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EXHIBIT 10.22
PAETEC COMMUNICATIONS, INC.
AGENT INCENTIVE PLAN
Introduction
Employee participation in ownership through stock options is a key
element of PaeTec's business plan. Our authorized independent sales agents
("agents") are also an important part of PaeTec's marketing strategy, and we
want to offer means by which agents who help us succeed can share in the success
along with our employees and shareholders. Accordingly, we created this Agent
Incentive Plan (the "Plan"). This document is an amendment and restatement of
the Plan and is effective as of July 15, 2000.
Under the Plan, agents will be granted Warrants entitling them to
purchase shares of the Class A Common Stock of our parent company, PaeTec Corp.
("Warrant Shares")./1/ The Exercise Price will be set at the time the Warrants
are granted by the Company based on the then current fair market value of
PaeTec's stock. Agents who receive Warrants will then have the benefit of
subsequent increases in the price of the shares as if they were investors
holding stock. In this way, agents who consistently generate significant
monthly revenues are rewarded with the option to, in effect, "buy-in" to the
Company and to share in future increases in value of the Company.
PaeTec is currently a private company and there is no public trading
market for its stock. Recognizing that agents will not, therefore, realize cash
"value" from the Plan until PaeTec becomes a public company, the Warrants will
not be exercisable before the first anniversary of the date PaeTec successfully
completes an initial public offering (an "IPO") of its common stock. Further,
the Warrants will only be exercisable in compliance with federal and state
securities laws.
The ability to exercise the Warrants (also referred to as "vesting")
will also be dependent on maintenance of sales volumes. The right to purchase
the Warrant Shares will vest over a period four years, depending on retention of
the sales revenues generated by the agent.
The Company has set aside a total of 500,000 shares to cover Warrants
under the Plan. Once the Warrants have been granted with respect to all 500,000
shares, the Plan will automatically end unless the Company decides, in its sole
discretion, to continue the Plan by increasing the number of shares available
under the Plan.
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/1/ For purposes of the Plan, PaeTec Communications, Inc. and PaeTec Corp. are
referred to collectively as "PaeTec" or the "Company." A warrant is similar to
an option; it is a legal right to purchase stock at a specified price which is
referred to as the "Exercise Price."
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Qualification and Exercise Price
Each agent may be granted 2,500, 5,000 or 10,000 Warrant Shares within
60 days of becoming an agent. Agents on July 15, 2000, that had not previously
been granted any Warrant Shares pursuant to the Plan, may be granted Warrant
Shares as of July 15, 2000. The number of Warrant Shares to be granted to an
agent shall be determined by the Company in its sole discretion.
The price for purchasing the Warrant Shares (in other words, the
Exercise Price) will be the fair market value per share of PaeTec's Class A
Common Stock as of the date the Warrants are granted. Since PaeTec is currently
not a public company and there is no trading market for its shares, fair market
value per share will be set by the Board of Directors of the Company and its
determination will be final. Generally, the Board will base its determination
on the most recent selling price for shares in a private offering by PaeTec, but
the Board reserves the right to consider other factors affecting value as well.
For Warrants issued after PaeTec goes public, fair market value per share will
generally equal the closing price per share of PaeTec's Class A Common Stock on
the last trading date of the month the agent qualifies for the Warrants.
A form of the Warrant Certificate is attached as Exhibit A.
Payment for the Warrant Shares
Agents will pay nothing at the time the Warrants are issued to them.
No payment is required until the agent decides to exercise its rights under the
Warrant. At that point, the agent will have to pay the Exercise Price in cash
for the Warrant Shares it elects to buy. Alternatively, a "cashless exercise"
will be permitted.
The "cashless exercise" alternative in essence enables the agent to
use the appreciation, if any, in the value of PaeTec stock over the Exercise
Price, rather than its own funds, to pay for the Warrant Shares. For example,
assume the agent is eligible (i.e., PaeTec has gone public and the agent's
Warrants have "vested") to purchase 1,000 Warrant Shares at an Exercise Price of
$12.00 per share. Further assume that the market price of the shares at the
time of exercise has increased to $24.00 per share, reflecting appreciation of
$12.00 per share. The agent could either purchase 1,000 shares by paying
$12,000 in cash, or it could acquire 500 shares through a "cashless exercise" by
authorizing the Company to cancel 500 Warrants in addition to the 500 Warrants
being exercised. In effect, the appreciation in the 500 Warrants to be
cancelled is used to purchase 500 Warrant Shares. By using the cashless
exercise alternative, the agent foregoes the opportunity to purchase a larger
number of shares for the privilege of not having to invest its own funds./2/
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/2/ See the attached Warrant Certificate for the mechanism for a cashless
exercise.
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Securities Law Matters
In order that agents holding Warrants will have sufficient information
about the Company to make an informed decision about investing in Warrant
Shares, and will be able to sell in a public market any Warrant Shares they
elect to purchase through the exercise of the Warrants, the Warrants will not be
exercisable before the first anniversary of the date PaeTec has successfully
completed an IPO (i.e., has become a public company) and not before PaeTec has
"registered" the Warrant Shares on a Registration Statement filed with the
Securities and Exchange Commission. While PaeTec anticipates that it will go
public in the future, there can be no assurance that it will do so within any
specified period of time or at all. If PaeTec fails to go public, the Warrants
would never become exercisable.
Vesting
An agent's ability to exercise the Warrant and purchase Warrant Shares
depends on the agent's achievement and maintenance of sales revenues. An agent
generally must achieve sales revenues for the Company at least equal to the
"Revenue Target" during the ninth calendar month that follows the calendar month
during which the Warrant was granted ("Ninth Calendar Month"). An agent's
Revenue Target is based upon the maximum number of Warrant Shares that the agent
may purchase pursuant to the Warrant granted to the agent and are determined as
follows:
Number of
Warrant Shares Revenue Target
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2,500 $ 25,000
5,000 $ 50,000
10,000 $100,000
The Revenue Target for successive grants to an agent that is granted
more than one Warrant pursuant to the Plan shall be based upon the cumulative
number of Warrant Shares that may be purchased by the agent. For example, an
agent that is granted an initial Warrant with respect to 5,000 Warrant Shares
shall have a Revenue Target for that Warrant equal to $50,000. If that same
agent is subsequently granted another Warrant with respect to an additional
5,000 Warrant Shares, the Revenue Target for the second Warrant shall be
$100,000.
As an exception to the requirement that the agent achieve the Revenue
Target in the Ninth Calendar Month, the Company, in its sole discretion, may
postpone the month in which the agent must achieve the Revenue Target until the
second full calendar month that follows the calendar month during which the
final "Pending Order" is installed. For purposes of the Plan, a "Pending Order"
is a confirmed order for Company products and/or services that has been received
by the agent and accepted by the Company, but not yet installed, by the last day
of the Ninth Calendar Month.
If an agent achieves the Revenue Target in actual sales revenue for
the Company, then the agent shall "vest" in, and may purchase up to, 20% of the
applicable Warrant Shares,
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assuming that the IPO and registration requirements described in the "Securities
Law Matters" section above have been satisfied. The "Initial Vesting Date" for
the first 20% of the applicable Warrant Shares shall be (a) the last day of the
Ninth Calendar Month, if the agent achieves the Revenue Target in actual sales
revenue for that month, or (b) the last day of the second calendar month that
follows the calendar month during which the final Pending Order is installed, if
the Company, in its sole discretion, postpones the month in which the agent must
achieve the Revenue Target and if the agent actually achieves the Revenue Target
with the sum of the agent's revenues during the Ninth Calendar Month and the
agent's revenues from Pending Orders during the second calendar month that
follows the calendar month during which the final Pending Order is installed. An
agent's ability to purchase the rest of the shares under the Warrant (in other
words, the remaining 80%) will depend on the maintenance of sales revenues over
the next four years.
If the agent vests in the right to purchase the first 20% of the
Warrant Shares, the Company will review the agent's revenue level, as of the
last day of the month in which the Initial Vesting Date occurs, in each of the
succeeding four years. The last day of the applicable month is referred to as
the "Anniversary Date." For example, if the Initial Vesting Date occurs in May
2001, the relevant Anniversary Dates for purposes of vesting in the remaining
80% of the Warrant Shares are May 31, 2002, May 31, 2003, May 31, 2004 and May
31, 2005. If the agent's average monthly sales during May of the applicable
year and the previous eleven months remained at or above an amount equal to the
Revenue Target, an additional 20% of the shares covered by the Warrant will
"vest" and become exercisable as of May 31st of that year. Thus, for example,
an agent that is granted Warrants for 2,500 shares in August 2000, and that has
$25,000 in actual sales revenue for the Company during the month of May 2001
(the Ninth Calendar Month in this example), could purchase 500 shares (20% of
2,500 shares) at any time on or after May 31, 2001./3/ The agent could purchase
500 additional shares after the end of each May thereafter until all 2,500
shares are vested, provided that the agent maintains the required average
monthly revenue level of $25,000.
After vesting in the right to purchase the initial 20% of the Warrant
Shares, the "penalty" for falling below the average monthly revenue target is
simply the loss of the vested Warrant Shares for that year (i.e., loss of 20%
vesting for that year). Agents, however, are eligible to make up for any
shortfall in the monthly revenue target in subsequent years through and
including the fifth Anniversary Date.
An agent that fails to maintain average monthly sales revenues will
forfeit the right to buy shares that would otherwise vest under its Warrant.
Using the prior example, assume that the agent hits the applicable revenue
target for May 2001, and vests in the right to purchase 500 shares, but the
agent's average monthly revenue during the succeeding twelve months falls below
the $25,000 average monthly revenue threshold to $15,000. In that case, the
agent would forfeit the right to purchase the 500 shares that would otherwise
have vested as of May 31, 2002.
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/3/ Subject to the IPO and registration restrictions previously described.
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If an agent fails to meet its average monthly revenue target and
therefore a 20% installment fails to vest, the Plan offers the agent an
opportunity to "earn back" the forfeited Warrant Shares in subsequent years up
to and including the fifth Anniversary Date by bringing monthly sales levels
back above the threshold target by a sufficient amount to exceed the prior
year's shortfall. Thus, returning to the example in the preceding paragraph, if
it is subsequently determined that the agent's average monthly sales during the
twelve months ending May 31, 2003 exceed the $35,000 threshold (in other words,
$25,000 for the twelve months ending May 31, 2003 and $10,000 to make up for the
May 2002 year-end shortfall), the 500 shares previously forfeited at the end of
year one (May 2002) would be restored, and an additional 500 shares would vest
for the current year as well. See the example below.
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If an agent fails to achieve the applicable Revenue Target, the
Warrant shall become null and void and the agent shall forfeit the agent's right
to purchase the applicable Warrant Shares. Warrant Shares forfeited pursuant to
this paragraph may be reissued by the Company to the same agent, or to other
agents, as determined by the Company in its sole discretion.
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Example:
Warrant Shares: 10,000
Revenue Target: $100,000
9th Month After Grant (revenues for the month = $100,000):
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Warrants for 2,000 shares (20%) vest immediately
First Anniversary Date (average monthly revenues during preceding 12 months
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= $90,000):
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Since the average monthly revenues were less than $100,000, 20% of the
Warrants (2,000 shares) are forfeited.
Second Anniversary Date (average monthly revenues during preceding 12
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months = $85,000):
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Again, the revenues are less than $100,000 and, as a result, the 20%
of the Warrants which would otherwise have vested are forfeited (Agent
remains vested for 2,000 shares from initial achievement of the
Revenue Target).
Third Anniversary Date (average monthly revenues during preceding 12 months
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= $130,000):
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Since the average monthly revenues during the preceding 12 months
exceeded the $100,000 target level by $30,000 (which would make up for
the Year 2 shortfall of $10,000 and the Year 3 shortfall of $15,000),
the agent will earn back the shares forfeited in Year 2 and Year 3.
Accordingly, 20% of 10,000 Warrants will vest for the current Year 4,
an additional 20% will vest for Year 3, and additional 20% vest for
Year 2 for a total of 8,000 Warrants vested, including the Warrants
vested in Year 1. However, there will be no credit given with respect
to the $5,000 in extra revenues (difference between the excess $30,000
and the $25,000 total shortfall amount) for any future periods.
Fourth Anniversary Date (average monthly revenues = $80,000):
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Since the average monthly revenues for twelve months ended on the
Fourth Anniversary Date once again fell below the $100,000 threshold,
the last 20% will not vest. However, the agent will have one last
chance to earn back these forfeited shares if it has or exceeds
$120,000 in average monthly revenues during the year that ends on the
Fifth Anniversary Date.
Regardless of whether any Warrant has "vested" as herein described,
unless and until the IPO and registration requirements described in the
"Securities Law Matters" section above have been satisfied, the agent holding
the Warrants may not purchase Warrant
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Shares under any circumstances. Further, an agent can "earn back" Warrants that
did not vest because average monthly sales fell below target only until
the fifth Anniversary Date. Warrants that do not vest by the fifth
Anniversary Date shall be forfeited and the applicable Warrant Shares may be
reissued in subsequent grants pursuant to the Plan, as determined by the
Company in its sole discretion.
Expiration Date
All unexercised Warrants will expire on the tenth Anniversary Date
occurring after issuance of the Warrant Certificate.
Sub-Agents
PaeTec Communications recognizes that many agents work with sub-agents and
that they may wish to assign some of their Warrants to sub-agents who help them
achieve and maintain their PaeTec revenue goals. Accordingly, while Warrants
generally are not transferable, limited transfers to sub-agents will be
permitted on the following conditions: (i) the proposed transferee must be a
genuine sub-agent and proof of its sales of PaeTec products and services will be
required, (ii) only vested Warrants may be assigned, (iii) the minimum
assignment must be for at least 50 Warrant Shares and must be in increments of
50 Warrant Shares, and (iv) the sub-agent transferee will be subject to the same
restrictions as the agent, e.g., Warrants are not exercisable until the IPO and
registration requirements described in the "Securities Law Matters" section
above have been satisfied. Warrant Shares may only be transferred in compliance
with the securities laws.
Transferability - Warrants and Warrant Shares
Except for transfers to sub-agents as previously discussed, Warrants may
not be assigned, transferred, pledged or otherwise disposed of and any attempted
transfer will be void. It is PaeTec's intention to "register" the Warrant
Shares issuable upon exercise of the Warrants once it becomes a public company
so that the Warrant Shares will generally be freely tradable in the public
market. However, it is possible that, for some reason that we cannot presently
foresee, this registration would be precluded or delayed. In that event, the
Warrant Shares could not be sold unless an exemption from the application of the
securities laws is available. Agents are urged to contact the Company prior to
purchasing Warrant Shares pursuant to the exercise of a Warrant to confirm that
the shares will in fact be freely tradable.
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Plan Summary
. 500,000 shares of Class A Common Stock of PaeTec Corp. have been set aside
for the Plan.
. Warrants are not exercisable in any event until after the IPO and
registration requirements described in the "Securities Law Matters" section
above have been satisfied.
. Warrants are issued with respect to an amount of shares determined by the
Company and the Exercise Price is set when the Warrant is granted.
. Warrants generally vest over a 4 year period (20% immediately upon
achieving the applicable revenue target after grant and then 20% as of the
subsequent Anniversary Dates for four years).
. For continued vesting, an agent must maintain the applicable revenue level
on average during each succeeding 12 months.
. Penalty for missing the applicable average monthly revenue target is loss
of vesting for that year (20%).
. To make up for any lost vesting, the agent must exceed his target revenue
level plus the shortfall amount on average during any succeeding twelve month
period, measured as of any succeeding Anniversary Date, up to and including
the fifth Anniversary Date after issuance of the Warrant Certificate.
. Unexercised Warrants will expire after ten years.
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NEITHER THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE NOR ANY SHARES
ACQUIRED UPON THE EXERCISE OF THE WARRANTS HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, NOR MAY
WARRANTS OR SHARES BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS, OR PURSUANT TO AN EXEMPTION FROM THESE REGISTRATION
REQUIREMENTS. THE WARRANTS AND SHARES MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH
THE CONDITIONS SPECIFIED IN THIS WARRANT CERTIFICATE.
WARRANTS
To Purchase ________ Shares of Class A Common Stock of
PAETEC CORP.
Dated: ________________
THIS WARRANT CERTIFICATE CERTIFIES THAT ___________________ (the "Holder")
is entitled, at any time after the Warrants represented by this Warrant
Certificate become exercisable as provided in Section 2.1, but prior to the
Expiration Date (as hereafter defined), to purchase from PaeTec Corp., a
Delaware corporation (the "Company"), _________ shares of the Company's Class A
Common Stock at a purchase price of $_______ per share (the "Exercise Price"),
all on the terms and conditions set forth in this Warrant Certificate.
1. DEFINITIONS
As used in this Warrant Certificate, the following terms have the meanings
set forth below:
"Agent" shall mean the independent sales agent of the Company named on
Schedule A hereto.
"Anniversary Date(s)" shall mean the anniversaries of the date as of which
the Agent's right to purchase Warrant Stock shall have become vested in
accordance with Section 2.1(b)(1) of this Warrant Certificate.
"Board of Directors" shall mean the Board of Directors of the Company.
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"Business Day" shall mean any day that is not a Saturday or Sunday or a day
on which banks are required or permitted to be closed in the State of New York.
"Class A Common Stock" shall mean the Class A Common Stock, $.01 par value
per share, of the Company, and any other securities of the Company into which
such Class A Common Stock is recapitalized or reclassified.
"Commission" shall mean the Securities and Exchange Commission or any
successor federal agency then administering the Securities Act and successor
federal securities laws.
"Exercise Price" shall mean the price indicated above at which a share of
Class A Common Stock may be purchased pursuant to this Warrant. The Exercise
Price may from time to time be adjusted in accordance with Section 4 hereof.
"Expiration Date" shall mean the tenth (10th) anniversary of the date of
this Warrant Certificate.
"Fair Market Value" shall mean the fair value of a share of Class A Common
Stock as determined in good faith by the Board of Directors, whose determination
shall be conclusive; provided, however, that if the Class A Common Stock is then
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listed or traded on a national securities exchange or automated quotation system
or is publicly held, then such term shall mean (a) if the Class A Common Stock
is listed or traded on any national securities exchange or listed for quotation
on the Nasdaq National Market or SmallCap Market, the last or closing sale
price, regular way, of the Class A Common Stock on the applicable date, as
reported in the principal consolidated transaction reporting system (in case of
a national securities exchange) or in the Wall Street Journal (in case of the
Nasdaq National Market or SmallCap Market); and (b) in all other cases, the
average of the high bid and low asked prices in the over-the-counter market,
such as the Nasdaq OTC Bulletin Board, as reported in The Wall Street Journal
or, if Class A Common Stock is not quoted by any such organization, the average
of the closing bid and asked prices as furnished by a professional market maker
making a market in the Class A Common Stock selected by the Board of Directors.
"Holder" shall mean the Person in whose name this Warrant is registered on
the books of the Company maintained for such purpose.
"Initial Public Offering" shall mean the closing of an initial public
offering underwritten by an investment banking firm on a firm commitment basis
pursuant to an effective registration statement under the Securities Act
covering the offer and sale by the Company of its common stock.
"Ninth Calendar Month" shall mean the ninth calendar month that follows the
calendar month during which this Warrant Certificate was issued to the Agent.
"Pending Order" shall mean a confirmed order for Company products and/or
services that has been received by the Agent and accepted by the Company, but
not yet installed, by the last day of the Ninth Calendar Month.
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"Person" shall mean any individual, firm, corporation, partnership, limited
liability company, joint venture, trust or unincorporated organization,
government (or agency or political subdivision thereof) or any other entity.
"Revenues" shall mean actual gross revenues derived by the Company from
sales of its products and services to customers generated by the Agent.
"Revenue Target" shall mean the amount of actual gross revenues, indicated
on Schedule A hereto, derived by the Company from sales of its products and
services to customers generated by the Agent.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Shortfall Amount" shall have the meaning given to it in Section 2.1
hereof.
"Vesting Installment" shall have the meaning given to it in Section 2.1
hereof.
"Warrants" shall mean the rights represented by this Warrant Certificate to
purchase Warrant Stock.
"Warrant Stock" shall mean the shares of Class A Common Stock that may be
purchased by the holders of the Warrants upon the exercise thereof.
2. EXERCISE OF WARRANTS
2.1. Time of Exercise. The Warrants may be exercised if and only if the
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condition set forth in subsection (a) of this Section 2.1 is satisfied, but then
only with respect to shares of Warrant Stock vested in accordance with
subsection (b) of this Section 2.1:
(a) the Initial Public Offering shall have been consummated at least one
year prior to the date of exercise and a registration statement on an applicable
form under the Securities Act, covering the issuance by the Company of all the
shares of Warrant Stock, shall have been declared effective by the Commission.
(b) the Warrants are exercisable only with respect to shares of Warrant
Stock which shall have vested in accordance with the following:
(1) twenty percent (20%) of the Warrant Stock shall vest (a) as of
the last day of the Ninth Calendar Month, if the Agent achieves
the Revenue Target during the Ninth Calendar Month, or (b) as of
the last day of the second calendar month that follows the
calendar month during which the final Pending Order is installed,
if the Company, in its sole discretion, postpones the month in
which the Agent must achieve the Revenue Target and if the Agent
actually achieves the Revenue Target with the sum of the Agent's
Revenues during the Ninth Calendar Month and the Agent's Revenues
from Pending Orders during the second calendar month that
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follows the calendar month during which the final Pending
Order is installed.
(2) the remaining eighty percent (80%) of the Warrant Stock shall
vest in four (4) equal annual installments (each, a "Vesting
Installment") of twenty percent (20%) as of the four immediately
succeeding Anniversary Dates, if and only if the Agent's average
monthly Revenues during the twelve month period ending on each
Anniversary Date shall equal or exceed an amount equal to the
Revenue Target; provided, however, that in the event that any
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Vesting Installment shall fail to vest as a result of the Agent's
average monthly Revenues not equaling or exceeding the Revenue
Target amount (the difference between the Revenue Target amount
and the Agent's average monthly Revenues is hereinafter referred
to as the "Shortfall Amount"), then such Vesting Installment may
vest as of any subsequent Anniversary Date, on or prior to the
fifth Anniversary Date, if the Agent's average monthly Revenues
during the twelve month period ending on the Anniversary Date in
such subsequent year equal or exceed the sum of the Revenue
Target amount and the Shortfall Amount. If the average monthly
Revenues for any such twelve month period exceed the sum of the
Revenue Target amount and the Shortfall Amount, however, no
credit will be given for any future periods with respect to such
excess Revenues.
(c) If the Agent fails to achieve the Revenue Target, then this Warrant
Certificate shall become null and void and the Agent shall forfeit the Agent's
right to purchase the Warrant Stock. Similarly, to the extent the Agent fails
to satisfy the vesting requirements of Section 2.1(b)(2) and, therefore, fails
to vest in the right to purchase some of the Warrant Stock on or prior to the
fifth Anniversary Date, then the Agent shall forfeit the Agent's right to
purchase Warrant Stock with respect to which the vesting requirements of Section
2.1(b)(2) have not been satisfied.
2.2. Manner of Exercise. At any time after the Warrants become exercisable
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as provided in Section 2.1 hereof until 5:00 p.m., New York time, on the
Expiration Date, Holder may exercise the Warrants on any Business Day for all or
any part of the number of shares of Warrant Stock purchasable hereunder,
provided that the Warrants may be exercisable in a maximum of two installments.
In order to exercise the Warrants, in whole or in part, Holder shall
deliver to the Company at its principal office at 290 Woodcliff Drive, Fairport,
New York 14450 (i) a written notice of Holder's election to exercise the
Warrants, substantially in the form appearing at the end of this Warrant as
Exhibit A ("Exercise Notice"), (ii) unless Holder indicates on the Exercise
Notice its intention to effect a cashless exercise (in which case no cash
payment of the Exercise Price shall be made by Holder), payment of the Exercise
Price for each share of Warrant Stock as to which the Warrant is exercised by a
certified or bank check, payable to the order of the Company, and (iii) this
Warrant Certificate. Upon receipt of all of these items the Company shall
deliver or cause to be delivered to Holder a certificate or certificates
representing the aggregate number of full shares of Warrant Stock issuable upon
such exercise, together with cash in lieu of
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any fraction of a share, as hereinafter provided; provided, however, that
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in the event that Holder elects to effect a cashless exercise, the Holder shall
be entitled to receive upon exercise a number of shares of Warrant Stock,
computed as of the date on which the Company received the Exercise Notice
together with this Warrant Certificate, determined by the following formula:
X = Y (A-B)
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A
Where X = the number of shares of Warrant Stock to be issued to
Holder;
Y = the aggregate number of shares of Warrant Stock with
respect to which Holder elected to effect a cashless
exercise;
A = the Fair Market Value per share of the Company's Class A
Common Stock (on the date of such calculation); and
B = the Exercise Price.
In lieu of payment of the Exercise Price, the Company shall
cancel such number of shares of Warrant Stock equal to the
difference (rounded up to the nearest whole number of shares)
between Y and X.
The stock certificate or certificates so delivered shall be registered in
the name of Holder. The Warrants shall be deemed to have been exercised and such
certificate or certificates shall be deemed to have been issued, and Holder
shall be deemed to have become a holder of record of such shares for all
purposes, as of the date the notice, together with the Exercise Price (if
applicable) and this Warrant Certificate, are received by the Company as
described above. If the Warrants shall have been exercised in part, the Company
shall, at the time of delivery of the certificate or certificates representing
Warrant Stock, deliver to Holder a new Warrant Certificate evidencing the right
of Holder to purchase the remaining shares of Warrant Stock, which new Warrant
Certificate shall in all other respects be identical to this Warrant Certificate
or, in the sole discretion of the Company, appropriate notation may be made on
this Warrant Certificate and the same returned to Holder.
2.3. Fractional Shares. The Company shall not be required to issue a
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fractional share of Class A Common Stock upon exercise of the Warrants. In lieu
of any fraction of a share which Holder would otherwise be entitled to purchase
upon exercise, the Company shall pay cash in an amount equal to the same
fraction of the Fair Market Value per share of Class A Common Stock on the date
of exercise.
3. RESERVATION AND AUTHORIZATION OF CLASS A COMMON STOCK
From and after the date hereof, the Company shall at all times reserve and
keep available for issuance upon the exercise of the Warrants such number of its
authorized but unissued shares of Class A Common Stock (or its authorized and
issued shares of Class A Common Stock held in treasury) as will be sufficient to
permit the exercise in full of the Warrants. All shares of Class A
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Common Stock which shall be so issuable, when issued upon exercise of the
Warrants and payment therefor in accordance with the terms of the Warrants,
shall be duly and validly issued and fully paid and nonassessable, and not
subject to preemptive rights.
4. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES.
The Exercise Price and the number of shares of Class A Common Stock covered
by the Warrants are subject to adjustment from time to time as provided in this
Section 4.
(a) In case the Company shall at any time after the date of this
Warrant Certificate (i) effect a distribution payable in shares of Class A
Common Stock to all holders of the outstanding Class A Common Stock, (ii)
subdivide the outstanding shares of its Class A Common Stock, (iii) combine the
outstanding Class A Common Stock into a smaller number of shares of Class A
Common Stock or (iv) issue any securities of the Company in a reclassification
or recapitalization of the Class A Common Stock, then the number and kind of
securities issuable upon exercise of the Warrants (commencing on the record date
for such distribution or the effective date of such subdivision, combination,
reclassification or recapitalization) shall be proportionately adjusted so that
the holder of the Warrants exercised after such time shall be entitled to
receive the aggregate number and kind of securities which, if such Warrants had
been exercised in full immediately prior to such date, the holder would have
owned upon such exercise and been entitled to receive by virtue of such
distribution, subdivision, combination, reclassification or recapitalization.
Such adjustment shall be made successively whenever any event listed above shall
occur.
(b) Upon each adjustment of the number of shares of Class A Common
Stock for which the Warrants are exercisable as provided in Section 4(a) hereof,
the per share Exercise Price payable upon exercise of the Warrants shall be
adjusted by multiplying the Exercise Price immediately prior to such adjustment
by a fraction (i) the numerator of which shall be the number of shares of Class
A Common Stock covered by the Warrants prior to such adjustment, and (ii) the
denominator of which shall be the number of shares of Class A Common Stock
covered by the Warrants immediately after such adjustment.
5. RESTRICTIONS ON TRANSFER
Except as otherwise provided in Section 8.2 hereof, the Warrants may not be
transferred, hypothecated or assigned without the prior written consent of the
Company, which consent may be given or withheld in the Company's sole
discretion. Holder, by acceptance of this Warrant Certificate, agrees to be
bound by the provisions of this Section 5.
Each certificate representing shares of Warrant Stock issued upon the exercise
of a Warrant shall be stamped or otherwise imprinted with the following legend,
unless in the opinion of counsel for the Company, such legend is not required
under applicable laws:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
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AMENDED, OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES HAVE
BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH SUCH ACT OR
SUCH LAWS."
6. LOSS, THEFT, DESTRUCTION OR MUTILATION
Upon receipt by the Company from any Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant Certificate and indemnity or security reasonably
satisfactory to the Company and reimbursement to the Company of all reasonable
expenses incidental thereto, and in case of mutilation upon surrender and
cancellation of the mutilated Warrant Certificate, the Company will execute and
deliver in lieu hereof a new Warrant Certificate of like tenor to such Holder;
provided that, in the case of mutilation, no indemnity or security shall be
required if this Warrant Certificate in identifiable form is surrendered to the
Company for cancellation.
7. LIMITATION OF LIABILITY AND RIGHTS AS STOCKHOLDER
No provision hereof, in the absence of affirmative action by Holder to
purchase shares of Class A Common Stock, and no enumeration herein of the rights
or privileges of Holder hereof, shall give rise to any liability of such Holder
for the Exercise Price of any Warrant Stock or as a stockholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company.
Prior to the exercise of the Warrants and the date of the stock certificate
representing the shares of Warrant Stock issuable upon exercise, the Holder of
this Warrant Certificate, as such, shall not be entitled to any rights of a
stockholder of the Company with respect to, or be deemed for any purpose the
holder of, shares for which the Warrants shall be exercisable, including without
limitation, the right to vote or to receive dividends or other distributions,
and shall not be entitled to receive any notice of any proceedings of the
Company, except as provided herein.
8. MISCELLANEOUS
8.1 Notice. Any notice, demand, request, consent, approval, declaration,
------
delivery or other communication hereunder to be made pursuant to the provisions
of this Warrant Certificate shall be sufficiently given or made if in writing
and either delivered in person with receipt acknowledged or sent by registered
or certified mail, return receipt requested, postage prepaid, or by a nationally
recognized overnight courier or by telecopy and confirmed by telecopy answer
back, addressed as follows:
(a) If to any Holder, at its last known address appearing on the books
of the Company maintained for such purpose.
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(b) If to the Company at:
PaeTec Corp.
Attn: Vice President - Finance
290 Woodcliff Drive
Fairport, New York 14450
Telecopy Number: (716) 340-2511
with a copy to:
PaeTec Corp.
Attn: General Counsel
290 Woodcliff Drive
Fairport, New York 14450
Telecopy Number: (716) 340-2563
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, or telecopied and confirmed by telecopy
answer back, one (1) Business Day after the same shall have been deposited with
a nationally recognized overnight courier or three (3) Business Days after the
same shall have been deposited in the United States mail.
8.2 Successors and Permitted Assigns. This Warrant Certificate and the
--------------------------------
rights evidenced hereby shall inure to the benefit of and be binding upon the
successors of the Company and the successors and permitted assigns of Holder.
Neither this Warrant Certificate nor the rights evidenced hereby may be
assigned, transferred, pledged or otherwise disposed of by Holder to any other
Person without the prior written consent of the Company, except where such
assignment (i) is made by Agent to a sub-agent thereof who has performed bona
fide services on behalf of Holder to sell products and services of the Company,
and Agent has submitted documentation or proof satisfactory to the Company
concerning such fact, (ii) relates only to vested shares of Warrant Stock, and
---
(iii) is for at least fifty (50) or more vested shares of Warrant Stock
represented hereby and is in increments of fifty (50) shares.
8.3 Amendment. This Warrant Certificate or the Warrant represented hereby
---------
may be modified or amended, or the provisions hereof or thereof waived, only
with the written consent of the Company and the Holder.
8.4. Severability. Wherever possible, each provision of this Warrant
------------
Certificate shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Warrant Certificate shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Warrant Certificate.
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8.5. Headings. The headings used in this Warrant Certificate are for the
--------
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
8.6. Governing Law. This Warrant Certificate and the Warrant represented
-------------
hereby shall be governed by the laws of the State of Delaware, without regard to
the provisions thereof relating to conflict of laws.
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IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed and its corporate seal to be impressed hereon as of the date set
forth below.
PAETEC CORP.
SEAL
By:____________________________
Name:
Title:
ATTEST:
________________________________
Secretary or Assistant Secretary
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SCHEDULE A
Name of Agent:_________________________
Number of Shares:______________________
Anniversary Dates:*
First Anniversary Date: ______________________
Second Anniversary Date: _____________________
Third Anniversary Date: ______________________
Fourth Anniversary Date: _____________________
Fifth Anniversary Date: ______________________
Revenue Target: $____________ in actual gross Revenues.
-------------------
* Anniversary Dates are subject to change in accordance with Section 2.1(b) of
the Warrant.
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EXHIBIT A
EXERCISE FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of the Warrant represented by the
attached Warrant Certificate irrevocably exercises the Warrant for the purchase
of _____ shares of Class A Common Stock of PaeTec Corp., and (check one) [ ]
herewith makes payment therefor by a certified or bank check payable to the
order of PaeTec Corp. or [ ] hereby elects to effect a cashless exercise, all at
the price and on the terms and conditions specified in the attached Warrant
Certificate and requests that certificates for the shares of Class A Common
Stock hereby purchased (and any securities or other property issuable upon such
exercise) be issued in the name of and delivered to the undersigned at the
address indicated below and, if such shares of Class A Common Stock shall not
represent all of the shares of Class A Common Stock covered by the Warrant, that
a new Warrant Certificate of like tenor and date for the balance of the shares
of Class A Common Stock be delivered to the undersigned at such address.
. . . . . . . . . . . . . . . .
(Name of Registered Owner)
. . . . . . . . . . . . . . . .
(Signature of Registered Owner)
. . . . . . . . . . . . . . . .
(Street Address)
. . . . . . . . . . . . . . . .
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond exactly with the
name of the registered owner of the Warrant as it appears in the
Company's books and records.
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