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EXHIBIT 10.5
EXECUTIVE PURCHASE AGREEMENT
THIS EXECUTIVE PURCHASE AGREEMENT (this "Agreement") is made
as of August 13, 1997, by and between Transcend Telecom, L.L.C., a Delaware
limited liability company (the "LLC"), Transcend Telecom, Inc., a Delaware
corporation (the "Company"), Xxxxx X. Xxxxxxx ("Executive"), and the Xxxxx X.
Xxxxxxx Family Limited Partnership (the "Partnership," and collectively with
Executive, the "Executive Purchasers"). Capitalized terms used but not
otherwise defined herein have the meanings ascribed to such terms in paragraph
7 hereof.
NOW, THEREFORE, in consideration of the mutual promises made
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto, intending to be legally
bound, agree as follows:
1. PURCHASE AND SALE OF EXECUTIVE SECURITIES.
(a) Initial Capital Contribution and Issuance of
Executive Securities. Upon execution of this Agreement, (i) Executive shall
make a capital contribution to the LLC of one share of the Company's common
stock and cash in the amount of $36,921 (Executive's "Initial Capital
Contribution") in exchange for, and the LLC shall issue to Executive, 718,750
Class B Units having the rights, obligations, and preferences set forth with
respect thereto in the LLC Agreement, and (ii) the Partnership shall make a
capital contribution to the LLC in the amount of $36,921 (the Partnership's
"Initial Capital Contribution") in exchange for, and the LLC shall issue to the
Partnership, 718,750 Class B Units having the rights, obligations, and
preferences set forth with respect thereto in the LLC Agreement. Each of the
Executive Purchasers shall make such Executive Purchaser's Initial Capital
Contribution to the LLC by delivery to the LLC of a cashier's or certified
check, or wire transfer of immediately available funds to an account designated
by the LLC, in the aggregate amount equal to such Executive Purchaser's Initial
Capital Contribution. The aggregate amount of the Initial Capital
Contributions made with respect to each Class B Unit issued hereunder shall be
considered Basic Contributions made with respect to such Class B Unit.
(b) Representations and Warranties of Executive. In
connection with the Executive Purchasers' Initial Capital Contributions and the
issuance of the Executive Securities hereunder, each of the Executive
Purchasers represents and warrants (and Executive represents and warrants on
behalf of himself and each other Executive Purchaser) to each of the LLC and
the Company that:
(i) The Executive Securities to be acquired by
the Executive Purchasers pursuant to this Agreement shall be acquired
for the Executive Purchasers' own account and not with a view to, or
intention of, distribution thereof in violation of the Securities Act
or any applicable state securities laws, and the Executive Securities
shall not be disposed of in contravention of the Securities Act or any
applicable state securities laws.
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(ii) Executive will serve on the Management
Committee of the LLC and is a management employee of the Company, and
each of the Executive Purchasers is sophisticated in financial matters
and is able to evaluate the risks and benefits of the investment in
the Executive Securities.
(iii) Each of the Executive Purchasers is able to
bear the economic risk of his investment in the Executive Securities
for an indefinite period of time and is aware that transfer of the
Executive Securities may not be possible because (A) such transfer is
subject to contractual restrictions on transfer set forth herein and
in the Securityholders Agreement, and (B) the Executive Securities
have not been registered under the Securities Act or any applicable
state securities laws and, therefore, cannot be sold unless
subsequently registered under the Securities Act and such applicable
state securities laws or an exemption from such registration is
available.
(iv) Each of the Executive Purchasers has had an
opportunity to ask questions and receive answers concerning the terms
and conditions of the offering of the Executive Securities issued
hereunder and has had full access to such other information concerning
the Company as he has requested.
(v) This Agreement, the LLC Agreement, the
Securityholders Agreement, and the other agreements contemplated
thereby of even date therewith constitute the legal, valid and binding
obligations of each Executive Purchaser, enforceable in accordance
with their terms, and the execution, delivery and performance of such
agreements by each Executive Purchaser and Executive's employment with
the Company do not and shall not conflict with, violate or cause a
breach of any agreement, contract or instrument to which any Executive
Purchaser is a party or by which any Executive Purchaser is bound or
any judgment, order or decree to which any Executive Purchaser is
subject.
(c) Acknowledgment of At-Will Employment. As an
inducement to the LLC and the Company to enter into this Agreement, and as a
condition thereto, each of the Executive Purchasers acknowledges and agrees
that no agreement or arrangement between the Executive Purchasers and the
Company or the LLC (including, without limitation, the issuance of the
Executive Securities to the Executive Purchasers and the execution and delivery
of this Agreement) shall entitle Executive to remain in the employment of the
Company and its Subsidiaries or affect the right of the Company or its
Subsidiaries to terminate Executive's employment at any time and for any
reason. Executive's initial annual salary, which will remain subject to
changes implemented by the Board of Directors of the Company, shall be
$200,000.
2. VESTING OF EXECUTIVE SECURITIES.
(a) Vesting Schedule. Except as otherwise provided
herein, an amount of Unvested Securities (as defined below) shall vest on the
date hereof and on each of the first four anniversaries of the date hereof,
such that the Executive Securities shall be vested on each such date in
accordance with the following schedule:
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Cumulative Percentage of Executive
Date Securities Vested on Such Date
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The date hereof 20%
The first anniversary of the date hereof 40%
The second anniversary of the date hereof 60%
The third anniversary of the date hereof 80%
The fourth anniversary of the date hereof 100%
Notwithstanding the foregoing sentence, and except as otherwise provided
herein, the above vesting schedule shall cease and no Unvested Securities (as
defined below) shall vest after the date on which Executive's employment with
the Company and its Subsidiaries terminates for any reason; provided that if
Executive's employment is terminated by the Company without Cause, the
Executive Securities shall thereafter continue to vest in accordance with the
above schedule so long as Executive has not committed a Vesting Termination
Breach (upon which breach the vesting schedule shall cease, and no Unvested
Securities (as defined below) shall vest on or after the date of the first such
breach). In the event the LLC or the Company has alleged that Executive has
committed a Vesting Termination Breach, Executive disputes such allegation, and
the matter is subject to the dispute resolution provisions set forth in
paragraph 6, vesting shall be tolled upon the date of the allegation of such
breach; provided that (i) if it is ultimately resolved under paragraph 6 that
Executive has committed a Vesting Termination Breach, the tolling shall become
a permanent cessation such that vesting shall have forever ceased upon the date
of such allegation, and (ii) if it is ultimately resolved under paragraph 6
that Executive did not commit a Vesting Termination Breach, a number of
Unvested Securities shall vest giving retroactive effect to such vesting
schedule such that there shall exist a number of Vested Securities as if the
vesting schedule had not been tolled as a result of such allegations.
Executive Securities which have become vested pursuant to this Agreement are
referred to herein as "Vested Securities," and all other Executive Securities
are referred to herein as "Unvested Securities."
(b) Acceleration upon a Qualified Sale of the Company.
All Unvested Securities shall become Vested Securities upon the consummation of
a Qualified Sale of the Company (as defined below) so long as Executive is
employed by the Company or any of its Subsidiaries on the date of such sale
(or, if Executive's employment was terminated by the Company without Cause, so
long as Executive has not committed a Vesting Termination Breach). A
"Qualified Sale of the Company" means either (i) the sale, lease, transfer,
conveyance or other disposition, in one or a series of related transactions, of
all or substantially all of the assets of the Company and its Subsidiaries,
taken as a whole, or (ii) a transaction or series of transactions (including by
way of merger, consolidation, or sale of stock, but not including a Public
Offering) the result of which is that the holders of the Company's outstanding
voting stock immediately prior to such transaction are after giving effect to
such transaction no longer, in the aggregate, the "beneficial owners" (as such
term is defined in Rule 13d-3 and Rule 13d-5 promulgated under the Securities
Exchange Act), directly or indirectly through one or more intermediaries, of
more than 50% of the voting power of the
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outstanding voting stock of the Company, in each case where the consideration
for such assets or stock in such sale or transfer consists of cash and/or
publicly traded equity securities for at least 50% of the outstanding stock of
the Company (e.g., 100% of such consideration would have to consist of cash
and/or publicly traded equity securities if only 50.01% of such stock were sold
in such transaction).
(c) Acceleration upon a Public Offering. Upon the
consummation of the Company's initial Public Offering, and so long as Executive
is employed by the Company or any of its Subsidiaries on the closing date of
such offering (or, if Executive's employment was terminated by the Company
without Cause, so long as Executive has not committed a Vesting Termination
Breach), there will vest the amount of Unvested Securities which were scheduled
to vest within the 365 days following such closing date (and the remaining
Unvested Securities, if any, shall continue to vest 20% on each anniversary of
the date hereof in accordance with clause (a) above, such that the vesting
schedule set forth in paragraph (a) above shall have been effectively
accelerated by one year).
(d) Acceleration upon Death or Disability. All Unvested
Shares shall become Vested Shares if Executive's employment with the Company or
any of its Subsidiaries terminates by reason of Executive's death or
Disability.
(e) Other Acceleration. Subject to paragraph 3(h)
hereof, any Unvested Securities which the LLC (or its assignees) has not
elected to repurchase in the Repurchase Notice (as defined below) (including
Unvested Securities originally included in the Repurchase Notice, but for which
the election to repurchase was rescinded, pursuant to the terms of paragraph 3,
by all of the LLC and/or its assignees having made such election) shall
thereafter be deemed Vested Securities.
3. LLC'S REPURCHASE OPTION.
(a) The Repurchase Option. Upon (i) the termination of
Executive's employment with the Company and its Subsidiaries for any reason
other than a termination by the Company without Cause, or (ii) if Executive's
employment is terminated by the Company without Cause, upon Executive's
commission of a Vesting Termination Breach (the occurrence of either (i) or
(ii), a "Repurchase Event"), the Executive Securities then in existence
(whether held by an Executive Purchaser or one or more of the Executive
Purchasers' transferees) will be subject to repurchase by the LLC at the LLC's
election pursuant to the terms and conditions set forth in this paragraph 3
(the "Repurchase Option"). In the event that the LLC or the Company has
alleged that Executive has committed a Vesting Termination Breach, Executive
disputes such allegation, and the matter is subject to the dispute resolution
provisions set forth in paragraph 6, the closing of the repurchase under this
paragraph 3 shall not occur unless and until it is ultimately determined that
Executive committed a Vesting Termination Breach; provided that during the
pendency of such proceeding, the Executive Securities specified in the
Repurchase Notice (as defined below) shall not be transferred by any holder
thereof to any Person.
(b) Repurchase Price. The repurchase price (the
"Repurchase Price") for any Vested Securities to be repurchased shall be the
Fair Market Value of such securities. The Repurchase Price of any Unvested
Securities to be repurchased shall be the lesser of (x) the Fair
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Market Value of such Securities, and (y) the Original Cost of such Securities
(with securities having the lowest Original Cost subject to repurchase prior to
securities with a higher Original Cost).
(c) Exercise of Repurchase Option. The LLC (by action of
the Board) may elect to purchase all or any portion of the Executive Securities
by delivering written notice (the "Repurchase Notice") to the holder or holders
of the Executive Securities within 30 days after the Repurchase Event. The
Repurchase Notice shall set forth the amount, type, and class of Executive
Securities (including, if applicable, the amount of Unvested Securities and/or
Vested Securities) to be acquired from each such holder. The Executive
Securities to be repurchased by the LLC shall first be satisfied to the extent
possible from the Executive Securities held by Executive at the time of
delivery of the Repurchase Notice. If the amount of Executive Securities then
held by Executive is less than the total amount of Executive Securities that
the LLC has elected to purchase, the LLC shall purchase the remaining
securities elected to be purchased from the other holder(s) of Executive
Securities, pro rata according to the amount of Executive Securities held of
record by each such other holder at the time of delivery of the Repurchase
Notice. The amount of Unvested Securities and Vested Securities to be
repurchased hereunder shall be deemed to be allocated among Executive and the
other holders of repurchased Executive Securities (if any) pro rata according
to the amount of Executive Securities to be purchased from such persons.
(d) Assignment by the LLC. The LLC, by action of the
Board, will have the right to assign all or any portion of its repurchase
rights hereunder to any holder of Investor Equity and/or to any executive
employee of the Company or any of its Subsidiaries. Notwithstanding the
foregoing, the LLC may not assign to any Person its right to pay a portion of
the Repurchase Price for Executive Securities repurchased hereunder in the form
of Class C Units (or, after the dissolution and liquidation of the LLC, a
promissory note).
(e) Fair Market Value of Repurchased Shares.
(i) The "Fair Market Value" of Executive
Securities subject to repurchase hereunder shall be determined in
accordance with this paragraph (e).
(ii) A majority interest of the LLC and/or any
assignees of the LLC's repurchase rights (based on the amount of
Executive Securities to be purchased by each) and the holders of a
majority of the Executive Securities to be repurchased shall attempt
in good faith to agree on the Fair Market Value of the Executive
Securities. Any agreement reached by such Persons shall be final and
binding on all parties hereto.
(iii) If such Persons are unable to reach such
agreement within 20 days after the giving of Repurchase Notice, the
Fair Market Value of any Executive Securities that are publicly traded
shall be the average, over a period of 21 days consisting of the date
of the Repurchase Event and the 20 consecutive business days prior to
that date, of the average of the closing prices of the sales of such
securities on all securities exchanges on which such securities may at
that time be listed, or, if there have been no sales on any such
exchange on any day, the average of the highest bid and lowest asked
prices on all such exchanges at the end of such day, or, if on any day
such securities are not so listed, the average of the
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representative bid and asked prices quoted in the Nasdaq System as of
4:00 P.M., New York time, or, if on any day such securities are not
quoted in the Nasdaq System, the average of the highest bid and lowest
asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau Incorporated, or any similar
successor organization.
(iv) If such Persons are unable to reach agreement
pursuant to subparagraph (ii) within 20 days after the giving of
Repurchase Notice, and to the extent any Executive Securities are not
publicly traded:
(A) A majority interest of the LLC
and/or its assignees (based on the amount of Executive Securities to
be repurchased by each) and the holders of a majority of the Executive
Securities shall each, within 10 days thereafter, choose one
investment banker or other appraiser with experience in analyzing and
making determinations concerning matters in the telecommunications
industry and in valuing entities like the LLC (including the
distribution arrangements of the type described in the LLC Agreement),
and the two investment bankers/appraisers so selected shall together
select a third investment banker/appraiser similarly qualified.
(B) The three investment
bankers/appraisers shall first appraise the fair market value of the
Company (based on the assumption of an orderly, arm's length sale to a
willing unaffiliated buyer). The three investment bankers/appraisers
shall then appraise the fair market value of such non- publicly-traded
Executive Securities as follows:
1) the fair market value of each
share of Common Stock shall be equal to the fair market value
of the Company divided by the total number of shares of Common
Stock outstanding on the date of the Repurchase Event
(determined on a fully diluted basis (x) with respect to the
Preferred Stock and all other outstanding securities
convertible into the Company's Common Stock, assuming the
conversion of such Preferred Stock and other convertible
securities (without regard to any conditions or other
restrictions on such conversion), and (y) with respect to all
outstanding options, warrants and other rights or securities
exercisable or exchangeable for shares of the Company's Common
Stock, in accordance with the Treasury Stock Method under
generally accepted accounting principles for determination of
fully diluted earnings per share);
2) the fair market value of each
share of Preferred Stock shall be equal to the greater of (x)
the Liquidation Value (as defined in the Company's certificate
of incorporation) of such share, together with all accrued but
unpaid dividends thereon (as determined under the Company's
certificate of incorporation), and (y) the fair market value
(determined in accordance with subparagraph 1) above) of the
share(s) of Common Stock (including fractional shares) into
which such share of Preferred Stock is convertible on the date
of the Repurchase Event;
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3) the fair market value of each
Class B Unit shall be equal to the fair market value of the
assets (as determined in accordance with subparagraphs 1), 2),
and 4) of this subparagraph (B)) that would be distributed
according to the terms of the LLC Agreement with respect to
such Class B Unit if the LLC were dissolved and liquidated on
the date of the Repurchase Event; and
4) the fair market value of any
other non-publicly-traded Executive Securities (or, for
purposes of subparagraph 3) above, any other assets) shall be
the fair value of such securities (or other assets),
determined on the basis of an orderly, arm's length sale to a
willing, unaffiliated buyer, taking into account all relevant
factors determinative of value.
The three investment bankers/appraisers shall, within thirty days of
their retention, provide the written results of such appraisals to the
LLC and/or its assignees and to each of the holders of Executive
Securities.
(C) The "Fair Market Value" of the
non-publicly-traded Executive Securities to be repurchased shall be
the average of the two appraisals closest to each other, and such
amount shall be final and binding on all parties hereto; provided that
the LLC (and/or any assignee) may at any time within five days after
receiving written notice of such determination rescind its prior
exercise of the Repurchase Option by giving written notice of such
revocation to the holder or holders of the Executive Securities to be
repurchased, and upon such revocation the revoking party will be
treated as if it had never exercised such Repurchase Option (it being
understood that such revoking parties shall thereafter have no right
to re-exercise such Repurchase Option).
(D) The costs of such appraisal shall be
allocated between the parties based on the percentage which the
portion of the contested amount not awarded to each party bears to the
amount actually contested by such party; provided that if any parties
revoke their exercise of the Repurchase Option pursuant to paragraph
(C) above, such revoking parties shall bear (pro rata among such
revoking parties based on the number of Executive Securities with
respect to which each such revoking party had initially exercised its
Repurchase Option) any appraisal costs that would be allocated to the
holder(s) of Executive Securities under this paragraph (D).
(f) Closing of the Repurchase. Within 10 business days
after the Repurchase Price for the Executive Securities to be repurchased has
been determined, the LLC shall send a notice to each holder of Executive
Securities setting forth the consideration to be paid for such shares and the
time and place for the closing of the transaction, which date shall not be more
than 30 days nor less than five days after the delivery of such notice. At
such closing, the holders of Executive Securities shall deliver all
certificates (if any exist) evidencing the Executive Securities to be
repurchased to the LLC (and/or any assignees of the LLC's repurchase right),
and the LLC (and/or any assignees) shall pay for the Executive Securities to be
purchased pursuant to the Repurchase Option by delivery of a check or wire
transfer of immediately available funds in the aggregate amount of the
Repurchase Price for such securities; provided that in the event the Board
determines
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in its good faith discretion that the LLC is not in a position to pay in cash
any or all of the Repurchase Price for Executive Securities to be repurchased
by it:
(i) prior to the dissolution and liquidation of
the LLC, the LLC may pay a portion of the Repurchase Price for such
securities equal to (x) the aggregate Repurchase Price for the
Executive Securities to be repurchased by the LLC minus (y) the
Original Cost of such securities, by issuing in exchange for such
securities an equal number of the LLC's Class C Units (having the
rights and preferences set forth in the LLC Agreement), and for
purposes of the LLC Agreement each such Class C Unit shall as of its
issuance be deemed to have Basic Contributions made with respect to
such Class C Unit equal to (A) the aggregate portion of the Repurchase
Price paid by the issuance of Class C Units divided by (B) the number
of Class C Units so issued in such repurchase; or
(ii) after the dissolution and liquidation of the
LLC, the Company (as successor to the rights of the LLC under
paragraph 8(e)(ii) below) may pay, in the form of a promissory note, a
portion of the Repurchase Price for such securities equal to (x) the
aggregate Repurchase Price for the Executive Securities to be
repurchased by the LLC minus (y) the Original Cost of such securities.
Such a promissory note shall be subordinated to all of the Company's
senior debt obligations either then or thereafter incurred, shall earn
simple annual interest at the Base Rate, shall have all principal and
accrued interest due and payable upon maturity, and shall mature upon
the earliest to occur of the Company's initial Public Offering (if
such initial Public Offering has not occurred prior to the issuance of
such promissory note), a Qualified Sale of the Company, or the fifth
anniversary of the issuance of such promissory note.
The purchasers of Executive Securities hereunder shall be entitled to receive
customary representations and warranties from the sellers regarding good title
to such shares, free and clear of any liens or encumbrances.
(g) Restrictions. Notwithstanding anything to the
contrary contained in this Agreement, all repurchases of Executive Securities
by the LLC shall be subject to applicable restrictions contained in the
Delaware General Corporation Law, the Delaware Limited Liability Company Act
and in the LLC's and its Subsidiaries' debt and equity financing agreements.
If any such restrictions prohibit the repurchase of Executive Securities
hereunder which the LLC is otherwise entitled or required to make, the time
periods provided in this paragraph 3 shall be suspended, and the LLC may make
such repurchases as soon as it is permitted to do so under such restrictions,
unless by such time such Repurchase Option has terminated pursuant to paragraph
3(h); provided that notwithstanding the foregoing, in no event shall the time
periods provided in this paragraph 3 be suspended for more than 6 months.
(h) Termination of Repurchase Option. The rights under
this paragraph 3 of the LLC and/or its assignees to repurchase Vested
Securities (but not Unvested Securities) shall terminate upon the consummation
of a Public Offering. All rights under this paragraph 3 of the LLC and/or its
assignees to repurchase Executive Securities (including both Vested Securities
and Unvested Securities) shall terminate upon a Qualified Sale of the Company.
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4. RESTRICTIONS ON TRANSFER.
(a) Opinion of Valid Transfer. In addition to any other
restrictions on transfer imposed by this Agreement, the Securityholders
Agreement, or the LLC Agreement, no holder of Executive Securities may sell,
transfer or dispose of any Executive Securities (except pursuant to an
effective registration statement under the Securities Act) without first
delivering to the LLC an opinion of counsel (reasonably acceptable in form and
substance to the LLC) that neither registration nor qualification under the
Securities Act and applicable state securities laws is required in connection
with such transfer.
(b) Restrictive Legend. The certificates representing
Executive Securities shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED
ON AUGUST 13, 1997, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE,
AND SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM
REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER
AND REPURCHASE OPTIONS SET FORTH IN AN EXECUTIVE PURCHASE AGREEMENT
BETWEEN THE ISSUER OF SUCH SECURITIES (THE "ISSUER") AND THE INITIAL
HOLDER OF SUCH SECURITIES (THE "INITIAL HOLDER"). A COPY OF SUCH
AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE ISSUER'S
PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
The legend set forth above shall be removed from the certificates evidencing
any shares which cease to be Executive Securities.
(c) Retention of Executive Stock.
(i) No Executive Purchaser shall sell, transfer,
assign, pledge or otherwise dispose of (whether with or without
consideration and whether voluntarily or involuntarily or by operation
of law) any interest in any Executive Securities (a "Transfer"),
except pursuant to (A) the repurchase provisions of paragraph 3 hereof
or of the LLC Agreement, (B) the "Participation Rights" or "Put"
provisions set forth in the Securityholders Agreement, or (C) a Sale
of the Company (as defined in the Securityholders Agreement) (each of
(A), (B), and (C), an "Exempt Transfer").
(ii) The restrictions contained in this paragraph
(c) shall not apply with respect to transfers of Executive Securities
(A) pursuant to applicable laws of descent and distribution or (B)
among Executive's Family Group; provided that the restrictions
contained in this paragraph shall continue to be applicable to the
Executive Securities after any such
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Transfer, the transferees of such Executive Securities shall have
agreed in writing to be bound by the provisions of this Agreement with
respect to the Executive Securities so transferred, and (prior to the
death of Executive) each such transferee of Executive Securities shall
have entered into proxies and other agreements satisfactory to the
holders of a majority of the Investor Equity pursuant to which
Executive shall have the sole right to vote such Executive Securities
for all purposes. For purposes of this Agreement, "Family Group"
means Executive's spouse and descendants (whether natural or adopted),
any trust which at the time of such Transfer and at all times
thereafter is and remains solely for the benefit of Executive and/or
Executive's spouse and/or descendants and any family partnership the
partners of which consist solely of Executive, such spouse, such
descendants or such trusts.
(iii) The restrictions on the transfer of Executive
Securities set forth in this paragraph (c) shall continue with respect
to each Executive Security following any Transfer thereof (other than
an Exempt Transfer); provided that upon the consummation of a Public
Offering the restrictions set forth in this paragraph (c) shall
thereafter cease to apply to all Vested Securities (it being
understood that such restrictions shall continue to apply to all
Unvested Securities until such time as they become Vested Securities
in accordance with the terms hereof).
5. ISSUANCE OF TIER I AND TIER II OPTIONS.
(a) In the event of a dissolution and liquidation of the
LLC upon the consummation of a Public Offering (a "Public Offering
Liquidation"), if the Management Percentage for such Public Offering
Liquidation is less than 33.3% the Company shall contemporaneously with such
liquidation issue to each holder of Class B Units:
(i) options (the "Tier I Options") entitling the
holder to acquire, at an exercise price per share equal to the IPO
Price, a number of shares of the Company's Common Stock equal to the
lesser of (x) the number of shares of Common Stock that such holder
would have received under the LLC Agreement in connection with such
Public Offering Liquidation if the Management Percentage had been 10%,
and (y) the difference of (A) the number of shares of Common Stock
that such holder would have received in connection with such Public
Offering Liquidation if the Management Percentage had been 33.3%,
minus (B) the number of shares of Common Stock that such holder
actually received in such liquidation; and
(ii) if the Management Percentage for such Public
Offering Liquidation is less than 23.3%, in addition to any Tier I
Options, options (the "Tier II Options") entitling the holder to
acquire, at an exercise price per share equal to the Tier II Price, a
number of shares of the Company's Common Stock equal to the lesser of
(x) the number of shares of Common Stock that such holder would have
received in connection with such Public Offering Liquidation if the
Management Percentage had been 10%, and (y) the difference of (A) the
number of shares of Common Stock that such holder would have received
in connection with such Public Offering Liquidation if the Management
Percentage had been 33.3%, minus (B) the number of shares of Common
Stock that such holder actually received
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in such liquidation, minus (C) the number of shares of Common Stock
into which the Tier I Options issued to such holder are initially
exercisable.
(b) For purposes of performing the calculations in
subparagraphs (a)(i) and (ii) above, (i) a distribution of shares of the
Company's Preferred Stock in a Public Offering Liquidation shall be considered
to have been a distribution of the number of shares of Common Stock into which
such Preferred Stock is convertible on the date of such liquidation, and (ii) a
distribution of any other property in a Public Offering Liquidation shall be
considered to have been a distribution of a number of shares of Common Stock
equal to the quotient of (A) the aggregate fair market value of such
distributed property on the date of such liquidation, as determined in good
faith by the Board, divided by (B) the fair market value of one share of Common
Stock on the date of such liquidation, as determined in good faith by the
Board.
(c) For purposes of this paragraph, the following terms
shall have the meanings set forth below:
"IPO Price" means the gross price per share at which shares of
the Company's Common Stock are initially offered and sold to the public in
connection with a Public Offering.
"Liquidation FMV" has the meaning ascribed to such term in
the LLC Agreement.
"Management Percentage" has the meaning ascribed to such term
in the LLC Agreement.
"Return Multiple" has the meaning ascribed to such term in
the LLC Agreement.
"Tier II Price" means, with respect to a particular Public
Offering Liquidation, the quotient of (x) the amount that would result in a
Return Multiple of 3.5 if the Liquidation FMV for such liquidation were equal
to such amount, divided by (y) the number of shares of Common Stock (determined
on an as-if-converted basis) held by the LLC immediately prior to such
liquidation.
6. CONFIDENTIALITY, NONCOMPETE, AND NONSOLICITATION.
(a) Nondisclosure and Nonuse of Confidential Information.
Executive shall not disclose or use at any time, either during his employment
with the Company or thereafter, any Confidential Information (as defined below)
of which Executive is or becomes aware, whether or not such information is
developed by him, except to the extent that such disclosure or use is directly
related to and required by Executive's performance of duties assigned to
Executive by the LLC or the Company, or to the extent such disclosure is
permissible under the confidentiality provisions set forth in the Stock
Purchase Agreement. Executive shall take all appropriate steps to safeguard
Confidential Information and to protect it against disclosure, misuse,
espionage, loss and theft. As used in this Agreement, the term "Confidential
Information" means information that is not generally known to the public and
that is used, developed or obtained by the LLC, the Company, or its
Subsidiaries in connection with their business, including but not limited to
(i) products or services, (ii) fees, costs and pricing structures, (iii)
designs, (iv) analysis, (v) drawings, photographs and
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12
reports, (vi) computer software, including operating systems, applications and
program listings, (vii) flow charts, manuals and documentation, (viii) data
bases, (ix) accounting and business methods, (x) inventions, devices, new
developments, methods and processes, whether patentable or unpatentable and
whether or not reduced to practice, (xi) customers and clients and customer or
client lists, (xii) copyrightable works, (xiv) all technology and trade
secrets, (xv) business plans and financial models, and (xvi) all similar and
related information in whatever form. Confidential Information shall not
include any information that has been published in a form generally available
to the public prior to the date Executive proposes to disclose or use such
information. Information shall not be deemed to have been published merely
because individual portions of the information have been separately published,
but only if all material features constituting such information have been
published in combination. Notwithstanding the foregoing, "Confidential
Information" shall not include any information of which (a) Executive became
aware prior to his affiliation with the Company and the LLC, (b) Executive
learns from sources other than the LLC, the Company or its Subsidiaries,
whether prior to or after such information is actually disclosed by the LLC,
the Company or its Subsidiaries or (c) is disclosed in a prospectus or other
documents for dissemination to the public.
(b) The Company's Ownership of Intellectual Property.
(i) Acknowledgment of Company Ownership. In the
event that Executive as part of his activities on behalf of the
Company generates, authors or contributes to any invention, design,
new development, device, product, method or process (whether or not
patentable or reduced to practice or constituting Confidential
Information), any copyrightable work (whether or not constituting
Confidential Information) or any other form of Confidential
Information relating directly or indirectly to the Company's business
as now or hereafter conducted (collectively, "Intellectual Property"),
Executive acknowledges that such Intellectual Property is the
exclusive property of the Company and hereby assigns all right, title
and interest in and to such Intellectual Property to the Company. Any
copyrightable work prepared in whole or in part by Executive will be
deemed "a work made for hire" under Section 201(b) of the 1976
Copyright Act, and the Company shall own all of the rights comprised
by the copyright therein. Executive shall promptly and fully disclose
all Intellectual Property to the Company and shall cooperate with the
Company to protect the Company's interests in and rights to such
Intellectual Property (including, without limitation, providing
reasonable assistance in securing patent protection and copyright
registrations and executing all documents as reasonably requested by
the Company, whether such requests occur prior to or after termination
of Executive's employment with the Company).
(ii) Executive Invention. Executive understands
that paragraph (b)(i) of this Agreement regarding the Company's
ownership of Intellectual Property does not apply to any invention for
which no equipment, supplies, facilities or trade secret information
of the Company were used and which was developed entirely on
Executive's own time, unless (i) the invention relates to the business
of the Company or to the Company's actual or demonstrably anticipated
research or development or (ii) the invention results from any work
performed by Executive for the Company.
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13
(c) Delivery of Materials upon Termination of Employment.
As requested by the Company from time to time and upon the termination of
Executive's employment with the Company for any reason, Executive shall
promptly deliver to the Company all copies and embodiments, in whatever form,
of all Confidential Information and Intellectual Property in Executive's
possession or within his control (including, but not limited to, written
records, notes, photographs, manuals, notebooks, documentation, program
listings, flow charts, magnetic media, disks, diskettes, tapes and all other
materials containing any Confidential Information or Intellectual Property)
irrespective of the location or form of such material and, if requested by the
Company, shall provide the Company with written confirmation that all such
materials have been delivered to the Company.
(d) Noncompete. Executive acknowledges and agrees with
the Company and the LLC that in the course of his employment with the Company
he shall become familiar with the Company's trade secrets and with other
Confidential Information concerning the Company and the LLC, that Executive's
services to the Company and the LLC are unique in nature and of an
extraordinary value to the Company and the LLC, and that the Company and the
LLC would be irreparably damaged if Executive were to provide similar services
to any person or entity competing with the LLC or the Company or engaged in a
similar business. In connection with the issuance to Executive of the
Executive securities hereunder, in consideration of and as an inducement to the
LLC's and the Company's entering into this Agreement and the Company's agreeing
to issue the Tier I and Tier II Options and to assume the obligations of the
LLC upon dissolution and liquidation thereof, and in further consideration of
the Noncompete Compensation (as defined below), Executive accordingly covenants
and agrees with the Company and the LLC that during the Noncompete Period (as
defined below), Executive shall not, directly or indirectly, either for himself
or for or through any other individual, corporation, partnership, joint venture
or other entity, participate in any business or enterprise conducting business
in any Covered MSA which engages or proposes to engage in the provision of
telecommunications services. For purposes of this Agreement, (i) the term
"participate in" shall include, without limitation, having any direct or
indirect interest in any corporation, partnership, joint venture or other
entity, whether as a sole proprietor, owner, stockholder, partner, joint
venturer, creditor or otherwise, or rendering any direct or indirect service or
assistance to any individual, corporation, partnership, joint venture and other
business entity (whether as a director, officer, manager, supervisor, employee,
agent, consultant or otherwise), other than ownership of up to 2% of the
outstanding stock of any class which is publicly traded, (ii) the term "MSA"
means metropolitan statistical area and (iii) the term "Covered MSA" means (1)
any MSA in which the Company is engaged in business or has at any time had an
Approved Business Plan (as defined in the Stock Purchase Agreement) to engage
in business, (2) the MSAs which include Dallas, New York, Atlanta, Chicago and
Los Angeles (the "Top Five MSAs"), (3) from and after the time at which there
are Approved Business Plans for each of the Top Five MSAs, each of the MSAs
which include Boston, Cleveland, Denver, Detroit, Houston, Miami, Northern New
Jersey, Phoenix, Philadelphia, St. Louis, San Diego, San Francisco, San Xxxx,
Seattle and Washington, D.C. and (4) any other MSA for which a business plan
has been submitted to the Company pursuant to the Stock Purchase Agreement on
or prior to the termination of Executive's Employment or for which Company
personnel have taken substantial steps towards completing, provided, that any
such MSA under this clause (4) shall cease to be a Covered MSA if such business
plan does not become an Approved Business Plan within the earlier of (x) 180
days after such submission and (y) 180 days after the termination of
Executive's Employment, and, in each case, the Company's management and
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14
the LLC have attempted in good faith during such period to reach agreements
that would enable such plan to become an Approved Business Plan.
Notwithstanding the foregoing, the term Covered MSA shall not include any Top
Five MSA which is not subject to an Approved Business Plan if business plans
for at least three of such Top Five MSAs have not become Approved Business
Plans prior to the later of (x) the 180th day after the date on which the
Company has employed a president and chief operating officer approved by the
Board's Executive Committee or (y) the 180th day after business plans for each
of the Top Five MSAs have been submitted to the Company and the LLC for
approval pursuant to the Stock Purchase Agreement (which business plans are
eligible to qualify as Approved Business Plans because, among other things,
they specify each of the items required under Section 3A of the Stock Purchase
Agreement to be specified in an Approved Business Plan and do not require
equity capital beyond the Maximum Commitment (as defined in the Stock Purchase
Agreement), and Executive has worked in good faith to seek to have such plans
become Approved Business Plans by such time. Executive agrees that this
covenant is reasonable with respect to its duration, geographical area and
scope.
(e) Nonsolicitation. During the Noncompete Period,
Executive shall not (i) induce or attempt to induce any employee of the Company
or any Subsidiary to leave the employ of the Company or any Subsidiary, or in
any way interfere with the relationship between the Company or any Subsidiary
and any employee thereof, (ii) hire directly or through another entity any
person who was an employee of the Company or any Subsidiary at any time during
the six months prior to the date such person is to be so hired, or (iii) induce
or attempt to induce any customer, supplier, licensee or other business
relation of the LLC, the Company or any Subsidiary to cease doing business with
the LLC, the Company or any Subsidiary, or in any way interfere with the
relationship between any such customer, supplier, licensee or business relation
and the LLC, the Company and its Subsidiaries (including, without limitation,
making any negative statements or communications concerning the LLC, the
Company or any Subsidiary).
(f) Noncompete Period. The "Noncompete Period" shall
commence on the date hereof and shall continue until (i) if Executive is
terminated prior to the third anniversary of the date hereof, the later of (A)
the fourth anniversary of the date hereof and (B) the second anniversary of the
date of termination, (ii) if Executive is terminated on or after the third
anniversary, but prior to the fourth anniversary, of the date hereof, the fifth
anniversary of the date hereof, and (iii) if Executive is terminated on or
after the fourth anniversary hereof, the first anniversary of the date of
termination; provided that the Noncompete Period shall terminate if at any time
after the date of termination the Company ceases to pay Executive his
Noncompete Compensation (unless Executive violates any covenant set forth in
this paragraph 6, in which case the Noncompete Period shall continue even
absent payment of the Noncompete Compensation). "Noncompete Compensation"
shall consist of 100% of the base salary that Executive received as
compensation from the Company and its Subsidiaries immediately prior to
termination (Executive's "Previous Salary") together with the continuation of
the medical benefits that the Company provided to Executive immediately prior
to termination (Executive's "Previous Benefits"); provided that if at any time
during the Noncompete Period Executive obtains other employment, Executive's
Noncompete Compensation shall during the period of such employment (i) be
reduced (but not below zero) by Executive's compensation for such employment
and (ii) shall not include the continued provision of medical benefits if such
employment provides medical benefits comparable to the Previous Benefits.
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15
(g) Judicial Modification. If the final judgment of a
court of competent jurisdiction, or any final non-appealable decision of an
arbitrator in connection with a mandatory arbitration, declares that any term
or provision of this paragraph is invalid or unenforceable, the parties agree
that the court making the determination of invalidity or unenforceability shall
have the power to reduce the scope, duration, or geographic area of the term or
provision, to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid
or unenforceable term or provision, and this Agreement shall be enforceable as
so modified after the expiration of the time within which the judgment or
decision may be appealed.
(h) Dispute Resolution.
(i) Arbitration. All claims, disputes,
controversies and other matters in question arising out of or relating
to this paragraph 6, or to the alleged breach hereof, shall be settled
by preliminary negotiation between the LLC or other Person bringing
such allegation and the Executive (the "parties") or, if such
preliminary negotiation is unsuccessful for any reason (but in any
event not later than 10 days after commencement of such negotiation),
by binding arbitration in accordance with the procedures set forth in
this paragraph (h). Without limiting the mandatory arbitration
provision set forth in this paragraph (h), each of the parties hereto
(A) waives the right to bring an action in any court of competent
jurisdiction with respect to any such claims, controversies and
disputes (other than any such action to enforce the award or other
remedy resulting from any arbitration pursuant to this paragraph (h)
or to prevent any arbitrator from exceeding the authority granted to
the arbitrators hereunder) and (B) waives the right to trial by jury
in any suit, action or other proceeding brought on, with respect to or
in connection with this Agreement.
(ii) Binding Arbitration. Upon filing of a notice
of demand for binding arbitration by any party hereto, arbitration
shall be commenced and conducted as follows:
(A) Arbitrators. All claims, disputes,
controversies and other matters (collectively "matters") in
question shall be referred to and decided and settled by a
panel of three arbitrators with experience in analyzing,
understanding, and making determinations concerning matters in
the telecommunications industry, one selected by each of the
parties and the third by the two arbitrators so selected.
(B) Cost of Arbitration. The cost of
each arbitration proceeding, including without limitation the
arbitrators' compensation and expenses, hearing room charges,
court reporter transcript charges, etc., shall be allocated
among the parties based upon the percentage which the portion
of the contested amount not awarded to each party bears to the
amount actually contested by such party. The arbitrators
shall also award the party that prevails substantially in its
pre-hearing position its reasonable attorneys' fees and costs
incurred in connection with the arbitration. The arbitrators
are specifically instructed to award attorneys' fees for
instances of abuse of the discovery process.
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(C) Situs of Proceedings. The situs of
the arbitration shall be in New York, New York, or such other
place as is mutually agreeable to the parties.
(iii) Pre-hearing Discovery. The parties shall
have the right to conduct and enforce pre- hearing discovery in
accordance with the then current Federal Rules of Civil Procedure,
subject to the following limitations: (A) each party may serve no more
than one set of interrogatories which set shall ask no more than
twenty questions; (B) each party may depose the other party's expert
witnesses who will be called to testify at the hearing, plus up to six
fact witnesses without regard to whether they will be called to
testify (each party will be entitled to a total of not more than 24
hours of depositions of the other party's witnesses, and not more than
6 hours with respect to any single witness); and (C) document
discovery and other discovery shall be under the control of and
enforceable by the arbitrators, and all disputes relating thereto
shall be decided by the arbitrators. Notwithstanding any contrary
foregoing provisions, the arbitrators shall have the power and
authority to, and to the fullest extent practicable shall, abbreviate
arbitration discovery in a manner which is fair to all parties in
order to expedite the conclusion of each alternative dispute
resolution proceeding.
(iv) Pre-hearing Conference. Within thirty (30)
days after filing of notice of demand for binding arbitration, the
arbitrators shall hold a pre-hearing conference to establish schedules
for completion of discovery, for exchange of exhibit and witness
lists, for arbitration briefs, for the hearing, and to decide
procedural matters and all other questions that may be presented.
(v) Hearing Procedures. The hearing shall be
conducted to preserve its privacy and to allow reasonable procedural
due process. Rules of evidence need not be strictly followed, and the
hearing shall be streamlined as follows: (A) documents shall be
self-authenticating, subject to valid objection by the opposing party;
(B) expert reports, witness biographies, depositions and affidavits
may be utilized, subject to the opponent's right of a live
cross-examination of the witness in person; (C) charts, graphs and
summaries shall be utilized to present voluminous data, provided (1)
that the underlying data was made available to the opposing party
thirty (30) days prior to the hearing, and (2) that the preparer of
each chart, graph or summary is available for explanation and live
cross-examination in person; (D) the hearing should be held on
consecutive business days without interruption to the maximum extent
practicable; and (E) the arbitrators shall establish all other
procedural rules for the conduct of the arbitration in accordance with
the rules of arbitration of the American Arbitration Association.
(vi) Governing Law. This arbitration provision
shall be governed by, and all rights and obligations specifically
enforceable under and pursuant to, the Federal Arbitration Act (9
U.S.C. Section 1, etseq.).
(vii) Consolidation. No arbitration shall include,
by consolidation, joinder or in any other manner, any additional
person not a party to this Agreement (other than affiliates of any
such party, which affiliates may be included in the arbitration),
except by written consent of the parties hereto containing a specific
reference to this Agreement.
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(viii) Award; Time Limit. The arbitrators are
empowered to render an award of general compensatory damages and
equitable relief (including, without limitation, injunctive relief),
but is not empowered to award punitive damages. The award rendered by
the arbitrators (A) shall be final; (B) shall not constitute a basis
for collateral estoppel as to any issue; and (C) shall not be subject
to vacation or modification. The arbitrators shall render any award
or otherwise conclude the arbitration no later than 120 days after the
date notice is given pursuant to this paragraph (h).
(ix) Confidentiality. The Parties hereto will
maintain the substance of any proceedings hereunder in confidence and
the arbitrators, prior to any proceedings hereunder, will sign an
agreement whereby the arbitrator agrees to keep the substance of any
proceedings hereunder in confidence.
7. DEFINITIONS.
"Approved Business Plan" has the meaning ascribed to such term
in the Stock Purchase Agreement.
"Basic Contributions" has the meaning ascribed to such term in
the LLC Agreement.
"Board" means the board of managers of the LLC (or, after the
dissolution and liquidation of the LLC, the board of directors of the Company).
"Cause" means (A) Executive's theft or embezzlement, or
attempted theft or embezzlement, of money or property of the Company or the
LLC, Executive's perpetration or attempted perpetration of fraud, or
Executive's participation in a fraud or attempted fraud, on the Company or the
LLC, or Executive's unauthorized appropriation of, or attempt to
misappropriate, any tangible or intangible assets or property of the Company or
the LLC, (B) any act or acts of disloyalty, misconduct or moral turpitude by
Executive injurious to the interest, property, operations, business or
reputation of the Company or the LLC, or Executive's conviction of a crime the
commission of which results in injury to the Company or the LLC or (C)
Executive's repeated refusal or failure (other than by reason of Disability) to
carry out reasonable instructions by his superiors or the Board or the
Company's board of directors.
"Class A Units" has the meaning ascribed to such term in the
LLC Agreement.
"Class B Units" has the meaning ascribed to such term in the
LLC Agreement.
"Class C Units" has the meaning ascribed to such term in the
LLC Agreement.
"Class D Units" has the meaning ascribed to such term in the
LLC Agreement.
"Common Stock" means the Company's Common Stock, par value
$.01 per share.
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"Disability" means (i) any permanent physical or mental
incapacity or disability rendering the Executive unable or unfit to perform
effectively the duties and obligations of his employment or to participate
effectively and actively in the management of the Company, or (ii) any
illness, accident, injury, physical or mental incapacity or other disability,
where such condition has rendered the Executive unable or unfit to perform
effectively the duties and obligations of his employment or to participate
effectively and actively in the management of the Company for a period of at
least 90 days (in either case, as determined in the good faith judgment of the
Company's board of directors).
"Executive Securities" means (i) the Class B Units issued to
the Executive Purchasers hereunder, (ii) upon dissolution and liquidation of
the LLC, any securities of the Company distributed in respect of the securities
referred to in clause (i) above pursuant to such dissolution and liquidation,
(iii) any Tier I Options or Tier II Options issued to any holder of Executive
Securities hereunder, (iv) any other securities of the LLC or the Company
hereafter acquired by Executive, and (v) any securities issued directly or
indirectly with respect to the foregoing securities by way of a stock split,
stock dividend, or other division of securities, or in connection with a
combination of securities, recapitalization, merger, consolidation, or other
reorganization, or upon conversion or exercise of any of the foregoing
securities. As to any particular securities constituting Executive Securities,
such securities shall cease to be Executive Securities when they have been (a)
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them, (b) distributed to the public
through a broker, dealer or market maker pursuant to Rule 144 under the
Securities Act (or any similar provision then in force) or (c) repurchased by
any holder of Class A Units, or by the LLC (including in exchange for Class C
Units or Class D Units), the Company or any Subsidiary thereof
"Investor Equity" means (i) the Class A Units issued pursuant
to the Investor Purchase Agreement, (ii) upon and after the dissolution or
liquidation of the LLC, the securities distributed in respect of the securities
referred to in clause (i) above pursuant to such dissolution or liquidation,
and (iii) any securities issued directly or indirectly with respect to the
foregoing securities by way of a stock split, stock dividend, or other division
of securities, or in connection with a combination of securities,
recapitalization, merger, consolidation, or other reorganization, or upon
conversion or exercise of the foregoing (but not including any Class D Units
issued in exchange for Class A Units). As to any particular securities
constituting Investor Equity, such securities shall cease to be Investor Equity
when they have been (a) effectively registered under the Securities Act and
disposed of in accordance with the registration statement covering them, (b)
distributed to the public through a broker, dealer or market maker pursuant to
Rule 144 under the Securities Act (or any similar provision then in force) or
(c) repurchased by the LLC (including in exchange for Class D Units) or the
Company or any Subsidiary thereof.
"LLC Agreement" means the limited liability company agreement
of even date herewith, entered into by and among the members of the LLC, as
amended from time to time in accordance with its terms.
"MSA" means a metropolitan statistical area.
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19
"Original Cost" means, at any given time, (i) with respect to
any Class B Units, the total Basic Contributions made with respect to such
Class B Units pursuant to the LLC Agreement prior to such time, (ii) with
respect to any Preferred Stock, the aggregate Liquidation Value (as determined
under the Company's certificate of incorporation) of such Preferred Stock at
such time, (iii) with respect to any Common Stock issued upon conversion of
Preferred Stock, the Original Cost of such Preferred Stock, and (iv) with
respect to any other securities, the original price paid upon issuance of such
securities.
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Preferred Stock" means the Company's 12% Cumulative
Convertible Preferred Stock, par value $.01 per share.
"Public Offering" means any underwritten sale of the Company's
common stock pursuant to an effective registration statement under the
Securities Act filed with the Securities and Exchange Commission on Form S-1
(or a successor form adopted by the Securities and Exchange Commission);
provided that the following shall not be considered a Public Offering: (i) any
issuance of common stock as consideration or financing for a merger or
acquisition, and (ii) any issuance of common stock or rights to acquire common
stock to employees of the Company or its Subsidiaries as part of an incentive
or compensation plan.
"Securities Act" means the Securities Act of 1933, as amended,
or any similar federal law then in force.
"Securityholders Agreement" means the securityholders
agreement entered into by and among the Company, the LLC, and the holders of
interests in the LLC, as amended from time to time in accordance with its
terms.
"Stock Purchase Agreement" means the stock purchase agreement
of even date herewith, entered into by and between the Company and the LLC, as
amended from time to time in accordance with the terms thereof.
"Subsidiary" means, with respect to any Person, any
corporation, limited liability company, partnership, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Person or
one or more of the other Subsidiaries of that Person or a combination thereof,
or (ii) if a limited liability company, partnership, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that Person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a limited liability company, partnership, association or
other business entity if such Person or Persons shall be allocated a majority
of limited liability company,
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20
partnership, association or other business entity gains or losses or shall be
or control any managing director or general partner of such limited liability
company, partnership, association or other business entity.
"Vesting Termination Breach" means (i) any breach of paragraph
6(d) or clause (ii) of paragraph 6(e) and (ii) any breach of any other
provision of paragraph 6 which is material or is intentionally and knowingly
committed by Executive.
8. MISCELLANEOUS PROVISIONS.
(a) Further Assurances; Voting Proxy. As a condition to
the LLC's and the Company's entering into this Agreement and the LLC's issuance
of Executive Securities to the Executive Purchasers, and as further
consideration therefor:
(i) Executive hereby unconditionally guarantees
the full and prompt performance of each Executive Purchaser's
obligations under this Agreement and under each of the agreements
contemplated hereby to which such Executive Purchaser is a party, and
Executive agrees that he will take all necessary or desirable actions
to ensure such performance as are reasonably requested by the LLC or
the Company. Executive further agrees that he will not provide any
directions to an Executive Purchaser that are contrary to any
obligation imposed on such Executive Purchaser under this Agreement or
under such other agreements, and that Executive will not fail to
provide any directions to an Executive Purchaser if such failure would
cause an Executive Purchaser not to satisfy its obligations hereunder
or thereunder. This guarantee shall be irrevocable with respect to
each Executive Security held by an Executive Purchaser (and shall
survive any transfer thereof, or the death, disability, incompetency,
or bankruptcy of such Executive Purchaser) until such time as such
Executive Security is transferred in accordance with the terms hereof
to a Person other than a member of Executive's Family Group, at which
time this guarantee shall be deemed revoked with respect to such
security (but not with respect to any other Executive Securities). No
invalidity, irregularity or unenforceability of this Agreement or such
other agreements by reason of an Executive Purchaser's incapacity,
minor status, incompetency, bankruptcy, insolvency, or otherwise shall
impair, affect or be a defense to the obligations of Executive under
this guarantee.
(ii) Each Executive Purchaser (other than
Executive) hereby appoints Executive as his true and lawful proxy and
attorney-in-fact, with full power of substitution, to vote all of such
Executive Purchaser's Executive Securities on all matters to be voted
on by the holders of such securities (whether as a member vote, a
shareholder vote, an approval right under this Agreement or the other
agreements contemplated hereby, or otherwise). These proxies and
powers granted by each Executive Purchaser pursuant to this paragraph
are coupled with an interest, and are given to secure such Executive
Purchasers' obligations under this Agreement and the other agreements
contemplated hereby to which the Executive Purchasers are parties.
Such proxies and powers shall be irrevocable with respect to each
Executive Security held by an Executive Purchaser (and shall survive
any transfer thereof, or the death, disability, incompetency, or
bankruptcy of such Executive Purchaser) until such
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21
time as such Executive Security is transferred in accordance with the
terms hereof to a Person other than a member of Executive's Family
Group, at which time such proxy shall be deemed revoked with respect
to such security (but not with respect to any other Executive
Securities).
(b) Transfers in Violation of Agreement. Any Transfer or
attempted Transfer of any Executive Securities in violation of any provision of
this Agreement shall be void, and none of the LLC, the Company, or any
Subsidiary thereof shall record such purported Transfer on its books or treat
any purported transferee of such Executive Securities as the owner of such
securities for any purpose.
(c) Severability. Whenever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability shall
not affect any other provision or any other jurisdiction, but this Agreement
shall be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
(d) Complete Agreement. This Agreement, those documents
expressly referred to herein and other documents of even date herewith embody
the complete agreement and understanding among the parties and supersede and
preempt any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof
in any way.
(e) Counterparts. This Agreement may be executed in
separate counterparts, none of which need contain the signature of more than
one party hereto but each of which shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
(f) Successors and Assigns.
(i) Except as otherwise provided herein, this
Agreement shall bind the parties hereto and their respective
successors and assigns and shall inure to the benefit of and be
enforceable by the parties hereto and their respective successors and
assigns whether so expressed or not.
(ii) Each of the Company, the LLC, each of the
Executive Purchasers, and each holder of Executive Securities hereby
acknowledges that upon and after the dissolution and liquidation of
the LLC, (A) all contractual obligations and duties of the LLC
hereunder shall thereafter bind and be enforceable against the
Company, (B) all rights and powers granted to the LLC hereunder
(including, without limitation, the repurchase rights set forth in
paragraph 3) shall inure to the benefit of and be enforceable by the
Company, (C) all references to the LLC shall thereafter be deemed to
be references to the Company, and (D) this Agreement shall thereafter
operate and be construed as if the word "Company" were substituted for
the word "LLC" in each such instance.
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22
(g) CHOICE OF LAW. ALL QUESTIONS CONCERNING THE
CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND
THE EXHIBITS HERETO SHALL BE GOVERNED BY THE INTERNAL LAW, AND NOT THE LAW OF
CONFLICTS, OF THE STATE OF DELAWARE.
(h) Remedies. Each of the parties to this Agreement
(including any holder of Investor Equity or employee of the Company to which
the LLC assigns any of its repurchase rights under paragraph 3 hereof) shall be
entitled to enforce its rights under this Agreement specifically, to recover
damages and costs (including reasonable attorney's fees) caused by any breach
of any provision of this Agreement and to exercise all other rights existing in
its favor. The parties hereto agree and acknowledge that money damages would
not be an adequate remedy for any breach of the provisions of this Agreement
and that any party may in its sole discretion apply to any court of law or
equity of competent jurisdiction (without posting any bond or deposit) for
specific performance and/or other injunctive relief in order to enforce or
prevent any violations of the provisions of this Agreement.
(i) Amendment, Modification, or Waiver. The provisions
of this Agreement may be amended, modified, or waived only with the prior
written consent of the LLC and the Executive.
(j) Third-Party Beneficiaries. The parties hereto
acknowledge and agree that certain provisions of this Agreement are intended
for the benefit of certain holders of Investor Equity or employees of the
Company to which the LLC assigns any of its repurchase rights under paragraph 3
hereof, that such Persons are third-party beneficiaries of this Agreement and
that provisions of this Agreement shall be enforceable by such Persons as
provided herein.
(k) Business Days. If any time period for giving notice
or taking action hereunder expires on a day which is a Saturday, Sunday or
legal holiday in the State of Illinois, the time period shall be automatically
extended to the business day immediately following such Saturday, Sunday or
holiday.
(l) Descriptive Headings; Interpretation; No Strict
Construction. The descriptive headings of this Agreement are inserted for
convenience only and do not constitute a substantive part of this Agreement.
Whenever required by the context, any pronoun used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
forms of nouns, pronouns, and verbs shall include the plural and vice versa.
Reference to any agreement, document, or instrument means such agreement,
document, or instrument as amended or otherwise modified from time to time in
accordance with the terms thereof, and if applicable hereof. The use of the
words "include" or "including" in this Agreement shall be by way of example
rather than by limitation. The use of the words "or," "either" or "any" shall
not be exclusive. The parties hereto have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto, and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any of the provisions of this Agreement.
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23
(m) Notices. All notices, demands or other
communications to be given or delivered under or by reason of the provisions of
this Agreement shall be in writing and shall be deemed to have been given when
(a) delivered personally to the recipient, (b) telecopied to the recipient
(with hard copy sent to the recipient by reputable overnight courier service
(charges prepaid) that same day) if telecopied before 5:00 p.m. Chicago,
Illinois time on a business day, and otherwise on the next business day, or (c)
one business day after being sent to the recipient by reputable overnight
courier service (charges prepaid). Such notices, demands and other
communications shall be sent to the following Persons at the following
addresses:
To the LLC:
c/oMadison Dearborn Capital Partners
Three First National Plaza, Suite 3800
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxx X. Xxxxx, Xx.
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
with a copy (which shall not constitute notice) to:
Xxxxxxxx & Xxxxx
000 Xxxx Xxxxxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxx X. Xxxxxxxxxx, Esq.
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
and a copy (which shall not constitute notice) to:
Xxxxxxx & Berlin
0000 X Xxxxxx, X.X., Xxxxx 000
Xxxxxxxxxx, X.X. 00000
Attention: Xxxx Xxxxxxxxx, Esq.
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
To the Company:
00000 Xxxxxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxx, Xxxxx 00000
Attention: Xxxxx X. Xxxxxxx
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
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24
with a copy (which shall not constitute notice) to:
Xxxxxxxx & Xxxxx
000 Xxxx Xxxxxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxx X. Xxxxxxxxxx, Esq.
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
and a copy (which shall not constitute notice) to:
Xxxxxxx & Berlin
0000 X Xxxxxx, X.X., Xxxxx 000
Xxxxxxxxxx, X.X. 00000
Attention: Xxxx Xxxxxxxxx, Esq.
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
To an Executive Purchaser: at the address set forth in the
LLC's or the Company's records.
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
(n) Delivery by Facsimile. This Agreement, the
agreements referred to herein, and each other agreement or instrument entered
into in connection herewith or therewith or contemplated hereby or thereby, and
any amendments hereto or thereto, to the extent signed and delivered by means
of a facsimile machine, shall be treated in all manner and respects as an
original agreement or instrument and shall be considered to have the same
binding legal effect as if it were the original signed version thereof
delivered in person. At the request of any party hereto or to any such
agreement or instrument, each other party hereto or thereto shall reexecute
original forms thereof and deliver them to all other parties. No party hereto
or to any such agreement or instrument shall raise the use of a facsimile
machine to deliver a signature or the fact that any signature or agreement or
instrument was transmitted or communicated through the use of a facsimile
machine as a defense to the formation or enforceability of a contract and each
such party forever waives any such defense.
* * * *
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25
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first written above.
TRANSCEND TELECOM, L.L.C.
By: /s/ XXXXXX X. XXXX
------------------------------
Its: Chief Financial Officer
------------------------------
TRANSCEND TELECOM, INC.
By: /s/ XXXXXX X. XXXX
---------------------------
Its: Chief Financial Officer
---------------------------
EXECUTIVE PURCHASERS
/s/ XXXXX X. XXXXXXX
-----------------------------------
Xxxxx X. Xxxxxxx
Xxxxx X. Xxxxxxx Family Limited
Partnership
By: /s/ XXXXX X. XXXXXXX
------------------------------
Xxxxx X. Xxxxxxx, its general
partner
