<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED
PURSUANT TO 13d-1(a) AND AMENDMENTS THERETO
FILED PURSUANT TO 13d-2(a)
Hybrid Networks, Inc.
(Name of Issuer)
Common Stock, $0.001 Par Value Per Share
(Title of Class of Securities)
44860K10 2
(CUSIP Number)
Don A. Jensen
Vice President and Secretary
Sprint Corporation
P.O. Box 11315
Kansas City, Missouri 64112
(913) 624-3000
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
With a copy to:
Michael J. Egan III, Esq.
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303-1763
(404) 572-4600
August 30, 1999
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition that is the subject of this Schedule 13D, and is filing
this schedule because of Rule 13d-1(e), (f) or (g) check the following
box [ ].
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
<PAGE>
SCHEDULE 13D
CUSIP No. 44860K10 2
1. NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Sprint Corporation
48-0457967
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [_]
(b) [_]
3. SEC USE ONLY
4. SOURCE OF FUNDS
WC
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [_]
6. CITIZENSHIP OR PLACE OF ORGANIZATION
Kansas
<TABLE>
<S> <C> <C>
NUMBER OF SHARES 7. SOLE VOTING POWER 6,807,271
BENEFICIALLY OWNED 8. SHARED VOTING POWER None
BY EACH REPORTING 9. SOLE DISPOSITIVE POWER 6,807,271
PERSON WITH 10. SHARED DISPOSITIVE POWER None
</TABLE>
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
*6,807,271
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [_]
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
39%
14. TYPE OF REPORTING PERSON
CO
- --------
* Reflects Class A Debentures convertible into 3,859,649 shares of Common Stock
(as hereinafter defined), Class B Debentures convertible into 1,000 shares of
non-convertible Preferred Stock (as hereinafter defined) and
8,397,873 Warrants to purchase Class A Debentures convertible into
2,946,622 shares of Common Stock.
<PAGE>
STATEMENT PURSUANT TO RULE 13d-1 AND RULE 13d-2
OF THE
GENERAL RULES AND REGULATIONS
UNDER THE
SECURITIES EXCHANGE ACT OF 1934
ITEM 1. SECURITY AND ISSUER
This statement on Schedule 13D (this "Statement") relates to the Common Stock,
$0.001 par value per share, (the "Common Stock") of Hybrid Networks, Inc. (the
"Issuer") that is issuable upon conversion of Convertible Class A Debentures
(as hereinafter defined) and certain Warrants (as hereinafter defined) to
purchase subordinated debentures having terms substantially identical to the
Convertible Class A Debentures each held by Sprint Corporation, a Kansas
corporation (the "Purchaser"). In addition, the Statement outlines the terms
upon which the Preferred Stock, $1.00 par value per share (the "Preferred
Stock") of the Issuer is issuable upon conversion of Convertible Class B
Debentures (as hereinafter defined) held by the Purchaser.
The principal executive offices of the Issuer are located at 6409 Guadalupe
Mines Road, San Jose, California 95120.
ITEM 2. IDENTITY AND BACKGROUND
(a), (b), (c) and (f). This Statement is being filed by the Purchaser having
its principal business offices at 2330 Shawnee Mission Parkway, Westwood,
Kansas 66205. The Purchaser is a diversified telecommunications service
provider. Its principal business includes long distance service, local
service, wireless personal communications services, product distribution and
directory publishing activities, and other telecommunications activities,
investments and alliances. The name, business address, present principal
occupation or employment, and the name, principal business and address of any
corporation or other organization in which such employment is conducted, of
each director and executive officer of the Purchaser are set forth on Schedule
I which is attached hereto and incorporated herein by reference. Each director
and executive officer is a citizen of the United States, except: Michel Bon is
a citizen of France; and Ron Sommer is a citizen of Germany.
(d) During the last five years, neither the Purchaser nor, to the best of the
Purchaser's knowledge, any of its directors or executive officers listed on
Schedule I has been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors).
(e) During the last five years, neither the Purchaser nor, to the best of the
Purchaser's knowledge, any of its directors or executive officers listed on
Schedule I has been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction which resulted in a judgment,
decree or final order (i) enjoining future violations of, or prohibiting or
mandating activities subject to, Federal or State securities laws or
(ii) finding any violation with respect to such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
All amounts paid by the Purchaser for the securities described in this
Schedule 13D were funded from amounts available in its cash accounts.
ITEM 4. PURPOSE OF TRANSACTION
On August 30, 1999, the Purchaser and the Issuer entered into the Purchase
Agreement (the "Purchase Agreement") pursuant to which the Purchaser agreed to
purchase from the Issuer Convertible Class A Debentures and Convertible Class
B Debentures for an aggregate purchase price of $11,001,000. The Purchase
Agreement provided that in consideration for the equipment purchase commitment
of the Purchaser set forth in the Equipment Purchase Agreement (as hereinafter
defined), the Issuer would issue to the Purchaser Warrants to purchase
subordinated debentures having terms substantially identical to the
Convertible Class A Debentures.
1
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The transactions contemplated by the Purchase Agreement were consummated on
September 9, 1999. In accordance with the terms of the Purchase Agreement, the
Issuer and the Purchaser entered into a Warrant Agreement and an Investors
Rights Agreement (each as hereinafter defined) and agreed to enter into an
Equipment Purchase Agreement. The Purchaser entered into the Purchase
Agreement and consummated the transactions contemplated thereby with the
intent of making a strategic equity investment in one of its equipment
suppliers. Discussions of the Purchase Agreement, the Convertible Debentures,
the Warrants, and the Investors Rights Agreement are qualified in their
entirety by the complete text of such agreements, copies of which are filed as
exhibits hereto.
The Purchase Agreement
As provided in the Purchase Agreement, it was a condition of Purchaser's
obligations to effect the transactions contemplated thereby that effective
upon the Closing (as defined in the Purchase Agreement), (i) two members of
the Issuer's Board of Directors would resign and (ii) two individuals
designated by the Purchaser (the "Purchaser Nominees") would be appointed to
fill the vacancies in the Board of Directors of the Issuer created by such
resignations.
In addition, under the Purchase Agreement, as long as the Purchaser's Interest
(as defined in the Purchase Agreement) is 10% or greater, the Issuer is not
permitted to take or authorize (or enter into any agreement to take or
authorize) certain actions described in the Purchase Agreement without the
prior written approval of the Purchaser.
The Purchase Agreement also provides that, if the Issuer enters into a Change
of Control Agreement (as defined in the Purchase Agreement) with a third party
at any time at which the Purchaser's Interest is 10% or greater, the Issuer
must provide a complete copy of the Change of Control Agreement (including all
schedules and exhibits) and any related agreements to the Purchaser within one
Business Day following the execution of the Change of Control Agreement. The
delivery of the Change of Control Agreement to the Purchaser shall constitute
a binding offer by the Issuer to consummate with the Purchaser the
transactions contemplated by the Change of Control Agreement on the terms set
forth in the Change of Control Agreement. Such offer shall be irrevocable for
a period ending at 11:59 p.m., Kansas City time, on the 60th day following the
day of delivery of the Change of Control Agreement to the Purchaser, which
period may be extended as provided in the Purchase Agreement.
The Purchase Agreement provides that for so long as the Purchaser's Interest
is equal to or greater than 10%, if the Issuer determines to issue for cash
consideration additional securities of the Issuers, including options,
warrants, convertible instruments or other direct or indirect rights to
acquire equity securities of the Issuer ("Equity Securities") to third
parties, other than Equity Securities issued or proposed to be issued to or
for the benefit of any Person (as defined in the Purchase Agreement) who
serves as an employee or director of the Issuer in the ordinary course of
business, the Issuer shall offer the Purchaser the right to purchase that
certain portion of the additional Equity Securities outlined in the Purchase
Agreement.
In accordance with the Purchase Agreement, for so long as the Purchaser's
Interest is equal to or greater than 10%, if the Issuer determines to issue
additional Equity Securities to officers or employees or for other than cash
consideration, and the issuance of such additional Equity Securities would
cause the Purchaser's Interest to fall below 10%, the Purchaser shall have the
right to purchase from the Issuer simultaneous with the issuance of such
Equity Securities such number of shares of Common Stock as will cause the
Purchaser's Interest to remain at or above 10%.
Convertible Debentures
Pursuant to the terms of the Purchase Agreement, the Purchaser purchased
Convertible Class A Debentures in the face amount of $11 million (the "Class A
Debenture"), which bear interest at the rate of 4% per annum, on
2
<PAGE>
a 360 days basis, actual days elapsed, which is payable quarterly in arrears
commencing on October 1, 1999 and thereafter on the first business day of each
calendar quarter. In lieu of paying such interest in coin or currency, the
Issuer will pay interest on the Class A Debenture by adding the amount of such
interest to the outstanding principal amount due under the Class A Debenture.
The Purchaser shall have the right to convert the principal of the Class A
Debenture (or any portion of the principal thereof which is $1.00 or an
integral multiple of $1.00) into fully paid and nonassessable (except as
otherwise provided by law) shares of Common Stock at the rate of one share of
Common Stock for each $2.85 principal amount of the Class A Debenture (subject
to adjustment as provided in the Class A Debenture, the "Conversion Price").
The Class A Debenture is convertible at any time, at the option of the
Purchaser, following the first of the following to occur: (i) December 31,
1999 (unless the Issuer agrees in writing to an earlier date), (ii) a Change
of Control (as hereinafter defined) of the Issuer or (iii) receipt by the
Purchaser of a Change of Control Notice (as hereinafter defined) from the
Company. For purposes of the Class A Debenture, Change of Control means the
occurrence of any of the following: (a) any Person (as defined in the Purchase
Agreement) shall have acquired beneficial ownership of more than 25% of the
outstanding voting stock of the Issuer (within the meaning of Section 13(d) or
14(d) of the Exchange Act); or (b) individuals who immediately following the
Closing were directors of the Issuer (which shall include the Purchaser
Nominees, together with any replacement or additional directors who were
nominated or appointed by a majority of directors in office immediately
following the Closing or by a majority of such directors and their nominees or
appointees) cease to constitute a majority of the Board of Directors of the
Company. In the event that a proposed Change of Control will occur pursuant to
an agreement to which the Issuer is a party, the Issuer shall give notice of
such proposed Change of Control (the "Change of Control Notice") to the
Purchaser at least 10 business days prior to the consummation of the
transactions contemplated by such agreement.
At any time on or after December 31, 2000, the Issuer shall have the right to
convert the principal of the Class A Debenture (or any portion of the
principal hereof which is $1.00 or an integral multiple of $1.00) into fully
paid and nonassessable (except as otherwise provided by law) shares of Common
Stock at the Conversion Price.
Pursuant to the terms of the Purchase Agreement, the Purchaser also purchased
Convertible Class B Debentures in the face amount of $1,000 (the "Class B
Debenture"). The Class B Debentures bear interest at the rate of 4% per annum,
on a 360 days basis, actual days elapsed, which is payable in full at maturity
or upon conversion. The Class B Debenture is convertible at any time at the
option of the Purchaser into 1,000 shares of Preferred Stock. The Preferred
Stock shall, with respect to rights on liquidation, dissolution, winding up or
dividend, rank pari passu with any other series of preferred stock, par value
$0.001 per share of the Issuer. As long as the Purchaser's Interest is 10% or
greater the holders of Preferred Stock, voting as a separate class, shall have
the right to elect two directors to serve on the Issuer's Board of Directors.
These directors shall replace the Purchaser Nominees.
Warrant Agreement
As a condition to the Closing, the Issuer and the Purchaser entered into a
Warrant Agreement pursuant to which the Purchaser purchased 8,397,873 Warrants
to purchase subordinated debentures (the "Warrant Agreement") having terms
substantially identical to the Class A Debentures (the "Warrants"). The
Warrants are exercisable on the earliest date that the Purchaser has submitted
to the Issuer at least $1,000,000 of purchase orders under the Equipment
Purchase Agreement. On such date, 10% of the Warrants (rounded to the nearest
whole Warrant) shall become exercisable. Thereafter, an additional 10% of the
Warrants (rounded to the nearest whole Warrant) shall become exercisable for
each additional $1,000,000 of purchase orders as are submitted by the
Purchaser to the Issuer under the Equipment Purchase Agreement, such that the
entire amount of Warrants shall be exercisable when $10,000,000 of purchase
orders have been submitted.
Equipment Purchase Agreement
In consideration for the issuance of the Warrants, the Purchaser agreed that
as promptly as practicable following the Closing, the Issuer and the Purchaser
would enter into the Equipment Purchase Agreement pursuant to which the
Purchaser will purchase from the Company, certain types of Cable Modems in the
amount of $10,000,000 dollars on the terms and conditions described therein
(the "Equipment Purchase Agreement").
3
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Investor Rights Agreement
As a condition to the Closing, the Issuer and the Purchaser entered into the
1999 Amended and Restated Investor Rights Agreement (the "Investor Rights
Agreement"). The Purchaser was granted certain registration rights with
respect to the securities acquired under the Purchase Agreement.
Except as set forth in this Item or Item 6, the Purchaser has no plans or
proposals that relate to, or would result in, the matters referred to in
paragraphs (a)-(j) of Item 4 of this Schedule 13D. The Purchaser, however, may
at any time and from time to time, review or reconsider its position with
respect to any of such matters.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) The Purchaser has purchased the Class A Debenture and the Class B
Debenture for an aggregate purchase price of $11,001,000, together with
a commitment by the Purchaser to purchase $10,000,000 of equipment under
the Equipment Purchase Agreement pursuant to which the Company issued to
the Purchaser the Warrants. Assuming the conversion of the Class A and
Class B Debentures as of the date hereof (including the conversion of
the Warrants) the Purchaser would own 6,806,271 shares of Common Stock,
representing approximately 39% of the 17,472,967 shares of Common Stock
reported as outstanding by the Issuer as of August 30, 1999, as
disclosed in the Issuer's representations set forth in the Purchase
Agreement (adjusted to include the Common Stock issuable upon conversion
of the Class A Debentures and the Warrants) and 1,000 shares of the
Preferred Stock, representing 100% of the outstanding Preferred Stock.
The number of shares of Common Stock into which a Class A Debenture is
convertible may be increased due to certain adjustments to the
Conversion Price as described in Item 4 and the Class A Debenture.
(b) The Purchaser has the sole power to vote or to direct the vote of
6,806,271, shares of Common Stock and the sole power to dispose or to
direct the disposition of 6,806,271 shares of the Common Stock. The
Purchaser has the sole power to vote or to direct the vote of 1,000
shares of the Preferred Stock and the sole power to dispose or to direct
the disposition of 1,000 shares of the Preferred Stock.
(c) Neither the Purchaser nor, to the best of the Purchaser's knowledge, any
of its directors or executive officers, has effected a transaction in
the Common Stock during the sixty days preceding the date of this
Schedule 13D.
(d) Not applicable.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO SECURITIES OF THE ISSUER
See Item 4 for a description of the Purchase Agreement, the Convertible
Debentures, the Investor Rights Agreement, the Warrant Agreement and the
Equipment Purchase Agreement, which are incorporated herein by reference.
Except as set forth above, to the best of the Purchaser's knowledge, no
contracts, arrangements, understandings or relationships (legal or otherwise)
exist among the persons named in Item 2 or among such persons and any other
person with respect to any securities of the Issuer, including but not limited
to, the transfer or voting of any such securities, finder's fees, joint
ventures, loan or option arrangements, puts or calls, guarantees of profits,
division of profits or loss, or the giving or withholding of proxies.
4
<PAGE>
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
1 Securities Purchase Agreement between Sprint Corporation and Hybrid Networks, Inc., dated as of
August 30, 1999.
2 Warrant Agreement between the Purchaser and Hybrid Networks, Inc., dated as of September 9, 1999.
3 1999 Amended and Restated Investor Rights Agreement, dated as of September 9, 1999.
4 4% Convertible Class A Debenture due 2009.
5 4% Convertible Class B Debenture due 2009.
6 Form of Certificate of Designation of Series J Non-Convertible Preferred Stock of Hybrid Networks,
Inc.
</TABLE>
5
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Sprint Corporation
/s/ Don A. Jensen
By: _________________________________
Name: Don A. Jensen
Title: Vice President and
Secretary
Date: September 9, 1999
6
<PAGE>
SCHEDULE 1
1. Directors, Executive Officers and Controlling Persons of Sprint
Corporation. The name, business address and present principal occupation or
employment of the directors and executive officers of the Purchaser are
listed below. Unless otherwise indicated, the business address of each such
director and executive officer is: c/o Sprint Corporation, 2330 Shawnee
Mission Parkway, Westwood, KS 66205. The other required information with
respect to each person is set forth under Item 2.
<TABLE>
<CAPTION>
Name Principal Occupation, Address and Business
- ---- ------------------------------------------
<S> <C>
DuBose Ausley Director of Sprint Corporation. Chairman of a law firm, Ausley &
McMullen, P.O. Box 391, Tallahassee, FL 32302.
Warren L. Batts Director of Sprint Corporation. Retired Chairman and Chief Executive
Officer of Tupperware Corporation and retired Chairman of Premark
International, Inc., Suite 214, One Northfield Plaza, Northfield, IL
60093.
John E. Berndt President of Sprint International.
Gene M. Betts Senior Vice President and Treasurer of Sprint Corporation.
Michel Bon Director of Sprint Corporation. Chairman of France Telecom, 6 Place
d'Alleray, 75505 Paris Cedex 15, France.
Kevin E. Brauer President National Integrated Services of Sprint Corporation, 7301
College Boulevard, Overland Park, KS 66210.
J. Richard Devlin Executive Vice President and General Counsel of Sprint Corporation.
William T. Esrey Chairman and Chief Executive Officer and Director of Sprint
Corporation.
Michael B. Fuller President Local Telecommunications Division of Sprint Corporation,
5454 West 110th Street, Overland Park, KS 66211.
Irvine O. Hockaday, Director of Sprint Corporation. President and Chief Executive
Jr. Officer of Hallmark Cards, Inc., 2501 McGee Trafficway, Kansas City,
MO 64108.
Harold S. Hook Director of Sprint Corporation. Retired Chairman and Chief Executive
Officer of American General Corporation, Suite W16-01, 2727 Allen
Parkway, Houston, TX 77019.
Arthur B. Krause Executive Vice President and Chief Financial Officer of Sprint
Corporation.
Arthur A. Kurtze Senior Vice President One Sprint Strategic Development of Sprint
Corporation.
Ronald T. LeMay President and Chief Operating Officer and Director of Sprint
Corporation.
Linda Koch Lorimer Director of Sprint Corporation. Vice President and Secretary of Yale
University, P.O. Box 208230, New Haven, CT 06520.
John P. Meyer Senior Vice President and Controller of Sprint Corporation.
Charles E. Rice Director of Sprint Corporation. Vice Chairman-Corporate Development
of Bank of America, P.O. Box 40789, Jacksonville, FL 32203.
Theodore H. Schell Senior Vice President Strategic Planning and Corporate Development
of Sprint Corporation.
</TABLE>
7
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<TABLE>
<CAPTION>
Name Principal Occupation, Address and Business
- ---- ------------------------------------------
<S> <C>
Louis W. Smith Director of Sprint Corporation. President and Chief Executive
Officer of Ewing Marion Kauffman Foundation, 4801 Rockhill Road,
Kansas City, MO 64110.
Ron Sommer Director of Sprint Corporation. Vice Chairman of the Board of
Management of Deutsche Telekom A.G., Friedrich-Ebert-Allee 140,
53113 Bonn, Germany.
Andrew J. Sukawaty President of Sprint PCS, 4900/4800 Main, Kansas City, MO 64112.
Stewart Turley Director of Sprint Corporation. Retired Chairman of Eckerd
Corporation, Suite 201, 1465 South Fort Harrison Avenue, Clearwater,
FL 33756.
I. Benjamin Watson Senior Vice President Human Resources of Sprint Corporation.
Thomas E. Weigman Senior Vice President Consumer Market Strategy and Communications of
Sprint Corporation.
</TABLE>
8
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
1 Securities Purchase Agreement between the Purchaser and Hybrid Networks, Inc., dated as of
August 30, 1999.
2 Warrant Agreement between the Purchaser and Hybrid Networks, Inc., dated as of September 9, 1999.
3 1999 Amended and Restated Investor Rights Agreement, dated as of September 9, 1999.
4 4% Convertible Class A Debenture due 2009.
5 4% Convertible Class B Debenture due 2009.
Form of Certificate of Designation of Series J Non-Convertible Preferred Stock of Hybrid Networks,
6 Inc.
</TABLE>
9
<PAGE>
Exhibit 1
- --------------------------------------------------------------------------------
SECURITIES PURCHASE AGREEMENT
BETWEEN
HYBRID NETWORKS, INC.
AND
SPRINT CORPORATION
Dated as of August 30, 1999
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C>
RECITALS 1
SECTION 1. Definitions............................................................................... 1
(a) Defined Terms............................................................................. 1
(b) Cross-References.......................................................................... 7
SECTION 2. Purchase and Sale of Securities; Closing.................................................. 7
(a) Purchase and Sale of Securities........................................................... 7
(b) Purchase Price............................................................................ 7
(c) Closing................................................................................... 7
(d) Deliveries at Closing..................................................................... 7
SECTION 3. Representations and Warranties of the Company............................................. 8
(a) Organization, Standing and Power of the Company........................................... 8
(b) Company Subsidiaries...................................................................... 8
(c) Authorization; Non-Contravention; Consents; Issuance of Debentures and Warrants........... 8
(d) Capital Structure......................................................................... 10
(e) Securities Laws........................................................................... 11
(f) SEC Documents; Financial Statements; Undisclosed Liabilities.............................. 11
(g) Absence of Certain Changes or Events...................................................... 12
(h) Litigation................................................................................ 12
(i) Title to Assets........................................................................... 12
(j) Environmental Matters..................................................................... 13
(k) Related Party Transactions................................................................ 14
(l) Employee Benefit Plans.................................................................... 14
(m) Taxes..................................................................................... 15
(n) No Payments to Employees, Officers or Directors........................................... 16
(o) Compliance with Laws; Permits............................................................. 17
(p) Contracts; Debt Instruments............................................................... 17
(q) State Takeover Statutes................................................................... 19
(r) Insurance................................................................................. 19
(s) Intellectual Property; Software........................................................... 19
(t) Year 2000 Compliance...................................................................... 21
(u) Brokers................................................................................... 21
(v) No Existing Discussions................................................................... 21
SECTION 4. Representations and Warranties of the Purchaser........................................... 21
(a) Organization.............................................................................. 22
(b) Authorization............................................................................. 22
(c) Absence of Restrictions and Conflicts..................................................... 22
(d) Brokers................................................................................... 23
SECTION 5. Covenants................................................................................. 23
(a) Pre-Closing Conduct of Business by the Company............................................ 23
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(b) Pre-Closing Access to Information......................................................... 24
(c) Post-Closing Access to Business Information............................................... 24
(d) Public Company Information................................................................ 24
(e) Private Company Information............................................................... 24
(f) Inconsistent Agreements................................................................... 25
(g) Certain Actions........................................................................... 25
(h) Restricted Actions........................................................................ 25
SECTION 6. Board Nomination Rights................................................................... 27
SECTION 7. Change of Control of the Company.......................................................... 27
SECTION 8. Restrictions on Transfer.................................................................. 29
(a) Rule 144 Information...................................................................... 29
(b) Rule 144(k) Sales......................................................................... 29
(c) Legend.................................................................................... 30
SECTION 9. Purchase Rights........................................................................... 30
(a) Preemptive Rights......................................................................... 30
(b) Other Purchase Rights..................................................................... 31
SECTION 10. Conditions to Each Party's Obligations.................................................... 32
(a) Injunction................................................................................ 32
(b) Regulatory Approvals...................................................................... 32
(d) Warrant Agreement......................................................................... 32
(e) Registration Rights Agreement............................................................. 32
SECTION 11. Conditions to Obligations of the Purchaser................................................ 32
(a) Representations and Warranties............................................................ 32
(b) Performance of Obligations of the Company................................................. 32
(c) Certificates.............................................................................. 32
(d) Warrant Certificates...................................................................... 33
(e) Debenture Certificates.................................................................... 33
(f) No Material Adverse Change................................................................ 33
(g) Opinions of Counsel to the Company........................................................ 33
(j) Resignation of two Board Members.......................................................... 33
(k) Directors and Officers Insurance.......................................................... 33
(m) Other Documents........................................................................... 33
SECTION 12. Conditions to Obligations of the Company.................................................. 33
(a) Representations and Warranties............................................................ 33
(b) Performance of Obligations of the Purchaser............................................... 34
(c) Certificates.............................................................................. 34
(d) Payment................................................................................... 34
SECTION 13. Indemnification........................................................................... 34
SECTION 14. Termination............................................................................... 35
SECTION 15. Notices................................................................................... 36
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
SECTION 16. Costs and Expenses........................................................................ 37
SECTION 17. Successors and Assigns.................................................................... 37
SECTION 18. Survival of Representations............................................................... 37
SECTION 19. Governing Law............................................................................. 37
SECTION 20. Benefits of this Agreement................................................................ 37
SECTION 21. Counterparts.............................................................................. 37
SECTION 22. Amendments; Waiver........................................................................ 37
SECTION 23. Jurisdiction.............................................................................. 37
SECTION 24. Specific Performance...................................................................... 38
SECTION 25. Confidentiality........................................................................... 38
SECTION 26. Public Announcements...................................................................... 38
SECTION 27. Entire Agreement.......................................................................... 38
SECTION 28. Severability.............................................................................. 39
</TABLE>
List of Exhibits
- ----------------
Exhibit A - Certificate of Designations
Exhibit B-1 - Class A Debenture Certificate
Exhibit B-2 - Class B Debenture Certificate
Exhibit C - Terms of Equipment Purchase Agreement
Exhibit D - Warrant Agreement
Exhibit E - Warrant Certificate
iii
<PAGE>
SECURITIES PURCHASE AGREEMENT
-----------------------------
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and
---------
entered into as of August 30, 1999, by and between HYBRID NETWORKS, INC., a
Delaware corporation (the "Company"), and SPRINT CORPORATION, a Kansas
-------
corporation (the "Purchaser").
---------
RECITALS:
--------
A. The Purchaser desires to purchase from the Company, and the
Company desires to issue and sell to the Purchaser, subject to the terms and
conditions set forth herein, (i) Class A Debentures (as hereinafter defined) in
the face amount of $11,000,000 convertible into 3,859,649 shares of Common Stock
(as hereinafter defined) and (ii) Class B Debentures in the face amount of
$1,000 convertible into 1,000 shares of Preferred Stock (as hereinafter
defined).
B. In consideration for the equipment purchase commitment of the
Purchaser set forth in the Equipment Purchase Agreement (as hereinafter
defined), the Company will issue to the Purchaser, subject to the terms and
conditions set forth herein, Warrants (as hereinafter defined) for the purchase
of $8,397,873 of subordinated debentures having terms substantially identical to
the Class A Debentures.
C. The Purchaser and the Company desire to set forth in this
Agreement the conditions to the issuance and sale of the Securities (as
hereinafter defined) to the Purchaser.
NOW, THEREFORE, in consideration of the premises and the agreements
herein set forth, the parties hereto, intending to be legally bound, hereby
agree as follows:
SECTION 1. Definitions
-----------
(a) Defined Terms. The following terms (whether or not underscored)
-------------
when used in this Agreement, including its preamble and recitals, shall, except
where the context otherwise requires, have the following meanings (such meanings
to be equally applicable to the singular and plural forms thereof):
"Acquired Securities" means the Warrants and the Debentures and any
-------------------
Common Stock or Preferred Stock issued upon exercise or conversion thereof, and
any other securities of any Person of any kind issued in exchange for or in
respect of any such securities.
"Affiliate" has the same meaning as in Rule 12b-2 promulgated under
---------
the Exchange Act.
<PAGE>
"Annual Business Plan" means the annual strategic and operating plan
--------------------
for each Fiscal Year to be submitted by management of the Company to the Board
of Directors of the Company and the Purchaser on or prior to October 15 of the
prior Fiscal Year, which plan shall include (among other things) a proposed
capital expenditure and operating budget for the forthcoming Fiscal Year
including an income statement prepared on an accrual basis which shall show in
reasonable detail the revenues and expenses projected for the Company for the
forthcoming Fiscal Year and a cash flow statement showing the receipts and
disbursements projected for the Company for the forthcoming Fiscal Year.
"Associate" has the same meaning as in Rule 12b-2 promulgated under
---------
the Exchange Act.
"Agreement" means this Securities Purchase Agreement as in effect on
---------
the date hereof and as hereafter amended, supplemented, restated or otherwise
modified.
"Business Day" means any day which is neither a Saturday or Sunday nor
------------
a legal holiday on which banks are authorized or required to be closed in New
York, New York.
"Certificate of Designations" shall mean the certificate of
----------------------------
designations for the Preferred Stock in the form of Exhibit A attached hereto.
---------
"Change of Control" means the occurrence of any of the following: (a)
-----------------
any Person shall have acquired beneficial ownership of more than 25% of the
outstanding voting stock of the Company (within the meaning of Section 13(d) or
14(d) of the Exchange Act); or (b) individuals who immediately following the
Closing were directors of the Company (which shall include the Purchaser
Nominees) (together with any replacement or additional directors who were
nominated or appointed by a majority of directors in office immediately
following the Closing or by a majority of such directors and their nominees or
appointees) cease to constitute a majority of the Board of Directors of the
Company.
"Change of Control Agreement" means a bona fide arms length agreement
---------------------------
between the Company and one or more other Persons that provides for any of the
following transactions:
(i) any merger or consolidation of the Company in which the
Company is not the surviving corporation or which otherwise results in
a Change of Control;
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition by the Company (in one transaction or a series of
transactions) of all or a substantial portion of the assets of the
Company;
2
<PAGE>
(iii) any sale or issuance of stock (including any tender offer)
that results in a Change of Control; or
(iv) any other transaction that results in a Change of Control.
"Class A Debentures" means the $11,000,000 debentures issued to
------------------
Purchaser pursuant to this Agreement, paying interest in kind at a rate of 4.0%
per annum, and convertible upon the occurrence of certain events into 3,859,649
shares of Common Stock.
"Class B Debentures" means the $1,000 face amount of debentures issued
------------------
to Purchaser pursuant to this Agreement, paying interest in kind at a rate of
4.0% per annum, and convertible into 1,000 shares of Preferred Stock.
"Closing" is defined in Section 2(c).
------- ------------
"Closing Date" is defined in Section 2(c).
------------ ------------
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Common Stock" means shares now or hereafter authorized of any class
------------
of common stock of the Company and any other class of capital stock of the
Company, however designated, that has the right (subject to any prior rights of
any class or series of preferred stock) to participate in any distribution of
the assets upon voluntary or involuntary liquidation, dissolution or winding up
of the Company or in the earnings of the Company without limit as to per share
amount, and shall include, without limitation, the presently authorized
100,000,000 shares of common stock, par value $0.001 per share.
"Company" is defined in the Preamble.
-------
"Company Disclosure Letter" is defined in Section 3(c)(i).
-------------------------
"Company SEC Documents" is defined in Section 3(f).
--------------------- ------------
"Confidentiality Agreement" means the Confidentiality Agreement by and
-------------------------
between the Company and the Purchaser dated as of May 20, 1999.
"Debentures" means the Class A Debentures and the Class B Debentures.
----------
"Debenture Certificates" means the certificates evidencing the Class A
----------------------
Debentures and the Class B Debenture in the forms of Exhibit B-1 and Exhibit B-2
----------- -----------
attached hereto, respectively.
3
<PAGE>
"Equipment Purchase Agreement" means the Equipment Purchase Agreement
----------------------------
to be entered into by and between the Company and the Purchaser containing the
terms specified on Exhibit C attached hereto and otherwise in form and substance
---------
mutually satisfactory to Purchaser and the Company.
"Equity Securities" means equity securities of the Company and
-----------------
options, warrants, convertible instruments or other direct or indirect rights to
acquire equity securities of the Company.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
------------
from time to time.
"Fiscal Quarter" means any quarter of a Fiscal Year.
--------------
"Fiscal Year" means each 12-month accounting period ending December 31
-----------
of a calendar year.
"Fully Diluted Basis" includes, without duplication, (i) all shares of
-------------------
Common Stock outstanding at the time of calculation, (ii) Common Stock issuable
upon exercise of all outstanding warrants, options and other rights to acquire
Common Stock directly or indirectly and (iii) Common Stock issuable upon
conversion of all securities convertible directly or indirectly into Common
Stock.
"GAAP" means generally accepted accounting principles in effect from
----
time to time in the United States.
"Governmental Authority" means any nation or government, any state or
----------------------
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Hazardous Materials" means those substances, materials, and items, in
-------------------
any form, whether solid, liquid, gaseous, semisolid, or any combination thereof,
whether waste materials, raw materials, chemicals, finished products,
byproducts, or any other material or article, which are regulated by or form the
basis of liability under federal, state or local environmental, health, and
safety statutes or regulations including, without limitation, hazardous wastes,
hazardous substances, pollutants, contaminants, asbestos, polychlorinated
biphenyls, petroleum (including, but not limited to, crude oil, petroleum-
derived substances, waste, or breakdown or decomposition products thereof or any
fraction thereof), and radioactive substances.
4
<PAGE>
"Laws" means any judgment, order, decree, statute, law, ordinance,
----
rule or regulation of any Governmental Authority.
"Liability" means any liability (whether known or unknown, whether
---------
asserted or unasserted, whether absolute or contingent, whether accrued on
unaccrued, whether liquidated or unliquidated and whether due or to become due),
including any liability for Taxes.
"Lien" means any mortgage, pledge, hypothecation, assignment, charge,
----
deposit arrangement, encumbrance, lien (statutory or other), adverse claim or
other security agreement of any kind or nature whatsoever.
"Material Adverse Effect" means a material adverse effect on the
-----------------------
business, properties, assets, financial condition, results of operations or
prospects of the Company and the Company Subsidiaries, taken as a whole.
"New Securities" is defined in Section 9(a).
-------------- ------------
"Person" means any natural person, corporation, partnership, limited
------
liability company, firm, association or any other entity, whether acting in an
individual, fiduciary or other capacity.
"Preferred Stock" means the 1,000 shares of preferred stock, par value
---------------
$1.00 per share, authorized pursuant to the Certificate of Designations.
"Purchase Price" is defined in Section 2(b).
-------------- ------------
"Purchaser's Interest" means, as of the date of determination, the
--------------------
total number of shares of Common Stock (i) owned, directly or indirectly, by the
Purchaser or any of its Affiliates, (ii) for which Warrants owned, directly or
indirectly, by the Purchaser or any of its Affiliates may be exercised
(including for those purposes any shares of Common Stock that could be acquired
upon conversion of any debentures that may be purchased upon exercise of
Warrants and after taking into account all applicable antidilution provisions),
assuming all such Warrants are exercisable as of the date of such determination,
and (iii) for which Class A Debentures owned, directly or indirectly, by the
Purchaser or any of its Affiliates may be converted after taking into account
all applicable antidilution provisions, assuming all such Debentures are
convertible as of the date of such determination, expressed as a percentage of
the Common Stock on a Fully Diluted Basis at the time of calculation.
"Purchaser Nominee" is defined in Section 6.
----------------- ---------
5
<PAGE>
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement to be entered into by and between the Company and the Purchaser on the
Closing Date, in form and substance mutually agreeable to the Company and the
Purchaser.
"SEC" means the Securities and Exchange Commission.
---
"Securities" means the Debentures and the Warrants.
----------
"Securities Act" means the Securities Act of 1933, as amended from
--------------
time to time.
"Subsidiary" of any corporation means any other corporation of which
----------
greater than 50% of the outstanding shares of capital stock having ordinary
voting power for the election of directors is owned directly or indirectly by
such corporation.
"Tax" is defined in Section 3(m).
---
"Tax Return" is defined in Section 3(m).
----------
"Transaction Documents" means, collectively, this Agreement, the
---------------------
Debenture Certificates, the Warrant Agreement, the Warrant Certificates, the
Registration Rights Agreement, the Equipment Purchase Agreement, the Certificate
of Designations, and any other agreement executed or delivered at the Closing in
connection with any of the foregoing to which the Company and the Purchaser is a
party.
"Year 2000 Compliant" means that (a) the products, services, or other
-------------------
item(s) at issue accurately process, provide and/or receive date/time data
(including calculating, comparing, and sequencing), within, from into, and
between centuries (including the twentieth and twenty-first centuries and the
years 1999 and 2000), including leap year calculations, and (b) neither the
performance nor the functionality nor the supply of the products, services, and
other item(s) at issue will be affected by dates/times prior to, on, after, or
spanning January 1, 2000.
"Warrants" means (i) the 8,397,873 warrants issued to the Purchaser on
--------
the Closing Date pursuant to this Agreement and the Warrant Agreement and (ii)
any additional Warrants issued to the Purchaser after the Closing Date pursuant
to Section 20 of the Warrant Agreement, each of which entitles the holder
thereof to purchase a Warrant Debenture having a face amount of $1.00, and which
shall have the rights, privileges and limitations set forth in the Warrant
Agreement and in each Warrant.
"Warrant Agreement" means the Warrant Agreement to be entered into by
-----------------
and between the Company and the Purchaser on the Closing Date, in substantially
the form of Exhibit D attached hereto.
---------
6
<PAGE>
"Warrant Certificates" means the certificates evidencing the Warrants
--------------------
in the form of Exhibit E attached hereto.
---------
"Warrant Debentures" means the debentures issuable upon the exercise
------------------
of the Warrants.
(b) Cross-References. Unless otherwise specified, references in this
----------------
Agreement to any Section are references to such Section of this Agreement, and
unless otherwise specified, references in any Section or definition to any
clause or subsection are references to such clause or subsection of such Section
or definition.
SECTION 2. Purchase and Sale of Securities; Closing.
----------------------------------------
(a) Purchase and Sale of Securities. On the terms and subject to the
-------------------------------
conditions set forth in this Agreement, the Company hereby agrees to issue, sell
and deliver to the Purchaser on the Closing Date, and the Purchaser hereby
agrees to purchase from the Company on the Closing Date, the Debentures and the
Warrants.
(b) Purchase Price. In consideration for the issuance of the
--------------
Debentures, the Purchaser shall pay to the Company on the Closing Date an
aggregate purchase price of Eleven Million One Thousand Dollars ($11,001,000)
(the "Purchase Price") by wire transfer of immediately available funds to a bank
account designated by the Company not less than three Business Days prior to the
Closing Date. In consideration for the issuance of the Warrants, the Purchaser
agrees that, as promptly as practicable following the Closing, it shall execute
and deliver to the Company the Equipment Purchase Agreement.
(c) Closing. Subject to the satisfaction or waiver of the conditions
-------
set forth herein, the closing of the sale and purchase of the Securities (the
"Closing") shall take place at the offices of Fenwick & West, Two Palo Alto
Square, Palo Alto, California, at 10:00 a.m. on or prior to the fifth Business
Day following the satisfaction of the conditions to closing set forth in
Sections 10, 11 and 12, or at such other place and time as may be agreed upon by
the Purchaser and the Company.
(d) Deliveries at Closing. Subject to the satisfaction or waiver of
---------------------
the conditions to its obligations set forth herein, at the Closing, the Company
shall execute and deliver to the Purchaser (or cause to be delivered to
Purchaser) the following: (i) the Warrant Agreement; (ii) the Registration
Rights Agreement; (iii) the Warrant Certificates; (iv) Debenture Certificates
representing $11,000,000 face amount of the Class A Debentures and $1,000 face
amount of the Class B Debentures; (v) the Certificate of Designations as filed
with the Delaware Secretary of State; (vi) an opinion of counsel to the Company
in form satisfactory to the Purchaser; and (vii) such other instruments as may
be contemplated by this Agreement or reasonably requested by the Purchaser to
evidence the consummation of the transactions
7
<PAGE>
contemplated hereby. Subject to the satisfaction or waiver of the conditions set
forth herein, at the Closing, the Purchaser shall pay the Purchase Price to the
Company and shall execute and deliver to the Company the following: (i) the
Warrant Agreement; (ii) the Registration Rights Agreement; and (iii) such other
instruments as may be contemplated by this Agreement or reasonably requested by
the Company to evidence the consummation of the transactions contemplated
hereby.
SECTION 3. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to the Purchaser as follows (each of the following
representations shall be modified by any specific references to such
representation contained in the Company Disclosure Letter which shall be in form
and substance reasonably satisfactory to the Purchaser):
(a) Organization, Standing and Power of the Company. The Company is a
corporation duly organized and validly existing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary, except where the
failure to be so qualified or licensed would not have a Material Adverse Effect.
The Company has delivered to the Purchaser complete and correct copies of its
Certificate of Incorporation, as amended (the "Company's Certificate") and
---------------------
Amended Bylaws (the "Company's Bylaws").
----------------
(b) Company Subsidiaries. The Company does not have any Subsidiaries
--------------------
or own any equity or profits interest in any Person.
(c) Authorization; Non-Contravention; Consents; Issuance of
-------------------------------------------------------
Debentures and Warrants.
- -----------------------
(i) The Company has the full corporate power and authority to
execute and deliver this Agreement and the other Transaction
Documents, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the other Transaction
Documents by the Company, the performance by the Company of its
obligations hereunder and thereunder and the consummation by the
Company of the transactions contemplated hereby and thereby have been
duly and validly authorized by all necessary corporate action on the
part of the Company. This Agreement has been, and each of the other
Transaction Documents will be at the Closing (or following the Closing
in the case of the Equipment Purchase Agreement), duly executed and
delivered by the Company, and this Agreement constitutes, and,
assuming the due execution and delivery thereof by the Purchaser, each
of the other Transaction Documents upon due execution and delivery
will constitute, a valid and binding agreement of the
8
<PAGE>
Company enforceable against the Company in accordance with its
respective terms, except as such enforceability may be affected by
bankruptcy, insolvency, reorganization, moratorium and other similar
laws affecting creditors rights generally and other than general
equitable principles. Except as set forth in Schedule 3(c) to the
-------------
disclosure letter to be delivered by the Company to Purchaser within
10 days following the execution of this Agreement (the "Company
-------
Disclosure Letter"), the execution, delivery and performance of this
-----------------
Agreement and of the Transaction Documents by the Company does not and
will not, and the consummation of the transactions contemplated hereby
and by the other Transaction Documents will not, conflict with, or
result in any violation of, or default (with or without notice or
lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to loss of a benefit
or alteration of rights or obligations under, or result in the
creation of any Lien upon any of the properties or assets of the
Company under, (A) the Company's Certificate of Incorporation or the
Company's Bylaws, (B) any loan or credit agreement, note, bond,
mortgage, indenture, reciprocal easement agreement, lease or other
agreement, instrument, permit, concession, contract, franchise or
license to which the Company is a party or by which any of its
properties or assets is bound or (C) subject to the governmental
filings and other matters referred to in the following sentence, any
Laws applicable to the Company or its properties or assets. No
consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Authority is required by
or with respect to the Company in connection with the execution and
delivery of this Agreement and the other Transaction Documents by the
Company or the consummation by the Company of the transactions
contemplated hereby or thereby, except for (A) the filing with the SEC
of a Notice of Sale of Securities on Form D and such reports under
Section 13(a) of the Exchange Act, as may be required in connection
with this Agreement and such transactions and (B) such other consents,
approvals, orders, authorizations, registrations, declarations and
filings (x) as are set forth in Schedule 3(c) to the Company
-------------
Disclosure Letter or (y) which, if not obtained or made, would not
prevent or delay in any material respect the consummation of any of
the transactions contemplated hereby or by the other Transaction
Documents or otherwise prevent the Company from performing its
obligations under this Agreement or any other Transaction Document in
any material respect or have, individually or in the aggregate, a
Material Adverse Effect.
(ii) Upon delivery to Purchaser of Warrant Certificates
evidencing the Warrants and Debenture Certificates evidencing the
Debentures in accordance with the terms hereof, such Warrants and
Debentures, respectively, will have been validly issued and fully paid
and nonassessable, free and clear of all Liens and the issuance
thereof will not give rise to any preemptive rights or anti-dilution
rights,
9
<PAGE>
except for such rights as are set forth on Schedule 3(c)(ii) to the
-----------------
Company Disclosure Letter which rights have been effectively waived.
The issuance of the shares of Common Stock and Preferred Stock upon
the conversion of the Debentures has been duly authorized and, when
issued upon conversion of the Debentures in accordance with the terms
thereof, such shares of Common Stock and Preferred Stock will have
been validly issued and fully paid and nonassessable. The issuance of
the Warrant Debentures pursuant to the Warrant Agreement has been duly
authorized and, when issued upon exercise of the Warrants in
accordance with the terms of the Warrant Agreement, the Warrant
Debentures will have been validly issued and fully paid and
nonassessable. The issuance of the shares of Common Stock upon the
conversion of the Warrant Debentures has been duly authorized and,
when issued upon conversion of the Warrant Debentures in accordance
with the terms thereof, such shares of Common Stock will have been
validly issued and fully paid and nonassessable. The Company has
reserved 3,859,649 shares of Common Stock and 1,000 shares of
Preferred Stock for issuance upon the conversion of the Class A
Debentures and Class B Debentures, respectively. The Company has
reserved 2,946,622 shares of Common Stock for issuance upon the
conversion of the Warrant Debentures. Except as set forth in the
Registration Rights Agreement and on Schedule 3(c)(ii) to the Company
-----------------
Disclosure Letter, no Person has the right to demand or any other
right to cause the Company to file any registration statement under
the Securities Act relating to any securities of the Company or any
right to participate in any such registration.
(d) Capital Structure. The authorized capital stock of the Company
-----------------
consists of 100,000,000 shares of Common Stock and 5,000,000 shares of preferred
stock, par value $0.001 per share. As of August 30, 1999, (i) 10,666,696 shares
of Common Stock were issued and outstanding, (ii) 0 shares of Common Stock were
held by the Company in its treasury, (iii) 5,025,847 shares of Common Stock were
issuable under the Company's stock option or other employee benefit or incentive
plans pursuant to awards granted by the Company and (iv) 5,239,404 shares of
Common Stock were issuable pursuant to options (other than shares of Common
Stock that were issuable under the Company's stock option in item (iii) in the
preceding sentence), warrants, convertible instruments of the Company and
pursuant to the Stipulation of Settlement in Rosenberg, et al. vs Hybrid
---------------------------
Networks, Inc, et al. all of which are listed on Schedule 3(d) to the Company
- -------------------- -------------
Disclosure Letter. The number of shares specified in item (iv) in the preceding
sentence will equal 12,172,540 after the issuance of the Securities or the
issuance of the Common Stock or Preferred Stock underlying the Securities.
Except as set forth in this Section 3(d) or in Schedule 3(d) to the Company
------------ -------------
Disclosure Letter, no shares of Common Stock or other voting securities of the
Company have been issued or reserved for issuance or are outstanding. The
Company has no outstanding stock appreciation rights relating to the Common
Stock of the Company. All outstanding shares of Common Stock of the Company are
duly authorized, validly issued, fully paid and nonassessable and not subject to
10
<PAGE>
preemptive rights and were issued in compliance with all federal and state
securities laws. There are no bonds, debentures, notes or other indebtedness of
the Company having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which stockholders of the
Company may vote. Except (A) as set forth above in this Section 3(d), or (B) as
------------
set forth in Schedule 3(d) to the Company Disclosure Letter, there are no
-------------
outstanding securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which the Company is a
party or by which such entity is bound, obligating the Company to issue, deliver
or sell, or cause to be issued, delivered or sold, additional shares of capital
stock, voting securities or other ownership interests of the Company or
obligating the Company to issue, grant, extend or enter into any such security,
option, warrant, call, right, commitment, agreement, arrangement or undertaking.
Except as set forth on Schedule 3(d) to the Company Disclosure Letter, there are
-------------
no outstanding contractual obligations of the Company to repurchase, redeem or
otherwise acquire any capital stock, voting securities or other ownership
interests in the Company or make any investment (in the form of a loan, capital
contribution or otherwise) in any Person. There are no outstanding agreements
related to the voting of capital stock of the Company.
(e) Securities Laws. In reliance on the investment representations
---------------
contained in Section 4(a), the offer, issuance, sale and delivery of the shares
------------
of the Securities to the Purchaser as provided in this Agreement, and the
issuance and delivery of Common Stock and Preferred Stock upon the conversion of
the Debentures and the Warrant Debentures by the Purchaser are and will be
exempt from the registration requirements of the Securities Act and all
applicable state securities laws, as such laws are currently in effect.
(f) SEC Documents; Financial Statements; Undisclosed Liabilities. The
------------------------------------------------------------
Company has filed all reports, schedules, forms, statements and other documents
required to be filed with the SEC (the "Company SEC Documents"). Except as
---------------------
expressly disclosed in the Company SEC Documents with respect to Company SEC
Documents filed prior to December 31, 1998, all of the Company SEC Documents, as
of their respective filing dates, complied, or will comply, as the case may be,
in all material respects with all applicable requirements of the Securities Act
and the Exchange Act and, in each case, the rules and regulations promulgated
thereunder applicable to such Company SEC Documents. Except as expressly
disclosed in the Company SEC Documents with respect to Company SEC Documents
filed prior to December 31, 1998, none of the Company SEC Documents at the time
of filing and effectiveness contained, or will contain as of the Closing Date,
as the case may be, any untrue statement of a material fact or omitted, or will
omit, as the case may be, to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except to the extent
such statements have been amended, modified or superseded by later Company SEC
Documents. Except as expressly disclosed in the Company SEC Documents with
respect to Company SEC Documents filed prior to December 31, 1998, the
consolidated financial statements of the Company included in the Company SEC
Documents complied, or will comply, as the case may be, as to form in all
11
<PAGE>
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared, or
will be prepared, as the case may be, in accordance with GAAP (except, in the
case of unaudited statements, as permitted by Form 10-Q promulgated under the
Exchange Act) applied on a consistent basis during the periods involved and
fairly presented, or will present, as the case may be, in accordance with the
applicable requirements of GAAP, the consolidated financial position of the
Company as of the dates thereof and the consolidated results of operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal and recurring year-end audit adjustments which were not or
are not expected to be material in amount). Except as set forth in the Company
SEC Documents filed with the SEC prior to the date hereof or in Schedule 3(f) to
-------------
the Company Disclosure Letter, and except for liabilities and obligations
incurred since December 31, 1998, in the ordinary course of business and
consistent with past practice, neither the Company nor any Company Subsidiary
has any material liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) required by GAAP to be set forth on a
consolidated balance sheet of the Company or in the notes thereto.
(g) Absence of Certain Changes or Events. Except as set forth in the
------------------------------------
Company SEC Documents filed with the SEC prior to the date hereof or disclosed
in Schedule 3(g) to the Company Disclosure Letter, since December 31, 1998, the
-------------
Company has conducted its business only in the ordinary course and there has not
been (i) any change that is reasonably likely to have a Material Adverse Effect,
nor has there been any occurrence or circumstance that with the passage of time
would reasonably be expected to result in a Material Adverse Effect, (ii) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of the Company's
capital stock, (iii) any split, combination or reclassification of any of the
Company's capital stock or any issuance or the authorization of any issuance of
any capital stock or any securities in respect of, in lieu of or in substitution
for, or giving the right to acquire by exchange or exercise, shares of its
capital stock, (iv) any damage, destruction or loss, whether or not covered by
insurance, that has or would have or is reasonably likely to have a Material
Adverse Effect or (v) any change in accounting methods, principles or practices
by the Company, except insofar as required by a change in GAAP.
(h) Litigation. Except as disclosed in the Form 10-Q of the Company
----------
filed with respect to the Fiscal Quarter ended March 31, 1999, or in Schedule
--------
3(h) to the Company Disclosure Letter, there is no claim, investigation, suit,
- ----
action or proceeding pending, threatened in writing or to the best knowledge of
the Company, otherwise threatened against or affecting the Company or any of its
properties or assets.
(i) Title to Assets. Except as set forth on Schedule 3(i) to the
--------------- -------------
Company Disclosure Letter, the Company has good, valid and marketable title to,
or valid and subsisting leasehold interests in, all of the assets owned or used
in the operation of the Company, free and clear of all Liens, except for (i)
Liens and imperfections of the title that do not, singly or in the
12
<PAGE>
aggregate, materially interfere with the present use by the Company of the
property subject thereto or affected thereby or that otherwise do not have a
Material Adverse Effect on the Company, (ii) Liens for assessments or
governmental charges, or landlords', mechanics', workmen's, materialmen's or
similar liens, in each case that (x) either are not delinquent or that are being
contested in good faith and (y) do not constitute Liens or charges arising under
ERISA or the Code and (iii) Liens reflected in the consolidated balance sheet of
the Company as of March 31, 1999, as contained in the Company SEC Documents
filed with the SEC prior to the date hereof.
(j) Environmental Matters.
---------------------
(i) The Company possesses, and is in compliance in all
material respects with, all permits, licenses and government
authorizations and has filed all notices that are required under Laws
relating to protection of the environment, pollution control and
hazardous materials ("Environmental Laws") applicable to the Company,
------------------
and the Company is in compliance in all material respects with all
applicable limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables
contained in those laws or contained in any Law, code, plan, order,
decree, judgment, notice, permit or demand letter issued, entered,
promulgated or approved thereunder;
(ii) The Company has not received notice of actual or
threatened liability under the Federal Comprehensive Environmental
Response, Compensation and Liability Act or any similar state or local
statute or ordinance from any governmental agency or any third party
and, to the knowledge of the Company, there are no facts or
circumstances which could form the basis for the assertion of any
claim against the Company under any Environmental Laws;
(iii) The Company has not entered into or agreed to nor does it
contemplate entering into any consent decree or order, and is not
subject to any judgment, decree or judicial or administrative order
relating to compliance with, or the cleanup of hazardous materials
under, any applicable Environmental Laws;
(iv) The Company has not been subject to any administrative or
judicial proceeding pursuant to and, to the knowledge of the Company,
has not been alleged to be in violation of, applicable Environmental
Laws or regulations either now or any time during the past five years;
(v) The Company has not received notice that it is subject to
any claim, obligation, liability, loss, damage or expense of whatever
kind or nature, contingent or otherwise, incurred or imposed or based
upon any provision of any Environmental Law and arising out of any act
or omission of the Company, its
13
<PAGE>
agents or representatives or, to the knowledge of the Company, arising
out of the ownership, use, control or operation by the Company of any
plant, facility, site, area or property (including, without
limitation, any plant, facility, site, area or property currently or
previously owned or leased by the Company) from which any hazardous
materials were released into the environment; and
(vi) None of the assets owned by the Company or, to the
knowledge of the Company, any real property leased by the Company
contain any asbestos, PCBs or underground storage tanks.
(k) Related Party Transactions. Set forth in Schedule 3(k) to the
-------------------------- -------------
Company Disclosure Letter is a list of all arrangements, agreements and
contracts entered into by the Company with any Person who is an executive
officer, director or Affiliate of the Company, or any entity of which any of the
foregoing is an Affiliate which would be required to be disclosed under Item 404
of Regulation S-K (other than compensation paid or payable by the Company or its
Subsidiaries to such Persons for calendar year 1998 or during calendar year 1999
in respect of salaries, bonuses, inactive plan participation, directors' fees
and similar compensation arrangements in the ordinary course of business).
(l) Employee Benefit Plans. All employee benefit plans, compensation
----------------------
arrangements and other benefit arrangements covering employees of the Company
(the "Company Benefit Plans") and all employee agreements providing for
---------------------
compensation, severance or other benefits to any employee or former employee of
the Company are set forth on Schedule 3(l) of the Company Disclosure Letter.
True and complete copies of the Company Benefit Plans have been made available
to the Purchaser. To the extent applicable, the Company Benefit Plans comply in
all material respects with the requirements of ERISA and the Code, and any
Company Benefit Plan intended to be qualified under Section 401(a) of the Code
has received a determination letter and continues to satisfy the requirements
for such qualification. Neither the Company nor any ERISA Affiliate of the
Company maintains, contributes to or has maintained or contributed in the past
six (6) years to any benefit plan which is covered by Title IV of ERISA or
Section 412 of the Code. Neither any Company Benefit Plan nor the Company has
incurred any material liability or penalty under Section 4975 of the Code or
Section 502(i) of ERISA or engaged in any transaction that is reasonably likely
to result in any such liability or penalty. Except as set forth on Schedule 3(l)
of the Company Disclosure Letter, each Company Benefit Plan has been maintained
and administered in compliance in all material respects with its terms and with
ERISA and the Code to the extent applicable thereto. There is no pending or (to
the Company's knowledge) anticipated litigation against or otherwise involving
any of the Company Benefit Plans and no litigation (excluding claims for
benefits incurred in the ordinary course of Company Benefit Plan activities) has
been brought against or with respect to any such Company Benefit Plan. All
contributions required to be made as of the date hereof to the Company Benefit
Plans have been made or provided for. Except as required by Law, the Company
does not maintain or contribute to any plan or arrangement which provides or has
any liability to provide
14
<PAGE>
life insurance or medical or other employee welfare benefits to any employee or
former employee upon his retirement or termination of employment, and the
Company has never represented, promised or contracted (whether in oral or
written form) to any employee or former employee that such benefits would be
provided.
For purposes of this Agreement "ERISA Affiliate" means any business or
---------------
entity which is a member of the same "controlled group of corporations," an
"affiliated service group" or is under "common control" with an entity within
the meanings of Sections 414(b), (c) or (m) of the Code, is required to be
aggregated with the entity under Section 414(o) of the Code, or is under "common
control" with the entity, within the meaning of Section 4001(a)(14) of ERISA, or
any regulations promulgated or proposed under any of the foregoing Sections. For
purposes of this Section 3(l), "material" would include, but not be limited to,
any failure or omission to comply with a requirement which would result in
disqualification of any Company Benefit Plan.
(m) Taxes. Except as set forth in Section 3(m) of the Company
-----
Disclosure Letter:
(i) The Company has filed all Tax Returns that it was required
to file. All such Tax Returns were correct and complete in all
respects. All Taxes owed by the Company (whether or not shown on any
Tax Return) have been paid. The Company is not currently the
beneficiary of any extension of time within which to file any Tax
Return. No claim has ever been made by an authority in a jurisdiction
where the Company does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction. There are no security
interests, liens or other encumbrances on any of the assets of any of
the Company that arose in connection with any failure (or alleged
failure) to pay any Tax.
(ii) The Company has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, stockholder, or
other third party.
(iii) No director or officer (or employee responsible for Tax
matters) of the Company expects any authority to assess any additional
Taxes for any period for which Tax Returns have been filed. There is
no dispute or claim concerning any Tax Liability of the Company either
(A) claimed or raised by any authority in writing or (B) as to which
any of the directors or officers (or employees responsible for Tax
matters) of the Company has actual knowledge after reasonable
investigation based upon personal contact with any agent of such
authority. Schedule 3(m) of the Company Disclosure Letter lists all
federal, state, local, and foreign income tax returns filed with
respect to the Company for taxable periods ended on or after March 31,
1996, indicates those tax returns that have been audited, and
indicates those tax returns that are currently the subject of
15
<PAGE>
audit. The Company has delivered to Buyer correct and complete copies
of all federal income Tax Returns, examination reports, and statements
of deficiencies assessed against or agreed to by the Company since
March 31, 1996.
(iv) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a
Tax assessment or deficiency.
(v) The Company has not filed a consent under Section 341(f)
of the Code concerning collapsible corporations. The Company has not
made any payments, nor is it obligated to make any payments, nor is it
a party to any agreement that under certain circumstances could
obligate it to make any payments that will not be deductible under
Section 280G of the Code. The Company has not been a United States
real property holding corporation within the meaning of Section
897(c)(2) of the Code during the applicable period specified in
Section 897(c)(1)(A)(ii) of the Code. The Company has disclosed on its
federal income Tax Returns all positions taken therein that could give
rise to a substantial understatement of federal income Tax within the
meaning of Section 6662 of the Code. The Company is not a party to any
Tax allocation or sharing agreement. The Company neither (A) has been
a member of an affiliated group filing a consolidated federal income
Tax Return nor (B) has any Liability for the Taxes of any person under
Treasury Regulation Section 1.1502-6 (or any similar provision of
state, local, or foreign law), as a transferee or successor, by
contract, or otherwise.
For purposes of this Agreement:
"Tax" means any federal, state, local, or foreign income, gross receipts,
---
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Section 59A of the Code),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
----------
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
(n) No Payments to Employees, Officers or Directors. There is no
-----------------------------------------------
employment or severance contract, or other agreement requiring payments to be
made or increasing any amounts payable thereunder on a change of control or
otherwise as a result of the
16
<PAGE>
consummation of any of the transactions contemplated hereby or by the other
Transaction Documents, with respect to any employee, officer or director of the
Company.
(o) Compliance with Laws; Permits.
-----------------------------
(i) Except as set forth in Schedule 3(o) to the Company
-------------
Disclosure Letter, the Company has not violated or failed to comply in
any material respect with any Law applicable to its business,
properties or operations.
(ii) The permits, licenses, approvals, franchises, notices and
authorizations issued by Governmental Authorities (collectively, the
"Permits") and held by the Company are all the Permits required for
-------
the conduct by the Company of its respective business. All the Permits
are in full force and effect, and the Company has not engaged in any
activity which to the Company's knowledge would cause or permit
revocation or suspension of any such Permit, and no action or
proceeding looking to or contemplating the revocation or suspension of
any such Permit is pending or, to the knowledge of the Company,
threatened. To the Company's knowledge, there are no existing defaults
or events of default by the Company under any Permit and no event or
state of facts has occurred which with notice or lapse of time or both
would constitute a default by the Company under any such Permit. The
Company does not have any knowledge of any default or claimed or
purported or alleged default or state of facts which with notice or
lapse of time or both would constitute a default on the part of any
Person other than the Company that is a party to such Permit in the
performance of any obligation to be performed or paid by such Person
under any Permit. The use by the Company of any proprietary rights
relating to any Permit does not involve any claimed infringement of
such Permit or rights. The consummation of the transactions
contemplated hereby and by the other Transaction Documents will not
affect the continuation, validity or effectiveness of the Permits or
require the consent of any Person under any of the Permits. Except as
set forth in paragraph (iii) below, the Company is not required to be
licensed by any governmental or regulatory body.
(p) Contracts; Debt Instruments.
---------------------------
(i) The Company is not in violation of or in default under
(nor does there exist any condition which upon the passage of time or
the giving of notice or both would cause such a violation of or
default under) any loan or credit agreement, note, bond, mortgage or
indenture, or any other material contract, agreement, arrangement or
understanding, to which it is a party or by which it or any of its
properties or assets is bound, except as set forth in Schedule 3(p) to
-------------
the Company Disclosure Letter.
17
<PAGE>
(ii) Except as set forth on Schedule 3(p) hereto or filed as an
-------------
exhibit to a Company SEC Document filed prior to the date hereof, the
Company has no:
(A) Contract or agreement involving amounts payable to the
Company in each case during any 12-month period, which will aggregate
$50,000 or more;
(B) Management or employment contract or collective
bargaining or other labor union agreement;
(C) Contract or agreement for the purchase, sale or lease
of goods, materials, equipment, supplies or capital assets or for the
rendering of services (excluding any insurance or benefit plan contracts or
agreements) involving payments by the Company which will aggregate $50,000
or more in any 12-month period or which require more than 30 days' notice
in order for such commitments to be terminated without liability to the
Company;
(D) Loan, factoring, guaranty, credit line or subordination
agreement;
(E) Joint venture or other agreement involving sharing of
profits;
(F) Outstanding offer or bid which, if accepted, would
result in a contract requiring the Company to pay, or that there be paid to
the Company, in the aggregate, $50,000 or more in any 12-month period; or
(G) Other material contract, commitment, or obligation.
True and complete copies of all such contracts and other documents
noted in Schedule 3(p)(ii) have been furnished to the Purchaser. The
-----------------
Company is not a party to or bound by any executory or presently
existing contract, agreement or other arrangement which has had, or
which Company believes or has reason to believe may in the future
have, a Material Adverse Effect. All contracts and other agreements
to which the Company is a party are in full force and effect and are
enforceable by the Company against all other parties thereto in all
material respects. The Company is not obligated under any contract to
indemnify any of its current or former accounting firms for any
reason.
18
<PAGE>
(q) State Takeover Statutes. The Board of Directors of the Company
-----------------------
has approved pursuant to Section 203(a)(1) of the Delaware General Corporation
Law the following transactions pursuant to which the Purchaser may be deemed to
be an "interested stockholder" (as defined in the Delaware General Corporation
Law): (i) the issuance of the Debentures and the Warrants to the Purchaser at
the Closing, (ii) the issuance of the Warrant Debentures to the Purchaser upon
the exercise of the Warrants pursuant to, and the other transactions to be
effected in accordance with, the Warrant Agreement, (iii) the issuance of the
Common Stock and the Preferred Stock to the Purchaser upon the conversion of the
Debentures and the Warrant Debentures, (iv) the exercise by the Purchaser of the
preemptive rights pursuant to Section 9(a) hereof (regardless of whether the
------------
Purchaser's Interest is greater than or less than 15% at the time of exercise of
such rights), (v) the exercise by the Purchaser of other purchase rights
pursuant to Section 7 or Section 9(b) hereof (regardless of whether the
--------- ------------
Purchaser's Interest is greater than or less than 15% at the time of exercise of
such rights) and (vi) the transactions to be effected in accordance with the
Equipment Purchase Agreement and the Registration Rights Agreement and,
accordingly, the restrictions contained in Section 203 of the Delaware General
Corporation Law regarding business combinations with interested stockholders
will not apply to the Purchaser so long as the Purchaser engages in any of the
transactions set forth in (i) through (vi) above. The Company also has taken
all actions necessary, if any, to exempt the transactions to be effected between
the Purchaser and the Company and its Affiliates from the operation of any other
applicable "business combination" or anti-takeover statute or similar statute
enacted under any state laws or the federal laws of the United States, or any
similar statute or regulation.
(r) Insurance. The Company maintains commercial property (including
---------
business interruption coverage), commercial general liability, automobile
liability, product liability, professional liability, employment practices
liability, workers' compensation, employer's liability and umbrella liability
with reputable insurance carriers, which the Company reasonably believes provide
adequate coverage for all normal risks incident to the business of the Company
and its properties and assets. The Company believes that the insurance policies
and bonds maintained by it are in such amounts and cover such losses and risks
as are generally maintained by comparable businesses.
(s) Intellectual Property; Software.
-------------------------------
(i) Schedule 3(s) of the Company Disclosure Letter contains a
-------------
true and complete list of all patents, trademarks, service marks and
copyright registrations, and all pending applications for patents,
trademarks, service marks and copyright registrations, owned by or
licensed to the Company (collectively, the "Intellectual Property").
(ii) Schedule 3(s) of the Company Disclosure Letter contains a
-------------
true and complete list of (i) all computer software owned by the
Company and all computer software licensed by the Company
(collectively, the "Software"), (ii) all
--------
19
<PAGE>
Software licensed (or sublicensed) by the Company to its customers
and (iii) all licenses and agreements pursuant to which the Company
licenses or sublicenses Software from other persons. Except as
specified on Schedule 3(s) of the Company Disclosure Letter the
-------------
Company owns all right, title and interest in and to the Software,
free and clear of any liens, claims or encumbrances of any kind or
nature, or, in the case of Software identified on Schedule 3(s) of the
-------------
Company Disclosure Letter as owned by third parties and licensed to
the Company, the Company has an irrevocable right to use such Software
under licenses with respect to the third party Software required in
connection with the conduct of its business. All Software owned by the
Company was developed by the Company entirely through the Company's
own efforts and for its own account. The use of Software licensed to
the Company from third parties (including the sublicensing of such
licensed Software to customers) does not violate the terms of the
respective license agreements with respect to such licensed Software.
(iii) No patent, trademark, service mark, copyright, trade
secret, computer software or other intellectual property right other
than the Intellectual Property set forth on Schedule 3(s) of the
-------------
Company Disclosure Letter and software set forth on Schedule 3(s) of
-------------
the Company Disclosure Letter is necessary for the Company to
conduct, or is used by the Company in its operation of, its business
as it is now being conducted.
(iv) Schedule 3(s) of the Company Disclosure Letter contains a
-------------
true and complete list of all licenses, sublicenses, covenants or
agreements which have been entered into by the Company with respect to
the Intellectual Property.
(v) The conduct by the Company of its business as currently
conducted, does not and will not conflict with or infringe upon any
patent, trademark, service mark, copyright, trade secret or other
intellectual property right of any third party, nor has the Company
been notified of any alleged infringement by the Company of any such
third party rights.
(vi) No officer, employee (including both current and former
employees), consultant (including both current and former consultants)
or independent contractor (including both current and former
contractors) of the Company owns, directly or indirectly, in whole or
in part, any patent, trademark, service mark, copyright, computer
software, trade secret or other intellectual property right which the
Company is using or which is necessary for the business of the Company
as now conducted.
(vii) The Intellectual Property and Software listed on Schedule
--------
3(s) to the Company Disclosure Letter as being owned by the Company
----
are referred to in
20
<PAGE>
this Agreement as the "Owned Intangible Rights," and the Intellectual
-----------------------
Property and Software listed on Schedule 3(s) to the Company
------------
Disclosure Letter as being licensed to the Company are referred to in
this Agreement as the "Licensed Intangible Rights." The Owned
--------------------------
Intangible Rights are not subject to any arrangement requiring any
payment to any person or the obligation to grant rights to any person
in exchange for such owned Intangible Rights. All personnel, including
employees, agents, consultants and contractors, who have contributed
to or participated in the conception and development of any of the
Owned Intangible Rights either (i) have been party to a work-for-hire
arrangement or agreement with the Company (pursuant to which all
right, title and interest pertaining to such Owned Intangible Rights
was assigned to the Company) or (ii) have executed appropriate
instruments of assignment in favor of the Company as assignee that
have conveyed to the Company full, effective, and exclusive ownership
of all tangible and intangible property thereby arising. Except as
disclosed on Schedule 3(s) to the Company Disclosure Letter, the
-------------
validity of the Owned Intangible Rights and title thereto and the
validity of the Licensed Intangible Rights have not been questioned in
any prior litigation and are not the subject of any threatened or
proposed litigation. The consummation of the transactions contemplated
hereby will not result in the loss or impairment of any of the Owned
Intangible Rights or any of the Licensed Intangible Rights.
(t) Year 2000 Compliance. All of the product(s) and/or service(s)
--------------------
offered and/or used by the Company, including each item of hardware, software,
firmware; any system, equipment, or products consisting of or containing one or
more thereof; and any and all enhancements, upgrades, customizations,
modifications, maintenance and the like, currently or at any time in the past
are, in all material respects, Year 2000 Complaint. All vendors of products or
services to the Company and all products, services and operations of such
vendors, are Year 2000 Complaint, and each such vendor will continue to furnish
its products or services to the Company without interruption or material delay,
on and after January 1, 2000.
(u) Brokers. No broker, investment banker or financial advisor (other
-------
than Hambrecht & Quist) has been used or retained by the Company in connection
with the transactions contemplated hereby and by the other Transaction Documents
based upon arrangements made by or on behalf of the Company. The Company shall
be responsible for any and all expenses payable to Hambrecht & Quist.
(v) No Existing Discussions. As of the date hereof, neither the
-----------------------
Company nor any of its representatives is engaged directly or indirectly, in any
negotiations or discussions with any other Person with respect to any
transaction that would result in a Change of Control.
SECTION 4. Representations and Warranties of the Purchaser. The
-----------------------------------------------
Purchaser represents and warrants to the Company as follows:
21
<PAGE>
(a) Organization. The Purchaser is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Kansas and
has all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as it is now being conducted.
(b) Authorization. The Purchaser has full corporate power and
-------------
authority to execute and deliver this Agreement and the other Transaction
Documents, to perform its obligations hereunder and thereunder and to consummate
the transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the other Transaction Documents by the Purchaser, the
performance by the Purchaser of its obligations hereunder and thereunder and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by all necessary corporate action on the part of the
Purchaser. This Agreement has been, and each of the other Transaction Documents
will be at the Closing (or following the Closing in the case of the Equipment
Purchase Agreement), duly executed and delivered by the Purchaser and this
Agreement constitutes, and, assuming the due execution and delivery thereof by
the Company, each of the other Transaction Documents upon due execution and
delivery will constitute, the valid and binding agreement of the Purchaser,
enforceable against the Purchaser in accordance with its respective terms,
except as such enforceability may be affected by bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting creditors rights
generally and other than general equitable principles.
(c) Absence of Restrictions and Conflicts. The execution, delivery
-------------------------------------
and performance of this Agreement and of the Transaction Documents by the
Purchaser do not and will not, and the consummation of the transactions
contemplated hereby and by the other Transaction Documents will not, conflict
with, or result in any violation of, or default (with or without notice or lapse
of time, or both) under or give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a benefit or alteration of rights
or obligations under, or result in the creation of any Lien upon any of the
properties or assets of the Purchaser under, (A) the articles of incorporation
or Bylaws of the Purchaser, (B) any loan or credit agreement, note, bond,
mortgage, indenture, reciprocal easement agreement, lease or other agreement,
instrument, permit, concession, contract, franchise or license to which the
Purchaser is a party or by which any of its assets are bound, or (C) subject to
the governmental filings and other matters referred to in the following
sentence, any Laws applicable to the Purchaser or its properties or assets,
other than, in the case of clause (B) or (C), any such conflicts, violations,
defaults, rights or Liens that neither individually nor in the aggregate would
prevent or delay in any material respect the consummation of any of the
transactions contemplated hereby or by the other Transaction Documents. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Authority is required by or with respect to the
Purchaser in connection with the execution and delivery of this Agreement and
the other Transaction Documents by the Purchaser or the consummation by the
Purchaser of the transactions contemplated hereby or thereby, except for (A) the
filing with the SEC of such
22
<PAGE>
reports under Section 13(a) of the Exchange Act, as may be required in
connection with this Agreement and such transactions, and (B) such other
consents, approvals, orders, authorizations, registrations, declarations and
filings which, if not obtained or made, would not prevent or delay in any
material respect the consummation of any of the transactions contemplated hereby
or by the other Transaction Documents or otherwise prevent the Company from
performing its obligations under this Agreement or any other Transaction
Document in any material respect or have, individually or in the aggregate, a
material adverse effect on the business, assets, financial condition, results of
operations or prospects of the Purchaser.
(d) Brokers. No financial advisor, other than Warburg Dillon Read,
-------
has been used or retained by the Purchaser in connection with the transactions
contemplated hereby and by the other Transaction Documents based upon
arrangements made by or on behalf of the Purchaser. The Purchaser shall be
responsible for any and all expenses payable to Warburg Dillon Read.
SECTION 5. Covenants.
---------
(a) Pre-Closing Conduct of Business by the Company. During the period
----------------------------------------------
from the date of this Agreement to the Closing Date, the Company shall carry on
its businesses in the usual, regular and ordinary course in substantially the
same manner as heretofore conducted and use commercially reasonable efforts to
preserve intact its current business organization, goodwill and ongoing
businesses. Without limiting the generality of the foregoing, the following
additional restrictions shall apply: during the period from the date of this
Agreement to the earlier of (A) the termination of this Agreement and (B) the
Closing Date, the Company shall not (and shall not authorize or commit or agree
to) without the prior written consent of the Purchaser:
(i) declare, set aside or pay any dividends on, or make any
other distributions in stock in respect of any of the Company's
capital stock, (B) split, combine or reclassify any shares of Common
Stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of such shares of
Common Stock or (C) purchase, redeem or otherwise acquire any shares
of Common Stock of the Company or any options, warrants or rights to
acquire, or security convertible into, shares of such Common Stock;
(ii) issue, deliver or sell, or grant any option or other right
in respect of, any shares of Common Stock, any other securities of the
Company or any Company Subsidiary or any securities convertible into,
or any rights, warrants or options to acquire, any such shares,
securities or convertible securities, except for the exercise of stock
options or warrants outstanding on the date of this Agreement, the
issuance of employee stock options pursuant to benefit plans which
options are currently reserved for issuance under such plans or in
23
<PAGE>
connection with any automatic grants of options or restricted stock to
non-employee directors pursuant to any existing employee benefit plan
of the Company;
(iii) take any of the actions specified in Section 5(h); and
------------
(iv) enter into any Change of Control Agreement.
(b) Pre-Closing Access to Information. The Company shall afford to
---------------------------------
the Purchaser and to the officers, employees, accountants, counsel, financial
advisors and other representatives of the Purchaser, reasonable access during
normal business hours during the period prior to the Closing Date to all their
respective properties, books, contracts, commitments, personnel and records and,
during such period, the Company shall furnish promptly to the Purchaser (i) a
copy of each report, schedule, registration statement and other document filed
by it during such period pursuant to the requirements of federal or state
securities laws and (ii) subject to the Confidentiality Agreement, all other
information concerning its business, properties and personnel as the Purchaser
may reasonably request.
(c) Post-Closing Access to Business Information. Commencing on the
-------------------------------------------
date hereof and for so long as either (i) a Purchaser Nominee (as defined in
Section 6 hereof) is on the Board of Directors of the Company or (ii) the
- ---------
Purchaser's Interest is at least 10%, the Company shall furnish to the Purchaser
such information regarding the Company as is furnished to the members of the
Board of Directors of the Company and shall continue to provide the Purchaser
with the access and information rights specified in Section 5(b).
------------
(d) Public Company Information. So long as the Company is subject to
--------------------------
the periodic reporting requirements of the Exchange Act and for so long as the
Purchaser's Interest is at least 5%, the Company will:
(i) file with the SEC on or before the required date all regular
or periodic reports required pursuant to the Exchange Act; and
(ii) use its reasonable commercial efforts to make publicly
available information concerning the Company sufficient to allow the
Purchaser to dispose of all or a portion of the Securities and any
Common Stock owned by the Purchaser pursuant to Rule 144 (or any
successor provision) promulgated by the SEC under the Securities Act.
(e) Private Company Information. If the Company shall cease to be
---------------------------
subject to the periodic reporting requirements of the Exchange Act and for so
long as the Purchaser's Interest is at least 5%, the Company will furnish, or
will cause to be furnished, to the Purchaser copies of the following financial
statements, reports and information:
24
<PAGE>
(i) promptly when available and in any event within 90 days
after the close of each Fiscal Year, a consolidated balance sheet at
the close of such Fiscal Year, and related consolidated statements of
operations, stockholders' equity and cash flows for such Fiscal Year,
of the Company (with comparable information at the close of and for
the prior Fiscal Year), certified (in the case of consolidated
statements) without qualification by Hein + Co. or any nationally
recognized independent public accountants; and
(ii) promptly when available and in any event within 45 days
after the close of each Fiscal Quarter, consolidated balance sheets at
the close of such Fiscal Quarter, and consolidated statements of
operations, stockholders' equity and cash flows for such Fiscal
Quarter and for the period commencing at the close of the previous
Fiscal Year and ending with the close of such Fiscal Quarter, of the
Company (with comparable information at the close of and for the
corresponding Fiscal Quarter of the prior Fiscal Year and for the
corresponding portion of such prior Fiscal Year), certified by the
chief financial or executive officer of the Company.
(f) Inconsistent Agreements. The Company will not take any action
-----------------------
which would (i) impair or adversely affect the right of the Purchaser to convert
the Debentures or the Warrant Debentures or exercise the Warrants or exercise
any rights of the Purchaser pursuant to the Transaction Documents, or (ii)
breach any of the covenants or agreements of the Company in the Transaction
Documents.
(g) Certain Actions. Subject to the terms and conditions herein
---------------
provided, each of the parties will use its reasonable commercial efforts to
cooperate with the other party (i) to, secure all necessary consents, approvals,
authorizations and exemptions from all third parties, including, without
limitation, all Governmental Authorities, in connection with and to effectuate
the transactions contemplated hereby and by the other Transaction Documents and
(ii) to take, or cause to be taken, all other action and do, or cause to be
done, all other things necessary, proper or appropriate to consummate and make
effective the transactions contemplated hereby and by the other Transaction
Documents, including, without limitation, the execution of each Transaction
Document and all other certificates and instruments contemplated hereby and
thereby. If, at any time after the Closing Date, any further action is necessary
or desirable to carry out the purpose of this Agreement, the proper officers and
directors of the Company and the Purchaser shall take all such necessary action.
(h) Restricted Actions. As long as the Purchaser's Interest is 10%
------------------
or greater, the Company shall not take or authorize (or enter into any agreement
to take or authorize) any of the following actions without the prior written
approval of the Purchaser:
25
<PAGE>
(i) adopt an Annual Business Plan or take any actions that
deviate from the then-current Annual Business Plan in any material
respect;
(ii) make any capital expenditures during any fiscal year in
excess of $2,000,000 in the aggregate except to the extent
contemplated in the Annual Business Plan for such year;
(iii) make any acquisition or disposition of any interests in
any other Person or business enterprise or any assets, in any single
transaction or a series of related transactions, in which the fair
market value of the consideration paid or received by the Company
exceeds $1,000,000;
(iv) organize, form or participate in any joint venture or
similar entity involving the sharing of profits in which the assets or
services to be contributed to or provided by the Company to such joint
venture or other entity have a fair market value in excess of
$1,000,000;
(v) form any Subsidiary;
(vi) issue any Common Stock, preferred stock or other capital
stock or any stock or securities (including options and warrants)
convertible into or exercisable or exchangeable for Common Stock,
preferred stock or other capital stock or amend the terms of any such
stock or securities or any agreements relating thereto (other than
employee stock options approved by the Board of Directors of the
Company and Common Stock issued upon exercise thereof) or effect any
stock split or reverse stock split or combination;
(vii) enter into any transaction between the Company, on the one
hand, and any Affiliate or Associate of the Company, on the other,
other than the payment of compensation and other benefits to employees
and directors in the ordinary course of business;
(viii) declare or pay any dividend or other distribution with
respect to the capital stock of the Company;
(ix) incur any indebtedness for borrowed money or capital lease
obligations that are not expressly contemplated in the then-current
Annual Business Plan in excess of $250,000 in the aggregate during any
fiscal year;
(x) amend the Company's certificate of incorporation or bylaws
or create or amend a stockholders' rights plan;
26
<PAGE>
(xi) declare bankruptcy; or
(xii) liquidate or dissolve the Company.
SECTION 6. Board Nomination Rights.
-----------------------
(a) As provided in Section 11, it shall be a condition of Purchaser's
obligations to effect the transactions contemplated by this Agreement that
effective upon the Closing, (i) two members of the Company's Board of Directors
shall have resigned and (ii) two individuals designated by the Purchaser (the
"Purchaser Nominees") shall have been appointed to fill the vacancies in the
------------------
Board of Directors of the Company created by such resignations.
(b) Upon the termination, removal or resignation of a Purchaser
Nominee for any reason, the Purchaser shall have the right to appoint a new
Purchaser Nominee to fill such vacancy, and the Company shall use its best
efforts to cause the election of such new Purchaser Nominee to the Board through
action of the Board of Directors or stockholders, in either case at the
discretion of the Board of Directors or stockholders, respectively. Further, if
a Purchaser Nominee shall not be elected as a director at any election, then the
Company shall use its best efforts to ensure that the Purchaser Nominee obtains
a seat on the Board as soon as reasonably possible, whether by appointment of
the Purchaser Nominee to fill an existing or newly created vacancy on the Board,
by nomination at the next election of directors of the Company or otherwise,
provided that this provision shall not restrict the discretion of the Board of
Directors or stockholders, respectively.
(c) Neither the Company nor the Board of Directors will take any
action to change the structure, classification or members of the Board of
Directors (except as provided in Section 6(b) with respect to the Purchaser
Nominees) until the issuance of the Preferred Stock and the election by the
holder of the Preferred Stock of the two directors entitled to be elected by
such holder, provided that the Preferred Stock shall have been issued on or
before December 31, 1999.
SECTION 7. Change of Control of the Company.
--------------------------------
(a) If the Company enters into a Change of Control Agreement with a
third party (the "Proposed Purchaser") at any time at which the Purchaser's
------------------
Interest is 10% or greater, this Section 7 shall apply. The Company shall
---------
provide a complete copy of the Change of Control Agreement (including all
schedules and exhibits) and any related agreements to the Purchaser within one
Business Day following the execution of the Change of Control Agreement. The
Change of Control Agreement and any related agreements (i) shall provide that
the Change of Control Agreement and the related agreements automatically
terminate without liability to the Company if the Purchaser gives an Acceptance
Notice pursuant to Section 7(c) below, (ii) shall not provide for any
------------
termination fee, expense reimbursement or other payment or distribution of
27
<PAGE>
any kind by the Company or the Purchaser to the Proposed Purchaser or any other
Person in connection with or upon the exercise by the Purchaser of its rights
under this Section 7 and (iii) shall not contain any provisions that interfere
---------
with or restrict in any way, or deprive the Purchaser of the benefit of, the
Purchaser's rights under this Section 7. The transactions contemplated by the
---------
Change of Control Agreement shall not be consummated until the expiration of the
Offer Period (as defined below).
(b) The delivery of the Change of Control Agreement to the Purchaser
shall constitute a binding offer by the Company to consummate with the Purchaser
the transactions contemplated by the Change of Control Agreement on the terms
set forth in the Change of Control Agreement. Such offer shall be irrevocable
for a period (the "Offer Period") ending at 11:59 p.m., Kansas City time, on the
60th day following the day of delivery of the Change of Control Agreement to
the Purchaser, which period may be extended as provided below.
(c) At any time during the Offer Period, the Purchaser may accept the
Company's offer by giving written notice of such acceptance to the Company (the
"Acceptance Notice"). In such event, the Change of Control Agreement and any
-----------------
related agreements shall terminate, and the Company and the Purchaser shall
enter into a new agreement containing substantially the same terms and
provisions as the Change of Control Agreement, but (i) excluding those
provisions (if any) that were unique to the Proposed Purchaser or would not be
applicable in a transaction between the Company and the Purchaser and (ii) with
the additional modifications described below (if applicable). If the Change of
Control Agreement contemplated payment by the Proposed Purchaser of
consideration other than cash or a cash equivalent (the "Alternative
-----------
Consideration"), the Purchaser shall have the right to elect to pay cash in lieu
- -------------
thereof in an amount equal to the fair market value of the Alternative
Consideration. If the Purchaser and the Company are unable to agree on the fair
market value of the Alternative Consideration within 30 days following the
commencement of the Offer Period, the Purchaser and the Company shall mutually
agree upon an investment banking firm of national reputation (an "Investment
----------
Banker") to make such determination. If the Purchaser and the Company are
- ------
unable to agree upon an Investment Banker prior to the 40th day of the Offer
Period, then the Purchaser and the Company shall each submit to the other a list
of three acceptable Investment Bankers. Each of the Purchaser and the Company
shall be entitled to strike one Investment Banker from the list submitted by the
other, and the Investment Banker to determine the value of the Alternative
Consideration shall then be selected by random lot from the remaining Investment
Bankers included on the lists submitted by the Purchaser and the Company. The
Investment Banker finally chosen will be instructed to use its best efforts to
determine the fair market value of the Alternative Consideration within 15 days
following its appointment. If the Investment Banker's written determination of
the fair market Value is submitted to the Purchaser following the 50th day of
the Offer Period, the Offer Period shall be extended through 11:59 p.m. on the
10th day following the date of such delivery.
28
<PAGE>
(d) The closing of the transaction between the Purchaser and the
Company shall be held in accordance with the terms of the Change of Control
Agreement. At the closing, the Purchaser and the Company shall take such
actions as are required by the Change of Control Agreement.
(e) If the Firm Offer is not accepted by the Purchaser during the
Offer Period, the Company shall be free, for a period of 90 days following the
end of the Offer Period, to consummate the transaction contemplated by the
Change of Control Agreement with the Proposed Purchaser upon terms and
conditions that are the same as, or in the good faith determination of the Board
of Directors is in the aggregate more favorable to the Company than, those
contained in the Change of Control Agreement submitted to the Purchaser. If the
transaction is not consummated within such 90-day period, the Company's right to
consummate a Change of Control transaction shall again be subject to the
foregoing restrictions.
(f) If a transaction with the Purchaser requires the consent,
approval, waiver or authorization of any Governmental Authority as a condition
to the lawful and valid consummation of such transaction, each of the Company
and the Purchaser agrees to use its diligent efforts to obtain, or to assist in
obtaining any such consent, approval, waiver or authorization and shall
cooperate and use its diligent efforts to respond as promptly as practicable to
all inquiries received by it from any Governmental Authority for initial or
additional information or documentation in connection therewith.
(g) Notwithstanding any other provision of this Agreement, Purchaser
shall be permitted to assign all or any part of its rights under this Section 7
---------
to any Person, whether or not an Affiliate of Purchaser (the "Assignee"). In
--------
such event, the Purchaser shall be entitled to provide to the Assignee all
information in the Purchaser's possession regarding the Company, and the
Assignee shall be entitled to full access to the Company as provided in Section
-------
5(b); provided that the Assignee must agree in writing to be bound by the
- ----
confidentiality restrictions imposed upon the Proposed Purchaser.
SECTION 8. Restrictions on Transfer.
------------------------
(a) Rule 144 Information. Upon the request of the Purchaser, the
--------------------
Company shall promptly supply to the Purchaser or its prospective transferees
all information regarding the Company required to be delivered in connection
with a transfer pursuant to Rule 144 or Rule 144A of the rules and regulations
promulgated by the SEC under the Securities Act.
(b) Rule 144(k) Sales. If any Acquired Securities are or become
-----------------
eligible for sale pursuant to Rule 144(k), the Company, upon the request of
holders of any such Acquired Securities, shall remove the Securities Legend from
the certificates for such Acquired Securities.
29
<PAGE>
(c) Legend. Each certificate for Acquired Securities shall be
------
imprinted with a legend (the "Securities Legend") in substantially the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS.
SAID SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
FROM THE REGISTRATION PROVISIONS OF SAID ACT OR
LAWS."
If the holders of Acquired Securities deliver to the Company an
opinion of King & Spalding or other counsel that no subsequent transfer of
Acquired Securities shall require registration under the Securities Act, the
Company shall promptly upon such contemplated transfer deliver new certificates
for such Acquired Securities which do not bear the Securities Legend.
SECTION 9. Purchase Rights.
---------------
(a) Preemptive Rights. If, at any time after the date hereof and for
-----------------
so long as (and during any period in which) the Purchaser's Interest is 10% or
greater, the Company determines to issue for cash consideration additional
Equity Securities (collectively, "New Securities") to any Third Party, other
--------------
than Equity Securities issued or proposed to be issued to or for the benefit of
any Person who serves as an employee or director of the Company in the ordinary
course of business, the Company shall offer the Purchaser the right to purchase
a certain portion of the New Securities as set forth below. Upon any
determination by the Company to issue New Securities in respect of which the
Purchaser has the right to purchase New Securities as contemplated in the
immediately preceding sentence, the Company shall give written notice (the
"Notice") to the Purchaser (i) stating the aggregate number of such New
Securities proposed to be issued, the terms upon which such New Securities are
to be issued (which terms may include an estimated price range for such New
Securities (the "Range") and, if the New Securities are to be priced based upon
the reported trading or closing prices on a national securities exchange or the
Nasdaq of any class of Equity Securities, such terms may include a description
of the basis on which such price will be so determined) and the consideration to
be paid therefor, (ii) stating the date proposed for issuance of such New
Securities (which date, the "Tender Date," shall be not less than 10 Business
-----------
Days after the date on which such Notice is given), and (iii) requesting that
the Purchaser indicate in writing within 20 Business Days after its receipt of
the Notice the number of shares of the New Securities that the Purchaser desires
to purchase (which shall be no greater than the number of shares of the New
Securities as may be required to cause the Purchaser's Interest immediately
prior to such issuance of New Securities
30
<PAGE>
to equal the Purchaser's Interest immediately following the issuance of the New
Securities) and, if applicable, the highest price within the Range at which the
purchaser intends to purchase the New Securities (the "Upper Price"). Except as
provided above, the Purchaser shall purchase its New Securities on the same
terms and for the same price as specified in the Notice, unless such terms have
been modified with respect to the Third Party Purchaser(s), in which event the
Purchaser shall purchase its New Securities on the terms and for the price paid
by such Third Party Purchaser(s); provided, however, that if the modified
-------- -------
terms are not acceptable to the Purchaser, the Purchaser may revoke its
election to purchase; provided, further that if the price is not fixed at time
-------- -------
of Notice but a Range was included in the Notice and the price paid by the Third
Party Purchaser is above the Upper Price, the Purchaser may revoke its election
to purchase; provided, further that any New Securities to be sold in an
-------- -------
underwritten public offering shall be offered to the Purchaser, (i) is part of
the underwritten public offering and subject to its terms or (ii) and at the
Purchaser's option outside the underwritten public offering based on the net
consideration to be received by the Company after deductions of underwriters
discounts and commissions. Unless otherwise agreed, the closing of such purchase
shall occur on the Tender Date.
(b) Other Purchase Rights. If, at any time after the date hereof and
---------------------
for so long as the Purchaser's Interest is equal to or greater than 10%, the
Company determines to issue additional Equity Securities to officers or
employees or for other than cash consideration such that the preemptive rights
specified in Section 9(a) are not applicable, and the issuance of such
------------
additional Equity Securities would cause the Purchaser's Interest to fall below
10%, the Purchaser shall have the right to purchase from the Company
simultaneously with the issuance of such New Securities such number of shares of
Common Stock as will cause the Purchaser's Interest to remain at or above 10%.
The purchase price for each such share of Common Stock shall equal the average
of the closing trading prices of such shares for the 20 trading days prior to
such issuance or, if such shares are not publicly traded, the fair market value
thereof as determined in good faith by the Board of Directors of the Company.
The Company shall give notice of such issuance of additional Equity Securities
(including the number of shares of Common Stock required to be purchased by the
Purchaser to maintain the Purchaser's Interest at 10% and (if applicable) the
fair market value of such shares as determined by the Board of Directors), and
the Purchaser shall have 25 days from its receipt of such notice to purchase and
pay the purchase price for such shares, provided, however, that in the event the
issuance of additional Equity Securities by the Company pursuant to this Section
9(b) occurs prior to the Purchaser's purchase of the forgoing Common Stock, then
the Purchaser's Interest will in no event be deemed to have fallen below 10%
during such interim period.
A Change of Control transaction will not be deemed to constitute an
issuance of New Equity Securities for the purposes of this Section 9.
31
<PAGE>
SECTION 10. Conditions to Each Party's Obligations. The respective
--------------------------------------
obligations of each party to effect the transactions contemplated hereby shall
be subject to the fulfillment at or prior to the Closing of each of the
following conditions:
(a) Injunction. As of the Closing, there shall be no effective
----------
injunction, writ or preliminary restraining order or any order of any nature
issued by a court or governmental agency of competent jurisdiction to the effect
that the purchase and sale of the Securities contemplated hereby may not be
consummated as herein provided, no proceeding or lawsuit shall have been
commenced by any governmental or regulatory agency for the purpose of obtaining
any such injunction, writ or preliminary restraining order and no written notice
shall have been received from any such agency indicating an intent to restrain,
prevent, materially delay or restructure the transactions contemplated by this
Agreement.
(b) Regulatory Approvals. The Purchaser and the Company shall have
--------------------
obtained the approval of all Governmental Authorities (or all applicable waiting
periods shall have expired) necessary for the consummation of the acquisition by
the Purchaser of the Securities, as contemplated under this Agreement.
(c) Warrant Agreement. Each of the Purchaser and the Company shall
-----------------
have executed and delivered the Warrant Agreement.
(d) Registration Rights Agreement. Each of the Purchaser and the
-----------------------------
Company shall have executed and delivered the Registration Rights Agreement.
SECTION 11. Conditions to Obligations of the Purchaser. The
------------------------------------------
obligations of the Purchaser to effect the transactions contemplated hereby
shall be subject to the fulfillment at or prior to the Closing of each of the
following additional conditions:
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Company set forth in Section 3 of this Agreement shall be true
---------
and correct in all material respects as of the date of this Agreement and as of
the Closing Date as though made on and (except for representations and
warranties given as of a specified date) as of the Closing Date.
(b) Performance of Obligations of the Company. The Company shall have
-----------------------------------------
performed in all material respects all covenants and agreements required to be
performed by it on or prior to the Closing under this Agreement.
(c) Certificates. The Company shall have furnished the Purchaser with
------------
a certificate of the Company, executed on its behalf by its appropriate officers
as to compliance with the conditions set forth in Sections 11(a) and (b).
----------------------
32
<PAGE>
(d) Warrant Certificates. Concurrently with the Closing, the Company
--------------------
shall deliver to the Purchaser Warrant Certificates registered in the
Purchaser's name evidencing the Warrants.
(e) Debenture Certificates. Concurrently with the Closing, the
----------------------
Company shall deliver to the Purchaser Debenture Certificates registered in the
Purchaser's name evidencing the Debentures.
(f) No Material Adverse Change. There shall not have occurred (nor
--------------------------
shall the Purchaser have become aware of ) any material adverse change in the
business, assets, results of operations, financial condition or prospects of the
Company or material physical loss or damage to any of the properties or assets
(whether or not covered by insurance) of the Company which adversely affects or
impairs the business now being conducted by the Company, and the Purchaser shall
have received a certificate of the Company, signed on its behalf by an executive
officer of the Company and dated the Closing Date, to such effect.
(g) Opinions of Counsel to the Company. The Purchaser shall have
----------------------------------
received an opinion of Fenwick & West, counsel to the Company, dated the Closing
Date, in form and substance reasonably acceptable to the Purchaser.
(h) Resignation of two Board Members. The Company shall have caused
--------------------------------
two members of its Board of Directors to deliver resignations to the Purchaser
and the Company shall have caused the two Purchaser Nominees to have been
appointed to the Board of Directors to fill the vacancies created by such
resignations.
(i) Directors and Officers Insurance. The Company shall have obtained
--------------------------------
and paid for directors and officers insurance that is reasonably satisfactory to
the Purchaser.
(j) Other Documents. All agreements, certificates, opinions and other
---------------
documents delivered by the Company to the Purchaser hereunder shall be in form
and substance satisfactory to counsel for the Purchaser.
SECTION 12. Conditions to Obligations of the Company. The obligations
----------------------------------------
of the Company to effect the transactions contemplated hereby shall be subject
to the fulfillment at or prior to the Closing of each of the following
additional conditions:
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Purchaser set forth in Section 4 of this Agreement shall be
---------
true and correct in all material respects as of the date of this Agreement and
as of the Closing Date as though made on and (except for representations and
warranties given as of a specified date) as of the Closing Date.
33
<PAGE>
(b) Performance of Obligations of the Purchaser. The Purchaser shall
-------------------------------------------
have performed in all material respects all covenants and agreements required to
be performed by it on or prior to the Closing under this Agreement.
(c) Certificates. The Purchaser shall have furnished the Company with
------------
a certificate of the Purchaser, executed on its behalf by its appropriate
officers as to compliance with the conditions set forth in Sections 12(a) and
------------------
(b).
- ---
(d) Payment. The Purchaser shall deliver to the Company a wire
-------
transfer of immediately available funds to an account to be designated by the
Company by notice given to the Purchaser not later than three Business Days
prior to the Closing in the amount of $11,001,000.
SECTION 13. Indemnification.
---------------
(a) The Company shall defend and indemnify the Purchaser and hold the
Purchaser harmless from and against any and all claims, losses, liabilities,
damages, costs (including, without limitation, court costs) and expenses
(including, without limitation, reasonable attorneys' fees) (collectively,
"Costs") which the Purchaser or its Subsidiaries or Affiliates, any of their
respective officers, directors, employees, agents or representatives or any of
the heirs, executors, successors or assigns of any of the foregoing
(collectively, the "Purchaser Indemnified Parties") incurs as a result of, or
-----------------------------
with respect to, any inaccuracy in or breach of any representation, warranty,
covenant or agreement by or on behalf of the Company contained in this
Agreement, any Transaction Document or contained in any certificate, agreement
or document of the Company delivered to the Purchaser in connection with the
consummation of the transactions contemplated hereby.
(b) The Company shall only be liable under Section 13(a) for Costs
incurred by the Purchaser Indemnified Parties to the extent any such Costs
exceed, in the aggregate, $500,000.
(c) In the event that any Purchaser Indemnified Party shall receive
written notice of any claim or proceeding against a Purchaser Indemnified Party
that, if successful, might result in a claim under this Section 13(a) by a
-------------
Purchaser Indemnified Party, the Purchaser Indemnified Party shall give the
Company written notice of such claim or proceeding and shall permit the Company
to participate in the defense of such claim or proceeding by counsel of the
Company's own choosing and at the expense of the Company; provided that, if the
--------
defendants in any such action include both the Purchaser Indemnified Party and
the Company and the Purchaser Indemnified Party shall have reasonably concluded
that there may be reasonable defenses available to it which are different from
or additional to those available to the Company, or if the interests of the
Purchaser Indemnified Party reasonably may be deemed to conflict with the
interests of the Company, the Purchaser Indemnified Parties shall collectively
have the right
34
<PAGE>
to select a single separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with counsel to the
Company (but the Purchaser Indemnified Party shall have no right to settle or
compromise any such claim, action or proceeding), and the expenses and fees of
such separate counsel and other expenses incurred by the Purchaser Indemnified
Party in relation to such participation shall constitute Costs subject to
indemnity by the Company. Upon written request of the Purchaser, the Company
shall assume the carriage of the defense of any such claim or proceeding.
(d) The Company's obligations under this Section 13 shall expire on
the earlier of the fourth anniversary of the date hereof or, with respect to any
specific claim of a Purchaser Indemnified Party, upon the expiration of the
applicable statute of limitations with respect to such claim.
SECTION 14. Termination. This Agreement may be terminated at any
-----------
time prior to the Closing (the "Termination Date"):
(i) in writing by mutual agreement of the Purchaser and the
Company;
(ii) by written notice from the Company to the Purchaser, if
the conditions set forth in Sections 10 and 12 hereof shall not have
------------------
been complied with or performed and such noncompliance or
nonperformance shall not have been cured or eliminated (or by its
nature cannot be cured or eliminated) by the Purchaser on or before
September 22, 1999, provided that the Company is not then in material
default under the Agreement;
(iii) by written notice from the Purchaser to the Company, if
the conditions set forth in Sections 10 and 11 hereof shall not have
------------------
been complied with or performed and such noncompliance or
nonperformance shall not have been cured or eliminated (or by its
nature cannot be cured or eliminated) by the Company on or before
September 22, 1999, provided that the Purchaser is not then in
material default under the Agreement; and
(iv) by written notice from Purchaser to the Company if the
Company Disclosure Letter has not been completed in form and substance
satisfactory to Purchaser in its sole discretion within 10 days
following the execution of this Agreement.
In the event of the termination of this Agreement, this Agreement shall
have no further effect, except for Sections 15, 16, 23 and 26, which shall
remain in effect, and there shall be not liability on the part of any party
hereto, provided that nothing herein shall relieve any party from liability for
any willful breach hereof.
35
<PAGE>
SECTION 15. Notices. All notices, consents, approvals, agreements
-------
and other communications provided hereunder shall be in writing and delivered
personally, by nationally recognized overnight courier or by telecopy and shall
be sufficiently given to the Purchaser and the Company if addressed or delivered
to them at the following addresses:
If to the Purchaser: Sprint Corporation
2330 Shawnee Mission Parkway
Westwood, Kansas 66205
Attention: General Counsel
Telephone No.: (913) 624-8440
Facsimile No.: (913) 624-8426
with a copy to: King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303-1763
Attention: Michael J Egan III
Telephone No.: (404) 572-4753
Facsimile No.: (404) 572-5145
If to the Company: Hybrid Networks, Inc.
6409 Guadalupe Mines Road
San Jose, CA 95120-5000
Attention: Carl S. Ledbetter
Telephone No.: (408) 323-6255
Facsimile No.: (408) 323-6470
with a copy to: Fenwick & West
Two Palo Alto Square
Palo Alto, California 94306
Attention: Edwin N. Lowe
Telephone No.: (650) 858-7247
Facsimile No.: (650) 494-1417
or at such other address as any party may designate to any other party by
written notice. All such notices and communications shall be deemed to have been
duly given: (i) at the time delivered by hand, if personally delivered, (ii)
when received, if sent by overnight courier and (iii) when transmission is
verified, if telecopied.
36
<PAGE>
SECTION 16. Costs and Expenses. Each party shall pay the fees and
------------------
expenses incurred by it in connection with the negotiation, preparation,
execution, and delivery of this Agreement and the related agreements and other
documents.
SECTION 17. Successors and Assigns. All the covenants and
----------------------
provisions of this Agreement by or for the benefit of the Company or the
Purchaser shall bind and inure to the benefit of their respective successors and
permitted assigns, including those by operation of law, merger or consolidation.
The Purchaser may assign any or all of its rights and obligations hereunder to
any of its Affiliates so long as the Purchaser remains jointly and severally
liable for its obligations hereunder.
SECTION 18. Survival of Representations. Except as specifically
---------------------------
provided herein, all representations, warranties, covenants and agreements made
by the parties in this Agreement and pursuant to the terms hereof shall survive
indefinitely, notwithstanding any investigation heretofore or hereafter made by
any of them or on behalf of any of them.
SECTION 19. Governing Law. This Agreement shall be deemed to be a
-------------
contract made under the laws of the State of Delaware and for all purposes shall
be construed in accordance with the internal laws of said state.
SECTION 20. Benefits of this Agreement. Nothing in this Agreement
--------------------------
shall be construed to give to any Person other than the Company and the
Purchaser any legal or equitable right, remedy or claim under this Agreement;
this Agreement shall be for the sole and exclusive benefit of the Company and
the Purchaser.
SECTION 21. Counterparts. This Agreement may be executed in any
------------
number of counterparts and each such counterpart shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
one and the same instrument.
SECTION 22. Amendments; Waiver. No provision of this Agreement may be
------------------
amended or waived except by an instrument in writing signed by the party sought
to be bound. No failure or delay by any party in exercising any right or remedy
hereunder shall operate as a waiver thereof, nor shall a waiver of a particular
right or remedy on one occasion be deemed a waiver of any other right or remedy
or a waiver of the same right or remedy on any subsequent occasion.
SECTION 23. Jurisdiction. Each of the parties hereto hereby agrees
------------
that any legal action or proceeding against such party with respect to this
Agreement or any of the Transaction Documents may be brought in the courts of
the State of Delaware or of the United States of America for the District of
Delaware as the other party may elect, and, by execution and delivery hereof,
such party accepts and consents for itself and in respect of its property,
generally and unconditionally, the jurisdiction of the aforesaid courts and
agrees that such jurisdiction shall be
37
<PAGE>
exclusive, unless waived by the other party in writing, with respect to any
action or proceeding brought by such party against the other party. Each of the
parties hereto irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of the
copies thereof by certified mail, return receipt requested, postage prepaid, to
it at its address set forth herein, such service to become effective upon the
earlier of (i) the date ten calendar days after such mailing and (ii) any
earlier date permitted by applicable law.
SECTION 24. Specific Performance. Each of the parties hereto
--------------------
recognizes that the rights of the parties under this Agreement and the other
Transaction Documents are unique and, accordingly, the parties shall, in
addition to such other remedies as may be available to any of them at law or in
equity, have the right to enforce their rights hereunder and thereunder by
actions for injunctive relief and specific performance to the extent permitted
by law. Each of the parties hereto agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement or any of the other Transaction Documents and
hereby agrees to waive in any action for specific performance the defense that a
remedy at law would be adequate. This Agreement is not intended to limit or
abridge any rights of the parties which may exist apart from this Agreement.
SECTION 25. Confidentiality. Each of the Company and the Purchaser
---------------
shall hold, and shall use reasonable efforts to cause its and its respective
Subsidiaries, officers, employees, accountants, counsel, financial advisors and
other representatives to hold, any proprietary or confidential information in
confidence to the extent required by, and in accordance with, and will comply
with the provisions of, the Confidentiality Agreement relating to
confidentiality.
SECTION 26. Public Announcements. The Purchaser and the Company
--------------------
will consult with each other before issuing, and provide each other the
opportunity to review and comment upon, any press release or other public
statements with respect to the transactions contemplated hereby and shall not
issue any such press release or make any such public statement prior to such
consultation, except as may be required by applicable law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange. The parties agree that the initial press release to be issued with
respect to the transactions contemplated hereby will be in the form agreed to by
the parties hereto prior to the execution of this Agreement.
SECTION 27. Entire Agreement. The parties hereto agree that this
----------------
Agreement, the Confidentiality Agreement and the other Transaction Documents
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings between them
as to such subject matter; and there are no restrictions, agreements,
arrangements, oral or written, between any or all of the parties relating to the
subject matter hereof which are not fully expressed or referred to herein or
therein.
38
<PAGE>
SECTION 28. Severability. If any provision of this Agreement shall be
------------
held or deemed to be, or shall in fact be, invalid, inoperative or unenforceable
as applied to any particular case in any jurisdiction or jurisdictions, or in
all jurisdictions or in all cases, because of the conflict of any provision with
any constitution, statute, rule or public policy, or for any other reason, such
circumstances shall not have the effect of rendering the provision or provisions
in question, invalid, inoperative or unenforceable in any other jurisdiction or
in any other case or circumstance or of rendering any other provision or
provisions herein contained invalid, inoperative or unenforceable to the extent
that such other provisions are not themselves actually in conflict with such
constitution, statute, rule or public policy, but this Agreement shall be
reformed and construed in any such jurisdiction or case as if such invalid,
inoperative or unenforceable provision had never been contained herein and such
provision reformed so that it would be valid, operative and enforceable to the
maximum extent permitted in such jurisdiction or in such case.
39
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the day
and year first above written.
HYBRID NETWORKS, INC.
By: /s/ Carl S. Ledbetter
-----------------------------------
Name: Carl S. Ledbetter
Title: Chairman and Chief Executive
Officer
SPRINT CORPORATION
By: /s/ Theodore H. Schell
-----------------------------------
Name: Theodore H. Schell
Title: Senior Vice President
40
<PAGE>
Exhibit 2
________________________________________________________________________________
WARRANT AGREEMENT
BETWEEN
HYBRID NETWORKS, INC.
AND
SPRINT CORPORATION
Dated as of September 9, 1999
______________________________________________________________________________
<PAGE>
WARRANT AGREEMENT
-----------------
THIS WARRANT AGREEMENT is made as of September 9, 1999, by and between
HYBRID NETWORKS, INC., a Delaware corporation (the "Company"), and SPRINT
CORPORATION, a Kansas corporation (the "Purchaser").
RECITALS:
A. The Company and the Purchaser have entered into a Securities Purchase
Agreement, dated as of August 30, 1999 (the "Purchase Agreement"), pursuant to
which the Purchaser has agreed to purchase from the Company the Warrants (as
hereinafter defined) and certain other securities.
B. The Company and the Purchaser have agreed to enter into this Agreement
to supplement the terms and conditions set forth in the Purchase Agreement which
relate to the Warrants purchased thereunder.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions.
-----------
(a) Certain Definitions. For the purposes of this Agreement, the
-------------------
following terms have the meanings set forth below:
"Affiliate" has the same meaning as in Rule 12b-2 promulgated under
---------
the Exchange Act.
"Business Day" means any day which is neither a Saturday or Sunday nor
------------
a legal holiday on which banks are authorized or required to be closed in New
York, New York.
"Closing Date" means September 9, 1999, the date of the Closing of the
------------
purchase by the Purchaser of the Securities in accordance with the Purchase
Agreement.
"Common Stock" means shares now or hereafter authorized of any class
------------
of common stock of the Company and any other class of capital stock of the
Company, however designated, that has the right (subject to any prior rights of
any class or series of preferred stock) to participate in any distribution of
the assets upon voluntary or involuntary liquidation, dissolution or winding up
of the Company or in the earnings of the Company without limit as to per share
amount, and shall include, without limitation, the presently authorized
100,000,000 shares of Common Stock, par value $0.001 per share.
"Company" is defined in the Preamble.
-------
<PAGE>
"Equipment Purchase Agreement" means the Equipment Purchase Agreement,
----------------------------
dated as of the date hereof, by and between the Company and the Purchaser
containing the terms set forth in Exhibit C attached to the Purchase Agreement
---------
and otherwise in form and substance mutually agreeable to the Purchaser and the
Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Expiration Date" means the fifth anniversary of the Closing Date.
---------------
"Exercise Price" means $1.00 per Warrant.
--------------
"Fully Diluted Basis" includes, without duplication, (i) all shares of
-------------------
Common Stock outstanding at the time of calculation, (ii) Common Stock issuable
upon exercise of all outstanding warrants, options and other rights to acquire
Common Stock directly or indirectly and (iii) Common Stock issuable upon
conversion of all securities convertible directly or indirectly into Common
Stock.
"Holder" means the Purchaser or any subsequent holder of Warrants, to
-------
which the Warrants are transferred in accordance with the provisions of this
Agreement and the Purchase Agreement.
"Person" means any natural person, corporation, partnership, limited
------
liability company, firm, association or any other entity, whether acting in an
individual, fiduciary or other capacity.
"Purchase Agreement" is defined in the Recitals.
------------------
"Purchaser's Interest" means, as of the date of determination, the
--------------------
total number of shares of Common Stock (i) owned, directly or indirectly, by the
Purchaser or any of its Affiliates, (ii) for which Warrants owned, directly or
indirectly, by the Purchaser or any of its Affiliates may be exercised
(including for those purposes any shares of Common Stock that could be acquired
upon conversion of any debentures that may be purchased upon exercise of
Warrants and after taking into account all applicable antidilution provisions),
assuming all such Warrants are exercisable as of the date of such determination,
and (iii) for which Class A Debentures owned, directly or indirectly, by the
Purchaser or any of its Affiliates may be converted after taking into account
all applicable antidilution provisions, assuming all such Debentures are
convertible as of the date of such determination, expressed as a percentage of
the Common Stock on a Fully Diluted Basis at the time of calculation.
"SEC" means the Securities and Exchange Commission.
---
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Warrants" means (i) the 8,397,873 warrants issued to the Purchaser on
--------
the Closing Date pursuant to this Agreement and the Purchase Agreement and (ii)
any additional Warrants issued to the Purchaser after the Closing Date pursuant
to Section 20 hereof, each of which entitles the holder thereof to purchase a
Warrant Debenture having a face amount of
-2-
<PAGE>
$1.00, and which shall have the rights, privileges and limitations set forth in
this Agreement and in each Warrant.
"Warrant Certificates" means, collectively, the certificates
--------------------
evidencing the Warrants in the form of Exhibit A attached hereto.
---------
"Warrant Debentures" means the debentures of the Company issuable upon
------------------
exercise of the Warrants, dated the date of exercise of the applicable Warrants,
but otherwise having the same terms and provisions as the "Class A Debentures"
issued pursuant to the Purchase Agreement (as further specified in Section 3
hereof).
(b) Terms Defined in Purchase Agreement. Unless otherwise defined
-----------------------------------
herein, capitalized terms used in this Agreement shall have the meanings
ascribed to such terms in the Purchase Agreement.
SECTION 2. Exercise of Warrants.
--------------------
(a) A Warrant may be exercised by the Purchaser or any Holder only in
accordance with the terms and conditions of this Agreement and at any time
during the period beginning on the dates specified in Section 2(b) and ending on
------------
the Expiration Date.
(b) None of the Warrants shall be exercisable until the earliest date
that the Purchaser has submitted to the Company at least $1,000,000 of purchase
orders under the Equipment Purchase Agreement. On such date, 10% of the Warrants
(rounded to the nearest whole Warrant) shall become exercisable. Thereafter, an
additional 10% of the Warrants (rounded to the nearest whole Warrant) shall
become exercisable for each additional $1,000,000 of purchase orders as are
submitted by the Purchaser to the Company under the Equipment Purchase
Agreement, such that the entire amount of Warrants shall be exercisable when
$10,000,000 of purchase orders have been submitted. In the event of a Change of
Control (as defined in the Purchase Agreement) of the Company, (i) the Company
shall continue to perform its obligations under the Purchase Agreement (or, if
the Change of Control results in the merger or consolidation of the Company
with, the sale of assets of the Company to, or any other acquisition of the
Company by, another Person, then such Person shall continue to perform the
obligations of the Company under the Equipment Purchase Agreement) and (ii) if
the Change of Control results in issuance of securities or other consideration
in exchange for or upon cancellation of Common Stock (whether as a result of a
recapitalization, merger, consolidation, sale of assets or other transaction),
then the Holder's rights under this Warrant will continue except that this
Warrant will automatically be converted into the right to purchase, upon
exercise in accordance with the terms hereof, such other securities or
consideration that would have been issued or paid to the Holder if the Holder
had exercised this Warrant and converted the underlying Warrant Debentures (and
held the Common Stock that would have been issued upon such conversion of the
Warrant Debentures) immediately before such transaction.
(c) Subject to the terms and conditions hereof, Warrants may be
exercised pursuant to this Section 2 upon surrender to the Company at its
---------
executive offices of the certificate or certificates evidencing the Warrant(s)
to be exercised and upon payment to the
-3-
<PAGE>
Company of the aggregate Exercise Price for the number of Warrants which are
then exercised, provided that a Warrant may not be exercised in part. Upon such
surrender of Warrant Certificates and payment of the Exercise Price in cash or
by check payable to the Company, the Company shall issue and cause to be
delivered with all reasonable dispatch (and in any event within three Business
Days after such surrender) to or upon the written order of the Holder, and in
the name of the Holder or the Holder's nominee, Warrant Debentures issuable upon
the exercise of such Warrants. Such Warrant Debentures shall be deemed to have
been issued and the Person so named therein shall be deemed to have become a
holder of such Warrant Debentures as of the date of the surrender of such
Warrant Certificates.
(d) Subject to the terms and conditions hereof, the Warrants shall be
exercisable at the election of the Holders thereof, either in full or from time
to time in part (but in no event shall a Warrant be exercisable in part), and in
the event that a Warrant Certificate is exercised in respect of fewer than all
of the Warrants evidenced by such Warrant Certificate at any time prior to the
Expiration Date of such Warrant, a new Warrant Certificate evidencing the
remaining Warrant or Warrants will be issued and delivered pursuant to the
provisions of this Section 2(d). All Warrant Certificates surrendered upon
------------
exercise of Warrants shall be canceled. The Company shall keep copies of this
Agreement and any notices received hereunder available for inspection during
normal business hours at its office. The Company will furnish, at its expense,
copies of this Agreement and all such notices, upon request, to any Holder of
any Warrant Certificates.
SECTION 3. Warrant Debentures. The Warrant Debentures issued upon
------------------
exercise of the Warrants shall be in the form of the Class A Debentures attached
as Exhibit B-1 to the Purchase Agreement, except that (i) the Warrant Debentures
-----------
will be dated as of the date of surrender of the Warrants and interest on the
Warrant Debentures will begin to accrue as of such date, (ii) the Conversion
Price of the Warrant Debentures shall be equal to the Conversion Price of the
Class A Debentures issued under the Purchase Agreement as of the date of
surrender of the Warrants, as adjusted to reflect any changes in the Conversion
Price for the Class A Debentures between the date of the issuance of the Class A
Debentures under the Purchase Agreement and the date of surrender of the
Warrants.
SECTION 4. Covenants.
---------
(a) Private Company Information. If the Company shall cease to be
---------------------------
subject to the periodic reporting obligations of the Exchange Act and for so
long as the Purchaser's Interest is at least five percent, the Company will
furnish, or will cause to be furnished, to each Holder copies of the following
financial statements, reports and information:
(i) promptly when available and in any event within 90 days
after the close of each Fiscal Year, a consolidated balance sheet at
the close of such Fiscal Year, and related consolidated statements of
operations, stockholders' equity and cash flows for such Fiscal Year,
of the Company (with comparable information at the close of and for
the prior Fiscal Year), certified (in the case of consolidated
statements) without qualification by Hein + Co. or any nationally
recognized independent public accountants; and
-4-
<PAGE>
(ii) promptly when available and in any event within 45 days
after the close of each Fiscal Quarter, consolidated balance sheets at
the close of such Fiscal Quarter, and consolidated statements of
operations, stockholders' equity and cash flows for such Fiscal
Quarter and for the period commencing at the close of the previous
Fiscal Year and ending with the close of such Fiscal Quarter, of the
Company (with comparable information at the close of and for the
corresponding Fiscal Quarter of the prior Fiscal Year and for the
corresponding portion of such prior Fiscal Year), certified by the
chief financial or executive officer of the Company.
(b) Public Company Information. So long as the Company is subject to
--------------------------
the periodic reporting requirements of the Exchange Act and for so long as the
Purchaser's Interest is at least five percent, the Company will:
(i) file with the SEC on or before the required date all
regular or periodic reports required pursuant to the Exchange Act; and
(ii) use its reasonable commercial efforts to make publicly
available information concerning the Company sufficient to allow a
Holder to dispose in accordance with this Agreement and the Warrant
Agreement of all or a portion of the Warrant Stock pursuant to Rule
144 (or any successor provision) promulgated by the SEC under the
Securities Act.
(c) Inconsistent Agreements. The Company will not take any action
-----------------------
which would (i) impair or adversely affect the right of a Holder to exercise the
Warrants or (ii) breach any of the covenants or agreements in this document.
(d) Governmental Approvals. The Company will use its reasonable
----------------------
commercial efforts, and will cooperate with the Holders to, secure all necessary
consents, approvals, authorizations and exemptions from all Governmental
Authorities in connection with the transactions contemplated hereby and the
exercise of the Warrants and the issuance of the Warrant Debentures upon
exercise of the Warrants.
SECTION 5. Termination.
-----------
This Agreement shall terminate on the exercise or expiration of all
Warrants issued pursuant to this Agreement.
SECTION 6. Registration of Transfers and Exchanges.
---------------------------------------
(a) The Company shall from time to time register the transfer of any
outstanding Warrant Certificates made in accordance with Section 5 hereof in a
---------
Warrant register to be maintained by the Company upon surrender of such Warrant
Certificates accompanied by a written instrument or instruments of transfer in
form reasonably satisfactory to the Company, duly executed by the Holder or
Holders thereof or by the duly appointed legal representative thereof or by a
duly authorized attorney; provided, however, that prior to effecting such
-------- -------
transfer,
-5-
<PAGE>
the transferee shall agree (in a form reasonably satisfactory to the Company) to
be bound by the terms of this Agreement. Upon any such registration of transfer,
a new Warrant Certificate shall be issued to the transferee(s) and the
surrendered Warrant Certificate shall be canceled. Until the Warrant Certificate
is transferred on the Warrant register of the Company, the Company may treat the
Holder as shown in the Warrant register as the absolute owner of the Warrant
Certificate for all purposes, and notwithstanding any notice to the contrary.
The Company agrees that it will make the Warrant register available for
inspection by the Holders for a proper purpose during normal business hours at
its office.
(b) The Holders agree that each Warrant Certificate and each
certificate representing Warrant Stock will bear the following legend (the
"Securities Legend"):
-----------------
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS.
SAID SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
FROM THE REGISTRATION PROVISIONS OF SAID ACT OR
LAWS. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO THE TERMS OF A
SECURITIES PURCHASE AGREEMENT, DATED AS OF AUGUST
30, 1999, BETWEEN HYBRID NETWORKS, INC. (THE
"COMPANY") AND SPRINT CORPORATION (THE
"PURCHASER"), A WARRANT AGREEMENT DATED AS OF
SEPTEMBER 9, 1999, BETWEEN THE COMPANY AND THE
PURCHASER, AND A REGISTRATION RIGHTS AGREEMENT,
DATED AS OF SEPTEMBER 9, 1999, BETWEEN THE COMPANY
AND THE PURCHASER, COPIES OF EACH OF WHICH ARE ON
FILE AT THE MAIN OFFICE OF THE COMPANY. ANY SALE OR
TRANSFER OF THE SECURITIES EVIDENCED BY THIS
CERTIFICATE IS SUBJECT TO THE TERMS OF THOSE
AGREEMENTS AND ANY SALE OR TRANSFER OF SUCH
SECURITIES IN VIOLATION OF SAID AGREEMENTS SHALL BE
INVALID."
(c) If the holder of the Warrants or Warrant Stock delivers to the
Company an opinion of King & Spalding or such other counsel that no subsequent
transfer of such Warrants or Warrant Stock shall require registration under the
Securities Act, the Company shall promptly upon such contemplated transfer
deliver new certificates for such Warrants or Warrant Stock which do not bear
the Securities Legend; provided, however, that if at such time, any such
-------- -------
Warrants or Warrant Stock remain subject to certain provisions of this Agreement
or the Purchase Agreement, the Company shall not remove the Securities Legend,
but shall modify it to
-6-
<PAGE>
delete all references to restrictions or conditions on sale of Warrants or
Warrant Stock except those references to restrictions or conditions which are
specified in this Agreement or the Purchase Agreement.
(d) If any Warrants or Warrant Stock are or become eligible for sale
pursuant to Rule 144(k), the Company, upon the request of holders of any such
Warrants or Warrant Stock, shall remove the Securities Legend from the
certificates for such Warrants or Warrant Stock; provided, however, that if at
-------- -------
such time, any such Warrants or Warrant Stock remain subject to certain
provisions of this Agreement or the Purchase Agreement, the Company shall not
remove the Securities Legend, but shall modify it to delete all references to
restrictions or conditions on sale of the Warrants or Warrant Stock except those
references to restrictions or conditions which are still applicable and
specified in this Agreement or the Purchase Agreement.
(e) Warrant Certificates may be exchanged at the option of the
Holder(s) thereof when surrendered to the Company at its office for another
Warrant Certificate or other Warrant Certificates of like tenor and representing
in the aggregate a like number of Warrants, including, without limitation, upon
an adjustment in the Exercise Price or in the number of Warrant Shares
purchasable upon exercise of the Warrants. Warrant Certificates surrendered for
exchange shall be cancelled.
SECTION 7. Payment of Taxes. The Company will pay all stamp,
----------------
transfer and similar taxes in connection with the issuance, sale and delivery of
the Warrants hereunder, as well as all such taxes attributable to the initial
issuance of Warrant Stock upon the exercise of Warrants and payment of the
appropriate Exercise Price. The Company will not, however, be required to pay
any such taxes imposed in connection with any transfer of any Warrants or
Warrant Stock or any federal or state income taxes payable in respect of any
Holder's purchase, ownership, sale, transfer, exercise or other disposition of
Warrants or Warrant Stock.
SECTION 8. Mutilated or Missing Warrant Certificates. Upon receipt
-----------------------------------------
by the Company of evidence reasonably satisfactory to the Company (which shall
include an affidavit of the Holder) that any Warrant Certificate shall have been
mutilated, lost, stolen or destroyed and, in the case of loss, theft or
destruction, a customary indemnity agreement from the Holder of such Warrant
Certificate, the Company shall issue, in exchange and substitution for and upon
cancellation of the mutilated Warrant Certificate, or in lieu of and
substitution for the Warrant Certificate lost, stolen or destroyed, a new
Warrant Certificate of like tenor and representing an equivalent number of
Warrants.
SECTION 9. Reservation of Warrant Stock. The Company will at all
----------------------------
times prior to the Expiration Date reserve and keep available, free from
preemptive or similar rights, out of the aggregate of its authorized but
unissued capital stock or its authorized and issued capital stock held in its
treasury, for the purpose of enabling it to satisfy any obligation to issue
Warrant Stock upon conversion of the Warrant Debentures, the maximum number of
shares of each class of capital stock constituting a part of the Warrant Stock
which may then be deliverable upon the conversion of the maximum number Warrant
Debentures that may be issued upon exercise of the Warrants. The Company or, if
appointed, the transfer agent for shares of each class of capital stock of the
Company (the "Transfer Agent") and every subsequent transfer agent
--------------
-7-
<PAGE>
for any shares of the Company's capital stock issuable upon the conversion of
the Warrant Debentures will be irrevocably authorized and directed at all times
to reserve such number of authorized shares as shall be required for such
purpose. The Company will keep a copy of this Agreement on file with the
Transfer Agent and with every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of the rights of purchase
represented by the Warrants and the Warrant Debentures. Before taking any action
which would cause an adjustment to the maximum number of shares of Warrant Stock
deliverable upon the conversion of the maximum number of Warrant Debentures that
may be issued upon exercise of the Warrants, the Company shall cause to be
authorized additional shares of Common Stock such that the sum of such maximum
number of shares of Warrant Stock and the number of shares of Common Stock
outstanding or issuable pursuant to outstanding rights, options or warrants as
of such date does not exceed the number of shares of Common Stock authorized
pursuant to the Company's certificate of incorporation.
SECTION 10. Notices. All notices, consents, approvals, agreements and
-------
other communications provided hereunder shall be in writing and delivered
personally, by mail, by overnight courier (providing proof of delivery) or by
telecopy and shall be sufficiently given to the Purchaser and the Company if
addressed or delivered to them at the following addresses:
If to Company: Hybrid Networks, Inc.
6409 Guadalupe Mines Road
San Jose, CA 95120-5000
Attention: Carl S. Ledbetter
Telephone No.: (408) 323-6255
Facsimile No.: (408) 323-6470
with a copy to: Fenwick & West
Two Palo Alto Square
Palo Alto, California 94306
Attention: Edwin N. Lowe
Telephone No.: (650) 858-7247
Facsimile No.: (650) 494-1417
If to the Purchaser: Sprint Corporation
2330 Shawnee Mission Parkway
Westwood, Kansas 66205
Attention: General Counsel
Telephone No.: (913) 624-8440
Facsimile No.: (913) 624-8426
with a copy to: King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303-1763
Attention: Michael J. Egan III
Telephone No.: (404) 572-4753
Facsimile No.: (404) 572-5145
-8-
<PAGE>
or at such other address as any party may designate to any other party by
written notice. All such notices and communications shall be deemed to have
been duly given: (i) at the time delivered by hand, if personally delivered,
(ii) when received, if deposited in the mail, postage prepaid, (iii) when
transmission is verified, if telecopied, and (iv) on the next Business Day, if
timely delivered to an air courier guaranteeing overnight delivery.
SECTION 11. Successors. Except as otherwise expressly provided
----------
herein or in the Warrants, all covenants and agreements of this Agreement by or
on behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns, including those by operation of law,
merger or consolidation. In addition, except as otherwise expressly provided in
the Warrants, and whether or not any express assignment has been made, the
provisions of this Agreement which are for Purchaser's benefit as a purchaser or
Holder of a Warrant or Warrant Stock are also for the benefit of, and
enforceable by, any subsequent Holder of such a Warrant or Warrant Stock.
SECTION 12. Governing Law. This Agreement shall be deemed to be a
-------------
contract made under the laws of the State of Delaware and for all purposes shall
be construed in accordance with the internal laws of said state.
SECTION 13. Benefits of this Agreement. Nothing in this Agreement
--------------------------
shall be construed to give to any Person other than the Company and the Holders
any legal or equitable right, remedy or claim under this Agreement; this
Agreement shall be for the sole and exclusive benefit of the Company and the
Holders.
SECTION 14. Counterparts. This Agreement may be executed in any
------------
number of counterparts and each such counterpart shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
one and the same instrument.
SECTION 15. Amendment; Waivers. Except as otherwise expressly
------------------
provided herein, the provisions of this Agreement may be amended or waived and
the Company may take any action herein prohibited, or fail to take any action
herein required to be performed by it if, but only if, the Company has obtained
the written consent of the Holders of a majority of the Warrants in existence at
the time such amendment or waiver becomes effective. No failure or delay by any
party in exercising any right or remedy hereunder shall operate as a waiver
thereof, nor shall a waiver of a particular right or remedy on one occasion be
deemed a waiver of any other right or remedy or a waiver of the same right or
remedy on any subsequent occasion.
SECTION 16. Jurisdiction. Each of the parties hereto hereby agrees
------------
that any legal action or proceeding against such party with respect to this
Agreement, the Warrants or the Warrant Stock may be brought in the courts of the
State of Delaware or of the United States of America for the District of
Delaware as the other party may elect, and, by execution and delivery hereof,
such party accepts and consents for itself and in respect of its property,
generally and unconditionally, the jurisdiction of the aforesaid courts and
agrees that such jurisdiction shall be exclusive, unless waived by the other
party in writing, with respect to any action or proceeding brought by such party
against the other party. Each of the parties hereto irrevocably consents to
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<PAGE>
the service of process out of any of the aforementioned courts in any such
action or proceeding by the mailing of the copies thereof by certified mail,
return receipt requested, postage prepaid, to it at its address set forth
herein, such service to become effective upon the earlier of (i) the date ten
calendar days after such mailing and (ii) any earlier date permitted by
applicable law.
SECTION 17. Specific Performance. The Company and the Holders
--------------------
recognize that the rights of the Holder(s) and the Company under this Agreement
are unique and, accordingly, the Holder(s) and the Company shall, in addition to
such other remedies as may be available to any of them at law or in equity, have
the right to enforce their rights hereunder and thereunder by actions for
injunctive relief and specific performance to the extent permitted by law. The
Company and the Holders agree that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by them of the
provisions of this Agreement and the Company and each of the Holders hereby
agrees to waive in any action for specific performance the defense that a remedy
at law would be adequate. This Agreement is not intended to limit or abridge
any rights of the Holder(s) or the Company which may exist apart from this
Agreement.
SECTION 18. Entire Agreement. The parties hereto agree that this
----------------
Agreement, the Purchase Agreement, the Confidentiality Agreement and the other
Transaction Documents constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings between them as to such subject matter; and there are no
restrictions, agreements, arrangements, oral or written, between any or all of
the parties relating to the subject matter hereof which are not fully expressed
or referred to herein or therein.
SECTION 19. Severability. If any provision of this Agreement shall be
------------
held or deemed to be, or shall in fact be, invalid, inoperative or unenforceable
as applied to any particular case in any jurisdiction or jurisdictions, or in
all jurisdictions or in all cases, because of the conflict of any provision with
any constitution, statute, rule or public policy, or for any other reason, such
circumstances shall not have the effect of rendering the provision or provisions
in question, invalid, inoperative or unenforceable in any other jurisdiction or
in any other case or circumstance or of rendering any other provision or
provisions herein contained invalid, inoperative or unenforceable to the extent
that such other provisions are not themselves actually in conflict with such
constitution, statute, rule or public policy, but this Agreement shall be
reformed and construed in any such jurisdiction or case as if such invalid,
inoperative or unenforceable provision had never been contained herein and such
provision reformed so that it would be valid, operative and enforceable to the
maximum extent permitted in such jurisdiction or in such case.
SECTION 20. Additional Warrants.
-------------------
(a) If at any time or from time-to-time prior to March 9, 2000, (i)
the Company amends the terms of the Senior Secured Convertible Debenture, dated
April 20, 1997, issued to London Pacific Life & Annuity Company (the "Senior
Debenture") or enters into any other arrangement with the holder of the Senior
Debenture, in either case that increases the number of shares of Common Stock of
the Company on a Fully Diluted Basis, then, simultaneously with
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<PAGE>
such transaction the Company shall issue to the Purchaser such number of
additional Warrants as is necessary to cause the Purchaser's Interest
immediately following the consummation of any such transaction to equal the
Purchaser's Interest immediately prior to the consummation of any such
transaction.
(b) If (i) third party equity (including any debt convertible into
equity) financing (the "Third Party Financing") is consummated on or within 30
days following the closing date under the Purchase Agreement and (ii) either of
the following events occurs (A) the holder of the Senior Debenture gives notice
to the Company prior to March 9, 2000, demanding payment or accelerating the
maturity of any portion of the principal amount of the Senior Debenture (whether
such notice is given before or after the consummation of the Third Party
Financing), and the Company subsequently at any time repays all or any portion
of the principal amount of the Senior Debenture prior to maturity or (B) prior
to March 9, 2000, the Company voluntarily repays all or any portion of the
principal amount of the Senior Debenture, then the Company shall, simultaneously
with the repayment of the applicable portion of the principal amount of the
Senior Debenture (the "Repaid Amount"), issue to the Purchaser an additional
number of Warrants equal to: 2.85 times (1) the amount by which the number of
shares of Common Stock that are issued or issuable upon exercise or conversion
of an amount of the securities issued by the Company in the Third Party
Financing equal to the Repaid Amount exceeds the number of shares of Common
Stock into which the Repaid Amount of the Senior Debenture would have been
convertible divided by (2) three (rounded to the nearest whole Warrant). If all
----------
or any portion of the principal amount of the Senior Debenture is repaid under
the circumstances described above in more than one installment, the above
provisions shall apply (and additional Warrants will be issued) with respect to
each such repayment of all or any portion of such principal amount.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
HYBRID NETWORKS, INC.
By: /s/ Carl S. Ledbetter
-----------------------------------
Name: Carl S. Ledbetter
Title: Chairman and Chief Executive Officer
SPRINT CORPORATION
By: /s/ Theodore H. Schell
-------------------------------------
Name: Theodore H. Schell
Title: Senior Vice President
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<PAGE>
EXHIBIT 3
1999 AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
The Amended and Restated Investor Rights Agreement dated as of September
18, 1997 among Hybrid Networks, Inc. (the "Company") and certain holders of
securities of the Company, as amended by the amendments dated October 16, 1997
and November 6, 1997 (the "Original Agreement"), is hereby amended and restated
in its entirety by this 1999 Amended and Restated Investor Rights Agreement
dated as of September 9, 1999 among the Company, Sprint Corporation, a Kansas
corporation ("Sprint"), and the holders of a majority of the Registrable
Securities outstanding immediately prior to this Amendment. Except as provided
otherwise herein, the terms used in this Amendment that are defined in the
Original Agreement have the same meanings as those terms have in the Original
Agreement.
The Original Agreement is hereby amended and restated in its entirety by
this Amendment as follows (the Original Agreement, as amended and restated by
this Amendment, is referred to as this "Agreement"):
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Act"), and the declaration or ordering of effectiveness of such registration
statement or document;
(b) The term "Registrable Securities" means (1) shares of Common
Stock issued upon conversion of the Company's Preferred Stock in connection with
the Company's initial public offering; (2) shares of Common Stock issued or
issuable upon conversion or exercise of any of the warrants (the "Alcatel
Warrants") issued by the Company in November 1999 to Alcatel SEL AG ("Alcatel"),
the warrants (the "Bank Warrants") issued by the Company in October 1997 to
Venture Banking Group, a division of Cupertino National Bank (the "Bank"), the
warrants (the "Note Warrants") issued by the Company in September 1999 pursuant
to a Subordinated Note Purchase Agreement to purchasers of subordinated notes
(the "Note Warrant Investors"), the warrant (the "Alex. Brown Warrant") issued
by the Company in 1996 to Alex. Brown & Sons Incorporated, the warrants issued
by the Company in 1996 (the "June 1996 Financing Warrants") to various investors
pursuant to a Convertible Note Agreement and related agreements, the warrants,
including the debentures issued or issuable upon exercise of such warrants (the
"Sprint Warrants"), issued by the Company in September 1999 to Sprint pursuant
to the Securities Purchase Agreement dated August 30, 1999 between the Company
and Sprint (the "Sprint Agreement"); (3) shares of Common Stock issued or
issuable upon conversion of any of the Company's Senior Secured Convertible
Debenture due 2002 and issued by the Company in 1997 (the "Debenture"), the
debentures issued by the Company in September 1999 to Sprint pursuant to the
Sprint Agreement (the "Sprint Debentures") and the debentures issued by the
Company in September 1999 (the "1999 Investor Debentures") to OSCCO III, L.P.
("OSCCO"), Gary Lauder ("Lauder") and partnerships affiliated with Accel
Partners (the "Accel Partnerships") pursuant to the Security Purchase Agreement
dated August 30, 1999 among the Company and OSCCO, Lauder and certain Accel
<PAGE>
Partnerships (Sprint, OSCCO, Lauder and such Accel Partnerships are referred to
herein as the "Current Investors"); and (4) any securities of the Company or any
successor to the Company issued or issuable with respect to any Registrable
Securities referred to in (1), (2) and (3) of this definition, whether by means
of conversion, exchange, dividend or other distribution or stock split, or in
connection with any combination of shares, recapitalization, merger,
consolidation or other reorganization or restructuring or any other transaction
in which the Company's securities are affected, excluding in all cases, however,
any Registrable Securities sold, transferred or otherwise assigned by a person
or entity in a transaction in which his rights under this Section 1 are not
assigned.
(c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities;
(d) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.11 hereof; and
(e) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the Securities and Exchange Commission ("SEC") which permits
inclusion of incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
1.2 Company Registration.
1.2.1 Demand Registration.
(a) Sprint shall have the right on two occasions to require that
the Company register under the Securities Act the offer or sale of all or a
portion of Sprint's Registrable Securities (any such registration is referred to
as a "Demand Registration").
(b) Procedures for Demand Registrations
(i) Sprint shall exercise the right to a Demand
Registration pursuant to this Section 1.2.1 by furnishing the Company with
written notice (a "Demand Notice") which sets forth the number of Registrable
Securities requested to be so registered and the intended method or methods of
distribution of such Registrable Securities.
(ii) Upon receipt by the Company of a Demand Notice, the
Company shall promptly notify each other Holder in writing of such request for
registration and the intended method or methods of distribution (and any other
information contained in the applicable Demand Notice), and such other Holders
will have the right to participate in the registration pursuant to Section
1.2.2, subject to Section 1.6.
(iii) After receipt of a Demand Notice, the Company shall
use its best efforts to promptly file with the SEC (but in any case within the
later of 30 days after the date of such receipt or 20 days after the date of the
last request for registration received by a Holder
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<PAGE>
pursuant to Section 1.2.2) a registration statement which shall cover all
Registrable Securities requested to be registered as set forth above. Subject to
the provisions of Section 1.6 below, each registration statement may include
securities to be sold for the account of the Company, any Holder pursuant to
Section 1.2.2 (as indicated above) or for any other stockholder of the Company
not holding Registrable Securities.
(c) Underwriters. Sprint shall have the right to select the
lead managing underwriter for any underwritten public offering in connection
with a Demand Registration.
(d) No Demand Used Under Certain Circumstances; Withdrawal.
(i) Sprint and/or any Participating Holder may, no less
than five business days before a registration statement filed under this Section
1.2.1 becomes effective, withdraw its Registrable Securities from inclusion
therein. In the event of such withdrawal, (A) Sprint may elect to be deemed not
to have requested a Demand Registration in respect of such registration
statement, provided that, within 30 days after such withdrawal, Sprint notifies
the Company in writing of Sprint's election and promptly reimburses the Company
for the costs incurred by the Company in connection with such registration
statement, or (B) if Sprint does not so elect, Sprint shall be deemed to have
exercised a Demand Registration right under this Section 1.2.1 but shall not be
obligated to reimburse the Company for the costs incurred by the Company in
connection with such registration statement.
(ii) A Demand Registration shall not be deemed to have been
effected for purposes of this Agreement until the applicable registration
statement shall have been declared effective under the Act by the SEC (and is
not then subject to any stop order, injunction or other order or requirement of
the SEC or other governmental agency or court for any reason) for the required
period.
(iii) If (A) the registration statement does not remain
effective under the Act for the required period under the Act due to a stop
order, injunction or other order of the SEC or other governmental agency and (B)
Sprint has sold less than 75% of all of its Registrable Securities registered
under such registration statement, then Sprint may elect to withdraw such
Registration Statement by prompt written notice to the Company. If such
withdrawal occurs, such registration shall not be deemed to have been a Demand
Registration by Sprint.
(e) Effectiveness of Registration Statement. In connection with
any Demand Registration, the Company will use its commercially reasonable
efforts to promptly prepare and file with the SEC any amendments and supplements
to the registration statement and the prospectus used in connection therewith,
and to take any other actions as may be necessary to keep the registration
statement and the prospectus effective, current and in compliance with the
provisions of the Act, until the sooner to occur of (i) the sale of all of the
Registrable Securities covered by such registration statement in accordance with
the intended methods of distribution thereof or (ii) the 90th day following the
effective date of such Registration Statement.
Section 1.2.2 Piggyback Registration.
3
<PAGE>
(a) If, for the Company's own account or for a shareholder or
any Holder, the Company proposes to register (including for this purpose a
registration effected by the Company for stockholders other than the Holders)
any of its Common Stock (or any securities described in Section 1.1(b)(4)) under
the Act in connection with the public offering of such securities solely for
cash (other than a registration relating solely to the sale of securities to
participants in a Company stock plan, a registration on Form S-4 (or any
successor form) or on Form S-8 (or any successor form)), the Company shall, at
such time and prior to filing any registration statement in connection
therewith, promptly give each Holder written notice of such proposed
registration. Upon the written request of each Holder given within 20 days after
mailing of such notice by the Company in accordance with Section 2.5, the
Company shall, subject to the provisions of Section 1.6, cause to be registered
under the Act all of the Registrable Securities that each such Holder has
requested to be registered.
(b) The purchasers of shares of Common Stock from Howard L.
Strachman in the Agreement for Sale of Common Stock among Mr. Strachman and
others in June 1996, shall be entitled to include any of their shares of Common
Stock in any registration by the Company under this Section 1.2.2 if such
persons agree to be bound by all other provisions of this Agreement and
participate in any such registration on the same basis as each Holder in
accordance with all applicable provisions of this Agreement.
1.3 Obligations of the Company. Whenever required under this Section
1 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for the required period under Section 1.2.1(e).
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement, subject in the case of a registration statement
pursuant to Section 1.2.1 to prior review and opportunity to comment by Holders
participating in such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
4
<PAGE>
(e) In the event of any underwritten public offering:
(i) enter into and perform its obligations under an
underwriting agreement, in usual and customary form, with the managing
underwriter of such offering;
(ii) complete and execute customary indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements and cause appropriate officers and directors
to complete and execute customary questionnaires and powers of attorney;
(iii) make available for inspection by any selling
stockholder covered by such Registration Statement, any underwriter
participating in any disposition pursuant to such Registration Statement and any
attorney, accountant or other professional retained by any such selling
stockholder or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company as shall be reasonably necessary to
enable them to exercise their due diligence responsibility in connection
therewith, and cause the Company's officers, directors and employees to supply
all information reasonably requested by any of such persons in connection with
such Registration Statement;
(iv) provide, in the case of Demand Registrations, for
participation by officers and employees of the Company in customary "road show"
presentations as reasonably requested by one or more of the proposed managing
underwriters for any such public offering; and
(v) furnish to each selling stockholder and to each
underwriter a signed counterpart of (A) an opinion or opinions of outside
counsel to the Company addressed to such selling stockholder and underwriters
(on which opinion both such selling stockholder and each such underwriter shall
be entitled to rely) and (B) a comfort letter or comfort letters from the
Company's independent public accountants, each in customary form and covering
such matters of the type customarily covered by opinions or comfort letters, as
the case may be, as the holders of a majority of the Registrable Securities
included in such Registration Statement or the managing underwriter therefore
reasonably requests.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to this Section 1, on the date
that such Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Section 1, if such securities
are being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion, dated such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
5
<PAGE>
registration of Registrable Securities and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.
(h) Use its commercially reasonable efforts to cause such
Registrable Securities covered by a registration statement to be listed on the
principal exchange or exchanges or qualified for trading on the principal over
the counter market on which securities of the same class and series as the
Registrable Securities (or into which such Registrable Securities will be or
have been converted) are then listed or traded upon the sale of such Registrable
Securities pursuant to such registration statement.
1.4 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
1.5 Expenses of Company Registration. The Company shall bear and pay
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.2 and Section 1.10 for each Holder (which right may be
assigned as provided in Section 1.11), including (without limitation):
(i) all registration, filing and qualification fees;
(ii) printers and accounting fees and expenses (including
fees and expenses relating to the preparation of comfort letters and any related
review of Company matters pursuant to Statement of Accounting Standards 71,
"Interim Financial Information" in connection therewith) relating or
apportionable thereto;
(iii) all expenses relating to compliance with blue sky
laws, as applicable;
(iv) all fees and expenses of counsel to the Company and
any experts (other than accountants) retained by the Company in connection with
such registration, filing or qualification;
(v) all costs and expenses in connection with listing the
shares offered on the exchange or quotation system on which the Company's shares
are then listed or quoted;
(vi) all expenses incurred by the Company in connection
with marketing and "road shows" pursuant to Section 1.3(e); and
(vii) the reasonable fees and disbursements of one counsel
for the selling Holders selected by them, but excluding underwriting discounts
and commissions relating to Registrable Securities.
6
<PAGE>
1.6 Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's Common Stock, the Company
shall not be required under Section 1.2.2 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters) and any Holders participating
pursuant to Section 1.2.1, and then only in such quantity as the underwriters
determine in their sole discretion will not jeopardize the success of the
offering by the Company. If the total amount of securities, including
Registrable Securities included in such offering exceeds the amount of
securities that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering with securities
having least priority eliminated first, as follows:
(a) first priority to any securities offered by Sprint pursuant
to Section 1.2.1;
(b) next priority, in any offering in which Sprint has exercised
its registration rights under Section 1.2.1, to any securities offered by
Current Investors pursuant to Section 1.2.2;
(c) next priority to securities offered by the Company, but only
if the Company initiates the offering and Sprint is not participating pursuant
to Section 1.2.1;
(d) next priority to securities offered by Holders pursuant to
Section 1.2.2 (other than Current Investors if subpart (b) above applies), pro
rata with any securities offered by the Company if subpart (c) above applies;
and
(e) last priority to securities offered by any other
stockholders.
All securities that are offered by Holders having the same priority will be
apportioned pro rata among such selling stockholders according to the total
amount of securities entitled to be included therein owned by each selling
stockholder or in such other proportions as shall mutually be agreed to by such
selling stockholders. For purposes of such apportionment, for any selling
stockholder which is a holder of Registrable Securities and which is a
partnership or corporation, the partners, retired partners and stockholders of
such holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "selling stockholder", and any pro-rata reduction with
respect to such "selling stockholder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "selling stockholder," as defined in this sentence.
1.7 Delay of Registration. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.8 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 1:
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(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the Securities Exchange Act of 1934, as amended (the
"1934 Act"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively a "Violation"): (i)
any untrue statement or alleged untrue statement of a material fact contained or
incorporated by reference in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
contained or incorporated by reference therein not misleading, or (iii) any
violation or alleged violation by the Company of the Act, the 1934 Act, any
state securities law or any rule or regulation promulgated under the Act, the
1934 Act or any state securities law; and the Company will pay to each such
Holder, underwriter or controlling person, any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this subsection 1.8(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case to a particular Holder, indemnitor or controlling person for any such loss,
claim, damage, liability, or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
severally indemnify and hold harmless the Company, each of its directors, each
of its officers who has signed the registration statement, each person, if any,
who controls the Company within the meaning of the Act, any underwriter, any
other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereto) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by such Holder
expressly for use in connection with such registration; and each such Holder
will pay any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this subsection 1.8(b), in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
1.8(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; provided, that,
in no event shall any indemnity under this subsection 1.8(b) exceed the gross
proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party
8
<PAGE>
under this Section 1.8, deliver to the indemnifying party a written notice of
the commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party (together with all other indemnified parties which may
be represented without conflict by one counsel) shall have the right to retain
one separate counsel, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 1.8, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 1.8.
(d) If the indemnification provided for in this Section 1.8 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in a customary
underwriting agreement entered into in connection with the underwritten public
offering are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control. Any such customary underwriting agreement
will include indemnity by the underwriters in favor of the Holders participating
in the offering.
(f) The obligations of the Company and Holders under this
Section 1.8 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.9 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
9
<PAGE>
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after 90 days after the
effective date of the first registration statement filed by the Company for the
offering of its securities to the general public;
(b) take such action, including the voluntary registration of
its Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after 90 days after the effective date of the first registration
statement filed by the Company), the Act and the 1934 Act (at any time after it
has become subject to such reporting requirements), or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
1.10 Form S-3 Registration.
(a) In case the Company shall receive from any Holder or Holders
who own, in the aggregate, at least 30% of the outstanding shares of Registrable
Securities, a written request or requests that the Company effect a registration
on Form S-3 and any related qualification or compliance with respect to all or a
part of the Registrable Securities owned by such Holder or Holders, the Company
will:
(i) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and
(ii) as soon as practicable effect such registration and
all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written request
given within 15 days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this section 1.10(a): (1)
if Form S-3 is not available for such offering by the Holders; (2) if the
Holders, together with the holders of any other securities of the Company
entitled to inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) at an aggregate price to the
public (net of any underwriters' discounts or commissions) of less than
$500,000; (3) if
10
<PAGE>
the Company shall furnish to the Holders a certificate signed by the President
of the Company stating that, in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its stockholders for such Form S-3 registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than 120 days after receipt of
the request of the Holder or Holders under this Section 1.10(a); provided,
however, that the Company shall not utilize this right more than once in any 12-
month period; (4) if the Company has, within the 12-month period preceding the
date of such request, already effected one registration on Form S-3 for the
Holders pursuant to this Section 1.10(a); (5) in any particular jurisdiction in
which the Company would be required to qualify to do business or to execute a
general consent to service of process in effecting such registration,
qualification or compliance.
(iii) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders.
(b) In addition to the registration rights provided for in Sections
1.1, 1.2 and 1.10(a), the Note Warrant Investors with respect to any Registrable
Securities issued or issuable upon exercise of any Note Warrants, the Bank with
respect to any Registrable Securities issued or issuable upon exercise of any
Bank Warrants, Alcatel with respect to any Registrable Securities issued or
issuable upon any Alcatel Warrants and the Current Investors with respect to any
Registrable Securities issued or issuable upon exercise or conversion of any
Sprint Warrants, Sprint Debentures or 1999 Investor Debentures, as applicable
(the Note Warrant Investors, the Bank, Alcatel and the Current Investors are
referred to herein as the "Special Holders") shall be entitled, collectively,
to one demand shelf-registration as provided in this Section 1.10(b). For the
purposes of this Section 1.10(b), (1) the term "Special Shares" refers to shares
of Common Stock of the Company that have been issued, or are issuable, upon
exercise or conversion of any Note Warrants, Bank Warrants, Alcatel Warrants,
Sprint Warrants, Sprint Debentures or 1999 Investor Debentures, as applicable
(collectively, the "Special Instruments"), and (2) a Special Holder shall be
deemed to own the number of Special Shares that are issuable upon the exercise
of Special Investments owned by such Special Holder as well as the number of
Special Shares that are currently issued and outstanding and owned by such
Special Holder. In the event that, the Company shall receive from Special
Holders that own, in the aggregate, a majority of the Special Shares a written
request or requests that the Company effect a registration on Form S-3 and any
related qualification or compliance with respect to all or a part of the Special
Shares owned by such Special Holder or Special Holders, the Company will:
(i) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all Special
Holders; and
(ii) as soon as practicable effect such registration and
all qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Special
Holder's or Special Holders' Special Shares as are specified in such request,
together with all or such portion of the Special Shares of any Special Holder or
Special Holders joining in such request as are specified in a written request
given within 15 days after receipt of such written notice from the Company;
provided, however, that the
11
<PAGE>
Company shall not be obligated to effect any such registration, qualification or
compliance pursuant to this Section 1.10(b): (1) if Form S-3 is not available
for such offering by the Special Holders other than as a result of a failure of
the Company to comply with any requirement, including the reporting requirements
of Sections 13 and 15 of the 1934 Act; (2) if the Company shall furnish to the
Special Holders requesting such registration a certificate signed by the
President of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its stockholders for such Form S-3 registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement until, in the good faith judgment of the Board of
Directors of the Company, it would no longer be seriously detrimental to the
Company and its stockholders for such Form S-3 registration to be effected (but
in no event for a period of more than 60 days after receipt of the request of
the Special Holder or Special Holders under this Section 1.10(b)); (3) in any
particular jurisdiction in which the Company would be required to qualify to do
business or to execute a general consent to service of process in effecting such
registration, qualification or compliance. If Form S-3 is not available for such
offering by the Special Holders as a result of a failure of the Company to
comply with any requirement, including the reporting requirements of Sections 13
and 15 of the 1934 Act, the Company shall effect such registration on Form S-1.
(iii) Subject to the foregoing, the Company shall file a
registration statement on Form S-3 covering the Special Shares so requested to
be registered as soon as practicable after receipt of the request or requests of
the Special Holder or Special Holders and shall use its best efforts to cause
the registration statement to become effective under the Act and to keep the
registration statement continuously effective under the Act and available for
the offer and sale of the Special Shares covered thereby for 180 days (or such
shorter period ending when all Special Shares covered by the registration
statement have been sold or are no longer entitled to registration under this
Section 1.10(b)). The Company will be deemed not to have used its best efforts
to keep the registration statement effective and available for such offer and
sale during the requisite period if the Company voluntarily takes any action
that would result in Special Holders of Special Shares covered thereby not being
able to offer and sell such Special Shares thereunder during any portion of that
period unless (1) such action is required by applicable law or (2) such action
is taken by the Company in good faith and for valid business reasons (not
including avoidance of the Company's obligations hereunder), including the
acquisition or divestiture of assets, so long as the Company promptly thereafter
causes the registration to become effective under the Act and available for such
offer and sale. In the event that the effectiveness or availability of the
registration statement is suspended during the requisite period, the Company
will be obligated to extend the period of effectiveness and availability of the
registration statement for a period that is at least equal to the period during
which such effectiveness or availability was suspended.
(iv) Each Special Holder that causes the Company to
register any of such Special Shares and under this Section 1.10(b) shall
immediately notify the Company in writing of any sales of Special Sales under
the registration statement and, if the effectiveness of the registration
statement is terminated in accordance with this Section 1.10(b), shall return to
the Company's transfer agent all stock certificates that represent any unsold
Note Warrant Shares so that the transfer agent may affix any appropriate
securities legends thereto.
12
<PAGE>
(v) Notwithstanding anything to the contrary in Section
2.7, any term of this Section 1.10(b) may be amended, and the observance of any
term of this Section 1.10(b) 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 Special Holders that then own a majority of all
Special Shares then owned by Special Holders. Any amendment or waiver effected
in accordance with this paragraph shall be binding upon the Company, each
Special Holder and each future holder of any Special Shares.
(vi) Any Form S-3 registration statement required pursuant
to this Section 1.10(b) shall not be required to include any Registrable
Securities that are freely tradable by the Holders thereof without registration
under the Act (including shares as to which paragraph (k) of Rule 144 under the
Act applies but not shares that are subject to applicable holding period, volume
limitation or manner of sale and notice requirements of paragraphs (d), (e),
(f), (g), (h) and (i) of Rule 144).
1.11 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities who, (i) after such assignment or transfer, holds at
least 50,000 shares of Registrable Securities (subject to appropriate adjustment
for stock splits, stock dividends, combinations and other recapitalizations),
and (ii) is not a person or entity deemed by the Board of Directors of the
Company in its best judgment, to be a competitor or potential competitor of the
Company; provided the Company is, within a reasonable time after such transfer,
furnished with written notice of the name and address of such transferee or
assignee and the securities with respect to which such registration rights are
being assigned; and provided, further, that such assignment shall be effective
only if immediately following such transfer the further disposition of such
securities by the transferee or assignee is restricted under the Act. For the
purposes of determining the number of shares of Registrable Securities held by a
transferee or assignee, the holdings of transferees and assignees of a
partnership who are partners or retired partners of such partnership (including
spouses and ancestors, lineal descendants and siblings of such partners or
spouses who acquire Registrable Securities by gift, will or intestate
succession) shall be aggregated together and with the partnership; provided that
all assignees and transferees who would not qualify individually for assignment
of registration rights shall have a single attorney-in-fact for the purpose of
exercising any rights, receiving notices or taking any action under this Section
1. For the purposes of determining the number of shares of Registrable
Securities held by any Note Warrant Investor, the shares of Registrable
Securities held by such Note Warrant Investor shall be aggregated with the
shares of Registrable Securities held by affiliates of the Note Warrant Investor
or any entities for which the Note Warrant Investor or its affiliates serve as
general partner and/or investment adviser or in a similar capacity, all mutual
funds or other pooled investment vehicles or entities under the common control
or management of such Note Warrant Investor, or the general partner or
investment adviser thereof, or any affiliate of the foregoing.
1.12 "Market Stand-Off" Agreement. Each signatory (including the
Company) to the Original Agreement or hereto or any prior or subsequent
amendment to the Original Agreement or hereto hereby agrees that, during the
period of duration specified by the Company and an underwriter of Common Stock
of the Company not to exceed 180 days following the effective date of a
registration statement of the Company filed under the Act (including filings
pursuant to Section
13
<PAGE>
1.2.1), such signatory shall not, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of (other than to donees who
agree to be similarly bound) any securities of the Company held by it at any
time during such period except Common Stock included in such registration and
except to the extent otherwise consented to by such underwriter. To the extent
that any officer or director of the Company has not entered into a market stand-
off agreement of equivalent duration and effect with respect to any Company
securities beneficially owned by such officer or director, the Company shall use
best efforts to require each officer and director of the Company to enter into
such an agreement.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
1.13 Termination of Registration Rights. No Holder shall be entitled
to exercise any right provided for in this Section 1 after November 12, 2003.
Notwithstanding anything to the contrary in this Section 1, except as provided
otherwise in 1.10(b)(vi) or in the last sentence of this Section 1.13, no Holder
shall be entitled to cause the Company to register the sale or other transfer of
Restricted Securities if and so long as the intended sale or other transfer may
then be effectuated by such Holder in compliance with Rule 144 under the Act
without violating the holding period, volume limitations or other restrictions
of Rule 144. Notwithstanding anything to the contrary in this Section 1.13,
each Current Investor's rights under this Agreement will continue until the
later of (a) when such Current Investor's Registrable Securities may be sold
under Rule 144(k) or (2) when the Registrable Securities of such Current
Investor first represent fewer than 500,000 shares.
2. Miscellaneous.
2.1 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 Registrable Securities or Section 1.2(b) Shares).
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.
2.2 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
2.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
2.4 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.
14
<PAGE>
2.5 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or
facsimile transmission to such party to the facsimile number for such party on
the signature page hereof (or, for parties not executing this Agreement, the
facsimile number of such party on the stock records of the Company) or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof (or, for parties not
executing this Agreement, the address of such party on the stock records of the
Company), or at such other facsimile number or address as such party may
designate by ten days' advance written notice to the other parties.
2.6 Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, 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.
2.7 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 Registrable Securities then outstanding. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any Registrable Securities then outstanding, each future holder of all
such Registrable Securities, and the Company.
2.8 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.
2.9 Aggregation of Stock. All shares of Registrable Securities 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.
2.10 Entire Agreement. This Amended and Restated Investor Rights
Agreement (including the Schedules hereto) constitutes the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof.
15
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Investor Rights Agreement as of the date first above written.
COMPANY:
HYBRID NETWORKS, INC.
By: /s/ Carl S. Ledbetter
-----------------------------------------
Carl S. Ledbetter, Chief Executive Officer
Address: 6409 Guadalupe Mines Road
San Jose, CA 95120-5000
Facsimile Number: (408) 323-6470
16
<PAGE>
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Hybrid Networks, Inc. 1999 Amended and Restated Investor Rights Agreement
-------------------------------------------------------------------------
SPRINT CORPORATION
By: /s/ Theodore H. Schell
----------------------------------
Theodore H. Schell
Its: Senior Vice President
---------------------------------
Address: 2330 Shawnee Mission Parkway
Westwood, Kansas 66205
Facsimile Number: (913) 624-8426
<PAGE>
Signature Page to
-----------------
Hybrid Networks, Inc. 1999 Amended and Restated Investor Rights Agreement
-------------------------------------------------------------------------
OSCCO III, L.P.
By: /s/ Stephen E. Halprin
-----------------------------------
Stephen E. Halprin
Address:
------------------------------
------------------------------
Facsimile Number:
---------------------
<PAGE>
Signature Page to
-----------------
Hybrid Networks, Inc. 1999 Amended and Restated Investor Rights Agreement
-------------------------------------------------------------------------
/s/ Gary M. Lauder
--------------------------------------------
Gary M. Lauder
(Executing this Agreement as a Series B Investor)
Address:
-----------------------------------
-----------------------------------
Facsimile Number:
--------------------------
<PAGE>
Signature Page to
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Hybrid Networks, Inc. 1999 Amended and Restated Investor Rights Agreement
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SEQUOIA CAPITAL VI
By: /s/ Douglas M. Leone
-------------------------------------
Its:
------------------------------------
Address: 3000 Sand Hill Road,
Building 4, Suite 280
Menlo Park, CA 94025
Facsimile Number: (650) 854-2977
SEQUOIA TECHNOLOGY PARTNERS VI
By: /s/ Douglas M. Leone
-------------------------------------
Its:
------------------------------------
Address: 3000 Sand Hill Road,
Building 4, Suite 280
Menlo Park, CA 94025
Facsimile Number: (650) 854-2977
SEQUOIA XXIV
By: /s/ Douglas M. Leone
------------------------------------
Its:
-----------------------------------
Address: 3000 Sand Hill Road,
Building 4, Suite 280
Menlo Park, CA 94025
Facsimile Number: (650) 854-2977
<PAGE>
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-----------------
Hybrid Networks, Inc. 1999 Amended and Restated Investor Rights Agreement
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCEL IV L.P. ACCEL KEIRETSU L.P.
<S> <C>
By: Accel IV Associates L.P. By: Accel Partners & Co., Inc.
Its: General Partner Its: General Partner
By: /s/ G. Carter Sednaoui By: /s/ G. Carter Sednaoui
------------------------------ ---------------------------
Its: Its:
----------------------------- --------------------------
Address: One Palmer Square Address: One Palmer Square
Princeton, NJ 08542 Princeton, NJ 08542
Facsimile Number: (609) 683-0384 Facsimile Number: (609) 683-0384
ACCEL INVESTORS '95 L.P. ELLMORE C. PATTERSON PARTNERS
By: /s/ G. Carter Sednaoui By: /s/ G. Carter Sednaoui
------------------------------ ---------------------------
Its: Its:
----------------------------- --------------------------
Address: One Palmer Square Address: One Palmer Square
Princeton, NJ 08542 Princeton, NJ 08542
Facsimile Number: (609) 683-0384 Facsimile Number: (609) 683-0384
</TABLE>
<PAGE>
Signature Page to
-----------------
Hybrid Networks, Inc. 1999 Amended and Restated Investor Rights Agreement
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCEL VII L.P. ACCEL INTERNET FUND III L.P.
<S> <C>
By: Accel VII Associates L.L.C. By: Accel Internet Fund Associates L.L.C.
Its: General Partner Its: General Partner
By: /s/ G. Carter Sednaoui By: /s/ G. Carter Sednaoui
--------------------------- ----------------------------
Its: Managing Member Its: Managing Member
Address: One Palmer Square Address: One Palmer Square
Princeton, NJ 08542 Princeton, NJ 08542
Facsimile Number: (609) 683-0384 Facsimile Number: (609) 683-0384
ACCEL INVESTORS '99 L.P.
By: /s/ G. Carter Sednaoui
--------------------------
Its:
-------------------------
Address: One Palmer Square
Princeton, NJ 08542
Facsimile Number: (609) 683-0384
</TABLE>
<PAGE>
EXHIBIT 4
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THIS
DEBENTURE IS SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR AN EXEMPTION THEREFROM. HOLDER
SHOULD BE AWARE THAT HOLDER MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE MAKER OF THIS DEBENTURE MAY
REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO
THE MAKER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE
WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
HYBRID NETWORKS, INC.
4% Convertible Class A Debenture due 2009
$11,000,000 September 9, 1999
Hybrid Networks, Inc., a corporation duly organized and existing under the
laws of Delaware, and its permitted successors and assigns (herein called the
"Company"), for value received, hereby promises to pay to the order of Sprint
Corporation, a Kansas corporation, and its successors and assigns (the
"Holder"), the principal sum of ELEVEN MILLION DOLLARS ($11,000,000) on
September 9, 2009, together with any interest accrued and unpaid as of such
date, on the terms and conditions set forth herein.
Section I Term and Payment. During the term of this Debenture, the unpaid
principal amount hereof shall bear interest at the rate of 4% per annum, on a
360 days basis, actual days elapsed, which shall be payable quarterly in arrears
commencing on October 1, 1999 and thereafter on the first business day of each
calendar quarter (the "Interest Payment Date"). In lieu of paying such interest
in coin or currency, the Company will pay interest on this Debenture by adding
the amount of such interest to the outstanding principal amount due under this
Debenture ("PIK Interest") pursuant to a statement in the form of Exhibit 1
hereto ("PIK Statement") delivered by the Company to the Holder on or prior to
the applicable Interest Payment Date.
Section II Conversion Rights.
A. General. The Holder shall have the right to convert the principal of
this Debenture (or any portion of the principal hereof which is $1.00 or an
integral multiple of $1.00) into fully paid and nonassessable (except as
otherwise provided by law) shares of Common Stock of the Company, par value
$0.001 per share ("Common Stock"), at the rate of one share of Common Stock for
each $2.85 principal amount of Debenture
<PAGE>
(subject to adjustment as provided below, the "Conversion Price"). Such
conversion right shall be exercised by the surrender of the Debenture, the
principal of which is so to be converted, to the Company, accompanied by written
notice that the Holder elects to convert the Debenture or any portion thereof
and specifying the name or names (with address) in which a certificate or
certificates for Common Stock are to be issued. If this Debenture is converted
in part only, upon such conversion the Company shall execute and deliver to the
Holder a new Debenture or Debentures of authorized denominations in an aggregate
principal amount equal to the unconverted portion of such Debenture.
Notwithstanding any other provision of this Debenture to the contrary, this
Debenture is convertible at any time, at the option of the Holder, following the
first of the following to occur: (i) December 31, 1999 (unless the Company
agrees in writing to an earlier date), (ii) a Change of Control (as hereinafter
defined) of the Company or (iii) receipt by the Holder of a Change of Control
Notice (as hereinafter defined) from the Company. For purposes of this
Debenture, Change of Control means the occurrence of any of the following: (a)
any Person shall have acquired beneficial ownership of more than 25% of the
outstanding voting stock of the Company (within the meaning of Section 13(d) or
14(d) of the Exchange Act); or (b) individuals who immediately following the
Closing (as defined in the Securities Purchase Agreement between the Company and
the Holder dated August 30, 1999 (the "Purchase Agreement")) were directors of
the Company (which shall include the Purchaser Nominees) (together with any
replacement or additional directors who were nominated or appointed by a
majority of directors in office immediately following the Closing (as defined in
the Purchase Agreement) or by a majority of such directors and their nominees or
appointees) cease to constitute a majority of the Board of Directors of the
Company. In the event that a proposed Change of Control will occur pursuant to
an agreement to which the Company is a party, the Company shall give notice of
such proposed Change of Control (the "Change of Control Notice") to the Holder
at least 10 business days prior to the consummation of the transactions
contemplated by such agreement, which notice shall include a copy of such
agreement.
At any time on or after December 31, 2000, the Company shall have the right
to convert the principal of this Debenture (or any portion of the principal
hereof which is $1.00 or an integral multiple of $1.00) into fully paid and
nonassessable (except as otherwise provided by law) shares of Common Stock at
the Conversion Price. Such conversion right shall be exercised by the Company
giving twenty (20) days prior written notice of such conversion to the Holder.
If this Debenture is converted in part only, upon such conversion the Company
shall execute and deliver to the Holder a new Debenture or Debentures of
authorized denominations in an aggregate principal amount equal to the
unconverted portion of the Debenture.
As of the date hereof (assuming for these purposes that this Debenture is
currently convertible), this Debenture is convertible into 3,859,649 shares of
Common Stock, which the Company represents and warrants constitutes 12.6977% of
the outstanding Common Stock on a Fully Diluted Basis (as defined in the
Purchase Agreement).
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B. Issuance of Common Stock; Time of Conversion. As promptly as
practicable after the surrender, as herein provided, of this Debenture for
conversion, the Company shall deliver to the Holder a certificate or
certificates representing the number of fully paid and nonassessable (except as
otherwise provided by law) shares of Common Stock of the Company into which this
Debenture (or portion thereof) may be converted together with payment in lieu of
any fraction of a share. Subject to the following provisions of this Debenture,
such conversion shall be deemed to have been made immediately prior to the close
of business on the date that this Debenture shall have been surrendered for
conversion (except that if such conversion is in connection with an underwritten
public offering of Common Stock, then such conversion shall be deemed to have
been effected upon such surrender), so that the rights of the Holder as a Holder
shall cease with respect to this Debenture (or portion thereof) being converted
at such time, and the Person or Persons entitled to receive the shares of Common
Stock deliverable upon conversion of this Debenture shall be treated for all
purposes as having become the record holder or holders of such shares of Common
Stock at such time, and such conversion shall be at the conversion rate in
effect at such time; provided, however, that no such surrender on any date when
the stock transfer books of the Company shall be closed shall be effective to
constitute the Person or Persons entitled to receive the shares of Common Stock
deliverable upon such conversion as the record holder or holders of such shares
of Common Stock on such date, but such surrender shall be effective to
constitute the Person or Persons entitled to receive such shares of Common Stock
as the record holder or holders thereof for all purposes immediately prior to
the close of business on the next succeeding day on which such stock transfer
books are open, and such conversion shall be deemed to have been made at, and
shall be made at the conversion rate in effect at, such time on such next
succeeding day. The term "Person" means any individual, corporation,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agent or political subdivision
thereof .
If the last day for the exercise of the conversion right shall not be a business
day, then such conversion right may be exercised on the next succeeding business
day.
C. Accrued Interest. Upon conversion, any unpaid interest, accrued to the
date of conversion of such Debenture, shall be included in the principal amount
so converted.
D. Conversion Price Adjustments. The Conversion Price shall be subject to
adjustment from time to time as follows:
1. (i) Upon each issuance by the Company of any Additional Stock (as
defined below), after the date hereof, without consideration (except as provided
in Section II.D.3 below) or for a consideration per share less than the
Conversion Price in effect immediately prior to the issuance of such Additional
Stock, the Conversion Price in effect immediately prior to each such issuance
shall forthwith (except as otherwise provided in this Section II.D.1) be
adjusted to a price determined by multiplying the Conversion Price by a
fraction, the numerator of which shall be the number of shares of
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Common Stock outstanding immediately prior to such issuance plus the number of
shares of Common Stock which the aggregate consideration received by the Company
for such issuance would purchase at the Conversion Price, and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such issuance plus the number of shares of such Additional Stock;
provided, however, that during the period commencing on the date hereof and
ending on February ___, 2000, upon issuance of Additional Stock for a
consideration per share (the "Issuance Price") less than the Conversion Price in
effect immediately prior to the issuance of such Additional Stock, the
Conversion Price in effect immediately prior to each such issuance shall
forthwith be adjusted to the Issuance Price.
(ii) No adjustment of the Conversion Price shall be made in an amount
less than one cent per share, provided that any adjustments which are not
required to be made by reason of this sentence shall be carried forward and
shall be either taken into account in any subsequent adjustment made prior to
three years from the date of the event giving rise to the adjustment being
carried forward, or shall be made at the end of three years from the date of the
event giving rise to the adjustment being carried forward. Except to the
limited extent provided for in Section II.D.1(v)(C) and II.D.1(v)(D) below, no
adjustment of the Conversion Price pursuant to this Section II.D.1 shall have
the effect of increasing the Conversion Price above the Conversion Price in
effect immediately prior to such adjustment.
(iii) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed, paid
or incurred by the Company for any underwriting or otherwise in connection with
the issuance and sale thereof.
(iv) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be fair value thereof as reasonably determined in good
faith by the Board of Directors of the Company irrespective of any accounting
treatment.
(v) In the case of the issuance (whether before, on or after the date
hereof) of options to purchase or rights to subscribe for Common Stock,
securities that are by their terms convertible into or exchangeable for Common
Stock or options to purchase or rights to subscribe for such convertible or
exchangeable securities, the following provisions shall apply for all purposes
of this Section II.D.1 and Section II.D.2:
(A) The aggregate maximum number of shares of Commons Stock deliverable upon
exercise (assuming the satisfaction of any conditions to exercisability,
including without limitation, the passage of time, but without taking into
account potential antidilution adjustments) of such options to purchase or
rights to subscribe for Common Stock shall be deemed to have been issued at
the time such options or rights were issued and for a consideration equal
to the consideration (determined in the manner provided in Sections
II.D.1(iii) and II.D.1(iv), except as
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provided in subsection II.D.1(v)(E)), if any, received by the Company upon
the issuance of such options or rights plus the minimum exercise price
provided in such options or rights (without taking into account potential
antidilution adjustments) for the Common Stock converted thereby.
(B) The aggregate maximum number of shares of Common Stock deliverable upon
conversion of or in exchange (assuming the satisfaction of any conditions
to convertibility or exchangeability, including without limitation, the
passage of time, but without taking into account potential antidilution
adjustments) for any such convertible or exchangeable securities or upon
the exercise of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent conversion or
exchangeable securities or upon the exercise of options to purchase or
rights to subscribe for such convertible or exchangeable securities and
subsequent conversion or exchange thereof shall be deemed to have been
issued at the time such securities were issued or such options or rights
were issued and for a consideration equal to the consideration, if any,
received by the Company for any such securities and related options or
rights (excluding any cash received on account of accrued interest or
accrued dividends), plus the minimum additional consideration, if any, to
be received by the Company (without taking into account potential
antidilution adjustments) upon the conversion or exchange of such
securities or the exercise of any related options or rights (the
consideration in each case to be determined in the manner provided in
Sections II.D.1(iii) and II.D.1(iv), except as provided in subsection
II.D.1(v)(E).
(C) In the event of any change in the number of shares of Common Stock
deliverable or in the consideration payable to the Company upon exercise of
such options or rights or upon conversion of or in exchange for such
convertible or exchangeable securities, including, but not limited to, a
change resulting from the antidilution provisions thereof, the Conversion
Price, to the extent in any way affected by or computed using such options,
rights or securities, shall be recomputed to reflect such change, but no
further adjustment shall be made for the actual issuance of Common Stock or
any payment of such consideration upon the exercise of any such options or
rights or the conversion or change of such securities.
(D) Upon the expiration of any such options or rights, the termination of any
such rights to convert or change or the expiration of any options or rights
related to such convertible or exchangeable securities, the Conversion
Price, to the extent in any way affected by or computed using such options,
rights or securities or options or rights related to such securities, shall
be recomputed to reflect the issuance of only the number of shares of
Common Stock (and convertible or exchangeable securities which remain in
effect) actually issued upon the exercise of such options or rights, upon
the conversion or exchange of such securities or upon the exercise of the
options or rights related to such securities; provided that no such
recomputation shall have the effect of increasing or decreasing the
Conversion Price to an amount other than the amount that would have existed
on the recomputation date had the unexercised options or rights never been
issued.
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(E) In determining the amount of consideration received by the Company for or
upon the issuance of any Additional Stock or other securities for the
purposes of this Section II.D.1 or Section II.D.2, the value of any options
to purchase or rights to subscribe for Common Stock, securities that are by
their terms convertible into or exchangeable for Common Stock or options to
purchase or rights to subscribe for such convertible or exchangeable
securities (each a "Derivative Security") issued by the Company shall be
deemed to be zero (so that the issuance itself of any such Derivative
Security shall not be deemed to increase or decrease the consideration
otherwise received by the Company under this Section II.D.1 or Section
II.D.2, inasmuch as the rights under such Derivative Security shall be
deemed to have been exercised immediately upon the issuance of such
Derivative Security (as contemplated by Sections II.D.1(v)(A) and
II.D.1(v)(B)).
2. "Additional Stock" shall mean any shares of Common Stock issued (or
deemed to have been issued pursuant to Sections II.D.1(v)) by the Company after
the date hereof other than
(i) Common Stock issued pursuant to a transaction described in
Section II.D.3 hereof;
(ii) shares of Common Stock, or options warrants or rights to acquire
any such shares, issuable or issued to employees, or directors (if in
transactions with primarily non-financing purposes and approved by the Board of
Directors of the Company) of the Company directly or pursuant to a stock option
plan or restricted stock plan approved by the Board of Directors of the Company;
provided that the price at which such shares are issued (or, in the case of such
options, warrants or rights, the exercise price thereof) is at the time of
issuance of such shares (or at the time of the issuance of such options, warrant
or rights, as the case may be ) not less than the fair market value of such
shares as determined by the Board of Directors; as provided in Section
II.D.1(v), the term "Additional Stock" shall not include any shares of capital
stock that are issued upon the exercise of any options, warrants or rights
excluded from the definition of Additional Stock hereunder;
(iii) shares of Common Stock issued or issuable upon conversion of
this Debenture;
(iv) shares of Common Stock, or options, warrants, convertible
securities or other rights to acquire Common Stock that are issued to the Holder
or any assignee thereof pursuant to the Purchase Agreement, including, without
limitation, any securities issued pursuant to the exercise of the preemptive
rights or other purchase rights granted by the Company pursuant in the Purchase
Agreement.
3. In the event the Company should at any time or from time to time after
the date hereof fix a record date for the effectuation of a split or subdivision
of the outstanding shares of Common Stock or the determination of holders of
Common Stock
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entitled to receive a dividend or other distribution payable in additional
shares of Common Stock or entitled to receive a dividend convertible into, or
entitling the holder thereof to receive directly or indirectly, additional
shares of Common Stock (hereinafter referred to as "Common Stock Equivalents")
without any payment of any consideration by such holder for the additional
shares of Stock issuable upon conversion or exercise thereof, then, as of such
record date (or the date of such dividend, distribution, split or subdivision if
no record date is fixed), the Conversion Price shall be appropriately decreased
so that the number of shares of Common Stock issuable on conversion of the
Debenture shall be increased in proportion to such increase of the aggregate
number of shares of Common Stock outstanding (including those issuable with
respect to such Common Stock Equivalents with the number of shares issuable with
respect to Common Stock Equivalents determined from time to time in the manner
provided for deemed issuances in Section II.D.1(v)).
4. If the number of shares of Common Stock outstanding at any time after
the date hereof is decreased by a combination of the outstanding shares of
Common Stock, then, following the record date of such combination, the
Conversion Price shall be appropriately increased so that the number of shares
of Common Stock issuable on conversion of the Debenture shall be decreased in
proportion to such decrease in outstanding shares.
5. The Company represents and warrants to the Holder that, immediately
following the consummation of the transactions contemplated by the Purchase
Agreement, there will be 30,396,481 shares of Common Stock outstanding on a
Fully Diluted Basis, and that the 3,859,649 shares of Common Stock into which
this Debenture is initially convertible therefore represent 12.6977% of the
outstanding Common Stock on a Fully Diluted Basis. Notwithstanding any other
provision of this Debenture, if the actual number of outstanding shares of
Common Stock on a Fully Diluted Basis immediately following the consummation of
the transactions contemplated by the Purchase Agreement is greater than
30,396,481 the initial Conversion Price of $2.85 shall be automatically adjusted
such that the number of shares of Common Stock into which this Debenture is
convertible upon its issuance represents 12.6977% of the outstanding Common
Stock on a Fully Diluted Basis.
E. Dividends and Distributions. In the event the Company shall declare a
cash dividend or a distribution payable in securities of other persons,
evidences of indebtedness issued by the Company or other persons, assets or
options or rights not referred to in Section II.D.3, then, in each such case for
the purpose of this Section II.E, Holder shall be entitled to a proportionate
share of any such dividend or distribution as though Holder was the holder of
the number of shares of Common Stock of the Company
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into which the Debenture is convertible as of the record date fixed for the
determination of the holders of Common Stock of the Company entitled to receive
such dividend or distribution.
F. Recapitalizations. If at any time or from time to time there shall be
recapitalization of the Common Stock, provision shall be made so that Holder
shall thereafter be entitled to receive upon conversion of this Debenture or any
portion thereof the number of shares of stock or other securities or property of
the Company or otherwise to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section II with respect to the rights of the Company after the
recapitalization to the end that the provisions of this Section II (including
adjustment of the Conversion Price then in effect and the number of shares
issuable upon conversion of the shares of this Debenture) shall be applicable
after that event as nearly equivalent as may be practicable.
G. No Impairment. The Company will not, by amendment of its Certificate
of Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Company, but will
at all times in good faith assist in the carrying out of all the provisions of
this Section II and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of Holder against
impairment.
H. No Fractional Shares and Certificate as to Adjustments.
1. No fractional shares shall be issued upon conversion of this
Debenture or any portion thereof, and the number of shares of Common Stock to be
issued shall be rounded to the nearest whole share. Whether or not fractional
shares are issuable upon such conversion shall be determined on the basis of the
total principal amount of this Debenture that Holder is at the time converting
into Common Stock and the number of shares of Common Stock and the number of
shares of Common Stock issuable upon such aggregate conversion.
2. Upon the occurrence of each adjustment or readjustment of the
Conversion Price pursuant to this Section II, the Company, at its expense, shall
promptly compute such adjustment in accordance with the terms hereof and prepare
and furnish to Holder a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Company shall upon the written request at any time of
Holder, furnish or cause to be furnished to Holder a like certificate setting
forth (A) such adjustment and readjustment, (B) the Conversion Price at the time
in effect and (C) the number of shares of Common Stock and the amount, if any,
of other property which at the time would be received upon the conversion of a
share of the Debenture.
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I. Notice of Record Date. In the event of any taking by the Company of a
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or other
distribution, any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to receive
any other right, the Company shall mail to Holder, at least 20 days prior to the
date specified therein, a notice specifying the date on which any such record is
to be taken for the purpose of such dividend, distribution or right, and the
amount and character of such dividend, distribution or right.
J. Reservation of Stock Issuable Upon Conversion. The Company shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock solely for the purpose of effecting the conversion of this
Debenture such number of its shares of Common Stock as shall from time to time
be sufficient to effect the conversion of the Debenture; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect such conversion, in addition to such other remedies as shall be
available to Holder, the Company will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes.
K. Notices. Any notice required by the provisions of this Debenture shall
be deemed given, with respect to Holder, (1) upon personal delivery to Holder,
(2) on the third business day after deposit in United States mail, postage
prepaid and addressed to Holder at Holder's address appearing on the records of
the Company on or at such other address as Holder may designate by advance
notice in accordance with this Section II.K or (3) upon confirmed receipt by
Holder of a facsimile transmission addressed to Holder and sent to Holder's fax
number indicated for such holder in the records of the Company, or to such other
fax number as Holder may designate by advance notice in accordance with this
Section II.K.
L. Consolidation, Merger or Sale of Assets. In case of any consolidation
of the Company with, or merger of the Company into, any other Person (other than
a merger which does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock of the Company) or any sale
or transfer of all or substantially all of the assets of the Company (whether
such assets are held by the Company directly or indirectly through its
Subsidiaries), the Person formed by such consolidation or resulting from such
merger or which acquires such assets, as the case may be, shall execute and
deliver to the Holder an instrument providing that the Holder shall have the
right thereafter, during the period this Debenture shall be convertible, to
convert this Debenture only into the kind and amount of securities, cash and
other property receivable upon such consolidation, merger, sale or transfer by a
holder of the number of shares of Common Stock of the Company into which this
Debenture might have been converted immediately prior to such consolidation,
merger, sale or transfer assuming such holder of Common Stock of the Company (i)
is not a Person with which the Company consolidated or into which the Company
merged or to which such sale or transfer was made, as the case may be
("constituent Person"), or an Affiliate of a
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constituent Person and (ii) failed to exercise his rights of election, if any,
as to the kind or amount of securities, cash and other property receivable upon
such consolidation, merger, sale or transfer (provided that if the kind or
amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer is not the same for each share of Common
Stock of the Company held immediately prior to such consolidation, merger, sale
or transfer by other than a constituent Person or an Affiliate thereof and in
respect of which such rights of election shall not have been exercised ("non-
electing share") then for the purpose of this subsection the kind and amount of
securities, cash and other property receivable upon such consolidation, merger,
sale or transfer by each non-electing share shall be deemed to be the kind and
amount so receivable per share by a plurality of the non- electing shares). Such
instrument shall provide for adjustments which, for events subsequent to the
effective date of such instrument, shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section. The above
provisions of this subsection shall similarly apply to successive
consolidations, mergers, sales or transfers .
M. Registration and Listing of Shares. The Company covenants that if any
shares of Common Stock required to be reserved for purposes of conversion of
Debentures hereunder require registration with or approval of any governmental
authority under any Federal or State law before such shares may be issued upon
conversion, the Company will in good faith and as expeditiously as possible
endeavor to cause such shares to be duly registered or approved, as the case may
be. The Company further covenants that if and so long as the Common Stock of the
Company is listed on any national securities exchange, the Company will, if
permitted by the rules of such exchange, list and keep listed on such exchange,
upon official notice of issuance, all shares of Common Stock issuable upon
conversion of this Debenture.
N. Taxes and Charges. The issuance of certificates for shares of Common
Stock upon the conversion of the Debenture shall be made without charge to the
Holder for such certificates or for any tax in respect of the issuance of such
certificates or the securities represented thereby, and such certificates shall
be issued in the name of, or in such names as may be directed by, the Holder.
Section III Redemption.
The Debentures are not subject to redemption by the Company prior to
maturity.
Section IV Subordination.
A. Debentures Subordinate to Senior Indebtedness. The Company covenants
and agrees, and the Holder by its acceptance hereof likewise covenants and
agrees, that, to the extent and in the manner hereinafter set forth in this
Section, the indebtedness represented by this Debenture and the payment of the
principal of (and premium, if any) and interest on this Debenture are hereby
expressly made subordinate and subject in right of payment to the prior payment
in full of all Senior Indebtedness. "Senior Indebtedness" means the principal
of, interest on and any other payment due pursuant to that certain
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Senior Secured Convertible Purchase Agreement between the Company and London
Pacific Life & Annuity Company dated April 30, 1997; and any subsequent
indebtedness of the Company which the Holder agrees constitutes Senior
Indebtedness.
B. Notice to Holder. The Company shall give prompt written notice to the
Holder of any fact known to the Company which would prohibit the making of any
payment to the Holder in respect of the Debentures. Failure to give such notice
shall not affect the subordination of the Debenture to Senior Indebtedness.
Notwithstanding the provisions of this Section or any other provision of this
Debenture, the Holder shall not be charged with knowledge of the existence of
any facts which would prohibit the making of any payment to the Holder in
respect of the Debenture, unless and until the Holder shall have received
written notice thereof from the Company or a holder of Senior Indebtedness or
from any trustee therefor.
Section V Reports by Company.
The Company shall mail to the Holder, within 15 days after the Company
is required to file the same with the Commission, copies of the annual reports
and of the information, documents and other reports (or copies of such portions
of any of the foregoing as the Commission may from time to time by rules and
regulations prescribe) which the Company may be required to file with the
Commission pursuant to Section 13(a) or Section 15(d) of the Securities Exchange
Act of 1934, as amended; and, if the Company is not required to file
information, documents or reports pursuant to either of said Sections, then it
shall nonetheless mail the same to the Holder as if it were required to do so by
the Commission.
Section VI Remedies.
A. Events of Default. "Event of Default," wherever used herein, means any
one of the following events (whatever the reason for such Event of Default and
whether it shall be occasioned by the provisions of Section (B) or be voluntary
or involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation or any
administrative or governmental body):
1. default in the performance, or breach, of any obligation of the
Company in this Debenture and continuance of such default or breach for a period
of 15 days after there has been given, by registered or certified mail, to the
Company by the Holder a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" hereunder; or
2. the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company in an involuntary case or
proceeding under any applicable Federal or state bankruptcy, insolvency,
reorganization or other similar law or (B) a decree or order adjudging the
Company a bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or in respect
of the Company under any applicable Federal or state law, or
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appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or
other similar official of the Company or of any substantial part of its
property, or ordering the winding up or liquidation of its affairs, and the
continuance of any such decree or order for relief or any such other decree or
order unstayed and in effect for a period of 60 consecutive days; or
3. the commencement by the Company of a voluntary case or proceeding
under any applicable Federal or state bankruptcy, insolvency, reorganization or
other similar law or of any other case or proceeding to be adjudicated a
bankrupt or insolvent, or the consent by it to the entry of a decree or order
for relief in respect of the Company in an involuntary case or proceeding under
any applicable Federal or state bankruptcy, insolvency, reorganization or other
similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against it, or the filing by it of a petition or answer or consent
seeking reorganization or relief under any applicable Federal or state law, or
the consent by it to the filing of such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Company or of any substantial part of
its property, or the making by it of an assignment for the benefit of creditors,
or the admission by it in writing of its inability to pay its debts generally as
they become due, or the taking of corporate action by the Company in furtherance
of any such action.
B. Acceleration of Maturity; Rescission and Annulment. If any Event of
Default occurs and is continuing (other than an Event of Default described in
Subsections I(1)(d) and (e)), then and in every such case the Holder may declare
the principal and all accrued and unpaid interest of all the Debentures issued
to the Holder to be due and payable immediately, by a notice in writing to the
Company, and upon any such declaration such principal shall become immediately
due and payable. If an Event of Default described in subsections (3) and (4)
shall occur, then in every such case the unpaid principal balance hereof and all
accrued and unpaid interest shall automatically become due and payable.
C. Rights and Remedies Cumulative. No right or remedy herein conferred
upon or reserved to the Holder is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
D. Delay or Omission Not Waiver. No delay or omission of the Holder to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Section or by law to
the Holder may be exercised from time to time, and as often as may be deemed
expedient, by the Holder.
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E. Amendments; Governing Law Etc. This Debenture may be amended only by a
writing signed by the Company and the Holder. The Article and Section headings
herein are for convenience only and shall not affect the construction hereof.
All covenants and agreements in this Debenture by the Company shall bind its
successors and assigns, whether so expressed or not. In case any provision in
this Debenture shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby. This Debenture shall be governed by and construed
in accordance with the laws of the State of Delaware. If any action or
proceeding shall be brought by the Holder in order to enforce any right or
remedy under this Debenture, the Company hereby consents and submits to the
jurisdiction of the courts of the State of Delaware and of any Federal court
sitting in the State of Delaware.
No provision of this Debenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal of and
interest on this Debenture at the times, place and rate, herein prescribed or to
convert this Debenture as provided herein.
F. Miscellaneous. The Company waives presentment for payment, protest,
notice of protest and notice of prepayment of this Debenture. The Company agrees
to reimburse Holder for all its reasonable costs and expenses, including
reasonable attorneys' fees, in connection with the enforcement of this
Debenture, whether or not any suit is instituted. Should suit be commenced to
collect this Debenture or any portion thereof, such sum as the court may deem
reasonable shall be added hereto as attorneys' fees, including any fees awarded
on any appeal. The term "suit" as used herein includes any action before any
United States Bankruptcy Court.
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IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal as of the date first specified above.
HYBRID NETWORKS, INC.
By: /s/ Carl S. Ledbetter
----------------------------------
Carl S. Ledbetter, Chairman
and Chief Executive Officer
[CORPORATE SEAL]
14
<PAGE>
EXHIBIT 5
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THIS
DEBENTURE IS SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR AN EXEMPTION THEREFROM. HOLDER
SHOULD BE AWARE THAT HOLDER MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE MAKER OF THIS DEBENTURE MAY
REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO
THE MAKER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE
WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
HYBRID NETWORKS, INC.
4% Convertible Class B Debenture due 2009
$1,000 September 9, 1999
Hybrid Networks, Inc., a corporation duly organized and existing under the
laws of Delaware, and its permitted successors and assigns (herein called the
"Company"), for value received, hereby promises to pay to the order of Sprint
Corporation, a Kansas corporation, and its successors and assigns (the
"Holder"), the principal sum of ONE THOUSAND DOLLARS ($1,000) on September 9,
2009, together with any interest accrued and unpaid as of such date, on the
terms and conditions set forth herein.
Section I Term and Payment. During the term of this Debenture, the unpaid
----------------
principal amount hereof shall bear interest at the rate of 4% per annum, on a
360 days basis, actual days elapsed, which shall be payable in full at maturity
or upon conversion.
Section II Conversion Rights.
-----------------
A. General. The Holder shall, at any time from the date hereof, have
-------
the right to convert the entire principal amount of this Debenture into fully
paid and nonassessable (except as otherwise provided by law) shares of Series J
Preferred Stock, par value $1.00 per share ("Preferred Stock"), at the rate of
one share of Preferred Stock for each $1.00 principal amount of Debenture. Such
conversion right shall be exercised by the surrender of the Debenture to the
Company, accompanied by written notice that the Holder elects to convert the
Debenture and specifying the name or names (with address) in which a certificate
or certificates for Preferred Stock are to be issued.
B. Issuance of Preferred Stock; Time of Conversion. As promptly as
-----------------------------------------------
practicable after the surrender, as herein provided, of this Debenture for
conversion, the Company
<PAGE>
shall deliver to the Holder a certificate or certificates representing the
number of fully paid and nonassessable (except as otherwise provided by law)
shares of Preferred Stock of the Company into which this Debenture may be
converted. Subject to the following provisions of this Debenture, such
conversion shall be deemed to have been made immediately prior to the close of
business on the date that this Debenture shall have been surrendered for
conversion.
If the last day for the exercise of the conversion right shall not be a business
day, then such conversion right may be exercised on the next succeeding business
day.
C. Accrued Interest. Upon conversion, any unpaid interest, accrued
----------------
to the date of conversion of such Debenture, shall be paid in cash.
D. No Impairment. The Company will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Debenture and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion rights of Holder
against impairment.
E. Reservation of Stock Issuable Upon Conversion. The Company shall
---------------------------------------------
at all times reserve and keep available out of its authorized but unissued
shares of Preferred Stock solely for the purpose of effecting the conversion of
this Debenture such number of its shares of Preferred Stock as shall be
sufficient to effect the conversion of the Debenture; and if at any time the
number of authorized but unissued shares of Preferred Stock shall not be
sufficient to effect such conversion, in addition to such other remedies as
shall be available to Holder, the Company will take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Preferred Stock to such number of shares as shall be
sufficient for such purposes.
F. Notices. Any notice required by the provisions of this Debenture
-------
shall be deemed given, with respect to Holder, (1) upon personal delivery to
Holder, (2) on the third business day after deposit in United States mail,
postage prepaid and addressed to Holder at Holder's address appearing on the
records of the Company on or at such other address as Holder may designate by
advance notice in accordance with this Section II.F or (3) upon confirmed
receipt by Holder of a facsimile transmission addressed to Holder and sent to
Holder's fax number indicated for such holder in the records of the Company, or
to such other fax number as Holder may designate by advance notice in accordance
with this Section II.F.
G. Taxes and Charges. The issuance of certificates for shares of
-----------------
Preferred Stock upon the conversion of the Debenture shall be made without
charge to the Holder for such certificates or for any tax in respect of the
issuance of such certificates or the
2
<PAGE>
securities represented thereby, and such certificates shall be issued in the
name of, or in such names as may be directed by, the Holder.
Section III Miscellaneous.
--------------
A. Amendments; Governing Law Etc. This Debenture may be amended only
-----------------------------
by a writing signed by the Company and the Holder. The Article and Section
headings herein are for convenience only and shall not affect the construction
hereof. All covenants and agreements in this Debenture by the Company shall bind
its successors and assigns, whether so expressed or not. In case any provision
in this Debenture shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby. This Debenture shall be governed by and construed
in accordance with the laws of the State of Delaware. If any action or
proceeding shall be brought by the Holder in order to enforce any right or
remedy under this Debenture, the Company hereby consents and submits to the
jurisdiction of the courts of the State of Delaware and of any Federal court
sitting in the State of Delaware.
No provision of this Debenture shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of and interest on this Debenture at the times, place and rate, herein
prescribed or to convert this Debenture as provided herein.
B. Other. The Company waives presentment for payment, protest,
-----
notice of protest and notice of prepayment of this Debenture. The Company agrees
to reimburse Holder for all its reasonable costs and expenses, including
reasonable attorneys' fees, in connection with the enforcement of this
Debenture, whether or not any suit is instituted. Should suit be commenced to
collect this Debenture or any portion thereof, such sum as the court may deem
reasonable shall be added hereto as attorneys' fees, including any fees awarded
on any appeal. The term "suit" as used herein includes any action before any
----
United States Bankruptcy Court.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal as of the date first specified above.
HYBRID NETWORKS, INC.
By: /s/ Carl S. Ledbetter
--------------------------------
Carl S. Ledbetter, Chairman
and Chief Executive Officer
[CORPORATE SEAL]
3
<PAGE>
EXHIBIT 6
FORM OF
CERTIFICATE OF DESIGNATIONS
OF
SERIES J NON-CONVERTIBLE PREFERRED STOCK
OF
HYBRID NETWORKS, INC.
Pursuant to Section 151(g) of the
General Corporation Law of the State of Delaware
------------------------------------------------
The undersigned DOES HEREBY CERTIFY that the following resolutions were
duly adopted by the Board of Directors of Hybrid Networks, Inc., a Delaware
corporation (the "Company"), by unanimous written consent dated as of September
7, 1999:
RESOLVED, that pursuant to authority conferred upon the Board of Directors
or the Amended and Restated Certificate of Incorporation of the Company (the
"Certificate of Incorporation"), the Board of Directors hereby provides for the
issuance of a series of Preferred Stock of the Company consisting of one
thousand (1,000) shares to be designated the Series J Non-Convertible Preferred
Stock, par value $1.00 per share (the "Series J Preferred Stock"), and hereby
fixes the voting powers, designations, preferences and relative, participating,
optional or other special rights, qualifications, limitations or restrictions
thereof, in addition to those set forth in the Certificate of Incorporation, as
follows:
Section 1. Ranking. The Series J Preferred Stock shall, with respect to
---------- -------
rights on liquidation, dissolution, winding up or dividend, rank pari passu with
any other series of Preferred Stock, par value $0.001 per share (the "Other
Preferred Stock") of the Company.
Section 2. Dividends. The holder of each share of Series J Preferred
---------- ---------
Stock shall not be entitled to receive dividends in respect of such share of
Series J Preferred Stock.
Section 3. Voting Rights.
---------- -------------
(a) Except as provided in Sections 3(b) and 3(c) below, or as may
be otherwise provided by law, each share of the Series J Preferred Stock
shall be non-voting.
<PAGE>
(b) Notwithstanding any other provision of the Certificate of
Incorporation or the Bylaws of the Company to the contrary, as long as the
Purchaser's Interest is 10% or greater, the holders of the Series J
Preferred Stock, voting as a separate class, shall elect two directors to
serve on the Company's Board of Directors.
(c) Notwithstanding any other provision of the Certificate of
Incorporation or the Bylaws of the Company to the contrary, as long as the
Purchaser's Interest is 10% or greater, the affirmative vote of the holders
of a majority of the shares of Series J Preferred Stock present in person
or represented by proxy and voting as a separate class, at an annual
meeting of stockholders or a special meeting of holders of Series J
Preferred Stock called for such purpose or by written consent, shall be
necessary for the Company to:
(i) adopt an Annual Business Plan (as hereinafter defined) or
take any actions that deviate from the then-current Annual Business
Plan in any material respect;
(ii) make any capital expenditures during any fiscal year in
excess of $2,000,000 in the aggregate except to the extent
contemplated in the Annual Business Plan for such year;
(iii) make any acquisition or disposition of any interests in
any other Person or business enterprise or any assets, in any single
transaction or a series of related transactions, in which the fair
market value of the consideration paid or received by the Company
exceeds $1,000,000;
(iv) organize, form or participate in any joint venture or
similar entity involving the sharing of profits in which the assets or
services to be contributed to or provided by the Company to such joint
venture or other entity have a fair market value in excess of
$1,000,000;
(v) form any Subsidiary;
(vi) issue any Common Stock, preferred stock or other capital
stock or any stock or securities (including options and warrants)
convertible into or exercisable or exchangeable for Common Stock,
preferred stock or other capital stock or amend the terms of any such
stock or securities or any agreements relating thereto (other than
employee stock options approved by the Board of Directors of the
Company and Common Stock issued upon exercise thereof) or effect any
stock split or reverse stock split or combination;
(vii) enter into any transaction between the Company, on the one
hand, and any Affiliate or Associate of the Company, on the other,
other
-2-
<PAGE>
than the payment of compensation and other benefits to employees and
directors in the ordinary course of business;
(viii) declare or pay any dividend or other distribution with
respect to the capital stock of the Company;
(ix) incur any indebtedness for borrowed money or capital lease
obligations that are not expressly contemplated in the then-current
Annual Business Plan in excess of $250,000 in the aggregate during any
fiscal year;
(x) amend the Company's Certificate of Incorporation or Bylaws
or create or amend a stockholders' rights plan;
(xi) declare bankruptcy; or
(xii) liquidate or dissolve the Company.
(d) The voting rights specified in this Section 3 shall terminate at
such time as any share of the Series J Preferred Stock ceases to be owned by the
Purchaser and its Affiliates.
Section 4. Liquidation, Dissolution or Winding Up. In the event of any
---------- --------------------------------------
liquidation, dissolution or winding up of the Company, either voluntary or
involuntary, the holders of shares of Series J Preferred Stock shall be entitled
to be paid, on a pari passu basis with the Other Preferred Stock, an amount
equal to $1.00 per share (subject to ratable adjustment to reflect any stock
dividend, stock split or similar reclassification transaction occurring after
the issuance of such shares affecting shares of Series J Preferred Stock
generally).
Section 5. Notice of Certain Events. In case the Company shall propose at
---------- ------------------------
any time or from time to time to take any action upon which the vote of the
holder of Series J Preferred Stock is required by Section 3, then, the Company
shall mail to such holder of shares of Series J Preferred Stock, at such
holder's address as it appears on the transfer books of the Company, a written
notice of such proposed action as promptly as possible but in any event at least
15 Business Days prior to the effective date of such transaction, specified in
such notice.
Section 6. Certain Remedies. Any registered holder of shares of Series J
---------- ----------------
Preferred Stock shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of the Certificate of Incorporation and to enforce
specifically the terms and provisions of this Certificate of Designations in any
court of the United States or any state thereof having jurisdiction, this being
in addition to any other remedy to which the holder may be entitled at law or in
equity.
-3-
<PAGE>
Section 7. Definitions. Capitalized terms used in this Certificate but
--------- -----------
not otherwise defined shall have the following meanings (such meanings to be
equally applicable to the singular and plural forms thereof):
"Affiliate" has the same meaning as in Rule 12b-2 promulgated under the
---------
Exchange Act.
"Agreement" means the Securities Purchase Agreement between the Purchaser
---------
and the Company dated August 30, 1999, and as thereafter amended, supplemented,
restated or otherwise modified.
"Annual Business Plan" means the annual strategic and operating plan for
--------------------
each Fiscal Year to be submitted by management of the Company to the Board of
Directors of the Company and the Purchaser on or prior to October 15 of the
prior Fiscal Year, which plan shall include (among other things) a proposed
capital expenditure and operating budget for the forthcoming Fiscal Year
including an income statement prepared on an accrual basis which shall show in
reasonable detail the revenues and expenses projected for the Company for the
forthcoming Fiscal Year and a cash flow statement showing the receipts and
disbursements projected for the Company for the forthcoming Fiscal Year.
"Associate" has the same meaning as in Rule 12b-2 promulgated under the
---------
Exchange Act.
"Business Day" means any day which is neither a Saturday or Sunday nor a
------------
legal holiday on which banks are authorized or required to be closed in New
York, New York.
"Class A Debentures" means the $11,000,000 debentures issued to Purchaser
------------------
pursuant to the Agreement, paying interest in kind at a rate of 4.0% per annum,
and convertible upon the occurrence of certain events into 3,859,649 shares of
Common Stock.
"Class B Debentures" means the $1,000 face amount of debentures issued to
------------------
Purchaser pursuant to the Agreement, paying interest in kind at a rate of 4.0%
per annum, and convertible into 1,000 shares of Series J Preferred Stock.
"Common Stock" means shares now or hereafter authorized of any class of
------------
common stock of the Company and any other class of capital stock of the Company,
however designated, that has the right (subject to any prior rights of any class
or series of preferred stock) to participate in any distribution of the assets
upon voluntary or involuntary liquidation, dissolution or winding up of the
Company or in the earnings of the Company without limit as to per share amount,
and shall include, without limitation, the presently authorized 100,000,000
shares of common stock, par value $0.001 per share.
-4-
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
------------
time to time.
"Debentures" means the Class A Debentures and the Class B Debentures.
----------
"Fiscal Year" means each 12-month accounting period ending December 31 of a
-----------
calendar year.
"Fully Diluted Basis" includes, without duplication, (i) all shares of
-------------------
Common Stock outstanding at the time of calculation, (ii) Common Stock issuable
upon exercise of all outstanding warrants, options and other rights to acquire
Common Stock directly or indirectly and (iii) Common Stock issuable upon
conversion of all securities convertible directly or indirectly into Common
Stock.
"Purchaser" means Sprint Corporation, a Kansas corporation
---------
"Purchaser's Interest" means, as of the date of determination, the total
--------------------
number of shares of Common Stock (i) owned, directly or indirectly, by the
Purchaser or any of its Affiliates, (ii) for which Warrants owned, directly or
indirectly, by the Purchaser or any of its Affiliates may be exercised
(including for those purposes any shares of Common Stock that could be acquired
upon conversion of any debentures that may be purchased upon exercise of
Warrants and after taking into account all applicable antidilution provisions),
assuming all such Warrants are exercisable as of the date of such determination,
and (iii) for which Class A Debentures owned, directly or indirectly, by the
Purchaser or any of its Affiliates may be converted after taking into account
all applicable antidilution provisions, assuming all such Debentures are
convertible as of the date of such determination, expressed as a percentage of
the Common Stock on a Fully Diluted Basis at the time of calculation.
"Subsidiary" of any corporation means any other corporation of which
----------
greater than 50% of the outstanding shares of capital stock having ordinary
voting Power for the election of directors is owned directly or indirectly by
such corporation.
"Warrants" means the warrants issued pursuant to the Warrant Agreement,
--------
which are exercisable by the Purchaser for the purchase of $8,397,873 of
subordinated debentures having terms substantially identical to the Debentures.
-5-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate of Designations
to be executed on its behalf by Carl S. Ledbetter, its Chairman and Chief
Executive Officer, this 7th day of September, 1999, hereby declaring and
certifying that this is the act and deed of the Company and that the facts
stated herein are true.
HYBRID NETWORKS, INC.
By: /s/ Carl S. Ledbetter
-------------------------------
Name: Carl S. Ledbetter
Title: Chairman and Chief Executive Officer
[CORPORATE SEAL]
ATTEST:
By: /s/ Judson W. Goldsmith
-------------------------------
Name: Judson W. Goldsmith
Title: President and Secretary
-6-
