<PAGE>
As filed with the Securities and Exchange Commission on January 14, 2000
Registration Statement No. 333-92011
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
--------------
CYPRESS COMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in its Charter)
--------------
<TABLE>
<CAPTION>
Delaware 4813 58-2330270
<S> <C> <C>
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
foIncorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
--------------
Fifteen Piedmont Center, Suite 710
Atlanta, Georgia 30305
(404) 869-2500
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive office)
--------------
R. Stanley Allen
Chief Executive Officer
Cypress Communications, Inc.
Fifteen Piedmont Center, Suite 710
Atlanta, Georgia 30305
(404) 869-2500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
<TABLE>
<CAPTION>
Gilbert G. Menna, P.C. John D. Watson, Jr., Esq.
<S> <C>
Goodwin, Procter & Hoar LLP Latham & Watkins
Exchange Place 1001 Pennsylvania Ave., N.W., Suite 1300
Boston, Massachusetts 02109-2881 Washington, D.C. 20004-2505
(617) 570-1000 (202) 637-2200
</TABLE>
--------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
Proposed Maximum
Proposed Maximum Aggregate
Title of Each Class of Amount to be Offering Price Offering Price Amount of
Securities to be Registered (1) Registered Per Share (2) (2) Registration Fee
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value per share 11,500,000 shares $16.00 $184,000,000 $48,576 (3)
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) This Registration Statement also relates to rights to purchase shares of
Series Z Junior Participating Cumulative Preferred Stock of the
Registrant, par value $.001 per share, at a cash exercise price to be
determined prior to the effectiveness of this Registration Statement,
subject to adjustment. The rights to purchase preferred stock will be
attached to all shares of Common Stock outstanding as of, and issued
subsequent to, a day prior to effectiveness of this Registration Statement
pursuant to the terms of the Registrant's Shareholder Rights Agreement to
be adopted prior to the effectiveness of this Registration Statement.
Until the occurrence of certain events described in Shareholder Rights
Agreement, the rights to purchase preferred stock are not exercisable, are
evidenced by the certificate for the Common Stock and will be only
transferred with the Common Stock.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(a) under the Securities Act of 1933.
(3) The Registrant previously paid a fee of $39,600 in connection with the
initial filing of this Registration Statement. An additional fee of $8,976
is being paid in connection with the filing of this Amendment No. 1.
--------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the SEC, acting pursuant to Section
8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. We may not sell these securities until the registration statement +
+filed with the Securities and Exchange Commission becomes effective. This +
+preliminary prospectus is not an offer to sell these securities nor a +
+solicitation of an offer to buy these securities in any jurisdiction where +
+the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 14, 2000
PRELIMINARY PROSPECTUS
10,000,000 Shares
[LOGO OF CYPRESS COMMUNICATIONS]
Common Stock
--------------
This is an initial public offering of 10,000,000 shares of common stock of
Cypress Communications, Inc. We are selling all of the shares of common stock
offered under this prospectus.
It is currently estimated that the initial public offering price will be
between $14.00 and $16.00 per share. We have applied to have our common stock
approved for listing on the Nasdaq National Market under the symbol "CYCO."
See "Risk Factors" beginning on page 6 about risks you should consider before
buying shares of our common stock.
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
--------------
<TABLE>
<CAPTION>
Per
Share Total
----- ------
<S> <C> <C>
Public offering price........................................... $ $
Underwriting discount........................................... $ $
Proceeds, before expenses, to us................................ $ $
</TABLE>
--------------
The underwriters may purchase up to an additional 1,500,000 shares of common
stock from us at the initial public offering price less the underwriting
discount to cover over-allotments.
The underwriters expect to deliver the shares against payment in New York, New
York on , 2000.
--------------
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette
J.C. Bradford & Co.
The date of this prospectus is , 2000.
<PAGE>
OUTSIDE FRONT GATE
[COMPANY LOGO]
<PAGE>
INSIDE FRONT GATE
[Map of the United States depicting Buildings under contract with the Registrant
in major markets which include Atlanta, Boston, Chicago, Dallas, Denver,
Houston, Los Angeles, Minneapolis, New York, Phoenix, San Francisco and
Washington, D.C. The map illustrates those markets with completed buildings and
those with buildings under contract]
<PAGE>
PROSPECTUS SUMMARY
The following summary provides an overview of selected information and does
not contain all the information you should consider. Therefore, you should also
read the more detailed information set out in this prospectus and the financial
statements.
Our Company
We provide a full range of communications services to small and medium-sized
businesses located in multi-tenant office buildings in major metropolitan
markets throughout the United States. We offer local and long distance voice
services, digital telephone systems, high speed, always-on Internet access,
business television, voicemail, e-mail, web site hosting and other enhanced
communications services. We differentiate ourselves from other communications
companies by providing a single-source solution with a high degree of customer
service and responsiveness. Our services are delivered over state-of-the-art
fiber-optic, digital and broadband networks that we design, construct, own and
operate inside large and medium-sized office buildings. We gain access to these
buildings by executing long-term license agreements with property owners and
building managers.
As of December 31, 1999, we were operating our networks in 116 buildings
representing approximately 30 million rentable square feet in 12 major
metropolitan areas. Overall, we have agreements with building owners and
property managers, including AEW, Boston Properties, Brookfield, Cornerstone,
Cousins, Lend Lease, Shorenstein, Taylor Simpson, Tower Realty, TransWestern,
TrizecHahn, Vornado and Westbrook, giving us the right to install and operate
our networks in more than 730 buildings representing more than 229 million
rentable square feet in 50 major metropolitan areas. We estimate that in these
50 metropolitan areas there are more than 8,100 office buildings with greater
than 100,000 square feet, representing over 2.2 billion rentable square feet.
Our Solution
We believe it has become increasingly difficult for small and medium-sized
businesses to evaluate the many new products, services and carriers that are
available in today's communications marketplace. In addition, most small and
medium-sized businesses have traditionally not had affordable access to the
advanced communications services they require. We provide our customers with a
high-quality, affordable single-source solution designed to address all of
their various communications needs.
. A comprehensive solution from a single source. We effectively function
as our customers' communications manager and provide the convenience of
"one stop shopping."
. A reliable, feature-rich communications package typically available only
to large corporations. We provide our customers features, performance
levels and pricing that traditionally have been available only to large
corporations. Our service includes high speed, always-on Internet
access, state-of-the-art, multi-function telephone equipment and
reliable performance supported by our multiple carriers, backup network
components and emergency power supplies.
1
<PAGE>
. Rapid installation and service expansion with minimal capital outlay by
customers. We deliver our comprehensive package of services to a new
customer within a few days of receiving an order and can often provide
same day service for existing customers requesting new services.
Additionally, because we provide telephone equipment to most of our
customers and can upgrade this equipment as needed, our customers avoid
significant capital outlays and substantially mitigate the risks of
encountering communications capacity constraints.
. On-site or near-site customer service and support. Each of our customers
is assigned a dedicated, experienced account team available on a 24x7
basis to address customer inquiries.
Our Strategy
. Provide a broad range of communications services under long-term
customer contracts. We offer our customers a well-supported, broad suite
of services under contracts which are typically three years in length.
By continually expanding our product portfolio, our goal is to ensure
that a customer need never look beyond Cypress to fulfill any
communications need.
. Provide superior customer service. We assign to each customer a
dedicated account team in order to ensure superior customer service and
readily available customized technical support.
. Control the critical "last few feet." Our ownership of the physical
connection between our customers and out-of-building networks
strengthens our position as "gatekeeper" to our in-building customers
and allows us to provide services more efficiently while better ensuring
service quality.
. Leverage our experience and first mover advantage to secure additional
licenses with building owners. As one of the first communications
providers to focus exclusively on the multi-tenant building market, we
intend to capitalize on our experience, reputation and referenceable
customer base to rapidly secure additional license agreements with
building owners.
. Deploy cost effective, flexible networks. We commit capital only after
we have entered into a long-term license agreement and we usually
initially invest less than $90,000 to begin operations in a typical
335,000 square foot building. We also strive to minimize operating costs
and maximize network capacity and reliability by using a combination of
transmission technologies provided by multiple vendors.
. Opportunistically pursue strategic acquisitions and relationships. To
expand our customer base and geographic presence, we intend to continue
to pursue strategic acquisitions and relationships domestically and
abroad.
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered.............. 10,000,000 shares
Common stock to be outstanding
after the offering............... 45,856,415 shares
Use of proceeds................... We intend to use approximately $100.0
million of the net proceeds for the
construction of additional in-building
networks and the purchase of communications
equipment and the remainder for working
capital and general corporate purposes.
Proposed Nasdaq National Market CYCO
Symbol...........................
</TABLE>
The number of shares of common stock that will be outstanding after this
offering is based on the 2,759,806 shares outstanding as of December 31, 1999,
plus:
. 10,000,000 shares of common stock to be sold by us in this offering;
. 32,815,359 shares of common stock to be issued at the completion of this
offering upon the conversion of all of our outstanding convertible
preferred stock; and
. 281,250 shares of common stock to be issued in connection with our
agreed-upon investment in SiteConnect, a Seattle-based provider of
communications services.
The number of shares of common stock to be outstanding after this offering
excludes:
. 1,500,000 shares of common stock issuable pursuant to the over-allotment
option;
. 5,820,976 shares of common stock issuable upon the exercise of
outstanding options at a weighted average exercise price of $1.60 as of
December 31, 1999;
. 5,756,125 shares of common stock reserved for issuance in connection
with future grants under our stock option plan;
. 900,000 shares of common stock reserved for issuance under our employee
stock purchase plan; and
. up to 11,066,472 shares of common stock issuable upon the exercise of
warrants with an exercise price of $4.22 per share. We agreed to issue
these warrants to several real estate owners and operators in connection
with their execution of master license agreements giving us the right to
install and operate our networks in their buildings. The warrants will
be exercisable for a period of ten years, but cannot be exercised until
six months following completion of this offering.
All information in this prospectus regarding shares of common stock and per
share amounts has been retroactively adjusted to reflect the proposed 4.5-for-1
stock split to occur in connection with this offering.
----------------
The address of our principal executive offices is Fifteen Piedmont Center,
Suite 710, Atlanta, Georgia 30305 and our telephone number is (404) 869-2500.
Our website address is www.cypresscom.net. The information on our website is
not a part of this prospectus.
3
<PAGE>
Summary Financial and Other Data
You should read the following summary financial and other data together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the related notes, all of which
appear elsewhere in this prospectus. The following summary statement of
operations data for the 6 1/2 months ended July 15, 1997, the 5 1/2 months
ended December 31, 1997, and the year ended December 31, 1998 and the balance
sheet data as of December 31, 1998 have been derived from our audited financial
statements. The summary statement of operations data for the nine months ended
September 30, 1998 and 1999 and the summary balance sheet data as of September
30, 1999 are derived from our unaudited financial statements. Operating results
for the nine months ended September 30, 1999 are not necessarily indicative of
the results that may be expected for the entire year.
<TABLE>
<CAPTION>
Predecessor Cypress
----------- ---------------------------------------------------
6 1/2 Months 5 1/2 Months Nine Months Ended
Ended Ended Year Ended September 30,
July 15, December 31, December 31, ------------------------
1997(1) 1997 1998 1998 1999
----------- ------------ ------------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ 248,235 $ 461,167 $ 2,417,816 $ 1,428,497 $ 5,227,727
Operating expenses:
Cost of services...... 221,596 381,518 1,539,846 944,760 3,248,377
Sales and marketing... 122,055 326,861 1,470,107 1,075,039 2,466,844
General and
administrative....... 255,175 567,748 2,436,221 1,597,974 5,604,135
Depreciation and
amortization......... 66,217 288,737 891,788 587,800 1,650,253
--------- ----------- ----------- ----------- -----------
Total operating
expenses........... 665,043 1,564,864 6,337,962 4,205,573 12,969,609
--------- ----------- ----------- ----------- -----------
Operating loss........ (416,808) (1,103,697) (3,920,146) (2,777,076) (7,741,882)
Interest income, net.. 6,253 107,669 232,279 66,911 168,120
--------- ----------- ----------- ----------- -----------
Loss before income
taxes................ (410,555) (996,028) (3,687,867) (2,710,165) (7,573,762)
Income tax benefit.... -- 59,252 -- -- --
--------- ----------- ----------- ----------- -----------
Net loss ............. $(410,555) $ (936,776) $(3,687,867) $(2,710,165) $(7,573,762)
========= =========== =========== =========== ===========
Net loss per share of
common stock:
Basic and diluted..... $ (.36) $ (1.40) $ (1.03) $ (2.87)
=========== =========== =========== ===========
Weighted average
shares of common
stock outstanding:
Basic and diluted..... 2,636,906 2,636,906 2,636,906 2,636,906
=========== =========== =========== ===========
</TABLE>
- --------
(1) We were formed as a limited liability company under the laws of Georgia on
August 16, 1995. On July 15, 1997, we completed a reorganization in which
our predecessor company was merged into a Delaware corporation. See Note 1
to our financial statements.
4
<PAGE>
The pro forma balance sheet information below reflects the sale since
September 30, 1999 of 4,161,974 shares of our series C preferred stock for
total proceeds of approximately $79.1 million and the issuance of 281,250
shares of our common stock to occur in connection with our agreed-upon
investment in SiteConnect.
The pro forma as adjusted balance sheet information reflects the above
adjustments, as well as receipt of the estimated net proceeds of $137.1 million
from this offering, assuming an initial public offering price of $15.00 per
share, and the conversion upon the completion of this offering of all
convertible preferred stock into common stock.
<TABLE>
<CAPTION>
As of
December 31,
1998 As of September 30, 1999
------------ ----------------------------------------
Pro Forma
Actual Actual Pro Forma As Adjusted
------------ ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $11,057,696 $ 3,378 $ 79,195,871 $216,295,871
Property and equipment,
net.................... 6,291,413 11,645,639 11,645,639 11,645,639
Total assets............ 20,571,247 15,196,621 98,607,864 235,707,864
Total liabilities....... 2,368,935 4,509,297 4,509,297 4,509,297
Convertible redeemable
preferred stock........ 21,317,263 21,376,037 100,453,537 --
Stockholders' (deficit)
equity................. (3,114,951) (10,688,713) (6,354,963) 231,198,574
</TABLE>
As used in the table below, EBITDA consists of net loss excluding net
interest, income taxes and depreciation and amortization. EBITDA excludes
depreciation and amortization expenses of $66,217, $288,737, $891,788,
$587,800, and $1,650,253 for the 6 1/2 months ended July 15, 1997, the 5 1/2
months ended December 31, 1997, the year ended December 31, 1998, and the nine
months ended September 30, 1998 and 1999, respectively. We expect that
depreciation and amortization will increase considerably as we enter into
additional property license agreements and deploy additional in-building
networks. We believe that because EBITDA is a measure of financial performance
it is useful to investors and analysts as an indicator of a company's ability
to fund its operations and to service or incur debt. However, EBITDA is not a
measure calculated under generally accepted accounting principles. Other
companies may calculate EBITDA or other similarly titled measures differently
from us; consequently, our calculation of EBITDA may not be comparable to other
companies' calculations of EBITDA or other similarly titled measures. EBITDA is
not an alternative to operating income as an indicator of our operating
performance or an alternative to cash flows from operating activities as a
measure of liquidity, and investors should consider these measures as well. We
do not expect to generate positive EBITDA in the near term.
<TABLE>
<CAPTION>
Predecessor Cypress
---------------- -------------------------------------------------------
6 5 Nine Months Ended
1/2 Months Ended 1/2Months Ended Year Ended September 30,
July 15, December 31, December 31, -------------------------
1997 1997 1998 1998 1999
---------------- --------------- ------------ ----------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Other Operating Data:
Net cash used in
operating activities... $ (236,525) $ (577,322) $ (2,914,905) $(1,971,373) $ (5,775,126)
Net cash used in
investing activities... (352,359) (1,739,266) (4,991,641) (1,691,993) (5,172,675)
Net cash provided by
(used in) financing
activities............. 165,979 5,962,832 15,293,177 15,535,276 (106,517)
EBITDA.................. (350,591) (814,960) (3,028,358) (2,189,276) (6,091,629)
Capital expenditures.... (352,359) (838,364) (2,887,243) (1,691,993) (5,392,075)
Markets served.......... 1 2 4 2 9
Buildings served........ 16 19 39 24 96
Rentable square feet in
buildings served....... 2.6 million 3.6 million 11.0 million 5.5 million 23.5 million
</TABLE>
5
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the following risk factors before you decide to buy our common stock. You
should also consider the other information in this prospectus.
We expect our losses to continue to increase for the foreseeable future
Since our formation we have generated increasing negative EBITDA and larger
net losses each quarter. We have not achieved profitability and expect to
continue to incur increasing negative EBITDA and larger net losses for the
foreseeable future. For 1998, we had negative EBITDA of $3,028,358 and a net
loss of $3,687,867 on revenues of $2,417,816. For the first nine months of
1999, we had negative EBITDA of $6,091,629 and a net loss of $7,573,762 on
revenues of $5,227,727. In addition, we expect to continue to incur significant
costs as we deploy additional in-building networks and, as a result, we will
need to generate significant revenue to achieve profitability, which may not
occur.
Our business has grown rapidly and our business model is still evolving, which
makes it difficult to evaluate our prospects
We have grown our business rapidly and have experienced significant losses
in our efforts to penetrate our market. We will continue to make substantial
capital expenditures in deploying our networks before we know whether our
business plan can be successfully executed. As a result, there is a risk that
our business will fail. Additionally, our limited operating history makes it
difficult to evaluate the execution of our business model thus far.
Furthermore, because the market for services of in-building communications
providers is not well established, it is difficult for you to compare our
company with our competitors.
We are an early-stage company in an unproven industry and if we do not grow
rapidly or obtain additional capital we will not succeed
We began operating our first in-building network in June 1996 and were
operating 116 in-building networks as of December 31, 1999. We must, however,
continue to grow rapidly in order to succeed. Because the communications
industry is capital intensive, rapidly evolving and subject to significant
economies of scale, as a relatively small organization we are at a competitive
disadvantage. The growth we must achieve to reduce that disadvantage will put a
significant strain on all of our resources. While we believe our current
capital resources, including our cash on hand, together with the proceeds of
this offering, will be sufficient to fund our operations and the projected
deployment of additional in-building networks through mid-2001, we will require
substantial additional capital beyond then to finance our future operations
according to our current business plan. If we fail to grow rapidly or obtain
additional capital, we may not be able to compete with larger, more well-
established companies.
Additionally, while the market for communications services has grown rapidly
in recent years and we expect continued market growth, we are unaware of any
industry studies which have specifically addressed the market for services of
in-building communications providers. The demand for bundled services from in-
building communications providers is unproven and may grow less than the demand
for communications services generally, or not at all. Furthermore, our own
growth rate may not match the growth rate of the in-building communications
market as a whole.
6
<PAGE>
Our business plan cannot succeed unless we continue to obtain license
agreements with building owners and managers
Our business depends upon our ability to install in-building networks. The
failure of building owners or managers to grant or renew access rights on
acceptable terms, or any deterioration in our existing relationships with
building owners or managers, could harm our marketing efforts and could
substantially reduce our potential customer base. Current federal and state
regulations do not require building owners to make space available to us, or to
do so on terms that are reasonable or nondiscriminatory. Building owners or
managers may decide not to permit us to install our networks in their buildings
or may elect not to renew our license agreements. Non-renewal of these
agreements would reduce our revenues and we might not recover all of our
infrastructure costs.
We must place our network infrastructures in additional buildings before our
competitors do or we will face a substantial competitive disadvantage
Our success will depend upon our ability to quickly obtain license
agreements and install our in-building networks in many more buildings. This is
crucial in order to establish a first-mover advantage. We may not be able to
accomplish this. Each building in which we do not build a network is
particularly vulnerable to competitors. In addition, future expansions and
adaptations of our network infrastructures may be necessary to respond to
growth in the number of customers served, increased capacity demands and
changes to our services; otherwise other companies could be encouraged to
compete in buildings where we have installed networks.
In addition, future expansion will require us to outsource a significant
portion of the installation of our in-building networks. Any delays in
obtaining, or interruption in, the services of these third party installers
could delay our plans to install in-building networks, impair our ability to
acquire or retain customers and harm our business generally.
We may not be able to efficiently manage our growth, which could harm our
business
Future expansion will place significant additional strains on our personnel,
financial and other resources. The failure to efficiently manage our growth
could adversely affect the quality of our services, our business and our
financial condition. Our ability to manage our growth will be particularly
dependent on our ability to develop and retain an effective sales force and
qualified technical and managerial personnel. The competition for qualified
sales, technical and managerial personnel in the communications industry is
intense, and we may not be able to hire and retain sufficient qualified
personnel. In this regard, we note that we do not have employment contracts
with our key personnel. In addition, we may not be able to maintain the quality
of our operations, to control our costs, to maintain compliance with all
applicable regulations, and to expand our internal management, technical,
information and accounting systems in order to support our desired growth.
Our business will be harmed if our information support systems are not further
developed
Sophisticated information processing systems, including billing, are vital
to our growth and our ability to achieve operating efficiencies. A failure of
these systems could substantially impair our ability to provide services, send
invoices and monitor our operations. Among the systems we have identified as
being presently inadequate to meet the increased demands of our anticipated
growth are work-flow and customer priority management, human resources, sales
and customer support and fixed asset management, and there may be other systems
we have not identified that are in need of improvement. We estimate that
modifying or replacing these systems will cost approximately $10
7
<PAGE>
million in fiscal year 2000. Our plans for the development and implementation
of these systems rely largely upon acquiring products and services offered by
third-party vendors and integrating those products and services. We may be
unable to implement these systems on a timely basis or at all, and these
systems may not perform as expected. We may also be unable to maintain and
upgrade our operational support systems as necessary.
We operate in a highly competitive market, and we may not be able to compete
effectively against established competitors with greater financial resources
and diverse strategic plans
We face competition from many entities with significantly greater financial
resources, well-established brand names, larger customer bases and diverse
strategic plans and technologies. We compete against many communications
companies which provide individual or bundled services. Intense competition has
led to declining prices and margins for many communications services. We expect
this trend to continue as competition intensifies in the future. We expect
significant competition from traditional and new communications companies,
including local, long distance, cable modem, Internet, digital subscriber line,
fixed and mobile wireless and satellite data service providers, some of which
are detailed below. If these potential competitors successfully focus on our
market, we may face intense competition which could harm our business. In
addition, we may also face severe price competition for building access rights,
which could result in higher sales and marketing expenses and lower profit
margins.
We face competition from other in-building communications providers
Some competitors are attempting to gain access to office buildings in our
target markets. These companies include Advanced Radio Telecom, Allied Riser
Communications, Broadband Office, Intermedia, NEXTLINK, OnSite Access, RCN
Telecom Services, SiteLine, Teligent, Urban Media and Winstar. Some of these
competitors are seeking to develop exclusive relationships with building
owners. To the extent these competitors are successful, we may face
difficulties in building our networks and marketing our services within some of
our target buildings. Our agreements to use utility shaft space within
buildings are generally not exclusive. An owner of any of the buildings in
which we do not have exclusive rights to install a network could also give
similar rights to one of our competitors. Certain competitors already have
rights to install networks in some of the buildings in which we have rights to
install our networks. It will take a substantial amount of time to build
networks in all the buildings in which we intend to exercise our rights under
our license agreements and master license agreements. Each building in which we
do not build a network is particularly vulnerable to competitors. It is not
clear whether it will be profitable for two or more different companies to
operate networks within the same building. Therefore, it is critical that we
build our networks in additional buildings quickly. Once we have done so, if a
competitor installs a network in the same building, there will likely be
substantial price competition.
We face competition from local telephone companies
Incumbent local telephone companies, including GTE and regional Bell
operating companies such as Bell Atlantic and BellSouth, have several
competitive strengths which may place us at a competitive disadvantage. These
competitive strengths include an established brand name and reputation and
significant capital to rapidly deploy or leverage existing communications
equipment and broadband networks. Competitive local telephone companies often
market their services to tenants of buildings within our target markets and
selectively construct in-building facilities. Additionally, the regional Bell
operating companies are now permitted to provide long distance
8
<PAGE>
services in territories where they are not the dominant provider of local
services. These companies may also provide long distance services in the
territories where they are the dominant provider of local services if they
satisfy a regulatory checklist established by the Federal Communications
Commission.
We face competition from long distance companies
We will face strong competition from long distance companies. Many of the
leading long distance carriers, including AT&T, MCI WorldCom and Sprint, could
begin to build their own in-building voice and data networks. The newer
national long distance carriers, such as Level 3, Qwest and Williams
Communications, are building and managing high speed fiber-based national
voice and data networks, partnering with Internet service providers, and may
extend their networks by installing in-building facilities and equipment.
We face competition from fixed wireless service providers
We may lose potential customers to fixed wireless service providers. Fixed
wireless service providers can provide high speed communications services
using microwave or other facilities or satellite earth stations on building
rooftops. Some of these providers have targeted small and medium-sized
business customers and have a business strategy that is similar to ours. These
providers include Advanced Radio Telecom, MCI WorldCom, NEXTLINK, Sprint,
Teligent and Winstar.
We face competition from Internet service providers, digital subscriber line
companies and cable-based service providers
The services provided by Internet service providers, digital subscriber
line companies and cable-based service providers can be used by our potential
customers instead of our services. Internet service providers, such as
Concentric Networks, EarthLink, GTE Internetworking, MindSpring, Prodigy,
PSINet, Sprint, the UUNET subsidiary of MCI WorldCom, and Verio, provide
Internet access to residential and business customers, generally using the
existing communications infrastructure. Digital subscriber line companies
and/or their Internet service provider customers, such as Covad, Network
Access Solutions, NorthPoint and Rhythms NetConnections, typically provide
broadband Internet access. Cable-based service providers, such as Excite@Home
and its @Work subsidiary, High Speed Access, RCN Telecom Services and Road
Runner, also provide broadband Internet access. On-line service providers,
such as America Online, Microsoft Network, Prodigy and WebTV, provide Internet
connectivity, ease-of-use and a stable environment for modem connections.
These various providers may also offer traditional or Internet-based voice
services to compete with us.
Competitors might use new or alternative technologies to offer better or less
expensive services than we can offer
In addition to the fiber-optic technology that our networks employ, there
are other technologies that provide greater bandwidth than traditional copper
wire transmission technology and may be used instead of our voice and data
services. Furthermore, these technologies may be improved and other new
technologies may develop that provide greater bandwidth than the fiber-optic
based technology we utilize. Existing alternative technologies include:
9
<PAGE>
. Digital Subscriber Line Technology. Digital subscriber line technology
was developed to produce higher data transfer rates over the existing
copper-based telephone network. The data transfer rates for digital
subscriber lines are reported to range between 144,000 bits of data per
second and six million bits of data per second.
. Cable Modems. Cable modems can allow users to send and receive data
using cable television distribution systems. According to industry
sources, cable modem users typically experience download speeds of 1.5
million bits of data per second.
. Wireless Technologies. Wireless technologies, such as satellite and
microwave communications systems, can provide high speed data
communications. Satellite systems, such as DirecPC, can offer high
download speeds that are advertised at 400,000 bits of data per second
or higher.
. Integrated Services Digital Networks. Integrated services digital
networks have been offered by the incumbent local telephone companies
over the existing copper-based telephone network for some time. These
services offer data transfer speeds of 128,000 bits of data per second.
. Internet Telephony. Several competitors have deployed, and others are
developing, Internet telephony, whereby voice calls may be made over the
Internet. The sound quality of these services has improved since their
introduction.
The development of new technologies or the significant penetration of
alternative technologies into our target market may reduce the demand for our
services and harm our business.
Legislation and government regulation could adversely affect us
Many of our services are subject to federal, state and/or local regulation.
As we continue to expand our operations geographically, we will become subject
to the regulation of additional jurisdictions. If we fail to comply with all
applicable regulations or experience delays in obtaining required approvals,
our business could be harmed. For example, we must make regular filings in
some of the states in which we operate and could be fined if we do not timely
make these filings. Additionally, compliance with these regulatory
requirements may be costly. Regulations governing communications services also
change from time to time in ways that are difficult to predict. Such changes
may harm our business by increasing competition, decreasing revenue,
increasing costs or impairing our ability to offer services. For example, the
FCC could mandate that building owners give access to competitive providers of
communications services.
If our interpretation of regulations applicable to our operations is
incorrect, we may incur additional expenses or become subject to more
stringent regulation
Some of the jurisdictions where we provide services have little, if any,
written regulations regarding our operations. In addition, the written
regulations and guidelines that do exist in a jurisdiction may not
specifically address our operations. If our interpretations of these
regulations and guidelines is incorrect, we may incur additional expenses to
comply with additional regulations applicable to our operations.
Regulation of access to office buildings could negatively affect our business
There have been proposals to require that commercial office buildings give
access to competitive providers of telecommunications services. Regulatory or
legal requirements that change access rights
10
<PAGE>
to our target buildings or our networks would facilitate our competitors' entry
into buildings where we have access rights. Our competitors' access to
buildings in which we operate could diminish the value of our access rights to
that property and adversely affect our competitive position. Increased access
would be particularly detrimental in buildings in which we currently have
exclusive access rights. Recently, the FCC initiated a regulatory proceeding
relating to utility shaft access in multiple tenant buildings, and a bill was
introduced in Congress regarding the same topic. Some of the issues being
considered in these developments include requiring building owners to provide
utility shaft access to telecommunications carriers, and requiring some
telecommunications providers to provide access to other telecommunications
providers. We do not know whether or in what form these proposals will be
adopted.
We must purchase voice and data transmission capacity from third parties who
may be unable or unwilling to meet our requirements
We rely upon other communications carriers, such as local telephone
companies, long distance companies, fixed wireless service providers and
Internet service providers, to provide transmission capacity from the buildings
we serve. Our failure to obtain adequate connections from other carriers on a
timely basis could delay or impede our ability to provide services and generate
revenue. We have experienced, and expect to continue to experience, delays in
obtaining transmission capacity. In addition, in some of our target markets
there is only one established carrier available to provide the necessary
connection. This increases our cost and makes it extremely difficult, if not
impossible, to obtain sufficient backup, or redundant, connections. Sufficient
capacity or redundant capacity may not be readily available from third parties
at commercially reasonable rates, if at all. Our failure to obtain sufficient
redundant connectivity could result in an inability to provide service in
certain buildings and service interruptions, which could in time lead to loss
of customers and damage to our reputation. Additionally, many of the
communications carriers we rely on for transmission capacity are also our
direct competitors. See "--We operate in a highly competitive market, and we
may not be able to compete effectively against established competitors with
greater financial resources and diverse strategic plans."
As noted above, we rely on local telephone companies for transmission
capacity. The rates we pay to the local telephone companies are generally
approved by the regulatory agency with jurisdiction over that carrier. Local
telephone companies may try to modify the terms under which they provide us
services to make it more difficult or more costly for us to provide services to
our tenants. Changes to the rates that local telephone companies charge us may
prevent us from providing services to our tenants at rates that are competitive
and profitable. Further, local telephone companies may not provide us access to
their network facilities in a prompt and efficient manner.
We also rely on long distance providers for transmission capacity. The rates
that we pay these providers have generally been decreasing over time. These
rates may, however, rise in the future as a result of changes in regulation or
otherwise. Further, the rates we pay some long distance providers are
contingent upon our meeting minimum volume commitments. If we fail to meet
these volume requirements, our rates may rise. Increases in the rates we pay
for long distance service may make it more costly for us to provide these
services to our tenants. Further, long distance providers may not provide us
with access to their network facilities in a prompt and efficient manner.
With respect to Internet connectivity, we obtain the Internet access we
provide to our tenants from Internet service providers at negotiated rates. In
some instances, we must meet minimum volume commitments to receive the
negotiated rates. If we fail to meet the minimum volume
11
<PAGE>
commitments, our rates and costs may rise. Further, Internet service providers
may not provide us with access to their network facilities in a prompt and
efficient manner.
As of December 31, 1999, we have committed to pay approximately $2.1 million
for services from other communications carriers through 2002. We will have to
pay those carriers even if we do not use their services.
Our business could suffer from a reduction or interruption from our equipment
suppliers
We purchase our equipment from various vendors. Any reduction in or
interruption of deliveries from our major equipment suppliers, such as Nortel
Networks or Cisco Systems, could delay our plans to install in-building
networks, impair our ability to acquire or retain customers and harm our
business generally. In addition, the price of the equipment we purchase may
substantially increase over time, increasing the costs we pay in the future. It
could take a significant period of time to establish relationships with
alternative suppliers for each of our technologies and substitute their
technologies into our networks.
We must make capital expenditures before generating revenues, which may prove
insufficient to justify those expenditures
We typically install an in-building network before we have any customers in
that building. Since we generally do not solicit customers within a building
until our network is in place we may not be able to recoup all of our
expenditures within any building. Prior to generating revenues in a building,
we must incur initial capital expenditures that are usually less than $90,000
on a typical 335,000 square foot building. In November and December 1999, we
entered into a number of master license agreements, the aggregate effect of
which is likely to increase the average size of the buildings we serve and
therefore increase our average initial capital expenditures for network
installation. Our expenditures will also vary depending on the size of the
building and whether we encounter any construction-related difficulties. After
initial installation of our network, our capital expenditures continue to grow
based on the extent to which we add customers within a building.
Any acquisitions or investments we make could disrupt our business and be
dilutive to our existing stockholders
We intend to consider acquisitions of, or investments in, complementary
businesses, technologies, services or products. Acquisitions and investments
involve numerous risks, including:
. the diversion of management attention;
. difficulties in assimilating the acquired business;
. potential loss of key employees, particularly those of the acquired
business;
. difficulties in transitioning key customer relationships;
. risks associated with entering markets in which we have no or limited
prior experience; and
. unanticipated costs.
In addition, these acquisitions or investments may result in:
. dilutive issuances of equity securities;
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<PAGE>
. the incurrence of debt;
. the assumption of liabilities;
. large one-time expenses; and
. the creation of goodwill or other intangible assets that result in
significant amortization expense.
Any of these factors could materially harm our business or our operating
results.
Our networks may be vulnerable to unauthorized access which could interfere
with the provision of our services
Our networks may be vulnerable to unauthorized access, computer viruses and
other disruptive problems. Remediating the effects of computer viruses and
alleviating other security problems may require interruptions, incurrence of
costs and delays or cessation of service to our customers. Unauthorized access
could jeopardize the security of confidential information stored in our
computer systems or those of our customers, for which we could possibly be held
liable.
As an Internet access provider, we may incur liability for information
disseminated through our network
The law relating to the liability of Internet access providers and on-line
services companies for information carried on or disseminated through their
networks is unsettled. As the law in this area develops, the potential
imposition of liability upon us for information carried on and disseminated
through our network could require us to implement measures to reduce our
exposure to such liability, which may require the expenditure of substantial
resources or the discontinuation of certain products or service offerings. Any
costs that are incurred as a result of such measures or the imposition of
liability could harm our business.
Year 2000 problems could disrupt our business
During this calendar year, many software programs may not recognize calendar
dates beginning in the Year 2000. This problem could cause computers or
machines that utilize date dependent software to either shut down or provide
incorrect information. If we, or any of our key suppliers, customers or service
providers, fail to mitigate internal and external Year 2000 risks, we may
temporarily be unable to provide services or engage in any other business
activities, including customer billing, which could harm our business.
Our affiliates will own 59.0% of the outstanding common stock, and thus will
control all matters requiring a stockholder vote and, as a result, could
prevent or delay a change of control
Upon completion of this offering, our existing directors, executive officers
and greater-than-five-percent stockholders and their affiliates will, in the
aggregate, beneficially own approximately 59.0% of the outstanding shares of
common stock, or 57.1% if the underwriters' over-allotment option is exercised
in full. If all of these stockholders were to vote together as a group, they
would have the ability to exert significant influence over our board of
directors and its policies. For instance, these stockholders would be able to
control the outcome of all stockholders' votes, including votes concerning
director elections, charter and by-law amendments and possible mergers,
corporate
13
<PAGE>
control contests and other significant corporate transactions. This
concentration of stock ownership could have the effect of preventing or
delaying a change of control or otherwise discouraging a potential acquiror
from attempting to obtain control of us, which in turn could harm the market
price of our common stock or prevent our stockholders from realizing a takeover
premium over the market price for their shares of common stock.
Provisions in our certificate of incorporation and bylaws may discourage
takeover attempts
Provisions in our certificate of incorporation and bylaws may have the
effect of preventing or delaying a change of control or changes in our
management. These provisions include:
. the right of the board of directors, without stockholder approval, to
issue shares of preferred stock and to establish the voting rights,
preferences, and other terms of any preferred stock;
. the right of the board of directors to elect a director to fill a
vacancy created by the expansion of the board of directors;
. the ability of the board of directors to alter our bylaws without prior
stockholder approval;
. the election of three classes of directors to each serve three year
staggered terms;
. the elimination of stockholder voting by consent;
. the removal of directors only for cause;
. the vesting of exclusive authority in the board of directors and
specified officers (except as otherwise required by law) to call special
meetings of stockholders; and
. advance notice requirements for stockholder proposals and nominations
for election to the board of directors.
These provisions may have the effect of preventing or delaying a change of
control or impeding a merger, consolidation, takeover or other business
combination, which in turn could preclude our stockholders from recognizing a
premium over the prevailing market price of the common stock.
Prior to the completion of this offering, we intend to adopt a shareholder
rights plan. This plan will entitle our stockholders to rights to acquire
additional shares of our common stock when a third party acquires 15% of our
common stock or commences or announces its intent to commence a tender offer
for at least 15% of our common stock. This plan could delay, deter or prevent a
change of control.
You will suffer immediate and substantial dilution
The initial public offering price per share will be substantially higher
than the net tangible book value per share immediately after the offering.
Accordingly, if you purchase common stock in this offering, you will incur
immediate and substantial dilution. See "Dilution." We also have a large number
of outstanding stock options and warrants to purchase our common stock with
exercise prices significantly below the initial public offering price of the
common stock. To the extent these options and warrants are exercised, there
will be further dilution.
Future sales and issuances of our common stock could adversely affect our stock
price
Substantial sales of our common stock in the public market following this
offering, or the perception by the market that such sales could occur, could
lower our stock price or make it difficult
14
<PAGE>
for us to raise additional equity capital in the future. After this offering,
we will have 45,856,415 shares of common stock outstanding. Of these shares,
the 10,000,000 shares sold in this offering, or 11,500,000 shares if the
underwriters' over-allotment is exercised in full, will be freely tradeable.
The remaining 35,856,415 shares will be subject to 180-day lock-up agreements.
Of these shares, up to 17,004,632 shares may be available for sale in the
public market 180 days after the date of this prospectus, subject to compliance
with Rule 144, and the balance will be available for sale at various times
thereafter, also subject to compliance with Rule 144. In addition, after this
offering, we also intend to register 11,577,100 shares of common stock for
issuance under our stock option plans and 900,000 shares of common stock under
our employee stock purchase plan. As of December 31, 1999, options to purchase
5,820,976 shares of common stock were issued and outstanding, of which options
to purchase 991,639 shares have vested. Additionally, up to 11,066,472 common
shares are issuable upon the exercise of warrants that may be issued to several
property owners and operators pursuant to stock warrant agreements and master
license agreements executed in November and December 1999. These warrants will
be exercisable for a period of ten years, but cannot be exercised until six
months following completion of this offering. We cannot predict if future sales
or issuances of our common stock, or the availability of our common stock for
sale, will harm the market price for our common stock or our ability to raise
capital by offering equity securities.
Members of our board serve on the boards of our potential competitors, which
may create conflicts of interest
Some members of our board of directors may serve as directors of other
communications or Internet services companies which might compete with us. To
the extent that any of these companies presently offer, or at some future point
begin to offer, integrated communications services similar to the services that
we provide, there may be conflicts of interest between the fiduciary duties
owed by these individuals to us and the duties owed to these other companies.
We have not adopted specific policy guidelines to address these potential
conflicts of interest, and if these conflicts of interest arise they may be
resolved on terms that are not in the best interests of all of our
stockholders.
Impairment of our intellectual property rights could harm our business
We regard certain aspects of our products, services and technology as
proprietary and attempt to protect them with patents, copyrights, trademarks,
trade secret laws, restrictions on disclosure and other methods. Despite these
precautions, it may be possible for a third party to copy or otherwise obtain
and use our products, services or technology without authorization, or to
develop similar technology independently.
We currently have a patent application pending for our fiber-optic
infrastructure and network configuration. This patent may not be issued to us,
and if issued, it may not protect our intellectual property from competition
which could seek to design around or invalidate this patent.
We are aware of several other companies in our and other industries which
use the word "Cypress" in their corporate names. We are in the process of
attempting to secure a trademark for the name "Cypress Communications." Even if
we are able to secure this trademark, other companies could challenge our use
of the word "Cypress." If such a challenge is successful, we could be required
to change our name and lose the goodwill associated with the Cypress
Communications name in our markets.
15
<PAGE>
Our forward-looking statements are speculative and may prove to be wrong
Some of the information under the captions "Summary," "Risk Factors," "Use
of Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business," and elsewhere in this prospectus are
"forward-looking statements." These forward-looking statements include, but are
not limited to, statements about our plans, objectives, expectations and
intentions and other statements contained in the prospectus that are not
historical facts. When used in this prospectus, the words "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar
expressions are generally intended to identify forward-looking statements.
Because these forward-looking statements involve risk and uncertainties, there
are important factors, including the factors discussed in this "Risk Factors"
section of the prospectus, that could cause actual results to differ materially
from those expressed or implied by these forward-looking statements.
16
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of our common stock in this
offering will be approximately $137.1 million, based on an assumed initial
public offering price of $15.00 per share, after deducting the estimated
underwriting discount and our estimated offering expenses. If the underwriters'
over-allotment option is exercised in full, we estimate that our net proceeds
will be approximately $158.0 million. We expect to use our net proceeds as
follows:
. approximately $100.0 million will be used for the construction of in-
building networks and the purchase of communications equipment; and
. the remainder will be used for working capital and general corporate
purposes.
A portion of the net proceeds may also be used to acquire or invest in
complementary businesses, technologies, services or products. However, we
currently have no plans, agreements or commitments with respect to these types
of transactions, and we are not currently engaged in any negotiations with
respect to these types of transactions.
We will invest the net proceeds in government securities and other short-
term, investment-grade securities pending use.
DIVIDEND POLICY
To date, we have never declared or paid any cash dividends on shares of our
common stock. We currently intend to retain our earnings for future growth and
development of our business and, therefore, do not anticipate paying cash
dividends in the foreseeable future.
17
<PAGE>
CAPITALIZATION
You should read this table in conjunction with the sections entitled
"Selected Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Use of Proceeds" and our financial
statements and the related notes included elsewhere in this prospectus.
The following cash and capitalization table sets forth as of September 30,
1999:
. Our actual cash and capitalization.
. Our pro forma cash and capitalization after giving effect to:
- the sale of 4,161,974 shares of our series C preferred stock since
September 30, 1999; and
- the issuance of 281,250 shares of our common stock to occur in
connection with our agreed-upon investment in SiteConnect.
. Our pro forma as adjusted cash and capitalization to reflect the above,
as well as:
- the receipt of the estimated net proceeds of $137.1 million from
this offering, assuming an initial public offering price of $15.00
per share; and
- the conversion upon the completion of this offering of all
convertible preferred stock into common stock.
<TABLE>
<CAPTION>
September 30, 1999
----------------------------------------
(unaudited)
Pro Forma
Actual Pro Forma As Adjusted
------------ ------------ ------------
<S> <C> <C> <C>
Cash and cash equivalents............ $ 3,378 $ 79,195,871 $216,295,871
============ ============ ============
Capital lease obligations, including
current portion of $223,001......... 557,701 557,701 557,701
------------ ------------ ------------
Preferred stock:
$.001 par value; 1,211,140 shares
designated Series A, 1,211,140
shares issued and outstanding,
actual and pro forma; 0 shares
issued and outstanding, pro forma
as adjusted........................ 6,039,809 6,039,809 --
$.001 par value; 1,339,575 shares
designated Series B, 1,339,575
shares issued and outstanding,
actual and pro forma; 0 shares
issued and outstanding, pro forma
as adjusted........................ 10,704,559 10,704,559 --
$.001 par value; 579,613 shares
designated Series B-1, 579,613
shares issued and outstanding,
actual and pro forma; 0 shares
issued and outstanding, pro forma
as adjusted........................ 4,631,669 4,631,669 --
$.001 par value; 4,210,526 shares
designated Series C, 0 shares
issued and outstanding, actual;
4,161,974 shares issued and
outstanding, pro forma; 0 shares
issued and outstanding, pro forma
as adjusted........................ -- 79,077,500 --
------------ ------------ ------------
Total preferred stock............ 21,376,037 100,453,537 --
------------ ------------ ------------
Shareholders' (deficit) equity:
Common stock, $.001 par value;
20,594,088 shares authorized,
2,759,806 shares issued and
outstanding, actual; 20,594,088
shares authorized, 3,041,056 shares
issued and outstanding, pro forma;
150,000,000 shares authorized,
45,856,415 shares issued and
outstanding, pro forma as
adjusted........................... 2,637 3,041 45,856
Additional paid-in capital.......... 1,765,299 6,098,645 243,642,534
Accumulated deficit................. (12,456,649) (12,456,649) (12,489,816)
------------ ------------ ------------
Total shareholders' (deficit)
equity.......................... (10,688,713) (6,354,963) 231,198,574
------------ ------------ ------------
Total capitalization................. $ 11,245,025 $ 94,656,275 $231,756,275
============ ============ ============
</TABLE>
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<PAGE>
The cash and capitalization table excludes:
. 1,500,000 shares of common stock issuable pursuant to the over-allotment
option;
. 5,820,976 shares of common stock issuable upon exercise of outstanding
stock options at a weighted average exercise price of $1.60 per share as
of December 31, 1999;
. 5,756,125 shares of common stock reserved for issuance in connection
with future grants under our stock option plan;
. 900,000 shares of common stock reserved for issuance under our employee
stock purchase plan; and
. up to 11,066,472 shares of common stock issuable upon the exercise of
warrants with an exercise price of $4.22 per share. We agreed to issue
these warrants to several real estate owners and operators in connection
with their execution of master license agreements giving us the right to
install and operate our networks in their buildings. The warrants will
be exercisable for a period of ten years, but cannot be exercised until
six months following completion of this offering.
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<PAGE>
DILUTION
Our pro forma net tangible book value as of September 30, 1999 was $92.8
million, or $2.59 per share of outstanding common stock, after giving effect to
the adjustments shown in the pro forma column under "Capitalization" and the
conversion upon completion of this offering of all convertible preferred stock
into common stock. The pro forma net tangible book value per share represents
our total tangible assets less total liabilities, divided by 35,856,415 shares
of common stock outstanding on a pro forma basis before this offering. Dilution
per share represents the difference between the amount per share paid by
investors in this offering and the pro forma net tangible book value per share
after this offering. After giving effect to this offering, the pro forma as
adjusted net tangible book value at September 30, 1999 would have been $231.2
million, or $5.01 per share. This represents an immediate increase in net
tangible book value of $2.42 per share to existing stockholders and an
immediate dilution in net tangible book value of $9.99 per share to new
investors purchasing shares at the initial public offering price. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $15.00
------
Pro forma net tangible book value per share before this offering.. $2.59
Increase per share attributable to new investors.................. 2.42
Pro forma net tangible book value per share after this offering.... 5.01
------
Dilution per share to new investors................................ $ 9.99
======
</TABLE>
The following table summarizes, on a pro forma as adjusted basis as of
September 30, 1999, the difference between existing stockholders and new
investors with respect to the number of shares of common stock purchased, the
total consideration paid and the average price per share paid. These amounts do
not include estimated underwriting discounts and commissions and offering
expenses payable by us. The table assumes that the initial public offering
price will be $15.00.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price
Number Percent Amount Percent per Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 35,856,415 78.2% 106,588,390 41.5% $ 2.97
New investors.................. 10,000,000 21.8% 150,000,000 58.5% $15.00
---------- ---- ----------- ----
Total ....................... 45,856,415 100% 256,588,390 100%
========== ==== =========== ====
</TABLE>
The foregoing table assumes no exercise of stock options or warrants. As of
September 30, 1999, there were options outstanding to purchase 3,881,970 shares
of common stock at a weighted average exercise price of $.87 per share. Between
October 1, 1999 and December 31, 1999 additional options were granted to
purchase 2,131,655 shares of common stock at a weighted average exercise price
of $2.90 per share. In November and December 1999, we entered into stock
warrant agreements and master license agreements with several property owners
and operators in which we agreed to issue warrants to acquire up to 11,066,472
shares of our common stock at an exercise price of $4.22 per share. To the
extent outstanding options and warrants are exercised, there will be further
dilution to new investors. In addition, we may agree to issue additional
warrants to acquire common stock to property owners and operators in the future
and we may issue equity securities to pay for acquisitions.
20
<PAGE>
SELECTED FINANCIAL DATA
You should read the following selected financial data together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the related notes, all of which
appear elsewhere in this prospectus. The following selected statement of
operations data for the year ended December 31, 1996, the 6 1/2 months ended
July 15, 1997, the 5 1/2 months ended December 31, 1997 and the year ended
December 31, 1998, and the selected balance sheet data as of December 31, 1998
have been derived from the audited financial statements of our predecessor
company and our company and the related notes. The selected statement of
operations data for the period from our inception (August 16, 1995) to December
31, 1995 and for the nine months ended September 30, 1998 and 1999, and the
selected balance sheet data as of September 30, 1999 are derived from our
unaudited financial statements. Operating results for the nine months ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the entire year.
<TABLE>
<CAPTION>
Predecessor(1) Cypress
---------------------------------------- ----------------------------------------------------
Period from 6 1/2 5 1/2
Inception Months Months Nine Months Ended
(August 16, 1995) Year Ended Ended Ended Year Ended September 30,
to December 31, July 15, December 31, December 31, ------------------------
December 31, 1995 1996 1997 1997 1998 1998 1999
----------------- ------------ --------- ------------ ------------ ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................. $ -- $ 83,556 $ 248,235 $ 461,167 $ 2,417,816 $ 1,428,497 $ 5,227,727
Operating expenses:
Cost of services........ -- 131,771 221,596 381,518 1,539,846 944,760 3,248,377
Sales and marketing..... -- 12,189 122,055 326,861 1,470,107 1,075,039 2,466,844
General and
administrative......... 117,086 640,704 255,175 567,748 2,436,221 1,597,974 5,604,135
Depreciation and
amortization........... 694 53,808 66,217 288,737 891,788 587,800 1,650,253
--------- --------- --------- ----------- ----------- ----------- -----------
Total operating
expenses............... 117,780 838,472 665,043 1,564,864 6,337,962 4,205,573 12,969,609
--------- --------- --------- ----------- ----------- ----------- -----------
Operating loss........... (117,780) (754,916) (416,808) (1,103,697) (3,920,146) (2,777,076) (7,741,882)
Interest income, net..... -- 13,939 6,253 107,669 232,279 66,911 168,120
--------- --------- --------- ----------- ----------- ----------- -----------
Loss before income
taxes................... (117,780) (740,977) (410,555) (996,028) (3,687,867) (2,710,165) (7,573,762)
Income tax benefit....... -- -- -- 59,252 -- -- --
--------- --------- --------- ----------- ----------- ----------- -----------
Net loss................. $(117,780) $(740,977) $(410,555) $ (936,776) $(3,687,867) $(2,710,165) $(7,573,762)
========= ========= ========= =========== =========== =========== ===========
Net loss per share of
common stock:
Basic and diluted....... $ (.36) $ (1.40) $ (1.03) $ (2.87)
=========== =========== =========== ===========
Weighted average shares
of
common stock outstanding:
Basic and diluted....... 2,636,906 2,636,906 2,636,906 2,636,906
=========== =========== =========== ===========
</TABLE>
- -------
(1) We were formed as a limited liability company under the laws of Georgia on
August 16, 1995. On July 15, 1997, we completed a reorganization
transaction in which our predecessor company was merged into a Delaware
corporation. See Note 1 to our financial statements.
21
<PAGE>
The pro forma balance sheet information below reflects the sale since
September 30, 1999 of 4,161,974 shares of our series C preferred stock for
total proceeds of approximately $79.1 million and the issuance of 281,250
shares of our common stock to occur in connection with our agreed-upon
investment in SiteConnect.
The pro forma as adjusted balance sheet information reflects all of the
above adjustments, as well as the receipt of the estimated net proceeds of
$137.1 million from this offering, assuming an initial public offering price of
$15.00 per share, and the conversion upon the completion of this offering of
all convertible preferred stock into common stock.
<TABLE>
<CAPTION>
As of
December 31,
1998 As of September 30, 1999
------------ ---------------------------------------
(unaudited)
Pro Forma
Actual Actual Pro Forma As Adjusted
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $11,057,696 $ 3,378 $79,195,871 $216,295,871
Property and equipment,
net.................... 6,291,413 11,645,639 11,645,639 11,645,639
Total assets............ 20,571,247 15,196,621 98,607,864 235,707,864
Total liabilities....... 2,368,935 4,509,297 4,509,297 4,509,297
Convertible redeemable
preferred stock........ 21,317,263 21,376,037 100,453,537 --
Stockholders' (deficit)
equity................. (3,114,951) (10,688,713) (6,354,963) 231,198,574
</TABLE>
As used in the table below, EBITDA consists of net loss excluding net
interest, income taxes and depreciation and amortization. EBITDA excludes
depreciation and amortization expenses of $53,808, $66,217, $288,737, $891,788,
$587,800, and $1,650,253 for the year ended December 31, 1996, the 6 1/2 months
ended July 15, 1997, the 5 1/2 months ended December 31, 1997, the year ended
December 31, 1998, and the nine months ended September 30, 1998 and 1999,
respectively. We expect that depreciation and amortization will increase
considerably as we enter into additional property license agreements and deploy
additional in-building networks. We believe that because EBITDA is a measure of
financial performance it is useful to investors and analysts as an indicator of
a company's ability to fund its operations and to service or incur debt.
However, EBITDA is not a measure calculated under generally accepted accounting
principles. Other companies may calculate EBITDA or other similarly titled
measures differently from us; consequently, our calculation of EBITDA may not
be comparable to other companies' calculations of EBITDA or other similarly
titled measures. EBITDA is not an alternative to operating income as an
indicator of our operating performance or an alternative to cash flows from
operating activities as a measure of liquidity, and investors should consider
these measures as well. We do not expect to generate positive EBITDA in the
near term.
<TABLE>
<CAPTION>
Predecessor Cypress
------------------------------ --------------------------------------------------------
6 5 Nine Months Ended
Year Ended 1/2 Months Ended 1/2 Months Ended Year Ended September 30,
December 31, July 15, December 31, December 31, -------------------------
1996 1997 1997 1998 1998 1999
------------ ---------------- ---------------- ------------ ----------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Other Operating Data:
Net cash used in
operating activities... $ (638,707) $ (236,525) $ (577,322) $ (2,914,905) $(1,971,373) $ (5,775,126)
Net cash used in
investing activities... (638,638) (352,359) (1,739,266) (4,991,641) (1,691,993) (5,172,675)
Net cash provided by
(used in) financing
activities............. 1,721,975 165,979 5,962,832 15,293,177 15,535,276 (106,517)
EBITDA.................. (701,108) (350,591) (814,960) (3,028,358) (2,189,276) (6,091,629)
Capital expenditures.... (518,638) (352,359) (838,364) (2,887,243) (1,691,993) (5,392,075)
Markets served.......... 1 1 2 4 2 9
Buildings served........ 15 16 19 39 24 96
Rentable square feet in
buildings served....... 2.4 million 2.6 million 3.6 million 11.0 million 5.5 million 23.5 million
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We provide a full range of communications services to small and medium-sized
businesses located in multi-tenant office buildings in major metropolitan
markets in the United States. Since the inception of our predecessor company in
August 1995, our principle activities have included securing license agreements
with building owners and real estate managers that enable us to install our in-
building fiber-optic, digital and broadband networks, marketing our services to
tenants and hiring qualified personnel to support our rapid growth. We began
operating in-building networks in June 1996 and currently provide services in
116 buildings representing approximately 30 million rentable square feet.
Overall, we have secured agreements giving us the right to operate our networks
in over 730 buildings representing more than 229 million rentable square feet.
Building and expanding our business will continue to require us to incur
significant capital expenditures. These expenditures will consist primarily of
purchases of communication equipment and construction costs associated with
building our in-building networks. We attempt to maximize the benefit of
deployed capital by investing in network assets only after entering into a
long-term license agreement with a property owner. In addition, we do not
expend capital on a customer until we have signed a contract with that
customer. As a result, a large portion of our capital expenditures is success-
based. On a typical 335,000 square foot building, our up-front capital
investment is usually less than $90,000 which includes the purchase and
installation of our in-building vertical communications infrastructure,
commonly known as a riser system, and associated network equipment. As we begin
to successfully penetrate a building, in order to provide additional network
capacity and equipment for our customers our capital deployment in that
building may grow to over $335,000.
We have experienced operating losses and generated negative EBITDA, as
defined in "Summary Financial and Other Data" and "Selected Financial Data,"
and expect to continue to generate losses and negative EBITDA for the
foreseeable future while we continue to construct in-building networks and
expand our customer base and internal information systems. As a result of our
limited operating history, prospective investors have limited operating and
financial data upon which to evaluate our performance.
Factors Affecting Future Operations
Revenue. We generate revenues from selling voice, data and other services
and from the rental of telephone systems and other equipment to tenants in the
buildings in which we own and operate our networks. The majority of our
revenues are generated on a monthly recurring basis. The remainder are derived
from non-recurring charges for installations and other one-time services. Our
customer contracts typically range between one and seven years in length and
are usually designed to coincide with our customers' office space leases. The
typical length of our customer contracts is three years.
We believe that our ability to generate revenues in the future will be
affected primarily by the following factors, some of which we cannot control:
. our ability to enter into license agreements with building owners and
install our in-building networks;
23
<PAGE>
. our ability to obtain customers before our competitors do;
. the level of competition we face from other communications providers,
including price competition, which has resulted in a trend of declining
prices and margins for communications services over time;
. the demand for our services; and
. possible regulatory changes, including regulations requiring building
owners to give access to competitive providers of communications
services.
Cost of services. Our cost of services consists primarily of leased
transport charges, which are lease payments to communications providers for the
transmission facilities used to connect our in-building networks to incumbent
local telephone companies and other competitive local and long distance
carriers networks. Other costs include per minute charges paid to long distance
providers for use of their networks, the monthly fees we pay to our Internet
providers, and labor costs associated with installing equipment and changing
customers' services. We expect these costs to increase in aggregate dollar
amount as we continue to grow our business but to decline as a percentage of
revenues due to economies of scale, expected improvements in technology and
price competition from an increased number of vendors from which we can lease
voice and data transport. However, in markets where there is only a single
carrier, or only a limited number of carriers, available to provide sufficient
transmission capacity, the cost of services may actually increase.
Sales and marketing expenses. Sales and marketing expenses include
applicable employee salaries and commission payments and marketing, advertising
and promotional expenses, Sales and marketing expenses also include payments to
building owners and operators under license agreements, as described below.
In November and December 1999, we entered into master license agreements
with several owners and operators of office buildings. Each master license
agreement sets forth a list of buildings owned or managed by the property owner
or operator that is a party to that agreement. In accordance with the terms of
these agreements, we have begun to enter into property-specific license
agreements with respect to each listed building. In some cases, the property
owner or operator may need to obtain the consent from third parties who may
have an ownership interest in the building before we can enter into a property-
specific license agreement for that building. Under the property-specific
license agreements, the property owner or operator will grant us a license to
install and operate our networks in each building in return for approximately
6% of the revenues we receive from tenants in that building. The initial term
of each property-specific license agreement is five years, with an automatic
five year extension at the end of the initial term, absent any default under
the agreement. These master license agreements give us the right to operate our
networks in more than 570 buildings representing more than 197 million rentable
square feet.
In addition to the master license agreements, we also have license
agreements with a number of other property owners and operators which we have
previously executed on a per building basis. Under these agreements, which give
us the right to operate our networks in more than 130 buildings representing
more than 35 million rentable square feet, we have agreed to pay property
owners either a base fee or between 3% and 6% of our revenues in the building.
As of September 30, 1999, our aggregate minimum obligation under these
agreements was $125,000 per year for the next seven years.
We expect to incur significant sales and marketing expenses as we continue
to grow our business and build our brand.
24
<PAGE>
General and administrative expenses. General and administrative expenses
include costs associated with the recruiting and compensation of corporate
administration, customer care and technical services personnel as well as costs
of travel and entertainment, back office systems and legal, accounting and
other professional services. We expect these costs to increase significantly as
we expand our operations, but decline as a percentage of revenues due to
economies of scale.
Depreciation and amortization. Depreciation and amortization expenses
include depreciation of network related equipment, information systems,
furniture, fixtures, leasehold improvements and the amortization of goodwill
and acquired tenant contracts.
In connection with the execution of master license agreements in November
and December 1999, we also entered into stock warrant agreements with the same
property owners and operators. Under the terms of these agreements, we agreed
to issue these owners and operators warrants to purchase up to an aggregate of
11,066,472 shares of our common stock at an exercise price of $4.22 per share.
The warrants will be issued upon the execution of a specified number of
property-specific license agreements, and the actual number of shares
underlying the warrants will be determined based on the gross leasable area of
the buildings that become subject to the property-specific license agreements.
We expect to issue all or substantially all of these warrants. The measurement
date for valuing the warrants will be the date(s) on which the property owners
or managers effectively complete their performance requirements.
Based upon the current structure of the agreements governing the warrants,
we expect that the fair value of the warrants will be capitalized and amortized
over the applicable term of the license agreements with property owners and
operators. Depending on the prevailing fair market value of the warrants at the
measurement date, we will incur significant non-cash amortization charges. In
addition, we could incur additional cash or non-cash charges as license
inducements to current or future property owners, and such amounts may be
material.
We expect depreciation and amortization expenses to increase significantly
as we enter into additional property license agreements and install our
networks in more buildings.
Amortization of deferred compensation. Amortization of deferred compensation
is a result of granting stock options to our employees with exercise prices per
share treated for accounting purposes as below the fair value of our common
stock at the dates of grant. We are amortizing the deferred compensation over
the vesting period of the applicable option. Although we have not recognized
amortization of deferred compensation expense through September 30, 1999, we
will record amortization of deferred compensation expense beginning in the
quarter ended December 31, 1999 and continuing over the applicable vesting
periods. See Note 10 to our financial statements.
Acquisition strategy. We intend to opportunistically pursue acquisitions or
other strategic relationships to expand our customer base or geographic
presence. These activities could significantly impact our results of operations
and require us to raise additional capital earlier than expected.
In November 1999 we entered into an agreement to acquire approximately 19%
of the common stock of SiteConnect, a Seattle-based in-building communications
service provider, in exchange for 281,250 shares of our common stock. The
agreement gives us a one-year option to purchase the remaining outstanding
shares of common stock of SiteConnect for approximately $5.0 million of our
common stock, valued at the initial public offering price, which would be
333,333 shares based on an assumed initial public offering price of $15.00 per
share. Currently, SiteConnect provides primarily data communications services
to customers in ten commercial office buildings in Seattle.
25
<PAGE>
Results of Operations
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September
30, 1998
Revenues. Revenues for the nine months ended September 30, 1999 increased
266% to $5.2 million from $1.4 million for the same period in the prior year.
$2.4 million of the increase in revenues relates to the addition of new
customers and providing additional services to existing customers. $1.4
million of the increase relates to the acquisition of the assets and customers
of MTS Communications Company in December 1998 (see Note 9 to our financial
statements).
Cost of services. Cost of services for the nine months ended September 30,
1999 increased 243.8% to $3.2 million from $944,760 for the same period in the
prior year. The increase in cost of services was due to an increase in the
number of leased facilities connecting our buildings to local, long distance
and Internet providers and our greater volume of voice and data traffic. As of
September 30, 1999, we had networks installed in 96 buildings versus 24
buildings installed at September 30, 1998.
Sales and marketing expenses. Sales and marketing expenses for the nine
months ended September 30, 1999 increased 129.5% to $2.5 million from $1.1
million for the same period in the prior year. $1.1 million of this increase
in expenses was due to a 170% increase in the size of our direct sales force;
$0.2 million of this increase was due to increased revenue sharing payments
made to property owners with whom we have license agreements; and $0.1 million
of this increase was due to increased promotion of our services via direct
marketing and advertising in our licensed buildings. The decrease in sales and
marketing expenses as a percentage of revenue related primarily to the
additional revenue attributable to the acquisition of the assets of MTS
Communications without a comparable increase in sales and marketing expenses.
General and administrative expenses. General and administrative expenses
for the nine months ended September 30, 1999 increased 250.7% to $5.6 million
from $1.6 million for the same period in the prior year. The increase in
general and administrative expenses was due primarily to a $3.2 million
increase in salaries, benefits and recruiting expenses related to the hiring
of additional personnel, a $369,000 increase in travel and entertainment
expenses primarily related to marketing to property owners and operators and
expenses associated with personnel travelling to oversee and conduct the
installation of our networks in additional buildings, and increases in
accounting, consulting and legal fees. We expect general and administrative
expenses to continue to grow as we hire additional personnel and incur
additional expenses to support the growth of our operations.
Depreciation and amortization. Depreciation and amortization for the nine
months ended September 30, 1999 increased to $1.7 million from $587,800 for
the same period in the prior year. $0.6 million of this increase was due to
increased capital expenditures related to deploying our in-building networks
and related equipment; $0.4 million of this increase was due to depreciation
of fixed assets; and $0.1 million of this increase was due to amortization of
goodwill and tenant contracts related to the acquisition of MTS
Communications.
Interest income, net. Interest income, net for the nine months ended
September 30, 1999 increased to $168,120 from $66,911 for the same period in
the prior year. The increase in interest income, net was due to increased
investments in short-term interest bearing investments as a result of
investing the proceeds raised from our Series B preferred stock offering in
September 1998. Interest expense was nominal in both periods.
26
<PAGE>
Results for the Year Ended December 31, 1998, the 5 1/2 Months Ended December
31, 1997, the 6 1/2 Months Ended July 15, 1997, and the Year Ended December 31,
1996
Revenues. Revenues were $2.4 million, $461,167, $248,235 and $83,556 for the
year ended December 31, 1998, the 5 1/2 months ended December 31, 1997, the 6
1/2 months ended July 15, 1997, and the year ended December 31, 1996,
respectively. The growth in revenues was the result of the addition of new
customers and the provision of additional services to existing customers.
Cost of services. Cost of services was $1.5 million, $381,518, $221,596, and
$131,771 for the year ended December 31, 1998, the 5 1/2 months ended December
31, 1997, the 6 1/2 months ended July 15, 1997, and the year ended December 31,
1996, respectively. The growth in cost of services was the result of our
providing services to an increased number of customers and an increase in the
number of leased facilities connecting our buildings to local, long distance
and Internet providers.
Sales and marketing expenses. Sales and marketing expenses were $1.5
million, $326,861, $122,055 and $12,189 for the year ended December 31, 1998,
the 5 1/2 months ended December 31, 1997, the 6 1/2 months ended July 15, 1997,
and the year ended December 31, 1996, respectively. The growth in sales and
marketing expenses was the result of increases in the size of our direct sales
force, increased license fee payments made to property owners with whom we have
license agreements and increased promotion of our services via direct marketing
and advertising in our licensed buildings.
General and administrative expenses. General and administrative expenses
were $2.4 million, $567,748, $255,175 and $640,704 for the year ended December
31, 1998, the 5 1/2 months ended December 31, 1997, the 6 1/2 months ended July
15, 1997, and the year ended December 31, 1996, respectively. The growth in
general and administrative expenses was the result of increased salaries and
benefits related to the hiring of additional personnel, increased travel and
entertainment related to the installation of new sites and marketing to
property owners, and increases in accounting, consulting and legal fees.
Depreciation and amortization. Depreciation and amortization was $891,788,
$288,737, $66,217, and $53,808 for the year ended December 31, 1998, the 5 1/2
months ended December 31, 1997, the 6 1/2 months ended July 15, 1997, and the
year ended December 31, 1996, respectively. These increases were related to our
increased capital expenditures during the periods. Additionally, the year ended
December 31, 1998 and the 5 1/2 months ended December 31, 1997 include
amortization of goodwill recorded in connection with the acquisition of our
predecessor company in the amount of $332,616 and $166,306, respectively.
Interest income, net. Interest income, net was $232,279, $107,669, $6,253,
and $13,939 for the year ended December 31, 1998, the 5 1/2 months ended
December 31, 1997, the 6 1/2 months ended July 15, 1997, and the year ended
December 31, 1996, respectively. The increase in interest income, net was due
to increased investments in short-term interest bearing investments as a result
of investing the proceeds raised from our series A preferred stock offering in
July 1997 and our series B preferred stock offering in September 1998. Interest
expense was nominal in all periods.
Liquidity and Capital Resources
The results of our operations have generated a net cash outflow due to the
rate at which we have grown. Cash flow from operations totaled $(638,707),
$(236,525), $(577,322), $(2.9 million), and $(5.8 million) for the year ended
December 31, 1996, the 6 1/2 months ended July 15, 1997, the 5 1/2
27
<PAGE>
months ended December 31, 1997, the year ended December 31, 1998, and the nine
months ended September 30, 1999, respectively. The expansion of our operating
and administrative personnel, office space, and other operating expenses were
the principle contributors to the increases in the net cash outflow between the
periods. As we continue to expand our operations, these increases in period-
over-period operating cash outflows will continue.
Cash used in investing activities was $(638,638), $(352,359), $(1.7
million), $(5.0 million), and $(5.2 million) for the year ended December 31,
1996, the 6 1/2 months ended July 15, 1997, the 5 1/2 months ended December 31,
1997, the year ended December 31, 1998, and the nine months ended September 30,
1999, respectively. Our cash used in investing activities has primarily been
used to build-out our in-building networks. In 1998 we used $1.9 million to
purchase the assets of MTS Communications. As of September 30, 1999, we had
made capital expenditures of $11.6 million since inception. We expect that our
capital expenditures will increase substantially in future periods as we
construct our networks and purchase more communications equipment. We will
continue to seek access to additional buildings. If we are successful in
gaining access to additional buildings, we will have substantial needs for
additional capital for an indefinite period. We also expect to have substantial
and increasing negative EBITDA and net losses.
Cash provided by financing activities was $1.7 million, $165,979, $6.0
million, $15.3 million and $(106,517) for the year ended December 31, 1996, the
6 1/2 months ended July 15, 1997, the 5 1/2 months ended December 31, 1997, the
year ended December 31, 1998, and the nine months ended September 30, 1999,
respectively. Our financing has primarily been obtained through the issuance of
convertible preferred stock to private investors. Since September 30, 1999, we
have sold additional shares of preferred stock for total cash proceeds of
approximately $79.1 million. The proceeds from these equity issuances have been
and will continue to be used to fund cash outflows from our operating and
investing activities.
On December 8, 1998, we acquired certain assets of MTS Communications, a
provider of communications services in California, for total consideration of
$2,574,848 consisting of $1,904,398 in cash and the assumption of certain
capital lease obligations with a fair value of $670,450. In November 1999, we
signed a binding letter of intent to acquire 254,125 shares of common stock,
representing approximately 19%, of SiteConnect, a Seattle-based provider of
communication services, for consideration of 281,250 shares of our common
stock. The agreement contains an option to purchase the remaining outstanding
common stock of SiteConnect for approximately $5.0 million of our common stock
valued at the initial public offering price, which would be 333,333 shares
based on an assumed initial public offering price of $15.00 per share.
In November and December 1999, we agreed to issue warrants to purchase up to
an aggregate of 11,066,472 shares of our common stock at an exercise price of
$4.22 per share to several property owners and operators who executed master
license agreements. The warrants will be issued upon the execution of a
specified number of property-specific license agreements, and the actual number
of shares underlying the warrants will be determined based on the gross
leasable area of the buildings that become subject to the property-specific
license agreements. We expect to issue all or substantially all of these
warrants. The master license agreements give us the right to operate our
networks in more than 570 buildings representing more than 197 million rentable
square feet. As noted above, on a typical 335,000 square foot building, our up
front capital investment is usually less than $90,000. As we begin to
successfully penetrate a building, our capital deployment may grow to over
$335,000.
28
<PAGE>
As of September 30, 1999, we had minimum payment obligations under our
existing license agreements of $125,000 per year for the next seven years.
As of September 30, 1999, we had $557,701 in capital lease obligations
outstanding. We assumed the majority of these capital lease obligations through
our acquisition of the assets of MTS Communications. Our capital lease
obligations contain no provisions that would limit our future borrowing
ability.
We currently have contracts with several communications providers under
which we have minimum purchase obligations for leased transport. As of
September 30, 1999, these minimum purchase obligations totaled approximately
$1.0 million through 2002. As of December 31, 1999, these obligations totaled
approximately $2.1 million through 2002. We will have to pay those providers
even if we do not use their services.
We estimate that our net proceeds from the sale of common stock in this
offering will be approximately $138.0 million, based upon an assumed initial
public offering price of $15.00 per share, after deducting the estimated
underwriting discount and our estimated offering expenses. If the underwriters'
over-allotment option is exercised in full, we estimate that our net proceeds
will be approximately $158.9 million. We intend to use approximately $100.0
million of the net proceeds from this offering for construction of in-building
networks and the purchase of communications equipment and the remainder for
working capital and general corporate purposes. We may also use a portion of
the net proceeds to acquire or invest in complementary businesses,
technologies, services or products. However, we currently have no material
commitments or agreements with respect to any of these types of transactions.
We are currently operational in 12 markets, and we have plans to expand our
presence to approximately 27 markets by the end of 2000 and approximately 40
markets by the end of 2001. We estimate that this expansion will require
capital expenditures of approximately $50.0 million in 2000 and approximately
$90.0 million in 2001.
We estimate that the net proceeds of this offering in addition to our cash
on hand will be sufficient to fund our operations and the projected deployment
of our network through mid-2001. We do, however, expect to continue our growth,
expansion and the further development of our network and services beyond that
point. Accordingly, we expect that we will eventually need to arrange for
additional sources of capital through the issuance of debt or equity or bank
borrowings. We have no commitments for any such additional financing, and we
cannot be sure that we will be able to obtain any such additional financing at
the times required and on terms and conditions acceptable to us. In such event,
our growth could slow and operations could be adversely affected.
The actual amount and timing of our future capital requirements may differ
materially from our estimates as a result of many factors, some of which we
cannot control. These factors include:
. the timing of execution of license agreements;
. our ability to meet or exceed our construction schedules;
. obtaining favorable prices for purchases of equipment;
. our ability to develop, acquire and integrate the necessary operational
support systems;
. the cost of network development in each of our markets;
. demand for our services;
29
<PAGE>
. the nature and penetration of new services that may be offered by us;
. the timing and extent of future acquisitions or investments, if any, and
our ability to integrate these acquisitions or investments;
. regulatory changes; and
. changes in technology and competitive developments beyond our control.
Recent Accounting Pronouncements
We do not believe that any recent accounting pronouncements will have a
material impact on our financial statements.
Quantitative And Qualitative Disclosure About Market Risk
Our exposure to financial market risk, including changes in interest rates
and marketable equity security prices, relates primarily to our investment
portfolio. We typically do not attempt to reduce or hedge our market exposure
on our investment securities because a substantial majority of our investments
are in fixed-rate, short-term securities. We do not have any derivative
instruments. The fair value of our investment portfolio or related income would
not be significantly impacted by either a 100 basis point increase or decrease
in interest rates due mainly to the fixed-rate, short-term nature of the
substantial majority of our investment portfolio. As of September 30, 1999 we
had no debt outstanding, other than capital leases.
Year 2000 Compliance
The Year 2000 issue is the result of computer-controlled systems using two
digits rather than four to define the applicable year. For example, certain
computer programs that have time-sensitive software may recognize a date ending
in "00" as the year 1900 rather than the year 2000. This could result in system
failure or miscalculations causing disruptions of operations including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
As of January 14, 2000, we have experienced no material problems as a result
of the Year 2000 issue. Costs to ensure that our systems and networks are Year
2000 compliant have not been, and are not expected to be, material.
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BUSINESS
Overview
We provide a full range of communications services to small and medium-sized
businesses located in multi-tenant office buildings in major metropolitan
markets throughout the United States. We offer our customers a full range of
communications services, including multi-function digital telephones, local and
long distance voice services, high speed, always-on Internet access, business
television and other enhanced communications services. We deliver these
services over state-of-the-art fiber-optic, digital and broadband networks that
we design, construct, own and operate inside large and medium-sized office
buildings. We differentiate ourselves from other communications companies by
providing a single-source communications solution with a high degree of
customer service and responsiveness. Our customers are assigned a single
dedicated on-site or near-site support team to address their sales and service
needs. Our customers also benefit from the convenience and efficiency of
receiving a single integrated bill for all of their communications services.
We began providing bundled communications services and operating in-building
networks in June 1996 in Atlanta. As of December 31, 1999, we were operating
our networks in 116 buildings representing approximately 30 million rentable
square feet in 12 major metropolitan areas, including Atlanta, Boston, Chicago,
Dallas, Denver, Houston, Los Angeles, Miami, New Orleans, Orange County, San
Diego and Washington, D.C. Overall, we have license agreements with building
owners and property managers, including AEW, Boston Properties, Brookfield,
Cornerstone, Cousins, Lend Lease, Shorenstein, Taylor Simpson, Tower Realty,
TransWestern, TrizecHahn, Vornado and Westbrook, giving us the right to install
and operate our networks in more than 730 buildings representing more than 229
million rentable square feet in 50 major metropolitan areas. The typical length
of our license agreements is ten years.
Since the inception of our predecessor company in 1995, we have raised
approximately $100.7 million in capital through private equity financing with
financial and strategic investors. Our investors include private equity
investors such as Alta Communications, Beacon Capital Partners, The Centennial
Funds, Gramercy Communications Partners and Nassau Capital and many of the
commercial property owners and managers with whom we have license agreements.
Market Opportunity
In estimating our market opportunity, we have relied on reports from various
industry sources, including International Data Corporation, Dataquest, Access
Media International and Dun & Bradstreet.
According to Dun & Bradstreet, there are approximately 1.3 million small and
medium-sized businesses in the United States, which typically employ between 10
and 500 employees. According to International Data Corporation, small and
medium-sized businesses spent over $47 billion in 1998 for voice communication
services. While Dataquest estimates the demand for voice services will grow at
a modest pace to over $53 billion in 2002, the demand for data and Internet
services from this market segment is projected to grow at a substantially
greater pace. We believe, based on our industry sources, that small and medium-
sized businesses spent more than $14 billion for data and Internet services
during 1998 and that growth in data and Internet services will increase at a
compound annual growth rate of approximately 29% per year through 2002.
We are targeting this growing market segment by constructing our fiber-
optic, digital and broadband networks in the office buildings in which many
small and medium-sized businesses are
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located. We estimate that there are more than 8,100 office buildings with
greater than 100,000 square feet representing over 2.2 billion rentable square
feet of office space located in the 50 major metropolitan areas in which we
currently operate or plan to operate in the future.
As the communications market has grown rapidly over the past five years,
businesses have become inundated with offerings of new products, services and
carriers. As a result, it has become increasingly difficult for small and
medium-sized businesses, most of which do not have a dedicated communications
staff, to evaluate the vast array of communications options that are available.
In addition, these businesses have had to contend with the cost and complexity
of retaining multiple vendors in order to procure the various communications
services they require.
We believe there is a significant demand in the market for an integrated
communications provider who can offer the various communications services that
small and medium-sized businesses require. While most large enterprises build
or lease dedicated high speed networks and complex communications equipment,
most small and medium-sized businesses, due to cost and network infrastructure
constraints, are not able to enjoy the levels of service and functionality that
such facilities and equipment can provide. For example, the majority of small
and medium-sized businesses access the Internet through relatively slow dial-up
connections, often at speeds of 56,000 bits per second or less. We believe that
dedicated high speed connections to the Internet for small and medium-sized
businesses will grow significantly over the next two years, and that this will
create a significant opportunity for communications providers with the ability
to provide affordable high-speed Internet connectivity in addition to other
enhanced communications services.
Our Solution
We provide small and medium-sized businesses a broad range of communications
services over our own in-building state-of-the-art fiber-optic, digital and
broadband networks. Our solution offers these businesses a number of important
advantages, including:
. A comprehensive communications solution from a single source. We
effectively function as our customers' communications manager and
provide them with a "one stop shopping" solution. As a result, we
greatly reduce the administrative burden typically associated with
managing multiple communications vendors. Our comprehensive package of
communications services typically includes providing multi-function
digital telephones, local and long distance voice services, high speed,
always-on Internet access, business television, voicemail and e-mail. We
also offer web site hosting, domain name registration, 24x7 remote
systems monitoring, firewall, or data security, protection and many
other enhanced communications services. We offer our services at
competitive prices and deliver a single bill for all services rendered.
We are continually expanding and upgrading the products and services
that we offer our customers, so that as their needs evolve, our products
and services evolve with them.
. A reliable, feature-rich communications package typically available only
to large corporations. In addition to offering a comprehensive package
of communications services, we provide our small and medium-sized
business customers features and performance levels that traditionally
have been available only to large corporations. We provide voice
services using state-of-the-art equipment from manufacturers such as
Nortel Networks and Cisco Systems, which enables us to offer our
customers a variety of
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enhanced services. We provide our customers affordable, high speed,
always-on Internet access at transmission speeds up to 3.0 million bits
of data per second. We also have the ability to provide significantly
greater speeds should our customers require such capacity in the future.
Unlike traditional networks, our networks are designed to alleviate
network congestion resulting in slow transmission speeds, a common
problem which occurs when many customers within a multi-tenant
commercial building attempt to use traditional limited capacity
networks. In addition, to ensure reliable performance, we utilize
multiple carriers, backup network components and emergency power
supplies.
. Rapid installation and service expansion with minimal capital outlay by
customers. Because we own and operate our in-building networks, we are
able to deliver our comprehensive package of services to a new customer
within a few days of receiving an order. In addition, we are often able
to provide same day service for existing customers requesting new
services or features, such as increased Internet speeds or additional
lines. Additionally, because our customers typically rent their
telephone systems and related premise equipment from us, they avoid
significant capital outlays and substantially mitigate the risks of
being constrained by network capacity or having their phone system
become technologically obsolete.
. On-site or near-site customer service and support. Upon signing up for
service, each of our customers is assigned a dedicated, experienced
account team. This team is either on-site or near-site and is available
on a 24x7 basis to address customer inquiries. We believe that our high
standard of customer service will continue to enhance our ability to
acquire and retain customers.
Strategy
Our objective is to be a leading provider of integrated communications
services to small and medium-sized businesses. To achieve this objective, we
have developed a business strategy designed to achieve significant market
penetration and deliver superior customer service while maximizing operating
margins. Key components of this strategy include the following:
. Providing a broad range of communications services under long-term
customer contracts. We intend to continually add to and upgrade our
service offerings in order to attract new customers and further
penetrate our existing customer base. We sell our services under
contracts which are typically three years in length. We believe our
ability to provide a "one-stop shopping" solution will enable us to
continue to enter into long-term contracts with our customers. In
addition, we believe that our broad product portfolio also contributes
to our low customer defection, or churn rates. In short, our goal is to
ensure that a customer or potential customer need never look beyond
Cypress to fulfill any communications need.
. Providing superior customer service. As part of our continuous effort to
attract and retain customers, we are dedicated to providing the highest
levels of customer service and satisfaction in the industry. We assign
to each customer a dedicated team of customer service personnel that is
either on-site or near-site. Consequently, we believe that the level of
customer service and technical support we offer in terms of
responsiveness and customer knowledge exceeds that offered by
competitors who provide customer support on a regional or national
basis.
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. Controlling the critical "last few feet." We own and manage the in-
building infrastructure over which we provide services to our customers,
including the actual physical connection between our customers and out-
of-building networks. We believe this affords us important and
sustainable competitive advantages and allows us to:
- strengthen our position as "gatekeeper" to our in-building
customers;
- provision services more quickly and efficiently; and
- better control service quality.
. Leveraging our experience and first mover advantage to secure license
agreements with building owners. As one of the first in-building
providers of integrated communications services in the United States, we
will continue to leverage our experience and first mover advantage to
secure additional license agreements with building owners. Before a
building owner will enter into a long-term contract with a
communications provider, the building owner must be confident that the
provider is capable of offering superior service to building tenants
throughout the life of the license agreement and thereafter. We believe
our experience, industry reputation and referenceable customer base give
us a meaningful competitive advantage with respect to instilling this
confidence. In addition, while we target all types of property owners
and managers, we have developed significant expertise in establishing
strategic relationships with owners of individual buildings or small
groups of buildings. These owners represent one of the largest single
types of ownership of office space in the country. We believe that over
the long term this competitive advantage will be particularly important
because many of the larger multi-market building owners will eventually
sign license agreements with either ourselves or our competitors.
. Deploying cost effective, flexible networks. A substantial portion of
our network related capital expenditures are made only after we have
entered into a long-term license agreement with a property owner. The
capital we deploy is highly success-based and modest on a per-building
basis. For example, our initial capital expenditures in a typical
building with approximately 335,000 rentable square feet are usually
less than $90,000, which includes the purchase and installation of our
riser system and associated network equipment. Furthermore, our networks
are designed using an open standard architecture which enables us to
rapidly and cost effectively incorporate the latest technological
developments. In addition, in order to minimize operating costs while
maximizing capacity and backup capacity, we deploy networks using a
combination of fiber-optic, copper, coaxial and wireless transmission
solutions.
. Opportunistically pursuing additional strategic acquisitions and
relationships. We opportunistically pursue acquisitions and other
strategic relationships which enable us to expand our customer base or
geographic presence or provide us with additional management, sales or
technical personnel. For example, in December 1998 we acquired the
assets of MTS Communications, which provided us access to 14 additional
buildings and expanded our customer base to the greater Los Angeles
area. In November 1999 we entered into an agreement to acquire
approximately 19% of the common stock of SiteConnect, an in-building
communications provider serving ten buildings in Seattle, with an option
to purchase the balance of the company. We intend to continue to seek
such domestic opportunities as well as explore international
opportunities either alone or with strategic partners.
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Our Communications Services
We use our state-of-the-art in-building networks to provide small and
medium-sized businesses with a full range of voice, data, video and other
enhanced communications services. We also provide paging and, in some markets,
wireless telephone services through agreements with various communications
carriers. Close contact with our customers by our direct sales force and
customer service personnel enables us to tailor our service offerings to meet
customers' needs and to creatively package our services to provide "one-stop
shopping" solutions for those customers. Services we offer are summarized as
follows:
Cypress Services Currently Available
<TABLE>
<CAPTION>
Voice Services Data Services Video/Wireless/Other
-------------- ------------- --------------------
<S> <C> <C>
. Local Dialtone . High Speed Internet Access . Business Television
. Long Distance . Electronic Mail . Wireless Voice
. Voice Mail . Web Hosting . Paging
. Telephone Equipment . Domain Name Services . Installation & Cabling
. Audio Conferencing . Firewall Services . Move, Add & Change Services
. Toll Free Services . SmartWatch
. Calling Cards . SmartView
</TABLE>
Voice services. The vast majority of our voice services customers rent their
telephones from us. This ensures a compatible interface with our state-of-the-
art in-building communications equipment and provides customers with a number
of key benefits, including:
. access to an advanced, multi-function telephone system which few small
businesses could afford to buy and support on their own;
. a significant reduction in up-front capital costs; and
. reduced risk of technological obsolescence.
Our voice offerings include both traditional telephone services, such as
local and long distance services, as well as value-added services, such as
integrated voicemail, audio conferencing, calling cards and toll-free number
services. Additional enhanced features include call waiting, call forwarding,
dialback and caller ID.
Data services. One of our most popular services is high speed, always-on
Internet access. We provide this service using our patent pending fiber-optic
infrastructure and network configuration. The key features of this service are:
. Dedicated connectivity. Our service is always on, providing
instantaneous connections and the capability to receive or transmit
information continuously.
. Range of speed options. Customers currently subscribe to delivery speeds
between 64,000 bits of data per second and 3.0 million bits of data per
second, but we have the capacity to provide up to 100.0 million bits of
data per second in response to customer demand. In addition, using
commercially available equipment, we can increase the transmission speed
of our infrastructure to one billion bits of data per second.
. Flexibility. We can usually increase a customer's bandwidth speed within
minutes of receiving a request. We can also deliver different speeds of
service to specific computers or groups of computers within a customer's
office.
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. Security. Because each customer's Internet service is provided over
dedicated fiber-optic strands, a customer's Internet traffic is secure
from that of other customers in the building.
In addition to our Internet access service, we offer other enhanced data
services such as web site hosting, e-mail, domain name registration and
firewall services. We also offer our customers SmartWatch services, in which we
provide 24-hour monitoring of web and e-mail servers, and SmartView services,
which enables our customers to monitor their bandwidth usage via the Internet.
Video, wireless and other services. In many of our buildings, we offer our
customers a comprehensive package of business television services consisting of
news, business, sports and network programming. We deliver these services
directly to our customers over our in-building networks using a combination of
direct broadcast satellite services and off-air antennas for local channels.
Our customers can elect to receive more or less programming depending on their
needs. In addition to voice, data and video services, we also offer our
customers a variety of other enhanced communications services, such as paging
and, in some markets, wireless telephones, which we are able to provide through
agreements we have with various communications carriers. We also provide on-
site installation, including installing telephone systems and configuring and
connecting customer computer equipment to our networks, as well as highly
responsive move, add and change services. We will continue to investigate, test
and add, where appropriate, complementary products and services to maintain our
"one stop shopping" strategy.
Network Architecture
We design, install, own and operate our networks inside buildings which we
serve under long-term license agreements with building owners or operators. Our
in-building networks typically consist of the following:
. a state-of-the-art riser system utilizing fiber-optic cable, broadband
coaxial cable and copper wire;
. communications platforms usually located in the building;
. high capacity leased facilities connecting our networks to the networks
of selected local, long distance and Internet service providers; and
. for our data services, high capacity leased facilities to move data
traffic to and from a central point that we establish in each market.
Riser systems inside buildings. Inside buildings, we design, install, own
and manage a vertical communications infrastructure, also known as the riser
system, that typically runs inside vertical utilities shafts from the
building's basement to the top floor. Our riser systems typically are comprised
of high capacity fiber-optic cable, broadband coaxial cable and copper wire.
These systems are designed to carry a full range of voice, data and video
traffic. We believe our riser systems have the capacity to accommodate all of
our customers' current and anticipated broadband needs.
Feeder systems inside buildings. Inside buildings, we also design, install,
own and manage a horizontal communications infrastructure, known as the feeder
system, that typically runs from our riser systems into our customers'
premises. Our feeder systems typically utilize high capacity fiber-optic cable,
broadband coaxial cable and copper wire. These systems are installed only upon
our signing a service contract with a customer. Key benefits of our feeder
systems design are as follows:
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Voice Services
. Our feeder systems provide a compatible connection between our
customers' telephone equipment and our in-building state-of-the-art
communications equipment.
Data Services
. We install our feeder link directly into our customer's local area
networks, thereby eliminating the need for our customers to purchase and
maintain their own Internet routers and switches to direct their
communications traffic.
. Our customer gains an always-on, secure connection to our network using
a link known as an Ethernet connection. These Ethernet connections allow
us to provide in-building transmission speeds ranging from 10.0 million
to 1.0 billion bits of data per second.
Video Services
. We connect our feeder systems to equipment which allows us to cost-
effectively deliver video programming to multiple television sets within
a customer's office.
Communications platforms inside buildings. Inside almost all of the
buildings we serve, we have routing and distribution platforms that connect our
riser systems to the networks of select local, long distance and Internet
service providers. Our communications platforms include data switches, routers
and voice switches, which direct incoming and outgoing data and voice traffic,
and other video and communications equipment purchased from Nortel Networks,
Cisco Systems and other manufacturers. In the case of a multi-building real
estate complex, we are usually able to provide our services in all buildings
within that complex by deploying a single communications platform in one of the
buildings and connecting the other buildings in the complex to that platform.
This results in significant cost savings and reduced capital expenditures.
Leased facilities outside buildings. We connect the communications platforms
in our buildings to leased network facilities of selected local, long distance
and Internet service providers that provide the out-of-building transport
necessary to provide full service to our customers. In some instances, as in
the case of a multi-building complex, we may interconnect a number of buildings
using leased facilities known as "private line" or "point-to-point"
connections.
For our Internet services, we have a central market point of presence, which
is a location at which we aggregate and disseminate data traffic to and from
all of the buildings we serve in that market. We typically connect each
building to the central market point of presence using leased high capacity
facilities, on a carrier's fiber-optic network wherever available. These lines
are leased from carriers that have previously installed fiber in the local
market. There are generally several providers in each market who are able to
provide us with connectivity for traffic between buildings and the point of
presence.
At our point of presence, we install the electronic equipment necessary to
provide our data services in the metropolitan area. This equipment includes
network servers, traffic routers and other related communications equipment. We
connect each point of presence to more than one Internet service provider to
provide diverse Internet connectivity to our network. Most points of presence
are connected to at least one other point of presence in a different market
over a dedicated leased facility to provide a backup means of transmitting data
in case any of our network connections to the Internet should fail.
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Advantages of our Network Architecture. The architecture of our network
provides us with significant competitive advantages, including the ability to:
. rapidly connect customers without the need to arrange local phone lines
and circuits for each new line added;
. capitalize on advanced Internet-protocol-based technology to construct a
more efficient and lower cost network;
. provide low cost, high performance services;
. offer always-on, secure data connections to our network and the
Internet; and
. provide a flexible platform for bandwidth upgrades and new service
offerings as communications technology and applications continue to
develop.
Network Management and Monitoring. We are implementing a state-of-the-art
automated alarm and control system to further enhance our network monitoring
capabilities. Our trained system engineering personnel use our control system
to monitor and control our networks on a 24x7 basis. This system enables fault
alarm monitoring, system control, environmental monitoring, remote system
diagnostics, physical security monitoring, backup control and usage statistics.
This Internet-enabled system allows our technicians to access and control our
systems over Internet, Intranet or local or wide area network configurations,
as well as through a dial-up connection in the unlikely event of loss of
Internet-based communications. Service affecting events are automatically
detected and immediately reported to both technical personnel located in our
network operations center and market-based field support engineers who address
network issues either remotely or directly on-site. Field engineering personnel
in our markets are equipped with a full set of parts and spares necessary to
support their routine service calls and we also maintain complete spare systems
in the unlikely event of a disaster.
Our network operations center also supports a 24x7 hotline for help desk
support. We intend to supplement this center with a geographically diverse
backup network operations center site to supplement day-to-day operations and
act as a disaster recovery site for the main network operations center.
Construction
We have developed and implemented a cost-efficient, team-based approach to
constructing and expanding our in-building networks. We have formulated
implementation procedures which incorporate standardized construction drawings
and equipment configurations to allow us to maintain high quality construction
standards which can be easily repeated for all of our installations with
minimal use of equipment space. As a result of our extensive experience gained
from having constructed over 100 in-building networks and our standardized
installation procedures, we can often begin serving customers within 45 to 60
days from the time that a property manager approves our network design. As a
result of our standardized construction process and our extensive engineering
capabilities, we are typically able to initially install our networks for less
than $90,000 per building. Thereafter, we are able to cost-effectively deploy
capital and expand our networks as needed to accommodate customer demand.
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We deploy teams of building survey engineers, regional project managers and
system implementation technicians who manage our network construction in three
phases:
Phase 1. A Cypress building survey engineer performs an in-depth building
site survey to analyze a building's specific construction requirements, tenant
profile and availability of out-of-building communications infrastructure. We
then tailor our standardized implementation template to the specific needs of
the building. The resulting proposed design plan is then submitted to building
management for final approval.
Phase 2. We assign a regional project manager to manage the in-building
infrastructure construction process. The project manager reviews the
implementation plan and supervises a team of Cypress employees and third-party
contractors which installs the riser system and related communications
equipment. The regional product manager also consults with our network facility
management group to secure the appropriate network communication facilities and
with our system procurement group to ensure that the proper equipment is
purchased and available for installation when needed.
Phase 3. Once the network installation is complete, a system implementation
technician works with the network operations center to test and calibrate all
remote alarm and automated diagnostic testing features. When the acceptance
testing is finished, the technician completes the required building site
documentation and a dedicated local account team is notified to commence sales
efforts.
Marketing and Sales
We directly market our services to the tenants in buildings in which we have
secured long-term license agreements from property owners or managers. We
leverage our relationships with property owners and managers as a first and
primary means of creating tenant awareness of our services. Upon our entering a
building, property owners or managers will typically send a letter to tenants
on their letterhead introducing Cypress, describing the nature and benefits of
our service offerings and highlighting the complete package of business
communications products that we are able to offer. Shortly thereafter, we will
conduct a promotional in-building event, typically in the building lobby, where
we will demonstrate our voice, Internet and video services to generate sales
leads. After our initial service launch we continue to work closely with the
building owner, property management and leasing representatives. Our typical
license agreements enable us to display our signage and marketing materials
within the leasing office and other high traffic locations within a building.
Our agreements also contain provisions whereby our building owners, management
and leasing representatives agree to advise tenants of the availability of our
services. In most cases, property owners or managers will also notify us as new
tenants enter the building.
Our goal is to offer a comprehensive communications solution and in effect
to become our customers' outsourced communications department. As such, our
sales approach is highly consultative. In our initial sales meetings we work
closely with prospective customers to assess their particular communications
needs. We also carefully analyze the communication bills from their current
vendors to understand a prospect's usage patterns and current cost. We then
return to the prospect with a highly customized, comprehensive proposal which
is typically more cost effective, feature-rich and easier to administer than
their current communications package.
We typically assign one permanent account team for every five or six
buildings. The account team usually consists of one account executive, one
customer service representative and one on-site
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or near-site technician. Our technicians and engineers provide our customers
with customized technical consulting on the use and availability of our various
services. This is generally highly valued by small and medium-sized businesses
that often have limited information technology staffs and expertise. We believe
that using dedicated account teams enhances our ability to build and retain
long-term customer relationships and our ability to cross-sell and upgrade
service offerings.
Our sales efforts are supported by our marketing department which, in
addition to creating various "point of sales" promotional materials, works with
outside advertising and public relations firms to develop a targeted, highly
cost-effective marketing approach to build Cypress brand awareness.
Real Estate Selection and Marketing
Property Selection
The criteria that our real estate professionals consider in targeting
buildings includes the buildings' location and size, the number of tenants, the
tenant mix, the proximity of the building to other buildings in which we hold
existing license agreements, and the expected time and cost involved in
installing our networks. In addition, we generally prefer buildings with some
tenant vacancy, or anticipated near-term tenant roll-over, because we believe
new tenants are particularly receptive to our single-source communications
solution. Once we have determined that a building or collection of buildings
meets our criteria, one of our real estate professionals contacts the property
owner or operator in an attempt to negotiate a license agreement which will
provide us access to the buildings.
License Agreements and Arrangements with Property Owners and Operators
We believe we present a compelling value proposition to property owners and
operators. In our negotiation with these property owners and operators, we
emphasize the following value-added benefits of doing business with Cypress:
. we pay property owners a fixed rental fee and/or a modest percentage of
the revenue we receive from providing communications services to the
tenants in their buildings;
. we enhance the marketability of the building to prospective tenants by
providing a complete communications solution with advanced features that
may not be available in other buildings; and
. we install our network architecture at no cost to the property owner.
In the past, we have entered into license agreements with property owners
and operators on a per building basis in order to gain the right to install and
operate our networks in their buildings. Under these agreements, we pay the
property owners and operators either a base fee or a modest percentage of the
revenues we generated from their tenants, typically between 3% and 6%. The
typical term of these agreements is ten years. Under these agreements, we have
the right to operate our networks in more than 130 buildings representing more
than 35 million rentable square feet.
In November and December 1999, we entered into master license agreements
with several owners and operators of multiple office buildings, including AEW,
Boston Properties, Brookfield, Cornerstone, Cousins, Lend Lease, Shorenstein,
Taylor Simpson, Tower Realty, TransWestern, TrizecHahn, Vornado and Westbrook.
Each master license agreement sets forth a list of buildings
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owned or managed by the owner or operator that is a party to that agreement. In
accordance with the terms of these agreements, we have begun to enter into
property-specific license agreements with respect to each listed building. In
some cases, the property owner or operator may need to obtain the consent from
third parties who may have an ownership interest in the building before we can
enter into a property-specific license agreement for that building. Under the
property-specific license agreements, we will be granted a license to install
and operate our networks in each such building in return for approximately 6%
of the revenues we receive from tenants in that building. The initial term of
each property-specific license agreement is five years, with an automatic five
year extension at the end of the initial term, absent any default under the
agreement. The master license agreements give us the right to operate our
networks in more than 600 buildings representing more than 194 million rentable
square feet.
Generally, our license agreements are non-exclusive, which means the
property owners or operators may permit competitors to install their own in-
building networks in their buildings. Some competitors already have rights to
install networks in some of the buildings in which we have rights to install
our networks. While few in-building competitors are operating networks in
buildings in which we currently operate networks, this situation may change as
we and our competitors continue to expand operations.
Our Real Estate Relationships and Opportunities
We currently have approximately 730 office buildings, representing
approximately 229 million rentable square feet, in which we have installed, or
have the right to install, our communications infrastructure. According to
Torto Wheaton, a real estate consulting firm, there are more than 3,900 office
buildings representing approximately 950 million square feet of rentable office
space in the 12 metropolitan markets in which we currently provide our
services. We recently entered into master license agreements with property
owners and operators that will allow us to enter 38 additional metropolitan
markets. Torto Wheaton covers 32 of these markets and, according to them, there
are more than 3,900 office buildings representing approximately 1.2 billion
square feet of rentable office space in these 32 additional markets.
Accordingly, this data indicates that there are more than 7,800 office
buildings representing approximately 2.1 billion square fee of rentable office
space in 44 of the 50 markets in which we currently provide, or have the right
to provide, our services.
We have established excellent working relationships with real estate
property owners and operators across the commercial real estate industry,
including private owners, pension funds and pension fund advisors, public real
estate operating companies such as public real estate investment trusts,
property managers, life insurance companies and foreign owners of domestic real
estate. In total, the property owners and operators with whom we have entered
into master license agreements own or operate more than 1,500 buildings
representing approximately 390 million rentable square feet.
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Set forth below is a table which summarizes our success to date in obtaining
license agreements and constructing our in-building networks. Specifically, for
each target market, the table shows both the number of buildings we have in
operation and the number of buildings we have under license agreement, but
which are not yet in operation. The table also presents information regarding
the size and composition of our market opportunity. This table was compiled
using data from Torto Wheaton and includes information regarding only buildings
with 100,000 rentable square feet or more, as we currently do not plan to
target buildings of less than this size.
<TABLE>
<CAPTION>
Target Buildings Target Buildings Square Feet
---------------------------- ------------------------------------
In Under Total in In Under Total in
Market Operation Agreement Market Operation Agreement Market
- ------ --------- --------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Atlanta, GA............. 36 59 332 7,421,607 16,220,658 83,634,783
Baltimore, MD........... -- 3 105 -- 1,457,229 19,927,964
Boston, MA.............. 15 32 395 4,603,794 12,334,520 91,377,085
Charlotte, NC........... -- 9 64 -- 2,754,751 16,271,405
Chicago, IL............. 7 23 505 2,006,712 14,774,768 151,796,466
Cincinnati, OH.......... -- 1 74 -- 235,884 17,850,830
Cleveland, OH........... -- 2 79 -- 875,323 22,057,817
Columbus, OH............ -- 5 64 -- 1,403,895 12,866,860
Dallas, TX.............. 13 20 421 3,711,204 7,480,125 110,629,685
Denver, CO.............. 4 12 229 2,814,702 4,436,560 51,044,012
Detroit, MI............. -- 3 180 -- 524,256 41,004,906
Fort Worth, TX.......... -- 2 69 -- 1,325,355 15,143,802
Ft. Lauderdale, FL...... -- 2 54 -- 365,186 8,999,124
Hartford, CT............ -- 1 55 -- 155,221 11,812,220
Honolulu, HI............ -- 4 37 -- 1,895,410 8,168,251
Houston, TX............. 16 25 368 3,391,694 4,667,131 100,971,894
Indianapolis, IN........ -- 2 63 -- 816,639 13,508,804
Kansas City, MO......... -- 13 116 -- 1,919,436 22,475,756
Long Island, NY......... -- 4 98 -- 454,748 18,723,382
Los Angeles, CA......... 14 22 481 3,990,750 6,412,888 122,718,947
Miami, FL............... 1 7 107 139,000 2,381,277 21,383,132
Minneapolis, MN......... -- 30 161 -- 6,215,321 43,133,751
Nashville, TN........... -- 3 65 -- 667,967 81,119,299
New Jersey Metro ....... -- 10 369 -- 2,381,850 78,157,916
New York, NY............ -- 37 749 -- 30,166,751 352,401,110
Oakland, CA............. -- 14 132 -- 2,778,579 25,487,180
Orange County, CA....... 7 23 174 1,044,000 4,101,357 32,464,968
Orlando, FL............. -- 6 69 -- 894,518 12,064,976
Philadelphia, PA........ -- 10 204 -- 4,348,873 53,180,369
Phoenix, AZ............. -- 23 138 -- 4,531,969 26,711,581
Sacramento, CA.......... -- 7 68 -- 962,446 11,922,261
Salt Lake City, UT...... -- 3 53 -- 518,456 9,299,970
San Diego, CA........... 1 8 75 263,000 1,796,244 15,472,693
San Francisco, CA....... -- 47 208 -- 19,006,976 54,007,043
San Jose, CA............ -- 9 103 -- 1,433,534 15,592,513
Seattle, WA............. -- 6 140 -- 2,364,663 33,752,054
St. Louis, MO........... -- 6 102 -- 1,761,601 21,571,718
Stamford, CT............ -- 1 87 -- 100,399 17,130,048
Tampa, FL............... -- 7 77 -- 2,108,416 16,975,417
Washington, D.C. ....... 1 85 828 254,000 19,545,303 168,288,519
Westchester, NY......... -- 1 83 -- 234,185 16,050,416
West Palm Beach, FL..... -- 2 40 -- 450,104 8,214,621
Wilmington, DE.......... -- 1 22 -- 438,843 4,818,524
Other................... 1 27 * 453,255 9,816,883 *
--- --- ----- ---------- ----------- -------------
Total................. 116 617 7,843 30,093,718 199,516,498 2,060,184,072
</TABLE>
- --------
* Data not available for certain markets in which we currently provide, or have
the right to provide, our services. These markets include Memphis, Milwaukee,
Montreal, New Orleans, Pittsburgh, Richmond and San Antonio.
42
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Customer Service and Technical Support
We believe that we maintain a standard of customer service higher than other
companies serving small and medium-sized businesses and that this is a key
factor in our low customer turnover rate. The key aspects of our service
include:
. Dedicated Support Teams for Timely Response. We typically designate on-
site or near-site teams of one account executive, one customer service
representative and one technician to a territory which usually includes
five or six buildings grouped as closely as possible. These teams are
closely supported by Internet sales engineers and technicians certified
in Nortel, Cisco and Microsoft technologies. Customers benefit from this
arrangement because our dedicated account teams, in addition to being
physically located near our customers, are familiar with our customers'
particular communications packages and, accordingly, are able to more
efficiently respond to their needs. The team approach also further
personalizes our customer relationships.
. Dial "H-E-L-P" for Service. In Atlanta, our largest market, a customer
need only dial "H-E-L-P" (4357 on a telephone key pad) from any
telephone that is part of our network to be connected to our customer
service team. In most cases, our customer's name will appear on our
customer service representatives telephone display, allowing us to
answer the calling party using their name, further supporting the
personalized relationship between Cypress and our customers. If a
customer is not near a telephone connected to our network, we provide a
regular ten digit contact number to reach our customer service
representatives. We are implementing this system in our other markets as
well.
. Remote System Monitoring and Service Modifications. Many elements of our
networks can be controlled and modified remotely from a customer service
office or our network operations center, allowing us to respond to
customers more rapidly and with minimal disruption. For example, we can
increase a customer's bandwidth allocation within minutes of being
contacted or we can add additional lines and voice mail boxes to a
customer's existing services without the need to make an on-site service
call.
. Efficient On-Premises Service Modifications. Some move, add and change
services require a visit to our customers' premises. For example, when a
customer expands the number of employees in their office, we will send a
customer service representative to manage this expansion and a
technician to install additional cabling and telephones. Because our
networks are modular even at the customer premises level, we can
typically add the necessary services and equipment with minimal
disruption to our customer's regular operations.
. Continuous Training. Upon implementation of the Cypress solution for a
new customer, the members of the dedicated support team introduce
themselves to the end-users at the customer's premises and explain the
functionality of the new equipment and services for which the customer
has contracted. We provide further training when the customer expands
its services or adds new employees. We believe our emphasis on training
reduces calls to our customer service team and encourages quick adoption
of and higher usage rates for installed services, which we believe leads
to increased demand for bandwidth upgrades and additional services.
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<PAGE>
Competition
The market for communications services for small and medium-sized businesses
is very competitive. We face competition from many entities with significantly
greater financial resources, well-established brand names, larger customer
bases and diverse strategic plans. We expect significant competition from
traditional and new communications companies, including:
. other in-building communications providers;
. local telephone companies;
. long distance companies;
. fixed wireless service providers;
. Internet service providers;
. digital subscriber line companies; and
. cable-based service providers.
Furthermore, any of these numerous competitors may focus on our market
strategy and subject us to intense competition for our services or for access
to the office buildings in our target markets. Our competitors may also be able
to respond more quickly to technological developments and changes in the needs
of customers. Any of these factors may limit our ability to compete effectively
and could harm our business or results of operations. See "Risk Factors--We
operate in a highly competitive market, and we may not be able to compete
effectively against established competitors with greater financial resources
and diverse strategic plans."
Suppliers
We must connect our in-building networks to local, long distance and
Internet service providers in order to serve our customers. In most of our
markets, to connect our networks to local, long-distance and Internet
providers, we connect our networks to and lease facilities from the local
telephone company, which is usually one of the regional Bell operating
companies such as BellSouth, Bell Atlantic, SBC-Ameritech, and Pac Bell.
Typically, we are able to secure connections for local calling service within
30 days of requesting such service, although additional delays of 15 to 30 days
are not uncommon.
We purchase long-distance transmission capacity from several long-distance
communications companies, such as ITC DeltaCom, Qwest and MCI WorldCom, on
terms customary for the industry. While we have entered into several long-
distance contracts with minimum purchase commitments, we believe that none of
these contracts are material and that in most cities in which we operate there
are a number of long distance carriers with whom we could arrange long-distance
services. Typically, we are able to secure connections for long-distance
service within 30 days of requesting such service.
To provide Internet services to our customers, we purchase data transmission
capacity from Internet service providers such as MCI WorldCom, Sprint, Verio
and Savvis. We believe that our agreements for data transmission capacity are
on customary terms for the industry and that in most cities in which we operate
there are a number of data transmission capacity providers with whom we could
arrange data transmission services. Typically, we are able to secure
connections for data transmission capacity within 45 days of requesting such
service.
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<PAGE>
Our in-building networks contain equipment such as data switches, routers,
voice switches, and other communications and video equipment that we purchase
from Nortel Networks, Cisco Systems and other manufacturers. We do not have any
minimum purchase commitments with any of our manufacturers and believe that
there are alternative vendors available to us for all the types of equipment
which we purchase.
Regulation
Our provision of basic communications services is subject to regulation at
the federal, state and local level. Often, regulations do not specifically
address our operations and the application of these regulations is subject to
interpretation. Regulators may successfully assert that additional regulations
apply to our operations. Additionally, regulation of the communications
industry is evolving rapidly. The regulations that apply to us are subject to
ongoing administrative proceedings, litigation and legislation. The outcome of
these various proceedings, as well as any other regulatory initiatives, cannot
be predicted. Future regulatory changes may have a material adverse affect on
our business and operations.
Local Voice Services
We believe that we qualify as a shared tenant service provider in the
jurisdictions where we currently provide local voice services. Laws in these
jurisdictions vary as to the terms and conditions with which we must comply to
be classified as a shared tenant service provider. Some of these terms and
conditions include:
. We must maintain a switching system, or private branch exchange, in each
building or set of buildings that we serve which allows calls to be
routed directly to the individual instead of through a central number.
. In California, we may not charge our customers a higher rate for local
voice services than we are charged by the local exchange carrier for
those services.
. In Illinois, we must permit local exchange carrier access, upon payment
of a fee, to use the communication platforms in our buildings.
. We must permit the local exchange carrier to provide service to any
tenant in our buildings.
. In some states, we must register as a shared tenant service provider and
file reports.
. In some states, we must pay regulatory fees and universal services fees.
A jurisdiction's regulations or guidelines governing shared tenant service
providers may not specifically address our operations. While we believe that we
qualify as a shared tenant service provider in all the jurisdictions where we
currently provide local voice services, a regulator may successfully challenge
our position and conclude that we need to qualify as a competitive local
exchange carrier. Additionally, jurisdictions may modify their regulation to
reduce or eliminate their shared tenant service provider classification,
requiring us to comply with the regulation of competitive local exchange
carriers.
Competitive local exchange carriers are typically subject to more stringent
state regulation than shared tenant service providers. Most states require that
competitive local exchange carriers receive approval from the public service
commission to operate. Competitive local exchange carriers generally must also
file tariffs setting forth the terms, conditions and prices for intrastate
voice
45
<PAGE>
services. In many states, competitive local exchange carriers must also, among
other things, file accident reports, notifications of complaints and service
interruptions, and contribute to universal service support. In addition, under
federal law, competitive local exchange carriers are subject to certain rights
and obligations with respect to their agreements with incumbent local exchange
carriers, including the duty to interconnect with other carriers, to provide
other carriers access to their poles, ducts, conduits, and rights-of-way, and
to make their agreements with the incumbent carrier available to other
carriers on a non-discriminatory basis. Our cost of regulatory compliance
would increase if we were subject to regulation as a competitive local
exchange carrier.
Long Distance Voice Services
We believe that given the highly customized interstate and international
long distance services that we provide, we are not required to make any
material filing with, or seek the approval of, the Federal Communications
Commission. As with our local voice services, our long distance services may
be considered to be a common carrier service by the Federal Communications
Commission. If that occurs, we will be subject to common carrier regulation
under federal law. Among other things, we would be required to charge just and
reasonable rates for our long distance services.
Data Services
The Internet and data services that we provide generally are not subject to
federal, state or local regulation. Congress and some state legislatures have
considered imposing taxes and other burdens on Internet service providers and
regulating content provided over the Internet. Additionally, we may be
affected by statutes, regulations and court cases relating to the liability of
Internet service providers and other on-line service providers for information
carried on or through their services or equipment, including in the areas of
copyright, indecency/obscenity, defamation and fraud. Future regulation may
have a negative impact on our ability to offer Internet services at
competitive and profitable rates.
Video and Wireless Services
Our provision of video services is subject to federal, state and/or local
regulations. We are, for example, required to obtain consent from local
broadcasters, and pay certain copyright fees, in order to provide their
programming. Further, to the extent that we provide programming using wireless
transmission, we must obtain and maintain federal licenses.
Recent rulings of the Federal Communications Commission may impact our
video services. For example, the FCC recently ruled that owners of multiple
unit premises generally cannot forbid their tenants from installing some
telecommunication devices, such as satellite dishes, on the tenant's balconies
and other areas controlled by the tenant.
We do not have any cellular or similar types of licenses. Rather, we rent
or sell pagers and wireless phones and resell the services of wireless
providers. Consequently, while we do pay some regulatory fees, we generally
are not subject to federal regulation with respect to these services.
Multiple Unit Premises
There have been proposals to require that commercial office buildings give
access to competitive providers of telecommunications services. Some states
have enacted mandatory access laws which
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<PAGE>
prohibit an entity from having exclusive control of a building's wiring
network. In addition, the Federal Communications Commission is considering a
proposal to require building owners and incumbent local exchange carriers to
enhance the ability of competitive telecommunications providers to access a
building's wiring. We do not know whether, or in what form, these proposals
will be adopted.
Intellectual Property
We regard certain aspects of our products, services and technology as
proprietary and attempt to protect them with patents, copyrights, trademarks,
trade secret laws, restrictions on disclosure and other methods. Despite these
precautions, it may be possible for a third party to copy or otherwise obtain
and use our products, services or technology without authorization, or to
develop similar technology independently.
We currently have a patent application pending for our fiber-optic
infrastructure and network configuration. This patent may not be issued to us,
and if issued, it may not protect our intellectual property from competition
which could seek to design around or invalidate this product.
Employees
As of December 31, 1999, we had 191 full-time employees. We are not party to
any collective bargaining agreements covering any of our employees, have never
experienced any material labor disruption and are unaware of any current
efforts or plans to organize our employees. We consider our relationships with
our employees to be good.
Facilities
Our headquarters are located in facilities consisting of approximately 9,000
square feet in Atlanta, Georgia which we occupy under a lease which expires in
July 2005. We also occupy approximately 8,000 square feet of temporary space in
Atlanta under leases of less than one year, and we are currently negotiating a
lease for approximately 20,000 square feet which will replace these temporary
quarters. In addition, our engineering personnel, network operating facilities
and warehousing and distribution functions are scheduled to be relocated to a
new facility consisting of approximately 32,000 square feet in Norcross,
Georgia under a lease which expires in November 2006. We also occupy offices in
various major U.S. markets under leases of various terms. As we expand into new
markets we will continue to add office space as needed.
Legal Proceedings
We may from time to time be involved in legal proceedings in the ordinary
course of our business. We are not currently involved in any pending legal
proceedings that are expected to have a material adverse effect on our
business.
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<PAGE>
MANAGEMENT
Executive Officers, Key Employees and Directors
Our executive officers, key employees and directors, their position and
their ages as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
R. Stanley Allen........ 42 Chief Executive Officer and Director
Ward C. Bourdeaux, Jr... 41 Executive Vice President and Director
Mark A. Graves.......... 40 President, Chief Operating Officer and Secretary
Barry L. Boniface....... 37 Chief Financial Officer, Vice President and Treasurer
C. Timothy Allaway...... 41 Vice President of Customer Service
Eugene H. Kreeft........ 50 Vice President of Engineering
Robert W. McCarthy...... 37 Vice President, General Counsel and Assistant Secretary
James H. McClintock..... 44 Vice President of International
Raymond F. Potts........ 36 Vice President of Marketing and Sales
Claire S. Schenk........ 50 Vice President of Human Resources
Alistair Sloan.......... 35 Vice President of Internet Services
William P. Egan......... 54 Director
Laurence S. Grafstein... 39 Director
Randall A. Hack......... 52 Director
John C. Halsted......... 35 Director
Jeffrey H. Schutz....... 48 Director
P. Eric Yopes........... 47 Director
</TABLE>
R. Stanley Allen is a co-founder of Cypress and has served as our Chief
Executive Officer and a director since August 1995. From August 1995 until
September 1998, he also served as our President. From March 1994 to May 1996,
Mr. Allen was President and Chief Executive Officer of Applied Video
Technologies, Inc., a wireless cable and communications investment and
development company. From 1991 to 1994, Mr. Allen was President of American
Quality Cable Corporation, a wireless cable television operator. Mr. Allen has
also held positions as Manager-Real Estate Consulting for Coopers & Lybrand and
Analyst for Wellington Real Estate, an affiliate of Boston-based Wellington
Management Company. Mr. Allen was a Director for Wireless Cable of Atlanta
before its acquisition by BellSouth in 1997 and was also a Director for the
Wireless Cable Association. Mr. Allen received a Bachelor of Arts degree in
Economics and a Master of Business Administration degree from the University of
Virginia.
Ward C. Bourdeaux, Jr. is a co-founder of Cypress and has served as our
Executive Vice President and a director since August 1995. From January 1993 to
April 1995, Mr. Bourdeaux served as Director of Development for RealCom Office
Communications, where he was responsible for identifying new building and
market opportunities and entering into new license agreements on a national
basis, and for the renewal of existing agreements nationally. Prior to that, he
spent over nine years in the commercial real estate industry with Cushman &
Wakefield and Carter & Associates. Mr. Bourdeaux received a Bachelor of Arts
degree in Communications from the University of Alabama.
Mark A. Graves has served as our President since September 1998 and our
Chief Operating Officer and Secretary since September 1997. From September 1997
until September 1998, he also served as our Chief Financial Officer. From March
1994 to September 1997, Mr. Graves was Executive Director of Corporate
Development for BellSouth Corporation, where he was involved in
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<PAGE>
mergers, acquisitions and other strategic transactions. Mr. Graves' activities
principally involved BellSouth Corporation's wireline telephone company,
Internet services unit and wireless data partnerships. From May 1989 to
February 1994, Mr. Graves was a Principal at Sterling Payot Company, a private
investment firm in San Francisco, where he provided advisory services in
strategy and finance predominantly to media and telecommunications companies,
including Pacific Telesis in its spin-off of PacTel Corp., which was renamed
AirTouch Communications. Prior to joining Sterling Payot Company, Mr. Graves
held positions at The First Boston Corporation and United Technologies
Corporation. Mr. Graves received a Bachelor of Arts degree in Economics and a
Master of Business Administration degree from Harvard University.
Barry L. Boniface has served as our Chief Financial Officer since October
1998. From September 1994 to October 1998, Mr. Boniface was Executive Director
of Corporate Development for BellSouth Corporation, where he was responsible
for domestic and international mergers, acquisitions, divestitures and other
strategic transactions. Mr. Boniface's activities principally involved
BellSouth's domestic and international wireless telephone services and
competitive local exchange carrier activities. Prior to that, Mr. Boniface was
a principal in Berkshire Partners, Inc., a merchant banking firm based in
Dallas, Texas. He has also held the positions of Chief Operating Officer for
Global Business Acceleration, Inc., an early stage software development
company, and Vice President in the Corporate Finance Department at Principal
Financial Securities, Inc., an investment banking firm. Mr. Boniface received a
Bachelor of Business Administration degree in Management Information systems
from Southern Methodist University and a Master of Business Administration
degree from the Goizueta Business School at Emory University.
C. Timothy Allaway has served as our Vice President of Customer Service
since December 1999. From June 1996 to December 1999, Mr. Allaway was Director,
Customer Services for IBM, North America supporting the full line of hardware
and software offerings. From September 1994 to June 1996, Mr. Allaway was
Director, Small Business Sales and Partnerships for MCI. From 1986 to September
1994, Mr. Allaway held various sales and service management positions for MCI.
Prior to that, Mr. Allaway spent five years with Xerox Corporation. Mr. Allaway
received a Bachelor of Science degree in Management from Jacksonville State
University and a Master of Business Administration degree from Auburn
University.
Eugene H. Kreeft has served as our Vice President of Engineering since
February 1999. From 1991 until February 1999, Mr. Kreeft was an Executive Vice
President of Preferred Networks Inc., an outsourcing services provider to the
wireless industry which he founded in 1991. From 1989 to 1991, Mr. Kreeft
served as Director of Technical Support, U.S. Operations, for Glenayre
Technologies, a developer and provider of personal telecommunications systems.
Prior to that, Mr. Kreeft was employed by BBL Industries, Inc., a paging
equipment manufacturer, where he served as both Vice President of Engineering
and Manufacturing and Vice President of Applications/New Product Development.
Mr. Kreeft has also held management and engineering positions with Motorola,
RAM Broadcasting, AT&T, Western Union Microwave Systems, Highland Telephone
Company and Delaware Telephone Company.
Robert W. McCarthy has served as our General Counsel since December 1999.
From August 1996 until December 1999, Mr. McCarthy was a General Attorney at
BellSouth Corporation, where he specialized in domestic and international
mergers and acquisitions and joint venture transactions. Prior to that, he was
a partner in the Atlanta offices of Hunton & Williams, where he specialized in
mergers and acquisitions, joint ventures and venture capital transactions. Mr.
McCarthy received a
49
<PAGE>
Bachelor of Arts degree in Political Science and a Juris Doctor degree from the
University of North Carolina at Chapel Hill.
James W. McClintock has served as our Vice President of International since
December 1999. From March 1999 until December 1999, Mr. McClintock was Vice
President of Data Services for BellSouth International (BSI), where he led the
development of BSI's Internet and data strategy and associated business
development activities, focusing principally on Latin America and Europe. Prior
to that, Mr. McClintock was Executive Director of Corporate Development for
BellSouth Corporation, where he worked primarily with BellSouth Entertainment
and BellSouth.net, managing a number of significant merger, acquisition and
alliance activities involving these two business units. Prior to joining
BellSouth in 1993, Mr. McClintock had fourteen years of experience managing,
investing in and financing entrepreneurial ventures of all types and scale,
including positions in banking with Citicorp and in venture capital with Equity
Group Investments. Mr. McClintock received a Bachelor of Arts degree in
Economics from Washington and Lee University and a Master of Business
Administration degree in Finance from the University of North Carolina.
Raymond F. Potts has served as our Vice President of Marketing and Sales
since October 1999. From September 1997 to October 1999, Mr. Potts was Regional
Vice President for Sales, Operations and Marketing for the midwest territory of
Teligent, Inc., a wireless telecommunications company. From 1996 to September
1997, Mr. Potts served as Vice President of Sales for the midwest region of
Cable & Wireless, Inc., a wireless telecommunications company. Prior to that,
Mr. Potts spent in excess of ten years in various senior-level sales and
service management positions for Midcom Communications, Sprint, LCI and TFN
Communications. Mr. Potts received a Bachelor of Business Administration degree
from St. Joseph's College in Rensselaer, Indiana.
Claire S. Schenk has served as our Director of Human Resources since June
1999. From June 1996 until May 1999, Ms. Schenk was Vice President for Human
Resources for Trism, Inc., a national specialized transportation company
headquartered in Atlanta. From December 1989 until June 1996, Ms. Schenk was
Vice President, Senior Business Partner for two national mortgage companies.
Ms. Schenk also has ten years of human resources management experience with
Sheraton Corporation and Six Flags Corporation. Ms. Schenk received a Bachelor
of Arts degree in Psychology from Emory University.
Alistair Sloan has served as our Vice President of Internet Services since
September 1999. From January 1998 until September 1999, Mr. Sloan was our
Manager of Internet Services. Prior to joining Cypress, Mr. Sloan was Project
Manager at Systems Atlanta, where he consulted with clients on Internet and
Wide Area Networking design and security. Prior to that, Mr. Sloan was a
manager of Internet Connect, a division of Systems Atlanta specializing in
dedicated business Internet connectivity. Mr. Sloan has also held positions
with Ingram Micro, Inc. and has been an independent consultant in the field of
LAN networking. Mr. Sloan received a Bachelor of Arts degree in Political
Science from the University of Bridgeport.
William P. Egan has served as a director since February 1997. Mr. Egan is a
founding partner of Burr, Egan, Deleage & Co. and Alta Communications, an
affiliated firm. For over twenty years, Mr. Egan has invested in a wide variety
of companies in the information technology, life sciences and communications
industries. He is a past President and Chairman of the National Venture Capital
Association. Mr. Egan received a Bachelor of Arts degree from Fairfield
University and a Master of Business Administration degree from the University
of Pennsylvania. He serves as a director of Cephalon, Inc.
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<PAGE>
Laurence S. Grafstein has served as a director since November 1999. Mr.
Grafstein is Managing Director and co-founder of Gramercy Communications
Partners, Inc., a private equity firm specializing in telecommunications
investments. From February 1996 to May 1999, Mr. Grafstein was a Managing
Director and head of the global telecommunications investment banking practice
at Credit Suisse First Boston, a global investment bank. From February 1994 to
February 1996, Mr. Grafstein was a Managing Director of Wasserstein Perella &
Co., a global investment bank. Mr. Grafstein received a Bachelor of Arts degree
from Harvard University, a Master of Philosophy degree from Balliol College of
Oxford University, where he was a Rhodes Scholar and president of the Oxford
Union Society, and an LLB from the University of Toronto Law School. Mr.
Grafstein is a director of Z-Tel Technologies, Inc.
Randall A. Hack has served as a director since November 1999. He is a Senior
Managing Director of Nassau Capital. From 1990 to 1994, Mr. Hack served as
President and Chief Executive Officer of the Princeton University Investment
Company, where he had overall management responsibility for Princeton's multi
billion-dollar endowment of publicly traded securities and private investments.
From 1979 to 1988, he was President and Chief Executive Officer of Matrix
Development Group, a commercial and industrial real estate development firm,
which he founded. Mr. Hack received a Bachelor of Arts degree from Princeton
University and a Master of Business Administration degree from Harvard
University. He serves as a director of OmniCell.com, Inc., Cornerstone
Properties, Acacia Capital Corp., KMC Telecom, Inc. and Crown Castle
International Corp.
John C. Halsted has served as a director since October 1998. Mr. Halsted
serves as Senior Vice President of Beacon Capital Partners, Inc. and Chief
Investment Officer of Beacon Venture Partners, Beacon Capital's venture capital
subsidiary. From 1993 to 1997, Mr. Halsted was Vice President at Harvard
Private Capital Group. From 1991 to 1993, Mr. Halsted was an Associate with
Simmons & Company, an investment banking firm in Houston, Texas. Mr. Halsted
received a Master of Business Administration degree from The Harvard Business
School and a Bachelor of Arts degree in Economics from The University of
California at Berkeley.
Jeffrey H. Schutz has served as a director since November 1996. Mr. Schutz
is a general partner of The Centennial Funds, a venture capital firm based in
Denver, Colorado that focuses on electronic communications companies. Since
1981, Centennial has invested more than $700 million in pioneering
entrepreneurial ventures in communications networks, services, and
technologies. Mr. Schutz received an AB in Economics from Middlebury College
and a Master of Business Administration degree from the Colgate Darden Graduate
School of Business Administration at the University of Virginia. Mr. Schutz is
a director of Crown Castle International Corp., Enhance Media, Inc. and Point-
To-Point, Inc.
P. Eric Yopes has served as a director since December 1999. Mr. Yopes is the
Vice Chairman--Investments of Shorenstein Management, Inc. Mr. Yopes joined
Shorenstein in 1984 and his responsibilities have encompassed all aspects of
real estate investment, development, acquisitions/sales, finance, operations
and leasing. He has served as Senior Operating Executive and Chief Financial
Officer of Shorenstein. His current responsibilities include strategy and
investment management, portfolio management, and investor and lender relations.
Mr. Yopes received a Bachelor of Arts degree from Yale University and a Juris
Doctor degree from the University of Chicago.
51
<PAGE>
Board Composition
In connection with the sale of our series C preferred stock, all of our then
existing stockholders entered into a stockholders agreement. This agreement
provides for, among other things, the nomination of and voting for a total of
nine directors of Cypress, as follows:
. two management representatives designated by the founding stockholders -
- these representatives are Messrs. Allen and Bourdeaux;
. one representative designated by The Centennial Funds -- this
representative is Mr. Schutz;
. one representative designated by Alta Communications -- this
representative is Mr. Egan;
. one representative designated by Beacon Capital Partners -- this
representative is Mr. Halsted;
. one representative designated by Nassau Capital -- this representative
is Mr. Hack;
. one representative designated by Gramercy Communications Partners --
this representative is Mr. Grafstein;
. one representative designated by Boston Properties, Cornerstone and
Shorenstein, voting together as a group -- this representative is Mr.
Yopes; and
. one outside representative designated jointly (1) by The Centennial
Funds, Alta Communications, Beacon Capital Partners, Nassau Capital and
Gramercy Communications Partners, voting together as a class, and (2) R.
Stanley Allen, Ward C. Bourdeaux, Jr., Mark A. Graves, Barry L. Boniface
and George J. Cisler, voting together as a class -- this directorship is
currently vacant, but is likely to be filled prior to the completion of
this offering.
The stockholders agreement requires each stockholder to vote all securities
over which they have voting control and to take all other necessary or
desirable action within their control to effect the preceding election of
directors. The provisions of the stockholders agreement regarding the
nomination and election of directors automatically terminate upon the closing
of this offering.
Following this offering, the board of directors will be divided into three
classes, each of whose members will serve for a staggered three-year term.
Messrs. Bourdeaux, Egan and Schutz will serve as Class I directors whose terms
will expire at the annual meeting of stockholders held in 2000. Messrs.
Grafstein, Hack and Yopes will serve as Class II directors, whose terms will
expire at the annual meeting of stockholders held in 2001. Messrs. Allen and
Halsted will serve as Class III directors whose terms will expire at the annual
meeting of stockholders held in 2002.
Committees of the Board of Directors
Our bylaws provide that our board of directors may designate one or more
board committees. We currently have an audit committee and a compensation
committee.
Audit Committee. The audit committee is responsible for recommending to the
board of directors the engagement of our outside auditors and reviewing our
accounting controls and the results and scope of audits and other services
provided by our auditors. The members of the audit committee are Messrs. Hack,
Halsted and Grafstein.
Compensation Committee. The compensation committee is responsible for
reviewing and approving the amount and type of consideration to be paid to
senior management. The members of the compensation committee are Messrs. Egan,
Halsted and Schutz.
52
<PAGE>
Other Committees. The board of directors may establish, from time to time,
other committees to facilitate the management of our business.
Compensation Committee Interlocks and Insider Participation
As noted above, the members of the compensation committee are Messrs. Egan,
Halsted and Schutz. Mr. Egan is a general partner of Alta Communications, which
purchased 263,158 shares of series C preferred stock from Cypress on October 8,
1999 for $5.0 million. Mr. Halsted is an executive officer of Beacon Capital
Partners, which purchased 342,105 shares of series C preferred stock from
Cypress on October 8, 1999, for $6.5 million. Mr. Schutz is a general partner
of The Centennial Funds, which purchased 263,158 shares of series C preferred
stock from Cypress on October 8, 1999 for $5.0 million.
Director Compensation
Directors who are employees receive no additional compensation for their
services as directors. We plan to compensate non-employee directors as follows:
$5,000 annual fee, $1,000 for each meeting attended in person and $500 for each
meeting attended by telephone. Non-employee directors are also eligible to
participate in our 2000 stock option plan at the discretion of the full board
of directors.
Severance Plan
We have a severance plan which covers Messrs. Allen, Bourdeaux, Graves and
Boniface. This plan provides severance benefits to these executive officers if
they are terminated without "cause" or they terminate with "good reason" within
a one-year period following a change of control of the Company. Upon a
qualifying termination, the executive officer is entitled to a lump sum payment
equal to one and one-half times his base salary.
Executive Compensation
The following table sets forth in summary form the compensation that was
paid to our Chief Executive Officer and the other most highly compensated
executive officers whose aggregate compensation exceeded $100,000 in the year
ended December 31, 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-term
Compensation
------------
Annual
Compensation Securities
-------------- Underlying
Name and Principal Position Salary Bonus Options
- --------------------------- -------- ----- ------------
<S> <C> <C> <C>
R. Stanley Allen.................................. $165,000 (1) 243,000
Chief Executive Officer
Mark A. Graves.................................... 155,000 (1) 306,000
President, Chief Operating Officer and Secretary
Ward C. Bourdeaux, Jr. ........................... 135,000 (1) 369,000
Executive Vice President
Barry L. Boniface ................................ 145,000 (1) 297,000
Vice President, Chief Financial Officer and
Treasurer
Eugene H. Kreeft.................................. 99,173 (1) 146,250
Vice President of Operations
</TABLE>
- --------
(1) Bonus has not yet been determined.
53
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth information related to stock options granted
to our named executive officers during the year ended December 31, 1999.
Option Grants in Last Fiscal Year(1)
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------
Percent of Potential Realizable
Number of Total Value at Assumed
Securities Options Annual Rates of Stock
Underlying Granted to Exercise Assumed Price Appreciation For
Options Employees Price Public Option Terms(2)
Grant in Fiscal Per Offering Expiration -----------------------
Name (#) Year(%) Share Price Date 5% 10%
- ---- ---------- ---------- -------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
R. Stanley Allen........ 180,000 5.14% $1.07 $15.00 4/7/09 $ 209,085 $ 447,017
63,000 1.80 2.53 15.00 11/29/09 705,700 1,218,121
Mark A. Graves.......... 180,000 5.14 1.07 15.00 4/7/09 209,085 447,017
126,000 3.60 2.53 15.00 11/29/09 1,411,399 2,436,241
Ward C. Bourdeaux, Jr... 180,000 5.14 1.07 15.00 4/7/09 209,085 447,017
189,000 5.40 2.53 15.00 11/29/09 2,117,099 3,654,362
Barry L. Boniface....... 45,000 1.29 1.07 15.00 4/7/09 52,271 111,754
252,000 7.20 2.53 15.00 11/29/09 2,822,799 4,872,483
Eugene H. Kreeft........ 101,250 2.90 1.07 15.00 4/7/09 117,611 251,447
45,000 1.29 2.53 15.00 11/29/09 504,071 870,086
</TABLE>
- --------
(1) The number of options granted in the year ended December 31, 1999 was
3,526,655. The options expire ten years after the date of the grant and
vest 20% upon the first anniversary of the date of grant and 5% each
subsequent quarter measured from the first anniversary of the date of
grant. The options fully vest upon a change of control. The exercise price
of the options is adjusted appropriately in the event of a subdivision or
combination of the outstanding common stock or in the event of a payment of
a stock dividend in shares of common stock to the holders of common stock.
In the event of a merger, consolidation or other reorganization, the
compensation committee may make any adjustments to the option that it deems
necessary.
(2) Potential realizable value is based on the assumption that our common stock
appreciates at the annual rate shown, compounded annually, from the date of
grant until expiration of the ten-year term. These numbers are calculated
based on SEC requirements and do not reflect our projection or estimate of
future stock price growth. Potential realizable values are computed by
multiplying the number of shares of common stock subject to a given option
by the fair market value of the common stock on the date of grant,
determined to be $1.37 as of April 7, 1999 and $8.43 as of November 29,
1999, and assuming that the aggregate stock value derived from that
calculation compounds at the annual 5% or 10% rate shown in the table for
the entire ten-year term of the option and subtracting from that result the
aggregate option exercise price. Actual realizable value, if any, will be
dependent on the future price of the common stock on the actual date of
exercise, which may be earlier than the stated expiration date.
54
<PAGE>
Fiscal Year-End Option Values
The following table sets forth the number of shares covered by both
exercisable and unexercisable options as of December 31, 1999 and the year-end
value of exercisable and unexercisable options as of December 31, 1999 for the
named executive officers.
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options at Options at
December 31, 1999 December 31, 1999(1)
---------------------------------- -----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
R. Stanley Allen........ 248,454 491,661 3,561,142 6,857,573
Mark A. Graves.......... 214,704 588,411 3,072,892 8,113,223
Ward C. Bourdeaux, Jr... 248,454 617,661 3,561,142 8,428,373
Barry L. Boniface....... 51,075 501,300 771,645 3,473,580
Eugene H. Kreeft........ -- 146,250 -- 1,971,750
</TABLE>
- --------
(1) The value of the unexercised in-the-money options at December 31, 1999 was
calculated using an assumed initial public offering price of $15.00 per
share as the estimated fair value per common share at that date.
Stock Plans
1997 Management Option Plan
Our 1997 management option plan was initially adopted by our board of
directors and approved by our stockholders on July 15, 1997. We established
this plan to provide officers, directors, key employees and consultants the
ability to acquire an ownership interest in Cypress. The options generally vest
20% per year and expire ten years after issuance. At December 31, 1999, there
were options to purchase a total of 5,820,976 shares of common stock granted
under this plan, of which options to purchase 991,639 shares have vested.
Although no further options will be granted under this plan, the unvested
options will continue to vest in accordance with this plan.
2000 Stock Option and Incentive Plan
Our 2000 stock option plan was adopted by our board of directors on December
21, 1999 and was subsequently approved by our stockholders on December 23,
1999. The 2000 stock option plan permits us to make grants of:
. incentive stock options;
. non-qualified stock options;
. restricted stock;
. deferred stock awards;
. unrestricted stock; and
. performance share awards.
Under the 2000 stock option plan, the aggregate number of shares available
for grants of awards shall be 5,756,125 shares of common stock, subject to
adjustment in the event of a stock split, stock dividend or other change in
capitalization. Any shares forfeited from awards under the 2000 stock option
plan or the 1997 management option plan will also be available for future
awards under the 2000 stock option plan. No common stock has been issued to
date under the 2000 stock option plan.
55
<PAGE>
2000 Stock Option Plan Administration. The 2000 stock option plan provides
for administration by either the board of directors or the compensation
committee, which consists of non-employee directors. The committee has full
power to select, from among the individuals eligible for awards, the
participants to whom awards will be granted, to make any combination of awards
to participants, and to determine the specific terms and conditions of each
award, subject to the provisions of the 2000 stock option plan.
Eligibility and Limitations on Grants. All officers, employees, directors
and key persons (including consultants and prospective employees) are eligible
to participate in the 2000 stock option plan, subject to the discretion of the
committee. From and after the date awards made under the 2000 stock option plan
become subject to Section 162(m) of the Internal Revenue Code, no participant
may receive options to purchase more than 1,500,000 shares of common stock
(subject to adjustment for stock splits, stock dividends and other change in
capitalization) during any one calendar year period, as stated above.
Option Terms. The committee has authority to determine the terms of options
granted under the 2000 stock option plan. However, incentive stock options will
have an exercise price that is not less than 100% of the fair market value of
the shares of common stock on the date of the option grant and non-qualified
stock options, other than those granted in lieu of a participant's cash
compensation at the participant's election with the consent of the committee,
will have an exercise price that is not less than 85% of the fair market value
of the shares of common stock on the date of the option grant.
At the discretion of the committee, stock options granted under the 2000
stock option plan may include a "re-load" feature pursuant to which an optionee
exercising an option by the delivery of shares of common stock would
automatically be granted an additional stock option (with an exercise price
equal to the fair market value of the common stock on the date the additional
stock option is granted) to purchase that number of shares of common stock
equal to the number delivered to exercise the original stock option. The
purpose of this feature is to enable participants to maintain their equity
interest without dilution.
Acceleration Upon a Merger, Sale or Change of Control of Company. Upon the
occurrence of any of the following events, unless otherwise provided in the
award agreements, all outstanding awards granted pursuant to the 2000 stock
option plan shall become fully exercisable or fully vested and nonforfeitable:
. the dissolution or liquidation of Cypress;
. the sale of all or substantially all of the assets of Cypress;
. a merger, reorganization or consolidation of Cypress;
. the sale of all of the stock of Cypress; or
. a change of control of Cypress.
In the event of certain transactions, such as a merger, consolidation,
dissolution or liquidation, the committee in its discretion may provide for
appropriate substitutions or adjustments of outstanding stock options;
alternatively, outstanding stock options will terminate and the holder will
receive a cash payment equal to the excess of the fair market value per share
over the applicable exercise price, multiplied by the number of shares of
common stock covered by the stock option.
56
<PAGE>
Amendments and Termination. The board of directors may at any time amend or
discontinue the 2000 stock option plan and the committee may at any time amend
or cancel any outstanding award for the purpose of satisfying changes in law or
for any other lawful purpose, but no such action shall adversely affect the
rights under any outstanding awards without the holder's consent. To the extent
required by the Internal Revenue Code to ensure that options granted under the
2000 stock option plan qualify as incentive stock options, plan amendments
shall be subject to approval by our stockholders.
Employee Stock Purchase Plan
Our employee stock purchase plan was adopted by our board of directors on
December 21, 1999 and was subsequently approved by our stockholders on December
23, 1999. Up to 900,000 shares of common stock may be issued under the employee
stock purchase plan.
The first offering under the employee stock purchase plan will begin on the
effective date of this offering and end on October 31, 2000. Subsequent
offerings will commence on each November 1 and May 1 thereafter and will have a
duration of six months. Generally, all employees who are customarily employed
for more than 20 hours per week as of the first day of the applicable offering
period will be eligible to participate in the employee stock purchase plan. An
employee who owns or is deemed to own shares of stock representing in excess of
5% of the combined voting power of all classes of our stock will not be able to
participate in the employee stock purchase plan.
During each offering, an employee may purchase shares under the employee
stock purchase plan by authorizing payroll deductions of up to 10% of his or
her cash compensation during the offering period. The maximum number of shares
that may be purchased by any participating employee during any six-month
offering period is limited to the number of whole shares which is less than or
equal to $12,500 divided by the closing price per share on the first day of the
applicable offering period. Unless the employee has previously withdrawn from
the offering, his or her accumulated payroll deductions will be used to
purchase common stock on the last business day of the period at a price equal
to 85% of the fair market value of the common stock on the first or last day of
the offering period, whichever is lower. For purposes of the initial offering
period, the fair market value of common stock on the first day of the offering
period shall be the offering price to the public. Under applicable tax rules,
an employee may purchase no more than $25,000 worth of common stock in any
calendar year. No common stock has been issued to date under the employee stock
purchase plan.
57
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership of
our common stock as of December 31, 1999. The percentage of beneficial
ownership is based on 35,575,169 shares of our common stock outstanding as of
such date, after giving effect to the conversion of all of our outstanding
shares of convertible preferred stock into common stock. The table sets forth
such information with respect to:
. each stockholder who is known by us to beneficially own 5% or more of
the common stock;
. each of our directors;
. each of the executive officers named in the "Summary Compensation
Table"; and
. all of our executive officers and directors as a group.
Unless otherwise indicated, each of the stockholders has sole voting and
investment power with respect to the shares of common stock beneficially owned
by such stockholder.
The number of shares beneficially owned by each stockholder is determined
under rules issued by the Securities and Exchange Commission. The information
is not necessarily indicative of beneficial ownership for any other purpose.
Under these rules, beneficial ownership includes any shares as to which the
individual or entity has sole or shared voting power or investment power and
any shares as to which the individual or entity has the right to acquire
beneficial ownership within 60 days after December 1, 1999, through the
exercise of any stock option or other right.
<TABLE>
<CAPTION>
Shares Beneficially Percent Beneficially
Owned Owned
------------------- --------------------
Before After
Name of Beneficial Owner(1) Number Offering Offering(2)
- --------------------------- ------------------- -------- -----------
<S> <C> <C> <C>
Centennial Holdings V, L.P.(3)....... 8,240,153 23.2% 18.1%
Alta Communications, Inc.(4)......... 6,118,700 17.2 13.4
Beacon Capital Partners, Inc.(5)..... 4,351,973 12.2 9.5
Nassau Capital L.L.C.(6)............. 2,960,528 8.3 6.5
Gramercy Communications Partners,
Inc.(7)............................. 2,960,528 8.3 6.5
R. Stanley Allen(8).................. 979,884 2.7 2.1
Ward C. Bourdeaux, Jr.(9)............ 697,230 1.9 1.5
Jeffrey H. Schutz(3)................. 8,240,153 23.2 18.1
William P. Egan(4)................... 6,118,700 17.2 13.4
John C. Halsted(5)................... 4,351,973 12.2 9.5
Randall A. Hack(6)................... 2,960,528 8.3 6.5
Laurence S. Grafstein(7)............. 2,960,528 8.3 6.5
P. Eric Yopes(10).................... 828,950 2.3 1.8
Mark A. Graves(11)................... 285,890 * *
Barry L. Boniface(12)................ 88,830 * *
Eugene H. Kreeft..................... -- -- --
All directors and executive officers
as a group (16 persons)(13)......... 27,530,888 75.6 59.0
</TABLE>
- --------
* Represents less than 1% of the outstanding shares of common stock.
58
<PAGE>
(1) The address of Centennial Holdings V, L.P. and Mr. Schutz is 1428 15th
Street, Denver, CO 80202. The address of Alta Communications, Inc. and Mr.
Egan is One Post Office Square, Suite 3800, Boston, MA 02109. The address
of Beacon Capital Partners, Inc. and Mr. Halsted is One Federal Street,
26th Floor, Boston, MA 02110. The address of Nassau Capital L.L.C. and Mr.
Hack is 22 Chambers Street, Princeton, NJ 08542. The address of Gramercy
Communications Partners, Inc. and Mr. Grafstein is 712 Fifth Avenue, 43rd
Floor, New York, NY 10019. The address of P. Eric Yopes is c/o Shorenstein
Management, Inc., 555 California Street, 49th Floor, San Francisco, CA
94104. The address of all other listed stockholders is c/o Cypress
Communications, Inc., Fifteen Piedmont Center, Suite 710, Atlanta, GA
30305.
(2) Assumes the underwriters do not elect to exercise the over-allotment
option to purchase an additional 1,500,000 shares of common stock.
(3) Represents shares of common stock beneficially owned by investment funds
affiliated with Centennial Holdings V, L.P., of which Mr. Schutz is a
general partner, including 8,028,428 shares of common stock beneficially
owned by Centennial Fund V, L.P. and 211,725 shares of common stock
beneficially owned by Centennial Entrepreneurs Fund V, L.P. Mr. Schutz
disclaims beneficial ownership of the shares of common stock held by these
funds, except to the extent of his proportionate pecuniary interest in
such funds.
(4) Represents shares of common stock beneficially owned by investment funds
affiliated with Alta Communications, Inc., of which Mr. Egan is a general
partner, including 5,981,904 shares of common stock beneficially owned by
Alta Communications VI, L.P. and 136,796 shares of common stock
beneficially owned by Alta Comm S by S, LLC. Mr. Egan disclaims beneficial
ownership of the shares of common stock held by these funds, except to the
extent of his proportionate pecuniary interest in such funds.
(5) Represents shares of common stock beneficially owned by entities
affiliated with Beacon Capital Partners, Inc., of which Mr. Halsted is an
executive officer, including 204,242 shares of common stock beneficially
owned by Tenant Communications, Inc., 4,029,309 shares of common stock
beneficially owned by Building Communications, LLC and 118,422 shares of
common stock beneficially owned by Investor Communications LLC. Mr.
Halsted disclaims beneficial ownership of the shares of common stock held
by these funds, except to the extent of his proportionate pecuniary
interest in such funds.
(6) Represents shares of common stock beneficially owned by investment funds
affiliated with Nassau Capital L.L.C., of which Mr. Hack is a member,
including 2,914,146 shares of common stock beneficially owned by Nassau
Capital Partners III L.P. and 46,382 shares of common stock beneficially
owned by NAS Capital Partners I L.L.C. Mr. Hack disclaims beneficial
ownership of the shares of common stock held by these funds, except to the
extent of his proportionate pecuniary interest in such funds.
(7) Represents shares of common stock beneficially owned by Gramercy Cypress
LLC, an investment fund affiliated with Gramercy Communications Partners,
Inc., of which Mr. Grafstein is a Managing Director. Mr. Grafstein
disclaims beneficial ownership of the shares of common stock held by this
fund, except to the extent of his proportionate pecuniary interest in such
fund.
(8) Includes 271,058 shares of common stock held by Mr. Allen subject to
options exercisable as of December 31, 1999 or within 60 days thereafter.
(9) Includes 271,058 shares of common stock held by Mr. Bourdeaux subject to
options exercisable as of December 31, 1999 or within 60 days thereafter.
59
<PAGE>
(10) Represents shares of common stock beneficially owned by DWS Capital LLC,
an investment fund affiliated with Shorenstein Management, Inc., of which
Mr. Yopes is an executive officer. Mr. Yopes disclaims beneficial
ownership of the shares of common stock held by this fund, except to the
extent of his proportionate pecuniary interest in such fund.
(11) Includes 214,704 shares of common stock held by Mr. Graves subject to
options exercisable as of December 31, 1999 or within 60 days thereafter.
(12) Includes 63,846 shares of common stock held by Mr. Boniface subject to
options exercisable as of December 31, 1999 or within 60 days thereafter.
(13) Includes 863,874 shares of common stock held by all directors and
executive officers as a group subject to options exercisable as of
December 31, 1999 or within 60 days thereafter.
60
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We were formed as a limited liability company under the laws of Georgia on
August 16, 1995 as Cypress Communications, L.L.C. We completed a reorganization
on July 15, 1997 in which the operations of the predecessor company were merged
into Cypress Communications, Inc., a Delaware corporation.
In connection with our reorganization on July 15, 1997, we issued an
aggregate of 2,636,906 shares of our common stock to nine persons, including
Messrs. Allen and Bourdeaux, Centennial Holdings V, L.P. and Alta
Communications, in exchange for membership interests in our predecessor
company. On that date, we also issued an aggregate of 1,200,140 shares of our
series A preferred stock for $5 per share to eight investors, including Messrs.
Allen, Bourdeaux and Graves, Centennial Holdings V, L.P. and Alta
Communications. On March 9, 1998, we issued 11,000 shares of our series A
preferred stock to Mr. Graves for $5 per share.
On September 30, 1998, we issued an aggregate of 1,333,200 shares of our
series B preferred stock to investors, including Messrs. Allen, Bourdeaux and
Graves, Centennial Holdings V, L.P., Alta Communications and Beacon Capital
Partners for $8 per share. On that same date, we also issued 579,613 shares of
our series B-1 preferred stock to Beacon Capital Partners for $8 per share. On
February 1, 1999 we issued an aggregate of 6,375 shares of our series B
preferred stock to Mr. Boniface and another employee for $8 per share.
Since September 30, 1999, we have issued an aggregate of 4,161,974 shares of
our series C preferred stock to investors, including Messrs. Allen, Bourdeaux,
Graves and Boniface, Centennial Holdings V, L.P., Alta Communications, Beacon
Capital Partners, Nassau Capital and Gramercy Communications Partners for $19
per share.
Our series A preferred stock, series B and B-1 preferred stock, and series C
preferred stock have a redemption price of $5 per share, $8 per share, and $19
per share, respectively. Redemption is mandatory beginning on October 8, 2005,
at which time up to one-third of the outstanding shares may be redeemed on each
of October 8, 2005, October 8, 2006 and October 8, 2007. In the event of any
liquidation, dissolution or winding up of our affairs, holders of the preferred
stock are entitled to be paid the redemption price, plus all accrued dividends,
before any payments to the holders of common stock. Each holder of preferred
stock, in preference to the holders of common stock, is entitled to receive
dividends, when and as declared by the board of directors. With the exception
of the series B-1 preferred stock, which is non-voting stock, each holder of
preferred stock votes with the holders of common stock on an on-converted
basis. Under the conversion rate set forth in the terms of the preferred stock,
the preferred stock was originally convertible into common stock on a one-for-
one basis. However, as a result of the proposed 4.5-for-1 stock split which
will occur in connection with this offering, the conversion rate will be
adjusted such that each share of preferred stock will be convertible into 4.5
shares of common stock. The preferred stock automatically converts into common
stock upon the completion of this offering.
61
<PAGE>
As result of the foregoing equity issuances, the following persons who are
our principal stockholders and executive officers directly own the following
shares of our capital stock:
<TABLE>
<CAPTION>
Series A Series B Series B-1 Series C
Common Preferred Preferred Preferred Preferred
Name of Related Party Stock Stock Stock Stock Stock
--------------------- ------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Centennial Holdings V,
L.P. ....................... 750,001 776,320 625,000 -- 263,158
Alta Communications, Inc..... 374,999 388,220 625,000 -- 263,158
Beacon Capital Partners,
Inc......................... -- -- 45,387 579,613 342,105
Nassau Capital L.L.C. ....... -- -- -- -- 657,895
Gramercy Communications
Partners, Inc............... -- -- -- -- 657,895
R. Stanley Allen............. 682,245 4,000 1,250 -- 658
Ward C. Bourdeaux, Jr........ 410,387 1,600 1,250 -- 658
Mark A. Graves............... -- 11,000 2,188 -- 2,632
Barry L. Boniface............ -- -- 4,500 -- 1,053
</TABLE>
Certain of our directors are affiliated with certain of our principal
stockholders. Mr. Schutz is a general partner of Centennial Holdings V, L.P.
Mr. Egan is a general partner of Alta Communications. Mr. Halsted is an
executive officer of Beacon Capital Partners. Mr. Hack is a member of Nassau
Capital. Mr. Grafstein is a Managing Director of Gramercy Communications
Partners.
One of our directors, Mr. Yopes, is an executive officer of Shorenstein
Management, Inc. In December 1999, we issued 184,211 shares of our series C
preferred stock to an investment fund affiliated with Shorenstein for $19 per
share. In addition, as part of our master license agreement program, we entered
into a master license agreement with Shorenstein under which we have obtained
the right to install and operate our networks in buildings representing more
than 15 million rentable square feet. In connection with the execution of this
master license agreement, we agreed to issue Shorenstein warrants to acquire up
to 815,108 shares of our common stock at an exercise price of $4.22 per share.
The warrants will be issued upon the execution of a specified number of
property-specific license agreements, and the actual number of shares
underlying the warrants will be determined based on the gross leasable area of
the buildings that become subject to the property-specific license agreements.
During 1999, we entered into a consulting arrangement with William Zierden,
an investor in The Centennial Funds. In accordance with this arrangement, Mr.
Zierden provided consulting services to us and has received fees totaling
approximately $92,868 in fiscal 1999. In addition, in December 1999 we issued
options to purchase 3,947 shares of common stock to Mr. Zierden in connection
with this arrangement.
We believe that each of the transactions described above was entered into on
terms no less favorable to Cypress than could be obtained with non-affiliated
parties. For all future transactions, we have adopted a conflict of interest
policy whereby our audit committee will review the fairness of all material
transactions between Cypress and our officers, directors and other affiliates
and will make recommendations after such review to the entire board of
directors.
Third Amended and Restated Stockholders Agreement
In connection with the sale of our series C preferred stock, all of our then
existing stockholders entered into a stockholders agreement. This agreement
provides for, among other things, the nomination of and voting for a total of
nine directors of Cypress, as described under "Management--Board Composition."
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The stockholders agreement generally restricts the transfer of any shares of
common or preferred stock held by the parties thereto by granting parties
rights of first refusal, rights of first offer and participation rights in
connection with any proposed transfer by any other party. In addition, the
stockholders agreement generally provides that the parties thereto will have
the right of first refusal and participation rights in any subsequent offering
of equity securities or securities convertible into equity securities, subject
to exceptions such as a registered public offering. The provisions of the
stockholders agreement regarding nomination and voting and transferability of
shares automatically terminate upon the closing of this offering.
At any time after the effective date of this offering, groups of
stockholders may require us to register all or any portion of their shares by
filing one registration statement utilizing a Form S-1 and multiple
registration statements utilizing a Form S-3. The parties will also be entitled
to unlimited piggyback registration rights in connection with any registration
by us of securities for our own account or the account of other stockholders.
The registration rights available under the stockholders agreement generally
will terminate when all shares owned by the parties to the agreement may be
immediately sold under Rule 144 and our stock is listed on a national
securities market or traded in the Nasdaq Stock Market.
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DESCRIPTION OF CAPITAL STOCK
The following summary describes the material terms of our capital stock. To
fully understand the actual terms of the capital stock you should refer to our
second amended and restated certificate of incorporation and our amended and
restated bylaws. The following summary gives effect to the conversion of all
outstanding shares of preferred stock upon completion of this offering. The
summary does not give effect to the exercise of outstanding warrants or options
to purchase common stock.
Authorized and Outstanding Capital Stock
There are currently 2,759,806 shares of common stock, 1,211,140 shares of
series A preferred stock, 1,339,575 shares of series B preferred stock, 579,613
shares of series B-1 preferred stock, 4,161,974 shares of series C preferred
stock and no shares of series C-1 preferred stock issued and outstanding. At
and subject to the closing of this offering, all of the outstanding shares of
preferred stock will be automatically converted into an aggregate of 32,815,359
shares of common stock. There are currently 13 holders of record of our common
stock and 20 holders of record of our preferred stock.
Following the offering, our authorized capital stock will consist of
150,000,000 shares of common stock, of which 45,856,415 will be issued and
outstanding, 20,000,000 shares of undesignated preferred stock authorized and
issuable in one or more series designated by our board of directors, of which
no shares will be issued and outstanding and 1,000,000 shares of series Z
junior participating cumulative preferred stock, as discussed in more detail
under "--Shareholder Rights Plan."
Common Stock
Voting Rights. The holders of our common stock have one vote per share.
Holders of our common stock are not entitled to vote cumulatively for the
election of directors. Generally, all matters to be voted on by stockholders
must be approved by a majority, or, in the case of the election of directors,
by a plurality, of the votes cast at a meeting at which a quorum is present,
voting together as a single class, subject to any voting rights granted to
holders of any then outstanding preferred stock.
Dividends. Holders of common stock will share ratably in any dividends
declared by our board of directors, subject to the preferential rights of any
preferred stock then outstanding. Dividends consisting of shares of common
stock may be paid to holders of shares of common stock.
Other Rights. Upon the liquidation, dissolution or winding up of Cypress,
all holders of common stock are entitled to share ratably in any assets
available for distribution to holders of shares of common stock. No shares of
common stock are subject to redemption or have preemptive rights to purchase
additional shares of common stock.
Preferred Stock
Our certificate of incorporation provides that shares of preferred stock may
be issued from time to time in one or more series. Our board of directors is
authorized to fix the voting rights, if any, designations, powers, preferences,
qualifications, limitations and restrictions thereof, applicable to the shares
of each series. Our board of directors may, without stockholder approval, issue
preferred stock
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with voting and other rights that could adversely affect the voting power and
other rights of the holders of the common stock and could have anti-takeover
effects, including preferred stock or rights to acquire preferred stock in
connection with implementing a shareholder rights plan. We have no present
plans to issue any shares of preferred stock. The ability of our board of
directors to issue preferred stock without stockholder approval could have the
effect of delaying, deferring or preventing a change of control of Cypress or
the removal of existing management.
Warrants
In November and December 1999, pursuant to the execution of master license
agreements and stock warrant agreements, we agreed to issue warrants to acquire
up to 11,066,472 shares of common stock to several owners and operators of
office buildings. The warrants will have an exercise price of $4.22 per share
of common stock, and will be exercisable for a period of ten years. However,
the warrants cannot be exercised until six months following completion of this
offering. The number of shares of common stock underlying the warrants may be
adjusted if certain property-specific license agreements are not executed in
accordance with the provisions of the master license agreements relating to the
owner's or operator's real estate portfolio.
Options
As of December 31, 1999:
. options to purchase a total of 5,820,976 shares of common stock at a
weighted average exercise price of $1.60 per share were outstanding, of
which options to purchase 991,639 shares have vested; and
. up to 5,756,125 additional shares of common stock may be subject to
options granted in the future under our 2000 stock option plan.
Indemnification Matters
We plan to enter into indemnification agreements with each of our directors
and certain of our executive officers. The form of indemnification agreement
provides that we will indemnify our directors and certain executive officers
for expenses incurred because of their status as such, to the fullest extent
permitted by Delaware law, our certificate of incorporation and our bylaws.
Our certificate of incorporation contains a provision permitted by Delaware
law that generally eliminates the personal liability of directors for monetary
damages for breaches of their fiduciary duty, including breaches involving
negligence or gross negligence in business combinations, unless the director
has breached his or her duty of loyalty, failed to act in good faith, engaged
in intentional misconduct or a knowing violation of law, paid a dividend or
approved a stock repurchase in violation of the Delaware General Corporation
Law or obtained an improper personal benefit. This provision does not alter a
director's liability under the federal securities laws and does not affect the
availability of equitable remedies, such as an injunction or rescission, for
breach of fiduciary duty. Our bylaws provide that directors and officers shall
be, and in the discretion of our board of directors, non-officer employees may
be, indemnified by Cypress to the fullest extent authorized by Delaware law, as
it now exists or may in the future be amended, against all expenses and
liabilities reasonably incurred in connection with service for or on behalf of
Cypress. Our bylaws also provide for the advancement of expenses to directors
and, in the discretion of our board of directors, officers and non-officer
employees. In addition, our bylaws provide that the right of directors and
officers to
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indemnification shall be a contract right and shall not be exclusive of any
other right now possessed or hereafter acquired under any bylaw, agreement,
vote of stockholders or otherwise. We also have directors' and officers'
insurance against certain liabilities. We believe that the indemnification
agreements, together with the limitation of liability and indemnification
provisions of our certificate of incorporation and bylaws and directors' and
officers' insurance will assist us in attracting and retaining qualified
individuals to serve as directors and officers of Cypress.
Insofar as indemnification for liabilities arising under the Securities Act
may be provided to directors, officers or person controlling Cypress as
described above, we have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable. At present, there is no
pending material litigation or proceeding involving any director, officer,
employee or agent of Cypress in which indemnification will be required or
permitted.
Anti-takeover Effects of Certain Provisions of Delaware Law and our Certificate
of Incorporation and Bylaws
Provisions of our certificate of incorporation and bylaws described below,
as well as the ability of our board of directors to issue shares of preferred
stock and to set its voting rights, preferences and other terms, may be deemed
to have an anti-takeover effect and may discourage takeover attempts not first
approved by our board of directors, including takeovers which particular
stockholders may deem to be in their best interests. These provisions also
could have the effect of discouraging open market purchases of our common stock
because they may be considered disadvantageous by a stockholder who desires
subsequent to such purchases to participate in a business combination
transaction with us or elect a new director to our board.
Classified Board of Directors. Our board of directors is divided into three
classes serving staggered three-year terms, with one-third of the board being
elected each year. Our classified board, together with certain other provisions
of our certificate of incorporation authorizing the board of directors to fill
vacant directorships or increase the size of the board, may prevent a
stockholder from removing, or delay the removal of, incumbent directors and
simultaneously gaining control of the board of directors by filling vacancies
created by such removal with its own nominees.
Director Vacancies and Removal. Our certificate of incorporation provides
that vacancies in our board of directors shall be filled only by the
affirmative vote of a majority of the remaining directors. Our certificate of
incorporation provides that directors may be removed from office only with
cause and only by the affirmative vote of holders of at least seventy-five
percent of the shares then entitled to vote in an election of directors.
No Stockholder Action by Written Consent. Our certificate of incorporation
provides that any action required or permitted to be taken by our stockholders
at an annual or special meeting of stockholders must be effected at a duly
called meeting and may not be taken or effected by a written consent of
stockholders.
Special Meetings of Stockholders. Our certificate of incorporation and
bylaws provide that a special meeting of stockholders may be called only by our
board of directors. Our bylaws provide that only those matters included in the
notice of the special meeting may be considered or acted upon at that special
meeting unless otherwise provided by law.
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Advance Notice of Director Nominations and Stockholder Proposals. Our bylaws
include advance notice and informational requirements and time limitations on
any director nomination or any new proposal which a stockholder wishes to make
at an annual meeting of stockholders. For the first annual meeting following
the completion of this offering, a stockholder's notice of a director
nomination or proposal will be timely if delivered to the secretary of Cypress
at our principal executive offices not later than the close of business on the
later of the 75th day prior to the scheduled date of such annual meeting or the
10th day following the day on which public announcement of the date of such
annual meeting is made by Cypress.
Amendment of the Certificate of Incorporation. As required by Delaware law,
any amendment to our certificate of incorporation must first be approved by a
majority of our board of directors and, if required by law, thereafter approved
by a majority of the outstanding shares entitled to vote with respect to such
amendment, except that any amendment to the provisions relating to stockholder
action by written consent, directors, limitation of liability and the amendment
of our certificate of incorporation must be approved by not less than seventy-
five percent of the outstanding shares entitled to vote with respect to such
amendment.
Amendment of Bylaws. Our certificate of incorporation and bylaws provide
that our bylaws may be amended or repealed by our board of directors or by the
stockholders. Such action by the board of directors requires the affirmative
vote of a majority of the directors then in office. Such action by the
stockholders requires the affirmative vote of at least seventy-five percent of
the shares present in person or represented by proxy at an annual meeting of
stockholders or a special meeting called for such purpose unless our board of
directors recommends that the stockholders approve such amendment or repeal at
such meeting, in which case such amendment or repeal only requires the
affirmative vote of a majority of the shares present in person or represented
by proxy at the meeting.
Shareholder Rights Plan
We intend to adopt a shareholder rights plan to help ensure that our
stockholders receive fair and equal treatment in the event of any proposed
acquisition of Cypress. The rights plan may delay, deter or prevent a change of
control of Cypress and, therefore, could adversely affect stockholders' ability
to realize a premium over the then-prevailing market price for our common stock
in connection with such a transaction.
Upon adoption of the rights plan, our board of directors will declare a
dividend of one "right" for each share of our common stock outstanding as of
the closing of this offering. Under certain circumstances described below, each
right will entitle its holder to purchase from us shares of our series Z junior
participating cumulative preferred stock, par value $.001 per share.
Initially, the rights will not be exercisable and will be attached to, trade
with and be inseparable from the shares of common stock. Until the rights
become exercisable, they will be evidenced only by the certificates or book-
entry credits that represent shares of common stock. If a person or group
acquires ownership of 15% or more of the outstanding common stock or makes a
tender offer that could result in that person or group owning 15% or more of
the outstanding common stock, then the rights will separate from the common
stock and become their own separately tradable security. Thereafter, the rights
will be evidenced by book-entry credits or by rights certificates that we will
mail to all eligible holders of common stock. At this point, each right also
will become exercisable to acquire one one-thousandth of a share of the junior
preferred stock at a cash exercise price that will be substantially below the
market price of one share of our common stock, and accordingly, the right
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will be "out-of-the-money." Each one one-thousandth of a share of junior
preferred stock will give the stockholder approximately the same dividend,
voting and liquidation rights as would one share of common stock and therefore
is expected to approximate the market price of one share of our common stock.
Prior to exercise, the right does not give its holder any dividend, voting or
liquidation rights. Any rights held by the person or group who acquired
ownership of 15% or more of the outstanding common stock or who made a tender
offer that could result in that person or group owning 15% or more of the
outstanding common stock will be void and may not be exercised.
If a person or group acquires 15% or more of the outstanding common stock,
all holders of rights except that person or group may, upon the payment of the
exercise price, purchase a number of one one-thousandths of a share of the
junior preferred stock having a market value of two times the exercise price of
the right, based on the market price of one one-thousandth of a share of junior
preferred stock prior to such acquisition. In other words, each holder of a
right will be permitted to acquire shares of the junior preferred stock at a
50% discount to the market price of such stock. Thus, at this point the rights
will be "in-the-money."
If our company is later acquired in a merger or similar transaction after a
person or group acquires ownership of 15% or more of the outstanding common
stock, holders of rights (other than that person or group, whose rights will be
void) may, upon the payment of the exercise price, purchase shares of the
acquiring corporation with a market value of two times the exercise price of
the right, based on the market price of the acquiring corporation's stock prior
to such merger or similar transaction. In other words, each holder of a right
is permitted to acquire shares of the acquiring company's common stock at a 50%
discount to the market price of such stock.
The rights plan and the rights will expire on the tenth anniversary of the
closing of the offering, unless the rights are earlier exercised, redeemed or
exchanged. Our board may redeem the rights for $.01 per right only until the
earlier of the time at which any person or group acquires ownership of 15% or
more of the outstanding common stock or the expiration of the rights plan. If
our board redeems any rights, it must redeem all of the rights. The redemption
price will be adjusted if we have a stock split of or stock dividends on our
common stock. After a person or group acquires ownership of 15% or more of the
outstanding common stock, but before that person or group owns 50% or more of
our outstanding common stock, our board may, at its option, extinguish the
rights by exchanging all or any part of the then outstanding exercisable rights
for shares of common stock at an exchange ratio specified in the rights plan,
other than rights held by that person or group, which are void.
In the event that our board of directors approves a transaction that it has
determined is in the best interests of our stockholders but that otherwise
would cause the rights to separate from the common stock and become
exercisable, the board may, in connection with such approval, redeem the
rights. Once the rights are redeemed, the transaction can proceed without
causing the rights to separate from the common stock and become exercisable.
The rights plan could make it more difficult for a third party to acquire, and
could discourage a third party from acquiring or seeking to acquire, Cypress or
a large block of our common stock.
Statutory Business Combination Provision
Following the offering, we will be subject to Section 203 of the Delaware
General Corporation Law, which prohibits a publicly held Delaware corporation
from consummating a "business combination," except under certain circumstances,
with an "interested stockholder" for a period of three years after the date
such person became an "interested stockholder" unless:
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. before such person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the
business combination;
. upon the closing of the transaction that resulted in the interested
stockholder acquiring that status, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding shares held by directors who are
also officers of the corporation and shares held by employee stock
plans; or
. following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders
by the affirmative vote of the holders of at least two-thirds of the
outstanding voting stock of the corporation not owned by the interested
stockholder. The term "interested stockholder" generally is defined as a
person who, together with affiliates and associates, owns, or, within
the prior three years, owned, 15% or more of a corporation's outstanding
voting stock.
The term "business combination" includes mergers, consolidations, asset
sales involving 10% or more of a corporation's assets and other similar
transactions resulting in a financial benefit to an interested stockholder.
Section 203 makes it more difficult for an "interested stockholder" to effect
various business combinations with a corporation for a three-year period. A
Delaware corporation may "opt out" of Section 203 with an express provision in
its original certificate of incorporation or an express provision in its
certificate of incorporation or by--laws resulting from an amendment approved
by holders of at least a majority of the outstanding voting stock. Neither our
certificate of incorporation nor our by-laws contain any such exclusion.
Trading on the Nasdaq National Market System
We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "CYCO."
No Preemptive Rights
No holder of any class of our stock has any preemptive right to subscribe
for or purchase any kind or class of our securities.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock will be State Street
Bank and Trust Company.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. No prediction can be made as to the effect, if any, that sales of common
stock or the availability of common stock for sale will have on the market
price of our common stock. The market price of our common stock could drop due
to sale of a large number of shares of our common stock or the perception that
such sales could occur. These factors could also make it more difficult to
raise funds through future offerings of common stock.
After this offering, 45,856,415 shares of common stock will be outstanding.
Of these shares, the 10,000,000 shares sold in this offering, or 11,500,000 if
the underwriters' over-allotment is exercised in full, will be freely tradeable
without restriction under the Securities Act, except that any shares held by
our "affiliates" as defined in Rule 144 under the Securities Act may be sold
only in compliance with the limitations described below. The remaining
35,856,415 shares of common stock are "restricted securities" within the
meaning of Rule 144 under the Securities Act. The restricted securities
generally may not be sold unless they are registered under the Securities Act
or are sold pursuant to an exemption from registration, such as the exemption
provided by Rule 144 under the Securities Act.
In connection with this offering, our existing officers, directors and
stockholders, who will own a total of 35,856,415 shares of common stock after
the offering, have entered into lock-up agreements pursuant to which they have
agreed not to offer or sell any shares of common stock for a period of 180 days
after the date of this prospectus without the prior written consent of Bear,
Stearns & Co. Inc., which may in its sole discretion, at any time and without
notice, waive any of the terms of these lock-up agreements. Bear, Stearns & Co.
Inc. presently has no intention to allow any shares of common stock or warrants
to be sold or otherwise offered by Cypress prior to the expiration of the 180
day lock-up period, although it may decide to do so in light of the purpose for
which any such shares or warrants are requested to be sold or otherwise
offered, prevailing market conditions and any other factor which Bear, Stearns
& Co. Inc., in its sole discretion, may deem to be relevant. Following the
lock-up period, these shares will not be eligible for sale in the public market
without registration under the Securities Act unless such sale meets the
conditions and restrictions of Rule 144 as described below.
In general, under Rule 144 as currently in effect, any person or persons
whose shares are required to be aggregated, including an affiliate of ours, who
has beneficially owned shares for a period of at least one year is entitled to
sell, within any three-month period, commencing 90 days after the date of this
prospectus, a number of shares that does not exceed the greater of:
. 1% of the then outstanding shares of common stock, which is expected to
be approximately 458,564 shares upon the completion of this offering, or
. the average weekly trading volume in the common stock during the four
calendar weeks immediately preceding the date on which the notice of
such sale on Form 144 is filed with the Securities and Exchange
Commission.
Sales under Rule 144 are also subject to certain provisions relating to
notice and manner of sale and the availability of current public information
about us during the 90 days immediately preceding a sale. In addition, a person
who is not an affiliate of ours during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years would
be entitled to
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sell such shares under Rule 144(k) without regard to the volume limitation and
other conditions described above.
Our employees, directors, officers or consultants who purchased our shares
in connection with a written compensatory plan or contract may be entitled to
rely on the resale provisions of Rule 701. Rule 701 permits non-affiliates to
sell their Rule 701 shares without having to comply with the public
information, holding period, volume limitation or notice provisions of Rule
144. Affiliates may sell their Rule 701 shares without having to comply with
Rule 144's holding period restrictions. In each of these cases, Rule 701 allows
the shareholders to sell 90 days after the date of this prospectus.
Prior to the expiration of the lock-up agreement, we intend to register on a
registration statement on Form S-8:
. a total of 5,820,976 shares of common stock issuable upon the exercise
of options issued under our 1997 management option plan;
. a total of up to 5,756,125 shares of common stock reserved for future
issuance pursuant to the 2000 stock option plan; and
. a total of 900,000 shares of common stock reserved for future issuance
pursuant to the employee stock purchase plan.
The Form S-8 will permit the resale in the public market of shares so
registered by non-affiliates without restriction under the Securities Act.
In November and December 1999, we entered into stock warrant and master
license agreements with several property owners and operators in which we
agreed to issue warrants to acquire up to 11,066,472 shares of our common stock
at an exercise price of $4.22 per share. These warrants will be issued to these
property owners and operators upon the execution of property-specific license
agreements, and the number of shares of common stock underlying the warrants
will be determined in accordance with the provisions of the stock warrant
agreements. The warrants will be exercisable for a period of ten years, but
cannot be exercised until six months following completion of this offering.
Upon such exercise, the holders of these warrants are entitled to request that
we register the shares of common stock underlying their warrants in any future
registration statement which we may file. If we are unable to accommodate such
request within 18 months following this offering, holders representing at least
50% of the aggregate shares of warrants issuable are entitled to require that
we register their shares under the Securities Act. After these shares are
registered, they will become freely tradeable without restriction under the
Securities Act.
Upon completion of this offering and subject to the 180-day lock-up period
described above, the holders of approximately 35,856,415 shares of our common
stock, including the shares to be issued upon conversion of all of our
outstanding convertible preferred stock, are entitled to request that we
register their shares under the Securities Act or to have their shares included
in a future registration statement which we may file. After these shares are
registered, they will become freely tradeable without restriction under the
Securities Act.
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UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
between us and the underwriters named below, who are represented by Bear,
Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation and
J.C. Bradford & Co., the underwriters have severally agreed to purchase from us
the following respective numbers of shares of common stock at the public
offering price less the underwriting discount set forth on the cover page of
this prospectus.
<TABLE>
<CAPTION>
Number of
Underwriter: Shares
------------ ----------
<S> <C>
Bear, Stearns & Co. Inc. .........................................
Donaldson, Lufkin & Jenrette Securities Corporation...............
J.C. Bradford & Co. ..............................................
----------
Total........................................................... 10,000,000
==========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares included in this
offering are subject to approval of legal matters by their counsel and to
customary conditions, including the effectiveness of the registration
statement, the continuing correctness of our representations to them, the
receipt of a comfort letter from our accountants, the listing of the common
stock on the Nasdaq National Market and no occurrence of an event that would
have a material adverse effect on our business. The underwriters are obligated
to purchase and accept delivery of all the shares, other than those covered by
the over-allotment option described below, if they purchase any of the shares.
We have granted to the underwriters an option, exercisable for 30 days from
the date of the underwriting agreement, to purchase up to 1,500,000 additional
shares at the public offering price less the underwriting discount. The
underwriters may exercise such option solely to cover over-allotments, if any,
made in connection with this offering. To the extent that the underwriters
exercise such option, each underwriter will become obligated, subject to
conditions, to purchase a number of additional shares approximately
proportionate to such underwriter's initial purchase commitment.
The underwriters propose to initially offer some of the shares directly to
the public at the public offering price set forth on the cover page of this
prospectus and some of the shares to dealers at the public offering price less
a concession not in excess of $ per share. The underwriters may allow, and
such dealers may re-allow, a concession not in excess of $ per share on
sales to other dealers. After the initial offering of the shares to the public,
the representatives of the underwriters may change the public offering price
and such concessions. The underwriters do not intend to confirm sales to any
accounts over which they exercise discretionary authority.
The following table shows the underwriting discount to be paid to the
underwriters by us in connection with this offering. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares of the common stock.
<TABLE>
<CAPTION>
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per share....................................... $ $
Total........................................... $ $
</TABLE>
The underwriting discount per share is equal to the public offering price
per share of common stock less the amount paid by the underwriters to us per
share of common stock.
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We estimate that our total expenses in connection with this offering, other
than the underwriting discount, will be approximately $2.4 million.
At our request, the underwriters have reserved for sale at the initial
public offering price up to 500,000 of the shares, or 5%, of our common stock
to be sold in this offering for sale to our directors, officers and employees
and friends and family of our directors, officers and employees. The number of
shares available for sale to the general public will be reduced to the extent
that any reserved shares are purchased. Any reserved shares not purchased will
be offered by the underwriters on the same basis as the other shares offered.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of the common stock. Specifically, the underwriters may over-allot
shares of the common stock in connection with this offering, thereby creating a
short position in the common stock for their own account. Additionally, to
cover such over-allotments or to stabilize the market price of the common
stock, the underwriters may bid for, and purchase, shares of the common stock
in the open market. Finally, the representatives, on behalf of the
underwriters, also may reclaim selling concessions allowed to an underwriter or
dealer if the underwriting syndicate repurchases shares distributed by that
underwriter or dealer. Any of these activities may maintain the market price of
our common stock at a level above that which might otherwise prevail in the
open market. The underwriters are not required to engage in these activities
and, if commenced, may end any of these activities at any time.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act.
We have applied to list our common stock on the Nasdaq National Market under
the symbol "CYCO."
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock
will be determined by negotiation among us and the representatives of the
underwriters. Among the factors to be considered in determining the public
offering price will be:
. prevailing market conditions;
. our results of operations in recent periods;
. the present stage of our development;
. the market capitalizations and stages of development of generally
comparable companies; and
. estimates of our business potential.
In connection with this offering, our existing officers, directors and
stockholders, who will own a total of 35,856,415 shares of common stock after
the offering, have entered into lock-up agreements pursuant to which they have
agreed not to offer or sell any shares of common stock for a period of 180 days
after the date of this prospectus without the prior written consent of Bear,
Stearns & Co. Inc., which may in its sole discretion, at any time and without
notice, waive any of the terms of these lock-up agreements. Bear, Stearns & Co.
Inc. presently has no intention to allow any shares of common stock or warrants
to be sold or otherwise offered by Cypress prior to the expiration of the 180
day lock-up period, although it may decide to do so in light of the purpose for
which any such
73
<PAGE>
shares or warrants are requested to be sold or otherwise offered, prevailing
market conditions and any other factor which Bear, Stearns & Co. Inc., in its
sole discretion, may deem to be relevant. Following the lock-up period, these
shares will not be eligible for sale in the public market without registration
under the Securities Act unless such sale meets the conditions and restrictions
of Rule 144.
In addition, we have agreed that for a period of 180 days after the date of
this prospectus, we will not sell or offer to sell or otherwise dispose of any
shares of common stock without the prior written consent of Bear, Stearns & Co.
Inc., except that we may issue, and grant options to purchase, shares of common
stock under our stock option and employee stock purchase plans. During this
lock-up period, we may also issue additional warrants to acquire common stock
in connection with the execution of additional license agreements and
additional equity securities to pay for possible acquisitions, so long as the
recipients of such securities are also subject to the 180 day lock-up period
and the total amount of such securities does not exceed 20% of the shares of
common stock outstanding upon completion of this offering.
74
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for Cypress by Goodwin, Procter & Hoar llp. Certain legal matters related
to the sale of the common stock offered hereby will be passed upon for the
underwriters by Latham & Watkins, Washington, D.C.
EXPERTS
The financial statements and schedules included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included in reliance upon the authority of said firm as
experts in giving said reports.
ADDITIONAL INFORMATION
In 1997 we decided to retain Arthur Andersen LLP as our independent public
accountants and dismissed our former auditors. The former auditors' report on
our financial statements for the period from inception (August 16, 1995) to
December 31, 1995 and for the year ended December 31, 1996 does not cover our
financial statements included in this prospectus. Such report did not contain
an adverse opinion or disclaimer of opinion and was not modified as to
uncertainty, audit scope or accounting principles. There were no disagreements
with the former auditors on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure at the time of
the change or with respect to our financial statements for 1995 and 1996,
which, if not resolved to the former auditors' satisfaction, would have caused
them to make reference to the subject matter of the disagreement in connection
with their report. Prior to retaining Arthur Andersen LLP, we had not consulted
with Arthur Andersen LLP regarding accounting principles.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed a registration statement on Form S-1 with the SEC for the
common stock we are offering by this prospectus. This prospectus does not
include all of the information contained in the registration statement. You
should refer to the registration statement and its exhibits for additional
information. Whenever we make reference in this prospectus to any of our
contracts, agreements or other documents, you should refer to the exhibits
attached to the registration statement for copies of the actual contract,
agreement or other document. When we complete this offering, we will also be
required to file annual, quarterly and special reports, proxy statements and
other information with the SEC. We intend to furnish to our stockholders annual
reports containing audited financial statements for each fiscal year.
You can read our SEC filings, including the registration statement, over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document we file with the SEC at its public reference facilities at
450 Fifth Street, NW, Washington, DC 20549; 7 World Trade Center, Suite 1300,
New York, New York 10048; and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. You may also obtain copies of the documents
at prescribed rates by writing to the Public Reference Section of the SEC at
450 Fifth Street, NW, Washington, DC 20549. Please call the SEC at 1-800-SEC-
0330 for further information on the operation of the public reference
facilities. Our SEC filings are also available at the office of the Nasdaq
National Market. For further information on obtaining copies of our public
filings at the Nasdaq National Market you should call (212) 656-5060.
75
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Cypress Communications, Inc. and Cypress Communications, L.L.C.
Report of Independent Public Accountants................................. F-2
Balance Sheets--December 31, 1997 and 1998 and September 30, 1999
(Unaudited)............................................................. F-3
Statements of Operations for the Year Ended December 31, 1996, the 6 1/2
Months Ended July 15, 1997, the 5 1/2 Months Ended December 31, 1997,
the Year Ended December 31, 1998, and the Nine Months Ended September
30, 1998 and 1999 (Unaudited)........................................... F-4
Statements of Members' Equity for the Year Ended December 31, 1996 and
the 6 1/2 Months Ended July 15, 1997 and Statements of Stockholders'
Equity (Deficit) for the 5 1/2 Months Ended December 31, 1997 and the
Year Ended December 31, 1998............................................ F-5
Statements of Cash Flows for the Year Ended December 31, 1996, the 6 1/2
Months Ended July 15, 1997, the 5 1/2 Months Ended December 31, 1997,
the Year Ended December 31, 1998, and the Nine Months Ended September
30, 1998 and 1999 (Unaudited)........................................... F-6
Notes to Financial Statements............................................ F-7
MTS Communications Company, Inc.
Report of Independent Public Accountants................................. F-22
Statements of Operations for the Year Ended December 31, 1997 and for the
Period From January 1, 1998 through December 7, 1998.................... F-23
Statements of Stockholders' Equity (Deficit) for the year ended December
31, 1997 and the Period from January 1, 1998 through December 7, 1998... F-24
Statements of Cash Flows for the Year Ended December 31, 1997 and for the
Period from January 1, 1998 through December 7, 1998.................... F-25
Notes to Financial Statements............................................ F-26
Pro Forma Financial Statements
Statement of Operations for the Year Ended December 31, 1998............. F-30
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
After the 4.5 for 1 stock split of the outstanding shares of common stock
discussed in Note 10 to Cypress Communications, Inc.'s financial statements is
effected, we expect to be in a position to render the following audit report.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
November 24, 1999
To Cypress Communications, Inc.:
We have audited the accompanying balance sheets of CYPRESS COMMUNICATIONS,
INC. (a Delaware corporation and Successor Company to Cypress Communications,
L.L.C.) as of December 31, 1997 and 1998 and the related statements of
operations, changes in stockholders' equity (deficit), and cash flows for the 5
1/2 months ended December 31, 1997 and the year ended December 31, 1998. We
have also audited the statements of operations, changes in members' equity, and
cash flows of CYPRESS COMMUNICATIONS L.L.C. (a Delaware corporation and
Predecessor Company) for the year ended December 31, 1996 and the 6 1/2 months
ended July 15, 1997. These financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cypress Communications,
Inc. as of December 31, 1997 and 1998 and the results of its operations and its
cash flows for the 5 1/2 months ended December 31, 1997 and for the year ended
December 31, 1998 and the results of operations and cash flows of Cypress
Communications, L.L.C. for the year ended December 31, 1996 and the 6 1/2
months ended July 15, 1997 in conformity with generally accepted accounting
principles.
F-2
<PAGE>
CYPRESS COMMUNICATIONS, INC.
(Successor Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------ September 30,
1997 1998 1999
----------- ----------- -------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............ $ 3,671,065 $11,057,696 $ 3,378
Accounts receivable, net
of allowance for
doubtful accounts of
$9,945, $79,520, and
$212,985 in 1997, 1998,
and 1999 respectively.. 203,168 1,119,784 1,818,483
Note receivable......... 0 200,000 0
Prepaid expenses and
other.................. 44,423 26,238 174,994
----------- ----------- ------------
Total current assets... 3,918,656 12,403,718 1,996,855
----------- ----------- ------------
Property and equipment,
net..................... 1,609,791 6,291,413 11,645,639
----------- ----------- ------------
Other assets:
Cost in excess of net
assets acquired, net of
accumulated
amortization of
$166,306, $499,629, and
$755,455 in 1997, 1998,
and 1999,
respectively........... 1,496,758 1,248,283 992,457
Tenant contracts, net of
accumulated
amortization of $11,944
and $119,444 in 1998
and 1999,
respectively........... 0 418,056 310,556
Long-term investment.... 120,000 120,000 100,600
Other................... 0 89,777 150,514
----------- ----------- ------------
Total other assets..... 1,616,758 1,876,116 1,554,127
----------- ----------- ------------
Total assets........... $ 7,145,205 $20,571,247 $ 15,196,621
=========== =========== ============
<CAPTION>
Pro Forma
September 30,
1999
(Note 10)
-------------
(unaudited)
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable........ $ 255,012 $ 381,032 $ 1,807,248
Accrued expenses........ 254,160 1,272,685 2,144,348
Current portion of
capital lease
obligations............ 24,826 192,635 223,001
----------- ----------- ------------
Total current
liabilities........... 533,998 1,846,352 4,174,597
Long-term portion of
capital lease
obligations............. 60,811 522,583 334,700
----------- ----------- ------------
Total liabilities...... 594,809 2,368,935 4,509,297
----------- ----------- ------------
Convertible redeemable
preferred stock (Note
5):
$.001 par value;
1,200,140 shares
designated Series A in
1997, 1,211,140 shares
designated Series A in
1998 and 1999, and 0
shares designated
Series A in pro forma
1999; 1,200,140,
1,211,140, 1,211,140,
and 0 shares issued and
outstanding in 1997,
1998, 1999, and pro
forma 1999,
respectively; entitled
to redemption value of
$5 per share........... 5,977,480 6,036,670 6,039,809 $ 0
$.001 par value; 0,
1,912,813, 1,919,188,
and 0 shares designated
Series B in 1997, 1998,
1999, and pro forma
1999, respectively; 0,
1,333,200, 1,339,575,
and 0 shares issued and
outstanding in 1997,
1998, 1999, and pro
forma 1999,
respectively; entitled
to redemption value of
$8 per share........... 0 10,650,328 10,704,559 0
$.001 par value; 0,
579,613, 579,613, and 0
shares designated
Series B-1 in 1997,
1998, 1999, and pro
forma 1999,
respectively; 0,
579,613, 579,613, and 0
shares issued and
outstanding in 1997,
1998, 1999, and pro
forma 1999,
respectively; entitled
to redemption value of
$8 per share........... 0 4,630,265 4,631,669 0
----------- ----------- ------------ ------------
Total preferred stock.. 5,977,480 21,317,263 21,376,037 0
----------- ----------- ------------ ------------
Commitments and
contingencies (Note 7)
Stockholders' equity
(deficit):
Common stock, $.001 par
value; 5,023,467 shares
authorized in 1997,
20,594,088 shares
authorized in 1998,
1999, and pro forma
1999; 2,636,906 shares
issued and outstanding
in 1997, 1998, and
1999, 16,723,382 shares
issued and outstanding
in pro forma 1999...... 2,637 2,637 2,637 167,234
Additional paid-in
capital................ 1,765,299 1,765,299 1,765,299 23,009,906
Accumulated deficit..... (1,195,020) (4,882,887) (12,456,649) (12,489,816)
----------- ----------- ------------ ------------
Total stockholders'
equity (deficit)...... 572,916 (3,114,951) (10,688,713) $ 10,687,324
----------- ----------- ------------ ------------
Total liabilities and
stockholders' equity
(deficit)............. $ 7,145,205 $20,571,247 $ 15,196,621
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
CYPRESS COMMUNICATIONS, INC.
(Successor Company)
AND
CYPRESS COMMUNICATIONS, L.L.C.
(Predecessor Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Predecessor Company Successor Company
-------------------------- ----------------------------------------------------
6 1/2 Months 5 1/2 Months Nine Months Ended
Year Ended Ended Ended Year Ended September 30,
December 31, July 15, December 31, December 31, ------------------------
1996 1997 1997 1998 1998 1999
------------ --------- ------------ ------------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues....................................... $ 83,556 $ 248,235 $ 461,167 $ 2,417,816 $ 1,428,497 $ 5,227,727
Operating expenses:
Cost of services.............................. 131,771 221,596 381,518 1,539,846 944,760 3,248,377
Sales and marketing........................... 12,189 122,055 326,861 1,470,107 1,075,039 2,466,844
General and administrative.................... 640,704 255,175 567,748 2,436,221 1,597,974 5,604,135
Depreciation and amortization................. 53,808 66,217 288,737 891,788 587,800 1,650,253
--------- --------- ----------- ----------- ----------- -----------
Total operating expenses...................... 838,472 665,043 1,564,864 6,337,962 4,205,573 12,969,609
--------- --------- ----------- ----------- ----------- -----------
Operating loss................................. (754,916) (416,808) (1,103,697) (3,920,146) (2,777,076) (7,741,882)
Interest income, net........................... 13,939 6,253 107,669 232,279 66,911 168,120
--------- --------- ----------- ----------- ----------- -----------
Loss before income taxes....................... (740,977) (410,555) (996,028) (3,687,867) (2,710,165) (7,573,762)
Income tax benefit............................. 0 0 59,252 0 0 0
--------- --------- ----------- ----------- ----------- -----------
Net loss....................................... $(740,977) $(410,555) $ (936,776) $(3,687,867) $(2,710,165) $(7,573,762)
========= ========= =========== =========== =========== ===========
Net loss per common share (Note 10):
Basic and diluted............................. $ (.36) $ (1.40) $ (1.03) $ (2.87)
=========== =========== =========== ===========
Weighted average number of common shares
outstanding:
Basic and diluted............................. 2,636,906 2,636,906 2,636,906 2,636,906
- --------------------------------------------------
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
CYPRESS COMMUNICATIONS, INC.
(Successor Company)
AND
CYPRESS COMMUNICATIONS, L.L.C.
(Predecessor Company)
STATEMENTS OF MEMBERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE 6 1/2 MONTHS ENDED JULY 15, 1997
AND
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE 5 1/2 MONTHS ENDED DECEMBER 31, 1997 AND
THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Contributed
Members' Shares or
or Common Stock Treasury Shares Additional
---------------- --------------- Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit Total
--------- ------ ------ -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY:
Balance, December 31,
1995................... 100,000 $ 0 0 $ 0 $ 94,400 $ (117,780) $ (23,380)
Capital contributions.. 291,290 0 0 0 1,582,569 0 1,582,569
Issuance of shares for
employee services..... 9,141 0 0 0 54,847 0 54,847
Forgiveness of debt by
related party......... 0 0 0 0 155,697 0 155,697
Net loss............... 0 0 0 0 0 (740,977) (740,977)
--------- ------ ------ -------- ----------- ----------- -----------
Balance, December 31,
1996................... 400,431 0 0 0 1,887,513 (858,757) 1,028,756
Issuance of member
shares................ 41,667 0 0 0 250,000 0 250,000
Repurchase of member
shares................ 0 0 11,904 (71,421) 0 0 (71,421)
Net loss............... 0 0 0 0 0 (410,555) (410,555)
--------- ------ ------ -------- ----------- ----------- -----------
Balance, July 15, 1997.. 442,098 $ 0 11,904 $(71,421) $ 2,137,513 $(1,269,312) $ 796,780
========= ====== ====== ======== =========== =========== ===========
- --------------------------------------------------------------------------------
SUCCESSOR COMPANY:
Acquisition of
Predecessor
Company (Note 1)...... 2,636,906 2,637 0 $ 0 $ 1,765,299 $ (258,244) $ 1,509,692
Net loss............... 0 0 0 0 0 (936,776) (936,776)
--------- ------ ------ -------- ----------- ----------- -----------
Balance, December 31,
1997................... 2,636,906 2,637 0 0 1,765,299 (1,195,020) 572,916
Net loss............... 0 0 0 0 0 (3,687,867) (3,687,867)
--------- ------ ------ -------- ----------- ----------- -----------
Balance, December 31,
1998................... 2,636,906 $2,637 0 $ 0 $1,765,299 $(4,882,887) $(3,114,951)
========= ====== ====== ======== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
CYPRESS COMMUNICATIONS, INC.
(Successor Company)
AND
CYPRESS COMMUNICATIONS, L.L.C.
(Predecessor Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Predecessor
Company Successor Company
---------------------- -----------------------------------------------------
6 1/2
Months 5 1/2 Months Nine Months Ended
Year Ended Ended Ended Year Ended September 30,
December 31, July 15, December 31, December 31, -------------------------
1996 1997 1997 1998 1998 1999
------------ --------- ------------ ------------ ----------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss.............. $ (740,977) $(410,555) $ (936,776) $(3,687,867) $(2,710,165) $ (7,573,762)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization......... 53,808 66,217 288,737 891,788 587,800 1,650,253
Deferred income
taxes................ 0 0 (59,252) 0 0 0
Other................. 0 0 1,920 5,737 3,141 7,774
Changes in operating
assets and
liabilities:
Accounts receivable,
net.................. (34,249) (97,997) (70,922) (916,616) (445,909) (698,699)
Prepaid expenses and
other current
assets............... (6,776) (6,186) (25,960) 18,185 21,344 (148,756)
Other assets.......... 0 0 0 (89,777) (81,251) (60,737)
Accounts payable and
accrued expenses..... 89,487 211,996 224,931 863,645 653,667 1,048,801
---------- --------- ----------- ----------- ----------- ------------
Net cash used in
operating
activities......... (638,707) (236,525) (577,322) (2,914,905) (1,971,373) (5,775,126)
---------- --------- ----------- ----------- ----------- ------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchases of property
and equipment........ (518,638) (352,359) (838,364) (2,887,243) (1,691,993) (5,392,075)
Purchase of assets of
MTS Communications... 0 0 0 (1,904,398) 0 0
(Advance to) repayment
from MTS
Communications....... 0 0 0 (200,000) 0 200,000
(Purchase) sale of
investment, net...... (120,000) 0 0 0 0 19,400
Purchase of
Predecessor Company.. 0 0 (900,902) 0 0 0
---------- --------- ----------- ----------- ----------- ------------
Net cash used in
investing
activities......... (638,638) (352,359) (1,739,266) (4,991,641) (1,691,993) (5,172,675)
---------- --------- ----------- ----------- ----------- ------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance
of Series A preferred
stock, net of
offering expenses.... 0 0 5,975,560 55,000 55,000 0
Proceeds from issuance
of Series B and B-1
preferred stock, net
of offering
expenses............. 0 0 0 15,279,046 15,000,000 51,000
Principal payments on
capital lease
obligations.......... (16,291) (12,600) (12,728) (40,869) (19,724) (157,517)
Proceeds from sale of
member shares........ 0 250,000 0 0 0 0
Repurchase of member
shares............... 0 (71,421) 0 0 0 0
Borrowings under line
of credit............ 0 0 0 500,000 500,000 0
Repayments of line of
credit............... 0 0 0 (500,000) 0 0
Proceeds from capital
contributions........ 1,582,569 0 0 0 0 0
Proceeds from related
party borrowing...... 155,697 0 0 0 0 0
---------- --------- ----------- ----------- ----------- ------------
Net cash provided by
financing
activities......... 1,721,975 165,979 5,962,832 15,293,177 15,535,276 (106,517)
---------- --------- ----------- ----------- ----------- ------------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS........... 444,630 (422,905) 3,646,244 7,386,631 11,871,910 (11,054,318)
CASH AND CASH
EQUIVALENTS, beginning
of period............. 3,096 447,726 24,821 3,671,065 3,671,065 11,057,696
---------- --------- ----------- ----------- ----------- ------------
CASH AND CASH
EQUIVALENTS, end of
period................ $ 447,726 $ 24,821 $ 3,671,065 $11,057,696 $15,542,975 $ 3,378
---------- --------- ----------- ----------- ----------- ------------
SUPPLEMENTAL
DISCLOSURES:
Cash paid for
interest............. $ 3,669 $ 2,581 $ 2,031 $ 12,563 $ 5,710 $ 11,924
========== ========= =========== =========== =========== ============
Conversion of related
party borrowing to
equity............... $ 155,697 $ 0 $ 0 $ 0 $ 0 $ 0
========== ========= =========== =========== =========== ============
Common stock issued in
connection with
predecessor company
acquisition.......... $ 0 $ 0 $ 1,257,936 $ 0 $ 0 $ 0
========== ========= =========== =========== =========== ============
Assets acquired under
capital leases....... $ 127,256 $ 0 $ 0 $ 670,450 $ 0 $ 0
========== ========= =========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
CYPRESS COMMUNICATIONS, INC.
(Successor Company)
AND
CYPRESS COMMUNICATIONS, L.L.C.
(Predecessor Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, JULY 15, 1997, DECEMBER 31, 1997 AND 1998
AND SEPTEMBER 30, 1998 AND 1999 (UNAUDITED)
1. ORGANIZATION AND NATURE OF BUSINESS
Cypress Communications, Inc. (the "Company" or "Successor Company") was
incorporated July 15, 1997 under the laws of Delaware. The Company was
formed to affect the acquisition of Cypress Communications, L.L.C. (the
"Predecessor Company"). The Company provides building-centric
communications services and equipment to tenants of office buildings. The
Company currently serves tenants in Georgia, Massachusetts, Illinois,
Texas, Colorado, Washington, D.C., Florida, Louisiana, and California.
Cypress Communications, L.L.C. was incorporated August 16, 1995 as a
limited liability company under the laws of Georgia. Prior to 1996, the
Predecessor Company was a development-stage enterprise.
As part of an agreement with an investor in the Predecessor Company (Note
4), the Predecessor Company was required to change its legal entity status
from a limited liability company to a C corporation in order to obtain
additional financing from the investor. To effect this change in legal
entity status, on July 15, 1997, Cypress Communications, L.L.C. was merged
into Cypress Communications, Inc. and ceased to exist as a legal entity
(the "Acquisition").
The Acquisition was completed concurrent with investments in the Successor
Company that resulted in a change in control. Immediately prior to the
acquisition, one stockholder of the Successor Company owned 19.37% of the
Predecessor Company and, concurrently, had voting control of the Successor
Company. The portion of the Predecessor Company owned by the controlling
stockholder of the Successor Company at the time of the Acquisition was
recorded at that stockholder's historical cost ("Predecessor Basis"); the
remaining 80.63% interest in the Predecessor Company was recorded at
estimated fair value.
The Company purchased the 80.63% interest of Cypress Communications, L.L.C.
as follows: exchanged 1,886,904 shares of the Company's common stock for
209,656 member shares of the Predecessor Company, purchased 137,205 member
shares of the Predecessor Company for $823,230 in cash and incurred $77,672
in other cash transaction costs. Management estimated the fair value of the
common shares of the Successor Company using a market-based approach that
considered private transactions in the Company's stock. The value per
common share at July 15, 1997, as determined by management, was $.67.
The following table summarizes the net assets purchased by the Company in
connection with its acquisition of the 80.63% of Cypress Communications,
L.L.C. and the amount attributable to cost in excess of net assets
acquired:
F-7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Purchase price................................................... $2,158,838
Net assets....................................................... 583,194
----------
Cost in excess of net assets acquired............................ $1,575,644
==========
</TABLE>
The common stock portion of the acquisition of these assets has been
accounted for as a noncash transaction in the statements of cash flows.
The Company has experienced operating losses since its inception. The Company
expects to continue to focus on increasing its customer base and expanding
its operations. Accordingly, the Company expects that its operating expenses
and capital expenditures will continue to increase significantly, all of
which will have a negative impact on short-term operating results and will
require significant capital. Accordingly, the Company may be required to
raise additional funds through public or private financing or other
arrangements, or it may have to slow its rate of expansion. There can be no
assurance that any required additional funding, if needed, will be available
on terms attractive to the Company or at all, which could have a material
adverse effect on the Company's business, financial condition, cash flows and
results of operations.
Other Risk Factors
The Company faces certain other risk factors including the following: growth
and expansion may strain the Company's resources, dependence on key
personnel, dependence on third-party suppliers of equipment and
communications services, dependence on relationships with certain building
owners and managers, competition from other providers of communications
services, and potential disruption of services due to system failures.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements are presented on the accrual basis of
accounting. As a result of the Acquisition, the capital structure of, and the
basis of accounting for, the Company differs from those of the Predecessor
Company prior to the Acquisition. Financial data of the Company with respect
to all reporting periods subsequent to July 15, 1997 (the "Successor Period")
reflect the Acquisition under the purchase method of accounting. Therefore,
financial data with respect to the Predecessor Company prior to the
Acquisition (the "Predecessor Period") generally will not be comparable to
that of the Company with respect to the items described below. Except as it
relates to the Acquisition, the accounting policies of the Company are
unchanged from those of the Predecessor Company.
The Successor Period includes amortization of cost in excess of net assets
acquired. Also, as a result of purchase accounting, the net book values of
the property and equipment at the date of their acquisition approximated
their fair values and became their new cost bases with respect to the
Company. Accordingly, the depreciation of property and equipment for the
Successor Period is based on the newly established cost bases of these
assets. Additionally, because the Predecessor Company was not separately
taxable for federal or state income tax purposes, the deferred tax
consequences of temporary differences in reporting items for financial
statement and income tax purposes were recognized as part of the acquisition.
F-8
<PAGE>
The statement of operations, stockholders' equity, and cash flows for 1997
are divided between the 6 1/2 months ended July 15, 1997 when the
Predecessor Company held the controlling interest and the 5 1/2 months
ended December 31, 1997 when the Successor Company held the controlling
interest following the transfer of ownership discussed in Note 1.
Interim Information
The balance sheet as of September 30, 1999 and the statements of operations
and cash flows for the nine months ended September 30, 1998 and 1999 are
unaudited and have been prepared by management in accordance with rules and
regulations of the Securities and Exchange Commission. In the opinion of
management, the balance sheet and statements of operations and cash flows
contain all necessary adjustments (consisting of only normal recurring
adjustments) necessary for the fair presentation of the financial position
and results of operations for the interim periods. The results of
operations for the nine months ended September 30, 1999 are not necessarily
indicative of the results to be expected for the entire year.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual amounts could differ from these
estimates and such differences could be material.
Revenue Recognition
The Company's revenues include recurring charges for local access, long-
distance, equipment rental, Internet, voicemail and inbound 800 charges as
well as non-recurring revenues for installations and moves, adds, and
changes charges, all of which are recognized as services are provided. To
date, installation revenues have not exceeded the direct costs of
installation. To date, revenues from moves, adds, and changes have exceeded
the related direct costs by an insignificant amount. All expenses related
to services provided are recognized as incurred.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with an original
maturity of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the
assets (generally three to seven years). Leasehold improvements are
depreciated over the lesser of the average lease term (or the term of the
related license agreement) or the assets' useful lives. Depreciation
expense was $53,808, $66,217, $112,431, and $546,521 for the year ended
December 31, 1996, the 6 1/2 months ended July 15, 1997, the 5 1/2 months
ended December 31, 1997, and the year ended December 31, 1998,
respectively. Maintenance and repairs are charged to expense as incurred.
Gains or losses on disposal of property and equipment are recognized in
operations in the year of disposition. There were no significant gains or
losses in any periods presented.
F-9
<PAGE>
Income Taxes
The Predecessor Company was a limited liability company for federal and
state income tax purposes. The Internal Revenue Code and applicable state
statutes provide that income and expenses are not separately taxable to the
limited liability company but rather accrue directly to the members.
Accordingly, no provision for income taxes has been made in the statements
of operations of the Predecessor Company. For the Successor Company, income
taxes have been provided for using the liability method in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes."
Intangibles
The cost over the fair values of net assets acquired was recorded in
connection with the Company's purchase of Cypress Communications, L.L.C.,
as discussed in Note 1, and the purchase of substantially all of the assets
of MTS Communications Company, Inc. ("MTS Communications") (Note 9). These
costs are being amortized using the straight-line method over five years
and ten years, respectively. Tenant contracts were acquired in the MTS
Communications acquisition and are being amortized using the straight-line
method over three years.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets, including property and equipment
and intangibles, for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset should be assessed. An
impairment will be recognized when the future net cash flows estimated to
be generated by the asset are insufficient to recover the current carrying
value of the asset. Estimates of future cash flows are based on many
factors, including current operating results, expected market trends, and
competitive influences. Management believes that the long-lived assets in
the accompanying financial statements are appropriately valued.
Long-Term Investment
The Company maintains a certificate of deposit, which is pledged under a
letter of credit with a communications equipment supplier. The investment
is classified as held to maturity in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheet approximate the fair
values for cash and capital lease obligations.
In accordance with SFAS No. 107, "Disclosures about Fair Values of
Financial Instruments," the Company has estimated the fair value of the
Series A preferred stock as approximately $3.6 million and $5.8 million at
December 31, 1997 and 1998, respectively. The Company has estimated the
fair value of the Series B and Series B-1 preferred stock as $6.4 million
and $2.8 million, respectively, at December 31, 1998. The fair value of the
preferred stock is based on the estimated fair value of the Company's
common stock and the number of shares of common stock into which the
preferred stock converts.
F-10
<PAGE>
Accrued Expenses
Accrued expenses includes the following at December 31:
<TABLE>
<CAPTION>
1997 1998
-------- ----------
<S> <C> <C>
Property and equipment additions........................ $ 62,965 $ 280,900
Compensation............................................ 96,675 257,838
Taxes................................................... 26,833 171,118
Recurring network costs................................. 3,182 221,912
Contracted support...................................... 44,562 53,286
Other................................................... 19,943 287,631
-------- ----------
$254,160 $1,272,685
======== ==========
</TABLE>
Net Loss Per Common Share
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 98, for the periods prior to the Company's anticipated initial public
offering (Note 10), basic net loss per share is computed using the weighted
average number of shares of common stock outstanding during the period.
Diluted net loss per share is computed using the weighted average number of
shares of common stock outstanding during the period and nominal issuances
of common stock and common stock equivalents, regardless of whether they
are antidilutive, as well as the potential dilution of common stock
equivalents, if dilutive.
The Company has not issued common stock or common stock equivalents for
consideration that management considers nominal. Additionally, potential
common stock equivalents are excluded from the calculation of diluted net
loss per share, as their effect is antidilutive. As such, diluted net loss
per share is the same as basic net loss per share for all periods
presented. Convertible redeemable preferred stock was outstanding at
December 31, 1997 and 1998 and September 30, 1998 and 1999. These
securities were not considered in the computation of net loss per share as
the conversion is dependent upon a qualifying public offering, as defined
in the preferred stock sale agreements. Net loss per share is not shown for
the Predecessor Company, as it is not comparable.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
System infrastructure................................ $1,067,573 $4,650,955
System equipment..................................... 414,634 1,583,018
Computer and office equipment........................ 144,405 495,737
Leasehold improvements............................... 95,610 220,655
---------- ----------
1,722,222 6,950,365
Less accumulated depreciation and amortization....... (112,431) (658,952)
---------- ----------
$1,609,791 $6,291,413
========== ==========
</TABLE>
4. CAPITAL TRANSACTIONS
Predecessor Company Amendments to Operating Agreements
The Predecessor Company amended its operating agreements on four occasions
between February 1996 and February 1997. The primary purpose of these
amendments was to adjust the
F-11
<PAGE>
Predecessor Company's ownership to reflect additional capital investments.
Significant changes to the original operating agreements included the
authorization for issuance of 5,000,000 shares of the Predecessor Company's
shares and the redefining of initial ownership. Ownership had initially
been defined as a percentage of interest in the Predecessor Company; the
second amendment to the operating agreements required the issuance of
100,000 shares that were allocated to the initial owners in proportion to
their ownership. All references to shares of the Predecessor Company have
been restated to give effect to the amendments of the operating agreements.
Predecessor Company Capital Contributions
In 1996, the Predecessor Company issued a total of 300,431 shares for
capital contributions totaling $1,793,113, including cash investments of
$1,582,569, debt forgiveness of $155,697, and employee services valued at
$54,847. The fair value of the shares issued for employee services were
recorded as compensation expense at the date of issuance.
Of the cash investments made during 1996, the Predecessor Company issued
83,333 shares to an investment company for $500,000. Under the terms of
this investment agreement, the Predecessor Company was required to first
offer any additional capital financing terms to this investor until total
capital contributions by this investor exceeded $3.5 million. In the event
the investor exercised its rights to purchase additional shares as offered
by the Predecessor Company, the Predecessor Company was required to change
its legal organization to a C corporation.
In anticipation of the above mentioned investors' participation in the
financing represented by the issuance of the Successor Company's Series A
preferred stock (Note 5), the Acquisition described in Note 1 was effected
to satisfy the requirement to change to a C corporation.
In February 1997, the Predecessor Company issued 41,667 shares to an
investment company for $250,000.
Predecessor Company Treasury Stock Transactions
In February 1997, the Predecessor Company repurchased 11,904 shares
outstanding for $71,421 in cash.
Stock Option Plans
In February 1996, the Predecessor Company adopted the 1996 Share Incentive
Plan (the "Predecessor Plan"). The Predecessor Plan was intended to provide
incentives to officers and key employees of the Predecessor Company. At
July 15, 1997, the Predecessor Company had options for 20,000 shares
outstanding with exercise prices of $5 to $6 per share based on the
estimated fair market value at dates of grant. These options were converted
pro rata into options, with identical terms, on the Company's common stock.
In July 1997, the 1997 Management Option Plan (the "1997 Option Plan") was
adopted by the Company. The 1997 Option Plan provides for the granting of
either incentive stock options or nonqualified stock options to purchase
shares of the Company's common stock to officers, directors, and key
employees responsible for the direction and management of the Company. The
options expire ten years after the date of grant and vest 20% upon the
first anniversary of the date of grant and 5% each subsequent quarter
measured from the first anniversary of the date
F-12
<PAGE>
of grant. At December 31, 1997 and 1998, 1,004,693 and 3,899,385 shares,
respectively, of common stock were reserved for issuance under the 1997
Option Plan.
Statement of Financial Accounting Standards No. 123
A summary of the changes in the option plans is as follows:
<TABLE>
<CAPTION>
Weighted
Weighted Average
Average Exercise
Shares Price
--------- --------
<S> <C> <C>
Balance at inception, February 1996...................... -- $ --
Granted................................................ 25,000 5.40
---------
Balance at December 31, 1996............................. 25,000 5.40
Forfeited.............................................. (5,000) 5.00
---------
Balance at July 15, 1997................................. 20,000 5.50
=========
------------------------------------------------------------------------
Conversion of Predecessor Company options................ 180,000 .61
Granted................................................ 1,536,345 .67
---------
Balance at December 31, 1997............................. 1,716,345 .66
Granted................................................ 1,087,875 1.00
Forfeited.............................................. (76,500) 1.07
---------
Balance at December 31, 1998............................. 2,727,720 .78
=========
</TABLE>
The following table summarizes information about the stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Number of Weighted
Options Average Weighted Exercisable
Outstanding at Remaining Average As of
Exercise December 31, Contractual Exercise December
Price 1998 Life Price 1998
------------- -------------- ----------- -------- -----------
<S> <C> <C> <C> <C>
$.56 90,000 7.25 years $ .56 48,920
$.67 1,815,345 8.63 years $ .67 465,219
$1.07 822,375 9.81 years $1.07 0
--------- -------
$.56 to $1.07 2,727,720 8.95 years $0.78 514,139
========= =======
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its option plans. Had compensation cost
for the Company's stock-based compensation plans been determined consistent
with SFAS No. 123, the Company's net loss would have been the pro forma
amount indicated below. The pro forma net loss is calculated using the
Black-Scholes option pricing model, with the following assumptions: risk-
free interest rates of 5.28% for 1998, from 5.82% to 6.19% for 1997 and
6.09% to 6.19% for 1996, expected life of six years, dividend yield of 0%,
and expected volatility of 0%. The weighted average fair value of options
granted during the year ended December 31, 1996, the 5 1/2 months ended
December 31, 1997, and the year ended December 31, 1998 was $.33, $.18 and
$.26 per option, respectively. No options were granted during the 6 1/2
months ended July 15, 1997.
F-13
<PAGE>
<TABLE>
<CAPTION>
Year Ended 6 1/2 Months Ended 5 1/2 Months Ended Year Ended
December 31, July 15, December 31, December 31,
1996 1997 1997 1998
------------ ------------------ ------------------ ------------
<S> <C> <C> <C> <C>
Net loss, as
reported............. $(740,977) $(410,555) $(936,776) $(3,687,867)
Net loss, pro forma... $(745,477) $(416,175) $(986,499) $(3,736,369)
Net loss per common
share, as reported... $ (.36) $ (1.40)
Net loss per common
share, pro forma..... $ (.37) $ (1.42)
</TABLE>
Amendment to Certificate of Incorporation
In September 1998, the Company filed an amended and restated certificate of
incorporation (the "Certificate") which, among other things, increased the
total number of authorized common stock and preferred stock to 20,594,088 and
3,703,566, respectively. Additionally, the Certificate amended the terms of
the existing Series A preferred stock (Note 5) and increased the number of
shares of preferred stock designated as Series A to 1,211,140. See Note 10
where further changes to the Company's capital structure subsequent to
December 31, 1998 are discussed.
Stock Split
In May 1998, the Company's board of directors and the majority stockholders
approved a 2-for-1 stock split (the "Split") with respect to each outstanding
share of common stock and Series A preferred stock. The Split was effected in
the form of a stock dividend that was paid in September 1998. All references
to share amounts for the Successor Company have been restated to reflect the
Split on a retroactive basis. See note 10 regarding an additional stock
split.
5. CONVERTIBLE REDEEMABLE PREFERRED STOCK
On July 15, 1997, the Company authorized and issued 1,200,140 shares of
convertible and mandatorily redeemable preferred stock, designated as Series
A, for $5 per share. On September 30, 1998, the Company issued 1,333,200 and
579,613 shares of convertible and mandatorily redeemable preferred stock,
designated as Series B and Series B-1, respectively, for $8 per share. These
shares are entitled to 4.5 votes per share on all matters upon which common
stockholders are entitled to vote, except for the Series B-1 shares which do
not have any voting rights. In October 1999, in connection with the second
amended and restated stockholders' agreement, certain terms of the Series A,
Series B, and Series B-1 preferred stock (the "Preferred Stock") were
changed.
The Series A and Series B and B-1 preferred stock has a redemption price of
$5 and $8 per share, respectively, together with accrued and unpaid dividends
thereon. Redemption is mandatory beginning October 8, 2005, at which time up
to one-third of the outstanding shares may be redeemed on October 8, 2005,
October 8, 2006, and October 8, 2007. In the event of any liquidation,
dissolution, or winding up of the affairs of the Company, holders of Series B
and Series B-1 preferred stock shall be paid the redemption price, plus all
accrued dividends, before any payment to other stockholders. In the event of
any liquidation, dissolution, or winding up of the affairs of the Company,
holders of Series A preferred stock shall be paid the redemption price, plus
all accrued dividends, before any payment to other stockholders, exclusive of
any payments to be made to holders of Series B and Series B-1 preferred
stock. The Preferred Stock is convertible into common stock at the discretion
of the holder and automatically converts into common stock upon the
completion of an initial public offering of the Company's common stock with
proceeds in excess of $50,000,000 and an adjusted per share
F-14
<PAGE>
price of at least $8.44. Under these conversion terms, the Preferred Stock
converts 4.5 for 1 into common stock. The holders of the Preferred Stock
are entitled to receive dividends, out of the unreserved and unrestricted
surplus or net profits of the Company, as declared by the board of
directors. No such dividends have been declared as of December 31, 1998.
The Company is accreting the issuance costs of the Preferred Stock, which
is the difference between the redemption price and the face value of the
shares, over the period from the date of sale to the initial redemption
date. Such amount was $1,920 and $5,737 for the 5 1/2 months ended December
31, 1997 and the year ended December 31, 1998, respectively, and is
included in interest expense in the accompanying statements of operations.
6.RELATED-PARTY TRANSACTIONS
The Predecessor Company received advances totaling $155,697 during 1996
from a company which had the same ownership as the Predecessor Company. In
March of 1996, the Predecessor Company was relieved of its obligation to
repay these amounts and these advances were recorded as capital
contributions.
A portion of the proceeds from the Predecessor Company's sale of member
shares was received from officers, directors, or other parties related to
the Predecessor Company. A portion of the cost of the Predecessor Company's
purchase of member shares was paid to officers, directors, or other parties
related to the Predecessor Company.
A portion of the proceeds from the Company's sale of Series A, Series B,
and Series B-1 preferred stock (Note 5) was received from officers,
directors, or other parties related to the Company. The sales were
conducted concurrently with and on the same terms as those entered into
with unrelated parties.
7.COMMITMENTS AND CONTINGENCIES
Leases
The Company is obligated under several operating and capital lease
agreements, primarily for office space and equipment. Future annual minimum
rental payments under these leases as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Operating Capital
---------- --------
<S> <C> <C>
1999................................................... $ 385,178 $283,923
2000................................................... 396,197 261,784
2001................................................... 411,123 181,345
2002................................................... 411,123 109,003
2003................................................... 404,939 28,186
Thereafter............................................. 558,058 0
---------- --------
$2,566,618 $864,241
==========
Less amount representing interest and taxes............ $149,023
--------
Present value of future minimum capital lease
payments.............................................. 715,218
Less current portion................................... 192,635
--------
Long-term portion...................................... $522,583
========
</TABLE>
F-15
<PAGE>
Rental expense was $35,270 for the year ended December 31, 1996, $22,219
for the 6 1/2 months ended July 15, 1997, $32,685 for the 5 1/2 months
ended December 31, 1997, and $159,236 for the year ended December 31, 1998.
In November 1999, the Company entered into an agreement to lease additional
office space for seven years at a minimum of $250,000 (unaudited) per year.
Commission Obligation
The Company has entered into license agreements with the owners and/or
management companies of several office buildings whereby the Company has
the right to provide enhanced, integrated communications services. Under
the terms of the agreements, the Company is generally obligated to pay a
commission based on the greater of a base fee or a percentage of revenue
earned in the related building or development. At December 31, 1998 and
September 30, 1999, the Company's minimum obligation under these agreements
is $62,500 and $125,000 (unaudited), respectively, per year for the next
seven years.
Purchase Obligation
At December 31, 1998, the Company has contracted with a communications
service provider to purchase a minimum of $50,000 of service per month
through September 2000.
At December 31, 1998, the Company has contracted with a communications
service provider to purchase a minimum of $12,000 of service per month
through July 15, 2000 and $11,000 per month through August 31, 2002.
During November 1999, the Company entered into an agreement with a
communications service provider to purchase a minimum of $50,000
(unaudited) of service per month for the next two years.
Line of Credit
The Company entered into an agreement with Silicon Valley Bank ("Silicon")
on September 1, 1998 for a credit line totaling $500,000 bearing interest
at Silicon's prime rate plus 1.25%. The total amount was borrowed and
subsequently repaid prior to December 31, 1998. The agreement expired on
April 22, 1999. Borrowings were secured by a security interest in certain
of the Company's assets.
Employee Benefit Plan
In 1997, the Company adopted a 401(k) defined contribution plan.
Participants may elect to defer 15% of compensation up to a maximum amount
determined annually pursuant to Internal Revenue Service regulations.
Legal Proceedings
The Company is subject to legal proceedings and claims that arise in the
ordinary course of business. There are no pending legal proceedings to
which the Company is a party that management believes will have a material
adverse effect on the financial position, results of operations, or cash
flows of the Company.
F-16
<PAGE>
8. INCOME TAXES
On July 15, 1997, the Company recorded a deferred tax liability in the
amount of $73,487 which represents the Predecessor Company's tax
consequences of temporary differences in reporting items for financial
statement and income tax purposes at the time of the Acquisition (Note 1).
In accordance with SFAS No. 109, the portion of this deferred tax liability
attributable to the ownership interest carried at Predecessor Basis was
recognized as income tax expense; the remainder was treated as having been
assumed and was included in the net assets acquired.
The income tax effects of temporary differences between the carrying amount
of assets and liabilities in the financial statements and their respective
income tax bases, which give rise to deferred tax assets and liabilities,
as of December 31 are as follows:
<TABLE>
<CAPTION>
1997 1998
-------- ----------
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforwards...................... $448,025 $1,737,863
Allowance for doubtful accounts....................... 3,779 30,218
Other................................................. 3,800 14,358
-------- ----------
Total deferred income tax assets..................... 455,604 1,782,439
Deferred income tax liabilities:
Depreciation.......................................... (144,838) (191,419)
Valuation allowance.................................... (310,766) (1,591,020)
-------- ----------
Net deferred income taxes............................. $ -- $ --
======== ==========
</TABLE>
The Company has provided a valuation allowance against its net deferred tax
assets, as management has concluded that it is not more likely than not
that such assets will be realized. The Company had approximately $4.6
million of federal and state net operating loss carryforwards at December
31, 1998. The net operating loss carryforwards begin to expire in the year
2017 if not previously utilized. Utilization of existing net operating loss
carryforwards may be limited in future years if significant ownership
changes were to occur.
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
5
1/2 Months Ended Year Ended
December 31, December
1997 31, 1998
---------------- -----------
<S> <C> <C>
Current........................................ $ -- $ --
Deferred....................................... (370,018) (1,280,254)
Increase in valuation allowance................ 310,766 1,280,254
--------- -----------
Total income tax benefit...................... $ (59,252) $ --
========= ===========
</TABLE>
The differences between the federal statutory income tax rate and the
Company's effective rate are as follows:
<TABLE>
<CAPTION>
5 1/2 Months Ended Year Ended
December 31, December 31,
1997 1998
------------------- ------------
<S> <C> <C>
Federal statutory rate.................... (34)% (34)%
State income taxes, net of federal
benefit.................................. (3) (4)
Permanent differences..................... 5 3
Acquisition of predecessor interest....... 1 --
Increase in valuation allowance........... 31 35
--- ---
Effective rate............................ -- % -- %
=== ===
</TABLE>
F-17
<PAGE>
9. ACQUISITIONS
On December 8, 1998, the Company acquired certain assets of MTS
Communications, a provider of building-centric communications services in
California, for total consideration of $2,574,848 consisting of $1,904,398
in cash and the assumption of certain capital lease obligations with a fair
value of $670,450 (the "MTS Acquisition"). The acquisition was accounted
for as a purchase and the results of operations of MTS Communications have
been included since the date of acquisition in the accompanying statements
of operations. The purchase price was allocated as follows:
<TABLE>
<S> <C>
Property and equipment........................................... $2,060,000
Tenant contracts................................................. 430,000
Cost in excess of net assets acquired............................ 84,848
----------
$2,574,848
==========
</TABLE>
Prior to the MTS Acquisition, the Company advanced $200,000 to MTS
Communications in the form of a secured 8% promissory note to fund working
capital requirements of MTS Communications. The note was due March 8, 1999
and was repaid in full.
As discussed in Note 1, the Company acquired the Predecessor Company on
July 15, 1997. The following unaudited pro forma results of operations for
the year ended December 31, 1997 and 1998 assumes that the acquisition of
the Predecessor Company and the MTS Acquisition occurred on January 1,
1997. The pro forma information is presented for informational purposes
only and may not be indicative of the actual results had the acquisition
occurred on the assumed date, nor is the information necessarily indicative
of future results of operations.
<TABLE>
<CAPTION>
1997 1998
----------- -----------
(unaudited)
<S> <C> <C>
Revenues.......................................... $ 2,325,428 $ 4,485,236
=========== ===========
Net loss.......................................... $(2,040,315) $(4,072,161)
=========== ===========
Net loss per common share......................... $ (.77) $ (1.54)
=========== ===========
</TABLE>
10. EVENTS SUBSEQUENT TO YEAR-END (UNAUDITED)
Changes in Capital Structure
In October 1999, the Company increased the authorized number of shares of
its common stock and preferred stock to 49,023,324 and 7,687,704,
respectively. In October 1999, the Company designated an additional
6,375 shares as Series B preferred stock and designated 3,977,763 shares as
Series C preferred stock. In December 1999, the Company increased the
authorized number of its common stock and preferred stock to 58,620,758 and
7,920,467, respectively. Additionally, in December 1999, the Company
designated an additional 232,763 shares as Series C preferred stock.
The Series C preferred stock has a redemption price of $19 per share,
together with accrued and unpaid dividends thereon. Redemption of the
Series C preferred stock is mandatory beginning October 8, 2005, at which
time up to one-third of the outstanding shares are to be redeemed on each
of the sixth, seventh, and eighth anniversaries of October 8, 1999. In the
event of any liquidation, dissolution, or winding up of the affairs of the
Company, holders of Series C preferred stock shall be paid the redemption
price, plus all accrued dividends, before any
F-18
<PAGE>
payment to other stockholders. The Series C preferred stock is convertible
into common stock at the discretion of the holder. The Series C preferred
stock automatically converts into common stock upon the completion of an
initial public offering of the Company's common stock with proceeds in
excess of $50,000,000 and an adjusted per share price of at least $8.44.
Under these conversion terms, the Series C preferred stock converts 4.5 for
1 into common stock.
Sale of Preferred Stock
In February 1999, the Company sold 6,375 shares of its Series B preferred
stock to two employees of the Company for $8 per share for total proceeds
of $51,000.
In October 1999, the Company completed the sale of 2,819,868 shares of its
Series C preferred stock to existing and new third party investors for $19
per share for total proceeds of approximately $53.6 million.
In November 1999 and December 1999, the Company completed the sale of
1,157,895 and 184,211 shares, respectively, of its Series C preferred stock
to certain property owners and operators for $19 per share for total
proceeds of $25.5 million. In accordance with EITF 98-5, the Company will
record a charge in the quarter ending December 31, 1999 of approximately
$25.5 million to reflect the beneficial conversion feature related to these
shares.
Stock Option Grants
For the period from January 1, 1999 through October 7, 1999, the Company
granted 1,620,000 common stock options to employees with an exercise price
of $1.78 per share. For the period from October 8, 1999 through December 2,
1999, the Company granted 1,791,000 common stock options to employees with
an exercise price of $2.53 per share. For the period from December 3, 1999
through December 31, 1999, the Company granted 90,000 common stock options
to employees with exercise prices which will be equal to the initial public
offering price.
During the year ended December 31, 1999, the Company will record deferred
compensation expense of approximately $12 million for the difference
between the exercise prices of options granted to employees and fair market
value at the dates of grant. Deferred compensation will be amortized over
the applicable vesting period, which is generally five years. The Company
recorded approximately $30,000 of deferred compensation amortization
expense for the nine months ended September 30, 1999, and will record
approximately $250,000 for the quarter ended December 31, 1999.
In December 1999, the Company granted 25,655 options to purchase common
stock, with an exercise price of $2.53 per share, to two consultants for
prior services. The options vested immediately and the consultants
exercised these options prior to December 31, 1999. The Company will record
an expense of approximately $300,000 related to this grant.
Warrants
In November and December 1999, the Company entered into stock warrant
agreements and master license agreements with several property owners and
operators whereby the Company agreed to issue warrants to acquire shares of
the Company's common stock at an exercise price of $4.22 per share. The
number of shares of common stock these property owners and operators will
be entitled to purchase will be determined in accordance with the
provisions of these agreements, up to a maximum of 11,066,472 shares. The
warrants will be issued upon the execution of property-specific license
agreements covering buildings referred to in the master license agreements.
The measurement date for valuing the warrants will be the date(s) on which
F-19
<PAGE>
the property owners or operators effectively complete their performance
requirements. Through January 13, 2000, the Company has signed property-
specific license agreements whereby warrants with an estimated fair value
of approximately $650,000 have been earned of which approximately half was
earned in 1999. Such amounts will be recorded as deferred license
inducement expense.
Accounting for License Inducements
Management estimates that the aggregate amount of license inducements
expense related to current license agreements will approximate $150 million
and will be amortized over approximately 10 years. The actual expense
related to license inducements may differ from management's estimate
depending on the ultimate valuation of the Company's stock and such
difference may be material.
Investment in SiteConnect, Inc.
In November 1999, the Company signed a binding letter of intent (the
"Agreement") to acquire 254,125 shares of common stock, representing less
than 20%, of SiteConnect, Inc. ("SiteConnect"), a Seattle-based provider of
communications services, for consideration of 281,250 shares of the
Company's common stock. The Agreement contains an option for the Company to
purchase the remaining outstanding common stock of SiteConnect for
approximately $5 million. The option is exercisable at any time prior to
the first anniversary of the closing date of the initial investment. The
option is payable in common stock of the Company valued at the per share
price as sold in the Company's proposed initial public offering.
Proposed Initial Public Offering
The Company is in the process of registering shares of its common stock
with the Securities and Exchange Commission. There can be no assurance that
this offering will be completed.
2000 Stock Option Plan
On December 21, 1999, the Company's board of directors adopted the 2000
stock option plan (the "2000 Plan") which was approved subsequently by the
stockholders on December 23, 1999. All officers, directors, and key persons
are eligible to participate in the plan, subject to the discretion of a
committee appointed by the board of directors. The board of directors
reserved a combined 11.7 million shares for issuance under the 1997 Plan
and the 2000 Plan.
Shareholder Rights Plan
In December 1999, the Company approved a stockholder rights plan. This plan
entitles the stockholders to rights to acquire additional shares of the
Company's common stock when a third party acquires 15% of the Company's
common stock or commences or announces its intent to commence a tender
offer for at least 15% of the Company's common stock. This plan could
delay, deter or prevent a change of control.
Employee Stock Purchase Plan
In December 1999, the board of directors and stockholders approved an
employee stock purchase plan. Up to 900,000 shares of common stock may be
issued under this plan.
Stock Split
In January 2000, a committee appointed by the Company's board of directors
approved a preliminary 4.5-for-1 stock split with respect to its
outstanding common stock. This stock split
F-20
<PAGE>
will be effected in the form of a stock dividend and will be made in
connection with the Company's proposed initial public offering. All shares
of common stock and per share amounts in the accompanying financial
statements have been retroactively adjusted to reflect this split.
Pro Forma Stockholders' Equity and Loss Per Share
Simultaneous with the Company's initial public offering and pursuant to the
contractual agreements with the preferred stockholders, all shares of the
Company's Series A, Series B, Series B-1, and Series C preferred stock will
be converted into 14,086,476 shares of common stock. Pro forma
stockholders' equity at September 30, 1999 after giving effect to the
conversion of the Series A, Series B and Series B-1 preferred stock would
be $10,762,324. Had the conversion of the Series A and Series B preferred
stock occurred at the of time of the sale of the preferred stock, net loss
per share would have been $(.36) for the year ended December 31, 1998 and
$(.46) for the nine months ended September 30, 1999.
F-21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To MTS Communications Company, Inc.:
We have audited the accompanying statements of operations of MTS
COMMUNICATIONS COMPANY, INC. (a California S Corporation) for the year ended
December 31, 1997 and for the period from January 1, 1998 to December 7, 1998
and the related statements of stockholders' equity (deficit) and cash flows.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of MTS
Communications Company, Inc. for the year ended December 31, 1997 and for the
period from January 1, 1998 to December 7, 1998 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
November 29, 1999
F-22
<PAGE>
MTS COMMUNICATIONS COMPANY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
January 1,
Year Ended 1998 to
December 31, December
1997 7, 1998
------------ ----------
<S> <C> <C>
OPERATING REVENUES.................................... $1,616,026 $1,933,794
---------- ----------
OPERATING EXPENSES:
Cost of services.................................... 690,631 756,646
Selling and marketing............................... 108,703 103,422
General and administrative.......................... 1,127,314 940,769
Depreciation and amortization....................... 154,187 193,271
---------- ----------
Total operating expenses.......................... 2,080,835 1,994,108
---------- ----------
Operating loss.................................... (464,809) (60,314)
INTEREST EXPENSE, net................................. (63,785) (184,813)
---------- ----------
NET LOSS.............................................. $ (528,594) $ (245,127)
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-23
<PAGE>
MTS COMMUNICATIONS COMPANY, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock
----------------
Total
Stockholders'
Accumulated Equity
Shares Amount Deficit (Deficit)
------- -------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996......... 200,000 $450,000 $ (355,841) $ 94,159
Transfer of equity interests
(Note 5)........................ 0 264,000 0 264,000
Net loss......................... 0 0 (528,594) (528,594)
------- -------- ----------- ----------
BALANCE, December 31, 1997......... 200,000 714,000 (884,435) (170,435)
Net loss......................... 0 0 (245,127) (245,127)
------- -------- ----------- ----------
BALANCE, December 7, 1998.......... 200,000 $714,000 $(1,129,562) $ (415,562)
======= ======== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-24
<PAGE>
MTS COMMUNICATIONS COMPANY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended January 1, 1998
December 31, to December 7,
1997 1998
------------ ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................ $(528,594) $(245,127)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization................. 154,187 193,271
Amortization of debt discount................. 8,000 88,000
Noncash compensation expense.................. 168,000 0
Changes in operating assets and liabilities:
Accounts receivable......................... (13,682) (212,440)
Interest receivable......................... (16,511) (17,160)
Other assets................................ (14,096) (6,340)
Accounts payable............................ (27,241) 58,911
Accrued interest............................ 14,383 14,582
Unearned revenue............................ 11,147 (18,089)
Accrued expenses............................ 302,488 49,010
--------- ---------
Total adjustments......................... 586,675 149,745
--------- ---------
Net cash provided by (used in) operating
activities............................... 58,081 (95,382)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............. (93,161) (50,266)
Loans to employees.............................. (44,151) (20,000)
Collection on employee loans receivable......... 0 12,000
--------- ---------
Net cash used in investing activities..... (137,312) (58,266)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt and short-term
borrowings..................................... (185,959) (277,206)
Proceeds from the issuance of debt and short-
term borrowings................................ 395,147 549,228
Principal payments on capital lease
obligations.................................... (110,279) (138,345)
--------- ---------
Net cash provided by financing
activities............................... 98,909 133,677
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS...................................... 19,678 (19,971)
CASH AND CASH EQUIVALENTS, beginning of period.... 293 19,971
--------- ---------
CASH AND CASH EQUIVALENTS, end of period.......... $ 19,971 $ 0
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest.......... $ 51,914 $ 59,852
========= =========
Property and equipment acquired under capital
lease.......................................... $ 200,031 $ 365,180
========= =========
Property and equipment acquired under issuance
of note payable................................ $ 0 $ 85,000
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-25
<PAGE>
MTS COMMUNICATIONS COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
For the Year Ended December 31, 1997 and
for the Period from January 1, 1998 to December 7, 1998
1. NATURE OF BUSINESS
MTS Communications Company, Inc. ("MTS Communications," or the "Company")
provides building-centric communications services in the greater Los
Angeles, California, area. The Company was incorporated as an S corporation
in California on April 20, 1992. On December 8, 1998, Cypress
Communications, Inc. acquired certain assets of the Company (Note 6).
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements are prepared on the accrual basis of
accounting.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual amounts could differ from these
estimates.
Revenue recognition
Revenues are recognized in the month in which services are provided.
Recurring charges for future access services are billed one month in
advance and are recorded as unearned revenue until the month the service is
provided. Revenues include installation fees. To date, the revenues from
installations have not exceeded the related direct costs by a significant
amount. All expenses related to services provided are recognized as
incurred.
Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Depreciation expense
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets (three to seven years). Leasehold improvements
are depreciated over the lesser of the lease term or the assets' useful
lives. Maintenance and repairs are charged to expense as incurred. Gains or
losses on disposal of property and equipment are recognized in operations
in the year of disposition.
Income Taxes
The Company is an S corporation and is treated as a partnership for federal
and state income tax purposes. The taxable income or loss of the Company is
attributed directly to its shareholders.
F-26
<PAGE>
MTS COMMUNICATIONS COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Accordingly, no provision for any federal or state income taxes has been
made in the accompanying statements of operations.
Sources of Supply
All of the Company's network components are manufactured by large,
recognized telecommunications manufacturers who distribute their products
through multiple distribution channels. The Company currently uses only one
supplier for many components of its telecommunication systems in order to
receive more favorable terms and conditions. If the supplier is unable to
meet the Company's needs as it expands its systems infrastructure, then
delays and increased costs in the expansion could result while the Company
arranged alternative suppliers, which would adversely affect operating
results.
3. RELATED-PARTY TRANSACTIONS
For the year ended December 31, 1997 and the period from January 1, 1998 to
December 7, 1998, the Company received advances of $171,147 and $214,228
from several employees and affiliates of the Company to fund working
capital requirements. Of these amounts, $118,239 and $212,026 were repaid
during the year ended December 31, 1997 and the period from January 1, 1998
to December 7, 1998.
For the year ended December 31, 1997 and the period from January 1, 1998 to
December 7, 1998, the Company made loans of $44,151 and $20,000 to two of
the Company's officers. Of these amounts, $12,000 was repaid during the
period from January 1, 1998 to December 7, 1998.
4. COMMITMENTS AND CONTINGENCIES
Leases
The Company is obligated under several operating and capital lease
agreements, primarily for network equipment and office space. Future annual
minimum rental payments under these leases as of December 7, 1998 are as
follows:
<TABLE>
<CAPTION>
Operating Capital
---------- --------
<S> <C> <C>
1999.................................................. $ 162,881 $228,261
2000.................................................. 169,396 196,549
2001.................................................. 176,172 135,233
2002.................................................. 183,219 94,921
2003.................................................. 190,547 32,976
Thereafter............................................ 147,155 0
---------- --------
$1,029,370 $687,940
========== ========
</TABLE>
Rent expense was $148,633 for the year ended December 31, 1997 and $145,037
for the period from January 1, 1998 to December 7, 1998.
F-27
<PAGE>
MTS COMMUNICATIONS COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Legal Proceedings
The Company is subject to various legal proceedings and claims that arise
in the ordinary course of business. In the opinion of management, the
amount or ultimate liability with respect to these actions will not
materially affect the Company's financial position, cash flows or results
of operations.
5. CAPITAL TRANSACTIONS
On December 15, 1997, the principal stockholder of the Company transferred
an aggregate 45,833 shares of the Company's common stock to the Company's
other two stockholders in consideration for services provided to MTS
Communications. These transactions were accounted for in the accompanying
financial statements in accordance with the Securities and Exchange
Commission Staff Accounting Bulletin No. 79. The first stockholder received
16,666 shares (or 8% additional equity interest) in consideration for
guaranteeing a line of credit on behalf of MTS Communications. The fair
value of these shares was recorded as debt issuance costs in the amount of
$96,000 related to the line of credit based on the estimated fair value of
these shares at the date of issuance. The discount was amortized to
interest expense over the term of the line of credit, which was one year.
The second stockholder received 29,167 shares (or 14% additional equity
interest) in consideration for services to the Company. The estimated fair
value of these shares at the date of issuance was recorded as compensation
expense in the amount of $168,000 in the accompanying statements of
operations for the year ended December 31, 1997.
6. ACQUISITION OF THE COMPANY
On December 8, 1998, certain assets of the Company were acquired by Cypress
Communications, Inc. ("Cypress"), a provider of building-centric
communications services, for total consideration of $2,574,848.
7. SUBSEQUENT EVENTS
In September 1999, an arbitrator ordered MTS Communications to pay
approximately $100,000 to a third party for disputed services received by
the Company in connection with its acquisition by Cypress. The Company
intends to petition the California Superior Court to vacate the arbitration
award. The Company has not accrued any liability related to this claim.
F-28
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
As discussed in Note 9 to the financial statements of Cypress
Communications, Inc. (the "Company"), on December 8, 1998, the Company
purchased substantially all of the assets of MTS Communications for total
consideration valued at $2,574,848.
The pro forma adjustments to the statements of operations for the year ended
December 31, 1998 reflect the acquisition of MTS Communications as if the
acquisition occurred on January 1, 1998.
The pro forma financial information does not purport to represent what the
Company's results of operations would have been if this acquisition would have
occurred on January 1, 1998, nor does it purport to indicate the future results
of operations of the Company. The pro forma adjustments are based on currently
available information and certain assumptions that management believes to be
reasonable.
F-29
<PAGE>
CYPRESS COMMUNICATIONS, INC.
PRO FORMA STATEMENT OF OPERATIONS
For the Year ended December 31, 1998
<TABLE>
<CAPTION>
Pro Forma
Cypress MTS Adjustments(a) Pro Forma
----------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
Revenues $ 2,417,816 $2,067,420 $ -- $ 4,485,236
Operating Expenses:
Cost of services....... 1,539,846 890,272 -- 2,430,118
Sales and marketing.... 1,470,107 103,422 -- 1,573,529
General and
administrative........ 2,436,221 940,769 -- 3,376,990
Depreciation and
amortization.......... 891,788 193,271 139,167 1,224,226
----------- ---------- --------- -----------
Total operating
expenses............ 6,337,962 2,127,734 139,167 8,604,863
----------- ---------- --------- -----------
Operating loss........... (3,920,146) (60,314) (139,167) (4,119,627)
Interest income
(expense), net.......... 232,279 (184,813) 47,466
----------- ---------- --------- -----------
Loss before income
taxes................... (3,687,867) (245,127) (139,167) (4,072,161)
Income tax benefit....... -- -- -- --
----------- ---------- --------- -----------
Net loss................. $(3,687,867) $(4,072,161)
=========== ===========
Net loss per common
share:
Basic and diluted...... $ (1.40) $ (1.54)
=========== ===========
Weighted average number
of common
shares outstanding:
Basic and diluted...... 2,636,906 2,636,906
=========== ===========
</TABLE>
- --------
(a) Reflects additional amortization of intangibles related to goodwill of
$84,848 and tenant contracts valued at $430,000 recorded in connection with
the acquisition of MTS Communications and being amortized over ten years
and three years, respectively.
F-30
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULES
After the 4.5 for one stock split of the outstanding shares of common stock
discussed in Note 10 to Cypress Communications, Inc.'s financial statements is
effected, we expect to be in a position to render the following audit report.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
November 24, 1999
We have audited, in accordance with generally accepted auditing standards,
the financial statements of CYPRESS COMMUNICATIONS, INC. and CYPRESS
COMMUNICATIONS, L.L.C. included in this Form S-1 and have issued our report
thereon dated November 24, 1999. Our audits were made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedules listed in the index are the responsibility of the Companies'
management and are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, fairly state in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
S-1
<PAGE>
CYPRESS COMMUNICATIONS, INC.
AND
CYPRESS COMMUNICATIONS, L.L.C
SCHEDULES
Allowance for Doubtful Accounts:
<TABLE>
<CAPTION>
Beg. Charged to Writeoffs/ Ending
Balance expense Recoveries Balance
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
For the Year Ended December 31,
1996............................ $ 0 $ 0 $ 0 $ 0
For the 6 1/2 months ended July
15, 1997........................ $ 0 $ 0 $ 0 $ 0
For the 5 1/2 ended December 31,
1997............................ $ 0 $ 9,945 $ 0 $ 9,945
For the Year Ended December 31,
1998............................ $ 9,945 $ 69,575 $ 0 $ 79,520
Deferred Tax Asset Valuation Allowance:
<CAPTION>
Beg. Charged to Ending
Balance expense Reversals Balance
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
For the 5 1/2 ended December 31,
1997............................ $ 0 $ 310,766 $0 $ 310,766
For the Year Ended December 31,
1998............................ $310,766 $1,280,254 $0 $1,591,020
</TABLE>
S-2
<PAGE>
INSIDE BACK COVER
[Graphic illustration of the Registrant's In-Building Network]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Prospective investors may rely only on the information contained in this pro-
spectus. Neither Cypress Communications, Inc. nor any underwriter has autho-
rized anyone to provide prospective investors with different or additional in-
formation. This prospectus is not an offer to sell nor is it seeking an offer
to buy these securities in any jurisdiction where such offer or sale is not
permitted. The information contained in this prospectus is correct only as of
the date of this prospectus, regardless of the time of delivery of this pro-
spectus or any sale of these securities.
--------------------
TABLE OF CONTENTS
--------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 18
Dilution................................................................. 20
Selected Financial Data.................................................. 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 23
Business................................................................. 31
Management............................................................... 48
Principal Stockholders................................................... 58
Certain Relationships and Related Transactions........................... 61
Description of Capital Stock............................................. 64
Shares Eligible for Future Sale.......................................... 70
Underwriting............................................................. 72
Legal Matters............................................................ 75
Experts.................................................................. 75
Where You Can Find Additional Information................................ 75
Index to Financial Statements............................................ F-1
</TABLE>
----------------
Until , 2000 (25 days after the date of this prospectus), all dealers that
effect transactions in these securities, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[CYPRESS LOGO APPEARS HEAR]
10,000,000 Shares
Common Stock
--------------
PROSPECTUS
--------------
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette
J.C. Bradford & Co.
, 2000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses payable by us in
connection with the offering (excluding underwriting discounts and
commissions):
<TABLE>
<CAPTION>
Nature of Expense Amount
----------------- ----------
<S> <C>
SEC Registration Fee............................................. $ 48,576
NASD Filing Fee.................................................. 18,900
Nasdaq National Market Listing Fee............................... 95,000
Accounting Fees and Expenses..................................... 550,000
Legal Fees and Expenses.......................................... 900,000
Director and Officer Insurance Expenses.......................... 250,000
Printing Expenses................................................ 300,000
Blue Sky Qualification Fees and Expenses......................... 7,500
Transfer Agent's Fee............................................. 5,500
Miscellaneous.................................................... 224,524
TOTAL.......................................................... $2,400,000
==========
</TABLE>
The amounts set forth above, except for the Securities and Exchange
Commission, National Association of Securities Dealers, Inc. and Nasdaq
National Market fees, are in each case estimated.
Item 14. Indemnification of Directors and Officers
In accordance with Section 145 of the Delaware General Corporation Law,
Article VII of our second amended and restated certificate of incorporation
provides that no director of Cypress be personally liable to Cypress or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (1) for any breach of the director's duty of loyalty to
Cypress or its stockholders, (2) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (3) in
respect of unlawful dividend payments or stock redemptions or repurchases, or
(4) for any transaction from which the director derived an improper personal
benefit. In addition, our second amended and restated certificate of
incorporation provides that if the Delaware General Corporation Law is amended
to authorize the further elimination or limitation of the liability of
directors, then the liability of a director of the corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
Article V of our amended and restated by-laws provides for indemnification
by Cypress of its officers and certain non-officer employees under certain
circumstances against expenses, including attorneys fees, judgments, fines and
amounts paid in settlement, reasonably incurred in connection with the defense
or settlement of any threatened, pending or completed legal proceeding in which
any such person is involved by reason of the fact that such person is or was an
officer or employee of Cypress if such person acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of Cypress, and, with respect to criminal actions or proceedings, if
such person had no reasonable cause to believe his or her conduct was unlawful.
We have also entered into indemnification agreements with each of our
directors and certain of our executive officers. These agreements provide that
we indemnify each of our directors and such
II-1
<PAGE>
officers to the fullest extent permitted under law and our by-laws, and provide
for the advancement of expenses to each director and each such officer. We have
also obtained directors and officers insurance against certain liabilities.
** Confidential treatment requested as to these exhibits.
Item 15. Recent Sales of Unregistered Securities
Since its formation on July 15, 1997, Cypress Communications, Inc. has sold
or issued the following securities that were not registered under the
Securities Act of 1933, as amended (the "Securities Act"). No underwriters were
used in connection with these sales and issuances.
(1) On July 15, 1997, Cypress issued an aggregate of 2,636,906 shares of
common stock to The Centennial Funds, Alta Communications, ITC
Services, R. Stanley Allen, Ward C. Bourdeaux, Jr., Michael Moh and
Andrew Purinton in connection with a reorganization in consideration
for the membership interests of the predecessor company. The sale and
issuance of these securities was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof, on the basis that the
transaction did not involve a public offering.
(2) On July 15, 1997, Cypress issued an aggregate of 1,200,140 shares of
series A preferred stock to The Centennial Funds, Alta Communications,
R. Stanley Allen, Ward C. Bourdeaux, Jr., John L. Thompson and Mark H.
Dunaway for an aggregate consideration of $6,000,700. The sale and
issuance of these securities was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof, on the basis that the
transaction did not involve a public offering.
(3) On March 9, 1998, Cypress issued 11,000 shares of series A preferred
stock to Mark A. Graves for consideration of $55,000. The sale and
issuance of these securities was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof, on the basis that the
transaction did not involve a public offering.
(4) On September 30, 1998, Cypress issued an aggregate of 1,333,200 shares
of series B preferred stock to The Centennial Funds, Alta
Communications, Beacon Capital Partners, R. Stanley Allen, Ward C.
Bourdeaux, Jr., Mark A. Graves, Michael Moh, John L. Thompson and
Andrew Purinton for an aggregate consideration of $10,665,600. The sale
and issuance of these securities was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof, on the basis that the
transaction did not involve a public offering.
(5) On September 30, 1998, Cypress issued 579,613 shares of series B-1
preferred stock to Beacon Capital Partners for consideration of
$4,636,904. The sale and issuance of these securities was exempt from
registration under the Securities Act pursuant to Section 4(2) thereof,
on the basis that the transaction did not involve a public offering.
(6) On February 1, 1999, Cypress issued an aggregate of 6,375 shares of
series B preferred stock to Barry L. Boniface and George J. Cisler for
an aggregate consideration of $51,000. The sale and issuance of these
securities was exempt from registration under the Securities Act
pursuant to Section 4(2) thereof, on the basis that the transaction did
not involve a public offering.
(7) On October 8, 1999, Cypress issued an aggregate of 2,819,868 shares of
series C preferred stock to The Centennial Funds, Alta Communications,
Beacon Capital Partners, Nassau
II-2
<PAGE>
Capital, Gramercy Communications Partners, Latona Cycom, AEW Partners,
Vornado, R. Stanley Allen, Ward C. Bourdeaux, Jr., Mark A. Graves,
Barry L. Boniface, Michael Moh and John L. Thompson for an aggregate
consideration of $53,577,492. The sale and issuance of these securities
was exempt from registration under the Securities Act pursuant to
Section 4(2) thereof, on the basis that the transaction did not involve
a public offering.
(8) On November 23, 1999, Cypress issued an aggregate of 1,157,895 shares
of series C preferred stock to Brookfield International, Boston
Properties, Shorenstein and Cornerstone Properties for an aggregate
consideration of $22,000,000. The sale and issuance of these securities
was exempt from registration under the Securities Act pursuant to
Section 4(2) thereof, on the basis that the transaction did not involve
a public offering.
(9) On December 2, 1999, Cypress issued 184,211 shares of series C
preferred stock to Vornado for consideration of $3,500,000. The sale
and issuance of these securities was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof, on the basis that the
transaction did not involve a public offering.
(10) On July 15, 1997, Cypress issued stock options to purchase 90,000
shares of common stock to an employee with an exercise price of $.56
per share pursuant to a stock option plan. The sale and issuance of
these securities was exempt from registration under the Securities Act
pursuant to Rule 701 promulgated thereunder, on the basis that these
options were offered and sold pursuant to a written compensatory
benefit plan.
(11) From July 15, 1997 to June 1, 1998, Cypress issued stock options to
purchase an aggregate of 1,815,345 shares of common stock to employees
with an exercise price of $.67 per share pursuant to stock option
plans. The sales and issuances of these securities were exempt from
registration under the Securities Act pursuant to Rule 701 promulgated
thereunder, on the basis that these options were offered and sold
pursuant to a written compensatory benefit plan.
(12) From October 1, 1998 to October 7, 1999, Cypress issued stock options
to purchase an aggregate of 2,518,875 shares of common stock to
employees with an exercise price of $1.07 per share pursuant to stock
option plans. The sales and issuances of these securities were exempt
from registration under the Securities Act pursuant to Rule 701
promulgated thereunder, on the basis that these options were offered
and sold pursuant to a written compensatory benefit plan.
(13) From October 11, 1999 to December 2, 1999, Cypress issued stock
options to purchase an aggregate of 1,791,000 shares of common stock
to employees with an exercise price of $2.53 per share pursuant to
stock option plans. The sales and issuances of these securities were
exempt from registration under the Securities Act pursuant to Rule 701
promulgated thereunder, on the basis that these options were offered
and sold pursuant to a written compensatory benefit plan.
II-3
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation.
3.2 First Certificate of Amendment to the Amended and Restated
Certificate of Incorporation.
3.3 Second Certificate of Amendment to the Amended and Restated
Certificate of Incorporation.
3.4 Third Certificate of Amendment to the Amended and Restated
Certificate of Incorporation.
3.5 Fourth Certificate of Amendment to the Amended and Restated
Certificate of Incorporation.
3.6 Form of Fifth Certificate of Amendment to the Amended and Restated
Certificate of Incorporation.
3.7 Form of Second Amended and Restated Certificate of Incorporation.
3.8 Form of Amended and Restated Bylaws.
*4.1 Specimen certificate for shares of common stock, $.001 par value
per share.
4.2 Form of Shareholder Rights Agreement.
*5.1 Opinion of Goodwin, Procter & Hoar llp as to the legality of the
securities being offered.
10.1 1997 Management Option Plan.
10.2 Form of 2000 Stock Option and Incentive Plan.
10.3 Form of Employee Stock Purchase Plan.
10.4 Third Amended and Restated Stockholders Agreement.
10.5 First Amendment to the Third Amended and Restated Stockholders
Agreement.
10.6 Second Amendment to the Third Amended and Restated Stockholders
Agreement.
10.7 Form of Master Communications License Transaction Agreement.
10.8 Form of Stock Warrant Agreement.
10.9 Series A Preferred Stock Purchase Agreement, by and among Cypress
Communications, Inc. and the purchasers thereto, dated as of July
15, 1997.
10.10 Series B and B-1 Preferred Stock Purchase Agreement, by and among
Cypress Communications, Inc. and the purchasers thereto, dated as
of September 30, 1998.
10.11 Series C and C-1 Preferred Stock Purchase Agreement, by and among
Cypress Communications, Inc. and the purchasers thereto, dated as
of October 8, 1999.
10.12 Series C Preferred Stock Purchase Agreement, by and among Cypress
Communications, Inc. and the purchasers thereto, dated as of
November 23, 1999.
10.13 Series C Preferred Stock Purchase Agreement, by and among Cypress
Communications, Inc. and the purchasers thereto, dated as of
December 1, 1999.
10.14 Series C Preferred Stock Purchase Agreement, by and among Cypress
Communications, Inc. and the purchasers thereto, dated as of
December 2, 1999.
10.15 Binding Summary of Terms of Stock Purchase Agreement, by and among
Cypress Communications, Inc., SiteConnect, Inc. and the
shareholders of SiteConnect, Inc., and the amendments thereto.
*23.1 Consent of Goodwin, Procter & Hoar llp (included in Exhibit 5.1
hereto).
23.2 Consent of Arthur Andersen LLP.
**24.1 Powers of Attorney (contained on the signature page to this
registration statement).
**27.1 Financial Data Schedule.
</TABLE>
--------
* To be filed by amendment to this registration statement.
** Previously filed.
II-4
<PAGE>
(b)Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Atlanta, Georgia, on January 14, 2000.
CYPRESS COMMUNICATIONS, INC.
By: /s/ R. Stanley Allen
-----------------------------------
R. Stanley Allen
Chief Executive Officer
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints each of R. Stanley Allen, Mark A. Graves and
Barry L. Boniface such person's true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement
(or to any other registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act), and to
file the same, with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto each said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as such person might or could do
in person, hereby ratifying and confirming all that any said attorney-in-fact
and agent, or any substitute or substitutes of any of them, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ R. Stanley Allen Chief Executive January 14, 2000
- ------------------------------------- Officer and
R. Stanley Allen Director (Principal
Executive Officer)
* President, Chief January 14, 2000
- ------------------------------------- Operating Officer
Mark A. Graves and Secretary
* Executive Vice January 14, 2000
- ------------------------------------- President and
Ward C. Bourdeaux, Jr. Director
* Chief Financial January 14, 2000
- ------------------------------------- Officer (Principal
Barry L. Boniface Financial and
Accounting Officer)
* Director January 14, 2000
- -------------------------------------
William P. Egan
<PAGE>
Signature Title Date
* Director January 14, 2000
- -------------------------------------
Laurence Grafstein
* Director January 14, 2000
- -------------------------------------
Randall A. Hack
* Director January 14, 2000
- -------------------------------------
John C. Halsted
* Director January 14, 2000
- -------------------------------------
Jeffrey H. Schutz
/s/ P. Eric Yopes Director January 14, 2000
- -------------------------------------
P. Eric Yopes
/s/ R. Stanley Allen
*By: ________________________________
R. Stanley Allen
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation.
3.2 First Certificate of Amendment to the Amended and Restated
Certificate of Incorporation.
3.3 Second Certificate of Amendment to the Amended and Restated
Certificate of Incorporation.
3.4 Third Certificate of Amendment to the Amended and Restated
Certificate of Incorporation.
3.5 Fourth Certificate of Amendment to the Amended and Restated
Certificate of Incorporation.
3.6 Form of Fifth Certificate of Amendment to the Amended and Restated
Certificate of Incorporation.
3.7 Form of Second Amended and Restated Certificate of Incorporation.
3.8 Form of Amended and Restated Bylaws.
*4.1 Specimen certificate for shares of common stock, $.001 par value
per share.
4.2 Form of Shareholder Rights Agreement.
*5.1 Opinion of Goodwin, Procter & Hoar llp as to the legality of the
securities being offered.
10.1 1997 Management Option Plan.
10.2 Form of 2000 Stock Option and Incentive Plan.
10.3 Form of Employee Stock Purchase Plan.
10.4 Third Amended and Restated Stockholders Agreement.
10.5 First Amendment to the Third Amended and Restated Stockholders
Agreement.
10.6 Second Amendment to the Third Amended and Restated Stockholders
Agreement.
10.7 Form of Master Communications License Transaction Agreement.
10.8 Form of Stock Warrant Agreement.
10.9 Series A Preferred Stock Purchase Agreement, by and among Cypress
Communications, Inc. and the purchasers thereto, dated as of July
15, 1997.
10.10 Series B and B-1 Preferred Stock Purchase Agreement, by and among
Cypress Communications, Inc. and the purchasers thereto, dated as
of September 30, 1998.
10.11 Series C and C-1 Preferred Stock Purchase Agreement, by and among
Cypress Communications, Inc. and the purchasers thereto, dated as
of October 8, 1999.
10.12 Series C Preferred Stock Purchase Agreement, by and among Cypress
Communications, Inc. and the purchasers thereto, dated as of
November 23, 1999.
10.13 Series C Preferred Stock Purchase Agreement, by and among Cypress
Communications, Inc. and the purchasers thereto, dated as of
December 1, 1999.
10.14 Series C Preferred Stock Purchase Agreement, by and among Cypress
Communications, Inc. and the purchasers thereto, dated as of
December 2, 1999.
10.15 Binding Summary of Terms of Stock Purchase Agreement, by and among
Cypress Communications, Inc., SiteConnect, Inc. and the
shareholders of SiteConnect, Inc., and the amendments thereto.
*23.1 Consent of Goodwin, Procter & Hoar llp (included in Exhibit 5.1
hereto).
23.2 Consent of Arthur Andersen LLP.
**24.1 Powers of Attorney (contained on the signature page to this
registration statement).
**27.1 Financial Data Schedule.
</TABLE>
--------
* To be filed by amendment to this registration statement.
** Previously filed.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CYPRESS COMMUNICATIONS, INC.
It is hereby certified that:
(1) The name of the corporation (hereafter the "Corporation") is
CYPRESS COMMUNICATIONS, INC., a corporation organized and existing under the
General Corporation Law of the State of Delaware, having filed its Certificate
of Incorporation on July 15, 1997.
(2) This Amended and Restated Certificate of Incorporation amends and
restates in its entirety the original Certificate of Incorporation, including
all prior Certificates of Designation, and was adopted in accordance with the
provisions of Section 245 of the Delaware General Corporation Law.
ARTICLE I
---------
Name
----
The name of the corporation is Cypress Communications, Inc. (the
"Corporation").
ARTICLE II
----------
Registered Office and Registered Agent
--------------------------------------
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, Wilmington, Delaware 19801, in the county of New Castle.
The name of the Corporation's registered agent is the Corporation Trust Company.
ARTICLE III
-----------
Nature of Business
------------------
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware ("GCL").
<PAGE>
ARTICLE IV
----------
Stock Issuance
--------------
PART A. Authorized Shares
-----------------
The total number of shares of capital stock which the Corporation shall
have authority to issue is 8,280,029.58 shares, consisting of:
(a) 3,703,566 shares of Preferred Stock, par value $.001 per share
(the "Preferred Stock"); and
(b) 4,576,463.58 shares of Common Stock, par value $.001 per share.
PART B. Preferred Stock
---------------
Authority is hereby expressly vested in the board of directors of the
Corporation, subject to the provisions of this Article IV and to the limitations
prescribed by law, to authorize the issuance from time to time of one or more
series of Preferred Stock. The authority of the board of directors with respect
to each series of Preferred Stock shall include, but not be limited to, the
determination or fixing of the following by resolution or resolutions adopted by
the affirmative vote of a majority of the total number of the directors then in
office:
(a) The designation of such series;
(b) The dividend rate of such series, the conditions and dates upon
which such dividends shall be payable, the relation which such dividends
shall bear to the dividends payable on any other class or classes or series
of the Corporation's capital stock and whether such dividends shall be
cumulative or non-cumulative;
(c) Whether the shares of such series shall be subject to redemption
for cash, property or rights, including securities of any other
corporation, by the Corporation or upon the happening of a specified event
and, if made subject to any such redemption, the times or events, prices,
rates, adjustments and other terms and conditions of such redemptions;
(d) The terms and amount of any sinking fund provided for the
purchase or redemption of the shares of such series;
(e) Whether or not the shares of such series shall be convertible
into, or exchangeable for, at the option of either the holder or the
Corporation or upon the happening of a specified event, shares of any other
class or classes or of any other series of the same class of the
Corporation's capital stock and, if provision be made for conversion or
exchange, the times or events, prices, rates, adjustments and other terms
and conditions
<PAGE>
of such conversions or exchanges;
(f) The restrictions, if any, on the issue or reissue of any
additional Preferred Stock; and
(h) The provisions as to voting, option and/or other special rights
and preferences, if any, including, without limitation, the rights to elect
one or more directors with or without special voting rights.
PART C. Designation of Preferred Stock
------------------------------
The Corporation hereby designates 1,211,140 shares of Preferred Stock as
Series A Preferred Stock, 1,912,813 shares of Preferred Stock as Series B
Preferred Stock and 579,613 shares of Preferred Stock as Series B-1 Preferred
Stock. Such shares shall have the respective rights and preferences set forth in
the Amended and Restated Certificate of Designation of Series A Preferred Stock,
Certificate of Designation of Series B Preferred Stock and Certificate of
Designation of Series B-1 Preferred Stock attached hereto as Exhibit A and
---------
incorporated herein by reference.
ARTICLE V
---------
Board of Directors
------------------
The business and affairs of the Corporation shall be managed by or under
the direction of the Board of Directors. Elections of directors need not be by
written ballot unless otherwise provided in the Bylaws.
ARTICLE VI
----------
Interested Transactions
-----------------------
A director of the Corporation shall not in the absence of fraud be
disqualified by his office from dealing or contracting with the Corporation
either as a vendor, purchaser or otherwise, nor in the absence of fraud shall a
director of the Corporation be liable to account to the Corporation for any
profit realized by him from or through any transaction or contract of the
Corporation by reason of the fact that he, or any firm of which he is a member
or any corporation of which he is an officer, director or stockholder, was
interested in such transaction or contract if such transaction or contract has
been authorized, approved or ratified in the manner provided in the GCL for
authorization, approval or ratification of transactions or contracts between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest.
<PAGE>
ARTICLE VII
-----------
Personal Liability of Directors
-------------------------------
The personal liability of the directors of the Corporation is hereby
eliminated to the fullest extent permitted by paragraph (7) of subsection (b) of
Section 102 of the GCL, as the same may be amended and supplemented, or any
corresponding provision of the General Corporation Law of the State of Delaware.
ARTICLE VIII
------------
Indemnification
---------------
(a) The Corporation shall to the fullest extent permitted by the GCL,
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that such person is or was a
director or an officer of the Corporation, or is or was serving at the request
of the Corporation as a director or an officer of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of non contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which such
person reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that such person's conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is party or is
threatened to be made party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that such person is or was a director or an officer of the
Corporation, or is or was serving at the request of the Corporation as a
director or an officer of another corporation, partnership, joint venture, trust
or other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
<PAGE>
(c) To the extent that a director or an officer of the Corporation has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsections (a) and (b) of this Article VIII, or in
defense of any claim, issue or matter therein, such person shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this Article VIII
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director
or an officer is proper in the circumstances because such director or officer
has met the applicable standard of conduct set forth in subsections (a) and (b)
of this Article VIII. Such determination shall be made (i) by the board of
directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (ii) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (iii) by an
affirmative vote of the stockholders having shares with sixty-six and two-thirds
(66-2/3) of the number of votes entitled to be cast with respect to such matter.
(e) Expenses incurred by a director or an officer in defending a civil or
criminal action, suit or proceeding may be paid by the Corporation in advance of
the final disposition of such action, suit, or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that such director or officer is not entitled
to be indemnified by the Corporation as authorized in this Article VIII.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this Article VIII shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in a
director's or an officer's official capacity and as to action in another
capacity while holding such office.
(g) The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
such person and incurred by such person in any such capacity, or arising out of
such person's status as such, whether or not the Corporation would have the
power to indemnify such person against such liability under the provisions of
this Article VIII.
(h) The provisions of this Article VIII shall be deemed to be a contract
between the Corporation and each director or officer who serves in such capacity
at any time while this Article VIII is in effect and any repeal or modification
of this Article VIII shall not affect any rights or obligations then existing
with respect to any state of facts then or therefore existing or in any action,
suit or proceeding theretofore or thereafter brought or threatened based in
whole or in part upon such state of facts. The provisions of this Article VIII
shall not be deemed to be a
<PAGE>
contract between the Corporation and any directors or officers of any other
Corporation (the "Second Corporation") which shall merge into or consolidate
with this Corporation when this Corporation shall be the surviving or resulting
Corporation, and any such directors or officers of the Second Corporation shall
be indemnified to the extent required under the GCL only at the discretion of
the board of directors of this Corporation.
(i) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VIII shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director
or an officer of the Corporation and shall inure to the benefit of the heirs,
executors and administrators of such a person.
ARTICLE IX
----------
Amendments
----------
The Corporation reserves the right to amend, alter, change, repeal or waive
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute. No amendment to or repeal of Article VI,
Article VII or Article VIII of this Certificate of Incorporation shall apply to
or have any effect on the rights of any individual referred to in such Articles
for or with respect to acts or omissions of such individual occurring prior to
such amendment or repeal.
ARTICLE X
---------
Bylaws
------
Subject to any limitations in the Bylaws of the Corporation, the Board of
Directors of the Corporation is expressly authorized to adopt, amend or repeal
the Bylaws of the Corporation.
ARTICLE XI
----------
Business Combinations
---------------------
The Corporation shall not be governed by the provisions of Section 203 of
the GCL.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation
has been executed by the duly authorized officer of CYPRESS COMMUNICATIONS, INC.
on this 30/th/ day of September, 1998.
CYPRESS COMMUNICATIONS, INC.
By: /s/ Mark A. Graves
-------------------------------
Mark A. Graves, President
<PAGE>
Exhibit A
AMENDED AND RESTATED
CERTIFICATE OF DESIGNATION OF SERIES A PREFERRED STOCK,
CERTIFICATE OF DESIGNATION OF SERIES B PREFERRED STOCK, AND
CERTIFICATE OF DESIGNATION OF SERIES B-1 PREFERRED STOCK
OF
CYPRESS COMMUNICATIONS, INC.
One Million Two Hundred Eleven Thousand One Hundred Forty (1,211,140) of
the authorized shares of Preferred Stock are hereby designated "Series A
Preferred Stock" (the "Series A Preferred"), One Million Nine Hundred Twelve
Thousand Eight Hundred Thirteen (1,912,813) are hereby designated "Series B
Preferred Stock" (the "Series B Preferred"), and Five Hundred Seventy Nine
Thousand Six Hundred Thirteen (579,613) are hereby designated "Series B-1
Preferred Stock" (the "Series B-1 Preferred"). The Series A Preferred, the
Series B Preferred, and the Series B-1 Preferred are hereinafter collectively
referred to as the "Senior Preferred." Certain other capitalized terms used
herein are defined in Section 6 hereof.
The rights, preferences, privileges, restrictions and other matters
relating to the Senior Preferred are as follows:
1. Dividend Rights.
(a) Each holder of Senior Preferred, in preference to the holders of
Common Stock of the Corporation, par value $.001 per share (the "Common Stock"),
and any other stock of the Corporation that is not by its terms expressly senior
to in right of payment to the Senior Preferred (collectively, "Junior Stock"),
shall be entitled to receive dividends, when and as declared by the Board of
Directors, but only out of funds that are legally available therefor.
(b) The Corporation shall not declare or pay any dividends (whether
payable in cash, securities or other property) upon any stock of the Corporation
that is not by its terms expressly senior with respect to dividend rights to the
Senior Preferred, other than dividends payable solely in shares of Common Stock,
unless the Corporation shall first declare and pay to the holders of the Senior
Preferred the dividends which would have been declared and paid with respect to
the Common Stock issuable upon conversion of the Senior Preferred had all of the
outstanding Senior Preferred been converted immediately prior to the record date
for such dividend, or if no record date is fixed, the date as of which the
record holders of Common Stock entitled to such dividends are to be determined.
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(c) So long as any Series B Preferred remains outstanding, (i)
without the prior written consent of the holders of a majority of the Series A
Preferred and at least 97% of the Series B Preferred (excluding for such
purposes holders who are Founding Stockholders, whose consent shall not be
required), the Corporation shall not, nor shall it permit any Subsidiary to,
redeem, purchase or otherwise acquire directly or indirectly any capital stock,
other than Series B Preferred or Series B-1 Preferred, of the Corporation; (ii)
without the prior written consent of the holders of a majority of the Series B
Preferred, except as set forth in Section 4 hereof, the Corporation shall not,
nor shall it permit any Subsidiary to, redeem, purchase or otherwise acquire
directly or indirectly any Series B Preferred or Series B-1 Preferred; and (iii)
without the prior written consent of the holders of at least 97% of the
outstanding shares of Series B Preferred the Corporation shall not, directly or
indirectly, pay or declare any dividend or make any distribution upon any
capital stock of the Corporation. The provisions of this Section 1(c) shall not,
however, apply to (i) the acquisition of shares of any Junior Stock solely in
exchange for shares of any other Junior Stock, (ii) the payment of cash
dividends on the Common Stock to the extent that equivalent dividends are paid
on the Senior Preferred as provided above, or (iii) any repurchase of any
Reserved Employee Stock or Founding Stock from former employees, directors or
consultants in connection with termination of employment or service as a
director or consultant that is approved by the Corporation's Board of Directors.
2. Voting Rights.
(a) Generally. Except as otherwise provided herein or as required by
law, the Series A Preferred and Series B Preferred (collectively the "Voting
Senior Preferred") shall vote with the shares of the Common Stock of the
Corporation (and not as a separate class) at any annual or special meeting of
stockholders of the Corporation, and may act by written consent in the same
manner as the Common Stock, in either case upon the following basis: each holder
of shares of the Voting Senior Preferred shall be entitled to such number of
votes as shall be equal to the whole number of shares of Common Stock into which
such holder's aggregate number of shares of Voting Senior Preferred are
convertible (pursuant to Section 5 below) immediately after the close of
business on the record date fixed for such meeting or on the effective date of
such written consent. The holders of the Series B-1 Preferred shall have no
voting rights with respect to any matter, except as required by the General
Corporation Law of the State of Delaware.
(b) Election of Directors. In the election of directors of the
Corporation, the holders of the Voting Senior Preferred, voting separately as a
single class to the exclusion of all other classes of the Corporation's capital
stock and with each share of Voting Senior Preferred entitled to one vote, shall
be entitled to elect four directors (except as otherwise provided in the
Stockholders Agreement) to serve on the Corporation's Board of Directors until
such persons' successors are duly elected by the holders of the Voting Senior
Preferred or such persons are removed from office by the holders of the Voting
Senior Preferred. If the holders of the Voting Senior Preferred for any reason
fail to elect a director to fill any such directorship, such position shall
remain
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vacant until such time as the holders of the Voting Senior Preferred elect a
director to fill such position and shall not be filled by resolution or vote of
the Corporation's Board of Directors or the Corporation's other stockholders.
During the existence of an Event of Noncompliance and for a period of two months
after such Event of Noncompliance has been cured or waived, the directors
elected by the holders of Voting Senior Preferred shall be deemed to constitute
a separate class of directors of the Corporation within the meaning of Section
141(d) of the Delaware General Corporation Law, and such directors shall
together be entitled to cast a number of votes on each matter considered by the
Board of Directors (including for purposes of determining the existence of a
quorum) equal to the sum of the number of votes entitled to be cast by all other
members of the Board of Directors plus one.
(c) Class Vote Requirement. Except as otherwise provided herein,
without the affirmative vote of the holders of a majority of the Series A
Preferred and the Series B Preferred (the "Required Holders") voting together as
a single class, the Corporation will not (i) create, issue or authorize the
issuance of any additional Senior Preferred or create or authorize any new class
or series of the Corporation's capital stock, (ii) amend the Corporation's
Certificate of Incorporation or bylaws, (iii) engage in any merger,
consolidation, recapitalization, liquidation or sale of substantial assets
outside the ordinary course of business, (iv) engage in any acquisition of
substantial assets outside the ordinary course of business or engage in any
business other than the business of the Corporation, described in the
Corporation's most recent annual business plan approved by the Board of
Directors of the Corporation and activities incidental thereto, (v) increase the
amount of Reserved Employee Stock, (vi) issue Founding Stock or (vii) engage in
any transaction with an Affiliate of the Corporation that is not approved by a
majority of the Corporation's disinterested directors.
3. Liquidation Rights.
(a) Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary (a "Liquidation Event"), before
any distribution or payment shall be made to the holders of any other stock of
the Corporation that is not by its terms expressly senior with respect to
liquidation rights to the Series B Preferred and Series B-1 Preferred, the
holder of Series B Preferred and Series B-1 Preferred shall be entitled to be
paid out of the assets of the Corporation, to the extent legally available for
distribution, an amount with respect to each share of Series B Preferred and
Series B-1 Preferred (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares) equal to the sum of
(A) the Original Series B and Series B-1 Issue Price, as defined in Section 5(b)
below, plus (B) all accrued but unpaid dividends thereon (the "Series B and
Series B-1 Liquidation Preference" or the "Series B and Series B-1 Liquidation
Value").
(b) Upon any Liquidation Event, after the payment in full of the
Series B and Series B-1 Preferred Liquidation Preference and before any
distribution or payment shall be made to the holders of any other stock of the
Corporation that is not by its terms expressly senior with respect to
liquidation rights to the Series A Preferred, the
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holder of Series A Preferred shall be entitled to be paid out of the assets of
the Corporation, to the extent legally available for distribution, an amount
with respect to each share of Series A Preferred (as adjusted for any stock
dividends, combinations, splits, recapitalizations and the like with respect to
such shares) equal to the sum of (A) the Original Series A Issue Price, as
defined in Section 5(b) below, plus (B) all accrued but unpaid dividends thereon
(the "Series A Liquidation Preference" or the "Series A Liquidation Value").
(c) After the payment in full of the Series B and Series B-1
Liquidation Preference and the Series A Liquidation Preference, the remaining
assets of the Corporation legally available for distribution, if any, shall be
distributed to the holders of Junior Stock, if any, entitled to a preference
over the Common Stock and, thereafter, to the holders of Common Stock. In lieu
of receiving distributions pursuant to Sections 3(a) and 3(b), the holders of
Senior Preferred shall be entitled to participate in distributions to holders of
the Common Stock such that the holders of Senior Preferred receive aggregate
distributions equal to the amounts that such holders would have received if the
Senior Preferred Stock had been converted into Common Stock immediately prior to
such Liquidation Event.
(d) At the option of the Required Holders, the following events shall
be considered a Liquidation Event for purposes of this Section 3:
(i) any merger, consolidation, business combination,
reorganization or recapitalization of the Corporation to which the Corporation
is a party, except for a merger, consolidation or other corporate
reorganization, in which after giving effect to such event, the holders of the
Corporation's outstanding capital stock as of the filing date hereof, or their
respective transferees, own directly or indirectly at least 50% of the
Corporation's voting power under ordinary circumstances (an "Acquisition"); or
(ii) a sale, lease or other disposition of all or substantially
all of the assets of the Corporation (an "Asset Transfer").
(e) If, upon any Liquidation Event, the assets of the Corporation
legally available for distribution shall be insufficient to make payment in full
of the Series B and Series B-1 Preferred Liquidation Preference, then such
assets shall be distributed among the holders of Series B Preferred and Series
B-1 Preferred at the time outstanding, ratably in proportion to the full amounts
to which they would otherwise be respectively entitled as a liquidation
preference.
(f) If, upon any Liquidation Event, the assets of the Corporation
legally available for distribution shall be sufficient to make payment in full
of the Series B and Series B-1 Preferred Liquidation Preference, but the assets
then remaining and legally available for distribution shall be insufficient to
make payment in full of the Series A Preferred Liquidation Preference, then such
remaining assets shall be distributed among the holders of Series A Preferred at
the time outstanding, ratably in proportion to the full
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amounts to which they would otherwise be respectively entitled as a liquidation
preference.
4. Redemption Rights.
(a) Scheduled Redemptions. At the written request of a holder of
then-outstanding Senior Preferred (which must be furnished to the Corporation
not more than 120 nor less than 30 days prior to the Scheduled Redemption Date,
as defined below), the Corporation shall redeem the number of shares of Series A
Preferred , Series B Preferred or Series B-1 Preferred, as the case may be,
requested to be redeemed by such holder up to an amount not exceeding 33-1/3% of
the total number of shares of Series A Preferred, Series B Preferred or Series
B-1 Preferred issued to such holder (or, if applicable, the entity from which
such holder's shares were transferred) under the Series A Purchase Agreement or
the Series B and Series B-1 Purchase Agreement, as the case may be, (or such
lesser number then outstanding or previously transferred) on each of the sixth,
seventh and eighth anniversaries of July 15, 1997 (each, a "Scheduled Redemption
Date") at a price per share equal to the Series A Liquidation Value or the
Series B and Series B-1 Liquidation Value, as the case may be.
(b) Redemption Payments. The Corporation shall effect such
redemptions on the applicable Scheduled Redemption Date by paying in cash in
exchange for the shares of Senior Preferred to be redeemed, a sum equal to the
Series A Liquidation Value or Series B and Series B-1 Liquidation Value, as
applicable, to the holder thereof (upon surrender by such holder at the
Corporation's principal office of the certificate representing such share, duly
endorsed). If, upon any Scheduled Redemption Date, the assets of the Corporation
legally available for redemption of the Senior Preferred shall be insufficient
to redeem in full all shares requested to be redeemed on such date by all
holders of Senior Preferred in accordance with this paragraph, then the shares
of Senior Preferred requested to be redeemed shall be redeemed ratably in
proportion to the full amounts that the holders of such shares would be entitled
to have redeemed (for such purpose, without regard to whether the number sought
to be redeemed by any such holder is actually less than such full amounts). At
any time thereafter when additional funds of the Corporation are legally
available for the redemption of Senior Preferred, such funds shall immediately
be used to redeem as much of the balance of the shares which the Corporation has
become obligated to redeem as can be redeemed with such additional funds on any
Scheduled Redemption Date but which it has not redeemed; provided that any
holder shall be entitled in its sole discretion to decline to have any shares
held by it so redeemed.
(c) Certificates for Balance. In case fewer than the total number of
shares represented by any certificate are redeemed, a new certificate
representing the number of unredeemed shares shall be issued to the holder
thereof without cost to such holder within five business days after surrender of
the certificate representing the redeemed shares.
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(d) Other Redemptions or Acquisitions. Except as expressly
authorized herein, the Corporation shall not, nor shall it permit any Subsidiary
to, redeem or otherwise acquire any shares of Senior Preferred. Any such
redemption or acquisition of shares of Senior Preferred shall be made pro rata
to all holders of Senior Preferred which participate in such redemption or
acquisition, on the basis of the liquidation value of the shares owned by each
such holder and any such holder may elect not to participate in such a
transaction.
5. Conversion Rights.
The holders of the Senior Preferred shall have the following rights with
respect to the conversion of the Senior Preferred into shares of Common Stock:
(a) Optional Conversion. Subject to and in compliance with the
provisions of this Section 5, each share of Series B-1 Preferred may, at the
option of the holder, be converted at any time into one fully-paid and
nonassessable share of Series B Preferred; provided, however, that no shares of
Series B-1 Preferred held by Building Communications LLC, a Delaware limited
liability company ("Building Communications") or any entity controlling, under
common control with or controlled by Building Communications, may be converted
under this subparagraph (a) while such shares are held by any such entities.
Subject to and in compliance with the provisions of this Section 5, any shares
of Senior Preferred, may, at the option of the holder, be converted at any time
into fully-paid and nonassessable shares of Common Stock. The number of shares
of Common Stock to which a holder of Senior Preferred shall be entitled upon
conversion shall be the product obtained by multiplying the applicable
"Conversion Rate" then in effect (determined as provided in Section 5(b)) by the
number of shares of Senior Preferred being converted.
(b) Conversion Rate. The conversion rate in effect at any time for
conversion of the Series A Preferred (the "Series A Conversion Rate") shall be
the quotient obtained by dividing the Original Series A Issue Price, plus any
declared but unpaid dividends thereon, by the "Series A Conversion Price"
calculated as provided in Section 5(c). The "Original Series A Issue Price"
shall be five dollars ($5.00), as appropriately adjusted for any future stock
splits, stock combinations, stock dividends or similar transactions affecting
the Senior Preferred. The conversion rate in effect at any time for conversion
of the Series B Preferred and Series B-1 Preferred (the "Series B and Series B-1
Conversion Rate") shall be the quotient obtained by dividing the Original Series
B and Series B-1 Issue Price, plus any declared but unpaid dividends thereon, by
the "Series B and Series B-1 Conversion Price" calculated as provided in Section
5(c). The "Original Series B and Series B-1 Issue Price" shall be eight dollars
($8.00), as appropriately adjusted for any future stock splits, stock
combinations, stock dividends or similar transactions affecting the Senior
Preferred.
(c) Conversion Price. The conversion price for the Series A
Preferred (the "Series A Conversion Price") shall initially be the Original
Series A Issue Price. Such initial Series A Conversion Price shall be adjusted
from time to time in accordance
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with this Section 5. All references to the Series A Conversion Price shall mean
the Series A Conversion Price as so adjusted. The conversion price for the
Series B Preferred and Series B-1 Preferred (the "Series B and Series B-1
Conversion Price") shall initially be the Original Series B and Series B-1 Issue
Price. Such initial Series B and Series B-1 Conversion Price shall be adjusted
from time to time in accordance with this Section 5. All references to the
Series B and Series B-1 Conversion Price shall mean the Series B and Series B-1
Conversion Price as so adjusted. If and whenever on or after the original date
of issuance of the Series B Preferred and Series B-1 Preferred the Corporation
issues or sells, or in accordance with this Section 5(c) is deemed to have
issued or sold, any shares of its Common Stock (other than pursuant to a
Permitted Issuance) for a consideration per share less than the Series A
Conversion Price or Series B and Series B-1 Conversion Price in effect
immediately prior to the time of such issue or sale, then immediately upon such
issue or sale or deemed issue or sale the then existing Series A Conversion
Price or Series B and Series B-1 Conversion Price, as applicable, shall be
reduced to the amount determined by dividing (a) the sum of (1) the product
derived by multiplying the Series A Conversion Price or Series B and Series B-1
Conversion Price, as applicable, in effect immediately prior to such issue or
sale by the number of shares of Common Stock Deemed Outstanding immediately
prior to such issue or sale, plus (2) the consideration, if any, received or
deemed to have been received by the Corporation upon such issue or sale, by (b)
the number of shares of Common Stock Deemed Outstanding immediately after such
issue or sale. For purposes of determining the adjusted Series A Conversion
Price or Series B and Series B-1 Conversion Price, the following shall be
applicable:
(i) Issuance of Rights or Options. If the Corporation in any
manner grants or sells any Options (other than stock options granting Reserved
Employee Stock) and the price per share for which Common Stock is issuable upon
the exercise of such Options, or upon conversion or exchange of any Convertible
Securities issuable upon exercise of such Options, is less than the applicable
Series A Conversion Price or Series B and Series B-1 Conversion Price in effect
immediately prior to the time of the granting or sale of such Options, then the
total maximum number of shares of Common Stock issuable upon the exercise of
such Options or upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options shall be
deemed to have been issued and sold by the Corporation at the time of the
granting or sale of such Options for such price per share. For purposes of this
paragraph, the "price per share for which Common Stock is issuable" shall be
determined by dividing (A) the total amount, if any, received or receivable by
the Corporation as consideration for the granting or sale of such Options, plus
the minimum aggregate amount of additional consideration payable to the
Corporation upon exercise of all such Options, plus in the case of such Options
which relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the issuance
or sale of such Convertible Securities and the conversion or exchange thereof,
by (B) the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise
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of such Options. No further adjustment of the Series A Conversion Price or
Series B and Series B-1 Conversion Price shall be made when Convertible
Securities are actually issued upon the exercise of such Options or when Common
Stock is actually issued upon the exercise of such Options or the conversion or
exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Corporation in
any manner issues or sells any Convertible Securities and the price per share
for which Common Stock is issuable upon conversion or exchange thereof is less
than the applicable Series A Conversion Price or Series B and Series B-1
Conversion Price in effect immediately prior to the time of such issue or sale,
then the total maximum number of shares of Common Stock issuable upon conversion
or exchange of such Convertible Securities shall be deemed to have been issued
and sold by the Corporation at the time of the issuance or sale of such
Convertible Securities for such price per share. For the purposes of this
paragraph, the "price per share for which Common Stock is issuable" shall be
determined by dividing (A) the total amount received or receivable by the
Corporation as consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Corporation upon the conversion or exchange thereof, by (B)
the total maximum number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities. No further adjustment of the
Series A Conversion Price or Series B and Series B-1 Conversion Price shall be
made when Common Stock is actually issued upon the conversion or exchange of
such Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustments of the
Series A Conversion Price or Series B and Series B-1 Conversion Price had been
or are to be made pursuant to other provisions of this Section 5, no further
adjustment of the Series A Conversion Price or Series B and Series B-1
Conversion Price shall be made by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate. If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the conversion or exchange of any Convertible Securities or
the rate at which any Convertible Securities are convertible into or
exchangeable for Common Stock changes at any time, the Series A Conversion Price
or Series B and Series B-1 Conversion Price in effect at the time of such change
shall be immediately adjusted to the applicable Series A Conversion Price or
Series B and Series B-1 Conversion Price which would have been in effect at such
time had such Options or Convertible Securities still outstanding provided for
such changed purchase price, additional consideration or conversion rate, as the
case may be, at the time initially granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option or the termination of any right
to convert or exchange any Convertible Security without the exercise of any such
Option or right, the Series A Conversion Price or Series B and Series B-1
Conversion Price then in effect hereunder shall be adjusted immediately to the
applicable Series A Conversion Price or Series B and Series B-1 Conversion Price
which would have been in
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effect at the time of such expiration or termination had such Option or
Convertible Security, to the extent outstanding immediately prior to such
expiration or termination, never been issued.
(v) Calculation of Consideration Received. If any Common Stock,
Option or Convertible Security is issued or sold or deemed to have been issued
or sold for cash, the consideration received therefor shall be deemed to be the
amount received by the Corporation therefor (net of discounts, commissions and
related expenses). If any Common Stock, Option or Convertible Security is issued
or sold for a consideration other than cash, the amount of the consideration
other than cash received by the Corporation shall be the fair value of such
consideration. If any Common Stock, Option or Convertible Security is issued to
the owners of the non-surviving entity in connection with any merger in which
the Corporation is the surviving corporation, the amount of consideration
therefor shall be deemed to be the fair value of such portion of the net assets
and business of the non-surviving entity as is attributable to such Common
Stock, Option or Convertible Security, as the case may be. The fair value of any
consideration other than cash and securities shall be determined jointly by the
Corporation and the Required Holders. If such parties are unable to reach
agreement within a reasonable period of time, the fair value of such
consideration shall be determined by an independent appraiser experienced in
valuing such type of consideration jointly selected by the Corporation and the
Required Holders. The determination of such appraiser shall be final and binding
upon the parties, and the reasonable fees and expenses of such appraiser shall
be borne by the Corporation.
(vi) Integrated Transactions. In case any Option is issued in
connection with the issue or sale of other securities of the Corporation,
together comprising one integrated transaction, the Board of Directors of the
Corporation shall make a good faith determination of the portion of the
consideration received therefor allocable as consideration for which the
Corporation issued the Option.
(vii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Corporation or any Subsidiary, and the disposition of any
shares so owned or held shall be considered an issue or sale of Common Stock.
(d) Adjustment for Stock Splits and Combinations. If the Corporation
shall at any time or from time to time after the date that the first share of
Series B Preferred is issued (the "Original Series B and Series B-1 Issue Date")
effect a subdivision of the outstanding Common Stock, the Series A Conversion
Price and the Series B and Series B-1 Conversion Price in effect immediately
before that subdivision shall be proportionately decreased. Conversely, if the
Corporation shall at any time or from time to time after the Original Series B
and Series B-1 Issue Date combine the outstanding shares of Common Stock into a
smaller number of shares, the Series A Conversion Price and the Series B and
Series B-1 Conversion Price in effect immediately before the combination shall
be proportionately increased. Any adjustment under this
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Section 5(d) shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(e) Adjustment for Common Stock Dividends and Distributions. If the
Corporation at any time or from time to time after the Original Series B and
Series B-1 Issue Date makes, or fixes a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in additional shares of Common Stock, in each such event the Series A
Conversion Price and the Series B and Series B-1 Conversion Price that is then
in effect shall be decreased as of the time of such issuance or, in the event
such record date is fixed, as of the close of business on such record date, by
multiplying each of the Series A Conversion Price and the Series B and Series
B-1 Conversion Price then in effect by a fraction (1) the numerator of which is
the total number of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on such record date,
and (2) the denominator of which is the total number of shares of Common Stock
issued and outstanding immediately prior to the time of such issuance or the
close of business on such record date plus the number of shares of Common Stock
issuable in payment of such dividend or distribution; provided, however, that if
such record date is fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, each of the Series A
Conversion Price and the Series B and Series B-1 Conversion Price shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Series A Conversion Price and the Series B and Series B-1
Conversion Price shall be adjusted pursuant to this Section 5(e) to reflect the
actual payment of such dividend or distribution.
(f) Adjustments for Other Dividends and Distributions. If the
Corporation at any time or from time to time after the Original Series B and
Series B-1 Issue Date makes, or fixes a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in securities of the Corporation other than shares of Common Stock, in
each such event provision shall be made so that the holders of the Series A
Preferred and the holders of Series B Preferred and Series B-1 Preferred shall
receive upon conversion thereof, in addition to the number of shares of Common
Stock receivable thereupon, the amount of other securities of the Corporation
which they would have received had their respective Senior Preferred been
converted into Common Stock on the date of such event and had they thereafter,
during the period from the date of such event to and including the conversion
date, retained such securities receivable by them as aforesaid during such
period, subject to all other adjustments called for during such period under
this Section 5 with respect to the rights of the holders of the Senior Preferred
or with respect to such other securities by their terms.
(g) Adjustment for Reclassification, Exchange and Substitution. If
at any time or from time to time after the Original Series B and Series B-1
Issue Date, the Common Stock issuable upon the conversion of the Senior
Preferred is changed into the same or a different number of shares of any class
or classes of stock, whether by recapitalization, reclassification or otherwise
(other than a subdivision or combination of
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shares or stock dividend or a reorganization, merger, consolidation or sale of
assets provided for elsewhere in this Section 5), in any such event each holder
of Senior Preferred shall have the right thereafter to convert such stock into
the kind and amount of stock and other securities and property receivable in
connection with such recapitalization, reclassification or other change with
respect to the maximum number of shares of Common Stock into which such shares
of Senior Preferred could have been converted immediately prior to such
recapitalization, reclassification or change, all subject to further adjustments
as provided herein or with respect to such other securities or property by the
terms thereof.
(h) Reorganizations, Mergers, Consolidations or Sales of Assets. If
at any time or from time to time after the Original Series B and Series B-1
Issue Date, there is a capital reorganization of the Common Stock (other than a
recapitalization, subdivision, combination, reclassification, exchange or
substitution of shares provided for elsewhere in this Section 5), as a part of
such capital reorganization, provision shall be made so that the holders of the
Senior Preferred shall thereafter be entitled to receive upon conversion of the
Senior Preferred the number of shares of stock or other securities or property
of the Corporation to which a holder of the maximum number of shares of Common
Stock deliverable upon conversion would have been entitled in connection with
such capital reorganization, subject to adjustment in respect of such stock or
securities by the terms thereof. In any such case, appropriate adjustment shall
be made in the application of the provisions of this Section 5 with respect to
the rights of the holders of Senior Preferred after the capital reorganization
to the end that the provisions of this Section 5 (including adjustment of the
Series A Conversion Price and the Series B and Series B-1 Conversion Price then
in effect and the number of shares issuable upon conversion of the Senior
Preferred) shall be applicable after that event and be as nearly equivalent as
practicable.
(i) Certificate of Adjustment. In each case of an adjustment or
readjustment of the Series A Conversion Price or the Series B and Series B-1
Conversion Price for the number of shares of Common Stock or other securities
issuable upon conversion of the Senior Preferred, the Corporation, at its
expense, shall compute such adjustment or readjustment in accordance with the
provisions hereof and prepare a certificate showing such adjustment or
readjustment, and shall mail such certificate, by first class mail, postage
prepaid, to each registered holder of Senior Preferred at the holder's address
as shown in the Corporation's books. The certificate shall set forth such
adjustment or readjustment, showing in detail the facts upon which such
adjustment or readjustment is based, including a statement of (1) the
consideration received or deemed to be received by the Corporation for any
additional shares of Common Stock issued or sold or deemed to have been issued
or sold, (2) the Series A Conversion Price and the Series B and Series B-1
Conversion Price at the time in effect, (3) the number of additional shares of
Common Stock issued or sold or deemed to have been issued or sold, and (4) the
type and amount, if any, of other property which at the time would be received
upon conversion of the Senior Preferred.
11
<PAGE>
(j) Notices of Record Date. Upon (i) any taking by the Corporation
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, or (ii) any Acquisition (as defined in Section 3(d)) or
other capital reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation with or into any other corporation, any Asset
Transfer (as defined in Section 3(d)), or any voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, the Corporation shall
mail to each holder of Senior Preferred at least twenty (20) days prior to the
record date specified therein a notice specifying (1) the date on which any such
record is to be taken for the purpose of such dividend or distribution and a
description of such dividend or distribution, (2) the date on which any such
Acquisition, reorganization, reclassification, transfer, consolidation, merger,
Asset Transfer, dissolution, liquidation or winding up is expected to become
effective, and (3) the date, if any, that is to be fixed for determining the
holders of record of Common Stock (or other securities) that shall be entitled
to exchange their shares of Common Stock (or other securities) for securities or
other property deliverable upon such Acquisition, reorganization,
reclassification, transfer, consolidation, merger, Asset Transfer, dissolution,
liquidation or winding up.
(k) Automatic Conversion. Each share of Senior Preferred shall
automatically be converted into shares of Common Stock, based on the then-
effective applicable Series A Conversion Price or Series B and Series B-1
Conversion Price, immediately upon the closing of a firm commitment underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, covering the offer and sale of Common Stock
for the account of the Corporation in which (i) the per share price to the
public is at least $25.00 per share (as adjusted for stock splits,
recapitalizations and the like), and (ii) the gross cash proceeds to the
Corporation (before underwriting discounts, commissions and fees) are at least
$30,000,000. Upon such automatic conversion, all declared but unpaid dividends,
if any, shall be paid in accordance with Section 5(1).
(l) Mechanics of Conversion.
(i) Optional Conversion. Each holder of Senior Preferred who
desires to convert the same into shares of Common Stock or each holder of Series
B-1 Preferred who desires to convert the same into shares of Series B Preferred
as the case may be, pursuant to this Section 5, shall surrender the certificate
or certificates therefor, duly endorsed, at the office of the Corporation or any
transfer agent for the Senior Preferred, and shall give written notice to the
Corporation at such office that such holder elects to convert the same. Such
notice shall state the number of shares of Senior Preferred being converted.
Thereupon, the Corporation shall promptly issue and deliver at such office to
such holder a certificate or certificates for the number of shares of Common
Stock, or shares of Series B Preferred as the case may be, to which such holder
is entitled and shall promptly pay in cash or, to the extent sufficient funds
are not then legally available therefor, in Common Stock (at the Common Stock's
fair market value determined by the Board of Directors as of the date of such
conversion), any declared
12
<PAGE>
but unpaid dividends on the shares of Senior Preferred being converted. Such
conversion shall be deemed to have been made at the close of business on the
date of such surrender of the certificate representing the shares of Senior
Preferred to be converted, and the person entitled to receive the shares of
Common Stock, or shares of Series B Preferred as the case may be, issuable upon
such conversion shall be treated for all purposes as the record holder of such
shares of Common Stock, or shares of Series B Preferred as the case may be, on
such date.
(ii) Automatic Conversion. Upon the occurrence of the event
specified in Section 5(k) above, the outstanding shares of Senior Preferred
shall be converted into Common Stock automatically without any further action by
the holders of such shares and whether or not the certificates representing such
shares are surrendered to the Corporation or its transfer agent; provided,
however, that the Corporation shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion unless the
certificates evidencing such shares of Senior Preferred are either delivered to
the Corporation or its transfer agent as provided below, or the holder notifies
the Corporation or its transfer agent that such certificates have been lost,
stolen or destroyed and executes an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection with such
certificates. Upon surrender by any holder of the certificates formerly
representing shares of Senior Preferred at the office of the Corporation or any
transfer agent for the Senior Preferred, there shall be issued and delivered to
such holder promptly at such office and in its name as shown on such surrendered
certificate or certificates, a certificate or certificates for the number of
shares of Common Stock into which the shares of Senior Preferred surrendered
were convertible on the date on which such automatic conversion occurred, and
the Corporation shall promptly pay in cash or, at the option of the Corporation,
Common Stock (at the Common Stock's fair market value determined by the Board as
of the date of such conversion) or, at the option of the Corporation, a
combination of both, all declared but unpaid dividends on the shares of Senior
Preferred being converted. Until surrendered as provided above, each certificate
formerly representing shares of Senior Preferred shall be deemed for all
corporate purposes to represent the number of shares of Common Stock resulting
from such automatic conversion.
(m) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of Senior Preferred. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
Senior Preferred by a holder thereof shall be aggregated for purposes of
determination whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion would
result in the issuance of any fractional share, the Corporation shall, in lieu
of issuing any fractional share, pay cash equal to the product of such fraction
multiplied by the Common Stock's fair market value (as determined by the Board)
on the date of conversion.
6. Certain Definitions.
13
<PAGE>
"Affiliate" means an affiliate as defined in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act of 1934, as amended.
"Event of Noncompliance" means any of the following:
(i) the Corporation fails to make any dividend, redemption or
other payment with respect to the Series A Preferred, Series B Preferred, or
Series B-1 Preferred which it is required to make hereunder, whether or not such
payment is legally permissible or is prohibited by any agreement to which the
Corporation is subject;
(ii) the Corporation breaches or otherwise fails to perform or
observe any other covenant or agreement set forth herein or in the Stockholders
Agreement, which default is not cured within a reasonable period of time (not to
exceed 45 days) after written notice of such default is provided to the
Corporation by the Required Holders or, if such default is not capable of being
cured, such default shall constitute an Event of Noncompliance upon provision of
such notice; provided, however, that no Event of Noncompliance shall have
occurred under this subparagraph (ii) if the Corporation establishes (to the
reasonable satisfaction of the Required Holders) that (a) the particular default
has not been caused by knowing or purposeful conduct by the Corporation or any
Subsidiary, (b) the Corporation has exercised, and continues to exercise, best
efforts to expeditiously cure the default (if cure is possible), (c) the default
is not material to the financial condition, operating results, operations,
assets or business prospects of the Corporation and its Subsidiaries, taken as a
whole, and (d) the default is not material to any holder's investment in the
Series A Preferred, Series B Preferred, or Series B-1 Preferred;
(iii) any representation or warranty made to any holder of
Series A Preferred in the Series A Purchase Agreement, any holder of Series B
Preferred and Series B-1 Preferred in the Series B and Series B-1 Purchase
Agreement, or in the Stockholders Agreement or any information required to be
furnished by the Corporation to holders of Senior Preferred, is false or
misleading in any material respect on the date made or furnished with respect to
the financial condition, operating results, operations, assets or business
prospects of the Corporation and its Subsidiaries, taken as a whole, or would
otherwise materially adversely affect any holder's interest in, or would have
materially adversely affected the investment decision of any holder with respect
to, the Senior Preferred.
(iv) the Corporation or any Significant Subsidiary makes an
assignment for the benefit of creditors or admits in writing its inability to
pay its debts generally as they become due; or an order, judgment or decree is
entered adjudicating the Corporation or any Significant Subsidiary bankrupt or
insolvent; or any order for relief with respect to the Corporation or any
Significant Subsidiary is entered under the Federal Bankruptcy Code; or the
Corporation or any Significant Subsidiary petitions or applies to any tribunal
for the appointment of a custodian, trustee, receiver or liquidator of the
Corporation or any Significant Subsidiary or of any substantial part of the
assets of the Corporation or any Significant Subsidiary, or commences any
proceeding (other
14
<PAGE>
than a proceeding for the voluntary liquidation and dissolution of a Subsidiary)
relating to the Corporation or any Significant Subsidiary under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction; or any such petition or application is
filed, or any such proceeding is commenced, against the Corporation or any
Significant Subsidiary and either (a) the Corporation or any such Significant
Subsidiary by any act indicates its approval thereof, consent thereto or
acquiescence therein or (b) such petition, application or proceeding is not
dismissed within 60 days; or the Corporation or any Significant Subsidiary
defaults in the payment when due of any monetary obligation in the amount of
$50,000 or more or defaults in the performance of any obligation or agreement if
the effect of such default is to cause an amount exceeding $50,000 to become due
prior to its scheduled payment date or to permit the holder or holders of any
such obligation (after giving effect to any applicable grace period) to cause an
amount exceeding $50,000 to become due prior to its scheduled payment date.
"Common Stock Deemed Outstanding" means, at any given time, the sum of
the number of shares of Common Stock actually outstanding at such time, plus (i)
the number of shares of Common Stock deemed to have been issued pursuant to
subparagraphs 5(c)(i) and 5(c)(ii) hereof whether or not the Options or
Convertible Securities are actually exercisable at such time and (ii) common
stock issuable pursuant to any vested employee options.
"Convertible Securities" means any stock or securities directly or
indirectly convertible into or exchangeable for Common Stock.
"Founding Stock" means shares of Common Stock, other than Reserved
Employee Stock, that are (i) owned by any Founding Stockholders or any Permitted
Transferee thereof, (ii) issued or issuable upon the conversion or exercise of
any stock (other than Series A Preferred, Series B Preferred, or Series B-1
Preferred), warrants, options or other securities of the Company owned by any
Founding Stockholder or any direct or indirect transferee, and (iii) issued as a
dividend or other distribution with respect to or in exchange for or in
replacement of the shares referenced in (i) and (ii) above.
"Founding Stockholders" means any stockholder that is a party to the
Stockholders Agreement other than (i) Centennial Fund V., L.P., a Delaware
limited partnership, Centennial Entrepreneurs Fund V., L.P., a Delaware limited
partnership, Alta Communications VI, L.P., a Delaware limited partnership, Alta-
Comm S By S, LLC, a Massachusetts limited liability company, Building
Communications, Inc., a Delaware limited liability company, and Tenant
Communications, Inc., a Massachusetts corporation, or (ii) any direct or
indirect transferee of any of the parties listed in (i) above.
"Options" means any rights, warrants or options to subscribe for or
purchase Common Stock or Convertible Securities.
15
<PAGE>
"Permitted Issuance" means (i) any issuance of Common Stock upon
conversion of shares of Senior Preferred or (ii) any issuance of Reserved
Employee Stock.
"Permitted Transferee" means with respect to a Founding Stockholder who
is an individual, a member of such Founding Stockholder's immediate family, a
trust established for the benefit of the Founding Stockholder or members of such
Founding Stockholder's immediate family, or a transferee of such Founding
Stockholder by will or the laws of intestate succession.
"Reserved Employee Stock" means up to 866,530.12 shares of Common Stock
issuable to employees, directors or consultants of the Corporation and its
Subsidiaries as determined by the Corporation's Board of Directors with vesting
and buy-back restrictions approved by the Board of Directors and the holders of
Senior Preferred Stock in accordance with the terms of the Stockholders
Agreement.
"Series A Purchase Agreement" means the Series A Preferred Stock Purchase
Agreement, dated as of July 15, 1997, by and among the Corporation and certain
investors, as such agreement may from time to time be amended in accordance with
its terms.
"Series B and Series B-1 Purchase Agreement" means the Series B Preferred
and Series B-1 Stock Purchase Agreement, dated as of September 30, 1998, by and
among the Corporation and certain investors, as such agreement may from time to
time be amended in accordance with its terms.
"Stockholders Agreement" means the Second Amended and Restated
Stockholders Agreement dated as of September 30, 1998, by and among the
Corporation, the purchasers of Series A Preferred, the purchasers of Series B
Preferred, the purchasers of Series B-1 Preferred and certain other stockholders
of the Corporation, as such agreement may from time to time be amended in
accordance with its terms.
"Significant Subsidiary" means a "significant subsidiary" as such term is
defined in Regulation S-X of the Securities and Exchange Commission.
"Subsidiary" means any corporation of which the shares of outstanding
capital stock possessing the voting power (under ordinary circumstances) to
elect a majority of the board of directors who are, at the time as of which any
determination is being made, owned by the Corporation either directly or
indirectly through Subsidiaries.
7. Amendment and Waiver.
No amendment, modification or waiver of any of the terms or provisions of
this Amended and Restated Certificate of Designation shall be binding or
effective without the prior written consent of the Required Holders and no
change in the terms hereof may be accomplished by merger or consolidation of the
Corporation with another corporation or entity unless the Corporation has
obtained the prior written consent of the
16
<PAGE>
Required Holders, provided that any action which would increase or decrease the
aggregate number of authorized shares or increase or decrease the par value of
the shares of the Series A Preferred, the Series B Preferred or the Series B-1
Preferred, as the case may be, or alter or change any of the powers, preferences
or special rights of the Series A Preferred, the Series B Preferred or the
Series B-1 Preferred, as the case may be, so as to affect them adversely shall
require the consent of the holders of at least 80% of the outstanding shares of
Series A Preferred where such action will affect the Series A Preferred, 97% of
the outstanding shares of Series B Preferred where such action will affect the
Series B Preferred and a majority of the outstanding shares of Series B-1
Preferred where such action will affect the Series B-1 Preferred. Any amendment,
modification or waiver of any of the terms or provisions of this Amended and
Restated Certificate of Designation made in compliance with this Section 7,
whether prospective or retroactively effective, shall be binding upon all
holders of Senior Preferred.
8. General Provisions.
(a) Registration of Transfer. The Corporation shall keep at its
principal office a register for the registration of the Series A Preferred, the
Series B Preferred, and the Series B-1 Preferred. Upon the surrender of any
certificate representing Senior Preferred at such place, the Corporation shall,
at the request of the record holder of such certificate, execute and deliver (at
the Corporation's expense) a new certificate or certificates in exchange
therefor representing in the aggregate the number of shares represented by the
surrendered certificate. Each such new certificate shall be registered in such
name and shall represent such number of shares as is requested by the holder of
the surrendered certificate and shall be substantially identical in form to the
surrendered certificate.
(b) Replacement. Upon receipt of evidence reasonably satisfactory to
the Corporation (an affidavit of the registered holder shall be satisfactory) of
the ownership and the loss, theft, destruction or mutilation of any certificate
evidencing shares of Senior Preferred, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or in the case
of any such mutilation upon surrender of such certificate, the Corporation shall
(at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of shares of such class
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate.
(c) Reservation of Common Stock Issuable Upon Conversion. The
Corporation 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 the shares of the Senior Preferred, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of Senior Preferred. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then-outstanding
17
<PAGE>
shares of the Senior Preferred, the Corporation 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 purpose.
(d) Reservation of Series B Preferred Issuable Upon Conversion of
Series B-1 Preferred. The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Series B Preferred Stock,
solely for the purpose of effecting the conversion of the shares of the Series
B-1 Preferred, such number of its shares of Series B Preferred as shall from
time to time be sufficient to effect the conversion of all outstanding shares of
Series B-1 Preferred. If at any time the number of authorized but unissued
shares of Series B Preferred shall not be sufficient to effect the conversion of
all then-outstanding shares of the Series B-1 Preferred, the Corporation will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Series B Preferred to such
number of shares as shall be sufficient for such purpose.
(e) Notices. Any notice required by the provisions of this
Certificate of Designation shall be in writing and shall be deemed effectively
given: (i) upon personal delivery to the party to be notified, (ii) when sent by
confirmed telex or facsimile if sent during normal business hours of the
recipient; if not, then on the next business day, (iii) five (5) days after
having been sent by registered or certified mail, return receipt requested,
postage prepaid, or (iv) one (1) day after deposit with a nationally recognized
overnight courier, specifying next day delivery, with written verification of
receipt. All notices to stockholders shall be addressed to each holder of
record at the address of such holder appearing on the books of the Corporation.
(f) Payment of Taxes. The Corporation will pay all taxes (other than
taxes based upon income) and other governmental charges that may be imposed with
respect to the issue or delivery of shares of Common Stock (or Series B
Preferred in the case of the conversion of Series B-1 Preferred into Series B
Preferred) upon conversion of shares of Senior Preferred, excluding any tax or
other charge imposed in connection with any transfer involved in the issue and
delivery of shares of Common Stock in a name other than that in which the shares
of Senior Preferred so converted were registered.
(g) No Dilution or Impairment. The Corporation shall not amend its
Certificate of Incorporation or participate in any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation.
(h) No Reissuance of Senior Preferred. Any share of Senior Preferred
which is redeemed or otherwise acquired (by purchase, conversion or otherwise)
by the Corporation will be canceled and will not be reissued, sold or
transferred.
18
<PAGE>
EXHIBIT 3.2
FIRST CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CYPRESS COMMUNICATIONS, INC.
CYPRESS COMMUNICATIONS, INC. (the "Corporation"), a corporation organized
under the General Corporation Law of the State of Delaware (the "DGCL"), hereby
certifies that:
1. This First Certificate of Amendment amends the Amended and Restated
Certificate of Incorporation of the Corporation.
2. The Board of Directors of the Corporation and the requisite majority
of each class of outstanding stock of the Corporation entitled to vote thereon
duly adopted and approved the amendments set forth herein in compliance with
Section 242 of the DGCL.
3. Part A of Article IV of the Amended and Restated Certificate of
Incorporation is hereby amended and restated in its entirety as follows:
"PART A. Authorized Shares
-----------------
The total number of shares of capital stock which the Corporation
shall have authority to issue is 8,392,779.58 shares, consisting of:
(a) 3,709,941 shares of Preferred Stock, par value $.001 per share
(the "Preferred Stock"); and
(b) 4,682,838.58 shares of Common Stock, par value $.001 per share."
4. Part C of Article IV of the Amended and Restated Certificate of
Incorporation is hereby amended and restated in its entirety as follows:
"PART C. Designation of Preferred Stock
------------------------------
The Corporation hereby designates 1,211,140 shares of Preferred Stock
as Series A Preferred Stock, 1,919,188 shares of Preferred Stock as Series
B Preferred Stock and 579,613 shares of Preferred Stock as Series B-1
Preferred Stock. Such shares shall have the respective rights and
preferences set forth in the Amended and Restated Certificate of
Designation of Series A Preferred Stock, Certificate of Designation of
Series B Preferred Stock and Certificate of Designation of Series B-1
Preferred Stock attached hereto as Exhibit A and incorporated herein by
---------
reference."
5. The Amended and Restated Certificate of Designation of Series A
Preferred Stock, Certificate of Designation of Series B Preferred Stock, and
Certificate of Designation of
<PAGE>
Series B-1 Preferred Stock of Cypress Communications, Inc. (attached as Exhibit
-------
A to the Amended and Restated Certificate of Incorporation) is hereby amended by
- -
deleting the first sentence of the first paragraph thereof and inserting in lieu
thereof the following new first sentence of the first paragraph:
"One Million Two Hundred Eleven Thousand One Hundred Forty (1,211,140)
of the authorized shares of Preferred Stock are hereby designated "Series A
Preferred Stock" (the "Series A Preferred"), One Million Nine Hundred and
Nineteen Thousand One Hundred Eighty-Eight (1,919,188) are hereby
designated "Series B Preferred Stock" (the "Series B Preferred"), and Five
Hundred Seventy Nine Thousand Six Hundred Thirteen (579,613) are hereby
designated "Series B-1 Preferred Stock" (the "Series B-1 Preferred")."
6. The Amended and Restated Certificate of Designation of Series A
Preferred Stock, Certificate of Designation of Series B Preferred Stock, and
Certificate of Designation of Series B-1 Preferred Stock of Cypress
Communications, Inc. (attached as Exhibit A to the Amended and Restated
---------
Certificate of Incorporation) is hereby further amended by deleting subsection
(c) of Section 1 (Dividend Rights) in its entirety and inserting in lieu thereof
the following new subsection (c) of Section 1:
"(c) So long as any Series B Preferred remains outstanding, (i)
without the prior written consent of the holders of a majority of the
Series A Preferred and at least 96.7% of the Series B Preferred (excluding
for such purposes holders who are Founding Stockholders, whose consent
shall not be required), the Corporation shall not, nor shall it permit any
Subsidiary to, redeem, purchase or otherwise acquire directly or indirectly
any capital stock, other than Series B Preferred or Series B-1 Preferred,
of the Corporation; (ii) without the prior written consent of the holders
of a majority of the Series B Preferred, except as set forth in Section 4
hereof, the Corporation shall not, nor shall it permit any Subsidiary to,
redeem, purchase or otherwise acquire directly or indirectly any Series B
Preferred or Series B-1 Preferred; and (iii) without the prior written
consent of the holders of at least 96.7% of the outstanding shares of
Series B Preferred the Corporation shall not, directly or indirectly, pay
or declare any dividend or make any distribution upon any capital stock of
the Corporation. The provisions of this Section 1(c) shall not, however,
apply to (i) the acquisition of shares of any Junior Stock solely in
exchange for shares of any other Junior Stock, (ii) the payment of cash
dividends on the Common Stock to the extent that equivalent dividends are
paid on the Senior Preferred as provided above, or (iii) any repurchase of
any Reserved Employee Stock or Founding Stock from former employees,
directors or consultants in connection with termination of employment or
service as a director or consultant that is approved by the Corporation's
Board of Directors."
7. The Amended and Restated Certificate of Designation of Series A
Preferred Stock, Certificate of Designation of Series B Preferred Stock, and
Certificate of Designation of Series B-1 Preferred Stock of Cypress
Communications, Inc. (attached as Exhibit A to the Amended and Restated
---------
Certificate of Incorporation) is hereby further amended by deleting
<PAGE>
Section 7 (Amendment and Waiver) in its entirety and inserting in lieu thereof
the following new section 7:
"7. Amendment and Waiver.
No amendment, modification or waiver of any of the terms or provisions
of this Amended and Restated Certificate of Designation shall be binding or
effective without the prior written consent of the Required Holders and no
change in the terms hereof may be accomplished by merger or consolidation
of the Corporation with another corporation or entity unless the
Corporation has obtained the prior written consent of the Required Holders,
provided that any action which would increase or decrease the aggregate
number of authorized shares or increase or decrease the par value of the
shares of the Series A Preferred, the Series B Preferred or the Series B-1
Preferred, as the case may be, or alter or change any of the powers,
preferences or special rights of the Series A Preferred, the Series B
Preferred or the Series B-1 Preferred, as the case may be, so as to affect
them adversely shall require the consent of the holders of at least 80% of
the outstanding shares of Series A Preferred where such action will affect
the Series A Preferred, 96.7% of the outstanding shares of Series B
Preferred where such action will affect the Series B Preferred and a
majority of the outstanding shares of Series B-1 Preferred where such
action will affect the Series B-1 Preferred. Any amendment, modification
or waiver of any of the terms or provisions of this Amended and Restated
Certificate of Designation made in compliance with this Section 7, whether
prospective or retroactively effective, shall be binding upon all holders
of Senior Preferred."
8. The Amended and Restated Certificate of Designation of Series A
Preferred Stock, Certificate of Designation of Series B Preferred Stock, and
Certificate of Designation of Series B-1 Preferred Stock of Cypress
Communications, Inc. (attached as Exhibit A to the Amended and Restated
---------
Certificate of Incorporation) is hereby further amended by deleting the
definition of "Reserved Employee Stock" contained in Section 6 (Certain
Definitions) in its entirety and inserting in lieu thereof the following new
definition of Reserved Employee Stock:
"Reserved Employee Stock' means up to 966,530.12 shares of Common Stock
issuable to employees, directors or consultants of the Corporation and its
Subsidiaries as determined by the Corporation's Board of Directors with
vesting and buy-back restrictions approved by the Board of Directors and
the holders of Senior Preferred Stock in accordance with the terms of the
Stockholders Agreement."
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, this First Certificate of Amendment to the Amended and
Restated Certificate of Incorporation has been executed by the duly authorized
officer of CYPRESS COMMUNICATIONS, INC. on this 26/th/ day of August, 1999.
CYPRESS COMMUNICATIONS, INC.
By: /s/ Mark A. Graves
------------------------
Mark A. Graves, President
<PAGE>
EXHIBIT 3.3
SECOND CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CYPRESS COMMUNICATIONS, INC.
CYPRESS COMMUNICATIONS, INC. (the "Corporation"), a corporation organized
under the General Corporation Law of the State of Delaware (the "DGCL"), hereby
certifies that:
1. This Second Certificate of Amendment amends the Amended and Restated
Certificate of Incorporation of the Corporation.
2. The Board of Directors of the Corporation and the requisite majority
of each class of outstanding stock of the Corporation entitled to vote thereon
duly adopted and approved the amendments set forth herein in compliance with
Section 242 of the DGCL.
3. Part A of Article IV of the Amended and Restated Certificate of
Incorporation is hereby amended and restated in its entirety as follows:
"PART A. Authorized Shares
-----------------
The total number of shares of capital stock which the Corporation
shall have authority to issue is 18,581,775.78 shares, consisting of:
(a) 7,687,704.16 shares of Preferred Stock, par value $.001 per share
(the "Preferred Stock"); and
(b) 10,894,071.62 shares of Common Stock, par value $.001 per share."
4. Part C of Article IV of the Amended and Restated Certificate of
Incorporation is hereby amended and restated in its entirety as follows:
"PART C. Designation of Preferred Stock
------------------------------
The Corporation hereby designates 1,211,140 shares of Preferred Stock
as Series A Preferred Stock, 1,919,188 shares of Preferred Stock as Series
B Preferred Stock, 579,613 shares of Preferred Stock as Series B-1
Preferred Stock, and 3,977,763.16 shares of Preferred Stock as Series C
Preferred Stock. Such shares shall have the respective rights and
preferences set forth in the Second Amended Certificate of Designation of
Series A Preferred Stock, Amended Certificate of Designation of Series B
Preferred Stock and Series B-1 Preferred Stock, and Certificate of
Designation of Series C Preferred Stock and Series C-1 Preferred Stock
attached hereto as Exhibit A and incorporated herein by reference."
---------
<PAGE>
IN WITNESS WHEREOF, this Second Certificate of Amendment to the Amended and
Restated Certificate of Incorporation has been executed by the duly authorized
officer of CYPRESS COMMUNICATIONS, INC. on this 8/th/ day of October, 1999.
CYPRESS COMMUNICATIONS, INC.
By: /s/ R. Stanley Allen
------------------------------
R. Stanley Allen
Chief Executive Officer
<PAGE>
Exhibit A
SECOND AMENDED CERTIFICATE OF DESIGNATION
OF SERIES A PREFERRED STOCK,
AMENDED CERTIFICATE OF DESIGNATION
OF SERIES B PREFERRED STOCK
AND SERIES B-1 PREFERRED STOCK,
AND
CERTIFICATE OF DESIGNATION OF SERIES C PREFERRED STOCK AND
SERIES C-1 PREFERRED STOCK
OF
CYPRESS COMMUNICATIONS, INC.
One Million Two Hundred Eleven Thousand One Hundred Forty (1,211,140) of
the authorized shares of Preferred Stock are hereby designated "Series A
Preferred Stock" (the "Series A Preferred"), One Million Nine Hundred Nineteen
Thousand One Hundred Eighty Eight (1,919,188) are hereby designated "Series B
Preferred Stock" (the "Series B Preferred"), Five Hundred Seventy-Nine Thousand
Six Hundred Thirteen (579,613) are hereby designated "Series B-1 Preferred
Stock" (the "Series B-1 Preferred"), Three Million Nine Hundred Seventy-Seven
Thousand Seven Hundred Sixty-Three and 16/100 (3,977,763.16) are hereby
designated "Series C Preferred Stock" (the "Series C Preferred"), and no shares
are hereby designated "Series C-1 Preferred Stock" (the "Series C-1 Preferred").
The Series A Preferred, the Series B Preferred, the Series B-1 Preferred, the
Series C Preferred and the Series C-1 Preferred are hereinafter collectively
referred to as the "Senior Preferred." Certain other capitalized terms used
herein are defined in Section 6 hereof.
The rights, preferences, privileges, restrictions and other matters
relating to the Senior Preferred are as follows:
1. Dividend Rights.
(a) Each holder of Senior Preferred, in preference to the holders of
Common Stock of the Corporation, par value $.001 per share (the "Common Stock"),
and any other stock of the Corporation that is not by its terms expressly senior
in right of payment to the Senior Preferred (collectively, "Junior Stock"),
shall be entitled to receive dividends, when and as declared by the Board of
Directors, but only out of funds that are legally available therefor.
(b) The Corporation shall not declare or pay any dividends (whether
payable in cash, securities or other property) upon any Junior Stock other than
dividends payable solely in shares of Common Stock, unless the Corporation shall
first declare and pay to the holders of the Senior Preferred the dividends which
would have been declared and paid with respect to the Common Stock issuable upon
conversion of the Senior Preferred had all of the outstanding Senior Preferred
been converted immediately prior to the record date for such dividend, or if no
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date is fixed, the date as of which the record holders of Common Stock entitled
to such dividends are to be determined.
(c) So long as any Series B Preferred or Series C Preferred remains
outstanding, (i) without the prior written consent of the holders of a majority
of the Series A Preferred, at least 96.7% of the Series B Preferred, and at
least two-thirds of the Series C Preferred (excluding for such purposes holders
who are Founding Stockholders, whose consent shall not be required), the
Corporation shall not, nor shall it permit any Subsidiary to, redeem, purchase
or otherwise acquire directly or indirectly any capital stock, other than Series
C Preferred or Series C-1 Preferred, of the Corporation; (ii) without the prior
written consent of the holders of a majority of the Series C Preferred, except
as set forth in Section 4 hereof, the Corporation shall not, nor shall it permit
any Subsidiary to, redeem, purchase or otherwise acquire directly or indirectly
any Series C Preferred or Series C-1 Preferred; and (iii) without the prior
written consent of the holders of (x) at least 96.7% of the outstanding shares
of Series B Preferred and (y) at least two-thirds of the outstanding shares of
Series C Preferred, the Corporation shall not, directly or indirectly, pay or
declare any dividend or make any distribution upon any capital stock of the
Corporation. The provisions of this Section 1(c) shall not, however, apply to
(i) the acquisition of shares of any Junior Stock solely in exchange for shares
of any other Junior Stock, (ii) the payment of cash dividends (other than a
liquidating dividend) on the Common Stock to the extent that equivalent
dividends are paid on the Senior Preferred as provided above, (iii) any
repurchase of any Reserved Employee Stock, Founding Stock or Investor Stock from
former employees, directors or consultants that is approved by the Corporation's
Board of Directors in connection with termination of employment or service as a
director or consultant, or (iv) any repurchase of any Common Stock from any
former licensors that is approved by the Corporation's Board of Directors in
connection with the termination of a licensing arrangement.
2. Voting Rights.
(a) Generally. Except as otherwise provided herein or as required by
law, the Series A Preferred, the Series B Preferred and the Series C Preferred
(collectively the "Voting Senior Preferred") shall vote with the shares of the
Common Stock of the Corporation (and not as a separate class) at any annual or
special meeting of stockholders of the Corporation, and may act by written
consent in the same manner as the Common Stock, in either case upon the
following basis: each holder of shares of the Voting Senior Preferred shall be
entitled to such number of votes as shall be equal to the whole number of shares
of Common Stock into which such holder's aggregate number of shares of Voting
Senior Preferred are convertible (pursuant to Section 5 below) immediately after
the close of business on the record date fixed for such meeting or on the
effective date of such written consent. The holders of the Series B-1 Preferred
and the holders of the Series C-1 Preferred shall have no voting rights with
respect to any matter, except as required by the General Corporation Law of the
State of Delaware.
(b) Election of Directors. In the election of directors of the
Corporation, the holders of the Voting Senior Preferred, voting separately as a
single class to the exclusion of all other classes of the Corporation's capital
stock and with each share of Voting Senior Preferred entitled to one vote, shall
be entitled to elect five (5) directors (unless the Stockholders
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Agreement otherwise provides) to serve on the Corporation's Board of Directors
until such persons' successors are duly elected by the holders of the Voting
Senior Preferred or such persons are removed from office by the holders of the
Voting Senior Preferred. If the holders of the Voting Senior Preferred for any
reason fail to elect a director to fill any such directorship, such position
shall remain vacant until such time as the holders of the Voting Senior
Preferred elect a director to fill such position and shall not be filled by
resolution or vote of the Corporation's Board of Directors or the Corporation's
other stockholders. During the existence of an Event of Noncompliance and for a
period of two months after such Event of Noncompliance has been cured or waived,
the directors elected by the holders of Voting Senior Preferred shall be deemed
to constitute a separate class of directors of the Corporation within the
meaning of Section 141(d) of the Delaware General Corporation Law, and such
directors shall together be entitled to cast a number of votes on each matter
considered by the Board of Directors (including for purposes of determining the
existence of a quorum) equal to the sum of the number of votes entitled to be
cast by all other members of the Board of Directors plus one.
(c) Class Vote Requirement. Except as otherwise provided herein,
without the affirmative vote of the holders of 76% of the outstanding Series A
Preferred, the Series B Preferred, and the Series C Preferred (the "Required
Holders") voting together as a single class, the Corporation will not (i)
create, issue or authorize the issuance of any additional Senior Preferred or
create or authorize any new class or series of the Corporation's capital stock,
(ii) amend the Corporation's Certificate of Incorporation or bylaws, (iii)
engage in any merger, consolidation, recapitalization, liquidation, sale of
substantial assets outside the ordinary course of business, or any other
transaction described in Section 3(a) below, (iv) engage in any acquisition of
substantial assets outside the ordinary course of business or engage in any
business other than the business of the Corporation, described in the
Corporation's most recent annual business plan approved by the Board of
Directors of the Corporation and activities incidental thereto, (v) increase the
amount of Reserved Employee Stock, (vi) issue Founding Stock or (vii) engage in
any transaction with an Affiliate of the Corporation that is not approved by a
majority of the Corporation's disinterested directors.
3. Liquidation Rights.
(a) Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary (a "Liquidation Event"), before
any distribution or payment shall be made to the holders of any other stock of
the Corporation that is not by its terms expressly senior with respect to
liquidation rights to the Series C Preferred and Series C-1 Preferred
(including, without limitation, payment of the Series B and Series B-1
Liquidation Preference and the Series A Liquidation Preference), the holders of
Series C Preferred and Series C-1 Preferred shall be entitled to be paid out of
the assets of the Corporation, to the extent legally available for distribution,
an amount with respect to each share of Series C Preferred and Series C-1
Preferred (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares) equal to the sum of
(A) $19.00, plus (B) all accrued or declared but unpaid dividends thereon (the
"Series C and Series C-1 Liquidation Preference" or the "Series C and Series C-1
Liquidation Value").
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(b) Upon any Liquidation Event, after the payment in full of the
Series C and Series C-1 Preferred Liquidation Preference and before any
distribution or payment shall be made to the holders of any other stock of the
Corporation that is not by its terms expressly senior with respect to
liquidation rights to the Series B Preferred and the Series B-1 Preferred, the
holders of Series B Preferred and Series B-1 Preferred shall be entitled to be
paid out of the assets of the Corporation, to the extent legally available for
distribution, an amount with respect to each share of Series B Preferred and
Series B-1 Preferred (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares) equal to the sum of
(A) the Original Series B and Series B-1 Issue Price, as defined in Section 5(b)
below, plus (B) all accrued or declared but unpaid dividends thereon (the
"Series B and Series B-1 Liquidation Preference" or the "Series B and Series B-1
Liquidation Value").
(c) Upon any Liquidation Event, after the payment in full of (i) the
Series C and Series C-1 Preferred Liquidation Preference, and (ii) the Series B
and Series B-1 Preferred Liquidation Preference, and before any distribution or
payment shall be made to the holders of any other stock of the Corporation that
is not by its terms expressly senior with respect to liquidation rights to the
Series A Preferred, the holders of Series A Preferred shall be entitled to be
paid out of the assets of the Corporation, to the extent legally available for
distribution, an amount with respect to each share of Series A Preferred (as
adjusted for any stock dividends, combinations, splits, recapitalizations and
the like with respect to such shares) equal to the sum of (A) the Original
Series A Issue Price, as defined in Section 5(b) below, plus (B) all accrued or
declared but unpaid dividends thereon (the "Series A Liquidation Preference" or
the "Series A Liquidation Value").
(d) After the payment in full of (i) the Series C and Series C-1
Liquidation Preference, (ii) the Series B and Series B-1 Liquidation Preference,
and (iii) the Series A Liquidation Preference, the remaining assets of the
Corporation legally available for distribution, if any, shall be distributed to
the holders of Junior Stock, if any, entitled to a preference over the Common
Stock and, thereafter, to the holders of Common Stock. In lieu of receiving
distributions pursuant to Sections 3(a), 3(b), and 3(c) the holders of a series
of Senior Preferred may elect to participate in distributions to holders of the
Common Stock such that the holders of such series of Senior Preferred receive
aggregate distributions equal to the amounts that such holders would have
received if the Senior Preferred Stock had been converted into Common Stock
immediately prior to such Liquidation Event.
(e) At the option of the Required Holders (and with respect to any
Deemed Liquidation Event in connection with which the amount payable or
distributable to the holders of the Series C Preferred and Series C-1 Preferred
is less than the Series C and C-1 Liquidation Preference, unless the holders of
two-thirds of the outstanding Series C Preferred Stock elect otherwise), the
following events (collectively, the "Deemed Liquidation Events") shall be
considered a Liquidation Event for purposes of this Section 3:
(i) any merger, consolidation, business combination,
reorganization or recapitalization of the Corporation to which the Corporation
is a party, except for a merger, consolidation or other corporate
reorganization, in which after giving effect to such event, the holders of the
Corporation's outstanding capital stock as of the filing date hereof, or their
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<PAGE>
respective Permitted Transferees, own directly or indirectly at least 50% of the
Corporation's voting power under ordinary circumstances (an "Acquisition"); or
(ii) a sale, lease or other disposition of all or substantially
all of the assets of the Corporation (an "Asset Transfer"); or
(iii) any transaction (other than a sale of stock in connection
with a public offering) as a result of which the holders of the corporation's
outstanding capital stock as of the filing date hereof, or their Permitted
Transferees, cease to own securities representing in excess of 50% of the
Company's voting power under ordinary circumstances (a "Stock Sale").
(f) If, upon any Liquidation Event, the assets of the Corporation
legally available for distribution shall be insufficient to make payment in full
of the Series C and Series C-1 Preferred Liquidation Preference, then such
assets shall be distributed among the holders of Series C Preferred and Series
C-1 Preferred at the time outstanding, ratably in proportion to the full amounts
to which they would otherwise be respectively entitled as a liquidation
preference.
(g) If, upon any Liquidation Event, the assets of the Corporation
legally available for distribution shall be sufficient to make payment in full
of the Series C and Series C-1 Preferred Liquidation Preference, but the assets
then remaining and legally available for distribution shall be insufficient to
make payment in full of the Series B and the Series B-1 Preferred Liquidation
Preference, then such remaining assets shall be distributed among the holders of
Series B Preferred and Series B-1 Preferred at the time outstanding, ratably in
proportion to the full amounts to which they would otherwise be respectively
entitled as a liquidation preference.
(h) If, upon any Liquidation Event, the assets of the Corporation
legally available for distribution shall be sufficient to make payment in full
of (i) the Series C and Series C-1 Preferred Liquidation Preference, and (ii)
the Series B and Series B-1 Preferred Liquidation Preference, but the assets
then remaining and legally available for distribution shall be insufficient to
make payment in full of the Series A Preferred Liquidation Preference, then such
remaining assets shall be distributed among the holders of Series A Preferred at
the time outstanding, ratably in proportion to the full amounts to which they
would otherwise be respectively entitled as a liquidation preference.
4. Redemption Rights.
(a) Scheduled Redemptions.
Subject to all other provisions of this Certificate of Incorporation, at
the written request of a holder of then-outstanding Senior Preferred (which must
be furnished to the Corporation not more than 120 nor less than 30 days prior to
the Scheduled Redemption Date, as defined below), the Corporation shall redeem
the number of shares of Senior Preferred requested to be redeemed by such holder
up to an amount not exceeding 33-1/3% of the total number of shares of Senior
Preferred issued to such holders (or, if applicable, the entity from which such
holder's shares were
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<PAGE>
transferred) under the Series A Purchase Agreement, the Series B and Series B-1
Purchase Agreement, the Series C and Series C-1 Purchase Agreement, or such
holder's individual subscription agreement with the Corporation, as the case may
be (or such lesser number then outstanding or previously transferred) on each of
the sixth, seventh and eighth anniversaries of October 8, 1999 (each, a
"Scheduled Redemption Date"), at a price per share equal to the Series A
Liquidation Value, the Series B and Series B-1 Liquidation Value, or the Series
C and Series C-1 Liquidation Value, as the case may be.
(b) Redemption Payments. The Corporation shall effect such
redemptions on the applicable Scheduled Redemption Date by paying in cash in
exchange for the shares of Senior Preferred to be redeemed, a sum equal to the
Series A Liquidation Value, the Series B and Series B-1 Liquidation Value, or
the Series C and Series C-1 Liquidation Value, as applicable, to the holder
thereof (upon surrender by such holder at the Corporation's principal office of
the certificate representing such share, duly endorsed). If, upon any Scheduled
Redemption Date, the assets of the Corporation legally available for redemption
of the Senior Preferred shall be insufficient to redeem in full all shares
requested to be redeemed on such date by all holders of Senior Preferred in
accordance with this paragraph, then the shares of Senior Preferred requested to
be redeemed shall be redeemed ratably in proportion to the full amounts that the
holders of such shares would be entitled to have redeemed (for such purpose,
without regard to whether the number sought to be redeemed by any such holder is
actually less than such full amounts). At any time thereafter when additional
funds of the Corporation are legally available for the redemption of Senior
Preferred, such funds shall immediately be used to redeem as much of the balance
of the shares which the Corporation has become obligated to redeem as can be
redeemed with such additional funds on any Scheduled Redemption Date, but which
it has not redeemed; provided that any holder shall be entitled in its sole
discretion to decline to have any shares held by it so redeemed.
(c) Certificates for Balance. In case fewer than the total number of
shares represented by any certificate are redeemed, a new certificate
representing the number of unredeemed shares shall be issued to the holder
thereof without cost to such holder within five business days after surrender of
the certificate representing the redeemed shares.
(d) Other Redemptions or Acquisitions. Except as expressly authorized
herein, the Corporation shall not, nor shall it permit any Subsidiary to, redeem
or otherwise acquire any shares of Senior Preferred. Subject to all other
provisions in this Certificate of Incorporation, any redemption or acquisition
of shares of Senior Preferred shall be made pro rata to all holders of Senior
Preferred which participate in such redemption or acquisition, on the basis of
the liquidation value of the shares owned by each such holder and any such
holder may elect not to participate in such a transaction.
5. Conversion Rights.
The holders of the Senior Preferred shall have the following rights with
respect to the conversion of the Senior Preferred into shares of Common Stock:
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(a) Optional Conversion. Subject to and in compliance with the
provisions of this Section 5, (i) each share of Series C-1 Preferred may, at the
option of the holder, be converted at any time into one fully-paid and
nonassessable share of Series C Preferred, and (ii) each share of Series B-1
Preferred may, at the option of the holder, be converted at any time into one
fully-paid and nonassessable share of Series B Preferred; provided, however,
that no shares of Series B-1 Preferred or Series C-1 Preferred held by Building
Communications LLC, a Delaware limited liability company ("Building
Communications") or any entity controlling, under common control with or
controlled by Building Communications, may be converted under this subparagraph
(a) while such shares are held by any such entities. Subject to and in
compliance with the provisions of this Section 5, any shares of Senior
Preferred, may, at the option of the holder, be converted at any time into
fully-paid and nonassessable shares of Common Stock. The number of shares of
Common Stock to which a holder of Senior Preferred shall be entitled upon
conversion shall be the product obtained by multiplying the applicable
"Conversion Rate" then in effect (determined as provided in Section 5(b)) by the
number of shares of Senior Preferred being converted.
(b) Conversion Rate. The conversion rate in effect at any time for
conversion of the Series A Preferred (the "Series A Conversion Rate") shall be
the quotient obtained by dividing the Original Series A Issue Price, plus any
declared but unpaid dividends thereon, by the "Series A Conversion Price"
calculated as provided in Section 5(c). The "Original Series A Issue Price"
shall be five dollars ($5.00), as appropriately adjusted for any future stock
splits, stock combinations, stock dividends or similar transactions affecting
the Senior Preferred. The conversion rate in effect at any time for conversion
of the Series B Preferred and Series B-1 Preferred (the "Series B and Series B-1
Conversion Rate") shall be the quotient obtained by dividing the Original Series
B and Series B-1 Issue Price, plus any declared but unpaid dividends thereon, by
the "Series B and Series B-1 Conversion Price" calculated as provided in Section
5(c). The "Original Series B and Series B-1 Issue Price" shall be eight dollars
($8.00), as appropriately adjusted for any future stock splits, stock
combinations, stock dividends or similar transactions affecting the Senior
Preferred. The conversion rate in effect at any time for conversion of the
Series C Preferred and Series C-1 Preferred (the "Series C and Series C-1
Conversion Rate") shall be the quotient obtained by dividing the Original Series
C and Series C-1 Issue Price, plus any declared but unpaid dividends thereon, by
the "Series C and Series C-1 Conversion Price" calculated as provided in Section
5(c). The "Original Series C and Series C-1 Issue Price" shall be nineteen
dollars ($19.00), as appropriately adjusted for any future stock splits, stock
combinations, stock dividends or similar transactions affecting the Senior
Preferred.
(c) Conversion Price. The conversion price for the Series A Preferred
(the "Series A Conversion Price") shall initially be the Original Series A Issue
Price. Such initial Series A Conversion Price shall be adjusted from time to
time in accordance with this Section 5. All references to the Series A
Conversion Price shall mean the Series A Conversion Price as so adjusted. The
conversion price for the Series B Preferred and Series B-1 Preferred (the
"Series B and Series B-1 Conversion Price")
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shall initially be the Original Series B and Series B-1 Issue Price. Such
initial Series B and Series B-1 Conversion Price shall be adjusted from time to
time in accordance with this Section 5. All references to the Series B and
Series B-1 Conversion Price shall mean the Series B and Series B-1 Conversion
Price as so adjusted. The conversion price for the Series C Preferred and Series
C-1 Preferred (the "Series C and Series C-1 Conversion Price") shall initially
be the Original Series C and Series C-1 Issue Price. Such initial Series C and
Series C-1 Conversion Price shall be adjusted from time to time in accordance
with this Section 5. All references to the Series C and Series C-1 Conversion
Price shall mean the Series C and Series C-1 Conversion Price as so adjusted. If
and whenever on or after the original date of issuance of the Series C Preferred
and Series C-1 Preferred the Corporation issues or sells, or in accordance with
this Section 5(c) is deemed to have issued or sold, any shares of its Common
Stock (other than pursuant to a Permitted Issuance) for a consideration per
share less than the Series A Conversion Price, the Series B and Series B-1
Conversion Price, or the Series C and Series C-1 Conversion Price in effect
immediately prior to the time of such issue or sale, then immediately upon such
issue or sale or deemed issue or sale the then existing Series A Conversion
Price, Series B and Series B-1 Conversion Price, or Series C and Series C-1
Conversion Price, as applicable, shall be reduced to the amount determined by
dividing (a) the sum of (1) the product derived by multiplying the Series A
Conversion Price, Series B and Series B-1 Conversion Price, or Series C and
Series C-1 Conversion Price, as applicable, in effect immediately prior to such
issue or sale by the number of shares of Common Stock Deemed Outstanding
immediately prior to such issue or sale, plus (2) the consideration, if any,
received or deemed to have been received by the Corporation upon such issue or
sale, by (b) the number of shares of Common Stock Deemed Outstanding immediately
after such issue or sale. For purposes of determining the adjusted Series A
Conversion Price, Series B and Series B-1 Conversion Price, or Series C and
Series C-1 Conversion Price, the following shall be applicable:
(i) Issuance of Rights or Options. If the Corporation in any
manner grants or sells any Options (other than stock options granting Reserved
Employee Stock) and the price per share for which Common Stock is issuable upon
the exercise of such Options, or upon conversion or exchange of any Convertible
Securities issuable upon exercise of such Options, is less than the applicable
Series A Conversion Price, Series B and Series B-1 Conversion Price, or Series C
and Series C-1 Conversion Price in effect immediately prior to the time of the
granting or sale of such Options, then the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon conversion or
exchange of the total maximum amount of such Convertible Securities issuable
upon the exercise of such Options shall be deemed to have been issued and sold
by the Corporation at the time of the granting or sale of such Options for such
price per share. For purposes of this paragraph, the "price per share for which
Common Stock is issuable" shall be determined by dividing (A) the total amount,
if any, received or receivable by the Corporation as consideration for the
granting or sale of such Options, plus the minimum aggregate amount of
additional consideration payable to the Corporation upon exercise of all such
Options, plus in the case of such Options which relate to Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
payable to the Corporation upon the issuance or sale of such Convertible
Securities and the conversion or exchange thereof, by (B) the total maximum
number of shares of Common Stock issuable upon the exercise of such Options or
upon the conversion or exchange of all such Convertible Securities issuable upon
the exercise of such Options. No further adjustment of the Series A Conversion
Price, the Series B and Series B-1 Conversion Price, or the Series C and Series
C-1 Conversion Price shall be made when Convertible Securities are actually
issued upon the exercise of such Options or when Common Stock is actually issued
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
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(ii) Issuance of Convertible Securities. If the Corporation in
any manner issues or sells any Convertible Securities (other than Convertible
Securities that are Permitted Issuances) and the price per share for which
Common Stock is issuable upon conversion or exchange thereof is less than the
applicable Series A Conversion Price, Series B and Series B-1 Conversion Price,
or Series C and Series C-1 Conversion Price in effect immediately prior to the
time of such issue or sale, then the total maximum number of shares of Common
Stock issuable upon conversion or exchange of such Convertible Securities shall
be deemed to have been issued and sold by the Corporation at the time of the
issuance or sale of such Convertible Securities for such price per share. For
the purposes of this paragraph, the "price per share for which Common Stock is
issuable" shall be determined by dividing (A) the total amount received or
receivable by the Corporation as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the conversion or
exchange thereof, by (B) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities. No
further adjustment of the Series A Conversion Price, Series B and Series B-1
Conversion Price, or Series C and Series C-1 Conversion Price shall be made when
Common Stock is actually issued upon the conversion or exchange of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustments of the
Series A Conversion Price, Series B and Series B-1 Conversion Price, or Series C
and Series C-1 Conversion Price had been or are to be made pursuant to other
provisions of this Section 5, no further adjustment of the Series A Conversion
Price, the Series B and Series B-1 Conversion Price, or the Series C and Series
C-1 Conversion Price shall be made by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate. If the purchase
price provided for in any Options, the additional consideration, if any, payable
upon the conversion or exchange of any Convertible Securities or the rate at
which any Convertible Securities are convertible into or exchangeable for Common
Stock changes at any time, the Series A Conversion Price, Series B and Series B-
1 Conversion Price, or Series C and Series C-1 Conversion Price in effect at the
time of such change shall be immediately adjusted to the applicable Series A
Conversion Price, Series B and Series B-1 Conversion Price, or Series C and
Series C-1 Conversion Price which would have been in effect at such time had
such Options or Convertible Securities still outstanding provided for such
changed purchase price, additional consideration or conversion rate, as the case
may be, at the time initially granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option or the termination of any right to
convert or exchange any Convertible Security without the exercise of any such
Option or right, the Series A Conversion Price, the Series B and Series B-1
Conversion Price, or the Series C and Series C-1 Conversion Price then in effect
hereunder shall be adjusted immediately to the applicable Series A Conversion
Price, Series B and Series B-1 Conversion Price, or Series C and Series C-1
Conversion Price which would have been in effect at the time of such expiration
or termination had such Option or Convertible Security, to the extent
outstanding immediately prior to such expiration or termination, never been
issued.
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(v) Calculation of Consideration Received. If any Common Stock,
Option or Convertible Security is issued or sold or deemed to have been issued
or sold for cash, the consideration received therefor shall be deemed to be the
amount received by the Corporation therefor (net of discounts, commissions and
related expenses). If any Common Stock, Option or Convertible Security is issued
or sold for a consideration other than cash, the amount of the consideration
other than cash received by the Corporation shall be the fair value of such
consideration. If any Common Stock, Option or Convertible Security is issued to
the owners of the non-surviving entity in connection with any merger in which
the Corporation is the surviving corporation, the amount of consideration
therefor shall be deemed to be the fair value of such portion of the net assets
and business of the non-surviving entity as is attributable to such Common
Stock, Option or Convertible Security, as the case may be. The fair value of any
consideration other than cash and securities shall be determined jointly by the
Corporation and the Required Holders. If such parties are unable to reach
agreement within a reasonable period of time, the fair value of such
consideration shall be determined by an independent appraiser experienced in
valuing such type of consideration jointly selected by the Corporation and the
Required Holders. The determination of such appraiser shall be final and binding
upon the parties, and the reasonable fees and expenses of such appraiser shall
be borne by the Corporation.
(vi) Integrated Transactions. In case any Option is issued in
connection with the issue or sale of other securities of the Corporation,
together comprising one integrated transaction, the Board of Directors of the
Corporation shall make a good faith determination of the portion of the
consideration received therefor allocable as consideration for which the
Corporation issued the Option.
(vii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Corporation or any Subsidiary, and the disposition of any
shares so owned or held shall be considered an issue or sale of Common Stock.
(d) Adjustment for Stock Splits and Combinations. If the Corporation
shall at any time or from time to time after the date that the first share of
Series C Preferred is issued (the "Original Series C and Series C-1 Issue Date")
effect a subdivision of the outstanding Common Stock, the Series A Conversion
Price, the Series B and Series B-1 Conversion Price, and the Series C and Series
C-1 Conversion Price in effect immediately before that subdivision shall be
proportionately decreased. Conversely, if the Corporation shall at any time or
from time to time after the Original Series C and Series C-1 Issue Date combine
the outstanding shares of Common Stock into a smaller number of shares, the
Series A Conversion Price, the Series B and Series B-1 Conversion Price, and the
Series C and Series C-1 Conversion Price in effect immediately before the
combination shall be proportionately increased. Any adjustment under this
Section 5(d) shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(e) Adjustment for Common Stock Dividends and Distributions. If the
Corporation at any time or from time to time after the Original Series C and
Series C-1 Issue Date makes, or fixes a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in additional shares of Common Stock, in each
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such event the Series A Conversion Price, the Series B and Series B-1 Conversion
Price, and the Series C and Series C-1 Conversion Price that is then in effect
shall be decreased as of the time of such issuance or, in the event such record
date is fixed, as of the close of business on such record date, by multiplying
each of the Series A Conversion Price, the Series B and Series B-1 Conversion
Price, and the Series C and Series C-1 Conversion Price then in effect by a
fraction (1) the numerator of which is the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date, and (2) the denominator of which is
the total number of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on such record date
plus the number of shares of Common Stock issuable in payment of such dividend
or distribution; provided, however, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, each of the Series A Conversion Price, the Series B and Series
B-1 Conversion Price, and the Series C and Series C-1 Conversion Price shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Series A Conversion Price, the Series B and Series B-1 Conversion
Price, and the Series C and Series C-1 Conversion Price shall be adjusted
pursuant to this Section 5(e) to reflect the actual payment of such dividend or
distribution.
(f) Adjustments for Other Dividends and Distributions. If the
Corporation at any time or from time to time after the Original Series C and
Series C-1 Issue Date makes, or fixes a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in securities of other entities or in securities of the Corporation
other than shares of Common Stock, in each such event provision shall be made so
that the holders of the Series A Preferred, the holders of Series B Preferred
and Series B-1 Preferred, and the holders of the Series C and Series C-1
Preferred shall receive upon conversion thereof, in addition to the number of
shares of Common Stock receivable thereupon, the amount of other securities of
the Corporation which they would have received had their respective Senior
Preferred been converted into Common Stock on the date of such event and had
they thereafter, during the period from the date of such event to and including
the conversion date, retained such securities receivable by them as aforesaid
during such period, subject to all other adjustments called for during such
period under this Section 5 with respect to the rights of the holders of the
Senior Preferred or with respect to such other securities by their terms.
(g) Adjustment for Reclassification, Exchange and Substitution. If at
any time or from time to time after the Original Series C and Series C-1 Issue
Date, the Common Stock issuable upon the conversion of the Senior Preferred is
changed into the same or a different number of shares of any class or classes of
stock, whether by recapitalization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend or a reorganization,
merger, consolidation or sale of assets provided for elsewhere in this Section
5), in any such event each holder of Senior Preferred shall have the right
thereafter to convert such stock into the kind and amount of stock and other
securities and property receivable in connection with such recapitalization,
reclassification or other change with respect to the maximum number of shares of
Common Stock into which such shares of Senior Preferred could have been
converted immediately prior to such recapitalization, reclassification or
change, all subject to further adjustments as provided herein or with respect to
such other securities or property by the terms thereof.
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(h) Reorganizations, Mergers, Consolidations or Sales of Assets. If
at any time or from time to time after the Original Series C and Series C-1
Issue Date, there is a capital reorganization of the Common Stock (other than a
recapitalization, subdivision, combination, reclassification, exchange or
substitution of shares provided for elsewhere in this Section 5), as a part of
such capital reorganization, provision shall be made so that the holders of the
Senior Preferred shall thereafter be entitled to receive upon conversion of the
Senior Preferred the number of shares of stock or other securities or property
of the Corporation to which a holder of the maximum number of shares of Common
Stock deliverable upon conversion would have been entitled in connection with
such capital reorganization, subject to adjustment in respect of such stock or
securities by the terms thereof. In any such case, appropriate adjustment shall
be made in the application of the provisions of this Section 5 with respect to
the rights of the holders of Senior Preferred after the capital reorganization
to the end that the provisions of this Section 5 (including adjustment of the
Series A Conversion Price, the Series B and Series B-1 Conversion Price, and the
Series C and Series C-1 Conversion Price then in effect and the number of shares
issuable upon conversion of the Senior Preferred) shall be applicable after that
event and be as nearly equivalent as practicable.
(i) Certificate of Adjustment. In each case of an adjustment or
readjustment of the Series A Conversion Price, the Series B and Series B-1
Conversion Price, or the Series C and Series C-1 Conversion Price, or the number
of shares of Common Stock or other securities issuable upon conversion of the
Senior Preferred, the Corporation, at its expense, shall compute such adjustment
or readjustment in accordance with the provisions hereof and prepare a
certificate showing such adjustment or readjustment, and shall mail such
certificate, by first class mail, postage prepaid, to each registered holder of
Senior Preferred at the holder's address as shown in the Corporation's books.
The certificate shall set forth such adjustment or readjustment, showing in
detail the facts upon which such adjustment or readjustment is based, including
a statement of (1) the consideration received or deemed to be received by the
Corporation for any additional shares of Common Stock issued or sold or deemed
to have been issued or sold, (2) the Series A Conversion Price, the Series B and
Series B-1 Conversion Price, and the Series C and Series C-1 Conversion Price at
the time in effect, (3) the number of additional shares of Common Stock issued
or sold or deemed to have been issued or sold, and (4) the type and amount, if
any, of other property which at the time would be received upon conversion of
the Senior Preferred.
(j) Notices of Record Date. Upon (i) any taking by the Corporation 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, or (ii) any Acquisition (as defined in Section 3(e)) or
other capital reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation with or into any other corporation, any Asset
Transfer (as defined in Section 3(e)), any Stock Sale (as defined in Section
3(e)), or any voluntary or involuntary dissolution, liquidation or winding up of
the Corporation, the Corporation shall mail to each holder of Senior Preferred
at least twenty (20) days prior to the record date specified therein a notice
specifying (1) the date on which any such record is to be taken for the purpose
of such dividend or distribution and a description of such dividend or
distribution, (2) the date on which any such Acquisition, reorganization,
reclassification, transfer, consolidation, merger, Asset Transfer, Stock Sale,
dissolution, liquidation or winding up is expected to become effective, and (3)
the date, if
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any, that is to be fixed for determining the holders of record of Common Stock
(or other securities) that shall be entitled to exchange their shares of Common
Stock (or other securities) for securities or other property deliverable upon
such Acquisition, reorganization, reclassification, transfer, consolidation,
merger, Asset Transfer, Stock Sale, dissolution, liquidation or winding up.
(k) Automatic Conversion. Each share of Senior Preferred shall
automatically be converted into shares of Common Stock, based on the then-
effective applicable Series A Conversion Price, Series B and Series B-1
Conversion Price, or the Series C and Series C-1 Conversion Price, immediately
upon the closing of a firm commitment underwritten public offering pursuant to
an effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of Common Stock for the account of the
Corporation in which (i) the per share price to the public is at least $38.00
per share (as adjusted for stock splits, recapitalizations, and the like), (ii)
the gross cash proceeds to the Corporation (before underwriting discounts,
commissions and fees) are at least $50,000,000, and (iii) the Corporation uses a
nationally recognized underwriter. Upon such automatic conversion, all declared
but unpaid dividends, if any, shall be paid in accordance with Section 5(1).
(l) Mechanics of Conversion.
(i) Optional Conversion. Each holder of Senior Preferred who
desires to convert the same into shares of Common Stock, each holder of
Series B-1 Preferred who desires to convert the same into shares of Series B
Preferred, or each holder of Series C-1 Preferred who desires to convert the
same into shares of Series C Preferred, as the case may be, pursuant to this
Section 5, shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or any transfer agent for the Senior
Preferred, and shall give written notice to the Corporation at such office that
such holder elects to convert the same. Such notice shall state the number of
shares of Senior Preferred being converted. Thereupon, the Corporation shall
promptly issue and deliver at such office to such holder a certificate or
certificates for the number of shares of Common Stock, shares of Series B
Preferred, or shares of Series C Preferred, as the case may be, to which such
holder is entitled and shall promptly pay in cash or, to the extent sufficient
funds are not then legally available therefor, in Common Stock (at the Common
Stock's fair market value determined by the Board of Directors as of the date of
such conversion), any declared but unpaid dividends on the shares of Senior
Preferred being converted. Such conversion shall be deemed to have been made at
the close of business on the date of such surrender of the certificate
representing the shares of Senior Preferred to be converted, and the person
entitled to receive the shares of Common Stock, shares of Series B Preferred, or
shares of Series C Preferred, as the case may be, issuable upon such conversion
shall be treated for all purposes as the record holder of such shares of Common
Stock, shares of Series B Preferred, or Shares of Series C Preferred, as the
case may be, on such date.
(ii) Automatic Conversion. Upon the occurrence of the event
specified in Section 5(k) above, the outstanding shares of Senior Preferred
shall be converted into Common Stock automatically without any further action by
the holders of such shares and whether or not the certificates representing such
shares are surrendered to the Corporation or its transfer agent; provided,
however, that the Corporation shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion unless the
certificates
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evidencing such shares of Senior Preferred are either delivered to the
Corporation or its transfer agent as provided below, or the holder notifies the
Corporation or its transfer agent that such certificates have been lost, stolen
or destroyed and executes an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection with such
certificates. Upon surrender by any holder of the certificates formerly
representing shares of Senior Preferred at the office of the Corporation or any
transfer agent for the Senior Preferred, there shall be issued and delivered to
such holder promptly at such office and in its name as shown on such surrendered
certificate or certificates, a certificate or certificates for the number of
shares of Common Stock into which the shares of Senior Preferred surrendered
were convertible on the date on which such automatic conversion occurred, and
the Corporation shall promptly pay all declared but unpaid dividends on the
shares of Senior Preferred being converted that were payable upon such
conversion. Until surrendered as provided above, each certificate formerly
representing shares of Senior Preferred shall be deemed for all corporate
purposes to represent the number of shares of Common Stock resulting from such
automatic conversion.
(m) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of Senior Preferred. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
Senior Preferred by a holder thereof shall be aggregated for purposes of
determination whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion would
result in the issuance of any fractional share, the Corporation shall, in lieu
of issuing any fractional share, pay cash equal to the product of such fraction
multiplied by the Common Stock's fair market value (as determined by the Board)
on the date of conversion.
6. Certain Definitions.
"Affiliate" means an affiliate as defined in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act of 1934, as amended.
"Event of Noncompliance" means any of the following:
(i) the Corporation fails to make any dividend, redemption or
other payment with respect to the Series A Preferred, Series B Preferred, Series
B-1 Preferred, Series C Preferred, or Series C-1 Preferred which it is required
to make hereunder, whether or not such payment is legally permissible or is
prohibited by any agreement to which the Corporation is subject;
(ii) the Corporation breaches or otherwise fails to perform or
observe any other covenant or agreement set forth herein or in the Stockholders
Agreement, which default is not cured within a reasonable period of time (not to
exceed 45 days) after written notice of such default is provided to the
Corporation by the Required Holders or, if such default is not capable of being
cured, such default shall constitute an Event of Noncompliance upon provision of
such notice; provided, however, that no Event of Noncompliance shall have
occurred under this subparagraph (ii) if the Corporation establishes (to the
reasonable satisfaction of the Required Holders) that (a) the particular default
has not been caused by knowing or purposeful conduct by the Corporation or any
Subsidiary, (b) the Corporation has exercised, and continues to exercise,
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best efforts to expeditiously cure the default (if cure is possible), (c) the
default is not material to the financial condition, operating results,
operations, assets or business prospects of the Corporation and its
Subsidiaries, taken as a whole, and (d) the default is not material to any
holder's investment in the Series A Preferred, Series B Preferred, Series B-1
Preferred, Series C Preferred, or Series C-1 Preferred;
(iii) any representation or warranty made to any holder of
Series A Preferred in the Series A Purchase Agreement, any holder of Series B
Preferred and Series B-1 Preferred in the Series B and Series B-1 Purchase
Agreement, any holder of Series C Preferred and Series C-1 Preferred in the
Series C and Series C-1 Purchase Agreement, or in the Stockholders Agreement or
any information required to be furnished by the Corporation to holders of Senior
Preferred, is false or misleading in any material respect on the date made or
furnished with respect to the financial condition, operating results,
operations, assets or business prospects of the Corporation and its
Subsidiaries, taken as a whole, or would otherwise materially adversely affect
any holder's interest in, or would have materially adversely affected the
investment decision of any holder with respect to, the Senior Preferred.
(iv) the Corporation or any Significant Subsidiary makes an
assignment for the benefit of creditors or admits in writing its inability to
pay its debts generally as they become due; or an order, judgment or decree is
entered adjudicating the Corporation or any Significant Subsidiary bankrupt or
insolvent; or any order for relief with respect to the Corporation or any
Significant Subsidiary is entered under the Federal Bankruptcy Code; or the
Corporation or any Significant Subsidiary petitions or applies to any tribunal
for the appointment of a custodian, trustee, receiver or liquidator of the
Corporation or any Significant Subsidiary or of any substantial part of the
assets of the Corporation or any Significant Subsidiary, or commences any
proceeding (other than a proceeding for the voluntary liquidation and
dissolution of a Subsidiary) relating to the Corporation or any Significant
Subsidiary under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any jurisdiction; or any
such petition or application is filed, or any such proceeding is commenced,
against the Corporation or any Significant Subsidiary and either (a) the
Corporation or any such Significant Subsidiary by any act indicates its approval
thereof, consent thereto or acquiescence therein or (b) such petition,
application or proceeding is not dismissed within 60 days; or the Corporation or
any Significant Subsidiary defaults in the payment when due of any monetary
obligation in the amount of $100,000 or more or defaults in the performance of
any obligation or agreement if the effect of such default is to cause an amount
exceeding $100,000 to become due prior to its scheduled payment date or to
permit the holder or holders of any such obligation (after giving effect to any
applicable grace period) to cause an amount exceeding $100,000 to become due
prior to its scheduled payment date.
"Common Stock Deemed Outstanding" means, at any given time, the sum of the
number of shares of Common Stock actually outstanding at such time, plus (i) the
number of shares of Common Stock deemed to have been issued pursuant to
subparagraphs 5(c)(i) and 5(c)(ii) hereof whether or not the Options or
Convertible Securities are actually exercisable at such time and (ii) common
stock issuable pursuant to any vested employee options.
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"Convertible Securities" means any stock or securities directly or
indirectly convertible into or exchangeable for Common Stock.
"Founding Stock" means shares of Common Stock, other than Reserved Employee
Stock, that are (i) owned by any Founding Stockholders or any Permitted
Transferee thereof, (ii) issued or issuable upon the conversion or exercise of
any stock (other than Series A Preferred, Series B Preferred, Series B-1
Preferred, Series C Preferred, or Series C-1 Preferred), warrants, options or
other securities of the Company owned by any Founding Stockholder or any direct
or indirect transferee, and (iii) issued as a dividend or other distribution
with respect to or in exchange for or in replacement of the shares referenced in
(i) and (ii) above.
"Founding Stockholders" means any stockholder that is a party to the
Stockholders Agreement other than (i) the "Investors", as such term is defined
in the Stockholders Agreement, or (ii) any direct or indirect transferee of any
of the Investors.
"Options" means any rights, warrants or options to subscribe for or
purchase Common Stock or Convertible Securities.
"Permitted Issuance" means (i) any issuance of Common Stock upon conversion
of shares of Senior Preferred, (ii) any issuance of Reserved Employee Stock, or
(iii) to the extent approved by the Corporation's Board of Directors, any
issuance of warrants to purchase Common Stock in connection with customer
licensing arrangements, together with Common Stock issuable upon exercise,
conversion or exchange of such warrants.
"Permitted Transferee" means (i) with respect to a Founding Stockholder who
is an individual, a member of such Founding Stockholder's immediate family, a
trust established for the benefit of the Founding Stockholder or members of such
Founding Stockholder's immediate family, or a transferee of such Founding
Stockholder by will or the laws of intestate succession, and (ii) with respect
to an Investor, any other person, entity or investment fund controlling,
controlled by or under common control with the Investor and any partner of an
Investor which is a partnership or any member of an Investor which is a limited
liability company, in a transfer upon liquidation or partial liquidation or pro
rata in-kind distribution.
"Reserved Employee Stock" means up to 2,000,000 shares of Common Stock
issuable to employees, directors or consultants of the Corporation and its
Subsidiaries as determined by the Corporation's Board of Directors with vesting
and buy-back restrictions approved by the Board of Directors and the holders of
Senior Preferred Stock in accordance with the terms of the Stockholders
Agreement.
"Series A Purchase Agreement" means the Series A Preferred Stock Purchase
Agreement, dated as of July 15, 1997, by and among the Corporation and certain
investors, as such agreement may from time to time be amended in accordance with
its terms.
"Series B and Series B-1 Purchase Agreement" means the Series B Preferred
and Series B-1 Preferred Stock Purchase Agreement, dated as of September 30,
1998, by and among the
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Corporation and certain investors, as such agreement may from time to time be
amended in accordance with its terms.
"Series C and Series C-1 Purchase Agreement" means the Series C Preferred
and Series C-1 Preferred Stock Purchase Agreement, dated on or about October 8,
1999, by and among the Corporation and certain investors, as such agreement may
from time to time be amended in accordance with its terms.
"Stockholders Agreement" means the Third Amended and Restated Stockholders
Agreement dated on or about October 8, 1999, by and among the Corporation, the
purchasers of Series A Preferred, the purchasers of Series B Preferred, the
purchasers of Series B-1 Preferred, the purchasers of Series C Preferred, the
purchasers of Series C-1 Preferred, and certain other stockholders of the
Corporation, as such agreement may from time to time be amended in accordance
with its terms.
"Significant Subsidiary" means a "significant subsidiary" as such term is
defined in Regulation S-X of the Securities and Exchange Commission.
"Subsidiary" means any corporation of which the shares of outstanding
capital stock possessing the voting power (under ordinary circumstances) to
elect a majority of the board of directors who are, at the time as of which any
determination is being made, owned by the Corporation either directly or
indirectly through Subsidiaries.
7. Amendment and Waiver.
No amendment, modification or waiver of any of the terms or provisions of
this Amended Certificate of Designation shall be binding or effective without
the prior written consent of the Required Holders and no change in the terms
hereof may be accomplished by merger or consolidation of the Corporation with
another corporation or entity unless the Corporation has obtained the prior
written consent of the Required Holders, provided that any action which would
increase or decrease the aggregate number of authorized shares or increase or
decrease the par value of the shares of the Series A Preferred, the Series B
Preferred, the Series B-1 Preferred, the Series C Preferred, or the Series C-1
Preferred, as the case may be, or alter or change any of the powers, preferences
or special rights of the Series A Preferred, the Series B Preferred, the Series
B-1 Preferred, the Series C Preferred, or the Series C-1 Preferred, as the case
may be, so as to affect them adversely shall require the consent of the holders
of at least 80% of the outstanding shares of Series A Preferred where such
action will affect the Series A Preferred, 96.7% of the outstanding shares of
Series B Preferred where such action will affect the Series B Preferred, a
majority of the outstanding shares of Series B-1 Preferred where such action
will affect the Series B-1 Preferred, two-thirds of the outstanding shares of
Series C Preferred where such action will affect the Series C Preferred, and a
majority of the outstanding shares of Series C-1 Preferred where such action
will affect the Series C-1 Preferred. Any amendment, modification or waiver of
any of the terms or provisions of this Amended Certificate of Designation made
in compliance with this Section 7, whether prospective or retroactively
effective, shall be binding upon all holders of Senior Preferred.
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8. General Provisions.
(a) Registration of Transfer. The Corporation shall keep at its
principal office a register for the registration of the Series A Preferred, the
Series B Preferred, the Series B-1 Preferred, the Series C Preferred, and the
Series C-1 Preferred. Upon the surrender of any certificate representing Senior
Preferred at such place, the Corporation shall, at the request of the record
holder of such certificate, execute and deliver (at the Corporation's expense) a
new certificate or certificates in exchange therefor representing in the
aggregate the number of shares represented by the surrendered certificate. Each
such new certificate shall be registered in such name and shall represent such
number of shares as is requested by the holder of the surrendered certificate
and shall be substantially identical in form to the surrendered certificate.
(b) Replacement. Upon receipt of evidence reasonably satisfactory to
the Corporation (an affidavit of the registered holder shall be satisfactory) of
the ownership and the loss, theft, destruction or mutilation of any certificate
evidencing shares of Senior Preferred, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or in the case
of any such mutilation upon surrender of such certificate, the Corporation shall
(at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of shares of such class
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate.
(c) Reservation of Common Stock Issuable Upon Conversion. The
Corporation 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 the shares of the Senior Preferred, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of Senior Preferred. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then-outstanding shares of the Senior Preferred, the
Corporation 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 purpose.
(d) Reservation of Series B Preferred Issuable Upon Conversion of
Series B-1 Preferred; Reservation of Series C Preferred Issuable Upon Conversion
of Series C-1 Preferred. The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Series B Preferred Stock,
solely for the purpose of effecting the conversion of the shares of the
Series B-1 Preferred, such number of its shares of Series B Preferred as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of Series B-1 Preferred. The Corporation shall at all times reserve and
keep available out of its authorized but unissued shares of Series C Preferred
Stock, solely for the purpose of effecting the conversion of the shares of the
Series C-1 Preferred, such number of its shares of Series C Preferred as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of Series C-1 Preferred. If at any time the number of authorized but
unissued shares of Series B Preferred or Series C Preferred, as the case may be,
shall not be sufficient to effect the conversion of all then-outstanding shares
of the Series B-1 Preferred or Series C-1 Preferred, as the case may be, the
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Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Series B
Preferred or Series C Preferred, as the case may be, to such number of shares as
shall be sufficient for such purpose.
(e) Notices. Any notice required by the provisions of this
Certificate of Designation shall be in writing and shall be deemed effectively
given: (i) upon personal delivery to the party to be notified, (ii) when sent by
confirmed telex or facsimile if sent during normal business hours of the
recipient; if not, then on the next business day, (iii) five (5) days after
having been sent by registered or certified mail, return receipt requested,
postage prepaid, or (iv) one (1) day after deposit with a nationally recognized
overnight courier, specifying next day delivery, with written verification of
receipt. All notices to stockholders shall be addressed to each holder of record
at the address of such holder appearing on the books of the Corporation.
(f) Payment of Taxes. The Corporation will pay all taxes and filing
fees (other than taxes based upon income) and other governmental charges that
may be imposed with respect to the issue or delivery of shares of Common Stock
(or Series B Preferred in the case of the conversion of Series B-1 Preferred
into Series B Preferred, or Series C Preferred in the case of the conversion of
Series C-1 Preferred into Series C Preferred) upon conversion of shares of
Senior Preferred, excluding any tax or other charge imposed in connection with
any transfer involved in the issue and delivery of shares of Common Stock in a
name other than that in which the shares of Senior Preferred so converted were
registered.
(g) No Dilution or Impairment. The Corporation shall not amend its
Certificate of Incorporation or participate in any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation.
(h) No Reissuance of Senior Preferred. Any share of Senior Preferred
which is redeemed or otherwise acquired (by purchase, conversion or otherwise)
by the Corporation will be canceled and will not be reissued, sold or
transferred.
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EXHIBIT 3.4
THIRD CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CYPRESS COMMUNICATIONS, INC.
CYPRESS COMMUNICATIONS, INC. (the "Corporation"), a corporation organized
under the General Corporation Law of the State of Delaware (the "DGCL"), hereby
certifies that:
1. This Third Certificate of Amendment amends the Amended and Restated
Certificate of Incorporation of the Corporation.
2. The Board of Directors of the Corporation and the requisite majority of
each class of outstanding stock of the Corporation entitled to vote thereon duly
adopted and approved the amendments set forth herein in compliance with Section
242 of the DGCL.
3. Part A of Article IV of the Amended and Restated Certificate of
Incorporation is hereby amended and restated in its entirety as follows:
"PART A. Authorized Shares
-----------------
The total number of shares of capital stock which the Corporation shall
have authority to issue is 19,047,302.10 shares, consisting of:
(a) 7,920,467.32 shares of Preferred Stock, par value $.001 per share
(the "Preferred Stock"); and
(b) 11,126,834.78 shares of Common Stock, par value $.001 per share."
4. Part C of Article IV of the Amended and Restated Certificate of
Incorporation is hereby amended and restated in its entirety as follows:
"PART C. Designation of Preferred Stock
------------------------------
The Corporation hereby designates 1,211,140 shares of Preferred Stock
as Series A Preferred Stock, 1,919,188 shares of Preferred Stock as Series
B Preferred Stock, 579,613 shares of Preferred Stock as Series B-1
Preferred Stock, and 4,210,526.32 shares of Preferred Stock as Series C
Preferred Stock. Such shares shall have the respective rights and
preferences set forth in the Second Amended Certificate of Designation of
Series A Preferred Stock, Amended Certificate of Designation of Series B
Preferred Stock and Series B-1 Preferred Stock, and Certificate of
Designation of Series C Preferred Stock and Series C-1 Preferred Stock
attached hereto as Exhibit A and incorporated herein by reference."
---------
<PAGE>
5. The Second Amended Certificate of Designation of Series A Preferred
Stock, Amended Certificate of Designation of Series B Preferred Stock and Series
B-1 Preferred Stock, and Certificate of Designation of Series C Preferred Stock
and Series C-1 Preferred Stock of Cypress Communications, Inc. (attached as
Exhibit A to the Second Certificate of Amendment to the Amended and Restated
- ---------
Certificate of Incorporation) is hereby amended by deleting the first sentence
of the first paragraph thereof and inserting in lieu thereof the following new
first sentence of the first paragraph:
"One Million Two Hundred Eleven Thousand One Hundred Forty (1,211,140)
of the authorized shares of Preferred Stock are hereby designated "Series A
Preferred Stock" (the "Series A Preferred"), One Million Nine Hundred
Nineteen Thousand One Hundred Eighty Eight (1,919,188) are hereby
designated "Series B Preferred Stock" (the "Series B Preferred"), Five
Hundred Seventy-Nine Thousand Six Hundred Thirteen (579,613) are hereby
designated "Series B-1 Preferred Stock" (the "Series B-1 Preferred"), Four
Million Two Hundred Ten Thousand Five Hundred Twenty-Six and 32/100
(4,210,526.32) are hereby designated "Series C Preferred Stock" (the
"Series C Preferred"), and no shares are hereby designated "Series C-1
Preferred Stock" (the "Series C-1 Preferred").
<PAGE>
IN WITNESS WHEREOF, this Third Certificate of Amendment to the Amended and
Restated Certificate of Incorporation has been executed by the duly authorized
officer of CYPRESS COMMUNICATIONS, INC. on this 24th day of November, 1999.
CYPRESS COMMUNICATIONS, INC.
By: /s/ R. Stanley Allen
-------------------------
R. Stanley Allen
Chief Executive Officer
<PAGE>
EXHIBIT 3.5
FOURTH CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CYPRESS COMMUNICATIONS, INC.
CYPRESS COMMUNICATIONS, INC. (the "Corporation"), a corporation organized
under the General Corporation Law of the State of Delaware (the "DGCL"), hereby
certifies that:
1. This Fourth Certificate of Amendment amends the Amended and Restated
Certificate of Incorporation of the Corporation, as amended.
2. The Board of Directors of the Corporation and the requisite majority of
each class of outstanding stock of the Corporation entitled to vote thereon duly
adopted and approved the amendments set forth herein in compliance with Section
242 of the DGCL.
3. Part A of Article IV of the Amended and Restated Certificate of
Incorporation is hereby amended and restated in its entirety as follows:
"PART A. Authorized Shares
-----------------
The total number of shares of capital stock which the Corporation shall
have authority to issue is 20,947,302.10 shares, consisting of:
(a) 7,920,467.32 shares of Preferred Stock, par value $.001 per share
(the "Preferred Stock"); and
(b) 13,026,834.78 shares of Common Stock, par value $.001 per share."
<PAGE>
IN WITNESS WHEREOF, this Fourth Certificate of Amendment to the
Amended and Restated Certificate of Incorporation has been executed by the duly
authorized officer of CYPRESS COMMUNICATIONS, INC. on this 2/nd/ day of
December, 1999.
CYPRESS COMMUNICATIONS, INC.
By: /s/ R. Stanley Allen
----------------------------
R. Stanley Allen
Chief Executive Officer
<PAGE>
EXHIBIT 3.6
FORM OF
FIFTH CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CYPRESS COMMUNICATIONS, INC.
CYPRESS COMMUNICATIONS, INC., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
FIRST: This Fifth Certificate of Amendment amends the Amended and
-----
Restated Certificate of Incorporation of the Corporation, as amended (the
"Amended and Restated Certificate"), and (i) was duly adopted by the Board of
Directors of the Corporation (the "Board of Directors") in accordance with the
provisions of Sections 242 of the Delaware General Corporation Law (the "DGCL"),
(ii) was declared by the Board of Directors to be advisable and in the best
interests of the Corporation and was directed by the Board of Directors to be
submitted to and considered by the stockholders of the Corporation entitled to
vote thereon in accordance with the DGCL and (iii) was duly adopted by the
stockholders in accordance with the provisions of the DGCL and the terms of the
Amended and Restated Certificate.
SECOND: Article III of the Amended and Restated Certificate is hereby
------
deleted in its entirety and replaced with the following Article:
"ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Delaware General Corporation
Law (the "DGCL")."
THIRD: Article IV of the Amended and Restated Certificate is hereby
-----
deleted in its entirety and replaced with the following Article:
"ARTICLE IV
Capital Stock
-------------
The total number of shares of capital stock which the Corporation shall
have authority to issue is One Hundred Seventy-Eight Million Three Hundred
Forty Thousand Eight Hundred Fifty-Four and 32/100 (178,340,854.32) shares, of
which (i) One Hundred Fifty Million (150,000,000) shares shall be Common Stock,
par value $.001 per share (the "Common Stock"), (ii) One Million Two Hundred
Eleven Thousand One Hundred Forty (1,211,140) shares shall be Series A Preferred
Stock, par value $.001 per share (the "Series A Preferred"), (iii) One Million
Three Hundred Thirty-Nine Thousand Five Hundred Seventy-Five (1,339,575) shares
shall be Series B Preferred Stock, par value $.001 per share (the "Series B
Preferred"), (iv) Five
<PAGE>
Hundred Seventy-Nine Thousand Six Hundred Thirteen (579,613) shares shall be
Series B-1 Preferred Stock, par value $.001 per share (the "Series B-1
Preferred"), (v) Four Million Two Hundred Ten Thousand Five Hundred Twenty-Six
and 32/100 (4,210,526.32) shares shall be Series C Preferred Stock, par value
$.001 per share (the "Series C Preferred"), (vi) zero (0) shares shall be Series
C-1 Preferred Stock, par value $.001 per share (the "Series C-1 Preferred"),
(vii) One Million (1,000,000) shares shall be Series Z Junior Participating
Cumulative Preferred Stock, par value $.001 per share (the "Series Z Preferred
Stock"), and (viii) Twenty Million (20,000,000) shares shall be undesignated
preferred stock, par value $.001 per share (the "Undesignated Preferred Stock").
The Series A Preferred, the Series B Preferred, the Series B-1 Preferred, the
Series C Preferred and the Series C-1 Preferred are sometimes collectively
referred to herein as the "Senior Preferred." The Senior Preferred, the Series Z
Preferred Stock and the Undesignated Preferred Stock are sometimes collectively
referred to herein as the "Preferred Stock."
Except as otherwise restricted by this Amended and Restated Certificate of
Incorporation, as amended (this "Certificate"), the Board of Directors of the
Corporation (the "Board of Directors") may, at any time and from time to time,
if all of the shares of capital stock which the Corporation is authorized by
this Certificate to issue have not been issued, subscribed for, or otherwise
committed to be issued, issue or take subscriptions for additional shares of its
capital stock up to the amount authorized in this Certificate to such person or
persons and for such lawful consideration as it may deem appropriate, and
generally in its absolute discretion to determine the terms and the manner of
disposition of such authorized but unissued capital stock.
Any and all such shares issued for which the full consideration has been
paid or delivered shall be deemed fully paid shares of capital stock, and the
holder of such shares shall not be liable for any further call or assessment or
any other payment thereon.
The number of authorized shares of the class of Undesignated Preferred
Stock may from time to time be increased or decreased (but not below the number
of shares outstanding) by the affirmative vote of the holders of a majority of
the outstanding shares of Common Stock entitled to vote, without a vote of the
holders of the Preferred Stock (subject to the terms of the Senior Preferred and
the Series Z Preferred Stock and except as otherwise provided in any certificate
of designation of any series of Undesignated Preferred Stock).
The designations, powers, preferences and rights of, and the
qualifications, limitations and restrictions upon, each class or series of stock
shall be determined in accordance with, or as set forth below in, this Article
IV.
A. Common Stock
------------
Subject to all the rights, powers and preferences of the Preferred Stock
and except as provided by law or in this Article IV (or in any certificate of
designations of any series of Undesignated Preferred Stock):
2
<PAGE>
(a) the holders of the Common Stock shall have the exclusive right to
vote for the election of Directors and on all other matters requiring
stockholder action, each share being entitled to one vote;
(b) dividends may be declared and paid or set apart for payment upon
the Common Stock out of any assets or funds of the Corporation legally available
for the payment of dividends, but only when and as declared by the Board of
Directors or any authorized committee thereof; and
(c) upon the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the net assets of the Corporation shall be
distributed pro rata to the holders of the Common Stock.
B. Senior Preferred
----------------
The shares of Senior Preferred shall have the respective rights and
preferences set forth in the Second Amended Certificate of Designation of Series
A Preferred Stock, Amended Certificate of Designation of Series B Preferred
Stock and Series B-1 Preferred Stock, and Certificate of Designation of Series C
Preferred Stock and Series C-1 Preferred Stock, as amended, attached hereto as
Exhibit A and incorporated herein by reference.
- ---------
C. Series Z Preferred Stock
------------------------
1. Designation and Amount. The total number of shares of Series Z
----------------------
Preferred Stock which the Corporation shall have authority to issue is [number
spelled out] ([number]) shares.
2. Dividends and Distributions.
---------------------------
(a) (i) Subject to the rights of the holders of any shares of any
series of Undesignated Preferred Stock (or any similar stock) ranking prior and
superior to the Series Z Preferred Stock with respect to dividends, the holders
of shares of Series Z Preferred Stock, in preference to the holders of shares of
Common Stock and of any other junior stock, shall be entitled to receive, when,
as and if declared by the Board of Directors out of funds legally available for
the purpose, quarterly dividends payable in cash on the first day of March,
June, September and December in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or fraction
of a share of Series Z Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (a) $1.00 or (b) subject to the provisions
for adjustment hereinafter set forth, 1,000 times the aggregate per share amount
of all cash dividends, and 1,000 times the aggregate per share amount (payable
in kind) of all non-cash dividends or other distributions other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the Common Stock
since the immediately preceding Quarterly
3
<PAGE>
Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of Series Z
Preferred Stock. The multiple of cash and non-cash dividends declared on the
Common Stock to which holders of the Series Z Preferred Stock are entitled,
which shall be 1,000 initially but which shall be adjusted from time to time as
hereinafter provided, is hereinafter referred to as the "Dividend Multiple." In
the event the Corporation shall at any time after February __, 2000 (the "Rights
Declaration Date") (i) declare or pay any dividend on Common Stock payable in
shares of Common Stock, or (ii) effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
Dividend Multiple thereafter applicable to the determination of the amount of
dividends which holders of shares of Series Z Preferred Stock shall be entitled
to receive shall be the Dividend Multiple applicable immediately prior to such
event multiplied by a fraction, the numerator of which is the number of shares
of Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
(ii) Notwithstanding anything else contained in this paragraph
(a), the Corporation shall, out of funds legally available for that purpose,
declare a dividend or distribution on the Series Z Preferred Stock as provided
in this paragraph (a) immediately after it declares a dividend or distribution
on the Common Stock (other than a dividend payable in shares of Common Stock);
provided that, in the event no dividend or distribution shall have been declared
on the Common Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a dividend of
$1.00 per share on the Series Z Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date.
(b) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series Z Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series Z Preferred Stock, unless
the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series Z Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series Z Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix
in accordance with applicable law a record date for the determination of holders
of shares of Series Z Preferred Stock entitled to receive payment of a dividend
or distribution declared thereon, which record date shall be not more than such
number of days prior to the date fixed for the payment thereof as may be allowed
by applicable law.
4
<PAGE>
3. Voting Rights. In addition to any other voting rights required by
-------------
law, the holders of shares of Series Z Preferred Stock shall have the following
voting rights:
(a) Subject to the provision for adjustment hereinafter set forth,
each share of Series Z Preferred Stock shall entitle the holder thereof to 1,000
votes on all matters submitted to a vote of the stockholders of the Corporation.
The number of votes which a holder of a share of Series Z Preferred Stock is
entitled to cast, which shall initially be 1,000 but which may be adjusted from
time to time as hereinafter provided, is hereinafter referred to as the "Vote
Multiple." In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare or pay any dividend on Common Stock payable in
shares of Common Stock, or (ii) effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
Vote Multiple thereafter applicable to the determination of the number of votes
per share to which holders of shares of Series Z Preferred Stock shall be
entitled shall be the Vote Multiple immediately prior to such event multiplied
by a fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
(b) Except as otherwise provided herein or by law, the holders of
shares of Series Z Preferred Stock and the holders of shares of Common Stock and
the holders of shares of any other capital stock of this Corporation having
general voting rights, shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation.
(c) Except as otherwise required by applicable law or as set forth
herein, holders of Series Z Preferred Stock shall have no special voting rights
and their consent shall not be required (except to the extent they are entitled
to vote with holders of Common Stock as set forth herein) for taking any
corporate action.
4. Certain Restrictions.
--------------------
(a) Whenever dividends or distributions payable on the Series Z
Preferred Stock as provided in Section C.2 are in arrears, thereafter and until
all accrued and unpaid dividends and distributions, whether or not declared, on
shares of Series Z Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as
to dividends or upon liquidation, dissolution or winding
up) to the Series Z Preferred Stock;
5
<PAGE>
(ii) declare or pay dividends on or make any other distributions
on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up)
with the Series Z Preferred Stock, except dividends paid
ratably on the Series Z Preferred Stock and all such parity
stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all
such shares are then entitled;
(iii) except as permitted in subsection C.4(a)(iv) below, redeem,
purchase or otherwise acquire for consideration shares of
any stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the
Series Z Preferred Stock, provided that the Corporation may
at any time redeem, purchase or otherwise acquire shares of
any such parity stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends
or upon dissolution, liquidation or winding up) to the
Series Z Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares
of Series Z Preferred Stock, or any shares of any stock
ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series Z
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under subsection (a) of
this Section C.4, purchase or otherwise acquire such shares at such time and in
such manner.
5. Reacquired Shares. Any shares of Series Z Preferred Stock purchased
-----------------
or otherwise acquired by the Corporation in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof.
6. Liquidation, Dissolution or Winding Up. Upon any liquidation
--------------------------------------
(voluntary or otherwise), dissolution or winding up of the Corporation, no
distribution shall be made (x) to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series Z Preferred Stock unless, prior thereto, the holders of shares of Series
Z Preferred Stock shall have received an amount equal to accrued and unpaid
6
<PAGE>
dividends and distributions thereon, whether or not declared, to the date of
such payment, plus an amount equal to the greater of (1) $1,000.00 per share or
(2) an aggregate amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1,000 times the aggregate amount to be
distributed per share to holders of Common Stock, or (y) to the holders of stock
ranking on a parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series Z Preferred Stock, except distributions made ratably
on the Series Z Preferred Stock and all other such parity stock in proportion to
the total amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. In the event the Corporation shall at
any time after the Rights Declaration Date (i) declare or pay any dividend on
Common Stock payable in shares of Common Stock, or (ii) effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the aggregate amount per share to which holders of shares of Series Z
Preferred Stock were entitled immediately prior to such event under clause (x)
of the preceding sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Neither the consolidation of nor merging of the Corporation with or into
any other corporation or corporations, nor the sale or other transfer of all or
substantially all of the assets of the Corporation, shall be deemed to be a
liquidation, dissolution or winding up of the Corporation within the meaning of
this Section C.6.
7. Consolidation, Merger, etc. In case the Corporation shall enter into
--------------------------
any consolidation, merger, combination or other transaction in which the shares
of Common Stock are exchanged for or changed into other stock or securities,
cash and/or any other property, then in any such case the shares of Series Z
Preferred Stock shall at the same time be similarly exchanged or changed in an
amount per share (subject to the provision for adjustment hereinafter set forth)
equal to 1,000 times the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which or for which
each share of Common Stock is changed or exchanged, plus accrued and unpaid
dividends, if any, payable with respect to the Series Z Preferred Stock. In the
event the Corporation shall at any time after the Rights Declaration Date (i)
declare or pay any dividend on Common Stock payable in shares of Common Stock,
or (ii) effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of shares of
Common Stock, then in each such case the amount set forth in the preceding
sentence with respect to the exchange or change of shares of Series Z Preferred
Stock shall be adjusted by multiplying such amount by a fraction, the numerator
of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
7
<PAGE>
8. Redemption. The shares of Series Z Preferred Stock shall not be
----------
redeemable; provided, however, that the foregoing shall not limit the ability of
the Corporation to purchase or otherwise deal in such shares to the extent
otherwise permitted hereby and by law.
9. Ranking. Unless otherwise expressly provided in this Certificate or a
-------
certificate of designations relating to any other series of Undesignated
Preferred Stock, the Series Z Preferred Stock shall rank junior to every other
series of Preferred Stock previously or hereafter authorized, as to the payment
of dividends and the distribution of assets on liquidation, dissolution or
winding up and shall rank senior to the Common Stock.
10. Amendment. This Certificate shall not be amended in any manner which
---------
would materially alter or change the powers, preferences or special rights of
the Series Z Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of two-thirds or more of the outstanding shares
of Series Z Preferred Stock, voting separately as a class.
11. Fractional Shares. Series Z Preferred Stock may be issued in whole
-----------------
shares or in any fraction of a share that is one one-thousandth (1/1,000th) of a
share or any integral multiple of such fraction, which shall entitle the holder,
in proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series Z Preferred Stock. In lieu of fractional
shares, the Corporation may elect to make a cash payment as provided in the
Shareholder Rights Agreement, dated February __, 2000, between the Corporation
and State Street Bank & Trust Company, for fractions of a share other than one
one-thousandth (1/1,000th) of a share or any integral multiple thereof.
D. Undesignated Preferred Stock
----------------------------
1. Authority to Issue. The total number of shares of Undesignated
------------------
Preferred Stock which the Corporation shall have authority to issue is [number
spelled out] ([number]) shares. Subject to any limitations prescribed by law,
the Board of Directors or any authorized committee thereof is expressly
authorized to provide for the issuance of the shares of Undesignated Preferred
Stock in one or more series of such stock, and by filing a certificate pursuant
to applicable law of the State of Delaware, to establish or change from time to
time the number of shares to be included in each such series, and to fix the
designations, powers, preferences and the relative, participating, optional or
other special rights of the shares of each series and any qualifications,
limitations and restrictions thereof.
2. Powers, Preferences, Rights, Qualifications, Limitations and
------------------------------------------------------------
Restrictions of Each Series of Undesignated Preferred Stock. The Board of
- -----------------------------------------------------------
Directors or any authorized committee thereof shall have the right to determine
or fix one or more of the following with respect to each series of Undesignated
Preferred Stock to the fullest extent permitted by law:
(a) The distinctive serial designation and the number of shares
constituting such series;
8
<PAGE>
(b) The dividend rates or the amount of dividends to be paid on
the shares of such series, whether dividends shall be cumulative and, if
so, from which date or dates, the payment date or dates for dividends, and
the participating and other rights, if any, with respect to dividends;
(c) The voting rights and powers, full or limited, if any, of
the shares of such series;
(d) Whether the shares of such series shall be redeemable and,
if so, the price or prices at which, and the terms and conditions on which,
such shares may be redeemed;
(e) The amount or amounts payable upon the shares of such series
and any preferences applicable thereto in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund and
the manner of its application, including the price or prices at which such
shares may be redeemed or purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into,
or exchangeable for, shares of any other class or classes or of any other
series of the same or any other class or classes of stock of the
Corporation and, if so convertible or exchangeable, the conversion price or
prices, or the rate or rates of exchange, and the adjustments thereof, if
any, at which such conversion or exchange may be made, and any other terms
and conditions of such conversion or exchange;
(h) The consideration for which the shares of such series shall
be issued;
(i) Whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued shares of
Undesignated Preferred Stock (or series thereof) and whether such shares
may be reissued as shares of the same or any other class or series of
stock; and
(j) Such other powers, preferences, rights, qualifications,
limitations and restrictions thereof as the Board of Directors or any
authorized committee thereof may deem advisable."
FOURTH: Article V, Article VI, Article VII, Article VIII, Article IX,
------
Article X and Article XI are deleted in their entirety and replaced with the
following Articles:
9
<PAGE>
"ARTICLE V
Stockholder Action
------------------
1. Action without Meeting. Except as otherwise provided herein, any
----------------------
action required or permitted to be taken by the stockholders of the Corporation
at any annual or special meeting of stockholders of the Corporation must be
effected at a duly called annual or special meeting of stockholders and may not
be taken or effected by a written consent of stockholders in lieu thereof.
2. Special Meetings. Except as otherwise required by statute and subject
----------------
to the rights, if any, of the holders of any series or class of Preferred Stock,
special meetings of the stockholders of the Corporation may be called only by
the Board of Directors acting pursuant to a resolution approved by the
affirmative vote of a majority of the Directors then in office. Only those
matters set forth in the notice of the special meeting may be considered or
acted upon at a special meeting of stockholders of the Corporation.
ARTICLE VI
Directors
---------
1. General. The business and affairs of the Corporation shall be managed
-------
by or under the direction of the Board of Directors except as otherwise provided
herein or required by law.
2. Election of Directors. Election of Directors need not be by written
---------------------
ballot unless the By-laws of the Corporation shall so provide.
3. Terms of Directors. The number of Directors of the Corporation shall
------------------
be fixed solely by resolution duly adopted from time to time by the Board of
Directors. The Directors, other than those who may be elected by the holders of
any series or class of Preferred Stock, shall be classified, with respect to the
term for which they severally hold office, into three classes, as nearly equal
in number as possible. The initial Class I Directors of the Corporation shall
be Ward C. Bourdeaux, Jr., William P. Egan and Jeffrey H. Schutz; the initial
Class II Directors of the Corporation shall be Laurence S. Grafstein, Randall A.
Hack and P. Eric Yopes; and the initial Class III Directors of the Corporation
shall be R. Stanley Allen and John C. Halsted. The initial Class I Directors
shall serve for a term expiring at the annual meeting of stockholders to be held
in 2000, the initial Class II Directors shall serve for a term expiring at the
annual meeting of stockholders to be held in 2001, and the initial Class III
Directors shall serve for a term expiring at the annual meeting of stockholders
to be held in 2002. At each annual meeting of stockholders, Directors elected
to succeed those Directors whose terms expire shall be elected for a term of
office to expire at the third succeeding annual meeting of stockholders after
their election. Notwithstanding the foregoing, the Directors
10
<PAGE>
elected to each class shall hold office until their successors are duly elected
and qualified or until their earlier resignation or removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article IV of this Certificate, the holders of any one or more series or classes
of Preferred Stock shall have the right, voting separately as a series or class
or together with holders of other such series or classes, to elect Directors at
an annual or special meeting of stockholders, the election, term of office,
filling of vacancies and other features of such directorships shall be governed
by the terms of this Certificate and any certificate of designation applicable
thereto, and such Directors so elected shall not be divided into classes
pursuant to this Article VI.3.
4. Vacancies. Subject to the rights, if any, of the holders of any
---------
series or class of Preferred Stock to elect Directors and to fill vacancies in
the Board of Directors relating thereto, any and all vacancies in the Board of
Directors, however occurring, including, without limitation, by reason of an
increase in size of the Board of Directors, or the death, resignation,
disqualification or removal of a Director, shall be filled solely by the
affirmative vote of a majority of the remaining Directors then in office, even
if less than a quorum of the Board of Directors. Any Director appointed in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of Directors in which the new directorship was
created or the vacancy occurred and until such Director's successor shall have
been duly elected and qualified or until his or her earlier resignation or
removal. Subject to the rights, if any, of the holders of any series or class
of Preferred Stock to elect Directors, when the number of Directors is increased
or decreased, the Board of Directors shall determine the class or classes to
which the increased or decreased number of Directors shall be apportioned;
provided, however, that no decrease in the number of Directors shall shorten the
- -------- -------
term of any incumbent Director. In the event of a vacancy in the Board of
Directors, the remaining Directors, except as otherwise provided by law, shall
exercise the powers of the full Board of Directors until the vacancy is filled.
5. Removal. Subject to the rights, if any, of any series or class of
-------
Preferred Stock to elect Directors and to remove any Director whom the holders
of any such stock have the right to elect, any Director (including persons
elected by Directors to fill vacancies in the Board of Directors) may be removed
from office (i) only with cause and (ii) only by the affirmative vote of the
holders of 75% or more of the shares then entitled to vote at an election of
Directors. At least thirty (30) days prior to any meeting of stockholders at
which it is proposed that any Director be removed from office, written notice of
such proposed removal shall be sent to the Director whose removal will be
considered at the meeting.
ARTICLE VII
Limitation of Liability
-----------------------
A Director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for
11
<PAGE>
liability (a) for any breach of the Director's duty of loyalty to the
Corporation or its stockholders, (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of the DGCL or (d) for any transaction from which the Director
derived an improper personal benefit. If the DGCL is amended after the effective
date of this Certificate to authorize corporate action further eliminating or
limiting the personal liability of Directors, then the liability of a Director
of the Corporation shall be eliminated or limited to the fullest extent
permitted by the DGCL, as so amended.
Any repeal or modification of this Article VII by either of (i) the
stockholders of the Corporation or (ii) an amendment to the DGCL, shall not
adversely affect any right or protection existing at the time of such repeal or
modification with respect to any acts or omissions occurring before such repeal
or modification of a person serving as a Director at the time of such repeal or
modification.
ARTICLE VIII
Amendment of By-laws
--------------------
1. Amendment by Directors. Except as otherwise provided by law, the By-
----------------------
laws of the Corporation may be amended or repealed by the Board of Directors by
the affirmative vote of a majority of the Directors then in office.
2. Amendment by Stockholders. The By-laws of the Corporation may be
-------------------------
amended or repealed at any annual meeting of stockholders, or special meeting of
stockholders called for such purpose as provided in the By-laws, by the
affirmative vote of at least 75% of the shares present in person or represented
by proxy at such meeting and entitled to vote on such amendment or repeal,
voting together as a single class; provided, however, that if the Board of
-------- -------
Directors recommends that stockholders approve such amendment or repeal at such
meeting of stockholders, such amendment or repeal shall only require the
affirmative vote of the majority of the shares present in person or represented
by proxy at such meeting and entitled to vote on such amendment or repeal,
voting together as a single class.
ARTICLE IX
Amendment of Certificate of Incorporation
-----------------------------------------
The Corporation reserves the right to amend or repeal this Certificate in
the manner now or hereafter prescribed by statute and this Certificate, and all
rights conferred upon stockholders herein are granted subject to this
reservation. No amendment or repeal of this Certificate shall be made unless
the same is first approved by the Board of Directors pursuant to a resolution
adopted by the Board of Directors in accordance with Section 242 of the DGCL,
and, except as otherwise provided by law, thereafter approved by the
stockholders. Whenever any vote of the holders of voting stock is required to
amend or repeal any provision
12
<PAGE>
of this Certificate, and in addition to any other vote of holders of voting
stock that is required by this Certificate or by law, such amendment or repeal
shall require the affirmative vote of the majority of the outstanding shares
entitled to vote on such amendment or repeal, and the affirmative vote of the
majority of the outstanding shares of each class entitled to vote thereon as a
class, at a duly constituted meeting of stockholders called expressly for such
purpose; provided, however, that the affirmative vote of not less than 75% of
-------- -------
the outstanding shares entitled to vote on such amendment or repeal, and the
affirmative vote of not less than 75% of the outstanding shares of each class
entitled to vote thereon as a class, shall be required to amend or repeal any
provision of Article V, Article VI, Article VII, Article IX or Article X of this
Certificate.
ARTICLE X
Business Combinations
---------------------
The Corporation elects to be governed by the provisions of Section 203 of
the DGCL."
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
13
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Fifth Certificate of
Amendment to the Amended and Restated Certificate of Incorporation to be signed
by R. Stanley Allen, its Chief Executive Officer, this ____ day of February,
2000, which signature constitutes the affirmation or acknowledgment of such
officer, under penalties of perjury, that this instrument is the act and deed of
the Corporation, and that the facts stated therein are true.
CYPRESS COMMUNICATIONS, INC.
By:__________________________
R. Stanley Allen
Chief Executive Officer
14
<PAGE>
EXHIBIT 3.7
FORM OF
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CYPRESS COMMUNICATIONS, INC.
CYPRESS COMMUNICATIONS, INC., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
1. The name of the Corporation is Cypress Communications, Inc. The date
of the filing of its original Certificate of Incorporation with the Secretary of
State of the State of Delaware was July 15, 1997.
2. This Second Amended and Restated Certificate of Incorporation (the
"Certificate") amends, restates and integrates the provisions of the Amended and
Restated Certificate of Incorporation that was filed with the Secretary of State
of the State of Delaware on September 30, 1998, as heretofore amended (the
"Amended and Restated Certificate"), and (i) was duly adopted by the Board of
Directors of the Corporation (the "Board of Directors") in accordance with the
provisions of Sections 242 and 245 of the Delaware General Corporation Law (the
"DGCL"), (ii) was declared by the Board of Directors to be advisable and in the
best interests of the Corporation and was directed by the Board of Directors to
be submitted to and considered by the stockholders of the Corporation entitled
to vote thereon in accordance with the DGCL and (iii) was duly adopted by the
stockholders in accordance with the provisions of the DGCL and the terms of the
Amended and Restated Certificate.
3. The text of the Amended and Restated Certificate is hereby amended and
restated in its entirety to provide as herein set forth in full.
ARTICLE I
The name of the Corporation is Cypress Communications, Inc.
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is c/o The Corporation Trust Company, 1209 Orange Street in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the DGCL.
<PAGE>
ARTICLE IV
CAPITAL STOCK
-------------
The total number of shares of capital stock which the Corporation shall
have authority to issue is One Hundred Seventy-One Million (171,000,000) shares,
of which (i) One Hundred Fifty Million (150,000,000) shares shall be Common
Stock, par value $.001 per share (the "Common Stock"), (ii) One Million
(1,000,000) shares shall be Series Z Junior Participating Cumulative Preferred
Stock, par value $.001 per share (the "Series Z Preferred Stock"), and (iii)
Twenty Million (20,000,000) shares shall be undesignated preferred stock, par
value $.001 per share (the "Undesignated Preferred Stock"). The Series Z
Preferred Stock and the Undesignated Preferred Stock are sometimes collectively
referred to herein as the "Preferred Stock."
Except as otherwise restricted by this Certificate, the Board of Directors
may, at any time and from time to time, if all of the shares of capital stock
which the Corporation is authorized by this Certificate to issue have not been
issued, subscribed for, or otherwise committed to be issued, issue or take
subscriptions for additional shares of its capital stock up to the amount
authorized in this Certificate to such person or persons and for such lawful
consideration as it may deem appropriate, and generally in its absolute
discretion to determine the terms and the manner of disposition of such
authorized but unissued capital stock.
Any and all such shares issued for which the full consideration has been
paid or delivered shall be deemed fully paid shares of capital stock, and the
holder of such shares shall not be liable for any further call or assessment or
any other payment thereon.
The number of authorized shares of the class of Undesignated Preferred
Stock may from time to time be increased or decreased (but not below the number
of shares outstanding) by the affirmative vote of the holders of a majority of
the outstanding shares of Common Stock entitled to vote, without a vote of the
holders of the Preferred Stock (subject to the terms of the Series Z Preferred
Stock and except as otherwise provided in any certificate of designations of any
series of Undesignated Preferred Stock).
The designations, powers, preferences and rights of, and the
qualifications, limitations and restrictions upon, each class or series of stock
shall be determined in accordance with, or as set forth below in, this Article
IV.
A. COMMON STOCK
------------
Subject to all the rights, powers and preferences of the Preferred
Stock and except as provided by law or in this Article IV (or in any certificate
of designations of any series of Undesignated Preferred Stock):
2
<PAGE>
(a) the holders of the Common Stock shall have the exclusive right to
vote for the election of Directors and on all other matters requiring
stockholder action, each share being entitled to one vote;
(b) dividends may be declared and paid or set apart for payment upon
the Common Stock out of any assets or funds of the Corporation legally available
for the payment of dividends, but only when and as declared by the Board of
Directors or any authorized committee thereof; and
(c) upon the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the net assets of the Corporation shall be
distributed pro rata to the holders of the Common Stock.
B. SERIES Z PREFERRED STOCK
------------------------
1. Designation and Amount. The total number of shares of Series Z
----------------------
Preferred Stock which the Corporation shall have authority to issue is [number
spelled out] ([number]) shares.
2. Dividends and Distributions.
---------------------------
(a) (i) Subject to the rights of the holders of any shares of any
series of Undesignated Preferred Stock (or any similar stock) ranking prior and
superior to the Series Z Preferred Stock with respect to dividends, the holders
of shares of Series Z Preferred Stock, in preference to the holders of shares of
Common Stock and of any other junior stock, shall be entitled to receive, when,
as and if declared by the Board of Directors out of funds legally available for
the purpose, quarterly dividends payable in cash on the first day of March,
June, September and December in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or fraction
of a share of Series Z Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (a) $1.00 or (b) subject to the provisions
for adjustment hereinafter set forth, 1,000 times the aggregate per share amount
of all cash dividends, and 1,000 times the aggregate per share amount (payable
in kind) of all non-cash dividends or other distributions other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the Common Stock
since the immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series Z Preferred Stock. The multiple of
cash and non-cash dividends declared on the Common Stock to which holders of the
Series Z Preferred Stock are entitled, which shall be 1,000 initially but which
shall be adjusted from time to time as hereinafter provided, is hereinafter
referred to as the "Dividend Multiple." In the event the Corporation shall at
any time after February __, 2000 (the "Rights Declaration Date") (i) declare or
pay any dividend on Common Stock payable in shares of Common Stock, or (ii)
effect a subdivision or combination or consolidation of the outstanding shares
of
3
<PAGE>
Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the Dividend Multiple thereafter applicable to the
determination of the amount of dividends which holders of shares of Series Z
Preferred Stock shall be entitled to receive shall be the Dividend Multiple
applicable immediately prior to such event multiplied by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(ii) Notwithstanding anything else contained in this paragraph
(a), the Corporation shall, out of funds legally available for that purpose,
declare a dividend or distribution on the Series Z Preferred Stock as provided
in this paragraph (a) immediately after it declares a dividend or distribution
on the Common Stock (other than a dividend payable in shares of Common Stock);
provided that, in the event no dividend or distribution shall have been declared
on the Common Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a dividend of
$1.00 per share on the Series Z Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date.
(b) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series Z Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series Z Preferred Stock, unless
the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series Z Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series Z Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix in
accordance with applicable law a record date for the determination of holders of
shares of Series Z Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than such
number of days prior to the date fixed for the payment thereof as may be allowed
by applicable law.
3. Voting Rights. In addition to any other voting rights required by
-------------
law, the holders of shares of Series Z Preferred Stock shall have the following
voting rights:
(a) Subject to the provision for adjustment hereinafter set forth,
each share of Series Z Preferred Stock shall entitle the holder thereof to 1,000
votes on all matters submitted to a vote of the stockholders of the Corporation.
The number of votes which a holder of a share of Series Z Preferred Stock is
entitled to cast, which shall initially be 1,000
4
<PAGE>
but which may be adjusted from time to time as hereinafter provided, is
hereinafter referred to as the "Vote Multiple." In the event the Corporation
shall at any time after the Rights Declaration Date (i) declare or pay any
dividend on Common Stock payable in shares of Common Stock, or (ii) effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the Vote Multiple thereafter applicable to the determination
of the number of votes per share to which holders of shares of Series Z
Preferred Stock shall be entitled shall be the Vote Multiple immediately prior
to such event multiplied by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b) Except as otherwise provided herein or by law, the holders of
shares of Series Z Preferred Stock and the holders of shares of Common Stock and
the holders of shares of any other capital stock of this Corporation having
general voting rights, shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation.
(c) Except as otherwise required by applicable law or as set forth
herein, holders of Series Z Preferred Stock shall have no special voting rights
and their consent shall not be required (except to the extent they are entitled
to vote with holders of Common Stock as set forth herein) for taking any
corporate action.
4. Certain Restrictions.
--------------------
(a) Whenever dividends or distributions payable on the Series Z
Preferred Stock as provided in Section B.2 are in arrears, thereafter and until
all accrued and unpaid dividends and distributions, whether or not declared, on
shares of Series Z Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or
winding up) to the Series Z Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution
or winding up) with the Series Z Preferred Stock, except
dividends paid ratably on the Series Z Preferred Stock and
all such parity stock on which dividends are payable or in
arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
5
<PAGE>
(iii) except as permitted in subsection B.4(a)(iv) below,
redeem, purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up)
with the Series Z Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise
acquire shares of any such parity stock in exchange for
shares of any stock of the Corporation ranking junior
(either as to dividends or upon dissolution, liquidation
or winding up) to the Series Z Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares
of Series Z Preferred Stock, or any shares of any stock
ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series Z
Preferred Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by
the Board of Directors) to all holders of such shares upon
such terms as the Board of Directors, after consideration
of the respective annual dividend rates and other relative
rights and preferences of the respective series and
classes, shall determine in good faith will result in fair
and equitable treatment among the respective series or
classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under subsection (a) of
this Section B.4, purchase or otherwise acquire such shares at such time and in
such manner.
5. Reacquired Shares. Any shares of Series Z Preferred Stock purchased
-----------------
or otherwise acquired by the Corporation in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof.
6. Liquidation, Dissolution or Winding Up. Upon any liquidation
--------------------------------------
(voluntary or otherwise), dissolution or winding up of the Corporation, no
distribution shall be made (x) to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series Z Preferred Stock unless, prior thereto, the holders of shares of Series
Z Preferred Stock shall have received an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment, plus an amount equal to the greater of (1) $1,000.00 per share or
(2) an aggregate amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1,000 times the aggregate amount to be
distributed per share to holders of Common Stock, or (y) to the holders of stock
ranking on a parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series Z Preferred Stock, except distributions made ratably
on the Series Z Preferred Stock and all other such parity stock in proportion to
the total amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. In the
6
<PAGE>
event the Corporation shall at any time after the Rights Declaration Date (i)
declare or pay any dividend on Common Stock payable in shares of Common Stock,
or (ii) effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of shares of
Common Stock, then in each such case the aggregate amount per share to which
holders of shares of Series Z Preferred Stock were entitled immediately prior to
such event under clause (x) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Neither the consolidation of nor merging of the Corporation with or into
any other corporation or corporations, nor the sale or other transfer of all or
substantially all of the assets of the Corporation, shall be deemed to be a
liquidation, dissolution or winding up of the Corporation within the meaning of
this Section B.6.
7. Consolidation, Merger, etc. In case the Corporation shall enter into
--------------------------
any consolidation, merger, combination or other transaction in which the shares
of Common Stock are exchanged for or changed into other stock or securities,
cash and/or any other property, then in any such case the shares of Series Z
Preferred Stock shall at the same time be similarly exchanged or changed in an
amount per share (subject to the provision for adjustment hereinafter set forth)
equal to 1,000 times the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which or for which
each share of Common Stock is changed or exchanged, plus accrued and unpaid
dividends, if any, payable with respect to the Series Z Preferred Stock. In the
event the Corporation shall at any time after the Rights Declaration Date (i)
declare or pay any dividend on Common Stock payable in shares of Common Stock,
or (ii) effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of shares of
Common Stock, then in each such case the amount set forth in the preceding
sentence with respect to the exchange or change of shares of Series Z Preferred
Stock shall be adjusted by multiplying such amount by a fraction, the numerator
of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
8. Redemption. The shares of Series Z Preferred Stock shall not be
----------
redeemable; provided, however, that the foregoing shall not limit the ability of
the Corporation to purchase or otherwise deal in such shares to the extent
otherwise permitted hereby and by law.
9. Ranking. Unless otherwise expressly provided in this Certificate or a
-------
certificate of designations relating to any other series of Undesignated
Preferred Stock, the Series Z Preferred Stock shall rank junior to every other
series of Undesignated Preferred Stock hereafter authorized, as to the payment
of dividends and the distribution of assets on liquidation, dissolution or
winding up and shall rank senior to the Common Stock.
7
<PAGE>
10. Amendment. This Certificate shall not be amended in any manner which
---------
would materially alter or change the powers, preferences or special rights of
the Series Z Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of two-thirds or more of the outstanding shares
of Series Z Preferred Stock, voting separately as a class.
11. Fractional Shares. Series Z Preferred Stock may be issued in whole
-----------------
shares or in any fraction of a share that is one one-thousandth (1/1,000th) of a
share or any integral multiple of such fraction, which shall entitle the holder,
in proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series Z Preferred Stock. In lieu of fractional
shares, the Corporation may elect to make a cash payment as provided in the
Shareholder Rights Agreement, dated February __, 2000, between the Corporation
and State Street Bank & Trust Company, for fractions of a share other than one
one-thousandth (1/1,000th) of a share or any integral multiple thereof.
C. UNDESIGNATED PREFERRED STOCK
----------------------------
1. Authority to Issue. The total number of shares of Undesignated
------------------
Preferred Stock which the Corporation shall have authority to issue is [number
spelled out] ([number]) shares. Subject to any limitations prescribed by law,
the Board of Directors or any authorized committee thereof is expressly
authorized to provide for the issuance of the shares of Undesignated Preferred
Stock in one or more series of such stock, and by filing a certificate pursuant
to applicable law of the State of Delaware, to establish or change from time to
time the number of shares to be included in each such series, and to fix the
designations, powers, preferences and the relative, participating, optional or
other special rights of the shares of each series and any qualifications,
limitations and restrictions thereof.
2. Powers, Preferences, Rights, Qualifications, Limitations and
------------------------------------------------------------
Restrictions of Each Series of Undesignated Preferred Stock. The Board of
- -----------------------------------------------------------
Directors or any authorized committee thereof shall have the right to determine
or fix one or more of the following with respect to each series of Undesignated
Preferred Stock to the fullest extent permitted by law:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rates or the amount of dividends to be paid on
the shares of such series, whether dividends shall be cumulative and, if
so, from which date or dates, the payment date or dates for dividends, and
the participating and other rights, if any, with respect to dividends;
(c) The voting rights and powers, full or limited, if any, of the
shares of such series;
8
<PAGE>
(d) Whether the shares of such series shall be redeemable and, if
so, the price or prices at which, and the terms and conditions on which,
such shares may be redeemed;
(e) The amount or amounts payable upon the shares of such series
and any preferences applicable thereto in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund and
the manner of its application, including the price or prices at which such
shares may be redeemed or purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into,
or exchangeable for, shares of any other class or classes or of any other
series of the same or any other class or classes of stock of the
Corporation and, if so convertible or exchangeable, the conversion price or
prices, or the rate or rates of exchange, and the adjustments thereof, if
any, at which such conversion or exchange may be made, and any other terms
and conditions of such conversion or exchange;
(h) The consideration for which the shares of such series shall
be issued;
(i) Whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued shares of
Undesignated Preferred Stock (or series thereof) and whether such shares
may be reissued as shares of the same or any other class or series of
stock; and
(j) Such other powers, preferences, rights, qualifications,
limitations and restrictions thereof as the Board of Directors or any
authorized committee thereof may deem advisable.
ARTICLE V
STOCKHOLDER ACTION
------------------
1. Action without Meeting. Except as otherwise provided herein, any
----------------------
action required or permitted to be taken by the stockholders of the Corporation
at any annual or special meeting of stockholders of the Corporation must be
effected at a duly called annual or special meeting of stockholders and may not
be taken or effected by a written consent of stockholders in lieu thereof.
9
<PAGE>
2. Special Meetings. Except as otherwise required by statute and subject
----------------
to the rights, if any, of the holders of any series or class of Preferred Stock,
special meetings of the stockholders of the Corporation may be called only by
the Board of Directors acting pursuant to a resolution approved by the
affirmative vote of a majority of the Directors then in office. Only those
matters set forth in the notice of the special meeting may be considered or
acted upon at a special meeting of stockholders of the Corporation.
ARTICLE VI
DIRECTORS
---------
1. General. The business and affairs of the Corporation shall be managed
-------
by or under the direction of the Board of Directors except as otherwise provided
herein or required by law.
2. Election of Directors. Election of Directors need not be by written
---------------------
ballot unless the By-laws of the Corporation shall so provide.
3. Terms of Directors. The number of Directors of the Corporation shall
------------------
be fixed solely by resolution duly adopted from time to time by the Board of
Directors. The Directors, other than those who may be elected by the holders of
any series or class of Preferred Stock, shall be classified, with respect to the
term for which they severally hold office, into three classes, as nearly equal
in number as possible. The initial Class I Directors of the Corporation shall
be Ward C. Bourdeaux, Jr., William P. Egan and Jeffrey H. Schutz; the initial
Class II Directors of the Corporation shall be Laurence S. Grafstein, Randall A.
Hack and P. Eric Yopes; and the initial Class III Directors of the Corporation
shall be R. Stanley Allen and John C. Halsted. The initial Class I Directors
shall serve for a term expiring at the annual meeting of stockholders to be held
in 2000, the initial Class II Directors shall serve for a term expiring at the
annual meeting of stockholders to be held in 2001, and the initial Class III
Directors shall serve for a term expiring at the annual meeting of stockholders
to be held in 2002. At each annual meeting of stockholders, Directors elected
to succeed those Directors whose terms expire shall be elected for a term of
office to expire at the third succeeding annual meeting of stockholders after
their election. Notwithstanding the foregoing, the Directors elected to each
class shall hold office until their successors are duly elected and qualified or
until their earlier resignation or removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article IV of this Certificate, the holders of any one or more series or classes
of Preferred Stock shall have the right, voting separately as a series or class
or together with holders of other such series or classes, to elect Directors at
an annual or special meeting of stockholders, the election, term of office,
filling of vacancies and other features of such directorships shall be governed
by the terms of this Certificate and any certificate of designation applicable
thereto, and such Directors so elected shall not be divided into classes
pursuant to this Article VI.3.
10
<PAGE>
4. Vacancies. Subject to the rights, if any, of the holders of any
---------
series or class of Preferred Stock to elect Directors and to fill vacancies in
the Board of Directors relating thereto, any and all vacancies in the Board of
Directors, however occurring, including, without limitation, by reason of an
increase in size of the Board of Directors, or the death, resignation,
disqualification or removal of a Director, shall be filled solely by the
affirmative vote of a majority of the remaining Directors then in office, even
if less than a quorum of the Board of Directors. Any Director appointed in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of Directors in which the new directorship was
created or the vacancy occurred and until such Director's successor shall have
been duly elected and qualified or until his or her earlier resignation or
removal. Subject to the rights, if any, of the holders of any series or class
of Preferred Stock to elect Directors, when the number of Directors is increased
or decreased, the Board of Directors shall determine the class or classes to
which the increased or decreased number of Directors shall be apportioned;
provided, however, that no decrease in the number of Directors shall shorten the
- -------- -------
term of any incumbent Director. In the event of a vacancy in the Board of
Directors, the remaining Directors, except as otherwise provided by law, shall
exercise the powers of the full Board of Directors until the vacancy is filled.
5. Removal. Subject to the rights, if any, of any series or class of
-------
Preferred Stock to elect Directors and to remove any Director whom the holders
of any such stock have the right to elect, any Director (including persons
elected by Directors to fill vacancies in the Board of Directors) may be removed
from office (i) only with cause and (ii) only by the affirmative vote of the
holders of 75% or more of the shares then entitled to vote at an election of
Directors. At least thirty (30) days prior to any meeting of stockholders at
which it is proposed that any Director be removed from office, written notice of
such proposed removal shall be sent to the Director whose removal will be
considered at the meeting.
ARTICLE VII
LIMITATION OF LIABILITY
-----------------------
A Director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (a) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) under Section 174 of the DGCL or (d) for any transaction
from which the Director derived an improper personal benefit. If the DGCL is
amended after the effective date of this Certificate to authorize corporate
action further eliminating or limiting the personal liability of Directors, then
the liability of a Director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the DGCL, as so amended.
Any repeal or modification of this Article VII by either of (i) the
stockholders of the Corporation or (ii) an amendment to the DGCL, shall not
adversely affect any right or
11
<PAGE>
protection existing at the time of such repeal or modification with respect to
any acts or omissions occurring before such repeal or modification of a person
serving as a Director at the time of such repeal or modification.
ARTICLE VIII
AMENDMENT OF BY-LAWS
--------------------
1. Amendment by Directors. Except as otherwise provided by law, the By-
----------------------
laws of the Corporation may be amended or repealed by the Board of Directors by
the affirmative vote of a majority of the Directors then in office.
2. Amendment by Stockholders. The By-laws of the Corporation may be
-------------------------
amended or repealed at any annual meeting of stockholders, or special meeting of
stockholders called for such purpose as provided in the By-laws, by the
affirmative vote of at least 75% of the shares present in person or represented
by proxy at such meeting and entitled to vote on such amendment or repeal,
voting together as a single class; provided, however, that if the Board of
-------- -------
Directors recommends that stockholders approve such amendment or repeal at such
meeting of stockholders, such amendment or repeal shall only require the
affirmative vote of the majority of the shares present in person or represented
by proxy at such meeting and entitled to vote on such amendment or repeal,
voting together as a single class.
ARTICLE IX
AMENDMENT OF CERTIFICATE OF INCORPORATION
-----------------------------------------
The Corporation reserves the right to amend or repeal this Certificate in
the manner now or hereafter prescribed by statute and this Certificate, and all
rights conferred upon stockholders herein are granted subject to this
reservation. No amendment or repeal of this Certificate shall be made unless
the same is first approved by the Board of Directors pursuant to a resolution
adopted by the Board of Directors in accordance with Section 242 of the DGCL,
and, except as otherwise provided by law, thereafter approved by the
stockholders. Whenever any vote of the holders of voting stock is required to
amend or repeal any provision of this Certificate, and in addition to any other
vote of holders of voting stock that is required by this Certificate or by law,
such amendment or repeal shall require the affirmative vote of the majority of
the outstanding shares entitled to vote on such amendment or repeal, and the
affirmative vote of the majority of the outstanding shares of each class
entitled to vote thereon as a class, at a duly constituted meeting of
stockholders called expressly for such purpose; provided, however, that the
-------- -------
affirmative vote of not less than 75% of the outstanding shares entitled to vote
on such amendment or repeal, and the affirmative vote of not less than 75% of
the outstanding shares of each class entitled to vote thereon as a class, shall
be required to amend or repeal any provision of Article V, Article VI, Article
VII, Article IX or Article X of this Certificate.
12
<PAGE>
ARTICLE X
BUSINESS COMBINATIONS
---------------------
The Corporation elects to be governed by the provisions of Section 203 of
the DGCL.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
13
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Second Amended and
Restated Certificate of Incorporation to be signed by R. Stanley Allen, its
Chief Executive Officer, this ____ day of February, 2000, which signature
constitutes the affirmation or acknowledgment of such officer, under penalties
of perjury, that this instrument is the act and deed of the Corporation, and
that the facts stated therein are true.
CYPRESS COMMUNICATIONS, INC.
By:____________________________________
R. Stanley Allen
Chief Executive Officer
<PAGE>
EXHIBIT 3.8
FORM OF
AMENDED AND RESTATED
BY-LAWS
OF
CYPRESS COMMUNICATIONS, INC.
(the "Corporation")
ARTICLE I
---------
Stockholders
------------
SECTION 1. Annual Meeting. The annual meeting of stockholders (any such
--------------
meeting being referred to in these By-laws as an "Annual Meeting") shall be held
at the hour, date and place within or without the United States which is fixed
by the Board of Directors, which time, date and place may subsequently be
changed at any time by vote of the Board of Directors. If no Annual Meeting has
been held for a period of thirteen months after the Corporation's last Annual
Meeting, a special meeting in lieu thereof may be held, and such special meeting
shall have, for the purposes of these By-laws or otherwise, all the force and
effect of an Annual Meeting. Any and all references hereafter in these By-laws
to an Annual Meeting or Annual Meetings also shall be deemed to refer to any
special meeting(s) in lieu thereof.
SECTION 2. Notice of Stockholder Business and Nominations.
----------------------------------------------
(a) Annual Meetings of Stockholders.
-------------------------------
(1) Nominations of persons for election to the Board of Directors of
the Corporation and the proposal of business to be considered by the
stockholders may be made at an Annual Meeting (a) pursuant to the
Corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the Corporation who was a
stockholder of record at the time of giving of notice provided for in this
By-law, who is entitled to vote at the meeting, who is present at the
meeting and who complies with the notice procedures set forth in this By-
law. In addition to the other requirements set forth in this By-law, for
any proposal of business to be considered at an Annual Meeting such
proposal must be a proper subject for action by stockholders of the
Corporation under Delaware law.
(2) For nominations or other business to be properly brought before
an Annual Meeting by a stockholder pursuant to clause (c) of paragraph
(a)(1) of this By-law, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business
on the 75th day nor earlier than the close of business on the 105th day
prior to
<PAGE>
the first anniversary of the preceding year's Annual Meeting; provided,
however, that in the event that the date of the Annual Meeting is advanced
by more than 30 days before or delayed by more than 60 days after such
anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the 105th day prior to
such Annual Meeting and not later than the close of business on the later
of the 75th day prior to such Annual Meeting or the 10th day following the
day on which public announcement of the date of such meeting is first made.
Notwithstanding anything to the contrary provided herein, for the first
Annual Meeting following the initial public offering of common stock of the
Corporation, a stockholder's notice shall be timely if delivered to the
Secretary at the principal executive offices of the Corporation not later
than the close of business on the later of the 75th day prior to the
scheduled date of such Annual Meeting or the 10th day following the day on
which public announcement of the date of such Annual Meeting is first made
or sent by the Corporation. Such stockholder's notice shall set forth (a)
as to each person whom the stockholder proposes to nominate for election or
reelection as a director, all information relating to such person that is
required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Rule 14a-11 thereunder (including such
person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); (b) as to any other business that
the stockholder proposes to bring before the meeting, a brief description
of the business desired to be brought before the meeting, the reasons for
conducting such business at the meeting, any material interest in such
business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made, and the names and addresses of other
stockholders known by the stockholder proposing such business to support
such proposal, and the class and number of shares of the Corporation's
capital stock beneficially owned by such other stockholders; and (c) as to
the stockholder giving the notice and the beneficial owner, if any, on
whose behalf the nomination or proposal is made (i) the name and address of
such stockholder, as they appear on the Corporation's books, and of such
beneficial owner, and (ii) the class and number of shares of the
Corporation which are owned beneficially and of record by such stockholder
and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph
(a)(2) of this By-law to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement naming all of the nominees
for director or specifying the size of the increased Board of Directors
made by the Corporation at least 85 days prior to the first anniversary of
the preceding year's Annual Meeting, a stockholder's notice required by
this By-law shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 10th day following
the day on which such public announcement is first made by the Corporation.
2
<PAGE>
(b) General.
-------
(1) Only such persons who are nominated in accordance with the
provisions of this By-law shall be eligible for election and to serve as
directors and only such business shall be conducted at an Annual Meeting as
shall have been brought before the meeting in accordance with the
provisions of this By-law. The Board of Directors or a designated
committee thereof shall have the power to determine whether a nomination or
any business proposed to be brought before the meeting was made in
accordance with the provisions of this By-law. If neither the Board of
Directors nor such designated committee makes a determination as to whether
any stockholder proposal or nomination was made in accordance with the
provisions of this By-law, the presiding officer of the Annual Meeting
shall have the power and duty to determine whether the stockholder proposal
or nomination was made in accordance with the provisions of this By-law.
If the Board of Directors or a designated committee thereof or the
presiding officer, as applicable, determines that any stockholder proposal
or nomination was not made in accordance with the provisions of this By-
law, such proposal or nomination shall be disregarded and shall not be
presented for action at the Annual Meeting.
(2) For purposes of this By-law, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document
publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-law, a
stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this By-law. Nothing in this By-law shall be deemed
to affect any rights of (i) stockholders to request inclusion of proposals
in the Corporation's proxy statement pursuant to Rule 14a-8 under the
Exchange Act or (ii) the holders of any series or class of Preferred Stock
to elect directors under specified circumstances.
SECTION 3. Special Meetings. Except as otherwise required by statute and
----------------
subject to the rights, if any, of the holders of any series or class of
Preferred Stock, special meetings of the stockholders of the Corporation may be
called only by the Board of Directors acting pursuant to a resolution approved
by the affirmative vote of a majority of the Directors then in office. Only
those matters set forth in the notice of the special meeting may be considered
or acted upon at a special meeting of stockholders of the Corporation.
SECTION 4. Notice of Meetings; Adjournments. A written notice of each
--------------------------------
Annual Meeting stating the hour, date and place of such Annual Meeting shall be
given by the Secretary or an Assistant Secretary (or other person authorized by
these By-laws or by law) not less than 10 days nor more than 60 days before the
Annual Meeting, to each stockholder entitled to vote thereat and to each
stockholder who, by law or under the Amended and Restated Certificate of
Incorporation of the Corporation, as amended and/or restated (the
3
<PAGE>
"Certificate") or under these By-laws, is entitled to such notice, by delivering
such notice to him or by mailing it, postage prepaid, addressed to such
stockholder at the address of such stockholder as it appears on the
Corporation's stock transfer books. Such notice shall be deemed to be given when
hand delivered to such address or deposited in the mail so addressed, with
postage prepaid.
Notice of all special meetings of stockholders shall be given in the same
manner as provided for Annual Meetings, except that the written notice of all
special meetings shall state the purpose or purposes for which the meeting has
been called.
Notice of an Annual Meeting or special meeting of stockholders need not be
given to a stockholder if a written waiver of notice is signed before or after
such meeting by such stockholder or if such stockholder attends such meeting,
unless such attendance was for the express purpose of objecting at the beginning
of the meeting to the transaction of any business because the meeting was not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any Annual Meeting or special meeting of stockholders need be
specified in any written waiver of notice.
The Board of Directors may postpone and reschedule any previously scheduled
Annual Meeting or special meeting of stockholders and any record date with
respect thereto, regardless of whether any notice or public disclosure with
respect to any such meeting has been sent or made pursuant to Section 2 of this
Article I of these By-laws or otherwise. In no event shall the public
announcement of an adjournment, postponement or rescheduling of any previously
scheduled meeting of stockholders commence a new time period for the giving of a
stockholder's notice under Section 2 of this Article I of these By-laws.
When any meeting is convened, the presiding officer may adjourn the meeting
if (a) no quorum is present for the transaction of business, (b) the Board of
Directors determines that adjournment is necessary or appropriate to enable the
stockholders to consider fully information which the Board of Directors
determines has not been made sufficiently or timely available to stockholders,
or (c) the Board of Directors determines that adjournment is otherwise in the
best interests of the Corporation. When any Annual Meeting or special meeting
of stockholders is adjourned to another hour, date or place, notice need not be
given of the adjourned meeting other than an announcement at the meeting at
which the adjournment is taken of the hour, date and place to which the meeting
is adjourned; provided, however, that if the adjournment is for more than 30
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote thereat and each stockholder who, by law or under the
Certificate or these By-laws, is entitled to such notice.
SECTION 5. Quorum. A majority of the shares entitled to vote, present in
------
person or represented by proxy, shall constitute a quorum at any meeting of
stockholders. If less than a quorum is present at a meeting, the holders of
voting stock representing a majority of the voting power present at the meeting
or the presiding officer may adjourn the meeting from time to time, and the
meeting may be held as adjourned without further notice, except as
4
<PAGE>
provided in Section 5 of this Article I. At such adjourned meeting at which a
quorum is present, any business may be transacted which might have been
transacted at the meeting as originally noticed. The stockholders present at a
duly constituted meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
SECTION 6. Voting and Proxies. Stockholders shall have one vote for each
------------------
share of stock entitled to vote owned by them of record according to the books
of the Corporation, unless otherwise provided by law or by the Certificate.
Stockholders may vote either in person or by written proxy or by a transmission
permitted by law, but no proxy shall be voted or acted upon after three years
from its date, unless the proxy provides for a longer period. Proxies shall be
filed with the Secretary of the meeting before being voted. Any copy, facsimile
telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this paragraph may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission. Except as otherwise limited therein or
as otherwise provided by law, proxies shall entitle the persons authorized
thereby to vote at any adjournment of such meeting, but they shall not be valid
after final adjournment of such meeting. A proxy with respect to stock held in
the name of two or more persons shall be valid if executed by or on behalf of
any one of them unless at or prior to the exercise of the proxy the Corporation
receives a specific written notice to the contrary from any one of them.
SECTION 7. Action at Meeting. When a quorum is present at any meeting of
-----------------
stockholders, any matter before any such meeting (other than an election of a
director or directors) shall be decided by a majority of the votes properly cast
on such matter, except where a larger vote is required by law, by the
Certificate or by these By-laws. Any election of directors by stockholders
shall be determined by a plurality of the votes properly cast on the election of
directors, except where a larger vote is required by law, by the Certificate or
by these By-laws. The Corporation shall not directly or indirectly vote any
shares of its own stock; provided, however, that the Corporation may vote shares
which it holds in a fiduciary capacity to the extent permitted by law.
SECTION 8. Stockholder Lists. The Secretary or an Assistant Secretary (or
-----------------
the Corporation's transfer agent or other person authorized by these By-laws or
by law) shall prepare and make, at least 10 days before every Annual Meeting or
special meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least 10 days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and
5
<PAGE>
kept at the hour, date and place of the meeting during the whole time thereof,
and may be inspected by any stockholder who is present.
SECTION 9. Presiding Officer. The Chairman of the Board, if one is
-----------------
elected, or if not elected or in his or her absence, the Chief Executive
Officer, or, in the absence of the Chairman of the Board and the Chief Executive
Officer, the President, shall preside at all Annual Meetings or special meetings
of stockholders and shall have the power, among other things, to adjourn such
meeting at any time and from time to time, subject to Sections 5 and 6 of this
Article I. The order of business and all other matters of procedure at any
meeting of the stockholders shall be determined by the presiding officer.
SECTION 10. Voting Procedures and Inspectors of Elections. The
---------------------------------------------
Corporation shall, in advance of any meeting of stockholders, appoint one or
more inspectors to act at the meeting and make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is able to act at
a meeting of stockholders, the presiding officer shall appoint one or more
inspectors to act at the meeting. Any inspector may, but need not, be an
officer, employee or agent of the Corporation. Each inspector, before entering
upon the discharge of his or her duties, shall take and sign an oath faithfully
to execute the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspectors shall perform such duties as are
required by the General Corporation Law of the State of Delaware, as amended
from time to time (the "DGCL"), including the counting of all votes and ballots.
The inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of the duties of the inspectors. The presiding
officer may review all determinations made by the inspectors, and in so doing
the presiding officer shall be entitled to exercise his or her sole judgment and
discretion and he or she shall not be bound by any determinations made by the
inspectors. All determinations by the inspectors and, if applicable, the
presiding officer, shall be subject to further review by any court of competent
jurisdiction.
ARTICLE II
----------
Directors
---------
SECTION 1. Powers. The business and affairs of the Corporation shall be
------
managed by or under the direction of the Board of Directors except as otherwise
provided by the Certificate or required by law.
SECTION 2. Number and Terms. The number of directors of the Corporation
----------------
shall be fixed solely by resolution duly adopted from time to time by the Board
of Directors. The directors shall hold office in the manner provided in the
Certificate.
SECTION 3. Qualification. No director need be a stockholder of the
-------------
Corporation.
6
<PAGE>
SECTION 4. Vacancies. Vacancies in the Board of Directors shall be filled
---------
in the manner provided in the Certificate.
SECTION 5. Removal. Directors may be removed from office in the manner
-------
provided in the Certificate.
SECTION 6. Resignation. A director may resign at any time by giving
-----------
written notice to the Chairman of the Board, if one is elected, the Chief
Executive Officer, the President or the Secretary. A resignation shall be
effective upon receipt, unless the resignation otherwise provides.
SECTION 7. Regular Meetings. The regular annual meeting of the Board of
----------------
Directors shall be held, without notice other than this Section 7, on the same
date and at the same place as the Annual Meeting following the close of such
meeting of stockholders. Other regular meetings of the Board of Directors may
be held at such hour, date and place as the Board of Directors may by resolution
from time to time determine without notice other than such resolution.
SECTION 8. Special Meetings. Special meetings of the Board of Directors
----------------
may be called, orally or in writing, by or at the request of a majority of the
directors, the Chairman of the Board, if one is elected, or the Chief Executive
Officer. The person calling any such special meeting of the Board of Directors
may fix the hour, date and place thereof.
SECTION 9. Notice of Meetings. Notice of the hour, date and place of all
------------------
special meetings of the Board of Directors shall be given to each director by
the Secretary or an Assistant Secretary, or in case of the death, absence,
incapacity or refusal of such persons, by the Chairman of the Board, if one is
elected, the Chief Executive Officer or the President or such other officer
designated by the Chairman of the Board, if one is elected, the Chief Executive
Officer or the President. Notice of any special meeting of the Board of
Directors shall be given to each director in person, by telephone, or by
facsimile, electronic mail or other form of electronic communication, sent to
his or her business or home address, at least 24 hours in advance of the
meeting, or by written notice mailed to his or her business or home address, at
least 48 hours in advance of the meeting. Such notice shall be deemed to be
delivered when hand delivered to such address, read to such director by
telephone, deposited in the mail so addressed, with postage thereon prepaid if
mailed, dispatched or transmitted if faxed, telexed or telecopied, or when
delivered to the telegraph company if sent by telegram.
When any Board of Directors meeting, either regular or special, is
adjourned for 30 days or more, notice of the adjourned meeting shall be given as
in the case of an original meeting. It shall not be necessary to give any
notice of the hour, date or place of any meeting adjourned for less than 30 days
or of the business to be transacted thereat, other than an announcement at the
meeting at which such adjournment is taken of the hour, date and place to which
the meeting is adjourned.
7
<PAGE>
A written waiver of notice signed before or after a meeting by a director
and filed with the records of the meeting shall be deemed to be equivalent to
notice of the meeting. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business because such meeting is not lawfully called or
convened. Except as otherwise required by law, by the Certificate or by these
By-laws, neither the business to be transacted at, nor the purpose of, any
meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting.
SECTION 10. Quorum. At any meeting of the Board of Directors, a majority
------
of the total number of directors then in office shall constitute a quorum for
the transaction of business, but if less than a quorum is present at a meeting,
a majority of the directors present may adjourn the meeting from time to time,
and the meeting may be held as adjourned without further notice, except as
provided in Section 9 of this Article II. Any business which might have been
transacted at the meeting as originally noticed may be transacted at such
adjourned meeting at which a quorum is present.
SECTION 11. Action at Meeting. At any meeting of the Board of Directors
-----------------
at which a quorum is present, a majority of the directors present may take any
action on behalf of the Board of Directors, unless otherwise required by law, by
the Certificate or by these By-laws.
SECTION 12. Action by Consent. Any action required or permitted to be
-----------------
taken at any meeting of the Board of Directors may be taken without a meeting if
all members of the Board of Directors consent thereto in writing. Such written
consent shall be filed with the records of the meetings of the Board of
Directors and shall be treated for all purposes as a vote at a meeting of the
Board of Directors.
SECTION 13. Manner of Participation. Directors may participate in
-----------------------
meetings of the Board of Directors by means of conference telephone or similar
communications equipment by means of which all directors participating in the
meeting can hear each other, and participation in a meeting in accordance
herewith shall constitute presence in person at such meeting for purposes of
these By-laws.
SECTION 14. Committees. The Board of Directors, by vote of a majority of
----------
the directors then in office, may elect from its number one or more committees,
including, without limitation, an Executive Committee, a Compensation Committee,
a Stock Option Committee and an Audit Committee, and may delegate thereto some
or all of its powers except those which by law, by the Certificate or by these
By-laws may not be delegated. Except as the Board of Directors may otherwise
determine, any such committee may make rules for the conduct of its business,
but unless otherwise provided by the Board of Directors or in such rules, its
business shall be conducted so far as possible in the same manner as is provided
by these By-laws for the Board of Directors. All members of such committees
shall hold such offices at the pleasure of the Board of Directors. The Board of
Directors may abolish any such committee at any time. Any committee to which the
Board of Directors delegates any of
8
<PAGE>
its powers or duties shall keep records of its meetings and shall report its
action to the Board of Directors.
SECTION 15. Compensation of Directors. Directors shall receive such
-------------------------
compensation for their services as shall be determined by a majority of the
Board of Directors, or a designated committee thereof, provided that directors
who are serving the Corporation as employees and who receive compensation for
their services as such, shall not receive any salary or other compensation for
their services as directors of the Corporation.
ARTICLE III
-----------
Officers
--------
SECTION 1. Enumeration. The officers of the Corporation shall consist of
-----------
a Chief Executive Officer, a President, a Treasurer, a Secretary and such other
officers, including, without limitation, a Chairman of the Board of Directors
and one or more Vice Presidents (including Executive Vice Presidents or Senior
Vice Presidents), Assistant Vice Presidents, Assistant Treasurers and Assistant
Secretaries, as the Board of Directors may determine.
SECTION 2. Election. At the regular annual meeting of the Board of
--------
Directors following the Annual Meeting, the Board of Directors shall elect the
Chief Executive Officer, the President, the Treasurer and the Secretary. Other
officers may be elected by the Board of Directors at such regular annual meeting
of the Board of Directors or at any other regular or special meeting.
SECTION 3. Qualification. No officer need be a stockholder or a director.
-------------
Any person may occupy more than one office of the Corporation at any time. Any
officer may be required by the Board of Directors to give bond for the faithful
performance of his or her duties in such amount and with such sureties as the
Board of Directors may determine.
SECTION 4. Tenure. Except as otherwise provided by the Certificate or by
------
these By-laws, each of the officers of the Corporation shall hold office until
the regular annual meeting of the Board of Directors following the next Annual
Meeting and until his or her successor is elected and qualified or until his or
her earlier resignation or removal.
SECTION 5. Resignation. Any officer may resign by delivering his or her
-----------
written resignation to the Corporation addressed to the Chief Executive Officer,
the President or the Secretary, and such resignation shall be effective upon
receipt unless it is specified to be effective at some other time or upon the
happening of some other event.
SECTION 6. Removal. Except as otherwise provided by law, the Board of
-------
Directors may remove any officer with or without cause by the affirmative vote
of a majority of the directors then in office.
9
<PAGE>
SECTION 7. Absence or Disability. In the event of the absence or
---------------------
disability of any officer, the Board of Directors may designate another officer
to act temporarily in place of such absent or disabled officer.
SECTION 8. Vacancies. Any vacancy in any office may be filled for the
---------
unexpired portion of the term by the Board of Directors.
SECTION 9. Chief Executive Officer. The Chief Executive Officer shall,
-----------------------
subject to the direction of the Board of Directors, have general supervision and
control of the Corporation's business. If there is no Chairman of the Board or
if he or she is absent, the Chief Executive Officer shall preside, when present,
at all meetings of stockholders and of the Board of Directors. The Chief
Executive Officer shall have such other powers and perform such other duties as
the Board of Directors may from time to time designate.
SECTION 10. Chairman of the Board. The Chairman of the Board, if one is
---------------------
elected, shall preside, when present, at all meetings of the stockholders and of
the Board of Directors. The Chairman of the Board shall have such other powers
and shall perform such other duties as the Board of Directors may from time to
time designate.
SECTION 11. President. The President shall have such powers and shall
---------
perform such duties as the Board of Directors or the Chief Executive Officer may
from time to time designate.
SECTION 12. Vice Presidents and Assistant Vice Presidents. Any Vice
---------------------------------------------
President (including any Executive Vice President or Senior Vice President) and
any Assistant Vice President shall have such powers and shall perform such
duties as the Board of Directors or the Chief Executive Officer may from time to
time designate.
SECTION 13. Treasurer and Assistant Treasurers. The Treasurer shall,
----------------------------------
subject to the direction of the Board of Directors and except as the Board of
Directors or the Chief Executive Officer may otherwise provide, have general
charge of the financial affairs of the Corporation and shall cause to be kept
accurate books of account. The Treasurer shall have custody of all funds,
securities, and valuable documents of the Corporation. He or she shall have
such other duties and powers as may be designated from time to time by the Board
of Directors or the Chief Executive Officer.
Any Assistant Treasurer shall have such powers and perform such duties as
the Board of Directors or the Chief Executive Officer may from time to time
designate.
SECTION 14. Secretary and Assistant Secretaries. The Secretary shall
-----------------------------------
record all the proceedings of the meetings of the stockholders and the Board of
Directors (including committees of the Board) in books kept for that purpose.
In his or her absence from any such meeting, a temporary secretary chosen at the
meeting shall record the proceedings thereof. The Secretary shall have charge
of the stock ledger (which may, however, be kept by any transfer or other agent
of the Corporation). The Secretary shall have custody of the seal of the
10
<PAGE>
Corporation, and the Secretary, or an Assistant Secretary, shall have authority
to affix it to any instrument requiring it, and, when so affixed, the seal may
be attested by his or her signature or that of an Assistant Secretary. The
Secretary shall have such other duties and powers as may be designated from time
to time by the Board of Directors or the Chief Executive Officer. In the
absence of the Secretary, any Assistant Secretary may perform his or her duties
and responsibilities.
Any Assistant Secretary shall have such powers and perform such duties as
the Board of Directors or the Chief Executive Officer may from time to time
designate.
SECTION 15. Other Powers and Duties. Subject to these By-laws and to such
-----------------------
limitations as the Board of Directors may from time to time prescribe, the
officers of the Corporation shall each have such powers and duties as generally
pertain to their respective offices, as well as such powers and duties as from
time to time may be conferred by the Board of Directors or the Chief Executive
Officer.
ARTICLE IV
----------
Capital Stock
-------------
SECTION 1. Certificates of Stock. Each stockholder shall be entitled to a
---------------------
certificate of the capital stock of the Corporation in such form as may from
time to time be prescribed by the Board of Directors. Such certificate shall be
signed by the Chairman of the Board of Directors, the President or a Vice
President and by the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary. The Corporation seal and the signatures by the
Corporation's officers, the transfer agent or the registrar may be facsimiles.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed on such certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the time of its issue. Every
certificate for shares of stock which are subject to any restriction on transfer
and every certificate issued when the Corporation is authorized to issue more
than one class or series of stock shall contain such legend with respect thereto
as is required by law.
SECTION 2. Transfers. Subject to any restrictions on transfer and unless
---------
otherwise provided by the Board of Directors, shares of stock may be transferred
only on the books of the Corporation by the surrender to the Corporation or its
transfer agent of the certificate theretofore properly endorsed or accompanied
by a written assignment or power of attorney properly executed, with transfer
stamps (if necessary) affixed, and with such proof of the authenticity of
signature as the Corporation or its transfer agent may reasonably require.
SECTION 3. Record Holders. Except as may otherwise be required by law, by
--------------
the Certificate or by these By-laws, the Corporation shall be entitled to treat
the record holder of stock as shown on its books as the owner of such stock for
all purposes, including the payment
11
<PAGE>
of dividends and the right to vote with respect thereto, regardless of any
transfer, pledge or other disposition of such stock, until the shares have been
transferred on the books of the Corporation in accordance with the requirements
of these By-laws.
It shall be the duty of each stockholder to notify the Corporation of his
or her post office address and any changes thereto.
SECTION 4. Record Date. In order that the Corporation may determine
-----------
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date: (a) in the case of determination of stockholders entitled to vote at any
meeting of stockholders, shall, unless otherwise required by law, not be more
than 60 nor less than 10 days before the date of such meeting and (b) in the
case of any other action, shall not be more than 60 days prior to such other
action. If no record date is fixed: (i) the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held and (ii) the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
SECTION 5. Replacement of Certificates. In case of the alleged loss,
---------------------------
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms as the Board of Directors may
prescribe.
ARTICLE V
---------
Indemnification
---------------
SECTION 1. Definitions. For purposes of this Article:
-----------
(a) "Corporate Status" describes the status of a person who is serving or
has served (i) as a Director of the Corporation, (ii) as an Officer of the
Corporation, or (iii) as a director, partner, trustee, officer, employee or
agent of any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise which such person is or was serving at the
request of the Corporation. For purposes of this Section 1(f), an Officer or
Director of the Corporation who is serving or has served as a director, partner,
trustee, officer, employee or agent of a Subsidiary shall be deemed to be
serving at the request of the Corporation;
(b) "Director" means any person who serves or has served the Corporation as
a director on the Board of Directors of the Corporation;
12
<PAGE>
(c) "Disinterested Director" means, with respect to each Proceeding in
respect of which indemnification is sought hereunder, a Director of the
Corporation who is not and was not a party to such Proceeding;
(d) "Expenses" means all reasonable attorneys' fees, retainers, court
costs, transcript costs, fees of expert witnesses, private investigators and
professional advisors (including, without limitation, accountants and investment
bankers), travel expenses, duplicating costs, printing and binding costs, costs
of preparation of demonstrative evidence and other courtroom presentation aids
and devices, costs incurred in connection with document review, organization,
imaging and computerization, telephone charges, postage, delivery service fees,
and all other disbursements, costs or expenses of the type customarily incurred
in connection with prosecuting, defending, preparing to prosecute or defend,
investigating, being or preparing to be a witness in, settling or otherwise
participating in, a Proceeding;
(e) "Non-Officer Employee" means any person who serves or has served as an
employee or agent of the Corporation, but who is not or was not a Director or
Officer;
(f) "Officer" means any person who serves or has served the Corporation as
an officer appointed by the Board of Directors of the Corporation;
(g) "Proceeding" means any threatened, pending or completed action, suit,
arbitration, alternate dispute resolution mechanism, inquiry, investigation,
administrative hearing or other proceeding, whether civil, criminal,
administrative, arbitrative or investigative; and
(h) "Subsidiary" shall mean any corporation, partnership, limited liability
company, joint venture, trust or other entity of which the Corporation owns
(either directly or through or together with another Subsidiary of the
Corporation) either (i) a general partner, managing member or other similar
interest or (ii) (A) 50% or more of the voting power of the voting capital
equity interests of such corporation, partnership, limited liability company,
joint venture or other entity, or (B) 50% or more of the outstanding voting
capital stock or other voting equity interests of such corporation, partnership,
limited liability company, joint venture or other entity.
SECTION 2. Indemnification of Directors and Officers. Subject to the
-----------------------------------------
operation of Section 4 of this Article V of these By-laws, each Director and
Officer shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the DGCL, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than such law
permitted the Corporation to provide prior to such amendment) against any and
all Expenses, judgments, penalties, fines and amounts reasonably paid in
settlement that are incurred by such Director or Officer or on such Director's
or Officer's behalf in connection with any threatened, pending or completed
Proceeding or any claim, issue or matter therein, which such Director or Officer
is, or is threatened to be made, a party to or participant in by reason of such
Director's or Officer's Corporate Status, if such Director or Officer acted in
good faith and in a manner such Director or Officer reasonably believed to be in
or not
13
<PAGE>
opposed to the best interests of the Corporation and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The rights of indemnification provided by this Section 2 shall
continue as to a Director or Officer after he or she has ceased to be a Director
or Officer and shall inure to the benefit of his or her heirs, executors,
administrators and personal representatives. Notwithstanding the foregoing, the
Corporation shall indemnify any Director or Officer seeking indemnification in
connection with a Proceeding initiated by such Director or Officer only if such
Proceeding was authorized by the Board of Directors of the Corporation, unless
such Proceeding was brought to enforce an Officer or Director's rights to
Indemnification under these By-laws in accordance with the provisions set forth
herein.
SECTION 3. Indemnification of Non-Officer Employees. Subject to the
----------------------------------------
operation of Section 4 of this Article V of these By-laws, each Non-Officer
Employee may, in the discretion of the Board of Directors of the Corporation, be
indemnified by the Corporation to the fullest extent authorized by the DGCL, as
the same exists or may hereafter be amended, against any or all Expenses,
judgments, penalties, fines and amounts reasonably paid in settlement that are
incurred by such Non-Officer Employee or on such Non-Officer Employee's behalf
in connection with any threatened, pending or completed Proceeding, or any
claim, issue or matter therein, which such Non-Officer Employee is, or is
threatened to be made, a party to or participant in by reason of such Non-
Officer Employee's Corporate Status, if such Non-Officer Employee acted in good
faith and in a manner such Non-Officer Employee reasonably believed to be in or
not opposed to the best interests of the Corporation and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The rights of indemnification provided by this Section 3 shall exist
as to a Non-Officer Employee after he or she has ceased to be a Non-Officer
Employee and shall inure to the benefit of his or her heirs, personal
representatives, executors and administrators. Notwithstanding the foregoing,
the Corporation may indemnify any Non-Officer Employee seeking indemnification
in connection with a Proceeding initiated by such Non-Officer Employee only if
such Proceeding was authorized by the Board of Directors of the Corporation.
SECTION 4. Good Faith. Unless ordered by a court, no indemnification
----------
shall be provided pursuant to this Article V to a Director, to an Officer or to
a Non-Officer Employee unless a determination shall have been made that such
person acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Corporation and, with respect to
any criminal Proceeding, such person had no reasonable cause to believe his or
her conduct was unlawful. Such determination shall be made by (a) a majority
vote of the Disinterested Directors, even though less than a quorum of the Board
of Directors, (b) a committee comprised of Disinterested Directors, such
committee having been designated by a majority vote of the Disinterested
Directors (even though less than a quorum), (c) if there are no such
Disinterested Directors, or if a majority of Disinterested Directors so directs,
by independent legal counsel in a written opinion, or (d) by the stockholders of
the Corporation.
SECTION 5. Advancement of Expenses to Directors Prior to Final
---------------------------------------------------
Disposition.
- -----------
14
<PAGE>
(a) The Corporation shall advance all Expenses incurred by or on behalf of
any Director in connection with any Proceeding in which such Director is
involved by reason of such Director's Corporate Status within 10 days after the
receipt by the Corporation of a written statement from such Director requesting
such advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall reasonably
evidence the Expenses incurred by such Director and shall be preceded or
accompanied by an undertaking by or on behalf of such Director to repay any
Expenses so advanced if it shall ultimately be determined that such Director is
not entitled to be indemnified against such Expenses.
(b) If a claim for advancement of Expenses hereunder by a Director is not
paid in full by the Corporation within 10 days after receipt by the Corporation
of documentation of Expenses and the required undertaking, such Director may at
any time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim and if successful in whole or in part, such Director shall
also be entitled to be paid the expenses of prosecuting such claim. The failure
of the Corporation (including its Board of Directors or any committee thereof,
independent legal counsel, or stockholders) to make a determination concerning
the permissibility of such advancement of Expenses under this Article V shall
not be a defense to the action and shall not create a presumption that such
advancement is not permissible. The burden of proving that a Director is not
entitled to an advancement of expenses shall be on the Corporation.
(c) In any suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the Corporation shall be
entitled to recover such expenses upon a final adjudication that the Director
has not met any applicable standard for indemnification set forth in the DGCL.
SECTION 6. Advancement of Expenses to Officers and Non-Officer Employees
-------------------------------------------------------------
Prior to Final Disposition.
- --------------------------
(a) The Corporation may, at the discretion of the Board of Directors of the
Corporation, advance any or all Expenses incurred by or on behalf of any Officer
and Non-Officer Employee in connection with any Proceeding in which such is
involved by reason of the Corporate Status of such Officer or Non-Officer
Employee upon the receipt by the Corporation of a statement or statements from
such Officer or Non-Officer Employee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
such Officer and Non-Officer Employee and shall be preceded or accompanied by an
undertaking by or on behalf of such to repay any Expenses so advanced if it
shall ultimately be determined that such Officer or Non-Officer Employee is not
entitled to be indemnified against such Expenses.
(b) In any suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the Corporation shall be
entitled to recover such
15
<PAGE>
expenses upon a final adjudication that the Officer or Non-Officer Employee has
not met any applicable standard for indemnification set forth in the DGCL.
SECTION 7. Contractual Nature of Rights.
----------------------------
(a) The foregoing provisions of this Article V shall be deemed to be a
contract between the Corporation and each Director and Officer entitled to the
benefits hereof at any time while this Article V is in effect, and any repeal or
modification thereof shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or any
Proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
(b) If a claim for indemnification of Expenses hereunder by a Director or
Officer is not paid in full by the Corporation within 60 days after receipt by
the Corporation of a written claim for indemnification, such Director or Officer
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim, and if successful in whole or in part, such Director
or Officer shall also be entitled to be paid the expenses of prosecuting such
claim. The failure of the Corporation (including its Board of Directors or any
committee thereof, independent legal counsel, or stockholders) to make a
determination concerning the permissibility of such indemnification under this
Article V shall not be a defense to the action and shall not create a
presumption that such indemnification is not permissible. The burden of proving
that a Director or Officer is not entitled to indemnification shall be on the
Corporation.
(c) In any suit brought by a Director or Officer to enforce a right to
indemnification hereunder, it shall be a defense that such Director or Officer
has not met any applicable standard for indemnification set forth in the DGCL.
SECTION 8. Non-Exclusivity of Rights. The rights to indemnification and
-------------------------
advancement of Expenses set forth in this Article V shall not be exclusive of
any other right which any Director, Officer, or Non-Officer Employee may have or
hereafter acquire under any statute, provision of the Certificate or these By-
laws, agreement, vote of stockholders or Disinterested Directors or otherwise.
SECTION 9. Insurance. The Corporation may maintain insurance, at its
---------
expense, to protect itself and any Director, Officer or Non-Officer Employee
against any liability of any character asserted against or incurred by the
Corporation or any such Director, Officer or Non-Officer Employee, or arising
out of any such person's Corporate Status, whether or not the Corporation would
have the power to indemnify such person against such liability under the DGCL or
the provisions of this Article V.
16
<PAGE>
ARTICLE VI
----------
Miscellaneous Provisions
------------------------
SECTION 1. Fiscal Year. The fiscal year of the Corporation shall be
-----------
determined by the Board of Directors.
SECTION 2. Seal. The Board of Directors shall have power to adopt and
----
alter the seal of the Corporation.
SECTION 3. Execution of Instruments. All deeds, leases, transfers,
------------------------
contracts, bonds, notes and other obligations to be entered into by the
Corporation in the ordinary course of its business without director action may
be executed on behalf of the Corporation by the Chairman of the Board, if one is
elected, the Chief Executive Officer, the President or the Treasurer or any
other officer, employee or agent of the Corporation as the Board of Directors or
Executive Committee may authorize.
SECTION 4. Voting of Securities. Unless the Board of Directors otherwise
--------------------
provides, the Chairman of the Board, if one is elected, the Chief Executive
Officer, the President or the Treasurer may waive notice of and act on behalf of
this Corporation, or appoint another person or persons to act as proxy or
attorney in fact for this Corporation with or without discretionary power and/or
power of substitution, at any meeting of stockholders or shareholders of any
other corporation or organization, any of whose securities are held by this
Corporation.
SECTION 5. Resident Agent. The Board of Directors may appoint a resident
--------------
agent upon whom legal process may be served in any action or proceeding against
the Corporation.
SECTION 6. Corporate Records. The original or attested copies of the
-----------------
Certificate, By-laws and records of all meetings of the incorporators,
stockholders and the Board of Directors and the stock transfer books, which
shall contain the names of all stockholders, their record addresses and the
amount of stock held by each, may be kept outside the State of Delaware and
shall be kept at the principal office of the Corporation, at the office of its
counsel or at an office of its transfer agent or at such other place or places
as may be designated from time to time by the Board of Directors.
SECTION 7. Certificate. All references in these By-laws to the
-----------
Certificate shall be deemed to refer to the Amended and Restated Certificate of
Incorporation of the Corporation, as amended and/or restated and in effect from
time to time.
17
<PAGE>
SECTION 8. Amendment of By-laws.
--------------------
(a) Amendment by Directors. Except as provided otherwise by law, these
----------------------
By-laws may be amended or repealed by the Board of Directors by the affirmative
vote of a majority of the directors then in office.
(b) Amendment by Stockholders. These By-laws may be amended or repealed
-------------------------
at any Annual Meeting, or special meeting of stockholders called for such
purpose, by the affirmative vote of at least 75% of the shares present in person
or represented by proxy at such meeting and entitled to vote on such amendment
or repeal, voting together as a single class; provided, however, that if the
Board of Directors recommends that stockholders approve such amendment or repeal
at such meeting of stockholders, such amendment or repeal shall only require the
affirmative vote of the majority of the shares present in person or represented
by proxy at such meeting and entitled to vote on such amendment or repeal,
voting together as a single class. Notwithstanding the foregoing, stockholder
approval shall not be required unless mandated by the Certificate, these By-
laws, or other applicable law.
Adopted ___________, ____ and effective as of February __, 2000.
18
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT 4.2
CYPRESS COMMUNICATIONS, INC.
and
STATE STREET BANK AND TRUST COMPANY
as Rights Agent
______________
Form of
Shareholder Rights Agreement
Dated as of _________, 2000
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
<S> <C>
1. Certain Definitions................................................... 1
-------------------
2. Appointment of Rights Agent........................................... 7
---------------------------
3. Issue of Right Certificates........................................... 7
---------------------------
4. Form of Right Certificates............................................ 9
--------------------------
5. Countersignature and Registration..................................... 10
---------------------------------
6. Transfer, Split Up, Combination and Exchange of Right Certificates;
-------------------------------------------------------------------
Mutilated, Destroyed, Lost or Stolen Right Certificates.............. 11
-------------------------------------------------------
7. Exercise of Rights; Exercise Price; Expiration Date of Rights......... 12
-------------------------------------------------------------
8. Cancellation and Destruction of Right Certificates.................... 14
--------------------------------------------------
9. Reservation and Availability of Preferred Stock....................... 14
-----------------------------------------------
10. Preferred Stock Record Date.......................................... 15
---------------------------
11. Adjustment of Exercise Price, Number and Kind of Shares or Number of
--------------------------------------------------------------------
Rights............................................................... 16
------
12. Certificate of Adjusted Exercise Price or Number of Shares........... 24
----------------------------------------------------------
13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power. 24
--------------------------------------------------------------------
14. Fractional Rights and Fractional Shares.............................. 26
---------------------------------------
15. Rights of Action..................................................... 27
----------------
16. Agreement of Right Holders........................................... 27
--------------------------
17. Right Certificate Holder Not Deemed a Shareholder.................... 28
-------------------------------------------------
18. Concerning the Rights Agent.......................................... 28
---------------------------
19. Merger or Consolidation or Change of Name of Rights Agent............ 29
---------------------------------------------------------
20. Duties of Rights Agent............................................... 29
----------------------
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
21. Change of Rights Agent............................................... 32
----------------------
22. Issuance of New Right Certificates................................... 32
----------------------------------
23. Redemption........................................................... 33
----------
24. Exchange............................................................. 34
--------
25. Notice of Certain Events............................................. 36
------------------------
26. Notices.............................................................. 37
-------
27. Supplements and Amendments........................................... 37
--------------------------
28. Successors........................................................... 38
----------
29. Determinations and Actions by the Board of Directors................. 38
----------------------------------------------------
30. Benefits of this Agreement........................................... 38
--------------------------
31. Severability......................................................... 39
------------
32. Governing Law........................................................ 39
-------------
33. Counterparts......................................................... 39
------------
34. Descriptive Headings................................................. 39
--------------------
</TABLE>
Exhibit A -- Terms of
Series Z Junior Participating
Cumulative Preferred Stock
Exhibit B -- Form of Right Certificate
(ii)
<PAGE>
FORM OF
SHAREHOLDER RIGHTS AGREEMENT
----------------------------
Agreement, dated as of ___________ [pricing date], 2000, between Cypress
Communications, Inc., a Delaware corporation (the "Company"), and State Street
Bank and Trust Company, a Massachusetts chartered trust company (the "Rights
Agent").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Board of Directors of the Company desires to provide
shareholders of the Company with the opportunity to benefit from the long-term
prospects and value of the Company and to ensure that shareholders of the
Company receive fair and equal treatment in the event of any proposed takeover
of the Company; and
WHEREAS, on __________ [pricing date], 2000, the Board of Directors of the
Company authorized and declared a dividend distribution of one Right (as such
term is hereinafter defined) for each outstanding share of Common Stock, par
value $.001 per share, of the Company (the "Common Stock") outstanding as of
___________ [IPO closing date], 2000 (the "Record Date"), and authorized the
issuance of one Right for each share of Common Stock of the Company issued
(whether or not originally issued or sold from the Company's treasury, except in
the case of treasury shares having associated Rights) between the Record Date
and the earlier of the Distribution Date or the Expiration Date (as such terms
are hereinafter defined), each Right initially representing the right to
purchase one one-thousandth of a share of Series Z Junior Participating
Cumulative Preferred Stock of the Company having the rights, powers and
preferences set forth on Exhibit A attached hereto, upon the terms and subject
---------
to the conditions hereinafter set forth (the "Rights"); and
WHEREAS, the Company desires to appoint the Rights Agent to act as rights
agent hereunder, in accordance with the terms and conditions hereof.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
-------------------
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such term is
----------------
hereinafter defined) who or which, together with all Affiliates (as such term is
hereinafter defined) and Associates (as such term is hereinafter defined) of
such Person, shall be the Beneficial Owner (as such term is hereinafter defined)
of 15% or more of the shares of Common Stock of the Company then outstanding,
but shall not include (i) the Company, (ii) any Subsidiary (as such term is
hereinafter defined) of the Company, (iii) any employee benefit plan or
compensation arrangement of the Company or any Subsidiary of the Company or (iv)
any Person holding shares of Common Stock of the Company organized, appointed or
established by the Company or any Subsidiary of the Company for or pursuant to
the terms of any such employee benefit
<PAGE>
plan or compensation arrangement (the Persons described in clauses (i) through
(iv) above are referred to herein as "Exempt Persons"); provided, however, that
-------- -------
the term "Acquiring Person" shall not include any Grandfathered Person, unless
such Grandfathered Person at any time after the Grandfathered Time becomes the
Beneficial Owner of more than the Grandfathered Percentage applicable to such
Grandfathered Person.
Notwithstanding the foregoing, no Person shall become an "Acquiring Person"
as the result of an acquisition by the Company of Common Stock of the Company
which, by reducing the number of shares outstanding, increases the proportionate
number of shares Beneficially Owned by such Person to 15% (or in the case of a
Grandfathered Person, the Grandfathered Percentage applicable to such
Grandfathered Person) or more of the shares of Common Stock of the Company then
outstanding; provided, however, that if a Person shall become the Beneficial
-------- -------
Owner of 15% (or in the case of a Grandfathered Person, the Grandfathered
Percentage applicable to such Grandfathered Person) or more of the shares of
Common Stock of the Company then outstanding by reason of share purchases by the
Company and shall, after such share purchases by the Company, become the
Beneficial Owner of any additional shares (other than pursuant to a stock split,
stock dividend or similar transaction) of Common Stock of the Company and
immediately thereafter be the Beneficial Owner of 15% (or in the case of a
Grandfathered Person, the Grandfathered Percentage applicable to such
Grandfathered Person) or more of the shares of Common Stock of the Company then
outstanding, then such Person shall be deemed to be an "Acquiring Person."
In addition, notwithstanding the foregoing, a Person shall not be an
"Acquiring Person" if the Board of Directors of the Company determines that a
Person who would otherwise be an "Acquiring Person," has become such without
intending to become an "Acquiring Person," and such Person divests as promptly
as practicable (or within such period of time as the Board of Directors of the
Company determines is reasonable) a sufficient number of shares of Common Stock
of the Company so that such Person would no longer be an "Acquiring Person," as
defined pursuant to the foregoing provisions of this Section 1(a).
(b) "Adjustment Shares" shall have the meaning set forth in Section11(a)
------------------
(ii) hereof.
(c) "Affiliate" and "Associate" shall have the respective meanings ascribed
---------- ---------
to such terms in Rule 12b-2 of the General Rules and Regulations (the "Rules")
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
in effect on the date of this Agreement; provided, however, that no Person who
-------- -------
is a director or officer of the Company shall be deemed an Affiliate or an
Associate of any other director or officer of the Company solely as a result of
his or her position as director or officer of the Company.
(d) A Person shall be deemed the "Beneficial Owner" of, and shall be deemed
----------------
to "Beneficially Own" and have "Beneficial Ownership" of, any securities:
---------------- --------------------
2
<PAGE>
(i) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, Beneficially Owns (as determined
pursuant to Rule 13d-3 of the Rules under the Exchange Act, as in effect on
the date of this Agreement);
(ii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has:
(A) the right to acquire (whether or not such right is
exercisable immediately or only after the passage of time or upon the
satisfaction of any conditions or both) pursuant to any agreement,
arrangement or understanding (whether or not in writing) (other than
customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities) or
upon the exercise of conversion rights, exchange rights, rights (other
than the Rights), warrants or options, or otherwise; provided,
--------
however, that a Person shall not be deemed the "Beneficial Owner" of,
-------
or to "Beneficially Own" or have "Beneficial Ownership" of, (1)
securities tendered pursuant to a tender or exchange offer made by or
on behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or
exchange; (2) securities issuable upon exercise of these Rights at any
time prior to the occurrence of a Triggering Event; or (3) securities
issuable upon exercise of Rights from and after the occurrence of a
Triggering Event, which Rights were acquired by such Person or any of
such Person's Affiliates or Associates prior to the Distribution Date
or pursuant to Sections 3(a), 11(i) or 22 hereof; or
(B) the right to vote pursuant to any agreement, arrangement
or understanding (whether or not in writing); provided, however, that
-------- -------
a Person shall not be deemed the "Beneficial Owner" of, or to
"Beneficially Own" or have "Beneficial Ownership" of, any security
under this clause (B) if the agreement, arrangement or understanding
to vote such security (1) arises solely from a revocable proxy given
in response to a public proxy or consent solicitation made pursuant
to, and in accordance with, the Rules of the Exchange Act and (2) is
not also then reportable by such Person on Schedule 13D under the
Exchange Act (or any comparable or successor report); or
(C) the right to dispose of pursuant to any agreement,
arrangement or understanding (whether or not in writing) (other than
customary arrangements with and between underwriters and selling group
members with respect to a bona fide public offering of securities); or
(iii) which are Beneficially Owned, directly or indirectly, by any
other Person (or any Affiliate or Associate thereof) with which such
Person or any of such Person's Affiliates or Associates has any
agreement, arrangement or understanding (whether or not in writing)
(other than customary agreements with and
3
<PAGE>
between underwriters and selling group members with respect to a bona fide
public offering of securities) for the purpose of acquiring, holding,
voting (except pursuant to a revocable proxy as described in clause (B) of
Section 1(d)(ii) hereof) or disposing of any securities of the Company;
provided, however, that (1) no Person engaged in business as an underwriter of
- -------- -------
securities shall be deemed the Beneficial Owner of any securities acquired
through such Person's participation as an underwriter in good faith in a firm
commitment underwriting until the expiration of forty (40) days after the date
of such acquisition, and (2) no Person who is a director or an officer of the
Company shall be deemed, as a result of his or her position as director or
officer of the Company, the Beneficial Owner of any securities of the Company
that are Beneficially Owned by any other director or officer of the Company.
For all purposes of this Agreement, the phrase "then outstanding,"
when used with reference to the percentage of the then outstanding shares of
Common Stock of the Company Beneficially Owned by a Person, shall mean the
number of securities then issued and outstanding together with the number of
such securities not then actually issued and outstanding which such Person would
be deemed to Beneficially Own hereunder.
(e) "Business Day" shall mean any day other than a Saturday, Sunday,
------------
or a day on which banking institutions in the State of New York are authorized
or obligated by law or executive order to close.
(f) "Certificate of Incorporation" when used in reference to the
----------------------------
Company shall mean the Amended and Restated Certificate of Incorporation, as
amended, of the Company.
(g) "Close of Business" on any given date shall mean 5:00 P.M., New
-----------------
York, New York time, on such date; provided, however, that if such date is not a
-------- -------
Business Day it shall mean 5:00 P.M., New York, New York time, on the next
succeeding Business Day.
(h) "Common Stock" when used in reference to the Company shall mean
------------
the common stock, par value $.001 per share, of the Company or any other shares
of capital stock of the Company into which such stock shall be reclassified or
changed. "Common Stock" when used with reference to any Person other than the
Company organized in corporate form shall mean (i) the capital stock or other
equity interest of such Person with the greatest voting power, (ii) the equity
securities or other equity interest having power to control or direct the
management of such Person or (iii) if such Person is a Subsidiary of another
Person, the Person or Persons which ultimately control such first-mentioned
Person and which have issued any such outstanding capital stock, equity
securities or equity interest. "Common Stock" when used with reference to any
Person not organized in corporate form shall mean units of beneficial interest
which (x) shall represent the right to participate generally in the profits and
losses of such Person (including without limitation any flow-through tax
benefits resulting from an ownership interest in such Person) and (y) shall be
entitled to exercise the greatest voting
4
<PAGE>
power of such Person or, in the case of a limited partnership, shall have the
power to remove or otherwise replace the general partner or partners.
(i) "Current Value" shall have the meaning set forth in Section
-------------
11(a)(iii) hereof.
(j) "Depositary Agent" shall have the meaning set forth in Section
----------------
7(c) hereof.
(k) "Distribution Date" shall have the meaning defined in Section 3(a)
-----------------
hereof.
(l) "Exempt Person" shall have the meaning set forth in the definition
-------------
of "Acquiring Person."
(m) "Exercise Price" shall have the meaning defined in Section 4(a)
--------------
hereof.
(n) "Expiration Date" and "Final Expiration Date" shall have the
--------------- ---------------------
meanings set forth in Section 7(a) hereof.
(o) "Fair Market Value" of any securities or other property shall be
-----------------
as determined in accordance with Section 11(d) hereof.
(p) "Grandfathered Percentage" shall mean with respect to any
------------------------
Grandfathered Person, the percentage of the outstanding shares of Common Stock
of the Company that such Grandfathered Person, together with all Affiliates and
Associates of such Grandfathered Person, Beneficially Owns as of the
Grandfathered Time plus an additional 1/2%. In the event any Grandfathered
Person shall sell, transfer, or otherwise dispose of any outstanding shares of
Common Stock after the Grandfathered Time, the Grandfathered Percentage shall,
subsequent to such sale, transfer or disposition, mean, with respect to such
Grandfathered Person, the lesser of (i) the Grandfathered Percentage as in
effect immediately prior to such sale, transfer or disposition or (ii) the
percentage of outstanding shares of Common Stock that such Grandfathered Person
Beneficially Owns immediately following such sale, transfer or disposition plus
an additional 1/2%. For purposes of determining the percentage of the
outstanding shares of Common Stock of the Company that any Grandfathered Person,
together with all Affiliates and Associates of such Grandfathered Person,
Beneficially Owns as of the Grandfathered Time, (x) the total number of shares
of Common Stock of the Company Beneficially Owned by such Grandfathered Person,
together with all Affiliates and Associates of such Grandfathered Person, as of
the Grandfathered Time shall not include any shares to be sold pursuant to the
offering contemplated by the Company's Registration Statement on Form S-1 (File
No. 333-92011), including pursuant to any over-allotment option relating thereto
or any registration statement filed under Rule 462(b) of the Securities Act of
1933, as amended, relating thereto (collectively, the "Offering"), and (y) the
total number of shares of Common Stock of the Company outstanding as of the
Grandfathered Time shall include all of the shares of Common Stock of the
Company then outstanding plus any shares to be sold pursuant to the Offering.
5
<PAGE>
(q) "Grandfathered Person" shall mean any Person who or which,
--------------------
together with all Affiliates and Associates of such Person, is, as of the
Grandfathered Time, the Beneficial Owner of 15% or more of the shares of Common
Stock of the Company then outstanding. Notwithstanding anything to the contrary
provided in this Agreement, any Grandfathered Person who after the Grandfathered
Time becomes the Beneficial Owner of less than 15% of the shares of Common Stock
of the Company then outstanding shall cease to be a Grandfathered Person.
(r) "Grandfathered Time" shall mean ____ [a.m./p.m.], New York, New
------------------
York time, on ___________, _______________, 2000 [immediately prior to pricing
committee call].
(s) "Group" shall have the meaning set forth in clause (b) of the
-----
definition of "Person."
(t) "NASDAQ" shall have the meaning set forth in Section 9(b) hereof.
------
(u) "Person" shall mean (a) an individual, a corporation, a
------
partnership, an association, a joint stock company, a trust, a business trust, a
government or political subdivision, any unincorporated organization, or any
other association or entity, and (b) a "group" as that term is used for purposes
of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended.
(v) "Preferred Stock" shall mean shares of Series Z Junior
---------------
Participating Cumulative Preferred Stock, par value $.001 per share, of the
Company having the rights and preferences set forth in Exhibit A attached
---------
hereto.
(w) "Preferred Stock Equivalents" shall have the meaning set forth in
---------------------------
Section 11(b) hereof.
(x) "Redemption Price" shall have the meaning defined in Section 23
----------------
hereof.
(y) "Registered Common Stock" shall have the meaning set forth in
-----------------------
Section 13(b) hereof.
(z) "Right Certificate" shall have the meaning set forth in Section
-----------------
3(a) hereof.
(aa) "Section 11(a)(ii) Event" shall have the meaning set forth in
-----------------------
Section 11(a)(ii) hereof.
(bb) "Section 11(a)(ii) Trigger Date" shall have the meaning set forth
------------------------------
in Section 11(a)(iii) hereof.
(cc) "Section 13 Event" shall mean any event described in clauses (x),
----------------
(y) or (z) of Section 13(a) hereof.
6
<PAGE>
(dd) "Section 24(a)(i) Exchange Ratio" shall have the meaning set
-------------------------------
forth in Section 24(a)(i) hereof.
(ee) "Section 24(a)(ii) Exchange Ratio" shall have the meaning set
--------------------------------
forth in Section 24(a)(ii) hereof.
(ff) "Spread" shall have the meaning set forth in Section 11(a)(iii)
------
hereof.
(gg) "Stock Acquisition Date" shall mean the date of the first public
----------------------
announcement (which for purposes of this definition shall include, without
limitation, the issuance of a press release or the filing of a publicly-
available report or other document with the Securities and Exchange Commission
or any other governmental agency) by the Company or an Acquiring Person that an
Acquiring Person has become such.
(hh) "Subsidiary" shall mean, with reference to any Person, any
----------
corporation or other entity of which securities or other ownership interests
having ordinary voting power sufficient, in the absence of contingencies, to
elect a majority of the board of directors or other persons performing similar
functions of such corporation or other entity are at the time directly or
indirectly Beneficially Owned or otherwise controlled by such Person either
alone or together with one or more Affiliates of such Person.
(ii) "Substitution Period" shall have the meaning set forth in Section
-------------------
11(a)(iii) hereof.
(jj) "Triggering Event" shall mean any Section 11(a)(ii) Event or any
----------------
Section 13 Event.
Section 2. Appointment of Rights Agent. The Company hereby appoints the
---------------------------
Rights Agent to act as agent for the Company and the holders of the Rights (who,
in accordance with Section 3 hereof, shall prior to the Distribution Date (as
hereinafter defined in Section 3(a)) also be the holders of the Common Stock of
the Company) in accordance with the terms and conditions hereof, and the Rights
Agent hereby accepts such appointment. The Company may from time to time
appoint such Co-Rights Agents as it may deem necessary or desirable. In the
event the Company appoints one or more Co-Rights Agents, the respective duties
of the Rights Agent and any Co-Rights Agents shall be as the Company shall
determine. The Company shall give ten (10) days' prior written notice to the
Rights Agent of the appointment of one or more Co-Rights Agents and the
respective duties of the Rights Agent and any such Co-Rights Agents. The Rights
Agent shall have no duty to supervise, and shall in no event be liable for, the
acts or omissions of any such Co-Rights Agent.
Section 3. Issue of Right Certificates.
---------------------------
(a) From the date hereof until the earlier of (i) the Close of
Business on the tenth calendar day after the Stock Acquisition Date, or (ii) the
Close of Business on the tenth
7
<PAGE>
Business Day (or such later calendar day, if any, as the Board of Directors of
the Company may determine in its sole discretion prior to the time at which any
Person becomes an Acquiring Person) after the date on which a tender or exchange
offer by any Person, other than an Exempt Person, is commenced within the
meaning of Rule 14d-2(a) of the Exchange Act, or any successor rule, or, if
earlier, after the first public announcement of the intention by any Person,
other than an Exempt Person, to commence a tender or exchange offer (whether by
means of a pre-commencement communication within the meaning of Rule 14d-2(b) of
the Exchange Act, or any successor rule, or otherwise) if, upon consummation
thereof, such Person could become the Beneficial Owner of 15% (or in the case of
a Grandfathered Person, the Grandfathered Percentage applicable to such
Grandfathered Person) or more of the shares of Common Stock of the Company then
outstanding (including any such date which is after the date of this Agreement
and prior to the issuance of the Rights) (the earliest of such dates being
herein referred to as the "Distribution Date"), (x) the Rights will be evidenced
(subject to the provisions of Section 3(b) hereof) by the certificates for the
Common Stock of the Company registered in the names of the holders of the Common
Stock of the Company (which certificates for Common Stock of the Company shall
be deemed also to be certificates for Rights) and not by separate certificates,
and (y) the Rights will be transferable only in connection with the transfer of
the underlying shares of Common Stock of the Company. As soon as practicable
after the Distribution Date, the Rights Agent will, at the Company's expense
send, by first-class, insured, postage prepaid mail, to each record holder of
the Common Stock of the Company as of the Close of Business on the Distribution
Date, at the address of such holder shown on the records of the Company, one or
more certificates, in substantially the form of Exhibit B attached hereto (the
---------
"Right Certificates"), evidencing one Right for each share of Common Stock of
the Company so held, subject to adjustment as provided herein. In the event that
an adjustment in the number of Rights per share of Common Stock of the Company
has been made pursuant to Section 11(o) hereof, the Company may make the
necessary and appropriate rounding adjustments (in accordance with Section 14(a)
hereof) at the time of distribution of the Right Certificates, so that Right
Certificates representing only whole numbers of Rights are distributed and cash
is paid in lieu of any fractional Rights. As of and after the Close of Business
on the Distribution Date, the Rights will be evidenced solely by such Right
Certificates.
(b) With respect to certificates for the Common Stock of the Company
issued prior to the Close of Business on the Record Date, the Rights will be
evidenced by such certificates for the Common Stock of the Company on or until
the Distribution Date (or the earlier redemption, expiration or termination of
the Rights), and the registered holders of the Common Stock of the Company also
shall be the registered holders of the associated Rights. Until the Distribution
Date (or the earlier redemption, expiration or termination of the Rights), the
transfer of any of the certificates for the Common Stock of the Company
outstanding prior to the date of this Agreement shall also constitute the
transfer of the Rights associated with the Common Stock of the Company
represented by such certificate.
(c) Certificates for the Common Stock of the Company issued after the
Record Date, but prior to the earlier of the Distribution Date or the
redemption, expiration or
8
<PAGE>
termination of the Rights, shall be deemed also to be certificates for Rights,
and shall bear a legend, substantially in the form set forth below:
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in a Shareholder Rights Agreement between
Cypress Communications, Inc. and State Street Bank and Trust Company,
as Rights Agent, dated as of _____________, 2000, as amended,
restated, renewed or extended from time to time (the "Rights
Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal offices of
Cypress Communications, Inc. and the stock transfer administration
office of the Rights Agent. Under certain circumstances, as set forth
in the Rights Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this certificate.
Cypress Communications, Inc. may redeem the Rights at a redemption
price of $0.01 per Right, subject to adjustment, under the terms of
the Rights Agreement. Cypress Communications, Inc. will mail to the
holder of this certificate a copy of the Rights Agreement, as in
effect on the date of mailing, without charge promptly after receipt
of a written request therefor. As set forth in the Rights Agreement,
Rights issued to or held by Acquiring Persons or any Affiliates or
Associates thereof (as defined in the Rights Agreement), and any
subsequent holder of such Rights, become null and void. The Rights
shall not be exercisable, and shall be void so long as held, by a
holder in any jurisdiction where the requisite qualification, if any,
to the issuance to such holder, or the exercise by such holder, of the
Rights in such jurisdiction shall not have been obtained or be
obtainable.
With respect to such certificates containing the foregoing legend, the Rights
associated with the Common Stock of the Company represented by such certificates
shall be evidenced by such certificates alone until the Distribution Date (or
the earlier redemption, expiration or termination of the Rights), and the
transfer of any of such certificates shall also constitute the transfer of the
Rights associated with the Common Stock of the Company represented by such
certificates. In the event that the Company purchases or acquires any shares of
Common Stock of the Company after the Record Date but prior to the Distribution
Date, any Rights associated with such Common Stock of the Company shall be
deemed canceled and retired so that the Company shall not be entitled to
exercise any Rights associated with the shares of Common Stock of the Company
which are no longer outstanding. The failure to print the foregoing legend on
any such certificate representing Common Stock of the Company or any defect
therein shall not affect in any manner whatsoever the application or
interpretation of the provisions of Section 7(e) hereof.
9
<PAGE>
Section 4. Form of Right Certificates.
--------------------------
(a) The Right Certificates (and the forms of election to purchase
shares and of assignment and certificate to be printed on the reverse thereof)
shall each be substantially in the form of Exhibit B attached hereto and may
---------
have such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law, rule or regulation or with any rule or
regulation of any stock exchange on which the Rights may from time to time be
listed, or to conform to customary usage. The Right Certificates shall be in a
machine-printable format and in a form reasonably satisfactory to the Rights
Agent. Subject to the provisions of Section 11 and Section 22 hereof, the Right
Certificates, whenever distributed, shall show the date of countersignature, and
on their face shall entitle the holders thereof to purchase such number of one
one-thousandths of a share of Preferred Stock as shall be set forth therein at
the price set forth therein (the "Exercise Price"), but the number of such
shares and the Exercise Price shall be subject to adjustment as provided herein.
(b) Any Right Certificate issued pursuant to Section 3(a) or Section
22 hereof that represents Rights Beneficially Owned by (i) an Acquiring Person
or any Associate or Affiliate of an Acquiring Person, (ii) a transferee of an
Acquiring Person (or of any Associate or Affiliate of an Acquiring Person) who
becomes a transferee after the Acquiring Person becomes such, or (iii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee prior to or concurrently with the Acquiring Person becoming
such and receives such Rights pursuant to either (A) a transfer (whether or not
for consideration) from the Acquiring Person to holders of equity interests in
such Acquiring Person or to any Person with whom the Acquiring Person has any
continuing agreement, arrangement or understanding (whether or not in writing)
regarding the transferred Rights, the shares of Common Stock of the Company
associated with such Rights or the Company or (B) a transfer which the Board of
Directors of the Company has determined is part of a plan, arrangement or
understanding which has as a primary purpose or effect the avoidance of Section
7(e) hereof, and any Right Certificate issued pursuant to Section 6, Section 11
or Section 22 upon transfer, exchange, replacement or adjustment of any other
Right Certificate referred to in this sentence, shall have deleted therefrom the
second sentence of the existing legend on such Right Certificate and in
substitution therefor shall contain the following legend:
The Rights represented by this Right Certificate are or were
Beneficially Owned by a Person who was or became an Acquiring Person
or an Affiliate or an Associate of an Acquiring Person (as such terms
are defined in the Rights Agreement). This Right Certificate and the
Rights represented hereby may become null and void under certain
circumstances as specified in Section 7(e) of the Rights Agreement.
The Company shall give notice to the Rights Agent promptly after it becomes
aware of the
10
<PAGE>
existence and identity of any Acquiring Person or any Associate or
Affiliate thereof. The Company shall instruct the Rights Agent in writing of
the Rights which should be so legended. The failure to print the foregoing
legend on any such Right Certificate or any defect therein shall not affect in
any manner whatsoever the application or interpretation of the provisions of
Section 7(e) hereof.
Section 5. Countersignature and Registration.
---------------------------------
(a) The Right Certificates shall be executed on behalf of the Company
by its Chairman of the Board of Directors, or its President or any Vice
President and by its Treasurer or any Assistant Treasurer, or by its Secretary
or any Assistant Secretary, either manually or by facsimile signature, and shall
have affixed thereto the Company's seal or a facsimile thereof which shall be
attested to by the Secretary or any Assistant Secretary of the Company, either
manually or by facsimile signature. The Right Certificates shall be manually
countersigned by an authorized signatory of the Rights Agent and shall not be
valid for any purpose unless so countersigned, and such countersignature upon
any Right Certificate shall be conclusive evidence, and the only evidence, that
such Right Certificate has been duly countersigned as required hereunder. In
case any officer of the Company who shall have signed any of the Right
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by an authorized
signatory of the Rights Agent, and issued and delivered by the Company with the
same force and effect as though the person who signed such Right Certificates
had not ceased to be such officer of the Company; and any Right Certificates may
be signed on behalf of the Company by any person who, at the actual date of the
execution of such Right Certificate, shall be a proper officer of the Company to
sign such Right Certificate, although at the date of the execution of this
Rights Agreement any such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at one of its offices designated as the appropriate place for
surrender of Right Certificates upon exercise or transfer, books for
registration and transfer of the Right Certificates issued hereunder. Such
books shall show the names and addresses of the respective holders of the Right
Certificates, the number of Rights evidenced on its face by each of the Right
Certificates and the date of each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right
-----------------------------------------------------
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates.
- ---------------------------------------------------------------------
(a) Subject to the provisions of Section 4(b), Section 7(e) and
Section 14 hereof, at any time after the Close of Business on the Distribution
Date, and at or prior to the Close of Business on the Expiration Date, any Right
Certificate or Certificates may be transferred, split up, combined or exchanged
for another Right Certificate or Certificates, entitling the registered holder
to purchase a like number of one one-thousandths of a share of Preferred Stock
(or following a Triggering Event, preferred stock, cash, property, debt
11
<PAGE>
securities, Common Stock of the Company or any combination thereof) as the Right
Certificate or Certificates surrendered then entitled such holder to purchase
and at the same Exercise Price. Any registered holder desiring to transfer,
split up, combine or exchange any Right Certificate shall make such request in
writing delivered to the Rights Agent, and shall surrender the Right Certificate
or Certificates to be transferred, split up, combined or exchanged, with the
form of assignment and certificate duly executed, at the office or offices of
the Rights Agent designated for such purpose. Neither the Rights Agent nor the
Company shall be obligated to take any action whatsoever with respect to the
transfer of any such surrendered Right Certificate until the registered holder
shall have completed and signed the certificate contained in the form of
assignment on the reverse side of such Right Certificate and shall have provided
such additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Company shall
reasonably request. Thereupon the Rights Agent shall, subject to Section 4(b),
Section 7(e) and Section 14 hereof, countersign and deliver to the Person
entitled thereto a Right Certificate or Certificates, as the case may be, as so
requested. The Company may require payment by the registered holder of a Right
Certificate, of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer, split up, combination or
exchange of Right Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Right Certificate, and, in case of loss, theft or destruction, of indemnity or
security satisfactory to them, and reimbursement to the Company and the Rights
Agent of all reasonable expenses incidental thereto, and upon surrender to the
Rights Agent and cancellation of the Right Certificate, if mutilated, the
Company will execute and deliver a new Right Certificate of like tenor to the
Rights Agent for countersignature and delivery to the registered owner in lieu
of the Right Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Exercise Price; Expiration Date of Rights.
-------------------------------------------------------------
(a) Subject to Section 7(e) hereof, the registered holder of any Right
Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein) in whole or in part at any time after the Distribution Date
upon surrender of the Right Certificate, with the form of election to purchase
and the certificate on the reverse side thereof duly executed, to the Rights
Agent at the office or offices of the Rights Agent designated for such purpose,
together with payment of the aggregate Exercise Price for the total number of
one one-thousandths of a share of Preferred Stock (or other securities, cash or
other assets, as the case may be) as to which such surrendered Rights are then
exercised, at or prior to the earlier of (i) the Close of Business on the tenth
anniversary of the Record Date (the "Final Expiration Date"), (ii) the time at
which the Rights are redeemed as provided in Section 23 hereof or (iii) the time
at which such Rights are exchanged as provided in Section 24 hereof (the earlier
of (i), (ii) or (iii) being herein referred to as the "Expiration Date").
Except as set forth in Section 7(e) hereof and notwithstanding any other
provision of this Agreement, any Person who prior to the Distribution Date
becomes a record holder of shares of Common Stock of the
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Company may exercise all of the rights of a registered holder of a Right
Certificate with respect to the Rights associated with such shares of Common
Stock of the Company in accordance with the provisions of this Agreement, as of
the date such Person becomes a record holder of shares of Common Stock of the
Company.
(b) The Exercise Price for each one one-thousandth of a share of
Preferred Stock pursuant to the exercise of a Right shall initially be
__________ Dollars ($__.__), shall be subject to adjustment from time to time as
provided in Section 11 and Section 13 hereof and shall be payable in lawful
money of the United States of America in accordance with Section 7(c) below.
(c) As promptly as practicable following the Distribution Date, the
Company shall deposit with a corporation, trust, bank or similar institution in
good standing organized under the laws of the United States or any State of the
United States, which is authorized under such laws to exercise corporate trust
or stock transfer powers and is subject to supervision or examination by a
federal or state authority (such institution is hereinafter referred to as the
"Depositary Agent"), certificates representing the shares of Preferred Stock
that may be acquired upon exercise of the Rights and the Company shall cause
such Depositary Agent to enter into an agreement pursuant to which the
Depositary Agent shall issue receipts representing interests in the shares of
Preferred Stock so deposited. Upon receipt of a Right Certificate representing
exercisable Rights, with the form of election to purchase and the certificate on
the reverse side thereof duly executed, accompanied by payment of the Exercise
Price for the shares to be purchased and an amount equal to any applicable
transfer tax (as determined by the Rights Agent) by certified check or bank
draft payable to the order of the Company or by money order, the Rights Agent
shall, subject to Section 20(k) hereof, thereupon promptly (i) requisition from
the Depositary Agent (or make available, if the Rights Agent is the Depositary
Agent) depositary receipts or certificates for the number of one one-thousandths
of a share of Preferred Stock to be purchased and the Company hereby irrevocably
authorizes the Depositary Agent to comply with all such requests, (ii) when
appropriate, requisition from the Company the amount of cash, if any, to be paid
in lieu of issuance of fractional shares in accordance with Section 14 hereof,
(iii) promptly after receipt of such certificates or depositary receipts, cause
the same to be delivered to or upon the order of the registered holder of such
Right Certificate, registered in such name or names as may be designated by such
holder and (iv) when appropriate, after receipt promptly deliver such cash to or
upon the order of the registered holder of such Right Certificate. In the event
that the Company is obligated to issue other securities (including Common Stock)
of the Company, pay cash or distribute other property pursuant to Section 11(a)
hereof, the Company will make all arrangements necessary so that such other
securities, cash or other property are available for distribution by the Rights
Agent, if and when appropriate. The payment of the Exercise Price may be made
by certified or bank check payable to the order of the Company, or by money
order or wire transfer of immediately available funds to the account of the
Company (provided that notice of such wire transfer shall be given by the holder
of the related Right to the Rights Agent).
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(d) In case the registered holder of any Right Certificate shall
exercise less than all the Rights evidenced thereby, a new Right Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent and delivered to the registered holder of such Right
Certificate or to his duly authorized assigns, subject to the provisions of
Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary, from
and after the first occurrence of a Section 11(a)(ii) Event or Section 13 Event,
any Rights Beneficially Owned by (i) an Acquiring Person or any Associate or
Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or
of any Associate or Affiliate of an Acquiring Person) who becomes a transferee
after the Acquiring Person becomes such or (iii) a transferee of an Acquiring
Person (or of any Associate or Affiliate of an Acquiring Person) who becomes a
transferee prior to or concurrently with the Acquiring Person becoming such and
receives such Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person to holders of equity interests in such
Acquiring Person or to any Person with whom the Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights, the shares of Common Stock of the Company associated with such Rights or
the Company, or (B) a transfer which the Board of Directors of the Company has
determined is part of a plan, arrangement or understanding which has as a
primary purpose or effect the avoidance of this Section 7(e), shall be null and
void without any further action and no holder of such Rights shall have any
rights whatsoever with respect to such Rights, whether under any provision of
this Agreement or otherwise. The Company shall use all reasonable efforts to
ensure that the provisions of this Section 7(e) and Section 4(b) hereof are
complied with, but shall have no liability to any holder of Right Certificates
or other Person as a result of its failure to make any determinations with
respect to an Acquiring Person or any Affiliates or Associates of an Acquiring
Person or any transferee of any of them hereunder.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder of Rights upon the occurrence of any
purported exercise as set forth in this Section 7 unless such registered holder
shall have (i) completed and signed the certificate contained in the form of
election to purchase set forth on the reverse side of the Right Certificate
surrendered for such exercise, and (ii) provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Right Certificates. All Right
--------------------------------------------------
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right
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Certificate purchased or acquired by the Company otherwise than upon the
exercise thereof. The Rights Agent shall deliver all canceled Right Certificates
to the Company.
Section 9. Reservation and Availability of Preferred Stock.
-----------------------------------------------
(a) The Company covenants and agrees that it will cause to be reserved
and kept available out of its authorized and unissued shares of Preferred Stock
or any authorized and issued shares of Preferred Stock held in its treasury, the
number of shares of Preferred Stock that will be sufficient to permit the
exercise in full of all outstanding and exercisable Rights. Upon the occurrence
of any events resulting in an increase in the aggregate number of shares of
Preferred Stock issuable upon exercise of all outstanding Rights in excess of
the number then reserved, the Company shall make appropriate increases in the
number of shares so reserved.
(b) The Company shall use its best efforts to cause, from and after
such time as the Rights become exercisable, all shares of Preferred Stock issued
or reserved for issuance to be listed, upon official notice of issuance, upon
the principal national securities exchange, if any, upon which the Common Stock
of the Company is listed or, if the principal market for the Common Stock of the
Company is not on any national securities exchange, to be eligible for listing
on the Nasdaq National Market of The Nasdaq Stock Market, Inc. ("NASDAQ") or any
successor thereto or other comparable nationally recognized securities quotation
system.
(c) The Company shall use its best efforts to (i) file, as soon as
practicable following the earliest date after the occurrence of a Section
11(a)(ii) Event on which the consideration to be delivered by the Company upon
exercise of the Rights has been determined in accordance with Section 11(a)(iii)
hereof, or as soon as required by law following the Distribution Date, as the
case may be, a registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the securities purchasable upon
exercise of the Rights on an appropriate form, (ii) cause such registration
statement to become effective as soon as practicable after such filing and (iii)
cause such registration statement to remain effective (with a prospectus that at
all times meets the requirements of the Securities Act) until the earlier of (A)
the date as of which the Rights are no longer exercisable for such securities or
(B) the Expiration Date. The Company will also take such action as may be
appropriate under, and which will ensure compliance with, the securities or
"blue sky" laws of the various states in connection with the exercisability of
the Rights. The Company may temporarily suspend, for a period of time not to
exceed ninety (90) days after the date determined in accordance with the
provisions of the first sentence of this Section 9(c), the exercisability of the
Rights in order to prepare and file such registration statement and permit it to
become effective. Upon such suspension, the Company shall issue a public
announcement stating that the exercisability of the Rights has been temporarily
suspended, as well as a public announcement at such time as the suspension is no
longer in effect, in each case with prompt written notice to the Rights Agent.
Notwithstanding any such provision of this Agreement to the contrary, the Rights
shall not be exercisable in any jurisdiction unless the requisite qualification
in such jurisdiction shall have been obtained.
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(d) The Company covenants and agrees that it will take all such action
as may be necessary to ensure that all shares of Preferred Stock delivered upon
the exercise of the Rights shall, at the time of delivery of the certificates or
depositary receipts for such shares (subject to payment of the Exercise Price),
be duly and validly authorized and issued and fully paid and nonassessable.
(e) The Company further covenants and agrees that it will pay when due
and payable any and all federal and state transfer taxes and charges which may
be payable in respect of the issuance or delivery of the Right Certificates or
of any certificates for shares of Preferred Stock upon the exercise of Rights.
The Company shall not, however, be required to pay any transfer tax which may be
payable in respect of any transfer or delivery of Right Certificates to a person
other than, or in respect of the issuance or delivery of securities in a name
other than that of, the registered holder of the Right Certificates evidencing
Rights surrendered for exercise or to issue or deliver any certificates for
securities in a name other than that of the registered holder upon the exercise
of any Rights until such tax shall have been paid (any such tax being payable by
the holder of such Right Certificate at the time of surrender) or until it has
been established to the Company's satisfaction that no such tax is due.
Section 10. Preferred Stock Record Date. Each Person in whose name any
---------------------------
certificate for Preferred Stock (including any fraction of a share of Preferred
Stock) is issued upon the exercise of Rights shall for all purposes be deemed to
have become the holder of record of the shares of Preferred Stock represented
thereby on, and such certificate shall be dated, the date upon which the Right
Certificate evidencing such Rights was duly surrendered and payment of the
Exercise Price (and any applicable transfer taxes) was made; provided, however,
-------- -------
that if the date of such surrender and payment is a date upon which the
Preferred Stock transfer books of the Company are closed, such person shall be
deemed to have become the record holder of such shares on, and such certificate
shall be dated, the next succeeding Business Day on which the Preferred Stock
transfer books of the Company are open; and further provided, however, that if
-------- -------
delivery of shares of Preferred Stock is delayed pursuant to Section 9(c), such
Person shall be deemed to have become the record holder of such shares of
Preferred Stock only when such shares first become deliverable. Prior to the
exercise of the Right evidenced thereby, the holder of a Right Certificate shall
not be entitled to any rights of a shareholder of the Company with respect to
shares for which the Rights shall be exercisable, including, without limitation,
the right to vote, to receive dividends or other distributions or to exercise
any preemptive rights, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.
Section 11. Adjustment of Exercise Price, Number and Kind of Shares or
----------------------------------------------------------
Number of Rights. The Exercise Price, the number and kind of shares covered by
- ----------------
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Stock payable in
shares of Preferred
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Stock, (B) subdivide the outstanding Preferred Stock, (C) combine the
outstanding Preferred Stock into a smaller number of shares or (D) issue
any shares of its capital stock in a reclassification of the Preferred
Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing or surviving
corporation), except as otherwise provided in this Section 11(a) and
Section 7(e) hereof, the Exercise Price in effect at the time of the record
date for such dividend or of the effective date of such subdivision,
combination or reclassification, and the number and kind of shares of
capital stock issuable on such date, shall be proportionately adjusted so
that the holder of any Right exercised after such time shall be entitled to
receive the aggregate number and kind of shares of capital stock which, if
such Right had been exercised immediately prior to such date and at a time
when the Preferred Stock transfer books of the Company were open, such
holder would have owned upon such exercise and been entitled to receive by
virtue of such dividend, subdivision, combination or reclassification;
provided, however, that in no event shall the consideration to be paid upon
-------- -------
the exercise of a Right be less than the aggregate par value of the shares
of capital stock of the Company issuable upon exercise of a Right. If an
event occurs which would require an adjustment under both Section 11(a)(i)
and Section 11(a)(ii) hereof, the adjustment provided for in this Section
11(a)(i) shall be in addition to, and shall be made prior to, any
adjustment required pursuant to Section 11(a)(ii) hereof.
(ii) Subject to the provisions of Section 24 hereof, in the event
any Person, alone or together with its Affiliates and Associates, shall
become an Acquiring Person, then, promptly following any such occurrence (a
"Section 11(a)(ii) Event"), proper provision shall be made so that each
holder of a Right, except as provided in Section 7(e) hereof, shall
thereafter have a right to receive, upon exercise thereof at the then
current Exercise Price in accordance with the terms of this Agreement, such
number of shares of Preferred Stock of the Company as shall equal the
result obtained by (x) multiplying the then current Exercise Price by the
then number of one one-thousandths of a share of Preferred Stock for which
a Right was exercisable immediately prior to the first occurrence of a
Section 11(a)(ii) Event, whether or not such Right was then exercisable,
and dividing that product by (y) 50% of the Fair Market Value per one
one-thousandth of a share of the Preferred Stock (determined pursuant to
Section 11(d)) on the date of the occurrence of a Section 11(a)(ii) Event
(such number of shares being referred to as the "Adjustment Shares").
(iii) In lieu of issuing any shares of Preferred Stock in
accordance with Section 11(a)(ii) hereof, the Company, acting by or
pursuant to a resolution of the Board of Directors of the Company, may, and
in the event that the number of shares of Preferred Stock which are
authorized by the Company's Certificate of Incorporation but not
outstanding or reserved for issuance for purposes other than upon exercise
of the Rights is not sufficient to permit the exercise in full of the
Rights in accordance with the foregoing subparagraph (ii) of this Section
11(a), the Company, acting by or pursuant to a resolution of the Board of
Directors of the Company, shall: (A)
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determine the excess of (X) the Fair Market Value of the Adjustment Shares
issuable upon the exercise of a Right (the "Current Value") over (Y) the
Exercise Price attributable to each Right (such excess being referred to as
the "Spread") and (B) with respect to all or a portion of each Right
(subject to Section 7(e) hereof), make adequate provision to substitute for
the Adjustment Shares, upon payment of the applicable Exercise Price, (1)
Common Stock of the Company, (2) cash, (3) a reduction in the Exercise
Price, (4) Preferred Stock Equivalents which the Board of Directors of the
Company has deemed to have the same value as shares of Common Stock of the
Company, (5) debt securities of the Company, (6) other assets or securities
of the Company or (7) any combination of the foregoing which, when added
to any shares of Preferred Stock issued upon such exercise, has an
aggregate value equal to the Current Value, where such aggregate value has
been determined by the Board of Directors of the Company based upon the
advice of a nationally recognized investment banking firm selected by the
Board of Directors of the Company; provided, however, that if the Company
-------- -------
shall not have made adequate provision to deliver value pursuant to clause
(B) above within thirty (30) days following the later of (x) the first
occurrence of a Section 11(a)(ii) Event and (y) the date on which the
Company's right of redemption pursuant to Section 23(a) expires (the later
of (x) and (y) being referred to herein as the "Section 11(a)(ii) Trigger
Date"), then the Company shall be obligated to deliver, upon the surrender
for exercise of a Right and without requiring payment of the Exercise
Price, shares of Preferred Stock (to the extent available) and then, if
necessary, cash, which shares and/or cash have an aggregate value equal to
the Spread. If the Board of Directors of the Company shall determine in
good faith that it is likely that sufficient additional shares of Preferred
Stock could be authorized for issuance upon exercise in full of the Rights,
the 30-day period set forth above may be extended to the extent necessary,
but not more than ninety (90) days after the Section 11(a)(ii) Trigger
Date, in order that the Company may seek shareholder approval for the
authorization of such additional shares (such period, as it may be
extended, being referred to herein as the "Substitution Period"). To the
extent that the Company determines that some action need be taken pursuant
to the first and/or second sentences of this Section 11(a)(iii), the
Company (x) shall provide, subject to Section 7(e) hereof, that such action
shall apply uniformly to all outstanding Rights and (y) may suspend the
exercisability of the Rights until the expiration of the Substitution
Period in order to seek any authorization of additional shares and/or to
decide the appropriate form of distribution to be made pursuant to such
first sentence and to determine the value thereof. In the event of any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended and a public
announcement at such time as the suspension is no longer in effect. For
purposes of this Section 11(a)(iii), the value of the Preferred Stock shall
be the Fair Market Value (as determined pursuant to Section 11(d) hereof)
per share of the Preferred Stock on the Section 11(a)(ii) Trigger Date and
the value of any Preferred Stock Equivalent shall be deemed to have the
same value as the Preferred Stock on such date.
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(b) If the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Stock entitling them
(for a period expiring within forty-five (45) calendar days after such record
date) to subscribe for or purchase Preferred Stock (or securities having the
same or more favorable rights, privileges and preferences as the shares of
Preferred Stock ("Preferred Stock Equivalents")) or securities convertible into
Preferred Stock or Preferred Stock Equivalents at a price per share of Preferred
Stock or per share of Preferred Stock Equivalents (or having a conversion price
per share, if a security convertible into Preferred Stock or Preferred Stock
Equivalents) less than the Fair Market Value (as determined pursuant to Section
11(d) hereof) per share of Preferred Stock on such record date, the Exercise
Price to be in effect after such record date shall be determined by multiplying
the Exercise Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the number of shares of Preferred
Stock outstanding on such record date, plus the number of shares of Preferred
Stock which the aggregate offering price of the total number of shares of
Preferred Stock and/or Preferred Stock Equivalents to be offered (and the
aggregate initial conversion price of the convertible securities so to be
offered) would purchase at such Fair Market Value and the denominator of which
shall be the number of shares of Preferred Stock outstanding on such record
date, plus the number of additional shares of Preferred Stock and Preferred
Stock Equivalents to be offered for subscription or purchase (or into which the
convertible securities so to be offered are initially convertible) ; provided,
--------
however, that in no event shall the to be paid upon the exercise of a Right be
- -------
less than the aggregate par value of the shares of stock of the Company issuable
upon exercise of a Right. In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be the Fair Market Value thereof determined in
accordance with Section 11(d) hereof. Shares of Preferred Stock owned by or held
for the account of the Company shall not be deemed outstanding for the purpose
of any such computation. Such adjustments shall be made successively whenever
such a record date is fixed; and in the event that such rights or warrants are
not so issued, the Exercise Price shall be adjusted to be the Exercise Price
which would then be in effect if such record date had not been fixed.
(c) If the Company shall fix a record date for the making of a
distribution to all holders of Preferred Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing or surviving corporation), of evidences of indebtedness, cash (other
than a regular periodic cash dividend out of the earnings or retained earnings
of the Company), assets (other than a dividend payable in Preferred Stock, but
including any dividend payable in stock other than Preferred Stock) or
convertible securities, subscription rights or warrants (excluding those
referred to in Section 11(b)), the Exercise Price to be in effect after such
record date shall be determined by multiplying the Exercise Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the Fair Market Value (as determined pursuant to Section 11(d) hereof)
per one one-thousandth of a share of Preferred Stock on such record date, less
the Fair Market Value (as determined pursuant to Section 11(d) hereof) of the
portion of the cash, assets or evidences of indebtedness so to be distributed or
of such convertible securities, subscription rights or warrants applicable to
one-thousandth of a share of Preferred Stock and the denominator of
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<PAGE>
which shall be the Fair Market Value (as determined pursuant to Section 11(d)
hereof) per one-thousandth of a share of Preferred Stock; provided, however,
-------- -------
that in no event shall the consideration to be paid upon the exercise of a Right
be less than the aggregate par value of the shares of stock of the Company
issuable upon exercise of a Right. Such adjustments shall be made successively
whenever such a record date is fixed; and in the event that such distribution is
not so made, the Exercise Price shall again be adjusted to be the Exercise Price
which would be in effect if such record date had not been fixed.
(d) For the purpose of this Agreement, the "Fair Market Value" of any
share of Preferred Stock, Common Stock or any other stock or any Right or other
security or any other property shall be determined as provided in this
Section 11(d).
(i) In the case of a publicly-traded stock or other security,
the Fair Market Value on any date shall be deemed to be the average of
the closing prices per share of such stock or per unit of such other
security for the 30 consecutive Trading Days (as such term is
hereinafter defined) immediately prior to such date; provided,
--------
however, that in the event that the Fair Market Value per share of any
-------
share of stock is determined during a period following the
announcement by the issuer of such stock of (x) a dividend or
distribution on such stock payable in shares of such stock or
securities convertible into shares of such stock or (y) any
subdivision, combination or reclassification of such stock, and prior
to the expiration of the 30 Trading Day period after the ex-dividend
date for such dividend or distribution, or the record date for such
subdivision, combination or reclassification, then, and in each such
case, the Fair Market Value shall be properly adjusted to take into
account ex-dividend trading. The closing price for each day shall be
the last sale price, regular way, or, in case no such sale takes place
on such day, the average of the closing bid and asked prices, regular
way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the
securities are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal
national securities exchange on which such security is listed or
admitted to trading; or, if not listed or admitted to trading on any
national securities exchange, the last quoted price (or, if not so
quoted, the average of the last quoted high bid and low asked prices)
in the over-the-counter market, as reported by NASDAQ or such other
system then in use; or, if on any such date no bids for such security
are quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a
market in such security selected by the Board of Directors of the
Company. If on any such date no market maker is making a market in
such security, the Fair Market Value of such security on such date
shall be determined reasonably and with utmost good faith to the
holders of the Rights by the Board of Directors of the Company,
provided, however, that if at
-------- -------
20
<PAGE>
the time of such determination there is an Acquiring Person, the Fair
Market Value of such security on such date shall be determined by a
nationally recognized investment banking firm selected by the Board of
Directors of the Company, which determination shall be described in a
statement filed with the Rights Agent and shall be binding on the
Rights Agent and the holders of the Rights. The term "Trading Day"
shall mean a day on which the principal national securities exchange
on which such security is listed or admitted to trading is open for
the transaction of business or, if such security is not listed or
admitted to trading on any national securities exchange, a Business
Day.
(ii) If a security is not publicly held or not so listed or
traded, "Fair Market Value" shall mean the fair value per share of
stock or per other unit of such security, determined reasonably and
with utmost good faith to the holders of the Rights by the Board of
Directors of the Company; provided, however, that if at the time of
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such determination there is an Acquiring Person, the Fair Market Value
of such security on such date shall be determined by a nationally
recognized investment banking firm selected by the Board of Directors
of the Company, which determination shall be described in a statement
filed with the Rights Agent and shall be binding on the Rights Agent
and the holders of the Rights; provided, however, that for the
-------- -------
purposes of making any adjustment provided for by Section 11(a)(ii)
hereof, the Fair Market Value of a share of Preferred Stock shall not
be less than the product of the then Fair Market Value of a share of
Common Stock multiplied by the higher of the then Dividend Multiple or
Vote Multiple (as both of such terms are defined in the terms of the
Series Z Junior Participating Cumulative Preferred Stock attached
hereto as Exhibit A) applicable to the Preferred Stock and shall not
---------
exceed 105% of the product of the then Fair Market Value of a share of
Common Stock multiplied by the higher of the then Dividend Multiple or
Vote Multiple applicable to the Preferred Stock.
(iii) In the case of property other than securities, the Fair
Market Value thereof shall be determined reasonably and with utmost
good faith to the holders of Rights by the Board of Directors of the
Company; provided, however, that if at the time of such determination
-------- -------
there is an Acquiring Person, the Fair Market Value of such property
on such date shall be determined by a nationally recognized investment
banking firm selected by the Board of Directors of the Company, which
determination shall be described in a statement filed with the Rights
Agent and shall be binding upon the Rights Agent and the holders of
the Rights.
(e) Anything herein to the contrary notwithstanding, no adjustment in
the Exercise Price shall be required unless such adjustment would require an
increase or decrease of at least 1% in the Exercise Price; provided, however,
-------- -------
that any adjustments which by reason of this Section 11(e) are not required to
be made shall be carried forward and taken into
21
<PAGE>
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest hundred-thousandth of a
share of Common Stock of the Company or ten-millionth of a share of Preferred
Stock, as the case may be, or to such other figure as the Board of Directors of
the Company may deem appropriate. Notwithstanding the first sentence of this
Section 11(e), any adjustment required by this Section 11 shall be made no later
than the earlier of (i) three (3) years from the date of the transaction which
mandates such adjustment or (ii) the Expiration Date.
(f) If as a result of any provision of Section 11(a) or Section 13(a)
hereof, the holder of any Right thereafter exercised shall become entitled to
receive any shares of capital stock of the Company other than Preferred Stock,
thereafter the number of such other shares so receivable upon exercise of any
Right shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the
Preferred Stock contained in Section 11(a), (b), (c), (d), (e), (g) through (k)
and (m), inclusive, and the provisions of Sections 7, 9, 10, 13 and 14 hereof
with respect to the Preferred Stock shall apply on like terms to any such other
shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Exercise Price hereunder shall evidence the right to
purchase, at the adjusted Exercise Price, the number of one-thousandths of a
share of Preferred Stock (or other securities or amount of cash or combination
thereof) purchasable from time to time hereunder upon exercise of the Rights,
all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided
in Section 11(i), upon each adjustment of the Exercise Price as a result of the
calculations made in Section 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Exercise Price, that number of one one-thousandths of
a share of Preferred Stock (calculated to the nearest ten-millionth) as the
Board of Directors of the Company determines is appropriate to preserve the
economic value of the Rights, including, by way of example, that number obtained
by (i) multiplying (x) the number of one one-thousandths of a share of Preferred
Stock for which a Right may be exercisable immediately prior to this adjustment
by (y) the Exercise Price in effect immediately prior to such adjustment of the
Exercise Price and (ii) dividing the product so obtained by the Exercise Price
in effect immediately after such adjustment of the Exercise Price.
(i) The Company may elect on or after the date of any adjustment of
the Exercise Price to adjust the number of Rights, in substitution for any
adjustment in the number of shares of Preferred Stock purchasable upon the
exercise of a Right. Each of the Rights outstanding after the adjustment in the
number of Rights shall be exercisable for the number of one one-thousandths of a
share of Preferred Stock for which a Right was exercisable immediately prior to
such adjustment. Each Right held of record prior to such adjustment of the
number of Rights shall become that number of Rights (calculated to the nearest
hundred-thousandth) obtained by dividing the Exercise Price in effect
immediately prior to adjustment
22
<PAGE>
of the Exercise Price by the Exercise Price in effect immediately after
adjustment of the Exercise Price. The Company shall make a public announcement
of its election to adjust the number of Rights, indicating the record date for
the adjustment, and, if known at the time, the amount of the adjustment to be
made. This record date may be the date on which the Exercise Price is adjusted
or any day thereafter, but, if the Right Certificates have been issued, shall be
at least ten (10) days later than the date of the public announcement. If Right
Certificates have been issued, upon each adjustment of the number of Rights
pursuant to this Section 11(i), the Company shall, as promptly as practicable,
cause to be distributed to holders of record of Right Certificates on such
record date Right Certificates evidencing, subject to Section 14 hereof, the
additional Rights to which such holders shall be entitled as a result of such
adjustment, or, at the option of the Company, shall cause to be distributed to
such holders of record in substitution and replacement for the Right
Certificates held by such holders prior to the date of adjustment, and upon
surrender thereof, if required by the Company, new Right Certificates evidencing
all the Rights to which such holders shall be entitled after such adjustment.
Right Certificates so to be distributed shall be issued, executed and
countersigned in the manner provided for herein (and may bear, at the option of
the Company, the adjusted Exercise Price) and shall be registered in the names
of the holders of record of Right Certificates on the record date specified in
the public announcement.
(j) Irrespective of any adjustment or change in the Exercise Price or
the number of one one-thousandths of a share of Preferred Stock issuable upon
the exercise of the Rights, the Right Certificates theretofore and thereafter
issued may continue to express the Exercise Price per share and the number of
shares which were expressed in the initial Right Certificates issued hereunder
without prejudice to any adjustment or change.
(k) Before taking any action that would cause an adjustment reducing
the Exercise Price below the then stated value, if any, of the number of one
one-thousandths of a share of Preferred Stock issuable upon exercise of the
Rights, the Company shall take any corporate action which may, in the opinion of
its counsel, be necessary in order that the Company may validly and legally
issue fully paid and nonassessable shares of Preferred Stock at such adjusted
Exercise Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date
the number of one one-thousandths of a share of Preferred Stock or other capital
stock or securities of the Company, if any, issuable upon such exercise over and
above the number of one one-thousandths of a share of Preferred Stock and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Exercise Price in effect prior to such adjustment; provided,
--------
however, that the Company shall deliver to such holder a due bill or other
- --------
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
23
<PAGE>
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Exercise Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that in its good faith judgment the Board of Directors of the Company
shall determine to be advisable in order that any consolidation or subdivision
of the Preferred Stock, issuance wholly for cash of any shares of Preferred
Stock at less than the Fair Market Value, issuance wholly for cash of shares of
Preferred Stock or securities which by their terms are convertible into or
exchangeable for shares of Preferred Stock, stock dividends or issuance of
rights, options or warrants referred to hereinabove in this Section 11,
hereafter made by the Company to holders of its Preferred Stock, shall not be
taxable to such shareholders.
(n) The Company covenants and agrees that it shall not, at any time
after the Distribution Date and so long as the Rights have not been redeemed
pursuant to Section 23 hereof or exchanged pursuant to Section 24 hereof, (i)
consolidate with (other than a Subsidiary of the Company in a transaction that
complies with the proviso at the end of this sentence), (ii) merge with or into,
or (iii) sell or transfer (or permit any Subsidiary to sell or transfer), in one
transaction or a series of related transactions, assets or earning power
aggregating 50% or more of the assets or earning power of the Company and its
Subsidiaries taken as a whole, to any other Person or Persons (other than the
Company and/or any of its Subsidiaries in one or more transactions each of which
complies with the proviso at the end of this sentence) if (x) at the time of or
immediately after such consolidation, merger or sale there are any rights,
warrants or other instruments outstanding or agreements or arrangements in
effect which would substantially diminish or otherwise eliminate the benefits
intended to be afforded by the Rights, or (y) prior to, simultaneously with or
immediately after such consolidation, merger or sale the shareholders of such
Person or Persons shall have received a distribution of Rights previously owned
by such Person or Persons or any of their Affiliates and Associates; provided,
--------
however, that this Section 11(n) shall not affect the ability of any Subsidiary
- -------
of the Company to consolidate with, or merge with or into, or sell or transfer
assets or earning power to, any other Subsidiary of the Company. The Company
further covenants and agrees that after the Distribution Date it will not,
except as permitted by Section 23 or Section 27 hereof, take (or permit any
Subsidiary to take) any action if at the time such action is taken it is
reasonably foreseeable that such action will substantially diminish or otherwise
eliminate the benefits intended to be afforded by the Rights.
(o) Notwithstanding anything in this Agreement to the contrary, in
the event the Company shall at any time after the date of this Agreement and
prior to the Distribution Date (i) declare or pay any dividend on the
outstanding Common Stock of the Company payable in shares of Common Stock of the
Company or (ii) effect a subdivision, combination or consolidation of the
outstanding shares of Common Stock of the Company (by reclassification or
otherwise than by payment of dividends in shares of Common Stock of the Company)
into a greater or lesser number of shares of Common Stock of the Company, then
in any such case (A) the number of one one-thousandths of a share of Preferred
Stock purchasable after such event upon proper exercise of each Right shall be
determined by multiplying the number of one one-thousandths of a share of
Preferred Stock so purchasable immediately prior
24
<PAGE>
to such event by a fraction, the numerator of which is the number of shares of
Common Stock of the Company outstanding immediately prior to such event and the
denominator of which is the number of shares of Common Stock of the Company
outstanding immediately after such event, and (B) each share of Common Stock of
the Company outstanding immediately after such event shall have issued with
respect to it that number of Rights which each share of Common Stock of the
Company outstanding immediately prior to such event had issued with respect to
it. The adjustments provided for in this Section 11(o) shall be made
successively whenever such a dividend is declared or paid or such a subdivision,
combination or consolidation is effected.
(p) The exercise of Rights under Section 11(a)(ii) shall only result
in the loss of rights under Section 11(a)(ii) to the extent so exercised and
shall not otherwise affect the rights of holders of Right Certificates under
this Rights Agreement, including rights to purchase securities of any other
Person or Persons following a Section 13 Event which has occurred or may
thereafter occur, as set forth in Section 13 hereof. Upon exercise of a Right
Certificate under Section 11(a)(ii), the Rights Agent shall return such Right
Certificate duly marked to indicate that such exercise has occurred.
Section 12. Certificate of Adjusted Exercise Price or Number of Shares.
----------------------------------------------------------
Whenever an adjustment is made as provided in Section 11 or Section 13 hereof,
the Company shall (a) promptly prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment,
(b) promptly file with the Rights Agent and with each transfer agent for the
Preferred Stock and the Common Stock of the Company a copy of such certificate
and (c) mail a brief summary thereof to each holder of a Right Certificate (or,
if prior to the Distribution Date, to each holder of a certificate representing
shares of Common Stock of the Company) in accordance with Section 26 hereof.
The Rights Agent shall be fully protected in relying on any such certificate and
on any adjustment contained therein and shall not be deemed to have knowledge of
any such adjustment unless and until it shall have received such certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
------------------------------------------------------
Earning Power.
- -------------
(a) In the event that, following the Stock Acquisition Date, directly
or indirectly, (x) the Company shall consolidate with, or merge with and into,
any other Person (other than a Subsidiary of the Company in a transaction which
is not prohibited by Section 11(n) hereof), and the Company shall not be the
continuing or surviving corporation of such consolidation or merger, (y) any
other Person (other than a Subsidiary of the Company in a transaction which is
not prohibited by the proviso at the end of the first sentence of Section 11(n)
hereof) shall consolidate with the Company, or merge with and into the Company
and the Company shall be the continuing or surviving corporation of such merger
and, in connection with such merger, all or part of the shares of Common Stock
of the Company shall be changed into or exchanged for stock or other securities
of any other Person or cash or any other property, or (z) the Company shall
sell, mortgage or otherwise transfer (or one or more of its Subsidiaries shall
sell, mortgage or otherwise transfer), in one transaction or a series of
25
<PAGE>
related transactions, assets or earning power aggregating 50% or more of the
assets or earning power of the Company and its Subsidiaries (taken as a whole)
to any other Person (other than the Company or any Subsidiary of the Company in
one or more transactions, each of which is not prohibited by the proviso at the
end of the first sentence of Section 11(n) hereof), then, and in each such case,
proper provision shall be made so that: (i) each holder of a Right, except as
provided in Section 7(e) hereof, shall have the right to receive, upon the
exercise thereof at the then current Exercise Price in accordance with the terms
of this Agreement, such number of validly authorized and issued, fully paid and
nonassessable shares of freely tradeable Common Stock of such other Person
(including the Company as successor thereto or as the surviving corporation),
free and clear of rights of call or first refusal, liens, encumbrances, transfer
restrictions or other adverse claims, as shall be equal to the result obtained
by (1) multiplying the then current Exercise Price by the number of one one-
thousandths of a share of Preferred Stock for which a Right is exercisable
immediately prior to the first occurrence of a Section 13 Event, and dividing
that product by (2) 50% of the Fair Market Value (determined pursuant to Section
11(d) hereof) per share of the Common Stock of such other Person on the date of
consummation of such consolidation, merger, sale or transfer; (ii) the issuer of
such Common Stock shall thereafter be liable for, and shall assume, by virtue of
such consolidation, merger, sale, mortgage or transfer, all the obligations and
duties of the Company pursuant to this Agreement; (iii) the term "Company" shall
thereafter be deemed to refer to such issuer, it being specifically intended
that the provisions of Section 11 hereof shall apply to such issuer; and (iv)
such issuer shall take such steps (including, but not limited to, the
reservation of a sufficient number of shares of its Common Stock to permit
exercise of all outstanding Rights in accordance with this Section 13(a) and the
making of payments in cash and/or other securities in accordance with Section
11(a)(iii) hereof) in connection with such consummation as may be necessary to
assure that the provisions hereof shall thereafter be applicable, as nearly as
reasonably may be, in relation to its shares of Common Stock thereafter
deliverable upon the exercise of the Rights.
(b) The Company shall not consummate any such consolidation, merger,
sale or transfer with any such Person referred to in clauses (x), (y) or (z) of
Section 13(a) unless prior thereto (x) such other Person shall have a sufficient
number of authorized shares of its Common Stock, which have not been issued or
reserved for issuance, to permit the exercise in full of the Rights in
accordance with this Section 13, and (y) the Company and such other Person shall
have executed and delivered to the Rights Agent a supplemental agreement
providing for the terms set forth in Section 13(a) and (b) and further providing
that, as soon as practicable after the date of any consolidation, merger, sale
or transfer of assets mentioned in Section 13(a), such other Person at its own
expense will:
(i) prepare and file a registration statement under the
Securities Act with respect to the Rights and the securities purchasable
upon exercise of the Rights on an appropriate form, cause such registration
statement to become effective as soon as practicable after such filing and
cause such registration statement to remain effective (with a prospectus
that at all times meets the requirements of the Securities Act) until the
Expiration Date;
26
<PAGE>
(ii) qualify or register the Rights and the securities
purchasable upon exercise of the Rights under the blue sky laws of such
jurisdictions as may be necessary or appropriate;
(iii) list (or continue the listing of) the Rights and the
securities purchasable upon exercise of the Rights on a national securities
exchange or to meet the eligibility requirements for quotation on NASDAQ;
and
(iv) deliver to holders of the Rights historical financial
statements for such other Person and each of its Affiliates which comply in
all respects with the requirements for registration on Form 10 under the
Exchange Act.
(c) In case any Person which is to be a party to a transaction
referred to in this Section 13 has a provision in any of its authorized
securities or in its certificate of incorporation or by-laws or other instrument
governing its affairs, which provision would have the effect of (i) causing such
Person to issue (other than to holders of Rights pursuant to this Section 13),
in connection with, or as a consequence of, the consummation of a transaction
referred to in this Section 13, shares of Common Stock of such Person at less
than the then current Fair Market Value (determined pursuant to Section 11(d))
or securities exercisable for, or convertible into, Common Stock of such Person
at less than such Fair Market Value, or (ii) providing for any special payment,
tax or similar provisions in connection with the issuance of the Common Stock of
such Person pursuant to the provisions of this Section 13, then, in such event,
the Company shall not consummate any such transaction unless prior thereto the
Company and such Person shall have executed and delivered to the Rights Agent a
supplemental agreement providing that the provision in question of such Person
shall have been canceled, waived or amended, or that the authorized securities
shall be redeemed, so that the applicable provision will have no effect in
connection with, or as a consequence of, the consummation of the proposed
transaction.
The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers.
Section 14. Fractional Rights and Fractional Shares.
---------------------------------------
(a) The Company shall not be required to issue fractions of Rights,
except prior to the Distribution Date as provided in Section 11(o) hereof, or to
distribute Right Certificates which evidence fractional Rights. If the Company
elects not to issue such fractional Rights, the Company shall pay, in lieu of
such fractional Rights, to the registered holders of the Right Certificates with
regard to which such fractional Rights would otherwise be issuable, an amount in
cash equal to the same fraction of the Fair Market Value of a whole Right, as
determined pursuant to Section 11(d) hereof.
(b) The Company shall not be required to issue fractions of shares of
Preferred Stock (other than fractions which are integral multiples of one
one-thousandth of a
27
<PAGE>
share of Preferred Stock) upon exercise of the Rights or to distribute
certificates which evidence fractional shares of Preferred Stock (other than
fractions which are integral multiples of one one-thousandth of a share of
Preferred Stock). In lieu of fractional shares of Preferred Stock that are not
integral multiples of one one-thousandth of a share of Preferred Stock, the
Company may pay to the registered holders of Right Certificates at the time such
Rights are exercised as herein provided an amount in cash equal to the same
fraction of the Fair Market Value of one one-thousandth of a share of Preferred
Stock. For purposes of this Section 14(b), the Fair Market Value of one one-
thousandth of a share of Preferred Stock shall be determined pursuant to
Section 11(d) hereof for the Trading Day immediately prior to the date of such
exercise.
(c) The holder of a Right by the acceptance of the Rights expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise of a Right, except as permitted by this Section 14.
Section 15. Rights of Action. All rights of action in respect of this
----------------
Agreement, other than rights of action vested in the Rights Agent pursuant to
Sections 18 and 20 hereof, are vested in the respective registered holders of
the Right Certificates (or, prior to the Distribution Date, the registered
holders of the Common Stock of the Company); and any registered holder of any
Right Certificate (or, prior to the Distribution Date, of the Common Stock of
the Company), without the consent of the Rights Agent or of the holder of any
other Right Certificate (or, prior to the Distribution Date, of the Common Stock
of the Company), may, in such registered holder's own behalf and for such
registered holder's own benefit, enforce, and may institute and maintain any
suit, action or proceeding against the Company to enforce, or otherwise act in
respect of, his right to exercise the Right evidenced by such Right Certificate
in the manner provided in such Right Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and shall be entitled to specific
performance of the obligations hereunder and injunctive relief against actual or
threatened violations of the obligations hereunder of any Person subject to this
Agreement. Holders of Rights shall be entitled to recover the reasonable costs
and expenses, including attorneys' fees, incurred by them in any action to
enforce the provisions of this Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right, by
--------------------------
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, each Right will be transferable
only simultaneously and together with the transfer of shares of Common Stock of
the Company;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the office or offices of the Rights
28
<PAGE>
Agent designated for such purpose, duly endorsed or accompanied by a proper
instrument of transfer;
(c) subject to Sections 6(a) and 7(f), the Company and the Rights
Agent may deem and treat the person in whose name a Right Certificate (or, prior
to the Distribution Date, the associated certificate representing Common Stock
of the Company) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Right Certificates or the associated certificate representing Common Stock of
the Company made by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and, subject to the last sentence of Section 7(e), neither
the Company nor the Rights Agent shall be affected by any notice to the
contrary; and
(d) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to any holder
of a Right or other Person as the result of its inability to perform any of its
obligations under this Agreement by reason of any preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, or any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority prohibiting or otherwise restraining
performance of such obligations; provided, however, that the Company must use
-------- -------
its best efforts to have any such order, decree or ruling lifted or otherwise
overturned as soon as possible.
Section 17. Right Certificate Holder Not Deemed a Shareholder. No
-------------------------------------------------
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the shares of Preferred
Stock or any other securities of the Company which may at any time be issuable
on the exercise of the Rights represented thereby, nor shall anything contained
herein or in any Right Certificate be construed to confer upon the holder of any
Right Certificate, as such, any of the rights of a shareholder of the Company or
any right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
shareholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Right Certificate shall have been exercised in accordance with the
provisions hereof.
Section 18. Concerning the Rights Agent.
---------------------------
(a) The Company agrees to pay to the Rights Agent such compensation
as shall be agreed to in writing between the Company and the Rights Agent for
all services rendered by it hereunder and, from time to time, on demand of the
Rights Agent, its reasonable expenses and counsel fees and disbursements and
other disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The Company
also agrees to indemnify the Rights Agent for, and to hold it harmless against,
any loss, liability, or expense, incurred without gross negligence, bad faith or
willful misconduct on the part of the Rights Agent, for anything done or omitted
by the
29
<PAGE>
Rights Agent in connection with the acceptance and administration of this
Agreement, including the costs and expenses of defending against any claim of
liability arising therefrom, directly or indirectly. The provisions of this
Section 18(a) shall survive the expiration of the Rights and the termination of
this Agreement.
(b) The Rights Agent shall be protected and shall incur no liability
for or in respect of any action taken, suffered or omitted by it in connection
with its administration of this Agreement in reliance upon any Right Certificate
or certificate representing Common Stock of the Company, Preferred Stock, or
other securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it in good faith
and without negligence to be genuine and to be signed and executed by the proper
Person or Persons.
(c) The Rights Agent shall not be liable for consequential damages
under any provision of this Agreement or for any consequential damages arising
out of any act or failure to act hereunder.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
---------------------------------------------------------
(a) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the corporate trust or shareholder services business of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto, provided that such corporation would be
eligible for appointment as a successor Rights Agent under the provisions of
Section 21 hereof. In case at the time such successor Rights Agent shall
succeed to the agency created by this Agreement, any of the Right Certificates
shall have been countersigned but not delivered, any such successor Rights Agent
may adopt the countersignature of the predecessor Rights Agent and deliver such
Right Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor or in
the name of the successor Rights Agent; and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement.
(b) In case at any time the name of the Rights Agent shall be changed
and at such time any of the Right Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Right Certificates so countersigned; and in case at that time
any of the Right Certificates shall not have been countersigned, the Rights
Agent may countersign such Right Certificates either in its prior name or in its
changed name; and in all such cases such Right Certificates shall have the full
force provided in the Right Certificates and in this Agreement.
30
<PAGE>
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
----------------------
duties and obligations expressly imposed by this Agreement upon the following
terms and conditions, by all of which the Company and the holders of Right
Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel selected by it
(who may be legal counsel for the Company), and the opinion of such counsel
shall be full and complete authorization and protection to the Rights Agent as
to any action taken or omitted by it in good faith and in accordance with such
opinion.
(b) Whenever in the performance of its duties under this Agreement
the Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of any Acquiring Person and the
determination of "Fair Market Value") be proved or established by the Company
prior to taking or suffering any action hereunder, such fact or matter (unless
other evidence in respect thereof shall be herein specifically prescribed) may
be deemed to be conclusively proved and established by a certificate signed by a
person believed by the Rights Agent to be the Chairman of the Board of
Directors, a Vice Chairman of the Board of Directors, the President, a Vice
President, the Treasurer, any Assistant Treasurer, the Secretary or an Assistant
Secretary of the Company and delivered to the Rights Agent. Any such certificate
shall be full authorization to the Rights Agent for any action taken or suffered
in good faith by it under the provisions of this Agreement in reliance upon such
certificate.
(c) The Rights Agent shall be liable hereunder only for its own gross
negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof (except
the due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Right Certificate; nor shall it
be responsible for any change in the exercisability of the Rights (including the
Rights becoming void pursuant to Section 7(e) hereof) or any adjustment required
under the provisions of Sections 11, 13 or 23(c) hereof or responsible for the
manner, method or amount of any such adjustment or the ascertaining of the
existence of facts that would require any such adjustment (except with respect
to the exercise of Rights evidenced by Right Certificates after receipt of a
certificate describing any such adjustment furnished in accordance with Section
12 hereof), nor shall it be responsible for any determination by the Board of
Directors of the
31
<PAGE>
Company of the Fair Market Value of the Rights or Preferred Stock pursuant to
the provisions of Section 14 hereof; nor shall it by any act hereunder be deemed
to make any representation or warranty as to the authorization or reservation of
any shares of Common Stock of the Company or Preferred Stock to be issued
pursuant to this Agreement or any Right Certificate or as to whether or not any
shares of Common Stock of the Company or Preferred Stock will, when so issued,
be validly authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder and
certificates delivered pursuant to any provision hereof from any person believed
by the Rights Agent to be the Chairman of the Board of Directors, any Vice
Chairman of the Board of Directors, the President, a Vice President, the
Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer of
the Company, and is authorized to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered to be taken by it in good faith in accordance with
instructions of any such officer. Any application by the Rights Agent for
written instructions from the Company may, at the option of the Rights Agent,
set forth in writing any action proposed to be taken or omitted by the Rights
Agent under this Agreement and the date on or after which such action shall be
taken or such omission shall be effective. The Rights Agent shall not be liable
for any action taken by, or omission of, the Rights Agent in accordance with a
proposal included in such application on or after the date specified in such
application (which date shall not be less than five Business Days after the date
any officer of the Company actually receives such application, unless any such
officer shall have consented in writing to an earlier date) unless, prior to
taking any such action (or the effective date in the case of an omission), the
Rights Agent shall have received written instructions in response to such
application specifying the action to be taken or omitted.
(h) The Rights Agent and any shareholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not the Rights
Agent under this Agreement. Nothing herein shall preclude the Rights Agent from
acting in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents.
(j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its
32
<PAGE>
duties hereunder or in the exercise of its rights if there shall be reasonable
grounds for believing that repayment of such funds or adequate indemnification
against such risk or liability is not reasonably assured to it.
(k) If, with respect to any Right Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has either not
been completed or indicates an affirmative response to clause (1) or clause (2)
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise or transfer without first consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any successor
----------------------
Rights Agent may resign and be discharged from its duties under this Agreement
upon thirty (30) days' notice in writing mailed to the Company by first class
mail. The Company may remove the Rights Agent or any successor Rights Agent
(with or without cause), effective immediately or on a specified date, by
written notice given to the Rights Agent or successor Rights Agent, as the case
may be, and to each transfer agent of the Common Stock of the Company and
Preferred Stock, and by giving notice to the holders of the Right Certificates
by any means reasonably determined by the Company to inform such holders of such
removal (including without limitation, by including such information in one or
more of the Company's reports to shareholders or reports or filings with the
Securities and Exchange Commission). If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall appoint
a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of thirty (30) days after giving notice of such
removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Right Certificate (who shall, with such notice, submit his Right Certificate for
inspection by the Company), then the incumbent Rights Agent or the registered
holder of any Right Certificate may apply to any court of competent jurisdiction
for the appointment of a new Rights Agent. Any successor Rights Agent, whether
appointed by the Company or by such a court, shall be (a) a corporation
organized and doing business under the laws of the United States or the State of
New York (or of any other state of the United States so long as such corporation
is authorized to do business as a banking institution in the State of New York),
in good standing, which is authorized under such laws to exercise stock transfer
or corporate trust powers and is subject to supervision or examination by
federal or state authority and which has at the time of its appointment as
Rights Agent a combined capital and surplus of at least $100,000,000 or (b) an
Affiliate of a corporation described in clause (a) of this sentence. After
appointment, the successor Rights Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as Rights
Agent without further act or deed; but the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the time held
by it hereunder, and execute and deliver any further assurance, conveyance, act
or deed necessary for the purpose. Not later than the effective date of any such
appointment, the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Common Stock of the
Company and the Preferred Stock, and mail a notice thereof in writing to the
registered holders of the Right Certificates. Failure to give any notice
provided for in this Section 21, however, or any
33
<PAGE>
defect therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights Agent, as
the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding any of
----------------------------------
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Right Certificates evidencing Rights in such form
as may be approved by the Board of Directors of the Company to reflect any
adjustment or change in the Exercise Price per share and the number or kind or
class of shares of stock or other securities or property purchasable under the
Right Certificates made in accordance with the provisions of this Agreement. In
addition, in connection with the issuance or sale of shares of Common Stock of
the Company following the Distribution Date and prior to the redemption or
expiration of the Rights, the Company (a) shall, with respect to shares of
Common Stock of the Company so issued or sold pursuant to the exercise of stock
options or under any employee plan or arrangement, or upon the exercise,
conversion or exchange of securities hereafter issued by the Company, and (b)
may, in any other case, if deemed necessary or appropriate by the Board of
Directors of the Company, issue Right Certificates representing the appropriate
number of Rights in connection with such issuance or sale; provided, however,
-------- -------
that (i) no such Right Certificate shall be issued if, and to the extent that,
the Company shall be advised by counsel that such issuance would create a
significant risk of material adverse tax consequences to the Company or the
person to whom such Right Certificate would be issued, and (ii) no such Right
Certificate shall be issued if, and to the extent that, appropriate adjustments
shall otherwise have been made in lieu of the issuance thereof.
Section 23. Redemption.
----------
(a) The Board of Directors of the Company may, at its option, redeem
all but not less than all of the then outstanding Rights at a redemption price
of $0.01 per Right, appropriately adjusted to reflect any dividend declared or
paid on the Common Stock of the Company in shares of Common Stock of the Company
or any subdivision or combination of the outstanding shares of Common Stock of
the Company or similar event occurring after the date of this Agreement (such
redemption price, as adjusted from time to time, being hereinafter referred to
as the "Redemption Price"). The Rights may be redeemed only until the earlier to
occur of (i) the time at which any Person becomes an Acquiring Person or (ii)
the Final Expiration Date.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights in accordance with Section 23
hereof, and without any further action and without any notice, the right to
exercise the Rights will terminate and the only right thereafter of the holders
of Rights shall be to receive the Redemption Price for each Right so held.
Promptly after the action of the Board of Directors of the Company ordering the
redemption of the Rights in accordance with Section 23 hereof, the Company shall
give notice of such redemption to the Rights Agent and the holders of the then
outstanding Rights by mailing such notice to the Rights Agent and to all such
holders at their last addresses as they appear upon the registry books of the
Rights Agent or, prior to the Distribution Date, on
34
<PAGE>
the registry books of the Transfer Agent for the Common Stock of the Company.
Any notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. The Company promptly shall mail a
notice of any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent. Any notice
which is mailed in the manner herein provided shall be deemed given, whether or
not the holder receives the notice. Each such notice of redemption will state
the method by which the payment of the Redemption Price will be made. Neither
the Company nor any of its Affiliates or Associates may redeem, acquire or
purchase for value any Rights at any time in any manner other than that
specifically set forth in this Section 23 or Section 24 hereof or in connection
with the purchase of shares of Common Stock of the Company prior to the
Distribution Date.
(c) The Company may, at its option, pay the Redemption Price in cash,
shares of Common Stock of the Company (based on the Fair Market Value of the
Common Stock of the Company as of the time of redemption) or any other form of
consideration deemed appropriate by the Board of Directors of the Company.
Section 24. Exchange.
--------
(a) (i) The Board of Directors of the Company may, at its option, at
any time on or after the occurrence of a Section 11(a)(ii) Event,
exchange all or part of the then outstanding and exercisable Rights
(which shall not include Rights that have become void pursuant to the
provisions of Section 7(e) hereof) for shares of Common Stock of the
Company at an exchange ratio of one share of Common Stock of the
Company per Right, appropriately adjusted to reflect any stock split,
stock dividend or similar transaction occurring after the date hereof
(such exchange ratio being hereinafter referred to as the
"Section 24(a)(i) Exchange Ratio"). Notwithstanding the foregoing, the
Board of Directors of the Company shall not be empowered to effect
such exchange at any time after any Person (other than an Exempt
Person), together with all Affiliates and Associates of such Person,
becomes the Beneficial Owner of 50% or more of the Common Stock of the
Company.
(ii) Notwithstanding the foregoing, the Board of Directors of the
Company may, at its option, at any time on or after the occurrence of
a Section 11(a)(ii) Event, exchange all or part of the then
outstanding and exercisable Rights (which shall not include Rights
that have become void pursuant to the provisions of Section 7(e)
hereof) for shares of Common Stock of the Company at an exchange ratio
specified in the following sentence, as appropriately adjusted to
reflect any stock split, stock dividend or similar transaction
occurring after the date of this Agreement. Subject to the adjustment
described in the foregoing sentence, each Right may be exchanged for
that number of shares of Common Stock of the Company obtained by
dividing the Spread (as defined in Section 11(a)(iii)) by the then
Fair Market Value per one one-
35
<PAGE>
thousandth of a share of Preferred Stock on the earlier of (x) the
date on which any person becomes an Acquiring Person or (y) the date
on which a tender or exchange offer by any Person (other than an
Exempt Person) is first published or sent or given within the meaning
of Rule 14d-4(a) of the Exchange Act or any successor rule, if upon
consummation thereof such Person could become an Acquiring Person
(such exchange ratio being referred to herein as the "Section
24(a)(ii) Exchange Ratio"). Notwithstanding the foregoing, the Board
of Directors of the Company shall not be empowered to effect such
exchange at any time after any Person (other than an Exempt Person),
together with all Affiliates and Associates of such Person, becomes
the Beneficial Owner of 50% or more of the Common Stock of the
Company.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant to subsection (a) of this
Section 24 and without any further action and without any notice, the right to
exercise such Rights shall terminate and the only right thereafter of a holder
of such Rights shall be to receive that number of shares of Common Stock of the
Company equal to the number of such Rights held by such holder multiplied by the
Section 24(a)(i) Exchange Ratio or the Section 24(a)(ii) Exchange Ratio, as
applicable. The Company shall promptly give notice of any such exchange in
accordance with Section 26 hereof and shall promptly mail a notice of any such
exchange to all of the holders of such Rights at their last addresses as they
appear upon the registry books of the Rights Agent; provided, however, that the
-------- -------
failure to give, or any defect in, such notice shall not affect the validity of
such exchange. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
exchange will state the method by which the exchange of the shares of Common
Stock of the Company for Rights will be effected and, in the event of any
partial exchange, the number of Rights which will be exchanged. Any partial
exchange shall be effected pro rata based on the number of Rights (other than
Rights which have become void pursuant to the provisions of Section 7(e) hereof)
held by each holder of Rights.
(c) In any exchange pursuant to this Section 24, the Company, at its
option, may substitute Preferred Stock (or Preferred Stock Equivalent, as such
term is defined in Section 11(b) hereof) for Common Stock of the Company
exchangeable for Rights, at the initial rate of one one-thousandth of a share of
Preferred Stock (or Preferred Stock Equivalent) for each share of Common Stock
of the Company, as appropriately adjusted to reflect adjustments in the voting
rights of the Preferred Stock pursuant to the terms thereof, so that the
fraction of a share of Preferred Stock delivered in lieu of each share of Common
Stock of the Company shall have the same voting rights as one share of Common
Stock of the Company.
(d) In the event that there shall not be sufficient shares of Common
Stock of the Company or Preferred Stock (or Preferred Stock Equivalents) issued
but not outstanding or authorized but unissued to permit any exchange of Rights
as contemplated in accordance with this Section 24, the Company shall take all
such action as may be necessary to authorize
36
<PAGE>
additional shares of Common Stock of the Company or Preferred Stock (or
Preferred Stock Equivalent) for issuance upon exchange of the Rights.
(e) The Company shall not be required to issue fractions of Common
Stock of the Company or to distribute certificates which evidence fractional
shares of Common Stock of the Company. If the Company elects not to issue such
fractional shares of Common Stock of the Company, the Company shall pay, in lieu
of such fractional shares of Common Stock of the Company, to the registered
holders of the Right Certificates with regard to which such fractional shares of
Common Stock of the Company would otherwise be issuable, an amount in cash equal
to the same fraction of the Fair Market Value of a whole share of Common Stock
of the Company. For the purposes of this paragraph (e), the Fair Market Value
of a whole share of Common Stock of the Company shall be the closing price of a
share of Common Stock of the Company (as determined pursuant to the second
sentence of Section 11(d)(i) hereof) for the Trading Day immediately prior to
the date of exchange pursuant to this Section 24.
Section 25. Notice of Certain Events.
------------------------
(a) In case the Company shall propose, at any time after the
Distribution Date, (i) to pay any dividend payable in stock of any class to the
holders of Preferred Stock or to make any other distribution to the holders of
Preferred Stock (other than a regular periodic cash dividend out of earnings or
retained earnings of the Company), or (ii) to offer to the holders of Preferred
Stock rights or warrants to subscribe for or to purchase any additional shares
of Preferred Stock or shares of stock of any class or any other securities,
rights or options, or (iii) to effect any reclassification of its Preferred
Stock (other than a reclassification involving only the subdivision of
outstanding shares of Preferred Stock), or (iv) to effect any consolidation or
merger into or with, or to effect any sale, mortgage or other transfer (or to
permit one or more of its Subsidiaries to effect any sale, mortgage or other
transfer), in one transaction or a series of related transactions, of 50% or
more of the assets or earning power of the Company and its Subsidiaries (taken
as a whole) to, any other Person (other than a Subsidiary of the Company in one
or more transactions each of which is not prohibited by the proviso at the end
of the first sentence of Section 11(n) hereof), (v) to effect the liquidation,
dissolution or winding up of the Company, or (vi) to declare or pay any dividend
on the Common Stock of the Company payable in Common Stock of the Company or to
effect a subdivision, combination or consolidation of the Common Stock of the
Company (by reclassification or otherwise than by payment of dividends in Common
Stock of the Company) then in each such case, the Company shall give to each
holder of a Right Certificate and to the Rights Agent, in accordance with
Section 26 hereof, a notice of such proposed action, which shall specify the
record date for the purposes of such stock dividend, distribution of rights or
warrants, or the date on which such reclassification, consolidation, merger,
sale, transfer, liquidation, dissolution, or winding up is to take place and the
date of participation therein by the holders of the shares of Common Stock of
the Company and/or Preferred Stock, if any such date is to be fixed, and such
notice shall be so given in the case of any action covered by clause (i) or (ii)
above at least twenty (20) days prior to the record date for determining holders
of the shares of Preferred Stock for purposes of such action, and in the case of
any such other
37
<PAGE>
action, at least twenty (20) days prior to the date of the taking
of such proposed action or the date of participation therein by the holders of
the shares of Common Stock of the Company and/or Preferred Stock, whichever
shall be the earlier; provided, however, no such notice shall be required
-------- -------
pursuant to this Section 25 as a result of any Subsidiary of the Company
effecting a consolidation or merger with or into, or effecting a sale or other
transfer of assets or earnings power to, any other Subsidiary of the Company in
a manner not inconsistent with the provisions of this Agreement.
(b) In case any Section 11(a)(ii) Event shall occur, then, in any such
case, the Company shall as soon as practicable thereafter give to each
registered holder of a Right Certificate and to the Rights Agent, in accordance
with Section 26 hereof, a notice of the occurrence of such event, which shall
specify the event and the consequences of the event to holders of Rights under
Section 11(a)(ii) hereof.
Section 26. Notices. Notices or demands authorized by this Agreement to
-------
be given or made by the Rights Agent or by the holder of any Right Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, by facsimile transmission or by nationally-recognized
overnight courier addressed (until another address is filed in writing with the
Rights Agent) as follows:
Cypress Communications, Inc.
Fifteen Piedmont Center, Suite 710
Atlanta, Georgia 30305
Attention: Secretary
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Right
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, by facsimile transmission or by
nationally-recognized overnight courier addressed (until another address is
filed in writing with the Company) as follows:
State Street Bank and Trust Company
c/o EquiServe Limited Partnership
150 Royall Street
Canton, MA 02021
Attention: Client Administration
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate (or, prior to
the Distribution Date, to the holder of any certificate representing shares of
Common Stock of the Company) shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the address of
such holder as shown on the registry books of the Company.
38
<PAGE>
Section 27. Supplements and Amendments. Prior to the occurrence of a
--------------------------
Section 11(a)(ii) Event, the Company and the Rights Agent shall, if the Board of
Directors of the Company so directs, supplement or amend any provision of this
Agreement as the Board of Directors of the Company may deem necessary or
desirable without the approval of any holders of certificates representing
shares of Common Stock of the Company. From and after the occurrence of a
Section 11(a)(ii) Event, the Company and the Rights Agent shall, if the Board of
Directors of the Company so directs, supplement or amend this Agreement without
the approval of any holder of Right Certificates in order (i) to cure any
ambiguity, (ii) to correct or supplement any provision contained herein which
may be defective or inconsistent with any other provisions herein, (iii) to
shorten or lengthen any time period hereunder, or (iv) to change or supplement
the provisions hereof in any manner which the Board of Directors of the Company
may deem necessary or desirable and which shall not adversely affect the
interests of the holders of Right Certificates (other than an Acquiring Person
or any Affiliate or Associate of an Acquiring Person); provided, however, that
-------- -------
from and after the occurrence of a Section 11(a)(ii) Event this Agreement may
not be supplemented or amended to lengthen, pursuant to clause (iii) of this
sentence, (A) a time period relating to when the Rights may be redeemed at such
time as the Rights are not then redeemable or (B) any other time period unless
such lengthening is for the purpose of protecting, enhancing or clarifying the
rights of, and the benefits to, the holders of Rights (other than an Acquiring
Person or any Affiliate or Associate of an Acquiring Person). Without limiting
the foregoing, the Company may at any time prior to the occurrence of a Section
11(a)(ii) Event amend this Agreement to lower the threshold set forth in Section
1(a) to not less than the greater of (i) the sum of .001% and the largest
percentage of the outstanding Common Stock of the Company then known by the
Company to be Beneficially Owned by any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or any
Subsidiary of the Company, or any entity holding Common Stock of the Company for
or pursuant to the terms of any such plan) and (ii) 10%. Upon the delivery of
such certificate from an appropriate officer of the Company which states that
the proposed supplement or amendment is in compliance with the terms of this
Section 27, the Rights Agent shall execute such supplement or amendment. Prior
to the occurrence of a Section 11(a)(ii) Event, the interests of the holders of
Rights shall be deemed coincident with the interests of the holders of Common
Stock of the Company. Notwithstanding any other provision hereof, the Rights
Agent's consent must be obtained regarding any amendment or supplement pursuant
to this Section 27 which alters the Rights Agent's rights or duties.
Section 28. Successors. All the covenants and provisions of this
----------
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Determinations and Actions by the Board of Directors. The
----------------------------------------------------
Board of Directors of the Company shall have the exclusive power and authority
to administer this Agreement and to exercise all rights and powers specifically
granted to the Board of Directors or to the Company, or as may be necessary or
advisable in the administration of this Agreement, including without limitation,
the right and power to (i) interpret the provisions of
39
<PAGE>
this Agreement and (ii) make all determinations deemed necessary or advisable
for the administration of this Agreement (including a determination to redeem or
not redeem the Rights or to amend the Agreement). All such actions,
calculations, interpretations and determinations (including, for purposes of
clause (y) below, all omissions with respect to the foregoing) which are done or
made by the Board of Directors in good faith shall (x) be final, conclusive and
binding on the Company, the Rights Agent, the holders of the Rights and all
other parties, and (y) not subject any member of the Board of Directors to any
liability to the holders of the Rights or to any other person.
Section 30. Benefits of this Agreement. Nothing in this Agreement shall
--------------------------
be construed to give to any person or corporation other than the Company, the
Rights Agent and the registered holders of the Right Certificates (and, prior to
the Distribution Date, the Common Stock of the Company) any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for the
sole and exclusive benefit of the Company, the Rights Agent and the registered
holders of the Right Certificates (and, prior to the Distribution Date,
registered holders of the Common Stock of the Company).
Section 31. Severability. If any term, provision, covenant or
------------
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
- -------- -------
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language from the Agreement would adversely affect the purpose or effect
of the Agreement, the right of redemption set forth in Section 23 hereof shall
be reinstated and shall not expire until the Close of Business on the tenth day
following the date of such determination by the Board of Directors.
Section 32. Governing Law. This Agreement, each Right and each Right
-------------
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and to be performed entirely within such State. The courts of the State
of Delaware and of the United States of America located in the State of Delaware
(the "Delaware Courts") shall have exclusive jurisdiction over any litigation
arising out of or relating to this Agreement and the transactions contemplated
hereby, and any Person commencing or otherwise involved in any such litigation
shall waive any objection to the laying of venue of such litigation in the
Delaware Courts and shall not plead or claim in any Delaware Court that such
litigation brought therein has been brought in an inconvenient forum.
Section 33. Counterparts. This Agreement may be executed in any number
------------
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
40
<PAGE>
Section 34. Descriptive Headings. Descriptive headings of the several
--------------------
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
[Remainder of page intentionally left blank]
41
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as an instrument under seal and attested, all as of the day and
year first above written.
ATTEST: CYPRESS COMMUNICATIONS, INC.
By:____________________________ By:____________________________
Name:
Title:
ATTEST: STATE STREET BANK AND TRUST
COMPANY, as Rights Agent
By:____________________________ By:____________________________
Name:
Title:
<PAGE>
Exhibit A
---------
TERMS OF THE
SERIES Z JUNIOR PARTICIPATING CUMULATIVE
PREFERRED STOCK
of
CYPRESS COMMUNICATIONS, INC.
1. Designation and Amount. The total number of shares of Series Z
----------------------
Preferred Stock which the Corporation shall have authority to issue is [number
spelled out] ([number]) shares.
2. Dividends and Distributions.
---------------------------
(a) (i) Subject to the rights of the holders of any shares of any
series of Undesignated Preferred Stock (or any similar stock) ranking prior and
superior to the Series Z Preferred Stock with respect to dividends, the holders
of shares of Series Z Preferred Stock, in preference to the holders of shares of
Common Stock and of any other junior stock, shall be entitled to receive, when,
as and if declared by the Board of Directors out of funds legally available for
the purpose, quarterly dividends payable in cash on the first day of March,
June, September and December in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or fraction
of a share of Series Z Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (a) $1.00 or (b) subject to the provisions
for adjustment hereinafter set forth, 1,000 times the aggregate per share amount
of all cash dividends, and 1,000 times the aggregate per share amount (payable
in kind) of all non-cash dividends or other distributions other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the Common Stock
since the immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series Z Preferred Stock. The multiple
of cash and non-cash dividends declared on the Common Stock to which holders of
the Series Z Preferred Stock are entitled, which shall be 1,000 initially but
which shall be adjusted from time to time as hereinafter provided, is
hereinafter referred to as the "Dividend Multiple." In the event the
Corporation shall at any time after __________, 2000 (the "Rights Declaration
Date") (i) declare or pay any dividend on Common Stock payable in shares of
Common Stock, or (ii) effect a subdivision or combination or consolidation of
the outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the Dividend Multiple
thereafter applicable to the determination of the amount of dividends which
holders of shares of Series Z
A-1
<PAGE>
Preferred Stock shall be entitled to receive shall be the Dividend Multiple
applicable immediately prior to such event multiplied by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(ii) Notwithstanding anything else contained in this paragraph
(a), the Corporation shall, out of funds legally available for that purpose,
declare a dividend or distribution on the Series Z Preferred Stock as provided
in this paragraph (a) immediately after it declares a dividend or distribution
on the Common Stock (other than a dividend payable in shares of Common Stock);
provided that, in the event no dividend or distribution shall have been declared
on the Common Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a dividend of
$1.00 per share on the Series Z Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date.
(b) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series Z Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series Z Preferred Stock, unless
the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series Z Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series Z Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix
in accordance with applicable law a record date for the determination of holders
of shares of Series Z Preferred Stock entitled to receive payment of a dividend
or distribution declared thereon, which record date shall be not more than such
number of days prior to the date fixed for the payment thereof as may be allowed
by applicable law.
3. Voting Rights. In addition to any other voting rights required by
-------------
law, the holders of shares of Series Z Preferred Stock shall have the following
voting rights:
(a) Subject to the provision for adjustment hereinafter set forth,
each share of Series Z Preferred Stock shall entitle the holder thereof to 1,000
votes on all matters submitted to a vote of the stockholders of the Corporation.
The number of votes which a holder of a share of Series Z Preferred Stock is
entitled to cast, which shall initially be 1,000 but which may be adjusted from
time to time as hereinafter provided, is hereinafter referred to as the "Vote
Multiple." In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare or pay any dividend on Common Stock payable in
shares of Common Stock, or (ii) effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into
A-2
<PAGE>
a greater or lesser number of shares of Common Stock, then in each such case the
Vote Multiple thereafter applicable to the determination of the number of votes
per share to which holders of shares of Series Z Preferred Stock shall be
entitled shall be the Vote Multiple immediately prior to such event multiplied
by a fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
(b) Except as otherwise provided herein or by law, the holders of
shares of Series Z Preferred Stock and the holders of shares of Common Stock and
the holders of shares of any other capital stock of this Corporation having
general voting rights, shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation.
(c) Except as otherwise required by applicable law or as set forth
herein, holders of Series Z Preferred Stock shall have no special voting rights
and their consent shall not be required (except to the extent they are entitled
to vote with holders of Common Stock as set forth herein) for taking any
corporate action.
4. Certain Restrictions.
--------------------
(a) Whenever dividends or distributions payable on the Series Z
Preferred Stock as provided in Section C.2 are in arrears, thereafter and until
all accrued and unpaid dividends and distributions, whether or not declared, on
shares of Series Z Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as
to dividends or upon liquidation, dissolution or winding
up) to the Series Z Preferred Stock;
(ii) declare or pay dividends on or make any other distributions
on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up)
with the Series Z Preferred Stock, except dividends paid
ratably on the Series Z Preferred Stock and all such parity
stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all
such shares are then entitled;
(iii) except as permitted in subsection C.4(a)(iv) below, redeem,
purchase or otherwise acquire for consideration shares of
any stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the
Series Z Preferred Stock, provided that the Corporation may
at any time redeem, purchase or otherwise acquire shares of
any such parity stock in exchange for
A-3
<PAGE>
shares of any stock of the Corporation ranking junior
(either as to dividends or upon dissolution, liquidation or
winding up) to the Series Z Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares
of Series Z Preferred Stock, or any shares of any stock
ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series Z
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(b) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under subsection (a) of this Section
C.4, purchase or otherwise acquire such shares at such time and in such manner.
5. Reacquired Shares. Any shares of Series Z Preferred Stock purchased
-----------------
or otherwise acquired by the Corporation in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof.
6. Liquidation, Dissolution or Winding Up. Upon any liquidation
--------------------------------------
(voluntary or otherwise), dissolution or winding up of the Corporation, no
distribution shall be made (x) to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series Z Preferred Stock unless, prior thereto, the holders of shares of Series
Z Preferred Stock shall have received an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment, plus an amount equal to the greater of (1) $1,000.00 per share or
(2) an aggregate amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1,000 times the aggregate amount to be
distributed per share to holders of Common Stock, or (y) to the holders of stock
ranking on a parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series Z Preferred Stock, except distributions made ratably
on the Series Z Preferred Stock and all other such parity stock in proportion to
the total amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. In the event the Corporation shall at
any time after the Rights Declaration Date (i) declare or pay any dividend on
Common Stock payable in shares of Common Stock, or (ii) effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the aggregate amount per share to which holders of shares of Series Z
Preferred Stock were entitled immediately prior to such event under clause (x)
of the preceding
A-4
<PAGE>
sentence shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Neither the consolidation of nor merging of the Corporation with or into
any other corporation or corporations, nor the sale or other transfer of all or
substantially all of the assets of the Corporation, shall be deemed to be a
liquidation, dissolution or winding up of the Corporation within the meaning of
this Section C.6.
7. Consolidation, Merger, etc. In case the Corporation shall enter into
--------------------------
any consolidation, merger, combination or other transaction in which the shares
of Common Stock are exchanged for or changed into other stock or securities,
cash and/or any other property, then in any such case the shares of Series Z
Preferred Stock shall at the same time be similarly exchanged or changed in an
amount per share (subject to the provision for adjustment hereinafter set forth)
equal to 1,000 times the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which or for which
each share of Common Stock is changed or exchanged, plus accrued and unpaid
dividends, if any, payable with respect to the Series Z Preferred Stock. In the
event the Corporation shall at any time after the Rights Declaration Date (i)
declare or pay any dividend on Common Stock payable in shares of Common Stock,
or (ii) effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of shares of
Common Stock, then in each such case the amount set forth in the preceding
sentence with respect to the exchange or change of shares of Series Z Preferred
Stock shall be adjusted by multiplying such amount by a fraction, the numerator
of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
8. Redemption. The shares of Series Z Preferred Stock shall not be
----------
redeemable; provided, however, that the foregoing shall not limit the ability of
the Corporation to purchase or otherwise deal in such shares to the extent
otherwise permitted hereby and by law.
9. Ranking. Unless otherwise expressly provided in this Certificate or a
-------
certificate of designations relating to any other series of Undesignated
Preferred Stock, the Series Z Preferred Stock shall rank junior to every other
series of Preferred Stock previously or hereafter authorized, as to the payment
of dividends and the distribution of assets on liquidation, dissolution or
winding up and shall rank senior to the Common Stock.
10. Amendment. This Certificate shall not be amended in any manner which
---------
would materially alter or change the powers, preferences or special rights of
the Series Z Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of two-thirds or more of the outstanding shares
of Series Z Preferred Stock, voting separately as a class.
A-5
<PAGE>
11. Fractional Shares. Series Z Preferred Stock may be issued in whole
-----------------
shares or in any fraction of a share that is one one-thousandth (1/1,000th) of a
share or any integral multiple of such fraction, which shall entitle the holder,
in proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series Z Preferred Stock. In lieu of fractional
shares, the Corporation may elect to make a cash payment as provided in the
Shareholder Rights Agreement, dated ___________, 2000, between the Corporation
and State Street Bank & Trust Company, for fractions of a share other than one
one-thousandth (1/1,000th) of a share or any integral multiple thereof.
A-6
<PAGE>
Exhibit B
---------
[Form of Right Certificate]
Certificate No. R- ______ Rights
NOT EXERCISABLE AFTER _____________, 2010 OR EARLIER IF NOTICE OF REDEMPTION IS
GIVEN. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF CYPRESS
COMMUNICATIONS, INC., AT $0.01 PER RIGHT ON THE TERMS SET FORTH IN THE
SHAREHOLDER RIGHTS AGREEMENT BETWEEN CYPRESS COMMUNICATIONS, INC. AND STATE
STREET BANK AND TRUST COMPANY, AS RIGHTS AGENT, DATED AS OF ___________, 2000
(THE "RIGHTS AGREEMENT"). AS SPECIFIED IN SECTION 7(e) OF THE RIGHTS AGREEMENT,
RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR AN ASSOCIATE OR AFFILIATE OF
AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) AND ANY
SUBSEQUENT HOLDER OF SUCH RIGHTS BECOME NULL AND VOID.
Right Certificate
CYPRESS COMMUNICATIONS, INC.
This certifies that _________________________________, or registered assigns, is
the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Shareholder Rights Agreement dated as of _____________, 2000 (the "Rights
Agreement") between Cypress Communications, Inc. (the "Company") and State
Street Bank and Trust Company, as Rights Agent (the "Rights Agent"), to purchase
from the Company at any time after the Distribution Date (as such term is
defined in the Rights Agreement) and prior to the close of business on
____________, 2010 at the office or offices of the Rights Agent designated for
such purpose, or its successors as Rights Agent, one one-thousandth of a fully
paid, non-assessable share of the Series Z Junior Participating Cumulative
Preferred Stock (the "Preferred Stock") of the Company, at a purchase price of
_____ per one one-thousandth of a share (the "Exercise Price"), upon
presentation and surrender of this Right Certificate with the Form of Election
to Purchase and the related Certificate duly executed. The number of Rights
evidenced by this Right Certificate (and the number of shares which may be
purchased upon exercise thereof) set forth above, and the Exercise Price per
share set forth above, are the number and Exercise Price as of _______________,
based on the Preferred Stock as constituted at such date.
B-1
<PAGE>
Upon the occurrence of a Section 11(a)(ii) Event (as such term is defined
in the Rights Agreement), if the Rights evidenced by this Right Certificate are
beneficially owned by (i) an Acquiring Person or an Affiliate or Associate of
any such Person (as such terms are defined in the Rights Agreement), (ii) a
transferee of any such Acquiring Person, Associate or Affiliate, or (iii) under
certain circumstances specified in the Rights Agreement, a transferee of a
Person who, after such transfer, became an Acquiring Person, or an Affiliate or
Associate of an Acquiring Person, such Rights shall become null and void and no
holder hereof shall have any right with respect to such Rights from and after
the occurrence of such Section 11(a)(ii) Event.
As provided in the Rights Agreement, the Exercise Price and the number of
shares of Preferred Stock or other securities which may be purchased upon the
exercise of the Rights evidenced by this Right Certificate are subject to
modification and adjustment upon the happening of certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the principal office of the
Company and the designated office of the Rights Agent and are also available
upon written request to the Company or the Rights Agent.
This Right Certificate, with or without other Right Certificates, upon
surrender at the office or offices of the Rights Agent designated for such
purpose, may be exchanged for another Right Certificate or Certificates of like
tenor and date evidencing Rights entitling the holder to purchase a like
aggregate number of shares of Preferred Stock as the Rights evidenced by the
Right Certificate or Certificates surrendered shall have entitled such holder to
purchase. If this Right Certificate shall be exercised in part, the holder
shall be entitled to receive upon surrender hereof another Right Certificate or
Certificates for the number of whole Rights not exercised. If this Right
Certificate shall be exercised in whole or in part pursuant to Section 11(a)(ii)
of the Rights Agreement, the holder shall be entitled to receive this Right
Certificate duly marked to indicate that such exercise has occurred as set forth
in the Rights Agreement.
Under certain circumstances, subject to the provisions of the Rights
Agreement, the Board of Directors of the Company at its option may exchange all
or any part of the Rights evidenced by this Certificate for shares of the
Company's Common Stock or Preferred Stock at an exchange ratio (subject to
adjustment) specified in the Rights Agreement.
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate may be redeemed by the Board of Directors of the Company at its
option at a
B-2
<PAGE>
redemption price of $0.01 per Right (payable in cash, Common Stock or other
consideration deemed appropriate by the Board of Directors).
The Company is not obligated to issue fractional shares of stock upon the
exercise of any Right or Rights evidenced hereby (other than fractions which are
integral multiples of one one-thousandth of a share of Preferred Stock, which
may, at the election of the Company, be evidenced by depositary receipts). If
the Company elects not to issue such fractional shares, in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate, as such, shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of shares of Preferred
Stock, Common Stock or any other securities of the Company which may at any time
be issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a shareholder of the Company or any right to vote for the
election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting shareholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by an authorized signatory of the Rights
Agent.
WITNESS the facsimile signature of the proper officers of the Company as a
document under seal.
Attested: CYPRESS COMMUNICATIONS, INC.
By:_______________________________ By: _______________________________
[Secretary or Assistant Secretary] Name:
Title:[Chairman, Vice Chairman,
President or Vice President]
Countersigned:
[RIGHTS AGENT]
By:_________________________________
Name:
Title:
B-3
<PAGE>
[Form of Reverse Side of Right Certificate]
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED ___________________________ hereby sells, assigns and
transfers unto ____________________________________ (Please print name and
address of transferee) ____________________________________ this Right
Certificate, together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint ___________________ Attorney, to
transfer the within Right Certificate on the books of the within-named Company,
with full power of substitution.
Dated: ______________, _____ ___________________________________
Signature
Signature Guaranteed: _______________________
B-4
<PAGE>
CERTIFICATE
-----------
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Right Certificate ____ are ____ are not
being exercised by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of any such Person (as such terms are defined in the
Rights Agreement); and
(2) after due inquiry and to the best knowledge of the undersigned, the
undersigned ____ did ____ did not directly or indirectly acquire the Rights
evidenced by this Right Certificate from any Person who is, was or became an
Acquiring Person or an Affiliate or Associate of any such Person.
Dated: ______________, _____ ___________________________________
Signature
B-5
<PAGE>
NOTICE
------
The signature to the foregoing Assignment and Certificate must correspond
to the name as written upon the face of this Right Certificate in every
particular, without alteration or enlargement or any change whatsoever.
B-6
<PAGE>
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed if holder desires to
exercise the Right Certificate.)
To CYPRESS COMMUNICATIONS, INC.:
The undersigned hereby irrevocably elects to exercise _______ Rights
represented by this Right Certificate to purchase the shares of Preferred Stock
issuable upon the exercise of the Rights (or such other securities of the
Company or of any other person which may be issuable upon the exercise of the
Rights) and requests that certificates for such shares be issued in the name of:
Please insert social security
or other identifying taxpayer number: __________________
______________________________________________________________________________
(Please print name and address)
______________________________________________________________________________
______________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this
Right Certificate or if the Rights are being exercised pursuant to Section
11(a)(ii) of the Rights Agreement, a new Right Certificate for the balance of
such Rights shall be registered in the name of and delivered to:
Please insert social security
or other identifying taxpayer number: _____________________
______________________________________________________________________________
(Please print name and address)
______________________________________________________________________________
______________________________________________________________________________
Dated: ______________, _____ ___________________________________
Signature
Signature Guaranteed: _______________________
B-7
<PAGE>
CERTIFICATE
-----------
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Right Certificate ____ are ____ are not
being exercised by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of any such Person (as such terms are defined in the
Rights Agreement); and
(2) after due inquiry and to the best knowledge of the undersigned, the
undersigned ____ did ____ did not directly or indirectly acquire the Rights
evidenced by this Right Certificate from any Person who is, was or became an
Acquiring Person, or an Affiliate or Associate of any such Person.
Dated: __________________, ____ _______________________________
Signature
B-8
<PAGE>
NOTICE
------
The signature to the foregoing Election to Purchase and Certificate must
correspond to the name as written upon the face of this Right Certificate in
every particular, without alteration or enlargement or any change whatsoever.
B-9
<PAGE>
EXHIBIT 10.1
CYPRESS COMMUNICATIONS, INC.
1997 MANAGEMENT OPTION PLAN
<PAGE>
CYPRESS COMMUNICATIONS, INC.
1997 MANAGEMENT OPTION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION I. DEFINITIONS.............................................................. 1
1.1 Definitions.................................................................... 1
SECTION 2 THE STOCK INCENTIVE PLAN.................................................. 4
2.1 Purpose of the Plan............................................................ 4
2.2 Stock Subject to the Plan...................................................... 4
2.3 Administration of the Plan..................................................... 4
2.4 Eligibility and Limits......................................................... 5
SECTION 3 TERMS OF OPTION........................................................... 5
3.1 Number of Shares Subject to Options............................................ 5
3.2 Option Agreement............................................................... 5
3.3 Date of Grant.................................................................. 5
3.4 Multiple Options............................................................... 5
3.5 Nontransferability............................................................. 6
3.6 Terms and Conditions of Options................................................ 6
3.7 Treatment of Options upon Termination of Employment or Termination of Service.. 8
SECTION 4 GENERAL PROVISIONS........................................................ 8
4.1 Withholding.................................................................... 8
4.2 Changes in Capitalization; Merger; Liquidation................................. 9
4.3 Cash Awards.................................................................... 10
4.4 Compliance with Code........................................................... 10
4.5 Right to Terminate Employment.................................................. 10
4.6 Non-alienation of Benefits..................................................... 10
4.7 Restrictions on Delivery and Sale of Shares; Legends........................... 10
4.8 Stockholders' Agreement........................................................ 11
4.9 Listing and Legal Compliance................................................... 11
4.10 Termination and Amendment of the Plan......................................... 11
4.11 Arbitration................................................................... 11
4.12 Stockholder Approval.......................................................... 11
4.13 Choice of Law................................................................. 11
4.14 Effective Date of Plan........................................................ 12
</TABLE>
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<PAGE>
CYPRESS COMMUNICATIONS, INC.
1997 MANAGEMENT OPTION PLAN
SECTION 1 DEFINITIONS
1.1 Definitions. Whenever used herein, the masculine pronoun will be
-----------
deemed to include the feminine, and the singular to include the plural, unless
the context indicates otherwise, and the following capitalized words and phrases
are used herein with the meaning thereafter ascribed:
(a) "Affiliate" means an entity that directly or through one or more
---------
intermediaries is controlled by the Company, and any entity in which the
Company has a significant equity interest, as determined by the Company.
(b) "Board of Directors" means the board of directors of the Company.
------------------
(c) "Cause" means (1) the willful and continued failure of a
-----
Participant (other than any such failure resulting from incapacity or
Disability) to substantially perform the Participant's normally required
duties with the Company or an Affiliate continuing for thirty (30) days
after notice by the Company to the Participant of such failure; (2) any act
of fraud, misappropriation, embezzlement or similar conduct against the
Company or an Affiliate, as finally determined through arbitration or final
judgment of a court of competent jurisdiction (which arbitration or
judgment, due to the passage of time or otherwise, is not subject to
further appeal); or (3) conviction of the Participant for a felony or any
other crime involving moral turpitude (which conviction, due to the passage
of time or otherwise is not subject to further appeal).
(d) "Change in Control" means the first to occur of the following
-----------------
events:
(i) any person (as defined in Section 3(a)(9) of the
Exchange Act and as used in Sections 13(d) and 14(f) thereof),
excluding the Company, any present shareholders, any Subsidiary and
any employee benefit plan sponsored or maintained by the Company or
any Subsidiary (including any trustee of such plan acting as trustee)
(the Company, all Subsidiaries, and such employee benefit plans and
trustees acting as trustees being hereafter referred to as the
"Company Group"), but including a `group' as defined in Section
13(d)(3) of the Exchange Act (a "Person"), becomes the beneficial
owner of shares of the Company having more than fifty percent (50%) of
the total number of votes that may be cast for the election of
directors of the Company (the "Voting Shares");
(ii) the shareholders of the Company shall approve any
merger or other business combination of the Company, sale of
substantially all of the Company's assets or combination of the
foregoing transactions (a
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<PAGE>
"Transaction") other than a Transaction involving only the Company and
one or more of its Subsidiaries, or a Transaction immediately
following which the shareholders of the Company immediately prior to
the Transaction continue to have a majority of the voting power in the
resulting entity excluding for this purpose any shareholder owning
directly or indirectly more than ten percent (10%) of the shares of
the other company involved in the merger; or
(iii) the liquidation or dissolution of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
----
(f) "Committee" means the committee appointed by the Board of
---------
Directors to administer the Plan. The Board of Directors shall consider the
advisability of whether the members of the Committee shall consist solely
of at least two members of the Board of Directors who are both "outside
directors" as defined in Treas. Reg. (S) 1.162-27(e) as promulgated by the
Internal Revenue Service and "non-employee directors" as defined in Rule
16b-3(b)(3) as promulgated under the Exchange Act.
(g) "Company" means Cypress Communications, Inc., a Delaware
-------
corporation.
(h) "Director" means a member of the Board of Directors.
--------
(i) "Disability" has the same meaning as provided in the long-term
----------
disability plan or policy maintained or, if applicable, most recently
maintained, by the Company or, if applicable, any Affiliate of the Company
for the Participant. If no long-term disability plan or policy was ever
maintained on behalf of the Participant or, if the determination of
Disability relates to an Incentive Stock Option, Disability means that
condition described in Code Section 22(e)(3), as amended from time to time.
In the event of a dispute, the determination of Disability will be made by
the Committee and will be supported by advice of a physician competent in
the area to which such Disability relates.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended from time to time.
(k) "Fair Market Value" with regard to a date means:
-----------------
(i) the closing price at which Stock shall have been sold
on the most recent trading date immediately prior to the date of
determination as reported by any national securities exchange or any
Nasdaq quotation system (or, if applicable, as reported by a national
securities exchange selected by the Committee on which the shares of
Stock are then actively traded) and published in The Wall Street
---------------
Journal,
-------
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<PAGE>
(ii) if Stock is not actively traded on any such exchange
or system, the arithmetic mean of the bid and asked for prices for
shares of Stock on the most recent trading date within a reasonable
period prior to the determination date as reported by such exchange or
system, or
(iii) if there are no bid and asked for prices within a
reasonable time or if the shares of Stock are not traded on any
exchange or system as of the determination date, Fair Market Value
means the fair market value of a share of Stock as determined in good
faith by the Board of Directors to the value of the Stock in the hands
of the Participant; provided that, the Fair Market Value as determined
by the Board of Directors is subject to arbitration if the Participant
disagrees with the Board of Directors' determination. In such event,
the Participant and the Board of Directors may each select a qualified
independent appraiser and each appraiser will independently determine
the Fair Market Value of the Stock. If the lower of the two
independent appraisals is within five percentage points of the higher
of the two appraisals, the Fair Market Value will be the arithmetic
mean of the independent appraisals. If the independent appraisals
differ by an amount which is greater then five percentage points, the
independent appraisers must select a third appraiser, and the Fair
Market Value will be the arithmetic mean of the two appraisals which
are closest in amount. Each party will be obligated to pay its share
of the costs associated with the use of the independent appraisers.
(l) "Option" means a non-qualified stock option or an incentive stock
------
option.
(m) "Over 10% Owner" means an individual who at the time an Incentive
--------------
Stock Option is granted owns Stock possessing more than 10% of the total
combined voting power of the Company or one of its Subsidiaries, determined
by applying the attribution rules of Code Section 424(d).
(n) "Participant" means an individual who receives an Option
-----------
hereunder.
(o) "Plan" means the Cypress Communications, Inc. 1997 Management
----
Option Plan.
(p) "Stock" means the Company's common stock, $.001 par value.
-----
(q) "Option Agreement" means an agreement between the Company and a
----------------
Participant or other documentation evidencing an award of an Option.
(r) "Subsidiary" means any corporation (other than the Company)
----------
in an unbroken chain of corporations beginning with the Company if, with
respect to Incentive Stock Options, at the time of the granting of the
Option, each of the
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<PAGE>
corporations other than the last corporation in the unbroken chain owns
stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain.
(s) "Termination of Employment" means the termination of the
-------------------------
employee-employer relationship between a Participant and the Company and
its Affiliates, regardless of whether severance or similar payments are
made to the Participant for any reason, including, but not by way of
limitation, a termination by resignation, discharge, death, Disability or
retirement. The Committee will, in its absolute discretion, determine the
effect of all matters and questions relating to a Termination of
Employment, including, but not by way of limitation, the question of
whether a leave of absence constitutes a Termination of Employment.
(t) "Termination of Service" means with respect to a Director, the
----------------------
cessation of services as a Director, regardless of whether severance or
similar payments are made to the Participant for any reason, including, but
not by way of limitation, a cessation by resignation, removal, death,
Disability or retirement. With respect to a consultant, the phrase
"Termination of Service" shall mean the termination of the consultant
services rendered to the Company. The Committee will, in its absolute
discretion, determine the effect of all matters and questions relating to a
Termination of Service.
SECTION 2 THE STOCK INCENTIVE PLAN
2.1 Purpose of the Plan. The Plan is intended to (a) provide incentive to
-------------------
officers, Directors and key employees of the Company and its Affiliates to
stimulate their efforts toward the continued success of the Company and to
operate and manage the business in a manner that will provide for the long-term
growth and profitability of the Company; and (b) encourage stock ownership by
officers, Directors and key employees by providing them with a means to acquire
a proprietary interest in the Company, acquire shares of Stock, or to receive
compensation which is based upon appreciation in the value of Stock.
2.2 Stock Subject to the Plan. Subject to adjustment in accordance with
-------------------------
Section 4.2, 223,265 shares of Stock (the "Maximum Plan Shares") are hereby
reserved exclusively for issuance pursuant to Options. At no time may the
Company have outstanding under the Plan, Options subject to Section 16 of the
Exchange Act and shares of Stock issued in respect of Options under the Plan in
excess of the Maximum Plan Shares. The shares of Stock attributable to the
nonvested, unpaid, unexercised, unconverted or otherwise unsettled portion of
any Option that is forfeited or cancelled or expires or terminates for any
reason without becoming vested, paid, exercised, converted or otherwise settled
in full will again be available for purposes of the Plan.
2.3 Administration of the Plan. The Plan is administered by the Committee.
--------------------------
The Committee has full authority in its discretion to determine the officers and
key
-4-
<PAGE>
employees of the Company or its Affiliates to whom Options will be granted and
the terms and provisions of Options, subject to the Plan. Subject to the
provisions of the Plan, the Committee has full and conclusive authority to
interpret the Plan; to prescribe, amend and rescind rules and regulations
relating to the Plan; to determine the terms and provisions of the respective
Option Agreements and to make all other determinations necessary or advisable
for the proper administration of the Plan. The Committee's determinations under
the Plan need not be uniform and may be made by it selectively among persons who
receive, or are eligible to receive, awards under the Plan (whether or not such
persons are similarly situated). The Committee's decisions are final and binding
on all Participants.
2.4 Eligibility and Limits. Options may be granted only to officers,
----------------------
Directors, key employees and consultants of the Company or any Affiliate of the
Company; provided, however, that an incentive stock option may only be granted
to an employee of the Company or any Subsidiary. In the case of incentive stock
options, the aggregate Fair Market Value (determined as at the date an incentive
stock option is granted) or stock with respect to which stock options intended
to meet the requirements of Code Section 422 become exercisable for the first
time by an individual during any calendar year under all plans of the Company
and its Subsidiaries may not exceed $100,000; provided further, that if the
limitation is exceeded, the incentive stock option(s) which cause the limitation
to be exceeded will be treated as non-qualified stock option(s).
SECTION 3 TERMS OF OPTION
3.1 Number of Shares Subject to Options. The number of shares of Stock
-----------------------------------
as to which an Option may be granted will be determined by the Committee in its
sole discretion, subject to the provisions of Section 2.2 as to the total number
of shares available for grant under the Plan.
3.2 Option Agreement. Each Option will be evidenced by an Option
----------------
Agreement containing such terms, conditions and restrictions as the Committee
may in its sole discretion determine; provided, however, that as to any Option
granted to an employee of the Company or any Subsidiary, the Option shall
contain such conditions and restrictions as are no less favorable to the
Participant than those set forth in the Plan. Each Option Agreement is subject
to the terms of the Plan and any provisions contained in the Option Agreement
that are inconsistent with the Plan are null and void.
3.3 Date of Grant. The date an Option is granted will be the date on
-------------
which he Committee has approved the terms and conditions of the Option and has
determined the recipient of the Option and the number of shares covered by the
Option, and has taken all such other actions necessary to complete the grant of
the Option.
3.4 Multiple Options. Any Option may be granted in connection with all or
----------------
any portion of a previously or of a contemporaneously granted Option. Exercise
or vesting of an Option granted in connection with another Option may result in
a pro rata
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<PAGE>
surrender or cancellation of any related Option, as specified in the applicable
Option Agreement.
3.5 Nontransferability. Options are not transferable or assignable except
------------------
by will or by the laws of descent and distribution and are exercisable, during
the Participant's lifetime, only by the Participant; or in the event of the
Disability of the Participant, by the legal representative of the Participant;
or in the event of death of the Participant, by the legal representative of the
Participant's estate or if no legal representative has been appointed, by the
successor in interest determined under the Participant's will.
3.6 Terms and Conditions of Options. Each Option granted under the Plan
-------------------------------
must be evidenced by an Option Agreement. Each Option shall, to the extent
possible, be an incentive stock option described in Code Section 422 and, as to
the remaining Options, if any, each shall be a non-qualified stock option. At
the time any incentive stock option granted under the Plan is exercised, the
Company will be entitled to legend the certificates representing the shares of
Stock purchased pursuant to the Option to clearly identify them as representing
the shares purchased upon the exercise of an incentive stock option. An
incentive stock option may only be granted within ten (10) years from the
earlier of the date the Plan is adopted or approved by the Company's
stockholders.
(a) Option Price. Subject to adjustment in accordance with Section
------------
5.2 and the other provisions of this Section 3.6, the exercise price (the
"Exercise Price") per share of Stock purchasable under any Option must be
Fair Market Value on the date the Option is granted. With respect to each
grant of an incentive stock option to a Participant who is an Over 10%
Owner, the Exercise Price may not be less than 110% of the Fair Market
Value on the date the Option is granted.
(b) Option Term. Any stock option granted to a Participant who is not
-----------
an Over 10% Owner is not exercisable after the expiration of ten (10) years
after the date the Option is granted. Any incentive stock option granted to
an Over 10% Owner is not exercisable after the expiration of five (5) years
after the date the Option is granted. The term of any non-qualified stock
option shall be ten (10) years.
(c) Payment. Payment for all shares of Stock purchased pursuant to
-------
exercise of an Option will be made in one or more of the following forms:
(i) cash or certified check;
(ii) by delivery to the Company of a number of shares of Stock
which have been owned by the holder for at least six (6) months prior
to the date of exercise having an aggregate Fair Market Value of not
less than the product of the Exercise Price multiplied by the number
of shares the Participant intends to purchase upon exercise of the
Option on the date of delivery or in combination with cash or
certified check; or
-6-
<PAGE>
(iii) if or when the Stock becomes traded on a national securities
exchange by receipt of the purchase price in cash from a proper
broker, dealer or other creditor following delivery of instructions by
the Participant to the Board of Directors in a form acceptable to the
Board of Directors regarding delivery to such broker, dealer or other
creditor of that number of option shares with respect to which the
option is exercised.
In its discretion, the Committee also may authorize (at the time an Option
is granted or thereafter) Company financing to assist the Participant as to
payment of the Exercise Price on such terms as may be offered by the
Committee in its discretion. Payment must be made at the time that the
Option or any part thereof is exercised, and no shares may be issued or
delivered upon exercise of an option until full payment has been made by
the Participant. The holder of an Option, as such, has none of the rights
of a stockholder.
(d) Conditions to the Exercise of an Option. Each Option granted
---------------------------------------
under the Plan is exercisable by the Participant when vested. The Options
granted to employees of the Company and any Subsidiary shall vest in a 20%
increment as of the first anniversary of the date of grant and shall vest
in additional 5% increments as of the end of each subsequent quarter
measured from the first anniversary of the date of grant; provided that the
Participant has at all times since the date of grant remained continuously
employed by the Company or an Affiliate, or with respect to Options granted
to Directors, remained in the service of the Company; and provided further
that, the Options shall fully vest upon a Change of Control. Options
granted to consultants shall become vested as provided for in the Option
Agreement. Provided further, however, that subsequent to the grant of an
Option, the Committee, at any time before complete termination of such
Option, may accelerate the time or times at which such Option may be
exercised in whole or in part, including, without limitation, upon a Change
in Control and may permit the Participant or any other designated person to
exercise the Option, or any portion thereof, for all or part of the
remaining Option term, notwithstanding any provision of the Option
Agreement to the contrary.
(e) Termination of Stock Option. In the event of Termination of
---------------------------
Employment of a Participant, the Option or portion thereof held by the
Participant which is unexercised will expire, terminate, and become
unexercisable no later than the expiration of three (3) months after the
date of Termination of Employment; provided, however, that in the case of a
holder whose Termination of Employment is due to death or Disability, one
(1) year will be substituted for such three (3) month period; provided,
further that such time limits may be exceeded by the Committee under the
terms of the grant, in which case, any incentive stock option will be a
nonqualified option if it is exercised after the time limits that would
otherwise apply. For purposes of this Subsection (e), Termination of
Employment will not be deemed to have occurred if the Participant is
employed by another corporation (or a parent or subsidiary
-7-
<PAGE>
corporation of such other corporation) which has assumed the incentive
stock option of the Participant in a transaction to which Code Section
424(a) is applicable. Notwithstanding the foregoing, Options granted to
consultants may provide for a longer post-termination of service exercise
period, as set forth in the applicable Option Agreement.
(f) Special Provisions for Certain Substitute Options. Notwith-
-------------------------------------------------
standing anything to the contrary in this Section 3.6, any Option issued in
substitution for an option previously issued by another entity, which
substitution occurs in connection with a transaction to which Code Section
424(a) is applicable, may provide for an exercise price computed in
accordance with such Code Section and the regulations thereunder and may
contain such other terms and conditions as the Committee may prescribe to
cause such substitute Option to contain as nearly as possible the same
terms and conditions (including the applicable vesting and termination
provisions) as those contained in the previously issued option being
replaced thereby.
3.7 Treatment of Options upon Termination of Employment or Termination of
---------------------------------------------------------------------
Service. Any Option under this Plan to a Participant who has died, who has
- -------
experienced a Termination of Employment either without Cause or due to a
Disability, or has experienced a Termination of Service due to a Disability,
shall fully vest and be exercisable as of the date of Termination of Employment
or Termination of Service. In the event of the Participant's Termination of
Employment for Cause, any outstanding Options shall become void and
unexercisable.
SECTION 4 GENERAL PROVISIONS
4.1 Withholding. The Company must deduct from all cash distributions
-----------
under the Plan any taxes required to be withheld by federal, state or local
government. Whenever the Company proposes or is required to issue or transfer
shares of Stock under the Plan, the Company has the right to require the
recipient to remit to the Company an amount sufficient to satisfy any federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such shares. A Participant may pay the
withholding tax in cash, or, if the applicable Option Agreement provides, a
Participant may elect to have the number of shares of Stock to be received
reduced by the smallest number of whole shares of Stock which, when multiplied
by the Fair Market Value of the shares of Stock determined as of the Tax Date
(defined below), is sufficient to satisfy federal, state and local, if any,
withholding taxes arising from exercise or payment of an Option (a "Withholding
Election"). A Participant may make a Withholding Election only if both of the
following conditions are met:
(a) The Withholding Election must be made on or prior to the date on
which the amount of tax required to be withheld is determined (the "Tax
Date") by executing and delivering to the Company a properly completed
notice of Withholding Election as prescribed by the Committee; and
-8-
<PAGE>
(b) Any Withholding Election made will be irrevocable except on six
months advance written notice delivered to the Company; however, the
Committee may in its sole discretion disapprove and give no effect to the
Withholding Election.
4.2 Changes in Capitalization; Merger; Liquidation.
----------------------------------------------
(a) The number of shares of Stock reserved for the grant of Options;
the number of shares of Stock reserved for issuance upon the exercise or
payment, as applicable, of each outstanding Option; and the Exercise Price
of each outstanding Option must be proportionately adjusted for (1) any
increase or decrease in the number of issued shares of Stock resulting from
a subdivision or combination of shares, (2) the payment of a stock dividend
in shares of Stock to holders of outstanding shares of Stock, (3) any other
increase or decrease in the number of shares of Stock outstanding, (4) the
effect of other distributions to shareholders, including, but not limited
to, distributions, below fair market value sales of stock, stock splits or
spin-off transactions. Any such adjustment must be in a manner which, after
giving effect to such adjustment, will return for the Participant the value
of the Option as of the date of grant.
(b) In the event of a merger, consolidation or other reorganization
of the Company or tender offer for shares of Stock, the Committee may make
such adjustments with respect to awards and take such other action as it
deems necessary or appropriate to reflect such merger, consolidation,
reorganization or tender offer, including, without limitation, the
substitution of new awards, or the adjustment of outstanding awards, the
acceleration of awards, the removal of restrictions on outstanding awards,
or the termination of outstanding awards in exchange for the cash value of
the vested portion of the award determined based upon the terms of the
merger, consolidation, reorganization or tender offer by the Committee in
good faith. Any adjustment pursuant to this Section 4.2 may provide, in the
Committee's discretion, for the elimination without payment therefor of any
fractional shares that might otherwise become subject to any Option, but
except as set forth in this Section may not otherwise diminish the then
value of the Option. Not less than fifteen (15) days prior to effecting
such an action, the Committee shall notify the Participants in writing of
such planned action, and shall give the Participants the opportunity to
exercise their Options prior to any merger, consolidation, reorganization
or tender offer.
(c) The existence of the Plan and the Options granted pursuant to the
Plan must not affect in any way the right or power of the Company to make
or authorize any adjustment, reclassification, reorganization or other
change in its capital or business structure, any merger or consolidation of
the Company, any issue of debt or equity securities having preferences or
priorities as to the Stock or the rights thereof, the dissolution or
liquidation of the Company, any sale or transfer of all or any part of its
business or assets, or any other corporate act or proceeding. Any and all
options issued under the Cypress Communications,
-9-
<PAGE>
L.L.C. 1996 Share Incentive Plan (the "1996 Plan") shall be replaced with
non-qualified Options issued pursuant to this Plan, with each having the
same terms, exercise price and number of shares as set forth in the 1996
Plan.
4.3 Cash Awards. The Committee may, at any time and in its discretion,
-----------
grant to any holder of a Option the right to receive, at such times and in such
amounts as determined by the Committee in its discretion, a cash amount which is
intended to reimburse such person for all or a portion of the federal, state and
local income taxes imposed upon such person as a consequence of the receipt of
the Option or the exercise of rights thereunder.
4.4 Compliance with Code. All incentive stock options to be granted
--------------------
hereunder are intended to comply with Code Section 422, and all provisions of
the Plan and all incentive stock options granted hereunder must be construed in
such manner as to effectuate that intent.
4.5 Right to Terminate Employment. Nothing in the Plan or in any Option
-----------------------------
confers upon any Participant the right to continue as an employee, Director or
officer of the Company or any of its Affiliates or affect the right to the
Company or any of its Affiliates to terminate the Participant's employment or
service at any time.
4.6 Non-alienation of Benefits. Other than as specifically provided
--------------------------
with regard to the death of a Participant, no benefit under the Plan may be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge; and any attempt to do so shall be void. No such
benefit may, prior to receipt by the Participant, be in any manner liable for or
subject to the debts, contracts, liabilities, engagements or torts of the
Participant.
4.7 Restrictions on Delivery and Sale of Shares; Legends. Each Option
----------------------------------------------------
is subject to the condition that if at any time the Committee, in its
discretion, shall determine that the listing, registration or qualification of
the shares covered by such Option upon any securities exchange or under any
state or federal law is necessary or desirable as a condition of or in
connection with the granting of such Option or the purchase or delivery of
shares thereunder, the delivery of any or all shares pursuant to such Option may
be withheld unless and until such listing, registration or qualification shall
have been effected. If a registration statement is not in effect under the
Securities Act of 1933 or any applicable state securities laws with respect to
the shares of Stock purchasable or otherwise deliverable under Options then
outstanding, the Committee may require, as a condition of exercise of any Option
as a condition to any other delivery of Stock pursuant to an Option, that the
Participant or other recipient of an Option represent, in writing, that the
shares received pursuant to the Option are being acquired for investment and not
with a view to distribution and agree that the shares will not be disposed of
except pursuant to an effective registration statement, unless the Company shall
have received an opinion of counsel that such disposition is exempt from such
requirement under the Securities Act of 1933 and any applicable state securities
laws. The Company may include on certificates representing shares delivered
pursuant to an
-10-
<PAGE>
Option such legends referring to the foregoing representations or restrictions
or any other applicable restrictions on resale as the Company, in its
discretion, shall deem appropriate.
4.8 Stockholders' Agreement. As a condition to the exercise of the
-----------------------
Options, the Participants must execute a stockholders' agreement if there is one
in place at the time the option is exercised and if requested to do so by the
Company. At the time of grant of an award under the Plan, the Company shall
deliver to the Optionee any such stockholders' agreement that is in effect as of
the date of grant.
4.9 Listing and Legal Compliance. The Committee may suspend the exercise
----------------------------
or payment of any Option so long as it determines that securities exchange
listing or registration or qualification under any securities laws is required
in connection herewith and has not been completed on terms acceptable to the
Committee.
4.10 Termination and Amendment of the Plan. The Board of Directors at any
-------------------------------------
time may amend or terminate the Plan without stockholder approval; provided,
however, that the Board of Directors may condition any amendment on the approval
of stockholders of the Company if such approval is necessary or advisable with
respect to tax, securities or other applicable laws. No such termination or
amendment may adversely affect the rights of the Participant under such Option
without the consent of the holder of an Option.
4.11 Arbitration. Any controversy or claim arising out of or relating to
-----------
Options issued under the Plan shall be settled by arbitration in accordance with
the Commercial Arbitration rules of the American Arbitration Association. The
arbitration shall take place in Atlanta, Georgia. Each party to the Agreement
may select on neutral arbitrator. The selected arbitrators shall in turn appoint
a third neutral arbitrator, and the three so chosen shall comprise the
arbitration panel. The decision of the arbitration panel shall be final and
binding on the parties, and judgment upon the award rendered by the arbitration
panel may be entered by any court having jurisdiction thereof.
4.12 Stockholder Approval. The Plan must be submitted to the stockholders
--------------------
of the Company for their approval within twelve (12) months before or after the
adoption of the Plan by the Board of Directors of the Company. If such approval
is not obtained, any Stock Incentive granted hereunder will be void.
4.13 Choice of Law. The laws of the State of Georgia govern the Plan, to
-------------
the extent not preempted by federal law, without reference to the principles of
conflict of laws.
-11-
<PAGE>
4.14 Effective Date of Plan. The Plan shall become effective _________,
----------------------
subject, however, to the approval of the Plan by the Company's stockholders.
Options granted hereunder prior to such approval shall be conditioned upon such
approval. Unless such approval is obtained within one year after the effective
date of this Plan and any Options awarded hereunder shall become void
thereafter.
CYPRESS COMMUNICATIONS, INC.
By: _________________________________
Title: _________________________________
ATTEST:
By: _______________________
Title: _______________________
-12-
<PAGE>
EXHIBIT 10.2
FORM OF
2000 STOCK OPTION AND INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
----------------------------------------
The name of the plan is the Cypress Communications, Inc. 2000 Stock Option
and Incentive Plan (the "Plan"). The purpose of the Plan is to encourage and
enable the officers, employees, Independent Directors and other key persons
(including consultants) of Cypress Communications, Inc. (the "Company") and its
Subsidiaries upon whose judgment, initiative and efforts the Company largely
depends for the successful conduct of its business to acquire a proprietary
interest in the Company. It is anticipated that providing such persons with a
direct stake in the Company's welfare will assure a closer identification of
their interests with those of the Company, thereby stimulating their efforts on
the Company's behalf and strengthening their desire to remain with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Act of 1933, as amended, and the rules and
regulations thereunder.
"Administrator" is defined in Section 2(a).
"Award" or "Awards," except where referring to a particular category of
grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock
Options, Deferred Stock Awards, Restricted Stock Awards, Unrestricted Stock
Awards and Performance Share Awards.
"Board" means the Board of Directors of the Company.
"Change of Control" is defined in Section 15.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Committee" means the Compensation Committee of the Board.
"Covered Employee" means an employee who is a "Covered Employee" within the
meaning of Section 162(m) of the Code.
"Deferred Stock Award" means Awards granted pursuant to Section 7.
"Effective Date" means the date on which the Plan is approved by
stockholders as set forth in Section 17.
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder.
"Fair Market Value" of the Stock on any given date means the fair market
value of the Stock determined in good faith by the Administrator; provided,
however, that if the Stock is admitted to quotation on the National Association
of Securities Dealers Automated Quotation System ("NASDAQ"), NASDAQ National
System or a national securities exchange, the determination shall be made by
reference to market quotations. If there are no market quotations for such date,
the determination shall be made by reference to the last date preceding such
date for which there are market quotations; provided further, however, that if
the date for which Fair Market Value is determined is the first day when trading
prices for the Stock are reported on NASDAQ or on a national securities
exchange, the Fair Market Value shall be the "Price to the Public" (or
equivalent) set forth on the cover page for the final prospectus relating to the
Company's Initial Public Offering.
"Incentive Stock Option" means any Stock Option designated and qualified as
an "incentive stock option" as defined in Section 422 of the Code.
"Independent Director" means a member of the Board who is not also an
employee of the Company or any Subsidiary.
"Initial Public Offering" means the consummation of the first fully
underwritten, firm commitment public offering pursuant to an effective
registration statement under the Act, other than on Forms S-4 or S-8 or their
then equivalents, covering the offer and sale by the Company of its equity
securities, or such other event as a result of or following which the Stock
shall be publicly held.
"Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Option" or "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 5.
"Performance Share Award" means Awards granted pursuant to Section 9.
"Performance Cycle" means one or more periods of time, which may be of
varying and overlapping durations, as the Administrator may select, over which
the attainment of one or more performance criteria will be measured for the
purpose of determining a grantee's right to and the payment of a Performance
Share Award, Restricted Stock Award or Deferred Stock Award.
"Restricted Stock Award" means Awards granted pursuant to Section 6.
2
<PAGE>
"Stock" means the Common Stock, par value $.001 per share, of the Company,
subject to adjustments pursuant to Section 3.
"Subsidiary" means any corporation or other entity (other than the Company)
in any unbroken chain of corporations or other entities beginning with the
Company if each of the corporations or entities (other than the last corporation
or entity in the unbroken chain) owns stock or other interests possessing 50
percent or more of the economic interest or the total combined voting power of
all classes of stock or other interests in one of the other corporations or
entities in the chain.
"Unrestricted Stock Award" means any Award granted pursuant to Section 8.
SECTION 2. ADMINISTRATION OF PLAN; ADMINISTRATOR AUTHORITY TO SELECT GRANTEES
------------------------------------------------------------------
AND DETERMINE AWARDS
--------------------
(a) Committee. The Plan shall be administered by either the Board or the
---------
Committee (in either case, the "Administrator").
(b) Powers of Administrator. The Administrator shall have the power and
-----------------------
authority to grant Awards consistent with the terms of the Plan, including the
power and authority:
(i) to select the individuals to whom Awards may from time to time
be granted;
(ii) to determine the time or times of grant, and the extent, if
any, of Incentive Stock Options, Non-Qualified Stock Options, Restricted
Stock Awards, Deferred Stock Awards, Unrestricted Stock Awards and
Performance Share Awards, or any combination of the foregoing, granted to
any one or more grantees;
(iii) to determine the number of shares of Stock to be covered by any
Award;
(iv) to determine and modify from time to time the terms and
conditions, including restrictions, not inconsistent with the terms of the
Plan, of any Award, which terms and conditions may differ among individual
Awards and grantees, and to approve the form of written instruments
evidencing the Awards;
(v) to accelerate at any time the exercisability or vesting of all
or any portion of any Award;
(vi) subject to the provisions of Section 5(a)(ii), to extend at any
time the period in which Stock Options may be exercised;
(vii) to determine at any time whether, to what extent, and under
what circumstances distribution or the receipt of Stock and other amounts
payable with
3
<PAGE>
respect to an Award shall be deferred either automatically or at the
election of the grantee and whether and to what extent the Company shall
pay or credit amounts constituting interest (at rates determined by the
Administrator) or dividends or deemed dividends on such deferrals; and
(viii) at any time to adopt, alter and repeal such rules, guidelines
and practices for administration of the Plan and for its own acts and
proceedings as it shall deem advisable; to interpret the terms and
provisions of the Plan and any Award (including related written
instruments); to make all determinations it deems advisable for the
administration of the Plan; to decide all disputes arising in connection
with the Plan; and to otherwise supervise the administration of the Plan.
All decisions and interpretations of the Administrator shall be binding on
all persons, including the Company and Plan grantees.
(c) Delegation of Authority to Grant Awards. The Administrator, in its
---------------------------------------
discretion, may delegate to the Chief Executive Officer of the Company all or
part of the Administrator's authority and duties with respect to the granting of
Awards at Fair Market Value, to individuals who are not subject to the reporting
and other provisions of Section 16 of the Exchange Act or "covered employees"
within the meaning of Section 162(m) of the Code. The Chief Executive Officer
shall be deemed a one-person committee of the Board. Any such delegation by the
Administrator shall include a limitation as to the amount of Awards that may be
granted during the period of the delegation and shall contain guidelines as to
the determination of the exercise price of any Stock Option or Stock
Appreciation Right, the conversion ratio or price of other Awards and the
vesting criteria. The Administrator may revoke or amend the terms of a
delegation at any time but such action shall not invalidate any prior actions of
the Administrator's delegate or delegates that were consistent with the terms of
the Plan.
(d) Indemnification. Neither the Board nor the Committee, nor any member
---------------
of either or any delegatee thereof, shall be liable for any act, omission,
interpretation, construction or determination made in good faith in connection
with the Plan, and the members of the Board and the Committee (and any delegatee
thereof) shall be entitled in all cases to indemnification and reimbursement by
the Company in respect of any claim, loss, damage or expense (including, without
limitation, reasonable attorneys' fees) arising or resulting therefrom to the
fullest extent permitted by law and/or under any directors' and officers'
liability insurance coverage which may be in effect from time to time.
SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
----------------------------------------------------
(a) Stock Issuable. The maximum number of shares of Stock reserved and
--------------
available for issuance under the Plan shall be _______ shares, subject to
adjustment as provided in this Section 3(a) and Section 3(b). For purposes of
this limitation, the shares of Stock underlying any Awards under this Plan which
are forfeited, canceled, reacquired by the Company,
4
<PAGE>
satisfied without the issuance of Stock or otherwise terminated (other than by
exercise) shall be added back to the shares of Stock available for issuance
under the Plan. In addition, the shares of Stock underlying any awards under the
Company's 1997 Management Option Plan which are forfeited, canceled, reacquired
by the Company, satisfied without the issuance of Stock or otherwise terminated
(other than by exercise) shall be added to the shares of Stock available for
issuance under the Plan, thereby increasing the maximum number of shares of
Stock reserved and available for issuance under the Plan set forth above.
Subject to such overall limitation, shares of Stock may be issued up to such
maximum number pursuant to any type or types of Award; provided, however, that
from and after the date grants under this Plan become subject to Section 162(m)
of the Code, Stock Options with respect to no more than _______ shares of Stock
may be granted to any one individual grantee during any one calendar year
period. The shares available for issuance under the Plan may be authorized but
unissued shares of Stock or shares of Stock reacquired by the Company and held
in its treasury.
(b) Changes in Stock. Subject to Section 3(c) hereof, if, as a result of
----------------
any reorganization, recapitalization, reclassification, stock dividend, stock
split, reverse stock split or other similar change in the Company's capital
stock, the outstanding shares of Stock are increased or decreased or are
exchanged for a different number or kind of shares or other securities of the
Company, or additional shares or new or different shares or other securities of
the Company or other non-cash assets are distributed with respect to such shares
of Stock or other securities, or, if, as a result of any merger or
consolidation, sale of all or substantially all of the assets of the Company,
the outstanding shares of Stock are converted into or exchanged for a different
number or kind of securities of the Company or any successor entity (or a parent
or subsidiary thereof), the Administrator shall make an appropriate or
proportionate adjustment in (i) the maximum number of shares reserved for
issuance under the Plan, (ii) the number of Stock Options that can be granted to
any one individual grantee and the maximum number of shares that may be granted
under a Performance-based Award, (iii) the number and kind of shares or other
securities subject to any then outstanding Awards under the Plan, (iv) the
repurchase price per share subject to each outstanding Restricted Stock Award,
and (v) the price for each share subject to any then outstanding Stock Options
under the Plan, without changing the aggregate exercise price (i.e., the
exercise price multiplied by the number of Stock Options) as to which such Stock
Options remain exercisable. The adjustment by the Administrator shall be final,
binding and conclusive. No fractional shares of Stock shall be issued under the
Plan resulting from any such adjustment, but the Administrator in its discretion
may make a cash payment in lieu of fractional shares.
The Administrator may also adjust the number of shares subject to
outstanding Awards and the exercise price and the terms of outstanding Awards to
take into consideration material changes in accounting practices or principles,
extraordinary dividends, acquisitions or dispositions of stock or property or
any other event if it is determined by the Administrator that such adjustment is
appropriate to avoid distortion in the operation of the Plan, provided that no
such adjustment shall be made in the case of an Incentive Stock Option, without
the consent of the grantee, if it would constitute a modification, extension or
renewal of the Option within the meaning of Section 424(h) of the Code.
5
<PAGE>
(c) Mergers and Other Transactions. In the case of and subject to the
------------------------------
consummation of (i) the dissolution or liquidation of the Company, (ii) the sale
of all or substantially all of the assets of the Company on a consolidated basis
to an unrelated person or entity, (iii) a merger, reorganization or
consolidation in which the outstanding shares of Stock are converted into or
exchanged for a different kind of securities of the successor entity and the
holders of the Company's outstanding voting power immediately prior to such
transaction do not own a majority of the outstanding voting power of the
successor entity immediately upon completion of such transaction, or (iv) the
sale of all of the Stock of the Company to an unrelated person or entity (in
each case, a "Sale Event"), all Options that are not exercisable immediately
prior to the effective time of the Sale Event shall become fully exercisable as
of the effective time of the Sale Event and all other Awards with conditions and
restrictions relating solely to the passage of time and continued employment
shall become fully vested and nonforfeitable as of the effective time of the
Sale Event, except as the Administrator may otherwise specify with respect to
particular Awards. Upon the effective time of the Sale Event, the Plan and all
outstanding Awards granted hereunder shall terminate, unless provision is made
in connection with the Sale Event in the sole discretion of the parties thereto
for the assumption or continuation of Awards theretofore granted by the
successor entity, or the substitution of such Awards with new Awards of the
successor entity or parent thereof, with appropriate adjustment as to the number
and kind of shares and, if appropriate, the per share exercise prices, as such
parties shall agree (after taking into account any acceleration hereunder). In
the event of such termination, each grantee shall be permitted, within a
specified period of time prior to the consummation of the Sale Event as
determined by the Administrator, to exercise all outstanding Options held by
such grantee, including those that will become exercisable upon the consummation
of the Sale Event; provided, however, that the exercise of Options not
exercisable prior to the Sale Event shall be subject to the consummation of the
Sale Event.
Notwithstanding anything to the contrary in this Section 3.2(c), in the
event of a Sale Event pursuant to which holders of the Stock of the Company will
receive upon consummation thereof a cash payment for each share surrendered in
the Sale Event, the Company shall have the right, but not the obligation, to
make or provide for a cash payment to the grantees holding Options, in exchange
for the cancellation thereof, in an amount equal to the difference between (A)
the value as determined by the Administrator of the consideration payable per
share of Stock pursuant to the Sale Event (the "Sale Price") times the number of
shares of Stock subject to outstanding Options (to the extent then exercisable
at prices not in excess of the Sale Price) and (B) the aggregate exercise price
of all such outstanding Options.
(d) Substitute Awards. The Administrator may grant Awards under the Plan
-----------------
in substitution for stock and stock based awards held by employees, directors or
other key persons of another corporation in connection with the merger or
consolidation of the employing corporation with the Company or a Subsidiary or
the acquisition by the Company or a Subsidiary of property or stock of the
employing corporation. The Administrator may direct that the substitute awards
be granted on such terms and conditions as the Administrator
6
<PAGE>
considers appropriate in the circumstances. Any substitute Awards granted under
the Plan shall not count against the share limitation set forth in Section 3(a).
SECTION 4. ELIGIBILITY
-----------
Grantees under the Plan will be such full or part-time officers and other
employees, Independent Directors and key persons (including consultants and
prospective employees) of the Company and its Subsidiaries as are selected from
time to time by the Administrator in its sole discretion.
SECTION 5. STOCK OPTIONS
-------------
Any Stock Option granted under the Plan shall be in such form as the
Administrator may from time to time approve.
Stock Options granted under the Plan may be either Incentive Stock Options
or Non-Qualified Stock Options. Incentive Stock Options may be granted only to
employees of the Company or any Subsidiary that is a "subsidiary corporation"
within the meaning of Section 424(f) of the Code. To the extent that any Option
does not qualify as an Incentive Stock Option, it shall be deemed a Non-
Qualified Stock Option.
No Incentive Stock Option shall be granted under the Plan after December
20, 2010.
(a) Stock Options Granted to Employees and Key Persons. The Administrator
--------------------------------------------------
in its discretion may grant Stock Options to eligible employees and key persons
of the Company or any Subsidiary. Stock Options granted pursuant to this Section
5(a) shall be subject to the following terms and conditions and shall contain
such additional terms and conditions, not inconsistent with the terms of the
Plan, as the Administrator shall deem desirable. If the Administrator so
determines, Stock Options may be granted in lieu of cash compensation at the
optionee's election, subject to such terms and conditions as the Administrator
may establish.
(i) Exercise Price. The exercise price per share for the Stock
--------------
covered by a Stock Option granted pursuant to this Section 5(a) shall be
determined by the Administrator at the time of grant but shall not be less
than 100 percent of the Fair Market Value on the date of grant in the case
of Incentive Stock Options, or 85 percent of the Fair Market Value on the
date of grant, in the case of Non-Qualified Stock Options (other than
options granted in lieu of cash compensation). If an employee owns or is
deemed to own (by reason of the attribution rules of Section 424(d) of the
Code) more than 10 percent of the combined voting power of all classes of
stock of the Company or any parent or subsidiary corporation and an
Incentive Stock Option is granted to such employee, the option price of
such Incentive Stock Option shall be not less than 110 percent of the Fair
Market Value on the grant date.
7
<PAGE>
(ii) Option Term. The term of each Stock Option shall be fixed by the
-----------
Administrator, but no Stock Option shall be exercisable more than 10 years
after the date the Stock Option is granted. If an employee owns or is
deemed to own (by reason of the attribution rules of Section 424(d) of the
Code) more than 10 percent of the combined voting power of all classes of
stock of the Company or any parent or subsidiary corporation and an
Incentive Stock Option is granted to such employee, the term of such Stock
Option shall be no more than five years from the date of grant.
(iii) Exercisability; Rights of a Stockholder. Stock Options shall
---------------------------------------
become exercisable at such time or times, whether or not in installments,
as shall be determined by the Administrator at or after the grant date. The
Administrator may at any time accelerate the exercisability of all or any
portion of any Stock Option. An optionee shall have the rights of a
stockholder only as to shares acquired upon the exercise of a Stock Option
and not as to unexercised Stock Options.
(iv) Method of Exercise. Stock Options may be exercised in whole or
------------------
in part, by giving written notice of exercise to the Company, specifying
the number of shares to be purchased. Payment of the purchase price may be
made by one or more of the following methods to the extent provided in the
Option Award agreement:
(A) In cash, by certified or bank check or other instrument
acceptable to the Administrator;
(B) Through the delivery (or attestation to the ownership) of
shares of Stock that have been purchased by the optionee on the open
market or that have been beneficially owned by the optionee for at
least six months and are not then subject to restrictions under any
Company plan. Such surrendered shares shall be valued at Fair Market
Value on the exercise date;
(C) By the optionee delivering to the Company a properly
executed exercise notice together with irrevocable instructions to a
broker to promptly deliver to the Company cash or a check payable and
acceptable to the Company for the purchase price; provided that in the
event the optionee chooses to pay the purchase price as so provided,
the optionee and the broker shall comply with such procedures and
enter into such agreements of indemnity and other agreements as the
Administrator shall prescribe as a condition of such payment
procedure; or
(D) By the optionee delivering to the Company a promissory note
if the Board has expressly authorized the loan of funds to the
optionee for the purpose of enabling or assisting the optionee to
effect the exercise of his Stock Option; provided that at least so
much of the exercise price as represents the par value of the Stock
shall be paid other than with a promissory note if otherwise required
by state law.
8
<PAGE>
Payment instruments will be received subject to collection. The delivery of
certificates representing the shares of Stock to be purchased pursuant to
the exercise of a Stock Option will be contingent upon receipt from the
optionee (or a purchaser acting in his stead in accordance with the
provisions of the Stock Option) by the Company of the full purchase price
for such shares and the fulfillment of any other requirements contained in
the Option Award agreement or applicable provisions of laws. In the event
an optionee chooses to pay the purchase price by previously-owned shares of
Stock through the attestation method, the number of shares of Stock
transferred to the optionee upon the exercise of the Stock Option shall be
net of the number of shares attested to.
(v) Annual Limit on Incentive Stock Options. To the extent required
---------------------------------------
for "incentive stock option" treatment under Section 422 of the Code, the
aggregate Fair Market Value (determined as of the time of grant) of the
shares of Stock with respect to which Incentive Stock Options granted under
this Plan and any other plan of the Company or its parent and subsidiary
corporations become exercisable for the first time by an optionee during
any calendar year shall not exceed $100,000. To the extent that any Stock
Option exceeds this limit, it shall constitute a Non-Qualified Stock
Option.
(b) Reload Options. At the discretion of the Administrator, Options
--------------
granted under the Plan may include a "reload" feature pursuant to which an
optionee exercising an option by the delivery of a number of shares of Stock in
accordance with Section 5(a)(iv)(B) hereof would automatically be granted an
additional Option (with an exercise price equal to the Fair Market Value of the
Stock on the date the additional Option is granted and with such other terms as
the Administrator may provide) to purchase that number of shares of Stock equal
to the sum of (i) the number delivered to exercise the original Option and (ii)
the number withheld to satisfy tax liabilities, with an Option term equal to the
remainder of the original Option term unless the Administrator otherwise
determines in the Award agreement for the original Option grant.
(c) Non-transferability of Options. No Stock Option shall be transferable
------------------------------
by the optionee otherwise than by will or by the laws of descent and
distribution and all Stock Options shall be exercisable, during the optionee's
lifetime, only by the optionee, or by the optionee's legal representative or
guardian in the event of the optionee's incapacity. Notwithstanding the
foregoing, the Administrator, in its sole discretion, may provide in the Award
agreement regarding a given Option that the optionee may transfer his Non-
Qualified Stock Options to members of his immediate family, to trusts for the
benefit of such family members, or to partnerships in which such family members
are the only partners, provided that the transferee agrees in writing with the
Company to be bound by all of the terms and conditions of this Plan and the
applicable Option.
9
<PAGE>
SECTION 6. RESTRICTED STOCK AWARDS
(a) Nature of Restricted Stock Awards. A Restricted Stock Award is an
---------------------------------
Award entitling the recipient to acquire, at such purchase price as determined
by the Administrator, shares of Stock subject to such restrictions and
conditions as the Administrator may determine at the time of grant ("Restricted
Stock"). Conditions may be based on continuing employment (or other service
relationship) and/or achievement of pre-established performance goals and
objectives. The grant of a Restricted Stock Award is contingent on the grantee
executing the Restricted Stock Award agreement. The terms and conditions of each
such agreement shall be determined by the Administrator, and such terms and
conditions may differ among individual Awards and grantees.
(b) Rights as a Stockholder. Upon execution of a written instrument
-----------------------
setting forth the Restricted Stock Award and payment of any applicable purchase
price, a grantee shall have the rights of a stockholder with respect to the
voting of the Restricted Stock, subject to such conditions contained in the
written instrument evidencing the Restricted Stock Award. Unless the
Administrator shall otherwise determine, certificates evidencing the Restricted
Stock shall remain in the possession of the Company until such Restricted Stock
is vested as provided in Section 6(d) below, and the grantee shall be required,
as a condition of the grant, to deliver to the Company a stock power endorsed in
blank.
(c) Restrictions. Restricted Stock may not be sold, assigned, transferred,
------------
pledged or otherwise encumbered or disposed of except as specifically provided
herein or in the Restricted Stock Award agreement. If a grantee's employment (or
other service relationship) with the Company and its Subsidiaries terminates for
any reason, the Company shall have the right to repurchase Restricted Stock that
has not vested at the time of termination at its original purchase price, from
the grantee or the grantee's legal representative.
(d) Vesting of Restricted Stock. The Administrator at the time of grant
---------------------------
shall specify the date or dates and/or the attainment of pre-established
performance goals, objectives and other conditions on which the non-
transferability of the Restricted Stock and the Company's right of repurchase or
forfeiture shall lapse. Subsequent to such date or dates and/or the attainment
of such pre-established performance goals, objectives and other conditions, the
shares on which all restrictions have lapsed shall no longer be Restricted Stock
and shall be deemed "vested." Except as may otherwise be provided by the
Administrator either in the Award agreement or, subject to Section 13 below, in
writing after the Award agreement is issued, a grantee's rights in any shares of
Restricted Stock that have not vested shall automatically terminate upon the
grantee's termination of employment (or other service relationship) with the
Company and its Subsidiaries and such shares shall be subject to the Company's
right of repurchase as provided in Section 6(c) above.
(e) Waiver, Deferral and Reinvestment of Dividends. The Restricted Stock
----------------------------------------------
Award agreement may require or permit the immediate payment, waiver, deferral or
investment of dividends paid on the Restricted Stock.
10
<PAGE>
SECTION 7. DEFERRED STOCK AWARDS
---------------------
(a) Nature of Deferred Stock Awards. A Deferred Stock Award is an Award
-------------------------------
of phantom stock units to a grantee, subject to restrictions and conditions as
the Administrator may determine at the time of grant. Conditions may be based on
continuing employment (or other service relationship) and/or achievement of pre-
established performance goals and objectives. The grant of a Deferred Stock
Award is contingent on the grantee executing the Deferred Stock Award agreement.
The terms and conditions of each such agreement shall be determined by the
Administrator, and such terms and conditions may differ among individual Awards
and grantees. At the end of the deferral period, the Deferred Stock Award, to
the extent vested, shall be paid to the grantee in the form of shares of Stock.
(b) Election to Receive Deferred Stock Awards in Lieu of Compensation.
-----------------------------------------------------------------
The Administrator may, in its sole discretion, permit a grantee to elect to
receive a portion of the cash compensation or Restricted Stock Award otherwise
due to such grantee in the form of a Deferred Stock Award. Any such election
shall be made in writing and shall be delivered to the Company no later than the
date specified by the Administrator and in accordance with rules and procedures
established by the Administrator. The Administrator shall have the sole right to
determine whether and under what circumstances to permit such elections and to
impose such limitations and other terms and conditions thereon as the
Administrator deems appropriate.
(c) Rights as a Stockholder. During the deferral period, a grantee shall
-----------------------
have no rights as a stockholder; provided, however, that the grantee may be
credited with Dividend Equivalent Rights with respect to the phantom stock units
underlying his Deferred Stock Award, subject to such terms and conditions as the
Administrator may determine.
(d) Restrictions. A Deferred Stock Award may not be sold, assigned,
------------
transferred, pledged or otherwise encumbered or disposed of during the deferral
period.
(e) Termination. Except as may otherwise be provided by the Administrator
-----------
either in the Award agreement or, subject to Section 13 below, in writing after
the Award agreement is issued, a grantee's right in all Deferred Stock Awards
that have not vested shall automatically terminate upon the grantee's
termination of employment (or cessation of service relationship) with the
Company and its Subsidiaries for any reason.
SECTION 8. UNRESTRICTED STOCK AWARDS
-------------------------
Grant or Sale of Unrestricted Stock. The Administrator may, in its sole
-----------------------------------
discretion, grant (or sell at par value or such higher purchase price determined
by the Administrator) an Unrestricted Stock Award to any grantee pursuant to
which such grantee may receive shares of Stock free of any restrictions
("Unrestricted Stock") under the Plan. Unrestricted Stock Awards may be granted
in respect of past services or other valid consideration, or in lieu of cash
compensation due to such grantee.
11
<PAGE>
SECTION 9. PERFORMANCE SHARE AWARDS
------------------------
(a) Nature of Performance Share Awards. A Performance Share Award is an
----------------------------------
Award entitling the recipient to acquire shares of Stock upon the attainment of
specified performance goals. The Administrator may make Performance Share Awards
independent of or in connection with the granting of any other Award under the
Plan. The Administrator in its sole discretion shall determine whether and to
whom Performance Share Awards shall be made, the performance goals, the periods
during which performance is to be measured, and all other limitations and
conditions.
(b) Rights as a Stockholder. A grantee receiving a Performance Share
-----------------------
Award shall have the rights of a stockholder only as to shares actually received
by the grantee under the Plan and not with respect to shares subject to the
Award but not actually received by the grantee. A grantee shall be entitled to
receive a stock certificate evidencing the acquisition of shares of Stock under
a Performance Share Award only upon satisfaction of all conditions specified in
the Performance Share Award agreement (or in a performance plan adopted by the
Administrator).
(c) Termination. Except as may otherwise be provided by the
-----------
Administrator either in the Award agreement or, subject to Section 13 below, in
writing after the Award agreement is issued, a grantee's rights in all
Performance Share Awards shall automatically terminate upon the grantee's
termination of employment (or cessation of service relationship) with the
Company and its Subsidiaries for any reason.
(d) Acceleration, Waiver, Etc. At any time prior to the grantee's
-------------------------
termination of employment (or other service relationship) by the Company and its
Subsidiaries, the Administrator may in its sole discretion accelerate, waive or,
subject to Section 13, amend any or all of the goals, restrictions or conditions
applicable to a Performance Share Award.
SECTION 10. PERFORMANCE-BASED AWARDS TO COVERED EMPLOYEES
---------------------------------------------
Notwithstanding anything to the contrary contained herein, if any
Restricted Stock Award, Deferred Stock Award or Performance Share Award granted
to a Covered Employee is intended to qualify as "Performance-based Compensation"
under Section 162(m) of the Code and the regulations promulgated thereunder (a
"Performance-based Award"), such Award shall comply with the provisions set
forth below:
(a) Performance Criteria. The performance criteria used in performance
--------------------
goals governing Performance-based Awards granted to Covered Employees may
include any or all of the following: (i) the Company's return on equity, assets,
capital or investment, (ii) pre-tax or after-tax profit levels of the Company or
any Subsidiary, a division, an operating unit or a business segment of the
Company, or any combination of the foregoing; (iii) cash flow, funds from
operations or similar measure; (iv) total shareholder return; (v) changes in the
market price of the Stock; (vi) sales or market share; or (vii) earnings per
share.
12
<PAGE>
(b) Grant of Performance-based Awards. With respect to each Performance-
---------------------------------
based Award granted to a Covered Employee, the Committee shall select, within
the first 90 days of a Performance Cycle (or, if shorter, within the maximum
period allowed under Section 162(m) of the Code) the performance criteria for
such grant, and the achievement targets with respect to each performance
criterion (including a threshold level of performance below which no amount will
become payable with respect to such Award). Each Performance-based Award will
specify the amount payable, or the formula for determining the amount payable,
upon achievement of the various applicable performance targets. The performance
criteria established by the Committee may be (but need not be) different for
each Performance Cycle and different goals may be applicable to Performance-
based Awards to different Covered Employees.
(c) Payment of Performance-based Awards. Following the completion of a
-----------------------------------
Performance Cycle, the Committee shall meet to review and certify in writing
whether, and to what extent, the performance criteria for the Performance Cycle
have been achieved and, if so, to also calculate and certify in writing the
amount of the Performance-based Awards earned for the Performance Cycle. The
Committee shall then determine the actual size of each Covered Employee's
Performance-based Award, and, in doing so, may reduce or eliminate the amount of
the Performance-based Award for a Covered Employee if, in its sole judgment,
such reduction or elimination is appropriate.
(d) Maximum Award Payable. The maximum Performance-based Award payable
---------------------
to any one Covered Employee under the Plan for a Performance Cycle is 200,000
Shares (subject to adjustment as provided in Section 3(b) hereof).
SECTION 11. TAX WITHHOLDING
---------------
(a) Payment by Grantee. Each grantee shall, no later than the date as of
------------------
which the value of an Award or of any Stock or other amounts received thereunder
first becomes includable in the gross income of the grantee for Federal income
tax purposes, pay to the Company, or make arrangements satisfactory to the
Administrator regarding payment of, any Federal, state, or local taxes of any
kind required by law to be withheld with respect to such income. The Company and
its Subsidiaries shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment of any kind otherwise due to the grantee. The
Company's obligation to deliver stock certificates to any grantee is subject to
and conditioned on tax obligations being satisfied by the grantee.
(b) Payment in Stock. Subject to approval by the Administrator, a
----------------
grantee may elect to have the minimum required tax withholding obligation
satisfied, in whole or in part, by (i) authorizing the Company to withhold from
shares of Stock to be issued pursuant to any Award a number of shares with an
aggregate Fair Market Value (as of the date the withholding is effected) that
would satisfy the withholding amount due, or (ii) transferring to the Company
shares of Stock owned by the grantee with an aggregate Fair Market Value (as of
the date the withholding is effected) that would satisfy the withholding amount
due.
13
<PAGE>
SECTION 12. TRANSFER, LEAVE OF ABSENCE, ETC.
-------------------------------
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or
from the Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or
for any other purpose approved by the Company, if the employee's right to re-
employment is guaranteed either by a statute or by contract or under the policy
pursuant to which the leave of absence was granted or if the Administrator
otherwise so provides in writing.
SECTION 13. AMENDMENTS AND TERMINATION
--------------------------
The Board may, at any time, amend or discontinue the Plan and the
Administrator may, at any time, amend or cancel any outstanding Award for the
purpose of satisfying changes in law or for any other lawful purpose, but no
such action shall adversely affect rights under any outstanding Award without
the holder's consent. If and to the extent determined by the Administrator to be
required by the Code to ensure that Incentive Stock Options granted under the
Plan are qualified under Section 422 of the Code or to ensure that compensation
earned under Awards qualifies as performance-based compensation under Section
162(m) of the Code, if and to the extent intended to so qualify, Plan amendments
shall be subject to approval by the Company stockholders entitled to vote at a
meeting of stockholders. Nothing in this Section 13 shall limit the
Administrator's authority to take any action permitted pursuant to Section 3(c).
SECTION 14. STATUS OF PLAN
--------------
With respect to the portion of any Award that has not been exercised and
any payments in cash, Stock or other consideration not received by a grantee, a
grantee shall have no rights greater than those of a general creditor of the
Company unless the Administrator shall otherwise expressly determine in
connection with any Award or Awards. In its sole discretion, the Administrator
may authorize the creation of trusts or other arrangements to meet the Company's
obligations to deliver Stock or make payments with respect to Awards hereunder,
provided that the existence of such trusts or other arrangements is consistent
with the foregoing sentence.
SECTION 15. CHANGE OF CONTROL PROVISIONS
----------------------------
Upon the occurrence of a Change of Control as defined in this Section 15:
(a) Except as otherwise provided in the applicable Award agreement, each
outstanding Stock Option and Stock Appreciation Right shall automatically become
fully exercisable.
14
<PAGE>
(b) Except as otherwise provided in the applicable Award Agreement,
conditions and restrictions on each outstanding Restricted Stock Award, Deferred
Stock Award and Performance Share Award which relate solely to the passage of
time and continued employment will be removed. Performance or other conditions
(other than conditions and restrictions relating solely to the passage of time
and continued employment) will continue to apply unless otherwise provided in
the applicable Award agreement.
(c) "Change of Control" shall mean the occurrence of any one of the
following events:
(i) any "Person," as such term is used in Sections 13(d) and
14(d) of the Act (other than the Company, any of its Subsidiaries, or any
trustee, fiduciary or other person or entity holding securities under any
employee benefit plan or trust of the Company or any of its Subsidiaries),
together with all "affiliates" and "associates" (as such terms are defined
in Rule 12b-2 under the Act) of such person, shall become the "beneficial
owner" (as such term is defined in Rule 13d-3 under the Act), directly or
indirectly, of securities of the Company representing 25 percent or more of
the combined voting power of the Company's then outstanding securities
having the right to vote in an election of the Company's Board of Directors
("Voting Securities") (in such case other than as a result of an
acquisition of securities directly from the Company); or
(ii) persons who, as of the Effective Date, constitute the
Company's Board of Directors (the "Incumbent Directors") cease for any
reason, including, without limitation, as a result of a tender offer, proxy
contest, merger or similar transaction, to constitute at least a majority
of the Board, provided that any person becoming a director of the Company
subsequent to the Effective Date shall be considered an Incumbent Director
if such person's election was approved by or such person was nominated for
election by either (A) a vote of at least a majority of the Incumbent
Directors or (B) a vote of at least a majority of the Incumbent Directors
who are members of a nominating committee comprised, in the majority, of
Incumbent Directors; but provided further, that any such person whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of members of the Board of
Directors or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board, including by reason of
agreement intended to avoid or settle any such actual or threatened contest
or solicitation, shall not be considered an Incumbent Director; or
(iii) the approval by the stockholders of the Company of a
consolidation, merger or consolidation or sale or other disposition of all
or substantially all of the assets of the Company (a "Corporate
Transaction") or if consummation of such Corporate Transaction is subject,
at the time of such approval by stockholders, to the consent of any
government or governmental agency, obtaining of such consent (either
explicitly or implicitly by consummation); excluding, however, a Corporate
15
<PAGE>
Transaction in which the stockholders of the Company immediately prior to
the Corporate Transaction, would, immediately after the Corporate
Transaction, beneficially own (as such term is defined in Rule 13d-3 under
the Act), directly or indirectly, shares representing in the aggregate more
than 50 percent of the voting shares of the corporation issuing cash or
securities in the Corporate Transaction (or of its ultimate parent
corporation, if any); or
(iv) the approval by the stockholders of any plan or proposal for
the liquidation or dissolution of the Company.
Notwithstanding the foregoing, a "Change of Control" shall not be deemed to
have occurred for purposes of the foregoing clause (i) solely as the result of
an acquisition of securities by the Company which, by reducing the number of
shares of Voting Securities outstanding, increases the proportionate number of
shares of Voting Securities beneficially owned by any person to 25 percent or
more of the combined voting power of all then outstanding Voting Securities;
provided, however, that if any person referred to in this sentence shall
- -------- -------
thereafter become the beneficial owner of any additional shares of Voting
Securities (other than pursuant to a stock split, stock dividend, or similar
transaction or as a result of an acquisition of securities directly from the
Company) and immediately thereafter beneficially owns 25 percent or more of the
combined voting power of all then outstanding Voting Securities, then a "Change
of Control" shall be deemed to have occurred for purposes of the foregoing
clause (i).
SECTION 16. GENERAL PROVISIONS
------------------
(a) No Distribution; Compliance with Legal Requirements. The
---------------------------------------------------
Administrator may require each person acquiring Stock pursuant to an Award to
represent to and agree with the Company in writing that such person is acquiring
the shares without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all
applicable securities law and other legal and stock exchange or similar
requirements have been satisfied. The Administrator may require the placing of
such stop-orders and restrictive legends on certificates for Stock and Awards as
it deems appropriate.
(b) Delivery of Stock Certificates. Stock certificates to grantees under
------------------------------
this Plan shall be deemed delivered for all purposes when the Company or a stock
transfer agent of the Company shall have mailed such certificates in the United
States mail, addressed to the grantee, at the grantee's last known address on
file with the Company.
(c) Other Compensation Arrangements; No Employment Rights. Nothing
-----------------------------------------------------
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of this
Plan and the grant of Awards do not
16
<PAGE>
confer upon any employee any right to continued employment with the Company or
any Subsidiary.
(d) Trading Policy Restrictions. Option exercises and other Awards under
---------------------------
the Plan shall be subject to such Company's insider trading policy, as in effect
from time to time.
(e) Loans to Grantees. The Company shall have the authority to make
-----------------
loans to grantees of Awards hereunder (including to facilitate the purchase of
shares) and shall further have the authority to issue shares for promissory
notes hereunder.
(f) Designation of Beneficiary. Each grantee to whom an Award has been
--------------------------
made under the Plan may designate a beneficiary or beneficiaries to exercise any
Award or receive any payment under any Award payable on or after the grantee's
death. Any such designation shall be on a form provided for that purpose by the
Administrator and shall not be effective until received by the Administrator. If
no beneficiary has been designated by a deceased grantee, or if the designated
beneficiaries have predeceased the grantee, the beneficiary shall be the
grantee's estate.
SECTION 17. EFFECTIVE DATE OF PLAN
----------------------
This Plan shall become effective upon approval by the holders of a majority
of the votes cast at a meeting of stockholders at which a quorum is present or
by written consent of stockholders. Subject to such approval by the stockholders
and to the requirement that no Stock may be issued hereunder prior to such
approval, Stock Options and other Awards may be granted hereunder on and after
adoption of this Plan by the Board.
SECTION 18. GOVERNING LAW
-------------
This Plan and all Awards and actions taken thereunder shall be governed by,
and construed in accordance with, the laws of the State of Delaware, applied
without regard to conflict of law principles.
DATE APPROVED BY BOARD OF DIRECTORS: December 21, 1999
DATE APPROVED BY STOCKHOLDERS:
17
<PAGE>
EXHIBIT 10.3
FORM OF
EMPLOYEE STOCK PURCHASE PLAN
The purpose of the Cypress Communications, Inc. Employee Stock Purchase
Plan (the "Plan") is to provide eligible employees of Cypress Communications,
Inc. (the "Company") and certain of its subsidiaries with opportunities to
purchase shares of the Company's common stock, par value $0.001 per share (the
"Common Stock"). ________________ shares of Common Stock in the aggregate have
been approved and reserved for this purpose. The Plan is intended to constitute
an "employee stock purchase plan" within the meaning of Section 423(b) of the
Internal Revenue Code of 1986, as amended (the "Code"), and shall be interpreted
in accordance with that intent.
1. Administration. The Plan will be administered by the person or persons
--------------
(the "Administrator") appointed by the Company's Board of Directors (the
"Board") for such purpose. The Administrator has authority to make rules and
regulations for the administration of the Plan, and its interpretations and
decisions with regard thereto shall be final and conclusive. No member of the
Board or individual exercising administrative authority with respect to the Plan
shall be liable for any action or determination made in good faith with respect
to the Plan or any option granted hereunder.
2. Offerings. The Company will make one or more offerings to eligible
---------
employees to purchase Common Stock under the Plan ("Offerings"). The initial
Offering will begin on the first day of the Company's Initial Public Offering
and will end on the following October 31, 2000 (the "Initial Offering").
Thereafter, unless otherwise determined by the Administrator, an Offering will
begin on the first business day occurring on or after each
<PAGE>
November 1 and May 1 and will end on the last business day occurring on or
before the following April 30 and October 31, respectively. The Administrator
may, in its discretion, designate a different period for any Offering, provided
that no Offering shall exceed six months in duration or overlap any other
Offering.
3. Eligibility. All employees of the Company (including employees who are
-----------
also directors of the Company) and all employees of each Designated Subsidiary
(as defined in Section 11) are eligible to participate in any one or more of the
Offerings under the Plan, provided that as of the first day of the applicable
Offering (the "Offering Date") they are customarily employed by the Company or a
Designated Subsidiary for more than 20 hours a week.
4. Participation. An employee eligible on any Offering Date may
-------------
participate in such Offering by submitting an enrollment form to his appropriate
payroll location at least 15 business days before the Offering Date (or by such
other deadline as shall be established for the Offering). The form will (a)
state a whole percentage to be deducted from his Compensation (as defined in
Section 11) per pay period, (b) authorize the purchase of Common Stock for him
in each Offering in accordance with the terms of the Plan and (c) specify the
exact name or names in which shares of Common Stock purchased for him are to be
issued pursuant to Section 10. An employee who does not enroll in accordance
with these procedures will be deemed to have waived his right to participate.
Unless an employee files a new enrollment form or withdraws from the Plan, his
deductions and purchases will continue at the same percentage of Compensation
for future Offerings, provided he remains eligible.
2
<PAGE>
Notwithstanding the foregoing, participation in the Plan will neither be
permitted nor be denied contrary to the requirements of the Code.
5. Employee Contributions. Each eligible employee may authorize payroll
----------------------
deductions at a minimum of one percent (1%) up to a maximum of ten percent (10%)
of his Compensation for each pay period. The Company will maintain book accounts
showing the amount of payroll deductions made by each participating employee for
each Offering. No interest will accrue or be paid on payroll deductions.
6. Deduction Changes. Except as may be determined by the Administrator in
-----------------
advance of an Offering, an employee may not increase or decrease his payroll
deduction during any Offering, but may increase or decrease his payroll
deduction with respect to the next Offering (subject to the limitations of
Section 5) by filing a new enrollment form at least 15 business days before the
next Offering Date (or by such other deadline as shall be established for the
Offering). The Administrator may, in advance of any Offering, establish rules
permitting an employee to increase, decrease or terminate his payroll deduction
during an Offering.
7. Withdrawal. An employee may withdraw from participation in the Plan by
----------
delivering a written notice of withdrawal to his appropriate payroll location.
The employee's withdrawal will be effective as of the next business day.
Following an employee's withdrawal, the Company will promptly refund to him his
entire account balance under the Plan (after payment for any Common Stock
purchased before the effective date of withdrawal). Partial withdrawals are not
permitted. The employee may not begin participation again during the
3
<PAGE>
remainder of the Offering, but may enroll in a subsequent Offering in accordance
with Section 4.
8. Grant of Options. On each Offering Date, the Company will grant to
----------------
each eligible employee who is then a participant in the Plan an option
("Option") to purchase on the last day of such Offering (the "Exercise Date"),
at the Option Price hereinafter provided for, (a) a number of shares of Common
Stock, which number shall not exceed the number of whole shares which is less
than or equal to $12,500 divided by the closing price per share of Common Stock
on the Offering Date, or (b) such other lesser maximum number of shares as shall
have been established by the Administrator in advance of the Offering.
Notwithstanding the foregoing, on the Offering Date for the Initial Offering,
the Company will grant to each eligible employee who is then a participant in
the Plan an Option to purchase on the Exercise Date, at the Option Price
hereinafter provided for, a number of shares of Common Stock, which number shall
not exceed the number of whole shares which is less than or equal to $25,000
divided by the "Price to the Public" (or equivalent) set forth on the cover page
for the final prospectus relating to the Company's Initial Public Offering. The
purchase price for each share purchased under each Option (the "Option Price")
will be 85% of the Fair Market Value of the Common Stock on the Offering Date or
the Exercise Date, whichever is less.
Notwithstanding the foregoing, no employee may be granted an option
hereunder if such employee, immediately after the option was granted, would be
treated as owning stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any
Parent or Subsidiary (as defined in Section 11). For purposes
4
<PAGE>
of the preceding sentence, the attribution rules of Section 424(d) of the Code
shall apply in determining the stock ownership of an employee, and all stock
which the employee has a contractual right to purchase shall be treated as stock
owned by the employee. In addition, no employee may be granted an Option which
permits his rights to purchase stock under the Plan, and any other employee
stock purchase plan of the Company and its Parents and Subsidiaries, to accrue
at a rate which exceeds $25,000 of the fair market value of such stock
(determined on the option grant date or dates) for each calendar year in which
the Option is outstanding at any time. The purpose of the limitation in the
preceding sentence is to comply with Section 423(b)(8) of the Code.
9. Exercise of Option and Purchase of Shares. Each employee who continues
-----------------------------------------
to be a participant in the Plan on the Exercise Date shall be deemed to have
exercised his Option on such date and shall acquire from the Company such number
of whole shares of Common Stock reserved for the purpose of the Plan as his
accumulated payroll deductions on such date will purchase at the Option Price,
subject to any other limitations contained in the Plan. Any amount remaining in
an employee's account at the end of an Offering solely by reason of the
inability to purchase a fractional share will be carried forward to the next
Offering; any other balance remaining in an employee's account at the end of an
Offering will be refunded to the employee promptly.
10. Issuance of Certificates. Certificates representing shares of Common
------------------------
Stock purchased under the Plan may be issued only in the name of the employee,
in the name of the employee and another person of legal age as joint tenants
with rights of survivorship, or in the
5
<PAGE>
name of a broker authorized by the employee to be his, or their, nominee for
such purpose.
11. Definitions.
-----------
The term "Compensation" means the amount of base pay, prior to salary
reduction pursuant to either Section 125 or 401(k) of the Code, but excluding
overtime, commissions, incentive or bonus awards, allowances and reimbursements
for expenses such as relocation allowances or travel expenses, income or gains
on the exercise of Company stock options, and similar items.
The term "Designated Subsidiary" means any present or future Subsidiary (as
defined below) that has been designated by the Board to participate in the Plan.
The Board may so designate any Subsidiary, or revoke any such designation, at
any time and from time to time, either before or after the Plan is approved by
the stockholders.
The term "Fair Market Value of the Common Stock" on any given date means
the fair market value of the Common Stock determined in good faith by the
Administrator; provided, however, that if the Common Stock is admitted to
-------- -------
quotation on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ"), NASDAQ National System or national securities exchange, the
determination shall be made by reference to market quotations. If there are no
market quotations for such date, the determination shall be made by reference to
the last date preceding such date for which there are market quotations.
Notwithstanding the foregoing, if the date for which Fair Market Value of the
Common Stock is determined is the first day when trading prices for the Common
Stock are reported on NASDAQ or on a national securities exchange, the Fair
Market Value of the Common Stock
6
<PAGE>
shall be the "Price to the Public" (or equivalent) set forth on the cover page
for the final prospectus relating to the Company's Initial Public Offering.
The term "Initial Public Offering" means the consummation of the first
fully underwritten, firm commitment public offering pursuant to an effective
registration statement under the Securities Exchange Act of 1934, as amended,
other than on Forms S-4 or S-8 or their then equivalents, covering the offer and
sale by the Company of its Common Stock.
The term "Parent" means a "parent corporation" with respect to the Company,
as defined in Section 424(e) of the Code.
The term "Subsidiary" means a "subsidiary corporation" with respect to the
Company, as defined in Section 424(f) of the Code.
12. Rights on Termination of Employment. If a participating employee's
-----------------------------------
employment terminates for any reason before the Exercise Date for any Offering,
no payroll deduction will be taken from any pay due and owing to the employee
and the balance in his account will be paid to him or, in the case of his death,
to his designated beneficiary as if he had withdrawn from the Plan under Section
7. An employee will be deemed to have terminated employment, for this purpose,
if the corporation that employs him, having been a Designated Subsidiary, ceases
to be a Subsidiary, or if the employee is transferred to any corporation other
than the Company or a Designated Subsidiary.
13. Special Rules. Notwithstanding anything herein to the contrary, the
-------------
Administrator may adopt special rules applicable to the employees of a
particular Designated Subsidiary, whenever the Administrator determines that
such rules are necessary or appropriate
7
<PAGE>
for the implementation of the Plan in a jurisdiction where such Designated
Subsidiary has employees; provided that such rules are consistent with the
requirements of Section 423(b) of the Code. Such special rules may include (by
way of example, but not by way of limitation) the establishment of a method for
employees of a given Designated Subsidiary to fund the purchase of shares other
than by payroll deduction, if the payroll deduction method is prohibited by
local law or is otherwise impracticable. Any special rules established pursuant
to this Section 13 shall, to the extent possible, result in the employees
subject to such rules having substantially the same rights as other participants
in the Plan.
14. Optionees Not Stockholders. Neither the granting of an Option to an
--------------------------
employee nor the deductions from his pay shall constitute such employee a holder
of the shares of Common Stock covered by an Option under the Plan until such
shares have been purchased by and issued to him.
15. Rights Not Transferable. Rights under the Plan are not transferable by
-----------------------
a participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
16. Application of Funds. All funds received or held by the Company under
--------------------
the Plan may be combined with other corporate funds and may be used for any
corporate purpose.
17. Adjustment in Case of Changes Affecting Common Stock. In the event of
----------------------------------------------------
a subdivision of outstanding shares of Common Stock, or the payment of a
dividend in Common Stock, the number of shares approved for the Plan, and the
share limitation set forth in Section 8, shall be increased proportionately, and
such other adjustment shall be made as may
8
<PAGE>
be deemed equitable by the Administrator. In the event of any other change
affecting the Common Stock, such adjustment shall be made as may be deemed
equitable by the Administrator to give proper effect to such event.
18. Amendment of the Plan. The Board may at any time, and from time to
---------------------
time, amend the Plan in any respect, except that without the approval, within 12
months of such Board action, by the stockholders, no amendment shall be made
increasing the number of shares approved for the Plan or making any other change
that would require stockholder approval in order for the Plan, as amended, to
qualify as an "employee stock purchase plan" under Section 423(b) of the Code.
19. Insufficient Shares. If the total number of shares of Common Stock
-------------------
that would otherwise be purchased on any Exercise Date plus the number of shares
purchased under previous Offerings under the Plan exceeds the maximum number of
shares issuable under the Plan, the shares then available shall be apportioned
among participants in proportion to the amount of payroll deductions accumulated
on behalf of each participant that would otherwise be used to purchase Common
Stock on such Exercise Date.
20. Termination of the Plan. The Plan may be terminated at any time by the
-----------------------
Board. Upon termination of the Plan, all amounts in the accounts of
participating employees shall be promptly refunded.
21. Governmental Regulations. The Company's obligation to sell and deliver
------------------------
Common Stock under the Plan is subject to obtaining all governmental approvals
required in connection with the authorization, issuance, or sale of such stock.
9
<PAGE>
The Plan shall be governed by Delaware law except to the extent that such
law is preempted by federal law.
22. Issuance of Shares. Shares may be issued upon exercise of an Option
------------------
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
23. Tax Withholding. Participation in the Plan is subject to any minimum
---------------
required tax withholding on income of the participant in connection with the
Plan. Each employee agrees, by entering the Plan, that the Company and its
Subsidiaries shall have the right to deduct any such taxes from any payment of
any kind otherwise due to the employee, including shares issuable under the
Plan.
24. Notification Upon Sale of Shares. Each employee agrees, by entering
--------------------------------
the Plan, to give the Company prompt notice of any disposition of shares
purchased under the Plan where such disposition occurs within two years after
the date of grant of the Option pursuant to which such shares were purchased.
25. Effective Date and Approval of Shareholders. The Plan shall take
-------------------------------------------
effect on the first day of the Company's Initial Public Offering, subject to
approval by the holders of a majority of the votes cast at a meeting of
stockholders at which a quorum is present or by written consent of stockholders.
10
<PAGE>
EXHIBIT 10.4
CYPRESS COMMUNICATIONS, INC.
THIRD AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
Dated effective as of
October 8, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I CERTAIN DEFINITIONS............................................... 1
ARTICLE II REGISTRATION RIGHTS.............................................. 5
2.1 Demand Registrations.............................................. 5
2.2 Piggyback Registrations........................................... 7
2.3 Expenses of Registration.......................................... 8
2.4 Registration Procedures........................................... 8
2.5 Indemnification................................................... 9
2.6 Other Obligations................................................. 12
2.7 Certain Information............................................... 12
2.8 Termination of Registration Rights................................ 12
ARTICLE III RESTRICTIONS ON TRANSFER........................................ 13
3.1 Transfer of Shares of Common Stock................................ 13
3.2 Rights of First Refusal - Founding Stock.......................... 13
3.3 Right of First Offer - Investor Stock............................. 14
3.4 Participation Rights.............................................. 15
3.5 Exempt Transactions............................................... 15
3.6 Management Holder Put Rights...................................... 16
ARTICLE IV SUBSEQUENT OFFERINGS............................................. 17
4.1 Right of First Refusal............................................ 17
4.2 Notice of Election................................................ 18
4.3 Participation..................................................... 18
ARTICLE V COVENANTS OF THE COMPANY.......................................... 19
5.1 Basic Financial Information....................................... 19
5.2 Additional Information Rights..................................... 19
5.3 Prompt Payment of Taxes, Etc...................................... 20
5.4 Maintenance of Properties and Leases.............................. 21
5.5 Insurance......................................................... 21
5.6 Accounts and Records.............................................. 21
5.7 Independent Accountants........................................... 21
5.8 Compliance with Laws.............................................. 21
5.9 Maintenance of Corporate Existence, Etc........................... 21
ARTICLE VI CORPORATE GOVERNANCE............................................. 22
6.1 Board of Directors................................................ 22
6.2 Meetings of the Board............................................. 23
6.3 Committees........................................................ 23
6.4 Reimbursement of Expenses......................................... 24
6.5 Observation Rights................................................ 24
ARTICLE VII MISCELLANEOUS................................................... 24
7.1 Governing Law..................................................... 24
</TABLE>
<PAGE>
<TABLE>
<S> <C>
7.2 Successors and Assigns............................................ 24
7.3 Entire Agreement: Amendment and Waiver............................ 24
7.4 Notices, Etc...................................................... 25
7.5 Delays or Omissions............................................... 25
7.6 Severability...................................................... 25
7.7 Counterparts...................................................... 26
7.8 Termination....................................................... 26
7.9 Specific Enforcement.............................................. 26
</TABLE>
<PAGE>
THIRD AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
This Third Amended and Restated Stockholders Agreement (this "Agreement")
dated effective as of October 8, 1999, is by and among CYPRESS COMMUNICATIONS,
INC., a Delaware corporation (the "Company"), CENTENNIAL FUND V, L.P., a
Delaware limited partnership ("Centennial"), CENTENNIAL ENTREPRENEURS FUND V,
L.P., a Delaware limited partnership ("Entrepreneurs Fund"), ALTA COMMUNICATIONS
VI, L.P., a Delaware limited partnership ("Alta"), ALTA-COMM S BY S, LLC, a
Massachusetts limited liability company ("Alta-Comm"), BUILDING COMMUNICATIONS
LLC, a Delaware limited liability company ("Building Communications"), TENANT
COMMUNICATIONS, INC., a Massachusetts corporation ("Tenant Communications"),
INVESTOR COMMUNICATIONS, LLC, a Delaware limited liability company ("ICL"), NAS
PARTNERS L.L.C., a Delaware limited liability company ("NAS"), NASSAU CAPITAL
PARTNERS III, L.P., a Delaware limited partnership ("Nassau"), TRANSWESTERN
COMMERCIAL SERVICES, L.L.C., a Delaware limited liability company
("Transwestern"), GRAMMERCY CYPRESS LLC, a Delaware limited liability company
("Grammercy"), CYCOM INVESTMENT, L.L.C., a Delaware limited liability company
("Cycom"), AEW PARTNERS III, L.P., a Delaware limited partnership ("AEW") (NAS,
Nassau, Transwestern, Grammercy, Cycom and AEW are collectively referred to
herein as the "New Investors"), and the founding and other stockholders of the
Company (the "Founding Stockholders") identified on the signature pages hereto
or that have otherwise agreed to be bound by the provisions hereof. Centennial,
Entrepreneurs Fund, Alta, Alta-Comm, Building Communications, Tenant
Communications, ICL, NAS, Nassau, Transwestern, Grammercy, Cycom, and AEW are
collectively referred to herein as the "Investors." The Investors and the
Founding Stockholders are referred to collectively herein as the "Stockholders."
Certain of the Stockholders and the Company entered into a Second Amended
and Restated Stockholders Agreement, dated as of September 30, 1998, as amended
(the "Prior Agreement"). In connection with the sale of the Company's Series C
Preferred Stock and Series C-1 Preferred Stock pursuant to the terms of the
Series C Preferred and Series C-1 Preferred Stock Purchase Agreement of even
date herewith (together with the Exhibits and Schedules attached thereto, the
"Series C and Series C-1 Purchase Agreement"), the Company and each of the
Founders and the Investors desire to enter into this Agreement to replace the
Prior Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the following
respective meanings:
<PAGE>
1.1 "Affiliate" shall mean affiliate as defined in Rule 12b-2 of the
regulations promulgated under the Exchange Act.
1.2 "Cause" shall mean a Management Holder's refusal or failure to
perform his obligations under this Agreement; acts or omissions by such
Management Holder constituting gross neglect or dereliction of duties with
respect to the Company; fraud; dishonesty in connection with any dealings with
the Board of Directors of the Company; dishonesty that is materially injurious
to the Company or any Investor; a felony; or willful or repeated failure to
follow the reasonable instructions of the Board of Directors of the Company.
1.3 "Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
1.4 "Common Stock" shall mean the Company's Common Stock, $.001 par
value per share.
1.5 "Exchange Act" shall mean the Securities Exchange Act of 1934 (or
any similar successor federal statute), as amended, and the rules and
regulations thereunder, all as the same shall be in effect from time to time.
1.6 "Founding Stock" shall mean (i) shares of Common Stock, including
Reserved Employee Stock, that are owned by any Founding Stockholder or any
Permitted Transferee thereof, (ii) shares of Common Stock issued or issuable
upon the conversion or exercise of any stock, warrants, options or other
securities of the Company owned by any Founding Stockholder or any Permitted
Transferee; and (iii) shares of Common Stock issued as a dividend or other
distribution with respect to or in exchange for or in replacement of the shares
referenced in (i) and (ii) above; provided, however, that "Founding Stock" shall
not include shares of Common Stock issued or issuable upon the conversion or
exercise of Senior Preferred Stock or Common Stock issued as a dividend or other
distribution with respect to or in exchange for Senior Preferred Stock.
1.7 "Fully Diluted Basis" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be determined,
all shares of Common Stock outstanding at such date and all shares of Common
Stock issuable in respect of the conversion of any stock, including any Senior
Preferred Stock or securities convertible into shares of Common Stock
outstanding on such date which would be deemed outstanding in accordance with
GAAP for purposes of determining net income per share.
1.8 "Initiating Holders" shall mean (i) collectively, Centennial and
Entrepreneurs Fund and their transferees permitted under this Agreement, (ii)
collectively, Alta and Alta-Comm and their transferees permitted under this
Agreement, (iii) collectively, Building Communications, Tenant Communications
and ICL, (iv) collectively, NAS and Nassau, and their transferees permitted
under this Agreement, (v) collectively, Grammercy and its transferees permitted
under this Agreement, (vi) collectively, AEW and its transferees permitted under
this Agreement, (vii) collectively, Cycom and its transferees permitted under
this Agreement, (viii) collectively, Transwestern and its transferees permitted
under this Agreement, (ix) collectively, upon their purchase of Series C
Preferred Stock and their execution of this Agreement, the REIT
<PAGE>
Investors and their transferees permitted under this Agreement, and (x)
collectively, Founding Stockholders holding Registrable Securities representing
not less than sixty-five percent (65%) of the then-outstanding Founding Stock
(excluding any outstanding Reserved Employee Stock).
1.9 "Investor Stock" shall mean (i) shares of Common Stock owned by any
Investor or any transferee thereof; (ii) Common Stock issued or issuable upon
the conversion or exercise of any stock (including, without limitation, the
Senior Preferred Stock), warrants, options or other securities of the Company
owned by any Investor, (iii) shares of Common Stock issued or issuable upon the
conversion or exercise of the Senior Preferred Stock owned by any Founding
Stockholder or any Permitted Transferee thereof, and (iv) any shares of Common
Stock issued as a dividend or other distribution with respect to or in exchange
for or in replacement of the shares referenced in (i), (ii) and (iii) above.
1.10 "Liquidation" shall mean any liquidation, dissolution, or winding up
of an entity, and shall also include a sale, lease, or other disposition of all
or substantially all of the assets of such entity.
1.11 "Management Holders" means R. Stanley Allen, Ward C. Bourdeaux, Jr.,
Mark A. Graves, Barry Boniface, George Cisler and such other persons as may be
designated hereunder from time to time by the Board of Directors of the Company
as Management Holders.
1.12 "Permitted Transferee" shall mean (i) with respect to a Founding
Stockholder who is an individual, a member of such Founding Stockholder's
immediate family, a trust established for the benefit of the Founding
Stockholder or members of such Founding Stockholder's immediate family, or a
transferee of such Founding Stockholder by will or the laws of intestate
succession, (ii) with respect to an Investor, any other person, entity or
investment fund controlling, controlled by or under common control with the
Investor and any partner of an Investor which is a partnership or any member of
an Investor which is a limited liability company, in a transfer upon liquidation
or partial liquidation or pro rata in-kind distribution, and (iii) the Company
with respect to a redemption under Section 3 of the Certificate of Incorporation
of the Company.
1.13 "Public Sale" shall mean any sale of Common Stock to the public
pursuant to an offering registered under the Securities Act or to the public
through a broker dealer or market maker pursuant to the provisions of Rule 144
(other than the provisions of Rule 144(k)).
1.14 "Qualified Holder" shall mean any Investor that holds 5% or more of
the outstanding shares of Common Stock, determined on a Fully Diluted Basis.
1.15 "Qualified Public Offering" shall mean a public offering of the Common
Stock of the Company in which (i) the per share price to the public is at least
$38.00 per share (as adjusted for stock splits, recapitalization, and the like),
(ii) the gross cash proceeds to the Company (before underwriting discounts,
commissions and fees) are at least $50,000,000, and (iii) the Company uses a
nationally recognized underwriter.
1.16 "Registrable Securities" shall mean the Investor Stock and Founding
Stock; provided, however, that Registrable Securities shall not include any
shares of Investor
<PAGE>
Stock or Founding Stock that have previously been registered and sold under the
Securities Act or that have otherwise been sold to the public in an open-market
transaction under Rule 144. For purposes of this Agreement, a person will be
deemed to be a holder of Registrable Securities whenever such person has the
right to acquire such Registrable Securities (upon conversion or exercise in
connection with a transfer of securities or otherwise, but disregarding any
restrictions or limitations upon the exercise of such right), whether or not
such acquisition has actually been effected).
1.17 The terms "registers," "registered" and "registration" shall refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act and the declaration or ordering of the
effectiveness of such registration statement by the Commission.
1.18 "Registration Expenses" shall mean all expenses incurred in effecting
any registration pursuant to this Agreement, including without limitation all
registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for the Company, blue sky fees and expenses,
expenses of any regular or special audits incident to or required by any such
registration, and the reasonable fees and expenses of one counsel for the
selling holders of Registrable Securities, but excluding Selling Expenses.
1.19 "REIT Investors" means, upon their purchase of shares of Series C
Preferred Stock and their execution of this Agreement, Boston Properties, Inc.,
Cornerstone Properties Limited Partnership, and Shorenstein Company, L.P., or
their respective affiliates.
1.20 "Reserved Employee Stock" means up to 2,000,000 shares of Common Stock
issued or issuable to employees, directors or consultants of the Company and its
Subsidiaries as determined by the Company's Board of Directors with vesting and
buy-back restrictions approved by the Board of Directors.
1.21 "Rule 144" shall mean Rule 144 as promulgated by the Commission under
the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
1.22 "Securities Act" shall mean the Securities Act of 1933 (or any similar
successor federal statute), as amended, and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
1.23 "Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities.
1.24 "Senior Preferred" shall mean the Series A Preferred Stock, the Series
B Preferred Stock, the Series B-1 Preferred Stock, the Series C Preferred Stock,
and the Series C-1 Preferred Stock.
1.25 "Series A Preferred Stock" shall mean the Company's Series A Preferred
Stock, $.001 par value per share.
<PAGE>
1.26 "Series B Preferred Stock" shall mean the Company's Series B Preferred
Stock, $.001 par value per share.
1.27 "Series B-1 Preferred Stock" shall mean the Company's Series B-1
Preferred Stock, $.001 par value per share.
1.28 "Series C Preferred Stock" shall mean the Company's Series C Preferred
Stock, $.001 par value per share.
1.29 "Series C-1 Preferred Stock" shall mean the Company's Series C-1
Preferred Stock, $.001 par value per share.
1.30 "Subsidiary" means any corporation of which the shares of outstanding
capital stock possessing the voting power (under ordinary circumstances) to
elect a majority of the board of directors are, at the time as of which any
determination is being made, owned by the Company either directly or indirectly
through Subsidiaries.
ARTICLE II
REGISTRATION RIGHTS
2.1 Demand Registrations.
(a) Request for Registration. At any time or times after the
effective date of the first registration statement filed by the Company under
the Securities Act, each group of Initiating Holders (as described in clauses
(i) through (ix) of Section 1.8, except as otherwise provided herein, may
require that the Company effect one registration under the Securities Act
utilizing a registration on Form S-1 or any similar form (a "Long Form
Registration") and as many times as requested by the Initiating Holders
utilizing a Form S-3 or any similar form, if available (a "Short-Form
Registration") (each a "Demand Registration"). In the case of Transwestern, its
demand registration rights shall be limited to Short-Form Registrations. Upon
receipt of written notice of such demand, the Company will promptly give written
notice of the proposed registration to all other holders of Registrable
Securities and will include in such registration all Registrable Securities
specified in such demand, together with all Registrable Securities of any other
holder of Registrable Securities joining in such demand as are specified in a
written request received by the Company within twenty (20) days after delivery
of the Company's notice.
(b) Deferral of Demand Registration. The Company shall file a
registration statement with respect to each Demand Registration requested
pursuant to Section 2.1(a) as soon as practicable after receipt of the demand of
the Initiating Holders but in any event within sixty (60) days (unless the
demand of the Initiating Holders is received 60 days or less prior to the
Company's fiscal year end or 30 days or less after the Company's fiscal year, in
which case within 90 days of the Company's fiscal year end); provided, however,
that if in the good faith judgment of the Board of Directors of the Company,
such registration would be seriously detrimental to the Company in that such
registration would interfere with a proposed primary registration of securities
by the Company or any other material corporate transaction and the Board of
Directors concludes, as a result, that it is advisable to defer the filing of
such
<PAGE>
registration statement at such time (as evidenced by an appropriate resolution
of the Board), then the Company shall have the right to defer such filing for
the period during which such registration would be seriously detrimental;
provided, however, that (i) the Company may not defer the filing for a period of
more than one hundred eighty (180) days after receipt of any demand of the
Initiating Holders, (ii) the Company shall not exercise its right to defer a
Demand Registration more than once, and (iii) if the Company undertakes a
primary registration following an exercise of its deferral right, the holders of
Registrable Securities shall have "piggyback" rights under Section 2.2 hereof
with respect to not less than one-third (1/3) of the number of shares of Common
Stock to be sold in such offering.
(c) Underwriting. If the Initiating Holders intend to distribute the
Registrable Securities covered by a Demand Registration by means of an
underwriting, they shall so advise the Company as a part of their demand made
pursuant to Section 2.1 and the Company shall include such information in its
written notice to holders of Registrable Securities. The Initiating Holders
shall have the right to select the managing underwriter(s) of recognized
national reputation for an underwritten Demand Registration, subject to the
approval of the Company's Board of Directors (which will not be unreasonably
withheld or delayed). The right of any holder of the Registrable Securities to
participate in an underwritten Demand Registration shall be conditioned upon
such holder's participation in such underwriting in accordance with the terms
and conditions thereof, and the Company and such holders will enter into an
underwriting agreement in customary form.
(d) Priorities. The holders of Registrable Securities will have
absolute priority over any other securities included in a Demand Registration.
If other securities are included in any Demand Registration that is not an
underwritten offering, all Registrable Securities included in such offering
shall be sold prior to the sale of any of such other securities. If other
securities are included in any Demand Registration that is an underwritten
offering, and the managing underwriter for such offering advises the Company
that in its opinion the amount of securities to be included exceeds the amount
of securities which can be sold in such offering without adversely affecting the
marketability thereof, the Company will include in such registration all
Registrable Securities requested to be included therein prior to the inclusion
of any other securities. If the number of Registrable Securities requested to be
included in such registration exceeds the amount of securities which in the
opinion of such underwriter can be sold without adversely affecting the
marketability of such offering, such Registrable Securities shall be included
pro rata among the holders thereof based on the percentage of the outstanding
Registrable Securities held by each such Stockholder, or as otherwise agreed
among such Stockholders. Without the consent of the holders of a majority in
interest of the Registrable Securities included in a registration, no securities
other than Registrable Securities shall be covered by such registration if the
inclusion of such other securities would result in a reduction of the number of
Registrable Securities covered by such registration or included in any
underwriting or if, in the opinion of the managing underwriter, the inclusion of
such other securities would materially adversely impact the marketing of such
offering.
(e) Frequency; Duration. The Company shall not be required to effect
a Demand Registration pursuant to this Section 2.1 (i) if it has previously
effected a Demand Registration during the previous six (6) months or (ii) except
with respect to a Short-Form Registration, after the fifth (5th) anniversary of
the effective date of the Company's initial public
<PAGE>
offering. A Demand Registration shall not be deemed to have been effected for
purposes of this Section 2.1(e) if the applicable registration statement has not
been declared effective and kept effective until the earlier of one hundred
eight (180) days or until the holders of Registrable Securities included therein
have completed the distribution described in the registration statement relating
thereto.
2.2 Piggyback Registrations.
(a) Request for Inclusion. If the Company shall determine to register
any of its securities for its own account or for the account of other security
holders of the Company on any registration form (other than Form S-4 or S-8)
which permits the inclusion of Registrable Securities (a "Piggyback
Registration"), the Company will promptly give each holder of Registrable
Securities written notice thereof and, subject to Section 2.2(c), shall include
in such registration all the Registrable Securities requested to be included
therein pursuant to the written requests of holders of Registrable Securities
received within twenty (20) days after delivery of the Company's notice.
(b) Underwriting. If the Piggyback Registration relates to an
underwritten public offering, the Company shall so advise the holders of
Registrable Securities as a part of the written notice given pursuant to Section
2.2(a). In such event, the right of any holder of Registrable Securities to
participate in such registration shall be conditioned upon such holder's
participation in such underwriting in accordance with the terms and conditions
thereof. All holders of Registrable Securities proposing to distribute their
securities through such underwriting shall (together with the Company) enter
into an underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by the Company and approved by the
Investors holding at least 25% of the then-outstanding Registrable Securities
(excluding any outstanding Reserved Employee Stock), which approval will not be
unreasonably withheld or delayed.
(c) Priorities. If such proposed Piggyback Registration is an
underwritten offering and the managing underwriter for such offering advises the
Company that the securities requested to be included therein exceeds the amount
of securities that can be sold in such offering, except as provided in Section
2.1(b), any securities to be sold by the Company in such offering shall have
priority over any Registrable Securities, and the number of shares to be
included by a holder of Registrable Securities in such registration shall be
reduced pro rata on the basis of the percentage of the outstanding Registrable
Securities held by such Stockholder and all other holders exercising similar
registration rights, or as otherwise agreed among such holders. Without the
consent of the holders of a majority in interest of the Registrable Securities
included in a registration, and except for securities to be sold by the Company,
no securities other than Registrable Securities shall be covered by such
registration if the inclusion of such other securities would result in a
reduction of the number of Registrable Securities covered by such registration
or included in any underwriting or if, in the opinion of the managing
underwriter, the inclusion of such other securities would materially adversely
impact the marketing of such offering.
<PAGE>
2.3 Expenses of Registration.
All Registration Expenses incurred in connection with the Demand
Registrations and Piggyback Registrations shall be borne by the Company. All
Selling Expenses relating to Registrable Securities included in any Demand
Registration or Piggyback Registration shall be borne by the holders of such
securities pro rata on the basis of the number of shares sold by them.
2.4 Registration Procedures.
In the case of each registration effected by the Company pursuant to this
Article II, the Company will keep each holder of Registrable Securities advised
in writing as to the initiation of such registration and as to the completion
thereof. At its expense, the Company will:
(a) use its best efforts to cause such registration to be declared
effective by the Commission and, in the case of a Demand Registration, keep such
registration effective for a period of one hundred eighty (180) days or until
the holders of Registrable Securities included therein have completed the
distribution described in the registration statement relating thereto, whichever
first occurs;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement (including post-effective amendments) as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement;
(c) use its best efforts to obtain appropriate qualifications of the
securities covered by such registration under state securities or "blue sky"
laws in such jurisdictions as may be requested by the holders of Registrable
Securities to the extent such qualification is required; provided, however, that
the Company shall not be required to file a general consent to service of
process in any jurisdiction in which it is not otherwise subject to service in
order to obtain any such qualification;
(d) furnish such number of prospectuses and other documents incident
thereto, including any amendment of or supplement to the prospectus, as a holder
of Registrable Securities from time to time may reasonably request;
(e) 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 Securities Act, of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such holder, prepare and
furnish to such holder a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to
<PAGE>
make the statements therein not misleading or incomplete in the light of the
circumstances then existing;
(f) cause all Registrable Securities covered by such registration to
be listed on each securities exchange or inter-dealer quotation system on which
similar securities issued by the Company are then listed;
(g) provide a transfer agent and registrar for all Registrable
Securities covered by such registration and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration;
(h) otherwise comply with all applicable rules and regulations of the
Commission, and make available to its security holders, as soon as reasonably
practicable and in any event within sixteen (16) months after the effective date
of the registration statement, an earning statement covering a period of at
least twelve months, but not more than 18 months, beginning with the first month
after the effective date of the registration statement, which earning statement
shall satisfy the provisions of Section 11(a) of the Securities Act; and
(i) in connection with any underwritten Demand Registration, the
Company will enter into an underwriting agreement reasonably satisfactory to the
Initiating Holders containing customary underwriting provisions, including
indemnification and contribution provisions.
(j) furnish, at the request of any holder requesting registration of
Registrable Securities pursuant to this Agreement, to the extent practicable,
(i) on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this
Agreement, 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, 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 registration of Registrable Securities and
(ii) on the date that the registration statement with respect to such securities
becomes effective, a "comfort" 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, and, if such
securities are being sold through underwriters, a reaffirmation of such letter
on the date that such Registrable Securities are delivered to the underwriters
for sale.
2.5 Indemnification.
(a) The Company will indemnify each holder of Registrable Securities,
each of such holder's officers, directors, partners, agents, employees and
representatives, any underwriter for such holder, and each person controlling
such holder or underwriter within the meaning of the Securities Act or Exchange
Act, with respect to each registration, qualification or compliance effected
pursuant to this Article II, against all expenses, claims, losses, damages and
<PAGE>
liabilities (or actions, proceedings or settlements in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other document
(including any related registration statement, notification or the like)
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
any violation or alleged violation by the Company of the Securities Act,
Exchange Act or stock securities law or any rule or regulation under any of the
foregoing applicable to the Company and relating to action or inaction required
of the Company in connection with any such registration, qualification or
compliance, and will reimburse each such indemnified person for any legal and
any other expenses reasonably incurred in connection with investigating and
defending or settling any such claim, loss, damage, liability or action;
provided, however, that the Company will not be liable in any such case to the
extent that any such claims, loss, damage, liability or expense arises out of or
is based on any untrue statement or omission based upon written information
furnished to the Company by such holder of Registrable Securities and stated to
be specifically for use therein. It is agreed that the indemnity agreement
contained in this Section 2.5(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 has not been
unreasonably withheld).
(b) Each holder of Registrable Securities included in any
registration effected pursuant to this Article II shall indemnify the Company,
each of its directors, officers, agents, employees and representatives, each
underwriter, and each person who controls the Company within the meaning of the
Securities Act or Exchange Act, each other such holder of Registrable Securities
and each of their officers, directors and partners, and each person controlling
such holders or underwriters, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse such indemnified persons for any legal or any
other expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in strict
conformity with written information furnished to the Company by such holder of
Registrable Securities; provided, however, that (x) no holder of Registrable
Securities shall be liable hereunder for any amounts in excess of the net
proceeds received by such holder pursuant to such registration, and (y) the
obligations of such holder of Registrable Securities hereunder shall not apply
to amounts paid in settlement of any such claims, losses, damages or liabilities
(or actions in respect thereof) if such settlement is effected without the
consent of such holder (which consent has not been unreasonably withheld).
(c) Each party entitled to indemnification under this Section 2.5
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
<PAGE>
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 2.5 to the extent such
failure is not materially prejudicial. No Indemnifying Party in the defense of
any such claim or litigation shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include an unconditional release of such Indemnified Party from all
liability in respect to such claim or litigation. Each Indemnified Party shall
furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with defense of such claim and litigation resulting
therefrom.
(d) The obligations of the Company and holders under this Section 2.5
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Agreement, and otherwise.
(e) Any indemnity agreements contained herein shall be in addition to
any other rights to indemnification or contribution which any Indemnified Party
may have pursuant to law or contract and shall remain operative and in full
force and effect regardless of any investigation made or omitted by or on behalf
of any Indemnified Party.
(f) If the indemnification provided for in this Section 2.5 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 which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
Notwithstanding anything to the contrary in this Section 2.5(f), no holder of
Registrable Securities shall be required, pursuant to this Section 2.5(f), to
contribute any amount in excess of the net proceeds received by such holder from
the sale of securities in the offering to which such contribution obligation
relates.
(g) No Investor participating in an underwriting shall be required to
make any representations, warranties or indemnities except (i) as they relate to
such Investor's ownership of shares and authority to enter into the underwriting
agreement, (ii) to such Investor's intended method of distribution, (iii) as may
be specifically required by the provisions of the applicable registration form,
and (iv) as may be required by such Investor having a relationship or
affiliation with the Company other than as an Investor pursuant hereto.
<PAGE>
2.6 Other Obligations.
With a view to making available the benefits of certain rules and
regulations of the Commission which may facilitate the registration of
Registrable Securities or permit the sale of Registrable Securities to the
public without registration, the Company agrees to:
(a) after its initial registration under the Securities Act, exercise
best efforts to cause the Company to be eligible to utilize Form S-3 (or any
similar form) for the registration of Registrable Securities;
(b) at such time as any Registrable Securities are eligible for
transfer under Rule 144(k), upon the request of the holder of such Registrable
Securities, remove any restrictive legend from the certificates evidencing such
securities at no cost to such holder;
(c) make and keep available public information as defined in Rule 144
under the Securities Act at all times from and after ninety (90) days following
its initial registration under the Securities Act;
(d) file with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
at any time after it has become subject to such reporting requirements; and
(e) furnish any holder of Registrable Securities upon request a
written statement by the Company as to its compliance with the reporting
requirements of Rule 144 (at any time from and after ninety (90) days following
the effective date of the first registration statement filed by the Company for
an offering of its securities to the general public), and of the Securities Act
and the Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents as a holder of Registrable
Securities may reasonably request in availing itself of any rule or regulation
of the Commission (including Rule 144A) allowing a holder of Registrable
Securities to sell any such securities without registration.
2.7 Certain Information.
If any registration statement or comparable statement under the Securities
Act refers to an Investor or any of its affiliates, by name or otherwise, as the
holder of any securities of the Company, then, unless counsel to the Company
advises the Company that the Securities Act requires that such reference be
included in any such statement, each such holder shall have the right to require
the deletion of such reference to itself and its affiliates upon five (5)
business days' prior written notice to the Company.
2.8 Termination of Registration Rights.
The right of any holder of Registrable Securities to request inclusion of
Registrable Securities in any registration pursuant to this Article II shall
terminate when (i) all Registrable Securities beneficially owned by such holder
of Registrable Securities may immediately be sold under Rule 144 (without giving
effect to paragraph (k) of such rule), and (ii) the Company's Common Stock is
listed on a national securities exchange or traded in the Nasdaq Stock Market;
<PAGE>
provided, however, that the provisions of this Section 2.8 shall not apply to
"piggy-back" registration rights of any holder of Registrable Securities
representing more than one percent (1%) of the Company's then-outstanding Common
Stock.
ARTICLE III
RESTRICTIONS ON TRANSFER
3.1 Transfer of Shares of Common Stock.
No Stockholder shall sell, transfer, assign, pledge or otherwise dispose of
(a "Transfer") any Common Stock except pursuant to the provisions of this
Article III or pursuant to a Public Sale. Each Stockholder that owns Investor
Stock agrees not to consummate any Transfer (other than a Public Sale) until 30
days after the later of the delivery to the other Stockholders of such
Stockholder's Offer Notice, unless the parties with rights under this Article
III waive such rights prior to the expiration of such 30-day period (the
"Election Period").
3.2 Rights of First Refusal - Founding Stock.
If at any time a Founding Stockholder (the "Selling Founding Stockholder")
receives a bona fide offer from any person (a "Third Party") to purchase shares
of Founding Stock held by the Selling Founding Stockholder (a "Third-Party
Offer") which the Selling Founding Stockholder wishes to accept, the Selling
Founding Stockholder shall cause such Third-Party Offer to be reduced to writing
and shall notify the Company and the other Stockholders (collectively, the
"NonSelling Stockholders") of the Selling Founding Stockholder's desire to
accept the Third-Party Offer. The Selling Founding Stockholder's notice (the
"Sale Notice") shall contain an irrevocable offer to sell such Common Stock to
the Company and/or the NonSelling Stockholders at a purchase price equal to the
price contained in, and on the same terms and conditions of, the Third-Party
Offer and shall be accompanied by a true copy of the Third-Party Offer (which
shall identify the offeror). At any time within 10 business days after the date
of receipt by the Company of the Sale Notice, the Company shall have the right
(subject to the Certificate of Incorporation of the Company) to purchase the
Common Stock covered by the Third-Party Offer at the same price and on the same
terms and conditions as the Third-Party Offer; provided, however, the Company
may pay cash to the Selling Founding Stockholder equal in amount to the fair
market value of any non-cash consideration offered by the Third Party in the
Third-Party Offer. If at the end of such 10-business day period the Company has
not elected to purchase all Common Stock covered by such Third-Party Notice, the
Selling Founding Stockholder shall provide the Sale Notice to the NonSelling
Stockholders along with a statement as to the number of shares to be purchased
by the Company (if any). Within 10 business days after receipt by the NonSelling
Stockholders of such Sale Notice, each NonSelling Stockholder, by providing
notice to the Founding Stockholder, shall have the right to purchase that
portion of the shares equal to the NonSelling Stockholder's Pro Rata Number of
Shares (as defined below) at the same price and on the same terms and
conditions as the Third-Party Offer; provided, however, the Non-Selling
Stockholder may pay cash to the Selling Founding Stockholder equal in amount to
the fair market value of any non-cash consideration offered by the Third Party
in the Third-Party offer. In the event any NonSelling Stockholder does not
exercise its right to purchase its respective Pro Rata Number of Shares, the
other NonSelling Stockholders shall have
<PAGE>
the right to purchase such shares, and the purchase of such shares shall be
allocated among the participating NonSelling Stockholders pro rata in proportion
to the aggregate amount of Investor Stock and Founding Stock held by such
NonSelling Stockholders, or in such other proportions as the participating
NonSelling Stockholders may agree upon. To the extent the Company and the
NonSelling Stockholders have not notified the Selling Founding Stockholder in
writing of a desire to purchase all of the Common Stock as set forth herein, the
Selling Founding Stockholder may within 60 days thereafter sell all of the
Founding Stock covered by the Third-Party Offer to the Third Party on the terms
set forth in the original Third-Party Offer; provided, however, that if the
Selling Founding Stockholder has been notified in writing by any Investor that
the sale of such stock is reasonably deemed to be part of a "Related
Transaction," as defined below, the Selling Founding Stockholder may only sell
the Founding Stock covered by such Third-Party Offer which the Company and the
NonSelling Stockholders have not offered to purchase. Any Founding Stock covered
by the Third Party Offer that is not so transferred during such 60-day period
shall again be subject to this Section 3.2. The Company may assign its rights to
purchase Founding Stock pursuant to this Section 3.2 to one or more third
parties subject only to compliance with applicable securities laws, provided
that the Company shall offer to assign such rights to the NonSelling
Stockholders pro rata prior to offering such rights to other persons. For
purposes of this Section 3.2 (i) such NonSelling Stockholder's Pro Rata Number
of Shares shall be equal to that number of shares of Common Stock derived by
multiplying the total number of shares to be purchased by the Third Party as set
forth in the Sale Notice (less the number of shares purchased by the Company) by
a fraction, the numerator of which is the total number of shares of Investor
Stock and Founding Stock beneficially owned by such NonSelling Stockholder, as
the case may be, and the denominator of which is the total number of shares of
Investor Stock and Founding Stock beneficially owned by all NonSelling
Stockholders and (ii) Related Transaction shall mean a joint transaction
involving the sale of Founding Stock held by two or more Founding Stockholders.
3.3 Right of First Offer - Investor Stock.
At least 30 days prior to making any Transfer of any shares of Investor
Stock, including, but not limited to Senior Preferred Stock, (other than a
Public Sale), the Investor or Founding Stockholder intending to consummate such
Transfer (the "Offeror") shall deliver a written notice (the "Offer Notice") to
the other Stockholders (the "Offerees"). The Offer Notice shall disclose in
reasonable detail the proposed number and class of shares of Investor Stock to
be transferred and the proposed terms and conditions of the Transfer. The
Offerees may elect to purchase all (or a portion) of their Pro Rata Share (as
defined below) of the shares of Investor Stock specified in the Offer Notice at
the price and on the terms specified therein by delivering written notice of
such election to the Offeror as soon as practical but in any event within 20
days after the delivery of the Offer Notice. Any shares of Investor Stock not
elected to be purchased by the end of such 20-day period shall be reoffered for
the 10-day period prior to the expiration of the Election Period by the Offeror
on a pro rata basis to the Offerees who have elected to purchase their Pro Rata
Share. If any Offeree has elected to purchase shares of Investor Stock from the
Offeror, the transfer of such shares shall be consummated as soon as practicable
after the delivery of the election notices, but in any event within 15 days
after the expiration of the Election Period. To the extent that the Offerees
have not elected to purchase all of the shares of Investor Stock being offered,
the Offeror may, within 90 days after the expiration of the Election Period and
subject to the provisions of Section 3.4 below, transfer such shares of Investor
Stock to one or more third
<PAGE>
parties at a price no less than the price per share specified in the Offer
Notice and on terms no more favorable to the transferees than offered to the
Investors in the Offer Notice. The purchase price specified in the Offer Notice
shall be payable solely in cash at the closing of the transaction or in
installments over time as agreed on by the parties. For purposes of this Section
3.3, each Offeree's "Pro Rata Share" shall be based upon such Offeree's
proportionate ownership of all outstanding shares of Investor Stock and Founding
Stock held by the Offerees.
3.4 Participation Rights.
(a) If the Offerees have not elected to purchase all of the Investor
Stock specified in the Offer Notice pursuant to Section 3.3 above, each Offeree
may elect to participate in the contemplated transfer by delivering written
notice to the Offeror 15 business days after receipt by the Offeree of the Offer
Notice. If any Offeree has elected to participate in such sale, the Offeror and
the electing Offerees will be entitled to sell in the contemplated sale, at the
same price and on the same terms, a number of the same class or classes of
shares as are to be sold by the Offeror equal to the product of (i) the quotient
determined by dividing the percentage of the Company's Common Stock (on a Fully
Diluted Basis) held by such person, by the aggregate percentage of the Company's
Common Stock (on a Fully Diluted Basis) owned by the Offeror and all electing
Offerees and (ii) the number of shares of Common Stock to be sold in the
contemplated sale (on a Fully Diluted Basis).
For example, if the Offer Notice contemplated a sale of 100 shares of
Common Stock, and if the Offeror was at such time the owner of 30% of the
Company's Common Stock (on a Fully Diluted Basis) and if one Offeree
elected to participate and that Offeree owned 20% of the Company's Common
Stock (on a Fully Diluted Basis), the Offeror would be entitled to sell 60
shares ([30% / 50%] x 100 shares) and the electing Offeree would be
entitled to sell 40 shares ([20% / 50%] x 100 shares).
(b) The Offeror will use its best efforts to obtain the agreement of
the prospective transferee(s) to the participation of the Offerees in the
contemplated transfer and will not transfer any Investor Stock to the
prospective transferee(s) if such transferee(s) refuses to allow the
participation of the Offerees.
(c) Notwithstanding anything to the contrary contained herein, an
Offeree shall only have the right to sell the same class of shares as are to be
sold by the Offeror (as specified in the Offer Notice).
3.5 Exempt Transactions.
The restrictions set forth in this Article III shall not apply to transfers
of Founding Stock or Investor Stock to a Permitted Transferee; provided,
however, that such Permitted Transferee shall agree in writing to be bound by
such restrictions in connection with subsequent transfers. In addition, the
restrictions set forth in Sections 3.2, 3.3 and 3.4 shall not apply to Transfers
in connection with the Liquidation of the assets of the Offeror or to Transfers
by Management Holders after being terminated by the Company without Cause.
<PAGE>
3.6 Management Holder Put Rights.
(a) Notwithstanding any provision to the contrary contained in this
Agreement, in the event of the death or Disability of a Management Holder, the
Management Holder, and the Permitted Transferees of such Management Holder
(collectively, the "Selling Shareholders"), shall have the right to sell to the
Company (subject to the provisions of the Certificate of Incorporation of the
Company) any or all of the Reserved Employee Stock owned by such Selling
Shareholders (the "Put Shares"). Each Selling Shareholder desiring to sell his
or her Put Shares must, within 90 days of the date of the determination of the
Management Holder's Disability or, in the event of the death of a Management
Holder, within 90 days following the qualification of the executor or personal
representative of the estate of the deceased Management Holder, notify the
Company in writing of the number of Put Shares that each Selling Shareholder
desires to sell to the Company. Within 60 days of receiving any such notice from
any Selling Shareholder, the Company shall notify the Selling Shareholder of its
initial determination of the Fair Market Value per share of the Put Shares, and
shall, within 60 days thereafter (or within 60 days of the final determination
of the Fair Market Value per share pursuant to the appraisal procedures
described in Section 3.6(c) below), pay to the Selling Shareholder cash (or
other immediately available funds) equal to the Fair Market Value per share for
each Put Share owned and transferred to the Company by the Selling Shareholder.
At closing, each Selling Shareholder shall deliver to the Company his or her Put
Shares, duly endorsed for transfer in blank, free and clear of any liens or
encumbrances.
(b) As used in this Section 3.6, the term "Disability" means the
earlier of (i) the disability or incapacity of the Management Holder causing the
Management Holder to be unable to work in the same or similar capacity for a
period of 365 consecutive days and (ii) the date upon which the Management
Holder is deemed disabled under Section 22(e)(3) of the Internal Revenue Code of
1986, as amended.
(c) As used in this Section 3.6, the term "Fair Market Value" means
the Company's fair market value per share of the Company, without discount for a
minority interest or lack of marketability, but taking into account the relative
rights and preferences of the various classes of stock of the Company
outstanding as of the date of determination. The Company's Board of Directors
shall make an initial determination of the Fair Market Value per share
reasonably and in good faith as of the date of the Management Holder's death or
Disability. If a Selling Shareholder does not agree with the Fair Market Value
per share as determined by the Board of Directors, the Selling Shareholder must,
within 15 days of receiving the Board of Directors' initial determination of the
Fair Market Value per share, request the Company in writing to engage a
qualified, independent appraiser (the "Appraiser") experienced in appraising
companies similar to the Company, to determine the Fair Market Value per share.
The Company shall make available all information reasonably necessary to allow
the Appraiser to perform the appraisal and shall instruct the Appraiser to use
commercially reasonable efforts to complete the appraisal within thirty (30)
days and to provide the Company and the Selling Shareholder(s) instituting the
appraisal procedures a written determination of the Fair Market Value per share.
The Fair Market Value per share determined by the Appraiser will, absent fraud,
be final and binding upon all parties to the particular transaction, free of
challenge or review in any court. All costs associated with such an appraisal
will be borne equally by the Company and the Selling Shareholder, unless the
Fair Market Value per share determined by the Appraiser is 15% or more
<PAGE>
greater than or 15% or more less than the Fair Market Value per share determined
by the Board of Directors, in which case the losing party, as determined by the
Appraiser, shall bear the entire expense of the appraisal.
3.7 Distribution of Proceeds in Connection with Liquidation Event
(a) The Stockholders covenant that if (i) the authorized holders
under the Company's Certificate of Designation declare a Deemed Liquidation
Event to be a Liquidation Event and (ii) the aggregate proceeds distributable or
payable to the Stockholders holding Senior Preferred in connection with such
Liquidation Event are less than combined Series C and C-1 Liquidation
Preference, Series B and B-1 Liquidation Preference and Series A Liquidation
Preference, then the Stockholders shall share in such proceeds ratably in
compliance with the principles set forth in Section 3 of the Certificate of
Designation for the Senior Preferred.
(b) Capitalized terms used in this Section 3.7 and not otherwise
defined in this Agreement shall have the meanings set forth in the Company's
Certificate of Incorporation, as amended from time to time.
ARTICLE IV
SUBSEQUENT OFFERINGS
4.1 Right of First Refusal.
Except for issuances (i) of Reserved Employee Stock or shares of Common
Stock issued upon conversion of Senior Preferred, (ii) to Sellers in connection
with the acquisition of all or substantially all of the stock or assets of an
Entity that is not an Affiliate of the Company, or pursuant to or in connection
with customer licensing arrangements approved by the Board of Directors, (iii)
pursuant to a public offering registered under the Securities Act, or (iv) in
connection with any stock split, stock dividend or recapitalization, (a)
Centennial, Centennial V, and their respective transferees, as a group, shall
have a right of first refusal to purchase up to their Pro Rata Share of all
Equity Securities, (b) Alta, Alta-Comm, and their respective transferees, as a
group, shall have a right of first refusal to purchase up to their Pro Rata
Share of all Equity Securities, (c) Building Communications and its respective
transferees, as a group, shall have a right of first refusal to purchase up to
their Pro Rata Share of all Equity Securities, (d) Tenant Communications and its
respective transferees, as a group, shall have a right of first refusal to
purchase up to their Pro Rata Share of all Equity Securities, (e) the New
Investors, and their respective transferees, as a group (and on a pro rata basis
within such group), shall have a right of first refusal to purchase up to their
Pro Rata Share of all Equity Securities, (f) upon their purchase of shares of
Series C Preferred Stock, the REIT Investors, as a group (and on a pro rata
basis within such group) shall have a right of first refusal to purchase up to
their Pro Rata Share of all Equity Securities, and (g) the Founding Stockholders
and any of their Permitted Transferees, as a group (and on a pro rata basis
within such group), shall have a right of first refusal to purchase up to their
Pro Rata Share of all Equity Securities.
For purposes of this Section 4.1, (i) "Equity Securities" means any
unissued stock of any class or any additional shares of any class which is
offered for sale or to be issued by reason of
<PAGE>
any increase of the authorized capital stock of the Company of any class, or
bonds, certificates of indebtedness, debentures or other securities convertible
into stock of any class or containing any such features or issued in connection
with any equity securities, whether said unissued stock shall be issued for
cash, property, or any other lawful consideration, and (ii) "Pro Rata Share"
shall be based upon a Stockholder's proportionate ownership of all outstanding
shares of Investor Stock and Founding Stock, excluding for purposes of such
calculation any shares issued or issuable upon the exercise of any warrants if
the offering of Equity Securities under this Section 4.1 is at a price per share
equal to or in excess of the initial Series C-1 Conversion Price (as adjusted
for splits, subdivsions, etc.) in the Company's Certificate of Incorporation.
In the event any Stockholder does not exercise its right to purchase or
subscribe for the respective number of shares to which it has a right of first
refusal as set forth above, the other Stockholders shall have the right to
purchase such shares, and the purchase of such shares shall be allocated among
the participating Stockholders pro rata in proportion to the aggregate amount of
Investor Stock and Founding Stock held by such Stockholders, or in such other
proportions as the participating Stockholders may agree upon.
4.2 Notice of Election.
If the Company proposes to issue any Equity Securities (other than the
permitted issuances described in Sections 4.1 (i) - (iv), it shall give each
Stockholder written notice of its intention, describing the Equity Securities,
the price and the terms and conditions upon which the Company proposes to issue
the same. Each Stockholder shall have fifteen (15) business days from the
giving of such notice to agree to purchase its shares of the Equity Securities
for the price and upon the terms and conditions specified in the notice by
giving written notice to the Company and stating therein the quantity of Equity
Securities to be purchased. Notwithstanding the foregoing, the Company shall
not be required to offer or sell such Equity Securities to any Stockholder who
would cause the Company to be in violation of applicable federal securities laws
by virtue of such offer or sale.
4.3 Participation.
If not all of the Stockholders elect to purchase their share of the Equity
Securities, then the Company shall promptly notify in writing the Stockholders
who do so elect and shall offer such Stockholders the right to acquire such
unsubscribed shares. The Stockholders shall have five (5) business days after
receipt of such notice to notify the Company of their election to purchase all
or a portion thereof of the unsubscribed shares. If the Stockholders fail to
exercise in full their respective rights of first refusal, the Company shall
have ninety (90) days thereafter to sell the equity Securities in respect of
which the Stockholder's rights were not exercised, at a price and upon general
terms and conditions materially no more favorable to the purchasers thereof than
specified in the Company's notice to the Stockholders pursuant to Section 4.2
hereof. If the Company has not sold such Equity Securities within (90) days of
the notice provided pursuant to Section 4.2, the Company shall not thereafter
issue or sell any Equity Securities, without first offering such securities to
the Stockholders in the manner provided in this Article IV.
<PAGE>
ARTICLE V
COVENANTS OF THE COMPANY
The Company hereby covenants and agrees, so long as any Registrable
Securities are outstanding, as follows:
5.1 Basic Financial Information.
The Company will furnish the following reports to each holder of
Registrable Securities:
(a) As soon as practicable after the end of each fiscal year of the
Company, and in any event within ninety (90) days thereafter, a consolidated
balance sheet of the Company and its Subsidiaries, if any, as of the end of such
fiscal year, and consolidated statements of income and cash flow of the Company
and its Subsidiaries, if any, for such year, prepared in accordance with
generally accepted accounting principles consistently applied and setting forth
in each case in comparative form the figures for the previous fiscal year, all
in reasonable detail and certified by independent public accountants selected by
the Company in accordance with the provisions of Section 5.7.
(b) As soon as practicable after the end of each quarterly accounting
period in each fiscal year of the Company, and in any event within forty-five
(45) days thereafter, a consolidated balance sheet of the Company and its
Subsidiaries, if any, as of the end of each such quarterly period, and
consolidated statements of income and cash flow of the Company and its
Subsidiaries, if any, for such period and for the current fiscal year to date,
prepared in accordance with generally accepted accounting principles
consistently applied and setting forth in comparative form the figures for the
corresponding periods of the previous fiscal year, subject to changes resulting
from normal year-end audit adjustments, all in reasonable detail and certified
by the Chief Financial Officer of the Company (or the Chief Executive Officer or
President if no Chief Financial Officer is in place), except that such
statements need not contain the notes required by generally accepted accounting
principles for year-end financial statements.
(c) As soon as practicable after the end of each monthly accounting
period and in any event within thirty (30) days thereafter, a consolidated
balance sheet of the Company and its Subsidiaries, if any, as of the end of such
month and consolidated statements of income and of cash flow of the Company and
its Subsidiaries, if any, for each month and for the current fiscal year of the
Company to date, all subject to normal year-end audit adjustments, prepared in
accordance with generally accepted accounting principles consistently applied
and certified by the Chief Financial Officer of the Company (or the Chief
Executive Officer or President if no Chief Financial Officer is in place),
except that such statements need not contain the notes required by generally
accepted accounting principles for year-end financial statements.
5.2 Additional Information Rights.
(a) The Company will permit each Qualified Holder and/or its
representatives to visit and inspect any of the properties of the Company,
including its books of account and other records (and make copies thereof and
take extracts therefrom), and to discuss its affairs,
<PAGE>
finances and accounts with the Company's officers and its independent public
accountants, all at such reasonable times and as often as any such person may
reasonably request.
(b) The Company will deliver the reports described below in this
Section 5.2(b) to each Qualified Holder:
(i) Annually (but in any event at least thirty (30) days prior
to the commencement of each fiscal year of the Company) the
financial plan of the Company, in such manner and form as
approved by the Board of Directors of the Company, which
financial plan shall include an operating budget for such
fiscal year and an updated five-year strategic plan for the
Company.
(ii) Concurrently with delivery thereof, copies of all reports
and other written material submitted to the Board of
Directors.
(iii) Concurrently with delivery thereof, copies of any reports
or communications delivered to the financial community,
including all press releases.
(c) The Company will provide each Qualified Holder with such other
information relating to the Company as such Qualified Holder may reasonably
request.
(d) Each Qualified Holder hereby agrees to hold in confidence and
trust and not to misuse or disclose any confidential information provided
pursuant to this Section 5.2 except (a) no Qualified Holder shall be prohibited
from using any such information for the purpose of generating and delivering
portfolio valuation information to its investors, and (b) as may be required by
applicable law, rules or regulations. The following information shall not be
considered "confidential information" for purposes of this Section 5.2: (a)
information which was lawfully known to a Qualified Holder prior to its receipt
by the Company, (b) information which was publicly available at the time of
disclosure or later becomes publicly available through no action of a Qualified
Holder in violation of this Section 5.2(d), or (c) information disclosed to a
Qualified Holder by a third party having no obligation of confidentiality with
respect to such information.
5.3 Prompt Payment of Taxes, Etc.
The Company will promptly pay and discharge, or cause to be paid and
discharged, when due and payable, all lawful taxes, assessments and governmental
charges or levies imposed upon the income, profits, property or business of the
Company or any subsidiary; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall have
set aside on its books adequate reserves with respect thereto; and provided,
further, that the Company will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefor. The Company will promptly pay or
cause to be paid when due, in conformance with customary trade terms, all other
obligations incident to the operations of the Company.
<PAGE>
5.4 Maintenance of Properties and Leases.
The Company will keep its properties and those of its Subsidiaries, if any,
in good repair, working order and condition, reasonable wear and tear excepted,
and from time to time make all needful and proper repairs, renewals,
replacements, additions and improvements thereto; and the Company and its
Subsidiaries, if any, will at all times comply with each material provision of
all leases to which any of them is a party or under which any of them occupies
property if the breach of such provision might have a material and adverse
effect on the condition, financial or otherwise, or operations of the Company.
5.5 Insurance.
The Company will keep its assets and those of its Subsidiaries, if any,
which are of an insurable character insured by financially sound and reputable
insurers against loss or damage by fire, explosion and other risks customarily
insured against by companies in the Company's line of business, and the Company
will maintain, with financially sound and reputable insurers, insurance against
other hazards and risks and liability to persons and property to the extent and
in the manner customary for companies in similar businesses similarly situated.
5.6 Accounts and Records.
The Company will keep true records and books of account in which full, true
and correct entries will be made of all dealings or transactions in relation to
its business and affairs in accordance with generally accepted accounting
principles applied on a consistent basis.
5.7 Independent Accountants.
The Company will retain a "Big Five" national accounting firm as its
independent public accountants who shall certify the Company's financial
statements at the end of each fiscal year. In the event the services of the
independent public accountants so selected are terminated, the Company will
promptly thereafter notify the holders of Investor Stock and will request the
firm of independent public accountants whose services are terminated to deliver
to the Investors a letter from such firm setting forth the reasons for the
termination of their services. In the event of such termination, the Company
will promptly thereafter engage another "Big Five" national accounting firm as
its independent public accountants. In its notice to the holders of Investor
Stock the Company shall state whether the change of accounts was recommended or
approved by the Board of Directors of the Company or any committee thereof.
5.8 Compliance with Laws.
The Company and all its Subsidiaries shall duly observe and conform in all
material respects to all applicable laws and valid requirements of governmental
authorities relating to the conduct of their businesses or to their properties
or assets.
5.9 Maintenance of Corporate Existence, Etc.
The Company shall maintain in full force and effect its corporate
existence, rights and franchises and all licenses and other rights in or to use
patents, processes, licenses, trademarks,
<PAGE>
trade names or copyrights owned or possessed by it or any subsidiary and deemed
by the Company to be necessary to the conduct of their business.
5.10 Limitation of Liability.
The Company will use its reasonable efforts to limit the liability, to the
fullest extent permissible under the laws of the State of Delaware, of any
person representing a Purchaser as a director of the Company, in his or her
capacity as such.
ARTICLE VI
CORPORATE GOVERNANCE
6.1 Board of Directors.
(a) Each Stockholder agrees to vote all securities of the Company
over which such Stockholder has voting control and to take all other necessary
or desirable actions within its control (whether as a stockholder, director or
officer of the Company or otherwise, and including without limitation attendance
at meetings in person or by proxy for purposes of obtaining a quorum and
execution of written consents in lieu of meetings), and the Company shall take
all necessary and desirable actions within its control (including, without
limitation, calling special board and stockholder meetings), so that:
(i) the Company shall have a Board of Directors comprised of no
more than nine (9) members;
(ii) the following persons shall be elected to the Board of
Directors:
(A) two (2) management representatives designated by the
holders of a majority of the outstanding Founding
Stock (the "Management Directors");
(B) five (5) representatives designated by the Investors,
one (1) of whom shall be designated by Centennial, one
(1) of whom shall be designated by Alta, one (1) of
whom shall be designated by Tenant Communications, one
(1) of whom shall be designated by Nassau, and one (1)
of whom shall be designated by Grammercy (collectively
the "Investor Directors"). In the event, however, that
any such Investor (together with its affiliates) holds
less than 2.5% of the Common Stock of the Company (on
a Fully Diluted Basis) such Investor shall not have
the right to designate a representative, and the
Investors holding a majority of the outstanding
Investor Stock shall appoint the disqualified
Investor's representative.
(C) upon their purchase of Series C Preferred Stock and
execution of this Agreement, one (1) representative
<PAGE>
designated by the REIT Investors, voting together as
a group based on their respective ownership
interests, calculated on a Fully Diluted Basis; and
(D) one (1) outside representative designated jointly by
(i) the Investors described in Section
6.1(a)(ii)(B), voting together as a class based on
their respective ownership interests, calculated on
a Fully Diluted Basis, and (ii) the Management
Holders, voting together as a class based on their
respective ownership interests, calculated on a
Fully Diluted Basis.
(iii) in the event that any director for any reason ceases to
serve as a member of the Board during his term of office,
the resulting vacancy on the Board shall be filled by a
majority vote of the Stockholders entitled to elect such
director as provided in this Section 6.1; and
(iv) if the Stockholders fail to designate a representative to
fill a directorship pursuant to the terms of this Section
6.1, the election of such director shall be accomplished
in accordance with the Company's certificate of
incorporation and bylaws and applicable law.
(b) To the extent that any provision of the Company's certificate of
incorporation or bylaws is inconsistent with the provisions of this Agreement,
the Stockholders agree to take all actions necessary to effect such amendments
to the certificate of incorporation or bylaws as may be necessary and
appropriate to give full effect to the provisions of this Agreement.
6.2 Meetings of the Board.
The Board of Directors will meet at least four times each calendar year in
accordance with an agreed-upon schedule. If practicable, one such meeting will
be held at the same time and place that a national trade conference, if any, is
held for the Company's industry. Each Qualified Holder shall have the right to
designate a representative to be present at all meetings of the Board of
Directors. Subject to the availability of ISDN, the Company shall maintain video
teleconferencing which is compatible with Centennial's video teleconferencing
system to facilitate board, committee and other meetings with the Investors.
6.3 Committees.
The Board of Directors will establish audit, nominating and compensation
committees and shall delegate to such committees those duties and powers as are
customarily performed by committees of such type. The audit committee and the
compensation committee shall not include any of the Management Directors. One
(1) of the Investor Directors shall be a member of the nominating committee.
<PAGE>
6.4 Reimbursement of Expenses.
The reasonable travel expenses of each Investor Director (or observer as
provided in Section 6.5) incurred in attending or observing Board or committee
meetings shall be reimbursed by the Company.
6.5 Observation Rights.
The Company shall give to any Investor identified in Section 6.1(a)(ii) who
ceases to have a representative on the Board of Directors (the "Observer
Holders") notice of each meeting of the Board of Directors of the Company and of
each committee thereof at the same time and in the same manner as notice is
given to the directors of the Company. One (1) designee of each Observer Holder
shall be entitled to attend in person, as an observer, all meetings held in
person and to listen to telephone meetings of the Board of Directors of the
Company and of each committee thereof solely for the purpose of allowing such
Observer Holder to have current information with respect to the affairs of the
Company. The Company shall provide to the Observer Holders in connection with
each meeting copies of all notices, minutes, consents, and all other materials
or information that it provides to the directors of the Company with respect to
such meeting, at the same time such materials and information are given to the
directors of the Company (except that materials and information provided to
directors of the Company at meetings at which a designee of such Observer Holder
is not present shall be provided to such party promptly after the meeting). If
the Board of Directors of the Company or any committee thereof proposes to take
any action by written consent in lieu of a meeting, the Company shall give
written notice thereof to the Observer Holder concurrently with the delivery of
pertinent information to the directors, describing in reasonable detail the
nature and substance of such action.
ARTICLE VII
MISCELLANEOUS
7.1 Governing Law.
This Agreement shall be governed in all respects by the laws of the State
of Georgia as such laws are applied to agreements between Georgia residents
entered into and performed entirely in Georgia, except that the General
Corporation Law of the State of Delaware shall govern as to matters of corporate
law.
7.2 Successors and Assigns.
Except as otherwise expressly provided herein, the provisions hereof shall
inure to the benefit of, and be binding upon, the successors, assigns, heirs,
executors and administrators of the parties hereto.
7.3 Entire Agreement: Amendment and Waiver.
This Agreement and the Series C and Series C-1 Purchase Agreement supersede
any other agreement, whether written or oral, that may have been made or entered
into by the parties
<PAGE>
hereto relating to the matters contemplated hereby and constitute the full and
entire understanding and agreement between the parties with regard to the
subjects hereof. In particular, the execution of this Agreement shall terminate
all prior stockholders agreements and registration rights agreements, or any
similar agreement to the foregoing, among any Investor and the Company. Neither
this Agreement nor any term hereof may be amended, waived, discharged or
terminated except by a written instrument signed by the Company and the holders
of at least seventy-seven percent (77%) of the outstanding Investor Stock
(excluding for such purpose the holders of Series B-1 Preferred Stock and the
Series C-1 Preferred Stock) and any such amendment, waiver, discharge or
termination shall be binding on all the Stockholders; provided that any such
amendment or modification which adversely affects the rights under this
Agreement of one or more Stockholders in a manner different from any other
Stockholder shall require the consent of each Stockholder adversely affected by
such amendment or modification.
7.4 Notices, Etc.
All notices and other communications required or permitted hereunder shall
be in writing and shall be deemed effectively given: (i) upon personal delivery
to the party to be notified, (ii) when sent by confirmed telex or facsimile if
sent during normal business hours of the recipient, if not, then on the next
business day, (iii) five (5) days after having been sent by certified mail,
return receipt requested, postage prepaid, or (iv) one (1) day after deposit
with a nationally recognized overnight courier, special next day delivery, with
verification of receipt. All communications shall be sent to the Company at
Fifteen Piedmont Center, Suite 710, Atlanta, Georgia 30305, Attention: R.
Stanley Allen, with a courtesy copy to Powell, Goldstein, Frazer & Murphy LLP,
191 Peachtree Street, NE, 16th Floor, Atlanta, Georgia 30303, Attention: William
M. Ragland, Jr., and James K. Wagner, Jr., and to a Stockholder at the address
reflected in the Company's stock ledger or at such other address as such
Stockholder shall have furnished to the Company in writing.
7.5 Delays or Omissions.
No delay or omission to exercise any right, power or remedy accruing to any
Stockholder under this Agreement shall impair any such right, power or remedy of
such Stockholder nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any Stockholder of any breach or default under this Agreement or any
waiver on the part of any Stockholder of any provisions or conditions of this
Agreement must be made in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement or by law or otherwise afforded to any Stockholder, shall be
cumulative and not alternative.
7.6 Severability.
Unless otherwise expressly provided herein, a Stockholder's rights
hereunder are several rights, not rights jointly held with any of the other
Stockholders. In case any provision of the
<PAGE>
Agreement 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.
7.7 Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be an original, but all of which together shall constitute one instrument.
7.8 Termination.
The provisions of Article III, Article IV, Article V and Article VI shall
terminate upon consummation of a Qualified Public Offering.
7.9 Specific Enforcement.
Any holder of Investor Stock shall be entitled to specific enforcement of
its rights under this Agreement. The parties acknowledge that money damages
would be an inadequate remedy for a breach of this Agreement and consent to an
action for specific performance or other injunctive relief in the event of any
such breach without the posting of any bond or providing any additional
security.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
to the Third Amended and Restated Stockholders Agreement effective as of the day
and year first above written.
Company
CYPRESS COMMUNICATIONS, INC.
By: /s/ R. Stanley Allen
----------------------------------------------
Title: Chief Executive Officer
-------------------------------------------
INVESTORS:
CENTENNIAL FUND V, L.P.
By: Centennial Holdings V, L.P., General Partner
By:/s/ Jeffrey H. Schutz
----------------------------------------------
General Partner
CENTENNIAL ENTREPRENEURS FUND V, L.P.
By: Centennial Holdings V, L.P., General Partner
By: /s/ Jeffrey H. Schutz
----------------------------------------------
General Partner
[signatures continued on next page]
<PAGE>
[signatures continued from previous page]
ALTA COMMUNICATIONS VI, L.P.
By: Alta Communications VI Management Partners, L.P.
By: /s/ Eileen McCarthy
--------------------------------------------------
General Partner
ALTA-COMM S BY S, LLC
By: /s/ Eileen McCarthy
--------------------------------------------------
Member
BUILDING COMMUNICATIONS, LLC
By: /s/ John Halsted
-----------------------------------------------
Name: John Halsted
-----------------------------------------------
Its: SVP
-----------------------------------------------
TENANT COMMUNICATIONS, INC.
By: /s/ John Halsted
-----------------------------------------------
Name: John Halsted
-----------------------------------------------
Its: SVP
-----------------------------------------------
INVESTOR COMMUNICATIONS, LLC,
By: Building Communications LLC, its Manager
By: /s/ John Halsted
-----------------------------------------------
Name: John Halsted
-----------------------------------------------
Its: SVP
-----------------------------------------------
[signatures continued on next page]
<PAGE>
[signatures continued from previous page]
NAS PARTNERS L.L.C.
By: /s/ John G. Quigley
-------------------------------------------------
Name: John G. Quigley
-----------------------------------------------
Title: Member
-----------------------------------------------
NASSAU CAPITAL PARTNERS III, L.P.
By: /s/ John G. Quigley
-------------------------------------------------
Name: John G. Quigley
-----------------------------------------------
Title: Member
-----------------------------------------------
TRANSWESTERN COMMERCIAL SERVICES, L.L.C.
By: /s/ Transwestern Commercial Services, L.L.C.
-------------------------------------------------
Name:
-----------------------------------------------
Title:
_______________________________________________
GRAMERCY CYPRESS LLC
By: /s/ Laurence S. Grafstein
-------------------------------------------------
Name: Laurence S. Grafstein
-----------------------------------------------
Title: Managing Director
-----------------------------------------------
LATONA CYCOM INVESTMENT L.L.C.
By: /s/ Todd M. DuChene
-------------------------------------------------
Name: Todd M. DuChene
-----------------------------------------------
Title: Manager
-----------------------------------------------
<PAGE>
[signatures continued from previous page]
AEW PARTNERS III, L.P.
By: AEW Partners III, L.L.C., its General Partner
By: AEW Partners III, Inc., its managing member
By: /s/ Marc Davidson
-----------------------------------------------
Name: Marc Davidson
-----------------------------------------------
Title: Vice President
-----------------------------------------------
AEW CAPITAL MANAGEMENT, L.P.
By: AEW Capital Management, Inc., Its General
Partner
By: /s/ Marc Davidson
-----------------------------------------------
Name: Marc Davidson
-----------------------------------------------
Title: Director
-----------------------------------------------
<PAGE>
[signatures continued from previous page]
FOUNDING STOCKHOLDERS:
/s/ R. Stanley Allen
-----------------------------------
R. Stanley Allen
/s/ Ward C. Bourdeaux, Jr.
-----------------------------------
Ward C. Bourdeaux, Jr.
/s/ Michael Moh
-----------------------------------
Michael Moh
ITC Service Company
By: /s/ Dabsey Gray
-------------------------------
Name: Dabsey Gray
-----------------------------
Its: VP-Controller
------------------------------
/s/ Andrew Purinton
-----------------------------------
Andrew Purinton
/s/ Mark H. Dunaway
-----------------------------------
Mark H. Dunaway
/s/ John L. Thompson
-----------------------------------
John L. Thompson
/s/ Mark A. Graves
-----------------------------------
Mark A. Graves
/s/ George Cisler
-----------------------------------
George Cisler
/s/ Barry L. Boniface
-----------------------------------
Barry Boniface
<PAGE>
EXHIBIT 10.5
FIRST AMENDMENT
TO THE
THIRD AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
OF CYPRESS COMMUNICATIONS, INC.
This First Amendment dated November 23, 1999 (this "Amendment") to the
Third Amended and Restated Stockholders Agreement of Cypress Communications,
Inc. dated effective October 8, 1999 (the "Stockholders Agreement") is by and
among Cypress Communications, Inc. (the "Company"), Brookfield International
Properties Inc. ("Brookfield"), Boston Limited Partners, Cornerstone Properties
Limited Partnership and DWS Capital LLC (individually a "New Holder" and
collectively the "New Holders"), and all of the Stockholders of the Company
party to the existing Third Amended and Restated Stockholders Agreement of the
Company ("the Stockholders Agreement").
STATEMENT OF FACTS
A. In connection with the issuance of additional shares of Series C Preferred
Stock to the New Holders, the Company desires to admit the New Holders as
Stockholders and as New Investors of Company.
B. Each of the New Holders desires and agrees to be bound to all provisions of
the Stockholders Agreement.
C. The Company and the Stockholders hereby agree to amend the Stockholders
Agreement accordingly.
D. Capitalized terms used herein shall have the meanings set forth in the
Stockholders Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, and pursuant to Section 7.3 of the Stockholders Agreement, the
Company, the New Holders, and the Stockholders agree as follows:
1. The New Holders are hereby admitted as Stockholders, as Investors and
as New Investors of the Company, with all the privileges and
obligations associated therewith under the Stockholders Agreement.
2. Each New Holder agrees to be bound to all provisions of the
Stockholders Agreement.
3. Section 1.8 is hereby amended so that Section 1.8 reads as follows:
<PAGE>
"1.8 "Initiating Holders" shall mean (i) collectively,
Centennial and Entrepreneurs Fund and their transferees permitted
under this Agreement, (ii) collectively, Alta and Alta-Comm and their
transferees permitted under this Agreement, (iii) collectively,
Building Communications, Tenant Communications and ICL, (iv)
collectively, NAS and Nassau, and their transferees permitted under
this Agreement, (v) collectively, Gramercy and its transferees
permitted under this Agreement, (vi) collectively, AEW and its
transferees permitted under this Agreement, (vii) collectively, Cycom
and its transferees permitted under this Agreement, (viii)
collectively, Transwestern and its transferees permitted under this
Agreement, (ix) collectively, upon their purchase of Series C
Preferred Stock and their execution of this Agreement, the REIT
Investors and their transferees permitted under this Agreement, (x)
collectively, Brookfield and their transferees permitted under the
Agreement, and (xi) collectively, Founding Stockholders holding
Registrable Securities representing not less than sixty-five percent
(65%) of the then-outstanding Founding Stock (excluding any
outstanding Reserved Employee Stock)."
4. The first sentence of Section 2.1(a) is hereby amended by changing the
reference to clauses (i) through (ix) to clauses (i) through (xi) so
that, as amended, the first sentence of Section 2.1(a) reads as
follows:
"(a) Request for Registration. At any time or times after
the effective date of the first registration statement filed by
the Company under the Securities Act, each group of Initiating
Holders (as described in clauses (i) through (xi) of Section 1.8,
except as otherwise provided herein, may require that the Company
effect one registration under the Securities Act utilizing a
registration on Form S-1 or any similar form (a "Long Form
Registration") and as many times as requested by the Initiating
Holders utilizing a Form S-3 or any similar form, if available (a
"Short-Form Registration") (each a "Demand Registration")."
5. All remaining provisions of the Stockholders Agreement shall remain
unchanged and effective and are incorporated herein by reference.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment to the Third Amended and Restated Stockholders Agreement effective as
of the day and year first above written.
Company
-------
CYPRESS COMMUNICATIONS, INC.
By: /s/ R. Stanley Allen
--------------------------------
Name: R. Stanley Allen
------------------------------
Title: Chief Executive Officer
-----------------------------
Stockholders
------------
INVESTORS:
CENTENNIAL FUND V, L.P.
By: Centennial Holdings V, L.P., General Partner
By: /s/ Jeffrey H. Schutz
---------------------------------
General Partner
CENTENNIAL ENTREPRENEURS FUND V, L.P.
By: Centennial Holdings V, L.P., General Partner
By: /s/ Jeffrey H. Schutz
--------------------------------
ALTA COMMUNICATIONS VI, L.P.
By: Alta Communications VI Management Partners,
L.P.
By: /s/ Eileen McCarthy
--------------------------------
General Partner
<PAGE>
ALTA-COMM S BY S, LLC
By: /s/ Eileen McCarthy
--------------------------------
Member
TENANT COMMUNICATIONS, INC.
By: /s/ John Halsted
--------------------------------
Name: John Halsted
------------------------------
Title: SVP
-----------------------------
BUILDING COMMUNICATIONS, LLC
By: Beacon Capital Partners, L.P., Member
By: Beacon Capital Partners, Inc.,
its General Partner
By: /s/ John Halsted
--------------------------------
Name: John Halsted
------------------------------
Title: SVP
-----------------------------
INVESTOR COMMUNICATIONS llc
By: Beacon Communications LLC,
its Manager
By: /s/ John Halsted
--------------------------------
Name: John Halsted
------------------------------
Title: Manager
-----------------------------
<PAGE>
NAS PARTNERS L.L.C.
By: /s/ R A Hack
--------------------------------
Name:______________________________
Title:_____________________________
TRANSWESTERN COMMERCIAL SERVICES, L.L.C.
By: /s/ Transwestern Commercial
Services, L.L.C.
--------------------------------
Name:
______________________________
Title: Executive Vice President
-----------------------------
GRAMERCY CYPRESS LLC
By: /s/ Laurence Grafstein
--------------------------------
Name: Laurence Grafstein
------------------------------
Title: Managing Director
-----------------------------
NASSAU CAPITAL PARTNERS III, L.P.
By: Nassau Capital L.L.C.
By: /s/ R A Hack
--------------------------------
Name:______________________________
Title:_____________________________
LATONA CYCOM INVESTMENT L.L.C.
By: /s/ Todd M. Duchene
--------------------------------
Name:______________________________
Title:_____________________________
<PAGE>
AEW PARTNERS III, L.P.
By: AEW Partners III, L.L.C., its General Partner
By: /s/ Marc Davidson
--------------------------------
Name: Marc L. Davidson
------------------------------
Title: Vice President
-----------------------------
FOUNDING STOCKHOLDERS:
/s/ R. Stanley Allen
-----------------------------------
R. Stanley Allen
/s/ Ward C. Bourdeaux, Jr.
-----------------------------------
Ward C. Bourdeaux, Jr.
/s/ Michael Moh
-----------------------------------
Michael Moh
ITC Service Company
By: /s/ Kimberley Thompson
--------------------------------
Name: Kimberley Thompson
------------------------------
Its: Sr. Vice President
-------------------------------
___________________________________
Andrew Purinton
___________________________________
Mark H. Dunaway
___________________________________
John L. Thompson
<PAGE>
/s/ Mark A. Graves
-----------------------------------
Mark A. Graves
NEW HOLDERS:
BROOKFIELD INTERNATIONAL PROPERTIES, INC.
By: /s/ George A. Gleadall
--------------------------------
Name: George A. Gleadall
------------------------------
Title: Director
-----------------------------
BOSTON PROPERTIES LIMITED PARTNERSHIP
By:________________________________
Its General Partner
By:________________________________
Name:______________________________
Title:_____________________________
CORNERSTONE PROPERTIES
LIMITED PARTNERSHIP
By:________________________________
Its General Partner
By:________________________________
Name:______________________________
Title:_____________________________
DWS CAPITAL LLC
By:________________________________
Name:______________________________
Title:_____________________________
<PAGE>
EXHIBIT 10.6
SECOND AMENDMENT
TO THE
THIRD AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
OF CYPRESS COMMUNICATIONS, INC.
This Second Amendment dated December 1, 1999 (this "Amendment") to the
Third Amended and Restated Stockholders Agreement of Cypress Communications,
Inc. dated effective October 8, 1999, as previously amended by the First
Amendment to the Third Amended and Restated Stockholders Agreement, dated
November 23, 1999 (collectively, the "Stockholders Agreement") is by and among
Cypress Communications, Inc. (the "Company"), Vornado Communications, L.L.C.
("Vornado"), Boston Properties Limited Partnership, Cornerstone Properties
Limited Partnership, DWS Capital, LLC (the "REIT Investors") and Waterview
Partners, L.P. ("Waterview") ("Vornado", the "REIT Investors, "Waterview" as
applicable and collectively, "New Holders"), and all of the Stockholders of the
Company party to the Stockholders Agreement.
STATEMENT OF FACTS
A. In connection with the issuance of additional shares of Series C Preferred
Stock to the New Holders, the Company desires to admit each New Holder as
Stockholder and as a New Investor of Company.
B. Each New Holder desires and agrees to be bound to all provisions of the
Stockholders Agreement.
C. The Company and the Stockholders hereby agree to amend the Stockholders
Agreement accordingly.
D. Capitalized terms used herein shall have the meanings set forth in the
Stockholders Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, and pursuant to Section 7.3 of the Stockholders Agreement, the
Company, the New Holders, and the Stockholders agree as follows:
1. Each New Holder is hereby admitted as a Stockholder, as an Investor
and as a New Investor of the Company, with all the privileges and
obligations associated therewith under the Stockholders Agreement.
2. Each New Holder agrees to be bound to all provisions of the
Stockholders Agreement.
3. Section 1.8 is hereby amended so that Section 1.8 reads as follows:
<PAGE>
"1.8 "Initiating Holders" shall mean (i) collectively, Centennial
and Entrepreneurs Fund and their transferees permitted under this
Agreement, (ii) collectively, Alta and Alta-Comm and their transferees
permitted under this Agreement, (iii) collectively, Building
Communications, Tenant Communications and ICL, (iv) collectively, NAS
and Nassau, and their transferees permitted under this Agreement, (v)
collectively, Gramercy and its transferees permitted under this
Agreement, (vi) collectively, AEW and its transferees permitted under
this Agreement, (vii) collectively, Cycom and its transferees
permitted under this Agreement, (viii) collectively, Transwestern and
its transferees permitted under this Agreement, (ix) collectively,
upon their purchase of Series C Preferred Stock and their execution of
this Agreement, the REIT Investors and their transferees permitted
under this Agreement, (x) collectively, Brookfield and their
transferees permitted under the Agreement, (xi) collectively, Vornado
and its transferees permitted under the Agreement, (xii) collectively,
Waterview and its transferees permitted under the Agreement and (xiii)
collectively, Founding Stockholders holding Registrable Securities
representing not less than sixty-five percent (65%) of the then-
outstanding Founding Stock (excluding any outstanding Reserved
Employee Stock)."
4. The first sentence of Section 2.1(a) is hereby amended by changing the
reference to clauses (i) through (xi) to clauses (i) through (xiii) so
that, as amended, the first sentence of Section 2.1(a) reads as
follows:
"(a) Request for Registration. At any time or times after
the effective date of the first registration statement filed by
the Company under the Securities Act, each group of Initiating
Holders (as described in clauses (i) through (xiii) of Section
1.8, except as otherwise provided herein, may require that the
Company effect one registration under the Securities Act
utilizing a registration on Form S-1 or any similar form (a "Long
Form Registration") and as many times as requested by the
Initiating Holders utilizing a Form S-3 or any similar form, if
available (a "Short-Form Registration") (each a "Demand
Registration")."
5. Section 1.12 is hereby amended to add the following sentence at the
end of such Section:
Vornado Operating Company, Vornado Operating L.P. and each
individual in a management position of Vornado Realty Trust shall
be deemed to be Permitted Transferees of Vornado for all purposes
of this Agreement.
6. All remaining provisions of the Stockholders Agreement shall remain
unchanged and effective and are incorporated herein by reference.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment
to the Third Amended and Restated Stockholders Agreement effective as of the day
and year first above written.
Company
-------
CYPRESS COMMUNICATIONS, INC.
By: /s/ Barry L. Boniface
-------------------------------
Name: Barry L. Boniface
-----------------------------
Title: Chief Financial Officer
----------------------------
Stockholders
------------
INVESTORS:
CENTENNIAL FUND V, L.P.
By: Centennial Holdings V, L.P., General Partner
By: /s/ Jeffrey H. Schutz
------------------------------
General Partner
CENTENNIAL ENTREPRENEURS FUND V, L.P.
By: Centennial Holdings V, L.P., General Partner
By: /s/ Jeffrey H. Schutz
------------------------------
ALTA COMMUNICATIONS VI, L.P.
By: Alta Communications VI Management Partners, L.P.
By: /s/ William P. Egan
------------------------------
General Partner
ALTA-COMM S BY S, LLC
By: /s/ William P. Egan
------------------------------
Member
<PAGE>
TENANT COMMUNICATIONS, INC.
By: /s/ John Halsted
------------------------------
Name: John Halsted
----------------------------
Title: SVP
---------------------------
BUILDING COMMUNICATIONS, LLC
By: Beacon Capital Partners, L.P., Member
By: Beacon Capital Partners, Inc.,
its General Partner
By: /s/ John Halsted
------------------------------
Name: John Halsted
----------------------------
Title: SVP
---------------------------
INVESTOR COMMUNICATIONS LLC
By: Beacon Communications LLC,
its Manager
By: /s/ John Halsted
------------------------------
Name: John Halsted
----------------------------
Title: Manager
---------------------------
NAS PARTNERS L.L.C.
By: /s/ Randall A. Hack
------------------------------
Name: Randall A. Hack
----------------------------
Title: Member
---------------------------
<PAGE>
TRANSWESTERN COMMERCIAL SERVICES, L.L.C.
By: /s/ Transwestern Commercial
Services, L.L.C.
------------------------------
Name: ____________________________
Title: ___________________________
GRAMERCY CYPRESS LLC
By: /s/ Laurence Grafstein
-------------------------------
Name: Laurence Grafstein
-----------------------------
Title: Managing Director
----------------------------
NASSAU CAPITAL PARTNERS III, L.P.
By: Nassau Capital L.L.C.
By: /s/ Randall A. Hack
------------------------------
Name: Randall A. Hack
----------------------------
Title: Member
---------------------------
LATONA CYCOM INVESTMENT L.L.C.
By: /s/ Todd M. Duchene
-------------------------------
Name: ____________________________
Title:____________________________
AEW PARTNERS III, L.P.
By: AEW Partners III, L.L.C., its General Partner
By: /s/ Marc Davidson
------------------------------
Name: Marc Davidson
----------------------------
Title: Vice President
---------------------------
<PAGE>
BROOKFIELD INTERNATIONAL PROPERTIES, INC.
By: /s/ George A. Gleadall
------------------------------
Name: George A. Gleadall
----------------------------
Title: Director
---------------------------
FOUNDING STOCKHOLDERS:
/s/ R. Stanley Allen
----------------------------------
R. Stanley Allen
<PAGE>
/s/ Ward C. Bourdeaux, Jr.
----------------------------------
Ward C. Bourdeaux, Jr.
__________________________________
Michael Moh
ITC Service Company
By: ______________________________
Name: ____________________________
Its: _____________________________
__________________________________
Andrew Purinton
/s/ Mark H. Dunaway
----------------------------------
Mark H. Dunaway
__________________________________
John L. Thompson
/s/ Mark A. Graves
----------------------------------
Mark A. Graves
/s/ Barry L. Boniface
----------------------------------
Barry L. Boniface
__________________________________
George J. Cisler
<PAGE>
NEW HOLDERS:
VORNADO COMMUNICATIONS, L.L.C.
By: Vornado Realty L.P., its manager
By: Vornado Realty Trust, its general partner
By: /s/ Irwin Goldberg
------------------------------
Name: Irwin Goldberg
---------------------------
Title: Vice President, CEO
--------------------------
WATERVIEW PARTNERS, L.P.
By: Waterview Advisors, L.P.
Its General Partner
By: /s/ William C. Vrattos
------------------------------
Name: William C. Vrattos
----------------------------
Title: Managing Director
---------------------------
<PAGE>
New Holders Signature Page Continued
BOSTON PROPERTIES
LIMITED PARTNERSHIP
By: Boston Properties, Inc.
------------------------------
Its General Partner
By: /s/ Robert E. Burke
------------------------------
Name: Robert E. Burke
----------------------------
Title: Executive Vice President
---------------------------
CORNERSTONE PROPERTIES
LIMITED PARTNERSHIP
By: Cornerstone Properties Inc.
------------------------------
Its General Partner
By: /s/ H. Lee Van Boven
------------------------------
Name: H. Lee Van Boven
----------------------------
Title: Chief Operating Officer
---------------------------
DWS CAPITAL LLC
By: /s/ P. Eric Yopes
------------------------------
Name: P. Eric Yopes
----------------------------
Title:
---------------------------
<PAGE>
EXHIBIT 10.7
FORM OF
MASTER COMMUNICATIONS LICENSE TRANSACTION AGREEMENT
THIS MASTER COMMUNICATIONS LICENSE TRANSACTION AGREEMENT (this "Agreement")
is made this _____ day of __________________, 1999 (the "Date of this
Agreement"), by and between CYPRESS COMMUNICATIONS, INC., a Delaware corporation
having offices at Fifteen Piedmont Center, Suite 710, Atlanta, Georgia 30305
("Cypress"), and ___________________________________________, a
______________________________, having an address at
___________________________________________________________ (collectively,
"Company"). Cypress and Company are sometimes referred to in this Agreement
individually as a "Party" and collectively as the "Parties."
WHEREAS, the Parties desire to execute definitive agreements by which: (a)
Company would grant licenses to Cypress to permit Cypress to install, manage,
and operate communications infrastructures within certain commercial office
buildings owned, operated, or managed by Company or various affiliated entities,
and to provide enhanced communications services within those buildings to
tenants and other occupants thereof (the "Master Agreement"); and (b) Cypress
would grant rights and options to Company to purchase shares of outstanding
voting common stock in Cypress (the "Warrant Agreement"); and
WHEREAS, the Parties agree that, in reliance upon each of the
representations and warranties set forth in this Agreement, they will enter
into, or use reasonable efforts to cause an affiliated entity as appropriate to
enter into, a Communications License Agreement in the form of the attached
Exhibit A, or a lease on substantially identical terms as such License
- ---------
Agreement, at Company's election (said License Agreement and lease being
hereinafter referred to as the "License Agreement") with respect to each of the
office buildings or office building complexes the Parties identify in the
attached Exhibit B as amended from time to time in accordance with this
---------
Agreement ("Buildings List");
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the receipt and sufficiency of which the Parties hereby acknowledge,
Cypress and Company hereby covenant and agree as follows:
1. DEFINITIONS.
Terms used herein that are defined in the form License Agreement attached as
Exhibit A hereto shall have the meanings given such terms unless a different
- ---------
meaning is expressly provided herein. In addition, the following terms shall
have the following meanings for purposes of this Agreement:
(a) "Affiliate" shall mean and include any person or entity (i) that directly
or indirectly, through one or more intermediaries, controls, is controlled
by, or is under common control with, a Party; (ii) that beneficially owns
or holds, directly or indirectly by attribution, more than fifty percent
(50%) of any class of the outstanding voting stock or other voting
ownership interests of a Party; or (iii) more than fifty percent (50%) of
the outstanding voting stock or other voting ownership interests (or in the
case of a person or entity that is not a corporation, more
<PAGE>
than fifty percent (50%) of the equity interest) of which is beneficially
owned or held, directly or indirectly by attribution, by a Party.
(b) "Building" or "Buildings" shall mean the applicable building(s) described
in, and that are the subject of, a License Agreement.
(c) "Diligence Period" shall mean the period commencing upon the Date of this
Agreement and ending at 5:00 p.m. on the sixtieth (60th) day thereafter.
(d) "GLA" shall mean, with respect to any Building, the gross leasable area
within such Building, as stipulated in the License Agreement with respect
to such Building.
(e) "Owner" shall mean, with respect to any Building, the person or entity
holding record or beneficial title to such Building.
(f) "Total GLA" shall mean the aggregate GLA of all Buildings.
2. REPRESENTATIONS AND WARRANTIES.
Each Party hereby represents and warrants to the other the following:
(a) Such Party has full corporate power and authority to execute and
deliver each License Agreement to which it is a party, and perform each of its
obligations related thereto; and
(b) As of the end of the Diligence Period, all consents,
authorizations, orders and approvals of (or filings or registrations with) any
governmental commission, board or other regulatory body required in connection
with the execution, delivery, and performance of each License Agreement to which
such Party is a party and the performance of the obligations related thereto
have been obtained or made.
3. BUILDINGS LIST; OPERATIONS ROLLOUT SCHEDULE.
(a) The list of commercial office buildings and commercial office
building complexes attached to this Agreement as Exhibit B sets forth (i) the
---------
buildings that are eligible to become the subject of one or more License
Agreements executed by Cypress and either Company or the Owner thereof and (ii)
the GLA for purposes of this Agreement or any License Agreement of each such
building. The Parties may amend Exhibit B from time to time to reflect the
---------
then-current identity of the Owner of such identified buildings, but no change
in GLA will be permitted without Cypress's consent, which will not be
unreasonably withheld. During the Diligence Period, Company shall have the right
and option to remove certain building(s) that are not identified by an asterisk
(*) on Exhibit B attached hereto from this Agreement and the Warrant Agreement,
---------
in accordance with Section 3(e) below, by notice to Cypress in accordance with
Section 6 below.
(b) Before the expiration of the Diligence Period, Cypress and Company
will negotiate diligently and in good faith to establish a schedule for Cypress
to install Cypress's cable, electronics, and other equipment and facilities
required to commence Cypress's operations
2
<PAGE>
pursuant to the respective License Agreements within each of the buildings
remaining on Exhibit B after the Diligence Period. The mutually agreed schedule
---------
resulting from such negotiation shall be consistent with the schedules Cypress
agrees upon with other commercial office building owners and managers entering
into similar arrangements with Cypress during the Diligence Period and the
Parties shall thereupon amend this Agreement and cause such schedule to be
attached to this Agreement by such amendment as Exhibit C. Cypress shall not
---------
discriminate among any such commercial office building owners and managers in
the offering or completion of the terms, conditions, or operations rollout
schedules of such arrangements.
(c) From time to time in accordance with the rollout schedule attached
hereto as Exhibit C, Cypress may request of Company in writing that Cypress and
---------
Company, or, as applicable, the Affiliate or other third party Owner of the
applicable buildings, execute a License Agreement with respect to one or more
buildings listed in the then-current Exhibit B. Within thirty (30) days after
---------
Cypress makes any such written request, Cypress and Company or the Affiliate or
other third party Owner shall (i) negotiate diligently and in good faith to
establish the location of the Licensed Area in such Building(s) and (ii) execute
a separate License Agreement for each such Building or complex of Buildings in
accordance with the terms of this Agreement. Each such License Agreement shall
be substantially in the form of Exhibit A attached hereto and shall (x) identify
---------
and describe the Building and Licensed Area with respect to such License
Agreement, and (y) identify any Building-specific access or construction issues
with respect to such Building.
(d) On Exhibit B attached hereto, Company has designated the nature of the
---------
license to be granted to Cypress, on a per building basis, for each of the
buildings on Exhibit B, i.e., Exclusive, Semi-Exclusive or Non-Exclusive (as
---------
those terms are defined in the form License Agreement attached as Exhibit A).
---------
Company represents that at least 75% of Total GLA represented on Exhibit B has
---------
received the same type of designation by Company (that is, Exclusive, Semi-
Exclusive or Non-Exclusive).
(e) With respect to each building identified with an asterisk (*) on
Exhibit B attached to this Agreement on the Date of this Agreement, Company
- ---------
represents and warrants to Cypress that: (i) either Company or an Owner or
Affiliate designated by Company to be the licensor with respect thereto is duly
authorized to enter into a License Agreement and to grant to Cypress the rights
described therein, and (ii) for each building as to which Company designates an
Owner (other than Company) or Affiliate as the proper licensor under a License
Agreement, Company has obtained the agreement of such Owner or Affiliate that it
will enter into a License Agreement with Cypress pertaining to such building.
With respect to each building that is not identified with an asterisk, as
aforesaid, Company represents and warrants that, as of the Date of this
Agreement, Company has commenced discussions with, and solicited the approval
of, Company's partners, joint venturers, investors and Affiliates having an
interest in such building (collectively, "Partners"), or the Owners of such
building, as applicable, with respect to the proposed grant of license
contemplated in this Agreement. Moreover, during the Diligence Period, Company
covenants and agrees to undertake commercially reasonable efforts to obtain from
such Partners and Owners, as necessary, (y) written authority to execute License
Agreements for and on behalf of such Partners and Owners or (z) written
agreements with respect to such buildings which convey to Cypress the rights
described in this Agreement.
3
<PAGE>
Company shall have the right and option to remove any building(s) from Exhibit B
---------
on or before the expiration of the Diligence Period only if such buildings are
not identified by an asterisk on Exhibit B as of the date of this Agreement and,
---------
despite Company's diligent good faith efforts, (1) the Owners or Company's
Partners having an interest in such building(s) refuse to participate in the
program contemplated in this Agreement or (2) such Owners or Partners are
prohibited from participating in such program as a matter of law or contract, or
pursuant to such Owner's or Partner's organization, authorization or governing
documents. Within fifteen (15) days after the expiration of the Diligence
Period, the Parties shall attach a finalized Exhibit B to this Agreement in
---------
accordance with any permitted withdrawal(s) by Company or Cypress during the
Diligence Period, as described above. By attaching the finalized Exhibit B to
---------
this Agreement, Company shall be deemed to have restated and reaffirmed the
foregoing representations and warranties with respect to all buildings set forth
on such finalized Exhibit B, except with respect to any building(s) for which
---------
the appropriate Owner or Partner of Company has delivered such representation
and warranty to Cypress in writing within fifteen (15) days after the expiration
of the Diligence Period.
(f) With respect to any other buildings that may be owned, managed or
controlled by Company or its Affiliates at any time during the term of this
Agreement, but which do not appear on Exhibit B, Company, Company's Affiliates
---------
and Cypress may by mutual agreement enter into License Agreements for such other
buildings; provided, however, that any such subsequent License Agreement shall
not affect the number of warrants conveyed to Company under the Warrant
Agreement (except to substitute buildings for previously-designated buildings
sold by an Owner or affiliate, to the extent and as provided in the Warrant
Agreement) or extend to Company the right to make additional purchases under the
Warrant Agreement.
4. CORPORATE SERVICES.
Subject to available space and other technical conditions, Cypress shall
provide, at no charge to Company and so long as any License Agreement between
the parties is in effect, high speed data and Internet connections (with T1 or
equivalent or greater capacity) between the Internet backbone and one (1)
corporate office of Company provided, however, that Company shall be
responsible for payment of any taxes, tariffs, user fees, or other charges that
may be imposed by any government entity or utility provider on account of
Company's access, use, or connection therewith. Subject to the foregoing, such
Services shall be provided to Company subject to and in accordance with the
terms, conditions and limitations of the mutually agreed subscription agreement
attached as Exhibit D.
---------
5. ASSIGNMENT.
Except as hereinafter expressly provided, neither this Agreement, nor the
rights, obligations or duties of either Party under this Agreement may be
assigned or delegated to any other party, person, or entity without the prior
written consent of the other Party hereto, and any attempted assignment or
delegation without such consent shall be void. Notwithstanding the foregoing,
Cypress has the right, without the consent of Company, to assign its rights,
obligations or duties under this Agreement to an Affiliate of Cypress or to any
entity in connection with a merger or
4
<PAGE>
consolidation of Cypress under another entity or the sale of all or
substantially all of the assets of Cypress to another entity.
6. NOTICE.
All notices which may be given by either Party to the other shall be in writing
and shall be deemed to have been duly given (a) on the date of dispatch when
delivered in person, (b) one day after dispatch when sent by overnight courier,
maintaining records of receipt, and (c) on the date of dispatch when sent by
facsimile during normal business hours with telephone confirmation of receipt
(and with confirmation notice given by one of the other approved methods of
delivery within three (3) days after such facsimile transmission) and addressed
as follows:
If to Company:
Attention:
Facsimile No.:
If to Cypress:
Cypress Communications, Inc.
Fifteen Piedmont Center, Suite 710
Atlanta, Georgia 30305
Attention: Mr. Ward C. Bourdeaux, Jr.
Fax No.: (404) 869-2525
7. SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon the Parties and their respective successors
and permitted assigns and all references herein to a Party shall include such
successors and permitted assigns of such party.
8. AMENDMENTS.
This Agreement may be amended only by written agreement signed by authorized
representatives of the Parties. No waiver of any provisions of this Agreement
and no consent to any default under this Agreement shall be effective unless the
same shall be in writing and signed by on or on behalf of the Party against whom
such waiver or consent is claimed.
9. WAIVER.
No failure of either Party to strictly enforce any term, right, or condition of
this Agreement shall be construed as a waiver of such term, right or condition.
5
<PAGE>
10. ANNOUNCEMENTS.
Neither Company nor Cypress shall use the name, logo, or trademarks of the other
party in any advertising, promotional material, or trade display, or for any
other commercial purpose, or issue any press release or make any written public
announcement relating to this Agreement, except where required by law or allowed
by the prior written consent of the other party; provided, that any such consent
--------
shall not be unreasonably withheld. Without limiting the generality of the
foregoing, (a) Company may in any case withhold its consent to any such press
release or public announcement relating to this Agreement if it determines that
any such press release or public announcement is likely to damage its public
reputation, goodwill, or relationships with its tenants and (b) Cypress may in
any case withhold its consent to any such press release or public announcement
relating to this Agreement if it determines that any such press release or
public announcement is likely to damage its public reputation, goodwill, or
relationships with its customers. Notwithstanding the foregoing, Cypress may
provide a copy of this Agreement to any other licensor-participant in any
program comparable to the stock warrant program contemplated hereunder (in which
Cypress has granted stock warrants in consideration for license rights),
provided that all such persons shall maintain the disclosed information in
confidence at all times thereafter.
11. SEVERABILITY.
If a court or other lawful authority of competent jurisdiction declares that any
one or more of the provisions contained in this Agreement is invalid, illegal or
unenforceable in any respect, such declaration shall not affect the validity or
enforceability of any other provision of this Agreement, but this Agreement
shall be construed as if such invalid, illegal or unenforceable provision or
provisions had never been contained in this Agreement.
12. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Delaware, without regard to its principles of conflicts of law.
The Parties hereby submit to the non-exclusive jurisdiction of the federal and
state courts of the State of Delaware with respect to any action or proceeding
that may be instituted in connection with this Agreement.
13. HEADINGS.
The headings and numbering of articles, sections and paragraphs in the Agreement
are for convenience only and shall not be construed to define or limit any of
the terms or conditions in this Agreement or affect the meaning or
interpretation of this Agreement.
14. ENTIRE AGREEMENT.
This Agreement, the Warrant Agreement, the License Agreements and the other
agreements contemplated thereby or affixed thereto, together constitute the
entire agreement between the Parties with respect to the subject matter of this
Agreement, and supersede all prior oral or written agreements, representations,
statements, negotiations, understandings, and proposals
6
<PAGE>
relating to the subject matter of this Agreement. The stock warrants to be
issued under the Warrant Agreement shall be in addition to, and not in lieu of,
License Fees to be paid under the License Agreements.
15. COUNTERPARTS.
For the convenience of the Parties, this Agreement may be executed in several
counterparts, each of which when so executed shall be, and be deemed to be, an
original instrument and such counterparts together shall constitute one and the
same instrument (and notwithstanding their date of execution shall be deemed to
bear a date as of the date of this Agreement). This Agreement may also be
executed by facsimile, with each Party's facsimile signature being as binding on
such Party as an original signature.
[Signatures appear on the following page.]
- ------------------------------------------
7
<PAGE>
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
duly executed for it and on its behalf as of the day and year first above
written.
CYPRESS COMMUNICATIONS, INC.
____________________________
Ward C. Bourdeaux,
Executive Vice President
_____________________________
By: ______________________ Date
Signature
______________________
Printed Name
______________________
Title
__________________________________________________________________________
DATE
----
8
<PAGE>
EXHIBIT 10.8
No. W____ _________, 1999
The securities represented by this Warrant and issuable upon exercise
hereof have not been registered or qualified under the Securities Act of 1933,
as amended (the "1933 Act"), or under the provisions of any applicable state
securities laws, but have been acquired by the registered holder hereof for
purposes of investment and in reliance on statutory exemptions under the 1933
Act and under any applicable state securities laws. These securities and the
securities issued upon exercise hereof may not be sold, pledged, transferred or
assigned, nor may this Warrant be exercised, except in a transaction which is
exempt under provisions of the 1933 Act and any applicable state securities laws
or pursuant to an effective registration statement; and in the case of an
exemption, only if the Company has received an opinion of counsel satisfactory
to the Company that such transaction does not require registration of any such
securities.
FORM OF
STOCK WARRANT AGREEMENT
1. Grant of Warrant.
----------------
(a) Cypress Communications, Inc. (the "Company"), a Delaware
corporation, hereby agrees that ____________________ (the "Holder") is entitled,
subject to the provisions of this Warrant, to purchase from the Company, subject
to the conditions set forth below during the period commencing on the date
hereof and expiring at 5:00 P.M. Atlanta, Georgia, time, on the ______ (____)
anniversary of the date of this Warrant (the "Expiration Date"), up to that
number of fully paid and non-assessable shares of Common Stock as set forth in
Section 2(c) herein, at a price of $19.00 per share (the "Exercise Price").
(b) The term "Common Stock" means the voting Common Stock, $0.001 par
value per share, of the Company as constituted on the date hereof, together with
any other equity securities that may be issued by the Company in substitution
therefor. The number of shares of Common Stock to be received upon the exercise
of this Warrant and the Exercise Price may be adjusted from time to time as
hereinafter set forth. The shares of Common Stock deliverable upon such
exercise, and as adjusted from time to time, are hereinafter referred to as
"Warrant Stock." The term "Company" means and includes the Company as well as
(i) any successor corporation resulting from the merger or consolidation of such
corporation with another corporation, or (ii) any corporation to which such
corporation has transferred its property or assets as an entirety or
substantially as an entirety. All other capitalized terms not otherwise defined
herein shall have the meanings ascribed to them in that certain Master
Communications License Transaction Agreement between the Company and Holder
dated _________________, 1999, as the same may be amended from time to time (the
"Master Agreement").
2. Exercise of Warrant.
-------------------
(a) Subject to the limitations set forth in Section 5, this Warrant
may be exercised in whole or in part commencing at any time and from time to
time after (i) the completion of the Warrant Calculation and (ii) the earlier of
(A) the date six months following the closing of the IPO (as defined below), or
(B) September 30, 2000, or (C) the occurrence of an event described in Section
2(a)(ii) or Section 2(a)(iii) below, and prior to and including the Expiration
Date (if such day is a day on which banking institutions in Georgia are
authorized by
<PAGE>
law to close, then on the next succeeding day that shall not be such a day), if
any of the following conditions have occurred (each an "Exercise Event"):
(i) the closing of the first sale to the public of the equity
securities of the Company pursuant to a registration statement filed with, and
declared effective by, the Securities and Exchange Commission under the 1933 Act
(the "IPO");
(ii) the consummation of any merger, consolidation, business
combination, reorganization or recapitalization of the Company to which the
Company is a party, except for a merger, consolidation or other corporate
reorganization, in which after giving effect to such event, the holders of the
Company's outstanding capital stock (or their Permitted Transferees, as such
term is described in the Company's Certificate of Incorporation) immediately
prior to such event own directly or indirectly at least 50% of the Company's
voting power under ordinary circumstances;
(iii) a sale, lease or other disposition of all or substantially
all of the assets of the Company;
(iv) the execution by the Company and Holder (or any Affiliate of
Owner) of License Agreements pertaining to 75% or more of the GLA as represented
by the final Buildings List in accordance with the Master Agreement; or
(v) the Company's execution and delivery of License Agreements
to Holder pertaining to Buildings with an aggregate of at least 5,000,000 square
feet of GLA.
(b) The Company shall give written notice to Holder at least 30 days
prior to the date of any Exercise Event described in Section 2(a)(i), (ii) or
(iii). The Company shall promptly notify the Holder in writing following the
occurrence of any other Exercise Event.
(c) Promptly after the end of the Diligence Period, the Company shall
provide Holder a calculation of that number of shares of Warrant Stock (rounded
to the nearest whole number) which the Holder shall be entitled to purchase upon
exercise of this Warrant (the "Calculation Notice"). The number of shares of
Warrant Stock issuable upon exercise of this Warrant shall be the sum of the
following (the "Warrant Calculation"):
(i) GLA of Buildings designated as Exclusive on the Buildings
List shall be divided by 1,000,000, and that result shall be multiplied by ____;
---------- -------------
plus:
----
(ii) GLA of Buildings designated as Semi-Exclusive on the
Buildings List shall be divided by 1,000,000, and that result shall be
----------
multiplied by ________;
- -------------
plus:
----
(iii) GLA of Buildings designated as Non-Exclusive on the
Buildings List shall be divided by 1,000,000, and that result shall be
----------
multiplied by ________;
- -------------
2
<PAGE>
minus:
-----
(iv) The number of shares of Warrant Stock forfeited by Holder
pursuant to Section 9 prior to Holder's exercise of this Warrant.
Upon receipt of the Calculation Notice from the Company, the Holder shall have
twenty (20) days to provide to the Company written notice of any objection with
respect to such Warrant Calculation (the "Protest Notice"). If the Holder fails
to provide Company with such Protest Notice within such twenty-day period, the
Holder shall be deemed to have accepted such calculation, and thereafter shall
be entitled to exercise this Warrant only for the number of shares of Warrant
Stock so calculated (but subject to adjustment as provided in Section 4 below
and forfeiture as provided in Section 9 below). If the Holder provides the
Company with such Protest Notice, such Warrant Calculation shall be submitted to
a nationally recognized accounting firm not affiliated with either the Company
or the Holder, and the Warrant Calculation as determined by such accounting firm
shall be binding upon the parties. The accounting firm shall review the Warrant
Calculation and make any appropriate adjustment thereto within thirty (30) days
after submission to it. The expenses of such accounting firm shall be split
evenly by the parties.
(d) The calculations described in Section 2(c) herein shall be made
irrespective of, and the number of shares of Warrant Stock issuable upon
exercise hereof shall not be affected by, (i) the Company's failure to submit a
Communications License Agreement for a Building prior to the expiration of the
Rollout Period, or (ii) the Company's loss of Exclusive or Semi-Exclusive Rights
as the result of the failure of the Company to complete installation within a
Building or Buildings prior to the expiration of the Rollout Period.
(e) The Holder may exercise this Warrant by presentation and
surrender of this Warrant to the Company at its principal office, or to its
stock transfer agent, if any, with the Warrant Exercise Form attached hereto
duly executed and accompanied by payment (either in cash or by certified or
official bank check, payable to the order of the Company, or by wire transfer of
immediately available funds to an account designated by the Company) of the
Exercise Price for the number of shares of Warrant Stock specified in such form.
(f) Following the IPO, in connection with any requested conversion of
this Warrant, and in lieu of the payment of the Exercise Price in cash, the
Company shall convert this Warrant, in whole or in part and at any time or
times, into Warrant Stock (the "Conversion Right"), as follows: Upon exercise of
the Conversion Right, the Company shall deliver to the Holder (without payment
by the Holder of any Exercise Price) that number of shares of Common Stock equal
to the quotient obtained by dividing (x) the difference of (A) the aggregate
Fair Market Value (as defined in Section 4(b)(viii) below) for all Warrant Stock
issuable upon exercise of the Warrants being converted, less (B) the aggregate
Exercise Price for all such Warrant Stock, by (y) the Fair Market Value of one
share of Warrant Stock.
(g) Upon receipt by the Company of this Warrant, together with the
Warrant Exercise Form and, in connection with any conversion other than under
Section 2(f), the Exercise Price (the "Exercise Time"), at its office, or by the
stock transfer agent of the Company at its office, the Holder shall be deemed to
be the holder of record of the shares of Common
3
<PAGE>
Stock issuable upon such exercise, notwithstanding that the stock transfer books
of the Company shall then be closed or that certificates representing such
shares of Common Stock shall not then be actually delivered to the Holder.
(h) The Company will deliver to Holder certificates for Warrant Stock
purchased upon exercise of this Warrant within five (5) business days after the
Exercise Time. Unless all of the purchase rights represented by this Warrant
have been exercised, the Company will prepare a new Warrant, substantially
identical hereto, representing the rights formerly represented by this Warrant
which have not expired or been exercised and will within such five-day period,
deliver such new Warrant to the Holder.
(i) The issuance of certificates for Warrant Stock upon exercise of
this Warrant will be made without charge to the Holder for any issuance tax in
respect thereof or other cost incurred by the Company in connection with such
exercise and the related issuance of Warrant Stock. The Holder or its transferee
shall pay any transfer tax payable in respect of a transfer of the Warrant or
the Warrant Stock to a third party.
(j) Notwithstanding any other provisions hereof, if an exercise of
any portion of this Warrant is to be made in connection with a public offering
of Common Stock or a merger or other sale of all or substantially all of the
stock or assets of the Company, the exercise of any portion of this Warrant may,
at the election of the Holder, be conditioned upon the consummation of the
public offering or the sale of the Company in which case such exercise shall not
be deemed to be effective until the consummation of such transaction.
3. Reservation of Shares. The Company shall at all times authorize and
---------------------
reserve for issuance and delivery all shares of Common Stock issuable upon
exercise of this Warrant. All such shares shall be duly authorized and, when
issued upon exercise in compliance with the terms of this Agreement, shall be
validly issued, fully paid and non-assessable. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant, but the Company shall pay the Holder an amount equal to the applicable
Exercise Price multiplied by such fraction in lieu of each fraction of a share
otherwise called for upon any exercise of this Warrant. If at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of this Warrant, 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 purpose. The Company shall take all such actions as may
be necessary to assure that all such shares of Common Stock may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any securities exchange or inter-dealer quotation system upon
which shares of Common Stock may be listed or traded (except for official notice
of issuance which shall be immediately transmitted by Company upon issuance).
4. Adjustments.
-----------
(a) Capital Adjustments. If the Company at any time or from time to
-------------------
time after the date hereof effects a subdivision of the outstanding Common Stock
(by stock split, stock dividend, recapitalization or otherwise) or a combination
the outstanding shares of Common Stock into a smaller number of shares (by
reverse stock split, recapitalization or otherwise), (i)
4
<PAGE>
the Exercise Price in effect immediately before the subdivision or combination
shall be automatically adjusted by multiplying the Exercise Price by a fraction
(the "Capital Adjustment Factor"), (A) the numerator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such subdivision or combination, and (B) the denominator of which is the
total number of shares of Common Stock issued and outstanding immediately after
such subdivision or combination, and (ii) the number of shares of Warrant Stock
issuable upon exercise of this Warrant shall be automatically adjusted by
dividing such number of shares by the Capital Adjustment Factor.
(b) Below Market Issuances.
----------------------
(i) In the event that the Company issues or sells shares of
Common Stock (other than Permitted Issuances, as described below) at a
price per share below the "Fair Market Value" (as defined herein) of such
shares (a "Below Market Transaction"), (A) the number of shares of Warrant
Stock issuable upon exercise of this Warrant shall be adjusted so as to be
equal to the product obtained by multiplying the number of shares of
Warrant Stock issuable pursuant to this Warrant prior to the Below Market
Transaction by a fraction (the "Market Adjustment Factor"), the numerator
of which shall be (i) the number of shares of Common Stock outstanding
immediately prior to consummation of the Below Market Transaction plus (ii)
----
the number of shares of Common Stock issued or sold in the Below Market
Transaction, and the denominator of which shall be (x) the number of shares
of Common Stock outstanding immediately prior to the Below Market
Transaction plus (y) th number of shares of Common Stock that the aggregate
----
consideration received by the Company in the Below Market Transaction would
purchase at Fair Market Value, and (B) the Exercise Price shall be adjusted
so as to be equal to the quotient obtained by dividing the Exercise Price
in effect prior to the Below Market Transaction by the Market Adjustment
Factor. For purposes of this subsection, Common Stock shall be deemed to
include that number of shares of Common Stock that would be obtained
assuming (A) the conversion of any securities of the Company which, by
their terms, are convertible into or exchangeable for Common Stock, and (B)
the exercise of all options to purchase or rights to subscribe for Common
Stock or securities which, by their terms, are convertible into or
exchangeable for Common Stock.
(ii) If the Company in any manner issues or sells any stock or
securities directly or indirectly convertible into or exchangeable for
Common ("Convertible Securities"), other than Convertible Securities that
are Issuances, and the price per share for which Common Stock is issuable
upon conversion or exchange thereof is less than the Fair Market Value of
the Common Stock immediately prior to the time of such issue or sale, then,
for purposes of Section 4(b)(i), the total maximum number of shares of
Common Stock issuable upon conversion or exchange of such Convertible
Securities shall be deemed to have been issued and sold by the Company at
the time of the issuance or sale of such Convertible Securities for such
price per share. For the purposes of this paragraph, the "price per share
for which Common Stock is issuable" shall be determined by dividing (A) the
total amount received or receivable by the Company as consideration for the
issue or sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (B) the total
5
<PAGE>
maximum number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities. No further adjustment of the
number of shares of Warrant Stock issuable upon exercise of this Warrant or
the Exercise Price shall be made when Common Stock is actually issued upon
the conversion, exercise or exchange of such Convertible Securities.
(iii) If the Company in any manner grants or sells any rights,
warrants or options to subscribe for or purchase Common Stock or
Convertible Securities ("Options"), other than options that are Permitted
Issuances, and the price per share for which Common Stock is issuable upon
the exercise of such Options, or upon conversion or exchange of any
Convertible Securities issuable upon exercise of such Options, is less than
the Fair Market Value of the Common Stock immediately prior to the time of
the granting or sale of such Options, then, for purposes of Section
4(b)(i), the total maximum number of shares of Common Stock issuable upon
the exercise of such Options or upon conversion or exchange of the total
maximum amount of such Convertible Securities issuable upon the exercise of
such Options shall be deemed to have been issued and sold by the Company at
the time of the granting or sale of such Options for such price per share.
For purposes of this paragraph, the "price per share for which Common Stock
is issuable" shall be determined by dividing (A) the total amount, if any,
received or receivable by the Company as consideration for the granting or
sale of such Options, plus the minimum aggregate amount of additional
consideration payable to the Company upon exercise of all such Options,
plus in the case of such Options which relate to Convertible Securities,
the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the issuance or sale of such Convertible Securities and
the conversion or exchange thereof, by (B) the total maximum number of
shares of Common Stock issuable upon the exercise of such Options or upon
the conversion or exchange of all such Convertible Securities issuable upon
the exercise of such Options. No further adjustment of the number of shares
of Warrant Stock issuable upon exercise of this Warrant or the Exercise
Price shall be made when Convertible Securities are actually issued upon
the exercise of such Options or when Common Stock is actually issued upon
the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(iv) If the purchase price provided for in any Options, the
additional consideration, if any, payable upon the conversion or exchange
of any Convertible Securities or the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock changes at
any time, the number of shares of Warrant Stock issuable upon exercise of
this Warrant and the Exercise Price in effect at the time of such change
shall be immediately adjusted to the applicable number of shares of Warrant
Stock issuable upon exercise of this Warrant and the Exercise Price which
would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold.
(v) Upon the expiration of any Option or the termination of any
right to convert or exchange any Convertible Security without the exercise
of any such Option or right, the Exercise Price then in effect hereunder
shall be adjusted immediately to the
6
<PAGE>
applicable number of shares of Warrant Stock issuable upon exercise of this
Warrant and the Exercise Price which would have been in effect at the time
of such expiration or termination had such Option or Convertible Security,
to the extent outstanding immediately prior to such expiration or
termination, never been issued.
(vi) If any Common Stock or Convertible Security is issued or
sold or deemed to have been issued or sold for cash, the consideration
received therefor shall be deemed to be the amount received by the Company
therefor (net of discounts, commissions and related expenses). If any
Common Stock or Convertible Security is issued or sold for a consideration
other than cash, the amount of the consideration other than cash received
by the Company shall be the fair value of such consideration. If any Common
Stock or Convertible Security is issued to the owners of the non-surviving
entity in connection with any merger in which the Company is the surviving
corporation, the amount of consideration therefor shall be deemed to be the
fair value of such portion of the net assets and business of the non-
surviving entity as is attributable to such Common Stock or Convertible
Security, as the case may be. The fair value of any consideration other
than cash and securities shall be determined jointly by the Company and the
Holder. If such parties are unable to reach agreement within a reasonable
period of time, the fair value of such consideration shall be determined by
an independent appraiser experienced in valuing such type of consideration
jointly selected by the Company and the Holder. The determination of such
appraiser shall be final and binding upon the parties, and the reasonable
fees and expenses of such appraiser shall be borne by the Company. In case
any Convertible Security is issued in connection with the issue or sale of
other securities of the Company, together comprising one integrated
transaction, the board of directors of the Company shall make a good faith
determination of the portion of the consideration received therefor
allocable as consideration for which the Company issued the Convertible
Security.
(vii) The number of shares of Common Stock outstanding at any
given time shall not include shares owned or held by or for the account of
the Company or any subsidiary, and the disposition of any shares so owned
or held shall be considered an issue or sale of Common Stock.
(viii) The term "Permitted Issuances," as used herein, means
issuances to employees pursuant to the Company's management equity plans,
as approved from time to time by the Company's Board of Directors. For
purposes of this Section 4(b) and Section 2(f), if the Common Stock is
traded on the Nasdaq Stock Market or other inter-dealer quotation system or
is listed on any national securities exchange, the "Fair Market Value" of
the Common Stock shall be average of the last reported sales prices of the
Common Stock as reported by Nasdaq or, if the Common Stock is listed on a
national securities exchange, the last reported sales prices of the Common
Stock on such exchange, for the twenty (20) trading days immediately
preceding the date of such sale or issuance of Common Stock. If the Common
Stock is not so listed or traded, the Fair Market Value of the Common Stock
shall be determined jointly by the Company and the Holder. If such parties
are unable to reach agreement within 30 days of the date of such sale or
issuance, the Fair Market Value of the Common Stock shall be determined by
an independent appraiser jointly selected by the Company and the Holder.
The
7
<PAGE>
determination of such appraiser shall be final and binding upon the
parties, and the reasonable fees and expenses of such appraiser shall be
borne by the Company.
(c) Reorganizations, Mergers, Consolidations or Sales of Assets.
-----------------------------------------------------------
If at any time or from time to time after the date hereof, there is a capital
reorganization of the Common Stock (other than a recapitalization, subdivision,
combination, reclassification, exchange or substitution of shares provided for
elsewhere in this Section 4), as a part of such capital reorganization,
provision shall be made so that the Holder shall thereafter be entitled to
receive upon exercise of this Warrant the number of shares of stock or other
securities or property of the Company to which a holder of the number of shares
of Common Stock deliverable upon exercise of this Warrant would have been
entitled in connection with such capital reorganization, subject to adjustment
in respect of such stock or securities by the terms thereof. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 4 with respect to the rights of the Holder after the capital
reorganization to the end that the provisions of this Section 4 (including
adjustment of the Exercise Price and the number of shares of Warrant Stock
issuable upon exercise of this Warrant then in effect) shall be applicable after
that event and be as nearly equivalent as practicable.
(d) Notice to Warrant Holder of Adjustment. At any time following the
--------------------------------------
delivery to Holder of a Calculation Notice, whenever the number of shares of
Warrant Stock issuable upon exercise of this Warrant or the Exercise Price is
adjusted as herein provided, the Company shall cause to be mailed to the Holder
in accordance with the provisions of this Section 4 a notice (i) stating that an
event giving rise to an adjustment hereunder has occurred, (ii) setting forth
the adjusted number of shares of Warrant Stock and the adjusted Exercise Price
and (iii) showing in reasonable detail the computations and the facts upon which
such adjustments are based. The Holder shall be entitled to review such
calculation (as well as any "Fair Market Value" calculation made by the board of
directors pursuant to Section 4(b)) and render any objections in the manner
provided in Section 4(b)(viii).
5. Restrictions on Transfer.
------------------------
(a) The Holder hereby acknowledges that neither this Warrant nor any
of the securities that may be acquired upon exercise of this Warrant have been
registered or qualified under the 1933 Act or under the securities laws of any
state. The Holder acknowledges that upon exercise of this Warrant the securities
to be issued upon such exercise may be subject to applicable federal and state
securities (or other) laws requiring registration, qualification or approval of
governmental authorities before such securities may be validly issued or
delivered upon notice of such exercise. The Holder agrees that the issuance of
such securities may be deferred until the issuance or sale of such securities
shall be lawful in all respects. The restrictions imposed by this Section 5 upon
the exercise of this Warrant shall cease and terminate as to any particular
shares of Warrant Stock (i) when such securities shall have been effectively
registered and qualified under the 1933 Act and all applicable state securities
laws and disposed of in accordance with the registration statement covering such
securities, or (ii) when, in the opinion of counsel for the Company, such
restrictions are no longer required in order to ensure compliance with the 1933
Act and all applicable state securities laws.
8
<PAGE>
(b) Notwithstanding the provisions of Section 5(a), the Holder may
not offer, sell, contract to sell or otherwise dispose of any Warrant Stock
within one hundred eighty (180) days after the date of any final prospectus
related to the IPO except with the written consent of the Company and managing
underwriter or underwriters for such offering.
(c) Prior to the IPO, and except for the Permitted Transfers
described in Section 15(a), at least 30 days prior to making any sale or
transfer of any of Warrant Stock, the Holder shall deliver a written notice (the
"Offer Notice") to the Company. The Offer Notice shall disclose in reasonable
detail the proposed number of shares of Warrant Stock to be transferred and the
proposed terms and conditions of the transfer. The Company may elect to purchase
all, but not less than all, of the shares of Warrant Stock specified in the
Offer Notice at the price and on the terms specified therein by delivering
written notice of such election to the Holder as soon as practical but in any
event within 30 days after the delivery of the Offer Notice. To the extent that
the Company does not elect to purchase all of the shares of Warrant Stock being
offered, the Holder may, within 90 days after the expiration of the Company's
election period, transfer such shares of Warrant Stock to one or more third
parties at a price no less than the price per share specified in the Offer
Notice and on terms no more favorable to the transferees than offered to the
Company in the Offer Notice. The purchase price specified in the Offer Notice
shall be payable solely in cash at the closing of the transaction.
6. Piggy-Back Registration Rights.
------------------------------
(a) If the Company has registered or has determined to register any
of its securities for its own account or for the account of other security
holders of the Company on any registration form (other than Form S-4 or S-8)
which permits the inclusion of the Warrant Stock (a "Piggyback Registration"),
the Company will give the Holder written notice thereof promptly and, subject to
Section 6(c), shall include in such registration all the Warrant Stock requested
to be included therein pursuant to the written request of the Holder received
within twenty (20) days after delivery of the Company's notice.
(b) If the Piggyback Registration relates to an underwritten public
offering, the Company shall so advise the Holder as a part of the written notice
given pursuant to Section 6(a). In such event, the right of the Holder to
participate in such registration shall be conditioned upon Holder's
participation in such underwriting in accordance with the terms and conditions
thereof. Should the Holder propose to distribute its Warrant Stock through such
underwriting, it shall (together with the Company) enter into an underwriting
agreement in customary form with the representative of the underwriter or
underwriters selected by the Company.
(c) If such proposed Piggyback Registration is an underwritten
offering and the managing underwriter for such offering advises the Company that
the securities requested to be included therein exceeds the amount of securities
that can be sold in such offering, any (i) securities to be sold by the Company
in such offering and (ii) Registrable Securities (as such term is defined in the
Company's Third Amended and Restated Stockholders Agreement dated October 8,
1999) shall have priority over the Holder's Warrant Stock, and the number of
shares to be included by the Holder in such registration shall be reduced pro
rata on the basis of the percentage of the outstanding Warrant Stock held by the
Holder (assuming the exercise of all warrants held by the Holder) and all other
holders exercising equivalent registration rights.
9
<PAGE>
(d) If the Holder requests but is unable to register all shares of
Warrant Stock in a Piggyback Registration within eighteen (18) months following
the IPO, the Holder shall have the option to include such Warrant Stock in a
Demand Registration pursuant to Section 7.
7. Demand Registration Rights.
--------------------------
(a) Should the Holder request but be unable to include in a Piggyback
Registration all shares of Warrant Stock within eighteen (18) months following
the IPO as contemplated in Section 6 herein, the holders of Warrants or Warrant
Stock representing at least 50% of the aggregate shares of Warrant Stock
issuable upon exercise of this Warrant (including any Holders of Warrants or
Warrant Stock issuable as a result of an assignment of all or a portion hereof,
in the aggregate, as adjusted pursuant to Section 4) (the "Initiating Holders")
may, if available to the Company, require that the Company effect as many
registrations as the Initiating Holders may request under the Securities Act
utilizing a Form S-3 or any similar form (a "Demand Registration").
(b) The Company shall file a registration statement with respect to
such Demand Registration requested pursuant to Section 7(a) as soon as
practicable after receipt of the demand of the Initiating Holders; provided,
however, that if in the good faith judgment of the Board of Directors of the
Company, such registration would be seriously detrimental to the Company in that
such registration would interfere with a material corporate transaction and the
Board of Directors concludes, as a result, that it is advisable to defer the
filing of such registration statement at such time (as evidenced by an
appropriate resolution of the Board), then the Company shall have the right to
defer such filing for the period during which such registration would be
seriously detrimental; provided, however, that (i) the Company may not defer the
filing for a period of more than one hundred eighty (180) days after receipt of
any demand of the Initiating Holders and (ii) the Company shall not exercise its
right to defer a Demand Registration more than once.
(c) Notwithstanding any provision to the contrary contained in this
Warrant, a Holder's registration rights under Sections 6 and 7 shall
automatically terminate when all of the Warrant Stock owned by such Holder may
immediately be sold under Rule 144 under the 1933 Act.
8. Registration Procedures.
-----------------------
8.1 In the case of each registration effected by the Company pursuant to
Sections 6 or 7 of this Warrant, the Company will keep the Holder advised in
writing as to the initiation of such registration and as to the completion
thereof. At its expense, the Company will use its best efforts to:
(a) cause such registration to be declared effective by the Securities
and Exchange Commission (the "Commission") and, in the case of a Demand
Registration, keep such registration effective for a period of one hundred
eighty (180) days or until the Holder has completed the distribution described
in the registration statement relating thereto, whichever first occurs;
10
<PAGE>
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement (including post-effective amendments) as may be
necessary to comply with the provisions of the 1933 Act with respect to the
disposition of all securities covered by such registration statement;
(c) obtain appropriate qualifications of the securities covered by
such registration under state securities or "blue sky" laws in such
jurisdictions as may be requested by the Holder; provided, however, that the
Company shall not be required to file a general consent to service of process in
any jurisdiction in which it is not otherwise subject to service in order to
obtain any such qualification;
(d) furnish such number of prospectuses and other documents incident
thereto, including any amendment of or supplement to the prospectus, as the
Holder from time to time may reasonably request;
(e) notify the Holder, at any time when a prospectus relating thereto
is required to be delivered under the 1933 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 or incomplete in the light of the
circumstances then existing, and at the request of any such holder, prepare and
furnish to such holder a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading or
incomplete in the light of the circumstances then existing;
(f) cause all Warrant Stock covered by such registration to be listed
on each securities exchange or inter-dealer quotation system on which similar
securities issued by the Company are then listed;
(g) provide a transfer agent and registrar for all Warrant Stock
covered by such registration and a CUSIP number for all such securities, in each
case not later than the effective date of such registration;
(h) otherwise comply with all applicable rules and regulations of the
Commission, and make available to its security holders, as soon as reasonably
practicable, an earnings statement covering a period of at least twelve months,
but not more than eighteen months, beginning with the first month after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the 1933 Act; and
(i) in connection with any underwritten Demand Registration, the
Company will (A) enter into an underwriting agreement reasonably satisfactory to
the Company and the Holder containing customary underwriting provisions,
including indemnification and contribution provisions, and (B) cooperate with
such underwriters and use its reasonable
11
<PAGE>
commercial efforts to assist such underwriters in connection with the offering
and sale of Warrant Stock.
8.2 Other Obligations. With a view to making available the benefits
-----------------
of certain rules and regulations of the Securities and Exchange Commission which
may facilitate the registration of Warrant Stock or permit the sale of Warrant
Stock to the public without registration, the Company agrees to:
(a) after its initial registration under the 1933 Act, exercise
reasonable commercial efforts to cause the Company to be eligible to utilize
Form S-3 (or any similar form) for the registration of Warrant Stock;
(b) at such time as any Warrant Stock is eligible for transfer under
Rule 144(k), upon the request of the holder of such Warrant Stock, remove any
restrictive legend from the certificates evidencing such securities at no cost
to such holder;
(c) make and keep available public information as defined in Rule 144
under the 1933 Act at all times from and after ninety (90) days following its
initial registration under the 1933 Act;
(d) file with the Commission in a timely manner all reports and other
documents required of the Company under the 1933 Act and the Securities Exchange
Act of 1934 (the "1934 Act") at any time after it has become subject to such
reporting requirements; and
(e) furnish any holder of Warrant Stock upon request a written
statement by the Company as to its compliance with the reporting requirements of
Rule 144 (at any time from and after ninety (90) days following the IPO), and of
the 1933 Act and the 1934 Act (at any time after it has become subject to such
reporting requirements), a copy of the most recent annual or quarterly report of
the Company, and such other reports and documents as a holder of Warrant Stock
may reasonably request in availing itself of any rule or regulation of the
Securities and Exchange Commission (including Rule 144A) allowing a holder of
Warrant Stock to sell any such securities without registration.
9. Forfeiture of Warrants and Return of Proceeds.
---------------------------------------------
(a) If a Building covered by a License Agreement is sold and the
purchaser of the Building fails to assume the License associated with such
Building at the closing of such sale (a "Sale"), at the Company's written
request, the Holder shall forfeit or return to the Company, as applicable,
the right to acquire the Warrant Stock issuable upon exercise of this
Warrant or, if this Warrant has been exercised, the Warrant Stock issued,
which is attributable to the GLA from such Building, together with any
dividends paid on such Warrant Stock, or if Holder has transferred such
Warrant Stock, any proceeds resulting from the transfer of the Warrant
Stock (collectively, the "Warrant Amount"), as set forth below:
(i) If a Sale occurs during the period commencing on the date of
the Master Agreement and ending on the third (3rd) anniversary
thereof, at the Company's written request, the Holder shall forfeit or
return 100% of the Warrant Amount;
12
<PAGE>
(ii) If a Sale occurs during the period following the third
(3/rd/) anniversary of the date of the Master Agreement, at the
Company's written request, the Holder shall forfeit or return to the
Company the Warrant Amount as set forth below:
- -------------------------------------------------------------------------------
After the 3/rd/ anniversary but prior to the 4/th/ 80% of Warrant Amount
anniversary of the date of the Master Agreement
- -------------------------------------------------------------------------------
On or after the 4/th/anniversary but prior to 60% of Warrant Amount
the 5/th/ anniversary of the date of the Master
Agreement
- -------------------------------------------------------------------------------
On or after the 5/th/ anniversary but prior to the 40% of Warrant Amount
6/th/ anniversary of the date of the Master
Agreement
- --------------------------------------------------------------------------------
On or after the 6/th/ anniversary but prior to the 20% of Warrant Amount
7/th/ anniversary of the date of the Master
Agreement
- --------------------------------------------------------------------------------
On or after the 7/th/ anniversary of the date of 0% of Warrant Amount
the Master Agreement
- --------------------------------------------------------------------------------
If Warrant Stock has not yet been issued at the time of a Sale, the Warrant
Amount applied to such Building shall be excluded from any calculation of
Warrant Stock to be issued upon any Exercise Event. Upon surrender by Holder of
any Warrant Amount in the form of shares of Warrant Stock, the Company shall
refund to the Holder the Exercise Price paid to the Company attributable to such
surrendered Warrant Amount. Any Warrant Amount payable by Holder hereunder in
the form of proceeds from the sale of Warrant Stock shall be net of the Exercise
Price paid to the Company for such shares of Warrant Stock.
(b) Notwithstanding the provisions of Section 9(a), no portion of the
Warrant Amount with respect to the GLA of a Building shall be returned or
forfeited if and to the extent that, within six (6) months after the Sale of the
Building, Holder enters or has previously entered into a License Agreement with
the Company, upon the terms set forth in the Master Agreement or upon other
terms reasonably satisfactory to the Company, for one or more other buildings
reasonably satisfactory to the Company not covered by the Master Agreement to
the extent of the GLA of such building or buildings.
(c) The provisions of Section 9(a) shall terminate and be of no
further effect upon (i) the expiration or non-renewal of the Master Agreement in
accordance with its terms or (ii) the termination of the Master Agreement as a
result of a breach of the Master Agreement by the Company. The provisions of
Section 9(a) shall apply only with respect to the initial sale of a Building by
Holder; any sale of such Building by a subsequent owner thereof shall have no
effect on the rights of the Holder hereunder.
(d) If Warrant Stock has been issued, and upon a Sale the Holder
fails to deliver to the Company the forfeited Warrant Amount (whether in the
form of a stock certificate or cash proceeds), the Company shall be entitled to
(i) cancel any such certificates registered in the Holder's name representing
the Warrant Stock on the books and records of the Company (at which time such
Warrant Stock shall be deemed canceled without any additional required action
13
<PAGE>
on behalf of the Company or the Holder), and (but only to the extent necessary
after taking the action provided in clause (i) above) (ii) set off against any
amounts which the Company may owe Holder pursuant to the terms of the Master
Agreement the amount of such cash proceeds.
(e) In the event of the transfer or assignment of a portion of this
Warrant in accordance with Section 15 hereof, the Holder will provide written
notice to the Company specifying the particular Building or Buildings (and the
GLA thereof) to which the transferred Warrants relate. Thereafter, if any sale
of such Building or Buildings occurs such that any Warrant Amount becomes
payable to the Company pursuant to the provisions of this Section 9, the entire
amount of such Warrant Amount payable shall be forfeited by the holder (or
holders, pro rata) of the transferred Warrants in accordance with the forfeiture
provisions thereof, and any rights under this Warrant or shares of Warrant Stock
held by the transferor with respect to any other Building or Buildings shall not
be subject to forfeiture upon such sale; provided, however, that in the event
that such transferee has exercised its rights under the transferred Warrant and
sold the shares of Warrant Stock acquired thereupon (and such Warrant Amount is
payable to the Company by such transferee in cash), the transferor of the
Warrant shall remain liable for, and shall pay to the Company, such Warrant
Amount to the extent the Company is unable within 20 days after written demand
to the transferee, with a copy to the transferor, to collect such Warrant Amount
from the transferee.
10. Additional Offers of Warrant Rights. Subject to the provisions of
-----------------------------------
Section 4 of this Warrant, the Company is authorized to offer to other qualified
property owners similar warrant rights as provided in this Warrant prior to the
filing of its initial registration statement in connection with the IPO or
following the closing of the IPO.
11. Holder Representations and Warranties.
-------------------------------------
(a) The Holder has all necessary power and authority under all
applicable provisions of law to execute and deliver this Warrant and to carry
out its provisions. All actions on Holder's part required for the lawful
execution and delivery of this Warrant have been taken.
(b) The Holder understands that neither the Warrant nor the Warrant
Stock has been registered under any state securities act or the 1933 Act. The
Holder also understands that the Warrants and the Warrant Stock are being
offered and sold pursuant to an exemption from registration contained in
applicable state securities acts and the 1933 Act based in part upon the
Holder's representations contained in this Warrant.
(c) The Holder has substantial experience in evaluating and investing
in private placement transactions of securities in companies similar to the
Company so that Holder is capable of evaluating the merits and risks of its
investment in the Company and has the capacity to protect its own interests. The
Holder must bear the economic risk of this investment indefinitely unless the
Warrants (or the Warrant Stock) are registered pursuant to the 1933 Act, or an
exemption from registration is available. The Holder understands that the
Company has no present intention of registering the Warrants, the Warrant Stock
or any shares of its Common Stock. The Holder also understands that there is no
assurance that any exemption from registration under the 1933 Act will be
available and that, even if available, such exemption may not allow the Holder
to transfer all or any portion of the Warrants or the Warrant Stock under the
14
<PAGE>
circumstances, in the amounts or at the times the Holder might propose. The
Holder can bear the economic risk of losing its entire investment in the
Company.
(d) The Holder is acquiring the Warrants and the Warrant Stock for
Holder's own account or for the account of an Affiliate or Owner for investment
only, and not with a view towards their resale or distribution in violation of
applicable securities laws.
(e) The Holder represents that, by reason of Holder's or of its
management's business or financial experience, the Holder has the capacity to
protect its own interests in connection with the transactions contemplated in
this Warrant. Further, the Holder is aware of no publication of any
advertisement in connection with the transactions contemplated by the Warrant.
(f) The Holder represents that Holder is an accredited investor
within the meaning of Regulation D under the 1933 Act.
(g) The Holder has had an opportunity to discuss the Company's
business, management and financial affairs with directors, officers and
management of the Company. The Holder has also had the opportunity to ask
questions of, and receive answers from, the Company and its management regarding
the terms and conditions of this investment. The Holder has had an adequate
opportunity to inspect and copy all material documents relating to the Company
which it has requested.
12. Company Representations and Warranties.
--------------------------------------
The Company hereby represents and warrants to, and agrees with, each
Purchaser as follows:
(a) Organization. The Company is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Delaware.
The Company has all requisite corporate power and authority to own and operate
its properties and assets, to execute and deliver this Warrant to issue the
shares of Warrant Stock upon exercise of the Warrant, to carry out the other
provisions of this Warrant and the transactions contemplated hereby, and to
carry on its business as presently conducted and as presently proposed to be
conducted.
(b) Capitalization.
--------------
(i) The authorized capital stock of the Company as of November
16, 1999, consists of (i) Ten Million Eight Hundred Ninety-Four Thousand
Seventy-One and 62/100 (10,894,071.62) shares of Common Stock, Five Hundred
Eighty Five Thousand Nine Hundred Eighty and 46/100 (585,980.46) shares of
which are issued and outstanding, and (ii) Seven Million Six Hundred
Eighty-Seven Thousand Seven Hundred Four and 16/100 (7,687,704.16) shares
of Preferred Stock, of which One Million Two Hundred Eleven Thousand One
Hundred Forty (1,211,140) are designated as Series A Preferred Stock (the
"Series A Preferred"), all of which are issued and outstanding, One Million
Nine Hundred Nineteen Thousand One Hundred Eighty Eight (1,919,188) are
designated as Series B Preferred Stock (the "Series B Preferred"), One
Million Three Hundred Thirty Nine Thousand Five Hundred Seventy Five
(1,339,575) of which are
15
<PAGE>
issued and outstanding, Five Hundred Seventy Nine Thousand Six Hundred
Thirteen (579,613) are designated as Series B-1 Preferred Stock (the
"Series B-1 Preferred"), all of which are issued and outstanding, Three
Million Nine Hundred Seventy Seven Thousand Seven Hundred Sixty Three and
16/100 (3,977,763.16) are designated as Series C Preferred Stock (the
"Series C Preferred"), Two Million Eight Hundred Nineteen Thousand Eight
Hundred Sixty-Eight and 39/100 (2,819,868.39) of which are issued and
outstanding (the Series A Preferred, Series B Preferred, Series B-1
Preferred and Series C Preferred are collectively referred to herein as the
"Preferred Stock").
(ii) Except for the shares of Preferred Stock described in
12(b)(i) and (i) 1,200,000 shares of Common Stock reserved by the Company
for issuance pursuant to warrants granted in connection with the Company's
current licensing efforts, (ii) 2,000,000 shares of Common Stock reserved
for issuance in connection with the Company's Management Option Plan, and
(iii) 710,526.31 shares of Series C Preferred Stock the Company has
committed to issue as part of its Series C Preferred Stock Offering, as of
November 16, 1999, the Company does not have outstanding any capital stock
or other securities convertible into or exchangeable for any shares of its
capital stock.
(c) Authorization; Binding Obligations. All corporate action on the
----------------------------------
part of the Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Warrant and each other document or
instrument executed by it, or any of its officers, in connection herewith or
therewith or pursuant hereto or thereto, the performance of all obligations of
the Company under the Warrant and for the authorization, sale, issuance and
delivery of the shares issuable upon exercise of the Warrant has been taken.
When issued in compliance with the provisions of this Warrant, the shares will
be duly authorized, validly issued, fully paid and nonassessable, free of any
liens, preemptive or similar rights, or, except as set forth herein, any other
encumbrances and issued in compliance with all applicable state and federal
securities laws. This Warrant has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligations of the Company
enforceable in accordance with its terms.
(d) No Violations. The execution, delivery and performance of this
-------------
Warrant and the performance by the Company of its obligations hereunder do not
and will not conflict with or violate any provision of the certificate of
incorporation or bylaws of the Company or any law, statute, rule or regulation
or any agreement, contract or instrument or any order, judgment or decree to
which the Company is subject or by which any of its assets are bound.
(e) No Other Representations or Warranties. The representations and
--------------------------------------
warranties made by the Company in this Warrant supersede any prior statements,
representations and warranties of any person with respect to the Company or the
transactions contemplated hereby. The representations and warranties of the
Company in this Warrant are the only representations and warranties by the
Company upon which Holder may rely in connection with transactions contemplated
by this Warrant.
13. Legends. Unless (i) the shares of Warrant Stock have been registered
-------
under the 1933 Act, or (ii) in the opinion of counsel for the Company such
legend is no longer required in
16
<PAGE>
order to ensure compliance with the 1933 Act and all applicable state securities
laws, upon the issuance of any of the shares of Warrant Stock, all certificates
representing such shares shall bear on the face thereof substantially the
following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE
"SECURITIES") HAVE BEEN ISSUED AND SOLD IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933
(THE "1933 ACT") AND APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED
OTHER THAN (i) PURSUANT TO AN EFFECTIVE REGISTRATION OR AN
EXEMPTION THEREFROM UNDER THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS, AND (ii) UPON RECEIPT BY THE ISSUER OF
EVIDENCE SATISFACTORY TO IT OF COMPLIANCE WITH THE 1933 ACT
AND THE APPLICABLE SECURITIES LAWS OF ANY OTHER
JURISDICTION. THE ISSUER SHALL BE ENTITLED TO REQUIRE AN
OPINION OF COUNSEL SATISFACTORY TO IT WITH RESPECT TO
COMPLIANCE WITH THE ABOVE LAWS. IN MAKING AN INVESTMENT
DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE
PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS OF
THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE
SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE
SECURITIES COMMISSION OR REGULATORY AUTHORITY. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR
THE FINANCIAL RISKS OF THEIR INVESTMENT IN THESE SECURITIES
FOR AN INDEFINITE PERIOD OF TIME.
Additionally, prior to the IPO all certificates representing
shares of Warrant Stock shall bear on the face thereof
substantially the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN TERMS AND PROVISIONS OF A WARRANT AGREEMENT
DATED______________, 1999, WHICH PROVIDES, AMONG OTHER
THINGS, FOR RESTRICTIONS ON THE TRANSFER OF SUCH SHARES. A
COPY OF SUCH WARRANT AGREEMENT IS ON FILE AT THE PRINCIPAL
OFFICE OF THE COMPANY AND WILL BE FURNISHED UPON REQUEST TO
ANY HOLDER OF THE SHARES REPRESENTED BY THIS CERTIFICATE.
14. Notices of Record Date, Etc. In case:
---------------------------
(a) the Company shall establish a record date for the holders of its
Common Stock for the purpose of entitling them to receive any dividend or other
distribution, or any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or to receive any other
right;
17
<PAGE>
(b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, any share exchange for
shares of capital stock of another corporation or any conveyance of all or
substantially all of the assets of the Company to another corporation;
(c) of any voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(d) the Company shall enter into a letter of intent or agreement with
respect to a transaction by which all of the outstanding shares of Common Stock
of the Company are to be acquired by a third party;
then the Company shall mail or cause to be mailed to the Holder at the time
outstanding a notice specifying, as the case may be, (i) the date on which a
record is to be taken for the purpose of such dividend, distribution or rights,
and stating the amount and character of such dividend, distribution or rights,
(ii) the date on which such reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation or winding up is to take place, and
the time, if any is to be fixed, as to which the holders of record of Common
Stock shall be entitled to exchange their shares for securities or other
property deliverable upon the completion of such transaction, or (iii) the
closing of the acquisition by a third party of all of the outstanding shares of
Common Stock. Such notice shall be mailed as soon as practicable after the
occurrence or likelihood of such event is publicly disclosed.
15. Transfer and Assignment.
-----------------------
(a) This Warrant and all rights hereunder may be transferred, in
whole or in part, without charge to the Holder, upon surrender of this Warrant
with a properly executed Assignment (in the form attached hereto) and written
notice specifying the particular Buildings and GLA to which the assignment
relates at the principal office of the Company. Notwithstanding the foregoing,
prior to the consummation of the IPO, without the consent of the Company (which
consent shall not be unreasonably withheld), this Warrant and any part hereof
may be transferred only (i) to an Affiliate of Holder or an Owner of any
Building, (ii) to any direct or indirect shareholder, partner, member of other
equity holder or lender of such Owner, (iii) any successor by merger of Holder,
of any Affiliate of Holder or of any Owner or any subsidiary of such successor
by merger, or (iv) any entity acquiring all or any portion of the assets of
Holder (each, a "Permitted Transfer"). Prior to any assignment or transfer
hereunder the Holder must provide to the Company evidence satisfactory to the
Company that the proposed transfer will be effected in compliance with all
applicable laws, including without limitation federal and state securities laws,
and that the transferring Holder, notwithstanding the transfer, remains
primarily and directly bound by, and that the transferee agrees to be bound by,
the terms of this Warrant. The Company reserves the right to consent to any such
transfer if in its reasonable opinion, or the opinion of its counsel, the
transfer would have an adverse effect on the Company's ability to complete on a
timely basis its IPO. In no event will the Company permit any transfer after the
Company files its registration statement and prior to the closing of the IPO
unless the transferor can demonstrate to the Company's reasonable satisfaction
that the transferor had discussions with the transferee regarding the proposed
transfer prior to the filing of the registration statement.
18
<PAGE>
(b) Except as set forth in paragraph (a) above, neither this Warrant
nor any rights hereunder may be assigned, transferred, pledged or hypothecated
in any way (whether by operation of law or otherwise). This Warrant shall not be
subject to execution, attachment or similar process. Any attempted assignment,
transfer, pledge, hypothecation or other disposition of this Warrant contrary to
the provisions of this Warrant shall be null and void and without legal effect.
(c) The Company shall maintain at its principal executive offices
books for the registration and the registration of transfer of Warrants. The
Company may deem and treat the registered owner as the absolute owner hereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone) for all purposes and shall not be affected by any notice (other than a
duly executed Assignment) to the contrary.
16. Notices. All notices required hereunder must be in writing and shall
-------
be deemed given when telefaxed, delivered personally or by overnight delivery
service or within three days after mailing when mailed by certified or
registered mail, return receipt requested, if to the Company, at Fifteen
Piedmont Center, Suite 710, Atlanta, Georgia 30305, Attention: R. Stanley Allen,
with a courtesy copy to Powell, Goldstein, Frazer & Murphy LLP, 191 Peachtree
Street, NE, 16th Floor, Atlanta, Georgia 30303, Attention: William M. Ragland,
Jr., and James K. Wagner, Jr., and if to the Holder, at the address for the
registered Holder as it appears on the books of the Company, or at such other
address of which the Company or Holder has been advised by notice hereunder.
17. Rights as a Shareholder. Unless otherwise expressly provided herein,
-----------------------
the Holder shall have no rights as a shareholder with respect to any shares
covered by this Warrant until the date of issuance of such shares. No provision
hereof, in the absence of affirmative action by the Holder to purchase Warrant
Stock, and no enumeration herein of the rights or privileges of the Holder shall
give rise to any liability of such holder for the Exercise Price of Warrant
Stock acquirable by exercise hereof or as a stockholder of the Company.
18. Lost or Destroyed Warrant. Upon receipt by the Company of evidence
-------------------------
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, and upon surrender and cancellation of this
Warrant, if mutilated, the Company shall execute and deliver a new Warrant of
like tenor and date. The Holder agrees with the Company that this Warrant is
issued, and all the rights hereunder shall be held subject to, all of the
conditions, limitations and provisions set forth herein.
19. Warrant Exchangeable for Different Denominations. This Warrant is
------------------------------------------------
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for new Warrants of like tenor representing in the aggregate the
purchase rights hereunder, and each of such new Warrants will represent such
portion of such rights as is designated by the Holder at the time of such
surrender. The date that the Company initially issues this Warrant will be
deemed to be the date of this Warrant regardless of the number of times new
certificates representing the unexpired and unexercised rights formerly
represented by this Warrant shall be issued. All Warrants representing portions
of the rights hereunder are referred to herein as the "Warrant" or the
"Warrants."
19
<PAGE>
20. Applicable Law. The Warrant is issued under and shall for all
--------------
purposes be governed by and construed in accordance with the internal laws of
the State of Delaware, without regard to conflicts of laws principles.
21. Entire Agreement. This Warrant and the other agreements,
----------------
certificates and documents delivered in connection with this Agreement contain
the entire agreement among the Company and Holder with respect to the
transactions described herein, and supersede all prior agreements or statements,
written or oral, with respect thereto.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
20
<PAGE>
IN WITNESS WHEREOF, the Company and the Holder have caused this Warrant to
be signed as of the day and year first above written.
CYPRESS COMMUNICATIONS, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
[HOLDER]
By:_______________________________
Name:_____________________________
Title:____________________________
21
<PAGE>
WARRANT EXERCISE FORM
---------------------
The undersigned hereby irrevocably elects to exercise the within Warrant to
the extent of purchasing __________ shares of Common Stock of Cypress
Communications, Inc., a Delaware corporation, and hereby makes payment of
$____________ in payment therefor.
______________________________
Signature
______________________________
Signature, if jointly held
Date:___________________
********************************************************************************
INSTRUCTIONS FOR ISSUANCE OF STOCK
----------------------------------
(if other than to the registered holder of the within Warrant)
Name_________________________________________________________________________
(Please typewrite or print in block letters)
Address_______________________________________________________________________
Social Security or Taxpayer Identification Number_____________________________
********************************************************************************
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED, _____________ hereby sells, assigns and transfers unto
_______________________________________________________________________________
Name (please typewrite or print in block letters)
the right to purchase Common Stock of Cypress Communications, Inc., a Delaware
corporation, represented by this Warrant (which may be a copy if the right to
receive less than all of the shares of Common Stock covered by such Warrant is
being transferred) with respect to the number of shares covered thereby set
forth below and does hereby irrevocably constitute and appoint ________________
______________________________, Attorney, to transfer the same on the books of
the Company with full power of substitution in the premises.
Number of Shares:___________________
Dated:______________________________
Signature___________________________
Signature, if jointly held___________
22
<PAGE>
EXHIBIT 10.9
CYPRESS COMMUNICATIONS, INC.
Series A Preferred Stock Purchase Agreement
This Series A Preferred Stock Purchase Agreement (the "Agreement") is
entered into as of July 15, 1997, by and among CYPRESS COMMUNICATIONS, INC., a
Delaware corporation (together with its predecessor-in-interest, Cypress
Communications, L.L.C., the "Company"), and each of those persons and entities,
severally and not jointly, whose names are set forth on the Schedule of
Purchasers attached hereto as Exhibit A (collectively the "Purchasers" and
individually a "Purchaser").
In consideration of the mutual promises hereinafter set forth, the parties
hereto agree as follows:
1. Agreement to Sell and Purchase
1.1 Authorization of Shares. On or prior to the Closing (as defined
in Section 2 below), the Company shall have authorized the sale and issuance to
the Purchasers of shares of its Series A Preferred Stock (the "Shares") having
the rights, preferences, privileges and restrictions set forth in the
Certificate of Designation of the Company, attached hereto as Exhibit B (the
"Certificate").
1.2 Sale and Purchase. Subject to the terms and conditions hereof, at
the Closing (as hereinafter defined) the Company hereby agrees to issue and sell
to each Purchaser and each Purchaser severally and not jointly agrees to
purchase from the Company, the number of Shares set forth opposite such
Purchaser's name on Exhibit A, at a purchase price of ten dollars ($10.00) per
Share.
2. Closing, Delivery and Payment
The closing of the sale and purchase of the Shares under this Agreement
(the "Closing") shall take place at 10:00 a.m. on July 15, 1997, at the offices
of Powell, Goldstein, Frazer & Murphy LLP, 191 Peachtree Street, N.E., Atlanta,
Georgia 30303, or at such other time or place as the Company and the Purchasers
may mutually agree (such date is hereinafter referred to as the "Closing Date").
At the Closing, subject to the terms and conditions hereof, the Company will
deliver to the Purchasers certificates representing the number of Shares to be
purchased at the Closing by each Purchaser, against payment of the purchase
price therefor by certified check or wire transfer of immediately available
funds.
<PAGE>
3. Representations and Warranties of the Company
The Company hereby represents and warrants to each Purchaser as
follows:
3.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has all requisite corporate power and
authority to own and operate its properties and assets, to execute and deliver
this Agreement and the Stockholders Agreement attached hereto as Exhibit C (the
"Stockholders Agreement"), to issue and sell the Shares and the shares of Common
Stock issuable upon conversion thereof (the "Conversion Shares") and to carry
out the other provisions of this Agreement and the Stockholders Agreement, and
to carry on its business as presently conducted and as presently proposed to be
conducted.
3.2 Capitalization. The authorized capital stock of the Company,
immediately prior to the Closing, will consist of (i) One million seven hundred
sixteen thousand three hundred ninety six (1,716,396) shares of Common Stock,
two hundred ninety two thousand nine hundred ninety and .23 (292,990.23) shares
of which are issued and outstanding, and (ii) Six Hundred Thousand Seventy
(600,070) shares of Preferred Stock, all of which are designated Series A
Preferred Stock (the "Series A Preferred") and none of which are issued and
outstanding. All issued and outstanding shares of the Company's Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable. Except as provided in the Stockholders Agreement, there are no
outstanding options, warrants or other rights to purchase from the Company any
of its securities, other than options to purchase 20,000 shares of the Company's
Common Stock previously granted to certain key employees, directors and
consultants of the Company whose names are set forth on the Schedule of Existing
Options attached hereto as Schedule 3.2(a).
---------------
3.3. Authorization; Binding Obligations. All corporate action on the
part of the Company, its officers, directors and stockholders necessary for the
authorization of this Agreement, the performance of all obligations of the
Company hereunder and under the Stockholders Agreement and for the
authorization, sale, issuance and delivery of the Shares has been taken or will
be taken prior to the Closing. When issued in compliance with the provisions of
this Agreement, the Shares will be validly issued, fully paid and nonassessable.
The Conversion Shares have been duly and validly reserved for issuance and, when
issued upon conversion of the Series A Preferred, will be validly issued, fully
paid and nonassessable. This Agreement and the Stockholders Agreement have been
duly executed by the Company and constitute valid and binding obligations of the
Company enforceable in accordance with their terms.
3.4 Consents and Approvals. Except as set forth on Schedule 3.4, no
------------
filings with, notices to, or approvals of any governmental or regulatory body
are required to be obtained or made by the Company in connection with the
consummation of the transactions contemplated hereby (other than in connection
with the Mergers, as hereinafter defined).
2
<PAGE>
3.5 No Violations. Except as set forth on Schedule 3.5, the execution
------------
and delivery of this Agreement and the Stockholders Agreement and the
performance by the Company of its obligations hereunder and thereunder (i) do
not and will not conflict with or violate any provision of the certificate of
incorporation or bylaws of the Company and (ii) do not and will not (a) conflict
with or result in a breach of the terms, conditions or provisions of, (b)
constitute a default under, (c) result in the creation of any encumbrance upon
the capital stock or assets of the Company pursuant to, (d) give any third party
the right to modify, terminate or accelerate any obligation under, (e) result in
a violation of, or (f) require any authorization, consent, approval, exemption
or other action by or notice to any court or administrative or governmental body
or other third party pursuant to, any law, statute, rule or regulation or any
agreement or instrument or any order, judgment or decree to which the Company is
subject or by which any of its assets are bound.
3.6 Financial Statements; Interim Changes. The Company's unaudited
balance sheet as of April 30, 1997 (the "Latest Balance Sheet") and unaudited
statements of income and cash flows of the Company for the period from inception
to April 30, 1997 delivered to the Purchasers in connection with the investment
contemplated hereby have been prepared in accordance with generally accepted
accounting principles consistently applied (subject to normal year-end
adjustments and the absence of footnote disclosures) and fairly present in all
material respects the proforma financial position and the results of operations
of the Company for the period covered thereby, and the Company has no material
liabilities or obligations of any nature (absolute, accrued, contingent or
otherwise) that are not either reflected or fully reserved against on the Latest
Balance Sheet or incurred in the ordinary course of the business of the Company
subsequent to the date thereof. Since the date of the Latest Balance Sheet,
there has not been any material adverse change in the business, operations,
financial condition or prospects of the Company (other than the consummation of
the Mergers).
3.7 Compliance with Laws. The Company's business, including the
business of Cypress Communications, L.L.C. conducted prior to the Merger, has
been conducted in compliance with all applicable laws and regulations of
governmental authorities, except for such violations that have been cured or
that, individually or in the aggregate, may not reasonably be expected to have a
material adverse effect on the business, operations, financial condition or
prospects of the Company.
3.8 Proprietary Rights. The Company has not received any
communications alleging that it has violated or, by conducting its business as
proposed would violate, any proprietary rights of any other person, and except
as set forth on Schedule 3.8, the Company is not aware of any basis for the
------------
foregoing.
3.9 Actions Pending. There is no action, suit or proceeding pending
or, to the best knowledge of the Company, threatened against or affecting the
Company or any of its respective properties or rights before any court or by or
before any governmental body or arbitration board or tribunal.
3
<PAGE>
3.10 Material Contracts. Except as set forth on Schedule 3.10
-------------
attached hereto, the Company is not a party to (and is not otherwise bound by)
any of the following: (i) any employment or consulting contract, (ii) any
agreement providing for the issuance or repurchase of any securities of the
Company, (iii) any agreement in respect of registration rights, preemptive
rights, rights of first refusal, voting rights or other rights of security
holders (other than the Stockholders Agreement), (iv) any agreement evidencing
or providing for any indebtedness for borrowed money, or (v) any other agreement
that could reasonably be deemed material to the Company.
3.11 Investments in United States Real Property Interests. The
Company's capital stock does not constitute a United States real property
interest as that term is defined in Section 897(c)(1)(A)(ii) of the Internal
Revenue Code of 1986, as amended (the "Code"). The preceding representation is
based on a determination by the Company that the Company is not and has never
been a United States real property holding corporation (as that term is defined
in Section 897(c)(2) of the Code). From time to time, upon request of any
Purchaser, the Company shall make a determination as to its status as a United
States real property holding corporation ("USRPHC"). If at any time in the
future the Company should become a USRPHC, the Company shall, as promptly as
possible, notify each Purchaser of such change in status.
3.12 Unrelated Business Taxable Income. Any gross income derived by
the Purchasers from the Company shall be in the form of dividends and capital
gains and losses from the disposition of the stock of the Company.
3.13 Qualified Small Business. The Company qualifies as a "Qualified
Small Business" as defined in Section 1202(d) of the Code and covenants that so
long as its shares are held by the Purchasers (or a transferee in whose hands
the shares are eligible to qualify as Qualified Small Business Stock as defined
in Section 1202(c) of the Code), it will use its best efforts to cause the
shares to qualify as Qualified Small Business Stock.
3.14 Mergers. That certain Agreement and Plan of Merger of Cypress
Communications, L.L.C., a Georgia limited liability company, with and into
Cypress Communications, Inc., a Delaware corporation, dated as of the date of
this Agreement, and that certain Agreement and Plan of Merger of CV Cypress
Corp., a Colorado Corporation, Cypress Alta Investor Corp., a Massachusetts
Corporation, with and into Cypress Communications, Inc., a Delaware corporation,
dated as of the date of this Agreement, are each legal, valid, binding,
enforceable, and in full force and effect under the laws of the States of
Delaware, Georgia, Colorado and Massachusetts, as the case may be, pursuant to
which the Company continues as the surviving entity (the "Mergers").
4. Representations and Warranties Of The Purchasers
Each Purchaser severally and not jointly hereby represents and warrants to
the Company as follows:
4
<PAGE>
4.1 Requisite Power and Authority. Such Purchaser has all
necessary power and authority under all applicable provisions of law to
execute and deliver this Agreement and to carry out its provisions. All
actions on such Purchaser's part required for the lawful execution and
delivery of this Agreement have been or will be effectively taken prior to
the Closing.
4.2 Investment Representations. Such Purchaser understands that
neither the Shares nor the Conversion Shares have been registered under any
state securities act or the Securities Act of 1933, as amended (the
"Securities Act"). Such Purchaser also understands that the Shares are
being offered and sold pursuant to an exemption from registration contained
in applicable state securities acts and the Securities Act based in part
upon the Purchaser's representations contained in this Agreement.
(a) Purchaser Bears Economic Risk. Such Purchaser has
substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to the Company so that
Purchaser is capable of evaluating the merits and risks of its or his
investment in the Company and has the capacity to protect its or his own
interests. Such Purchaser must bear the economic risk of this investment
indefinitely unless the Shares (or the Conversion Shares) are registered
pursuant to the Securities Act, or an exemption from registration is
available. Such Purchaser understands that the Company has no present
intention of registering the Shares, the Conversion Shares or any shares of
its Common Stock. Such Purchaser also understands that there is no
assurance that any exemption from registration under the Securities Act
will be available and that, even if available, such exemption may not allow
such Purchaser to transfer all or any portion of the Shares or the
Conversion Shares under the circumstances, in the amounts or at the times
such Purchaser might propose. Such Purchaser can bear the economic risk of
losing its entire investment in the Company.
(b) Acquisition for Own Account. Such Purchaser is
acquiring the Shares and the Conversion Shares for Purchaser's own account
for investment only, and not with a view towards their resale or
distribution in violation of applicable securities laws.
(c) Purchaser Can Protect Its or His Interest. Such
Purchaser represents that, by reason of Purchaser's or of its management's
business or financial experience, such Purchaser has the capacity to
protect its or his own interests in connection with the transactions
contemplated in this Agreement. Further, such Purchaser is aware of no
publication of any advertisement in connection with the transactions
contemplated by the Agreement.
(d) Individual Purchaser Consideration. To the extent
Purchaser is an individual:
5
<PAGE>
(i) Such Purchaser has discussed the suitability
of the investment in the Company for its particular tax and financial situation
with its legal, tax, and financial advisors to the extent Purchaser deems
appropriate, and has neither received nor relied upon any advice of any person
or persons acting for or on behalf of the Company. All information which
Purchaser has provided to the Company concerning itself and its financial
position is currently correct and complete.
(ii) Such Purchaser's overall commitment to
investments which are not readily marketable is not disproportionate to its net
worth, and its investment in the Shares and Conversion Shares will not cause
this overall commitment to become excessive.
(iii) Such Purchaser has adequate means of
providing for its current needs and personal contingencies and has no need for
the Shares or Conversion Shares to be liquid.
(iv) Such Purchaser is purchasing the Shares for
the purpose of deriving an economic profit without regard to tax benefits.
(e) Accredited Investor. Such Purchaser represents that
Purchaser is an accredited investor within the meaning of Regulation D under the
Securities Act.
(f) Company Information. Such Purchaser has had an
opportunity to discuss the Company's business, management and financial affairs
with directors, officers and management of the Company. Such Purchaser has also
had the opportunity to ask questions of, and receive answers from, the Company
and its management regarding the terms and conditions of this investment.
Purchaser has had an adequate opportunity to inspect and copy all material
documents relating to the Company, and to obtain any additional information that
is necessary to verify the accuracy of the information the Purchaser has
received. Purchaser has not received any information from nor has Purchaser
relied upon the name or reputation of any law firm or accounting firm that the
Company or any persons acting on its behalf may have mentioned as being involved
in this sale or as being the Company's legal counsel or accounting firm.
(g) Rule 144. Such Purchaser acknowledges and agrees
that the Shares and the Conversion Shares must be held indefinitely unless they
are subsequently registered under the Securities Act or an exemption from such
registration is available. Such Purchaser has been advised or is aware of the
provisions of Rule 144 promulgated under the Securities Act, which permits
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things: the
availability of certain current public information about the Company, the resale
occurring not less than one year after a party has purchased and paid for the
security to be sold, the sale being through an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act
6
<PAGE>
of 1934, as amended) and the number of shares being sold during any three-
month period not exceeding specified limitations.
(h) Risks. Such Purchaser acknowledges that an investment
in the Company involved many risks, and understands all of the risk factors
related to an investment in the Company, including, but not limited to the
following:
(i) The Company was recently formed and does not have
a significant operating history upon which an evaluation of the Company's
performance could be based. There can be no assurance that the Company's
operations will be profitable or that the Company will be able to sell its
products and services. The likelihood of success of the Company is
speculative, and the Purchaser is familiar with the many problems,
difficulties, complications and delays frequently encountered in the
operation and development of early stage and expanding businesses.
(ii) Additional proceeds will be required to finance
the activities of the Company. The Company will need financing for
operations, production and marketing. No arrangements have been made to
secure such financing, and there can be no assurance that such additional
financing will be available when required or on terms acceptable to the
Company.
(iii) The telecommunications industry has been
characterized by steady technological change, frequent new service
introductions and evolving industry standards. The Company's success will
depend in part on its ability to anticipate such changes and to offer
responsive services on a timely basis. Further, although the trend has been
toward decreases in the cost of equipment, there is no assurance that this
trend will continue, or that the Company will be able to respond
successfully to such changes.
(iv) The telecommunications industry is highly
regulated. Certain aspects of the Company's plan will require authorization
from the Federal Communications Commission ("FCC") and applicable state
public service commissions. This involves both obtaining the required
authorizations and complying with the on-going requirements imposed on
carriers, such as filing a tariff. No assurances can be given that there
will be no opposition to the Company's applications or that the necessary
authorizations (other than any such authorization necessary to continue the
current business operations of the Company) will be granted. Additional
expenses (such as legal and accounting fees) will be involved in attempting
to obtain and in maintaining these authorizations and in complying with the
accounting reporting and administrative regulations imposed by the FCC and
the state commissions. The cost for access to local service could change
significantly as deregulation of the local loop progresses and carriers
other than the existing local exchange carriers are authorized to provide
local service.
(v) The Company competes with a number of competitors
with significantly greater financial resources than the Company.
7
<PAGE>
(vi) Two of the Company's initial agreements with building
owners grant such owners the right to terminate the agreement for a specific
period.
(vii) The Company's success will be related to the real
estate cycle, in particular, to construction and leasing activity.
(viii) The Company's operations will depend upon contractual
arrangements with local exchange and long distance carriers. The costs
associated with the purchase of local exchange services, access to the long
distance network, and long distance services could change significantly as
deregulation of the local loop progresses, carriers other than the existing
local exchange carriers are authorized to provide local exchange service and
access to long distance, and the costs of long distance carriers change in
response. The Company believes it will have a number of options for obtaining
both exchange and access services at competitive rates, however the continuing
availability of alternative resources cannot be assured.
(ix) The Company recently began using both MCI
Communications and WorldCom to provide outbound local service in place of
BellSouth. Though the Company believes that this change of vendors has the
potential to reduce its cost of local service, there is an element of
operational risk associated with offering service from new vendors, as well as
risks of tenant acceptance.
(x) A search done in the process of preparing to apply
for a trademark for the name of the Company revealed potential conflicts with
the Company's use of the trade name "Cypress" and the Company's ability to
obtain trademark protection for this name. The Company has decided that it is
not in the Company's best interest to apply for a trademark in the name of
Cypress Communications or to change the name of the Company at this time.
Furthermore, there is a possibility that one of the firms with whom there is a
potential conflict, or other companies for that matter, will demand that the
Company discontinue using the name Cypress Communications. Such a demand might
result in either expensive litigation and/or a change the Company's name, which
in either event, could have a material adverse effect on the Company.
(i) Residence. The address of such a Purchaser as set forth on
Exhibit A attached hereto is its true and correct principal place of business
or, in the case of a Purchaser that is an individual, his residence. Such
Purchaser does not have any present intention of becoming a resident of any
other state or jurisdiction.
5. Conditions Precedent To Purchasers' Obligations
The obligation of each Purchaser to purchase and pay for the Shares to
be delivered to it at the Closing shall be subject to the satisfaction of the
following conditions as of the Closing Date:
8
<PAGE>
(a) the representations and warranties of the Company contained
in this Agreement shall be true and correct on and as of the Closing Date;
(b) concurrent with the Closing, the Company, the Purchasers and
the existing stockholders of the Company shall have entered into the
Stockholders Agreement in form and substance satisfactory to the parties
thereto;
(c) the Purchasers shall have received the legal opinion of
Powell, Goldstein, Frazer & Murphy LLP, counsel to the Company, in form and
substance satisfactory to the Purchasers;
(d) the Company shall have provided to Centennial Fund V, L.P.
("Centennial") a certification of the direct and indirect holdings of securities
of the Company by certain persons designated by Centennial as required by
Centennial's governing documents;
(e) all other Purchasers shall have concurrently purchased the
Shares to be purchased by them pursuant to this Agreement; and
(f) the Merger shall be effective under the laws of the State of
Delaware, with the Company continuing as the surviving corporation.
6. Expense Reimbursement
The Company hereby agrees to reimburse Centennial, Centennial Entrepreneurs
Fund V, L.P., Alta-Comm S By S, LLC, and Alta Communications VI, L.P. (the "Fund
Investors") for their respective reasonable out-of-pocket expenses incurred in
connection with the transactions contemplated hereby, including all reasonable
expenses incurred in connection with their due diligence examination of the
Company, the preparation and negotiation of this Agreement, the term sheet, the
Stockholders Agreement and all other documents evidencing the transactions
contemplated herein including the fees, and expenses of one counsel representing
the Fund Investors. The Company hereby agrees to reimburse such counsel for any
legal expenses, if any, incurred in connection with the filing of any documents
regarding the transactions contemplated by this Agreement with any governmental
agencies by or on behalf of the Fund Investors or by the Company referencing
such Purchasers.
7. Miscellaneous
7.1 Governing Law. This Agreement shall be governed in all respects
by the laws of the State of Georgia as such laws are applied to agreements
between Georgia residents entered into and performed entirely in Georgia, except
that the General Corporation Law of the State of Delaware shall govern as to
matters of corporate law.
7.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by any Purchaser
and the
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closing of the transactions contemplated hereby. All statements as to factual
matters contained in any certificate or other instrument delivered by or on
behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
7.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares from time to time.
7.4 Entire Agreement. This Agreement, the Exhibits and the other
documents expressly delivered pursuant hereto, including the Stockholders
Agreement, supersede any other agreement, whether written or oral, that may
have been made or entered into by the parties hereto relating to the matters
contemplated hereby and constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof, and no party
shall be liable or bound to any other in any manner by any representations,
warranties, covenants and agreements except as specifically set forth herein and
therein.
7.5 Specific Enforcement. Any Purchaser shall be entitled to
specific enforcement of its rights under this Agreement. The Company
acknowledges that money damages would be an inadequate remedy for its breach of
this Agreement and consents to an action for specific performance or other
injunctive relief in the event of any such breach.
7.6 Separability. In case any provision of the Agreement 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.
7.7 Amendment and Waiver. This Agreement may be amended or modified
only upon the mutual written consent of the Company and the Purchasers indicated
on Exhibit A as intending to purchase, in the aggregate, 75% of the Shares;
provided that any such amendment or modification which adversely affects the
rights under this Agreement of one or more Purchasers in a manner different from
any other Purchaser shall require the consent of each Purchaser adversely
affected by such amendment or modification.
7.8 Notices. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (i) upon personal delivery to
the party to be notified; (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day; (iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (iv) one (1) day after deposit
with a nationally recognized overnight courier, special next day delivery, with
verification of receipt. All communications shall be sent to
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the Company at Eleven Piedmont Center, Suite 810, Atlanta, Georgia 30305, with a
courtesy copy to Powell, Goldstein, Frazer & Murphy, L.L.P., 191 Peachtree
Street, NE, 16/th/ Floor, Atlanta, Georgia 30303, Attention: William M.
Ragland, Jr., and James K. Wagner, Jr., and to a Purchaser at the address set
forth on Exhibit A attached hereto or at such other address as the Company or
Purchaser may designate by ten (10) days advance written notice to the other
parties hereto.
7.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
7.10 Broker's Fees. Each party hereto represents and warrants that
no agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation in this Section 7.10 being untrue.
7.11 Future Financings. Nothing contained in this Agreement or any
Purchaser's prior dealings with the Company shall be deemed to constitute a
commitment on the part of any Purchaser to participate in any future financings
by the Company.
* * * * *
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In Witness Whereof, the parties hereto have executed the Agreement as of
the date set forth in the first paragraph hereof.
COMPANY:
CYPRESS COMMUNICATIONS, INC.
By: /s/ R. Stanley Allen
------------------------------------
Name: R. Stanley Allen
__________________________________
Title: President
_________________________________
PURCHASERS:
CENTENNIAL FUND V, L.P.
BY: Centennial Holdings V, L.P.,
General Partner
By: /s/ Jeffrey H. Schutz
------------------------------------
Name: Jeffrey H. Schutz
__________________________________
Its: General Partner
CENTENNIAL ENTREPRENEURS
FUND, V, L.P.
BY: Centennial Holdings V, L.P.,
General Partner
By: /s/ Jeffrey H. Schutz
------------------------------------
Name: Jeffrey H. Schutz
----------------------------------
Its: General Partner
ALTA-COMM S BY S, LLC
By: /s/ William P. Egan
------------------------------------
Name: WILLIAM P.EGAN
----------------------------------
Its: Member
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EXHIBIT 10.10
CYPRESS COMMUNICATIONS, INC.
Series B Preferred and Series B-1 Preferred
Stock Purchase Agreement
This Series B Preferred and Series B-1 Preferred Stock Purchase Agreement
(the "Agreement") is entered into as of September 30, 1998, by and among CYPRESS
COMMUNICATIONS, INC., a Delaware corporation, and each of those persons and
entities, severally and not jointly, whose names are set forth on the Schedule
of Purchasers attached hereto as Exhibit A (collectively the "Purchasers" and
individually a "Purchaser").
In consideration of the mutual promises hereinafter set forth, the parties
hereto agree as follows:
1. Agreement to Sell and Purchase
1.1 Authorization of Shares. On or prior to the Closing (as defined
in Section 2 below), the Company shall have authorized the sale and issuance to
the Purchasers of shares of its Series B Preferred Stock and Series B-1
Preferred Stock (collectively, the "Shares") having the rights, preferences,
privileges and restrictions set forth in the Amended & Restated Certificate of
Designation of the Company, attached hereto as Exhibit B (the "Certificate").
1.2 Sale and Purchase. Subject to the terms and conditions hereof, at
the Closing (as hereinafter defined) the Company hereby agrees to issue and sell
to each Purchaser and each Purchaser severally and not jointly agrees to
purchase from the Company, the number of Shares set forth opposite such
Purchaser's name on Exhibit A, at a purchase price of eight dollars ($8.00) per
Share.
2. Closing, Delivery and Payment
The closing of the sale and purchase of the Shares under this Agreement
(the "Closing") shall take place at 10:00 a.m. on September 30, 1998, at the
offices of Powell, Goldstein, Frazer & Murphy LLP, 191 Peachtree Street, N.E.,
Atlanta, Georgia 30303, or at such other time or place as the Company and the
Purchasers may mutually agree (such date is hereinafter referred to as the
"Closing Date"). At the Closing, subject to the terms and conditions hereof, the
Company will deliver to the Purchasers certificates representing the number of
Shares to be purchased at the Closing by each Purchaser, against payment of the
purchase price therefor by certified check or wire transfer of immediately
available funds.
<PAGE>
3. Representations and Warranties of the Company
The Company hereby represents and warrants to each Purchaser as
follows:
3.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has all requisite corporate power and
authority to own and operate its properties and assets, to execute and deliver
this Agreement and the Second Amended and Restated Stockholders Agreement
attached hereto as Exhibit C (the "Stockholders Agreement"), to issue and sell
the Shares and the shares of Common Stock issuable upon conversion thereof (the
"Conversion Shares") and to carry out the other provisions of this Agreement and
the Stockholders Agreement, and to carry on its business as presently conducted
and as presently proposed to be conducted.
3.2 Capitalization. The authorized capital stock of the Company,
immediately prior to the Closing, will consist of (i) Four Million Five Hundred
Seventy Six Thousand Four Hundred Sixty Three and .58 (4,576,463.58) shares of
Common Stock, Five Hundred Eighty Five Thousand Nine Hundred Eight and .46
(585,980.46) shares of which are issued and outstanding, and (ii) Three Million
Seven Hundred Three Thousand Five Hundred Sixty Six (3,703,566) shares of
Preferred Stock, of which One Million Two Hundred Eleven Thousand One Hundred
Forty (1,211,140) are designated as Series A Preferred Stock (the "Series A
Preferred"), all of which are issued and outstanding, One Million Nine Hundred
Twelve Thousand Eight Hundred Thirteen (1,912,813) are designated as Series B
Preferred Stock (the "Series B Preferred"), none of which is issued and
outstanding, and Five Hundred Seventy-Nine Thousand Six Hundred Thirteen
(579,613) are designated as Series B-1 Preferred Stock (the "Series B-1
Preferred"), none of which is issued and outstanding. All issued and outstanding
shares of the Company's Common Stock have been duly authorized and validly
issued and are fully paid and nonassessable. Except as provided in the
Stockholders Agreement, there are no outstanding options, warrants or other
rights to purchase from the Company any of its securities, other than options to
purchase 866,530.12 shares of the Company's Common Stock previously granted or
reserved for grant to certain key employees, directors and consultants of the
Company whose names are set forth on the Schedule of Existing Options attached
hereto as Schedule 3.2.
------------
3.3 Authorization; Binding Obligations. All corporate action on the
part of the Company, its officers, directors and stockholders necessary for the
authorization of this Agreement, the performance of all obligations of the
Company hereunder and under the Stockholders Agreement and for the
authorization, sale, issuance and delivery of the Shares has been taken or will
be taken prior to the Closing. When issued in compliance with the provisions of
this Agreement, the Shares will be validly issued, fully paid and nonassessable.
The Conversion Shares have been duly and validly reserved for issuance and, when
issued upon conversion of the Series B Preferred, will be validly issued, fully
paid and nonassessable. This Agreement and the Stockholders Agreement have been
duly executed by the Company and constitute valid and binding obligations of the
Company enforceable in accordance with their terms.
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3.4 Consents and Approvals. Except as set forth on Schedule 3.4, no
------------
filings with, notices to, or approvals of any governmental or regulatory body
are required to be obtained or made by the Company in connection with the
consummation of the transactions contemplated hereby.
3.5 No Violations. Except as set forth on Schedule 3.5, the execution
------------
and delivery of this Agreement and the Stockholders Agreement and the
performance by the Company of its obligations hereunder and thereunder (i) do
not and will not conflict with or violate any provision of the certificate of
incorporation or bylaws of the Company and (ii) do not and will not (a) conflict
with or result in a breach of the terms, conditions or provisions of, (b)
constitute a default under, (c) result in the creation of any encumbrance upon
the capital stock or assets of the Company pursuant to, (d) give any third party
the right to modify, terminate or accelerate any obligation under, (e) result in
a violation of, or (f) require any authorization, consent, approval, exemption
or other action by or notice to any court or administrative or governmental body
or other third party pursuant to any law, statute, rule or regulation or any
agreement or instrument or any order, judgment or decree to which the Company
is subject or by which any of its assets are bound.
3.6 Financial Statements; Interim Changes. The Company's audited
balance sheet as of December 31, 1997, audited statements of operations and cash
flows for the period ended December 31, 1997, unaudited balance sheet as of July
31, 1998 (the "Latest Balance Sheet") and unaudited statements of income and
cash flows of the Company for the period ended July 31, 1998 delivered to the
Purchasers in connection with the investment contemplated hereby (copies of
which have been furnished to the Purchasers) have been prepared in accordance
with generally accepted accounting principles ("GAAP") consistently applied
(subject to, in the case of unaudited statements, normal year-end adjustments
and the absence of footnote disclosures) and fairly present in all material
respects the pro forma financial position and the results of operations of the
Company for the period covered thereby. The Company has no material liabilities
or obligations of any nature (absolute, accrued, contingent or otherwise) that
are not either reflected or fully reserved against on the Latest Balance Sheet
or incurred in the ordinary course of the business of the Company subsequent to
the date thereof. Since the date of the Latest Balance Sheet, there has not been
any material adverse change in the business, operations, financial condition or
prospects of the Company.
3.7 Compliance with Laws. The Company's business has been conducted
in compliance with all applicable laws and regulations of governmental
authorities, except for such violations that have been cured or that,
individually or in the aggregate, may not reasonably be expected to have a
material adverse effect on the business, operations, financial condition or
prospects of the Company.
3.8 Proprietary Rights. The Company has not received any
communications alleging that it has violated or, by conducting its business as
proposed
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would violate, any proprietary rights of any other person, and except as set
forth on Schedule 3.8, the Company is not aware of any basis for the foregoing.
------------
3.9 Actions Pending. There is no action, suit or proceeding pending
or, to the best knowledge of the Company, threatened against or affecting the
Company or any of its respective properties or rights before any court or by or
before any governmental body or arbitration board or tribunal.
3.10 Material Contracts. Except as set forth on Schedule 3.10 attached
-------------
hereto, the Company is not a party to (and is not otherwise bound by) any of the
following: (i) any employment or consulting contract, (ii) any agreement
providing for the issuance or repurchase of any securities of the Company, (iii)
any agreement in respect of registration rights, preemptive rights, rights of
first refusal, voting rights or other rights of security holders (other than the
Stockholders Agreement), (iv) any agreement evidencing or providing for any
indebtedness for borrowed money, or (v) any other agreement that could
reasonably be deemed material to the Company.
3.11 Investments in United States Real Property Interests. The
Company's capital stock does not constitute a United States real property
interest as that term is defined in Section 897(c)(1)(A)(ii) of the Internal
Revenue Code of 1986, as amended (the "Code"). The preceding representation is
based on a determination by the Company that the Company is not and has never
been a United States real property holding corporation (as that term is defined
in Section 897(c)(2) of the Code). From time to time, upon request of any
Purchaser, the Company shall make a determination as to its status as a United
States real property holding corporation ("USRPHC"). If at any time in the
future the Company should become a USRPHC, the Company shall, as promptly as
possible, notify each Purchaser of such change in status.
3.12 Unrelated Business Taxable Income. Any gross income derived by
the Purchasers from the Company shall be in the form of dividends, interest,
capital gains and losses from the disposition of property, rents and royalties,
but only such rents and royalties as are excluded pursuant to Code Sections
512(b)(2) and 512(b)(3), respectively, in calculating unrelated business taxable
income and only such dividends, interest, capital gains and losses, and rents
and royalties that are not included under Section 512(b)(4) of the Code in
calculating unrelated business taxable income. This Section 3.12 shall not be
deemed to apply to (i) any compensation (in cash, stock or other form) received
by designees of the Purchasers in their capacities as directors of the Company
that is transferred to the Purchasers, or (ii) any income included under Section
512(b)(4) of the Code as a result of acquisition indebtedness incurred by any
Purchaser in connection with the purchase of an interest in the Company, or
(iii) any income derived by the Purchasers from the Company with respect to
which the Purchasers have expressly waived in writing the application of the
provision of this Section 3.12, or (iv) any income derived by the Purchasers
pursuant to the reimbursement of expenses pursuant to Section 6.9 hereof.
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3.13 Qualified Small Business. The Company qualifies as a "Qualified
Small Business" as defined in Section 1202(d) of the Code and covenants that so
long as its shares are held by the Purchasers (or a transferee in whose hands
the shares are eligible to qualify as Qualified Small Business Stock as defined
in Section 1202(c) of the Code), it will use its best efforts to cause the
shares to qualify as Qualified Small Business Stock.
4 Representation And Warranties Of The Purchasers
Each Purchaser severally and not jointly hereby represents and warrants to
the Company as follows:
4.1 Requisite Power and Authority. Such Purchaser has all necessary
power and authority under all applicable provisions of law to execute and
deliver this Agreement and to carry out its provisions. All actions on such
Purchaser's part required for the lawful execution and delivery of this
Agreement have been or will be effectively taken prior to the Closing.
4.2 Investment Representations. Such Purchaser understands that
neither the Shares nor the Conversion Shares have been registered under any
state securities act or the Securities Act of 1933, as amended (the "Securities
Act"). Such Purchaser also understands that the Shares are being offered and
sold pursuant to an exemption from registration contained in applicable state
securities acts and the Securities Act based in part upon the Purchaser's
representations contained in this Agreement.
(a) Purchaser Bears Economic Risk. Such Purchaser and, in the
case of Building Communications LLC and Tenant Communications, Inc. either alone
or through their respective members, shareholders, managers, directors or
officers, has substantial experience in evaluating and investing in private
placement transactions of securities in companies similar to the Company so that
Purchaser is capable of evaluating the merits and risks of its or his investment
in the Company and has the capacity to protect its or his own interests. Such
Purchaser must bear the economic risk of this investment indefinitely unless the
Shares (or the Conversion Shares) are registered pursuant to the Securities Act,
or an exemption from registration is available. Such Purchaser understands
that the Company has no present intention of registering the Shares, the
Conversion Shares or any shares of its Common Stock. Such Purchaser also
understands that there is no assurance that any exemption from registration
under the Securities Act will be available and that, even if available, such
exemption may not allow such Purchaser to transfer all or any portion of the
Shares or the Conversion Shares under the circumstances, in the amounts or at
the times such Purchaser might propose. Such Purchaser can bear the economic
risk of losing its entire investment in the Company.
(b) Acquisition for Own Account. Such Purchaser is acquiring
the shares and the Conversion Shares for Purchaser's own account for investment
only,
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and not with a view towards their resale or distribution in violation of
applicable securities laws.
(c) Purchaser Can Protect Its or His Interest. Such
Purchaser represents that, by reason of Purchaser's or of its management's
business or financial experience, such Purchaser has the capacity to
protect its or his own interests in connection with the transactions
contemplated in this Agreement. Further, such Purchaser is aware of no
publication of any advertisement in connection with the transactions
contemplated by the Agreement.
(d) Individual Purchaser Consideration. To the extent
Purchaser is an individual:
(i) Such Purchaser has discussed the suitability of
the investment in the Company for its particular tax and financial
situation with its legal, tax, and financial advisors to the extent
Purchaser deems appropriate, and has neither received nor relied upon any
advice of any person or persons acting for or on behalf of the Company. All
information which Purchaser has provided to the Company concerning itself
and its financial position is currently correct and complete.
(ii) Such Purchaser's overall commitment to
investments which are not readily marketable is not disproportionate to its
net worth, and its investment in the Shares and Conversion Shares will not
cause this overall commitment to become excessive.
(iii) Such Purchaser has adequate means of providing
for its current needs and personal contingencies and has no need for the
Shares or Conversion Shares to be liquid.
(iv) Such Purchaser is purchasing the Shares for the
purpose of deriving an economic profit without regard to tax benefits.
(e) Accredited Investor. Such Purchaser represents that
Purchaser is an accredited investor within the meaning of Regulation D
under the Securities Act.
(f) Company Information. Such Purchaser has had an
opportunity to discuss the Company's business, management and financial
affairs with directors, officers and management of the Company. Such
Purchaser has also had the opportunity to ask questions of, and receive
answers from, the Company and its management regarding the terms and
conditions of this investment. Purchaser has had an adequate opportunity to
inspect and copy all material documents relating to the Company, and to
obtain any additional information that is necessary to verify the accuracy
of the information the Purchaser has received. Purchaser has not received
any information from nor has Purchaser relied upon the name or reputation
of any law firm or accounting firm that the Company or any persons acting
on its behalf may have
6
<PAGE>
mentioned as being involved in this sale or as being the Company's legal
counsel or accounting firm.
(g) Rule 144. Such Purchaser acknowledges and agrees that the
Shares and the Conversion Shares must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. Such Purchaser has been advised or is aware of the
provisions of Rule 144 promulgated under the Securities Act, which permits
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things: the
availability of certain current public information about the Company, the resale
occurring not less than one year after a party has purchased and paid for the
security to be sold, the sale being through an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934, as amended) and the number of
shares being sold during any three-month period not exceeding specified
limitations.
(h) Risks. Such Purchaser acknowledges that an investment in
the Company involves many risks, and understands all of the risk factors related
to an investment in the Company, including, but not limited to the following:
(i) The Company was recently formed and does not have a
significant operating history upon which an evaluation of the Company's
performance could be based. There can be no assurance that the Company's
operations will be profitable or that the Company will be able to sell its
products and services. The likelihood of success of the Company is speculative,
and the Purchaser is familiar with the many problems, difficulties,
complications and delays frequently encountered in the operation and
development of early stage and expanding businesses.
(ii) Additional proceeds will be required to finance the
activities of the Company. The Company will need financing for operations and
marketing. No arrangements have been made to secure such financing, and there
can be no assurance that such additional financing will be available when
required or on terms acceptable to the Company.
(iii) The telecommunications industry has been
characterized by steady technological change, frequent new service
introductions and evolving industry standards. The Company's success will
depend in part on its ability to anticipate such changes and to offer responsive
services on a timely basis. Further, although the trend has been toward
decreases in the cost of equipment, there is no assurance that this trend will
continue, or that the Company will be able to respond successfully to such
changes.
(iv) The telecommunications industry is highly regulated.
Certain aspects of the Company's plan may require authorization from the
Federal Communications Commission ("FCC") and applicable state public service
commissions. This involves both obtaining the required authorizations and
complying with the on-
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going requirements imposed on carriers, such as filing a tariff. No assurances
can be given that there will be no opposition to the Company's applications or
that the necessary authorizations (other than any such authorization necessary
to continue the current business operations of the Company) will be granted.
Additional expenses (such as legal and accounting fees) will be involved in
attempting to obtain and in maintaining these authorizations and in complying
with the accounting reporting and administrative regulations imposed by the FCC
and the state commissions. The cost for access to local service could change
significantly as deregulation of the local loop progresses and carriers other
than the existing local exchange carriers are authorized to provide local
service.
(v) The Company competes with a number of competitors with
significantly greater financial resources than the Company.
(vi) The Company's success will be related to the real estate
cycle, in particular, to construction and leasing activity.
(vii) The Company's operations will depend upon contractual
arrangements with local exchange and long distance carriers. The costs
associated with the purchase of local exchange services, access to the long
distance network, and long distance services could change significantly as
deregulation of the local loop progresses, carriers other than the existing
local exchange carriers are authorized to provide local exchange service and
access to long distance, and the costs of long distance carriers change in
response. The Company believes it will have a number of options for obtaining
exchange and access services at competitive rates, however the continuing
availability of alternative resources cannot be assured.
(viii) The Company has used and will, for the forseeable future,
use incumbent local exchange carriers ("ILECs") to provide inbound calling
services to telephone numbers used by the Company's customers. Because local
number portability (i.e., the regulatory and technical abilities of the Company
and/or the Company's customers to transfer telephone numbers freely between
local exchange carriers) has been delayed nationwide, the Company is dependent
on the quality of such ILEC services for completing telephone calls, both local
and long distance, intended for the Company's customers. Should such services
prove to be of poor quality for any particular building or market in which the
Company operates, the business of the Company in that building or in that market
could be adversely affected in a material manner.
(ix) The Company uses several competitive local exchange
carriers to provide outbound local, point to point and local loop services, in
addition to using incumbent local exchange carriers. Though the Company believes
that this diversification of vendors has the potential to reduce its cost of
such services, as well as provide operational redundancy, there is an element of
operational risk associated with using services from new vendors.
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(x) A search done in the process of preparing to apply for
a trademark for the name of the Company revealed potential conflicts with the
Company's use of the trade name "Cypress" and the Company's ability to obtain
trademark protection for this name. The Company has decided that it is not in
the Company's best interest to apply for a trademark in the name of Cypress
Communications or to change the name of the Company at this time. Furthermore,
there is a possibility that one of the firms with whom there is a potential
conflict, or other companies for that matter, will demand that the Company
discontinue using the name Cypress Communications. Such a demand might result
in either expensive litigation and/or a change in the Company's name, which in
either event, could have a material adverse effect on the Company.
(i) Residence. The address of such Purchaser as set forth on
Exhibit A attached hereto is its true and correct principal place of business
or, in the case of a Purchaser that is an individual, his residence. Such
Purchaser does not have any present intention of becoming a resident of any
other state or jurisdiction.
5. Conditions Precedent To Purchasers' Obligations
The obligation of each Purchaser to purchase and pay for the Shares to be
delivered to it at the Closing shall be subject to the satisfaction of the
following conditions as of the Closing Date:
(a) the representations and warranties of the Company contained
in this Agreement shall be true and correct on and as of the Closing Date;
(b) concurrent with the Closing, the Company, the Purchasers and
the existing stockholders of the Company shall have entered into the
Stockholders Agreement in form and substance satisfactory to the parties
thereto;
(c) the Purchasers shall have received the legal opinion of
Powell, Goldstein, Frazer & Murphy LLP, counsel to the Company, in form and
substance satisfactory to the Purchasers;
(d) the Company shall have provided to Centennial Fund V, L.P.
("Centennial") a certification of the direct and indirect holdings of securities
of the Company by certain persons designated by Centennial as required by
Centennial's governing documents; and
(e) all other Purchasers shall have concurrently purchased the
Shares to be purchased by them pursuant to this Agreement.
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6. Expense Reimbursement
The Company hereby agrees to reimburse the expenses of Centennial,
Centennial Entrepreneurs Fund V, L.P., Alta-Comm S By S, LLC, Alta
Communications VI, L.P., Building Communications LLC, and Tenant Communications,
Inc. for their reasonable out-of-pocket expenses incurred in connection with the
transactions contemplated hereby, including all reasonable expenses incurred in
connection with their due diligence examination of the Company, the preparation
and negotiation of this Agreement, the term sheet, the Stockholders Agreement
and all other documents evidencing the transactions contemplated herein
(including the fees (not to exceed $18,000) and expenses of Holland & Hart LLP,
counsel to Centennial, Centennial Entrepreneurs Fund V, L.P., Alta-Comm S By S,
LLC, and Alta Communications VI, L.P., and the fees (not to exceed $12,000) and
expenses of Goulston & Storrs, P.C., counsel to Building Communications LLC and
Tenant Communications, Inc. The Company hereby agrees to reimburse such counsel
for any legal expenses, if any, incurred in connection with the filing of any
documents regarding the transactions contemplated by this Agreement with any
governmental agencies by or on behalf of the Fund Investors or by the Company
referencing such Purchasers.
7. Miscellaneous
7.1 Governing Law. This Agreement shall be governed in all respects
by the laws of the State of Georgia as such laws are applied to agreements
between Georgia residents entered into and performed entirely in Georgia, except
that the General Corporation Law of the State of Delaware shall govern as to
matters of corporate law.
7.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by any Purchaser and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
7.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares from time to time.
7.4 Entire Agreement. This Agreement, the Exhibits and the other
documents expressly delivered pursuant hereto, including the Stockholders
Agreement, supersede any other agreement, whether written or oral, that may have
been made or entered into by the parties hereto relating to the matters
contemplated hereby and constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof, and no party
shall be liable or bound to any other in any
10
<PAGE>
manner by any representations, warranties, covenants and agreements except as
specifically set forth herein and therein.
7.5 Specific Enforcement. Any Purchaser shall be entitled to specific
enforcement of its rights under this Agreement. The Company acknowledges that
money damages would be an inadequate remedy for its breach of this Agreement and
consents to an action for specific performance or other injunctive relief in the
event of any such breach.
7.6 Separability. In case any provision of the Agreement 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.
7.7 Amendment and Waiver. This Agreement may be amended or modified
only upon the mutual written consent of the Company and the Purchasers indicated
on Exhibit A as intending to purchase, in the aggregate, a majority of the
Series B Shares; provided that any such amendment or modification which
adversely affects the rights under this Agreement of one or more Purchasers in a
manner different from any other Purchaser shall require the consent of each
Purchaser adversely affected by such amendment or modification.
7.8 Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified; (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day; (iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (iv) one (1) day after deposit
with a nationally recognized overnight courier, special next day delivery, with
verification of receipt. All communications shall be sent to the Company at
Fifteen Piedmont Center, Suite 710, Atlanta, Georgia 30305, Attn.: President,
with a courtesy copy to Powell, Goldstein, Frazer & Murphy, L.L.P., 191
Peachtree Street, NE, 16/th/ Floor, Atlanta, Georgia 30303, Attention: William
M. Ragland, Jr., and James K. Wagner Jr., and to a Purchaser at the address set
forth on Exhibit A attached hereto or at such other address as the Company or
Purchaser may designate by ten (10) days advance written notice to the other
parties hereto.
7.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
7.10 Broker's Fees. Each party hereto represents and warrants that no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation in this Section 7.10 being untrue.
11
<PAGE>
7.11 Future Financings. Nothing contained in this Agreement or any
Purchaser's prior dealings with the Company shall be deemed to constitute a
commitment on the part of any Purchaser to participate in any future financings
by the Company.
* * * * *
[The rest of this page left intentionally blank]
12
<PAGE>
In Witness Whereof, the parties hereto have executed the Agreement as of
the date set forth in the first paragraph hereof.
COMPANY:
CYPRESS COMMUNICATIONS, INC.
By: /s/ Mark A. Graves
-----------------------------------
Name: MARK A. GRAVES
---------------------------------
Title: President
-------------------------------
PURCHASERS:
CENTENNIAL FUND V, L.P.
By: Centennial Holdings V, L.P.,
General Partner
By: /s/ Jeffrey H. Schutz
-----------------------------------
Name: JEFFREY H. SCHUTZ
---------------------------------
Its: General Partner
CENTENNIAL ENTREPRENEURS
FUND, V, L.P.
By: Centennial Holdings V, L.P.,
General Partner
By: /s/ Jeffrey H. Schutz
-----------------------------------
Name: JEFFREY H. SCHUTZ
---------------------------------
Its: General Partner
ALTA-COMM S BY S, LLC
By: /s/ William P. Egan
-----------------------------------
Name: WILLIAM P. EGAN
---------------------------------
Its: Member
<PAGE>
EXHIBIT 10.11
CYPRESS COMMUNICATIONS, INC.
Series C Preferred and Series C-1 Preferred
Stock Purchase Agreement
This Series C Preferred and Series C-1 Preferred Stock Purchase Agreement
(the "Agreement") is entered into as of October 8, 1999, by and among CYPRESS
---------
COMMUNICATIONS, INC., a Delaware corporation (the "Company"), and each of those
-------
persons and entities, severally and not jointly, whose names are set forth on
the Schedule of Purchasers attached hereto as Exhibit A (collectively the
"Purchasers" and individually a "Purchaser").
---------- ---------
In consideration of the mutual promises hereinafter set forth, the parties
hereto agree as follows:
1. Agreement to Sell and Purchase
1.1 Authorization of Shares. On or prior to the Initial Closing Date
(as defined in Section 2 below), the Company shall have authorized the sale and
issuance to the Purchasers of shares of its Series C Preferred Stock and Series
C-1 Preferred Stock (collectively, the "Shares") having the rights, preferences,
------
privileges and restrictions set forth in the Second Amended Certificate of
Designation of Series A Preferred Stock, Amended Certificate of Designation of
Series B Preferred Stock and Series B-1 Preferred Stock, and Certificate of
Designation of Series C Preferred Stock and Series C-1 Preferred Stock of the
Company, attached hereto as Exhibit B (the "Certificate").
-----------
1.2 Sale and Purchase. Subject to the terms and conditions hereof, at
the Closings (as hereinafter defined) the Company hereby agrees to issue and
sell to each Purchaser and each Purchaser severally and not jointly agrees to
purchase from the Company, the number of Shares set forth opposite such
Purchaser's name on Exhibit A, at a purchase price of nineteen dollars ($19.00)
---------
per Share.
2. Closing, Delivery and Payment
The closing of the sale and purchase of the Shares described on Part I of
Exhibit A under this Agreement (the "Initial Closing") shall take place at
- --------- ---------------
10:00 a.m. on October 8, 1999, at the offices of Powell, Goldstein, Frazer &
Murphy LLP, 191 Peachtree Street, N.E., Atlanta, Georgia 30303, or at such other
time or place as the Company and the Purchasers may mutually agree (such date is
hereinafter referred to as the "Initial Closing Date"). The closing of the sale
--------------------
and purchase of the Shares described on Part II of Exhibit A (the "Second
--------- ------
Closing" and together with the Initial Closing, the "Closings") shall take place
- ------- --------
at 10:00 a.m. on October 18, 1999, at the offices of Powell, Goldstein, Frazer &
Murphy LLP, or such other time or place as the Company and the Purchasers may
mutually agree (such date is hereinafter referred to as the "Second Closing
--------------
Date"). At the Closings, subject to the terms and conditions hereof, the
Company will deliver to the Purchasers certificates representing the number of
Shares to be purchased at such Closing by each Purchaser, against payment of the
purchase price therefor by certified check or wire transfer of immediately
available funds.
<PAGE>
3. Representations and Warranties of the Company
The Company hereby represents and warrants to, and agrees with, each
Purchaser as follows:
3.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has all requisite corporate power and
authority to own and operate its properties and assets, to execute and deliver
this Agreement and the Third Amended and Restated Stockholders Agreement
attached hereto as Exhibit C (the "Stockholders Agreement"), to issue and sell
--------- ----------------------
the Shares and the shares of common stock, par value $0.001 per share, of the
Company (the "Common Stock") issuable upon conversion of the Shares (the
------------
"Conversion Shares"), to carry out the other provisions of this Agreement and
-----------------
the Stockholders Agreement and the transactions contemplated hereby and thereby,
and to carry on its business as presently conducted and as presently proposed to
be conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure so to qualify could have a
material adverse effect on its business, properties, operations, earnings,
assets or liabilities, condition (financial or otherwise) (collectively,
"Condition").
---------
3.2 Capitalization.
(a) The authorized capital stock of the Company, immediately
after the Closings, will consist of (i) Ten Million Eight Hundred Ninety-Four
Thousand Seventy-One and 62/100 (10,894,071.62) shares of Common Stock, Five
Hundred Eighty Five Thousand Nine Hundred Eighty and 46/100 (585,980.46) shares
of which are issued and outstanding, and (ii) Seven Million Six Hundred Eighty-
Seven Thousand Seven Hundred Four and 16/100 (7,687,704.16) shares of Preferred
Stock, of which One Million Two Hundred Eleven Thousand One Hundred Forty
(1,211,140) are designated as Series A Preferred Stock (the "Series A
--------
Preferred"), all of which are issued and outstanding, One Million Nine Hundred
- ---------
Nineteen Thousand One Hundred Eighty Eight (1,919,188) are designated as Series
B Preferred Stock (the "Series B Preferred"), One Million Three Hundred Thirty
------------------
Nine Thousand Five Hundred Seventy Five (1,339,575) of which are issued and
outstanding, Five Hundred Seventy Nine Thousand Six Hundred Thirteen (579,613)
are designated as Series B-1 Preferred Stock (the "Series B-1 Preferred"), all
--------------------
of which are issued and outstanding, Three Million Nine Hundred Seventy Seven
Thousand Seven Hundred Sixty Three and 16/100 (3,977,763.16) are designated as
Series C Preferred Stock (the "Series C Preferred"), none of which are issued
------------------
and outstanding, and of which none are designated as Series C-1 Preferred Stock
(the "Series C-1 Preferred) (the Series A Preferred, Series B Preferred, Series
--------------------
B-1 Preferred, Series C Preferred and Series C-1 Preferred are collectively
referred to herein as the "Preferred Stock").
---------------
(b) Except as specifically set forth on Schedule 3.2 attached
------------
hereto, and except for conversion rights of issued and outstanding shares of
Preferred Stock, as of the Closings the Company will not (i) have outstanding
any capital stock or other securities convertible into or exchangeable for any
shares of its capital stock and, except for the preemptive rights contained in
the Stockholders Agreement, no person will have any right to subscribe for or to
purchase (including conversion or preemptive rights), or any options for the
purchase of, or any agreements providing for the issuance (contingent or
otherwise) of, or any calls,
2
<PAGE>
commitments or other claims of any character relating to, any capital stock or
any stock or securities convertible into or exchangeable for any capital stock
of the Company; (ii) have any capital stock, equity interests or other
securities reserved for issuance for any purpose; or (iii) except for the
redemption rights set forth in the Certificate, be subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of its capital stock or any convertible securities, rights or options of
the type described in the preceding clause (i). No outstanding options, warrants
or other security directly or indirectly exercisable for or convertible into any
class or series of the Company's capital stock require anti-dilution adjustments
by reason of the transactions contemplated by this Agreement. All of the issued
and outstanding shares of Common Stock and Preferred Stock have been duly and
validly issued, are fully paid and nonassessable and were issued in compliance
with all applicable federal and state securities laws. To the best knowledge of
the Company, there are no agreements among the Company's stockholders with
respect to the voting or transfer of the Company's capital stock, other than the
agreements regarding voting and transfer contained in the Stockholders
Agreement. Schedule 3.2 sets forth a complete and correct list of (i) the name
------------
of each of the Company's stockholders and the number of shares and class and
series of capital stock owned by such stockholder, and (ii) the name of each
holder of an outstanding stock option and/or warrant, and the number of options
and/or warrants to purchase capital stock owned by such holder (and the
applicable class and series of capital stock) and the exercise price at which
such option(s) or warrants may be exercised. The Company does not presently own
or control, directly or indirectly, any interest in any other corporation,
association, or other business entity.
3.3 Authorization; Binding Obligations. All corporate action on the
part of the Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the Stockholders
Agreement and each other document or instrument executed by it, or any of its
officers, in connection herewith or therewith or pursuant hereto or thereto
(this Agreement, together with all of the foregoing documents and instruments,
are sometimes collectively referred to herein as the "Company's Documents"), the
-------------------
performance of all obligations of the Company under the Company Documents and
for the authorization, sale, issuance and delivery of the Shares has been taken
or will be taken prior to the Closings. When issued in compliance with the
provisions of this Agreement, the Shares will be validly issued, fully paid and
nonassessable, free of any liens, preemptive or similar rights, or any other
encumbrances (except as set forth in the Stockholders Agreement) and issued in
compliance with all applicable state and federal securities laws. The
Conversion Shares have been duly and validly reserved for issuance and, when
issued upon conversion of the Series C Preferred and/or Series C-1 Preferred,
will be validly issued, fully paid and nonassessable, free of any liens,
preemptive or similar rights, or any other encumbrance (except as set forth in
the Stockholders Agreement). This Agreement, the Stockholders Agreement and the
other Company's Documents have been duly executed and delivered by the Company
and constitute legal, valid and binding obligations of the Company enforceable
in accordance with their terms.
3.4 Consents and Approvals. Except as set forth on Schedule 3.4, no
------------
filings with, notices to, or approvals of any governmental or regulatory body
are required to be obtained or made by the Company in connection with the
consummation of the transactions contemplated hereby.
3
<PAGE>
3.5 No Violations. Except as set forth on Schedule 3.5, the
------------
execution, delivery and performance of this Agreement and the other Company's
Documents and the performance by the Company of its obligations hereunder and
thereunder (i) do not and will not conflict with or violate any provision of the
certificate of incorporation or bylaws of the Company and (ii) do not and will
not (a) conflict with or result in a breach of the terms, conditions or
provisions of, (b) constitute a default under, (c) result in the creation of any
encumbrance upon the capital stock or assets of the Company pursuant to, (d)
give any third party the right to modify, terminate or accelerate any obligation
under, (e) result in a violation of, or (f) require any authorization, consent,
approval, exemption or other action by or notice to any court, governmental
authority, department, commission, board, bureau, agency or instrumentality,
domestic or foreign ("Governmental Authority") or any other individual,
----------------------
partnership, corporation, unincorporated organization or association, limited
liability company, trust or other entity (collectively, a "Person") pursuant to
------
any law, statute, rule or regulation or any agreement, contract or instrument or
any order, judgment or decree to which the Company is subject or by which any of
its assets are bound.
3.6 Financial Statements; Interim Changes. The Company's audited
balance sheet as of December 31, 1998, audited statements of operations, and
cash flows for the period ended December 31, 1998, unaudited balance sheet as of
May 31, 1999 (the "Latest Balance Sheet") and unaudited statements of income and
--------------------
cash flows of the Company for the period ended May 31, 1999, (copies of which
have been furnished to the Purchasers in connection with the investment
contemplated hereby) are complete and correct in all material respects, have
been prepared in accordance with generally accepted accounting principles
("GAAP") consistently applied (subject to, in the case of unaudited statements,
----
normal year-end adjustments and the absence of footnote disclosures, all of
which are not material) and fairly present in all material respects the
financial position, the results of operations and cash flows of the Company for
the period covered thereby. The Company has no material liabilities or
obligations of any nature (absolute, accrued, contingent or otherwise) that are
not either reflected or fully reserved against on the Latest Balance Sheet or
incurred in the ordinary course of the business of the Company subsequent to the
date thereof. Since the date of the Latest Balance Sheet, there has not been
any material adverse change in the Condition of the Company.
3.7 Compliance with Laws. The Company's business has been conducted
in compliance with all applicable laws and regulations of Governmental
Authorities, except for such violations that have been cured or that,
individually or in the aggregate, could not reasonably be expected to have a
material adverse effect on the Condition of the Company. The Company has all
permits, licenses, orders, certificates, authorizations and approvals of any
Governmental Authority (collectively, the "Permits") that are material to the
-------
conduct of its business as presently conducted and as proposed to be conducted;
all such Permits are, and as of the Closing will be, in full force and effect;
no violations or notices of failure to comply have been issued or recorded in
respect of any such Permits; and the Company has no knowledge of any reason why
such Permits may be revoked or suspended. To the best of the Company's
knowledge, the business, operations, assets and properties of the Company are
and have been operated and maintained in compliance in all material respects
with all applicable federal, state, city, county and local environmental
protection laws and regulations.
4
<PAGE>
3.8 Proprietary Rights. The Company has not received any
communications alleging that it has violated or, by conducting its business as
proposed would violate, any proprietary rights of any other person, and except
as set forth on Schedule 3.8, the Company is not aware of any basis for the
------------
foregoing.
3.9 Actions Pending. Except as set forth on Schedule 3.9, there is
------------
no action, suit, investigation, proceeding or governmental approval process
(collectively, "Actions") pending or, to the best knowledge of the Company,
-------
threatened against or affecting the Company or any of its respective properties
or rights before any court or by or before any governmental body or arbitration
board or tribunal, none of which could reasonably be expected to have a material
adverse effect on the Condition of the Company.
3.10 Material Contracts. Except as set forth on Schedule 3.10
-------------
attached hereto, the Company is not a party to (and is not otherwise bound by)
any of the following: (i) any employment or consulting agreement, (ii) any
agreement providing for the issuance or repurchase of any securities of the
Company, (iii) any agreement in respect of registration rights, preemptive
rights, rights of first refusal, voting rights or other rights or security
holders (other than the Stockholders Agreement), (iv) any agreement evidencing
or providing for any indebtedness for borrowed money, any agreement with any
past or present officer, director, key employee or shareholder of the Company or
any affiliate or relative thereof (other than the Stockholders Agreement and
grant agreements with respect to Reserved Employee Stock), or (v) any other
agreement that could reasonably be deemed material to the Company or its
Condition.
3.11 Insurance. The Company has in full force and effect liability
insurance of the types and providing coverage in such amounts as is customary
for companies of established reputation engaged in the same or similar business
and similarly situated, and such other insurance policies as are sufficient for
compliance with all requirements of law and applicable agreements.
3.12 Investments in United States Real Property Interests. The
Company's capital stock does not constitute a United States real property
interest as that term is defined in Section 897(c)(1)(A)(ii) of the Internal
Revenue Code of 1986, as amended (the "Code"). The preceding representation is
----
based on a determination by the Company that the Company is not and has never
been a United States real property holding corporation (as that term is defined
in Section 897(c)(2) of the Code). From time to time, upon request of any
Purchaser, the Company shall make a determination as to its status as a United
States real property holding corporation ("USRPHC"). If at any time in the
------
future the Company should become a USRPHC, the Company shall, as promptly as
possible, notify each Purchaser of such change in status.
3.13 Unrelated Business Taxable Income. Any gross income derived by
the Purchasers from the Company shall be in the form of dividends, interest,
capital gains and losses from the disposition of property, rents and royalties,
but only such rents and royalties as are excluded pursuant to Code Sections
512(b)(2) and 512(b)(3), respectively, in calculating unrelated business taxable
income and only such dividends, interest, capital gains and losses, and rents
and royalties that are not included under Section 512(b)(4) of the Code in
calculating unrelated business taxable income. This Section 3.13 shall not be
deemed to apply to (i) any compensation (in cash, stock or other form) received
by designees of the Purchasers in their
5
<PAGE>
capacities as directors of the Company that is transferred to the Purchasers, or
(ii) any income included under Section 512(b)(4) of the Code as a result of
acquisition indebtedness incurred by any Purchaser in connection with the
purchase of an interest in the Company, or (iii) any income derived by the
Purchasers from the Company with respect to which the Purchasers have expressly
waived in writing the application of the provision of this Section 3.13, or (iv)
any income derived by the Purchasers pursuant to the reimbursement of expenses
pursuant to Section 7 hereof.
3.14 Books and Records. The minute books of the Companies fully set
forth all material action taken by the Board of Directors, stockholders and, if
any, executive board (or other committee thereof) of the Company.
3.15 Disclosure. The Company has fully provided each Purchaser with
all the information which such Purchaser has requested for deciding whether to
purchase the Shares. Neither this Agreement nor any other certificates made or
delivered in connection herewith contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements herein
or therein not misleading.
3.16 Year 2000. The Company has reviewed its operations to evaluate
the extent to which the business or operations of the Company will be affected
by the Year 2000 Problem (as defined below). As a result of such review, the
Company has no reasonable basis to believe, and does not believe, that the Year
2000 Problem will have a material adverse effect on the Condition of the
Company; provided, however, that the Company does not make any representation or
warranty as to the operation of any telecommunications network operated by an
incumbent or competing local exchange carrier which may be affected by the Year
2000 Problem. The "Year 2000 Problem" as used herein means any significant risk
-----------------
that computer hardware or software used in the receipt, transmission,
processing, manipulation, storage, retrieval, retransmission or other
utilization of data or in the operation of mechanical or electrical systems of
any kind will not, in the case of dates or time periods occurring after December
31, 1999, function at least as effectively as in the case of dates or time
periods occurring prior to January 1, 2000.
3.17 Environmental Matters.
(a) To the best of the Company's knowledge, the Company has
not caused or allowed, nor has the Company contracted with any party for, the
generation, use, transportation, treatment, storage or disposal of any Hazardous
Substances (as defined below) in connection with the operations of its business
or otherwise.
(b) To the best of the Company's knowledge, the Company, the
operations of its business, and any real property that the Company owns, leases,
or otherwise occupies (the "Premises") are in compliance in all material
respects with all applicable Environmental Laws (as defined below) and orders or
directives of any governmental authorities having jurisdiction under such
Environmental Laws including, without limitation, any Environmental Laws or
orders or directives with respect to any cleanup or remediation of any release
or threat of release of Hazardous Substances.
6
<PAGE>
(c) To the best of the Company's knowledge, the Company has
not received any citation, directive, letter or other communication, written or
oral, or any notice of any proceedings, claims or lawsuits, from any person,
entity or governmental authority arising out of the occupation of the Premises
or the conduct of its operations, nor is it aware of any reasonable basis
thereof.
(d) To the best of the Company's knowledge, the Company has
obtained and is maintaining in full force and effect all material permits,
licenses and approvals required of the Company by any Environmental Laws
applicable to the Premises and the business operations conducted by the Company
and is in compliance with all such permits, licenses and approvals, in all
material respects.
(e) To the best of the Company's knowledge, the Company has
not caused or allowed a release of any Hazardous Substance unto, nor to the best
of the Company's knowledge has the Premises or any property at or near the
Premises ever been subject to a release, or a threat of a release, of any
Hazardous Substance.
(f) The term "Environmental Laws" shall mean any federal,
state or local law, ordinance or regulation pertaining to the protection of
human health or the environment including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Sections 9601,
et seq., Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Sections
11001, et seq., and the Resource Conservation and Recovery Act, 42 U.S.C.
Sections 6901, et seq.
(g) The term "Hazardous Substance" includes oil and petroleum
products, asbestos, polychlorinated biphenyls and urea formaldehyde, and any
other materials classified as hazardous or toxic under any Environmental Laws.
4. Representations And Warranties Of The Purchasers
Each Purchaser severally and not jointly hereby represents and warrants to
the Company as follows:
4.1 Requisite Power and Authority. Such Purchaser has all necessary
power and authority under all applicable provisions of law to execute and
deliver this Agreement and to carry out its provisions. All actions on such
Purchaser's part required for the lawful execution and delivery of this
Agreement have been or will be effectively taken prior to the Closing.
4.2 Investment Representations. Such Purchaser understands that
neither the Shares nor the Conversion Shares have been registered under any
state securities act or the Securities Act of 1933, as amended (the "Securities
----------
Act"). Such Purchaser also understands that the Shares are being offered and
- ---
sold pursuant to an exemption from registration contained in applicable state
securities acts and the Securities Act based in part upon the Purchaser's
representations contained in this Agreement.
(a) Purchaser Bears Economic Risk. Such Purchaser and, in the
case of Building Communications LLC and Tenant Communications, Inc. either alone
or through their respective members, shareholders, managers, directors or
officers, has substantial
7
<PAGE>
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that Purchaser is capable of
evaluating the merits and risks of its or his investment in the Company and has
the capacity to protect its or his own interests. Such Purchaser must bear the
economic risk of this investment indefinitely unless the Shares (or the
Conversion Shares) are registered pursuant to the Securities Act, or an
exemption from registration is available. Such Purchaser understands that the
Company has no present intention of registering the Shares, the Conversion
Shares or any shares of its Common Stock. Such Purchaser also understands that
there is no assurance that any exemption from registration under the Securities
Act will be available and that, even if available, such exemption may not allow
such Purchaser to transfer all or any portion of the Shares or the Conversion
Shares under the circumstances, in the amounts or at the times such Purchaser
might propose. Such Purchaser can bear the economic risk of losing its entire
investment in the Company.
(b) Acquisition for Own Account. Such Purchaser is acquiring the
Shares and the Conversion Shares for Purchaser's own account for investment
only, and not with a view towards their resale or distribution in violation of
applicable securities laws.
(c) Purchaser Can Protect Its or His Interest. Such Purchaser
represents that, by reason of Purchaser's or of its management's business or
financial experience, such Purchaser has the capacity to protect its or his own
interests in connection with the transactions contemplated in this Agreement.
Further, such Purchaser is aware of no publication of any advertisement in
connection with the transactions contemplated by the Agreement.
(d) Individual Purchaser Consideration. To the extent Purchaser
is an individual:
(i) Such Purchaser has discussed the suitability of the
investment in the Company for its particular tax and financial situation with
its legal, tax, and financial advisors to the extent Purchaser deems
appropriate. All information which Purchaser has provided to the Company
concerning itself and its financial position is currently correct and complete.
(ii) Such Purchaser's overall commitment to investments
which are not readily marketable is not disproportionate to its net worth, and
its investment in the Shares and Conversion Shares will not cause this overall
commitment to become excessive.
(iii) Such Purchaser has adequate means of providing for its
current needs and personal contingencies and has no need for the Shares or
Conversion Shares to be liquid.
(iv) Such Purchaser is purchasing the Shares for the
purpose of deriving an economic profit without regard to tax benefits.
(e) Accredited Investor. Except as set forth on Schedule 4.2(e),
---------------
such Purchaser represents that Purchaser is an accredited investor within the
meaning of Regulation D under the Securities Act.
8
<PAGE>
(f) Company Information. Such Purchaser has had an opportunity
to discuss the Company's business, management and financial affairs with
directors, officers and management of the Company. Such Purchaser has also had
the opportunity to ask questions of, and receive answers from, the Company and
its management regarding the terms and conditions of this investment. Purchaser
has had an adequate opportunity to inspect and copy all material documents
relating to the Company which it has requested and has been furnished or
provided access to information similar to that which would be included in a
registration statement as is necessary for such Purchaser, in view of its
business or management experience and sophistication, to evaluate the merits and
risks of an investment in the Company.
(g) Rule 144. Such Purchaser acknowledges and agrees that the
Shares and the Conversion Shares must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. Such Purchaser has been advised or is aware of the
provisions of Rule 144 promulgated under the Securities Act, which permits
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things: the
availability of certain current public information about the Company, the resale
occurring not less than one year after a party has purchased and paid for the
security to be sold, the sale being through an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934, as amended) and the number of
shares being sold during any three-month period not exceeding specified
limitations.
(h) Risks. Such Purchaser acknowledges that the following risks
relating to an investment in the Company have been disclosed to such Purchaser
by the Company.
(i) The Company was formed in 1995 and therefore has a
limited operating history upon which an evaluation of the Company's performance
could be based. There can be no assurance that the Company's operations will be
profitable or that the Company will be able to sell its products and services at
price levels that will produce profits or an acceptable return to shareholders.
(ii) Additional financing may be required to support the
growth activities of the Company. The Company may need financing for operations
and marketing. No arrangements have been made to secure such financing, and
there can be no assurance that such additional financing will be available when
required or on terms acceptable to the Company.
(iii) The telecommunications industry has been characterized
by steady technological change, frequent new service introductions, evolving
industry standards, and new and consolidating competitors. The Company's success
will depend in part on its ability to anticipate such changes and to offer
responsive services on a timely basis. Further, although the trend has been
toward decreases in the cost of equipment and network elements, there is no
assurance that these trends will continue, or that the Company will be able to
respond successfully to such changes.
(iv) The telecommunications industry is highly regulated.
In the future, certain aspects of the Company's operations may require
authorization from the
9
<PAGE>
Federal Communications Commission ("FCC") and/or applicable state public service
---
commissions. This may involve both obtaining the required authorizations and
complying with the on-going requirements imposed on carriers, such as filing a
tariff. No assurances can be given that there will be no opposition to the
Company's applications or that the necessary authorizations (other than any such
authorization necessary to continue the current business operations of the
Company) will be granted. Additional expenses (such as legal and accounting
fees) will be involved in attempting to obtain and in maintaining these
authorizations and in complying with the accounting reporting and administrative
regulations imposed by the FCC and the state commissions. The cost for access to
local service could change significantly as deregulation of the local loop
progresses and carriers other than the existing local exchange carriers are
authorized to provide local service.
(v) The Company competes with a number of companies with
significantly greater financial resources than the Company.
(vi) The Company's success will be related to the real
estate cycle, in particular, to construction and leasing activity.
(vii) The Company's operations will depend in part upon
contractual arrangements with local exchange and long distance carriers. The
costs associated with the purchase of local exchange services, access to the
long distance network, and long distance services could change significantly as
deregulation of the local loop progresses, carriers other than the existing
local exchange carriers are authorized to provide local exchange service and
access to long distance, and the costs of long distance carriers change in
response. The Company believes it will have a number of options for obtaining
both exchange and access services at competitive rates, however the continuing
availability of alternative resources cannot be assured.
(viii) The Company has used and will, for the foreseeable
future, use incumbent local exchange carriers ("ILECs") to provide the bulk of
-----
inbound calling services to telephone numbers used by the Company's customers.
Because local number portability (i.e., the regulatory and technical abilities
of the Company and/or the Company's customers to transfer telephone numbers
freely between local exchange carriers) was delayed nationwide and is far from a
failsafe procedure where it has been implemented, the Company is dependent on
the quality of such ILEC services for completing telephone calls, both local and
long distance, intended for the Company's customers. Should such services prove
to be of poor quality for any particular building or market in which the Company
operates, the business of the Company in that building or in that market could
be adversely affected in a material manner.
(ix) The Company uses several competitive local exchange
carriers ("CLECs") to provide outbound local, point to point and local loop
-----
services, in addition to using ILECs. Though the Company believes that this
diversification of vendors has the potential to reduce its cost of such
services, as well as provide operational redundancy, there is a heightened
element of operational risk associated with using services from new vendors.
(x) A search done in the process of preparing to apply
for a trademark for the name of the Company revealed potential conflicts with
the Company's use of
10
<PAGE>
the trade name "Cypress" and the Company's ability to obtain trademark
protection for this name. The Company has decided that it is not in the
Company's best interest to apply for a trademark in the name of Cypress
Communications or to change the name of the Company at this time. Furthermore,
there is a possibility that one of the firms with whom there is a potential
conflict, or other companies for that matter, will demand that the Company
discontinue using the name Cypress Communications. Such a demand might result in
either expensive litigation and/or a change in the Company's name, which in
either event, could have a material adverse effect on the Company.
(i) Residence. The address of such Purchaser as set forth on
Exhibit A attached hereto is its true and correct principal place of business
- ---------
or, in the case of a Purchaser that is an individual, his residence. Such
Purchaser, if an individual, does not have any present intention of becoming a
resident of any other state or jurisdiction.
(j) HSR Matters. Except as set forth in Schedule 4.2(j),
---------------
Purchaser is not included within any other person (within the meaning of the
Hart-Scott-Rodino Improvements Act of 1976, as amended ("HSR Act")) who is also
-------
a Purchaser or who otherwise owns voting securities of the Company.
Nothing contained in this Section 4 shall in any respect limit or modify
the representations and warranties of the Company in Section 3 of this Agreement
or the right of each Purchaser to rely thereon.
5. Conditions Precedent To Purchasers' Obligations
The obligation of each Purchaser to purchase and pay for the Shares to be
delivered to it at the Closings shall be subject to the satisfaction of the
following conditions as of the applicable Closing Date:
(a) the representations and warranties of the Company contained
in this Agreement shall be true and correct on and as of the Initial Closing
Date;
(b) concurrent with the Initial Closing, the Company, the
Purchasers and the existing stockholders of the Company shall have entered into
the Stockholders Agreement in form and substance satisfactory to the parties
thereto;
(c) the Purchasers shall have received the legal opinion of
Powell, Goldstein, Frazer & Murphy LLP, counsel to the Company, substantially in
the form of Exhibit D;
---------
(d) the Company shall have provided to Centennial Fund V, L.P.
("Centennial") a certification of the direct and indirect holdings of securities
----------
of the Company by certain persons designated by Centennial as required by
Centennial's governing documents;
(e) with respect to the Initial Closing, all other Purchasers
identified on Part I of Exhibit A shall have concurrently purchased the Shares
---------
to be purchased by them pursuant to this Agreement;
11
<PAGE>
(f) with respect to the Second Closing, the transactions
contemplated at the Initial Closing shall have been consummated;
(g) all authorizations, approvals or permits, if any, of any
governmental authority that are required in connection with and prior to the
lawful issuance and sale of the Shares or Conversion Shares shall be duly
obtained and effective as of the Initial Closing; and
(h) all corporate and other proceedings in connection with the
transactions contemplated at the Initial Closing and all documents incident
thereto shall be reasonably satisfactory in form and substance to each Purchaser
at the Initial Closing, and they shall have received all such counterpart
original and certified or other copies of such documents as they may reasonably
request.
6. Covenants
The Company covenants and agrees with the Purchasers as follows:
6.1 Observer Rights. Each Purchaser who does not have a designated
representative on the Board of Directors of the Company shall have the
observation rights, if any, specifically set forth in the Stockholders
Agreement.
6.2 Assistance in Sales. Anything in this Agreement or the
Stockholders Agreement to the contrary notwithstanding, in the event that it
becomes unlawful for any Purchaser to continue to hold all or some portion of
the Shares to be held by it, or restrictions are imposed on such Purchaser by
any law, rule or regulation which, in the reasonable judgement of such
Purchaser, make it unduly burdensome to continue to hold all or some portion of
such Shares, then such Purchaser may sell or otherwise dispose of all or any
portion of its Shares, and the Company, at no expense to the Company, shall use
reasonable efforts to assist such Purchaser in disposing of such interest in a
prompt and orderly manner, and, at the reasonable request of any such Purchaser,
shall provide (and authorize such Purchaser to provide) financial and other
information concerning the Company to any prospective purchaser of such
interest.
6.3 Real Property Holding Corporation. The Company covenants that it
will use reasonable commercial efforts not to become a USRPHC. The Company
agrees to make determinations as to its status as a USRPHC, and will file
statements concerning those determinations with the Internal Revenue Service, in
the manner and at the times required under Reg. (S) 1.897-2(h), or any
supplementary or successor provision thereto. Within 30 days of a request from
a Purchaser or any of its partners, the Company will inform the requesting
party, in the manner set forth in Reg. (S) 1.897-2(h)(1)(iv) or any
supplementary or successor provision thereto, whether that party's interest in
the Company constitutes a United States real property interest (within the
meaning of Section 897(c)(1) of the Code and FIRPTA) and whether the Company has
provided to the Internal Revenue Service all required notices as to its USRPHC
status. If at any time in the future the Company should become a USRPHC, the
Company shall, as promptly as possible, notify each Purchaser of such change in
status.
12
<PAGE>
6.4 Purchaser Claims. Each Purchaser who is an existing shareholder
of the Company represents to all Purchasers that (i) it or he has no claim
pending against the Company and (ii) to its or his knowledge has no reasonable
basis for any claim against the Company in its or his status as a shareholder of
the Company. If a Purchaser who is an existing shareholder of the Company
brings a claim against the Company in its or his capacity as shareholder with
respect to events occurring or circumstances existing prior to the Initial
Closing Date, such Purchaser shall share any proceeds resulting from such a
claim with the other Purchasers hereunder (other than any Purchaser that is or
is reasonably likely to be held to be jointly or severally liable for any claim
arising in connection with such claim) on a pro rata basis and in order of
priority, based on the Company's Certificate of Designation, as if such proceeds
were distributions in connection with a Liquidation Event (as described in the
Company's Certificate of Incorporation).
7. Expense Reimbursement
The Company hereby agrees to reimburse the expenses of Centennial, Alta-
Comm S By S, LLC, Alta Communications VI, L.P., Building Communications LLC,
Tenant Communications, Inc., Grammercy Cypress LLC, and Nassau Capital Partners
III, L.P. for their reasonable out-of-pocket expenses incurred in connection
with the transactions contemplated hereby, including all reasonable expenses
incurred in connection with their due diligence examination of the Company, the
preparation and negotiation of this Agreement, the term sheet, the Stockholders
Agreement and all other documents evidencing the transactions contemplated
herein (including the fees (not to exceed $25,000) and expenses of Holland &
Hart LLP, counsel to Centennial, Centennial Entrepreneurs Fund V, L.P., Alta-
Comm S By S, LLC, and Alta Communications VI, L.P., and the fees (not to exceed
$25,000) and expenses of Goulston & Storrs, P.C., counsel to Building
Communications LLC and Tenant Communications, Inc., and the fees (not to exceed
$25,000) and expenses of Jones, Day, Reavis & Pogue, counsel to Grammercy
Cypress LLC, and the fees (not to exceed $30,000) and expenses of Kirkland &
Ellis, counsel to Nassau Capital Partners III, L.P. and AEW Partners III, L.P.
The Company hereby agrees to reimburse such counsel for any legal expenses, if
any, incurred in connection with the filing of any documents regarding the
transactions contemplated by this Agreement with any governmental agencies.
8. Miscellaneous
8.1 Publicity. Except as may be required by law, the Company shall
not use the name of, or make reference to, any Purchaser or any of its
affiliates in any press release or in any public manner without such Purchaser's
prior written consent.
8.2 Indemnification. The Company agrees to indemnify each Purchaser
and, to the extent named or involved in any claim, each officer, director,
employee, agent, partner, stockholder and affiliate of each Purchaser
(collectively, the "Indemnified Parties") for, and hold each Indemnified Party
-------------------
harmless from and against: (i) any and all damages, losses, claims and other
liabilities of any and every kind, including, without limitation, judgments and
costs of settlement, and (ii) any and all reasonable out-of-pocket costs and
expenses of any and every kind, including, without limitation, reasonable fees
and disbursements of counsel for such
13
<PAGE>
Indemnified Parties (all of which expenses periodically shall be reimbursed as
incurred), in each case, to the extent arising out of or suffered or incurred in
connection with any of the following: (a) any misrepresentation or any breach of
any warranty made by the Company herein or in any of the other Company's
Documents, (b) any breach or non-fulfillment of any covenant or agreement made
by the Company herein or in any of the other Company's Documents, and (c) any
claim relating to or arising out of a violation of applicable federal or state
securities laws by the Company in connection with the sale of the Shares by the
Company to the Purchasers.
8.3 Governing Law. This Agreement shall be governed in all respects
by the laws of the State of New York as such laws are applied to agreements
between New York residents entered into and performed entirely in New York.
8.4 JUDICIAL PROCEEDINGS. ANY JUDICIAL PROCEEDING INVOLVING ANY
DISPUTE, CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
THE BREACH OR ALLEGED BREACH OF THIS AGREEMENT (EACH OF THE FOREGOING DISPUTES,
CONTROVERSIES AND CLAIMS HEREINAFTER REFERRED TO AS AN "AGREEMENT DISPUTE"), MAY
-----------------
BE BROUGHT IN A FEDERAL OR STATE COURT LOCATED IN NEW YORK COUNTY, IN NEW YORK
STATE, AND EACH OF THE PARTIES HERETO (i) UNCONDITIONALLY ACCEPTS THE
JURISDICTION OF SUCH COURTS AND ANY RELATED APPELLATE COURT AND IRREVOCABLY
AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY AND (ii) IRREVOCABLY WAIVES
ANY OBJECTION SUCH PARTY MAY NOW HAVE OR HEREAFTER HAS AS TO THE VENUE OF ANY
SUCH PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT
FORUM. EACH OF THE PARTIES HERETO HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL
PROCEEDING TO WHICH THEY ARE PARTIES INVOLVING AN AGREEMENT DISPUTE.
8.5 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by any Purchaser and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
8.6 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares from time to time, except that
neither this Agreement nor any rights or obligations hereunder shall be assigned
or delegated by the Company without the prior written consent of the Purchasers.
8.7 Entire Agreement. This Agreement, the Exhibits and the other
documents expressly delivered pursuant hereto, including the Stockholders
Agreement, supersede any other agreement, whether written or oral, that may have
been made or entered into by the parties hereto relating to the matters
contemplated hereby and constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof, and no party
14
<PAGE>
shall be liable or bound to any other in any manner by any representations,
warranties, covenants and agreements except as specifically set forth herein and
therein.
8.8 Specific Enforcement. Any Purchaser shall be entitled to
specific enforcement of its rights under this Agreement. The Company
acknowledges that money damages would be an inadequate remedy for its breach of
this Agreement and consents to an action for specific performance or other
injunctive relief in the event of any such breach.
8.9 Separability. In case any provision of the Agreement 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.
8.10 Amendment and Waiver. This Agreement may be amended or modified
only upon the mutual written consent of the Company and the Purchasers indicated
on Exhibit A as intending to purchase, in the aggregate, not less than eighty
---------
percent (80%) of the Shares described on Exhibit A; provided that any such
---------
amendment or modification which adversely affects the rights under this
Agreement of one or more Purchasers in a manner different from any other
Purchaser shall require the consent of each Purchaser adversely affected by such
amendment or modification.
8.11 Notices. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (i) upon personal delivery to
the party to be notified; (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day; (iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (iv) one (1) day after deposit
with a nationally recognized overnight courier, special next day delivery, with
verification of receipt. All communications shall be sent to the Company at
Fifteen Piedmont Center, Suite 710, Atlanta, Georgia 30305, Attn.: President,
with a courtesy copy to Powell, Goldstein, Frazer & Murphy, L.L.P., 191
Peachtree Street, NE, 16/th/ Floor, Atlanta, Georgia 30303, Attention: William
M. Ragland, Jr., and James K. Wagner, Jr., and to a Purchaser at the address set
forth on Exhibit A attached hereto or at such other address as the Company or
---------
Purchaser may designate by ten (10) days advance written notice to the other
parties hereto.
8.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
8.13 Broker's Fees. Each party hereto represents and warrants that
no agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation in this Section 8.13 being untrue.
8.14 Descriptive Headings. The section and other headings contained
in this Agreement are for convenience of reference only and shall not affect the
meaning or interpretation of this Agreement.
15
<PAGE>
8.15 Understanding Among Purchasers. The decision of each Purchaser
to purchase Shares pursuant to this Agreement has been made by such Purchaser
independently of any other Purchaser and independently of any statements or
opinions as to the Condition of the Company which may have been made or given by
any other Purchaser or by any agent or employee of any other Purchaser. Each
Purchaser acknowledges that no other Purchaser has acted as agent for such
Purchaser in connection with making its investment hereunder and that no other
Purchaser will be acting as agent of such Purchaser in connection with
monitoring its investment hereunder. Each Purchaser acknowledges that the
Company intends to issue up to $80,000,000 in shares of Series C Preferred Stock
(or Series C-1 Preferred Stock) in connection with this private placement,
including its ongoing licensing efforts. Each Purchaser waives any pre-emptive
rights that it may have to participate in the sale of such additional shares of
Series C Preferred Stock (or Series C-1 Preferred Stock) pursuant to the
Stockholders Agreement or otherwise, provided that the Company sells such shares
of Series C Preferred Stock (or Series C-1 Preferred Stock) in connection with
its licensing efforts to parties who are not affiliated with the Purchasers or
other shareholders of the Company or, in the case of Mark H. Dunaway, an
existing shareholder of the Company, to Mr. Dunaway in an amount up to
approximately $160,000 of shares of Series C Preferred Stock, in each case on
substantially the same terms as are included herein.
8.16 Future Financings. Nothing contained in this Agreement or any
Purchaser's prior dealings with the Company shall be deemed to constitute a
commitment on the part of any Purchaser to participate in any future financings
by the Company.
* * * * *
[The rest of this page left intentionally blank]
16
<PAGE>
In Witness Whereof, the parties hereto have executed the Agreement as of
the date set forth in the first paragraph hereof.
COMPANY:
CYPRESS COMMUNICATIONS, INC.
By: /s/ R. Stanley Allen
--------------------------------
Name: R. Stanley Allen
------------------------------
Title: Chief Executive Officer
-----------------------------
PURCHASERS:
CENTENNIAL FUND V, L.P.
By: Centennial Holdings V, L.P.,
General Partner
By: /s/ Jeffery H. Schutz
--------------------------------
Name: Jeffery H. Schutz
------------------------------
Its: General Partner
ALTA-COMM S BY S, LLC
By: /s/ Eileen McCarthy
--------------------------------
Name: Eileen McCarthy
------------------------------
Its: Member
ALTA COMMUNICATIONS VI, L.P.
By: Alta Communications VI Management
Partners, L.P.
By: /s/ Eileen McCarthy
--------------------------------
Name: Eileen McCarthy
------------------------------
Its: General Partner
BUILDING COMMUNICATIONS LLC
By: /s/ John Halsted
--------------------------------
Name: John Halsted
------------------------------
Its: SVP
-------------------------------
<PAGE>
INVESTOR COMMUNICATIONS LLC
BY: BEACON COMMUNICATIONS LLC,
ITS MANAGER
By: /s/ John Halsted
--------------------------------
Name: John Halsted
------------------------------
Title: SVP
-----------------------------
NAS PARTNERS L.L.C.
By: /s/ John G. Quigley
--------------------------------
Name: John G. Quigley
------------------------------
Title: Member
-----------------------------
TRANSWESTERN COMMERCIAL
SERVICES, L.L.C.
By: /s/ Transwestern Commericial
Services, L.L.C.
--------------------------------
Name:
------------------------------
Title: General Counsel
-----------------------------
GRAMMERCY CYPRESS LLC
By: /s/ Laurence S. Grafstein
--------------------------------
Name: Laurence S. Grafstein
------------------------------
Title: Managing Director
-----------------------------
NASSAU CAPITAL PARTNERS III, L.P.
BY: Nassau Capital L.L.C.
By: /s/ John G. Quigley
--------------------------------
Name: John G. Quigley
------------------------------
Title: Member
-----------------------------
LATONA CYCOM INVESTMENT L.L.C.
By: /s/ Todd M. DuChene
--------------------------------
Name: Todd M. DuChene
------------------------------
Title: Manager
-----------------------------
<PAGE>
AEW PARTNERS III, L.P.
By: AEW Partners III, L.L.C., its General
Partner
By: AEW Partners III, Inc. its managing
member
By: /s/ Marc Davidson
--------------------------------
Name: Marc Davidson
------------------------------
Title: Vice President
-----------------------------
/s/ R. Stanley Allen
-----------------------------------
R. Stanley Allen
/s/ Ward C. Bourdeaux, Jr.
-----------------------------------
Ward C. Bourdeaux, Jr.
/s/ John L. Thompson
-----------------------------------
John L. Thompson
/s/ Michael Moh
-----------------------------------
Michael Moh
/s/ Mark A. Graves
-----------------------------------
Mark A. Graves
/s/ Barry L. Boniface
-----------------------------------
Barry L. Boniface
<PAGE>
EXHIBIT 10.12
CYPRESS COMMUNICATIONS, INC.
Series C Preferred
Stock Purchase Agreement
This Series C Preferred Stock Purchase Agreement (the "Agreement") is
---------
entered into as of November 23, 1999, by and among CYPRESS COMMUNICATIONS, INC.,
a Delaware corporation (the "Company"), and each of those persons and entities,
-------
severally and not jointly, whose names are set forth on the Schedule of
Purchasers attached hereto as Exhibit A (collectively the "Purchasers" and
--------- ----------
individually a "Purchaser").
---------
In consideration of the mutual promises hereinafter set forth, the
parties hereto agree as follows:
1. Agreement to Sell and Purchase
1.1 Authorization of Shares. The Company has authorized the sale
and issuance to the Purchasers of shares of its Series C Preferred Stock (the
"Shares") having the rights, preferences, privileges and restrictions set forth
------
in the Second Amended Certificate of Designation of Series A Preferred Stock,
Amended Certificate of Designation of Series B Preferred Stock and Series B-1
Preferred Stock, and Certificate of Designation of Series C Preferred Stock and
Series C-1 Preferred Stock of the Company, attached hereto as Exhibit B (the
---------
"Certificate").
-----------
1.2 Sale and Purchase. Subject to the terms and conditions
hereof, at the Closing (as hereinafter defined) the Company hereby agrees to
issue and sell to each Purchaser and each Purchaser severally and not jointly
agrees to purchase from the Company, the number of Shares set forth opposite
such Purchaser's name on Exhibit A, at a purchase price of nineteen dollars
---------
($19.00) per Share.
2. Closing, Delivery and Payment
The closing of the sale and purchase of the Shares under this
Agreement (the "Closing") shall take place at 10:00 a.m. on November 23, 1999,
-------
at the offices of Powell, Goldstein, Frazer & Murphy LLP, 191 Peachtree Street,
N.E., Atlanta, Georgia 30303, or at such other time or place as the Company and
the Purchasers may mutually agree (such date is hereinafter referred to as the
"Closing Date"). At the Closing, subject to the terms and conditions hereof, the
------------
Company will deliver to the Purchasers certificates representing the number of
Shares to be purchased at the Closing by each Purchaser, against payment of the
purchase price therefor by certified check or wire transfer of immediately
available funds.
3. Representations and Warranties of the Company
The Company hereby represents and warrants to, and agrees with, each
Purchaser as follows:
<PAGE>
3.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has all requisite corporate power and
authority to own and operate its properties and assets, to execute and deliver
this Agreement and the Third Amended and Restated Stockholders Agreement
attached hereto as Exhibit C (the "Stockholders Agreement"), to issue and sell
--------- ----------------------
the Shares and the shares of common stock, par value $0.001 per share, of the
Company (the "Common Stock") issuable upon conversion of the Shares (the
------------
"Conversion Shares"), to carry out the other provisions of this Agreement and
-----------------
the Stockholders Agreement and the transactions contemplated hereby and thereby,
and to carry on its business as presently conducted and as presently proposed to
be conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure so to qualify could have a
material adverse effect on the business, properties, operations, earnings,
assets or liabilities, condition (financial or otherwise) (collectively, the
"Condition") of the Company. The Company has no subsidiaries.
---------
3.2 Capitalization.
(a) The authorized capital stock of the Company, immediately
after the Closing, will consist of (i) Eleven Million One Hundred Twenty-Six
Thousand Eight Hundred Thirty-Four and 78/100 (11,126,834.78) shares of Common
Stock, Five Hundred Eighty Five Thousand Nine Hundred Eighty and 46/100
(585,980.46) shares of which are issued and outstanding, and (ii) Seven Million
Nine Hundred Twenty Thousand Four Hundred Sixty-Seven and 32/100 (7,920,467.32)
shares of Preferred Stock, of which One Million Two Hundred Eleven Thousand One
Hundred Forty (1,211,140) are designated as Series A Preferred Stock (the
"Series A Preferred"), all of which are issued and outstanding, One Million Nine
------------------
Hundred Nineteen Thousand One Hundred Eighty Eight (1,919,188) are designated as
Series B Preferred Stock (the "Series B Preferred"), One Million Three Hundred
------------------
Thirty Nine Thousand Five Hundred Seventy Five (1,339,575) of which are issued
and outstanding, Five Hundred Seventy Nine Thousand Six Hundred Thirteen
(579,613) are designated as Series B-1 Preferred Stock (the "Series B-1
----------
Preferred"), all of which are issued and outstanding, Four Million Two Hundred
- ---------
Ten Thousand Five Hundred Twenty-Six and 32/100 (4,210,526.32) are designated as
Series C Preferred Stock (the "Series C Preferred"), Two Million Eight Hundred
------------------
Nineteen Thousand Eight Hundred Sixty-Eight and 42/100 (2,819,868.42) of which
are issued and outstanding (the Series A Preferred, Series B Preferred, Series
B-1 Preferred and Series C Preferred are collectively referred to herein as the
"Preferred Stock").
---------------
(b) Except as specifically set forth on Schedule 3.2 attached
------------
hereto, and except for conversion rights of issued and outstanding shares of
Preferred Stock, as of the Closing Date, the Company will not (i) have
outstanding any capital stock or other securities convertible into or
exchangeable for any shares of its capital stock and, except for the preemptive
rights contained in the Stockholders Agreement, no person will have any right to
subscribe for or to purchase (including conversion or preemptive rights), or any
warrants or options for the purchase of, or any agreements providing for the
issuance (contingent or otherwise) of, or any calls, commitments or other claims
of any character relating to, any capital stock or any stock or securities
convertible into or exchangeable for any capital stock of the Company; (ii) have
any capital stock, equity interests or other securities reserved for issuance
for any purpose; or (iii) except for the redemption rights set forth in the
Certificate, be subject to any obligation
2
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(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of its capital stock or any convertible securities, rights or options of
the type described in the preceding clause (i). No outstanding options, warrants
or other securities directly or indirectly exercisable for or convertible into
any class or series of the Company's capital stock require anti-dilution
adjustments by reason of the transactions contemplated by this Agreement. All of
the issued and outstanding shares of Common Stock and Preferred Stock have been
duly and validly issued, are fully paid and nonassessable and were issued in
compliance with all applicable federal and state securities laws and any
applicable preemptive rights. All of the outstanding options, warrants and other
securities of the Company have been issued in compliance with all applicable
federal and state securities laws and any applicable preemptive rights. To the
best knowledge of the Company, there are no agreements among the Company's
stockholders with respect to the voting or transfer of the Company's capital
stock, other than the agreements regarding voting and transfer contained in
the Stockholders Agreement. Schedule 3.2 sets forth a complete and correct
------------
list of (i) the name of each of the Company's stockholders and the number of
shares and class and series of capital stock owned by such stockholder, and (ii)
the name of each holder of an outstanding stock option and/or warrant, and the
number of options and/or warrants to purchase capital stock owned by such holder
(and the applicable class and series of capital stock) and the exercise price at
which such option(s) or warrants may be exercised. The Company does not own or
control, directly or indirectly, any interest in any other corporation,
association, or other business entity.
3.3 Authorization; Binding Obligations. All corporate action on the
part of the Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the Stockholders
Agreement. the Certificate and each other document or instrument executed by it,
or any of its officers, in connection herewith or therewith or pursuant hereto
or thereto (this Agreement, together with all of the foregoing documents and
instruments, are sometimes collectively referred to herein as the "Company's
---------
Documents"), the performance of all obligations of the Company under the Company
- ---------
Documents and for the authorization, sale, issuance and delivery of the Shares
has been taken. When issued in compliance with the provisions of this
Agreement, the Shares will be duly authorized, validly issued, fully paid and
nonassessable, free of any liens, preemptive or similar rights, or any other
encumbrances (except as set forth in the Stockholders Agreement) and issued in
compliance with all applicable state and federal securities laws. The
Conversion Shares have been duly authorized and validly reserved for issuance
and, when issued upon conversion of the Series C Preferred, will be validly
issued, fully paid and nonassessable, free of any liens, preemptive or similar
rights, or any other encumbrance (except as set forth in the Stockholders
Agreement). This Agreement, the Stockholders Agreement and the other Company's
Documents have been duly executed and delivered by the Company and constitute
legal, valid and binding obligations of the Company enforceable in accordance
with their terms.
3.4 Consents and Approvals. Except as set forth on Schedule 3.4, no
------------
filings with, notices to, or approvals of any governmental or regulatory body
are required to be obtained or made by the Company in connection with the
consummation of the transactions contemplated hereby, including, without
limitation, the issuance of the Shares and the Conversion Shares.
3.5 No Violations. Except as set forth on Schedule 3.5, the
------------
execution, delivery and performance of this Agreement and the other Company's
Documents and the
3
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performance by the Company of its obligations hereunder and thereunder (i) do
not and will not conflict with or violate any provision of the certificate of
incorporation or bylaws of the Company and (ii) do not and will not (a) conflict
with or result in a breach of the terms, conditions or provisions of, (b)
constitute a default under, (c) result in the creation of any encumbrance upon
the capital stock or assets of the Company pursuant to, (d) give any third party
the right to modify, terminate or accelerate any obligation under, (e) result in
a violation of, or (f) require any authorization, consent, approval, exemption
or other action by or notice to any court, governmental authority, department,
commission, board, bureau, agency or instrumentality, domestic or foreign
("Governmental Authority") or any other individual, partnership, corporation,
----------------------
unincorporated organization or association, limited liability company, trust or
other entity (collectively, a "Person") pursuant to any law, statute, rule or
------
regulation or any agreement, contract or instrument or any order, judgment or
decree to which the Company is subject or by which any of its assets are bound.
3.6 Financial Statements; Interim Changes. The Company's audited
balance sheet as of December 31, 1998, audited statements of operations, and
cash flows for the period ended December 31, 1998, unaudited balance sheet as of
September 30, 1999 (the "Latest Balance Sheet") and unaudited statements of
--------------------
income and cash flows of the Company for the period ended September 30, 1999,
(copies of which have been furnished to the Purchasers in connection with the
investment contemplated hereby) are complete and correct in all material
respects, have been prepared in accordance with generally accepted accounting
principles ("GAAP") consistently applied (subject to, in the case of unaudited
----
statements, normal year-end adjustments and the absence of footnote disclosures,
all of which are not material) and fairly present in all material respects the
financial position, the results of operations and cash flows of the Company for
the period covered thereby. The Company has no material liabilities or
obligations of any nature (absolute, accrued, contingent or otherwise) that are
not either reflected or fully reserved against on the Latest Balance Sheet or
incurred in the ordinary course of the business of the Company subsequent to the
date thereof. Since December 31, 1998, there has not been any material adverse
change in the Condition of the Company.
3.7 Compliance with Laws. The Company's business has been conducted
in compliance with all applicable laws and regulations of Governmental
Authorities, except for such violations that have been cured or that,
individually or in the aggregate, could not reasonably be expected to have a
material adverse effect on the Condition of the Company. The Company has all
permits, licenses, orders, certificates, authorizations and approvals of any
Governmental Authority (collectively, the "Permits") that are material to the
-------
conduct of its business as presently conducted and as proposed to be conducted;
all such Permits are, and as of the Closing will be, in full force and effect;
no violations or notices of failure to comply have been issued or recorded in
respect of any such Permits; and the Company has no knowledge of any reason why
such Permits may be revoked or suspended. To the best of the Company's
knowledge, the business, operations, assets and properties of the Company are
and have been operated and maintained in compliance in all material respects
with all applicable federal, state, city, county and local environmental
protection laws and regulations.
3.8 Proprietary Rights. The Company has not received any
communications alleging that it has violated or, by conducting its business as
proposed would violate, any
4
<PAGE>
proprietary rights of any other person, and except as set forth on Schedule 3.8,
------------
the Company is not aware of any basis for the foregoing.
3.9 Actions Pending. Except as set forth on Schedule 3.9, there is
------------
no action, suit, investigation, proceeding or governmental approval process
(collectively, "Actions") pending or, to the best knowledge of the Company,
-------
threatened against or affecting the Company or any of its respective properties
or rights before any court or by or before any governmental body or arbitration
board or tribunal, and none of the items set forth on Schedule 3.9 could
------------
reasonably be expected to have a material adverse effect on the Condition of the
Company.
3.10 Material Contracts. Except as set forth on Schedule 3.10
-------------
attached hereto, the Company is not a party to (and is not otherwise bound by)
any of the following: (i) any employment or consulting agreement, (ii) any
agreement providing for the issuance or repurchase of any securities of the
Company, (iii) any agreement in respect of registration rights, preemptive
rights, rights of first refusal, voting rights or other rights or security
holders (other than the Stockholders Agreement), (iv) any agreement evidencing
or providing for any indebtedness for borrowed money, any agreement with any
past or present officer, director, key employee or shareholder of the Company or
any affiliate or relative thereof (other than the Stockholders Agreement and
grant agreements with respect to Reserved Employee Stock), or (v) any other
agreement that could reasonably be deemed material to the Company or its
Condition.
3.11 Insurance. The Company has in full force and effect liability
insurance of the types and providing coverage in such amounts as is customary
for companies of established reputation engaged in the same or similar business
and similarly situated, and such other insurance policies as are sufficient for
compliance with all requirements of law and applicable agreements.
3.12 Investments in United States Real Property Interests. The
Company's capital stock does not constitute a United States real property
interest as that term is defined in Section 897(c)(1)(A)(ii) of the Internal
Revenue Code of 1986, as amended (the "Code"). The preceding representation is
----
based on a determination by the Company that the Company is not and has never
been a United States real property holding corporation (as that term is defined
in Section 897(c)(2) of the Code). From time to time, upon request of any
Purchaser, the Company shall make a determination as to its status as a United
States real property holding corporation ("USRPHC"). If at any time in the
------
future the Company should become a USRPHC, the Company shall, as promptly as
possible, notify each Purchaser of such change in status.
3.13 Unrelated Business Taxable Income. Any gross income derived by
the Purchasers from the Company shall be in the form of dividends, interest,
capital gains and losses from the disposition of property, rents and royalties,
but only such rents and royalties as are excluded pursuant to Code Sections
512(b)(2) and 512(b)(3), respectively, in calculating unrelated business taxable
income and only such dividends, interest, capital gains and losses, and rents
and royalties that are not included under Section 512(b)(4) of the Code in
calculating unrelated business taxable income. This Section 3.13 shall not be
deemed to apply to (i) any compensation (in cash, stock or other form) received
by designees of the Purchasers in their capacities as directors of the Company
that is transferred to the Purchasers, or (ii) any income included under Section
512(b)(4) of the Code as a result of acquisition indebtedness incurred by
5
<PAGE>
any Purchaser in connection with the purchase of an interest in the Company, or
(iii) any income derived by the Purchasers from the Company with respect to
which the Purchasers have expressly waived in writing the application of the
provision of this Section 3.13, or (iv) any income derived by the Purchasers
pursuant to the reimbursement of expenses pursuant to Section 7 hereof.
3.14 Books and Records. The minute books of the Company fully set
forth all material action taken by the Board of Directors, stockholders and, if
any, executive board (or other committee thereof) of the Company.
3.15 Disclosure. The Company has fully provided each Purchaser with
all the information which such Purchaser has requested for deciding whether to
purchase the Shares. Neither this Agreement nor any other certificates made or
delivered in connection herewith contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements herein
or therein not misleading.
3.16 Year 2000. The Company has reviewed its operations to evaluate
the extent to which the business or operations of the Company will be affected
by the Year 2000 Problem (as defined below). As a result of such review, the
Company has no reasonable basis to believe, and does not believe, that the Year
2000 Problem will have a material adverse effect on the Condition of the
Company; provided, however, that the Company does not make any representation or
warranty as to the operation of any telecommunications network operated by an
incumbent or competing local exchange carrier which may be affected by the Year
2000 Problem. The "Year 2000 Problem" as used herein means any significant risk
-----------------
that computer hardware or software used in the receipt, transmission,
processing, manipulation, storage, retrieval, retransmission or other
utilization of data or in the operation of mechanical or electrical systems of
any kind will not, in the case of dates or time periods occurring after December
31, 1999, function at least as effectively as in the case of dates or time
periods occurring prior to January 1, 2000.
3.17 Environmental Matters.
(a) To the best of the Company's knowledge, the Company has not
caused or allowed, nor has the Company contracted with any party for, the
generation, use, transportation, treatment, storage or disposal of any Hazardous
Substances (as defined below) in connection with the operations of its business
or otherwise.
(b) To the best of the Company's knowledge, the Company, the
operations of its business, and any real property that the Company owns, leases,
or otherwise occupies (the "Premises") are in compliance in all material
respects with all applicable Environmental Laws (as defined below) and orders or
directives of any governmental authorities having jurisdiction under such
Environmental Laws including, without limitation, any Environmental Laws or
orders or directives with respect to any cleanup or remediation of any release
or threat of release of Hazardous Substances.
(c) To the best of the Company's knowledge, the Company has not
received any citation, directive, letter or other communication, written or
oral, or any notice of
6
<PAGE>
any proceedings, claims or lawsuits, from any person, entity or governmental
authority arising out of the occupation of the Premises or the conduct of its
operations, nor is it aware of any reasonable basis thereof.
(d) To the best of the Company's knowledge, the Company has
obtained and is maintaining in full force and effect all material permits,
licenses and approvals required of the Company by any Environmental Laws
applicable to the Premises and the business operations conducted by the Company
and is in compliance with all such permits, licenses and approvals, in all
material respects.
(e) To the best of the Company's knowledge, the Company has not
caused or allowed a release of any Hazardous Substance unto, nor to the best of
the Company's knowledge has the Premises or any property at or near the Premises
ever been subject to a release, or a threat of a release, of any Hazardous
Substance.
(f) The term "Environmental Laws" shall mean any federal, state
or local law, ordinance or regulation pertaining to the protection of human
health or the environment including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Sections 9601,
et seq., Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Sections
11001, et seq., and the Resource Conservation and Recovery Act, 42 U.S.C.
Sections 6901, et seq.
(g) The term "Hazardous Substance" includes oil and petroleum
products, asbestos, polychlorinated biphenyls and urea formaldehyde, and any
other materials classified as hazardous or toxic under any Environmental Laws.
4. Representations And Warranties Of The Purchasers
Each Purchaser severally and not jointly hereby represents and warrants to
the Company as follows:
4.1 Requisite Power and Authority. Such Purchaser has all necessary
power and authority under all applicable provisions of law to execute and
deliver this Agreement and to carry out its provisions. All actions on such
Purchaser's part required for the lawful execution and delivery of this
Agreement have been or will be effectively taken prior to the Closing.
4.2 Investment Representations. Such Purchaser understands that
neither the Shares nor the Conversion Shares have been registered under any
state securities act or the Securities Act of 1933, as amended (the "Securities
----------
Act"). Such Purchaser also understands that the Shares are being offered and
- ---
sold pursuant to an exemption from registration contained in applicable state
securities acts and the Securities Act based in part upon the Purchaser's
representations contained in this Agreement.
(a) Purchaser Bears Economic Risk. Such Purchaser has
substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to the Company so that Purchaser
is capable of evaluating the merits and risks of its investment in the Company
and has the capacity to protect its own interests. Such
7
<PAGE>
Purchaser must bear the economic risk of this investment indefinitely unless the
Shares (or the Conversion Shares) are registered pursuant to the Securities Act,
or an exemption from registration is available. Such Purchaser understands that
the Company has no present intention of registering the Shares, the Conversion
Shares or any shares of its Common Stock other than as may be required under the
Stockholders Agreement. Such Purchaser also understands that there is no
assurance that any exemption from registration under the Securities Act will be
available and that, even if available, such exemption may not allow such
Purchaser to transfer all or any portion of the Shares or the Conversion Shares
under the circumstances, in the amounts or at the times such Purchaser might
propose. Such Purchaser can bear the economic risk of losing its entire
investment in the Company.
(b) Acquisition for Own Account. Such Purchaser is acquiring
the Shares and the Conversion Shares for Purchaser's own account for investment
only, and not with a view towards their resale or distribution in violation of
applicable securities laws.
(c) Purchaser Can Protect Its Interest. Such Purchaser
represents that, by reason of Purchaser's or of its management's business or
financial experience, such Purchaser has the capacity to protect its own
interests in connection with the transactions contemplated in this Agreement.
(d) Accredited Investor. Such Purchaser represents that
Purchaser is an accredited investor within the meaning of Regulation D under the
Securities Act.
(e) Company Information. Such Purchaser has had an opportunity
to discuss the Company's business, management and financial affairs with
directors, officers and management of the Company. Such Purchaser has also had
the opportunity to ask questions of, and receive answers from, the Company and
its management regarding the terms and conditions of this investment. Purchaser
has had an adequate opportunity to inspect and copy all material documents
relating to the Company which it has requested and has been furnished or
provided access to information similar to that which would be included in a
registration statement as is necessary for such Purchaser, in view of its
business or management experience and sophistication, to evaluate the merits and
risks of an investment in the Company.
(f) Rule 144. Such Purchaser acknowledges and agrees that the
Shares and the Conversion Shares must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. Such Purchaser has been advised or is aware of the
provisions of Rule 144 promulgated under the Securities Act, which permits
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things: the
availability of certain current public information about the Company, the resale
occurring not less than one year after a party has purchased and paid for the
security to be sold, the sale being through an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934, as amended) and the number of
shares being sold during any three-month period not exceeding specified
limitations.
8
<PAGE>
(g) Risks. Such Purchaser acknowledges that the following
risks relating to an investment in the Company have been disclosed to such
Purchaser by the Company.
(i) The Company was formed in 1995 and therefore has a
limited operating history upon which an evaluation of the Company's performance
could be based. There can be no assurance that the Company's operations will be
profitable or that the Company will be able to sell its products and services at
price levels that will produce profits or an acceptable return to shareholders.
(ii) Additional financing may be required to support the
growth activities of the Company. The Company may need financing for operations
and marketing. No arrangements have been made to secure such financing, and
there can be no assurance that such additional financing will be available when
required or on terms acceptable to the Company.
(iii) The telecommunications industry has been
characterized by steady technological change, frequent new service
introductions, evolving industry standards, and new and consolidating
competitors. The Company's success will depend in part on its ability to
anticipate such changes and to offer responsive services on a timely basis.
Further, although the trend has been toward decreases in the cost of equipment
and network elements, there is no assurance that these trends will continue, or
that the Company will be able to respond successfully to such changes.
(iv) The telecommunications industry is highly
regulated. In the future, certain aspects of the Company's operations may
require authorization from the Federal Communications Commission ("FCC") and/or
---
applicable state public service commissions. This may involve both obtaining the
required authorizations and complying with the on-going requirements imposed on
carriers, such as filing a tariff. No assurances can be given that there will be
no opposition to the Company's applications or that the necessary authorizations
(other than any such authorization necessary to continue the current business
operations of the Company) will be granted. Additional expenses (such as legal
and accounting fees) will be involved in attempting to obtain and in maintaining
these authorizations and in complying with the accounting reporting and
administrative regulations imposed by the FCC and the state commissions. The
cost for access to local service could change significantly as deregulation of
the local loop progresses and carriers other than the existing local exchange
carriers are authorized to provide local service.
(v) The Company competes with a number of companies with
significantly greater financial resources than the Company.
(vi) The Company's success will be related to the real
estate cycle, in particular, to construction and leasing activity.
(vii) The Company's operations will depend in part upon
contractual arrangements with local exchange and long distance carriers. The
costs associated with the purchase of local exchange services, access to the
long distance network, and long distance services could change significantly as
deregulation of the local loop progresses, carriers
9
<PAGE>
other than the existing local exchange carriers are authorized to provide local
exchange service and access to long distance, and the costs of long distance
carriers change in response. The Company believes it will have a number of
options for obtaining both exchange and access services at competitive rates,
however the continuing availability of alternative resources cannot be assured.
(viii) The Company has used and will, for the
foreseeable future, use incumbent local exchange carriers ("ILECs") to provide
-----
the bulk of inbound calling services to telephone numbers used by the Company's
customers. Because local number portability (i.e., the regulatory and technical
abilities of the Company and/or the Company's customers to transfer telephone
numbers freely between local exchange carriers) was delayed nationwide and is
far from a failsafe procedure where it has been implemented, the Company is
dependent on the quality of such ILEC services for completing telephone calls,
both local and long distance, intended for the Company's customers. Should such
services prove to be of poor quality for any particular building or market in
which the Company operates, the business of the Company in that building or in
that market could be adversely affected in a material manner.
(ix) The Company uses several competitive local exchange
carriers ("CLECs") to provide outbound local, point to point and local loop
-----
services, in addition to using ILECs. Though the Company believes that this
diversification of vendors has the potential to reduce its cost of such
services, as well as provide operational redundancy, there is a heightened
element of operational risk associated with using services from new vendors.
(x) A search done in the process of preparing to apply
for a trademark for the name of the Company revealed potential conflicts with
the Company's use of the trade name "Cypress" and the Company's ability to
obtain trademark protection for this name. The Company has decided that it is
not in the Company's best interest to apply for a trademark in the name of
Cypress Communications or to change the name of the Company at this time.
Furthermore, there is a possibility that one of the firms with whom there is a
potential conflict, or other companies for that matter, will demand that the
Company discontinue using the name Cypress Communications. Such a demand might
result in either expensive litigation and/or a change in the Company's name,
which in either event, could have a material adverse effect on the Company.
(h) Residence. The address of such Purchaser as set forth on
Exhibit A attached hereto is its true and correct principal place of business.
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(i) HSR Matters. Purchaser is not included within any other
person (within the meaning of the Hart-Scott-Rodino Improvements Act of 1976, as
amended ("HSR Act")) who is also a Purchaser or who otherwise owns voting
-------
securities of the Company.
Nothing contained in this Section 4 shall in any respect limit or modify
the representations and warranties of the Company in Section 3 of this Agreement
or the right of each Purchaser to rely thereon.
10
<PAGE>
5. Conditions Precedent To Purchasers' Obligations
The obligation of each Purchaser to purchase and pay for the Shares to be
delivered to it at the Closings shall be subject to the satisfaction of the
following conditions as of the applicable Closing Date:
(a) the representations and warranties of the Company contained
in this Agreement shall be true and correct as if made on and as of the Closing
Date;
(b) the Company, the Purchasers and the existing stockholders of
the Company shall have entered into the Stockholders Agreement in the form of
Exhibit C attached hereto;
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(c) the Purchasers shall have received the legal opinion of
Powell, Goldstein, Frazer & Murphy LLP, counsel to the Company, substantially in
the form of Exhibit D;
---------
(d) the Purchasers shall have received a certificate from the
Company's secretary as to corporate actions taken by the Board of Directors with
respect to the transactions contemplated hereby, the incumbency of the officers
and executing documents on behalf of the Company in connection with the
transactions contemplated hereby, and the Company's Certificate of Incorporation
and Bylaws;
(e) all authorizations, approvals or permits, if any, of any
Governmental Authority that are required in connection with and prior to the
lawful issuance and sale of the Shares or Conversion Shares shall be duly
obtained and effective as of the Closing Date and the purchase of such Shares is
permitted by applicable and does not violate or conflict with applicable laws;
(f) all corporate and other proceedings in connection with the
transactions contemplated at the Closing and all documents incident thereto
shall be reasonably satisfactory in form and substance to each Purchaser at the
Closing, and they shall have received all such counterpart original and
certified or other copies of such documents as they may reasonably request;
(g) no action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any court,
Governmental Authority or legislative body to enjoin, restrain, or prohibit, or
to obtain substantial damages in respect of, or which is related to or arises
out of this Agreement or the consummation of the transactions contemplated
hereby or thereby, or which, in Purchaser's reasonable discretion, would make it
advisable to consummate the transactions contemplated by this Agreement; and
(h) the Certificate shall have been duly adopted by the Company
and filed with the Secretary of State of the State of Delaware and shall be in
effect.
6. Covenants
The Company covenants and agrees with the Purchasers as follows:
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<PAGE>
6.1 Observer Rights. Each Purchaser who does not have a designated
representative on the Board of Directors of the Company shall have the
observation rights, if any, specifically set forth in the Stockholders
Agreement.
6.2 Assistance in Sales. Anything in this Agreement or the
Stockholders Agreement to the contrary notwithstanding, in the event that it
becomes unlawful for any Purchaser to continue to hold all or some portion of
the Shares to be held by it, or restrictions are imposed on such Purchaser by
any law, rule or regulation which, in the reasonable judgement of such
Purchaser, make it unduly burdensome to continue to hold all or some portion of
such Shares, then such Purchaser may sell or otherwise dispose of all or any
portion of its Shares, and the Company, at no expense to the Company, shall use
reasonable efforts to assist such Purchaser in disposing of such interest in a
prompt and orderly manner, and, at the reasonable request of any such Purchaser,
shall provide (and authorize such Purchaser to provide) financial and other
information concerning the Company to any prospective purchaser of such
interest.
6.3 Real Property Holding Corporation. The Company covenants that it
will use reasonable commercial efforts not to become a USRPHC. The Company
agrees to make determinations as to its status as a USRPHC, and will file
statements concerning those determinations with the Internal Revenue Service, in
the manner and at the times required under Reg. (S) 1.897-2(h), or any
supplementary or successor provision thereto. Within 30 days of a request from
a Purchaser or any of its partners, the Company will inform the requesting
party, in the manner set forth in Reg. (S) 1.897-2(h)(1)(iv) or any
supplementary or successor provision thereto, whether that party's interest in
the Company constitutes a United States real property interest (within the
meaning of Section 897(c)(1) of the Code and FIRPTA) and whether the Company has
provided to the Internal Revenue Service all required notices as to its USRPHC
status. If at any time in the future the Company should become a USRPHC, the
Company shall, as promptly as possible, notify each Purchaser of such change in
status.
7. Expense Reimbursement
The Company hereby agrees to reimburse each of the Purchasers for their
reasonable out-of-pocket expenses incurred in connection with the transactions
contemplated hereby, including all reasonable expenses incurred in connection
with their due diligence examination of the Company, the preparation and
negotiation of this Agreement, the term sheet, the Stockholders Agreement and
all other documents evidencing the transactions contemplated herein (including
the fees (not to exceed $25,000) and expenses of Cahill, Gordon & Reindel,
counsel to the Purchasers. The Company hereby agrees to reimburse such counsel
for any legal expenses, if any, incurred in connection with the filing of any
documents regarding the transactions contemplated by this Agreement with any
governmental agencies.
8. Miscellaneous
8.1 Publicity. Except as may be required by law, the Company shall
not use the name of, or make reference to, any Purchaser or any of its
affiliates in any press release or in any public manner without such Purchaser's
prior written consent.
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8.2 Indemnification. The Company agrees to indemnify each Purchaser
and, to the extent named or involved in any claim, each officer, director,
employee, agent, partner, stockholder and affiliate of each Purchaser
(collectively, the "Indemnified Parties") for, and hold each Indemnified Party
-------------------
harmless from and against: (i) any and all damages, losses, claims and other
liabilities of any and every kind, including, without limitation, judgments and
costs of settlement, and (ii) any and all reasonable out-of-pocket costs and
expenses of any and every kind, including, without limitation, reasonable fees
and disbursements of counsel for such Indemnified Parties (all of which expenses
periodically shall be reimbursed as incurred), in each case, to the extent
arising out of or suffered or incurred in connection with any of the following:
(a) any misrepresentation or any breach of any warranty made by the Company
herein or in any of the other Company's Documents, (b) any breach or non-
fulfillment of any covenant or agreement made by the Company herein or in any of
the other Company's Documents, and (c) any claim relating to or arising out of a
violation of applicable federal or state securities laws by the Company in
connection with the sale of the Shares by the Company to the Purchasers.
8.3 Governing Law. This Agreement shall be governed in all respects
by the laws of the State of New York as such laws are applied to agreements
between New York residents entered into and performed entirely in New York,
excluding choice of law principles the law of the State of New York would
require the application of laws of a jurisdiction other than the State of New
York.
8.4 JUDICIAL PROCEEDINGS. ANY JUDICIAL PROCEEDING INVOLVING ANY
DISPUTE, CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
THE BREACH OR ALLEGED BREACH OF THIS AGREEMENT (EACH OF THE FOREGOING DISPUTES,
CONTROVERSIES AND CLAIMS HEREINAFTER REFERRED TO AS AN "AGREEMENT DISPUTE"), MAY
-----------------
BE BROUGHT IN A FEDERAL OR STATE COURT LOCATED IN NEW YORK COUNTY, IN NEW YORK
STATE, AND EACH OF THE PARTIES HERETO (i) UNCONDITIONALLY ACCEPTS THE
JURISDICTION OF SUCH COURTS AND ANY RELATED APPELLATE COURT AND IRREVOCABLY
AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY AND (ii) IRREVOCABLY WAIVES
ANY OBJECTION SUCH PARTY MAY NOW HAVE OR HEREAFTER HAS AS TO THE VENUE OF ANY
SUCH PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT
FORUM. EACH OF THE PARTIES HERETO HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL
PROCEEDING TO WHICH THEY ARE PARTIES INVOLVING AN AGREEMENT DISPUTE.
8.5 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by any Purchaser and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
8.6 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be
13
<PAGE>
enforceable by each person who shall be a holder of the Shares from time to
time, except that neither this Agreement nor any rights or obligations hereunder
shall be assigned or delegated by the Company without the prior written consent
of the Purchasers.
8.7 Entire Agreement. This Agreement, the Exhibits, the Schedules
and the other documents expressly delivered pursuant hereto, including the
Stockholders Agreement, supersede any other agreement, whether written or oral,
that may have been made or entered into by the parties hereto relating to the
matters contemplated hereby and constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof, and no party
shall be liable or bound to any other in any manner by any representations,
warranties, covenants and agreements except as specifically set forth herein and
therein.
8.8 Specific Enforcement. Any Purchaser shall be entitled to
specific enforcement of its rights under this Agreement. The Company
acknowledges that money damages would be an inadequate remedy for its breach of
this Agreement and consents to an action for specific performance or other
injunctive relief in the event of any such breach.
8.9 Separability. In case any provision of the Agreement 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.
8.10 Amendment and Waiver. This Agreement may be amended or modified
only upon the mutual written consent of the Company and all of the Purchasers.
8.11 Notices. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (i) upon personal delivery to
the party to be notified; (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day; (iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (iv) one (1) day after deposit
with a nationally recognized overnight courier, special next day delivery, with
verification of receipt. All communications shall be sent to the Company at
Fifteen Piedmont Center, Suite 710, Atlanta, Georgia 30305, Attn.: President,
with a courtesy copy to Powell, Goldstein, Frazer & Murphy, L.L.P., 191
Peachtree Street, NE, 16/th/ Floor, Atlanta, Georgia 30303, Attention: William
M. Ragland, Jr., and James K. Wagner, Jr., and to a Purchaser at the address set
forth on Exhibit A attached hereto or at such other address as the Company or
---------
Purchaser may designate by ten (10) days advance written notice to the other
parties hereto.
8.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
8.13 Broker's Fees. Each party hereto represents and warrants that
no agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation in this Section 8.13 being untrue.
14
<PAGE>
8.14 Descriptive Headings. The section and other headings contained
in this Agreement are for convenience of reference only and shall not affect the
meaning or interpretation of this Agreement.
8.15 Understanding Among Purchasers. The decision of each Purchaser
to purchase Shares pursuant to this Agreement has been made by such Purchaser
independently of any other Purchaser and independently of any statements or
opinions as to the Condition of the Company which may have been made or given by
any other Purchaser or by any agent or employee of any other Purchaser. Each
Purchaser acknowledges that no other Purchaser has acted as agent for such
Purchaser in connection with making its investment hereunder and that no other
Purchaser will be acting as agent of such Purchaser in connection with
monitoring its investment hereunder. Each Purchaser acknowledges that the
Company intends to issue up to $80,000,000 in shares of Series C Preferred Stock
(or Series C-1 Preferred Stock) in connection with this private placement,
including its ongoing licensing efforts. Each Purchaser waives any pre-emptive
rights that it may have to participate in the sale of such additional shares of
Series C Preferred Stock (or Series C-1 Preferred Stock) pursuant to the
Stockholders Agreement or otherwise, provided that the Company sells such shares
of Series C Preferred Stock (or Series C-1 Preferred Stock) in connection with
its licensing efforts to parties who are not affiliated with the Purchasers or
other stockholders of the Company or, in the case of Mark H. Dunaway, an
existing stockholder of the Company, to Mr. Dunaway in an amount up to
approximately $160,000 of shares of Series C Preferred Stock, in each case on
substantially the same terms as are included herein.
8.16 Future Financings. Nothing contained in this Agreement or any
Purchaser's prior dealings with the Company shall be deemed to constitute a
commitment on the part of any Purchaser to participate in any future financings
by the Company.
* * * * *
[The rest of this page left intentionally blank]
15
<PAGE>
In Witness Whereof, the parties hereto have executed the Agreement as
of the date set forth in the first paragraph hereof.
COMPANY:
CYPRESS COMMUNICATIONS, INC.
By: /s/ R. Stanley Allen
-------------------------------
Name: R. Stanley Allen
-----------------------------
Title: Chief Executive Officer
----------------------------
PURCHASERS:
BROOKFIELD INTERNATIONAL
PROPERTIES, INC.
By: /s/ George A. Gleadall
-------------------------------
Name: George A. Gleadall
-----------------------------
Title: Director
----------------------------
<PAGE>
EXHIBIT 10.13
CYPRESS COMMUNICATIONS, INC.
Series C Preferred
Stock Purchase Agreement
This Series C Preferred Stock Purchase Agreement (the "Agreement") is
---------
entered into as of December 1, 1999, by and among CYPRESS COMMUNICATIONS, INC.,
a Delaware corporation (the "Company"), and each of those persons and entities,
-------
severally and not jointly, whose names are set forth on the Schedule of
Purchasers attached hereto as Exhibit A (collectively the "Purchasers" and
--------- ----------
individually a "Purchaser").
---------
In consideration of the mutual promises hereinafter set forth, the parties
hereto agree as follows:
1. Agreement to Sell and Purchase
1.1 Authorization of Shares. The Company has authorized the sale and
issuance to the Purchasers of shares of its Series C Preferred Stock (the
"Shares") having the rights, preferences, privileges and restrictions set forth
------
in the Second Amended Certificate of Designation of Series A Preferred Stock,
Amended Certificate of Designation of Series B Preferred Stock and Series B-1
Preferred Stock, and Certificate of Designation of Series C Preferred Stock and
Series C-1 Preferred Stock of the Company, attached hereto as Exhibit B (the
---------
"Certificate").
-----------
1.2 Sale and Purchase. Subject to the terms and conditions hereof,
at the Closing (as hereinafter defined) the Company hereby agrees to issue and
sell to each Purchaser and each Purchaser severally and not jointly agrees to
purchase from the Company, the number of Shares set forth opposite such
Purchaser's name on Exhibit A, at a purchase price of nineteen dollars ($19.00)
---------
per Share.
2. Closing, Delivery and Payment
The closing of the sale and purchase of the Shares under this Agreement
(the "Closing") shall take place at 10:00 a.m. on December 1, 1999, at the
-------
offices of Powell, Goldstein, Frazer & Murphy LLP, 191 Peachtree Street, N.E.,
Atlanta, Georgia 30303, or at such other time or place as the Company and the
Purchasers may mutually agree (such date is hereinafter referred to as the
"Closing Date"). At the Closing, subject to the terms and conditions hereof, the
------------
Company will deliver to the Purchasers certificates representing the number of
Shares to be purchased at the Closing by each Purchaser, against payment of the
purchase price therefor by certified check or wire transfer of immediately
available funds.
3. Representations and Warranties of the Company
The Company hereby represents and warrants to, and agrees with, each
Purchaser as follows:
<PAGE>
3.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has all requisite corporate power and
authority to own and operate its properties and assets, to execute and deliver
this Agreement and the Third Amended and Restated Stockholders Agreement as
amended by the First Amendment and the Second Amendment thereto, each of which
is attached hereto as Exhibit C (collectively, the "Stockholders Agreement"), to
--------- ----------------------
issue and sell the Shares and the shares of common stock, par value $0.001 per
share, of the Company (the "Common Stock") issuable upon conversion of the
------------
Shares (the "Conversion Shares"), to carry out the other provisions of this
-----------------
Agreement and the Stockholders Agreement and the transactions contemplated
hereby and thereby, and to carry on its business as presently conducted and as
presently proposed to be conducted. The Company is duly qualified to transact
business and is in good standing in each jurisdiction in which the failure to so
qualify could have a material adverse effect on the business, properties,
operations, earnings, assets or liabilities, condition (financial or otherwise)
(collectively, the "Condition") of the Company.
---------
3.2 Capitalization.
(a) The authorized capital stock of the Company, immediately
after the Closing, will consist of (i) Ten Million Eight Hundred Ninety-Four
Thousand Seventy-One and 62/100 (10,894,071.62) shares of Common Stock, Five
Hundred Eighty Five Thousand Nine Hundred Eighty and 46/100 (585,980.46) shares
of which are issued and outstanding, and (ii) Seven Million Six Hundred Eighty-
Seven Thousand Seven Hundred Four and 16/100 (7,687,704.16) shares of Preferred
Stock, of which One Million Two Hundred Eleven Thousand One Hundred Forty
(1,211,140) are designated as Series A Preferred Stock (the "Series A
--------
Preferred"), all of which are issued and outstanding, One Million Nine Hundred
- ---------
Nineteen Thousand One Hundred Eighty Eight (1,919,188) are designated as Series
B Preferred Stock (the "Series B Preferred"), One Million Three Hundred Thirty
------------------
Nine Thousand Five Hundred Seventy Five (1,339,575) of which are issued and
outstanding, Five Hundred Seventy Nine Thousand Six Hundred Thirteen (579,613)
are designated as Series B-1 Preferred Stock (the "Series B-1 Preferred"), all
--------------------
of which are issued and outstanding, Three Million Nine Hundred Seventy Seven
Thousand Seven Hundred Sixty Three and 16/100 (3,977,763.16) are designated as
Series C Preferred Stock (the "Series C Preferred"), Three Million Four Thousand
------------------
Seventy-Eight and 95/100 (3,004,078.95) of which were issued and outstanding as
of November 30, 1999 (the Series A Preferred, Series B Preferred, Series B-1
Preferred and Series C Preferred are collectively referred to herein as the
"Preferred Stock").
---------------
(b) Except as specifically set forth on Schedule 3.2 attached
------------
hereto, and except for conversion rights of issued and outstanding shares of
Preferred Stock, as of the Closing Date, the Company will not (i) have
outstanding any capital stock or other securities convertible into or
exchangeable for any shares of its capital stock and, except for the preemptive
rights contained in the Stockholders Agreement, no person will have any right to
subscribe for or to purchase (including conversion or preemptive rights), or any
warrants or options for the purchase of, or any agreements providing for the
issuance (contingent or otherwise) of, or any calls, commitments or other claims
of any character relating to, any capital stock or any stock or securities
convertible into or exchangeable for any capital stock of the Company; (ii) have
any capital stock, equity interests or other securities reserved for issuance
for any purpose; or
2
<PAGE>
(iii) except for the redemption rights set forth in the Certificate, be subject
to any obligation (contingent or otherwise) to repurchase or otherwise acquire
or retire any shares of its capital stock or any convertible securities, rights
or options of the type described in the preceding clause (i). No outstanding
options, warrants or other securities directly or indirectly exercisable for or
convertible into any class or series of the Company's capital stock require
anti-dilution adjustments by reason of the transactions contemplated by this
Agreement. All of the issued and outstanding shares of Common Stock and
Preferred Stock have been duly and validly issued, are fully paid and
nonassessable and were issued in compliance with all applicable federal and
state securities laws and any applicable preemptive rights. All of the
outstanding options, warrants and other securities of the Company have been
issued in compliance with all applicable federal and state securities laws and
any applicable preemptive rights. To the best knowledge of the Company, there
are no agreements among the Company's stockholders with respect to the voting or
transfer of the Company's capital stock, other than the agreements regarding
voting and transfer contained in the Stockholders Agreement. Schedule 3.2 sets
------------
forth a complete and correct list of (i) the name of each of the Company's
stockholders and the number of shares and class and series of capital stock
owned by such stockholder, and (ii) the name of each holder of an outstanding
stock option and/or warrant, and the number of options and/or warrants to
purchase capital stock owned by such holder (and the applicable class and series
of capital stock) and the exercise price at which such option(s) or warrants may
be exercised. The Company does not own or control, directly or indirectly, any
interest in any other corporation, association, or other business entity.
3.3 Authorization; Binding Obligations. All corporate action on the
part of the Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the Stockholders
Agreement, the Certificate and each other document or instrument executed by the
Company, or any of its officers, in connection herewith or therewith or pursuant
hereto or thereto (this Agreement, together with all of the foregoing documents
and instruments, are sometimes collectively referred to herein as the "Company's
---------
Documents"), the performance of all obligations of the Company under the Company
- ---------
Documents and for the authorization, sale, issuance and delivery of the Shares
has been taken. When issued in compliance with the provisions of this
Agreement, the Shares will be duly authorized, validly issued, fully paid and
nonassessable, free of any liens, preemptive or similar rights, or any other
encumbrances (except as set forth in the Stockholders Agreement) and issued in
compliance with all applicable state and federal securities laws. The
Conversion Shares have been duly authorized and validly reserved for issuance
and, when issued upon conversion of the Series C Preferred, will be validly
issued, fully paid and nonassessable, free of any liens, preemptive or similar
rights, or any other encumbrance (except as set forth in the Stockholders
Agreement). This Agreement, the Stockholders Agreement and the other Company's
Documents have been duly executed and delivered by the Company and constitute
legal, valid and binding obligations of the Company enforceable in accordance
with their terms.
3.4 Consents and Approvals. Except as set forth on Schedule 3.4, no
------------
filings with, notices to, or approvals of any governmental or regulatory body
are required to be obtained or made by the Company in connection with the
consummation of the transactions contemplated hereby, including, without
limitation, the issuance of the Shares and the Conversion Shares.
3
<PAGE>
3.5 No Violations. Except as set forth on Schedule 3.5, the
------------
execution, delivery and performance of this Agreement and the other Company's
Documents and the performance by the Company of its obligations hereunder and
thereunder (i) do not and will not conflict with or violate any provision of the
certificate of incorporation or bylaws of the Company and (ii) do not and will
not (a) conflict with or result in a breach of the terms, conditions or
provisions of, (b) constitute a default under, (c) result in the creation of any
encumbrance upon the capital stock or assets of the Company pursuant to, (d)
give any third party the right to modify, terminate or accelerate any obligation
under, (e) result in a violation of, or (f) require any authorization, consent,
approval, exemption or other action by or notice to any court, governmental
authority, department, commission, board, bureau, agency or instrumentality,
domestic or foreign ("Governmental Authority"), or any other individual,
----------------------
partnership, corporation, unincorporated organization or association, limited
liability company, trust or other entity (collectively, a "Person") pursuant to
------
any law, statute, rule or regulation or any agreement, contract or instrument or
any order, judgment or decree to which the Company is subject or by which any of
its assets are bound.
3.6 Financial Statements; Interim Changes. The Company's audited
balance sheet as of December 31, 1998, audited statements of operations, and
cash flows for the period ended December 31, 1998, unaudited balance sheet as of
September 30, 1999 (the "Latest Balance Sheet") and unaudited statements of
--------------------
income and cash flows of the Company for the period ended September 30, 1999,
(copies of which have been furnished to the Purchasers in connection with the
investment contemplated hereby) are complete and correct in all material
respects, have been prepared in accordance with generally accepted accounting
principles ("GAAP") consistently applied (subject to, in the case of unaudited
----
statements, normal year-end adjustments and the absence of footnote disclosures,
all of which are not material) and fairly present in all material respects the
financial position, the results of operations and cash flows of the Company for
the period covered thereby. The Company has no material liabilities or
obligations of any nature (absolute, accrued, contingent or otherwise) that are
not either reflected or fully reserved against on the Latest Balance Sheet or
incurred in the ordinary course of the business of the Company subsequent to the
date thereof. Since the date of the Latest Balance Sheet, there has not been
any material adverse change in the Condition of the Company.
3.7 Compliance with Laws. The Company's business has been conducted
in compliance with all applicable laws and regulations of Governmental
Authorities, except for such violations that have been cured or that,
individually or in the aggregate, could not reasonably be expected to have a
material adverse effect on the Condition of the Company. The Company has all
permits, licenses, orders, certificates, authorizations and approvals of any
Governmental Authority (collectively, the "Permits") that are material to the
-------
conduct of its business as presently conducted and as proposed to be conducted;
all such Permits are, and as of the Closing will be, in full force and effect;
no violations or notices of failure to comply have been issued or recorded in
respect of any such Permits; and the Company has no knowledge of any reason why
such Permits may be revoked or suspended. To the best of the Company's
knowledge, the business, operations, assets and properties of the Company are
and have been operated and maintained in compliance in all material respects
with all applicable federal, state, city, county and local environmental
protection laws and regulations.
4
<PAGE>
3.8 Proprietary Rights. The Company has not received any
communications alleging that it has violated or, by conducting its business as
proposed would violate, any proprietary rights of any other person, and except
as set forth on Schedule 3.8, the Company is not aware of any basis for the
------------
foregoing.
3.9 Actions Pending. Except as set forth on Schedule 3.9, there is
------------
no action, suit, investigation, proceeding or governmental approval process
(collectively, "Actions") pending or, to the best knowledge of the Company,
-------
threatened against or affecting the Company or any of its properties or rights
before any court or by or before any governmental body or arbitration board or
tribunal, none of which could reasonably be expected to have a material adverse
effect on the Condition of the Company.
3.10 Material Contracts. Except as set forth on Schedule 3.10
-------------
attached hereto, the Company is not a party to (and is not otherwise bound by)
any of the following: (i) any employment or consulting agreement, (ii) any
agreement providing for the issuance or repurchase of any securities of the
Company, (iii) any agreement in respect of registration rights, preemptive
rights, rights of first refusal, voting rights or other rights of security
holders (other than the Stockholders Agreement), (iv) any agreement evidencing
or providing for any indebtedness for borrowed money, any agreement with any
past or present officer, director, key employee or shareholder of the Company or
any affiliate or relative thereof (other than the Stockholders Agreement and
grant agreements with respect to Reserved Employee Stock), or (v) any other
agreement that could reasonably be deemed material to the Company or its
Condition.
3.11 Insurance. The Company has in full force and effect liability
insurance of the types and providing coverage in such amounts as is customary
for companies of established reputation engaged in the same or similar business
and similarly situated, and such other insurance policies as are sufficient for
compliance with all requirements of law and applicable agreements.
3.12 Investments in United States Real Property Interests. The
Company's capital stock does not constitute a United States real property
interest as that term is defined in Section 897(c)(1)(A)(ii) of the Internal
Revenue Code of 1986, as amended (the "Code"). The preceding representation is
----
based on a determination by the Company that the Company is not and has never
been a United States real property holding corporation (as that term is defined
in Section 897(c)(2) of the Code). From time to time, upon request of any
Purchaser, the Company shall make a determination as to its status as a United
States real property holding corporation ("USRPHC"). If at any time in the
------
future the Company should become a USRPHC, the Company shall, as promptly as
possible, notify each Purchaser of such change in status.
3.13 Unrelated Business Taxable Income. Any gross income derived by
the Purchasers from the Company shall be in the form of dividends, interest,
capital gains and losses from the disposition of property, rents and royalties,
but only such rents and royalties as are excluded pursuant to Code Sections
512(b)(2) and 512(b)(3), respectively, in calculating unrelated business taxable
income and only such dividends, interest, capital gains and losses, and rents
and royalties that are not included under Section 512(b)(4) of the Code in
calculating unrelated business taxable income. This Section 3.13 shall not be
deemed to apply to (i) any compensation (in cash, stock or other form) received
by designees of the Purchasers in their
5
<PAGE>
capacities as directors of the Company that is transferred to the Purchasers, or
(ii) any income included under Section 512(b)(4) of the Code as a result of
acquisition indebtedness incurred by any Purchaser in connection with the
purchase of an interest in the Company, or (iii) any income derived by the
Purchasers from the Company with respect to which the Purchasers have expressly
waived in writing the application of the provision of this Section 3.13, or (iv)
any income derived by the Purchasers pursuant to the reimbursement of expenses
pursuant to Section 7 hereof.
3.14 Books and Records. The minute books of the Company fully set
forth all material action taken by the Board of Directors, stockholders and, if
any, executive board (or other committee thereof) of the Company.
3.15 Disclosure. The Company has fully provided each Purchaser with
all the information which such Purchaser has requested for deciding whether to
purchase the Shares. Neither this Agreement nor any other certificates made or
delivered in connection herewith contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements herein
or therein not misleading.
3.16 Year 2000. The Company has reviewed its operations to evaluate
the extent to which the business or operations of the Company will be affected
by the Year 2000 Problem (as defined below). As a result of such review, the
Company has no reasonable basis to believe, and does not believe, that the Year
2000 Problem will have a material adverse effect on the Condition of the
Company; provided, however, that the Company does not make any representation or
warranty as to the operation of any telecommunications network operated by an
incumbent or competing local exchange carrier which may be affected by the Year
2000 Problem. The "Year 2000 Problem" as used herein means any significant risk
-----------------
that computer hardware or software used in the receipt, transmission,
processing, manipulation, storage, retrieval, retransmission or other
utilization of data or in the operation of mechanical or electrical systems of
any kind will not, in the case of dates or time periods occurring after December
31, 1999, function at least as effectively as in the case of dates or time
periods occurring prior to January 1, 2000.
3.17 Environmental Matters.
(a) To the best of the Company's knowledge, the Company has not
caused or allowed, nor has the Company contracted with any party for, the
generation, use, transportation, treatment, storage or disposal of any Hazardous
Substances (as defined below) in connection with the operations of its business
or otherwise.
(b) To the best of the Company's knowledge, the Company, the
operations of its business, and any real property that the Company owns, leases,
or otherwise occupies (the "Premises") are in compliance in all material
respects with all applicable Environmental Laws (as defined below) and orders or
directives of any governmental authorities having jurisdiction under such
Environmental Laws including, without limitation, any Environmental Laws or
orders or directives with respect to any cleanup or remediation of any release
or threat of release of Hazardous Substances.
6
<PAGE>
(c) To the best of the Company's knowledge, the Company has not
received any citation, directive, letter or other communication, written or
oral, or any notice of any proceedings, claims or lawsuits, from any person,
entity or governmental authority arising out of the occupation of the Premises
or the conduct of its operations, nor is it aware of any reasonable basis
thereof.
(d) To the best of the Company's knowledge, the Company has
obtained and is maintaining in full force and effect all material permits,
licenses and approvals required of the Company by any Environmental Laws
applicable to the Premises and the business operations conducted by the Company
and is in compliance with all such permits, licenses and approvals, in all
material respects.
(e) To the best of the Company's knowledge, the Company has not
caused or allowed a release of any Hazardous Substance unto, nor to the best of
the Company's knowledge has the Premises or any property at or near the Premises
ever been subject to a release, or a threat of a release, of any Hazardous
Substance.
(f) The term "Environmental Laws" shall mean any federal, state
or local law, ordinance or regulation pertaining to the protection of human
health or the environment including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Sections 9601,
et seq., Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Sections
11001, et seq., and the Resource Conservation and Recovery Act, 42 U.S.C.
Sections 6901, et seq.
(g) The term "Hazardous Substance" includes oil and petroleum
products, asbestos, polychlorinated biphenyls and urea formaldehyde, and any
other materials classified as hazardous or toxic under any Environmental Laws.
4. Representations And Warranties Of The Purchasers
Each Purchaser severally and not jointly hereby represents and warrants to
the Company as follows:
4.1 Requisite Power and Authority. Such Purchaser has all necessary
partnership or limited liability company power and authority under all
applicable provisions of law to execute and deliver this Agreement and to carry
out its provisions. All actions on such Purchaser's part required for the lawful
execution and delivery of this Agreement have been or will be effectively taken
prior to the Closing.
4.2 Investment Representations. Such Purchaser understands that
neither the Shares nor the Conversion Shares have been registered under any
state securities act or the Securities Act of 1933, as amended (the "Securities
----------
Act"). Such Purchaser also understands that the Shares are being offered and
- ---
sold pursuant to an exemption from registration contained in applicable state
securities acts and the Securities Act based in part upon the Purchaser's
representations contained in this Agreement.
(a) Purchaser Bears Economic Risk. Such Purchaser has
substantial experience in evaluating and investing in private placement
transactions of securities in
7
<PAGE>
companies similar to the Company so that Purchaser is capable of evaluating the
merits and risks of its investment in the Company and has the capacity to
protect its own interests. Such Purchaser must bear the economic risk of this
investment indefinitely unless the Shares (or the Conversion Shares) are
registered pursuant to the Securities Act, or an exemption from registration is
available. Such Purchaser understands that the Company has no present intention
of registering the Shares or the Conversion Shares. Such Purchaser also
understands that there is no assurance that any exemption from registration
under the Securities Act will be available and that, even if available, such
exemption may not allow such Purchaser to transfer all or any portion of the
Shares or the Conversion Shares under the circumstances, in the amounts or at
the times such Purchaser might propose. Such Purchaser can bear the economic
risk of losing its entire investment in the Company.
(b) Acquisition for Own Account. Such Purchaser is acquiring the
Shares and the Conversion Shares for Purchaser's own account for investment
only, and not with a view towards their resale or distribution in violation of
applicable securities laws.
(c) Purchaser Can Protect Its Interest. Such Purchaser
represents that, by reason of Purchaser's or of its management's business or
financial experience, such Purchaser has the capacity to protect its own
interests in connection with the transactions contemplated in this Agreement. In
making this representation, the Purchaser is relying upon the provisions of the
Certificate and of this Agreement.
(d) Accredited Investor. Such Purchaser represents that
Purchaser is an accredited investor within the meaning of Regulation D under the
Securities Act.
(e) Company Information. Such Purchaser has had an opportunity
to discuss the Company's business, management and financial affairs with
directors, officers and management of the Company. Such Purchaser has also had
the opportunity to ask questions of, and receive answers from, the Company and
its management regarding the terms and conditions of this investment. Purchaser
has had an adequate opportunity to inspect and copy all material documents
relating to the Company which it has requested and has been furnished or
provided access to information similar to that which would be included in a
registration statement as is necessary for such Purchaser, in view of its
business or management experience and sophistication, to evaluate the merits and
risks of an investment in the Company.
(f) Rule 144. Such Purchaser acknowledges and agrees that the
Shares and the Conversion Shares must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. Such Purchaser has been advised or is aware of the
provisions of Rule 144 promulgated under the Securities Act, which permits
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things: the
availability of certain current public information about the Company, the resale
occurring not less than one year after a party has purchased and paid for the
security to be sold, the sale being through an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934, as amended) and the number of
shares being sold during any three-month period not exceeding specified
limitations.
8
<PAGE>
(g) Risks. Such Purchaser acknowledges that the following risks
relating to an investment in the Company have been disclosed to such Purchaser
by the Company.
(i) The Company was formed in 1995 and therefore has a
limited operating history upon which an evaluation of the Company's performance
could be based. There can be no assurance that the Company's operations will be
profitable or that the Company will be able to sell its products and services at
price levels that will produce profits or an acceptable return to shareholders.
(ii) Additional financing may be required to support the
growth activities of the Company. The Company may need financing for operations
and marketing. No arrangements have been made to secure such financing, and
there can be no assurance that such additional financing will be available when
required or on terms acceptable to the Company.
(iii) The telecommunications industry has been
characterized by steady technological change, frequent new service
introductions, evolving industry standards, and new and consolidating
competitors. The Company's success will depend in part on its ability to
anticipate such changes and to offer responsive services on a timely basis.
Further, although the trend has been toward decreases in the cost of equipment
and network elements, there is no assurance that these trends will continue, or
that the Company will be able to respond successfully to such changes.
(iv) The telecommunications industry is highly regulated.
In the future, certain aspects of the Company's operations may require
authorization from the Federal Communications Commission ("FCC") and/or
---
applicable state public service commissions. This may involve both obtaining the
required authorizations and complying with the on-going requirements imposed on
carriers, such as filing a tariff. No assurances can be given that there will be
no opposition to the Company's applications or that the necessary authorizations
(other than any such authorization necessary to continue the current business
operations of the Company) will be granted. Additional expenses (such as legal
and accounting fees) will be involved in attempting to obtain and in maintaining
these authorizations and in complying with the accounting reporting and
administrative regulations imposed by the FCC and the state commissions. The
cost for access to local service could change significantly as deregulation of
the local loop progresses and carriers other than the existing local exchange
carriers are authorized to provide local service.
(v) The Company competes with a number of companies with
significantly greater financial resources than the Company.
(vi) The Company's success will be related to the real
estate cycle, in particular, to construction and leasing activity.
(vii) The Company's operations will depend in part upon
contractual arrangements with local exchange and long distance carriers. The
costs associated with the purchase of local exchange services, access to the
long distance network, and long distance services could change significantly as
deregulation of the local loop progresses, carriers
9
<PAGE>
other than the existing local exchange carriers are authorized to provide local
exchange service and access to long distance, and the costs of long distance
carriers change in response. The Company believes it will have a number of
options for obtaining both exchange and access services at competitive rates,
however the continuing availability of alternative resources cannot be assured.
(viii) The Company has used and will, for the foreseeable
future, use incumbent local exchange carriers ("ILECs") to provide the bulk of
-----
inbound calling services to telephone numbers used by the Company's customers.
Because local number portability (i.e., the regulatory and technical abilities
of the Company and/or the Company's customers to transfer telephone numbers
freely between local exchange carriers) was delayed nationwide and is far from a
failsafe procedure where it has been implemented, the Company is dependent on
the quality of such ILEC services for completing telephone calls, both local and
long distance, intended for the Company's customers. Should such services prove
to be of poor quality for any particular building or market in which the Company
operates, the business of the Company in that building or in that market could
be adversely affected in a material manner.
(ix) The Company uses several competitive local exchange
carriers ("CLECs") to provide outbound local, point to point and local loop
-----
services, in addition to using ILECs. Though the Company believes that this
diversification of vendors has the potential to reduce its cost of such
services, as well as provide operational redundancy, there is a heightened
element of operational risk associated with using services from new vendors.
(x) A search done in the process of preparing to apply
for a trademark for the name of the Company revealed potential conflicts with
the Company's use of the trade name "Cypress" and the Company's ability to
obtain trademark protection for this name. The Company has decided that it is
not in the Company's best interest to apply for a trademark in the name of
Cypress Communications or to change the name of the Company at this time.
Furthermore, there is a possibility that one of the firms with whom there is a
potential conflict, or other companies for that matter, will demand that the
Company discontinue using the name Cypress Communications. Such a demand might
result in either expensive litigation and/or a change in the Company's name,
which in either event, could have a material adverse effect on the Company.
(h) Residence. The address of such Purchaser as set forth on
Exhibit A attached hereto is its true and correct principal place of business.
- ---------
(i) HSR Matters. Purchaser is not included within any other
person (within the meaning of the Hart-Scott-Rodino Improvements Act of 1976, as
amended ("HSR Act")) who is also a Purchaser or who otherwise owns voting
-------
securities of the Company.
Nothing contained in this Section 4 shall in any respect limit or modify
the representations and warranties of the Company in Section 3 of this Agreement
or the right of each Purchaser to rely thereon.
10
<PAGE>
5. Conditions Precedent To Purchasers' Obligations
The obligation of each Purchaser to purchase and pay for the Shares to be
delivered to it at the Closings shall be subject to the satisfaction of the
following conditions as of the applicable Closing Date:
(a) the representations and warranties of the Company contained
in this Agreement shall be true and correct as if made on and as of the Closing
Date;
(b) the Company, the Purchasers and the existing stockholders of
the Company shall have entered into the Stockholders Agreement in the form of
Exhibit C attached hereto;
- ---------
(c) the Purchasers shall have received the legal opinion of
Powell, Goldstein, Frazer & Murphy LLP, counsel to the Company, substantially in
the form of Exhibit D;
---------
(d) all other Purchasers shall have concurrently purchased the
Shares to be purchased by them pursuant to this Agreement;
(e) all authorizations, approvals or permits, if any, of any
Governmental Authority that are required in connection with and prior to the
lawful issuance and sale of the Shares or Conversion Shares shall be duly
obtained and effective as of the Closing Date;
(f) all corporate and other proceedings in connection with the
transactions contemplated at the Closing and all documents incident thereto
shall be reasonably satisfactory in form and substance to each Purchaser at the
Closing, and they shall have received all such counterpart original and
certified or other copies of such documents as they may reasonably request;
(g) no action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any court,
Governmental Authority or legislative body to enjoin, restrain, or prohibit, or
to obtain substantial damages in respect of, or which is related to or arises
out of this Agreement or the consummation of the transactions contemplated
hereby or thereby, or which, in Purchaser's reasonable discretion, would make it
advisable to consummate the transactions contemplated by this Agreement;
(h) the Company shall have executed and delivered to Purchaser a
Stock Warrant Agreement substantially in the form of Exhibit E; and
---------
(i) the Certificate shall have been duly adopted by the Company
and filed with the Secretary of State of the State of Delaware and shall be in
effect.
6. Covenants
The Company covenants and agrees with the Purchasers as follows:
11
<PAGE>
6.1 Assistance in Sales. Anything in this Agreement or the
Stockholders Agreement to the contrary notwithstanding, in the event that it
becomes unlawful for any Purchaser to continue to hold all or some portion of
the Shares to be held by it, or restrictions are imposed on such Purchaser by
any law, rule or regulation which, in the reasonable judgement of such
Purchaser, make it unduly burdensome to continue to hold all or some portion of
such Shares, then such Purchaser may sell or otherwise dispose of all or any
portion of its Shares and Conversion Shares, and the Company, at no expense to
the Company, shall use reasonable efforts to assist such Purchaser in disposing
of such interest in a prompt and orderly manner, and, at the reasonable request
of any such Purchaser, shall provide (and authorize such Purchaser to provide)
financial and other information concerning the Company to any prospective
purchaser of such interest.
6.2 Real Property Holding Corporation. The Company covenants that it
will use reasonable commercial efforts not to become a USRPHC. The Company
agrees to make determinations as to its status as a USRPHC, and will file
statements concerning those determinations with the Internal Revenue Service, in
the manner and at the times required under Reg. (S) 1.897-2(h), or any
supplementary or successor provision thereto. Within 30 days of a request from
a Purchaser or any of its partners, the Company will inform the requesting
party, in the manner set forth in Reg. (S) 1.897-2(h)(1)(iv) or any
supplementary or successor provision thereto, whether that party's interest in
the Company constitutes a United States real property interest (within the
meaning of Section 897(c)(1) of the Code and FIRPTA) and whether the Company has
provided to the Internal Revenue Service all required notices as to its USRPHC
status. If at any time in the future the Company should become a USRPHC, the
Company shall, as promptly as possible, notify each Purchaser of such change in
status.
6.3 Taxable REIT Subsidiary. In the event that provisions similar to
the "taxable REIT subsidiary" provisions of H.R. 1180 are enacted, the Company
covenants that it will, upon written request by any Purchaser, make a "taxable
REIT subsidiary election" with respect to any affiliate of a Purchaser that such
Purchaser may designate.
6.4 Notices of Redemptions or Conversions.
(a) The Company shall provide each holder of Series C Preferred
with written notice (specifying the class and number of shares to be redeemed)
promptly upon receiving any notice of redemption pursuant to Section 4(a) of the
Certificate.
(b) The Company shall provide each holder of Series C Preferred
with written notice (specifying the class and number of shares to be redeemed or
acquired) promptly upon determining that it shall redeem shares of Senior
Preferred or that it shall permit an affiliate to acquire shares of Senior
Preferred.
(c) The Company shall provide each holder of Series C Preferred
with written notice (specifying the class and number of shares to be converted)
promptly upon receiving any notice of optional conversion pursuant to Section
5(l)(i) of the Certificate.
6.5 Limitations on Certain Actions. Without the prior consent of
Purchaser, the Company will not (i) take any action which would cause the
Company or any successor
12
<PAGE>
thereto to be treated as a partnership for federal income tax purposes, or (ii)
merge or consolidate with or into any entity that, following such merger or
consolidation, would be treated as a partnership for federal income tax
purposes.
7. Expense Reimbursement
The Company hereby agrees to reimburse each of the Purchasers for their
reasonable out-of-pocket expenses incurred in connection with the transactions
contemplated hereby, including all reasonable expenses incurred in connection
with their due diligence examination of the Company, the preparation and
negotiation of this Agreement, the term sheet, the Stockholders Agreement and
all other documents evidencing the transactions contemplated herein (including
the fees (not to exceed $25,000 in the aggregate) and expenses of Sullivan &
Cromwell, counsel to the Purchasers, and Proskauer Rose LLP, counsel to the
Purchasers. The Company hereby agrees to reimburse such Purchaser for the legal
expenses, if any, incurred in connection with the filing of any documents
regarding the transactions contemplated by this Agreement with any Governmental
Authorities.
8. Miscellaneous
8.1 Publicity. Except as may be required by law, the Company shall
not use the name of, or make reference to, any Purchaser or any of its
affiliates in any press release or in any public manner without such Purchaser's
prior written consent.
8.2 Indemnification. The Company agrees to indemnify each Purchaser
and, to the extent named or involved in any claim, each officer, director,
employee, agent, partner, stockholder and affiliate of each Purchaser
(collectively, the "Indemnified Parties") for, and hold each Indemnified Party
-------------------
harmless from and against: (i) any and all damages, losses, claims and other
liabilities of any and every kind, including, without limitation, judgments and
costs of settlement, and (ii) any and all reasonable out-of-pocket costs and
expenses of any and every kind, including, without limitation, reasonable fees
and disbursements of counsel for such Indemnified Parties (all of which expenses
periodically shall be reimbursed as incurred), in each case, to the extent
arising out of or suffered or incurred in connection with any of the following:
(a) any misrepresentation or any breach of any warranty made by the Company
herein or in any of the other Company's Documents, (b) any breach or non-
fulfillment of any covenant or agreement made by the Company herein or in any of
the other Company's Documents, and (c) any claim relating to or arising out of a
violation of applicable federal or state securities laws by the Company in
connection with the sale of the Shares by the Company to the Purchasers.
8.3 Governing Law. This Agreement shall be governed in all respects
by the laws of the State of New York as such laws are applied to agreements
between New York residents entered into and performed entirely in New York.
8.4 JUDICIAL PROCEEDINGS. ANY JUDICIAL PROCEEDING INVOLVING ANY
DISPUTE, CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
THE BREACH OR ALLEGED BREACH OF THIS AGREEMENT (EACH OF THE FOREGOING DISPUTES,
CONTROVERSIES AND CLAIMS HEREINAFTER REFERRED TO AS AN "AGREEMENT DISPUTE"), MAY
-----------------
BE
13
<PAGE>
BROUGHT IN A FEDERAL OR STATE COURT LOCATED IN NEW YORK COUNTY, IN NEW YORK
STATE, AND EACH OF THE PARTIES HERETO (i) UNCONDITIONALLY ACCEPTS THE
JURISDICTION OF SUCH COURTS AND ANY RELATED APPELLATE COURT AND IRREVOCABLY
AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY AND (ii) IRREVOCABLY WAIVES
ANY OBJECTION SUCH PARTY MAY NOW HAVE OR HEREAFTER HAS AS TO THE VENUE OF ANY
SUCH PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT
FORUM. EACH OF THE PARTIES HERETO HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL
PROCEEDING TO WHICH THEY ARE PARTIES INVOLVING AN AGREEMENT DISPUTE.
8.5 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by any Purchaser and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
8.6 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares from time to time, except that
neither this Agreement nor any rights or obligations hereunder shall be assigned
or delegated by the Company without the prior written consent of the Purchasers.
8.7 Entire Agreement. This Agreement, the Exhibits, the Schedules
and the other documents expressly delivered pursuant hereto, including the
Stockholders Agreement, supersede any other agreement, whether written or oral,
that may have been made or entered into by the parties hereto relating to the
matters contemplated hereby and constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof, and no party
shall be liable or bound to any other in any manner by any representations,
warranties, covenants and agreements except as specifically set forth herein and
therein.
8.8 Specific Enforcement. Any Purchaser shall be entitled to
specific enforcement of its rights under this Agreement. The Company
acknowledges that money damages would be an inadequate remedy for its breach of
this Agreement and consents to an action for specific performance or other
injunctive relief in the event of any such breach.
8.9 Separability. In case any provision of the Agreement 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.
8.10 Amendment and Waiver. This Agreement may be amended or modified
only upon the mutual written consent of the Company and all of the Purchasers.
8.11 Notices. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (i) upon personal delivery to
the party to be notified; (ii)
14
<PAGE>
when sent by confirmed telex or facsimile if sent during normal business hours
of the recipient, if not, then on the next business day; (iii) five (5) days
after having been sent by registered or certified mail, return receipt
requested, postage prepaid; or (iv) one (1) day after deposit with a nationally
recognized overnight courier, special next day delivery, with verification of
receipt. All communications shall be sent to the Company at Fifteen Piedmont
Center, Suite 710, Atlanta, Georgia 30305, Attn.: President, with a courtesy
copy to Powell, Goldstein, Frazer & Murphy, L.L.P., 191 Peachtree Street, NE,
16/th/ Floor, Atlanta, Georgia 30303, Attention: William M. Ragland, Jr., and
James K. Wagner, Jr., and to a Purchaser at the address set forth on Exhibit A
---------
attached hereto or at such other address as the Company or Purchaser may
designate by ten (10) days advance written notice to the other parties hereto.
8.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
8.13 Broker's Fees. Each party hereto severally and not jointly
represents and warrants that no agent, broker, investment banker, person or firm
acting on behalf of or under the authority of such party hereto is or will be
entitled to any broker's or finder's fee or any other commission directly or
indirectly in connection with the transactions contemplated herein. Each party
hereto further agrees to indemnify each other party for any claims, losses or
expenses incurred by such other party as a result of the representation it has
made in this Section 8.13 being untrue.
8.14 Descriptive Headings. The section and other headings contained
in this Agreement are for convenience of reference only and shall not affect the
meaning or interpretation of this Agreement.
8.15 Understanding Among Purchasers. The decision of each Purchaser
to purchase Shares pursuant to this Agreement has been made by such Purchaser
independently of any other Purchaser and independently of any statements or
opinions as to the Condition of the Company which may have been made or given by
any other Purchaser or by any agent or employee of any other Purchaser. Each
Purchaser acknowledges that no other Purchaser has acted as agent for such
Purchaser in connection with making its investment hereunder and that no other
Purchaser will be acting as agent of such Purchaser in connection with
monitoring its investment hereunder. Each Purchaser acknowledges that the
Company intends to issue up to $80,000,000 in shares of Series C Preferred Stock
(or Series C-1 Preferred Stock) in connection with this private placement,
including its ongoing licensing efforts. Each Purchaser waives any pre-emptive
rights that it may have to participate in the sale of such additional shares of
Series C Preferred Stock (or Series C-1 Preferred Stock) pursuant to the
Stockholders Agreement or otherwise, provided that the Company sells such shares
of Series C Preferred Stock (or Series C-1 Preferred Stock) in connection with
its licensing efforts to parties who are not affiliated with the Purchasers or
other stockholders of the Company or, in the case of Mark H. Dunaway, an
existing stockholder of the Company, to Mr. Dunaway in an amount up to
approximately $160,000 of shares of Series C Preferred Stock, in each case on
substantially the same terms as are included herein.
15
<PAGE>
8.16 Future Financings. Nothing contained in this Agreement or any
Purchaser's prior dealings with the Company shall be deemed to constitute a
commitment on the part of any Purchaser to participate in any future financings
by the Company.
8.17 Business Day. As used herein, the term "Business Day" shall
mean any day on which banks in New York City, Boston, Massachusetts, and San
Francisco, California, are open for the transaction of business.
* * * * *
[The rest of this page left intentionally blank]
16
<PAGE>
In Witness Whereof, the parties hereto have executed the Agreement as of
the date set forth in the first paragraph hereof.
COMPANY:
CYPRESS COMMUNICATIONS, INC.
By: /s/ Barry L. Boniface
-------------------------------
Name: Barry L. Boniface
-----------------------------
Title: Chief Financial Officer
----------------------------
PURCHASER:
VORNADO COMMUNICATIONS, L.L.C.
By: Vornado Realty, L.P., its manager
By: Vornado Realty Trust, its general
partner
By: /s/ Irwin Goldberg
-------------------------------
Name: Irwin Golberg
-----------------------------
Title: Vice President, CFO
----------------------------
<PAGE>
EXHIBIT 10.14
CYPRESS COMMUNICATIONS, INC.
Series C Preferred
Stock Purchase Agreement
This Series C Preferred Stock Purchase Agreement (the "Agreement") is
---------
entered into as of December 2, 1999, by and among CYPRESS COMMUNICATIONS, INC.,
a Delaware corporation (the "Company"), and each of those persons and entities,
-------
severally and not jointly, whose names are set forth on the Schedule of
Purchasers attached hereto as Exhibit A (collectively the "Purchasers" and
--------- ----------
individually a "Purchaser").
---------
In consideration of the mutual promises hereinafter set forth, the parties
hereto agree as follows:
1. Agreement to Sell and Purchase
1.1 Authorization of Shares. The Company has authorized the sale
and issuance to the Purchasers of shares of its Series C Preferred Stock (the
"Shares") having the rights, preferences, privileges and restrictions set forth
------
in the Second Amended Certificate of Designation of Series A Preferred Stock,
Amended Certificate of Designation of Series B Preferred Stock and Series B-1
Preferred Stock, and Certificate of Designation of Series C Preferred Stock and
Series C-1 Preferred Stock of the Company, attached hereto as Exhibit B (the
---------
"Certificate").
-----------
1.2 Sale and Purchase. Subject to the terms and conditions hereof,
at the Closing (as hereinafter defined) the Company hereby agrees to issue and
sell to each Purchaser and each Purchaser severally and not jointly agrees to
purchase from the Company, the number of Shares set forth opposite such
Purchaser's name on Exhibit A, at a purchase price of nineteen dollars ($19.00)
---------
per Share.
2. Closing, Delivery and Payment
The closing of the sale and purchase of the Shares under this
Agreement (the "Closing") shall take place at 10:00 a.m. on the fifth Business
-------
Day falling after written notice by the Purchasers to the Company of
verification by the Purchasers of the satisfaction of the condition set forth in
Section 2 of the respective Master Communications License Transaction Agreements
(each the "Master Agreement"), each dated as of November 5 1999, and as amended
by agreement dated November 30, 1999, between the Company and each of Boston
Properties Limited Partnership, Cornerstone Properties Limited Partnership and
Shorenstein Company, L.P., at the offices of Powell, Goldstein, Frazer & Murphy
LLP, 191 Peachtree Street, N.E., Atlanta, Georgia 30303, or at such other time
or place as the Company and the Purchasers may mutually agree (such date is
hereinafter referred to as the "Closing Date"). At the Closing, subject to the
------------
terms and conditions hereof, the Company will deliver to the Purchasers
certificates representing the number of Shares to be purchased at the Closing by
each Purchaser, against payment of the purchase price therefor by certified
check or wire transfer of immediately available funds.
<PAGE>
3. Representations and Warranties of the Company
The Company hereby represents and warrants to, and agrees with, each
Purchaser as follows:
3.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has all requisite corporate power and
authority to own and operate its properties and assets, to execute and deliver
this Agreement and the Third Amended and Restated Stockholders Agreement
attached hereto as Exhibit C (the "Stockholders Agreement"), to issue and sell
--------- ----------------------
the Shares and the shares of common stock, par value $0.001 per share, of the
Company (the "Common Stock") issuable upon conversion of the Shares (the
------------
"Conversion Shares"), to carry out the other provisions of this Agreement and
- ------------------
the Stockholders Agreement and the transactions contemplated hereby and thereby,
and to carry on its business as presently conducted and as presently proposed to
be conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure so to qualify could have a
material adverse effect on the business, properties, operations, earnings,
assets or liabilities, condition (financial or otherwise) (collectively, the
"Condition") of the Company.
---------
3.2 Capitalization.
(a) The authorized capital stock of the Company as of
November 30, 1999, consisted of (i) Eleven Million One Hundred Twenty-Six
Thousand Eight Hundred Thirty-Four and 78/100 (11,126,834.78) shares of Common
Stock, Five Hundred Eighty Five Thousand Nine Hundred Eighty and 46/100
(585,980.46) shares of which are issued and outstanding, and (ii) Seven Million
Nine Hundred Twenty Thousand Four Hundred Sixty-Seven and 32/100 (7,920,467.32)
shares of Preferred Stock, of which One Million Two Hundred Eleven Thousand
One Hundred Forty (1,211,140) are designated as Series A Preferred Stock (the
"Series A Preferred"), all of which are issued and outstanding, One Million Nine
------------------
Hundred Nineteen Thousand One Hundred Eighty Eight (1,919,188) are designated as
Series B Preferred Stock (the "Series B Preferred"), One Million Three Hundred
------------------
Thirty Nine Thousand Five Hundred Seventy Five (1,339,575) of which are issued
and outstanding, Five Hundred Seventy Nine Thousand Six Hundred Thirteen
(579,613) are designated as Series B-1 Preferred Stock (the "Series B-1
----------
Preferred"), all of which are issued and outstanding, Four Million Two Hundred
- ---------
Ten Thousand FiveHundred Twenty-Six and 32/100 (4,210,526.32) are designated
as Series C Preferred Stock (the "Series C Preferred"), Three Million Four
------------------
Thousand Seventy-Eight and 95/100 (3,004,078.95) of which were issued and
outstanding as of November 30, 1999 (the Series A Preferred, Series B Preferred,
Series B-1 Preferred and Series C Preferred are collectively referred to herein
as the "Preferred Stock").
---------------
(b) Except as specifically set forth on Schedule 3.2 attached
------------
hereto, and except for conversion rights of issued and outstanding shares of
Preferred Stock, as of the Closing Date, the Company will not (i) have
outstanding any capital stock or other securities convertible into or
exchangeable for any shares of its capital stock and, except for the preemptive
rights contained in the Stockholders Agreement, no person will have any right to
subscribe for or to purchase (including conversion or preemptive rights), or any
warrants or options for the purchase of, or any agreements providing for the
issuance (contingent or otherwise) of, or any
2
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calls, commitments or other claims of any character relating to, any capital
stock or any stock or securities convertible into or exchangeable for any
capital stock of the Company; (ii) have any capital stock, equity interests or
other securities reserved for issuance for any purpose; or (iii) except for the
redemption rights set forth in the Certificate, be subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of its capital stock or any convertible securities, rights or options of
the type described in the preceding clause (i). No outstanding options, warrants
or other securities directly or indirectly exercisable for or convertible into
any class or series of the Company's capital stock require anti-dilution
adjustments by reason of the transactions contemplated by this Agreement. All of
the issued and outstanding shares of Common Stock and Preferred Stock have been
duly and validly issued, are fully paid and nonassessable and were issued in
compliance with all applicable federal and state securities laws and any
applicable preemptive rights. All of the outstanding options, warrants and other
securities of the Company have been issued in compliance with all applicable
federal and state securities laws and any applicable preemptive rights. To the
best knowledge of the Company, there are no agreements among the Company's
stockholders with respect to the voting or transfer of the Company's capital
stock, other than the agreements regarding voting and transfer contained in the
Stockholders Agreement. Schedule 3.2 sets forth a complete and correct list of
------------
(i) the name of each of the Company's stockholders and the number of shares and
class and series of capital stock owned by such stockholder, and (ii) the name
of each holder of an outstanding stock option and/or warrant, and the number of
options and/or warrants to purchase capital stock owned by such holder (and the
applicable class and series of capital stock) and the exercise price at which
such option(s) or warrants may be exercised. The Company does not own or
control, directly or indirectly, any interest in any other corporation,
association, or other business entity.
3.3 Authorization; Binding Obligations. All corporate action on the
part of the Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the Stockholders
Agreement. the Certificate and each other document or instrument executed by it,
or any of its officers, in connection herewith or therewith or pursuant hereto
or thereto (this Agreement, together with all of the foregoing documents and
instruments, are sometimes collectively referred to herein as the "Company's
---------
Documents"), the performance of all obligations of the Company under the Company
- ---------
Documents and for the authorization, sale, issuance and delivery of the Shares
has been taken. When issued in compliance with the provisions of this
Agreement, the Shares will be duly authorized, validly issued, fully paid and
nonassessable, free of any liens, preemptive or similar rights, or any other
encumbrances (except as set forth in the Stockholders Agreement) and issued in
compliance with all applicable state and federal securities laws. The
Conversion Shares have been duly authorized and validly reserved for issuance
and, when issued upon conversion of the Series C Preferred, will be validly
issued, fully paid and nonassessable, free of any liens, preemptive or similar
rights, or any other encumbrance (except as set forth in the Stockholders
Agreement). This Agreement, the Stockholders Agreement and the other Company's
Documents have been duly executed and delivered by the Company and constitute
legal, valid and binding obligations of the Company enforceable in accordance
with their terms.
3.4 Consents and Approvals. Except as set forth on Schedule 3.4, no
------------
filings with, notices to, or approvals of any governmental or regulatory body
are required to be obtained
3
<PAGE>
or made by the Company in connection with the consummation of the transactions
contemplated hereby, including, without limitation, the issuance of the Shares
and the Conversion Shares.
3.5 No Violations. Except as set forth on Schedule 3.5, the
------------
execution, delivery and performance of this Agreement and the other Company's
Documents and the performance by the Company of its obligations hereunder and
thereunder (i) do not and will not conflict with or violate any provision of the
certificate of incorporation or bylaws of the Company and (ii) do not and will
not (a) conflict with or result in a breach of the terms, conditions or
provisions of, (b) constitute a default under, (c) result in the creation of any
encumbrance upon the capital stock or assets of the Company pursuant to, (d)
give any third party the right to modify, terminate or accelerate any obligation
under, (e) result in a violation of, or (f) require any authorization, consent,
approval, exemption or other action by or notice to any court, governmental
authority, department, commission, board, bureau, agency or instrumentality,
domestic or foreign ("Governmental Authority") or any other individual,
----------------------
partnership, corporation, unincorporated organization or association, limited
liability company, trust or other entity (collectively, a "Person") pursuant to
------
any law, statute, rule or regulation or any agreement, contract or instrument or
any order, judgment or decree to which the Company is subject or by which any of
its assets are bound.
3.6 Financial Statements; Interim Changes. The Company's audited
balance sheet as of December 31, 1998, audited statements of operations, and
cash flows for the period ended December 31, 1998, unaudited balance sheet as of
September 30, 1999 (the "Latest Balance Sheet") and unaudited statements of
--------------------
income and cash flows of the Company for the period ended September 30, 1999,
(copies of which have been furnished to the Purchasers in connection with the
investment contemplated hereby) are complete and correct in all material
respects, have been prepared in accordance with generally accepted accounting
principles ("GAAP") consistently applied (subject to, in the case of unaudited
----
statements, normal year-end adjustments and the absence of footnote disclosures,
all of which are not material) and fairly present in all material respects the
financial position, the results of operations and cash flows of the Company for
the period covered thereby. The Company has no material liabilities or
obligations of any nature (absolute, accrued, contingent or otherwise) that are
not either reflected or fully reserved against on the Latest Balance Sheet or
incurred in the ordinary course of the business of the Company subsequent to the
date thereof. Since the date of the Latest Balance Sheet, there has not been
any material adverse change in the Condition of the Company.
3.7 Compliance with Laws. The Company's business has been conducted
in compliance with all applicable laws and regulations of Governmental
Authorities, except for such violations that have been cured or that,
individually or in the aggregate, could not reasonably be expected to have a
material adverse effect on the Condition of the Company. The Company has all
permits, licenses, orders, certificates, authorizations and approvals of any
Governmental Authority (collectively, the "Permits") that are material to the
-------
conduct of its business as presently conducted and as proposed to be conducted;
all such Permits are, and as of the Closing will be, in full force and effect;
no violations or notices of failure to comply have been issued or recorded in
respect of any such Permits; and the Company has no knowledge of any reason why
such Permits may be revoked or suspended. To the best of the Company's
knowledge, the business, operations, assets and properties of the Company are
and have been
4
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operated and maintained in compliance in all material respects with all
applicable federal, state, city, county and local environmental protection laws
and regulations.
3.8 Proprietary Rights. The Company has not received any
communications alleging that it has violated or, by conducting its business as
proposed would violate, any proprietary rights of any other person, and except
as set forth on Schedule 3.8, the Company is not aware of any basis for the
------------
foregoing.
3.9 Actions Pending. Except as set forth on Schedule 3.9, there is
------------
no action, suit, investigation, proceeding or governmental approval process
(collectively, "Actions") pending or, to the best knowledge of the Company,
-------
threatened against or affecting the Company or any of its respective properties
or rights before any court or by or before any governmental body or arbitration
board or tribunal, none of which could reasonably be expected to have a material
adverse effect on the Condition of the Company.
3.10 Material Contracts. Except as set forth on Schedule 3.10
-------------
attached hereto, the Company is not a party to (and is not otherwise bound by)
any of the following: (i) any employment or consulting agreement, (ii) any
agreement providing for the issuance or repurchase of any securities of the
Company, (iii) any agreement in respect of registration rights, preemptive
rights, rights of first refusal, voting rights or other rights or security
holders (other than the Stockholders Agreement), (iv) any agreement evidencing
or providing for any indebtedness for borrowed money, any agreement with any
past or present officer, director, key employee or shareholder of the Company or
any affiliate or relative thereof (other than the Stockholders Agreement and
grant agreements with respect to Reserved Employee Stock), or (v) any other
agreement that could reasonably be deemed material to the Company or its
Condition.
3.11 Insurance. The Company has in full force and effect liability
insurance of the types and providing coverage in such amounts as is customary
for companies of established reputation engaged in the same or similar business
and similarly situated, and such other insurance policies as are sufficient for
compliance with all requirements of law and applicable agreements.
3.12 Investments in United States Real Property Interests. The
Company's capital stock does not constitute a United States real property
interest as that term is defined in Section 897(c)(1)(A)(ii) of the Internal
Revenue Code of 1986, as amended (the "Code"). The preceding representation is
----
based on a determination by the Company that the Company is not and has never
been a United States real property holding corporation (as that term is defined
in Section 897(c)(2) of the Code). From time to time, upon request of any
Purchaser, the Company shall make a determination as to its status as a United
States real property holding corporation ("USRPHC"). If at any time in the
------
future the Company should become a USRPHC, the Company shall, as promptly as
possible, notify each Purchaser of such change in status.
3.13 Unrelated Business Taxable Income. Any gross income derived by
the Purchasers from the Company shall be in the form of dividends, interest,
capital gains and losses from the disposition of property, rents and royalties,
but only such rents and royalties as are excluded pursuant to Code Sections
512(b)(2) and 512(b)(3), respectively, in calculating unrelated business taxable
income and only such dividends, interest, capital gains and losses, and
5
<PAGE>
rents and royalties that are not included under Section 512(b)(4) of the Code in
calculating unrelated business taxable income. This Section 3.13 shall not be
deemed to apply to (i) any compensation (in cash, stock or other form) received
by designees of the Purchasers in their capacities as directors of the Company
that is transferred to the Purchasers, or (ii) any income included under Section
512(b)(4) of the Code as a result of acquisition indebtedness incurred by any
Purchaser in connection with the purchase of an interest in the Company, or
(iii) any income derived by the Purchasers from the Company with respect to
which the Purchasers have expressly waived in writing the application of the
provision of this Section 3.13, or (iv) any income derived by the Purchasers
pursuant to the reimbursement of expenses pursuant to Section 7 hereof.
3.14 Books and Records. The minute books of the Company fully set
forth all material action taken by the Board of Directors, stockholders and, if
any, executive board (or other committee thereof) of the Company.
3.15 Disclosure. The Company has fully provided each Purchaser with
all the information which such Purchaser has requested for deciding whether to
purchase the Shares. Neither this Agreement nor any other certificates made or
delivered in connection herewith contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements herein
or therein not misleading.
3.16 Year 2000. The Company has reviewed its operations to evaluate
the extent to which the business or operations of the Company will be affected
by the Year 2000 Problem (as defined below). As a result of such review, the
Company has no reasonable basis to believe, and does not believe, that the Year
2000 Problem will have a material adverse effect on the Condition of the
Company; provided, however, that the Company does not make any representation or
warranty as to the operation of any telecommunications network operated by an
incumbent or competing local exchange carrier which may be affected by the Year
2000 Problem. The "Year 2000 Problem" as used herein means any significant risk
-----------------
that computer hardware or software used in the receipt, transmission,
processing, manipulation, storage, retrieval, retransmission or other
utilization of data or in the operation of mechanical or electrical systems of
any kind will not, in the case of dates or time periods occurring after December
31, 1999, function at least as effectively as in the case of dates or time
periods occurring prior to January 1, 2000.
3.17 Environmental Matters.
(a) To the best of the Company's knowledge, the Company has not
caused or allowed, nor has the Company contracted with any party for, the
generation, use, transportation, treatment, storage or disposal of any Hazardous
Substances (as defined below) in connection with the operations of its business
or otherwise.
(b) To the best of the Company's knowledge, the Company, the
operations of its business, and any real property that the Company owns, leases,
or otherwise occupies (the "Premises") are in compliance in all material
respects with all applicable Environmental Laws (as defined below) and orders or
directives of any governmental authorities having jurisdiction under such
Environmental Laws including, without limitation, any
6
<PAGE>
Environmental Laws or orders or directives with respect to any cleanup or
remediation of any release or threat of release of Hazardous Substances.
(c) To the best of the Company's knowledge, the Company has not
received any citation, directive, letter or other communication, written or
oral, or any notice of any proceedings, claims or lawsuits, from any person,
entity or governmental authority arising out of the occupation of the Premises
or the conduct of its operations, nor is it aware of any reasonable basis
thereof.
(d) To the best of the Company's knowledge, the Company has
obtained and is maintaining in full force and effect all material permits,
licenses and approvals required of the Company by any Environmental Laws
applicable to the Premises and the business operations conducted by the Company
and is in compliance with all such permits, licenses and approvals, in all
material respects.
(e) To the best of the Company's knowledge, the Company has not
caused or allowed a release of any Hazardous Substance unto, nor to the best of
the Company's knowledge has the Premises or any property at or near the Premises
ever been subject to a release, or a threat of a release, of any Hazardous
Substance.
(f) The term "Environmental Laws" shall mean any federal, state
or local law, ordinance or regulation pertaining to the protection of human
health or the environment including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Sections 9601,
et seq., Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Sections
11001, et seq., and the Resource Conservation and Recovery Act, 42 U.S.C.
Sections 6901, et seq.
(g) The term "Hazardous Substance" includes oil and petroleum
products, asbestos, polychlorinated biphenyls and urea formaldehyde, and any
other materials classified as hazardous or toxic under any Environmental Laws.
4. Representations And Warranties Of The Purchasers
Each Purchaser severally and not jointly hereby represents and warrants to
the Company as follows:
4.1 Requisite Power and Authority. Such Purchaser has all necessary
partnership or limited liability company power and authority under all
applicable provisions of law to execute and deliver this Agreement and to carry
out its provisions. All actions on such Purchaser's part required for the lawful
execution and delivery of this Agreement have been or will be effectively taken
prior to the Closing.
4.2 Investment Representations. Such Purchaser understands that
neither the Shares nor the Conversion Shares have been registered under any
state securities act or the Securities Act of 1933, as amended (the "Securities
----------
Act"). Such Purchaser also understands that the Shares are being offered and
- ---
sold pursuant to an exemption from registration contained in applicable state
securities acts and the Securities Act based in part upon the Purchaser's
representations contained in this Agreement.
7
<PAGE>
(a) Purchaser Bears Economic Risk. Such Purchaser has
substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to the Company so that Purchaser
is capable of evaluating the merits and risks of its investment in the Company
and has the capacity to protect its own interests. Such Purchaser must bear the
economic risk of this investment indefinitely unless the Shares (or the
Conversion Shares) are registered pursuant to the Securities Act, or an
exemption from registration is available. Such Purchaser understands that the
Company has no present intention of registering the Shares, the Conversion
Shares or any shares of its Common Stock. Such Purchaser also understands that
there is no assurance that any exemption from registration under the Securities
Act will be available and that, even if available, such exemption may not allow
such Purchaser to transfer all or any portion of the Shares or the Conversion
Shares under the circumstances, in the amounts or at the times such Purchaser
might propose. Such Purchaser can bear the economic risk of losing its entire
investment in the Company.
(b) Acquisition for Own Account. Such Purchaser is acquiring
the Shares and the Conversion Shares for Purchaser's own account for investment
only, and not with a view towards their resale or distribution in violation of
applicable securities laws.
(c) Purchaser Can Protect Its Interest. Such Purchaser
represents that, by reason of Purchaser's or of its management's business or
financial experience, such Purchaser has the capacity to protect its own
interests in connection with the transactions contemplated in this Agreement.
(d) Accredited Investor. Such Purchaser represents that
Purchaser is an accredited investor within the meaning of Regulation D under the
Securities Act.
(e) Company Information. Such Purchaser has had an opportunity
to discuss the Company's business, management and financial affairs with
directors, officers and management of the Company. Such Purchaser has also had
the opportunity to ask questions of, and receive answers from, the Company and
its management regarding the terms and conditions of this investment. Purchaser
has had an adequate opportunity to inspect and copy all material documents
relating to the Company which it has requested and has been furnished or
provided access to information similar to that which would be included in a
registration statement as is necessary for such Purchaser, in view of its
business or management experience and sophistication, to evaluate the merits and
risks of an investment in the Company.
(f) Rule 144. Such Purchaser acknowledges and agrees that the
Shares and the Conversion Shares must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. Such Purchaser has been advised or is aware of the
provisions of Rule 144 promulgated under the Securities Act, which permits
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things: the
availability of certain current public information about the Company, the resale
occurring not less than one year after a party has purchased and paid for the
security to be sold, the sale being through an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934, as amended) and the number of
shares being sold during any three-month period not exceeding specified
limitations.
8
<PAGE>
(g) Risks. Such Purchaser acknowledges that the following risks
relating to an investment in the Company have been disclosed to such Purchaser
by the Company.
(i) The Company was formed in 1995 and therefore has a
limited operating history upon which an evaluation of the Company's performance
could be based. There can be no assurance that the Company's operations will be
profitable or that the Company will be able to sell its products and services at
price levels that will produce profits or an acceptable return to shareholders.
(ii) Additional financing may be required to support the
growth activities of the Company. The Company may need financing for operations
and marketing. No arrangements have been made to secure such financing, and
there can be no assurance that such additional financing will be available when
required or on terms acceptable to the Company.
(iii) The telecommunications industry has been characterized
by steady technological change, frequent new service introductions, evolving
industry standards, and new and consolidating competitors. The Company's success
will depend in part on its ability to anticipate such changes and to offer
responsive services on a timely basis. Further, although the trend has been
toward decreases in the cost of equipment and network elements, there is no
assurance that these trends will continue, or that the Company will be able to
respond successfully to such changes.
(iv) The telecommunications industry is highly regulated.
In the future, certain aspects of the Company's operations may require
authorization from the Federal Communications Commission ("FCC") and/or
---
applicable state public service commissions. This may involve both obtaining the
required authorizations and complying with the on-going requirements imposed on
carriers, such as filing a tariff. No assurances can be given that there will be
no opposition to the Company's applications or that the necessary authorizations
(other than any such authorization necessary to continue the current business
operations of the Company) will be granted. Additional expenses (such as legal
and accounting fees) will be involved in attempting to obtain and in maintaining
these authorizations and in complying with the accounting reporting and
administrative regulations imposed by the FCC and the state commissions. The
cost for access to local service could change significantly as deregulation of
the local loop progresses and carriers other than the existing local exchange
carriers are authorized to provide local service.
(v) The Company competes with a number of companies with
significantly greater financial resources than the Company.
(vi) The Company's success will be related to the real
estate cycle, in particular, to construction and leasing activity.
(vii) The Company's operations will depend in part upon
contractual arrangements with local exchange and long distance carriers. The
costs associated with the purchase of local exchange services, access to the
long distance network, and long distance services could change significantly as
deregulation of the local loop progresses, carriers
9
<PAGE>
other than the existing local exchange carriers are authorized to provide local
exchange service and access to long distance, and the costs of long distance
carriers change in response. The Company believes it will have a number of
options for obtaining both exchange and access services at competitive rates,
however the continuing availability of alternative resources cannot be assured.
(viii) The Company has used and will, for the foreseeable
future, use incumbent local exchange carriers ("ILECs") to provide the bulk of
-----
inbound calling services to telephone numbers used by the Company's customers.
Because local number portability (i.e., the regulatory and technical abilities
of the Company and/or the Company's customers to transfer telephone numbers
freely between local exchange carriers) was delayed nationwide and is far from a
failsafe procedure where it has been implemented, the Company is dependent on
the quality of such ILEC services for completing telephone calls, both local and
long distance, intended for the Company's customers. Should such services prove
to be of poor quality for any particular building or market in which the Company
operates, the business of the Company in that building or in that market could
be adversely affected in a material manner.
(ix) The Company uses several competitive local exchange
carriers ("CLECs") to provide outbound local, point to point and local loop
-----
services, in addition to using ILECs. Though the Company believes that this
diversification of vendors has the potential to reduce its cost of such
services, as well as provide operational redundancy, there is a heightened
element of operational risk associated with using services from new vendors.
(x) A search done in the process of preparing to apply
for a trademark for the name of the Company revealed potential conflicts with
the Company's use of the trade name "Cypress" and the Company's ability to
obtain trademark protection for this name. The Company has decided that it is
not in the Company's best interest to apply for a trademark in the name of
Cypress Communications or to change the name of the Company at this time.
Furthermore, there is a possibility that one of the firms with whom there is a
potential conflict, or other companies for that matter, will demand that the
Company discontinue using the name Cypress Communications. Such a demand might
result in either expensive litigation and/or a change in the Company's name,
which in either event, could have a material adverse effect on the Company.
(h) Residence. The address of such Purchaser as set forth
on Exhibit A attached hereto is its true and correct principal place of
---------
business.
(i) HSR Matters. Purchaser is not included within any other
person (within the meaning of the Hart-Scott-Rodino Improvements Act of 1976, as
amended ("HSR Act")) who is also a Purchaser or who otherwise owns voting
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securities of the Company.
Nothing contained in this Section 4 shall in any respect limit or modify
the representations and warranties of the Company in Section 3 of this Agreement
or the right of each Purchaser to rely thereon.
10
<PAGE>
5. Conditions Precedent To Purchasers' Obligations
The obligation of each Purchaser to purchase and pay for the Shares to be
delivered to it at the Closings shall be subject to the satisfaction of the
following conditions as of the applicable Closing Date:
(a) the representations and warranties of the Company contained
in this Agreement shall be true and correct as if made on and as of the Closing
Date;
(b) the Company, the Purchasers and the existing stockholders of
the Company shall have entered into the Stockholders Agreement in the
Exhibit C attached hereto;
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(c) the Purchasers shall have received the legal opinion of
Powell, Goldstein, Frazer & Murphy LLP, counsel to the Company, substantially in
the form of Exhibit D;
---------
(d) all other Purchasers shall have concurrently purchased the
Shares to be purchased by them pursuant to this Agreement;
(e) all authorizations, approvals or permits, if any, of any
Governmental Authority that are required in connection with and prior to the
lawful issuance and sale of the Shares or Conversion Shares shall be duly
obtained and effective as of the Closing Date; and
(f) all corporate and other proceedings in connection with the
transactions contemplated at the Closing and all documents incident thereto
shall be reasonably satisfactory in form and substance to each Purchaser at the
Closing, and they shall have received all such counterpart original and
certified or other copies of such documents as they may reasonably request;
(g) no action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any court,
Governmental Authority or legislative body to enjoin, restrain, or prohibit, or
to obtain substantial damages in respect of, or which is related to or arises
out of this Agreement or the consummation of the transactions contemplated
hereby or thereby, or which, in Purchaser's reasonable discretion, would make it
advisable to consummate the transactions contemplated by this Agreement;
(h) the Company shall have executed and delivered to each of
Cornerstone Properties Limited Partnership, Boston Properties Limited
Partnership and Shorenstein Company, L.P., a Stock Warrant Agreement
substantially in the form of Exhibit E;
---------
(i) the condition precedent set forth in Section 2 of each
Master Agreement shall have been satisfied on or prior to the "Condition
Satisfaction Deadline" (as defined in each Master Agreement) and each Master
Agreement shall not have been terminated and shall be in full force and effect;
and
11
<PAGE>
(j) the Certificate shall have been duly adopted by the Company
and filed with the Secretary of State of the State of Delaware and shall be in
effect.
6. Covenants
The Company covenants and agrees with the Purchasers as follows:
6.1 Assistance in Sales. Anything in this Agreement or the
Stockholders Agreement to the contrary notwithstanding, in the event that it
becomes unlawful for any Purchaser to continue to hold all or some portion of
the Shares to be held by it, or restrictions are imposed on such Purchaser by
any law, rule or regulation which, in the reasonable judgement of such
Purchaser, make it unduly burdensome to continue to hold all or some portion of
such Shares, then such Purchaser may sell or otherwise dispose of all or any
portion of its Shares, and the Company, at no expense to the Company, shall use
reasonable efforts to assist such Purchaser in disposing of such interest in a
prompt and orderly manner, and, at the reasonable request of any such Purchaser,
shall provide (and authorize such Purchaser to provide) financial and other
information concerning the Company to any prospective purchaser of such
interest.
6.2 Real Property Holding Corporation. The Company covenants that it
will use reasonable commercial efforts not to become a USRPHC. The Company
agrees to make determinations as to its status as a USRPHC, and will file
statements concerning those determinations with the Internal Revenue Service, in
the manner and at the times required under Reg. (S) 1.897-2(h), or any
supplementary or successor provision thereto. Within 30 days of a request from
a Purchaser or any of its partners, the Company will inform the requesting
party, in the manner set forth in Reg. (S) 1.897-2(h)(1)(iv) or any
supplementary or successor provision thereto, whether that party's interest in
the Company constitutes a United States real property interest (within the
meaning of Section 897(c)(1) of the Code and FIRPTA) and whether the Company has
provided to the Internal Revenue Service all required notices as to its USRPHC
status. If at any time in the future the Company should become a USRPHC, the
Company shall, as promptly as possible, notify each Purchaser of such change in
status.
7. Expense Reimbursement
The Company hereby agrees to reimburse each of the Purchasers for their
reasonable out-of-pocket expenses incurred in connection with the transactions
contemplated hereby, including all reasonable expenses incurred in connection
with their due diligence examination of the Company, the preparation and
negotiation of this Agreement, the term sheet, the Stockholders Agreement and
all other documents evidencing the transactions contemplated herein (including
the fees (not to exceed $25,000) and expenses of King & Spalding, counsel to the
Purchasers. The Company hereby agrees to reimburse such counsel for any legal
expenses, if any, incurred in connection with the filing of any documents
regarding the transactions contemplated by this Agreement with any governmental
agencies.
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8. Miscellaneous
8.1 Publicity. Except as may be required by law, the Company shall
not use the name of, or make reference to, any Purchaser or any of its
affiliates in any press release or in any public manner without such Purchaser's
prior written consent.
8.2 Indemnification. The Company agrees to indemnify each Purchaser
and, to the extent named or involved in any claim, each officer, director,
employee, agent, partner, stockholder and affiliate of each Purchaser
(collectively, the "Indemnified Parties") for, and hold each Indemnified Party
-------------------
harmless from and against: (i) any and all damages, losses, claims and other
liabilities of any and every kind, including, without limitation, judgments and
costs of settlement, and (ii) any and all reasonable out-of-pocket costs and
expenses of any and every kind, including, without limitation, reasonable fees
and disbursements of counsel for such Indemnified Parties (all of which expenses
periodically shall be reimbursed as incurred), in each case, to the extent
arising out of or suffered or incurred in connection with any of the following:
(a) any misrepresentation or any breach of any warranty made by the Company
herein or in any of the other Company's Documents, (b) any breach or non-
fulfillment of any covenant or agreement made by the Company herein or in any of
the other Company's Documents, and (c) any claim relating to or arising out of a
violation of applicable federal or state securities laws by the Company in
connection with the sale of the Shares by the Company to the Purchasers.
8.3 Governing Law. This Agreement shall be governed in all respects
by the laws of the State of New York as such laws are applied to agreements
between New York residents entered into and performed entirely in New York.
8.4 JUDICIAL PROCEEDINGS. ANY JUDICIAL PROCEEDING INVOLVING ANY
DISPUTE, CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
THE BREACH OR ALLEGED BREACH OF THIS AGREEMENT (EACH OF THE FOREGOING DISPUTES,
CONTROVERSIES AND CLAIMS HEREINAFTER REFERRED TO AS AN "AGREEMENT DISPUTE"), MAY
-----------------
BE BROUGHT IN A FEDERAL OR STATE COURT LOCATED IN NEW YORK COUNTY, IN NEW YORK
STATE, AND EACH OF THE PARTIES HERETO (i) UNCONDITIONALLY ACCEPTS THE
JURISDICTION OF SUCH COURTS AND ANY RELATED APPELLATE COURT AND IRREVOCABLY
AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY AND (ii) IRREVOCABLY WAIVES
ANY OBJECTION SUCH PARTY MAY NOW HAVE OR HEREAFTER HAS AS TO THE VENUE OF ANY
SUCH PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT
FORUM. EACH OF THE PARTIES HERETO HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL
PROCEEDING TO WHICH THEY ARE PARTIES INVOLVING AN AGREEMENT DISPUTE.
8.5 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by any Purchaser and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
13
<PAGE>
8.6 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares from time to time, except that
neither this Agreement nor any rights or obligations hereunder shall be assigned
or delegated by the Company without the prior written consent of the Purchasers.
8.7 Entire Agreement. This Agreement, the Exhibits, the Schedules
and the other documents expressly delivered pursuant hereto, including the
Stockholders Agreement, supersede any other agreement, whether written or oral,
that may have been made or entered into by the parties hereto relating to the
matters contemplated hereby and constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof, and no party
shall be liable or bound to any other in any manner by any representations,
warranties, covenants and agreements except as specifically set forth herein and
therein.
8.8 Specific Enforcement. Any Purchaser shall be entitled to
specific enforcement of its rights under this Agreement. The Company
acknowledges that money damages would be an inadequate remedy for its breach of
this Agreement and consents to an action for specific performance or other
injunctive relief in the event of any such breach.
8.9 Separability. In case any provision of the Agreement 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.
8.10 Amendment and Waiver. This Agreement may be amended or modified
only upon the mutual written consent of the Company and all of the Purchasers.
8.11 Notices. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (i) upon personal delivery to
the party to be notified; (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day; (iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (iv) one (1) day after deposit
with a nationally recognized overnight courier, special next day delivery, with
verification of receipt. All communications shall be sent to the Company at
Fifteen Piedmont Center, Suite 710, Atlanta, Georgia 30305, Attn.: President,
with a courtesy copy to Powell, Goldstein, Frazer & Murphy, L.L.P., 191
Peachtree Street, NE, 16/th/ Floor, Atlanta, Georgia 30303, Attention: William
M. Ragland, Jr., and James K. Wagner, Jr., and to a Purchaser at the address set
forth on Exhibit A attached hereto or at such other address as the Company or
---------
Purchaser may designate by ten (10) days advance written notice to the other
parties hereto.
8.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
8.13 Broker's Fees. Each party hereto represents and warrants that
no agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or
14
<PAGE>
indirectly in connection with the transactions contemplated herein. Each party
hereto further agrees to indemnify each other party for any claims, losses or
expenses incurred by such other party as a result of the representation in this
Section 8.13 being untrue.
8.14 Descriptive Headings. The section and other headings contained
in this Agreement are for convenience of reference only and shall not affect the
meaning or interpretation of this Agreement.
8.15 Understanding Among Purchasers. The decision of each Purchaser
to purchase Shares pursuant to this Agreement has been made by such Purchaser
independently of any other Purchaser and independently of any statements or
opinions as to the Condition of the Company which may have been made or given by
any other Purchaser or by any agent or employee of any other Purchaser. Each
Purchaser acknowledges that no other Purchaser has acted as agent for such
Purchaser in connection with making its investment hereunder and that no other
Purchaser will be acting as agent of such Purchaser in connection with
monitoring its investment hereunder. Each Purchaser acknowledges that the
Company intends to issue up to $80,000,000 in shares of Series C Preferred Stock
(or Series C-1 Preferred Stock) in connection with this private placement,
including its ongoing licensing efforts. Each Purchaser waives any pre-emptive
rights that it may have to participate in the sale of such additional shares of
Series C Preferred Stock (or Series C-1 Preferred Stock) pursuant to the
Stockholders Agreement or otherwise, provided that the Company sells such shares
of Series C Preferred Stock (or Series C-1 Preferred Stock) in connection with
its licensing efforts to parties who are not affiliated with the Purchasers or
other stockholders of the Company or, in the case of Mark H. Dunaway, an
existing stockholder of the Company, to Mr. Dunaway in an amount up to
approximately $160,000 of shares of Series C Preferred Stock, in each case on
substantially the same terms as are included herein.
8.16 Future Financings. Nothing contained in this Agreement or any
Purchaser's prior dealings with the Company shall be deemed to constitute a
commitment on the part of any Purchaser to participate in any future financings
by the Company.
8.17 Business Day. As used herein, the term "Business Day" shall
mean any day on which banks in New York City, Boston, Massachusetts, and San
Francisco, California, are open for the transaction of business.
* * * * *
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15
<PAGE>
In Witness Whereof,the parties hereto have executed the Agreement as of the
date set forth in the paragraph hereof.
COMPANY:
CYPRESS COMMUNICATION, INC.
By: /s/ Barry L. Boniface
-------------------------------------
Name: Barry L. Boniface
-----------------------------------
Title: Chief Financial Officer
----------------------------------
PURCHASERS:
BOSTON PROPERTIES LIMITED PARTNERSHIP
By: Boston Properties Inc.
General Partner
By: /s/ Robert E. Burke
-------------------------------------
Name: Robert E. Burke
-----------------------------------
Title: Executive Vice President
----------------------------------
CORNERSTONE PROPERTIES LIMITED
PARTNERSHIP
By: Cornerstone Properties Inc.
General Partner
By: /s/ H. Lee Van Boven
-------------------------------------
Name: H. Lee Van Boven
-----------------------------------
Title: Chief Operating Officer
----------------------------------
DWS CAPITAL LLC.
By: /s/ Douglas W. Shorenstein
-------------------------------------
Douglas W. Shorenstein
Managing Member
WATERVIEW PARTNERS, L.P.
By: Waterview Advisors, LLC
General Partner
By: /s/ William C. Vrattos
-------------------------------------
Name: William C. Vrattos
-----------------------------------
Title: Managing Director
----------------------------------
16
<PAGE>
Exhibit 10.15
BINDING SUMMARY OF TERMS FOR
SITECONNECT, INC.
Issuer: SiteConnect, Inc. (the "Company").
Sellers: Existing stockholders of the Company (the
"Existing Stockholders").
Investor: Cypress Communications, Inc. ("Cypress").
Stock Purchase: The Existing Stockholders will sell to Cypress
254,125 shares of common stock of the Company
(the "Common Stock"), adjusted for any stock
dividend, distribution, subdivision,
combination, consolidation or other
reclassification made after the date hereof (as
adjusted, the "Purchase Shares"). The Company
acknowledges that it shall become a subchapter C
corporation under the Internal Revenue Code, as
amended, concurrent with the Stock Purchase.
Each of the Existing Stockholders owns
beneficially and of record the number of shares
of Common Stock set forth under his or her name
on the signature page hereto free and clear of
any liens, restrictions or encumbrances. The
Company represents that, except as set forth on
the signature page, there are no other
outstanding shares of capital stock of the
Company or outstanding options, warrants,
rights, commitments, preemptive rights or
agreements of any kind for the issuance or sale
of, or outstanding securities convertible into,
any additional shares of capital stock of the
Company.
Amendments to
Charter and Bylaws: The Company agrees to make any amendments to its
organizational documents that may be required to
consummate the transactions contemplated by this
Summary of Terms.
Total Purchase Price: Cypress will issue to the Existing Stockholders
62,500 shares of common stock of Cypress
("Cypress Common Stock") in consideration for
the Purchase Shares and the Option (as defined
below), such number of shares of Cypress Common
Stock to be adjusted for any stock dividend,
distribution, subdivision, combination,
consolidation or other reclassification made
after the date hereof.
Purchase Option: At the closing, each holder of equity securities
or derivative equity securities of the Company
(other than Cypress) (such
<PAGE>
security holders, the "Grantors") will issue to
Cypress an option (the "Option") to purchase
such securities then held by them for an
aggregate purchase price of $5,062,500 (the
"Option Exercise Price"). The Option will be
exercisable at any time prior to the first
anniversary of the closing date for the Stock
Purchase (the "Option Term"). The Option
Exercise Price will be payable in Cypress Common
Stock to the Grantors pro rata based upon the
number of shares of Common Stock held by such
Grantor. The Cypress Common Stock issued upon
exercise of the Option will be valued (i) at the
same price per share at which it was sold to the
public in Cypress' initial public offering, or
(ii) if Cypress has not completed an initial
public offering before exercising the Option, at
the same price per share at which it was valued
in the last bona fide third party sale of
Cypress Common Stock. In no event shall the
Cypress Common Stock issued upon exercise of the
Option be valued at less than $19.00 per share.
If, subsequent to the closing of the Stock
Purchase, the Company issues additional shares
of Common Stock, each holder of such additional
shares of Common Stock will issue to Cypress an
option to purchase such shares of Common Stock.
Such option will be deemed to be part of the
Option, and the aggregate Option Exercise Price
will be increased, dollar-for-dollar, for each
dollar of additional Common Stock issued
subsequent to the closing.
The Option Exercise Price shall be subject to
adjustment prior to the exercise of the Option.
For purposes of calculating these adjustments,
the base recurring revenues (excluding hardware
sales) upon which any growth rates would be
measured shall be determined by averaging the
recurring revenue (excluding hardware sales) for
the three months of October, November and
December 1999. All revenue amounts shall be
calculated by management and subject to audit by
Arthur Andersen, independent public accountants,
in accordance with Generally Accepted Accounting
Principles consistently applied. The
applicability of each adjustment shall be
determined independently from each other
adjustment.
The Option Exercise Price adjustments are as
follows:
(i) if, commencing on December 1, 1999,
the Company's monthly growth rate for all
recurring revenues (excluding
2
<PAGE>
hardware sales) exceeds 2.5% per month, then the
Option Exercise Price will be increased by the
product of (a) six, times (b) the dollar amount
by which the Annualized Growth (calculated by
annualizing the average growth rate for all
recurring revenues (excluding hardware sales)
for the month in which the option is exercised
and the immediately preceding month) exceeds a
2.5% per month growth rate;
(ii) if the Company's monthly growth
rate for all recurring revenues (excluding
hardware sales) is less than 2.5%, then there
shall be a reduction in the Option Exercise
Price equal to the product of (a) six, times (b)
the dollar amount by which the Annualized Growth
(calculated by annualizing the average growth
rate for all recurring revenues (excluding
hardware sales) for the month in which the
option is exercised and the immediately
preceding month) falls short of a 2.5% per month
growth rate; and
(iii) the Option Exercise Price will be
increased by an amount equal to ten cents
($0.10) per square foot of rentable office space
(greater than 100,000 rentable square feet with
a minimum of ten tenants and in a geographical
location acceptable to Cypress) that becomes
subject to a binding license agreement,
substantially in the same form and substance as
the Company's current license agreements, after
the closing date of the Stock Purchase.
Stock Conversion: So long as Cypress has not exercised the Option,
at any time prior to the first anniversary of
the closing date for the Stock Purchase, Cypress
may, in its sole discretion, convert the
Purchase Shares into a secured promissory note
of the Company in a principal amount of
$1,187,500 (the "Note"). The Note will bear
interest at the prime rate as reported from time
to time by The Wall Street Journal, compounded
quarterly. All interest and principal on the
Note shall be paid in full on the first
anniversary of the date of issuance of the Note.
If the shares held by Cypress are converted into
the Note, the Option shall automatically expire.
Additional Investment: The Existing Stockholders and any third-party
investors selected by the Existing Stockholders
shall invest an additional $1,250,000 in Common
Stock of the Company (the "Additional
Investment") no later than December 10, 1999.
The Additional Investment may be in the form of
cash or the conversion of no
3
<PAGE>
more that $347,284 in principal amount and
accrued interest of currently outstanding
promissory notes of the Company. The Company
agrees not to disclose any information regarding
Cypress' initial public offering in connection
with the Additional Investment prior to Cypress'
initial filing of its registration statement
relating to its public offering of common
stock.
If the Additional Investment is not completed,
the number of shares of Company Common Stock
purchased by Cypress, along with the number of
shares of Cypress Common Stock issued in
consideration therefor, shall be reduced
proportionately.
Subject to the Supermajority Voting Rights
described below, prior to the expiration of the
Option Term, the Company may issue Common Stock
having an aggregate value of no more than
$1,750,000 (including the Additional Investment)
without the consent of Cypress.
Capitalization; Ranking: The current capitalization of the Company prior
to the Additional Investment is 1,070,000 shares
of Common Stock. The Common Stock purchased in
the Stock Purchase will rank pari passu with all
currently outstanding Common Stock in all
respects, including, without limitation, with
respect to dividends, liquidation and voting
rights.
Information Rights: Prior to the closing of the Stock Purchase, the
Company shall provide such reasonable access to
Cypress' independent public accountants to the
Company's books, records and personnel as may be
required to complete a review and/or audit (the
"Financial Review') of the financial condition
of the Company. The Company acknowledges that
the Financial Review is necessary in connection
with Cypress' proposed initial public offering
of shares of Cypress Common Stock. Cypress will
have the right to receive unaudited quarterly
and year-to-date financial statements and
management commentary within forty-five (45)
days of the end of each quarter and audited
annual financial statements (audited by a
nationally recognized independent public
accounting firm) within ninety (90) days of the
end of each fiscal year.
4
<PAGE>
Supermajority
Approval Rights: The consent of the holders of at least
seventy-five percent (75%) of all outstanding
Common Stock will be required for any action
which (i) authorizes or issues any equity
security ranking senior to the Common Stock in
any respect, (ii) results in a merger,
consolidation, liquidation, or sale of all or
substantially all of the equity or assets of the
Company, (iii) redeems or repurchases
outstanding equity securities (other than from
employees, directors or consultants pursuant to
employee benefit plan arrangements approved by
the Board of Directors), (iv) creates any equity
incentive or other benefit plan under which
equity securities may be issued, unless the
aggregate amount of all equity securities issued
or authorized for issuance under all such equity
incentive and other benefit plans would not
exceed five percent (5%) of all outstanding
equity securities of the Company; or (v) enters
into any transaction with affiliated entities
which (A) involves an amount greater than or
equal to ten percent (10%) of Company's revenues
for the preceding twelve (12) months and (B) has
not been approved by a majority of the
independent Directors.
Stockholder Rights: The Company's stockholders will have the benefit
of stockholder rights pursuant to a
Stockholder's Agreement which will include (i)
co-sale rights and rights of first refusal with
respect to sales by any shareholder of more than
twenty-five percent (25%) of its holdings in any
one sale, (ii) pro-rata rights with respect to
the Company's securities, and (iii) other
customary provisions.
Observation Rights: Cypress will have the right to appoint one
observer to the Company's Board of Directors.
The Cypress observer shall (i) receive notice of
all Board and committee meetings and (ii) be
permitted to attend all Board Meetings and all
meetings of all committees of the Board of
Directors (including any audit and compensation
committees).
Conditions: The purchase of Common Stock is subject to (i)
the satisfactory completion of due diligence by
Cypress, (ii) the execution of a definitive
Stock Purchase Agreement, Stockholder's
Agreement and other definitive transaction
documents, which shall include among other
things standard representations and warranties,
covenants, indemnities, terms and conditions,
(iii) no material adverse change in the
condition or prospects of the Company, (iv)
completion of the Additional Investment; and (v)
other
5
<PAGE>
customary closing conditions. Any or all of the
conditions to closing may be waived by Cypress
in its sole discretion.
Expenses: Each party will pay its own expenses.
Notwithstanding the foregoing, the Company shall
pay up to $50,000 of expenses incurred in
connection with the Financial Review, and
Cypress shall pay all expenses in excess of
$50,000 incurred in connection with the
Financial Review.
Binding Summary
of Terms: This Summary of Terms shall be binding upon the
parties. This Summary of Terms shall terminate
upon the earlier of (i) execution of definitive
documentation relating to the Stock Purchase,
and (ii) December 31, 1999.
Execution of Definitive
Term Sheet No later than November 23, 1999, unless
otherwise mutually agreed by the parties. The
parties also agree to negotiate in good faith to
execute definitive documentation regarding the
Stock Purchase no later than December 31, 1999.
Confidentiality: The parties hereto agree to hold in strict
confidence any confidential information obtained
regarding another party during the course of
negotiating this Summary of Terms and the
definitive documentation relating to the Stock
Purchase.
[Remainder of Page Intentionally Left Blank]
6
<PAGE>
CYPRESS COMMUNICATIONS, INC.
By:
--------------------------------------------
R. Stanley Allen
Chief Executive Officer
AGREED AND ACCEPTED THIS DAY OF NOVEMBER,
----
1999
SITECONNECT, INC.
By:
--------------------------------------------
SHAREHOLDERS
--------------------------------------------
Number of Shares Held:
---------------------
--------------------------------------------
Number of Shares Held:
---------------------
--------------------------------------------
Number of Shares Held:
---------------------
--------------------------------------------
Number of Shares Held:
---------------------
--------------------------------------------
Number of Shares Held:
---------------------
7
<PAGE>
AGREEMENT
AMENDMENT TO BINDING SUMMARY OF TERMS
FOR SITECONNECT, INC.
The parties mutually agree to extend the period of time within which to
negotiate in good faith definitive documentation regarding the Stock Purchase
beyond the December 31, 1999 date set forth in the Binding Summary of Terms for
SiteConnect, Inc. until no later than January 15, 2000.
Dated this 29 day of December, 1999
--
SITECONNECT, INC. CYPRESS COMMUNICATIONS, INC.
/s/ Matthew Sutton /s/ R. Stanley Allen
- --------------------------- --------------------------------
Matthew Sutton R. Stanley Allen
President
<PAGE>
AGREEMENT
SECOND AMENDMENT TO BINDING
SUMMARY OF TERMS FOR
SITECONNECT, INC.
The parties mutually agree to extend the period of time in which to
negotiate in good faith definitive documentation regarding the Stock Purchase
beyond the January 15, 2000 date set forth in the amendment, dated December 29,
1999, to the Binding Summary of Terms for SiteConnect until no later than
February 15, 2000.
Dated this 11th day of January, 2000.
SITECONNECT, INC. CYPRESS COMMUNICATIONS, INC.
By: /s/ Matthew Sutton By: /s/ R. Stanley Allen
-------------------- ----------------------
Matthew Sutton R. Stanley Allen
President Chief Executive Officer
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 13, 2000
