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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File No.: 333-53841
WAM!NET Inc.
(Exact Name of Registrant as specified in its charter)
Minnesota 41-1795247
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
655 Lone Oak Drive
Eagan, Minnesota 55121
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (651) 256-5100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all Reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) have been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. _X_
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. ___ No
As of March 7, 2000, there were 9,494,797 shares of the Company's Common
Stock outstanding. The aggregate market value of the voting stock of the company
held by non-affiliates is $20,932,608.
Documents Incorporated by Reference--Not applicable.
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FORM 10-K
TABLE OF CONTENTS
ITEM PAGE
- ---- ----
PART I
ITEM 1. BUSINESS.............................................................1
ITEM 2. PROPERTIES..........................................................15
ITEM 3. LEGAL PROCEEDINGS...................................................15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS...............................................16
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA................................17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...............................19
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.......................................................27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........................28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE...............................28
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.................29
ITEM 11. EXECUTIVE COMPENSATION.............................................31
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT........................................................36
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................38
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.......................................................44
IMPORTANT FACTORS RELATING TO FORWARD-LOOKING STATEMENTS.....................50
SIGNATURES - WAM!NET INC.....................................................51
FINANCIAL STATEMENT SCHEDULES...............................................F-1
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PART I
ITEM 1. BUSINESS.
Overview
We are a leading global provider of business-to-business electronic services
to the media industry. We enable entertainment, advertising, publishing,
printing and related media businesses worldwide to collaborate on-line within
their workflow chains. These businesses experience inefficiencies associated
with incompatible systems and largely manual processes involving both analog and
digital data. Our services and network infrastructure address this problem by
providing businesses a common electronic workflow platform to seamlessly
integrate their production processes and accelerate the adoption of digital
workflow collaboration. Our e-services include: (1) managed data transport, (2)
media application hosting, (3) managed data storage, (4) computer animation
rendering and (5) Internet-based services. We offer our services under simple
monthly service fee and pay-per-use pricing plans, which require no up-front
capital investment by our customers. We enable businesses to achieve measurable
operating efficiencies, productivity gains and cost savings.
We own and operate a private, Internet Protocol or IP based global network,
hosting and storage infrastructure that we have integrated with the public
Internet. Customers can access our services and infrastructure through the
Internet or through a dial-up or dedicated connection to our network. This
provides our customers with the global access of the Internet and the
reliability, security, accountability and predictability of a managed private
infrastructure. By design, our network is not dependent on a single technology,
protocol or telephony solution, allowing us to quickly take advantage of new
network, access and storage technologies to enhance our services or reduce
costs.
Our services are tailored to meet the specialized needs of businesses
involved in the creation, exchange, distribution and storage of media, such as
magazines, newspapers, marketing materials, brand advertisements, television and
radio broadcast programming and films. As the number of influential,
industry-leading firms that rely on our services and applications grows, the
value of our network to current and prospective customers increases. We believe
media businesses that gain the most cost savings by digitally integrating their
workflow chains will become the strongest proponents of our workflow platform.
Many of our customers actively encourage their workflow partners to purchase our
services and, in some cases, pay the fees incurred by their partners. As of
December 31, 1999, we had over 1,900 customer points-of-presence consisting of
dedicated network access devices and local bandwidth connectivity. In addition,
we had over 6,800 users of our Internet and dial-up services globally. Users of
our network and services include:
o 11 of the 20 largest U.S. publishers (including Time Inc. and
McGraw-Hill Companies Inc.);
o 18 of the 20 largest U.S. advertising agencies (including Young &
Rubicam Inc. and J. Walter Thompson, Inc.);
o 12 of the 20 largest U.S. retailers (including Albertson's, Inc. and
Lowe's Company, Inc.);
o 16 of the 20 largest U.S. printers (including R.R. Donnelley & Sons
Company, Quebecor World, Inc. and Quad/Graphics, Inc.);
o 19 of the 20 largest U.S. pre-press firms (including American Color
Graphics, Inc. and Applied Graphics Technologies, Inc.);
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o 34 Fortune 100 companies (including Ford Motor Company and Wal-Mart
Stores); and
o 7 of the 20 largest newspaper publishing companies (including
Knight-Ridder, Inc. and The Times Mirror Company).
We have a significant presence with many large influential media companies
that are at an early stage in their adoption of and conversion to complete
digital workflow processes. Consequently, we believe there is significant
opportunity to increase our revenues as these businesses, their trading partners
and the media industry as a whole continue to implement digital workflow
solutions.
Market Opportunity
The emergence of business-to-business e-commerce over the Internet and
private networks is changing the way companies are conducting business.
According to Forrester Research, Inc., a leading independent research firm,
more than $1.3 trillion in business-to-business e-commerce will be transacted
in 2003. We believe that as companies in the media industry increase the amount
of business they conduct over the Internet, these businesses will increase
their digital collaboration and require on-line integrated workflow chains.
This workflow evolution, combined with the success of IT outsourcing, is
increasing demand for industry-specific, standardized e-commerce platforms
through which workflow partners can access a full range of e-services and
seamlessly integrate their media production processes.
The need for a standardized e-commerce platform is heightened by the fact
that businesses involved in media design and production are increasingly using
computers, software applications and other electronic systems in all aspects of
the media production process. The demand for digital media in Web-based e-
commerce and the increasing use of digital tools to create media will continue
to fuel growth in data traffic. GISTICS Incorporated, a leading media research
firm, estimated that in North America alone businesses would spend nearly $20
billion in 1999 on physical and digital media logistics and transportation,
including the transportation of media to workflow partners using traditional
physical processes such as overland or air couriers, including Federal Express,
DHL Worldwide Express and United Parcel Service. We believe that five trends
will continue to drive our market opportunity:
o Rapid growth in the creation of digital media and expenditures for
digital media production. GISTICS estimated that $317 billion would be
spent in North America alone by businesses in the creation and
production of media in 1999. Advances in digital media production and
business-to-business e-commerce applications, coupled with the increased
adoption of the Internet, are fueling rapid growth in expenditures for
digital technologies and services that create, manage and distribute
digital media. Businesses have large inventories of non-digital media
which are difficult to store, manage and re-use. These inventories can
now be digitized, stored and managed electronically for re-use and
re-purposing in a wide array of end-user media materials and formats,
including the Web.
o Expanding use of digital media in workflow collaboration and e-commerce.
The expanding use of digital media in workflow collaboration and the
growth of e-commerce are driving the demand for data management,
transport and storage solutions over the public Internet and private
networks. Media workflow chains that design, produce, buy, sell and
distribute media require many parties to share, manage and store
increasingly large amounts of digital media. For example, the assembly
of one weekly magazine may require hundreds of businesses in the
publishing, printing, advertising and corporate marketing industries to
participate in the creation and assembly of content, including
photographs, advertising, graphics, editorial content and mailing lists.
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o Growing demand for accessible, integrated and on-line media storage and
hosting solutions. The growth in the creation of and demand for digital
content has increased the value and the volume of businesses' digital
media assets, making it more difficult and more critical to effectively
manage those assets. The volume of data generated in today's business
environment continues to grow at a significant rate, driving the
increased use of disk storage. International Data Corporation, a leading
industry research firm, estimates that multi-user disk storage grew from
approximately 10 million petabytes in 1994 to 116 million petabytes in
1998, and will reach approximately 1.4 billion petabytes in 2002 (one
petabyte equals 1 million megabytes).
In meeting these rapidly increasing storage requirements, businesses
involved in media workflow chains face several problems. These
businesses must often purchase and maintain costly storage servers, hire
skilled administrators to maintain these storage systems, add disk
capacity to file servers, and maintain mirror copies of data at remote
sites. The costs associated with the hardware, software and consulting
services necessary for individual enterprises to store, manage, retrieve
and distribute digital data using redundant systems can be formidable.
In addition, businesses involved in media production often deal with
hundreds of vendors. Storing and using media assets for collaboration
among a geographically diverse workflow chain involving different
companies can be cost prohibitive and impractical. This has limited the
implementation of on-line workflow storage solutions. As a result,
businesses in the media industry are increasingly turning to service
providers that can host digital media assets in open and accessible
on-line storage systems.
We believe businesses that effectively manage global access to their
digital media assets will enjoy considerable competitive advantages
including:
-- increased operating efficiencies;
-- reduced time to market cycles;
-- enhanced media re-purposing and deployment;
-- improved ability to more rapidly exploit market opportunities;
and
-- expanded opportunities for collaboration with larger numbers
of customers, suppliers and business workflow partners.
o Emerging need by the media industry for standardized, integrated and
cost-effective e-commerce solutions. We believe managers in the media
industry require digital workflow collaboration to increase efficiency
at each step of the production and distribution process. Individual
businesses within the media industry, however, lack the resources,
expertise and independence to cost-effectively create a common
electronic workflow platform with the capacity to meet the industry's
digital management needs. As a result, we believe managers will
increasingly seek outsourced e-services and infrastructure from a single
independent provider. This includes outsourced workflow applications,
data transportation and storage services that can be adapted to fit
their specific workflow requirements.
o Continuing positive impact of the Internet market on our market. The
growth of the Internet is expanding and transforming the market for
managed transportation, hosting and storage of digital data. The low
cost of access to and ubiquity of the Internet allows small and
medium-sized businesses in geographically diverse locations to
participate cost-effectively in the use of hosted applications,
transport and storage services. In addition, the increased use of the
Internet as a
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medium for commerce will result in an increased number of digital files
being created, transported and stored for marketing and other purposes.
Business Strategy
Our objective is to become the leading global provider of
business-to-business e-services that enable businesses to collaborate on-line
with their workflow chains. We intend to implement the following strategies to
achieve our business objective:
o Capitalize on our first-to-market advantage with our existing
influential customer base to attract new customers worldwide and
increase utilization of our services. We plan to use our first-to-market
position to capitalize on the accelerating use of digital data in media
workflow chains. We have established and deployed a global network,
created significant brand recognition and developed relationships with
many influential customers. We plan to leverage our existing
relationships to draw more workflow partners into our customers'
electronic workflow, to increase utilization of our services and to
become an integral part of our customers' media workflow processes. We
also intend to focus our sales and marketing efforts on capturing
additional large and influential media companies which exert influence
over the adoption of e-services within their workflow chains.
o Provide a complete range of e-services that enable our customers to
accelerate their adoption of digital workflow. As we expand our
business, we will continue to develop and offer additional services and
enhancements that will enable our customers to manage their media
workflow and collaborate more efficiently. We offer our customers a
variety of flexible services that provide productivity gains and cost
savings. In addition to developing our own Industry Smart applications
and e-services, we will continue to enable our customers to access
leading third party applications and services on a transactional basis
over our infrastructure.
o Enter into strategic relationships to expand distribution channels,
integrate emerging technologies, develop new hosted applications and
services, and reduce costs. We will continue to build strategic
relationships with leading suppliers to the media industry to distribute
our services to new customer groups and geographic areas. In addition,
we seek strategic relationships to capitalize on advanced and emerging
technologies that enhance our service offerings and reduce the cost of
our operations. Finally, we will continue to use strategic relationships
to incorporate new applications and services that help our customers
collaborate more efficiently in their media workflow chains.
o Integrate public and private IP infrastructures to meet the global needs
of our customers most effectively. We will continue to offer access to
our services through the Internet to reach a wider group of potential
customers and to enable increased collaboration among our customers and
their workflow partners worldwide. Additionally, we will continue to
integrate our managed private global network, hosting and storage
infrastructure with the Internet to effectively meet the evolving needs
of our large and small customers.
o Apply our business model to other vertical markets worldwide. To take
advantage of economies of scope presented by our e-services and
infrastructure, we will continue to evaluate opportunities to offer our
services to other vertical markets that can benefit from
business-to-business electronic workflow services.
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Services and Applications
To address our customers' global on-line digital workflow needs, we offer
the following two broad categories of e-services and applications:
o managed data services; and
o hosted media applications and managed data storage services.
Our customers can access these services through the Internet at
www.wamnet.com or over our managed private IP global network to collaborate with
their workflow partners on-line. Most of our services are accounted for on a
transactional basis, in terms of megabytes sent, megabytes stored or processing
transactions executed. In addition, many of our services include a monthly
minimum service fee. By offering standard service packages coupled with a
complete menu of service options, we provide our customers with flexible
solutions that can meet their requirements for predictability, performance and
price.
Managed Data Services
Direct Service. This is our fastest, most secure and most reliable media
transport service providing direct, guaranteed access and transport over our
managed network. Customers who use this service typically participate in large
media workflow chains that require a highly managed, predictable and reliable
environment. This service includes installation of our network access device on
our customers' premises, a dedicated leased line or wireless connection to our
network, and access to our hosted Industry Smart applications, as well as
training and support on a 24 hours per day, seven days per week basis. Customers
may choose the capacity of their network access device and the speed of their
network connection to meet their requirements. Pricing for our Direct Service
includes a monthly service fee, and a transactional per megabyte pay-per-use
fee.
ISDN Tracked Service. Offered at a lower price point than our Direct
Service, our ISDN Tracked Service does not require a dedicated on-site network
access device or dedicated connection to our network. Our ISDN Tracked Service
offers the security and predictability of dial-up connectivity to our network,
at slower transmission speeds and without the performance guarantee of Direct
Service. This service is designed for customers with confidential and time
sensitive work who do not exchange a sufficient volume of data to require a
dedicated service connection. With this service, we provide access to our
network and hosted Industry Smart applications, an ISDN card, training and
customer support on a 24 hours per day, seven days per week basis. Customers may
chose either to purchase the software and hardware required for this service, or
to pay a monthly service fee over the life of the contract with no up-front
capital expenditure. ISDN Tracked Service is priced on a transactional, per
megabyte, pay-per-use basis. We commercially released our ISDN Tracked Service
in the first quarter of 1999.
Internet Gateway Service. We commercially released our Internet Gateway
Service in the third quarter of 1999. Our Internet Gateway Service provides
anyone with an Internet connection a more predictable, secure and trackable
means of exchanging digital files than currently available over the Internet.
Internet Gateway Service users access and use our hosted applications through
our website at www.wamnet.com. At the web site, users have access to the same
sophisticated tracking, reporting and directory tools that are available with
our other services to manage deliveries, view account data, and authorize other
WAM!NET users to exchange files with them. Our Internet Gateway Service allows
users to exchange files with any other WAM!NET user and to send files to any
e-mail address or FTP site. Internet Gateway brings the capacity to automate
workflows and processes using other hosted WAM!NET applications, including job
tickets. Internet Gateway Service is priced on a transactional, per megabyte,
pay-per-use basis.
In addition to allowing subscribers to set up their own Internet Gateway
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accounts, we offer Direct Service subscribers the opportunity to create and host
Internet Gateway accounts for their customers and workflow partners, providing a
standard way for them to send and receive data files. In this arrangement, hosts
pay the transaction fees for their workflow partners. For example, the host may
create different workflow groups, select appropriate job tickets and implement
standardized data exchanges. This results in a simplified, more uniform method
for Direct Service users to automate their work flow requirements.
Internet Access. We currently provide dedicated Internet access as a service
option for our Direct Service customers in the U.K. and plan to deploy this
service on a global basis this year. This option permits our Direct Service and
high-speed Internet access to be provided over the same dedicated circuit. With
this service, Direct Service customers can browse the Web, or host Web, FTP,
news or mail servers. We also offer additional services in conjunction with
third party partners, including: network design and consulting services;
firewall configuration and management services; news, Web, mail and FTP server
installation and set-up; and Web-based application development services.
Hosted Media Applications and Managed Data Storage Services
Hosted Media Applications
We host media applications that integrate our services into our customers'
digital workflow processes and are tailored to meet the needs of the media
industry. Customers can access these applications either through the Internet or
through our dedicated infrastructure. We have developed and currently offer our
own applications and plan to partner with leading application developers to host
and offer their applications over our network.
Transmission Manager. This application serves as the primary user interface
for our Direct and ISDN Tracked Services. Transmission Manager provides
customers with the capacity to establish and maintain address books, specify
workflow routing instructions, create and use job ticket and specify file and
job ticket editing criteria. We have also developed Transmission Manager
plug-ins which enable users of industry leading media applications, such as
Adobe Photoshop and Illustrator and Quark Express, to access our data transport
and storage services directly from within these applications. In addition,
Transmission Manager can be used for point-to-point ISDN file transmission.
Info Center. This application enables customers to manage their workflow
relationships and to review their use of our services by searching and viewing
data transmission activities on-line, including details of each file shipment,
such as confirmations of shipment and receipt, billing data and historical
records of usage. In addition, this application includes an address book, which
allows customers to create, authorize, restrict and manage the exchange of data
among workflow partners.
Electronic Job Tickets. This application enables our customers to automate
the scheduling, processing and accounting of exchanged files. Information
contained in the electronic job ticket that accompanies a file can be
automatically entered into the recipient's data systems, with significant
savings in labor costs and the elimination of errors associated with traditional
manual processes. Additionally, job ticket applications can validate, edit and
verify that job ticket contents and attached file formats meet user-defined
criteria. Job tickets can also specify prescribed action steps which can be
automatically initiated in the event of errors. Customers may choose between our
standard job tickets or, for a fee, create customized job tickets to meet their
specific needs.
Remote Proofing. WAM!PROOF is our remote proofing and printing solution that
allows customers
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to print automatically to geographically diverse color proofers, color copiers,
laser printers, and other digital output devices manufactured by 15 major
suppliers, such as Kodak, Polaroid, Imation and DuPont. This application gives
customers a means of rapidly distributing color proof copies of printed media to
workflow chain partners for review and approval of production jobs, eliminating
the delays and errors associated with messengers, overnight couriers or manual
processes.
Managed Data Storage Services
We provide digital data storage services under the WAM!BASE(R) brand. Our
storage services operate over our existing infrastructure and are billed on a
per-megabyte basis. Customers choose price and performance levels, which include
minimum storage volume requirements, under an annual or multi-year contract. Our
customers pay periodic storage charges based upon the volume and duration of
megabytes stored, including a fee per megabyte stored each month for the term of
the contract, with no up-front investment. Our storage services are scalable and
provide multiple benefits to our customers compared to in-house solutions,
including: reduced implementation time, lower implementation costs, minimized
capital expenditures and simplified pay-per-use pricing plans. We commercially
released our WAM!BASE Data Archiving Service in the first quarter of this year.
WAM!BASE Data Archiving Service. We offer this service for customers who
need to store files centrally for access by workflow partners in geographically
diverse locations. This service incorporates a simple Web-based user interface,
a powerful, industry leading search engine and automated workflow backup
functions. Our easy-to-use interface can index, store and search any type of
media, including still images, film and video. Our storage application is hosted
within our infrastructure, allowing workflow partners in multiple locations
secure access to the service without having to buy identical copies of expensive
media asset management software. The customer storing the data pays for the
storage fees and collaborators using the data pay data transportation fees to
download a copy of media assets from the archive. Because it is a hosted
service, there is no up- front capital investment in software or hardware,
making implementation fast and affordable compared to in-house storage
solutions. We believe that influential participants in the workflow process who
implement this service as a core part of their data storage strategy will
encourage other members of their workflow chain to adopt the solution.
WAM!BASE Digital Asset Management Service. We are developing and plan to
deploy a comprehensive storage service that is intended to meet the needs of
companies that require sophisticated digital asset management applications to
store and manage many types of electronic media, including still images, film
and video. Our service will allow subscribers to use third party applications
residing on their local area network, or an application hosted by us, while
still providing the efficiencies associated with storing assets in an off-site
media archive. This service will allow subscribers to choose from multiple
storage and software options, access speeds and pricing levels. Currently, we
have a joint marketing arrangement with Canto, Inc., the developer of a leading
digital asset management application for the graphics arts industry. Canto is
adapting the next release of its application to support WAM!BASE Digital Asset
Management Service to be jointly sold by WAM!NET and Canto. We plan to host and
co-market other third party digital asset management software applications.
Computer Animation Rendering Services
Render on Demand. We offer a hosted service for firms involved in the
production of computer generated special effects and other motion media for the
film and advertising industries. The rendering process requires specialized
software and extensive computing power. We host industry leading rendering
applications on our network and maintain a large number of servers that may be
used for this service. Large rendering projects typically require hundreds of
computer processors to simultaneously
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run sequences of a rendering job. Firms that perform rendering services in-house
typically incur significant expenses to purchase rendering software applications
and hardware and employ trained personnel to conduct the rendering functions.
Our service allows customers to avoid investing in rendering software or a large
number of servers. Our service also appeals to firms that currently maintain
their own servers but may require overflow capacity for peak project times, or
may wish to outsource this service altogether. We price this service based on
computer processing unit hours used, and we offer this service directly and
through co-marketing relationships with leading manufacturers of rendering
software and hardware for the media industry. We commercially released our
Render on Demand Service in the first quarter of 2000.
Our Network
We own and operate a private, IP-based global network connecting major media
centers around the world. Our core network consists of high-speed, ATM backbone
and leased dedicated high-bandwidth fiber optic capacity connecting our three
strategically located network operating centers with our 30 distribution hubs.
Our network and services are designed to accommodate the workflow automation
requirements of our subscribers including the need to transmit large media files
with greater speed, predictability, reliability and efficiency than many other
networks, including the public Internet. Our network is not dependent on a
single technology, protocol or telephony solution, which allows us to quickly
take advantage of new network, access and storage technologies to enhance our
services or reduce costs. This also permits us to offer affordable and versatile
ways for our customers to use our service.
Our infrastructure includes the following:
o Network Operations Centers (NOCs). We have deployed primary network
operations centers in North America (Eagan, Minnesota) and Europe
(Brussels, Belgium). In addition, we maintain a back-up network
operations center facility in Las Vegas, Nevada and are contemplating
deploying a NOC in Asia. Our NOCs serve as control centers for our
network, housing the specialized equipment we need to manage and monitor
our network 24 hours per day, seven days per week. Each of our three
regional network operating centers is capable of managing all of our
data transportation, hosting and storage operations. We believe that
because our customers are in time sensitive, data intensive industries,
many of them rely on our services to provide guaranteed delivery.
Automated network monitoring software from Hewlett Packard has been
installed and configured to provide continuous monitoring capabilities,
including a problem notification system that automatically alerts
network engineers of problems. Key aspects of our network are
continuously monitored, including network operating center equipment,
distribution hub equipment, backbone lines, local customer connections
and network access devices. We notify customers in the event of service
disruptions or equipment failures, and manage the restoration of
service.
o Network Backbone Facilities. Our 31 distribution hubs are interconnected
with a meshed ATM backbone provided by various carriers. Operating
agreements with these carriers enable us to increase backbone bandwidth
to accommodate our growth as needed. Additional network redundancy is
provided by a layer of private lines leased from diverse carriers on
different paths which primarily serve as network back-up. In addition,
we signed an agreement with Winstar in December of 1999 that will
provide WAM!NET backbone bandwidth at speeds ranging from 45Mb to 155 Mb
per second on various routes in the United States.
o Network Local Loop Facilities. In North America, local loop connections
linking distribution hubs and network access devices at customer sites
are currently provided almost exclusively by MCI
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WorldCom and Regional Bell Operating Companies. We have agreements with
Deutsche Telekom and the Nippon Telegraph and Telephone Corporation to
provide local loop services in Germany and Japan, respectively, and with
other providers to provide such services elsewhere in the world. In
addition Winstar will provide wireless local loops at speeds ranging
from multiple 1.5Mb to 155Mb per second. Winstar's technology will allow
WAM!NET to deliver high speed reliable service to customers in most
targeted major metro areas without the cost and time it takes to deploy
fiber. This bandwidth will allow WAM!NET to offer additional services to
existing customers, or to market to new customers requiring higher
bandwidth.
o Network Points of Presence. Our hubs consist of large Cisco Systems,
Inc. routers and serve to route data traffic across our network. Our
hubs are co-located with MCI WorldCom or other facility management
providers and each is interconnected over our meshed ATM backbone
through at least two diverse routes. We have hubs in the following
cities:
North America Europe Asia
Atlanta Amsterdam Tokyo
Boston Brussels
Chicago Copenhagen
Dallas Frankfurt
Denver Hamburg
Detroit London
Las Vegas Manchester
Los Angeles Munich
Miami Paris
Minneapolis Stockholm
Montreal
New York City
Newark
Oakland
Philadelphia
Seattle
St. Louis
Toronto
Vancouver
Washington D.C.
o Direct Customer Points of Presence (Network Access Devices). A key
differentiator of our network is our deployment of network access
devices on our customers' premises. We have deployed over 1,900 network
access devices of varying size and complexity based on customer needs
and requirements. Our network access devices usually contain a Silicon
Graphics O2 processor, a Cisco router, a CSU/DSU, an uninterruptible
power supply and disk storage. Our network access devices directly
connect our customers to our hubs using a dedicated fixed bandwidth
circuit, providing a secure, predictable and reliable connection to our
private backbone network. We control all of our network access devices
remotely, allowing us to fully manage the network end-to-end and rapidly
provision new services. In addition, our network access devices are
scalable to allow for future customer growth as our customers' needs
expand.
o Storage Network Infrastructure. Our data center infrastructure provides
hosting and redundant storage at mirrored sites in Eagan and Las Vegas.
Our primary data center facility is located in our Eagan network
operating center and includes over 40,000 square feet of environmentally
controlled
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floor space suitable for housing large-scale computer and storage
systems. A back-up facility is located in our Las Vegas data center and
we expect that additional data center, hosting and storage
infrastructure will be available in Brussels to support European
customers as needed. We currently have a variety of installed equipment
with capacity to store over 40,000 petabytes of total on-line primary
and back-up storage capacity and have purchase agreements in place with
major storage vendors to purchase additional on-line storage capacity as
demand warrants. Additionally, we have over 200 high capacity servers
available for hosting our Render on Demand service and other
applications.
Sales and Marketing
Over the past three years we have made significant investments in building a
direct sales channel to service the media industry. Our initial sales and
marketing strategies were aimed at penetrating the top tier of the market, which
includes companies that influence others in the industry as they make technology
purchasing decisions. These initial efforts captured many of the leading
advertising agencies, magazine and book publishing companies, commercial
printers and pre-press firms.
Our current selling approach is based on a consultative selling model which
leverages our strategic partnerships and customer relationships. Our sales and
marketing objectives include:
o expanding workflow chains by leveraging relationships with influential
customers;
o increasing utilization of services among existing customers using a
consultative selling approach;
o capturing additional multi-site customer opportunities;
o developing new channels to sell and support our services; and
o selling and marketing to new vertical industries worldwide.
Our sales organization is structured to support vertical markets on a global
basis. We currently have sales groups in North America, Europe and Japan. Our
direct sales force includes coverage in cities such as: New York, Chicago,
Boston, Los Angeles, Washington D.C., Dallas, San Francisco, Atlanta, Seattle,
Toronto, Minneapolis, London, Amsterdam, Frankfurt, Hamburg, Oslo, Paris,
Stockholm, and Tokyo. Our sales group performs the following activities:
o Account Management: We work with our existing customers to expand
workflow chains, implement additional service offerings, coordinate
training and increase utilization. By managing our relationships with
our existing customers, we seek to capture a larger portion of their
digital workflow and increase our revenues.
o New Customer Acquisition: We identify and target new customers with
significant data transport, workflow application and storage
requirements. In particular, we focus on companies that are influential
in their media workflow chains.
o Channel Development: We develop, implement and manage strategic channel
relationships with leading suppliers to the media industry on a global
basis. We are in the process of negotiating or have entered into
marketing arrangements with the following strategic partners:
-- SGI, a leading provider of hardware and software to the film and
animation production segment of the media industry. We entered into a
joint marketing agreement with SGI whereby they sell our
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services to their customers.
-- Sony, a leading provider of hardware and software to the post-production
and broadcast segments of the media industry. Our joint marketing
agreement with Sony designates us as its preferred third party digital
asset management outsourcing services provider in North America. Sony
has indicated they will begin marketing and promoting our services in
the second quarter of 2000.
-- Heidelberg, the world's largest manufacturer of web and sheet fed
printing presses. Our multi-year co-marketing agreement with Heidelberg
allows it to bundle our services with its own line of digital printing
presses worldwide. Heidelberg currently has a total installed customer
base of over 55,000 units globally.
-- 3M/Commercial Graphics Division, the global leader in providing total
image graphic solutions through materials, service, imaging systems, and
information management. 3M intends to bundle our data transport services
within the Scotchprint(R) Graphics Network to provide its customers the
ability to send and receive large graphic files securely and
efficiently. 3M also pays a portion of the costs of our service
contracts with their clients.
-- Sumitomo, a global trading company whose electronics division is a
provider of software, hardware and services to the media industry.
Through our joint venture, we have built a sales and marketing
organization to penetrate the Japanese market.
-- Winstar, a leading provider of fixed wireless broadband services. Under
our joint marketing agreement, Winstar, has agreed to resell our
services to its customers. Additionally, Winstar has agreed to purchase
at least $12.5 million of our services for its own use or resale.
-- Impresse, a leading provider of solutions for print job quoting.
Impresse's main service, impresse.com, is an Internet-based application
for bidding and accepting printing jobs. Under our arrangement with
Impresse, we will jointly market our e-services to corporate print
buyers and integrate impresse.com within our network. This integration
will allow impresse.com customers to route print production workflow
through our services.
-- Alias Wavefront, a leading developer and provider of computer animation
rendering software. Our joint marketing agreement with Alias Wavefront
provides that it will introduce and promote the concept of our Render on
Demand service to its customers.
Customer Service
Our services have been designed to incorporate service level agreements that
specify standard customer support service performance parameters. Under our
standard service level agreement, we deliver customer support on a 24 hour per
day, seven days per week basis through our three call centers located in Eagan,
Brussels and Tokyo. Our customer service function is organized around a
three-tier support model. Incoming calls are routed through a programmable phone
system that is integrated with sophisticated customer support management
software. This system automates call processing, automatically logging all
incoming calls and recording the specific customer support activities used to
resolve customer issues. We provide proactive customer support services geared
toward ensuring the smooth operation of our services.
In addition, we also offer Web-based customer support capabilities through
our InfoCenter hosted application. Using this service, customers can log service
requests, submit questions and access
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<PAGE>
application documentation on-line. We also have entered into on-site maintenance
contracts with SGI to provide support and service for the customer premise
equipment that we provide for our Direct Service customers. In connection with
our December 1999 agreement with Winstar for backbone capacity and wireless
local loop facilities, Winstar has agreed to maintain the equipment, including
replacing equipment as needed to connect with Winstar's telecommunications
network at a specified level of functionality over the twenty year term of the
agreement.
At the request of some of our subscribers, we also provide custom service
level agreements for their specialized customer support requirements. These
include provisions for redundant back-up systems including customer premise
equipment and local loop connections and special support for customized workflow
applications.
Competition
We face competition from a variety of companies that offer products or
services that compete with, or serve as alternatives to, one or more of our
service offerings. In addition, several companies have the financial resources
and technical expertise to adapt or expand their product and service offerings
to become directly competitive with our services.
Despite limitations related to the capacity and reliability of the Internet,
developments and advances in Internet technology are continually improving the
functionality of the Internet. Consequently, companies that rely on the Internet
to provide competitive services may be able to compete more effectively in the
future.
The following is a summary of the companies which may provide alternatives
to our services or currently compete with us, or which may compete with us in
the future:
o Overland and air courier service providers. The majority of our
competition comes from traditional overland and air courier services.
Federal Express, DHL Worldwide Express and United Parcel Service (UPS)
provide delivery services which are currently used by many of our
targeted customers to physically transport data files stored on disks.
While our potential customers may continue to use these services for
their data transport, we believe that our managed data transport
services offer superior alternatives for businesses with digital
workflow requirements.
o Digital courier and digital file transfer service providers. Vio
Worldwide Limited, Williams-Vyvx, a business unit of Williams
Communications, Inc., UPS and The docSpace Company each offer services
that compete to varying degrees with our managed data transport
services.
o Large telecommunications carriers and Internet oriented service
providers. Many of the large established and emerging carriers, such as
AT&T Corp., Sprint, MCI WorldCom, Cable & Wireless plc, Global Crossing
Ltd., Qwest Communications International Inc., Level 3 Communications,
Inc. and Exodus Communications, Inc., are expanding their capabilities
to support high-speed, end-to-end communications services. Increasingly,
their bundled services include high-speed local access combined with
metropolitan and wide area network services that may serve as
alternatives to our services. These telecommunications companies have
deployed large scale networks, have large numbers of existing customers
and enjoy strong brand recognition, and, as a result, may become
significant competitors.
o Data network and applications service providers. Several data networking
companies such as Equant N.V., Infonet Services Corporation, Concert
Management Services Inc. and Global One
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offer data networking services to business customers worldwide. These
services include ATM and frame relay, private line, Internet access and
network outsourcing. These companies have significant experience in
offering tailored services and market their expertise. There are also a
number of entrants, such as IXnet, Inc., Savvis Communication
Corporation and Digital Island Inc., that are targeting specific niches
to deliver customers Internet content, data traffic, and voice services
worldwide. We believe that they may have the ability to expand their
existing networks and service offerings to become more competitive.
o Disk and tape storage equipment companies. Many established firms
currently market, sell and distribute storage equipment that is
primarily used to create on-site storage systems. These firms, including
EMC Corp., IBM, Hitachi, Sun Microsystems, Inc., Sony, Storage
Technologies, Inc. Ciprico, Inc., either have announced plans to
develop, or may in the future develop, network-based storage services
and storage area networks (SANs) that may utilize private networks or
the Internet. These services may have similarities with our planned
storage services and may include transactional, per megabyte pricing.
Government Regulation
We purchase the telephone equipment, routers and relays for use on our
network and we combine that equipment with our software and connect the assembly
with telephone circuits provided by common carriers. The common carriers are
regulated by the FCC, the Canadian Radio-Television and Telecommunications
Commission, or CRTC, and various state regulatory agencies. We believe that
under the FCC's current interpretation of the Communications Act of 1934, as
amended, the services which we offer to our customers are interstate information
(enhanced) services. Consequently, we are not required to obtain licenses or
other approvals from the FCC or state regulatory agencies to offer these
services. However, if at some time our services are deemed to be intrastate
services, certain state regulatory agencies might seek to assert jurisdiction
over our products and services. We would then be required to expend substantial
time and money to acquire the appropriate licenses and to comply with state
regulations. We also believe that under the CRTC's interpretation of Canadian
law, our services do not require us to obtain telecommunications permits or
approvals in Canada.
We believe that European Union directives permit us to provide our services
in E.U. member states without the need to obtain licenses or other governmental
approvals. Bilateral agreements exist between the U.S. and Japan and the U.S.
and Hong Kong which encourage unimpeded cross-border provision of enhanced
services like those offered by us. Pursuant to the World Trade Organization's
General Agreement on Trade and Services, over fifty governments have agreed to
permit the competitive provision of enhanced services (i.e., value-added) by
nationals of WTO member countries. Nevertheless, certain other countries in
Europe, Asia and elsewhere in the world might seek to license and regulate our
services. Any such license or regulation may limit, delay or increase our costs
to provide services in these international locations in which we may seek to
expand our operations.
In addition to telecommunication regulations, we may become subject to other
current or future regulations in the U.S. or abroad as our business continues to
develop and as governments respond to changes brought about by the growth of the
Internet and e-commerce. These regulations may affect data privacy, marketing or
distribution, or may be applicable to specific industries or businesses to which
we may offer services. Such regulations would result in economic burdens or
technical or legal constraints that could adversely affect our business.
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<PAGE>
Intellectual Property and Proprietary Rights
It is our policy to protect our intellectual property, to seek patent
protection for those aspects of our technology that we believe may be patentable
and to preserve any copyrights or trade secrets (to the extent not disclosed in
any patent) that may be applicable to our services and applications and their
related software.
We have designed most of the proprietary software necessary for the
management of our services and applications, including network access device
operations and a graphic user interface, Info Center, WAM!PROOF and WAM!BASE
applications. We believe that our proprietary software and trade secrets
applicable to the operation of our services and applications may be of equal or
greater importance to us than patent or copyright protection. We are not aware
of any claims of infringement of patents or other intellectual property
belonging to others. However, we have conducted only a limited inquiry regarding
the possibility of such claims. We have expanded our service and applications
offerings in foreign countries and we will increasingly offer our services and
applications in foreign countries. Some of these countries may lack intellectual
property protection that is comparable to that afforded by the intellectual
property laws of the U.S.
Liability and Insurance
Our services are supported by telecommunications equipment, software,
operating protocols and proprietary applications for high-speed transmission of
large quantities of data among multiple locations. In such operations, it is
possible that data files may be lost, altered or distorted. Moreover, our
targeted industries' businesses are extremely time-sensitive, and delays in
delivering data or damage to or loss of archival data may cause a significant
loss to a customer. Our network and related services and applications and future
enhancements or adaptations may contain undetected design faults and software
"bugs" that, despite testing, are discovered only after the system has been
installed and used by customers. Such faults or errors could cause delays or
require design modifications that could adversely affect our business, financial
condition and results of operations. Our customer agreements generally contain
provisions limiting our liability for damages resulting from errors in the
transportation or storage of data to a maximum of $100 per incident or the
amount of one year's service charge for all incidents. Nevertheless, we may
still be subject to significant claims and potential liability for data losses
in the transportation and storage of data on our network. In addition to general
business liability insurance coverage, we presently maintain errors and
omissions insurance coverage in the amount of $2 million per occurrence. We also
presently maintain $5 million of business interruption insurance coverage
against losses from fire and other natural disasters. With respect to our data
storage services, we maintain $10 million of insurance coverage against any
damage or loss of data due to physical damage to our Eagan or Las Vegas
facilities. In addition, we maintain a $25 million umbrella policy covering
losses or liabilities above our other policies.
Employees
The following table sets forth a breakdown of our employees as of December
31, 1999:
Number of
employees
---------
Development................................ 89
Marketing and sales........................ 162
Technology and operations.................. 128
Administration............................. 80
---
Total................................. 459
===
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The Company's executive and technical personnel have significant experience
in the design, programming, implementation, marketing, sales and support of
complex data networks and software programs. We have never had a work stoppage
and no employees are represented under collective bargaining agreements. We
consider our relations with our employees to be good.
ITEM 2. PROPERTIES.
We lease an approximately 481,000 square foot modern corporate campus
located in Eagan, Minnesota, a suburb of Minneapolis. We currently occupy
160,000 square feet of this facility. SGI subleases 326,000 square feet of
space, including common areas, in our corporate campus facility. The term of the
sublease with SGI began on March 4, 1999 and ends on May 31, 2004. Effective as
of June 1, 2001 and on each June 1, 2002 and 2003, SGI has the option to
terminate the sublease by delivering at least six months' prior written notice
of termination.
We own 9,000 square feet of office space in Bournemouth, Dorset, England.
Our other leased properties include:
o an approximately 45,000 square foot office facility located in
Bloomington, Minnesota which we currently sublease;
o an approximately 1,580 square foot office facility located in
Minneapolis where one of our network operation centers is located;
o an approximately 7,970 square foot facility located in Las Vegas, where
another of our network operation centers is located and which serves as
a backup customer service center;
o an approximately 20,000 square foot office space in Brussels, which
contains our European network operation center and customer service
operations;
o an approximately 8,000 square foot manufacturing and warehouse facility
located in Eagan;
o an approximately 1,882 square foot office facility located in Missoula,
Montana;
o small offices in Des Moines, Iowa; Chicago, Illinois; Woburn,
Massachusetts; New York, New York; Hamburg, Germany; Hague, Holland;
Gothenburg, Sweden; Copenhagen, Denmark; and Paris, France for use by
our sales and marketing personnel, business development managers and
account executives stationed in those cities;
o an 18,540 square foot office facility located in Bloomington, Minnesota;
and
o a 16,000 square foot office space located in Bournemouth, Dorset,
England.
ITEM 3. LEGAL PROCEEDINGS.
Certain holders of warrants issued in connection with bridge loans in 1995
and 1996 have commenced litigation seeking a reduction in the exercise price of
those warrants and attorney's fees. Although the warrants provide for downward
adjustments under certain circumstances, we believe no adjustment is required.
Should the warrant holders' litigation be successful, the gross proceeds
receivable by us from exercise of those warrants would be reduced from
approximately $8.4 million to $4.9 million. In
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<PAGE>
February 2000, the court denied the plaintiffs' motion for summary judgment that
the warrant price should be reduced. The suit is scheduled to begin trial in
April 2000.
We are engaged in certain legal proceedings and claims arising in the
ordinary course of our business. The ultimate liabilities, if any, which may
result from these legal actions or claims against us cannot be determined at
this time. However, it is the opinion of management that facts known at the
present time do not indicate that there is a probability that such litigation
will have a material effect on our business, financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On December 17, 1999, the Company held its 1999 Annual meeting of
shareholders for the sole purpose of electing directors. At the Annual meeting,
Edward J. Driscoll, Robert L. Hoffman and William M. Kelly were elected as the
directors of the Company.
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
In January 1999 and March 1999, the Company sold to MCI WorldCom for the
consideration of $10 million and $15 million, respectively, 13.25% convertible
promissory notes (the "MCI Notes") in equal principal amounts together with a
common stock purchase warrant entitling MCI WorldCom to purchase 350,000 shares
of the Company's common stock at a purchase price of $0.01 per share. The MCI
Notes provided that they would be mandatorily converted into a new class of
preferred stock having a parity of rights and preferences with any class of
preferred stock to be issued to SGI in an anticipated transaction between the
Company and SGI. Exemption from registration is claimed under Section 4(2) of
the securities Act of 1933 ("Act") and Rule 506 of the Rules ("Rules")
thereunder.
In March 1999, the Company sold to SGI 5,710,425 shares of Class B
Convertible Preferred Stock ("Class B Stock") and 878,527 shares of Class C
Convertible Preferred Stock ("Class C Stock") for an aggregate purchase price of
$75 million, of which $35 million was paid in cash and $40 million was paid by
conveyance to the Company of the land and building which comprise the Company's
corporate campus facility. Currently, the Class B Stock and the Class C Stock
are mandatorily convertible into 6,923,144 shares and 1,066,625 shares of the
Company's Common Stock, subject to anti-dilution adjustments, in the event the
Company conducts an underwritten public offering at an initial offering price of
$12.13 per share in the case of Class B and $12.52 per share in the case of
Class C. The Class B Stock may be optionally converted by the Holder at any time
and the Class C Stock may be optionally converted by the Holder after September
4, 2000 into such shares of common stock, subject to anti-dilution adjustments.
Exemption from registration is claimed under Section 4(2) of the Act and Rule
506 of the Rules.
In March 1999 the Company sold to MCI WorldCom 2,196,317 shares of Class D
Convertible Preferred Stock ("Class D Stock") for the consideration of $25
million in conversion of the MCI Notes. The Class D Stock is mandatorily
convertible into 2,666,563 shares of the Company's Common Stock, subject to
anti-dilution adjustments, in the event the Company conducts an underwritten
public offering at an initial offering price of $12.52 per share. The Class D
Stock may be optionally converted by the Holder at any time. Exemption from
registration is claimed under Sections 3(a)(9) and 4(2) of the Act and Rule 506
of the Rules.
In February 2000 the Company sold to SGI 10,000 shares of Class F
Convertible Preferred Stock ("Class F Stock") for an aggregate purchase price of
$10 million cash. The Class F Stock is convertible at the option of the holder
into 1,937,984 shares of the Company's common stock, subject to anti-dilution
adjustments, and is mandatorily convertible on the last trading day of the first
20 consecutive trading days during the average (weighted by daily trading
volume) closing price of the stock is at least $8.00. Exemption from
registration is claimed under Section 4(2) of the Act and Rule 506 of the Rules.
In February and March 2000 the Company sold to Sumitomo Corporation and
nine other accredited investors a total of 10,000 shares of Class G Convertible
Preferred Stock ("Class G Stock") for an aggregate purchase price of $10 million
cash. The Class G Stock is convertible at the option of the holder into
1,937,984 shares of the Company's common stock, subject to anti-dilution
adjustments, and is mandatorily convertible in the event of an underwritten
public offering. Exemption from registration is claimed under Section 4(2) of
the Act and Rule 506 of the Rules.
In March 2000, the Company sold to Winstar Communications Corporation
85,000 shares of the Company' of Class E Convertible Preferred Stock ("Class E
Stock") for an aggregate purchase price of $85 million, of which $35 million was
paid in cash and $50 million was paid through the transfer to us of 1,071,429
shares of Winstar's common stock, valued at $46.66 per share (as adjusted for
the 3 for 2 stock split declared by Winstar in February 2000). In
contemporaneous transactions, the Company sold to 13 accredited investors a
total of 16,725 shares of the Class E stock for an aggregate consideration of
$16.7 million. The Class E Stock is convertible at the option of the holder into
19,714,147 shares of the Company's common stock, subject to anti-dilution
adjustments, and is mandatorily convertible on the last trading day of the first
20 consecutive trading days during the average (weighted by daily trading
volume) closing price of the stock is at least $8.00. Exemption from
registration is claimed under Section 4(2) of the Act and Rule 506 of the Rules.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The following tables set forth certain historical consolidated financial and
other data of our company for each of the five years in the period ended
December 31, 1999. We derived our selected historical consolidated financial
data as of and for each of the three years in the period ended December 31, 1999
from our audited consolidated financial statements included elsewhere in this
Annual Report on Form 10-K. We derived our selected historical consolidated
financial data as of and for the year ended December 31, 1995 and 1996 from our
audited consolidated financial statements that are not included in this Annual
Report on Form 10-K.
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------
1995(1) 1996 1997 1998 1999
--------- --------- --------- --------- ---------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Net service revenue ................... $ 180 $ 279 $ 1,555 $ 6,799 $ 17,319
Software and hardware sales ........... -- -- -- 10,791 7,476
--------- --------- --------- --------- ---------
Total revenues .......................... 180 279 1,555 17,590 24,795
Operating expenses:
Network communication ................. 46 816 7,364 18,259 26,318
Cost of software and hardware ......... -- -- -- 3,537 2,905
Network operations and development .... 539 1,109 7,478 35,095 22,928
Selling, general and administrative ... 821 4,664 13,527 45,422 43,392
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Depreciation and amortization ......... 31 447 2,668 17,668 34,875
--------- --------- --------- --------- ---------
Total operating expenses ................ 1,437 7,036 31,037 119,981 130,418
--------- --------- --------- --------- ---------
Loss from operations .................... (1,257) (6,757) (29,482) (102,391) (105,623)
Interest and other income (expense), net (20) (839) (4,154) (20,839) (33,604)
Income tax benefit ...................... -- -- -- 1,352 --
--------- --------- --------- --------- ---------
Net loss ................................ (1,277) (7,596) (33,636) (121,878) (139,227)
Less preferred dividends ................ -- -- (70) (70) (5,890)
--------- --------- --------- --------- ---------
Net loss applicable to common stock ..... $ (1,277) $ (7,596) $ (33,706) $(121,948) $(145,117)
========= ========= ========= ========= =========
Net loss applicable per common share(2) . $ (.24) $ (1.18) $ (5.19) $ (13.87) $ (15.58)
Weighted average number of common shares
outstanding (2) ........................ 5,263,535 6,445,785 6,496,345 8,793,961 9,315,900
Other Financial Data:
Net cash used in operating activities ... $ (747) $ (6,218) $ (23,917) $ (55,878) $ (65,670)
Net cash used in investing activities ... (657) (5,244) (15,599) (71,304) (25,942)
Net cash provided by financing activities 2,732 24,578 25,346 132,817 113,497
EBITDA(3) ............................... (1,226) (6,310) (26,814) (84,684) (69,473)
Capital expenditures .................... 657 4,244 16,599 54,584 25,208
Subscriber Contracts (end of period):
Direct Service Contracts(4) ............. -- 33 496 1,479 1,918
ISDN Tracked Service Contracts(5) ....... -- -- -- -- 2,659
Internet Gateway Subscribers(6) ......... -- -- -- -- 4,167
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------
1995(1) 1996 1997 1998 1999
--------- --------- --------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data (end of Period):
Cash and cash equivalents ........ $ 1,328 $ 14,444 $ 274 $ 6,272 $ 27,180
Total assets ..................... 2,075 20,070 29,134 125,459 435,255
Total debt(7) .................... 1,900 21,473 54,826 210,378 547,612
Shareholders' deficit ............ (371) (2,683) (30,671) (109,854) (147,885)
</TABLE>
- ------------
(1) We were organized in September 1994 and commenced operations in March 1995.
(2) If the shares of Class B, Class C and Class D convertible preferred stock
had been converted as of their date of issuance in 1999, the net loss per
share would have been $(8.38).
(3) EBITDA represents earnings (loss) from operations before taking into
consideration net interest expense, income tax expense, depreciation expense
and amortization expense. We have included information concerning EBITDA as
it is used by some investors as a measure of a company's ability to service
its debt. EBITDA should not be considered as an alternative to net income or
any other measure of performance or liquidity as determined in accordance
with generally accepted accounting principles or as an indicator of our
overall financial performance. In addition, EBITDA as we have presented it
may not be comparable to other similarly-titled measures of other companies.
(4) Represents the number of customer point of presence at which a network
access device is installed.
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Does not include executed contracts for installations currently in process
from which we have not begun to receive service fees.
(5) Represents the number of customer premises that subscribe to our ISDN
Tracked Service. Does not include executed contracts for installations
currently in process from which we have not begun to receive service fees.
(6) Represents the number of subscribers with accounts to use our Internet
Gateway Service.
(7) Total debt includes long-term debt, current portion of long-term debt,
obligations under capitalized leases and redeemable preferred stock.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis is based on the historical results of
WAM!NET Inc. and should be read in conjunction with our consolidated financial
statements and the notes thereto included elsewhere herein. The following
discussion contains forward-looking statements that reflect our plans, estimates
and beliefs. Our actual results could differ materially from those discussed in
the forward-looking statements.
Overview
WAM!NET is a leading global provider of business-to-business e-services for
the media industry. We enable entertainment, advertising, publishing, printing
and related media businesses worldwide to collaborate on-line within their
workflow chains.
We offer our customers a wide array of e-services that meet their need to
collaborate digitally with their workflow partners. Our services, applications
and infrastructure provide a common electronic workflow platform to our
customers, enabling them to achieve measurable operating efficiencies, cost
savings and productivity growth.
We have made substantial investments in building our global network, hosting
and storage infrastructure. In addition, we have developed an array of digital
workflow services to meet the needs and demands of a broad-based customer group.
We have also invested in and developed a substantial and skilled customer
service group, which makes our services more valuable to existing customers and
more attractive to potential customers. Finally, we have made substantial
investments in recruiting, training and developing a skilled and knowledgeable
sales force, operations workforce and an application development workforce. We
use a consultative approach in our sales and marketing efforts to both identify
and meet our customers' diverse needs. Our initial focus and investment has been
in building an installed base of influential customers. We seek to increase the
utilization of our service offerings among our existing customers, as well as to
broaden our market penetration through the addition of new customers.
In December 1997, we acquired Freemail Inc., a developer of file
transmission and job ticket technology, to support our business-to-business
e-services. In March 1998, we established our presence in Europe with the
acquisition of 4-Sight Limited, a developer and worldwide marketer of ISDN based
digital data transmission applications. 4-Sight had primarily sold software and
hardware supporting digital transmission of data to its customer base.
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We offer a wide array of e-services including: (1) managed data transport,
(2) media application hosting, (3) managed data storage, (4) computer animation
rendering and (5) Internet-based services. Our services and network
infrastructure provide businesses a common electronic platform to seamlessly
integrate their production processes and accelerate the adoption of digital
workflow collaboration. Access to these services is provided through our Direct
Service, ISDN Tracked Service and Internet Gateway Service. Our initial focus
through 1998 was our Direct Service. This is our fastest, most secure and
reliable media transport service, providing direct, guaranteed access and
transport over our managed network. Our network access devices are installed on
our customers' premises and are connected to our network with a dedicated leased
line. We recently acquired a 20-year indefeasible right of use for backbone
capacities and purchased wireless local loop facilities in the U.S. from
Winstar. These facilities will allow us to offer our Direct Service customers
greater bandwidth capacity and eliminate the need for a dedicated leased line at
a customer's premises. In the first quarter of 1999 we began to provide access
to our network through our ISDN Tracked Service. Our ISDN Tracked Service offers
the security and predictability of dial-up connectivity to our network at a
slower transmission speed without the performance guarantee of Direct Service.
This service does not require a network access device or leased line
connectivity. We introduced our Internet Gateway Service in the third quarter of
1999. Internet Gateway Service allows connection to our network over the
Internet. We provide with our managed data services hosted media applications
that further integrate our services into our customers' digital workflow
processes, including Transmission Manager, Info Center, Electronic Job Tickets
and Remote Proofing. We commercially introduced our WAM!BASE Data Archiving
Service in the first quarter of 2000. Also in the first quarter of 2000, we
began to offer Render on Demand, a hosted service that processes computer
generated animation into high resolution motion images such as motion picture
special effects.
At December 31, 1999, we had over 8,700 subscribers using our
business-to-business e-services. Subscribers are customer sites that access our
electronic business-to-business services through our Direct Service, ISDN
Tracked Service and Internet Gateway Service.
Revenues
Service revenue
Our service revenue is directly related to the number of customers, type of
service, and volume of data moved, stored or processed. Service revenue is
derived primarily from annual or multi-year service contracts, many of which
have automatic renewal or extension provisions. These contracts generally
include a minimum monthly fee and additional charges for usage that exceeds a
minimum monthly service level. We currently offer our services at scaled minimum
usage fees, which typically range from $650 per month to $4,000 per month for
Direct Service, and from $45 per month to $360 per month for ISDN Tracked
Service. We record monthly service revenue for Direct Service and ISDN Tracked
Service based upon contracts signed with customers, following installation of
equipment and commencement of service at a customer's premises. Our Internet
Gateway Service is priced primarily on a per-megabyte basis and recognized as
revenue in the month the service is provided. Our Render on Demand service is
billed per computer processing hour and revenues are recognized as the service
is provided to the customer. We began to earn service revenue from ISDN Tracked
Service and Internet Gateway Service in March and September 1999, respectively.
Our WAM!BASE Archive Service is priced on the basis of megabytes stored per
month.
Software and hardware sales
Revenue from software and hardware sales has resulted primarily from the
sale of 4-Sight ISDN
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Manager software and ISDN cards. Our ISDN Tracked Service customers may choose
to make a single up-front payment to purchase our software or to pay a monthly
service fee. In both cases these purchases appear as software and hardware
revenue. We are in the process of shifting 4-Sight from a product sales focus to
a service model. As a result, we expect software and hardware sales to decline
in the future.
Operating Expenses
Network communication
Network communication expense represents the largest direct cost associated
with providing our Direct Service. Network communication expense includes the
costs of providing local loop telephone circuits connecting our network access
devices from a customer's premises to the nearest distribution hub and the costs
of the high bandwidth backbone carrier services which connect the distribution
hubs with our network operation and data storage centers.
Local telephone circuit connections provided by local exchange carriers
account for the substantial majority of these charges. National and
international service carrier charges account for the balance of these charges.
Network communication expense is generally a fixed monthly cost per circuit. We
believe that growing competition among telephony and communications providers
may reduce the future costs of local telephone circuit and backbone connections.
We actively seek to obtain and deploy technologies that will reduce the costs of
local telephone circuit connections, such as wireless technologies, remote
dial-up capabilities and DSL. We also intend to use our network management tools
to optimize the use of existing and planned network capacity as volume increases
and traffic patterns emerge.
In December 1999, we purchased a 20-year indefeasible right of use for
backbone capacity and purchased wireless local loop facilities from Winstar.
When Winstar's wireless technology is deployed it will allow us to deliver
increased bandwidth, at speeds ranging from 1.5mb to 155mb per second, to
customers in most of the major U.S. metro areas, eliminating the need for local
telephone circuit connections. This increased bandwidth capability will also
allow us to offer additional services to new and existing customers.
Software and hardware
Software and hardware expense reflects the costs of software and hardware
sold.
Network operations and development
Network operations and development expense represents costs directly
associated with developing, maintaining, managing and servicing our global
private network and expanding our service offerings. These costs include direct
labor, vendor service fees, point-of-presence charges and research and
development charges, which are often incurred in advance of receiving revenue.
Our currently installed network operation centers account for the substantial
majority of these direct labor and operating costs. Most of the costs associated
with the development of new services and applications, such as WAM!BASE Data
Archiving Service, WAM!PROOF, ISDN Tracked Service, Internet Gateway Service and
Render on Demand service, are accounted for as network operations expenses and
are incurred in advance of receiving revenue.
Selling, general and administrative
Our selling expense consists primarily of the salaries and commissions of
our direct sales force and
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our global marketing groups, commissions for channel partners, and the costs of
ongoing marketing activities such as promotions and channel development. Our
sales and marketing efforts are focused on expanding our customer base and
increasing utilization on our network. Accordingly we offer new and existing
services and develop new channels to sell and support our services. We also seek
to increase the utilization of our network with the assistance of our
influential customers who encourage their workflow partners to use our services.
Our general and administrative expense includes administrative salaries,
related overhead and professional service fees. These costs reflect expenditures
related to the rapid growth and expansion of our administrative infrastructure
necessary to manage our globally expanding operations, and professional service
fees incurred in connection with financing activities, contract negotiations and
business acquisitions.
Depreciation and amortization
We generally retain ownership of the customer premise equipment and most of
the hardware and software necessary for our customers to use our services on a
turn-key basis. Depreciation and amortization expense includes depreciation of
this hardware and software as well as the equipment located in our distribution
hubs and network operation, hosting and data storage centers. We also amortize
certain costs relating to the acquisitions of 4-Sight and Freemail, which we
acquired using the purchase method of accounting. We anticipate additional
capital investments in our network, hosting and storage infrastructure
commensurate with customer demand and market opportunity.
Results of Operations
Years Ended December 31, 1999, 1998 and 1997
Revenues
Total revenue for the years ended December 31, 1999, 1998 and 1997, was
$24.8 million, $17.6 million and $1.6 million. These were increases in revenues
are due to greater demand for our services and, in 1998, also due to the
acquisition of 4-Sight.
Net service revenue was $17.3 million, $6.8 million and $1.6 million for the
years ended December 31, 1999, 1998 and 1997. This increase in net service
revenue was primarily due to growth in the number of subscribers purchasing our
services and increased utilization by subscribers. At December 31, 1999, we were
providing transport services to approximately 8,700 subscribers, as compared to
approximately 1,475 and 475 subscribers, at December 31, 1998 and 1997.
Revenues from software and hardware sales for the years ended December 31,
1999 and 1998, were $7.5 million and $10.8 million. There was no revenue from
software and hardware sales in 1997, as 4-Sight was not acquired until March
1998. The decrease in software and hardware sales in 1999, as compared to 1998,
is the direct result of our shifting from sales of 4-Sight software and hardware
as stand-alone products to sales of service contracts, partially offset by
software purchases associated with ISDN Tracked Service agreements.
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Operating Expenses
Network communication
Network communication expense for the years ended December 31, 1999, 1998
and 1997, was $26.3 million, $18.3 million and $7.4 million. Network
communication expenses increased as a result of increased local loop connections
directly related to growth in the number of our Direct Service customers, and
from expenses incurred as a result of expanding our domestic and foreign network
operations through the installation of additional hubs. Average monthly
communication expense per Direct Service customer has declined and is expected
to continue to decline, as a result of increased customer utilization of our
backbone capacity and declining costs of North American local loop connections.
These trends were partially offset by growth in our Direct Service customer base
in Europe, where local loop costs are generally higher than in North America. We
continue to incur substantial network communication expense as we deploy our
network and related services and applications globally; however, we expect the
network communications expense as a percentage of revenue to decline.
Software and hardware
The cost of software and hardware for the years ended December 31, 1999 and
1998 was $2.9 million and $3.5 million. There were no software and hardware
sales or costs during 1997. This decrease between 1999 and 1998 reflects the
decline in software and hardware sales as described above.
Network operations and development
Network operations and development expense for the years ended December 31,
1999, 1998 and 1997, was $22.9 million, $35.1 million and $7.5 million. The
decrease between 1999 and 1998 was primarily due to completion of several
development projects, including ISDN Tracked Service, Internet Gateway Service
and WAM!BASE Data Archiving Service and the discontinuance of related outsourced
development costs, partially offset by costs incurred for establishing our
network operations center in Belgium and deploying our network in Europe. The
growth in these expenses from 1997 to 1998 was due to the 4-Sight acquisition
and the expansion of our operations. We expect that network operations costs
will increase as our network expands; however, the cost of network operations as
a percentage of revenue is expected to decline.
Selling, general and administrative
Selling, general and administrative expense for the years ended December 31,
1999, 1998 and 1997, was $43.4 million, $45.4 million and $13.5 million. The
decrease between 1999 and 1998 was due to a one-time $11.4 million non-cash
compensation charge related to the accelerated vesting of stock options held by
certain of our officers that occurred in the period ended December 31, 1998.
This decrease was partially offset by increases in other selling, general and
administrative expenses associated with expanded operations during 1999. After
adjusting for the one-time charge during 1998, recurring selling, general and
administrative expense during the year ended December 31, 1999 increased $9.4
million, over the comparable adjusted amount for the year ended December 31,
1998. The increase was primarily due to sales and marketing efforts to launch
new services and expand our customer base. The growth in these expenses from
1997 to 1998 was due to the 4-Sight acquisition and the expansion of our
operations. We expect to continue to incur significant selling, general and
administrative expenses as we continue to increase market penetration and
traffic among existing customers. We expect selling, general and administrative
expenses will continue to decline as a percentage of revenue.
Depreciation and amortization
Depreciation and amortization for the years ended December 31, 1999, 1998
and 1997, was $34.9 million, $17.7 million and $2.7 million. This increase was
primarily due to depreciation of additional
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network and related equipment purchased for network expansion during 1999, 1998
and 1997. Included in these totals for 1999 and 1998 was $6.6 million and $5.3
million of amortization expense relating to the goodwill recorded in connection
with the 4-Sight and Freemail acquisitions. We anticipate that depreciation and
amortization expense will increase in future periods as we continue to purchase
equipment and expand operations, and as we begin to depreciate the wireless
network facilities purchased from Winstar.
Interest income
Interest income for the years ended December 31, 1999, 1998 and 1997, was
$0.8 million, $1.7 million and $0.2 million. The changes between 1999, 1998, and
1997 were primarily due to the changes in our average monthly balance of cash
and cash equivalents during the periods.
Interest expense
Interest expense for the years ended December 31, 1999, 1998 and 1997, was
$35.7 million, $22.6 million and $4.4 million. The increase during each of the
years is related to the increase in long-term debt necessary to fund operations
and to make strategic acquisitions. Included in interest expense for the years
ended December 31, 1999, 1998 and 1997, are non-cash charges of $29.1 million,
$18.3 million and $1.6 million related to the amortization of deferred financing
charges and the value of warrants issued in connection with debt financing
transactions.
Other income
Other income of $1.3 million in 1999 primarily relates to rental income
received from SGI in connection with leasing a portion of the corporate campus
facility in Eagan which we received as part of an investment by SGI in March
1999.
Income taxes and net loss
At December 31, 1999, we had $195.5 million of net operating loss
carryforwards. These carryforwards are available to offset future taxable income
through the year 2019 and are subject to the limitations of Section 382 of the
Internal Revenue Code of 1986. These limitations may result in the expiration of
net operating loss carryforwards before they can be utilized. We realized an
income tax benefit of $1.4 million as a result of U.K. income tax and VAT
benefits in the year ended December 31, 1998.
Liquidity and Capital Resources
Since inception, we have incurred net losses and experienced negative cash
flow from operating activities. Net losses since inception have resulted in an
accumulated deficit of $303.6 million as of December 31, 1999. We expect to
continue to operate at a net loss and experience negative cash flow from
operating activities for the foreseeable future. Through December 31, 1999, we
have issued equity and debt securities and incurred other borrowings resulting
in cash received by us of $361.4 million. We have used the majority of these
proceeds to expand our global network, to build our customer base and for
geographic expansion. In addition, we expanded our operations in Europe through
the acquisition of 4-Sight for $16.4 million in cash and the issuance of equity
securities. Our ability to achieve profitability and positive cash flow from
operations will be dependent on substantially growing our revenues and realizing
increased operating efficiencies.
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In 1999, we entered into the following financing transactions in order to
continue to fund our operating and capital requirements:
In January 1999, we issued the 1999 MCI WorldCom Convertible Note and in
January 1999, and March 1999, we borrowed $10.0 million and $15.0 million,
respectively, under the note. In March 1999, the note was converted into
2,196,317 shares of our Class D convertible preferred stock. Dividends
accumulate on the Class D convertible preferred stock at the rate of 7% per year
of the original purchase price per share and are payable solely in additional
shares of preferred stock, of the same class, if and when declared by the Board
of Directors. The Class D convertible preferred stock (including accumulated but
undeclared in-kind dividends) is currently convertible into 2,666,563 shares of
common stock, subject to anti-dilution provisions. In connection with the note,
we issued warrants to purchase a total of 350,000 shares of common stock. The
warrants have an exercise price of $.01 and are exercisable until April 30,
2004.
In March 1999, SGI purchased from us 5,710,425 shares of our Class B
convertible preferred stock and 878,527 shares of our Class C convertible
preferred stock. The aggregate consideration paid by SGI was $75.0 million, of
which $35.0 million was paid in cash and $40.0 million was paid by the transfer
to us of a corporate campus facility located in Eagan, Minnesota. The fair value
of the campus facility was determined by an independent appraisal. The Class B
convertible preferred stock and Class C convertible preferred stock are
currently convertible into 6,923,144 shares and 1,066,625 shares of common
stock, of the same class, subject to anti-dilution provisions. Dividends
accumulate on the Class B and Class C convertible preferred stock at the rate of
7% per year of the original purchase price and are payable solely in additional
shares of convertible preferred stock of the same class, if and when declared by
the Board of Directors.
In connection with the SGI investment, we entered into a preferred provider
agreement that allows us to purchase hardware, software and services from SGI
over a four-year period at prices based on SGI's most favored pricing models. We
have made a firm commitment to purchase $35.0 million under this agreement
during the period from December 31, 1998 to December 31, 2000. As of December
31, 1999, we have made purchases of approximately $12.4 million. In the event
that we do not fulfill this purchase commitment, we are required to pay SGI 10%
of the unfulfilled commitment.
In July 1999, we entered into a two-year $20.0 million credit facility with
Foothill Capital Corporation. As of December 31, 1999, we had $2.1 million in
borrowings outstanding under this facility. This balance was repaid in March
2000.
In September 1999, we entered into a sale-leaseback agreement with
CCPRE-Eagan, LLC, an affiliate of Chase Capital Partners, New York. In
connection with this agreement, we sold our corporate facilities, including
land, building and personal property to CCPRE and received cash proceeds of
approximately $36.5 million, net of financing expenses. As part of the
agreement, we entered into a 20-year lease with three five-year options,
requiring minimum monthly rent payments increasing from $481,000 to $959,000. We
are responsible for all taxes, assessments, utilities and other governmental
charges. We may repurchase the corporate facilities on the 24th or 36th month
anniversary of the agreement. Beginning in September 2002, CCPRE may require us
to repurchase the facilities for approximately $41.8 million, less the amount of
certain payments under the lease. Because of the existence of this put option,
the transaction has been recorded as a financing transaction. The carrying value
of the liability is being accreted to the $41.8 million put value, at an
effective interest rate of 18.9%. As of December 31, 1999, the accreted
outstanding balance of the sale-leaseback agreement was approximately $38.2
million.
In December, 1999, we entered into an agreement with Winstar pursuant to
which we purchased a 20-year indefeasible right of use for backbone capacity and
purchased wireless local loop facilities. Under
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this agreement, we took title to equipment of varying bandwidth capacity;
Winstar has agreed to maintain the equipment, including replacement as necessary
for connectivity to Winstar's telecommunications network at a specified level of
functionality over the agreement's term. We have the right to assign or sell our
rights under the facility at any time. The cost of the 20-year facility is
payable in an initial $20.0 million payment, which was made in January 2000, and
quarterly payments, beginning at $5.0 million and increasing to approximately
$24.9 million, over a seven-year period ending December 15, 2006. The network
facility has been capitalized in property, plant and equipment, and we have
recorded a related liability at the agreed-upon fair value of $260.3 million,
which liability bears an effective interest rate of 8.3%.
Under related agreements, Winstar has committed to purchase from us $12.5
million of services, which Winstar can use itself or resell to third parties.
Winstar's commitment was prepaid in December 1999, this prepayment has been
recorded as deferred revenue. We have also entered into a sublease agreement
with Winstar for space in our Minnesota data center. In December 1999, Winstar
made a one-time advance payment of approximately $12.5 million. We are required
to repay this advance payment at $200,000 per month over 10 years, at an imputed
interest rate of 15.7%. We have recorded the advance payment as a borrowing.
Winstar is required to make monthly payments of approximately $81,000 over 10
years.
Also in December 1999, we entered into a transaction providing for the
purchase by Winstar of 50,000 shares of our Class E convertible preferred stock
and an option for Winstar, its designated affiliates and others, to purchase an
additional 50,000 shares of the same class of stock. Pursuant to the terms of
this transaction, Winstar purchased a total of 85,000 shares of Class E
convertible preferred stock for $85 million, of which $35 million was paid in
cash and $50 million was paid in the form of 1,071,429 shares of Winstar common
stock valued at $46.66 per share as adjusted for the Winstar 3-for-2 stock split
declared in February 2000. Also in this transaction, other investors purchased
16,725 shares of Class E convertible preferred stock for an aggregate $16.7
million in cash. The Class E convertible preferred stock accumulates dividends
at an annual rate of 7%, which are added monthly to the accreted liquidation
value of the stock. Each of the two largest purchasers of Class E convertible
preferred stock has the right to designate one director, and vote on an as-
converted basis, not to exceed 17.5% of total voting power, on all matters
submitted to the vote of common stock holders, including the election of
directors. The Class E convertible preferred stock is initially convertible into
19,714,147 shares of common stock at an initial conversion rate of $5.16 per
share, subject to anti-dilution provisions. Holders of Class E convertible
preferred shares may convert their shares into common stock at any time, and are
required to convert their shares into common stock on the last trading day of
the first 20 consecutive trading days during which the weighted average closing
price (weighted by daily trading volume) of the common stock is at least $8.00
per share.
In February 2000, SGI purchased 10,000 shares of our Class F convertible
preferred stock from us for $10 million in cash. The rights and preferences of
the Class F convertible preferred stock, including its conversion provisions,
are substantially the same as the rights and preferences of our Class E
convertible preferred stock, except that the holders of Class F convertible
preferred stock do not have the right to separately elect directors and there is
no cap on the voting power of that class. The Class F convertible preferred
stock is initially convertible into a total of 1,937,984 shares of common stock
at an initial conversion rate of $5.16 per share, subject to anti-dilution
provisions.
In February and March 2000, we sold to Sumitomo and other investors 10,000
shares of our Class G convertible preferred stock for $10 million in cash.
Holders of Class G convertible preferred stock have the right to vote, on an
as-converted basis, with holders of common stock on all matters submitted to a
vote of stockholders. The Class G convertible preferred stock is initially
convertible into 1,937,984
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shares of common stock at an initial conversion rate of $5.16 per share, subject
to anti-dilution provisions. The shares of Class G convertible preferred stock
will mandatorily convert into shares of common stock upon completion of an
initial public offering.
We believe the capital resources obtained from the foregoing transactions,
together with our cash on hand will be sufficient to fund our business plan for
at least the next 12 months.
Impact of Year 2000
In prior years, we developed and implemented plans to become Year 2000
ready. In late 1999, we completed our remediation and testing of systems. As a
result of those implementation efforts, we experienced no significant
disruptions in critical information technology and non-information technology
systems and believe those systems successfully responded to the Year 2000 date
change. Expenses resulting from our Year 2000 efforts were not material. We are
not aware of any material problems resulting from Year 2000 issues, either with
our services, our internal systems, or the products and services of third
parties. We will continue to monitor our critical computer applications and
those of our suppliers and vendors throughout the year 2000 to ensure that any
latent Year 2000 matters that may arise are addressed promptly.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Foreign Currency Exchange Rates
During the year ended December 31, 1999, our revenue originating outside the
U.S. was 35.7% of total revenue, substantially all of which was denominated in
the local functional currency. Currently, we do not employ currency hedging
strategies to reduce the risks associated with the fluctuation of foreign
currency exchange rates.
Our international business is subject to risks typical of an international
business, including, but not limited to: differing economic conditions, changes
in political climate, differing tax structures, other regulations and
restrictions, and foreign exchange rate volatility. Accordingly, our future
results could be materially adversely impacted by changes in these or other
factors.
Interest Rates
We invest cash in a variety of financial instruments, including bank time
deposits and fixed rate obligations of governmental entities and agencies. These
investments are denominated in U.S. dollars. Cash balances in foreign currencies
overseas are operating balances and are invested in short-term deposits of the
local operating bank.
Investments in fixed rate interest earning instruments carry a degree of
interest rate risk. Fixed rate securities may have their fair market value
adversely impacted due to a rise in interest rates. Due in part to these
factors, our future investment income may fall short of expectations due to
changes in interest rates, or we may suffer losses in principal if we sell
securities that have seen a decline in market value due to changes in interest
rates. Our investment securities are held for purposes other than trading.
We are exposed to market risk from changes in the interest rates on certain
of our outstanding debt. The outstanding loan balance under our $25 million
revolving credit facility bears interest at a variable rate based on prevailing
short-term interest rates in the U.S. and Europe. Based on the average
outstanding bank debt for the year ended December 31, 1999, a 100 basis point
change in interest rates would not change interest expense by a material amount.
For fixed rate debt such as our 13.25% senior discount notes, interest rate
changes affect its fair market value, but do not impact earnings or cash flows.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
An index to the financial statements and the required financial
statement schedules is set forth in Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth, as of February 29, 2000, the names, ages and
positions of our executive officers and directors. Their respective backgrounds
are described below.
Name Age Position
---- --- --------
Edward J. Driscoll... 39 Chairman of the Board and Chief Executive
Officer
Gary L. Hokkanen..... 53 President
Terri F. Zimmerman... 36 Chief Financial Officer
Allen L. Witters..... 40 Chief Technology Officer
Denice Y. Gibson..... 44 Senior Vice President of Global Operations
Lisa A. Gray......... 44 Corporate General Counsel
William E. Sullivan.. 51 Senior Vice President of Global Marketing
Patrick J. Dirk...... 60 Director
Robert L. Hoffman.... 71 Director
William M. Kelly..... 46 Director
Edward J. Driscoll is one of our founders and a principal shareholder. He
has served as our Chairman of the Board and Chief Executive Officer since
inception and was President from our inception until May 1999. Previously, Mr.
Driscoll was the principal shareholder, Chief Executive Officer, and a director
of Cybernet Systems, Inc. Mr. Driscoll founded Cybernet in 1991 to provide
network integration services to the pre-press industry. Prior to founding
Cybernet, he held various marketing and management positions, most recently as
general manager of Roland Marketing, Inc. He holds a Bachelor of Arts degree in
economics from St. John's University, Minnesota and a Master of Business
Administration degree from the University of St. Thomas. Mr. Driscoll currently
serves on the Board of Directors of the Science Museum of Minnesota and on the
Advisory Board for the Center for Graphic Communications Management and
Technology of New York University.
Gary L. Hokkanen has served as our President since May 1999. From 1983 until
joining our company, he served in executive positions in printing,
communications, data and electronics businesses. From 1997 until he joined
WAM!NET, Mr. Hokkanen was Chief Executive Officer of The Miner Group, a
diversified printing/print technology company. From 1994 to 1997, he served as
President and CEO of World Satellite Network, Inc., a satellite communications
company. Prior to that, he was President and CEO of Apollo Communications, Inc.,
a regional data communications company. For more than 5 years before joining our
company he served as President of Cynergi Group, a firm providing senior
management consulting services. Mr. Hokkanen currently serves on the Board of
Directors of the Miner Group International Super Solutions Corporation, and
Grafix, Inc.
Terri F. Zimmerman has served as our Chief Financial Officer since August
1999. From June 1994 to July 1999 she served in various financial management
capacities for Great Plains Software Inc. including the positions of Vice
President of Finance and Operations, Director of Finance, and Chief Financial
Officer. She was previously employed by Deloitte & Touche LLP in Minneapolis as
a Senior Manager. Ms. Zimmerman holds a B.A. from the University of North
Dakota. Ms. Zimmerman is a certified public accountant.
Allen L. Witters is one of our founders and a principal shareholder. He has
served as our Chief
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Technology Officer since inception. He is principally responsible for designing
and implementing our service architecture. Mr. Witters has been engaged in
technical consulting to the computer industry since 1975, including serving as a
technical consultant from 1992 to 1996 for Cybernet, and has broad experience in
the invention, design, engineering and implementation of software, networks, and
network management systems. From 1987 to 1992, Mr. Witters was the Chief
Executive Officer and a principal shareholder of Datamap, Inc., a company that
was engaged in the development and sale of GIS (geographic information systems)
software.
Denice Y. Gibson has served as our Senior Vice President of Global
Operations since July 1999. From October 1997 until joining our company in July
1999, Ms. Gibson served as Senior Vice President and General Manager of the
Strategic Software Organization of SGI. From May 1995 until October 1997 she
served as Senior Vice President and General Manager of Novell, Inc., a leading
provider of network software enabled by directory services. Prior to Novell, Ms.
Gibson held senior management positions with Tandem Telecommunications, Candle
Corporation and Amdahl Corporation. She holds multiple degrees in psychology and
engineering, including a doctorate in engineering management. Ms. Gibson has
over 25 years experience in the computer industry.
Lisa A. Gray has served as our Corporate General Counsel since December
1998. For more than 5 years prior to joining our company, Ms. Gray was a partner
at the law firm of Larkin, Hoffman, Daly & Lindgren, Ltd.
William E. Sullivan became our Senior Vice President of Global Marketing in
March 2000. From February 1998 until joining our company, he served as President
and Chief Executive Officer of PR 21, a marketing/PR firm and a subsidiary of
Daniel J. Edelman, Inc. Prior to this he was Chief Marketing Officer for
Imation, a $2.3 billion data storage and imaging company that was spun-off from
3M. Dating back to 1979 Mr. Sullivan has had various marketing positions with 3M
and his own consulting firm.
Patrick J. Dirk has served as a director since February 2000. Mr. Dirk has
been the Chairman of the Board, President and Chief Executive Officer of Troy
Group, Inc. since he co-founded the company in May 1982. From March 1984 to
present, Mr. Dirk has served as a Director of Eltrax Systems, Inc., a provider
of managed network services, which he co-founded in March 1984, and served as
its Chairman of the Board from February 1995 until August 1995. From 1973 until
1982, Mr. Dirk was employed in various capacities by Kroy, Inc., a corporation
involved in manufacturing automated lettering machines and related products,
serving most recently as President and as a member of its Board of Directors.
Mr. Dirk also serves as a member of the board of directors and advisory boards
of several private companies.
Robert L. Hoffman has served as a director since October 1995. Mr. Hoffman
is a founder and recently retired shareholder of the law firm of Larkin,
Hoffman, Daly & Lindgren, Ltd., where he practiced law from 1958 to 1999, and
was its Chairman and President. He has been extensively involved in land use and
development for the past 35 years as both an attorney and in various elected and
appointed offices, including 14 years as a member of the Bloomington City
Council, seven years as a member of the Metropolitan Council, a land use law
instructor at Hamline University School of Law, a member of the Urban Land
Institute Development Policies and Regulations Council and a member of the Land
Use Advisory Group for the Public Technologies Institute of Washington, D.C.
William M. Kelly has served as a director since March 1999, originally as
the designee of SGI, the holder of our Class B convertible preferred stock. He
is a partner in the global technology group of the law firm of Davis Polk &
Wardwell, and is based in Menlo Park, California. From 1994 through December
1999, Mr. Kelly held several executive positions at SGI, including at various
times General
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Counsel, Vice President of Business Development, acting Chief Financial Officer
and head of the Silicon Interactive software business unit. His most recent
position at SGI was as Senior Vice President of Corporate Operations. Mr. Kelly
received his Bachelor of Arts and law degrees from Columbia University. He is
also a director of MIPS Technologies, Inc.
ITEM 11. EXECUTIVE COMPENSATION.
The following table summarizes all compensation paid to our Chief Executive
Officer and to each of our four other most highly compensated executive officers
for each of the years ended December 31, 1999, 1998 and 1997.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
----------------------------------------- -------------------
Securities
Underlying
Name and Principal Position Year Salary Bonus Options(#)
- --------------------------------- ---------- ------------ --------- -------------------
<S> <C> <C> <C> <C>
Edward J. Driscoll............... 1999 $ 195,000 $ 87,126 500,000
Chairman of the Board and Chief 1998 195,000 -- 750,000
Executive Officer 1997 150,000 75,000 --
Gary L. Hokkanen................. 1999 $ 183,333(1) $ 122,870 2,250,000
President 1998 -- -- --
1997 -- -- --
Terri F. Zimmerman............... 1999 $ 75,769(2) $ 29,622 1,600,000
Chief Financial Officer 1998 -- -- --
1997 -- -- --
Allen L. Witters................. 1999 $ 195,000 $ 76,236 500,000
Chief Technology Officer 1998 195,000 -- 750,000
1997 150,000 75,000 --
Denice Y. Gibson................. 1999 $ 97,820(3) $ 38,242 1,200,000
Senior Vice President of Global 1998 -- -- --
Operations 1997 -- -- --
</TABLE>
- ------------
(1) Mr. Hokkanen's employment began in April 1999.
(2) Ms. Zimmerman's employment began in August 1999.
(3) Ms. Gibson's employment began in July 1999.
The following table sets forth information with respect to stock options
granted to the Chief Executive Officer and to each of our four other most highly
compensated executive officers during the fiscal year ended December 31, 1999.
For the fiscal year ended December 31, 1999, we did not grant any stock
appreciation rights to these executives nor did we grant them any stock options
at an option price below market value on the date of the grant, as determined by
our Board of Directors.
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<PAGE>
Stock Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------------
% of Total Potential Realizable Value
Number of Options at Assumed Annual Rates
Securities Granted to Exercise of Stock Price Appreciation
Underlying Employees or Base for Option Term(3)
Options in Fiscal Price ---------------------------
Name Granted Year ($/Sh) Expiration Date 5% 10%
- ------------------- ----------- ------------ ------------ ------------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Edward J. Driscoll. 500,000(1) 6% $ 2.00 December 30, 2009 $ 628,895 $1,593,742
Gary L. Hokkanen... 750,000(2) 9% 2.00 November 7, 2009 943,342 2,390,614
1,500,000(1) 19% 2.00 December 30, 2009 1,886,684 4,781,227
Terri F. Zimmerman 600,000(2) 7% 2.00 November 7, 2009 754,674 1,912,491
1,000,000(1) 12% 2.00 December 30, 2009 1,257,789 3,187,485
Allen L. Witters... 500,000(1) 6% 2.00 December 30, 2009 628,895 1,593,742
Denice Y. Gibson... 600,000(2) 7% 2.00 November 7, 2009 754,674 1,912,491
600,000(1) 7% 2.00 December 30, 2009 754,674 1,912,491
</TABLE>
- ------------
(1) These options vest monthly, over 48 months.
(2) These options vest annually, over 3 years.
(3) The potential realizable dollar value of an option grant is the product of
(a) the difference between (1) the product of the per-share market price at
the time of the grant (which we determined was $2.00 on November 2, 1999,
which was the price per share attributable to the common stock in the
immediately preceding arm's length transaction with an independent third
party) and the sum of 1 plus the adjusted stock price appreciation rate and
(2) the per-share exercise price of the option, and (b) the number of
securities underlying the grant at fiscal year-end.
The following table sets forth information with respect to the value of
unexercised stock options held by the Chief Executive Officer and each of the
four other most highly compensated executive officers as of December 31, 1999.
None of the persons listed in the table below exercised any stock options during
1999.
Fiscal Year-End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year-End at Fiscal Year-End(1)
--------------------------- --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ------------------- ----------- ------------- ----------- -------------
Edward J. Driscoll... 2,750,000 500,000 $2,080,000 $ --
Gary L. Hokkanen..... 250,000 2,000,000 -- --
Allen L. Witters..... 2,750,000 500,000 2,080,000 --
Terri F. Zimmerman... 200,000 1,400,000 -- --
Denice Y. Gibson..... 200,000 1,000,000 -- --
- ------------
(1) Amount based on the fair market value of our common stock on December 31,
1999, as determined by our Board of Directors, less the exercise price
payable under the options.
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<PAGE>
Directors' Compensation
We do not pay annual compensation to our directors. Each director is
reimbursed for reasonable out-of-pocket expenses incurred in connection with
attendance at meetings of the Board of Directors. In January 1996, we granted
Mr. Hoffman 75,000 stock options at an exercise price of $0.96 per share, which
options expire November 30, 2005, all of which were vested and exercisable as of
December 31, 1999. In December 1999, we granted Mr. Hoffman an additional 75,000
stock options at an exercise price of $2.00 per share, which options expire
December 31, 2009, all of which were vested and exercisable as of December 31,
1999. In December 1999, we granted Mr. Kelly 75,000 stock options at an exercise
price of $2.00 per share vesting monthly over 12 months and expiring December
31, 2009.
Board Committees
Our board of directors has a compensation committee and an audit committee.
The members of the compensation committee are Messrs. Kelly and Hoffman. The
compensation committee is responsible for determining the salaries and incentive
compensation of our management and key employees and administering our stock
option plan.
The members of the audit committee are Messrs. Kelly, Hoffman and Dirk. The
responsibilities of the audit committee include:
o recommending to our board of directors an independent audit firm to
audit our financial statements and to perform services related to the
audit;
o reviewing the scope and results of our audits with our independent
auditors;
o considering the adequacy of our internal accounting control procedures;
and
o considering auditors' independence.
Compensation Committee Interlocks and Insider Participation
No member of our compensation committee is or has ever been an officer or
employee of ours or an officer or employee of any of our subsidiaries. During
1998, none of our executive officers served on the compensation committee or as
a director of another entity whose executive officers served on our compensation
committee or Board of Directors. From inception, certain legal services have
been provided to us by Larkin, Hoffman, Daly & Lindgren, Ltd. Robert L. Hoffman,
a member of the compensation committee, was a shareholder of Larkin, Hoffman,
Daly & Lindgren, Ltd. until 1999. See "Certain Transactions -- Other
Agreements."
Employment Agreements
We have entered into employment agreements with Edward J. Driscoll, Gary L.
Hokkanen, Terri F. Zimmerman, Allen L. Witters, Denice Y. Gibson and Lisa A.
Gray. These agreements are for one-year terms that automatically renew unless
the employee's employment is terminated earlier in accordance with the terms
summarized below. The salary to be received by each executive is the base salary
in effect as of January 1, 2000, which is to be reviewed periodically at
intervals of not more than twelve (12)
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<PAGE>
months in accordance with our salary review policies. Each executive is eligible
to participate in an executive bonus plan as approved by the Board of Directors
on an annual basis and eligible to participate in all benefit programs we offer.
Each of the employment agreements may be terminated by us for cause or by
the respective executive without further obligation on the part of either party.
If any of the executives were terminated without cause, then the executive
would be entitled to:
o base salary through his or her next contract renewal date and any bonus
to which he or she would have been entitled had he or she remained in
our employ through his or her next annual renewal date;
o a severance cash payment equal to two (2) times the executive's then
annual base salary;
o coverage under our health and major medical plans for a period of 18
months after termination; and
o acceleration of any of the executive's unvested stock options.
In the event of a change of control, each executive would have rights
similar to those to which they are entitled if they are terminated for cause.
Each executive is subject to a two-year non-compete agreement after they
leave our employ, except under circumstances where we terminate them without
cause or following a change of control.
Stock Option Plans
The Board of Directors adopted the 1994 stock option plan in September 1994,
and our shareholders approved it in October 1994. The 1994 stock option plan has
been subsequently amended, most recently on April 24, 1998, in conjunction with
the adoption of the 1998 combined stock option plan, to reflect our name change
to WAM!NET Inc., to incorporate prior amendments to the 1994 stock option plan
and to limit the number of shares of common stock available for issuance under
the amended 1994 stock option plan to 7,000,000. The Board of Directors adopted
the 1998 combined stock option plan and the amendments to the 1994 stock option
plan on April 24, 1998, and our shareholders approved the plans on May 30, 1998.
Each stock option plan is currently administered by the Board of Directors.
Our plans provide for the grant of stock options which qualify as "incentive
stock options" under Section 422 of the Federal Tax Code, as well as the grant
of stock options which are "nonqualified options." Under each plan, the Board of
Directors or, if the Board of Directors appoints one, a stock option committee,
has complete discretion to select the grantees and to establish the terms and
conditions of each option, subject in all cases to the applicable provisions of
the plan and the Federal Tax Code. Options granted under a plan are not
transferable and are subject to various other conditions and restrictions.
Participation in the amended 1994 stock option plan is limited to (i) our
officers and regular full-time executive, administrative, professional,
production and technical employees who are salaried employees and (ii)
consultants and non-employee directors. Participation in the combined 1998 stock
option plan is limited to our employees and to non-employee directors and
non-employee consultants. The 1998 combined stock option plan permits the grant
of options to eligible employees who are foreign nationals on such terms and
conditions different from those specified in the 1998 stock option plan as may,
in the judgment of the Board or the stock option committee, be necessary or
desirable to foster and promote achievement of the purposes of the 1998 stock
option plan, and, in furtherance of such purposes,
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<PAGE>
the Board or such committee may make such addenda, modifications, amendments,
procedures and subplans as may be necessary or advisable to comply with
provisions of applicable laws in other countries in which we operate or have
employees. An addendum to the 1998 combined stock option plan extends the
benefits of stock options granted under the 1998 combined stock option plan to
our employees or those of our subsidiaries who are residents of the United
Kingdom.
A total of 7,000,000 shares of common stock have been reserved for issuance
upon the exercise of options granted under the amended 1994 stock option plan
and a total of 25,000,000 shares of common stock have been reserved for issuance
upon the exercise of options granted under the 1998 combined stock option plan,
subject to adjustment for stock splits or recapitalizations. Shares subject to
cancelled, unexercised, lapsed or terminated options are available for
subsequently granted options under a plan. Upon exercise of an option, payment
of the exercise price in cash is required, or, at the Board of Directors'
discretion, by the delivery of shares of common stock already owned by the
optionee or a promissory note for all or a portion of the exercise price of the
shares so purchased or a combination of the foregoing. There is no express
limitation on the duration of a plan; however, incentive stock options may not
be granted after the date that is ten years from the date of shareholder
approval of a plan. The Board of Directors may terminate either plan and,
subject to certain limitations, may amend either plan at any time without
shareholder approval. As of December 31, 1999, there were 6,797,022 options
issued and outstanding under the amended 1994 stock option plan at exercise
prices ranging from $0.45 to $8.00 per share. As of December 31, 1999, there
were 8,183,617 options issued and outstanding under the 1998 combined stock
option plan, at exercise prices ranging from $2.00 to $8.00 per share.
In addition to options granted under the plans, we have also granted certain
officers and consultants options to purchase a total of 5,465,000 shares of
common stock at exercise prices ranging from $0.45 to $3.90 per share.
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<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of March 1, 2000, with
respect to the beneficial ownership of our common stock by:
o each person known by us to own beneficially more than five percent of
the outstanding shares of our common stock,
o our directors and our executive officers named in the Summary
Compensation Table under "Management -- Executive Compensation," and
o all directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, based on factors including voting and
investment power with respect to shares. Shares of common stock subject to
options, warrants and convertible securities that are exercisable or convertible
within 60 days of March 1, 2000, are deemed outstanding for the purpose of
computing the percentage ownership of the person holding such options, warrants
or convertible securities, but such shares are not deemed outstanding for
computing the percentage ownership of any other person. Certain of the
outstanding shares of our capital stock are subject to a voting agreement.
Unless otherwise indicated, the address for each stockholder is c/o WAM!NET
Inc., 655 Lone Oak Drive, Eagan, Minnesota 55121.
Shares Percentage
Beneficial Owner(1) Beneficially Owned Beneficial Owned
------------------- ------------------ ----------------
Edward J. Driscoll(2)................... 4,791,666 39.0%
Gary L. Hokkanen(3)..................... 604,165 6.0
Terri F. Zimmerman(4)................... 262,500 2.7
Allen L. Witters(2)..................... 4,791,666 39.0
Denice Y. Gibson(5)..................... 250,000 2.6
Robert L. Hoffman(6).................... 150,000 1.6
William M. Kelly(7)..................... 25,000 *
Patrick J. Dirk(8)...................... 124,957 1.3
MCI WorldCom, Inc.(9)................... 32,355,272 77.3
Winstar(10)............................. 16,472,868 63.4
SGI(11)................................. 8,861,128 48.3
Cerberus(12)............................ 2,906,977 23.4
Sumitomo(13)............................ 968,992 9.3
James L. Ecker(14)...................... 922,520 9.3
James R. Clancy(15)..................... 875,000 8.4
George H. Frisch(16).................... 700,000 7.0
John R. Kauffman(17).................... 575,000 5.7
David A. Townsend(18)................... 1,317,300 13.9
All directors and executive
officers as a group
(10 persons)(2)(3)(4)(5)(6)(7)(8)...... 11,557,245 68.3
- ----------
* Represents beneficial ownership of less than one percent of outstanding
shares of our common stock.
(1) Except as indicated by footnote, we understand the persons named in the
table above have sole voting and investment power with respect to all
shares shown as beneficially owned by them, subject to community property
laws where applicable.
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<PAGE>
(2) Includes 2,770,833 shares issuable upon exercise of vested stock options
and 20,833 shares issuable upon exercise of stock options which will vest
within 60 days.
(3) Includes 302,082 shares issuable upon exercise of vested stock options and
302,083 shares issuable upon exercise of stock options which will vest
within 60 days.
(4) Includes 231,250 shares issuable upon exercise of vested stock options and
31,250 shares issuable upon exercise of stock options which will vest
within 60 days.
(5) Includes 225,000 shares issuable upon exercise of vested stock options and
25,000 shares issuable upon exercise of stock options which will vest
within 60 days.
(6) Issuable upon exercise of vested stock options. Address: Larkin, Hoffman,
Daly & Lindgren, Ltd., 1500 Northwest Financial Center, 7900 Xerxes Avenue
South, Bloomington, MN 55431.
(7) Includes 12,500 shares issuable upon exercise of vested stock options and
12,500 shares issuable upon options which will vest within 60 days.
Address: Davis Polk and Wardwell, 1600 El Camino Road, Menlo Park, CA
94025
(8) Includes 4,167 shares issuable upon exercise of stock options which will
vest within 60 days. Address: TROY Group, Inc., 2331 South Pullman Street,
Santa Anna, CA 72705
(9) Includes 24,688,709 shares issuable upon exercise of warrants that are
currently exerciseable, 5 million shares issuable upon conversion of a
convertible subordinated note in the aggregate principal amount of $5.0
million and 2,196,317 shares of Class D convertible preferred stock which
are currently convertible into 2,666,563 shares of common stock and are
mandatorily convertible into shares upon completion of an underwritten
public offering at an offering price of $12.52 per share. Excludes (i)
19,049,766 shares issuable upon exercise of warrants that will terminate
unexercised upon repayment of our $25 million revolving credit facility
with a portion of the net proceeds from this offering and (ii) shares
issuable upon conversion of accrued interest on a convertible note at fair
market value on the date of conversion. See "Use of Proceeds." MCI
WorldCom also owns 115,206 shares of Class A preferred stock.
(10) Includes 85,000 shares of Class E convertible preferred stock which are
currently convertible into 16,472,868 shares of common stock and are
mandatorily convertible into common stock, at the then effective
conversion rate, at any time after the completion of an underwritten
public offering, on the last trading day of the first consecutive 20
trading days during which the average closing price (weighted by daily
trading volume) of the common stock is at least $8.00 per share. Address:
685 Third Ave., New York, NY 10017
(11) Includes 5,710,425 shares of Class B convertible preferred stock which are
currently convertible into 6,923,144 shares of common stock and are
mandatorily convertible into shares of common stock upon completion of an
underwritten public offering at an offering price of $12.13 per share, and
10,000 shares of Class F convertible preferred stock which are currently
convertible into 1,937,984 shares of common stock and are mandatorily
convertible into shares of common stock, at the then effective conversion
rate, at any time after the completion of an underwritten public offering,
on the last trading day of the first consecutive 20 trading days during
which the average closing price (weighted by daily trading volume) of the
common stock is at least $8.00 per share. Excludes 878,527 shares of Class
C convertible preferred stock which are mandatorily convertible into
1,066,625 shares of common stock upon completion of an underwritten public
offering at
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<PAGE>
offering price of $12.52 per share. The Class C convertible preferred
stock becomes convertible at the option of the holders, beginning
September 2000. Address: 2011 N. Shoreline Blvd., Mountain View, CA
94043-1389.
(12) Includes 15,000 shares of Class E convertible preferred stock which are
currently convertible into 2,906,977 shares of common stock and are
mandatorily convertible into shares of common stock, at the then effective
conversion rate, at any time after the completion of an underwritten
public offering, on the last trading day of the first consecutive 20
trading days during which the average closing price (weighted by daily
trading volume) of the common stock is at least $8.00 per share. Address:
450 Park Ave., New York, NY 10022
(13) Includes 5,000 shares of Class G convertible preferred stock which are
currently convertible into 968,992 shares of common stock and are
mandatorily convertible into common stock upon completion of an
underwritten public offering. Address: 1-2-2 Hitotsubashi, Chiyoda-Ku,
Tokyo, 100 Japan
(14) Includes 416,665 shares issuable upon exercise of warrants that are
currently exercisable and 50,000 shares owned by the Ecker Family Limited
Partnership, of which Mr. Ecker is a partner. Address: 5061 Interlachen
Bluff, Edina, MN 55436.
(15) Includes 812,500 shares issuable upon exercise of vested stock options and
62,500 shares issuable upon exercise of stock option which will vest
within 60 days.
(16) Includes 450,000 shares issuable upon exercise of currently exercisable
options and warrants. Address: 5030 Woodlawn Blvd., Minneapolis, MN 55417.
(17) Includes 575,000 shares issuable upon exercise of vested stock options.
Address: 303 South Kootenia Creek Road, Stevensville, MT 59870.
(18) Address: 2 Poole Road, Bournemouth, Dorset, BH 25 QY England.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
1996 MCI WorldCom Convertible Note
In September 1996, we issued the $5.0 million 1996 MCI WorldCom convertible
note to MCI WorldCom. As of December 31, 1999, $6.1 million was outstanding
under the note, which included $1.1 million of accrued but unpaid interest.
Interest on the 1996 MCI WorldCom convertible note accrues at an annual rate of
10%, payable semi-annually. The principal amount of the convertible note is
convertible into 5 million shares of our common stock. The shares of common
stock issuable upon conversion of the 1996 MCI WorldCom convertible note are
subject to registration rights. We have entered into a subordination agreement
with MCI WorldCom that covers the 1996 MCI WorldCom convertible note. See "--
1998 MCI WorldCom Agreement" below.
1996 MCI WorldCom Preferred Stock, Subordinated Note and Warrant Purchase
Agreement
1999 Class A Preferred Stock. In November 1996, we entered into a preferred
stock, subordinated note and warrant purchase agreement with MCI WorldCom.
Pursuant to this agreement, we issued 100,000 shares of our Class A preferred
stock to MCI WorldCom for an aggregate purchase price of $1.0 million. MCI
WorldCom has exchanged its shares of Class A preferred stock for 115,206 shares
of a new series of Class A preferred stock. Holders of shares of the new series
of Class A preferred stock are entitled to one vote for each share held of
record, voting together with the holders of common stock as a
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<PAGE>
single class, on all matters submitted to a vote of shareholders.
1996 MCI WorldCom Subordinated Note. Pursuant to the preferred stock,
subordinated note and warrant purchase agreement, we also issued to MCI WorldCom
a $28.5 million subordinated note due December 31, 2003, of which $23.0 million
aggregate principal amount was outstanding as of December 31, 1999. Interest on
the outstanding principal amount of the MCI WorldCom subordinated note accrues
at an annual rate of 7%, and is payable semi-annually.
1996 MCI WorldCom Warrants. Pursuant to the preferred stock, subordinated
note and warrant purchase agreement, we also issued to MCI WorldCom warrants to
purchase, on or before December 31, 2000, up to 20,787,500 shares of common
stock. These warrants have an exercise price of $1.16 per share, increasing at a
rate of $0.016 per quarter, subject to anti-dilution provisions. The shares of
common stock issuable upon exercise of the warrants are subject to registration
rights.
The new series of Class A preferred stock and the 1996 MCI WorldCom
Subordinated Note are also covered by our subordination agreement with MCI
WorldCom. See "-- 1988 MCI WorldCom Agreement" below.
MCI WorldCom Guaranteed Revolving Credit Facility
In September 1997, we entered into a revolving credit facility with The
First National Bank of Chicago as lender and agent. The maximum amount that can
be borrowed under the revolving credit facility is $25.0 million. MCI WorldCom
has guaranteed the payment of all amounts owed under the revolving credit
facility. At December 31, 1999, we had borrowed the full $25.0 million available
under the revolving credit facility. In consideration of MCI WorldCom's
guaranty, we granted to MCI WorldCom 8,396,170 Class A warrants and 14,204,835
Class B warrants to purchase shares of common stock at an initial exercise price
of $3.90 per share, subject to anti-dilution provisions. The Class A warrants
may be exercised until December 31, 2000. The Class B warrants are exercisable
only if the revolving credit facility is not repaid in September 2000. We intend
to repay this facility prior to maturity.
1998 MCI WorldCom Agreement
In February 1998, in connection with the issuance of our 13.25% senior
discount notes due 2005, MCI WorldCom agreed to defer, until September 5, 2005,
all cash payments of principal, premium and interest on, or dividend,
distribution, redemption and other payments in respect of the 1996 MCI WorldCom
convertible note, the Class A preferred stock owned by MCI WorldCom and the 1996
MCI WorldCom subordinated note. The agreement provides that the payment of the
principal of and interest on the 1996 MCI WorldCom convertible note and the 1996
MCI WorldCom subordinated note may be accelerated only in the event of the
acceleration of the payment of the principal amount of the 13.25% senior
discount notes following an event of default with respect to those notes. The
agreement grants MCI WorldCom the right to convert into shares of common stock,
at the fair market value on the date of such conversion, (a) accrued but unpaid
interest on the 1996 MCI WorldCom convertible note, and (b) accrued but unpaid
interest on the 1996 MCI WorldCom subordinated note from December 31, 2003
through the date such amount is converted into common stock.
1999 MCI WorldCom Convertible Note
In January 1999, we issued a convertible note to MCI WorldCom in the
principal amount of up to $25 million, due August 28, 2005. On January 13 and
March 4, 1999, respectively, we borrowed $10 million
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<PAGE>
and $15 million on the terms provided for in the note. The note automatically
converted into 2,196,317 shares of our Class D convertible preferred stock
immediately prior to the closing of SGI's March 1999 equity investment described
below. The Class D convertible preferred stock (including accumulated but
undeclared in-kind dividends) is currently convertible into 2,666,563 shares of
our common stock at the conversion price of $10.04 per share, subject to anti-
dilution provisions, and is mandatorily convertible in the event of an
underwritten public offering of our common stock at a price of at least $12.52
per share. In connection with the issuance of the 1999 MCI WorldCom convertible
note, we also issued warrants to MCI WorldCom to purchase 350,000 shares of our
common stock at an exercise price of $0.01 per share. MCI WorldCom is entitled
to registration rights with respect to the common stock underlying the Class D
convertible preferred stock and the 1999 MCI WorldCom warrants.
Other Agreements with MCI WorldCom
MCI WorldCom has guaranteed the performance of our obligations under an
Amended and Restated Service Provision Agreement, dated February 12, 1999
between us and Time Inc.
We have entered into service arrangements with MCI WorldCom, including an
Application for Data Services pursuant to which MCI WorldCom provides us with
interexchange telecommunications service, frame relay service and ATM service,
and co-location agreements pursuant to which we lease space for our distribution
hubs. We believe that these arrangements are on terms that are similar to those
that could be obtained from an independent third-party on an arm's-length basis.
Pursuant to our arrangements with MCI WorldCom, we have guaranteed monthly usage
levels of data communications with MCI WorldCom totaling in aggregate
approximately $2.9 million and $1.7 million for the years ending December 31,
2000 and 2001, respectively. If these agreements are terminated prior to their
expiration date, we will be liable to MCI WorldCom for termination contingencies
equal to the difference between the guaranteed monthly usage level and the
amount actually used each year. Our data communications expense under
telecommunication contracts with MCI WorldCom was approximately $16.7 million,
$11.8 million and $5.5 million for the years ended December 31, 1999, 1998 and
1997. In addition, in connection with the issuance of the 1999 MCI WorldCom
convertible note, we have agreed to make available to MCI WorldCom certain
technology developed by us for integration with MCI WorldCom's infrastructure
and product and service suites on terms mutually acceptable to us and MCI
WorldCom, provided that this technology is provided on terms and conditions that
are at least as favorable, when viewed in their entirety, as we provide (or may
in the future provide) to any other person or entity not affiliated with MCI
WorldCom.
SGI Investments
In March 1999, we consummated a transaction in which SGI purchased (a)
5,710,425 shares of our Class B convertible preferred stock and (b) 878,527
shares of our Class C convertible preferred stock. The Class B convertible
preferred stock is currently convertible while the Class C convertible preferred
stock may not be converted until the earlier of September 4, 2000, or the
consummation of an underwritten public offering of our common stock. The Class B
convertible preferred stock (including accumulated but undeclared in-kind
dividends) is currently convertible into 6,923,144 shares of our common stock at
the conversion price of $9.77 per share. The Class C convertible preferred stock
(including accumulated but undeclared in-kind dividends) is currently
convertible into 1,066,625 shares of our common stock at the conversion price of
$10.04 per share. The Class B and Class C convertible preferred stock are
subject to anti-dilution provisions and are mandatorily convertible in the event
of an underwritten public offering of our common stock at a price of at least
$12.13 and $12.52 per share, respectively. SGI is entitled to registration
rights with respect to the shares of common stock underlying the Class B and
Class C convertible preferred stocks.
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The Class B convertible preferred stock has the right, voting separately as
a class, to elect one member to our Board of Directors.
As consideration for the issuance of the Class B and the Class C convertible
preferred stock to SGI, we received $75 million, of which $35 million was paid
in cash and $40 million was paid by way of transfer to us of SGI's corporate
campus facility located in Eagan, Minnesota. See "Properties."
In connection with SGI's investment, we entered into a preferred provider
agreement, pursuant to which we have developed a list of existing SGI customers
in the entertainment industry that we believe represent a significant revenue
opportunity for us over the next three years. SGI has agreed to jointly develop
a marketing, sales and implementation plan to address these accounts, including
field resource commitments, compensation to SGI for field activities and
professional services, and other matters applicable to the sale of our service
to these potential customers. In addition, we intend to explore with SGI a
broader strategic relationship that we believe will enable us to obtain the
benefit of SGI's presence in the entertainment industry and other selected
commercial accounts.
The preferred provider agreement also allows us to purchase hardware,
software and services over a four year period at prices based on SGI's most
favored pricing models. Pursuant to our preferred provider agreement, we have
made a firm $35 million purchase commitment during the period commencing
December 1, 1998 and ending December 31, 2000. We will be obligated to pay SGI
an amount equal to 10% of the unpurchased commitment if we do not purchase the
entire commitment amount during that period. As of December 31, 1999, we had
made purchases of approximately $12.4 million. We believe that the discounted
prices, reduced commissions and lower servicing fees for such products and
services will result in lower network operations expense in the future.
In February 2000, SGI purchased additional shares of preferred stock
pursuant to a subscription right we granted to SGI in connection with its
initial equity investment in our company in March 1999. SGI purchased 10,000
shares of Class F convertible preferred stock for $10 million in cash. The Class
F convertible preferred stock accumulates dividends at an annual rate of 7%,
added monthly to the accreted liquidation value of the stock, and votes as a
class on an "as converted" basis with the common stock. The Class F convertible
preferred stock is convertible into a total of 1,937,984 shares of common stock
at a conversion rate of $5.16 per share, subject to anti-dilution provisions.
Stockholders' Agreement
Concurrently with the closing of SGI's initial investment in March 1999, we
entered into a stockholders' agreement with SGI and MCI WorldCom pursuant to
which SGI and MCI WorldCom each agreed to provide the other party with certain
tag-along rights with respect to the transfer of any shares of the Class B,
Class C or Class D convertible preferred stock owned by them, or the transfer of
any shares of common stock into which such stock may be converted. In addition,
the parties have agreed that the terms of future material agreements between us
and MCI WorldCom must be approved by a majority of the disinterested directors
on our Board of Directors. On March 8, 2000, the stockholders' agreement was
amended to provide Winstar and Cerberus Partners, L.P. the same tag-along rights
as SGI and MCI WorldCom, and broadened the securities subject to the terms of
the agreement to include the Class E, F and G convertible preferred stock owned
by the parties.
Winstar Agreement
In December 1999, we entered into an agreement with Winstar pursuant to
which we purchased a 20-year indefeasible right of use for backbone capacity and
purchased wireless local loop facilities. Under
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this agreement, we took title to equipment of varying bandwidth. Winstar has
agreed to maintain this equipment, including replacement as necessary, and
maintain its connectivity to Winstar's telecommunications network at a specified
level of functionality over the agreement's term. We have the right to assign or
sell our rights under the agreement. We made an initial $20.0 million payment in
January 2000 for our 20- year indefeasible right of use, and are required to
make quarterly payments, beginning at $5.0 million and increasing to
approximately $24.9 million, over the seven-year period ending December 15,
2006. The indefeasible right of use has been capitalized in property, plant and
equipment and we have recorded a related liability at the agreed-upon fair value
of $260.3 million, which liability bears an effective interest rate of 8.3%.
Under related agreements, Winstar has committed to purchase from us $12.5
million of services, which Winstar may sell to third parties. Winstar's
commitment was prepaid in December 1999. This prepayment has been recorded as
deferred revenue. We have also entered into a sublease agreement with Winstar
for approximately 78,000 square feet of computer operation, office and common
area space in our Minnesota data centers. In December 1999, Winstar made a one-
time advance payment of approximately $12.5 million. We are required to repay
this advance payment at $200,000 per month over 10 years, at an imputed interest
rate of 15.75%. We have recorded the advance payment as a borrowing. The
sublease has an initial term of 10 years, during which Winstar must pay monthly
payments in the approximate amount of $81,000 and its prorated share of
utilities, taxes and operating expenses. Winstar has the option to extend the
sublease for two successive 5 year terms at 50% of then prevailing market rates
and its share of those expenses.
In connection with the foregoing agreements with Winstar, Winstar purchased
50,000 shares of our Class E convertible preferred stock and exercised an option
to purchase an additional 35,000 shares of such stock for an aggregate purchase
price of $85 million. Of this amount, $35 million was paid in cash and $50
million was paid through the transfer to us of 1,071,429 shares of Winstar's
common stock valued at $46.66 per share (as adjusted for a 3-for-2 stock split
declared by Winstar in February 2000). The Class E convertible preferred stock
accumulates dividends at an annual rate of 7%, added monthly to the accreted
liquidation value of the stock. Each of the two largest holders of Class E
convertible preferred stock has the right to designate one director, and vote on
an as-converted basis, not to exceed 17.5% of total voting power, on all matters
submitted to the vote of common stock holders, including the election of
directors. The Class E convertible preferred stock is initially convertible into
a total of 19,714,147 shares of common stock at an initial conversion rate of
$5.16 per share, subject to anti-dilution provisions.
Other Agreements
In February and March 2000, Sumitomo and other investors purchased 10,000
shares of our Class G convertible preferred stock for $10 million in cash.
Holders of Class G convertible preferred stock have the right to vote, on an
as-converted basis, with holders of common stock on all matters submitted to a
vote of stockholders. The Class G convertible preferred stock is convertible
into 1,937,984 shares of common stock, at a conversion rate of $5.16 per share,
subject to anti-dilution provisions. The Class G convertible preferred stock
will mandatorily convert into common stock in the event of an underwritten
public offering of our common stock. In March 2000, other investors purchased
16,725 shares of Class E convertible preferred stock from us for $16.7 million
in cash.
Edward J. Driscoll, Jr., father of our Chairman of the Board and Chief
Executive Officer, purchased 250,000 shares of common stock at our inception in
1994. As consideration for such shares, Mr. Driscoll paid us $500 and agreed to
provide consulting services to us. In January 1998, Mr. Driscoll was granted an
option to purchase up to 200,000 shares of common stock at a price of $3.90 per
share as partial
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consideration for his agreement to provide additional consulting services to us.
Mr. Driscoll is a shareholder of Larkin, Hoffmann, Daly & Lindgren, Ltd., which
provides legal services to us.
George H. Frisch, who provides legal services to us, purchased 250,000
shares of common stock at our inception in 1994. As consideration for such
shares, Mr. Frisch paid us $500 and agreed to provide legal services to us. In
November 1995, Mr. Frisch was granted warrants to purchase an additional 150,000
shares of common stock at the price of $0.60 per share as partial consideration
for his agreement to provide additional legal services to us. In addition, Mr.
Frisch was granted, in July 1997, an option to purchase up to 100,000 shares of
common stock at a price of $0.96 per share, and he was granted, in January 1998,
an option to purchase up to 200,000 shares of common stock at a price of $3.90
per share, in both cases as partial consideration for his agreement to provide
additional legal services to us.
We loaned $305,000 to Allen L. Witters, our Chief Technology Officer, on
September 1, 1998, of which approximately $300,000 remains outstanding. As
security for the repayment of principal of and interest on this indebtedness,
Mr. Witters granted us a lien on 60,000 shares of our common stock.
In consideration for our purchase from David Townend of 31,680,000 ordinary
shares of 4-Sight Limited in connection with the 4-Sight acquisition in February
1998, Mr. Townend received $8.0 million in cash and 1,317,300 shares of common
stock. In addition, Mr. Townend is entitled to receive 48.95% of the 750,000
shares of common stock that comprises the deferred consideration for our
purchase of 4-Sight. Mr. Townend is Managing Director of our subsidiary, WAM!NET
U.K. Limited.
The delivery of the additional 750,000 shares of common stock is contingent
on WAM!NET U.K. Limited achieving certain sales objectives over the three year
period ending March 13, 2001. Specifically, former shareholders of 4-Sight will
be entitled to receive 625,000 shares of common stock if revenues attributable
to customer sites outside the U.S. and Canada and receivable by WAM!NET or any
of its subsidiaries exceeds $50 million for the period from March 13, 1998 to
March 13, 2001. Former shareholders of 4-Sight will be entitled to receive an
additional 125,000 shares of common stock if such revenues exceed $70 million
for such period.
From inception, certain legal services have been provided to us by Larkin,
Hoffman, Daly & Lindgren, Ltd. Edward J. Driscoll, Jr., father of our Chairman
of the Board and Chief Executive Officer, and Robert L. Hoffman, one of our
directors, are shareholder of Larkin, Hoffman, Daly & Lindgren, Ltd. We have
been advised that the amounts paid to this firm have not exceeded 5% of its
total gross revenues in any of the past three years.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Financial Statements. See index immediately following signature page.
(b) Reports on Form 8-K. The Company filed the following Current Reports on
Form 8-K during the three months ended December 31, 1999:
Current Report on Form 8-K filed on October 8, 1999, announcing the
financing with Chase Capital Partners and the restructuring of our
relationship with MCI WorldCom.
(c) Exhibits
2.1 (1) Agreement for the Sale and Purchase of the entire issued share
capital of WAM!NET U.K. Limited dated February 11, 1998, among the
Company, WAM!NET (UK) Limited and the Selling Shareholders listed
therein.
2.2 (1) Agreement and Plan of Reorganization dated December 17, 1997 by
and among NetCo Communications Corporation, NetCo Acquiring
Corporation, FreeMail, Inc. and the shareholders listed therein.
2.3 (4) June 1, 1999 Amendment to the Agreement and Plan of Reorganization
dated December 17, 1997 by and among WAM!NET Inc. (formerly NetCo
Communications Corporation), NetCo Acquiring Corporation,
FreeMail, Inc. and the shareholders listed therein.
3.1 (1) Amended and Restated Articles of Incorporation of the Company.
3.2 (1) By-Laws of the Company.
4.1 (1) Indenture dated as of March 5, 1998, between the Company, as
Issuer, and First Trust National Association, as Trustee.
4.2a (1) Certificate for the Rule 144A Original Notes ($200,000,000).
4.2b (1) Certificate for the Rule 144A Original Notes ($8,030,000).
4.3 (1) Certificate for the Regulation S Original Notes.
4.4 (1) Certificate for the Rule 144A Warrants.
4.5 (1) Certificate for the Regulation S Warrants.
4.6a (1) Rule 144A Unit Certificate. (200,000 Units)
4.6b (1) Rule 144A Unit Certificate. (8,030 Units)
4.7 (1) Certificate for the Regulation S Units.
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4.8 (1) Form of Certificate for the Exchange Notes (incorporated herein by
reference and included in Exhibit 4.1 to the Company's
Registration Statement on Form S-4 filed with Securities and
Exchange Commission on May 28, 1998).
4.9 (1) Common Stock Certificate.
4.10 (1) Registration Rights Agreement, dated March 5, 1998, among the
Company and Merrill Lynch Pierce, Fenner & Smith Incorporated,
Credit Suisse First Boston Corporation and First Chicago Capital
Markets, Inc.
4.11 (1) Common Stock Registration Rights Agreement, dated as of March 5,
1998, among the Company, WorldCom Inc., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Credit Suisse First Boston
Corporation and First Chicago Capital Markets, Inc.
4.12 (1) Warrant Agreement, dated as of March 5, 1998, by and between the
Company and First Trust National Association, as Warrant Agent, to
purchase common stock of the Company.
4.13 Intentionally omitted.
4.14 (2) Warrants to purchase 4,157,500 Shares of Common Stock of the
Company exercisable on or before December 31, 2000, issued to
WorldCom Inc. on December 16, 1996 (Incorporated herein by
reference to exhibit 10.6 of the Company's Registration Statement
on Form S-4 (File No. 333-53841) filed with the Securities and
Exchange Commission on May 28, 1998).
4.15 (2) Certificate for 13.25% Subordinated Unsecured Convertible Note due
August 28, 2005 ($25,000,000 Note) issued to MCI WorldCom, Inc. on
January 13, 1999.
4.16 (2) Certificate for 1,679,234 Class A Warrants and 2,840,967 Class B
Warrants to purchase Common Stock of the Company, issued to
WorldCom Inc. on September 26, 1997 (Incorporated herein by
reference to exhibit 10.9 of the Company's Registration Statement
on Form S-4 (File No. 333-53841) filed with the Securities and
Exchange Commission on May 28, 1998).
4.17 (2) Subordinate Unsecured Convertible Note and Warrant Purchase
Agreement between the Company and MCI WorldCom, Inc. dated January
13, 1999.
4.18 (2) Preferred Stock Purchase Agreement by and between the Company and
Silicon Graphics, Inc. dated as of March 3, 1999.
4.19 (2) Certificate for 150,000 Warrants to purchase shares of Common
Stock for the purchase price of $.01 per share issued to MCI
WorldCom, Inc on January 13, 1999.
4.20 (2) Certificate of Designation of Rights and Preferences of Class A
Preferred Stock of the Company filed with the Secretary of State
of the State of Minnesota on March 4, 1999, as corrected and filed
with the Secretary of State of this State of Minnesota on March 5,
1999.
4.21 (2) Certificate of Designation of Rights and Preferences of Class B
Convertible Preferred Stock of the Company filed with the
Secretary of State of the State of Minnesota on March 4, 1999.
4.22 (2) Certificate of Designation of Rights and Preferences of Class C
Convertible Preferred Stock of the Company filed with the
Secretary of State of the State of Minnesota on March 4, 1999.
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4.23 (2) Certificate of Designation of Rights and Preferences of Class D
Convertible Preferred Stock of the Company filed with the
Secretary of State of the State of Minnesota on March 4, 1999.
4.24 (2) Certificate representing 115,206 shares of Class A Preferred Stock
of the Company issued to MCI WorldCom. Inc. on March 4, 1999.
4.25 (2) Certificate representing 5,710,425 shares of Class B Convertible
Preferred Stock of the Company issued to Silicon Graphics, Inc. on
March 4, 1999.
4.26 (2) Certificate representing 878,527 shares of Class C Convertible
Preferred Stock of the Company issued to Silicon Graphics, Inc. on
March 4, 1999.
4.27 (2) Certificate representing 2,196,317 shares of Class D Convertible
Preferred Stock of the Company issued to MCI WorldCom. Inc. on
March 4, 1999.
4.28 (2) Stockholders Agreement by and among the Company, Silicon Graphics,
Inc. and MCI WorldCom, Inc. dated as of March 4, 1999.
4.29 (2) Class A Preferred Stock Exchange Agreement by and between the
Company and MCI WorldCom, Inc. dated as of March 4, 1999.
4.30 (2) Class D Preferred Stock Conversion Agreement by and between the
Company and MCI WorldCom, Inc. dated as of March 4, 1999.
4.31 * Certificate of Designation of Rights and Preferences of Class E
Convertible Preferred Stock of the Company filed with the
Secretary of State of the State of Minnesota on February 16, 1999,
as corrected and filed with the Secretary of State of the State of
Minnesota on March 1 and March 8, 2000.
4.32 * Certificate of Designation of Rights and Preferences of Class F
Convertible Preferred Stock of the Company filed with the
Secretary of State of the State of Minnesota on February 11, 1999,
as corrected and filed with the Secretary of State of the State of
Minnesota on March 1 and March 9, 2000.
4.33 * Certificate of Designation of Rights and Preferences of Class G
Convertible Preferred Stock of the Company filed with the
Secretary of State of the State of Minnesota on March 6, 2000.
4.34 * Securities Purchase Agreement dated as of December 31, 1999, by
and between the Company and Winstar Communications, Inc.
4.35 * Securities Purchase Agreement dated as of March 14, 2000, by
and between the Company and Cerberus Partners, L.P.
4.36 * Securities Purchase Agreement dated as of February 3, 2000, by and
between the Company and Silicon Graphics, Inc.
4.37 * Preferred Stock Purchase Agreement, dated as of February 18, 2000,
by and between the Company and the buyers listed on Schedule 1.1
thereto.
4.38 * Form of Certificate for Shares of Class E Convertible Preferred
Stock of the Company.
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4.39 * Form of Certificate for Shares of Class F Convertible Preferred
Stock of the Company.
4.40 * Form of Certificate for Shares of Class G Convertible Preferred
Stock of the Company.
4.41 * Certificate for 200,000 Warrants to purchase shares of Common
Stock for the purchase price of $.01 per share issued to MCI
WorldCom, Inc. in connection with the 13.25% subordinated
unsecured convertible note, dated January 13, 1999.
10.1 (1) Credit Agreement among the Company, the Lending Institutions party
thereto, as Lenders, The First National Bank of Chicago, as Agent,
dated as of September 26, 1997.
10.2 (1) Ten Percent Convertible Note Purchase Agreement between the
Company and WorldCom Inc. dated September 12, 1996 ($5,000,000
Note).
10.3 (1) Preferred Stock, Subordinated Note and Warrant Purchase Agreement
between the Company and WorldCom Inc. dated November 14, 1996.
10.4 (1) $28,500,000 Seven Percent Subordinated Note due December 31, 2003,
payable to WorldCom Inc.
10.5 Intentionally omitted.
10.6 Intentionally omitted.
10.7 (1) Right of Refusal Agreement Among WorldCom Inc., Edward Driscoll
III and Allen L. Witters dated December 16, 1996.
10.8 (1) Guaranty Agreement dated September 26, 1997, by and between the
Company and WorldCom Inc.
10.9 Intentionally omitted.
10.10 (1) Sublease dated September 24, 1997 between the Company and 1250895
Ontario Limited, relating to the property located at 6100 110th
Street West, Bloomington, Minnesota.
10.11 (1) Service Provision Agreement dated as of July 18, 1997, by and
between the Company and Time Inc.
10.12 (1) Standby Agreement dated as of July 19, 1997 by and between
WorldCom Inc. and Time Inc.
10.13 Intentionally omitted.
10.14 Intentionally omitted.
10.15 Intentionally omitted.
10.16 Intentionally omitted.
10.17 (1) Agreement dated February 11, 1998 between the Company and
WorldCom, Inc. modifying certain terms of the (i) 10% Convertible
Subordinated Note, due September 30, 1999, (ii) 7% Subordinated
Note, due December 31, 2003, and (iii) 100,000 shares of Series A
Preferred Stock, all of which are held by MCI WorldCom, Inc.
(incorporated herein by reference to
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exhibit No. 4.17 to the Company's Registration Statement on Form
S-4 (File No. 333-53841) filed with the Securities and Exchange
Commission on May 28, 1998)
10.18 (1) 1994 Stock Option Plan
10.19 (1) Amended and Restated 1994 Stock Option Plan
10.20 (1) 1998 Combined Stock Option Plan.
10.21 (1) Agreement dated June 5, 1997 between the Company and WorldCom,
Inc. regarding data services provided by WorldCom, Inc. to the
Company.
10.22 (3) Preferred Provider Agreement by and between the Company and
Silicon Graphics, Inc., dated as of March 4, 1999 (portions of
this exhibit have been omitted pursuant to a request for
confidential treatment and have been filed with the Securities
Commission under separate cover).
10.23 (2) Sale and Purchase Agreement by and between Silicon Graphics, Inc.,
on behalf of itself and its wholly-owned subsidiary, Cray
Research, L.L.C., and the Company dated as of March 4, 1999.
10.24 (2) Lease by and between the Company and Silicon Graphics, Inc. on
behalf of itself and its wholly-owned subsidiary, Cray Research,
L.L.C., with respect to the Company's corporate campus facility
located in Eagan, Minnesota dated as of March 4, 1999.
10.25 Intentionally omitted.
10.26 Intentionally omitted.
10.27 (4) Loan and Security Agreement dated July 16, 1999, by and between
Foothill Capital Corporation and the Company.
10.28 (5) Purchase and Sale Agreement and Escrow Instructions dated
September 30, 1999, between the Company and CCPRE-Eagan, LLC.
10.29 (5) Amendment Number One to Purchase and Sale Agreement and escrow
Instructions dated September 30, 1999, between the Company and
CCPRE-Eagan, LLC.
10.30 (5) Net Lease dated September 30, 1999 between the Company and
CCPRE-Eagan, LLC.
10.31 * Master Agreement, dated as of December 31, 1999, by and between
the Company and Winstar Communications, Inc.
23.1 * Consent of Ernst & Young LLP
27.1 * Financial Data Schedule.
- ----------------
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(1) Incorporated herein by reference to the Company's Registration Statement
on Form S-4 (File No. 333-53841), filed with the SEC on May 28, 1998.
(2) Incorporated herein by reference to the Company's Annual Report on Form
10-K, filed with the SEC on March 31, 1999.
(3) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q filed with the SEC on May 17, 1999.
(4) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q filed with the SEC on August 4, 1999.
(5) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q filed with the SEC on November 12, 1999.
* Filed herein.
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IMPORTANT FACTORS RELATING TO FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in such statements. In connection with
certain forward-looking statements contained in this Form 10-K and those that
may be made in the future by or on behalf of the Company, the Company notes that
there are various factors that could cause actual results to differ materially
from those set forth in any such forward-looking statements. The forward-looking
statements contained in this Form 10-K were prepared by management and are
qualified by, and subject to, significant business, economic, competitive,
regulatory and other uncertainties and contingencies, all of which are difficult
or impossible to predict and many of which are beyond the control of the
Company. Factors which could cause or contribute to such differences include,
but are not limited to: (1) the ability of the Company to consummate
acquisitions, integrate such acquisitions into existing operations, manage
expansion, secure our customers and increase utilization of its network and
infrastructure, achieve operating efficiencies and control costs in its
operations; (2) the Company's success in retaining key employees, including its
Chief Executive Officer and Chief Financial Officer and the senior management
teams of its primary operating units; (3) pressures from competitors with
greater resources than those of the Company, as well as competitive pressures
arising from changes in technology and customer requirements; (4) the
availability of raw intellectual property information from alternative sources
for little or no cost; (5) disruptions to operations resulting from Year 2000
issues that might originate with third parties; and (6) the concentration of
ownership among the certain stockholders such as MCI WorldCom, SGI and Winstar
Communications, Inc. who have the ability to control the Company, including the
election of directors and the direction of the affairs and operations of the
business and (7) the ability to secure financing to fund operations.
Accordingly, there can be no assurance that the forward-looking statements
contained in this Form 10-K will be realized or that actual results will not be
significantly higher or lower. The statements have not been audited by, examined
by, compiled by or subjected to agreed-upon procedures by independent
accountants, and no third-party has independently verified or reviewed such
statements. Readers of this Form 10-K should consider these facts in evaluating
the information contained herein. In addition, the business and operations of
the Company are subject to substantial risks which increase the uncertainty
inherent in the forward-looking statements contained in this Form 10-K. The
inclusion of the forward-looking statements contained in this Form 10-K should
not be regarded as a representation by the Company or any other person that the
forward-looking statements contained in this Form 10-K will be achieved. In
light of the foregoing, readers of this Form 10-K are cautioned not to place
undue reliance on the forward-looking statements contained herein. These risks
and others that are detailed in this Form 10-K and other documents that the
Company files from time to time with the Securities and Exchange Commission,
including quarterly reports on Form 10-Q and any current reports on Form 8-K
must be considered by any investor or potential investor in the Company.
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SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on the 14th day of March, 2000.
WAM!NET INC.
By: /s/ Terri F. Zimmerman
---------------------------
Name: Terri F. Zimmerman
Title: Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on its behalf by the
registrant and in the capacities and on the dates indicated:
Signature Title Date
/s/ Edward J. Driscoll III Chairman of the Board March 15, 2000
- ----------------------------- and Chief Executive
Edward J. Driscoll III Officer
/s/ Robert L. Hoffman Director March 15, 2000
- -----------------------------
Robert L. Hoffman
/s/ William M. Kelly Director March 15, 2000
- -----------------------------
William M. Kelly
/s/ Patrick J. Dirk Director March 15, 2000
- -----------------------------
Patrick J. Dirk
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL SCHEDULE OF WAM!NET INC.
1. Financial Statements
Report of Independent Auditors..................... F-2
Consolidated Balance Sheets........................ F-3
Consolidated Statements of Operations.............. F-4
Consolidated Statements of Shareholders' Deficit... F-5
Consolidated Statements of Cash Flows.............. F-6
Notes to Consolidated Financial Statements......... F-7
2. Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts... F-24
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and
therefore have been omitted.
F-1
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REPORT OF INDEPENDENT AUDITORS
Board of Directors
WAM!NET Inc.
We have audited the accompanying consolidated balance sheets of WAM!NET Inc.
as of December 31, 1998 and 1999, and the related consolidated statements of
operations, shareholders' deficit and cash flows for each of the three years in
the period ended December 31, 1999. Our audits also included the financial
statement schedule listed in the Index at Item 14 (a). These financial
statements and schedules 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 auditing standards generally
accepted in the United States. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
WAM!NET Inc. at December 31, 1998 and 1999, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, present fairly in all material respects the information set forth
therein.
Ernst & Young LLP
Minneapolis, Minnesota
March 2, 2000
F-2
<PAGE>
WAM!NET Inc.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1999
------------- ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents............................................ $ 6,272 $ 27,180
Accounts receivable, net of allowance of $430 and $1,570 at
December 31, 1998 and 1999.......................................... 3,466 3,982
Inventory............................................................ 1,534 1,254
Prepaid expenses and other current assets............................ 3,187 4,018
--------- ---------
Total current assets................................................... 14,459 36,434
Property, plant and equipment, net..................................... 62,467 358,336
Goodwill, net.......................................................... 27,734 21,421
Deferred financing charges, net........................................ 20,183 18,300
Other assets........................................................... 616 764
--------- ---------
Total assets........................................................... $ 125,459 $ 435,255
========= =========
Liabilities and shareholders' deficit
Current liabilities:
Accounts payable..................................................... $ 17,098 $ 13,739
Accrued salaries and wages........................................... 4,801 2,839
Accrued expenses..................................................... 3,036 6,450
Deferred revenue..................................................... -- 2,500
Current portion of long-term debt.................................... 5,324 55,950
--------- ---------
Total current liabilities.............................................. 30,259 81,478
Deferred revenue....................................................... -- 10,000
Long-term debt, less current portion................................... 203,914 490,450
Class A Redeemable Preferred Stock..................................... 1,140 1,212
Shareholders' deficit:
Class B Convertible Preferred Stock.................................. -- 57
Class C Convertible Preferred Stock.................................. -- 9
Class D Convertible Preferred Stock.................................. -- 22
Common Stock......................................................... 93 95
Additional paid-in capital........................................... 54,302 156,680
Accumulated deficit.................................................. (164,387) (303,614)
Accumulated other comprehensive income (loss)...................... 138 (1,134)
--------- ---------
Total shareholders' deficit.................................. (109,854) (147,885)
--------- ---------
Total liabilities and shareholders' deficit.................. $ 125,459 $ 435,255
========= =========
</TABLE>
See accompanying notes.
F-3
<PAGE>
WAM!NET Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1997 1998 1999
------------ ---------- -----------
<S> <C> <C> <C>
Revenues:
Net service revenue........................................ $ 1,555 $ 6,799 $ 17,319
Software and hardware sales................................ -- 10,791 7,476
---------- ---------- ----------
Total revenues............................................... 1,555 17,590 24,795
Operating expenses:
Network communication fees................................. 7,364 18,259 26,318
Cost of software and hardware.............................. -- 3,537 2,905
Network operations and development......................... 7,478 35,095 22,928
Selling, general and administrative........................ 13,527 45,422 43,392
Depreciation and amortization.............................. 2,668 17,668 34,875
---------- ---------- ----------
31,037 119,981 130,418
---------- ---------- ----------
Loss from operations......................................... (29,482) (102,391) (105,623)
Other income (expense):
Interest income............................................ 202 1,748 814
Interest (expense)......................................... (4,356) (22,626) (35,693)
Other income............................................... -- 39 1,275
---------- ---------- ----------
Net loss before income tax benefit......................... (33,636) (123,230) (139,227)
Income tax benefit......................................... -- 1,352 --
---------- ---------- ----------
Net loss..................................................... (33,636) (121,878) (139,227)
Less preferred dividends................................... (70) (70) (5,890)
---------- ---------- ----------
Net loss applicable to common stock.......................... $ (33,706) $ (121,948) $ (145,117)
========== ========== ==========
Net loss applicable per common share -- basic and
diluted.................................................... $ (5.19) $ (13.87) $ (15.58)
========== ========== ==========
Weighted average number of common shares
outstanding -- basic and diluted........................... 6,496,345 8,793,961 9,315,900
========== ========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
WAM!NET Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Convertible Accumulated
Common Stock Preferred Stock Additional Other
--------------- ---------------
Paid-In Accumulated Comprehensive
Description Issued Amount Issued Amount Capital Deficit Income Total
- ----------- ------ ------ ------ ------- -------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996................. 6,480 $65 -- $ -- $ 6,125 $ (8,873) $ -- $ (2,683)
Accumulated and unpaid
dividends in connection with
Class A Redeemable Preferred Stock........ -- -- -- -- (70) -- -- (70)
Amortization of stock options.............. -- -- -- -- 426 -- -- 426
Value of warrants issued in connection
with line of credit in September......... -- -- -- -- 4,766 -- -- 4,766
Issuance of Common Stock upon merger
with FreeMail............................ 125 1 -- -- 487 -- -- 488
Issuance of Common Stock upon debt
conversion at a price of $.38 per
share.................................... 65 1 -- -- 24 -- -- 25
Exercise of stock options.................. 30 -- -- -- 13 -- -- 13
Net loss................................... -- -- -- -- -- (33,636) -- (33,636)
----- --- ------- ------ -------- --------- ------- ---------
Balance at December 31, 1997................. 6,700 67 -- -- 11,771 (42,509) -- (30,671)
Accumulated and unpaid dividends in
connection with Class A Redeemable....... -- -- -- -- (70) -- -- (70)
Preferred Stock
Amortization of stock options.............. -- -- -- -- 12,538 -- -- 12,538
Value of warrants issued in connection
with Senior Discounted Notes............. -- -- -- -- 10,047 -- -- 10,047
Issuance of Common Stock upon merger
with 4-Sight............................. 2,500 25 -- -- 19,975 -- -- 20,000
Issuance of Common Stock upon debt
conversion at a price of $.38 per
share................................... 65 1 -- -- 24 -- -- 25
Exercise of stock options.................. 23 -- -- -- 17 -- -- 17
Comprehensive loss:
Net loss................................. -- -- -- -- -- (121,878) -- (121,878)
Foreign currency translation
adjustment............................. -- -- -- -- -- -- 138 138
---------
Total comprehensive loss................... -- -- -- -- -- -- -- (121,740)
----- --- ------- ------ -------- --------- ------- ---------
Balance at December 31, 1998................. 9,288 93 -- -- 54,302 (164,387) 138 (109,854)
Accumulated dividends in connection
with Class A Redeemable Preferred
Stock.................................... -- -- -- -- (72) -- -- (72)
Amortization of stock options.............. -- -- -- -- 166 -- -- 166
Value of warrants issued in connection
with financing transaction............... -- -- -- -- 2,796 -- -- 2,796
Issuance of Convertible Preferred
Stock.................................... -- 8,785 88 99,410 -- -- 99,498
Issuance of Common Stock upon debt
conversion at a price of $.38 per
share................................... 198 2 -- -- 73 -- -- 75
Exercise of stock options.................. 9 -- -- -- 5 -- -- 5
Comprehensive loss:
Net loss................................. -- -- -- -- -- (139,227) -- (139,227)
Foreign currency translation adjustment.. -- -- -- -- -- -- (1,272) (1,272)
---------
Total comprehensive loss................... -- -- -- -- -- -- -- (140,499)
----- --- ------- ------ -------- --------- ------- ---------
Balance at December 31, 1999................. 9,495 $95 8,785 $88 $156,680 $(303,614) $(1,134) $(147,885)
===== === ======= ====== ======== ========= ======= =========
</TABLE>
See accompanying notes.
F-5
<PAGE>
WAM!NET Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
Operating activities
Net loss..................................................................... $(33,636) $(121,878) $(139,227)
Adjustments to reconcile net loss to net cash used in
operating activities:
Noncash interest expense, including related warrant values................. 1,624 18,295 29,080
Value of stock options issued to employees and consultants................. 426 12,522 166
Depreciation and amortization.............................................. 2,668 17,668 34,875
Loss on disposal of property and equipment................................. 797 69 1,746
Changes in operating assets and liabilities:
Accounts receivable...................................................... (386) 647 (516)
Prepaid expenses and other assets........................................ (415) (8,424) (969)
Accounts payable......................................................... 1,832 14,795 (3,359)
Deferred Revenue......................................................... -- -- 12,500
Accrued expenses......................................................... 3,173 10,428 34
-------- --------- ---------
Net cash used in operating activities........................................ (23,917) (55,878) (65,670)
Investing activities
Purchases of property and equipment.......................................... (16,599) (54,584) (25,208)
Patent expenditures.......................................................... -- (370) (87)
Business acquisitions (net of cash acquired)................................. -- (16,350) (647)
Proceeds from sale of investments............................................ 1,000 -- --
-------- --------- ---------
Net cash used in investing activities........................................ (15,599) (71,304) (25,942)
Financing activities
Proceeds from sale of preferred stock........................................ -- -- 34,707
Proceeds from borrowings (net of financing expenses)......................... 36,958 161,800 95,771
Proceeds from exercise of stock options...................................... -- 15 5
Payments on borrowings....................................................... (11,612) (28,998) (16,986)
-------- --------- ---------
Net cash provided by financing activities.................................... 25,346 132,817 113,497
Effect of foreign currencies on cash......................................... -- 363 (977)
-------- --------- ---------
Net (decrease) increase in cash and cash equivalents......................... (14,170) 5,998 20,908
Cash and cash equivalents at beginning of year............................... 14,444 274 6,272
-------- --------- ---------
Cash and cash equivalents at end of year..................................... $ 274 $ 6,272 $ 27,180
======== ========= =========
Supplemental schedule of noncash financing activities
Value of interest cost assigned to warrants.................................. $ 4,766 $ 10,047 $ 4,297
Equipment financed through equipment financing............................... 1,764 -- --
Conversion of accrued interest to subordinated debt.......................... 1,363 1,965 1,837
Issuance of convertible preferred stock in exchange for
land, building, and furniture and fixtures................................. -- -- 40,000
Dividends declared but unpaid................................................ 70 70 60
Purchase of network facilities............................................... 260,280
Issuance of common stock relating to acquisition............................. 488 20,000 --
Cashless exercise of stock options........................................... 13 -- --
Conversion of convertible subordinated debenture for common stock............ 25 25 75
Conversion of accrued dividends to preferred stock........................... -- -- 152
Conversion of debt to preferred stock........................................ -- -- 24,791
Supplemental schedule of cash flow information
Cash paid for interest....................................................... 1,208 2,276 6,332
</TABLE>
See accompanying notes.
F-6
<PAGE>
WAM!NET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
1. Significant Accounting Policies
Description of Business
The Company is a leading global provider of business-to-business e-services
for the media industry. The Company enables entertainment, advertising,
publishing, printing and related media businesses worldwide to collaborate on-
line within their workflow chains.
The Company offers customers a wide array of e-services that meet their need
to collaborate digitally with their workflow partners. The Company's services,
applications and infrastructure provide a common electronic workflow platform
for customers, enabling them to achieve measurable operating efficiencies, cost
savings and productivity growth.
Consolidation Policy and Foreign Currency Translations
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries and its 90% owned joint venture. All significant
intercompany accounts and transactions have been eliminated in consolidation.
All assets and liabilities are translated to U.S. dollars at year-end exchange
rates, while elements of the income statement are translated at average exchange
rates in effect during the year. The functional currencies of the Company's
foreign subsidiaries are considered to be the respective subsidiary's local
currency. All translation gains and losses resulting from fluctuations in
currency exchange rates of these subsidiaries are recorded in equity as a
component of accumulated other comprehensive loss.
Revenue Recognition
The Company records revenue from its digital data delivery network services
on a monthly basis based upon service contracts signed with customers. The
service contracts provide for monthly minimum usage amounts by the customer. The
Company recognizes the minimum monthly amount as earned over the life of the
service contract. If a customer's usage exceeds the maximum usage specified in
the service contract, the Company will record additional revenue in the month
that the overage occurs. The Company does not receive initial up-front amounts
or pre-payments from customers. The Company also may offer service rebates.
Revenue from hardware and software sales is recognized upon delivery of the
hardware and software, unless there are remaining obligations. Other service
fees are recognized as revenue in the period the service is provided to the
customer.
Deferred Revenue
Deferred revenue represents amounts received in advance of providing the
related services. (See Note 4).
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less at the time of purchase to be cash equivalents. Investments
classified as cash equivalents consist of high grade commercial paper,
certificates of deposit and United States Treasury Bills. Cash equivalents are
considered available for sale and are stated at cost, which approximates fair
value.
Accounts Receivable
The Company grants credit to customers in the normal course of business.
Management performs on-going credit evaluations of customers and maintains
allowances for potential credit losses, which, when
F-7
<PAGE>
WAM!NET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except share and per share amounts)
realized, have generally been within management expectations. No single customer
or region represents a significant concentration of credit risk.
Inventories
Inventories, principally software and hardware held for sale, are stated at
the lower of cost or market. Cost is determined using the first-in, first-out
method.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on a
straight-line basis over the estimated useful life of three to thirty years.
Goodwill
The excess of the cost over the fair value of net assets acquired is
amortized on a straight-line basis over a period of three to five years. The
Company periodically reviews the recoverability of goodwill, on an on-going
basis, based on estimated future cash flows from the related operations.
Accumulated amortization was $5,308 and $11,954 at December 31, 1998 and 1999.
Deferred Financing Costs
Deferred financing costs represent costs related to the issuance of debt and
are capitalized and amortized over the related lives of the debt. Accumulated
amortization was $5,959 and $11,135 at December 31, 1998 and 1999.
Impairment of Long-Lived Assets
The Company will record impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. The amount of impairment loss recorded will be measured as the
amount by which the carrying value of the assets exceeds the fair value of the
assets.
Income Taxes
Income taxes are accounted for under the liability method. Deferred income
taxes are provided for temporary differences between the financial reporting and
tax bases of assets and liabilities.
Product Development
Costs associated with the development of new products and services are
charged to operations in the year incurred. These costs for 1997, 1998 and 1999
were $3,364, $13,447 and $8,278, respectively. The Company capitalizes software
developed for internal use in accordance with Statement of Position 98-1
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." The amounts capitalized are amortized over two years. During 1998
and 1999 the Company capitalized $1,659 and $3,129. Accumulated amortization was
$350 and $2,206 at December 31, 1998 and 1999.
Stock Split
In February 1998, the Board of Directors declared a five-for-one Common
Stock split effected in the form of a stock dividend. All references to number
of shares, options and warrants and conversion price and exercise price per
share have been adjusted to reflect this stock split on a retroactive basis.
F-8
<PAGE>
WAM!NET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except share and per share amounts)
Net Loss Per Common Share
The Company's basic net loss per share is computed by dividing net loss by
the weighted average shares of common stock outstanding during the period.
Diluted earnings per share includes any dilutive effects of options, warrants
and convertible securities. Diluted loss per share as presented is the same as
basic earnings per share as the effect of outstanding options, warrants and
convertible securities is anti-dilutive.
Stock-Based Compensation
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," but applies Accounting Principles Board Opinion No. 25 (APB 25)
and related interpretations in accounting for its stock plans. Under APB 25,
when the exercise price of an employee stock option equals the market price of
the underlying stock on the date of grant, no compensation expense is
recognized.
Use of Estimates
Preparation of the Company's consolidated financial statements requires
management to make estimates and assumptions that affect reported amounts of
assets and liabilities and related revenues and expenses. Actual results could
differ from those estimates.
Reclassification
Certain 1997 and 1998 amounts have been reclassified to conform to the 1999
presentation.
2. Property, Plant and Equipment
Property, plant and equipment is summarized as follows:
December 31,
---------------------
1998 1999
-------- --------
Land ............................... $ -- $ 8,800
Building ........................... 605 30,931
Network facilities ................. -- 260,280
Network equipment .................. 50,907 65,941
Other support equipment ............ 18,046 23,989
Furniture and fixtures ............. 2,802 4,180
Leasehold improvements ............. 6,506 3,888
-------- --------
78,866 398,009
Less accumulated depreciation ...... (16,399) (39,673)
-------- --------
$ 62,467 $358,336
======== ========
F-9
<PAGE>
WAM!NET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except share and per share amounts)
3. Long-Term Debt
Long-term debt consisted of:
December 31,
---------------------
1998 1999
-------- --------
13.25% senior discount notes.................. $138,975 $157,999
Lines of credit............................... 24,000 27,137
Equipment financing........................... 18,860 21,041
Sale-leaseback financing...................... -- 38,246
Subordinated notes payable.................... 27,403 29,165
Other financing (see Note 4).................. -- 12,532
Network facilities financings (see Note 4).... -- 260,280
-------- --------
209,238 546,400
Less current portion.......................... (5,324) (55,950)
-------- --------
$203,914 $490,450
Senior Discount Notes
On March 5, 1998, the Company sold 208,530 units of 13.25% Senior Discount
Notes due 2005 (Notes). Each unit consists of a $1 principal note and three
warrants. The aggregate principal amount of the notes payable at maturity is
$208,530. The sale of the Units resulted in net proceeds to the Company of
$119,203. Cash interest does not accrue nor is it payable prior to March 1,
2002. Thereafter, cash interest on the Notes will accrue on the Notes at a rate
of 13.25% per annum (calculated on a semiannual bond equivalent basis) and will
be payable semiannually in arrears on March 1 and September 1 of each year,
commencing September 1, 2002.
In connection with the Notes, the Company issued 625,590 warrants to
purchase a total of 1,257,436 shares of common stock. Each warrant entitles the
holder to purchase 2.01 shares of common stock at an exercise price of $.01 per
share. The warrants were valued using the Black-Scholes pricing model at
$10,047, which is being amortized as interest expense over the life of the
Notes. Amortization of the warrants value was $867 and $1,166 for the years
ended December 31, 1998 and 1999.
Lines of Credit
The Company has a $25,000 line of credit agreement with a bank which expires
in September 2000. The line of credit is guaranteed by MCI WorldCom and the
Company must obtain MCI WorldCom's consent prior to each borrowing under the
line. At December 31, 1999, the amount outstanding on the line of credit was
$25,000. The line of credit has both Eurodollar and Floating Rate advances. The
Eurodollar and Floating Rate advances accrue interest at LIBOR plus 55 basis
points (6.00 % at December 31, 1999) and prime (8.5% at December 31, 1999).
Interest on the LIBOR borrowings is payable upon maturity and on the prime
borrowings is payable quarterly.
In connection with MCI WorldCom's guarantee of the line of credit agreement,
the Company issued Class A warrants to purchase 8,396,170 common shares and
Class B warrants to purchase 14,204,835 common shares at an initial exercise
price of $3.90 per share. The Class A warrants were immediately exercisable and
expire on December 31, 2000. The Class A warrants were valued at $4,766, using
the Black-Scholes pricing model, and are being amortized as interest expense
over the life of the agreement. Amortization of the warrants for the years ended
December 31, 1997, 1998 and 1999 was $502, $1,589 and $1,589. The Class B
warrants are exercisable only if the line of credit is not repaid in September
2000.
F-10
<PAGE>
WAM!NET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except share and per share amounts)
It is management's intention to fully repay the line of credit on or before its
due date. The Class B warrants were deemed to have no value based on
management's intentions and ability to repay the line of credit prior to
maturity.
In July 1999, the Company entered into a $20,000 credit facility with
Foothill Capital Corporation ("Foothill"), which expires in July 2001. The
credit facility contains a $10,000 term loan which was repaid from the proceeds
of the Sale/Lease Back Agreement with CCPRE Eagan, LLC. The remainder of the
facility is a revolving credit facility under which Foothill will lend the
Company up to an additional $10,000 based upon a borrowing base consisting of
the Company's recurring billings and collections from its U.S. customers.
Amounts outstanding under the credit facility incur interest at the Wells Fargo
Bank reference rate plus 1.75% (10.25% at December 31, 1999). The credit
facility is secured by a lien on certain unencumbered and lienable assets. The
credit facility requires the Company to maintain certain financial covenants.
Foothill has agreed under certain circumstances to subordinate or release its
lien on equipment to permit us to obtain equipment financing from third parties.
The credit facility is automatically renewable at maturity until canceled in
accordance with its terms. As of December 31, 1999, the Company has borrowed
$2,137 under the credit facility.
Equipment Financing
The Company has entered into various notes payable with equipment financing
companies. Monthly payments on the installment notes range from $11 to $149,
including imputed interest at rates ranging from 11.65% to 15.58%. The various
notes are due between April 2001 through November 2002 and are secured by
equipment.
Sale-Leaseback Financing
On September 30, 1999, the Company entered into a sale-leaseback back
agreement with CCPRE-Eagan, LLC ("CCPRE"), a Delaware Limited Liability Company,
and an affiliate of Chase Bank, New York. In connection with the agreement, the
Company sold its corporate facilities, including land, building and personal
property to CCPRE and received cash proceeds of $36,538, net of financing
expenses. As part of the agreement, the Company entered into a 20 year lease,
requiring minimum monthly rent payments increasing from $481 to $959, with three
five-year options. The Company is responsible for all taxes, assessments,
utilities and other governmental charges. The Company may repurchase the
corporate facilities on the 24th or 36th month anniversary of the agreement for
$45,600. Beginning in September 2002, CCPRE may require the Company, to
repurchase the facilities for approximately $41,800, less the amount of certain
payments under the lease. Because of the existence of this put option, the
transaction has been recorded as a financing transaction. The carrying value of
the liability is being accreted to the $41,800 put value, at an effective
interest rate of 18.9%.
As additional consideration for the agreement, the Company issued ten-year
warrants to purchase 325,000 shares of common stock at an initial exercise price
of $12.00 per share. The warrants contain an antidilution clause and also
contain a put feature that can be exercised on or after September 30, 2004 if
the Company has not completed an initial public offering. The put feature would
require the Company to repurchase the warrant or shares exercised at 92% of the
appraised value of the common stock, less the exercise price. The warrant, which
is recorded as a liability, was valued at $1,500, using the Black-Scholes
pricing model, and is being amortized as interest expense over a three-year
period.
F-11
<PAGE>
WAM!NET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except share and per share amounts)
Subordinated Notes Payable
In March through May of 1995, the Company issued a total of $250 of
convertible subordinated notes. From 1995 to 1999, all of the notes were
converted into 657,900 shares of common stock at the conversion price of $.38
per share.
In September 1996, the Company issued to MCI WorldCom a $5,000 convertible
subordinated note originally due September 1999. Interest on the note accrues at
an annual rate of 10%. The Company may redeem the note at any time commencing
January 1, 1998, upon notice to the holder, at the outstanding principal amount
of the note plus interest. The holder has the right to convert the principal
amount of the note into shares of common stock at a conversion price of $1.00
per share. During 1998 and 1999, $635 and $507, of accrued interest was
converted into additional subordinated notes. As of December 31, 1998 and 1999
the outstanding balance of the note was $5,635 and $6,142.
In November 1996, the Company entered into a Preferred Stock, Subordinated
Note and Common Stock Warrant Purchase Agreement ("Investment Agreement") with
MCI WorldCom. Pursuant to the agreement, the Company sold 100,000 shares of
Class A preferred stock, $10.00 par value. The preferred shares, as originally
stated in the agreement, were initially required to be redeemed in December 1999
at a price of $10.00 per share plus an amount equal to all accumulated and
unpaid dividends. In connection with the Silicon Graphics, Inc. investment ("SGI
investment") (see Note 6), MCI WorldCom exchanged its shares of Class A
preferred stock for 115,206 shares of a new Series of 1999 Class A preferred
stock with terms substantially the same as the original Class A preferred stock
entitling one vote for each share held of record, voting together with the
holders of common stock as a single class, on all matters submitted to a vote of
shareholders. Dividends are payable at the rate of 7% and began to cumulate on
January 1, 1997, whether or not earned. As of December 31, 1998 and 1999 the
accumulated and unpaid dividends were $140 and $60.
Under the Subordinated Note Agreement, the Company has available an
aggregate amount of $28,500. The note accrues interest at 7% per annum with an
original due date of December 2003. During 1999, $1,330 of accrued interest was
converted into additional subordinated notes. The amount outstanding on the
subordinated note agreement was $21,693 and $23,023 at December 31, 1998 and
December 31, 1999.
In connection with the Investment Agreement, the Company sold, at a price of
$.01 each, common stock warrants entitling MCI WorldCom to purchase 20,787,500
shares of common stock at an initial exercise price of $.96 share. The warrants
were immediately exercisable and expire on December 31, 2000. The warrants were
valued using the Black-Scholes pricing model at $4,906, which is being amortized
as interest expense over the life of the warrant agreement. In each of the years
ended December 31, 1997, 1998 and 1999 the Company recorded amortization expense
of $1,226. The initial exercise price of $.96 per share increased to $.98 per
share on March 31, 1997, and thereafter increases by an amount of $0.016 per
share on the last day of each calendar quarter during the term of the warrant,
commencing with the calendar quarter ending June 30, 1997. The exercise price
was $1.16 per share on December 31, 1999. None of the warrants have been
exercised as of December 31, 1999.
On February 11, 1998, MCI WorldCom agreed to defer all cash payments of
principal (or premium on) or interest on, or dividend, distribution, redemption
or other payment in respect of the 10% Convertible Subordinated Note, due
September 30, 1999, the Class A preferred stock owned by MCI WorldCom, and the
7% Subordinated Note, due December 31, 2003, until 180 days following the stated
maturity of the 13.25% Senior Discount Notes due 2005. The agreement also
provides that the payment of the principal and interest on the 10% Convertible
Subordinated Note and the 7% Subordinated Note may be accelerated only in the
event of the acceleration of the payment of the principal amount of the 13.25%
Senior Discount Notes following an event of default with respect to the 13.25%
Senior Discount Notes.
F-12
<PAGE>
WAM!NET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except share and per share amounts)
The agreement grants MCI WorldCom an option to convert into shares of common
stock at the fair market value on the date of such conversion interest otherwise
due on the 10% Subordinated Note and interest on the outstanding principal
amount of the 7% Subordinated Note from December 31, 2003 through the date such
amount is paid.
The carrying amounts of the Company's debt instruments in the balance sheets
at December 31, 1998 and 1999 approximate fair value.
Maturities of long-term debt as of December 31, 1999 are as follows:
2000......................... $ 55,950
2001......................... 15,085
2002......................... 54,287
2003......................... 25,119
2004......................... 41,805
Thereafter................... 354,154
---------
546,400
Less current maturities ..... (55,950)
---------
$ 490,450
=========
4. Purchase of Network Facilities from Winstar
In December 1999, the Company entered into an agreement with Winstar
Communications (Winstar) pursuant to which the Company purchased a 20-year
indefeasible right of use for backbone and wireless local loop facilities. Under
this agreement, the Company will take title to equipment of varying bandwidth;
Winstar will maintain the equipment, including replacement as necessary, and
maintain its connectivity to Winstar's telecommunications network at a specified
level of functionality over the agreement's term. The Company has the right to
assign or sell its rights under the facility at any time during the agreement's
term. The cost of the 20-year facility is payable in an initial $20,000 payment,
which was paid in January 2000, and quarterly payments, beginning at $5,000 and
increasing to $24,862, over a seven-year period ending December 15, 2006. The
network facility has been capitalized in property, plant and equipment and the
Company has recorded a related liability at the agreed-upon fair value of
$260,280, which liability bears an effective interest rate of 8.3%.
Under a related agreement Winstar made a five-year commitment to purchase
$12,500 of services from the Company, which can be used internally by Winstar or
resold to its customers. The commitment was prepaid in December 1999, and
recorded as deferred revenue. The companies have also entered into a sublease
agreement for space in the Company's Minnesota data center. Winstar will make
monthly payments over 10 years of approximately $81, plus a one-time advance
payment, made in December 1999, of $12,532. The Company is required to repay
this one-time advance at $200 per month over 10 years, at an imputed interest
rate of 15.75%. The advance payment has been recorded by the Company as a
borrowing (see Note 3).
5. Capital Stock
The Company has the following classes of capital stock:
o Undesignated preferred stock, 1,099,525 shares authorized which may be
issued in one or more series; none issued and outstanding at December
31, 1997, 1998, and 1999.
o Class A redeemable preferred stock, 115,206 shares authorized of $10 par
value; 100,000, 100,000 and 115,206 shares issued and outstanding at
December 31, 1997, 1998 and 1999 (see Note 3).
F-13
<PAGE>
WAM!NET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except share and per share amounts)
o Class B convertible preferred stock, 5,710,425 shares authorized of $.01
par value; 0, 0 and 5,710,425 shares issued and outstanding at December
31, 1997, 1998 and 1999 (see Note 6).
o Class C convertible preferred stock, 878,527 shares authorized of $.01
par value; 0, 0 and 878,527 shares issued and outstanding at December
31, 1997, 1998 and 1999 (see Note 6).
o Class D convertible preferred stock, 2,196,317 shares authorized of $.01
par value; 0, 0 and 2,196,317 shares issued and outstanding at December
31, 1997, 1998 and 1999 (see Note 6).
o Class E convertible preferred stock, 115,000 shares authorized of $.01
par value, none issued and outstanding at December 31, 1997, 1998, and
1999. (See Note 16).
o Class F convertible preferred stock, 50,000 shares authorized of $.01
par value, none issued and outstanding at December 31, 1997, 1998, and
1999. (See Note 16).
o Class G convertible preferred stock, 10,000 shares authorized of $.01
par value, none issued and outstanding at December 31, 1997, 1998, and
1999.
o Common Stock, 490,000,000 shares authorized of $.01 par value;
6,699,740, 9,288,194 and 9,494,797 shares issued and outstanding at
December 31, 1997, 1998 and 1999.
6. Preferred Stock
In January 1999, the Company issued the 1999 MCI WorldCom Convertible Note
(Note) and in January 1999 and March 1999 the Company borrowed $10,000 and
$15,000 under the Note. In March 1999, the Note was converted into 2,196,317
shares of the Company's Class D convertible preferred stock, par value $.01 per
share. Dividends accumulate on the Class D convertible preferred stock at the
rate of 7% per year of the original purchase price per share and are payable
solely in additional shares of preferred stock if and when declared by the Board
of Directors. The Class D shares of convertible preferred stock are convertible
into shares of common stock on a one for one basis, subject to anti-dilution
provisions. In connection with the Note, the Company issued warrants to purchase
a total of 350,000 shares of common stock. The warrants have an exercise price
of $.01 and are exercisable from April 30, 1999 until April 30, 2004.
In March 1999, the Company entered into an investment with Silicon Graphics,
Inc. (SGI), providing for the purchase of 5,710,425 shares of the Company's
Class B preferred stock and 878,527 shares of the Company's Class C preferred
stock. The holders of a majority of the Class B preferred stock will have the
right to designate one member of the Company's Board of Directors. The aggregate
consideration received by the Company for the Class B preferred stock and the
Class C preferred stock was $75,000, of which $35,000 was paid in cash and
$40,000 was paid by transfer to the Company of a campus facility located in
Eagan, Minnesota. The fair value of the campus facility was determined by an
independent appraisal. The Class B preferred stock and the Class C preferred
stock will be convertible on a one-to-one basis into common stock, subject to
anti-dilution provisions, and will have the right to vote such percentage with
the common stock as a single class. The Class B preferred stock and Class C
preferred stock are convertible immediately following the issuance date and 18
months following the issuance date, respectively. The shares of common stock
into which the Class B preferred stock and the Class C preferred stock are
convertible are subject to certain registration rights. Dividends accumulate on
the Class B and Class C preferred stock at the rate of 7% per year of the
original purchase price and are payable solely in additional shares of preferred
stock if and when declared by the Board of Directors.
In connection with the SGI Investment, the Company entered into a preferred
provider agreement which allows it to purchase hardware, software and services
over a four year period at prices based on SGI's most favored pricing models.
Pursuant to the preferred provider agreement, the Company has made
F-14
<PAGE>
WAM!NET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except share and per share amounts)
a firm commitment to purchase $35,000 during the period from December 31, 1998
to December 31, 2000. As of December 31, 1999, the Company has made purchases of
$12,374. In the event the Company does not fulfill this purchase requirement, it
is required to pay SGI 10% of the unfilled commitment.
7. Stock Options and Warrants
Stock Options
The Company's 1994 Incentive Stock Option Plan (1994 Plan) provides for the
granting of incentive and non-qualified stock options to certain eligible
employees and non-employee directors of the Company. Under the 1994 Plan,
7,000,000 shares of common stock have been reserved for the granting of stock
options. In September 1998, the Company adopted the 1998 Combined Stock Option
Plan (1998 Plan). The 1998 Plan provides for the granting of incentive and
non-qualified stock options to certain eligible employees (including foreign
nationals) and non-employee directors and consultants of the Company and any
subsidiary corporation of the Company. Under the 1998 Plan, 25,000,000 shares of
common stock have been reserved for the granting of stock options. Additionally,
the Company has authorized the grant of options to management personnel for up
to 5,465,000 shares of the Company's common stock outside of the Plans. A
majority of the options granted under the above Plans have ten year terms and
vest and become fully exercisable at the end of three years of continued
employment.
In November 1996, the Chief Executive Officer and Chief Technology Officer
were each granted options to purchase 2,000,000 shares of common stock at an
exercise price of $.96, expiring December 31, 2007. These options vested in
incremental amounts based on the number of installed customer sites. In 1998,
the Board of Directors agreed to amend the stock option agreements, vesting the
options immediately. The amendment created a new measurement date which resulted
in the Company recording $11,405 as compensation expense in January 1998.
Option activity is summarized as follows:
<TABLE>
<CAPTION>
Weighted
Shares Average
Available Options Outstanding Exercise
for Grant -------------------------- Price
Under Plans Plans Non-Plan Per Share
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 ............... 5,079,000 1,992,400 4,377,500 $ .90
Additional shares reserved for issuance .. 15,000,000 -- --
Granted .................................. (3,020,250) 3,020,250 347,500 1.19
Canceled ................................. 157,750 (157,750) -- .80
Exercised ................................ -- (30,000) -- .45
----------- ----------- ----------- -----
Balance at December 31, 1997 ............... 17,216,500 4,824,900 4,725,000 1.00
Additional shares reserved for issuance .. 9,928,600 -- --
Granted .................................. (4,265,000) 4,265,000 750,000 7.31
Canceled ................................. 196,235 (196,235) -- 4.60
Exercised ................................ -- (22,664) -- .77
----------- ----------- ----------- -----
Balance at December 31, 1998 ............... 23,076,335 8,871,001 5,475,000 3.16
Granted .................................. (8,075,970) 8,075,970 -- 2.43
Canceled ................................. 1,957,099 (1,957,099) (10,000) 6.24
Exercised ................................ -- (9,233) -- .50
----------- ----------- ----------- -----
Balance at December 31, 1999 ............... 16,957,464 14,980,639 5,465,000 $2.57
=========== =========== =========== =====
</TABLE>
F-15
<PAGE>
WAM!NET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except share and per share amounts)
At December 31, 1997, 1998 and 1999, 2,075,226, 8,937,698 and 12,017,861
options were exercisable with weighted average exercise prices of $.78, $2.20
and $2.42.
The following information applies to grants that are outstanding at December
31, 1999:
Options Outstanding
-------------------------------------- Options Exercisable
Weighted ----------------------
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life Price Exercisable Price
-------------- ------------ ----------- ----------- ------------ --------
$ .45 703,250 1.8 years $ .45 703,250 $ .45
.96 7,966,528 5.6 years .96 7,481,943 .96
2.00 7,500,720 9.9 years 2.00 840,590 2.00
3.90 1,105,588 6.4 years 3.90 981,422 3.90
8.00 3,169,553 7.9 years 8.00 2,010,656 8.00
---------- ----------
$ .45-- $8.00 20,445,639 7.5 years $ 2.57 12,017,861 $ 2.42
========== ==========
The fair values of the options granted during 1997, 1998 and 1999 was $ .33,
$1.57 and $ .97 per share. The fair value for these options was estimated at the
date of grant using a minimum value option pricing model with the following
weighted-average assumptions for 1997, 1998 and 1999: risk-free interest rate of
6.5%, 4.78% and 5.88%; dividend yield of 0%; and a weighted-average expected
life of the option of five years.
The minimum value option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions.
For purposes of pro forma disclosures, as required by FASB Statement No.
128, the estimated fair value of the options is amortized to expense over the
options' vesting period. The Company's pro forma net loss and net loss per
common share, had the fair value based method been used, are set forth below:
1997 1998 1999
-------- --------- ---------
Net loss applicable to common stock,
as reported ......................... $(33,706) $(121,948) $(145,117)
Pro forma net loss .................... (35,236) (127,304) (147,423)
Net loss per common share as reported . $ (5.19) $ (13.87) $ (15.58)
Pro forma net loss per common share ... (5.42) (14.48) (15.82)
F-16
<PAGE>
WAM!NET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except share and per share amounts)
Warrants
Warrants have been issued in connection with various financing transactions.
The warrants are immediately exercisable. The following is a table of the
warrants to purchase shares of the Company's common stock:
<TABLE>
<CAPTION>
Exercise
Warrants Price Expiration
Outstanding Exercisable per Share Date
----------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 ...... 27,559,165 27,559,165 $ .60 - $1.50 2000-2003
Granted:
Line of credit (see Note 3) .. 22,601,005 8,396,170 3.90 2000
---------- ----------
Balance at December 31, 1997 ...... 50,160,170 35,955,335 .60 - 3.90
Granted:
13.25% Senior Discount Notes
(see Note 3) ............... 1,257,436 1,257,436 .01 2005
---------- ----------
Balance at December 31, 1998 ...... 51,417,606 37,212,771 .01 - 3.90
Granted:
1999 MCI WorldCom
Convertible Note (see
Note 6) .................... 350,000 350,000 .01 2004
Sale-Leaseback Financing
(see Note 3) ............... 325,000 325,000 12.00 2009
---------- ----------
Balance at December 31, 1999 ...... 52,092,606 37,887,771 $ .01 -$12.00
========== ==========
</TABLE>
8. Income Taxes
At December 31, 1999, the Company had net operating loss carryforwards of
approximately $195,464. These carryforwards are available to offset future
taxable income through 2019 and are subject to the limitations of Internal
Revenue Code Section 382 resulting from changes in ownership.
The Company recorded a foreign income tax benefit of $1,352 in 1998.
The effective tax rate differs from the statutory rate primarily as a result
of the following:
1997 1998 1999
----- ----- -----
Tax at statutory rate...................... 34.0% 34.0% 34.0%
State income taxes......................... 6.0 6.0 6.0
Foreign tax benefit........................ -- (1.1) --
Impact of net operating loss carryforward.. (40.0) (40.0) (40.0)
----- ----- -----
--% (1.1)% --%
===== ===== =====
F-17
<PAGE>
WAM!NET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except share and per share amounts)
Components of deferred tax assets are as follows:
December 31,
----------------------
1998 1999
-------- --------
Deferred assets:
Net operating loss.............. $ 45,282 $ 74,276
Deferred interest............... 4,323 10,206
Stock option amortization....... 4,892 4,937
Other........................... 199 6,783
-------- --------
54,696 96,202
Deferred liability:
Depreciation and amortization... (1,602) (3,193)
-------- --------
Net deferred income tax assets.... 53,094 93,009
Valuation allowance............... (53,094) (93,009)
-------- --------
Net deferred income taxes......... $ -- $ --
======== ========
9. Commitments and Contingencies
Telecommunications Contracts
The Company enters into various term contracts with suppliers of
telecommunications services for the purpose of receiving discounts off the
standard service offerings. Some of these contracts will result in termination
liabilities if the contract is terminated prior to the expiration date of the
contract. The termination liabilities are generally based upon the minimum
monthly dollar amount committed to the vendor multiplied by a termination
liability percentage, multiplied by the number of months remaining in the
contract. MCI WorldCom is the Company's largest supplier of telecommunications
services accounting for charges of $5,538, $11,840 and $16,735 for the years
ended December 31, 1997, 1998 and 1999.
Guaranteed monthly usage levels of data communications with certain of the
Company's telecommunication vendors and MCI WorldCom at December 31, 1999
aggregate to the following annual amounts:
Guaranteed
Guaranteed Usage
Usage (MCI
(all vendors) WorldCom)
------------- -----------
2000.................... $ 7,204 $ 2,940
2001.................... 4,030 1,658
2002.................... 1,373 --
2003.................... 899 --
2004.................... 187 --
-------- -------
$ 13,693 $ 4,598
======== =======
F-18
<PAGE>
WAM!NET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except share and per share amounts)
The termination contingency of data communications with certain of the
Company's telecommunication vendors and MCI WorldCom at December 31, 1999
aggregates to the following annual amounts:
Termination Termination
Contingency Contingency
(all vendors) (WorldCom)
------------- ----------
December 31:
1999...................... $8,408 $3,212
2000...................... 3,096 1,490
2001...................... 707 --
2002...................... 523 --
2003...................... 524 --
Operating Leases
The Company also leases certain general office facilities. Operating
expenses including maintenance, utilities, real estate taxes and insurance are
paid by the Company. Total rent expense under operating leases was $592, $2,189
and $2,586 for the years ended December 31, 1997, 1998 and 1999. Future minimum
lease obligations in excess of one year at December 31, 1999 are as follows:
2000.................................... $ 1,381
2001.................................... 1,189
2002.................................... 942
2003.................................... 664
2004.................................... 417
Thereafter.............................. 627
-------
$ 5,220
=======
Contingent Liabilities
Certain holders of warrants issued in connection with bridge loans in 1995
and 1996 have commenced litigation seeking a reduction in the exercise price of
those warrants and attorney's fees. Although the warrants provide for
adjustments under certain circumstances, the Company believes no adjustment is
required. Should that litigation be successful, the gross proceeds receivable by
the Company from exercise of those warrants would be reduced from approximately
$8,400 to $4,900. In February 2000, the court denied the plaintiff's motion for
summary judgement that the warrant price should be reduced. The suit is
scheduled to begin trial in April 2000.
The Company is engaged in certain legal proceedings and claims arising in
the ordinary course of its business. The ultimate liabilities, if any, which may
result from these or other pending or threatened legal actions against the
Company cannot be determined at this time. However, it is the opinion of
management that facts known at the present time do not indicate that there is a
probability that such litigation will have a material adverse effect on the
financial position of the Company.
10. Savings and Retirement Plan
The Company has a 401(K) savings and retirement plan covering all eligible
employees. Employees may contribute up to 15% of their compensation. The Company
does not make contributions to the plan.
F-19
<PAGE>
WAM!NET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except share and per share amounts)
11. Business Acquisitions
Acquisition of FreeMail, Inc.
In December 1997, the Company acquired the outstanding common stock of
FreeMail, Inc. (FreeMail). The results of operations of the acquired business
are included in the accompanying financial statements since the date of
acquisition.
The Company issued 125,000 shares of Common Stock, with a fair value of
$488, as consideration in connection with the acquisition. In accordance with
the acquisition, the Company was to pay a quarterly payment to the former
shareholders of FreeMail as additional contingent consideration equal to 5% of
the gross collected revenue derived by the Company from certain identified
FreeMail products. The total amounts of the quarterly payments were not to
exceed $3,000.
Effective June 1, 1999 the Company amended the agreement to change the
amount and rate of payment of contingent consideration due to the former
FreeMail shareholders. The Company decreased the amount payable from $3,000 to
$2,000, payable $1,000 in cash and $1,000 in shares of our common stock at fair
market value. The rate of payment has also been changed from 5% of revenue from
a selected class of customers to 5% of our total collected revenue, calculated
quarterly. In accordance with this amendment, the first payment was made on
October 30, 1999 for the quarter ended September 30, 1999. As of December 31,
1999, the Company recorded $647 as additional goodwill, which represents the
contingent payments made.
The acquisition was accounted for as a purchase. The inclusion of the
FreeMail operating results for periods prior to the date of acquisition would
not have materially affected results of operations.
Acquisition of 4-Sight Limited
On March 13, 1998, the Company purchased all of the outstanding capital
stock of 4-Sight Limited, a private limited company organized under the laws of
the United Kingdom ("4-Sight"), for $20,000 in cash plus related acquisition
expenses of $500 and 2,500,000 shares of the Company's Common Stock valued at
$20,000. In addition, the former shareholders of 4-Sight will be entitled to
receive up to an additional 750,000 shares of the Company's Common Stock in the
event certain sales objectives are met over the three years ending March 2001.
No shares have been issued as of December 31, 1999. The shares to be issued as
contingent consideration will result in the Company recording additional
goodwill, which will be amortized over its estimated useful life.
The acquisition was accounted for under the purchase method of accounting
and, accordingly, the operating results of 4-Sight have been included in the
consolidated operating results since the date of acquisition.
On acquisition, approximately $32,100 of goodwill was recorded, which is
being amortized on a straight-line basis over five years. The following table
shows the pro forma consolidated results of operations as if 4-Sight had been
acquired as of the beginning of the periods presented:
Year Ended December 31,
-------------------------
1997 1998
---------- ------------
(Unaudited)
Revenues............. $ 20,833 $ 21,109
Net loss............. (37,942) (121,922)
Net loss per share .. $ (4.22) $ (13.86)
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisition had been in effect for the entire periods
presented. In addition, they are not intended to be a
F-20
<PAGE>
WAM!NET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except share and per share amounts)
projection of future results and do not reflect any synergies that might be
achieved from combined operations.
12. Joint Venture
On July 27, 1999, the Company entered into a joint venture agreement with
Sumitomo Corporation, Electronics Division to distribute services in Japan.
Under this agreement the Company's wholly-owned Japanese subsidiary and Sumitomo
have agreed to form a Japanese joint venture company to be known as WAM!NET
Japan K.K. Initially, the Company will own 90% of WAM!NET Japan K.K., and
Sumitomo will own 10%. Sumitomo has an option to purchase up to 40% ownership
interest in WAM!NET Japan unless that purchase would reduce the Company's
ownership below 51%. The joint venture agreement provides that the Company will
furnish the use of equipment, infrastructure, and some support services.
Additionally, it requires the Company to fund the joint venture future
operations. The operations of the joint venture in 1999 were not material.
13. Related Party Transactions
On September 1, 1998, the Company entered into a $305 Secured Recourse
Promissory Note and Pledge Agreement with its Chief Technology Officer. The Note
accrues interest at 7% annually.
A partner at the Company's external legal counsel is also the father of the
Company's President and Chief Executive Officer and owns 250,000 shares of
Common Stock of the Company and holds an option to purchase 200,000 shares of
the Company's common stock. Additionally, another partner of this firm, is also
a director of the Company and holds an option to purchase 150,000 shares of the
Company's common stock. During the years ended December 31, 1997, 1998 and 1999,
the Company incurred legal fees and expenses of approximately $157, $1,111 and
$1,227, to such firm for services rendered in connection with litigation and for
general legal services.
Management believes the fees paid for the above services rendered to the
Company were on terms at least as favorable to the
Company as could have been obtained from an unrelated party.
14. Major Customers
In 1997 three customers accounted for 24%, in aggregate, of net sales. In
1998 and 1999, no single customer accounted for more than 10% of net sales.
F-21
<PAGE>
WAM!NET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except share and per share amounts)
15. Industry Segment and Geographic Information
The Company, operating in a single industry segment, provides a managed,
high speed digital data delivery network service. Information regarding
operations in different geographic areas is as follows:
Year Ended December 31,
---------------------------------
1997 1998 1999
------- --------- ---------
Net sales to unaffiliated customers:
United States...................... $ 1,555 $ 8,216 $ 15,945
Europe............................. -- 9,005 8,333
Rest of World...................... -- 369 517
------- --------- ---------
Total net sales...................... $ 1,555 $ 17,590 $ 24,795
======= ========= =========
Identifiable assets:
United States...................... $29,134 $ 107,101 $ 419,777
Europe............................. -- 18,358 15,358
Rest of World...................... -- -- 120
------- --------- ---------
Total assets......................... $29,134 $ 125,459 $ 435,255
======= ========= =========
"United States" includes United States and Canada. "Rest of World" includes
principally Japan and the Asia-Pacific region. Net revenue from sales to
unaffiliated customers is based on the location of the customer. Identifiable
assets are classified based on the location of the Company's facilities.
16. Subsequent Events
In December, 1999, the Company entered into a transaction providing for the
purchase by Winstar of 50,000 shares of the Company's Class E convertible
preferred stock and an option for Winstar, its designated affiliates and others,
to purchase an additional 50,000 shares of the same class of stock. The purchase
of these shares was finalized in March, 2000. Pursuant to the terms of this
transaction, Winstar purchased a total of 85,000 shares of Class E convertible
preferred stock for $85,000, of which $35,000 was paid in cash and $50,000 was
paid in the form of $1,071,429 shares of Winstar common stock valued at $46.66
per share (as adjusted for the 3 for 2 Winstar stock split declared in February
2000). Other investors purchased 16,725 shares of Class E convertible preferred
stock for an aggregate $16,725 in cash. The Class E convertible preferred stock
accumulates dividends at an annual rate of 7%, which are added monthly to the
accreted liquidation value of the stock. Each of the two largest purchasers of
Class E convertible preferred stock has the right to elect one director, and
vote on an as-converted basis, not to exceed 17.5% of the total voting power, on
all matters submitted to the vote of common stock holders, including the
election of directors. The Class E convertible preferred stock is currently
convertible into 19,714,147 shares of common stock at an initial conversion of
$5.16 per share of common stock subject to anti-dilution provisions. Holders of
Class E convertible preferred stock may convert their shares into common stock
at any time, and are required to convert their shares into common stock, after
an initial public offering of the Company's common stock, the common stock
trades for a price of at least $8.00 per share for twenty consecutive trading
days.
In February 2000, SGI purchased 10,000 shares of Class F convertible
preferred stock for $10,000 in cash. The rights and preferences of the Class F
convertible preferred stock, including its conversion provisions, are
substantially the same as the rights and preferences of the Class E convertible
preferred stock, except that the holders of Class F preferred stock do not have
the right to separately elect directors and there is no cap on the voting power
of that class. The Class F convertible preferred stock is initially
F-22
<PAGE>
WAM!NET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except share and per share amounts)
convertible into a total of 1,937,984 shares of common stock, at an initial
conversion rate of $5.16 per share, subject to anti-dilution provisions.
In February 2000, the Company sold to Sumitomo and certain other investors
10,000 shares of Class G convertible preferred stock for an aggregate of $10,000
in cash. Holders of Class G convertible preferred stock have the right to vote,
on an as-converted basis, with holders of common stock on all matters submitted
to a vote of common stockholders. The Class G convertible preferred stock is
initially convertible into 1,937,984 shares of common stock, at an initial
conversion rate of $5.16 per share, subject to anti-dilution provisions. The
shares of Class G convertible preferred stock will mandatorily convert into
shares of common stock upon completion of an initial public offering.
F-23
<PAGE>
Schedule II -- Valuation and qualifying accounts
<TABLE>
<CAPTION>
Deductions
--------------------------
Charged
Balance at to costs Charged Balance at
beginning and to other end of
Description of period Additions expenses accounts period
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
December 31, 1999 $430,000 $1,148,000 -- $8,000 $1,570,000
December 31, 1998 10,000 420,000 430,000
December 31, 1997 -- 12,500 2,500 10,000
</TABLE>
F-24
<PAGE>
EXHIBIT 4.31
CERTIFICATE OF DESIGNATION OF RIGHTS AND PREFERENCES
OF
CLASS E CONVERTIBLE PREFERRED STOCK
OF
WAM!NET INC.
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The undersigned, Edward J. Driscoll, Jr., hereby certifies that:
A. He is the duly elected and acting Secretary of WAM!NET Inc. (the
"Company"), a Minnesota corporation.
B. The Articles of Incorporation of this Company provide for a class of up
to 10,000,000 shares known as Undesignated Stock, par value $.01 per share,
which shares may be issued from time to time in one or more classes or series.
C. The Board of Directors of the Company is authorized, pursuant to Article
6 of the Company's Articles of Incorporation and Minnesota Statutes, Section
302A.401, to fix or alter the rights, preferences, privileges, and restrictions
granted to or imposed upon any wholly unissued series of Undesignated Stock, to
fix the number of shares constituting the series, and to determine the
designation thereof.
D. It is the desire of the Board of Directors of the Company, pursuant to
its authority, to fix the rights, preferences, restrictions and other matters
relating to the Undesignated Stock and the number of shares of Undesignated
Stock.
E. Pursuant to authority given by Article 6 of the Company's Articles of
Incorporation, the Company's Board of
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Directors has adopted the following resolutions as of December 31, 1999:
RESOLVED, that, pursuant to Article 6 of the Articles of Incorporation of
WAM!NET Inc. (the "Company"), the Board of Directors of the Company (the
"Board") hereby creates and designates a series of Convertible Preferred Stock,
par value $0.01 per share, and authorizes the issuance of up to 115,000 of such
shares, and hereby fixes the designations, powers, preferences and relative,
participating, optional and other special rights, and the qualifications,
limitations or restrictions, of such shares, as follows:
1. DESIGNATION AND AMOUNT. The shares of such series shall be designated
"Class E Convertible Preferred Stock" (the "Class E Preferred Stock") and the
number of shares constituting such series shall be 115,000.
2. RANK. The Class E Preferred Stock shall rank, with respect to dividend
rights and distribution of assets on any Liquidation of the Company (as defined
herein) (a) junior to any other class or series of the Company's preferred stock
which shall specifically provide that such class or series shall rank senior to
the Class E Preferred Stock (the "Senior Stock"); (b) on parity with (i) the
Company's Class A Preferred Stock, par value $10.00 per share (the "Class A
Preferred Stock") (except with respect to a Liquidation of the Company resulting
from the merger or consolidation of the Company into or with another
corporation, the merger or consolidation of any other corporation into or with
the Company or the sale of all or substantially all the assets of the Company,
which events do not give rise to a right of the holders of the Class A Preferred
Stock to receive distributions), (ii) the Company's Class B Convertible
Preferred Stock, par value $0.01 per share (the "Class B Preferred Stock"),
(iii) the Company's Class C Convertible Preferred Stock, par value $0.01 per
share (the "Class C Preferred Stock"), (iv) the Company's Class D Convertible
Preferred Stock, par value $0.01 per share (the "Class D Preferred Stock"), and
(v) any other class or series of the Company's preferred stock which shall
specifically provide that such class or series shall rank on parity with the
Class E Preferred Stock ((i) through (iv) collectively, the "Parity Stock"); and
(c) prior to (i) the Company's common stock, par value $0.01 per share (the
"Common Stock"), and (ii) any other class or series of the Company's
Undesignated Stock except for any class or series which is Senior Stock or
Parity Stock ((i) and (ii) together, the "Junior Stock").
3. DIVIDENDS.
(a) Each holder of Class E Preferred Stock shall be entitled to
receive, in respect of each Dividend Period, when, as
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and if declared by the Board of Directors of the Company, out of funds
legally available for the payment of dividends, cumulative dividends in an
amount per share equal to the Applicable Percentage of the Accreted Value
as of the immediately preceding Dividend Payment Date (or, for the initial
Dividend Period, as of the date of issuance). Dividends paid pursuant to
this paragraph 3(a) shall be payable in arrears monthly on the last day of
each month (each of such dates being a "Dividend Payment Date" and each
such monthly period being a "Dividend Period"). Such dividends shall accrue
from the date of issue (except that dividends on any amounts added to
Accreted Value pursuant to Section 3(b) shall accrue from the date such
amounts are added to Accreted Value), whether or not in any Dividend Period
or Periods there shall be funds of the Company legally available for the
payment of such dividends. Each such dividend shall be payable to the
holders of record of shares of the Class E Preferred Stock on the 25th day
of each month, as they appear on the stock records of the Company at the
close of business on such record dates.
(b) At the Company's option, dividends may be paid in cash. If
dividends are not paid in cash on any Dividend Payment Date for the
immediately preceding Dividend Period (or portion thereof if less than a
full Dividend Period), the unpaid amount shall be added to the Accreted
Value for purposes of calculating succeeding periods' dividends.
Notwithstanding anything else contained herein, once any dividends for the
immediately preceding Dividend Period (or portion thereof if less than a
full Dividend Period) are so added to Accreted Value, such dividends will
no longer be payable in cash.
(c) The Applicable Percentage for each full Dividend Period for the
Class E Preferred Stock shall be 0.5834%. The Applicable Percentage for the
initial Dividend Period, or any other period shorter or longer than a full
Dividend Period, on the Class E Preferred Stock shall be computed on the
basis of a per annum rate of 7.0008% and the actual number of days elapsed
over 12 30-day months and a 360-day year.
(d) So long as any shares of the Class E Preferred Stock are
outstanding, no dividends, except as described in the next succeeding
sentence, shall be declared or paid or set apart for payment on Parity
Stock for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for such payment on the Class E Preferred
Stock (or the unpaid amount shall have been added to the Accreted Value
pursuant to Section 3(b)) for all Dividend Periods terminating on or prior
to the date of payment of the dividend on such class or series of Parity
Stock. When dividends are not paid in full or a sum sufficient for such
payment is not set apart, as aforesaid, all dividends declared upon shares
of the Class E Preferred Stock and all dividends declared upon any other
class or series of Parity Stock shall be declared ratably in proportion to
the respective
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amounts of dividends accrued on the Class E Preferred Stock and accrued and
unpaid on such Parity Stock.
(e) Limit on Junior Dividends and Redemption. For so long as the Class
E Preferred Stock remains outstanding, the Company shall not pay any
dividend upon the Junior Stock, whether in cash or other property (other
than shares of Junior Stock), or purchase, redeem or otherwise acquire any
such Junior Stock; provided, however, that nothing in this Section 3(e)
shall prohibit or otherwise limit the ability of the Company to make any
purchase, redemption or other acquisition pursuant to written agreements
existing as of the date of filing of the Certificate of Designation of the
Class E Preferred Stock (the "Filing Date").
4. LIQUIDATION, DISSOLUTION OR WINDING-UP.
(a) Liquidation Preference. In the event of any Liquidation of the
Company, the holders of shares of Class E Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Company available for
distribution to its stockholders, after and subject to the payment in full
of all amounts required to be distributed to the holders of Senior Stock
upon such Liquidation of the Company and before any payment shall be made
to the holders of Junior Stock, the Liquidation Amount (as defined herein)
per share of Class E Preferred Stock. If upon any such Liquidation of the
Company, the remaining assets of the Company available for the distribution
to its stockholders after payment in full of amounts required to be paid or
distributed to holders of Senior Stock shall be insufficient to pay the
holders of shares of Parity Stock the full amount to which they shall be
entitled, the holders of the Class E Preferred Stock shall share ratably
with the holders of Parity Stock in any distribution of the remaining
assets and funds of the Company in proportion to the respective amounts
which would otherwise be payable in respect of the shares held by them upon
such distribution if all amounts payable on or with respect to said shares
were paid in full. After the payment of all preferential amounts required
to be paid to the holders of Senior Stock and Parity Stock and any other
series of the Company's preferred stock upon any Liquidation of the
Company, the holders of shares of Junior Stock then outstanding shall be
entitled to receive the remaining assets and funds of the Company available
for distribution to its stockholders in accordance with the terms thereof.
(b) Certain Definitions. (i) The term "Liquidation of the Company"
shall mean any voluntary or involuntary liquidation, dissolution or
winding-up of the affairs of the Company.
(ii) The term "Liquidation Amount" shall mean an amount per share
of Class E Preferred Stock equal to the greater of: (A) the Accreted
Value plus any per share dividends accrued
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on the Class E Preferred Stock (whether or not earned or declared)
since the most recent Dividend Payment Date and (B) the per share
amount that holders of the Class E Preferred Stock would have received
had they exercised their right to convert the Class E Preferred Stock
to Common Stock immediately prior to a Liquidation of the Company.
5. VOTING.
(a) Number of Votes. Each issued and outstanding share of Class E
Preferred Stock shall be entitled to the number of votes equal to the
number of shares of Common Stock into which each such share of Class E
Preferred Stock is then convertible (as adjusted from time to time), at
each meeting of holders of the Common Stock of the Company (or any written
consent without a meeting in accordance with the Minnesota Business
Corporation Act) with respect to any and all matters presented to such
shareholders for their action or consideration, provided that no holder
(based solely on its ownership of Class E Preferred Stock) shall be
entitled to more than the number of votes equal to 19.9% (the "Maximum
Percentage") of the voting power of the Voting Securities outstanding on
the record date for which a vote is being taken (and therefore to the
extent that its ownership of Class E Preferred Stock would entitle it to
voting power in excess of 19.9%, the voting power shall be reduced to that
percentage) and provided further that, with respect to any holder of fewer
than 50,000 shares of Class E Preferred Stock, the Maximum Percentage shall
be reduced to the percentage which bears the same proportion to 19.9% as
the number of shares of Class E Preferred Stock held by such holder bears
to 50,000. Except as provided by law, by the provisions of this Section 5
or by the provisions establishing any other series of the Company's
preferred stock, holders of Class E Preferred Stock and of any other
outstanding preferred stock then entitled to vote shall vote together with
the holders of Common Stock as a single class.
(b) Class E Directors. Each of the two holders who purchase the
largest number of shares of Class E Preferred Stock shall have the right to
appoint a person to serve as a director of the Company (a "Class E
Director") for so long as such holder continues to own shares of Class E
Preferred Stock and/or shares of Common Stock issued on conversion or
redemption of shares of Class E Preferred Stock which together represent
beneficial ownership of at least 40% of the number of shares of Common
Stock issuable upon conversion or redemption of the Class E Preferred Stock
initially purchased by such holder (without giving effect to the
anti-dilution provisions contained in Section 7 hereof). Any vacancy in the
position of a Class E Director may be filled by and only by the holder who
appointed the Class E Director whose position has become vacant. Each Class
E Director may, during his or her term of office, be removed at any time,
with or without cause, by and only by the holder who appointed such Class E
Director.
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(c) Protective Provisions. In addition to any other rights provided by
law, the Company shall not (i) without first obtaining the affirmative vote
or written consent of a majority of the holders of the Class E Preferred
Stock, voting separately as a class, (A) amend, alter or repeal any
provision of the Company's Articles of Incorporation or By-Laws in a manner
that is adverse to the holders of the Class E Preferred Stock, or (B)
authorize the issuance of a class or series of capital stock having
preferences or rights with respect to dividends or dissolution or the
distribution of assets that would be superior to the preferences or rights
of the Class E Preferred Stock, and (ii) without first obtaining the
affirmative vote or written consent of a majority of the holders of the
Company's Voting Securities other than MCI WORLDCOM, Inc. (together with
its majority-owned subsidiaries and other controlled affiliates, "MCI
WCOM"), (A) authorize any transaction of a type referred to in clause (i)
or clause (ii) of the definition of "Change of Control," (B) authorize or
consent to any liquidation, dissolution or winding-up of the affairs of the
Company, or (C) enter into any merger or consolidation into or with MCI
WCOM or enter into any other contract or arrangement involving the sale or
license of the Company's material assets with MCI WCOM (excluding
contractual arrangements with MCI WCOM existing as of the Filing Date).
6. OPTIONAL CONVERSION. At any time and from time to time, each share of
Class E Preferred Stock may be converted, at the option of the holder thereof,
into the number of fully paid and nonassessable shares of Common Stock obtained
by dividing the amount determined pursuant to clause (A) of the definition of
Liquidation Amount by the Conversion Price then in effect (the "Conversion
Rate"); provided, however, that upon any Liquidation of the Company, the right
of conversion shall terminate at the close of business on the full business day
next preceding the date fixed for such redemption or for the payment of any
amounts distributable on liquidation to the holders of Class E Preferred Stock.
No notice delivered by the Company of any proposed redemption, change of control
or other event will limit in any way the holders' rights to convert Class E
Preferred Stock into Common Stock of the Company.
(a) Initial Conversion Rate. The initial Conversion Rate for the Class
E Preferred Stock shall be 193.7984 shares of Common Stock for each one
share of Class E Preferred Stock surrendered for conversion representing an
initial Conversion Price of $5.16 per share of Common Stock. The applicable
Conversion Rate and Conversion Price from time to time in effect is subject
to adjustment as hereinafter provided.
(b) No Fractional Shares. If any fraction of a share of Common Stock
would be issuable upon conversion of any Class E Preferred Stock, the
Company shall round up to the next whole
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share the number of shares of Class E Preferred Stock to be issued upon
such conversion.
(c) Adjustment. Whenever the Conversion Rate and Conversion Price
shall be adjusted as provided herein, the Company shall forthwith file at
each office designated for the conversion of Class E Preferred Stock, a
statement, signed by the President, any Vice President or Treasurer of the
Company, showing in reasonable detail the facts requiring such adjustment
and the Conversion Rate that will be effective after such adjustment. The
Company shall also cause a notice setting forth any such adjustments to be
sent by mail, first class, postage prepaid, to each record holder of Class
E Preferred Stock at his or its address appearing on the stock register. If
such notice relates to an adjustment resulting from an event referred to in
Section 7(g), such notice shall be included as part of the notice required
to be mailed and published under the provisions of such Section 7(g).
(d) Exercise. In order to exercise the conversion privilege, the
holder of any Class E Preferred Stock to be converted shall surrender his
or its certificate or certificates therefore to the principal office of the
transfer agent for the Class E Preferred Stock (or if no transfer agent be
at the time appointed, then the Company at its principal office), and shall
give written notice to the Company at such office that the holder elects to
convert the Class E Preferred Stock represented by such certificates, or
any number thereof. Such notice shall also state the name or names (with
address) in which the certificate or certificates for shares of Common
Stock which shall be issuable on such conversion shall be issued, subject
to any restrictions on transfer relating to shares of the Class E Preferred
Stock or shares of Common Stock upon conversion thereof. If so required by
the Company, certificates surrendered for conversion shall be endorsed or
accompanied by written instrument or instruments of transfer, in form
satisfactory to the Company, duly authorized in writing. The date of
receipt by the transfer agent (or by the Company if the Company serves as
its own transfer agent) of the certificates and notice shall be the
conversion date. Within three Market Days after receipt of such notice and
the surrender of the certificate or certificates for Class E Preferred
Stock as set forth herein, the Company shall cause to be issued and
delivered at such office to such holder, or on his or its written order, a
certificate or certificates for the number of full shares of Common Stock
issuable on such conversion in accordance with the provisions hereof and
cash as provided in Section 6(b) in respect of any fraction of a share of
Common Stock otherwise issuable upon such conversion.
(e) Reservation of Shares of Common Stock. The Company shall at all
times while any shares of Class E Preferred Stock shall be outstanding,
reserve and keep available out of its authorized but unissued stock, for
the purposes of effecting the
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conversion of the Class E Preferred Stock, such number of its duly
authorized shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all outstanding Class E Preferred Stock. Before
taking any action which would cause an adjustment reducing the Conversion
Price below the then par value of the shares of Common Stock issuable upon
conversion of the Class E Preferred Stock, the Company will 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 such Common Stock at such adjusted Conversion
Price.
(f) Surrender. All shares of Class E Preferred Stock which shall have
been surrendered for conversion as herein provided shall no longer be
deemed to be outstanding and all rights with respect to such shares,
including the rights, if any, to receive notices and to vote, shall
forthwith cease and terminate except only the right of the holder thereof
to receive shares of Common Stock in exchange therefor and payment of any
accrued and unpaid dividends on such shares of Common Stock. Any shares of
Class E Preferred Stock so converted shall be retired and canceled and
shall not be reissued, and the Company may from time to time take such
appropriate action as may be necessary to reduce the authorized Class E
Preferred Stock accordingly.
7. ANTI-DILUTION PROVISIONS.
(a) General. In order to prevent dilution of the rights granted
hereunder, the Conversion Price shall be subject to adjustment from time to
time in accordance with this Section 7. Upon each adjustment of the
Conversion Price pursuant to this Section 7, the registered holder of
shares of Class E Preferred Stock shall thereafter be entitled to acquire
upon conversion, at the Conversion Price resulting from such adjustment,
the number of shares of Common Stock obtainable by multiplying the
Conversion Price in effect immediately prior to such adjustment by the
number of shares of Common Stock acquirable immediately prior to such
adjustment and dividing the product thereof by the Conversion Price
resulting from such adjustment.
(b) Adjustment of Conversion Price. Except as provided in Sections
7(c) or 7(f) below, if and whenever on or after the Filing Date, the
Company shall issue or sell, or shall pursuant to Section 7(b)(1) through
(10) inclusive, be deemed to have issued or sold any shares of its Common
Stock for a consideration per share that is (i) at any time prior to the
closing of a Qualified Initial Public Offering, less than the per share
Conversion Price in effect immediately prior to the time of such issue or
sale or (ii) at any time during the three-year period after the closing of
a Qualified Initial Public Offering, less than 90% of the Current Market
Price Per Common Share calculated as of the date of such issue or sale,
then forthwith upon such issue or sale (the "Triggering Transaction"), the
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Conversion Price shall, subject to Section 7(b)(1) through (10) inclusive,
be reduced to the Conversion Price (calculated to the nearest one-hundredth
of a cent) determined by dividing: (A) an amount equal to the sum of the
product derived by multiplying the Number of Common Shares Deemed
Outstanding immediately prior to such Triggering Transaction by the
Conversion Price then in effect, plus the consideration, if any, received
by the Company upon consummation of such Triggering Transaction by (B) an
amount equal to the sum of the Number of Common Shares Deemed Outstanding
immediately prior to such Triggering Transaction plus the number of shares
of Common Stock issued (or deemed to be issued in accordance with Section
7(b)(1) through (10) inclusive) in connection with the Triggering
Transaction. The term "Number of Common Shares Deemed Outstanding" at any
given time shall mean the sum of (i) the number of shares of Common Stock
outstanding at such time, (ii) the number of shares of Common Stock
issuable upon conversion or exchange at such time of all of the Company's
outstanding securities that are then convertible into, or exchangeable for,
Common Stock and (iii) the number of shares of the Company's Common Stock
deemed to be outstanding under Section 7(b)(1) through (10) inclusive, at
such time. For purposes of determining the adjusted Conversion Price under
this Section 7(b), the following provisions shall be applicable:
(1) In case the Company at any time shall in any manner grant
(whether directly or by assumption in a merger or otherwise) any
rights to subscribe for or to purchase, or any options for the
purchase of, Common Stock or any stock or other securities convertible
into or exchangeable for Common Stock (such rights or options being
herein called "Options" and such convertible or exchangeable stock or
securities being herein called "Convertible Securities"), whether or
not such Options or the right to convert or exchange any such
Convertible Securities are immediately exercisable and the price per
share for which the Common Stock is issuable upon exercise, conversion
or exchange (determined by dividing (Y) the total amount, if any,
received or receivable by the Company as consideration for the
granting of such Options, plus the minimum aggregate amount of
additional consideration payable to the Company upon the 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 upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by
(Z) the total maximum number of shares of Common Stock issuable upon
the exercise of such Options or the conversion or exchange of such
Convertible Securities) shall be less than the Conversion Price in
effect immediately prior to the time of the granting of such Option,
then the total maximum amount of Common Stock issuable upon the
exercise of such Options or in the case of Options for Convertible
Securities, upon the conversion or exchange of such Convertible
Securities shall (as of the date of granting of
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such Options) be deemed to be outstanding and to have been issued and
sold by the Company for such price per share. No further adjustment of
the Conversion Price shall be made upon the actual issue of such
shares of Common Stock or such Convertible Securities upon the
exercise of such Options, except as otherwise provided in Section
7(b)(3).
(2) In case the Company at any time shall in any manner issue
(whether directly or by assumption in a merger or otherwise) or sell
any Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per
share for which Common Stock is issuable upon such conversion or
exchange (determined by dividing (Y) 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 (Z) the total maximum number of
shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities) shall be less than the 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 all such Convertible Securities shall (as of
the date of the issue or sale of such Convertible Securities) be
deemed to be outstanding and to have been issued and sold by the
Company for such price per share. No further adjustment of the
Conversion Price shall be made upon the actual issue of such Common
Stock upon exercise of the rights to exchange or convert under such
Convertible Securities, except as otherwise provided in Section
(7)(b)(3).
(3) If the purchase price provided for in any Options referred to
in Section 7(b)(1), the additional consideration, if any, payable upon
the conversion or exchange of any Convertible Securities referred to
in Sections 7(b)(1) or (2), or the rate at which any Convertible
Securities referred to in Sections 7(b)(1) or (2) are convertible into
or exchangeable for Common Stock shall change at any time (other than
under or by reason of provisions designed to protect against dilution
of the type set forth in Sections 7(b) or 7(d)), the Conversion Price
in effect at the time of such change shall forthwith be readjusted to
the 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. If the purchase price provided for in any Option referred to in
Section 7(b)(1) or the rate at which any Convertible Securities
referred to in Sections 7(b)(1) or (2) are convertible into or
exchangeable for Common Stock, shall be reduced at any time under or
by reason of
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provisions with respect thereto designed to protect against dilution,
then in case of the delivery of Common Stock upon the exercise of any
such Option or upon conversion or exchange of any such Convertible
Security, the Conversion Price then in effect hereunder shall
forthwith be adjusted to such respective amount as would have been
obtained had such Option or Convertible Security never been issued as
to such Common Stock and had adjustments been made upon the issuance
of the shares of Common Stock delivered as set forth herein, but only
if as a result of such adjustment the Conversion Price then in effect
hereunder is hereby reduced.
(4) On the expiration of any Option or the termination of any
right to convert or exchange any Convertible Securities, the
Conversion Price then in effect hereunder shall forthwith be increased
to the Conversion Price which would have been in effect at the time of
such expiration or termination had such Option or Convertible
Securities, to the extent outstanding immediately prior to such
expiration or termination, never been issued.
(5) In case any Options shall be issued in connection with the
issue or sale of other securities of the Company, together comprising
one integral transaction in which no specific consideration is
allocated to such Options by the parties thereto, such Options shall
be deemed to have been issued without consideration.
(6) In case any shares of Common Stock, Options or Convertible
Securities shall be 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. In case any shares of
Common Stock, Options or Convertible Securities shall be 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 as determined in good faith by the
Board. In case any shares of Common Stock, Options or Convertible
Securities shall be issued 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 corporation as shall be
attributable to such Common Stock, Options or Convertible Securities,
as the case may be.
(7) 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, and the disposition of any shares so owned or held shall
be considered an issue or sale of Common Stock for the purpose of this
Section 7(b).
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(8) In case the Company shall declare a dividend or make any
other distribution upon the stock of the Company payable in Options or
Convertible Securities, then in such case any Options or Convertible
Securities, as the case may be, issuable in payment of such dividend
or distribution shall be deemed to have been issued or sold without
consideration.
(9) For purposes of this Section 7(b), in case the Company shall
take a record of the holders of its Common Stock for the purpose of
entitling them to receive a dividend or other distribution payable in
Common Stock, Options or in Convertible Securities or to subscribe for
or purchase Common Stock, Options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution
or the date of the granting of such right or subscription or purchase,
as the case may be.
(10) For purposes of this Section 7(b), notwithstanding Section
7(f), in the event that the "Class B Warrants" issued to MCI WCOM on
September 26, 1997 vest and become exercisable for shares of Common
Stock, whether or not MCI WCOM shall exercise such Class B Warrants,
the consideration per share that the Common Stock shall be deemed to
have been issued or sold at shall be equal to $4.98.
(c) Liquidating Dividends. In the event the Company shall declare a
dividend upon the Common Stock (other than a dividend payable in Common
Stock) payable otherwise than out of earnings or earned surplus, determined
in accordance with generally accepted accounting principles, including the
making of appropriate deductions for minority interests, if any, in
subsidiaries (herein referred to as "Liquidating Dividends"), then the
Company shall pay to the person converting such Class E Preferred Stock an
amount equal to the aggregate value of such Liquidating Dividends
(including but not limited to the Common Stock which would have been issued
at the time of such earlier exercise and all other securities which would
have been issued with respect to such Common Stock by reason of stock
splits, stock dividends, mergers or reorganizations, or for any other
reason). For the purposes of this Section 7(c), a dividend other than in
cash shall be considered payable out of earnings or earned surplus only to
the extent that such earnings or earned surplus are charged an amount equal
to the fair value of such dividend as determined in good faith by the
Board.
(d) Subdivisions and Dividends; Combinations. In case the Company
shall at any time (i) subdivide the outstanding Common Stock or (ii) issue
a stock dividend on its outstanding Common Stock, the number of shares of
Common Stock issuable upon
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conversion of the Class E Preferred Stock shall be proportionately
increased by the same ratio as the subdivision or dividend (with
appropriate adjustments to the Conversion Price in effect immediately prior
to such subdivision or dividend). In case the Company shall at any time
combine its outstanding Common Stock, the number of shares issuable upon
conversion of the Class E Preferred Stock immediately prior to such
combination shall be proportionately decreased by the same ratio as the
combination (with appropriate adjustments to the Conversion Price in effect
immediately prior to such combination).
(e) Reorganizations, etc. If any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or
merger of the Company with another corporation, or the sale of all or
substantially all of its assets to another corporation shall be effected in
such a way that holders of Common Stock shall be entitled to receive stock,
securities, cash or other property with respect to or in exchange for
Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate
provision shall be made whereby the holders of the Class E Preferred Stock
shall have the right to acquire and receive upon conversion of the Class E
Preferred Stock, which right shall be prior to the rights of the holders of
Junior Stock, equal to the rights of the holders of Parity Stock and after
and subject to the rights of holders of Senior Stock, such shares of stock,
securities, cash or other property issuable or payable (as part of the
reorganization, reclassification, consolidation, merger or sale) with
respect to or in exchange for such number of outstanding shares of Common
Stock as would have been received upon conversion of the Class E Preferred
Stock at the Conversion Price then in effect.
(f) Exceptions to Antidilution. The provisions of this Section 7 shall
not apply to any Common Stock issued, issuable or deemed outstanding under
Section 7(b)(1) through (10) inclusive (and no such transaction shall
constitute a Triggering Transaction): (i) to any person pursuant to any
stock option, stock purchase or similar plan or arrangement for the benefit
of employees, consultants or other representatives of the Company or its
subsidiaries (A) in effect on the Filing Date or (B) thereafter adopted by
the Board and approved by the holders of the Voting Securities, (ii)
pursuant to options, warrants and conversion rights in existence on the
Filing Date (other than as provided for in Section 7(b)(10)) or (iii) on
conversion of the Class B Preferred Stock, the Class C Preferred Stock or
the Class D Preferred Stock.
(g) Procedures. In the event that (i) the Company shall declare any
cash dividend upon its Common Stock, (ii) the Company shall declare any
dividend upon its Common Stock payable in stock or make any special
dividend or other distribution to the holders of its Common Stock, (iii)
the Company shall offer for subscription pro rata to the holders of its
Common Stock any
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<PAGE>
additional shares of stock of any class or other rights, (iv) there shall
be any capital reorganization or reclassification of the capital stock of
the Company, including any subdivision or combination of its outstanding
shares of Common Stock, or consolidation or merger of the Company with, or
sale of all or substantially all of its assets to, another corporation, (v)
there shall be a voluntary or involuntary dissolution, liquidation or
winding-up of the Company, then, in connection with any such event, the
Company shall give to the holders of the Class E Preferred Stock (A) at
least twenty (20) days prior written notice of the date on which the books
of the Company shall close or a record shall be taken for such dividend,
distribution or subscription rights or for determining rights to vote in
respect of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding-up; and (B) in the case
of any such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding-up, at least twenty (20) days prior
written notice of the date when the same shall take place. Such notice in
accordance with the foregoing clause (A) shall also specify, in the case of
any such dividend, distribution or subscription rights, the date on which
the holders of Common Stock shall be entitled thereto, and such notice in
accordance with the foregoing clause (B) shall also specify the date on
which the holders of Common Stock shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reorganization, reclassification consolidation, merger, sale, dissolution,
liquidation or winding-up, as the case may be. Each such written notice
shall be given by first class mail, postage prepaid, addressed to the
holders of the Class E Preferred Stock at the address of each such holder
as shown on the books of the Company.
(h) Intended Effect. If any event occurs as to which, in the opinion
of the Board, the provisions of this Section 7 are not strictly applicable
or if strictly applicable would not fairly protect the rights of the
holders of the Class E Preferred Stock in accordance with the essential
intent and principles of such provisions, then the Board shall make an
adjustment in the application of such provisions, in accordance with such
essential intent and principles, so as to protect such rights as set forth
herein, but in no event shall any adjustment have the effect of increasing
the Conversion Price as otherwise determined pursuant to any of the
provisions of this Section 7 except in the case of a combination of shares
of a type contemplated in Section 7(d) and then in no event to an amount
greater than the Conversion Price as adjusted pursuant to Section 7(d).
8. MANDATORY CONVERSION.
(a) Mandatory Conversion. Each share of Class E Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion
Price in effect on the last Market
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<PAGE>
Day of the first consecutive period of twenty Market Days during which the
Current Market Price Per Common Share is at least 155% of the Liquidation
Amount beginning after the later to occur of the closing of an underwritten
offering which is a "Qualified Initial Public Offering" pursuant to an
effective registration statement under the Securities Act or the third
anniversary of the date of issuance of the Class E Preferred Stock
("Initial Issuance Date").
(b) A "Qualified Initial Public Offering" shall mean an initial public
offering of the Company's Common Stock raising not less than $50,000,000 of
gross proceeds.
(c) Procedures. All holders of record of shares of Class E Preferred
Stock will be given prompt written notice of the occurrence of mandatory
conversion and at least sixty (60) days prior written notice of the date
fixed for any optional conversion and also of the place designated for
conversion of all of such shares of Class E Preferred Stock. Such notice
will be sent by mail, first class, postage prepaid, to each record holder
of shares of Class E Preferred Stock at such holder's address appearing on
the stock register. Each holder of shares of Class E Preferred Stock shall
surrender his or its certificates or certificates for all such shares to
the Company at the place designated in such notice, and shall thereafter
receive certificates for the number of shares of Common Stock to which such
holder is entitled pursuant to this Section 8. On the date of occurrence of
mandatory conversion or the date fixed for any optional conversion, all
rights with respect to the Class E Preferred Stock so converted will
terminate, except only the rights of the holders thereof, upon surrender of
their certificate or certificates therefore, to receive certificates for
the number of shares of Common Stock into which such Class E Preferred
Stock has been converted and payment of any accrued and unpaid dividends
thereon. If so required by the Company, certificates surrendered for
conversion shall be endorsed or accompanied by written instrument or
instruments of transfer, in form satisfactory to the Company, duly executed
by the registered holder or by his attorneys duly authorized in writing.
All certificates evidencing shares of Class E Preferred Stock which are
required to be surrendered for conversion in accordance with the provisions
hereof shall, from and after the date such certificates are so required to
be surrendered, be deemed to have been retired and canceled and the shares
of Class E Preferred Stock represented thereby converted into Common Stock
for all purposes, notwithstanding the failure of the holder or holders
thereof to surrender such certificates. As soon as practicable after the
surrender of the certificate or certificates for Class E Preferred Stock as
set forth herein, the Company shall cause to be issued and delivered to
such holder, or on his or its written order, a certificate or certificates
for the number of full shares of Common Stock issuable on such conversion
in accordance with the provisions hereof and as provided in Section 6(b) in
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<PAGE>
respect of any fraction of a share of Common Stock otherwise issuable upon
such conversion.
9. CHANGE OF CONTROL OFFER.
(a) Promptly after the occurrence of a Change of Control (the date of
such occurrence being the "Change of Control Date"), the Company shall
commence (or cause to be commenced) an offer to purchase all outstanding
shares of Class E Preferred Stock pursuant to the terms described in
Section 9(d) (the "Change of Control Offer") at a purchase price equal to
the Change of Control Amount on the Change of Control Payment Date, and
shall purchase (or cause the purchase of) any shares of Class E Preferred
Stock tendered in the Change of Control Offer pursuant to the terms hereof.
(b) At the Company's option, the Change of Control Amount shall be
payable in cash or in shares of Common Stock (or the securities of the
entity into which the Common Stock became converted in connection with the
Change of Control), which shares shall be valued for purposes of this
Section 9(b) at 97% of the Current Market Price Per Common Share on the
Change of Control Payment Date.
(c) If the Company elects to pay the Change of Control Amount in cash,
prior to the mailing of the notice referred to in Section 9(d), but in any
event within 30 days following the date on which a Change of Control has
occurred, the Company shall (A) promptly determine if the purchase of the
Class E Preferred Stock for cash would violate or constitute a default
under the indebtedness of the Company or the terms of any other series of
the Company's outstanding preferred stock and (B) either shall repay to the
extent necessary all such indebtedness or preferred stock of the Company
that would prohibit the repurchase of the Class E Preferred Stock pursuant
to a Change of Control Offer or obtain any requisite consents or approvals
under instruments governing any indebtedness or preferred stock of the
Company to permit the repurchase of the Class E Preferred Stock for cash.
The Company shall first comply with this Section 9(c) before it shall
repurchase for cash any Class E Preferred Stock pursuant to this Section 9.
(d) Within 30 days following the date on which a Change in Control has
occurred, the Company shall send, by first-class mail, postage prepaid, a
notice to each holder of Class E Preferred Stock. If applicable, such
notice shall contain all instructions and materials necessary to enable
such holders to tender Class E Preferred Stock pursuant to the Change of
Control Offer. Such notice shall state:
(i) that a Change of Control has occurred, that a Change of
Control Offer is being made pursuant to this
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<PAGE>
Section 9 and that all Class E Preferred Stock validly tendered and
not withdrawn will be accepted for payment;
(ii) the purchase price (including the amount of accrued
dividends, if any) and the purchase date (which must be no earlier
than 30 days nor later than 60 days from the date such notice is
mailed, other than as may be required by law) (the "Change of Control
Payment Date");
(iii) that any shares of Class E Preferred Stock not tendered
will continue to accrue dividends;
(iv) that, unless the Company defaults in making payment
therefor, any share of Class E Preferred Stock accepted for payment
pursuant to the Change of Control Offer shall cease to accrue
dividends after the Change of Control Payment Date;
(v) that holders electing to have any share of Class E Preferred
Stock purchased pursuant to a Change of Control Offer will be required
to surrender stock certificates representing such shares of Class E
Preferred Stock, properly endorsed for transfer, together with such
other customary documents as the Company and the Transfer Agent may
reasonably request to the Transfer Agent and registrar for the Class E
Preferred Stock at the address specified in the notice prior to the
close of business on the business day prior to the Change of Control
Payment Date;
(vi) that holders will be entitled to withdraw their election if
the Company receives, not later than five business days prior to the
Change of Control Payment Date, a telegram, facsimile transmission or
letter setting forth the name of the holder, the number of shares of
Class E Preferred Stock the holder delivered for purchase and a
statement that such holder is withdrawing its election to have such
shares of Class E Preferred Stock purchased;
(vii) that holders who tender only a portion of the shares of
Class E Preferred Stock represented by a certificate delivered will,
upon purchase of the shares tendered, be issued a new certificate
representing the unpurchased shares of Class E Preferred Stock; and
(viii) the circumstances and relevant facts regarding such Change
of Control (including information with respect to pro forma historical
income, cash flow and capitalization after giving effect to such
Change of Control).
(e) The Company will comply with any tender offer rules under the
Exchange Act which then may be applicable in connection with any offer made
by the Company to repurchase the
17
<PAGE>
shares of Class E Preferred Stock as a result of a Change of Control. To
the extent that the provisions of any securities laws or regulations
conflict with provisions of this Certificate of Designation, the Company
shall comply with the applicable securities laws and regulations and shall
not be deemed to have breached its obligation under this Certificate of
Designation by virtue thereof.
(f) On the Change of Control Payment Date, the Company shall (i)
accept for payment the shares of Class E Preferred Stock validly tendered
pursuant to the Change of Control Offer, (ii) pay to the holders of shares
so accepted the purchase price therefor in cash or Common Stock (or the
securities of the entity into which the Common Stock became converted in
connection with the Change of Control) as provided above and (iii) cancel
each surrendered certificate and retire the shares represented thereby.
Unless the Company defaults in the payment for the shares of Class E
Preferred Stock tendered pursuant to the Change of Control Offer, dividends
will cease to accrue with respect to the shares of Class E Preferred Stock
tendered and all rights of holders of such tendered shares will terminate,
except for the right to receive payment therefor on the Change of Control
Payment Date.
(g) To accept the Change of Control Offer, the holder of a share of
Class E Preferred Stock shall deliver, prior to the close of business on
the business day prior to the Change of Control Payment Date, written
notice to the Company (or an agent designated by the Company for such
purpose) of such holder's acceptance, together with certificates evidencing
the shares of Class E Preferred Stock with respect to which the Change of
Control Offer is being accepted, duly endorsed for transfer.
(h) For the avoidance of doubt, nothing in this Section 9 shall
restrict the right of the holders of Class E Preferred Stock, in connection
with a Change of Control, to convert and to receive the kind and amount of
consideration payable to holders of Common Stock in respect of the Common
Stock into which the Class E Preferred Stock may be converted.
10. CERTAIN MERGERS. In connection with any consolidation with or merger
with or into, any person in a transaction where the Common Stock is converted
into or exchanged for securities of such person or an affiliate of such person,
the Company covenants that the person issuing such securities will be organized
and existing under the laws of a jurisdiction which allows for the issuance of
preference stock and that the Class E Preferred Stock shall be converted into or
exchanged for and shall become shares of such person having in respect of such
person substantially the same powers, preference and relative participating,
optional or other special rights and the qualifications, limitations or
restrictions thereon that the Class E Preferred Stock had immediately prior to
such transaction.
18
<PAGE>
11. REDEMPTION.
(a) Mandatory Redemption. On December 31, 2008, the Company will be
required to redeem all of the outstanding shares of Class E Preferred Stock
at a redemption price per share equal to the Liquidation Amount on such
date.
(b) Optional Redemption. At any time after the third anniversary of
the Initial Issuance Date, the Company may, at its option, redeem all (but
not less than all) of the shares of Class E Preferred Stock at a cash
redemption price equal to 155% of the Liquidation Amount on the date
specified for redemption plus accrued dividends thereon from such date to
the date of payment of the redemption price.
(c) Notice. Notice of such redemption shall be given by the Company by
first class mail, postage prepaid, mailed not less than 30 days nor more
than 60 days prior to the redemption date, to each holder of record of the
shares to be redeemed at such holder's address as the same appears on the
stock register of the Company; provided that neither the failure to give
such notice nor any defect therein shall affect the validity of the giving
of notice for the redemption of any share of Class E Preferred Stock to be
redeemed except as to the holder to whom the Company has failed to give
said notice or except as to the holder whose notice was defective. Each
such notice shall state: (i) the redemption date; (ii) the redemption
price; (iii) the place or places where certificates for such shares are to
be surrendered for payment of the redemption price; and (iv) that dividends
on the shares to be redeemed will cease to accrue on such redemption date.
(d) Dividends; Payment. Notice having been mailed as aforesaid, from
and after the redemption date (unless default shall be made by the Company
in providing money for the payment of the redemption price of the shares
called for redemption), dividends on the shares of Class E Preferred Stock
so called for redemption shall cease to accrue, and all rights of the
holders thereof as shareholders of the Company (except the right to receive
from the Company the redemption price) shall cease. Upon surrender in
accordance with said notice of the certificates for any shares so redeemed
(properly endorsed or assigned for transfer, if the Board of Directors of
the Company shall so require and the notice shall so state), such share
shall be redeemed by the Company at the redemption price aforesaid.
12. CONVERTED AND REACQUIRED SHARES. Any shares of Class E Preferred Stock
converted into Common Stock, redeemed, purchased or otherwise acquired by the
Company in any manner whatsoever shall be retired and canceled promptly after
the acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of undesignated stock of the Company and may be
reissued subject to the conditions and
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<PAGE>
restrictions on issuance in the Articles of Incorporation, in any other
Certificate of Designation creating a series of preferred stock or any similar
stock or as otherwise required by law.
13. PRE-EMPTIVE RIGHTS. Until the closing of a Qualified Initial Public
Offering, the holders of the Class E Preferred Stock shall have pre-emptive
rights to the extent set forth in Section 302A.413 of the Minnesota Business
Corporation Act as in effect on the Filing Date, except that the provisions of
subdivision 4, clause (e) thereof shall not apply.
14. AMENDMENT. If any proposed amendment to the Articles of Incorporation,
including this Certificate of Designation, would alter or change the
preferences, special rights or powers given to the holders of the Class E
Preferred Stock so as to affect such holders adversely, or would authorize the
issuance of a class or classes of stock having preferences or rights with
respect to dividends or dissolution or the distribution of assets that would be
superior to the preferences or rights of the Class E Preferred Stock, then the
holders of the Class E Preferred Stock shall be entitled to vote as a class upon
such amendment, and the affirmative vote of two-thirds of the outstanding shares
of Class E Preferred Stock shall be necessary for the adoption thereof, in
addition to such other vote as may be required by law.
15. MISCELLANEOUS. If, in connection with a Change of Control Offer
pursuant to Section 9 or a redemption pursuant to Section 11, the Company
determines to pay the Change of Control Amount or the redemption price in shares
of Common Stock, the Company will (a) file a registration statement to register
such shares of Common Stock under the Securities Act, (b) cause such
registration statement to be effective at or prior to the time that the Company
will deliver such shares to the holders of Class E Preferred Stock, (c) have
such shares listed on the principal trading market for the Common Stock and (d)
take such other actions as may reasonably be required to register the issuance
(or, as appropriate, the re-sale) of the shares of Common Stock to be delivered
to the holders of the Class E Preferred Stock to enable such shares of Common
Stock to be sold without restriction.
16. DEFINITIONS. The following terms, as used herein, shall have the
following meanings:
"Accreted Value" equals, with respect to one share of Class E
Preferred Stock, $1,000, plus the amount of any dividends added to Accreted
Value in accordance with Section 3(b) (which aggregate amount shall be
subject to adjustment whenever there shall occur a stock split,
combination, re-classification or other similar event involving the Class E
Preferred Stock).
20
<PAGE>
"Change of Control" means: (i) the sale, lease, transfer, conveyance
other disposition (other than by way of merger or consolidation), in one or
a series of related transactions, of all or substantially all of the assets
of the Company and its subsidiaries taken as a whole to any "person" (as
such term is used in Section 13(d)(3) of the Exchange Act, other than a
holder of Class E Preferred Stock on the Initial Issuance Date, (ii) the
consummation of any transaction (including any merger or consolidation) the
result of which is that (A) any "person" (as defined above) other than a
holder of Class E Preferred Stock on the Initial Issuance Date becomes the
beneficial owner (as determined in accordance with Rules 13d-3 and 13d-5
under the Exchange Act except that a person will be deemed to have
beneficial ownership of all shares that such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 50% of the Voting
Securities of the Company, other than in connection with an underwritten
public offering of securities of the Company or (B) the holders of Voting
Securities become entitled to receive less than 50% of the voting power of
holders of the equity securities of the surviving entity, or (iii) the
first day on which a majority of the members of the Board of Directors of
the Company are not Continuing Directors.
"Change of Control Amount" means, with respect to one share of Class E
Preferred Stock, the greater of (i) 125% of the Liquidation Amount per
share on the Change of Control Payment Date or (ii) the per share amount a
holder of Class E Preferred Stock would have received had he exercised his
right to convert a share of Class E Preferred Stock into shares of Common
Stock immediately prior to the issuance of a Change of Control.
"Continuing Directors" means individuals who constituted the Board of
Directors of the Company on the Filing Date (the "Incumbent Directors");
provided that any individual becoming a director during any year shall be
considered to be an Incumbent Director if such individual's election,
appointment or nomination was recommended or approved by at least
two-thirds of the other Incumbent Directors continuing in office following
such election, appointment or nomination present, in person or by
telephone, at any meeting of the Board of Directors of the Company, after
the giving of a sufficient notice to each Incumbent Director so as to
provide a reasonable opportunity for such Incumbent Directors to be present
at such meeting.
"Current Market Price Per Common Share" means, as of any date, the
average (weighted by daily trading volume) of the Daily Prices per share of
Common Stock for the 20 consecutive Market Days immediately prior to such
date.
"Daily Price" means, as of any date, (i) if the shares of such class
of Common Stock then are listed and traded on the New York Stock Exchange,
Inc. ("NYSE"), the closing price on such
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<PAGE>
date as reported on the NYSE Composite Transactions Tape; (ii) if the
shares of such class of Common Stock then are not listed and traded on the
NYSE, the closing price on such date as reported by the principal national
securities exchange on which the shares are listed and traded; (iii) if the
shares of such class of Common Stock then are not listed and traded on any
such securities exchange, the last reported sale price on such date on
Nasdaq National Market; or (iv) if the shares of such class of Common Stock
then are not traded on the Nasdaq National Market, the average of the
highest reported bid and lowest reported asked price on such date as
reported by Nasdaq.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Market Day" means a day on which the principal national securities
market or exchange on which the Common Stock is listed or admitted for
trading is open for the transaction of business.
"Securities Act" means the Securities Act of 1933, as amended.
"Voting Securities" means securities of the Company ordinarily having
the power to vote for the election of directors of the Company, including
but not limited to the Common Stock and all classes and series of
Undesignated Stock the holders of which have the right to vote with holders
of the Common Stock as a class.
RESOLVED FURTHER, that the officers of this Company be, and each of them
acting alone is, hereby authorized and instructed to take all steps necessary to
execute, deliver and file, for and on behalf of this Company and in its name,
any and all documents required in connection with the establishment and
authorization of the Company's Class E Preferred Stock, including but not
limited to filing the Statement of Rights and Preferences with the Minnesota
Secretary of State in accordance with Minnesota Statutes, Section 302A.401.
F. The undersigned further declares under penalty of perjury that the
matters set out in the foregoing Certificate are true and correct of his own
knowledge.
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<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this certificate as of the
31st day of December, 1999
/s/ Edward J. Driscoll, Jr.
-----------------------------------------
Edward J. Driscoll, Jr.
Secretary
23
<PAGE>
ARTICLES OF CORRECTION
OF
CERTIFICATE OF DESIGNATION OF RIGHTS AND PREFERENCES
OF
CLASS E CONVERTIBLE PREFERRED STOCK AND
CLASS F CONVERTIBLE PREFERRED STOCK
OF
WAM!NET INC.
The undersigned, Edward J. Driscoll, Jr., Secretary of WAM!NET INC., a
Minnesota Corporation (the "Corporation"), acting pursuant to the provisions of
Minnesota Statutes, Section 5.16, does hereby correct and amend the Certificate
of Designation of Rights and Preferences of Class E Convertible Preferred Stock,
as follows, and does hereby correct and amend the Certificate of Designation of
Rights and Preferences of Class F Convertible Preferred stock, as follows,
effective as of the 16th day of February, 2000, and the 11th day of February,
2000, respectively:
1.) The undersigned, Edward J. Driscoll, Jr., executed and filed a
Certificate of Designation of Rights and Preferences of Class
E Convertible Preferred Stock which was filed with the
Minnesota Secretary of State on February 16, 2000.
2.) The undersigned, Edward J. Driscoll, Jr., executed and filed a
Certificate of Designation of Rights and Preferences of Class
F Convertible Preferred Stock which was filed with the
Minnesota Secretary of State on February 11, 2000.
3.) The Certificate of Designation of Rights and Preferences of
Class E Convertible Preferred Stock inadvertently indicated
that the Articles of Incorporation of the Corporation provide
for a class of up to 10,000,000 shares known as Undesignated
Stock, whereas the Amended Articles of Incorporation of the
Corporation provide for a class of up to 9,900,000 shares
known as Undesignated Stock.
4.) The Certificate of Designation of Rights and Preferences of
Class F Convertible Preferred Stock inadvertently indicated
that the Articles of Incorporation of the Corporation provide
for a class of up to 50,000,000 shares known as Undesignated
Stock, whereas the Amended Articles of Incorporation of the
Corporation provide for a class of up to 9,900,000 shares
known as Undesignated Stock.
5.) Subpart B of said Certificate of Designation of Rights and
Preferences of Class E Convertible Preferred Stock should
read:
<PAGE>
"The Articles of Incorporation of this Company provide for
a class of up to 9,900,000 shares known as Undesignated
Stock, par value $.01 per share, which shares may be
issued from time to time in one or more classes or
series."
6.) Subpart B of said Certificate of Designation of Rights and
Preferences of Class F Convertible Preferred Stock should read
"The Articles of Incorporation of this Company provide for
a class of up to 9,900,000 shares known as Undesignated
Stock, par value $.01 per share, which shares may be
issued from time to time in one or more classes or
series."
IN WITNESS WHEREOF, I have hereunder subscribed my name effective the
29th day of February, 2000.
/s/ Edward J. Driscoll, Jr.
----------------------------------
Edward J. Driscoll, Jr., Secretary
<PAGE>
AMENDMENT TO
CERTIFICATE OF DESIGNATION OF RIGHTS AND PREFERENCES
OF
CLASS E CONVERTIBLE PREFERRED STOCK
OF
WAM!NET INC.
- --------------------------------------------------------------------------------
The undersigned, Edward J. Driscoll, Jr., hereby certifies that:
A. He is the duly elected and acting Secretary of WAM!NET Inc. (the
"Company"), a Minnesota corporation.
B. The Articles of Incorporation of this Company provide for a class of up
to 9,900,000 shares known as Undesignated Stock, par value $.01 per share, which
shares may be issued from time to time in one or more classes or series.
C. The Board of Directors of the Company is authorized, pursuant to Article
6 of the Company's Articles of Incorporation and Minnesota Statutes, Section
302A.401, to fix or alter the rights, preferences, privileges, and restrictions
granted to or imposed upon any wholly unissued series of Undesignated Stock, to
fix the number of shares constituting the series, and to determine the
designation thereof.
D. It is the desire of the Board of Directors of the Company, pursuant to
its authority, to fix the rights, preferences, restrictions and other matters
relating to the Undesignated Stock and the number of shares of Undesignated
Stock.
E. Pursuant to authority given by Article 6 of the Company's Articles of
Incorporation, the Company's Board of
<PAGE>
Directors has adopted the following resolutions as of December 31, 1999:
RESOLVED, that, pursuant to Article 6 of the Articles of Incorporation of
WAM!NET Inc. (the "Company"), the Board of Directors of the Company (the
"Board") hereby creates and designates a series of Convertible Preferred Stock,
par value $0.01 per share, and authorizes the issuance of up to 116,725 of such
shares, and hereby fixes the designations, powers, preferences and relative,
participating, optional and other special rights, and the qualifications,
limitations or restrictions, of such shares, as follows:
1. DESIGNATION AND AMOUNT. The shares of such series shall be designated
"Class E Convertible Preferred Stock" (the "Class E Preferred Stock") and the
number of shares constituting such series shall be 116,725.
2. RANK. The Class E Preferred Stock shall rank, with respect to dividend
rights and distribution of assets on any Liquidation of the Company (as defined
herein) (a) junior to any other class or series of the Company's preferred stock
which shall specifically provide that such class or series shall rank senior to
the Class E Preferred Stock (the "Senior Stock"); (b) on parity with (i) the
Company's Class A Preferred Stock, par value $10.00 per share (the "Class A
Preferred Stock") (except with respect to a Liquidation of the Company resulting
from the merger or consolidation of the Company into or with another
corporation, the merger or consolidation of any other corporation into or with
the Company or the sale of all or substantially all the assets of the Company,
which events do not give rise to a right of the holders of the Class A Preferred
Stock to receive distributions), (ii) the Company's Class B Convertible
Preferred Stock, par value $0.01 per share (the "Class B Preferred Stock"),
(iii) the Company's Class C Convertible Preferred Stock, par value $0.01 per
share (the "Class C Preferred Stock"), (iv) the Company's Class D Convertible
Preferred Stock, par value $0.01 per share (the "Class D Preferred Stock"), and
(v) any other class or series of the Company's preferred stock which shall
specifically provide that such class or series shall rank on parity with the
Class E Preferred Stock ((i) through (iv) collectively, the "Parity Stock"); and
(c) prior to (i) the Company's common stock, par value $0.01 per share (the
"Common Stock"), and (ii) any other class or series of the Company's
Undesignated Stock except for any class or series which is Senior Stock or
Parity Stock ((i) and (ii) together, the "Junior Stock").
3. DIVIDENDS.
(a) Each holder of Class E Preferred Stock shall be entitled to
receive, in respect of each Dividend Period, when, as
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and if declared by the Board of Directors of the Company, out of funds
legally available for the payment of dividends, cumulative dividends in an
amount per share equal to the Applicable Percentage of the Accreted Value
as of the immediately preceding Dividend Payment Date (or, for the initial
Dividend Period, as of the date of issuance). Dividends paid pursuant to
this paragraph 3(a) shall be payable in arrears monthly on the last day of
each month (each of such dates being a "Dividend Payment Date" and each
such monthly period being a "Dividend Period"). Such dividends shall accrue
from the date of issue (except that dividends on any amounts added to
Accreted Value pursuant to Section 3(b) shall accrue from the date such
amounts are added to Accreted Value), whether or not in any Dividend Period
or Periods there shall be funds of the Company legally available for the
payment of such dividends. Each such dividend shall be payable to the
holders of record of shares of the Class E Preferred Stock on the 25th day
of each month, as they appear on the stock records of the Company at the
close of business on such record dates.
(b) At the Company's option, dividends may be paid in cash. If
dividends are not paid in cash on any Dividend Payment Date for the
immediately preceding Dividend Period (or portion thereof if less than a
full Dividend Period), the unpaid amount shall be added to the Accreted
Value for purposes of calculating succeeding periods' dividends.
Notwithstanding anything else contained herein, once any dividends for the
immediately preceding Dividend Period (or portion thereof if less than a
full Dividend Period) are so added to Accreted Value, such dividends will
no longer be payable in cash.
(c) The Applicable Percentage for each full Dividend Period for the
Class E Preferred Stock shall be 0.5834%. The Applicable Percentage for the
initial Dividend Period, or any other period shorter or longer than a full
Dividend Period, on the Class E Preferred Stock shall be computed on the
basis of a per annum rate of 7.0008% and the actual number of days elapsed
over 12 30-day months and a 360-day year.
(d) So long as any shares of the Class E Preferred Stock are
outstanding, no dividends, except as described in the next succeeding
sentence, shall be declared or paid or set apart for payment on Parity
Stock for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for such payment on the Class E Preferred
Stock (or the unpaid amount shall have been added to the Accreted Value
pursuant to Section 3(b)) for all Dividend Periods terminating on or prior
to the date of payment of the dividend on such class or series of Parity
Stock. When dividends are not paid in full or a sum sufficient for such
payment is not set apart, as aforesaid, all dividends declared upon shares
of the Class E Preferred Stock and all dividends declared upon any other
class or series of Parity Stock shall be declared ratably in proportion to
the respective
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amounts of dividends accrued on the Class E Preferred Stock and accrued and
unpaid on such Parity Stock.
(e) Limit on Junior Dividends and Redemption. For so long as the Class
E Preferred Stock remains outstanding, the Company shall not pay any
dividend upon the Junior Stock, whether in cash or other property (other
than shares of Junior Stock), or purchase, redeem or otherwise acquire any
such Junior Stock; provided, however, that nothing in this Section 3(e)
shall prohibit or otherwise limit the ability of the Company to make any
purchase, redemption or other acquisition pursuant to written agreements
existing as of the date of filing of the Certificate of Designation of the
Class E Preferred Stock (the "Filing Date").
4. LIQUIDATION, DISSOLUTION OR WINDING-UP.
(a) Liquidation Preference. In the event of any Liquidation of the
Company, the holders of shares of Class E Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Company available for
distribution to its stockholders, after and subject to the payment in full
of all amounts required to be distributed to the holders of Senior Stock
upon such Liquidation of the Company and before any payment shall be made
to the holders of Junior Stock, the Liquidation Amount (as defined herein)
per share of Class E Preferred Stock. If upon any such Liquidation of the
Company, the remaining assets of the Company available for the distribution
to its stockholders after payment in full of amounts required to be paid or
distributed to holders of Senior Stock shall be insufficient to pay the
holders of shares of Parity Stock the full amount to which they shall be
entitled, the holders of the Class E Preferred Stock shall share ratably
with the holders of Parity Stock in any distribution of the remaining
assets and funds of the Company in proportion to the respective amounts
which would otherwise be payable in respect of the shares held by them upon
such distribution if all amounts payable on or with respect to said shares
were paid in full. After the payment of all preferential amounts required
to be paid to the holders of Senior Stock and Parity Stock and any other
series of the Company's preferred stock upon any Liquidation of the
Company, the holders of shares of Junior Stock then outstanding shall be
entitled to receive the remaining assets and funds of the Company available
for distribution to its stockholders in accordance with the terms thereof.
(b) Certain Definitions. (i) The term "Liquidation of the Company"
shall mean any voluntary or involuntary liquidation, dissolution or
winding-up of the affairs of the Company.
(ii) The term "Liquidation Amount" shall mean an amount per share
of Class E Preferred Stock equal to the greater of: (A) the Accreted
Value plus any per share dividends accrued
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on the Class E Preferred Stock (whether or not earned or declared)
since the most recent Dividend Payment Date and (B) the per share
amount that holders of the Class E Preferred Stock would have received
had they exercised their right to convert the Class E Preferred Stock
to Common Stock immediately prior to a Liquidation of the Company.
5. VOTING.
(a) Number of Votes. Each issued and outstanding share of Class E
Preferred Stock shall be entitled to the number of votes equal to the
number of shares of Common Stock into which each such share of Class E
Preferred Stock is then convertible (as adjusted from time to time), at
each meeting of holders of the Common Stock of the Company (or any written
consent without a meeting in accordance with the Minnesota Business
Corporation Act) with respect to any and all matters presented to such
shareholders for their action or consideration, provided that no holder
(based solely on its ownership of Class E Preferred Stock) shall be
entitled to more than the number of votes equal to 17.5% (the "Maximum
Percentage") of the voting power of the Voting Securities outstanding on
the record date for which a vote is being taken (and therefore to the
extent that its ownership of Class E Preferred Stock would entitle it to
voting power in excess of 17.5%, the voting power shall be reduced to that
percentage) and provided further that, with respect to any holder of fewer
than 50,000 shares of Class E Preferred Stock, the Maximum Percentage shall
be reduced to the percentage which bears the same proportion to 17.5% as
the number of shares of Class E Preferred Stock held by such holder bears
to 50,000. Except as provided by law, by the provisions of this Section 5
or by the provisions establishing any other series of the Company's
preferred stock, holders of Class E Preferred Stock and of any other
outstanding preferred stock then entitled to vote shall vote together with
the holders of Common Stock as a single class.
(b) Class E Directors. Each of the two holders who purchase the
largest number of shares of Class E Preferred Stock shall have the right to
appoint a person to serve as a director of the Company (a "Class E
Director") for so long as such holder continues to own shares of Class E
Preferred Stock and/or shares of Common Stock issued on conversion or
redemption of shares of Class E Preferred Stock which together represent
beneficial ownership of at least 40% of the number of shares of Common
Stock issuable upon conversion or redemption of the Class E Preferred Stock
initially purchased by such holder (without giving effect to the
anti-dilution provisions contained in Section 7 hereof). Any vacancy in the
position of a Class E Director may be filled by and only by the holder who
appointed the Class E Director whose position has become vacant. Each Class
E Director may, during his or her term of office, be removed at any time,
with or without cause, by and only by the holder who appointed such Class E
Director.
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(c) Protective Provisions. In addition to any other rights provided by
law, the Company shall not (i) without first obtaining the affirmative vote
or written consent of a majority of the holders of the Class E Preferred
Stock, voting separately as a class, (A) amend, alter or repeal any
provision of the Company's Articles of Incorporation or By-Laws in a manner
that is adverse to the holders of the Class E Preferred Stock, or (B)
authorize the issuance of a class or series of capital stock having
preferences or rights with respect to dividends or dissolution or the
distribution of assets that would be superior to the preferences or rights
of the Class E Preferred Stock, and (ii) without first obtaining the
affirmative vote or written consent of a majority of the holders of the
Company's Voting Securities other than MCI WORLDCOM, Inc. (together with
its majority-owned subsidiaries and other controlled affiliates, "MCI
WCOM"), (A) authorize any transaction of a type referred to in clause (i)
or clause (ii) of the definition of "Change of Control," (B) authorize or
consent to any liquidation, dissolution or winding-up of the affairs of the
Company, or (C) enter into any merger or consolidation into or with MCI
WCOM or enter into any other contract or arrangement involving the sale or
license of the Company's material assets with MCI WCOM (excluding
contractual arrangements with MCI WCOM existing as of the Filing Date).
6. OPTIONAL CONVERSION. At any time and from time to time, each share of
Class E Preferred Stock may be converted, at the option of the holder thereof,
into the number of fully paid and nonassessable shares of Common Stock obtained
by dividing the amount determined pursuant to clause (A) of the definition of
Liquidation Amount by the Conversion Price then in effect (the "Conversion
Rate"); provided, however, that upon any Liquidation of the Company, the right
of conversion shall terminate at the close of business on the full business day
next preceding the date fixed for such redemption or for the payment of any
amounts distributable on liquidation to the holders of Class E Preferred Stock.
No notice delivered by the Company of any proposed redemption, change of control
or other event will limit in any way the holders' rights to convert Class E
Preferred Stock into Common Stock of the Company.
(a) Initial Conversion Rate. The initial Conversion Rate for the Class
E Preferred Stock shall be 193.7984 shares of Common Stock for each one
share of Class E Preferred Stock surrendered for conversion representing an
initial Conversion Price of $5.16 per share of Common Stock. The applicable
Conversion Rate and Conversion Price from time to time in effect is subject
to adjustment as hereinafter provided.
(b) No Fractional Shares. If any fraction of a share of Common Stock
would be issuable upon conversion of any Class E Preferred Stock, the
Company shall round up to the next whole
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share the number of shares of Class E Preferred Stock to be issued upon
such conversion.
(c) Adjustment. Whenever the Conversion Rate and Conversion Price
shall be adjusted as provided herein, the Company shall forthwith file at
each office designated for the conversion of Class E Preferred Stock, a
statement, signed by the President, any Vice President or Treasurer of the
Company, showing in reasonable detail the facts requiring such adjustment
and the Conversion Rate that will be effective after such adjustment. The
Company shall also cause a notice setting forth any such adjustments to be
sent by mail, first class, postage prepaid, to each record holder of Class
E Preferred Stock at his or its address appearing on the stock register. If
such notice relates to an adjustment resulting from an event referred to in
Section 7(g), such notice shall be included as part of the notice required
to be mailed and published under the provisions of such Section 7(g).
(d) Exercise. In order to exercise the conversion privilege, the
holder of any Class E Preferred Stock to be converted shall surrender his
or its certificate or certificates therefore to the principal office of the
transfer agent for the Class E Preferred Stock (or if no transfer agent be
at the time appointed, then the Company at its principal office), and shall
give written notice to the Company at such office that the holder elects to
convert the Class E Preferred Stock represented by such certificates, or
any number thereof. Such notice shall also state the name or names (with
address) in which the certificate or certificates for shares of Common
Stock which shall be issuable on such conversion shall be issued, subject
to any restrictions on transfer relating to shares of the Class E Preferred
Stock or shares of Common Stock upon conversion thereof. If so required by
the Company, certificates surrendered for conversion shall be endorsed or
accompanied by written instrument or instruments of transfer, in form
satisfactory to the Company, duly authorized in writing. The date of
receipt by the transfer agent (or by the Company if the Company serves as
its own transfer agent) of the certificates and notice shall be the
conversion date. Within three Market Days after receipt of such notice and
the surrender of the certificate or certificates for Class E Preferred
Stock as set forth herein, the Company shall cause to be issued and
delivered at such office to such holder, or on his or its written order, a
certificate or certificates for the number of full shares of Common Stock
issuable on such conversion in accordance with the provisions hereof and
cash as provided in Section 6(b) in respect of any fraction of a share of
Common Stock otherwise issuable upon such conversion.
(e) Reservation of Shares of Common Stock. The Company shall at all
times while any shares of Class E Preferred Stock shall be outstanding,
reserve and keep available out of its authorized but unissued stock, for
the purposes of effecting the
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conversion of the Class E Preferred Stock, such number of its duly
authorized shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all outstanding Class E Preferred Stock. Before
taking any action which would cause an adjustment reducing the Conversion
Price below the then par value of the shares of Common Stock issuable upon
conversion of the Class E Preferred Stock, the Company will 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 such Common Stock at such adjusted Conversion
Price.
(f) Surrender. All shares of Class E Preferred Stock which shall have
been surrendered for conversion as herein provided shall no longer be
deemed to be outstanding and all rights with respect to such shares,
including the rights, if any, to receive notices and to vote, shall
forthwith cease and terminate except only the right of the holder thereof
to receive shares of Common Stock in exchange therefor and payment of any
accrued and unpaid dividends on such shares of Common Stock. Any shares of
Class E Preferred Stock so converted shall be retired and canceled and
shall not be reissued, and the Company may from time to time take such
appropriate action as may be necessary to reduce the authorized Class E
Preferred Stock accordingly.
7. ANTI-DILUTION PROVISIONS.
(a) General. In order to prevent dilution of the rights granted
hereunder, the Conversion Price shall be subject to adjustment from time to
time in accordance with this Section 7. Upon each adjustment of the
Conversion Price pursuant to this Section 7, the registered holder of
shares of Class E Preferred Stock shall thereafter be entitled to acquire
upon conversion, at the Conversion Price resulting from such adjustment,
the number of shares of Common Stock obtainable by multiplying the
Conversion Price in effect immediately prior to such adjustment by the
number of shares of Common Stock acquirable immediately prior to such
adjustment and dividing the product thereof by the Conversion Price
resulting from such adjustment.
(b) Adjustment of Conversion Price. Except as provided in Sections
7(c) or 7(f) below, if and whenever on or after the Filing Date, the
Company shall issue or sell, or shall pursuant to Section 7(b)(1) through
(10) inclusive, be deemed to have issued or sold any shares of its Common
Stock for a consideration per share that is (i) at any time prior to the
closing of a Qualified Initial Public Offering, less than the per share
Conversion Price in effect immediately prior to the time of such issue or
sale or (ii) at any time during the three-year period after the closing of
a Qualified Initial Public Offering, less than 90% of the Current Market
Price Per Common Share calculated as of the date of such issue or sale,
then forthwith upon such issue or sale (the "Triggering Transaction"), the
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Conversion Price shall, subject to Section 7(b)(1) through (10) inclusive,
be reduced to the Conversion Price (calculated to the nearest one-hundredth
of a cent) determined by dividing: (A) an amount equal to the sum of the
product derived by multiplying the Number of Common Shares Deemed
Outstanding immediately prior to such Triggering Transaction by the
Conversion Price then in effect, plus the consideration, if any, received
by the Company upon consummation of such Triggering Transaction by (B) an
amount equal to the sum of the Number of Common Shares Deemed Outstanding
immediately prior to such Triggering Transaction plus the number of shares
of Common Stock issued (or deemed to be issued in accordance with Section
7(b)(1) through (10) inclusive) in connection with the Triggering
Transaction. The term "Number of Common Shares Deemed Outstanding" at any
given time shall mean the sum of (i) the number of shares of Common Stock
outstanding at such time, (ii) the number of shares of Common Stock
issuable upon conversion or exchange at such time of all of the Company's
outstanding securities that are then convertible into, or exchangeable for,
Common Stock and (iii) the number of shares of the Company's Common Stock
deemed to be outstanding under Section 7(b)(1) through (10) inclusive, at
such time. For purposes of determining the adjusted Conversion Price under
this Section 7(b), the following provisions shall be applicable:
(1) In case the Company at any time shall in any manner grant
(whether directly or by assumption in a merger or otherwise) any
rights to subscribe for or to purchase, or any options for the
purchase of, Common Stock or any stock or other securities convertible
into or exchangeable for Common Stock (such rights or options being
herein called "Options" and such convertible or exchangeable stock or
securities being herein called "Convertible Securities"), whether or
not such Options or the right to convert or exchange any such
Convertible Securities are immediately exercisable and the price per
share for which the Common Stock is issuable upon exercise, conversion
or exchange (determined by dividing (Y) the total amount, if any,
received or receivable by the Company as consideration for the
granting of such Options, plus the minimum aggregate amount of
additional consideration payable to the Company upon the 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 upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by
(Z) the total maximum number of shares of Common Stock issuable upon
the exercise of such Options or the conversion or exchange of such
Convertible Securities) shall be less than the Conversion Price in
effect immediately prior to the time of the granting of such Option,
then the total maximum amount of Common Stock issuable upon the
exercise of such Options or in the case of Options for Convertible
Securities, upon the conversion or exchange of such Convertible
Securities shall (as of the date of granting of
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such Options) be deemed to be outstanding and to have been issued and
sold by the Company for such price per share. No further adjustment of
the Conversion Price shall be made upon the actual issue of such
shares of Common Stock or such Convertible Securities upon the
exercise of such Options, except as otherwise provided in Section
7(b)(3).
(2) In case the Company at any time shall in any manner issue
(whether directly or by assumption in a merger or otherwise) or sell
any Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per
share for which Common Stock is issuable upon such conversion or
exchange (determined by dividing (Y) 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 (Z) the total maximum number of
shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities) shall be less than the 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 all such Convertible Securities shall (as of
the date of the issue or sale of such Convertible Securities) be
deemed to be outstanding and to have been issued and sold by the
Company for such price per share. No further adjustment of the
Conversion Price shall be made upon the actual issue of such Common
Stock upon exercise of the rights to exchange or convert under such
Convertible Securities, except as otherwise provided in Section
(7)(b)(3).
(3) If the purchase price provided for in any Options referred to
in Section 7(b)(1), the additional consideration, if any, payable upon
the conversion or exchange of any Convertible Securities referred to
in Sections 7(b)(1) or (2), or the rate at which any Convertible
Securities referred to in Sections 7(b)(1) or (2) are convertible into
or exchangeable for Common Stock shall change at any time (other than
under or by reason of provisions designed to protect against dilution
of the type set forth in Sections 7(b) or 7(d)), the Conversion Price
in effect at the time of such change shall forthwith be readjusted to
the 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. If the purchase price provided for in any Option referred to in
Section 7(b)(1) or the rate at which any Convertible Securities
referred to in Sections 7(b)(1) or (2) are convertible into or
exchangeable for Common Stock, shall be reduced at any time under or
by reason of
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provisions with respect thereto designed to protect against dilution,
then in case of the delivery of Common Stock upon the exercise of any
such Option or upon conversion or exchange of any such Convertible
Security, the Conversion Price then in effect hereunder shall
forthwith be adjusted to such respective amount as would have been
obtained had such Option or Convertible Security never been issued as
to such Common Stock and had adjustments been made upon the issuance
of the shares of Common Stock delivered as set forth herein, but only
if as a result of such adjustment the Conversion Price then in effect
hereunder is hereby reduced.
(4) On the expiration of any Option or the termination of any
right to convert or exchange any Convertible Securities, the
Conversion Price then in effect hereunder shall forthwith be increased
to the Conversion Price which would have been in effect at the time of
such expiration or termination had such Option or Convertible
Securities, to the extent outstanding immediately prior to such
expiration or termination, never been issued.
(5) In case any Options shall be issued in connection with the
issue or sale of other securities of the Company, together comprising
one integral transaction in which no specific consideration is
allocated to such Options by the parties thereto, such Options shall
be deemed to have been issued without consideration.
(6) In case any shares of Common Stock, Options or Convertible
Securities shall be 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. In case any shares of
Common Stock, Options or Convertible Securities shall be 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 as determined in good faith by the
Board. In case any shares of Common Stock, Options or Convertible
Securities shall be issued 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 corporation as shall be
attributable to such Common Stock, Options or Convertible Securities,
as the case may be.
(7) 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, and the disposition of any shares so owned or held shall
be considered an issue or sale of Common Stock for the purpose of this
Section 7(b).
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(8) In case the Company shall declare a dividend or make any
other distribution upon the stock of the Company payable in Options or
Convertible Securities, then in such case any Options or Convertible
Securities, as the case may be, issuable in payment of such dividend
or distribution shall be deemed to have been issued or sold without
consideration.
(9) For purposes of this Section 7(b), in case the Company shall
take a record of the holders of its Common Stock for the purpose of
entitling them to receive a dividend or other distribution payable in
Common Stock, Options or in Convertible Securities or to subscribe for
or purchase Common Stock, Options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution
or the date of the granting of such right or subscription or purchase,
as the case may be.
(10) For purposes of this Section 7(b), notwithstanding Section
7(f), in the event that the "Class B Warrants" issued to MCI WCOM on
September 26, 1997 vest and become exercisable for shares of Common
Stock, whether or not MCI WCOM shall exercise such Class B Warrants,
the consideration per share that the Common Stock shall be deemed to
have been issued or sold at shall be equal to $4.98.
(c) Liquidating Dividends. In the event the Company shall declare a
dividend upon the Common Stock (other than a dividend payable in Common
Stock) payable otherwise than out of earnings or earned surplus, determined
in accordance with generally accepted accounting principles, including the
making of appropriate deductions for minority interests, if any, in
subsidiaries (herein referred to as "Liquidating Dividends"), then the
Company shall pay to the person converting such Class E Preferred Stock an
amount equal to the aggregate value of such Liquidating Dividends
(including but not limited to the Common Stock which would have been issued
at the time of such earlier exercise and all other securities which would
have been issued with respect to such Common Stock by reason of stock
splits, stock dividends, mergers or reorganizations, or for any other
reason). For the purposes of this Section 7(c), a dividend other than in
cash shall be considered payable out of earnings or earned surplus only to
the extent that such earnings or earned surplus are charged an amount equal
to the fair value of such dividend as determined in good faith by the
Board.
(d) Subdivisions and Dividends; Combinations. In case the Company
shall at any time (i) subdivide the outstanding Common Stock or (ii) issue
a stock dividend on its outstanding Common Stock, the number of shares of
Common Stock issuable upon
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conversion of the Class E Preferred Stock shall be proportionately
increased by the same ratio as the subdivision or dividend (with
appropriate adjustments to the Conversion Price in effect immediately prior
to such subdivision or dividend). In case the Company shall at any time
combine its outstanding Common Stock, the number of shares issuable upon
conversion of the Class E Preferred Stock immediately prior to such
combination shall be proportionately decreased by the same ratio as the
combination (with appropriate adjustments to the Conversion Price in effect
immediately prior to such combination).
(e) Reorganizations, etc. If any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or
merger of the Company with another corporation, or the sale of all or
substantially all of its assets to another corporation shall be effected in
such a way that holders of Common Stock shall be entitled to receive stock,
securities, cash or other property with respect to or in exchange for
Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate
provision shall be made whereby the holders of the Class E Preferred Stock
shall have the right to acquire and receive upon conversion of the Class E
Preferred Stock, which right shall be prior to the rights of the holders of
Junior Stock, equal to the rights of the holders of Parity Stock and after
and subject to the rights of holders of Senior Stock, such shares of stock,
securities, cash or other property issuable or payable (as part of the
reorganization, reclassification, consolidation, merger or sale) with
respect to or in exchange for such number of outstanding shares of Common
Stock as would have been received upon conversion of the Class E Preferred
Stock at the Conversion Price then in effect.
(f) Exceptions to Antidilution. The provisions of this Section 7 shall
not apply to any Common Stock issued, issuable or deemed outstanding under
Section 7(b)(1) through (10) inclusive (and no such transaction shall
constitute a Triggering Transaction): (i) to any person pursuant to any
stock option, stock purchase or similar plan or arrangement for the benefit
of employees, consultants or other representatives of the Company or its
subsidiaries (A) in effect on the Filing Date or (B) thereafter adopted by
the Board and approved by the holders of the Voting Securities, (ii)
pursuant to options, warrants and conversion rights in existence on the
Filing Date (other than as provided for in Section 7(b)(10)) or (iii) on
conversion of the Class B Preferred Stock, the Class C Preferred Stock or
the Class D Preferred Stock.
(g) Procedures. In the event that (i) the Company shall declare any
cash dividend upon its Common Stock, (ii) the Company shall declare any
dividend upon its Common Stock payable in stock or make any special
dividend or other distribution to the holders of its Common Stock, (iii)
the Company shall offer for subscription pro rata to the holders of its
Common Stock any
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additional shares of stock of any class or other rights, (iv) there shall
be any capital reorganization or reclassification of the capital stock of
the Company, including any subdivision or combination of its outstanding
shares of Common Stock, or consolidation or merger of the Company with, or
sale of all or substantially all of its assets to, another corporation, (v)
there shall be a voluntary or involuntary dissolution, liquidation or
winding-up of the Company, then, in connection with any such event, the
Company shall give to the holders of the Class E Preferred Stock (A) at
least twenty (20) days prior written notice of the date on which the books
of the Company shall close or a record shall be taken for such dividend,
distribution or subscription rights or for determining rights to vote in
respect of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding-up; and (B) in the case
of any such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding-up, at least twenty (20) days prior
written notice of the date when the same shall take place. Such notice in
accordance with the foregoing clause (A) shall also specify, in the case of
any such dividend, distribution or subscription rights, the date on which
the holders of Common Stock shall be entitled thereto, and such notice in
accordance with the foregoing clause (B) shall also specify the date on
which the holders of Common Stock shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reorganization, reclassification consolidation, merger, sale, dissolution,
liquidation or winding-up, as the case may be. Each such written notice
shall be given by first class mail, postage prepaid, addressed to the
holders of the Class E Preferred Stock at the address of each such holder
as shown on the books of the Company.
(h) Intended Effect. If any event occurs as to which, in the opinion
of the Board, the provisions of this Section 7 are not strictly applicable
or if strictly applicable would not fairly protect the rights of the
holders of the Class E Preferred Stock in accordance with the essential
intent and principles of such provisions, then the Board shall make an
adjustment in the application of such provisions, in accordance with such
essential intent and principles, so as to protect such rights as set forth
herein, but in no event shall any adjustment have the effect of increasing
the Conversion Price as otherwise determined pursuant to any of the
provisions of this Section 7 except in the case of a combination of shares
of a type contemplated in Section 7(d) and then in no event to an amount
greater than the Conversion Price as adjusted pursuant to Section 7(d).
8. MANDATORY CONVERSION.
(a) Mandatory Conversion. Each share of Class E Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion
Price in effect on the last Market
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Day of the first consecutive period of twenty Market Days during which the
Current Market Price Per Common Share is at least 155% of the Conversion
Price beginning after the later to occur of the closing of an underwritten
offering which is a "Qualified Initial Public Offering" pursuant to an
effective registration statement under the Securities Act or the third
anniversary of the date of issuance of the Class E Preferred Stock
("Initial Issuance Date").
(b) A "Qualified Initial Public Offering" shall mean an initial public
offering of the Company's Common Stock raising not less than $50,000,000 of
gross proceeds.
(c) Procedures. All holders of record of shares of Class E Preferred
Stock will be given prompt written notice of the occurrence of mandatory
conversion and at least sixty (60) days prior written notice of the date
fixed for any optional conversion and also of the place designated for
conversion of all of such shares of Class E Preferred Stock. Such notice
will be sent by mail, first class, postage prepaid, to each record holder
of shares of Class E Preferred Stock at such holder's address appearing on
the stock register. Each holder of shares of Class E Preferred Stock shall
surrender his or its certificates or certificates for all such shares to
the Company at the place designated in such notice, and shall thereafter
receive certificates for the number of shares of Common Stock to which such
holder is entitled pursuant to this Section 8. On the date of occurrence of
mandatory conversion or the date fixed for any optional conversion, all
rights with respect to the Class E Preferred Stock so converted will
terminate, except only the rights of the holders thereof, upon surrender of
their certificate or certificates therefore, to receive certificates for
the number of shares of Common Stock into which such Class E Preferred
Stock has been converted and payment of any accrued and unpaid dividends
thereon. If so required by the Company, certificates surrendered for
conversion shall be endorsed or accompanied by written instrument or
instruments of transfer, in form satisfactory to the Company, duly executed
by the registered holder or by his attorneys duly authorized in writing.
All certificates evidencing shares of Class E Preferred Stock which are
required to be surrendered for conversion in accordance with the provisions
hereof shall, from and after the date such certificates are so required to
be surrendered, be deemed to have been retired and canceled and the shares
of Class E Preferred Stock represented thereby converted into Common Stock
for all purposes, notwithstanding the failure of the holder or holders
thereof to surrender such certificates. As soon as practicable after the
surrender of the certificate or certificates for Class E Preferred Stock as
set forth herein, the Company shall cause to be issued and delivered to
such holder, or on his or its written order, a certificate or certificates
for the number of full shares of Common Stock issuable on such conversion
in accordance with the provisions hereof and as provided in Section 6(b) in
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respect of any fraction of a share of Common Stock otherwise issuable upon
such conversion.
9. CHANGE OF CONTROL OFFER.
(a) Promptly after the occurrence of a Change of Control (the date of
such occurrence being the "Change of Control Date"), the Company shall
commence (or cause to be commenced) an offer to purchase all outstanding
shares of Class E Preferred Stock pursuant to the terms described in
Section 9(d) (the "Change of Control Offer") at a purchase price equal to
the Change of Control Amount on the Change of Control Payment Date, and
shall purchase (or cause the purchase of) any shares of Class E Preferred
Stock tendered in the Change of Control Offer pursuant to the terms hereof.
(b) At the Company's option, the Change of Control Amount shall be
payable in cash or in shares of Common Stock (or the securities of the
entity into which the Common Stock became converted in connection with the
Change of Control), which shares shall be valued for purposes of this
Section 9(b) at 97% of the Current Market Price Per Common Share on the
Change of Control Payment Date.
(c) If the Company elects to pay the Change of Control Amount in cash,
prior to the mailing of the notice referred to in Section 9(d), but in any
event within 30 days following the date on which a Change of Control has
occurred, the Company shall (A) promptly determine if the purchase of the
Class E Preferred Stock for cash would violate or constitute a default
under the indebtedness of the Company or the terms of any other series of
the Company's outstanding preferred stock and (B) either shall repay to the
extent necessary all such indebtedness or preferred stock of the Company
that would prohibit the repurchase of the Class E Preferred Stock pursuant
to a Change of Control Offer or obtain any requisite consents or approvals
under instruments governing any indebtedness or preferred stock of the
Company to permit the repurchase of the Class E Preferred Stock for cash.
The Company shall first comply with this Section 9(c) before it shall
repurchase for cash any Class E Preferred Stock pursuant to this Section 9.
(d) Within 30 days following the date on which a Change in Control has
occurred, the Company shall send, by first-class mail, postage prepaid, a
notice to each holder of Class E Preferred Stock. If applicable, such
notice shall contain all instructions and materials necessary to enable
such holders to tender Class E Preferred Stock pursuant to the Change of
Control Offer. Such notice shall state:
(i) that a Change of Control has occurred, that a Change of
Control Offer is being made pursuant to this
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<PAGE>
Section 9 and that all Class E Preferred Stock validly tendered and
not withdrawn will be accepted for payment;
(ii) the purchase price (including the amount of accrued
dividends, if any) and the purchase date (which must be no earlier
than 30 days nor later than 60 days from the date such notice is
mailed, other than as may be required by law) (the "Change of Control
Payment Date");
(iii) that any shares of Class E Preferred Stock not tendered
will continue to accrue dividends;
(iv) that, unless the Company defaults in making payment
therefor, any share of Class E Preferred Stock accepted for payment
pursuant to the Change of Control Offer shall cease to accrue
dividends after the Change of Control Payment Date;
(v) that holders electing to have any share of Class E Preferred
Stock purchased pursuant to a Change of Control Offer will be required
to surrender stock certificates representing such shares of Class E
Preferred Stock, properly endorsed for transfer, together with such
other customary documents as the Company and the Transfer Agent may
reasonably request to the Transfer Agent and registrar for the Class E
Preferred Stock at the address specified in the notice prior to the
close of business on the business day prior to the Change of Control
Payment Date;
(vi) that holders will be entitled to withdraw their election if
the Company receives, not later than five business days prior to the
Change of Control Payment Date, a telegram, facsimile transmission or
letter setting forth the name of the holder, the number of shares of
Class E Preferred Stock the holder delivered for purchase and a
statement that such holder is withdrawing its election to have such
shares of Class E Preferred Stock purchased;
(vii) that holders who tender only a portion of the shares of
Class E Preferred Stock represented by a certificate delivered will,
upon purchase of the shares tendered, be issued a new certificate
representing the unpurchased shares of Class E Preferred Stock; and
(viii) the circumstances and relevant facts regarding such Change
of Control (including information with respect to pro forma historical
income, cash flow and capitalization after giving effect to such
Change of Control).
(e) The Company will comply with any tender offer rules under the
Exchange Act which then may be applicable in connection with any offer made
by the Company to repurchase the
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<PAGE>
shares of Class E Preferred Stock as a result of a Change of Control. To
the extent that the provisions of any securities laws or regulations
conflict with provisions of this Certificate of Designation, the Company
shall comply with the applicable securities laws and regulations and shall
not be deemed to have breached its obligation under this Certificate of
Designation by virtue thereof.
(f) On the Change of Control Payment Date, the Company shall (i)
accept for payment the shares of Class E Preferred Stock validly tendered
pursuant to the Change of Control Offer, (ii) pay to the holders of shares
so accepted the purchase price therefor in cash or Common Stock (or the
securities of the entity into which the Common Stock became converted in
connection with the Change of Control) as provided above and (iii) cancel
each surrendered certificate and retire the shares represented thereby.
Unless the Company defaults in the payment for the shares of Class E
Preferred Stock tendered pursuant to the Change of Control Offer, dividends
will cease to accrue with respect to the shares of Class E Preferred Stock
tendered and all rights of holders of such tendered shares will terminate,
except for the right to receive payment therefor on the Change of Control
Payment Date.
(g) To accept the Change of Control Offer, the holder of a share of
Class E Preferred Stock shall deliver, prior to the close of business on
the business day prior to the Change of Control Payment Date, written
notice to the Company (or an agent designated by the Company for such
purpose) of such holder's acceptance, together with certificates evidencing
the shares of Class E Preferred Stock with respect to which the Change of
Control Offer is being accepted, duly endorsed for transfer.
(h) For the avoidance of doubt, nothing in this Section 9 shall
restrict the right of the holders of Class E Preferred Stock, in connection
with a Change of Control, to convert and to receive the kind and amount of
consideration payable to holders of Common Stock in respect of the Common
Stock into which the Class E Preferred Stock may be converted.
10. CERTAIN MERGERS. In connection with any consolidation with or merger
with or into, any person in a transaction where the Common Stock is converted
into or exchanged for securities of such person or an affiliate of such person,
the Company covenants that the person issuing such securities will be organized
and existing under the laws of a jurisdiction which allows for the issuance of
preference stock and that the Class E Preferred Stock shall be converted into or
exchanged for and shall become shares of such person having in respect of such
person substantially the same powers, preference and relative participating,
optional or other special rights and the qualifications, limitations or
restrictions thereon that the Class E Preferred Stock had immediately prior to
such transaction.
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<PAGE>
11. REDEMPTION.
(a) Mandatory Redemption. On December 31, 2008, the Company will be
required to redeem all of the outstanding shares of Class E Preferred Stock
at a redemption price per share equal to the Liquidation Amount on such
date.
(b) Optional Redemption. At any time after the third anniversary of
the Initial Issuance Date, the Company may, at its option, redeem all (but
not less than all) of the shares of Class E Preferred Stock at a cash
redemption price equal to 155% of the Liquidation Amount on the date
specified for redemption plus accrued dividends thereon from such date to
the date of payment of the redemption price.
(c) Notice. Notice of such redemption shall be given by the Company by
first class mail, postage prepaid, mailed not less than 30 days nor more
than 60 days prior to the redemption date, to each holder of record of the
shares to be redeemed at such holder's address as the same appears on the
stock register of the Company; provided that neither the failure to give
such notice nor any defect therein shall affect the validity of the giving
of notice for the redemption of any share of Class E Preferred Stock to be
redeemed except as to the holder to whom the Company has failed to give
said notice or except as to the holder whose notice was defective. Each
such notice shall state: (i) the redemption date; (ii) the redemption
price; (iii) the place or places where certificates for such shares are to
be surrendered for payment of the redemption price; and (iv) that dividends
on the shares to be redeemed will cease to accrue on such redemption date.
(d) Dividends; Payment. Notice having been mailed as aforesaid, from
and after the redemption date (unless default shall be made by the Company
in providing money for the payment of the redemption price of the shares
called for redemption), dividends on the shares of Class E Preferred Stock
so called for redemption shall cease to accrue, and all rights of the
holders thereof as shareholders of the Company (except the right to receive
from the Company the redemption price) shall cease. Upon surrender in
accordance with said notice of the certificates for any shares so redeemed
(properly endorsed or assigned for transfer, if the Board of Directors of
the Company shall so require and the notice shall so state), such share
shall be redeemed by the Company at the redemption price aforesaid.
12. CONVERTED AND REACQUIRED SHARES. Any shares of Class E Preferred Stock
converted into Common Stock, redeemed, purchased or otherwise acquired by the
Company in any manner whatsoever shall be retired and canceled promptly after
the acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of undesignated stock of the Company and may be
reissued subject to the conditions and
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<PAGE>
restrictions on issuance in the Articles of Incorporation, in any other
Certificate of Designation creating a series of preferred stock or any similar
stock or as otherwise required by law.
13. PRE-EMPTIVE RIGHTS. Until the closing of a Qualified Initial Public
Offering, the holders of the Class E Preferred Stock shall have pre-emptive
rights to the extent set forth in Section 302A.413 of the Minnesota Business
Corporation Act as in effect on the Filing Date, except that the provisions of
subdivision 4, clause (e) thereof shall not apply.
14. AMENDMENT. If any proposed amendment to the Articles of Incorporation,
including this Certificate of Designation, would alter or change the
preferences, special rights or powers given to the holders of the Class E
Preferred Stock so as to affect such holders adversely, or would authorize the
issuance of a class or classes of stock having preferences or rights with
respect to dividends or dissolution or the distribution of assets that would be
superior to the preferences or rights of the Class E Preferred Stock, then the
holders of the Class E Preferred Stock shall be entitled to vote as a class upon
such amendment, and the affirmative vote of two-thirds of the outstanding shares
of Class E Preferred Stock shall be necessary for the adoption thereof, in
addition to such other vote as may be required by law.
15. MISCELLANEOUS. If, in connection with a Change of Control Offer
pursuant to Section 9 or a redemption pursuant to Section 11, the Company
determines to pay the Change of Control Amount or the redemption price in shares
of Common Stock, the Company will (a) file a registration statement to register
such shares of Common Stock under the Securities Act, (b) cause such
registration statement to be effective at or prior to the time that the Company
will deliver such shares to the holders of Class E Preferred Stock, (c) have
such shares listed on the principal trading market for the Common Stock and (d)
take such other actions as may reasonably be required to register the issuance
(or, as appropriate, the re-sale) of the shares of Common Stock to be delivered
to the holders of the Class E Preferred Stock to enable such shares of Common
Stock to be sold without restriction.
16. DEFINITIONS. The following terms, as used herein, shall have the
following meanings:
"Accreted Value" equals, with respect to one share of Class E
Preferred Stock, $1,000, plus the amount of any dividends added to Accreted
Value in accordance with Section 3(b) (which aggregate amount shall be
subject to adjustment whenever there shall occur a stock split,
combination, re-classification or other similar event involving the Class E
Preferred Stock).
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<PAGE>
"Change of Control" means: (i) the sale, lease, transfer, conveyance
other disposition (other than by way of merger or consolidation), in one or
a series of related transactions, of all or substantially all of the assets
of the Company and its subsidiaries taken as a whole to any "person" (as
such term is used in Section 13(d)(3) of the Exchange Act, other than a
holder of Class E Preferred Stock on the Initial Issuance Date, (ii) the
consummation of any transaction (including any merger or consolidation) the
result of which is that (A) any "person" (as defined above) other than a
holder of Class E Preferred Stock on the Initial Issuance Date becomes the
beneficial owner (as determined in accordance with Rules 13d-3 and 13d-5
under the Exchange Act except that a person will be deemed to have
beneficial ownership of all shares that such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 50% of the Voting
Securities of the Company, other than in connection with an underwritten
public offering of securities of the Company or (B) the holders of Voting
Securities become entitled to receive less than 50% of the voting power of
holders of the equity securities of the surviving entity, or (iii) the
first day on which a majority of the members of the Board of Directors of
the Company are not Continuing Directors.
"Change of Control Amount" means, with respect to one share of Class E
Preferred Stock, the greater of (i) 125% of the Liquidation Amount per
share on the Change of Control Payment Date or (ii) the per share amount a
holder of Class E Preferred Stock would have received had he exercised his
right to convert a share of Class E Preferred Stock into shares of Common
Stock immediately prior to the issuance of a Change of Control.
"Continuing Directors" means individuals who constituted the Board of
Directors of the Company on the Filing Date (the "Incumbent Directors");
provided that any individual becoming a director during any year shall be
considered to be an Incumbent Director if such individual's election,
appointment or nomination was recommended or approved by at least
two-thirds of the other Incumbent Directors continuing in office following
such election, appointment or nomination present, in person or by
telephone, at any meeting of the Board of Directors of the Company, after
the giving of a sufficient notice to each Incumbent Director so as to
provide a reasonable opportunity for such Incumbent Directors to be present
at such meeting.
"Current Market Price Per Common Share" means, as of any date, the
average (weighted by daily trading volume) of the Daily Prices per share of
Common Stock for the 20 consecutive Market Days immediately prior to such
date.
"Daily Price" means, as of any date, (i) if the shares of such class
of Common Stock then are listed and traded on the New York Stock Exchange,
Inc. ("NYSE"), the closing price on such
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<PAGE>
date as reported on the NYSE Composite Transactions Tape; (ii) if the
shares of such class of Common Stock then are not listed and traded on the
NYSE, the closing price on such date as reported by the principal national
securities exchange on which the shares are listed and traded; (iii) if the
shares of such class of Common Stock then are not listed and traded on any
such securities exchange, the last reported sale price on such date on
Nasdaq National Market; or (iv) if the shares of such class of Common Stock
then are not traded on the Nasdaq National Market, the average of the
highest reported bid and lowest reported asked price on such date as
reported by Nasdaq.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Market Day" means a day on which the principal national securities
market or exchange on which the Common Stock is listed or admitted for
trading is open for the transaction of business.
"Securities Act" means the Securities Act of 1933, as amended.
"Voting Securities" means securities of the Company ordinarily having
the power to vote for the election of directors of the Company, including
but not limited to the Common Stock and all classes and series of
Undesignated Stock the holders of which have the right to vote with holders
of the Common Stock as a class.
RESOLVED FURTHER, that the officers of this Company be, and each of them
acting alone is, hereby authorized and instructed to take all steps necessary to
execute, deliver and file, for and on behalf of this Company and in its name,
any and all documents required in connection with the establishment and
authorization of the Company's Class E Preferred Stock, including but not
limited to filing the Statement of Rights and Preferences with the Minnesota
Secretary of State in accordance with Minnesota Statutes, Section 302A.401.
F. The undersigned further declares under penalty of perjury that the
matters set out in the foregoing Certificate are true and correct of his own
knowledge.
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<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this certificate as of the
8th day of March, 2000.
/s/ Edward J. Driscoll, Jr.
-----------------------------------------
Edward J. Driscoll, Jr.
Secretary
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EXHIBIT 4.32
CERTIFICATE OF DESIGNATION OF RIGHTS AND PREFERENCES
OF
CLASS F CONVERTIBLE PREFERRED STOCK
OF
WAM!NET INC.
- --------------------------------------------------------------------------------
The undersigned, Edward J. Driscoll, Jr., hereby certifies that:
A. He is the duly elected and acting Secretary of WAM!NET Inc. (the
"Company"), a Minnesota corporation.
B. The Articles of Incorporation of this Company provide for a class of up
to 50,000,000 shares known as Undesignated Stock, par value $.01 per share,
which shares may be issued from time to time in one or more classes or series.
C. The Board of Directors of the Company is authorized, pursuant to Article
6 of the Company's Articles of Incorporation and Minnesota Statutes, Section
302A.401, to fix or alter the rights, preferences, privileges, and restrictions
granted to or imposed upon any wholly unissued series of Undesignated Stock, to
fix the number of shares constituting the series, and to determine the
designation thereof.
D. It is the desire of the Board of Directors of the Company, pursuant to
its authority, to fix the rights, preferences, restrictions and other matters
relating to the Undesignated Stock and the number of shares of Undesignated
Stock.
E. Pursuant to authority given by Article 6 of the Company's Articles of
Incorporation, the Company's Board of
<PAGE>
Directors has adopted the following resolutions as of February 3, 2000:
RESOLVED, that, pursuant to Article 6 of the Articles of Incorporation of
WAM!NET Inc. (the "Company"), the Board of Directors of the Company (the
"Board") hereby creates and designates a series of Convertible Preferred Stock,
par value $0.01 per share, and authorizes the issuance of up to 50,000 of such
shares, and hereby fixes the designations, powers, preferences and relative,
participating, optional and other special rights, and the qualifications,
limitations or restrictions, of such shares, as follows:
1. DESIGNATION AND AMOUNT. The shares of such series shall be designated
"Class F Convertible Preferred Stock" (the "Class F Preferred Stock") and the
number of shares constituting such series shall be 50,000.
2. RANK. The Class F Preferred Stock shall rank, with respect to dividend
rights and distribution of assets on any Liquidation of the Company (as defined
herein) (a) junior to any other class or series of the Company's preferred stock
which shall specifically provide that such class or series shall rank senior to
the Class F Preferred Stock (the "Senior Stock"); (b) on parity with (i) the
Company's Class A Preferred Stock, par value $10.00 per share (the "Class A
Preferred Stock") (except with respect to a Liquidation of the Company resulting
from the merger or consolidation of the Company into or with another
corporation, the merger or consolidation of any other corporation into or with
the Company or the sale of all or substantially all the assets of the Company,
which events do not give rise to a right of the holders of the Class A Preferred
Stock to receive distributions), (ii) the Company's Class B Convertible
Preferred Stock, par value $0.01 per share (the "Class B Preferred Stock"),
(iii) the Company's Class C Convertible Preferred Stock, par value $0.01 per
share (the "Class C Preferred Stock"), (iv) the Company's Class D Convertible
Preferred Stock, par value $0.01 per share (the "Class D Preferred Stock"), (v)
the Company's Class E Preferred Stock, par value $0.01 per share (the "Class E
Preferred Stock"), and (vi) any other class or series of the Company's preferred
stock which shall specifically provide that such class or series shall rank on
parity with the Class F Preferred Stock ((i) through (iv) collectively, the
"Parity Stock"); and (c) prior to (i) the Company's common stock, par value
$0.01 per share (the "Common Stock"), and (ii) any other class or series of the
Company's Undesignated Stock except for any class or series which is Senior
Stock or Parity Stock ((i) and (ii) together, the "Junior Stock").
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<PAGE>
3. DIVIDENDS.
(a) Each holder of Class F Preferred Stock shall be entitled to
receive, in respect of each Dividend Period, when, as and if declared by
the Board of Directors of the Company, out of funds legally available for
the payment of dividends, cumulative dividends in an amount per share equal
to the Applicable Percentage of the Accreted Value as of the immediately
preceding Dividend Payment Date (or, for the initial Dividend Period, as of
the date of issuance). Dividends paid pursuant to this paragraph 3(a) shall
be payable in arrears monthly on the last day of each month (each of such
dates being a "Dividend Payment Date" and each such monthly period being a
"Dividend Period"). Such dividends shall accrue from the date of issue
(except that dividends on any amounts added to Accreted Value pursuant to
Section 3(b) shall accrue from the date such amounts are added to Accreted
Value), whether or not in any Dividend Period or Periods there shall be
funds of the Company legally available for the payment of such dividends.
Each such dividend shall be payable to the holders of record of shares of
the Class F Preferred Stock on the 25th day of each month, as they appear
on the stock records of the Company at the close of business on such record
dates.
(b) At the Company's option, dividends may be paid in cash. If
dividends are not paid in cash on any Dividend Payment Date for the
immediately preceding Dividend Period (or portion thereof if less than a
full Dividend Period), the unpaid amount shall be added to the Accreted
Value for purposes of calculating succeeding periods' dividends.
Notwithstanding anything else contained herein, once any dividends for the
immediately preceding Dividend Period (or portion thereof if less than a
full Dividend Period) are so added to Accreted Value, such dividends will
no longer be payable in cash.
(c) The Applicable Percentage for each full Dividend Period for the
Class F Preferred Stock shall be 0.5834%. The Applicable Percentage for the
initial Dividend Period, or any other period shorter or longer than a full
Dividend Period, on the Class F Preferred Stock shall be computed on the
basis of a per annum rate of 7.0008% and the actual number of days elapsed
over 12 30-day months and a 360-day year.
(d) So long as any shares of the Class F Preferred Stock are
outstanding, no dividends, except as described in the next succeeding
sentence, shall be declared or paid or set apart for payment on Parity
Stock for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for such payment on the Class F Preferred
Stock (or the unpaid amount shall have been added to the Accreted Value
pursuant to Section 3(b)) for all Dividend Periods terminating on or prior
to the date of payment of the dividend on such class or series of Parity
Stock. When dividends are not paid in full or a sum
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<PAGE>
sufficient for such payment is not set apart, as aforesaid, all dividends
declared upon shares of the Class F Preferred Stock and all dividends
declared upon any other class or series of Parity Stock shall be declared
ratably in proportion to the respective amounts of dividends accrued on the
Class F Preferred Stock and accrued and unpaid on such Parity Stock.
(e) Limit on Junior Dividends and Redemption. For so long as the Class
F Preferred Stock remains outstanding, the Company shall not pay any
dividend upon the Junior Stock, whether in cash or other property (other
than shares of Junior Stock), or purchase, redeem or otherwise acquire any
such Junior Stock; provided, however, that nothing in this Section 3(e)
shall prohibit or otherwise limit the ability of the Company to make any
purchase, redemption or other acquisition pursuant to written agreements
existing as of the date of filing of the Certificate of Designation of the
Class F Preferred Stock (the "Filing Date").
4. LIQUIDATION, DISSOLUTION OR WINDING-UP.
(a) Liquidation Preference. In the event of any Liquidation of the
Company, the holders of shares of Class F Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Company available for
distribution to its stockholders, after and subject to the payment in full
of all amounts required to be distributed to the holders of Senior Stock
upon such Liquidation of the Company and before any payment shall be made
to the holders of Junior Stock, the Liquidation Amount (as defined herein)
per share of Class F Preferred Stock. If upon any such Liquidation of the
Company, the remaining assets of the Company available for the distribution
to its stockholders after payment in full of amounts required to be paid or
distributed to holders of Senior Stock shall be insufficient to pay the
holders of shares of Parity Stock the full amount to which they shall be
entitled, the holders of the Class F Preferred Stock shall share ratably
with the holders of Parity Stock in any distribution of the remaining
assets and funds of the Company in proportion to the respective amounts
which would otherwise be payable in respect of the shares held by them upon
such distribution if all amounts payable on or with respect to said shares
were paid in full. After the payment of all preferential amounts required
to be paid to the holders of Senior Stock and Parity Stock and any other
series of the Company's preferred stock upon any Liquidation of the
Company, the holders of shares of Junior Stock then outstanding shall be
entitled to receive the remaining assets and funds of the Company available
for distribution to its stockholders in accordance with the terms thereof.
(b) Certain Definitions. (i) The term "Liquidation of the Company"
shall mean any voluntary or involuntary liquidation, dissolution or
winding-up of the affairs of the Company.
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<PAGE>
(ii) The term "Liquidation Amount" shall mean an amount per share
of Class F Preferred Stock equal to the greater of: (A) the Accreted
Value plus any per share dividends accrued on the Class F Preferred
Stock (whether or not earned or declared) since the most recent
Dividend Payment Date and (B) the per share amount that holders of the
Class F Preferred Stock would have received had they exercised their
right to convert the Class F Preferred Stock to Common Stock
immediately prior to a Liquidation of the Company.
5. VOTING.
(a) Number of Votes. Each issued and outstanding share of Class F
Preferred Stock shall be entitled to the number of votes equal to (i) the
number of shares of Common Stock into which each such share of Class F
Preferred Stock is then convertible (as adjusted from time to time) divided
by the Number of Common Shares Deemed Outstanding) (as defined herein) at
such time, multiplied by (ii) the aggregate number of shares of Common
Stock then outstanding and entitled to vote (giving effect to the voting
power of all of the securities of the Company convertible into or
exchangeable for Common Stock that are entitled to vote with the Common
Stock, but without giving effect to the voting power of the Class F
Preferred Stock) at each meeting of holders of the Common Stock of the
Company (or any written consent without a meeting in accordance with the
Minnesota Business Corporation Act) with respect to any and all matters
presented to such shareholders for their action or consideration. Except as
provided by law, by the provisions of this Section 5 or by the provisions
establishing any other series of the Company's preferred stock, holders of
Class F Preferred Stock and of any other outstanding preferred stock then
entitled to vote shall vote together with the holders of Common Stock as a
single class.
(b) Protective Provisions. In addition to any other rights provided by
law, the Company shall not (i) without first obtaining the affirmative vote
or written consent of a majority of the holders of the Class F Preferred
Stock, voting separately as a class, (A) amend, alter or repeal any
provision of the Company's Articles of Incorporation or By-Laws in a manner
that is adverse to the holders of the Class F Preferred Stock, or (B)
authorize the issuance of a class or series of capital stock having
preferences or rights with respect to dividends or dissolution or the
distribution of assets that would be superior to the preferences or rights
of the Class F Preferred Stock, and (ii) without first obtaining the
affirmative vote or written consent of a majority of the holders of the
Company's Voting Securities other than MCI WORLDCOM, Inc. (together with
its majority-owned subsidiaries and other controlled affiliates, "MCI
WCOM"), (A) authorize any transaction of a type referred to in clause (i)
or clause (ii) of the definition of "Change of Control," (B) authorize or
consent to any liquidation, dissolution or winding-up of the affairs of the
Company, or (C)
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enter into any merger or consolidation into or with MCI WCOM or enter into
any other contract or arrangement involving the sale or license of the
Company's material assets with MCI WCOM (excluding contractual arrangements
with MCI WCOM existing as of the Filing Date).
6. OPTIONAL CONVERSION. At any time and from time to time, each share of
Class F Preferred Stock may be converted, at the option of the holder thereof,
into the number of fully paid and nonassessable shares of Common Stock obtained
by dividing the amount determined pursuant to clause (A) of the definition of
Liquidation Amount by the Conversion Price then in effect (the "Conversion
Rate"); provided, however, that upon any Liquidation of the Company, the right
of conversion shall terminate at the close of business on the full business day
next preceding the date fixed for such redemption or for the payment of any
amounts distributable on liquidation to the holders of Class F Preferred Stock.
No notice delivered by the Company of any proposed redemption, change of control
or other event will limit in any way the holders' rights to convert Class F
Preferred Stock into Common Stock of the Company.
(a) Initial Conversion Rate. The initial Conversion Rate for the Class
F Preferred Stock shall be 193.79845 shares of Common Stock for each one
share of Class F Preferred Stock surrendered for conversion representing an
initial Conversion Price of $5.16 per share of Common Stock. The applicable
Conversion Rate and Conversion Price from time to time in effect is subject
to adjustment as hereinafter provided.
(b) No Fractional Shares. If any fraction of a share of Common Stock
would be issuable upon conversion of any Class F Preferred Stock, the
Company shall round up to the next whole share the number of shares of
Class F Preferred Stock to be issued upon such conversion.
(c) Adjustment. Whenever the Conversion Rate and Conversion Price
shall be adjusted as provided herein, the Company shall forthwith file at
each office designated for the conversion of Class F Preferred Stock, a
statement, signed by the President, any Vice President or Treasurer of the
Company, showing in reasonable detail the facts requiring such adjustment
and the Conversion Rate that will be effective after such adjustment. The
Company shall also cause a notice setting forth any such adjustments to be
sent by mail, first class, postage prepaid, to each record holder of Class
F Preferred Stock at his or its address appearing on the stock register. If
such notice relates to an adjustment resulting from an event referred to in
Section 7(g), such notice shall be included as part of the notice required
to be mailed and published under the provisions of such Section 7(g).
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(d) Exercise. In order to exercise the conversion privilege, the
holder of any Class F Preferred Stock to be converted shall surrender his
or its certificate or certificates therefore to the principal office of the
transfer agent for the Class F Preferred Stock (or if no transfer agent be
at the time appointed, then the Company at its principal office), and shall
give written notice to the Company at such office that the holder elects to
convert the Class F Preferred Stock represented by such certificates, or
any number thereof. Such notice shall also state the name or names (with
address) in which the certificate or certificates for shares of Common
Stock which shall be issuable on such conversion shall be issued, subject
to any restrictions on transfer relating to shares of the Class F Preferred
Stock or shares of Common Stock upon conversion thereof. If so required by
the Company, certificates surrendered for conversion shall be endorsed or
accompanied by written instrument or instruments of transfer, in form
satisfactory to the Company, duly authorized in writing. The date of
receipt by the transfer agent (or by the Company if the Company serves as
its own transfer agent) of the certificates and notice shall be the
conversion date. Within three Market Days after receipt of such notice and
the surrender of the certificate or certificates for Class F Preferred
Stock as set forth herein, the Company shall cause to be issued and
delivered at such office to such holder, or on his or its written order, a
certificate or certificates for the number of full shares of Common Stock
issuable on such conversion in accordance with the provisions hereof and
cash as provided in Section 6(b) in respect of any fraction of a share of
Common Stock otherwise issuable upon such conversion.
(e) Reservation of Shares of Common Stock. The Company shall at all
times while any shares of Class F Preferred Stock shall be outstanding,
reserve and keep available out of its authorized but unissued stock, for
the purposes of effecting the conversion of the Class F Preferred Stock,
such number of its duly authorized shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all outstanding
Class F Preferred Stock. Before taking any action which would cause an
adjustment reducing the Conversion Price below the then par value of the
shares of Common Stock issuable upon conversion of the Class F Preferred
Stock, the Company will 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 such Common Stock at
such adjusted Conversion Price.
(f) Surrender. All shares of Class F Preferred Stock which shall have
been surrendered for conversion as herein provided shall no longer be
deemed to be outstanding and all rights with respect to such shares,
including the rights, if any, to receive notices and to vote, shall
forthwith cease and terminate except only the right of the holder thereof
to receive shares of Common Stock in exchange therefor and payment of any
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accrued and unpaid dividends on such shares of Common Stock. Any shares of
Class F Preferred Stock so converted shall be retired and canceled and
shall not be reissued, and the Company may from time to time take such
appropriate action as may be necessary to reduce the authorized Class F
Preferred Stock accordingly.
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7. ANTI-DILUTION PROVISIONS.
(a) General. In order to prevent dilution of the rights granted
hereunder, the Conversion Price shall be subject to adjustment from time to
time in accordance with this Section 7. Upon each adjustment of the
Conversion Price pursuant to this Section 7, the registered holder of
shares of Class F Preferred Stock shall thereafter be entitled to acquire
upon conversion, at the Conversion Price resulting from such adjustment,
the number of shares of Common Stock obtainable by multiplying the
Conversion Price in effect immediately prior to such adjustment by the
number of shares of Common Stock acquirable immediately prior to such
adjustment and dividing the product thereof by the Conversion Price
resulting from such adjustment.
(b) Adjustment of Conversion Price. Except as provided in Sections
7(c) or 7(f) below, if and whenever on or after the Filing Date, the
Company shall issue or sell, or shall pursuant to Section 7(b)(1) through
(10) inclusive, be deemed to have issued or sold any shares of its Common
Stock for a consideration per share that is (i) at any time prior to the
closing of a Qualified Initial Public Offering, less than the per share
Conversion Price in effect immediately prior to the time of such issue or
sale or (ii) at any time during the three-year period after the closing of
a Qualified Initial Public Offering, less than 90% of the Current Market
Price Per Common Share calculated as of the date of such issue or sale,
then forthwith upon such issue or sale (the "Triggering Transaction"), the
Conversion Price shall, subject to Section 7(b)(1) through (10) inclusive,
be reduced to the Conversion Price (calculated to the nearest one-hundredth
of a cent) determined by dividing: (A) an amount equal to the sum of the
product derived by multiplying the Number of Common Shares Deemed
Outstanding immediately prior to such Triggering Transaction by the
Conversion Price then in effect, plus the consideration, if any, received
by the Company upon consummation of such Triggering Transaction by (B) an
amount equal to the sum of the Number of Common Shares Deemed Outstanding
immediately prior to such Triggering Transaction plus the number of shares
of Common Stock issued (or deemed to be issued in accordance with Section
7(b)(1) through (10) inclusive) in connection with the Triggering
Transaction. The term "Number of Common Shares Deemed Outstanding" at any
given time shall mean the sum of (i) the number of shares of Common Stock
outstanding at such time, (ii) the number of shares of Common Stock
issuable upon conversion or exchange at such time of all of the Company's
outstanding securities that are then convertible into, or exchangeable for,
Common Stock and (iii) the number of shares of the Company's Common Stock
deemed to be outstanding under Section 7(b)(1) through (10) inclusive, at
such time. For purposes of determining the adjusted Conversion Price under
this Section 7(b), the following provisions shall be applicable:
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(1) In case the Company at any time shall in any manner grant
(whether directly or by assumption in a merger or otherwise) any
rights to subscribe for or to purchase, or any options for the
purchase of, Common Stock or any stock or other securities convertible
into or exchangeable for Common Stock (such rights or options being
herein called "Options" and such convertible or exchangeable stock or
securities being herein called "Convertible Securities"), whether or
not such Options or the right to convert or exchange any such
Convertible Securities are immediately exercisable and the price per
share for which the Common Stock is issuable upon exercise, conversion
or exchange (determined by dividing (Y) the total amount, if any,
received or receivable by the Company as consideration for the
granting of such Options, plus the minimum aggregate amount of
additional consideration payable to the Company upon the 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 upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by
(Z) the total maximum number of shares of Common Stock issuable upon
the exercise of such Options or the conversion or exchange of such
Convertible Securities) shall be less than the Conversion Price in
effect immediately prior to the time of the granting of such Option,
then the total maximum amount of Common Stock issuable upon the
exercise of such Options or in the case of Options for Convertible
Securities, upon the conversion or exchange of such Convertible
Securities shall (as of the date of granting of such Options) be
deemed to be outstanding and to have been issued and sold by the
Company for such price per share. No further adjustment of the
Conversion Price shall be made upon the actual issue of such shares of
Common Stock or such Convertible Securities upon the exercise of such
Options, except as otherwise provided in Section 7(b)(3).
(2) In case the Company at any time shall in any manner issue
(whether directly or by assumption in a merger or otherwise) or sell
any Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per
share for which Common Stock is issuable upon such conversion or
exchange (determined by dividing (Y) 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 (Z) the total maximum number of
shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities) shall be less than the 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 all such
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Convertible Securities shall (as of the date of the issue or sale of
such Convertible Securities) be deemed to be outstanding and to have
been issued and sold by the Company for such price per share. No
further adjustment of the Conversion Price shall be made upon the
actual issue of such Common Stock upon exercise of the rights to
exchange or convert under such Convertible Securities, except as
otherwise provided in Section (7)(b)(3).
(3) If the purchase price provided for in any Options referred to
in Section 7(b)(1), the additional consideration, if any, payable upon
the conversion or exchange of any Convertible Securities referred to
in Sections 7(b)(1) or (2), or the rate at which any Convertible
Securities referred to in Sections 7(b)(1) or (2) are convertible into
or exchangeable for Common Stock shall change at any time (other than
under or by reason of provisions designed to protect against dilution
of the type set forth in Sections 7(b) or 7(d)), the Conversion Price
in effect at the time of such change shall forthwith be readjusted to
the 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. If the purchase price provided for in any Option referred to in
Section 7(b)(1) or the rate at which any Convertible Securities
referred to in Sections 7(b)(1) or (2) are convertible into or
exchangeable for Common Stock, shall be reduced at any time under or
by reason of provisions with respect thereto designed to protect
against dilution, then in case of the delivery of Common Stock upon
the exercise of any such Option or upon conversion or exchange of any
such Convertible Security, the Conversion Price then in effect
hereunder shall forthwith be adjusted to such respective amount as
would have been obtained had such Option or Convertible Security never
been issued as to such Common Stock and had adjustments been made upon
the issuance of the shares of Common Stock delivered as set forth
herein, but only if as a result of such adjustment the Conversion
Price then in effect hereunder is hereby reduced.
(4) On the expiration of any Option or the termination of any
right to convert or exchange any Convertible Securities, the
Conversion Price then in effect hereunder shall forthwith be increased
to the Conversion Price which would have been in effect at the time of
such expiration or termination had such Option or Convertible
Securities, to the extent outstanding immediately prior to such
expiration or termination, never been issued.
(5) In case any Options shall be issued in connection with the
issue or sale of other securities of the Company, together comprising
one integral transaction in
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which no specific consideration is allocated to such Options by the
parties thereto, such Options shall be deemed to have been issued
without consideration.
(6) In case any shares of Common Stock, Options or Convertible
Securities shall be 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. In case any shares of
Common Stock, Options or Convertible Securities shall be 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 as determined in good faith by the
Board. In case any shares of Common Stock, Options or Convertible
Securities shall be issued 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 corporation as shall be
attributable to such Common Stock, Options or Convertible Securities,
as the case may be.
(7) 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, and the disposition of any shares so owned or held shall
be considered an issue or sale of Common Stock for the purpose of this
Section 7(b).
(8) In case the Company shall declare a dividend or make any
other distribution upon the stock of the Company payable in Options or
Convertible Securities, then in such case any Options or Convertible
Securities, as the case may be, issuable in payment of such dividend
or distribution shall be deemed to have been issued or sold without
consideration.
(9) For purposes of this Section 7(b), in case the Company shall
take a record of the holders of its Common Stock for the purpose of
entitling them to receive a dividend or other distribution payable in
Common Stock, Options or in Convertible Securities or to subscribe for
or purchase Common Stock, Options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution
or the date of the granting of such right or subscription or purchase,
as the case may be.
(10) For purposes of this Section 7(b), notwithstanding Section
7(f), in the event that the "Class B Warrants" issued to MCI WCOM on
September 26, 1997 vest and become exercisable for shares of Common
Stock, whether or
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not MCI WCOM shall exercise such Class B Warrants, the consideration
per share that the Common Stock shall be deemed to have been issued or
sold at shall be equal to $4.98.
(c) Liquidating Dividends. In the event the Company shall declare a
dividend upon the Common Stock (other than a dividend payable in Common
Stock) payable otherwise than out of earnings or earned surplus, determined
in accordance with generally accepted accounting principles, including the
making of appropriate deductions for minority interests, if any, in
subsidiaries (herein referred to as "Liquidating Dividends"), then the
Company shall pay to the person converting such Class F Preferred Stock an
amount equal to the aggregate value of such Liquidating Dividends
(including but not limited to the Common Stock which would have been issued
at the time of such earlier exercise and all other securities which would
have been issued with respect to such Common Stock by reason of stock
splits, stock dividends, mergers or reorganizations, or for any other
reason). For the purposes of this Section 7(c), a dividend other than in
cash shall be considered payable out of earnings or earned surplus only to
the extent that such earnings or earned surplus are charged an amount equal
to the fair value of such dividend as determined in good faith by the
Board.
(d) Subdivisions and Dividends; Combinations. In case the Company
shall at any time (i) subdivide the outstanding Common Stock or (ii) issue
a stock dividend on its outstanding Common Stock, the number of shares of
Common Stock issuable upon conversion of the Class F Preferred Stock shall
be proportionately increased by the same ratio as the subdivision or
dividend (with appropriate adjustments to the Conversion Price in effect
immediately prior to such subdivision or dividend). In case the Company
shall at any time combine its outstanding Common Stock, the number of
shares issuable upon conversion of the Class F Preferred Stock immediately
prior to such combination shall be proportionately decreased by the same
ratio as the combination (with appropriate adjustments to the Conversion
Price in effect immediately prior to such combination).
(e) Reorganizations, etc. If any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or
merger of the Company with another corporation, or the sale of all or
substantially all of its assets to another corporation shall be effected in
such a way that holders of Common Stock shall be entitled to receive stock,
securities, cash or other property with respect to or in exchange for
Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate
provision shall be made whereby the holders of the Class F Preferred Stock
shall have the right to acquire and receive upon conversion of the Class F
Preferred Stock, which right shall be prior to the rights of the holders of
Junior Stock, equal to the rights of the holders of Parity Stock and after
and subject
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to the rights of holders of Senior Stock, such shares of stock, securities,
cash or other property issuable or payable (as part of the reorganization,
reclassification, consolidation, merger or sale) with respect to or in
exchange for such number of outstanding shares of Common Stock as would
have been received upon conversion of the Class F Preferred Stock at the
Conversion Price then in effect.
(f) Exceptions to Antidilution. The provisions of this Section 7 shall
not apply to any Common Stock issued, issuable or deemed outstanding under
Section 7(b)(1) through (10) inclusive (and no such transaction shall
constitute a Triggering Transaction): (i) to any person pursuant to any
stock option, stock purchase or similar plan or arrangement for the benefit
of employees, consultants or other representatives of the Company or its
subsidiaries (A) in effect on the Filing Date or (B) thereafter adopted by
the Board and approved by the holders of the Voting Securities, (ii)
pursuant to options, warrants and conversion rights in existence on the
Filing Date (other than as provided for in Section 7(b)(10)) or (iii) on
conversion of the Class B Preferred Stock, the Class C Preferred Stock, the
Class D Preferred Stock or the Class E Preferred Stock.
(g) Procedures. In the event that (i) the Company shall declare any
cash dividend upon its Common Stock, (ii) the Company shall declare any
dividend upon its Common Stock payable in stock or make any special
dividend or other distribution to the holders of its Common Stock, (iii)
the Company shall offer for subscription pro rata to the holders of its
Common Stock any additional shares of stock of any class or other rights,
(iv) there shall be any capital reorganization or reclassification of the
capital stock of the Company, including any subdivision or combination of
its outstanding shares of Common Stock, or consolidation or merger of the
Company with, or sale of all or substantially all of its assets to, another
corporation, (v) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company, then, in connection with any such
event, the Company shall give to the holders of the Class F Preferred Stock
(A) at least twenty (20) days prior written notice of the date on which the
books of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights or for determining rights to
vote in respect of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up; and
(B) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, at
least twenty (20) days prior written notice of the date when the same shall
take place. Such notice in accordance with the foregoing clause (A) shall
also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common Stock shall be
entitled thereto, and such notice in accordance with the foregoing clause
(B) shall also specify the date on which the holders of Common Stock shall
be entitled to exchange
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their Common Stock for securities or other property deliverable upon such
reorganization, reclassification consolidation, merger, sale, dissolution,
liquidation or winding-up, as the case may be. Each such written notice
shall be given by first class mail, postage prepaid, addressed to the
holders of the Class F Preferred Stock at the address of each such holder
as shown on the books of the Company.
(h) Intended Effect. If any event occurs as to which, in the opinion
of the Board, the provisions of this Section 7 are not strictly applicable
or if strictly applicable would not fairly protect the rights of the
holders of the Class F Preferred Stock in accordance with the essential
intent and principles of such provisions, then the Board shall make an
adjustment in the application of such provisions, in accordance with such
essential intent and principles, so as to protect such rights as set forth
herein, but in no event shall any adjustment have the effect of increasing
the Conversion Price as otherwise determined pursuant to any of the
provisions of this Section 7 except in the case of a combination of shares
of a type contemplated in Section 7(d) and then in no event to an amount
greater than the Conversion Price as adjusted pursuant to Section 7(d).
8. MANDATORY CONVERSION.
(a) Mandatory Conversion. Each share of Class F Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion
Price in effect on the last Market Day of the first consecutive period of
twenty Market Days during which the Current Market Price Per Common Share
is at least 155% of the Liquidation Amount beginning after the later to
occur of the closing of an underwritten offering which is a "Qualified
Initial Public Offering" pursuant to an effective registration statement
under the Securities Act or the third anniversary of the date of issuance
of the Class F Preferred Stock ("Initial Issuance Date").
(b) A "Qualified Initial Public Offering" shall mean an initial public
offering of the Company's Common Stock raising not less than $50,000,000 of
gross proceeds.
(c) Procedures. All holders of record of shares of Class F Preferred
Stock will be given prompt written notice of the occurrence of mandatory
conversion and at least sixty (60) days prior written notice of the date
fixed for any optional conversion and also of the place designated for
conversion of all of such shares of Class F Preferred Stock. Such notice
will be sent by mail, first class, postage prepaid, to each record holder
of shares of Class F Preferred Stock at such holder's address appearing on
the stock register. Each holder of shares of Class F Preferred Stock shall
surrender his or its certificates or certificates for all such shares to
the Company at the place designated in such notice, and shall thereafter
receive
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certificates for the number of shares of Common Stock to which such holder
is entitled pursuant to this Section 8. On the date of occurrence of
mandatory conversion or the date fixed for any optional conversion, all
rights with respect to the Class F Preferred Stock so converted will
terminate, except only the rights of the holders thereof, upon surrender of
their certificate or certificates therefore, to receive certificates for
the number of shares of Common Stock into which such Class F Preferred
Stock has been converted and payment of any accrued and unpaid dividends
thereon. If so required by the Company, certificates surrendered for
conversion shall be endorsed or accompanied by written instrument or
instruments of transfer, in form satisfactory to the Company, duly executed
by the registered holder or by his attorneys duly authorized in writing.
All certificates evidencing shares of Class F Preferred Stock which are
required to be surrendered for conversion in accordance with the provisions
hereof shall, from and after the date such certificates are so required to
be surrendered, be deemed to have been retired and canceled and the shares
of Class F Preferred Stock represented thereby converted into Common Stock
for all purposes, notwithstanding the failure of the holder or holders
thereof to surrender such certificates. As soon as practicable after the
surrender of the certificate or certificates for Class F Preferred Stock as
set forth herein, the Company shall cause to be issued and delivered to
such holder, or on his or its written order, a certificate or certificates
for the number of full shares of Common Stock issuable on such conversion
in accordance with the provisions hereof and as provided in Section 6(b) in
respect of any fraction of a share of Common Stock otherwise issuable upon
such conversion.
9. CHANGE OF CONTROL OFFER.
(a) Promptly after the occurrence of a Change of Control (the date of
such occurrence being the "Change of Control Date"), the Company shall
commence (or cause to be commenced) an offer to purchase all outstanding
shares of Class F Preferred Stock pursuant to the terms described in
Section 9(d) (the "Change of Control Offer") at a purchase price equal to
the Change of Control Amount on the Change of Control Payment Date, and
shall purchase (or cause the purchase of) any shares of Class F Preferred
Stock tendered in the Change of Control Offer pursuant to the terms hereof.
(b) At the Company's option, the Change of Control Amount shall be
payable in cash or in shares of Common Stock (or the securities of the
entity into which the Common Stock became converted in connection with the
Change of Control), which shares shall be valued for purposes of this
Section 9(b) at 97% of the Current Market Price Per Common Share on the
Change of Control Payment Date.
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(c) If the Company elects to pay the Change of Control Amount in cash,
prior to the mailing of the notice referred to in Section 9(d), but in any
event within 30 days following the date on which a Change of Control has
occurred, the Company shall (A) promptly determine if the purchase of the
Class F Preferred Stock for cash would violate or constitute a default
under the indebtedness of the Company or the terms of any other series of
the Company's outstanding preferred stock and (B) either shall repay to the
extent necessary all such indebtedness or preferred stock of the Company
that would prohibit the repurchase of the Class F Preferred Stock pursuant
to a Change of Control Offer or obtain any requisite consents or approvals
under instruments governing any indebtedness or preferred stock of the
Company to permit the repurchase of the Class F Preferred Stock for cash.
The Company shall first comply with this Section 9(c) before it shall
repurchase for cash any Class F Preferred Stock pursuant to this Section 9.
(d) Within 30 days following the date on which a Change in Control has
occurred, the Company shall send, by first-class mail, postage prepaid, a
notice to each holder of Class F Preferred Stock. If applicable, such
notice shall contain all instructions and materials necessary to enable
such holders to tender Class F Preferred Stock pursuant to the Change of
Control Offer. Such notice shall state:
(i) that a Change of Control has occurred, that a Change of
Control Offer is being made pursuant to this Section 9 and that all
Class F Preferred Stock validly tendered and not withdrawn will be
accepted for payment;
(ii) the purchase price (including the amount of accrued
dividends, if any) and the purchase date (which must be no earlier
than 30 days nor later than 60 days from the date such notice is
mailed, other than as may be required by law) (the "Change of Control
Payment Date");
(iii) that any shares of Class F Preferred Stock not tendered
will continue to accrue dividends;
(iv) that, unless the Company defaults in making payment
therefor, any share of Class F Preferred Stock accepted for payment
pursuant to the Change of Control Offer shall cease to accrue
dividends after the Change of Control Payment Date;
(v) that holders electing to have any share of Class F Preferred
Stock purchased pursuant to a Change of Control Offer will be required
to surrender stock certificates representing such shares of Class F
Preferred Stock, properly endorsed for transfer, together with such
other customary documents as the Company and the Transfer Agent may
reasonably request to the Transfer Agent and registrar for the Class F
Preferred Stock at the address
17
<PAGE>
specified in the notice prior to the close of business on the business
day prior to the Change of Control Payment Date;
(vi) that holders will be entitled to withdraw their election if
the Company receives, not later than five business days prior to the
Change of Control Payment Date, a telegram, facsimile transmission or
letter setting forth the name of the holder, the number of shares of
Class F Preferred Stock the holder delivered for purchase and a
statement that such holder is withdrawing its election to have such
shares of Class F Preferred Stock purchased;
(vii) that holders who tender only a portion of the shares of
Class F Preferred Stock represented by a certificate delivered will,
upon purchase of the shares tendered, be issued a new certificate
representing the unpurchased shares of Class F Preferred Stock; and
(viii) the circumstances and relevant facts regarding such Change
of Control (including information with respect to pro forma historical
income, cash flow and capitalization after giving effect to such Change
of Control).
(e) The Company will comply with any tender offer rules under the
Exchange Act which then may be applicable in connection with any offer made
by the Company to repurchase the shares of Class F Preferred Stock as a
result of a Change of Control. To the extent that the provisions of any
securities laws or regulations conflict with provisions of this Certificate
of Designation, the Company shall comply with the applicable securities
laws and regulations and shall not be deemed to have breached its
obligation under this Certificate of Designation by virtue thereof.
(f) On the Change of Control Payment Date, the Company shall (i)
accept for payment the shares of Class F Preferred Stock validly tendered
pursuant to the Change of Control Offer, (ii) pay to the holders of shares
so accepted the purchase price therefor in cash or Common Stock (or the
securities of the entity into which the Common Stock became converted in
connection with the Change of Control) as provided above and (iii) cancel
each surrendered certificate and retire the shares represented thereby.
Unless the Company defaults in the payment for the shares of Class F
Preferred Stock tendered pursuant to the Change of Control Offer, dividends
will cease to accrue with respect to the shares of Class F Preferred Stock
tendered and all rights of holders of such tendered shares will terminate,
except for the right to receive payment therefor on the Change of Control
Payment Date.
(g) To accept the Change of Control Offer, the holder of a share of
Class F Preferred Stock shall deliver, prior to the
18
<PAGE>
close of business on the business day prior to the Change of Control
Payment Date, written notice to the Company (or an agent designated by the
Company for such purpose) of such holder's acceptance, together with
certificates evidencing the shares of Class F Preferred Stock with respect
to which the Change of Control Offer is being accepted, duly endorsed for
transfer.
(h) For the avoidance of doubt, nothing in this Section 9 shall
restrict the right of the holders of Class F Preferred Stock, in connection
with a Change of Control, to convert and to receive the kind and amount of
consideration payable to holders of Common Stock in respect of the Common
Stock into which the Class F Preferred Stock may be converted.
10. CERTAIN MERGERS. In connection with any consolidation with or merger
with or into, any person in a transaction where the Common Stock is converted
into or exchanged for securities of such person or an affiliate of such person,
the Company covenants that the person issuing such securities will be organized
and existing under the laws of a jurisdiction which allows for the issuance of
preference stock and that the Class F Preferred Stock shall be converted into or
exchanged for and shall become shares of such person having in respect of such
person substantially the same powers, preference and relative participating,
optional or other special rights and the qualifications, limitations or
restrictions thereon that the Class F Preferred Stock had immediately prior to
such transaction.
11. REDEMPTION.
(a) Optional Redemption. At any time after the third anniversary of
the Initial Issuance Date, the Company may, at its option, redeem all (but
not less than all) of the shares of Class F Preferred Stock at a cash
redemption price equal to 155% of the Liquidation Amount on the date
specified for redemption plus accrued dividends thereon from such date to
the date of payment of the redemption price.
(b) Notice. Notice of such redemption shall be given by the Company by
first class mail, postage prepaid, mailed not less than 30 days nor more
than 60 days prior to the redemption date, to each holder of record of the
shares to be redeemed at such holder's address as the same appears on the
stock register of the Company; provided that neither the failure to give
such notice nor any defect therein shall affect the validity of the giving
of notice for the redemption of any share of Class F Preferred Stock to be
redeemed except as to the holder to whom the Company has failed to give
said notice or except as to the holder whose notice was defective. Each
such notice shall state: (i) the redemption date; (ii) the redemption
price; (iii) the place or places where certificates for such shares are to
be surrendered for payment of the redemption price; and (iv) that
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<PAGE>
dividends on the shares to be redeemed will cease to accrue on such
redemption date.
(c) Dividends; Payment. Notice having been mailed as aforesaid, from
and after the redemption date (unless default shall be made by the Company
in providing money for the payment of the redemption price of the shares
called for redemption), dividends on the shares of Class F Preferred Stock
so called for redemption shall cease to accrue, and all rights of the
holders thereof as shareholders of the Company (except the right to receive
from the Company the redemption price) shall cease. Upon surrender in
accordance with said notice of the certificates for any shares so redeemed
(properly endorsed or assigned for transfer, if the Board of Directors of
the Company shall so require and the notice shall so state), such share
shall be redeemed by the Company at the redemption price aforesaid.
12. CONVERTED AND REACQUIRED SHARES. Any shares of Class F Preferred Stock
converted into Common Stock, redeemed, purchased or otherwise acquired by the
Company in any manner whatsoever shall be retired and canceled promptly after
the acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of undesignated stock of the Company and may be
reissued subject to the conditions and restrictions on issuance in the Articles
of Incorporation, in any other Certificate of Designation creating a series of
preferred stock or any similar stock or as otherwise required by law.
13. PRE-EMPTIVE RIGHTS. Until the closing of a Qualified Initial Public
Offering, the holders of the Class F Preferred Stock shall have pre-emptive
rights to the extent set forth in Section 302A.413 of the Minnesota Business
Corporation Act as in effect on the Filing Date, except that the provisions of
subdivision 4, clause (e) thereof shall not apply.
14. AMENDMENT. If any proposed amendment to the Articles of Incorporation,
including this Certificate of Designation, would alter or change the
preferences, special rights or powers given to the holders of the Class F
Preferred Stock so as to affect such holders adversely, or would authorize the
issuance of a class or classes of stock having preferences or rights with
respect to dividends or dissolution or the distribution of assets that would be
superior to the preferences or rights of the Class F Preferred Stock, then the
holders of the Class F Preferred Stock shall be entitled to vote as a class upon
such amendment, and the affirmative vote of two-thirds of the outstanding shares
of Class F Preferred Stock shall be necessary for the adoption thereof, in
addition to such other vote as may be required by law.
15. MISCELLANEOUS. If, in connection with a Change of Control Offer
pursuant to Section 9 or a redemption pursuant to Section 11, the Company
determines to pay the Change of Control
20
<PAGE>
Amount or the redemption price in shares of Common Stock, the Company will (a)
file a registration statement to register such shares of Common Stock under the
Securities Act, (b) cause such registration statement to be effective at or
prior to the time that the Company will deliver such shares to the holders of
Class F Preferred Stock, (c) have such shares listed on the principal trading
market for the Common Stock and (d) take such other actions as may reasonably be
required to register the issuance (or, as appropriate, the re-sale) of the
shares of Common Stock to be delivered to the holders of the Class F Preferred
Stock to enable such shares of Common Stock to be sold without restriction.
16. SUSPENSION OF VOTING RIGHTS PENDING HSR APPROVAL. Notwithstanding
anything to the contrary contained herein, unless and until all filings required
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the rules and regulations of the Federal Trade Commission promulgated
thereunder, in connection with the acquisition of the Class F Preferred Stock
shall have been made and the applicable waiting period thereunder shall have
expired or been terminated, no holder of Class F Preferred Stock shall have any
voting rights as a stockholder of the Company or any other right to elect,
nominate, designate or vote for any member of the Company's Board of Directors.
17. DEFINITIONS. The following terms, as used herein, shall have the
following meanings:
"Accreted Value" equals, with respect to one share of Class F
Preferred Stock, $1,000, plus the amount of any dividends added to Accreted
Value in accordance with Section 3(b) (which aggregate amount shall be
subject to adjustment whenever there shall occur a stock split,
combination, re-classification or other similar event involving the Class F
Preferred Stock).
"Change of Control" means: (i) the sale, lease, transfer, conveyance
other disposition (other than by way of merger or consolidation), in one or
a series of related transactions, of all or substantially all of the assets
of the Company and its subsidiaries taken as a whole to any "person" (as
such term is used in Section 13(d)(3) of the Exchange Act, other than a
holder of Class F Preferred Stock on the Initial Issuance Date, (ii) the
consummation of any transaction (including any merger or consolidation) the
result of which is that (A) any "person" (as defined above) other than a
holder of Class F Preferred Stock on the Initial Issuance Date becomes the
beneficial owner (as determined in accordance with Rules 13d-3 and 13d-5
under the Exchange Act except that a person will be deemed to have
beneficial ownership of all shares that such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 50% of the Voting
Securities
21
<PAGE>
of the Company, other than in connection with an underwritten public
offering of securities of the Company or (B) the holders of Voting
Securities become entitled to receive less than 50% of the voting power of
holders of the equity securities of the surviving entity, or (iii) the
first day on which a majority of the members of the Board of Directors of
the Company are not Continuing Directors.
"Change of Control Amount" means, with respect to one share of Class F
Preferred Stock, the greater of (i) 125% of the Liquidation Amount per
share on the Change of Control Payment Date or (ii) the per share amount a
holder of Class F Preferred Stock would have received had he exercised his
right to convert a share of Class F Preferred Stock into shares of Common
Stock immediately prior to the issuance of a Change of Control.
"Continuing Directors" means individuals who constituted the Board of
Directors of the Company on the Filing Date (the "Incumbent Directors");
provided that any individual becoming a director during any year shall be
considered to be an Incumbent Director if such individual's election,
appointment or nomination was recommended or approved by at least
two-thirds of the other Incumbent Directors continuing in office following
such election, appointment or nomination present, in person or by
telephone, at any meeting of the Board of Directors of the Company, after
the giving of a sufficient notice to each Incumbent Director so as to
provide a reasonable opportunity for such Incumbent Directors to be present
at such meeting.
"Current Market Price Per Common Share" means, as of any date, the
average (weighted by daily trading volume) of the Daily Prices per share of
Common Stock for the 20 consecutive Market Days immediately prior to such
date.
"Daily Price" means, as of any date, (i) if the shares of such class
of Common Stock then are listed and traded on the New York Stock Exchange,
Inc. ("NYSE"), the closing price on such date as reported on the NYSE
Composite Transactions Tape; (ii) if the shares of such class of Common
Stock then are not listed and traded on the NYSE, the closing price on such
date as reported by the principal national securities exchange on which the
shares are listed and traded; (iii) if the shares of such class of Common
Stock then are not listed and traded on any such securities exchange, the
last reported sale price on such date on Nasdaq National Market; or (iv) if
the shares of such class of Common Stock then are not traded on the Nasdaq
National Market, the average of the highest reported bid and lowest
reported asked price on such date as reported by Nasdaq.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Market Day" means a day on which the principal national securities
market or exchange on which the Common Stock
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<PAGE>
is listed or admitted for trading is open for the transaction of business.
"Securities Act" means the Securities Act of 1933, as amended.
"Voting Securities" means securities of the Company ordinarily having
the power to vote for the election of directors of the Company, including
but not limited to the Common Stock and all classes and series of
Undesignated Stock the holders of which have the right to vote with holders
of the Common Stock as a class.
RESOLVED FURTHER, that the officers of this Company be, and each of them
acting alone is, hereby authorized and instructed to take all steps necessary to
execute, deliver and file, for and on behalf of this Company and in its name,
any and all documents required in connection with the establishment and
authorization of the Company's Class F Preferred Stock, including but not
limited to filing the Statement of Rights and Preferences with the Minnesota
Secretary of State in accordance with Minnesota Statutes, Section 302A.401.
F. The undersigned further declares under penalty of perjury that the
matters set out in the foregoing Certificate are true and correct of his own
knowledge.
[Remainder of page intentionally left blank]
23
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this certificate as of the
3rd day of February, 2000.
/s/ Edward J. Driscoll, Jr.
-----------------------------------------
Edward J. Driscoll, Jr.
Secretary
<PAGE>
ARTICLES OF CORRECTION
OF
CERTIFICATE OF DESIGNATION OF RIGHTS AND PREFERENCES
OF
CLASS E CONVERTIBLE PREFERRED STOCK AND
CLASS F CONVERTIBLE PREFERRED STOCK
OF
WAM!NET INC.
The undersigned, Edward J. Driscoll, Jr., Secretary of WAM!NET INC., a
Minnesota Corporation (the "Corporation"), acting pursuant to the provisions of
Minnesota Statutes, Section 5.16, does hereby correct and amend the Certificate
of Designation of Rights and Preferences of Class E Convertible Preferred Stock,
as follows, and does hereby correct and amend the Certificate of Designation of
Rights and Preferences of Class F Convertible Preferred stock, as follows,
effective as of the 16th day of February, 2000, and the 11th day of February,
2000, respectively:
1.) The undersigned, Edward J. Driscoll, Jr., executed and filed a
Certificate of Designation of Rights and Preferences of Class
E Convertible Preferred Stock which was filed with the
Minnesota Secretary of State on February 16, 2000.
2.) The undersigned, Edward J. Driscoll, Jr., executed and filed a
Certificate of Designation of Rights and Preferences of Class
F Convertible Preferred Stock which was filed with the
Minnesota Secretary of State on February 11, 2000.
3.) The Certificate of Designation of Rights and Preferences of
Class E Convertible Preferred Stock inadvertently indicated
that the Articles of Incorporation of the Corporation provide
for a class of up to 10,000,000 shares known as Undesignated
Stock, whereas the Amended Articles of Incorporation of the
Corporation provide for a class of up to 9,900,000 shares
known as Undesignated Stock.
4.) The Certificate of Designation of Rights and Preferences of
Class F Convertible Preferred Stock inadvertently indicated
that the Articles of Incorporation of the Corporation provide
for a class of up to 50,000,000 shares known as Undesignated
Stock, whereas the Amended Articles of Incorporation of the
Corporation provide for a class of up to 9,900,000 shares
known as Undesignated Stock.
5.) Subpart B of said Certificate of Designation of Rights and
Preferences of Class E Convertible Preferred Stock should
read:
<PAGE>
"The Articles of Incorporation of this Company provide for
a class of up to 9,900,000 shares known as Undesignated
Stock, par value $.01 per share, which shares may be
issued from time to time in one or more classes or
series."
6.) Subpart B of said Certificate of Designation of Rights and
Preferences of Class F Convertible Preferred Stock should read
"The Articles of Incorporation of this Company provide for
a class of up to 9,900,000 shares known as Undesignated
Stock, par value $.01 per share, which shares may be
issued from time to time in one or more classes or
series."
IN WITNESS WHEREOF, I have hereunder subscribed my name effective the
29th day of February, 2000.
/s/ Edward J. Driscoll, Jr.
----------------------------------
Edward J. Driscoll, Jr., Secretary
<PAGE>
ARTICLES OF CORRECTION
OF
CERTIFICATE OF DESIGNATION OF RIGHTS AND PREFERENCES
OF
CLASS F CONVERTIBLE PREFERRED STOCK
OF
WAM!NET INC.
The undersigned, Edward J. Driscoll, Jr., Secretary of WAM!NET INC., a
Minnesota Corporation (the "Corporation"), acting pursuant to the provisions of
Minnesota Statutes, Section 5.16, does hereby correct and amend the Certificate
of Designation of Rights and Preferences of Class F Convertible Preferred stock,
as follows, effective as of the 11th day of February, 2000:
1.) The undersigned, Edward J. Driscoll, Jr., executed and filed a
Certificate of Designation of Rights and Preferences of Class
F Convertible Preferred Stock which was filed with the
Minnesota Secretary of State on February 11, 2000.
2.) The Certificate of Designation of Rights and Preferences of
Class F Convertible Preferred Stock inadvertently indicated
that the mandatory conversion provision would be pursuant to a
formula of conversion based, in part, on a defined Liquidation
Amount, whereas the mandatory conversion provision will, in
fact, be pursuant to a formula of conversion based, in part,
on a defined Conversion Price.
3.) Section 8, Mandatory Conversion, Subpart (a), of said
Certificate of Designation of Rights and Preferences of Class
F Convertible Preferred Stock should read:
(a) Mandatory Conversion. Each share of Class F Preferred
Stock shall automatically be converted into shares of Common
Stock at the Conversion Price in effect on the last Market Day
of the first consecutive period of twenty Market Days during
which the Current Market Price Per Common Share is at least
155% of the Conversion Price beginning after the later to
occur of the closing of an underwritten offering which is a
"Qualified Initial Public Offering" pursuant to an effective
registration statement under the Securities Act or the third
anniversary of the date of issuance of the Class F Preferred
Stock ("Initial Issuance Date").
IN WITNESS WHEREOF, I have hereunder subscribed my name effective the
9th day of March, 2000.
/s/ Edward J. Driscoll, Jr.
----------------------------------
Edward J. Driscoll, Jr., Secretary
<PAGE>
EXHIBIT 4.33
CERTIFICATE OF DESIGNATION OF
RIGHTS AND PREFERENCES
OF
CLASS G CONVERTIBLE PREFERRED STOCK
OF
WAM!NET INC.
The undersigned, Edward J. Driscoll, Jr., hereby certifies that:
A. He is the duly elected and acting Secretary of WAM!NET Inc. (the
"Company"), a Minnesota corporation.
B. The Articles of Incorporation of the Company provide for a class of up to
9,900,000 shares known as Undesignated Stock, par value $0.01 per share,
which shares may be issued from time to time in one or more classes or
series.
C. The Board of Directors of the Company is authorized, pursuant to Article 6
of the Company's Articles of Incorporation and Minnesota Statutes, Section
302A.401, to fix or alter the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued series of
Undesignated Stock, to fix the number of shares constituting the series and
to determine the designation thereof.
D. It is the desire of the Board of Directors of the Company, pursuant to its
authority, to fix the rights, preferences, restrictions and other matters
relating to the Undesignated Stock and the number of shares of Undesignated
Stock.
E. Pursuant to authority given by Article 6 of the Company's Articles of
Incorporation, the Company's Board of Directors has adopted the following
resolutions as of February 18, 2000:
RESOLVED, that, pursuant to Article 6 of the Articles of Incorporation of
WAM!NET Inc. (the "Company"), the Board of Directors of the Company (the
"Board") hereby creates and designates a series of Convertible Preferred Stock,
par value $0.01 per share, and authorizes the issuance of up to 10,000 of such
shares and hereby fixes the designations, powers, preferences and relative,
participating, optional and other special rights and the qualifications,
limitations or restrictions of such shares, as follows:
1. DESIGNATION AND AMOUNT. The shares of such series shall be designated
"Class G Convertible Preferred Stock" (the "Class G Preferred Stock"), par value
$0.01 per share, and the number of shares constituting such series shall be
10,000.
2. RANK. The Class G Preferred Stock shall rank, with respect to dividend
rights and distribution of assets on any Liquidation of the Company (as defined
herein) (a) junior to any other class or series of the Company's preferred stock
which shall specifically provide that such class or series shall rank senior to
the Class G Preferred Stock (the "Senior Stock"); (b) on parity with (i) the
Company's Class A Preferred Stock, par value $10.00 per share (the "Class A
Preferred Stock") (except with respect to a
<PAGE>
Liquidation of the Company resulting from the merger or consolidation of the
Company into or with another corporation, the merger or consolidation of any
other corporation into or with the Company or the sale of all or substantially
all the assets of the Company, which events do not give rise to a right of the
holders of the Class A Preferred Stock to receive distributions), (ii) the
Company's Class B Convertible Preferred Stock, par value $0.01 per share (the
"Class B Preferred Stock"), (iii) the Company's Class C Convertible Preferred
Stock, par value $0.01 per share (the "Class C Preferred Stock"), (iv) the
Company's Class D Convertible Preferred Stock, par value $0.01 per share (the
"Class D Preferred Stock"), (v) the Company's Class E Convertible Preferred
Stock, par value $0.01 per share (the "Class E Preferred Stock"), (vi) the
Company's Class F Convertible Preferred Stock per value $.01 per share (the
"Class F Preferred Stock) and (vii) any other class or series of the Company's
preferred stock which shall specifically provide that such class or series shall
rank on parity with the Class G Preferred Stock ((i) through (vi) collectively,
the "Parity Stock"); and (c) prior to (i) the Company's common stock, par value
$0.01 per share (the "Common Stock") and (ii) any other class or series of the
Company's preferred stock except for any class or series which are Senior Stock
or Parity Stock ((i) and (ii) together, the "Junior Stock").
3. DIVIDENDS. (a) Payment. The holders of Class G Preferred Stock shall be
entitled to receive dividends as set forth herein, payable only (i) if, as and
when declared by the Board, out of any funds legally available therefor or (ii)
to the extent declared by the Board, upon the Liquidation of the Company,
subject to and as set forth in Section 4 hereof. All such dividends (X) shall be
cumulative and shall accrue on each share of Class G Preferred Stock from the
date of issuance thereof at the rate of SEVEN PERCENT (7%) per annum of the
original purchase price per share ($1,000) for such shares of Class G Preferred
Stock (the "Original Purchase Price Per Share"), solely in the form of
additional shares of Class G Preferred Stock (Y) shall be payable before any
dividends shall be set apart for or paid upon Junior Stock in any year and (Z)
shall be payable in accordance with Section 2 when any dividends shall be set
apart for or paid upon Parity Stock in any year. All such dividends declared
upon Class G Preferred Stock shall be declared pro rata per share.
(b) Limit on Junior Dividends and Redemption. For so long as the Class G
Preferred Stock remains outstanding, the Company shall not pay any dividend upon
the Junior Stock, whether in cash or other property (other than shares of Junior
Stock), or purchase, redeem or otherwise acquire any such junior Stock;
provided, however, that nothing in this Section 3(b) shall prohibit or otherwise
limit the ability of the Company to (i) purchase unvested shares of Common Stock
from former employees of the Company at their original purchase price or (ii)
make any purchase, redemption or other acquisition pursuant to arrangements
existing as of the date of the initial issuance of the Class G Preferred Stock
(the "Initial Issuance Date").
4. LIQUIDATION, DISSOLUTION OR WINDING-UP.
(a) Liquidation Preference. In the event of any Liquidation of the Company,
the holders of shares of Class G Preferred Stock then outstanding shall be
entitled to be
<PAGE>
paid out of the assets of the Company available for distribution to its
stockholders, after and subject to the payment in full of all amounts required
to be distributed to the holders of Senior Stock upon such Liquidation of the
Company and before any payment shall be made to the holders of Junior Stock, the
Liquidation Amount (as defined herein) per share of Class G Preferred Stock. If
upon any such Liquidation of the Company, the remaining assets of the Company
available for the distribution to its stockholders after payment in full of
amounts required to be paid or distributed to holders of Senior Stock shall be
insufficient to pay the holders of shares of Parity Stock the full amount to
which they shall be entitled, the holders of the Class G Preferred Stock shall
share ratably with the holders of Parity Stock in any distribution of the
remaining assets and funds of the Company in proportion to the respective
amounts which would otherwise be payable in respect of the shares held by them
upon such distribution if all amounts payable on or with respect to said shares
were paid in full. After the payment of all preferential amounts required to be
paid to the holders of Senior Stock and Parity Stock and any other series of the
Company's preferred stock upon any Liquidation of the Company, the holders of
shares of Junior Stock then outstanding shall be entitled to receive the
remaining assets and funds of the Company available for distribution to its
stockholders in accordance with the terms thereof.
(b) Certain Definitions. (i) The term "Liquidation of the Company" shall
mean any voluntary or involuntary liquidation, dissolution or winding-up of the
affairs of the Company, and the merger or consolidation of the Company into or
with another corporation, the merger or consolidation of any other corporation
into or with the Company or the sale of all or substantially all the assets of
the Company.
(ii) The term "Liquidation Amount" shall mean an amount per share of Class
G Preferred Stock equal to the greater of: (A) the Original Purchase Price Per
Share plus any per share dividends accrued on the Class G Preferred Stock but
not paid and (B) the per share amount that holders of the Class G Preferred
Stock would have received had they exercised their right to convert the Class G
Preferred Stock to Common Stock immediately prior to a Liquidation of the
Company; provided that for purposes of the antidilution provisions of Section 7
hereof and the mandatory conversion provisions of Section 8 hereof, the term
"Liquidation Amount" shall exclude any dividends accrued on the Class G
Preferred Stock but not paid.
5. VOTING. (a) Number of Votes. Each issued and outstanding share of Class
G Preferred Stock shall be entitled to the number of votes equal to the number
of shares of Common Stock into which each such share of Class G Preferred Stock
is then convertible (as adjusted from time to time) at each meeting of
stockholders of the Company (or any written consent without a meeting in
accordance with the Minnesota Business Corporation Act) with respect to any and
all matters presented to the stockholders of the Company for their action or
consideration. Except as provided by law, by the provisions of this Section 5 or
by the provisions establishing any other series of the Company's preferred
stock, holders of Class G Preferred Stock and of any other outstanding preferred
stock shall vote together with the holders of Common Stock as a single class.
<PAGE>
(b) Protective Provisions. In addition to any other rights provided by law,
the Company shall not without first obtaining the affirmative vote or written
consent of a majority of the holders of the Class G Preferred Stock, voting
separately as a class, amend, alter or repeal any provision of the Company's
Articles of Incorporation or By-Laws in a manner that is adverse to the holders
of the Class G Preferred Stock.
6. OPTIONAL CONVERSION. (a) Each share of Class G Preferred Stock may be
converted at any time, at the option of the holder thereof, into the number of
fully paid and nonassessable shares of Common Stock obtained by dividing the
Original Purchase Price Per Share by the Conversion Price then in effect (the
"Conversion Rate"); provided, however, that upon any redemption of the Class G
Preferred Stock contemplated by Section 9 hereof or any Liquidation of the
Company, the right of conversion shall terminate at the close of business on the
full business day next preceding the date fixed for such redemption or for the
payment of any amounts distributable on liquidation to the holders of Class G
Preferred Stock.
(b) Initial. Subject to the provisions of Subsection (a) of this Section 6,
the initial Conversion Rate for the Class G Preferred Stock shall be
193.79844961 shares of Common Stock for each one share of Class G Preferred
Stock surrendered for conversion representing an initial conversion price of
$5.16 per share of Common Stock (the price per share of Common Stock at which
the Class G Preferred Stock may be converted into shares of Common Stock shall
be referred to herein as the "Conversion Price"). The applicable Conversion Rate
and Conversion Price from time to time in effect is subject to adjustment as
hereinafter provided.
(c) No Fractional Shares. The Company shall not issue fractions of shares
of Common Stock upon conversion of Class G Preferred Stock or scrip in lieu
thereof. If any fraction of a share of Common Stock would, except for the
provisions of this Section 6(c), be issuable upon conversion of any Class G
Preferred Stock, the Company shall in lieu thereof pay to the person entitled
thereto an amount in cash equal to the current value of such fraction,
calculated to the nearest one hundredth (1/100) of a share, to be computed (i)
if the Common Stock is listed on any national securities exchange on the basis
of the last sales price of the Common Stock on such exchange (or the quoted
closing bid price if there shall have been no sales) on the date of conversion
or (ii) if the Common Stock shall not be listed, on the basis of the mean
between the closing bid and asked prices for the Common Stock on the date of
conversion as reported by Nasdaq, or its successor, and if there are not such
closing bid and asked prices, on the basis of the fair market value per share as
determined by the Board of Directors of the Company.
(d) Adjustment. Whenever the Conversion Rate and Conversion Price shall be
adjusted as provided herein, the Company shall forthwith file at each office
designated for the conversion of Class G Preferred Stock, a statement, signed by
the President, any Vice President or Treasurer of the Company, showing in
reasonable detail the facts requiring such adjustment and the Conversion Rate
that will be effective after such adjustment. The Company shall also cause a
notice setting forth any such adjustments to be sent by mail, first class,
postage prepaid, to each record holder of Class G Preferred
<PAGE>
Stock at his or its address appearing on the stock register. If such notice
relates to an adjustment resulting from an event referred to in Section 7(g),
such notice shall be included as part of the notice required to be mailed and
published under the provisions of such Section 7(g).
(e) Exercise. In order to exercise the conversion privilege, the holder of
any Class G Preferred Stock to be converted shall surrender his or its
certificate or certificates therefore to the principal office of the transfer
agent for the Class G Preferred Stock (or if no transfer agent be at the time
appointed, then the Company at its principal office), and shall give written
notice to the Company at such office that the holder elects to convert the Class
G Preferred Stock represented by such certificates, or any number thereof. Such
notice shall also state the name or names (with address) in which the
certificate or certificates for shares of Common Stock which shall be issuable
on such conversion shall be issued, subject to any restrictions on transfer
relating to shares of the Class G Preferred Stock or shares of Common Stock upon
conversion thereof. If so required by the Company, certificates surrendered for
conversion shall be endorsed or accompanied by written instrument or instruments
of transfer, in form satisfactory to the Company, duly authorized in writing.
The date of receipt by the transfer agent (or by the Company if the Company
serves as its own transfer agent) of the certificates and notice shall be the
conversion date. As soon as practicable after receipt of such notice and the
surrender of the certificate or certificates for Class G Preferred Stock as set
forth herein, the Company shall cause to be issued and delivered at such office
to such holder, or on his or its written order, a certificate or certificates
for the number of full shares of Common Stock issuable on such conversion in
accordance with the provisions hereof and cash as provided in Section 6(c) in
respect of any fraction of a share of Common Stock otherwise issuable upon such
conversion.
(f) Reservation of Shares of Common Stock. The Company shall at all times
while any shares of Class G Preferred Stock shall be outstanding, reserve and
keep available out of its authorized but unissued stock, for the purposes of
effecting the conversion of the Class G Preferred Stock, such number of its duly
authorized shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding Class G Preferred Stock. Before taking
any action which would cause an adjustment reducing the Conversion Price below
the then par value of the shares of Common Stock issuable upon conversion of the
Class G Preferred Stock, the Company will 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 such Common
Stock at such adjusted Conversion Price.
(g) Surrender. All shares of Class G Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights, if
any, to receive notices and to vote, shall forthwith cease and terminate except
only the right of the holder thereof to receive shares of Common Stock in
exchange therefor and payment of any accrued and unpaid dividends on such shares
of Common Stock. Any shares of Class G Preferred Stock so converted shall be
retired and canceled and shall not be
<PAGE>
reissued, and the Company may from time to time take such appropriate action as
may be necessary to reduce the authorized Class G Preferred Stock accordingly.
7. ANTI-DILUTION PROVISIONS. (a) General. In order to prevent dilution of
the rights granted hereunder, the Conversion Price shall be subject to
adjustment from time to time in accordance with this Section 7. Upon each
adjustment of the Conversion Price pursuant to this Section 7, the registered
holder of shares of Class G Preferred Stock shall thereafter be entitled to
acquire upon conversion, at the Conversion Price resulting from such adjustment,
the number of shares of Common Stock obtainable by multiplying the Conversion
Price in effect immediately prior to such adjustment by the number of shares of
Common Stock acquirable immediately prior to such adjustment and dividing the
product thereof by the Conversion Price resulting from such adjustment.
(b) Adjustment of Conversion Price. Except as provided in Sections 7(c)or
7(f) below, if and whenever on or after the Initial Issuance Date, the Company
shall issue or sell, or shall pursuant to Section 7(b)(1) through (10)inclusive,
be deemed to have issued or sold any shares of its Common Stock for a
consideration per share less than the per share Conversion Price in effect
immediately prior to the time of such issue or sale, then forthwith upon such
issue or sale (the "Triggering Transaction"), the Conversion Price shall,
subject to Section 7(b)(1) through (10) inclusive, be reduced to the Conversion
Price (calculated to the nearest one-hundredth of a cent) determined by
dividing: (A) an amount equal to the sum of the product derived by multiplying
the Number of Common Shares Deemed Outstanding immediately prior to such
Triggering Transaction by the Conversion Price then in effect, plus the
consideration, if any, received by the Company upon consummation of such
Triggering Transaction by (B) an amount equal to the sum of the Number of Common
Shares Deemed Outstanding immediately prior to such Triggering Transaction plus
the number of shares of Common Stock issued (or deemed to be issued in
accordance with Section 7(b)(1) through (10) inclusive) in connection with the
Triggering Transaction. The term "Number of Common Shares Deemed Outstanding" at
any given time shall mean the sum of (i) the number of shares of Common Stock
outstanding at such time, (ii) the number of shares of Common Stock issuable
upon conversion or exchange at such time of all of the Company's outstanding
securities that are then convertible into, or exchangeable for, Common Stock and
(iii) the number of shares of the Company's Common Stock deemed to be
outstanding under Section 7(b)(1) through (10) inclusive, at such time. For
purposes of determining the adjusted Conversion Price under this Section
7(b),the following provisions shall be applicable:
(1) In case the Company at any time shall in any manner grant (whether
directly or by assumption in a merger or otherwise) any rights to subscribe for
or to purchase, or any options for the purchase of, Common Stock or any stock or
other securities convertible into or exchangeable for Common Stock (such rights
or options being herein called "Options" and such convertible or exchangeable
stock or securities being herein called "Convertible Securities"), whether or
not such Options or the right to convert or exchange any such Convertible
Securities are immediately exercisable and the price per share for which the
Common Stock is issuable upon exercise, conversion or
<PAGE>
exchange (determined by dividing (Y) the total amount, if any, received or
receivable by the Company as consideration for the granting of such Options,
plus the minimum aggregate amount of additional consideration payable to the
Company upon the 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 upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by (Z) the
total maximum number of shares of Common Stock issuable upon the exercise of
such Options or the conversion or exchange of such Convertible Securities) shall
be less than the Conversion Price in effect immediately prior to the time of the
granting of such Option, then the total maximum amount of Common Stock issuable
upon the exercise of such Options or in the case of Options for Convertible
Securities, upon the conversion or exchange of such Convertible Securities shall
(as of the date of granting of such Options) be deemed to be outstanding and to
have been issued and sold by the Company for such price per share. No further
adjustment of the Conversion Price shall be made upon the actual issue of such
shares of Common Stock or such Convertible Securities upon the exercise of such
Options, except as otherwise provided in Section 7(b)(3).
(2) In case the Company at any time shall in any manner issue (whether
directly or by assumption in a merger or otherwise) or sell any Convertible
Securities, whether or not the rights to exchange or convert thereunder are
immediately exercisable, and the price per share for which Common Stock is
issuable upon such conversion or exchange (determined by dividing (Y) 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 (Z) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities)
shall be less than the 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 all such Convertible Securities shall
(as of the date of the issue or sale of such Convertible Securities) be deemed
to be outstanding and to have been issued and sold by the Company for such price
per share. No further adjustment of the Conversion Price shall be made upon the
actual issue of such Common Stock upon exercise of the rights to exchange or
convert under such Convertible Securities, except as otherwise provided in
Section (7)(b)(3).
(3) If the purchase price provided for in any Options referred to in
Section 7(b)(1), the additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities referred to in Sections
7(b)(1) or (2), or the rate at which any Convertible Securities referred to in
Sections 7(b)(1) or (2) are convertible into or exchangeable for Common Stock
shall change at any time (other than under or by reason of provisions designed
to protect against dilution of the type set forth in Sections 7(b) or 7(d)), the
Conversion Price in effect at the time of such change shall forthwith be
readjusted to the 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
<PAGE>
granted, issued or sold. If the purchase price provided for in any Option
referred to in Section 7(b)(1) or the rate at which any Convertible Securities
referred to in Sections 7(b)(1) or (2) are convertible into or exchangeable for
Common Stock, shall be reduced at any time under or by reason of provisions with
respect thereto designed to protect against dilution, then in case of the
delivery of Common Stock upon the exercise of any such Option or upon conversion
or exchange of any such Convertible Security, the Conversion Price then in
effect hereunder shall forthwith be adjusted to such respective amount as would
have been obtained had such Option or Convertible Security never been issued as
to such Common Stock and had adjustments been made upon the issuance of the
shares of Common Stock delivered as set forth herein, but only if as a result of
such adjustment the Conversion Price then in effect hereunder is hereby reduced.
(4) On the expiration of any Option or the termination of any right to
convert or exchange any Convertible Securities, the Conversion Price then in
effect hereunder shall forthwith be increased to the Conversion Price which
would have been in effect at the time of such expiration or termination had such
Option or Convertible Securities, to the extent outstanding immediately prior to
such expiration or termination, never been issued.
(5) In case any Options shall be issued in connection with the issue or
sale of other securities of the Company, together comprising one integral
transaction in which no specific consideration is allocated to such Options by
the parties thereto, such Options shall be deemed to have been issued without
consideration.
(6) In case any shares of Common Stock, Options or Convertible Securities
shall be 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. In case any shares of Common Stock, Options or Convertible
Securities shall be 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 as determined in good faith by the Board. In
case any shares of Common Stock, Options or Convertible Securities shall be
issued 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
corporation as shall be attributable to such Common Stock, Options or
Convertible Securities, as the case may be.
(7) 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, and
the disposition of any shares so owned or held shall be considered an issue or
sale of Common Stock for the purpose of this Section 7(b).
(8) In case the Company shall declare a dividend or make any other
distribution upon the stock of the Company payable in Options or Convertible
Securities, then in such case any Options or Convertible Securities, as the case
may be, issuable in
<PAGE>
payment of such dividend or distribution shall be deemed to have been issued or
sold without consideration.
(9) For purposes of this Section 7(b), in case the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right or subscription or
purchase, as the case may be.
(10) For purposes of this Section 7(b), notwithstanding Section 7(f), in
the event that the "Class B Warrants" issued to MCI WCOM on September 26, 1997
vest and become exercisable for shares of Common Stock, whether or not MCI WCOM
shall exercise such Class B Warrants, the following shall apply: the
consideration per share that the Common Stock shall be deemed to have been
issued or sold at shall be equal to the Conversion Price that would have been
payable by the holder of the Class G Preferred Stock on the Initial Issuance
Date if the vested Class B Warrants had vested and been exercised (and the
exercise price thereon had been paid to the Company) prior to the Initial
Issuance Date.
(c) Liquidating Dividends. In the event the Company shall declare a
dividend upon the Common Stock (other than a dividend payable in Common Stock)
payable otherwise than out of earnings or earned surplus, determined in
accordance with generally accepted accounting principles, including the making
of appropriate deductions for minority interests, if any, in subsidiaries
(herein referred to as "Liquidating Dividends"), then, as soon as possible after
the conversion of any Class G Preferred Stock, the Company shall pay to the
person converting such Class G Preferred Stock an amount equal to the aggregate
value at the time of such exercise of all Liquidating Dividends (including but
not limited to the Common Stock which would have been issued at the time of such
earlier exercise and all other securities which would have been issued with
respect to such Common Stock by reason of stock splits, stock dividends, mergers
or reorganizations, or for any other reason). For the purposes of this Section
7(c), a dividend other than in cash shall be considered payable out of earnings
or earned surplus only to the extent that such earnings or earned surplus are
charged an amount equal to the fair value of such dividend as determined in good
faith by the Board.
(d) Subdivisions and Dividends; Combinations. In case the Company shall at
any time (i) subdivide the outstanding Common Stock or (ii) issue a stock
dividend on its outstanding Common Stock, the number of shares of Common Stock
issuable upon conversion of the Class G Preferred Stock shall be proportionately
increased by the same ratio as the subdivision or dividend (with appropriate
adjustments to the Conversion Price in effect immediately prior to such
subdivision or dividend). In case the Company shall at any time combine its
outstanding Common Stock, the number of shares issuable upon conversion of the
Class G Preferred Stock immediately prior to such combination shall be
<PAGE>
proportionately decreased by the same ratio as the combination (with appropriate
adjustments to the Conversion Price in effect immediately prior to such
combination).
(e) Reorganizations, etc. If any capital reorganization or reclassification
of the capital stock of the Company, or consolidation or merger of the Company
with another corporation, or the sale of all or substantially all of its assets
to another corporation shall be effected in such a way that holders of Common
Stock shall be entitled to receive stock, securities, cash or other property
with respect to or in exchange for Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale, lawful and
adequate provision shall be made whereby the holders of the Class G Preferred
Stock shall have the right to acquire and receive upon conversion of the Class G
Preferred Stock, which right shall be prior to the rights of the holders of
Junior Stock, equal to the rights of the holders of Parity Stock and after and
subject to the rights of holders of Senior Stock, such shares of stock,
securities, cash or other property issuable or payable (as part of the
reorganization, reclassification, consolidation, merger or sale) with respect to
or in exchange for such number of outstanding shares of Common Stock as would
have been received upon conversion of the Class G Preferred Stock at the
Conversion Price then in effect.
(f) Exceptions to Antidilution. The provisions of this Section 7 shall not
apply to any Common Stock issued, issuable or deemed outstanding under Section
7(b)(1) through (10) inclusive (and no such transaction shall constitute a
Triggering Transaction): (i) in connection with a public or private debt
financing effected by the Company (other than with an affiliate of the Company,
including MCI WCOM) within nine months after the Initial Issuance Date, (ii)
after the issuance of shares of Common Stock to the public in an underwritten
offering pursuant to a registration statement filed under the Securities Act of
1933, as amended (the "Securities Act") covering the offer and sale of Common
Stock in which the proceeds to the Company are not less than $20 million, (iii)
to any person pursuant to any stock option, stock purchase or similar plan or
arrangement for the benefit of employees, consultants or other representatives
of the Company or its subsidiaries in effect on the Initial Issuance Date or
thereafter adopted by the Board, (iv) pursuant to options, warrants and
conversion rights in existence on the Initial Issuance Date (other than as
provided for in Section 7(b)(10)) or (v) on conversion of the Class B Preferred
Stock, the Class C Preferred Stock or the Class D Preferred Stock or the sale of
any additional shares of any of the foregoing at a price not less than the
applicable conversion price thereof.
(g) Procedures. In the event that (i) the Company shall declare any cash
dividend upon its Common Stock, (ii) the Company shall declare any dividend upon
its Common Stock payable in stock or make any special dividend or other
distribution to the holders of its Common Stock, (iii) the Company shall offer
for subscription pro rata to the holders of its Common Stock any additional
shares of stock of any class or other rights, (iv) there shall be any capital
reorganization or reclassification of the capital stock of the Company,
including any subdivision or combination of its outstanding shares of Common
Stock, or consolidation or merger of the Company with, or sale of all or
substantially all of its assets to, another corporation, (v) there shall be a
voluntary or involuntary
<PAGE>
dissolution, liquidation or winding-up of the Company, then, in connection with
any such event, the Company shall give to the holders of the Class G Preferred
Stock (A) at least twenty (20) days prior written notice of the date on which
the books of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights or for determining rights to vote
in respect of any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding-up; and (B) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, at least twenty (20) days prior written notice of the
date when the same shall take place. Such notice in accordance with the
foregoing clause (A) shall also specify, in the case of any such dividend,
distribution or subscription rights, the date on which the holders of Common
Stock shall be entitled thereto, and such notice in accordance with the
foregoing clause (B) shall also specify the date on which the holders of Common
Stock shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification consolidation,
merger, sale, dissolution, liquidation or winding-up, as the case may be. Each
such written notice shall be given by first class mail, postage prepaid,
addressed to the holders of the Class G Preferred Stock at the address of each
such holder as shown on the books of the Company.
(h) Intended Effect. If any event occurs as to which, in the opinion of the
Board, the provisions of this Section 7 are not strictly applicable or if
strictly applicable would not fairly protect the rights of the holders of the
Class G Preferred Stock in accordance with the essential intent and principles
of such provisions, then the Board shall make an adjustment in the application
of such provisions, in accordance with such essential intent and principles, so
as to protect such rights as set forth herein, but in no event shall any
adjustment have the effect of increasing the Conversion Price as otherwise
determined pursuant to any of the provisions of this Section 7 except in the
case of a combination of shares of a type contemplated in Section 7(d) and then
in no event to an amount greater than the Conversion Price as adjusted pursuant
to Section 7(d).
8. MANDATORY CONVERSION.
(a) Mandatory Conversion. Each share of Class G Preferred Stock shall
automatically be converted into shares of Common Stock at the then effective
Conversion Price at any time upon the closing of an underwritten offering
pursuant to an effective registration statement under the Securities Act,
covering the offer and sale of Common Stock to the public. In addition, each
share of Class G Preferred Stock shall automatically be converted into shares of
Common Stock at the then effective Conversion Price for such shares (A) upon the
vote to so convert of the holders of at least a majority of the shares of Class
G Preferred Stock then outstanding or (B) at any time after the conversion into
Common Stock of at least a majority of the shares of Class G Preferred Stock
issued on the Initial Issuance Date.
(b) Procedures. All holders of record of shares of Class G Preferred Stock
will be given at least twenty (20) days' prior written notice of the date fixed
and the place designated for mandatory conversion of all of such shares of Class
G Preferred Stock
<PAGE>
pursuant to this Section 8. Such notice will be sent by mail, first class,
postage prepaid, to each record holder of shares of Class G Preferred Stock at
such holder's address appearing on the stock register. On or before the date
fixed for conversion each holder of shares of Class G Preferred Stock shall
surrender his or its certificates or certificates for all such shares to the
Company at the place designated in such notice, and shall thereafter receive
certificates for the number of shares of Common Stock to which such holder is
entitled pursuant to this Section 8. On the date fixed for conversion, all
rights with respect to the Class G Preferred Stock so converted will terminate,
except only the rights of the holders thereof, upon surrender of their
certificate or certificates therefore, to receive certificates for the number of
shares of Common Stock into which such Class G Preferred Stock has been
converted and payment of any accrued and unpaid dividends thereon. If so
required by the Company, certificates surrendered for conversion shall be
endorsed or accompanied by written instrument or instruments of transfer, in
form satisfactory to the Company, duly executed by the registered holder or by
his attorneys duly authorized in writing. All certificates evidencing shares of
Class G Preferred Stock which are required to be surrendered for conversion in
accordance with the provisions hereof shall, from and after the date such
certificates are so required to be surrendered, be deemed to have been retired
and canceled and the shares of Class G Preferred Stock represented thereby
converted into Common Stock for all purposes, notwithstanding the failure of the
holder or holders thereof to surrender such certificates on or prior to such
date. As soon as practicable after the date of such mandatory conversion and the
surrender of the certificate or certificates for Class G Preferred Stock as set
forth herein, the Company shall cause to be issued and delivered to such holder,
or on his or its written order, a certificate or certificates for the number of
full shares of Common Stock issuable on such conversion in accordance with the
provisions hereof and cash as provided in Section 6(b) in respect of any
fraction of a share of Common Stock otherwise issuable upon such conversion.
(c) Lock-up. In case of any optional conversion pursuant to Section 6 or
mandatory conversion pursuant to this Section 8, the holders of the Class G
Preferred Stock agree not to resell any of the Common Shares acquired upon
conversion for a period not exceeding 180 days following the Company's initial
public offering in accordance with customary terms and conditions of lock-up
agreement as may be reasonably required by the underwriter of the offering.
9. REDEMPTION.
(a) Redemption Price. At any time within 18 months from the Initial
Issuance Date, the Company may redeem all (but not less than all) of the shares
of the Class G Preferred Stock at Original Purchase Price plus an amount equal
to the per share dividends accrued on the Class G Preferred Stock but not paid
(such amount, the "Redemption Price").
(b) Redemption Notice; Surrender. At least thirty (30) days prior to the
date that the Company elects to redeem the Class G Preferred Stock (the
"Redemption Date"), written notice shall be mailed, postage prepaid, to each
holder of record of Class G
<PAGE>
Preferred Stock to be redeemed, at his or its post office address last shown on
the records of the Company, notifying such holder of the number of shares so to
be redeemed, specifying the Redemption Date and calling upon such holder to
surrender to the Company, in the manner and at the place designated, his or its
certificate or certificates representing the shares to be redeemed (such notice,
the "Redemption Notice"). On or prior to each Redemption Date, each holder of
Class G Preferred Stock to be redeemed shall surrender his or its certificate or
certificates representing such shares to the Company, in the manner and at the
place designated in the Redemption Notice, and thereupon the Redemption Price of
such shares shall be payable to the order of the person whose name appears on
such certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. From and after the Redemption Date, unless there
shall have been a default in payment of the Redemption Price, all rights of the
holders of the Class G Preferred Stock designated for redemption in the
Redemption Notice as holders of Class G Preferred Stock of the Company (except
the right to receive the Redemption Price without interest upon surrender of
their certificate or certificates) shall cease with respect to such shares, and
such shares shall not thereafter be transferred on the books of the Company or
be deemed to be outstanding for any purpose whatsoever.
10. CONVERTED AND REACQUIRED SHARES. Any shares of Class G Preferred Stock
converted into Common Stock, redeemed, purchased or otherwise acquired by the
Company in any manner whatsoever shall be retired and canceled promptly after
the acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of undesignated stock of the Company and may be
reissued subject to the conditions and restrictions on issuance in the Articles
of Incorporation, in any other Certificate of Designation creating a series of
preferred stock or any similar stock or as otherwise required by law.
<PAGE>
RESOLVED FURTHER, that the officers of the Company be, and each of them
acting alone is, hereby authorized and instructed to take all steps necessary to
execute, deliver and file, for and on behalf of the Company and in its name, any
and all documents required in connection with the establishment and
authorization of the Company's Class G Preferred Stock, including but not
limited to, filing the Statement of Rights and Preferences with the Minnesota
Secretary of State in accordance with Minnesota Statutes, Section 302A.401.
F. The undersigned further declares under penalty of perjury the matters
set out in the foregoing Certificate are true and correct of his own knowledge.
IN WITNESS WHEREOF, the undersigned has executed this certificate as of the
18th day of February, 2000.
/s/ Edward J. Driscoll, Jr.
------------------------------------
Edward J. Driscoll, Jr., Secretary
<PAGE>
EXHIBIT 4.34
================================================================================
SECURITIES PURCHASE AGREEMENT
dated as of December 31, 1999,
among
WAM!NET INC.,
WINSTAR COMMUNICATIONS, INC.,
And
WINSTAR CREDIT CORP.
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
Section 1. Authorization......................................................1
Section 2. Closing............................................................1
Section 3. Sale and Purchase of Shares........................................1
3.1. Shares......................................................1
3.2. Option......................................................1
Section 4. Representations and Warranties of the Corporation..................3
4.1. Organization; Subsidiaries..................................3
4.2. Qualification; Good Standing................................4
4.3. Corporate Authorization; Enforceability.....................4
4.4. No Conflict.................................................4
4.5. Capitalization..............................................4
4.6. Securities Laws; Applicable Corporation Laws................6
4.7. Financial Information.......................................7
4.8. Absence of Changes; Review of Interim Financials............7
4.9. Initial Budget..............................................9
4.10. Agreements.................................................9
4.11. Title to Assets...........................................11
4.12. Real Property.............................................11
4.13. Intellectual Property Rights; Proprietary Information
of Third Parties..........................................11
4.14. Compliance with Laws; Governmental Authorizations.........12
4.15. Litigation................................................13
4.16. Environmental Matters.....................................13
4.17. Tax Matters...............................................13
4.18. Employee Benefit Plans....................................14
4.19. Insurance.................................................15
4.20. Related Transactions......................................15
4.21. Offering of the Shares....................................15
4.22. Disclosure................................................15
4.23. Investor Sophistication...................................16
4.24. Investment Intent.........................................16
4.25. Brokers and Finders.......................................17
4.26. Year 2000 Compliance......................................17
4.27. Minnesota Business Corporation Act........................17
Section 5. Representations and Warranties of the Purchasers..................18
5.1. Due Authorization..........................................18
5.2. Investment Representations.................................18
5.3. Brokers and Finders........................................19
5.4. Investor Sophistication....................................19
5.5. Winstar Representation.....................................19
i
<PAGE>
Section 6. Covenants of the Corporation and the Purchasers...................20
6.1. Regulatory Approvals; Reasonable Best Efforts;
Further Assurances.........................................20
6.2. Certain Filings............................................20
6.3. Confidentiality............................................20
6.4. Public Announcements.......................................21
Section 7. Covenants of the Corporation......................................21
7.1. Certificate of Designations................................21
7.2. Restrictions Pending the Closing...........................21
7.3. Reservation of Shares......................................21
7.4. Use of Proceeds............................................22
7.5. Access to Records..........................................22
7.6. Budget.....................................................22
7.7. Financial Reporting and other Information..................22
7.8. Payment of Obligations.....................................23
7.9. Insurance..................................................23
7.10. Certain Notices...........................................23
7.11. Conduct of Business.......................................24
7.12. Related Transactions......................................24
7.13. Internal Controls; Accountants Review.....................24
7.14. Board Designees...........................................25
7.15. Indenture.................................................26
7.16. Tag-Along Agreements......................................26
7.17. [Reserved.]...............................................26
7.18. Consents..................................................26
Section 8. Registration Rights of the Purchasers.............................26
8.1. Demand Registration........................................26
8.2. "Piggy-Back" Registration..................................27
8.3. General Terms..............................................28
8.4. Underwriting Agreement.....................................29
8.5. Road Show..................................................29
8.6. Registration of Winstar Shares.............................29
Section 9. Conditions to Each Closing........................................29
9.1. Conditions of Each Party...................................29
9.2. Conditions to Obligations of the Purchasers................30
9.3. Conditions to Obligations of the Corporation...............31
Section 10. Termination......................................................31
10.1. Effect of Termination.....................................32
Section 11. Miscellaneous....................................................33
11.1. Survival..................................................33
11.2. Indemnification...........................................33
11.3. Fees and Expenses.........................................34
11.4. Assignment; Parties in Interest...........................34
11.5. Entire Agreement..........................................35
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11.6. Notices..................................................35
11.7. Amendments...............................................36
11.8. Counterparts.............................................36
11.9. Headings.................................................36
11.10. Governing Law............................................36
11.11. Jurisdiction.............................................36
11.12. No Waiver................................................37
11.13. Binding Effect...........................................37
11.14. Cumulative Powers........................................37
INDEX........................................................................38
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SECURITIES PURCHASE AGREEMENT, dated as of December 31, 1999, among WAM!NET
INC., a Minnesota corporation (the "Corporation"), Winstar Communications, Inc.,
a Delaware corporation ("Winstar") and Winstar Credit Corp., a Delaware
corporation and a wholly-owned subsidiary of Winstar ("Winstar Sub").
WHEREAS, the Corporation desires to sell to Winstar Sub 50,000 shares (the
"Shares") of its Class E Convertible Preferred Stock, $.01 par value (the "Class
E Preferred Stock"), and Winstar Sub desires to purchase the Shares from the
Corporation upon the terms and subject to the conditions set forth below.
NOW THEREFORE, the parties hereto agree as follows:
Section 1. Authorization.
The Corporation has authorized the issuance and sale, upon the terms and
subject to the conditions set forth in this Agreement, of the Shares for a
purchase price of $1,000 per Share ("Per Share Price") or $50,000,000 in the
aggregate. The powers, designations, preferences and relative, participating,
optional or other rights, and the qualifications, limitations, and restrictions
of the Class E Preferred Stock are set forth in the Statement of Rights and
Preferences of Class E Preferred Stock ("Class E Certificate of Designations")
attached hereto as Exhibit A.
Section 2. Closing.
Unless this Agreement shall have been terminated and the transactions
herein contemplated shall have been abandoned in accordance with this Agreement,
the closing of the sale and purchase of the Shares and the other transactions
contemplated hereby (the "Closing") shall be held at 10:00 a.m. on the date
which is the third business day after the conditions in Section 9 have been
satisfied or waived (other than those of such conditions which are customarily
satisfied at a closing), at the office of Graubard Mollen & Miller, 600 Third
Avenue, New York, New York 10016 (or at such other time, date and place as the
parties may mutually agree). The date on which the Closing actually occurs is
hereinafter referred to as the "Closing Date."
Section 3. Sale and Purchase of Shares.
3.1. Shares.
At the Closing, the Corporation shall issue, sell and deliver to Winstar
Sub, 50,000 Shares of Class E Preferred Stock and Winstar Sub shall deliver to
the Corporation, as full payment therefor, a certificate, representing the
number of shares of common stock of Winstar as set forth under Column C on
Schedule I, registered in the name of the Corporation (the "Winstar Shares").
3.2. Option.
(a) Option Grant. The Corporation hereby grants to Winstar Sub an
option ("Option") to purchase up to an additional 50,000 shares of Class E
Preferred Stock from the
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Corporation ("Option Shares") at a price equal to the Per Share Price per
Option Share or, if Winstar Sub acquires Option Shares for its own account
and elects to pay Winstar Shares therefor, at the rate of 14.285714 Winstar
Shares per Option Share and otherwise on the same terms and conditions as
pertain to the Shares. Subject to subsection (b) directly below, Winstar
Sub may transfer such Option to a person or persons ("Designee") at any
time, from time to time, prior to the Option Termination Date (as defined
below). Winstar Sub and any Designee, individually and collectively, are
sometimes herein referred to as "Purchaser" or "Purchasers."
(b) Designee. Winstar Sub must furnish notice of its intended
Designee(s) ("Designee Notice") at least 5 business days before
transferring the Option or any portion thereof to such Designee(s). The
Corporation has two (2) business days to notify Winstar Sub of its
non-approval of such Designee, in which event any such approval shall not
be unreasonably withheld. Designees and/or entities that invest in the
telecommunications business, but are not primarily engaged in such
business, however, are not subject to approval by the Corporation.
(c) Exercise of Option. The Option may be exercised by the Purchaser
as to all or any part of the Option at any time, from time to time, until
5:00 p.m. on March 6, 2000 or such other date as may be mutually agreed
upon by the Corporation and Winstar Sub ("Option Termination Date"). The
Purchaser will not be under any obligation to exercise the Option prior to
the Option Termination Date. The Option may be exercised by the giving of
oral notice to the Corporation from the Purchaser, which must be confirmed
by a letter or telecopy setting forth the number of Options purchased, the
Option Closing Date (as defined directly below) and the payment amount for
the number of Series E Preferred Stock purchased upon exercise of the
Options. If a Designee other than Winstar Sub exercises any portion of the
Option, the Corporation agrees to sell the Class E Preferred Stock
underlying the Option to such Designee at the Per Share Price payable
either in immediately available funds or capital stock of such Designee, or
a combination of both, as determined upon mutual consent between the
Designee and the Corporation.
(d) Option Closing. Unless this Agreement shall have been terminated
and the transactions herein contemplated shall have been abandoned in
accordance with this Agreement, the closing of the sale and purchase of the
Option Shares ("Option Closing") shall be held on the date which is the
earlier of (i) six business days from the furnishing of a Designee Notice
to the Corporation and (ii) on the date and at the time mutually agreed
upon between the Purchaser of the Option Shares and the Corporation, but in
no event later than the earlier of (i) six business days from the
furnishing of a Designee Notice to the Corporation and (ii) the Option
Termination Date. The Option Closing shall occur at the offices of Graubard
Mollen & Miller, 600 Third Avenue, New York, New York. The date on which
the Option Closing actually occurs is hereinafter referred to as the
"Option Closing Date." Subject to the terms and conditions of this
Agreement, the Option Closing Date shall occur with respect to a Designee
approved by the Corporation, within 10 business days of the Corporation's
receipt of a Designee Notice. Subject to the terms and conditions set forth
herein, on the Option Closing Date, the Designee(s) shall sign a copy of
this Agreement, as amended to reflect the exercise of the Option, and shall
deliver the exercise price for the Options to the Corporation in exchange
for which the Corporation shall issue the Option Shares to such
Designee(s).
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Section 4. Representations and Warranties of the Corporation.
The Corporation hereby represents and warrants to the Purchaser as of the
date hereof, as of the Closing Date and as of the Option Closing Date, if any,
that:
4.1. Organization; Subsidiaries.
(a) Organization. The Corporation and each Subsidiary (as defined
below) is a corporation duly organized and validly existing under the laws
of the jurisdiction of its incorporation and has all requisite corporate
power and authority to own, lease and operate the assets used in its
business, to carry on its business as presently conducted, to enter into
the Documents (as hereinafter defined), to perform its obligations
thereunder, and to consummate the transactions contemplated thereby.
Attached as Schedule 4.1(a) are correct and complete copies of the Articles
of Incorporation of the Corporation including all amendments and
certificates of Designation, and the By-laws of the Corporation and each
Subsidiary, each as in effect on the date hereof (collectively, the
"Organizational Documents"). No amendments, revisions or waivers of any
provisions of any Organizational Documents have occurred, are in the
process of occurring or otherwise have been requested. For purposes of this
Agreement, "Documents" collectively means (i) this Agreement, (ii) the
Class E Certificate of Designations and (iii) the Lock-Up and Restricted
Stock Agreement in the form of Exhibit B ("Lock-up Agreement").
(b) Subsidiaries. Set forth on Schedule 4.1(b) hereto is a complete
list of all of the subsidiaries of the Corporation (each a "Subsidiary").
Except as set forth on Schedule 4.1(b) hereto, the Corporation does not
own, directly or indirectly, any capital stock or other equity securities
of any corporation, nor does the Corporation have any direct or indirect
ownership interest, including interests in partnerships and joint ventures,
in any other entity or business and there are no agreements to acquire such
interests. Each Subsidiary has been duly organized, is validly existing and
in good standing under the laws of its respective jurisdiction of
incorporation and is duly qualified and in good standing as a foreign
corporation, and is authorized to do business, in all jurisdictions in
which the character of its properties or the nature of its businesses
requires such qualification or authorization, except for qualifications and
authorizations the lack of which, individually or in the aggregate, would
not reasonably be expected to result in a material adverse effect upon the
business, prospects, properties, liabilities, assets, operations, results
of operations, condition (financial or otherwise), or affairs of the
Corporation or result in the loss from employment of any Principal
Executive Officer as such term is defined on Schedule II (a "Material
Adverse Effect"). Each Subsidiary has the requisite power and authority to
own and hold its properties and to carry on its business as now being
conducted. Except as disclosed on Schedule 4.1(b) hereto: (i) all of the
outstanding shares of capital stock of each Subsidiary are owned
beneficially and of record by the Corporation, another Subsidiary or any
combination thereof, in each case free and clear of any liens, charges,
restrictions, claims or encumbrances other than restrictions on transfer
imposed by the Securities Act of 1933, as amended (the "Securities Act");
and (ii) there are no outstanding subscriptions, warrants, options,
convertible securities or other rights (contingent or other) pursuant to
which any Subsidiary is or may become obligated to issue any shares of its
capital stock to any person other than the Corporation or a Subsidiary.
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4.2. Qualification; Good Standing.
Each of the Corporation and every Subsidiary is authorized to do business
and is in good standing as a foreign corporation in each jurisdiction the laws
of which require such respective entity to be so authorized, except where the
failure to be so qualified or in good standing could not reasonably be expected
to have a Material Adverse Effect.
4.3. Corporate Authorization; Enforceability.
The Corporation has taken all corporate action necessary to authorize its
execution and delivery of the Documents, the performance of its obligations
thereunder, and its consummation of the transactions contemplated thereby. Each
Document has been executed and delivered by an officer of the Corporation in
accordance with such authorization. Each Document constitutes a valid and
binding obligation of the Corporation, enforceable in accordance with its terms,
subject to applicable bankruptcy, reorganization, fraudulent conveyance,
insolvency, moratorium, and similar laws now or hereafter in effect affecting
creditors' rights generally and to general principles of equity.
4.4. No Conflict.
The execution and delivery by the Corporation of the Documents, its
consummation of the transactions contemplated thereby, and its compliance with
the provisions thereof, will not other than in instances which could not
reasonably be expected to have a Material Adverse Effect, (i) violate or
conflict with any of the Organizational Documents, (ii) violate, conflict with,
result in a breach of, constitute a default under, or give rise to any right of
termination, cancellation, or acceleration (with or without notice or lapse of
time, or both) under any agreement, lease, security, license, permit, or
instrument to which the Corporation or any Subsidiary is a party, or to which it
or any of them or any of their respective assets or businesses are subject,
(iii) result in the imposition of any Encumbrance (as hereinafter defined) on
any asset of the Corporation, (iv) violate or conflict with any Laws applicable
to the Corporation or its properties or assets, or (v) require any consent,
approval or other action of, notice to, or filing with any entity or person
(governmental or private), except for the filing of the Class E Certificate of
Designations and those that have been obtained or made. For purposes of this
Agreement, "Encumbrance" means any security interest, mortgage, lien, pledge,
charge, easement, reservation, clouds, equities, rights of way, options, rights
of first refusal and any other encumbrances, whether or not relating to the
extension of credit or the borrowing of money. For purposes of this Agreement,
"Laws" means all laws, statutes, rules, regulations, ordinances, bylaws, writs,
Permits, Orders and other legislative, administrative or judicial restrictions.
4.5. Capitalization.
(a) Capitalization.
(i) As of the date hereof, the authorized capital stock of the
Corporation consists of 500,000,000 shares, the Designation and
classes of which are set
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forth on Schedule 4.5(a) hereto. The Corporation does not hold any of
its shares in treasury.
(ii) As of the date hereof, 9,494,797 shares of the Corporation's
common stock, par value $.01 per share ("Common Stock"), 115,206
shares of the Corporation's Class A Preferred Stock par value $10.00
per share (the "Class A Preferred Stock"), 5,710,425 shares of the
Corporation's Class B Preferred Stock par value $.01 per share (the
"Class B Preferred Stock"), 878,527 shares of the Corporation's Class
C Preferred Stock, par value $.01 per share (the "Class C Preferred
Stock"), and 2,196,317 shares of the Corporation's Class D Preferred
Stock, par value $.01 per share (the "Class D Preferred Stock") are
issued and outstanding and have been validly issued and are fully paid
and nonassessable and are not subject to preemptive rights. Except as
set forth above, there are no other shares of capital stock of the
Corporation outstanding. As of the date hereof, the Class B Preferred
Stock, Class C Preferred Stock and Class D Preferred Stock are
convertible into 5,710,425, 878,527 and 2,196,317 shares of Common
Stock, respectively. Upon issuance of the Common Stock underlying such
preferred shares, in accordance with their respective Certificates of
Designation, such Common Stock will be validly issued, fully paid and
non-assessable.
(b) Options, Warrants, Convertible Securities. Except as set forth on
Schedule 4.5(a) hereto, as of the date hereof there are no outstanding
subscriptions, options, warrants or other agreements or rights of any kind
to acquire any additional shares of capital stock of the Corporation or
other instruments or securities convertible into or exchangeable for, or
which otherwise confer on the holder thereof any right to acquire, any such
additional shares of capital stock, nor is the Corporation committed to
issue any such option, warrant, right or security. Except as set forth on
Schedule 4.5(b) hereto, the Corporation has no obligation (contingent or
other) to purchase, redeem or otherwise acquire any of its equity
securities or any interest therein or to pay any dividend or make any other
distribution in respect thereof. Schedule 4.5(a) additionally sets forth
(i) all of the outstanding warrants of the Corporation, specifying the
exercise prices and periods of such warrants and amount of Common Stock
issuable upon exercise of such warrants; and (ii) stock options of the
Corporation, specifying the exercise prices and periods of such options and
the amount of Common Stock issuable upon exercise of the stock option held
by each such holder. As of the date hereof, 73,621,344 shares of Common
Stock are issuable upon exercise or conversion of all of the Corporation's
outstanding options, warrants, and other rights of any kind to acquire
shares of the Corporation's Common Stock (not including Class B Warrants
issued in September 1997 to MCI WorldCom, Inc.).
(c) Agreements.
(i) Except as set forth in Schedule 4.5(c)(i), as of the date
hereof, there are no agreements relating to the purchase or sale of
capital stock between the Corporation and any of its shareholders or
affiliates, and to the best of the Corporation's knowledge, there are
no such agreements among any of its shareholders and other parties.
(ii) Except as contemplated hereby and as set forth in Schedule
4.5(c)(ii), there are no agreements or understandings granting to any
person or entity any
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right to cause the Corporation or any Subsidiary to effect a
registration under the Securities Act of 1933, as amended ("Securities
Act"), of any shares of the Corporation's capital stock.
(iii) Except as set forth on Schedule 4.5(c)(iii), there are no
voting trusts, voting agreements, proxies or other agreements,
instruments or understandings with respect to the voting of the
capital stock of the Corporation between the Corporation and any of
its shareholders or affiliates and to the best of the Corporation's
knowledge, there are no such agreements among any of its shareholders
and any other parties.
(d) Due Authorization. The Shares and Option Shares are duly
authorized and, when issued and paid for pursuant to the terms of this
Agreement, will be validly issued, fully paid and nonassessable and will
have the rights, preferences and privileges specified in the Class E
Certificate of Designations. The shares of the Corporation's Common Stock
issuable upon conversion of the Shares and Option Shares ("Conversion
Shares") are duly authorized and have been reserved for issuance and, when
issued upon conversion in accordance with the terms of the Class E
Certificate of Designations, will be validly issued, fully paid and
nonassessable, and will be free and clear of all liens, encumbrances and
restrictions (other than the restrictions on transfer imposed by the
Securities Act or any other applicable federal or state securities laws,
and the rules and regulations promulgated thereunder). Neither the
issuance, sale or delivery of the Shares or Option Shares nor the
contemplated issuance or delivery of the Conversion Shares is subject to or
will trigger any preemptive or other similar right of shareholders of the
Corporation, any anti-dilution right or right of first refusal or other
preemptive or similar right in favor of any person, in each case except for
rights that have been listed on Schedule 4.5(d).
(e) Securityholders. Schedule 4.5(a) sets forth the name and address
of each record holder of more than five-percent of the outstanding shares
of any of the Common Stock, the Class A Preferred Stock, the Class B
Preferred Stock, the Class C Preferred Stock and the Class D Preferred
Stock and the number of such shares of Common Stock or Preferred Stock held
by each such holder.
(f) Reservation of Shares. The Corporation has reserved, and at all
times from and after the date hereof will keep reserved, free from
preemptive rights, out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of all shares of
Class A Preferred Stock, Class B Preferred Stock, Class C Preferred Stock,
Class D Preferred Stock and Class E Preferred Stock, sufficient shares of
Common Stock to provide for the conversion of all such shares of Preferred
Stock.
4.6. Securities Laws; Applicable Corporation Laws.
(a) The sale of the Shares and Option Shares contemplated hereby is
exempt from registration under the Securities Act. The issuance of all
other shares of capital stock of the Corporation on or before the date
hereof has been made in compliance with the Securities Act and all
applicable state securities or blue sky laws.
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(b) The sale of the Shares and Option Shares contemplated hereby and
the other transactions contemplated hereby are in compliance with all
applicable laws, including the Minnesota Business Corporation Act, and any
consents which are required to be obtained pursuant to such laws have
either been obtained or waived in writing.
4.7. Financial Information.
(a) Schedule 4.7 sets forth (i) the audited consolidated balance sheet
of the Corporation at December 31, 1998 (the "Balance Sheet") and the
related statements of operations, shareholders' equity and cash flows of
the Corporation for the 12 months then ended and (ii) the unaudited
consolidated balance sheet of the Corporation at September 30, 1999 (the
"Interim Balance Sheet") and the related unaudited consolidated statements
of operations, shareholders' equity and cash flows for the Corporation for
the 9 months then ended (collectively, the "Financial Statements").
(b) The Financial Statements: (i) present fairly the financial
position of the Corporation and the results of operations, shareholders'
equity and cash flows of the Corporation at the dates and for the periods
indicated, (ii) are in accordance with the books and records of the
Corporation which books and records are complete and correct and fairly
reflect all material transactions of the Corporation's business, and (iii)
have been prepared in accordance with generally accepted accounting
principles ("GAAP") consistently applied (except as set forth in the notes
thereto and subject, in the case of unaudited Financial Statements, to
normal year-end adjustments, and the absence of notes thereto). Except as
incurred under agreements on Schedule 4.10(a) or as set forth on Schedule
4.7, at the date of the Interim Balance Sheet, the Corporation did not have
any material Liability of any nature or any loss contingency (as such term
is used in the Statement of Financial Accounting Standards No. 5 issued by
the Financial Accounting Standards Board in March 1975) that was not
adequately disclosed or provided for on the Interim Balance Sheet,
including the notes thereto. For purposes of this Agreement, "Liability"
means any liability or obligation, whether known or unknown, asserted or
unasserted, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated and whether due or to become due, regardless of when asserted.
4.8. Absence of Changes; Review of Interim Financials.
(a) Since the date of the Interim Balance Sheet there has not been:
(i) any change in the assets, liabilities or financial condition
of the Corporation (on a consolidated basis), except for changes (i)
in the ordinary course of business or (ii) which in the aggregate have
not resulted in and would not reasonably be expected to result in a
Material Adverse Effect;
(ii) any event or change that would reasonably be expected to
result in a Material Adverse Effect, individually or in the aggregate,
whether or not insured against;
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(iii) to the best of the Corporation's knowledge, any damage,
destruction or loss (whether or not covered by insurance) affecting
any asset of the Corporation in excess of $100,000;
(iv) any liability or loss contingency incurred by the
Corporation that would have to be disclosed on financial statements
(including the notes thereto) (on a consolidated basis) in accordance
with GAAP, other than liabilities incurred in the ordinary course of
business consistent with past practice;
(v) to the best of the Corporation's knowledge, any commitment to
borrow money from or provide financial support to any person or entity
entered into by the Corporation;
(vi) any payment or discharge of any Liability by the Corporation
outside the ordinary course of business consistent with past practice
to the best of the Corporation's knowledge;
(vii) any sale, assignment, license, or other disposition of any
asset or right of the Corporation or any Subsidiary outside the
ordinary course of business consistent with past practice;
(viii) any declaration or payment of any dividend or other
distribution with respect to any shares of capital stock of the
Corporation, or the direct or indirect acquisition of any equity
securities by the Corporation;
(ix) any labor trouble, problem or grievance affecting the
business of the Corporation other than such matters which would not
reasonably be expected to have a Material Adverse Effect;
(x) any write-down of the value of any inventory of the
Corporation, or any write-off as uncollectible of any accounts or
notes receivable of the Corporation, which could reasonably be
expected to result in a Material Adverse Effect;
(xi) any increase in the direct or indirect compensation of
senior officers of the Corporation or any Subsidiary (including,
without limitation, any increase pursuant to any bonus, pension,
profit-sharing, deferred compensation, or other plan or commitment),
in excess of 20% above the prior year;
(xii) any capital expenditure or commitment therefor by the
Corporation or any Subsidiary for additions to property, plant or
equipment in excess of $250,000;
(xiii) any change in the accounting or tax methods, practices, or
assumptions followed by the Corporation or any Subsidiary; or
(xiv) any other transaction or event not in the ordinary course
of business consistent with past practice.
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(b) The Corporation's independent accountants have not advised the
Corporation that the Interim Balance Sheet and the related unaudited
financial statements (i) do not comply in all material respects with the
applicable accounting requirements of the Securities Act and the related
published rules and regulations thereunder and (ii) are not in conformity
with GAAP.
4.9. Initial Budget.
The Corporation has delivered to Winstar a copy of the Corporation's
current budget for the year ended December 31, 2000 (the "Initial Budget"). The
projections of future financial and operating performance contained in the
Initial Budget, and the assumptions upon which such projections are based, are
believed by the Corporation to be reasonable as of the date hereof. In addition,
the Corporation is not aware of any facts or circumstances which would render
such projections or assumptions unreasonable or unattainable. Without limiting
the generality of the foregoing, the Purchasers acknowledge that no assurances
can be given that the Corporation will achieve the projections set forth in the
Initial Budget.
4.10. Agreements.
(a) Schedule 4.10(a) sets forth a list of all material written and
oral contracts, agreements, licenses, commitments, instruments and
understandings ("Agreements"), and all Agreements of the following types
regardless of materiality, to which the Corporation or any Subsidiary is a
party ("Disclosed Agreements"):
(i) individually provide for the future purchase by the
Corporation or any Subsidiary of products or services in excess of
$50,000 or call for expenditures of the Corporation or any Subsidiary
in excess of $50,000, which expenditures or commitments have not been
disclosed in the Initial Budget;
(ii) provide for the employment by the Corporation or any
Subsidiary of any director or officer or consultant (other than for
legal or accounting services) earning $100,000 or more for any
engagement or provide for any payments or benefits (including
severance payments or benefits) to any director, officer or employee;
(iii) provide for the borrowing of money or a line of credit by
the Corporation or any Subsidiary, or a leasing transaction of a type
required to be capitalized by the Corporation in accordance with GAAP;
(iv) provide for a strategic relationship regarding the
Corporation or any Subsidiary and a third party, including any joint
venture, partnership or similar arrangement;
(v) provide for the sale, assignment, license, or other
disposition of any asset or any material right of the Corporation with
a value in excess of $30,000;
(vi) provide for the lease by the Corporation or any Subsidiary
of any real property;
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(vii) provide for the lease by the Corporation or any Subsidiary
of any personal property with a value, or reflecting replacement
costs, in excess of $30,000 or involving lease payments in excess of
$30,000 per year;
(viii) were entered into with any labor union;
(ix) provide for a tax sharing;
(x) provide for any distribution, agency, or licensing
arrangement with the Corporation or any Subsidiary;
(xi) require the Corporation to issue dividends or shares of its
Common Stock upon exercise of warrants;
(xii) restrict the Corporation or any Subsidiary, or any of the
officers or employees listed on Schedule 4.10(a)(ii), from engaging in
any business activity in any way related to the business of the
Corporation anywhere in the world, restrict any such person in the
performance of his or her obligations and responsibilities to the
Corporation or any Subsidiary, or create any other obligation or
liability of any such person, in any way related to the business of
the Corporation, arising from his or her prior employment;
(xiii) grant to any person or entity, other than the Corporation
or any Subsidiary, any right, title, or interest in any invention or
know-how conceived by employees of the Corporation or any Subsidiary
and related to the business of the Corporation;
(xiv) provide for a loan guaranty, surety, indemnity, or other
financial support by the Corporation or any Subsidiary to any person
or entity; or
(xv) grant to any person or entity a security interest in any
asset or right of the Corporation or any Subsidiary.
(b) Each Disclosed Agreement or understanding required to be set forth
on Schedule 4.10(a) is in full force and effect and constitutes a valid and
binding obligation of all parties thereto. Except as set forth on Schedule
4.10(a), the Corporation and, to the extent a Subsidiary is a party, the
Subsidiary has performed in all material respects the obligations required
to be performed by it and is not in material default and has not received
notice alleging it to be in default under any such Disclosed Agreement. To
the knowledge of the Corporation, there exists no event or condition which,
after notice or lapse of time, or both, would constitute such a material
default under any Disclosed Agreement. To the knowledge of the Corporation,
there are no material defaults by any other party to any such Disclosed
Agreement. The Corporation has made available to the Purchaser correct and
complete copies of all Disclosed Agreements set forth on Schedule 4.10(a).
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4.11. Title to Assets.
Except for properties leased by the Corporation or any Subsidiary, the
Corporation and each Subsidiary has good and marketable title to all assets
reflected on the Interim Balance Sheet as being owned by it, or acquired by it
after the date of the Interim Balance Sheet (except for inventory sold or
otherwise disposed of in the ordinary course of business, and accounts and notes
receivable paid in full, since the date of the Interim Balance Sheet), free and
clear of all Encumbrances, other than Permitted Liens and other than those which
would not reasonably be expected to result in a Material Adverse Effect. Such
assets are in good operating condition and repair, are adequate and suitable for
their intended use in the business of the Corporation and are sufficient for the
conduct of the business except as would not reasonably be expected to result in
a Material Adverse Effect. There does not exist any condition which interferes
with the economic value or use of such assets except as would not reasonably be
expected to result in a Material Adverse Effect. The term "Permitted Liens"
means (i) liens arising by operation of law in the ordinary course of business
that, individually and in the aggregate, do not in any respect interfere with
the use or value of any of the assets subject thereto, (ii) minor imperfections
of title which do not detract from the value of the property affected or impair
the operations of the Corporation, (iii) liens for taxes not yet due and
payable, (iv) liens arising in connection with debt incurred pursuant to and in
accordance with the covenant section, and (v) liens relating to monies borrowed
by the Corporation or any Subsidiary.
4.12. Real Property.
Except as disclosed on Schedule 4.12, neither the Corporation nor any
Subsidiary owns or holds, directly or indirectly, any real property. Neither the
Corporation nor any Subsidiary leases, directly or indirectly, any real property
other than as listed on Schedule 4.12.
4.13. Intellectual Property Rights; Proprietary Information of Third
Parties.
(a) Each of the Corporation and each Subsidiary owns or is licensed to
use all patents, trademarks, copyrights, service marks, and applications
and registrations therefor, and all trade names (including WAM!NET,
WAM!BASE and WAM!PROOF), domain names, URLs, customer lists, trade secrets,
proprietary processes and formulae, inventions, know-how, other
confidential and proprietary information, and other industrial and
intellectual property rights necessary to permit such entities to carry on
their respective business as presently conducted. Schedule 4.13 sets forth
a list of all patents, trademarks, copyrights, service marks, and
applications and registrations therefor, and all trade names, domain names
or URLs held or owned by the Corporation and each Subsidiary and all other
proprietary intellectual property rights of the Corporation and each
Subsidiary. All registered patents, copyrights, trademarks, domain name and
URL rights and service marks listed on Schedule 4.13 are in full force and
effect and are not subject to any taxes or maintenance fees and the
Corporation or a Subsidiary has the right to bring infringement Proceedings
with respect thereto. Neither the Corporation nor any Subsidiary (i)
licenses or grants to anyone other than to the Corporation or any
Subsidiary rights of any nature to use any intellectual property right that
is material to its business, other than certain software and equipment
which is provided to the Corporation's clients which enable them to access
the Corporation's network and avail themselves of the Corporation's
services, (ii)
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is not obligated to and does not pay royalties to anyone for use of its
intellectual property rights, and (iii) does not market or sell any product
or service that violates any intellectual property right of a third party.
Except as set forth on such Schedule, there is no pending or, to the
knowledge of the Corporation, threatened claim or litigation against the
Corporation or any Subsidiary contesting the right to use its intellectual
property rights, asserting the misuse of any thereof, or asserting the
infringement or other violation of any intellectual property rights of a
third party.
(b) All inventions and know-how conceived by employees of the
Corporation and each Subsidiary, while in the employ of the Corporation or
such Subsidiary, and related to the business of the Corporation or any
Subsidiary were "works for hire," and all right, title, and interest
therein were transferred and assigned to the Corporation or a Subsidiary
and the Corporation or a Subsidiary has maintained all right, title and
interest therein without any Encumbrances thereon. The Corporation has
taken all reasonable security measures to protect the secrecy,
confidentiality, and value of its trade secrets, proprietary processes and
formulae, inventions, know-how and other confidential and proprietary
information.
(c) No third party has claimed or, to the Company's knowledge, has
reason to claim that the Corporation or any Subsidiary has (i) violated or
may be violating any of the terms or conditions of any non-competition or
non-disclosure agreement with such third party, (ii) disclosed or may be
disclosing or utilized or may be utilizing any trade secret or proprietary
information or documentation of such third party or (iii) interfered or may
be interfering in the employment relationship between such third party and
any of its present or former employees. Neither the Corporation or any
Subsidiary has utilized nor proposes to utilize any trade secret or any
information or documentation proprietary to any other person in violation
of existing arrangements with such person, and neither the Corporation or
any Subsidiary has violated any confidential relationship which any such
person may have had with any third party, in connection with the
development, manufacture or sale of any product or the development or sale
of any service of the Corporation or any Subsidiary.
4.14. Compliance with Laws; Governmental Authorizations.
Each the Corporation and each Subsidiary is in compliance in all respects
with all Laws, except for such instances where non-compliance would not result
in a Material Adverse Effect. Each of the Corporation and each Subsidiary has
all permits, licenses, authorizations, registrations, franchises, approvals,
certificates or variances (collectively, "Permits") from each Governmental
Authority that is necessary or advisable in the conduct of its business as
presently conducted and as contemplated in the Initial Budget except in such
cases which would not reasonably be expected to result in a Material Adverse
Effect. For purposes of this Agreement, "Governmental Authority" means any
federal, state, municipal, local or foreign government and any court, tribunal,
administrative agency, commission, board, agency or other governmental or
regulatory authority or agency, whether domestic or foreign. Neither the
Corporation nor any Subsidiary is licensed to provide communication services
under any state, federal or foreign laws nor is any one of them required to be
so licensed.
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4.15. Litigation.
Except as set forth on Schedule 4.15, there are no (i) actions, suits,
claims, investigations or other proceedings (collectively, "Proceedings") by or
before any Governmental Authority or other arbitration or mediation body,
pending or, to the knowledge of the Corporation, threatened against the
Corporation or any Subsidiary, or (ii) judgments, writs, decrees, injunctions,
compliance agreements, or orders of any Governmental Authority or other
arbitration or mediation body, against the Corporation or any Subsidiary.
4.16. Environmental Matters.
Each of the Corporation and each Subsidiary is in compliance with all Laws
relating to the protection of the environment (the "Environmental Laws"). Except
for the operation of machinery and equipment in the ordinary course of business
in compliance with applicable Environmental Laws, neither the Corporation nor
any Subsidiary has handled, stored or released, or exposed any person to, any
hazardous substance, as defined in 42 U.S.C.A. Section 9601(14) or any other
applicable Environmental Laws (a "Hazardous Substance"). Neither the Corporation
nor any Subsidiary is liable or responsible for clean-up costs, remedial work or
damages in connection with the handling, storage, release, or exposure by it of
any Hazardous Substance except in cases which would not reasonably be expected
to result in a Material Adverse Effect. No claims for clean-up costs, remedial
work or damages have been made by any person or entity in connection with the
handling, storage, release, or exposure by the Corporation and/or any Subsidiary
of any Hazardous Substance.
4.17. Tax Matters.
(a) (i) The Corporation has timely filed or been included in all
required returns, declarations of estimated tax, reports, and statements
relating to any Taxes due and payable by it (collectively, the "Returns");
(ii) all Returns were correct and complete as of the time of filing; (iii)
the Corporation has timely paid all Taxes required to be paid by it through
the date hereof; (iv) the Corporation has made provision on its most recent
interim balance sheet for all Taxes payable by it for all periods prior to
the date of such interim balance sheet for which no Returns have yet been
filed; (v) the Corporation has made provision on its books for all Taxes
payable by it for all periods beginning on or after the date of its most
recent interim balance sheet for which no Returns have yet been filed; (vi)
the Corporation has no knowledge of any pending tax audits of any Returns;
(vii) the Corporation has no knowledge that any deficiency or addition to
any Taxes has been proposed, asserted or assessed in writing against the
Corporation; and (viii) the Corporation has not granted any extension of
the statute of limitations applicable to any Return or other claim for
Taxes.
(b) "Taxes" means, with respect to any person or entity, (i) all
material Federal, state, local, and foreign taxes, including, without
limitation, all taxes on or based upon net income, gross income, income as
specially defined, earnings, profits or selected items of income, earnings,
or profits, and all gross receipts, sales, use, ad valorem, transfer,
franchise, license, withholding, payroll, employment, excise, severance,
stamp, occupation, premium, property, or windfall profits taxes,
alternative or add-on minimum taxes, customs duties, or other
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taxes, fees, assessments or charges of any kind, together with any
interest, penalties, additions to tax or additional amounts imposed by any
taxing authority on such person or entity, and (ii) any material liability
for the payment of any amount of the type described in the preceding clause
(i) as a result of being a "transferee" (within the meaning of Section 6901
of the Internal Revenue Code of 1986, as amended (the "Code"), or any other
applicable Laws) of another person or entity.
4.18. Employee Benefit Plans.
(a) Schedule 4.18 sets forth a list of all "employee pension benefit
plans" and "employee benefit plans," as defined in Section 3(2) and (3) of
the Employee Retirement Income Security Act of 1974 ("ERISA"), and other
written or formal plans or group arrangements involving direct or indirect
compensation (not including any government-mandated programs) currently or
previously maintained or contributed by the Corporation or any ERISA
Affiliate for the benefit of any employee or former employee thereof under
which the Corporation and/or any Subsidiary has or may have any present or
future obligation or liability (collectively, the "Employee Plans"). "ERISA
Affiliate" means any entity which is a member of (i) a "controlled group of
corporations," as defined in Section 414(b) of the Code, (ii) a group of
entities under "common control," as defined in Section 414(c) of the Code,
or (iii) an "affiliated service group," as defined in Section 414(m) of the
Code, any of which includes the Corporation.
(b) Schedule 4.18 further sets forth a list of all plans, trusts, or
arrangements (written or oral) providing for insurance coverage (including
any self-insured arrangements), workers' compensation, medical benefits,
disability benefits, supplemental unemployment benefits, vacation benefits,
retirement benefits, deferred compensation, profit-sharing, bonuses, stock
options, stock appreciation, or other forms of incentive compensation,
insurance or benefits (collectively, the "Benefit Arrangements") that (i)
are not Employee Plans, (ii) are maintained or contributed to by the
Corporation or any Subsidiary, and (iii) cover any director, officer,
employee, or former employee of the Corporation or any Subsidiary.
(c) Each Employee Plan and Benefit Arrangement has been maintained in
substantial compliance with its terms and with the requirements prescribed
by applicable Laws. There has not been any "accumulated funding
deficiency," as defined in Section 412 of the Code, with respect to any
Employee Plan. There has not been any partial or complete withdrawal by the
Corporation or any Subsidiary with respect to any Employee Plan which is a
"multiemployer plan," as defined in Section 3(37) of ERISA, and the
Corporation has any current plans to withdraw from any such Employee Plan.
Except as set forth on Schedule 4.18, neither the Corporation or any
Subsidiary is in default or alleged to be in default in the payment or
other provision of any benefit under any Employee Plan or Benefit
Arrangement. Except as set forth on Schedule 4.18, no actions have been
taken or are currently planned with respect to any Employee Plan or Benefit
Arrangement that would increase the expense of maintaining or the benefits
provided under such Employee Plan or Benefit Arrangement above the level of
the expense incurred or benefits provided in respect thereof for each of
the years 1999 and 1998.
(d) The execution and delivery by the Corporation of the Documents and
its consummation of the transactions contemplated thereby will not
constitute a triggering event
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under any Employee Plan or Benefit Arrangement that will, or upon the
occurrence of subsequent events would, accelerate the time of payment or
vesting, or increase the amount of compensation or benefits, for any
director, officer, employee, or former employee of the Corporation.
4.19. Insurance.
The Corporation maintains valid and effective insurance policies, issued by
financially sound and reputable insurers, to insure it against all risks usually
insured against by persons or entities conducting businesses similar to that of
the Corporation or such Subsidiary in the locality in which such businesses are
conducted. The Corporation has paid all due premiums with respect to all
policies of insurance currently maintained by the Corporation.
4.20. Related Transactions.
(a) Except as set forth on Schedule 4.20, and except for compensation
to regular employees, since January 1, 1998, no current director or
executive officer of the Corporation or holder of at least 5% of the
outstanding capital stock of the Corporation has been (i) a party to any
transaction with the Corporation valued in excess of $60,000 during any
twelve-month period, or (ii) the direct or indirect owner of an interest in
any business organization that is or was a competitor, supplier or customer
of the Corporation (other than interests in non-affiliated publicly held
companies).
(b) The Corporation represents and acknowledges that Winstar Sub, by
reason of being a Purchaser or appointing a director to the Corporation's
Board of Directors, is not prohibited from engaging, investing or otherwise
being involved in the telecommunications business, including businesses or
investments which may be competitive or in conflict with the Corporation.
4.21. Offering of the Shares.
The Corporation has not, directly or indirectly, solicited any other offer
to buy or offer to sell, and will not, directly or indirectly, solicit any other
offer to buy or offer to sell, any security which is or would be integrated with
the sale of the Shares or Option Shares in a manner that would require the
Shares or Option Shares to be registered under the Securities Act.
4.22. Disclosure.
The Corporation has filed all required registration statements, reports and
proxy statements with the Securities and Exchange Commission ("SEC Reports")
when due (or within permitted extension periods) in accordance with the
Securities Act and the Securities Exchange Act of 1934, as amended ("Exchange
Act"), as the case may be. As of their respective dates (or, in the case of any
amended SEC Report, as of the date of the amendment), the SEC Reports complied
in all material respects with all applicable requirements of the Securities Act
or the Exchange Act, as the case may be. As of their respective dates (or, in
the case of any amended SEC Report, as of the date of the amendment), none of
the SEC Reports contained any untrue statement of a material fact or omitted to
state a material fact required to be stated or incorporated by reference therein
or necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. This Agreement does
not contain an untrue statement of a material fact nor does it omit to state a
material fact necessary in order to make the statements contained herein or
therein, in
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light of the circumstances under which they were made, not misleading. None of
the statements, documents, certificates or other items prepared by the
Corporation and supplied to Winstar or its counsel in connection with the
transactions contemplated hereby (other than those relating to (i) projected
financial information, (ii) plans and objectives regarding the Corporation's
future operations, (iii) future economic performance and (iv) assumptions
underlying any of the matters described in (i) through (iii), each as to which
no representation or warranty is given other than, however, that such
representations are reasonable in light of existing or known facts or trends and
were prepared in good faith) contains an untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained therein, in light of the circumstances under which they were made, not
misleading.
4.23. Investor Sophistication.
The Corporation has sufficient knowledge and experience and is capable of
evaluating the merits and risks of its investment in Winstar as contemplated by
this Agreement and is able to bear the economic risk of such investment for an
indefinite period of time . The Corporation has been given access to the
registration statements, reports and proxy statements filed by Winstar with the
Securities and Exchange Commission ("Winstar SEC Reports"). The Corporation has
had the opportunity to ask questions of and receive answers from representatives
of Winstar concerning the terms and conditions of this Agreement, to discuss
Winstar's business, management and financial affairs with Winstar's management
and to obtain any additional information the Corporation desires or deems
relevant.
4.24. Investment Intent.
The Corporation accepts the Winstar Shares for its own account for
investment and not with a view towards the resale, transfer or distribution
thereof, nor with any present intention of distributing the Winstar Shares in
violation of the Securities Act or any other applicable federal or state
securities laws, and the rules and regulations promulgated thereunder. The
Corporation understands and agrees that the Winstar Shares have not been
registered under the Securities Act by reason of their issuance in a transaction
exempt from the registration requirements of the Securities Act. The Corporation
further understands, that the Winstar Shares will bear a legend (and Winstar
will make a notation on its transfer books) to such effect and the Winstar
Shares must be held indefinitely unless subsequently disposed of pursuant to an
effective registration statement under the Securities Act or in a transaction
exempt from, or not subject to, the registration requirements thereof. The
Corporation agrees that if it sells any Winstar Shares pursuant to Rule 144A
under the Securities Act, it will take all necessary steps in order to perfect
the exemption from registration provided thereby, including, without limitation,
obtaining on behalf of Winstar information to enable Winstar to establish a
reasonable belief that the purchaser is a "qualified institutional buyer"
(within the meaning of Rule 144A) and advising such purchaser that Rule 144A is
being relied upon with respect to such resale. The Corporation was not organized
for the specific purpose of accepting the Winstar Shares and is an "accredited
investor" within the meaning of Rule 501(a) of the Securities Act.
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4.25. Brokers and Finders.
No person or entity acting on behalf or under the authority of the
Corporation is or will be entitled to any broker's, finder's, or similar fee or
commission in connection with the sale of the Shares.
4.26. Year 2000 Compliance.
(a) The Corporation and each Subsidiary has used (or is in the process
of using) appropriate procedures to verify that its software which is
licensed or otherwise provided to its customers and the software used in
its business will recognize and process date fields after the turn of the
century, and perform date-dependent calculations and operations (including
sorting, comparing and reporting) after the turn of the century correctly,
and the Corporation and each Subsidiary has used (or is in the process of
using) reasonable efforts to ensure that such software will not produce
invalid and incorrect results as a result of the change of century (all
without human intervention, other than original data entry of valid dates).
(b) The Corporation has (i) analyzed the operations of the Corporation
and the Subsidiaries that could be adversely affected by failure to become
Year 2000 compliant and (ii) developed a plan for becoming Year 2000
compliant in a timely manner, the implementation of which is on schedule in
all material respects. The Corporation and the Subsidiaries will be Year
2000 compliant for its operations and those of its Affiliates by December
30, 1999 except to the extent that a failure to do so could not reasonably
be expected to have a Material Adverse Effect. The disclosure in the
Corporation's Exchange Act reports (e.g., Form 10-K, 10-Q, etc.) regarding
the progress of the Year 2000 compliance program and Year 2000 remediation
were accurate when made.
(c) Based upon responses to its inquiries to its suppliers and
vendors, the Corporation reasonably believes any suppliers and vendors that
are material to the operations of the Corporation and the Subsidiaries will
be Year 2000 compliant for their own computer applications except to the
extent that a failure to do so could not reasonably be expected to have a
Material Adverse Effect.
4.27. Minnesota Business Corporation Act.
(a) A committee of all "disinterested members" of the Corporation's
Board of Directors (as such term is defined for purposes of Section
302A.673 of the Minnesota Business Corporation Act ("MBCA")) has approved
this Agreement and the transactions contemplated hereby and the Corporation
has completed all other actions and satisfied all other conditions
necessary and sufficient to negate any application of Section 302A.673 to
any of the Purchaser(s).
(b) Sections 302A.671 and 302A.673 of the MBCA do not and will not
apply to the Corporation or any Purchaser as a result of the transactions
contemplated by this Agreement. Both the Purchaser and the Corporation are
excluded from such Sections, and accordingly, Purchaser may purchase more
than 10% of the Corporation's voting stock pursuant
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to this Agreement and will not further be restricted from purchasing
additional capital stock of the Corporation thereafter by virtue of such
provisions. In addition, an exception applies to Section 302A.671 of the
MBCA such that Winstar Sub's (or any other Purchaser's) acquisition of
twenty percent or more the outstanding voting stock of the Corporation may
be accomplished without approval of the shareholders of the Corporation.
Section 5. Representations and Warranties of the Purchasers.
Each Purchaser represents and warrants to the Corporation on behalf of
itself (and not any other Purchaser) as of the date hereof, the Closing Date and
any Option Closing Date, that:
5.1. Due Authorization.
The Purchaser has taken all action necessary to authorize its execution and
delivery of the Documents to which it is a party, the performance of its
obligations thereunder, and its consummation of the transactions contemplated
thereby. Each Document to which the Purchaser is a party has been executed and
delivered by an officer of the Purchaser in accordance with such authorization
or by the Purchaser. Each Document to which the Purchaser is a party constitutes
a valid and binding obligation of the Purchaser, enforceable in accordance with
its terms, subject to applicable bankruptcy, reorganization, insolvency,
moratorium, and similar laws affecting creditors' rights generally and to
general principles of equity.
5.2. Investment Representations.
(a) The Purchaser is acquiring the Shares or Option Shares, as the
case may be, for its own account, for investment and not with a view to the
distribution thereof, nor with any present intention of distributing the
same.
(b) The Purchaser understands that the Shares or Option Shares, as the
case may be, have not been, and the Conversion Shares will not be,
registered under the Securities Act or applicable state securities laws, by
reason of their issuance in a transaction exempt from the registration
requirements of the Securities Act, and such shares must be held
indefinitely unless subsequent disposition thereof is registered under
applicable securities laws or is exempt from registration.
(c) The Purchaser understands that the exemption from registration
afforded by Rule 144 (the provisions of which are known to the Purchaser)
promulgated under the Securities Act depends on the satisfaction of various
conditions and that, if applicable, Rule 144 may only afford the basis for
sales under certain circumstances and only in limited amounts.
(d) The Purchaser is an "accredited investor," as such term is defined
in Rule 501 (the provisions of which are known to the Purchaser)
promulgated under the Securities Act.
(e) The Purchaser has such knowledge and experience in financial, tax
and business matters so as to enable the Purchaser to utilize the
information made available to the Purchaser in connection with the
investment in the Shares or the Option Shares, as the case may be, to
evaluate the merits and risks of an investment in the Shares or the Option
Shares, as the
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case may be, and to make an informed investment decision with respect
thereto; provided, however, that the foregoing shall in no way affect,
diminish or derogate from the representations and warranties made by the
Corporation hereunder or the right of the Purchaser to rely thereon and to
seek indemnification hereunder.
(f) The Purchaser has not been formed for the specific purpose of
acquiring the Shares or the Option Shares, as the case may be.
(g) The Purchaser hereby acknowledges that the purchase and sale of
the Shares and the Option Shares, if any, is intended to be exempt from
registration under the Securities Act by virtue of Section 4(2) and/or
Section 3(b) of the Securities Act and, if applicable, in the sole judgment
of the Corporation, the provisions of Regulation D thereunder, which
exemption is dependent upon the truth, completeness and accuracy of the
statements made by the Purchaser herein and in any other documents
furnished by the Purchaser to the Corporation.
5.3. Brokers and Finders.
No person or entity acting on behalf or under the authority of the
Purchasers is or will be entitled to any broker's, finder's, or similar fee or
commission in connection with the transactions contemplated hereby.
5.4. Investor Sophistication.
Purchaser has sufficient knowledge and experience and is capable of
evaluating the merit and risks of its investment in the Corporation as
contemplated by this Agreement and is able to bear the economic risk of such
investment for an indefinite period of time. Purchaser has been given access to
SEC Reports. Purchaser has had the opportunity to ask questions of and receive
answers from representatives of the Corporation concerning the terms and
conditions of this Agreement, to discuss the Corporation's business, management
and financial affairs with the Corporation's management and to obtain any other
additional information Purchaser desires or deems relevant.
5.5. Winstar Representation.
Winstar represents to the Corporation as of the date hereof and as of the
Closing Date, that since January 1, 1997, Winstar has filed all required Winstar
SEC Reports when due (or within permitted extension periods) in accordance with
the Exchange Act. As of their respective dates (or, in the case of any amended
Winstar SEC Report, as of the date of the amendment), the Winstar SEC Reports
complied in all material respects with all applicable requirements of the
Exchange Act or the Securities Act, as the case may be. As of their respective
dates (or, in the case of any amended Winstar SEC Report, as of the date of the
amendment), none of the Winstar SEC Reports contained any untrue statement of a
material fact or omitted to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading.
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Section 6. Covenants of the Corporation and the Purchasers.
6.1. Regulatory Approvals; Reasonable Best Efforts; Further Assurances.
The Corporation and the Purchaser acknowledge that certain regulatory or
governmental approvals may be required to lawfully consummate the transactions
contemplated by this Agreement. Subject to the terms and conditions of this
Agreement, the Corporation and the Purchaser will, and will cause their
Affiliates to, use their reasonable best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary or desirable
under applicable laws and regulations to consummate the transactions
contemplated by this Agreement. The Corporation and the Purchaser agree to
execute and deliver such other documents, certificates, agreements and other
writings and to take such other actions as may be necessary or desirable in
order to consummate or implement expeditiously the transactions contemplated by
this Agreement.
6.2. Certain Filings.
The Corporation and the Purchaser will, and will cause their Affiliates to,
cooperate with one another (i) in determining whether any action by or in
respect of, or filing with, any governmental body, agency, official or authority
is required, or any actions, consents, approvals or waivers are required to be
obtained from parties to any material contracts, in connection with the
consummation of the transactions contemplated by this Agreement or the
conversion by such Purchaser of such Purchaser's Shares or Option Shares, as the
case may be, and (ii) in taking such actions or making any such filings,
furnishing information required in connection therewith and seeking timely to
obtain any such actions, consents, approvals or waivers. Without limiting the
generality of the foregoing, the Corporation and the Purchaser obligated to file
a notification under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended ("HSR Act") shall promptly after the date of this Agreement prepare
and file the notifications required under the HSR Act in connection with the
transactions contemplated by this Agreement. The Corporation and the Purchaser
shall (A) give the other parties prompt notice of the commencement of any
action, suit, litigation, arbitration, preceding or investigation by or before
any governmental body with respect to the transactions contemplated by this
Agreement, (B) keep the other parties informed as to the status of any such
action, suit, litigation, arbitration, preceding or investigation, and (C)
promptly inform the other parties of any communication to or from the Federal
Trade Commission, the Department of Justice or any other governmental body
regarding the transactions contemplated by this Agreement.
6.3. Confidentiality.
Except as set forth in Section 6.4 below and as required by applicable
securities laws upon the advice of counsel, without the consent of the other
party, neither the Corporation nor any Purchaser shall make any public comment,
statement or communication with respect to, or otherwise disclose or permit the
disclosure of the terms of this Agreement and the transactions contemplated
hereby, and each party shall cause its authorized officers, directors, partners,
employees, counsel, accountants, agents and other representatives to strictly
comply with the foregoing.
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6.4. Public Announcements.
Neither party to this Agreement may publicly disseminate a press release or
file a public report (on Form 8-K or otherwise) with the Securities and Exchange
Commission or otherwise publicly announce the transactions contemplated by this
Agreement, unless the other parties consent. Such parties shall not unreasonably
withhold or delay their approval to any such proposed announcements.
Section 7. Covenants of the Corporation.
Unless otherwise indicated, and as long as any of the Shares, Option Shares
or Conversion Shares remain outstanding, the Corporation shall and shall cause
each Subsidiary to abide and perform with respect to the following covenants:
7.1. Certificate of Designations.
Immediately after the execution of this Agreement, the Corporation shall
cause to be filed the Class E Certificate of Designations as required pursuant
to the law of the State of Minnesota.
7.2. Restrictions Pending the Closing.
After the date hereof and prior to the Closing Date, except as expressly
provided for in this Agreement or as consented to in writing by the Purchaser,
the Corporation will not:
(i) amend its certificate of incorporation or bylaws, except to file
the Class E Certificate of Designations;
(ii) split, combine or reclassify any shares of its capital stock
without appropriately adjusting the conversion price and/or ratio
applicable to the Shares prior to their issuance at the Closing;
(iii) declare or pay any dividend or distribution (whether in cash,
stock or property) in respect of its Common Stock;
(iv) take any action, or knowingly omit to take any action, that could
reasonably be expected to result in (A) any of the representations and
warranties of the Corporation set forth in Article 4 becoming untrue or (B)
any of the conditions to the obligations of the Purchasers set forth in
Section 8.1 or 8.2 not being satisfied; or
(v) enter into any agreement or commitment to do any of the foregoing.
7.3. Reservation of Shares.
For so long as any of the Shares or Option Shares are outstanding, the
Corporation shall keep reserved for issuance a sufficient number of shares of
Common Stock to satisfy its conversion obligations under the Class E Certificate
of Designations.
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7.4. Use of Proceeds.
The Corporation shall use the cash proceeds received by it upon the sale of
the Shares to repay all outstanding amounts due to Foothill Capital Corporation
and for general working capital purposes. Additional proceeds from the sale of
the Option Shares shall be used for general working capital purposes.
7.5. Access to Records.
The Corporation shall, and shall cause each Subsidiary to, afford to the
Purchaser and its authorized employees, counsel, accountants and other
representatives, upon reasonable notice and during ordinary business hours, (i)
full access to all books, records and properties of the Corporation and such
Subsidiary, and (ii) the opportunity to interview any officer of the Corporation
or such Subsidiary regarding its affairs; any investigation pursuant to this
Section shall be conducted in a manner that does not interfere unreasonably with
the conduct of the business of the Corporation and such Subsidiary.
7.6. Budget.
Promptly following final preparation thereof, the Corporation shall deliver
to the Purchaser all budgets and revisions thereof prepared by the Corporation,
all of which shall be consistent with the Initial Budget in form, methodology,
and level of detail. Each of the Initial Budget and the budgets referred to in
this Section 7.6 is referred to herein as a "Budget."
7.7. Financial Reporting and other Information.
(a) So long as a Purchaser beneficially owns Shares, Option Shares or
Conversion Shares, the Corporation shall deliver to such Purchaser the
following:
(i) within 30 days after the end of each month, commencing with
the month of December, (A) the unaudited balance sheet of the
Corporation at the end of such month, (B) the unaudited statements of
income and cash flows of the Corporation for such month, (C)
comparative statements of income of the Corporation for the year to
date, the comparable figures for the prior year, the current Budget
for the year to date and projected figures for the year and (D)
textual discussion describing changes from prior periods and
describing operating trends;
(ii) within 45 days after the end of each fiscal quarter,
commencing with the quarterly period ending March 31, 2000, (A) the
unaudited balance sheet of the Corporation at the end of such fiscal
quarter, (B) the unaudited statements of income and cash flows of the
Corporation for such fiscal quarter, and (C) comparative statements of
income of the Corporation for such fiscal quarter and the year to
date, the comparable figures for the corresponding fiscal quarter and
the year to date period of the prior year and the current Budget for
such fiscal quarter and for the year to date; and
(iii) within 90 days after the end of each fiscal year commencing
with the current fiscal year of the Corporation, (A) the audited
balance sheet of the
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Corporation at the end of such fiscal year, together with comparisons
to the balance sheet of the Corporation at the end of the prior fiscal
year and to the current Budget, (B) the audited statements of income
and cash flows of the Corporation for such fiscal year, together with
comparisons to the statements of income and cash flows of the
Corporation for the prior fiscal year and to the current Budget, and
(C) an audit report of Ernst & Young, independent certified public
accountants, on such balance sheets and statements; and
(iv) any other financial and operating data and other information
relating to the Corporation and each Subsidiary as any Purchaser may
reasonably request;
(v) all information made available to the Corporation's
shareholders or directors, at the same time as such information is
delivered to such persons; and
(vi) monthly management reports in a form reasonably acceptable
to Purchasers.
(b) All financial information to be delivered under this Section shall
be in accordance with the books and records of the Corporation and shall
have been prepared in accordance with GAAP, subject to year-end and audit
adjustments.
7.8. Payment of Obligations.
The Corporation shall, and shall cause each Subsidiary to, pay or discharge
or cause to be paid or discharged all material claims or demands, and all Taxes
levied or imposed upon the Corporation or its Subsidiaries or upon the income,
profits or property of the Corporation or its Subsidiaries; provided, however,
that the Corporation or such Subsidiary shall not be required to pay or
discharge or cause to be paid or discharged any such claim, demand, or Tax the
amount, applicability or validity of which is being contested in good faith by
appropriate proceedings and for which adequate provision has been made.
7.9. Insurance.
The Corporation shall, and shall cause each Subsidiary to, maintain with
financially sound and reputable insurers such insurance as may be required by
law and such other insurance, to such extent and against such hazards and
liabilities, as is customarily maintained by companies similarly situated and
exercising sound business practice.
7.10. Certain Notices.
The Corporation shall promptly notify the Purchaser of (i) the commencement
or notice of any threat of any Proceeding, dispute or grievance against or
affecting the Corporation, which, if adversely determined, might reasonably be
expected to have a Material Adverse Effect, (ii) any material default under any
indebtedness of the Corporation and (iii) any material default or breach under
any of the items required to be listed on Schedule 4.10(a) or any of the items
which would have been required to be listed on Schedule 4.10(a) if such item
were effective prior to the date hereof.
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7.11. Conduct of Business.
The Corporation shall (i) take all actions required to assure that the
Corporation remains duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation, (ii) take all actions
required to assure that the Corporation maintains all Permits to conduct its
business, and (iii) conduct its business in compliance with all Laws.
7.12. Related Transactions.
Excluding any existing arrangements between Silicon Graphics, Inc. and MCI
WorldCom, Inc., the Corporation shall not directly or indirectly enter into any
transaction with any Related Party, other than any transaction entered into in
the ordinary course of business and on terms and conditions not less favorable
to the Corporation as the terms and conditions which would apply in a similar
transaction negotiated on an arms-length basis with a party that is not a
Related Party. "Related Party" means (a) each current or future director or
executive officer of the Corporation, (b) each parent, sibling, spouse, or
descendant of any of the foregoing, (c) each entity of which any of the
foregoing is a director, officer, partner or holder of more than 10% of the
outstanding voting power of any class of capital stock and (d) any person or
entity which is the beneficial owner of 5% or more of the outstanding voting
power of the Corporation.
7.13. Internal Controls; Accountants Review.
(a) Internal Controls.
The Corporation maintains and will continue to maintain a system of
internal accounting controls sufficient to provide reasonable assurances
that: (i) transactions are executed in accordance with management's general
or specific authorization, (ii) transactions are recorded as necessary in
order to permit preparation of financial statements in accordance with
generally accepted accounting principles and to maintain accountability for
assets and (iii) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(b) Accountants Review.
The Corporation will cause its independent accountants to review the
Corporation's unaudited financial statements on a quarterly basis and issue
a certificate to the Corporation certifying that such accounting firm has
read the unaudited financial statements of the Corporation and has made
inquiries of certain officials of the Corporation who have responsibility
for financial and accounting matters regarding the unaudited financial
statements and that based upon the foregoing procedures, nothing has come
to the accounting firm's attention that would lead them to believe that
such unaudited financial statements (A) do not comply as to form in all
material respects with the applicable accounting requirements of the
Securities Act and the related published rules and regulations thereunder
and (B) are not in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the Corporation's
audited financial statements.
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7.14. Board Designees.
The Corporation shall expand the number of members on its Board of
Directors ("Board") by two. Each of the two Purchasers that purchase the largest
number of Class E Preferred Stock pursuant to this Agreement shall be entitled
to appoint one member to the Board for so long as such Purchaser continues to
own Shares and/or Conversion Shares which together represent at least 40% of the
number of shares of Common Stock issuable upon conversion or redemption of the
Class E Preferred Stock initially purchased by such Purchaser (without giving
effect to anti-dilution rights in the Class E Certificate of Designation). The
persons so elected to be members of the Board shall be entitled to serve on each
of the Audit, Compensation, Nominating and any other committee created by the
Board; provided, however, that in the event any such committee fails to satisfy
specific requirements under the rules and regulations of the Securities and
Exchange Commission any exchange or trading system due to such persons
affiliations, such person will agree to serve solely as an observer of such
committee. Such appointed directors shall be entitled to receive the same
compensation that is paid to other non-management Board members and committee
members and shall be entitled to receive reimbursement for all reasonable costs
incurred in attending such meetings, including, but not limited to, food,
lodging and transportation. To the extent permitted by law, the Corporation will
indemnify such persons and the Purchasers who elected such persons for the
actions of such persons as members of the Board and/or any committee thereof,
unless such actions are found by a court of law to have been grossly and
intentionally negligent. As long as such persons remain as members of the Board,
the Corporation will maintain director and officer insurance policies in amounts
and on terms, which are reasonable for companies similarly situated to the
Corporation and, reasonably acceptable to the Purchasers that appointed such
designees. Any vacancy in the position of a director appointed pursuant to this
Section 7.14 shall be filled by and only by the Purchaser that appointed the
director whose position has become vacant. Each such director may, during his or
her term of office, be removed at any time, with or without cause, by and only
by the Purchaser who appointed such director.
In addition, any Purchaser making an initial investment of $20 million or
more of the Class E Preferred Stock who does not have a member of its
organization serving on the Board at the time of such Board or Committee
meeting, will have the right to appoint a non-voting Board observer with full
information rights. This right shall continue for so long as such Purchaser
continues to own Shares and/or Conversion Shares which together represent at
least 20% of the number of shares of Common Stock issuable upon conversion or
redemption of the Class E Preferred Stock initially purchased by such Purchaser
(without giving effect to anti-dilution rights). Such observer shall be entitled
to be reimbursed for all reasonable, customary expenses associated with
attending the Board meetings, but shall not be entitled to any other form of
compensation.
The Corporation shall give written notice, to the Purchaser who nominated a
person to be a Board member and/or observer and to such persons and observers,
of each Board meeting and shall provide to such persons an agenda and minutes of
such Board meeting no later than it gives such notice and provides such items to
the other Board members.
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7.15. Indenture.
The Corporation will not amend, waive, or modify, or seek to amend, waive,
or modify, any provision of the Indenture dated as of March 5, 1998, which
regards the Corporation's 13 1/4% Senior Discount Notes due 2005, without the
prior written consent of Winstar which consent will not be unreasonably
withheld.
7.16. Tag-Along Agreements.
Prior to the Closing the Corporation will use its commercially reasonable
best efforts to cause the Purchasers to be joined as parties to the Tag-Along
Rights Agreements entered into (i) among the Corporation, Silicon Graphics, Inc.
and MCI WorldCom, Inc. dated March 4, 1999; (ii) two separate tag-along
agreements regarding the Corporation, Silicon Graphics, Inc., MCI WorldCom,
Inc., and CCPRE-Eagan LLC, each dated September 30, 1999; and (iii) the Right of
First Refusal Agreement dated December 16, 1996 among Edward J. Driscoll, Allen
Witters and MCI WorldCom, Inc. (collectively "Restricted Stock Agreements").
7.17. [Reserved.]
7.18. Consents.
Prior to the Closing, the Corporation shall use its commercially reasonable
best efforts to obtain all consents and approvals of third parties, if any,
required to consummate the transactions contemplated by this Agreement so that
such consummation shall not conflict with or cause a breach of or default under
any agreement or other obligation binding upon the Corporation, including
without limitation all such consents and approvals required with respect to its
obligations for borrowed money and under its Articles of Incorporation and
Certificates of Designation.
Section 8. Registration Rights of the Purchasers.
8.1. Demand Registration.
(a) Grant of Right. The Corporation agrees to register on two
occasions, upon written demand ("Initial Demand Notice") of any Purchaser,
all or any portion of the Conversion Shares, regardless of whether the
Shares or Option Shares have been converted (the "Registrable Securities").
The Corporation will file a registration statement covering the Registrable
Securities within 60 days after receipt of the Initial Demand Notice and
use its best efforts to have such registration statement declared effective
promptly thereafter. The demand for registration may be made at any time
during a period commencing on the earlier of (i) the six month anniversary
of the consummation of the Corporation's initial public offering of its
Common Stock, and (ii) the one year anniversary of the date Shares are
first issued. The Corporation covenants and agrees to give written notice
of its receipt of any Initial Demand Notice by any Purchaser to all other
Purchasers within ten days from the date of the receipt of any such Initial
Demand Notice.
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(b) Terms. The Corporation shall bear all fees and expenses attendant
to registering the Registrable Securities, including the expenses of one
legal counsel selected by the Purchasers to represent them in connection
with the sale of the Registrable Securities but not including any and all
underwriting commissions and discounts which will be the responsibility of
the Purchasers participating in the underwriting. The Corporation will
qualify or register the Registrable Securities in such states as are
reasonably requested by the Purchasers. The Corporation shall cause any
registration statement filed pursuant to the demand rights granted under
this Section to remain effective with respect to the Registrable Securities
covered by such registration statement until all such securities have been
sold.
8.2. "Piggy-Back" Registration.
(a) Grant of Right. The Purchasers shall have the right at any time
and from time to time to include the Registrable Securities as part of any
other registration of securities filed by the Corporation (other than
pursuant to Form S-4, Form S-8 or any equivalent forms or in connection
with the Corporation's initial public offering to the extent that no other
selling shareholder is included in the registration statement).
Notwithstanding the foregoing, if, in the written opinion of the managing
underwriter or underwriters of a public offering by the Corporation of its
shares of Common Stock, the inclusion of the Registrable Securities, when
added to the securities being registered by the Corporation, will exceed
the maximum amount of the Corporation's securities that can be marketed
without materially and adversely affecting the entire offering, then (i)
the Corporation will include in such registration first, only those
securities, the holders of which as of the date hereof have priority
piggy-back registration rights (as listed on Schedule 8.2), second, the
Registrable Securities allocated (if necessary) among the holders thereof
on a pro rata basis based on the number of Registrable Securities requested
to be included in such registration statement, and third, capital stock of
the Corporation to be sold for the account of others with applicable
piggy-back registration rights, with such priorities among them as the
Corporation shall decide. If, subsequent to the exercise of all of the
demand registration rights referred to in Section 8.1, any Registrable
Securities requested to be included in an offering ("Other Offering")
pursuant to the "piggy-back" rights described in this Section 8.2. are not
so included because of the operation of the first proviso of the preceding
sentence, then the holders of the Registrable Securities shall have the
right to require the Corporation, at its expense, to prepare and file a
registration statement under the Securities Act covering such Registrable
Securities.
(b) Terms. The Corporation shall bear all fees and expenses attendant
to registering the Registrable Securities, including the expenses of any
legal counsel selected by the Holders to represent them in connection with
the sale of the Registrable Securities, but the Purchasers participating in
the registration shall pay any and all discounts and underwriting
commissions. In the event of such a proposed registration, the Corporation
shall furnish the owners of the Registrable Securities with not less than
30 days written notice prior to the proposed date of filing of such
registration statement. Such notice shall continue to be given for each
registration statement filed by the Corporation until such time as all of
the Registrable Securities have been sold by the Purchaser. The owners of
the Registrable Securities shall exercise the "piggy-back" rights provided
for herein by giving written notice within 15 days of the receipt of the
Corporation's notice of its intention to file a registration statement. The
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Corporation shall cause any registration statement filed pursuant to the
"piggyback" rights granted under this Section to remain effective with
respect to the Registrable Securities covered by such registration
statement until all of the such securities have been sold by the
Purchasers. Notwithstanding the foregoing, in no event shall the
Corporation be obligated to maintain the effectiveness of any registration
statement filed pursuant to Sections 8.1 and 8.2 for a period in excess of
seven years from the initial date of issuance of the Shares.
8.3. General Terms.
(a) Indemnification. The Corporation shall indemnify the owner(s) of
the Registrable Securities to be sold pursuant to any registration
statement hereunder and each person, if any, who controls such person
within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, against all loss, claim, damage, expense or liability
(including all reasonable attorneys' fees and other expenses reasonably
incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Securities
Act, the Exchange Act or otherwise, arising from such registration
statement, except to the extent that any loss, claim, damage, expense or
liability arises out of or relates to written information furnished by or
on behalf of such Purchaser, for inclusion in such registration statement
("Purchaser Information"). The owner(s) of the Registrable Securities to be
sold pursuant to such registration statement, and their successors and
assigns, shall severally, and not jointly, indemnify the Corporation
against all loss, claim, damage, expense or liability (including all
reasonable attorneys' fees and other expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to
which it may become subject under the Securities Act, the Exchange Act or
otherwise, arising from Purchaser Information furnished by or on behalf of
such owner(s).
(b) Exercise of Shares. Nothing contained in this Section 8 shall be
construed as requiring the Purchaser(s) to convert their Shares or Option
Shares, as the case may be, prior to or after the filing of any
registration statement or the effectiveness thereof.
(c) Documents Delivered to Holders. The Corporation shall deliver
promptly to the Purchaser participating in any of the foregoing offerings
who requests it, all correspondence between the Securities and Exchange
Commission and the Corporation, its counsel or auditors and all memoranda
relating to discussions with the Securities and Exchange Commission or its
staff with respect to the registration statement. The Corporation also
shall furnish to the Purchaser participating in any of the foregoing
offerings that are underwritten, and to each underwriter of any such
offering, a signed counterpart, addressed to such Purchaser and
underwriter, of (i) an opinion of counsel to the Corporation, dated the
effective date of such registration statement (and an opinion dated the
date of the closing under the underwriting agreement relating to such
offering), and (ii) a "cold comfort" letter dated the effective date of
such registration statement (and a letter dated the date of the closing
under the underwriting agreement) signed by the independent public
accountants who have issued a report on the Corporation's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement
(and the prospectus included therein) and, in the case of such accountants'
letter, with respect to events subsequent to the date of such financial
statements, as are customarily covered in opinions of issuer's counsel
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and in accountants' letters delivered to underwriters in underwritten
public offerings of securities. In the event that any Purchaser requests
information pursuant to this Section (c), then, prior to furnishing such
information, the Corporation shall have the right to require the Purchaser
to enter into a confidentiality agreement with the Corporation with respect
to any information to be provided to the Purchaser that the Corporation
reasonably considers to be proprietary, non-public or otherwise
confidential.
8.4. Underwriting Agreement.
In the event that the demand registration filed by the Purchasers pursuant
to Section 8.1(a) is for an underwritten offering, then the Purchasers
participating in such registration shall have the right to select the
underwriters of the offering, which underwriters shall be reasonably acceptable
to the Corporation. The Corporation shall enter into an underwriting agreement
with the managing underwriter selected by the Purchasers whose Registrable
Securities are being registered pursuant to Section 8.1. Such agreement shall be
reasonably satisfactory in form and substance to the Corporation, each such
person and such managing underwriter, and shall contain such representations,
warranties and covenants by the Corporation and such other terms as are
customarily contained in agreements of that type used by the underwriter. Such
persons shall be parties to any underwriting agreement relating to an
underwritten sale of their Registrable Securities and may, at their option,
require that any or all of the representations, warranties and covenants of the
Corporation to or for the benefit of such underwriter shall also be made to and
for the benefit of such persons. Such persons shall not be required to make any
representations or warranties to or agreements with the Corporation or the
underwriter except as they may relate to such persons, their shares and their
intended methods of distribution.
8.5. Road Show.
In connection with any underwritten public offering concerning a Purchaser,
the Corporation will participate in road-shows regarding such offering.
8.6. Registration of Winstar Shares.
The Corporation shall have "piggy back" registration rights to include the
Winstar Shares as part of any registration of securities filed by Winstar in the
same manner as the Purchasers have rights with respect to Registrable Securities
pursuant to Sections 8.2 and 8.3. For the purposes of the rights granted to the
Corporation pursuant to this Section 8.6, the provisions of Sections 8.2 and 8.3
shall apply with all references therein to the Purchasers, the Corporation and
Registrable Securities being interpreted as being references to the Corporation,
Winstar and the Winstar Shares, respectively.
Section 9. Conditions to Each Closing.
9.1. Conditions of Each Party.
The respective obligations of each of the Corporation and the Purchaser to
consummate the transactions contemplated hereby are subject to the fulfillment,
at or prior to each of the
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Closing, and the Option Closing, if any, of each of the following conditions,
any or all of which may be waived in whole or in part to the extent permitted by
applicable law;
(a) All filings required to be made, and all consents, approvals,
permits and authorizations required to be obtained, prior to each of the
Closing and the Option Closing, if any, from any Governmental Authorities
in connection with the execution and delivery by the parties of the
Documents and the consummation of the transactions contemplated thereby
shall have been made or obtained; and
(b) No court or governmental or regulatory authority of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered
any statute, rule, regulation, judgment, decree, injunction or other order
(whether temporary, preliminary or permanent) or taken any action that
prohibits the consummation of the transactions contemplated by this
Agreement; provided, however, that any party invoking this condition shall
use its reasonable best efforts to have any such judgment, decree,
injunction or order vacated.
9.2. Conditions to Obligations of the Purchasers.
The obligations to be performed by the Purchasers under this Agreement at
or after the Closing are subject to the satisfaction at or prior to each of the
Closing and the Option Closing, if any, of the following conditions, unless
waived by the Purchasers:
(a) Material Adverse Effect. There shall not have been any event which
has or is reasonably likely to have a Material Adverse Effect.
(b) Accuracy of Representations and Warranties. Each of the
representations and warranties of the Corporation contained in this
Agreement and in any certificate or other writing delivered by the
Corporation pursuant hereto qualified as to materiality shall be true and
correct, and those not so qualified shall be true and correct in all
material respects, in each case at and as of the Closing Date and the
Option Closing Date, if any, as if made at and as of such respective times
(except to the extent it relates to a particular date).
(c) Performance of Covenants. The Corporation shall have performed in
all material respects all covenants and agreements required to be performed
by it under this Agreement and each other Document.
(d) Class E Certificate of Designations. Prior to the Closing, the
Class E Certificate of Designations shall have been filed with and accepted
by the Secretary of State of the State of Minnesota and shall have become
effective.
(e) Lock-Up Agreement. At the Closing, the Shareholders listed on
Exhibit B hereto, each of whom beneficially own in excess of 10% of the
Corporation's outstanding Common Stock, shall have executed and delivered
to the Corporation, a Lock-Up Agreement in the form attached as Exhibit B
hereto.
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(f) Stock Certificates. At each of the Closing and the Option Closing,
if any, Stock certificates representing the Class E Preferred Stock sold at
such closing shall have been delivered by the Corporation to the Purchaser
in accordance with Schedule I.
(g) Use of Proceeds. At each of the Closing and the Option Closing, if
any, the Purchaser shall have received a certificate of the Corporation
describing in reasonable detail the proposed use of proceeds received by
the Corporation upon the sale of the Shares and the Option Shares, if any,
including the immediate repayment of all amounts due under the Foothill
Capital Corporation loan.
(h) Legal Opinion. Winstar shall have received an opinion dated as of
the Closing Date and the Option Closing Date, if any, of Willkie Farr &
Gallagher, in a form and substance attached hereto as Exhibit C.
(i) Officer's Certificate. At each of the Closing and the Option
Closing, if any, the Purchaser shall receive a certificate from an officer
of the Corporation to the effect that all conditions set forth in this
Section 92 shall have been satisfied.
(j) Required Consents and Approvals. Prior to the Closing Date, the
Corporation shall have received all consents and approvals of third
parties, if any, required to consummate the transactions contemplated by
this Agreement so that such consummation shall not conflict with or cause a
breach of or default under any agreement or other obligation binding upon
the Corporation, including without limitation all such consents and
approvals required with respect to its obligations for borrowed money and
under its Articles of Incorporation and Certificates of Designation.
9.3. Conditions to Obligations of the Corporation.
The obligations to be performed by the Corporation under this Agreement at
or after the Closing are subject to the satisfaction at or prior to the Closing
and the Option Closing, if any, of the following conditions, unless waived by
the Corporation:
(a) Accuracy of Representations and Warranties. Each of the
representations and warranties of the Purchaser contained in this Agreement
and in any certificate or other writing delivered by the Purchaser pursuant
hereto qualified as to materiality shall be true and correct, and those not
so qualified shall be true and correct in all material respects, in each
case at and as of the Closing Date and the Option Closing Date, if any, as
if made at and as of such respective times (except to the extent it relates
to a particular date);
(b) Performance of Covenants. The Purchaser shall have performed in
all material respects all covenants and agreements required to be performed
by it under this Agreement and each other Document to which it is a party.
(c) Legal Opinion. The Corporation shall have received an opinion
dated as of the Closing Date and the Option Closing, if any, of Graubard
Mollen & Miller, in form and substance attached hereto as Exhibit D.
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Section 10. Termination.
This Agreement may be terminated and the transactions contemplated hereby
may be abandoned at any time prior to the Closing:
(a) by joint written agreement of the Corporation and the Purchaser;
(b) by the Corporation, if any Purchaser has breached any
representation, warranty, covenant or agreement contained in this Agreement
and has not cured such breach within ten (10) business days after written
notice to Winstar (provided that the Corporation is not then in material
breach of the terms of this Agreement; and provided further that no cure
period shall be required for a breach which by its nature cannot be cured);
(c) by any Purchaser, if the Corporation has breached any
representation, warranty, covenant or agreement contained in this Agreement
and has not cured such breach within ten (10) business days after written
notice to the Corporation (provided that such Purchaser is not then in
material breach of the terms of this Agreement; and provided further that
no cure period shall be required for a breach which by its nature cannot be
cured);
(d) by any party, if the Closing has not occurred on or before March
31, 2000; provided, however, that a party may not terminate this Agreement
pursuant to this Section if the failure of such party to fulfill any of its
obligations hereunder shall have been the principal reason that the Closing
shall not have occurred on or before said date;
(e) by any party if there shall be a change of law or regulation that
makes consummation of the transactions contemplated hereby illegal or
otherwise prohibited or if consummation of the transactions contemplated
hereby would violate any nonappealable, final order, decree or judgment of
any court or governmental body having competent jurisdiction; or
(f) by Winstar Sub if one or more of the other Purchasers defaults in
its or their obligations to purchase the Shares or Option Shares set forth
next to its name on Schedule I, provided, however, that Winstar Sub shall
have a right, but not the obligation, to cure such default by finding an
alternative Purchaser. The Closing Date or Option Closing Date, as the case
may be, shall be delayed an additional five (5) business days to permit
Winstar Sub sufficient time to conduct such search. ("Closing Failure").
The party desiring to terminate this Agreement pursuant to the above-referenced
clauses shall give notice of such termination to the other parties hereto.
10.1. Effect of Termination.
(a) If this Agreement is terminated, such termination shall be without
liability of either party (or any shareholder, director, officer, employee,
agent, consultant or representative of such party) to the other parties to
this Agreement; provided that if such termination shall result from the (i)
willful failure by any party to fulfill a condition to the performance of
the obligations of the other parties, (ii) failure by any party to perform
a covenant of this Agreement, (iii) breach by any party hereto of any
representation, warranty, covenant or agreement contained herein, or
32
<PAGE>
(iv) a Closing Failure by any party, such party shall be fully liable for
any and all damages incurred or suffered by the other parties as a result
of such failure or breach.
(b) Several Obligations. The obligations of the Purchasers hereunder
are several. No Purchaser shall be responsible for the obligations of, or
any action taken or omitted by, any other Purchaser hereunder.
Section 11. Miscellaneous
11.1. Survival.
The representations, warranties, covenants and other agreements contained
herein, shall survive the Closing, the Option Closing, if any, and the
consummation of the transactions contemplated hereby. No right of the Purchasers
for indemnification hereunder shall be affected by any examination made for or
on behalf of the Purchasers, the knowledge of any of the Purchasers' officers,
directors, shareholders, employees or agents, or the acceptance by the
Purchasers of any certificate or opinion.
11.2. Indemnification.
(a) The Corporation shall indemnify, defend and hold each Purchaser
and its officers, directors, employees, shareholders, partners, members,
affiliates and agents harmless against all Liability, loss or damage,
together with all reasonable costs and expenses related thereto (including
reasonable legal fees and expenses), relating to or arising from the
untruth, inaccuracy or breach of any of the representations, warranties or
agreements of the Corporation contained in this Agreement.
(b) Each Purchaser shall indemnify, defend and hold the Corporation
and the other Purchasers and their respective officers, directors,
employees, shareholders, partners, members, affiliates and agents harmless
against all Liability, loss or damage, together with all reasonable costs
and expenses related thereto (including reasonable legal fees and
expenses), relating to or arising from the untruth, inaccuracy or breach of
any of the representations, warranties or agreements of such Purchaser
contained in this Agreement.
(c) Promptly after receipt by any party entitled to indemnification
under either Section 11.2(a) or Section 11.2(b) (an "indemnified party") of
notice of the commencement of any action involving a claim which may give
rise to a claim for indemnity under the preceding paragraphs of this
Section, the indemnified party will give written notice to the party
against whom indemnification is sought (the "indemnifying party") of the
commencement of such action. In case any such action is brought against an
indemnified party, the indemnifying party will be entitled to participate
in and to assume the defense thereof, jointly with any other indemnifying
party similarly notified to the extent that it may wish, with counsel
reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not be responsible
for any legal or other expenses subsequently incurred by the indemnified
party in connection with the defense thereof; provided, however, that if
any indemnified party shall have reasonably
33
<PAGE>
concluded that there may be one or more legal or equitable defenses
available to it which are additional to or conflict with those available to
the indemnifying party, or that such claim or litigation involves or could
have an effect upon matters beyond the scope of the indemnity agreement
provided in this Section, the indemnifying party shall not have the right
to assume the defense of such action on behalf of the indemnified party and
the indemnifying party shall reimburse the indemnified party and any person
controlling the indemnified party for that portion of the fees and expenses
of any counsel retained by the indemnified party which is reasonably
related to the matters covered by the indemnity agreement provided in this
Section.
(d) If the indemnification provided for in this Section is held by a
court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, claim, damage, liability or action referred to
herein, then the indemnifying party, in lieu of indemnifying the
indemnified party hereunder, shall contribute to the amounts paid or
payable by the indemnified party as a result of such loss, claim, damage,
liability or action 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, claim, damage or liability as well
as any other relevant equitable considerations. The amount paid or payable
to an indemnified party as a result of the losses, claims, damages,
liabilities or expenses referred to above shall be deemed to include any
legal or other expenses reasonably incurred in connection with
investigating or defending the same.
(e) The indemnification provided for under this Agreement will remain
in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling
person of the indemnified party and will survive the transfer of
securities.
11.3. Fees and Expenses.
The Corporation shall pay or reimburse the Purchasers for all out-of-pocket
fees and expenses incurred by them in connection with the transactions
contemplated by this Agreement, including reasonable fees and charges of
Winstar's legal counsel and accountants (which out-of-pocket fees and expenses
shall be limited with respect to Winstar and Winstar Sub to a maximum of $30,000
through the Closing or any Option Closing). Such payment or reimbursement shall
be made at the Closing. After the Closing, all out-of-pocket fees and expenses
of any Purchaser in connection with this Agreement shall be paid at the Option
Closing.
11.4. Assignment; Parties in Interest.
This Agreement shall bind and inure to the benefit of the parties and each
of their respective successors and permitted assigns (it being understood that
this Agreement may be assigned by the Purchasers without the consent of any
person solely in connection with the transfer of Shares).
34
<PAGE>
11.5. Entire Agreement.
This Agreement (including all Schedules and Exhibits hereby) together with
the other Documents contain the entire understanding of the parties with respect
to the subject matter hereof and supersedes all prior agreements and
understandings among the parties with respect to such subject matter.
11.6. Notices.
All notices, claims, certificates, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered or if sent by nationally-recognized overnight
courier, by telecopy, or by registered or certified mail, return receipt
requested and postage prepaid, addressed as follows:
(a) if to the Corporation:
WAM!NET INC.
655 Lone Oak Drive, Building A
Eagan, Minnesota 55121
Attention: Edward J. Driscoll, III, President
Telephone: (651) 256-2165
Facsimile: (651) 994-9591
with a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019-6099
Attention: Daniel D. Rubino, Esq.
Telephone: (212) 728-8000
Facsimile: (212) 728-8111
(b) if to the Purchasers:
Winstar Communications, Inc.
Winstar Credit Corp.
685 Third Avenue
New York, NY 10017
Telephone: (212) 792-9800
Telecopier: (212) 792-9348
Attention: Timothy R. Graham, Executive Vice President
Or to the addresses of the other Purchasers set forth next to their name
appearing on the signature page hereto.
35
<PAGE>
In any case, with a copy to:
Graubard, Mollen & Miller
600 Third Avenue
New York, NY 10016
Telephone: (212) 818-8661
Telecopier: (212) 818-8881
Attention: David Alan Miller, Esq.
or to such other address as the party to whom notice is to be given may have
furnished to the other parties in writing in accordance herewith. Any such
notice or communication shall be deemed to have been received (a) in the case of
personal delivery, on the date of such delivery, (b) in the case of
nationally-recognized overnight courier, on the next business day after the date
when sent, (c) in the case of telecopy transmission, when received, and (d) in
the case of mailing, on the date of receipt.
11.7. Amendments.
The terms and provisions of this Agreement may only be modified or amended
pursuant to an instrument signed by all of the parties hereto.
11.8. Counterparts.
This Agreement may be executed in any number of counterparts, and each such
counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
11.9. Headings.
The section and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.10. Governing Law.
Except as to matters governed by the MBCA, this Agreement shall be governed
by and construed in accordance with the domestic laws of the State of New York,
without giving effect to any law or rule that would cause the laws of any
jurisdiction other than the State of New York to be applied.
11.11. Jurisdiction.
The parties hereto agree that any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in connection
with, this Agreement or the transactions contemplated hereby may only be brought
in the United States District Court for the Southern District of New York or any
New York State court sitting in New York City, and each of the parties hereby
consents to the exclusive jurisdiction of such courts (and of the appropriate
appellate courts therefrom) in any such suit, action or proceeding and
irrevocably waives, to the
36
<PAGE>
fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such suit, action or proceeding in any
such court or that any such suit, action or proceeding which is brought in any
such court has been brought in an inconvenient forum. Process in any such suit,
action or proceeding may be served on any party anywhere in the world, whether
within or without the jurisdiction of any such court. Without limiting the
foregoing, each party agrees that service of process on such party as provided
in the Section entitled "Notices" shall be deemed effective service of process
on such party.
11.12. No Waiver.
No delay by or on behalf of an Purchaser in exercising any rights conferred
hereunder, and no course of dealing between an Purchaser and the Corporation
shall operate as a waiver of any right granted hereunder, unless expressly
waived in writing by the party whose waiver is alleged.
11.13. Binding Effect
All covenants, representations, warranties and other stipulations in this
Agreement and other documents referred to herein, given by or on behalf of any
of the parties hereto, shall bind and inure to the benefit of the respective
successors, heirs, personal representatives and assigns of the parties hereto.
11.14. Cumulative Powers.
No remedy herein conferred upon the Purchasers or any holder of the Class E
Preferred Stock is intended to be exclusive of any other remedy, and each such
remedy shall be cumulative and in addition to every other remedy given hereunder
or now or hereafter existing at law, or in equity or by statue or otherwise.
37
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Stock
Purchase Agreement on the date first above written.
WAM!NET INC.
By: /s/ Edward J. Driscoll, III
-----------------------------------
Name: Edward J. Driscoll, III
Title: President
Address: 655 Lone Oak Drive
Building A
Eagen, Minnesota 55121
WINSTAR COMMUNICATIONS, INC.
By: /s/ Timothy. R. Graham
-----------------------------------
Name: T. R. Graham
Title: Executive Vice President
Address: 685 Third Avenue
New York, New York 10017
WINSTAR CREDIT CORP.
By: /s/ Timothy. R. Graham
-----------------------------------
Name: T. R. Graham
Title: President
Address: 685 Third Avenue
New York, New York 10017
38
<PAGE>
Index
-----
Exhibit A Statements of Rights and Preferences of Class
E Preferred Stock
Exhibit B Lock-Up Agreement
Exhibit C Willkie Farr & Gallagher Legal Opinion
Exhibit D Graubard Mollen & Miller Legal Opinion
Schedule I Purchaser List
Schedule II Certain Management
Schedule 4.1(a) Articles of Incorporation and Bylaws
Schedule 4.1(b) List of Subsidiaries
Schedule 4.5(a) Designation and Classes of Capital Stock
Schedule 4.5(a)(vi) Right of First Refusal Agreements
Schedule 4.5(b) Options, Warrants and Convertible Securities
Schedule 4.5(c)(i) Purchase Agreements
Schedule 4.5(c)(ii) Registration Rights Agreements
Schedule 4.5(e) Record Holders
Schedule 4.7 Financial Statements
Schedule 4.10(a) Material Contracts
Schedule 4.12 Real Property
Schedule 4.13 Intellectual Property
Schedule 4.14 License to Provide Communications Services
Schedule 4.15 Litigation
Schedule 4.18 Employee Pension Benefit Plans
Schedule 4.20 Related Transactions
Schedule 8.2 Piggy-back Registration Rights
<PAGE>
SCHEDULE I
----------
<TABLE>
<CAPTION>
Column A Column B Column C
-------- -------- --------
Names and Addresses Class E Preferred Purchase Price
of Purchaser Stock Purchased Paid by Cash Purchase Price In Kind
- ------------------- ----------------- --------------- ----------------------
<S> <C> <C> <C>
Winstar Credit Corp. 50,000 - 0 - $50,000,000 of Winstar
685 Third Avenue Communications, Inc. common
New York, New York 10017 stock (which consists of
714,286 shares of Winstar
Communications, Inc. common
stock)
</TABLE>
<PAGE>
EXHIBIT 4.35
================================================================================
SECURITIES PURCHASE AGREEMENT
dated as of March 14, 2000
among
WAM!NET INC.
AND
CERBERUS PARTNERS, L.P.
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
Section 1. Authorization......................................................1
Section 2. Closing............................................................1
Section 3. Sale and Purchase of Shares........................................1
3.1. Shares.............................................................1
Section 4. Representations and Warranties of the Corporation..................2
4.1. Organization; Subsidiaries.........................................2
4.2. Qualification; Good Standing.......................................3
4.3. Corporate Authorization; Enforceability............................3
4.4. No Conflict........................................................3
4.5. Capitalization.....................................................3
4.6. Securities Laws; Applicable Corporation Laws.......................6
4.7. Financial Information..............................................6
4.8. Absence of Changes.................................................6
4.9. Reserved...........................................................8
4.10. Agreements.........................................................8
4.11. Title to Assets...................................................10
4.12. Real Property.....................................................10
4.13. Intellectual Property Rights; Proprietary Information of
Third Parties.....................................................10
4.14. Compliance with Laws; Governmental Authorizations.................12
4.15. Litigation........................................................12
4.16. Environmental Matters.............................................12
4.17. Tax Matters.......................................................13
4.18. Employee Benefit Plans and Employment Matters.....................13
4.19. Insurance.........................................................15
4.20. Related Transactions..............................................15
4.21. Offering of the Shares............................................15
4.22. Disclosure........................................................15
4.23. Reserved..........................................................16
4.24. Reserved..........................................................16
4.25. Brokers and Finders...............................................16
4.26. Year 2000 Compliance..............................................16
4.27. Reserved..........................................................16
Section 5. Representations and Warranties of the Purchaser...................17
5.1. Due Authorization.................................................17
5.2. Investment Representations........................................17
5.3. Brokers and Finders...............................................18
5.4. Investor Sophistication...........................................18
5.5. Reserved..........................................................18
Section 6. Covenants of the Corporation and the Purchaser....................18
i
<PAGE>
6.1. Regulatory Approvals; Reasonable Best Efforts;
Further Assurances................................................18
6.2. Certain Filings...................................................18
6.3. Confidentiality...................................................19
6.4. Public Announcements..............................................19
Section 7. Covenants of the Corporation......................................19
7.1. Certificate of Designation........................................19
7.2. Restrictions Pending the Closing..................................20
7.3. Reservation of Shares.............................................20
7.4. Use of Proceeds...................................................20
7.5. Access to Records.................................................20
7.6. Reserved..........................................................20
7.7. Financial Reporting and other Information.........................20
7.8. Payment of Obligations............................................21
7.9. Insurance.........................................................22
7.10. Certain Notices...................................................22
7.11. Conduct of Business...............................................22
7.12. Related Transactions..............................................22
7.13. Internal Controls.................................................22
7.14. Board Designees...................................................23
7.15. Reserved..........................................................24
7.16. Purchaser Lock-Up.................................................24
7.17. Tag-Along Agreements..............................................24
7.18. Consents..........................................................24
Section 8. Registration Rights of the Purchaser..............................24
8.1. Demand Registration...............................................24
8.2. "Piggy-Back" Registration.........................................25
8.3. General Terms.....................................................26
8.4. Underwriting Agreement............................................27
8.5. Road Show.........................................................27
8.6. Reserved..........................................................27
Section 9. Conditions to Each Closing........................................27
9.1. Conditions of Each Party..........................................27
9.2. Conditions to Obligations of the Purchaser........................28
9.3. Conditions to Obligations of the Corporation......................29
Section 10. Termination......................................................29
10.1. Effect of Termination............................................30
Section 11. Miscellaneous....................................................30
11.1. Survival.........................................................30
11.2. Indemnification..................................................30
11.3. Nominee; Benefits................................................31
11.4. Assignment; Parties in Interest..................................32
11.5. Entire Agreement.................................................32
11.6. Notices..........................................................32
ii
<PAGE>
11.7. Amendments.......................................................33
11.8. Counterparts.....................................................33
11.9. Headings.........................................................33
11.10. Governing Law....................................................33
11.11. Jurisdiction.....................................................33
11.12. No Waiver........................................................34
11.13. Binding Effect...................................................34
11.14. Cumulative Powers................................................34
INDEX........................................................................38
iii
<PAGE>
SECURITIES PURCHASE AGREEMENT, dated as of March 14, 2000, by and between
WAM!NET INC., a Minnesota corporation (the "Corporation"), and Cerberus
Partners, L.P., a Delaware Limited Partnership ("Purchaser").
WHEREAS, the Corporation desires to sell to Purchaser 15,000 shares (the
"Shares") of its Class E Convertible Preferred Stock, $.01 par value (the "Class
E Preferred Stock"), and Purchaser desires to purchase the Shares from the
Corporation upon the terms and subject to the conditions set forth below.
NOW THEREFORE, the parties hereto agree as follows:
Section 1. Authorization.
The Corporation has authorized the issuance and sale, upon the terms and
subject to the conditions set forth in this Agreement, of the Shares for a
purchase price of $1000.00 per Share ("Per Share Price") or $15,000,000 million
in the aggregate (the "Purchase Price"). The powers, designations, preferences
and relative, participating, optional or other rights, and the qualifications,
limitations, and restrictions of the Class E Preferred Stock are set forth in
the Statement of Rights and Preferences of Class E Preferred Stock ("Class E
Certificate of Designation") attached hereto as Exhibit A.
Section 2. Closing.
Unless this Agreement shall have been terminated and the transactions
herein contemplated shall have been abandoned in accordance with this Agreement,
the closing of the sale and purchase of the Shares and the other transactions
contemplated hereby (the "Closing") shall be held at 10:00 a.m. on the date
which is the third business day after the conditions in Section 9 have been
satisfied or waived (other than those of such conditions which are customarily
satisfied at a closing), at the office of Willkie Farr & Gallagher, 787 Seventh
Avenue, New York, New York 10019 (or at such other time, date and place as the
parties may mutually agree). The date on which the Closing actually occurs is
hereinafter referred to as the "Closing Date."
Section 3. Sale and Purchase of Shares.
3.1. Shares.
At the Closing, the Corporation shall issue, sell and deliver to Purchaser
15,000 Shares of Class E Preferred Stock and Purchaser shall deliver to the
Corporation, as full payment therefor, the Purchase Price in cash by wire
transfer of immediately available funds to such bank account or bank accounts
designated by the Corporation.
1
<PAGE>
Section 4. Representations and Warranties of the Corporation.
The Corporation hereby represents and warrants to the Purchaser as of the
date hereof and as of the Closing Date that:
4.1. Organization; Subsidiaries.
(a) Organization. The Corporation and each Subsidiary (as defined
below) is a corporation duly organized and validly existing under the laws
of the jurisdiction of its incorporation and has all requisite corporate
power and authority to own, lease and operate the assets used in its
business, to carry on its business as presently conducted, to enter into
the Documents (as hereinafter defined), to perform its obligations
thereunder, and to consummate the transactions contemplated thereby.
Attached as Schedule 4.1(a) are correct and complete copies of the Articles
of Incorporation of the Corporation including all amendments and
certificates of Designation, and the By-laws of the Corporation and each
Subsidiary, each as in effect on the date hereof (collectively, the
"Organizational Documents"). No amendments, revisions or waivers of any
provisions of any Organizational Documents have occurred, are in the
process of occurring or otherwise have been requested. For purposes of this
Agreement, "Documents" collectively means (i) this Agreement and (ii) the
Class E Certificate of Designation.
(b) Subsidiaries. Set forth on Schedule 4.1(b) hereto is a complete
list of all of the subsidiaries of the Corporation (each a "Subsidiary").
Except as set forth on Schedule 4.1(b) hereto, the Corporation does not
own, directly or indirectly, any capital stock or other equity securities
of any corporation, nor does the Corporation have any direct or indirect
ownership interest, including interests in partnerships and joint ventures,
in any other entity or business and there are no agreements to acquire such
interests. Each Subsidiary has been duly organized, is validly existing and
in good standing under the laws of its respective jurisdiction of
incorporation and is duly qualified and in good standing as a foreign
corporation, and is authorized to do business, in all jurisdictions in
which the character of its properties or the nature of its businesses
requires such qualification or authorization, except for qualifications and
authorizations the lack of which, individually or in the aggregate, would
not reasonably be expected to result in a material adverse effect upon the
business, prospects, properties, liabilities, assets, operations, results
of operations, condition (financial or otherwise), or affairs of the
Corporation or result in the loss from employment of any Principal
Executive Officer as such term is defined on Schedule I (a "Material
Adverse Effect"). Each Subsidiary has the requisite power and authority to
own and hold its properties and to carry on its business as now being
conducted. Except as disclosed on Schedule 4.1(b) hereto: (i) all of the
outstanding shares of capital stock of each Subsidiary are owned
beneficially and of record by the Corporation, another Subsidiary or any
combination thereof, in each case free and clear of any liens, charges,
restrictions, claims or encumbrances other than restrictions on transfer
imposed by the Securities Act of 1933, as amended (the "Securities Act");
and (ii) there are no outstanding subscriptions, warrants, options,
convertible securities or other rights (contingent or other) pursuant to
which any Subsidiary is or may become obligated to issue any shares of its
capital stock to any person other than the Corporation or a Subsidiary.
2
<PAGE>
4.2. Qualification; Good Standing.
Each of the Corporation and every Subsidiary is authorized to do business
and is in good standing as a foreign corporation in each jurisdiction the laws
of which require such respective entity to be so authorized, except where the
failure to be so qualified or in good standing could not reasonably be expected
to have a Material Adverse Effect.
4.3. Corporate Authorization; Enforceability.
The Corporation has taken all corporate action necessary to authorize its
execution and delivery of the Documents, the performance of its obligations
thereunder, and its consummation of the transactions contemplated thereby. Each
Document has been executed and delivered by an officer of the Corporation in
accordance with such authorization. Each Document constitutes a valid and
binding obligation of the Corporation, enforceable in accordance with its terms,
subject to applicable bankruptcy, reorganization, fraudulent conveyance,
insolvency, moratorium, and similar laws now or hereafter in effect affecting
creditors' rights generally and to general principles of equity.
4.4. No Conflict.
The execution and delivery by the Corporation of the Documents, its
consummation of the transactions contemplated thereby, and its compliance with
the provisions thereof, will not other than in instances which could not
reasonably be expected to have a Material Adverse Effect, (i) violate or
conflict with any of the Organizational Documents, (ii) violate, conflict with,
result in a breach of, constitute a default under, or give rise to any right of
termination, cancellation, or acceleration (with or without notice or lapse of
time, or both) under any agreement, lease, security, license, permit, or
instrument to which the Corporation or any Subsidiary is a party, or to which it
or any of them or any of their respective assets or businesses are subject,
(iii) result in the imposition of any Encumbrance (as hereinafter defined) on
any asset of the Corporation, (iv) violate or conflict with any Laws applicable
to the Corporation or its properties or assets, or (v) require any consent,
approval or other action of, notice to, or filing with any entity or person
(governmental or private), except for the filing of the Class E Certificate of
Designations and those that have been obtained or made. For purposes of this
Agreement, "Encumbrance" means any security interest, mortgage, lien, pledge,
charge, easement, reservation, clouds, equities, rights of way, options, rights
of first refusal and any other encumbrances, whether or not relating to the
extension of credit or the borrowing of money. For purposes of this Agreement,
"Laws" means all laws, statutes, rules, regulations, ordinances, bylaws, writs,
Permits, Orders and other legislative, administrative or judicial restrictions.
4.5. Capitalization.
(a) Capitalization.
(i) As of the date hereof, the authorized capital stock of the
Corporation consists of 500,000,000 shares, the Designation and
classes of which are set
3
<PAGE>
forth on Schedule 4.5(a) hereto. The Corporation does not hold any of
its shares in treasury.
(ii) As of the date hereof, 9,494,797 shares of the Corporation's
common stock, par value $.01 per share ("Common Stock"), 115,206
shares of the Corporation's Class A Preferred Stock par value $10.00
per share (the "Class A Preferred Stock"), 5,710,425 shares of the
Corporation's Class B Preferred Stock par value $.01 per share (the
"Class B Preferred Stock"), 878,527 shares of the Corporation's Class
C Preferred Stock, par value $.01 per share (the "Class C Preferred
Stock"), and 2,196,317 shares of the Corporation's Class D Preferred
Stock, par value $.01 per share (the "Class D Preferred Stock") are
issued and outstanding and have been validly issued and are fully paid
and nonassessable and are not subject to preemptive rights. Except as
set forth herein, there are no other shares of capital stock of the
Corporation outstanding. As of the date hereof, the Class B Preferred
Stock, Class C Preferred Stock and Class D Preferred Stock are
convertible into 5,710,425, 878,527 and 2,196,317 shares of Common
Stock, respectively. The Corporation has also entered into an
agreement, dated as of December 31, 1999, with Winstar Communications,
Inc. with respect to the sale of 50,000 shares of the Class E
Preferred Stock, and an option to acquire an additional 50,000 shares
of the Class E Preferred Stock. The Shares of Class E Preferred Stock
to be sold pursuant to this Agreement constitute 15,000 of the shares
underlying the option. The 100,000 shares of Class E Preferred Stock
subject to sale are convertible into 19,379,844 shares of Common
Stock, representing an initial conversion price of $5.16 per share of
Common Stock (or 143.8 shares of Common Stock per share of Class E
Preferred Stock). Upon issuance of the Common Stock underlying such
preferred shares, in accordance with their respective Certificates of
Designation, such Common Stock will be validly issued, fully paid and
non-assessable.
(b) Options, Warrants, Convertible Securities. Except as set forth on
Schedule 4.5(a) hereto, as of the date hereof there are no outstanding
subscriptions, options, warrants or other agreements or rights of any kind
to acquire any additional shares of capital stock of the Corporation or
other instruments or securities convertible into or exchangeable for, or
which otherwise confer on the holder thereof any right to acquire, any such
additional shares of capital stock, nor is the Corporation or any
Subsidiary committed to issue any such option, warrant, right or security.
Except as set forth on Schedule 4.5(b) hereto, the Corporation has no
obligation (contingent or other) to purchase, redeem or otherwise acquire
any of its equity securities or any interest therein or to pay any dividend
or make any other distribution in respect thereof. Schedule 4.5(a)
additionally sets forth (i) all of the outstanding warrants of the
Corporation, specifying the exercise prices and periods of such warrants
and amount of Common Stock issuable upon exercise of such warrants; and
(ii) stock options of the Corporation, specifying the exercise prices and
periods of such options and the amount of Common Stock issuable upon
exercise of the stock option held by each such holder. As of the date
hereof, 73,621,344 shares of Common Stock are issuable upon exercise or
conversion of all of the Corporation's outstanding options, warrants, and
other rights of any kind to acquire shares of the Corporation's Common
Stock (not including Class B Warrants issued in September 1997 to MCI
WorldCom, Inc.).
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(c) Agreements.
(i) Except as set forth in Schedule 4.5(c)(i), as of the date
hereof, there are no agreements relating to the purchase or sale of
capital stock between the Corporation and any of its shareholders or
affiliates, and to the best of the Corporation's knowledge, there are
no such agreements among any of its shareholders and other parties.
(ii) Except as contemplated hereby and as set forth in Schedule
4.5(c)(ii), there are no agreements or understandings granting to any
person or entity any right to cause the Corporation or any Subsidiary
to effect a registration under the Securities Act of 1933, as amended
("Securities Act"), of any shares of the Corporation's capital stock.
(iii) Except as set forth on Schedule 4.5(c)(iii), there are no
voting trusts, voting agreements, proxies or other agreements,
instruments or understandings with respect to the voting of the
capital stock of the Corporation between the Corporation and any of
its shareholders or affiliates and to the best of the Corporation's
knowledge, there are no such agreements among any of its shareholders
and any other parties.
(d) Due Authorization. The Shares are duly authorized and, when issued
and paid for pursuant to the terms of this Agreement, will be validly
issued, fully paid and nonassessable and will have the rights, preferences
and privileges specified in the Class E Certificate of Designation. The
shares of the Corporation's Common Stock issuable upon conversion of the
Shares ("Conversion Shares") are duly authorized and have been reserved for
issuance and, when issued upon conversion in accordance with the terms of
the Class E Certificate of Designation, will be validly issued, fully paid
and nonassessable, and will be free and clear of all liens, encumbrances
and restrictions (other than the restrictions on transfer imposed by the
Securities Act or any other applicable federal or state securities laws,
and the rules and regulations promulgated thereunder). Neither the
issuance, sale or delivery of the Shares nor the contemplated issuance or
delivery of the Conversion Shares is subject to or will trigger any
preemptive or other similar right of shareholders of the Corporation, any
anti-dilution right or right of first refusal or other preemptive or
similar right in favor of any person, in each case except for rights that
have been listed on Schedule 4.5(d).
(e) Securityholders. Schedule 4.5(a) sets forth the name and address
of each record holder of more than five-percent of the outstanding shares
of any of the Common Stock, the Class A Preferred Stock, the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock
and the Class E Preferred Stock and the number of such shares of Common
Stock or Preferred Stock held by each such holder.
(f) Reservation of Shares. The Corporation has reserved, and at all
times from and after the date hereof will keep reserved, free from
preemptive rights, out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of all shares of
Class A Preferred Stock, Class B Preferred Stock, Class C Preferred Stock,
Class D Preferred Stock, Class E Preferred Stock and Class F Preferred
Stock, sufficient shares of Common Stock to provide for the conversion of
all such shares of Preferred Stock.
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4.6. Securities Laws; Applicable Corporation Laws.
(a) The sale of the Shares contemplated hereby is exempt from
registration under the Securities Act. The issuance of all other shares of
capital stock of the Corporation on or before the date hereof has been made
in compliance with the Securities Act and all applicable state securities
or blue sky laws.
(b) The sale of the Shares contemplated hereby and the other
transactions contemplated hereby are in compliance with all applicable
laws, including the Minnesota Business Corporation Act, and any consents
which are required to be obtained pursuant to such laws have either been
obtained or waived in writing.
4.7. Financial Information.
(a) Schedule 4.7 sets forth (i) the audited consolidated balance sheet
of the Corporation at December 31, 1998 (the "Balance Sheet") and the
related statements of operations, shareholders' equity and cash flows of
the Corporation for the 12 months then ended and (ii) the unaudited
consolidated balance sheet of the Corporation at September 30, 1999 (the
"Interim Balance Sheet") and the related unaudited consolidated statements
of operations, shareholders' equity and cash flows for the Corporation for
the 9 months then ended (collectively, the "Financial Statements").
(b) The Financial Statements: (i) present fairly the financial
position of the Corporation and the results of operations, shareholders'
equity and cash flows of the Corporation at the dates and for the periods
indicated, (ii) are in accordance with the books and records of the
Corporation which books and records are complete and correct and fairly
reflect all material transactions of the Corporation's business, and (iii)
have been prepared in accordance with generally accepted accounting
principles ("GAAP") consistently applied (except as set forth in the notes
thereto and subject, in the case of unaudited Financial Statements, to
normal year-end adjustments, and the absence of notes thereto). Except as
incurred under agreements on Schedule 4.10(a) or as set forth on Schedule
4.7, at the date of the Interim Balance Sheet, the Corporation did not have
any material Liability of any nature or any loss contingency (as such term
is used in the Statement of Financial Accounting Standards No. 5 issued by
the Financial Accounting Standards Board in March 1975) that was not
adequately disclosed or provided for on the Interim Balance Sheet,
including the notes thereto. For purposes of this Agreement, "Liability"
means any liability or obligation, whether known or unknown, asserted or
unasserted, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated and whether due or to become due, regardless of when asserted.
4.8. Absence of Changes.
(a) Since the date of the Interim Balance Sheet there has not been:
(i) any change in the assets, liabilities or financial condition
of the Corporation (on a consolidated basis), except for changes (i)
in the ordinary course of
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business or (ii) which in the aggregate have not resulted in and would
not reasonably be expected to result in a Material Adverse Effect;
(ii) any event or change that would reasonably be expected to
result in a Material Adverse Effect, individually or in the aggregate,
whether or not insured against;
(iii) to the best of the Corporation's knowledge, any damage,
destruction or loss (whether or not covered by insurance) affecting
any asset of the Corporation in excess of $100,000;
(iv) any liability or loss contingency incurred by the
Corporation that would have to be disclosed on financial statements
(including the notes thereto) (on a consolidated basis) in accordance
with GAAP, other than liabilities incurred in the ordinary course of
business consistent with past practice;
(v) to the best of the Corporation's knowledge, any commitment to
borrow money from or provide financial support to any person or entity
entered into by the Corporation;
(vi) any payment or discharge of any Liability by the Corporation
outside the ordinary course of business consistent with past practice
to the best of the Corporation's knowledge;
(vii) any sale, assignment, license, or other disposition of any
asset or right of the Corporation or any Subsidiary outside the
ordinary course of business consistent with past practice;
(viii) any declaration or payment of any dividend or other
distribution with respect to any shares of capital stock of the
Corporation, or the direct or indirect acquisition of any equity
securities by the Corporation;
(ix) any labor trouble, problem or grievance affecting the
business of the Corporation other than such matters which would not
reasonably be expected to have a Material Adverse Effect;
(x) any write-down of the value of any inventory of the
Corporation, or any write-off as uncollectible of any accounts or
notes receivable of the Corporation, which could reasonably be
expected to result in a Material Adverse Effect;
(xi) any increase in the direct or indirect compensation of
senior officers of the Corporation or any Subsidiary (including,
without limitation, any increase pursuant to any bonus, pension,
profit-sharing, deferred compensation, or other plan or commitment),
in excess of 20% above the prior year;
(xii) any capital expenditure or commitment therefor by the
Corporation or any Subsidiary for additions to property, plant or
equipment in excess of $250,000;
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(xiii) any change in the accounting or tax methods, practices, or
assumptions followed by the Corporation or any Subsidiary; or
(xiv) any other transaction or event not in the ordinary course
of business consistent with past practice.
(b) The Corporation's independent accountants have not advised the
Corporation that the Interim Balance Sheet and the related unaudited
financial statements (i) do not comply in all material respects with the
applicable accounting requirements of the Securities Act and the related
published rules and regulations thereunder and (ii) are not in conformity
with GAAP.
4.9. Reserved.
4.10. Agreements.
(a) Schedule 4.10(a) sets forth a list of all material written and
oral contracts, agreements, licenses, commitments, instruments and
understandings ("Agreements"), and all Agreements of the following types
regardless of materiality, to which the Corporation or any Subsidiary is a
party ("Disclosed Agreements"):
(i) individually provide for the future purchase by the
Corporation or any Subsidiary of products or services in excess of
$50,000 or call for expenditures of the Corporation or any Subsidiary
in excess of $50,000, which expenditures or commitments have not been
disclosed in the Initial Budget;
(ii) provide for the employment by the Corporation or any
Subsidiary of any director or officer or consultant (other than for
legal or accounting services) earning $100,000 or more for any
engagement or provide for any payments or benefits (including
severance payments or benefits) to any director, officer or employee;
(iii) provide for the borrowing of money or a line of credit by
the Corporation or any Subsidiary, or a leasing transaction of a type
required to be capitalized by the Corporation in accordance with GAAP;
(iv) provide for a strategic relationship regarding the
Corporation or any Subsidiary and a third party, including any joint
venture, partnership or similar arrangement;
(v) provide for the sale, assignment, license, or other
disposition of any asset or any material right of the Corporation with
a value in excess of $30,000;
(vi) provide for the lease by the Corporation or any Subsidiary
of any real property;
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(vii) provide for the lease by the Corporation or any Subsidiary
of any personal property with a value, or reflecting replacement
costs, in excess of $30,000 or involving lease payments in excess of
$30,000 per year;
(viii) were entered into with any labor union;
(ix) provide for a tax sharing;
(x) provide for any distribution, agency, or licensing
arrangement with the Corporation or any Subsidiary;
(xi) require the Corporation to issue dividends or shares of its
Common Stock upon exercise of warrants;
(xii) restrict the Corporation or any Subsidiary, or any of the
officers or employees listed on Schedule 4.10(a)(ii), from engaging in
any business activity in any way related to the business of the
Corporation anywhere in the world, restrict any such person in the
performance of his or her obligations and responsibilities to the
Corporation or any Subsidiary, or create any other obligation or
liability of any such person, in any way related to the business of
the Corporation, arising from his or her prior employment;
(xiii) grant to any person or entity, other than the Corporation
or any Subsidiary, any right, title, or interest in any invention or
know-how conceived by employees of the Corporation or any Subsidiary
and related to the business of the Corporation;
(xiv) provide for a loan guaranty, surety, indemnity, or other
financial support by the Corporation or any Subsidiary to any person
or entity; or
(xv) grant to any person or entity a security interest in any
asset or right of the Corporation or any Subsidiary.
(b) Each Disclosed Agreement or understanding required to be set forth
on Schedule 4.10(a) is in full force and effect and constitutes a valid and
binding obligation of all parties thereto. Except as set forth on Schedule
4.10(a), the Corporation and, to the extent a Subsidiary is a party, the
Subsidiary has performed in all material respects the obligations required
to be performed by it and is not in material default and has not received
notice alleging it to be in default under any such Disclosed Agreement. To
the knowledge of the Corporation, there exists no event or condition which,
after notice or lapse of time, or both, would constitute such a material
default under any Disclosed Agreement. To the knowledge of the Corporation,
there are no material defaults by any other party to any such Disclosed
Agreement. The Corporation has made available to the Purchaser correct and
complete copies of all Disclosed Agreements set forth on Schedule 4.10(a).
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4.11. Title to Assets.
Except for properties leased by the Corporation or any Subsidiary, the
Corporation and each Subsidiary has good and marketable title to all assets
reflected on the Interim Balance Sheet as being owned by it, or acquired by it
after the date of the Interim Balance Sheet (except for inventory sold or
otherwise disposed of in the ordinary course of business, and accounts and notes
receivable paid in full, since the date of the Interim Balance Sheet), free and
clear of all Encumbrances, other than Permitted Liens and other than those which
would not reasonably be expected to result in a Material Adverse Effect. Such
assets are in good operating condition and repair, are adequate and suitable for
their intended use in the business of the Corporation and are sufficient for the
conduct of the business except as would not reasonably be expected to result in
a Material Adverse Effect. There does not exist any condition which interferes
with the economic value or use of such assets except as would not reasonably be
expected to result in a Material Adverse Effect. The term "Permitted Liens"
means (i) liens arising by operation of law in the ordinary course of business
that, individually and in the aggregate, do not in any respect interfere with
the use or value of any of the assets subject thereto, (ii) minor imperfections
of title which do not detract from the value of the property affected or impair
the operations of the Corporation, (iii) liens for taxes not yet due and
payable, (iv) liens arising in connection with debt incurred pursuant to and in
accordance with the covenant section, and (v) liens relating to monies borrowed
by the Corporation or any Subsidiary. Any property held under lease by the
Corporation and each Subsidiary is held by them under a valid, subsisting and
enforceable lease with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property by the Corporation
and each Subsidiary.
4.12. Real Property.
Except as disclosed on Schedule 4.12, neither the Corporation nor any
Subsidiary owns or holds, directly or indirectly, any real property. Neither the
Corporation nor any Subsidiary leases, directly or indirectly, any real property
other than as listed on Schedule 4.12. Any real property or facility held under
lease by the Corporation and each Subsidiary is held by them under a valid,
subsisting and enforceable lease with such exceptions as are not material and do
not interfere with the use made and proposed to be made of such property and
buildings by the Corporation and each Subsidiary.
4.13. Intellectual Property Rights; Proprietary Information of Third
Parties.
(a) Each of the Corporation and each Subsidiary owns or is licensed to
use all patents, trademarks, copyrights, service marks, and applications
and registrations therefor, and all trade names (including WAM!NET,
WAM!BASE and WAM!PROOF), domain names, URLs, customer lists, trade secrets,
proprietary processes and formulae, inventions, know-how, other
confidential and proprietary information, and other industrial,
intellectual property and/or proprietary rights and all goodwill of the
business associated therewith and represented thereby (collectively
"Intellectual Property") necessary to permit such entities to carry on
their respective business as presently conducted and as currently
contemplated to be conducted. All such rights are free of all Encumbrances
and are fully assignable by the Corporation and each Subsidiary to any
third party, without payment, consent of any third party or other condition
or restriction.
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Schedule 4.13 sets forth a list of all patents, trademarks, copyrights,
service marks, and applications and registrations therefor, and all trade
names, domain names or URLs held or owned by the Corporation and each
Subsidiary and all other Intellectual Property rights of the Corporation
and each Subsidiary. All registered and/or material patents, copyrights,
trademarks, domain name and URL rights and service marks listed on Schedule
4.13 are valid, in full force and effect and are not subject to any taxes
or maintenance fees and the Corporation or a Subsidiary has the right and
standing to bring infringement Proceedings with respect thereto. Neither
the Corporation nor any Subsidiary (i) licenses or grants to anyone other
than to the Corporation or any Subsidiary rights of any nature to use any
Intellectual Property right that is material to its business, other than
certain software and equipment which is provided to the Corporation's
clients which enable them to access the Corporation's network solely in
order to avail themselves of the Corporation's services, (ii) is not
obligated to and does not pay royalties to anyone for use of its
Intellectual Property rights, and (iii) does not market or sell any product
or service that violates any Intellectual Property right of a third party.
Except as set forth on such Schedule, there is no pending or, to the
knowledge of the Corporation and each Subsidiary threatened claim or
litigation against the Corporation or any Subsidiary contesting the right
to use its Intellectual Property rights, asserting the misuse of any
thereof, or asserting the infringement or other violation of any
Intellectual Property rights of a third party.
(b) All Intellectual Property conceived or developed by employees of
the Corporation and each Subsidiary, while in the employ of the Corporation
or such Subsidiary, and related to the business of the Corporation or any
Subsidiary were either "works for hire," owned exclusively by the
Corporation or a Subsidiary and/or all right, title, and interest therein
was transferred and assigned to the Corporation or a Subsidiary and the
Corporation or a Subsidiary has maintained all exclusive right, title and
interest therein without any Encumbrances thereon. The Corporation has
taken all reasonable security measures to protect the secrecy,
confidentiality, and value of its trade secrets, proprietary processes and
formulae, inventions, know-how and other confidential and proprietary
information (including without limitation entering into appropriate
non-disclosure and non-use agreements with all officer, directors,
employees, independent contractors and other person with access to such
information).
(c) No third party has claimed or, to the Company's knowledge, has
reason to claim that the Corporation or any Subsidiary has (i) violated or
may be violating any of the terms or conditions of any non-competition or
non-disclosure agreement with such third party, (ii) disclosed or may be
disclosing or utilized or may be utilizing any trade secret or proprietary
information or documentation of such third party or (iii) interfered or may
be interfering in the employment relationship between such third party and
any of its present or former employees. Neither the Corporation or any
Subsidiary has utilized nor proposes to utilize any trade secret or any
information or documentation proprietary to any other person in violation
of existing arrangements with such person, and neither the Corporation or
any Subsidiary has violated any confidential relationship which any such
person may have had with any third party, in connection with the
development, manufacture, or sale or other use or exploitation of any
product of any service of the Corporation or any Subsidiary.
(d) There exists no event, condition or occurrence which, with the
giving of notice or lapse of time, or both, would constitute a breach or
default by the Corporation or a
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Subsidiary under any Agreement concerning Intellectual Property. No party
to any Agreement concerning Intellectual Property has given the Corporation
or any Subsidiary notice of its intention to cancel, terminate or fail to
renew any such Agreement.
(e) To the knowledge of the Corporation and the Subsidiaries, no third
party is violating any material Intellectual Property right of the
Corporation or a Subsidiary.
4.14. Compliance with Laws; Governmental Authorizations.
The Corporation and each Subsidiary is in compliance in all respects with
all Laws, except for such instances where non-compliance would not result in a
Material Adverse Effect. Each of the Corporation and each Subsidiary has all
permits, licenses, authorizations, registrations, franchises, approvals,
certificates or variances (collectively, "Permits") from each Governmental
Authority that is necessary or advisable in the conduct of its business as
presently conducted except in such cases which would not reasonably be expected
to result in a Material Adverse Effect. For purposes of this Agreement,
"Governmental Authority" means any federal, state, municipal, local or foreign
government and any court, tribunal, administrative agency, commission, board,
agency or other governmental or regulatory authority or agency, whether domestic
or foreign. Neither the Corporation nor any Subsidiary is licensed to provide
communication services under any state, federal or foreign laws nor is any one
of them required to be so licensed.
4.15. Litigation.
Except as set forth on Schedule 4.15, there are no (i) actions, suits,
claims, investigations or other proceedings (collectively, "Proceedings") by or
before any Governmental Authority or other arbitration or mediation body,
pending or, to the knowledge of the Corporation, threatened against the
Corporation or any Subsidiary, or (ii) judgments, writs, decrees, injunctions,
compliance agreements, or orders of any Governmental Authority or other
arbitration or mediation body, against the Corporation or any Subsidiary.
4.16. Environmental Matters.
Each of the Corporation and each Subsidiary is in compliance with all Laws
relating to the protection of the environment (the "Environmental Laws"). Except
for the operation of machinery and equipment in the ordinary course of business
in compliance with applicable Environmental Laws, neither the Corporation nor
any Subsidiary has handled, stored or released, or exposed any person to, any
hazardous substance, as defined in 42 U.S.C.A. Section 9601(14) or any other
applicable Environmental Laws (a "Hazardous Substance"). Neither the Corporation
nor any Subsidiary is liable or responsible for clean-up costs, remedial work or
damages in connection with the handling, storage, release, or exposure by it of
any Hazardous Substance except in cases which would not reasonably be expected
to result in a Material Adverse Effect. No claims for clean-up costs, remedial
work or damages have been made by any person or entity in connection with the
handling, storage, release, or exposure by the Corporation and/or any Subsidiary
of any Hazardous Substance.
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4.17. Tax Matters.
(a) (i) The Corporation has timely filed or been included in all
required returns, declarations of estimated tax, reports, and statements
relating to any Taxes due and payable by it (collectively, the "Returns");
(ii) all Returns were correct and complete as of the time of filing; (iii)
the Corporation has timely paid all Taxes required to be paid by it through
the date hereof; (iv) the Corporation has made provision on its most recent
interim balance sheet for all Taxes payable by it for all periods prior to
the date of such interim balance sheet for which no Returns have yet been
filed; (v) the Corporation has made provision on its books for all Taxes
payable by it for all periods beginning on or after the date of its most
recent interim balance sheet for which no Returns have yet been filed; (vi)
the Corporation has no knowledge of any pending tax audits of any Returns;
(vii) the Corporation has no knowledge that any deficiency or addition to
any Taxes has been proposed, asserted or assessed in writing against the
Corporation; and (viii) the Corporation has not granted any extension of
the statute of limitations applicable to any Return or other claim for
Taxes.
(b) "Taxes" means, with respect to any person or entity, (i) all
material Federal, state, local, and foreign taxes, including, without
limitation, all taxes on or based upon net income, gross income, income as
specially defined, earnings, profits or selected items of income, earnings,
or profits, and all gross receipts, sales, use, ad valorem, transfer,
franchise, license, withholding, payroll, employment, excise, severance,
stamp, occupation, premium, property, or windfall profits taxes,
alternative or add-on minimum taxes, customs duties, or other taxes, fees,
assessments or charges of any kind, together with any interest, penalties,
additions to tax or additional amounts imposed by any taxing authority on
such person or entity, and (ii) any material liability for the payment of
any amount of the type described in the preceding clause (i) as a result of
being a "transferee" (within the meaning of Section 6901 of the Internal
Revenue Code of 1986, as amended (the "Code"), or any other applicable
Laws) of another person or entity.
4.18. Employee Benefit Plans and Employment Matters.
(a) Schedule 4.18 sets forth a list of all "employee pension benefit
plans" and "employee benefit plans," as defined in Section 3(2) and (3) of
the Employee Retirement Income Security Act of 1974 ("ERISA"), and other
written or formal plans or group arrangements involving direct or indirect
compensation (not including any government-mandated programs) currently or
previously maintained or contributed by the Corporation or any ERISA
Affiliate for the benefit of any employee or former employee thereof under
which the Corporation and/or any Subsidiary has or may have any present or
future obligation or liability (collectively, the "Employee Plans"). "ERISA
Affiliate" means any entity which is a member of (i) a "controlled group of
corporations," as defined in Section 414(b) of the Code, (ii) a group of
entities under "common control," as defined in Section 414(c) of the Code,
or (iii) an "affiliated service group," as defined in Section 414(m) of the
Code, any of which includes the Corporation.
(b) Schedule 4.18 further sets forth a list of all plans, trusts, or
arrangements (written or oral) providing for insurance coverage (including
any self-insured arrangements), workers' compensation, medical benefits,
disability benefits, supplemental unemployment
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benefits, vacation benefits, retirement benefits, deferred compensation,
profit-sharing, bonuses, stock options, stock appreciation, or other forms
of incentive compensation, insurance or benefits (collectively, the
"Benefit Arrangements") that (i) are not Employee Plans, (ii) are
maintained or contributed to by the Corporation or any Subsidiary, and
(iii) cover any director, officer, employee, consultant, or former employee
of the Corporation or any Subsidiary.
(c) Each Employee Plan and Benefit Arrangement has been maintained in
substantial compliance with its terms and with the requirements prescribed
by applicable Laws. There has not been any "accumulated funding
deficiency," as defined in Section 412 of the Code, with respect to any
Employee Plan. There has not been any partial or complete withdrawal by the
Corporation or any Subsidiary with respect to any Employee Plan which is a
"multiemployer plan," as defined in Section 3(37) of ERISA, and the
Corporation does not have any current plans to withdraw from any such
Employee Plan. There has been no "prohibited transaction" within the
meaning of Section 406 of ERISA or Section 4975 of the Code involving any
Employee Plan. There are no pending or threatened investigations or claims
by the Internal Revenue Service, Department of Labor, Pension Benefit
Guaranty Corporation or any other governmental agency or any individual
relating to any of the Employee Plans or Benefit Arrangements. Except as
required under Section 4980B of the Code, the Company has no obligation to
provide post-retirement health or life benefits. Except as set forth on
Schedule 4.18, neither the Corporation or any Subsidiary is in default or
alleged to be in default in the payment or other provision of any benefit
under any Employee Plan or Benefit Arrangement. Except as set forth on
Schedule 4.18, no actions have been taken or are currently planned with
respect to any Employee Plan or Benefit Arrangement that would increase the
expense of maintaining or the benefits provided under such Employee Plan or
Benefit Arrangement above the level of the expense incurred or benefits
provided in respect thereof for each of the years 1999 and 1998.
(d) The execution and delivery by the Corporation of the Documents and
its consummation of the transactions contemplated thereby will not
constitute a triggering event under any Employee Plan or Benefit
Arrangement that will, or upon the occurrence of subsequent events would,
accelerate the time of payment or vesting, or increase the amount of
compensation or benefits, for any director, officer, employee, or former
employee of the Corporation.
(e) Neither the Corporation nor any Subsidiary is a party to any
employment, labor or collective bargaining agreement and there are no
employee, labor or collective bargaining agreements which pertain to
employees, consultants, officers or directors of the Corporation or any
Subsidiary and no labor union or employee organization has been certified
or recognized as the collective bargaining representative of any employees
of the Corporation or any Subsidiary and there are no representation or
certification proceedings or petitions seeking a representation proceeding
presently pending or threatened to be brought or filed with the National
Labor Relations Board. There are no existing or threatened labor strikes,
work stoppages, slowdowns, disputes, grievances, unfair labor practice
charges, labor arbitration proceedings or other disturbances affecting any
employee of the Corporation or and Subsidiary. There are no complaints,
charges, or claims against the Corporation or any Subsidiary pending or
threatened in writing to be brought or filed with any governmental entity
or arbitrator based on, arising out of, in connection with, or otherwise
relating to the employment or termination of employment of any individual
by the Corporation or any Subsidiary. The Corporation and its
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Subsidiaries are in compliance with all laws governing the employment of
labor, including, but not limited to, all such laws relating to wages,
hours, collective bargaining, discrimination, civil rights, safety and
health, workers' compensation and the collection and payment of withholding
and/or Social Security taxes and similar taxes.
4.19. Insurance.
The Corporation maintains valid and effective insurance policies, issued by
financially sound and reputable insurers, to insure it against all risks usually
insured against by persons or entities conducting businesses similar to that of
the Corporation or such Subsidiary in the locality in which such businesses are
conducted. The Corporation has paid all due premiums with respect to all
policies of insurance currently maintained by the Corporation.
4.20. Related Transactions.
(a) Except as set forth on Schedule 4.20, and except for compensation
to regular employees, since January 1, 1998, no current director or
executive officer of the Corporation or holder of at least 5% of the
outstanding capital stock of the Corporation has been (i) a party to any
transaction with the Corporation valued in excess of $60,000 during any
twelve-month period, or (ii) the direct or indirect owner of an interest in
any business organization that is or was a competitor, supplier or customer
of the Corporation (other than interests in non-affiliated publicly held
companies). 4.21. Offering of the Shares.
The Corporation has not, directly or indirectly, solicited any other offer
to buy or offer to sell, and will not, directly or indirectly, solicit any other
offer to buy or offer to sell, any security which is or would be integrated with
the sale of the Shares in a manner that would require the Shares to be
registered under the Securities Act.
4.22. Disclosure.
The Corporation has filed all required registration statements, reports and
proxy statements with the Securities and Exchange Commission ("SEC Reports")
when due (or within permitted extension periods) in accordance with the
Securities Act and the Securities Exchange Act of 1934, as amended ("Exchange
Act"), as the case may be. As of their respective dates (or, in the case of any
amended SEC Report, as of the date of the amendment), the SEC Reports complied
in all material respects with all applicable requirements of the Securities Act
or the Exchange Act, as the case may be. As of their respective dates (or, in
the case of any amended SEC Report, as of the date of the amendment), none of
the SEC Reports contained any untrue statement of a material fact or omitted to
state a material fact required to be stated or incorporated by reference therein
or necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. This Agreement does
not contain an untrue statement of a material fact nor does it omit to state a
material fact necessary in order to make the statements contained herein or
therein, in light of the circumstances under which they were made, not
misleading. None of the statements, documents,
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certificates or other items prepared by the Corporation and supplied to
Purchaser or its counsel in connection with the transactions contemplated hereby
(other than those relating to (i) projected financial information, (ii) plans
and objectives regarding the Corporation's future operations, (iii) future
economic performance and (iv) assumptions underlying any of the matters
described in (i) through (iii), each as to which no representation or warranty
is given other than, however, that such representations are reasonable in light
of existing or known facts or trends and were prepared in good faith) contains
an untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.
4.23. Reserved.
4.24. Reserved.
4.25. Brokers and Finders.
No person or entity acting on behalf or under the authority of the
Corporation is or will be entitled to any broker's, finder's, or similar fee or
commission in connection with the sale of the Shares.
4.26. Year 2000 Compliance.
(a) The Corporation and each Subsidiary has used (or is in the process
of using) appropriate procedures to verify that its software which is
licensed or otherwise provided to its customers and the software used in
its business will recognize and process date fields after the turn of the
century, and perform date-dependent calculations and operations (including
sorting, comparing and reporting) after the turn of the century correctly,
and the Corporation and each Subsidiary has used (or is in the process of
using) reasonable efforts to ensure that such software will not produce
invalid and incorrect results as a result of the change of century (all
without human intervention, other than original data entry of valid dates).
(b) The Corporation has (i) analyzed the operations of the Corporation
and the Subsidiaries that could be adversely affected by failure to become
Year 2000 compliant and (ii) developed a plan for becoming Year 2000
compliant in a timely manner, the implementation of which is on schedule in
all material respects. The disclosure in the Corporation's Exchange Act
reports (e.g., Form 10-K, 10-Q, etc.) regarding the progress of the Year
2000 compliance program and Year 2000 remediation were accurate when made.
(c) Based upon responses to its inquiries to its suppliers and
vendors, the Corporation reasonably believes any suppliers and vendors that
are material to the operations of the Corporation and the Subsidiaries will
be Year 2000 compliant for their own computer applications except to the
extent that a failure to do so could not reasonably be expected to have a
Material Adverse Effect.
4.27. Reserved.
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Section 5. Representations and Warranties of the Purchaser.
Each Purchaser represents and warrants to the Corporation on behalf of
itself (and not any other Purchaser) as of the date hereof and the Closing Date
that:
5.1. Due Authorization.
The Purchaser has taken all action necessary to authorize its execution and
delivery of the Documents to which it is a party, the performance of its
obligations thereunder, and its consummation of the transactions contemplated
thereby. Each Document to which the Purchaser is a party has been executed and
delivered by an officer of the Purchaser in accordance with such authorization
or by the Purchaser. Each Document to which the Purchaser is a party constitutes
a valid and binding obligation of the Purchaser, enforceable in accordance with
its terms, subject to applicable bankruptcy, reorganization, insolvency,
moratorium, and similar laws affecting creditors' rights generally and to
general principles of equity.
5.2. Investment Representations.
(a) The Purchaser is acquiring the Shares for its own account, for
investment and not with a view to the distribution thereof, nor with any
present intention of distributing the same.
(b) The Purchaser understands that the Shares have not been, and the
Conversion Shares will not be, registered under the Securities Act or
applicable state securities laws, by reason of their issuance in a
transaction exempt from the registration requirements of the Securities
Act, and such shares must be held indefinitely unless subsequent
disposition thereof is registered under applicable securities laws or is
exempt from registration.
(c) The Purchaser understands that the exemption from registration
afforded by Rule 144 (the provisions of which are known to the Purchaser)
promulgated under the Securities Act depends on the satisfaction of various
conditions and that, if applicable, Rule 144 may only afford the basis for
sales under certain circumstances and only in limited amounts.
(d) The Purchaser is an "accredited investor," as such term is defined
in Rule 501 (the provisions of which are known to the Purchaser)
promulgated under the Securities Act.
(e) The Purchaser has such knowledge and experience in financial, tax
and business matters so as to enable the Purchaser to utilize the
information made available to the Purchaser in connection with the
investment in the Shares to evaluate the merits and risks of an investment
in the Shares and to make an informed investment decision with respect
thereto; provided, however, that the foregoing shall in no way affect,
diminish or derogate from the representations and warranties made by the
Corporation hereunder or the right of the Purchaser to rely thereon and to
seek indemnification hereunder.
(f) The Purchaser has not been formed for the specific purpose of
acquiring the Shares.
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(g) The Purchaser hereby acknowledges that the purchase and sale of
the Shares is intended to be exempt from registration under the Securities
Act by virtue of Section 4(2) and/or Section 3(b) of the Securities Act
and, if applicable, in the sole judgment of the Corporation, the provisions
of Regulation D thereunder, which exemption is dependent upon the truth,
completeness and accuracy of the statements made by the Purchaser herein
and in any other documents furnished by the Purchaser to the Corporation.
5.3. Brokers and Finders.
No person or entity acting on behalf or under the authority of the
Purchaser is or will be entitled to any broker's, finder's, or similar fee or
commission in connection with the transactions contemplated hereby.
5.4. Investor Sophistication.
Purchaser has sufficient knowledge and experience and is capable of
evaluating the merit and risks of its investment in the Corporation as
contemplated by this Agreement and is able to bear the economic risk of such
investment for an indefinite period of time. Purchaser has been given access to
SEC Reports. Purchaser has had the opportunity to ask questions of and receive
answers from representatives of the Corporation concerning the terms and
conditions of this Agreement, to discuss the Corporation's business, management
and financial affairs with the Corporation's management and to obtain any other
additional information Purchaser desires or deems relevant.
5.5. Reserved.
Section 6. Covenants of the Corporation and the Purchaser.
6.1. Regulatory Approvals; Reasonable Best Efforts; Further Assurances.
The Corporation and the Purchaser acknowledge that certain regulatory or
governmental approvals may be required to lawfully consummate the transactions
contemplated by this Agreement. Subject to the terms and conditions of this
Agreement, the Corporation and the Purchaser will, and will cause their
Affiliates to, use their reasonable best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary or desirable
under applicable laws and regulations to consummate the transactions
contemplated by this Agreement. The Corporation and the Purchaser agree to
execute and deliver such other documents, certificates, agreements and other
writings and to take such other actions as may be necessary or desirable in
order to consummate or implement expeditiously the transactions contemplated by
this Agreement.
6.2. Certain Filings.
The Corporation and the Purchaser will, and will cause their Affiliates to,
cooperate with one another (i) in determining whether any action by or in
respect of, or filing with, any governmental body, agency, official or authority
is required, or any actions, consents, approvals or waivers are required to be
obtained from parties to any material contracts, in connection with
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the consummation of the transactions contemplated by this Agreement or the
conversion by such Purchaser of such Purchaser's Shares and (ii) in taking such
actions or making any such filings, furnishing information required in
connection therewith and seeking timely to obtain any such actions, consents,
approvals or waivers. Without limiting the generality of the foregoing, the
Corporation and the Purchaser obligated to file a notification under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR Act")
shall promptly after the date of this Agreement prepare and file the
notifications required under the HSR Act in connection with the transactions
contemplated by this Agreement. The Corporation and the Purchaser shall (A) give
the other parties prompt notice of the commencement of any action, suit,
litigation, arbitration, preceding or investigation by or before any
governmental body with respect to the transactions contemplated by this
Agreement, (B) keep the other parties informed as to the status of any such
action, suit, litigation, arbitration, preceding or investigation, and (C)
promptly inform the other parties of any communication to or from the Federal
Trade Commission, the Department of Justice or any other governmental body
regarding the transactions contemplated by this Agreement.
6.3. Confidentiality.
Except as set forth in Section 6.4 below and as required by applicable
securities laws upon the advice of counsel, without the consent of the other
party, neither the Corporation nor any Purchaser shall make any public comment,
statement or communication with respect to, or otherwise disclose or permit the
disclosure of the terms of this Agreement and the transactions contemplated
hereby, and each party shall cause its authorized officers, directors, partners,
employees, counsel, accountants, agents and other representatives to strictly
comply with the foregoing.
6.4. Public Announcements.
Neither party to this Agreement may publicly disseminate a press release or
file a public report (on Form 8-K or otherwise) with the Securities and Exchange
Commission or otherwise publicly announce the transactions contemplated by this
Agreement, unless the other parties consent. Such parties shall not unreasonably
withhold or delay their approval to any such proposed announcements.
Section 7. Covenants of the Corporation.
Unless otherwise indicated, and as long as any of the Shares or Conversion
Shares remain outstanding, the Corporation shall and shall cause each Subsidiary
to abide and perform with respect to the following covenants:
7.1. Certificate of Designation.
Following the execution of this Agreement, the Corporation shall cause to
be filed the Class E Certificate of Designation as required pursuant to the law
of the State of Minnesota.
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7.2. Restrictions Pending the Closing.
After the date hereof and prior to the Closing Date, except as expressly
provided for in this Agreement or as consented to in writing by the Purchaser,
the Corporation will not:
(i) amend its certificate of incorporation or bylaws, except to file
the Class E Certificate of Designation;
(ii) split, combine or reclassify any shares of its capital stock
without appropriately adjusting the conversion price and/or ratio
applicable to the Shares prior to their issuance at the Closing;
(iii) declare or pay any dividend or distribution (whether in cash,
stock or property) in respect of its Common Stock;
(iv) take any action, or knowingly omit to take any action, that could
reasonably be expected to result in (A) any of the representations and
warranties of the Corporation set forth in Article 4 becoming untrue or (B)
any of the conditions to the obligations of the Purchaser set forth in
Section 8.1 or 8.2 not being satisfied; or
(v) enter into any agreement or commitment to do any of the foregoing.
7.3. Reservation of Shares.
For so long as any of the Shares are outstanding, the Corporation shall
keep reserved for issuance a sufficient number of shares of Common Stock to
satisfy its conversion obligations under the Class E Certificate of Designation.
7.4. Use of Proceeds.
The Corporation shall use the cash proceeds received by it upon the sale of
the Shares for general working capital purposes.
7.5. Access to Records.
The Corporation shall, and shall cause each Subsidiary to, afford to the
Purchaser and its authorized employees, counsel, accountants and other
representatives, upon reasonable notice and during ordinary business hours, (i)
full access to all books, records and properties of the Corporation and such
Subsidiary, and (ii) the opportunity to interview any officer of the Corporation
or such Subsidiary regarding its affairs; any investigation pursuant to this
Section shall be conducted in a manner that does not interfere unreasonably with
the conduct of the business of the Corporation and such Subsidiary.
7.6. Reserved.
7.7. Financial Reporting and other Information.
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(a) So long as the Purchaser beneficially owns Shares or Conversion
Shares, the Corporation shall deliver to such Purchaser the following:
(i) within 30 days after the end of each month, commencing with
the month of December, (A) the unaudited balance sheet of the
Corporation at the end of such month, (B) the unaudited statements of
income and cash flows of the Corporation for such month, (C)
comparative statements of income of the Corporation for the year to
date, the comparable figures for the prior year, the current Budget
for the year to date and projected figures for the year and (D)
textual discussion describing changes from prior periods and
describing operating trends;
(ii) within 45 days after the end of each fiscal quarter,
commencing with the quarterly period ending March 31, 2000, (A) the
unaudited balance sheet of the Corporation at the end of such fiscal
quarter, (B) the unaudited statements of income and cash flows of the
Corporation for such fiscal quarter, and (C) comparative statements of
income of the Corporation for such fiscal quarter and the year to
date, the comparable figures for the corresponding fiscal quarter and
the year to date period of the prior year and the current Budget for
such fiscal quarter and for the year to date; and
(iii) within 90 days after the end of each fiscal year commencing
with the current fiscal year of the Corporation, (A) the audited
balance sheet of the Corporation at the end of such fiscal year,
together with comparisons to the balance sheet of the Corporation at
the end of the prior fiscal year and to the current Budget, (B) the
audited statements of income and cash flows of the Corporation for
such fiscal year, together with comparisons to the statements of
income and cash flows of the Corporation for the prior fiscal year and
to the current Budget, and (C) an audit report of Ernst & Young,
independent certified public accountants, on such balance sheets and
statements; and
(iv) any other financial and operating data and other information
relating to the Corporation and each Subsidiary as the Purchaser may
reasonably request;
(v) all information made available to the Corporation's
shareholders or directors, at the same time as such information is
delivered to such persons; and
(vi) monthly management reports in a form reasonably acceptable
to the Purchaser.
(b) All financial information to be delivered under this Section shall
be in accordance with the books and records of the Corporation and shall
have been prepared in accordance with GAAP, subject to year-end and audit
adjustments.
7.8. Payment of Obligations.
The Corporation shall, and shall cause each Subsidiary to, pay or discharge
or cause to be paid or discharged all material claims or demands, and all Taxes
levied or imposed upon the Corporation or its Subsidiaries or upon the income,
profits or property of the Corporation or its
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Subsidiaries; provided, however, that the Corporation or such Subsidiary shall
not be required to pay or discharge or cause to be paid or discharged any such
claim, demand, or Tax the amount, applicability or validity of which is being
contested in good faith by appropriate proceedings and for which adequate
provision has been made.
7.9. Insurance.
The Corporation shall, and shall cause each Subsidiary to, maintain with
financially sound and reputable insurers such insurance as may be required by
law and such other insurance, to such extent and against such hazards and
liabilities, as is customarily maintained by companies similarly situated and
exercising sound business practice.
7.10. Certain Notices.
The Corporation shall promptly notify the Purchaser of (i) the commencement
or notice of any threat of any Proceeding, dispute or grievance against or
affecting the Corporation, which, if adversely determined, might reasonably be
expected to have a Material Adverse Effect, (ii) any material default under any
indebtedness of the Corporation and (iii) any material default or breach under
any of the items required to be listed on Schedule 4.10(a) or any of the items
which would have been required to be listed on Schedule 4.10(a) if such item
were effective prior to the date hereof.
7.11. Conduct of Business.
The Corporation shall (i) take all actions required to assure that the
Corporation remains duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation, (ii) take all actions
required to assure that the Corporation maintains all Permits to conduct its
business, and (iii) conduct its business in compliance with all Laws.
7.12. Related Transactions.
Excluding any existing arrangements between Winstar Communications, Inc.
and MCI WorldCom, Inc., the Corporation shall not directly or indirectly enter
into any transaction with any Related Party, other than any transaction entered
into in the ordinary course of business and on terms and conditions not less
favorable to the Corporation as the terms and conditions which would apply in a
similar transaction negotiated on an arms-length basis with a party that is not
a Related Party. "Related Party" means (a) each current or future director or
executive officer of the Corporation, (b) each parent, sibling, spouse, or
descendant of any of the foregoing, (c) each entity of which any of the
foregoing is a director, officer, partner or holder of more than 10% of the
outstanding voting power of any class of capital stock and (d) any person or
entity which is the beneficial owner of 5% or more of the outstanding voting
power of the Corporation.
7.13. Internal Controls.
(a) Internal Controls.
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The Corporation maintains and will continue to maintain a system of
internal accounting controls sufficient to provide reasonable assurances
that: (i) transactions are executed in accordance with management's general
or specific authorization, (ii) transactions are recorded as necessary in
order to permit preparation of financial statements in accordance with
generally accepted accounting principles and to maintain accountability for
assets and (iii) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
7.14. Board Designees.
The Corporation shall expand the number of members on its Board of
Directors ("Board") by two. Each of the two Purchasers that purchase the largest
number of Class E Preferred Stock pursuant to this Agreement shall be entitled
to appoint one member to the Board for so long as such Purchaser continues to
own Shares and/or Conversion Shares which together represent at least 40% of the
number of shares of Common Stock issuable upon conversion or redemption of the
Class E Preferred Stock initially purchased by such Purchaser (without giving
effect to anti-dilution rights in the Class E Certificate of Designation). The
persons so elected to be members of the Board shall be entitled to serve on each
of the Audit, Compensation, Nominating and any other committee created by the
Board; provided, however, that in the event any such committee fails to satisfy
specific requirements under the rules and regulations of the Securities and
Exchange Commission any exchange or trading system due to such persons
affiliations, such person will agree to serve solely as an observer of such
committee. Such appointed directors shall be entitled to receive the same
compensation that is paid to other non-management Board members and committee
members and shall be entitled to receive reimbursement for all reasonable costs
incurred in attending such meetings, including, but not limited to, food,
lodging and transportation. To the extent permitted by law, the Corporation will
indemnify such persons and the Purchasers who elected such persons for the
actions of such persons as members of the Board and/or any committee thereof,
unless such actions are found by a court of law to have been grossly and
intentionally negligent. As long as such persons remain as members of the Board,
the Corporation will maintain director and officer insurance policies in amounts
and on terms, which are reasonable for companies similarly situated to the
Corporation and, reasonably acceptable to the Purchasers that appointed such
designees. Any vacancy in the position of a director appointed pursuant to this
Section 7.14 shall be filled by and only by the Purchaser that appointed the
director whose position has become vacant. Each such director may, during his or
her term of office, be removed at any time, with or without cause, by and only
by the Purchaser who appointed such director.
In addition, any Purchaser making an initial investment of $20 million or
more of the Class E Preferred Stock who does not have a member of its
organization serving on the Board at the time of such Board or Committee
meeting, will have the right to appoint a non-voting Board observer with full
information rights. This right shall continue for so long as such Purchaser
continues to own Shares and/or Conversion Shares which together represent at
least 20% of the number of shares of Common Stock issuable upon conversion or
redemption of the Class E Preferred Stock initially purchased by such Purchaser
(without giving effect to anti-dilution rights). Such observer shall be entitled
to be reimbursed for all reasonable, customary expenses
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associated with attending the Board meetings, but shall not be entitled to any
other form of compensation.
The Corporation shall give written notice, to the Purchaser who nominated a
person to be a Board member and/or observer and to such persons and observers,
of each Board meeting and shall provide to such persons an agenda and minutes of
such Board meeting no later than it gives such notice and provides such items to
the other Board members.
7.15. Reserved.
7.16. Purchaser Lock-Up.
The Purchaser agrees that, without the consent of the Corporation, it will
not directly or indirectly offer, sell, dispose of, pledge, encumber or
otherwise transfer any of the Shares or the Conversion Shares until six months
after the consummation of the Company's initial public offering of Common Stock.
7.17. Tag-Along Agreements.
Prior to the Closing the Corporation will use its commercially reasonable
best efforts to cause the Purchasers to be joined as parties to the Tag-Along
Rights Agreements entered into (i) among the Corporation, Silicon Graphics, Inc.
and MCI WorldCom, Inc. dated March 4, 1999; (ii) two separate tag-along
agreements regarding the Corporation, Silicon Graphics, Inc., MCI WorldCom,
Inc., and CCPRE-Eagan LLC, each dated September 30, 1999; and (iii) the Right of
First Refusal Agreement dated December 16, 1996 among Edward J. Driscoll, Allen
Witters and MCI WorldCom, Inc. (collectively "Restricted Stock Agreements").
7.18. Consents.
Prior to the Closing, the Corporation shall use its commercially reasonable
best efforts to obtain all consents and approvals of third parties, if any,
required to consummate the transactions contemplated by this Agreement so that
such consummation shall not conflict with or cause a breach of or default under
any agreement or other obligation binding upon the Corporation, including
without limitation all such consents and approvals required with respect to its
obligations for borrowed money and under its Articles of Incorporation and
Certificates of Designation.
Section 8. Registration Rights of the Purchaser.
8.1. Demand Registration.
(a) Grant of Right. The Corporation agrees to register on two
occasions, upon written demand ("Initial Demand Notice") of the Purchaser,
all of the Conversion Shares, regardless of whether the Shares have been
converted (the "Registrable Securities"). The Corporation will file a
registration statement covering the Registrable Securities within 60 days
after receipt of the Initial Demand Notice and use its best efforts to have
such registration statement declared effective promptly thereafter. The
demand for registration may be made at
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any time during a period commencing on the earlier of (i) the six month
anniversary of the consummation of the Corporation's initial public
offering of its Common Stock, and (ii) the one year anniversary of the date
Shares are first issued.
(b) Terms. The Corporation shall bear all fees and expenses attendant
to registering the Registrable Securities, including the expenses of one
legal counsel selected by the Purchaser to represent them in connection
with the sale of the Registrable Securities but not including any and all
underwriting commissions and discounts which will be the responsibility of
the Purchaser participating in the underwriting. The Corporation will
qualify or register the Registrable Securities in such states as are
reasonably requested by the Purchaser. The Corporation shall cause any
registration statement filed pursuant to the demand rights granted under
this Section to remain effective with respect to the Registrable Securities
covered by such registration statement until all such securities have been
sold.
8.2. "Piggy-Back" Registration.
(a) Grant of Right. The Purchaser shall have the right at any time and
from time to time to include the Registrable Securities as part of any
other registration of securities filed by the Corporation (other than
pursuant to Form S-4, Form S-8 or any equivalent forms or in connection
with the Corporation's initial public offering to the extent that no other
selling shareholder is included in the registration statement).
Notwithstanding the foregoing, if, in the written opinion of the managing
underwriter or underwriters of a public offering by the Corporation of its
shares of Common Stock, the inclusion of the Registrable Securities, when
added to the securities being registered by the Corporation, will exceed
the maximum amount of the Corporation's securities that can be marketed
without materially and adversely affecting the entire offering, then (i)
the Corporation will include in such registration first, only those
securities, the holders of which as of the date hereof have piggy-back
registration rights (as listed on Schedule 8.2), second, the Registrable
Securities allocated (if necessary) among the holders thereof on a pro rata
basis based on the number of Registrable Securities requested to be
included in such registration statement, and third, capital stock of the
Corporation to be sold for the account of others with applicable piggy-back
registration rights, with such priorities among them as the Corporation
shall decide. If, subsequent to the exercise of all of the demand
registration rights referred to in Section 8.1, any Registrable Securities
requested to be included in an offering ("Other Offering") pursuant to the
"piggy-back" rights described in this Section 8.2. are not so included
because of the operation of the first proviso of the preceding sentence,
then the holders of the Registrable Securities shall have the right to
require the Corporation, at its expense, to prepare and file a registration
statement under the Securities Act covering such Registrable Securities.
(b) Terms. The Corporation shall bear all fees and expenses attendant
to registering the Registrable Securities, including the reasonable
expenses of any legal counsel selected by the Holders to represent them in
connection with the sale of the Registrable Securities, but the Purchaser
participating in the registration shall pay any and all discounts and
underwriting commissions. In the event of such a proposed registration, the
Corporation shall furnish the owners of the Registrable Securities with not
less than 30 days written notice prior to the proposed date of filing of
such registration statement. Such notice shall continue to be given
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for each registration statement filed by the Corporation until such time as
all of the Registrable Securities have been sold by the Purchaser. The
owners of the Registrable Securities shall exercise the "piggy-back" rights
provided for herein by giving written notice within 15 days of the receipt
of the Corporation's notice of its intention to file a registration
statement. The Corporation shall cause any registration statement filed
pursuant to the "piggyback" rights granted under this Section to remain
effective with respect to the Registrable Securities covered by such
registration statement until all of the such securities have been sold by
the Purchaser. Notwithstanding the foregoing, in no event shall the
Corporation be obligated to maintain the effectiveness of any registration
statement filed pursuant to Sections 8.1 and 8.2 for a period in excess of
three years from the initial date of issuance of the Shares.
8.3. General Terms.
(a) Indemnification. The Corporation shall indemnify the owner(s) of
the Registrable Securities to be sold pursuant to any registration
statement hereunder and each person, if any, who controls such person
within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, against all loss, claim, damage, expense or liability
(including all reasonable attorneys' fees and other expenses reasonably
incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Securities
Act, the Exchange Act or otherwise, arising from such registration
statement, except to the extent that any loss, claim, damage, expense or
liability arises out of or relates to written information furnished by or
on behalf of the Purchaser, for inclusion in such registration statement
("Purchaser Information"). The owner(s) of the Registrable Securities to be
sold pursuant to such registration statement, and their successors and
assigns, shall severally, and not jointly, indemnify the Corporation
against all loss, claim, damage, expense or liability (including all
reasonable attorneys' fees and other expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to
which it may become subject under the Securities Act, the Exchange Act or
otherwise, arising from Purchaser Information furnished by or on behalf of
such owner(s).
(b) Exercise of Shares. Nothing contained in this Section 8 shall be
construed as requiring the Purchaser to convert the Shares prior to or
after the filing of any registration statement or the effectiveness
thereof.
(c) Documents Delivered to Holders. The Corporation shall deliver
promptly to the Purchaser participating in any of the foregoing offerings
who requests it, all correspondence between the Securities and Exchange
Commission and the Corporation, its counsel or auditors and all memoranda
relating to discussions with the Securities and Exchange Commission or its
staff with respect to the registration statement. The Corporation also
shall furnish to the Purchaser participating in any of the foregoing
offerings that are underwritten, and to each underwriter of any such
offering, a signed counterpart, addressed to the Purchaser and underwriter,
of (i) an opinion of counsel to the Corporation, dated the effective date
of such registration statement (and an opinion dated the date of the
closing under the underwriting agreement relating to such offering), and
(ii) a "cold comfort" letter dated the effective date of such registration
statement (and a letter dated the date of the closing under the
underwriting agreement) signed by the independent public accountants who
have issued a report on the
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Corporation's financial statements included in such registration statement,
in each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the
case of such accountants' letter, with respect to events subsequent to the
date of such financial statements, as are customarily covered in opinions
of issuer's counsel and in accountants' letters delivered to underwriters
in underwritten public offerings of securities. In the event that the
Purchaser requests information pursuant to this Section (c), then, prior to
furnishing such information, the Corporation shall have the right to
require the Purchaser to enter into a confidentiality agreement with the
Corporation with respect to any information to be provided to the Purchaser
that the Corporation reasonably considers to be proprietary, non-public or
otherwise confidential.
8.4. Underwriting Agreement.
In the event that the demand registration filed by the Purchaser pursuant
to Section 8.1(a) is for an underwritten offering, then the Purchaser shall have
the right to select the underwriters of the offering, which underwriters shall
be reasonably acceptable to the Corporation. The Corporation shall enter into an
underwriting agreement with the managing underwriter selected by the Purchaser
whose Registrable Securities are being registered pursuant to Section 8.1. Such
agreement shall be reasonably satisfactory in form and substance to the
Corporation, each such person and such managing underwriter, and shall contain
such representations, warranties and covenants by the Corporation and such other
terms as are customarily contained in agreements of that type used by the
underwriter. Such persons shall be parties to any underwriting agreement
relating to an underwritten sale of their Registrable Securities and may, at
their option, require that any or all of the representations, warranties and
covenants of the Corporation to or for the benefit of such underwriter shall
also be made to and for the benefit of such persons. Such persons shall not be
required to make any representations or warranties to or agreements with the
Corporation or the underwriter except as they may relate to such persons, their
shares and their intended methods of distribution.
8.5. Road Show.
In connection with any underwritten public offering concerning the
Purchaser, the Corporation will participate in road-shows regarding such
offering.
8.6. Reserved.
Section 9. Conditions to Each Closing.
9.1. Conditions of Each Party.
The respective obligations of each of the Corporation and the Purchaser to
consummate the transactions contemplated hereby are subject to the fulfillment,
at or prior to the Closing, of each of the following conditions, any or all of
which may be waived in whole or in part to the extent permitted by applicable
law;
(a) All filings required to be made, and all consents, approvals,
permits and authorizations required to be obtained, prior to the Closing,
from any Governmental Authorities
27
<PAGE>
in connection with the execution and delivery by the parties of the
Documents and the consummation of the transactions contemplated thereby
shall have been made or obtained; and
(b) No court or governmental or regulatory authority of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered
any statute, rule, regulation, judgment, decree, injunction or other order
(whether temporary, preliminary or permanent) or taken any action that
prohibits the consummation of the transactions contemplated by this
Agreement; provided, however, that any party invoking this condition shall
use its reasonable best efforts to have any such judgment, decree,
injunction or order vacated.
9.2. Conditions to Obligations of the Purchaser.
The obligations to be performed by the Purchaser under this Agreement at or
after the Closing are subject to the satisfaction at or prior to each of the
Closing of the following conditions, unless waived by the Purchaser:
(a) Material Adverse Effect. There shall not have been any event which
has or is reasonably likely to have a Material Adverse Effect.
(b) Accuracy of Representations and Warranties. Each of the
representations and warranties of the Corporation contained in this
Agreement and in any certificate or other writing delivered by the
Corporation pursuant hereto qualified as to materiality shall be true and
correct, and those not so qualified shall be true and correct in all
material respects, in each case at and as of the Closing Date as if made at
and as of such respective times (except to the extent it relates to a
particular date).
(c) Performance of Covenants. The Corporation shall have performed in
all material respects all covenants and agreements required to be performed
by it under this Agreement and each other Document.
(d) Class E Certificate of Designation. Prior to the Closing, the
Class E Certificate of Designation shall have been filed with and accepted
by the Secretary of State of the State of Minnesota and shall have become
effective.
(e) Stock Certificates. At the Closing Stock certificates representing
the Class E Preferred Stock sold at such closing shall have been delivered
by the Corporation to the Purchaser.
(f) Use of Proceeds. At the Closing the Purchaser shall have received
a certificate of the Corporation describing in reasonable detail the
proposed use of proceeds received by the Corporation upon the sale of the
Shares.
(g) Legal Opinion. Purchaser shall have received an opinion dated as
of the Closing Date of Willkie Farr & Gallagher, in a form and substance
attached hereto as Exhibit C.
28
<PAGE>
(h) Officer's Certificate. At the Closing the Purchaser shall receive
a certificate from an officer of the Corporation to the effect that all
conditions set forth in this Section 9.2 shall have been satisfied.
(i) Required Consents and Approvals. Prior to the Closing Date, the
Corporation shall have received all consents and approvals of third
parties, if any, required to consummate the transactions contemplated by
this Agreement so that such consummation shall not conflict with or cause a
breach of or default under any agreement or other obligation binding upon
the Corporation, including without limitation all such consents and
approvals required with respect to its obligations for borrowed money and
under its Articles of Incorporation and Certificates of Designation.
9.3. Conditions to Obligations of the Corporation.
The obligations to be performed by the Corporation under this Agreement at
or after the Closing are subject to the satisfaction at or prior to the Closing
and the Option Closing, if any, of the following conditions, unless waived by
the Corporation:
(a) Accuracy of Representations and Warranties. Each of the
representations and warranties of the Purchaser contained in this Agreement
and in any certificate or other writing delivered by the Purchaser pursuant
hereto qualified as to materiality shall be true and correct, and those not
so qualified shall be true and correct in all material respects, in each
case at and as of the Closing Date as if made at and as of such respective
times (except to the extent it relates to a particular date);
(b) Performance of Covenants. The Purchaser shall have performed in
all material respects all covenants and agreements required to be performed
by it under this Agreement and each other Document to which it is a party.
Section 10. Termination.
This Agreement may be terminated and the transactions contemplated hereby
may be abandoned at any time prior to the Closing:
(a) by joint written agreement of the Corporation and the Purchaser;
(b) by the Corporation, if any Purchaser has breached any
representation, warranty, covenant or agreement contained in this Agreement
and has not cured such breach within ten (10) business days after written
notice to Purchaser (provided that the Corporation is not then in material
breach of the terms of this Agreement; and provided further that no cure
period shall be required for a breach which by its nature cannot be cured);
(c) by the Purchaser, if the Corporation has breached any
representation, warranty, covenant or agreement contained in this Agreement
and has not cured such breach within ten (10) business days after written
notice to the Corporation (provided that the Purchaser is not then in
material breach of the terms of this Agreement; and provided further that
no cure period shall be required for a breach which by its nature cannot be
cured);
29
<PAGE>
(d) by any party, if the Closing has not occurred on or before March
31, 2000; provided, however, that a party may not terminate this Agreement
pursuant to this Section if the failure of such party to fulfill any of its
obligations hereunder shall have been the principal reason that the Closing
shall not have occurred on or before said date;
(e) by any party if there shall be a change of law or regulation that
makes consummation of the transactions contemplated hereby illegal or
otherwise prohibited or if consummation of the transactions contemplated
hereby would violate any nonappealable, final order, decree or judgment of
any court or governmental body having competent jurisdiction; or
The party desiring to terminate this Agreement pursuant to the above-referenced
clauses shall give notice of such termination to the other parties hereto.
10.1. Effect of Termination.
(a) If this Agreement is terminated, such termination shall be without
liability of either party (or any shareholder, director, officer, employee,
agent, consultant or representative of such party) to the other parties to
this Agreement; provided that if such termination shall result from the (i)
willful failure by any party to fulfill a condition to the performance of
the obligations of the other parties, (ii) failure by any party to perform
a covenant of this Agreement, (iii) breach by any party hereto of any
representation, warranty, covenant or agreement contained herein, or (iv) a
Closing Failure by any party, such party shall be fully liable for any and
all damages incurred or suffered by the other parties as a result of such
failure or breach.
Section 11. Miscellaneous
11.1. Survival.
The representations, warranties, covenants and other agreements contained
herein, shall survive the Closing and the consummation of the transactions
contemplated hereby. No right of the Purchaser for indemnification hereunder
shall be affected by any examination made for or on behalf of the Purchaser, the
knowledge of any of the Purchaser's officers, directors, shareholders, employees
or agents, or the acceptance by the Purchaser of any certificate or opinion.
11.2. Indemnification.
(a) The Corporation shall indemnify, defend and hold the Purchaser and
its officers, directors, employees, shareholders, partners, members,
affiliates and agents harmless against all Liability, loss or damage,
together with all reasonable costs and expenses related thereto (including
reasonable legal fees and expenses), relating to or arising from the
untruth, inaccuracy or breach of any of the representations, warranties or
agreements of the Corporation contained in this Agreement.
(b) The Purchaser shall indemnify, defend and hold the Corporation and
its respective officers, directors, employees, shareholders, partners,
members, affiliates and agents harmless against all Liability, loss or
damage, together with all reasonable costs and expenses related thereto
(including reasonable legal fees and expenses), relating to or arising from
the
30
<PAGE>
untruth, inaccuracy or breach of any of the representations, warranties or
agreements of the Purchaser contained in this Agreement.
(c) Promptly after receipt by any party entitled to indemnification
under either Section 11.2(a) or Section 11.2(b) (an "indemnified party") of
notice of the commencement of any action involving a claim which may give
rise to a claim for indemnity under the preceding paragraphs of this
Section, the indemnified party will give written notice to the party
against whom indemnification is sought (the "indemnifying party") of the
commencement of such action. In case any such action is brought against an
indemnified party, the indemnifying party will be entitled to participate
in and to assume the defense thereof, jointly with any other indemnifying
party similarly notified to the extent that it may wish, with counsel
reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not be responsible
for any legal or other expenses subsequently incurred by the indemnified
party in connection with the defense thereof; provided, however, that if
any indemnified party shall have reasonably concluded that there may be one
or more legal or equitable defenses available to it which are additional to
or conflict with those available to the indemnifying party, or that such
claim or litigation involves or could have an effect upon matters beyond
the scope of the indemnity agreement provided in this Section, the
indemnifying party shall not have the right to assume the defense of such
action on behalf of the indemnified party and the indemnifying party shall
reimburse the indemnified party and any person controlling the indemnified
party for that portion of the fees and expenses of any counsel retained by
the indemnified party which is reasonably related to the matters covered by
the indemnity agreement provided in this Section.
(d) If the indemnification provided for in this Section is held by a
court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, claim, damage, liability or action referred to
herein, then the indemnifying party, in lieu of indemnifying the
indemnified party hereunder, shall contribute to the amounts paid or
payable by the indemnified party as a result of such loss, claim, damage,
liability or action 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, claim, damage or liability as well
as any other relevant equitable considerations. The amount paid or payable
to an indemnified party as a result of the losses, claims, damages,
liabilities or expenses referred to above shall be deemed to include any
legal or other expenses reasonably incurred in connection with
investigating or defending the same.
(e) The indemnification provided for under this Agreement will remain
in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling
person of the indemnified party and will survive the transfer of
securities.
11.3. Nominee; Benefits.
All references to Purchaser in this Agreement shall include the person or
persons for whom the Purchaser is a nominee, and the benefits of and rights and
obligations under the Agreement shall accrue to such person or persons which
have a beneficial interest in the Class E
31
<PAGE>
Preferred Stock being acquired hereunder and for whom the Purchaser is a
nominee. Upon request, the Corporation shall provide separate stock certificates
for each person or persons which have a beneficial interest in the Class E
Preferred Stock being acquired hereunder and for whom the Purchaser is a
nominee. The Purchaser makes the representations in Section 5 for all such
persons for whom the Purchaser is a nominee.
11.4. Assignment; Parties in Interest.
This Agreement shall bind and inure to the benefit of the parties and each
of their respective successors and permitted assigns (it being understood that
this Agreement may be assigned by the Purchaser without the consent of any
person solely in connection with the transfer of Shares).
11.5. Entire Agreement.
This Agreement (including all Schedules and Exhibits hereby) together with
the other Documents contain the entire understanding of the parties with respect
to the subject matter hereof and supersedes all prior agreements and
understandings among the parties with respect to such subject matter.
11.6. Notices.
All notices, claims, certificates, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered or if sent by nationally-recognized overnight
courier, by telecopy, or by registered or certified mail, return receipt
requested and postage prepaid, addressed as follows:
(a) if to the Corporation:
WAM!NET INC.
655 Lone Oak Drive, Building A
Eagan, Minnesota 55121
Attention: Edward J. Driscoll, III, President
Telephone: (651) 256-2165
Facsimile: (651) 994-9591
with a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019-6099
Attention: Daniel D. Rubino, Esq.
Telephone: (212) 728-8000
Facsimile: (212) 728-8111
(b) if to the Purchaser:
32
<PAGE>
Cerberus Partners, L.P.
450 Park Avenue
New York, NY 10022
Attention: General Partner
Telephone: (212) 891-2100
Telecopier: (212) 750-5212
In any case, with a copy to:
Schulte Roth & Zabel LLP
900 Third Avenue
New York, NY 10022
Attention: Peter Halasz
Telephone: (212) 756-2238
Telecopier: (212) 593-5955
or to such other address as the party to whom notice is to be given may have
furnished to the other parties in writing in accordance herewith. Any such
notice or communication shall be deemed to have been received (a) in the case of
personal delivery, on the date of such delivery, (b) in the case of
nationally-recognized overnight courier, on the next business day after the date
when sent, (c) in the case of telecopy transmission, when received, and (d) in
the case of mailing, on the date of receipt.
11.7. Amendments.
The terms and provisions of this Agreement may only be modified or amended
pursuant to an instrument signed by all of the parties hereto.
11.8. Counterparts.
This Agreement may be executed in any number of counterparts, and each such
counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
11.9. Headings.
The section and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.10. Governing Law.
Except as to matters governed by the MBCA, this Agreement shall be governed
by and construed in accordance with the domestic laws of the State of New York,
without giving effect to any law or rule that would cause the laws of any
jurisdiction other than the State of New York to be applied.
11.11. Jurisdiction.
33
<PAGE>
The parties hereto agree that any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in connection
with, this Agreement or the transactions contemplated hereby may only be brought
in the United States District Court for the Southern District of New York or any
New York State court sitting in New York City, and each of the parties hereby
consents to the exclusive jurisdiction of such courts (and of the appropriate
appellate courts therefrom) in any such suit, action or proceeding and
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such suit, action
or proceeding in any such court or that any such suit, action or proceeding
which is brought in any such court has been brought in an inconvenient forum.
Process in any such suit, action or proceeding may be served on any party
anywhere in the world, whether within or without the jurisdiction of any such
court. Without limiting the foregoing, each party agrees that service of process
on such party as provided in the Section entitled "Notices" shall be deemed
effective service of process on such party.
11.12. No Waiver.
No delay by or on behalf of an Purchaser in exercising any rights conferred
hereunder, and no course of dealing between an Purchaser and the Corporation
shall operate as a waiver of any right granted hereunder, unless expressly
waived in writing by the party whose waiver is alleged.
11.13. Binding Effect
All covenants, representations, warranties and other stipulations in this
Agreement and other documents referred to herein, given by or on behalf of any
of the parties hereto, shall bind and inure to the benefit of the respective
successors, heirs, personal representatives and assigns of the parties hereto.
11.14. Cumulative Powers.
No remedy herein conferred upon the Purchaser or any holder of the Class E
Preferred Stock is intended to be exclusive of any other remedy, and each such
remedy shall be cumulative and in addition to every other remedy given hereunder
or now or hereafter existing at law, or in equity or by statue or otherwise.
34
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Stock
Purchase Agreement on the date first above written.
WAM!NET INC.
By: /s/ Edward J. Driscoll III
-----------------------------------
Name:
Title:
Address: 655 Lane Oak Drive
Building A
Eagan, Minnesota 55121
CERBERUS PARTNERS, L.P.
by its General Partner
CERBERUS ASSOCIATES, L.L.C.
By: /s/ Stephen A. Feinberg
-----------------------------------
Name: Stephen A. Feinberg
Title: Managing Member
Address: 450 Park Avenue
New York, NY 10022
35
<PAGE>
Index
-----
Exhibit A Statements of Rights and Preferences of Class
E Preferred Stock
Exhibit C Willkie Farr & Gallagher Legal Opinion
Schedule I Certain Management
Schedule 4.1(a) Articles of Incorporation and Bylaws
Schedule 4.1(b) List of Subsidiaries
Schedule 4.5(a) Designation and Classes of Capital Stock
Schedule 4.5(a)(vi) Right of First Refusal Agreements
Schedule 4.5(b) Options, Warrants and Convertible Securities
Schedule 4.5(c)(i) Purchase Agreements
Schedule 4.5(c)(ii) Registration Rights Agreements
Schedule 4.5(e) Record Holders
Schedule 4.7 Financial Statements
Schedule 4.10(a) Material Contracts
Schedule 4.12 Real Property
Schedule 4.13 Intellectual Property
Schedule 4.14 License to Provide Communications Services
Schedule 4.15 Litigation
Schedule 4.18 Employee Pension Benefit Plans
Schedule 4.20 Related Transactions
Schedule 8.2 Piggy-back Registration Rights
<PAGE>
EXHIBIT 4.36
================================================================================
SECURITIES PURCHASE AGREEMENT
dated as of February 3, 2000,
among
WAM!NET INC.
and
SILICON GRAPHICS, INC.
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1. AUTHORIZATION....................................................1
SECTION 2. CLOSING..........................................................1
SECTION 3. SALE AND PURCHASE OF SHARES......................................1
3.1. Shares...........................................................1
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION................2
4.1. Organization; Subsidiaries.......................................2
4.2. Qualification; Good Standing.....................................2
4.3. Corporate Authorization; Enforceability..........................3
4.4. No Conflict......................................................3
4.5. Capitalization...................................................3
4.6. Securities Laws; Applicable Corporation Laws.....................6
4.7. Financial Information............................................6
4.8. Absence of Changes...............................................6
4.9. Reserved.........................................................8
4.10. Agreements.......................................................8
4.11. Title to Assets.................................................10
4.12. Real Property...................................................10
4.13. Intellectual Property Rights; Proprietary Information
of Third Parties..............................................10
4.14. Compliance with Laws; Governmental Authorizations...............11
4.15. Litigation......................................................12
4.16. Environmental Matters...........................................12
4.17. Tax Matters.....................................................12
4.18. Employee Benefit Plans..........................................13
4.19. Insurance.......................................................14
4.20. Related Transactions............................................14
4.21. Offering of the Shares..........................................14
4.22. Disclosure......................................................14
4.23. Reserved........................................................15
4.24. Reserved........................................................15
4.25. Brokers and Finders.............................................15
4.26. Year 2000 Compliance............................................15
4.27. Reserved........................................................15
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.................16
5.1. Due Authorization...............................................16
5.2. Investment Representations......................................16
5.3. Brokers and Finders.............................................17
5.4. Investor Sophistication.........................................17
5.5. Reserved........................................................17
SECTION 6. COVENANTS OF THE CORPORATION AND THE PURCHASER..................17
i
<PAGE>
6.1. Regulatory Approvals; Reasonable Best Efforts;
Further Assurances............................................17
6.2. Certain Filings.................................................17
6.3. Confidentiality.................................................18
6.4. Public Announcements............................................18
SECTION 7. COVENANTS OF THE CORPORATION....................................18
7.1. Certificate of Designation......................................18
7.2. Restrictions Pending the Closing................................19
7.3. Reservation of Shares...........................................19
7.4. Use of Proceeds.................................................19
7.5. Access to Records...............................................19
7.6. Reserved........................................................19
7.7. Financial Reporting and other Information.......................19
7.8. Payment of Obligations..........................................20
7.9. Insurance.......................................................21
7.10. Certain Notices.................................................21
7.11. Conduct of Business.............................................21
7.12. Related Transactions............................................21
7.13. Internal Controls...............................................21
7.14. Reserved........................................................22
7.15. Reserved........................................................22
7.16. Purchaser Lock-Up...............................................22
7.17. Reserved........................................................22
7.18. Consents........................................................22
SECTION 8. REGISTRATION RIGHTS OF THE PURCHASER............................22
8.1. Demand Registration.............................................22
8.2. "Piggy-Back" Registration.......................................23
8.3. General Terms...................................................24
8.4. Underwriting Agreement..........................................25
8.5. Road Show.......................................................25
8.6. Reserved........................................................25
SECTION 9. CONDITIONS TO EACH CLOSING......................................25
9.1. Conditions of Each Party........................................25
9.2. Conditions to Obligations of the Purchaser......................26
9.3. Conditions to Obligations of the Corporation....................27
SECTION 10. TERMINATION....................................................27
10.1. Effect of Termination..........................................28
SECTION 11. MISCELLANEOUS..................................................28
11.1. Survival.......................................................28
11.2. Indemnification................................................28
11.3. Reserved.......................................................29
11.4. Assignment; Parties in Interest................................29
11.5. Entire Agreement...............................................30
11.6. Notices........................................................30
ii
<PAGE>
11.7. Amendments.....................................................31
11.8. Counterparts...................................................31
11.9. Headings.......................................................31
11.10. Governing Law..................................................31
11.11. Jurisdiction...................................................31
11.12. No Waiver......................................................32
11.13. Binding Effect.................................................32
11.14. Cumulative Powers..............................................32
INDEX......................................................................38
iii
<PAGE>
SECURITIES PURCHASE AGREEMENT, dated as of February 3, 2000, among
WAM!NET INC., a Minnesota corporation (the "Corporation"), and Silicon Graphics,
Inc., a Delaware corporation ("SGI").
WHEREAS, the Corporation desires to sell to SGI 10,000 shares (the
"Shares") of its Class F Convertible Preferred Stock, $.01 par value (the "Class
F Preferred Stock"), and SGI desires to purchase the Shares from the Corporation
upon the terms and subject to the conditions set forth below.
NOW THEREFORE, the parties hereto agree as follows:
Section 1. Authorization.
The Corporation has authorized the issuance and sale, upon the terms
and subject to the conditions set forth in this Agreement, of the Shares for a
purchase price of $1000.00 per Share (the "Per Share Price") or $10.0 million in
the aggregate (the "Purchase Price"). The powers, designations, preferences and
relative, participating, optional or other rights, and the qualifications,
limitations, and restrictions of the Class F Preferred Stock are set forth in
the Statement of Rights and Preferences of Class F Preferred Stock ("Class F
Certificate of Designation") attached hereto as Exhibit A.
Section 2. Closing.
Unless this Agreement shall have been terminated and the transactions
herein contemplated shall have been abandoned in accordance with this Agreement,
the closing of the sale and purchase of the Shares and the other transactions
contemplated hereby (the "Closing") shall be held at 10:00 a.m. on the date
which is the third business day after the conditions in Section 9 have been
satisfied or waived (other than those of such conditions which are customarily
satisfied at a closing), at the office of Willkie Farr & Gallagher, 787 Seventh
Avenue, New York, New York 10019 (or at such other time, date and place as the
parties may mutually agree). The date on which the Closing actually occurs is
hereinafter referred to as the "Closing Date."
Section 3. Sale and Purchase of Shares.
3.1. Shares.
At the Closing, the Corporation shall issue, sell and deliver to SGI
10,000 Shares of Class F Preferred Stock and SGI shall deliver to the
Corporation, as full payment therefor, the Purchase Price in cash by wire
transfer of immediately available funds to such bank account or bank accounts
designated by the Corporation.
<PAGE>
Section 4. Representations and Warranties of the Corporation.
The Corporation hereby represents and warrants to the Purchaser as of
the date hereof and as of the Closing Date that:
4.1. Organization; Subsidiaries.
(a) Organization. The Corporation and each Subsidiary (as
defined below) is a corporation duly organized and validly existing
under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to own, lease and operate the
assets used in its business, to carry on its business as presently
conducted, to enter into the Documents (as hereinafter defined), to
perform its obligations thereunder, and to consummate the transactions
contemplated thereby. Attached as Schedule 4.1(a) are correct and
complete copies of the Articles of Incorporation of the Corporation
including all amendments and certificates of Designation, and the
By-laws of the Corporation and each Subsidiary, each as in effect on
the date hereof (collectively, the "Organizational Documents"). No
amendments, revisions or waivers of any provisions of any
Organizational Documents have occurred, are in the process of occurring
or otherwise have been requested. For purposes of this Agreement,
"Documents" collectively means (i) this Agreement and (ii) the Class F
Certificate of Designation.
(b) Subsidiaries. Set forth on Schedule 4.1(b) hereto is a
complete list of all of the subsidiaries of the Corporation (each a
"Subsidiary"). Except as set forth on Schedule 4.1(b) hereto, the
Corporation does not own, directly or indirectly, any capital stock or
other equity securities of any corporation, nor does the Corporation
have any direct or indirect ownership interest, including interests in
partnerships and joint ventures, in any other entity or business and
there are no agreements to acquire such interests. Each Subsidiary has
been duly organized, is validly existing and in good standing under the
laws of its respective jurisdiction of incorporation and is duly
qualified and in good standing as a foreign corporation, and is
authorized to do business, in all jurisdictions in which the character
of its properties or the nature of its businesses requires such
qualification or authorization, except for qualifications and
authorizations the lack of which, individually or in the aggregate,
would not reasonably be expected to result in a material adverse effect
upon the business, prospects, properties, liabilities, assets,
operations, results of operations, condition (financial or otherwise),
or affairs of the Corporation or result in the loss from employment of
any Principal Executive Officer as such term is defined on Schedule I
(a "Material Adverse Effect"). Each Subsidiary has the requisite power
and authority to own and hold its properties and to carry on its
business as now being conducted. Except as disclosed on Schedule 4.1(b)
hereto: (i) all of the outstanding shares of capital stock of each
Subsidiary are owned beneficially and of record by the Corporation,
another Subsidiary or any combination thereof, in each case free and
clear of any liens, charges, restrictions, claims or encumbrances other
than restrictions on transfer imposed by the Securities Act of 1933, as
amended (the "Securities Act"); and (ii) there are no outstanding
subscriptions, warrants, options, convertible securities or other
rights (contingent or other) pursuant to which any Subsidiary is or may
become obligated to issue any shares of its capital stock to any person
other than the Corporation or a Subsidiary.
4.2. Qualification; Good Standing.
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Each of the Corporation and every Subsidiary is authorized to do
business and is in good standing as a foreign corporation in each jurisdiction
the laws of which require such respective entity to be so authorized, except
where the failure to be so qualified or in good standing could not reasonably be
expected to have a Material Adverse Effect.
4.3. Corporate Authorization; Enforceability.
The Corporation has taken all corporate action necessary to authorize
its execution and delivery of the Documents, the performance of its obligations
thereunder, and its consummation of the transactions contemplated thereby. Each
Document has been executed and delivered by an officer of the Corporation in
accordance with such authorization. Each Document constitutes a valid and
binding obligation of the Corporation, enforceable in accordance with its terms,
subject to applicable bankruptcy, reorganization, fraudulent conveyance,
insolvency, moratorium, and similar laws now or hereafter in effect affecting
creditors' rights generally and to general principles of equity.
4.4. No Conflict.
The execution and delivery by the Corporation of the Documents, its
consummation of the transactions contemplated thereby, and its compliance with
the provisions thereof, will not other than in instances which could not
reasonably be expected to have a Material Adverse Effect, (i) violate or
conflict with any of the Organizational Documents, (ii) violate, conflict with,
result in a breach of, constitute a default under, or give rise to any right of
termination, cancellation, or acceleration (with or without notice or lapse of
time, or both) under any agreement, lease, security, license, permit, or
instrument to which the Corporation or any Subsidiary is a party, or to which it
or any of them or any of their respective assets or businesses are subject,
(iii) result in the imposition of any Encumbrance (as hereinafter defined) on
any asset of the Corporation, (iv) violate or conflict with any Laws applicable
to the Corporation or its properties or assets, or (v) require any consent,
approval or other action of, notice to, or filing with any entity or person
(governmental or private), except for the filing of the Class F Certificate of
Designations and those that have been obtained or made. For purposes of this
Agreement, "Encumbrance" means any security interest, mortgage, lien, pledge,
charge, easement, reservation, clouds, equities, rights of way, options, rights
of first refusal and any other encumbrances, whether or not relating to the
extension of credit or the borrowing of money. For purposes of this Agreement,
"Laws" means all laws, statutes, rules, regulations, ordinances, bylaws, writs,
Permits, Orders and other legislative, administrative or judicial restrictions.
4.5. Capitalization.
(a) Capitalization.
(i) As of the date hereof, the authorized capital
stock of the Corporation consists of 500,000,000 shares, the
Designation and classes of which are set forth on Schedule
4.5(a) hereto. The Corporation does not hold any of its shares
in treasury.
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(ii) As of January 31, 2000, 9,494,797 shares of the
Corporation's common stock, par value $.01 per share ("Common
Stock"), 115,206 shares of the Corporation's Class A Preferred
Stock par value $10.00 per share (the "Class A Preferred
Stock"), 5,710,425 shares of the Corporation's Class B
Preferred Stock par value $.01 per share (the "Class B
Preferred Stock"), 878,527 shares of the Corporation's Class C
Preferred Stock, par value $.01 per share (the "Class C
Preferred Stock"), and 2,196,317 shares of the Corporation's
Class D Preferred Stock, par value $.01 per share (the "Class
D Preferred Stock") are issued and outstanding and have been
validly issued and are fully paid and nonassessable and are
not subject to preemptive rights. Except as set forth herein,
there are no other shares of capital stock of the Corporation
outstanding. As of the date hereof, the Class B Preferred
Stock, Class C Preferred Stock and Class D Preferred Stock are
convertible into 5,710,425, 878,527 and 2,196,317 shares of
Common Stock, respectively. The Corporation has also entered
into an agreement, dated as of December 31, 1999, with Winstar
Communications, Inc. with respect to the sale of 50,000 shares
of the Corporation's Class E Convertible Preferred Stock, $.01
par value (the "Class E Preferred Stock"), and an option to
acquire an additional 50,000 shares of the Corporation's Class
E Convertible Preferred Stock. The 50,000 shares of Class E
Preferred Stock subject to sale are convertible into 9,689,922
shares of Common Stock, representing an initial conversion
price of $5.16 per share of Common Stock. Upon issuance of the
Common Stock underlying such preferred shares, in accordance
with their respective Certificates of Designation, such Common
Stock will be validly issued, fully paid and non-assessable.
(b) Options, Warrants, Convertible Securities. Except as set
forth on Schedule 4.5(a) hereto, as of the date hereof there are no
outstanding subscriptions, options, warrants or other agreements or
rights of any kind to acquire any additional shares of capital stock of
the Corporation or other instruments or securities convertible into or
exchangeable for, or which otherwise confer on the holder thereof any
right to acquire, any such additional shares of capital stock, nor is
the Corporation committed to issue any such option, warrant, right or
security. Except as set forth on Schedule 4.5(b) hereto, the
Corporation has no obligation (contingent or other) to purchase, redeem
or otherwise acquire any of its equity securities or any interest
therein or to pay any dividend or make any other distribution in
respect thereof. Schedule 4.5(a) additionally sets forth (i) all of the
outstanding warrants of the Corporation, specifying the exercise prices
and periods of such warrants and amount of Common Stock issuable upon
exercise of such warrants; and (ii) stock options of the Corporation,
specifying the exercise prices and periods of such options and the
amount of Common Stock issuable upon exercise of the stock option held
by each such holder. As of January 31, 2000, 96,605,853 shares of
Common Stock are issuable upon exercise or conversion of all of the
Corporation's outstanding options, warrants, and other rights of any
kind to acquire shares of the Corporation's Common Stock (which number
includes the number of shares of Common Stock underlying the shares of
preferred stock to be issued to Winstar Communications, Inc. in
connection with its equity investment in the Company but does not
include the Class B Warrants issued in September 1997 to MCI WorldCom,
Inc.).
(c) Agreements.
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(i) Except as set forth in Schedule 4.5(c)(i), as of
the date hereof, there are no agreements relating to the
purchase or sale of capital stock between the Corporation and
any of its shareholders or affiliates, and to the best of the
Corporation's knowledge, there are no such agreements among
any of its shareholders and other parties.
(ii) Except as contemplated hereby and as set forth
in Schedule 4.5(c)(ii), there are no agreements or
understandings granting to any person or entity any right to
cause the Corporation or any Subsidiary to effect a
registration under the Securities Act of 1933, as amended
("Securities Act"), of any shares of the Corporation's capital
stock.
(iii) Except as set forth on Schedule 4.5(c)(iii),
there are no voting trusts, voting agreements, proxies or
other agreements, instruments or understandings with respect
to the voting of the capital stock of the Corporation between
the Corporation and any of its shareholders or affiliates and
to the best of the Corporation's knowledge, there are no such
agreements among any of its shareholders and any other
parties.
(d) Due Authorization. The Shares are duly authorized and,
when issued and paid for pursuant to the terms of this Agreement, will
be validly issued, fully paid and nonassessable and will have the
rights, preferences and privileges specified in the Class F Certificate
of Designation. The shares of the Corporation's Common Stock issuable
upon conversion of the Shares ("Conversion Shares") are duly authorized
and have been reserved for issuance and, when issued upon conversion in
accordance with the terms of the Class F Certificate of Designation,
will be validly issued, fully paid and nonassessable, and will be free
and clear of all liens, encumbrances and restrictions (other than the
restrictions on transfer imposed by the Securities Act or any other
applicable federal or state securities laws, and the rules and
regulations promulgated thereunder). Neither the issuance, sale or
delivery of the Shares nor the contemplated issuance or delivery of the
Conversion Shares is subject to or will trigger any preemptive or other
similar right of shareholders of the Corporation, any anti-dilution
right or right of first refusal or other preemptive or similar right in
favor of any person, in each case except for rights that have been
listed on Schedule 4.5(d).
(e) Securityholders. Schedule 4.5(a) sets forth the name and
address of each record holder of more than five-percent of the
outstanding shares of any of the Common Stock, the Class A Preferred
Stock, the Class B Preferred Stock, the Class C Preferred Stock, the
Class D Preferred Stock and the Class E Preferred Stock and the number
of such shares of Common Stock or Preferred Stock held by each such
holder.
(f) Reservation of Shares. The Corporation has reserved, and
at all times from and after the date hereof will keep reserved, free
from preemptive rights, out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of all
shares of Class A Preferred Stock, Class B Preferred Stock, Class C
Preferred Stock, Class D Preferred Stock, Class E Preferred Stock and
Class F Preferred Stock, sufficient shares of Common Stock to provide
for the conversion of all such shares of Preferred Stock.
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4.6. Securities Laws; Applicable Corporation Laws.
(a) The sale of the Shares contemplated hereby is exempt from
registration under the Securities Act. The issuance of all other shares
of capital stock of the Corporation on or before the date hereof has
been made in compliance with the Securities Act and all applicable
state securities or blue sky laws.
(b) The sale of the Shares contemplated hereby and the other
transactions contemplated hereby are in compliance with all applicable
laws, including the Minnesota Business Corporation Act, and any
consents which are required to be obtained pursuant to such laws have
either been obtained or waived in writing.
4.7. Financial Information.
(a) Schedule 4.7 sets forth (i) the audited consolidated
balance sheet of the Corporation at December 31, 1998 (the "Balance
Sheet") and the related statements of operations, shareholders' equity
and cash flows of the Corporation for the 12 months then ended and (ii)
the unaudited consolidated balance sheet of the Corporation at
September 30, 1999 (the "Interim Balance Sheet") and the related
unaudited consolidated statements of operations, shareholders' equity
and cash flows for the Corporation for the 9 months then ended
(collectively, the "Financial Statements").
(b) The Financial Statements: (i) present fairly the financial
position of the Corporation and the results of operations,
shareholders' equity and cash flows of the Corporation at the dates and
for the periods indicated, (ii) are in accordance with the books and
records of the Corporation which books and records are complete and
correct and fairly reflect all material transactions of the
Corporation's business, and (iii) have been prepared in accordance with
generally accepted accounting principles ("GAAP") consistently applied
(except as set forth in the notes thereto and subject, in the case of
unaudited Financial Statements, to normal year-end adjustments, and the
absence of notes thereto). Except as incurred under agreements on
Schedule 4.10(a) or as set forth on Schedule 4.7, at the date of the
Interim Balance Sheet, the Corporation did not have any material
Liability of any nature or any loss contingency (as such term is used
in the Statement of Financial Accounting Standards No. 5 issued by the
Financial Accounting Standards Board in March 1975) that was not
adequately disclosed or provided for on the Interim Balance Sheet,
including the notes thereto. For purposes of this Agreement,
"Liability" means any liability or obligation, whether known or
unknown, asserted or unasserted, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated and whether due or to become due,
regardless of when asserted.
4.8. Absence of Changes.
(a) Since the date of the Interim Balance Sheet there has not
been:
(i) any change in the assets, liabilities or
financial condition of the Corporation (on a consolidated
basis), except for changes (i) in the ordinary course of
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business or (ii) which in the aggregate have not resulted in
and would not reasonably be expected to result in a Material
Adverse Effect;
(ii) any event or change that would reasonably be
expected to result in a Material Adverse Effect, individually
or in the aggregate, whether or not insured against;
(iii) to the best of the Corporation's knowledge, any
damage, destruction or loss (whether or not covered by
insurance) affecting any asset of the Corporation in excess of
$100,000;
(iv) any liability or loss contingency incurred by
the Corporation that would have to be disclosed on financial
statements (including the notes thereto) (on a consolidated
basis) in accordance with GAAP, other than liabilities
incurred in the ordinary course of business consistent with
past practice;
(v) to the best of the Corporation's knowledge, any
commitment to borrow money from or provide financial support
to any person or entity entered into by the Corporation;
(vi) any payment or discharge of any Liability by the
Corporation outside the ordinary course of business consistent
with past practice to the best of the Corporation's knowledge;
(vii) any sale, assignment, license, or other
disposition of any asset or right of the Corporation or any
Subsidiary outside the ordinary course of business consistent
with past practice;
(viii) any declaration or payment of any dividend or
other distribution with respect to any shares of capital stock
of the Corporation, or the direct or indirect acquisition of
any equity securities by the Corporation;
(ix) any labor trouble, problem or grievance
affecting the business of the Corporation other than such
matters which would not reasonably be expected to have a
Material Adverse Effect;
(x) any write-down of the value of any inventory of
the Corporation, or any write-off as uncollectible of any
accounts or notes receivable of the Corporation, which could
reasonably be expected to result in a Material Adverse Effect;
(xi) any increase in the direct or indirect
compensation of senior officers of the Corporation or any
Subsidiary (including, without limitation, any increase
pursuant to any bonus, pension, profit-sharing, deferred
compensation, or other plan or commitment), in excess of 20%
above the prior year;
(xii) any capital expenditure or commitment therefor
by the Corporation or any Subsidiary for additions to
property, plant or equipment in excess of $250,000;
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<PAGE>
(xiii) any change in the accounting or tax methods,
practices, or assumptions followed by the Corporation or any
Subsidiary; or
(xiv) any other transaction or event not in the
ordinary course of business consistent with past practice.
(b) The Corporation's independent accountants have not advised
the Corporation that the Interim Balance Sheet and the related
unaudited financial statements (i) do not comply in all material
respects with the applicable accounting requirements of the Securities
Act and the related published rules and regulations thereunder and (ii)
are not in conformity with GAAP.
4.9. Reserved.
4.10. Agreements.
(a) Schedule 4.10(a) sets forth a list of all material written
and oral contracts, agreements, licenses, commitments, instruments and
understandings ("Agreements"), and all Agreements of the following
types regardless of materiality, to which the Corporation or any
Subsidiary is a party ("Disclosed Agreements"):
(i) individually provide for the future purchase by
the Corporation or any Subsidiary of products or services in
excess of $50,000 or call for expenditures of the Corporation
or any Subsidiary in excess of $50,000, which expenditures or
commitments have not been disclosed in the Initial Budget
annexed to Schedule 4.10(a) hereto;
(ii) provide for the employment by the Corporation or
any Subsidiary of any director or officer or consultant (other
than for legal or accounting services) earning $100,000 or
more for any engagement or provide for any payments or
benefits (including severance payments or benefits) to any
director, officer or employee;
(iii) provide for the borrowing of money or a line of
credit by the Corporation or any Subsidiary, or a leasing
transaction of a type required to be capitalized by the
Corporation in accordance with GAAP;
(iv) provide for a strategic relationship regarding
the Corporation or any Subsidiary and a third party, including
any joint venture, partnership or similar arrangement;
(v) provide for the sale, assignment, license, or
other disposition of any asset or any material right of the
Corporation with a value in excess of $30,000;
(vi) provide for the lease by the Corporation or any
Subsidiary of any real property;
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(vii) provide for the lease by the Corporation or any
Subsidiary of any personal property with a value, or
reflecting replacement costs, in excess of $30,000 or
involving lease payments in excess of $30,000 per year;
(viii) were entered into with any labor union;
(ix) provide for a tax sharing;
(x) provide for any distribution, agency, or
licensing arrangement with the Corporation or any Subsidiary;
(xi) require the Corporation to issue dividends or
shares of its Common Stock upon exercise of warrants;
(xii) restrict the Corporation or any Subsidiary, or
any of the officers or employees listed on Schedule
4.10(a)(ii), from engaging in any business activity in any way
related to the business of the Corporation anywhere in the
world, restrict any such person in the performance of his or
her obligations and responsibilities to the Corporation or any
Subsidiary, or create any other obligation or liability of any
such person, in any way related to the business of the
Corporation, arising from his or her prior employment;
(xiii) grant to any person or entity, other than the
Corporation or any Subsidiary, any right, title, or interest
in any invention or know-how conceived by employees of the
Corporation or any Subsidiary and related to the business of
the Corporation;
(xiv) provide for a loan guaranty, surety, indemnity,
or other financial support by the Corporation or any
Subsidiary to any person or entity; or
(xv) grant to any person or entity a security
interest in any asset or right of the Corporation or any
Subsidiary.
(b) Each Disclosed Agreement or understanding required to be
set forth on Schedule 4.10(a) is in full force and effect and
constitutes a valid and binding obligation of all parties thereto.
Except as set forth on Schedule 4.10(a), the Corporation and, to the
extent a Subsidiary is a party, the Subsidiary has performed in all
material respects the obligations required to be performed by it and is
not in material default and has not received notice alleging it to be
in default under any such Disclosed Agreement. To the knowledge of the
Corporation, there exists no event or condition which, after notice or
lapse of time, or both, would constitute such a material default under
any Disclosed Agreement. To the knowledge of the Corporation, there are
no material defaults by any other party to any such Disclosed
Agreement. The Corporation has made available to the Purchaser correct
and complete copies of all Disclosed Agreements set forth on Schedule
4.10(a).
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4.11. Title to Assets.
Except for properties leased by the Corporation or any Subsidiary, the
Corporation and each Subsidiary has good and marketable title to all assets
reflected on the Interim Balance Sheet as being owned by it, or acquired by it
after the date of the Interim Balance Sheet (except for inventory sold or
otherwise disposed of in the ordinary course of business, and accounts and notes
receivable paid in full, since the date of the Interim Balance Sheet), free and
clear of all Encumbrances, other than Permitted Liens and other than those which
would not reasonably be expected to result in a Material Adverse Effect. Such
assets are in good operating condition and repair, are adequate and suitable for
their intended use in the business of the Corporation and are sufficient for the
conduct of the business except as would not reasonably be expected to result in
a Material Adverse Effect. There does not exist any condition which interferes
with the economic value or use of such assets except as would not reasonably be
expected to result in a Material Adverse Effect. The term "Permitted Liens"
means (i) liens arising by operation of law in the ordinary course of business
that, individually and in the aggregate, do not in any respect interfere with
the use or value of any of the assets subject thereto, (ii) minor imperfections
of title which do not detract from the value of the property affected or impair
the operations of the Corporation, (iii) liens for taxes not yet due and
payable, (iv) liens arising in connection with debt incurred pursuant to and in
accordance with the covenant section, and (v) liens relating to monies borrowed
by the Corporation or any Subsidiary.
4.12. Real Property.
Except as disclosed on Schedule 4.12, neither the Corporation nor any
Subsidiary owns or holds, directly or indirectly, any real property. Neither the
Corporation nor any Subsidiary leases, directly or indirectly, any real property
other than as listed on Schedule 4.12.
4.13. Intellectual Property Rights; Proprietary Information of Third
Parties.
(a) Each of the Corporation and each Subsidiary owns or is
licensed to use all patents, trademarks, copyrights, service marks, and
applications and registrations therefor, and all trade names (including
WAM!NET, WAM!BASE and WAM!PROOF), domain names, URLs, customer lists,
trade secrets, proprietary processes and formulae, inventions,
know-how, other confidential and proprietary information, and other
industrial and intellectual property rights necessary to permit such
entities to carry on their respective business as presently conducted.
Schedule 4.13 sets forth a list of all patents, trademarks, copyrights,
service marks, and applications and registrations therefor, and all
trade names, domain names or URLs held or owned by the Corporation and
each Subsidiary and all other proprietary intellectual property rights
of the Corporation and each Subsidiary. All registered patents,
copyrights, trademarks, domain name and URL rights and service marks
listed on Schedule 4.13 are in full force and effect and are not
subject to any taxes or maintenance fees and the Corporation or a
Subsidiary has the right to bring infringement Proceedings with respect
thereto. Neither the Corporation nor any Subsidiary (i) licenses or
grants to anyone other than to the Corporation or any Subsidiary rights
of any nature to use any intellectual property right that is material
to its business, other than certain software and equipment which is
provided to the Corporation's clients which enable them to access the
Corporation's network and avail themselves of the Corporation's
services, (ii)
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is not obligated to and does not pay royalties to anyone for use of its
intellectual property rights, and (iii) does not market or sell any
product or service that violates any intellectual property right of a
third party. Except as set forth on such Schedule, there is no pending
or, to the knowledge of the Corporation, threatened claim or litigation
against the Corporation or any Subsidiary contesting the right to use
its intellectual property rights, asserting the misuse of any thereof,
or asserting the infringement or other violation of any intellectual
property rights of a third party.
(b) All inventions and know-how conceived by employees of the
Corporation and each Subsidiary, while in the employ of the Corporation
or such Subsidiary, and related to the business of the Corporation or
any Subsidiary were "works for hire," and all right, title, and
interest therein were transferred and assigned to the Corporation or a
Subsidiary and the Corporation or a Subsidiary has maintained all
right, title and interest therein without any Encumbrances thereon. The
Corporation has taken all reasonable security measures to protect the
secrecy, confidentiality, and value of its trade secrets, proprietary
processes and formulae, inventions, know-how and other confidential and
proprietary information.
(c) No third party has claimed or, to the Company's knowledge,
has reason to claim that the Corporation or any Subsidiary has (i)
violated or may be violating any of the terms or conditions of any
non-competition or non-disclosure agreement with such third party, (ii)
disclosed or may be disclosing or utilized or may be utilizing any
trade secret or proprietary information or documentation of such third
party or (iii) interfered or may be interfering in the employment
relationship between such third party and any of its present or former
employees. Neither the Corporation or any Subsidiary has utilized nor
proposes to utilize any trade secret or any information or
documentation proprietary to any other person in violation of existing
arrangements with such person, and neither the Corporation or any
Subsidiary has violated any confidential relationship which any such
person may have had with any third party, in connection with the
development, manufacture or sale of any product or the development or
sale of any service of the Corporation or any Subsidiary.
4.14. Compliance with Laws; Governmental Authorizations.
Each of the Corporation and each Subsidiary is in compliance in all
respects with all Laws, except for such instances where non-compliance would not
result in a Material Adverse Effect. Each of the Corporation and each Subsidiary
has all permits, licenses, authorizations, registrations, franchises, approvals,
certificates or variances (collectively, "Permits") from each Governmental
Authority that is necessary or advisable in the conduct of its business as
presently conducted except in such cases which would not reasonably be expected
to result in a Material Adverse Effect. For purposes of this Agreement,
"Governmental Authority" means any federal, state, municipal, local or foreign
government and any court, tribunal, administrative agency, commission, board,
agency or other governmental or regulatory authority or agency, whether domestic
or foreign. Neither the Corporation nor any Subsidiary is licensed to provide
communication services under any state, federal or foreign laws nor is any one
of them required to be so licensed.
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4.15. Litigation.
Except as set forth on Schedule 4.15, there are no (i) actions, suits,
claims, investigations or other proceedings (collectively, "Proceedings") by or
before any Governmental Authority or other arbitration or mediation body,
pending or, to the knowledge of the Corporation, threatened against the
Corporation or any Subsidiary, or (ii) judgments, writs, decrees, injunctions,
compliance agreements, or orders of any Governmental Authority or other
arbitration or mediation body, against the Corporation or any Subsidiary.
4.16. Environmental Matters.
Each of the Corporation and each Subsidiary is in compliance with all
Laws relating to the protection of the environment (the "Environmental Laws").
Except for the operation of machinery and equipment in the ordinary course of
business in compliance with applicable Environmental Laws, neither the
Corporation nor any Subsidiary has handled, stored or released, or exposed any
person to, any hazardous substance, as defined in 42 U.S.C.A. Section 9601(14)
or any other applicable Environmental Laws (a "Hazardous Substance"). Neither
the Corporation nor any Subsidiary is liable or responsible for clean-up costs,
remedial work or damages in connection with the handling, storage, release, or
exposure by it of any Hazardous Substance except in cases which would not
reasonably be expected to result in a Material Adverse Effect. No claims for
clean-up costs, remedial work or damages have been made by any person or entity
in connection with the handling, storage, release, or exposure by the
Corporation and/or any Subsidiary of any Hazardous Substance.
4.17. Tax Matters.
(a) (i) The Corporation has timely filed or been included in
all required returns, declarations of estimated tax, reports, and
statements relating to any Taxes due and payable by it (collectively,
the "Returns"); (ii) all Returns were correct and complete as of the
time of filing; (iii) the Corporation has timely paid all Taxes
required to be paid by it through the date hereof; (iv) the Corporation
has made provision on its most recent interim balance sheet for all
Taxes payable by it for all periods prior to the date of such interim
balance sheet for which no Returns have yet been filed; (v) the
Corporation has made provision on its books for all Taxes payable by it
for all periods beginning on or after the date of its most recent
interim balance sheet for which no Returns have yet been filed; (vi)
the Corporation has no knowledge of any pending tax audits of any
Returns; (vii) the Corporation has no knowledge that any deficiency or
addition to any Taxes has been proposed, asserted or assessed in
writing against the Corporation; and (viii) the Corporation has not
granted any extension of the statute of limitations applicable to any
Return or other claim for Taxes.
(b) "Taxes" means, with respect to any person or entity, (i)
all material Federal, state, local, and foreign taxes, including,
without limitation, all taxes on or based upon net income, gross
income, income as specially defined, earnings, profits or selected
items of income, earnings, or profits, and all gross receipts, sales,
use, ad valorem, transfer, franchise, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property, or
windfall profits taxes, alternative or add-on minimum taxes, customs
duties, or other
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taxes, fees, assessments or charges of any kind, together with any
interest, penalties, additions to tax or additional amounts imposed by
any taxing authority on such person or entity, and (ii) any material
liability for the payment of any amount of the type described in the
preceding clause (i) as a result of being a "transferee" (within the
meaning of Section 6901 of the Internal Revenue Code of 1986, as
amended (the "Code"), or any other applicable Laws) of another person
or entity.
4.18. Employee Benefit Plans.
(a) Schedule 4.18 sets forth a list of all "employee pension
benefit plans" and "employee benefit plans," as defined in Section 3(2)
and (3) of the Employee Retirement Income Security Act of 1974
("ERISA"), and other written or formal plans or group arrangements
involving direct or indirect compensation (not including any
government-mandated programs) currently or previously maintained or
contributed by the Corporation or any ERISA Affiliate for the benefit
of any employee or former employee thereof under which the Corporation
and/or any Subsidiary has or may have any present or future obligation
or liability (collectively, the "Employee Plans"). "ERISA Affiliate"
means any entity which is a member of (i) a "controlled group of
corporations," as defined in Section 414(b) of the Code, (ii) a group
of entities under "common control," as defined in Section 414(c) of the
Code, or (iii) an "affiliated service group," as defined in Section
414(m) of the Code, any of which includes the Corporation.
(b) Schedule 4.18 further sets forth a list of all plans,
trusts, or arrangements (written or oral) providing for insurance
coverage (including any self-insured arrangements), workers'
compensation, medical benefits, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits, deferred
compensation, profit-sharing, bonuses, stock options, stock
appreciation, or other forms of incentive compensation, insurance or
benefits (collectively, the "Benefit Arrangements") that (i) are not
Employee Plans, (ii) are maintained or contributed to by the
Corporation or any Subsidiary, and (iii) cover any director, officer,
employee, or former employee of the Corporation or any Subsidiary.
(c) Each Employee Plan and Benefit Arrangement has been
maintained in substantial compliance with its terms and with the
requirements prescribed by applicable Laws. There has not been any
"accumulated funding deficiency," as defined in Section 412 of the
Code, with respect to any Employee Plan. There has not been any partial
or complete withdrawal by the Corporation or any Subsidiary with
respect to any Employee Plan which is a "multiemployer plan," as
defined in Section 3(37) of ERISA, and the Corporation has no current
plans to withdraw from any such Employee Plan. Except as set forth on
Schedule 4.18, neither the Corporation or any Subsidiary is in default
or alleged to be in default in the payment or other provision of any
benefit under any Employee Plan or Benefit Arrangement. Except as set
forth on Schedule 4.18, no actions have been taken or are currently
planned with respect to any Employee Plan or Benefit Arrangement that
would increase the expense of maintaining or the benefits provided
under such Employee Plan or Benefit Arrangement above the level of the
expense incurred or benefits provided in respect thereof for each of
the years 1999 and 1998.
(d) The execution and delivery by the Corporation of the
Documents and its consummation of the transactions contemplated thereby
will not constitute a triggering event
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under any Employee Plan or Benefit Arrangement that will, or upon the
occurrence of subsequent events would, accelerate the time of payment
or vesting, or increase the amount of compensation or benefits, for any
director, officer, employee, or former employee of the Corporation.
4.19. Insurance.
The Corporation maintains valid and effective insurance policies,
issued by financially sound and reputable insurers, to insure it against all
risks usually insured against by persons or entities conducting businesses
similar to that of the Corporation or such Subsidiary in the locality in which
such businesses are conducted. The Corporation has paid all due premiums with
respect to all policies of insurance currently maintained by the Corporation.
4.20. Related Transactions.
(a) Except as set forth on Schedule 4.20, and except for
compensation to regular employees, since January 1, 1998, no current
director or executive officer of the Corporation or holder of at least
5% of the outstanding capital stock of the Corporation has been (i) a
party to any transaction with the Corporation valued in excess of
$60,000 during any twelve-month period, or (ii) the direct or indirect
owner of an interest in any business organization that is or was a
competitor, supplier or customer of the Corporation (other than
interests in non-affiliated publicly held companies).
4.21. Offering of the Shares.
The Corporation has not, directly or indirectly, solicited any other
offer to buy or offer to sell, and will not, directly or indirectly, solicit any
other offer to buy or offer to sell, any security which is or would be
integrated with the sale of the Shares in a manner that would require the Shares
to be registered under the Securities Act.
4.22. Disclosure.
The Corporation has filed all required registration statements, reports
and proxy statements with the Securities and Exchange Commission ("SEC Reports")
when due (or within permitted extension periods) in accordance with the
Securities Act and the Securities Exchange Act of 1934, as amended ("Exchange
Act"), as the case may be. As of their respective dates (or, in the case of any
amended SEC Report, as of the date of the amendment), the SEC Reports complied
in all material respects with all applicable requirements of the Securities Act
or the Exchange Act, as the case may be. As of their respective dates (or, in
the case of any amended SEC Report, as of the date of the amendment), none of
the SEC Reports contained any untrue statement of a material fact or omitted to
state a material fact required to be stated or incorporated by reference therein
or necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. This Agreement does
not contain an untrue statement of a material fact nor does it omit to state a
material fact necessary in order to make the statements contained herein or
therein, in light of the circumstances under which they were made, not
misleading. None of the statements, documents, certificates or other items
prepared by the Corporation and supplied to SGI or its counsel in
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connection with the transactions contemplated hereby (other than those relating
to (i) projected financial information, (ii) plans and objectives regarding the
Corporation's future operations, (iii) future economic performance and (iv)
assumptions underlying any of the matters described in (i) through (iii), each
as to which no representation or warranty is given other than, however, that
such representations are reasonable in light of existing or known facts or
trends and were prepared in good faith) contains an untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading.
4.23. Reserved.
4.24. Reserved.
4.25. Brokers and Finders.
No person or entity acting on behalf or under the authority of the
Corporation is or will be entitled to any broker's, finder's, or similar fee or
commission in connection with the sale of the Shares.
4.26. Year 2000 Compliance.
(a) The Corporation and each Subsidiary has used (or is in the
process of using) appropriate procedures to verify that its software
which is licensed or otherwise provided to its customers and the
software used in its business will recognize and process date fields
after the turn of the century, and perform date-dependent calculations
and operations (including sorting, comparing and reporting) after the
turn of the century correctly, and the Corporation and each Subsidiary
has used (or is in the process of using) reasonable efforts to ensure
that such software will not produce invalid and incorrect results as a
result of the change of century (all without human intervention, other
than original data entry of valid dates).
(b) The Corporation has (i) analyzed the operations of the
Corporation and the Subsidiaries that could be adversely affected by
failure to become Year 2000 compliant and (ii) developed a plan for
becoming Year 2000 compliant in a timely manner, the implementation of
which is on schedule in all material respects. The disclosure in the
Corporation's Exchange Act reports (e.g., Form 10-K, 10-Q, etc.)
regarding the progress of the Year 2000 compliance program and Year
2000 remediation were accurate when made.
(c) Based upon responses to its inquiries to its suppliers and
vendors, the Corporation reasonably believes any suppliers and vendors
that are material to the operations of the Corporation and the
Subsidiaries will be Year 2000 compliant for their own computer
applications except to the extent that a failure to do so could not
reasonably be expected to have a Material Adverse Effect.
4.27. Reserved.
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Section 5. Representations and Warranties of the Purchaser.
Each Purchaser represents and warrants to the Corporation on behalf of
itself (and not any other Purchaser) as of the date hereof and the Closing Date
that:
5.1. Due Authorization.
The Purchaser has taken all action necessary to authorize its execution
and delivery of the Documents to which it is a party, the performance of its
obligations thereunder, and its consummation of the transactions contemplated
thereby. Each Document to which the Purchaser is a party has been executed and
delivered by an officer of the Purchaser in accordance with such authorization
or by the Purchaser. Each Document to which the Purchaser is a party constitutes
a valid and binding obligation of the Purchaser, enforceable in accordance with
its terms, subject to applicable bankruptcy, reorganization, insolvency,
moratorium, and similar laws affecting creditors' rights generally and to
general principles of equity.
5.2. Investment Representations.
(a) The Purchaser is acquiring the Shares for its own account,
for investment and not with a view to the distribution thereof, nor
with any present intention of distributing the same.
(b) The Purchaser understands that the Shares have not been,
and the Conversion Shares will not be, registered under the Securities
Act or applicable state securities laws, by reason of their issuance in
a transaction exempt from the registration requirements of the
Securities Act, and such shares must be held indefinitely unless
subsequent disposition thereof is registered under applicable
securities laws or is exempt from registration.
(c) The Purchaser understands that the exemption from
registration afforded by Rule 144 (the provisions of which are known to
the Purchaser) promulgated under the Securities Act depends on the
satisfaction of various conditions and that, if applicable, Rule 144
may only afford the basis for sales under certain circumstances and
only in limited amounts.
(d) The Purchaser is an "accredited investor," as such term is
defined in Rule 501 (the provisions of which are known to the
Purchaser) promulgated under the Securities Act.
(e) The Purchaser has such knowledge and experience in
financial, tax and business matters so as to enable the Purchaser to
utilize the information made available to the Purchaser in connection
with the investment in the Shares to evaluate the merits and risks of
an investment in the Shares and to make an informed investment decision
with respect thereto; provided, however, that the foregoing shall in no
way affect, diminish or derogate from the representations and
warranties made by the Corporation hereunder or the right of the
Purchaser to rely thereon and to seek indemnification hereunder.
(f) The Purchaser has not been formed for the specific purpose
of acquiring the Shares.
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(g) The Purchaser hereby acknowledges that the purchase and
sale of the Shares is intended to be exempt from registration under the
Securities Act by virtue of Section 4(2) and/or Section 3(b) of the
Securities Act and, if applicable, in the sole judgment of the
Corporation, the provisions of Regulation D thereunder, which exemption
is dependent upon the truth, completeness and accuracy of the
statements made by the Purchaser herein and in any other documents
furnished by the Purchaser to the Corporation.
5.3. Brokers and Finders.
No person or entity acting on behalf or under the authority of the
Purchaser is or will be entitled to any broker's, finder's, or similar fee or
commission in connection with the transactions contemplated hereby.
5.4. Investor Sophistication.
Purchaser has sufficient knowledge and experience and is capable of
evaluating the merit and risks of its investment in the Corporation as
contemplated by this Agreement and is able to bear the economic risk of such
investment for an indefinite period of time. Purchaser has been given access to
SEC Reports. Purchaser has had the opportunity to ask questions of and receive
answers from representatives of the Corporation concerning the terms and
conditions of this Agreement, to discuss the Corporation's business, management
and financial affairs with the Corporation's management and to obtain any other
additional information Purchaser desires or deems relevant.
5.5. Reserved.
Section 6. Covenants of the Corporation and the Purchaser.
6.1. Regulatory Approvals; Reasonable Best Efforts; Further Assurances.
The Corporation and the Purchaser acknowledge that certain regulatory
or governmental approvals may be required to lawfully consummate the
transactions contemplated by this Agreement. Subject to the terms and conditions
of this Agreement, the Corporation and the Purchaser will, and will cause their
Affiliates to, use their reasonable best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary or desirable
under applicable laws and regulations to consummate the transactions
contemplated by this Agreement. The Corporation and the Purchaser agree to
execute and deliver such other documents, certificates, agreements and other
writings and to take such other actions as may be necessary or desirable in
order to consummate or implement expeditiously the transactions contemplated by
this Agreement.
6.2. Certain Filings.
The Corporation and the Purchaser will, and will cause their Affiliates
to, cooperate with one another (i) in determining whether any action by or in
respect of, or filing with, any governmental body, agency, official or authority
is required, or any actions, consents, approvals or waivers are required to be
obtained from parties to any material contracts, in connection with
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the consummation of the transactions contemplated by this Agreement or the
conversion by such Purchaser of such Purchaser's Shares and (ii) in taking such
actions or making any such filings, furnishing information required in
connection therewith and seeking timely to obtain any such actions, consents,
approvals or waivers. Without limiting the generality of the foregoing, the
Corporation and the Purchaser obligated to file a notification under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR Act")
shall promptly after the date of this Agreement prepare and file the
notifications required under the HSR Act in connection with the transactions
contemplated by this Agreement. The Corporation and the Purchaser shall (A) give
the other parties prompt notice of the commencement of any action, suit,
litigation, arbitration, preceding or investigation by or before any
governmental body with respect to the transactions contemplated by this
Agreement, (B) keep the other parties informed as to the status of any such
action, suit, litigation, arbitration, preceding or investigation, and (C)
promptly inform the other parties of any communication to or from the Federal
Trade Commission, the Department of Justice or any other governmental body
regarding the transactions contemplated by this Agreement.
6.3. Confidentiality.
Except as set forth in Section 6.4 below and as required by applicable
securities laws upon the advice of counsel, without the consent of the other
party, neither the Corporation nor any Purchaser shall make any public comment,
statement or communication with respect to, or otherwise disclose or permit the
disclosure of the terms of this Agreement and the transactions contemplated
hereby, and each party shall cause its authorized officers, directors, partners,
employees, counsel, accountants, agents and other representatives to strictly
comply with the foregoing.
6.4. Public Announcements.
Neither party to this Agreement may publicly disseminate a press
release or file a public report (on Form 8-K or otherwise) with the Securities
and Exchange Commission or otherwise publicly announce the transactions
contemplated by this Agreement, unless the other parties consent. Such parties
shall not unreasonably withhold or delay their approval to any such proposed
announcements.
Section 7. Covenants of the Corporation.
Unless otherwise indicated, and as long as any of the Shares or
Conversion Shares remain outstanding, the Corporation shall and shall cause each
Subsidiary to abide and perform with respect to the following covenants:
7.1. Certificate of Designation.
Following the execution of this Agreement, the Corporation shall cause
to be filed the Class F Certificate of Designation as required pursuant to the
law of the State of Minnesota.
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7.2. Restrictions Pending the Closing.
After the date hereof and prior to the Closing Date, except as
expressly provided for in this Agreement or as consented to in writing by the
Purchaser, the Corporation will not:
(i) amend its certificate of incorporation or bylaws, except
to file the Class F Certificate of Designation;
(ii) split, combine or reclassify any shares of its capital
stock without appropriately adjusting the conversion price and/or ratio
applicable to the Shares prior to their issuance at the Closing;
(iii) declare or pay any dividend or distribution (whether in
cash, stock or property) in respect of its Common Stock;
(iv) take any action, or knowingly omit to take any action,
that could reasonably be expected to result in (A) any of the
representations and warranties of the Corporation set forth in Article
4 becoming untrue or (B) any of the conditions to the obligations of
the Purchaser set forth in Section 8.1 or 8.2 not being satisfied; or
(v) enter into any agreement or commitment to do any of the
foregoing.
7.3. Reservation of Shares.
For so long as any of the Shares are outstanding, the Corporation shall
keep reserved for issuance a sufficient number of shares of Common Stock to
satisfy its conversion obligations under the Class F Certificate of Designation.
7.4. Use of Proceeds.
The Corporation shall use the cash proceeds received by it upon the
sale of the Shares for general working capital purposes.
7.5. Access to Records.
The Corporation shall, and shall cause each Subsidiary to, afford to
the Purchaser and its authorized employees, counsel, accountants and other
representatives, upon reasonable notice and during ordinary business hours, (i)
full access to all books, records and properties of the Corporation and such
Subsidiary, and (ii) the opportunity to interview any officer of the Corporation
or such Subsidiary regarding its affairs; any investigation pursuant to this
Section shall be conducted in a manner that does not interfere unreasonably with
the conduct of the business of the Corporation and such Subsidiary.
7.6. Reserved.
7.7. Financial Reporting and other Information.
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(a) So long as the Purchaser beneficially owns Shares or
Conversion Shares, the Corporation shall deliver to such Purchaser the
following:
(i) within 30 days after the end of each month,
commencing with the month of December, (A) the unaudited
balance sheet of the Corporation at the end of such month, (B)
the unaudited statements of income and cash flows of the
Corporation for such month, (C) comparative statements of
income of the Corporation for the year to date, the comparable
figures for the prior year, the current Budget for the year to
date and projected figures for the year and (D) textual
discussion describing changes from prior periods and
describing operating trends;
(ii) within 45 days after the end of each fiscal
quarter, commencing with the quarterly period ending March 31,
2000, (A) the unaudited balance sheet of the Corporation at
the end of such fiscal quarter, (B) the unaudited statements
of income and cash flows of the Corporation for such fiscal
quarter, and (C) comparative statements of income of the
Corporation for such fiscal quarter and the year to date, the
comparable figures for the corresponding fiscal quarter and
the year to date period of the prior year and the current
Budget for such fiscal quarter and for the year to date; and
(iii) within 90 days after the end of each fiscal
year commencing with the current fiscal year of the
Corporation, (A) the audited balance sheet of the Corporation
at the end of such fiscal year, together with comparisons to
the balance sheet of the Corporation at the end of the prior
fiscal year and to the current Budget, (B) the audited
statements of income and cash flows of the Corporation for
such fiscal year, together with comparisons to the statements
of income and cash flows of the Corporation for the prior
fiscal year and to the current Budget, and (C) an audit report
of Ernst & Young, independent certified public accountants, on
such balance sheets and statements; and
(iv) any other financial and operating data and other
information relating to the Corporation and each Subsidiary as
the Purchaser may reasonably request;
(v) all information made available to the
Corporation's shareholders or directors, at the same time as
such information is delivered to such persons; and
(vi) monthly management reports in a form reasonably
acceptable to the Purchaser.
(b) All financial information to be delivered under this
Section shall be in accordance with the books and records of the
Corporation and shall have been prepared in accordance with GAAP,
subject to year-end and audit adjustments.
7.8. Payment of Obligations.
The Corporation shall, and shall cause each Subsidiary to, pay or
discharge or cause to be paid or discharged all material claims or demands, and
all Taxes levied or imposed upon the Corporation or its Subsidiaries or upon the
income, profits or property of the Corporation or its
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Subsidiaries; provided, however, that the Corporation or such Subsidiary shall
not be required to pay or discharge or cause to be paid or discharged any such
claim, demand, or Tax the amount, applicability or validity of which is being
contested in good faith by appropriate proceedings and for which adequate
provision has been made.
7.9. Insurance.
The Corporation shall, and shall cause each Subsidiary to, maintain
with financially sound and reputable insurers such insurance as may be required
by law and such other insurance, to such extent and against such hazards and
liabilities, as is customarily maintained by companies similarly situated and
exercising sound business practice.
7.10. Certain Notices.
The Corporation shall promptly notify the Purchaser of (i) the
commencement or notice of any threat of any Proceeding, dispute or grievance
against or affecting the Corporation, which, if adversely determined, might
reasonably be expected to have a Material Adverse Effect, (ii) any material
default under any indebtedness of the Corporation and (iii) any material default
or breach under any of the items required to be listed on Schedule 4.10(a) or
any of the items which would have been required to be listed on Schedule 4.10(a)
if such item were effective prior to the date hereof.
7.11. Conduct of Business.
The Corporation shall (i) take all actions required to assure that the
Corporation remains duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation, (ii) take all actions
required to assure that the Corporation maintains all Permits to conduct its
business, and (iii) conduct its business in compliance with all Laws.
7.12. Related Transactions.
Excluding any existing arrangements between Winstar Communications,
Inc. and MCI WorldCom, Inc., the Corporation shall not directly or indirectly
enter into any transaction with any Related Party, other than any transaction
entered into in the ordinary course of business and on terms and conditions not
less favorable to the Corporation as the terms and conditions which would apply
in a similar transaction negotiated on an arms-length basis with a party that is
not a Related Party. "Related Party" means (a) each current or future director
or executive officer of the Corporation, (b) each parent, sibling, spouse, or
descendant of any of the foregoing, (c) each entity of which any of the
foregoing is a director, officer, partner or holder of more than 10% of the
outstanding voting power of any class of capital stock and (d) any person or
entity which is the beneficial owner of 5% or more of the outstanding voting
power of the Corporation.
7.13. Internal Controls.
(a) Internal Controls.
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The Corporation maintains and will continue to maintain a
system of internal accounting controls sufficient to provide reasonable
assurances that: (i) transactions are executed in accordance with
management's general or specific authorization, (ii) transactions are
recorded as necessary in order to permit preparation of financial
statements in accordance with generally accepted accounting principles
and to maintain accountability for assets and (iii) the recorded
accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
7.14. Reserved.
7.15. Reserved.
7.16. Purchaser Lock-Up.
The Purchaser agrees that, without the consent of the Corporation, it
will not directly or indirectly offer, sell, dispose of, pledge, encumber or
otherwise transfer any of the Shares or the Conversion Shares until six months
after the consummation of the Company's initial public offering of Common Stock.
7.17. Reserved.
7.18. Consents.
Prior to the Closing, the Corporation shall use its commercially
reasonable best efforts to obtain all consents and approvals of third parties,
if any, required to consummate the transactions contemplated by this Agreement
so that such consummation shall not conflict with or cause a breach of or
default under any agreement or other obligation binding upon the Corporation,
including without limitation all such consents and approvals required with
respect to its obligations for borrowed money and under its Articles of
Incorporation and Certificates of Designation.
Section 8. Registration Rights of the Purchaser.
8.1. Demand Registration.
(a) Grant of Right. The Corporation agrees to register on two
occasions, upon written demand ("Initial Demand Notice") of the
Purchaser, all of the Conversion Shares, regardless of whether the
Shares have been converted (the "Registrable Securities"). The
Corporation will file a registration statement covering the Registrable
Securities within 60 days after receipt of the Initial Demand Notice
and use its best efforts to have such registration statement declared
effective promptly thereafter. The demand for registration may be made
at any time during a period commencing on the earlier of (i) the six
month anniversary of the consummation of the Corporation's initial
public offering of its Common Stock, and (ii) the one year anniversary
of the date Shares are first issued.
(b) Terms. The Corporation shall bear all fees and expenses
attendant to registering the Registrable Securities, including the
expenses of one legal counsel selected by the
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Purchaser to represent them in connection with the sale of the
Registrable Securities but not including any and all underwriting
commissions and discounts which will be the responsibility of the
Purchaser participating in the underwriting. The Corporation will
qualify or register the Registrable Securities in such states as are
reasonably requested by the Purchaser. The Corporation shall cause any
registration statement filed pursuant to the demand rights granted
under this Section to remain effective with respect to the Registrable
Securities covered by such registration statement until all such
securities have been sold.
8.2. "Piggy-Back" Registration.
(a) Grant of Right. The Purchaser shall have the right at any
time and from time to time to include the Registrable Securities as
part of any other registration of securities filed by the Corporation
(other than pursuant to Form S-4, Form S-8 or any equivalent forms or
in connection with the Corporation's initial public offering to the
extent that no other selling shareholder is included in the
registration statement). Notwithstanding the foregoing, if, in the
written opinion of the managing underwriter or underwriters of a public
offering by the Corporation of its shares of Common Stock, the
inclusion of the Registrable Securities, when added to the securities
being registered by the Corporation, will exceed the maximum amount of
the Corporation's securities that can be marketed without materially
and adversely affecting the entire offering, then (i) the Corporation
will include in such registration first, only those securities, the
holders of which as of the date hereof have piggy-back registration
rights (as listed on Schedule 8.2), second, the Registrable Securities
allocated (if necessary) among the holders thereof on a pro rata basis
based on the number of Registrable Securities requested to be included
in such registration statement, and third, capital stock of the
Corporation to be sold for the account of others with applicable
piggy-back registration rights, with such priorities among them as the
Corporation shall decide. If, subsequent to the exercise of all of the
demand registration rights referred to in Section 8.1, any Registrable
Securities requested to be included in an offering ("Other Offering")
pursuant to the "piggy-back" rights described in this Section 8.2. are
not so included because of the operation of the first proviso of the
preceding sentence, then the holders of the Registrable Securities
shall have the right to require the Corporation, at its expense, to
prepare and file a registration statement under the Securities Act
covering such Registrable Securities.
(b) Terms. The Corporation shall bear all fees and expenses
attendant to registering the Registrable Securities, including the
reasonable expenses of any legal counsel selected by the Holders to
represent them in connection with the sale of the Registrable
Securities, but the Purchaser participating in the registration shall
pay any and all discounts and underwriting commissions. In the event of
such a proposed registration, the Corporation shall furnish the owners
of the Registrable Securities with not less than 30 days written notice
prior to the proposed date of filing of such registration statement.
Such notice shall continue to be given for each registration statement
filed by the Corporation until such time as all of the Registrable
Securities have been sold by the Purchaser. The owners of the
Registrable Securities shall exercise the "piggy-back" rights provided
for herein by giving written notice within 15 days of the receipt of
the Corporation's notice of its intention to file a registration
statement. The Corporation shall cause any registration statement filed
pursuant to the "piggyback" rights granted under this Section to remain
effective with respect to the Registrable Securities covered
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by such registration statement until all of the such securities have
been sold by the Purchaser. Notwithstanding the foregoing, in no event
shall the Corporation be obligated to maintain the effectiveness of any
registration statement filed pursuant to Sections 8.1 and 8.2 for a
period in excess of three years from the initial date of issuance of
the Shares.
8.3. General Terms.
(a) Indemnification. The Corporation shall indemnify the
owner(s) of the Registrable Securities to be sold pursuant to any
registration statement hereunder and each person, if any, who controls
such person within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, against all loss, claim, damage, expense or
liability (including all reasonable attorneys' fees and other expenses
reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the
Securities Act, the Exchange Act or otherwise, arising from such
registration statement, except to the extent that any loss, claim,
damage, expense or liability arises out of or relates to written
information furnished by or on behalf of the Purchaser, for inclusion
in such registration statement ("Purchaser Information"). The owner(s)
of the Registrable Securities to be sold pursuant to such registration
statement, and their successors and assigns, shall severally, and not
jointly, indemnify the Corporation against all loss, claim, damage,
expense or liability (including all reasonable attorneys' fees and
other expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which it may become subject
under the Securities Act, the Exchange Act or otherwise, arising from
Purchaser Information furnished by or on behalf of such owner(s).
(b) Exercise of Shares. Nothing contained in this Section 8
shall be construed as requiring the Purchaser to convert the Shares
prior to or after the filing of any registration statement or the
effectiveness thereof.
(c) Documents Delivered to Holders. The Corporation shall
deliver promptly to the Purchaser participating in any of the foregoing
offerings who requests it, all correspondence between the Securities
and Exchange Commission and the Corporation, its counsel or auditors
and all memoranda relating to discussions with the Securities and
Exchange Commission or its staff with respect to the registration
statement. The Corporation also shall furnish to the Purchaser
participating in any of the foregoing offerings that are underwritten,
and to each underwriter of any such offering, a signed counterpart,
addressed to the Purchaser and underwriter, of (i) an opinion of
counsel to the Corporation, dated the effective date of such
registration statement (and an opinion dated the date of the closing
under the underwriting agreement relating to such offering), and (ii) a
"cold comfort" letter dated the effective date of such registration
statement (and a letter dated the date of the closing under the
underwriting agreement) signed by the independent public accountants
who have issued a report on the Corporation's financial statements
included in such registration statement, in each case covering
substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of
such accountants' letter, with respect to events subsequent to the date
of such financial statements, as are customarily covered in opinions of
issuer's counsel and in accountants' letters delivered to underwriters
in underwritten public offerings of securities. In the event that the
Purchaser requests information pursuant to this Section (c), then,
prior to
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furnishing such information, the Corporation shall have the right to
require the Purchaser to enter into a confidentiality agreement with
the Corporation with respect to any information to be provided to the
Purchaser that the Corporation reasonably considers to be proprietary,
non-public or otherwise confidential.
8.4. Underwriting Agreement.
In the event that the demand registration filed by the Purchaser
pursuant to Section 8.1(a) is for an underwritten offering, then the Purchaser
shall have the right to select the underwriters of the offering, which
underwriters shall be reasonably acceptable to the Corporation. The Corporation
shall enter into an underwriting agreement with the managing underwriter
selected by the Purchaser whose Registrable Securities are being registered
pursuant to Section 8.1. Such agreement shall be reasonably satisfactory in form
and substance to the Corporation, each such person and such managing
underwriter, and shall contain such representations, warranties and covenants by
the Corporation and such other terms as are customarily contained in agreements
of that type used by the underwriter. Such persons shall be parties to any
underwriting agreement relating to an underwritten sale of their Registrable
Securities and may, at their option, require that any or all of the
representations, warranties and covenants of the Corporation to or for the
benefit of such underwriter shall also be made to and for the benefit of such
persons. Such persons shall not be required to make any representations or
warranties to or agreements with the Corporation or the underwriter except as
they may relate to such persons, their shares and their intended methods of
distribution.
8.5. Road Show.
In connection with any underwritten public offering concerning the
Purchaser, the Corporation will participate in road-shows regarding such
offering.
8.6. Reserved.
Section 9. Conditions to Each Closing.
9.1. Conditions of Each Party.
The respective obligations of each of the Corporation and the Purchaser
to consummate the transactions contemplated hereby are subject to the
fulfillment, at or prior to the Closing, of each of the following conditions,
any or all of which may be waived in whole or in part to the extent permitted by
applicable law;
(a) All filings required to be made, and all consents,
approvals, permits and authorizations required to be obtained, prior to
the Closing, from any Governmental Authorities in connection with the
execution and delivery by the parties of the Documents and the
consummation of the transactions contemplated thereby shall have been
made or obtained; and
(b) No court or governmental or regulatory authority of
competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, judgment, decree,
injunction or other order (whether temporary, preliminary or permanent)
or
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taken any action that prohibits the consummation of the transactions
contemplated by this Agreement; provided, however, that any party
invoking this condition shall use its reasonable best efforts to have
any such judgment, decree, injunction or order vacated.
9.2. Conditions to Obligations of the Purchaser.
The obligations to be performed by the Purchaser under this Agreement
at or after the Closing are subject to the satisfaction at or prior to each of
the Closing of the following conditions, unless waived by the Purchaser:
(a) Material Adverse Effect. There shall not have been any
event which has or is reasonably likely to have a Material Adverse
Effect.
(b) Accuracy of Representations and Warranties. Each of the
representations and warranties of the Corporation contained in this
Agreement and in any certificate or other writing delivered by the
Corporation pursuant hereto qualified as to materiality shall be true
and correct, and those not so qualified shall be true and correct in
all material respects, in each case at and as of the Closing Date as if
made at and as of such respective times (except to the extent it
relates to a particular date).
(c) Performance of Covenants. The Corporation shall have
performed in all material respects all covenants and agreements
required to be performed by it under this Agreement and each other
Document.
(d) Class F Certificate of Designation. Prior to the Closing,
the Class F Certificate of Designation shall have been filed with and
accepted by the Secretary of State of the State of Minnesota and shall
have become effective.
(e) Stock Certificates. At the Closing stock certificates
representing the Class F Preferred Stock sold at such closing shall
have been delivered by the Corporation to the Purchaser.
(f) Use of Proceeds. At the Closing the Purchaser shall have
received a certificate of the Corporation describing in reasonable
detail the proposed use of proceeds received by the Corporation upon
the sale of the Shares.
(g) Legal Opinion. SGI shall have received an opinion dated as
of the Closing Date of Willkie Farr & Gallagher, in a form and
substance attached hereto as Exhibit C.
(h) Officer's Certificate. At the Closing the Purchaser shall
receive a certificate from an officer of the Corporation to the effect
that all conditions set forth in this Section 9.2 shall have been
satisfied.
(i) Required Consents and Approvals. Prior to the Closing
Date, the Corporation shall have received all consents and approvals of
third parties, if any, required to consummate the transactions
contemplated by this Agreement so that such consummation shall not
conflict with or cause a breach of or default under any agreement or
other obligation binding
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<PAGE>
upon the Corporation, including without limitation all such consents
and approvals required with respect to its obligations for borrowed
money and under its Articles of Incorporation and Certificates of
Designation.
9.3. Conditions to Obligations of the Corporation.
The obligations to be performed by the Corporation under this Agreement
at or after the Closing are subject to the satisfaction at or prior to the
Closing and the Option Closing, if any, of the following conditions, unless
waived by the Corporation:
(a) Accuracy of Representations and Warranties. Each of the
representations and warranties of the Purchaser contained in this
Agreement and in any certificate or other writing delivered by the
Purchaser pursuant hereto qualified as to materiality shall be true and
correct, and those not so qualified shall be true and correct in all
material respects, in each case at and as of the Closing Date as if
made at and as of such respective times (except to the extent it
relates to a particular date);
(b) Performance of Covenants. The Purchaser shall have
performed in all material respects all covenants and agreements
required to be performed by it under this Agreement and each other
Document to which it is a party.
Section 10. Termination.
This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Closing:
(a) by joint written agreement of the Corporation and the
Purchaser;
(b) by the Corporation, if any Purchaser has breached any
representation, warranty, covenant or agreement contained in this
Agreement and has not cured such breach within ten (10) business days
after written notice to SGI (provided that the Corporation is not then
in material breach of the terms of this Agreement; and provided further
that no cure period shall be required for a breach which by its nature
cannot be cured);
(c) by the Purchaser, if the Corporation has breached any
representation, warranty, covenant or agreement contained in this
Agreement and has not cured such breach within ten (10) business days
after written notice to the Corporation (provided that the Purchaser is
not then in material breach of the terms of this Agreement; and
provided further that no cure period shall be required for a breach
which by its nature cannot be cured);
(d) by any party, if the Closing has not occurred on or before
March 31, 2000; provided, however, that a party may not terminate this
Agreement pursuant to this Section if the failure of such party to
fulfill any of its obligations hereunder shall have been the principal
reason that the Closing shall not have occurred on or before said date;
(e) by any party if there shall be a change of law or
regulation that makes consummation of the transactions contemplated
hereby illegal or otherwise prohibited or if
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<PAGE>
consummation of the transactions contemplated hereby would violate any
nonappealable, final order, decree or judgment of any court or
governmental body having competent jurisdiction; or
The party desiring to terminate this Agreement pursuant to the above-referenced
clauses shall give notice of such termination to the other parties hereto.
10.1. Effect of Termination.
(a) If this Agreement is terminated, such termination shall be
without liability of either party (or any shareholder, director,
officer, employee, agent, consultant or representative of such party)
to the other parties to this Agreement; provided that if such
termination shall result from the (i) willful failure by any party to
fulfill a condition to the performance of the obligations of the other
parties, (ii) failure by any party to perform a covenant of this
Agreement, (iii) breach by any party hereto of any representation,
warranty, covenant or agreement contained herein, or (iv) a Closing
Failure by any party, such party shall be fully liable for any and all
damages incurred or suffered by the other parties as a result of such
failure or breach.
Section 11. Miscellaneous
11.1. Survival.
The representations, warranties, covenants and other agreements
contained herein, shall survive the Closing and the consummation of the
transactions contemplated hereby. No right of the Purchaser for indemnification
hereunder shall be affected by any examination made for or on behalf of the
Purchaser, the knowledge of any of the Purchaser's officers, directors,
shareholders, employees or agents, or the acceptance by the Purchaser of any
certificate or opinion.
11.2. Indemnification.
(a) The Corporation shall indemnify, defend and hold the
Purchaser and its officers, directors, employees, shareholders,
partners, members, affiliates and agents harmless against all
Liability, loss or damage, together with all reasonable costs and
expenses related thereto (including reasonable legal fees and
expenses), relating to or arising from the untruth, inaccuracy or
breach of any of the representations, warranties or agreements of the
Corporation contained in this Agreement.
(b) The Purchaser shall indemnify, defend and hold the
Corporation and its respective officers, directors, employees,
shareholders, partners, members, affiliates and agents harmless against
all Liability, loss or damage, together with all reasonable costs and
expenses related thereto (including reasonable legal fees and
expenses), relating to or arising from the untruth, inaccuracy or
breach of any of the representations, warranties or agreements of the
Purchaser contained in this Agreement.
(c) Promptly after receipt by any party entitled to
indemnification under either Section 11.2(a) or Section 11.2(b) (an
"indemnified party") of notice of the commencement of any action
involving a claim which may give rise to a claim for indemnity under
the preceding paragraphs of this Section, the indemnified party will
give written notice to the party against
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whom indemnification is sought (the "indemnifying party") of the
commencement of such action. In case any such action is brought against
an indemnified party, the indemnifying party will be entitled to
participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified to the extent that it may
wish, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying
party shall not be responsible for any legal or other expenses
subsequently incurred by the indemnified party in connection with the
defense thereof; provided, however, that if any indemnified party shall
have reasonably concluded that there may be one or more legal or
equitable defenses available to it which are additional to or conflict
with those available to the indemnifying party, or that such claim or
litigation involves or could have an effect upon matters beyond the
scope of the indemnity agreement provided in this Section, the
indemnifying party shall not have the right to assume the defense of
such action on behalf of the indemnified party and the indemnifying
party shall reimburse the indemnified party and any person controlling
the indemnified party for that portion of the fees and expenses of any
counsel retained by the indemnified party which is reasonably related
to the matters covered by the indemnity agreement provided in this
Section.
(d) If the indemnification provided for in this Section is
held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, claim, damage, liability or
action referred to herein, then the indemnifying party, in lieu of
indemnifying the indemnified party hereunder, shall contribute to the
amounts paid or payable by the indemnified party as a result of such
loss, claim, damage, liability or action 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, claim,
damage or liability as well as any other relevant equitable
considerations. The amount paid or payable to an indemnified party as a
result of the losses, claims, damages, liabilities or expenses referred
to above shall be deemed to include any legal or other expenses
reasonably incurred in connection with investigating or defending the
same.
(e) The indemnification provided for under this Agreement will
remain in full force and effect regardless of any investigation made by
or on behalf of the indemnified party or any officer, director or
controlling person of the indemnified party and will survive the
transfer of securities.
11.3. Reserved.
11.4. Assignment; Parties in Interest.
This Agreement shall bind and inure to the benefit of the parties and
each of their respective successors and permitted assigns (it being understood
that this Agreement may be assigned by the Purchaser without the consent of any
person solely in connection with the transfer of Shares).
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<PAGE>
11.5. Entire Agreement.
This Agreement (including all Schedules and Exhibits hereby) together
with the other Documents contain the entire understanding of the parties with
respect to the subject matter hereof and supersedes all prior agreements and
understandings among the parties with respect to such subject matter.
11.6. Notices.
All notices, claims, certificates, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered or if sent by nationally-recognized overnight
courier, by telecopy, or by registered or certified mail, return receipt
requested and postage prepaid, addressed as follows:
(a) if to the Corporation:
WAM!NET INC.
655 Lone Oak Drive, Building A
Eagan, Minnesota 55121
Attention: Edward J. Driscoll, III, President
Telephone: (651) 256-2165
Facsimile: (651) 994-9591
with a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019-6099
Attention: Daniel D. Rubino, Esq.
Telephone: (212) 728-8000
Facsimile: (212) 728-8111
(b) if to the Purchaser:
Silicon Graphics, Inc.
2011 N. Shoreline Boulevard
Mountain View, CA 94043-1389
New York, NY 10017
Attention:
Telephone: (650) _________
Telecopier: (650) 932-0908
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<PAGE>
In any case, with a copy to:
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, MA 02116
Attention: William B. Asher, Jr.
Telephone: (617) 248-7518
Telecopier: (617) 248-7100
or to such other address as the party to whom notice is to be given may have
furnished to the other parties in writing in accordance herewith. Any such
notice or communication shall be deemed to have been received (a) in the case of
personal delivery, on the date of such delivery, (b) in the case of
nationally-recognized overnight courier, on the next business day after the date
when sent, (c) in the case of telecopy transmission, when received, and (d) in
the case of mailing, on the date of receipt.
11.7. Amendments.
The terms and provisions of this Agreement may only be modified or
amended pursuant to an instrument signed by all of the parties hereto.
11.8. Counterparts.
This Agreement may be executed in any number of counterparts, and each
such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
11.9. Headings.
The section and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.10. Governing Law.
Except as to matters governed by the MBCA, this Agreement shall be
governed by and construed in accordance with the domestic laws of the State of
New York, without giving effect to any law or rule that would cause the laws of
any jurisdiction other than the State of New York to be applied.
11.11. Jurisdiction.
The parties hereto agree that any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in connection
with, this Agreement or the transactions contemplated hereby may only be brought
in the United States District Court for the Southern District of New York or any
New York State court sitting in New York City, and each of the parties hereby
consents to the exclusive jurisdiction of such courts (and of the appropriate
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<PAGE>
appellate courts therefrom) in any such suit, action or proceeding and
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such suit, action
or proceeding in any such court or that any such suit, action or proceeding
which is brought in any such court has been brought in an inconvenient forum.
Process in any such suit, action or proceeding may be served on any party
anywhere in the world, whether within or without the jurisdiction of any such
court. Without limiting the foregoing, each party agrees that service of process
on such party as provided in the Section entitled "Notices" shall be deemed
effective service of process on such party.
11.12. No Waiver.
No delay by or on behalf of an Purchaser in exercising any rights
conferred hereunder, and no course of dealing between an Purchaser and the
Corporation shall operate as a waiver of any right granted hereunder, unless
expressly waived in writing by the party whose waiver is alleged.
11.13. Binding Effect
All covenants, representations, warranties and other stipulations in
this Agreement and other documents referred to herein, given by or on behalf of
any of the parties hereto, shall bind and inure to the benefit of the respective
successors, heirs, personal representatives and assigns of the parties hereto.
11.14. Cumulative Powers.
No remedy herein conferred upon the Purchaser or any holder of the
Class F Preferred Stock is intended to be exclusive of any other remedy, and
each such remedy shall be cumulative and in addition to every other remedy given
hereunder or now or hereafter existing at law, or in equity or by statue or
otherwise.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Stock
Purchase Agreement on the date first above written.
WAM!NET INC.
By: /s/ Gary L. Hokkanen
---------------------------------------
Name:
Title:
SILICON GRAPHICS, INC.
By: /s/ Sandra Escher
---------------------------------------
Name:
Title:
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Index
-----
Exhibit A Statements of Rights and Preferences of Class
F Preferred Stock
Exhibit B Willkie Farr & Gallagher Legal Opinion
Schedule I Certain Management
Schedule 4.1(a) Articles of Incorporation and Bylaws
Schedule 4.1(b) List of Subsidiaries
Schedule 4.5(a) Designation and Classes of Capital Stock
Schedule 4.5(a)(vi) Right of First Refusal Agreements
Schedule 4.5(b) Options, Warrants and Convertible Securities
Schedule 4.5(c)(i) Purchase Agreements
Schedule 4.5(c)(ii) Registration Rights Agreements
Schedule 4.5(e) Record Holders
Schedule 4.7 Financial Statements
Schedule 4.10(a) Material Contracts
Schedule 4.12 Real Property
Schedule 4.13 Intellectual Property
Schedule 4.14 License to Provide Communications Services
Schedule 4.15 Litigation
Schedule 4.18 Employee Pension Benefit Plans
Schedule 4.20 Related Transactions
Schedule 8.2 Piggy-back Registration Rights
<PAGE>
EXHIBIT 4.37
================================================================================
PREFERRED STOCK PURCHASE AGREEMENT
BY AND BETWEEN
WAM!NET INC.
AND
BUYERS LISTED ON SCHEDULE 1.1
------------------------------
Dated as of February 18, 2000
------------------------------
================================================================================
<PAGE>
PREFERRED STOCK PURCHASE AGREEMENT
Preferred Stock Purchase Agreement, dated as of February 17, 2000 (this
"Agreement"), by and between WAM!NET INC., a Minnesota corporation (the
"Company"), and each several purchaser identified on Schedule 1 (individually, a
"Buyer" and collectively "Buyers").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company has designated an additional series of its
preferred stock, consisting of 10,000 shares, par value $0.01 per share,
designated as its "Class G Convertible Preferred Stock" (the "Preferred
Shares"), and has caused a Certificate of Designation (the "Certificate of
Designation") to be filed with the Minnesota Secretary of State designating the
terms, limitations and relative rights and preferences of the Preferred Shares.
WHEREAS, the Certificate of Designation sets forth terms, limitations
and relative rights and preferences of the Preferred Shares (the "Statement of
Rights and Preferences") a copy of which is attached hereto as Exhibit I.
WHEREAS, the Preferred Shares are convertible into shares (the
"Conversion Shares") of the Company's common stock, par value $0.01 per share
(the "Common Stock") in accordance with the Statement of Rights and Preferences.
WHEREAS, Buyers desires to severally subscribe for and severally
purchase the Preferred Shares from the Company in the amounts set forth on
Schedule 1.1, and the Company desires to issue and sell the Preferred Shares to
Buyers, all in accordance with the terms and subject to conditions of this
Agreement.
NOW THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements contained herein, the
parties hereby agree as follows:
ARTICLE I.
PURCHASE AND SALE OF PREFERRED STOCK
Section 1.1. Purchase and Sale of the Preferred Stock. On the terms and
subject to the conditions set forth in this Agreement, on the Closing Date (as
defined herein), each Buyer shall severally subscribe for and purchase from the
Company, and the Company shall severally issue and sell to each Buyer that
number of the Preferred Shares set forth on Schedule 1.1 for the aggregate
purchase price set forth on Schedule 1.1 payable in cash (the "Purchase Price").
Each Buyer shall execute a separate signature page to this Agreement. A Buyer
shall not be obligated for the Purchase Price of the Preferred Shares beyond the
amount of the Buyer's several subscription.
Section 1.2. Duration, Rights and Preferences of the Preferred Stock.
The Preferred Shares shall have and enjoy the rights and preferences as are set
forth in the Statement of Rights and Preferences.
<PAGE>
Section 1.3. Closing. (a) Unless this Agreement shall have been
terminated and the transactions herein contemplated shall have been abandoned
pursuant to Section 5 hereof, the closing of the purchase and sale of the
Preferred Shares (the "Closing") shall be held at 10:00 a.m. (Central Standard
Time) on the third business day following the satisfaction or waiver of the
conditions set forth herein, at the offices of the Company, 655 Lone Oak Drive,
Eagan, Minnesota (or at such other time, date and place as each Buyer and the
Company may mutually agree). The date on which the Closing actually occurs for a
Buyer is hereinafter referred to as the "Closing Date."
(b) At the Closing, the Company shall deliver to each Buyer
stock certificates registered in the name of such Buyer representing
the Preferred Shares being purchased by such Buyer, against payment
and delivery by such Buyer to the Company of the Purchase Price by
wire transfer of immediately available funds to such bank account or
bank accounts designated by the Company.
(c) Following all Closing Dates, the Company shall furnish to
each Buyer a final and complete Schedule 1.1(the "Definitive Schedule
1.1") showing the name and number of shares purchased by each Buyer.
The Definitive Schedule 1.1 shall be made part of this Agreement.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 2.1. The Company hereby represents, warrants and covenants to
Buyers that, as of the date hereof and as of the Closing Date:
(a) Corporate Organization and Power; Qualification. The
Company (i) is duly organized, validly existing and in good standing as
a corporation under the laws of the state of Minnesota, (ii) has all
corporate power and authority to own its properties and to carry on its
businesses as now being conducted and (iii) is duly qualified and in
good standing as a foreign corporation, and is authorized to do
business, in all jurisdictions in which the character of its properties
or the nature of its businesses requires such qualification or
authorization, except for qualifications and authorizations the lack of
which, individually or in the aggregate, would not reasonably be
expected to result in a material adverse effect on the business,
financial condition, results of operations, assets or liabilities of
the Company and its subsidiaries taken as a whole (a "Material Adverse
Effect").
(b) Subsidiaries. Set forth on Schedule 2.1(b) hereto is a
complete list of all of the subsidiaries of the Company. Except as set
forth on Schedule 2.1(b) hereto, the Company does not own, directly or
indirectly, any capital stock or other equity securities of any
corporation, nor does the Company have any direct or indirect ownership
interest, including interests in partnerships and joint ventures, in
any other entity or business. Each of the subsidiaries has been duly
incorporated, is validly existing and in good standing under the laws
of its respective jurisdiction of incorporation and is duly qualified
and in good standing as a foreign corporation, and is authorized to do
business, in all jurisdictions in which the character of
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<PAGE>
its properties or the nature of its businesses requires such
qualification or authorization, except for qualifications and
authorizations the lack of which, individually or in the aggregate,
would not reasonably be expected to result in a Material Adverse
Effect. Each of the subsidiaries has the requisite power and authority
to own and hold its properties and to carry on its business as now
being conducted. Except as disclosed in the registration statements,
reports and proxy statements filed by the Company with the Securities
and Exchange Commission (the "SEC Reports"), disclosed in the Financial
Statements (as defined herein) or set forth on Schedule 2.1(b) hereto:
(i) all of the outstanding shares (other than director's qualifying
shares, if any) of capital stock of each of the subsidiaries are owned
beneficially and of record by the Company, one of its subsidiaries or
any combination thereof, in each case free and clear of any liens,
charges, restrictions, claims or encumbrances created or suffered by
the Company or any of its subsidiaries, other than restrictions on
transfer imposed by the Securities Act of 1933, as amended (the
"Securities Act"), or any other provision of applicable law; and (ii)
there are no outstanding subscriptions, warrants, options, convertible
securities or other rights (contingent or other) pursuant to which any
of the subsidiaries is or may become obligated to issue any shares of
its capital stock to any person other than the Company or a subsidiary.
(c) Power and Authority; Authorization; Enforceability. The
Company has all requisite corporate power and authority necessary to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly
and validly authorized by all necessary corporate action on the part of
the Company and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly executed
and delivered by the Company and constitutes the valid and binding
obligation of the Company, enforceable against it in accordance with
its terms, except as enforceability against the Company may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws now or hereafter in effect relating to the rights of
creditors generally and other general principles of equity (regardless
of whether enforcement is considered in a proceeding in equity or at
law) and except as any rights to indemnity and contribution
contemplated by Section 6.2 may be limited by applicable federal and
state securities laws and public policy considerations.
(d) No Violations; Consents and Approvals. The execution and
delivery by the Company of this Agreement, the performance by the
Company of its obligations hereunder, and the consummation by the
Company of the transactions contemplated hereby will not (i) violate,
conflict with, result in a breach of, constitute a default under, or
result in or require the creation of any lien upon any assets of the
Company under its Articles of Incorporation, as amended (the
"Charter"), By-laws or any material contract to which the Company is a
party or by which the Company or any of its properties may be bound or
(ii) require any consent or approval other than such consents and
approvals to be obtained before the Closing and those that have been
obtained which are final and not subject to review on appeal or to
collateral attack and are in full force and effect, except for such
violations, conflicts, breaches, defaults or liens which, or consents
or approvals which, if not obtained, would not reasonably be expected
to, individually or in the aggregate, result in a Material Adverse
Effect.
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<PAGE>
(e) Litigation; Compliance with Laws. Except as disclosed in
the SEC Reports, disclosed in the Financial Statements or set forth on
Schedule 2.1(e), there are no (i) actions, suits, claims, proceedings
or investigations instituted and pending or, to the knowledge of the
Company, threatened, against or affecting the Company or any of its
subsidiaries, at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, (ii) arbitration
proceedings relating to the Company instituted and pending under
collective bargaining agreements or otherwise or (iii) governmental
inquiries instituted and pending or, to the knowledge of the Company,
threatened, against or affecting the Company, any of which would
reasonably be expected to result in a Material Adverse Effect. Except
for any defaults which would not reasonably be expected to result in a
Material Adverse Effect, neither the Company nor any of its
subsidiaries is in default with respect to any order, writ, injunction
or decree known to or served upon the Company of any court or of any
federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign. Except
where the failure to do so would not reasonably be expected to result
in a Material Adverse Effect, neither the Company nor any of its
subsidiaries has failed to comply with any laws, rules, regulations and
orders applicable to its respective business, operations, properties,
assets, products and services, the Company and each of its subsidiaries
has all necessary permits, licenses and other authorizations required
to conduct its business as presently conducted and the Company and each
of its subsidiaries has operated its respective business pursuant to
and in compliance with the terms of all such permits, licenses and
other authorizations.
(f) Taxes. The Company has filed (or obtained extensions of
the time by which it is required to file) all United States federal,
state and local income tax returns and all other material tax returns
required to be filed by it, and has paid all taxes shown due on the
returns so filed as well as the other taxes, assessments and
governmental charges which have become due, except such taxes, if any,
as are being contested in good faith and as to which adequate reserves
have been provided. The Company will continue to make all such filings
in a timely manner and pay all such taxes, assessments and other
governmental charges required of it.
(g) Capitalization. (i) As of the date hereof, the authorized
capital stock of the Company consists of 500,000,000 shares, the
designations and classes of which are set forth on Schedule 2.1(g)
hereto. The Company does not hold any of its shares in treasury.
(ii) As of the date hereof, 9,297,427 shares of
Common Stock, par value $0.01 per share, 115,206 shares of the
Company's 1999 Class A Preferred Stock, par value $10.00 per
share (the "Class A Preferred Stock"), 5,710,425 shares of the
Company's Class B Convertible Preferred Stock, par value $0.01
per share (the "Class B Preferred Stock"), 878,527 shares of
the Company's Class C Convertible Preferred Stock, par value
$0.01 per share (the "Class C Preferred Stock"), 2,196,317
shares of the Company's Class D Convertible Preferred Stock,
par value $0.01 per share (the "Class D Preferred Stock")
[64,900] shares of the Company's Class E Convertible Preferred
Stock, par value $.01 per share (the "Class E Preferred
Stock") and 10,000 shares of the Company's Class F Convertible
Preferred Stock, per value $.01 per share (the "Class F
Preferred Stock") are issued and outstanding and have been
validly issued and are fully paid and nonassessable. The Class
A Preferred Stock, the Class B Preferred Stock,
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the Class C Preferred Stock, the Class D Preferred Stock and
the Class F Preferred Stock are not subject to preemptive
rights. The Class E Preferred stock is subject to preemptive
rights for the balance of the authorized and unissued shares
of Class E Preferred Stock.
(iii) Except as contemplated by this Agreement,
disclosed in the SEC Reports, disclosed in the Financial
Statements or set forth on Schedule 2.1(g) hereto, as of the
date hereof there are no outstanding subscriptions, options,
warrants or other rights of any kind to acquire any additional
shares of capital stock of the Company or other instruments or
securities convertible into or exchangeable for, or which
otherwise confer on the holder thereof any right to acquire,
any such additional shares of capital stock, nor is the
Company committed to issue any such option, warrant, right or
security. Except as provided for in the Charter, disclosed in
the SEC Reports or set forth on Schedule 2.1(g) hereto, the
Company has no obligation (contingent or other) to purchase,
redeem or otherwise acquire any of its equity securities or
any interest therein or to pay any dividend or make any other
distribution in respect thereof.
(iv) All of the outstanding securities of the Company
were issued in compliance with the registration requirements
under applicable federal and state securities laws (or
pursuant to applicable exemptions therefrom).
(v) Except as contemplated by this Agreement,
disclosed in the SEC Reports or disclosed in the Financial
Statements, as of the date hereof, there are no agreements
relating to voting, purchase or sale of capital stock between
the Company and any of its stockholders or affiliates, and to
the best of the Company's knowledge, there are no such
agreements among any of its stockholders.
(vi) The Preferred Shares are duly authorized and,
when issued and paid for pursuant to the terms of this
Agreement, will be validly issued, fully paid and
nonassessable, will have the rights, preferences and
privileges specified in the Statement of Rights and
Preferences. The Conversion Shares are duly authorized and
have been reserved for issuance and, when issued upon
conversion in accordance with the terms of Statement of Rights
and Preferences, will be validly issued, fully paid and
nonassessable, and will be free and clear of all liens,
encumbrances and restrictions (other than those contemplated
hereby , restrictions on transfer imposed by the Securities
Act or any other applicable federal or state securities laws,
and the rules and regulations promulgated thereunder). Neither
the issuance, sale or delivery of the Preferred Shares nor the
contemplated issuance or delivery of the Conversion Shares is
subject to any currently existing preemptive right of
stockholders of the Company, any right of first refusal or
other right in favor of any person, in each case except for
rights that have been waived.
(h) Financial Statements. The Company has delivered to Buyers
copies of its financial statements (including balance sheets, income
statements, changes in stockholders equity, statements of cash flow and
any related notes) for the year ended December 31, 1998, and for the
fiscal quarters ended March 31, June 30 and September 30, 1999 (the
"Financial Statements"). The Financial Statements (i) fairly present,
in all material respects, the financial condition, assets and
liabilities of the Company as of the date thereof and the results of
its operations and changes in its cash flows for the periods covered
thereby, (ii) were prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the
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periods involved, except as may be noted therein, and (iii) were
prepared from the books and records of the Company, which books and
records are complete and correct and fairly reflect all material
transactions of the Company's business.
(i) Absence of Certain Changes. Except as contemplated by this
Agreement, disclosed in the SEC Reports or set forth on Schedule 2.1(i)
hereto, since September 30, 1999, (i) there has been no change in the
assets, liabilities or financial condition of the Company and its
subsidiaries (on a consolidated basis) from that reflected in the
balance sheet of the Company and its subsidiaries as of September 30,
1999, except for changes (A) in the ordinary course of business or (B)
which in the aggregate have not resulted in and would not reasonably be
expected to result in a Material Adverse Effect and (ii) there has not
been any event or change that would reasonably be expected to result in
a Material Adverse Effect, individually or in the aggregate, whether or
not insured against (excluding general economic or industry changes).
(j) No Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated hereby based upon
arrangements made by or on behalf of the Company, except Merrill Lynch
& Co.
(k) Proprietary Information of Third Parties. Except for such
claims that would not reasonably be expected to result in a Material
Adverse Effect, to the knowledge of the Company, no third party has
claimed or has reason to claim that the Company or any of its
subsidiaries has (a) violated or may be violating any of the terms or
conditions of any non-competition or non-disclosure agreement with such
third party, (b) disclosed or may be disclosing or utilized or may be
utilizing any trade secret or proprietary information or documentation
of such third party or (c) interfered or may be interfering in the
employment relationship between such third party and any of its present
or former employees. Neither the Company nor any of its subsidiaries
has utilized and does not propose to utilize any trade secret or any
information or documentation proprietary to any other person in
violation of existing arrangements with such person, and to the
knowledge of the Company, neither the Company nor any of its
subsidiaries has violated any confidential relationship which any such
person may have had with any third party, in connection with the
development, manufacture or sale of any product or the development or
sale of any service of the Company.
(l) Patents, Trademarks, Etc. Set forth on Schedule 2.1(l)
hereto is a list of all domestic and foreign trademarks, trademark
applications, patents, registered copyrights (except copyrighted
software licensed to the Company in its ordinary course of business)
and patent applications owned by, registered in the name of or licensed
to or from the Company and its subsidiaries as of the date hereof.
Except where the failure to do so would not reasonably be expected to
result in a Material Adverse Effect, the Company and its subsidiaries
own or possess, or can acquire on reasonable terms, adequate patents,
patent rights, licenses, inventions, copyrights, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service
marks and trade names (including those necessary for the use and
protection of the names and/or marks "WAM!NET", "WAM!BASE" and
"WAM!PROOF") or other intellectual property (collectively,
"Intellectual Property") necessary to carry on its business as
presently conducted. Except as set
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forth on Schedule 2.1(l) hereto, neither the Company nor any subsidiary
has received any notice of any infringement of or conflict with
asserted rights of others with respect to any Intellectual Property or
of any facts or circumstances which would render any Intellectual
Property invalid or inadequate to protect the interest of the Company
or any of its subsidiaries, and which infringement or conflict (if the
subject of any unfavorable decision, ruling or finding) or invalidity
or inadequacy, individually or in the aggregate, would reasonably be
expected to result in a Material Adverse Effect.
(m) Title to Properties. Except as disclosed in the SEC
Reports, the Company and its subsidiaries have good and valid title to
all real and personal property which they own and which are reflected
on the Financial Statements (except for assets and properties sold,
consumed or otherwise disposed of by them in the ordinary course of
business since December 31, 1998), and such assets and properties are
owned free and clear of all mortgages, pledges, liens, security
interests, claims, restrictions or encumbrances of any kind, except (i)
those securing indebtedness reflected on the Financial Statements or
indebtedness incurred in the ordinary course of business and consistent
with past practice after the date thereof, (ii) mechanics',
materialmens' and other liens which have arisen in the ordinary course
of business or (iii) mortgages, pledges, liens, security interests,
claims, restrictions or encumbrances which, individually or in the
aggregate, would not be reasonably likely to impair, in any material
respect, the continued use of such asset or property.
(n) Agreements. Except as set forth in Schedule 2.1(o) hereto
or disclosed in the Financial Statements, all material agreements,
contracts or instruments required to be filed as exhibits to the SEC
Reports have been so filed. Neither the Company nor any of its
subsidiaries is in breach or default of any agreement, contract,
instrument or other commitment, except for such breaches and defaults
which would not reasonably be expected to result in a Material Adverse
Effect. To the knowledge of Company, no other party to any of such
agreements, contracts, instruments or other commitments is, as of the
date of this Agreement, in breach or default (and no event has occurred
which with notice or the lapse of time or both would constitute a
default or violation) thereunder, except for such breaches and defaults
which would not reasonably be expected to result in a Material Adverse
Effect. The Company is in full compliance with all of the terms and
provisions of its Charter and By-laws, except where the failure to so
comply would not reasonably be expected to result in a Material Adverse
Effect.
(o) Offering of the Preferred Shares. The Company has not,
directly or indirectly, solicited any other offer to buy or offered to
sell, and will not, directly or indirectly, solicit any other offer to
buy or offer to sell, any security which is or would be integrated with
the sale of the Preferred Shares in a manner that would require the
Preferred Shares to be registered under the Securities Act.
(p) Transactions With Affiliates. Except as disclosed in the
SEC Reports or disclosed in the Financial Statements, neither the
Company nor any subsidiary is a party to any transaction of the type
required to be disclosed pursuant to Item 404 of Regulation S-K under
the Securities Act.
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(q) Disclosure. Neither this Agreement (including the
Schedules hereto) nor the SEC Reports (as of the date filed with the
Securities and Exchange Commission) contains an untrue statement of a
material fact or omits to state a material fact necessary in order to
make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading. None of the
statements, documents, certificates or other items prepared by the
Company and supplied to Buyers or their respective counsel in
connection with the transactions contemplated hereby (other than those
relating to (i) projected financial information, (ii) plans and
objectives regarding the Company's future operations, (iii) future
economic performance and (iv) assumptions underlying any of the matters
described in (i) through (iii), each as to which no representation or
warranty is given) contains an untrue statement of a material fact or
omits to state a material fact necessary in order to make the
statements contained therein, in light of the circumstances under which
they were made, not misleading.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF BUYERS
Section 3.1. Each Buyer hereby represents, warrants and covenants to
the Company that:
(a) Corporate Organization and Power; Qualification. Buyer (i)
is duly organized, validly existing and in good standing as a
corporation under the laws of the state of its incorporation or
organization and has all corporate power and authority to own its
properties and to carry on its businesses as now being conducted, or
(ii) Buyer is an individual with legal capacity to enter into this
Agreement.
(b) Power and Authority; Authorization; Enforceability. Buyer
has all requisite corporate or other power and authority necessary to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly
and validly authorized by all necessary corporate action or other
action on the part of Buyer and no other corporate proceedings or other
action on the part of Buyer are necessary to authorize this Agreement
and to consummate the transactions contemplated hereby. This Agreement
has been duly executed and delivered by Buyer and constitutes the valid
and binding obligation of Buyer, enforceable against it in accordance
with its terms, except as enforceability against Buyer may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws now or hereafter in effect relating to the rights of
creditors generally and other general principles of equity (regardless
of whether enforcement is considered in a proceeding in equity or at
law) and except as any rights to indemnity and contribution
contemplated by Section 6.2 may be limited by applicable federal and
state securities laws and public policy considerations.
(c) Consents and Approvals. The execution and delivery by
Buyer of this Agreement , the performance by Buyer of its obligations
hereunder, and the consummation by Buyer of the transactions
contemplated hereby will not require any consent or approval other than
such consents and approvals to be made and obtained before the Closing
and those that have been obtained which are final and not subject to
review on appeal or to collateral attack and are
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in full force and effect, except for such consents or approvals which,
if not obtained would not reasonably be expected to, individually or in
the aggregate, result in a material adverse effect on the business,
financial condition, results of operations, assets or liabilities of
Buyer.
(d) Due Diligence. Buyer has sufficient knowledge and
experience in investing in companies similar to the Company in terms of
the Company's stage of development and is capable of evaluating the
merits and risks of its investment in the Company as contemplated by
this Agreement and is able to bear the economic risk of such investment
for an indefinite period of time. Buyer has been given access to full
and complete information regarding the Company and has utilized such
access to its satisfaction for the purpose of obtaining information
Buyer desires or deems relevant to its decision to purchase the
Preferred Shares. Buyer has had the opportunity to ask questions of and
receive answers from representatives of the Company concerning the
terms and conditions of this Agreement, to discuss the Company's
business, management and financial affairs with the Company's
management and to obtain any additional information Buyer desires or
deems relevant. Buyer has obtained, to the extent it has deemed
necessary, professional advice with respect to the risks inherent in
the investment in the Preferred Shares and the Company, including,
without limitation, the matters relating to the Company's business and
financial condition set forth in the SEC Reports.
(e) Investment Intent. Buyer is acquiring the Preferred Shares
for its own account for investment and not with a view towards the
resale, transfer or distribution thereof, nor with any present
intention of distributing the Preferred Shares in violation of the
Securities Act or any other applicable federal or state securities
laws, and the rules and regulations promulgated thereunder. Buyer
understands that no public market currently exists for the Preferred
Shares or the Common Stock, and that no such public market may ever
exist. Buyer further understands and agrees that the Preferred Shares
have not been (and the Conversion Shares, upon issuance, will not be)
registered under the Securities Act by reason of their issuance in a
transaction exempt from the registration requirements of the Securities
Act, that the Preferred Shares and the Conversion Shares will bear a
legend (and the Company will make a notation on its transfer books) to
such effect and the Preferred Shares (and, upon issuance, the
Conversion Shares) must be held indefinitely unless subsequently
disposed of pursuant to an effective registration statement under the
Securities Act or in a transaction exempt from, or not subject to, the
registration requirements thereof. Buyer agrees that if it sells any
Conversion Shares pursuant to Rule 144A under the Securities Act, it
will take all necessary steps in order to perfect the exemption from
registration provided thereby, including, without limitation, obtaining
on behalf of the Company information to enable the Company to establish
a reasonable belief that the purchaser is a "qualified institutional
buyer" (within the meaning of Rule 144A) and advising such purchaser
that Rule 144A is being relied upon with respect to such resale. Buyer
was not organized for the specific purpose of acquiring the Preferred
Shares and is an "accredited investor" within the meaning of Rule
501(a) of the Securities Act.
(f) No Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated hereby based upon
arrangements made by or on behalf of Buyer.
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ARTICLE IV.
CONDITIONS
Section 4.1. Conditions of Each Party. All proceedings to be taken by a
party in connection with this Agreement and the transactions contemplated hereby
and all documents incident hereto and thereto shall be reasonably satisfactory
in form and substance to such party and its counsel, and each party and its
counsel shall have received all such counterpart originals or certified or other
copies of such documents as they may reasonably request.
Section 4.2. Conditions of the Company. The obligations of the Company
to consummate the transactions contemplated hereby with each Buyer are subject
to the fulfillment, at or prior to the Closing, of each of the following
conditions by such Buyer, any or all of which may be waived in whole or in part
by the Company to the extent permitted by applicable law:
(a) Buyer shall have performed and complied with, in all
material respects, all of its respective obligations hereunder required
to be performed by it at or prior to the Closing;
(b) Each of the representations and warranties of Buyer
contained in this Agreement and in any certificate or other writing
delivered by Buyer pursuant hereto qualified as to materiality shall be
true and correct, and those not so qualified shall be true and correct,
in all material respects in each case at and as of the Closing Date as
if made at and as of such time (except to the extent it relates to a
particular date);
(c) The Company shall have received a certificate from each
Buyer, signed by an executive officer of such Buyer, to the effect set
forth in clauses (a) and (b) of this Section 4.2;
Section 4.3. Conditions of Buyer. The obligation of each Buyer to
consummate the transactions contemplated by this Agreement is subject to the
fulfillment, at or prior to the Closing, of each of the following conditions,
any or all of which may be waived in whole or in part by such Buyer to the
extent permitted by applicable law:
(a) The Company shall have performed and complied with, in all
material respects, all of its obligations hereunder required to be
performed by it at or prior to the Closing;
(b) Each of the representations and warranties of the Company
contained in this Agreement and in any certificate or other writing
delivered by the Company pursuant hereto qualified as to materiality
shall be true and correct, and those not so qualified shall be true and
correct, in all material respects at and as of the Closing Date as if
made at and as of such time (except to the extent it relates to a
particular date);
(c) Buyers shall have received a certificate from the Company,
signed by an executive officer of the Company, to the effect set forth
in clauses (a) and (b) of this Section 4.3;
(d) The Company shall have delivered copies of the following
documents: (i) (A) The Charter, certified as of a recent date by the
Secretary of State of the State of Minnesota and (B) a certificate of
said Secretary dated as of a recent date as to the due incorporation
and
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good standing of the Company; and (ii) a certificate of the Secretary
or an Assistant Secretary of the Company dated the Closing Date and
certifying: (A) that attached thereto is a true and complete copy of
the By-laws of the Company as in effect on the date of such
certification; (B) that attached thereto is a true and complete copy of
all resolutions adopted by the Board of Directors or the stockholders
of the Company authorizing the execution, delivery and performance of
this Agreement, the issuance, sale and delivery of the Preferred Shares
and the reservation, issuance and delivery of the Conversion Shares,
and that all such resolutions are in full force and effect and are all
the resolutions adopted in connection with the transactions
contemplated by this Agreement; and (C) that the Charter has not been
amended since the date of the last amendment referred to in the
certificate delivered pursuant to Section 4.3(f)(i)(B).
(e) Buyers shall have received from Willkie Farr & Gallagher
an opinion, dated the Closing Date, covering the matters set forth in
Exhibit II hereto, subject to customary qualifications, limitations and
assumptions for opinions given in transactions of the kind contemplated
hereby.
Section 4.4. Materiality of Conditions. Notwithstanding anything
contained herein, no condition involving the performance of obligations by the
Company or the truth and accuracy of representations and warranties made by the
Company as of the Closing Date shall be deemed not fulfilled, and Buyers shall
not be entitled to fail to consummate the transactions contemplated hereby or
terminate this Agreement on such basis, if the respects in which such conditions
have not been performed or such representations and warranties are untrue
(assuming for this purpose that the representations and warranties are not
qualified by materiality), in the aggregate, would not reasonably be expected to
result in a Material Adverse Effect.
ARTICLE V.
TERMINATION
Section 5.1. Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing:
(a) by joint written agreement of the Company and Buyers;
(b) by the Company, if a Buyer has breached any
representation, warranty, covenant or agreement contained in this
Agreement and has not cured such breach within ten (10) business days
after written notice to such Buyer (provided that the Company is not
then in material breach of the terms of this Agreement; and provided
further that no cure period shall be required for a breach which by its
nature cannot be cured) such that the conditions set forth in Section
4.1 or 4.2 hereof, as the case may be, will not be satisfied;
(c) by a Buyer, if the Company has breached any
representation, warranty, covenant or agreement contained in this
Agreement and has not cured such breach within ten (10) business days
after written notice to the Company (provided that such Buyer is not
then in material breach of the terms of this Agreement; and provided
further that no cure period shall be
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required for a breach which by its nature cannot be cured) such that
the conditions set forth in Section 4.1 or 4.3 hereof, as the case may
be, will not be satisfied; or
(d) by any party if the Closing applicable to such party has
not occurred on or before February 24, 2000; provided, however, that a
party may not terminate this Agreement pursuant to this Section 5.1(d)
if the failure of such party to fulfill any of its obligations
hereunder shall have been the reason that the Closing shall not have
occurred on or before said date.
Section 5.2. Effect of Termination. In the event of termination of this
Agreement pursuant to this Article V, this Agreement shall forthwith terminate
and (except in the event of the willful breach of this Agreement by any party)
there shall be no liability on the part of any party; provided, however, that
Sections 2.1(j), 3.1(f), 5.2, 6.2, 7.1, 7.2, 7.4, 7.7 and 7.10 shall survive the
termination of this Agreement.
ARTICLE VI.
OTHER AGREEMENTS
Section 6.1. Registration Rights.
(a) Piggy-back Registration. If, commencing upon the later of
one (1) year after the date hereof and the date that is six months
after an IPO, the Company proposes to claim an exemption under Section
3(b) of the Securities Act for a public offering of any of its
securities or to register under the Securities Act (except pursuant to
a registration statement on Form S-4 or S-8 (or any substitute form
adopted by the Commission) or any other form that does not permit the
inclusion of shares by its security holders) its Common Stock, it will
give written notice to each Buyer of its intention to do so and, upon
the written request of a Buyer given within twenty (20) days after
receipt of any such notice (which request shall specify the number of
Conversion Shares intended to be sold or disposed of by such Buyer and
the nature of any proposed sale or other disposition thereof), the
Company will use its best efforts to cause all Conversion Shares that
such Buyer shall have requested the registration of to be included in
such notification or the registration statement proposed to be filed by
the Company; provided, however, that nothing herein shall prevent the
Company from, at any time, abandoning or delaying any such registration
initiated by it. If any such registration shall be underwritten in
whole or in part, the Company may require that the Conversion Shares
requested for inclusion pursuant to this Section 6.1 be included in the
underwriting on the same terms and conditions as the securities
otherwise being sold through the underwriters. If in the good faith
judgment of the managing underwriter, as expressed in writing delivered
to such Buyer, the inclusion of all of the Conversion Shares of Common
Stock originally covered by a request for registration would reduce the
number of Common Stock to be offered by the Company or interfere with
the successful marketing of the Common Stock offered by the Company,
the number of Conversion Shares otherwise to be included pursuant to
this Section 6.1 in the underwritten public offering may be reduced;
provided, however, that any such required reduction shall be pro rata
among all persons (other than the Company and any other persons
demanding registration pursuant to existing rights who are entitled to
be protected against any such reduction) who are participating in such
offering.
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Conversion Shares which are thus excluded from the underwritten public
offering shall be withheld from the market for a period, not to exceed
90 days, which the managing underwriter reasonably determines is
necessary in order to effect the underwritten public offering. All
expenses of such offering, except the fees of special counsel to
Buyer(s) and brokers' commissions or underwriting discounts payable by
Buyer(s), shall be borne by the Company.
(b) Demand Registration. In addition, on one occasion only,
commencing upon the later of one (1) year after the date hereof and the
date that is nine months after an IPO, upon request to register the
Conversion Shares by the holders of a majority of voting rights
represented by the Class G Preferred Stock and the Conversion Shares,
the Company will promptly use its reasonable best efforts to register
the Conversion Shares under the Securities Act; provided that (i) such
request must be made within five (5) years from the date hereof and
(ii) the Company may delay the filing of any registration statement
requested pursuant to this Section 6.1(b) to a date not more than
ninety (90) days following the date of such request if in the opinion
of the Company's principal investment banker at the time of such
request such a delay is necessary in order not to adversely affect the
Company's financing efforts then underway or if in the opinion of the
Company such a delay is necessary or advisable to avoid disclosure of
material nonpublic information. The costs and expenses directly related
to any registration requested pursuant to this Section 6.1(b),
including, but not limited to, legal fees of the Company's counsel,
audit fees, printing expenses, filing fees of the Commission and the
National Association of Securities Dealers, Inc. and fees and expenses
relating to qualifications under state securities or blue sky laws
incurred by the Company shall be borne entirely by the Company;
provided, however, that the persons for whose account the securities
covered by such registration are sold shall bear the expenses of
brokers' commissions or underwriting discounts applicable to their
shares and fees of their legal counsel. If Buyers are the only persons
whose shares are included in the registration pursuant to this Section
6.1(b), Buyers shall bear on a pro rata basis the expense of inclusion
of any audited financial statements contained in the registration
statement which are not dated as of the Company's fiscal year-end or
are not otherwise prepared by the Company for its own business
purposes. The Company shall keep effective and maintain any
registration statement specified in this Section 6.1(b) for such period
as may be necessary for Buyers to dispose of the Conversion Shares so
registered, and from time to time shall amend or supplement, at Buyers'
expense, the prospectus used in connection therewith to the extent
necessary in order to comply with applicable law; provided that the
Company shall not be obligated to maintain any registration statement
for a period of more than nine (9) months. If, at the time any written
request for registration is received by the Company pursuant to this
Section 6.1(b), the Company had previously determined to proceed with
the preparation and filing of a registration statement under the
Securities Act in connection with the proposed offer and sale of Common
Stock, such written request shall be deemed to have been given pursuant
to Section 6.1(a) rather than this Section 6.1(b), and the rights of
Buyers shall be governed by Section 6.1(a) hereof
(c) Registration Procedures. If and whenever the Company is
required by the provisions of Sections 6.1(a) or 6.1(b) hereof to
effect the registration of Conversion Shares under the Securities Act,
the Company will:
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(i) prepare and file with the Commission a
registration statement with respect to such securities, and
use its reasonable best efforts to cause such registration
statement to become and remain effective for such period as
may be reasonably necessary to effect the sale of such
securities, not to exceed nine (9) months;
(ii) prepare and file with the Commission such
amendments to such registration statement and supplements to
the prospectus contained therein as may be necessary to keep
such registration statement effective for such period as may
be reasonably necessary to effect the sale of such securities,
not to exceed nine (9) months;
(iii) furnish to the security holders participating
in such registration and to the underwriters of the securities
being registered, such reasonable number of copies of the
registration statement, preliminary prospectus, final
prospectus and such other documents as such participating
security holders and underwriters may reasonably request in
order to facilitate the public offering of such securities;
(iv) use its reasonable best efforts to register or
qualify the securities covered by such registration statement
under such state securities or blue sky laws of such
jurisdictions as such participating security holders and
underwriters may reasonably request in writing within 30 days
following the original filing of such registration statement,
except that the Company shall not for any purpose be required
to execute a general consent to service of process or to
qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified;
(v) notify the participating security holders,
promptly after it shall receive notice thereof, of the time
when such registration statement has become effective or a
supplement to any prospectus forming a part of such
registration statement has been filed;
(vi) notify such participating security holders
promptly of any request by the Commission for the amending or
supplementing of such registration statement or prospectus or
for additional information;
(vii) prepare and file with the Commission, promptly
upon the request of any such participating security holders,
any amendments or supplements to such registration statement
or prospectus which, in the opinion of counsel for such
holders (and concurred with by counsel for the Company), is
required under the Securities Act or the rules and regulations
promulgated thereunder in connection with the distribution of
such Conversion Shares by such holder;
(viii) prepare and promptly file with the Commission
and promptly notify such participating security holders of the
filing of such amendment or supplement to such registration
statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus
relating to such securities is required to be delivered under
the Securities Act, any event shall have occurred as the
result of which any such prospectus or any other prospectus as
then in effect would include an untrue statement of a material
fact or omit to
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<PAGE>
state any material fact necessary to make the statements
therein, in the light of the circumstances in which they were
made, not misleading;
(ix) advise such participating security holders,
promptly after it shall receive notice of the issuance of any
stop order by the Commission suspending the effectiveness of
such registration statement or the initiation or threatening
of any proceeding for that purpose, and promptly use its
reasonable best efforts to prevent the issuance of any stop
order or to obtain its withdrawal if such stop order should be
issued; and
(x) furnish on the effective date of the registration
statement and, if such registration includes an underwritten
public offering, at the closing provided for in the
underwriting agreement: (A) opinions, dated such respective
dates, of counsel representing the Company for the purposes of
such registration, addressed to the underwriters, covering
such matters as such persons may reasonably request in
customary form as would be given to underwriters in connection
with underwritten offerings and (B) letters, dated such
respective dates, from the independent certified public
accountants of the Company addressed to the underwriters, in
customary form and concerning matters of the type customarily
covered in "comfort" letters in connection with underwritten
offerings, and such other matters as permitted by the
Statement on Accounting Standards No. 72.
(d) Indemnification. In connection with such registration, the
Company shall indemnify each Buyer, its officers, directors, employees
and agents, and any person who controls such Buyer within the meaning
of Section 15 of the Securities Act, against all losses, claims,
damages and liabilities caused by any untrue statement of a material
fact contained in any registration statement or prospectus, (and as
amended or supplemented, if the Company shall have furnished any
amendments or supplements thereto) or any preliminary prospectus, or
caused by any omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages or
liabilities are caused by any untrue statement or omission contained in
information furnished in writing to the Company by a Buyer expressly
for use therein, and each Buyer agrees that it will indemnify and hold
harmless the Company and each of its officers who signs such
registration statement and each of its directors and each person, if
any, who controls the Company within the meaning of Section 15 of the
Securities Act with respect to losses, claims, damages or liabilities
which are caused by any untrue statement or omission contained in
information furnished in writing to the Company by such Buyer expressly
for use therein.
(e) Contribution. In addition, in connection with any such
registration, the Company and Buyers agree that if the indemnification
to be provided for pursuant to Section 6.1(d) is unavailable to an
indemnified party as provided herein in respect of any losses, claims,
damages, liabilities or expenses referred to therein, then the Company
or a Buyer (as the case may be), in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to reflect
the relative fault of the Company, on the one hand, and Buyers, on the
other hand, in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses, as
well as any other relevant equitable considerations. The relative fault
of the Company on the one hand, and of a Buyer, on
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<PAGE>
the other hand, shall be determined by reference to, among other
things, whether the untrue or alleged untrue statements of a material
fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by a Buyer, and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The
amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to
include, without limitation, any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or
defending any action or claim. The Company and Buyers agree that it
would not be just and equitable if contribution pursuant to this
Section 6.1(e) were determined by a pro rata allocation or by any other
method of allocation that does not take account of the equitable
considerations referred to in this Section 6.1(e). Notwithstanding the
provisions of this Section 6.1(e), a Buyer shall not be required to
contribute any amount in excess of the amount by which the total price
which the Buyer's securities were sold to the public. The parties agree
that in connection with any such registration, no person guilty of
fraudulent misrepresentations (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
(f) Termination. The registration rights provided in this
Section 6.1 shall terminate on the earliest to occur of: (i) the date
that is three (3) years from the date hereof and (ii) the date on which
all of the Conversion Shares then held by Buyer could be sold pursuant
to Rule 144(k) under the Securities Act (or any comparable or successor
provision).
Section 6.2. Confidentiality. (a) Without the consent of the other
party, neither Buyers nor the Company shall make any public comment, statement
or communication with respect to, or otherwise disclose or permit the disclosure
of the terms of this Agreement and the transactions contemplated hereby, and
each party shall cause its authorized officers, directors, partners, employees,
counsel, accountants, agents and other representatives (collectively,
"Representatives") to strictly comply with the foregoing.
(b) Each of the parties hereby covenants and agrees to use
due care to prevent the disclosure of the information and other
material furnished under or in connection with this Agreement to
persons other than its Representatives who have a need to know such
information or to have access to such material in connection with
Buyers' investment in the Company and who have agreed to keep such
information and material confidential. For purposes of this Section
6.2(b), "due care" means at least the same level of care that a person
would use to protect the confidentiality of its own sensitive or
proprietary information, and this obligation shall survive termination
of this Agreement.
(c) Notwithstanding Sections 6.2(a) and (b), either party may
disclose or deliver any information or other material disclosed to or
received by it (i) should such party be advised by its counsel that
such disclosure or delivery is required by law, regulation, legal
process or administrative order, if the disclosing party has first
provided the other party with prompt notice of the request to disclose
or deliver such information or other material a reasonable period of
time in advance of making such disclosure or delivery so as to enable
such other party to seek a protective order or other appropriate remedy
or (ii) in connection with a public or private financing effected by
the Company, to the extent required in any Registration
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<PAGE>
Statement, prospectus or other offering document, or to the extent
necessary to make any statements contained in any of the foregoing not
misleading.
(d) In the event of any termination of this Agreement prior to
the Closing Date, Buyers shall return to the Company all material
previously furnished to it or its Representatives in connection with
this transaction.
Section 6.3. Information Rights. From and after the Closing Date until
the earlier to occur of (i) the issuance of shares of Common Stock to the public
in an underwritten offering pursuant to a registration statement filed under the
Securities Act covering the offer and sale of Common Stock (an "IPO") and (ii)
the date on which a Buyer no longer owns any Preferred Shares, within 45 days
following the end of each of its first three fiscal quarters and within 90 days
following the end of its fourth fiscal quarter, the Company shall furnish Buyer
with a copy of its financial statements, (including balance sheets, income
statements, changes in stockholders equity and statements of cash flow) for each
of such quarters and fiscal year, respectively. In addition, during such period,
the Company will furnish each Buyer with such additional financial and business
information, including monthly or other periodic financial statements as the
Company may prepare from time to time, upon the reasonable request of a Buyer
ARTICLE VII.
MISCELLANEOUS
Section 7.1. Amendments, Waivers and Consents. No provision in this
Agreement may be altered or amended, and compliance with any covenant or
provision set forth herein may not be omitted or waived for a Buyer or for the
Company, except by an instrument in writing duly executed by such Buyer and the
Company. Any waiver or consent may be given subject to satisfaction of
conditions stated therein and any waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
Section 7.2. Notices. All notices required or permitted by this
Agreement shall be in writing, and shall be hand delivered, sent by facsimile or
nationally recognized overnight delivery service, addressed as follows:
(a) If to a Buyer, to the name and address for notice
appearing on the Signature Page to this Agreement for such Buyer
(b) If to the Company:
WAM!NET INC.
655 Lone Oak Drive
Eagan, MN 55121
Attention: Edward J. Driscoll, III, President
Telephone: 651-256-5100
Facsimile: 651-994-9591
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<PAGE>
with a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019-6099
Attention: Daniel D. Rubino, Esq.
Telephone: 212-728-8000
Facsimile: 212-728-8111
or to such other person or address as a party shall specify by notice
in writing to the other party. All such notices and other
communications shall be effective when received.
Section 7.3. Binding Effect; Assignment. This Agreement shall be
binding upon and inure to the benefit of the Company and Buyers. No assignment
of rights or delegation of duties arising under this Agreement may be made by
any party hereto without the prior written consent of the other party.
Section 7.4. Third-Party Beneficiaries. This Agreement is for the sole
benefit of the parties hereto and their permitted assigns and nothing herein
expressed or implied shall give or be construed to give to any person, other
than the parties hereto and such permitted assigns, any legal or equitable
rights hereunder.
Section 7.5. Entire Agreement. This Agreement (including all Schedules
and Exhibits hereto) constitutes the entire agreement between the parties hereto
with respect to the subject matter contained herein and supersedes all other
prior understandings or agreements, both written and oral, between the parties
with respect to the matters contained herein.
Section 7.6. Severability. The provisions of this Agreement are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of a provision
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement; but this Agreement shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of a provision, had never
been contained herein, and such provisions or part reformed so that it would be
valid, legal and enforceable to the maximum extent possible.
Section 7.7. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the law of the State of Minnesota without regard
to its principles of conflicts of laws.
Section 7.8. Headings. Article, Section and sub-Section headings in
this Agreement are included herein for convenience of reference only and shall
not constitute a part of this Agreement for any other purpose.
Section 7.9. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original and all of which
taken together shall
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<PAGE>
constitute one and the same instrument, and any of the parties hereto may
execute this Agreement by signing any such counterpart by original or facsimile
signature.
Section 7.10. Expenses. Each party shall pay the fees and expenses of
its respective counsel, accountants and other experts (including any broker,
finder, advisor or intermediary), and shall pay all other expenses incurred by
it in connection with the negotiation, preparation and execution of this
Agreement and the consummation of the transactions contemplated hereby.
Section 7.11. Exhibits and Schedules. The following Exhibits and
Schedules are attached and made part of this Agreement.
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<PAGE>
EXHIBITS
I. Rights and Preferences of Class G Convertible Preferred Stock
II. Opinion of Willkie Farr & Gallagher
SCHEDULES
1.1 Buyers and Purchase Price
2.1(b) WAM!NET Inc. Subsidiaries
2.1(e) Litigation, Compliance with Laws
2.1(g) Capital Structure as of January 31, 2000
2.1(i) None
2.1(l) Trademarks
2.1(o) - 1 Master Agreement by and between Winstar Wireless, Inc.
2.1(o) - 2 Securities Purchase Agreement dated as of December 31, 1999, among
WAM!NET Inc., Winstar Communications, Inc. and Winstar Credit
Corp.
2.1(o) - 3 Certificate of Designation of Rights and Preferences of Class E
Convertible Preferred Stock of WAM!NET Inc.
2.1(o) - 4 Securities Purchase Agreement dated as of February 3, 2000, among
WAM!NET Inc. and Silicon Graphics, Inc.
2.1(o) - 5 Certificate of Designation of Rights and Preferences of Class F
Convertible Preferred Stock of WAM!NET Inc.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of
the day and year first above written.
WAM!NET INC.
------------------------------------
By:
Its: Assistant Secretary and General Counsel
Buyer
---------------------------------
(printed name)
By:
------------------------------
---------------------------------
(printed name)
Its:
-----------------------------
Address for Notice
------------------------------------------
------------------------------------------
------------------------------------------
Attention:
-----------------------------------
Telephone
-----------------------------------
Facsimile:
-----------------------------------
with a copy to:
------------------------------------------
------------------------------------------
------------------------------------------
Attention:
-----------------------------------
Telephone
-----------------------------------
Facsimile:
-----------------------------------
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<PAGE>
Schedule 1.1
Buyers and Purchase Price
Number of Shares
Buyer Severally Purchased Purchase Price
- ----- ------------------- --------------
Sumitomo Corporation 5,000 $ 5,000,000
NEC Corporation 1,000 $ 1,000,000
Dentsu Tec Inc. 500 $ 500,000
Dainippon Ink & Chemicals, Inc. 500 $ 500,000
KDD Technology Corp. 100 $ 100,000
KDD Corp. 500 $ 500,000
Kyoritsu Printing Co., Ltd. 300 $ 300,000
Creek & River Co., Ltd. 200 $ 200,000
Craig W. Funk 250 $ 250,000
Others* 1,650 $ 1,650,000
----------- -------------
Totals: 10,000 $ 10,000,000
*Estimated Maximum
<PAGE>
EXHIBIT 4.38
[Form of Certificate]
WAM!NET INC.
A Minnesota Corporation
No. __ ______ Shares of Class E
Convertible Preferred Stock
This certifies that ____________________ is the registered holder of Shares
of Class E Convertible Preferred Stock, par value $0.01 per share (see reverse
side), transferable only on the books of the Corporation by the holder hereof in
person or by Attorney upon surrender of this Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers this ___ day of March, 2000.
-----------------------------------------
Gary L. Hokkanen, President
-----------------------------------------
Edward J. Driscoll, Jr., Secretary
<PAGE>
[REVERSE SIDE OF CERTIFICATE]
The Class E Convertible Preferred Stock has the rights and preferences as
set forth in the Certificate of Designation of Class E Preferred Stock as filed
of record with the Minnesota Secretary of State on February 16, 2000, as
amended, a copy of which may be obtained from the Company with no charge.
The securities evidenced hereby are subject to the terms of that certain
Stockholder's Agreement, dated as of March 4, 1999 as amended on March 14, 2000,
by and among the Company, Silicon Graphics, Inc., MCI WorldCom, Inc., Winstar
Communications, Inc., Winstar Credit Corp. and Cerberus Partners, L.P. A copy of
the Stockholders' Agreement has been filed with the Secretary of the Corporation
and is available upon request. The securities evidenced hereby have not been
registered under the Securities Act of 1933, as amended (the "Act") and may not
be resold, transferred or otherwise disposed of other than in a transaction
exempt from, or not subject to, the registration requirements of the Act or
pursuant to an effective registration statement thereunder.
For value received, _____________________________________ does hereby sell,
assign and transfer unto _______________________________________________ Shares
represented by the within Certificate and does hereby irrevocably constitute and
appoint _________________________________ Attorney to transfer the said Shares
on the books of the within named Corporation with full power of substitution in
the premises.
Dated: ______________________
-----------------------------------------
Note: The signature on this assignment must correspond with the name as written
upon the face of the Certificate, in every particular, without alteration or
enlargement or any change whatever.
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<PAGE>
EXHIBIT 4.39
[Form of Certificate]
WAM!NET INC.
A Minnesota Corporation
No. __ ______ Shares of Class F
Convertible Preferred Stock
This certifies that ______________________ is the registered holder of
_________ Shares of Class F Convertible Preferred Stock, par value $0.01 per
share (see reverse side), transferable only on the books of the Corporation by
the holder hereof in person or by Attorney upon surrender of this Certificate
properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers this ___ day of February, 2000.
-----------------------------------------
Gary L. Hokkanen, President
-----------------------------------------
Edward J. Driscoll, Jr., Secretary
<PAGE>
The Class F Convertible Preferred Stock has the rights and preferences as
set forth in the Certificate of Designation of Class F Preferred Stock as filed
of record with the Minnesota Secretary of State on February 3, 2000.
The securities evidenced hereby are subject to the terms of that certain
stockholders agreement, dated as of March 4, 1999 as amended on March 14, 2000;
by and among the Company, Silicon Graphics, Inc., MCI Worldcom, Inc., Winstar
Communications, Inc., Winstar Credit Corp. and Cerberus Partners, L.P. A copy of
the Stockholder's Agreement has been filed with the Secretary of the Corporation
and is available upon request. The securities evidenced hereby have not been
registered under the Securities Act of 1933, as amended (the "Act") and may not
be resold, transferred or otherwise disposed of other than in a transaction
exempt from, or not subject to, the registration requirements of the Act or
pursuant to an effective registration statement thereunder.
For value received, ______________________________ does hereby sell, assign
and transfer unto _____________________________________________________ Shares
represented by the within Certificate and does hereby irrevocably constitute and
appoint ___________________________________ Attorney to transfer the said Shares
on the books of the within named Corporation with full power of substitution in
the premises.
Dated: ______________________
-----------------------------------------
Note: The signature on this assignment must correspond with the name as written
upon the face of the Certificate, in every particular, without alteration or
enlargement or any change whatever.
-2-
<PAGE>
EXHIBIT 4.40
[Form of Certificate]
WAM!NET INC.
A Minnesota Corporation
No. __ _____ Shares of Class G
Convertible Preferred Stock
This certifies that _____________ is the registered holder of Shares of
Class G Convertible Preferred Stock, par value $0.01 per share (see reverse
side), transferable only on the books of the Corporation by the holder hereof in
person or by Attorney upon surrender of this Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers this _____ day of March, 2000.
-----------------------------------------
Gary L. Hokkanen, President
-----------------------------------------
Edward J. Driscoll, Jr., Secretary
<PAGE>
The Class G Convertible Preferred Stock has the rights and preferences as
set forth in the Certificate of Designation of Class G Preferred Stock as filed
of record with the Minnesota Secretary of State on March 6, 2000.
The securities evidenced hereby are subject to the terms of that certain
Stockholders Agreement, dated as of February 18, 2000, by and among the
Corporation and Buyers listed on Schedule 1.1, including certain restrictions on
transfer. A copy of this Agreement has been filed with the Secretary of the
Corporation and is available upon request. The securities evidenced hereby have
not been registered under the Securities Act of 1933, as amended (the "Act") and
may not be resold, transferred or otherwise disposed of other than in a
transaction exempt from, or not subject to, the registration requirements of the
Act or pursuant to an effective registration statement thereunder.
For value received, _____________________________________ does hereby sell,
assign and transfer unto __________________________________________ Shares
represented by the within Certificate and does hereby irrevocably constitute and
appoint ___________________________________ Attorney to transfer the said Shares
on the books of the within named Corporation with full power of substitution in
the premises.
Dated: _____________________
-----------------------------------------
Note: The signature on this assignment must correspond with the name as written
upon the face of the Certificate, in every particular, without alteration or
enlargement or any change whatever.
2.
<PAGE>
EXHIBIT 4.41
EXERCISABLE ON OR BEFORE, AND VOID AFTER
5:00 P.M. MINNEAPOLIS TIME APRIL 30, 2004
Certificate for 200,000 Warrants
WARRANTS TO PURCHASE COMMON STOCK OF
WAM!NET Inc.
INCORPORATED UNDER THE LAWS OF THE STATE OF MINNESOTA
THIS CERTIFIES that MCI WORLDCOM, Inc., ("Holder") or assigns, is the owner
of the number of Warrants set forth above, each of which represents the right to
purchase from WAM!NET Inc., Minnesota corporation (the "Company"), at any time
after April 30, 1999 and on or before 5:00 Minneapolis time, April 30, 2004,
upon compliance with and subject to the conditions set forth herein, one share
(subject to adjustments referred to below) of the Common Stock of the Company,
par value $.01 per share (such shares or other securities or property
purchasable upon exercise of the Warrants being herein called the "Shares").
Upon any exercise of less than all the Warrants evidenced by this Warrant
Certificate, there shall be issued to the Holder a new Warrant Certificate in
respect of the Warrants as to which this Warrant Certificate was not exercised.
This Warrant is subject to the following provisions, terms and conditions:
1. Exercise; Transferability. The rights represented by this Warrant may be
exercised by the Holder hereof, in whole or in part (but not as to a fractional
share of Common Stock), by written notice of exercise delivered to the Company
ten (10) days prior to the intended date of exercise and by the surrender of
this Warrant (properly endorsed if required) at the principal office of the
Company and by paying in full, as provided herein, the purchase price of $.01
per share (the "Exercise Price").
Payment upon exercise of the rights represented by this Warrant may be made
at the option of the Holder (a) in cash or by certified or official bank check
payable to the order of the Company, (b) by surrendering to the Company for
cancellation and retirement any number shares of 1999 Class A Preferred Shares,
<PAGE>
par value $10.00 per share, which shares shall each be valued for purposes
hereof at their par value of $10.00 plus the sum of any then accumulated and
unpaid dividends thereon, (c) by cancellation and discharge of the Company from
all or any portion of any debt in the amount then owed by the Company to the
Holder on a dollar for dollar basis, including principal whether or not then due
and payable together with any interest accrued and unpaid thereon, or (d) by any
combination of any or all of the foregoing.
This Warrant may not be transferred or divided into two or more Warrants of
smaller denominations, nor may any Common Stock issued pursuant to exercise of
this Warrant be transferred unless this Warrant or shares have been registered
under the Securities Act of 1933, as amended ("Securities Act") and applicable
state laws, or unless the Holder of the certificate obtains an opinion of
counsel satisfactory to the Company and its counsel that the proposed transfer
may be effected without registration pursuant to exemptions under the Securities
Act and applicable state laws.
2. Issuance of Shares. The Company agrees that the shares purchased hereby
shall be deemed to be issued to the record Holder hereof as of the close of
business on the date on which this Warrant shall have been surrendered and the
payment made for such shares as aforesaid. Subject to the provisions of the next
succeeding paragraph, certificates for the shares of stock so purchased shall be
delivered to the Holder hereof within a reasonable time, not exceeding ten (10)
days after the rights represented by this Warrant shall have been so exercised,
and, unless this Warrant has expired, a new Warrant representing the number of
shares, if any, with respect to which this Warrant shall not then have been
exercised shall also be delivered to the Holder hereof within such time.
Notwithstanding the foregoing, however, the Company shall not be required
to deliver any certificate for shares of stock upon exercise of this Warrant,
except in accordance with the provisions, and subject to the limitations, of
paragraph 7 hereof.
3. Covenants of Company. The Company covenants and agrees that all shares
which may be issued upon the exercise of the rights represented by this Warrant
will, upon issuance, be duly authorized and issued, fully paid, nonassessable
and free from all taxes, liens and charges with respect to the issue thereof,
and without limiting the generality of the foregoing, the Company covenants and
agrees that it will from time to time take all such action as may be required to
assure that the par value per share of the Common Stock is at all times equal to
or less than the then effective purchase price per share of the Common Stock
issuable pursuant to this Warrant. The Company further covenants and agrees that
during the period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized, and reserved for the
purpose of issue
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<PAGE>
or transfer upon exercise of the subscription rights evidenced by this Warrant,
a sufficient number of shares of its Common Stock to provide for the exercise of
the rights represented by this Warrant.
4. Adjustments. The above provisions are, however, subject to the following
provisions:
(a) No fractional shares of Common Stock are to be issued upon the
exercise of the Warrant, but the Company shall pay a cash adjustment in
respect of any fraction of a share which would otherwise be issuable in an
amount equal to the same fraction of the market price per share of Common
Stock on the date of exercise as determined in good faith by the Company.
(b) If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets
to another corporation shall be effected in such a way that holders of
Common Stock shall be entitled to receive stock, securities or assets with
respect to or in exchange for Common Stock then, as a condition of such
reorganization, reclassification, consolidation, merger or sale, lawful and
adequate provision shall be made whereby the Holder hereof shall hereafter
have the right to purchase and receive upon the basis and upon the terms
and conditions specified in this Warrant and in lieu of the shares of the
Common Stock of the Company immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby, such shares
of stock, securities or assets as may be issued and payable with respect to
or in exchange for a number of outstanding shares of such Common Stock
equal to the number of shares of such stock immediately theretofore
purchasable and receivable upon the exercise of the rights represented
hereby had such reorganization, reclassification, consolidation, merger or
sale not taken place, and in any such case appropriate provisions shall be
made with respect to the rights and interests of the Holder of this Warrant
to the end that the provisions hereof (including without limitation
provisions for adjustments of the Warrant purchase price and of the number
of shares purchasable upon the exercise of this Warrant) shall thereafter
be applicable, as nearly as may be, in relation to any shares of stock,
securities or assets thereafter deliverable upon the exercise hereof. The
Company shall not effect any such consolidation, merger or sale, unless
prior to the consummation thereof the successor corporation (if other than
the Company) resulting from such consolidation, merger, or the corporation
purchasing such assets shall assume by written instrument executed and
mailed to the registered Holder hereof at the last address of such holder
appearing on the books of the Company, the obligation to deliver to such
holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holder may be entitled to purchase.
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<PAGE>
(c) If the Company shall at any time or from time to time (i)
distribute (otherwise than as a dividend in cash or in Common Stock or
securities convertible into or exchangeable for Common Stock) to the
holders of Common Stock any property or other securities, or (ii) declare a
dividend upon the Common Stock (to the extent payable otherwise than out of
earnings or earned surplus, as indicated by the accounting treatment of
such dividend in the books of the Company, and otherwise than in Common
Stock or securities convertible into or exchangeable for Common Stock), the
Company shall reserve and the Holder of this Warrant shall thereafter upon
exercise hereof be entitled to receive, with respect to each share of
Common Stock purchased hereunder, without any change in, or payment in
addition to, the exercise price, the amount of any property or other
securities which would have been distributable to such holder had such
holder been a holder of one share of Common Stock on the record date of
such distribution or dividend (or if no record date was established by the
Company, the date such distribution or dividend was paid).
5. Common Stock. As used herein, the term "Common Stock" means the
Company's presently authorized shares of Common Stock and shall also include any
capital stock of any class of the Company hereafter authorized which shall not
be limited to fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the Company.
6. No Voting Rights. This Warrant shall not entitle the Holder hereof to
any voting rights or other rights as a stockholder of the Company.
7. Notice of Transfer of Warrant or Resale of Shares. The Holder of this
Warrant, by acceptance hereof, agrees to give written notice to the Company
before transferring this Warrant, or transferring any Common Stock issued upon
the exercise hereof, of such holder's intention to do so, describing briefly the
manner of any proposed transfer. Promptly upon receiving such written notice the
Company shall present copies thereof to the Company counsel and if in the
opinion of such counsel the proposed transfer complies with federal and state
securities laws and may be effected without registration or qualification (under
any Federal or State law), the Company, as promptly as practicable, shall notify
such holder of such opinion, whereupon such holder shall be entitled to transfer
this Warrant or to dispose of shares of Common Stock received upon the previous
exercise of this Warrant, provided that an appropriate legend may be endorsed on
this Warrant or the certificates for such shares respecting restrictions upon
transfer thereof necessary or advisable in the opinion of counsel to the Company
to prevent further transfers which would be in violation of Section 5 of the
Securities Act of 1933.
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If in the opinion of Company's counsel referred to in this paragraph 7
hereof, the proposed transfer or disposition of shares described in the written
notice given pursuant to this paragraph 7 may not be effected without
registration or qualification of this Warrant or the shares of Common Stock
issued on the exercise hereof, the Company shall promptly give written notice
thereof to the Holder hereof, and the Holder will limit its activities in
respect to such as, in the opinion of such counsel, are permitted by law.
8. Registration Rights. If the Company, at any time after the later of
three (3) years from the date hereof until two (2) years after the complete
exercise of this Warrant, but in no event later than April 30, 2004, proposes to
claim an exemption under Section 3(b) for a public offering of any of its
securities or to register under the Securities Act of 1933 (except by a Form S-8
or other inappropriate Form for registration) any of its securities, it will
give written notice to all registered holders of Warrants, and all registered
holders of shares of Common Stock acquired upon the exercise of Warrants, of its
intention to do so and, on the written request of any registered holders given
within twenty (20) days after receipt of any such notice (which request shall
specify the Warrants or shares of Common Stock intended to be sold or disposed
of by such registered holder and describe the nature of any proposed sale or
other disposition thereof), the Company will use its best efforts to cause all
such Warrants and/or shares, the registered holders of which shall have
requested the registration or qualification thereof, to be included in such
notification or registration statement proposed to be filed by the Company;
provided, however, that no such inclusion shall be required (i) if the Shares
may then be sold by the holder thereof without limitation under Rule 144(k), or
comparable successor rule of the Securities and Exchange Commission, or (ii) if
the managing underwriter of such offering reasonably determines that including
such Shares would unreasonably interfere with such offering. The Company will
pay all expenses of registration. The Warrant holders shall pay all commissions
or discounts applicable to the sale of the included Shares, together with any
expenses of counsel retained by them in connection with their sale of the
Shares.
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IN WITNESS WHEREOF, WAM!NET, Inc. has caused this Warrant to be signed by
its duly authorized officer and this Warrant to be dated _______ __, 1999.
WAM!NET Inc.
By: /s/ Edward J. Driscoll
-----------------------------
Name: Edward J. Driscoll
Title: Chief Executive Officer
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EXHIBIT 10.31
MASTER AGREEMENT
BY AND BETWEEN
WINSTAR WIRELESS, INC.
AND
WAM!NET INC.
This Master Agreement is entered into as of the 31st day of December,
1999 (the "Effective Date") by and between WINSTAR WIRELESS, INC., a Delaware
corporation, with offices located at 7799 Leesburg Pike, Suite 700 South, Tysons
Corner, VA 22043 ("Winstar"), and WAM!NET INC., a corporation organized under
the laws of Minnesota, with offices located at 655 Lone Oak Drive, Eagan, MN
55121 ("Wam!Net").
EXPLANATORY STATEMENT
---------------------
Wam!Net desires to acquire from Winstar certain network facilities,
connectivity and Capacity. Winstar is willing to provide Wam!Net with such
network facilities, connectivity and Capacity, on the terms and conditions set
forth herein.
1. Definitions
1.1 Certain Definitions.
(a) "Affiliate" shall mean, with respect to any entity, any
other entity Controlling, Controlled by or under common Control with
such entity, whether directly or indirectly through one or more
intermediaries.
(b) "Agreement" means this Master Agreement.
(c) "Business Day" means any day on which Citibank, N.A. is
open for the transaction of banking business.
(d) "Capacity" shall mean the digital transmission capability
of a given portion of the Winstar Network designed to transmit digital
signals at a stated rate. Capacity is designated in industry standard
measurements such as OC-3, DS-3, T-1 etc.
(e) "Confidential Information" means all information, in any
form, furnished or made available directly or indirectly by one Party
(the "Disclosing Party") to the other (the "Receiving Party") that (i)
concerns the operations, affairs or businesses of the Disclosing Party,
the financial affairs of the Disclosing Party, or the relations of
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the Disclosing Party with its customers, employees or service
providers, and (ii) is marked confidential, restricted, proprietary, or
with a similar designation or (iii) is provided during or created for
the Build-out Process. "Confidential Information" excludes any
particular information that the Receiving Party can demonstrate:
(i) at the time of disclosure, was in the public
domain or in the possession of the Receiving Party;
(ii) is published or otherwise becomes part of the
public domain other than by the unauthorized disclosure by the
Receiving Party;
(iii) was received after disclosure from a third
party who had a lawful right to disclose such information to
the Receiving Party without any obligation to restrict its
further use or disclosure; or
(iv) was independently developed by the Receiving
Party without reference to Confidential Information of the
Disclosing Party.
(f) "Control" and its derivatives shall mean legal, beneficial
or equitable ownership, directly or indirectly, of more than fifty
percent (50%) of the outstanding voting capital stock (or other
ownership interest, if not a corporation) of an entity, or actual
managerial or operational control over such entity.
(g) "Days" or "days" shall mean calendar days unless otherwise
specified.
(h) "Deferred Payments" shall have the meaning set forth in
Schedule 1.
(i) "Down Payment" shall mean Twenty Million and 00/100
Dollars ($20,000,000.00).
(j) "DS-3" shall mean a quantity of Capacity comprising a
digital circuit (fiber or spectrum) capable of transporting signals at
a speed of approximately 45 Mbps.
(k) "Effective Date" has the meaning set forth in the preamble
to this Agreement.
(l) "Eligible Location" shall mean a building designated by
Wam!Net at which a Wam!Net customer is located that meets all of the
following criteria: (i) it is within the reliable radio range of a
then-existing Winstar hub; (ii) it has verified (or creatable, with
good faith efforts by Winstar), line of sight without frequency
interference; (iii) the site has been visited by Winstar personnel or
otherwise verified as, in Winstar's reasonable opinion, able to be
built-out utilizing outdoor unit space, power, security, verified riser
and any other necessary build-out elements; and (iv) Winstar has or may
acquire all necessary roof rights.
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(m) "Equipment" shall mean the equipment provided by Winstar
to Wam!Net pursuant to Schedule B.
(n) "Events of Default" shall mean each of the following:
(i) any representation or warranty made by a Party in
the Transaction Documents shall prove to have been incorrect
when made in any respect which could reasonably be expected to
have a material adverse effect upon the other Party's ability
to realize the benefits of the Transaction Documents;
(ii) a Party commits a material breach of the
Transaction Documents that is capable of being cured on
commercially reasonable terms within thirty (30) days, which
breach is not cured within thirty (30) days after notice of
breach to the breaching Party, or
(iii) a Party commits a material breach of the
Transaction Documents that is not capable of being cured
within thirty (30) days and the breaching Party fails to (a)
proceed promptly and diligently after written notice to
correct the breach, (b) develop within fifteen (15) days
following written notice of breach a complete plan for curing
the breach, and (c) cure the breach within sixty (60) days of
notice thereof.
(o) "FCC Licenses" shall have the meaning set forth in Section
5.1(b).
(p) "Installed Equipment" shall mean equipment owned by
Wam!Net used on the Winstar Network.
(q) "Intercity Backbone" shall mean the long haul backbone
network used by Winstar to provide Capacity pursuant to Schedule A.
(r) "Indefeasible Right of Use" or "IRU" shall mean an
exclusive indefeasible right to use a specified amount of Capacity for
a specified period.
(s) "Link" shall mean local access links, composed of radio
pairs and backhaul facilities connecting an Eligible Location to a
Winstar switch center.
(t) "Losses" shall mean all liabilities, damages and related
costs and expenses (including fines, levies, assessments, reasonable
legal fees and disbursements and costs of investigations, litigation,
settlement, judgment, interest and penalties) directly incurred by a
Party.
(u) "Network Control" shall mean (i) the unfettered use of all
Network Facilities; (ii) day to day operation and control of the
Network Facilities; (iii) determination and the carrying out of policy
decisions, including the preparation and filing of applications with
the Federal Communications Commission ("FCC") relating to the Network
Facilities; (iv) employment, supervision, and dismissal of personnel
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involved with the Network Facilities; (v) payment of financial
obligations, including expenses arising out of operation involved with
the Network Facilities; and (vi) the receipt of monies and profits
derived from the operation of the Network Facilities.
(v) "Network Facilities" shall mean the Intercity Backbone,
the Installed Equipment, and any other equipment and facilities used in
providing Capacity and local connectivity on the Winstar Network
pursuant to this Agreement, over which Winstar, as a FCC licensee, must
retain control as that term is defined in the Communications Act of
1934, as amended, and/or any applicable FCC rules or case law.
(w) "Notice of Election" shall have the meaning set forth in
Section 12.4.
(x) "OC-3" shall mean a quantity of Capacity comprising a
digital circuit (fiber or spectrum) capable of transporting signals at
a speed of approximately 155 Mbps.
(y) "Party" shall mean Wam!Net or Winstar, individually, as
appropriate.
(z) "Parties" shall mean Wam!Net and Winstar, collectively.
(aa) "Purchase Price" shall mean the sum of the Down Payment
and the total principal amount of the Deferred Payments to be paid by
Wam!Net to Winstar pursuant to Schedule 1.
(bb) "Security Interest" shall have the meaning set forth in
Schedule 2.
(cc) "T-1" shall mean a quantity of Capacity comprising a
digital circuit (fiber or spectrum) capable of transporting signals at
a speed of approximately 1.544 Mbps.
(dd) "Term" shall have the meaning set forth in Section 3.
(ee) "Transaction Documents" shall mean the Agreement and all
Schedules and Exhibits.
(ff) "Wam!Net" shall mean Wam!Net Inc.
(gg) "Winstar" shall mean Winstar Wireless, Inc.
(hh) "Winstar Network" shall mean the facilities-based
telecommunications system over which Winstar offers telecommunications
services to its subscribers to the extent that Winstar has an
obligation to use the system to meet its obligations hereunder.
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1.2 Other Definitions. Other terms used in this Agreement are defined
in the context in which they are used and have the meanings there stated.
2. Quarterly Meetings
During the Term, Wam!Net and Winstar shall meet on a quarterly basis to
discuss their joint plans and objectives with respect to the development and
deployment of new e-business solutions and any issues which may arise related to
the performance of the Parties' obligations under the Transaction Documents.
Each Party will designate representatives from its areas of technical,
marketing, and senior management, to participate in each of the quarterly
meetings. The Parties shall develop a process for creating the quarterly agenda
for the quarterly meetings.
3. Term. Except as may otherwise be provided in a Schedule, the term of the
Transaction Documents shall begin upon the Effective Date and shall end on the
twentieth (20th) anniversary of the Acceptance Date of the first System Segment
that is Accepted pursuant to Schedule A (the "Term"), unless terminated earlier
in accordance with this Agreement.
4. Obligations of the Parties
4.1 Intercity Backbone Capacity. Winstar shall sell to Wam!Net and
Wam!Net shall purchase from Winstar IRUs with respect to specified Capacity on
the Intercity Backbone pursuant to the terms and conditions in Schedule A.
4.2 Equipment Sale. Winstar shall sell to Wam!Net and Wam!Net shall
purchase from Winstar the Equipment, pursuant to the terms and conditions in
Schedule B.
4.3 Installation and Maintenance. Winstar shall sell and Wam!Net will
purchase certain local access connectivity, and certain support services,
pursuant to the terms and conditions in Schedule C.
4.4 Collocation. Winstar shall sell and Wam!Net shall purchase
collocation and associated services, pursuant to the terms and conditions in
Schedule D.
4.5 Joint Marketing. The Parties shall engage in joint marketing
activities, pursuant to the terms and conditions in Schedule E.
5. Covenants of the Parties
5.1 Control.
(a) Winstar shall secure, at its own expense, all licenses,
permits, agreements, consents, rights-of-way, and other arrangements
necessary for: (i) the installation and operation of the Network
Facilities, (ii) any other element of the Winstar
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Network utilized by Winstar in meeting its obligations under the
Transaction Documents, and (iii) Network Control of the Network
Facilities. Winstar shall not be responsible (x) for such costs to the
extent that Winstar, in its reasonable discretion, determines that such
costs would exceed its standard cost guidelines for the geographic area
involved by more than 20% or (y) for Wam!Net's internal costs incurred
to make initial contact with building owners or managers to assist
Winstar in acquiring the necessary roof rights.
(b) During the Term, each of the Parties shall at all times
comply with FCC rules and regulations as well as all state and local
regulations or requirements governing spectrum licenses owned by
Winstar and used by Winstar to provide all connectivity pursuant to
this Agreement ("FCC Licenses"), and the provision of
telecommunications services hereunder, as all such rules, regulations,
and requirements are applicable to such Parties' obligations under the
Transaction Documents.
(c) Winstar shall retain Network Control and control over its
FCC Licenses at all times during the Term of the Transaction Documents,
and shall have, at all times therein unfettered access to all of the
facilities where transmissions and receptions under its FCC Licenses
are being conducted or controlled.
(d) Winstar will take all reasonable precautions not to
disturb or interfere with Wam!Net's use of the Installed Equipment,
Capacity, collocation, and local connectivity provided by Winstar under
the Transaction Documents, unless such disturbance is deemed by Winstar
to be necessary for Network Control and control over its FCC Licenses.
(e) During the Term, Wam!Net shall not represent itself as the
holder of any of the FCC Licenses, nor as the representative of Winstar
before the FCC, any state regulatory body or any other third party.
(f) Except as otherwise required by law, all filings made
during the Term before regulatory bodies with respect to Winstar's FCC
Licenses, including filings with respect to obtaining any licenses or
approvals needed in connection with Winstar's obligations hereunder,
shall be made by and in the name of Winstar. Wam!Net, at Winstar's
expense, shall cooperate fully with Winstar in the making of such
filings that are applicable to any Winstar obligations under the
Transaction Documents.
(g) Wam!Net shall not take a position or issue a public
statement with respect to regulatory or legislative issues that could
be reasonably expected to adversely impact Winstar's business without
first consulting with Winstar. Wam!Net will, at Winstar's expense,
reasonably support Winstar's legislative and regulatory efforts with
respect to ensuring nondiscriminatory access to buildings by
telecommunications carriers, and, in no event, will take any position
adverse to Winstar's positions on this matter.
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(h) Nothing in the Transaction Documents is intended to
diminish or restrict Winstar's obligations as an FCC licensee and
Winstar and Wam!Net desire that the Transaction Documents be in full
compliance with (i) the terms and conditions of Winstar's FCC Licenses;
(ii) all applicable rules and policies of the FCC; (iii) the
Communications Act of 1934, as amended, and (iv) any other applicable
federal, state and local law or regulation It is expressly understood
by Winstar and Wam!Net that nothing in the Transaction Documents is
intended to give Wam!Net any right which would be deemed to constitute
a transfer of control (as `control' is defined in the Communications
Act of 1934, as amended, and/or any applicable FCC rules or case law)
of Winstar or of one or more of the FCC Licenses from Winstar to
Wam!Net.
5.2 Network Integrity.
(a) Subject to Section 5.1(d), neither Party may improperly
restrict or interfere with the other Party's network or use of services
by the other Party, its Affiliates, any other customer of either Party
or any third party. Upon notice by a Party, the other Party shall
promptly remove any hazard, interference or service obstruction that
may be caused by hardware, software or connectivity that the notifying
Party does not provide. Nothing stated herein shall be construed to
interfere with a Party's ability to comply with the rules, regulations
or directives of any governmental or jurisdictional authority.
(b) Winstar may, after giving Wam!Net notice, immediately
suspend services under the Transaction Documents to Wam!Net in whole or
part, without incurring any liability for such suspension, if Winstar
in the exercise of reasonable discretion, determines that Wam!Net is or
may utilize such services in a manner not contemplated by this
Agreement that results in, or could result in (i) interference with the
use of the Winstar Network, or any component thereof, by other parties;
(ii) damage, interference, degradation or other adverse effects with
respect to the proper functioning of the Winstar Network, or any
component thereof, equipment or service; (iii) the fraudulent
procurement of (1) any Network Facilities or other support services
provided hereunder, or (2) of any other services utilizing the Winstar
Network, or any component thereof; or (iv) a violation of the
Communications Act of 1934, as amended, and/or any applicable FCC rules
or case law. In the case of a suspension of service under Section
5.2(b)(iii), Winstar shall give Wam!Net not less than twelve (12) hours
notice. To the extent that any of the events set forth above are the
result of any action by a Wam!Net customer, Wam!Net will, following
notice from Winstar, suspend the service of the Wam!Net customer.
5.3 Designation of Eligible Locations.
(a) Within fifteen (15) days of Wam!Net identifying a desired
site to Winstar, Winstar shall provide Wam!Net with a determination as
to whether the site is an Eligible Location. During such 15-day period,
Winstar and Wam!Net will work together to allow Wam!Net to provide
Winstar with a fully completed service request form in the event, and
after, the site identified by Wam!Net is classified by Winstar as
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an Eligible Location. Upon receipt of such service request form,
Winstar will provide Wam!Net with a firm order committment, and will
install the necessary equipment at the Eligible Location as promptly as
practicable, but in no event more than sixty (60) days after receipt of
such service request form.
(b) In determining whether a desired site is an Eligible
Location, if Winstar reasonably determines that the cost of rooftop
access and/or equipment installation will exceed its standard cost
guidelines for the geographic area involved by not more than 20%,
Winstar must offer Wam!Net the option to pay one-half of the amount in
excess of Winstar's standard cost guidelines, and if Wam!Net so
chooses, and subject to the site satisfying all other required criteria
used in determining whether the site is an Eligible Location, the site
shall be deemed an Eligible Location. If the costs would exceed such
guidelines by more than 20%, Winstar may, in its sole discretion,
choose not to designate such site as an Eligible Location.
5.4 Access to Facilities. Both Parties shall provide the other Party's
personnel with access to its facilities to the extent reasonably required for
such Party to perform its obligations hereunder. Any such access permitted
hereunder shall be in accordance with each Party's applicable internal security
procedures, and any applicable FCC requirements.
5.5 Future Winstar Network Build-out.
(a) Pursuant to Schedule C, during calendar year 2000, Winstar
will, at Wam!Net's request, install and provide connectivity with at
least 700 Links to Eligible Locations designated by Wam!Net.
(b) In determining whether a location is an Eligible Location
or whether Winstar will build its network to certain geographic areas,
Wam!Net shall be entitled to participate in the process by which
Winstar determines its ultimate network build-out map ("Build-out
Process").
(c) As part of the Build-out Process, Winstar will provide
Wam!Net with existing and planned hub addresses, city identifications,
switch addresses, delivery time frames, and construction status of
already planned hub and central office addresses. Wam!Net will provide
Winstar such information as Winstar reasonably requires to complete the
Build-out Process. The information provided hereunder will be used to
assess: (i) existing and planned overlay coverage; (ii) potential
bandwidth required by Wam!Net's customers across all applications;
(iii) bandwidth segmentation requirement required by Wam!Net's
customers across all applications; (iv) strategy outcome planning; and
(v) new product application deployment. Notwithstanding Wam!Net's
participation in the Build-out Process, Winstar shall have the final
determination with respect to identifying a building as an Eligible
Location or extending its network to a certain geographic area.
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(d) Future Purchases. During the Term, for any additional
purchases Wam!Net desires to make from Winstar, Winstar will provide
Wam!Net with price and terms at least as favorable with regard to
Winstar's percentage of profit over Winstar's costs for the purchase
being priced as Wam!Net is receiving hereunder.
(e) In the event a Wam!Net designated node in one of the
markets listed in Exhibit 1 of Schedule D has not been collocated with
a Winstar switch center pursuant to Schedule D on the date a System
Segment terminating in that market is ready for Acceptance (as defined
in Schedule A), Winstar shall, at Winstar's expense, provide high
capacity links between the Wam!Net node and the Winstar Terminal
Facility that are engineered to Wam!Net's satisfaction to carry
Wam!Net's customer traffic. Such high capacity links shall be
maintained by Winstar until Wam!Net's node has been collocated with a
Winstar switch center. Notwithstanding the foregoing, this obligation
shall not become effective until the Parties have agreed upon a
delivery schedule pursuant to Exhibit 3 of Schedule D.
(f) Winstar will be obligated to meet certain additional
performance obligations related to the delivery and operations of the
Intercity Backbone and the availability of the Capacity, all of which
are contained in Exhibit 3 of Schedule C, which are incorporated herein
by reference.
6. Purchase Price; Payment Terms
6.1 Purchase of Capacity, Connectivity and Equipment. As of the
Effective Date, Wam!Net agrees to purchase the Capacity, connectivity,
collocation, and Equipment pursuant to the Transaction Documents and Winstar
agrees to provide the Capacity, connectivity, collocation, and Equipment
pursuant to the Transaction Documents for the Purchase Price. Except as
expressly provided in a Schedule, the Purchase Price will be the sole
consideration due to Winstar for the performance of any and all of its
obligations due under the Transaction Documents.
6.2 Payment of Purchase Price. The Purchase Price shall be payable as
follows: (i) the Down Payment shall be paid upon execution of this Agreement;
and (ii) Two Hundred Forty Million Two Hundred Seventy-Nine Thousand Five
Hundred Ninety-Three Dollars and 00/100 ($240,279,593.00) shall be paid on the
terms and conditions set forth in Schedule 1, which shall be secured pursuant to
Schedule 2.
6.3 Allocation. The Parties agree to allocate the Purchase Price (and
all other capitalizable costs) among the Network Facilities acquired and
Winstar's other obligations undertaken hereunder for all purposes (including
accounting and tax purposes) in accordance with the allocation table attached as
Schedule 3. Winstar and Wam!Net agree to report the allocation as provided in
the applicable sections of the Internal Revenue Code of 1986, as amended, and
regulations promulgated thereunder, in accordance with such allocation and agree
to prepare and file all income tax returns in a manner consistent with such
allocation.
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6.4 Form of Payment. Wam!Net shall make payments under this Agreement
by wire transfer of immediately available funds to the United States bank
account or accounts designated by Winstar. At Winstar's discretion, payments to
be made pursuant to this Agreement may be made by check or draft of immediately
available funds delivered to the address designated in writing by Winstar or,
failing such designation, to the address for notice to Winstar pursuant to
Section 14.2.
6.5 Taxes. The Parties' respective responsibilities for taxes arising
under or in connection with the Transaction Documents shall be as follows:
(a) Each Party shall be responsible for personal property
taxes on property it owns or leases, for franchise and privilege taxes
on its business, for taxes based on its net income or gross receipts,
and for any third-party imposed fees.
(b) Each Party shall timely report and pay any and all sales,
use, income, gross receipts, excise, transfer, ad valorem or other
taxes, and any and all franchise fees or similar fees assessed against
it due to the implementation of any facilities or equipment in
connection with the Network Facilities.
(c) If a sales, use, excise, value-added, services,
consumption, or other tax is assessed on the provision of the
connectivity, maintenance or any other services, each Party shall
timely report and pay any such tax assessed against it and the Parties
shall work together to segregate the payments under this Agreement into
two (2) payment streams:
(i) Payments for taxable items; and
(ii) Payments for other nontaxable items.
(d) The Parties agree to cooperate with each other to enable
each to determine more accurately its own tax liability and to minimize
such liability to the extent legally permissible. Each Party shall
provide and make available to the other any resale certificates and
other exemption certificates or information reasonably requested by
either Party that is applicable to the subject matter of this
Agreement.
(e) Each Party shall within thirty (30) business days notify
the other of, and coordinate the response to and settlement of, any
claim for taxes asserted by applicable taxing authorities for which the
other Party is responsible hereunder. With respect to any claim arising
out of a form or return signed by a Party to this Agreement, such Party
shall have the right to elect to control the response to and settlement
of the claim.
7. Confidentiality
7.1 Confidential Information. Winstar and Wam!Net acknowledge that they
may be furnished with, receive, or otherwise have access to information of or
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concerning the other Party that such Party considers to be confidential,
proprietary, a trade secret or otherwise restricted. The terms and conditions of
the Transaction Documents shall be deemed Confidential Information.
7.2 Obligations. The following obligations with respect to Confidential
Information shall survive the expiration or termination of this Agreement for a
period of seven (7) years or such longer period as required by regulation, law
or court order.
(a) Ongoing Obligation. Each Party's Confidential Information
shall remain the property of that Party except as expressly provided
otherwise by the other provisions of the Transaction Documents. Each
Party shall each use at least the same degree of care, but in any event
no less than a reasonable degree of care, to prevent unauthorized
disclosure of Confidential Information as it employs to avoid
unauthorized disclosure of its own information of a similar nature. The
Parties may disclose such information to entities performing services
required hereunder where: (i) use of such entity is authorized under
the Transaction Documents, (ii) such disclosure is necessary or
otherwise naturally occurs in that entity's scope of responsibility,
and (iii) the entity agrees in writing to assume the obligations
described in this Section 7.2 Any disclosure to such entity shall be
under the terms and conditions of this Section 7.2.
(b) Unauthorized Disclosure. Each Party shall take reasonable
steps to ensure that its employees or agents comply with this Section.
In the event of any disclosure or loss of, or inability to account for,
any Confidential Information of the Disclosing Party, the Receiving
Party shall promptly, at its own expense: (i) notify the Disclosing
Party in writing, and (ii) take such actions as may be necessary and
cooperate in all reasonable respects with the Disclosing Party to
minimize the violation and any damage resulting therefrom.
(c) Permitted Disclosures.
(i) Either Party may disclose the terms and
conditions of the Transaction Documents to third parties that
(1) have expressed a bona fide interest in consummating a
significant financing, merger, acquisition, or strategic
commercial transaction between such third parties and such
Party, (2) have a reasonable ability (financial and otherwise)
to consummate such transaction, and (3) have executed a
nondisclosure agreement that includes within its scope the
terms and conditions of this Agreement and also includes a
procedure to limit the extent of copying and distribution of
this Agreement. Each Party shall endeavor to delay the
disclosure of the terms and conditions of the Transaction
Documents until the status of discussions concerning such
transaction warrants such disclosure.
(ii) If the Receiving Party becomes legally obligated
to disclose Confidential Information by any governmental
entity with jurisdiction over it, the Receiving Party will
give the Disclosing Party prompt written notice sufficient to
allow the Disclosing Party to seek a protective order or other
appropriate remedy. The Receiving Party will disclose only
such Confidential Information as is legally required
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and will use its reasonable best efforts to obtain
confidential treatment for any Confidential Information that
is so disclosed.
7.3 No Implied Rights. Nothing contained in this Section shall be
construed as obligating a Party to disclose its Confidential Information to the
other Party, or as granting to or conferring on a Party, expressly or impliedly,
any rights or license to the Confidential Information of the other Party.
8. Termination.
8.1 Termination.
(a) In the event that either Party commits an Event of
Default, then the other Party may, by giving written notice (i)
terminate this Agreement including any Schedule or Exhibit as set forth
in Section 8.1(c) for cause as of a date specified in the notice of
termination, and (ii) subject to the terms of this Article, pursue any
legal remedies it may have under applicable law or principles of equity
relating to such breach. Additional events which shall constitute
Events of Default under this Agreement are detailed in Schedule 1. Any
Event of Default may be waived in writing at the non-defaulting Party's
option.
(b) Termination may also occur under the condition set forth
in Section 11.6(d).
(c) If an Event of Default by Winstar exists under any one of
Schedule A (Intercity Backbone), Schedule B (Equipment Sale), Schedule
C (Installation and Maintenance), Schedule D (Terminal Facility
Collocation Space) or Schedule E (Joint Marketing), Wam!Net, at its
option, may elect to terminate the Transaction Documents in their
entirety or only the affected Schedule. In the event that an Event of
Default by Winstar exists under two or more of the schedules referenced
in the previous sentence, Wam!Net may only elect to terminate all of
the Transaction Documents in their entirety.
8.2 Effect of Termination. Termination of this Agreement refers to the
termination of the Parties' respective commitments and obligations from and
after the date of termination, but does not relieve the Parties of their payment
and other obligations incurred prior to the date of termination and their
continuing obligations under Articles 7 and 12 or as may be specifically
provided in a Schedule.
9. Inducements. Each Party represents, warrants and covenants that it has not
offered or provided any inducements in violation of law or the other Party's
policies, of which it has been given notice, in connection with this Agreement.
10. Representations; Disclaimer
10.1 Representations. Each Party represents and warrants to the other
that:
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(a) It has the requisite corporate power and authority to
enter into the Transaction Documents and to carry out the transactions
contemplated by the Transaction Documents; and
(b) The execution, delivery and performance of the Transaction
Documents and the consummation of the transactions contemplated by the
Transaction Documents have been duly authorized by the requisite
corporate action on the part of such Party. (c) Each Party represents
that the Transaction Documents have been duly executed and delivered,
and create lawful, valid and legally binding obligations, in accordance
with their respective terms. The execution and delivery of the
Transaction Documents and the consummation of the transactions
contemplated hereby are not prohibited by, do not violate or conflict
with any provision of, and do not constitute a default under or a
breach of: (a) any contract, agreement or other instrument to which it
is a party or by which any of the assets that are the subject hereof
are bound; or (b) to the Party's knowledge, any order, writ,
injunction, decree or judgment of any court or governmental agency.
10.2 Winstar represents that the Network Facilites will function in
accordance with the terms of the Transaction Documents for the Term.
10.3 Winstar covenants and agrees that it has or shall obtain any and
all rights, licenses, permits, authorizations, consents and approvals
(including, without limitation, any necessary local, state, federal or tribal
authorizations and environmental permits) as are reasonably necessary in order
to permit Winstar to perform all of its obligations under the Transaction
Documents, and to permit Wam!Net to use the Capacity and the connectivity as
provided and permitted hereunder.
10.4 Manufacturers' Equipment Warranty. Winstar will pass through to
Wam!Net all warranties from the manufacturers of the Equipment to the extent
Winstar is able pursuant to any agreements between Winstar and such
manufacturers. Notwithstanding the foregoing, the existence of such
manufacturers' warranties does not diminish or limit Winstar's obligations under
Schedule C.
10.5 Disclaimer. EXCEPT AS SPECIFICALLY SET FORTH IN THE TRANSACTION
DOCUMENTS, THE PARTIES MAKE NO WARRANTY TO EACH OTHER OR ANY OTHER ENTITY,
WHETHER EXPRESS, IMPLIED OR STATUTORY, AS TO THE MERCHANTABILITY OR FITNESS FOR
ANY PARTICULAR PURPOSE OF THE EQUIPMENT, NETWORK FACILITIES, ANY CAPACITY, IRUs,
CONNECTIVITY, MAINTENANCE, MANAGEMENT, ANCILLARY SERVICES OR ANY OTHER
EQUIPMENT, FACILITIES OR SERVICES PROVIDED OR USED HEREUNDER OR DESCRIBED
HEREIN, OR AS TO ANY OTHER MATTER, ALL OF WHICH WARRANTIES ARE HEREBY EXPRESSLY
EXCLUDED AND DISCLAIMED.
IN NO EVENT, WHETHER IN CONTRACT OR IN TORT (INCLUDING BREACH
OF WARRANTY, NEGLIGENCE AND STRICT LIABILITY IN TORT), SHALL
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A PARTY BE LIABLE FOR INDIRECT OR CONSEQUENTIAL, EXEMPLARY, PUNITIVE OR SPECIAL
DAMAGES EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES
IN ADVANCE.
11. Liability
11.1 General Intent. Subject to the specific provisions of this Article
11, it is the intent of the Parties that each Party shall be liable to the other
Party only for any direct damages incurred by the non-breaching Party as a
result of the breaching Party's failure to perform its obligations in the manner
required by the Transaction Documents.
11.2 Liability Restrictions.
(a) Winstar's liability to Wam!Net whether in contract or in
tort (including breach of warranty, negligence and strict liability in
tort) shall be limited to the amounts actually paid (including both
principal and interest) to Winstar by Wam!Net at the time the event
resulting in liablity occurs.
(b) The limitation set forth in Subsection (a), above, shall
not apply with respect to: (i) third-party claims subject to
indemnification pursuant to the Agreement; or (ii) fees due and owing
under this Agreement at the time of the claim.
(c) For the purposes of this Section 11.2, all amounts payable
or paid to third parties in connection with claims that are eligible
for indemnification pursuant to this Agreement shall be deemed direct
damages.
11.3 Insurance Requirements.
(a) During the Term each Party shall obtain and maintain, at
its expense, an appropriate insurance policy with terms and coverage
thresholds equal to the amounts below and provide the other Party with
a certificate of such coverage upon request. Winstar will assist
Wam!Net to the extent reasonably requested in the coordination of all
insurance claims against Wam!Net's own insurer for any event of loss.
Wam!Net shall be responsible for all of Winstar's third-party costs
reasonably incurred as a result of such coordination other than
Winstar's internal costs. During the Term, each Party shall have and
maintain in force the following insurance coverages:
(i) Worker's Compensation and Employer's Liability.
Worker's Compensation Insurance in amounts required by
applicable law and Employers Liability Insurance with limits
not less than $1,000,000 each accident.
(ii) Commercial General Liability. Each Party shall
carry broadform general liability insurance coverage for
property damage, bodily injury, personal injury, and
contractual liability with coverage of at least $10,000,000
per occurrence and in the aggregate. Total limits can be
attained by the inclusion of an Umbrella/Excess Liability
policy.
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(b) Each Party shall cause its insurers to issue certificates
of insurance evidencing that the coverages required under this
Agreement are maintained in force. The minimum limits of coverage
specified herein are not intended, and shall not be construed, to limit
any liability or indemnity of either Party under this Agreement.
(c) Nothing in this Agreement shall be construed to prevent
either Party satisfying its insurance obligations pursuant to this
Agreement under a blanket policy or policies of insurance that meet or
exceed the requirements of this Article.
11.4 Risk of Loss.
(a) For the Network Facilities and any support services
provided under the Transaction Documents, each Party shall take all
reasonable precautions against, and shall assume liability for, subject
to the terms of the Transaction Documents, any damage caused by it to
the property of the other Party. Winstar shall bear the risk of loss
with regard to the equipment and facilities owned by Winstar that it
uses to meet its obligations to Wam!Net under the Transaction
Documents; provided, however, that Wam!Net shall be responsible for all
damage and loss to such equipment and facilities caused by Wam!Net's
gross negligence or willful misconduct.
(b) Except as otherwise contemplated herein, for the duration
of the Security Interest granted pursuant to Schedule 2, Wam!Net shall
not cause or permit any part of the Network Facilities to become
subject to any lien, security interests, or encumbrances whether by
operation of law or otherwise.
11.5 Performance Obligations Limitation.
In the event that Winstar commits a breach of a performance
obligation imposed in any of the Exhibits to the Schedules, then
Winstar shall provide Wam!Net with a Performance Enhancement credit
towards future purchases of Intercity Backbone IRUs, Equipment,
connectivity, any support services obtained from Winstar pursuant to a
Transaction Document, or any third party carrier's backhaul services
for the Wam!Net network, in the amount(s) set forth in the applicable
Exhibit.
11.6 Force Majeure.
(a) Subject to Section 11.6(d), neither Party shall be liable
for any default or delay in the performance of its obligations under
the Transaction Documents if and to the extent such default or delay is
caused, directly or indirectly, by fire, flood, lightning, earthquake,
elements of nature or acts of God, war, riots, civil disorders,
rebellions or revolutions, provided that such default or delay could
not have been prevented by reasonable precautions and cannot be
reasonably circumvented by the non-performing Party through the use of
alternate sources, workaround plans or other means, including to the
extent contemplated by applicable disaster recovery processes or
procedures.
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(b) In such event, the non-performing Party shall be excused
from further performance or observance of the obligation(s) so affected
for as long as such circumstances prevail and such Party continues to
use commercially reasonable efforts to recommence performance or
observance whenever and to whatever extend possible without delay.
(c) The term of a Party's performance of any obligation(s)
excused by a force majeure event shall be extended by any period(s) of
force majeure.
(d) If any period of force majeure affecting Winstar's
obligations under any Transaction Documents extends for more than
thirty (30) days, and (i) if the force majeure event affects all or
substantially all of the Network Facilities (a "Major Force Majeure
Event"), then either Party may, at its option, terminate this Agreement
upon twenty (20) days prior written notice to the other, and in that
event, Winstar's failure to perform its obligation shall be considered
a non-excused breach; or (ii) for any force majeure event that is not a
Major Force Majeure Event (a "Minor Force Majeure Event"), then for a
period of one hundred eighty days (180) thereafter, Winstar will
provide Wam!Net with a Performance Enhancement credit towards future
purchases of Intercity Backbone IRUs, Equipment, connectivity, any
support services obtained from Winstar pursuant to a Transaction
Document, or any third party carrier's backhaul services for the
Wam!Net network, in the amount set forth in Exhibit 3 of Schedule C. If
after such one hundred eighty (180) day period, Winstar is unable to
perform its obligations with respect to the portion of the Network
Facilities affected by such Minor Force Majeure Event, Wam!Net may
terminate the portion of the Transaction Documents applicable to such
obligation, and in such event, Winstar's inability to perform such
obligation shall be considered a non-excused breach.
12. Indemnification
12.1 Indemnities by Winstar. Winstar agrees to indemnify, defend and
hold harmless Wam!Net and its Affiliates and their respective officers,
directors, employees, agents, successors, and assigns, from any and all Losses
and threatened Losses arising from, in connection with, or based on allegations
of, any of the following:
(a) Winstar's failure to observe or perform any duties or
obligations to third parties (e.g., duties or obligations to
subcontractors);
(b) Any claims of infringement of any patent, trade secret,
copyright or other proprietary rights, alleged to have occurred based
upon the provision of the Network Facilities by Winstar, except to the
extent that such claims arise from (i) modification of the Network
Facilities or any component thereof by Wam!Net that is not recommended
or otherwise approved by Winstar, (ii) maintenance of the Network
Facilities by Wam!Net other than in accordance with the provisions set
forth in the Transaction Documents that is not recommended or otherwise
approved by Winstar, or (iii) use of the Network Facilities by Wam!Net
in combination with deliverables furnished by third parties that is not
recommended or otherwise approved by Winstar;
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(c) The death or bodily injury of any agent, employee,
customer, business invitee or any other person caused by the tortious
conduct of Winstar;
(d) The damage, loss or destruction of any real or tangible
personal property caused by the tortious conduct of Winstar; or
(e) Any claim, demand, charge, action, cause of action, or
other proceeding asserted against Wam!Net but resulting from an act or
omission of Winstar in its capacity as an employer of a person.
12.2 Indemnities by Wam!Net. Wam!Net agrees to indemnify, defend and
hold harmless Winstar and its Affiliates and their respective officers,
directors, employees, agents, successors, and assigns, from any and all Losses
and threatened Losses arising from, in connection with, or based on allegations
of, any of the following:
(a) Wam!Net's failure to observe or perform any duties or
obligations to third parties (e.g., duties or obligations to
subcontractors);
(b) Any claims of infringement of any patent, trade secret,
copyright or other proprietary rights, alleged to have occurred based
upon misuse of the Network Facilities by Wam!Net, including (i)
modification of the Network Facilities or any component thereof by
Wam!Net that is not recommended or otherwise approved by Winstar, (ii)
maintenance of the Network Facilities other than by Winstar or
Winstar's designees in accordance with the provisions set forth in the
Transaction Documents that is not recommended or otherwise approved by
Winstar, or (iii) use of the Network Facilities by Wam!Net in
combination with deliverables furnished by third parties that is not
contemplated by the Transaction Documents, recommended or otherwise
approved by Winstar;
(c) The death or bodily injury of any agent, employee,
customer, business invitee or any other person caused by the tortious
conduct of Wam!Net;
(d) The damage, loss or destruction of any real or tangible
personal property caused by the tortious conduct of Wam!Net; or
(e) Any claim, demand, charge, action, cause of action, or
other proceeding asserted against Winstar but resulting from an act or
omission of Wam!Net in its capacity as an employer of a person.
12.3 Infringement. If any item used by Winstar to provide the Network
Facilities becomes, or in Winstar's reasonable opinion is likely to become, the
subject of an infringement or misappropriation claim or proceeding, in addition
to indemnifying Wam!Net as provided in this Article 12 by Winstar and to the
other rights Wam!Net may have under the Transaction Documents, Winstar shall,
promptly at Winstar's expense:
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(a) secure the right to continue using the item, or
(b) if the action described in Subsection (a) cannot be
accomplished by Winstar, replace or modify the item to make it
non-infringing, provided that any such replacement or modification will
not degrade the fit, form or function of the affected Network
Facilities.
12.4 Indemnification Procedures. With respect to third-party claims,
the following procedures shall apply:
(a) Promptly after receipt of notice of the commencement or
threatened commencement of any civil, criminal, administrative, or
investigative action or proceeding involving a claim in respect of
which Indemnitee will seek indemnification pursuant to this Article,
Indemnitee will notify Indemnitor of such claim in writing. No failure
to so notify Indemnitor will relieve Indemnitor of its obligations
under this Agreement except to the extent that it can demonstrate
damages attributable to such failure. Within fifteen (15) Days
following receipt of written notice from Indemnitee relating to any
claim, but no later than ten (10) Days before the date on which any
response to a complaint or summons is due, Indemnitor will notify
Indemnitee in writing if Indemnitor elects to assume control of the
defense and settlement of that claim (a "Notice of Election").
(b) If Indemnitor delivers a Notice of Election relating to
any claim within the required notice period, Indemnitor shall be
entitled to have sole control over the defense and settlement of such
claim; provided that (i) Indemnitee shall be entitled to participate in
the defense of such claim and to employ counsel at its own expense to
assist in the handling of such claim, and (ii) Indemnitor shall obtain
the prior written approval of Indemnitee before entering into any
settlement of such claim or ceasing to defend against such claim. After
Indemnitor has delivered a Notice of Election relating to any claim in
accordance with the preceding paragraph, Indemnitor shall not be liable
to Indemnitee for any legal expenses incurred by Indemnitee in
connection with the defense of that claim. In addition, Indemnitor
shall not be required to indemnify Indemnitee for any amount paid or
payable by the Indemnitee in the settlement of any claim for which the
Indemnitor has delivered a timely Notice of Election if such amount was
agreed to without the written consent of the Indemnitor.
(c) If Indemnitor does not deliver a Notice of Election
relating to any claim within the required notice period, Indemnitee
shall have the right to defend the claim in such manner as it may in
its reasonable judgement deem appropriate, at the cost and expense of
Indemnitor. Indemnitor shall promptly reimburse Indemnitee for all such
costs and expenses.
13. Dispute Resolution Any dispute between the Parties arising out of or
relating to the Transaction Documents, shall be resolved as provided in this
Section.
13.1 Informal Dispute Resolution.
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(a) Prior to the initiation of formal dispute resolution
procedures, the Parties shall first attempt to resolve their dispute
informally pursuant to this Section. Upon the written request of a
Party, each Party shall appoint a representative from its senior
management who does not devote substantially all of his or her time to
performance under the Transaction Documents, whose task it will be to
meet for the purpose of endeavoring to resolve such dispute. If, after
thirty (30) days from the written request the representatives from
senior management have not resolved such dispute, each Party shall
appoint a representative from its executive management whose task it
will be to meet for the purpose of endeavoring to resolve such dispute.
If, after sixty (60) days from the appointment of such representatives
from executive management, the representatives have not resolved such
dispute, then the provisions of Section 13.2 shall apply.
(i) The designated representatives shall meet as
often as the Parties reasonably deem necessary in order to
gather and furnish to the other all information with respect
to the matter in issue which the Parties believe to be
appropriate and germane in connection with its resolution. The
representatives shall discuss the problem and attempt to
resolve the dispute without the necessity of any formal
proceeding.
(ii) During the course of discussion, all reasonable
requests made by one Party to another for non-privileged
information, reasonably related to this Agreement, shall be
honored in order that each of the Parties may be fully advised
of the other's position.
(iii) The specific format for the discussions shall
be left to the discretion of the designated representatives.
(b) The Parties agree that disputes, controversies or claims
between them shall not be subject to the provisions of this Section
where:
(i) A Party makes a good faith determination that a
breach of the terms of the Transaction Documents by the other
Party is such that a temporary restraining order or other
injunctive relief is the only appropriate and adequate remedy;
or
(ii) Institution of formal proceedings earlier than
as set forth in this Section 13.1 for the resolution of a
dispute may be commenced after the earlier of (x) a good faith
determination that such proceedings are necessary to avoid the
expiration of any applicable limitations period or (y) to
preserve a superior position with respect to other creditors.
(c) If a Party files a pleading with a court seeking immediate
injunctive relief and this pleading is challenged by the other Party
and the injunctive relief sought is not awarded in substantial part,
the Party filing the pleading seeking immediate injunctive relief shall
pay all of the costs and attorneys' fees of the Party successfully
challenging the pleading.
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13.2 Arbitration.
Except as providided in Section 13.1(b) any dispute, controversy or
claim arising out of or relating to the Transaction Documents or the breach,
termination or validity thereof, shall be finally settled in accordance with the
commercial arbitration rules of the American Arbitration Association (the "AAA")
then obtaining, by a panel of three arbitrators. Each party shall have the right
to appoint one arbitrator from the list of arbitrators supplied to the parties
by the AAA, and the two arbitrators so appointed shall appoint the third.
The place of arbitration shall be the City of New York, New York,
U.S.A. The language of the arbitration shall be in English. The arbitrators
shall determine the matters in dispute in accordance with the internal law of
the State of New York, without reference to the Convention on Contracts for the
International Sale of Goods. Except as precluded by the United Nations
Convention on the Recognition and Enforcements of Foreign Arbitral Awards, the
internal procedural and substantive laws of New York and the United States
Federal Arbitration Act shall govern all questions of arbitral procedure,
arbitral review, scope of arbitral authority, and arbitral enforcement.
The parties agree that the award of the arbitrators shall be the sole
and exclusive remedy between them regarding any claims, counterclaims, issues or
accountings presented or pled to the arbitrators, that the award shall be made
and shall be promptly payable in U.S. dollars, free of any tax, deduction or
offset, and that any costs, fees or taxes instant to enforcing the award shall,
to the maximum extent permitted by law, be charged against the party resisting
such enforcement.
The award shall include interest from the date of damages incurred for
breach or other violation of the Transaction Documents, and from the date of the
award until paid in full, at a rate to be fixed by the arbitrators.
No claim may be submitted by a party to arbitration in accordance with
this Article 13 unless notified to the other party within one (1) year of the
date on which the submitting party first knew or should have known of the
existence of the facts indicating the existence of such dispute.
13.3 Continued Performance. Each Party agrees to continue performing
its obligations under the Transaction Documents while any dispute is being
resolved except to the extent the issue in dispute precludes performance
(dispute over payment shall not be deemed to preclude performance).
13.4 Governing Law. The Transaction Documents and performance under
them shall be governed by and construed in accordance with the laws of the State
of New York without regard to its choice of law principles and the Convention or
Contracts for the International Sale of Goods.
14. General
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14.1 Binding Nature and Assignment.
(a) The Transaction Documents shall accrue to the benefit of
and be binding upon the Parties hereto and any purchaser or any
successor entity into which either Party has been merged or
consolidated or to which either Party has sold or transferred all or
substantially all of its assets.
(b) Except as expressly provided in a Transaction Document,
neither Party may, or shall have the power to, assign the Transaction
Documents or delegate such Party's obligations hereunder without the
prior written consent of the other, except that either Party may assign
its rights and obligations under the Transaction Documents without the
approval of the other Party to
(i) an entity which acquires all or substantially all
of the assets of the assigning party,
(ii) to any Affiliate, in which event the assignor
shall remain liable as a guarantor of the assignee/Affiliate's
performance of such Party's obligations hereunder, or
(iii) to a successor in a merger or acquisition.
14.2 Notices. Any notices, requests, demands, and determinations under
this Agreement (other than routine operational communications), shall be in
writing and shall be deemed duly given (i) when delivered by hand, (ii) one (1)
business day after being given to an express, overnight courier with a reliable
system for tracking delivery, (iii) when sent by confirmed facsimile with a copy
delivered by another means specified in this Section, or (iv) four (4) business
days after the day of mailing, when mailed by United States mail, registered or
certified mail, return receipt requested, postage prepaid, and addressed as
follows:
If to Wam!Net: If to Winstar:
Wam!Net Inc. Winstar Wireless, Inc.
655 Lone Oak Drive 7799 Leesburg Pike
Eagan, MN 55121 Suite 700 South
Attn: Gary Hokkanen, President Tysons Corner, VA 22043
Facsimile: (651) 994-9591 Attn: Robert K. McGuire, President
and Chief Operating Officer
Winstar Large Accounts
Facsimile: (703) 226-7649
With a copy to: With a copy to:
Wam!Net Inc. Winstar Wireless, Inc.
655 Lone Oak Drive 7799 Leesburg Pike
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Eagan, MN 55121 Suite 700 South
Attn: Lisa Gray Tysons Corner, VA 22043
General Counsel Attn: Colleen R. Jones
Facsimile: (651) 256-5176 Chief Counsel
Winstar Large Accounts
Facsimile: (703) 226-7649
A Party may from time to time change its address or designee for
notification purposes by giving the other prior written notice of the new
address or designee and the date upon which it will become effective.
14.3 Counterparts. The Transaction Documents may be executed in several
counterparts, all of which taken together shall constitute one single agreement
between the Parties hereto.
14.4 Relationship of Parties. Winstar, in furnishing the Network
Facilities and other services hereunder, is acting as an independent contractor,
and Winstar personnel (including, without limitation, and any subcontractors)
shall not be considered or represented as employees or agents of Wam!Net.
Winstar is not otherwise an agent of Wam!Net and has no authority to represent
Wam!Net as to any matters, except as expressly authorized in the Transaction
Document. Winstar is solely responsible for: (a) performing its responsibilities
under the Transaction Documents, (b) management and control of its personnel;
(c) the payment of all compensation owed to its personnel, including payment of
employment-related taxes, benefits, and worker's compensation insurance; (d) the
filing of all required employment returns and reports; and (e) the withholding
and payment of all applicable federal, state, and local taxes and other wage or
employment assessments, including but not limited to income tax, social security
tax, and unemployment insurance premiums for its personnel.
14.5 Severability.
(a) In the event that any provision of the Transaction
Documents conflicts with the law under which the Transaction Documents
are to be construed or if any such provision is held invalid by an
arbitrator or a court with jurisdiction over the Parties, such
provision shall be deemed to be modified to reflect as nearly as
possible the original intentions of the Parties in accordance with
applicable law. The remainder of the Transaction Documents shall remain
in full force and effect.
(b) If such modification would substantially deprive either
party of the economic benefit of the Transaction Documents as
originally executed, then that Party may terminate the Transaction
Documents. Any disputes over whether a modification under this Section
should allow a termination of the Transaction Documents shall be
resolved in accordance with Section 13.
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(c) If the FCC or any state body of competent jurisdiction
determines that any provision of the Transaction Documents violates any
applicable rules, policies, or regulations, both Parties shall make
reasonable efforts to immediately bring the Transaction Documents into
compliance and shall endeavor in those efforts to preserve for both
Parties the economic benefits as reflected in the Transaction Documents
to the maximum extent possible. If it is impossible to preserve the
economic benefits, then Section 14.5(b) will apply.
14.6 Consents and Approval. Except where expressly provided as being in
the sole discretion of a Party, where agreement, approval, acceptance, consent,
or similar action by either Party is required under this Agreement, such action
shall not be unreasonably delayed or withheld. An approval or consent given by a
Party under this Agreement shall not relieve the other Party from responsibility
for complying with the requirements of the Transaction Documents, nor shall it
be construed as a waiver of any rights under the Transasction Documents, except
as and to the extent otherwise expressly provided in such approval or consent.
14.7 Waiver of Default. No waiver or discharge hereof shall be valid
unless in writing and signed by an authorized representative of the Party
against which such amendment, waiver, or discharge is sought to be enforced. A
delay or omission by either Party hereto to exercise any right or power under
the Transaction Documents shall not be construed to be a waiver thereof. A
waiver by either of the Parties of any of the covenants to be performed by the
other or any breach thereof shall not be construed to be a waiver of any
succeeding breach thereof or of any other covenant.
14.8 Cumulative Remedies. Except as otherwise expressly provided, all
remedies provided for in the Transaction Documents shall be cumulative and in
addition to and not in lieu of any other remedies available to either Party at
law, in equity or otherwise.
14.9 Survival. Any provision of the Transaction Documents which
contemplates performance or observance subsequent to any termination or
expiration of the Transaction Documents (in whole or in part) shall survive any
termination or expiration of the Transaction Documents (in whole or in part, as
applicable) and continue in full force and effect.
14.10 Public Disclosures. All media releases, public announcements, and
public disclosures relating to this Agreement or the subject matter of this
Agreement, including promotional or marketing material, but not including
announcements intended solely for internal distribution or disclosures to the
extent required to meet legal or regulatory requirements beyond the reasonable
control of the disclosing Party, shall be coordinated with and shall be subject
to approval by each Party prior to release.
14.11 Third Party Beneficiaries. Except as otherwise provided in the
Transaction Documents, the Transaction Documents shall not be deemed to create
any
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rights in third parties, including suppliers and customers of a Party, or to
create any obligations of a Party to any such third parties.
14.12 Amendment. The Transaction Documents shall not be modified,
amended or in any way altered except by an instrument in writing signed by both
Parties.
14.13 Interpretation.
(a) Terms other than those defined in the Transaction
Documents shall be given their plain English meaning, and those terms,
acronyms and phrases known in the telecommunications and information
technology services industries shall be interpreted in accordance with
their generally known meanings. Unless the context otherwise requires,
words importing the singular include the plural and vice-versa.
(b) References to "Article," "Section," "Subsection" and
"Schedule" mean references to an article, section, subsection or
schedule of the Transaction Documents, as appropriate, unless otherwise
specifically stated.
(c) The article and section headings in the Transaction
Documents are intended to be for reference purposes only and shall in
no way be construed to modify or restrict any of the terms or
provisions of the Transaction Documents.
(d) The words "include," "includes," and "including," when
following a general statement or term, are not to be construed as
limiting the general statement or term to any specific item or matter
set forth or to similar items or matters, but rather as permitting the
general statement or term to refer also to all other items or matters
that could reasonably fall within its broadest scope.
(e) All dollar amounts referred to in the Transaction
Documents are in United States dollars.
14.14 Incorporation by Reference and Order of Precedence.
(a) Any conflict among or between the documents making up the
Transaction Documents will be resolved in accordance with the following
order of precedence (in descending order of precedence):
(i) The Exhibits;
(ii) The Schedules, and
(iii) The Agreement.
(b) In the event of conflict between the documents making up
the Transaction Documents and the terms and conditions of any purchase
order issued by either Party, the terms of the Transaction Documents
shall supersede any such purchase order.
24
<PAGE>
14.15 Entire Agreement. The Transaction Documents, constitute the
entire agreement between the Parties with respect to the subject matter in this
Agreement, and supersede all prior agreements, whether written or oral, with
respect to the subject matter contained in this Agreement.
25
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
undersigned officers, thereunto, duly authorized, as of the date first written
above.
WAM!NET INC. WINSTAR WIRELESS, INC.
By: /s/ Edward J. Driscoll By: /s/ Ken Patterson
------------------------- ----------------------------
Name: Name:
----------------------- --------------------------
Title: Title:
---------------------- -------------------------
Date: Date:
----------------------- --------------------------
26
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-4 No. 333-53841) of WAM!NET Inc. and in the related Prospectus of our report
dated March 2, 2000, with respect to the consolidated financial statements and
schedule of WAM!NET Inc. included in this Annual Report (Form 10-K) for the year
ended December 31, 1999.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
March 14, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 27,180
<SECURITIES> 0
<RECEIVABLES> 5,552
<ALLOWANCES> 1,570
<INVENTORY> 1,254
<CURRENT-ASSETS> 435,255
<PP&E> 398,009
<DEPRECIATION> 39,673
<TOTAL-ASSETS> 435,255
<CURRENT-LIABILITIES> 81,478
<BONDS> 490,450
1,212
88
<COMMON> 95
<OTHER-SE> (148,068)
<TOTAL-LIABILITY-AND-EQUITY> 435,255
<SALES> 7,476
<TOTAL-REVENUES> 24,795
<CGS> 2,905
<TOTAL-COSTS> 29,223
<OTHER-EXPENSES> 101,195
<LOSS-PROVISION> 1,570
<INTEREST-EXPENSE> 35,693
<INCOME-PRETAX> (139,227)
<INCOME-TAX> 0
<INCOME-CONTINUING> (139,227)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (145,117)
<EPS-BASIC> (15.58)
<EPS-DILUTED> (15.58)
</TABLE>
