EXHIBIT 10.18
COVAD COMMUNICATIONS GROUP, INC.
SERIES D-1 PREFERRED STOCK PURCHASE AGREEMENT
DATED AS OF JANUARY 19, 1999
TABLE OF CONTENTS
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SECTION I Purchase and Sale of Shares........................................ 1
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1.1 Authorization of Shares. ........................................ 1
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1.2 Sale of the Stock................................................ 1
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1.3 Closing.......................................................... 2
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SECTION II................................................................... 2
2.1 Organization, Good Standing and Qualifications................... 2
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2.2 Valid Issuance, Authority........................................ 2
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2.3 No Conflict...................................................... 3
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2.4 Company Capital Structure........................................ 3
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2.5 No Material Misstatements or Omissions........................... 4
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2.6 Company Financial Statements..................................... 4
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2.7 No Material Changes.............................................. 4
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2.8 Intellectual Property............................................ 4
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SECTION III Representations and Warranties of the Investor................... 5
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3.1 Investment Representations and Covenants......................... 5
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3.2 No Public Market................................................. 6
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3.3 Domicile......................................................... 6
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3.4 Authority........................................................ 6
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3.5 No Conflict...................................................... 7
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SECTION IV Conditions of Investor's and Company's Obligations at Closing..... 7
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4.1 Conditions....................................................... 7
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SECTION V Deliveries at Closing.............................................. 8
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5.1 Stockholder Rights Agreement..................................... 8
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5.2 Corporate Proceedings............................................ 8
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5.3 Amended Certificate of Incorporation............................. 8
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5.4 Opinion of Counsel............................................... 8
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5.5 Payment of Purchase Price........................................ 8
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SECTION VI Investor Covenants................................................ 9
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6.1 Restrictions on Transfer......................................... 9
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6.2 Legends.......................................................... 9
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6.3 Standstill.......................................................10
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SECTION VII Company Covenants................................................10
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7.1 Periodic Reports.................................................10
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7.2 Limitation on Sale...............................................10
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TABLE OF CONTENTS
(continued)
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7.3 HSR Filing.......................................................11
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SECTION VIII Miscellaneous...................................................11
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8.1 Governing Law....................................................11
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8.2 Survival.........................................................11
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8.3 Successors, Assigns..............................................11
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8.4 Notices..........................................................11
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8.5 Expenses.........................................................12
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8.6 Finder's Fees....................................................12
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8.7 Counterparts.....................................................12
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8.8 Severability.....................................................12
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8.9 Applicability of Standstill Provision and Voting Agreement to
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Non-Affiliate Purchasers.........................................12
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Exhibit A Amended and Restated Certificate of Incorporation
Exhibit B Stockholder Rights Agreement
Exhibit C Opinion of Counsel
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COVAD COMMUNICATIONS GROUP, INC.
SERIES D-1 PREFERRED STOCK PURCHASE AGREEMENT
This AGREEMENT is made as of January 19, 1999, by and between Covad
Communications Group, Inc., a Delaware corporation (the "Company") and the
undersigned investor (the "Investor").
RECITALS
WHEREAS, the Investor desires to purchase and the Company desires to sell
an aggregate of 694,445 shares of Series D-1 Preferred Stock, par value $.001
per share, of the Company (the "Series D-1 Preferred Stock");
WHEREAS, simultaneously with the closing of the sale of the shares of
Series D-1 Preferred Stock pursuant to this Agreement, the Company will issue
and sell an aggregate of 900,349 shares of Series C-1 Preferred Stock of the
Company to the Investor, pursuant to a Series C-1 Preferred Stock Purchase
Agreement, dated as of the date hereof, between the Company and the Investor
(the "Series C-1 Preferred Stock Purchase Agreement"); and
WHEREAS, the Company and the Investor wish to set forth the terms and
conditions upon which the Company will sell, and the Investor will purchase,
shares of Series D-1 Preferred Stock.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and conditions herein contained, the Company and the Investor hereby agree as
follows:
SECTION I
Purchase and Sale of Shares
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1.1 Authorization of Shares. The Company will prior to the Closing (as
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defined) have authorized the issuance of shares of its Series D-1 Preferred
Stock, having the rights, preferences, privileges and restrictions as set forth
in the Company's Amended and Restated Certificate of Incorporation (the "Amended
Certificate of Incorporation") attached to this Agreement as Exhibit A,
sufficient to meet the purposes of Section 1.2.
1.2 Sale of the Stock. Subject to the terms and conditions hereof, the
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Company will issue and sell to the Investor, and the Investor will purchase from
the Company, at the Closing, an aggregate of 694,445 shares of Series D-1
Preferred Stock (the "Shares") for the aggregate purchase price of $12,500,010.
1.3 Closing.
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(a) The purchase and sale of the Shares shall take place at a closing
(the "Closing") to be held at the offices of Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx,
000 Xxxx Xxxx Xxxx, Xxxx Xxxx, XX 00000-0000, on the date hereof.
(b) On the date of the Closing (the "Closing Date"), subject to the
conditions stated herein, the Company will deliver to the Investor stock
certificates representing the Shares to be purchased by the Investor against
payment to the Company of the purchase price therefor by wire transfer in
federal or other immediately available funds.
SECTION II
Representations and Warranties of the Company
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The Company hereby represents and warrants to the Investor, subject to the
exceptions specifically disclosed in writing in the disclosure letter supplied
by the Company to the Investor dated as of the date hereof (the "Disclosure
Letter") and certified by a duly authorized officer of the Company, as follows:
2.1 Organization, Good Standing and Qualifications. Each of the Company
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and its subsidiaries has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has full corporate power and authority to own or lease its
properties and conduct its business as currently conducted, and is duly
qualified as a foreign corporation and in good standing in all jurisdictions in
which the character of the property owned or leased or the nature of the
business transacted by it makes qualification necessary except where the failure
to be so qualified would not have a material adverse effect on the business,
properties, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole (a "Material Adverse Effect"). The outstanding
shares of capital stock of each of its subsidiaries have been duly authorized
and validly issued, are fully paid and non-assessable, and are owned by the
Company free and clear of all liens, encumbrances and equities and claims; and
no options, warrants or other rights to purchase, agreements or other
obligations to issue or other rights to convert any obligations into shares of
capital stock or ownership interests in such subsidiaries are outstanding.
2.2 Valid Issuance, Authority. The Shares, when issued and sold to the
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Investors as provided herein, and the Common Stock issuable upon conversion of
the Shares when issued pursuant to the Amended Certificate of Incorporation will
be duly and validly issued, fully paid and nonassessable. The Company has all
requisite right, power and authority to enter into this Agreement and the
Stockholder Rights Agreement (as defined below), to carry out its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Stockholder
Rights Agreement by the Company, and the consummation by the Company of the
transactions contemplated hereby and thereby have been duly
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authorized by all necessary action on the part of the Company and, no other
proceedings are necessary to authorize this Agreement and the Stockholder Rights
Agreement or to consummate the transactions contemplated hereby and thereby.
This Agreement and the Stockholder Rights Agreement have been duly executed and
delivered by the Company and constitute legal, valid and binding obligations of
the Company enforceable against the Company in accordance with their respective
terms. The sale of the Shares and the subsequent conversion of the Shares into
Series D Preferred, Class B Common and Common Stock are not and will not be
subject to any preemptive rights, rights of first refusal or rights of
participation that have not been properly waived or complied with.
2.3 No Conflict. The execution and delivery of this Agreement and the
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Stockholder Rights Agreement by the Company do not, and the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation, modification or
acceleration of any obligation under (i) any provision of the Amended
Certificate of Incorporation and Bylaws of the Company or any subsidiary, (ii)
any mortgage, indenture, lease, contract or other agreement or instrument,
permit, concession, franchise or license to which the Company or any subsidiary
or any of their respective properties or assets are subject, or (iii) any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to the Company or any subsidiary or their respective properties or assets,
except in the case of (ii) and (iii) for any of the foregoing that in the
aggregate would not have a Material Adverse Effect.
2.4 Company Capital Structure.
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(a) Immediately prior to Closing, the authorized capital stock of the
Company will consist of 100,000,000 shares of authorized Common Stock, $.001 par
value, of which 11,773,997 shares are issued and outstanding as of December 31,
1998 and of which 10,000,000 are designated Class B Common, none of which are
outstanding, and 50,000,000 shares of Preferred Stock, $.001 par value, of which
750,000 shares are designated Series A Preferred Stock, all of which are
outstanding, 17,100,003 shares are designated Series B Preferred, all of which
are outstanding, 11,149,287 shares are designated Series C Preferred, 396,159 of
which are outstanding, 6,000,000 shares are designated Series C-1 Preferred,
2,701,049 of which are outstanding, 5,000,000 shares are designated Series D
Preferred, none of which are outstanding and 5,000,000 shares are designated
Series D-1 Preferred, 2,083,334 of which are outstanding (collectively, the
"Company Capital Stock"). Except as provided in the Stockholders Rights
Agreement, all outstanding shares of Company Capital Stock are duly authorized,
validly issued, fully paid and non-assessable, are not subject to preemptive
rights created by statute, the Certificate of Incorporation or Bylaws of the
Company or any agreement to which the Company is a party or by which it is bound
and have been issued in compliance with federal and state securities laws. The
Company has no other capital stock authorized, issued or outstanding.
(b) Except for the Company's 1997 Stock Option Plan (the "Option
Plan") and the 1998 Employee Stock Purchase Plan (the "Purchase Plan"), the
Company has never adopted or maintained any stock option plan or other plan
providing for equity compensation of any person.
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The Company has reserved 15,520,342 shares of Company Common Stock for issuance
to employees, directors and consultants pursuant to the Option Plan,
12,249,907 of which are subject to outstanding options under the Option Plan
as of December 31, 1998 and has reserved 1,000,000 shares for the Purchase Plan,
none of which are issued and outstanding. The Company has issued warrants to
purchase 6,988,764 shares of Common Stock, all of which are outstanding. The
Company has reserved 6,988,764 shares of Company Common Stock for issuance upon
the exercise of such warrants. Except as described in this Section 2.4(b), there
are no options, warrants, calls, rights, commitments or agreements of any
character, written or oral, to which the Company is a party or by which it is
bound obligating the Company to issue, deliver, sell, repurchase or redeem, or
cause to be issued, delivered, sold, repurchased or redeemed, any shares of the
capital stock of the Company.
2.5 No Material Misstatements or Omissions. The amended Registration
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Statement (the "Registration Statement") on Form S-1 filed by the Company with
the U.S. Securities and Exchange Commission on January 19, 1999 (the "Filing
Date"), complies in all material respects as of the Filing Date and the date
hereof, with the provisions of the Securities Act of 1933, as amended (the
"Securities Act") and the rules and regulations of the SEC promulgated
thereunder; as of the Filing Date and the date hereof, the Registration
Statement did not and does not contain any untrue statement of a material fact
and did not and does not omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
2.6 Company Financial Statements. The Registration Statement includes (i)
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the Company's audited balance sheet as of September 30, 1998, and the related
audited statements of operations, stockholders' equity and cash flows for the
nine-month period ended September 30, 1998 and (ii) the Company's audited
balance sheet as of December 31, 1997, and the related audited statements of
operations, stockholders' equity and cash flows for the year ended December 31,
1997, (collectively, the "Company Financials"). The Company Financials have been
prepared in accordance with U.S. generally accepted accounting principles
consistent with the reporting practices and principles ("GAAP"), applied on a
basis consistent throughout the periods indicated and consistent with each
other. The Company Financials present fairly the financial condition, operating
results and cash flows of the Company as of the dates and during the periods
indicated therein.
2.7 No Material Changes. Since September 30, 1998, there has not been any
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materially adverse change in the business, properties, financial condition or
results of operations of the Company, whether or not arising from transactions
in the ordinary course of business, other than as set forth in the Registration
Statement, and since such date, except in the ordinary course of business, the
Company has not entered into any material transaction not referred to in the
Registration Statement.
2.8 Intellectual Property. To the knowledge of the Company, the Company
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or its subsidiaries own and possess or are licensed under all patents, patent
applications, licenses, trademarks, trade secrets, trade names, brand names,
inventions and copyrights or other proprietary rights ("Intellectual Property")
employed in the operation of their respective businesses as currently
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conducted, and, to the knowledge of the Company, with no infringement of or
conflict with the rights of others respecting any of the same. Neither the
Company nor any subsidiary has received any communications alleging that the
Company or any subsidiary has violated any of the Intellectual Property of any
other person or entity. Reasonable security measures have been taken by the
Company and its subsidiaries to protect the secrecy, confidentiality and value
of the Company's and its subsidiaries' trade secrets, including their respective
know-how, technology, concepts and other technical data for the development,
processing, manufacture and sale of its products. Each employee of and
consultant to the Company or its subsidiaries has executed an invention
assignment and confidentiality agreement with the Company or its subsidiaries.
SECTION III
Representations and Warranties of the Investor
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The Investor hereby represents and warrants to the Company that:
3.1 Investment Representations and Covenants.
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(a) Investor represents that the Shares to be received will be
acquired for investment for its own account, not as a nominee or agent, and not
with a view to the sale or distribution of any part thereof, and that it has no
present intention of selling, granting any participation in or otherwise
distributing the same.
(b) Investor understands and acknowledges that the offering of the
Shares pursuant to this Agreement will not, and any issuance of Series D
Preferred, Class B Common Stock or Common Stock on conversion thereof may not,
be registered under the Securities Act on the ground that the sale provided for
in this Agreement and the issuance of securities hereunder is exempt pursuant to
Section 4(2) of the Securities Act, and that the Company's reliance on such
exemption is predicated in part on the Investor's representations set forth
herein.
(c) Investor represents that it is experienced in evaluating
companies such as the Company, is able to fend for itself in transactions such
as the one contemplated by this Agreement, has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of its prospective investment in the Company and is able to afford a
complete loss of its investment. The Company acknowledges that the foregoing
representation shall not limit the right of the Investor to rely on the
representations of the Company set forth in Section 2 hereof.
(d) Investor acknowledges and understands that the Shares and any
Series D Preferred, Class B Common Stock and Common Stock acquired upon the
conversion thereof, must be held indefinitely unless they are subsequently
registered under the Securities Act or an exemption from such registration is
available, and that, except as otherwise provided in the Stockholder Rights
Agreements, the Company is under no obligation to register either the Shares or
Series D Preferred, Class B Common Stock and Common Stock issuable upon
conversion thereof.
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(e) Investor acknowledges that it has reviewed Rule 144 promulgated
under the Securities Act, which permits limited public resales of securities
acquired in a non-public offering, subject to the satisfaction of certain
conditions. Investor understands that before the Shares, or any Series D
Preferred, Class B Common Stock and Common Stock issued upon conversion thereof,
may be sold under Rule 144, the following conditions must be fulfilled, except
as otherwise described below: (i) certain public information about the Company
must be available; (ii) the sale must occur at least one year after the later of
the date the Shares were sold by the Company or the date they were sold by an
affiliate of the Company; (iii) the sale must be made in a broker's transaction;
and (iv) the number of Shares sold must not exceed certain volume limitations.
If, however, the sale occurs at least two years after the Shares were sold by
the Company or an affiliate of the Company, and if the Investor is not an
affiliate of the Company, the foregoing conditions will not apply.
(f) Investor acknowledges that in the event the applicable
requirements of Rule 144 are not met, registration under the Securities Act or
compliance with another exemption from registration will be required for any
disposition of its stock. Investor understands that although Rule 144 is not
exclusive, the Securities and Exchange Commission has expressed its opinion that
persons proposing to sell restricted securities received in a private offering
other than in a registered offering or pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales and that such persons and the brokers who
participate in the transactions do so at their own risk.
(g) Investor covenants that, in the absence of an effective
registration statement covering the stock in question, it will sell, transfer or
otherwise dispose of the Shares and any Series D Preferred, Class B Common Stock
and Common Stock issued on conversion thereof only in a manner consistent with
its representations and covenants set forth in this Agreement and the
Stockholder Rights Agreement. In connection therewith such Purchaser
acknowledges that the Company shall make a notation on its stock books regarding
the restrictions on transfer set forth in this Agreement and the Stockholder
Rights Agreement and shall transfer shares on the books of the Company only to
the extent not inconsistent therewith.
(h) Investor represents that it is an "accredited investor" as such
term is defined in Rule 501(a) under the Securities Act.
3.2 No Public Market. Investor understands that no public market now
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exists for any of the securities issued by the Company and there is no assurance
a public market will be created.
3.3 Domicile. Investor is domiciled in the state set forth at its address
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in Section 8.4.
3.4 Authority. Investor has all requisite right, power and authority to
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enter into this Agreement and the Stockholder Rights Agreement, to carry out its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the Stockholder Rights Agreement by the Investor, and the consummation by
the Investor of the transactions contemplated hereby and thereby have been duly
authorized by all necessary action on the part of the Investor and, no other
proceedings are necessary
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to authorize this Agreement and the Stockholder Rights Agreement or to
consummate the transactions contemplated hereby and thereby. This Agreement and
the Stockholder Rights Agreement have been duly executed and delivered by the
Investor and constitute legal, valid and binding obligations of the Investor
enforceable against the Investor in accordance with their respective terms.
3.5 No Conflict. The execution and delivery of this Agreement and the
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Stockholder Rights Agreement by the Investor do not, and the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation, modification or
acceleration of any obligation under (i) any provision of the organizational
documents of the Investor, (ii) any mortgage, indenture, lease, contract or
other agreement or instrument, permit, concession, franchise or license to which
the Investor or any of its properties or assets are subject, or (iii) any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to the Investor or its properties or assets, except in the case of (ii) and
(iii) for any of the foregoing that in the aggregate would not have a material
adverse effect on Investor.
SECTION IV
Conditions of Investor's and Company's Obligations at Closing
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4.1 Conditions. There shall be no conditions to the obligations of the
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Investor to purchase the Shares or of the Company to sell the Shares to the
Investor at the Closing except for the deliveries set forth in Section V and the
fulfillment on or before the Closing of each of the following conditions:
(a) Performance. The Investor and the Company shall have performed
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and complied in all material respects with all covenants, agreements,
obligations and conditions contained in this Agreement that are required to be
performed or complied with by it on or before Closing.
(b) Securities Law Compliance. The Company shall have obtained all
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necessary permits and qualifications, if any, required by any state or country
or secured an exemption therefrom, for the offer and sale of the Shares.
(c) No Injunction, etc. No preliminary or permanent injunction or
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other binding order, decree or ruling issued by a court or governmental agency
shall be in effect which shall have the effect of preventing the consummation of
the transactions contemplated by this Agreement.
(d) Stockholder Rights Agreement. The Company, the Investor and the
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requisite parties required to amend the Stockholder Rights Agreement shall have
entered into the Stockholder Rights Agreement.
(e) Amended Certificate of Incorporation. The Amended Certificate of
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Incorporation shall have been filed with the Secretary of State of the State of
Delaware prior to the Closing.
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(f) Series C-1 Preferred. Simultaneously with the Closing herewith,
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the Investor shall have purchased an aggregate of 900,349 shares of Series C-1
Preferred Stock of the Company, pursuant to the Series C-1 Preferred Stock
Purchase Agreement.
SECTION V
Deliveries at Closing
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At the Closing, the Company or the Investor, as applicable, shall deliver
the following:
5.1 Stockholder Rights Agreement. A copy of the Amended and Restated
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Stockholder Rights Agreement in substantially the form attached hereto as
Exhibit B as entered into by the Company and the Investors on the date hereof
(the "Stockholder Rights Agreement") and as amended by its existing stockholders
prior to the Closing.
5.2 Corporate Proceedings. Such instruments and documents reasonably
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requested by the Investor to confirm any approvals of the transactions
contemplated hereby required by the Company's Board of Directors and
stockholders.
5.3 Amended Certificate of Incorporation. The Company shall deliver such
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copy of the Amended Certificate of Incorporation as filed with the Secretary of
State of the State of Delaware prior to the Closing.
5.4 Opinion of Counsel. A legal opinion of counsel to the Company in form
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of Exhibit C, addressed to the Investor, dated as of the Closing.
5.5 Payment of Purchase Price. Investor shall deliver to the Company
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payment for the Shares to be acquired by such Investor in the amounts set forth
in Section 1.2 hereto.
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SECTION VI
Investor Covenants
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6.1 Restrictions on Transfer. Investor shall not, directly or indirectly,
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sell or transfer any Shares or any Series D Preferred, Class B Common Stock or
Common Stock issued upon conversion thereof for a period of one year following
the Closing Date, except pursuant to a sale of all the capital stock of the
Company or a merger or consolidation in which the Company is acquired, or
pursuant to a liquidation of the Company. However, Investor may sell or transfer
the Shares or Series D Preferred, Class B Common Stock or such Common Stock to
(i) any "Affiliate" (as defined below) of an Investor during such one year
period or (ii) any third party after such one year period, provided that such
Affiliate or third party, as the case may be, agrees in writing to be bound by
the obligations of this Agreement and the restrictions on transfer, including
without the limitation, the "lock-up" agreement, set forth in the Stockholder
Rights Agreement. No such transfer shall be effective unless the transferee or
assignee assumes in writing the obligations of the Investor under this
Agreement.
6.2 Legends. Investor agrees that each certificate representing Shares or
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any Common Stock issued upon conversion thereof be endorsed with the following
restrictive legends:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED 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, CERTAIN AGREEMENTS BY AND AMONG THE
HOLDERS OF THESE SECURITIES AND THE COMPANY AND CERTAIN OTHER HOLDERS OF
THE COMPANY'S STOCK, WHICH INCLUDE WITHOUT LIMITATION, OBLIGATIONS ON
VOTING, RIGHTS OF FIRST REFUSAL AND CO-SALE, RESTRICTIONS ON TRANSFER AND
ACQUISITION OF ADDITIONAL
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SECURITIES OF THE COMPANY, COPIES OF WHICH ARE ON FILE AT THE PRINCIPAL
OFFICE OF THE COMPANY.
ANY TRANSFEREE OR ASSIGNEE OF THE SHARES REPRESENTED BY THIS CERTIFICATE
SHALL BE BOUND BY THE OBLIGATIONS OF SUCH AGREEMENTS AS IF SUCH TRANSFEREE
OR ASSIGNEE HAD ASSUMED SUCH OBLIGATIONS BY WRITTEN INSTRUMENT.
6.3 Standstill. For a period of three (3) years after the Closing Date,
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Investor shall not, and shall cause each of its Affiliates (as defined below) to
not, acquire beneficial ownership (as such term is defined in Rule 13d-3 of the
Securities Exchange Act of 1934, as amended) of any securities of the Company in
addition to the Shares or any Series C Preferred, Class B Common and Common
Stock issued upon conversion thereof, which would result in the aggregate
beneficial ownership of each Investor and its Affiliates of Voting Stock of the
Company (as defined below) equaling or exceeding 10% of the outstanding Voting
Stock of the Company. Investor or any of its Affiliates shall not purchase any
securities of the Company without having given 30 days prior written notice to
the Company or without having received the prior written consent of the Company.
Upon notice thereof, the Company shall inform the Investor whether such
purchases cause the aggregate beneficial ownership of Investor and its
Affiliates to equal or exceed 10% of the outstanding Voting Stock of the
Company. For the purposes of this Agreement, "Affiliate" shall mean, as to any
person or entity, a person or entity that, directly or indirectly through one or
more intermediaries, controls or is controlled by, or is under common control
with, such person or entity. For the purposes of this Agreement, "Voting Stock
of the Company" shall mean, any class or series of the Company's capital stock
entitled to vote in any election of directors of the Company.
SECTION VII
Company Covenants
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7.1 Periodic Reports. For a period of five years from the Closing Date,
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upon the Investor's written request and representation to the Company that the
documents described below are not publicly available through electronic means,
the Company will furnish to the Investor, for so long as the Investor continues
to own Shares or any Common Stock issued upon conversion thereof, copies of the
Company's Forms 10-K, 10-Q and Annual Report to Shareholders, promptly after
such documents are filed with the SEC, or in lieu of such reports, unaudited
quarterly and audited annual financial statements of the Company, promptly after
completion.
7.2 Limitation on Sale. The Company covenants until the completion of an
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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) (the "IPO")
not to issue or sell any shares of Series C Preferred Stock, Series D Preferred
Stock, Series C-1 Preferred Stock or Series D-1 Preferred Stock to any investor
at a more favorable price or upon more
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favorable terms (including rights, preferences, privileges and restrictions)
than those set forth in the Company's Amended and Restated Certificate of
Incorporation, this Agreement and the Series C-1 Preferred Stock Purchase
Agreement, and the Amended and Restated Stockholder Rights Agreement without the
prior written consent of the Investor. Notwithstanding the foregoing, the
Company expressly reserves the right to sell shares of its Series C Preferred
Stock and/or Series D Preferred Stock without the prior written consent of
Investor, provided that such shares shall not have been sold or issued by the
Company at a more favorable price or on more favorable terms (other than the
existence of voting rights) than those which are reflected in this Agreement,
the Series C-1 Preferred Stock Purchase Agreement, the Amended and Restated
Stockholder Rights and the Amended and Restated Certificate of Incorporation.
7.3 HSR Filing. In the event the Investor determines that the purchase of
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the Shares hereunder has not been "solely for the purpose of investment" (as
defined in Rule 801.1(i)(1) under the HSR Act (as defined below)) and the
Investor determines that as a result the Company and the Investors are required
to make appropriate filings with the Federal Trade Commission and Department of
Justice pursuant to the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), the Company and Investor agree to cooperate, to make
such filings in a timely manner, and to take all other appropriate action in
connection with such required filings.
SECTION VIII
Miscellaneous
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8.1 Governing Law. This Agreement shall be governed in all respects by
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the laws of the State of California as applied to agreements entered into and
performed entirely in the State of California by residents thereof.
8.2 Survival. The representations, warranties, covenants and agreements
--------
made herein shall survive any investigation made by the Investor and the closing
of the transactions contemplated hereby.
8.3 Successors, 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.
8.4 Notices. All notices and other communications required or permitted
-------
hereunder shall be in writing and shall be sent by facsimile or mailed by
registered or certified mail, postage prepaid, return receipt requested, or
otherwise delivered by hand or by messenger, addressed (a) if to Investor, at
U.S. Telesource, Inc., 000 Xxxxx Xxxxx, 000 Xxxxxxxxxxx Xxxxxx, Xxxxxx, Xxxxxxxx
00000, Attn: Executive Vice President and General Counsel, or at such other
address as the Investor shall have furnished to the Company, or (b) if to the
Company, at 0000 Xxxxxxx Xxxxxxxxxx, Xxxxx Xxxxx, Xxxxxxxxxx 00000 addressed to
the attention of the Corporate Secretary, or at such other address as the
Company shall have furnished to the Investor. If notice is provided by
facsimile, it
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must be simultaneously confirmed via telephone and it shall be deemed to be
given one (1) day after transmission. If notice is provided by U.S. mail, notice
shall be deemed to be given three (3) days after proper deposit in a U.S.
mailbox, postage prepaid.
8.5 Expenses. The Company and the Investor shall bear their own expenses
--------
and legal fees incurred on their behalf with respect to this Agreement and the
transactions contemplated hereby; provided, however, that the Company will pay
the reasonable fees and expenses of counsel for the Investor up to an aggregate
amount of $15,000, for fees and expenses incurred in connection with this
Agreement, the Series C-1 Preferred Stock Purchase Agreement and the Stockholder
Rights Agreement.
8.6 Finder's Fees. The Company and the Investor shall each indemnify and
-------------
hold the other harmless from any liability for any commission or compensation in
the nature of a finder's fee, placement fee or underwriter's discount (including
the costs, expenses and legal fees of defending against such liability) for
which the Company or the Investors, or any of their respective partners,
employees, or representatives, as the case may be, is responsible.
8.7 Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be enforceable against the party actually executing the counterpart,
and all of which together shall constitute one instrument.
8.8 Severability. In the event that any provision of this Agreement
------------
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
8.9 Applicability of Standstill Provision and Voting Agreement to
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Non-Affiliate Purchasers. Without changing the respective construction of
------------------------
Section 6.3 of this Agreement or Section 18 of that certain Amended and Restated
Stockholder Rights Agreement of an even date herewith, such sections shall be
inapplicable to non-Affiliate purchasers (with respect to the transferring
Investor) who acquire any shares of Series D-1 Preferred Stock, Series D
Preferred Stock, Class B Common Stock or Common Stock from an Investor.
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IN WITNESS WHEREOF, the parties have executed this Series D-1 Preferred
Stock Purchase Agreement as of this 19th of January, 1999.
COVAD COMMUNICATIONS GROUP, INC.
By: /s/ XXXXX XXXXXX
--------------------------------------
Name: Xxxxx Xxxxxx
Title: Vice President, General Counsel
U.S. TELESOURCE, INC.
By: /s/ DRAKE S. TEMPEST
--------------------------------------
Name: Drake S. Tempest
Title: Executive Vice President
and General Counsel
SIGNATURE PAGE TO SERIES D-1 PREFERRED STOCK PURCHASE AGREEMENT
EXHIBIT A
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AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
EXHIBIT B
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STOCKHOLDER RIGHTS AGREEMENT
EXHIBIT C
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OPINION OF COUNSEL
