGNATIONS THEREOF
EXHIBIT C FORM OF OPINION
AMENDMENT TO SHAREHOLDERS' AGREEMENT
This AMENDMENT, dated as of June ___, 1998 (the "Amendment") is made
and entered into between US West Communications, Inc., a Colorado corporation
("US WEST"), on the one hand, and, on the other hand, the parties to the
Shareholders' Agreement dated as of May 28, 1998 (the "Agreement") by and among
USinternetworking, Inc., a Delaware corporation (the "Company"), Blue Chip
Capital Fund II Limited Partnership, an Ohio limited partnership, Miami Valley
Venture Fund L.P., an Ohio limited partnership, Grotech Partners IV L.P., a
Delaware limited partnership, Grotech Partners V L.P., a Delaware limited
partnership, Southern Venture Fund SBIC, L.P., a Delaware limited partnership,
Southern Venture Fund II, L.P., a Delaware Limited Partnership, Venrock
Associates, a New York limited partnership, Venrock Associates II, L.P., a New
York limited partnership, USi Partners, Ltd., an Ohio limited liability company,
Xxxxxxxxxxx X. XxXxxxxx, Xxxxxxx X. XxXxxxx and Xxxxx X. Xxxxxx (collectively,
the "Shareholders"). Capitalized terms used and not defined herein have the
meaning assigned to such terms in the Agreement.
Section 1. ADDITION OF PARTY. By its signature below, US WEST agrees to
be bound by the provisions of the Agreement. The Company and the Shareholders
hereby agree to the addition of US WEST as a party to the Agreement, and agree
that US WEST shall have all the rights and obligations of an "Investor" and a
"Stockholder" thereunder to the full extent as though US WEST were an original
signatory to the Agreement.
Section 2. AMENDMENT TO SECTION 4. Section 4 of the Agreement is hereby
amended by adding the following at the end of subparagraph (A) of subsection (b)
thereof:
"provided, however, that US WEST shall have the right to designate one
member of the Board of Directors or, in the alternative at the option
of US WEST, to designate a representative to attend all meetings of the
Board of Directors and its committees as a non-voting observer."
Section 3. AMENDMENT TO SECTION 2. The Company and the Shareholders hereby
waive the provisions of Section 2 of the Agreement to the extent that such
provisions would apply to any transfer of Company Securities by US WEST or its
Affiliates to the extent that, and in the circumstances under which, the Company
has agreed to waive such provisions pursuant to Section 7.4(c) of the Stock
Purchase Agreement.
Section 4. REMAINING PROVISIONS. Except as expressly amended hereby, all
provisions of the Agreement shall remain in full force and effect.
* * * *
IN WITNESS WHEREOF, the parties have executed this Amendment to the
Shareholders' Agreement as of the date first above written.
THE COMPANY:
USINTERNETWORKING, INC.
a Delaware corporation
By:
-------------------------------------
Xxxxxxxxxxx X. XxXxxxxx,
Chairman and Chief Executive Officer
US WEST:
US WEST COMMUNICATIONS, INC.
By:
-------------------------------------
Title:
SHAREHOLDERS:
BLUE CHIP CAPITAL FUND II LIMITED
PARTNERSHIP
By: BLUE CHIP VENTURE COMPANY, LTD.
Its General Partner
By:
-------------------------------------
Xxxx X. Xxxxx
Manager
2
MIAMI VALLEY VENTURE FUND L.P.
By: BLUE CHIP VENTURE COMPANY OF
DAYTON, LTD.
Its Special Limited Partner
By:
-------------------------------------
Xxxx X. Xxxxx
Manager
GROTECH PARTNERS IV L.P.
By: GROTECH CAPITAL GROUP IV, LLC
Its General Partner
By:
-------------------------------------
Name:
Title:
GROTECH PARTNERS V L.P.
By: GROTECH CAPITAL GROUP V, LLC
Its General Partner
By:
-------------------------------------
Name:
Manager
SOUTHERN VENTURE FUND SBIC, L.P.
By: SVF SBIC, L.P.
Its General Partner
By:
-------------------------------------
Partner
3
SOUTHERN VENTURE FUND II, L.P.
By:
-------------------------------------
General Partner
VENROCK ASSOCIATES
By:
-------------------------------------
General Partner
VENROCK ASSOCIATES II, L.P.
By:
-------------------------------------
General Partner
USI PARTNERS, LTD.
By:
-------------------------------------
----------------------------------------
Xxxxxxxxxxx X. XxXxxxxx
----------------------------------------
Xxxxx XxXxxxx
----------------------------------------
Xxxxx X. Xxxxxx
4
PAGE 1
State of Delaware
Office of the Secretary of State
I, XXXXXX X. XXXXX, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "USINTERNETWORKING, INC.", FILED IN THIS OFFICE ON THE
TWENTY-SEVENTH DAY OF MAY, A.D. 1998, AT 5 O'CLOCK P.M.
[SEAL] /s/ Xxxxxx X. Xxxxx
------------------------------------
Xxxxxx X. Xxxxx, Secretary of State
2846066 8100 AUTHENTICATION: 9208258
981282781
DATE: 07-21-98
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL AND
OTHER SPECIAL RIGHTS OF PREFERRED
STOCK AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS THEREOF
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
USINTERNETWORKING, INC.
-----------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
-----------------------
USinternetworking Inc., a Delaware corporation (the "Corporation")
certifies that pursuant to the authority contained in Article 4 of its Restated
and Amended Certificate of Incorporation (the "Certificate of Incorporation")
and in accordance with the provisions of Section 151 of the General Corporation
Law of the State of Delaware, the Board of Directors of the Corporation at a
meeting duly called and held on May 26, 1998 adopted the following resolution,
which resolution remains in full force and effect on the date hereof:
RESOLVED, that there is hereby established a series of authorized
preferred stock having a par value of $.01 per share, which sales shall be
designated as "Series A Convertible Preferred Stock" (the "Series A Preferred
Stock"), shall consist of 60,000 shares and shall have the following voting
powers, preferences and relative, participating, optional and other special
rights, and qualifications, limitations and restrictions thereof as follows:
1. CERTAIN DEFINITIONS.
Unless the context otherwise requires, the terms defined in this
Section 1 shall have, for all purposes of this resolution, the meanings herein
specified (with terms defined in the singular having comparable meanings when
used in the plural).
BUDGET. The term "Budget" means a fiscal year operating budget, which
shall include monthly capital and operating expense budgets, cash flow
statements, capital expenditure budgets, profit and loss projections and
employee hiring projections approved by the Executive Committee of the
Corporation's Board of Directors.
BUSINESS. The term "Business" means to acquisition of interests in, and
the operation of, companies engaged in activities related to the provision of
internet computing services to enterprise customers worldwide, and all services
related thereto.
BUSINESS DAY. The term "Business Day" shall mean a day other than a
Saturday or Sunday or any federal holiday.
COMMON EQUITY. The term "Common Equity" shall mean all shares now or
hereafter authorized of any class of common stock of the Corporation, including
the Common Stock, and any other stock of the Corporation, howsoever designated,
authorized after the Initial Issue Date, which has the right (subject always to
prior rights of any class or series of preferred stock) to participate into
distribution of the assets and earnings of to Corporation without limit as to
per share amount.
COMMON STOCK. The term "Common Stock" shall mean the common stock, par
value $.001 per share, of the Corporation.
CONVERSION DATE. The term "Conversion Date" shall have the meaning set
forth in Subsection 4(b) below.
CONVERSION PRICE. The term "Conversion Price" shall initially mean
$0.33 and thereafter shall be subject to adjustment from time to time pursuant
to the terms of Section 4 below.
DIVIDEND PAYMENT DATE. The term "Dividend Payment Date" shall have the
meaning set forth in Subsection 2(c) below.
EMPLOYEE STOCK OPTION PLAN. The term "Employee Stock Option Plan" shall
mean an employee stock option plan adopted by the Compensation Committee of the
Board of Directors of the Company providing for the issuance to certain
employees of the Company of options to purchase a certain number of shares of
Common Stock at a certain exercise price per share; the total number of shares
of Common Stock which may be issued under such plan shall not exceed 6.5% of the
total number of outstanding shares of common stock calculated on a fully diluted
basis, not including the options and shares issuable or issued on exercise of
options pursuant to the Employee Stock Option Plan.
INITIAL ISSUE DATE. The term "Initial Issue Date" shall mean the date
that shares of Series A Preferred Stock are first issued by the Corporation.
2
IPO. The term "IPO" shall mean an initial public offering of the
Corporation's Common Stock in which the net proceeds are not less than
$30,000,000 and the price to the public is not less than $1.33 per share of
Common Stock as currently constituted.
JUNIOR STOCK. The term "Junior Stock" shall mean, for purposes of
Section 2 below, Common Equity and any class or series of stock of the
Corporation authorized after the Initial Issue Date which is not entitled to
receive any dividends unless all dividends required to have been paid or
declared and set apart for payment on the Series A Preferred Stock shall have
been so paid or declared and set apart for payment, and for purposes of Section
3 below, shall mean Common Equity and any class or series of stock of the
Corporation authorized after the Initial Issue Date which is not entitled to
receive any assets upon a Liquidation Preference Occurrence (as defined below)
until the Series A Preferred Stock shall have received the entire amount to
which such stock is entitled upon such Liquidation Preference Occurrence.
LIQUIDATION PREFERENCE. The term "Liquidation Preference" shall mean
$600 per share of Series A Preferred Stock.
LIQUIDATION PREFERENCE OCCURRENCE. The term "Liquidation Preference
Occurrence" shall mean the liquidation, dissolution, winding up of the affairs
of the Corporation, the sale of all or substantially all of the assets of the
Corporation, or the sale of 100% of the issued and outstanding shares of Common
Stock for cash or marketable securities, or a merger or consolidation with the
same effect as any of the foregoing.
PARITY STOCK. The term "Parity Stock" shall mean, for purposes of
Section 2 below, any class or series of stock of the Corporation authorized
after the Initial Issue Date which is entitled to receive payment of dividends
on a parity with the Series A Preferred Stock, and for purposes of Section 3
below, shall mean any class or series of stock of the Corporation authorized
after the Initial Issue Date which is entitled to receive assets upon
Liquidation Preference Occurrences on a parity with the Series A Preferred
Stock.
PIK QUOTED PRICE. The term "PIK Quoted Price" shall have the meaning
set forth in Subsection (2)(b) below.
PIK DIVIDENDS. The term "PIK Dividends" shall have the meaning set
forth in Subsection (2)(b) below.
QUOTED PRICE. The term "Quoted Price" with respect to either the Common
Stock or Series A Preferred Stock, shall mean the last reported sales price of
the applicable security as reported by the National Association of Securities
Dealers, Inc., Automatic Quotations System, National Market System, or if the
applicable security is listed or admitted for trading on a
3
securities exchange, the last reported sales price of the applicable security on
the principle exchange on which the applicable security is listed or admitted
for trading (which shall be consolidated trading if applicable to such
exchange), or if neither so reported or listed or admitted for trading, the last
reported bid price of the applicable security in the over-the-counter market or
the Conversion Price. In the event that the Quoted Price cannot be determined as
aforesaid, the Board of Directors of the Corporation shall determine the Quoted
Price in such a manner as it in good faith considers appropriate. Such
determination may be challenged in good faith by a majority of holders of shares
of Series A Preferred Stock, and any dispute shall be resolved at the
Corporation's cost, by an investment banking firm of recognized national
standing selected by the Corporation and acceptable to such holders of Series A
Preferred Stock and shall be made in good faith and be conclusive absent
manifest error.
RECORD DATE. The term "Record Date" shall mean the date designated by
the Board of Directors of the Corporation at the time a dividend is declared for
the purpose of establishing which holders of record are entitled to receive
payment thereof; provided, however, that such Record Date shall not be more than
thirty (30) days nor less than ten (10) days prior to respective Dividend
Payment Date or such other date designated by the Board of Directors for the
payment of dividends.
SENIOR STOCK. The term "Senior Stock" shall mean, for purposes of
Section 2 below, any class or series of stock of the Corporation authorized
after the Initial Issue Date ranking senior to the Series A Preferred Stock in
respect of the right to receive dividends, and for purposes of Section 3 below,
shall mean any class or series of stock of the Corporation authorized after the
Initial Issue Date racking senior to the Series A Preferred Stock in respect of
the right to receive dividend or to participate in any distribution upon any
Liquidation Preference Occurrence.
TRADING DAY. The term "Trading Day" with respect to either the Common
Stock or Series A Preferred Stock, shall mean any day on which any market in
which the applicable security is then traded and in which a Quoted Price may be
ascertained is open for business.
2. DIVIDENDS.
(a) Subject to the prior preferences and other rights of any Senior
Stock as to dividends, the record holder of each share of Series A Preferred
Stock shall be entitled to receive dividends quarterly on the first day of each
calendar quarter, commencing January 1,2000 (each, a "Dividend Payment Date"),
with respect to the prior calendar quarter. Notwithstanding the foregoing, any
accrued but unpaid dividend including any dividend applicable to the pro rata
portion of the then-current dividend period, shall be paid upon the earlier of
(i) to consummation of an IP0 and (ii) the conversion of such share of Series A
Preferred Stock. In any case, dividends shall be paid only to the extent that
funds are legally available for payment of dividends. Such
4
dividends shall be payable at the rate of eight percent (8%) per annum of the
Liquidation Preference.
(b) Dividends on the Series A Preferred Stock shall be paid in cash, or
at the option of the Corporation, unless such dividend is payable upon
consummation of an IP0 or conversion of the Series A Preferred Stock and at such
time sufficient funds are legally available for payment of such dividends, in
substitute in whole or in part for such cash, in additional fully paid and
nonassessable shares of Series A Preferred Stock legally available for such
purpose (such dividends paid in kind being herein called "PIK Dividends").
Dividends of additional shares of Series A Preferred Stock shall be paid by
delivering to the record holders of Series A Preferred Stock a number of shares
of Series A Preferred Stock determined by dividing the total amount of the cash
dividend which otherwise would be payable on the Dividend Payment Date to such
holders (rounded to the nearest whole cent) by the average Quoted Price per
share of the Series A Preferred Stock for the thirty (30) Trading Days
immediately preceding the date on which such PIK Dividends were accrued ("PIK
Quoted Price"). The issuance of any such PIK Dividend in such amount shall
constitute full payment of such dividend. The Corporation shall not issue
fractional shares of Series A Preferred Stock to which holders may become
entitle pursuant to the subsection, but in lieu thereof, the Corporation shall
deliver its check in an amount equal to the applicable fraction of the PIK
Quoted Price. In no event shall the election by the Corporation to pay
dividends, in whole or in part, in cash or in additional shares of Series A
Preferred Stock preclude the Corporation from making a different election with
respect to all or a portion of the dividends to be paid on the Series A
Preferred Stock on any subsequent Dividend Payment Date. Any additional shares
of Series A Preferred Stock issued pursuant to this section shall be governed by
this Certificate and shall be subject in all respects, expect as to the date of
issuance and date from which dividends accrue and cumulate as set forth below,
to the same terms as the shares of Series A Preferred Stock originally issued
hereunder. All dividends (whether payable in cash or in whole or in part in
additional shares of Series A Preferred Stock) paid pursuant to this section
shall be paid in equal pro rata proportions of such cash and/or shares of Series
A Preferred Stock to the holders entitled thereto, except with respect to cash
payable in lieu of fractional shares which would otherwise be paid as PIK
Dividends.
(c) Dividends on shares of Series A Preferred Stock shall accrue
quarterly on the first day of each calendar quarter for the prior calendar
quarter and be cumulative from the date of issuance of such shares, whether or
not funds for the payment of such dividends are legally available.
(d) So long as any shares of Series A Preferred Stock shall be
outstanding, the Corporation shall declare, pay or set apart for payment on any
Junior Stock any dividends whatsoever, whether in cash, property or otherwise
(other than dividends payable in shares of the class or series upon which such
dividends are declared or paid, or payable in shares of Common Stock with
respect to Junior Stock other than Common Stock, together with cash in lieu of
5
fractional shares), nor shall the Corporation make any distribution on any
Junior Stock, nor shall any Junior Stock be purchased, redeemed or otherwise
acquired by the Corporation or any of its subsidiaries of which it owns not less
than a majority of the outstanding voting power, nor shall any moneys be paid or
made available for a sinking fund for the purchase or redemption of any Junior
Stock, unless all dividends to which the holders of Series A Preferred Stock
shall have been entitled for all previous periods shall have been paid or
declared and a sum of money sufficient for the payment thereof has been set
apart.
(e) In the event that full dividends are not paid or made available to
the holder of all outstanding shares of Series A Preferred Stock and of any
Parity Stock and funds available for payment of dividends shall be insufficient
to permit payment in full to holders of all such stock of the full preferential
amounts to which they are then entitled, then the entire amount available for
payment of dividends shall be distributed ratably among all such holders of
Series A Preferred Stock in proportion to the full amount to which they would
otherwise be respectively entitle. For purposes of this subsection, the amount
of legally available PIK Dividends shall be deemed funds available for payment
of dividends but shall not require payment of PIK Dividends on Parity Stock.
(f) Notwithstanding anything contained herein to the contrary, no
dividends on shares of Series A Preferred Stock shall be declared by the Board
of Directors of the Corporation or paid or set apart for payment by the
Corporation at such time as the terms and provisions of any agreement of the
Corporation relating to its funded indebtedness prohibits such declaration,
payment or setting apart for payment or provides that such declaration, payment
or setting apart for payment would constitute a breach thereof or a default
thereunder, or if such declaration or payment shall be restricted or prohibited
by law.
3. DISTRIBUTIONS UPON LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) In the event of any voluntary or involuntary Liquidation Preference
Occurrence, subject to the prior preferences and other rights of any Senior
Stock as to liquidation preferences, but before any payment or distribution
shall be made to the holders of Junior Stock, the holders of Series A Preferred
Stock shall be entitled to be paid out of the assets of the Corporation in cash
Liquidation Preference per share plus an amount equal to all dividends accrued
and unpaid thereon to the date of such Liquidation Preference Occurrence Except
as provided in this section and Section 3(b) below, holders of Series A
Preferred Stock shall not be entitled to any other distribution in the event of
a Liquidation Preference Occurrence.
(b) In addition to any amounts distributed or distributable to the
holders of shares of the Series A Preferred Stock pursuant to Section 3(a)
above, if upon a Liquidation Preference Occurrence, the Corporation's Net Equity
Value (as defined below) as of the date of such Liquidation Preference
Occurrence is less than the Trigger Amount (as defined below) (the "Additional
Preference Event"), holders of Series A Preferred Stock will be entitled to
receive an
6
additional amount (the "Additional Per Share Preference") per share of Series A
Preferred Stock determined in accordance with the following formula:
EDA
---------
OCS + CPS
"EDA" means (x) the Distribution Amount, minus (y) the aggregate amount
required to be distributed to the holders of all outstanding shares of Series A
Preferred Stock pursuant to Section 3(a) above.
"Distribution Amount" means the aggregate amount of cash and the fair
market value of property (as determined by the Board of Directors) of the
Corporation available for distribution to all stockholders of the Corporation on
the date of a Liquidation Preference Occurrence.
"OCS" means the number of shares of Common Stock issued and outstanding
as of such Liquidation Preference Occurrence.
"CPS" means the number of shares of Common Stock which would be
issuable upon conversion of all of the issued and outstanding shares of Series A
Preferred Stock as of the date of such Liquidation Preference Occurrence.
"Enterprise Value" means the fair market value of the assets of the
Corporation without consideration to any obligations of the Corporation. For
purposes of this definition, Enterprise Value shall be as determined by the
Board of Directors; provided, however, that if the holders of a majority of the
Common Stock or Series A Preferred Stock object to the fair market value
determination, the Enterprise Value shall be determined by an investment banking
firm of nationally recognized standing selected by and agreeable to both the
Board of Directors and the holders of a majority of the Common Stock or the
Series A Preferred Stock and such determination shall be conclusive; provided,
further, that if the Board of Directors and the holders of a majority of the
Common Stock or Series A Preferred Stock cannot agree on an investment banking
firm, then each shall select an investment banking firm and these two firms
shall select an investment banking firm of nationally recognized standing to
determine Enterprise Value and the determination of such investment banking firm
shall be conclusive.
"Net Equity Value" means the Enterprise Value of the Corporation less
Debt (as defined).
"Debt" means the aggregate principal amount of all outstanding
indebtedness of the Corporation and its consolidated subsidiaries as of the date
of such Liquidation Preference Occurrence.
7
"Trigger Amount" means, on any date, that Net Equity Value of the
Corporation that, assuming conversion of all of the Series A Preferred Stock,
would upon liquidation of the Corporation on such date (without application of
the provisions of this section 3(b)) return to the holders of Series A Preferred
Stock an amount equal to five times the amount originally paid to the Company
for such stock in connection with its original issuance or issuances.
(c) If, upon any such Liquidation Preference Occurrence, the assets of
the Corporation shall be insufficient to permit the payment in full of the
Liquidation Preference per share plus an amount equal to all dividends accrued
and unpaid on the Series A Preferred Stock and/or the Additional Per Share
Preference if there is an Additional Preference Event and the full liquidating
payments on all Parity Stock, then the assets of the Corporation remaining after
the distributions to holders of any Senior Stock of the full amounts to which
they may be entitled shall be ratably distributed among the holders of Series A
Preferred Stock and of any Parity Stock in proportion to the full amounts to
which they would otherwise be respectively entitled if all amounts thereon were
paid in full provided; however, that holders of Series A Preferred Stock shall
not be entitled to receive the Additional Per Share Preference and such
Additional Per Share Preference shall not be considered in the calculation of
the amounts to which they would be entitled to receive.
(d) All shares of Series A Preferred Stock for which payments have been
made under this Section 3 shall be retired and shall be restored to the status
of authorized and unissued shares of preferred stock, without designation as to
series and may thereafter be reissued as shares of any series of preferred stock
other than Series A Preferred Stock.
4. CONVERSION RIGHTS.
(a) A holder of shares of Series A Preferred Stock may convert such
shares into Common Stock at any time. Series A Preferred Stock will convert
automatically upon consummation of an IPO. For the purposes of conversion, each
share of Series A Preferred Stock shall be valued at the Liquidation Preference,
which shall be divided by the Conversion Price in effect on the Conversion Date
to determine the number of shares issuable upon conversion. Immediately
following such conversion, the rights of the holders of converted Series A
Preferred Stock (other than the right to receive accrued and unpaid dividends on
such conversion as provided herein) shall cease and the persons entitled to
receive the Common Stock upon the conversion of Series A Preferred Stock shall
be treated for all purposes as having become the owners of such Common Stock.
(b) To convert Series A Preferred Stock, a holder must (i) surrender
the certificate or certificates evidencing the shares of Series A Preferred
Stock to be converted, duly endorsed in a form satisfactory to the Corporation,
at the office of the Corporation or transfer agent for the Series A Preferred
Stock, (ii) notify the Corporation at such office that he elects to
8
convert Series A Preferred Stock, and the number of shares he wishes to convert,
and (iii) state in writing the name or names in which he wishes the certificate
or certificates for shares of Common Stock to be issued. In the event that a
holder fails to notify the Corporation of the number of shares of Series A
Preferred Stock which he wishes to convert, he shall be deemed to have elected
to convert all shares represented by the certificate or certificates surrendered
for conversion. The date on which the holder satisfies all those requirements is
the "Conversion Date." As soon as practical, the Corporation shall deliver a
certificate for the number of full shares of Common Stock issuable upon the
conversion of The shares of Series A Preferred Stock represented by the
certificate or certificates surrendered for conversion. The person in whose name
the Common Stock certificate is registered shall be treated as the stockholder
of record on and alter the Conversion Date. However, dividends will be paid on
any Dividend Payment Date with respect to Series A Stock surrendered for
conversion after a record date for the payment of a dividend to the registered
holder of Series A Preferred Stock on such record date. If the last day on which
Series A Preferred Stock may be converted is a Legal Holiday in a place where
the Corporation or the transfer agent is located, Series Preferred Stock may be
surrendered for conversion on the next succeeding day that is not a Legal
Holiday.
(c) The Corporation will not issue a fractional share of Common Stock
upon conversion of Series A Preferred Stock. Instead, the Corporation will
deliver its check for the current market value of the fractional share. The
current market value of a fraction of a share is determined as follows: Multiply
the current market price of a full share by the fraction. Round the result to
the nearest cent. The current market price of a share of Common Stock is the
Quoted Price of the Common Stock on the last Trading Day prior to the Conversion
Date.
(d) If a holder converts shares of Series A Preferred Stock, the
Corporation shall pay any documentary, stamp or similar issue or transfer tax
due on the issue of shares of Common Stock upon the conversion. However, the
holder shall pay any such tax which is due because the shares are issued in a
name other than the holder's name.
(e) The Corporation has reserved and shall continue to reserve out of
its authorized but unissued Common Stock or its Common Stock held in treasury
enough shares of Common Stock to permit the conversion of the Series A Preferred
Stock in full. All shares of Common Stock which may be issued upon conversion of
Series A Preferred Stock shall be fully paid and nonassessable. The Corporation
will endeavor to comply with all securities laws regulating the offer and
delivery of shares of Common Stock upon conversion of Series A Preferred Stock
and will endeavor to list such shares on each national securities exchange on
which the Common Stock is listed.
9
(f) If the Corporation:
(i) pays a dividend or makes a distribution on its Common Stock
in shares of its Common Stock;
(ii) subdivides its outstanding shares of Common Stock into a
greater number of shares;
(iii) combines its outstanding shares of Common Stock into a
smaller number of shares; or
(iv) issues by reclassification of its Common Stock any shares of
its capital stock;
then the Conversion Price in effect immediately prior to such action shall be
adjusted so that the holder of Series A Preferred Stock thereafter converted may
receive the number of shares of capital stock of the Corporation which he would
have owned immediately following such action if he had converted Series A
Preferred Stock immediately prior to such action. The adjustment shall become
effective immediately after the record date in the case of dividend or
distribution and immediately after the effective date of a subdivision,
combination or reclassification. Such adjustment shall be made successively
whenever any event listed above shall occur. If, after an adjustment referred to
in clauses (i) through (iv) above, a holder of Series A Preferred Stock upon
conversion of it may receive shares of two or more classes of capital stock of
the Corporation, the Corporation shall determine the allocation of the adjusted
Conversion Price between the classes of capital stock. After such allocation,
the Conversion Price of each class of capital stock shall thereafter be subject
to adjustment on terms comparable to those applicable to Common Stock in this
Subsection (f).
(g) If the Corporation distributes any rights or warrants to all
holders of in Common Stock entitling them for a period expiring within sixty
(60) days after the record date mentioned below to purchase shares of Common
Stock at a price per share less than the current market price per share on that
record date, the Conversion Price shall be adjusted in accordance with the
formula:
N x P
-----
O + M
-----
C1 = C x O + N
where:
C' = the adjusted Conversion Price.
C = the then current Conversion Price.
10
O = the number of shares of Common Stock outstanding on the
record date, calculated on a fully diluted basis.
N = the number of additional shares of Common Stock offered.
P = the offering price per share of the additional shares of
Common Stock.
M = the current market price per share of Common Stock on the
record date.
The adjustment shall be made successively whenever any such rights or warrants
are issued and shall become effective immediately after the record date for the
determination of stockholders entitled to receive the rights or warrants. If at
the end of the period during which such warrants or rights are exercisable, not
all warrants or rights shall have been exercised, the Conversion Price shall be
immediately readjusted to what it would have been if "N" in the above formula
had been the number of shares actually issued.
(h) If the Corporation distributes to all holders of shares of its
Common Stock (i) any shares of any class of capital stock of the Corporation
other than its Common Stock, (ii) any evidence of indebtedness of the
Corporation or any subsidiary of the Corporation, (iii) any other assets of the
Corporation, or (iv) any rights, options or warrants to acquire any of the
foregoing (other than rights, options or warrants referred to in Subsection 4(g)
above), the Conversion Price shall be adjusted in accordance with the formula:
C1 = C x M - F / M
where:
C1 = the adjusted Conversion Price.
C = the then current Conversion Price.
M = the current market price per share of Common Stock on the
record date mentioned below.
F = the fair market value on the record date of the capital
stock, indebtedness, rights, options or warrants applicable
to one share of Common Stock. The Board of Directors of the
Corporation shall determine the fair market value.
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders added to receive the distribution.
(i) If the Corporation issues shares of Common Stock for a
consideration per share less than the current market price per share on
the date the
-11-
Corporation fixes the offering price of such additional shares, the Conversion
Price shall be adjusted in accordance with the formula:
C1 = C * O + ((P / M) / A)
where:
C1 = the adjusted Conversion Price.
C = the then current Conversion Price.
0 = the number of shares outstanding immediately prior to the
issuance of such additional shares.
P = the aggregate consideration received for the issuance of
such additional shares.
M = the current market price per share on the date of issuance
of such additional shares.
A = the number of shares outstanding immediately after the
issuance of such additional shares, calculated on a fully
diluted basis.
The adjustment shall be made successively whenever any such issuance is
made, and shall become effective immediately after such issuance. This
Subsection 4(i) does not apply to (i) any transaction or issuance described in
Subsection 4(g) or 4(h) above or Subsection 4(j) below, (ii) the conversion of
Series A Preferred Stock, or the conversion, exchange or exercise of other
securities convertible into or exchangeable or exercisable for Common Stock,
(iii) Common Stock issued to the Corporation's employees under bona fide
employee benefit plans adopted by the Board of Directors of the Corporation and
approved by the holders of Common Stock when required by law, if such Common
Stock would otherwise by covered by this Subsection 4(i) (but only to the extent
that the aggregate number of shares excluded hereby (together with the aggregate
number of shares issuable upon conversion, exchange or exercise of the
securities excluded by clause (iii) of Subsection 4(j) below) and issued after
the Initial Issue Date shall not exceed 5% of the Common Stock outstanding at
the lime of my such issuance), (iv) Common Stock issued to acquire, or in the
acquisition of, all or any portion of a business as a going concern, in an
arm's-length transaction between the Corporation and an unaffiliated third
party, whether such acquisition shall be effected by purchase of assets,
exchange of securities, merger, consolidation or otherwise, or (v) Common Stock
issued in a bona fide public offering pursuant to a firm commitment
underwriting.
(j) If the Corporation issues any options, warrants or other securities
convertible into or exchangeable or exercisable for Common Stock (other than
Series A Preferred Stock or securities issued in transactions described in
Subsection 4(g) or 4(h) above) and for a
12
consideration per share of Common Stock initially deliverable upon conversion,
exchange or exercise of such securities less than the current market price per
share on the date of issuance of such securities, the Conversion Price shall be
adjusted in accordance with the formula:
C1 = C * ((O + (P / M)) / (O + (D))
where:
C1 = the adjusted Conversion Price
C = the then current Conversion Price.
0 = the number of shares outstanding immediately prior to the
issuance of such securities, calculated on a fully diluted
basis.
P = the aggregate consideration received for the issuance of
such securities.
M = the current market price per share on the date of issuance
of such securities.
D = the maximum number of shares deliverable upon conversion or
in exchange for or upon exercise of such securities at the
initial conversion, exchange or exercise rate.
The adjustment shall be made successively whenever any such issuance is
made, and shall become effective immediately after such issuance. If all of the
Common Stock deliverable upon conversion, exchange or exercise of such
securities has not been issued when such securities are no longer outstanding,
then the Conversion Price shall promptly be readjusted to the Conversion Price
which would then be in effect had the adjustment upon the issuance of such
securities been made on the basis of the actual number of shares of Common Stock
issued upon conversion, exchange or exercise of such securities. This Subsection
4(j) does not apply to (i) the issuance of any such securities to acquire, or in
the acquisition of all or any portion of a business as a going concern, in an
arm's-length transaction between the Corporation and an unaffiliated third
party, whether such acquisition shall be effected by purchase of assets,
exchange of securities, merger, consolidation or otherwise, (ii) the issuance of
any such securities in a bona fide public offering pursuant to a firm commitment
underwriting, or (iii) the issuance of any such securities to the Corporation's
employees under honk fide employee benefit plans adopted by the Board of
Directors of the Corporation and approved by the holders of Common Stock when
required by law, if such securities would otherwise by covered by this
Subsection 4(j) (but only to the extent that the aggregate number of shares
issuable upon the conversion, exchange or exercise of the aggregate number of
securities excluded hereby (together with the aggregate number of shares
excluded by clause (iii) of Subsection 4(i) above) and issued after the
13
Initial Issue Date shall not exceed 5% of the Common Stock outstanding at the
time of any such issuance).
(k) In Subsections 4(g), 4(h), 4(1) and 4(j) above, the current market
price per share of Common Stock on any date is the average of the Quoted Prices
for thirty (30) consecutive Trading Days commencing Forty-Five (45) Trading Days
before the date in question.
(l) For purposes of any computation respecting consideration received
pursuant to Subsections 4(1) and 4(j) above, the following shall apply:
(i) in case of the issuance of shares of Common Stock for cash,
the consideration shall be the net amount of such cash received by the
Corporation, after deducting all commissions, discounts or other
expenses incurred by the Corporation for any underwriting of the issue
or otherwise in connection therewith;
(ii) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair marks value thereof as
determined by the Board of Directors of the Corporation (irrespective
of the accounting treatment thereof); and
(iii) in the case of the issuance of options, warrants or other
securities convertible into or exchangeable or exercisable for shares,
the aggregate consideration received therefor shall be deemed to be the
consideration received by the Corporation for the issuance of such
options, warrants or other securities plus the additional minimum
consideration, if any, to be received by the Corporation upon the
conversion or exchange or exercise thereof (the consideration in each
case to be determined in the same inner as provided in clauses (i) and
(ii) of this Subsection 4(1)).
(m) No adjustment in the Conversion Price need be made unless the
adjustment would require an increase or decrease oft least 1% in the Conversion
Price. Any adjustments that are not made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 4
shall be made to the nearest cent or to the nearest 1/100th of a share, as the
case may be.
(n) No adjustment in the Conversion Price need be made under this
Section 4 for (i) rights to purchase Common Stock pursuant to a Corporation plan
for reinvestment of dividends or interest, or (ii) any change in the par value
or no per value of the Common Stock, and in no event shall any adjustment made
under this Section 4 reduce the Conversion Price below the par value of the
Common Stock. If an adjustment is made to the Conversion Price upon the
establishment of a record date for a distribution subject to Subsections 4(g) or
4(h)
14
above and if such distribution is subsequently canceled, the Conversion Price
then in effect shall be readjusted, effective as of the date when the Board of
Directors of the Corporation determines to cancel such distribution, to the
Conversion Price which would have been in effect if such record date had not
been fixed. No adjustment in the Conversion Price need be made under Subsections
4(g) and 4(h) above if the Corporation issues or distributes to each holder of
Series A Preferred Stock the shares of Common Stock, evidences of indebtedness,
assets, rights, options or warrants referred to in those subsections which each
holder would have been entitled to receive had Series A Preferred Stock been
converted into Common Stock prior to the happening of such event or the record
date with respect thereto.
(o) Whenever the Conversion Price is adjusted, the Corporation shall
promptly mail to holders of Series A Preferred Stock, first class, postage
prepaid, a notice of the adjustment. The Corporation shall file with the
transfer agent if any, for Series A Preferred Stock a certificate from the
Corporation's independent public accountants briefly stating the facts requiring
the adjustment and the manner of computing it. Subject to Subsection 4(t) below,
the certificate shall be conclusive evidence that the adjustment is correct.
(p) The Corporation from time to time may reduce the Conversion Price
by any amount for any period of time if the period is at least twenty (20)
Business Days and if the reduction is irrevocable during the period, but in no
event may the Conversion Price be less than the par value of a share of Common
Stock. Whenever the Conversion Price is reduced, the Corporation shall mail to
holders of Series A Preferred Stock a notice of the reduction. The Corporation
shall mail, first class, postage prepaid, the notice at least 15 days before the
date the reduced conversion price takes effect. The notice shall state the
reduced conversion price and the period it will be in effect. A reduction of the
Conversion Price does not change or adjust the Conversion Price otherwise in
effect for purposes of Subsections 4(f), 4(g), 4(h), 4(i) and 4(j) above.
(q) If:
(i) the Corporation takes any action which would require an
adjustment in the Conversion Price pursuant to Subsection 4(g) or 4(h)
above, or clause (iv) of Subsection 4(1) above;
(ii) the Corporation consolidates or merges with, or transfers all
or substantially all of its assets to, another corporation, and
stockholders of the Corporation must approve the transaction; or
(iii) there is a dissolution or liquidation of the Corporation:
a holder of Series A Preferred Stock may want to convert such stock into shares
of Common Stock prior to the record date for or the effective date of the
transaction so that he may receive the rights, warrants,
15
securities or assets which a holder of shares of Common Stock on that date may
receive. Therefore, the Corporation shall mail to such holders, first class,
postage prepaid, a notice stating the proposed record or effective date, as the
case may be. The Corporation shall mail the notice at least ten (10) days before
such date. Failure to mail the notice or any defect in it shall not affect the
validity of any ration referred to in clause (i), (ii) or (ii) of this
Subsection 4(q).
(r) If the Corporation is party to a merger which reclassifies or
changes its Common Stock, upon consummation of such transaction Series A
Preferred Stock shall automatically become convertible into the kind and amount
of securities, cash or other assets which the holder of Series A Preferred Stock
would have owned immediately after the consolidation, merger, transfer or lease
if such holder had converted Series A Preferred Stock immediately before the
effective date of the transaction, appropriate adjustment (as determined by the
Board of Directors of the Corporation) shall be made in the application of the
provisions herein set forth with respect to the rights and interests thereafter
of the holders of Series A Preferred Stock, to the end that the provisions set
forth herein (including provisions with respect to changes in and other
adjustment of the Conversion Price) shall thereafter be applicable, as nearly as
reasonably may be, in relation to any shares of stock or other securities or
property thereafter deliverable upon the conversion of Series A Preferred Stock.
If this Subsection 4(r) applies Subsection 4(f) does not apply.
(s) In any case in which this Section 4 shall require that an
adjustment as a result of any event become effective from and after a record
date, the Corporation may elect to defer until after the occurrence of such
event (i) the issuance to the holder of any shares of Series A Preferred Stock
convened after such record xxxx and before the occurrence of such event of the
additional shares of Common Stock issuable upon such conversion over and above
the shares issuable on the basis of the Conversion Price in effect immediately
prior to adjustment and (ii) a check for any remaining fractional shares of
Common Stock as provided in Subsection 4(c) above.
(t) Except as provided in the immediately following sentence, any
determination that the Corporation or its Board of Directors must make pursuant
to this Section 4 shall be conclusive. Whenever the Corporation or its Board of
Directors shall be required to make a determination under this Section 4, such
determination shall be made in good faith and may be challenged in good faith by
a majority of the holders of Series A Preferred Stock, and any dispute shall be
resolved, at the Corporation's expense, by an investment banking firm of
recognized national standing selected by the Corporation and acceptable to such
holders of Series A Preferred Stock.
(u) All shares of Series A Preferred Stock converted pursuant to this
Section 4 shall be retired and shall be restored to the status of authorized and
unissued shares of preferred stock, without designation as to series and may
thereafter be reissued as shares of any series of preferred stock other than
Series A Preferred Stock.
16
5. VOTING RIGHTS
(a) Except as otherwise provided by law or in Section 5(b) below, the
holders of record of shares of Series A Preferred Stock shall be entitled to
vote with the Common Stock as a single class as if their shares had been
converted to shares of Common Stock, giving the Series A Preferred Stockholders
the same voting rights as the holders of Common Stock.
(b) Without the consent of the holders of two-thirds of the outstanding
shares of Series A Preferred Stock, the Corporation shall not take, and shall
not permit any subsidiary to take, the following actions:
(1) fail to continue the Business as its principal line of
business or engage in any business other than the Business:
(2) amend or otherwise alter the Corporation's Certificate of
Incorporation or Bylaws in any respect that affects the rights of the Series A
Preferred Stock;
(3) enter into any transaction with any shareholder, director,
officer or affiliate, or any relative of any of the foregoing, other than on
terms which are (i) no less favorable to the Corporation than a similar
transaction with an unaffiliated third party and (ii) are approved by the
Executive Committee of the Corporation's Board of Directors after full
disclosure;
(4) be a party to any merger or consolidation or sell, lease,
transfer, exchange or otherwise transfer all or substantially all of its capital
stock or assets, or agree to do any of the foregoing except for the merger of a
subsidiary with another subsidiary or the Corporation;
(5) enter into any material transaction that is outside the
ordinary course of its business;
(6) effect or commence any voluntary dissolution or liquidation;
(7) establish any subsidiary other than a wholly owned subsidiary;
(8) directly or indirectly purchase, redeem or otherwise acquire
for value any of its outstanding capital stock other than as required by this
Certificate or the Certificate of Incorporation or, directly or indirectly
declare or pay any dividend or make any distribution on its capital stock;
except for dividends on the Series A Preferred Stock and dividends by
subsidiaries payable to the Corporation or to other subsidiaries;
17
(9) borrow or agree to borrow any funds, grant a security interest
in or lien, mortgage or other encumbrance on any of its assets or give any
guaranty of indebtedness or obligations of another, in any case in excess of One
Million Dollars ($1,000,000);
(10) buy all or substantially all of the stock or assets of any
person or any ongoing business or enter any agreement to do any of the
foregoing;
(11) grant any options exercisable for Common Stock or any other
shares of its capital stock to employees, officers, directors or independent
contractors of the Corporation or any of its subsidiaries or to any other
person; provided, however, that the Corporation may issue options granted
pursuant to the Employee Stock Option Plan (the "Permitted Options");
(12) issue or enter into any agreement providing for the issuance
(contingent or otherwise) of any shares of its capital stock or any other
securities, other than the Permitted Options or shares of subsidiaries issued to
the Corporation or to subsidiaries of the Corporation;
(13) make or agree to make capital expenditures for property,
plant or equipment in excess of the amount set forth in the then-current Budget;
or
(14) enter into or be a party to any lease providing for annual
rental payments in excess of the amount set forth in the then-current Budget
6. EXCLUSION OF OTHER RIGHTS.
Except as may otherwise be required by law, the shares of Series A
Preferred Stock shall not have any voting powers, preferences and relative,
participating, optional or other special rights, other than those specifically
set forth in this Certificate (as such Certificate may be amended from time to
time) and in the Certificate of Incorporation. The shares of Series A Preferred
Stock shall have no preemptive or subscription rights hereunder.
7. HEADINGS OF SUBDIVISIONS.
The headings of the various subdivisions hereof are for convenience of
reference only and shall not affect the interpretation of any of the provisions
hereof.
8. SEVERABILITY OF PROVISIONS.
If any voting powers, preferences and relative, participating, optional
and other special rights of the Series A Preferred Stock and qualifications,
limitations and restrictions
18
thereof set forth in this Certificate (as such Certificate may be amended from
time to time) is invalid, unlawful or incapable of being enforced by reason of
any rule of law or public policy, all other voting powers, preferences and
relative, participating, optional and other special rights of Series A Preferred
Stock and qualifications, limitations, and restrictions thereof set forth in
this Certificate (as so amended) which can be given effect without the invalid,
unlawful or unenforceable voting powers, preferences and relative,
participating, optional and other special rights of Series A Preferred Stock and
qualifications, limitations and restrictions thereof shall, nevertheless, remain
in full force and effect; and no voting powers, preferences and relative,
participating optional or other special rights of Series A Preferred Stock and
qualifications, limitations and restrictions thereof herein set forth shall be
deemed dependent upon any other such voting powers, preferences and relative,
participating, optional or other special rights of Series A Preferred Stock and
qualifications, limitations and restrictions thereof unless so expressed herein.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
duly executed by the undersigned and attested by the undersigned its secretary,
This 20 day Of May, 1998.
USINTERNETWORKING, INC.
By: /s/ Xxxxxxxxxxx X. XxXxxxxx
-------------------------------------
Name: Xxxxxxxxxxx X. XxXxxxxx
Title: Chief Executive Officer
ATTEST:
By: /s/ Xxxxxxx X. Xxxxx
----------------------------
Xxxxxxx X. Xxxxx, Secretary
19
[Letterhead of Xxxxxx & Xxxxxxx]
July 2, 1998
US WEST Communications, Inc.
0000 Xxxxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxx, XX 00000
Re: Stock Purchase Agreement, dated as of June 19, 1998 (the "Agreement")
by and among USinternetworking, Inc., a Delaware corporation, and US
WEST Communications, Inc. (the "Purchaser")
--------------------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to USinternetworking, Inc., a Delaware
corporation (the "Company"), in connection with the purchase by the Purchaser of
5,833.33 shares of Series A Convertible Preferred Stock, par value $.01 per
share, of the Company (the "Series A Preferred Stock") pursuant to the
Agreement. This opinion is rendered to you pursuant to Section 3.11 of the
Agreement. Capitalized terms defined in the Agreement, used herein, and not
otherwise defined herein shall have the meanings given them in the Agreement.
As such counsel, we have examined such matters of fact and questions of
law as we have considered appropriate for purposes of rendering the opinions
expressed below, except where a statement is qualified as to knowledge or
awareness, in which case we have made no or limited inquiry as specified below.
We have examined, among other things, the following:
[Letterhead of Xxxxxx & Xxxxxxx]
US WEST Communications, Inc.
July 2, 1998
Page 2
(a) The Agreement;
(b) The Shareholders' Agreement, as amended by the Amendment; and
(c) The certificate of incorporation of the Company, as amended
(including the Certificate of Designations, as amended,) and the Bylaws of the
Company (the "Governing Documents").
The documents described in subsections (a), (b) and (c) above are
referred to herein collectively as the "Documents."
In our examination, we have assumed the genuineness of all signatures
(other than those of officers of the Company on the Documents), the authenticity
of all documents submitted to us as originals, and the conformity to authentic
original documents of all documents submitted to us as copies.
We have been furnished with, and with your consent have relied upon,
certificates of officer(s) of the Company with respect to certain factual
matters. In addition, we have obtained and relied upon such certificates and
assurances from public officials as we have deemed necessary.
We are opining herein as to the effect on the subject transaction only
of the federal laws of the United States, the internal laws of the State of
Maryland, and the General Corporation Law of the State of Delaware, and we
express no opinion with respect to the applicability thereto, or the effect
thereon, of the laws of any other jurisdiction or, in the case of Delaware, any
other laws, or as to any matters of municipal law or the laws of any other local
agencies within any state.
Our opinions set forth in clauses (i) and (iii) of paragraph 4 below
are based upon our consideration of only those statutes, rules and regulations
which, in our experience, are normally applicable to stock purchase
transactions. Whenever a statement herein is qualified by "to the best of our
knowledge" or a similar phrase, it is intended to indicate that those attorneys
in this firm who have rendered legal services in connection with this stock
purchase transaction do not have current actual knowledge of the inaccuracy of
such statement. However, except as otherwise expressly indicated, we have not
undertaken any independent investigation to determine the accuracy of any such
statements, and no inference that we have any knowledge of any matters
pertaining to such statement should be drawn from our representation of the
Company.
[Letterhead of Xxxxxx & Xxxxxxx]
US WEST Communications, Inc.
July 2, 1998
Page 3
Subject to the foregoing and the other matters set forth herein, it is
our opinion that, as of the date hereof:
1. The Company has been duly incorporated and is validly existing and
in good standing under the laws of the State of Delaware with corporate power
and authority to own and lease its properties and to conduct its business and to
execute, deliver and perform its obligations under the Transaction Agreements.
Based solely on certificates from public officials, we confirm that the Company
is qualified to do business in the State of Maryland.
2. The execution, delivery and performance of the Transaction
Agreements by the Company have been duly authorized by all necessary corporate
action of the Company, and the Transaction Agreements have been duly executed
and delivered by the Company.
3. The Agreement constitutes a legally valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms.
4. The execution and delivery of the Transaction Agreements by the
Company and the performance of the obligations of the Company under the
Transaction Agreements do not: (i) violate any federal or Maryland statute, rule
or regulation applicable to the Company or the Delaware General Corporation Law;
(ii) violate the provisions of the Governing Documents or of any agreement to
which the Company is a party identified to us by an officer of the Company as
material to the Company's business; or (iii) to the best our knowledge, require
any consents, approvals, authorizations, registrations, declarations or filings
by the Company under any federal or Maryland statute, rule or regulation
applicable to the Company or the Delaware General Corporation Law. No opinion is
expressed in clauses (i) and (iii) of this paragraph 4 as to the application of
Section 548 of the federal Bankruptcy Code and comparable provisions of state
law or of any antifraud laws, antitrust or trade regulation laws.
5. The shares of Series A Preferred Stock to be issued pursuant to the
Agreement have been duly authorized and, when issued to and paid for by the
Purchaser in accordance with the terms of the Agreement, will be validly issued,
fully paid and non-assessable. The issuance of shares of Common Stock upon
conversion of the Preferred Shares. The shares of Common Stock to be issued upon
conversion of the Preferred Shares have been duly authorized and, when issued
upon conversion of the Preferred Stock in accordance with the terms of the
Preferred Stock, will be validly issued, fully paid and non-assessable.
6. The authorized capital stock of the Company consists of One Hundred
Fifty Million (150,000,000) shares of Common Stock, par value $0.001 per share,
and One
[Letterhead of Xxxxxx & Xxxxxxx]
US WEST Communications, Inc.
July 2, 1998
Page 4
Hundred Thousand (100,000) shares of preferred stock, par value $0.01 per share.
Based solely on our review of the Company's stock records, the Company's issued
and outstanding capital stock is as set forth on Exhibit A attached hereto.
The opinions expressed in paragraph 3 above are subject to the
following limitations, qualifications and exceptions:
(a) such opinions are subject to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting the rights
of creditors; and
(b) such opinions are subject to the exercise of judicial
discretion in accordance with general principles of equity.
To the extent that the obligations of the Company may be dependent upon
such matters, we assume for purposes of this opinion that: all parties to the
Transaction Agreements other than the Company are duly formed, validly existing
and in good standing under the laws of their respective jurisdictions of
formation; all parties to the Transaction Agreements other than the Company have
the requisite partnership power and authority to execute and deliver the
Transaction Agreements and to perform their respective obligations under the
Transaction Agreements; and the Transaction Agreements to which such parties
other than the Company are a party have been duly authorized, executed and
delivered by such parties and constitute their legally valid and binding
obligations, enforceable against them in accordance with their terms. We express
no opinion as to compliance by any parties to the Transaction Agreements with
any state or federal laws or regulations applicable to the subject transactions
because of the nature of their business.
This opinion is rendered only to you and is solely for your benefit in
connection with the transactions covered hereby. This opinion may not be relied
upon by you for any other purpose, or furnished to, quoted to or relied upon by
any other person, firm or corporation for any purpose. without our prior written
consent.
Very truly yours,
Exhibit A
See attached chart.
Shares of Capital Stock Issued and Outstanding
Holders of Series A Preferred Stock
Shares of Series A Convertible Preferred Stock
Holders Issued by the Company To Each Holder
--------------------------------------------------------------------------------
Blue Chip Capital Fund II 11,458.33
Limited Partnership
Miami Valley Venture Fund L.P. 1,875.00
Grotech Partners IV, and 16,666.67
Grotech Partners V, L.P.
Southern Venture Fund 5610, L.P. 3,333.33
Southern Venture Fund, II, L.P. 1,666.67
Venrock Associates 3,583.33
Venrock Associates II, L.P. 4,750.00
XxXxxxxx Technology Capital 1,666.67
USi Partners, Ltd. 1,166.67
US WEST Communications, Inc. 5,833.33
--------
Total 52,000.00
HOLDERS OF COMMON STOCK
-----------------------
Number of Shares of Common Stock Issued by the
Holders Company
--------------------------------------------------------------------------------
Xxxxxxxxxxx X. XxXxxxxx 5,000,000
Xxxxxxx X. XxXxxxx 5,000,000
Xxxxxxxxxxx X. Xxxxxx 5,000,000
----------
Total 15,000,000
We call your attention to the fact that the Company has Informed us that it has
authorized the issuance of common stock options to certain of its employees,
which options shall be governed by the Employee Stock Option Plan, which has yet
to be adopted. As of the Closing Date, the Company has informed us that it has
agreed to issue options to purchase approximately x shares of common stock to
its employees. The Company also has agreed to issue 30,000 stock options to each
of its directors who are not employees of the Company.
SCHEDULES
SCHEDULE B
KEY EMPLOYEES
Xxxxxxxxxxx X. XxXxxxxx, Chairman and Chief Executive Officer
Xxxxxxx X. XxXxxxx, President
Xxxxxxxxxxx X. Xxxxxx, Executive Vice President and Chief Technology Officer
SCHEDULE 5.5
--------------------------------------------------------------------------------
Holders of Issued and Outstanding Number of Shares
Shares of Capital Stock Held of Capital Stock
--------------------------------------------------------------------------------
Xxxxxxxxxxx XxXxxxxx 5,000,000 shares of Common Stock
--------------------------------------------------------------------------------
Xxxxx Xxxxxx 5,000,000 shares of Common Stock
--------------------------------------------------------------------------------
Xxxxx XxXxxxx 5,000,000 shares of Common Stock
--------------------------------------------------------------------------------
See attached for a list of the holders of Series A Preferred Stock.
See also attached for the Common Stock Options list.
SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK
ISSUED BY THE COMPANY
Total Purchase Price
Shares of Series A Paid By Such
Convertible Preferred Purchaser For Shares
Stock Issued By the of Series A Convertible
Company To Each Preferred Stock Issued
Purchaser Purchaser To Each Purchaser
--------------------------------------------------------------------------------
Blue Chip Capital Fund II 11,458.33 $6,875,000
Limited Partnership
Miami Valley Venture Fund L.P. 1,875.00 1,125,000
Grotech Partners IV, and 16,666.67 10,000,000
Grotech Partners V. L.P.
Southern Venture Fund SBIC, L.P. 3,333.33 2,000,000
Xxxxxxx Venture Fund, II, L.P. 1,666.87 1,000,000
Venrock Associates 3,583.33 2,150,000
Venrock Associates II, L.P. 4,750.00 2,850,000
USi Partners, Ltd. 1,166.67 700,002
XxXxxxxx Technology Capital 1,666.67 1,000,000
Total 46,166.67 $27,700,002
It is possible that as of the Closing Date, the Company may have Issued
additional shares.
USINTERNETWORKING, INC.
STOCK PURCHASE AGREEMENT
SCHEDULE 5.8 (A)
ALL EXPENDITURES IN EXCESS OF $25,000
PAYEE EXPLANATION AMOUNT
----- ----------- ------
American Express Advance payment of account $ 40,125.08
Xxxxx & Partners Professional Services-Architect $ 42,262.93
Xxxxxxx-Xxxxxx Computer Equipment-Laptops $ 43,417.00
Computer Equipment-Printer, deskpro, notebooks $ 29,951.00
Consortium One-Annapolis L.L.C. Deposit related to the lease at 000 Xxxxxxx Xxxxxxxx Xxxxx $ 400,000.00
May Rent for 000 Xxxxxxx Xxxxxxxx Xxxxx $ 30,052.54
June Rent for 000 Xxxxxxx Xxxxxxxx Xxxxx $ 30,052.54
Xxxxxx Xxxxxx Company Two copiers with interface boards (one color) includes delivery, $ 48,264.50
installation and taxes.
One copier includes delivery, installation and taxes. $ 80,718.00
Xxxxxxxxxxx XxXxxxxx Partial repayment of loan $ 100,000.00
Partial repayment of loan $ 342,469.05
PC Connection, Inc Computer Equipment $ 77,840.00
Computer Equipment $ 39,471.45
Computer Equipment $ 41,809.00
Computer Equipment $ 100,000.00
Computer Equipment $ 25,516.75
Realty Association Security Deposit and First month's rent for 0000 Xxxx Xxxx $ 36,398.42
USI Confidential Page 1
USINTERNETWORKING, INC.
STOCK PURCHASE AGREEMENT
SCHEDULE 5.8 (A)
ALL EXPENDITURES IN EXCESS OF $25,000
PAYEE EXPLANATION AMOUNT
----- ----------- ------
American Express Advance payment of account $ 40,125.08
Xxxxx & Partners Professional Services-Architect $ 42,262.93
Xxxxxxx-Xxxxxx Computer Equipment-Laptops $ 43,417.00
Computer Equipment-Printer, deskpro, notebooks $ 29,951.00
Consortium One-Annapolis L.L.C. Deposit related to the lease at 000 Xxxxxxx Xxxxxxxx Xxxxx $ 400,000.00
May Rent for 000 Xxxxxxx Xxxxxxxx Xxxxx $ 30,052.54
June Rent for 000 Xxxxxxx Xxxxxxxx Xxxxx $ 30,052.54
Xxxxxx Xxxxxx Company Two copiers with interface boards (one color) includes delivery, $ 48,264.50
installation and taxes.
One copier includes delivery, installation and taxes. $ 80,718.00
Xxxxxxxxxxx XxXxxxxx Partial repayment of loan $ 100,000.00
Partial repayment of loan $ 342,469.05
PC Connection, Inc Computer Equipment $ 77,840.00
Computer Equipment $ 39,471.45
Computer Equipment $ 41,809.00
Computer Equipment $ 100,000.00
Computer Equipment $ 25,516.75
Realty Association Security Deposit and First month's rent for 0000 Xxxx Xxxx $ 36,398.42
USI Confidential Page 1
USinternetworking, Inc.
Stock Purchase Agreement
Schedule 5.8 (a)
Aggregate Expenditures In Excess of $200,000
Payee Explanation Amount
----- ----------- ------
Consortium One-Annapolis L.L.C. Deposit and rent for 000 Xxxxxxx Xxxxxxxx Xxxxx (Lease) $ 465,915.08
Xxxxxxxxxxx XxXxxxxx Payments on Loan $ 444,875.62
PC Connection, Inc. Computer Equipment $ 509,200.97
USI Confidential Page 1
SCHEDULE 5.9
Please see leases listed on Schedule 5.10.
SCHEDULE 5.10
LISTING OF CONTRACTUAL OBLIGATIONS
1) Officer Agreement by and between USinternetworking, Inc. and Xxxxxxxxxxx
X. XxXxxxxx dated May 29, 1998.
2) Officer Agreement by and between USinternetworking, Inc. and Xxxxx X.
Xxxxxx, dated June 2, 1998.
3) Officer Agreement by and between USinternetworking, Inc. and Xxxxx
XxXxxxx, dated June 2, 1998.
4) Sublease Agreement, by and between Exsportise, Inc. and USinternetworking,
Inc., dated February 9,1998.
5) Agreement of Lease, by and between Consortium One-Annapolis, LLC and
USinternetworking, Inc., dated April 3,1998.
6) Letter Agreement between USinternetworking, Inc. and Xxxx Xxxxxx, dated
April 10,1998 (acceptance by Xxxxxx dated April 14, 1998).
7) Furniture Rental Agreement between Xxxxx Rents, Inc. and
USinternetworking, Inc., dated March 10, 1998.
8) Sublease Agreement, by and between Columbia Medical Plan and
USinternetworking, Inc. dated May 8, 1998.
9) Agreement of Lease, by and between Realty Associates, Inc. and
USinternetworking, Inc., dated June 3, 1998.
10) Contract of Sale between First Church of Xxxxxx, Scientist, Seller, and
USinternetworking, Inc., Buyer, dated May 1, 1998.
SCHEDULE 5.12
LISTING OF SEVERANCE ARRANGEMENTS
See Officer Agreements and Letter Agreement listed on Schedule 5.10.
SCHEDULE 5.16
EMPLOYEE PLANS
Although the Company has not adopted any formal employee benefit plans, the
contours of the employee benefit plans have been described in writing to
employees. The employee benefits are to include the following: (i) a 401(k) plan
that is to be noncontributory until January 1, 1999, and thereafter subject to a
1:2 employer match, (ii) the Employee Stock Option Plan, and (iii) other typical
plans such as health and vacation benefit plans. The Company has stated its
intention that the Employee Stock Option Plan will be a qualified plan that will
provide for the issuance of options to purchase shares at a discount of 20% from
the then-current market price, to the extent permissible at any time. Certain of
the Company's employees have been advised in writing, pursuant to the employment
offer letters, of the number of option shares the Company intends to award to
them. These option shares are listed in Schedule 5.5.
SCHEDULE 5.17
LISTING OF ALL OUTSTANDING BORROWINGS
1) $2,000,000 credit line with Cisco Systems Capital Corp. for the purchase
of Cisco Systems Products equipment $0 outstanding at June 15, 1998.
2) $1,000,000 credit line with Hewlett-Packard Co. for the purchase of
Hewlett-Packard equipment. $651,756.06 outstanding at June 15,1998.
SCHEDULE 5.18
LISTING OF INSURANCE POLICIES OR PROGRAMS
As of the date hereof, the Company has received only an Insurance Binder.
