Exhibit 10.27
RHYTHMS NETCONNECTIONS INC.
SERIES C PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
April 6, 1999
TABLE OF CONTENTS
PAGE
1. Purchase and Sale of Preferred Stock and Warrant. . . . . . . . . . . . . . . .1
1.1 Sale and Issuance of Preferred Stock and Warrant.. . . . . . . . . . . . .1
1.2 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. Representations and Warranties of the Company.. . . . . . . . . . . . . . . . .1
2.1 Organization, Good Standing and Qualification. . . . . . . . . . . . . . .1
2.2 Capitalization and Voting Rights.. . . . . . . . . . . . . . . . . . . . .2
2.3 Subsidiaries.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
2.4 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
2.5 Valid Issuance of Preferred Stock, Warrant and Common Stock. . . . . .3
2.6 Consents.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.7 Product Warranty and Product Liability.. . . . . . . . . . . . . . . . . .4
2.8 Litigation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.9 Proprietary Information Agreements.. . . . . . . . . . . . . . . . . . . .4
2.10 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.11 Compliance with Other Instruments. . . . . . . . . . . . . . . . . . . . .5
2.12 Agreements; Action.. . . . . . . . . . . . . . . . . . . . . . . . . . . .6
2.13 Related-Party Transactions.. . . . . . . . . . . . . . . . . . . . . . . .7
2.14 Permits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
2.15 Environmental and Safety Laws. . . . . . . . . . . . . . . . . . . . . . .7
2.16 Manufacturing and Marketing Rights.. . . . . . . . . . . . . . . . . . . .8
2.17 Disclosure.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
2.18 Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . .9
2.19 Corporate Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . .9
2.20 Title to Property and Assets.. . . . . . . . . . . . . . . . . . . . . . .9
2.21 Employee Benefit Plans.. . . . . . . . . . . . . . . . . . . . . . . . . .9
2.22 Financial Statements.. . . . . . . . . . . . . . . . . . . . . . . . . . .9
2.23 Tax Returns, Payments and Elections. . . . . . . . . . . . . . . . . . . .9
2.24 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.25 Minute Books.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.26 Labor Agreements and Actions.. . . . . . . . . . . . . . . . . . . . . . 10
2.27 Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.28 Notes and Accounts Receivable. . . . . . . . . . . . . . . . . . . . . . 11
2.29 Powers of Attorney.. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.30 Guaranties.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3. Representations and Warranties of the Investor. . . . . . . . . . . . . . . . 11
3.1 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 Purchase Entirely for Own Account. . . . . . . . . . . . . . . . . . . . 11
3.3 Disclosure of Information. . . . . . . . . . . . . . . . . . . . . . . . .
3.4 Investment Experience. . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.5 Accredited Investor. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.6 Restricted Securities. . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.7 Qualified Passive Investor.. . . . . . . . . . . . . . . . . . . . . . . 12
(i)
4. Covenants of the Investor.. . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.1 Further Limitations on Disposition.. . . . . . . . . . . . . . . . . . . 13
4.2 Legends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.3 Waiver of "Piggy-Back" Registration Rights.. . . . . . . . . . . . . . . 14
5. Conditions of Investor's Obligations at the Closing.. . . . . . . . . . . . . 14
5.1 Representations and Warranties.. . . . . . . . . . . . . . . . . . . . . 14
5.2 Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.3 Compliance Certificate.. . . . . . . . . . . . . . . . . . . . . . . . . 14
5.4 Qualifications.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.5 Proceedings and Documents. . . . . . . . . . . . . . . . . . . . . . . . 14
5.6 Opinion of Company Counsel.. . . . . . . . . . . . . . . . . . . . . . . 15
5.7 Investors' Rights Agreement. . . . . . . . . . . . . . . . . . . . . . . 15
6. Conditions of the Company's Obligations at the Closing. . . . . . . . . . . . 15
6.1 Representations and Warranties.. . . . . . . . . . . . . . . . . . . . . 15
6.2 Qualifications.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.3 Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.4 Investors' Rights Agreement. . . . . . . . . . . . . . . . . . . . . . . 15
7. Indemnification.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.1 Indemnity by Company.. . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.2 Indemnity by Investor. . . . . . . . . . . . . . . . . . . . . . . . . . 16
8. Miscellaneous.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.1 Survival of Warranties.. . . . . . . . . . . . . . . . . . . . . . . . . 16
8.2 Successors and Assigns.. . . . . . . . . . . . . . . . . . . . . . . . . 17
8.3 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.4 Counterparts.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.5 Titles and Subtitles.. . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.6 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.7 Finder's Fee.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.8 Expenses.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.9 Amendments and Waivers.. . . . . . . . . . . . . . . . . . . . . . . . . 18
8.10 Severability.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.11 Aggregation of Stock.. . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.12 Entire Agreement.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SCHEDULE A - Schedule of Investors
SCHEDULE B - Schedule of Series A Preferred Holders
SCHEDULE C - Schedule of Series B Preferred Holders
SCHEDULE D - Schedule of Common Holders
EXHIBIT A - Restated Certificate of Incorporation
EXHIBIT B - Amended and Restated Investors' Right Agreement
EXHIBIT C - Form of Warrant
(ii)
SERIES C PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
THIS SERIES C PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (this
"Agreement") is made as of the 6th day of April 1999, by and between Rhythms
NetConnections Inc., a Delaware corporation (the "Company"), and U.S.
Telesource, Inc. (the "Investor").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF PREFERRED STOCK AND WARRANT.
1.1 SALE AND ISSUANCE OF PREFERRED STOCK AND WARRANT.
(A) RESTATED CERTIFICATE. The Company shall adopt and file with
the Secretary of State of Delaware before the Closing (as defined below) the
Restated Certificate of Incorporation in the form attached hereto as EXHIBIT A
(the "Restated Certificate").
(B) PURCHASE OF PREFERRED STOCK AND WARRANT. Subject to the
terms and conditions of this Agreement, the Investor agrees to purchase at the
Closing (defined below) and the Company agrees to sell and issue to such
Investor at the Closing (i) that number of shares of the Company's Series C
Preferred Stock set forth opposite the Investor's name on SCHEDULE A hereto; and
(ii) a warrant, substantially in the form of EXHIBIT C attached hereto (the
"Warrant"), to purchase 180,000 shares of the Company's Common Stock at an
exercise price of $6.70 per share. The purchase price of each share of Series C
Preferred Stock shall be $8.04 per share and the purchase price for each warrant
to purchase one (1) share of Common Stock shall be $0.001 per share.
1.2 CLOSING. The purchase and sale of the Series C Preferred
Stock shall take place at the offices of Xxxxxxx, Xxxxxxx & Xxxxxxxx LLP, 000
Xxxx "X" Xxxxxx, Xxxxx 0000, Xxx Xxxxx California, at 11:00 a.m., on April 6,
1999, or at such other time and place as the Company and the Investor
mutually agree upon orally or in writing (which time and place are designated
as the "Closing"). At the Closing the Company shall deliver to the Investor
a certificate representing the Series C Preferred Stock and the Warrant which
such Investor is purchasing at the Closing (as set forth on Schedule A)
against delivery to the Company by such Investor of a check or wire transfer
in the amount of the purchase price therefor payable to the Company's order.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Investor that, except as set forth on a Schedule
of Exceptions furnished to the Investor, which exceptions shall be deemed to be
representations and warranties as if made hereunder:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
enter into this Agreement and to carry on its business as now conducted and as
proposed to be conducted. The Company is duly
qualified to transact business and is in good standing in each jurisdiction
in which the failure so to qualify would have a material adverse effect on
its business or properties.
2.2 CAPITALIZATION AND VOTING RIGHTS. The authorized capital of the
Company consists, or will consist prior to the Closing, of:
(i) PREFERRED STOCK. 27,000,000 shares of Preferred Stock
(the "Preferred Stock"), of which 12,900,000 have been designated Series A
Preferred Stock of which 12,855,094 are issued and outstanding (as set forth on
Schedule B) and which are currently convertible into 30,852,226 shares of Common
Stock, of which 4,044,943 have been designated Series B Preferred Stock all of
which are issued and outstanding (as set forth on Schedule C) and which are
currently convertible into 9,707,864 shares of Common Stock, 8,395,655 shares of
which have been designated Series C Preferred Stock 7,462,819 of which are
issued and outstanding and the rest will be sold pursuant to this Agreement and
441,176 shares of which have been designated Series D Preferred Stock all of
which will be sold pursuant to that certain Series D Preferred Stock Purchase
Agreement dated as of the date hereof. The rights, privileges and preferences
of the Series C Preferred Stock as of the Closing will be as stated in the
Company's Restated Certificate attached hereto as EXHIBIT A.
(ii) COMMON STOCK. 81,000,000 shares of common stock
("Common Stock"), of which 9,643,660 shares are issued and outstanding and are
owned by the persons, and in the numbers specified in Schedule D hereto, and of
which 438,115 shares are held by the Company as treasury stock. The outstanding
shares of common stock are all duly and validly authorized and issued, fully
paid and nonassessable, and were issued in accordance with the registration or
qualification provisions of the Securities Act of 1933, as amended, and any
relevant state securities laws, or pursuant to valid exceptions therefrom.
(iii) Except for (A) the Warrant to be issued under this
Agreement, (B) warrants to purchase 1,576,996 shares of Common Stock issued
in connection certain equity investments in the Company, (C) the conversion
privileges of each of the Series A Preferred Stock, the Series B Preferred
Stock, the Series C Preferred Stock and the Series D Preferred Stock, (D) the
rights provided in Section 2.4 of the Amended and Restated Investors' Rights
Agreement (the "Investors' Rights Agreement") of even date herewith in the
form attached hereto as EXHIBIT B, (E) the Company's reservation of
11,673,530 shares of Common Stock for issuance to employees, directors and
consultants pursuant to options granted, and to be granted in the future,
under a stock option plan, (F) warrants to purchase up to 4,732,800 shares of
Common Stock issued in connection with the Company's sale and issuance of
290,000 units consisting of 13-1/2% senior discount notes and warrants, all
pursuant to that certain Purchase Agreement dated April 28,1998 and (G)
warrants to purchase up to 694,878 shares of Common Stock issued in
connection with a lease financing there are not outstanding any options,
warrants, rights (including conversion or preemptive rights) or agreements
for the purchase or acquisition from the Company of any shares of its capital
stock. The Company is not a party or subject to any agreement or
understanding, and, to the Company's knowledge, there is no agreement or
understanding between any persons and/or entities, which affects or relates
to the voting or giving of written consents with respect to any security or
by a director of the Company.
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2.3 SUBSIDIARIES. The Company does not presently own or control,
directly or indirectly, any interest in any other corporation, association,
or other business entity.
2.4 AUTHORIZATION. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement and the Investors'
Rights Agreement, the performance of all obligations of the Company hereunder
and thereunder and the authorization, issuance (or reservation for issuance),
sale and delivery of the Series C Preferred Stock and Warrant being sold
hereunder and the Common Stock issuable upon conversion of the Series C
Preferred Stock and upon exercise of the Warrant has been taken or will be
taken prior to the Closing, and this Agreement and the Investors' Rights
Agreement constitute valid and legally binding obligations of the Company,
enforceable in accordance with their respective terms, except (i) as limited
by applicable bankruptcy, insolvency, reorganization, moratorium, and other
laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies, and (iii) to the
extent the indemnification provisions contained in the Investors' Rights
Agreement may be limited by applicable federal or state securities laws.
2.5 VALID ISSUANCE OF PREFERRED STOCK, WARRANT AND COMMON STOCK.
(a) The Series C Preferred Stock and Warrant which are being
purchased by the Investor hereunder, when issued, sold and delivered in
accordance with the terms hereof for the consideration expressed herein, will
be duly and validly issued, fully paid and nonassessable and, based in part
upon the representations of the Investor in this Agreement, will be issued in
compliance with all applicable federal and state securities laws and will be
free of restrictions on transfer other than restrictions on transfer under
this Agreement and the Investors' Rights Agreement and under applicable state
and federal securities law. The Common Stock issuable upon conversion of the
Series C Preferred Stock and/or upon exercise of the Warrant purchased under
this Agreement has been duly and validly reserved for issuance and, upon
issuance in accordance with the terms of the Restated Certificate, shall be
duly and validly issued, fully paid and nonassessable, and issued in
compliance with all applicable securities laws and will be free of
restrictions on transfer other than restrictions on transfer under this
Agreement and the Investors' Rights Agreement and under applicable state and
federal securities law, as presently in effect, of the United States and each
of the states whose securities laws govern the issuance of any of the
Securities (as defined in Section 3.2) hereunder.
(b) The outstanding shares of Common Stock, Series A
Preferred Stock and Series B Preferred Stock are all duly and validly
authorized and issued, fully paid and nonassessable, and were issued in
compliance with all applicable federal and state securities laws.
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2.6 CONSENTS. No consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, any
person or entity not a party hereto or any federal, state, local or
provincial governmental authority on the part of the Company is required in
connection with the consummation of the transactions contemplated by this
Agreement.
2.7 PRODUCT WARRANTY AND PRODUCT LIABILITY. Each product
manufactured, sold, leased, or delivered by the Company has been in material
conformity with all applicable contractual commitments and all express and
implied warranties, and the Company has no liability (and there is no basis
for any present or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand against the Company giving rise to any
liability) for replacement or repair thereof or other damages in connection
therewith. The Company has received no customer complaints concerning its
products and/or services, nor has it had any of its products returned by a
purchaser thereof. The Company has no material liability (and there is no
basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any liability) arising out of any injury to individuals or property
as a result of the ownership, possession, or use of any product manufactured,
sold, leased, or delivered by the Company.
2.8 LITIGATION. There is no action, suit, proceeding or
investigation pending or, to its knowledge, currently threatened against the
Company. The foregoing includes, without limitation, actions pending or
threatened involving the prior employment of any of the Company's employees,
their use in connection with the Company's business of any information or
techniques allegedly proprietary to any of their former employers, or their
obligations under any agreements with prior employers. The Company is not a
party or subject to the provisions of any order, writ, injunction, judgment
or decree of any court or government agency or instrumentality. There is no
action, suit, proceeding or investigation by the Company currently pending or
which the Company intends to initiate.
2.9 PROPRIETARY INFORMATION AGREEMENTS. Each employee, officer
and consultant of the Company has executed a Proprietary Information and
Inventions Agreement in the form provided to the Investor. The Company,
after reasonable investigation, is not aware that any of its employees,
officers or consultants are in violation thereof, and the Company will use
its best efforts to prevent any such violation.
2.10 INTELLECTUAL PROPERTY. The Company has sufficient title and
ownership of all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information, proprietary rights and processes necessary for
its business as now conducted and as proposed to be conducted without any
conflict with or infringement of the rights of others. There are no
outstanding options, licenses, or agreements of any kind relating to the
foregoing, nor is the Company bound by or a party to any options, licenses or
agreements of any kind with respect to the patents, trademarks, service
marks, trade names, copyrights, trade secrets, licenses, information,
proprietary rights and processes of any other person or entity. The Company
has not interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights, or processes of
third parties, nor has the Company received any communications alleging that
the Company has violated or, by conducting its business as
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proposed, would violate any of the patents, trademarks, service marks, trade
names, copyrights, trade secrets, information, proprietary rights, processes,
or other proprietary rights of any other person or entity. The Company is
not aware after due inquiry of its employees that any of its employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order
of any court or administrative agency, that would interfere with the use of
his or her best efforts to promote the interests of the Company or that would
conflict with the Company's business as proposed to be conducted. Neither the
execution nor delivery of this Agreement and the Investors' Rights Agreement,
nor the carrying on of the Company's business by the employees of the
Company, nor the conduct of the Company's business as proposed, will, to the
Company's knowledge after due inquiry of its employees, conflict with or
result in a breach of the terms, conditions or provisions of, or constitute a
default under, any law, contract, covenant or instrument under which any of
such employees is now subject to or obligated. The Company does not believe
it is or will be necessary to utilize any inventions of any of its employees
(or people it currently intends to hire) made prior to their employment by
the Company.
2.11 COMPLIANCE WITH OTHER INSTRUMENTS.
(a) The Company is not in violation or default of any
provisions of its Certificate of Incorporation or Bylaws or of any
instrument, judgment, order, writ, decree, lien, indenture, mortgage, lease,
or contract to which it is a party or by which it is bound or of any
provision of federal or state statute, rule or regulation applicable to the
Company. The execution, delivery and performance of this Agreement, the
Investors' Rights Agreement or any ancillary agreements and the consummation
of the transactions contemplated hereby and thereby, and the issuance and
sale of Securities (as defined in Section 3.2), will not result in any such
violation, will not permit the acceleration of the maturity of, or be in
conflict with or constitute, with or without the passage of time and giving
of notice, either a default under any such provision, instrument, judgment,
order, writ, decree, lien, indenture, mortgage, lease, contract, statute,
rule, or regulation, or an event which results in the creation of any lien,
charge or encumbrance upon any assets of the Company or the Securities or the
suspension, revocation, impairment, forfeiture, or nonrenewal of any material
permit, license, authorization, or approval applicable to the Company, its
business or operations or any of its assets or properties.
(b) There is no judgment, order, writ or decree issued by a
court of law that specifically names the Company.
2.12 AGREEMENTS; ACTION.
(a) Except for agreements explicitly contemplated hereby and
by the Investors' Rights Agreement, there are no agreements, understandings
or proposed transactions between the Company and any of its officers,
directors, affiliates, or any affiliate thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to
which the Company is a party or by which it is bound which may involve (i)
obligations of the Company (contingent or otherwise) of, or payments to the
Company individually in excess of $100,000 or, in case of agreements,
understandings, instruments, contracts, proposed transactions, judgments,
orders, writs or
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decrees to which the Company is a party or by which it is bound are
individually less than $100,000, in excess of $250,000 in the aggregate, or
(ii) the license of any patent, copyright, trade secret or other proprietary
right to or from the Company or (iii) provisions restricting or affecting the
development, manufacture or distribution of the Company's products or
services, or (iv) indemnification by the Company with respect to infringement
of proprietary rights.
(c) The Company has not (i) declared or paid any dividends,
or authorized or made any distribution upon or with respect to any class or
series of its capital stock, (ii) incurred any indebtedness for money
borrowed or any other liabilities individually in excess of $100,000 or, in
the case of indebtedness and/or liabilities individually less than $100,000,
in excess of $250,000 in the aggregate, (iii) made any loans or advances to
any person, other than ordinary advances for travel expenses, or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights, other than
the sale of its inventory in the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including
persons or entities the Company has reason to believe are affiliated
therewith) shall be aggregated for the purpose of meeting the individual
minimum dollar amounts of such subsections.
(e) The Company is not a party to and is not bound by any
contract, agreement or instrument, or subject to any restriction under its
Restated Certificate or Bylaws, which adversely affects its business as now
conducted or as proposed to be conducted, its properties or its financial
condition.
(f) The Company has not engaged in the past three (3) months
in any discussion (i) with any representative of any corporation or
corporations regarding the consolidation or merger of the Company with or
into any such corporation or corporations, (ii) with any corporation,
partnership, association or other business entity or any individual regarding
the sale, conveyance or disposition of all or substantially all of the assets
of the Company in a transaction or series of related transactions in which
more than fifty percent (50%) of the voting power of the Company is disposed
of, or (iii) regarding any other form of acquisition, liquidation,
dissolution or winding up of the Company.
(g) As of the Closing, the Company has not incurred any
expenses and has no liabilities individually in excess of $100,000 or, in the
case of expenses and/or liabilities individually less than $100,000, in
excess of $250,000 in the aggregate.
2.13 RELATED-PARTY TRANSACTIONS. No employee, officer, or director
of the Company or member of his or her immediate family is indebted to the
Company, nor is the Company indebted (or committed to make loans or extend or
guarantee credit) to any of them. To the best of the Company's knowledge,
none of such persons has any direct or indirect ownership interest in any
firm or corporation with which the Company is affiliated or with which the
Company has a business relationship, or any firm or corporation that competes
with the Company, except that employees, officers, or directors of the
Company and members of their immediate families may own stock in publicly
traded companies that may compete with the
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Company. No member of the immediate family of any officer or director of the
Company is directly or indirectly interested in any material contract with
the Company.
2.14 PERMITS. The Company has all franchises, permits, licenses,
and other similar authorities necessary for the conduct of its business as
now being conducted by it, the lack of which could materially and adversely
affect the business, properties, prospects, or financial condition of the
Company and believes it can obtain, without undue burden or expense, any
similar authority for the conduct of its business as planned to be conducted.
The Company is not in default in any material respect under any of such
franchises, permits, licenses, or other similar authority.
2.15 ENVIRONMENTAL AND SAFETY LAWS.
(a) The Company is not in violation of any federal, state,
local or foreign statute, regulation, ordinance or other provision having the
force or effect of law, any judicial or administrative order or
determination, any contractual obligation or any common law concerning public
health and safety, worker health and safety, or pollution or protection of
the environment, including without limitation any of those relating to the
presence, use, production, generation, handling, transportation, treatment,
storage, disposal, distribution, labeling, testing, processing, discharge,
release, threatened release, control, or cleanup of any hazardous materials,
substances or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or byproducts,
asbestos, polychlorinated biphenyls, noise or radiation, each as amended and
as now or hereafter in effect (referred to herein collectively as the
"Environmental, Health, and Safety Requirements"), and no material
expenditures are or will be required in order to comply with the
Environmental, Health, and Safety Requirements.
(b) The Company has obtained and complied with, and is in
compliance with, all permits, licenses and other authorizations that are
required pursuant to all Environmental, Health, and Safety Requirements for
the occupation of its facilities and the operation of its business.
(c) The Company has not received any written or oral notice,
report or other information regarding any actual or alleged violation of
Environmental, Health, and Safety Requirements, or any liabilities or
potential liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise), including any investigatory, remedial or corrective obligations,
relating to Company or its facilities arising under the Environmental,
Health, and Safety Requirements.
(d) None of the following exists at any property or facility
owned or operated by the Company: (1) underground storage tanks, (2)
asbestos-containing material in any form or condition, (3) materials or
equipment containing polychlorinated biphenyls, or (4) landfills, surface
impoundments, or disposal areas.
(e) The Company has not treated, stored, disposed of,
arranged for or permitted the disposal of, transported, handled, or released
any substance, including without limitation any hazardous substance, or owned
or operated any property or facility (and no such property or facility is
contaminated by any such substance) in a manner that has given or would
-7-
give rise to liabilities, including any liability for response costs,
corrective action costs, personal injury, property damage, natural resources
damages or attorney fees, pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), the
Solid Waste Disposal Act, as amended ("SWDA"), or any of the Environmental,
Health, and Safety Requirements.
(f) Neither this Agreement nor the consummation of the
transaction that is the subject of this Agreement will result in any
obligations for site investigation or cleanup, or notification to or consent
of government agencies or third parties, pursuant to any of the so-called
"transaction-triggered" or "responsible property transfer" Environmental,
Health, and Safety Requirements.
(g) The Company has not, either expressly or by operation of
law, assumed or undertaken any liability, including without limitation any
obligation for corrective or remedial action, of any person or entity
relating to the Environmental, Health, and Safety Requirements.
(h) No facts, events or conditions relating to the past or
present facilities, properties or operations of the Company will prevent,
hinder or limit continued compliance with the Environmental, Health, and
Safety Requirements, give rise to any investigatory, remedial or corrective
obligations pursuant to the Environmental, Health, and Safety Requirements,
or give rise to any other liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise) pursuant to the Environmental, Health, and Safety
Requirements, including without limitation any relating to onsite or offsite
releases or threatened releases of hazardous materials, substances or wastes,
personal injury, property damage or natural resources damage.
2.16 MANUFACTURING AND MARKETING RIGHTS. The Company has not
granted rights to manufacture, produce, assemble, license, market, or sell
its products to any other person and is not bound by any agreement that
affects the Company's exclusive right to develop, manufacture, assemble,
distribute, market, or sell its products.
2.17 DISCLOSURE. The Company has fully provided the Investor with
all the information which such Investor has requested for deciding whether to
purchase the Series C Preferred Stock and all information that is material to
enable such Investor to make such decision. Neither this Agreement, the
Investors' Rights Agreement, nor any other statements or certificates made or
delivered in connection herewith or therewith contains any untrue statement
of a material fact or omits to state a material fact necessary to make the
statements herein or therein not misleading.
2.18 REGISTRATION RIGHTS. Except as provided in the Investors'
Rights Agreement, the Company has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity.
2.19 CORPORATE DOCUMENTS. Except for amendments necessary to satisfy
representations and warranties or conditions contained herein (the form of which
amendments
-8-
has been approved by the Investor), the Certificate of Incorporation and
Bylaws of the Company as currently in effect are in the form previously
provided to the Investor.
2.20 TITLE TO PROPERTY AND ASSETS. The Company owns its property
and assets free and clear of all mortgages, liens, loans and encumbrances,
except such encumbrances and liens which arise in the ordinary course of
business and do not materially impair the Company's ownership or use of such
property or assets. With respect to the property and assets it leases, the
Company is in compliance with such leases and holds a valid leasehold
interest free of any liens, claims or encumbrances.
2.21 EMPLOYEE BENEFIT PLANS. The Company does not have any
Employee Benefit Plan as defined in the Employee Retirement Income Security
Act of 1974.
2.22 FINANCIAL STATEMENTS. The Company has provided to the
Investor copies of its unaudited balance sheet and statement of operations at
December 31, 1998 and for the period then ended (the "Financial Statements").
The Financial Statements are true, complete and correct, present fairly the
financial condition of the Company and the results of operations as of the
date of such statements and have been prepared in accordance with generally
accepted accounting principles ("GAAP"), except that the unaudited Financial
Statements do not contain the footnotes required by GAAP. The Financial
Statements accurately set forth and describe the financial condition and
operating results of the Company as of the date, and for the period,
indicated therein, subject to normal year-end audit adjustments.
2.23 TAX RETURNS, PAYMENTS AND ELECTIONS. The Company has filed
all tax returns and reports required by law. These returns and reports are
true and correct in all material respects. The Company has paid all taxes
and other assessments due, except those contested by it in good faith which
are listed in the Schedule of Exceptions. The provision for taxes of the
Company as shown in its Financial Statements is adequate for taxes due or
accrued as of the date thereof. The Company has not elected pursuant to the
Internal Revenue Code of 1986, as amended ("Code"), to be treated as a
Subchapter S corporation or a collapsible corporation pursuant to Section
341(f) or Section 1362(a) of the Code, nor has it made any other elections
pursuant to the Code (other than elections which relate solely to methods of
accounting, depreciation or amortization) which would have a material effect
on the Company, its financial condition, its business as presently conducted
or proposed to be conducted or any of its properties or material assets.
2.24 INSURANCE. The Company has in full force and effect and shall
maintain fire and casualty insurance policies, with extended coverage,
sufficient in amount (subject to reasonable deductibles) to allow it to
replace any of its properties that might be damaged or destroyed. The
Company shall also maintain broad form comprehensive general liability
insurance in the minimum amount of $2,000,000 per year.
2.25 MINUTE BOOKS. The minute books of the Company provided to the
Investor contain a complete summary of all meetings of directors and
stockholders since the time of incorporation and reflect all transactions
referred to in such minutes accurately in all material respects.
-9-
2.26 LABOR AGREEMENTS AND ACTIONS. The Company is not bound by or
subject to (and none of its assets or properties is bound by or subject to)
any written or oral, express or implied, contract, commitment or arrangement
with any labor union, and no labor union has requested or, to the knowledge
of the Company, has sought to represent any of the employees, representatives
or agents of the Company. There is no strike or other labor dispute
involving the Company pending, or to the knowledge of the Company threatened,
which could have a material adverse effect on the assets, properties,
financial condition, operating results, or business of the Company (as such
business is presently conducted and as it is proposed to be conducted), nor
is the Company aware of any labor organization activity involving its
employees. The Company is not aware that any officer or key employee, or
that any group of key employees, intends to terminate their employment with
the Company, nor does the Company have a present intention to terminate the
employment of any of the foregoing. Subject to general principles related to
wrongful termination of employees, the employment of each officer and
employee of the Company is terminable at the will of the Company.
2.27 INVENTORY. All inventory of the Company consists of raw
materials and supplies, manufactured and purchased parts, goods in process,
and finished goods, all of which is merchantable and fit for the purpose for
which it was procured or manufactured, and none of which is slow-moving,
obsolete, damaged, or defective, subject only to the reserve for inventory
writedown set forth on the face of the Company's most recent balance sheet
(rather than in any notes thereto) as adjusted for the passage of time
through the Closing in accordance with the past custom and practice of the
Company.
2.28 NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts
receivable of the Company are reflected properly on the Company's books and
records, are valid receivables subject to no setoffs or counterclaims, are
current and collectible, and will be collected in accordance with their terms
at their recorded amounts, subject only to the reserve for bad debts set
forth on the face of the Company's most recent balance sheet (rather than in
any notes thereto) as adjusted for the passage of time through the Closing in
accordance with the past custom and practice of the Company.
2.29 POWERS OF ATTORNEY. There are no outstanding powers of
attorney executed on behalf of the Company.
2.30 GUARANTIES. The Company is not a guarantor or otherwise is
liable for any liability or obligation (including indebtedness) of any other
person or entity other than its wholly owned subsidiaries.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. THE INVESTOR
HEREBY REPRESENTS AND WARRANTS TO THE COMPANY THAT:
3.1 AUTHORIZATION. The Investor has full power and authority to
enter into this Agreement, the Warrant and the Investors' Rights Agreement
and each such agreement constitutes its valid and legally binding obligation,
enforceable in accordance with its terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable
-10-
remedies, and (iii) to the extent the indemnification provisions contained in
the Investors' Rights Agreement may be limited by applicable Federal or state
securities laws.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement and the
Warrant are made with the Investor in reliance upon such Investor's
representation to the Company that the Series C Preferred Stock and the
Warrant to be received by such Investor and the Common Stock issuable upon
conversion and/or exercise thereof (collectively, the "Securities") will be
acquired for investment for such Investor's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that such Investor has no present intention of selling, granting any
participation in, or otherwise distributing the same. The Investor does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third person,
with respect to any of the Securities. The Investor has full power and
authority to enter into this Agreement.
3.3 DISCLOSURE OF INFORMATION. The Investor has had an
opportunity to ask questions and receive answers from the Company regarding
the terms and conditions of the offering of the Series C Preferred Stock and
the Warrant. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 2 of this Agreement
or the right of the Investor to rely thereon.
3.4 INVESTMENT EXPERIENCE. The Investor acknowledges that it is
able to fend for itself, can bear the economic risk of its investment and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Series C
Preferred Stock and the Warrant. If other than an individual, it has not
been organized for the purpose of acquiring the Series C Preferred Stock and
the Warrant.
3.5 ACCREDITED INVESTOR. The Investor is an "accredited investor"
within the meaning of SEC Rule 501 of Regulation D, as presently in effect.
3.6 RESTRICTED SECURITIES. It understands that the Securities it
is purchasing are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such Securities may be resold without registration
under the Securities Act of 1933, as amended (the "Act"), only in certain
limited circumstances. In this connection, Investor is familiar with SEC
Rule 144, as presently in effect, and understands the resale limitations
imposed thereby and by the Act.
3.7 QUALIFIED PASSIVE INVESTOR. The Investor represents and
warrants to the Company that the voting securities of the Company are being
acquired by, and will be held by the Investor solely for the purpose of
investment within the meaning of Section 7A(c)(9) of the Xxxxxxx Act, and 16
C.F.R. Sections 801.1(j) and 802.9, and that the Investor has no intention of
participating in the formulation, determination, or direction of the basic
business decisions of the Company.
-11-
4. COVENANTS OF THE INVESTOR.
4.1 FURTHER LIMITATIONS ON DISPOSITION.
(a) Without in any way limiting the representations set forth
above, the Investor further agrees not to make any disposition of all or any
portion of the Securities unless and until the transferee has agreed in
writing for the benefit of the Company to be bound by this Section 4.1,
provided and to the extent such sections are then applicable, and the
Investors' Rights Agreement and:
(i) There is then in effect a Registration Statement
under the Act covering such proposed disposition and such disposition is made
in accordance with such Registration Statement; or
(ii) (A) Such Investor shall have notified the Company
of the proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed disposition,
and (B) if reasonably requested by the Company, such Investor shall have
furnished the Company with an opinion of counsel, reasonably satisfactory to
the Company, that such disposition will not require registration of such
shares under the Act. It is agreed that the Company will not require
opinions of counsel for transactions made pursuant to Rule 144 except in
unusual circumstances.
(b) Notwithstanding the provisions of subsection (a) above,
(i) no such Registration Statement or opinion of counsel shall be necessary
for a transfer (A) by an Investor which is a partnership to a partner of such
partnership or a retired partner of such partnership who retires after the
date hereof, or to the estate of any such partner or retired partner or to
the transfer by gift, will or intestate succession of any partner to his
spouse or to the siblings, lineal descendants or ancestors of such partner or
his spouse, or (B) to an "affiliate" of the Investor as that term is defined
in Rule 405 promulgated by the Securities and Exchange Commission under the
Act, if the transferee agrees in writing to be subject to the terms hereof to
the same extent as if he were an original Investor hereunder, and (ii) no
transferee shall be required, as a condition to any transfer of Securities by
the Investor, to agree to be bound by this Section 4.1, if the transferee is
acquiring such Securities pursuant to a Registration Statement under the Act
or in a transaction made pursuant to Rule 144.
4.2 LEGENDS. It is understood that the certificates evidencing
the Securities (and the Common Stock issuable upon conversion and/or exercise
thereof) may bear one or all of the following legends:
(a) "These securities have not been registered under the
Securities Act of 1933. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with
respect to the securities under such Act or an opinion of counsel
satisfactory to the Company that such registration is not required or unless
sold pursuant to Rule 144 of such Act."
(b) Any legend required by the laws of the State of Colorado.
-12-
4.3 WAIVER OF "PIGGY-BACK" REGISTRATION RIGHTS. The Investor
hereby waives, solely with respect to the Company's filing, within six months
of the Closing, of a registration statement under the Act in connection with
an initial public offering of its Common Stock, any "piggy-back" registration
rights it may have under Section 1.3 of the Investors' Rights Agreement;
PROVIDED, HOWEVER, that such waiver shall only be deemed effective if the
Company shall obtain a similar waiver of such rights on behalf of all other
holders of Registrable Securities (as defined in the Investors' Rights
Agreement) under the Investors' Rights Agreement.
5. CONDITIONS OF INVESTOR'S OBLIGATIONS AT THE CLOSING. With respect
to the Closing, the obligations of the Investor under subsections 1.1 and 1.2
of this Agreement are subject to the fulfillment on or before the Closing of
each of the following conditions, the waiver of which shall not be effective
against the Investor unless such Investor consents thereto:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true on and as of
the date of the Closing with the same effect as though such representations
and warranties had been made on and as of the date of Closing.
5.2 PERFORMANCE. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement
that are required to be performed or complied with by it on or before the
Closing.
5.3 COMPLIANCE CERTIFICATE. The President of the Company shall
have delivered to the Investor at the Closing a certificate certifying that
the conditions specified in Sections 5.1 and 5.2 have been fulfilled and
stating that there has been no adverse change in the business, affairs,
operations, properties, assets or condition of the Company since the date of
this Agreement.
5.4 QUALIFICATIONS. Any authorizations, approvals, or permits, if
any, of any governmental authority or regulatory body of the United States or
of any state that are required in connection with the lawful issuance and
sale of the Series C Preferred Stock pursuant to this Agreement, shall be
duly obtained by the Company and effective as of the Closing.
5.5 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
and all documents incident thereto shall be reasonably satisfactory in form
and substance to the Investor, and the Investor shall have received all such
counterpart original and certified or other copies of such documents as such
Investor may reasonably request.
5.6 OPINION OF COMPANY COUNSEL. The Investor shall have received
from Xxxxxxx, Phleger & Xxxxxxxx LLP, counsel for the Company, an opinion,
dated the date of the Closing, in form and substance satisfactory to the
Investor.
5.7 INVESTORS' RIGHTS AGREEMENT. The Company and the Investor
shall have entered into the Investors' Rights Agreement in the form attached
as EXHIBIT B.
-13-
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT THE CLOSING. The
obligations of the Company to the Investor under this Agreement are subject
to the fulfillment on or before the Closing of each of the following
conditions by the Investor:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Investor contained in Section 3 shall be true on and as of
the date of the Closing with the same effect as though such representations
and warranties had been made on and as of the Closing.
6.2 QUALIFICATIONS. The Commissioner of Corporations of the State
of California shall have issued a permit qualifying the offer and sale to the
Investor of the Series C Preferred Stock and the Warrant and the Common Stock
issuable upon the conversion and/or exercise thereof or such offer and sale
shall be exempt from such qualification under the California Corporate
Securities Law of 1968, as amended. Any other authorizations, approvals, or
permits, if any, of any governmental authority or regulatory body of the
United States or of any state that are required in connection with the lawful
issuance and sale of the securities pursuant to this Agreement shall be duly
obtained and effective as of the Closing.
6.3 PERFORMANCE. The Investor shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement
that are required to be performed or complied with by it on or before the
Closing.
6.4 INVESTORS' RIGHTS AGREEMENT. The Company and the Investor
shall have entered into the Investors' Rights Agreement in the form attached
as EXHIBIT B..
7. INDEMNIFICATION.
7.1 INDEMNITY BY COMPANY. Company shall indemnify and hold
Investor harmless from and against any and all liability (including, without
limitation, strict liability), loss, damage, or deficiency (including,
without limitation, reasonable attorneys' fees and associated costs)
resulting from any misrepresentation, breach of warranty, or nonfulfillment
of any agreement on the part of Company under this Agreement or under any
certificate or other instrument furnished or to be furnished by Company
hereunder, and from the ownership, management, operations, and interests of
Company prior to Closing. To be entitled to such indemnification, Investor
must give Company written notice of the assertion by a third party, to which
Investor has knowledge, of any claim with respect to which Investor might
bring a claim for indemnification hereunder, and in all events must have
supplied such notice to Company within the applicable period for defense of
such claim by Company. Upon Company's agreement to indemnify Investor
hereunder, Company shall have the right, at Company's own expense, to defend
and litigate any such third party claim. In no event shall Company be liable
for the acts or omissions of prior owners, operators, or managers of the
Investor or their agents, independent contractors, or employees, including,
without limitation, any liability arising out of or in connection with claims
which occurred prior to the Closing.
7.2 INDEMNITY BY INVESTOR. Investor shall indemnify and hold
Company harmless from and against any and all liability (including, without
limitation, strict liability), loss, damage or deficiency (including, without
limitation, reasonable attorneys' fees and associated costs) resulting from
any misrepresentation, breach of warranty, or nonfulfillment
-14-
under any agreement on the part of Investor under this Agreement or under any
certificate or other instrument furnished by Investor or to be furnished by
Investor hereunder. To be entitled to such indemnification, Company must
give Investor written notice of the assertion by a third party, to which
Company has knowledge, of any claim with respect to which Company might bring
a claim for indemnification hereunder, and in all events must have provided
such notice within the applicable period for defense of such claim by
Investor. Upon Investor's agreement to indemnify Company hereunder, Investor
shall have the right, at Investor's own expense, to defend and litigate any
such third party claim. In no event shall Investor be liable for the acts or
omissions of prior owners, operators, or managers of the Company or their
agents, independent contractors, or employees, including, without limitation,
any liability arising out of or in connection with claims which occurred
prior to the Closing.
8. MISCELLANEOUS.
8.1 SURVIVAL OF WARRANTIES. The warranties, representations and
covenants of the Company and the Investor contained in or made pursuant to
this Agreement shall survive the execution and delivery of this Agreement and
the Closing and shall in no way be affected by any investigation of the
subject matter thereof made by or on behalf of the Investor or the Company.
8.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and
be binding upon the respective successors and assigns of the parties
(including transferees of any shares of Securities sold hereunder or any
Common Stock issued upon conversion and/or exercise thereof). Nothing in
this Agreement, express or implied, is intended to confer upon any party
other than the parties hereto or their respective successors and assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
8.3 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of Delaware without regard to choice of
law principles.
8.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.5 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
8.6 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon receipt, and shall be addressed to the party to be
notified at the address indicated for such party on the signature page
hereof, or at such other address as such party may designate by ten (10)
days' advance written notice to the other parties.
8.7 FINDER'S FEE. Each party represents that it neither is nor
will be obligated for any finders' fee or commission in connection with this
transaction. The Investor agrees to indemnify and to hold harmless the
Company from any liability for any commission or
-15-
compensation in the nature of a finders' fee (and the costs and expenses of
defending against such liability or asserted liability) for which the
Investor or any of its officers, partners, employees, or representatives is
responsible.
The Company agrees to indemnify and hold harmless the Investor
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability
or asserted liability) for which the Company or any of its officers,
employees or representatives is responsible.
8.8 EXPENSES. Irrespective of whether the Closing is effected,
the Company shall pay all costs and expenses that it incurs with respect to
the negotiation, execution, delivery and performance of this Agreement. If
any action at law or in equity is necessary to enforce or interpret the terms
of this Agreement or the Restated Certificate, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
8.9 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders
of a majority of the Common Stock issued or issuable upon conversion of the
Series C Preferred Stock issued or issuable pursuant to this Agreement. Any
amendment or waiver effected in accordance with this Section shall be binding
upon each holder of any Securities purchased under this Agreement at the time
outstanding (including securities into which such Securities are convertible
and/or exercisable), each future holder of all such securities, and the
Company.
8.10 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
8.11 AGGREGATION OF STOCK. All shares of the Preferred Stock held
or acquired by affiliated entities or persons shall be aggregated together
for the purpose of determining the availability of any rights under this
Agreement.
8.12 ENTIRE AGREEMENT. This Agreement and the documents referred
to herein constitute the entire agreement among the parties and no party
shall be liable or bound to any other party in any manner by any warranties,
representations, or covenants except as specifically set forth herein or
therein.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-16-
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
RHYTHMS NETCONNECTIONS INC.
By: /s/ Xxxxxxxxx Xxxxx
------------------------------------
Xxxxxxxxx Xxxxx, President
Address: 0000 Xxxxx Xxxxxx Xxxxxxx
Xxxxxxxxx, XX 00000-0000
INVESTOR:
U.S. TELESOURCE, INC.
By: /s/ Xxxx X. Xxxxxxxx
-------------------------------------
Its: President & Chief Executive Officer
-------------------------------------
Address: 000 Xxxxx Xxxxx
000 00xx Xxxxxx
Xxxxxx, XX 00000
[SIGNATURE TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT]
SCHEDULE A
Schedule of Investor
AGGREGATE AGGREGATE NUMBER OF SERIES C NUMBER OF
SHARE WARRANT PURCHASE PREFERRED SHARES WARRANT SHARES
PURCHASE PURCHASE PRICE PAID TO BE ISSUED TO BE ISSUED AT
INVESTOR PRICE PRICE AT CLOSING AT CLOSING CLOSING
-------- ----- ----- ---------- ---------- -------
U.S. Telesource, Inc. $7,500,001.44 $180 $7,500,181.44 932,836 180,000
TOTALS $7,500,001.44 $180 $7,500,181.44 932,836 180,000
------------- ---- ------------- ------- -------
------------- ---- ------------- ------- -------
A-1
SCHEDULE B
Schedule of Series A Preferred Holders
TOTAL SERIES
FIRST CLOSING (JULY 3, 1997) A STOCK
Enterprise Partners III, L.P. 1,380,000
Enterprise Partners III Associates, L.P. 120,000
Enterprise Partners IV, L.P. --
Brentwood Associates VII, L.P. 1,060,000
Brentwood Affiliates Fund, L.P. 60,000
Xxxxxxx Xxxxxxx Xxxxxxxx & Xxxxx VIII 1,462,500
KPCB VIII Information Sciences Zaibatsu Fund II 37,500
DLJ Capital Corporation 30,000
DLJ First ESC L.L.C. 150,000
Sprout Capital VII, L.P. 1,304,843
The Sprout CEO Fund, L.P. 15,157
Xxxxx Investors II, LLC 125,000
Stanford University 15,000
---------
FIRST CLOSING TOTAL 5,760,000
---------
---------
SECOND CLOSING (JULY 29, 1997)
Brentwood Associates VII, L.P. 380,000
SECOND CLOSING TOTAL 380,000
---------
FIRST & SECOND CLOSING TOTAL 6,140,000
---------
---------
FRIENDS AND FAMILY CLOSING (DECEMBER 23, 1997)
Other Purchasers 210,000
B-1
TOTAL SERIES
THIRD CLOSING (DECEMBER 23, 1997) A STOCK
Enterprise Partners III, L.P. 1,380,000
Enterprise Partners III Associates, L.P. 120,000
Brentwood Associates VII, L.P. 1,440,000
Brentwood Affiliates Fund, L.P. 60,000
Xxxxxxx Xxxxxxx Xxxxxxxx & Xxxxx VIII 1,462,500
KPCB VIII Information Sciences Zaibatsu Fund II 37,500
DLJ Capital Corporation 30,000
DLJ First ESC L.L.C. 150,000
Sprout Capital VII, L.P. 1,304,843
The Sprout CEO Fund, L.P. 15,157
Xxxxx Investors II, LLC 125,000
Stanford University 15,000
Xxxxxxxxx X. Xxxxx 365,094
----------
THIRD CLOSING TOTAL 6,505,094
----------
----------
FIRST, SECOND & THIRD CLOSING TOTAL 12,855,094
----------
----------
B-2
SCHEDULE C
Schedule of Series B Preferred Holders
Number of Shares
Enron Communications Group, Inc. 2,247,191
Enterprise Partners III, L.P. 413,483
Enterprise Partners III Associates, L.P. 35,955
Xxxxxxx Xxxxxxx Xxxxxxxx & Xxxxx VIII 414,202
KPCB VIII Founders Fund 24,000
KPCB Information Sciences Zaibatsu 11,236
Fund II
Brentwood Associates VII, L.P. 431,461
Brentwood Affiliates Fund, L.P. 17,977
DLJ Capital Corporation 8,989
DLJ First ESC L.L.C. 44,944
Sprout Capital VII, L.P. 390,966
The Sprout CEO Fund, L.P 4,539
TOTAL 4,044,943
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C-1
SCHEDULE D
Schedule of Common Holders
NUMBER OF SHARES
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Enterprise Partners III, L.P. 1,325,882
Enterprise Partners III Associates, L.P. 115,294
Enterprise Partners IV, L.P. 720,588
Employees of the Company who have
exercised stock options 7,481,896
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TOTAL 9,643,660
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D-1
EXHIBIT A
RESTATED CERTIFICATE OF INCORPORATION
See Exhibit 3.1 to Registration Statement on Form S-1
EXHIBIT A-1
EXHIBIT B
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
See Exhibit 10.29 to Registration Statement on Form S-1
EXHIBIT B-1
EXHIBIT C
FORM OF WARRANT
See Exhibit 4.11 to Registration Statement on Form S-1
EXHIBIT C-1
