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Exhibit 99.3
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GOLDEN SKY SYSTEMS, INC.
406,000 Shares of Series A
Convertible Participating Preferred Stock
And
100 Shares of Common Stock
STOCK PURCHASE AGREEMENT
Dated as of February 12, 1997
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Golden Sky Systems, Inc.
Stock Purchase Agreement
Dated as of February 12, 1997
INDEX
Page
SECTION 1. TERMS OF PURCHASE...............................................1
1.1 Description of Securities.......................................1
1.2 Reserved Shares.................................................1
1.3 Sale and Purchase...............................................1
1.4 Closings........................................................3
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................4
2.1 Organization and Corporate Power................................4
2.2 Authorization...................................................4
2.3 Non-contravention...............................................4
2.4 Capitalization of the Company...................................5
2.5 Financial Statements............................................6
2.6 Absence of Undisclosed Liabilities..............................6
2.7 Absence of Certain Developments.................................7
2.8 Accounts Receivable.............................................7
2.9 Title to Properties.............................................7
2.10 Tax Matters.....................................................7
2.11 Contracts and Commitments.......................................8
2.12 Proprietary Rights; Employee Restrictions.......................9
2.13 Litigation.....................................................11
2.14 Offeree........................................................11
2.15 Business; Compliance with Laws.................................11
2.16 Information Supplied to Investors..............................12
2.17 Investment Banking; Brokerage..................................12
2.18 Solvency.......................................................12
2.19 Environmental Matters..........................................12
2.20 Employee Benefit Programs......................................14
2.21 Product and Services Claims....................................15
2.22 Employees; Labor Matters.......................................16
2.23 Relationship with Subscribers, Retailers and Distributors......16
2.24 Corporate Records; Copies of Documents.........................16
2.25 Affiliate Transactions.........................................16
2.26 Investments Related to Certain Foreign Countries...............17
2.27 Small Business Concern, Etc....................................17
SECTION 2A. REPRESENTATIONS AND WARRANTIES OF THE FOUNDER..................17
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Page
SECTION 3. CONDITIONS OF PURCHASE.........................................18
3.1 Satisfaction of Conditions.....................................18
3.2 Opinion of Counsel.............................................18
3.3 Authorization..................................................18
3.4 Effectiveness of Preferred Stock Terms.........................18
3.5 Stockholders' Agreement........................................18
3.6 Non-Competition Agreements.....................................19
3.7 Redemption.....................................................19
3.8 Acquisitions...................................................19
3.9 Election of Directors; Indemnification Agreements..............19
3.10 All Proceedings Satisfactory...................................19
3.11 Delivery of Documents..........................................19
3.12 SBIC Deliveries................................................20
3.13 Additional Closing Conditions..................................20
SECTION 3A. CONDITIONS OF SALE.............................................21
SECTION 4. COVENANTS OF THE COMPANY.......................................21
4.1 Financial Statements; Minutes..................................22
4.2 Budget and Operating Forecast..................................22
4.3 Conduct of Business............................................22
4.4 Payment of Taxes, Compliance with Laws, etc....................23
4.5 Insurance......................................................23
4.6 Maintenance of Properties......................................23
4.7 Affiliated Transactions........................................23
4.8 Management Compensation........................................24
4.9 Use of Proceeds................................................24
4.10 Board of Directors Meetings; Meetings with Investors...........24
4.11 Sales of Additional Securities.................................25
4.12 Stockholders' Agreement, Non-Competition Agreements and
Confidentiality and Proprietary Rights Agreements..............26
4.13 Distributions on, and Redemptions of, Capital Stock............26
4.14 Merger, Consolidation, Sale of Assets, Acquisitions and Other
Actions .......................................................27
4.15 No Amendments to Certificate of Incorporation..................27
4.16 Capital Expenditures...........................................28
4.17 Life Insurance.................................................28
4.18 Annual Updates; Number of Stockholders; Use of Proceeds;
Regulatory Violation; Economic Impact Information; Amendment...28
SECTION 5. INVESTOR REPRESENTATIONS.......................................30
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Page
SECTION 6. INDEMNIFICATION................................................31
6.1 Indemnification for Vicarious Liability........................31
6.2 Notice; Defense of Claims......................................32
6.3 Satisfaction of Indemnification Obligations....................33
SECTION 7. GENERAL........................................................34
7.1 Amendments, Waivers and Consents...............................34
7.2 Survival of Representations, Warranties and Covenants;
Assignability of Rights........................................34
7.3 Governing Law..................................................35
7.4 Section Headings; Counterparts.................................35
7.5 Notices and Demands............................................35
7.6 Severability...................................................35
7.7 Expenses.......................................................35
7.8 Integration....................................................36
7.9 Certain Provisions Applicable to SBIC Investors................36
APPENDIX A - List of Investors
EXHIBITS
Exhibit A - Stock Option Plan
Exhibit B - Amended and Restated Certificate of Incorporation
Exhibit C - Confidentiality and Proprietary Rights Agreement
Exhibit D - Stockholders' Agreement
Exhibit E - Non-Competition Agreement
Exhibit F - Form of Indemnification Agreement
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SCHEDULES
Schedule 1.3 - Founding Investors
Schedule 2.4 - Capitalization and Beneficial Ownership
Schedule 2.6 - Undisclosed Liabilities
Schedule 2.7 - Material Developments
Schedule 2.8 - Accounts Receivable
Schedule 2.9 - Title to Properties
Schedule 2.10 - Tax Matters
Schedule 2.11 - Material Contracts
Schedule 2.12 - Proprietary Rights
Schedule 2.13 - Litigation
Schedule 2.15 - Business; Compliance with Laws
Schedule 2.16 - Business Plan
Schedule 2.19 - Environmental Matters
Schedule 2.21 - Product and Services Claims
Schedule 2.22 - Employees; Labor Matters
Schedule 2.25 - Affiliate Transactions
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FOR GEORGIA RESIDENTS:
THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13) OF CODE
SECTION 10-5-9 OF THE GEORGIA SECURITIES ACT OF 1973, AND MAY NOT BE SOLD OR
TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR PURSUANT
TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT.
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STOCK PURCHASE AGREEMENT
AGREEMENT made as of this 12th day of February, 1997 by and among
Golden Sky Systems, Inc., a Delaware corporation (the "Company"), Xxxxxx X.
Xxxxx (the "Founder"), the investors identified on the signature pages hereto as
the Outside Investors (the "Outside Investors") and the investors identified on
the signature pages hereto as the Founding Investors (the "Founding Investors").
The Outside Investors and the Founding Investors are herein collectively
referred to as the "Investors" and individually as an "Investor."
SECTION 1. TERMS OF PURCHASE
1.1 Description of Securities. The Company has authorized the issuance
and sale to the Investors of up to 406,000 shares (the "Series A Preferred
Shares") of its authorized but unissued Series A Convertible Participating
Preferred Stock, par value $.01 per share (the "Series A Preferred Stock"), for
a purchase price of $100.00 per Series A Preferred Share, and 100 shares (the
"Common Shares") of its authorized but unissued Common Stock, par value $.01 per
share (the "Common Stock"), for a purchase price of $1.00 per Common Share.
1.2 Reserved Shares. The Company has authorized and has reserved, and
covenants to continue to reserve, a sufficient number of shares of the Common
Stock and the Company's Redeemable Preferred Stock, par value $.01 per share
(the "Redeemable Preferred Stock"), to satisfy the rights of conversion of the
holders of the Series A Preferred Stock. Any shares of Common Stock, Redeemable
Preferred Stock or any successor class of capital stock of the Company hereafter
issued or issuable upon conversion of the Series A Preferred Shares are herein
referred to as "Conversion Shares." The Series A Preferred Shares, the Common
Shares and the Conversion Shares are herein collectively referred to as the
"Securities."
1.3 Sale and Purchase.
(a) At the Initial Closing (as hereinafter defined) and subject
to the terms and conditions herein set forth, the Company shall issue and sell
to each of the Investors, and each Investor severally and not jointly shall
purchase from the Company, the number of Series A Preferred Shares set forth
opposite the name of such Investor in Column 1 of Appendix A hereto and the
number of Common Shares set forth opposite the name of such Investor in Column 2
of Appendix A hereto for the aggregate purchase price set forth in the
corresponding row of Column 3 of said Appendix A; provided, however, that
certain investment funds affiliated with Alta Communications, Inc. (the "Alta
Investors") have previously extended loans of $3,750,000 to the Company (the
"Alta Loans"), the principal and interest of the Alta Loans shall be credited in
full against the purchase price obligation of the Alta Investors and the
promissory notes evidencing the Alta Loans shall be canceled as of the Initial
Closing; and provided further, however, that certain Founding Investors set
forth on Schedule 1.3 hereto have previously advanced to the Company an
aggregate amount of $2,750,000 (the "Founders' Advances") which is
non-interest-bearing and shall be credited in full against the purchase price
obligation of such Founding Investors.
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(b) Provided that the conditions to an Additional Closing (as
hereinafter defined) as set forth in Section 3 hereof are satisfied by the
Company or otherwise waived by each of the Outside Investors, and subject to the
terms and conditions herein set forth, the Company, by action of a majority of
its Board of Directors, including a majority of the Outside Investor
Representatives (as hereinafter defined), may at one or more Additional Closings
(which shall occur no later than the second anniversary of the date of this
Agreement), in its sole discretion, issue and sell to each of the Outside
Investors, and each Outside Investor severally and not jointly agrees to
purchase from the Company, up to the number of Series A Preferred Shares which,
together with all Series A Preferred Shares sold to such Outside Investor at any
prior Additional Closing(s), shall not exceed the number set forth opposite the
name of such Outside Investor in Column 4 of Appendix A hereto for a per share
purchase price of $100.00; provided, however, that (i) the aggregate number of
Series A Preferred Shares issued at any Additional Closing shall be allocated
among the Outside Investors such that, following such Additional Closing, each
such Outside Investor holds a number of Series A Preferred Shares that bears the
same proportion to the total number of Series A Preferred Shares then held by
all Outside Investors as the sum of the aggregate purchase price amounts set
forth opposite the name of such Outside Investor in Columns 3 and 6 of Appendix
A hereto bears to the sum of all amounts opposite all Outside Investors in
Columns 3 and 6 of Appendix A hereto, (ii) the aggregate purchase price paid by
each Outside Investor for Series A Preferred Shares at all Additional Closings
shall not exceed the aggregate purchase price set forth in the corresponding row
of Column 6 of said Appendix A, and (iii) the aggregate purchase price paid by
all of the Outside Investors for Series A Preferred Shares at any Additional
Closing shall be no less than $5,000,000 or the remaining amount of the
aggregate purchase price set forth in Column 6 of said Appendix A which has not
been previously paid by the Outside Investors at prior Additional Closings.
(c) The parties acknowledge that Spectrum Equity Investors II,
L.P. ("Spectrum II") is expected to close in February 1997. Spectrum II shall,
subject to its initial closing, the initial takedown of capital from its limited
partners and the approval of Spectrum II's investment in the Company by Spectrum
II's Advisory Committee (the "Advisory Committee") (if such approval is
required), purchase from the Company at one or more Additional Closings up to
100,000 Series A Preferred Shares and 25 Common Shares, subject to the terms and
conditions herein set forth, for an aggregate purchase price of $10,000,025.
Applegate & Xxxxxxxx, Inc., the management company for Spectrum II, hereby
agrees to use its best efforts to close Spectrum II, fund the initial takedown
of capital and obtain investment approval by the Advisory Committee, if
required, as soon as practicable and, in any event, by March 9, 1997, and to
take any and all other actions necessary to consummate Spectrum II's investment
in the Company as contemplated by this Agreement. Upon the earlier of (i) the
Advisory Committee's rejection of Spectrum II's proposed investment in the
Company or (ii) Xxxxx 0, 0000 (xx Spectrum II has not closed, funded its initial
takedown of capital and obtained investment approval by the Advisory Committee,
if required, on or prior to such date), Spectrum II shall have no rights nor
obligations under this Agreement and the agreements contemplated hereby,
including, without limitation, the right to purchase any Series A Preferred
Shares or Common Shares hereunder, and shall be removed from Appendix A hereto;
provided, however, that in such event, Spectrum Equity Investors L.P. may
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purchase from the Company at one or more Additional Closings up to 25,000
additional Series A Preferred Shares and 6 additional Common Shares, subject to
the terms and conditions herein set forth, for an aggregate purchase price of
$2,500,006, by notifying the Company on such earlier date of its commitment to
purchase such Series A Preferred Shares and Common Shares. Upon receipt of such
notification, the Company shall amend Appendix A hereto in order to reflect the
additional investment that may be made by Spectrum Equity Investors L.P.,
subject to the terms and conditions herein set forth.
1.4 Closings.
(a) The initial closing (the "Initial Closing") of the sale and
purchase of 199,000 of the Series A Preferred Shares and 75 of the Common Shares
shall take place at the offices of Xxxxxxx, Procter & Xxxx LLP, located at
Exchange Place, Boston, Massachusetts, at 10:00 A.M., on the date hereof, or
such other date, time and place as shall be mutually agreed upon by the Company
and three-fourths in interest of the Investors (the "Initial Closing Date"). At
the Initial Closing, the Company will deliver the Series A Preferred Shares and
the Common Shares being acquired by each Investor in the form of a certificate,
issued in such Investor's name or in the name of its nominee (of which the
Investor shall notify the Company not less than two business days prior to the
Initial Closing), against payment of the full purchase price therefor by or on
behalf of each Investor to the Company by check or wire transfer.
(b) If the Company elects to sell additional Series A Preferred
Shares to the Outside Investors pursuant to Section 1.3(b) hereof, the Company
shall provide the Outside Investors with written notice of such election (the
"Sale Notice"). Provided that the conditions to an Additional Closing as set
forth in Section 3 hereof are satisfied by the Company or otherwise waived by
the Outside Investors and the conditions to an Additional Closing as set forth
in Section 3A hereof are satisfied by the Outside Investors or otherwise waived
by the Company, and the Company has delivered the Sale Notice to the Outside
Investors, one or more additional closings (the "Additional Closings") of the
sale and purchase of up to 207,000 of the Series A Preferred Shares shall take
place at such date, time and place as shall be mutually agreed upon by the
Company and three-fourths in interest of the Outside Investors, but in any event
not less than thirty (30) nor more than sixty (60) days following the date of
delivery of the Sale Notice (each, an "Additional Closing Date"). At each
Additional Closing, the Company will deliver the Series A Preferred Shares being
acquired by each Outside Investor in the form of a certificate, issued in such
Outside Investor's name or in the name of its nominee (of which the Outside
Investor shall notify the Company not less than two business days prior to such
Additional Closing), against payment of the full purchase price therefor by or
on behalf of each Outside Investor to the Company by check or wire transfer. For
the purposes of this Agreement, the Initial Closing and the Additional Closings
are sometimes hereafter referred to as the "Closings" or a "Closing."
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SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce the Investors to enter into this Agreement, the
Company, subject to Section 7.2 hereof, hereby represents and warrants to the
Investors that as of the date hereof:
2.1 Organization and Corporate Power. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and is qualified to do business as a foreign corporation in
each jurisdiction in which such qualification is required, except where failure
to so qualify would not have a material adverse effect on the business, assets,
operations or condition (financial or otherwise) of the Company. The Company has
all required corporate power and authority to own its property, to carry on its
business as presently conducted or contemplated, to enter into and perform this
Agreement and the agreements contemplated hereby, and generally to carry out the
transactions contemplated hereby and thereby. The copies of the Certificate of
Incorporation and By-laws of the Company, each as amended to date, which have
been furnished to counsel for the Investors, are correct and complete at the
date hereof. The Company is not in violation of any term of its Certificate of
Incorporation or By-laws or any material agreement, instrument, judgment,
decree, order, statute, rule or government regulation applicable to the Company.
2.2 Authorization. This Agreement and all documents and instruments
executed pursuant hereto or contemplated hereby (including without limitation,
agreements by which the Company has or will consummate the acquisitions (the
"Acquisitions") of certain National Rural Telecommunications Cooperative
("NRTC")/Direct Broadcast Satellite ("DBS") DirecTV franchises from Aurora
Cable, TV Tennessee and Images DBS (the "Acquisition Agreements)) are valid and
binding obligations of the Company, enforceable in accordance with their terms
against the Company. The execution, delivery and performance of this Agreement
and all documents and instruments contemplated hereby and the delivery and
issuance of the Securities have been duly authorized by all necessary corporate
or other action of the Company. Assuming the accuracy of the Investor
representations set forth in Section 5 hereof, no consent, approval or
authorization of, or designation, declaration or filing with, any governmental
authority is required of the Company in connection with the execution, delivery
and performance of this Agreement, or the issuance and delivery by the Company
of the Securities in accordance with the terms of this Agreement, or the
performance or consummation of any other transaction contemplated hereby.
2.3 Non-contravention. The execution, delivery and performance by the
Company of this Agreement and each of the other agreements and instruments to
which it is a party and which are contemplated hereby will not: (a) conflict
with or result in any default under any contract, obligation or commitment of
the Company or any charter provision, by-law or corporate restriction of the
Company; (b) result in the creation of any lien, charge or encumbrance of any
nature upon any of the properties or assets of the Company; or (c) violate any
instrument, agreement, judgment, decree, order, statute, rule or regulation of
any federal, state or local government or agency applicable to the Company or to
which the Company is a party.
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2.4 Capitalization of the Company. The authorized capital stock of the
Company consists of: (a) 1,000,000 shares of Common Stock, of which 75 shares
will be, as of the Initial Closing, duly and validly issued, outstanding, fully
paid, and nonassessable; (b) 1,012,000 shares of designated preferred stock, par
value $.01 per share, of which (i) 506,000 shares have been designated as Series
A Convertible Participating Preferred Stock, of which 199,000 shares will be, as
of the Initial Closing, duly and validly issued, outstanding, fully paid, and
nonassessable and (ii) 506,000 shares have been designated as Redeemable
Preferred Stock, none of which will be outstanding as of the Initial Closing;
and (c) 300,000 shares of undesignated preferred stock, par value $.01 per
share. Except for 62,525 shares of Common Stock reserved for issuance under a
Stock Option Plan to be adopted by the Board of Directors of the Company and to
contain the terms set forth on Exhibit A hereto (the "Stock Option Plan") and
5,682 shares of Common Stock issuable upon the exercise of warrants issued to
the Alta Investors in connection with the Alta Loans (the "Warrants" and any
shares of Common Stock or any successor class of capital stock of the Company
hereafter issued or issuable upon exercise of the Warrants, the "Warrant
Shares") and except as otherwise disclosed in Schedule 2.4, the Company has not
issued any other shares of its capital stock and there are no outstanding
warrants, options or other rights to purchase or acquire any of such shares, nor
any outstanding securities convertible into such shares or outstanding warrants,
options or other rights to acquire any such convertible securities. As of the
Initial Closing, all of the outstanding shares of capital stock of the Company
will have been offered, issued, sold and delivered in compliance with applicable
federal and state securities laws. The Series A Preferred Shares and the Common
Shares have been duly and validly authorized and, when delivered and paid for
pursuant to this Agreement, will be validly issued, fully paid and
nonassessable. The Series A Preferred Shares are initially convertible into
406,000 shares of Redeemable Preferred Stock and 406,000 shares of Common Stock
representing 85.6% of the Common Stock of the Company on a fully-diluted basis
after giving effect to the issuance of the 62,525 shares reserved for issuance
under the Stock Option Plan and the exercise, exchange or conversion of any
other securities exercisable or exchangeable for or convertible into Common
Stock. The relative rights, preferences, restrictions and other provisions
relating to the Series A Preferred Stock and the Redeemable Preferred Stock are
as set forth in Exhibit B attached hereto. The Company has authorized and
reserved for issuance upon conversion of the Series A Preferred Shares not less
than 406,000 shares of Redeemable Preferred Stock and 406,000 shares of Common
Stock, and the Conversion Shares issuable upon such conversion will be, when
issued in accordance with the Certificate of Incorporation of the Company, duly
and validly authorized and issued, fully paid and nonassessable. The Company has
authorized and reserved for issuance upon exercise of the Warrants not less than
5,682 shares of Common Stock, and the Warrant Shares issuable upon such exercise
will be, when issued in accordance with the Certificate of Incorporation of the
Company, duly and validly authorized and issued, fully paid and nonassessable.
Except as set forth in the Stockholders' Agreement referred to in
Section 3.5 hereof, there are no preemptive rights or rights of first refusal
with respect to the issuance or sale of the Company's capital stock, other than
rights to which holders of the Securities are entitled as set forth in Section
4.11 hereof. No officer, director or employee of the Company or any other person
or entity has, claims to have or has any right to claim to have any interest in
the Company's capital stock other than as disclosed in Schedule 2.4 or as an
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Investor hereunder. There are no restrictions on the transfer of the Company's
capital stock other than those arising from federal and state securities laws or
under this Agreement or the Stockholders' Agreement referred to in Section 3.5
hereof. Except as set forth in the Stockholders' Agreement, there are no rights,
obligations or restrictions on the voting of any of the Company's capital stock
or the registration of such capital stock for offering to the public pursuant to
the Securities Act of 1933, as amended (the "Securities Act"). The shares of the
capital stock outstanding before giving effect to the transactions contemplated
by this Agreement (which consist of 1,000 shares of Common Stock) are held of
record and beneficially by the Founder and will be redeemed by the Company at
the Initial Closing. After giving effect to the transactions contemplated by
this Agreement, the Investors will be the only stockholders of the Company.
The Company has no subsidiaries or investments in any other
corporation or business organization. Except as set forth in Schedule 2.4, the
Company does not own or have any direct or indirect interest in, a loan or
advance to, or control over any corporation, partnership, joint venture or other
entity of any kind.
2.5 Financial Statements. The Company has heretofore furnished to the
Investors the following financial statements: (i) an unaudited income statement
of the Company from the date of incorporation through December 31, 1996; (ii) an
unaudited balance sheet of the Company as of December 31, 1996; and (iii) a pro
forma balance sheet of the Company as of December 31, 1996 after giving effect
to the Acquisitions and the transactions contemplated hereby (the "Pro Forma
Balance Sheet"). Such financial statements and schedules of the Company have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis, except that such financial statements have been
prepared without footnote disclosures and year-end audit adjustments, which will
not, in any event, be material. Such financial statements contain notations for
all significant accruals or contingencies, fairly represent the financial
condition of the Company in all material respects as of the date thereof, and
are true and correct as of the date thereof in all respects. Nothing has come to
the attention of management of the Company since such dates that would indicate
that the financial statements were not true and correct as of the date thereof.
The Pro Forma Balance Sheet reflects all adjustments necessary as of December
31, 1996 to combine the assets acquired or to be acquired and liabilities
incurred or assumed by the Company in connection with the Acquisitions. The
Acquisitions were accounted for as purchases and booked in accordance with
generally accepted accounting principles.
2.6 Absence of Undisclosed Liabilities. Since the date if its
incorporation and after giving effect to the transactions contemplated hereby
and the Acquisitions, the Company does not have any material liability or
liabilities of any nature, whether accrued, absolute, contingent or otherwise,
asserted or unasserted, known or unknown, which are or would be required to be
disclosed in accordance with generally accepted accounting principles, except as
and to the extent disclosed in Schedule 2.6 or as otherwise set forth in the Pro
Forma Balance Sheet, and, to the best knowledge of the Company, there exists no
set of facts or circumstances which should be reasonably anticipated to form the
basis for any such material liabilities. Without limiting the generality of the
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foregoing and after giving effect to the transactions contemplated hereby, the
Company shall not have any obligation or liability to the Founder.
2.7 Absence of Certain Developments. Except as disclosed in Schedule
2.7, since the date of the Company's incorporation, there has been (i) no
adverse change in the condition, financial or otherwise, of the Company or in
the assets, liabilities, business or prospects of the Company, (ii) no
declaration, setting aside or payment of any dividend or other distribution with
respect to, or any direct or indirect redemption or acquisition of, any of the
capital stock of the Company, (iii) no waiver of any valuable right of the
Company or cancellation of any debt or claim held by the Company, (iv) no loan
by the Company to any officer, director, employee or stockholder of the Company,
or affiliates of any of the foregoing or any agreement or commitment therefor,
(v) no compensation paid or payable to the Founding Investors or any increase in
the compensation paid or payable to any other officer, director, employee or
agent of the Company or affiliates of any of the foregoing, (vi) no material
loss, destruction or damage to any property of the Company, whether or not
insured, (vii) no labor trouble involving the Company and no material change in
the personnel of the Company or the terms and conditions of their employment and
(viii) no acquisition or disposition of any assets (or any contract or
arrangement therefor) nor any other transaction by the Company otherwise than
for fair value in the ordinary course of business.
2.8 Accounts Receivable. After giving effect to the Acquisitions, to
the best knowledge of the Company, all of the accounts receivable of the Company
represent bona fide completed sales made in the ordinary course of business and
are valid and enforceable claims, subject to no express set-off or counterclaim.
Except as disclosed on Schedule 2.8, the Company has no accounts receivable from
any person, firm or corporation which is affiliated with it or from the Founder
or any of its directors, officers, employees or shareholders or any affiliates
of any of the foregoing.
2.9 Title to Properties. After giving effect to the Acquisitions, the
Company has good and marketable title to all of its material properties and
assets, free and clear of all liens, restrictions or encumbrances, except as
disclosed in Schedule 2.9, and such properties and assets constitute all of the
assets necessary for the conduct of the Company's business as presently
conducted. To the best knowledge of the Company, the Company's current
management systems and executive personnel are adequate to manage the business
of the Company as contemplated to be conducted. All machinery and equipment
included in such properties which is necessary to the business of the Company is
in good condition and repair and all leases of real or personal property to
which the Company is a party are fully effective and afford the Company peaceful
and undisturbed possession of the subject matter of the lease. The Company is
not in violation of any material zoning, building or safety ordinance,
regulation or requirement or other law or regulation applicable to the operation
of its owned or leased properties, nor has the Company received any notice of
violation with which it has not complied.
2.10 Tax Matters. Except as set forth in Schedule 2.10 attached
hereto:
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(a) The Company has paid or caused to be paid all federal, state,
local, foreign, and other taxes, including without limitation, income taxes,
estimated taxes, alternative minimum taxes, excise taxes, sales taxes, franchise
taxes, employment and payroll-related taxes, withholding taxes, transfer taxes,
and all deficiencies, or other additions to tax, interest, fines and penalties
owed by it (collectively, "Taxes"), required to be paid by it through the date
hereof whether disputed or not. All taxes and other assessments and levies which
the Company is required to withhold or collect have been withheld and collected
and have been paid over to the proper governmental authorities. The Company has,
in accordance with applicable law, timely and properly filed all federal, state,
local and foreign tax returns required to be filed by it through the date
hereof, all such returns correctly and accurately set forth the amount of any
Taxes relating to the applicable period and any deductions from, or credits
against any Taxes or taxable income relating to such returns are valid and
proper items of deduction or credit.
(b) Neither the Internal Revenue Service ("IRS") nor any other
governmental authority is now asserting or, to the knowledge of the Company or
threatening to assert against the Company any deficiency or claim for additional
Taxes. No claim has ever been made by an authority in a jurisdiction where the
Company does not file reports and returns that the Company is or may be subject
to taxation by that jurisdiction. There are no security interests on any of the
assets of the Company that arose in connection with any failure (or alleged
failure) to pay any Taxes. The Company has never entered into a closing
agreement pursuant to Section 7121 of the Internal Revenue Code of 1986, as
amended (the "Code"). The Company is not and never has been a "personal holding
company" as defined under Section 541 of the Code. There has not been any audit
of any tax return filed by the Company, no such audit is in progress, and the
Company has not been notified by any tax authority that any such audit is
contemplated or pending. No extension of time with respect to any date on which
a tax return was or is to be filed by the Company is in force, and no waiver or
agreement by the Company is in force for the extension of time for the
assessment or payment of any Taxes. The Company is not now and has never been a
member of an affiliated group filing a consolidated federal income tax return.
The Company does not have any liability for the Taxes of any person or entity
other than the Company.
(c) For purposes of this Agreement, all references to Sections of
the Code shall include any predecessor provisions to such Sections and any
similar provisions of federal, state, local or foreign law.
2.11 Contracts and Commitments. The Company is not, and after giving
effect to the Acquisitions will not be, a party to any contract, obligation or
commitment (whether written or oral) which involves a potential commitment in
excess of $50,000 or which is otherwise material and not entered into in the
ordinary course of business, nor is the Company a party to any employment
contracts; stock restriction, voting, redemption or purchase agreements; loan,
capital lease or other financing agreements; licenses; distributor, sales
representative agreement; agreements with the Founder or any other officers,
directors, employees or stockholders of the Company or persons or organizations
related to or affiliated with any such persons; leases; agreements relating to
the merger, consolidation or the acquisition or disposition of any assets or
15
capital stock (other than the Acquisition Agreements); agreements relating to
the licensing, distribution, development or maintenance of DBS services,
including without limitation any contract with the NRTC or with Xxxxxx
Communications Galaxy, Inc. ("Xxxxxx"); material agreements with subscribers of
the Company's services, including without limitation, leases or rental
agreements for satellite receiving systems for DirecTV ("DSS Systems") with
subscribers; powers of attorney; or pension, profit-sharing, retirement or stock
option plans, except in each case as are described in Schedule 2.11. The Company
does not know of any basis for the termination, expiration or modification of
any such agreements prior to the expiration date thereof, which termination,
expiration or modification may have an adverse effect on the assets,
liabilities, business, financial condition or prospects of the Company. The
Company is not in default under any contract, obligation or commitment
(including without limitation the Acquisition Agreements), and to the best
knowledge of the Company, there is no state of facts which upon notice or lapse
of time or both would constitute such a default. The Company is not a party to
any contract or arrangement the performance of which under circumstances now
foreseeable is likely to have an adverse effect on the assets, liabilities,
business or condition, financial or otherwise, of the Company. The Company does
not have any liability for renegotiation of any government contracts or
subcontracts. The copies of the Acquisition Agreements (including the schedules
thereto) and the contracts with the NRTC that have been furnished to counsel for
the Investors are correct and complete as of the date hereof, and, to the best
knowledge of the Company, no term therein or in the Xxxxxx/NRTC contract has
been waived, modified or amended as of the date hereof.
2.12 Proprietary Rights; Employee Restrictions. Set forth in Schedule
2.12 is a list and brief description of all patents, patent rights, patent
applications, trademarks, trademark applications, service marks, service xxxx
applications, trade names, licenses, sublicenses and copyrights owned by or
registered in the name of the Company, or of which the Company is a licensor or
licensee or in which the Company has any right, and in each case a brief
description of the nature of such right. The Company owns or possesses exclusive
licenses to use, free and clear of claims or rights of any other person, all
patents, patent applications, trademarks, trademark applications, service marks,
service xxxx applications, trade names, copyrights, licenses, sublicenses, trade
secrets and know how (collectively "Intellectual Property") necessary to the
conduct of its business as presently conducted and as proposed to be conducted.
All Intellectual Property that is used or incorporated into the Company's
business and which is unique or proprietary to the Company was developed by or
for the Company by the employees of the Company or its predecessors in interests
and is owned exclusively by the Company, free and clear of claims or rights of
any other person. The Company is not aware of any infringement by any other
person of any rights of the Company under any Intellectual Property. No claim is
pending or threatened against the Company nor has the Company received any
notice from any third parties, to the effect that any Intellectual Property
owned or licensed by the Company, or which the Company otherwise has the right
to use, or the operation, products or services of the Company infringe upon or
conflict with the asserted rights of any other person under any Intellectual
Property, and, to the best knowledge of the Company, there is no basis for any
such claim (whether or not pending or threatened). No claim is pending or
threatened against the Company, nor has the Company received any notice from any
16
third parties, to the effect that any Intellectual Property owned or licensed by
the Company, or which the Company otherwise has the right to use, is invalid or
unenforceable by the Company, as the case may be, and, to the best knowledge of
the Company, there is no basis for any such claim (whether or not pending or
threatened).
All licenses or other agreements under which the Company is granted
rights in Intellectual Property are listed in Schedule 2.12. All such licenses
or other agreements are in full force and effect, there is no material default
by any party thereto, and, except as set forth on Schedule 2.12, all of the
rights of the Company thereunder are freely assignable. True and complete copies
of all such licenses or other agreements, and any amendments thereto, have been
provided to the Investors and, to the best knowledge of the Company, the
licensors under such licenses and other agreements have and had all requisite
power and authority to grant the rights purported to be conferred thereby.
All licenses or other agreements under which the Company has granted
rights to others in Intellectual Property are listed in Schedule 2.12. All of
said licenses or other agreements are in full force and effect, there is no
material default by any party thereto, and, except as set forth on Schedule
2.12, all of the rights of Company thereunder are freely assignable. True and
complete copies of all such licenses or other agreements, and any amendments
thereto, have been made available to the Investors.
All technical information developed by or belonging to the Company and
which is material to the business of the Company which has not been patented has
been kept confidential. The Company is not making unlawful use of any
Intellectual Property of any other person, including without limitation any
former employer of any past or present employees of the Company. Except as
disclosed in Schedule 2.12, neither the Company nor any of its employees,
officers or consultants has any agreements or arrangements with former employers
of such employees, officers or consultants relating to any Intellectual Property
of such employers, which interfere or conflict with the performance of such
employee's duties for the Company or results in any former employers of such
employees having any rights in, or claims on, the Company's Intellectual
Property. The activities of the Company's employees and officers do not, to the
Company's best knowledge, violate any agreements or arrangements which any such
employees have with former employers. The Company has taken all commercially
reasonable steps required to establish and preserve its ownership of all of the
Intellectual Property; each current and former employee and officer of the
Company has executed an agreement regarding confidentiality, proprietary
information and assignment of inventions to the Company substantially in the
form of Exhibit C hereto, and, to the knowledge of the Company, none of such
employees are in violation of such agreements.
Without limitation of any of the foregoing and except as otherwise
expressly disclosed in Schedule 2.12 hereto: (a) the Company has taken
reasonable security measures to guard against unauthorized disclosure or use of
any of the Intellectual Property; and (b) the Company has no reason to believe
that any person (including without limitation any former employee of the
Company) has unauthorized possession of any of the Intellectual Property, or any
part thereof, or that any person has obtained unauthorized access to any of the
17
Intellectual Property.
2.13 Litigation. Except as disclosed in Schedule 2.13, there is no
litigation or governmental proceeding or investigation pending or, to the best
knowledge of the Company, threatened against the Company, or any officer or key
employee of the Company, which relates to the Company or its business or affairs
or which may call into question the validity or hinder the enforceability or
performance of this Agreement or the agreements and transactions contemplated
hereby or which could be reasonably expected to have an adverse effect on the
assets, liabilities, business or condition (financial or otherwise) of the
Company; nor, to the best knowledge of the Company, has there occurred any event
nor does there exist any condition on the basis of which any such litigation,
proceeding or investigation might properly be instituted.
2.14 Offeree. Neither the Company nor anyone acting on its behalf has
in the past or will sell, offer for sale or solicit offers to buy any securities
of the Company so as to bring the offer, issuance or sale of the Series A
Preferred Shares or the Conversion Shares, as contemplated by this Agreement,
within the provisions of Section 5 of the Securities Act, unless such offer,
issuance or sale was or will be within the exemptions of Section 4 thereof. The
Company has and will comply with all applicable state "blue-sky" or securities
laws in connection with the issuance and sale of its Common Stock, Series A
Preferred Shares, Warrants and other securities heretofore issued and to be
issued upon the closing of the Agreement. The Company has in the past complied
with all applicable federal and state securities laws in connection with the
offer, solicitation of offers and sales of its securities.
2.15 Business; Compliance with Laws. Except as disclosed in Schedule
2.15 and after giving effect to the Acquisitions, the Company has all necessary
franchises, permits, licenses and other rights and privileges necessary to
permit it to own its property and to conduct its business as it is presently
conducted. The Company is not in violation, in any respect, of any law,
regulation, authorization or order of any public authority. The Company is in
compliance, in all material respects, with all federal (including all laws and
regulations of the Federal Communications Commission ("FCC")), state and local
laws and regulations (including all applicable environmental laws and
regulations) relating to its business as presently conducted, except as
disclosed in Schedule 2.15, and has been approved as an NRTC franchisee and NRTC
Affiliate Member. Neither the Company nor any of its affiliates has been: (a)
subject to a voluntary or involuntary petition under the federal bankruptcy laws
or any state insolvency law or the appointment of a receiver, fiscal agent or
similar officer by a court for his business or property; (b) convicted in a
criminal proceeding or named as a subject of a pending criminal proceeding
(excluding traffic violations and other minor offenses); (c) subject to any
order, judgment, or decree (not subsequently reversed, suspended or vacated) of
any court of competent jurisdiction permanently or temporarily enjoining it, him
or her from, or otherwise imposing limits or conditions on its, his or her,
engaging in any securities, investment advisory, banking, insurance or other
type of business or acting as an officer or director of a public company; or (d)
found by a court of competent jurisdiction in a civil action or by the
Securities and Exchange Commission or the Commodity Futures Trading Commision to
18
have violated any federal or state commodities, securities or unfair trade
practices law or regulations of any regulatory agency, which such judgment or
finding has not been subsequently reversed, suspended or vacated.
2.16 Information Supplied to Investors. This Agreement and the
Schedules (including the long-term business plan included herein as Schedule
2.16), taken as a whole, do not contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
contained therein not misleading. Such business plan was prepared by the Company
in good faith and fairly presents the business and prospects of the Company in
all material respects as of its date. The forecasts and projections of future
financial results contained in such business plan were prepared by the Company
in good faith and are based upon information available to the Company as of the
date thereof and upon assumptions believed by the Company to be reasonable.
There is no material fact directly relating to the assets, liabilities, business
or condition (financial or otherwise) of the Company (other than facts which
relate to general economic or industry trends or conditions) presently known to
the Company which has not been disclosed to the Investors that materially
adversely affects or in the future may reasonably be expected to materially
adversely affect the same.
2.17 Investment Banking; Brokerage. No broker, finder, agent or
similar intermediary has acted on behalf of the Company or the Founder in
connection with this Agreement or the transactions contemplated hereby (other
than in connection with the Acquisitions) and there are no brokerage
commissions, finders fees or similar fees or commissions payable in connection
therewith (other than the Warrants issued to the Alta Investors). The Company
agrees to indemnify and hold the Outside Investors harmless from any losses,
damages, costs or expenses they may suffer or incur as a result of a breach of
this representation (including any dilution or diminution in value of their
investment in the Company).
2.18 Solvency. The Company has not: (a) made a general assignment for
the benefit of creditors; (b) filed any voluntary petition in bankruptcy or
suffered the filing of any involuntary petition by its creditors; (c) suffered
the appointment of a receiver to take possession of all, or substantially all,
of its assets; (d) suffered the attachment or other judicial seizure of all, or
substantially all, of its assets; (e) admitted in writing its inability to pay
its debts as they come due; or (f) made an offer of settlement, extension or
composition to its creditors generally. After giving effect to the transactions
provided for or contemplated therein (including the payment of the distribution
to the Company's existing shareholders): (a) the Company will be able to pay its
debts as they come due in the usual course of business and will have adequate
capital to conduct its business; and (b) the Company's total assets will be
greater than its total liabilities (total assets for this purpose being
determined on the basis of the "fair saleable value" thereof).
2.19 Environmental Matters.
(a) Except as set forth in Schedule 2.19, (i) the Company has
never generated, transported, used, stored, treated, disposed of, or managed any
Hazardous Waste (as defined below); (ii) to the best knowledge of the Company,
19
no Hazardous Material (as defined below) has ever been or is threatened to be
spilled, released, or disposed of by the Company, at any site presently or
formerly owned, operated, leased, or used by the Company, or has ever come to be
located in the soil or groundwater at any such site; (iii) to the best knowledge
of the Company, no Hazardous Material of the Company has ever been transported
from any site presently or formerly owned, operated, leased, or used by the
Company for treatment, storage, or disposal at any other place; (iv) to the best
knowledge of the Company, the Company presently does not own, operate, lease, or
use, nor has the Company previously owned, operated, leased, or used, any site
on which underground storage tanks are or were located; and (v) no lien has ever
been imposed by any governmental agency on any property, facility, machinery, or
equipment owned, operated, leased, or used by the Company with the presence of
any Hazardous Material and based upon any action or inaction of the Company.
(b) Except as set forth in Schedule 2.19, (i) the Company has no
liability under, nor has it ever violated in any respect, any Environmental Law
(as defined below); (ii) the Company, any property owned, operated, leased, or
used by the Company, and any facilities and operations thereon are presently in
compliance in all respects with all applicable Environmental Laws; (iii) the
Company has never entered into or been subject to any judgment, consent, decree,
compliance order, or administrative order with respect to any environmental or
health and safety matter or received any request for information, notice, demand
letter, administrative inquiry, or formal or informal complaint or claim with
respect to any environmental or health and safety matter or the enforcement of
any Environmental Law; and (iv) none of the items enumerated in clause (iii) of
this paragraph will be forthcoming.
(c) Except as set forth in Schedule 2.19, to the best knowledge
of the Company, no site owned, operated, leased or used by the Company contains
any asbestos or asbestos-containing material, any polychlorinated biphenyls
(PCBs) or equipment containing PCBs, or any urea formaldehyde foam insulation.
(d) Xxxxxxx, Procter & Xxxx LLP has been provided with copies of
all documents, records, and information available concerning any environmental
or health and safety matter relevant to the Company, whether generated in
connection with the Company's business or otherwise, including, without
limitation, environmental audits, environmental risk assessments, site
assessments, documentation regarding off-site disposal of Hazardous Materials,
spill control plans, and reports, correspondence, permits, licenses, approvals,
consents, and other authorizations related to environmental or health and safety
matters issued by any governmental agency.
(e) For purposes of this Section 2.19, (i) "Hazardous Material"
shall mean and include any hazardous waste, hazardous material, hazardous
substance, petroleum product, oil, toxic substance, pollutant, contaminant, or
other substance which may pose a threat to the environment or to human health or
safety, as defined or regulated under any Environmental Law; (ii) "Hazardous
Waste" shall mean and include any hazardous waste as defined or regulated under
any Environmental Law; (iii) "Environmental Law" shall mean any environmental or
health and safety-related law, regulation, rule, ordinance, or by-law at the
20
federal, state, or local level, whether existing as of the date hereof, or
subsequently enacted; and (iv) "Company" shall include the Company, and any
predecessor to the Company.
2.20 Employee Benefit Programs.
(a) The Company has never maintained (as defined below) an
Employee Program (as defined below) which has at any time been intended to
qualify under Section 401(a) or 501(c)(9) of the Code.
(b) Each Employee Program that has ever been maintained by the
Company has been maintained in compliance in all material respects with all
applicable laws. With respect to any Employee Program ever maintained by the
Company, there has occurred no "prohibited transaction," as defined in Section
406 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code (for which there exists neither a
statutory nor regulatory exception), or material breach of any duty under ERISA
or other applicable law (including, without limitation, any health care
continuation requirements or any other tax law requirements, or conditions to
favorable tax treatment, applicable to such plan or to any person in regard to
such plan), which could result, directly or indirectly (including, without
limitation, through any obligation of indemnification or contribution), in any
taxes, penalties or other liability to the Company or any of its affiliates. No
litigation, arbitration or governmental administrative proceeding (or
investigation) or other proceeding (other than those relating to routine claims
for benefits) is pending or, to the best knowledge of the Company, threatened
with respect to any such Employee Program.
(c) Neither the Company nor any Affiliate (as defined below) (i)
has ever maintained any Employee Program which has been subject to Title IV of
ERISA or Section 412 of the Code (including, but not limited to, any
Multiemployer Plan (as defined below)) or (ii) has ever provided health care or
any other non-pension benefits to any employees after their employment is
terminated (other than as required by part 6 of subtitle B of Title I of ERISA)
or has ever promised to provide such post-termination benefits.
(d) With respect to each Employee Program maintained by or on
behalf of the Company or any affiliate since its incorporation, complete and
correct copies of the following documents (if applicable to such Employee
Program) have previously been delivered to Xxxxxxx, Procter & Xxxx LLP: (i) all
documents embodying or governing such Employee Program, and any funding medium
for the Employee Program (including, without limitation, trust agreements), as
they may have been amended to the date hereof; (ii) the most recent IRS
determination or approval letter with respect to such Employee Program under
Code Section 401 or 501(c)(9), and any applications for determination or
approval subsequently filed with the IRS; (iii) the three most recently filed
IRS Forms 5500, with all applicable schedules and accountants' opinions attached
thereto; (iv) the summary plan description for such Employee Program (or other
descriptions of such Employee Program provided to employees) and all
modifications thereto; (v) any insurance policy (including any fiduciary
liability insurance policy and any excess loss policy) related to such Employee
Program; (vi) any documents evidencing any loan to an Employee Program that is a
leveraged employee stock ownership plan; and (vii) all other materials
21
reasonably necessary for the Company to perform any of its responsibilities with
respect to any Employee Program subsequent to the Closing (including, without
limitation, health care continuation requirements).
(e) For purposes of this Section 2.20:
(i) "Employee Program" means (A) all employee benefit plans
within the meaning of ERISA Section 3(3), including, but not limited to,
multiple employer welfare arrangements (within the meaning of ERISA Section
3(40)), plans to which more than one unaffiliated employer contributes and
employee benefit plans (such as foreign or excess benefit plans) which are
not subject to ERISA; and (B) all stock or cash option plans, restricted
stock plans, bonus or incentive award plans, severance pay policies or
agreements, deferred compensation agreements, supplemental income
arrangements, vacation plans, and all other employee benefit plans,
agreements, and arrangements not described in (A) above. In the case of an
Employee Program funded through an organization described in Code Section
501(c)(9), each reference to such Employee Program shall include a
reference to such organization.
(ii) An entity "maintains" an Employee Program if such
entity sponsors, contributes to, or provides (or has promised to provide)
benefits under such Employee Program, or has any obligation (by agreement
or under applicable law) to contribute to or provide benefits under such
Employee Program, or if such Employee Program provides benefits to or
otherwise covers employees of such entity (or their spouses, dependents, or
beneficiaries).
(iii) An entity is an "Affiliate" of the Company if it would
have ever been considered a single employer with the Company or any Entity
under ERISA Section 4001(b) or part of the same "controlled group" as the
Company for purposes of ERISA Section 302(d)(8)(C).
(iv) "Multiemployer Plan" means a (pension or non-pension)
employee benefit plan to which more than one employer contributes and which
is maintained pursuant to one or more collective bargaining agreements.
2.21 Product and Services Claims. Except as set forth on Schedule
2.21, (i) there are no pending or, to the best knowledge of the Company,
threatened material product or service claims with respect to any products or
services provided by the Company prior to the Initial Closing Date nor are there
any facts upon which a claim of such nature could reasonably be anticipated to
be based and (ii) the Company does not have any contractual liability for breach
of warranty or service claims. No claims have been made against the Company for
renegotiation or price redetermination of any business transaction resulting
from or relating to defective products or services, and, to the best knowledge
of the Company, there are no facts upon which any such claim should reasonably
be anticipated to be based.
22
2.22 Employees; Labor Matters. The Company employs a total of
approximately 16 full-time employees and two part-time employees and generally
enjoys good employer-employee relationships. The Company is not delinquent in
payments to any of its employees for any material amount of wages, salaries,
commissions, bonuses or other direct compensation for any services performed for
it to the date hereof or amounts required to be reimbursed to such employees.
The Company does not have any policy, practice, plan or program of paying
severance pay or any form of severance compensation in connection with the
termination of employment, except as set forth in Schedule 2.22. The Company is
in compliance in all material respects with all applicable laws and regulations
respecting labor, employment, fair employment practices, work place safety and
health, terms and conditions of employment, and wages and hours. There are no
charges of employment discrimination or unfair labor practices, nor are there
any strikes, slowdowns, stoppages of work or any other concerted interference
with normal operations which are existing, pending or threatened against or
involving the Company. The Company has not received any information indicating
that any of its employment policies or practices is currently being audited or
investigated by any federal, state or local government agency. The Company is,
and at all times since its incorporation has been, in compliance with the
requirements of the Immigration Reform Control Act of 1986. Schedule 2.22 sets
forth a complete list of each officer, employee and sales representative who is
scheduled to receive total remuneration from the Company on an annualized basis
in excess of $50,000 for the calendar year ending December 31, 1997.
2.23 Relationship with Subscribers, Retailers and Distributors. The
relationships of the Company with its subscribers, retailers and distributors
are good commercial working relationships. The Company has never intentionally
solicited, nor intentionally encouraged any of its representatives or any other
person to solicit, nor has the Company employed any scheme or device for the
purpose of encouraging nor has the Company encouraged any of its representatives
or any other person to employ any scheme or device for the purposes of
encouraging persons residing outside the Company's designated DBS service areas,
or persons not otherwise eligible, to become subscribers of the DBS services
offered in the ordinary course of the Company's business.
2.24 Corporate Records; Copies of Documents. The corporate record
books of the Company accurately record all corporate action taken by its
stockholder and board of directors and committees. The copies of the corporate
records of the Company, as made available to the Investors for review, are true
and complete copies of the originals of such documents. The Company has made
available for inspection by the Investor and their counsel true and correct
copies of all documents referred to in this Section 2.24 or in the Schedules
delivered pursuant to this Agreement.
2.25 Affiliate Transactions. Except as set forth in Schedule 2.25
hereto, neither the Company nor any officer, employee or director of the Company
(other than the Outside Investor Representatives) or any of their respective
spouses or family members or any of their affiliates, owns, directly or
indirectly, on an individual or joint basis, any material interest in, or serves
as an officer, director, partner or in another similar capacity of, any
competitor of the Company, or any organization which has a contract or
arrangement with the Company.
23
2.26 Investments Related to Certain Foreign Countries. Neither the
Company nor any affiliate of the Company has participated in, or is
participating in, an anti-Israeli boycott within the scope of Chapter 7 of Part
2 of Division 4 of Title 2 of the California Government Code, as in effect from
time to time.
2.27 Small Business Concern, Etc.
(a) The Company, together with its "affiliates" (as that term is
defined in 13 CFR Section 121.103), is a "smaller business" within the meaning
of SBIC Regulations, including 13 CFR Section 107.710. The information regarding
the Company and its affiliates set forth in SBA Form 480, Form 652 and Section A
of Form 1031 delivered on or prior to the Initial Closing Date is accurate and
complete. The Company does not presently engage in, nor shall hereafter engage
in, any activities, and the Company shall not use the proceeds of the sale of
the Series A Preferred Shares hereunder directly or indirectly for any purpose,
for which an SBIC is prohibited from providing funds by SBIC Regulations
(including 13 CFR Section 107.720).
(b) As of the date hereof, the primary business activity of the
Company is (i) providing DBS services and (ii) classified under Standard
Industrial Classification Code number 4841 (Cable and Other Pay Television
Services), and the annual receipts (as such term is used in 13 CFR Section
121.201) of the Company are less than $11,000,000.
(c) For all purposes of this Agreement, the following terms shall
have the following meanings:
(i) "SBA" means the United States Small Business
Administration, and any successor agency performing the functions thereof;
(ii) "SBIC" means a Small Business Investment Company
licensed by the SBA under the SBIC Act;
(iii) "SBIC Act" means the Small Business Investment Act of
1958, as amended; and
(iv) "SBIC Regulations" means the SBIC Act and the
regulations issued by the SBA thereunder, codified at Title 13 of the Code
of Federal Regulations ("13 CFR"), Parts 107 and 121.
SECTION 2A. REPRESENTATIONS AND WARRANTIES OF THE FOUNDER
In order to induce the Outside Investors to enter into this Agreement,
the Founder hereby represents and warrants to the Outside Investors that (i) the
Company was incorporated in Delaware on June 25, 1996 and, other than with
respect to the Acquisitions or as disclosed in the schedules to this Agreement,
has not acquired any assets or created, incurred, assumed or become liable for
any indebtedness since such date, and (ii) the representations and warranties
24
made by the Company in Sections 2.6, 2.7, 2.11, 2.13, 2.17 and 2.25 are true and
correct in all respects as of the date hereof.
SECTION 3. CONDITIONS OF PURCHASE
The Investors' obligation to purchase and pay for the Series A
Preferred Shares and the Common Shares shall be subject to compliance by the
Company with its agreements herein contained and to the fulfillment to the
Investors' satisfaction on or before the Initial Closing Date and/or an
Additional Closing Date, as the case may be, of the following conditions:
3.1 Satisfaction of Conditions. The representations and warranties of
the Company contained in this Agreement (including, but not limited to, the
representations and warranties made in Section 2 hereof) shall be true and
correct in all material respects on and as of the Initial Closing Date and, with
respect to an Additional Closing, the Additional Closing Date; each of the
conditions specified in this Section 3 shall have been satisfied or waived in
writing; and on the Initial Closing Date and each Additional Closing Date,
certificates to such effect executed by the President and the principal
financial officer of the Company shall be delivered to the Investors.
3.2 Opinion of Counsel. The Investors shall have received an opinion,
dated the Initial Closing Date and each Additional Closing Date, in form and
substance satisfactory to them on the organization and authority of the Company,
the enforceability of this Agreement and any related agreements, absence of
conflicts with organizational documents and other agreements, absence of
litigation and such other matters as requested by the Investors.
3.3 Authorization. The Board of Directors and the sole stockholder of
the Company shall have duly adopted resolutions in form reasonably satisfactory
to the Investors authorizing the Company to consummate the transactions
contemplated hereby in accordance with the terms hereof, and the Investors shall
have received a duly executed certificate of the Secretary of the Company
setting forth a copy of such resolutions and the Certificate of Incorporation
and By-laws of the Company and such other matters as may be requested by the
Investors.
3.4 Effectiveness of Preferred Stock Terms. The Board of Directors of
the Company shall have adopted a resolution establishing the terms of the Series
A Preferred Stock and Redeemable Preferred Stock as set forth in Exhibit B
hereto, and such action shall have been made effective by approval thereof by
the Founder and the filing of an Amended and Restated Certificate of
Incorporation with the Secretary of State for the State of Delaware.
3.5 Stockholders' Agreement. The Company, the Investors and all other
stockholders of the Company shall have executed and delivered a Stockholders'
Agreement in the form of Exhibit D hereto (the "Stockholders' Agreement").
25
3.6 Non-Competition Agreements. The Founder and all other key
employees of the Company shall have entered into a Non-Competition Agreement
containing non-competition, non-solicitation and confidentiality provisions with
the Company in the form of Exhibit E hereto (the "Non-Competition Agreement").
All employees of the Company who are exposed to technical and proprietary
information of the Company shall have entered into confidentiality and invention
assignment agreements with the Company substantially in the form attached as
Exhibit C hereto (the "Confidentiality and Proprietary Rights Agreement").
3.7 Redemption. The Company shall have redeemed all of the shares of
capital stock of the Company held by the Founder as of the date hereof. The
Founder and the other Founding Investors shall have paid an aggregate of
$3,000,000 (including the full amount of the Founders' Advances) for the Series
A Preferred Shares and Common Shares being purchased by them hereunder. In
connection with the redemption, there shall have been delivered to the Company
(a) the certificate representing all of the capital stock held by the Founder,
marked canceled, and (b) a release executed by the Founder, in form and
substance satisfactory to the Outside Investors.
3.8 Acquisitions. The Company shall have consummated each of the
Acquisitions with Aurora Cable, TV Tennessee and Images DBS.
3.9 Election of Directors; Indemnification Agreements. In accordance
with the terms of the Stockholders' Agreement, the size of the Company's Board
of Directors shall have been fixed at no more than five (5) members and three
(3) designees of the Outside Investors shall have been elected to the Company's
Board of Directors (herein referred to, together with any successors as
replacements, as the "Outside Investor Representatives"). The Company shall have
entered into an Indemnification Agreement with each of its directors (including
the Outside Investor Representatives) in substantially the form of Exhibit F
hereto.
3.10 All Proceedings Satisfactory. All corporate and other proceedings
taken prior to or at the Initial Closing in connection with the transactions
contemplated by this Agreement, and all documents and evidences incident
thereto, shall be reasonably satisfactory in form and substance to three-fourths
in interest of the Investors (including each Outside Investor who has a
commitment to purchase at least 75,000 Series A Preferred Shares hereunder, as
appropriately adjusted for any stock split, combination, reorganization,
recapitalization, reclassification, stock distribution, stock dividend or
similar event), the Investors shall have received such copies thereof and other
materials (certified, if requested) as they may reasonably request in connection
therewith. The issuance and sale of the Series A Preferred Shares and Common
Shares to the Investors and the Warrants to the Alta Investors shall be made in
conformity with all applicable state and federal securities laws.
3.11 Delivery of Documents. The Company shall have executed and
delivered to the Investors (or shall have caused to be executed and delivered to
the Investors by the appropriate persons) the following:
(a) Certificates for the Series A Preferred Shares and Common
Shares;
26
(b) Certified copies of resolutions of the Board of Directors
(and, if necessary, the stockholder) of the Company authorizing the execution
and delivery of this Agreement, the Stockholders' Agreement, the Amended and
Restated Certificate of Incorporation creating the Series A Preferred Shares,
the issuance of the Series A Preferred Shares and Common Shares and, upon
conversion of the Series A Preferred Shares, the issuance of the Conversion
Shares;
(c) A copy of the corporate charter of the Company, as amended,
certified as of a recent date by the Secretary of State of the State of
Delaware;
(d) A copy of the by-laws of the Company certified by the
Company's secretary;
(e) Certificates issued by the Secretary of State of the States
of Delaware and Missouri, certifying that the Company is in good standing in
their respective states;
(f) True and correct copies of the Acquisition Agreements,
together with all amendments thereto, and copies of all documents and
instruments evidencing the transactions consummated in connection therewith; and
(g) Such other supporting documents and certificates as the
Investors may reasonably request.
3.12 SBIC Deliveries. The Company shall have delivered to BancBoston
Ventures Inc. ("BancBoston"):
(a) duly completed and executed SBA Forms 480, 652 and Part A of
1031;
(b) if not delivered prior to the Initial Closing, a business
plan showing the Company's financial projections for a five-year period from the
Initial Closing;
(c) a written statement from the Company regarding its intended
use of the proceeds from the sale of the Series A Preferred Shares; and
(d) a list, after giving effect to the Initial Closing, of (i)
the name of each of the Company's directors, (ii) the name and title of each of
the Company's officers, and (iii) the name of each of the Company's stockholders
setting forth the number and class of shares held.
3.13 Additional Closing Conditions. In addition to the other
conditions set forth in this Section 3, the obligations of the Outside Investors
to purchase and pay for the Series A Preferred Shares to be sold by the Company
at each Additional Closing shall be subject to the fulfillment or waiver, on or
before the Additional Closing Date, of the following conditions: (a) the Company
shall have furnished to the Outside Investors the Sale Notice; (b) the Company
shall have furnished to the Outside Investors, at least ten days prior to the
Additional Closing Date, updated schedules to this Agreement, which shall be
reasonably acceptable to three-fourths in interest of the Outside Investors;
27
(c) there shall not exist any condition or state of events which has resulted
in, or could reasonably be expected to result in, a material adverse effect on
the business operations or condition (financial or otherwise) of the Company;
(d) the Company shall have executed and delivered the certificates for the
additional Series A Preferred Shares; (e) three-fourths in interest of the
Outside Investors (including each Outside Investor who owns or has a commitment
to purchase at least 75,000 Series A Preferred Shares hereunder, as
appropriately adjusted for any stock split, combination, reorganization,
recapitalization, reclassification, stock distribution, stock dividend or
similar event), shall have approved the use of proceeds for which the additional
Series A Preferred Shares are being sold (which may include funding for approved
acquisitions, working capital and capital expenditures); and (f) there shall
have been no breach by the Company under this Agreement, the Stockholders'
Agreement or the Amended and Restated Certificate of Incorporation.
SECTION 3A. CONDITIONS OF SALE
The Company's obligation to sell the Series A Preferred Shares at each
Additional Closing shall be subject to (i) the delivery by all of the Outside
Investors of the purchase price set forth on Appendix A hereto at the Initial
Closing and (ii) the Company's reasonable satisfaction that the representations
and warranties of the Outside Investors contained in Section 5 hereof are true
and correct in all material respects on and as of the Additional Closing Date.
SECTION 4. COVENANTS OF THE COMPANY
The Company (which term shall be deemed to include, for purposes of
this Section 4, any subsidiary or subsidiaries of the Company formed after the
date of this Agreement) shall comply with the following covenants except as
shall otherwise be expressly agreed pursuant to a written consent or consents
executed by the holders of three-fourths in interest of the Series A Preferred
Shares (including each Outside Investor who owns or has a commitment to purchase
at least 75,000 Series A Preferred Shares hereunder, as appropriately adjusted
for any stock split, combination, reorganization, recapitalization,
reclassification, stock distribution, stock dividend or similar event), until
such time as all of the Series A Preferred Shares shall have been redeemed in
accordance with their terms or converted into Common Stock and Redeemable
Preferred Stock upon the vote of holders of three-fourths in interest of the
Series A Preferred Shares, upon the closing of an underwritten public offering
pursuant to an effective registration statement under the Securities Act
covering the offer and sale of Common Stock of the Company to the public in
which the proceeds received by the Company, net of underwriting discounts and
commissions, equal or exceed $35 million and the shares are offered to the
public at a price per share of no less than $300.00 (as appropriately adjusted
for any stock split, combination, reorganization, recapitalization,
reclassification, stock distribution, stock dividend or similar event) (a
"Qualified Public Offering") or as otherwise provided in the Amended and
Restated Certificate of Incorporation.
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4.1 Financial Statements; Minutes. The Company will maintain a
comparative system of accounts in accordance with generally accepted accounting
principles, keep full and complete financial records and furnish to the
Investors the following reports: (a) within 90 days after the end of each fiscal
year, a copy of the consolidated balance sheet of the Company as at the end of
such year, together with a consolidated statement of income and retained
earnings of the Company for such year, audited and certified by independent
public accountants of recognized national standing reasonably satisfactory to
the Investors, prepared in accordance with generally accepted accounting
principles and practices consistently applied; (b) within 45 days after the end
of each quarter, commencing with the quarter ending March 31, 1997, a
consolidated unaudited balance sheet of the Company as at the end of such
quarter and a consolidated unaudited statement of income and retained earnings
for the Company for such quarter and for the year to date; (c) within 30 days
after the end of each month, commencing with the month ended January 31, 1997, a
consolidated unaudited balance sheet of the Company as at the end of such month
and an unaudited statement of income and retained earnings for the Company for
such month and for the year to date, each of the foregoing balance sheets and
statements of earnings and retained earnings to set forth in comparative form
the corresponding figures for the prior fiscal period; and (d) such other
financial information as the holders of three-fourths in interest of the Series
A Preferred Shares may reasonably request, including without limitation,
certificates of the principal financial officer of the Company concerning
compliance with the covenants of the Company under this Section 4.
4.2 Budget and Operating Forecast. Commencing with the fiscal year
beginning January 1, 1998, the Company will prepare and submit to the Board of
Directors of the Company a budget for the Company for each fiscal year of the
Company at least 60 days prior to the beginning of such fiscal year, together
with management's written discussion and analysis of such budget. The budget
shall be accepted as the budget for such fiscal year when it has been approved
by a majority of the full Board of Directors of the Company and, thereupon, a
copy of such budget promptly shall be sent to the Investors. The Company shall
review the budget periodically and shall advise the Board of Directors and the
Investors of all changes therein and all material deviations therefrom.
4.3 Conduct of Business. The Company will continue to engage
principally in the business now conducted by the Company or a business or
businesses similar thereto or reasonably compatible therewith, and shall not
engage in any other business or businesses without the approval of the holders
of three-fourths in interest of the Series A Preferred Shares (including each
Outside Investor who owns or has a commitment to purchase at least 75,000 Series
A Preferred Shares hereunder, as appropriately adjusted for any stock split,
combination, reorganization, recapitalization, reclassification, stock
distribution, stock dividend or similar event). The Company shall not become a
holding company with all operating businesses being conducted by its
subsidiaries. The Company shall conduct its business in a manner that does not
cause the Outside Investors to recognize any item of gross income which would
generate "unrelated business taxable income" (as that term is defined in
Sections 512 through 514 of the Code), including without limitation any income
derived from or on account of any "debt-financed property" (as defined in
Section 514 of the Code), or gross income directly attributable to a "trade or
29
business" (within the meaning of Sections 512 and 513 of the Code). The Company
will keep in full force and effect its corporate existence and all intellectual
property rights useful in its business (except such rights as the Board of
Directors has reasonably determined are not material to the Company's continuing
operations) and shall use its best efforts to cause each new key employee of the
Company to execute a noncompetition and confidentiality agreement with
substantially the same terms as are set forth in the form of Non-Competition
Agreement attached hereto as Exhibit E and each other employee to execute a
confidentiality and proprietary rights agreement with substantially the same
terms as are set forth in the Confidentiality and Proprietary Rights Agreement
attached hereto as Exhibit C, with such reasonable changes as may be deemed
appropriate by the Board of Directors.
4.4 Payment of Taxes, Compliance with Laws, etc. The Company will pay
and discharge all lawful taxes, assessments and governmental charges or levies
imposed upon it or upon its income or property before the same shall become in
default, as well as all lawful claims for labor, materials and supplies which,
if not paid when due, might become a lien or charge upon its property or any
part thereof; provided, however, that the Company shall not be required to pay
and discharge any such tax, assessment, charge, levy or claim so long as the
validity thereof is being contested by the Company in good faith by appropriate
proceedings and an adequate reserve therefor has been established on its books.
The Company will comply with all applicable laws and regulations in the conduct
of its business, including, without limitation, all applicable federal and state
securities laws in connection with the issuance of any shares of its capital
stock.
4.5 Insurance. The Company will keep its insurable properties insured,
upon reasonable business terms, by financially sound and reputable insurers
against liability, and the perils of casualty, fire and extended coverage in
amounts of coverage at least equal to those customarily maintained by companies
in the same or similar business as the Company. The Company will also maintain
with such insurers insurance against other hazards and risks and liability to
persons and property to the extent and in the manner customary for companies
engaged in the same or similar business.
4.6 Maintenance of Properties. The Company will maintain all
properties used or useful in the conduct of its business in good repair, working
order and condition, ordinary wear and tear excepted, as necessary to permit
such business to be properly and advantageously conducted.
4.7 Affiliated Transactions. All transactions by and between the
Company and the Founder and any officer or key employee of the Company or
persons controlling, controlled by, under common control with or otherwise
affiliated with the Founder or such officer or key employee, shall be conducted
on an arm's-length basis, shall be on terms and conditions no less favorable to
the Company than could be obtained from nonrelated persons and shall be approved
in advance by the disinterested members of the Board of Directors after full
disclosure of the terms thereof.
30
4.8 Management Compensation. Compensation paid by the Company to its
management will be comparable to compensation paid to management in companies in
the same or similar businesses of similar size and maturity and with comparable
financial performance. In furtherance of the foregoing, the Company hereby
agrees that no compensation or other remuneration at an annualized rate in
excess of $50,000 shall be paid to, nor shall any capital stock of the Company
be issued to, or options to purchase any of its capital stock granted to, any
officer or employee of the Company or any of its subsidiaries, without the
approval of a compensation committee of the Board of Directors, a majority of
the members of which committee shall be comprised of the Outside Investor
Representatives and/or other non-employee members of the Board of Directors. Any
grants of capital stock or options hereunder shall be conditioned upon the
grantee agreeing to be bound by the terms of the Stockholders' Agreement.
4.9 Use of Proceeds. The Company shall use approximately $12,200,000
of the proceeds of the sale of the Series A Preferred Shares at the Initial
Closing to fund the Acquisitions, $367,838.89 of the proceeds of the sale of the
Series A Preferred Shares at the Initial Closing to pay in full the principal
and interest on the Promissory Notes issued to Xxxxxx X. Xxxxx Revocable Trust
and X.X. Xxxxx Revocable Trust on January 15, 1997, and the remainder of the
proceeds of the sale of the Series A Preferred Shares at the Initial Closing for
working capital. The proceeds of the sale of the Series A Preferred Shares at
each Additional Closing shall be used to fund the acquisition of additional
NRTC/DBS DirecTV franchises and for working capital and capital expenditures.
Pending use for the above described purpose, said proceeds shall be temporarily
invested in short-term interest bearing securities, including U.S. Government
securities, shares of money market mutual funds and certificates of deposit and
similar instruments of federally or state-chartered banks.
4.10 Board of Directors Meetings; Meetings with Investors.
(a) The Company will ensure that meetings of its Board of
Directors are held at least six times each year and at intervals of not more
than three months and will reimburse Directors for their reasonable travel and
other out-of-pocket expenses incurred in connection with attending meetings of
the Board of Directors or performing such other business on behalf of the
Company as may be approved by the Company in advance. The Certificate of
Incorporation or By-laws of the Company will at all times during which any
nominee of the Investors serves as director of the Company provide for
indemnification of the directors and limitations on the liability of the
directors to the fullest extent permitted under applicable state law. The
Company will use its best efforts to obtain and maintain on reasonable business
terms directors and officers' liability insurance coverage of at least
$1,000,000 per occurrence and will notify its Directors promptly of any lapse of
such coverage.
(b) The Outside Investors shall be entitled to consult with and
advise the Board of Directors on significant business issues with respect to the
Company, including management's proposed annual operating plans for the Company,
and management will meet with the Outside Investors regularly during each year
at the Company's facilities at mutually agreeable times and intervals for such
31
consultation and advice and to review progress in achieving said plans. The
Outside Investors may examine the books and records of the Company and inspect
its facilities and may request information at reasonable times and intervals
concerning the general status of the financial condition and operations of the
Company, provided that access to highly confidential proprietary information and
facilities need not be provided. If an Outside Investor is not represented on
the Board of Directors, the Company shall invite a representative of such
Outside Investor to attend all meetings of its Board of Directors relating to
the Company in a non-voting observer capacity, and in this respect shall give
such representative copies of all notices, minutes, consents, and other material
that it provides to all of its directors and which relate to the Company.
4.11 Sales of Additional Securities.
(a) The Company covenants and agrees that it shall not accept
subscriptions for or issue, sell, give away, transfer, pledge, mortgage, assign
or otherwise dispose of any shares of capital stock or any other equity
interests, or other securities convertible into or exchangeable for capital
stock or other equity interests or options, warrants or rights carrying any
rights to purchase capital stock or other equity interests or convertible or
exchangeable securities, without the express written consent of holders of
three-fourths in interest of the Series A Preferred Shares, except as provided
in Sections 1.3(b) and 4.11(b) hereof. In addition, the Company covenants and
agrees that, except as otherwise expressly permitted by Sections 1.3(b) and
4.11(b) hereof, it will not sell or issue any (i) shares of capital stock of the
Company, or bonds, certificates of indebtedness, debentures or other securities
convertible into or exchangeable for capital stock of the Company, or options,
warrants or rights carrying any rights to purchase capital stock or convertible
or exchangeable securities of the Company (collectively, "Additional Equity
Securities") or (ii) subordinated notes, bonds, certificates of indebtedness,
debentures or other mezzanine debt securities (collectively, "Additional Debt
Securities" and together with Additional Equity Securities, "Additional
Securities") unless (x) the Company shall have received a bona fide arms-length
offer (which may be in response to a solicitation by the Company) to purchase
such Additional Securities from a third party, and (y) the Company first submits
a written offer to the Investors who are then holders of Series A Preferred
Shares identifying the third party to whom such Additional Securities are
proposed to be sold and the terms of the proposed sale, and offering to such
Investors the opportunity to purchase such securities on terms and conditions,
including price, not less favorable than those on which the Company proposes to
sell such securities to the third party. Each of such Investors shall have the
right to purchase its proportionate share of such securities based on the ratio
which the Series A Preferred Shares owned by such Investor bears to all Series A
Preferred Shares owned by all Investors immediately prior to such issuance. Any
Investor may transfer its right to be offered any such opportunity to any
transferee of shares of its Series A Preferred Shares, in which event such
transferee shall be deemed to be an Investor for purposes of this Section 4.11.
The Company's offer to such Investors shall remain open and irrevocable for a
period of at least 45 days. Any securities so offered to such Investors which
are not purchased pursuant to such offer shall be offered to such Investors
wishing to purchase any such securities, and thereafter may be sold by the
Company to the third party originally named in the offer to such Investors on
terms and conditions, including price, not more favorable to the third party
32
than those set forth in such offer at any time within 75 days following the date
of such offer, but may not be sold to any other person or on terms and
conditions, including price, that are more favorable to the purchaser than those
set forth in such offer or after such 75-day period without renewed compliance
with this Section 4.11.
(b) Notwithstanding the foregoing, the Company may (i) issue, or
issue options, warrants or rights to subscribe for, up to an aggregate of 62,525
shares of its Common Stock to officers, directors, employees, consultants or
agents of the Company pursuant to the terms of the Company's Stock Option Plan
and Section 4.8 hereof and issue shares of its Common Stock upon the exercise of
such stock options; (ii) issue the Warrants to the Alta Investors as
contemplated by Section 2.4 hereof; (iii) issue Conversion Shares upon the
conversion of the Series A Preferred Shares; (iv) issue Warrant Shares upon the
exercise of the Warrants; (v) declare, make or issue a dividend or other
distribution payable in shares of the Common Stock in respect of outstanding
shares of the Common Stock or the Series A Preferred Stock in accordance with
the Company's Amended and Restated Certificate of Incorporation, as amended;
(vi) issue shares of Common Stock in connection with a Qualified Public
Offering; (vii) with the prior consent of holders of three-fourths in interest
of the Series A Preferred Shares, issue, or issue options, warrants or rights to
subscribe for, shares of its Common Stock in connection with any debt, capital
lease or other similar financing transaction; or (viii) at any time on or prior
to May 9, 1997 (provided that the Company has issued all of the Series A
Preferred Shares and Common Shares to the Outside Investors issuable hereunder,
taking into account the provisions of Section 1.3(c) hereof), issue additional
shares of Series A Preferred Stock under the same terms and conditions set forth
in this Agreement (subject to the approval of a majority of the Outside Investor
Representatives and the execution by the purchaser(s) of such shares of a
Joinder Agreement in the form of Exhibit A to the Stockholders' Agreement) such
that the aggregate number of shares of Series A Preferred Stock issued does not
exceed 506,000, in each case without offering the holders of Series A Preferred
Shares the opportunity to purchase their proportionate share of such shares or
options under this Section 4.11.
4.12 Stockholders' Agreement, Non-Competition Agreements and
Confidentiality and Proprietary Rights Agreements. The Company will diligently
enforce all of its rights under the Stockholders' Agreement described in Section
3.5 hereof, and the agreements described in Section 3.6 hereof. The Company will
not effect any transfer of any of the outstanding capital stock of the Company
on the stock record books of the Company unless such transfer is made in
accordance with the terms of the Stockholders' Agreement referred to in Section
3.5 hereof. The Company will not waive or release any rights under, or consent
to the amendment of, any such agreement without the requisite written approval
of the parties thereto.
4.13 Distributions on, and Redemptions of, Capital Stock. Except as
otherwise expressly provided in this Agreement or in Exhibit B hereto, the
Company will not declare or pay any dividends or make any distributions of cash,
property or securities of the Company with respect to any shares of its Common
Stock or any other class of its capital stock, or directly or indirectly redeem,
purchase, or otherwise acquire for consideration any shares of its Common Stock
33
or any other class of its capital stock; provided, however, that this
restriction shall not apply to the repurchase of shares of the Common Stock
pursuant to stock repurchase agreements under which the Company has the option
to repurchase such shares upon the occurrence of certain events, including the
termination of employment and involuntary transfers, by operation of law,
provided that the repurchase price paid by the Company does not exceed the
purchase price paid to the Company for such shares. Any redemption, repurchase
or other acquisition by the Company of any shares of its capital stock shall be
made in compliance with all laws, including but not limited to federal and state
securities laws.
4.14 Merger, Consolidation, Sale of Assets, Acquisitions and Other
Actions. The Company will not without the prior written consent of holders of
three-fourths in interest of the Series A Preferred Shares (including each
Outside Investor who owns or has a commitment to purchase at least 75,000 Series
A Preferred Shares hereunder, as appropriately adjusted for any stock split,
combination, reorganization, recapitalization, reclassification, stock
distribution, stock dividend or similar event): (a) sell, lease or otherwise
dispose of (whether in one transaction or a series of related transactions)
assets with a value in excess of $500,000, (b) merge with or into or consolidate
with another entity (except into or with a wholly-owned subsidiary of the
Company with the requisite shareholder approval), (c) acquire any other
corporation or business concern, whether by acquisition of assets, capital stock
or otherwise, and whether in consideration of the payment of cash, the issuance
of capital stock or otherwise (other than acquisitions of any NRTC franchisee
with fewer than 50,000 households which have been approved by the Board of
Directors of the Company, including a majority of the Outside Investor
Representatives), (d) voluntarily liquidate or wind up its operations, (e) issue
any shares of its capital stock which are senior to or on a parity with the
Series A Preferred Shares with respect to dividends, conversion, liquidation or
redemptions or with any special voting rights, (f) create, incur, assume, become
liable for, or permit to exist any indebtedness for borrowed money or any
indebtedness as a result of any acquisition, capital leases, or other similar
commitments or obligations (other than indebtedness approved by the Board of
Directors of the Company, including a majority of the Outside Investor
Representatives), which, for any one such borrowing or series of related
borrowings, is in excess of $500,000, (g) grant or permit to exist any liens
securing indebtedness in excess of $500,000, security interests or encumbrances
on any of the Company's assets or properties with a value of $500,000, except as
approved by the Board of Directors of the Company, including a majority of the
Outside Investor Representatives, or (h) enter into any agreement with any party
which by its terms restricts the payments due the holders of the Series A
Preferred Shares pursuant to Exhibit B hereto.
4.15 No Amendments to Certificate of Incorporation. The Company will
not make any amendment to its Certificate of Incorporation or make any amendment
to its By-laws (a) so as to adversely affect the rights of the holders of the
Series A Preferred Stock or Redeemable Preferred Stock with respect to
dividends, liquidation preferences, conversion or redemption without the prior
written consent of holders of three-fourths in interest of the Series A
Preferred Shares (including each Outside Investor who owns or has a commitment
to purchase at least 75,000 Series A Preferred Shares hereunder, as
appropriately adjusted for any stock split, combination, reorganization,
34
recapitalization, reclassification, stock distribution, stock dividend or
similar event), or (b) that adversely affects any other preferences, powers,
rights or privileges of holders of the Preferred Stock without the prior written
consent of holders of three-fourths in interest of the Series A Preferred
Shares.
4.16 Capital Expenditures. The Company will not, without the prior
approval of the Board of Directors of the Company, including a majority of the
Outside Investor Representatives, make any expenditures for fixed or capital
assets, or any commitments for such expenditures, exceeding an amount of
$500,000 for any one such expenditure or series of related expenditures in any
one year.
4.17 Life Insurance. The Company shall use its best efforts to obtain
as soon as practicable following the Initial Closing, and to maintain and
continue to pay the premiums on, a key-man term life insurance policy on the
life of the Founder in the amount of at least $10,000,000, such policy to name
the Company as sole beneficiary thereof.
4.18 Annual Updates; Number of Stockholders; Use of Proceeds;
Regulatory Violation; Economic Impact Information; Amendment.
(a) As long as an SBIC Investor holds any of the Securities, the
Company shall, on an annual basis, provide to such SBIC Investor the information
required under 13 CFR Section 107.620(b) and shall provide the information and
access required by 13 CFR Section 107.620(c).
(b) As long as an SBIC Investor holds any of the Securities, the
Company shall notify such SBIC Investor:
(i) at least fifteen (15) days prior to taking any action
after which the number of record holders of the Company's voting stock
would be increased from fewer than 50 to 50 or more; and
(ii) of any other action or occurrence after which the
number of record holders of the Company's voting stock was increased (or
would increase) from fewer than 50 to 50 or more, as soon as practicable
after the Company becomes aware that such other action or occurrence has
occurred or is proposed to occur. For purposes of this Agreement, an "SBIC
Investor" shall mean BancBoston, an affiliate of BancBoston that has been
licensed as an SBIC and holds the Securities or any permitted transferee of
an Outside Investor that has been licensed as an SBIC and holds the
Securities.
(c) Within seventy-five (75) days after the Initial Closing, and
at the end of each month thereafter until all of the proceeds from the sale of
Series A Preferred Shares hereunder have been used by the Company, the Company
shall deliver to all Outside Investors a written statement certified by the
Company's president or chief financial officer describing in reasonable detail
the use of the proceeds of the purchase of Series A Preferred Shares hereunder
35
hereunder by the Company. In addition to any other rights granted hereunder, the
Company shall grant all Outside Investors and the SBA access to the Company's
records for the purpose of verifying the use of such proceeds.
(d) Upon the occurrence of a Regulatory Violation (as defined
below) or in the event that any SBIC Investor determines in its reasonable good
faith judgment that a Regulatory Violation has occurred, in addition to any
other rights and remedies to which it may be entitled (whether under this
Agreement or any other agreement), such SBIC Investor shall have the right, to
the extent required under SBIC Regulations, to demand the immediate repurchase
of all of the outstanding Securities owned by such SBIC Investor at a price
equal to the purchase price paid for such Securities hereunder plus accrued
dividends by delivering written notice of such demand to the Company; provided,
however, that, in the event of a Regulatory Violation, any SBIC Investor shall,
prior to demanding the repurchase of all of the outstanding Securities owned by
such SBIC Investor, use reasonable efforts to retain its investment in the
Securities, including, without limitation, petitioning the SBA for its approval
with respect to any unforeseen changes in the principal business activity of the
Company. The Company shall pay the purchase price for such Securities by a
cashier's or certified check or by wire transfer of immediately available funds
to such SBIC Investor within thirty (30) days after the Company's receipt of the
demand notice, and, upon such payment, such SBIC Investor shall deliver the
certificates, if any, evidencing the Securities being repurchased duly endorsed
for transfer or accompanied by duly executed forms of assignment.
For purposes of this Agreement, "Regulatory Violation" means a change
in the principal business activity of the Company to an ineligible business
activity (within the meaning of the SBIC Regulations), if such change occurs
within one (1) year after the date of the initial purchase of Securities
hereunder.
(e) Promptly after the end of each fiscal year (but in any event
prior to February 28 of each year), the Company shall deliver to each Investor a
written assessment of the economic impact of the total investment by all SBIC
Investors in the Company, specifying the full-time equivalent jobs created or
retained in connection with the investment, the impact of the investment on the
businesses of the Company in terms of expanded revenue and taxes, and the other
economic benefits resulting from the investment, including but not limited to,
technology development or commercialization, minority business development,
urban or rural business development and expansion of exports, together with all
other information reasonably requested by any SBIC Investor in order to provide
the information required by 13 CFR Section 107.630.
(f) Notwithstanding anything herein to the contrary, the
provisions of this Section 4.18 shall not be amended without the prior written
consent of holders of a majority of the issued and outstanding Securities of any
SBIC Investors (determined on an as converted basis).
36
SECTION 5. INVESTOR REPRESENTATIONS
It is the understanding of the Company, and each Investor hereby
severally represents with respect to such Investor's purchase of Securities
hereunder that:
(a) The execution of this Agreement has been duly authorized by
all necessary action on the part of the Investor, has been duly executed and
delivered, and constitutes a valid, binding and enforceable agreement of the
Investor.
(b) The Investor is acquiring the Series A Preferred Shares and
Common Shares for its own account, for investment, and not with a present view
to any "distribution" thereof within the meaning of the Securities Act. The
Investor was not formed or organized for the purpose of acquiring the Series A
Preferred Shares and Common Shares.
(c) The Investor understands that because the Series A Preferred
Shares and Common Shares have not been registered under the Securities Act, it
cannot dispose of any or all of the Series A Preferred Stock, the Conversion
Shares issuable upon conversion thereof or the Common Shares unless such
securities are subsequently registered under the Securities Act or exemptions
from such registration are available. The Investor understands that each
certificate representing the Series A Preferred Stock and the Common Stock will
bear the following legend or one substantially similar thereto:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"). These securities have been acquired for investment and
not with a view to distribution or resale, and may not be sold,
mortgaged, pledged, hypothecated or otherwise transferred without
an effective registration statement for such securities under the
Act or the availability of an exemption from such registration
requirements.
(d) The Investor is sufficiently knowledgeable and experienced in
the making of venture capital investments so as to be able to evaluate the risks
and merits of its investment in the Company, and is able to bear the economic
risk of loss of its investment in the Company. The Investor acknowledges that
the Company may, subject to the restrictions set forth in this Agreement, enter
into one or more acquisitions, joint ventures or additional types of financings
in the future which could result in a valuation for the capital stock of the
Company that is significantly below the purchase price for the Series A
Preferred Shares hereunder.
(e) The Investors have been advised that the Series A Preferred
Shares and Common Shares have not been and are not being registered under the
Securities Act or under the "blue sky" laws of any jurisdiction and that the
Company in issuing the Series A Preferred Stock and the Common Stock is relying
upon, among other things, the representations and warranties of the Investors
contained in this Section 5.
37
(f) No broker, finder, agent or similar intermediary has acted on
behalf of an Investor in connection with this Agreement or the transactions
contemplated hereby and there are no brokerage commissions, finder's fees or
similar fees or commissions payable in connection therewith.
(g) The Investor is an "accredited investor" as defined in
Regulation D of the Securities Act.
SECTION 6. INDEMNIFICATION
6.1 Indemnification for Vicarious Liability. Subject to Section 7.2
hereof, the Company shall, to the full extent permitted by law, and in addition
to any such rights that the Investors and persons serving as officers,
directors, partners, employees or agents of each Investor (individually an
"Indemnified Party" and collectively the "Indemnified Parties") may have
pursuant to statute, the Company's Certificate of Incorporation or By-laws, or
otherwise, indemnify and hold harmless each Investor (including its respective
directors, officers, partners, employees and agents, an "Indemnified Investor")
and each person (a "Controlling Person" and collectively with Indemnified
Investors, the "Indemnified Parties") who controls any of them within the
meaning of Section 15 of the Securities Act, or Section 20 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), from and against any and
all losses, claims, damages, expenses and liabilities, joint or several,
including any investigation, legal and other expenses incurred in connection
with the investigation, defense, settlement or appeal of, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted ("Losses" or
"Loss"), to which they, or any of them, may become subject by reason of their
status as a security holder, creditor, director, agent, representative or
controlling person of the Company, (including, without limitation, any and all
Losses under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, at common law or otherwise, which relates directly
or indirectly to the registration, purchase, sale or ownership of any securities
of the Company or to any fiduciary obligation owed with respect thereto);
provided, however, that the Company will not be liable to the extent that such
Loss arises from and is based on an untrue statement or omission or alleged
untrue statement or omission in a registration statement or prospectus which is
made in reliance on and in conformity with written information furnished to the
Company in an instrument duly executed by or on behalf of such Indemnified Party
specifically stating that it is for use in the preparation thereof. The
indemnification and contribution provided for in this Section 6.1 will remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Parties or any officer, director, employee, agent or Controlling
Person of the Indemnified Parties.
If the indemnification provided for in this Section 6.1 is for any
reason held by a court of competent jurisdiction to be unavailable to an
Indemnified Party in respect of any Losses referred to therein, then the
Company, in lieu of indemnifying such Indemnified Party thereunder, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Investor relating to such Indemnified
38
Party or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company and the Investor relating to such Indemnified Party in connection
with the action or inaction which resulted in such Losses, as well as any other
relevant equitable considerations. In connection with any registration of the
Company's securities, the relative benefits received by the Company and the
Investors shall be deemed to be in the same respective proportions as the net
proceeds from the offering (before deducting expenses) received by the Company
and the Investors, in each case as set forth in the table on the cover page of
the applicable prospectus, bear to the aggregate public offering price of the
securities so offered. The relative fault of the Company and the Investors shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the Investors
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Investors agree that it would not be just and
equitable if contribution pursuant to the foregoing paragraph were determined by
pro rata or per capita allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in the
immediately preceding paragraph. In connection with any registration of the
Company's securities, in no event shall an Investor be required to contribute
any amount under this Section 6.1 in excess of the lesser of (i) that proportion
of the total of such Losses indemnified against equal to the proportion of the
total securities sold under such registration statement which is being sold by
such Investors or (ii) the proceeds received by such Investor from its sale of
securities under such registration statement. No person found guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
found guilty of such fraudulent misrepresentation.
6.2 Notice; Defense of Claims. Promptly after receipt by an
Indemnified Party of notice of any third party or other claim, liability or
expense to which the indemnification obligations hereunder would apply,
including in connection with any governmental proceeding, the Indemnified Party
shall give notice thereof in writing to the Company, but the omission to so
notify the Company promptly will not relieve the Company from any liability
except, and only to the extent, that the Company shall have been materially
prejudiced as a result of the failure or delay in giving such notice. Such
notice shall state the information then available regarding the amount and
nature of such claim, liability or expense.
In the case of any third party claim, if within twenty (20) days after
receiving the notice described in the preceding paragraph the Company (i) gives
written notice to the Indemnified Party or Parties stating that it intends to
defend in good faith against such claim, liability or expense at its own cost
and expense and (ii) provides assurance and security reasonably acceptable to
such Indemnified Party or Parties that such indemnification will be paid fully
and promptly if required and such Indemnified Party or Parties will not incur
cost or expense during the proceeding, then counsel for the defense shall be
selected by the Company (subject to the consent of such Indemnified Party or
39
Parties, which consent shall not be unreasonably withheld) and such Indemnified
Party or Parties shall not be required to make any payment with respect to such
claim, liability or expense as long as the Company is conducting a good faith
and diligent defense at its own expense; provided, however, that the assumption
of defense of any such matters by the Company shall relate solely to the claim,
liability or expense that is subject or potentially subject to indemnification.
If the Company assumes such defense in accordance with the preceding sentence,
it shall have the right, with the consent of such Indemnified Party or Parties,
which consent shall not be unreasonably withheld, to settle all indemnifiable
matters related to claims by third parties which are susceptible to being
settled provided the Company's obligation to indemnify such Indemnified Party or
Parties therefor will be fully satisfied and the settlement includes a complete
release of such Indemnified Party or Parties. The Company shall keep such
Indemnified Party or Parties apprised of the status of the claim, liability or
expense and any resulting suit, proceeding or enforcement action, shall furnish
such Indemnified Party or Parties with all documents and information that such
Indemnified Party or Parties shall reasonably request and shall consult with
such Indemnified Party or Parties prior to acting on major matters, including
settlement discussions. Notwithstanding anything herein stated, such Indemnified
Party or Parties shall at all times have the right to fully participate in such
defense at its own expense directly or through counsel; provided, however, if
the named parties to the action or proceeding include both the Company and the
Indemnified Party or Parties and representation of both parties by the same
counsel would be inappropriate under applicable standards of professional
conduct, the expense of separate counsel for such Indemnified Party or Parties
shall be paid by the Company. The Indemnified Party or Parties shall make
available all information and assistance that the Company may reasonably request
and shall cooperate with the Company in such defense.
If the Company does not give notice of its intent to defend against
any third party or other claim, liability or expense in accordance with the
foregoing paragraph, or if such diligent good faith defense is not being or
ceases to be conducted, the Indemnified Party will have the right to retain its
own counsel in any such action and all fees, disbursements and other charges
incurred in the investigation, defense and/or settlement of such action shall be
advanced and reimbursed by the Company promptly as they are incurred and shall
have the right to compromise or settle, such claim, liability or expense;
provided, however, that the Indemnified Party shall agree to repay any expenses
so advanced hereunder if it is ultimately determined by a court of competent
jurisdiction that the Indemnified Party to whom such expenses are advanced is
not entitled to be indemnified as a matter of law or under the terms of this
Agreement.
6.3 Satisfaction of Indemnification Obligations. Any indemnity payable
pursuant to this Section 6 shall be paid within the later of (a) ten (10) days
after the indemnified party's request therefor or (b) ten (10) days prior to the
date on which the Loss upon which the indemnity is based is required to be
satisfied by the indemnified party.
40
SECTION 7. GENERAL
7.1 Amendments, Waivers and Consents. For the purposes of this
Agreement and all agreements, documents and instruments executed pursuant
hereto, except as otherwise specifically set forth herein or therein, no course
of dealing between the Company and the Founder, on the one hand, and any
Investor, on the other, and no delay on the part of any party hereto in
exercising any rights hereunder or thereunder shall operate as a waiver of the
rights hereof and thereof. No covenant or other provision hereof or thereof may
be waived otherwise than by a written instrument signed by the party so waiving
such covenant or other provision; provided, however, that except as otherwise
provided herein or therein, changes in or additions to, and any consents
required by, this Agreement may be made, and compliance with any term, covenant,
condition or provision set forth herein may be omitted or waived (either
generally or in a particular instance and either retroactively or prospectively)
by a consent or consents in writing signed by the holders of three-fourths in
interest of the Series A Preferred Shares (including for such purposes, on a
proportional basis, any Conversion Shares into which any of the Series A
Preferred Shares have been converted that have not been sold to the public) and
(in the case of any such change or addition) the Company; provided, however,
that the amendment, modification or waiver of any provision which by its terms
requires the consent or approval of holders of more than three-fourths in
interest of the Series A Preferred Shares or the consent or approval of certain
Outside Investors shall only be effective if it is signed by holders of such
requisite percentage or such Outside Investors. All references in this Agreement
to holders of three-fourths in interest of the Series A Preferred Shares refer
to holders of 75% of the outstanding Series A Preferred Shares. Any amendment or
waiver effected in accordance with this Section 7.1 shall be binding upon each
holder of Series A Preferred Shares purchased under this Agreement at the time
outstanding (including securities into which such Series A Preferred Shares have
been converted), each future holder of all such securities and the Company.
7.2 Survival of Representations, Warranties and Covenants;
Assignability of Rights. All covenants, agreements, representations and
warranties of the Company and/or the Founder made herein and in the
certificates, lists, exhibits, schedules or other written information delivered
or furnished by or on behalf of the Company and/or the Founder to any Investor
in connection herewith shall be deemed material and to have been relied upon by
such Investor, and, except as otherwise provided in this Agreement, shall
survive the delivery of the Securities regardless of any instruction and shall
not merge in the performance of any obligation and shall bind the Company's or
the Founder's successors, assigns and heirs, whether so expressed or not, and,
except as otherwise provided in this Agreement, all such covenants, agreements,
representations and warranties shall inure to the benefit of the Investors'
successors and assigns and to transferees of the Securities, whether so
expressed or not. Every assignee of an Outside Investor shall be deemed to be an
Outside Investor under this Agreement. Notwithstanding anything to the contrary
contained herein, the Founding Investors shall have no recourse against the
Company or the Outside Investors (including, without limitation, any rights of
indemnification under Section 6 hereof) with respect to any breach of the
representations and warranties made by the Company in Section 2 of this
Agreement of which they had knowledge or any breach of the representations and
warranties made by the Company in Section 2 of this Agreement as and to the
41
extent that the Founder has given a similar representation in Section 2A of this
Agreement. The representations and warranties made by the Investors in Section 5
of this Agreement shall survive the delivery of the Securities and shall bind
the Investors' successors and assigns and shall inure to the benefit of the
Company's successors and assigns.
7.3 Governing Law. This Agreement shall be deemed to be a contract
made under, and shall be construed in accordance with, the laws of The
Commonwealth of Massachusetts (without giving effect to principles of conflicts
of law the effect of which would cause the application of domestic substantive
laws of any other jurisdiction).
7.4 Section Headings; Counterparts. The descriptive headings in this
Agreement have been inserted for convenience only and shall not be deemed to
limit or otherwise affect the construction of any provision thereof or hereof.
This Agreement may be executed simultaneously in any number of counterparts,
each of which when so executed and delivered shall be taken to be an original;
but such counterparts shall together constitute but one and the same document.
7.5 Notices and Demands. Any notice or demand which, by any provision
of this Agreement or any agreement, document or instrument executed pursuant
hereto or thereto, except as otherwise provided therein, is required or provided
to be given shall be deemed to have been sufficiently given or served and
received for all purposes when delivered or five days after being sent by
certified or registered mail, postage and charges prepaid, return receipt
requested, or by express delivery providing receipt of delivery, to the
following addresses: if to the Company, at its address as shown on the signature
page hereof, or at any other address designated by the Company to each of the
Investors in writing; if to an Investor, at its mailing address as shown on
Appendix A hereto, or at any other address designated by such Investor to the
Company and the other Investors in writing; and if to an assignee of an
Investor, at its address as designated to the Company and the other Investors in
writing.
7.6 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be deemed
prohibited or invalid under such applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, and such
prohibition or invalidity shall not invalidate the remainder of such provision
or the other provisions of this Agreement.
7.7 Expenses. The Company shall pay all costs and expenses that each
of it and the Outside Investors incurs with respect to the negotiation,
execution, delivery and performance of this Agreement and any amendments hereto
and the agreements, documents and instruments contemplated hereby or executed
pursuant hereto and the Founding Investors shall pay all costs and expenses that
they incur with respect to the negotiation, execution, delivery and performance
of this Agreement and the agreements, documents and instruments contemplated
hereby or executed pursuant hereto.
42
7.8 Integration. This Agreement together with the Stockholders'
Agreement, including the exhibits, documents and instruments referred to herein
or therein, constitutes the entire agreement, and supersedes all other prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof.
7.9 Certain Provisions Applicable to SBIC Investors. Sections 2.27,
3.12 and 4.18 hereof contain certain provisions that are included herein solely
for the benefit of SBIC Investors. A stockholder of the Company may not assert
any rights or claims with respect to such provisions arising at any time after
it has ceased to be an SBIC.
[Remainder of Page Intentionally Left Blank]
43
IN WITNESS WHEREOF, the undersigned have executed this Agreement as a
sealed instrument as of the day and year first above written.
GOLDEN SKY SYSTEMS, INC.
000 X. 00xx Xxxxxx, Xxxxx 000
Xxxxxx Xxxx, XX 00000
By: /s/ Xxxxxx X. Xxxxx
----------------------------
Name: Xxxxxx X. Xxxxx
Title: President
FOUNDER: /s/ Xxxxxx X. Xxxxx
-----------------------
Xxxxxx X. Xxxxx
OUTSIDE INVESTORS:
ALTA SUBORDINATED DEBT
PARTNERS III, L.P.
By: Alta Subordinated Debt
Management III, L.P., General Partner
By: /s/ Xxxxxx XxXxxxxx
----------------------------
Name: Xxxxxx XxXxxxxx
Title: General Partner
ALTA COMMUNICATIONS VI, L.P.
By: Alta Communications VI Management
Partners, L.P., General Partner
By: /s/ Xxxxxx XxXxxxxx
----------------------------
Name: Xxxxxx XxXxxxxx
Title: General Partner
44
ALTA-COMM S BY S, LLC
By: /s/ Xxxxxx XxXxxxxx
----------------------------
Name: Xxxxxx XxXxxxxx
Title: Member
SPECTRUM EQUITY INVESTORS L.P.
By: Spectrum Equity Associates L.P.,
General Partner
By: /s/ Xxxxxxx X. Xxxxxxxx
----------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: General Partner
SPECTRUM EQUITY
INVESTORS II, L.P.
By: Spectrum Equity Associates II, L.P.,
General Partner
By: /s/ Xxxxxxx X. Xxxxxxxx
----------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: General Partner
APPLEGATE & XXXXXXXX, INC.
(solely for purposes of Section 1.3(c))
By: /s/ Xxxxxxx X. Xxxxxxxx
----------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: Vice President
BANCBOSTON VENTURES INC.
By: /s/ Xxxxxxx X. Xxxxxxx
----------------------------
Name: Xxxxxxx X. Xxxxxxx
Title: Vice President
45
THE MILLENNIAL FUND
By: /s/ X. Xxxxxxx Xxxxxxxxx, Jr.
-----------------------------
X. Xxxxxxx Xxxxxxxxxx, Jr.
BUILDER INVESTMENT
PARTNERSHIP
By: Xxxxx X. Builder
----------------------------
Name: Xxxxx X. Builder
Title: General Partner
46
FOUNDING INVESTORS:
Xxxxxx X. Xxxxx Revocable Trust Dated
10/25/95
By: /s/ Xxxxxx X. Xxxxx
----------------------------
Name: Xxxxxx X. Xxxxx
Title: Trustee
X.X. Xxxxx III Revocable Trust
By: /s/ X.X. Xxxxx III
----------------------------
Name: X.X. Xxxxx III
Title: Trustee
Xxxxx Xxxxx Revocable Trust
By: /s/ Xxxxx Xxxxx
----------------------------
Name: Xxxxx Xxxxx
Title: Trustee
/s/ Xxxxxx Xxxxxxx
-------------------------------
Xxxxxx X. Xxxxxxx
/s/ Xxx X. Xxxxxx
-------------------------------
Xxx X. Xxxxxx
/s/ Jo Xxxxx Xxxx
-------------------------------
Jo Xxxxx Xxxx
/s/ Xxxxxx Xxxxxx
-------------------------------
Xxxxxx Xxxxxx
47
/s/ Xxxxxx Xxxxxx
-------------------------------
Xxxxxx Xxxxxx
/s/ Xxxxxxx Xxxxxx
-------------------------------
Xxxxxxx Xxxxxx
/s/ Xxxxxx X. Xxxxxx
-------------------------------
Xxxxxx X. Xxxxxx
/s/ Xxxx X. Xxxxxx
-------------------------------
Xxxx X. Xxxxxx
/s/ Xxxxxxx X. Xxxxxx
-------------------------------
Xxxxxxx X. Xxxxxx
A Delaware Trust
By: /s/ Xxxxxx X. Xxxxxx, Trustee
------------------------------
Xxxxxx X. Xxxxxx, Trustee
Xxxxxx Trust Dated 12/14/95
By: /s/ Xxxxxx X. Xxxxxx, Trustee
------------------------------
Xxxxxx Xxxxxx, Trustee
By: /s/ Xxxx Xxxxxx, Trustee
----------------------------
Xxxx Xxxxxx, Trustee
/s/ Xxxx Xxxxxxxx
-------------------------------
Xxxx Xxxxxxxx
48
Appendix A
List of Investors
Initial Closing Additional Closings
Number of Number of Aggregate Number of Number of Aggregate
Series A Preferred Common Purchase Price Series A Preferred Common Purchase Price
Name Shares Shares for Shares Shares Shares for Shares
---- ----------- ---------- -------------- ---------- ------- ---------
(Column 1) (Column 2) (Column 3) (Column 4) (Column 5) (Column 6)
Alta Subordinated Debt Partners III, L.P. 31,246 13 $3,124,613 24,286 -- $2,428,600
Alta Communications VI, L.P. 51,971 23 5,197,123 40,394 -- 4,039,400
Alta-Comm S By S, LLC 1,183 1 118,301 920 -- 92,000
c/o Alta Communications, Inc.
Xxx Xxxxxxxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxxxxxxx, XX 00000
Spectrum Equity Investors L.P. 50,000 12 5,000,012 -- -- --
Spectrum Equity Investors II L.P. -- -- -- 100,000 25 10,000,025
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxxxx
BancBoston Ventures Inc. 33,600 19 3,360,019 41,400 -- 4,140,000
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxxx
The Millennial Fund 500 -- 50,000 -- -- --
c/o X. Xxxxxxx Xxxxxxxxxx, Jr.
The Centennial Funds
0000 00xx Xxxxxx
Xxxxxx, XX 00000
Builder Investment Partnership 500 -- 50,000 -- -- --
Five Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, XX 00000
Attn: Xxxxx X. Builder
Xxxxxx X. Xxxxx Revocable Trust 16,030 4 1,603,004 -- -- --
Dated 10/25/95
0000 X. 00xx
Xxxxxxx Xxxxxxx, XX 00000
X.X. Xxxxx III Revocable Trust 2,500 1 250,001 -- -- --
0000 X. Xxxx Xxxx Xxxxx
Xxxxxxxx, XX 00000
Xxxxx Xxxxx Revocable Trust 2,500 1 250,001 -- -- --
0000 X. Xxxx Xxxx Xxxxx
Xxxxxxxx, XX 00000
Xxxxxx X. Xxxxxxx 1,000 -- 100,000 -- -- --
0000 Xxxxxxx Xxxxx
Xxxxxxx Xxxxxxx, XX 00000
49
Initial Closing Additional Closings
Number of Number of Aggregate Number of Number of Aggregate
Series A Preferred Common Purchase Price Series A Preferred Common Purchase Price
Name Shares Shares for Shares Shares Shares for Shares
---- ----------- ---------- -------------- ---------- ------- ---------
(Column 1) (Column 2) (Column 3) (Column 4) (Column 5) (Column 6)
Xxx X. Xxxxxx 900 -- $90,000 -- -- --
0000X X.X. Xxxxxxxxxx Xxxxx Xx.
Xxx'x Xxxxxx, XX 00000
Jo Xxxxx Xxxx 430 -- 43,000 -- -- --
0000X X.X. Xxxxxxxxxx Xxxxx Xx.
Xxx'x Xxxxxx, XX 00000
Xxxxxx Xxxxxx 1,000 -- 100,000 -- -- --
0000 Xxxxx Xxxx Xx.
Xxxxxxxxx, XX 00000
Xxxxxx & Xxxxxxx Xxxxxx 150 -- 15,000 -- -- --
000 Xxxx Xxxxxx Xxxxx
Xxxxxxxxxx, XX 00000
Xxxxxx X. Xxxxxx 350 -- 35,000 -- -- --
0000 Xxxxxxx Xxxxx
Xxxxxxx, XX 00000
Xxxx X. or Xxxxxxx X. Xxxxxx 100 -- 10,000 -- -- --
jt. tenants w/ rights of survivorship
X.X. Xxx 0000
Xxxxxxxx, XX 00000
A Delaware Trust 20 -- 2,000 -- -- --
Xxxxxx X. Xxxxxx, Trustee
0000 Xxxxxxxxx Xxxxx X.X.
Xxxxxxxxxxx, XX 00000
Xxxxxx Trust Dated 12/14/95 20 -- 2,000 -- -- --
0000 Xxxxxxxxx Xxxxx X.X.
Xxxxxxxxxxx, XX 00000
Xxxx Xxxxxxxx 5,000 1 500,001 -- -- --
0000 XX 00xx Xxxxxx
Xxxxxx, XX 00000
Total 199,000 75 $19,900,075 207,000 25 $20,700,025
--------------- ======= == =========== ======= == ===========
The purchase price for the Series A Preferred Shares is $100.00 per Series A Preferred Share and the purchase price for the Common
Shares is $1.00 per Common Share.
