Exhibit 10.1.1
STOCK PURCHASE AGREEMENT
This is a Stock Rights Agreement (the "Agreement"), dated July 17,
1998, between XXXXXX X. XXXXXXXX ("Shareholder"), PAETEC CORP., a Delaware
corporation with its principal place of business at 000 Xxxxxxxxx Xxxxx,
Xxxxxxxx, Xxx Xxxx 00000 (the "Company"), and PAETEC COMMUNICATIONS, INC., a
Delaware corporation and wholly-owned subsidiary of the Company with its
principal place of business at 000 Xxxxxxxxx Xxxxx, Xxxxxxxx, Xxx Xxxx 00000
("Subsidiary").
RECITALS
A. The Company is a Delaware corporation having 110,000,000 shares of
authorized capital stock, 10,000,000 of which are designated preferred stock,
75,000,000 of which are designated Class A common and 25,000,000 of which are
designated Class B common.
B. Shareholder is one of the founding Shareholders of the Company and
is an employee of the Subsidiary. The Company previously offered to issue to
Shareholder 2,500,000 shares of Class B common stock at a purchase price of $.48
per share, subject to certain restrictions.
C. The Company, Subsidiary, and Shareholder enter into this Agreement
for the purpose of confirming Shareholder's equity interest in the Company and
outlining the rights of and restrictions imposed by the Company with respect to
the shares of stock held by the Shareholder.
NOW, THEREFORE, in consideration of the following mutual promises, the
parties agree as follows:
1. Issuance of Shares.
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(a) The Company confirms its previous offer to issue 2,500,000 shares
of Class B common stock (the "Shares") to Shareholder at a price of $.48 per
share payable in full upon issuance of the Shares. A stock certificate
evidencing the Shares shall be issued in the name of Shareholder upon receipt of
this executed Agreement and payment in full of the purchase price.
(b) In order to induce the Company to issue the Shares, Shareholder
represents and warrants to the Company as follows:
(i) Shareholder (A) understands that an investment in the Shares
is speculative due to factors including (but not limited to) the start-up nature
of the Company and
the risk of economic loss from the operations of the Company, but believes that
such an investment is suitable for Shareholder based upon Shareholder's
financial needs, (B) can withstand a complete loss of the investment in the
Shares, and (C) has the net worth to undertake these risks.
(ii) Shareholder is acquiring the Shares for the personal
account of Shareholder, with no present intention of reselling, distributing or
otherwise transferring the Shares or any portion of the Shares to anyone else,
except that the Company acknowledges Shareholder's intention to resell 50,000 of
his Shares to Xxxxxxxxxx X. Xxxxxxxx shortly after the issuance of the Shares to
Shareholder.
(iii) Shareholder understands and acknowledges that the Shares
are being offered and sold under one or more exemptions provided in the
Securities Act of 1933, as amended (the "Securities Act"), Regulation D
promulgated thereunder and applicable New York State securities laws, and that
this transaction has not been reviewed or passed upon by the United States
Securities and Exchange Commission, the New York State Attorney General, or any
other federal or state agency.
(iv) Shareholder realizes that Shareholder must bear the
economic risk of investment for an indefinite period of time because (A) the
Shares have not been registered under the Securities Act and cannot be resold by
Shareholder unless they are subsequently registered under the Securities Act or
an exemption from registration is available, (B) the transferability of the
Shares is restricted by the terms of this Agreement, and (C) there currently is
no public market for the Shares, and Shareholder may not be able to liquidate
the investment in the Shares in the event of an emergency. Shareholder has
adequate means of providing for Shareholder's current financial needs and
personal contingencies, and has no need for liquidity of investment with respect
to the Shares.
(v) Shareholder believes that Shareholder, either alone or
together with the assistance of professional advisor(s), has knowledge and
experience in business and financial matters sufficient to make Shareholder
capable of evaluating the merits and risks of an investment in the Shares.
(vi) Shareholder is fully familiar with the business of the
Company and its present and proposed operations. Shareholder has been given
reasonable opportunity to ask representatives of the Company questions
concerning the Company and making an investment in the Shares. Shareholder has
obtained sufficient information to evaluate the merits and risks of an
investment in the Shares.
(vii) Shareholder confirms that Shareholder has been advised to
rely on professional accounting, tax, legal and financial advisers with respect
to an investment in the Shares and has obtained, to the extent Shareholder deems
it necessary, professional advice
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with respect to the risks inherent in an investment in the Shares and the
suitability of an investment in the Shares in light of Shareholder's financial
condition and investment needs.
2. Non-Competition.
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(a) For a period of one year after termination of Shareholder's
employment with the Subsidiary (regardless of the reason for termination),
Shareholder shall not, directly or indirectly:
(i) solicit or serve clients or customers of the Company or any
affiliate of the Company (including the Subsidiary), whether for Shareholder's
own account or as an employee, shareholder, partner, officer, member, manager,
director, consultant, or other representative of any third party;
(ii) direct any business from, or enter into competition with,
the Company or any affiliate of the Company (including the Subsidiary) in any
line of business in which the Company or such affiliate was conducting
operations during Shareholder's employment; or
(iii) serve as an employee, shareholder, partner, officer, member,
manager, director, consultant or other representative of any third party which
engages in any line of business competitive with the Company or any affiliate of
the Company (including the Subsidiary) anywhere in the world.
Shareholder acknowledges that the foregoing limitations are reasonable in time
and scope and agrees not to raise any objection to the reasonableness of the
foregoing in any action or proceeding to enforce the terms of this Section.
(b) As consideration for the non-competition covenant set forth in
subparagraph (a) above, the Subsidiary agrees that, if Shareholder's employment
is terminated by the Subsidiary for any reason; or terminates due to the death,
disability, voluntary resignation, or withdrawal of Shareholder, Subsidiary
shall pay Shareholder or Shareholder's personal representative, during the one-
year period in which the covenant is in effect, an amount equal to the
annualized base salary paid to Shareholder immediately prior to termination of
Shareholder's employment. Payment shall be made in accordance with the
Subsidiary's customary payroll practices.
(c) Should Shareholder violate the terms of the non-competition
covenant set forth in subparagraph (a), the Company shall notify Shareholder in
writing of the alleged violation that constitutes a breach of this Agreement,
and Shareholder shall have 10 business days to cure the breach. If the breach
is not cured to the satisfaction of the Company, then in addition to any other
remedies available under law, the Company may discontinue any payments being
made to Shareholder pursuant to subparagraph (b) hereof.
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(d) Shareholder acknowledges that his/her services are unique and
extraordinary and are not readily replaceable, and hereby expressly agrees that,
in the event of a violation of the non-competition covenant set forth in
subparagraph (a), the Company and its affiliates (including Subsidiary) will be
irreparably harmed and the remedy of damages or other remedy at law will be
inadequate. Therefore, Shareholder agrees that, in the event of a threatened or
actual violation of the non-competition covenant, the Company shall be entitled
to obtain from any court of competent jurisdiction, an injunction restraining
Shareholder from committing the violation, without the necessity of proving
actual damage and in addition to any other relief available under this Agreement
or at law.
3. Piggy-Back Registration Rights.
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(a) If at any time or from time to time the Company shall determine to
register any of its equity securities, either for its own account or the account
of a security holder or holders (other than a registration of securities
relating solely to employee benefit plans or to effect a merger or other
reorganization), the Company will promptly give to Shareholder written notice
thereof and, upon the written request of Shareholder, include in such
registration (and any related qualification under blue sky laws or other
compliance), and in any underwriting involved therein, all the Shares specified
in the written request made within 10 business days after receipt of such
written notice from the Company.
(b) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise Shareholder as a part of the written notice given to Shareholder. In
such event the right of any Shareholder to registration pursuant to this Section
3 shall be conditioned upon Shareholder's participation in such underwriting,
and the inclusion of Shares in the underwriting shall be limited to the extent
provided herein. Shareholder (together with the Company and the other holders
distributing their securities through such underwriting) shall enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by the Company. Notwithstanding any other provision of
this Section 3, if the managing underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the managing
underwriter may exclude some or all of the Shares or securities of other holders
of similar registration rights from such registration. The Company shall so
advise Shareholder and other stockholders distributing their securities through
such underwriting, and the number of Shares or securities of other holders of
similar registration rights that may be included in the registration and
underwriting, as determined by the managing underwriter, shall be allocated on a
pro rata basis. If Shareholder disapproves of the terms of any such
underwriting, Shareholder may elect to withdraw therefrom by written notice to
the Company and the managing underwriter. Any securities excluded or withdrawn
from such underwriting shall be withdrawn from such registration, and shall
continue to be subject to the terms of this Section.
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(c) The Company shall have the right to terminate or withdraw any
registration initiated by it under this Section 3 prior to the effectiveness of
such registration whether or not Shareholder has elected to include securities
in such registration.
(d) All expenses associated with the registration (including, without
limitation, registration, qualification and filing fees, printing expenses, blue
sky fees, and fees and disbursements of counsel and accountants for the Company)
shall be borne by the Company. Selling expenses, including underwriters'
discounts, shall be borne by Shareholder pro rata in proportion to the number of
securities being registered.
(e) In the case of each registration under this Section, the Company
will:
(i) prepare and file a registration statement with respect to
such securities and use its best efforts to cause such registration statement to
become and remain effective for at least 45 days or until the distribution
described in the registration statement has been completed, whichever first
occurs;
(ii) furnish to Shareholder such reasonable number of copies of
the registration statement, preliminary prospectus, final prospectus and such
other documents as Shareholder may reasonably request in order to facilitate the
public offering of the Shares; and
(iii) use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions as shall be reasonably requested by Shareholder,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify as a foreign corporation or as a dealer in
securities or to file a general consent to service of process in any such states
or jurisdictions in which it has not already done so and except as may be
required by the Securities Act.
(f) The Company will indemnify Shareholder against all expenses,
claims, losses, damages or liabilities (or actions in respect thereof), arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration, or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading, or any violation by the Company of the Securities Act of 1933, the
Securities Exchange Act of 1934, state securities law or any rule or regulation
promulgated under such laws applicable to the Company in connection with any
such registration, qualification or compliance, and the Company will reimburse
Shareholder for any legal and any other expenses reasonably incurred, as such
expenses are incurred, in connection with investigating, preparing or defending
any such claim, loss, damage, liability or action, provided that the Company
will not be liable in any such case to the extent that any such claim, loss,
damage, liability or expense
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arises out of or is based on any untrue statement or omission, or alleged untrue
statement or omission, made in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by
Shareholder.
(g) Shareholder will, if Shares held by such Shareholder are included
in the securities as to which such registration is being effected, indemnify the
Company, each of its directors and officers, each underwriter, if any, of the
Company's securities covered by such a registration statement against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus, offering
circular or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company, such
Shareholders, such directors, officers, persons, underwriters or control persons
for any legal or any other expenses reasonably incurred, as such expenses are
incurred, in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by Shareholder and
stated to be specifically for use therein.
(h) Shareholder shall furnish to the Company such information
regarding Shareholder, the Shares held by Shareholder, and the distribution
proposed by Shareholder as the Company may request in writing and as shall be
required in connection with any registration referred to in this Agreement.
(i) The registration rights granted to Shareholder in this Section
shall expire at such time (if ever) as Shareholder is free to sell the Shares
under Rule 144 promulgated under the Securities Act (or any successor thereto)
without limitation as to volume or manner of sale restrictions.
4. Legend. Each certificate for Shares owned by Shareholder shall
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bear the following legend:
The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be transferred in the absence of such registration
unless the Company receives an opinion of counsel reasonably
acceptable to it stating the such sale or transfer is exempt
from registration.
5. Notices. All notices and communications under this Agreement
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shall be in writing and shall be given by personal delivery or by registered or
certified mail, return receipt requested, addressed to the residence of
Shareholder set forth below or to such other
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address as may be designated by Shareholder, and to the principal office of the
Company. Notice shall be deemed given upon personal delivery or upon receipt.
6. Miscellaneous.
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(a) Neither this Agreement, nor any action taken under it, shall be
construed as creating any limitation or restriction upon any right that
Subsidiary would otherwise have to terminate the employment of Shareholder at
any time for any reason.
(b) This Agreement may be modified or amended only upon the written
consent of all parties to the Agreement.
(c) This Agreement shall be interpreted, construed, and enforced in
accordance with the laws of the State of New York.
(d) Neither this Agreement, nor any rights or obligations under it,
may be assigned by any party without the prior written consent of the other
parties.
(e) This Agreement shall benefit and be binding upon the parties and
their successors, heirs, executors, personal representatives, and assigns.
(f) This Agreement sets forth the entire understanding and agreement
of the parties with respect to its subject matter and supersedes all prior
letters, agreements, covenants, communications, understandings, representations,
or warranties, whether oral or written, by any officer, employee, or
representative of either party.
(g) The waiver of any provision of this Agreement, or of any breach of
this Agreement, shall not constitute a subsequent waiver of any provision or
breach.
(h) In the event that Shareholder is a prevailing party in any
litigation arising under or in connection with this Agreement, the Company shall
pay the reasonable attorneys fees and expenses incurred by Shareholder in
connection with the litigation.
(i) If, at any time, any of the provisions of this Agreement shall be
deemed by a court or other body having jurisdiction over this Agreement to be
illegal, invalid, or unenforceable, those provisions shall be deemed severed
from this Agreement. The remaining provisions of this Agreement shall be valid
and binding as if this Agreement had never contained any illegal, invalid, or
otherwise unenforceable provisions, without the requirement that the amendment
be recorded in a writing signed by the parties.
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The parties' assent to the terms of this Agreement is confirmed by
their signatures below.
PAETEC CORP.
By: /s/ Xxxxxxx X. Xxxxxxxxxx
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Title: Executive Vice President
PAETEC COMMUNICATIONS, INC.
By: /s/ Xxxxxxx X. Xxxxxxxxxx
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Title: Executive Vice President
Address: /s/ Xxxxxx X. Xxxxxxxx
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Xxxxxx X. Xxxxxxxx
00 Xxxxxxxxx Xxx
Xxxxxx, Xxx Xxxx 00000
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