EXHIBIT 10.12
CISCO SYSTEMS, INC.
000 XXXX XXXXXX XXXXX
XXX XXXX, XXXXXXXXXX 00000
December 21, 1999
Total Network Solutions, Inc.
000 Xxxxx Xxx., Xxxxx 000
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xx. Xxxx Xxxxxxxx
Re: Additional Rights Granted in Connection with the Purchase of the
Convertible Promissory Notes
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Ladies and Gentlemen:
This letter (the "LETTER AGREEMENT") confirms our agreement that in
connection with the purchase by Cisco Systems, Inc., a California corporation
("CISCO"), of: (i) Convertible Promissory Note of Total Network Solutions, Inc.,
a New York corporation (the "COMPANY"), in the principal amount of $4,416,150.00
(the "COMMON CONVERTIBLE NOTE"), (ii) Convertible Promissory Note of the
Company, in the principal amount of $3,172,872.24 (the "FIRST CONVERTIBLE NOTE")
and (iii) Convertible Promissory Note of the Company in the principal amount of
$9,000,004.68 (the "SECOND CONVERTIBLE NOTE") (collectively, the "CONVERTIBLE
NOTES"), Cisco will be entitled to the following contractual rights in addition
to the other rights specifically provided for in the Convertible Promissory Note
Purchase Agreement (the "PURCHASE AGREEMENT"), Second Amended and Restated
Registration Rights Agreement and Second Amended and Restated Stockholders
Agreement (collectively, the "AGREEMENTS") being executed in connection with
Cisco's purchase of the Convertible Notes. All capitalized terms used herein but
not otherwise defined shall have the meanings assigned to them in the
Agreements.
1. ACQUISITIONS; RIGHT OF NOTIFICATION; ACQUISITION PAYMENT.
(A) NOTICE. In the event that the Board of Directors of the Company (i)
receives a bona fide offer in writing to be acquired by means of (x) a merger,
consolidation or other business combination pursuant to which the stockholders
of the Company immediately prior to the effective date of such transaction have
beneficial ownership of less than fifty percent (50%) of the total combined
voting power for election of directors of the surviving corporation immediately
following such transaction, or (y) the sale of all or substantially all of the
assets of the Company, or (ii) votes to initiate a sale to a Cisco Competitor of
(xx) twenty-five percent (25%) or more of the total voting power of the Company,
or (yy) all or substantially all of the Company's assets (each of these, an
"ACQUISITION PROPOSAL"), then prior to accepting such Acquisition Proposal, the
Company shall provide to Cisco written notice within 24 hours (the "NOTICE") of
the receipt of such bona fide offer or of such vote, as the case may be, of the
proposed terms of such Acquisition Proposal. The Acquisition Proposal may be
subject to customary conditions, such as the negotiation of a definitive
agreement. The Notice shall include the following information: (a) the identity
of the party making the Acquisition Proposal
and (b) the material terms of the Acquisition Proposal, provided that, from and
after the earlier of December 31, 2000 or the completion of the Company's first
firm commitment underwritten offering pursuant to a registration statement under
the Securities and Exchange Act of 1933, as amended, covering the sale of the
Company's common stock with gross proceeds to the Company of at least Twenty
Million Dollars ($20,000,000) (the "Initial Public Offering"), the Company shall
not be required to disclose to Cisco any information that is subject to a
confidentiality obligation of the Company to any third party that is not a Cisco
Competitor (as defined below).
(B) NEGOTIATION PERIOD. Cisco shall have a period of twenty (20) business
days, in the case of an Acquisition Proposal involving a Cisco Competitor (as
defined below), or ten (10) business days, in all other cases (which time period
may be extended by mutual written agreement), following its receipt of the
Notice ("NEGOTIATION PERIOD") in which to present to the Company a counter offer
("CISCO OFFER"). During such Negotiation Period, Cisco, at its sole option,
shall have the opportunity in such Cisco Offer either to match such Acquisition
Proposal or to propose to the Company's Board of Directors an alternative
acquisition proposal. TNS (i) may decline an alternative acquisition proposal
only in accordance with the procedures set forth in the second succeeding
sentence, (ii) may decline a matching offer and/or consummate the Acquisition
Proposal if the Board of Directors determines in good faith that such action is
required to comply with its fiduciary duties under applicable law, and (iii) may
decline a matching offer if the Acquisition Proposal both was unsolicited and is
not accepted by the Company. In any event, during such Negotiation Period Cisco
shall have the exclusive right to engage in negotiations with the Company with
respect to such Cisco Offer; PROVIDED, HOWEVER, that from and after the earlier
of December 31, 2000 or the completion of the Company's Initial Public Offering,
this sentence and the two previous sentences shall not apply to an Acquisition
Proposal received from a third party that is not a Cisco Competitor. In the
event: (i) Cisco does not deliver a Cisco Offer within the Negotiation Period,
(ii) Cisco notifies the Company, in writing, of Cisco's decision not to present
a Cisco Offer or (iii) the Company elects not to accept the Cisco Offer, which
election shall be subject to the Company's obligations under the second and
third preceding sentences, then, and only then, the Company shall be free, for a
period of ninety (90) calendar days following the expiration of the Negotiation
Period, to agree to accept the Acquisition Proposal on the terms and conditions
set forth in the Notice or on such other terms and conditions, in the aggregate,
not materially more favorable to the potential acquiror than those specified in
the Notice. Any proposed acquisition of the Company or sale of its assets
pursuant to an Acquisition Proposal after the end of such 90-day period or any
change in the terms of such Acquisition Proposal which are materially more
favorable to the potential acquiror shall require a new Notice, and shall give
rise anew to the rights of Cisco provided in this Section 1. If the terms of any
Acquisition Proposal include stock or other securities ("STOCK"), Cisco shall be
deemed to have matched the terms of such Acquisition Proposal if it agrees to
substitute for such Stock component of the Acquisition Proposal either cash or
Cisco's principal outstanding class of common equity ("Cisco Stock") having a
"fair market value" equivalent to the fair market value of the Stock component
of the subject Acquisition Proposal. "FAIR MARKET VALUE" shall mean, with
respect to the Stock of any potential acquiror or with regard to Cisco Stock (i)
which is traded on a nationally recognized exchange, the average of the three
(3) trading days closing price of such Stock on the date immediately prior to
the Cisco Offer; (ii) which is actively traded over-the-counter, the average of
the three (3) trading days closing sale price (or, if there is no sale on any
such trading day, the average of the closing bid and ask prices
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for such day) of such Stock immediately prior to the Cisco Offer; and (iii) if
such Stock is not publicly traded, the value assigned to such Stock on the date
immediately prior to the Cisco Offer by Xxxxxx Xxxxxxxx LLP, or if Xxxxxx
Xxxxxxxx LLP is unwilling or unable to serve, by a nationally recognized
valuation agent designated by the mutual agreement of the Company and Cisco
within 15 days of a request for such designation by either party. The costs and
expenses incurred in connection with the valuation of the Stock by any
nationally recognized valuation agent designated by the previous sentence shall
be borne equally by Cisco and the Company. The fair market value of any other
non-cash consideration shall be determined in the same manner as for such
non-publicly traded stock.
(C) DEFINITION OF CISCO COMPETITOR. For purposes of this Section 1, and
subject to the limitations in this subsection 1(c), "CISCO COMPETITOR" shall
mean any one of the seven (7) entities (which shall be deemed to include all of
such entities' subsidiaries or affiliates as defined below) that are listed in
SCHEDULE A hereto. For purposes of this Section 1, an entity shall be deemed to
be a subsidiary or affiliate of a Cisco Competitor if the Cisco Competitor has
beneficial ownership of 20% or more of such entity's common stock or any other
security convertible into or exercisable for common stock of such entity.
(D) COMPETITOR ACQUISITION PAYMENT. In the event that, after compliance
with the other provisions of this Section 1, the Company accepts an Acquisition
Proposal from a Cisco Competitor, the Company shall pay to Cisco an amount equal
to five times (5x) the Company's last twelve (12) months' trailing revenues
(determined in accordance with GAAP), such twelve-month period to end as of the
last day of the month immediately prior to the month in which the closing of the
acquisition of the Company by a Cisco Competitor occurs. The amount payable
under this subsection 1(d) shall be paid to Cisco in immediately available funds
simultaneously with, and such payment obligation shall by contingent upon, the
closing of the acquisition of the Company by a Cisco Competitor. The Company and
Cisco agree that the relationship between Cisco and the Company is special and
unique, that the actual damages to Cisco arising from the loss of this special
relationship with the Company as a result of its acquisition by a Cisco
Competitor are difficult or impossible to determine with precision, and that the
amount payable under this subsection 1(d) represents a reasonable approximation
of the damages to Cisco from such an event.
(E) REDEMPTION OF CONVERTIBLE NOTES OR PREFERRED STOCK UPON ACQUISITION BY
COMPETITOR.
(i) REDEMPTION OF CONVERTIBLE NOTES. In the event the Company accepts
an Acquisition Proposal from a Cisco Competitor, Cisco shall have the right, at
any time prior to closing of such a transaction, either to elect to have the
Company pay all or a portion of the outstanding principal and interest then due
under the Convertible Notes (other than the Common Convertible Note if there is
an active public trading market for the securities Cisco will receive upon
conversion of the Common Convertible Note immediately following the acquisition
of the Company) or to convert, in whole or in part, the Convertible Notes, in
each case in accordance with their terms.
(ii) REDEMPTION OF PREFERRED STOCK. In the event the Company accepts
an Acquisition Proposal from a Cisco Competitor, Cisco shall have the right, at
any time
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prior to closing of such a transaction, to elect to have the Company redeem all
or a portion of the shares of Series B or Series C Preferred Stock beneficially
owned by Cisco by paying the applicable liquidation preference of such shares.
(iii) CLOSING CONTINGENCY. Any payment or conversion obligation
arising under clause (i) or (ii) above shall be satisfied simultaneously with,
and shall be contingent upon, the closing of the Acquisition Proposal the
acceptance of which gave rise thereto.
(f) VOID TRANSACTIONS. Unless the Company shall have complied fully with
all of the procedures and requirements of this Section 1, then any Acquisition
Proposal which the Company may accept, and any transaction it may purport to
effect pursuant thereto, shall be void AB INITIO.
(g) APPLICABILITY AND TERMINATION. Subsections 1(a) through (c) shall
terminate when Cisco no longer beneficially owns (within the meaning of Rule
13d-3 under the Securities Exchange Act of 1934, as amended) ("beneficially
owns") 25% of the shares of the Company's common stock beneficially owned by
Cisco immediately following the closing under the Purchase Agreement.
Subsections 1(d) and 1(e) shall terminate at such time as Cisco no longer
beneficially owns 50% the shares of the Company's common stock beneficially
owned by Cisco immediately following the closing under the Purchase Agreement.
Provided the Company has complied with the other subsections herein, Subsections
1(a) through 1(e) shall terminate upon the Company's becoming a party to a
merger, sale of assets or other reorganization in which the holders of the
outstanding shares of the Company prior to such transaction do not retain a
majority of the voting power of the surviving or transferee company or its
parent. Subsection 1(f) shall survive indefinitely.
2. CONFIDENTIALITY.
(a) PRESS RELEASES, ETC. Within sixty (60) days of the Closing, the Company
may issue a press release disclosing that Cisco has invested in the Company;
PROVIDED, that the final form of the press release is approved in advance in
writing by Cisco, such approval not to be unreasonably withheld. Except as
required by applicable law (including without limitation the rules and
regulations of the Securities and Exchange Commission), no other announcement
regarding Cisco's investment to the general public (except to potential bona
fide investors who are under appropriate nondisclosure obligations or in
connection with any roadshows arranged by the Company in preparation of
consummating an Initial Public Offering or pursuant to any pre-effective filing)
may be made without Cisco's prior written consent.
(b) LEGALLY COMPELLED DISCLOSURE. Each of the Company and Cisco will
cooperate in the manner set forth below to seek confidential treatment relating
to any legally required disclosure of the confidential terms of the Agreements
or this Letter Agreement to the extent reasonably requested by the other. Cisco
acknowledges that the Company may be required in connection with consummating a
public offering, and thereafter in connection with various filings under
federal, state and foreign securities laws, to file the Agreements and/or this
Letter Agreement or describe the provisions thereof in publicly available
documents. The Company and Cisco agree, within 30 days prior to the Company's
initial filing with the SEC in connection with its initial public offering, to
meet to discuss the various provisions of the Agreements and/or Letter
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Agreement for which the Company and/or Cisco wish to obtain confidential
treatment, provided that in no event shall the Company be required to request
confidential treatment of any provision of the Agreements or this Letter
Agreement which the lead managing underwriter reasonably requires to be
disclosed. Subject to the foregoing, upon request by Cisco pursuant to the
consultations conducted as a result of the preceding sentence, the Company will
use reasonable efforts to file a confidential treatment request and will
diligently respond with the input and advice of Cisco to SEC comments in
connection with such request; provided, however, that if confidential treatment
of any provision submitted is denied by the SEC staff reviewer, the Company
shall not be required to continue seeking confidential treatment for such
provision and in no event shall the Company be required to delay the
consummation of its initial public offering or any subsequent offering of its
securities because of any attempt to comply with this subsection.
3. CONSULTING ENGAGEMENTS. The Company shall be one of Cisco's inner circle
of networking consultants. This inner circle is intended to be a limited number
of preferred networking consultants, currently comprised of four such companies.
In connection with the Company's preferred status, Cisco will use reasonable
efforts to offer the Company consulting engagements in amounts and frequency as
appropriate given the Company's resources and Cisco's business opportunities. If
the number of preferred networking consultants increases, then Cisco and the
Company shall discuss ways in which the Company would be able to continue to
enjoy the frequency and amounts of business it enjoyed when the number of
preferred networking consultants was no more than four. The parties agree that
the failure of either Cisco or the Company to offer such engagements or to
provide such services shall not give rise to an action for damages, specific
performance or any other legal or equitable remedy, or otherwise affect the
respective rights and obligations of the Company or Cisco under the Agreements
or this Letter Agreement.
4. NON-ASSIGNABILITY. This Letter Agreement shall be binding on the Company
and its successors and permitted assigns. Neither the Company nor Cisco may
assign or transfer this Letter Agreement or any of its rights or obligations
hereunder (other than by operation of law) without the other party's prior
written consent; provided, however, that Cisco may transfer this Letter
Agreement and any of its rights and obligations hereunder to a majority-owned
affiliate thereof.
5. APPLICABLE LAW. The validity, legality, enforceability and interpretation
of this Letter Agreement shall be governed by the laws of the State of
California without giving effect to principles of conflict of laws.
6. HEADINGS. All Section and subsection headings herein are inserted for
convenience only and shall not modify or affect the construction or
interpretation of any provision of this Letter Agreement.
7. SEVERABILITY. In the event any one or more of the provisions contained in
this Letter Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof, and this Letter Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
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[signature page follows]
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Please acknowledge your agreement with the foregoing terms by
executing a counterpart of this Letter Agreement in the space provided below and
returning an original to the undersigned.
Very truly yours,
CISCO SYSTEMS, INC.
By:
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Name:
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Title:
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ACCEPTED AND AGREED THIS
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DAY OF DECEMBER, 1999
TOTAL NETWORK SOLUTIONS, INC.
By:
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Name:
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Title:
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cc: Xxxxxxx X. Xxxxxx, Esq.
Xxxxxxx X. Xxxxxxxxxx, Esq.
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Schedule A
CISCO COMPETITORS
Alcatel
Ericcson
Lucent Technologies, Inc.
Microsoft Corporation
Nokia Corporation
Northern Telecom
Siemens
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