EXHIBIT 4.6
COVAD COMMUNICATIONS GROUP, INC.
AMENDED AND RESTATED STOCKHOLDER RIGHTS AGREEMENT
This Amended and Restated Stockholder Rights Agreement (the "Agreement") is
amended and restated as of January 19, 1999, by and among Covad Communications
Group, Inc., a Delaware corporation (the "Company"), and the individuals and
entities listed on Exhibit A attached hereto (collectively, the "Stockholders").
R E C I T A L S
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A. The Company and certain of the Stockholders are parties to that certain
Stockholder Rights Agreement dated as of July 16, 1997, as amended by Amendment
No. 1 thereto dated February 12, 1998 and as amended and restated by the Amended
and Restated Stockholder Rights Agreement dated February 20, 1998 and as amended
and restated by the Amended and Restated Stockholder Rights Agreement dated
March 11, 1998, as amended by Amendment No. 1 thereto dated April 24, 1998 (the
"Prior Agreement") and amended and restated by the Amended and Restated
Stockholder Rights Agreement dated as of December 30, 1998.
B. The Company is selling and U.S. Telesource, Inc. (along with the other
entities listed on Exhibit A as holders of the Company's Series C-1 and Series
D-1 Preferred, the "Strategic Investors") is purchasing (i) Series C-1
Preferred, pursuant to a Series C-1 Purchase Agreement, and (ii) Series D-1
Preferred, pursuant to a Series D-1 Purchase Agreement.
C. In order to induce U.S. Telesource, Inc. to enter into a Series C-1
Purchase Agreement and a Series D-1 Purchase Agreement, the Stockholders wish to
amend and restate the Prior Agreement to, among other things, grant the rights
set forth herein to the securities issued and issuable to U.S. Telesource, Inc.
and to accept the rights created herein in lieu of rights provided by the Prior
Agreement.
NOW THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties hereto agree that the Prior Agreement is
terminated and superseded in its entirety by this Agreement, and further agree
as follows:
1. Certain Definitions. As used in this Agreement, the terms defined in the
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preamble to this Agreement shall have the meanings given therein and the
following terms shall have the following respective meanings:
"Affiliate" shall mean as to any person or entity, a person or entity that
directly or indirectly though one or more intermediaries, controls, or is
controlled by, or is under common control with, such person or entity. In
addition, with respect to AT&T Venture Fund II, LP,
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Special Partners Fund, LP and Special Partners Fund International (the "AT&T
Entities"), only for the purposes of this Agreement, AT&T Corp., all Affiliates
of AT&T Corp., each of the other AT&T Entities and all owners of equity
interests in AT&T Entities shall be deemed to be Affiliates of each of the AT&T
Entities.
"Commission" shall mean the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
"Common Stock" shall mean all shares of Common Stock and Class B Common
Stock of the Company.
"Common Warrants" shall mean the warrants to purchase Common Stock of the
Company issued to the Investors pursuant to the terms of the Original Series C
Agreement.
"Common Warrant Shares" shall mean the shares of Common Stock issued or
issuable upon exercise of the Common Warrants.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
"Holder" shall mean any person who holds of record or holds an option or
warrant for Registrable Securities and any holder of Registrable Securities to
whom the registration rights conferred by this Agreement have been transferred
in compliance with Section 2 and Section 13 hereof.
"Initiating Holders" shall mean any Holder or Holders of twenty percent
(20%) or more of the then outstanding Registrable Securities.
"Investors" shall mean Warburg, Xxxxxx Ventures, L.P., Crosspoint Venture
Partners 1996 and Intel Corporation.
"IPO" shall mean an underwritten public offering pursuant to an effective
registration statement under the Securities Act, covering the initial offer and
sale of Common Stock for the account of the Company to the public with aggregate
gross proceeds to the Company of not less than Fifteen Million Dollars
($15,000,000).
"Original Registrable Securities" shall mean (i) all shares of Common Stock
issued or issuable upon conversion of the Series A Preferred, the Series B
Preferred and the Series C Preferred, excluding the Series C-1 Preferred issued
pursuant to the Series C-1 Purchase Agreements; (ii) the Common Warrant Shares;
and (iii) all shares of Common Stock issued as a
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dividend or other distribution with respect to or in exchange for or in
replacement of the shares referenced in (i) and (ii) above.
"Original Series C Agreement" shall mean the Series C Preferred Stock and
Warrant Subscription Agreement, dated as of February 20, 1998, as amended on
April 24, 1998 among the Company, Warburg, Xxxxxx Ventures, L.P., Crosspoint
Venture Partners 1996, Intel Corporation and Xxxxxx Xxxx.
"Preferred Stock" shall mean the Series A Preferred, Series B Preferred,
Series C Preferred, Series C-1 Preferred, Series D Preferred and Series D-1
Preferred.
"Registrable Securities" shall mean the Original Registrable Securities and
the Strategic Registrable Securities.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses incurred by the Company in
compliance with Sections 5, 6 and 8 hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company which shall include any fees and disbursements for legal
services provided by counsel for the Company on behalf of the Holders, blue sky
fees and expenses for state qualifications or registrations, and the expense of
any audit of the Company's fiscal year-end financial statements incident to or
required by any such registration (but excluding the compensation of regular
employees of the Company, which shall be paid in any event by the Company).
"Restricted Securities" shall mean the securities of the Company required
to bear or bearing the legend set forth in Section 3 hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar successor federal statute and the rules and regulations thereunder, all
as the same shall be in effect from time to time.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and expense allowances applicable to the sale of Registrable
Securities and all fees and disbursements of counsel for any Holder (other than
the fees and disbursements of the Company's counsel included in Registration
Expenses, and the fees of one special counsel to the Holders, which shall be
borne by the Company).
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"Senior Notes" shall mean the 13.5% Senior Discount Notes due March 15,
2008 issued on March 11, 1998 as governed by the Indenture dated as of March 11,
1998 between the Company and The Bank of New York as Trustee.
"Senior Note Warrants" shall mean the warrants issued in connection with
the issuance of the Senior Notes on March 11, 1998 pursuant to the Warrant
Agreement and any additional warrants issued pursuant to the terms of the
Warrant Agreement.
"Senior Note Warrant Shares" shall mean the shares of Common Stock issued
or issuable upon exercise of the Senior Note Warrants.
"Series A Preferred" shall mean shares of Series A Preferred Stock of the
Company.
"Series B Preferred" shall mean shares of Series B Preferred Stock of the
Company.
"Series C Preferred" shall mean shares of Series C Preferred Stock of the
Company.
"Series C-1 Preferred" shall mean shares of Series C-1 Preferred Stock of
the Company.
"Series C-1 Purchase Agreements" shall mean the Series C-1 Preferred Stock
Purchase Agreements, dated as of December 30, 1998 and as of January 19, 1999
between the Company and the Strategic Investors.
"Series C Warrants" shall mean the warrants to purchase Series C Preferred
issued to the Investors pursuant to the terms of the Original Series C
Agreement.
"Series D Preferred" shall mean shares of Series D Preferred Stock of the
Company.
"Series D-1 Purchase Agreements" shall mean the Series D-1 Preferred Stock
Purchase Agreements, dated as of December 30, 1998 and as of January 19, 1999
between the Company and the Strategic Investors.
"Series D-1 Preferred" shall mean shares of Series D-1 Preferred Stock of
the Company.
"Shares" shall mean all Registrable Securities.
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"Strategic Investment Agreements" shall mean the Series C-1 Purchase
Agreements and the Series D-1 Purchase Agreements.
"Strategic Investors" shall mean the investors listed on Exhibit A as
holders of Series C-1 Preferred and Series D-1 Preferred.
"Strategic Registrable Securities" shall mean (i) all shares of Common
Stock issued or issuable upon conversion of the Class B Common Stock issued upon
conversion of the Series C-1 Preferred issued pursuant to the Series C-1
Purchase Agreements and the Series D-1 Preferred issued pursuant to the Series
D-1 Purchase Agreement, (ii) all Common Stock issued upon conversion of any
Series C Preferred Stock and Series D Preferred Stock issued upon conversion of
the Series C-1 Preferred Stock and Series D-1 Preferred Stock and (iii) all
shares of Common Stock issued as a dividend or other distribution with respect
to or in exchange for or in replacement of the shares referenced in (i) and (ii)
above.
"Warrant Agreement" shall mean the Warrant Agreement dated as of March 11,
1998 by and between the Company and The Bank of New York as warrant agent.
"Warrant Registration Rights Agreement" shall mean the Warrant Registration
Rights Agreement dated as of March 11, 1998 entered into among the Company and
Bear, Xxxxxxx & Co. Inc. and BT Alex. Xxxxx Incorporated.
"Warrants" shall mean the Common Warrants and the Series C Warrants.
2. Restrictions on Transferability. The Common Stock, the Preferred Stock
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and the Warrants held by any Stockholder, and any other securities issued in
respect of the foregoing upon any stock split, stock dividend, recapitalization,
merger, consolidation, or similar event, shall not be transferred except upon
the conditions specified in this Agreement, which conditions are intended to
ensure compliance with the provisions of the Securities Act. Any transferee of
such securities shall take and hold such securities subject to the provisions
and upon the conditions specified in this Agreement.
3. Restrictive Legend. Each certificate representing the Common Stock or
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the Preferred Stock held by any Stockholder (other than the Strategic Investors,
whose certificates shall bear the legend set forth in the Strategic Investment
Agreements), and any other securities issued in respect of the foregoing upon
any stock split, stock dividend, recapitalization, merger, consolidation or
similar event, shall (unless otherwise permitted or unless the securities
evidenced by such certificate shall have been registered under the Securities
Act) be stamped or otherwise imprinted with a legend substantially in the
following form (in addition to any legend required under applicable state
securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED
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UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY STATE
SECURITIES LAWS. SUCH SHARES MAY NOT BE SOLD OR OFFERED FOR SALE IN THE
ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
ACT. COPIES OF THE AGREEMENTS COVERING THE PURCHASE OF THESE SHARES AND
RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST
MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICE OF THE CORPORATION.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO, AND MAY BE
TRANSFERRED ONLY IN COMPLIANCE WITH, THAT CERTAIN STOCKHOLDER RIGHTS
AGREEMENT AMONG THE HOLDER OF THESE SECURITIES AND CERTAIN OTHER HOLDERS OF
THE COMPANY'S STOCK, WHICH INCLUDES A VOTING AGREEMENT OF SUCH HOLDERS, A
COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE ISSUER.
Upon request of a holder of such a certificate, the Company shall remove
the foregoing legend from the certificate or issue to such holder a new
certificate therefor free of any transfer legend, if, with such request, the
Company shall have received either the opinion referred to in Section 4(a) or
the "no-action" letter referred to in Section 4(b) to the effect that any
transfer by such holder of the securities evidenced by such certificate will not
violate the Securities Act and applicable state securities laws, unless any such
transfer legend may be removed pursuant to Rule 144(k) or any successor rule, in
which case no such opinion or "no-action" letter shall be required, and provided
that the Company shall not be obligated to remove any such legends prior to the
date of the release of the lock-up provisions set forth in Section 15 hereof
following the initial public offering of the Company's Common Stock under the
Securities Act.
4. Notice of Proposed Transfers. The holder of each certificate
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representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 4. Prior to any proposed transfer
of any Restricted Securities (other than under circumstances described in
Section 5, 6 or 8 hereof), the holder thereof shall give written notice to the
Company of such holder's intention to effect such transfer. Each such notice
shall describe the manner and circumstances of the proposed transfer in
sufficient detail, and shall be accompanied (except (i) in transactions in
compliance with Rule 144 promulgated under the Securities Act, (ii) for a
transfer to an Affiliate of a holder, (iii) for a transfer to such holder's
spouse, ancestors, descendants or a trust for any of their benefit, (iv) in
transactions involving the distribution without consideration of Restricted
Securities by a holder to any of its partners or retired partners or to the
estate of any of its partners or retired partners, or (v) repurchases by the
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Company of Common Stock issued to employees or directors of the Company pursuant
to restricted stock purchase agreements (collectively, "Exempt Transactions"))
by either (a) a written opinion of legal counsel to the holder who shall be
reasonably satisfactory to the Company, addressed to the Company, to the effect
that the proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act or (b) a "no-action" letter from the
Commission to the effect that the distribution of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, whereupon the holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by such holder to the
Company. Each certificate evidencing the Restricted Securities transferred as
above provided shall bear the restrictive legend set forth in Section 3 above
(or, in the case of the Strategic Investors, that set forth in the Strategic
Investment Agreements), except that such certificate shall not bear such
restrictive legend after the date of the Company's initial public offering under
the Securities Act if the opinion of counsel or "no-action" letter referred to
above expressly indicates that such legend is not required in order to establish
compliance with the Act or if such legend is no longer required pursuant to Rule
144(k) or any successor rule.
5. Requested Registrations.
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(a) Request for Registration. If at any time beginning at the earlier of
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(i) six months after the closing of a public offering by the Company of its
Common Stock pursuant to a registration statement under the Securities Act and
(ii) the fourth anniversary of the date of this Agreement, the Company shall
receive from Initiating Holders a written request that the Company effect a
registration with respect to Registrable Securities held by such Initiating
Holders, the Company will:
(i) promptly give written notice of the proposed registration to all
other Holders; and
(ii) as soon as practicable, use its diligent best efforts to effect
such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act) as may be so
requested and as would permit or facilitate the sale and distribution of the
Registrable Securities requested to be registered by the Initiating Holders and
by any Holder or Holders joining in such request as are specified in a written
request given within 30 days after receipt of such written notice from the
Company. In the event that holders of a majority of the outstanding Registrable
Securities elect to limit the number of Registrable Securities to be registered,
the number of shares that are included in the registration shall be allocated
among all Holders of Registrable Securities in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities held by each
Holder at the time of the filing of the registration statement.
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The Company shall file a registration statement covering the Registrable
Securities to be registered as soon as practicable after receipt of the request
of the Initiating Holders; provided, however, that if the Company shall furnish
to such Initiating Holders (in the event of an underwritten offering) a
certificate signed by the representatives of the underwriters of the offering to
which such registration statement relates, to the effect that market conditions
are such that a delay in the filing of such registration statement is advisable
(or, in the event of a non-underwritten offering, a certificate signed by the
President of the Company stating that in the good faith judgment of the Board of
Directors of the Company a delay in filing such registration statement is
necessary in order to avoid a serious detriment to the Company), the Company
shall have the right, exercisable on only one occasion in any twelve month
period, to defer such filing for a period of not more than 120 days after
receipt of the request of the Initiating Holders.
The Company shall not be obligated to effect, or to take any action to
effect, any registration pursuant to this Section 5 after the Company has
effected two such registrations pursuant to this Section 5 and such
registrations have been declared or ordered effective by the Commission.
Any registration statement filed pursuant to this Section 5(a) may, subject
to the provisions of Section 5(b) below, include securities of the Company being
sold for the account of the Company.
(b) Underwriting. If the Initiating Holders intend to distribute the
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Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
Section 5(a) and the Company shall include such information in the written
notice referred to in Section 5(a)(i) above. The Company, together with all
Holders of Registrable Securities proposing to distribute their securities
through such underwriting, shall enter into an underwriting agreement in
customary form with the managing underwriter(s) selected for such underwriting
by a majority in interest of the Initiating Holders, which underwriter(s) shall
be reasonably acceptable to the Company.
Notwithstanding any other provision of this Section 5, if the managing
underwriter(s) have informed the Company and the Initiating Holders in writing
that in such underwriter's or underwriters' opinion the total number of
securities which the Holders and any other person desiring to participate in
such registration intend to include in such offering is such as to affect
adversely the success of such offering, including the price at which such
securities can be sold, then the Company will be required to include in such
registration only the amount of securities which it is so advised should be
included in such registration. In such event, securities shall be registered in
such registration in the following order of priority: (i) first, the securities
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which have been requested to be included in such registration by the Holders of
Registrable Securities pursuant to this Agreement and the Senior Note Warrant
Shares sought to be included in such registration pursuant to the exercise of
"piggy-back" registration rights under the Warrant Registration Rights Agreement
pro rata between the Holders of Registrable Securities and the
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holders of Senior Note Warrant Shares based upon the aggregate amount of
securities then held, (ii) second, provided that no securities sought to be
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included by the Holders of Registrable Securities and the holders of the Senior
Note Warrant Shares have been excluded from such registration, the securities of
other persons entitled to exercise "piggy-back" registration rights pursuant to
contractual commitments of the Company (pro rata based on the amount of
securities sought to be registered by such persons) and (iii) third, provided
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that no securities of any other person sought to be included therein have been
excluded from such registration, securities to be offered and sold for the
account of the Company.
If the Company or any Holder in its sole discretion disapproves of the
terms of the underwriting, it may elect to withdraw therefrom by written notice
to the underwriter and the Initiating Holders. The securities so withdrawn
shall also be withdrawn from registration.
6. Company Registration.
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(a) If, at any time, the Company shall determine to register any of its
securities either for its own account or the account of a security holder or
holders (other than Holders of Registrable Securities) exercising their
respective demand registration rights, other than (i) a registration relating
solely to employee benefit plans, (ii) a registration relating solely to a
Commission Rule 145 transaction involving the acquisition of a business (but not
a Rule 145 Transaction designed solely to exchange restricted securities for
registered securities in a manner that is the functional equivalent of
registration rights), (iii) a registration on any registration form which does
not permit secondary sales, or (iv) a registration relating solely to non-
convertible debt securities of the Company, the Company will:
(i) promptly give to each Holder written notice thereof (which shall
include a list of the jurisdictions in which the Company intends to attempt to
qualify such securities under the applicable blue sky or other state securities
laws); and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all of the Registrable Securities specified in a written request or
requests made by any Holder within 30 days after receipt of the written notice
from the Company described in clause (i) above, except as set forth in Section
6(b) below. Such written request may specify all or a part of a Holder's
Registrable Securities.
(b) If a registration statement under which the Company gives notice
under Section 6(a)(i) is for an underwritten offering, and if the managing
underwriter or underwriters of such underwritten offering have informed the
Company and the Holders of Registrable Securities requesting inclusion in such
offering, in writing, that in such underwriter's or underwriters' opinion the
total number of securities which the Company, such Holders and any other persons
desiring to participate in such registration intend to include in such offering
is such as to adversely affect the success of such offering, including the price
at which such securities can be
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sold, then the Company will be required to include in such registration only the
number of securities which it is so advised should be included in such
registration; provided, however, that the number of Registrable Securities,
together with Senior Note Warrant Shares and other securities which have been
requested to be included in such registration pursuant to a contractual "piggy-
back" right, shall not be reduced to less than 30% of the total number of
securities included in such registration or underwriting. In such event: (x) in
cases only involving the registration for sale of securities for the Company's
own account (other than pursuant to the exercise of "piggy-back" rights herein
and in other contractual commitments of the Company), securities shall be
registered in such offering in the following order of priority: (i) first, the
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securities which the Company proposes to register, (ii) second, provided that no
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securities sought to be included by the Company have been excluded from such
registration, the securities which have been requested to be included in such
registration by the Holders of Registrable Securities and the holders of Senior
Note Warrant Shares pro rata between the Holders of Registrable Securities and
the holders of Senior Note Warrant Shares based upon the aggregate amount of
securities then held, (iii) third, provided that no securities sought to be
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included by the Company, the Holders and the holders of Senior Note Warrant
Shares have been excluded from such registration, the securities of other
persons entitled to exercise "piggy-back" registration rights pursuant to
contractual commitments of the Company (pro rata based on the respective numbers
of securities sought to be registered by such persons); (y) in cases not
involving the registration for sale of securities for the Company's own account
only or not for the account of any Holder, securities shall be registered in
such offering in the following order of priority: (i) first, the securities of
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any person whose exercise of a "demand" registration right pursuant to a
contractual commitment of the Company is the basis for the registration
(provided that if such person is a holder of Senior Note Warrant Shares, as
among holders of Senior Note Warrant Shares there shall be no priority and
Senior Note Warrant Shares sought to be included by holders thereof shall be
included pro rata based on the respective numbers of securities sought to be
registered by such persons), (ii) second, provided that no securities of such
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person referred to in the immediately preceding clause (i) have been excluded
from such registration, the securities which have been requested to be included
in such registration by the Holders of Registrable Securities and the holders of
Senior Note Warrant Shares pro rata between the Holders of Registrable
Securities and the holders of Senior Note Warrant Shares based upon the
aggregate amount of securities held, (iii) third, provided that no securities of
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such person referred to in the immediately preceding clause (i) or of the
Holders of Registrable Securities or of the holders of Senior Note Warrant
Shares have been excluded from such registration, securities of other persons
entitled to exercise "piggy-back" registration rights pursuant to contractual
commitments (pro rata based on the respective numbers of securities sought to be
registered by such persons) and (iv) fourth, provided that no securities of any
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other person have been excluded from such registration, the securities which the
Company proposes to register; and (z) in cases involving the registration for
sale of securities for the account of any Holder of Registrable Securities,
securities shall be registered in such offering in the following order of
priority: (i) first, the securities which have been requested to be included in
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such registration by the Holders of Registrable Securities and the holders of
Senior Note Warrant Shares pro rata based upon the aggregate amount of
securities then held, (ii) second, provided that no Senior Note Warrant
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Shares or Registrable Securities have been excluded from such registration,
securities of other persons entitled to exercise "piggy-back" registration
rights pursuant to contractual commitments (pro rata based on the respective
numbers of securities sought to be registered by such persons) and (iii) third,
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provided that no securities of any other person has been excluded from such
registration, the securities which the Company proposes to register.
If, as a result of the provisions of this Section 6(b)), any Holder of
Registrable Securities shall not be entitled to include all Registrable
Securities in a "piggy-back" registration that such Holder of Registrable
Securities has requested to be included, such Holder of Registrable Securities
may elect to withdraw his request to include Registrable Securities in such
registration.
7. Expenses of Registration. The Company shall bear all Registration
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Expenses incurred in connection with any registration, qualification or
compliance pursuant to this Agreement and all underwriting discounts, selling
commissions and expense allowances applicable to the sale of any securities by
the Company for its own account in any registration. All Selling Expenses shall
be borne by the Holders, if any, whose securities are included in such
registration pro rata on the basis of the number of their Registrable Securities
so registered, provided, however, that if in such registration, the Company pays
any expenses included in the defined term "Selling Expenses" for other security
holders, the Company will pay such expenses for the Holders.
8. Registration on Form S-3.
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(a) The Company shall use its best efforts to qualify for registration
on Form S-3 or any comparable or successor form or forms, and to that end the
Company shall register (whether or not required by law to do so) the Common
Stock under the Exchange Act in accordance with the provisions of the Exchange
Act following the closing of the first registration of any securities of the
Company on Form XX-0, X-0 or any comparable or successor form. After the Company
has qualified for the use of Form S-3, in addition to the rights contained in
the foregoing provisions of this Agreement, the Holders of Registrable
Securities shall have unlimited rights to request from time to time
registrations on Form S-3 (such requests shall be in writing and shall state the
number of shares of Registrable Securities to be disposed of and the intended
methods of disposition of such shares by such Holder or Holders) provided that
in each case the aggregate proceeds of such registration are expected to exceed
$500,000; provided, however, that the Company shall not be required to effect
more than two registrations pursuant to this Section 8 in any six (6) month
period.
(b) Notwithstanding the foregoing, the Company shall not be obligated to
take any action pursuant to this Section 8:
(i) in any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration,
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qualification or compliance unless the Company is already subject to service in
such jurisdiction and except as may be required by the Securities Act;
(ii) if the Company, within ten (10) days of the receipt of the
request of the Initiating Holders, gives notice of its bona fide intention to
effect the filing of a registration statement with the Commission within sixty
(60) days of receipt of such request (other than a registration of securities in
a Rule 145 transaction or with respect to an employee benefit plan);
(iii) during the period starting with the date of filing of, and
ending on the date 90 days immediately following the effective date of, any
registration statement pertaining to securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan), provided that the Company is actively employing in good
faith all reasonable efforts to cause such registration statement to become
effective; or
(iv) if the Company shall furnish to such Holder or Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its stockholders for registration statements to be filed in the
near future, in which case the Company's obligation to use its best efforts to
file a registration statement shall be deferred for a period not to exceed
ninety (90) days from the receipt of the request to file such registration by
such Holder or Holders, provided that the Company may not exercise this deferral
right more than once per twelve-month period.
9. Registration Procedures. In the case of each registration effected by
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the Company pursuant to this Agreement, the Company will keep each Holder who is
entitled to registration rights hereunder advised in writing as to the
initiation of each registration and as to the completion thereof. At its
expense, the Company will:
(a) Except as otherwise provided herein, keep such registration
effective for a period of six months or until such Holders, if any, have
completed the distribution described in the registration statement relating
thereto, whichever first occurs; provided, however, that in the case of any
registration of Registrable Securities on Form S-3 that are intended to be
offered on a continuous or delayed basis, such six month period shall be
extended, if necessary, to keep the registration statement effective until all
such Registrable Securities are sold;
(b) Prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of securities covered by such
registration statement;
(c) Furnish such number of prospectuses and other documents incident
thereto, including supplements and amendments, as a Holder may reasonably
request;
-12-
(d) Notify each seller of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a fact required to be stated therein or necessary to make the statements
therein not misleading or incomplete in the light of the circumstances then
existing, and at the request of any such seller, prepare and furnish to such
seller a reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the purchaser
of such shares, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or incomplete in the
light of the circumstances then existing;
(e) Cause all such Registrable Securities to be listed on each
securities exchange or interdealer quotation system on which the same securities
issued by the Company are then listed;
(f) Provide a transfer agent and registrar for all such Registrable
Securities and a CUSIP number for all such Registrable Securities not later than
the effective date of such registration;
(g) Make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement, and any attorney or accountant retained by any such
seller or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers and
directors to supply all information reasonably requested by any such seller,
underwriter, attorney or accountant in connection with such registration
statement; provided, however, that such seller, underwriter, attorney or
accountant shall agree to hold in confidence and trust all information so
provided;
(h) Furnish to each selling Holder a signed counterpart, addressed to
the selling Holder, of
(i) an opinion of counsel for the Company, dated the effective date
of the registration statement, and
(ii) "comfort" letters signed by the Company's independent public
accountants who have examined and reported on the Company's financial statements
included in the registration statement, to the extent permitted by the standards
of the AICPA or other relevant authorities, covering substantially the same
matters with respect to the registration statement (and the prospectus included
therein) and (in the case of the accountants' "comfort" letters, with respect to
events subsequent to the date of the financial statements) as are customarily
covered in
-13-
opinions of issuer's counsel and in accountants' "comfort" letters delivered to
the underwriters in underwritten public offerings of securities;
(i) Furnish to each selling Holder a copy of all documents filed with
and all correspondence from or to the Commission in connection with any such
offering other than nonsubstantive cover letters and the like;
(j) Otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than eighteen
months, beginning with the first month after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act;
(k) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Sections 5 or 6 hereof, the Company
will enter into any underwriting agreement reasonably necessary to effect the
offer and sale of Common Stock, provided such underwriting agreement contains
customary underwriting provisions and provided further that if the underwriter
so requests the underwriting agreement will contain customary contribution
provisions; and
(l) From and after the date of this Agreement, the Company shall not,
without the prior written consent of a majority in interest of the Holders,
enter into any agreement with any holder or prospective holder of any securities
of the Company giving such holder or prospective holder rights that are superior
to, or which adversely affect, the rights given to the holders of Registrable
Securities hereunder to require the Company to initiate registration of any
securities of the Company or to require the Company, upon any registration of
any of its securities, to include, among the securities that the Company is then
registering, securities owned by such holder.
10. Indemnification.
---------------
(a) The Company will indemnify each Holder, each of its officers,
directors, agents, employees and partners, and each person controlling such
Holder, with respect to each registration, qualification or compliance effected
pursuant to this Agreement, and each underwriter, if any, and each person who
controls any underwriter, and their respective counsel against all claims,
losses, damages and liabilities (or actions, proceedings or settlements in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular or other document prepared by the Company (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any rule or
-14-
regulation thereunder applicable to the Company and relating to action or
inaction required of the Company in connection with any such registration,
qualification or compliance, and will reimburse each such Holder, each of its
officers, directors, agents, employees and partners, and each person controlling
such Holder, each such underwriter and each person who controls any such
underwriter, for any legal and any other expenses as they are reasonably
incurred in connection with investigating and defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement (or alleged untrue statement)
or omission (or alleged omissions) based upon written information furnished to
the Company by such Holder or underwriter and stated to be specifically for use
therein.
(b) Each Holder whose Registrable Securities are included in any
registration, qualification or compliance effected pursuant to this Agreement
will indemnify the Company, each of its directors and officers and each
underwriter, if any, of the Company's securities covered by such a registration
statement, each person who controls the Company or such underwriter within the
meaning of the Securities Act and the rules and regulations thereunder, each
other such Holder and each of their officers, directors and partners, and each
person controlling such Holder, and their respective counsel against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering circular
or other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company and such Holders,
directors, officers, partners, persons, underwriters or control persons for any
legal or any other expenses as they are reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action, in
each case to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by such Holder and stated to be specifically for use therein; provided,
however, that the obligations of such Holders hereunder shall be limited to an
amount equal to the net proceeds to each such Holder sold under such
registration statement, prospectus, offering circular or other document as
contemplated herein.
(c) Each party entitled to indemnification under this Section 10 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense; and provided further that if any Indemnified
Party reasonably concludes that there may be one or more legal defenses
available to it that are not available to the Indemnifying Party, or that such
-15-
claim or litigation involves or could have an effect on matters beyond the scope
of this Agreement, then the Indemnified Party may retain its own counsel at the
expense of the Indemnifying Party; and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement unless and only to
the extent that such failure to give notice results in material prejudice to the
Indemnifying Party. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with defense of
such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this Section 10 is held by a
court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage or expense referred to herein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, liability, claim, damage or expense in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and of the Indemnified Party on the other in connection
with the statements or omissions which resulted in such loss, liability, claim,
damage or expense as well as any other relevant equitable considerations. The
relative fault of the Indemnifying Party and of the Indemnified Party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the Indemnifying Party or by the Indemnified
Party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
11. Information by Holder. Each Holder of Registrable Securities to be
---------------------
included in a registration referred to in this agreement shall furnish to the
Company such information regarding such Holder, the securities to be offered and
sold and the intended plan of distribution of the securities by such Holder as
the Company may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Agreement and shall promptly advise the Company in writing
of any material changes to such information while the registration is in effect.
12. Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may permit the sale of the
Restricted Securities to the public without registration, the Company agrees to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times from
and after the effective date of
-16-
the first registration under the Securities Act filed by the Company for an
offering of its securities to the general public;
(b) Use its reasonable best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act at any time after it has become subject to
such reporting requirements; and
(c) So long as a Holder owns any Restricted Securities, furnish to the
Holder forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 (at any time from and
after ninety (90) days following the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
as a Stockholder may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Stockholder to sell any such securities
without registration.
13. Transfer of Rights; Termination of Rights.
-----------------------------------------
(a) The rights to cause the Company to register a Holder's securities
granted by the Company under this Agreement may be transferred or assigned by a
Holder to a transferee or assignee of not less than five percent (5%) of the
total outstanding number of Registrable Securities, provided that the Company is
given written notice prior to the time that such right is exercised, stating the
name and address of said transferee or assignee and identifying the securities
with respect to which such registration rights are being transferred or
assigned, and provided further that the transferee or assignee of such rights is
not deemed by the Board of Directors of the Company, in its reasonable judgment,
to be a competitor of the Company; and provided further that the transferee or
assignee of such rights assumes in writing the obligations of the Holder under
this Agreement.
(b) The rights granted pursuant to Sections 5 through 12 of this
Agreement shall terminate as to any Holder at the later of (i) three years after
the Company's IPO or (ii) at such time as such Holder may sell under Rule 144 in
a three month period all Registrable Securities then held by such Holder without
regard to Rule 144(k).
(c) Notwithstanding the rights granted pursuant to Sections 5 through
12 of this Agreement, the Strategic Registrable Securities shall be subject to
restrictions on transfer set forth in the Strategic Investment Agreements.
14. "Lock-Up" Agreement. Each Stockholder agrees, if requested by the
------------------
Company and an underwriter of Common Stock (or other securities) of the Company
in connection with the IPO, not to sell or otherwise transfer or dispose of any
Common Stock (or other securities) of the Company held by such Stockholder
during a period of time determined by the Company and its
-17-
underwriters (not to exceed 180 days) following the date of the Prospectus filed
under the Securities Act relating to such IPO, provided that all officers and
directors of the Company who then hold Common Stock (or other securities) of the
Company enter into similar agreements, and provided further that, in no event,
shall a Stockholder be prohibited from transferring or selling Common Stock or
other securities of the Company to an affiliate of such Stockholder.
Such agreement shall be in writing in a form reasonably satisfactory to the
Company and such underwriter. The Company may impose stop-transfer instructions
with respect to the Shares (or securities) subject to the foregoing restriction
until the end of said period. The Company agrees that any release of shares
subject to the foregoing lock-up agreement shall be made on a pro rata basis
among all Stockholders based upon their percentage ownership of the outstanding
shares of Common Stock of the Company. Any shares so released shall be subject
to the provisions of Section 4 hereof.
15. Preemptive Rights.
-----------------
(a) New Issuances. The Company hereby agrees not to issue or sell any
-------------
"New Securities" (as defined in this Section 15) in a transaction in which the
Company receives any consideration other than cash without the prior written
consent of holders of a majority of the outstanding shares of Series B Preferred
and Series C Preferred. The Company hereby grants to the Investors and the
Strategic Investors a right (the "Preemptive Right") to purchase all or any part
of their pro rata share of any New Securities that the Company may, from time to
time, propose to sell and issue solely for cash. Such pro rata share, for
purposes of this Preemptive Right, is the ratio of (x) the sum of the number of
shares of Common Stock then held by such Investor or Strategic Investor
immediately prior to the issuance of the New Securities, assuming the full
conversion of any Preferred Stock held by such Investor or Strategic Investor
(but not including options or warrants to acquire Common Stock or Preferred
Stock), to (y) the total number of shares of Common Stock then outstanding
immediately prior to the issuance of the New Securities, assuming the full
conversion of outstanding Preferred Stock (but not including options or warrants
to acquire Common Stock or Preferred Stock). This Preemptive Right shall be
subject to the following provisions:
(i) "New Securities" shall mean any Common Stock or Preferred Stock
--------------
of the Company, whether or not authorized on the date hereof, and rights,
options or warrants to purchase Common Stock or Preferred Stock and securities
of any type whatsoever that are, or may become, convertible into Common Stock or
Preferred Stock; provided, however, that "New Securities" does not include the
following:
(A) shares of capital stock of the Company issuable upon
conversion or exercise of any currently outstanding securities or any New
Securities issued in accordance with this Agreement;
-18-
(B) shares or options granted to officers, directors and
employees of, and consultants to, the Company pursuant to stock option or
purchase plans approved by at least 80% of the members of the Board of
Directors;
(C) shares of Common Stock or Preferred Stock issued in
connection with any pro rata stock split, stock dividend or recapitalization by
the Company (in which case, all numbers of shares and per share amounts
referenced in this Section 15(a)(i) will be adjusted accordingly);
(D) the Warrants (or Common Stock issuable upon exercise
thereof);
(E) the Senior Note Warrants issued in connection with the
issuance of Senior Notes and the Senior Note Warrant Shares issued upon exercise
thereof;
(F) the shares of Series C Preferred or Series C-1 Preferred,
or Common Stock or Class B Common issuable upon conversion thereof or
(G) the shares of Series D Preferred or Series D-1 Preferred,
or Common Stock or Class B Common issuable upon conversion thereof.
(ii) In the event that the Company proposes to undertake an
issuance of New Securities for cash, it shall give each Investor and Strategic
Investor written notice (the "Notice") of its intention, describing the type of
New Securities, the price, and the general terms upon which the Company proposes
to issue the same. Each Investor and Strategic Investor shall have twenty (20)
business days after receipt of such notice to agree to purchase all or any
portion of its pro rata share of such New Securities at the price and upon the
terms specified in the notice by giving written notice to the Company and
stating therein the quantity of New Securities to be purchased. If any Investor
or Strategic Investor fails to agree to purchase its full pro rata share within
such twenty (20) business day period, the Company will give each Investor and
Strategic Investor who did so agree (the "Electing Stockholders") notice of the
number of shares that were not subscribed for. Such notice may be by telephone
if followed by written confirmation within two days. The Electing Stockholders
shall have five (5) business days from the date of receipt of such notice to
agree to purchase all or any share of any Investor's or Strategic Investor's pro
rata share of the New Securities not purchased in response to the Notice.
(iii) In the event that any New Securities subject to the
Preemptive Right are not purchased by the Investors or Strategic Investors
within the twenty (20) business day plus five (5) business day period specified
above, the Company shall have ninety (90) days thereafter to sell (or enter into
an agreement pursuant to which the sale of New Securities that had been subject
to the Preemptive Right shall be closed, if at all, within sixty (60) days from
the date of said agreement) the New Securities with respect to which the rights
of the Investors and Strategic Investors were not exercised at a price and upon
terms, including manner of payment,
-19-
no more favorable to the purchasers thereof than specified in the Notice. In the
event the Company has not sold all offered New Securities within such ninety
(90) day period (or sold and issued New Securities in accordance with the
foregoing within sixty (60) days from the date of such agreement) the Company
shall not thereafter issue or sell any New Securities, without first again
offering such New Securities to the Investors and Strategic Investors in the
manner provided above.
(iv) This Preemptive Right is nonassignable except to any
transferee to whom registration rights may be transferred under this Agreement.
(v) This Preemptive Right shall terminate as to any Investor or
Strategic Investor (or any transferee or assignee of such Investor or Strategic
Investor) at such time as such Investor or Strategic Investor ceases to own any
Series B Preferred, Series C Preferred, Series C-1 Preferred, Series D Preferred
and Series D-1 Preferred or Common Stock or Class B Common Stock issued upon
conversion thereof and shall terminate as to all Investors and Strategic
Investors immediately prior to the closing of an IPO.
(b) Restrictions on Strategic Investors. Notwithstanding the rights set
forth in this Section 15, the Strategic Investors shall at all times be subject
to the standstill provisions set forth in the Strategic Investment Agreements.
16. Rights of First Refusal and Co-Sale Respecting Shares.
-----------------------------------------------------
(a) Rights of First Refusal and Co-Sale.
-----------------------------------
(i) In the event that a Stockholder proposes to sell or otherwise
transfer any shares of stock of the Company, or any interest in such shares
("Transfer Shares"), now held by or hereafter acquired by such Stockholder (the
"Selling Stockholders") to any person or entity, the Company and the other
Stockholders shall have a right of first refusal on the terms described below to
purchase the Transfer Shares proposed to be transferred, and each of the other
Stockholders shall have a right of co-sale on the terms described below. At
least twenty-five (25) business days before the date of a sale or transfer of
Transfer Shares, the Selling Stockholder shall give a written notice (the
"Transfer Notice") simultaneously to the Company and to each of the other
Stockholders at such Stockholder's address as shown on the Company's records.
The Transfer Notice shall describe in detail the proposed transfer, including
the number of Transfer Shares proposed to be transferred, the proposed transfer
price or consideration to be paid, the address of the Selling Stockholder
proposing to transfer shares, and the name and address of the proposed
transferee (the "Transferee").
(ii) The Company shall have ten (10) business days following
receipt of the Transfer Notice to agree to purchase all or any portion of the
Transfer Shares at the price and upon the terms specified in the Transfer Notice
by giving written notice to the Selling Stockholder and stating the number of
shares to be purchased. If the Company fails to deliver
-20-
notice of its intent to purchase all of the Transfer Shares within such ten (10)
day period, the Selling Stockholder shall give each of the other Stockholders
notice of the number of shares which the Company did not elect to purchase. Such
notice may be by telephone if followed by written confirmation in two (2) days.
The other Stockholders shall each have five (5) business days from receipt of
such notice to agree to purchase all or any portion of their respective First
Refusal Pro Rata Shares (as hereinafter defined) of such Transfer Shares which
the Company did not elect to purchase, by giving written notice to the Selling
Stockholder and stating the number of shares to be purchased. If any Stockholder
fails to deliver notice of its intent to purchase all of its First Refusal Pro
Rata Share of the Transfer Shares which the Company did not elect to purchase,
the Selling Stockholder shall give Warburg notice of the number of shares the
Stockholders did not elect to purchase. Such notice may be by telephone if
followed by written confirmation in two (2) days. Warburg shall have five (5)
business days from receipt of such notice to agree to purchase all or portion of
such remaining Transfer Shares, by delivering written notice to the Selling
Stockholder and stating the number of shares to be purchased. Any Transfer
Shares not purchased by the Company or the Stockholders pursuant to this Section
16(a)(ii) are hereinafter referred to as the "Unsold Transfer Shares."
(iii) Each Stockholder shall have the right to sell to the
Transferee (or, upon the unwillingness of any Transferee to purchase directly
from such Stockholder, to the Selling Stockholder) not more than its Co-Sale Pro
Rata Share (as hereinafter defined) of the Unsold Transfer Shares subject to the
Transfer Notice on the terms set forth in the Transfer Notice. If the
consideration to be paid by the Transferee is of a nature that cannot be given
to the Stockholders, then each Stockholder shall have the right to sell its Co-
Sale Pro Rata Share of the Unsold Transfer Shares subject to the Transfer Notice
to the Selling Stockholder at the fair market value per share of such
consideration. To the extent that any prospective purchaser or purchasers
prohibits such assignment or otherwise refuses to purchase shares or other
securities from a Stockholder exercising its right of co-sale hereunder, the
Selling Stockholder shall not sell such prospective purchaser or purchasers any
Transfer Shares unless and until, simultaneously with such sale, the Selling
Stockholder shall purchase such shares or other securities from such other
Stockholders for the same consideration and on the same terms and conditions as
the proposed transfer described in the Transfer Notice. A Stockholder shall
exercise his right of co-sale by delivering a notice to the Selling Stockholder
within five (5) business days after receipt by such Purchaser of notice from the
Selling Stockholder stating the number of Unsold Transfer Shares such
Stockholder desires to sell.
(iv) Each Stockholder's "First Refusal Pro Rata Share" is the ratio
of (i) the total number of shares of Common Stock held by such Stockholder as of
the date of the Transfer Notice (after giving effect to the conversion of all
shares of Preferred Stock held by such Stockholder) to (ii) the number of shares
of Common Stock held by all Stockholders other than the Selling Stockholder as
of such date (after giving effect to the conversion of all shares of Preferred
Stock held by all Stockholders).
-21-
(v) Each Stockholder's "Co-Sale Pro Rata Share" is the ratio of (i)
the total number of shares of Common Stock of the Company held by such
Stockholder as of the date of the Transfer Notice (after giving effect to the
conversion of all shares of Preferred Stock held by such Stockholder) to (ii)
the number of shares of Common Stock held by all Stockholders as of such date
(after giving effect to the conversion of all shares of Preferred Stock held by
all Stockholders).
(b) Transfer of Shares Upon Failure to Exercise Right of Co-Sale.
------------------------------------------------------------
Subject to the rights of the Company Stockholders who have elected to exercise
rights of first refusal or co-sale, the Selling Stockholder may, not later than
sixty (60) days following delivery to the Company and each of the Stockholders
of the Transfer Notice, conclude a transfer of any or all of the Transfer Shares
covered by the Transfer Notice on terms and conditions substantially similar to
those described in the Transfer Notice. Any proposed transfer on terms and
conditions materially different than those described in the Transfer Notice, as
well as any subsequent proposed transfer of any of the Transfer Shares by the
Selling Stockholder, shall again be subject to the rights of first refusal and
rights of co-sale and shall require compliance by the Selling Stockholder with
the procedures described in this Section.
(c) Binding Effect of Right of Co-Sale. The rights of first refusal and
----------------------------------
co-sale shall be binding upon any transferee of Transfer Shares other than a
transferee acquiring Transfer Shares in a transaction which complies with this
Section.
(d) Termination of Right of Co-Sale. Notwithstanding anything in this
-------------------------------
Section to the contrary, the rights of first refusal and of co-sale shall
terminate on the earlier of (i) the closing date of the Company's IPO; or (ii)
as to any Stockholder at such time as such Stockholder holds less than 2.5% of
the total number of shares of Common Stock held by all Stockholders (after
giving effect to the conversion of all shares of Preferred Stock held by all
Stockholders).
(e) Exceptions. Without regard and not subject to the provisions of
----------
this Section, each Stockholder may transfer all or part of its Shares pursuant
to Section 4 above in an Exempt Transaction; provided, however, that this
Agreement shall be binding upon each transferee in any such Exempt Transaction
and, prior to the completion of such transfer, each transferee or his or her
legal representative shall have executed documents in form and substance
satisfactory to the Company and to a majority in interest of the Investors
evidenced by their written acknowledgment of such satisfaction, assuming the
obligations of the Transferring Stockholder under this Agreement with respect to
the Transfer Shares. Such Transfer Shares shall remain subject to this Section
hereunder, and references to the "Stockholders" hereunder shall be deemed
thereafter to apply to and include the transferor or transferees of any such
shares, provided that in the event of distributions to limited and general
partners of an Investor, such partners of an Investor shall not be required to
execute a written assumption of obligations but shall have notice of and be
bound by such obligations by virtue of the legends set forth in Section 6.2 of
the Strategic Investment Agreements.
-22-
(f) Conditions to Exercise of Rights. Exercise of the Stockholder's
--------------------------------
rights under this Section shall be subject to and conditioned upon, and the
Selling Stockholder and the Company shall use their best efforts to assist the
Stockholders in, compliance with applicable laws.
(g) Transferability. The rights of first refusal and co-sale rights
---------------
granted to the Stockholders pursuant to this Section shall be transferable only
to a transferee to whom registration rights may be transferred hereunder and who
following such transfer will hold no less than 2.5% of the total number of
shares of Common Stock held by all Stockholders (after giving effect to the
conversion of all shares of Preferred Stock held by all Stockholders).
(h) Restrictions on Strategic Investors. Notwithstanding the rights and
-----------------------------------
obligations set forth in this Section 16, the shares of Preferred Stock or
Common Stock held by the Strategic Investors shall at all times be subject to
the restrictions on transfer set forth in the Strategic Investment Agreements,
and the Strategic Investors shall at all times be subject to the standstill
provision set forth in the Strategic Investment Agreements.
17. Certain Rights.
(a) Basic Financial Information. The Company will furnish the following
---------------------------
reports to each Investor (or its representative) so long as such Investor owns
Preferred Stock (or Common Stock issued upon conversion of such Preferred
Stock):
(i) As soon as practicable after the end of each fiscal year of the
Company, and in any event within 90 days thereafter, the consolidated balance
sheet of the Company and its subsidiaries, if any, as at the end of such fiscal
year, consolidated statements of income and cash flow and notes thereto
(including notes with respect to each department or operating entity) of the
Company and its subsidiaries, if any, for such year, prepared in accordance with
generally accepted accounting principles consistently applied and setting forth
in each case in comparative form the figures for the previous fiscal year, all
in reasonable detail and certified by independent public accountants of
recognized national standing that are among the six largest accounting firms in
the United States selected by the Company and approved by its Board of
Directors.
(ii) As soon as practicable after the end of the first, second and
third quarterly accounting periods in each fiscal year of the Company and in any
event within 45 days thereafter, an unaudited consolidated balance sheet and an
unaudited statement of cash flows of the Company and its subsidiaries, if any,
as of the end of each such quarterly period, and unaudited consolidated
statements of income of the Company and its subsidiaries for such period and for
the current fiscal year to date, in each case with comparable prior periods,
prepared in accordance with generally accepted accounting principles
consistently applied, all in reasonable detail, including any material
discrepancies between the results reported and the Company's
-23-
budgeted projections for the period, as well as other financial or business
events of material importance, and certified, subject to changes resulting from
year-end audit adjustments, by the principal financial or accounting officer of
the Company.
(iii) As soon as practicable after the end each month in each
fiscal year of the Company, and in any event within 30 days thereafter, a
consolidated balance sheet of the Company and its subsidiaries, if any, as of
the end of each such month, and consolidated statements of income and cash flows
and notes thereto (including notes with respect to each department or operating
entity) and its subsidiaries for such period and for the current fiscal year to
date, prepared in accordance with generally accepted accounting principles
consistently applied, subject to changes resulting from year-end audit
adjustments, all in reasonable detail and certified by the principal financial
or accounting officer of the Company.
(iv) Annually (but in any event at least 30 days prior to the
commencement of each fiscal year of the Company) the yearly budget and operating
plan of the Company, in such manner and form as approved by the Board of
Directors of the Company, which plan shall include projected statements of
income and cash flow for such fiscal year and a projected balance sheet as of
the end of such fiscal year. Any material changes in such plan shall be
delivered to the Investors as promptly as practicable after such changes have
been approved by the Board of Directors of the Company.
(v) Access to the Company's and its subsidiaries' books, records
and facilities during normal business hours, and reasonable access to the
Company's officers to discuss the Company's and its subsidiaries' accounts,
finances and affairs.
The provisions of this Section 17(a) shall not be in limitation of any
rights that the Stockholders may have with respect to the books and records of
the Company and its subsidiaries, or to inspect their properties or discuss
their affairs, finances and accounts; and, in the event that the Company is
unable to comply with the provisions of Section 17(a), the Board of Directors of
the Company shall, by resolution duly adopted, authorize and cause a firm of
independent public accountants of nationally recognized standing that is among
the five largest accounting firms in the United States to prepare promptly and
furnish such information to the eligible Stockholders at the Company's expense.
From the date the Company becomes subject to the reporting requirements of
the Exchange Act, and in lieu of the information required pursuant to this
Section 17(a), Company may furnish to the Investors copies of its annual reports
on Form 10-K, its quarterly reports on Form 10-Q, any current reports on Form 8-
K and such other information or interim reports as it provides to all
stockholders.
(b) Transfers of Rights. The rights granted to the Investors under
-------------------
Section 17(a) hereof may be transferred or assigned by an Investor to any
transferee or assignee of any Shares to whom registration rights may be assigned
provided that the Company is given
-24-
written notice at the time of or within a reasonable time after such transfer or
assignment, stating the name and address of the transferee or assignee and
identifying the securities with respect to which such rights are being
transferred or assigned.
(c) Termination. The provisions of Section 17 shall terminate as to all
-----------
Investors and Strategic Investors upon the closing of an IPO.
18. Board Representation and Voting of Shares.
-----------------------------------------
(a) In any and all elections of directors of the Company (whether at a
meeting or by written consent in lieu of a meeting), each Stockholder shall vote
or cause to be voted all Preferred Stock or Common Stock (for purposes of this
Section 18, the "Voting Stock") owned by such Stockholder, or over which such
Stockholder has voting control, and otherwise use such Stockholder's respective
best efforts, so as to fix the number of directors constituting the Board of
Directors of the Company at eight (8) and to elect as members of said Board (i)
three persons designated by the Investors, of which two persons shall be
designees of Warburg and one person shall be a designee of Crosspoint; provided,
however, that so long as Crosspoint's aggregate investment in the Company is
less than $5,000,000, if Crosspoint fails to invest on a pro rata basis with
Warburg in a subsequent equity financing of the Company, the Crosspoint designee
shall resign and his or her vacancy shall be filled by, and the third such
person shall be, a person mutually designated by Warburg and the Company; (ii)
two persons who are senior officers of the Company, one of whom shall be the
Chief Executive Officer of the Company; and (iii) one person mutually designated
by Warburg and the Company. The directors initially designated by the Investors
are Xxxxxx Xxxxx, Xxxxx Xxxxxxx and Xxxx Xxxxxxx, the directors initially
designated by the Company are Xxxxxxx XxXxxx and Xxxxxx Xxxxx and the director
initially designated by Warburg and the Company is Xxxxx Xxxxxxxx.
(b) The Company shall provide the Stockholders with prior written
notice of any intended mailing of notice to stockholders for a meeting at which
directors are to be elected and the Investors shall notify the Company in
writing, prior to such mailing, of the persons designated by the investors as
nominees for election as directors. If the Investors shall fail to give notice
to the Company as provided above, it shall be deemed that the designees of the
Investors then serving as directors shall be their designees for reelection.
(c) The Stockholders shall not vote to remove any director designated
pursuant to this Agreement, except for bad faith or willful misconduct.
(d) In the event of any vacancy in the Board, such vacancy shall be
filled by a person designated as provided in Section 18(a) above.
(e) In the event any shares of Preferred Stock, Common Stock or other
voting securities are issued by the Company to any Stockholder at any time
during the term of this Agreement, either directly or upon the exercise or
exchange of securities of the Company exer-
-25-
cisable for or exchangeable into shares Preferred Stock, Common Stock or voting
securities, such additional shares of Preferred Stock, Common Stock or voting
securities, as the case may be, shall be voted, or consent in respect thereof
shall be given, in accordance with the provisions of this Agreement.
(f) Each Strategic Investor agrees to vote or cause to be voted all
Voting Stock owned by it, or over which such Strategic Investor has voting
control, in a manner recommended by the Board of Directors of the Company. Each
Strategic Investor shall either attend each meeting of the stockholders or grant
its proxy to the Secretary of the Company, or, in the case of a written consent
of the stockholders, execute and deliver such consent to the Company.
(g) The voting agreement contained in Section 18(f) shall terminate in
its entirety on January 6, 2002. The voting agreements contained in Section
18(a), (b), (c) and (d) shall terminate upon the closing of an IPO.
(h) The voting agreements contained in this Section 18 are coupled with
an interest and may not be revoked, except by written consent of all of the
Stockholders.
(i) Each and every transferee or assignee of the Voting Stock from any
Stockholder shall be bound by and subject to all the terms and conditions of
this Section 18; provided, however, that this Section 18 shall terminate upon
transfer or assignment to parties that are not Affiliates of the transferor or
assignor. Except with respect to transfers or assignments to parties that are
not Affiliates of the transferor or assignor, so long as the provisions of this
Section 18 are in effect, the Company shall require, as a condition precedent to
the transfer of any Voting Stock covered by this Section 18, that the transferee
agrees in writing to be bound by, and subject to, the terms and conditions of
this Section 18 as provided in this Section 18 and to ensure that Stockholder's
transferees of the Voting Stock shall be likewise bound provided that in the
event of distributions to limited and general partners of an Investor, such
partners of an Investor shall not be required to execute a written assumption of
obligations but shall have notice of and be bound by such obligations by virtue
of the legends set forth in Section 6.2 of the Strategic Investment Agreements.
(i) Each of the parties acknowledge that all other parties hereto will
be irreparably damaged in the event that the provisions of this Section 18 are
not specifically enforced. Accordingly, should any dispute arise pursuant to
this Section 18, the parties agree that a decree of specific performance shall
be an appropriate remedy. Such remedy shall be cumulative and shall be in
addition to any other remedies which any party may have at law or in equity.
19. Visitation. The Company shall permit each Investor (or a representative
----------
thereof), so long as such Investor owns no less than five percent (5%) of the
total number of shares of Preferred Stock outstanding, during such periods as no
designee of such Investor is a member of
-26-
the Company's Board of Directors, to attend all meetings of the Board of
Directors and committees thereof and will provide to such Investor copies of
written materials provided to all members of the Board of Directors at the same
time and in the same manner that such materials are provided to the members of
the Board of Directors.
20. Governing Law. This Agreement shall be governed in all respects by the
-------------
laws of the State of California, without giving effect to the conflicts of laws
principles thereof.
21. Entire Agreement. This Agreement and the other documents delivered
----------------
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof.
22. Successors and Assigns. Except as otherwise provided herein, the
----------------------
provisions hereof shall inure to the benefit of and be binding upon, the
successors, assigns, heirs, executors, and administrators of the parties hereto.
23. Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be deemed effectively given
upon delivery to the party to be notified in person or by courier service or
five days after deposit with the United States mail, by First Class mail,
postage prepaid, addressed (a) if to a Stockholder, at the Stockholder's address
as set forth on Exhibit A hereto, or (b) if to any other holder of any
securities, at such address as such holder shall have furnished the other
parties hereto in writing, or, until any such holder so furnishes an address to
the Company, then to and at the address of the last holder of such Shares who
has so furnished an address to the Company, or (c) if to the Company, to Covad
Communications Group, Inc., 0000 Xxxxxxx Xxxxxxxxxx, Xxxxx Xxxxx, XX 00000, and
addressed to the attention of the President, or at such other address as the
Company shall have furnished to the Stockholders.
24. Amendments or Waivers. This Agreement may not be amended, waived,
---------------------
discharged or terminated other than by written instrument signed by the Company
and (a) holders of more than a majority of the outstanding Original Registrable
Securities (on an as-converted to Common Stock basis); provided, however, this
Agreement may not be amended or modified in any manner which shall adversely
affect the rights or obligations of the Strategic Registrable Securities without
the written consent of holders of a majority of the outstanding Strategic
Registrable Securities, and provided further that any amendment adding
additional parties to thisAgreement on the same terms as set forth herein shall
not be deemed to adversely affect such rights or obligations.
25. Waiver of Conflict. Each party to this Agreement that has been or
------------------
continues to be represented by Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx P.C., counsel to
the Company, hereby acknowledges that Rule 3-310 of the Rules of Professional
Conduct promulgated by the State Bar of California requires an attorney to avoid
representations in which the attorney has or had a relationship with another
party interested in the representation without the informed written consent of
all parties affected. By executing this Agreement, each such party gives his or
its informed written consent to the representation of the Company by Xxxxxx
Xxxxxxx Xxxxxxxx & Xxxxxx P.C. in connection with this Agreement and the
transactions contemplated hereby.
-27-
26. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which may be executed by fewer than all of parties hereto,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
27. Confidentiality. Each party hereto agrees that, except with the prior
---------------
written permission of the other parties, it shall at all times keep confidential
and not divulge, furnish or make accessible to anyone any confidential
information, knowledge or data concerning or relating to the business or
financial affairs of the other parties to which such party has been or shall
become privy by reason of this Agreement. The parties hereto further agree that
there shall be no press release or other public statement issued by either party
relating to this Agreement or the transactions contemplated hereby, unless the
parties otherwise agree in writing and except as required by law.
28. Applicability of Standstill Provision and Voting Agreement to Non-
-----------------------------------------------------------------
Affiliate Purchasers of Strategic Investors. Without changing the respective
-------------------------------------------
construction of Section 6.3 of the Series C-1 Purchase Agreements and the Series
D-1 Purchase Agreements or Section 18 of this Agreement of an even date
herewith, such sections shall be inapplicable to non-Affiliate purchasers (with
respect to the transferring Investor) and to limited partners of AT&T Venture
Fund II, LP, and Special Partners Fund, LP and Special Partners Fund
International, LP not affiliated with AT&T Corp. who acquire any shares of
Series C-1 Preferred Stock, Series D-1 Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Class B Common Stock or Common Stock from a
Strategic Investor.
-28-
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COVAD COMMUNICATIONS GROUP, INC.
By: /s/ XXXXX XXXXXX
-------------------------------------
Name: Xxxxx Xxxxxx
Title: Vice President, General Counsel
WARBURG, XXXXXX VENTURES, L.P.
By: Warburg, Xxxxxx & Co., its General
Partner
By: /s/ XXXXXX X. XXXXX
---------------------------------
Partner
CROSSPOINT VENTURE PARTNERS 1996
By: /s/ XXXX XXXXXXX
-------------------------------------
Name: Xxxx Xxxxxxx
Title: General Partner
INTEL CORPORATION
By: ___________________________________
Name:
Title:
[Stockholder Rights Agreement Signature Page]
-29-
AT&T Venture Fund II, LP
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, XX 00000
By: Venture Management, LLC
its General Partner
By: _____________________
Xxxx Xxxxxxx
Manager
Special Partners Fund, LP
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, XX 00000
By: Venture Management III, LLC
its General Partner
By: ___________________
Xxxx Xxxxxxx
Manager
Special Partners Fund International, XX
Xxxxxx House, South Church Street
Georgetown
Grand Cayman, Cayman Islands
By: Venture Management III, LLC
its Investment General Partner
By: ____________________
Xxxx Xxxxxxx
Manager
[Stockholder Rights Agreement Signature Page]
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NEXTLINK COMMUNICATIONS, INC.
By: ___________________________________
Name:
Title:
U.S. TELESOURCE, INC.
By: /s/ DRAKE S. TEMPEST
------------------------------------
Name: Drake S. Tempest
Title: Executive Vice President
and General Counsel
[Stockholder Rights Agreement Signature Page]
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/s/ XXXXXXX X. XXXXXX
---------------------------------------
Xxxxxxx X. XxXxxx
/S/ XXXXX XXXXXX
---------------------------------------
Xxxxx Xxxxxx
---------------------------------------
Xxxxxxx X. Xxxx
---------------------------------------
Xxxxxx X. Xxxxxxxx
/s/ XXXXXX XXXXX
---------------------------------------
Xxxxxx Xxxxx
---------------------------------------
Xxx Xxxxxxxxx
/s/ XXXXX X. XXXXXXXX
---------------------------------------
Xxxxx Xxxxxxxx
/s/ XXXXXXX X. XXXXX
---------------------------------------
Xxxxxxx X. Xxxxx
/s/ XXXXXX XXXX
---------------------------------------
Xxxxxx Xxxx
[Stockholder Rights Agreement Signature Page]
-32-
EXHIBIT A
SCHEDULE OF STOCKHOLDERS
Holders of Common Stock Number of Shares
----------------------- ----------------
Xxxxxxx XxXxxx 3,000,000
00000 Xxxxx Xxxx Xxxx
Xxx Xxxxx Xxxxx, XX 00000
Xxxxx Xxxxxx 3,000,000
000 Xxxxxxx Xxx.
Xxxx Xxxx, XX 00000
Xxxxxxx X. Xxxx 3,000,000
00000 Xxxxxxx Xxxxx
Xxxxxxxxx, XX 00000
Xxxxxx Xxxxxxxx 589,704
000 Xxxxxxxx Xxx
Xxxxxxx Xxxx, XX 00000
Xxxxxx Xxxxx 144,000
00000 Xx Xxxxx Xxxxx
Xxx Xxxxx Xxxxx, XX 00000
Xxx Xxxxxxxxx 1,125,000
Xxxxx Xxxxxxxx 144,000
00000 Xxxx Xxxxxx
Xxxxxxxx, XX 00000
Xxxxxxx X. Xxxxx 345,000
Holders of Series A Preferred Stock Number of Shares
----------------------------------- ----------------
Xxxxxxx XxXxxx 150,000
00000 Xxxxx Xxxx Xxxx
Xxx Xxxxx Xxxxx, XX 00000
Xxxxx Xxxxxx 150,000
000 Xxxxxxx Xxx.
Xxxx Xxxx, XX 00000
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Xxxxxxx X. Xxxx 150,000
00000 Xxxxxxx Xxxxx
Xxxxxxxxx, XX 00000
Xxxxxx Xxxxx 300,000
00000 Xx Xxxxx Xxxxx
Xxx Xxxxx Xxxxx, XX 00000
Holders of Series B Preferred Stock Number of Shares
----------------------------------- ----------------
Warburg, Xxxxxx Ventures, L.P. 12,000,000
c/o X.X. Xxxxxxx, Xxxxxx & Co., LLC
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000-0000
Crosspoint Venture Partners 1996 3,000,000
The Pioneer Hotel Building
0000 Xxxxxxxx Xxxx
Xxxxxxxx, XX 00000
Intel Corporation 2,000,001
0000 Xxxxxxx Xxxxxxx Xxxxxxxxx
Xxxxx Xxxxx, XX 00000-0000
Xxxxx Xxxxxxxx 100,002
00000 Xxxx Xxxxxx
Xxxxxxxx, XX 00000
Holders of Series C Preferred Stock Number of Shares
----------------------------------- ----------------
Intel Corporation 360,144
0000 Xxxxxxx Xxxxxxx Xxxxxxxxx
Xxxxx Xxxxx, XX 00000-0000
Xxxxxx Xxxx 36,015
0 Xxxxxx Xxxx Xxxxx
Xxxxxx Xxxxxx, XX 00000
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Holders of Series C-1 Preferred Stock Number of Shares
------------------------------------- ----------------
NEXTLINK Communications, Inc. 1,200,466
000 000xx Xxxx. XX, Xxxxx 0000
Xxxxxxxx, XX 00000
U.S. Telesource, Inc. 900,349
000 Xxxxx Xxxxx
000 00xx Xxxxxx
Xxxxxx, XX 00000
Special Partners Fund International, LP 712,451
Xxxxxx Xxxxx, Xxxxx Xxxxxx Xxxxxx
Georgetown
Grand Cayman, Cayman Islands
AT&T Venture Fund II, LP 660,256
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, XX 00000
Special Partners Fund, LP 127,876
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, XX 00000
Holders of Series D-1 Preferred Stock
-------------------------------------
NEXTLINK Communications, Inc. 925,926
U.S. Telesource, Inc. 694,445
Special Partners Fund International, LP 549,517
AT&T Venture Fund II, LP 509,260
Special Partners Fund, LP 98,631
-35-
