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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 2000
REGISTRATION NO. 333-93569
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
JATO COMMUNICATIONS CORP.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 4813 84-1466226
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification Number)
incorporation or organization) Classification Code Number)
</TABLE>
--------------------------
1099 18(TH) STREET
SUITE 2200
DENVER, CO 80202
(303) 226-8400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------------
GERALD K. DINSMORE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
JATO COMMUNICATIONS CORP.
1099 18(TH) STREET
SUITE 2200
DENVER, CO 80202
(303) 226-8400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
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<S> <C>
JAMES C.T. LINFIELD, ESQ. RICHARD L. NEVINS, ESQ.
COOLEY GODWARD LLP BAKER & MCKENZIE
2595 CANYON BOULEVARD, SUITE 250 805 THIRD AVENUE
BOULDER, CO 80302 NEW YORK, NY 10022
(303) 546-4000 (212) 751-5700
</TABLE>
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Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED PRICE(1)(2) FEE
<S> <C> <C>
Common Stock, $.01 par value................................ $125,000,000 $33,000
</TABLE>
(1) Includes shares that the underwriters have the option to purchase solely to
cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED FEBRUARY 11, 2000
PROSPECTUS
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME
THIS PROSPECTUS IS DELIVERED IN FINAL FORM. THIS PROSPECTUS IS NOT AN OFFER TO
SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SHARES
[LOGO]
JATO COMMUNICATIONS CORP.
COMMON STOCK
------------------
This is Jato's initial public offering of common stock. Jato is offering
shares in this offering.
We expect the public offering price to be between $ and $ per
share. Currently, no public market exists for the shares. After pricing of the
offering, we expect that the common stock will trade on the Nasdaq National
Market under the symbol "JATO."
Immediately following the closing of this offering, we will issue and sell
to a wholly owned subsidiary of Qwest Communications Corporation shares
of our common stock at an aggregate purchase price of $2.5 million in a private
placement at the public offering price per share set forth below. We also have
agreed to issue to the Qwest subsidiary a warrant for the purchase of
shares of our common stock at an aggregate exercise price of $5.0 million and at
an exercise price per share of 120% of the public offering price per share set
forth below.
INVESTING IN THE COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 3 OF THIS PROSPECTUS.
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<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public Offering Price................................... $ $
Underwriting Discounts.................................. $ $
Proceeds, before expenses, to Jato...................... $ $
</TABLE>
------------------------
The underwriters may also purchase up to an additional shares from
Jato at the public offering price, less the underwriting discount, within 30
days from the date of this prospectus to cover over-allotments. In specified
circumstances, 50% of the shares subject to the underwriters' over-allotment
option may be sold by several of our selling stockholders.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
We expect that the shares of common stock will be ready for delivery in New
York, New York on or about , 2000.
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MERRILL LYNCH & CO. BEAR, STEARNS & CO. INC.
THOMAS WEISEL PARTNERS LLC
----------------
The date of this prospectus is , 2000.
<PAGE>
[Inside front cover -- Picture of the sky with clouds overlaid with a map of the
United States overlaid with the Company's network architecture. The top right
hand corner of the inside front cover contains the text "Network Architecture."]
[Gatefold -- Map of United States highlighting selected markets throughout the
United States in which we currently provide and intend to provide service by the
end of 2000.
Text: The top left hand corner of the gatefold contains the text "Jato Service
Area."]
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Summary..................................................... 1
Risk Factors................................................ 3
Forward-Looking Statements.................................. 14
Use of Proceeds............................................. 15
Dividend Policy............................................. 15
Capitalization.............................................. 16
Dilution.................................................... 17
Selected Consolidated Financial Data........................ 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Business.................................................... 26
Management.................................................. 47
Principal and Selling Stockholders.......................... 58
Certain Relationships and Related Transactions.............. 61
Description of Capital Stock................................ 64
Shares Eligible for Future Sale............................. 68
Underwriting................................................ 70
Legal Matters............................................... 72
Experts..................................................... 73
Where You Can Find Additional Information................... 73
Index to Consolidated Financial Statements.................. F-1
</TABLE>
------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE YOU ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS. IF THEY GIVE YOU SUCH INFORMATION OR MAKE SUCH REPRESENTATIONS, YOU
MUST NOT RELY UPON THEM AS HAVING BEEN AUTHORIZED BY US OR THE UNDERWRITERS.
THIS PROSPECTUS IS NOT AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY,
ANY SECURITIES OTHER THAN THESE REGISTERED SECURITIES. IT IS ALSO NOT AN OFFER
TO, OR A SOLICITATION OF AN OFFER FROM, ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY OFFER OR SALE SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT WE HAVE HAD NO CHANGE IN OUR BUSINESS SINCE THE DATE OF THIS
PROSPECTUS OR THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AT
ANY TIME AFTER THE DATE OF THIS PROSPECTUS.
i
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS CERTAIN INFORMATION REGARDING OUR BUSINESS AND IS
QUALIFIED BY THE MORE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS
PROSPECTUS. YOU SHOULD CAREFULLY READ AND CONSIDER THIS ENTIRE PROSPECTUS,
INCLUDING THE "RISK FACTORS" AND THE CONSOLIDATED FINANCIAL STATEMENTS AND ALL
RELATED NOTES BEFORE MAKING AN INVESTMENT DECISION. UNLESS OTHERWISE NOTED, ALL
COMMON STOCK NUMBERS IN THIS PROSPECTUS ASSUME THE CONVERSION OF ALL OUTSTANDING
SHARES OF PREFERRED STOCK INTO COMMON STOCK UPON THE CLOSING OF THIS OFFERING
AND THAT THE UNDERWRITERS WILL NOT EXERCISE THEIR OVER-ALLOTMENT OPTION.
JATO COMMUNICATIONS CORP.
OVERVIEW
We provide our customers broadband data communications services including
high speed Internet access, e-commerce, wide and local area networking and
associated applications and services. Our services are tailored to meet the
growing data communications needs of small- and medium-sized businesses in our
targeted markets. We are developing a nationwide network platform based
principally on digital subscriber line, or DSL, technology. DSL is a data
transmission technology enabling high-speed access through an existing copper
connection located between the network service provider and the end user. We
have designed our network to accomodate a variety of local access technologies
in addition to DSL. We intend to offer our services primarily through a direct
sales force comprised of account managers, telesales personnel and specialized
account groups. As more fully described in "Business--Strategic Alliances," we
have entered into strategic arrangements with Lucent Technologies, Microsoft
Corporation and Qwest Communications Corporation in order to rapidly deploy our
network and achieve our sales and operating goals.
We have targeted 50 smaller metropolitan areas nationwide which we believe
present attractive business opportunities and are currently undeserved by
existing data communications providers. We estimate these secondary markets
contain, in aggregate, approximately 2.8 million businesses and 145 cities. We
expect to offer services in all 50 of our targeted secondary markets by the end
of 2000. As of January 31, 2000, we offered service in four markets and have
equipment installed in 160 incumbent carrier central offices which comprise an
incremental six markets. As of January 31, 2000, we had approximately 725 lines
in service and we are currently under contract to supply over 1,100 additional
lines to our customers.
Since inception, we have raised $69 million in equity from a group of
investors that includes the following entities or their affiliates: ABN-AMRO,
CEA Capital, Crest Communications, Hambrecht & Quist, Mayfield Fund, Microsoft,
TCI Satellite Entertainment and a wholly owned subsidiary of Qwest
Communications Corporation. Throughout this document, Qwest refers to Qwest or
its subsidiary, as applicable. In addition, we have a $50 million vendor
financing agreement with Lucent Technologies.
STRATEGY
Our objective is to become a leading nationwide provider of data
communications services to small and medium sized businesses in our target
markets. Our strategy includes the following key elements:
- Exploit early-mover advantage,
- Acquire customers through direct marketing and other sales channels,
- Offer a wide variety of Internet based applications and services, and
- Retain customers through superior customer care and support.
1
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THE OFFERING
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<S> <C>
Common stock offered by Jato.............. Shares(1)
Common stock outstanding after this
offering................................ Shares(2)
Use of proceeds........................... We intend to use approximately $ million of the net
proceeds from the offering and the concurrent placement
to Qwest to fund capital expenditures and operating
losses related to the continued deployment of our
network, an additional $ million to expand sales and
marketing activities and the remaining $ million for
working capital and other general corporate purposes.
Dividend policy........................... We currently intend to retain any future earnings to
fund the growth and development of our business.
Therefore, we do not currently anticipate paying cash
dividends.
Proposed Nasdaq National Market Symbol.... JATO
</TABLE>
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(1) Our selling stockholders may be entitled to sell shares in this offering in
specified circumstances. See "Principal and Selling Stockholders."
(2) Based on the number of shares outstanding on December 31, 1999. Includes
shares of common stock to be issued upon conversion of our preferred
stock (including shares of preferred stock issued subsequent to
December 31, 1999), and the shares of common stock to be issued to
Qwest at an assumed public offering price of $ per share upon the
closing of the concurrent placement. Excludes 4,074,950 shares of common
stock issuable upon the exercise of stock options outstanding as of
December 31, 1999, with a weighted average exercise price of $2.74 per
share, 127,000 of which were exercisable, 25,000 shares of common stock
issuable upon the exercise of outstanding warrants at an exercise price of
$3.00 per share and the shares of common stock issuable pursuant to a
warrant with an aggregate exercise price of $5.0 million and a per share
exercise price equal to 120% of the initial public offering price per share
in this offering. Unless we indicate otherwise, all information in this
prospectus pertaining to the purchase price per share for the shares to be
sold to Qwest in the concurrent placement assumes an initial public offering
price of $ per share and the exercise price per share for the warrant to
be issued to Qwest in the concurrent placement will be equal to 120% of an
assumed initial public offering price of $ per share. See
"Capitalization."
We own applications for federal registration and claim rights in the service
mark Jato. We also claim rights in the service marks JatoBridge and JatoDirect.
This prospectus also refers to trade names and trademarks of other companies.
We were incorporated in Delaware on June 12, 1998. Our principal executive
office is located at 1099 18(th) Street, Suite 2200, Denver, Colorado 80202 and
our telephone number is (303) 226-8400. The information contained on our Web
site, www.jato.net, does not constitute part of this prospectus.
2
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RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER
INFORMATION IN THIS PROSPECTUS BEFORE DECIDING WHETHER TO INVEST IN SHARES OF
OUR COMMON STOCK. OUR BUSINESS AND RESULTS OF OPERATIONS COULD BE SERIOUSLY
HARMED BY ANY OF THE FOLLOWING RISKS. THE TRADING PRICE OF OUR COMMON STOCK
COULD DECLINE DUE TO ANY OF THESE RISKS, AND YOU MAY LOSE PART OR ALL OF YOUR
INVESTMENT.
WE HAVE A SHORT OPERATING HISTORY UPON WHICH TO BASE YOUR INVESTMENT DECISION
We were formed in June 1998 and have limited historical financial and
operating data upon which you can evaluate our business and prospects. Prior to
December 1999, we were considered a development stage company. We commenced
commercial operations in June 1999. Investors in our common stock must consider
our business and prospects in light of the risks and difficulties typically
encountered by companies in their early stages of operations, particularly those
in rapidly evolving markets such as the telecommunications industry.
BECAUSE THE MARKET FOR DSL AND OTHER BROADBAND SERVICES IS NEW AND EVOLVING, WE
CANNOT PREDICT ITS FUTURE GROWTH OR ULTIMATE SIZE
The market for DSL and other broadband services is in its early stage of
development. Since this market is new and evolving and because our current and
future competitors are likely to introduce competing services, we cannot
accurately predict the rate at which this market will grow, if at all, or
whether new or increased competition will result in market saturation. Various
providers of similar communications services are testing products from various
suppliers for various applications, and suppliers have not broadly adopted an
industry standard. If the market for these services, or the 50 target markets we
have identified, fail to develop, grow more slowly than anticipated or become
saturated with competitors, these events could impair our ability to generate
revenue and achieve profitability.
OUR STRATEGY OF TARGETING SECONDARY MARKETS IS UNPROVEN
We believe that the combination of our unproven business model and the
highly competitive and fast changing market in which we compete makes it
impossible to predict the extent to which our network services will achieve
market acceptance and our overall success. Our larger competitors have chosen to
target the largest, most populous markets in the U.S., while we have elected to
focus on smaller, less populous markets. To be successful, we must develop and
market network services that are widely accepted by businesses at profitable
prices. We may never be able to deploy our network as planned, achieve
significant market acceptance, achieve favorable operating results or
profitability or generate sufficient cash flow to repay our debt.
WE EXPECT OUR LOSSES AND NEGATIVE CASH FLOW TO CONTINUE AS WE EXPAND OUR NETWORK
SERVICES
We have incurred losses and experienced negative operating cash flow for
each month since our formation. As of December 31, 1999, we had an accumulated
deficit of approximately $15.3 million. We intend to rapidly and substantially
increase our capital expenditures and will incur materially higher operating
expenses in an effort to expand our network services. Furthermore, as a result
of recent stock and option grants, we anticipate that there will be significant
charges to earnings in future periods. As a result of these factors, we expect
to incur substantial operating and net losses and negative operating cash flow
for the foreseeable future. We will need to obtain additional financing to
expand our network, pay our expenses, and make payments on our debt. We cannot
give you any assurance about whether or when we will have sufficient revenues to
satisfy our funding requirements or pay our debt service obligations.
3
<PAGE>
OUR FAILURE TO ACHIEVE OR SUSTAIN MARKET ACCEPTANCE AT DESIRED PRICING LEVELS
COULD IMPAIR OUR ABILITY TO ACHIEVE PROFITABILITY OR POSITIVE CASH FLOW
We are expanding our operations based in part upon our prediction of future
prices that we will attain for our services. Our failure to achieve or sustain
market acceptance at desired pricing levels could impair our ability to achieve
profitability or positive cash flow, which would have a material adverse effect
on our business, prospects, operating results and financial condition. Prices
for high-speed Internet access and other data transport and networking services
have fallen historically and we expect this trend will continue and may
accelerate. In addition, to expedite customer acquisition in new markets, we
have reduced and expect that we will need to continue to reduce installation
costs, provide customer premise equipment at prices below our own costs and
provide discounted monthly service fees. Accordingly, we cannot predict to what
extent we may need to reduce our prices to remain competitive or whether we will
be able to sustain future pricing levels as our competitors introduce competing
services or similar services at lower prices.
OUR OPERATING RESULTS IN ONE OR MORE FUTURE PERIODS ARE LIKELY TO FLUCTUATE
SIGNIFICANTLY AND COULD CAUSE OUR STOCK PRICE TO BE VOLATILE
Our annual and quarterly operating results are likely to fluctuate
significantly in the future due to numerous factors, many of which are outside
of our control. These factors include:
- our ability or inability to deploy our network on a timely basis;
- the rate of customer acquisition and turnover;
- the prices our customers are willing to pay;
- the amount and timing of expenditures relating to the expansion of our
network and service offerings;
- the timing and availability of central office collocation facilities and
transport facilities;
- the expansion and success of our strategic alliances and relationships;
- introduction of new services or technologies by our competitors;
- price competition;
- the ability of our equipment, applications and service suppliers to meet
our needs;
- regulatory developments, including interpretations of the 1996
Telecommunications Act;
- technical difficulties or network downtime; and
- the condition of the communications and network service industries and
general economic conditions.
Because of these factors, our operating results in one or more future
periods could fail to meet or exceed the expectations of securities analysts or
investors. In that event, the trading price of our common stock would likely
decline.
WE DEPEND ON OUR BILLING, CUSTOMER SERVICE AND INFORMATION SUPPORT SYSTEMS TO
OPERATE OUR BUSINESS
Information and processing systems are vital to our growth and ability to
monitor costs, bill customers, process customer orders and achieve operating
efficiencies. Our plans for the development and implementation of our
operational and support systems rely, for the most part, on acquiring products
and services offered by third-party vendors and integrating those products and
services in-house to produce efficient operational solutions. However, we may
not successfully identify all of our
4
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information and processing needs or implement these systems on a timely basis or
at all, and these systems may not perform as expected.
We have only recently begun to acquire rights to use these vital products
and services. In addition, our right to use these systems will be dependent upon
license agreements with third-party vendors. Some of those agreements may be
cancelable by the vendor and the cancellation or nonrenewal of these agreements
may interrupt our service until we find alternative suitable vendors.
OUR DEPENDENCE ON INCUMBENT CARRIERS FOR COLLOCATION AND TRANSMISSION FACILITIES
COULD DELAY OUR ABILITY TO PROVIDE OUR SERVICES
We must use copper telephone lines controlled by the incumbent carriers to
provide DSL connections to customers. We also depend on the incumbent carriers
for collocation, for a substantial portion of the transmission facilities we use
to connect our equipment in incumbent carrier central offices to our network and
for testing and maintaining the quality of the copper lines that we use. In many
cases, we may be unable to obtain access to collocation and transmission
facilities from the incumbent carriers, or to gain access at acceptable rates,
terms and conditions, including timeliness. Lengthy periods between our request
for and the actual provision of the collocation space and telephone lines will
cause us to incur significant expenses in advance of the receipt of revenues. If
sales that we forecast for a particular period do not occur due to these delays,
or due to the loss of potential customers, our business, prospects, operating
results, and financial condition could be materially and adversely affected.
Because we will compete with incumbent carriers in our markets, they may be
reluctant to cooperate with us. If this occurs, we may not have alternate means
of connecting our DSL equipment with the copper lines or connecting our
equipment in central offices to our switching centers. The number of other
competitive carriers that request collocation space will also affect the
availability of collocation space and transmission capacity. Delays in obtaining
access to collocation space and telephone lines or the rejection of our
applications for collocation could result in delays in, and increased expenses
associated with, the rollout of our services.
WE DEPEND ON THE QUALITY AND AVAILABILITY OF EXISTING COPPER LINES
We depend significantly on the quality and availability of incumbent
carriers' copper lines and their maintenance of such lines. We may not be able
to obtain the copper lines and the services we require from incumbent carriers
at satisfactory quality levels, rates, terms and conditions. Our inability to do
so could delay the expansion of our networks and degrade the quality of our
services to our customers.
WE ARE UNABLE TO CONTROL THE TERMS AND CONDITIONS UNDER WHICH WE GAIN ACCESS TO
INCUMBENT CARRIER COLLOCATION AND TRANSMISSION FACILITIES WHICH COULD CAUSE
DELAYS IN OUR EXPANSION INTO ADDITIONAL MARKETS
We are required to enter into and implement interconnection agreements in
each of our target regions with the appropriate incumbent carrier in order to
provide service in those regions. We cannot control the terms under which we
collocate our equipment, connect to copper lines or gain the use of an incumbent
carrier's transmission facilities. State tariffs, state public utility
commissions and interconnection agreements with the incumbent carriers determine
the price, terms and conditions under which collocation space is made available.
We may be unable to negotiate, enter into or renew requisite interconnection
agreements on acceptable terms or at all. In addition, disputes may arise
between us and the incumbent carriers with respect to interconnection
agreements, and we may be unable to resolve disputes in our favor. If we are
unable to enter into or experience a delay in obtaining interconnection
agreements, this inability or delay could cause delays in our expansion into
additional markets. In addition, the interconnection agreements are subject to
Federal Communications
5
<PAGE>
Commission, or FCC, state commission and judicial oversight. These government
authorities may modify the terms of the interconnection agreements in a way that
harms our business.
OUR DEPENDENCE ON THIRD PARTIES FOR TRANSPORT CONNECTIONS COULD EXPOSE US TO
DELAYS
We depend on the availability of transport connections from third parties to
connect our equipment within and between our markets. These third party carriers
include interexchange carriers, incumbent carriers and other competitive
carriers. Many of these entities are, or may become, our competitors. We may be
unable to negotiate and renew favorable supply agreements. Further, we depend on
the timeliness of these companies to process our orders for customers who seek
to use our services. Moreover, the backhaul and backbone transport providers
whose networks we lease may be unable to obtain or maintain permits and
rights-of-way necessary to develop and operate existing and future networks.
WE WILL RELY ON DIRECT SALES, WHICH MAY NOT BE A COST-EFFECTIVE METHOD OF
SELLING OUR SERVICES TO BUSINESSES
We will market and sell our products through a direct sales force supported
by a dedicated marketing staff. The market for DSL and other broadband services
is new, and our direct sales efforts may not be a cost-effective means of
selling these services to businesses. Many of our competitors are selling their
services indirectly through ISPs, or Internet service providers, other carriers,
value-added resellers, and system integrators. Our direct method may prove to be
a more costly approach. Although we believe that our success depends largely on
maintaining a dedicated marketing staff and sales force, we may not achieve a
level of sales sufficient to justify maintaining our own marketing staff and
sales force.
WE WILL ALSO RELY ON INDIRECT SALES, WHICH MAY BE INEFFECTIVE
We will also rely on indirect sales channels for the marketing and sales of
our network services. We will seek to establish relationships with numerous
service providers, including ISPs, interexchange carriers, other competitive
carriers and value added resellers to gain access to customers. All of our
agreements to date with service providers are non-exclusive, and we anticipate
that future agreements will also be on a non-exclusive basis, allowing service
providers to resell services offered by our competitors. These agreements are
generally short term, and can be cancelled by the service provider without
significant financial or other consequences. We cannot control how these service
providers perform and cannot be certain that their performance will be
satisfactory to us or our customers. Many of these companies also compete with
us. If the number of customers we obtain through indirect sales channels is
significantly lower than our forecast for any reason, or if the service
providers with which we have contracted are unsuccessful in competing in their
own intensely competitive markets, we will be unable obtain the market
penetration required to achieve and sustain profitability.
INTENSE COMPETITION IN OUR TARGET MARKETS COULD PREVENT US FROM INCREASING
REVENUE AND ACHIEVING OR SUSTAINING PROFITABILITY
Our industry is highly competitive. We have not obtained significant market
share in any of the areas where we offer or intend to offer services, nor do we
expect to do so in the near future given the size of the local
telecommunications market, the intense competition and the diversity of customer
needs. In each market area in which we provide or intend to provide services, we
compete or will compete with several other service providers and the variety of
technologies they use for local access,
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high-speed connections. We anticipate the level of competition in our industry
to intensify in the future due, in part, to increasing consolidation. We
anticipate significant competition from:
- Incumbent local exchange carriers, which have begun deploying DSL-based
services or other high-speed data communications services, combined with
existing wide area, metropolitan and local area networks;
- DSL-based competitive local exchange carriers which are currently
providing DSL-based services in numerous areas;
- Interexchange carriers which are building and expanding their networks to
support high-speed local access, including competitive DSL-based services,
combined with metropolitan and wide area networks, as well as offering a
full range of Internet services and applications;
- Cable modem service providers which are offering high-speed Internet
access over cable networks, and principally to residential customers, have
positioned themselves to do the same for businesses;
- Traditional competitive local exchange carriers which have recently begun
offering DSL services to their customers;
- ISPs which have begun to develop high-speed access capabilities to augment
their existing products and services; and
- Providers utilizing alternative technologies, such as wireless and
satellite-based data service providers.
Most of our current and potential competitors have longer operating
histories, larger customer bases, more established relationships with customers
and suppliers in their respective industries, greater name recognition and
significantly greater financial, technical, marketing, service support and other
resources than Jato. We also face intense competition with respect to the prices
and types of services and products we offer. As a result, our competitors may be
able to respond more quickly than we can to new and evolving opportunities,
technologies or customer demands. For more information regarding our competition
see "Business -- Competition."
WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL CAPITAL TO FUND OUR OPERATIONS WHEN
NEEDED
We have yet to generate significant revenues, and have no assurance of
future revenues. We believe that our cash and cash equivalents at December 31,
1999, additional funds received from Microsoft and Qwest, the proceeds from this
offering and amounts available under our Lucent credit facility, will be
adequate to fund our capital expenditures and operating losses through September
2000. We will not have completed our network deployment by then and will need
additional capital, whether or not our estimate on how long current capital
resources will last is accurate. If we are not able to raise additional funds
when needed, we would be required to significantly scale back our operations.
This would have a material adverse effect on our business, prospects, operating
results and financial condition. There can be no assurance that additional
capital will be available on terms acceptable to us, or at all.
The expansion and development of our business will require significant
additional capital. To realize our network deployment objectives, we spent
$21.2 million in 1999, and expect to spend an additional $150 million in 2000.
We will require additional financing to fund our capital expenditures and
operating losses in the future. Our actual funding requirements may differ
materially if our assumptions are incorrect.
We may be unable to obtain any future equity or debt financing on acceptable
terms or at all. Recently the financial markets have experienced extreme price
fluctuations. A market downturn or
7
<PAGE>
general market uncertainty may adversely affect our ability to secure additional
financing. If we are unable to obtain additional capital or are required to
obtain it on terms less satisfactory than what we desire, we will need to delay
deployment of our services or take other actions that could adversely affect our
business, prospects, operating results and financial condition. To date, our
cash flow from operations has been insufficient to cover our expenses and
capital needs. Please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
WE MAY NOT BE ABLE TO SERVICE EXISTING AND FUTURE DEBT OBLIGATIONS, WHICH MAY BE
SUBSTANTIAL, OR COMPLY WITH RESTRICTIVE COVENANTS IMPOSED BY OUR LENDERS
Lucent has provided us with a $50 million credit facility which is secured
by substantially all of our network equipment. We expect to borrow the entire
amount of this facility. We expect to seek additional financing in the near
future, which may include the incurrence of substantial debt obligations. We are
not currently generating cash flows, and have no assurances of future cash
flows, sufficient to fund our operations or repay existing or future debt. Thus,
there is no assurance that we will be able to repay our existing debt or any
additional debt in the future. In addition to the restrictive covenants imposed
on us by our credit facility with Lucent, any debt we are able to raise in the
future will likely contain restrictive covenants that would place additional
burdens on our ability to execute our business plan or incur additional debt.
CHANGES TO REGULATIONS AFFECTING THE TELECOMMUNICATIONS INDUSTRY COULD REDUCE
DEMAND FOR OUR PRODUCTS OR ADVERSELY AFFECT OUR RESULTS OF OPERATIONS
We are subject to regulation by the FCC, and by state public service and
public utility commissions as a provider of telecommunications services. Changes
in existing laws, policies or regulations in the states and localities we serve
or by the FCC could materially and adversely affect our business, prospects,
operating results or financial condition, particularly if those legal,
regulatory or policy changes increase the cost and regulatory burdens of
providing services. There can be no assurance that regulatory authorities in the
areas we serve or the FCC will not take actions having an adverse effect on our
business, prospects, financial condition or operating results. The 1996
Telecommunications Act has significantly altered regulation of the
telecommunications industry by preempting state and local laws to the extent
that they prevent competition and by imposing a variety of new duties on
competitive carriers and incumbent carriers in order to promote competition in
local exchange and access services. Although we believe that the 1996
Telecommunications Act and other trends in federal and state legislation and
regulation that favor increased competition are to our advantage, there can be
no assurance that the increased competitive opportunities or other changes in
current regulations or future regulations at the federal or state level will not
have a material adverse effect on our ability to expand into additional markets.
See "Business -- Government Regulation."
FAILURE TO MANAGE OUR GROWTH COULD ADVERSELY AFFECT OUR BUSINESS
To meet our objectives, we need to rapidly and significantly expand our
operations. Our expansion to date has challenged our management, financial
controls, operations systems, personnel and other resources. Any future rapid
expansion would increase these strains. If our marketing strategy is successful,
we may experience difficulties responding to customer demand for services and
technical support in a timely manner and in accordance with customer
expectations. As a result, rapid growth of our business would make it difficult
to implement successfully our strategy to provide superior customer service. To
manage the expected growth of our operations, we must:
- improve existing and implement new operational, financial and management
information controls, reporting systems and procedures;
8
<PAGE>
- hire, train and manage additional qualified personnel;
- expand and upgrade our core technologies; and
- effectively manage multiple relationships with our customers, suppliers
and other third parties.
We may not be able to install management information and control systems in
an efficient and timely manner, and our current or planned personnel, systems,
procedures and controls may not be adequate to support our future operations.
Failure to manage our future growth effectively could adversely affect the
expansion of our customer base and service offerings. Any failure to
successfully address these issues could materially and adversely affect our
business, prospects, operating results and financial condition.
UNLESS WE ARE ABLE TO KEEP PACE WITH RAPIDLY CHANGING TECHNOLOGY, WE WILL NOT BE
ABLE TO SUSTAIN OR GROW OUR BUSINESS
The telecommunications industry is subject to rapid and significant
technological changes, including continuing developments in DSL technology,
which does not have widely accepted standards, and alternative technologies for
providing high-speed data communications. As a consequence:
- we will rely on third parties, including some of our competitors and
potential competitors, to develop and provide us with access to
communications and networking technology;
- our success will depend on our ability to anticipate or adapt to new
technology on a timely basis; and
- we expect that new products and technologies will emerge that may be
superior to, or may not be compatible with, our products and technologies.
If we fail to adapt successfully to technological changes or fail to obtain
access to important technologies, our business will suffer.
WE MAY BE UNABLE TO EFFECTIVELY EXPAND OUR NETWORK SERVICES AND PROVIDE HIGH
PERFORMANCE TO A SUBSTANTIAL NUMBER OF END USERS
Due to the limited deployment to date of our network services, we cannot
guarantee that our network will be able to connect and manage a substantial
number of end users while achieving high performance. Further, our network may
be unable to achieve and maintain competitive digital transmission speeds.
Actual transmission speeds on our network will depend on a variety of factors
and many of these factors are beyond our control, including the type of DSL
technology deployed, the distance an end user is located from a central office,
the quality of the telephone lines, the presence of interfering transmission on
nearby lines and other factors. As a result, we may not be able to achieve and
maintain digital transmission speeds that are attractive in the market which
would harm our business.
OUR SERVICES MAY SUFFER BECAUSE THE TELEPHONE LINES WE REQUIRE MAY BE
UNAVAILABLE OR IN POOR CONDITION
Our ability to provide DSL-based services to potential customers depends on
the quality, physical condition, availability and maintenance of telephone lines
within the control of the incumbent carriers. We believe that the current
condition of telephone lines in many cases will be inadequate to permit us to
fully implement our network services. In addition, the incumbent carriers may
not maintain the telephone lines in a condition that will allow us to implement
our network effectively. The telephone lines may not be of sufficient quality or
the incumbent carriers may claim they are not of sufficient quality to allow us
to fully implement or operate our network services. Further, some customers use
9
<PAGE>
technologies other than copper lines to provide telephone services, and DSL
might not be available to these customers.
IF WE ARE UNABLE TO RETAIN AND HIRE OUR KEY PERSONNEL, WE MAY NOT BE ABLE TO
SUCCESSFULLY ACHIEVE OUR OBJECTIVES
Our success depends on the performance of our key personnel in executing our
business plan including the continued service of Gerald K. Dinsmore, our
President and Chief Executive Officer, William D. Myers, our Senior Vice
President, Finance and Strategic Planning and Chief Financial Officer, Terri L.
Compton, our Executive Vice President, Operations and Chief Operating Officer
and Rex A. Humston, our Senior Vice President, Engineering and Chief Technology
Officer. Several members of our senior management team have joined Jato very
recently. If they are unable to effectively integrate themselves into our
business or work together as a management team, our business will suffer. See
"Management." In addition, our employees, including members of our senior
management team, may terminate their employment with us at any time. For
instance, Brian Gast, Leonard Allsup, and Bruce Dines have resigned their
officer positions. Messrs. Gast, Allsup and Dines have assisted us in
identifying successors and are participating in an orderly transition process.
In addition, Messrs. Gast and Allsup will continue to serve as directors until
June 30, 2000. We also do not have "key person" life insurance policies on any
of our employees. If any of our key employees left or was seriously injured and
unable to work and we were unable to find a qualified replacement, our business
could be harmed. Our future success also depends on our continuing ability to
identify, attract, motivate and retain highly skilled personnel. We plan to
significantly expand our operations, and we will need to hire additional
personnel as our business grows. The industry in which we compete has a high
level of employee mobility and aggressive recruiting of skilled personnel. We
face intense competition for qualified personnel, particularly in network
engineering, sales and marketing and product development. If we are unable to
continue to employ our key personnel or to attract and retain qualified
personnel in the future our business, prospects, operating results and financial
condition could be materially and adversely affected.
RELIANCE ON LUCENT FOR NETWORK DEPLOYMENT AND MONITORING COULD RESULT IN
SIGNIFICANT DELAYS AND COSTS
We entered into a strategic alliance with Lucent to install, integrate,
monitor and maintain our nationwide broadband network. Any failure or inability
by Lucent to perform these functions in a timely manner could cause significant
delays and costs in providing services to our existing and prospective customers
and deploying our network in our target markets. Any such failure could
materially and adversely affect our business, prospects, operating results and
financial condition. In addition, our alliance with Lucent is non-exclusive;
they are providing or may provide similar services to our competitors.
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<PAGE>
OUR DEPENDENCE ON THIRD PARTIES FOR EQUIPMENT, INSTALLATION AND PROVISION OF
FIELD MAY EXPOSE US TO SUPPLY AND OTHER INTERRUPTIONS
We currently plan to purchase all of our equipment from a number of vendors
and outsource substantially all of the installation and field service of our
networks to third parties, principally Lucent. Our reliance on third party
vendors involves a number of risks, including the absence of guaranteed capacity
and reduced control over delivery schedules, quality assurance, production
yields and costs. If any of our suppliers reduces or interrupts its supply, or
if any significant installer or field service provider interrupts its service to
us, this reduction or interruption could disrupt our business. Our suppliers may
be unable to manufacture and deliver the amount of equipment we order, or the
available supply may be insufficient to meet our demand. If our suppliers or
licensors enter into competition with us, or if our competitors enter into
exclusive or restrictive arrangements with the suppliers or licensors, then
these events may materially and adversely affect the availability and pricing of
the equipment we purchase.
WE COULD BE ADVERSELY AFFECTED BY A NETWORK FAILURE
Our success will depend upon the capacity, reliability and security of our
network. Our failure to maintain and expand our network infrastructure on a
timely basis or adapt it to either changing customer requirements or evolving
industry standards could have a material adverse effect on our business,
prospects, operating results and financial condition. Because we expect that a
substantial portion of our future revenues will be derived from providing
tailored applications and services to our customers, we must continue to expand
and adapt our network infrastructure as the number of end users and the amount
of information they wish to transfer increase and as customer requirements
change. If end user demand evolves to favor higher downstream transmission
speeds than those we currently offer, we cannot be sure that we will be able to
expand or adapt our network infrastructure to meet this additional demand or our
customers' changing requirements on a timely basis, at a commercially reasonable
cost, or at all.
INTERFERENCE OR CLAIMS OF INTERFERENCE COULD DELAY OUR NETWORK DEPLOYMENT OR
HARM OUR SERVICES
All transport technologies deployed on copper telephone lines have the
potential to interfere with, or to be interfered by, other transport
technologies on the copper telephone lines. We believe that our DSL
technologies, like other transport technologies, do not interfere with existing
voice services. There are several initiatives underway to establish national
standards and principles for the deployment of DSL technologies. We believe that
our technologies can be deployed consistently with these evolving standards.
Nevertheless, incumbent carriers may claim that the potential for interference
permits them to restrict or delay our deployment of DSL services. Interference
could degrade the performance of our services or make us unable to provide
service on selected lines. The procedures to resolve interference issues between
competitive carriers and incumbent carriers are still being developed, and these
procedures may not be effective. We may be unable to successfully negotiate
interference resolution procedures with incumbent carriers. Moreover, incumbent
carriers may make claims regarding interference or unilaterally take action to
resolve interference issues to the detriment of our services. State or federal
regulatory bodies could also institute responsive actions. Interference, or
claims of interference, if widespread, would adversely affect our speed of
deployment, reputation, brand image, service quality and customer satisfaction
and retention.
UNCERTAIN FEDERAL AND STATE TAX AND OTHER SURCHARGES ON OUR SERVICES MAY
INCREASE OUR PAYMENT OBLIGATIONS
Telecommunications providers pay a variety of surcharges and fees on their
gross revenues from interstate and intrastate services. The division of our
services between interstate and intrastate services is a matter of
interpretation, and in the future the FCC or relevant state commission
authorities may
11
<PAGE>
contest this division. A change in the characterization of the jurisdiction of
our services could cause our payment obligations to increase. In addition,
pursuant to periodic revisions by state and federal regulators of the applicable
surcharges, we may be subject to increases in the surcharges and fees currently
paid.
CLAIMS AGAINST US ALLEGING OUR INFRINGEMENT OF A THIRD PARTY'S INTELLECTUAL
PROPERTY COULD RESULT IN SIGNIFICANT EXPENSE TO US AND RESULT IN OUR LOSS OF
SIGNIFICANT RIGHTS
We rely on a combination of licenses, confidentiality agreements and other
contracts to establish and protect our intellectual property rights. We have
applied for service marks on certain terms and symbols that we believe are
important for our business. We currently have no patents or patent applications
pending. The steps we have taken may be inadequate to protect our technology or
other intellectual property. Third parties may assert infringement claims
against us and, in the event of an unfavorable ruling on any claim, we may be
unable to obtain a license or similar agreement to use intellectual property we
rely upon to conduct our business. In addition, these claims may divert
management's attention and be costly to defend. We also rely on unpatented trade
secrets and know-how to maintain our competitive positions, which we seek to
protect, in part, by confidentiality agreements with employees, consultants and
others. However, these agreements may be breached or terminated, and we may not
have adequate remedies for any breach. In addition, our competitors may
otherwise learn or discover our trade secrets. Our management personnel were
previously employees of other telecommunications companies. In many cases, these
individuals are conducting activities for us in areas similar to those in which
they were involved prior to joining us. As a result, we or our employees could
be subject to allegations of violation of trade secrets and other similar
claims.
A GENERAL ECONOMIC DOWNTURN COULD ADVERSELY IMPACT DEMAND FOR OUR SERVICES
In the last few years the general health of the economy has been relatively
strong and growing, which has led to increased capital spending by individuals
and growing companies to keep pace with rapid technological advances. To the
extent the general economic health of the U.S. declines from recent historically
high levels, or to the extent businesses and individuals fear a decline is
imminent, these businesses and individuals may reduce expenditures for our
services. Any decline or concern about an imminent decline could delay decisions
among certain of our customers to roll out our services or could delay decisions
by prospective customers to make initial evaluations of our services.
CONTROL BY EXISTING STOCKHOLDERS MAY LIMIT YOUR ABILITY TO INFLUENCE THE OUTCOME
OF DIRECTOR ELECTIONS AND OTHER MATTERS REQUIRING STOCKHOLDER APPROVAL
Following the offering, our executive officers, directors and our
stockholders who currently own over five percent of our common stock will, in
the aggregate, beneficially own approximately % of our outstanding common
stock. These stockholders, if they vote together, will be able to significantly
influence matters that we require our stockholders to approve, including
electing directors and approving significant corporate transactions. This
concentration of ownership may also have the effect of delaying or preventing a
change in control of Jato, which could result in a lower stock price. See
"Principal and Selling Stockholders" for information about the ownership of
common stock by our executive officers, directors and principal stockholders.
OUR FAILURE AND THE FAILURE OF THIRD PARTIES TO BE YEAR 2000 COMPLIANT COULD
NEGATIVELY IMPACT OUR BUSINESS AND OUR RESULTS OF OPERATIONS MAY BE MATERIALLY
ADVERSELY AFFECTED
Many computer programs have been written using two digits rather than four
to define the applicable year. This posed a problem at the end of the century
because these computer programs may have recognized a date using "00" as the
year 1900 rather than the year 2000. This, in turn, could have resulted in major
system failures or miscalculations.
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<PAGE>
Our software did not experience any date related problems on January 1,
2000. However, our software may contain undetected errors or defects associated
with Year 2000 date functions that have not yet surfaced. If any such errors or
defects do exist, we may incur material costs to resolve them. The internal
systems used to run our business utilize third-party hardware and software.
Although to date we have not experienced any date related problems with
third-party software, we cannot assure you that such problems may not surface in
the next few months, especially on February 29, 2000. In addition, although we
believe that the costs of ensuring that these systems do not experience any date
related problems will not be material, we cannot assure you of this.
WE EXPECT OUR STOCK PRICE TO BE VOLATILE AND YOU MAY NOT BE ABLE TO RESELL
SHARES AT OR ABOVE THE OFFERING PRICE
You should be aware that the stock of companies in our industry have
experienced extreme price and volume fluctuations. The price at which our common
stock will trade will depend upon many factors, including our quarterly and
annual operating results, variations between our actual results and analyst and
investor expectations, announcements by us or others and developments affecting
our business, investor perceptions of our company and comparable public
companies, changes in our industry and general market and economic conditions.
Some of these factors are beyond our control.
WE HAVE NOT PAID AND DO NOT INTEND TO PAY DIVIDENDS
We have not paid any dividends, and we do not intend to pay cash dividends
in the foreseeable future. Our current financing documents contain provisions
which restrict our ability to pay dividends.
CERTAIN PROVISIONS IN OUR CORPORATE CHARTER AND BYLAWS MAY DISCOURAGE TAKE-OVER
ATTEMPTS AND THUS DEPRESS THE MARKET PRICE OF OUR STOCK
Some of the provisions that will be included in our restated certificate of
incorporation and bylaws may discourage, delay or prevent a merger or
acquisition at a premium price. These provisions include:
- authorizing the issuance of "blank check" preferred stock;
- providing for a classified Board of Directors with staggered, three-year
terms and limiting the removal of directors by the stockholders to removal
for cause;
- eliminating the ability of stockholders to act by written consent in lieu
of a stockholder meeting or to call a special meeting of stockholders;
- requiring a super-majority stockholder vote to effect certain amendments;
and
- requiring advance notice of stockholder proposals and stockholder
nominations of directors.
In addition, certain provisions of the Delaware General Corporation Law may
deter someone from acquiring or merging with us, including a transaction that
results in stockholders receiving a premium over the market price for the shares
of common stock held by them. Section 203 of the Delaware General Corporation
Law also imposes certain restrictions on mergers and other business combinations
between us and any holder of more than 15% and less than 85% of our common
stock. See "Description of Capital Stock -- Possible Anti-Takeover Matters."
SUBSTANTIAL FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD CAUSE
OUR STOCK PRICE TO FALL
Sales of substantial amounts of common stock in the public market following
this offering, or the appearance that a large number of shares is available for
sale, could adversely affect the market price for the common stock. The number
of shares of common stock available for sale in the public market will be
limited by lock-up agreements under which the holders of substantially all of
our outstanding shares of common stock and options and warrants to purchase
common stock will agree not to sell or
13
<PAGE>
otherwise dispose of any of their shares for a period of 180 days after the date
of this prospectus without the prior written consent of Merrill Lynch & Co.
However, Merrill Lynch & Co. may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to lock-up
agreements. In addition to the adverse effect a price decline could have on
holders of common stock, that decline would likely impede our ability to raise
capital through the issuance of additional shares of common stock or other
equity securities. See "Description of Capital Stock -- Registration Rights" and
"Shares Eligible for Future Sale."
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION IN NET TANGIBLE BOOK VALUE
Because our common stock has in the past been sold at prices substantially
less than the public offering price that you will pay, you will incur immediate
and substantial dilution of $ in the net tangible book value per share of
the common stock from the price you pay for the common stock in this offering.
MANAGEMENT HAS BROAD DISCRETION TO USE THE PROCEEDS FROM THIS OFFERING
Our management will have broad discretion over the use of proceeds we raise
in this offering, and you must rely on the judgment of management in the
application of our net offering proceeds. See "Use of Proceeds."
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties and assumptions about Jato, including, among other things:
- Our anticipated growth strategies;
- Our intention to introduce new applications and services;
- Our future expenditures for network deployment;
- Our ability to continue to control costs and maintain quality; and
- Anticipated trends in our business, including trends in technology
and the growth of broadband applications and services.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of the forward-looking
statements. In light of these risks, uncertainties, and assumptions, the
forward-looking events discussed in this prospectus might not occur. Our actual
results could differ materially from those discussed in these statements.
Factors that could contribute to such differences include, those discussed in
"Risk Factors," "Business," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this prospectus.
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<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from Jato's sale of shares of common
stock in this offering will be approximately $ million, or approximately
$ million if the underwriters' over-allotment option is exercised in full,
based upon an assumed initial public offering of $ per share, after
deducting underwriting discounts and commissions and estimated expenses payable
by us. In addition, we will receive $2.5 million of additional proceeds from the
concurrent placement to Qwest. If our selling stockholders sell any shares upon
an exercise of the underwriters' over-allotment option, we will not receive any
of those proceeds.
We expect to use $ million of our net proceeds from this offering to
fund capital expenditures and operating losses related to the continued
deployment of our network, $ million for the expansion of our sales and
marketing activities, and $ million for working capital and other general
corporate purposes.
In particular, we expect to make capital expenditures of approximately
$150 million during 2000 for equipment purchases and expansion of our network.
We expect to require additional financing to fund our capital expenditures and
operating losses in the future. The amounts we actually expend in such areas may
vary significantly and will depend on a number of factors, including our future
revenues. Accordingly, management will retain broad discretion in the use of the
net proceeds of this offering. You will not have the opportunity to evaluate the
economic, financial or other information on which we base our decisions on how
to use the proceeds. Pending such uses, the net proceeds of this offering will
be invested in short term, interest bearing, investment grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings to finance the growth and
development of our business and therefore do not anticipate paying any cash
dividends in the foreseeable future. Any future determination to pay cash
dividends will be at the discretion of our board of directors and will depend
upon our financial condition, operating results, capital requirements, covenants
in our debt instruments and such other factors as the board of directors deems
relevant. In addition, our current financing documents restrict our ability to
pay dividends.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- on an actual basis;
- On a pro forma basis to give effect to the receipt of proceeds of
$20 million for our sale of 3,571,428 shares of Series D preferred stock
at a price of $5.60 per share in January and February 2000; and
- on a pro forma and as adjusted basis to reflect the automatic conversion
of all of the outstanding shares of our preferred stock, the receipt of
the estimated net proceeds from the sale of common stock offered by us in
this offering, after deducting estimated underwriting discounts and
estimated offering expenses payable by us and the receipt of the net
proceeds from the sale of shares of our common stock to Qwest at
an aggregate purchase price of $2.5 million in the concurrent placement.
You should read this table in conjunction with our consolidated financial
statements and the related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
---------------------------------------
PRO FORMA
AS
ACTUAL(1) PRO FORMA ADJUSTED
--------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................... $15,017 $35,017 $
======= ======= =======
DEBT:
Long-term debt.............................................. $16,868 $16,868 $16,868
STOCKHOLDERS' EQUITY:
Series A preferred stock, $.01 par value, 1,751,985 shares
authorized actual and pro forma and no shares authorized
pro forma as adjusted; 1,751,985 shares issued and
outstanding actual and pro forma and no shares issued and
outstanding pro forma as adjusted......................... 1,301 1,301 --
Series B preferred stock, $.01 par value, 13,615,322 shares
authorized actual and pro forma and no shares authorized
pro forma as adjusted; 13,615,322 shares issued and
outstanding actual and pro forma and no shares issued and
outstanding pro forma as adjusted......................... 20,174 20,174 --
Series C preferred stock, $.01 par value; 8,550,000 shares
authorized actual, 4,932,308 shares authorized pro forma
and no shares authorized pro forma as adjusted; 4,932,308
shares issued and outstanding actual and pro forma and no
shares issued and outstanding pro forma as adjusted....... 27,561 27,561 --
Series D preferred stock, $.01 par value, no shares
authorized actual, 5,000,000 shares authorized pro forma,
and no shares authorized pro forma as adjusted; no shares
issued and outstanding actual, 3,571,428 shares issued and
outstanding pro forma and no shares issued and outstanding
pro forma as adjusted..................................... -- 20,000 --
Common stock, $.01 par value, 80,000,000 shares authorized
actual and pro forma and pro forma as adjusted; 6,797,814
shares issued and outstanding actual and pro forma and
shares issued and outstanding pro forma as
adjusted.................................................. 68 68
Additional paid-in capital.................................. 14,995 14,995
Deferred compensation....................................... 13,735 13,735
Accumulated deficit......................................... (15,256) (15,256)
------- ------- -------
Total stockholders' equity................................ 35,108 55,108
------- ------- -------
Total capitalization.................................... $51,976 $71,976 $
======= ======= =======
</TABLE>
- ------------------------------
(1) The number of shares of common stock in this table excludes:
- 25,000 shares of common stock subject to issuance upon exercise of
warrants outstanding as of December 31, 1999, all of which will expire if
not exercised prior to the closing of this offering;
- 4,074,950 shares of common stock issuable upon exercise of options
outstanding under our 1998 equity incentive plan as of December 31, 1999;
and
- shares of common stock subject to issuance upon exercise of the
warrant issuable to Qwest at the concurrent placement for an aggregate
exercise price of $5.0 million.
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DILUTION
Our pro forma net tangible book value as of December 31, 1999 was $ per
share. Pro forma net tangible book value represents the amount of total tangible
assets less total liabilities, divided by the number of shares of common stock
outstanding after giving effect to the issuance of the Series D preferred stock,
the conversion of all outstanding shares of preferred stock into common stock
and the issuance of shares of common stock to Qwest in the concurrent
placement. Without taking into account any other changes in the net tangible
book value after December 31, 1999, other than to give effect to our receipt of
the net proceeds from the sale of the shares of common stock in this
offering and the sale of the shares of common stock to Qwest in the
concurrent placement, our pro forma net tangible book value as of December 31,
1999 would have been approximately $ or $ per share. This represents
an immediate increase in net tangible book value of $ per share to existing
stockholders and an immediate dilution of $ per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........... $
Pro forma net tangible book value per share at
December 31, 1999.....................................
Increase per share attributable to new investors........
-------
Pro forma net tangible book value per share after this
offering
-------
Dilution per share to new investors(1).................... $
=======
</TABLE>
- ------------------------
(1) If the underwriters' over-allotment option is exercised in full, dilution
per share to new investors would be $ .
The following table summarizes, on a pro forma basis as of December 31,
1999, the differences between existing stockholders and the new investors with
respect to:
- the number of shares of common stock purchased from us, after giving
effect to the issuance of the Series D preferred stock and assuming
conversion of all outstanding shares of preferred stock into common stock
and the issuance of shares of common stock to Qwest in the
concurrent placement for an aggregate purchase price of $2.5 million;
- the total consideration paid to us; and
- the average price per share existing stockholders and new investors pay
when they buy common stock in this offering before deduction of estimated
underwriting discounts and offering expenses.
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The calculation in this table with respect to shares to be purchased by new
investors in this offering reflect an assumed initial public offering price of
$ per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................ % $ % $
New investors.................................... $
----------- ----- ------- -----
Total.......................................... 100.0% $ 100.0%
=========== ===== ======= =====
</TABLE>
(1) Any sale of common shares by Jato's selling stockholders in this offering
will reduce the number of common shares held by existing stockholders to
if the underwriters' over-allotment option is exercised in full or
approximately %, of the total number of common shares outstanding upon
the closing of this offering, and will increase the number of shares held by
new public investors to if the underwriters' over-allotment option is
exercised in full or approximately %, of the total number of common
shares outstanding after this offering.
The foregoing discussion and tables exclude all common stock issuances after
December 31, 1999 and assume no exercise of the underwriters' over-allotment
option or of any outstanding stock options or warrants after December 31, 1999.
As of December 31, 1999, there were outstanding options to purchase an aggregate
of 4,074,950 shares of common stock at a weighted average exercise price of
$2.74 per share. There will be further dilution to new investors to the extent
any of these options are exercised.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data have been derived from
our audited financial statements and notes. The consolidated financial
statements are included elsewhere in this prospectus. You should read the
following data together with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and the related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
INCEPTION TO YEAR
DECEMBER 31, ENDED DECEMBER 31,
1998 1999
------------ ------------------
<S> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $-- $ 315
Operating Expenses:
Network and service costs................................. -- 1,170
Marketing expenses........................................ -- 1,919
Selling, general and administrative....................... 404 11,152
Amortization of deferred compensation..................... -- 843
Depreciation and amortization............................. 1 469
------ --------
Operating loss.............................................. (405) (15,238)
Interest income............................................. 9 378
------ --------
Net loss.................................................... $ (396) $(14,860)
====== ========
Net loss per common share (basic and diluted)............... $(0.07) $ (2.31)
Shares used in computing net loss per share................. 6,000 6,434
Unaudited pro forma net loss per common share (basic and
diluted)(1)............................................... $(0.06) $ (0.91)
Shares used in computing pro forma net loss per share....... 6,770 16,417
OTHER FINANCIAL DATA:
EBITDA(2)................................................... $ (404) $(13,926)
Capital expenditures........................................ 58 21,156
Net cash flows from:
Operating activities...................................... (123) (10,906)
Investing activities...................................... (85) (22,161)
Financing activities...................................... 1,478 46,814
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED
---------- --------- ---------
(IN THOUSANDS)
BALANCE SHEET DATA(3):
Cash and cash equivalents................................... $15,017 $35,017
Property and equipment, net................................. 37,463 37,463
Total assets................................................ 55,591 75,591
Total liabilities........................................... 20,483 20,483
Deferred compensation....................................... 13,735 13,735
Accumulated deficit......................................... (15,256) (15,256)
Total stockholders' equity.................................. 35,108 55,108
</TABLE>
- ------------------------------
(1) Unaudited pro forma net loss per share gives effect to the automatic
conversion of the preferred stock into common stock, which will occur upon
the closing of this offering.
(2) EBITDA consists of net loss excluding net interest, taxes, depreciation and
amortization of capital assets, and amortization of deferred compensation.
We believe that EBITDA is a measure of financial performance commonly
employed in the telecommunications industry, and is useful to investors and
analysts as an indicator of a company's ability to fund its operations and
to service or incur debt. Conversely, negative EBITDA implies that a company
is not currently generating sufficient income to fund its operations or
service its debt. EBITDA is not a measure calculated under generally
accepted accounting principles. Other companies may calculate EBITDA
differently from us; consequently, our calculation of EBITDA may not be
comparable to other companies' calculations of EBITDA. EBITDA is not an
alternative to operating income as an indicator of operating performance or
an alternative to cash flows from operating activities as a measure of
liquidity, and investors should consider these measures as well.
In particular, EBITDA differs significantly from cash flows from operating
activities reflected in the consolidated statements of cash flows. Cash from
operating activities is net of interest and taxes paid and is a more
comprehensive determination of periodic income on a cash (vs. accrual)
basis, exclusive of non-cash items of income and expenses such as
depreciation and amortization. In contrast, EBITDA is derived from accrual
basis income and is not reduced for cash invested in working capital.
Consequently, EBITDA is not affected by the timing of receivable collections
or when accrued expenses are paid.
(3) The pro forma balance sheet information reflects the issuance of 3,571,428
shares of Series D preferred stock. In addition, the pro forma as adjusted
balance sheet information reflects the automatic conversion of the preferred
stock, the receipt of the estimated net proceeds from the sale of common
stock in this offering offered by us, after deducting estimated underwriting
discounts and estimated offering expenses payable by us and the receipt of
the estimated net proceeds from the sale of common stock to Qwest in the
concurrent placement.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results
of operations should be read in conjunction with "Selected Consolidated
Financial Data" and our consolidated financial statements and related notes
included elsewhere in this prospectus. In the discussion below, we refer to the
period from June 12, 1998 (date of inception) to December 31, 1998 as "1998."
OVERVIEW
We provide broadband data network applications and services to small- and
medium-sized businesses in our target secondary markets. We initiated our
service in June 1999. As of January 31, 2000, we provided services in four
markets and had collocated our equipment in six additional markets. We intend to
expand our services into a total of 50 markets nationwide by the end of 2000.
Since inception on June 12, 1998, our principal activities have included:
- obtaining required state and federal governmental authorizations;
- negotiating and entering into interconnection agreements with incumbent
carriers;
- acquiring collocation space and deploying our network equipment;
- identifying, pursuing and negotiating agreements with potential strategic
partners;
- developing criteria for market selection and analyzing potential markets
against these criteria;
- refining our customer targeting parameters;
- launching service in target markets;
- selling and marketing our applications and services;
- hiring management and other personnel;
- raising capital; and
- developing and implementing our operations support system and other back
office systems.
We have incurred operating losses, net losses and negative earnings before
interest, taxes, depreciation and amortization, or EBITDA, during each month
since June 12, 1998. As of December 31, 1998 and 1999, we had an accumulated
deficit of $396,000 and $15.3 million, respectively. We intend to substantially
increase our capital expenditures and will incur materially higher operating
expenses in an effort to rapidly deploy our network and introduce our
applications and services. We expect to incur substantial operating losses, net
losses and negative EBITDA as we expand our operations.
We incur significant network and operations expenses, sales and marketing
expenses and capital expenditures when we enter a new market. Once we have
deployed our network in a market, the majority of our additional expenditures
depend on orders to connect new end users. These additional expenditures
primarily include DSL line cards, incremental digital subscriber line access
multiplexers, or DSLAMs, and customer premise equipment, or CPE. In addition to
the capital expenditures required to enter a market, we will be required to fund
each market's cash flow deficit as we build our customer base.
As a result of recent stock and option grants, we anticipate that there will
be significant charges to earnings in future periods. As of December 31, 1999,
Jato had recorded $13.7 million of unamortized deferred compensation. Such
amount will be charged to earnings over the next several years.
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FACTORS AFFECTING FUTURE OPERATIONS
REVENUES. Initially, we expect to derive a majority of our revenues from
broadband connectivity and communications services. Currently, we offer our
services through our ISP and value added reseller customers directly to the end
user. We bill these customers in advance for monthly recurring charges based on
the data transfer speeds selected by the end user. We currently offer flat rate
plans at wholesale prices for our high-speed access and connectivity services.
We expect to offer our services directly to end users at retail prices in the
future. These monthly fees will include charges for high-speed access and
connectivity, Internet access and applications and services we provide. In
addition to monthly service fees, end users are billed for nonrecurring service
activation, CPE and installation charges. To encourage potential customers to
adopt our services, we may offer reduced monthly prices for an initial period of
time or reduced service activation, CPE, or installation charges. We expect
that, as a result of competition, prices for our services will decline over
time.
As our business develops and we begin to offer additional applications and
services, we expect to become less dependent on access and broadband
connectivity revenues. By providing network-enabled applications, we expect to
enhance our overall gross margins by adding additional revenues without
incurring incremental fixed costs. We also believe that these additional
services will enable us to build customer loyalty and effectively minimize
customer turnover, or "churn."
We seek to price our services competitively in relation to those of the
incumbent carriers and other competitive carriers in each market. Current
standard line prices that we charge to our wholesale customers for our services
generally range from $70 per month for 144 Kbps service to $195 per month for
1.5 Mbps service before any discounts. During the past several years, market
prices for many telecommunications services have been declining. Therefore, we
anticipate prices for our services to decrease each year. As prices decline for
any given speed of service, we expect that the total number of end users and the
proportion of our end users purchasing our higher-speed, higher-priced services
will increase. Our incremental cost to upgrade an end user's speed is generally
minimal.
Our future financial performance and our ability to achieve positive
operating cash flow, if ever, will depend on a number of factors, some of which
we cannot control. We believe that improvements in our financial performance
depend largely on our ability to:
- rapidly and cost-effectively deploy our network, including collocating our
equipment in numerous central office facilities;
- provide high quality services at competitive prices;
- offer additional applications;
- acquire customers in a cost-effective manner through direct and indirect
sales channels;
- attract qualified personnel, particularly in sales and marketing;
- minimize customer turnover;
- retain installation and wiring contractors to install equipment and wiring
at customer premises on a timely and cost-effective basis;
- cost-effectively manage increased selling, marketing, general and
administrative expenses; and
- indentify and integrate the necessary administrative and operations
support systems to effectively manage our growth.
NETWORK AND SERVICE COSTS. Our network expenses consist of nonrecurring and
monthly recurring charges for the transport elements we choose to lease rather
than own. We expect that these costs will increase significantly in the future.
Nonrecurring network expenses include installation fees related to transport and
local loop circuits. We expect these costs will be largely related to the
activation of new
21
<PAGE>
central offices and new end users. Monthly recurring network expenses include
transport fees, facility rent, power, license fees for applications and other
fees charged by incumbent carriers, competitive carriers and other providers.
Additionally, we pay monthly network maintenance and monitoring fees to Lucent.
As our end user base grows, we expect the largest element of network expenses to
be incumbent carrier charges for leased copper lines, which are typically
approximately $20 per line per month, depending on the identity of the incumbent
carrier and the location of the lines.
MARKETING EXPENSES. Our marketing expenses consist primarily of expenses
related to the development of our brand name, promotional materials and
advertising. We expect that our marketing expenses will grow significantly as we
enter new markets and offer our services on a nationwide basis.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Our general and
administrative expenses consist primarily of costs related to personnel,
customer service, finance, administrative services, recruiting and legal
services. We expect that our selling and marketing costs will grow significantly
as we expand our operations. However, we expect these expenses to decline as a
percentage of our revenue as we build our customer base and the number of end
users connected to our network increases.
To attract and retain a highly qualified sales force, we plan to offer our
sales personnel a compensation package consisting of a base salary plus
commissions and stock options. We currently incent our sales personnel with
commissions based on the number of lines sold. Previously earned commissions are
reduced as a result of customer turnover.
AMORTIZATION OF DEFERRED COMPENSATION. Deferred compensation arose as a
result of granting stock awards to employees with purchase or exercise prices
per share subsequently determined to be below the deemed fair values per share
for financial reporting purposes of our common stock at the purchase or grant
dates. The deferred compensation is being amortized over the applicable vesting
period (generally 4 years).
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses include:
- depreciation of network equipment;
- depreciation of furniture, fixtures, computers and equipment; and
- amortization of collocation costs.
We expect depreciation and amortization expense to increase significantly as
more of our network becomes operational and as we increase capital expenditures
to expand our operations. Depreciation is computed on a straight-line basis over
estimated useful lives ranging from three to seven years.
INTEREST EXPENSE. We expect interest expense to increase substantially as
we borrow funds under our credit facility with Lucent.
TAXATION. We have not generated any taxable income to date and therefore
have not paid any federal income taxes since inception. We expect to generate
significant operating loss carryforwards. Use of our net operating loss
carryforwards may be subject to limitations under Section 382 of the Internal
Revenue Code of 1986, as amended. We have recorded a full valuation allowance on
our deferred tax asset, consisting primarily of net operating loss
carryforwards, because of uncertainty regarding its recoverability.
RESULTS OF OPERATIONS
REVENUES. We first introduced services in June 1999 and recognized $315,000
of revenue for the year ended December 31, 1999. As of December 31, 1999, we had
approximately 530 installed DSL lines. Average monthly recurring revenue per
installed line for the period approximated $80. As of December 31, 1999, we had
over 900 lines sold that were pending installation. We expect revenues to
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<PAGE>
increase rapidly as our installed subscriber base increases. Initially, we will
derive a majority of our revenue from DSL access and connectivity services. In
the future, we expect to supplement our transport revenues by providing
applications and services to our customers.
NETWORK AND SERVICE COSTS. We did not incur any network and service costs
during 1998. For the year ended December 31, 1999, network and service costs
totaled $1.2 million.
MARKETING EXPENSES. Marketing expenses totaled $1.9 million for the year
ended December 31, 1999 and principally related to launch of our service in our
initial markets.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses in 1998 and for the year ended December 31, 1999 were
approximately $404,000 and $11.2 million, respectively. This increase was
primarily due to increases in our personnel.
AMORTIZATION OF DEFERRED COMPENSATION. No amortization of deferred
compensation was recognized in 1998. For the year ended December 31, 1999,
amortization of deferred compensation was $843,000. The unamortized balance of
$13.7 million at December 31, 1999 will be amortized over the vesting period of
each grant, which is generally four years.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses in 1998 and for the year ended December 31, 1999 were approximately
$1,000 and $469,000, respectively.
INTEREST EXPENSE (INCOME) AND OTHER INCOME, NET. Net interest income and
other income, net, for 1998 and for the year ended December 31, 1999 was
approximately $9,000 and $378,000 respectively, and was primarily related to
interest earned on invested balances.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, we had an accumulated deficit of approximately
$15.3 million and cash and cash equivalents of approximately $15.0 million.
During 1998 and for the year ended December 31, 1999, the net cash used in our
operating activities was approximately $123,000 and $10.9 million, respectively.
This cash was used for a variety of operating purposes, including personnel
costs, consulting and legal expenses, network operations and other
administrative expenses. The net cash used in investing activities during 1998
and for the year ended December 31, 1999 was approximately $85,000 and
$22.2 million, respectively, and was used primarily for the payment of
collocation costs and the purchase of networking and other equipment. Net cash
provided by financing activities in 1998 and for the year ended December 31,
1999 was approximately $1.5 million and $46.8 million, respectively, and
primarily resulted from the sale of common and preferred stock.
The development and expansion of our business will require significant
capital expenditures. The principal capital expenditures incurred to enter each
market include the procurement, design and construction of collocation space,
and the purchase and installation of all necessary telecommunications equipment.
The number of central offices that we expect to target in a market will
vary, as will the average capital cost in a given market. Capital expenditures,
exclusive of $16.9 million funded by the Lucent credit facility, including
collocation fees, were approximately $58,000 and $21.2 million in 1998 and for
the year ended December 31, 1999, respectively. We expect to make capital
expenditures of approximately $150 million in 2000.
From inception through December 31, 1999, we raised $49 million in equity
from a group of investors that includes ABN-AMRO, CEA Capital, Crest
Communications, Hambrecht & Quist, Mayfield Fund and TCI Satellite
Entertainment. Subsequent to December 31, 1999, we have raised an additional
$20 million in invested equity from Microsoft and Qwest.
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In July 1999, Jato Operating Corp., a wholly-owned subsidiary, entered into
a senior secured credit facility with Lucent that provides up to $50 million of
vendor financing for equipment and network services provided by Lucent and
certain other third party vendor equipment utilized in Jato's DSLAM and
switching center. The facility is fully and unconditionally guaranteed by Jato,
and each direct or indirect subsidiary of Jato Operating Corp. Borrowings under
the facility are available in two separate tranches. The first tranche of
$30 million is available through July 2001. The second tranche of $20 million
becomes available upon the full utilization or expiration of the first tranche
and must be utilized by July 2002. Borrowings under the senior secured credit
facility are restricted based upon the company's leverage ratio and
capitalization. Commencing September 30, 2002, principal repayment installments
are required in accordance with a schedule, until final maturity on May 31,
2006. Borrowings under the facility bear interest at the rate of LIBOR plus 4.5%
per year or an alternative base rate, which is generally equal to the greater of
3.5% over the prime rate or 4% over the federal funds rate per year. The
facility is secured by liens against certain network equipment and imposes
certain financial and other covenants. As of December 31, 1999, we had drawn
down $16.9 million under the Lucent credit facility at an interest rate of
10.625%.
We believe that the net proceeds from this offering, together with our
existing cash balances, amounts raised in the first quarter of 2000 from
Microsoft and Qwest, the funds to be received from Qwest in the concurrent
placement, amounts available under our credit facility, will be sufficient to
fund our operating losses, capital expenditures, lease payments and working
capital requirements through September 2000. We expect our operating losses and
capital expenditures to increase substantially as we expand our network. We
expect that additional financing will be required in the future. We may attempt
to finance our future capital needs through some combination of commercial bank
borrowings, leasing, vendor financing and the sale of additional equity or debt
securities.
Our capital requirements will vary based upon the timing and the success of
implementation of our business plan and as a result of regulatory, technological
and competitive developments or if:
- demand for our services or our cash flow from operations varies from
projections;
- our development plans or projections change or prove to be inaccurate;
- we make any acquisitions; or
- we accelerate deployment of our network or otherwise alter the schedule or
targets of our business plan implementation.
We will be required to raise additional capital to complete our network
deployment. There can be no assurance that additional capital will be available
on terms acceptable to us, or at all. While we would be able to sustain some
level of operations throughout all of 2000 absent additional capital, including
the proceeds from this offering, we would be required to significantly scale
back our operations and delay the expansion of our network. This would have a
material adverse effect on our business, financial condition and results of
operations.
As of December 31, 1999, we had not entered into any financial instruments
that expose us to material market risk.
YEAR 2000 READINESS DISCLOSURE. Computer systems and software must accept
four digit entries to distinguish 21st century dates from 20th century dates. As
a result, many software and computer systems that accepted only two digit
entries needed to be upgraded in order to accept dates beginning January 1,
2000. To date, we have not experienced any date related problems with our
software. In addition, we have not been made aware of, nor have we experienced,
date related problems with any third-party software. We have tested our software
and our internal systems for potential problems relating to the leap year that
will occur in 2000 and do not believe that we will experience any date related
problems resulting from leap year dates. Although to date we have not
experienced any date related problems with third-party software, we cannot
assure you that such problems may not surface in
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the next few months, especially on February 29, 2000. In addition, we do not
believe that we will incur material costs in the future because of date related
problems.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," which provides guidance that requires
capitalization of certain costs incurred during an internal-use software
development project. SOP 98-1 is effective for fiscal years beginning after
December 15, 1998. The adoption of this policy has not had a material effect on
our results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities," which provides guidance on the financial reporting of
start-up costs and organizational costs. It requires costs of start-up
activities and organizational costs to be expensed as incurred. SOP 98-5 is
effective for fiscal years beginning after December 15, 1998. We have not
capitalized any such costs to date. Accordingly, the adoption of SOP 98-5 has
not had an impact on our financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivatives and hedging
activities. Among other things, this statement requires that an entity recognize
all derivative instruments on the balance sheet as either assets or liabilities,
and to account for those instruments at fair value. SFAS No. 133 must be applied
to financial statements no later than the first fiscal quarter of 2001. The
Company does not believe adoption of SFAS No. 133 will have a material impact on
its financial position or results of operations.
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition." SAB 101 provides
interpretive guidance on the recognition, presentation and disclosure of revenue
in financial statements. SAB 101 must be applied to financial statements no
later than the first fiscal quarter of 2000. The Company does not believe
application of SAB 101 will have a material impact on its financial position or
results of operations.
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BUSINESS
OVERVIEW
We provide broadband network connectivity, which is the ability to rapidly
transport high quantities of data between multiple end users, and associated
applications and services to small- and medium-sized businesses in our target
secondary markets. We are developing a secure nationwide network that will allow
us to tailor our broadband solutions to meet the needs of our business
customers. We offer high-speed Internet access together with a suite of
applications including web hosting, e-mail and e-commerce services. Digital
subscriber line, or DSL technology, which utilizes standard copper telephone
lines, is our primary high-speed connection platform. In order to maximize our
service coverage area, we intend to use a variety of broadband local access
technologies in our target markets.
We intend to exploit our advantage as an early entrant in secondary markets
to become a leading provider of network enabled applications and services. We
plan to rapidly deploy our network nationwide in markets that we believe are
presently underserved. In order to establish a direct customer relationship, we
market our applications and services primarily through direct sales channels
including account managers, telesales personnel and specialized account groups.
In addition, we supplement our direct sales efforts through strategic
partnerships with ISPs and value added resellers. We believe our tailored
solutions and direct sales approach, combined with our broadband network will
allow us to attract and retain high value data-centric customers. As of
January 31, 2000, we had approximately 725 lines in service and we are currently
under contract to supply over 1,100 additional lines to our customers.
We began offering commercial services in June 1999 and, as of January 31,
2000, we provided our services in four markets and had collocated our equipment
in six additional markets. We intend to offer our services in a total of 50
markets nationwide, comprised of 145 cities, by the end of 2000. As of
January 31, 2000, we had collocated our network equipment in over 160 incumbent
carrier central offices and expect to be in approximately 850 central office
locations by the end of 2000. We have obtained competitive carrier certification
in 44 states and expect to have competitive carrier certification in all 48
contiguous states by the end of the first quarter 2000. To date, we have signed
interconnection agreements with Ameritech, BellSouth, Pacific Bell, Southwestern
Bell and U S WEST, and expect to execute interconnection agreements covering
substantially all of our target markets by the end of the first quarter 2000.
We have entered into a strategic alliance with Lucent Technologies to
install, integrate, monitor and maintain our nationwide network. Lucent will
also provide $50 million in vendor financing for our network related
expenditures as well as financial support to market co-branded products and
services. We believe this strategic alliance will allow us to rapidly deploy our
network and introduce our applications and services on a national scale.
We also have recently entered into strategic relationships with Qwest and
Microsoft. As part of these strategic relationships, we received equity
investments of $10 million each from Qwest and Microsoft. In addition, Qwest has
agreed to purchase shares of our common stock at an aggregate purchase
price of $2.5 million and we have agreed to issue to Qwest a warrant to purchase
shares of our of common stock at an aggregate exercise price of
$5.0 million at the concurrent placement. We also have entered into commercial
arrangements with Qwest which provide for the purchase from Qwest of large-scale
transport services and with Microsoft to utilize Microsoft products to create a
variety of ASP services.
Our senior management team has extensive experience in broadband
communications, next generation data technology and business and consumer
marketing. Our President and CEO, Gerald K. Dinsmore, was previously a senior
executive with GTE serving as president of GTE's Business
26
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Development and Integration Group. Mr. Dinsmore has over 23 years of experience
in data networking and telecommunications. William D. Myers, our CFO, has held
several senior executive positions with Tele-Communications, Inc., most recently
as Vice President and Treasurer of TCI Satellite Entertainment/PrimeStar.
Terri L. Compton, our Executive Vice President--Operations and Chief Operating
Officer has held several senior executive positions at GTE. Rex A. Humston, our
Senior Vice President, Engineering and Chief Technology Officer, has previously
held senior executive positions with several telecommunications companies. To
date, in addition to the $50 million provided by Lucent, we have raised
$69 million in equity from a group of investors that includes the following
entities or their affiliates: ABN-AMRO, CEA Capital, Crest Communications,
Hambrecht & Quist, Mayfield Fund, Microsoft, Qwest, and TCI Satellite
Entertainment.
MARKET OPPORTUNITY
We believe that we have a significant business opportunity as a result of
the following factors:
SIGNIFICANT AND GROWING DEMAND FOR HIGH-SPEED CONNECTIVITY AMONG SMALL- AND
MEDIUM-SIZED BUSINESSES
Our target customers, which include small- and medium-sized businesses,
professionals working in home offices and telecommuters, are increasingly
demanding high-speed data networking applications and services to remain
competitive. These end users are becoming dependent on high-speed connectivity
to communicate more efficiently with employees, customers and suppliers to
facilitate e-commerce transactions and to access critical information and
business applications. Industry commentators project that the total market for
business Internet access and data networking services will grow from
$3.7 billion in 1998 to approximately $40.3 billion by 2002, which represents a
compounded annual growth rate of 81.7%.
OUR TARGET SECONDARY MARKETS ARE ATTRACTIVE AND UNDERSERVED
Our secondary markets, in the aggregate, encompass approximately
2.8 million businesses and approximately 28 million households. Industry studies
have estimated that approximately 98% of all businesses in our target markets
are small- to medium-sized businesses with fewer than 100 employees. We believe
other broadband communication providers are focusing their deployment efforts on
larger markets, leaving secondary markets with limited broadband communications
alternatives. With less competition, we believe that marketing and
administrative expenses in these secondary markets will be lower than those in
larger primary markets. As a result, we believe these current conditions provide
a significant opportunity to effectively market our bundled suite of
applications and services.
THE GROWTH OF OUTSOURCED DATA NETWORKING SYSTEMS
We believe many small- and medium-sized businesses lack the resources to
properly administer increasingly complex data networking systems. Outsourced
solutions allow these businesses to reduce costs and to focus resources on their
core business activities. Industry sources estimate that spending in the U.S. on
distributed networking, network services and applications will grow from
$54.2 billion in 1998 to $173 billion in 2002.
LIMITATIONS OF EXISTING COMMUNICATIONS ALTERNATIVES
Traditionally, small- and medium-sized businesses have been forced to choose
between low-speed or high cost alternatives for Internet access and data
transport services. According to industry analysts, through 1998, dial-up
connections and integrated services digital network, or ISDN, lines represented
93% of all U.S. business Internet access methods, as measured as a percentage of
total circuits. ISDN is a transmission method that provides circuit-switched
access to the public network at speeds of 64 or
27
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128 Kbps for voice, data and video transmission. Market research reports
estimate that slow Internet connections now jeopardize approximately
$4.4 billion a year in online sales. For higher speed transport, these
businesses have had to purchase T1 connections, which provide an "always-on"
high-speed digital transmission link, but are relatively expensive (typically up
to $800 per month depending upon distance and region) and complex to order,
install and maintain. As a result, neither of the traditional low-speed
alternatives (dial-up modems or ISDN lines) nor the relatively expensive T1
services provides small- and medium-sized businesses with an adequate or
cost-effective solution for their high-speed communications needs.
FAVORABLE REGULATORY ENVIRONMENT CREATED BY THE TELECOMMUNICATIONS ACT OF
1996
The Telecommunications Act of 1996 established a legal framework that
encourages the utilization of incumbent carrier infrastructure to compete with
the incumbent local exchange carriers. The 1996 Telecommunications Act mandates
that incumbent local exchange carriers:
- allow competitive carriers to lease telephone lines on a line-by-line
basis,
- provide space in the incumbent carriers' central offices for competitive
carriers' equipment to connect to the leased lines,
- provide access to backbone fiber networks, and
- provide access to operations support systems to permit competitive
carriers to access customer databases.
Under the 1996 Telecommunications Act, in order to be able to offer long
distance services in their local service area, incumbent carriers must
demonstrate to the satisfaction of state public utilities commissions that they
have permitted competitive access to their local telephone networks. Although
DSL technology predated the 1996 Telecommunications Act, by opening the local
telephone loop to competition, the 1996 Telecommunications Act made it possible
for competitive carriers focused on high-speed data communications to integrate
their equipment and service offering with the public switched telephone network.
OUR SOLUTION
We believe our broadband network services effectively address many of the
unsatisfied data communications needs of small- and medium-sized businesses in
our target secondary markets by offering an attractive combination of service,
quality, performance and price. Our services, which we believe will enable us to
achieve higher penetration in our target markets, achieve higher revenue per
customer and maximize customer retention, consists of:
HIGH-SPEED, COST-EFFECTIVE CONNECTIVITY
We offer our customers high-speed broadband connectivity that is dedicated
and "always-on." These "always on" connections provide customers with the
ability to readily and continuously access the Internet instead of having to
dial into a network for access. We currently utilize a broadband platform that
is DSL based, yet designed to integrate a variety of high-speed local access
technologies. Through our SDSL services we currently offer symmetrical
transmission speeds to and from the end user up to 1.5 Mbps and we have the
capability to provide symmetrical transmission speeds up to 3 Mbps using
standard multiplexing technology. In addition, we expect that evolving
technologies will facilitate even faster transmission speeds. For customers that
subscribe to our 1.5 Mbps service, the transfer rate is over 25 times faster
than a 56.6 Kbps dial-up modem, at a fraction of the cost of a dedicated T1
connection.
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BROADBAND APPLICATIONS AND SERVICES
We offer a full range of applications and services that are tailored to meet
the needs of small- and medium-sized businesses. In addition to providing
broadband transport, we offer a suite of network-enabled applications and
services, including wide area network, or WAN and regional local area network,
or RLAN networking, high-speed Internet access, e-mail and Web hosting and
authoring services. We also intend to continually upgrade our portfolio of
applications and services as additional applications and features become
available so that we may continue to effectively meet our customers' growing
communication needs.
FOCUS ON THE END USER
We provide our customers with a single point of contact for their
sophisticated data networking and communications needs. Through our
relationships with application developers, we are able to offer our customers a
wide selection of applications and services. In addition, our customer care and
support services form an integral part of our overall package of services. We
believe customer care is especially important to small- and medium-sized
businesses because they typically do not have dedicated internal support staffs
to effectively manage their sophisticated data networking needs. Through our
dedicated customer service group, we provide call center and Internet based
customer care services 24 hours a day, seven days a week.
NATIONWIDE SECURE NETWORK
Our nationwide broadband network enables businesses with multiple sites to
connect their distributed business activities to one central computing location.
We also enable remote local area networks, or RLANs, that tie into corporate
LANs, to service the requirements of the remote telecommuter. Our WANs provide
customers with high-speed, secure and reliable end-to-end connections. Through
our strategic relationships, we will be able to provide our customers with VPN
and other broadband services across multiple cities through a nationwide
network.
FLEXIBILITY AND SCALABILITY
We have designed our network and service offerings to enable customers to
not only purchase the level of service and network performance that meets their
current requirements but also enables them to easily upgrade their service level
as their demand for bandwidth increases. In most cases we can implement customer
bandwidth upgrades remotely, without the need to add additional hardware or to
send a technician to the customer's premises.
OUR STRATEGY
Our objective is to become a leading provider of broadband applications and
services to small- and medium-sized businesses in secondary markets. Our
strategy includes the following key elements:
EXPLOIT EARLY-MOVER ADVANTAGE IN TARGET SECONDARY MARKETS
We believe that by being the first, or one of the first, providers of
broadband applications and services in our target markets, we will not only
encounter less competition but will also be able to capture significant limited
resources, including collocation space, key customer relationships and important
distribution channels. As of January 31, 2000, we provided our services in four
markets and had collocated our equipment in six additional markets. We expect to
offer our services in a total of 50 markets nationwide, comprised of 145 cities,
by the end of 2000. Through our alliance with Lucent, we anticipate being able
to rapidly deploy our nationwide, broadband network. We believe that this
alliance will allow us to gain significant time to market advantages relative to
our potential competitors, permitting us to establish ourselves as the leading
provider of broadband connectivity and associated
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applications and services in our markets. We also believe that our early entrant
status in our target markets will provide us with inherent pricing flexibility
and lower operating and marketing costs.
DRIVE CUSTOMER ACQUISITION THROUGH DIRECT MARKETING
In marketing our services, we intend to emphasize direct sales through
account managers, telesales personnel and specialized account groups. We expect
our emphasis on direct sales will enable us to quickly establish a branded
presence and achieve significant market penetration in each market that we
enter. By using JatoBridge, our proprietary database marketing system, we can
develop a list of potential customers that is prioritized by characteristics
that indicate a need for bandwidth intensive data communications services and
applications. This allows us to streamline our sales and marketing activities
and to focus our efforts on potential customers with the highest propensity to
purchase broadband services. In addition, we have specialized account groups
that sell into vertical sectors, such as the healthcare, travel, and real estate
businesses, which have growing demands for industry-specific broadband
applications and services. Our indirect sales approach is designed to expand our
distribution capabilities through strategic relationships with ISPs and value
added resellers. We intend to establish mutually beneficial sales and marketing
relationships with these providers that will allow us to accelerate customer
acquisition in our markets. We intend to retain the relationship with our
customers so that we can ensure high quality service, offer new applications and
services as they become available, and enhance brand recognition and loyalty.
OFFER A WIDE ARRAY OF BROADBAND APPLICATIONS AND SERVICES
We seek to provide a superior value proposition to our customers by
partnering with a variety of independent network and application services
providers to offer our customers a wide range of value-added applications as
well as enhanced network solutions. We intend to offer the ability to initiate,
develop and manage Internet-based business operations beginning with services
such as domain name registration, Web site creation, Web hosting and e-commerce.
Our relationships with companies such as Netopia and Network Solutions Inc.
allow us to offer our customers basic applications and services, such as e-mail
and Web hosting and authoring. We believe that our approach of offering a suite
of applications will further differentiate us from our competitors and result in
increased penetration of our target customer base.
PROVIDE SUPERIOR CUSTOMER CARE AND SUPPORT
We believe that customer care is critical to the retention of our target
customers and we intend to further differentiate ourselves from our competition
by developing and implementing state-of-the-art customer support systems and
capabilities. Our dedicated business unit provides order management,
provisioning, customer care, operations support and billing services. We have
designed our provisioning and service systems to enable our customers to be
self-sufficient and yet have rapid access to additional support services, if
needed. Our customer support services are available 24 hours a day, seven days a
week.
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STRATEGIC ALLIANCES
We seek to establish alliances with third parties that allow us to leverage
their individual expertise, and thus enhance our network capabilities. We
anticipate that we will enter into additional strategic alliances with others in
the future. Our current strategic alliances include:
LUCENT TECHNOLOGIES
In July 1999, we entered into a strategic alliance with Lucent Technologies
that includes the following key terms:
- NATIONWIDE NETWORK DEPLOYMENT. Lucent will construct, install and
integrate our network equipment in the central offices of incumbent
carriers.
- VENDOR FINANCING. We have entered into an agreement with Lucent that
provides up to $50 million in vendor financing.
- MARKETING ASSISTANCE. Lucent will provide us financial support to market
co-branded products and services.
- NETWORK MONITORING. Through its nationwide network facilities, Lucent will
provide network monitoring and maintenance services 24 hours a day,
seven days a week.
MICROSOFT CORPORATION
In January 2000, we entered into a strategic relationship with Microsoft
that includes the following key terms:
- MICROSOFT INVESTMENT. Microsoft invested $10 million in us in return for
shares of our Series D preferred stock which will convert into 1,785,714
shares of common stock upon the closing of this offering.
- ASP SERVICES. As part of the two-year agreement, Jato Communications will
use Microsoft products, such as Microsoft-Registered Trademark- Office,
the Microsoft Outlook-Registered Trademark- messaging and collaboration
client, Site Server Commerce Edition and Microsoft Exchange, to create a
variety of ASP services focused on knowledge management, e-commerce and
line-of-business solutions. In addition, Jato will offer Managed PC
Services, a bundled solution consisting of a combination of hardware,
software and services provided to customers for a monthly fee.
- JOINT MARKETING OF OUR SERVICES. Jato and Microsoft will cooperatively
develop and implement sales and marketing plans for these products.
QWEST COMMUNICATIONS
In February 2000, we entered into a strategic relationship with Qwest to
further enhance our network capabilities, that includes the following key terms:
- QWEST INVESTMENT. Qwest invested $10 million in us in return for shares of
our Series D preferred stock which will convert into 1,785,714 shares of
common stock upon the closing of this offering. As part of this
transaction, Qwest has agreed to certain standstill agreements restricting
its ability to purchase more than 10% of our outstanding capital stock,
without our consent, for a period of five years. In addition, upon the
closing of the concurrent placement, which will close immediately after
the closing of this offering, Qwest will purchase shares of common
stock for an aggregate purchase price of $2.5 million. In addition, at the
closing of the concurrent placement, we have agreed to issue Qwest a
warrant for the purchase of shares of common stock at an aggregate
exercise price of $5.0 million.
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- DSL SERVICES. We have been designated as Qwest's preferred provider of
business DSL services in selected cities and central offices. Qwest has
agreed to use its reasonable efforts to sell a minimum of 75,000 business
class DSL lines using Jato DSL facilities over five and one-half years.
Moreover, we have agreed to use our reasonable efforts to supply Qwest
with a minimum of 15,000 lines using Qwest DSL facilities. Both parties
will purchase each line on a one year commitment.
- NETWORK SERVICES. Jato will use Qwest as one of its preferred suppliers of
broadband communications services and large-scale transport services.
- SERVICE AGREEMENT. As part of the commercial relationship, we have agreed
to purchase $25.0 million of these Qwest DSL and network services over
five and one-half years, at an agreed-upon price of $16.0 million,
reflecting the present value of such purchase price, payable to Qwest upon
the closing of the offering.
APPLICATIONS AND SERVICES
A core element of our strategy is the establishment of relationships with
companies that have either developed applications or provide services that meet
the specific needs of small- and medium-sized businesses. Our relationships with
companies such as Microsoft, Netopia and WebPerfect provide us the ability to
offer our customers a variety of applications and services at cost-effective
prices. Through our two year agreement with Netopia, Netopia has licensed to us,
on a non-exclusive basis, its web site and other e-store products and services.
In addition, Netopia has agreed to create a co-branded version of its web site
and products for hosting web sites which we will offer to our customers. Our
three year agreement with WebPerfect provides for WebPerfect to create and host
a private-label web-based e-mail service that Jato intends to offer to its
customers. We have non-exclusive agreements with these companies to license and
resell their applications or services. We may also agree to jointly market our
services with our partners.
CURRENT APPLICATIONS AND SERVICES
Our suite of services includes the following:
- BROADBAND SERVICES. Our broadband service provides customers with
high-speed Internet access and other network services. We support a
variety of broadband access speeds that afford our customers a dedicated
and "always on" connection. We supply Internet access through our
relationships with several ISPs.
- WIDE AREA AND REMOTE LOCAL AREA NETWORKS. In each of our markets we offer
wide area network connectivity between distributed customer sites. WANs
provide our customers with a relatively inexpensive dedicated network
through which they can share and exchange data at broadband transmission
speeds. RLANs allow teleworkers to connect to their corporate LAN with a
DSL modem at high transmission speeds.
- WEB HOSTING AND AUTHORING. Our relationship with Netopia allows us to
provide Web hosting and two levels of Web authoring services. The entry
level services allow our customers to utilize a Web site template to
create a basic e-brochure Web site. For our customers who demand extended
Web site capabilities, we are able to offer professional level solutions
to create a fully customized Web site.
- E-COMMERCE. Our Netopia relationship also provides customers desiring to
sell their products and services over the Internet with a more elaborate
Web presence. These additional services include, among others, product
cataloging, online shopping cart capability, credit card transaction
processing, and order fulfillment notification.
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- E-MAIL SERVICES. We provide outsourced e-mail services for our customers,
thus allowing them to eliminate the overhead typically associated with
managing in-house e-mail platforms.
EXTENDED APPLICATIONS AND SERVICES
We are continually examining a broad range of additional applications and
services. These future services may include, among others:
- PBX EXTENSION. We believe that an exceptional opportunity exists to
provide our small- and medium-sized business customers the ability to
extend their office PBX, or private branch exchange, phone system to their
workers' offsite locations. This technology would permit us to offer our
customers, over existing copper loops, high-speed data and simultaneous
PBX phone extension services, such as four digit dialing, conference
calling and speed dialing. We expect our customers to be able to reduce
their intra-company long distance telephone charges, increase their data
communications capabilities as well as create a closer relationship with
remote workers through this service offering. We are currently engaged in
technical engineering trials of this technology over our network
architecture.
- VOICE OVER DSL. In contrast to our proposed PBX extension service where
the end-to-end telephone connection is transmitted over a dedicated DSL
wide area network, our anticipated Voice over DSL offering will transmit
voice traffic over our network onto the public telephone exchange system.
Voice over DSL service allows customers to avoid separate local access
charges for stand-alone telephone service. We are currently testing this
voice capability over our network architecture with Copper Mountain
Networks and Tollbridge. To facilitate this service, we expect to resell
voice capacity from other competitive carriers.
- VIRTUAL PRIVATE NETWORKS. Virtual private networks, or VPNs, are an
evolution of WANs. Whereas WAN offerings involve the deployment of
dedicated lines to a customer over a private backbone, VPNs will permit
private networks to be deployed over shared public networks, thereby
reducing subscriber costs.
- MULTI-TENANT ACCESS. Multi-tenant access involves the installation of a
DSLAM at the customer premises instead of at a central office. This
offering would be focused on serving commercial customers occupying a
dense office park or high-rise. Because our DSLAM would be located on the
customer's site, we would be able to offer more customers our higher speed
services as a result of the decreased loop length. Further, our ability to
rapidly provision customers would be enhanced because we would not be
depending on the incumbent carrier to provision the existing copper line
to the customer's premise.
TARGET CUSTOMERS
We believe that small- and medium-sized businesses in secondary markets have
specific needs for which our applications and services are well suited. These
target customers tend to have the following characteristics:
- Growing high-speed Internet access and high bandwidth network needs;
- Inadequate or nonexistent information technology staff and departments;
- Fewer than 100 employees;
- Existing ISDN or dial-up Internet access service;
- Reliance on traditional high-speed alternatives, such as T1 lines which
are significantly more expensive; and
- Underserved by existing service providers.
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MARKETING AND SALES
We create market awareness and promote our applications and services to
small- and medium-sized businesses through our focused marketing efforts, our
direct sales approach and indirectly through marketing partners, such as ISPs
and value added resellers.
MARKETING
The goal of our marketing efforts is to establish the Jato brand as a
preferred provider of network-enabled applications and services. We believe that
our marketing approach will help to make us a market share leader in each of the
markets we offer, or intend to offer, our services. Our marketing group is
focused on enhancing brand recognition, differentiating us from other data
communication providers, leveraging our early entrant advantage and dominating
selected vertical sectors of our markets. We believe that our alliance with
Lucent will give us a significant advantage in achieving these objectives as
Lucent has agreed to provide us with financial support to market co-branded
products and services in each market we deploy our network. Our marketing
approach will differ in each market, depending upon such factors as the presence
or absence of direct competitors, the nature of any competitive advertising and
promotional offers, preconceptions or lack of awareness about DSL and other
high-speed Internet access options, and our time-to-market advantage relative to
other providers. We also support our direct and wholesale sales efforts with
coordinated public relations programs, which are designed to educate consumers,
develop active interest from our target customer base and, most importantly,
enhance our brand recognition. With this approach, we believe that we will be
able to deepen our market penetration and increase customer retention.
DIRECT SALES
Key elements of our direct sales approach include:
- NEW MARKET LAUNCH TEAM. To facilitate a new market launch, we dispatch our
new market launch team to establish our local sales office and recruit and
hire local sales personnel to service that market. Because our new market
launch team repeats this market development process in each of our target
markets, we can quickly and efficiently establish our sales presence.
- JATOBRIDGE DATABASE. Our proprietary database marketing system, called
JatoBridge, targets and pre-qualifies potential customers in each of our
target markets. With JatoBridge, we aggregate and process demographic,
marketing, and geographic data relative to small- and medium-sized
businesses in our target markets using a combination of proprietary
selection algorithms, statistical modeling and analytical tools to develop
a pre-qualified list of potential customers with the highest probability
of acquiring DSL technology and enabled applications. In addition, through
our geographic information systems, we can determine the capability of
delivering broadband services to prospective customers' sites based on
central office and individual customer locations. We believe JatoBridge
will allow us to increase and accelerate market penetration, reduce
customer acquisition expenses, increase customer retention rates, and
facilitate the sale of additional applications and services.
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- ACCOUNT MANAGERS. Our account managers are responsible for identifying and
soliciting potential customers within their geographic region. We hire
account managers within each market who have specific experience selling
communications or other similar services. Our account managers work in
tandem with our telesales personnel to efficiently establish a local
presence and facilitate the sale of our applications and services. Account
managers are compensated with a base salary and commissions based on the
number of lines sold.
- TELESALES PERSONNEL. Our telesales personnel cover territories around
central offices where we have deployed, or intend to deploy, our network
applications and services. Our telesales personnel are compensated with a
base salary and commissions based on the number of lines sold in a
particular market. We believe that our telesales approach, when combined
with JatoBridge and our account managers, will enable us to penetrate our
potential customer base more quickly and efficiently, and will facilitate
the sale of our applications and services.
- SPECIALIZED ACCOUNT GROUPS. We have established specialized account groups
to sell applications and services to small-and medium-sized businesses in
specific, data intensive industries. Account groups have initially been
established in the healthcare, travel and real estate sectors. We staff
these specialized account groups with professionals who have expertise and
experience in the particular sector that they will serve.
INDIRECT SALES
We also market our services to end users through strategic marketing
partners, including ISPs, interexchange carriers and value added resellers. We
offer each indirect sales partner high-speed network access services that it can
bundle with its own product offerings.
CUSTOMER CARE AND SUPPORT SERVICES
We believe that a dedicated customer service group, exceptional operations
support systems and seamless process integration are all critical ingredients to
delivering customer care that meets or exceeds our customers' expectations,
reduces churn and increases our ability to sell new services to existing
customers. Beginning with our initial customer contact through provisioning,
billing and ongoing support services, we provide our customers with a single
point of contact. We have designed our provisioning and service systems to
enable our customers to be self-sufficient and yet have rapid access to
additional support if needed. Our customer care system is designed to interact
with our customers via e-mail, call center or directly through our extranet
24 hours a day, seven days a week.
Our workflow management system provides intelligent routing and management
of customer orders through the appropriate internal and external organizations
from the point of order entry through incumbent carrier provisioning and on-site
installation. Our systems have been designed to be both flexible and scalable in
order to support our expected future back office requirements. Our intelligent
routing and management capability allows us to efficiently manage our
provisioning process and immediately recognize and address potential or incurred
customer order problems on a real-time basis. We have applied performance
metrics to each step in the provisioning process so that we may anticipate and
quickly react to potential problems or conditions that could cause a delay or
disruption in service.
PROVISIONING
Our business model requires the lease of unbundled local loops from the
incumbent carrier. Our experience shows that the timely and accurate transfer of
information between ourselves and the incumbent carrier is crucial for success.
Thus, we have entered into an agreement with Mantiss as our provider of the
incumbent carrier gateway platform for provisioning management. We have selected
this company based on their technical architecture and their ability to
proactively manage the interface
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changes inherent in incumbent carrier order gateways. We believe that through
this electronic data interface with the incumbent carriers we will be able to
further reduce the time required to provision unbundled local loops.
BILLING
Flexible and scalable billing capabilities are critical to our direct sales
strategy. We have chosen to implement Solect Technology Group's IAF billing
system application. Solect's IAF Horizon is a leading IP billing software
solution for service providers. IAF Horizon provides an integrated approach to
billing, customer care and service management. Its platform architecture will
enable flexibility, scalability and adaptability. Solect's key customers
include, among others, GTE Data Services, Eircom, and AT&T Canada.
NETWORK DEPLOYMENT
We collocate our equipment in selected central offices to cover on average
over 80% of the businesses in our target markets. We believe this enables us to
maximize our capital expenditure efficiencies while reaching a significant
portion of our markets. As of January 31, 2000, we provided services in four
markets and had collocated our equipment in six additional markets. We intend to
offer our services in a total of 50 markets nationwide, comprised of 145 cities,
by the end of 2000.
NETWORK ARCHITECTURE
DSL TECHNOLOGY
Our DSL access service allows customers to choose the speed and performance
level that they require today with the option to upgrade in the future. In most
cases, our customer premise equipment does not require any hardware
modifications or an on-site service call to upgrade to a higher level of
service. Substantially all upgrades can be configured remotely through software
configuration changes. Subject to the distance and other limitations described
below, our customers are able to change their level of service with the help of
a customer support representative or by logging into our extranet. For our
customers who desire to increase their network performance but are presently
limited from upgrade due to their distance from the central office, we can, in
many cases, double the speed of any of our service offerings by utilizing
standard multiplexing technology. We believe that prospective customers will
find this to be a very attractive, cost-effective solution to their networking
needs.
SYMMETRIC DIGITAL SUBSCRIBER LINE. We primarily offer a variation of DSL
called SDSL, or symmetric digital subscriber line. SDSL transmission speeds are
the same to and from the end user. In contrast to other DSL technologies, SDSL
permits us to provision customers at a specific transmission speed. Customers
order the speed they desire and pay additional subscription charges to increase
the speed. We offer SDSL at speeds that range from 144 Kbps to 1.5 Mbps. For
customers that are generally located within 9,000 feet of a central office, we
can provide transmission speeds that are equivalent to T1 services at a fraction
of the price. Through standard multiplexing technology, we can extend T1
equivalent speeds up to 13,500 feet of a central office. At lower SDSL
transmission speeds, we are generally able to provide services to end users that
are within 20,000 feet of a central office. The speeds at which we provision
customers are designed to meet the typical bandwidth requirements of small- to
medium-sized businesses.
INTEGRATED DIGITAL SUBSCRIBER LINE. We also offer IDSL, or integrated
digital subscriber line, technology. This technology allows us to reach end
users within 35,000 feet of a central office service area. We target these
services to current ISDN subscribers because IDSL can typically utilize the
customer's existing ISDN equipment. We believe IDSL compares favorably with ISDN
on a price/ performance basis. IDSL service is significantly less expensive,
when the flat rate of IDSL is compared with the ISDN per minute or flat rate
charges. IDSL operates at speeds up to 144 Kbps, or 288 Kbps
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using standard multiplexing technology, whereas ISDN is limited to 128 Kpbs.
Moreover, because IDSL is "always-on," as compared to the dial-up ISDN service,
customers can readily and continuously access the Internet. We also offer IDSL
to customers that do not have lines consisting of continuous copper, such as
certain customers who tend to be served with Digital Loop Carrier services from
their incumbent carrier.
OTHER BROADBAND ACCESS SOLUTIONS
We expect to utilize a variety of wireline and wireless broadband access
technologies to supplement our core DSL network and maximize our nationwide
footprint. We intend to deploy complementary technologies in areas where DSL is
not accessible or cost effective.
NETWORK DESIGN, IMPLEMENTATION AND MANAGEMENT
We have designed and are deploying our network through engineering,
equipment and service alliances with national suppliers. We have a strategic
alliance with Lucent to install, monitor and maintain our central office
equipment, local area and national networks. Lucent will provide us with
end-to-end network management 24 hours a day, seven days a week through their
national network operations center that can respond to every level of our
network beginning with individual customer lines, through our central office
equipment and through our local area and national backbone circuits. We believe
that our expertise in technology and alliance management allows us to focus and
maximize the technical specialties of each of our suppliers and assemble a
network that is reliable, rapidly expandable and capital efficient. We have
established a network engineering and management staff within our organization
that will provide management oversight of our network deployment and operations
and provide supplementary deployment and other services. We believe that our
network strategy enables us to quickly deploy our national network, minimize our
capital expenditure and overhead requirements and rapidly fulfill and adapt to
the needs of our customers.
NETWORK COMPONENTS
DSL MODEMS AND CUSTOMER PREMISE INSTALLATION. We purchase DSL modems
primarily from Netopia and arrange for the on-site installation and wiring
through outside vendors including CMC Telecor and Integrated Systems Installers.
We ensure the successful connection of the modem into the local loop.
LEASED LOCAL ACCESS LINES. We lease the copper line running from our
central office equipment to the end user. We provision the line from the
incumbent carrier and perform tests to ensure line quality. We also monitor this
line via the Turnstone equipment that we receive through our Lucent relationship
to proactively ensure the quality of the connection. Through our Turnstone
monitoring capabilities we are able to remotely diagnose and temporarily correct
problems by re-routing customer traffic resulting in minimal service disruption
to the end user. The Turnstone equipment enables us to reduce our operating
costs and improve service quality.
CENTRAL OFFICE EQUIPMENT. Through our relationship with Lucent, we utilize
Copper Mountain DSLAM equipment in our central office locations. Lucent
installs, maintains and monitors all of our equipment in our central office
locations. This arrangement allows us to deploy our central office equipment
quickly and consistently across our nationwide network. We believe that by
utilizing the national service infrastructure of Lucent we will reduce our
central office installation costs and we will be able to focus on managing the
quality of installation services and on the efficient and rapid deployment of
our network. We have also deployed Turnstone equipment in each of our central
office locations.
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SWITCHING CENTER. Our switching center is a local point of presence within
a market where local traffic is aggregated from our central office locations.
The switching center houses our asynchronous transfer mode, or ATM, switches and
IP, or internet protocol, routers. ATM is an efficient, high-speed transport
mechanism that utilizes a packet-like switching and multiplexing technique. We
design our switching centers for high availability including backup power,
redundant equipment and active network monitoring.
BACKHAUL SERVICES. We utilize backhaul network services to transport
traffic from central offices to our switching centers, as well as route traffic
from our switching centers to the local point of presence of our ISP partners or
backbone provider. These backhaul services are provided by national and global
networking carriers such as Qwest Communications, Level 3 Communications and MCI
WorldCom. Through our relationships with these communications companies, we can
offer our customers seamless, broadband data networking capabilities.
BACKBONE SERVICES. We will interconnect our switching centers through
backbone providers such as Qwest Communications, Level 3 Communications and MCI
WorldCom. Through our backbone providers, we will create a nationwide broadband
infrastructure. Our integrated backbone network will enable us to provide
advanced data services such as VPN. In the future, we expect to add additional
transmission protocols, including frame relay and ATM services.
COMPETITION
We expect to face competition from many competitors with significantly
greater financial resources, well-established brand names and large, existing
installed customer bases. Moreover, we expect to face increased competition in
the future. We expect significant competition from:
INCUMBENT LOCAL EXCHANGE CARRIERS. Incumbent local exchange carriers, such
as Bell Atlantic, SBC Communications and U S WEST, have begun deploying
DSL-based services and other high speed data communications services. Such
carriers are also leasing wide area connections and have existing metropolitan
area networks and circuit switched local area networks. We believe that
incumbent carriers have the potential to quickly overcome many of the issues
that have delayed widespread deployment of DSL services in the past. As a result
of owning copper lines, these incumbent carriers can bundle digital data
services with their existing voice services to attain a significant competitive
advantage in serving customers. Incumbent carriers also possess sufficient
capital to deploy DSL services rapidly and are in a position to offer service
from central offices where we may be unable to secure collocation space.
Collocation refers to a location where a competitive carrier network
interconnects with the network of an incumbent carrier inside an incumbent
carrier's central office. In addition, the FCC is considering establishing
requirements for separate subsidiaries through which these carriers could
provide DSL service on a substantially deregulated basis. As such, we expect
these carriers to be strong competitors in each of our target markets.
INTEREXCHANGE CARRIERS. Many of the leading interexchange carriers,
including AT&T, MCI WorldCom and Sprint, are building and expanding their
networks to support high-speed, end-to-end network services. Increasingly, their
bundled services include high-speed local access combined with metropolitan and
wide area networks, and a full range of Internet services and applications.
These carriers have deployed national networks, have strong brand recognition,
and in many cases have announced the deployment of DSL services in combination
with their current fiber networks as a result of interconnection agreements and
collocation spaces with many incumbent local exchange carriers. More recent
national carriers, such as Qwest Communications, Level 3 Communications and IXC
Communications are building and managing high-bandwidth, nationwide IP-based
packet networks and partnering with Internet service providers to offer services
directly to the public, including business customers.
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CABLE MODEM SERVICE PROVIDERS. Cable modem service providers, like
Excite@Home and its cable partners, are offering or preparing to offer
high-speed Internet access over hybrid fiber coaxial cable networks to
consumers. @Work has positioned itself to do the same for businesses. Where
deployed, these networks provide local access service similar to our services,
and in some cases at higher speeds and lower prices.
DSL-BASED COMPETITIVE LOCAL EXCHANGE CARRIERS. Certain competitive
carriers, such as Covad Communications, DSL.net, HarvardNet, Network Access
Solutions, NorthPoint and Rhythms NetConnections, are offering DSL-based data
services. We also anticipate competition from other national and regional
carriers. Other competitive carriers are likely to do so in the future. The 1996
Telecommunications Act specifically grants competitive carriers the right to
negotiate interconnection agreements with incumbent carriers, including
interconnection agreements which may be identical to, or more favorable than,
our agreements.
TRADITIONAL COMPETITIVE LOCAL EXCHANGE CARRIERS. Traditional competitive
carriers such as Allegiance, BTI, Electric Lightwave, e.spire, Intermedia and
McCleodUSA have extensive fiber-based networks in many metropolitan areas,
primarily providing voice and high-speed data circuits to business users. Many
of these carriers have begun offering DSL services to their customers.
INTERNET SERVICE PROVIDERS. Internet service providers, like America
Online, Flashcom and UUnet, provide Internet access to residential and business
customers. These companies generally provide Internet access over the incumbent
carriers' circuit switched networks at ISDN speeds or below. However, some
Internet service providers have begun offering DSL-based access using their own
DSL services, or DSL services offered by the incumbent carrier or other
DSL-based competitive carriers. Some Internet service providers, such as
Concentric Network Corporation, Mindspring Enterprises, Inc., PSINet Inc. and
Verio, have significant and even nationwide marketing presences and combine
these with strategic or commercial alliances with DSL-based competitive
carriers.
WIRELESS AND SATELLITE DATA SERVICE PROVIDERS. Several new companies,
including Advanced Radio Telecom, Teligent and WinStar Communications, are
emerging as wireless data service providers, over a variety of frequency
allocations. Satellite-based data service providers, such as Motorola Satellite
Systems and Hughes Communications are also emerging. These companies use a
variety of new and emerging technologies, such as terrestrial wireless services,
point-to-point and point-to-multipoint fixed wireless services, satellite-based
networking and high-speed wireless digital communications.
We may be unable to compete successfully with these or future competitors.
The most significant competitive factors include: price, performance,
transmission speed, service reliability, breadth of product offerings, network
security, ease of access and use, customer support, brand recognition, operating
experience, capital and exclusive contracts with customers and Internet service
providers and businesses with multiple locations. Additionally, the
telecommunications industry is subject to rapid and significant changes in
technology. As such, we cannot assess the effect such technological changes will
have on our business, particularly the developments in DSL technology and
alternative high-speed data communications technologies. These developments
could have a material adverse effect on our competitive position.
GOVERNMENT REGULATION
Jato is a telecommunications common carrier. As a result, we are subject to
substantial federal, state and local regulation of our services and facilities.
The Federal Communications Commission exercises jurisdiction over state-to-state
and international services. Each state public utility and service commission has
jurisdiction over services within that state. In addition, cities and other
local governments may require us to obtain licenses or franchises to operate our
networks in or across a public right-of-way.
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FEDERAL REGULATION
In 1996, the federal government enacted the 1996 Telecommunications Act,
which establishes a pro-competitive, de-regulatory framework for the provision
of local and state-to-state telecommunications services by all
telecommunications providers. The 1996 Telecommunications Act imposes three
levels of duties on telecommunications carriers:
- general obligations applicable to all entities offering local exchange
services,
- additional obligations applicable to the previous monopoly local exchange
carriers (the so-called incumbent local exchange carriers), and
- special duties of the former Bell System operating companies (the
so-called Regional Bell Operating Companies or RBOCs).
All local exchange carriers, including Jato, must:
- not prohibit or unduly restrict resale of their services;
- provide number portability;
- provide dialing parity and nondiscriminatory access to telephone numbers,
operator services, directory assistance and directory listings;
- afford access to poles, ducts, conduits and rights-of-way; and
- establish reciprocal compensation arrangements for the transport and
termination of local telecommunications traffic.
Incumbent local exchange carriers must also comply with additional
obligations intended to enable new competitors to compete with the incumbent's
services. Incumbent carriers must negotiate local interconnection agreements in
good faith, make those agreements available to all competitors on a
nondiscriminatory basis and permit competitors to interconnect their networks in
order to exchange calls between their respective subscribers. Incumbent carriers
must provide this interconnection at any technically feasible point within the
incumbent carrier's network and on just, reasonable and nondiscriminatory rates,
terms and conditions. In addition, the 1996 Telecommunications Act permits
competitors to utilize portions of the incumbent carrier's network on an
individual basis in order to offer any telecommunications service, to co-locate
their equipment at the incumbent carrier's network locations, and to obtain the
incumbent carrier's retail services at wholesale prices for resale to end users.
In addition, the 1996 Telecommunications Act imposes a number of
restrictions on the ability of RBOCs to manufacture telecommunications equipment
and to provide long distance and other services. Under section 271 of the 1996
Telecommunications Act, the RBOCs must comply with certain safeguards and offer
interconnection that satisfies a prescribed 14-point checklist before they may
provide long distance services within their local territories. These safeguards
are designed to ensure that the RBOCs' competitors have fully opened their
networks to competitors and to promote competition by preventing RBOCs from
using their market power in local exchange services to obtain an
anti-competitive advantage in the provision of other services.
The overriding purpose of the 1996 Telecommunications Act is to create
competitive opportunities for companies to offer all types of telecommunications
services. In so doing, the 1996 Telecommunications Act granted important
regulatory relief to industry segments which compete with competitive local
exchange carriers. The Federal Communications Commission was given authority to
refrain from applying most statutes and regulations to our competitors
(including the incumbent carriers). Incumbent carriers were given substantial
new pricing flexibility and the RBOCs were given broader rights to participate
in related telecommunications markets. Cable television providers were
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authorized to offer telecommunications services and internet access over their
cable networks. In addition, under the 1996 Telecommunications Act all utility
holding companies are permitted to diversify into telecommunications services.
Each of these potentially competitive services, as well as data services
delivered via wireless or satellite technologies, are subject to differing
regulatory regimes which frequently are not at parity with one another. As a
result, Jato may face competition from entities subject to more favorable or
less onerous regulation than applies to us.
Federal proceedings implementing the provisions of the 1996
Telecommunications Act have been extremely complex and are subject to continuing
revision. Jato relies substantially on rights granted to us by the 1996
Telecommunications Act, including rights to co-locate our equipment at the
incumbent carriers' locations and to use the incumbent carriers' telephone lines
and other network elements. Federal rules implementing these rights may have a
material effect on our business.
Most of the framework implementing the local competition provisions of the
1996 Telecommunications Act was established in an order adopted by the Federal
Communications Commission on August 8, 1996 in its CC Docket 96-98. In its
order, the Federal Communications Commission:
- identified certain minimum points in the network where the incumbent
carriers must permit competitors to interconnect and install their own
equipment for carrying telecommunications traffic;
- prescribed standards to ensure that interconnection could be made at other
efficient places in the network
- adopted a minimum list of network elements (i.e., those portions of the
incumbent carriers' networks that incumbents must allow competitors to use
on an unbundled basis);
- adopted rules requiring incumbents to offer those elements at quality
levels specified by competitive carriers and to combine those elements
upon request;
- adopted a methodology for the state public utility commissions to use in
establishing cost-based rates for interconnection and the use of these
network elements; and
- adopted a methodology for applying the 1996 Telecommunications Act's
avoided cost standard when setting wholesale prices for the incumbent
carrier's retail services.
Most provisions of the Federal Communications Commission's order were
appealed. Numerous appeals were consolidated for consideration by U.S. Court of
Appeals for the Eighth Circuit (captioned IOWA UTILITIES BOARD V. FCC). On
July 18, 1997, the Court of Appeals released its decision regarding issues
raised in the consolidated appeals of the order, upholding the Federal
Communications Commission's order in part and reversing it in part; it modified
that decision on August 22, 1997.
On January 25, 1999, the U.S. Supreme Court reversed important portions of
the Eighth Circuit's holding in IOWA UTILITIES BOARD. Specifically, the Supreme
Court ruled that:
- the Federal Communications Commission properly exercised its authority
under the 1996 Telecommunications Act in establishing pricing rules for
incumbent carriers' network elements and resale;
- the Federal Communications Commission had authority to preclude incumbent
carriers from separating unbundled network elements which are already
combined; and
- the Federal Communications Commission was justified in promulgating
rules enabling competitors to select favorable provisions from other
carriers' existing interconnection agreements.
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However, the Supreme Court also held that the Federal Communications
Commission's analysis in identifying the minimum list of network elements was
inadequate. The Court ruled that the Federal Communications Commission failed to
consider sufficiently the requirement under the 1996 Telecommunications Act that
those network elements be necessary, or that a lack of access to those elements
would impair the ability of competitors to offer services. The Court vacated the
relevant rule and remanded the matter to the Federal Communications Commission
either to modify the rule or justify it, subject to further court review.
Certain other aspects of the Federal Communications Commission's order were
vacated by the Eighth Circuit and were not appealed to the Supreme Court; thus,
they remain vacated. These include Federal Communications Commission rules that
had directed incumbents to combine network elements requested by competitors
whether or not those elements had previously been combined, and a provision
requiring that interconnection arrangements be superior in quality to those
provided by the incumbent carriers to themselves, when requested to do so by
competitors. The Federal Communications Commission and several competitive local
exchange carriers have asked the Eighth Circuit to reinstate these rules based
upon the Supreme Court's reasoning, but these requests have not yet been acted
upon by the court.
On September 15, 1999, the Federal Communications Commission adopted an
order reexamining its minimum list of network elements as directed by the
Supreme Court. This order reaffirmed the most important six of the original
seven mandatory network elements that incumbents must provide, and expanded the
ability of competitors to obtain unbundled local loops, especially loops used to
provide DSL and other high capacity services. The order makes clear that the
states are free to add other unbundled network elements to the list identified
by the Federal Communications Commission. In addition, the Federal
Communications Commission affirmed the rights of competitors to obtain pre-
existing combinations of network elements, including extended loops. The 1999
order, however, scaled back competitors' abilities to use the incumbent's local
switches and generally does not require incumbents to share their data
communication networks. As of December 20, 1999, these rules have not yet become
effective, and are subject to petitions for review and/or reconsideration by
various industry parties. We are unable to predict what the outcome of any
resulting litigation will be or when these matters will be resolved.
Finally, the Federal Communications Commission is considering a proceeding
which may affect Jato's ability to gain access to multi-tenant buildings in
order to provide its services. No decision has been issued in this proceeding,
and Jato is unable to predict when, or if, the Federal Communications Commission
will act in the proceeding.
With the increasing deployment of high-speed telecommunications networks,
the Federal Communications Commission continues to review its policies and
rules for the provision of advanced communications services. Advanced
communications services are wireline, broadband telecommunications services,
such as services that rely on digital subscriber line technology (commonly
referred to as xDSL) and packet-switched technology. In an order released on
August 6, 1998, the Federal Communications Commission clarified that the
interconnection, unbundling and resale obligations under the 1996
Telecommunications Act applied to the incumbents' advanced communications
facilities and services, and proposed measures to promote the deployment of
advanced communications services by both incumbent carriers and competitors.
However, the Federal Communications Commission also interpreted the 1996
Telecommunications Act as permitting (under certain circumstances) incumbent
carriers to deploy advanced communications services through separate affiliates
that would not be subject to the 1996 Telecommunication Act's unbundling and
resale obligations. The Federal Communications Commission currently is reviewing
these findings to more fully consider the proper classification of advanced
telecommunications services and the implications of that classification on the
scope of the incumbents' obligations with respect to the provision of these
services. This review could significantly affect competitor's abilities to gain
access to
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the incumbents' advanced service capabilities as well as the degree of
regulation the incumbents' retail advanced services may be subjected to.
On March 18, 1999, the Federal Communications Commission adopted a First
Report and Order in these proceedings further strengthening the rights of
competitors to lease space within the incumbent's facilities in order to place
the carrier's own telecommunications equipment. The Federal Communications
Commission, for example, permitted competitors to share space used by other
carriers at their option and required incumbent carriers to permit competitors
to place equipment in pre-installed racks and other cageless collocation
arrangements. The Federal Communications Commission also broadened the range of
permissible equipment that competitors may install to include equipment that
performs some switching and enhanced services functions. Finally, the Federal
Communications Commission limited the incumbents' ability to claim that
competitors' equipment posed fire or electrical hazards and proposed
rules making the standards incumbents may use more specific.
Many aspects of these rulings have been appealed to the U.S. Court of
Appeals for the D.C. Circuit. We cannot predict the final outcome of these
proceedings and associated appeals. In addition, we note that incumbent carriers
continue to seek both legislation and Federal Communications Commission action
to free them from regulation of advanced services, including the obligation to
unbundle their own DSL facilities, and we are unable to predict the outcome of
these efforts.
On November 18, 1999, the Federal Communications Commission adopted an order
in its advanced services proceeding requiring incumbents to offer access to the
high frequency portion of telephone lines they use to provide voice services to
a customer, provided that access will not degrade the voice services provided
over the same telephone lines. Access to the high frequency portion of a
telephone line -- referred to as line sharing -- will enable competitors to
provide high-speed data services (such as DSL) to a customer, without requiring
the customer to obtain a second telephone line dedicated for this purpose.
However, several important elements of line sharing, including the price at
which incumbents must provide such access, were left to the state commissions to
determine using federal guidelines. In addition, the order specifically
determines that SDSL, a symmetrical digital subscriber line technology used by
Jato, is not eligible for deployment on a line sharing basis because it uses the
frequencies devoted to voice transmissions. Moreover, incumbent carriers will
have at least until June 2000 to implement these new requirements. As a result,
we are unable to predict when line sharing will become available, or the degree
to which it will reduce the costs currently associated with providing high-speed
data services.
In November 1998, the Federal Communications Commission ruled that DSL
services used to provide dedicated access to interstate services, such as
Internet access, are interstate services subject to its jurisdiction. The
Federal Communications Commission permitted incumbent carriers to include such
DSL services in their federally-filed tariffs, rather than in state tariffs. On
February 26, 1999, the Federal Communications Commission ruled that local calls
placed to ISPs (so-called ISP-bound traffic) also is predominantly interstate
traffic that is subject to federal jurisdiction. However, having found that most
ISP-bound traffic is jurisdictionally interstate, the Federal Communications
Commission went on to clarify that its ruling did not preclude parties from
treating this traffic as local traffic for purposes of the payments carriers
make when local calls originate with one carrier and are completed to
subscribers of another carrier. On a prospective basis, the Federal
Communications Commission is considering rules for carrier to carrier payments
for ISP-bound traffic. These decisions currently are subject to reconsideration
and appeal.
In response to several carrier tariffs offering interstate DSL services, the
Federal Communications Commission has ruled that advanced services that are
provided to ISPs for use in connection with the ISP's Internet access services
are wholesale telecommunications services, not telecommunications services
offered at retail. As a result, competitors may not obtain these DSL services at
wholesale prices under the 1996 Telecommunications Act. Services which are
offered to business or residential
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subscribers directly, however, are retail services and may be obtained by other
carriers at the wholesale price. This ruling may allow ISPs to obtain volume and
term discounts which meet or exceed those available to non-ISPs that purchase
DSL services.
In general, the Federal Communications Commission has a policy of
encouraging the entry of new competitors, such as Jato, in the
telecommunications industry and preventing anti-competitive practices.
Therefore, the Federal Communications Commission has established different
levels of regulation for dominant carriers and nondominant carriers. Large
incumbent local exchange carriers such as GTE and the RBOCs are currently
considered dominant carriers in their territories, while competitors such as
Jato are considered nondominant carriers.
- TARIFFS: As a nondominant carrier, we may install and operate
telecommunications facilities without prior Federal Communications
Commission authorization. Services of nondominant carriers have been
subject to relatively limited regulation by the Federal Communications
Commission, primarily consisting of the filing of tariffs and periodic
reports. However, nondominant carriers like Jato must offer interstate
services on a nondiscriminatory basis, at just and reasonable rates, and
remain subject to Federal Communications Commission complaint procedures.
Nondominant carriers have the option of filing tariffs for access services
provided to carriers who originate or terminate long distance calls to a
customer. However, the Federal Communications Commission has ruled that
long distance carriers must cancel their tariffs for domestic, state to
state long distance services, except for operator assisted calls and
casual calling using a carrier's 1-800 or 101-XXXX number. The Federal
Communications Commission's order has not taken effect, pending a review
of its lawfulness before the U.S. Court of Appeals for the District of
Columbia Circuit. We have not yet filed any tariffs for interstate
services with the Federal Communications Commission.
- INTERNATIONAL SERVICES: Nondominant carriers such as Jato are required to
obtain Federal Communications Commission authorization and file tariffs
before providing international communications services. At this time, we
do not have authority from the Federal Communications Commission to
provide voice or data communications services between the United States
and foreign points. We believe that such authority likely would be granted
by the Federal Communications Commission upon request.
- CONTRIBUTIONS TO FUND UNIVERSAL SERVICE SUBSIDIES: On May 8, 1997, the
Federal Communications Commission released an order in its CC Docket No.
96-45, which reforms the current system of interstate support mechanisms
designed to make telephone service universally available. The Federal
Communications Commission established a set of policies and rules to
ensure that low-income consumers and consumers living in rural, insular
and other high cost areas receive a defined set of local
telecommunications services at affordable rates. This is to be
accomplished in part through expansion of direct consumer subsidy programs
and in part by ensuring that rural, small and high cost local exchange
carriers continue to receive universal service subsidy support. The
Federal Communications Commission also created new programs to subsidize
connection of eligible schools, libraries and rural health care providers
to telecommunications networks. These programs will be funded by
assessment of eligible revenues of nearly all providers of interstate
telecommunications carriers, including DSL providers such as Jato. Like
all carriers that provide interstate telecommunications services, we will
be required to contribute to the subsidy. The subsidy could also enable
the incumbent carriers to reduce prices that they charge to certain
customers, putting additional competitive pressure on Jato. We presently
are unable to predict the potential impact of these universal service
funding reforms, but they could have a significant impact on our future
operations.
- OTHER GOVERNMENT REGULATION: Government regulation in a number of other
areas may affect Jato. For example, the Communications Assistance to Law
Enforcement Act requires
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telecommunications carriers to modify the design of their equipment,
facilities and services to ensure that electronic surveillance can be
performed at the request of authorized law enforcement representatives.
Telecommunications carriers are currently required to comply with the core
requirements of the Communications Assistance to Law Enforcement Act in
the year 2000. The potential cost to Jato in meeting these requirements,
which may be substantial, is unknown at this time. In addition, government
regulation of the Internet may also have an indirect effect on our
business, by increasing the cost of Internet access, making the businesses
of ISP's, who are customers of ours, less viable. If these costs are
passed on to customers of ISPs it could, in turn, affect the extent to
which companies and individuals access the Internet and engage in
electronic commerce. This may ultimately have a detrimental effect on us.
STATE REGULATION
Jato believes that most, if not all, states in which it proposes to operate
will require a certification or other authorization to offer intrastate
services. However, provisions of the 1996 Telecommunications Act bar states and
localities from imposing any requirement that may prohibit, or have the effect
of prohibiting, the ability of any entity to enter the telecommunications
market. The Federal Communications Commission has the authority to preempt state
actions that operate as entry barriers.
Jato has obtained intrastate authority in each of the states where we
provide intrastate telecommunications services. In most states, Jato is required
to file tariffs setting forth the terms, conditions and prices for services that
are classified as intrastate.
We believe that, as the degree of intrastate competition increases, some
states are likely to offer incumbent carriers increasing pricing flexibility.
This pricing flexibility may present incumbent carriers with an opportunity to
subsidize services that compete with our services with revenues generated from
less competitive services, thereby allowing incumbent carriers to offer services
competing with ours at prices below the cost of providing the service. Jato
cannot predict the extent to which this may occur or its impact on our business.
Numerous states have adopted or are considering adoption of new programs to
fund state universal programs. Jato could be required to contribute a
significant portion of its intrastate end user revenues toward the funding of
such programs, and such a development could have a significant impact on our
future operations.
LOCAL REGULATION
Should Jato in the future decide to operate its own network facilities over
public rights-of-way, it may be required to obtain various permits and
authorizations from municipalities where the facilities are located. Some
municipalities may seek to impose similar requirements on users of transmission
facilities, even though they do not own such facilities. If municipal
governments impose conditions on granting permits or other authorizations or if
they fail to act in granting such permits or other authorizations, our business
could be adversely affected.
LOCAL INTERCONNECTION
Jato has entered into interconnection arrangements with Ameritech,
BellSouth, Pacific Bell, Southwestern Bell and US West, and we expect to execute
interconnection agreements covering substantially all of our target markets by
the end of the first quarter 2000. In most instances, we have adopted entire
agreements between the incumbent and another competitive carrier in each of
these states. We take these agreements subject to the terms and conditions
negotiated and/or arbitrated by the other carrier, and for the remaining term of
the underlying agreement. Some of our local interconnection agreements are
scheduled to expire during the year 2000, and will require extension or
renegotiation in the near future. There can be no assurance that these
negotiations and renegotiations
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of interconnection agreements will be successful, that the agreements can be
extended in a favorable manner, or that arbitration of any unresolved issues by
any state public regulatory commission will be decided favorably to us.
EMPLOYEES
As of January 31, 2000, we had approximately 230 employees. We believe that
our future success will depend in part on our continued ability to attract, hire
and retain qualified personnel. Competition for such personnel is intense, and
we may be unable to identify, attract and retain such personnel in the future.
None of our employees are represented by a labor union or are the subject of a
collective bargaining agreement. We have never experienced a work stoppage and
believe that our employee relations are good.
PROPERTIES
Our headquarters are located in facilities consisting of approximately
30,000 square feet in Denver, Colorado, which we occupy under a lease that
expires in June 2004. The term of this lease may be extended. Under this lease,
we have a continuing right of first refusal covering all of the office space on
an additional floor comprising 22,000 square feet and a one time right of first
refusal covering 7,600 square feet on another floor.
We recently entered into a lease for an additional 13,000 square feet in
Denver, Colorado, which lease terminates in January 2003. These new facilities
are in the building adjacent to the building in which our headquarters are
currently located and are owned by the same landlord. We also lease space for
network equipment installations and local offices in a number of other
locations.
LEGAL PROCEEDINGS
We are not currently involved in any material legal proceedings. See Note 7
of the notes to our consolidated financial statements.
------------------------
We use market data and industry forecasts throughout this prospectus, which
we have obtained from internal surveys, market research, publicly available
information and industry publications. We have not independently verified any of
this information.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND OTHER OFFICERS
Our directors, executive officers and other officers and their ages as of
February 10, 2000 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- ----------------------------------------------------
<S> <C> <C>
DIRECTORS AND EXECUTIVE
OFFICERS
Gerald K. Dinsmore............ 50 President, Chief Executive Officer and Director
William D. Myers.............. 41 Senior Vice President, Finance and Strategic
Planning, Chief Financial Officer, Treasurer and
Secretary
Terri L. Compton.............. 43 Executive Vice President, Operations and Chief
Operating Officer
Rex A. Humston................ 40 Senior Vice President, Engineering and Chief
Technology Officer
Brian E. Gast................. 39 Chairman of the Board
Leonard Allsup................ 51 Director
Eric A. Benhamou(1)........... 44 Director
Todd A. Brooks(1)(2).......... 39 Director
James J. Collis(1)(2)......... 37 Director
Donald T. Lynch(1)............ 51 Director
Gregg A. Mockenhaupt(1)(2).... 30 Director
OTHER OFFICERS
Keith M. Bennett.............. 51 President, Direct Markets
Thomas W. Hall................ 48 President, Indirect Markets
Robert G. Vidal............... 50 Senior Vice President, Human Resources and
Administration
F. Thomas Danner III.......... 39 Vice President, Applications Planning
Patrick M. Green.............. 44 Vice President, Carrier Relations
Gerard A. Maglio.............. 53 Vice President, Marketing
Edward P. Ziehm............... 41 Vice President, Business Operations
</TABLE>
- ------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
DIRECTORS AND EXECUTIVE OFFICERS
All the officers identified above serve at the discretion of our board of
directors. There are no family relationships between any persons identified
above. The following are brief biographies of the directors, executive officers
and other officers identified above.
GERALD K. DINSMORE joined Jato in August 1999 as its President and Chief
Operating Officer, was elected to the board of directors in September 1999 and
was appointed Chief Executive Officer in November 1999. Prior to joining Jato,
Mr. Dinsmore served as President--Business Development and
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Integration of GTE from June 1997 to January 1999. As such, Mr. Dinsmore was
responsible for finance, strategic planning, business development, marketing and
regulatory affairs for all GTE business units. From 1993 to June 1997,
Mr. Dinsmore served as Senior Vice President of Finance, Strategy and Technology
Planning of GTE. In such capacity, Mr. Dinsmore was responsible for developing
and implementing long-term strategic planning, including technological
initiatives and mergers and acquisitions. Mr. Dinsmore also served as a member
of the Executive Leadership Council of GTE from 1996 to January 1999.
WILLIAM D. MYERS joined Jato in August 1999 as its Vice President, Finance,
Chief Financial Officer and Treasurer. Mr. Myers was elected Secretary in
December 1999 and appointed Senior Vice President, Finance and Strategic
Planning in February 2000. Prior to joining the Company, Mr. Myers was Vice
President of Finance and Treasurer of Primestar, Inc. from April 1998 to
August 1999. From September 1996 to April 1998, Mr. Myers served as Vice
President of Finance and Treasurer of TCI Satellite Entertainment, Inc. From
November 1994 to September 1996, Mr. Myers was Vice President of Capital
Management for TCI Cable Management Corporation and served as Director of
Finance for Tele-Communications, Inc. from December 1991 to November 1994.
TERRI L. COMPTON joined Jato in December 1999 as its Senior Vice President,
Market Operations and was appointed Executive Vice President, Operations and
Chief Operating Officer in February 2000. Prior to joining the Company, Ms.
Compton served as Vice President--Strategic Planning and Business
Development/National of GTE from September 1998 until December 1999. From
June 1996 until September 1998, Ms. Compton served as GTE's Vice
President--Business Development, National. From October 1986 until June 1996,
Ms. Compton served in various capacities at GTE.
REX A. HUMSTON joined Jato in October 1998 as its Vice President,
Engineering and Chief Technology Officer and was appointed Senior Vice
President, Engineering in February 2000. Prior to joining the Company,
Mr. Humston was Vice President, Information Systems and Technology for Jones
International Inc., a telecommunications company, from May 1997 until
October 1998. From February 1996 to May 1997, Mr. Humston was Vice President and
Chief Information Officer of Health Decisions International, a teleservices
company. From April 1994 to February 1996, Mr. Humston served as Director,
Information Services for OneComm Corporation, a telecommunications company.
BRIAN E. GAST is a founder of Jato and has served as a member of the board
of directors since its inception in 1998. Mr. Gast was elected Chairman of the
Board in November 1999 and served as Chief Executive Officer from Jato's
inception to November 1999. From inception to August 1999, Mr. Gast served as
President of Jato. Prior to forming the Company, Mr. Gast co-founded Formus
Communications, Inc., a developer of wireless broadband systems, in
November 1996 and served as its President. In December 1988, Mr. Gast co-founded
American Telecasting, Inc., a national operator of wireless cable television
systems, and served as its President and Chief Executive Officer from
March 1990 to January 1996.
LEONARD ALLSUP is a founder of Jato and has served as a member of the board
of directors and as a Vice President since its inception in 1998 until
February 2000. Mr. Allsup also served as the Company's Treasurer from inception
until August 1999. Prior to joining the Company, Mr. Allsup served as Vice
President, Strategic Alliances of Formus Communications, Inc., from November
1996 to June 1998. Prior to joining Formus in 1996, Mr. Allsup was an advisor to
several privately owned companies in the cable television and gaming industries.
From February 1991 to July 1995, Mr. Allsup was President and Chief Operating
Officer of KBL-Media, Inc., a subsidiary of KBLCOM, Inc., a diversified
telecommunications company.
ERIC A. BENHAMOU has served as a member of the board of directors since
December 1999. Mr. Benhamou has served as Chief Executive Officer of 3Com
Corporation since September 1990 and as its President from April 1990 through
August 1998. Mr. Benhamou has been the Chairman of the Board of Directors of
3Com since July 1994. Mr. Benhamou served as 3Com's Chief Operating Officer
48
<PAGE>
from April 1990 through September 1990. From October 1987 through April 1990,
Mr. Benhamou held various general management positions within 3Com.
Mr. Benhamou also serves as Chairman of the Board of Cypress Semiconductor,
Inc., and as a director of Legato Systems, Inc. Mr. Benhamou is a member of
President Clinton's Information Technology Advisory Council.
TODD A. BROOKS has served as a member of the board of directors since
September 1999. Mr. Brooks joined Mayfield Fund, a Menlo Park-based venture
capital firm in February 1999, and has been a General Partner since June 1999,
where he specializes in investing in companies in the telecommunications
equipment and services sectors. From April 1995 to January 1999, Mr. Brooks
served as a Managing Principal for JAFCO America Ventures, the U.S. subsidiary
of JAFCO Co. LTD, an international venture capital investment firm. From August
1993 to April 1995, Mr. Brooks served as an equity research analyst for
telecommunications investments for Franklin-Templeton Group, an investment
corporation. From June 1987 to August 1991, Mr. Brooks held various engineering
and marketing roles at Applied Materials, Inc., a semiconductor capital
equipment company. Mr. Brooks currently serves on the board of directors of
Avanex Corp., a publicly traded company and he also serves on several private
company boards of directors.
JAMES J. COLLIS has served as a member of the board of directors since
April 1999. Mr. Collis is an Executive Vice President of CEA Management Corp., a
corporation formed to manage CEA Capital Partners USA, L.P. and CEA Capital
Partners USA CI, L.P., a New York-based venture capital firm. Mr. Collis has
served in this role since February 1997. Before joining CEA Management Corp.,
Mr. Collis was a Principal at Chase Manhattan Bank beginning in December 1996.
Before becoming a Principal, Mr. Collis was a Vice President of Chase Manhattan
Bank beginning in June 1995 and an Associate before that beginning in June 1991.
Mr. Collis specializes in investing in companies in the media and
telecommunications industry and serves on the board of directors of Acme
Communications, Inc. and for numerous private media and telecommunication
companies.
DONALD T. LYNCH has served as a member of the Board of Directors since
December 1999. In January 1999, Mr. Lynch founded Lynch Associates, LLC, a
telecommunications consulting company. Prior to that, Mr. Lynch served in
various management positions at MCI Telecommunications Corporation from November
1981 to December 1998, including Senior Vice President--Finance, Network MCI
Services from June 1994 to September 1995, Senior Vice President, Financial and
Accounting Operations from September 1995 to September 1996 and Senior Vice
President, Local Financial Operations from September 1996 to December 1998.
GREGG A. MOCKENHAUPT has served as a member of the board of directors since
April 1999. Since March 1996, Mr. Mockenhaupt has served as a member of Crest
Partners II, LLC, a private investment firm that was formed in 1996 to focus on
communications-related investments and which is the general partner of Crest
Communications Partners, L.P. Prior to joining Crest in March 1996, Mr.
Mockenhaupt was an Associate in the Mergers & Acquisitions Group of Smith
Barney Inc. from June 1994 to March 1996. Mr. Mockenhaupt currently serves on
several private company boards of directors.
OTHER OFFICERS
KEITH M. BENNETT joined Jato in July 1999 as its President, Direct Markets.
Prior to joining the Company, Mr. Bennett served as President of Compass
Management and Consulting from November 1997 to July 1999. Mr. Bennett held
senior management positions with U S WEST (Director of Sales and Customer
Service) from October 1992 to March 1996, USA.NET (Vice President of Sales) from
March 1996 to December 1996, Intergram International (Senior Vice President)
from February 1997 to November 1997, and Online Systems Services (Senior Vice
President) from April 1998 to November 1998.
49
<PAGE>
THOMAS W. HALL joined Jato in December 1999 as its President, Indirect
Markets. Prior to joining the Company, Mr. Hall served as Vice President,
IP/Data Services of GTE from December 1998 until December 1999. From January
1998 until December 1998, Mr. Hall served as GTE's Vice President,
Internetworking Strategic Planning. Mr. Hall served as GTE's Regional President,
Texas/New Mexico from November 1996 until January 1998. From October 1994 until
November 1996, Mr. Hall served in various capacities at GTE.
ROBERT G. VIDAL joined Jato in July 1999 as its Vice President, Human
Resources and was appointed Senior Vice President, Human Resources and
Administration in February 2000. Prior to joining the Company, Mr. Vidal served
as Vice President, Human Resources for New Era of Networks, a global provider of
packaged solutions, from October 1998 through July 1999. From March 1998 to
October 1998, Mr. Vidal served as Vice President, Human Resources, for Customer
Insight Company, a Metromail Company. From August 1997 to March 1998, Mr. Vidal
held the position of Assistant Chief Operating Officer for Denver Public
Schools, the largest urban school district in Colorado. Beginning in 1989
through June of 1994, Mr. Vidal held the position of Senior Vice President,
Human Resources for CenterMark properties, a national retail real estate
developer.
F. THOMAS DANNER, III joined Jato in May 1999 as its Vice President,
Applications Planning. Prior to joining the Company, Mr. Danner served as
Executive Director of DMW Worldwide, Inc. from July 1997 to May 1999. From
August 1996 to July 1997, Mr. Danner was a principal of The McKenna Group, a
market-consulting group. From January 1994 to August 1996, Mr. Danner served as
Chief Architect of BellSouth Entertainment. From February 1985 to January 1994,
Mr. Danner served as Vice President of Development of BellSouth Advanced
Networks.
PATRICK M. GREEN joined Jato in December 1998 as its Vice President, Carrier
Relations. Prior to joining the Company, Mr. Green was a consultant to domestic
and multinational companies in the local telephony and subscription television
industries from late 1995 to October 1998. From 1992 until forming his
consulting practice in late 1995, Mr. Green served as Vice President-Finance and
Administration of KBL-Media.
GERARD A. MAGLIO joined Jato in June 1999 as its Vice President, Marketing.
Prior to joining the Company, Mr. Maglio was the principal of Maglio &
Associates, a cable television and telecommunications firm founded in 1991.
Mr. Maglio is also a principal and partner in a number of entrepreneurial
marketing ventures both in and out of the cable telecommunications areas.
Mr. Maglio held senior management positions at American Television &
Communications (now Time Warner Cable) from July 1976 to August 1980, Rainbow
Programming Services from August 1980 to September 1982, Daniels & Associates
from September 1982 to September 1988, United Artists Cable from September 1988
to December 1991, DMX from February 1992 to April 1993 and Tele-Trend
Communications from April 1993 to July 1995.
EDWARD P. ZIEHM joined Jato in July 1999 as its Vice President, Business
Operations. Prior to joining the Company, Mr. Ziehm served in various
senior-level management positions at subsidiaries of TCI, including Executive
Vice President of Corporate Development for DMX and Vice President of TCI Music
from June 1997 to January 1998. He also served as Vice President Business
Technology & Operations for TCI from May 1993 to January 1997.
DIRECTORS' TERMS
We currently have eight directors. Members of the board of directors
currently hold office and serve until our next annual meeting of stockholders or
until their respective successors have been elected. In December 1999, our board
of directors approved, subject to stockholder approval, our restated certificate
of incorporation to provide for, among other things, a classified board of
directors. The restated certificate of incorporation states that the terms of
office of the board of directors will be divided into three classes: class I,
whose term will expire at the annual meeting of stockholders to be
50
<PAGE>
held in 2001, class II, whose term will expire at the annual meeting of
stockholders to be held in 2002 and class III, whose term will expire at the
annual meeting of stockholders to be held in 2003. Under this provision,
Messrs. Collis and Mockenhaupt will serve as class I directors, Messrs. Allsup,
Brooks and Gast will serve as class II directors and Messrs. Benhamou, Dinsmore
and Lynch will serve as class III directors. At each annual meeting of
stockholders beginning with the 2001 annual meeting, the successors to directors
whose terms expire will be elected to serve from the time of election and
qualification until the third annual meeting following election and until their
successors have been elected.
BOARD COMMITTEES
COMPENSATION COMMITTEE. Our compensation committee consists of
Messrs. Brooks, Collis and Mockenhaupt. The compensation committee reviews
salaries, bonuses and stock options of our executive officers, and administers
our executive compensation policies, stock option plans and the bonus program.
No member of the compensation committee has been an officer or employee of Jato
at any time. None of our executive officers serves as a member of the board of
directors or compensation committee of any other company that has one or more
executive officers serving as a member of our board of directors or compensation
committee.
AUDIT COMMITTEE. Our compensation committee consists of Messrs. Benhamou,
Brooks, Collis and Mockenhaupt. Effective upon the closing of this offering, our
audit committee will consist of Messrs. Benhamou, Brooks and Lynch. The audit
committee is primarily concerned with the effectiveness of our accounting
policies and practices, financial reporting and internal controls. Specifically,
the audit committee recommends to the board the firm to be appointed as our
independent public accountants; reviews and approves the scope of the annual
examination of our books and records; reviews the audit findings and
recommendations of the independent public accountants; monitors the extent to
which we have implemented changes recommended by the independent public
accountants, or the audit committee; and provides oversight with respect to
accounting principles to be employed in our financial reporting.
DIRECTOR COMPENSATION
Other than reimbursing directors for customary and reasonable expenses
incurred in attending board of directors and committee meetings, we do not
currently compensate our directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee of the board of directors
is an officer or employee of Jato. None of our executive officers serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving on our board of directors or
Compensation Committee.
EMPLOYMENT AGREEMENTS AND TRANSITION AGREEMENTS
GERALD K. DINSMORE. On November 16, 1999, we entered into an amended
employment agreement with Gerald K. Dinsmore, our Chief Executive Officer. The
agreement has a two-year term which automatically renews on a month-to-month
basis unless either of us gives 30 day's prior written notice to the other. The
agreement provides for an annual base salary of $300,000 which will increase
annually in an amount determined by our board of directors.
Mr. Dinsmore may be paid a cash bonus at the discretion of our board of
directors. Mr. Dinsmore also was granted an option to purchase 800,000 shares of
our common stock, subject to the terms and conditions set forth in the stock
option agreement attached to his employment agreement. The agreement also
provides for the accelerated vesting of 50% of Mr. Dinsmore's unvested stock
options
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<PAGE>
and restricted stock upon his death. Either of us can terminate Mr. Dinsmore's
employment at any time. However, if we terminate Mr. Dinsmore's employment
without cause, he will be entitled to receive twelve months' base salary and any
pro-rated bonus he is entitled to for that year. We also have agreed to
reimburse certain commuting and relocation expenses of Mr. Dinsmore associated
with his relocation from Dallas to Denver, including closing costs, moving
expenses, furnishings, and related expenses up to an aggregate maximum of
$100,000.
Mr. Dinsmore's employment agreement contains provisions which prohibits him
during the term of the employment agreement, without our consent, from
undertaking or engaging in any other employment, occupation or business
enterprise, other than those in which he is a passive investor. In addition,
Mr. Dinsmore has agreed to abide by the terms of his previously executed
non-competition, proprietary information and inventions agreement.
REX A. HUMSTON. On April 16, 1999, we entered into an employment agreement
with Rex A. Humston, our Vice President, Engineering and Chief Technology
Officer. The agreement has a one-year term, which automatically renews on a
month-to-month basis unless either of us gives 30 days' prior written notice to
the other. The agreement provides for an annual base salary of $150,000 which
amount increases annually by the greater of:
- 5% of Mr. Humston's salary, or
- an amount determined by our board of directors.
Mr. Humston may be paid a cash bonus at the discretion of our board of
directors. The agreement also provides for an acceleration of all of Mr.
Humston's stock options, if any, and the termination of our repurchase rights on
the shares of stock underlying those options if certain change in control
transactions occur and for 50% of all of Mr. Humston's unvested stock options
and restricted stock upon his death. Either of us can terminate Mr. Humston's
employment at any time. However, if we terminate Mr. Humston's employment
without cause, he will be entitled to receive twelve months' base salary and any
pro-rated bonus he is entitled to for that year.
Mr. Humston's employment agreement contains provisions which prohibits him
during the term of the employment agreement, without our consent, from
undertaking or engaging in any other employment, occupation or business
enterprise, other than those in which he is a passive investor. In addition,
Mr. Humston's agreement contains noncompete provisions which prohibits him,
without our consent, during his employment with us and for a period of twelve
months after the termination of Mr. Humston's employment with us, from engaging
in any activities in competition with us, from accepting employment or
establishing a business relationship with certain of our competitors.
The employment agreements we have entered into with certain of our other
executive officers and key employees generally provide for the same types of
terms as those agreements described above. If we terminate an executive's
employment during the term of his employment agreement without cause, the
executive would generally be entitled to receive a severance package from the
Company.
On February 10, 2000, we entered into employment transition and separation
agreements with each of Brian E. Gast, our current Chairman and former Chief
Executive Officer, Leonard Allsup, our former Vice President, Strategic
Relationships and Bruce E. Dines, Jr., our former Vice President, Customer
Relations. Under the terms of the agreements, Messrs. Gast, Allsup and Dines
each will receive:
- his salary and health benefits through the earlier to occur of the closing
of this offering or June 30, 2000;
- a lump sum payment equal to one year of his current base salary, less
applicable deductions and withholdings; and
52
<PAGE>
- a bonus payment equal to the portion of the bonus he is entitled to
receive for the calendar year based upon the number of full months he was
employed for the year.
In addition, the vesting of all remaining unvested shares of Messrs. Gast,
Allsup and Dines' restricted stock will be accelerated such that 1,613,734
shares, 1,496,134 shares, and 810,134 shares, respectively, will vest on the
earlier of the closing of this offering or June 30, 2000. Under these
agreements, Messrs. Gast, Allsup and Dines also agree that for an additional
180-day period after their 180-day lock-up agreements with the underwriters
expire, they will not sell more than an aggregate of 750,000 shares (875,000
shares if Messrs. Gast, Allsup and Dines do not realize at least $5.0 million of
gross proceeds in the offering) during any three-month period. In addition, for
so long as Messrs. Gast, Allsup and Dines own shares of our stock, they agree
that they will not:
- knowingly sell their shares of the Company stock to a person or group who,
as a result of such sale, would own 5% or more of the Company's
outstanding stock or to directly or indirectly solicit any person or group
to purchase from them or any other shares in the Company if such person or
group, as a result of such purchase, would own 5% or more of the Company's
outstanding stock;
- knowingly sell their shares of the Company stock to a Company competitor
or to directly or indirectly solicit any competitor to purchase from
shares in the Company from them; and
- engage in, or support, a hostile proxy solicitation.
The agreements also provide for releases by Messrs. Gast, Allsup and Dines
in favor of the Company and contain certain non-compete and nonsolicitation
provisions which will apply to Messrs. Gast, Allsup and Dines during the
remainder of their employment with the Company and for a period of twelve months
following their separation date.
In addition, Jato loaned $100,000 to Mr. Gast pursuant to his original
employment agreement. The loan is secured by a pledge of Mr. Gast's common
stock. The loan bears interest at a rate of 5% per annum, compounded quarterly,
and principal and interest amounts will be forgiven by no later than March 31,
2000. Mr. Gast will be solely responsible for all tax consequences relating to
the forgiveness of the loan.
53
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid to our Chief Executive Officer and our four other most highly compensated
executive officers whose annual salary and bonus exceeded $100,000 for services
rendered in all capacities to us during 1999 (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE(1)(2)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
----------------------------------------- SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION(S) SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS (#) COMPENSATION
- ------------------ ---------- --------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Gerald K. Dinsmore(3) ........ $ 78,965 -- -- -- $113,764(4)
President and Chief
Executive Officer
Brian E. Gast(5) ............. $238,762 -- $36,347(6) -- $ 22,466(7)
Chairman and Former Chief
Executive Officer
Rex A. Humston ............... $148,269 -- -- -- $ 551(8)
Vice President, Engineering
and Chief Technology Officer
Leonard Allsup ............... $148,269 -- -- -- $ 611(9)
Former Vice President,
Strategic Relationships
Bruce E. Dines, Jr. .......... $148,269 -- -- -- $ 21,761(10)
Former Vice President,
Customer Operations
</TABLE>
- ------------------------
(1) In accordance with the rules of the Securities and Exchange Commission, the
compensation described in this table does not include medical, group life
insurance or other benefits received by the Named Executive Officers that
are available generally to all salaried employees and various perquisites
and other personal benefits received by the Named Executive Officers, which
do not exceed the less of $50,000 or 10% of any officer's salary and bonus
disclosed in this table.
(2) If Mr. Myers and Ms. Compton, who were not hired by Jato until August 1999
and November 1999, respectively, had been employed with Jato for the entire
year, their compensation would have been required disclosure in this table.
For 1999, Mr. Myers' base salary was $185,000 and Ms. Compton's base salary
was $200,000.
(3) Mr. Dinsmore has served as President and Chief Operating Officer from
August 1999 and as Chief Executive Officer since November 1999.
(4) Represents $113,653 of relocation expenses and a housing allowance and $111
of health club benefits.
(5) Mr. Gast served as President from inception until August 1999 and as Chief
Executive Officer from inception until November 1999.
(6) Represents forgiveness of note payable.
(7) Represents $21,840 for relocation expenses and $626 of health club
benefits.
(8) Represents health club benefits.
(9) Represents health club benefits.
(10) Represents $21,210 of relocation expenses and $551 of health club
benefits.
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<PAGE>
OPTION GRANTS IN 1999
The following table sets forth information regarding options granted to the
Named Executive Officers during 1999.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
PERCENT OF ASSUMED ANNUAL RATES OF
TOTAL OPTIONS STOCK PRICE APPRECIATION FOR
NUMBER OF GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE -----------------------------
NAME GRANTED 1999 ($/SHARE) EXPIRATION DATE 5% 10%
- ---- --------- ------------- --------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gerald K. Dinsmore...... 800,000 18.5% $2.57 12/02/09 $1,293,007 $3,276,734
</TABLE>
The percent of total options granted to employees in the above table is
based on 4,333,450 total options granted in 1999. Twenty-five percent of these
options vest on December 3, 2000, and the remainder vest in equal installments
each month over the three-year period following December 3, 2000. Our board of
director may reprice options under the terms of our equity incentive plan.
The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the SEC and do not represent our estimate or projection
of future increases in the price of the common stock.
1999 OPTION EXERCISE AND YEAR-END OPTION VALUES
The following table sets forth information concerning the value realized
upon exercise of options during 1999 and the number and value of unexercised
options held by each of the Named Executive Officers at December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1999 DECEMBER 31, 1999
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gerald K. Dinsmore.......... -- -- -- 800,000 -- $2,424,000
</TABLE>
In the table above, the value of the unexercised in-the-money options is
based on the fair market value of our common stock as of December 31, 1999
(determined by the board of directors in the manner discussed above to be $5.60
per share), minus the per share exercise price, multiplied by the number of
shares underlying the option.
EQUITY INCENTIVE PLAN
Our 1998 Equity Incentive Plan was adopted by the board of directors and
approved by our stockholders on August 10, 1998. The incentive plan was amended
and restated as the 2000 Equity Incentive Plan in February 2000. There is
currently an aggregate of 8,700,000 shares of common stock authorized for
issuance under the incentive plan. The incentive plan will terminate on
February 7, 2010 unless sooner terminated by the board (or Committee).
As of February 8, 2000, we had granted options under the incentive plan to
purchase an aggregate of 4,764,150 shares of common stock at a weighted average
price of $3.66 per share, 20,000 shares of which had been acquired through
exercises and 346,500 shares of which had lapsed. In addition, 500,000 shares of
restricted stock have been purchased under the plan at a price of $.75 per
share. No other stock awards have been granted under the incentive plan.
The incentive plan provides for the grant of incentive stock options, as
defined under the Internal Revenue Code of 1986, as amended, to employees
(including officers and employee-directors) and nonstatutory stock options,
restricted stock purchase awards, stock bonuses and stock appreciation rights to
employees (including officers and employee-directors), directors and consultants
of Jato and
55
<PAGE>
its affiliates. The incentive plan is administered by the board or a committee
appointed by the board which determines recipients and types of awards to be
granted, including the exercise price, number of shares subject to the award and
the exercisability thereof.
The terms of options granted under the incentive plan may not exceed ten
years. The board or committee determines the exercise price of options granted
under the incentive plan. However, the exercise price for an incentive stock
option cannot be less than 100% of the fair market value of the common stock on
the date of the option grant, and the exercise price for a nonstatutory stock
option cannot be less than 85% of the fair market value of the common stock on
the date of the option grant. Options granted under the incentive plan vest at
the rate specified in the option agreement, which is generally four years.
Generally, the optionee may not transfer a stock option other than by will or
the laws of descent or distribution unless the optionee holds a nonstatutory
stock option that provides for transfer in the stock option agreement. However,
an optionee may designate a beneficiary who may exercise the option following
the optionee's death. An optionee whose service relationship with Jato or any
affiliate ceases for any reason may exercise vested options for the term
provided in the option agreement, which is generally three months.
No incentive stock option may be granted to any person who, at the time of
the grant, owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of Jato or any affiliate of Jato, unless the option
exercise price is at least 110% of the fair market value of the stock subject to
the option on the date of grant and the term of the option does not exceed five
years from the date of grant. In addition, the aggregate fair market value,
determined at the time of grant, of the shares of common stock with respect to
which incentive stock options are exercisable for the first time by an optionee
during any calendar year, under the incentive plan and all other stock plans of
Jato and its affiliates, may not exceed $100,000.
Pursuant to Section 162(m) of the Internal Revenue Code (which denies a
deduction to publicly held corporations for certain compensation paid to
specified employees in a taxable year to the extent that the compensation
exceeds $1,000,000), no person may be granted options under the incentive plan
covering more than 2,500,000 shares of common stock in any calendar year.
Shares subject to stock awards that have expired or otherwise terminated
without having been exercised in full again become available for the grant of
awards under the incentive plan. Under its general authority to grant and to
amend options, the board (or committee) has the implicit authority to reprice
outstanding options or to offer optionees the opportunity to replace outstanding
options with new options for the same or a different number of shares. Both the
original and new options will count toward the Internal Revenue Code
Section 162(m) limitation set forth above.
Restricted stock purchase awards granted under the incentive plan may be
granted pursuant to a repurchase option in favor of Jato in accordance with a
vesting schedule determined by the board (or committee). The price of a
restricted stock purchase award under the incentive plan can not be less than
85% of the fair market value of the stock subject to the award on the date of
grant. Stock bonuses may be awarded in consideration of past services without a
purchase payment. Unless otherwise specified, rights under a stock bonus or
restricted stock bonus agreement generally may not be transferred other than by
will or the laws of descent and distribution during such period as the stock
awarded pursuant to such an agreement remains subject to the agreement. Stock
appreciation rights granted under the incentive plan allow a recipient to elect
to receive cash or stock of a value equal to the appreciation of optioned
rights. The incentive plan authorizes three types of stock appreciation rights:
a tandem stock appreciation right is granted along with a stock option and is
subject to the same terms and conditions applicable to the option. It requires
the holder to elect between exercising the option (and receiving our shares) or
surrendering, in whole or in part, the option and receiving instead cash or
stock equal to the appreciation of the shares that are surrendered. A concurrent
stock appreciation right also is granted with a stock option and is subject to
the same terms and conditions
56
<PAGE>
applicable to the option. However, it is exercised automatically at the same
time that the recipient exercises the option. Without surrendering any of the
shares subject to the option, the recipient receives cash or stock equal to the
appreciation of the shares exercised. On the other hand, an independent stock
appreciation right is not granted with a stock option, although it generally is
subject to the same terms and conditions applicable to nonstatutory stock
options. On exercising the independent stock appreciation right, the recipient
receives cash or stock equal to the appreciation of the share equivalents that
the recipient is exercising.
If there is any sale of substantially all of our assets, any merger, reverse
merger or any consolidation in which we are not the surviving corporation, or
any acquisition by certain persons, entities or groups of 50% or more of our
stock, all outstanding awards under the Incentive Plan either will be assumed or
substituted for by any surviving entity. If the surviving entity determines not
to assume or substitute for such awards, the vesting provisions of such stock
awards will be accelerated and the awards terminated if not exercised prior to
such transaction.
57
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of our common stock as of February 10, 2000 for:
- each person (or group of affiliated persons) known to us to own
beneficially more than 5% of the common stock,
- each of our directors and named executive officers, and
- all of our directors and executive officers as a group.
The information has been adjusted to reflect the sale of the common stock in
this offering (assuming no exercise of the underwriters' over-allotment option),
the conversion of all outstanding shares of preferred stock into common stock,
the shares of common stock to be issued to Qwest upon the closing of the
concurrent placement and the shares of common stock issuable to Qwest
upon exercise of the warrant to be issued upon the closing of the concurrent
placement.
Messrs. Gast, Allsup and Dines will be entitled to sell in the offering as
follows:
- if the size of the offering exceeds $125 million but is less than or equal
to $130 million, 100% of the shares offered, plus
- 50% of the shares offered if the size of the offering exceeds
$130 million, plus
- 50% of the shares subject to the underwriters' over-allotment option if
such option is exercised.
In accordance with the rules of the Securities and Exchange Commission, the
following table gives effect to the shares of common stock that could be issued
upon the exercise of outstanding options and warrants within 60 days of
February 10, 2000. Unless otherwise noted in the footnotes to the table and
subject to community property laws where applicable, the following individuals
have sole voting and investment control with respect to the shares beneficially
owned by them. Unless otherwise indicated,
58
<PAGE>
the business address for each of the individuals or entities listed below is c/o
Jato Communications Corp., 1099 18(th) Street, Suite 2200, Denver, Colorado
80202.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED PRIOR SHARES BENEFICIALLY OWNED
TO OFFERING(1) AFTER OFFERING(1)
--------------------- SHARES ---------------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
- ---- ---------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Crest Communications Partners, L.P. ... 4,535,713 14.79%
320 Park Avenue, 17(th) Floor
New York, NY 10022
CEA Capital Partners USA, L.P.(2) ..... 4,535,713 14.79
17 State Street, 35(th) Floor
New York, NY 10004
Entities affiliated with 2,357,140 7.69
Hambrecht & Quist(3) ..................
One Bush Street
San Francisco, CA 94104
Entities affiliated with 2,690,475 8.77
ABN AMRO Capital (USA), Inc.(4) .......
208 S. LaSalle Street, 10(th) Floor
Chicago, IL 60604
Entities affiliated with 1,964,284 6.40
Mayfield X, L.P.(5) ...................
2800 Sand Hill Road, Suite 250
Menlo Park, CA 94025
Microsoft Corporation ................. 1,785,714 5.82
One Microsoft Way
Redmond, WA 98052
Qwest Communications Corporation(6) ... 1,785,714 5.82
555 Seventeenth Street
Denver, CO 80202
Brian E. Gast(7)....................... 2,305,334 7.52
Leonard Allsup(8)...................... 2,164,333 7.06
Eric A. Benhamou....................... -- *
Todd A. Brooks(9)...................... 1,964,284 6.40
James J. Collis(10).................... 4,535,713 14.79
Gerald K. Dinsmore..................... 537,500 1.75
Donald T. Lynch........................ -- *
Gregg A. Mockenhaupt(11)............... 4,535,713 14.79
Bruce E. Dines, Jr.(12)................ 1,227,333 4.00
Rex A. Humston......................... 508,928 1.66
All directors and executive officers as
a
group (11 persons)(13)............... 17,788,066 58.00%
</TABLE>
- ------------------------
* Indicates beneficial ownership of less than one percent.
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<PAGE>
(1) In accordance with Rule 13d-3 under the Securities and Exchange Act of 1934,
as amended (the "Exchange Act"), a person is deemed to be a "beneficial
owner" of a security if he or she has or shares the power to vote or direct
the voting of such security or the power to dispose or direct the
disposition of such security. A person is also deemed to be a beneficial
owner of any securities of which that person has the right to acquire
beneficial ownership within 60 days. More than one person may be deemed to
be a beneficial owner of the same securities. The percentage ownership of
each stockholder is calculated based on the total number of outstanding
shares of common stock, including outstanding shares of preferred stock
convertible into common stock, as of February 10, 2000.
(2) Includes 1,069,067 shares held by its affiliate CEA Capital Partners USA CI,
L.P.
(3) Includes 162,856 shares held by H&Q Jato Communications Investors, L.P.,
212,857 shares held by Hambrecht & Quist California, 92,857 shares held by
Hambrecht & Quist Employee Venture Fund, L.P. II, 1,865,713 shares held by
Access Technology Partners, L.P. and 22,857 shares held by Access Technology
Partners Brokers Fund, L.P. of which H&Q Venture Management, L.L.C. is the
general partner.
(4) Includes 130,873 shares held by ABN AMRO Incorporated and 680,166 shares
held by I Eagle Trust. I Eagle Trust is managed by ABN AMRO Private Equity,
a department of ABN AMRO, Inc.
(5) Includes 196,428 shares held by Mayfield Principals Fund, L.L.C. and
58,928 shares held by Mayfield Associates Fund IV, L.P.
(6) Does not include the shares or the warrant to be issued upon the closing of
the concurrent placement.
(7) Includes 1,613,734 shares subject to a repurchase option by Jato and 450,000
shares held by Gast Investment LLLP of which Mr. Gast is a general partner.
(8) Includes 26,666 shares held as custodian for his daughter and 1,515,033
shares subject to a repurchase option by Jato.
(9) Mr. Brooks is a Managing Director of Mayfield X Management, LLC, the general
partner of Mayfield X, L.P. and a Managing Director of Mayfield Principals
Fund, LLC (the "Mayfield Entities"). Mr. Brooks may be deemed to be the
indirect beneficial owner of the shares owned by the Mayfield Entities. Mr.
Brooks disclaims beneficial ownership of the shares held by the Mayfield
Entities, except to the extent of his pecuniary interest arising therein.
(10) Mr. Collis is an Executive Vice President of CEA Management Corp.
("Management Corp.") which manages CEA Capital Partners USA, L.P. and CEA
Capital Partners USA CI, L.P. and disclaims beneficial ownership of the
shares held by each of CEA Capital Partners USA, L.P. and CEA Capital
Partners USA CI, L.P.
(11) The General Partner of Crest Communications Partners, L.P. ("CCP") is Crest
Partners II, LLC. The management company of CCP is Crest Communications
Holdings LLC ("Holdings"). Holdings may be deemed to indirectly beneficially
own the shares owned by CCP. Mr. Mockenhaupt is a member of Holdings and may
be deemed to be the indirect beneficial owner of the shares owned by CCP.
Mr. Mockenhaupt disclaims beneficial ownership of the shares held by CCP,
except to the extent of his pecuniary interest arising therein.
(12) Includes 3,333 shares held by Mr. Dines' spouse, 30,000 shares held by the
Bruce E. Dines Jr. 1999 Annuity Trust, of which Mr. Dines is Trustee,
66,666 shares held by DYNEX & Co., a general partnership, of which Mr. Dines
is a general partner, and 814,800 shares subject to a repurchase option.
(13) Includes 3,943,567 shares subject to a repurchase option by Jato. See Notes
2 through 11 above.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a description of transactions since our inception in
July 1998 to which we have been a party, in which the amount involved exceeds
$60,000 and in which any director, executive officer or holder of more than 5%
of our capital stock had or will have a direct or indirect material interest,
other than our compensation arrangements with our executive officers which are
described under "Management."
SERIES C FINANCING
On September 16, 1999 and December 22, 1999, we issued an aggregate of
3,947,642 shares of Series C preferred stock to certain principal stockholders
and certain other investors at a purchase price of $7.00 per share. We agreed to
reduce the price per share of the Series C preferred stock to $5.60 per share if
specified conditions were not satisfied by November 15, 1999. On November 16,
1999, we issued an additional 984,666 shares of Series C preferred stock because
such conditions were not satisfied. Of the 4,932,308 shares of Series C
preferred stock issued, an aggregate of 3,749,992 shares were sold to the
following principal stockholders for an aggregate purchase price of
approximately $21 million:
<TABLE>
<CAPTION>
AGGREGATE
PURCHASER NUMBER OF SHARES PURCHASE PRICE
- --------- ---------------- --------------
<S> <C> <C>
Crest Communications Partners, L.P.......................... 535,713 $ 2,999,997.00
Entities affiliated with CEA Capital Partners USA, L.P...... 535,713 2,999,997.00
Entities affiliated with ABN AMRO Capital (USA), Inc........ 357,142 1,999,998.00
Entities affiliated with Hambrecht & Quist.................. 357,140 1,999,998.00
Entities affiliated with Mayfield X, L.P.................... 1,964,284 11,000,003.00
--------- --------------
Total:...................................................... 3,749,992 $20,999,993.00
========= ==============
</TABLE>
In addition, of the 4,932,308 shares of Series C preferred stock issued,
37,500 shares, 17,857 shares and 17,857 shares were sold to Gerald K. Dinsmore,
Gerard A. Maglio and Edward P. Ziehm, respectively, officers of Jato, for
purchase prices of $210,000, $100,002, and $100,002, respectively. An aggregate
of 1,109,104 shares were sold to other accredited investors.
SERIES B FINANCING
On April 16, 1999 and May 15, 1999, we issued an aggregate of 13,615,322
shares of Series B preferred stock to certain principal stockholders and certain
other investors at a purchase price of $1.50 per share. Of the 13,615,322 shares
of Series B preferred stock issued, an aggregate of 12,333,333 shares were sold
to the following principal stockholders for an aggregate purchase price of
approximately $18.5 million and an aggregate of 1,281,989 shares were sold to
other accredited investors.
<TABLE>
<CAPTION>
AGGREGATE
PURCHASER NUMBER OF SHARES PURCHASE PRICE
- --------- ---------------- --------------
<S> <C> <C>
Crest Communications Partners, L.P.......................... 4,000,000 $ 6,000,000.00
Entities affiliated with CEA Capital Partners USA, L.P...... 4,000,000 6,000,000.00
Entities affiliated with ABN AMRO Capital (USA), Inc........ 2,333,333 3,499,999.50
Entities affiliated with Hambrecht & Quist.................. 2,000,000 3,000,000.00
---------- --------------
Total:...................................................... 12,333,333 $18,499,999.50
========== ==============
</TABLE>
61
<PAGE>
SERIES A FINANCING
On October 23, 1998 and October 30, 1998, we issued an aggregate of
1,143,323 and 608,662 shares, respectively, of Series A preferred stock to
certain principal stockholders and certain other investors at a purchase price
of $0.75 per share. Of the 1,751,985 shares of Series A preferred stock sold by
us, 133,333 shares were sold to Gerard A. Maglio, an officer of Jato, for an
aggregate purchase price of approximately $100,000.
REGISTRATION RIGHTS
Pursuant to the second amended and restated investors' rights agreement
dated as of January 20, 2000, as amended, among Jato and certain investors, the
investors have certain registration rights for the shares of common stock held
by them. See "Description of Capital Stock -- Registration Rights" for a
description of these registration rights.
LOANS
In May 1999, Jato loaned $100,000 to Mr. Gast pursuant to his original
employment agreement. The loan will be forgiven as provided in Mr. Gast's
transition agreement. See "-- Employment Agreements and Transition Agreements."
COMMON STOCK PURCHASES
On August 31, 1999, Mr. Dinsmore purchased 500,000 shares of our common
stock pursuant to a restricted stock purchase agreement that is subject to a
repurchase option on our behalf, which is released at a rate of 25% on the first
anniversary of the purchase and the balance ratably over 24 months. The
repurchase option terminates in the event of a change of control of Jato,
termination without cause, or a material reduction in responsibilities or job
title. The purchase price for the restricted common stock was $0.75 per share,
or $375,000 in the aggregate, which was paid for with $5,000 in cash and the
execution of a full recourse promissory note for $370,000, which is secured by a
pledge of the 500,000 shares of restricted common stock. The note bears interest
at a rate of 7% per annum over two years. Subject to Mr. Dinsmore not
terminating his employment with Jato, principal and interest amounts under the
note will be forgiven in two installments of equal amount on the first and
second anniversary of his start date with Jato. Upon each such installment Jato
will pay Mr. Dinsmore $80,000 to cover taxes associated with the forgiveness of
the note. All principal and interest of the note will be forgiven and both
tax-related payments will be paid upon the occurrence of:
- a change of control,
- termination of his employment for reasons other than cause,
- material reduction of responsibilities or duties, or
- a material downgrading of title.
STRATEGIC INVESTMENTS AND RELATIONSHIPS
MICROSOFT. In January 2000, we entered into a strategic relationship with
Microsoft in which Microsoft invested $10 million in us in return for shares of
our Series D preferred stock which will convert into 1,785,714 shares of common
stock upon the closing of this offering. During the term of our two-year
agreement, Jato will use Microsoft products, such as
Microsoft-Registered Trademark- Office, the Microsoft
Outlook-Registered Trademark- messaging and collaboration client, Site Server
Commerce Edition and Microsoft Exchange, to create a variety of ASP services
focused on knowledge management, e-commerce and line-of-business solutions. In
addition, Jato will offer Managed PC Services, a bundled solution consisting of
a
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<PAGE>
combination of hardware, software and services provided to customers for a
monthly fee. Jato and Microsoft will cooperatively develop and implement sales
and marketing plans for these products.
QWEST. In February 2000, Qwest invested $10 million in us in return for
shares of our Series D preferred stock which will convert into 1,785,714 shares
of common stock upon the closing of this offering. As a part of this
transaction, Qwest has agreed to certain standstill agreements restricting its
ability to purchase more than 10% of our outstanding capital stock, without our
consent, for a period of five years. In addition, upon the closing of the
concurrent placement, which will close immediately after the closing of this
offering, Qwest will purchase shares of common stock for an aggregate
purchase price of $2.5 million. In addition, at the closing of the concurrent
placement, we have agreed to issue Qwest a warrant for the purchase of
shares of common stock at an aggregate exercise price of $5.0 million.
Concurrently with Qwest's equity investment in us, we have been designated
as Qwest's preferred provider of business services in selected cities and
central offices. Qwest has agreed to use its reasonable efforts to sell a
minimum of 75,000 business class DSL lines using Jato DSL facilities over five
and one-half years. Moreover, we have agreed to use our reasonable efforts to
supply Qwest with a minimum of 15,000 lines using Qwest's DSL facilities. Both
partners will purchase each line on a one year commitment. We will use Qwest as
one of our preferred suppliers of broadband communications services and
large-scale transport services. As part of our commercial relationship with
Qwest, we have agreed to purchase $25.0 million of these Qwest DSL and network
services over five and one-half years, at an agreed-upon price of
$16.0 million, reflecting the present value of such purchase price, payable to
Qwest upon the closing of the offering.
EMPLOYMENT AGREEMENTS AND TRANSITION AGREEMENTS
We have entered into employment agreements and transition agreements with
certain of our officers. See "Executive Compensation -- Employment Agreements
and Transition Agreements."
OTHER TRANSACTIONS
We intend to enter into indemnity agreements with each of our executive
officers and directors.
We believe that each of the transactions described above was carried out on
terms that were no less favorable to us than those that would have been obtained
from unaffiliated third parties. Any future transactions between us and any of
our directors, officers or principal stockholders will be on terms no less
favorable to us than could be obtained from unaffiliated third parties and will
be approved by a majority of the independent and disinterested members of the
board of directors.
For information concerning indemnification of directors and officers see
"Description of Capital Stock -- Limitations on Liability and Indemnification
Matters."
63
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock currently consists of 80,000,000 shares of
common stock, par value $.01 per share and 30,000,000 million shares of
preferred stock, par value $.01 per share.
The following description of our securities reflects changes that will be
made to our certificate of incorporation and bylaws upon the closing of this
offering. We have filed our restated certificate of incorporation and amended
and restated bylaws as exhibits to the registration statement of which this
prospectus is a part.
COMMON STOCK
Our authorized common stock consists of 80,000,000 shares, par value $.01
per share. As of February 10, 2000, there were 6,797,814 shares of common stock
outstanding and held of record by 14 stockholders, which will expire if not
exercised prior to the closing of this offering. Upon the closing of this
offering, and after giving the simultaneous conversion of all of our outstanding
shares of preferred stock, there will be shares of common stock
outstanding (assuming no exercise of the underwriters' over-allotment option).
Holders of common stock are entitled to one vote for each share on all
matters submitted to a vote of stockholders. Holders of common stock are not
entitled to cumulative voting rights in the election of directors. Accordingly,
minority stockholders will not be able to elect directors on the basis of their
votes alone. Subject to preferences that may be applicable to any
then-outstanding shares of preferred stock, holders of common stock are entitled
to receive ratably such dividends as may be declared by our board of directors.
In the event we liquidate, dissolve or wind up our affairs, holders of common
stock are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preferences of any then-outstanding shares of
preferred stock. Holders of common stock have no preemptive, subscription,
redemption or conversion rights.
PREFERRED STOCK
Our Series A, Series B, Series C and Series D preferred stock will
automatically convert into shares of common stock upon the closing of this
offering. For a description of the terms of our preferred stock, see Note 8 of
the notes to our consolidated financial statements.
Our board of directors is authorized, without further stockholder approval,
to issue up to an aggregate of 2,000,000 shares of preferred stock in one or
more series. The board of directors may fix or alter the designations,
preferences, rights and any qualifications, limitations or restrictions of the
shares of each such series, and the dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption price or prices and
liquidation preferences. The issuance of preferred stock could:
- adversely affect the voting power of holders of common stock;
- adversely affect the likelihood that the holders of common stock will
receive dividend payments and payments upon liquidation; and
- delay, defer or prevent a change in control.
We have no present plans to issue any shares of preferred stock.
WARRANTS
In June 1999 and August 1999, we issued warrants to purchase an aggregate of
25,000 shares of common stock at an exercise price of $3.00 per share to two
investors. The warrants contain anti-dilution provisions providing for
adjustments of the exercise price and the number of shares of
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<PAGE>
common stock underlying the warrants upon the occurrence of any
recapitalization, reclassification, stock dividend, stock split, stock
combination or similar transaction. Each of these warrants will expire upon the
closing of this offering, unless earlier exercised.
For a description of a warrant that we are obligated to issue upon the
closing of this offering, please see "Certain Relationships and Related
Transactions -- Strategic Investments and Relationships."
REGISTRATION RIGHTS
Pursuant to the second amended and restated investors' rights agreement
dated as of January 20, 2000, as amended, between Jato and some of our
investors, the investors have registration rights for the 29,471,045 shares of
common stock held by them. Under the rights agreement, the investors may demand,
on no more than two occasions, by written request from holders of:
- more than 40% of the then outstanding investors' registrable securities
held by (1) those investors who converted their shares of Series A
preferred stock into shares of common stock and (2) Brian E. Gast,
Bruce E. Dines and Leonard Allsup or
- at least 51% of the then outstanding investors' registrable securities
held by those investors who converted their shares of Series B preferred
stock into shares of common stock, that we file a registration statement
under the Securities Act covering all or a portion of the investors'
registrable securities; provided that, in the case of a registration on a
form other than a Form S-3, there is an aggregate offering price to the
public of at least $10.0 million. In addition, the holders of more than
25% of the then outstanding investors' registrable securities may demand,
by written request, that we file a registration statement on Form S-3,
provided that there is an aggregate offering price to the public of at
least $5.0 million. These registration rights are subject to our right to
delay the filing of a registration statement for a period not to exceed
90 days, provided that we cannot delay more than once in a 12-month period
after receiving the registration demand. In the case of a registration on
a form other than Form S-3, the managing underwriter, if any, of any such
offering has certain rights to limit the number of the registrable
securities proposed to be included in such registration.
In addition, the investors under the rights agreement also have "piggyback"
registration rights. If we propose to register any of our securities under the
Securities Act (other than pursuant to the investors' demand registration rights
noted above), the investors may require us to include all or a portion of their
registrable securities in such registration. The managing underwriter, if any,
of any such offering will have the right to limit the number of the registrable
securities to no less than 25% of the total number of securities proposed to be
included in such registration.
All registration expenses incurred in connection with the above
registrations would be borne by us. Each selling investor would pay all
underwriting discounts and selling commissions applicable to the sale of his or
its registrable securities.
All registration rights described above will terminate five years after the
date of our initial public offering. Following the closing of this offering, the
registration rights of each investor will terminate 12 months following the date
when all of the registrable securities held by that investor may be sold under
Rule 144 of the Securities Act during any 90-day period. The holders of
registrable securities have waived their right to include shares in this
offering.
POSSIBLE ANTI-TAKEOVER MATTERS
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law, which generally prohibits a publicly-held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which
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<PAGE>
the person became an interested stockholder, unless the interested stockholder
attained that status with the approval of the corporation's board of directors
or unless the business combination is approved in a prescribed manner. "Business
combinations" include mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. With certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, fifteen percent (15%) or more
of a corporation's voting stock. This statute could prohibit or delay the
accomplishment of mergers or other takeover or change-in-control attempts and,
accordingly, may discourage attempts to acquire us.
The following provisions of our restated certificate of incorporation and
amended and restated bylaws that will become effective upon the closing of this
offering may have an anti-takeover effect and may delay or prevent a tender
offer or takeover attempt that a stockholder might consider to be in its best
interest, including attempts that might result in a premium over the market
price for the common stock:
CLASSIFIED BOARD OF DIRECTORS. Our board of directors will be divided into
three classes. The directors in class I will hold office until the first annual
meeting of stockholders following this offering, the directors in class II will
hold office until the second annual meeting of stockholders following this
offering, and the directors in class III will hold office until the third annual
meeting of stockholders following this offering. After each such election, the
directors in that class will serve for terms of three years. The classification
system of electing directors may tend to discourage a third party from making a
tender offer or otherwise attempting to obtain control of us and may maintain
the incumbency of the board of directors, since such classification generally
increases the difficulty of replacing a majority of the directors.
BOARD OF DIRECTOR VACANCIES. The board of directors will be authorized to
fill vacant directorships and to increase the size of the board of directors.
This may deter a stockholder from removing incumbent directors and
simultaneously gaining control of the board of directors by filling the
resulting vacancies with its own nominees.
STOCKHOLDER ACTION; SPECIAL MEETINGS OF STOCKHOLDERS. Our stockholders will
not be permitted to take action by written consent, but only at duly called
annual or special meetings of stockholders. In addition, special meetings of
stockholders may be called only by the chairman of the board, the chief
executive officer or a majority of the board of directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. Stockholders seeking to bring business before an annual meeting of
stockholders, or to nominate candidates for election as directors at an annual
meeting of stockholders, must deliver a written notice to our principal
executive offices within a prescribed time period. Our amended and restated
bylaws also set forth specific requirements as to the form and content of a
stockholder's notice. These provisions may preclude stockholders from bringing
matters before an annual meeting of stockholders or from making nominations for
the election of directors at an annual meeting of stockholders.
AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
stockholder approval, subject to limitations imposed by the Nasdaq National
Market. We may use these additional shares for a variety of corporate purposes,
including future public offerings to raise additional capital, acquisitions and
employee benefit plans. The existence of authorized but unissued and unreserved
common stock and preferred stock could render more difficult or discourage an
attempt to obtain control of us by means of a proxy contest, tender offer,
merger or otherwise.
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<PAGE>
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
Our amended and restated bylaws that will become effective upon the closing
of this offering provide that we will indemnify our directors and executive
officers to the fullest extent permitted by Delaware law and may indemnify our
other officers, employees and other agents to the fullest extent permitted by
Delaware law.
In addition, our restated certificate of incorporation that will become
effective upon the closing of this offering provides that, to the fullest extent
permitted by Delaware law, our directors will not be personally liable to us or
our stockholders for monetary damages for any breach of fiduciary duty as
directors. This provision of the restated certificate of incorporation does not
eliminate the directors' duty of care. In appropriate circumstances, equitable
remedies such as an injunction or other forms of non-monetary relief are
available under Delaware law. This provision also does not affect the directors'
responsibilities under any other laws, such as the federal securities laws and
state and federal environmental laws.
Each director will continue to be subject to liability for:
- breach of a director's duty of loyalty to us and our stockholders;
- acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; and
- any transaction from which a director derived an improper personal
benefit.
We also intend to enter into indemnity agreements with our directors and
executive officers and to obtain directors' and officers' liability insurance.
There is no pending litigation or proceeding involving any of our directors
or officers as to which indemnification is being sought. We are not aware of any
pending or threatened litigation that may result in a claim for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling our company pursuant
to the foregoing provisions, we have been informed that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
LISTING
We have applied for listing of the common stock on the Nasdaq National
Market under the trading symbol JATO.
TRANSFER AGENT AND REGISTRAR
We have appointed Norwest Bank Minnesota, N.A. to serve as the transfer
agent and registrar for the common stock.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. We cannot predict what effect, if any, market sales of shares or the
availability of shares for sale will have on the market price of our common
stock prevailing from time to time. Nevertheless, sales of substantial amounts
of common stock in the public market, or the perception that such sales could
occur, could adversely affect the market price of the common stock and could
impair our future ability to raise capital through the sale of our equity
securities.
Upon the closing of this offering, we will have a total of
shares of common stock outstanding, assuming no exercise of the underwriters'
over-allotment option, and the issuance of shares of common stock at
an assumed public offering price of $ per share and no exercise of options.
Of the outstanding shares, the shares being sold in this offering
will be freely tradable, except that any shares held by our "affiliates" may
only be sold in compliance with the limitations described below. The remaining
shares of common stock will be "restricted securities" that
may be sold in the public market only if they are registered under the
Securities Act or if they qualify for an exemption from registration under
Rule 144, 144(k) or 701 promulgated under the Securities Act.
Subject to the lock-up agreements described below and the provisions of
Rules 144, 144(k) and 701, additional shares will become available for sale in
the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ---------------- -------------------------------------
<S> <C>
......................... Upon the date of this prospectus
(shares eligible for resale under
Rule 144(k) and not subject to
lock-up agreements)
......................... 90 days following the date of this
prospectus (shares eligible for
resale under Rules 144 and 701 and
not subject to lock-up agreements)
......................... 180 days following the date of this
prospectus (lock-up agreements
released)
......................... After the expiration of the lock-up
period pursuant to Rule 144
</TABLE>
In general, under Rule 144, a person (or persons whose shares are required
to be aggregated), including an affiliate, who has beneficially owned shares for
at least one year is entitled to sell, within any three-month period commencing
90 days after the date of this prospectus, a number of shares that does not
exceed the greater of:
- 1% of the then-outstanding shares of common stock (approximately
shares immediately after this offering) or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the date on which notice of that sale is filed.
In addition, a person who is not considered an affiliate of ours at any
time during the 90 days preceding a sale and who has beneficially owned
the shares proposed to be sold for at least two years is entitled to sell
such shares under Rule 144(k) without regard to the volume limitations
described above. Securities issued in reliance on Rule 701 (such as shares
of common stock that may be acquired pursuant to the exercise of certain
options granted prior to this offering) are also restricted securities and
may be sold by stockholders other than our affiliates 90 days after the
effective date of this offering subject only to the manner of sale
provisions of Rule 144 and by our affiliates under Rule 144 without
compliance with its one-year holding period requirement.
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In addition, following the completion of this offering, we intend to file a
registration statement to register for resale the 8,700,000 shares of common
stock available for issuance under our stock plan. Accordingly, shares issued
under the plan will become eligible for resale in the public market from time to
time, subject to the lock-up agreements described below and, in the case of
affiliates of Jato, the volume limitations of Rule 144 described above. As of
the date of this prospectus, options and purchase rights to acquire a total of
shares of common stock are outstanding under our stock plans, of which
are currently exercisable.
Directors, officers and stockholders of Jato holding an aggregate of
shares of common stock have agreed that they will not sell any shares of
common stock without the prior written consent of Merrill Lynch, Pierce,
Fenner & Smith Incorporated, for a period of 180 days from the date of this
prospectus. Please refer to our discussion in "Underwriting" for further
discussion of these agreements.
We have agreed not to sell or otherwise dispose of, or file a registration
statement with respect to, any shares of common stock during the 180-day period
following the date of this prospectus, other than the grant of options and
purchase rights under our stock plan and the issuance of common stock pursuant
thereto.
Following this offering, certain of our stockholders will have rights to
have their shares of common stock registered for resale under the Securities
Act. Please refer to our discussion under "Description of Capital Stock --
Registration Rights" for further discussion of these registration rights.
69
<PAGE>
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bear, Stearns &
Co. Inc. and Thomas Weisel Partners LLC are acting as representatives of each of
the underwriters named below. Subject to the terms and conditions described in a
purchase agreement among us and the underwriters, we have agreed to sell to the
underwriters, and each underwriter severally has agreed to purchase from us, the
numbers of shares of common stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------ -----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................................
Bear, Stearns & Co. Inc.....................................
Thomas Weisel Partners LLC..................................
Total.................................................
</TABLE>
The underwriters have agreed to purchase all of the shares sold under the
purchase agreement if any of these shares are purchased. If an underwriter
defaults, the purchase agreement provides that the purchase commitments of the
nondefaulting underwriters may be increased or the purchase agreement may be
terminated.
We have agreed to indemnify the underwriters against various liabilities,
including liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect of those liabilities.
The underwriters are offering the shares of common stock, subject to prior
sale, when, as and if issued to and accepted by them, subject to approval of
legal matters by their counsel, including the validity of the shares, and other
conditions contained in the purchase agreement, such as the receipt by the
underwriters of officer's certificates and legal opinions. The underwriters
reserve the right to withdraw, cancel or modify offers to the public and to
reject orders in whole or in part.
COMMISSIONS AND DISCOUNTS
The representatives have advised us that the underwriters propose initially
to offer the shares of common stock to the public at the initial public offering
price set forth on the cover page of this prospectus and to dealers at that
price less a concession not in excess of $ per share. The underwriters may
allow, and the dealers may reallow, a discount not in excess of $ per share
to other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
The following table shows the per share and total public offering price, the
underwriting discount we will pay to the underwriters and the proceeds before
expenses to us. The information assumes either no exercise or full exercise by
the underwriters of their over-allotment option.
<TABLE>
<CAPTION>
WITHOUT WITH
PER SHARE OPTION OPTION
--------- -------- --------
<S> <C> <C> <C>
Public offering price.............................. $ $ $
Underwriting discount.............................. $ $ $
Proceeds, before expenses, to Jato................. $ $ $
</TABLE>
We expect to incur expenses of approximately $ in connection with
this offering.
OVER-ALLOTMENT OPTION
We and the selling stockholders have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to additional shares of
70
<PAGE>
common stock, at the public offering price set forth on the cover page of this
prospectus, less the underwriting discount. The underwriters may exercise this
option solely to cover any over-allotments. To the extent that the underwriters
exercise this option, each of the underwriters will be obligated, subject to
conditions contained in the purchase agreement, to purchase a number of
additional shares of our common stock proportionate to that underwriter's
initial amount reflected in the foregoing table. See "Principal and Selling
Stockholders."
RESERVED SHARES
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to shares offered by this prospectus, for sale
to some of our employees, directors, officers and their friends and family
members, as well as to some of the employees of our strategic partners. If these
persons purchase reserved shares, this will reduce the number of shares of our
common stock available for sale to the general public. Any reserved shares that
are not orally confirmed for purchase within one day of the pricing of this
offering will be offered by the underwriters to the general public on the same
terms as other shares offered by this prospectus.
NO SALES OF SIMILAR SECURITIES
We and our officers and directors and substantially all of our existing
stockholders have agreed, with certain exceptions, not to sell or transfer any
common stock for 180 days after the date of this prospectus without first
obtaining the written consent of Merrill Lynch. Specifically, we and these other
individuals have agreed not to directly or indirectly
- offer, pledge, sell or contract to sell, sell any option or contact to
purchase, purchase any option or contract to sell, grant any option, right
or warrant for the sale of, lend or otherwise dispose of or transfer any
shares of our common stock or securities convertible into or exchangeable
or exercisable for or repayable with our common stock whether now owned or
later acquired by the person executing the agreement or with respect to
which the person executing the agreement later acquires the power of
disposition; or
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of our common stock whether
any such swap or transaction is to be settled by delivery of our common
stock or other securities, in cash or otherwise.
QUOTATION ON THE NASDAQ NATIONAL MARKET
We expect the shares to be approved for quotation on the Nasdaq National
Market under the symbol "JATO."
Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined through negotiations
between us and the representatives. In addition to prevailing market conditions,
the factors to be considered in determining the initial public offering price
are
- the valuation multiples of publicly traded companies that the
representatives believe to be comparable to us,
- our financial information,
- the history of, and the prospects for, our company and the industry in
which we compete,
- an assessment of our management, its past and present operations, and the
prospects for, and timing of, our future revenues,
- the present state of our development and
71
<PAGE>
- the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours.
An active trading market for the shares may not develop. It is also possible
that after the offering the shares will not trade in the public market at or
above the initial public offering price.
The underwriters do not expect to sell more than 5% of the shares in the
aggregate to accounts over which they exercise discretionary authority.
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of our common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
certain selling group members to bid for and purchase our common stock. As an
exception to these rules, the representatives may engage in transactions that
stabilize the price of our common stock, such as bids or purchases to peg, fix
or maintain that price.
If the underwriters create a short position in our common stock in
connection with the offering, i.e., if they sell more shares than are listed on
the cover of this prospectus, the representatives may reduce that short position
by purchasing shares in the open market. The representatives may also elect to
reduce any short position by exercising all or part of the over-allotment option
described above. Purchases of the common stock to stabilize its price or to
reduce a short position may cause the price of the common stock to be higher
than it might be in the absence of such purchases.
The representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares in
the open market to reduce the underwriters' short position or to stabilize the
price of such shares, they may reclaim the amount of the selling concession from
the underwriters and selling group members who sold those shares. The imposition
of a penalty bid might also have an effect on the price of our common stock to
the extent that it discourages resales of our common stock.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
we nor any of the underwriters makes any representation that the representatives
will engage in these transactions or that these transactions, once commenced,
will not be discontinued without notice.
OTHER RELATIONSHIPS
Some of the underwriters and their affiliates may in the future engage in
investment banking and other commercial dealings in the ordinary course of
business with us, for which they may receive customary compensation.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners has been named as a lead or co-manager on
118 filed public offerings of equity securities, of which 86 have been
completed, and has acted as a syndicate member in an additional 57 public
offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with us
pursuant to the underwriting agreement entered into in connection with this
offering.
72
<PAGE>
LEGAL MATTERS
Cooley Godward LLP, Boulder, Colorado will pass upon the validity of the
shares of common stock offered hereby. Baker & McKenzie, New York, New York will
pass upon certain legal matters in connection with the offering for the
underwriters. An investment partnership affiliated with Cooley Godward LLP owns
33,333 shares of our preferred stock which will convert into 33,333 shares of
our common stock upon the completion of this offering.
EXPERTS
The consolidated financial statements included in this prospectus and
elsewhere in the registration statement as of December 31, 1998 and
December 31, 1999 and from June 12, 1998 (date of inception) to December 31,
1998 and for the year ended December 31, 1999 have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing in giving said reports.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 (including exhibits, schedules and amendments) under the
Securities Act with respect to the common stock to be sold in this offering.
This prospectus does not contain all of the information in the registration
statement. For further information about us and our common stock, please refer
to the registration statement. In each instance, please refer to the copy of
that contract, agreement or document filed as an exhibit to the registration
statement.
You may read and copy all or any portion of the registration statement or
any other information the company files at the SEC's public reference room at
450 Fifth Street, N.W., Washington, D.C. 20549. You can request copies of these
documents, upon payment of a duplicating fee, by writing to the SEC. Please call
the SEC at 1-800-SEC-0330 for further information on the operation of the public
reference rooms. Our SEC filings, including the registration statement, are also
available to you on the SEC's web site (http://www.sec.gov).
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934, as amended. In
accordance with those requirements, we will file periodic reports, proxy
statements and other information with the SEC. You may also inspect these
reports, proxy statements and other information at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006.
We intend to furnish our stockholders with annual reports containing audited
financial statements and with quarterly reports for the first three quarters of
each year containing interim financial information.
73
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Financial Statements:
Report of Independent Public Accountants.................. F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999.................................................... F-3
Consolidated Statements of Operations for the period from
June 12, 1998 (date of inception) to December 31, 1998
and for the year ended December 31, 1999................ F-4
Consolidated Statements of Changes in Stockholders' Equity
for the period from June 12, 1998 (date of inception) to
December 31, 1998 and for the year ended December
31,1999................................................. F-5
Consolidated Statements of Cash Flows for the period from
June 12, 1998 (date of inception) to December 31, 1998
and for the year ended December 31, 1999................ F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Jato Communications Corp.:
We have audited the accompanying consolidated balance sheets of Jato
Communications Corp. (a Delaware corporation) and subsidiaries as of
December 31, 1999 and 1998 and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the year ended
December 31, 1999 and for the period from June 12, 1998 (date of inception) to
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Jato
Communications Corp. and subsidiaries as of December 31, 1999 and 1998, and the
consolidated results of their operations and cash flows for the year ended
December 31, 1999 and for the period from June 12, 1998 (date of inception) to
December 31, 1998 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
February 9, 2000.
F-2
<PAGE>
JATO COMMUNICATIONS CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $1,270 $ 15,017
Trade accounts receivable................................. -- 255
Inventory................................................. -- 486
Prepaid expenses and other current assets................. 12 202
------ --------
Total current assets........................................ 1,282 15,960
Property and Equipment:
Networking equipment...................................... 3 17,410
Central office collocation space improvements............. 22 16,070
Computer equipment and software........................... 17 2,852
Furniture and fixtures.................................... 16 1,601
------ --------
Total property and equipment................................ 58 37,933
Accumulated depreciation.................................. (1) (470)
------ --------
Net property and equipment.................................. 57 37,463
Restricted cash............................................. -- 500
Note receivable from officer................................ -- 67
Deferred financing costs, net............................... -- 1,169
Other noncurrent assets..................................... 27 432
------ --------
Total assets............................................ $1,366 $ 55,591
====== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 73 $ 1,679
Accrued expenses and other current liabilities............ 211 1,936
------ --------
Total current liabilities................................... 284 3,615
Long-term debt.............................................. -- 16,868
------ --------
Total liabilities........................................... 284 20,483
Commitments and Contingencies
Stockholders' Equity:
Convertible Preferred Stock, $0.01 par value, 30,000,000
shares authorized;
Series A Convertible preferred stock, 3,000,000 and
1,751,985 shares authorized, respectively; 1,751,985
shares issued and outstanding, respectively............ 1,301 1,301
Series B Convertible preferred stock, none and
13,615,322 shares authorized, respectively; none and
13,615,322 issued and outstanding, respectively........ -- 20,174
Series C Convertible preferred stock, none and 8,550,000
shares authorized, respectively, none and 4,932,308
shares issued and outstanding, respectively............ -- 27,561
Common Stock, $.01 par value, 40,000,000 and 80,000,000
shares authorized, respectively; 6,250,002 and 6,797,814
shares issued and outstanding, respectively............. 63 68
Additional paid-in capital................................ 114 14,995
Deferred compensation..................................... -- (13,735)
Accumulated deficit....................................... (396) (15,256)
------ --------
Total stockholders' equity.................................. 1,082 35,108
------ --------
Total liabilities and stockholders' equity.............. $1,366 $ 55,591
====== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-3
<PAGE>
JATO COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 12, 1998 YEAR ENDED
(DATE OF INCEPTION) TO DECEMBER 31,
DECEMBER 31, 1998 1999
---------------------- ------------
<S> <C> <C>
Revenues.................................................... --$ $ 315
Operating Expenses:
Network and service costs................................. -- 1,170
Marketing expenses........................................ -- 1,919
Selling, general and administrative....................... 404 11,152
Amortization of deferred compensation..................... -- 843
Depreciation and amortization............................. 1 469
------ --------
Operating loss.............................................. (405) (15,238)
Interest income........................................... 9 838
Interest expense.......................................... -- (431)
Other, net................................................ -- (29)
------ --------
Net loss.................................................... $ (396) $(14,860)
====== ========
Basic and diluted loss per common share..................... $(0.07) $ (2.31)
====== ========
Weighted average common shares outstanding-and diluted...... 6,000 6,434
====== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-4
<PAGE>
JATO COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------- ------------------- PAID-IN DEFERRED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT TOTAL
-------- -------- -------- -------- ---------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial capitalization,
including retroactive effect
of stock split............... -- $ -- 5,600 $56 $ 64 $ -- $ -- $ 120
Issuance of common stock in
August 1998 for cash of $0.07
per share.................... -- -- 520 5 31 -- -- 36
Issuance of common stock in
October 1998 for cash of
$0.15 per share.............. -- -- 130 2 19 -- -- 21
Issuance of Series A
convertible preferred stock,
net of offering costs of
$13.......................... 1,752 1,301 -- -- -- -- -- 1,301
Net loss....................... -- -- -- -- -- -- (396) (396)
------ ------- ----- --- ------- -------- -------- --------
Balances at December 31,
1998......................... 1,752 1,301 6,250 63 114 -- (396) 1,082
Issuance of Series B
convertible preferred stock,
net of offering costs of
$178......................... 13,615 20,245 -- -- -- -- -- 20,245
Issuance of warrants for common
stock pursuant to sale of
Series B convertible
preferred stock, at fair
value........................ -- (71) -- -- 71 -- -- --
Issuance of common stock
pursuant to exercise of stock
options...................... -- -- 20 -- 17 -- -- 17
Issuance of common stock
options and warrants for
common stock to consultants,
at fair value................ -- -- -- -- 74 -- -- 74
Issuance of common stock in
August 1999 for cash of $1.50
per share, at fair value..... -- -- 8 -- 29 -- 29
Issuance of common stock in
August 1999 for cash of $3.00
per share, at fair value..... -- -- 20 -- 112 -- -- 112
Issuance of restricted common
stock, at fair value......... -- -- 500 5 5,664 (5,664) -- 5
Issuance of Series C
convertible preferred stock,
net of offering costs of
$59.......................... 4,932 27,561 -- -- -- -- -- 27,561
Deferred compensation.......... -- -- -- -- 8,914 (8,914) -- --
Amortization of deferred
compensation................. -- -- -- -- -- 843 -- 843
Net loss....................... -- -- -- -- -- -- (14,860) (14,860)
------ ------- ----- --- ------- -------- -------- --------
Balances at December 31,
1999......................... 20,299 $49,036 6,798 $68 $14,995 $(13,735) $(15,256) $ 35,108
====== ======= ===== === ======= ======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-5
<PAGE>
JATO COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 12, 1998 YEAR ENDED
(DATE OF INCEPTION) TO DECEMBER 31,
DECEMBER 31, 1998 1999
---------------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $ (396) $(14,860)
Adjustments to reconcile net loss to net cash flows from
operating activities:
Depreciation and amortization............................. 1 469
Amortization of deferred compensation..................... -- 843
Amortization of deferred financing costs.................. -- 66
Other non-cash expenses................................... -- 176
Changes in current assets and current liabilities:
Accounts receivable..................................... -- (255)
Inventory............................................... -- (486)
Prepaid expenses and other current assets............... (12) (190)
Accounts payable........................................ 73 1,606
Accrued expenses and other current liabilities.......... 211 1,725
------ --------
Net cash flows from operating activities.................... (123) (10,906)
------ --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......................... (58) (21,156)
Cash and cash equivalents used to collateralize standby
letters of credit......................................... -- (500)
Issuance of note receivable to officer...................... -- (100)
Other noncurrent assets..................................... (27) (405)
------ --------
Net cash flows from investing activities.................... (85) (22,161)
------ --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock.......................... 177 77
Proceeds from exercise of common stock options.............. -- 17
Proceeds from sale of Series A preferred stock.............. 1,314 --
Proceeds from sale of Series B preferred stock.............. -- 20,423
Proceeds from sale of Series C preferred stock.............. -- 27,620
Preferred stock offering costs.............................. (13) (237)
Deferred financing costs.................................... -- (1,086)
------ --------
Net cash flows from financing activities.................... 1,478 46,814
------ --------
Net increase in cash and cash equivalents................... 1,270 13,747
Cash and cash equivalents, beginning of period.............. -- 1,270
------ --------
Cash and cash equivalents, end of period.................... $1,270 $ 15,017
====== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Borrowings for property, plant and equipment under credit
facility................................................ --$ $ 16,719
Deferred financing costs paid by credit facility.......... -- 149
Cash paid for interest.................................... -- 36
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-6
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
THE COMPANY
Jato Communications Corp. (Jato, or the Company), a Delaware corporation,
was formed in June 1998 to provide high-speed digital communications services
using digital subscriber line (DSL) technology. Prior to December 1999, Jato had
not commenced principal operations nor generated significant revenues and was
therefore considered to be a development stage enterprise in accordance with
Statement of Financial Accounting Standards (SFAS) No. 7 "Accounting and
Reporting by Development Stage Enterprises." The Company is no longer considered
a development stage enterprise.
The Company is aggressively deploying its network and DSL Services. The
Company believes that its cash and cash equivalents at December 31, 1999,
additional equity capital raised during January and February 2000 (see Note 10)
and availability under its senior secured credit facility will be adequate to
sustain its current level of operations through May of 2000. As the Company
continues the development of its business, it will use currently available funds
while seeking additional sources of financing, including expected proceeds from
this offering. Management believes the Company will have access to additional
capital; however, if unsuccessful in obtaining additional financing, the Company
will continue expansion of its operations on a significantly reduced scale based
on its existing capital resources. While the Company believes it would be able
to sustain some level of operations through the end of 2000 absent any
additional capital, it would be required to significantly scale back operations
and delay network expansion. This would have a material adverse effect on the
Company's business, financial condition and results of operations. Management
cannot be assured that additional capital will be available on terms acceptable
to the Company.
The Company's operations are subject to significant risks and uncertainties
including competitive, financial, developmental, operational, technological,
regulatory and other risks associated with an emerging and growing business. The
Company expects to continue to report operating and net losses as it develops
its network and expands its customer base. Improvements in Jato's future results
of operations are largely dependent upon its ability to attract high-quality
customers in a highly competitive, relatively immature market while controlling
its overall cost structure, including costs associated with adding new
customers. There can be no assurance that Jato will be successful with regard to
these matters.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the operations
of the Company and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses for each reporting
period. Actual results could differ from those estimates.
F-7
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid monetary investments with an
original maturity of 90 days or less at the date of purchase to be cash
equivalents. Cash equivalents as of December 31, 1998 and 1999 consist
principally of money market funds, commercial paper and other short-term,
interest bearing, high-grade securities. These balances are stated at cost which
approximates market value.
CONCENTRATION OF CREDIT RISK
As of December 31, 1999, three customers comprised 21%, 19% and 15% of the
Company's trade receivables balance and approximately 16%, 17% and 11% of
revenues, respectively, for the year ended December 31, 1999.
INVENTORY
Inventory consists of communications equipment that will be installed at
customer locations. Inventory is accounted for using the first-in, first-out
method at the lower of cost or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided over
the estimated useful lives of the assets (3-7 years) using the straight-line
method. Maintenance and repairs are expensed as incurred and the costs of
betterments are capitalized.
Central office collocation space improvements represent payments to
incumbent carriers for infrastructure improvements within their central offices
to allow Jato to install its equipment. These improvements allow Jato to
interconnect with the carrier's network. These payments are capitalized and are
amortized over an estimated useful life of five years.
The Company capitalizes costs associated with the design and implementation
of its network, including internally and externally developed software.
Capitalized external software costs include the actual costs to purchase
existing software from vendors. Capitalized internal costs generally include
personnel costs incurred in the enhancement and implementation of purchased
software packages.
LONG-LIVED ASSETS
Jato investigates potential impairments of its long-lived assets on an
exception basis when evidence exists that events or changes in circumstances may
have made recovery of an asset's carrying value unlikely. An impairment loss is
recognized when the sum of the expected undiscounted future net cash flows is
less than the carrying amount of the assets. No such losses have been
identified. Recoverability of long-lived assets is dependent upon successful
execution of Jato's business plan, among other factors.
RESTRICTED CASH
As of December 31, 1999, the Company had $500,000 in commercial deposits
held in the Company's name but restricted as security for certain of the
Company's standby letters of credit.
F-8
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Jato presently derives revenue from two principal sources: transport
services and installation and activation services. Transport services represent
monthly recurring service revenues and are recognized in the period the services
are provided. Amounts billed in advance of providing services are recorded as
deferred revenue until the period the services are provided. Installation and
activation services represent services provided to configure customer premise
and other equipment in connection with the installation and activation of Jato's
transport services. Such revenues are recognized in the period the services are
completed. Revenues earned from installation and activation services represent
amounts charged to recover direct costs. Direct costs in excess of revenues
earned are expensed in the period incurred. To date, revenues earned from
installation and activation have not significantly exceeded direct costs.
ADVERTISING AND SALES PROMOTION COSTS
Advertising and sales promotion costs are expensed as incurred. No such
costs were incurred during 1998. Advertising expenses totaled $1.9 million for
the year ended December 31, 1999.
INCOME TAXES
The Company accounts for income taxes using the liability method in
accordance with SFAS No. 109, "Accounting for Income Taxes." Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. Valuation allowances are established as necessary to reduce net
deferred tax assets to the amounts expected to be realized.
BASIC AND DILUTED LOSS PER SHARE
Basic and diluted loss per share amounts are presented below in accordance
with the requirements of SFAS No. 128, "Earnings Per Share." Basic net loss per
share is computed by dividing net loss applicable to common stockholders by the
weighted average number of shares of the Company's common stock outstanding
during the period after giving consideration to shares subject to repurchase.
Diluted net loss per share is determined in the same manner as basic net loss
per share except that the number of shares is increased assuming exercise of
dilutive stock options and warrants using the treasury stock method and
conversion of the Company's convertible preferred stock. As of December 31, 1998
and 1999, options to purchase 50,000 and 4.1 million shares of common stock were
outstanding, respectively. Common stock equivalents (stock options and warrants)
are excluded from the calculation of diluted loss per share, as they are
antidilutive. The Series A, Series B and Series C convertible preferred stock
that are convertible into shares of common stock also are excluded from the
F-9
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
calculation of diluted loss per share as they are antidilutive. The following
table presents the calculation of basic and diluted loss per share (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
JUNE 12, 1998
(DATE OF INCEPTION) TO YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
---------------------- -----------------
<S> <C> <C>
Net loss................................... $ (396) $(14,860)
------ --------
Basic and Diluted:
Weighted-average common shares
outstanding.............................. 6,000 6,434
------ --------
Basic and diluted loss per share........... $(0.07) $ (2.31)
====== ========
Shares of common stock issuable upon
conversion of:
Series A convertible preferred stock....... 1,752 1,752
Series B convertible preferred stock....... -- 13,615
Series C convertible preferred stock....... -- 4,932
Options for commons stock issued to
employees................................ 50 4,035
Options for common stock issued to
consultants.............................. 40
Warrants for common stock issued to non-
employees................................ -- 25
</TABLE>
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Pro forma net loss per share for each period presented is computed using the
net loss and weighted average number of common shares outstanding, including the
pro forma effects of the assumed conversion of the Company's Series A, B and C
convertible preferred stock into shares of the Company's common stock, as those
shares automatically convert to the Company's common stock pursuant to an
initial public offering. The pro forma effects assume that each conversion
occurred on January 1 of the respective year, or at the date of original
issuance, if later.
The unaudited pro forma effects of each of these transactions are as
follows:
<TABLE>
<CAPTION>
JUNE 12, 1998
(DATE OF INCEPTION) TO YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
---------------------- -----------------
<S> <C> <C>
Pro forma basic and diluted loss per common
share.................................... $(0.06) $ (0.91)
====== =======
Pro forma weighted average common shares
outstanding-basic and diluted............ 6,770 16,417
====== =======
</TABLE>
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with Accounting Principles Board Opinion (APB) No. 25, "Accounting
for Stock Issued to Employees," and
F-10
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
related interpretations, and complies with the disclosure provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation." The Company accounts for
equity instruments issued to non-employees in accordance with the provisions of
SFAS No. 123 and Emerging Issues Task Force Issue No. 96-18 "Accounting for
Equity Investments that are Issued to Other than Employees for Acquiring, or in
Conjunction with Selling Goods or Services."
COMPREHENSIVE LOSS
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income." The
adoption of this statement had no impact on the Company's consolidated financial
statements for the periods presented, as net loss has been the same as
comprehensive loss since inception.
SEGMENT INFORMATION
The Company has adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." The "management" approach to segment
reporting required by SFAS No. 131 designates the internal organization that is
used by top management for making operating decisions and assessing performance
as the source of the Company's reportable segments. Jato presently operates in
one segment: High-speed network and data transport services.
NEW ACCOUNTING PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which provides
guidance that requires capitalization of certain costs incurred during an
internal-use software development project. SOP 98-1 is effective for fiscal
years beginning after December 15, 1998. The adoption of this policy has not had
a material effect on the Company's consolidated results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities," which provides guidance on the financial reporting of
start-up costs and organizational costs. It requires costs of start-up
activities and organizational costs to be expensed as incurred. SOP 98-5 is
effective for fiscal years beginning after December 15, 1998. Jato has not
capitalized any such costs to date. Accordingly, the adoption of SOP 98-5 has
not had an impact on Jato's consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." Among other
things, this statement requires that an entity recognize all derivative
instruments on the balance sheet as either assets or liabilities, and to account
for those instruments at fair value. SFAS No. 133 must be applied to financial
statements no later than the first fiscal quarter of 2001. The Company does not
believe adoption will have a material impact on its consolidated financial
position or results of operations.
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition." SAB 101 provides
interpretive guidance on the recognition, presentation and disclosure of revenue
in financial statements. SAB 101 must be applied to financial statements no
later than the first fiscal quarter of 2000. The Company does not believe
adoption will have a material impact on its consolidated financial position or
results of operations.
F-11
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain 1998 balances have been reclassified to conform to the 1999
presentation.
3. NOTE RECEIVABLE FROM OFFICER
In May 1999, pursuant to an employment agreement, Jato loaned $100,000 to
one of its executive officers. This note receivable is a non-recourse loan
secured by a pledge of that executive officer's common stock. The note
receivable is due in May 2002 and bears interest at an annual rate of 5.0%,
compounded quarterly. Principal and interest are due at maturity, unless
forgiven. In accordance with the terms of the employment agreement, one-third of
the principal and one-third of the accrued interest were forgiven on
December 31, 1999. The remaining principal balance and any accrued interest will
be forgiven in equal installments on December 31, 2000 and 2001 provided that
the executive officer is employed with Jato. If the executive officer
voluntarily terminates his employment with Jato, principal and interest shall be
due and fully payable on December 31, 2001. The Company is amortizing this
principal and interest related to this loan to compensation expense over the
term of the loan.
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Payroll..................................................... $204 $ 561
Litigation settlement....................................... -- 300
Taxes....................................................... -- 312
Rent........................................................ -- 283
Interest.................................................... -- 179
Other....................................................... 7 301
---- ------
$211 $1,936
==== ======
</TABLE>
5. CREDIT FACILITY
In July 1999, Jato Operating Corp, a wholly-owned subsidiary formed in
April 1999, entered into a senior secured credit facility with a third-party
vendor that provides for up to $50 million of financing for equipment and
network services provided by the vendor. The $50 million is available to the
Company in two separate tranches. The first tranche of $30 million must be drawn
down upon by July 2001. The second tranche of $20 million becomes available upon
the full utilization or expiration of the first tranche and must be drawn down
upon by July 2002. Borrowings under the facility bear interest at the rate of
LIBOR plus 4.5% per year or an alternative base rate, which is generally equal
to the greater of 3.5% over the Prime Rate or 4% over the federal funds rate per
year. The facility requires quarterly interest payments.
F-12
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. CREDIT FACILITY (CONTINUED)
Principal installments are due at the end of each fiscal quarter in
accordance with the following schedule:
<TABLE>
<S> <C>
- -- September 2002 to June 2003.............................. 2.50%
- -- September 2003 to June 2004.............................. 5.00%
- -- September 2004 to June 2005.............................. 8.75%
- -- September 2005 to March 2006............................. 8.75%
</TABLE>
Any principal amount that is outstanding after March 2006 is due on May 31,
2006. The facility is fully and unconditionally guaranteed by Jato, and each
direct or indirect subsidiary of Jato Operating Corp. Borrowings under the
senior secured credit facility are restricted based upon the Company's leverage
ratio and capitalization. Upon closing, the Company was permitted to borrow the
entire first tranche of $30 million. The facility is secured by liens against
certain of the Company's network equipment and imposes certain financial and
other covenants. Direct costs incurred in connection with this credit facility
are capitalized and being amortized to interest expense over the term of the
facility. Amounts outstanding under the credit facility as of December 31, 1999
bore interest at 10.625%.
6. INCOME TAXES
The components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
JUNE 12, 1998
(DATE OF INCEPTION) TO YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
---------------------- -----------------
<S> <C> <C>
Current tax expense:
Federal.................................. -- $ $--
State.................................... -- --
----- -------
-- --
----- -------
Deferred tax expense (benefit):
Federal.................................. (135) (4,656)
State.................................... (13) (466)
Increase in valuation allowance for
deferred tax assets.................... 148 5,122
----- -------
-- --
----- -------
Total provision (benefit).............. -- $ $--
===== =======
</TABLE>
F-13
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
The primary components of temporary differences that give rise to deferred
taxes are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Current deferred tax assets:
Accrued expenses.......................................... $ 76 $ --
Valuation allowance....................................... (76) --
---- -------
Net current deferred tax assets............................. -- --
Noncurrent deferred tax assets:
Net operating loss carryforwards.......................... 57 11,699
Other..................................................... 15 --
---- -------
Total noncurrent deferred tax assets........................ 72 11,699
Noncurrent deferred tax liabilities:
Capitalized network costs................................. -- (6,210)
Excess of tax over book depreciation...................... -- (310)
---- -------
Total noncurrent deferred tax assets........................ 72 5,179
Valuation allowance......................................... (72) (5,179)
---- -------
Net noncurrent deferred tax assets.......................... -- --
---- -------
Net deferred tax assets..................................... $-- $ --
==== =======
</TABLE>
The actual tax provision for 1998 and 1999 is reconciled to the amounts
computed by applying the statutory Federal tax rate to income before taxes as
follows:
<TABLE>
<CAPTION>
JUNE 12, 1998
(DATE OF INCEPTION) TO YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
---------------------- -----------------
<S> <C> <C>
Statutory rate............................. 34.0% 34.0%
State income taxes, net of Federal
effect................................... 3.4 3.4
Valuation allowance........................ (37.4) (37.4)
----- -----
Income tax provision....................... -- % -- %
===== =====
</TABLE>
Due to the uncertainty surrounding the realization of the Company's deferred
tax assets through future taxable income, Jato has recorded a valuation
allowance against its net deferred tax assets as of December 31, 1998 and 1999.
Management evaluates the recoverability of the deferred tax asset and the level
of the valuation allowance on an ongoing basis. At such time as it is determined
that it is more likely than not that the deferred tax asset will be realizable,
the valuation allowance will be reduced. Future adjustments to the valuation
allowance will be recognized as a separate component of Jato's provision for
income taxes. As of December 31, 1999, Jato had a net unused operating loss
carryforward of approximately $31.3 million, which begins to expire in 2018.
7. COMMITMENTS AND CONTINGENCIES
The Company leases office space under noncancelable operating leases. Rent
expense under operating leases was $15,000 and $284,000 for the period from
June 12, 1998 (date of inception) to
F-14
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
December 31, 1998 and for the year ended December 31, 1999, respectively. Future
minimum lease payments under noncancelable operating leases as of December 31,
1999 are as follows (in thousands):
<TABLE>
<S> <C>
2000........................................................ $1,159
2001........................................................ 1,166
2002........................................................ 1,101
2003........................................................ 749
2004........................................................ 375
Thereafter.................................................. --
------
Total minimum lease payments............................ $4,550
======
</TABLE>
GTE SETTLEMENT
In December 1999, GTE Service Corporation and GTE Corporation (GTE) filed a
lawsuit against the Company and an executive officer of the Company who was
formerly employed by GTE. The lawsuit alleged that the Company and the executive
officer violated certain non-inducement and non-hire provisions of the
executive's separation agreement with GTE. In December 1999, the lawsuit was
settled. Under the terms of the settlement agreement, the Company, without
admitting any fault, agreed to pay GTE $100,000 in cash and issued a $200,000
note payable to GTE. This liability is included in other current liabilities on
the accompanying consolidated balance sheet. The note payable is interest-free
and due the earlier of the completion of an initial public offering of the
Company's stock or March 1, 2000. The Company also agreed to pay GTE an
additional $300,000 in the event that the Company violates certain non-hire
provisions of the settlement agreement.
OTHER MATTERS
The Company is subject to decisions of state public utility commissions, the
Federal Communications Commission and the courts as they relate to the
interpretation and implementation of the Telecommunications Act of 1996, the
interpretation of competitive carrier interconnection agreements in general and
the Company's interconnection agreements in particular. In some cases the
Company may be bound by the results of ongoing proceedings of these bodies or
the legal outcomes of other contested interconnection agreements that are
similar to the Company's agreements. The Company cannot currently estimate the
effect, if any, of these proceedings on future financial results.
8. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
The Company has 30,000,000 authorized shares of preferred stock, of which
1,751,985 shares are designated as "Series A" preferred stock, 13,615,322 are
designated as "Series B" and 8,550,000 are designated as "Series C". During
October 1998, the Company sold 1,751,985 shares of Series A convertible
preferred stock resulting in net proceeds to the Company of $1.3 million. In
April and May 1999, the Company sold 13,615,322 shares of Series B convertible
preferred stock resulting in net proceeds to the Company of approximately
$20.2 million. In September 1999, the Company sold 4,932,308 shares of Series C
convertible preferred stock resulting in net proceeds to the Company of
approximately $27.6 million.
F-15
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
DIVIDENDS
The holders of Series A, Series B and Series C preferred stock are entitled
to participate equally in the payment of all dividends with, but payable as a
priority to payment to, the holders of common stock on an as-converted basis
when and if declared by the Board of Directors. No such dividends have been
declared or paid to date.
LIQUIDATION PREFERENCE
In the event of any liquidation, dissolution, or winding up of the Company,
including a change of control, the holders of Series A, Series B and Series C
preferred stock are entitled to receive, in preference to the holders of common
stock, an amount per share equal to the greater of (a) the respective original
issue price, as adjusted for any stock splits, stock dividends or the like, plus
all declared but unpaid dividends thereon and (b) such amount as would have been
received had each share of Series A, Series B or Series C preferred stock been
converted into shares of common stock immediately prior to the occurrence of
such event.
CONVERSION RIGHTS
Each share of Series A, Series B and Series C preferred stock is
convertible, at the option of the holder, into one share of common stock,
subject to adjustment upon the occurrence of certain dilutive issuances, stock
splits or combinations.
Each share of Series A preferred stock shall automatically convert into
shares of common stock, based on the then-effective conversion price, (a) at any
time upon the affirmative election of the holders of a majority of the
outstanding Series A preferred stock or (b) immediately upon the sale of Jato's
common stock in a firm commitment public offering pursuant to which the public
offering proceeds are at least $1.88 per share and the aggregate gross cash
proceeds to Jato are at least $10 million.
Each share of Series B preferred stock shall automatically convert into
shares of common stock, based on the then-effective conversion price,
(a) immediately upon the sale of Jato's common stock in a firm commitment public
offering in which (i) the per share price is at least equal to $3.75 (if prior
to April 2002) or $5.25 (if after April 2002), (ii) the aggregate gross cash
proceeds to Jato are at least $30 million and (iii) the shares of common stock
are listed on any national securities exchange or have been registered under
Section 12(g) of the Securities Exchange Act of 1934 or (b) if, during a
180 day period following the closing of a firm commitment public offering that
does not meet the criteria specified in (a) above, the average closing price of
Jato's common stock exceeds $3.75 (if prior to April 2002) or $5.25 (if after
April 2002).
Each share of Series C preferred stock shall automatically convert into
shares of common stock, based on the then-effective conversion price,
(a) immediately upon the sale of Jato's common stock in a firm commitment public
offering in which (i) the per share price is at least equal to $8.40 and
(ii) the aggregate gross cash proceeds to Jato are at least $30 million.
Each series of preferred stock carries provisions that protect the holders
of such securities from dilution caused by capital reorganizations, stock splits
or other similar occurrences.
F-16
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
REDEMPTION RIGHTS
No series of convertible preferred stock is redeemable.
VOTING RIGHTS
The holders of each series of preferred stock are entitled to vote on all
matters and entitled to the number of votes equal to the whole number of shares
of common stock into which the preferred stock could be converted pursuant to
the conversion rights. The holders of preferred stock shall vote together with
holders of common stock and not as a separate class at any annual or special
meeting of stockholders.
In addition to any other vote or consent required by law or otherwise, the
vote or written consent of the holders of a majority of the outstanding
Series B preferred stock is necessary for the Company to take any of the
following actions:
- Amend, alter or repeal any provision of the Company's certificate of
incorporation or its Bylaws;
- Authorize any new class or series of stock or any other securities
convertible or exchangeable for equity securities of the Company ranking
on a parity with or senior to the Series B preferred stock in right of
liquidation preference or dividends;
- Enter into an agreement regarding an acquisition or asset transfer, as
defined;
- Initiate bankruptcy or other similar proceedings or appoint a receiver,
trustee, custodian or other similar person;
- Consummate an initial public offering;
- Redeem, purchase, pay dividends or make other distributions with respect
to any of the Company's capital stock;
- Issue bonds, debentures, notes or other debt obligations convertible into,
or exchangeable for, or having rights to purchase, shares of the Company's
common stock, unless (i) otherwise approved by the Company's Board of
Directors, including at lease two designees of the Series B preferred
stock, (ii) the per share cash consideration exceeds the then-applicable
Series B conversion price (as defined) and (iii) the Company's Board of
Directors, including the Series B designees, determines that the per share
cash consideration is at least equal to the then-current fair market value
of the Company's common stock;
- Issue capital stock that ranks junior to the Series A and Series B
preferred stock, except (i) approved issuances (as defined); (ii) in
connection with a qualified offering, and (iii) such as may otherwise be
approved by the Company's Board of Directors;
- Issue any option, warrant put, call or other arrangement for the purchase
or acquisition of any capital stock of the Company, other than approved
issuances (as defined);
- Change the authorized number of members of the Company's Board of
Directors; or
- Issue additional shares of Series A preferred stock.
F-17
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
The holders of Series B preferred stock, voting as a separate class on an
as-converted basis, shall be entitled to elect two members of the Company's
Board of Directors. The holders of common stock, Series A preferred stock and
Series B preferred stock, voting together as a class, on an as-converted basis,
are entitled to elect all remaining members of the Board of Directors.
In addition to any other vote or consent required by law or otherwise, the
vote or written consent of the holders of a majority of the outstanding
Series C preferred stock is necessary for the Company to (i) amend, alter or
repeal any provision of the Company's certificate of incorporation or its Bylaws
or (ii) authorize any new class or series of stock or any other securities
convertible or exchangeable for equity securities of the Company ranking senior
to the Series C preferred stock in right of liquidation preference or dividends.
The Company has reserved shares of common stock as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
--------- ----------
<S> <C> <C>
Conversion of:
Series A preferred stock............................ 1,751,985 1,751,985
Series B preferred stock............................ -- 13,615,322
Series C preferred stock............................ -- 4,932,308
1998 Equity Incentive Plan............................ 3,175,000 5,675,000
Warrants for common stock issued to consultants....... -- 25,000
--------- ----------
4,926,985 25,999,615
========= ==========
</TABLE>
In August 1998, the Company declared a 2:1 forward stock split, in the form
of a stock dividend, on its common stock. The accompanying consolidated
financial statements have been restated to reflect this stock split, since
inception.
9. STOCK OPTIONS AND OTHER STOCK AWARDS
In August 1998, the Company adopted the 1998 Equity Incentive Plan pursuant
to which the Board of Directors may grant stock awards to employees, directors
and consultants. As of December 31, 1999, Jato has reserved 5,675,000 shares of
common stock for granting awards under the Plan. Stock awards may consist of
incentive or nonstatutory stock options, stock appreciation rights, stock
bonuses, or restricted stock awards. Generally, stock options become exercisable
at a rate of 25% at the end of the first year following the vesting commencement
date and 1/48(th) of the total grant per month of employment thereafter, and
expire after a maximum term of ten years.
In August 1999, the Company entered into a restricted stock agreement
pursuant to the 1998 Equity Incentive Plan with one of its executive officers
for the purchase of 500,000 shares of restricted common stock. The restricted
stock was purchased with a $370,000 promissory note issued to the Company by the
employee. The note is due in August 2001 and is secured by a pledge of the
restricted common stock. The Company has agreed to forgive the promissory note
in two equal annual installments beginning August 31, 2000, provided the
employee is still employed with Jato as of such dates. Accordingly, the Company
has recorded the restricted stock award at the estimated fair market
F-18
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTIONS AND OTHER STOCK AWARDS (CONTINUED)
value on the date of the award as deferred compensation and is amortizing the
amount as a charge to operations over the vesting period of the restricted
common stock, which is three years.
Plan activity for the period from June 12, 1998 (date of inception) to
December 31, 1998, and for the year ended December 31,1999 is as follows:
<TABLE>
<CAPTION>
1998 1999
-------------------- ---------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Options outstanding, beginning of period............... -- $-- 50,000 $1.50
Granted................................................ 50,000 1.50 4,391,450 2.85
Exercised.............................................. -- -- (20,000) 0.88
Forfeited.............................................. -- -- (346,500) 4.05
------ ----- --------- -----
Options outstanding, end of period..................... 50,000 $1.50 4,074,950 $2.74
====== ===== ========= =====
Exercisable at end of period........................... -- $-- 128,041 $2.38
====== ===== ========= =====
</TABLE>
Exercise prices for employee awards outstanding as of December 31, 1999 are
as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- ------------------------
NUMBER WEIGHTED- NUMBER
OUTSTANDING AVERAGE EXERCISABLE WEIGHTED-
AS OF REMAINING WEIGHTED- AS OF AVERAGE
RANGE OF DECEMBER 31, CONTRACTUAL AVERAGE DECEMBER 31, EXERCISE
EXERCISE PRICES 1999 LIFE EXERCISE PRICE 1999 PRICE
- --------------- ------------ ----------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
$1.50 2,241,500 9.43 $1.50 97,291 $1.50
2.57 800,000 9.92 2.57 -- 2.57
5.00 60,000 9.70 5.00 22,500 5.00
5.60 973,450 9.86 5.60 8,250 5.60
--------- ---- ----- ------- -----
$1.50-$5.60.. 4,074,950 9.64 $2.74 128,041 $2.38
========= ==== ===== ======= =====
</TABLE>
The Company believes that all employee stock awards granted prior to
May 1999 were granted at or above fair market value on the date of grant.
Subsequent to May 1999, for financial reporting purposes, the Company has
determined that the deemed fair market value on the date of grant of certain
stock awards exceeded the exercise price of the related award. As a result,
during the year ended December 31, 1999, the Company recorded deferred
compensation of $14.8 million. This amount was recorded as a reduction of
stockholders' equity and is being amortized as a charge to operations over the
vesting period of the applicable awards. For the year ended December 31, 1999,
the Company recognized approximately $843,000 of stock compensation expense.
Pro forma information regarding net loss and loss per share is required by
SFAS No. 123 and has been determined as if the Company had accounted for its
stock-based compensation plans using the fair value method prescribed by that
statement. For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period. All
options are initially assumed to vest. Compensation previously recognized is
reversed to the extent applicable to forfeitures of unvested options. Had
compensation cost for the Company's stock-based compensation
F-19
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTIONS AND OTHER STOCK AWARDS (CONTINUED)
plans been determined consistent with SFAS No. 123, the Company's net loss and
loss per share for the year ended December 31, 1999 would have been as follows
(in thousands, except per share amounts):
<TABLE>
<S> <C>
Net loss:
As reported............................................... $(14,860)
Pro forma under SFAS No. 123.............................. $(17,658)
Basic and diluted loss per share:
As reported............................................... $ (2.31)
Pro forma under SFAS No. 123.............................. $ (2.74)
</TABLE>
The weighted-average fair value of stock options granted during the period
from June 12, 1998 (date of inception) to December 31, 1998 and during the year
ended December 31, 1999 was $0.29 and $4.36, respectively.
The fair value of each employee stock option award was estimated at the date
of the grant using a Black-Scholes option pricing model with the following
weighted-average assumptions: risk-free interest rate of 5.6%, expected dividend
yield of 0%, expected life of four years, and expected volatility of .001%.
The fair value of options and warrants issued to non-employees were recorded
at the fair value of the option or warrant at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rate ranging from 5.3% to 5.7%, expected
dividend yield of 0%; expected life ranging from one to five years, and expected
volatility of 100%. The estimated fair values of the stock options and warrants
issued to non-employees range from $1.07 to $3.57 per share.
The Black-Scholes 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 including the expected stock price characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock-based compensation awards.
10. SUBSEQUENT EVENTS
In January and February of 2000, the Company sold an aggregate of 3,571,428
of Series D convertible preferred stock to Microsoft Corporation and a wholly
owned subsidiary of Qwest Communications Corporation for gross proceeds of
approximately $20 million. Holders of Series D preferred stock have rights equal
to those of Series C stockholders as they relate to dividends, liquidation
preference, conversion and voting (See Note 8).
In February of 2000, the Company entered into a commercial relationship with
Qwest. Among other things, the Company agreed to purchase $25 million of
services over five and one-half years, beginning February 9, 2000, at a price of
$16.0 million, which represents the present value of the purchase price.
F-20
<PAGE>
UNTIL (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
[LOGO]
JATO
COMMUNICATIONS
CORP.
COMMON STOCK
--------
PROSPECTUS
-------------
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
THOMAS WEISEL PARTNERS LLC
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than the
underwriting discount and commissions, payable by the registrant in connection
with the sale of the common stock being registered hereby. All amounts shown are
estimates, except the Securities and Exchange Commission registration fee, the
NASD filing fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 33,000.00
NASD filing fee............................................. 13,000.00
Nasdaq National Market listing application fee.............. 5,000.00
Blue Sky fees and expenses..................................
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Directors' and officers' insurance..........................
Transfer agent and registrar fees...........................
Miscellaneous expenses......................................
TOTAL....................................................... $
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits indemnification
of the registrant's officers and directors under certain conditions and subject
to certain limitations. Section 145 of the Delaware General Corporation Law also
provides that a corporation has the power to purchase and maintain insurance on
behalf of its officers and directors against any liability asserted against such
person and incurred by him or her in such capacity, or arising out of his or her
status as such, whether or not the corporation would have the power to indemnify
him or her under the provisions of Section 145 of the Delaware General
Corporation Law.
The company's amended and restated bylaws that will become effective upon
the closing of this offering provide that the company will indemnify its
directors and executive officers to the fullest extent permitted by Delaware law
and may indemnify its other officers, employees and other agents to the fullest
extent permitted by Delaware law.
In addition, the company's restated certificate of incorporation that will
become effective upon the closing of this offering provides that, to the fullest
extent permitted by Delaware law, its directors will not be personally liable to
the company or its stockholders for monetary damages for any breach of fiduciary
duty as directors. This provision of the restated certificate of incorporation
does not eliminate the directors' duty of care. In appropriate circumstances,
equitable remedies such as an injunction or other forms of non-monetary relief
are available under Delaware law. This provision also does not affect the
directors' responsibilities under any other laws, such as the federal securities
laws and state and federal environmental laws.
Each director will continue to be subject to liability for:
- breach of a director's duty of loyalty to the company and its
stockholders;
- acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; and
II-1
<PAGE>
- any transaction from which a director derived an improper personal
benefit.
The company also intends to enter into indemnity agreements with its
directors and executive officers and to obtain directors' and officers'
liability insurance.
There is no pending litigation or proceeding involving any of the company's
directors or officers as to which indemnification is being sought. The company
is not aware of any pending or threatened litigation that may result in a claim
for indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The company has issued and sold the following securities since June 12, 1998
(date of inception).
On various dates between April 1999 and November 1999, the Company
authorized the grant of stock options to employees, consultants, directors and
officers to purchase an aggregate of 3,037,250 shares of its common stock at
exercise prices ranging from $1.50 to $5.60 per share. The Company relied on the
exemption provided by Rule 701 of the Securities Act.
On July 13, 1998, the Company issued an aggregate of 2,800,001 shares of its
Common Stock at a price per share of $.047 to its founders for cash and
assignment of certain proprietary rights to the Company in the aggregate amount
of $131,600.05. On October 13, 1998 the Company declared a 1:1 stock dividend
for each outstanding share of its Common Stock for the issuance of an aggregate
of 2,800,001 shares. The Company relied on the exemptions provided by
Section 4(2) and 4(6) of the Securities Act.
In August 1998, the Company issued an aggregate of 520,000 shares of its
Common Stock at a price of $.07 per share to two of its employees for cash
proceeds in the aggregate amount of $36,400. The Company relied on the exemption
provided by Rule 701 of the Securities Act.
In October 1998, the Company issued 130,000 shares of its Common Stock at a
price per share of $.15 to one of its employees for cash proceeds in the amount
of $20,000. The Company relied on the exemptions provided by Rule 701 of the
Securities Act.
In October 1998, the Company issued an aggregate of 1,751,985 shares of its
Series A Preferred Stock to certain accredited investors at a purchase price of
$0.75 per share for cash proceeds in the amount of $1,313,988.75. The Company
relied on the exemptions provided by Rule 506 of Regulation D under the
Securities Act.
In April and May 1999, the Company issued an aggregate of 13,615,322 shares
of its Series B Preferred Stock to certain accredited investors at a purchase
price of $1.50 per share for cash proceeds in the amount of $20,422,983.00. The
Company relied on the exemptions provided by Rule 506 of Regulation D under the
Securities Act.
In May 1999, the Company issued a warrant to purchase 20,000 shares of its
Common Stock at an exercise price of $3.00 per share to one accredited investor.
The Company relied on the exemption provided by Section 4(2) of the Securities
Act.
On May 13, 1999 the Company authorized the grant of a stock option to
purchase 40,000 shares of its Common Stock to one of its directors at an
exercise price of $.25 per share. On May 13, 1999 such optionee exercised his
option to purchase 10,000 shares for an aggregate consideration of $2,500. The
Company relied on the exemption provided by Rule 701 of the Securities Act.
On August 1, 1999, the Company issued a warrant to purchase 5,000 shares of
its Common Stock at an exercise price of $3.00 per share to one accredited
investor. The Company relied on the exemption provided by Section 4(2) of the
Securities Act.
II-2
<PAGE>
On August 31, 1999, the Company issued 500,000 shares of its Common stock at
a price of $.75 per share to Gerald K. Dinsmore. The Company relied on the
exemption provision provided by Rule 701 of the Securities Act.
On September 16, 1999, the Company issued an aggregate of 3,938,714 shares
of its Series C Preferred Stock to certain accredited investors at a purchase
price of $7.00 per share for cash proceeds in the amount of $24,570,996 and a
note in the amount of $3,000,002. The Company relied on the exemptions provided
by Rule 506 of Regulation D under the Securities Act.
In September 1999, the Company issued an aggregate of 20,000 and
7,812 shares of its Common Stock at a price of $3.00 per share and $1.50 per
share, respectively, to one employee and one consultant, respectively. The
Company relied on the exemption provision provided by Rule 701 of the Securities
Act.
On November 16, 1999, the Company issued an aggregate of 984,666 additional
shares of its Series C Preferred Stock in connection with the price adjustment
from $7.00 to $5.60 per share. The Company relied on the exemptions provided by
Rule 506 of Regulation D under the Securities Act.
On December 22, 1999, the Company issued an aggregate of 8,928 shares of its
Series C Preferred Stock to one accredited investor at a purchase price of $5.60
per share for cash proceeds of $49,996.80. The Company relied on the exemption
provision provided by Rule 506 of Regulation D under the Securities Act.
On January 20, 2000, the Company issued an aggregate of 1,785,714 shares of
its Series D Preferred Stock to one qualified institutional buyer at a purchase
price of $5.60 per share for cash proceeds of $9,999,998.40. The Company relied
on the exemption provided by Section 4(2) of the Securities Act.
On February 9, 2000, the Company issued an aggregate of 1,785,714 shares of
its Series D Preferred Stock at a purchase price of $5.60 per share for cash
proceeds of $9,999,998.40 and entered into an agreement to (a) sell $2.5 million
of shares of its Common Stock at the public offering price per share and
(b) issue a warrant to purchase $5.0 million of shares of its Common Stock at an
exercise price per share of 120% of the public offering price per share,
immediately after the closing of this offering to one institutional accredited
investor. The Company relied on the exemption provided by Section 4(2) of the
Securities Act.
The recipients of the above-described securities represented their intention
to acquire the securities for investment only and not with a view for
distribution thereof. Appropriate legends were affixed to the stock certificates
issued in such transactions. All recipients had adequate access, through
employment or other relationships, to information about the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<C> <S>
1.1* Form of Purchase Agreement.
3.1 Restated Certificate of Incorporation of the Company,
currently in effect.
3.2+ Form of Restated Certificate of Incorporation of the Company
to become effective upon the closing of the Offering.
3.5+ Amended Bylaws of the Company, currently in effect.
3.6+ Amended and Restated Bylaws of the Company to become
effective upon the closing of the Offering.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<C> <S>
4.1 Reference is made to Exhibits 3.1 through 3.6.
4.2 Specimen stock certificate representing shares of Common
Stock of the Company.
5.1* Opinion of Cooley Godward LLP regarding the legality of the
securities being registered.
10.1 Founders Employment Transition and Separation Agreement
dated February 10, 2000 between the registrant and Brian E.
Gast.
10.2 Founders Employment Transition and Separation Agreement
dated February 10, 2000 between the registrant and Leonard
Allsup.
10.3 Founders Employment Transition and Separation Agreement
dated February 10, 2000 between the registrant and Bruce E.
Dines.
10.4+ Employment Agreement dated April 16, 1999 between the
registrant and Patrick Green.
10.5+ Employment Agreement dated April 16, 1999 between the
registrant and Rex A. Humston.
10.6+ Employment Agreement dated May 10, 1999 between the
registrant and Fred Thomas Danner, III.
10.7+ Employment Agreement dated August 16, 1999 between the
registrant and William D. Myers.
10.8+ Employment Agreement dated June 1, 1999 between the
registrant and Gerard A. Maglio.
10.9 Amended Employment Agreement dated November 16, 1999 between
the registrant and Gerald K. Dinsmore.
10.10+ Warrant to purchase 20,000 shares of Common Stock of the
registrant issued to Daniels & Associates on June 18, 1999.
10.11+ Warrant to purchase 5,000 shares of Common Stock of the
registrant issued to Teah Bennett on August 1, 1999.
10.12+ Founder's Stock Purchase Agreement dated July 13, 1998
between the registrant and Brian E. Gast.
10.13+ Founder's Stock Purchase Agreement dated July 13, 1998
between the registrant and Bruce E. Dines.
10.14+ Founder's Stock Purchase Agreement dated July 13, 1998
between the registrant and Leonard Allsup.
10.15+ Stock Purchase Agreement dated August 28, 1998 between the
registrant and Rex A. Humston.
10.16+ Stock Purchase Agreement dated October 14, 1998 between the
registrant and Patrick M. Green.
10.17+ Stock Purchase Agreement dated August 31, 1999 between the
registrant and Gerald K. Dinsmore.
10.18+ Series A Preferred Stock Purchase Agreement entered into as
of October 23, 1998 among the registrant and the parties
named therein.
10.19+ Series B Preferred Stock Purchase Agreement entered into as
of April 16, 1999 among the registrant and the parties named
therein.
10.20 Series C Preferred Stock Purchase Agreement entered into as
of September 16, 1999 among the registrant and the parties
named therein, as amended.
10.21 Series D Preferred Stock Purchase Agreement entered into as
of January 20, 2000 between the registrant and Microsoft
Corporation.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<C> <S>
10.22 Series D Preferred Stock Purchase Agreement entered into as
of February 9, 2000 between the registrant and U.S.
Telesource, Inc.
10.23 Stock Purchase Agreement entered into as of February 9, 2000
between the registrant and U.S. Telesource, Inc.
10.24 2000 Equity Incentive Plan.
10.25 Form of Grant Notice and Stock Option Agreement.
10.26+ Office Lease Agreement dated January 1, 1999 between the
registrant and Denver-Stellar Associates Limited
Partnership, as amended.
10.27 Second Amended and Restated Investors' Rights Agreement
dated as of January 20, 2000 among the registrant and the
investors named therein.
10.28 Second Amended and Restated Stockholders' Agreement dated as
of January 20, 2000 among the registrant and the
stockholders named therein.
10.29+ Form of Indemnity Agreements between the registrant and each
of its directors and executive officers.
10.30**+ Credit Agreement dated as of July 14, 1999 among the
registrant, Jato Operating Corp., the Lenders party thereto,
State Street Bank and Trust Company and Lucent Technologies
Inc.
10.31+ Purchase Agreement dated March 18, 1999 between the Company
and Hi Country Wire & Telephone, Ltd.
10.32**+ Agreement effective February 12, 1999 between the registrant
and Lucent Technologies Inc., as amended.
10.33** Master Services Agreement entered into as of February 9,
2000 between the registrant and Qwest Communications
Corporation.
10.34 Employment Agreement dated November 29, 1999 between the
registrant and Terri L. Compton.
10.35 Employment Agreement dated November 29, 1999 between the
registrant and Thomas W. Hall.
21.1+ Statement re: subsidiaries of the registrant.
23.1* Consent of Cooley Godward LLP (included in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
24.1 Powers of attorney (included on Page II-6).
27 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
** The Company is applying for confidential treatment with respect to portions
of these exhibits.
+ Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES.
Not applicable.
II-5
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes:
(1) That, for purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration statement
as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Denver, County of Denver, State of Colorado, on February 11, 2000
<TABLE>
<S> <C> <C>
By: /s/ WILLIAM D. MYERS
-----------------------------------------
William D. Myers
SENIOR VICE PRESIDENT, FINANCE AND
STRATEGIC PLANNING
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
President, Chief Executive
* Officer and Director
---------------------------------------- (PRINCIPAL EXECUTIVE February 11, 2000
Gerald K. Dinsmore OFFICER)
Senior Vice President,
Finance and Strategic
/s/ WILLIAM D. MYERS Planning, Chief Financial
---------------------------------------- Officer and Treasurer February 11, 2000
William D. Myers (PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
*
---------------------------------------- Chairman of the Board February 11, 2000
Brian E. Gast
*
---------------------------------------- Vice President and Director February 11, 2000
Leonard Allsup
*
---------------------------------------- Director February 11, 2000
Eric A. Benhamou
*
---------------------------------------- Director February 11, 2000
Todd A. Brooks
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
*
---------------------------------------- Director February 11, 2000
James J. Collis
*
---------------------------------------- Director February 11, 2000
Donald T. Lynch
*
---------------------------------------- Director February 11, 2000
Gregg A. Mockenhaupt
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ WILLIAM D. MYERS
--------------------------------------
William D. Myers
ATTORNEY-IN-FACT
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<C> <S>
1.1* Form of Purchase Agreement.
3.1 Restated Certificate of Incorporation of the Company,
currently in effect.
3.2+ Form of Restated Certificate of Incorporation of the Company
to become effective upon the closing of the Offering.
3.5+ Amended Bylaws of the Company, currently in effect.
3.6+ Amended and Restated Bylaws of the Company to become
effective upon the closing of the Offering.
4.1 Reference is made to Exhibits 3.1 through 3.6.
4.2 Specimen stock certificate representing shares of Common
Stock of the Company.
5.1* Opinion of Cooley Godward LLP regarding the legality of the
securities being registered.
10.1 Founders Employment Transition and Separation Agreement
dated February 10, 2000 between the registrant and Brian E.
Gast.
10.2 Founders Employment Transition and Separation Agreement
dated February 10, 2000 between the registrant and Leonard
Allsup.
10.3 Founders Employment Transition and Separation Agreement
dated February 10, 2000 between the registrant and Bruce E.
Dines.
10.4+ Employment Agreement dated April 16, 1999 between the
registrant and Patrick Green.
10.5+ Employment Agreement dated April 16, 1999 between the
registrant and Rex A. Humston.
10.6+ Employment Agreement dated May 10, 1999 between the
registrant and Fred Thomas Danner, III.
10.7+ Employment Agreement dated August 16, 1999 between the
registrant and William D. Myers.
10.8+ Employment Agreement dated June 1, 1999 between the
registrant and Gerard A. Maglio.
10.9 Amended Employment Agreement dated November 16, 1999 between
the registrant and Gerald K. Dinsmore.
10.10+ Warrant to purchase 20,000 shares of Common Stock of the
registrant issued to Daniels & Associates on June 18, 1999.
10.11+ Warrant to purchase 5,000 shares of Common Stock of the
registrant issued to Teah Bennett on August 1, 1999.
10.12+ Founder's Stock Purchase Agreement dated July 13, 1998
between the registrant and Brian E. Gast.
10.13+ Founder's Stock Purchase Agreement dated July 13, 1998
between the registrant and Bruce E. Dines.
10.14+ Founder's Stock Purchase Agreement dated July 13, 1998
between the registrant and Leonard Allsup.
10.15+ Stock Purchase Agreement dated August 28, 1998 between the
registrant and Rex A. Humston.
10.16+ Stock Purchase Agreement dated October 14, 1998 between the
registrant and Patrick M. Green.
10.17+ Stock Purchase Agreement dated August 31, 1999 between the
registrant and Gerald K. Dinsmore.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<C> <S>
10.18+ Series A Preferred Stock Purchase Agreement entered into as
of October 23, 1998 among the registrant and the parties
named therein.
10.19+ Series B Preferred Stock Purchase Agreement entered into as
of April 16, 1999 among the registrant and the parties named
therein.
10.20 Series C Preferred Stock Purchase Agreement entered into as
of September 16, 1999 among the registrant and the parties
named therein, as amended.
10.21 Series D Preferred Stock Purchase Agreement entered into as
of January 20, 2000 between the registrant and Microsoft
Corporation.
10.22 Series D Preferred Stock Purchase Agreement entered into as
of February 9, 2000 between the registrant and U.S.
Telesource, Inc.
10.23 Stock Purchase Agreement entered into as of February 9, 2000
between the registrant and U.S. Telesource, Inc.
10.24 2000 Equity Incentive Plan.
10.25 Form of Grant Notice and Stock Option Agreement.
10.26+ Office Lease Agreement dated January 1, 1999 between the
registrant and Denver-Stellar Associates Limited
Partnership, as amended.
10.27 Second Amended and Restated Investors' Rights Agreement
dated as of January 20, 2000 among the registrant and the
investors named therein.
10.28 Second Amended and Restated Stockholders' Agreement dated as
of January 20, 2000 among the registrant and the
stockholders named therein.
10.29+ Form of Indemnity Agreements between the registrant and each
of its directors and executive officers.
10.30**+ Credit Agreement dated as of July 14, 1999 among the
registrant, Jato Operating Corp., the Lenders party thereto,
State Street Bank and Trust Company and Lucent Technologies
Inc.
10.31+ Purchase Agreement dated March 18, 1999 between the Company
and Hi Country Wire & Telephone, Ltd.
10.32**+ Agreement effective February 12, 1999 between the registrant
and Lucent Technologies Inc., as amended.
10.33** Master Services Agreement entered into as of February 9,
2000 between the registrant and Qwest Communications
Corporation.
10.34 Employment Agreement dated November 29, 1999 between the
registrant and Terri L. Compton.
10.35 Employment Agreement dated November 29, 1999 between the
registrant and Thomas W. Hall.
21.1+ Statement re: subsidiaries of the registrant.
23.1* Consent of Cooley Godward LLP (included in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
24.1 Powers of attorney (included on Page II-6).
27 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
** The Company is applying for confidential treatment with respect to portions
of these exhibits.
+ Previously filed.
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
JATO COMMUNICATIONS CORP.
Pursuant to Sections 242 & 245
Jato Communications Corp., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, DOES
HEREBY CERTIFY:
1. The name of the corporation is Jato Communications Corp. The
corporation was originally incorporated under the name Jato Communications
Corporation. The date of filing of its original Certificate of Incorporation
with the Secretary of State of the State of Delaware was June 12, 1998.
2. This Restated Certificate of Incorporation of Jato
Communications Corp. has been duly adopted in accordance with the provisions
of Sections 228, 242 and 245 of the General Corporation Law of the State of
Delaware.
3. This Restated Certificate of Incorporation restates and further
amends the Restated Certificate of Incorporation of this corporation by
restating the text of the original Restated Certificate of Incorporation in
full to read as follows:
I.
The name of this Corporation is Jato Communications Corp. (the
"CORPORATION" or the "COMPANY").
II.
The address, including street, number, city and county, of the
registered office of the Corporation in the State of Delaware is 1209 Orange
Street, City of Wilmington, County of New Castle, and the name of the
registered agent of the Corporation in the State of Delaware at such address
is The Corporation Trust Company.
III.
The purpose of this Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware.
IV.
A. This Corporation is authorized to issue two classes of stock to
be designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the Corporation is authorized to issue is one hundred
ten million (110,000,000) shares. Eighty million (80,000,000) shares shall
be Common Stock, each having a par value of $.01. Thirty million
(30,000,000) shares shall be Preferred Stock, each having a par value of $.01.
1
<PAGE>
B. The number of authorized shares of Common Stock may be
increased or decreased (but not below the number of shares of Common Stock
then outstanding) by the affirmative vote of the holders of a majority of the
stock of the Corporation (voting together on an as-if-converted basis).
C. The Preferred Stock may be issued from time to time in one or
more series. The Board of Directors is hereby authorized, within the
limitations and restrictions stated in this Certificate of Incorporation, to
fix or alter the dividend rights, dividend rate, conversion rights, voting
rights, rights and terms of redemption (including sinking fund provisions),
the redemption price or prices, the liquidation preferences of any wholly
unissued series of Preferred Stock, and the number of shares constituting any
such series and the designation thereof, or any of them; and to increase or
decrease the number of shares of any series subsequent to the issue of shares
of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so
decreased, the shares constituting such decrease shall resume the status
which they had prior to the adoption of the resolution originally fixing the
number of shares of such series.
D. One million seven hundred fifty-one thousand nine hundred
eighty-five (1,751,985) of the authorized shares of Preferred Stock are
hereby designated "Series A Preferred Stock" (the "SERIES A STOCK").
Thirteen million six hundred fifteen thousand three hundred twenty-two
(13,615,322) of the authorized shares of Preferred Stock are hereby
designated "Series B Preferred Stock" (the "SERIES B STOCK"). Four million
nine hundred thirty-two thousand three hundred eight (4,932,308) of the
authorized shares of Preferred Stock are hereby designated "Series C
Preferred Stock" (the "SERIES C STOCK"). Five million (5,000,000) of the
authorized shares of Preferred Stock are hereby designated "Series D
Preferred Stock" (the "SERIES D STOCK").
E. The rights, preferences, privileges, restrictions and other
matters relating to the Series A Stock, Series B Stock, Series C Stock and
Series D Stock are as follows:
1. DIVIDEND RIGHTS. Holders of Series A Stock, Series B
Stock, Series C Stock and Series D Stock shall be entitled to participate
equally in the payment of dividends, whether in-kind or in cash, and if in
cash, when and as declared by the Board of Directors, out of funds that are
legally available therefor, with, but payable as a priority to payment to,
the holders of Common Stock on an as-converted basis.
2. VOTING RIGHTS.
a. Except as otherwise provided herein or as
required by law, the Series A Stock, Series B Stock, Series C Stock and
Series D Stock shall be voted equally with the shares of the Common Stock of
the Company, and not as a separate class, at any annual or special meeting of
stockholders of the Company, and may act by written consent in the same
manner as the Common Stock, in either case upon the following basis: each
holder of shares of Series A Stock, Series B Stock, Series C Stock and Series
D Stock shall be entitled to such number of votes as shall be equal to the
whole number of shares of Common Stock into which such holder's aggregate
number of shares of Series A Stock, Series B Stock, Series C Stock and Series
D Stock,
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respectively, are convertible (pursuant to Section 4 hereof) immediately
after the close of business on the record date fixed for such meeting or the
effective date of such written consent.
b. SEPARATE VOTE OF SERIES B STOCK. In addition to
any other vote or consent required herein or by law, the vote or written
consent of the holders of a majority of the outstanding Series B Stock shall
be necessary for the Company to effect any of the following actions:
(i) Any amendment, alteration or repeal of any
provision of this Restated Certificate of Incorporation or the Amended Bylaws
of the Company (including any filing of a Certificate of Designation);
(ii) Any authorization or any designation,
whether by reclassification or otherwise or any issuance, of any new class or
series of stock or any other securities convertible into or exchangeable for
equity securities of the Company ranking on a parity with or senior to the
Series B Stock in right of liquidation preference or dividends;
(iii) Any agreement by the Company regarding an
Acquisition or Asset Transfer (each as defined in Section 3(c) below);
(iv) File, commencement of a case, proceeding
or other action under any law relating to bankruptcy, insolvency or relief of
debtors or the appointment of a receiver, trustee, custodian or any similar
person;
(v) Consummation of an initial public offering
of the Company's Common Stock pursuant to a registration statement filed with
the Securities and Exchange Commission, other than a Qualified Offering (as
defined in Section 4(j)(ii) below);
(vi) Any redemption, repurchase, payment of
dividends or other distributions with respect to any capital stock of the
Company (except for acquisitions of stock approved by the Board of Directors
which permit the Company to repurchase such shares upon termination of
services to the Company by one or more employees thereof or in exercise of
the Company's right of first refusal);
(vii) Any issuance of bonds, debentures, notes
or other debt obligations convertible into, or exchangeable for, or having
rights to purchase, shares of Common Stock of the Company unless (A)
otherwise approved by the Company's Board of Directors, including at least
two (2) designees of the Series B Stock (the "SERIES B DIRECTORS"), (B) the
per share cash consideration received or receivable in exchange for such
Common Stock (or the Common Stock per share equivalents of securities
convertible into Common Stock) is in excess of the then-applicable Series B
Conversion Price (as defined in Section 4(c) below) and (C) the Company's
Board of Directors, including the Series B Directors, determines that the per
share cash consideration received or receivable in exchange for such Common
Stock (or securities convertible into Common Stock) is equal to or greater
than the then-current fair market value of the Company's Common Stock;
(viii) Any issuance of capital stock of the
Company ranking junior to the Series A Stock and the Series B Stock ("JUNIOR
STOCK"), except (A) shares of
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Common Stock and/or options, warrants or other Common Stock purchase rights,
and the Common Stock issued pursuant to such options, warrants or other
rights after the Original Issue Date (as defined in Section 4(d)(i) below) to
employees, officers or directors of, or consultants or advisors to the
Company or any subsidiary pursuant to stock purchase or stock option plans or
other arrangements that are approved by the Board of Directors ("APPROVED
ISSUANCES"), (B) in connection with a Qualified Offering, and (C) such as may
otherwise be approved by the Company's Board of Directors, including the
Series B Directors, PROVIDED, THAT, the per share cash consideration received
or receivable upon issuance of such Junior Stock (or its Common Stock
equivalents) exceeds the then-applicable Series B Conversion Price and the
Company's Board of Directors, including two of the Series B Directors,
determines that the per share cash consideration received or receivable upon
issuance of such Junior Stock (or its Common Stock equivalents) is equal to
or greater than the then-current fair market value of the Company's Common
Stock, plus an appropriate premium;
(ix) Any issuance of any option, warrant, put,
call or other arrangement for the purchase or acquisition of any capital
stock of the Company or any subsidiary of the Company, except Approved
Issuances;
(x) Any increase or decrease in the authorized
number of members of the Company's Board of Directors from six (6); or
(xi) Any issuance of additional shares of
Series A Stock.
c. SEPARATE VOTE OF SERIES C STOCK AND SERIES D
STOCK. In addition to any other vote or consent required herein or by law,
the vote or written consent of the holders of at least fifty-one percent
(51%) of the outstanding Series C Stock and Series D Stock shall be necessary
for the Company to effect any of the following actions:
(i) Any amendment, alteration or repeal of any
provision of this Restated Certificate of Incorporation or the Amended Bylaws
of the Company (including any filing of a Certificate of Designation) that
alters or changes the voting powers, preferences, or other special rights or
privileges, or restrictions of the Series C Stock or Series D Stock so as to
affect the holders of Series C Stock or Series D Stock adversely; or
(ii) Any authorization or any designation,
whether by reclassification or otherwise or any issuance, of any new class or
series of stock or any other securities convertible into or exchangeable for
equity securities of the Company ranking senior to the Series C Stock or
Series D Stock in right of liquidation preference or dividends.
d. ELECTION OF BOARD OF DIRECTORS.
(i) The holders of Series B Stock, voting as a
separate class on an as-converted basis, shall be entitled to elect two (2)
members of the Company's Board of Directors at each meeting or pursuant to
each consent of the Company's stockholders for the election of directors, and
to remove from office such director and to fill any vacancy caused by the
resignation, death or removal of such director. The holders of Common Stock,
Series A Stock, Series B Stock, Series C Stock and Series D Stock, voting
together as a class on an as-converted basis, shall be entitled to elect all
remaining members of the Board of Directors.
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(ii) In the event that the Company effects any
of the actions set forth in Section 2(b) above without first obtaining the
vote or written consent of the holders of a majority of the outstanding
Series B Stock, the number of members on the Board of Directors of the
Company shall automatically be increased by two (2) directors and the holders
of Series B Stock, voting as a separate class on an as-converted basis, shall
be entitled to elect the members to occupy the two (2) new vacancies on the
Company's Board of Directors at each meeting or pursuant to each consent of
the Company's stockholders for the election of directors, and to remove from
office such director and to fill any vacancy caused by the resignation, death
or removal of such director.
(iii) So long as any shares of Series B Stock
are outstanding, the number of directors of the Company shall at all times be
such that the exercise, by the holders of shares of Series B Stock, of the
right to elect directors under the circumstances provided in clause (ii) of
this Section 2(d) will not contravene any provisions of the Delaware General
Corporation Law or this Restated Certificate of Incorporation.
3. LIQUIDATION RIGHTS.
a. Upon any liquidation, dissolution, or winding up
of the Company, whether voluntary or involuntary, before any distribution or
payment shall be made to the holders of any Junior Stock, (i) the holders of
Series A Stock shall be entitled to be paid out of the assets of the Company
an amount per share of Series A Stock equal to the greater of (A) the sum of
the Series A Original Issue Price (as defined in Section 4(b)) (as adjusted
for any stock splits, stock dividends or the like) plus all declared but
unpaid dividends on the Series A Stock and (B) such amount as would have been
received had each share of Series A Stock outstanding been converted into
shares of Common Stock immediately prior to such liquidation, dissolution or
winding up, (ii) the holders of Series B Stock shall be entitled to be paid
out of the assets of the Company an amount per share of Series B Stock equal
to the greater of (A) the sum of the Series B Original Issue Price (as
defined in Section 4(b)) (as adjusted for any stock splits, stock dividends
or the like) plus all declared but unpaid dividends on the Series B Stock and
(B) such amount as would have been received had each share of Series B Stock
outstanding been converted into shares of Common Stock immediately prior to
such liquidation, dissolution or winding up, (iii) the holders of Series C
Stock shall be entitled to be paid out of the assets of the Company an amount
per share of Series C Stock equal to the greater of (A) the sum of the Series
C Original Issue Price (as defined in Section 4(b)) (as adjusted for any
stock splits, stock dividends or the like) plus all declared but unpaid
dividends on the Series C Stock and (B) such amount as would have been
received had each share of Series C Stock outstanding been converted into
shares of Common Stock immediately prior to such liquidation, dissolution or
winding up, and (iv) the holders of Series D Stock shall be entitled to be
paid out of the assets of the Company an amount per share of Series D Stock
equal to the greater of (A) the sum of the Series D Original Issue Price (as
defined in Section 4(b)) (as adjusted for any stock splits, stock dividends
or the like) plus all declared but unpaid dividends on the Series D Stock and
(B) such amount as would have been received had each share of Series D Stock
outstanding been converted into shares of Common Stock immediately prior to
such liquidation, dissolution or winding up.
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b. After the payment of the full liquidation
preference to the holders of Series A Stock, Series B Stock, Series C Stock
and Series D Stock of the amounts set forth in Section 3(a) above, the
remaining assets of the Company legally available for distribution, if any,
shall be distributed ratably to the holders of the Common Stock.
c. The following events shall be considered a
liquidation under this Section 3:
(i) (A) any consolidation or merger of the
Company with or into any other corporation or other entity or person, or any
other corporate reorganization, in which the stockholders of the Company
immediately prior to such consolidation, merger or reorganization, hold less
than fifty percent (50%) of the outstanding voting power of the surviving
entity (or its parent) following the consolidation, merger or reorganization
or (B) any transaction (or series of related transactions involving a person
or entity, or group of affiliated persons or entities) in which in excess of
fifty percent (50%) of the Company's voting power is transferred (an
"ACQUISITION"); or
(ii) a sale, lease or other disposition of all
or substantially all of the assets of the Company for cash or securities or a
statutory share exchange in which the stockholders of the Company may
participate (an "ASSET TRANSFER").
d. If, upon any liquidation, distribution, or
winding up, the assets of the Company shall be insufficient to make payment
in full to all holders of Series A Stock, Series B Stock, Series C Stock and
Series D Stock of the amounts set forth in Section 3(a) above, then such
assets shall be distributed among the holders of Series A Stock, Series B
Stock, Series C Stock and Series D Stock at the time outstanding, ratably in
proportion to the full amounts to which they would otherwise be respectively
entitled pursuant to this Section 3 based upon the Series A Original Issue
Price, Series B Original Issue Price, Series C Original Issue Price and
Series D Original Issue Price (as defined in Section 4(b) below).
4. CONVERSION RIGHTS.
The holders of Series A Stock, Series B Stock, Series C
Stock and Series D Stock shall have the following rights with respect to the
conversion of the Series A Stock, Series B Stock, Series C Stock and Series D
Stock into shares of Common Stock:
a. OPTIONAL CONVERSION. Subject to and in
compliance with the provisions of this Section 4, any number of shares of
Series A Stock, Series B Stock, Series C Stock and Series D Stock may, at the
option of the holder, be converted at any time into fully-paid and
nonassessable shares of Common Stock. The number of shares of Common Stock to
which a holder of Series A Stock, Series B Stock, Series C Stock or Series D
Stock shall be entitled upon conversion shall be the product obtained by
multiplying the applicable "Conversion Rate" then in effect (determined as
provided in Section 4(b)) by the number of shares of Series A Stock, Series B
Stock, Series C Stock or Series D Stock, as applicable, being converted.
b. CONVERSION RATE. The conversion rate in effect
at any time for conversion of the Series A Stock (the "Series A Conversion
Rate") shall be the quotient obtained by dividing the Series A Original Issue
Price by the "Series A Conversion Price," calculated as
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provided in Section 4(c). The "Original Issue Price" of the Series A Stock
shall be Seventy-Five Cents ($.75) (the "Series A Original Issue Price").
The conversion rate in effect at any time for conversion of the Series B
Stock (the "Series B Conversion Rate") shall be the quotient obtained by
dividing the Series B Original Issue Price by the "Series B Conversion
Price," calculated as provided in Section 4(c). The "Original Issue Price"
of the Series B Stock shall be One Dollar Fifty Cents ($1.50) (the "Series B
Original Issue Price"). The conversion rate in effect at any time for
conversion of the Series C Stock (the "Series C Conversion Rate") shall be
the quotient obtained by dividing the Series C Original Issue Price by the
"Series C Conversion Price," calculated as provided in Section 4(c). The
"Original Issue Price" of the Series C Stock shall be Five Dollars Sixty
Cents ($5.60) (the "Series C Original Issue Price"). The conversion rate in
effect at any time for conversion of the Series D Stock (the "Series D
Conversion Rate") shall be the quotient obtained by dividing the Series D
Original Issue Price by the "Series D Conversion Price," calculated as
provided in Section 4(c). The "Original Issue Price" of the Series D Stock
shall be Five Dollars Sixty Cents ($5.60) (the "Series D Original Issue
Price").
c. CONVERSION PRICE. The conversion price for the
Series A Stock shall initially be the Series A Original Issue Price (the
"SERIES A CONVERSION PRICE"). Such Series A Conversion Price shall be
adjusted from time to time in accordance with this Section 4. All references
to the Series A Conversion Price herein shall mean the Series A Conversion
Price as so adjusted. The conversion price for the Series B Stock shall
initially be the Series B Original Issue Price (the "SERIES B CONVERSION
PRICE"). Such initial Series B Conversion Price shall be adjusted from time
to time in accordance with this Section 4. All references to the Series B
Conversion Price herein shall mean the Series B Conversion Price as so
adjusted. The conversion price for the Series C Stock shall initially be the
Series C Original Issue Price (the "SERIES C CONVERSION PRICE"). Such
initial Series C Conversion Price shall be adjusted from time to time in
accordance with this Section 4. All references to the Series C Conversion
Price herein shall mean the Series C Conversion Price as so adjusted. The
conversion price for the Series D Stock shall initially be the Series D
Original Issue Price (the "SERIES D CONVERSION PRICE"). Such initial Series
D Conversion Price shall be adjusted from time to time in accordance with
this Section 4. All references to the Series D Conversion Price herein shall
mean the Series D Conversion Price as so adjusted. The Series A Conversion
Price, the Series B Conversion Price, the Series C Conversion Price and the
Series D Conversion Price shall collectively be referred to as the
"CONVERSION PRICES," and each a "CONVERSION PRICE."
d. SALE OF SHARES BELOW SERIES B CONVERSION PRICE,
SERIES C CONVERSION PRICE AND SERIES D CONVERSION PRICE.
(i) If at any time or from time to time after
the date that the first share of Series D Stock is issued (the "ORIGINAL
ISSUE DATE"), the Company issues or sells, or is deemed by the express
provisions of this Section 4(d) to have issued or sold, Additional Shares of
Common Stock (as hereinafter defined), other than as a subdivision or
combination of shares of Common Stock as provided in Section 4(e) below, for
an Effective Price (as hereinafter defined) less than the then-effective
Series B Conversion Price, Series C Conversion Price or Series D Conversion
Price, as applicable, then and in each such case the then-existing Series B
Conversion Price, Series C Conversion Price or Series D Conversion Price, as
applicable, shall be reduced, but not increased as of the opening of business
on the date of such issue or sale to a price determined by multiplying the
Series B Conversion Price, Series C Conversion Price or
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Series D Conversion Price, as applicable, by a fraction (i) the numerator
of which shall be (A) the number of shares of Common Stock deemed outstanding
(as defined below) immediately prior to such issue or sale plus (B) the
number of shares of Common Stock which the aggregate consideration received
(as defined in subsection d(ii)) by the Company for the total number of
Additional Shares of Common Stock so issued would purchase at such Series B
Conversion Price, Series C Conversion Price or Series D Conversion Price, as
applicable, and (ii) the denominator of which shall be the number of shares
of Common Stock deemed outstanding (as defined below) immediately prior to
such issue or sale plus the total number of Additional Shares of Common Stock
so issued. For the purposes of the preceding sentence, the number of shares
of Common Stock deemed to be outstanding as of a given date shall be the sum
of (A) the number of shares of Common Stock actually outstanding, (B) the
number of shares of Common Stock into which the then-outstanding shares of
Series A Stock, Series B Stock, Series C Stock and Series D Stock could be
converted if fully converted on the day immediately preceding the given date,
and (C) the number of shares of Common Stock which could be obtained through
the exercise or conversion of all other rights, options and convertible
securities then exercisable or convertible on the day immediately preceding
the given date.
(ii) For the purpose of making any adjustment
required under this Section 4(d), the consideration received by the Company
for any issue or sale of securities shall (A) to the extent it consists of
cash, be computed at the net amount of cash received by the Company after
deduction of any underwriting or similar commissions, compensation or
concessions paid or allowed by the Company in connection with such issue or
sale but without deduction of any expenses payable by the Company, (B) to the
extent it consists of property other than cash, be computed at the fair value
of that property as determined in good faith by the Board of Directors
(including a majority of the Series B Directors), and (C) if Additional
Shares of Common Stock, Convertible Securities (as hereinafter defined or
rights or options to purchase either Additional Shares of Common Stock or
Convertible Securities are issued or sold together with other stock or
securities or other assets of the Company for a consideration which covers
both, be computed as the portion of the consideration so received that may be
reasonably determined in good faith by the Board of Directors (including a
majority of the Series B Directors) to be allocable to such Additional Shares
of Common Stock, Convertible Securities or rights or options.
(iii) For the purpose of the adjustment required
under this Section 4(d), if the Company issues or sells any rights or options
for the purchase of, or stock or other securities convertible into or
exchangeable for, Additional Shares of Common Stock (such convertible or
exchangeable stock or securities being herein referred to as "CONVERTIBLE
SECURITIES") whether or not such rights or options or the right to convert or
exchange any such convertible securities are immediately exercisable, and if
the Effective Price of such Additional Shares of Common Stock is less than
the Series B Conversion Price, Series C Conversion Price or Series D
Conversion Price, as applicable, in each case the Company shall be deemed to
have issued at the time of the issuance of such rights or options or
Convertible Securities the maximum number of Additional Shares of Common
Stock issuable upon exercise or conversion or exchange thereof and to have
received as consideration for the issuance of such shares an amount equal to
the total amount of the consideration, if any, received by the Company for
the issuance of such rights or options or Convertible Securities, plus, in
the case of such rights or options, the minimum amounts of consideration, if
any, payable to the Company upon the
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exercise of such rights or options, plus, in the case of Convertible
Securities, the minimum amounts of consideration, if any, payable to the
Company (other than by cancellation of liabilities or obligations evidenced
by such Convertible Securities) upon the conversion thereof; PROVIDED, THAT,
that if the minimum amount of consideration payable to the Company upon the
exercise or conversion of rights, options or Convertible Securities is
reduced over time or on the occurrence or non-occurrence of specified events
other than by reason of antidilution adjustments, the Effective Price shall
be recalculated using the figure to which such minimum amount of
consideration is reduced; PROVIDED, FURTHER, that if the minimum amount of
consideration payable to the Company upon the exercise or conversion of such
rights, options or Convertible Securities is subsequently increased, the
Effective Price shall be again recalculated using the increased minimum
amount of consideration payable to the Company upon the exercise or
conversion of such rights, options or Convertible Securities. No further
adjustment of the Series B Conversion Price, Series C Conversion Price or
Series D Conversion Price, as applicable, as adjusted upon the issuance of
such rights, options or Convertible Securities, shall be made as a result of
the actual issuance of Additional Shares of Common Stock on the exercise of
any such rights or options or the conversion of any such Convertible
Securities. If any such rights or options or the conversion privilege
represented by any such Convertible Securities shall expire without having
been exercised, the Series B Conversion Price, Series C Conversion Price or
Series D Conversion Price, as applicable, as adjusted upon the issuance of
such rights, options or Convertible Securities shall be readjusted to the
Series B Conversion Price, Series C Conversion Price or Series D Conversion
Price, as applicable, which would have been in effect had an adjustment been
made on the basis that the only Additional Shares of Common Stock so issued
were the Additional Shares of Common Stock, if any, actually issued or sold
on the exercise of such rights or options or rights of conversion of such
Convertible Securities, and such Additional Shares of Common Stock, if any,
were issued or sold for the consideration actually received by the Company
upon such exercise, plus the consideration, if any, actually received by the
Company for the granting of all such rights or options, whether or not
exercised, plus the consideration received for issuing or selling the
Convertible Securities actually converted, plus the consideration, if any,
actually received by the Company (other than by cancellation of liabilities
or obligations evidenced by such Convertible Securities) on the conversion of
such Convertible Securities, PROVIDED THAT such readjustment shall not apply
to prior conversions of Series B Stock, Series C Stock or Series D Stock.
(iv) "ADDITIONAL SHARES OF COMMON STOCK" shall
mean all shares of Common Stock issued by the Company or deemed to be issued
pursuant to this Section 4(d), whether or not subsequently reacquired or
retired by the Company other than (A) shares of Common Stock issued upon
conversion of the Series A Stock, Series B Stock, Series C Stock or Series D
Stock; (B) Approved Issuances; and (C) shares of Common Stock issued pursuant
to the exercise of options, warrants or convertible securities outstanding as
of the Original Issue Date. The "EFFECTIVE PRICE" of Additional Shares of
Common Stock shall mean the quotient determined by dividing the total number
of Additional Shares of Common Stock issued or sold, or deemed to have been
issued or sold by the Company under this Section 4(d), into the aggregate
consideration received, or deemed to have been received by the Company for
such issue under this Section 4(d), for such Additional Shares of Common
Stock.
e. ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If
the Company shall at any time or from time to time after the Original Issue
Date effect a subdivision
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of the outstanding Common Stock without a corresponding subdivision of the
Preferred Stock, each Conversion Price in effect immediately before that
subdivision shall be proportionately decreased. Conversely, if the Company
shall at any time or from time to time after the Original Issue Date combine
the outstanding shares of Common Stock into a smaller number of shares
without a corresponding combination of the Preferred Stock, each Conversion
Price in effect immediately before the combination shall be proportionately
increased. Any adjustment under this Section 4(e) shall become effective at
the close of business on the date the subdivision or combination becomes
effective.
f. ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND
SUBSTITUTION. If at any time or from time to time after the Original Issue
Date, the Common Stock issuable upon the conversion of the Series A Stock,
Series B Stock, Series C Stock and Series D Stock is changed into the same or
a different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than an Acquisition or
Asset Transfer as defined in Section 3(c) or a subdivision or combination of
shares or stock dividend or a reorganization, merger, consolidation or sale
of assets provided for elsewhere in this Section 4), in any such event each
holder of Series A Stock, Series B Stock, Series C Stock and Series D Stock
shall have the right thereafter to convert such stock into the kind and
amount of stock and other securities and property receivable upon such
recapitalization, reclassification or other change by holders of the maximum
number of shares of Common Stock into which such shares of Series A Stock,
Series B Stock, Series C Stock or Series D Stock, as applicable, could have
been converted immediately prior to such recapitalization, reclassification
or change, all subject to further adjustment as provided herein or with
respect to such other securities or property by the terms thereof.
g. REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES
OF ASSETS. If at any time or from time to time after the Original Issue
Date, there is a capital reorganization of the Common Stock (other than an
Acquisition or Asset Transfer as defined in Section 3(c) or a
recapitalization, subdivision, combination, reclassification, exchange or
substitution of shares provided for elsewhere in this Section 4, as a part of
such capital reorganization, provision shall be made so that the holders of
the Series A Stock, Series B Stock, Series C Stock and Series D Stock shall
thereafter be entitled to receive upon conversion of the Series A Stock,
Series B Stock, Series C Stock and Series D Stock the number of shares of
stock or other securities or property of the Company to which a holder of the
number of shares of Common Stock deliverable upon conversion would have been
entitled on such capital reorganization, subject to adjustment in respect of
such stock or securities by the terms thereof. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section
4 with respect to the rights of the holders of Series A Stock, Series B
Stock, Series C Stock and Series D Stock after the capital reorganization to
the end that the provisions of this Section 4 (including adjustment of the
Conversion Price then in effect and the number of shares issuable upon
conversion of the Series A Stock, Series B Stock, Series C Stock or Series D
Stock, as applicable) shall be applicable after that event and be as nearly
equivalent as practicable.
h. CERTIFICATE OF ADJUSTMENT. In each case of an
adjustment or readjustment of the Conversion Price for the number of shares
of Common Stock or other securities issuable upon conversion of the Series A
Stock, Series B Stock, Series C Stock or Series D Stock, if the Series A
Stock, Series B Stock, Series C Stock or Series D Stock is then
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convertible pursuant to this Section 4, the Company, at its expense, shall
compute such adjustment or readjustment in accordance with the provisions
hereof and prepare a certificate showing such adjustment or readjustment, and
shall mail such certificate, by first class mail, postage prepaid, to each
registered holder of such stock at the holder's address as shown in the
Company's books. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (i) the consideration
received or deemed to be received by the Company for any Additional Shares of
Common Stock issued or sold or deemed to have been issued or sold, (ii) each
Conversion Price at the time in effect, (iii) the number of Additional Shares
of Common Stock and (iv) the type and amount, if any, of other property which
at the time would be received upon conversion of the Series A Stock, Series B
Stock, Series C Stock and Series D Stock.
i. NOTICES OF RECORD DATE. Upon (i) any taking by
the Company of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, or (ii) any Acquisition (as defined in
Section 3(c)) or other capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
merger or consolidation of the Company with or into any other corporation, or
any Asset Transfer (as defined in Section 3(c)), or any voluntary or
involuntary dissolution, liquidation or winding up of the Company, the
Company shall mail to each holder of Series A Stock, Series B Stock, Series C
Stock and Series D Stock at least twenty (20) days prior to the record date
specified therein a notice specifying (A) the date on which any such record
is to be taken for the purpose of such dividend or distribution and a
description of such dividend or distribution, (B) the date on which any such
Acquisition, reorganization, reclassification, transfer, consolidation,
merger, Asset Transfer, dissolution, liquidation or winding up is expected to
become effective, and (C) the date, if any, that is to be fixed as to when
the holders of record of Common Stock (or other securities) shall be entitled
to exchange their shares of Common Stock (or other securities) for securities
or other property deliverable upon such Acquisition, reorganization,
reclassification, transfer, consolidation, merger, Asset Transfer,
dissolution, liquidation or winding up.
j. AUTOMATIC CONVERSION.
(i) Each share of Series A Stock shall
automatically be converted into shares of Common Stock, based on the
then-effective Series A Conversion Price, (A) at any time upon the
affirmative election of the holders of a majority of the outstanding shares
of Series A Stock or (B) immediately upon the closing of a firmly
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended (the "SECURITIES ACT"), covering
the offer and sale of Common Stock for the account of the Company in which
(i) the per share price is at least $1.88 per share (as adjusted for any
stock dividends, combinations, splits, recapitalizations and the like) and
(ii) the gross cash proceeds to the Company (before underwriting discounts,
commissions and fees) are at least $10,000,000. Upon such automatic
conversion, any declared and unpaid dividends shall be paid in accordance
with the provisions of Section 4(k).
(ii) Each share of Series B Stock shall
automatically be converted into shares of Common Stock, based on the
then-effective Series B Conversion Price, (A) immediately upon the closing of
a firmly underwritten public offering pursuant to an
11
<PAGE>
effective registration statement under the Securities Act covering the offer
and sale of Common Stock for the account of the Company (an "INITIAL
OFFERING") in which (i) the per share price is at least equal to the "Target
Multiple" (as hereinafter defined) multiplied by the then-effective Series B
Conversion Price (the "THRESHOLD PRICE"), (ii) the gross cash proceeds to the
Company (before underwriting discounts, commissions and fees) are at least
$30,000,000 and (iii) the shares of Common Stock are listed on any national
securities exchange or have been registered under Section 12(g) of the
Securities Exchange Act of 1934 (a "QUALIFIED OFFERING") or (B) following an
Initial Offering which is not a Qualified Offering on the business day
following the end of a 180-day period during which the average closing price
of the Company's Common Stock on each such day exceeded the Threshold Price.
Upon such automatic conversion, any declared and unpaid dividends shall be
paid in accordance with the provisions of Section 4(k). As used herein,
"TARGET MULTIPLE" shall mean (A) an amount equal to 2.5 prior to the third
anniversary of the Original Issue Date and (B) an amount equal to 3.5 on or
after the third anniversary of the Original Issue Date.
(iii) Each share of Series C Stock and Series D
Stock shall automatically be converted into shares of Common Stock, based on
the then-effective Series C Conversion Price or Series D Conversion Price, as
applicable, immediately upon the closing of a firmly underwritten public
offering pursuant to an effective registration statement under the Securities
Act, covering the offer and sale of Common Stock for the account of the
Company in which (i) the per share price is at least $8.40 per share (as
adjusted for any stock dividends, combinations, splits, recapitalizations and
the like) and (ii) the gross cash proceeds to the Company (before
underwriting discounts, commissions and fees) are at least $30,000,000. Upon
such automatic conversion, any declared and unpaid dividends shall be paid in
accordance with the provisions of Section 4(k).
k. MECHANICS OF CONVERSION.
(i) OPTIONAL CONVERSION. Each holder of
Series A Stock, Series B Stock, Series C Stock or Series D Stock who desires
to convert the same into shares of Common Stock pursuant to this Section 4
shall surrender the certificate or certificates therefor, duly endorsed, at
the office of the Company or any transfer agent for such stock, and shall
give written notice to the Company at such office that such holder elects to
convert the same. Such notice shall state the number of shares of Series A
Stock, Series B Stock, Series C Stock or Series D Stock being converted.
Thereupon, the Company shall promptly issue and deliver at such office to
such holder a certificate or certificates for the number of shares of Common
Stock to which such holder is entitled and shall promptly pay in cash or, to
the extent sufficient funds are not then legally available therefor, in
Common Stock (at the Common Stock's fair market value determined by the Board
of Directors as of the date of such conversion), any accrued dividends on the
shares of Series A Stock, Series B Stock, Series C Stock and Series D Stock
being converted. Such conversion shall be deemed to have been made at the
close of business on the date of such surrender of the certificates
representing the shares of Series A Stock, Series B Stock, Series C Stock or
Series D Stock, as applicable, to be converted, and the person entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder of such shares of Common Stock
on such date.
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<PAGE>
(ii) AUTOMATIC CONVERSION. Upon the occurrence
of the event specified in paragraph 4(j) above, the outstanding shares of
Series A Stock, Series B Stock, Series C Stock or Series D Stock, as the case
may be, shall be converted automatically without any further action by the
holders of such shares and whether or not the certificates representing such
shares are surrendered to the Company or its transfer agent; PROVIDED,
HOWEVER, that the Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion unless
the certificates evidencing such shares of Series A Stock, Series B Stock,
Series C Stock and Series D Stock are either delivered to the Company or its
transfer agent as provided below, or the holder notifies the Company or its
transfer agent that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Company to indemnify the Company
from any loss incurred by it in connection with such certificates. Upon the
occurrence of such automatic conversion of the Series A Stock, Series B
Stock, Series C Stock or Series D Stock, the holders of Series A Stock,
Series B Stock, Series C Stock or Series D Stock shall surrender the
certificates representing such shares at the office of the Company or any
transfer agent for the Series A Stock, Series B Stock, Series C Stock and
Series D Stock, as applicable. Thereupon, there shall be issued and
delivered to such holder promptly at such office and in its name as shown on
such surrendered certificate or certificates, a certificate or certificates
for the number of shares of Common Stock into which the shares of Series A
Stock, Series B Stock, Series C Stock or Series D Stock surrendered were
convertible on the date on which such automatic conversion occurred, and any
declared and unpaid dividends shall be paid in accordance with the provisions
of Section 4(k)(i) above.
l. FRACTIONAL SHARES. No fractional shares of
Common Stock shall be issued upon conversion of Series A Stock, Series B
Stock, Series C Stock or Series D Stock. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share
of Series A Stock, Series B Stock, Series C Stock or Series D Stock by a
holder thereof shall be aggregated for purposes of determining whether the
conversion would result in the issuance of any fractional share. If, after
the aforementioned aggregation, the conversion would result in the issuance
of any fractional share, the Company shall, in lieu of issuing any fractional
share, pay cash equal to the product of such fraction multiplied by the
Common Stock's fair market value (as determined by the Board of Directors) on
the date of conversion.
m. RESERVATION OF STOCK ISSUABLE UPON CONVERSION.
The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Series A Stock, Series B Stock,
Series C Stock and Series D Stock, such number of its shares of Common Stock
as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Stock, Series B Stock, Series C Stock and
Series D Stock. If at any time the number of authorized but unissued shares
of Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series A Stock, Series B Stock, Series C Stock and
Series D Stock, the Company will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for
such purpose. The Company covenants that all shares of Common Stock which
shall be so issuable shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable, free from preemptive or similar rights
on the part of the holders of any shares of capital stock or securities of
the Company, and free from all liens and charges with respect to the issue
thereof; and without limiting the generality of the foregoing, the
13
<PAGE>
Company covenants that it will from time to time take all such action as may
be requisite to assure that the par value, if any, per share of the Common
Stock is at all times equal to or less than the then-effective Conversion
Price. The Company will take all such action as may be necessary to assure
that such shares of Common Stock may be so issued without violation by the
Company of any applicable law or regulation or agreement, or of any
requirements of any domestic securities exchange upon which the Common Stock
may be listed. Without limiting the foregoing, the Company will take all
such action as may be necessary to assure that, upon conversion of any of the
Series B Stock, Series C Stock or Series D Stock, an amount equal to the
lesser of (a) the par value of each share of Common Stock outstanding
immediately prior to such conversion or (b) the Conversion Price shall be
credited to the Company's stated capital account for each share of Common
Stock issued upon such conversion, and that, if clause (a) above is
applicable, the balance of the Conversion Price of Series B Stock, Series C
Stock or Series D Stock converted shall be credited to the Company's capital
surplus account.
n. NOTICES. Any notice required by the provisions
of this Section 4 shall be in writing and shall be deemed effectively given:
(i) upon personal delivery to the party to be notified, (ii) when sent by
confirmed telex or facsimile if sent during normal business hours of the
recipient; if not, then on the next business day, (iii) upon receipt after
having been sent by registered or certified mail, return receipt requested,
postage prepaid, or (iv) one (1) day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt. All notices shall be addressed to each holder of
record at the address of such holder appearing on the books of the Company.
o. PAYMENT OF TAXES. The Company will pay all taxes
(other than taxes based upon income) and other governmental charges that may
be imposed with respect to the issue or delivery of shares of Common Stock
upon conversion of shares of Series A Stock, Series B Stock, Series C Stock
and Series D Stock, excluding any tax or other charge imposed in connection
with any transfer involved in the issue and delivery of shares of Common
Stock in a name other than that in which the shares of Series A Stock Series
B Stock, Series C Stock or Series D Stock, as applicable, so converted were
registered.
p. REGISTRATION AND LISTING OF COMMON STOCK. If any
shares of Common Stock required to be reserved for purposes of conversion of
the Series B Stock, Series C Stock or Series D Stock hereunder require
registration with or approval of any governmental authority under any Federal
or state law (other than the Securities Act) before any such shares may be
issued upon conversion, the Company will, at its expense and as expeditiously
as possible, use its best efforts to cause such shares to be duly registered
or approved, as the case may be. Shares of Common Stock issuable upon
conversion of the Series B Stock, Series C Stock or Series D Stock shall be
registered in accordance with any such law then in force if required before
such shares may be issued upon conversion. If and so long as the Common
Stock is listed on any national securities exchange, the Company will, at its
expense, obtain promptly and maintain the approval for listing on each such
exchange upon official notice of issuance, such shares of Common Stock
issuable upon conversion of then-outstanding Series B Stock, Series C Stock
and Series D Stock and maintain the listing of such shares after their
issuance; and the Company will also list on such national securities
exchange, will register under the Securities Exchange Act of 1934 and will
maintain such listing of, any other securities that at any time are issuable
upon conversion of the Series B Stock, Series C Stock or Series D Stock, if
14
<PAGE>
and at the time that any securities of the same class shall be listed on such
national securities exchange by the Company.
q. CLOSING OF BOOKS. The Company will at no time
close its transfer books against the transfer of any Series B Stock, Series C
Stock or Series D Stock or of any shares of Common Stock issued or issuable
upon the conversion of any Series B Stock, Series C Stock or Series D Stock
in any manner which interferes with the timely conversion of such Series B
Stock, Series C Stock or Series D Stock; PROVIDED, THAT, any such transfer is
not made in violation of any applicable law or contract.
r. CERTAIN COVENANTS. Any registered holder of
Series B Stock, Series C Stock or Series D Stock may proceed to protect and
enforce its rights and the rights of such holders by any available remedy by
proceeding at law or in equity to protect and enforce any such rights,
whether for the specific enforcement of any provision in this Restated
Certificate of Incorporation or in aid of the exercise of any power granted
herein, or to enforce any other proper remedy.
5. NO REISSUANCE OF PREFERRED STOCK. No share or shares of
Series A Stock, Series B Stock, Series C Stock or Series D Stock acquired by
the Company by reason of redemption, purchase, conversion or otherwise shall
be reissued.
V.
For the management of the business and for the conduct of the affairs
of the Corporation, and in further definition, limitation and regulation of
the powers of the Corporation, of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided that:
A. The management of the business and the conduct of the affairs
of the Corporation shall be vested in its Board of Directors. Except as
otherwise provided in Article IV, Section E.2 hereof, the number of directors
which shall constitute the whole Board of Directors shall be fixed by the
Board of Directors in the manner provided in the Amended Bylaws.
B. The Board of Directors is expressly authorized to make, amend,
supplement or repeal the Amended Bylaws; PROVIDED, HOWEVER, that the
stockholders may change or repeal any Bylaw adopted by the Board of Directors
by the affirmative vote of the holders of a majority of the voting power of
all of the then outstanding shares of the capital stock of the Corporation;
and, PROVIDED FURTHER, that no amendment or supplement to the Amended Bylaws
adopted by the Board of Directors shall vary or conflict with any amendment
or supplement thus adopted by the stockholders.
C. The directors of the Corporation need not be elected by written
ballot unless the Amended Bylaws so provide.
15
<PAGE>
VI.
A. A director of the corporation shall not be personally liable to
the corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived
an improper personal benefit. If the Delaware General Corporation Law is
amended after approval by the stockholders of this Article to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director shall be eliminated or limited to
the fullest extent permitted by the Delaware General Corporation Law, as so
amended.
B. Any repeal or modification of this Article VI shall be
prospective and shall not affect the rights under this Article VI in effect
at the time of the alleged occurrence of any act or omission to act giving
rise to liability or indemnification.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
16
<PAGE>
IN WITNESS WHEREOF, this Restated Certificate has been subscribed this 19th
day of January, 2000 by the undersigned who affirms that the statements made
herein are true and correct.
JATO COMMUNICATIONS CORP.
/s/ Gerald K. Dinsmore
----------------------------------------
Gerald K. Dinsmore
President and Chief Executive Officer
17
<PAGE>
C
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE
SEE REVERSE FOR CERTAIN DEFINITIONS AND
A STATEMENT AS TO THE RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS ON
TRANSFER
CUSIP 47188M 10 6
This Certifies that
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE, OF
JATO Communications Corp.
transferable on the books of the Corporation by the holder hereof in person
or by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
SECRETARY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
NORWEST BANK MINNESOTA, N.A.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
REVERSE SIDE
The Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional, or other special rights of each class of stock or series thereof
and the qualifications, limitations or restrictions of such preferences
and/or rights. Such requests shall be made to the CorporationOs Secretary at
the principal office of the Corporation.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR DESTROYED
THE CORPORATION WILL REQUIRE A
BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
<PAGE>
TEN COM
TEN ENT
JT TEN
as tenants in common
as tenants by the entireties
as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT-D Custodian
(Cust) (Minor)
under Uniform Gifts to Minors
Act
(State)
UNIF TRF MIN ACT-D Custodian (until age )
under Uniform Transfers
(Minor)
to Minors Act
(State)
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell,
assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
X
X
NOTICE
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE>
JATO COMMUNICATIONS CORP.
FOUNDERS EMPLOYMENT TRANSITION AND SEPARATION AGREEMENT
FOR
BRIAN E. GAST
THIS FOUNDERS EMPLOYMENT TRANSITION AND SEPARATION AGREEMENT
("AGREEMENT") is entered into as of the 10th day of February, 2000 ("Execution
Date") by and between BRIAN E. GAST ("Mr. Gast") and JATO COMMUNICATIONS CORP.,
a Delaware corporation (the "Company").
RECITALS
WHEREAS, Mr. Gast has been employed by the Company as its President and
Chief Executive Officer; and
WHEREAS, the Company and Mr. Gast are parties to an employment
agreement dated April 16, 1999; and
WHEREAS, the Company has materially reduced the job responsibilities of
Mr. Gast; and
WHEREAS, as a result of the material reduction of his job
responsibilities, Mr. Gast has tendered his resignation with the Company under
the terms and conditions hereinafter set forth; and
WHEREAS, the Company has accepted Mr. Gast's resignation as President
and Chief Executive Officer; and
WHEREAS, the Company and Mr. Gast desire to replace the terms of the
April 16, 1999 Employment Agreement; and
WHEREAS, the Company wishes to employ Mr. Gast in the capacity and
under the terms and conditions hereinafter set forth, and Mr. Gast is willing to
be so employed by the Company.
NOW, THEREFORE, in consideration of the recitals set forth above that
are incorporated by reference herein and the mutual promises and covenants
contained herein, it is hereby agreed by and between the parties hereto as
follows:
AGREEMENT
1. RESIGNATION. Mr. Gast has tendered and the Company has accepted Mr. Gast's
resignation as President and Chief Executive Officer and any and all other
positions he may have held with the Company or any affiliates or subsidiaries of
the Company.
<PAGE>
2. CONTINUED EMPLOYMENT BY THE COMPANY. Mr. Gast will continue as an employee of
the Company until such time as his employment is terminated as set forth in
paragraph 6 herein. From the Execution Date through the Separation Date, as
defined in paragraph 6 below, Mr. Gast shall be available to provide such
services as are requested by the Company's Board of Directors.
2.1 COMPENSATION. The Company agrees to continue to compensate Mr. Gast
at the same rate of regular salary he received as of the Execution Date, less
all applicable deductions and withholdings, payable on a semi-monthly basis or
in accordance with the Company's customary practices (as they may be changed by
the Company from time to time in its sole discretion).
2.2 BENEFITS. The Company shall continue to make available to Mr. Gast
all Company benefits available and received by Mr. Gast immediately before the
Execution Date. Notwithstanding the prior sentence, Mr. Gast agrees and
acknowledges that from the Execution Date through the Separation Date, Mr. Gast
is not entitled to nor will he accrue any vacation time, holiday leave or sick
leave.
2.3 RESTRICTED STOCK. As of the Execution Date, Mr. Gast owns or is
deemed to be the beneficial owner of 2,305,334 shares of Common Stock, of which
641,600 were vested and 1,613,734 not yet vested. Unless Mr. Gast voluntarily
resigns as an employee or is terminated for Cause (as defined below) prior to
such date, the 1,613,734 unvested shares will vest the earlier of the Company's
initial public offering or in two equal installments of 806,867 shares on each
of March 31, 2000 and June 30, 2000.
2.4 VOLUME LIMITATION. Should the Company launch a $130 million initial
public offering (IPO"), $5 million will be allocated for the sale of a portion
of the Founders' shares (for purposes herein the term "Founders" refers to Bruce
E. Dines, Leonard Allsup and Brian E. Gast). The portion of the offering
allocated for the sale of the Founders' shares can be utilized only after the
Company has raised $125 million in gross proceeds. If, due to strong market
conditions, the size of the offering is increased above $130 million, 50% of
such increase will be allocated for the sale of additional Founders' shares. .
If the Company raises at least $125 million in gross proceeds and if the
underwriter's over allotment option (the "Greenshoe") is exercised, 50% of the
Greenshoe will also be allocated for the sale of the Founders' shares. Mr. Gast
and the other Founders, in addition to being bound by the standard 180 day
lockup agreement (the "Standard Lockup"), also agree that the number of shares
the Founders can sell during the 180 day period following the expiration of the
Standard Lockup ("the Additional Lockup") will be limited (the "Volume
Limitation Period"). The terms of the Volume Limitation Period are as follows:
(a) The Founders will be limited to the sale of an aggregate
of 750,000 shares every three months during the Volume Limitation Period. The
Founders shall be solely responsible for allocating the number of shares each
Founder will be permitted to sell per each three month period during the Volume
Limitation Period. However, if the Founders are not permitted to sell at least
$5 million of securities during the IPO, the three month period limitation will
be increased from 750,000 shares to 875,000 shares per each three month period.
Shares
<PAGE>
sold under this provision may be sold in only broadly distributed underwritten
public offerings or normal Rule 144 open market transactions.
(b) As long as Mr. Gast maintains ownership in the Company Mr.
Gast shall also be bound by the following restrictions:
(i) to not knowingly sell his shares of the Company
stock to a person or group who, as a result of such sale, would own 5% or more
of the Company's outstanding stock or to directly or indirectly solicit any
person or group to purchase from him or any other Founder shares in the Company
if such person or group, as a result of such purchase, would own 5% or more of
the Company's outstanding stock; and
(ii) to not knowingly sell his shares of the Company
stock to a Company competitor (as defined in paragraph 8.1) or to directly or
indirectly solicit any competitor (as defined in paragraph 8.1) to purchase from
him shares in the Company; and
(iii) to not engage in, or support, a hostile proxy
solicitation.
2.5 FORGIVENESS OF NOTE. The Company loaned to Mr. Gast the amount of
$100,000, pursuant to that certain promissory note (the "Note"). Unless Mr.
Gast's employment with the Company is terminated for Cause, as defined herein,
or if Mr. Gast voluntarily terminates his employment, in each case prior to
March 31, 2000, the Company agrees to forgive all outstanding amounts payable,
including interest, on said Note and after said date, Mr. Gast's obligations of
repayment under the Note shall cease effective on March 31, 2000. Mr. Gast
acknowledges that he is solely responsible for all tax consequences relating to
the forgiveness of the Note.
2.6 VACATION PAY-OUT. The parties agree that on the Separation Date the
accrued but unused vacation shall be 20 days.
2.7 SEPARATION AND RELEASE AGREEMENT. As part of this Agreement, Mr.
Gast agrees to enter into the Separation and Release Agreement attached hereto
as Exhibit B, within the time set forth in said Separation and Release
Agreement.
3. POLICIES AND PROCEDURES. Mr. Gast agrees that he is subject to and will
comply with the policies and procedures of the Company, as such policies and
procedures may be modified, added to or eliminated from time to time at the sole
discretion of the Company Board of Directors, except to the extent any such
policy or procedure specifically conflicts with the express terms of this
Agreement. Mr. Gast further agrees and acknowledges that any written or oral
policies and procedures of the Company do not constitute contracts between the
Company and Mr. Gast.
4. PROPRIETARY INFORMATION OBLIGATIONS.
4.1 AGREEMENT. Except as set forth herein, Mr. Gast agrees to continue
to abide by Mr. Gast's previously executed Non-Competition, Proprietary
Information and Inventions Agreement attached hereto as EXHIBIT A.
<PAGE>
4.2 REMEDIES. Mr. Gast's duties under the Non-Competition, Proprietary
Information and Inventions Agreement shall survive termination of his employment
with the Company. Mr. Gast acknowledges that a remedy at law for any breach or
threatened breach by him of the provisions of the Non-competition, Proprietary
Information and Inventions Agreement would be inadequate, and he therefore
agrees that the Company shall be entitled to injunctive relief in case of any
such breach or threatened breach. By seeking injunctive relief the Company does
not waive any other rights or remedies it may have.
5. OUTSIDE ACTIVITIES. Except with the prior written consent of the Company's
Board of Directors, Mr. Gast will not, from the Execution Date through the
Separation Date, undertake or engage in any other employment, occupation or
business enterprise, other than those in which Mr. Gast is a passive investor,
non-executive board member or which takes less than 10% of Mr. Gast's business
time. Mr. Gast may engage in civic and not-for-profit activities so long as such
activities do not materially interfere with the performance of his duties
hereunder.
6. TERMINATION OF EMPLOYMENT. Either Mr. Gast or the Company may terminate the
employment relationship at any time for any reason whatsoever, with thirty (30)
days prior written notice by the Company and with thirty (30) days' prior
written notice by Mr. Gast with or without Cause or advance notice. This at-will
employment relationship cannot be changed except in a writing approved by the
Board. Notwithstanding this at-will employment relationship, Mr. Gast's
employment with the Company shall automatically terminate upon the earlier of
the closing of the Company's initial public offering or on June 30, 2000.
Whether terminated for cause, without cause, automatically as provided in the
previous sentence or voluntarily terminated by Mr. Gast, such termination is
defined herein as the "Separation Date." Mr. Gast shall remain as a member of
the Board of Directors of the Company and the member of the Board of Directors
of any affiliates or subsidiaries of the Company until June 30, 2000. On June
30, 2000, Mr. Gast agrees to tender his resignation from the Board of Directors
of the Company and from the Board of Directors of any affiliates or subsidiaries
of the Company.
6.1 SEVERANCE PAYMENT. If the Company terminates Mr. Gast's employment
without Cause at any time or if Mr. Gast employment terminates automatically as
set forth in paragraph 6 herein, Mr. Gast will receive as severance: (i) a lump
sum payment equal to one (1) year of base salary, less payroll deductions and
required withholdings pursuant to the Separation Agreement attached as Exhibit
B, (ii) a lump sum payment of that portion of the bonus Mr. Gast is entitled to
for the calendar year pro-rated based upon the number of full months Mr. Gast
was employed in such year pursuant to the Separation Agreement attached as
Exhibit B, (iii) continuation of all company benefits for a period of one (1)
year pursuant to the Separation Agreement attached as Exhibit B, and (iv)
termination of all repurchase rights on Mr. Gast's stock, in exchange for the
execution of a release of all claims against the Company in the form attached as
Exhibit B; PROVIDED, THAT, in the event of termination due to Disability, this
subsection (iv) shall apply only with respect to 50% of any unvested stock held
by Mr. Gast on the date of termination and with respect to the waiver of
repurchase rights of 50% of any unvested shares held by Mr. Gast on the date of
termination; PROVIDED, FURTHER, that Mr. Gast shall remain a party to, and
subject to the provisions of, the Investors' Rights Agreement. If Mr. Gast
voluntarily resigns or if Mr. Gast's employment is terminated for Cause, all
compensation and benefits will cease immediately and Mr. Gast will receive no
severance benefits.
<PAGE>
6.2 CAUSE. For purposes of this Agreement, "CAUSE" shall mean
misconduct, including: (i) conviction of any felony or any crime involving moral
turpitude or dishonesty; (ii) participation in a fraud or act of dishonesty
against the Company; (iii) willful breach of the Company's policies; (iv)
intentional damage to the Company's property; (v) material breach of this
Agreement or Mr. Gast's Proprietary Information and Inventions Agreement; (vi) a
failure or refusal in a material respect of Mr. Gast to follow the reasonable
policies or directions of the Company as specified by the Board of Directors
after being provided with notice of such failure and an opportunity to cure
within seven (7) days of receipt of such notice; or (vii) failure to carry out
the duties of the Mr. Gast's position after being provided with notice of such
failure and an opportunity to cure. Disability shall not constitute "Cause."
6.3 DISABILITY. For purposes of this Agreement, "DISABILITY" shall mean
a disability that prevents Mr. Gast from substantially performing his duties
under this Agreement for a period of at least 90 consecutive days or 180
non-consecutive days within any 365-day period.
6.4 DEATH. In the event of death, the Company shall pay to Mr. Gast's
estate any earned but unpaid salary at the time of death and, at the time such
amount would otherwise have been due, a pro rata portion of a discretionary
bonus, if any, which may otherwise have been paid to Mr. Gast with respect to
the annual period in which the death occurs. Furthermore, the Company shall
waive its repurchase rights with respect to 50% of any unvested shares as of the
date of death; PROVIDED, HOWEVER, that Mr. Gast's estate, administrator or
distributor shall become a party to, and be subject to the provisions of, the
Investors' Rights Agreement. In addition, the acceleration provisions set forth
in paragraph 2.3 herein shall remain in effect, PROVIDED, HOWEVER, that Mr.
Gast's estate, administrator or distributor shall become a party to, and be
subject to the provisions of, this Agreement.
7. BUSINESS EXPENSE REIMBURSEMENT. The Company agrees to reimburse Mr. Gast for
those reasonable business expenses he necessarily incurs in his capacity as a
Company employee and member of the Board of Directors consistent with the
Company's policies in this regard. Mr. Gast must submit the necessary
documentation establishing the amount, date and reason for expenses he incurred
and for which he seeks reimbursement.
8. NON-COMPETITION AND NON-SOLICITATION. Mr. Gast acknowledges that prior to the
Separation Date, the Company employed him, among other things, as a member of
executive and management personnel. Mr. Gast further acknowledges that during
his employment at the Company, he was and will be privy to extremely sensitive,
confidential and valuable commercial information, which constitutes trade
secrets belonging to the Company, the disclosure of which information and
secrets would greatly harm the Company.
8.1 NON-COMPETITION COVENANT. As a reasonable measure to protect the
Company from the harm of such disclosure and use of its information and trade
secrets against it, Mr. Gast agrees to the following as part of this Agreement:
Mr. Gast agrees that he shall not, individually or together with others,
directly or indirectly, during his employment with the Company and for a period
of twelve (12) months from the Separation Date, for any reason, whether as an
owner, consultant, partner, joint venturer, stockholder, broker, agent,
financial agent, principal, trustee, licensor or in any other capacity
whatsoever, own, manage, operate, join, control, finance or participate in the
ownership, management, operation, control or financing of, or be connected as
<PAGE>
an officer, director, employee, partner, principal, agent, representative,
consultant, licensor, licensee or otherwise with, any business or enterprise in
any city, county, or state of the United States, or any other locality, region,
territory, country, or jurisdiction, which provides high speed data transmission
services in a market in which the Company has at least one (1) operational DSLAM
or at least one (1) central office location under construction as of the
Separation Date. An acquisition or ownership of less than 5% of the outstanding
shares of any publicly traded company will not constitute a violation of this
Agreement.
8.2 NON-SOLICITATION COVENANT. As a reasonable measure to protect the
Company from the harm of such disclosure and use of its information and trade
secrets against it, the parties agree to the following as part of this
Agreement: Mr. Gast acknowledges and agrees that information regarding employees
of the Company is Confidential Information, including without limitation, the
names of the Company employees; information regarding the skills and knowledge
of employees of the Company; information regarding any past, present, or
intended compensation, benefits, policies and incentives for employees of the
Company; and information regarding the management and reporting structure of the
Company. Mr. Gast agrees that he will not, individually or with others, directly
or indirectly (including without limitation, individually or through any
business, venture, proprietorship, partnership, or corporation in which they
control or own more than a five (5) percent interest, through any agents,
through any contractors, through recruiters, by their successors, by their
employees, or by their assigns) hire, solicit, or induce any employee of the
Company to leave the Company during the period Mr. Gast is employed by the
Company and for a period of twelve (12) months from the Separation Date. Mr.
Gast further agrees that during the period he is employed by the Company and for
a period of twelve (12) months from the Separation Date, he will not, either
directly or indirectly, solicit or attempt to solicit any customer, client,
supplier, investor, vendor, consultant or independent contractor of the Company
to terminate, reduce or negatively alter his, her or its relationship with the
Company. The geographic scope of the covenants in this paragraph shall include
any city, county, or state of the United States and any such other city,
territory, country, or jurisdiction in which the Company does business. Nothing
in this paragraph should be construed to narrow the obligations of Mr. Gast
imposed by any other provision herein, any other agreement, law or other source.
8.3 REASONABLE. Mr. Gast agrees and acknowledges that the time
limitation and the geographic scope on the restrictions in this paragraph 8 and
its subparts are reasonable. Mr. Gast also acknowledges and agrees that the
limitation in this paragraph 8 and its subparts is reasonably necessary for the
protection of the Company, that through this Agreement he shall receive adequate
consideration for any loss of opportunity associated with the provisions herein,
and that these provisions provide a reasonable way of protecting the Company's
business value which was imparted to him. In the event that any term, word,
clause, phrase, provision, restriction, or section of this paragraph 8 of this
Agreement is more restrictive than permitted by the law of the jurisdiction in
which the Company seeks enforcement thereof, the provisions of this Agreement
shall be limited only to that extent that a judicial determination finds the
same to be unreasonable or otherwise unenforceable. Moreover, notwithstanding
any judicial determination that any term, word, clause, phrase, provision,
restriction, or section of this Agreement is not specifically enforceable, the
parties intend that the Company shall nonetheless be entitled to recover
monetary damages as a result of any breach hereof.
<PAGE>
8.4 LEGAL AND EQUITABLE REMEDIES. In view of the nature of the rights
in goodwill, employee relations, trade secrets, and business reputation and
prospects of the Company to be protected under this paragraph 8 of this
Agreement, Mr. Gast understands and agrees that the Company could not be
reasonably or adequately compensated in damages in an action at law for Mr.
Gast's breach of his obligations hereunder. Accordingly, Mr. Gast specifically
agrees that the Company shall be entitled to temporary and permanent injunctive
relief, specific performance, and other equitable relief to enforce the
provisions of this paragraph 8 of this Agreement and that such relief may be
granted without the necessity of proving actual damages, and without bond. MR.
GAST ACKNOWLEDGES AND AGREES THAT THE PROVISIONS IN THIS PARAGRAPH 8 AND ITS
SUBPARTS ARE ESSENTIAL AND MATERIAL TO THIS AGREEMENT, AND THAT UPON BREACH OF
THIS PARAGRAPH 8 BY HIM, THE COMPANY IS ENTITLED TO WITHHOLD PROVIDING PAYMENTS
OR CONSIDERATION, TO EQUITABLE RELIEF TO PREVENT CONTINUED BREACH, TO RECOVER
DAMAGES AND TO SEEK ANY OTHER REMEDIES AVAILABLE TO THE COMPANY. This provision
with respect to injunctive relief shall not, however, diminish the right of the
Company to claim and recover damages or other remedies in addition to equitable
relief.
8.5 EXTENSION OF TIME. In the event that Mr. Gast breaches any
covenant, obligation or duty in this paragraph 8 or its subparts, any such duty,
obligation, or covenants to which the parties agreed by this paragraph 8 and its
subparts shall automatically toll from the date of the first breach, and all
subsequent breaches, until the resolution of the breach through private
settlement, judicial or other action, including all appeals. The duration and
length of Mr. Gast's duties and obligations as agreed by this paragraph 8 and
its subparts shall continue upon the effective date of any such settlement, or
judicial or other resolution.
9. GENERAL PROVISIONS.
9.1 NOTICES. Any notices provided hereunder must be in writing and
shall be deemed effective upon the earlier of personal delivery (including
personal delivery by telex) or the third day after mailing by first class mail,
to the Company at its primary office location and to Mr. Gast at his address as
listed on the Company's then current payroll records.
9.2 TAX CONSEQUENCES. Mr. Gast agrees to indemnify the Company and hold
the Company harmless from any and all claims or penalties asserted against the
Company for any failure to pay taxes due on any consideration provided by the
Company pursuant to this Agreement. Mr. Gast expressly acknowledges that the
Company has not made, nor herein makes, any representation about the tax
consequences of any consideration provided by the Company to Mr. Gast pursuant
to this Agreement.
9.3 COOPERATION. Mr. Gast agrees to fully cooperate with the Company
with respect to its corporate relationships. Mr. Gast further agrees to
cooperate with the Company in connection with any defense of or prosecution by
the Company regarding any litigation in which the Company may be involved as a
party or non-party in from time to time.
9.4 NON-DISPARAGEMENT. Mr. Gast and the Company agree that neither
party will at any time disparage the other to third parties in any manner likely
to be harmful to the other party, their business reputation, or the personal or
business reputation of its directors, shareholders and/or employees.
Notwithstanding the prohibition in the preceding sentence, each party shall
<PAGE>
respond accurately and fully to any question, inquiry, or request for
information when required by legal process, or when posed by a governmental
entity
9.5 THE COMPANY PROPERTY. Unless authorized by the Company, on the
Separation Date, Mr. Gast agrees to return to the Company all Company documents
(and all copies thereof) and any and all other Company property in Mr. Gast's
possession, custody or control, including, but not limited to, financial
information, customer information, customer lists, employee lists, Company
files, notes, cellular telephones, personal computers, personal computers,
contracts, drawings, records, business plans and forecasts, financial
information, specifications, computer-recorded information, software, tangible
property, credit cards, entry cards, identification badges and keys, and any
materials of any kind which contain or embody any proprietary or confidential
material of the Company (and all reproductions thereof).
9.6 SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provisions had never been contained herein.
9.7 WAIVER. If either party should waive any breach of any provisions
of this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
9.8 COMPLETE AGREEMENT. This Agreement and EXHIBITS A AND B hereto,
constitute the entire agreement between Mr. Gast and the Company and it is the
complete, final, and exclusive embodiment of their agreement with regard to this
subject matter. This Agreement supersedes and replaces the Employment Agreement
dated April 16, 1999. It is entered into without reliance on any promise or
representation other than those expressly contained herein, and it cannot be
modified or amended except in a writing signed by an officer of the Company.
9.9 COUNTERPARTS. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.
9.10 HEADINGS. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
9.11 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Mr. Gast and the Company, and
their respective successors, assigns, heirs, executors and administrators,
except that Mr. Gast may not assign any of his duties hereunder and he may not
assign any of his rights hereunder without the written consent of the Company,
which shall not be withheld unreasonably.
9.12 ATTORNEY FEES. If either party hereto brings any action to enforce
his or its rights hereunder, the prevailing party in any such action shall be
entitled to recover his or its reasonable attorneys' fees and costs incurred in
connection with such action.
<PAGE>
9.13 CHOICE OF LAW. All questions concerning the construction, validity
and interpretation of this Agreement will be governed by the law of the State of
Colorado.
9.14 SURVIVAL. The following provisions of this Agreement shall survive
the termination of Mr. Gast's employment as an employee or independent
contractor and the assignment of this Agreement by the Company to any successor
in interest or other assignee: Sections 2.4, 4, 8, and 9.
9.15 INJUNCTIVE RELIEF. Mr. Gast acknowledges that the restrictions set
forth in Sections 2.4, 4, 8, and 9 above are necessary to protect the Company's
confidential proprietary information and other legitimate business interests and
are reasonable in all respects, including duration, territory and scope of
activity restricted. Mr. Gast further acknowledges that the provisions of
Sections 2.4, 4, 8, and 9 hereof are essential to the Company, that the Company
would not enter into this Agreement if it did not include these provisions and
that damages sustained by the Company as a result of a breach of these
provisions cannot be adequately remedied by damages, and Mr. Gast agrees that
the Company, in addition to any other remedy it may have under this Agreement or
at law, shall be entitled to injunctive and other equitable relief to prevent or
curtail any breach of Sections 2.4, 4, 8, and 9 of this Agreement. Mr. Gast
agrees that the existence of any claim or cause of action by Mr. Gast against
the Company or its affiliates, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
any of the provisions of this Agreement. Mr. Gast shall have no right to enforce
any of his rights under this Agreement by seeking or obtaining injunctive or
other equitable relief and acknowledges that damages are an adequate remedy for
any breach by the Company of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
JATO COMMUNICATIONS CORP.
By: /s/ William D. Myers
----------------------------------
William D. Myers,
Senior Vice President, Finance and
Strategic Planning
By: /s/ Brian E. Gast
----------------------------------
BRIAN E. GAST
<PAGE>
JATO COMMUNICATIONS CORP.
FOUNDERS EMPLOYMENT TRANSITION AND SEPARATION AGREEMENT
FOR
LEONARD ALLSUP
THIS FOUNDERS EMPLOYMENT TRANSITION AND SEPARATION AGREEMENT
("AGREEMENT") is entered into as of the 10th day of February, 2000 ("Execution
Date") by and between LEONARD ALLSUP ("Mr. Allsup") and JATO COMMUNICATIONS
CORP., a Delaware corporation (the "Company").
RECITALS
WHEREAS, Mr. Allsup has been employed by the Company as its Executive
Vice President, Sales; and
WHEREAS, the Company and Mr. Allsup are parties to an employment
agreement dated April 16, 1999; and
WHEREAS, the Company has materially reduced the job responsibilities of
Mr. Allsup; and
WHEREAS, as a result of the material reduction of his job
responsibilities, Mr. Allsup has tendered his resignation with the Company under
the terms and conditions hereinafter set forth; and
WHEREAS, the Company has accepted Mr. Allsup's resignation as Executive
Vice President, Sales; and
WHEREAS, the Company and Mr. Allsup desire to replace the terms of the
April 16, 1999 Employment Agreement; and
WHEREAS, the Company wishes to employ Mr. Allsup in the capacity and
under the terms and conditions hereinafter set forth, and Mr. Allsup is willing
to be so employed by the Company.
NOW, THEREFORE, in consideration of the recitals set forth above that
are incorporated by reference herein and the mutual promises and covenants
contained herein, it is hereby agreed by and between the parties hereto as
follows:
AGREEMENT
1. RESIGNATION. Mr. Allsup has tendered and the Company has accepted Mr.
Allsup's resignation as Executive Vice President, Sales and any and all other
positions he may have held with the Company or any affiliates or subsidiaries of
the Company.
<PAGE>
2. CONTINUED EMPLOYMENT BY THE COMPANY. Mr. Allsup will continue as an employee
of the Company until such time as his employment is terminated as set forth in
paragraph 6 herein. From the Execution Date through the Separation Date, as
defined in paragraph 6 below, Mr. Allsup shall be available to provide such
services as are requested by the Company's Board of Directors.
2.1 COMPENSATION. The Company agrees to continue to compensate Mr.
Allsup at the same rate of regular salary he received as of the Execution Date,
less all applicable deductions and withholdings, payable on a semi-monthly basis
or in accordance with the Company's customary practices (as they may be changed
by the Company from time to time in its sole discretion).
2.2 BENEFITS. The Company shall continue to make available to Mr.
Allsup all Company benefits available and received by Mr. Allsup immediately
before the Execution Date. Notwithstanding the prior sentence, Mr. Allsup agrees
and acknowledges that from the Execution Date through the Separation Date, Mr.
Allsup is not entitled to nor will he accrue any vacation time, holiday leave or
sick leave.
2.3 RESTRICTED STOCK. As of the Execution Date, Mr. Allsup owns or is
deemed to be the beneficial owner of 2,137,334 shares of Common Stock, of which
641,200 are vested and which 1,496,134 are not yet vested. Unless Mr. Allsup
voluntarily resigns as an employee or is terminated for Cause (as defined in the
Employment Agreement) prior to such date, the 1,496,134 unvested shares will
vest the earlier of the Company's initial public offering or in two equal
installments of 748,067 shares on each of March 31, 2000 and June 30, 2000.
2.4 VOLUME LIMITATION. Should the Company launch a $130 million initial
public offering (IPO"), $5 million will be allocated for the sale of a portion
of the Founders' shares (for purposes herein the term "Founders" refers to Bruce
E. Dines, Leonard Allsup and Brian E. Gast). The portion of the offering
allocated for the sale of the Founders' shares can be utilized only after the
Company has raised $125 million in gross proceeds. If, due to strong market
conditions, the size of the offering is increased above $130 million, 50% of
such increase will be allocated for the sale of additional Founders' shares. If
the Company raises at least $125 million in gross proceeds and if the
underwriter's over allotment option (the "Greenshoe") is exercised, 50% of the
Greenshoe will also be allocated for the sale of the Founders' shares. Mr.
Allsup and the other Founders, in addition to being bound by the standard 180
day lockup agreement (the "Standard Lockup"), also agree that the number of
shares the Founders can sell during the 180 day period following the expiration
of the Standard Lockup ("the Additional Lockup") will be limited (the "Volume
Limitation Period"). The terms of the Volume Limitation Period are as follows:
(a) The Founders will be limited to the sale of an aggregate
of 750,000 shares every three months during the Volume Limitation Period. The
Founders shall be solely responsible for allocating the number of shares each
Founder will be permitted to sell per each three month period during the Volume
Limitation Period. However, if the Founders are not permitted to sell at least
$5 million of securities during the IPO, the three month period limitation will
be increased from 750,000 shares to 875,000 shares per each three month period.
Shares
<PAGE>
sold under this provision may be sold in only broadly distributed underwritten
public offerings or normal Rule 144 open market transactions.
(b) As long as Mr. Allsup maintains ownership in the Company
Mr. Allsup shall also be bound by the following restrictions:
(i) to not knowingly sell his shares of the Company
stock to a person or group who, as a result of such sale, would own 5% or more
of the Company's outstanding stock or to directly or indirectly solicit any
person or group to purchase from him or any other Founder shares in the Company
if such person or group, as a result of such purchase, would own 5% or more of
the Company's outstanding stock; and
(ii) to not knowingly sell his shares of the Company
stock to a Company competitor (as defined in paragraph 8.1) or to directly or
indirectly solicit any competitor (as defined in paragraph 8.1) to purchase from
him shares in the Company; and
(iii) to not engage in, or support, a hostile proxy
solicitation.
2.5 VACATION PAY-OUT. The parties agree that on the Separation Date the
accrued but unused vacation shall be 20 days.
2.6 SEPARATION AND RELEASE AGREEMENT. As part of this Agreement, Mr.
Allsup agrees to enter into the Separation and Release Agreement attached hereto
as Exhibit B, within the time set forth in said Separation and Release
Agreement.
3. POLICIES AND PROCEDURES. Mr. Allsup agrees that he is subject to and will
comply with the policies and procedures of the Company, as such policies and
procedures may be modified, added to or eliminated from time to time at the sole
discretion of the Company Board of Directors, except to the extent any such
policy or procedure specifically conflicts with the express terms of this
Agreement. Mr. Allsup further agrees and acknowledges that any written or oral
policies and procedures of the Company do not constitute contracts between the
Company and Mr. Allsup.
4. PROPRIETARY INFORMATION OBLIGATIONS.
4.1 AGREEMENT. Except as set forth herein, Mr. Allsup agrees to
continue to abide by Mr. Allsup's previously executed Non-Competition,
Proprietary Information and Inventions Agreement attached hereto as EXHIBIT A.
4.2 REMEDIES. Mr. Allsup's duties under the Non-Competition,
Proprietary Information and Inventions Agreement shall survive termination of
his employment with the Company. Mr. Allsup acknowledges that a remedy at law
for any breach or threatened breach by him of the provisions of the
Non-competition, Proprietary Information and Inventions Agreement would be
inadequate, and he therefore agrees that the Company shall be entitled to
injunctive relief in case of any such breach or threatened breach. By seeking
injunctive relief the Company does not waive any other rights or remedies it may
have.
<PAGE>
5. OUTSIDE ACTIVITIES. Except with the prior written consent of the Company's
Board of Directors, Mr. Allsup will not, from the Execution Date through the
Separation Date, undertake or engage in any other employment, occupation or
business enterprise, other than those in which Mr. Allsup is a passive investor,
non-executive board member or which takes less than 10% of Mr. Allsup's business
time. Mr. Allsup may engage in civic and not-for-profit activities so long as
such activities do not materially interfere with the performance of his duties
hereunder.
6. TERMINATION OF EMPLOYMENT. Either Mr. Allsup or the Company may terminate the
employment relationship at any time for any reason whatsoever, with thirty (30)
days prior written notice by the Company and with thirty (30) days' prior
written notice by Mr. Allsup with or without Cause or advance notice. This
at-will employment relationship cannot be changed except in a writing approved
by the Board. Notwithstanding this at-will employment relationship, Mr. Allsup's
employment with the Company shall automatically terminate upon the earlier of
the closing of the Company's initial public offering or on June 30, 2000.
Whether terminated for cause, without cause, automatically as provided in the
previous sentence or voluntarily terminated by Mr. Allsup, such termination is
defined herein as the "Separation Date." Mr. Allsup shall remain as a member of
the Board of Directors of the Company and a member of the Board of Directors of
any affiliates or subsidiaries of the Company until June 30, 2000. On June 30,
2000, Mr. Allsup agrees to tender his resignation from the Board of Directors of
the Company and from the Board of Directors of any affiliates or subsidiaries of
the Company.
6.1 SEVERANCE PAYMENT. If the Company terminates Mr. Allsup's
employment without Cause at any time or if Mr. Allsup employment terminates
automatically as set forth in paragraph 6 herein, Mr. Allsup will receive as
severance: (i) a lump sum payment equal to one (1) year of base salary, less
payroll deductions and required withholdings pursuant to the Separation
Agreement attached as Exhibit B, (ii) a lump sum payment of that portion of the
bonus Mr. Allsup is entitled to for the calendar year pro-rated based upon the
number of full months Mr. Allsup was employed in such year pursuant to the
Separation Agreement attached as Exhibit B, (iii) continuation of all Company
Benefits for a period of one (1) year pursuant to the Separation Agreement
attached as Exhibit B, and (iv) termination of all repurchase rights on Mr.
Allsup's stock, in exchange for the execution of a release of all claims against
the Company in the form attached as Exhibit B; PROVIDED, THAT, in the event of
termination due to Disability, this subsection (iv) shall apply only with
respect to 50% of any unvested stock held by Mr. Allsup on the date of
termination and with respect to the waiver of repurchase rights of 50% of any
unvested shares held by Mr. Allsup on the date of termination; PROVIDED,
FURTHER, that Mr. Allsup shall remain a party to, and subject to the provisions
of, the Investors' Rights Agreement. If Mr. Allsup voluntarily resigns or if Mr.
Allsup's employment is terminated for Cause, all compensation and benefits will
cease immediately and Mr. Allsup will receive no severance benefits.
6.2 CAUSE. For purposes of this Agreement, "CAUSE" shall mean
misconduct, including: (i) conviction of any felony or any crime involving moral
turpitude or dishonesty; (ii) participation in a fraud or act of dishonesty
against the Company; (iii) willful breach of the Company's policies; (iv)
intentional damage to the Company's property; (v) material breach of this
Agreement or Mr. Allsup's Proprietary Information and Inventions Agreement; (vi)
a failure or refusal in a material respect of Mr. Allsup to follow the
reasonable policies or directions of the
<PAGE>
Company as specified by the Board of Directors after being provided with notice
of such failure and an opportunity to cure within seven (7) days of receipt of
such notice; or (vii) failure to carry out the duties of the Mr. Allsup's
position after being provided with notice of such failure and an opportunity to
cure. Disability shall not constitute "Cause."
6.3 DISABILITY. For purposes of this Agreement, "DISABILITY" shall mean
a disability that prevents Mr. Allsup from substantially performing his duties
under this Agreement for a period of at least 90 consecutive days or 180
non-consecutive days within any 365-day period.
6.4 DEATH. In the event of death, the Company shall pay to Mr. Allsup's
estate any earned but unpaid salary at the time of death and, at the time such
amount would otherwise have been due, a pro rata portion of a discretionary
bonus, if any, which may otherwise have been paid to Mr. Allsup with respect to
the annual period in which the death occurs. Furthermore, the Company shall
waive its repurchase rights with respect to 50% of any unvested shares as of the
date of death; PROVIDED, HOWEVER, that Mr. Allsup's estate, administrator or
distributor shall become a party to, and be subject to the provisions of, the
Investors' Rights Agreement. In addition, the acceleration provisions set forth
in paragraph 2.3 herein shall remain in effect, PROVIDED, HOWEVER, that Mr.
Allsup's estate, administrator or distributor shall become a party to, and be
subject to the provisions of, this Agreement.
7. BUSINESS EXPENSE REIMBURSEMENT. The Company agrees to reimburse Mr. Allsup
for those reasonable business expenses he necessarily incurs in his capacity as
a Company employee and member of the Board of Directors consistent with the
Company's policies in this regard. Mr. Allsup must submit the necessary
documentation establishing the amount, date and reason for expenses he incurred
and for which he seeks reimbursement.
8. NON-COMPETITION AND NON-SOLICITATION. Mr. Allsup acknowledges that prior to
the Separation Date, the Company employed him, among other things, as a member
of executive and management personnel. Mr. Allsup further acknowledges that
during his employment at the Company, he was and will be privy to extremely
sensitive, confidential and valuable commercial information, which constitutes
trade secrets belonging to the Company, the disclosure of which information and
secrets would greatly harm the Company.
8.1 NON-COMPETITION COVENANT. As a reasonable measure to protect the
Company from the harm of such disclosure and use of its information and trade
secrets against it, Mr. Allsup agrees to the following as part of this
Agreement: Mr. Allsup agrees that he shall not, individually or together with
others, directly or indirectly, during his employment with the Company and for a
period of twelve (12) months from the Separation Date, for any reason, whether
as an owner, consultant, partner, joint venturer, stockholder, broker, agent,
financial agent, principal, trustee, licensor or in any other capacity
whatsoever, own, manage, operate, join, control, finance or participate in the
ownership, management, operation, control or financing of, or be connected as an
officer, director, employee, partner, principal, agent, representative,
consultant, licensor, licensee or otherwise with, any business or enterprise in
any city, county, or state of the United States, or any other locality, region,
territory, country, or jurisdiction, which provides high speed data transmission
services in a market in which the Company has at least one (1) operational DSLAM
or at least one (1) central office location under construction as of the
Separation Date. An acquisition or ownership of less than 5% of the
<PAGE>
outstanding shares of any publicly traded company will not constitute a
violation of this Agreement.
8.2 NON-SOLICITATION COVENANT. As a reasonable measure to protect the
Company from the harm of such disclosure and use of its information and trade
secrets against it, the parties agree to the following as part of this
Agreement: Mr. Allsup acknowledges and agrees that information regarding
employees of the Company is Confidential Information, including without
limitation, the names of the Company employees; information regarding the skills
and knowledge of employees of the Company; information regarding any past,
present, or intended compensation, benefits, policies and incentives for
employees of the Company; and information regarding the management and reporting
structure of the Company. Mr. Allsup agrees that he will not, individually or
with others, directly or indirectly (including without limitation, individually
or through any business, venture, proprietorship, partnership, or corporation in
which they control or own more than a five (5) percent interest, through any
agents, through any contractors, through recruiters, by their successors, by
their employees, or by their assigns) hire, solicit, or induce any employee of
the Company to leave the Company during the period Mr. Allsup is employed by the
Company and for a period of twelve (12) months from the Separation Date. Mr.
Allsup further agrees that during the period he is employed by the Company and
for a period of twelve (12) months from the Separation Date, he will not, either
directly or indirectly, solicit or attempt to solicit any customer, client,
supplier, investor, vendor, consultant or independent contractor of the Company
to terminate, reduce or negatively alter his, her or its relationship with the
Company. The geographic scope of the covenants in this paragraph shall include
any city, county, or state of the United States and any such other city,
territory, country, or jurisdiction in which the Company does business. Nothing
in this paragraph should be construed to narrow the obligations of Mr. Allsup
imposed by any other provision herein, any other agreement, law or other source.
8.3 REASONABLE. Mr. Allsup agrees and acknowledges that the time
limitation and the geographic scope on the restrictions in this paragraph 8 and
its subparts are reasonable. Mr. Allsup also acknowledges and agrees that the
limitation in this paragraph 8 and its subparts is reasonably necessary for the
protection of the Company, that through this Agreement he shall receive adequate
consideration for any loss of opportunity associated with the provisions herein,
and that these provisions provide a reasonable way of protecting the Company's
business value which was imparted to him. In the event that any term, word,
clause, phrase, provision, restriction, or section of this paragraph 8 of this
Agreement is more restrictive than permitted by the law of the jurisdiction in
which the Company seeks enforcement thereof, the provisions of this Agreement
shall be limited only to that extent that a judicial determination finds the
same to be unreasonable or otherwise unenforceable. Moreover, notwithstanding
any judicial determination that any term, word, clause, phrase, provision,
restriction, or section of this Agreement is not specifically enforceable, the
parties intend that the Company shall nonetheless be entitled to recover
monetary damages as a result of any breach hereof.
8.4 LEGAL AND EQUITABLE REMEDIES. In view of the nature of the rights
in goodwill, employee relations, trade secrets, and business reputation and
prospects of the Company to be protected under this paragraph 8 of this
Agreement, Mr. Allsup understands and agrees that the Company could not be
reasonably or adequately compensated in damages in an action at law for Mr.
Allsup's breach of his obligations hereunder. Accordingly, Mr. Allsup
specifically agrees
<PAGE>
that the Company shall be entitled to temporary and permanent injunctive relief,
specific performance, and other equitable relief to enforce the provisions of
this paragraph 8 of this Agreement and that such relief may be granted without
the necessity of proving actual damages, and without bond. MR. ALLSUP
ACKNOWLEDGES AND AGREES THAT THE PROVISIONS IN THIS PARAGRAPH 8 AND ITS SUBPARTS
ARE ESSENTIAL AND MATERIAL TO THIS AGREEMENT, AND THAT UPON BREACH OF THIS
PARAGRAPH 8 BY HIM, THE COMPANY IS ENTITLED TO WITHHOLD PROVIDING PAYMENTS OR
CONSIDERATION, TO EQUITABLE RELIEF TO PREVENT CONTINUED BREACH, TO RECOVER
DAMAGES AND TO SEEK ANY OTHER REMEDIES AVAILABLE TO THE COMPANY. This provision
with respect to injunctive relief shall not, however, diminish the right of the
Company to claim and recover damages or other remedies in addition to equitable
relief.
8.5 EXTENSION OF TIME. In the event that Mr. Allsup breaches any
covenant, obligation or duty in this paragraph 8 or its subparts, any such duty,
obligation, or covenants to which the parties agreed by this paragraph 8 and its
subparts shall automatically toll from the date of the first breach, and all
subsequent breaches, until the resolution of the breach through private
settlement, judicial or other action, including all appeals. The duration and
length of Mr. Allsup's duties and obligations as agreed by this paragraph 8 and
its subparts shall continue upon the effective date of any such settlement, or
judicial or other resolution.
9. GENERAL PROVISIONS.
9.1 NOTICES. Any notices provided hereunder must be in writing and
shall be deemed effective upon the earlier of personal delivery (including
personal delivery by telex) or the third day after mailing by first class mail,
to the Company at its primary office location and to Mr. Allsup at his address
as listed on the Company's then current payroll records.
9.2 TAX CONSEQUENCES. Mr. Allsup agrees to indemnify the Company and
hold the Company harmless from any and all claims or penalties asserted against
the Company for any failure to pay taxes due on any consideration provided by
the Company pursuant to this Agreement. Mr. Allsup expressly acknowledges that
the Company has not made, nor herein makes, any representation about the tax
consequences of any consideration provided by the Company to Mr. Allsup pursuant
to this Agreement.
9.3 COOPERATION. Mr. Allsup agrees to fully cooperate with the Company
with respect to its corporate relationships. Mr. Allsup further agrees to
cooperate with the Company in connection with any defense of or prosecution by
the Company regarding any litigation in which the Company may be involved as a
party or non-party in from time to time.
9.4 NON-DISPARAGEMENT. Mr. Allsup and the Company agree that neither
party will at any time disparage the other to third parties in any manner likely
to be harmful to the other party, their business reputation, or the personal or
business reputation of its directors, shareholders and/or employees.
Notwithstanding the prohibition in the preceding sentence, each party shall
respond accurately and fully to any question, inquiry, or request for
information when required by legal process, or when posed by a governmental
entity
9.5 THE COMPANY PROPERTY. Unless authorized by the Company, on the
Separation Date, Mr. Allsup agrees to return to the Company all Company
documents (and all copies
<PAGE>
thereof) and any and all other Company property in Mr. Allsup's possession,
custody or control, including, but not limited to, financial information,
customer information, customer lists, employee lists, Company files, notes,
cellular telephones, personal computers, personal computers, contracts,
drawings, records, business plans and forecasts, financial information,
specifications, computer-recorded information, software, tangible property,
credit cards, entry cards, identification badges and keys, and any materials of
any kind which contain or embody any proprietary or confidential material of the
Company (and all reproductions thereof).
9.6 SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provisions had never been contained herein.
9.7 WAIVER. If either party should waive any breach of any provisions
of this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
9.8 COMPLETE AGREEMENT. This Agreement and EXHIBITS A AND B hereto,
constitute the entire agreement between Mr. Allsup and the Company and it is the
complete, final, and exclusive embodiment of their agreement with regard to this
subject matter. This Agreement supersedes and replaces the Employment Agreement
dated April 16, 1999. It is entered into without reliance on any promise or
representation other than those expressly contained herein, and it cannot be
modified or amended except in a writing signed by an officer of the Company.
9.9 COUNTERPARTS. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.
9.10 HEADINGS. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
9.11 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Mr. Allsup and the Company, and
their respective successors, assigns, heirs, executors and administrators,
except that Mr. Allsup may not assign any of his duties hereunder and he may not
assign any of his rights hereunder without the written consent of the Company,
which shall not be withheld unreasonably.
9.12 ATTORNEY FEES. If either party hereto brings any action to enforce
his or its rights hereunder, the prevailing party in any such action shall be
entitled to recover his or its reasonable attorneys' fees and costs incurred in
connection with such action.
9.13 CHOICE OF LAW. All questions concerning the construction, validity
and interpretation of this Agreement will be governed by the law of the State of
Colorado.
<PAGE>
9.14 SURVIVAL. The following provisions of this Agreement shall survive
the termination of Mr. Allsup's employment as an employee or independent
contractor and the assignment of this Agreement by the Company to any successor
in interest or other assignee: Sections 2.4, 4, 8, and 9.
9.15 INJUNCTIVE RELIEF. Mr. Allsup acknowledges that the restrictions
set forth in Sections 2.4, 4, 8, and 9 above are necessary to protect the
Company's confidential proprietary information and other legitimate business
interests and are reasonable in all respects, including duration, territory and
scope of activity restricted. Mr. Allsup further acknowledges that the
provisions of Sections 2.4, 4, 8, and 9 hereof are essential to the Company,
that the Company would not enter into this Agreement if it did not include these
provisions and that damages sustained by the Company as a result of a breach of
these provisions cannot be adequately remedied by damages, and Mr. Allsup agrees
that the Company, in addition to any other remedy it may have under this
Agreement or at law, shall be entitled to injunctive and other equitable relief
to prevent or curtail any breach of Sections 2.4, 4, 8, and 9 of this Agreement.
Mr. Allsup agrees that the existence of any claim or cause of action by Mr.
Allsup against the Company or its affiliates, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by the
Company of any of the provisions of this Agreement. Mr. Allsup shall have no
right to enforce any of his rights under this Agreement by seeking or obtaining
injunctive or other equitable relief and acknowledges that damages are an
adequate remedy for any breach by the Company of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
JATO COMMUNICATIONS CORP.
By: /s/ William D. Myers
----------------------------------
William D.Myers,
Senior Vice President, Finance and
Strategic Planning
By: /s/ Leonard Allsup
----------------------------------
LEONARD ALLSUP
<PAGE>
JATO COMMUNICATIONS CORP.
FOUNDERS EMPLOYMENT TRANSITION AND SEPARATION AGREEMENT
FOR
BRUCE E. DINES
THIS FOUNDER EMPLOYMENT TRANSITION AND SEPARATION AGREEMENT
("AGREEMENT") is entered into as of the 10th day of February, 2000 ("Execution
Date") by and between BRUCE E. DINES ("Mr. Dines") and JATO COMMUNICATIONS
Corp., a Delaware corporation (the "Company").
RECITALS
WHEREAS, Mr. Dines is currently employed by the Company as its Vice
President, Customer Operations and Executive; and
WHEREAS, the Company and Mr. Dines are parties to an employment
agreement dated April 16, 1999; and
WHEREAS, the Company has materially reduced the job responsibilities of
Mr. Dines; and
WHEREAS, as a result of the material reduction of his job
responsibilities, Mr. Dines has tendered his resignation with the Company under
the terms and conditions hereinafter set forth; and
WHEREAS, the Company has accepted Mr. Dines' resignation as Vice
President, Customer Operations and Executive; and
WHEREAS, the Company and Mr. Dines desire to replace the terms of the
April 16, 1999 Employment Agreement; and
WHEREAS, the Company wishes to employ Mr. Dines in the capacity and
under the terms and conditions hereinafter set forth, and Mr. Dines is willing
to be so employed by the Company.
NOW, THEREFORE, in consideration of the recitals set forth above that
are incorporated by reference herein and the mutual promises and covenants
contained herein, it is hereby agreed by and between the parties hereto as
follows:
AGREEMENT
1. RESIGNATION. Mr. Dines has tendered and the Company has accepted Mr.
Dines' resignation as Vice President, Customer Operations and Executive and any
and all other positions he may have held with the Company or any affiliates or
subsidiaries of the Company.
<PAGE>
2. CONTINUED EMPLOYMENT BY THE COMPANY. Mr. Dines will continue as an
employee of the Company until such time as his employment is terminated as set
forth in paragraph 6 herein. From the Execution Date through the Separation
Date, as defined in paragraph 6 below, Mr. Dines shall be available to provide
such services as are requested by the Company's Board of Directors.
2.1 COMPENSATION. The Company agrees to continue to compensate Mr.
Dines at the same rate of regular salary he received as of the Execution Date,
less all applicable deductions and withholdings, payable on a semi-monthly basis
or in accordance with the Company's customary practices (as they may be changed
by the Company from time to time in its sole discretion).
2.2 BENEFITS. The Company shall continue to make available to Mr.
Dines all Company benefits available and received by Mr. Dines immediately
before the Execution Date. Notwithstanding the prior sentence, Mr. Dines agrees
and acknowledges that from the Execution Date through the Separation Date, Mr.
Dines is not entitled to nor will he accrue any vacation time, holiday leave or
sick leave.
2.3 RESTRICTED STOCK. As of the Execution Date, Mr. Dines owns or
is deemed to be the beneficial owner of 1,157,334 shares of Common Stock, of
which 347,200 are vested and which 810,134 are not yet vested. Unless Mr. Dines
voluntarily resigns as an employee or is terminated for Cause (as defined in
paragraph 6 below) prior to such date, the 810,134 unvested shares will vest the
earlier of the Company's initial public offering or in two equal installments of
405,067 shares on each of March 31, 2000 and June 30, 2000.
2.4 VOLUME LIMITATION. Should the Company launch a $130 million
initial public offering (IPO"), $5 million will be allocated for the sale of a
portion of the Founders' shares (for purposes herein the term "Founders" refers
to Bruce E. Dines, Leonard Allsup and Brian E. Gast). The portion of the
offering allocated for the sale of the Founders' shares can be utilized only
after the Company has raised $125 million in gross proceeds. If, due to strong
market conditions, the size of the offering is increased above $130 million, 50%
of such increase will be allocated for the sale of additional Founders' shares.
If the Company raises at least $125 million in gross proceeds and if the
underwriter's over allotment option (the "Greenshoe") is exercised, 50% of the
Greenshoe will also be allocated for the sale of the Founders' shares. Mr. Dines
and the other Founders, in addition to being bound by the standard 180 day
lockup agreement (the "Standard Lockup"), also agree that the number of shares
the Founders can sell during the 180 day period following the expiration of the
Standard Lockup (the "Additional Lockup") will be limited (the "Volume
Limitation Period"). The terms of the Volume Limitation Period are as follows:
(a) The Founders will be limited to the sale of an
aggregate of 750,000 shares every three months during the Volume Limitation
Period. The Founders shall be solely responsible for allocating the number of
shares each Founder will be permitted to sell per each three month period during
the Volume Limitation Period. However, if the Founders are not permitted to sell
at least $5 million of securities during the IPO, the three month period
limitation will be increased from 750,000 shares to 875,000 shares per each
three month period. Shares
<PAGE>
sold under this provision may be sold in only broadly distributed underwritten
public offerings or normal Rule 144 open market transactions.
(b) As long as Mr. Dines maintains ownership in the
Company Mr. Dines shall also be bound by the following restrictions:
(i) to not knowingly sell his shares of the Company
stock to a person or group who, as a result of such sale, would own 5% or more
of the Company's outstanding stock or to directly or indirectly solicit any
person or group to purchase from him or any other Founder shares in the Company
if such person or group, as a result of such purchase, would own 5% or more of
the Company's outstanding stock; and
(ii) to not knowingly sell his shares of the Company
stock to a Company competitor (as defined in paragraph 8.1 below) or to directly
or indirectly solicit any competitor (as defined in paragraph 8.1 below) to
purchase from him shares in the Company; and
(iii) to not engage in, or support, a hostile proxy
solicitation.
2.5 THE DYNEX & CO. SHARES. The Company agrees, as allowed by
applicable law, to exclude from the Additional Lockup 66,666 shares of the
Company's Series A Preferred Stock held by DYNEX & Co of which Mr. Dines' owes a
beneficial one-third interest in.
2.6 VACATION PAY-OUT. The parties agree that on the Separation
Date the accrued but unused vacation shall be 20 days.
2.7 SEPARATION AND RELEASE AGREEMENT. As part of this Agreement,
Mr. Dines agrees to enter into the Separation and Release Agreement attached
hereto as Exhibit B, within the time set forth in said Separation and Release
Agreement.
3. POLICIES AND PROCEDURES. Mr. Dines agrees that he is subject to and
will comply with the policies and procedures of the Company, as such policies
and procedures may be modified, added to or eliminated from time to time at the
sole discretion of the Company Board of Directors, except to the extent any such
policy or procedure specifically conflicts with the express terms of this
Agreement. Mr. Dines further agrees and acknowledges that any written or oral
policies and procedures of the Company do not constitute contracts between the
Company and Mr. Dines.
4. PROPRIETARY INFORMATION OBLIGATIONS.
4.1 AGREEMENT. Except as set forth herein, Mr. Dines agrees to
continue to abide by Mr. Dines' previously executed Non-Competition, Proprietary
Information and Inventions Agreement attached hereto as EXHIBIT A.
4.2 REMEDIES. Mr. Dines' duties under the Non-competition,
Proprietary Information and Inventions Agreement shall survive termination of
his employment with the Company. Mr. Dines acknowledges that a remedy at law for
any breach or threatened breach by him of the provisions of the Non-competition,
Proprietary Information and Inventions Agreement would be inadequate, and he
therefore agrees that the Company shall be entitled to injunctive relief in case
<PAGE>
of any such breach or threatened breach. By seeking injunctive relief the
Company does not waive any other rights or remedies it may have.
5. OUTSIDE ACTIVITIES. Except with the prior written consent of the
Company's Board of Directors, Mr. Dines will not, from the Execution Date
through the Separation Date, undertake or engage in any other employment,
occupation or business enterprise, other than those in which Mr. Dines is a
passive investor, non-executive board member or which takes less than 10% of Mr.
Dines' business time. Mr. Dines may engage in civic and not-for-profit
activities so long as such activities do not materially interfere with the
performance of his duties hereunder.
6. TERMINATION OF EMPLOYMENT. Either Mr. Dines or the Company may
terminate the employment relationship at any time for any reason whatsoever,
with thirty (30) days prior written notice by the Company and with thirty (30)
days' prior written notice by Mr. Dines with or without Cause or advance notice.
This at-will employment relationship cannot be changed except in a writing
approved by the Board. Notwithstanding this at-will employment relationship, Mr.
Dines' employment with the Company and any affiliates or subsidiaries of the
Company, including any position as a member of the board of directors of the
Company or any affiliates or subsidiaries of the Company shall automatically
terminate upon the earlier of the closing of the Company's initial public
offering or on June 30, 2000. Whether terminated for cause, without cause,
automatically as provided in the previous sentence or voluntarily terminated by
Mr. Dines, such termination is defined herein as the "Separation Date."
6.1 SEVERANCE PAYMENT. If the Company terminates Mr. Dines'
employment without Cause at any time or if Mr. Dines employment terminates
automatically as set forth in paragraph 6 herein, Mr. Dines will receive as
severance: (i) a lump sum payment equal to one (1) year of base salary, less
payroll deductions and required withholdings, pursuant to the terms of the
Separation Agreement, attached as Exhibit B (ii) a lump sum payment of that
portion of the bonus Mr. Dines is entitled to for the calendar year pro-rated
based upon the number of full months Mr. Dines was employed in such year,
pursuant to the terms of the Separation Agreement, attached as Exhibit B (iii)
continuation of all company benefits for a period of one (1) year pursuant to
the terms of the Separation Agreement, attached as Exhibit B, and (iv)
termination of all repurchase rights on Mr. Dines' stock, in exchange for the
execution of a release of all claims against the Company in the form attached as
Exhibit B; PROVIDED, THAT, in the event of termination due to Disability, this
subsection (iv) shall apply only with respect to 50% of any unvested stock held
by Mr. Dines on the date of termination and with respect to the waiver of
repurchase rights of 50% of any unvested shares held by Mr. Dines on the date of
termination; PROVIDED, FURTHER, that Mr. Dines shall remain a party to, and
subject to the provisions of, the Investors' Rights Agreement. If Mr. Dines
voluntarily resigns or if Mr. Dines' employment is terminated for Cause, all
compensation and benefits will cease immediately and Mr. Dines will receive no
severance benefits.
6.2 CAUSE. For purposes of this Agreement, "CAUSE" shall mean
misconduct, including: (i) conviction of any felony or any crime involving moral
turpitude or dishonesty; (ii) participation in a fraud or act of dishonesty
against the Company; (iii) willful breach of the Company's policies; (iv)
intentional damage to the Company's property; (v) material breach of this
Agreement or Mr. Dines' Proprietary Information and Inventions Agreement; (vi) a
failure or refusal in a material respect of Mr. Dines to follow the reasonable
policies or directions of the
<PAGE>
Company as specified by the Board of Directors after being provided with notice
of such failure and an opportunity to cure within seven (7) days of receipt of
such notice; or (vii) failure to carry out the duties of the Mr. Dines' position
after being provided with notice of such failure and an opportunity to cure.
Disability shall not constitute "Cause."
6.3 DISABILITY. For purposes of this Agreement, "DISABILITY" shall
mean a disability that prevents Mr. Dines from substantially performing his
duties under this Agreement for a period of at least 90 consecutive days or 180
non-consecutive days within any 365-day period.
6.4 DEATH. In the event of death, the Company shall pay to
Mr. Dines' estate any earned but unpaid salary at the time of death and, at the
time such amount would otherwise have been due, a pro rata portion of a
discretionary bonus, if any, which may otherwise have been paid to Mr. Dines
with respect to the annual period in which the death occurs. The Company shall
waive its repurchase rights with respect to 50% of any unvested shares as of the
date of death; PROVIDED, HOWEVER, that Mr. Dines' estate, administrator or
distributor shall become a party to, and be subject to the provisions of, the
Investors' Rights Agreement. In addition, the acceleration provisions set forth
in paragraph 2.3 herein shall remain in effect, PROVIDED, HOWEVER, that Mr.
Dines' estate, administrator or distributor shall become a party to, and be
subject to the provisions of, this Agreement.
7. BUSINESS EXPENSE REIMBURSEMENT. The Company agrees to reimburse Mr.
Dines for those reasonable business expenses he necessarily incurs in his
capacity as a Company employee and member of the Board of Directors consistent
with the Company's policies in this regard. Mr. Dines must submit the necessary
documentation establishing the amount, date and reason for expenses he incurred
and for which he seeks reimbursement.
8. NON-COMPETITION AND NON-SOLICITATION. Mr. Dines acknowledges that prior
to the Separation Date, the Company employed him, among other things, as a
member of executive and management personnel. Mr. Dines further acknowledges
that during his employment at the Company, he was and will be privy to extremely
sensitive, confidential and valuable commercial information, which constitutes
trade secrets belonging to the Company, the disclosure of which information and
secrets would greatly harm the Company.
8.1 NON-COMPETITION COVENANT. As a reasonable measure to protect
the Company from the harm of such disclosure and use of its information and
trade secrets against it, Mr. Dines agrees to the following as part of this
Agreement: Mr. Dines agrees that he shall not, individually or together with
others, directly or indirectly, during his employment with the Company and for a
period of twelve (12) months from the Separation Date, for any reason, whether
as an owner, consultant, partner, joint venturer, stockholder, broker, agent,
financial agent, principal, trustee, licensor or in any other capacity
whatsoever, own, manage, operate, join, control, finance or participate in the
ownership, management, operation, control or financing of, or be connected as an
officer, director, employee, partner, principal, agent, representative,
consultant, licensor, licensee or otherwise with, any business or enterprise in
any city, county, or state of the United States, or any other locality, region,
territory, country, or jurisdiction, which provides high speed data transmission
services in a market in which the Company has at least one (1) operational DSLAM
or at least one (1) central office location under construction as of the
Separation Date. An acquisition or ownership of less than 5% of the
<PAGE>
outstanding shares of any publicly traded company will not constitute a
violation of this Agreement.
8.2 NON-SOLICITATION COVENANT. As a reasonable measure to protect
the Company from the harm of such disclosure and use of its information and
trade secrets against it, the parties agree to the following as part of this
Agreement: Mr. Dines acknowledges and agrees that information regarding
employees of the Company is Confidential Information, including without
limitation, the names of the Company employees; information regarding the skills
and knowledge of employees of the Company; information regarding any past,
present, or intended compensation, benefits, policies and incentives for
employees of the Company; and information regarding the management and reporting
structure of the Company. Mr. Dines agrees that he will not, individually or
with others, directly or indirectly (including without limitation, individually
or through any business, venture, proprietorship, partnership, or corporation in
which they control or own more than a five (5) percent interest, through any
agents, through any contractors, through recruiters, by their successors, by
their employees, or by their assigns) hire, solicit, or induce any employee of
the Company to leave the Company during the period Mr. Dines is employed by the
Company and for a period of twelve (12) months from the Separation Date. Mr.
Dines further agrees that during the period he is employed by the Company and
for a period of twelve (12) months from the Separation Date, he will not, either
directly or indirectly, solicit or attempt to solicit any customer, client,
supplier, investor, vendor, consultant or independent contractor of the Company
to terminate, reduce or negatively alter his, her or its relationship with the
Company. The geographic scope of the covenants in this paragraph shall include
any city, county, or state of the United States and any such other city,
territory, country, or jurisdiction in which the Company does business. Nothing
in this paragraph should be construed to narrow the obligations of Mr. Dines
imposed by any other provision herein, any other agreement, law or other source.
8.3 REASONABLE. Mr. Dines agrees and acknowledges that the time
limitation and the geographic scope on the restrictions in this paragraph 8 and
its subparts are reasonable. Mr. Dines also acknowledges and agrees that the
limitation in this paragraph 8 and its subparts is reasonably necessary for the
protection of the Company, that through this Agreement he shall receive adequate
consideration for any loss of opportunity associated with the provisions herein,
and that these provisions provide a reasonable way of protecting the Company's
business value which was imparted to him. In the event that any term, word,
clause, phrase, provision, restriction, or section of this paragraph 8 of this
Agreement is more restrictive than permitted by the law of the jurisdiction in
which the Company seeks enforcement thereof, the provisions of this Agreement
shall be limited only to that extent that a judicial determination finds the
same to be unreasonable or otherwise unenforceable. Moreover, notwithstanding
any judicial determination that any term, word, clause, phrase, provision,
restriction, or section of this Agreement is not specifically enforceable, the
parties intend that the Company shall nonetheless be entitled to recover
monetary damages as a result of any breach hereof.
8.4 LEGAL AND EQUITABLE REMEDIES. In view of the nature of the
rights in goodwill, employee relations, trade secrets, and business reputation
and prospects of the Company to be protected under this paragraph 8 of this
Agreement, Mr. Dines understands and agrees that the Company could not be
reasonably or adequately compensated in damages in an action at law for Mr.
Dines' breach of his obligations hereunder. Accordingly, Mr. Dines specifically
agrees that
<PAGE>
the Company shall be entitled to temporary and permanent injunctive relief,
specific performance, and other equitable relief to enforce the provisions of
this paragraph 8 of this Agreement and that such relief may be granted without
the necessity of proving actual damages, and without bond. MR. DINES
ACKNOWLEDGES AND AGREES THAT THE PROVISIONS IN THIS PARAGRAPH 8 AND ITS SUBPARTS
ARE ESSENTIAL AND MATERIAL TO THIS AGREEMENT, AND THAT UPON BREACH OF THIS
PARAGRAPH 8 BY HIM, THE COMPANY IS ENTITLED TO WITHHOLD PROVIDING PAYMENTS OR
CONSIDERATION, TO EQUITABLE RELIEF TO PREVENT CONTINUED BREACH, TO RECOVER
DAMAGES AND TO SEEK ANY OTHER REMEDIES AVAILABLE TO THE COMPANY. This provision
with respect to injunctive relief shall not, however, diminish the right of the
Company to claim and recover damages or other remedies in addition to equitable
relief.
8.5 EXTENSION OF TIME. In the event that Mr. Dines breaches any
covenant, obligation or duty in this paragraph 8 or its subparts, any such duty,
obligation, or covenants to which the parties agreed by this paragraph 8 and its
subparts shall automatically toll from the date of the first breach, and all
subsequent breaches, until the resolution of the breach through private
settlement, judicial or other action, including all appeals. The duration and
length of Mr. Dines' duties and obligations as agreed by this paragraph 8 and
its subparts shall continue upon the effective date of any such settlement, or
judicial or other resolution.
9. GENERAL PROVISIONS.
9.1 NOTICES. Any notices provided hereunder must be in writing and
shall be deemed effective upon the earlier of personal delivery (including
personal delivery by telex) or the third day after mailing by first class mail,
to the Company at its primary office location and to Mr. Dines at his address as
listed on the Company's then current payroll records.
9.2 TAX CONSEQUENCES. Mr. Dines agrees to indemnify the Company
and hold the Company harmless from any and all claims or penalties asserted
against the Company for any failure to pay taxes due on any consideration
provided by the Company pursuant to this Agreement. Mr. Dines expressly
acknowledges that the Company has not made, nor herein makes, any representation
about the tax consequences of any consideration provided by the Company to Mr.
Dines pursuant to this Agreement.
9.3 COOPERATION. Mr. Dines agrees to fully cooperate with the
Company with respect to its corporate relationships. Mr. Dines further agrees to
cooperate with the Company in connection with any defense of or prosecution by
the Company regarding any litigation in which the Company may be involved as a
party or non-party in from time to time.
9.4 NON-DISPARAGEMENT. Mr. Dines and the Company agree that
neither party will at any time disparage the other to third parties in any
manner likely to be harmful to the other party, their business reputation, or
the personal or business reputation of its directors, shareholders and/or
employees. Notwithstanding the prohibition in the preceding sentence, each party
shall respond accurately and fully to any question, inquiry, or request for
information when required by legal process, or when posed by a governmental
entity
9.5 THE COMPANY PROPERTY. Unless authorized by the Company, on the
Separation Date, Mr. Dines agrees to return to the Company all Company documents
(and all copies
<PAGE>
thereof) and any and all other Company property in Mr. Dines' possession,
custody or control, including, but not limited to, financial information,
customer information, customer lists, employee lists, Company files, notes,
cellular telephones, personal computers, personal computers, contracts,
drawings, records, business plans and forecasts, financial information,
specifications, computer-recorded information, software, tangible property,
credit cards, entry cards, identification badges and keys, and any materials of
any kind which contain or embody any proprietary or confidential material of the
Company (and all reproductions thereof).
9.6 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provisions had never been contained herein.
9.7 WAIVER. If either party should waive any breach of any
provisions of this Agreement, he or it shall not thereby be deemed to have
waived any preceding or succeeding breach of the same or any other provision of
this Agreement.
9.8 COMPLETE AGREEMENT. This Agreement and EXHIBITS A AND B
hereto, constitute the entire agreement between Mr. Dines and the Company and it
is the complete, final, and exclusive embodiment of their agreement with regard
to this subject matter. This Agreement supersedes and replaces the Employment
Agreement dated April 16, 1999. It is entered into without reliance on any
promise or representation other than those expressly contained herein, and it
cannot be modified or amended except in a writing signed by an officer of the
Company.
9.9 COUNTERPARTS. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.
9.10 HEADINGS. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
9.11 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Mr. Dines and the Company, and
their respective successors, assigns, heirs, executors and administrators,
except that Mr. Dines may not assign any of his duties hereunder and he may not
assign any of his rights hereunder without the written consent of the Company,
which shall not be withheld unreasonably.
9.12 ATTORNEY FEES. If either party hereto brings any action to
enforce his or its rights hereunder, the prevailing party in any such action
shall be entitled to recover his or its reasonable attorneys' fees and costs
incurred in connection with such action.
9.13 CHOICE OF LAW. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by the law of the
State of Colorado.
<PAGE>
9.14 SURVIVAL. The following provisions of this Agreement shall
survive the termination of Mr. Dines' employment as an employee or independent
contractor and the assignment of this Agreement by the Company to any successor
in interest or other assignee: Sections 2.4, 4, 8, and 9.
9.15 INJUNCTIVE RELIEF. Mr. Dines acknowledges that the
restrictions set forth in Sections 2.4, 4, 8, and 9 above are necessary to
protect the Company's confidential proprietary information and other legitimate
business interests and are reasonable in all respects, including duration,
territory and scope of activity restricted. Mr. Dines further acknowledges that
the provisions of Sections 2.4, 4, 8, and 9 hereof are essential to the Company,
that the Company would not enter into this Agreement if it did not include these
provisions and that damages sustained by the Company as a result of a breach of
these provisions cannot be adequately remedied by damages, and Mr. Dines agrees
that the Company, in addition to any other remedy it may have under this
Agreement or at law, shall be entitled to injunctive and other equitable relief
to prevent or curtail any breach of Sections 2.4, 4, 8, and 9 of this Agreement.
Mr. Dines agrees that the existence of any claim or cause of action by Mr. Dines
against the Company or its affiliates, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
any of the provisions of this Agreement. Mr. Dines shall have no right to
enforce any of his rights under this Agreement by seeking or obtaining
injunctive or other equitable relief and acknowledges that damages are an
adequate remedy for any breach by the Company of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
JATO COMMUNICATIONS CORP.
By: /s/ William D. Myers
---------------------------------
William D. Myers,
Senior Vice President, Finance
and Strategic Planning
By: /s/ Bruce E. Dines
---------------------------------
BRUCE E. DINES
<PAGE>
JATO COMMUNICATIONS CORP.
AMENDED EMPLOYMENT AGREEMENT
FOR
GERALD K. DINSMORE
THIS AMENDED EMPLOYMENT AGREEMENT ("AGREEMENT") is entered into as of
the 16th day of November, 1999 (the "EFFECTIVE DATE"), by and between GERALD
K. DINSMORE ("EXECUTIVE") and JATO COMMUNICATIONS CORP., a Delaware
corporation (the "COMPANY").
WHEREAS, the Company employed Executive as its President and Chief
Operating Officer under an Employment Agreement dated as of August 31, 1999;
and
WHEREAS, Executive and the Company have agreed that Executive shall
assume the responsibilities as Chief Executive Officer commencing November
16, 1999; and
WHEREAS, Executive wishes to be employed by the Company and provide
personal services to the Company in return for certain compensation and
benefits;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, it is hereby agreed by and between the parties hereto as
follows:
1. EMPLOYMENT BY THE COMPANY.
1.1 TERM. Subject to terms set forth herein, for a period of two (2)
years commencing on the Effective Date, the Company agrees to employ
Executive in the position of President and Chief Executive Officer and
Executive hereby accepts such employment as of the Effective Date. Executive
shall continue to serve as a member of the Company's Board of Directors. At
the end of the initial two-year term, this Agreement shall automatically
renew on a month-to-month basis unless either party gives thirty (30) days'
prior written notice to the other party. During the term of his employment
with the Company, Executive will devote his best efforts and substantially
all of his business time and attention (except for vacation periods and
reasonable periods of illness or other incapacities permitted by the
Company's general employment policies) to the business of the Company.
1.2 DUTIES. Executive shall serve in an executive capacity and shall
perform such duties as are customarily associated with his then existing
title(s), consistent with the Bylaws of the Company and as required by the
Company's Board of Directors (the "BOARD").
1.3 EMPLOYMENT RELATIONSHIP. The employment relationship between the
parties shall also be governed by the general employment policies and
practices of the Company, including those relating to protection of
confidential information and assignment of inventions, except that when the
terms of this Agreement differ from or are in conflict with the Company's
general employment policies or practices, this Agreement shall control.
1
<PAGE>
2. COMPENSATION.
2.1 SALARY. Executive shall receive for services to be rendered
hereunder an annualized base salary of $300,000, commencing December 3, 1999,
payable on a semi-monthly basis, which will be reviewed annually at the
discretion of the Compensation Committee of the Board of Directors.
Executive's base salary shall be increased annually by an amount determined
by the Board of Directors.
2.2 BONUS. Executive will be eligible for a discretionary bonus of up
to 100% of his base salary, in an amount to be determined solely by the
Compensation Committee in its discretion, upon achieving targets established
by the Board subject to the terms and conditions outlined in a Company bonus
plan, which may be established and in effect from time to time. In addition,
subject to Executive not terminating his employment with Jato, principal and
interest on the Promissory Note dated this date will be forgiven in two
installments of equal amount; the first installment upon the first
anniversary of Executive's start date. Upon each such installment Jato will
pay Executive a payment of $80,000 to cover taxes associated with note
forgiveness. All principal and interest related to the Promissory Note will
be forgiven and both tax-related payment will be paid upon the occurrence of
an Acceleration Event as defined above.
2.3 STOCK RIGHTS. Concurrently with the execution of this Agreement,
Executive will be granted an option to purchase 800,000 shares of Common
Stock of the Company on the terms set forth in the Stock Option Grant Notice
attached hereto as EXHIBIT A (the "GRANT NOTICE"). Executive agrees to be
bound by the terms of the Stockholders' Agreement dated April 16, 1999,
attached hereto as EXHIBIT B with respect to any shares acquired upon
exercise of such option.
2.4 RELOCATION/COMMUTING EXPENSES. Jato will provide the following to
support the expenses of Executive's relocation/commuting to Denver from
Dallas (i) reimbursement of all out-of-pocket expenses associated with travel
between Denver and Dallas for up to six months including up to 3 trips for
family members; (ii) reimbursement of temporary housing expense for up to six
months; (iii) reimbursement of closing costs, moving expenses, furnishings,
and related expenses up to an aggregate maximum of $100,000; and (iv)
reimbursement of travel expenses for up to two trips to and from Dallas each
month.
2.5 FUTURE OPTION GRANTS. Executive will be eligible to be granted
options to purchase Common Stock of the Company commencing on the first
anniversary of his employment, at times and in amounts to be determined in
the sole discretion of the Compensation Committee of the Board.
2.6 STANDARD COMPANY BENEFITS. Executive shall be entitled to all
rights and benefits for which he is eligible under the terms and conditions
of the standard Company benefits and compensation practices which may be in
effect from time to time and provided by the Company to its employees in
comparable positions.
3. PROPRIETARY INFORMATION OBLIGATIONS.
3.1 AGREEMENT. Executive agrees to be bound by the terms of the
executed Non-competition, Proprietary Information and Inventions Agreement
attached hereto as EXHIBIT C.
2
<PAGE>
3.2 REMEDIES. Executive's duties under the Proprietary Information and
Inventions Agreement shall survive termination of his employment with the
Company. Executive acknowledges that a remedy at law for any breach or
threatened breach by him of the provisions of the Non-competition Proprietary
Information and Inventions Agreement would be inadequate, and he therefore
agrees that the Company shall be entitled to injunctive relief in case of any
such breach or threatened breach.
4. OUTSIDE ACTIVITIES. Except with the prior written consent of the
Company's Board, Executive will not, during the term of this Agreement,
undertake or engage in any other employment, occupation or business
enterprise, other than those in which Executive is a passive investor.
Executive may engage in civic and not-for-profit activities so long as such
activities do not materially interfere with the performance of his duties
hereunder.
5. TERMINATION OF EMPLOYMENT.
(a) Either the Executive or the Company may terminate the employment
relationship at any time for any reason whatsoever, with thirty (30) days'
prior written notice by the Company and with thirty (30) days' prior written
notice by the Executive with or without Cause (as defined below) or advance
notice. This at-will employment relationship cannot be changed except in a
writing approved by the Board. If the Company terminates Executive's
employment without Cause at any time, Executive will receive as severance:
(i) twelve (12) months of base salary, less payroll deductions and required
withholdings, payable in accordance with the standard pay schedule of the
Company, and (ii) a lump sum payment of that portion of the bonus Executive
is entitled to for the calendar year pro-rated based upon the number of full
months Executive was employed during such year in exchange for the execution
of a release of all claims against the Company. If Executive resigns or if
Executive's employment is terminated for cause, all compensation and benefits
will cease immediately, and Executive will receive no severance benefits.
For purpose of this Agreement, "CAUSE" shall mean misconduct, including: (i)
conviction of any felony or any crime involving moral turpitude or
dishonesty; (ii) participation in a fraud or act of dishonesty against the
Company; (iii) willful breach of the Company's policies; (iv) intentional
damage to the Company's property; (v) material breach of this Agreement or
Executive's Proprietary Information and Inventions Agreement; (vi) a failure
or refusal in a material respect of Executive to follow the reasonable
policies or directions of the Company as specified by the Board of Directors
after being provided with notice of such failure and an opportunity to cure;
or (vii) failure to carry out the duties of the Executive's position after
being provided with notice of such failure and an opportunity to cure within
seven (7) days of receipt of such notice. Physical or mental disability
shall not constitute "Cause."
(b) In the event of death, the Company shall pay to Executive any
earned but unpaid salary at the time of death and, at the time such amount
would otherwise have been due, a pro rata portion of a discretionary bonus,
if any, which may otherwise have been paid to Executive pursuant to Section
2.3 hereof with respect to the annual period in which the death occurs.
Furthermore, Executive shall vest in 50% of any unvested stock options as of
the date of death and the Company shall waive its repurchase rights with
respect to 50% of any unvested shares as
3
<PAGE>
of the date of death; PROVIDED, HOWEVER, that Executive's estate,
administrator or distributor shall become a party to, and be subject to the
provisions of, the Stockholders' Agreement.
6. GENERAL PROVISIONS.
6.1 NOTICES. Any notices provided hereunder must be in writing and
shall be deemed effective upon the earlier of personal delivery (including
personal delivery by telex) or the third day after mailing by first class
mail, to the Company at its primary office location and to Executive at his
address as listed on the Company's then current payroll records.
6.2 SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in
any jurisdiction, such invalidity, illegality or unenforceability will not
affect any other provision or any other jurisdiction, but this Agreement will
be reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provisions had never been contained herein.
6.3 WAIVER. If either party should waive any breach of any provisions
of this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
6.4 COMPLETE AGREEMENT. This Agreement and exhibits hereto constitute
the entire agreement between Executive and the Company and it is the
complete, final, and exclusive embodiment of their agreement with regard to
this subject matter. It is entered into without reliance on any promise or
representation other than those expressly contained herein, and it cannot be
modified or amended except in a writing signed by an officer of the Company.
6.5 COUNTERPARTS. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.
6.6 HEADINGS. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
6.7 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive and the Company, and
their respective successors, assigns, heirs, executors and administrators,
except that Executive may not assign any of his duties hereunder and he may
not assign any of his rights hereunder without the written consent of the
Company, which shall not be withheld unreasonably.
6.8 ATTORNEY FEES. If either party hereto brings any action to enforce
his or its rights hereunder, the prevailing party in any such action shall be
entitled to recover his or its reasonable attorneys' fees and costs incurred
in connection with such action.
6.9 CHOICE OF LAW. All questions concerning the construction, validity
and interpretation of this Agreement will be governed by the law of the State
of Colorado.
4
<PAGE>
6.10 SURVIVAL. The following provisions of this Agreement shall survive
the termination of Executive's employment and the assignment of this
Agreement by the Company to any successor in interest or other assignee:
Section 2 and Section 5.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
JATO COMMUNICATIONS CORP.
By: /s/ William D. Myers
---------------------------------------
William D. Myers
Vice President, Finance and Chief
Financial Officer
By: /s/ Gerald K. Dinsmore
---------------------------------------
Gerald K. Dinsmore
6
<PAGE>
EXHIBIT A
STOCK OPTION GRANT NOTICE
JATO COMMUNICATIONS CORP.
STOCK OPTION GRANT NOTICE
(1998 EQUITY INCENTIVE PLAN)
JATO COMMUNICATIONS CORP. (the "Company"), pursuant to its 1998 Equity
Incentive Plan (the "Plan"), hereby grants to Optionee an option to purchase
the number of shares of the Company's common stock set forth below. This
option is subject to all of the terms and conditions as set forth herein and
in Attachments I, II, and III, which are incorporated herein in their
entirety.
Optionee: Gerald K. Dinsmore
Date of Grant: December 3, 1999
Vesting Commencement Date: December 3, 1999
Shares Subject to Option: 800,000
Exercise Price Per Share: $2.57
Expiration Date: December 2, 2009
/X/ Nonstatutory Stock Option
/X/ Early Exercise Permitted
VESTING SCHEDULE: 25% vested on the one year anniversary of the
Vesting Commencement Date; 1/48th vests on each
monthly anniversary thereafter.
PAYMENT: Any combination of the following: by cash or check
ADDITIONAL TERMS/ACKNOWLEDGEMENTS: The undersigned Optionee acknowledges
receipt of, and understands and agrees to, this Grant Notice, the Stock
Option Agreement and the Plan. Optionee further acknowledges that as of the
Date of Grant, this Grant Notice, the Stock Option Agreement and the Plan set
forth the entire understanding between Optionee and the Company regarding the
acquisition of stock in the Company and supersede all prior oral and written
agreements on that subject with the exception of (i) options previously
granted and delivered to Optionee under the Plan, and (ii) the following
agreements only:
OTHER AGREEMENTS:
---------------------------------------
---------------------------------------
---------------------------------------
JATO COMMUNICATIONS CORP. OPTIONEE:
By:
---------------------------------- ---------------------------------
Signature
Title:
-------------------------------
Date:
-------------------------------- ---------------------------------
Date
Attachment I: Stock Option Agreement
A-1
<PAGE>
Attachment II: 1998 Equity Incentive Plan
Attachment III: Notice of Exercise
2
<PAGE>
JATO COMMUNICATIONS CORP.
STOCK OPTION AGREEMENT
Pursuant to the Grant Notice and this Stock Option Agreement, JATO
Communications Corp. (the "Company") has granted you an option to purchase
the number of shares of the Company's common stock ("Common Stock") indicated
in the Grant Notice at the exercise price indicated in the Grant Notice.
Your option is granted in connection with and in furtherance of the
Company's compensatory benefit plan for the Company's employees (including
officers), directors or consultants, and is intended to comply with the
provisions of Rule 701 promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act"). Defined
terms not explicitly defined in this Stock Option Agreement but defined in
the 1998 Equity Incentive Plan (the "Plan") shall have the same definitions
as in the Plan.
The details of your option are as follows:
1. VESTING. Subject to the limitations contained herein, your option
will vest as provided in the Grant Notice, provided that vesting will cease
upon the termination of your Continuous Service.
2. METHOD OF PAYMENT. Payment of the exercise price by cash or check
is due in full upon exercise of all or any part of your option, provided that
you may elect, to the extent permitted by applicable law and the Grant
Notice, to make payment of the exercise price under one of the following
alternatives:
(a) Payment pursuant to a program developed under Regulation T as
promulgated by the Federal Reserve Board which, prior to the issuance of
Common Stock, results in either the receipt of cash (or check) by the Company
or the receipt of irrevocable instructions to pay the aggregate exercise
price to the Company from the sales proceeds; and
(b) Provided that at the time of exercise the Company's Common
Stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of already-owned shares of Common Stock, held for the
period required to avoid a charge to the Company's reported earnings, and
owned free and clear of any liens, claims, encumbrances or security
interests, which Common Stock shall be valued at its fair market value on the
date of exercise.
3. EXERCISE PRIOR TO VESTING. If permitted in the Grant Notice, and
subject to the provisions of your option contained herein, you may elect, at
any time that is BOTH (i) during your Continuous Service and (ii) during your
option's term, to exercise all or part of your option, including the
nonvested portion of your option; PROVIDED, HOWEVER, that:
(a) a partial exercise of your option shall be deemed to cover
first vested shares and then the earliest vesting installment of unvested
shares;
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<PAGE>
(b) any shares so purchased from installments which have not
vested as of the date of exercise shall be subject to the purchase option in
favor of the Company as described in the Company's form of Early Exercise
Stock Purchase Agreement;
(c) you shall enter into the Company's form of Early Exercise
Stock Purchase Agreement with a vesting schedule that will result in the same
vesting as if no early exercise had occurred; and
(d) your option shall not be exercisable with respect to any
unvested installment to the extent such exercise would cause the aggregate
fair market value of any shares subject to incentive stock options granted
you by the Company (valued as of their grant date) which would become
exercisable for the first time during any calendar year to exceed $100,000.
4. WHOLE SHARES. Your option may only be exercised for whole shares.
5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the
contrary contained herein, your option may not be exercised unless the shares
issuable upon exercise of your option are then registered under the
Securities Act or, if such shares are not then so registered, the Company has
determined that such exercise and issuance would be exempt from the
registration requirements of the Securities Act.
6. TERM. The term of your option commences on the date of grant and
expires upon the earliest of:
(i) the Expiration Date indicated in the Grant Notice;
(ii) the tenth (10th) anniversary of the Date of Grant;
(iii) twelve (12) months after your death, if you die during,
or within three (3) months after the termination of your
Continuous Service; or
(iv) twelve (12) months after the termination of your Continuous
Service due to disability; or
(v) three (3) months after the termination of your Continuous
Service for any other reason, provided that if: (a) during
any part of such three (3) month period the option is not
exercisable solely because of the condition set forth in
paragraph 5 (Securities Law Compliance), in which event the
option shall not expire until the earlier of the Expiration
Date or until it shall have been exercisable for an
aggregate period of three (3) months after the termination
of Continuous Service, and (b) exercise of the option within
three (3) months after termination of your Continuous
Service would result in liability under section 16(b) of the
Securities Exchange Act of 1934 (the "Exchange Act"), the
option will expire on the earliest of (i) the Expiration
Date, (ii) the tenth (10th) day after the last date upon
which exercise would result in such liability or (iii) six
(6) months and ten (10) days after the termination of your
Continuous Service.
4
<PAGE>
To obtain the federal income tax advantages associated with an
"incentive stock option," the Code requires that at all times beginning on
the date of grant of the option and ending on the day three (3) months before
the date of the option's exercise, you must be an employee of the Company or
an Affiliate of the Company, except in the event of your death or permanent
and total disability. The Company has provided for continued vesting or
extended exercisability of your option under certain circumstances for your
benefit, but cannot guarantee that your option will necessarily be treated as
an "incentive stock option" if you provide services to the Company or an
Affiliate of the Company as a consultant or if you exercise your option more
than three (3) months after the date your employment with the Company
terminates.
7. EXERCISE.
(a) You may exercise the vested portion of your option during its
term (and the unvested portion of your option if the Grant Notice
so permits) by delivering a notice of exercise (in a form
designated by the Company) together with the exercise price to
the Secretary of the Company, or to such other person as the
Company may designate, during regular business hours, together
with such additional documents as the Company may then require.
(b) By exercising your option you agree that:
(i) as a condition to any exercise of your option, the Company
may require you to enter an arrangement providing for the
payment by you to the Company of any tax withholding
obligation of the Company arising by reason of (1) the
exercise of your option; (2) the lapse of any substantial
risk of forfeiture to which the shares are subject at the
time of exercise; or (3) the disposition of shares acquired
upon such exercise;
(ii) you will notify the Company in writing within fifteen (15)
days after the date of any disposition of any of the shares
of the Common Stock issued upon exercise of an incentive
stock option that occurs within two (2) years after the
date of your option grant or within one (1) year after such
shares of Common Stock are transferred upon exercise of
your option; and
(iii) the Company (or a representative of the underwriters) may,
in connection with the first underwritten registration of
the offering of any securities of the Company under the
Act, require that you not sell, dispose of, transfer, make
any short sale of, grant any option for the purchase of, or
enter into any hedging or similar transaction with the same
economic effect as a sale, any shares of Common Stock or
other securities of the Company held by you, for a period
of time specified by the underwriter(s) (not to exceed one
hundred eighty (180) days) following the effective date of
the registration statement of the Company filed under the
Act. You further agree to execute and deliver such other
agreements as may be reasonably requested by the Company
and/or the underwriter(s) which are consistent with the
foregoing or which are necessary to give further effect
thereto. In order to enforce the foregoing covenant, the
Company may impose stop-transfer
5
<PAGE>
instructions with respect to your Common Stock until the
end of such period.
the shares of Common Stock issued upon the exercise
shall be subject to the terms of a Stockholders Agreement, which you agree to
execute and be bound by in connection with your exercise.
8. TRANSFERABILITY. Your option is not transferable, except by will
or by the laws of descent and distribution, and is exercisable during your
life only by you. Notwithstanding the foregoing, by delivering written
notice to the Company, in a form satisfactory to the Company, you may
designate a third party who, in the event of your death, shall thereafter be
entitled to exercise your option.
9. RIGHT OF FIRST REFUSAL. Before any shares of Common Stock (the
"Shares") issued upon exercise of an option to you or any transferee (either
being sometimes referred to herein as the "Holder") may be sold or otherwise
transferred (including transfer by gift or operation of law), the Company
shall have an assignable right of first refusal to purchase the Shares on the
terms and conditions set forth in this Section 9 (the "Right of First
Refusal").
(a) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall
deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer the Shares; (ii)
the name of each proposed purchaser or other transferee (the "Proposed
Transferee"); (iii) the number of Shares to be transferred to each Proposed
Transferee; and (iv) the bona fide cash price or other consideration for
which the Holder proposed to transfer the Shares (the "Offered Price"); and
the Holder shall offer to sell the Shares at the Offered Price to the Company.
(b) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within thirty
(30) days after receipt of the Notice, the Company or its assignee may, by
giving written notice to the Holder, elect to purchase all (but not less than
all) of the Shares proposed to be transferred to any one or more of the
Proposed Transferees, at the Offered Price.
(c) PAYMENT. Payment of the purchase price shall be made, at the
option of the Company or its assignee, either (i) in cash (by check) or (ii)
in the manner and at the time(s) set forth in the Notice.
(d) HOLDER'S RIGHT TO TRANSFER. If all the Shares proposed in the
Notice to be transferred to a given Proposed Transferee are not purchased by
the Company and/or its assignee as provided in this Section 9, then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee
at the Offered Price or at a higher price, PROVIDED, THAT, such sale or other
transfer is consummated within one hundred twenty (120) days after the date
of the Notice and provided further that any such sale or other transfer is
effected in accordance with any applicable securities laws. If the Shares
described in the Notice are not transferred to the Proposed Transferee within
such period, a new Notice shall be given to the Company, and the Company
shall again be offered the Right of First Refusal, before any Shares held by
the Holder may be sold or otherwise transferred.
6
<PAGE>
(e) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the
contrary contained in this Section 9 notwithstanding, the transfer of any or
all of the Shares during the Optionee's lifetime or on the Optionee's death
by will or intestacy to Optionee's immediate family or to a trust for the
benefit of Optionee or Optionee's immediate family shall be exempt from the
provisions of this Section 9; PROVIDED THAT, as a condition to receiving the
Shares, the transferee or other recipient shall agree in writing to receive
and hold the Shares so transferred subject to the provisions of the Plan, and
to transfer such Shares no further except in accordance with the terms of the
Plan. As used herein, "immediate family" shall mean spouse, lineal
descendant or antecedent, father, mother, brother or sister.
(f) TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First
Refusal shall terminate as to any Shares upon the first sale of Common Stock
of the Company to the general public pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission
(other than a registration statement solely covering an employee benefit plan
or corporate reorganization).
10. OPTION NOT A SERVICE CONTRACT. Your option is not an employment
contract and nothing in your option shall be deemed to create in any way
whatsoever any obligation on your part to continue in the employ of the
Company, or of the Company to continue your employment with the Company. In
addition, nothing in your option shall obligate the Company, or any Affiliate
of the Company, or their respective stockholders, Board of Directors,
officers or employees to continue any relationship which you might have as a
Director or Consultant for the Company.
11. NOTICES. Any notices provided for in your option or the Plan shall
be given in writing and shall be deemed effectively given upon receipt or, in
the case of notices delivered by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the
last address you provided to the Company.
12. GOVERNING PLAN DOCUMENT. Your option is subject to all the
provisions of the Plan, the provisions of which are hereby made a part of
your option, including without limitation the provisions of the Plan relating
to option provisions, and is further subject to all interpretations,
amendments, rules and regulations which may from time to time be promulgated
and adopted pursuant to the Plan. In the event of any conflict between the
provisions of your option and those of the Plan, the provisions of the Plan
shall control.
7
<PAGE>
JATO COMMUNICATIONS CORP.
NOTICE OF EXERCISE
1998 EQUITY INCENTIVE PLAN
JATO Communications Corp. Date of Exercise:____________
1099 18th Street
Suite 700
Denver, CO 80202
Ladies and Gentlemen:
This constitutes notice under my stock option that I elect to purchase
the number of shares for the price set forth below.
Type of option (check one): Incentive / / Nonstatutory /X/
Stock option dated: [DECEMBER ], 1999
------------------------------
Number of shares as to
which option is exercised:
----------------------
Certificates to be
issued in name of:
----------------------
Total exercise price: $
----------------------
Cash payment delivered
herewith: $
----------------------
By this exercise, I agree (i) to provide such additional documents as
you may require pursuant to the terms of the Company's 1998 Equity Incentive
Plan, (ii) to provide for the payment by me to you (in the manner designated
by you) of your withholding obligation, if any, relating to the exercise of
the Option, and (iii) to the extent the Option is an incentive stock option,
to notify you in writing within fifteen (15) days after the date of any
disposition of any of the shares of Common Stock issued upon exercise of this
Option that occurs within two (2) years after the date of grant of the Option
OR within one (1) year after such shares of Common Stock are issued upon
exercise of the Option.
8
<PAGE>
I hereby make the following certifications and representations with
respect to the number of shares of Common Stock (the "Shares"), which are
being acquired by me for my own account upon exercise of the Option as set
forth above:
I acknowledge that the Shares have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and are deemed to
constitute "restricted securities" under Rule 701 and Rule 144 promulgated
under the Securities Act. I warrant and represent to the Company that I have
no present intention of distributing or selling said Shares, except as
permitted under the Securities Act and any applicable state securities laws.
I further acknowledge that I will not be able to resell the Shares for
at least ninety (90) days after the stock of the Company becomes publicly
traded (I.E., subject to the reporting requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended) under Rule 701 and that more
restrictive conditions apply to affiliates of the Company under Rule 144.
I further acknowledge that all certificates representing any of the
Shares subject to the provisions of the Option shall have endorsed thereon
appropriate legends reflecting the foregoing limitations, as well as any
legends reflecting restrictions pursuant to the Company's Certificate of
Incorporation, Bylaws and/or applicable securities laws.
I further acknowledge that the Shares are subject to the Company's right
of first refusal set forth in the Stock Option Agreement.
I further agree that, if required by the Company (or a representative of
the underwriters) in connection with the first underwritten registration of
the offering of any securities of the Company under the Securities Act, I
will not sell, dispose, transfer, make any short sale of, grant any option
for the purchase of, or enter into any hedging or similar transaction with
the same economic effect as a sale, of any shares of Common Stock or other
securities of the Company held by me, for a period of time specified by the
underwriter(s) (not to exceed one hundred eighty (180) days) following the
effective date of the registration statement of the Company filed under the
Securities Act. I further agree to execute and deliver such other agreements
as may be reasonably requested by the Company and/or the underwriter(s) which
are consistent with the foregoing or which are necessary to give further
effect thereto. In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to my shares until the end of
such period.
Very truly yours,
-----------------------------------
Gerald K. Dinsmore
9
<PAGE>
JATO COMMUNICATIONS CORP.
SERIES C PREFERRED STOCK
PURCHASE AGREEMENT
SEPTEMBER 16, 1999
<PAGE>
JATO COMMUNICATIONS CORP.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES C PREFERRED STOCK PURCHASE AGREEMENT (the "AGREEMENT") is
entered into as of this 16th day of September, 1999, by and among JATO
COMMUNICATIONS CORP., a Delaware corporation (the "COMPANY"), and each of those
persons and entities, severally and not jointly, whose names are set forth on
the Schedule of Purchasers attached hereto as EXHIBIT A (which persons and
entities are hereinafter collectively referred to as "PURCHASERS" and each
individually as a "PURCHASER").
RECITALS
WHEREAS, the Company has authorized the sale and issuance of up to an
aggregate of five million seven hundred fourteen thousand two hundred
eighty-five (5,714,285) shares of its Series C Preferred Stock, $.01 par value
(the "SHARES"); and
WHEREAS, the Company desires to issue and sell the Shares to the Purchasers
and the Purchasers severally desire to purchase some or all of the Shares from
the Company on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
SECTION 1. AGREEMENT TO SELL AND PURCHASE
1.1 AUTHORIZATION OF SHARES. On or prior to the Closing (as defined in
Section 2 below), the Company shall have authorized (i) the sale and issuance to
Purchasers of the Shares and (ii) the issuance of such shares of Common Stock to
be issued upon conversion of the Shares (the "CONVERSION SHARES"). The Shares
and the Conversion Shares shall have the rights, preferences, privileges and
restrictions set forth in the Restated Certificate of Incorporation of the
Company, in the form attached hereto as EXHIBIT B (the "CERTIFICATE").
1.2 SALE AND PURCHASE. Subject to the terms and conditions hereof, at the
Closing (as hereinafter defined), the Company hereby agrees to issue and sell to
each Purchaser, severally and not jointly, and each Purchaser agrees to purchase
from the Company, severally and not jointly, the number of Shares set forth
opposite such Purchaser's name on EXHIBIT A at a purchase price of $ 7.00 per
share.
SECTION 2. CLOSING, DELIVERY AND PAYMENT
2.1 CLOSING. The closing of the sale and purchase of the Shares under this
Agreement (the "CLOSING") shall take place on the date hereof, at the offices of
Cooley Godward LLP, 2595 Canyon Boulevard, Suite 250, Boulder, Colorado 80302,
or at such other time or place as the Company and the Purchasers acquiring in
the aggregate more than half of the Shares may mutually agree (such date is
hereinafter referred to as the "CLOSING DATE").
1.
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2.2 DELIVERY. At the Closing, subject to the terms and conditions hereof,
the Company will deliver to the Purchasers one or more stock certificates, as
each Purchaser may request, representing the number of Shares to be purchased at
the Closing by each Purchaser, registered in such Purchaser's name, against
payment of the purchase price therefor, by check or wire transfer made payable
to the order of the Company. In addition, TCI Satellite Entertainment, Inc.
shall deliver a promissory note to the Company, in the form previously approved
by the Company, in the amount of $3,000,000.00 (the "TCI NOTE") against payment
of the purchase price therefor of the number of Shares set forth opposite such
purchaser's name on EXHIBIT A hereto.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on a Schedule of Exceptions delivered by the Company to
the Purchasers at the Closing, the Company hereby represents and warrants to
each Purchaser as of the date of this Agreement as follows:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company and each
Subsidiary (as defined in Section 3.2 below) is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
or, with respect to Jato Communications Corp. of Virginia, the Commonwealth of
Virginia. Each of the Company and Subsidiary has all requisite corporate power
and authority to own and operate their respective properties and assets. The
Company has all requisite corporate power and authority to execute and deliver
this Agreement, the Amended and Restated Investors' Rights Agreement, in the
form attached hereto as EXHIBIT C (the "INVESTORS' RIGHTS AGREEMENT"), and the
Amended and Restated Stockholders' Agreement, in the form attached hereto as
EXHIBIT D (the "STOCKHOLDERS' AGREEMENT"), issue and sell the Shares and the
Conversion Shares and to carry out the provisions of this Agreement, the
Investors' Rights Agreement, the Stockholders' Agreement and the Certificate.
Each of the Company and Subsidiary has the requisite corporate power and
authority to carry on its business as presently conducted and as presently
proposed to be conducted. Each of the Company and Subsidiary is duly qualified
and is authorized to do business and is in good standing as a foreign
corporation in all jurisdictions in which the nature of their respective
activities and of their respective properties (both owned and leased) make such
qualifications necessary, except for those jurisdictions in which failure to do
so would not have a material adverse effect on the Company or Subsidiary or
their respective businesses. The Company has made available to the Purchasers
true, correct and complete copies of the Company's Restated Certificate of
Incorporation and Amended Bylaws, each as amended to date and in full force and
effect on the date hereof. The Company has made available to the Purchasers
true, correct and complete copies of Subsidiary's Certificate of Incorporation
and Bylaws, each as amended to date and in full force and effect on the date
hereof. Since its inception, Subsidiary has had no operations and has not
incurred any material obligations.
3.2 SUBSIDIARIES. Other than Jato Operating Corp., a Delaware corporation,
Jato Operating Two Corp., a Delaware corporation, and Jato Communications Corp.
of Virginia, a Virginia corporation (collectively, the "SUBSIDIARY"), the
Company owns no equity securities of any other corporation, limited partnership
or similar entity. The Company is not a participant in any joint venture,
partnership or similar arrangement. The Company owns shares of the Subsidiary
free and clear of all encumbrances.
2.
<PAGE>
3.3 CAPITALIZATION; VOTING RIGHTS.
(a) The authorized capital stock of the Company, immediately prior to
the Closing, will consist of (a) eighty million (80,000,000) shares of Common
Stock, of which six million seven hundred sixty-five thousand two (6,765,002)
shares are issued and outstanding, and (b) twenty-five million (25,000,000)
shares of Preferred Stock, of which one million seven hundred fifty-one thousand
nine hundred eighty-five (1,751,985) shares are designated Series A Preferred
Stock, of which one million seven hundred fifty-one thousand nine hundred eighty
five (1,751,985) are issued and outstanding, of which thirteen million six
hundred fifteen thousand three hundred twenty-two (13,615,322) shares are
designated Series B Preferred Stock, of which thirteen million six hundred
fifteen thousand three hundred twenty-two (13,615,322) are issued and
outstanding, and of which five million seven hundred fourteen thousand two
hundred eighty-five (5,714,285) shares are designated Series C Preferred Stock,
none of which are issued and outstanding. All issued and outstanding shares of
the Company's Common Stock and Preferred Stock (i) have been duly authorized and
validly issued, (ii) are fully paid and nonassessable and (iii) were issued in
compliance with all applicable state and federal laws concerning the issuance of
securities. The rights, preferences, privileges and restrictions of the Shares
are as stated in the Certificate. The Conversion Shares have been duly and
validly reserved for issuance. As of the Closing, there has been no action taken
by the Company which would have required an adjustment to the Series C
Conversion Price, as defined in the Certificate. Except as set forth on the
Schedule of Exceptions and except as may be granted pursuant to this Agreement
or the Investors' Rights Agreement, there are no outstanding options, warrants,
rights (including conversion or preemptive rights and rights of first refusal),
proxy or stockholder agreements, or agreements of any kind for the purchase or
acquisition from the Company of any of its securities. The Shares and the
Conversion Shares have been duly authorized and, when issued in compliance with
the provisions of this Agreement and the Certificate, will be validly issued
(including, without limitation, issued in compliance with applicable state and
federal securities laws), fully paid and nonassessable, subject to no preemptive
rights, and will be free of any liens or encumbrances; PROVIDED, HOWEVER, that
the Shares and the Conversion Shares may be subject to restrictions on transfer
under state and/or federal securities laws as set forth herein or as otherwise
required by such laws at the time transfer is proposed.
(b) The authorized capital stock of (i) Jato Operating Corp. consists
of eleven hundred (1,100) shares of Common Stock, (ii) Jato Operating Two Corp.
consists of one hundred (100) shares of Common Stock, and (iii) Jato
Communications Corp. of Virginia consists of one hundred (100) shares of Common
Stock, all of which shares are issued and outstanding and held of record by the
Company.
3.4 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action on the part of
the Company, its officers, directors and stockholders necessary for the
authorization of this Agreement, the Investors' Rights Agreement and the
Stockholders' Agreement, the performance of all obligations of the Company
hereunder and thereunder at the Closing and the authorization, sale, issuance
and delivery of the Shares pursuant hereto and the Conversion Shares pursuant to
the Certificate has been taken or will be taken prior to the Closing. The
Agreement, the Investors' Rights Agreement and the Stockholders' Agreement, when
executed and delivered, will be valid and binding obligations of the Company
enforceable in accordance with their terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other
3.
<PAGE>
laws of general application affecting enforcement of creditors' rights; (ii)
general principles of equity that restrict the availability of equitable
remedies; and (iii) to the extent that the enforceability of the indemnification
provisions in Section 3.12 of the Investors' Rights Agreement may be limited by
applicable laws. The sale of the Shares and the subsequent conversion of the
Shares into Conversion Shares are not and will not be subject to any preemptive
rights or rights of first refusal that have not been properly waived or complied
with.
3.5 FINANCIAL STATEMENTS. The Company has delivered to each Purchaser (i)
its audited balance sheet as at December 31, 1998 and audited statement of
income and cash flows for the period from inception and ending December 31, 1998
and (ii) its unaudited balance sheet as at June 30, 1999 (the "STATEMENT DATE")
and unaudited consolidated statement of income for the six-month period ending
on the Statement Date (collectively, the "FINANCIAL STATEMENTS"). The Financial
Statements, together with the notes thereto, are complete and correct in all
material respects, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated, except as disclosed therein, and present fairly the financial
condition and position of the Company as of December 31, 1998 and the Statement
Date; PROVIDED, HOWEVER, that the unaudited financial statements are subject to
normal recurring year-end audit adjustments (which are not expected to be
material), and may not contain all footnotes required under generally accepted
accounting principles.
3.6 LIABILITIES. The Company has no material liabilities and, to its
knowledge, knows of no material contingent liabilities not otherwise disclosed
in the Financial Statements, except current liabilities incurred in the ordinary
course of business subsequent to the Statement Date which have not been, either
in any individual case or in the aggregate, materially adverse.
3.7 AGREEMENTS; ACTION.
(a) Except as set forth on the Schedule of Exceptions and except for
agreements explicitly contemplated hereby, there are no agreements,
understandings or proposed transactions between the Company and any of its
officers, directors, affiliates or their respective affiliates.
(b) There are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs or decrees to which the Company
is a party or to its knowledge by which it is bound which may involve (i)
obligations (contingent or otherwise) of, or payments to, the Company in excess
of $25,000, or (ii) the license of any patent, copyright, trade secret or other
proprietary right to or from the Company (other than licenses arising from the
purchase of "off the shelf" or other standard products), or (iii) provisions
restricting or affecting the development, manufacture or distribution of the
Company's products or services, or (iv) indemnification by the Company with
respect to infringements of proprietary rights.
(c) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities (other than with respect to indebtedness and other obligations
incurred in the ordinary course of business or as disclosed in the Financial
Statements) individually in excess of $25,000 or, in the case of indebtedness
and/or liabilities individually less than $25,000, in excess of $75,000 in the
aggregate, (iii) made any
4.
<PAGE>
loans or advances to any person, other than ordinary advances for travel
expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or
rights, other than the sale of its inventory in the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
3.8 OBLIGATIONS TO RELATED PARTIES. There are no obligations of the Company
to officers, directors, stockholders, or employees of the Company other than (a)
for payment of salary for services rendered, (b) reimbursement for reasonable
expenses incurred on behalf of the Company and (c) for other standard employee
benefits made generally available to all employees (including stock option
agreements outstanding under any stock option plan approved by the Board of
Directors of the Company). No such officer, director or stockholder, or any
member of their immediate families is, directly or indirectly, interested in any
material contract with the Company (other than such contracts as relate to any
such person's ownership of capital stock or other securities of the Company).
The Company is not a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation.
3.9 ABSENCE OF CHANGES. Except as set forth on the Schedule of Exceptions,
since the Statement Date, there has not been:
(a) Any change in the assets, liabilities, financial condition,
earnings or operations of the Company from that reflected in the Financial
Statements, other than changes in the ordinary course of business, none of which
individually or in the aggregate has had or is expected to have a material
adverse effect on such assets, liabilities, financial condition, earnings or
operations of the Company;
(b) Any resignation or termination of any key officers of the Company;
and the Company, to the best of its knowledge, does not know of the impending
resignation or termination of employment of any such officer;
(c) Any material change in the contingent obligations of the Company by
way of guaranty, endorsement, indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business or
prospects or financial condition of the Company;
(e) Any waiver by the Company of a valuable right or of a material debt
owed to it;
(f) Any direct or indirect loans made by the Company to any
stockholder, employee, officer or director of the Company, other than immaterial
advances made in the ordinary course of business;
5.
<PAGE>
(g) Any material change in any compensation arrangement or agreement
with any employee, officer, director or stockholder including, without
limitation, any (i) increase in the compensation payable or to become payable by
the Company to any of the Company's employees, (ii) any bonus, incentive
compensation, service award or other like benefit, granted, made or accrued,
contingently or otherwise, to or for the credit of the Company's employees, or
(iii) any employee welfare, pension, retirement, profit-sharing or similar
payment or arrangement (whether or not subject to ERISA) made or agreed to by
the Company;
(h) Any declaration or payment of any dividend or other distribution of
the assets of the Company;
(i) Any labor organization activity;
(j) Any debt, obligation or liability incurred, assumed or guaranteed
by the Company, except those for immaterial amounts and for current liabilities
incurred in the ordinary course of business;
(k) Any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(l) Any change in any material agreement to which the Company is a
party or by which it is bound which materially and adversely affects the
business, assets, liabilities, financial condition, operations or prospects of
the Company;
(m) (i) Any change in practice with respect to taxes, (ii) any making,
changing or revoking of any tax election, or (iii) any settlement or compromise
of any dispute involving a tax liability;
(n) Any change in the number of shares of capital stock of the Company
issued and outstanding;
(o) Any failure to conduct the business of the Company in the ordinary
course;
(p) Any change in the method of accounting or accounting practice of
the Company;
(q) Any change in the Company's lines of business; or
(r) Any other event or condition of any character that, either
individually or cumulatively, has materially and adversely affected the
business, assets, liabilities, financial condition, operations or prospects of
the Company. For purposes of this subsection (r), a material and adverse effect
shall only be deemed to occur if its monetary impact exceeds, or with the
passage of time, will exceed $75,000.
6.
<PAGE>
3.10 REAL PROPERTIES; TANGIBLE PERSONAL PROPERTY.
(a) REAL PROPERTIES. The Schedule of Exceptions sets forth each lease
or other agreement (including easements) under which the Company leases or has
rights in any real property (the "REAL PROPERTY LEASES," and, each individually,
a "REAL PROPERTY LEASE"). The Company has a valid and subsisting leasehold
interest in all the real property which is the subject of each Real Property
Lease. The Company does not presently own, and has never owned, any real
property and does not presently operate, and has never operated, any real
property, other than as a lessee.
(b) TANGIBLE PERSONAL PROPERTY. Except as set forth on the Schedule of
Exceptions, (i) the Company has good, marketable and valid title to all of the
items of tangible personal property used in its operations and (ii) all such
tangible personal property is reflected on the Company's unaudited Financial
Statements, except as sold or disposed of subsequent to the date thereof in the
ordinary course of business consistent with past practices. The tangible
personal property of the Company is in good repair and working order, reasonable
wear and tear excepted, and constitutes all of the tangible personal property
necessary for the operation of the business as currently conducted.
3.11 PATENTS AND TRADEMARKS. The Company is the sole owner, free of any
lien or encumbrance, of, or has a valid license, on commercially reasonable
terms, to, all U.S. and foreign patents, registered designs, copyrights,
computer software and databases, trademarks, service marks and trade names,
whether or not registered, and other trade secrets, research and development,
formulae, inventions, processes, know-how and proprietary and intellectual
property rights and information, including all grants, registrations and
applications relating thereto (collectively, the "PROPRIETARY RIGHTS") necessary
for the conduct of its business as now conducted (the "COMPANY RIGHTS"). The
Company's rights in the Company Rights are, to the Company's knowledge, valid
and enforceable. The Company has received no demand, claim, notice or inquiry
from any person in respect of the Company Rights which challenges, threatens to
challenge or inquires as to whether there is any basis to challenge, the
validity of, or the rights of the Company in, any such Company Rights. There are
no outstanding options, licenses or agreements of any kind relating to the
Company Rights, nor is the Company bound by or a party to any options, licenses
or agreements of any kind with respect to the Proprietary Rights of any other
person or entity other than such licenses or agreements arising from the
purchase of "off the shelf" or standard products. The Company has taken, and
will take, all actions which are necessary in order to protect the Company
Rights and to acquire additional Proprietary Rights, consistent with prudent
commercial practices in the telecommunications industry. To the knowledge of the
Company, the Company is not in violation or infringement of, and has not
violated or infringed, any Proprietary Rights of any other person. To the
knowledge of the Company, no person is infringing any Company Rights. The
Company is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with their duties to the Company's business by the
employees of the Company, nor will, to the Company's knowledge, the conduct of
the Company's business as proposed conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any employee is now obligated. The Company
does not believe it is or will be necessary to
7.
<PAGE>
utilize any inventions, trade secrets or proprietary information of any of its
employees made prior to their employment by the Company, except for inventions,
trade secrets or proprietary information that have been assigned to the Company.
3.12 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in violation or
default of any term of its Certificate or Amended Bylaws, or of any provision of
any mortgage, indenture, contract, agreement, instrument or contract to which it
is party or by which it is bound or of any judgment, decree, order, writ or any
statute, rule or regulation applicable to the Company which would materially and
adversely affect the business, assets, liabilities, financial condition,
operations or prospects of the Company. The execution, delivery, and performance
of and compliance with this Agreement, the Investors' Rights Agreement, the
Stockholders' Agreement and the Compliance Certificate to be delivered pursuant
to Section 5.1(f) hereof, and the issuance and sale of the Shares pursuant
hereto and of the Conversion Shares pursuant to the Certificate, will not, with
or without the passage of time or giving of notice, result in any such material
violation, or be in conflict with or constitute a default under any such term,
or result in the creation of any mortgage, pledge, lien, encumbrance or charge
upon any of the properties or assets of the Company or the suspension,
revocation, impairment, forfeiture or nonrenewal of any permit, license,
authorization or approval applicable to the Company, its business or operations
or any of its assets or properties.
3.13 LITIGATION. There is no action, suit, proceeding or investigation
pending, or to the Company's knowledge, currently threatened against the Company
that questions the validity of this Agreement, the Investors' Rights Agreement
or the Stockholders' Agreement or the right of the Company to enter into any of
such agreements, or to consummate the transactions contemplated hereby or
thereby, or which might result, either individually or in the aggregate, in any
material adverse change in the assets, condition, affairs or prospects of the
Company, financially or otherwise, or any change in the current equity ownership
of the Company, nor is the Company aware that there is any basis for the
foregoing. The foregoing includes, without limitation, actions pending or
threatened (or any basis therefor known to the Company) involving the prior
employment of any of the Company's employees, their use in connection with the
Company's business of any information or techniques allegedly proprietary to any
of their former employers, or their obligations under any agreements with prior
employers. The Company is not a party or subject to the provisions of or in
violation of any order, writ, injunction, judgment or decree or any rule or
regulation of any court or government agency or instrumentality. There is no
action, suit, proceeding or investigation by the Company currently pending or
which the Company intends to initiate.
3.14 TAX RETURNS AND PAYMENTS. The Company has timely filed all tax returns
(federal, state and local) required to be filed by it. All taxes shown to be due
and payable on such returns, any assessments imposed, and to the Company's
knowledge all other taxes due and payable by the Company on or before the
Closing have been paid or will be paid prior to the time they become delinquent.
The Company has not been advised (i) that any of its returns, federal, state or
other, have been or are being audited as of the date hereof, or (ii) of any
deficiency in assessment or proposed judgment to its federal, state or other
taxes. The Company has no knowledge of any liability of any tax to be imposed
upon its properties or assets as of the date of this Agreement that is not
adequately provided for. Neither the Company nor the Subsidiary is a party to
any agreement relating to allocating or sharing the payment of, or liability for
taxes with
8.
<PAGE>
respect to, any taxable period. Neither the Company nor Subsidiary
has any deferred income reportable for a period ending after the Closing Date
that is attributable to a transaction (e.g., an installment sale) occurring in,
or resulting from a change of accounting method for, a period ending on or prior
to the Closing Date.
3.15 EMPLOYEES. The Company is not a party to or bound by any currently
effective employment contract, deferred compensation arrangement, bonus plan,
incentive plan, profit sharing plan, retirement agreement or other employee
compensation plan or agreement. Neither the Company, nor any entity which is
required to be aggregated with the Company pursuant to Sections 414(b), (c), (m)
or (o) of the Internal Revenue Code of 1986 has any liability whether actual or
contingent, with respect to any employee benefit plan or arrangement. To the
Company's knowledge, no employee of the Company, nor any consultant with whom
the Company has contracted, is in violation of any term of any employment
contract, proprietary information agreement or any other agreement relating to
the right of any such individual to be employed by, or to contract with, the
Company because of the nature of the business to be conducted by the Company;
and to the Company's knowledge the continued employment by the Company of its
present employees, and the performance of the Company's contracts with its
independent contractors, will not result in any such violation. The Company has
not received any notice alleging that any such violation has occurred. No
employee of the Company has been granted the right to continued employment by
the Company or to any material compensation following termination of employment
with the Company. The Company is not aware that any officer or key employee, or
that any group of key employees, intends to terminate their employment with the
Company, nor does the Company have a present intention to terminate the
employment of any officer, key employee or group of key employees. To the
Company's knowledge, the Company is in compliance with all laws and orders
relating to the employment of labor, including, without limitation, all such
laws and orders relating to wages, hours, discrimination, civil rights, safety
and the collection and payment of withholding and/or Social Security taxes and
similar taxes. There are no complaints, charges or claims against the Company
pending, or, to the Company's knowledge, threatened 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 Company.
3.16 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. Each current
employee, officer and consultant of the Company has executed a Proprietary
Information and Inventions Agreement that effectively waives any ownership
rights in the invention or authorship of any Company Rights and has assigned to
the Company all rights with respect thereto. No current employee, officer or
consultant of the Company has excluded works or inventions made prior to his or
her employment with the Company from his or her assignment of the works or
inventions pursuant to such employee, officer or consultant's Non-Competition,
Proprietary Information and Inventions Agreement in the form attached hereto as
EXHIBIT E.
3.17 OBLIGATIONS OF MANAGEMENT. Each officer of the Company is currently
devoting one hundred percent (100%) of his business time to the conduct of the
business of the Company. The Company is not aware of any officer or key employee
of the Company planning to work less than full time at the Company in the
future.
9.
<PAGE>
3.18 REGISTRATION RIGHTS. Except as required pursuant to the Investors'
Rights Agreement, the Company is presently not under any obligation, and has not
granted any rights, to register (as defined in Section 1 of the Investors'
Rights Agreement) any of the Company's presently outstanding securities or any
of its securities that may hereafter be issued.
3.19 COMPLIANCE WITH LAWS; PERMITS. The Company is not in violation of any
applicable statute, rule, regulation, order or restriction of any domestic or
foreign government or any instrumentality or agency thereof in respect of the
conduct of its business or the ownership of its properties which violation would
materially and adversely affect the business, assets, liabilities, financial
condition, operations or prospects of the Company. No governmental orders,
permissions, consents, approvals or authorizations are required to be obtained
and no registrations or declarations are required to be filed in connection with
the execution and delivery of this Agreement and the issuance of the Shares or
the Conversion Shares, except such as has been duly and validly obtained or
filed, or with respect to any filings that must be made after the Closing, as
will be filed in a timely manner. The Schedule of Exceptions sets forth the
states in which the Company has obtained all franchises, permits, licenses and
any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects or financial condition of the Company.
3.20 OFFERING VALID. Assuming the accuracy of the representations and
warranties of the Purchasers contained in Section 4.2 hereof, the offer, sale
and issuance of the Shares and the Conversion Shares will be exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"SECURITIES ACT"), and will have been registered or qualified (or are exempt
from registration and qualification) under the registration, permit or
qualification requirements of all applicable state securities laws. Neither the
Company nor any agent on its behalf has solicited or will solicit any offers to
sell or has offered to sell or will offer to sell all or any part of the Shares
to any person or persons so as to bring the sale of such Shares by the Company
within the registration provisions of the Securities Act or any state securities
laws.
3.21 FULL DISCLOSURE. This Agreement, the Exhibits hereto, the Schedule of
Exceptions, the Investors' Rights Agreement, the Stockholders' Agreement and all
other documents delivered by the Company to Purchasers or their attorneys or
agents in connection herewith or therewith or with the transactions contemplated
hereby or thereby, do not contain any untrue statement of a material fact nor
omit to state a material fact necessary in order to make the statements
contained herein or therein not misleading. There is no fact peculiar to the
Company and known to the Company which materially adversely affects, or
reasonably could be expected to materially adversely affect in the future, the
business, property or assets, or financial condition of the Company, which has
not been set forth in this Agreement or in the other documents described herein
or furnished to the Purchasers by or on behalf of the Company prior to the date
hereof in connection with the transactions contemplated hereby.
3.22 APPLICATION OF PROCEEDS. The proceeds of the sale of the Shares will
be used by the Company to fund the capital expenditures and working capital
needs of the Company and for other general corporate purposes. The Company does
not own any "margin security' within the meaning of Regulation T (12 CFR Part
220) of the Board of Governors of the Federal Reserve System (herein called a
"margin security") or "margin stock" within the meaning of Regulation
10.
<PAGE>
U (12 CFR Part 221) of the Board of Governors of the Federal Reserve System
(herein called "margin stock"). Neither the Company nor any agent acting on its
behalf, has taken or will take any action which might cause this Agreement to
violate Regulation T, Regulation U, Regulation X or any other regulation of the
Board of Governors of the Federal Reserve System or to violate the Securities
Exchange Act of 1934, in each case as in effect now or as the same hereafter may
be in effect.
3.23 CERTAIN LIMITATIONS. Neither the nature of the Company, nor any of its
respective businesses or properties, nor any relationship between the Company
and any other person, nor any circumstance in connection with the offer, issue,
sale or delivery of the Shares (other than in any such case, any matter relating
to the Purchasers) is, such as to require or give rise to any limitation on any
Purchaser's ownership of any equity securities of the Company.
3.24 ENVIRONMENTAL.
(a) To the Company's knowledge, the Company complies, and at all times
has complied, in all material respects with all applicable Environmental Laws.
For the purposes hereof, "ENVIRONMENTAL LAW" shall mean any judgment, decree,
order, law, permit, license, rule, regulation or agency requirement relating to
or addressing the environment, health or safety (to the extent relating to
exposure to any hazardous substance), including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, the Resource Conservation and Recovery Act, as amended, the Superfund
Amendments and Reauthorization Act of 1986, the Federal Clean Water Act, the
Federal Clean Air Act, the Toxic Substances Control Act and any federal, state,
local or foreign statute, regulation, ordinance, order or decree relating to
health, safety (in the case of health and safety to the extent relating to
exposure in the workplace or otherwise to any Hazardous Substance) or the
environment.
(b) There is not now pending or, to the Company's knowledge, threatened
any action, claim, proceeding or investigation nor has the Company received any
notice, claim, demand letter, or request for information at any time, alleging
that the Company may be in violation of, or liable under, any Environmental Law.
(c) To the Company's knowledge, without initiating any inquiry, there
are no hazardous substances located on the properties currently or formerly
owned or operated by the Company (including soil, groundwater or surface
features and buildings or structures thereon) other than as permitted under
applicable Environmental Laws, and none of the properties contain, or has
contained, any underground storage tank.
3.25 INSURANCE. The Company maintains and/or is covered by valid policies
of workers' compensation insurance and of insurance with respect to its
properties and business. The Company currently maintains, in full force,
insurance covering the risks of the Company, if any, of such types and in such
amounts and with such deductibles as are customary for other companies engaged
in similar lines of business and with good and responsible insurance companies.
3.26 SMALL BUSINESS MATTERS. The Company acknowledges that ABN AMRO Private
Equity is a federally licensed Small Business Investment Company (an "SBIC
HOLDER") under
11.
<PAGE>
the Small Business Investment Company Act. The information regarding the Company
and its affiliates in Small Business Administration Form 480, Form 652 and Parts
A and B of Form 1031 delivered at or promptly following the Closing is accurate
in all material respects. Neither the Company nor any subsidiary of the Company
presently engages in, or shall hereinafter engage in, any activities, nor shall
the Company nor any subsidiary of the Company use the proceeds from the sale of
Series C Stock directly or indirectly for any purpose for which an SBIC Holder
is prohibited from providing funds by Small Business Investment Company Act
regulations.
3.27 QUALIFIED SMALL BUSINESS. The Company represents and warrants to the
Purchasers that, to the best of its knowledge, the Company is a "qualified small
business" within the meaning of Section 1202(d) of the Internal Revenue Code of
1986, as amended (the "Code") as of the date hereof and the Shares should
qualify as "qualified small business stock" as defined in Section 1202(c) of the
Code as of the date hereof. The Company further represents and warrants that, as
of the date hereof, it meets the "active business requirement" of Section
1202(e) of the Code, and it has made no "significant redemptions" within the
meaning of Section 1202(c)(3)(B) of the Code.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser hereby represents and warrants to the Company as follows
(such representations and warranties do not lessen or obviate the
representations and warranties of the Company set forth in this Agreement):
4.1 REQUISITE POWER AND AUTHORITY. Purchaser has all necessary power and
authority under all applicable provisions of law to execute and deliver this
Agreement, the Investors' Rights Agreement, the Stockholders' Agreement and to
carry out their provisions. All action on Purchaser's part required for the
lawful execution and delivery of this Agreement, the Investors' Rights Agreement
and the Stockholders' Agreement has been or will be effectively taken prior to
the Closing. Upon their execution and delivery, this Agreement, the Investors'
Rights Agreement and the Stockholders' Agreement will be valid and binding
obligations of Purchaser, enforceable in accordance with their terms, except (i)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors' rights,
(ii) general principles of equity that restrict the availability of equitable
remedies and (iii) to the extent that the enforceability of the indemnification
provisions of the Investors' Rights Agreement may be limited by applicable laws.
4.2 INVESTMENT REPRESENTATIONS. Purchaser understands that neither the
Shares nor the Conversion Shares have been registered under the Securities Act.
Purchaser also understands that the Shares are being offered and sold pursuant
to an exemption from registration contained in the Securities Act based in part
upon Purchaser's representations contained in the Agreement. Purchaser hereby
represents and warrants as follows:
(a) PURCHASER BEARS ECONOMIC RISK. Purchaser has substantial experience
in evaluating and investing in private placement transactions of securities in
companies similar to the Company so that it is capable of evaluating the merits
and risks of its investment in the
12.
<PAGE>
Company and has the capacity to protect its own interests. Purchaser must bear
the economic risk of this investment indefinitely unless the Shares (or the
Conversion Shares) are registered pursuant to the Securities Act, or an
exemption from registration is available. Purchaser also understands that there
is no assurance that any exemption from registration under the Securities Act
will be available and that, even if available, such exemption may not allow
Purchaser to transfer all or any portion of the Shares or the Conversion Shares
under the circumstances, in the amounts or at the times Purchaser might propose.
(b) ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring the Shares and
the Conversion Shares for Purchaser's own account for investment only, and not
with a view towards their distribution.
(c) ACCREDITED INVESTOR. Purchaser represents that it is an "accredited
investor" within the meaning of Regulation D under the Securities Act.
(d) RULE 144. Purchaser acknowledges and agrees that the Shares, and,
if issued, the Conversion Shares must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. Purchaser has been advised or is aware of the
provisions of Rule 144 promulgated under the Securities Act as in effect from
time to time, which permits limited resale of shares purchased in a private
placement subject to the satisfaction of certain conditions, including, among
other things, the availability of certain current public information about the
Company, the resale occurring following the required holding period under Rule
144 and the number of shares being sold during any three-month period not
exceeding specified limitations.
(e) RESIDENCE. If the Purchaser is an individual, then the Purchaser
resides in the state or province identified in the address of the Purchaser set
forth on EXHIBIT A; if the Purchaser is a partnership, corporation, limited
liability company or other entity, then the office or offices of the Purchaser
in which its investment decision was made is located at the address or addresses
of the Purchaser set forth on EXHIBIT A.
4.3 TRANSFER RESTRICTIONS. Each Purchaser acknowledges and agrees that the
Shares and, if issued, the Conversion Shares are subject to restrictions on
transfer as set forth in the Investors' Rights Agreement and the Stockholders'
Agreement.
SECTION 5. CONDITIONS TO CLOSING
5.1 CONDITIONS TO PURCHASERS' OBLIGATIONS AT THE CLOSING. Purchasers'
obligations to purchase the Shares at the Closing are subject to the
satisfaction, at or prior to the Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF OBLIGATIONS.
The representations and warranties made by the Company in Section 3 hereof shall
be true and correct in all respects as of the Closing Date with the same force
and effect as if they had been made as of the Closing Date, and the Company
shall have performed all obligations and conditions herein required to be
performed or observed by it on or prior to the Closing.
13.
<PAGE>
(b) LEGAL INVESTMENT. On the Closing Date, the sale and issuance of the
Shares and the proposed issuance of the Conversion Shares shall be legally
permitted by all laws and regulations to which Purchasers and the Company are
subject.
(c) CONSENTS, PERMITS, AND WAIVERS. The Company shall have obtained any
and all consents, permits and waivers necessary or appropriate for consummation
of the transactions contemplated by the Agreement, the Investors' Rights
Agreement and the Stockholders' Agreement (except for such as may be properly
obtained subsequent to the Closing).
(d) FILING OF CERTIFICATE. The Certificate shall have been approved by
the Board of Directors of the Company and filed with the Secretary of State of
the State of Delaware and shall be in full force and effect.
(e) RESERVATION OF CONVERSION SHARES. The Conversion Shares issuable
upon conversion of the Shares shall have been duly authorized and reserved for
issuance upon such conversion.
(f) COMPLIANCE CERTIFICATE. The Company shall have delivered to
Purchasers a Compliance Certificate, executed by the Chief Executive Officer of
the Company, dated as of the Closing Date, to the effect that the conditions
specified in subsections (a), (c), (d) and (e) of this Section 5.1 have been
satisfied.
(g) AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT. An Amended and
Restated Investors' Rights Agreement, substantially in the form attached hereto
as EXHIBIT C, shall have been executed and delivered by the parties thereto.
(h) AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT. An Amended and
Restated Stockholders' Agreement, substantially in the form attached hereto as
EXHIBIT D, shall have been executed and delivered by the parties thereto.
(i) BOARD OF DIRECTORS. Upon the Closing, the authorized size of the
Board of Directors of the Company shall be six (6) members and the Board shall
consist of Leonard Allsup, Brian Gast, Gregg Mockenhaupt, James Collis, Gerald
K. Dinsmore, and Todd Brooks.
(j) LEGAL OPINION. The Purchasers shall have received from Cooley
Godward LLP an opinion addressed to them, dated as of the Closing Date, in
substantially the form attached hereto as EXHIBIT F.
(k) MINIMUM AMOUNT OF INVESTMENT. A minimum of three million five
hundred seventy-one thousand four hundred twenty-eight (3,571,428) shares of the
Company's Shares shall be sold at the Closing.
(l) PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated at the Closing hereby, all
documents and instruments incident to such transactions and all documents,
instruments and proceedings related to the Purchasers' business, technical and
legal due diligence shall be reasonably satisfactory in substance and form to
the Purchasers and their special counsel, and the Purchasers and their
14.
<PAGE>
special counsel shall have received all such counterpart originals or certified
or other copies of such documents as they may reasonably request.
(m) EXPENSES. On the Closing Date, the Company shall have paid the
reasonable fees and expenses of Dewey Ballantine LLP as special counsel for the
Purchasers, in an amount not to exceed $15,000.
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's obligation to
issue and sell the Shares at the Closing is subject to the satisfaction, on or
prior to the Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties made by the Purchasers in Section 4 hereof shall be true and correct
in all respects at the date of the Closing, with the same force and effect as if
they had been made on and as of said date.
(b) PERFORMANCE OF OBLIGATIONS. Purchasers shall have performed and
complied with all agreements and conditions herein required to be performed or
complied with by Purchasers on or before the Closing.
(c) CONSENTS, PERMITS, AND WAIVERS. The Company shall have obtained any
and all consents, permits and waivers necessary or appropriate for consummation
of the transactions contemplated by the Agreement, the Investors' Rights
Agreement and the Stockholders' Agreement (except for such as may be properly
obtained subsequent to the Closing).
(d) FILING OF CERTIFICATE. The Certificate shall have been approved by
the Board of Directors of the Company and filed with the Secretary of State of
the State of Delaware and shall be in full force and effect.
(e) AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT. An Amended and
Restated Investors' Rights Agreement, substantially in the form attached hereto
as EXHIBIT C, shall have been executed and delivered by the Purchasers.
(f) AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT. An Amended and
Restated Stockholders' Agreement, substantially in the form attached hereto as
EXHIBIT D, shall have been executed and delivered by Purchasers.
(g) MINIMUM AMOUNT OF INVESTMENT. A minimum of three million five
hundred seventy-one thousand four hundred twenty-eight (3,571,428) shares of the
Company's Shares shall be sold at the Closing.
SECTION 6. MISCELLANEOUS
6.1 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Colorado without regard to its
conflict-of-laws rules.
15.
<PAGE>
6.2 SURVIVAL. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by any Purchaser and the
closing of the transactions contemplated hereby. All statements as to factual
matters contained in any certificate or other instrument delivered by or on
behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
6.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto
and shall inure to the benefit of and be enforceable by each person who shall be
a holder of the Shares from time to time.
6.4 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules hereto,
including the Investors' Rights Agreement, the Stockholders' Agreement and the
Schedule of Exceptions, and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.
6.5 SEVERABILITY. In case any provision of the Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
6.6 AMENDMENT AND WAIVER.
(a) This Agreement may be amended or modified only upon the written
consent of the Company and holders of at least sixty-six and two-thirds percent
(66 2/3%) of the Shares (treated as if converted and including any Conversion
Shares into which the Shares have been converted that have not been sold to the
public).
(b) The obligations of the Company and the rights of the holders of the
Shares and the Conversion Shares under the Agreement may be waived only with the
written consent of the holders of at least sixty-six and two thirds percent (66
2/3%) of the Shares (treated as if converted and including any Conversion Shares
into which the Shares have been converted that have not been sold to the
public).
6.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to exercise
any right, power or remedy accruing to any party, upon any breach, default or
noncompliance by another party under this Agreement, the Investors' Rights
Agreement, the Stockholders' Agreement or the Certificate, shall impair any such
right, power or remedy, nor shall it be construed to be a waiver of any such
breach, default or noncompliance thereafter occurring. It is further agreed that
any waiver, permit, consent or approval of any kind or character on any
Purchaser's part of any breach, default or noncompliance under this Agreement,
the Investors' Rights Agreement, the Stockholders' Agreement or under the
Certificate or any waiver on such party's part of any provisions or conditions
of the Agreement, the Investors' Rights Agreement, the Stockholders' Agreement
or the Certificate must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, the Investors'
16.
<PAGE>
Rights Agreement, the Stockholders' Agreement, the Certificate, by law, or
otherwise afforded to any party, shall be cumulative and not alternative.
6.8 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified; (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day; (iii) upon receipt after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (iv) one (1) day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
Company at the address as set forth on the signature page hereof and to
Purchaser at the address set forth on EXHIBIT A attached hereto or at such other
address as the Company or Purchaser may designate by ten (10) days advance
written notice to the other parties hereto.
6.9 TITLES AND SUBTITLES. The titles of the sections and subsections of the
Agreement are for convenience of reference only and are not to be considered in
construing this Agreement.
6.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
6.11 BROKER'S FEES. Each party hereto represents and warrants that no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation in this Section 6.11 being untrue.
6.12 ATTORNEYS' FEES. In the event that any dispute among the parties to
this Agreement, the Investors' Rights Agreement or the Stockholders' Agreement,
the prevailing party in such dispute shall be entitled to recover from the
losing party all fees, costs and expenses of enforcing any right of such
prevailing party under or with respect to this Agreement, the Investors' Rights
Agreement, the Stockholders' Agreement, including without limitation, such
reasonable fees and expenses of attorneys and accountants, which shall include,
without limitation, all fees, costs and expenses of appeals.
6.13 EXPENSES. The Company shall pay all reasonable costs and expenses
incurred with respect to the negotiation, execution and delivery of any
amendment to this Agreement, the Certificate, the Investors' Rights Agreement
and the Stockholders' Agreement, to the extent any such amendment would
adversely affect the holders of Series C Stock.
6.14 HSR FILING FEES. The Company shall pay all costs and expenses of each
Purchaser, as they are incurred, with respect to any filing under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations promulgated thereunder, in connection with such Purchaser's
investment in the Company, regardless of when such costs or expenses are
incurred.
6.15 EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges that it is
not relying upon any person, firm, or corporation, other than the Company and
its officers and
17.
<PAGE>
directors, in making its investment or decision to invest in the Company. Each
Purchaser agrees that no Purchaser nor the respective controlling persons,
officers, directors, partners, agents, or employees of any Purchaser shall be
liable for any action heretofore or hereafter taken or omitted to be taken by
any of them in connection with the Shares and Conversion Shares.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
18.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed the SERIES C PREFERRED
STOCK PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASERS:
JATO COMMUNICATIONS CORP.
--------------------------------------
Please Print Name of Purchaser
By: /s/ Brian E. Gast By:
------------------------------ -----------------------------------
Name: Brian E. Gast Name:
---------------------------- ---------------------------------
Title: Title:
--------------------------- --------------------------------
1099 18th Street, Suite 700 Address:
Denver, CO 80202 ------------------------------
--------------------------------------
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
EXHIBIT A
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PURCHASE PRICE
- ---------------- ---------------- --------------
<S> <C> <C>
Mayfield X, L.P. 1,367,143 $9,570,001.00
2800 Sand Hill Road
Suite 250
Menlo Park, CA 94025
Attn: Todd Brooks
Mayfield Associates Fund IV, L.P. 47,143 $330,001.00
2800 Sand Hill Road
Suite 250
Menlo Park, CA 94025
Attn: Todd Brooks
Mayfield Principals Fund, L.L.C. 157,143 $1,100,001.00
2800 Sand Hill Road
Suite 250
Menlo Park, CA 94025
Attn: Todd Brooks
Crest Communications Partners L.P. 428,571 2,999,997.00
320 Park Avenue
17th Floor
New York, NY 10022
Attn: Gregg Mockenhaupt
CEA Capital Partners USA, L.P. 327,557 $2,292,899.00
17 State Street
35th Floor
New York, NY 10004
Attn: Steve McCall
CEA Capital Partners USA CI, L.P. 101,014 $707,098.00
17 State Street
35th Floor
New York, NY 10004
Attn: Steve McCall
A-1
<PAGE>
ABN AMRO Capital (USA), Inc. 198,096 $1,386,672.00
208 S. LaSalle Street
10th Floor
Chicago, IL 60604
Attn: Daniel Foreman
I Eagle Trust 71,690 $501,830.00
208 S. LaSalle Street
10th Floor
Chicago, IL 60604
Attn: Daniel Foreman
ABN AMRO Incorporated 15,928 $111,496.00
208 S. LaSalle Street
10th Floor
Chicago, IL 60604
Attn: Daniel Foreman
Access Technology Partners, L.P. 228,571 $1,599,997.00
Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
Attn: Alex Sloan
Access Technology Partners Brokers Fund, 4,286 $30,002.00
L.P.
Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
Attn: Alex Sloan
Hambrecht & Quist California 14,286 $100,002.00
Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
Attn: Alex Sloan
Hambrecht & Quist Employee Venture Fund, 14,286 $100,002.00
L.P. II
Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
Attn: Alex Sloan
<PAGE>
H&Q JATO Communications Investors, L.P. 24,285 $169,995.00
Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
Attn: Alex Sloan
TCI Satellite Entertainment, Inc. 714,286 $5,000,002.00(1)
8085 S. Chester Street
Suite 110
Englewood, CO 80112
Attn: Ken Carroll
Keith Bennett 5,000 $35,000.00
16728 E. Prentice Circle
Aurora, CO 80015
Jeffrey D. Morgan 14,286 $100,002.00
2883 Lee Hill Road
Boulder, CO 80302
Karin W. Morgan 14,285 $99,995.00
2883 Lee Hill Road
Boulder, CO 80302
John P. Raeder, Jr. and Deborah M. Raeder, 50,000 $350,000.00
as Joint Tenants
5625 S. Bellaire Ct.
Greenwood Village, CO 80121
Michael S. Grunwald 28,571 $199,997.00
340 Lombard Street
Apt. A
San Francisco, CA 94133
- -----------------------------
(1) Payment to made by delivery of $2,000,000.00 and a note in the amount of
$3,000,002.00.
<PAGE>
Gerald K. Dinsmore 30,000 $210,000.00
c/o Jato Communications Corp.
1099 18th Street
Denver, CO 80202
Jerome C. Ramsey 8,000 $56,000.00
506 Providence Drive
Castle Rock, CO 80104
Robert G. Vidal and Tina M. Vidal, 5,000 $35,000
as Joint Tenants
5 Snowy Owl Lane
Littleton, CO 80127
Gerard A. Maglio 14,286 $100,002.00
5640 S. Bellaire Court
Greenwood Village, CO 80121
Rex Humston 7,143 $50,001.00
6889 S. Salida Street
Foxfield, CO 80016
Edward Ziehm 14,286 $100,002.00
864 Meadow Rose Lane
Castle Rock, CO 80104
<PAGE>
Trustee F.B.O. FWD Corporation Savings & 14,286 $100,002.00
Profit Sharing Trust,
James M. Green, Segregated Account
c/o - James P. Cooney, President
Pension Inc., Trustee
136 N. Maple Avenue
Green Bay, WI 54303
COPY OF ANY CORRESPONDENCE TO :
James M. Green, Segregated Account
W8397 Cloverleaf Lake Road
Clintonville, WI 54929
Patrick M. Green 2,143 $15,001.00
12098 W. 75th Place
Arvada, CO 80005
William D. Myers and Dana D. Myers, as 7,143 $50,001.00
Joint Tenants
3822 South Sebring Court
Denver, CO 80237
Marty S. Clayman 10,000 $70,000.00
2401 Shady Oak Place ------ ----------
Lexington, KY 40515
Total 3,938,714 $27,570,998.00
--------- --------------
--------- --------------
</TABLE>
<PAGE>
EXHIBIT B
RESTATED CERTIFICATE OF INCORPORATION
B-1
<PAGE>
EXHIBIT C
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
C-1
<PAGE>
EXHIBIT D
AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
D-1
<PAGE>
EXHIBIT E
FORM OF PROPRIETARY INFORMATION
AND INVENTIONS AGREEMENT
E-1
<PAGE>
EXHIBIT F
LEGAL OPINION
F-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1.AGREEMENT TO SELL AND PURCHASE......................................1
1.1 Authorization of Shares.....................................1
1.2 Sale and Purchase...........................................1
SECTION 2.CLOSING, DELIVERY AND PAYMENT.......................................1
2.1 Closing.....................................................1
2.2 Delivery....................................................2
SECTION 3.REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................2
3.1 Organization, Good Standing and Qualification...............2
3.2 Subsidiaries................................................2
3.3 Capitalization; Voting Rights...............................3
3.4 Authorization; Binding Obligations..........................3
3.5 Financial Statements........................................4
3.6 Liabilities.................................................4
3.7 Agreements; Action..........................................4
3.8 Obligations to Related Parties..............................5
3.9 Absence of Changes..........................................5
3.10 Real Properties; Tangible Personal Property.................7
3.11 Patents and Trademarks......................................7
3.12 Compliance with Other Instruments...........................8
3.13 Litigation..................................................8
3.14 Tax Returns and Payments....................................8
3.15 Employees...................................................9
3.16 Proprietary Information and Inventions Agreements...........9
3.17 Obligations of Management...................................9
3.18 Registration Rights........................................10
3.19 Compliance with Laws; Permits..............................10
3.20 Offering Valid.............................................10
3.21 Full Disclosure............................................10
3.22 Application of Proceeds....................................10
3.23 Certain Limitations........................................11
3.24 Environmental..............................................11
i.
<PAGE>
3.25 Insurance..................................................11
3.26 Small Business Matters.....................................11
3.27 Qualified Small Business...................................12
SECTION 4.REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS...................12
4.1 Requisite Power and Authority..............................12
4.2 Investment Representations.................................12
4.3 Transfer Restrictions......................................13
SECTION 5.CONDITIONS TO CLOSING..............................................13
5.1 Conditions to Purchasers' Obligations at the Closing.......13
5.2 Conditions to Obligations of the Company...................15
SECTION 6.MISCELLANEOUS......................................................15
6.1 Governing Law..............................................15
6.2 Survival...................................................16
6.3 Successors and Assigns.....................................16
6.4 Entire Agreement...........................................16
6.5 Severability...............................................16
6.6 Amendment and Waiver.......................................16
6.7 Delays or Omissions........................................16
6.8 Notices....................................................17
6.9 Titles and Subtitles.......................................17
6.10 Counterparts...............................................17
6.11 Broker's Fees..............................................17
6.12 Attorneys' Fees............................................17
6.13 Expenses...................................................17
6.14 HSR Filing Fees............................................17
6.15 Exculpation Among Purchasers...............................17
</TABLE>
ii.
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<S> <C>
Schedule of Purchasers Exhibit A
Restated Certificate of Incorporation Exhibit B
Amended and Restated Investors' Rights Agreement Exhibit C
Amended and Restated Stockholders' Agreement Exhibit D
Form of Non-Competition Proprietary
Information and Inventions Agreement Exhibit E
Form of Legal Opinion Exhibit F
</TABLE>
<PAGE>
JATO COMMUNICATIONS CORP.
FIRST AMENDMENT TO
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
This FIRST AMENDMENT TO THE SERIES C PREFERRED STOCK PURCHASE
AGREEMENT, dated as of September 16, 1999 (the "PURCHASE AGREEMENT"), is entered
into as of December 22, 1999, by and among Jato Communications Corp. (the
"COMPANY"), the holders of the Company's Series C Preferred Stock (the "INITIAL
PURCHASERS") and Bato, LLC (the "ADDITIONAL PURCHASER").
RECITALS
WHEREAS, the Company and the Initial Purchasers entered into the
Purchase Agreement, pursuant to which the Company issued and sold an aggregate
of 3,938,714 shares of the Company's Series C Preferred Stock to the Initial
Purchasers;
WHEREAS, the Company wishes to sell to the Additional Purchaser, and
the Additional Purchaser wishes to purchase, an aggregate of 8,928 shares of the
Company's Series C Preferred Stock;
WHEREAS, the Company and the Initial Purchasers wish to amend the
Purchase Agreement to include the Additional Purchaser as a party to such
agreement;
WHEREAS, pursuant to Section 6.6 of the Purchase Agreement, the
Purchase Agreement may be amended with the written consent of the Company and
the holders of at least sixty-six and two-thirds percent (66 2/3%) of the shares
of Series C Preferred Stock held by the Initial Purchasers (the "REQUIRED
HOLDERS"); and
WHEREAS, the undersigned constitute the Required Holders.
NOW, THEREFORE, in consideration of the mutual agreements, covenants
and considerations contained herein, the parties hereto agree as follows:
1. PURCHASE AND SALE; CLOSING
1.1 Subject to the terms and conditions hereof, and in reliance upon
the representations contained herein or incorporated by reference, the Company
hereby agrees to issue and sell to the Additional Purchaser and the Additional
Purchaser hereby agrees to purchase from the Company, 8,928 shares of Series C
Preferred Stock at a purchase price of Five Dollars Sixty Cents ($5.60) per
share (the "ADDITIONAL SHARES").
1.2 The closing of the sale and purchase of the Additional Shares (the
"SUBSEQUENT CLOSING") shall take place on the date hereof at the offices of
Cooley Godward LLP, 2595 Canyon Boulevard, Suite 250, Boulder, Colorado 80302,
or at such other time or place as the Company
1.
<PAGE>
and the Additional Purchaser may mutually agree. At the Subsequent Closing,
subject to the terms and conditions hereof, the Company will deliver to the
Additional Purchaser certificates representing the number of Additional Shares
purchased by each such Additional Purchaser from the Company against payment by
or on behalf of such Additional Purchaser of the purchase price therefor by
check or wire transfer or by such other means as shall be mutually agreeable to
the Company and the Additional Purchaser.
2. PURCHASE AGREEMENT
2.1 All capitalized terms used herein without definition shall have the
meanings given to them in the Purchase Agreement.
2.2 The Purchase Agreement and the Schedule of Purchasers thereto are
hereby amended (i) to include the Additional Purchaser as a "Purchaser" for all
purposes thereunder with the Additional Purchaser agreeing to be bound by all
terms and conditions and making all representations and warranties therein,
including, without limitation, the representations and warranties in Section 4
of the Purchase Agreement regarding investment intent, the Additional
Purchaser's qualifications and other matters; and (ii) the Additional Shares
shall be deemed to be "Series C Stock" and "Shares" for all purposes under the
Purchase Agreement.
3. MISCELLANEOUS
3.1 This First Amendment may be executed in any number of counterparts,
each of which shall be an original, but all of which together shall constitute
one instrument.
3.2 All other terms and conditions of the Purchase Agreement shall
remain in full force and effect.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
2.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment to the Series C Preferred Stock Purchase Agreement as of the date set
forth in the first paragraph hereof.
COMPANY: INITIAL PURCHASERS:
JATO COMMUNICATIONS CORP. MAYFIELD X, L.P.
By: Mayfield X Management, L.L.C.
By: /s/ William D. Myers Its: General Partner
---------------------------------
William D. Myers
Chief Financial Officer By: /s/ Todd Brooks
---------------------------------
Print Name: Todd Brooks
-------------------------
Its: Managing Director
MAYFIELD ASSOCIATES FUND IV, L.P.
By: Mayfield IX Management, L.L.C.
Its: General Partner
By: /s/ F. Gibson Myers
---------------------------------
Print Name: F. Gibson Myers
-------------------------
Its: Managing Director
MAYFIELD PRINCIPALS FUND, L.L.C.
By: Mayfield X Management, L.L.C.
Its: General Partner
By: /s/ Todd Brooks
---------------------------------
Print Name: Todd Brooks
-------------------------
Its: Managing Diretor
CREST COMMUNICATIONS PARTNERS L.P.
By: Crest Communications Holdings
LLC, its authorized representative
By: /s/ Gregg A. Mockenhaupt
---------------------------------
Print Name: Gregg A. Mockenhaupt
-------------------------
Its: Managing Director
<PAGE>
CEA CAPITAL PARTNERS USA, L.P.
By: CEA Management Corp., its
authorized representative
By: /s/ James J. Collis
---------------------------------
Print Name: James J. Collis
-------------------------
Title: Executive Vice President
------------------------------
CEA CAPITAL PARTNERS USA CI, L.P.
By: CEA Management Corp., its
authorized representative
By: /s/ James J. Collis
---------------------------------
Print Name: James J. Collis
-------------------------
Title: Executive Vice President
------------------------------
ABN AMRO CAPITAL (USA), INC.
By: /s/ Daniel J. Foreman
---------------------------------
Print Name: Daniel J. Foreman
-------------------------
Title: Managing Director
------------------------------
I EAGLE TRUST
By: /s/ Daniel J. Foreman
---------------------------------
Print Name: Daniel J. Foreman
-------------------------
Title: Managing Director
------------------------------
ABN AMRO INCORPORATED
By: /s/ Daniel J. Foreman
---------------------------------
Print Name: Daniel J. Foreman
-------------------------
Title: Managing Director
------------------------------
<PAGE>
ADDITIONAL PURCHASER:
BATO, LLC
By: /s/ Mike St. John
---------------------------------
Print Name: Mike St. John
-------------------------
Title: Member, Manager
------------------------------
<PAGE>
EXHIBIT A
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
ADDITIONAL SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PURCHASE PRICE
- ---------------- ---------------- --------------
<S> <C> <C>
Bato, LLC 8,928 $49,996.80
8136 S. Grant Way
Littleton, CO 80122
</TABLE>
<PAGE>
JATO COMMUNICATIONS CORP.
SERIES D PREFERRED STOCK
PURCHASE AGREEMENT
JANUARY 20, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1. AGREEMENT TO SELL AND PURCHASE. . . . . . . . . . . . . . . . . . . . . .1
1.1 Authorization of Shares. . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 Sale and Purchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 2. CLOSING, DELIVERY AND PAYMENT . . . . . . . . . . . . . . . . . . . . . .1
2.1 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2.2 Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . .2
3.1 Organization, Good Standing and Qualification. . . . . . . . . . . . . . .2
3.2 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
3.3 Capitalization; Voting Rights. . . . . . . . . . . . . . . . . . . . . . .2
3.4 Authorization; Binding Obligations . . . . . . . . . . . . . . . . . . . .3
3.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . .4
3.6 Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
3.7 Agreements; Action . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
3.8 Obligations to Related Parties . . . . . . . . . . . . . . . . . . . . . .5
3.9 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
3.10 Real Properties; Tangible Personal Property. . . . . . . . . . . . . . . .7
3.11 Patents and Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.12 Compliance with Other Instruments. . . . . . . . . . . . . . . . . . . . .8
3.13 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
3.14 Tax Returns and Payments . . . . . . . . . . . . . . . . . . . . . . . . .8
3.15 Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
3.16 Proprietary Information and Inventions Agreements. . . . . . . . . . . . .9
3.17 Obligations of Management. . . . . . . . . . . . . . . . . . . . . . . . .9
3.18 Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.19 Compliance with Laws; Permits. . . . . . . . . . . . . . . . . . . . . . 10
3.20 Full Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.21 Application of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . 10
3.22 Certain Limitations. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.23 Environmental. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.24 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
i
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<CAPTION>
PAGE
<S> <C>
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER . . . . . . . . . . . . 11
4.1 Requisite Power and Authority. . . . . . . . . . . . . . . . . . . . . . 11
4.2 Investment Representations . . . . . . . . . . . . . . . . . . . . . . . 12
4.3 Transfer Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 5. CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.1 Conditions to Purchaser's Obligations at the Closing . . . . . . . . . . 13
5.2 Conditions to Obligations of the Company . . . . . . . . . . . . . . . . 14
SECTION 6. CERTAIN POST-CLOSING COVENANTS OF THE PURCHASER . . . . . . . . . . . . 15
6.1 Market Stand-Off Agreement.. . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 7. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.1 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.2 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.3 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.4 Entire Agreement; Amendment. . . . . . . . . . . . . . . . . . . . . . . 16
7.5 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.6 Delays or Omissions. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.7 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.8 Titles and Subtitles . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.10 Broker's Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.11 Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
ii
<PAGE>
JATO COMMUNICATIONS CORP.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES D PREFERRED STOCK PURCHASE AGREEMENT (the "AGREEMENT") is
entered into as of this 20th day of January, 2000, by and among JATO
COMMUNICATIONS CORP., a Delaware corporation (the "COMPANY"), and MICROSOFT
CORPORATION, whose name and address are set forth on the Schedule of
Purchasers attached hereto as EXHIBIT A ("PURCHASER").
RECITALS
WHEREAS, the Company has authorized the sale and issuance of up to an
aggregate of five million (5,000,000) shares of its Series D Preferred Stock,
$.01 par value (the "SHARES"); and
WHEREAS, the Company desires to issue and sell the Shares to Purchaser
and Purchaser desires to purchase a portion of the Shares from the Company on
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
SECTION 1. AGREEMENT TO SELL AND PURCHASE
1.1 AUTHORIZATION OF SHARES. On or prior to the Closing (as defined in
Section 2 below), the Company shall have authorized (i) the sale and issuance
to Purchaser of the Shares and (ii) the issuance of such shares of Common
Stock to be issued upon conversion of the Shares (the "CONVERSION SHARES").
The Shares and the Conversion Shares shall have the rights, preferences,
privileges and restrictions set forth in the Restated Certificate of
Incorporation of the Company, in the form attached hereto as EXHIBIT B (the
"CERTIFICATE").
1.2 SALE AND PURCHASE. Subject to the terms and conditions hereof, at
the Closing (as hereinafter defined), the Company hereby agrees to issue and
sell to Purchaser and Purchaser agrees to purchase from the Company, the
number of Shares set forth opposite Purchaser's name on EXHIBIT A at a
purchase price of $5.60 per share.
SECTION 2. CLOSING, DELIVERY AND PAYMENT
2.1 CLOSING. The closing of the sale and purchase of the Shares under
this Agreement (the "CLOSING") shall take place on the date hereof, at the
offices of Cooley Godward LLP, 2595 Canyon Boulevard, Suite 250, Boulder,
Colorado 80302, or at such other time or place as the Company and Purchaser
may mutually agree (such date is hereinafter referred to as the "CLOSING
DATE").
2.2 DELIVERY. At the Closing, subject to the terms and conditions
hereof, the Company will deliver to the Purchaser one or more stock
certificates, as Purchaser may request, representing the number of Shares to
be purchased at the Closing by Purchaser, registered in
1
<PAGE>
Purchaser's name, against payment of the purchase price therefor, by check or
wire transfer made payable to the order of the Company.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on a Schedule of Exceptions delivered by the Company
to the Purchaser at the Closing, the Company hereby represents and warrants
to Purchaser as of the date of this Agreement as follows:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company and
each Subsidiary (as defined in Section 3.2 below) is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware or, with respect to Jato Communications Corp. of Virginia, the
Commonwealth of Virginia. Each of the Company and Subsidiary has all
requisite corporate power and authority to own and operate their respective
properties and assets. The Company has all requisite corporate power and
authority to execute and deliver this Agreement, the Second Amended and
Restated Investors' Rights Agreement, in the form attached hereto as EXHIBIT
C (the "INVESTORS' RIGHTS AGREEMENT"), and the Second Amended and Restated
Stockholders' Agreement, in the form attached hereto as EXHIBIT D (the
"STOCKHOLDERS' AGREEMENT"), issue and sell the Shares and the Conversion
Shares and to carry out the provisions of this Agreement, the Investors'
Rights Agreement, the Stockholders' Agreement and the Certificate. Each of
the Company and Subsidiary has the requisite corporate power and authority to
carry on its business as presently conducted and as presently proposed to be
conducted. Each of the Company and Subsidiary is duly qualified and is
authorized to do business and is in good standing as a foreign corporation in
all jurisdictions in which the nature of their respective activities and of
their respective properties (both owned and leased) make such qualifications
necessary, except for those jurisdictions in which failure to do so would not
have a material adverse effect on the Company or Subsidiary or their
respective businesses. The Company has made available to the Purchaser true,
correct and complete copies of the Company's Restated Certificate of
Incorporation and Amended Bylaws, each as amended to date and in full force
and effect on the date hereof. The Company has made available to the
Purchaser true, correct and complete copies of Subsidiary's Certificate of
Incorporation and Bylaws, each as amended to date and in full force and
effect on the date hereof. Since its inception, Subsidiary has had no
operations and has not incurred any material obligations.
3.2 SUBSIDIARIES. Other than Jato Operating Corp., a Delaware
corporation, Jato Operating Two Corp., a Delaware corporation, and Jato
Communications Corp. of Virginia, a Virginia corporation (collectively, the
"SUBSIDIARY"), the Company owns no equity securities of any other
corporation, limited partnership or similar entity. The Company is not a
participant in any joint venture, partnership or similar arrangement. The
Company owns shares of the Subsidiary free and clear of all encumbrances.
3.3 CAPITALIZATION; VOTING RIGHTS.
(a) The authorized capital stock of the Company, immediately prior
to the Closing, will consist of (a) eighty million (80,000,000) shares of
Common Stock, of which six million seven hundred ninety-seven thousand eight
hundred fourteen (6,797,814) shares are issued and outstanding, and (b)
thirty million (30,000,000) shares of Preferred Stock, of which
2
<PAGE>
one million seven hundred fifty-one thousand nine hundred eighty-five
(1,751,985) shares are designated Series A Preferred Stock, of which one
million seven hundred fifty-one thousand nine hundred eighty five (1,751,985)
are issued and outstanding, of which thirteen million six hundred fifteen
thousand three hundred twenty-two (13,615,322) shares are designated Series B
Preferred Stock, of which thirteen million six hundred fifteen thousand three
hundred twenty-two (13,615,322) are issued and outstanding, of which four
million nine hundred thirty-two thousand three hundred eight (4,932,308)
shares are designated Series C Preferred Stock, of which four million nine
hundred thirty-two thousand three hundred eight (4,932,308) are issued and
outstanding, and of which five million (5,000,000) shares are designated
Series D Preferred Stock, none of which are issued and outstanding. All
issued and outstanding shares of the Company's Common Stock and Preferred
Stock (i) have been duly authorized and validly issued, (ii) are fully paid
and nonassessable and (iii) were issued in compliance with all applicable
state and federal laws concerning the issuance of securities. The rights,
preferences, privileges and restrictions of the Shares are as stated in the
Certificate. The Conversion Shares have been duly and validly reserved for
issuance. As of the Closing, there has been no action taken by the Company
which would have required an adjustment to the Series D Conversion Price, as
defined in the Certificate. Except as set forth on the Schedule of Exceptions
and except as may be granted pursuant to this Agreement or the Investors'
Rights Agreement, there are no outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first refusal),
proxy or stockholder agreements, or agreements of any kind for the purchase
or acquisition from the Company of any of its securities. The Shares and the
Conversion Shares have been duly authorized and, when issued in compliance
with the provisions of this Agreement and the Certificate, will be validly
issued (including, without limitation, issued in compliance with applicable
state and federal securities laws), fully paid and nonassessable, subject to
no preemptive rights, and will be free of any liens or encumbrances;
PROVIDED, HOWEVER, that the Shares and the Conversion Shares may be subject
to restrictions on transfer under state and/or federal securities laws as set
forth herein or as otherwise required by such laws at the time transfer is
proposed.
(b) The authorized capital stock of (i) Jato Operating Corp.
consists of eleven hundred (1,100) shares of Common Stock, (ii) Jato
Operating Two Corp. consists of one hundred (100) shares of Common Stock, and
(iii) Jato Communications Corp. of Virginia consists of one hundred (100)
shares of Common Stock, all of which shares are issued and outstanding and
held of record by the Company.
3.4 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action on the
part of the Company, its officers, directors and stockholders necessary for
the authorization of this Agreement, the Investors' Rights Agreement and the
Stockholders' Agreement, the performance of all obligations of the Company
hereunder and thereunder at the Closing and the authorization, sale, issuance
and delivery of the Shares pursuant hereto and the Conversion Shares pursuant
to the Certificate has been taken or will be taken prior to the Closing. The
Agreement, the Investors' Rights Agreement and the Stockholders' Agreement,
when executed and delivered, will be valid and binding obligations of the
Company enforceable in accordance with their terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
of general application affecting enforcement of creditors' rights; (ii)
general principles of equity that restrict the availability of equitable
remedies; and (iii) to the extent that the enforceability of the
indemnification provisions in Section 3.12 of the Investors' Rights
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Agreement may be limited by applicable laws. The sale of the Shares and the
subsequent conversion of the Shares into Conversion Shares are not and will
not be subject to any preemptive rights or rights of first refusal that have
not been properly waived or complied with.
3.5 FINANCIAL STATEMENTS. The Company has delivered to Purchaser (i)
its audited balance sheet as at December 31, 1998 and audited statement of
income and cash flows for the period from inception and ending December 31,
1998 and (ii) its unaudited balance sheet as at November 30, 1999 (the
"STATEMENT DATE") and unaudited consolidated statement of income for the
eleven-month period ending on the Statement Date (collectively, the
"FINANCIAL STATEMENTS"). The Financial Statements, together with the notes
thereto, are complete and correct in all material respects, have been
prepared in accordance with generally accepted accounting principles applied
on a consistent basis throughout the periods indicated, except as disclosed
therein, and present fairly the financial condition and position of the
Company as of December 31, 1998 and the Statement Date; PROVIDED, HOWEVER,
that the unaudited financial statements are subject to normal recurring
year-end audit adjustments (which are not expected to be material), and may
not contain all footnotes required under generally accepted accounting
principles.
3.6 LIABILITIES. The Company has no material liabilities and, to its
knowledge, knows of no material contingent liabilities not otherwise
disclosed in the Financial Statements, except current liabilities incurred in
the ordinary course of business subsequent to the Statement Date which have
not been, either in any individual case or in the aggregate, materially
adverse.
3.7 AGREEMENTS; ACTION.
(a) Except as set forth on the Schedule of Exceptions and except
for agreements explicitly contemplated hereby, there are no agreements,
understandings or proposed transactions between the Company and any of its
officers, directors, affiliates or their respective affiliates.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to
which the Company is a party or to its knowledge by which it is bound which
may involve (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of $25,000, or (ii) the license of any patent, copyright,
trade secret or other proprietary right to or from the Company (other than
licenses arising from the purchase of "off the shelf" or other standard
products), or (iii) provisions restricting or affecting the development,
manufacture or distribution of the Company's products or services, or (iv)
indemnification by the Company with respect to infringements of proprietary
rights.
(c) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or
series of its capital stock, (ii) incurred any indebtedness for money
borrowed or any other liabilities (other than with respect to indebtedness
and other obligations incurred in the ordinary course of business or as
disclosed in the Financial Statements) individually in excess of $25,000 or,
in the case of indebtedness and/or liabilities individually less than
$25,000, in excess of $75,000 in the aggregate, (iii) made any loans or
advances to any person, other than ordinary advances for travel expenses, or
(iv) sold,
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exchanged or otherwise disposed of any of its assets or rights, other than
the sale of its inventory in the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including
persons or entities the Company has reason to believe are affiliated
therewith) shall be aggregated for the purpose of meeting the individual
minimum dollar amounts of such subsections.
3.8 OBLIGATIONS TO RELATED PARTIES. There are no obligations of the
Company to officers, directors, stockholders, or employees of the Company
other than (a) for payment of salary for services rendered, (b) reimbursement
for reasonable expenses incurred on behalf of the Company and (c) for other
standard employee benefits made generally available to all employees
(including stock option agreements outstanding under any stock option plan
approved by the Board of Directors of the Company). No such officer,
director or stockholder, or any member of their immediate families is,
directly or indirectly, interested in any material contract with the Company
(other than such contracts as relate to any such person's ownership of
capital stock or other securities of the Company). The Company is not a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
3.9 ABSENCE OF CHANGES. Except as set forth on the Schedule of
Exceptions, since the Statement Date, there has not been:
(a) Any change in the assets, liabilities, financial condition,
earnings or operations of the Company from that reflected in the Financial
Statements, other than changes in the ordinary course of business, none of
which individually or in the aggregate has had or is expected to have a
material adverse effect on such assets, liabilities, financial condition,
earnings or operations of the Company;
(b) Any resignation or termination of any key officers of the
Company; and the Company, to the best of its knowledge, does not know of the
impending resignation or termination of employment of any such officer;
(c) Any material change in the contingent obligations of the
Company by way of guaranty, endorsement, indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business or
prospects or financial condition of the Company;
(e) Any waiver by the Company of a valuable right or of a material
debt owed to it;
(f) Any direct or indirect loans made by the Company to any
stockholder, employee, officer or director of the Company, other than
immaterial advances made in the ordinary course of business;
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(g) Any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder including,
without limitation, any (i) increase in the compensation payable or to become
payable by the Company to any of the Company's employees, (ii) any bonus,
incentive compensation, service award or other like benefit, granted, made or
accrued, contingently or otherwise, to or for the credit of the Company's
employees, or (iii) any employee welfare, pension, retirement, profit-sharing
or similar payment or arrangement (whether or not subject to ERISA) made or
agreed to by the Company;
(h) Any declaration or payment of any dividend or other
distribution of the assets of the Company;
(i) Any labor organization activity;
(j) Any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for
current liabilities incurred in the ordinary course of business;
(k) Any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(l) Any change in any material agreement to which the Company is a
party or by which it is bound which materially and adversely affects the
business, assets, liabilities, financial condition, operations or prospects
of the Company;
(m) (i) Any change in practice with respect to taxes, (ii) any
making, changing or revoking of any tax election, or (iii) any settlement or
compromise of any dispute involving a tax liability;
(n) Any change in the number of shares of capital stock of the
Company issued and outstanding;
(o) Any failure to conduct the business of the Company in the
ordinary course;
(p) Any change in the method of accounting or accounting practice
of the Company;
(q) Any change in the Company's lines of business; or
(r) Any other event or condition of any character that, either
individually or cumulatively, has materially and adversely affected the
business, assets, liabilities, financial condition, operations or prospects
of the Company. For purposes of this subsection (r), a material and adverse
effect shall only be deemed to occur if its monetary impact exceeds, or with
the passage of time, will exceed $75,000.
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3.10 REAL PROPERTIES; TANGIBLE PERSONAL PROPERTY.
(a) REAL PROPERTIES. The Schedule of Exceptions sets forth each
lease or other agreement (including easements) under which the Company leases
or has rights in any real property (the "REAL PROPERTY LEASES," and, each
individually, a "REAL PROPERTY LEASE"). The Company has a valid and
subsisting leasehold interest in all the real property which is the subject
of each Real Property Lease. The Company does not presently own, and has
never owned, any real property and does not presently operate, and has never
operated, any real property, other than as a lessee.
(b) TANGIBLE PERSONAL PROPERTY. Except as set forth on the
Schedule of Exceptions, (i) the Company has good, marketable and valid title
to all of the items of tangible personal property used in its operations and
(ii) all such tangible personal property is reflected on the Company's
unaudited Financial Statements, except as sold or disposed of subsequent to
the date thereof in the ordinary course of business consistent with past
practices. The tangible personal property of the Company is in good repair
and working order, reasonable wear and tear excepted, and constitutes all of
the tangible personal property necessary for the operation of the business as
currently conducted.
3.11 PATENTS AND TRADEMARKS. The Company is the sole owner, free of any
lien or encumbrance, of, or has a valid license, on commercially reasonable
terms, to, all U.S. and foreign patents, registered designs, copyrights,
computer software and databases, trademarks, service marks and trade names,
whether or not registered, and other trade secrets, research and development,
formulae, inventions, processes, know-how and proprietary and intellectual
property rights and information, including all grants, registrations and
applications relating thereto (collectively, the "PROPRIETARY RIGHTS")
necessary for the conduct of its business as now conducted (the "COMPANY
RIGHTS"). The Company's rights in the Company Rights are, to the Company's
knowledge, valid and enforceable. The Company has received no demand, claim,
notice or inquiry from any person in respect of the Company Rights which
challenges, threatens to challenge or inquires as to whether there is any
basis to challenge, the validity of, or the rights of the Company in, any
such Company Rights. There are no outstanding options, licenses or
agreements of any kind relating to the Company Rights, nor is the Company
bound by or a party to any options, licenses or agreements of any kind with
respect to the Proprietary Rights of any other person or entity other than
such licenses or agreements arising from the purchase of "off the shelf" or
standard products. The Company has taken, and will take, all actions which
are necessary in order to protect the Company Rights and to acquire
additional Proprietary Rights, consistent with prudent commercial practices
in the telecommunications industry. To the knowledge of the Company, the
Company is not in violation or infringement of, and has not violated or
infringed, any Proprietary Rights of any other person. To the knowledge of
the Company, no person is infringing any Company Rights. The Company is not
aware that any of its employees is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or
subject to any judgment, decree or order of any court or administrative
agency, that would interfere with their duties to the Company's business by
the employees of the Company, nor will, to the Company's knowledge, the
conduct of the Company's business as proposed conflict with or result in a
breach of the terms, conditions or provisions of, or constitute a default
under, any contract, covenant or instrument under which any employee is now
obligated. The Company does not believe it is or will be necessary to
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utilize any inventions, trade secrets or proprietary information of any of
its employees made prior to their employment by the Company, except for
inventions, trade secrets or proprietary information that have been assigned
to the Company.
3.12 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in violation
or default of any term of its Certificate or Amended Bylaws, or of any
provision of any mortgage, indenture, contract, agreement, instrument or
contract to which it is party or by which it is bound or of any judgment,
decree, order, writ or any statute, rule or regulation applicable to the
Company which would materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of the Company.
The execution, delivery, and performance of and compliance with this
Agreement, the Investors' Rights Agreement, the Stockholders' Agreement and
the Compliance Certificate to be delivered pursuant to Section 5.1(f) hereof,
and the issuance and sale of the Shares pursuant hereto and of the Conversion
Shares pursuant to the Certificate, will not, with or without the passage of
time or giving of notice, result in any such material violation, or be in
conflict with or constitute a default under any such term, or result in the
creation of any mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of the Company or the suspension, revocation,
impairment, forfeiture or nonrenewal of any permit, license, authorization or
approval applicable to the Company, its business or operations or any of its
assets or properties.
3.13 LITIGATION. There is no action, suit, proceeding or investigation
pending, or to the Company's knowledge, currently threatened against the
Company that questions the validity of this Agreement, the Investors' Rights
Agreement or the Stockholders' Agreement or the right of the Company to enter
into any of such agreements, or to consummate the transactions contemplated
hereby or thereby, or which might result, either individually or in the
aggregate, in any material adverse change in the assets, condition, affairs
or prospects of the Company, financially or otherwise, or any change in the
current equity ownership of the Company, nor is the Company aware that there
is any basis for the foregoing. The foregoing includes, without limitation,
actions pending or threatened (or any basis therefor known to the Company)
involving the prior employment of any of the Company's employees, their use
in connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers. The Company is not a party or
subject to the provisions of or in violation of any order, writ, injunction,
judgment or decree or any rule or regulation of any court or government
agency or instrumentality. There is no action, suit, proceeding or
investigation by the Company currently pending or which the Company intends
to initiate.
3.14 TAX RETURNS AND PAYMENTS. The Company has timely filed all tax
returns (federal, state and local) required to be filed by it. All taxes
shown to be due and payable on such returns, any assessments imposed, and to
the Company's knowledge all other taxes due and payable by the Company on or
before the Closing have been paid or will be paid prior to the time they
become delinquent. The Company has not been advised (i) that any of its
returns, federal, state or other, have been or are being audited as of the
date hereof, or (ii) of any deficiency in assessment or proposed judgment to
its federal, state or other taxes. The Company has no knowledge of any
liability of any tax to be imposed upon its properties or assets as of the
date of this Agreement that is not adequately provided for. Neither the
Company nor the Subsidiary is a party to any agreement relating to allocating
or sharing the payment of, or liability for taxes with
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respect to, any taxable period. Neither the Company nor Subsidiary has any
deferred income reportable for a period ending after the Closing Date that is
attributable to a transaction (e.g., an installment sale) occurring in, or
resulting from a change of accounting method for, a period ending on or prior
to the Closing Date.
3.15 EMPLOYEES. The Company is not a party to or bound by any currently
effective employment contract, deferred compensation arrangement, bonus plan,
incentive plan, profit sharing plan, retirement agreement or other employee
compensation plan or agreement. Neither the Company, nor any entity which is
required to be aggregated with the Company pursuant to Sections 414(b), (c),
(m) or (o) of the Internal Revenue Code of 1986 has any liability whether
actual or contingent, with respect to any employee benefit plan or
arrangement. To the Company's knowledge, no employee of the Company, nor any
consultant with whom the Company has contracted, is in violation of any term
of any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or
to contract with, the Company because of the nature of the business to be
conducted by the Company; and to the Company's knowledge the continued
employment by the Company of its present employees, and the performance of
the Company's contracts with its independent contractors, will not result in
any such violation. The Company has not received any notice alleging that
any such violation has occurred. No employee of the Company has been granted
the right to continued employment by the Company or to any material
compensation following termination of employment with the Company. The
Company is not aware that any officer or key employee, or that any group of
key employees, intends to terminate their employment with the Company, nor
does the Company have a present intention to terminate the employment of any
officer, key employee or group of key employees. To the Company's knowledge,
the Company is in compliance with all laws and orders relating to the
employment of labor, including, without limitation, all such laws and orders
relating to wages, hours, discrimination, civil rights, safety and the
collection and payment of withholding and/or Social Security taxes and
similar taxes. There are no complaints, charges or claims against the
Company pending, or, to the Company's knowledge, threatened 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 Company.
3.16 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. Each current
employee, officer and consultant of the Company has executed a Proprietary
Information and Inventions Agreement that effectively waives any ownership
rights in the invention or authorship of any Company Rights and has assigned
to the Company all rights with respect thereto. No current employee, officer
or consultant of the Company has excluded works or inventions made prior to
his or her employment with the Company from his or her assignment of the
works or inventions pursuant to such employee, officer or consultant's
Non-Competition, Proprietary Information and Inventions Agreement in the form
attached hereto as EXHIBIT E.
3.17 OBLIGATIONS OF MANAGEMENT. Each officer of the Company is
currently devoting one hundred percent (100%) of his business time to the
conduct of the business of the Company. The Company is not aware of any
officer or key employee of the Company planning to work less than full time
at the Company in the future.
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3.18 REGISTRATION RIGHTS. Except as required pursuant to the Investors'
Rights Agreement, the Company is presently not under any obligation, and has
not granted any rights, to register (as defined in Section 1 of the
Investors' Rights Agreement) any of the Company's presently outstanding
securities or any of its securities that may hereafter be issued.
3.19 COMPLIANCE WITH LAWS; PERMITS. The Company is not in violation of
any applicable statute, rule, regulation, order or restriction of any
domestic or foreign government or any instrumentality or agency thereof in
respect of the conduct of its business or the ownership of its properties
which violation would materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of the Company. No
governmental orders, permissions, consents, approvals or authorizations are
required to be obtained and no registrations or declarations are required to
be filed in connection with the execution and delivery of this Agreement and
the issuance of the Shares or the Conversion Shares, except such as has been
duly and validly obtained or filed, or with respect to any filings that must
be made after the Closing, as will be filed in a timely manner. The Schedule
of Exceptions sets forth the states in which the Company has obtained all
franchises, permits, licenses and any similar authority necessary for the
conduct of its business as now being conducted by it, the lack of which could
materially and adversely affect the business, properties, prospects or
financial condition of the Company.
3.20 FULL DISCLOSURE. This Agreement, the Exhibits hereto, the Schedule
of Exceptions, the Investors' Rights Agreement, the Stockholders' Agreement
and all other documents delivered by the Company to Purchaser or its
attorneys or agents in connection herewith or therewith or with the
transactions contemplated hereby or thereby, do not contain any untrue
statement of a material fact nor omit to state a material fact necessary in
order to make the statements contained herein or therein not misleading.
There is no fact peculiar to the Company and known to the Company which
materially adversely affects, or reasonably could be expected to materially
adversely affect in the future, the business, property or assets, or
financial condition of the Company, which has not been set forth in this
Agreement or in the other documents described herein or furnished to the
Purchaser by or on behalf of the Company prior to the date hereof in
connection with the transactions contemplated hereby.
3.21 APPLICATION OF PROCEEDS. The proceeds of the sale of the Shares
will be used by the Company to fund the capital expenditures and working
capital needs of the Company and for other general corporate purposes. The
Company does not own any "margin security" within the meaning of Regulation T
(12 CFR Part 220) of the Board of Governors of the Federal Reserve System
(herein called a "margin security") or "margin stock" within the meaning of
Regulation U (12 CFR Part 221) of the Board of Governors of the Federal
Reserve System (herein called "margin stock"). Neither the Company nor any
agent acting on its behalf, has taken or will take any action which might
cause this Agreement to violate Regulation T, Regulation U, Regulation X or
any other regulation of the Board of Governors of the Federal Reserve System
or to violate the Securities Exchange Act of 1934, in each case as in effect
now or as the same hereafter may be in effect.
3.22 CERTAIN LIMITATIONS. Neither the nature of the Company, nor any of
its respective businesses or properties, nor any relationship between the
Company and any other person, nor any circumstance in connection with the
offer, issue, sale or delivery of the Shares
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(other than in any such case, any matter relating to the Purchaser) is, such
as to require or give rise to any limitation on any Purchaser's ownership of
any equity securities of the Company.
3.23 ENVIRONMENTAL.
(a) To the Company's knowledge, the Company complies, and at all
times has complied, in all material respects with all applicable
Environmental Laws. For the purposes hereof, "ENVIRONMENTAL LAW" shall mean
any judgment, decree, order, law, permit, license, rule, regulation or agency
requirement relating to or addressing the environment, health or safety (to
the extent relating to exposure to any hazardous substance), including,
without limitation, the Comprehensive Environmental Response, Compensation
and Liability Act, as amended, the Resource Conservation and Recovery Act, as
amended, the Superfund Amendments and Reauthorization Act of 1986, the
Federal Clean Water Act, the Federal Clean Air Act, the Toxic Substances
Control Act and any federal, state, local or foreign statute, regulation,
ordinance, order or decree relating to health, safety (in the case of health
and safety to the extent relating to exposure in the workplace or otherwise
to any Hazardous Substance) or the environment.
(b) There is not now pending or, to the Company's knowledge,
threatened any action, claim, proceeding or investigation nor has the Company
received any notice, claim, demand letter, or request for information at any
time, alleging that the Company may be in violation of, or liable under, any
Environmental Law.
(c) To the Company's knowledge, without initiating any inquiry,
there are no hazardous substances located on the properties currently or
formerly owned or operated by the Company (including soil, groundwater or
surface features and buildings or structures thereon) other than as permitted
under applicable Environmental Laws, and none of the properties contain, or
has contained, any underground storage tank.
3.24 INSURANCE. The Company maintains and/or is covered by valid
policies of workers' compensation insurance and of insurance with respect to
its properties and business. The Company currently maintains, in full force,
insurance covering the risks of the Company, if any, of such types and in
such amounts and with such deductibles as are customary for other companies
engaged in similar lines of business and with good and responsible insurance
companies.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Purchaser hereby represents and warrants to the Company as follows (such
representations and warranties do not lessen or obviate the representations
and warranties of the Company set forth in this Agreement):
4.1 REQUISITE POWER AND AUTHORITY. Purchaser has all necessary power
and authority under all applicable provisions of law to execute and deliver
this Agreement, the Investors' Rights Agreement, the Stockholders' Agreement
and to carry out their provisions. All action on Purchaser's part required
for the lawful execution and delivery of this Agreement, the Investors'
Rights Agreement and the Stockholders' Agreement has been or will be
effectively taken prior to the Closing. Upon their execution and delivery,
this Agreement, the Investors' Rights Agreement and the Stockholders'
Agreement will be valid and binding obligations of
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Purchaser, enforceable in accordance with their terms, except (i) as limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
laws of general application affecting enforcement of creditors' rights, (ii)
general principles of equity that restrict the availability of equitable
remedies and (iii) to the extent that the enforceability of the
indemnification provisions of the Investors' Rights Agreement may be limited
by applicable laws.
4.2 INVESTMENT REPRESENTATIONS. Purchaser understands that neither the
Shares nor the Conversion Shares have been registered under the Securities
Act. Purchaser also understands that the Shares are being offered and sold
pursuant to an exemption from registration contained in the Securities Act
based in part upon Purchaser's representations contained in the Agreement.
Purchaser hereby represents and warrants as follows:
(a) PURCHASER BEARS ECONOMIC RISK. Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. Purchaser must bear the economic risk
of this investment indefinitely unless the Shares (or the Conversion Shares)
are registered pursuant to the Securities Act, or an exemption from
registration is available. Purchaser also understands that there is no
assurance that any exemption from registration under the Securities Act will
be available and that, even if available, such exemption may not allow
Purchaser to transfer all or any portion of the Shares or the Conversion
Shares under the circumstances, in the amounts or at the times Purchaser
might propose.
(b) ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring the
Shares and the Conversion Shares for Purchaser's own account for investment
only, and not with a view towards their distribution.
(c) QUALIFIED INSTITUTIONAL BUYER. Purchaser represents that it
is a "qualified institutional buyer" within the meaning of Rule 144A of the
Securities Act.
(d) RULE 144. Purchaser acknowledges and agrees that the Shares,
and, if issued, the Conversion Shares must be held indefinitely unless they
are subsequently registered under the Securities Act or an exemption from
such registration is available. Purchaser has been advised or is aware of
the provisions of Rule 144 promulgated under the Securities Act as in effect
from time to time, which permits limited resale of shares purchased in a
private placement subject to the satisfaction of certain conditions,
including, among other things, the availability of certain current public
information about the Company, the resale occurring following the required
holding period under Rule 144 and the number of shares being sold during any
three-month period not exceeding specified limitations.
(e) RESIDENCE. The office or offices of the Purchaser in which its
investment decision was made is located at the address or addresses of the
Purchaser set forth on EXHIBIT A.
4.3 TRANSFER RESTRICTIONS. Purchaser acknowledges and agrees that the
Shares and, if issued, the Conversion Shares are subject to restrictions on
transfer as set forth in the Investors' Rights Agreement and the
Stockholders' Agreement.
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SECTION 5. CONDITIONS TO CLOSING
5.1 CONDITIONS TO PURCHASER'S OBLIGATIONS AT THE CLOSING. Purchaser's
obligations to purchase the Shares at the Closing are subject to the
satisfaction, at or prior to the Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company in
Section 3 hereof shall be true and correct in all respects as of the Closing
Date with the same force and effect as if they had been made as of the
Closing Date, and the Company shall have performed all obligations and
conditions herein required to be performed or observed by it on or prior to
the Closing.
(b) LEGAL INVESTMENT. On the Closing Date, the sale and issuance
of the Shares and the proposed issuance of the Conversion Shares shall be
legally permitted by all laws and regulations to which Purchaser and the
Company are subject.
(c) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate
for consummation of the transactions contemplated by the Agreement, the
Investors' Rights Agreement and the Stockholders' Agreement (except for such
as may be properly obtained subsequent to the Closing).
(d) FILING OF CERTIFICATE. The Certificate shall have been
approved by the Board of Directors of the Company and filed with the
Secretary of State of the State of Delaware and shall be in full force and
effect.
(e) RESERVATION OF CONVERSION SHARES. The Conversion Shares
issuable upon conversion of the Shares shall have been duly authorized and
reserved for issuance upon such conversion.
(f) COMPLIANCE CERTIFICATE. The Company shall have delivered to
Purchaser a Compliance Certificate, executed by the Chief Executive Officer
of the Company, dated as of the Closing Date, to the effect that the
conditions specified in subsections (a), (c), (d) and (e) of this Section 5.1
have been satisfied.
(g) SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT. A
Second Amended and Restated Investors' Rights Agreement, substantially in the
form attached hereto as EXHIBIT C, shall have been executed and delivered by
the parties thereto.
(h) SECOND AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT. A Second
Amended and Restated Stockholders' Agreement, substantially in the form
attached hereto as EXHIBIT D, shall have been executed and delivered by the
parties thereto.
(i) LEGAL OPINION. Purchaser shall have received from Cooley
Godward LLP an opinion addressed to them, dated as of the Closing Date, in
substantially the form attached hereto as EXHIBIT F.
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(j) INTERIM AGREEMENT. An Interim Agreement, substantially in the
form attached hereto as EXHIBIT G, shall have been executed and delivered by
the parties thereto.
(k) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby, all documents and instruments incident to such transactions and all
documents, instruments and proceedings related to the Purchaser's business,
technical and legal due diligence shall be reasonably satisfactory in
substance and form to Purchaser and its special counsel, and Purchaser and
its special counsel shall have received all such counterpart originals or
certified or other copies of such documents as they may reasonably request.
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's obligation
to issue and sell the Shares at the Closing is subject to the satisfaction,
on or prior to the Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties made by the Purchaser in Section 4 hereof shall be true and
correct in all respects at the date of the Closing, with the same force and
effect as if they had been made on and as of said date.
(b) PERFORMANCE OF OBLIGATIONS. Purchaser shall have performed
and complied with all agreements and conditions herein required to be
performed or complied with by Purchaser on or before the Closing.
(c) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate
for consummation of the transactions contemplated by the Agreement, the
Investors' Rights Agreement and the Stockholders' Agreement (except for such
as may be properly obtained subsequent to the Closing).
(d) FILING OF CERTIFICATE. The Certificate shall have been
approved by the Board of Directors of the Company and filed with the
Secretary of State of the State of Delaware and shall be in full force and
effect.
(e) SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT. A
Second Amended and Restated Investors' Rights Agreement, substantially in the
form attached hereto as EXHIBIT C, shall have been executed and delivered by
Purchaser.
(f) SECOND AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT. A Second
Amended and Restated Stockholders' Agreement, substantially in the form
attached hereto as EXHIBIT D, shall have been executed and delivered by
Purchaser.
(g) INTERIM AGREEMENT. An Interim Agreement, substantially in the
form attached hereto as EXHIBIT G, shall have been executed and delivered by
the parties thereto.
SECTION 6. CERTAIN POST-CLOSING COVENANTS OF THE PURCHASER.
6.1 MARKET STAND-OFF AGREEMENT.
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(a) Prior to the earlier of (i) the date two hundred seventy (270)
days after the date of this Agreement and (ii) the Company's IPO (as defined
below), Purchaser hereby agrees that it shall not, without the prior written
consent of the Company, directly or indirectly, offer, pledge, sell, contract
to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant for the sale of, or
otherwise dispose of or transfer any Shares, any shares of Common Stock of
the Company, or any other securities convertible into or exchangeable or
exercisable for Common Stock, whether now owned or hereafter acquired by
Purchaser or with respect to which Purchaser has or hereafter acquires the
power of disposition; provided that nothing in the foregoing shall restrict
Purchaser from entering into pursuant to a bona fide transaction with a
nationally recognized investment banking firm which constitutes a hedge
against changes in the market price of the Common Stock of the Company.
(b) In order to enforce the foregoing, the Company may impose
stop-transfer instructions with respect to the shares until the end of such
two hundred seventy (270) day period.
(c) Any sale or transfer, or purported sale or transfer, of
securities of the Company shall be null and void unless the terms,
conditions, and provisions hereof are strictly observed and followed.
(d) The certificates representing shares of stock of the Company
shall bear on their face the following legend so long as the foregoing market
stand-off remains in effect:
"THE SALE, TRANSFER OR ASSIGNMENT OF THE SECURITIES REPRESENTED
BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF A MARKET STAND-OFF
AGREEMENT BETWEEN THE COMPANY AND THE HOLDER OF THIS CERTIFICATE. A
COPY OF SUCH AGREEMENT MAY BE OBTAINED BY WRITTEN REQUEST MADE BY THE
HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE COMPANY."
(e) The foregoing market stand-off shall terminate upon the
earlier of (A) the date two hundred seventy (270) days after the date of this
Agreement and (B) the date securities of the Company are first offered to the
public pursuant to a registration statement filed with, and declared
effective by, the United States Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "IPO").
SECTION 7. MISCELLANEOUS
7.1 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Colorado without regard to its
conflict-of-laws rules.
7.2 SURVIVAL. The representations, warranties, covenants and
agreements made herein by each of the parties shall survive the closing of
the transactions contemplated hereby. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant hereto in connection with the transactions contemplated
15
<PAGE>
hereby shall be deemed to be representations and warranties by the Company
hereunder solely as of the date of such certificate or instrument.
7.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares from time to time.
7.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Exhibits and
Schedules hereto, including the Investors' Rights Agreement, the
Stockholders' Agreement and the Schedule of Exceptions, and the other
documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and no party shall be liable or bound to any other in any manner by
any representations, warranties, covenants and agreements except as
specifically set forth herein and therein. Except as expressly provided
herein, neither this Agreement nor any term hereof may be amended, waived,
discharged or terminated other than by a written instrument signed by the
party against whom enforcement of any such amendment, waiver, discharge or
termination is sought.
7.5 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
7.6 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement, the
Investors' Rights Agreement, the Stockholders' Agreement or the Certificate,
shall impair any such right, power or remedy, nor shall it be construed to be
a waiver of any such breach, default or noncompliance thereafter occurring.
It is further agreed that any waiver, permit, consent or approval of any kind
or character on Purchaser's part of any breach, default or noncompliance
under this Agreement, the Investors' Rights Agreement, the Stockholders'
Agreement or under the Certificate or any waiver on such party's part of any
provisions or conditions of the Agreement, the Investors' Rights Agreement,
the Stockholders' Agreement or the Certificate must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, the Investors' Rights Agreement, the
Stockholders' Agreement, the Certificate, by law, or otherwise afforded to
any party, shall be cumulative and not alternative.
7.7 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to
the party to be notified; (ii) when sent by confirmed telex or facsimile if
sent during normal business hours of the recipient, if not, then on the next
business day; (iii) upon receipt after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or (iv) one (1)
day after deposit with a nationally recognized overnight courier, specifying
next day delivery, with written verification of receipt. All communications
shall be sent to the Company at the address as set forth on the signature
page hereof and to Purchaser at the address set forth on EXHIBIT A attached
hereto or at such other address as the Company or Purchaser may designate by
ten (10) days advance written notice to the other parties hereto.
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7.8 TITLES AND SUBTITLES. The titles of the sections and subsections
of the Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
7.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
7.10 BROKER'S FEES. Each party hereto represents and warrants that no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection
with the transactions contemplated herein. Each party hereto further agrees
to indemnify each other party for any claims, losses or expenses incurred by
such other party as a result of the representation in this Section 7.10 being
untrue.
7.11 ATTORNEYS' FEES. In the event that any dispute among the parties
to this Agreement, the Investors' Rights Agreement or the Stockholders'
Agreement, the prevailing party in such dispute shall be entitled to recover
from the losing party all fees, costs and expenses of enforcing any right of
such prevailing party under or with respect to this Agreement, the Investors'
Rights Agreement, the Stockholders' Agreement, including without limitation,
such reasonable fees and expenses of attorneys and accountants, which shall
include, without limitation, all fees, costs and expenses of appeals.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed the SERIES D
PREFERRED STOCK PURCHASE AGREEMENT as of the date set forth in the first
paragraph hereof.
COMPANY: PURCHASER:
JATO COMMUNICATIONS CORP. MICROSOFT CORPORATION
By: /s/ Gerald K. Dinsmore By: /s/ John G. Connors
-------------------------------- --------------------------------
Name: Gerald K. Dinsmore Name: John G. Connors
------------------------------ ------------------------------
Title: President and CEO Title: SVP-CFO
----------------------------- -----------------------------
1099 18th Street, Suite 2200 One Microsoft Way
Denver, CO 80202 Redmond, WA 98052
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
EXHIBIT A
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PURCHASE PRICE
---------------- ---------------- --------------
<S> <C> <C>
Microsoft Corporation
One Microsoft Way
Redmond, WA 98052
Attn: Michael Leitner
Facsimile: 1,785,714 $9,999,998.40
</TABLE>
A-1
<PAGE>
JATO COMMUNICATIONS CORP.
SERIES D PREFERRED STOCK
PURCHASE AGREEMENT
FEBRUARY 9, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
SECTION 1. AGREEMENT TO SELL AND PURCHASE. . . . . . . . . . . . . . . . . . . . . .1
1.1 Authorization of Shares. . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 Sale and Purchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 2. CLOSING, DELIVERY AND PAYMENT . . . . . . . . . . . . . . . . . . . . . .1
2.1 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2.2 Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . .2
3.1 Organization, Good Standing and Qualification. . . . . . . . . . . . . . .2
3.2 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
3.3 Capitalization; Voting Rights. . . . . . . . . . . . . . . . . . . . . . .2
3.4 Authorization; Binding Obligations . . . . . . . . . . . . . . . . . . . .3
3.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . .4
3.6 Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
3.7 Agreements; Action . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
3.8 Obligations to Related Parties . . . . . . . . . . . . . . . . . . . . . .5
3.9 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
3.10 Real Properties; Tangible Personal Property. . . . . . . . . . . . . . . .7
3.11 Patents and Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.12 Compliance with Other Instruments. . . . . . . . . . . . . . . . . . . . .8
3.13 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
3.14 Tax Returns and Payments . . . . . . . . . . . . . . . . . . . . . . . . .8
3.15 Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
3.16 Proprietary Information and Inventions Agreements. . . . . . . . . . . . .9
3.17 Obligations of Management. . . . . . . . . . . . . . . . . . . . . . . . .9
3.18 Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.19 Compliance with Laws; Permits. . . . . . . . . . . . . . . . . . . . . . 10
3.20 Full Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.21 Application of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . 10
3.22 Certain Limitations. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
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3.23 Environmental. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.24 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.25 Offering.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER . . . . . . . . . . . . 12
4.1 Requisite Power and Authority. . . . . . . . . . . . . . . . . . . . . . 12
4.2 Investment Representations . . . . . . . . . . . . . . . . . . . . . . . 12
4.3 Transfer Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 5. CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.1 Conditions to Purchaser's Obligations at the Closing . . . . . . . . . . 13
5.2 Conditions to Obligations of the Company . . . . . . . . . . . . . . . . 14
Section 6. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.1 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.2 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.3 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.4 Entire Agreement; Amendment. . . . . . . . . . . . . . . . . . . . . . . 16
6.5 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.6 Delays or Omissions. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.7 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.8 Titles and Subtitles . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.10 Broker's Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.11 Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
ii
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INDEX OF EXHIBITS
<TABLE>
<S> <C>
Schedule of Purchasers Exhibit A
Restated Certificate of Incorporation Exhibit B
Second Amended and Restated Investors' Rights Agreement Exhibit C
Second Amended and Restated Stockholders' Agreement Exhibit D
Form of Non-Competition Proprietary
Information and Inventions Agreement Exhibit E
Right of First Refusal and Standstill Agreement Exhibit F
Form of Legal Opinion Exhibit G
Stock Purchase Agreement Exhibit H
Form of Master Services Agreement and Wholesale
Services Agreement Exhibit I
</TABLE>
iii
<PAGE>
JATO COMMUNICATIONS CORP.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES D PREFERRED STOCK PURCHASE AGREEMENT (the "AGREEMENT") is
entered into as of this 9th day of February, 2000, by and among JATO
COMMUNICATIONS CORP., a Delaware corporation (the "COMPANY"), and U.S.
TELESOURCE, INC., whose name and address are set forth on the Schedule of
Purchasers attached hereto as EXHIBIT A ("PURCHASER").
RECITALS
WHEREAS, the Company has authorized the sale and issuance of up to an
aggregate of five million (5,000,000) shares of its Series D Preferred Stock,
$.01 par value (the "SHARES"); and
WHEREAS, the Company desires to issue and sell the Shares to Purchaser
and Purchaser desires to purchase a portion of the Shares from the Company on
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
SECTION 1. AGREEMENT TO SELL AND PURCHASE
1.1 AUTHORIZATION OF SHARES. On or prior to the Closing (as defined in
Section 2 below), the Company shall have authorized (i) the sale and issuance
to Purchaser of the Shares and (ii) the issuance of such shares of Common
Stock to be issued upon conversion of the Shares (the "CONVERSION SHARES").
The Shares and the Conversion Shares shall have the rights, preferences,
privileges and restrictions set forth in the Restated Certificate of
Incorporation of the Company, in the form attached hereto as EXHIBIT B (the
"CERTIFICATE").
1.2 SALE AND PURCHASE. Subject to the terms and conditions hereof, at
the Closing (as hereinafter defined), the Company hereby agrees to issue and
sell to Purchaser and Purchaser agrees to purchase from the Company, the
number of Shares set forth opposite Purchaser's name on EXHIBIT A at a
purchase price of $5.60 per share.
SECTION 2. CLOSING, DELIVERY AND PAYMENT
2.1 CLOSING. The closing of the sale and purchase of the Shares under
this Agreement (the "CLOSING") shall take place on the date hereof, at the
offices of Cooley Godward LLP, 2595 Canyon Boulevard, Suite 250, Boulder,
Colorado 80302, or at such other time or place as the Company and Purchaser
may mutually agree (such date is hereinafter referred to as the "CLOSING
DATE").
2.2 DELIVERY. At the Closing, subject to the terms and conditions
hereof, the Company will deliver to the Purchaser one or more stock
certificates, as Purchaser may request,
1
<PAGE>
representing the number of Shares to be purchased at the Closing by
Purchaser, registered in Purchaser's name, against payment of the purchase
price therefor, by check or wire transfer made payable to the order of the
Company.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on a Schedule of Exceptions delivered by the Company
to the Purchaser at the Closing, the Company hereby represents and warrants
to Purchaser as of the date of this Agreement as follows:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company and
each Subsidiary (as defined in Section 3.2 below) is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware or, with respect to Jato Communications Corp. of Virginia, the
Commonwealth of Virginia. Each of the Company and Subsidiary has all
requisite corporate power and authority to own and operate their respective
properties and assets. The Company has all requisite corporate power and
authority to execute and deliver this Agreement, the Second Amended and
Restated Investors' Rights Agreement, in the form attached hereto as EXHIBIT
C (the "INVESTORS' RIGHTS AGREEMENT"), and the Second Amended and Restated
Stockholders' Agreement, in the form attached hereto as EXHIBIT D (the
"STOCKHOLDERS' AGREEMENT"), issue and sell the Shares and the Conversion
Shares and to carry out the provisions of this Agreement, the Investors'
Rights Agreement, the Stockholders' Agreement and the Certificate. Each of
the Company and Subsidiary has the requisite corporate power and authority to
carry on its business as presently conducted and as presently proposed to be
conducted. Each of the Company and Subsidiary is duly qualified and is
authorized to do business and is in good standing as a foreign corporation in
all jurisdictions in which the nature of their respective activities and of
their respective properties (both owned and leased) make such qualifications
necessary, except for those jurisdictions in which failure to do so would not
have a material adverse effect on the Company or Subsidiary or their
respective businesses. The Company has made available to the Purchaser true,
correct and complete copies of the Company's Restated Certificate of
Incorporation and Amended Bylaws, each as amended to date and in full force
and effect on the date hereof. The Company has made available to the
Purchaser true, correct and complete copies of Subsidiary's Certificate of
Incorporation and Bylaws, each as amended to date and in full force and
effect on the date hereof. Since its inception, Subsidiary has had no
operations and has not incurred any material obligations.
3.2 SUBSIDIARIES. Other than Jato Operating Corp., a Delaware
corporation, Jato Operating Two Corp., a Delaware corporation, and Jato
Communications Corp. of Virginia, a Virginia corporation (collectively, the
"SUBSIDIARY"), the Company owns no equity securities of any other
corporation, limited partnership or similar entity. The Company is not a
participant in any joint venture, partnership or similar arrangement. The
Company owns shares of the Subsidiary free and clear of all encumbrances.
3.3 CAPITALIZATION; VOTING RIGHTS.
(a) The authorized capital stock of the Company, immediately prior
to the Closing, will consist of (a) eighty million (80,000,000) shares of
Common Stock, of which six million seven hundred ninety-seven thousand eight
hundred fourteen (6,797,814) shares are
2
<PAGE>
issued and outstanding, and (b) thirty million (30,000,000) shares of
Preferred Stock, of which one million seven hundred fifty-one thousand nine
hundred eighty-five (1,751,985) shares are designated Series A Preferred
Stock, of which one million seven hundred fifty-one thousand nine hundred
eighty five (1,751,985) are issued and outstanding, of which thirteen million
six hundred fifteen thousand three hundred twenty-two (13,615,322) shares are
designated Series B Preferred Stock, of which thirteen million six hundred
fifteen thousand three hundred twenty-two (13,615,322) are issued and
outstanding, of which four million nine hundred thirty-two thousand three
hundred eight (4,932,308) shares are designated Series C Preferred Stock, of
which four million nine hundred thirty-two thousand three hundred eight
(4,932,308) are issued and outstanding, and of which five million (5,000,000)
shares are designated Series D Preferred Stock, of which one million seven
hundred eighty-five thousand seven hundred fourteen (1,785,714) are issued
and outstanding. All issued and outstanding shares of the Company's Common
Stock and Preferred Stock (i) have been duly authorized and validly issued,
(ii) are fully paid and nonassessable and (iii) were issued in compliance
with all applicable state and federal laws concerning the issuance of
securities. The rights, preferences, privileges and restrictions of the
Shares are as stated in the Certificate. The Conversion Shares have been
duly and validly reserved for issuance. As of the Closing, there has been no
action taken by the Company which would have required an adjustment to the
Series D Conversion Price, as defined in the Certificate. Except as set forth
on the Schedule of Exceptions and except as may be granted pursuant to this
Agreement or the Investors' Rights Agreement, there are no outstanding
options, warrants, rights (including conversion or preemptive rights and
rights of first refusal), proxy or stockholder agreements, or agreements of
any kind for the purchase or acquisition from the Company of any of its
securities. The Shares and the Conversion Shares have been duly authorized
and, when issued in compliance with the provisions of this Agreement and the
Certificate, will be validly issued (including, without limitation, issued in
compliance with applicable state and federal securities laws), fully paid and
nonassessable, subject to no preemptive rights, and will be free of any liens
or encumbrances; PROVIDED, HOWEVER, that the Shares and the Conversion Shares
may be subject to restrictions on transfer under state and/or federal
securities laws as set forth herein or as otherwise required by such laws at
the time transfer is proposed.
(b) The authorized capital stock of (i) Jato Operating Corp.
consists of eleven hundred (1,100) shares of Common Stock, (ii) Jato
Operating Two Corp. consists of one hundred (100) shares of Common Stock, and
(iii) Jato Communications Corp. of Virginia consists of one hundred (100)
shares of Common Stock, all of which shares are issued and outstanding and
held of record by the Company.
3.4 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action on the
part of the Company, its officers, directors and stockholders necessary for
the authorization of this Agreement, the Investors' Rights Agreement and the
Stockholders' Agreement, the performance of all obligations of the Company
hereunder and thereunder at the Closing and the authorization, sale, issuance
and delivery of the Shares pursuant hereto and the Conversion Shares pursuant
to the Certificate has been taken or will be taken prior to the Closing. The
Agreement, the Investors' Rights Agreement and the Stockholders' Agreement,
when executed and delivered, will be valid and binding obligations of the
Company enforceable in accordance with their terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
of general application affecting enforcement of creditors' rights; (ii)
general principles of
3
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equity that restrict the availability of equitable remedies; and (iii) to the
extent that the enforceability of the indemnification provisions in Section
3.12 of the Investors' Rights Agreement may be limited by applicable laws.
The sale of the Shares and the subsequent conversion of the Shares into
Conversion Shares are not and will not be subject to any preemptive rights or
rights of first refusal that have not been properly waived or complied with.
3.5 FINANCIAL STATEMENTS. The Company has delivered to Purchaser (i)
its audited balance sheet as at December 31, 1998 and audited statement of
income and cash flows for the period from inception and ending December 31,
1998 and (ii) its unaudited balance sheet as at November 30, 1999 (the
"STATEMENT DATE") and unaudited consolidated statement of income for the
eleven-month period ending on the Statement Date (collectively, the
"FINANCIAL STATEMENTS"). The Financial Statements, together with the notes
thereto, are complete and correct in all material respects, have been
prepared in accordance with generally accepted accounting principles applied
on a consistent basis throughout the periods indicated, except as disclosed
therein, and present fairly the financial condition and position of the
Company as of December 31, 1998 and the Statement Date; PROVIDED, HOWEVER,
that the unaudited financial statements are subject to normal recurring
year-end audit adjustments (which are not expected to be material), and may
not contain all footnotes required under generally accepted accounting
principles.
3.6 LIABILITIES. The Company has no material liabilities and, to its
knowledge, knows of no material contingent liabilities not otherwise
disclosed in the Financial Statements, except current liabilities incurred in
the ordinary course of business subsequent to the Statement Date which have
not been, either in any individual case or in the aggregate, materially
adverse.
3.7 AGREEMENTS; ACTION.
(a) Except as set forth on the Schedule of Exceptions and except
for agreements explicitly contemplated hereby, there are no agreements,
understandings or proposed transactions between the Company and any of its
officers, directors, affiliates or their respective affiliates.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to
which the Company is a party or to its knowledge by which it is bound which
may involve (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of $25,000, or (ii) the license of any patent, copyright,
trade secret or other proprietary right to or from the Company (other than
licenses arising from the purchase of "off the shelf" or other standard
products), or (iii) provisions restricting or affecting the development,
manufacture or distribution of the Company's products or services, or (iv)
indemnification by the Company with respect to infringements of proprietary
rights.
(c) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or
series of its capital stock, (ii) incurred any indebtedness for money
borrowed or any other liabilities (other than with respect to indebtedness
and other obligations incurred in the ordinary course of business or as
disclosed in the Financial Statements) individually in excess of $25,000 or,
in the case of indebtedness and/or liabilities individually less than
$25,000, in excess of $75,000 in the aggregate, (iii) made any
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loans or advances to any person, other than ordinary advances for travel
expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets
or rights, other than the sale of its inventory in the ordinary course of
business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including
persons or entities the Company has reason to believe are affiliated
therewith) shall be aggregated for the purpose of meeting the individual
minimum dollar amounts of such subsections.
3.8 OBLIGATIONS TO RELATED PARTIES. There are no obligations of the
Company to officers, directors, stockholders, or employees of the Company
other than (a) for payment of salary for services rendered, (b) reimbursement
for reasonable expenses incurred on behalf of the Company and (c) for other
standard employee benefits made generally available to all employees
(including stock option agreements outstanding under any stock option plan
approved by the Board of Directors of the Company). No such officer,
director or stockholder, or any member of their immediate families is,
directly or indirectly, interested in any material contract with the Company
(other than such contracts as relate to any such person's ownership of
capital stock or other securities of the Company). The Company is not a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
3.9 ABSENCE OF CHANGES. Except as set forth on the Schedule of
Exceptions, since the Statement Date, there has not been:
(a) Any change in the assets, liabilities, financial condition,
earnings or operations of the Company from that reflected in the Financial
Statements, other than changes in the ordinary course of business, none of
which individually or in the aggregate has had or is expected to have a
material adverse effect on such assets, liabilities, financial condition,
earnings or operations of the Company;
(b) Any resignation or termination of any key officers of the
Company; and the Company, to the best of its knowledge, does not know of the
impending resignation or termination of employment of any such officer;
(c) Any material change in the contingent obligations of the
Company by way of guaranty, endorsement, indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business or
prospects or financial condition of the Company;
(e) Any waiver by the Company of a valuable right or of a material
debt owed to it;
(f) Any direct or indirect loans made by the Company to any
stockholder, employee, officer or director of the Company, other than
immaterial advances made in the ordinary course of business;
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(g) Any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder including,
without limitation, any (i) increase in the compensation payable or to become
payable by the Company to any of the Company's employees, (ii) any bonus,
incentive compensation, service award or other like benefit, granted, made or
accrued, contingently or otherwise, to or for the credit of the Company's
employees, or (iii) any employee welfare, pension, retirement, profit-sharing
or similar payment or arrangement (whether or not subject to ERISA) made or
agreed to by the Company;
(h) Any declaration or payment of any dividend or other
distribution of the assets of the Company;
(i) Any labor organization activity;
(j) Any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for
current liabilities incurred in the ordinary course of business;
(k) Any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(l) Any change in any material agreement to which the Company is a
party or by which it is bound which materially and adversely affects the
business, assets, liabilities, financial condition, operations or prospects
of the Company;
(m) (i) Any change in practice with respect to taxes, (ii) any
making, changing or revoking of any tax election, or (iii) any settlement or
compromise of any dispute involving a tax liability;
(n) Any change in the number of shares of capital stock of the
Company issued and outstanding;
(o) Any failure to conduct the business of the Company in the
ordinary course;
(p) Any change in the method of accounting or accounting practice
of the Company;
(q) Any change in the Company's lines of business; or
(r) Any other event or condition of any character that, either
individually or cumulatively, has materially and adversely affected the
business, assets, liabilities, financial condition, operations or prospects
of the Company. For purposes of this subsection (r), a material and adverse
effect shall only be deemed to occur if its monetary impact exceeds, or with
the passage of time, will exceed $75,000.
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3.10 REAL PROPERTIES; TANGIBLE PERSONAL PROPERTY.
(a) REAL PROPERTIES. The Schedule of Exceptions sets forth each
lease or other agreement (including easements) under which the Company leases
or has rights in any real property (the "REAL PROPERTY LEASES," and, each
individually, a "REAL PROPERTY LEASE"). The Company has a valid and
subsisting leasehold interest in all the real property which is the subject
of each Real Property Lease. The Company does not presently own, and has
never owned, any real property and does not presently operate, and has never
operated, any real property, other than as a lessee.
(b) TANGIBLE PERSONAL PROPERTY. Except as set forth on the
Schedule of Exceptions, (i) the Company has good, marketable and valid title
to all of the items of tangible personal property used in its operations and
(ii) all such tangible personal property is reflected on the Company's
unaudited Financial Statements, except as sold or disposed of subsequent to
the date thereof in the ordinary course of business consistent with past
practices. The tangible personal property of the Company is in good repair
and working order, reasonable wear and tear excepted, and constitutes all of
the tangible personal property necessary for the operation of the business as
currently conducted.
3.11 PATENTS AND TRADEMARKS. The Company is the sole owner, free of any
lien or encumbrance, of, or has a valid license, on commercially reasonable
terms, to, all U.S. and foreign patents, registered designs, copyrights,
computer software and databases, trademarks, service marks and trade names,
whether or not registered, and other trade secrets, research and development,
formulae, inventions, processes, know-how and proprietary and intellectual
property rights and information, including all grants, registrations and
applications relating thereto (collectively, the "PROPRIETARY RIGHTS")
necessary for the conduct of its business as now conducted (the "COMPANY
RIGHTS"). The Company's rights in the Company Rights are, to the Company's
knowledge, valid and enforceable. The Company has received no demand, claim,
notice or inquiry from any person in respect of the Company Rights which
challenges, threatens to challenge or inquires as to whether there is any
basis to challenge, the validity of, or the rights of the Company in, any
such Company Rights. There are no outstanding options, licenses or
agreements of any kind relating to the Company Rights, nor is the Company
bound by or a party to any options, licenses or agreements of any kind with
respect to the Proprietary Rights of any other person or entity other than
such licenses or agreements arising from the purchase of "off the shelf" or
standard products. The Company has taken, and will take, all actions which
are necessary in order to protect the Company Rights and to acquire
additional Proprietary Rights, consistent with prudent commercial practices
in the telecommunications industry. To the knowledge of the Company, the
Company is not in violation or infringement of, and has not violated or
infringed, any Proprietary Rights of any other person. To the knowledge of
the Company, no person is infringing any Company Rights. The Company is not
aware that any of its employees is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or
subject to any judgment, decree or order of any court or administrative
agency, that would interfere with their duties to the Company's business by
the employees of the Company, nor will, to the Company's knowledge, the
conduct of the Company's business as proposed conflict with or result in a
breach of the terms, conditions or provisions of, or constitute a default
under, any contract, covenant or instrument under which any employee is now
obligated. The Company does not believe it is or will be necessary to
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utilize any inventions, trade secrets or proprietary information of any of
its employees made prior to their employment by the Company, except for
inventions, trade secrets or proprietary information that have been assigned
to the Company.
3.12 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in violation
or default of any term of its Certificate or Amended Bylaws, or of any
provision of any mortgage, indenture, contract, agreement, instrument or
contract to which it is party or by which it is bound or of any judgment,
decree, order, writ or any statute, rule or regulation applicable to the
Company which would materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of the Company.
The execution, delivery, and performance of and compliance with this
Agreement, the Investors' Rights Agreement, the Stockholders' Agreement and
the Compliance Certificate to be delivered pursuant to Section 5.1(f) hereof,
and the issuance and sale of the Shares pursuant hereto and of the Conversion
Shares pursuant to the Certificate, will not, with or without the passage of
time or giving of notice, result in any such material violation, or be in
conflict with or constitute a default under any such term, or result in the
creation of any mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of the Company or the suspension, revocation,
impairment, forfeiture or nonrenewal of any permit, license, authorization or
approval applicable to the Company, its business or operations or any of its
assets or properties.
3.13 LITIGATION. There is no action, suit, proceeding or investigation
pending, or to the Company's knowledge, currently threatened against the
Company that questions the validity of this Agreement, the Investors' Rights
Agreement or the Stockholders' Agreement or the right of the Company to enter
into any of such agreements, or to consummate the transactions contemplated
hereby or thereby, or which might result, either individually or in the
aggregate, in any material adverse change in the assets, condition, affairs
or prospects of the Company, financially or otherwise, or any change in the
current equity ownership of the Company, nor is the Company aware that there
is any basis for the foregoing. The foregoing includes, without limitation,
actions pending or threatened (or any basis therefor known to the Company)
involving the prior employment of any of the Company's employees, their use
in connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers. The Company is not a party or
subject to the provisions of or in violation of any order, writ, injunction,
judgment or decree or any rule or regulation of any court or government
agency or instrumentality. There is no action, suit, proceeding or
investigation by the Company currently pending or which the Company intends
to initiate.
3.14 TAX RETURNS AND PAYMENTS. The Company has timely filed all tax
returns (federal, state and local) required to be filed by it. All taxes
shown to be due and payable on such returns, any assessments imposed, and to
the Company's knowledge all other taxes due and payable by the Company on or
before the Closing have been paid or will be paid prior to the time they
become delinquent. The Company has not been advised (i) that any of its
returns, federal, state or other, have been or are being audited as of the
date hereof, or (ii) of any deficiency in assessment or proposed judgment to
its federal, state or other taxes. The Company has no knowledge of any
liability of any tax to be imposed upon its properties or assets as of the
date of this Agreement that is not adequately provided for. Neither the
Company nor the Subsidiary is a party to any agreement relating to allocating
or sharing the payment of, or liability for taxes with
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respect to, any taxable period. Neither the Company nor Subsidiary has any
deferred income reportable for a period ending after the Closing Date that is
attributable to a transaction (e.g., an installment sale) occurring in, or
resulting from a change of accounting method for, a period ending on or prior
to the Closing Date.
3.15 EMPLOYEES. The Company is not a party to or bound by any currently
effective employment contract, deferred compensation arrangement, bonus plan,
incentive plan, profit sharing plan, retirement agreement or other employee
compensation plan or agreement. Neither the Company, nor any entity which is
required to be aggregated with the Company pursuant to Sections 414(b), (c),
(m) or (o) of the Internal Revenue Code of 1986 has any liability whether
actual or contingent, with respect to any employee benefit plan or
arrangement. To the Company's knowledge, no employee of the Company, nor any
consultant with whom the Company has contracted, is in violation of any term
of any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or
to contract with, the Company because of the nature of the business to be
conducted by the Company; and to the Company's knowledge the continued
employment by the Company of its present employees, and the performance of
the Company's contracts with its independent contractors, will not result in
any such violation. The Company has not received any notice alleging that
any such violation has occurred. No employee of the Company has been granted
the right to continued employment by the Company or to any material
compensation following termination of employment with the Company. The
Company is not aware that any officer or key employee, or that any group of
key employees, intends to terminate their employment with the Company, nor
does the Company have a present intention to terminate the employment of any
officer, key employee or group of key employees. To the Company's knowledge,
the Company is in compliance with all laws and orders relating to the
employment of labor, including, without limitation, all such laws and orders
relating to wages, hours, discrimination, civil rights, safety and the
collection and payment of withholding and/or Social Security taxes and
similar taxes. There are no complaints, charges or claims against the
Company pending, or, to the Company's knowledge, threatened 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 Company.
3.16 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. Each current
employee, officer and consultant of the Company has executed a Proprietary
Information and Inventions Agreement that effectively waives any ownership
rights in the invention or authorship of any Company Rights and has assigned
to the Company all rights with respect thereto. No current employee, officer
or consultant of the Company has excluded works or inventions made prior to
his or her employment with the Company from his or her assignment of the
works or inventions pursuant to such employee, officer or consultant's
Non-Competition, Proprietary Information and Inventions Agreement in the form
attached hereto as EXHIBIT E.
3.17 OBLIGATIONS OF MANAGEMENT. Each officer of the Company is
currently devoting one hundred percent (100%) of his business time to the
conduct of the business of the Company. The Company is not aware of any
officer or key employee of the Company planning to work less than full time
at the Company in the future.
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3.18 REGISTRATION RIGHTS. Except as required pursuant to the Investors'
Rights Agreement, the Company is presently not under any obligation, and has
not granted any rights, to register (as defined in Section 1 of the
Investors' Rights Agreement) any of the Company's presently outstanding
securities or any of its securities that may hereafter be issued.
3.19 COMPLIANCE WITH LAWS; PERMITS. The Company is not in violation of
any applicable statute, rule, regulation, order or restriction of any
domestic or foreign government or any instrumentality or agency thereof in
respect of the conduct of its business or the ownership of its properties
which violation would materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of the Company. No
governmental orders, permissions, consents, approvals or authorizations are
required to be obtained and no registrations or declarations are required to
be filed in connection with the execution and delivery of this Agreement and
the issuance of the Shares or the Conversion Shares, except such as has been
duly and validly obtained or filed, or with respect to any filings that must
be made after the Closing, as will be filed in a timely manner. The Schedule
of Exceptions sets forth the states in which the Company has obtained all
franchises, permits, licenses and any similar authority necessary for the
conduct of its business as now being conducted by it, the lack of which could
materially and adversely affect the business, properties, prospects or
financial condition of the Company.
3.20 FULL DISCLOSURE. This Agreement, the Exhibits hereto, the Schedule
of Exceptions, the Investors' Rights Agreement, the Stockholders' Agreement
and all other documents delivered by the Company to Purchaser or its
attorneys or agents in connection herewith or therewith or with the
transactions contemplated hereby or thereby, do not contain any untrue
statement of a material fact nor omit to state a material fact necessary in
order to make the statements contained herein or therein not misleading.
There is no fact peculiar to the Company and known to the Company which
materially adversely affects, or reasonably could be expected to materially
adversely affect in the future, the business, property or assets, or
financial condition of the Company, which has not been set forth in this
Agreement or in the other documents described herein or furnished to the
Purchaser by or on behalf of the Company prior to the date hereof in
connection with the transactions contemplated hereby.
3.21 APPLICATION OF PROCEEDS. The proceeds of the sale of the Shares
will be used by the Company to fund the capital expenditures and working
capital needs of the Company and for other general corporate purposes. The
Company does not own any "margin security" within the meaning of Regulation T
(12 CFR Part 220) of the Board of Governors of the Federal Reserve System
(herein called a "margin security") or "margin stock" within the meaning of
Regulation U (12 CFR Part 221) of the Board of Governors of the Federal
Reserve System (herein called "margin stock"). Neither the Company nor any
agent acting on its behalf, has taken or will take any action which might
cause this Agreement to violate Regulation T, Regulation U, Regulation X or
any other regulation of the Board of Governors of the Federal Reserve System
or to violate the Securities Exchange Act of 1934, in each case as in effect
now or as the same hereafter may be in effect.
3.22 CERTAIN LIMITATIONS. Neither the nature of the Company, nor any of
its respective businesses or properties, nor any relationship between the
Company and any other person, nor any circumstance in connection with the
offer, issue, sale or delivery of the Shares
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(other than in any such case, any matter relating to the Purchaser) is, such
as to require or give rise to any limitation on any Purchaser's ownership of
any equity securities of the Company.
3.23 ENVIRONMENTAL.
(a) To the Company's knowledge, the Company complies, and at all
times has complied, in all material respects with all applicable
Environmental Laws. For the purposes hereof, "ENVIRONMENTAL LAW" shall mean
any judgment, decree, order, law, permit, license, rule, regulation or agency
requirement relating to or addressing the environment, health or safety (to
the extent relating to exposure to any hazardous substance), including,
without limitation, the Comprehensive Environmental Response, Compensation
and Liability Act, as amended, the Resource Conservation and Recovery Act, as
amended, the Superfund Amendments and Reauthorization Act of 1986, the
Federal Clean Water Act, the Federal Clean Air Act, the Toxic Substances
Control Act and any federal, state, local or foreign statute, regulation,
ordinance, order or decree relating to health, safety (in the case of health
and safety to the extent relating to exposure in the workplace or otherwise
to any Hazardous Substance) or the environment.
(b) There is not now pending or, to the Company's knowledge,
threatened any action, claim, proceeding or investigation nor has the Company
received any notice, claim, demand letter, or request for information at any
time, alleging that the Company may be in violation of, or liable under, any
Environmental Law.
(c) To the Company's knowledge, without initiating any inquiry,
there are no hazardous substances located on the properties currently or
formerly owned or operated by the Company (including soil, groundwater or
surface features and buildings or structures thereon) other than as permitted
under applicable Environmental Laws, and none of the properties contain, or
has contained, any underground storage tank.
3.24 INSURANCE. The Company maintains and/or is covered by valid
policies of workers' compensation insurance and of insurance with respect to
its properties and business. The Company currently maintains, in full force,
insurance covering the risks of the Company, if any, of such types and in
such amounts and with such deductibles as are customary for other companies
engaged in similar lines of business and with good and responsible insurance
companies.
3.25 OFFERING. The Company, nor any person or entity acting on its
behalf, has not engaged in any form of general solicitation or advertising in
connection with the offer and sale of the Company's Series A, Series B,
Series C and Series D Preferred Stock (the "SERIES PREFERRED"). No offers to
sell the Series Preferred were made by any person or entity other than the
Company. The offer and sale of the shares of the Series Preferred were made
solely to accredited investors or qualified institutional buyers. Neither
the Company nor any affiliate has been subject to any order, judgment, or
decree of any court of competent jurisdiction enjoining either the Company or
such affiliate for failure to comply with Rule 503 of Regulation D. Assuming
the accuracy of the representations and warranties of the Purchaser contained
in Section 4.2(f) hereof, the Company has given Purchaser the opportunity to
discuss the Company's business, management and financial affairs with the
Company's management and the opportunity to review the Company's business
plan.
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SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Purchaser hereby represents and warrants to the Company as follows (such
representations and warranties do not lessen or obviate the representations
and warranties of the Company set forth in this Agreement):
4.1 REQUISITE POWER AND AUTHORITY. Purchaser has all necessary power
and authority under all applicable provisions of law to execute and deliver
this Agreement, the Investors' Rights Agreement, the Stockholders' Agreement
and to carry out their provisions. All action on Purchaser's part required
for the lawful execution and delivery of this Agreement, the Investors'
Rights Agreement and the Stockholders' Agreement has been or will be
effectively taken prior to the Closing. Upon their execution and delivery,
this Agreement, the Investors' Rights Agreement and the Stockholders'
Agreement will be valid and binding obligations of Purchaser, enforceable in
accordance with their terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights, (ii) general principles of equity
that restrict the availability of equitable remedies and (iii) to the extent
that the enforceability of the indemnification provisions of the Investors'
Rights Agreement may be limited by applicable laws.
4.2 INVESTMENT REPRESENTATIONS. Purchaser understands that neither the
Shares nor the Conversion Shares have been registered under the Securities
Act. Purchaser also understands that the Shares are being offered and sold
pursuant to an exemption from registration contained in the Securities Act
based in part upon Purchaser's representations contained in the Agreement.
Purchaser hereby represents and warrants as follows:
(a) PURCHASER BEARS ECONOMIC RISK. Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. Purchaser must bear the economic risk
of this investment indefinitely unless the Shares (or the Conversion Shares)
are registered pursuant to the Securities Act, or an exemption from
registration is available. Purchaser also understands that there is no
assurance that any exemption from registration under the Securities Act will
be available and that, even if available, such exemption may not allow
Purchaser to transfer all or any portion of the Shares or the Conversion
Shares under the circumstances, in the amounts or at the times Purchaser
might propose.
(b) ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring the
Shares and the Conversion Shares for Purchaser's own account for investment
only, and not with a view towards their distribution.
(c) ACCREDITED INVESTOR. Purchaser represents that it is an
"accredited investor" within the meaning of Regulation D under the Securities
Act.
(d) RULE 144. Purchaser acknowledges and agrees that the Shares,
and, if issued, the Conversion Shares must be held indefinitely unless they
are subsequently registered under the Securities Act or an exemption from
such registration is available. Purchaser has been
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advised or is aware of the provisions of Rule 144 promulgated under the
Securities Act as in effect from time to time, which permits limited resale
of shares purchased in a private placement subject to the satisfaction of
certain conditions, including, among other things, the availability of
certain current public information about the Company, the resale occurring
following the required holding period under Rule 144 and the number of shares
being sold during any three-month period not exceeding specified limitations.
(e) RESIDENCE. The office or offices of the Purchaser in which its
investment decision was made is located at the address or addresses of the
Purchaser set forth on EXHIBIT A.
(f) ACCESS TO DATA. Purchaser has had an opportunity to discuss
the Company's business, management and financial affairs with the Company's
management and the opportunity to review the Company's business plan. The
Purchaser acknowledges that it has received all the information it has
requested from the Company and it considers necessary or appropriate for
deciding whether to acquire the Shares and the Warrant. The Purchaser
represents that it has had an opportunity to ask questions and receive
answers from the Company regarding the terms and conditions of the offering
of the Shares and the Warrant and to obtain any additional information
necessary to verify the accuracy of the information given the Purchaser.
4.3 TRANSFER RESTRICTIONS. Purchaser acknowledges and agrees that the
Shares and, if issued, the Conversion Shares are subject to restrictions on
transfer as set forth in the Investors' Rights Agreement and the
Stockholders' Agreement.
SECTION 5. CONDITIONS TO CLOSING
5.1 CONDITIONS TO PURCHASER'S OBLIGATIONS AT THE CLOSING. Purchaser's
obligations to purchase the Shares at the Closing are subject to the
satisfaction, at or prior to the Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company in
Section 3 hereof shall be true and correct in all respects as of the Closing
Date with the same force and effect as if they had been made as of the
Closing Date, and the Company shall have performed all obligations and
conditions herein required to be performed or observed by it on or prior to
the Closing.
(b) LEGAL INVESTMENT. On the Closing Date, the sale and issuance
of the Shares and the proposed issuance of the Conversion Shares shall be
legally permitted by all laws and regulations to which Purchaser and the
Company are subject.
(c) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate
for consummation of the transactions contemplated by the Agreement, the
Investors' Rights Agreement and the Stockholders' Agreement (except for such
as may be properly obtained subsequent to the Closing).
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(d) FILING OF CERTIFICATE. The Certificate shall have been
approved by the Board of Directors of the Company and filed with the
Secretary of State of the State of Delaware and shall be in full force and
effect.
(e) RESERVATION OF CONVERSION SHARES. The Conversion Shares
issuable upon conversion of the Shares shall have been duly authorized and
reserved for issuance upon such conversion.
(f) COMPLIANCE CERTIFICATE. The Company shall have delivered to
Purchaser a Compliance Certificate, executed by the Chief Executive Officer
of the Company, dated as of the Closing Date, to the effect that the
conditions specified in subsections (a), (c), (d) and (e) of this Section 5.1
have been satisfied.
(g) SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT. A
Second Amended and Restated Investors' Rights Agreement, substantially in the
form attached hereto as EXHIBIT C, shall have been executed and delivered by
the parties thereto.
(h) SECOND AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT. A Second
Amended and Restated Stockholders' Agreement, substantially in the form
attached hereto as EXHIBIT D, shall have been executed and delivered by the
parties thereto.
(i) LEGAL OPINION. Purchaser shall have received from Cooley
Godward LLP an opinion addressed to them, dated as of the Closing Date, in
substantially the form attached hereto as EXHIBIT G.
(j) STOCK PURCHASE AGREEMENT. A Stock Purchase Agreement,
substantially in the form attached hereto as EXHIBIT H, shall have been
executed and delivered by the parties thereto.
(k) RIGHT OF FIRST REFUSAL AND STANDSTILL AGREEMENT. The Right of
First Refusal and Standstill Agreement, substantially in the form attached
hereto as EXHIBIT F, shall have been executed and delivered by the parties
thereto.
(l) COMMERCIAL AGREEMENTS. A Master Services Agreement and a
Wholesale Services Agreement, substantially in the forms attached hereto as
EXHIBIT I, shall have been executed and delivered by the parties thereto.
(m) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby, all documents and instruments incident to such transactions and all
documents, instruments and proceedings related to the Purchaser's business,
technical and legal due diligence shall be reasonably satisfactory in
substance and form to Purchaser and its special counsel, and Purchaser and
its special counsel shall have received all such counterpart originals or
certified or other copies of such documents as they may reasonably request.
14
<PAGE>
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's obligation
to issue and sell the Shares at the Closing is subject to the satisfaction,
on or prior to the Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties made by the Purchaser in Section 4 hereof shall be true and
correct in all respects at the date of the Closing, with the same force and
effect as if they had been made on and as of said date.
(b) PERFORMANCE OF OBLIGATIONS. Purchaser shall have performed
and complied with all agreements and conditions herein required to be
performed or complied with by Purchaser on or before the Closing.
(c) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate
for consummation of the transactions contemplated by the Agreement, the
Investors' Rights Agreement and the Stockholders' Agreement (except for such
as may be properly obtained subsequent to the Closing).
(d) FILING OF CERTIFICATE. The Certificate shall have been
approved by the Board of Directors of the Company and filed with the
Secretary of State of the State of Delaware and shall be in full force and
effect.
(e) SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT. A
Second Amended and Restated Investors' Rights Agreement, substantially in the
form attached hereto as EXHIBIT C, shall have been executed and delivered by
Purchaser.
(f) SECOND AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT. A Second
Amended and Restated Stockholders' Agreement, substantially in the form
attached hereto as EXHIBIT D, shall have been executed and delivered by
Purchaser.
(g) RIGHT OF FIRST REFUSAL AND STANDSTILL AGREEMENT. The Right of
First Refusal and Standstill Agreement, substantially in the form attached
hereto as EXHIBIT F, shall have been executed and delivered by the parties
thereto.
(h) STOCK PURCHASE AGREEMENT. A Stock Purchase Agreement,
substantially in the form attached hereto as EXHIBIT H, shall have been
executed and delivered by the parties thereto.
(i) COMMERCIAL AGREEMENTS. A Master Services Agreement and a
Wholesale Services Agreement, substantially in the forms attached hereto as
EXHIBIT I, shall have been executed and delivered by the parties thereto.
SECTION 6. MISCELLANEOUS
6.1 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Colorado without regard to its
conflict-of-laws rules.
15
<PAGE>
6.2 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by Purchaser and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by
or on behalf of the Company pursuant hereto in connection with the
transactions contemplated hereby shall be deemed to be representations and
warranties by the Company hereunder solely as of the date of such certificate
or instrument.
6.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares from time to time.
6.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Exhibits and
Schedules hereto, including the Investors' Rights Agreement, the
Stockholders' Agreement and the Schedule of Exceptions, and the other
documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and no party shall be liable or bound to any other in any manner by
any representations, warranties, covenants and agreements except as
specifically set forth herein and therein. Except as expressly provided
herein, neither this Agreement nor any term hereof may be amended, waived,
discharged or terminated other than by a written instrument signed by the
party against whom enforcement of any such amendment, waiver, discharge or
termination is sought.
6.5 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
6.6 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement, the
Investors' Rights Agreement, the Stockholders' Agreement or the Certificate,
shall impair any such right, power or remedy, nor shall it be construed to be
a waiver of any such breach, default or noncompliance thereafter occurring.
It is further agreed that any waiver, permit, consent or approval of any kind
or character on Purchaser's part of any breach, default or noncompliance
under this Agreement, the Investors' Rights Agreement, the Stockholders'
Agreement or under the Certificate or any waiver on such party's part of any
provisions or conditions of the Agreement, the Investors' Rights Agreement,
the Stockholders' Agreement or the Certificate must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, the Investors' Rights Agreement, the
Stockholders' Agreement, the Certificate, by law, or otherwise afforded to
any party, shall be cumulative and not alternative.
6.7 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to
the party to be notified; (ii) when sent by confirmed telex or facsimile if
sent during normal business hours of the recipient, if not, then on the next
business day; (iii) upon receipt after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or (iv) one (1)
day after deposit with a nationally recognized overnight courier, specifying
next day delivery, with written verification of receipt. All communications
shall be sent to the Company at the address as set forth on the signature
16
<PAGE>
page hereof and to Purchaser at the address set forth on EXHIBIT A attached
hereto or at such other address as the Company or Purchaser may designate by
ten (10) days advance written notice to the other parties hereto.
6.8 TITLES AND SUBTITLES. The titles of the sections and subsections
of the Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
6.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
6.10 BROKER'S FEES. Each party hereto represents and warrants that no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection
with the transactions contemplated herein. Each party hereto further agrees
to indemnify each other party for any claims, losses or expenses incurred by
such other party as a result of the representation in this Section 6.11 being
untrue.
6.11 ATTORNEYS' FEES. In the event that any dispute among the parties
to this Agreement, the Investors' Rights Agreement or the Stockholders'
Agreement, the prevailing party in such dispute shall be entitled to recover
from the losing party all fees, costs and expenses of enforcing any right of
such prevailing party under or with respect to this Agreement, the Investors'
Rights Agreement, the Stockholders' Agreement, including without limitation,
such reasonable fees and expenses of attorneys and accountants, which shall
include, without limitation, all fees, costs and expenses of appeals.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
17
<PAGE>
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed the SERIES D
PREFERRED STOCK PURCHASE AGREEMENT as of the date set forth in the first
paragraph hereof.
COMPANY: PURCHASER:
JATO COMMUNICATIONS CORP. U.S. TELESOURCE, INC.
By: /s/ Gerald Dinsmore By: /s/ Marc B. Weisberg
----------------------------- -----------------------------
Name: Gerald Dinsmore Name: Marc B. Weisberg
--------------------------- ---------------------------
Title: President and CEO Title: President
-------------------------- --------------------------
1099 18th Street, Suite 2200 555 Seventeenth Street
Denver, CO 80202 Denver, CO 80202
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
EXHIBIT A
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PURCHASE PRICE
<S> <C> <C>
U.S. Telesource, Inc.
555 Seventeenth Street
Denver, CO 80202
Attn:_____________
Facsimile: 303-992-1724 1,785,714 $9,999,998.40
</TABLE>
A-1
<PAGE>
EXHIBIT B
RESTATED CERTIFICATE OF INCORPORATION
B-1
<PAGE>
EXHIBIT C
SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
C-1
<PAGE>
EXHIBIT D
SECOND AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
D-1
<PAGE>
EXHIBIT E
FORM OF PROPRIETARY INFORMATION
AND INVENTIONS AGREEMENT
NON-COMPETITION, PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
As an employee of JATO Communications Corp., a Delaware corporation, its
subsidiaries or its affiliates (together, the "Company"), and as a condition
of my employment by the Company and in consideration of the compensation now
and hereafter paid to me, I agree to the following (the "Agreement"):
1. MAINTAINING CONFIDENTIAL INFORMATION
(a) COMPANY INFORMATION. I agree at all times during the term of my
employment and thereafter to hold in strictest confidence, and
not to use, except for the benefit of the Company, or to disclose
to any person, firm or corporation, without the written
authorization of the Board of Directors of the Company, any trade
secrets, confidential knowledge, data or other proprietary
information of the Company. By way of illustration and not
limitation, this shall include information relating to products,
processes, know-how, methods, software, developmental work,
improvements, discoveries, plans for marketing and selling,
business plans, budgets and unpublished financial statements,
licenses, prices and costs, suppliers and customers, and
information regarding the skills and compensation of other
employees of the Company. Notwithstanding the foregoing,
confidential information shall not include any information which:
(i) at the time of disclosure, or thereafter, is generally available
to and known by the public;
(ii) was or is available to me on a non-confidential basis from a
source other than the Company; or
(iii) has been independently acquired or developed by me without
violating any of my obligations under this Agreement, as shown by my
competent written records.
(b) THIRD PARTY INFORMATION. I recognize that the Company has
received and in the future will receive confidential or
proprietary information from third parties subject to a duty on
the Company's part to maintain the confidentiality of such
information and, in some cases, to use it only for certain
limited purposes. I agree that I owe the Company and such third
parties, both during the term of my employment and thereafter, a
duty to hold all such confidential or proprietary information in
the strictest confidence and not to, except as is consistent
with the Company's agreement with the third party, disclose it
to any person, firm or corporation or use it for the benefit of
anyone other than the Company or such third party, unless
expressly authorized to act otherwise by an officer of the
Company.
2. ASSIGNMENT OF INVENTIONS AND ORIGINAL WORKS.
I agree that I will make prompt written disclosure to the Company, will
hold in trust for the sole right and benefit of the Company, and hereby
assign to the Company all my right, title and interest in and to any ideas,
inventions, original works of authorship, developments, improvements or trade
secrets which I may solely or jointly conceive or reduce to practice, or
cause to be conceived or reduced to practice, during the period of my
employment with the Company and for one (1) year after my employment. This
Agreement will not be deemed to require assignment of any invention developed
entirely on my own time without using the Company's equipment, supplies,
facilities or trade secrets and neither related to the Company's actual or
anticipated business, research or development, nor resulted from work
performed by me for the Company.
3. NO CONFLICTS OR SOLICITATION
For the period of my employment by the Company and for one (1) year
following my termination, I will not interfere with the business of the
Company by (i) soliciting, attempting to solicit, inducing, or otherwise
causing any employee of the Company to terminate his or her employment in
order to become an employee, consultant or
E-1
<PAGE>
independent contractor to or for any other entity engaged in marketing or
selling the type of products and services offered by the Company or (ii)
directly soliciting the business of any customer or client of the Company
(other than on behalf of the Company) for the type of products and services
offered by the Company.
4. COVENANT NOT TO COMPETE.
(a) I agree that during my employment with the Company, I will not
directly or indirectly engage in (whether as an employee,
consultant, proprietor, partner, director or otherwise), or have
any ownership interest in, or participate in the financing,
operation, management or control of, any person, firm,
corporation or business that engages in a "Restricted Business"
in a "Restricted Territory" (as defined below). It is agreed
that ownership of (i) no more than ten percent (10%) of the
outstanding voting stock of a publicly traded corporation or
(ii) any stock I presently own or (iii) any options or other
rights to acquire shares of a company's capital stock I
presently own shall not constitute a violation of this
provision.
(b) As used herein, the terms:
(i) "Restricted Business" shall mean any competitive local exchange
carrier, high speed data communication services provider or any
business which otherwise engages in any other manner in any business
which is competitive with the Company.
(ii) "Restricted Territory" shall mean all regions within a fifty
mile radius of those cities in which the Company operates, or has
disclosed to you that it intends to operate, a business.
5. RETURN OF COMPANY DOCUMENTS
When I leave the employ of the Company, I will deliver to the Company (and
will not keep in my possession, recreate or deliver to anyone else) any and all
documents and other property, together with all copies thereof (in whatever
medium recorded) belonging to the Company, its successors or assigns whether
kept at the Company, home or elsewhere. I further agree that any property
situated on the Company's premises and owned by the Company, including disks and
other storage media, filing cabinets or other work areas, is subject to
inspection by Company personnel at any time with or without notice.
6. LEGAL AND EQUITABLE REMEDIES
Because my services are personal and unique and because I may have access
to and become acquainted with the proprietary information of the Company, the
Company shall have the right to enforce this Agreement and any of its provisions
by injunction, specific performance or other equitable relief, without bond and
without prejudice to any other rights and remedies that the Company may have for
a breach of this Agreement.
7. NOT AN EMPLOYMENT CONTRACT. I agree and understand that nothing in
this Agreement shall confer any right with respect to continuation of my
employment by the Company, nor shall it interfere in any way with my right or
the Company's right to terminate my employment at any time, with or without
cause.
8. GENERAL PROVISIONS.
(a) GOVERNING LAW. This Agreement will be governed by and construed
according to the laws of the State of Colorado, excluding
conflicts of laws principles. I hereby expressly consent to the
personal jurisdiction of the state and federal courts located in
Colorado for any lawsuit filed there against me by the Company
arising from or relating to this Agreement, or such other
location as the Company's principal executive office may then be
located.
(b) SEVERABILITY. If one or more of the provisions in this
Agreement are deemed unenforceable by law, then the remaining
provisions will continue in full force and effect. Moreover, if
any restriction set forth in Sections 3 or 4 hereof is found by
any court of competent jurisdiction to be unenforceable because
it extends for too long a period of time or over too great a
range of activities or in too broad a geographic area, it shall
be interpreted to extend only over the maximum period of time,
range of activities or geographic area as to which it may be
enforceable.
(c) BENEFIT; BINDING EFFECT. This Agreement will be binding upon my
heirs, executors, administrators and other legal representatives
and will be for the benefit of the Company, its successors and
its assigns.
E-2
<PAGE>
(d) SURVIVAL. The provisions of this Agreement shall survive the
termination of my employment and the assignment of this
Agreement by the Company to any successor in interest or other
assignee.
I UNDERSTAND THAT THIS AGREEMENT AFFECTS MY RIGHTS TO INVENTIONS I MAKE
DURING MY EMPLOYMENT, AND RESTRICTS MY RIGHT TO DISCLOSE OR USE THE COMPANY'S
PROPRIETARY INFORMATION DURING OR SUBSEQUENT TO MY EMPLOYMENT.
I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS.
Dated:
------------------- -------------------------------------------
Name
Address
------------------------------------
-------------------------------------------
-------------------------------------------
ACCEPTED AND AGREED TO:
JATO COMMUNICATIONS CORP.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
E-3
<PAGE>
EXHIBIT F
RIGHT OF FIRST REFUSAL AND STANDSTILL AGREEMENT
F-1
<PAGE>
EXHIBIT G
LEGAL OPINION
1. The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of the State of Delaware and is
qualified to do business and is in good standing under the laws of the State
of Colorado. Each of Jato Operating Corp. and Jato Operating Two Corp. has
been duly incorporated and is a validly existing corporation in good standing
under the laws of the State of Delaware and is qualified to do business and
is in good standing under the laws of the State of Colorado.
2. The Company has the requisite corporate power to own its property
and assets and to conduct its business as it is currently being conducted.
Each of the Subsidiaries has the requisite corporate power to own its
property and assets and to conduct its business as it is currently being
conducted.
3. The Restated Certificate of Incorporation has been duly adopted by
all necessary corporate action on the part of the Company, has been filed
with the Secretary of State of the State of Delaware and has become effective
under the Delaware General Corporation Law.
4. Each of the certificates evidencing the shares of Series D
Preferred Stock has been duly executed and delivered by the Company. The
Agreements have been duly and validly authorized, executed and delivered by
the Company and constitute valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as may
be limited by applicable laws and enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, arrangement, moratorium or other
similar laws affecting creditors' rights, and subject to general equity
principals and to limitations on availability of equitable relief, including
specific performance.
5. The Company's authorized capital stock consists of (a) eighty
million (80,000,000) shares of Common Stock, of which six million seven
hundred ninety-seven thousand eight hundred fourteen (6,797,814) shares are
issued and outstanding, and (b) thirty million (30,000,000) shares of
Preferred Stock, of which one million seven hundred fifty-one thousand nine
hundred eighty-five (1,751,985) shares have been designated Series A
Preferred Stock, of which one million seven hundred fifty-one thousand nine
hundred eighty-five (1,751,985) shares are issued and outstanding, of which
thirteen million six hundred fifteen thousand three hundred twenty-two
(13,615,322) shares have been designated Series B Preferred Stock, of which
thirteen million six hundred fifteen thousand three hundred twenty-two
(13,615,322) shares are issued and outstanding, of which four million nine
hundred thirty-two thousand three hundred eight (4,932,308) shares are
designated Series C Preferred Stock, of which four million nine hundred
thirty-two thousand three hundred eight (4,932,308) are issued and
outstanding, and of which five million (5,000,000) shares are designated
Series D Preferred Stock (the "Series D Stock"), one million seven hundred
eighty-five thousand seven hundred fourteen (1,785,714) of which (excluding
the Shares to be issued at the Closing) are issued and outstanding. The
outstanding shares of Common Stock and Preferred Stock have been duly
authorized and validly issued and are fully paid and nonassessable. The
rights, preferences and privileges of the Series D Stock are as stated in the
Restated Certificate of Incorporation. The
G-1
<PAGE>
Shares have been duly authorized, and upon issuance and delivery against
payment therefor in accordance with the terms of the Purchase Agreement, will
be validly issued, outstanding, fully paid and nonassessable and subject to
no preemptive rights under any statute, charter or agreement known to us that
have not been satisfied or waived. The shares of Common Stock issuable upon
conversion of the Shares have been duly authorized and reserved for issuance,
and upon issuance and delivery against payment therefor in accordance with
the terms of the Shares, will be validly issued, outstanding, fully paid and
nonassessable and subject to no preemptive rights under any statute, charter
or agreement known to us that have not been satisfied or waived. To our
knowledge, except as disclosed in the Purchase Agreement or the Schedule of
Exceptions, there are no options, warrants, conversion privileges, preemptive
rights or other rights presently outstanding to purchase any of the
authorized but unissued capital stock of the Company, other than the
conversion privileges of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock and rights
created in connection with the transactions contemplated by the Agreements.
6. The execution and delivery of the Agreements by the Company and the
issuance of the Shares pursuant to the Purchase Agreement do not violate any
provision of the Company's Restated Certificate of Incorporation or Amended
Bylaws, and to the best of our knowledge, do not constitute a material
default under the provisions of any material agreement to which the Company
is a party or by which it is bound, and do not violate or contravene (a) any
governmental statute, rule or regulation applicable to the Company or (b) any
order, writ, judgment, injunction, decree, determination or award which has
been entered against the Company and of which we are aware, the violation or
contravention of which would materially and adversely affect the Company, its
assets, financial condition or operations.
7. To our knowledge, there is no action, proceeding or investigation
pending or overtly threatened against the Company before any court or
administrative agency that questions the validity of the Agreements or might
result, either individually or in the aggregate, in any material adverse
change in the assets, financial condition or operations of the Company.
8. All consents, approvals, authorizations, or orders of, and filings,
registrations and qualifications with any regulatory authority or
governmental body in the United States required for the consummation by the
Company of the transactions contemplated by the Agreement, have been made or
obtained.
G-2
<PAGE>
EXHIBIT H
STOCK PURCHASE AGREEMENT
H-1
<PAGE>
EXHIBIT I
FORMS OF MASTER SERVICES AGREEMENT AND WHOLESALE SERVICES AGREEMENT
I-2
<PAGE>
JATO COMMUNICATIONS CORP.
-------------------------
STOCK PURCHASE AGREEMENT
-------------------------
<PAGE>
JATO COMMUNICATIONS CORP.
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of the 9th day of February,
2000 (the "EFFECTIVE DATE") by and among JATO COMMUNICATIONS CORP., a
Delaware corporation (the "COMPANY"), and U.S. TELESOURCE, INC., a Delaware
corporation ("PURCHASER").
WHEREAS, Purchaser and the Company wish to form a strategic
relationship, which will include, among other things, an investment by
Purchaser in the Company;
WHEREAS, the Company has filed a registration statement with the
Securities and Exchange Commission with respect to the planned initial public
offering ("IPO") of shares of its Common Stock;
WHEREAS, the Purchaser is an "institutional investor" and wishes to
purchase from the Company $2,500,000.00 of shares of the Company's Common
Stock at the IPO price per share in a transaction exempt from registration
under the Securities Act of 1933, as amended, such purchase to close
immediately following the closing of the IPO; and
WHEREAS, the Company desires to issue a warrant to Purchaser to purchase
a number of shares of the Company's Common Stock based on an aggregate
exercise price of $5,000,000.00 and an exercise price per share of the IPO
price per share plus 20% in a transaction exempt from registration under the
Securities Act of 1933, as amended, such issuance to close immediately
following the closing of the IPO; and.
NOW, THEREFORE, the parties hereto agree as follows:
1. SALE OF SHARES AND ISSUANCE OF WARRANT
1.1 SALE OF SHARES. Subject to the terms and conditions hereof, at the
IPO Closing (as hereinafter defined), the Company hereby agrees to issue and
sell to Purchaser and Purchaser agrees to purchase $2,500,000.00 of shares of
the Company's Common Stock (the "IPO SHARES" and collectively with the
Alternative Shares (as defined in Section 7.2), the "SHARES") at a price per
share equal to the price per share at which the Company's Common Stock is
sold to the public in the IPO (the "IPO PURCHASE PRICE" and collectively with
the Alternative Purchase Price (as defined in Section 7.2), the "PURCHASE
PRICE").
1.2 ISSUANCE OF WARRANTS. Subject to the terms and conditions hereof,
at the IPO Closing (as hereinafter defined), the Company hereby agrees to
issue to Purchaser a warrant in the form attached hereto as EXHIBIT A-1 (the
"IPO WARRANT") to purchase a number of shares of the Company's Common Stock
based on an aggregate exercise price of $5,000,000.00 and an exercise price
per share equal to the price per share at which the Company's Common Stock is
2
<PAGE>
sold to the public in the IPO plus 20%. Hereinafter, the IPO Warrant and the
Alternative Warrant (as defined in Section 7.1) shall be referred to
collectively as the Warrant.
2. THE CLOSING
2.1 CLOSING DATE.
(a) Except as otherwise provided in Section 7, the closing of the
purchase and sale of the IPO Shares and the issuance of the IPO Warrant (the
"IPO CLOSING") shall occur immediately after the closing of the IPO. The
Company will give Purchaser three (3) business days' notice of the date of
the IPO Closing (the "IPO CLOSING DATE"); provided that the IPO Closing Date
shall be no later than December 31, 2000. The Company will notify the
Purchaser of the IPO price per share promptly after it is determined by the
Company's pricing committee.
(b) A closing under Section 7 of the purchase and sale of the
Alternative Shares and the issuance of the Alternative Warrant (either a
"CHANGE OF CONTROL CLOSING" or a "ALTERNATIVE CLOSING") shall occur upon (a)
in the event of a Change of Control, within five (5) days prior to the
closing of a Change of Control transaction (the "CHANGE OF CONTROL CLOSING
DATE") or (b) if the Company has not closed its IPO by December 31, 2000,
within three (3) business days after the Purchaser gives notice to the
Company under Section 7.3(b) that it is exercising its option to purchase the
Alternative Shares (the "ALTERNATIVE CLOSING DATE"). Hereinafter, the IPO
Closing, Change of Control Closing and Alternative Closing shall collectively
be referred to as the "CLOSING." Hereinafter, the IPO Closing Date, Change
of Control Closing Date and the Alternative Closing Date shall be referred to
collectively as the "CLOSING DATE."
(c) Notwithstanding the foregoing, in the event that the Purchaser
does not exercise its option to purchase the Alternative Shares, the Company
shall issue the Alternative Warrant (1) in the event of a Change of Control,
within five (5) days prior to the Change of Control Closing Date or (2) if
the Company has not closed its IPO by December 31, 2000, within three (3)
business days after December 31, 2000.
2.2 DELIVERY. At the Closing (i) Purchaser will deliver to the Company
a check or wire transfer funds in the amount of the IPO Purchase Price of the
IPO Shares or the Alternative Purchase Price of the Alternative Shares, as
appropriate, (ii) the Company shall deliver a certificate representing the
IPO Shares or the Alternative Shares, as appropriate, registered in the name
of Purchaser, and (iii) the Company shall deliver either the IPO Warrant or
the Alternative Warrant, registered in the name of Purchaser.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
Except as set forth on a Schedule of Exceptions delivered by the Company
to the Purchaser on the date of this Agreement, the Company hereby represents
and warrants to Purchaser as of the date of this Agreement as follows:
3
<PAGE>
3.1 ORGANIZATION AND STANDING; CERTIFICATE OF INCORPORATION AND BYLAWS.
The Company and each Subsidiary (as defined in Section 3.3 below) is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware or, with respect to Jato Communications Corp.
of Virginia, the Commonwealth of Virginia. Each of the Company and
Subsidiary has all requisite corporate power and authority to own and operate
their respective properties and assets. Each of the Company and Subsidiary
has the requisite corporate power and authority to carry on its business as
presently conducted and as presently proposed to be conducted. Each of the
Company and Subsidiary is duly qualified and is authorized to do business and
is in good standing as a foreign corporation in all jurisdictions in which
the nature of their respective activities and of their respective properties
(both owned and leased) make such qualifications necessary, except for those
jurisdictions in which failure to do so would not have a material adverse
effect on the Company or Subsidiary or their respective businesses. The
Company has made available to the Purchaser true, correct and complete copies
of the Company's Restated Certificate of Incorporation and Amended Bylaws,
each as amended to date and in full force and effect on the date hereof. The
Company has made available to the Purchaser true, correct and complete copies
of Subsidiary's Certificate of Incorporation and Bylaws, each as amended to
date and in full force and effect on the date hereof. Since its inception,
Subsidiary has had no operations and has not incurred any material
obligations.
3.2 CORPORATE POWER. The Company has all requisite legal and corporate
power and authority to execute and deliver this Agreement, to sell and issue
the Shares and the Warrant hereunder and to carry out and perform its
obligations under the terms of this Agreement.
3.3 SUBSIDIARIES. Other than Jato Operating Corp., a Delaware
corporation, Jato Operating Two Corp., a Delaware corporation, and Jato
Communications Corp. of Virginia, a Virginia corporation (collectively, the
"SUBSIDIARY"), the Company owns no equity securities of any other
corporation, limited partnership or similar entity. The Company is not a
participant in any joint venture, partnership or similar arrangement. The
Company owns shares of the Subsidiary free and clear of all encumbrances.
3.4 CAPITALIZATION. The authorized capital stock of the Company,
immediately prior to the Effective Date of this Agreement, consists of (a)
eighty million (80,000,000) shares of Common Stock, of which six million
seven hundred ninety-seven thousand eight hundred fourteen (6,797,814) shares
are issued and outstanding, and (b) thirty million (30,000,000) shares of
Preferred Stock, of which one million seven hundred fifty-one thousand nine
hundred eighty-five (1,751,985) shares are designated Series A Preferred
Stock, of which one million seven hundred fifty-one thousand nine hundred
eighty five (1,751,985) are issued and outstanding, of which thirteen million
six hundred fifteen thousand three hundred twenty-two (13,615,322) shares are
designated Series B Preferred Stock, of which thirteen million six hundred
fifteen thousand three hundred twenty-two (13,615,322) are issued and
outstanding, of which four million nine hundred thirty-two thousand three
hundred eight (4,932,308) shares are designated Series C Preferred Stock, of
which four million nine hundred thirty-two thousand three hundred eight
(4,932,308) are issued and outstanding, and of which five million (5,000,000)
shares are
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designated Series D Preferred Stock, one million seven hundred eighty-five
thousand seven hundred fourteen (1,785,714) are issued and outstanding. All
issued and outstanding shares of the Company's Common Stock (i) have been
duly authorized and validly issued, (ii) are fully paid and nonassessable and
(iii) were issued in compliance with all applicable state and federal laws
concerning the issuance of securities. Except as set forth on the Schedule of
Exceptions and except as may be granted pursuant to this Agreement or the
Second Amended and Restated Investors' Rights Agreement, there are no
outstanding options, warrants, rights (including conversion or preemptive
rights and rights of first refusal), proxy or stockholder agreements, or
agreements of any kind for the purchase or acquisition from the Company of
any of its securities. The Shares have been duly authorized and, when issued
in compliance with the provisions of this Agreement and the Certificate, will
be validly issued (including, without limitation, issued in compliance with
applicable state and federal securities laws), fully paid and nonassessable,
subject to no preemptive rights, and will be free of any liens or
encumbrances; PROVIDED, HOWEVER, that the Shares may be subject to
restrictions on transfer under state and/or federal securities laws as set
forth herein or as otherwise required by such laws at the time transfer is
proposed.
3.5 AUTHORIZATION. All corporate action on the part of the Company,
its directors and stockholders necessary for the authorization, execution,
delivery and performance of this Agreement by the Company, the authorization,
sale, issuance and delivery of the Shares and the Warrant and the performance
of all of the Company's obligations hereunder has been taken or will be taken
prior to the Closing. This Agreement and the Warrant, when executed and
delivered by the Company, shall constitute valid and binding obligations of
the Company, enforceable in accordance with their terms, except as subject to
laws of general application relating to bankruptcy, insolvency and the relief
of debtors and rules of law governing specific performance, injunctive relief
or other equitable remedies. The Shares, when issued in compliance with the
provisions of this Agreement, will be validly issued, will be fully paid and
nonassessable and will be free of any liens or encumbrances; provided,
however that the Shares may be subject to restrictions on transfer under the
state and/or federal securities laws.
3.6 FINANCIAL STATEMENTS. The Company has delivered to Purchaser (i)
its audited balance sheet as at December 31, 1998 and audited statement of
income and cash flows for the period from inception and ending December 31,
1998 and (ii) its unaudited balance sheet as at November 30, 1999 (the
"STATEMENT DATE") and unaudited consolidated statement of income for the
eleven-month period ending on the Statement Date (collectively, the
"FINANCIAL STATEMENTS"). The Financial Statements, together with the notes
thereto, are complete and correct in all material respects, have been
prepared in accordance with generally accepted accounting principles applied
on a consistent basis throughout the periods indicated, except as disclosed
therein, and present fairly the financial condition and position of the
Company as of December 31, 1998 and the Statement Date; PROVIDED, HOWEVER,
that the unaudited financial statements are subject to normal recurring
year-end audit adjustments (which are not expected to be material), and may
not contain all footnotes required under generally accepted accounting
principles.
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3.7 LIABILITIES. The Company has no material liabilities and, to its
knowledge, knows of no material contingent liabilities not otherwise
disclosed in the Financial Statements, except current liabilities incurred in
the ordinary course of business subsequent to the Statement Date which have
not been, either in any individual case or in the aggregate, materially
adverse.
3.8 AGREEMENTS; ACTION.
(a) Except as set forth on the Schedule of Exceptions and except
for agreements explicitly contemplated hereby, there are no agreements,
understandings or proposed transactions between the Company and any of its
officers, directors, affiliates or their respective affiliates.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to
which the Company is a party or to its knowledge by which it is bound which
may involve (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of $25,000, or (ii) the license of any patent, copyright,
trade secret or other proprietary right to or from the Company (other than
licenses arising from the purchase of "off the shelf" or other standard
products), or (iii) provisions restricting or affecting the development,
manufacture or distribution of the Company's products or services, or (iv)
indemnification by the Company with respect to infringements of proprietary
rights.
(c) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or
series of its capital stock, (ii) incurred any indebtedness for money
borrowed or any other liabilities (other than with respect to indebtedness
and other obligations incurred in the ordinary course of business or as
disclosed in the Financial Statements) individually in excess of $25,000 or,
in the case of indebtedness and/or liabilities individually less than
$25,000, in excess of $75,000 in the aggregate, (iii) made any loans or
advances to any person, other than ordinary advances for travel expenses, or
(iv) sold, exchanged or otherwise disposed of any of its assets or rights,
other than the sale of its inventory in the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including
persons or entities the Company has reason to believe are affiliated
therewith) shall be aggregated for the purpose of meeting the individual
minimum dollar amounts of such subsections.
3.9 OBLIGATIONS TO RELATED PARTIES. There are no obligations of the
Company to officers, directors, stockholders, or employees of the Company
other than (a) for payment of salary for services rendered, (b) reimbursement
for reasonable expenses incurred on behalf of the Company and (c) for other
standard employee benefits made generally available to all employees
(including stock option agreements outstanding under any stock option plan
approved by the Board of Directors of the Company). No such officer,
director or stockholder, or any member of their immediate families is,
directly or indirectly, interested in any material contract with the
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Company (other than such contracts as relate to any such person's ownership
of capital stock or other securities of the Company). The Company is not a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
3.10 ABSENCE OF CHANGES. Except as set forth on the Schedule of
Exceptions, since the Statement Date, there has not been:
(a) Any change in the assets, liabilities, financial condition,
earnings or operations of the Company from that reflected in the Financial
Statements, other than changes in the ordinary course of business, none of
which individually or in the aggregate has had or is expected to have a
material adverse effect on such assets, liabilities, financial condition,
earnings or operations of the Company;
(b) Any resignation or termination of any key officers of the
Company; and the Company, to the best of its knowledge, does not know of the
impending resignation or termination of employment of any such officer;
(c) Any material change in the contingent obligations of the
Company by way of guaranty, endorsement, indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business or
prospects or financial condition of the Company;
(e) Any waiver by the Company of a valuable right or of a material
debt owed to it;
(f) Any direct or indirect loans made by the Company to any
stockholder, employee, officer or director of the Company, other than
immaterial advances made in the ordinary course of business;
(g) Any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder including,
without limitation, any (i) increase in the compensation payable or to become
payable by the Company to any of the Company's employees, (ii) any bonus,
incentive compensation, service award or other like benefit, granted, made or
accrued, contingently or otherwise, to or for the credit of the Company's
employees, or (iii) any employee welfare, pension, retirement, profit-sharing
or similar payment or arrangement (whether or not subject to ERISA) made or
agreed to by the Company;
(h) Any declaration or payment of any dividend or other
distribution of the assets of the Company;
(i) Any labor organization activity;
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(j) Any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for
current liabilities incurred in the ordinary course of business;
(k) Any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(l) Any change in any material agreement to which the Company is a
party or by which it is bound which materially and adversely affects the
business, assets, liabilities, financial condition, operations or prospects
of the Company;
(m) (i) Any change in practice with respect to taxes, (ii) any
making, changing or revoking of any tax election, or (iii) any settlement or
compromise of any dispute involving a tax liability;
(n) Any change in the number of shares of capital stock of the
Company issued and outstanding;
(o) Any failure to conduct the business of the Company in the
ordinary course;
(p) Any change in the method of accounting or accounting practice
of the Company;
(q) Any change in the Company's lines of business; or
(r) Any other event or condition of any character that, either
individually or cumulatively, has materially and adversely affected the
business, assets, liabilities, financial condition, operations or prospects
of the Company. For purposes of this subsection (r), a material and adverse
effect shall only be deemed to occur if its monetary impact exceeds, or with
the passage of time, will exceed $75,000.
3.11 REAL PROPERTIES; TANGIBLE PERSONAL PROPERTY.
(a) REAL PROPERTIES. The Schedule of Exceptions sets forth each
lease or other agreement (including easements) under which the Company leases
or has rights in any real property (the "REAL PROPERTY LEASES," and, each
individually, a "REAL PROPERTY LEASE"). The Company has a valid and
subsisting leasehold interest in all the real property which is the subject
of each Real Property Lease. The Company does not presently own, and has
never owned, any real property and does not presently operate, and has never
operated, any real property, other than as a lessee.
(b) TANGIBLE PERSONAL PROPERTY. Except as set forth on the
Schedule of Exceptions, (i) the Company has good, marketable and valid title
to all of the items of tangible
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personal property used in its operations and (ii) all such tangible personal
property is reflected on the Company's unaudited Financial Statements, except
as sold or disposed of subsequent to the date thereof in the ordinary course
of business consistent with past practices. The tangible personal property
of the Company is in good repair and working order, reasonable wear and tear
excepted, and constitutes all of the tangible personal property necessary for
the operation of the business as currently conducted.
3.12 PATENTS AND TRADEMARKS. The Company is the sole owner, free of any
lien or encumbrance, of, or has a valid license, on commercially reasonable
terms, to, all U.S. and foreign patents, registered designs, copyrights,
computer software and databases, trademarks, service marks and trade names,
whether or not registered, and other trade secrets, research and development,
formulae, inventions, processes, know-how and proprietary and intellectual
property rights and information, including all grants, registrations and
applications relating thereto (collectively, the "PROPRIETARY RIGHTS")
necessary for the conduct of its business as now conducted (the "COMPANY
RIGHTS"). The Company's rights in the Company Rights are, to the Company's
knowledge, valid and enforceable. The Company has received no demand, claim,
notice or inquiry from any person in respect of the Company Rights which
challenges, threatens to challenge or inquires as to whether there is any
basis to challenge, the validity of, or the rights of the Company in, any
such Company Rights. There are no outstanding options, licenses or
agreements of any kind relating to the Company Rights, nor is the Company
bound by or a party to any options, licenses or agreements of any kind with
respect to the Proprietary Rights of any other person or entity other than
such licenses or agreements arising from the purchase of "off the shelf" or
standard products. The Company has taken, and will take, all actions which
are necessary in order to protect the Company Rights and to acquire
additional Proprietary Rights, consistent with prudent commercial practices
in the telecommunications industry. To the knowledge of the Company, the
Company is not in violation or infringement of, and has not violated or
infringed, any Proprietary Rights of any other person. To the knowledge of
the Company, no person is infringing any Company Rights. The Company is not
aware that any of its employees is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or
subject to any judgment, decree or order of any court or administrative
agency, that would interfere with their duties to the Company's business by
the employees of the Company, nor will, to the Company's knowledge, the
conduct of the Company's business as proposed conflict with or result in a
breach of the terms, conditions or provisions of, or constitute a default
under, any contract, covenant or instrument under which any employee is now
obligated. The Company does not believe it is or will be necessary to
utilize any inventions, trade secrets or proprietary information of any of
its employees made prior to their employment by the Company, except for
inventions, trade secrets or proprietary information that have been assigned
to the Company.
3.13 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in violation
or default of any term of its Certificate or Amended Bylaws, or of any
provision of any mortgage, indenture, contract, agreement, instrument or
contract to which it is party or by which it is bound or of any judgment,
decree, order, writ or any statute, rule or regulation applicable to the
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Company which would materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of the Company.
The execution, delivery, and performance of and compliance with this
Agreement and the Warrant and the issuance and sale of the Shares pursuant
hereto, will not, with or without the passage of time or giving of notice,
result in any such material violation, or be in conflict with or constitute a
default under any such term, or result in the creation of any mortgage,
pledge, lien, encumbrance or charge upon any of the properties or assets of
the Company or the suspension, revocation, impairment, forfeiture or
nonrenewal of any permit, license, authorization or approval applicable to
the Company, its business or operations or any of its assets or properties.
3.14 LITIGATION. There is no action, suit, proceeding or investigation
pending, or to the Company's knowledge, currently threatened against the
Company that questions the validity of this Agreement or to consummate the
transactions contemplated hereby or thereby, or which might result, either
individually or in the aggregate, in any material adverse change in the
assets, condition, affairs or prospects of the Company, financially or
otherwise, or any change in the current equity ownership of the Company, nor
is the Company aware that there is any basis for the foregoing. The
foregoing includes, without limitation, actions pending or threatened (or any
basis therefor known to the Company) involving the prior employment of any of
the Company's employees, their use in connection with the Company's business
of any information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers.
The Company is not a party or subject to the provisions of or in violation of
any order, writ, injunction, judgment or decree or any rule or regulation of
any court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company currently pending or which the
Company intends to initiate.
3.15 TAX RETURNS AND PAYMENTS. The Company has timely filed all tax
returns (federal, state and local) required to be filed by it. All taxes
shown to be due and payable on such returns, any assessments imposed, and to
the Company's knowledge all other taxes due and payable by the Company have
been paid or will be paid prior to the time they become delinquent. The
Company has not been advised (i) that any of its returns, federal, state or
other, have been or are being audited as of the date hereof, or (ii) of any
deficiency in assessment or proposed judgment to its federal, state or other
taxes. The Company has no knowledge of any liability of any tax to be
imposed upon its properties or assets as of the date of this Agreement that
is not adequately provided for. Neither the Company nor the Subsidiary is a
party to any agreement relating to allocating or sharing the payment of, or
liability for taxes with respect to, any taxable period. Neither the Company
nor Subsidiary has any deferred income reportable for a period ending after
the Effective Date of this Agreement that is attributable to a transaction
(e.g., an installment sale) occurring in, or resulting from a change of
accounting method for, a period ending on or prior to the Effective Date of
this Agreement.
3.16 EMPLOYEES. The Company is not a party to or bound by any currently
effective employment contract, deferred compensation arrangement, bonus plan,
incentive plan, profit sharing plan, retirement agreement or other employee
compensation plan or agreement. Neither
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the Company, nor any entity which is required to be aggregated with the
Company pursuant to Sections 414(b), (c), (m) or (o) of the Internal Revenue
Code of 1986 has any liability whether actual or contingent, with respect to
any employee benefit plan or arrangement. To the Company's knowledge, no
employee of the Company, nor any consultant with whom the Company has
contracted, is in violation of any term of any employment contract,
proprietary information agreement or any other agreement relating to the
right of any such individual to be employed by, or to contract with, the
Company because of the nature of the business to be conducted by the Company;
and to the Company's knowledge the continued employment by the Company of its
present employees, and the performance of the Company's contracts with its
independent contractors, will not result in any such violation. The Company
has not received any notice alleging that any such violation has occurred.
No employee of the Company has been granted the right to continued employment
by the Company or to any material compensation following termination of
employment with the Company. The Company is not aware that any officer or
key employee, or that any group of key employees, intends to terminate their
employment with the Company, nor does the Company have a present intention to
terminate the employment of any officer, key employee or group of key
employees. To the Company's knowledge, the Company is in compliance with all
laws and orders relating to the employment of labor, including, without
limitation, all such laws and orders relating to wages, hours,
discrimination, civil rights, safety and the collection and payment of
withholding and/or Social Security taxes and similar taxes. There are no
complaints, charges or claims against the Company pending, or, to the
Company's knowledge, threatened 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 Company.
3.17 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. Each current
employee, officer and consultant of the Company has executed a Proprietary
Information and Inventions Agreement that effectively waives any ownership
rights in the invention or authorship of any Company Rights and has assigned
to the Company all rights with respect thereto. No current employee, officer
or consultant of the Company has excluded works or inventions made prior to
his or her employment with the Company from his or her assignment of the
works or inventions pursuant to such employee, officer or consultant's
Non-Competition, Proprietary Information and Inventions Agreement in the form
attached hereto as EXHIBIT B.
3.18 OBLIGATIONS OF MANAGEMENT. Each officer of the Company is
currently devoting one hundred percent (100%) of his business time to the
conduct of the business of the Company. The Company is not aware of any
officer or key employee of the Company planning to work less than full time
at the Company in the future.
3.19 REGISTRATION RIGHTS. Except as required pursuant to the Investors'
Rights Agreement, the Company is presently not under any obligation, and has
not granted any rights, to register (as defined in Section 1 of the
Investors' Rights Agreement) any of the Company's presently outstanding
securities or any of its securities that may hereafter be issued.
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3.20 COMPLIANCE WITH LAWS; PERMITS. The Company is not in violation of
any applicable statute, rule, regulation, order or restriction of any
domestic or foreign government or any instrumentality or agency thereof in
respect of the conduct of its business or the ownership of its properties
which violation would materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of the Company. No
governmental orders, permissions, consents, approvals or authorizations are
required to be obtained and no registrations or declarations are required to
be filed in connection with the execution and delivery of this Agreement and
the issuance of the Shares, except such as has been duly and validly obtained
or filed, or with respect to any filings that must be made after the date
hereof, as will be filed in a timely manner. The Schedule of Exceptions sets
forth the states in which the Company has obtained all franchises, permits,
licenses and any similar authority necessary for the conduct of its business
as now being conducted by it, the lack of which could materially and
adversely affect the business, properties, prospects or financial condition
of the Company.
3.21 FULL DISCLOSURE. This Agreement, the Exhibits hereto, the Schedule
of Exceptions and all other documents delivered by the Company to Purchaser
or its attorneys or agents in connection herewith or therewith or with the
transactions contemplated hereby or thereby, do not contain any untrue
statement of a material fact nor omit to state a material fact necessary in
order to make the statements contained herein or therein not misleading.
There is no fact peculiar to the Company and known to the Company which
materially adversely affects, or reasonably could be expected to materially
adversely affect in the future, the business, property or assets, or
financial condition of the Company, which has not been set forth in this
Agreement or in the other documents described herein or furnished to the
Purchaser by or on behalf of the Company prior to the date hereof in
connection with the transactions contemplated hereby.
3.22 CERTAIN LIMITATIONS. Neither the nature of the Company, nor any of
its respective businesses or properties, nor any relationship between the
Company and any other person, nor any circumstance in connection with the
offer, issue, sale or delivery of the Shares (other than in any such case,
any matter relating to the Purchaser) is, such as to require or give rise to
any limitation on any Purchaser's ownership of any equity securities of the
Company.
3.23 ENVIRONMENTAL.
(a) To the Company's knowledge, the Company complies, and at all
times has complied, in all material respects with all applicable
Environmental Laws. For the purposes hereof, "ENVIRONMENTAL LAW" shall mean
any judgment, decree, order, law, permit, license, rule, regulation or agency
requirement relating to or addressing the environment, health or safety (to
the extent relating to exposure to any hazardous substance), including,
without limitation, the Comprehensive Environmental Response, Compensation
and Liability Act, as amended, the Resource Conservation and Recovery Act, as
amended, the Superfund Amendments and Reauthorization Act of 1986, the
Federal Clean Water Act, the Federal Clean Air Act, the Toxic Substances
Control Act and any federal, state, local or foreign statute, regulation,
ordinance,
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order or decree relating to health, safety (in the case of health and safety
to the extent relating to exposure in the workplace or otherwise to any
Hazardous Substance) or the environment.
(b) There is not now pending or, to the Company's knowledge,
threatened any action, claim, proceeding or investigation nor has the Company
received any notice, claim, demand letter, or request for information at any
time, alleging that the Company may be in violation of, or liable under, any
Environmental Law.
(c) To the Company's knowledge, without initiating any inquiry,
there are no hazardous substances located on the properties currently or
formerly owned or operated by the Company (including soil, groundwater or
surface features and buildings or structures thereon) other than as permitted
under applicable Environmental Laws, and none of the properties contain, or
has contained, any underground storage tank.
3.24 INSURANCE. The Company maintains and/or is covered by valid
policies of workers' compensation insurance and of insurance with respect to
its properties and business. The Company currently maintains, in full force,
insurance covering the risks of the Company, if any, of such types and in
such amounts and with such deductibles as are customary for other companies
engaged in similar lines of business and with good and responsible insurance
companies.
3.25 OFFERING. The Company, nor any person or entity acting on its
behalf, has not engaged in any form of general solicitation or advertising in
connection with the offer and sale of the Company's Series A, Series B,
Series C and Series D Preferred Stock (the "SERIES PREFERRED"). No offers to
sell the Series Preferred were made by any person or entity other than the
Company. The offer and sale of the shares of the Series Preferred were made
solely to accredited investors or qualified institutional buyers. Neither
the Company nor any affiliate has been subject to any order, judgment, or
decree of any court of competent jurisdiction enjoining either the Company or
such affiliate for failure to comply with Rule 503 of Regulation D. Assuming
the accuracy of the representations and warranties of the Purchaser contained
in Section 4.6 hereof, the Company has given Purchaser the opportunity to
discuss the Company's business, management and financial affairs with the
Company's management and the opportunity to review the Company's business
plan.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company with respect
to the purchase of the Shares as follows:
4.1 EXPERIENCE. It is capable of evaluating the merits and risks of
its investment in the Company and has the capacity to protect its own
interests.
4.2 ABILITY TO BEAR ECONOMIC RISK. The Purchaser acknowledges that
investment in the Shares involves a high degree of risk, and represents that
it is able, without materially
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impairing its financial condition, to hold the Shares for an indefinite
period of time and to suffer a complete loss of its investment.
4.3 INVESTMENT. It is acquiring the Shares for investment for its own
account, not as a nominee or agent, and not with the view to, or for resale
in connection with, any distribution thereof. It understands that the Shares
have not been, and will not be when issued, sold or transferred, registered
under the Securities Act by reason of a specific exemption from the
registration provisions of the Securities Act, the availability of which
depends upon, among other things, the bona fide nature of the investment
intent and the accuracy of the Purchaser's representations as expressed
herein. Purchaser was not formed solely for the purpose of acquiring the
Shares.
4.4 RULE 144. It acknowledges that the Shares must be held
indefinitely unless subsequently registered under the Securities Act or
unless an exemption from such registration is available. It acknowledges and
understands that the provisions of Rule 144 promulgated under the Securities
Act which permit limited resale of shares purchased in a private placement
subject to the satisfaction of certain conditions, including, among other
things, the existence of a public market for the Shares, the availability of
certain current public information about the Company, the resale occurring
not less than one year after a party has purchased and paid for the security
to be sold, the sale being effected through a "broker's transaction" or in
transactions directly with a "market maker" and the number of shares being
sold during any three-month period not exceeding specified limitations, and
it agrees to comply fully with such provisions as in effect from time to time.
4.5 NO PUBLIC MARKET. It understands that no public market now exists
for any securities issued by the Company nor will one be created prior to the
Closing.
4.6 ACCESS TO DATA. It has had an opportunity to discuss the Company's
business, management and financial affairs with the Company's management and
the opportunity to review the Company's business plan. The Purchaser
acknowledges that it has received all the information it has requested from
the Company and it considers necessary or appropriate for deciding whether to
acquire the Shares. The Purchaser represents that it has had an opportunity
to ask questions and receive answers from the Company regarding the terms and
conditions of the offering of the Shares and to obtain any additional
information necessary to verify the accuracy of the information given the
Purchaser.
4.7 AUTHORIZATION. All action (corporate or partnership, as
appropriate) on the part of the Purchaser necessary for the authorization,
execution, delivery and performance of this Agreement by Purchaser and the
performance of all of the Purchaser's obligations hereunder has been taken or
will be taken prior to the Closing. This Agreement when executed and
delivered by the Purchaser will constitute a valid and legally binding
obligation of the Purchaser, enforceable in accordance with its terms, and
subject to laws of general application relating to
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bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies.
4.8 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting
the representations set forth above, the Purchaser further agrees not to make
any disposition of all or any portion of the Shares unless and until:
(a) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
(b) The Purchaser shall have notified the Company of the proposed
disposition and shall have furnished the Company with a reasonably detailed
statement of the circumstances surrounding the proposed disposition and, if
reasonably requested by the Company, the Purchaser shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company,
that such disposition will not require registration under the Securities Act
or any applicable state securities laws.
4.9 ACCREDITED INVESTOR. The Purchaser is an "accredited investor" as
such term is defined in Rule 501 under the Securities Act.
4.10 FURTHER ASSURANCES. The Purchaser agrees and covenants that at any
time and from time to time it will promptly execute and deliver to the
Company such further instruments and documents and take such further action
as the Company may reasonably require in order to carry out the full intent
and purpose of this Agreement.
5. CONDITIONS TO CLOSING OF COMPANY
The Company's obligation to sell and issue the Shares and the Warrant at
the Closing Date is, at the option of the Company, subject to the fulfillment
as of the Closing Date of the following conditions:
5.1 REPRESENTATIONS. With respect to a Change of Control Closing or an
Alternative Closing only, the representations and warranties made by
Purchaser in Section 4 hereof shall be true and correct in all material
respects as of the Change of Control Closing Date or the Alternative Closing
Date, as appropriate.
5.2 COVENANTS. All covenants, agreements and conditions contained in
this Agreement to be performed by the Purchaser on or prior to the Closing
Date shall have been performed or complied with in all material respects.
5.3 CONSENTS, PERMITS, AND WAIVERS. The Company shall have obtained
any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions
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contemplated by this Agreement (except for such as may be properly obtained
subsequent to the Closing).
5.4 CLOSING OF THE IPO. For the IPO Closing, the Company shall have
closed the IPO.
6. CONDITION TO CLOSING OF PURCHASER.
The Purchaser's obligation to purchase the Shares and the Warrant at the
Closing is subject to the fulfillment as of the Closing Date of the following
conditions:
6.1 REPRESENTATIONS. With respect to a Change of Control Closing or an
Alternative Closing, the representations and warranties made by the Company
in Section 3 hereof shall be true and correct in all material respects as of
the Change of Control Closing Date or the Alternative Closing Date, as
appropriate.
6.2 COVENANTS. All covenants, agreements and conditions contained in
this Agreement to be performed by the Company on or prior to the Closing Date
shall have been performed or complied with in all material respects.
6.3 LEGAL OPINION. Purchaser shall have received from Cooley Godward
LLP, counsel to the Company, an opinion letter substantially in the form
attached hereto as EXHIBIT C addressed to it, dated as of the date of the
Closing.
6.4 CLOSING OF IPO. For the IPO Closing, the Company shall have closed
the IPO.
7. ADDITIONAL COVENANTS OF THE COMPANY
The Company agrees that if the Company has not closed the IPO by
December 31, 2000 or if there is a Change of Control (as defined below) prior
to the closing of the IPO, then:
7.1 WARRANT. The Company will issue a warrant to Purchaser in the form
attached hereto as EXHIBIT A-2 (the "ALTERNATIVE WARRANT") upon the earlier
of (a) the Alternative Closing or (b) the Change of Control Closing.
7.2 PURCHASE OF COMMON STOCK. Purchaser will have the option under
this Agreement, but not the obligation, to purchase 297,619 shares of the
Company's Common Stock (the "ALTERNATIVE SHARES") at a price per share of
$8.40 (the "ALTERNATIVE PURCHASE PRICE").
7.3 NOTICES.
(a) In the event of a transaction contemplated in connection with
a Change of Control, the Company agrees to give written notice to Purchaser
in the manner set forth in Section 8.5 at least twenty (20) days prior to the
proposed Change of Control Closing Date. Purchaser agrees to give written
notice in the manner set forth in Section 8.5 to the Company no
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later than ten (10) days prior to the proposed Change of Control Closing Date
as set forth in the Company's notice to Purchaser of its intention to
purchase the Alternative Shares.
(b) Purchaser agrees to give written notice in the manner set
forth in Section 8.5 to the Company by December 31, 2000 if the Company has
not closed the IPO by such date of its intention to purchase the Alternative
Shares.
7.4 CHANGE OF CONTROL. For purposes of this Section 7, "CHANGE OF
CONTROL" shall mean: (a) any consolidation or merger in which the
stockholders of the Company immediately after such consolidation or merger,
hold less than 50% of the outstanding voting power of the surviving entity;
(b) any transaction or series of related transactions in which in excess of
50% of the Company's voting power is transferred; (c) a sale, lease or other
disposition of all or substantially all of the assets of the Company; or (d)
changes in the membership of the Company's Board of Directors such that
Continuing Board Members (as defined below) are no longer a majority of the
Company's Board of Directors during any 12 month period. "CONTINUING BOARD
MEMBERS" will mean, as of any date of determination, any member of the
Company's Board of Directors who (1) was a member of the Company's Board of
Directors as of the date of Purchasers' initial investment in Series D Stock
(the "INITIAL INVESTMENT"), or (2) was nominated for election or was elected
to the Company's Board of Directors with (X) the affirmative vote of a
majority of the Continuing Board Members who were members of the Board of
Directors at the time of such nomination or election (or any successor
Continuing Board Member appointed by such Continuing Board Members or their
successors) or (Y) the affirmative vote of the existing stockholders of the
Company as of the date of the Initial Investment.
8. MISCELLANEOUS
8.1 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Colorado without regard to its
conflict-of-laws rules.
8.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
(a) With respect to an IPO Closing, the representations, covenants
and warranties contained in this Agreement shall survive for a period of one
year from the IPO Closing Date.
(b) With respect to either an Alternative Closing or a Change of
Control Closing, the representations, covenants and warranties contained in
this Agreement shall survive for a period of one year from the Alternative
Closing Date or the Change of Control Closing Date, as applicable.
8.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors
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and administrators of the parties hereto, PROVIDED, HOWEVER, that the right
and obligation of the Purchaser to purchase the Shares shall not be
assignable without the consent of the Company.
8.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
documents delivered pursuant hereto at the Closing constitute the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof, and no party shall be liable or bound to any
other party in any manner by any warranties, representations or covenants
except as specifically set forth herein or therein. Except as expressly
provided herein, neither this Agreement nor any term hereof may be amended,
waived, discharged or terminated other than by a written instrument signed by
the party against whom enforcement of any such amendment, waiver, discharge
or termination is sought.
8.5 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by
messenger, addressed (a) if to the Purchaser, at the Purchaser's address set
forth on the signature page hereto, or at such other address as the Purchaser
shall have furnished to the Company in writing, or (b) if to the Company, one
copy to its address set forth on the signature page of this Agreement and
addressed to the attention of the President, or at such other address as the
Company shall have furnished to the Purchaser. Notices may also be sent by
telecopier, with a confirmation copy by certified or registered mail.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or
72 hours after the same has been deposited in a regularly maintained
receptacle for the deposit of the United States mail, addressed and mailed as
aforesaid, or upon electronic confirmation of receipt if sent by telecopier.
8.6 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay
or omission to exercise any right, power or remedy accruing to any holder of
any Shares, upon any breach or default of the Company under this Agreement,
shall impair any such right, power or remedy of such holder nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or waiver of or acquiescence in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character
on the part of any holder of any breach or default under this Agreement, or
any waiver on the part of any holder of any provisions or conditions of this
Agreement, must be in writing and be executed by the party to be bound
thereby, and shall be effective only to the extent specifically set forth in
such writing. All remedies, either under this Agreement or by law or
otherwise afforded to any holder, shall be cumulative and not alternative.
8.7 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be enforceable against the party actually executing such
counterpart(s), and all of which together shall constitute one instrument.
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8.8 SEVERABILITY. In the event that any provisions of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provisions; provided, that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to
any party.
8.9 TITLE AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing
or interpreting this Agreement.
8.10 ATTORNEYS' FEES. In the event that any dispute among the parties
to this Agreement, the prevailing party in such dispute shall be entitled to
recover from the losing party all fees, costs and expenses of enforcing any
right of such prevailing party under or with respect to this Agreement,
including without limitation, such reasonable fees and expenses of attorneys
and accountants, which shall include, without limitation, all fees, costs and
expenses of appeals.
8.11 FURTHER ASSURANCES AND COOPERATION. From and after the Effective
Date, the parties agree to use their best efforts to satisfy the Closing
Conditions set forth in Sections 5 and 6 above.
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IN WITNESS WHEREOF, the parties have executed this STOCK PURCHASE
AGREEMENT as of the date first written above.
COMPANY:
JATO COMMUNICATIONS CORP.
By: /s/ Gerald K. Dinsmore
-------------------------------------
President and Chief Executive Officer
Address: 1099 18th Street
Denver, Colorado 80202
Facsimile number: 303-297-8305
PURCHASER:
U.S. TELESOURCE, INC.
By: /s/ Marc B. Weisberg
-------------------------------------
Name: Marc B. Weisberg
-----------------------------------
Title: President
----------------------------------
Address: 555 Seventeenth Street
Denver, Colorado 80202
Facsimile number: 303-992-1724
EXHIBITS
Exhibit A-1: Form of IPO Warrant
Exhibit A-2: Form of Alternative Warrant
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EXHIBIT A-1
FORM OF IPO WARRANT
<PAGE>
No. WCS-__ _____________, 2000
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND
ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF JATO COMMUNICATIONS CORP.
(VOID AFTER [ONE YEAR FROM THE DATE OF ISSUANCE], 2001)
THIS CERTIFIES that U.S. TELESOURCE, INC. (the "HOLDER"), for value
received, is entitled to purchase from JATO COMMUNICATIONS CORP., a Delaware
corporation (the "COMPANY"), having a place of business at 1099 18th St.,
Denver, Colorado 80202, [$5,000,000.00 DIVIDED BY THE STOCK PURCHASE PRICE]
shares (the "WARRANT SHARES") of fully paid and nonassessable shares of
Company's Common Stock (the "COMMON STOCK") at a price of $[PRICE PER SHARE
AT WHICH THE COMPANY'S COMMON STOCK IS SOLD TO THE PUBLIC IN THE COMPANY'S
INITIAL PUBLIC OFFERING PLUS 20%] per share (the "STOCK PURCHASE PRICE"), at
any time or from time to time beginning on the date hereof and ending on the
earlier to occur of (i) up to and including 5:00 p.m. (Colorado time)
[ONE YEAR FROM THE DATE OF ISSUANCE], 2001 or (ii) the Acquisition (as
defined below) of the Company (collectively, the "EXPIRATION DATE") upon
surrender to the Company at its principal office (or at such other location
as the Company may advise the Holder in writing) of this Warrant properly
endorsed with the Notice of Exercise and Investment Representation Statement
attached hereto duly filled in and executed and, if applicable, upon payment
in cash or by check of the aggregate Stock Purchase Price for the number of
shares for which this Warrant is being exercised determined in accordance
with the provisions hereof. The Stock Purchase Price and the number of
shares purchasable hereunder are subject to adjustment as provided in Section
3 of this Warrant. For purposes hereof, an "Acquisition" shall mean any of
the following: (1) a sale of all or substantially all of the assets of the
Company; (2) a merger, reorganization or consolidation pursuant to which the
stockholders of the Company or its successor immediately prior to such
merger, reorganization or consolidation: (A) hold less than 50% of the voting
power of the surviving company following the merger, reorganization or
consolidation, or (B) in the event that the securities of an affiliated
entity are issued to the stockholders of the Company in the transaction in
exchange for their shares in the Company, hold less than 50% of the voting
power of such affiliated entity.
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
(a) GENERAL. This Warrant is exercisable at the option of the
Holder of record hereof, at any time or from time to time, up to the
Expiration Date for all or any part of the shares of Common Stock (but not
for a fraction of a share) which may be purchased hereunder.
(b) ISSUANCE OF CERTIFICATES. The Company agrees that the shares
of Common Stock purchased under this Warrant shall be and are deemed to be
issued to the Holder hereof as the record owner of such shares as of the
close of business on the date on which this Warrant shall have
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<PAGE>
been surrendered, properly endorsed and payment (if any) made for such
shares. Certificates for the shares of Common Stock so purchased, together
with any other securities or property to which the Holder hereof are entitled
upon such exercise, shall be delivered to the Holder hereof by the Company at
the Company's expense within a reasonable time after the rights represented
by this Warrant have been so exercised. In case of a purchase of less than
all the shares which may be purchased under this Warrant, the Company shall
cancel this Warrant and execute and deliver a new Warrant or Warrants of like
tenor for the balance of the shares purchasable under the Warrant surrendered
upon such purchase to the Holder hereof within a reasonable time. Each stock
certificate so delivered shall be in such denominations of Common Stock as
may be requested by the Holder hereof and shall be registered in the name of
such Holder or as directed by such Holder.
(c) NET ISSUE EXERCISE. Notwithstanding any provisions herein to
the contrary, if the fair market value of one share of the Company's Common
Stock is greater than the Stock Purchase Price (at the date of calculation as
set forth below), in lieu of exercising this Warrant for cash, the Holder may
elect to receive shares equal to the value (as determined below) of this
Warrant (or the portion thereof being canceled) by surrender of this Warrant
at the principal office of the Company and notice of such election in which
event the Company shall issue to the Holder a number of shares of Common
Stock computed using the following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Common Stock to be issued to the
Holder
Y = the number of shares of Common Stock purchasable under the
Warrant or, if only a portion of the Warrant is being exercised,
the portion of the Warrant being canceled (at the date of such
calculation)
A = the fair market value of one share of the Company's Common
Stock (at the date of such calculation)
B = Stock Purchase Price (as adjusted to the date of such
calculation)
For purposes of the above calculation, the fair market value of one share of
Common Stock shall be determined by the Company's Board of Directors in good
faith; PROVIDED, HOWEVER, that in the event Holder exercises this Warrant in
connection with the Company's initial public offering of its Common Stock,
the fair market value per share shall equal to the per share offering price
to the public of the Company's initial public offering; and, PROVIDED,
FURTHER, that following the Company's initial public offering of its Common
Stock, the fair market value per share shall be the average of the closing
prices quoted on any exchange or the Nasdaq Stock Market, whichever is
applicable, on which the Common Stock is listed for the ten (10) trading days
prior to the date of determination of fair market value.
2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company
covenants and agrees that all shares of Common Stock which may be issued upon
the exercise of the rights represented by this Warrant will, upon issuance,
be duly authorized, validly issued, fully paid and nonassessable and free
from all preemptive rights of any stockholders and free of all taxes, liens
and charges with respect to the issue thereof. The Company further covenants
and agrees that during the period within which the rights represented by this
Warrant may be exercised, the Company will
2
<PAGE>
at all times have authorized and reserved, for the purpose of issue or
transfer upon exercise of the subscription rights evidenced by this Warrant,
a sufficient number of shares of authorized but unissued Common Stock, or
other securities and property, when and as required to provide for the
exercise of the rights represented by this Warrant. The Company will take
all such action as may be necessary to assure that such shares of Common
Stock may be issued as provided herein without violation of any applicable
law or regulation, or of any requirements of any domestic securities exchange
upon which the Common Stock may be listed.
3. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence
of certain events described in this Section 3. Upon each adjustment of the
Stock Purchase Price, the Holder of this Warrant shall thereafter be entitled
to purchase, at the Stock Purchase Price resulting from such adjustment, the
number of shares obtained by multiplying the Stock Purchase Price in effect
immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment, and dividing the
product thereof by the Stock Purchase Price resulting from such adjustment.
(a) SUBDIVISION OR COMBINATION OF STOCK. In case the Company
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares, the Stock Purchase Price in effect immediately
prior to such subdivision shall be proportionately reduced, and conversely,
in case the outstanding shares of Common Stock of the Company shall be
combined into a smaller number of shares, the Stock Purchase Price in effect
immediately prior to such combination shall be proportionately increased.
(b) DIVIDENDS IN COMMON STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. If at any time or from time to time any holder of Common
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to
receive, without payment therefor,
(i) Common Stock or any shares of stock or other securities
which are at any time directly or indirectly convertible into or exchangeable
for Common Stock, or any rights or options to subscribe for, purchase or
otherwise acquire any of the foregoing by way of dividend or other
distribution;
(ii) Any cash paid or payable otherwise than as a cash
dividend; or
(iii) Common Stock or additional stock or other securities or
property (including cash) by way of spin-off, split-up, reclassification,
combination of shares or similar corporate rearrangement (other than (a)
shares of Common Stock issued as a stock split, adjustments in respect of
which shall be covered by the terms of Section 3(a) above or (b) an event for
which adjustment is otherwise made pursuant to Section 3(c) below);
then and in each such case, the Holder hereof shall, upon the
exercise of this Warrant, be entitled to receive, in addition to the number
of shares of Common Stock receivable thereupon, and without payment of any
additional consideration therefor, the amount of stock and other securities
and property (including cash in the case referred to in clause 3(b)(ii)
above) which such Holder would hold on the date of such exercise had they
been the holder of record of such
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<PAGE>
Common Stock as of the date on which Holder of Common Stock received or
became entitled to receive such shares or all other additional stock and
other securities and property.
(c) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE. If any capital reorganization of the capital stock of the Company, or
any 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 a holder of Common Stock shall be entitled to
receive stock, securities, or other assets or property, then, as a condition
of such reorganization, reclassification, consolidation, merger or sale,
lawful and adequate provisions shall be made whereby the Holder hereof shall
thereafter have the right to purchase and receive (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 other assets or property as may be issued or 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 PROVIDED, HOWEVER, that in the event the value of the
stock, securities or other assets or property (determined in good faith by
the Board of Directors of the Company) issuable or payable with respect to
one share of the Common Stock of the Company immediately theretofore
purchasable and receivable upon the exercise of the rights represented hereby
is in excess of the Stock Purchase Price hereof effective at the time of a
merger and securities received in such reorganization, if any, are publicly
traded, then this Warrant shall expire unless exercised prior to such
reorganization, consolidation, merger or sale of assets. The Company will
not effect any such reorganization, consolidation, merger or sale unless,
prior to the consummation thereof, the successor corporation (if other than
the Company) or such corporation's parent resulting from such consolidation
or the corporation purchasing such assets shall assume by written instrument,
executed and mailed or delivered 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.
(d) ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. If the Company
at any time or from time to time subsequent to the date hereof (the "ORIGINAL
ISSUE DATE") issues or sells any Additional Shares of Common Stock (as
hereinafter defined), other than as provided in the last paragraph of this
Section 3(d), for a consideration per share less than the lower of (x) the
Stock Purchase Price or (y) the Current Market Price (as defined below) per
share of Common Stock (in each case, determined as of the date specified in
the next succeeding paragraph), the Stock Purchase Price upon each such
issuance or sale shall be adjusted to the price calculated pursuant to the
following clauses (i) and (ii), as applicable, of this Section 3(d) and shall
be determined by:
(i) in the event that the consideration per share is less
than the Stock Purchase Price as of the date specified below, the Stock
Purchase Price upon each such issuance or sale shall be adjusted to the price
determined by dividing (A) an amount equal to the sum of (1) the number of
shares of Common Stock outstanding immediately prior to such issue or sale
multiplied by the Stock Purchase Price in effect as of the date specified in
the next succeeding paragraph plus (2) the aggregate consideration, if any,
received by the Company upon such issue or sale, by (B) the total number of
shares of Common Stock outstanding immediately after such issue or sale; and
(ii) in the event that the consideration per share is less
than the Current Market Price as of the date specified below, the Stock
Purchase Price upon each such issuance or
4
<PAGE>
sale shall be adjusted to the price determined by multiplying the Stock
Purchase Price in effect as of the date specified in the next succeeding
paragraph by a fraction the numerator of which is (A) the sum of (1) the
number of shares of Common Stock outstanding immediately prior to such issue
or sale multiplied by the Current Market Price per share of Common Stock
immediately prior to such issue or sale plus (2) the aggregate consideration,
if any, received by the Company upon such issue or sale, divided by (B) the
total number of shares of Common Stock outstanding immediately after such
issue or sale, and the denominator of which is the Current Market Price per
share of Common Stock immediately prior to such issue or sale.
For purposes of this Section 3(d), the date as of which the Stock
Purchase Price and Current Market Price shall be determined shall be the
earlier of (i) the date on which the Company shall enter into a firm contract
for the issuance or sale of such shares of Common Stock and (ii) the date of
actual issuance or sale of such shares of Common Stock.
For purposes of this Section 3(d), "CURRENT MARKET PRICE" means on any
particular date (i) the closing bid price per share of the Common Stock on
such date on the Nasdaq or, if the Common Stock is not then quoted on the
Nasdaq, any subsequent market on which the Common Stock is then listed or if
there is no such price on such date, then the closing bid price on such
exchange or quotation system on the date nearest preceding such date, or (ii)
if the Common Stock is not listed then on the Nasdaq or any subsequent
market, the closing bid price for a share of Common Stock in the
over-the-counter market, as reported by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions
of reporting prices) at the close of business on such date.
For purposes of this Section 3(d), "ADDITIONAL SHARES OF COMMON STOCK"
means all shares of Common Stock issued by the Company and any rights or
options for the purchase of, or stock or other securities convertible into or
exchangeable for shares of Common Stock of the Company, whether or not such
rights or options or the right to convert or exchange any such convertible
securities are immediately exercisable (the "CONVERTIBLE SECURITIES"), and
whether or not such shares or convertible securities are subsequently
reacquired or retired by the Company, other than (A) shares of Common Stock
issued upon conversion of any shares of the Company's preferred stock, (B)
Approved Issuances and (C) shares of Common Stock issued pursuant to the
exercise of options, warrants or convertible securities outstanding as of the
Original Issue Date. "APPROVED ISSUANCES" shall mean shares of Common Stock
and/or options, warrants or other Common Stock purchase rights, and the
Common Stock issued pursuant to such options, warrants or other rights after
the Original Issue Date to employees, officers or directors of, or
consultants or advisors to the Company or any subsidiary pursuant to stock
purchase or stock option plans or other arrangements that are approved by the
Board of Directors.
For the purpose of the adjustment required under this Section 3(d), if
the Company issues or sells Convertible Securities, and if the consideration
per share of the Convertible Securities is less than the lower of the Current
Market Price or the then-effective Stock Purchase Price, in each case the
Company shall be deemed to have issued at the time of the issuance of such
Convertible Securities the maximum number of Additional Shares of Common
Stock issuable upon exercise or conversion or exchange thereof and to have
received as consideration for the issuance of such shares an amount equal to
the total amount of the consideration, if any, received by the Company for
the issuance of such Convertible Securities, plus the minimum amounts of
consideration, if any, payable to the Company upon the exercise of such
Convertible Securities, plus, the minimum
5
<PAGE>
amounts of consideration, if any, payable to the Company (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities) upon the conversion thereof; PROVIDED, THAT, that if the minimum
amount of consideration payable to the Company upon the exercise or
conversion of the Convertible Securities is reduced over time or on the
occurrence or non-occurrence of specified events other than by reason of
antidilution adjustments, the consideration per share of the Convertible
Securities shall be recalculated using the figure to which such minimum
amount of consideration is reduced; PROVIDED, FURTHER, that if the minimum
amount of consideration payable to the Company upon the exercise or
conversion of such rights, options or Convertible Securities is subsequently
increased, the consideration per share of the Convertible Securities shall be
again recalculated using the increased minimum amount of consideration
payable to the Company upon the exercise or conversion of such Convertible
Securities. No further adjustment of the then-effective Stock Purchase
Price, as adjusted upon the issuance of such Convertible Securities, shall be
made as a result of the actual issuance of Additional Shares of Common Stock
on the exercise of any such rights or options or the conversion of any such
Convertible Securities. If any such rights or options or the conversion
privilege represented by any such Convertible Securities shall expire without
having been exercised, the then-effective Stock Purchase Price, as adjusted
upon the issuance of such Convertible Securities shall be readjusted to the
Stock Purchase Price which would have been in effect had an adjustment been
made on the basis that the only Additional Shares of Common Stock so issued
were the Additional Shares of Common Stock, if any, actually issued or sold
on the exercise of such rights or options or rights of conversion of such
Convertible Securities, and such Additional Shares of Common Stock, if any,
were issued or sold for the consideration actually received by the Company
upon such exercise, plus the consideration, if any, actually received by the
Company for the granting of all such rights or options, whether or not
exercised, plus the consideration received for issuing or selling the
Convertible Securities actually converted, plus the consideration, if any,
actually received by the Company (other than by cancellation of liabilities
or obligations evidenced by such Convertible Securities) on the conversion of
such Convertible Securities, PROVIDED THAT such readjustment shall not apply
to prior conversions of Preferred Stock.
No adjustment of the Stock Purchase Price shall be made under this
Section 3(d) upon the issuance of (i) any shares of capital stock which are
distributed to holders of Common Stock pursuant to a stock dividend or
subdivision for which an adjustment is provided under Section 3(a) or 3(b);
or (ii) any shares of capital stock which are issued in connection with a
capital reorganization, reclassification, consolidation, merger or sale
pursuant to Section 3(c).
(e) NOTICE OF ADJUSTMENT. Upon any adjustment of the Stock
Purchase Price or any increase or decrease in the number of shares
purchasable upon the exercise of this, the Company shall give written notice
thereof, by first class mail, postage prepaid, addressed to the registered
Holder of this Warrant at the address of such Holder as shown on the books of
the Company. The notice shall be signed by the Company's chief financial
officer and shall state the Stock Purchase Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares
purchasable at such price upon the exercise of this Warrant, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
(f) CERTAIN EVENTS. If any change in the outstanding Common Stock
of the Company or any other event occurs as to which the other provisions of
this Section 3 are not strictly applicable or if strictly applicable would
not fairly protect the purchase rights of the Holder of the Warrant in
accordance with such provisions, the Board of Directors of the Company shall
make an
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<PAGE>
adjustment in the number and class of shares available under the Warrant, the
Stock Purchase Price or the application of such provisions, so as to protect
such purchase rights as aforesaid. The adjustment shall be such as will give
the Holder of the Warrant upon exercise for the same aggregate Stock Purchase
Price the total number, class and kind of shares as they would have owned had
the Warrant been exercised prior to the event and had they continued to hold
such shares until after the event requiring adjustment.
4. ISSUE TAX. The issuance of certificates for shares of Common Stock
upon the exercise of the Warrant shall be made without charge to the Holder
of the Warrant for any issue tax (other than any applicable income taxes) in
respect thereof; PROVIDED, HOWEVER, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the
then Holder of the Warrant being exercised.
5. CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of any warrant or of any shares of Common Stock
issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.
6. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a stockholders
of the Company or any other matters or any rights whatsoever as a
stockholders of the Company. Except as otherwise provided herein, no
dividends or interest shall be payable or accrued in respect of this Warrant
or the interest represented hereby or the shares purchasable hereunder until,
and only to the extent that, this Warrant shall have been exercised. No
provision hereof in the absence of affirmative action by the Holder to
purchase shares of Common Stock, and no mere enumeration herein of the rights
or privileges of the Holder hereof, shall give rise to any liability of such
Holder for the Stock Purchase Price or as a stockholders of the Company,
whether such liability is asserted by the Company or by its creditors.
7. MARKET STAND-OFF AGREEMENT. Holder shall not sell, dispose of,
transfer, make any short sale of, grant any option for the purchase of, or
enter into any hedging or similar transaction with the same economic effect
as a sale, any Common Stock (or other securities) of the Company held by
Holder, for a period of time specified by the managing underwriter(s) (not to
exceed one hundred eighty (180) days following the effective date of a
registration statement of the Company filed under the Securities Act of 1933.
Holder agrees to execute and deliver such other agreements as may be
reasonably requested by the Company and/or the managing underwriter(s) which
are consistent with the foregoing or which are necessary to give further
effect thereto. In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to such Common Stock (or other
securities) until the end of such period.
8. ADDITIONAL RIGHTS. Upon exercise of this Warrant by execution of
the attached Notice of Exercise, the Holder of this Warrant shall become a
party to the Second Amended and Restated Investors Rights' Agreement by and
among the Company and certain investors which shall be in effect at the time
of the exercise of this Warrant (the "INVESTORS RIGHTS' AGREEMENT"), and the
Warrant Shares shall be "Registrable Securities" as such term is defined in
the Investors Rights' Agreement.
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<PAGE>
9. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and
obligations of the Company, of the Holder of this Warrant and of the Holder
of shares of Common Stock issued upon exercise of this Warrant, shall survive
the exercise of this Warrant.
10. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the Holder hereof or the Company shall
be delivered or shall be sent by certified mail, postage prepaid, to each
such holder at its address as shown on the books of the Company or to the
Company at the address indicated therefor in the first paragraph of this
Warrant or such other address as either may from time to time provide to the
other and shall be deemed to be received four days after deposit in the U.S.
Mail or two days after deposit with a nationally recognized overnight courier.
11. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets. All of the
obligations of the Company relating to the Common Stock issuable upon the
exercise of this Warrant shall survive the exercise and termination of this
Warrant. All of the covenants and agreements of the Company shall inure to
the benefit of the successors and assigns of the Holder hereof.
12. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings
of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of Colorado.
13. LOST WARRANTS. The Company represents and warrants to the Holder
hereof that upon receipt of evidence reasonably satisfactory to the Company
of the loss, theft, destruction, or mutilation of this Warrant and, in the
case of any such loss, theft or destruction, upon receipt of an indemnity
reasonably satisfactory to the Company, or in the case of any such mutilation
upon surrender and cancellation of such Warrant, the Company, at its expense,
will make and deliver a new Warrant, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant.
14. FRACTIONAL SHARES. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any
fractional share, pay the holder entitled to such fraction a sum in cash
equal to such fraction multiplied by the then effective Stock Purchase Price.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized this ___ day of
__________, 2000.
JATO COMMUNICATIONS CORP.
a Delaware Corporation
By:
----------------------------------
Gerald K. Dinsmore
President and Chief Executive Officer
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<PAGE>
NOTICE OF EXERCISE
Date: ___________________
Jato Communications Corp.
Attention: Chief Executive Officer
Ladies and Gentlemen:
/ / The undersigned hereby elects to exercise the warrant issued to it by Jato
Communications Corp. (the "COMPANY") and dated _________________, 2000,
Warrant No. WCS-__ (the "WARRANT") and to purchase thereunder
__________________________________ shares of Common Stock of the Company
(the "SHARES") at a purchase price of __________________Dollars ($________)
per Share or an aggregate purchase price of
________________________________ Dollars ($__________) (the "PURCHASE
PRICE").
/ / The undersigned hereby elects to convert _______________________ percent
(____%) of the value of the Warrant pursuant to the provisions of Section
1(c) of the Warrant.
Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
___________________________________
(name)
___________________________________
___________________________________
(address)
Pursuant to the terms of the Warrant the undersigned has delivered the
Purchase Price herewith in full in cash or by certified check or wire
transfer. The undersigned also makes the representations set forth on the
attached Investment Representation Letter.
Very truly yours,
-----------------------------------
By:
--------------------------------
Title:
-----------------------------
<PAGE>
INVESTMENT REPRESENTATION STATEMENT
TO: Jato Communications Corp.
With respect to the __________ shares of Common Stock ("SHARES") of JATO
COMMUNICATIONS CORP. ("COMPANY") which the undersigned ("PURCHASER") has
purchased from the Company today, the Purchaser hereby represents and
warrants as follows:
1. The Purchaser acknowledges that it has received no formal
prospectus or offering memorandum describing the business and operations of
the Company. It has, however, by virtue of his relationship with the Company,
been given access to all information that it believes is material to his
decision to purchase the Shares. The Purchaser has had the opportunity to
ask questions of, and receive answers from, representatives of the Company
concerning its business operations. Any questions raised by the Purchaser
have been answered to his satisfaction.
2. The Shares are being acquired by the Purchaser for its account, for
investment purposes only, and not with a view to the distribution or resale
thereof.
3. No representations or promises have been made concerning the
marketability or value of the Shares. The Purchaser understands that there
is currently no market for the transfer of the Shares. The Purchaser further
acknowledges that, because the Shares have not been registered under the
Securities Act of 1933, as amended (the "ACT"), or applicable state
securities laws, they cannot be resold unless they are subsequently
registered under the Act or applicable state securities laws, or an exemption
from registration is available, and the Purchaser must continue to bear the
economic risk of his investment in the Shares for an indefinite period of
time. Purchaser acknowledges that any transfers must be made in compliance
with the provisions of the Investors' Rights Agreement. The Company has not
agreed or represented to the Purchaser that the Shares will be purchased or
redeemed from the Purchaser at any time in the future. The Purchaser further
understands that a notation will be made on the appropriate records of the
Company and on the stock certificate representing the Shares so that the
transfers of Shares will not be effected on those records without compliance
with the restrictions referred to above.
Date: By:
------------------------ ---------------------------
Name:
-------------------------
Title:
------------------------
<PAGE>
EXHIBIT A-2
FORM OF ALTERNATIVE WARRANT
<PAGE>
No. WCS-__ _____________, 2000
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND
ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF JATO COMMUNICATIONS CORP.
(VOID AFTER [ONE YEAR FROM THE DATE OF ISSUANCE], 200_)
THIS CERTIFIES that U.S. TELESOURCE, INC. (the "HOLDER"), for value
received, is entitled to purchase from JATO COMMUNICATIONS CORP., a Delaware
corporation (the "COMPANY"), having a place of business at 1099 18th St.,
Denver, Colorado 80202, 496,031 shares (the "WARRANT SHARES") of fully paid
and nonassessable shares of Company's Common Stock (the "COMMON STOCK") at a
price of $10.08 per share (the "STOCK PURCHASE PRICE"), at any time or from
time to time beginning on the date hereof and ending on the earlier to occur
of (i) up to and including 5:00 p.m. (Colorado time) [ONE YEAR FROM THE DATE
OF ISSUANCE IF THIS WARRANT IS ISSUED PURSUANT TO AN ALTERNATIVE CLOSING AS
DEFINED IN THE STOCK PURCHASE AGREEMENT OR ONE YEAR FROM A CHANGE OF CONTROL
CLOSING DATE IF THIS WARRANT IS ISSUED PURSUANT TO A CHANGE OF CONTROL CLOSING
AS DEFINED IN THE STOCK PURCHASE AGREEMENT], 200_ or (ii) the Acquisition (as
defined below) of the Company, provided that the consideration in the
Acquisition is for cash (collectively, the "EXPIRATION DATE") upon surrender
to the Company at its principal office (or at such other location as the
Company may advise the Holder in writing) of this Warrant properly endorsed
with the Notice of Exercise and Investment Representation Statement attached
hereto duly filled in and executed and, if applicable, upon payment in cash
or by check of the aggregate Stock Purchase Price for the number of shares
for which this Warrant is being exercised determined in accordance with the
provisions hereof. The Stock Purchase Price and the number of shares
purchasable hereunder are subject to adjustment as provided in Section 3 of
this Warrant. For purposes hereof, an "Acquisition" shall mean any of the
following: (1) a sale of all or substantially all of the assets of the
Company; (2) a merger, reorganization or consolidation pursuant to which the
stockholders of the Company or its successor immediately prior to such
merger, reorganization or consolidation: (A) hold less than 50% of the voting
power of the surviving company following the merger, reorganization or
consolidation, or (B) in the event that the securities of an affiliated
entity are issued to the stockholders of the Company in the transaction in
exchange for their shares in the Company, hold less than 50% of the voting
power of such affiliated entity.
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
(a) GENERAL. This Warrant is exercisable at the option of the
Holder of record hereof, at any time or from time to time, up to the
Expiration Date for all or any part of the shares of Common Stock (but not
for a fraction of a share) which may be purchased hereunder.
(b) ISSUANCE OF CERTIFICATES. The Company agrees that the shares
of Common Stock purchased under this Warrant shall be and are deemed to be
issued to the Holder hereof as the
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<PAGE>
record owner of such shares as of the close of business on the date on which
this Warrant shall have been surrendered, properly endorsed and payment (if
any) made for such shares. Certificates for the shares of Common Stock so
purchased, together with any other securities or property to which the Holder
hereof are entitled upon such exercise, shall be delivered to the Holder
hereof by the Company at the Company's expense within a reasonable time after
the rights represented by this Warrant have been so exercised. In case of a
purchase of less than all the shares which may be purchased under this
Warrant, the Company shall cancel this Warrant and execute and deliver a new
Warrant or Warrants of like tenor for the balance of the shares purchasable
under the Warrant surrendered upon such purchase to the Holder hereof within
a reasonable time. Each stock certificate so delivered shall be in such
denominations of Common Stock as may be requested by the Holder hereof and
shall be registered in the name of such Holder or as directed by such Holder.
(c) NET ISSUE EXERCISE. Notwithstanding any provisions herein to
the contrary, if the fair market value of one share of the Company's Common
Stock is greater than the Stock Purchase Price (at the date of calculation as
set forth below), in lieu of exercising this Warrant for cash, the Holder may
elect to receive shares equal to the value (as determined below) of this
Warrant (or the portion thereof being canceled) by surrender of this Warrant
at the principal office of the Company and notice of such election in which
event the Company shall issue to the Holder a number of shares of Common
Stock computed using the following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Common Stock to be issued to the
Holder
Y = the number of shares of Common Stock purchasable under the
Warrant or, if only a portion of the Warrant is being exercised,
the portion of the Warrant being canceled (at the date of such
calculation)
A = the fair market value of one share of the Company's Common
Stock (at the date of such calculation)
B = Stock Purchase Price (as adjusted to the date of such
calculation)
For purposes of the above calculation, the fair market value of one share of
Common Stock shall be determined by the Company's Board of Directors in good
faith; PROVIDED, HOWEVER, that in the event Holder exercises this Warrant in
connection with the Company's initial public offering of its Common Stock,
the fair market value per share shall equal to the per share offering price
to the public of the Company's initial public offering; and, PROVIDED,
FURTHER, that following the Company's initial public offering of its Common
Stock, the fair market value per share shall be the average of the closing
prices quoted on any exchange or the Nasdaq Stock Market, whichever is
applicable, on which the Common Stock is listed for the ten (10) trading days
prior to the date of determination of fair market value.
2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company
covenants and agrees that all shares of Common Stock which may be issued upon
the exercise of the rights represented by this Warrant will, upon issuance,
be duly authorized, validly issued, fully paid and nonassessable and free
from all preemptive rights of any stockholders and free of all taxes, liens
and charges with respect to the issue thereof. The Company further covenants
and agrees that during
2
<PAGE>
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 or transfer upon exercise of the subscription rights
evidenced by this Warrant, a sufficient number of shares of authorized but
unissued Common Stock, or other securities and property, when and as required
to provide for the exercise of the rights represented by this Warrant. The
Company will take all such action as may be necessary to assure that such
shares of Common Stock may be issued as provided herein without violation of
any applicable law or regulation, or of any requirements of any domestic
securities exchange upon which the Common Stock may be listed.
3. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence
of certain events described in this Section 3. Upon each adjustment of the
Stock Purchase Price, the Holder of this Warrant shall thereafter be entitled
to purchase, at the Stock Purchase Price resulting from such adjustment, the
number of shares obtained by multiplying the Stock Purchase Price in effect
immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment, and dividing the
product thereof by the Stock Purchase Price resulting from such adjustment.
(a) SUBDIVISION OR COMBINATION OF STOCK. In case the Company
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares, the Stock Purchase Price in effect immediately
prior to such subdivision shall be proportionately reduced, and conversely,
in case the outstanding shares of Common Stock of the Company shall be
combined into a smaller number of shares, the Stock Purchase Price in effect
immediately prior to such combination shall be proportionately increased.
(b) DIVIDENDS IN COMMON STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. If at any time or from time to time any holder of Common
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to
receive, without payment therefor,
(i) Common Stock or any shares of stock or other securities
which are at any time directly or indirectly convertible into or exchangeable
for Common Stock, or any rights or options to subscribe for, purchase or
otherwise acquire any of the foregoing by way of dividend or other
distribution;
(ii) Any cash paid or payable otherwise than as a cash
dividend; or
(iii) Common Stock or additional stock or other securities or
property (including cash) by way of spin-off, split-up, reclassification,
combination of shares or similar corporate rearrangement (other than (a)
shares of Common Stock issued as a stock split, adjustments in respect of
which shall be covered by the terms of Section 3(a) above or (b) an event for
which adjustment is otherwise made pursuant to Section 3(c) below);
then and in each such case, the Holder hereof shall, upon the
exercise of this Warrant, be entitled to receive, in addition to the number
of shares of Common Stock receivable thereupon, and without payment of any
additional consideration therefor, the amount of stock and other securities
and property (including cash in the case referred to in clause 3(b)(ii)
above) which
3
<PAGE>
such Holder would hold on the date of such exercise had they been the holder
of record of such Common Stock as of the date on which Holder of Common Stock
received or became entitled to receive such shares or all other additional
stock and other securities and property.
(c) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE. If any capital reorganization of the capital stock of the Company, or
any 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 a holder of Common Stock shall be entitled to
receive stock, securities, or other assets or property, then, as a condition
of such reorganization, reclassification, consolidation, merger or sale,
lawful and adequate provisions shall be made whereby the Holder hereof shall
thereafter have the right to purchase and receive (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 other assets or property as may be issued or 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 PROVIDED, HOWEVER, that in the event the value of the
stock, securities or other assets or property (determined in good faith by
the Board of Directors of the Company) issuable or payable with respect to
one share of the Common Stock of the Company immediately theretofore
purchasable and receivable upon the exercise of the rights represented hereby
is in excess of the Stock Purchase Price hereof effective at the time of a
merger and securities received in such reorganization, if any, are publicly
traded, then this Warrant shall expire unless exercised prior to such
reorganization, consolidation, merger or sale of assets. The Company will
not effect any such reorganization, consolidation, merger or sale unless,
prior to the consummation thereof, the successor corporation (if other than
the Company) or such corporation's parent resulting from such consolidation
or the corporation purchasing such assets shall assume by written instrument,
executed and mailed or delivered 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.
(d) ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. If the Company
at any time or from time to time subsequent to the date hereof (the "ORIGINAL
ISSUE DATE"), issues or sells, or is deemed by the express provisions of this
Section 3(d) to have issued or sold, Additional Shares of Common Stock (as
hereinafter defined), other than as provided in subsection (d)(iv) below, for
an Effective Price (as hereinafter defined) less than the then-effective
Stock Purchase Price, then and in each such case the then-effective Stock
Purchase Price shall be reduced, but not increased as of the opening of
business on the date of such issue or sale to a price determined by
multiplying the then-effective Stock Purchase Price by a fraction (i) the
numerator of which shall be (A) the number of shares of Common Stock deemed
outstanding (as defined below) immediately prior to such issue or sale plus
(B) the number of shares of Common Stock which the aggregate consideration
received (as defined in subsection d(ii)) by the Company for the total number
of
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<PAGE>
Additional Shares of Common Stock so issued would purchase at such
then-effective Stock Purchase Price, and (ii) the denominator of which shall
be the number of shares of Common Stock deemed outstanding (as defined below)
immediately prior to such issue or sale plus the total number of Additional
Shares of Common Stock so issued. For the purposes of the preceding
sentence, the number of shares of Common Stock deemed to be outstanding as of
a given date shall be the sum of (A) the number of shares of Common Stock
actually outstanding, (B) the number of shares of Common Stock into which the
then-outstanding shares of Preferred Stock of the Company could be converted
if fully converted on the day immediately preceding the given date, and (C)
the number of shares of Common Stock which could be obtained through the
exercise or conversion of all other rights, options and convertible
securities then exercisable or convertible on the day immediately preceding
the given date.
(i) For the purpose of making any adjustment required under
this Section 3(d), the consideration received by the Company for any issue or
sale of securities shall (A) to the extent it consists of cash, be computed
at the net amount of cash received by the Company after deduction of any
underwriting or similar commissions, compensation or concessions paid or
allowed by the Company in connection with such issue or sale but without
deduction of any expenses payable by the Company, (B) to the extent it
consists of property other than cash, be computed at the fair value of that
property as determined in good faith by the Board of Directors (including a
majority of the Series B Directors (as defined in the Company's Restated
Certificate of Incorporation)), and (C) if Additional Shares of Common Stock,
Convertible Securities (as hereinafter defined or rights or options to
purchase either Additional Shares of Common Stock or Convertible Securities
are issued or sold together with other stock or securities or other assets of
the Company for a consideration which covers both, be computed as the portion
of the consideration so received that may be reasonably determined in good
faith by the Board of Directors (including a majority of the Series B
Directors) to be allocable to such Additional Shares of Common Stock,
Convertible Securities or rights or options.
(ii) For the purpose of the adjustment required under this
Section 3(d), if the Company issues or sells any rights or options for the
purchase of, or stock or other securities convertible into or exchangeable
for, Additional Shares of Common Stock (such convertible or exchangeable
stock or securities being herein referred to as "CONVERTIBLE SECURITIES")
whether or not such rights or options or the right to convert or exchange any
such convertible securities are immediately exercisable, and if the Effective
Price of such Additional Shares of Common Stock is less than the
then-effective Stock Purchase Price, in each case the Company shall be deemed
to have issued at the time of the issuance of such rights or options or
Convertible Securities the maximum number of Additional Shares of Common
Stock issuable upon exercise or conversion or exchange thereof and to have
received as consideration for the issuance of such shares an amount equal to
the total amount of the consideration, if any, received by the Company for
the issuance of such rights or options or Convertible Securities, plus, in
the case of such rights or options, the minimum amounts of consideration, if
any, payable to the Company upon the exercise of such rights or options,
plus, in the case of Convertible Securities, the minimum amounts of
consideration, if any, payable to the Company (other than by cancellation of
liabilities or obligations evidenced by such Convertible Securities) upon the
conversion thereof; PROVIDED, THAT, that if the minimum amount of
consideration payable to the Company upon the exercise or conversion of
rights, options or Convertible Securities is reduced over time or on the
occurrence or non-occurrence of specified events other than by reason of
antidilution adjustments, the Effective Price shall be recalculated using the
figure to which such minimum amount of consideration is reduced; PROVIDED,
FURTHER, that
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<PAGE>
if the minimum amount of consideration payable to the Company upon the
exercise or conversion of such rights, options or Convertible Securities is
subsequently increased, the Effective Price shall be again recalculated using
the increased minimum amount of consideration payable to the Company upon the
exercise or conversion of such rights, options or Convertible Securities. No
further adjustment of the then-effective Stock Purchase Price, as adjusted
upon the issuance of such rights, options or Convertible Securities, shall be
made as a result of the actual issuance of Additional Shares of Common Stock
on the exercise of any such rights or options or the conversion of any such
Convertible Securities. If any such rights or options or the conversion
privilege represented by any such Convertible Securities shall expire without
having been exercised, the then-effective Stock Purchase Price, as adjusted
upon the issuance of such rights, options or Convertible Securities shall be
readjusted to the Stock Purchase Price which would have been in effect had an
adjustment been made on the basis that the only Additional Shares of Common
Stock so issued were the Additional Shares of Common Stock, if any, actually
issued or sold on the exercise of such rights or options or rights of
conversion of such Convertible Securities, and such Additional Shares of
Common Stock, if any, were issued or sold for the consideration actually
received by the Company upon such exercise, plus the consideration, if any,
actually received by the Company for the granting of all such rights or
options, whether or not exercised, plus the consideration received for
issuing or selling the Convertible Securities actually converted, plus the
consideration, if any, actually received by the Company (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities) on the conversion of such Convertible Securities, PROVIDED THAT
such readjustment shall not apply to prior conversions of Preferred Stock.
(iii) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued by the Company or deemed to be issued pursuant
to this Section 3(d), whether or not subsequently reacquired or retired by
the Company other than (A) shares of Common Stock issued upon conversion of
the Company's Preferred Stock; (B) Approved Issuances; and (C) shares of
Common Stock issued pursuant to the exercise of options, warrants or
convertible securities outstanding as of the Original Issue Date. The
"EFFECTIVE PRICE" of Additional Shares of Common Stock shall mean the
quotient determined by dividing the total number of Additional Shares of
Common Stock issued or sold, or deemed to have been issued or sold by the
Company under this Section 3(d), into the aggregate consideration received,
or deemed to have been received by the Company for such issue under this
Section 3(d), for such Additional Shares of Common Stock. "APPROVED
ISSUANCES" shall mean shares of Common Stock and/or options, warrants or
other Common Stock purchase rights, and the Common Stock issued pursuant to
such options, warrants or other rights after the Original Issue Date to
employees, officers or directors of, or consultants or advisors to the
Company or any subsidiary pursuant to stock purchase or stock option plans or
other arrangements that are approved by the Board of Directors.
(iv) No adjustment of the then-effective Stock Purchase Price
shall be made under this Section 3(d) upon the issuance of any shares of
capital stock which are (i) distributed to holders of Common Stock pursuant
to a stock dividend or subdivision for which an adjustment is provided under
Sections 3(a) or 3(b) or (ii) issued in connection with a capital
reorganization, reclassification, consolidation, merger or sale pursuant to
Section 3(c).
(e) NOTICE OF ADJUSTMENT. Upon any adjustment of the Stock
Purchase Price or any increase or decrease in the number of shares
purchasable upon the exercise of this, the Company shall give written notice
thereof, by first class mail, postage prepaid, addressed to the registered
Holder of this Warrant at the address of such Holder as shown on the books of
the
6
<PAGE>
Company. The notice shall be signed by the Company's chief financial officer
and shall state the Stock Purchase Price resulting from such adjustment and
the increase or decrease, if any, in the number of shares purchasable at such
price upon the exercise of this Warrant, setting forth in reasonable detail
the method of calculation and the facts upon which such calculation is based.
(f) CERTAIN EVENTS. If any change in the outstanding Common Stock
of the Company or any other event occurs as to which the other provisions of
this Section 3 are not strictly applicable or if strictly applicable would
not fairly protect the purchase rights of the Holder of the Warrant in
accordance with such provisions, the Board of Directors of the Company shall
make an adjustment in the number and class of shares available under the
Warrant, the Stock Purchase Price or the application of such provisions, so
as to protect such purchase rights as aforesaid. The adjustment shall be
such as will give the Holder of the Warrant upon exercise for the same
aggregate Stock Purchase Price the total number, class and kind of shares as
they would have owned had the Warrant been exercised prior to the event and
had they continued to hold such shares until after the event requiring
adjustment.
4. ISSUE TAX. The issuance of certificates for shares of Common Stock
upon the exercise of the Warrant shall be made without charge to the Holder
of the Warrant for any issue tax (other than any applicable income taxes) in
respect thereof; PROVIDED, HOWEVER, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the
then Holder of the Warrant being exercised.
5. CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of any warrant or of any shares of Common Stock
issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.
6. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a stockholders
of the Company or any other matters or any rights whatsoever as a
stockholders of the Company. Except as otherwise provided herein, no
dividends or interest shall be payable or accrued in respect of this Warrant
or the interest represented hereby or the shares purchasable hereunder until,
and only to the extent that, this Warrant shall have been exercised. No
provision hereof in the absence of affirmative action by the Holder to
purchase shares of Common Stock, and no mere enumeration herein of the rights
or privileges of the Holder hereof, shall give rise to any liability of such
Holder for the Stock Purchase Price or as a stockholders of the Company,
whether such liability is asserted by the Company or by its creditors.
7. MARKET STAND-OFF AGREEMENT. Holder shall not sell, dispose of,
transfer, make any short sale of, grant any option for the purchase of, or
enter into any hedging or similar transaction with the same economic effect
as a sale, any Common Stock (or other securities) of the Company held by
Holder, for a period of time specified by the managing underwriter(s) (not to
exceed one hundred eighty (180) days following the effective date of a
registration statement of the Company filed under the Securities Act of 1933.
Holder agrees to execute and deliver such other agreements as may be
reasonably requested by the Company and/or the managing underwriter(s) which
are consistent with the foregoing or which are necessary to give further
effect thereto. In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to such Common Stock (or other
securities) until the end of such period.
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<PAGE>
8. ADDITIONAL RIGHTS. Upon exercise of this Warrant by execution of
the attached Notice of Exercise, the Holder of this Warrant shall become a
party to the Second Amended and Restated Investors Rights' Agreement by and
among the Company and certain investors which shall be in effect at the time
of the exercise of this Warrant (the "Investors Rights' Agreement"), and the
Warrant Shares shall be "Registrable Securities" as such term is defined in
the Investors Rights' Agreement.
9. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and
obligations of the Company, of the Holder of this Warrant and of the Holder
of shares of Common Stock issued upon exercise of this Warrant, shall survive
the exercise of this Warrant.
10. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the Holder hereof or the Company shall
be delivered or shall be sent by certified mail, postage prepaid, to each
such holder at its address as shown on the books of the Company or to the
Company at the address indicated therefor in the first paragraph of this
Warrant or such other address as either may from time to time provide to the
other and shall be deemed to be received four days after deposit in the U.S.
Mail or two days after deposit with a nationally recognized overnight courier.
11. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets. All of the
obligations of the Company relating to the Common Stock issuable upon the
exercise of this Warrant shall survive the exercise and termination of this
Warrant. All of the covenants and agreements of the Company shall inure to
the benefit of the successors and assigns of the Holder hereof.
12. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings
of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of Colorado.
13. LOST WARRANTS. The Company represents and warrants to the Holder
hereof that upon receipt of evidence reasonably satisfactory to the Company
of the loss, theft, destruction, or mutilation of this Warrant and, in the
case of any such loss, theft or destruction, upon receipt of an indemnity
reasonably satisfactory to the Company, or in the case of any such mutilation
upon surrender and cancellation of such Warrant, the Company, at its expense,
will make and deliver a new Warrant, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant.
14. FRACTIONAL SHARES. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any
fractional share, pay the holder entitled to such fraction a sum in cash
equal to such fraction multiplied by the then effective Stock Purchase Price.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized this ___ day of
__________, 2000.
JATO COMMUNICATIONS CORP.
a Delaware Corporation
By:
----------------------------------
Gerald K. Dinsmore
President and Chief Executive Officer
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<PAGE>
NOTICE OF EXERCISE
Date: ___________________
Jato Communications Corp.
Attention: Chief Executive Officer
Ladies and Gentlemen:
/ / The undersigned hereby elects to exercise the warrant issued to it by Jato
Communications Corp. (the "COMPANY") and dated _________________, 2000,
Warrant No. WCS-__ (the "WARRANT") and to purchase thereunder
__________________________________ shares of Common Stock of the Company
(the "SHARES") at a purchase price of __________________Dollars ($________)
per Share or an aggregate purchase price of
________________________________ Dollars ($__________) (the "PURCHASE
PRICE").
/ / The undersigned hereby elects to convert _______________________ percent
(____%) of the value of the Warrant pursuant to the provisions of Section
1(c) of the Warrant.
Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
___________________________________
(name)
___________________________________
___________________________________
(address)
Pursuant to the terms of the Warrant the undersigned has delivered the
Purchase Price herewith in full in cash or by certified check or wire
transfer. The undersigned also makes the representations set forth on the
attached Investment Representation Letter.
Very truly yours,
------------------------------
By:
---------------------------
Title:
------------------------
<PAGE>
INVESTMENT REPRESENTATION STATEMENT
TO: Jato Communications Corp.
With respect to the __________ shares of Common Stock ("SHARES") of JATO
COMMUNICATIONS CORP. ("COMPANY") which the undersigned ("PURCHASER") has
purchased from the Company today, the Purchaser hereby represents and
warrants as follows:
1. The Purchaser acknowledges that it has received no formal
prospectus or offering memorandum describing the business and operations of
the Company. It has, however, by virtue of his relationship with the Company,
been given access to all information that it believes is material to his
decision to purchase the Shares. The Purchaser has had the opportunity to
ask questions of, and receive answers from, representatives of the Company
concerning its business operations. Any questions raised by the Purchaser
have been answered to his satisfaction.
2. The Shares are being acquired by the Purchaser for its account, for
investment purposes only, and not with a view to the distribution or resale
thereof.
3. No representations or promises have been made concerning the
marketability or value of the Shares. The Purchaser understands that there
is currently no market for the transfer of the Shares. The Purchaser further
acknowledges that, because the Shares have not been registered under the
Securities Act of 1933, as amended (the "ACT"), or applicable state
securities laws, they cannot be resold unless they are subsequently
registered under the Act or applicable state securities laws, or an exemption
from registration is available, and the Purchaser must continue to bear the
economic risk of his investment in the Shares for an indefinite period of
time. Purchaser acknowledges that any transfers must be made in compliance
with the provisions of the Investors' Rights Agreement. The Company has not
agreed or represented to the Purchaser that the Shares will be purchased or
redeemed from the Purchaser at any time in the future. The Purchaser further
understands that a notation will be made on the appropriate records of the
Company and on the stock certificate representing the Shares so that the
transfers of Shares will not be effected on those records without compliance
with the restrictions referred to above.
Date: By:
------------------------ ---------------------------
Name:
-------------------------
Title:
------------------------
<PAGE>
JATO COMMUNICATIONS CORP.
2000 EQUITY INCENTIVE PLAN
ADOPTED AUGUST 10, 1998
APPROVED BY STOCKHOLDERS AUGUST 10, 1998
AMENDED APRIL 13, 1999
APPROVED BY STOCKHOLDERS APRIL 15, 1999
AMENDED SEPTEMBER 2, 1999
APPROVED BY STOCKHOLDERS OCTOBER 20, 1999
AMENDED AND RESTATED FEBRUARY 8, 2000
APPROVED BY STOCKHOLDERS ____________, 2000
TERMINATION DATE: FEBRUARY 7, 2010
1. PURPOSES.
(a) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive Stock
Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.
(b) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a means
by which eligible recipients of Stock Awards may be given an opportunity to
benefit from increases in value of the Common Stock through the granting of the
following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) stock appreciation rights, (iv) stock bonuses and (v) rights to
acquire restricted stock.
(c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain the
services of the group of persons eligible to receive Stock Awards, to secure and
retain the services of new members of this group and to provide incentives for
such persons to exert maximum efforts for the success of the Company and its
Affiliates.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation of
the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance with
subsection 3(c).
(e) "COMMON STOCK" means the common stock of the Company.
(f) "COMPANY" means JATO Communications Corp., a Delaware corporation.
<PAGE>
(g) "CONSULTANT" means any person, including an advisor, (1) engaged by the
Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (2) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors of the Company who are not compensated by the Company for their
services as Directors or Directors of the Company who are merely paid a
director's fee by the Company for their services as Directors.
(h) "CONTINUOUS SERVICE" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director of the
Company will not constitute an interruption of Continuous Service. The Board or
the chief executive officer of the Company, in that party's sole discretion, may
determine whether Continuous Service shall be considered interrupted in the case
of any leave of absence approved by that party, including sick leave, military
leave or any other personal leave.
(i) "COVERED EMPLOYEE" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to stockholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board of Directors of the Company.
(k) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or
traded on the Nasdaq National Market System or the Nasdaq SmallCap Market, the
Fair Market Value of a share of Common Stock shall be the closing sales price
for such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the Common Stock) on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.
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<PAGE>
(ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "NON-EMPLOYEE DIRECTOR" means a Director of the Company who either (i)
is not a current Employee or Officer of the Company or its parent or a
subsidiary, does not receive compensation (directly or indirectly) from the
Company or its parent or a subsidiary for services rendered as a consultant or
in any capacity other than as a Director (except for an amount as to which
disclosure would not be required under Item 404(a) of Regulation S-K promulgated
pursuant to the Securities Act ("Regulation S-K")), does not possess an interest
in any other transaction as to which disclosure would be required under Item
404(a) of Regulation S-K and is not engaged in a business relationship as to
which disclosure would be required under Item 404(b) of Regulation S-K; or (ii)
is otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(q) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.
(r) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock Option
granted pursuant to the Plan.
(t) "OPTION AGREEMENT" means a written Option Agreement and Notice of Stock
Option Grant between the Company and an Optionholder evidencing the terms and
conditions of an individual Option grant. Each Option Agreement and Grant Notice
shall be subject to the terms and conditions of the Plan.
(u) "OPTIONHOLDER" means a person to whom an Option is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding Option.
(v) "OUTSIDE DIRECTOR" means a Director of the Company who either (i) is
not a current employee of the Company or an "affiliated corporation" (within the
meaning of Treasury Regulations promulgated under Section 162(m) of the Code),
is not a former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(w) "PARTICIPANT" means a person to whom a Stock Award is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding Stock
Award.
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<PAGE>
(x) "PLAN" means this JATO Communications Corp. 2000 Equity Incentive Plan.
(y) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act or any
successor to Rule 16b-3, as in effect from time to time.
(z) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(aa) "STOCK AWARD" means any right granted under the Plan, including an
Option, a stock appreciation right, a stock bonus and a right to acquire
restricted stock.
(bb) "STOCK AWARD AGREEMENT" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(cc) "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any of its Affiliates.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board will administer the Plan unless and
until the Board delegates administration to a Committee, as provided in
subsection 3(c).
(b) POWERS OF BOARD. The board shall have the power, subject to, and within
the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; what type or combination of types of Stock Award shall be
granted; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive stock pursuant to a Stock Award; and the number of shares with respect
to which a Stock Award shall be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section 12.
(iv) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
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<PAGE>
(c) DELEGATION TO COMMITTEE.
(i) GENERAL. The Board may delegate administration of the Plan to a
Committee or Committees of one or more members of the Board, and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee any of
the administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
(ii) COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY TRADED. At
such time as the Common Stock is publicly traded, in the discretion of the
Board, a Committee may consist solely of two or more Outside Directors, in
accordance with Section 162(m) of the Code, and/or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (i) delegate to a committee of one or
more members of the Board who are not Outside Directors, the authority to grant
Stock Awards to eligible persons who are either (a) not then Covered Employees
and are not expected to be Covered Employees at the time of recognition of
income resulting from such Stock Award or (b) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the Code and/or (ii)
delegate to a committee of one or more members of the Board who are not
Non-Employee Directors the authority to grant Stock Awards to eligible persons
who are not then subject to Section 16 of the Exchange Act.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in stock, the stock that may be issued pursuant to
Stock Awards shall not exceed in the aggregate of eight million seven hundred
thousand (8,700,000) shares of Common Stock.
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full (or vested in the case of Restricted Stock), the stock
not acquired under such Stock Award shall revert to and again become available
for issuance under the Plan. Shares subject to stock appreciation rights
exercised in accordance with the Plan shall not be available for subsequent
issuance under the Plan. If any Common Stock acquired pursuant to the exercise
of an Option shall for any reason be repurchased by the Company under an
unvested share repurchase option provided under the Plan, the stock repurchased
by the Company under such repurchase option shall not revert to and again become
available for issuance under the Plan.
(c) SOURCE OF SHARES. The stock subject to the Plan may be unissued shares
or reacquired shares, bought on the market or otherwise.
5
<PAGE>
5. ELIGIBILITY.
(a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options may be
granted only to Employees. Stock Awards other than Incentive Stock Options may
be granted to Employees, Directors and Consultants.
(b) TEN PERCENT STOCKHOLDERS. No Ten Percent Stockholder shall be eligible
for the grant of an Incentive Stock Option unless the exercise price of such
Option is at least one hundred ten percent (110%) of the Fair Market Value of
the Common Stock at the date of grant and the Option is not exercisable after
the expiration of five (5) years from the date of grant.
(c) SECTION 162(m) LIMITATION. Subject to the provisions of Section 11
relating to adjustments upon changes in stock, no employee shall be eligible to
be granted Options covering more than two million five hundred thousand
(2,500,000) shares of the Common Stock during any calendar year.
(d) CONSULTANTS.
(i) A Consultant shall not be eligible for the grant of a Stock Award
if, at the time of grant, a Form S-8 Registration Statement under the Securities
Act ("Form S-8") is not available to register either the offer or the sale of
the Company's securities to such Consultant because of the nature of the
services that the Consultant is providing to the Company, or because the
Consultant is not a natural person, or as otherwise provided by the rules
governing the use of Form S-8, unless the Company determines both (i) that such
grant (A) shall be registered in another manner under the Securities Act (E.G.,
on a Form S-3 Registration Statement) or (B) does not require registration under
the Securities Act in order to comply with the requirements of the Securities
Act, if applicable, and (ii) that such grant complies with the securities laws
of all other relevant jurisdictions.
(ii) Form S-8 generally is available to consultants and advisors only
if (i) they are natural persons; (ii) they provide bona fide services to the
issuer, its parents, its majority-owned subsidiaries or majority-owned
subsidiaries of the issuer's parent; and (iii) the services are not in
connection with the offer or sale of securities in a capital-raising
transaction, and do not directly or indirectly promote or maintain a market for
the issuer's securities.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and a separate certificate or certificates will be issued for shares
purchased on exercise of each type of Option. The provisions of separate Options
need not be identical, but each Option shall include (through incorporation of
provisions hereof by reference in the Option or otherwise) the substance of each
of the following provisions:
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(a) TERM. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Incentive Stock Option shall be exercisable after the
expiration of ten (10) years from the date it was granted.
(b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the provisions
of subsection 5(b) regarding Ten Percent Stockholders, the exercise price of
each Incentive Stock Option shall be not less than one hundred percent (100%) of
the Fair Market Value of the stock subject to the Option on the date the Option
is granted. Notwithstanding the foregoing, an Incentive Stock Option may be
granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a) of the
Code.
(c) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. The exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the Fair Market Value of the stock subject to the Option on the date the
Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock Option
may be granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a) of the
Code.
(d) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) by delivery to the
Company of other Common Stock, according to a deferred payment or other
arrangement (which may include, without limiting the generality of the
foregoing, the use of other Common Stock) with the Participant or in any other
form of legal consideration that may be acceptable to the Board; provided,
however, that at any time that the Company is incorporated in Delaware, payment
of the Common Stock's "par value," as defined in the Delaware General
Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock Option
shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing provisions of this
subsection 6(e), the Optionholder may, by delivering written notice to the
Company, in a form satisfactory to the Company, designate a third party who, in
the event of the death of the Optionholder, shall thereafter be entitled to
exercise the Option.
(f) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory Stock
Option shall be transferable to the extent provided in the Option Agreement. If
the Nonstatutory Stock Option does not provide for transferability, then the
Nonstatutory Stock Option shall not be
7
<PAGE>
transferable except by will or by the laws of descent and distribution and shall
be exercisable during the lifetime of the Optionholder only by the Optionholder.
Notwithstanding the foregoing provisions of this subsection 6(f), the
Optionholder may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the Option.
(g) VESTING GENERALLY. The total number of shares of Common Stock subject
to an Option may, but need not, vest and therefore become exercisable in
periodic installments which may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares as to which an Option may be exercised.
(h) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise it as of the date of termination) but
only within such period of time ending on the earlier of (i) the date three (3)
months following the termination of the Optionholder's Continuous Service (or
such longer or shorter period specified in the Option Agreement), or (ii) the
expiration of the term of the Option as set forth in the Option Agreement. If,
after termination, the Optionholder does not exercise his or her Option within
the time specified in the Option Agreement, the Option shall terminate.
(i) EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionholder's Continuous Service (other than upon the Optionholder's death or
Disability) would be prohibited at any time solely because the issuance of
shares would violate the registration requirements under the Securities Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in subsection 6(a) or (ii) the expiration of a period of
three (3) months after the termination of the Optionholder's Continuous Service
during which the exercise of the Option would not be in violation of such
registration requirements.
(j) DISABILITY OF OPTIONHOLDER. In the event that an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise such Option as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement) or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, after termination, the Optionholder does not
exercise his or her Option within the time specified herein, the Option shall
terminate.
(k) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the period (if any) specified in the Option Agreement
after the termination of the Optionholder's Continuous Service for a reason
other than death, then the Option may be exercised (to the extent
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<PAGE>
the Optionholder was entitled to exercise such Option as of the date of death)
by the Optionholder's estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
Option upon the Optionholder's death pursuant to subsection 6(e) or 6(f), but
only within the period ending on the earlier of (1) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement) or (2) the expiration of the term of such Option as set
forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.
(l) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares subject to the Option prior to the full vesting of the Option. Any
unvested shares so purchased may be subject to an unvested share repurchase
option in favor of the Company or to any other restriction the Board determines
to be appropriate. The Company will not exercise its repurchase option until at
least six (6) months (or such longer or shorter period of time required to avoid
a charge to earnings for financial accounting purposes) have elapsed following
exercise of the Option unless the Board otherwise specifically provides in the
Option.
(m) RE-LOAD OPTIONS. Without in any way limiting the authority of the Board
to make or not to make grants of Options hereunder, the Board shall have the
authority (but not an obligation) to include as part of any Option Agreement a
provision entitling the Optionholder to a further Option (a "Re-Load Option") in
the event the Optionholder exercises the Option evidenced by the Option
Agreement, in whole or in part, by surrendering other shares of Common Stock in
accordance with this Plan and the terms and conditions of the Option Agreement.
Any such Re-Load Option shall (i) provide for a number of shares equal to the
number of shares surrendered as part or all of the exercise price of such
Option; (ii) have an expiration date which is the same as the expiration date of
the Option the exercise of which gave rise to such Re-Load Option; and (iii)
have an exercise price which is equal to one hundred percent (100%) of the Fair
Market Value of the Common Stock subject to the Re-Load Option on the date of
exercise of the original Option. Notwithstanding the foregoing, a Re-Load Option
shall be subject to the same exercise price and term provisions heretofore
described for Options under the Plan.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollars ($100,000) annual limitation on exercisability of Incentive Stock
Options described in subsection 10(d) and in Section 422(d) of the Code. There
shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall
be subject to the availability of sufficient shares under subsection 4(a) and
the "Section 162(m) Limitation" on the grants of Options under subsection 5(c)
and shall be subject to such other terms and conditions as the Board may
determine which are not inconsistent with the express provisions of the Plan
regarding the terms of Options.
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<PAGE>
7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.
(a) STOCK BONUS AWARDS. Each stock bonus agreement shall be in such form
and shall contain such terms and conditions as the Board shall deem appropriate.
The terms and conditions of stock bonus agreements may change from time to time,
and the terms and conditions of separate stock bonus agreements need not be
identical, but each stock bonus agreement shall include (through incorporation
of provisions hereof by reference in the agreement or otherwise) the substance
of each of the following provisions:
(i) CONSIDERATION. A stock bonus shall be awarded in consideration
for past services actually rendered to the Company for its benefit.
(ii) VESTING. Shares of Common Stock awarded under the stock bonus
agreement may, but need not, be subject to a share repurchase option in favor of
the Company in accordance with a vesting schedule to be determined by the Board.
(iii) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the event a
Participant's Continuous Service terminates, the Company may reacquire any or
all of the shares of Common Stock held by the Participant which have not vested
as of the date of termination under the terms of the stock bonus agreement.
(iv) TRANSFERABILITY. Rights to acquire shares under the stock bonus
agreement shall be transferable by the Participant only upon such terms and
conditions as are set forth in the stock bonus agreement, as the Board shall
determine in its discretion, so long as stock awarded under the stock bonus
agreement remains subject to the terms of the stock bonus agreement.
(b) RESTRICTED STOCK AWARDS. Each restricted stock purchase agreement shall
be in such form and shall contain such terms and conditions as the Board shall
deem appropriate. The terms and conditions of the restricted stock purchase
agreements may change from time to time, and the terms and conditions of
separate restricted stock purchase agreements need not be identical, but each
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions:
(i) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board shall determine and
designate in such restricted stock purchase agreement. The purchase price shall
not be less than eighty-five percent (85%) of the stock's Fair Market Value on
the date such award is made or at the time the purchase is consummated.
(ii) CONSIDERATION. The purchase price of stock acquired pursuant to
the restricted stock purchase agreement shall be paid either: (i) in cash at the
time of purchase; (ii) at the discretion of the Board, according to a deferred
payment or other arrangement with the Participant; or (iii) in any other form of
legal consideration that may be acceptable to the Board in its discretion;
provided, however, that at any time that the Company is incorporated in
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<PAGE>
Delaware, payment of the Common Stock's "par value," as defined in the Delaware
General Corporation Law, shall not be made by deferred payment.
(iii) VESTING. Shares of Common Stock acquired under the restricted
stock purchase agreement may, but need not, be subject to a share repurchase
option in favor of the Company in accordance with a vesting schedule to be
determined by the Board.
(iv) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the event a
Participant's Continuous Service terminates, the Company may repurchase or
otherwise reacquire any or all of the shares of Common Stock held by the
Participant which have not vested as of the date of termination under the terms
of the restricted stock purchase agreement.
(v) TRANSFERABILITY. Rights to acquire shares under the restricted
stock purchase agreement shall be transferable by the Participant only upon such
terms and conditions as are set forth in the restricted stock purchase
agreement, as the Board shall determine in its discretion, so long as stock
awarded under the restricted stock purchase agreement remains subject to the
terms of the restricted stock purchase agreement.
(c) STOCK APPRECIATION RIGHTS.
(i) AUTHORIZED RIGHTS. The following three types of stock
appreciation rights shall be authorized for issuance under the Plan:
(1) TANDEM RIGHTS. A "Tandem Right" means a stock appreciation
right granted appurtenant to an Option which is subject to the same terms and
conditions applicable to the particular Option grant to which it pertains with
the following exceptions: The Tandem Right shall require the holder to elect
between the exercise of the underlying Option for shares of Common Stock and the
surrender, in whole or in part, of such Option for an appreciation distribution.
The appreciation distribution payable on the exercised the Tandem Right shall be
in cash (or, if so provided, in an equivalent number of shares of Common Stock
based on Fair Market Value on the date of the Option surrender) in an amount up
to the excess of (A) the Fair Market Value (on the date of the Option surrender)
of the number of shares of Common Stock covered by that portion of the
surrendered Option in which the Optionholder is vested over (B) the aggregate
exercise price payable for such vested shares.
(2) CONCURRENT RIGHTS. A "Concurrent Right" means a stock
appreciation right granted appurtenant to an Option which applies to all or a
portion of the shares of Common Stock subject to the underlying Option and which
is subject to the same terms and conditions applicable to the particular Option
grant to which it pertains with the following exceptions: A Concurrent Right
shall be exercised automatically at the same time the underlying Option is
exercised with respect to the particular shares of Common Stock to which the
Concurrent Right pertains. The appreciation distribution payable on an exercised
Concurrent Right shall be in cash (or, if so provided, in an equivalent number
of shares of Common Stock based on Fair Market Value on the date of the exercise
of the Concurrent Right) in an amount equal to such portion as determined by the
Board at the time of the grant of the excess of (A) the aggregate Fair Market
Value (on the date of the exercise of the Concurrent Right) of the vested
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<PAGE>
shares of Common Stock purchased -under the underlying Option which have
Concurrent Rights appurtenant to them over (B) the aggregate exercise price paid
for such shares.
(3) INDEPENDENT RIGHTS. An "Independent Right" means a stock
appreciation right granted independently of any Option but which is subject to
the same terms and conditions applicable to a Nonstatutory Stock Option with the
following exceptions: An Independent Right shall be denominated in share
equivalents. The appreciation distribution payable on the exercised Independent
Right shall be not greater than an amount equal to the excess of (a) the
aggregate Fair Market Value (on the date of the exercise of the Independent
Right) of a number of shares of Company stock equal to the number of share
equivalents in which the holder is vested under such Independent Right, and with
respect to which the holder is exercising the Independent Right on such date,
over (b) the aggregate Fair Market Value (on the date of the grant of the
Independent Right) of such number of shares of Company stock. The appreciation
distribution payable on the exercised Independent Right shall be in cash or, if
so provided, in an equivalent number of shares of Common Stock based on Fair
Market Value on the date of the exercise of the Independent Right.
(ii) RELATIONSHIP TO OPTIONS. Stock appreciation rights appurtenant to
Incentive Stock Options may be granted only to Employees. The "Section 162(m)
Limitation" provided in subsection 5(c) and any authority to reprice Options
shall apply as well to the grant of stock appreciation rights.
(iii) EXERCISE. To exercise any outstanding stock appreciation right,
the holder shall provide written notice of exercise to the Company in compliance
with the provisions of the Stock Award Agreement evidencing such right. Except
as provided in subsection 5(c) regarding the "Section 162(m) Limitation," no
limitation shall exist on the aggregate amount of cash payments that the Company
may make under the Plan in connection with the exercise of a stock appreciation
right.
8. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such authority
as may be required to grant Stock Awards and to issue and sell shares of Common
Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any stock issued or issuable pursuant to any such
Stock Award. If, after reasonable efforts, the Company is unable to obtain from
any such regulatory commission or agency the authority which counsel for the
Company deems necessary for the lawful issuance and sale of stock under the
Plan, the Company shall be relieved from any liability for failure to issue and
sell stock upon exercise of such Stock Awards unless and until such authority is
obtained.
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<PAGE>
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
10. MISCELLANEOUS.
(a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the
power to accelerate the time at which a Stock Award may first be exercised or
the time during which a Stock Award or any part thereof will vest in accordance
with the Plan, notwithstanding the provisions in the Stock Award stating the
time at which it may first be exercised or the time during which it will vest.
(b) STOCKHOLDER RIGHTS. No Participant shall be deemed to be the holder of,
or to have any of the rights of a holder with respect to, any shares subject to
such Stock Award unless and until such Participant has satisfied all
requirements for exercise of the Stock Award pursuant to its terms.
(c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant or other holder of Stock Awards any right to continue to serve
the Company or an Affiliate in the capacity in effect at the time the Stock
Award was granted or shall affect the right of the Company or an Affiliate to
terminate (i) the employment of an Employee with or without notice and with or
without cause, (ii) the service of a Consultant pursuant to the terms of such
Consultant's agreement with the Company or an Affiliate or (iii) the service of
a Director pursuant to the Bylaws of the Company or an Affiliate, and any
applicable provisions of the corporate law of the state in which the Company or
the Affiliate is incorporated, as the case may be.
(d) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of stock with
respect to which Incentive Stock Options are exercisable for the first time by
any Optionholder during any calendar year (under all plans of the Company and
its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof which exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.
(e) INVESTMENT ASSURANCES. The Company may require a Participant, as a
condition of exercising or acquiring stock under any Stock Award, (i) to give
written assurances satisfactory to the Company as to the Participant's knowledge
and experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Stock Award; and (ii) to give written assurances
satisfactory to the Company stating that the Participant is acquiring the stock
subject to the Stock Award for the Participant's own account and not with any
present intention of selling or otherwise distributing the stock. The foregoing
requirements, and any assurances given pursuant to such requirements,
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<PAGE>
shall be inoperative if (iii) the issuance of the shares upon the exercise or
acquisition of stock under the Stock Award has been registered under a then
currently effective registration statement under the Securities Act or (iv) as
to any particular requirement, a determination is made by counsel for the
Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.
(f) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a Stock
Award Agreement, the Participant may satisfy any federal, state or local tax
withholding obligation relating to the exercise or acquisition of stock under a
Stock Award by any of the following means (in addition to the Company's right to
withhold from any compensation paid to the Participant by the Company) or by a
combination of such means: (i) tendering a cash payment; (ii) authorizing the
Company to withhold shares from the shares of the Common Stock otherwise
issuable to the participant as a result of the exercise or acquisition of stock
under the Stock Award; or (iii) delivering to the Company owned and unencumbered
shares of the Common Stock.
(g) CANCELLATION AND RE-GRANT OF OPTIONS.
(i) AUTHORITY TO REPRICE. The Board shall have the authority to
effect, at any time and from time to time, (i) the repricing of any outstanding
Options under the Plan and/or (ii) with the consent of any adversely affected
holders of Options, the cancellation of any outstanding Options under the Plan
and the grant in substitution therefor of new Options under the Plan covering
the same or different numbers of shares of Common Stock. The exercise price per
share shall be not less than that specified under the Plan for newly granted
Stock Awards. Notwithstanding the foregoing, the Board may grant an Option with
an exercise price lower than that set forth above if such Option is granted as
part of a transaction to which Section 424(a) of the Code applies.
(ii) EFFECT OF REPRICING UNDER SECTION 162(m) OF THE CODE. Shares
subject to an Option which is amended or canceled in order to set a lower
exercise price per share shall continue to be counted against the maximum award
of Options permitted to be granted pursuant to subsection 5(c). The repricing of
an Option under this subsection 10(i) resulting in a reduction of the exercise
price shall be deemed to be a cancellation of the original Option and the grant
of a substitute Option; in the event of such repricing, both the original and
the substituted Options shall be counted against the maximum awards of Options
permitted to be granted pursuant to subsection 5(c). The provisions of this
subsection 10(i)(b) shall be applicable only to the extent required by Section
162(m) of the Code.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the stock subject
to the Plan, or subject to any Stock Award, without the receipt of consideration
by the Company (through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend,
14
<PAGE>
dividend in property other than cash, stock split, liquidating dividend,
combination of shares, exchange of shares, change in corporate structure or
other transaction not involving the receipt of consideration by the Company),
the Plan will be appropriately adjusted in the class(es) and maximum number of
securities subject to the Plan pursuant to subsection 4(a) and the maximum
number of securities subject to award to any person pursuant to subsection 5(c),
and the outstanding Stock Awards will be appropriately adjusted in the class(es)
and number of securities and price per share of stock subject to such
outstanding Stock Awards. Such adjustments shall be made by the Board, the
determination of which shall be final, binding and conclusive. (The conversion
of any convertible securities of the Company shall not be treated as a
transaction "without receipt of consideration" by the Company.)
(b) CHANGE IN CONTROL--DISSOLUTION OR LIQUIDATION. In the event of a
dissolution or liquidation of the Company, then such Stock Awards shall be
terminated if not exercised (if applicable) prior to such event.
(c) CHANGE IN CONTROL--ASSET SALE, MERGER, CONSOLIDATION OR REVERSE MERGER.
In the event of (1) a sale of substantially all of the assets of the Company,
(2) a merger or consolidation in which the Company is not the surviving
corporation, (3) a reverse merger in which the Company is the surviving
corporation but the shares of Common Stock outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise, or (4) an acquisition by any person,
entity or group within the meaning of Section 13(d) or 14(d) of the Exchange
Act, or any comparable successor provisions (excluding any employee benefit
plan, or related trust, sponsored or maintained by the Company or an Affiliate)
of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors then any surviving corporation or acquiring
corporation shall assume any Stock Awards outstanding under the Plan or shall
substitute similar stock awards (including an award to acquire the same
consideration paid to the stockholders in the transaction described in this
subsection 11(c) for those outstanding under the Plan). In the event any
surviving corporation or acquiring corporation refuses to assume such Stock
Awards or to substitute similar stock awards for those outstanding under the
Plan, then with respect to Stock Awards held by Participants whose Continuous
Service has not terminated, the vesting of such Stock Awards (and, if
applicable, the time during which such Stock Awards may be exercised) shall be
accelerated in full, and the Stock Awards shall terminate if not exercised (if
applicable) at or prior to such event. With respect to any other Stock Awards
outstanding under the Plan, such Stock Awards shall terminate if not exercised
(if applicable) prior to such event.
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.
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<PAGE>
(b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit any
other amendment to the Plan for stockholder approval, including, but not limited
to, amendments to the Plan intended to satisfy the requirements of Section
162(m) of the Code and the regulations thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
(c) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or advisable to
provide eligible Employees with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(d) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Participant and (ii) the Participant
consents in writing.
(e) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the Participant and
(ii) the Participant consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the amendment and restatement of the Plan is
adopted by the Board or approved by the stockholders of the Company, whichever
is earlier. No Stock Awards may be granted under the Plan while the Plan is
suspended or after it is terminated.
(b) NO IMPAIRMENT OF RIGHTS. Rights and obligations under any Stock Award
granted while the Plan is in effect shall not be impaired by suspension or
termination of the Plan, except with the written consent of the Participant.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Award shall be exercised (or, in the case of a stock bonus, shall be granted)
unless and until the Plan has been approved by the stockholders of the Company,
which approval shall be within twelve (12) months before or after the date the
Plan is adopted by the Board.
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JATO COMMUNICATIONS CORP.
STOCK OPTION GRANT NOTICE
(2000 EQUITY INCENTIVE PLAN)
JATO COMMUNICATIONS CORP. (the "Company"), pursuant to its 2000 Equity Incentive
Plan (the "Plan"), hereby grants to Optionee an option to purchase the number of
shares of the Company's common stock set forth below. This option is subject to
all of the terms and conditions as set forth herein and in Attachments I, II,
and III, which are incorporated herein in their entirety.
Optionee:
---------------------------------
Date of Grant:
---------------------------------
Vesting Commencement Date:
---------------------------------
Shares Subject to Option:
---------------------------------
Exercise Price Per Share:
---------------------------------
Expiration Date:
---------------------------------
Incentive Stock Option
-----
Nonstatutory Stock Option
-----
VESTING SCHEDULE: 25% vested on the one year anniversary of the Vesting
Commencement Date;
1/48th vests on each monthly anniversary thereafter.
PAYMENT: Any combination of the following: (i) by cash or check [or (ii) by
promissory note, as set forth in the Stock Option Agreement.]
ADDITIONAL TERMS/ACKNOWLEDGEMENTS: The undersigned Optionee acknowledges
receipt of, and understands and agrees to, this Grant Notice, the Stock Option
Agreement and the Plan. Optionee further acknowledges that as of the Date of
Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the
entire understanding between Optionee and the Company regarding the acquisition
of stock in the Company and supersede all prior oral and written agreements on
that subject with the exception of (i) options previously granted and delivered
to Optionee under the Plan, and (ii) the following agreements only:
OTHER AGREEMENTS:
-----------------------------------------
-----------------------------------------
-----------------------------------------
JATO COMMUNICATIONS CORP. OPTIONEE:
By:
--------------------------------------------- ---------------------------
Signature
Title:
------------------------------------------
Date: Date:
------------------------------------------- ---------------------------
Attachment I: Stock Option Agreement
Attachment II: 2000 Equity Incentive Plan
Attachment III: Notice of Exercise
<PAGE>
JATO COMMUNICATIONS CORP.
STOCK OPTION AGREEMENT
Pursuant to the Grant Notice and this Stock Option Agreement, JATO
Communications Corp. (the "Company") has granted you an option to purchase the
number of shares of the Company's common stock ("Common Stock") indicated in the
Grant Notice at the exercise price indicated in the Grant Notice.
Your option is granted in connection with and in furtherance of the
Company's compensatory benefit plan for the Company's employees (including
officers), directors or consultants, and is intended to comply with the
provisions of Rule 701 promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act"). Defined
terms not explicitly defined in this Stock Option Agreement but defined in the
2000 Equity Incentive Plan (the "Plan") shall have the same definitions as in
the Plan.
The details of your option are as follows:
1. VESTING. Subject to the limitations contained herein, your
option will vest as provided in the Grant Notice, provided that vesting will
cease upon the termination of your Continuous Service.
2. METHOD OF PAYMENT. Payment of the exercise price by cash or
check is due in full upon exercise of all or any part of your option, provided
that you may elect, to the extent permitted by applicable law and the Grant
Notice, to make payment of the exercise price under one of the following
alternatives:
(a) Payment pursuant to a program developed under Regulation T
as promulgated by the Federal Reserve Board which, prior to the issuance of
Common Stock, results in either the receipt of cash (or check) by the Company or
the receipt of irrevocable instructions to pay the aggregate exercise price to
the Company from the sales proceeds; and
(b) Provided that at the time of exercise the Company's Common
Stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of already-owned shares of Common Stock, held for the period
required to avoid a charge to the Company's reported earnings, and owned free
and clear of any liens, claims, encumbrances or security interests, which Common
Stock shall be valued at its fair market value on the date of exercise.
3. EXERCISE PRIOR TO VESTING. If permitted in the Grant Notice,
and subject to the provisions of your option contained herein, you may elect, at
any time that is BOTH (i) during your Continuous Service and (ii) during your
option's term, to exercise all or part of your option, including the nonvested
portion of your option; PROVIDED, HOWEVER, that:
(a) a partial exercise of your option shall be deemed to cover
first vested shares and then the earliest vesting installment of unvested
shares;
1
<PAGE>
(b) any shares so purchased from installments which have not
vested as of the date of exercise shall be subject to the purchase option in
favor of the Company as described in the Company's form of Early Exercise Stock
Purchase Agreement;
(c) you shall enter into the Company's form of Early Exercise
Stock Purchase Agreement with a vesting schedule that will result in the same
vesting as if no early exercise had occurred; and
(d) your option shall not be exercisable with respect to any
unvested installment to the extent such exercise would cause the aggregate fair
market value of any shares subject to incentive stock options granted you by the
Company (valued as of their grant date) which would become exercisable for the
first time during any calendar year to exceed $100,000.
4. WHOLE SHARES. Your option may only be exercised for whole
shares.
5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the
contrary contained herein, your option may not be exercised unless the shares
issuable upon exercise of your option are then registered under the Securities
Act or, if such shares are not then so registered, the Company has determined
that such exercise and issuance would be exempt from the registration
requirements of the Securities Act.
6. TERM. The term of your option commences on the date of grant
and expires upon the earliest of:
(i) the Expiration Date indicated in the Grant Notice;
(ii) the tenth (10th) anniversary of the Date of
Grant;
(iii) eighteen (18) months after your death, if you die
during, or within three (3) months after the termination of your Continuous
Service; or
(iv) twelve (12) months after the termination of your
Continuous Service due to disability; or
(v) three (3) months after the termination of your
Continuous Service for any other reason, provided that if: (a) during any part
of such three (3) month period the option is not exercisable solely because of
the condition set forth in paragraph 5 (Securities Law Compliance), in which
event the option shall not expire until the earlier of the Expiration Date or
until it shall have been exercisable for an aggregate period of three (3) months
after the termination of Continuous Service, and (b) exercise of the option
within three (3) months after termination of your Continuous Service would
result in liability under section 16(b) of the Securities Exchange Act of 1934
(the "Exchange Act"), the option will expire on the earliest of (i) the
Expiration Date, (ii) the tenth (10th) day after the last date upon which
exercise would result in such liability or (iii) six (6) months and ten (10)
days after the termination of your Continuous Service.
To obtain the federal income tax advantages associated with an
"incentive stock option," the Code requires that at all times beginning on the
date of grant of the option and
2
<PAGE>
ending on the day three (3) months before the date of the option's exercise, you
must be an employee of the Company or an Affiliate of the Company, except in the
event of your death or permanent and total disability. The Company has provided
for continued vesting or extended exercisability of your option under certain
circumstances for your benefit, but cannot guarantee that your option will
necessarily be treated as an "incentive stock option" if you provide services to
the Company or an Affiliate of the Company as a consultant or if you exercise
your option more than three (3) months after the date your employment with the
Company terminates.
7. EXERCISE.
(a) You may exercise the vested portion of your option during
its term (and the unvested portion of your option if the Grant Notice so
permits) by delivering a notice of exercise (in a form designated by the
Company) together with the exercise price to the Secretary of the Company, or to
such other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.
(b) By exercising your option you agree that:
(i) as a condition to any exercise of your option, the
Company may require you to enter an arrangement providing for the payment by you
to the Company of any tax withholding obligation of the Company arising by
reason of (1) the exercise of your option; (2) the lapse of any substantial risk
of forfeiture to which the shares are subject at the time of exercise; or (3)
the disposition of shares acquired upon such exercise;
(ii) you will notify the Company in writing within fifteen
(15) days after the date of any disposition of any of the shares of the Common
Stock issued upon exercise of an incentive stock option that occurs within two
(2) years after the date of your option grant or within one (1) year after such
shares of Common Stock are transferred upon exercise of your option; and
(iii) the Company (or a representative of the
underwriters) may, in connection with the first underwritten registration of the
offering of any securities of the Company under the Act, require that you not
sell, dispose of, transfer, make any short sale of, grant any option for the
purchase of, or enter into any hedging or similar transaction with the same
economic effect as a sale, any shares of Common Stock or other securities of the
Company held by you, for a period of time specified by the underwriter(s) (not
to exceed one hundred eighty (180) days) following the effective date of the
registration statement of the Company filed under the Act. You further agree to
execute and deliver such other agreements as may be reasonably requested by the
Company and/or the underwriter(s) which are consistent with the foregoing or
which are necessary to give further effect thereto. In order to enforce the
foregoing covenant, the Company may impose stop-transfer instructions with
respect to your Common Stock until the end of such period.
(iv) the shares of Common Stock issued upon the exercise
shall be subject to the terms of a Stockholders Agreement, which you agree to
execute and be bound by in connection with your exercise.
3
<PAGE>
8. TRANSFERABILITY. Your option is not transferable, except by
will or by the laws of descent and distribution, and is exercisable during your
life only by you. Notwithstanding the foregoing, by delivering written notice to
the Company, in a form satisfactory to the Company, you may designate a third
party who, in the event of your death, shall thereafter be entitled to exercise
your option.
9. OPTION NOT A SERVICE CONTRACT. Your option is not an
employment contract and nothing in your option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company, or of the Company to continue your employment with the Company. In
addition, nothing in your option shall obligate the Company, or any Affiliate of
the Company, or their respective stockholders, Board of Directors, officers or
employees to continue any relationship which you might have as a Director or
Consultant for the Company.
10. NOTICES. Any notices provided for in your option or the Plan
shall be given in writing and shall be deemed effectively given upon receipt or,
in the case of notices delivered by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the last
address you provided to the Company.
11. GOVERNING PLAN DOCUMENT. Your option is subject to all the
provisions of the Plan, the provisions of which are hereby made a part of your
option, including without limitation the provisions of the Plan relating to
option provisions, and is further subject to all interpretations, amendments,
rules and regulations which may from time to time be promulgated and adopted
pursuant to the Plan. In the event of any conflict between the provisions of
your option and those of the Plan, the provisions of the Plan shall control.
4
<PAGE>
NOTICE OF EXERCISE
Jato Communications Corp.
Date of Exercise:
---------------
Ladies and Gentlemen:
This constitutes notice under my stock option that I elect to purchase
the number of shares for the price set forth below.
Type of option (check one): Incentive / / Nonstatutory / /
Stock option dated:
---------------
Number of shares as
to which option is
exercised:
---------------
Certificates to be
issued in name of:
---------------
Total exercise price: $
--------------
Cash payment delivered
herewith: $
--------------
By this exercise, I agree (i) to provide such additional documents as
you may require pursuant to the terms of the 2000 Equity Incentive Plan, (ii) to
provide for the payment by me to you (in the manner designated by you) of your
withholding obligation, if any, relating to the exercise of this option, and
(iii) if this exercise relates to an incentive stock option, to notify you in
writing within fifteen (15) days after the date of any disposition of any of the
shares of Common Stock issued upon exercise of this option that occurs within
two (2) years after the date of grant of this option or within one (1) year
after such shares of Common Stock are issued upon exercise of this option.
I further agree that, if required by the Company (or a representative
of the underwriters) in connection with the first underwritten registration of
the offering of any securities of the Company under the Securities Act, I will
not sell or otherwise transfer or dispose of any shares of Common Stock or other
securities of the Company during such period (not to exceed one hundred eighty
(180) days) following the effective date of the registration statement of the
Company filed under the Securities Act as may be requested by the Company or the
representative of the underwriters. I further agree that the Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such period.
Very truly yours,
-----------------------------------
1.
<PAGE>
- -------------------------------------------------------------------------------
JATO COMMUNICATIONS CORP.
SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
January 20, 2000
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 Amendment and Restatement of the Prior Agreement. . . . . . . .1
1.2 Definitions.. . . . . . . . . . . . . . . . . . . . . . . . . .1
2. RESTRICTIONS ON TRANSFER. . . . . . . . . . . . . . . . . . . . . . .4
2.1 Restrictions on Transfer. . . . . . . . . . . . . . . . . . . .4
2.2 "Market Stand Off" Agreement. . . . . . . . . . . . . . . . . .6
3. REGISTRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
3.1 Demand Registration.. . . . . . . . . . . . . . . . . . . . . .6
3.2 Piggyback Registrations.. . . . . . . . . . . . . . . . . . . .8
3.3 Form S-3 Registration.. . . . . . . . . . . . . . . . . . . . .9
3.4 Registration Expenses.. . . . . . . . . . . . . . . . . . . . 10
3.5 Obligations of the Company. . . . . . . . . . . . . . . . . . 10
3.6 Termination of Registration Rights. . . . . . . . . . . . . . 11
3.7 Furnish Information.. . . . . . . . . . . . . . . . . . . . . 11
3.8 Delay of Registration.. . . . . . . . . . . . . . . . . . . . 11
3.9 Assignment of Registration Rights.. . . . . . . . . . . . . . 11
3.10 Amendment or Waiver of Registration Rights. . . . . . . . . . 12
3.11 Limitation on Subsequent Registration Rights... . . . . . . . 12
3.12 Indemnification.. . . . . . . . . . . . . . . . . . . . . . . 12
3.13 Rule 144 Reporting. . . . . . . . . . . . . . . . . . . . . . 14
4. COVENANTS OF THE COMPANY. . . . . . . . . . . . . . . . . . . . . . 15
4.1 Basic Financial Information and Reporting.. . . . . . . . . . 15
4.2 Inspection Rights.. . . . . . . . . . . . . . . . . . . . . . 16
4.3 Confidentiality of Records. . . . . . . . . . . . . . . . . . 16
4.4 Reservation of Common Stock.. . . . . . . . . . . . . . . . . 16
4.5 SEC Compliance. . . . . . . . . . . . . . . . . . . . . . . . 16
4.6 Meetings of the Board of Directors. . . . . . . . . . . . . . 16
4.7 Committees. . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.8 Corporate Existence, Licenses and Permits; Maintenance of
Properties. . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.9 Board of Directors Approval . . . . . . . . . . . . . . . . . 17
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TABLE OF CONTENTS
(CONTINUED)
<CAPTION>
PAGE
<S> <C>
4.10 SBIC Regulatory Provisions. . . . . . . . . . . . . . . . . . 18
4.11 Board Observer. . . . . . . . . . . . . . . . . . . . . . . . 18
4.12 Qualified Small Business. . . . . . . . . . . . . . . . . . . 19
4.13 Termination of Covenants. . . . . . . . . . . . . . . . . . . 19
5. PREEMPTIVE RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.1 Subsequent Offerings. . . . . . . . . . . . . . . . . . . . . 19
5.2 Exercise of Rights. . . . . . . . . . . . . . . . . . . . . . 19
5.3 Issuance of Equity Securities to Major Investors. . . . . . . 20
5.4 Termination of Preemptive Rights. . . . . . . . . . . . . . . 20
5.5 Transfer of Preemptive Rights.. . . . . . . . . . . . . . . . 20
5.6 Excluded Securities.. . . . . . . . . . . . . . . . . . . . . 20
6. RIGHT OF FIRST REFUSAL ON FOUNDER TRANSFERS . . . . . . . . . . . . 21
6.1 Right of First Refusal on Founder Transfers.. . . . . . . . . 21
6.2 Exercise of Rights. . . . . . . . . . . . . . . . . . . . . . 21
6.3 Issuance of Equity Securities to the Non-Selling Founders.. . 21
6.4 Issuance of Equity Securities to the Series B Holders . . . . 21
6.5 Issuance of Equity Securities to the Company. . . . . . . . . 22
6.6 No Participation. . . . . . . . . . . . . . . . . . . . . . . 22
6.7 Termination of Right of First Refusal.. . . . . . . . . . . . 22
6.8 Exempt Securities.. . . . . . . . . . . . . . . . . . . . . . 22
7. RIGHT OF FIRST REFUSAL ON TRANSFERS BY SERIES A HOLDERS . . . . . . 23
7.1 Right of First Refusal on Series A Transfers. . . . . . . . . 23
7.2 Right of First Refusal on Transfers by Series A Holders.. . . 23
7.3 Company's Right to Purchase.. . . . . . . . . . . . . . . . . 23
7.4 Series A Holders' Right to Purchase.. . . . . . . . . . . . . 23
7.5 Series B Holders' Right to Purchase . . . . . . . . . . . . . 24
7.6 Sale of Shares. . . . . . . . . . . . . . . . . . . . . . . . 24
7.7 Termination of Right of First Refusal.. . . . . . . . . . . . 24
7.8 Exempt Transfers. . . . . . . . . . . . . . . . . . . . . . . 24
8. VOTING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
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TABLE OF CONTENTS
(CONTINUED)
<CAPTION>
PAGE
<S> <C>
8.1 Voting. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.2 Election of Directors.. . . . . . . . . . . . . . . . . . . . 25
8.3 Vacancies.. . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.4 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9. CO-SALE RIGHT.. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.1 Sales by Stockholders.. . . . . . . . . . . . . . . . . . . . 25
9.2 Exempt Transfers. . . . . . . . . . . . . . . . . . . . . . . 27
9.3 Termination of Co-Sale Rights.. . . . . . . . . . . . . . . . 27
9.4 Prohibited Transfers. . . . . . . . . . . . . . . . . . . . . 27
10. APPROVED SALE.. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.1 Voting of Shares. . . . . . . . . . . . . . . . . . . . . . . 28
10.2 Drag-Along Provision. . . . . . . . . . . . . . . . . . . . . 28
10.3 Forced Sale.. . . . . . . . . . . . . . . . . . . . . . . . . 28
10.4 No Objections.. . . . . . . . . . . . . . . . . . . . . . . . 29
11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
11.1 Governing Law.. . . . . . . . . . . . . . . . . . . . . . . . 29
11.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . . 29
11.3 Severability. . . . . . . . . . . . . . . . . . . . . . . . . 29
11.4 Subsequent Investors. . . . . . . . . . . . . . . . . . . . . 29
11.5 Amendment and Waiver. . . . . . . . . . . . . . . . . . . . . 29
11.6 Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . 30
11.7 Attorneys' Fees.. . . . . . . . . . . . . . . . . . . . . . . 30
11.8 Injunctive Relief.. . . . . . . . . . . . . . . . . . . . . . 30
11.9 Titles and Subtitles. . . . . . . . . . . . . . . . . . . . . 30
11.10 Complete Agreement. . . . . . . . . . . . . . . . . . . . . . 30
11.11 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
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<PAGE>
JATO COMMUNICATIONS CORP.
SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
This SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (the
"AGREEMENT") is entered into as of the 20th day of January, 2000, by and
among JATO COMMUNICATIONS CORP., a Delaware corporation (the "COMPANY"),
certain holders of the Company's Common Stock set forth on EXHIBIT A hereto
(each, a "FOUNDER," and, collectively, the "FOUNDERS"), the holders of the
Company's Series A Preferred Stock (the "SERIES A STOCK") set forth on
EXHIBIT A hereto, the holders of the Company's Series B Preferred Stock (the
"SERIES B STOCK") set forth on EXHIBIT A hereto, the holders of the Company's
Series C Preferred Stock (the "SERIES C STOCK") set forth on EXHIBIT A
hereto, and the holders of the Company's Series D Preferred Stock (the
"SERIES D STOCK") set forth on EXHIBIT A hereto. The Founders, the Series A
Holders, the Series B Holders, the Series C Holders and the Series D Holders
shall be referred to hereinafter as the "INVESTORS" and each individually as
an "INVESTOR."
WHEREAS, the Company has granted registration rights, information
rights, preemptive rights and certain other rights pursuant to that certain
Amended and Restated Investors' Rights Agreement, by and among the Company,
the Founders, the Series A Holders, the Series B Holders and the Series C
Holders, dated as of September 16, 1999, as amended by the First Amendment to
the Amended and Restated Investors' Rights Agreement, dated as of December
22, 1999 (the "PRIOR AGREEMENT");
WHEREAS, the Company proposes to sell and issue shares of its Series D
Stock pursuant to those certain Series D Preferred Stock Purchase Agreements
(the "PURCHASE AGREEMENTS"); and
WHEREAS, as a condition of entering into the Purchase Agreements, the
prospective purchasers have requested that the Company extend to them
registration rights, information rights and other rights as set forth below,
and the Company and the parties to the Prior Agreement are willing to amend
the rights given to them pursuant to such agreements by replacing such rights
in their entirety with the rights set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement and the Purchase Agreements, the parties mutually agree as follows:
1. GENERAL
1.1 AMENDMENT AND RESTATEMENT OF THE PRIOR AGREEMENT.
(a) The undersigned parties who constitute the parties
necessary to amend the Prior Agreement hereby agree that, effective upon the
date hereof, the Prior Agreement is null and void and superseded by the
rights and obligations set forth in this Agreement.
<PAGE>
1.2 DEFINITIONS.
(a) "COMMON STOCK" shall mean the common stock, $.01 par value
per share, of the Company.
(b) "EQUITY SECURITIES" shall mean (i) any Common Stock,
Preferred Stock or other security of the Company, (ii) any security
convertible into any Common Stock, Preferred Stock or other security
(including any option to purchase such a convertible security), (iii) any
security carrying any warrant or right to subscribe to or purchase any Common
Stock, Preferred Stock or other security or (iv) any such warrant or right.
(c) "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended.
(d) "FORM S-3" means such form under the Securities Act as
in effect on the date hereof or any successor registration form under the
Securities Act subsequently adopted by the SEC which permits inclusion or
incorporation of substantial information by reference to other documents
filed by the Company with the SEC.
(e) "HOLDER" means any Investor owning of record Registrable
Securities that have not been sold to the public or any assignee of record of
such Registrable Securities in accordance with Section 3.9 hereof.
(f) "INITIAL OFFERING" shall mean the Company's first firm
commitment underwritten public offering of its Common Stock registered under
the Securities Act.
(g) "PREFERRED STOCK" shall mean the preferred stock, $.01
par value per share, of the Company.
(h) "QUALIFIED PUBLIC OFFERING" shall mean a firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act covering the offer and sale of Common Stock for the
account of the Company in which (i) the per share price is at least equal to
the "Target Multiple" (as hereinafter defined) multiplied by the
then-effective Series B Conversion Price (the "SERIES B CONVERSION PRICE"),
determined in accordance with the Company's Restated Certificate of
Incorporation, as filed with the Secretary of State of the State of Delaware
(the "THRESHOLD PRICE"), (ii) the gross cash proceeds to the Company (before
underwriting discounts, commissions and fees) are at least $30,000,000 and
(iii) the shares of Common Stock are listed on any national securities
exchange or have been registered under Section 12(g) of the Exchange Act. As
used herein, "TARGET MULTIPLE" shall mean (A) an amount equal to the product
of 2.5 prior to the third anniversary of the date hereof and (B) an amount
equal to 3.5 on or after the third anniversary of the date hereof.
(i) The terms "REGISTER," "REGISTERED," and "REGISTRATION"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and the declaration or
ordering of effectiveness of such registration statement or document.
2
<PAGE>
(j) The term "REGISTRABLE SECURITIES" shall mean (a) Common
Stock held by the Founders, (b) Common Stock of the Company issued or
issuable upon conversion of the Shares, (c) any Common Stock of the Company
issued as (or issuable upon the conversion or exercise of any warrant, right
or other security which is issued as) a dividend or other distribution with
respect to, or in exchange for or in replacement of, the Common Stock or
Shares referred to in clause (b) above and (d) any Common Stock of the
Company issued to U.S. Telesource, Inc. pursuant to the Stock Purchase
Agreement, dated as of February 9, 2000 (the "Telesource Purchase Agreement")
by and between the Company and U.S. Telesource, Inc. and any Common Stock of
the Company issued or issuable upon the exercise of that certain warrant
issued to U. S. Telesource, Inc. pursuant to the Telesource Purchase
Agreement as set forth on Exhibit A thereto. Notwithstanding the foregoing,
Registrable Securities shall not include any securities sold by a person to
the public either pursuant to a registration statement or Rule 144 or sold in
a private transaction in which the transferor's rights under Section 3 of
this Agreement with respect to such registration rights are not assigned.
(k) "REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the
number of shares determined by calculating the total number of shares of the
Company's Common Stock that are Registrable Securities and either (i) are
then issued and outstanding or (ii) are issuable pursuant to then exercisable
or convertible securities.
(l) "REGISTRATION EXPENSES" shall mean all expenses incident
to the Company's performance of or compliance with its obligations under
Section 3 hereof, including without limitation, all Commission, NASD and
stock exchange or NASDAQ registration and filing fees and expenses, fees and
expenses of compliance with applicable state securities or "blue sky" laws
(including, without limitation, reasonable fees and disbursements of counsel
for the underwriters in connection with "blue sky" qualifications of the
Registrable Securities), printing expenses, messenger and delivery expenses,
the fees and expenses incurred in connection with the listing of the
securities to be registered in an initial public offering on each securities
exchange or national market system on which such securities are to be so
listed and, following such initial public offering, the fees and expenses
incurred in connection with the listing of such securities to be registered
on each securities exchange or national market system on which such
securities are listed, fees and disbursements of counsel for the Company and
all independent certified public accountants (including the expenses of any
annual audit and "cold comfort" letters required by or incident to such
performance and compliance), the fees and disbursements of underwriters
customarily paid by issuers or sellers of securities (including the fees and
expenses of any "qualified independent underwriter" required by the NASD),
the reasonable fees of one counsel retained in connection with each such
registration by the holders of a majority of the Registrable Securities being
registered, not to exceed $20,000, the reasonable fees and expenses of any
special experts retained by the Company in connection with such registration,
and fees and expenses of other Persons retained by the Company (but not
including any underwriting discounts or commission or transfer taxes, if any,
attributable to the sale of Registrable Securities by holders of such
Registrable Securities other than the Company).
(m) "RULE 144" shall mean Rule 144 of the rules and
regulations promulgated under the Securities Act.
(n) "SEC" means the Securities and Exchange Commission.
3
<PAGE>
(o) "SECURITIES ACT" shall mean the Securities Act of 1933,
as amended.
(p) "SELLING EXPENSES" shall mean all underwriting discounts
and selling commissions applicable to the sale of Registrable Securities.
(q) "SERIES A HOLDERS" shall mean the holders of the
Company's Series A Preferred Stock.
(r) "SERIES B HOLDERS" shall mean the holders of the
Company's Series B Stock.
(s) "SERIES C HOLDERS" shall mean the holders of the
Company's Series C Stock.
(t) "SERIES D HOLDERS" shall mean the holders of the
Company's Series D Stock.
(u) "SERIES A SHARES" shall mean all shares of capital stock
of the Company registered in the names of the Series A Holders or
beneficially owned by them as of the date hereof and any and all other
securities of the Company legally acquired by the Series A Holders after the
date hereof (including but not limited to all shares of Common Stock issued
upon conversion of, or as dividends or other rights with respect to, the
Series A Stock).
(v) "SERIES B SHARES" shall mean all shares of capital stock
of the Company registered in the names of the Series B Holders or
beneficially owned by them as of the date hereof and any and all other
securities of the Company legally acquired by the Series B Holders after the
date hereof (including but not limited to all shares of Common Stock issued
upon conversion of, or as dividends or other rights with respect to, the
Series B Stock).
(w) "SERIES C SHARES" shall mean all shares of capital stock
of the Company registered in the names of the Series C Holders or
beneficially owned by them as of the date hereof and any and all other
securities of the Company legally acquired by the Series C Holders after the
date hereof (including but not limited to all shares of Common Stock issued
upon conversion of, or as dividends or other rights with respect to, the
Series C Stock).
(x) "SERIES D SHARES" shall mean all shares of capital stock
of the Company registered in the names of the Series D Holders or
beneficially owned by them as of the date hereof and any and all other
securities of the Company legally acquired by the Series D Holders after the
date hereof (including but not limited to all shares of Common Stock issued
upon conversion of, or as dividends or other rights with respect to, the
Series D Stock).
(y) "STOCKHOLDERS" shall mean the Founders and the Series A
Holders.
(z) "STOCKHOLDER SHARES" shall mean all shares of capital
stock of the Company registered in the names of the Founders and the Series A
Holders or beneficially owned by them as of the date hereof and any and all
other securities of the Company legally acquired by the Founders and Series A
Holders after the date hereof.
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(aa) "SHARES" shall mean the Company's (i) Common Stock held
by the Founders; (ii) the Series A Stock issued pursuant to the Series A
Preferred Stock Purchase Agreement, dated as of October 23, 1998; (iii) the
Series B Stock issued pursuant to the Series B Stock Purchase Agreement,
dated as of April 16, 1999; (iv) the Series C Stock issued pursuant to the
Series C Stock Purchase Agreement, dated as of September 16, 1999, as
amended; (v) the Series D Stock issued pursuant to the Purchase Agreements;
and (vi) any such shares held by a transferee to the extent such transferee
shall become a party to this Agreement.
2. RESTRICTIONS ON TRANSFER.
2.1 RESTRICTIONS ON TRANSFER.
(a) Each Holder agrees not to make any disposition of all or
any portion of the Shares or Registrable Securities unless and until the
transferee has agreed in writing for the benefit of the Company to be bound
by this Section 2.1 unless and until:
(i) There is then in effect a registration statement
under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration statement; or
(ii) (A) Such Holder shall have notified the Company
of the proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed disposition
and (B) if reasonably requested by the Company, such Holder shall have
furnished the Company with an opinion of counsel, reasonably satisfactory to
the Company, that such disposition will not require registration of such
shares under the Securities Act or any applicable state securities or Blue
Sky laws. It is agreed that the Company will not require opinions of counsel
for transactions made pursuant to Rule 144 except in unusual circumstances.
(iii) Notwithstanding the provisions of paragraphs (i)
and (ii) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by a Holder which is (A) a partnership to any or all
of its partners or former partners, (B) a corporation to its stockholders in
accordance with their interest in the corporation, (C) a limited liability
company to its members or former members in accordance with their membership
interest, (D) by a trust to its beneficiaries in accordance with their
interests in the trust, (E) to the Holder's family member or trust for the
benefit of an individual Holder or (F) to an affiliate of the Holder;
PROVIDED, THAT, the transferee will be subject to the terms of this Agreement
to the same extent as if he were an original Holder hereunder; and PROVIDED,
FURTHER, HOWEVER, that such transfer is pursuant to an exemption under the
Securities Act.
PROVIDED, HOWEVER, that in connection with any such transfer or disposition
other than as described in paragraph (i) above, the transferee shall have
agreed in writing to be bound by the provisions of the Agreement.
(b) Each certificate representing Shares or Registrable
Securities shall (unless otherwise permitted by the provisions of the
Agreement) be stamped or otherwise imprinted with a legend substantially
similar to the following (in addition to any legend required under applicable
state securities laws or as provided elsewhere in this Agreement):
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FIRST LEGEND:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS AND UNTIL REGISTERED
UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED.
SECOND LEGEND:
THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE SECOND AMENDED
AND RESTATED INVESTORS' RIGHTS AGREEMENT, DATED JANUARY 20, 2000,
COPIES OF WHICH ARE ON FILE AT THE OFFICE OF THE ISSUER.
(c) The Company shall reissue promptly unlegended
certificates at the request of any holder thereof if the holder shall have
obtained an opinion of counsel (which counsel may be counsel to the Company)
reasonably acceptable to the Company to the effect that the securities
proposed to be disposed of may lawfully be so disposed of without
registration, qualification or legend.
(d) Any legend endorsed on an instrument pursuant to
applicable state securities laws and the stop-transfer instructions with
respect to such securities shall be removed upon receipt by the Company of an
order of the appropriate blue sky authority authorizing such removal.
2.2 "MARKET STAND OFF" AGREEMENT. Each Holder hereby agrees that
during the one hundred eighty (180) day period following the effective date
of a registration statement of the Company filed under the Securities Act, it
shall not, to the extent requested by the Company and the managing
underwriter, sell or otherwise transfer or dispose of (other than to donees
who agree to be similarly bound) any Common Stock of the Company held by it
at any time during such period except Common Stock included in such
registration; PROVIDED, THAT, all officers and directors of the Company enter
into similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such one hundred eighty (180) day
period.
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3. REGISTRATION
3.1 DEMAND REGISTRATION.
(a) Subject to the conditions of this Section 3.1, if the
Company shall receive a written request from either (i) the holders of more
than forty percent (40%) of the Stockholder Shares or share equivalents then
outstanding (the "SERIES A INITIATING HOLDERS"), or (ii) the holders of at
least fifty-one percent (51%) of the Series B Shares or share equivalents
then outstanding (the "SERIES B INITIATING HOLDERS" and, together with the
Series A Initiating Holders, the "INITIATING HOLDERS") that the Company file
a registration statement under the Securities Act covering the registration
of, Registrable Securities having an aggregate offering price to the public
of at least $10,000,000, then the Company shall, within thirty (30) days of
the receipt thereof, give written notice of such request to all Holders, and
subject to the limitations of this Section 3.1, use its best efforts to
effect, as soon as practicable, the registration under the Securities Act of
all Registrable Securities that the Holders request to be registered.
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 3.1 requesting inclusion in such registration and the Company
shall include such information in the written notice referred to in Section
3.1(a). In such event, the right of any Holder to include its Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed
by a majority in interest of the Initiating Holders and such Holder) to the
extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by a majority in interest of the Initiating Holders (which
underwriter or underwriters shall be reasonably acceptable to the Company).
Notwithstanding any other provision of this Section 3.1, if the underwriter
advises the Company that marketing factors require a limitation of the number
of securities to be underwritten (including Registrable Securities) then the
Company shall so advise all Holders of Registrable Securities which would
otherwise be underwritten pursuant hereto, and the number of shares that may
be included in the underwriting shall be allocated to the Holders of such
Registrable Securities requesting inclusion in such registration on a pro
rata basis based on the number of Registrable Securities held by all such
Holders (including Initiating Holders); PROVIDED, HOWEVER, that if the
Initiating Holders are the Series B Initiating Holders, any shares proposed
to be included by the Series B Holders shall be included in such registration
before any such allocation takes place. Any Registrable Securities excluded
or withdrawn from such underwriting shall be withdrawn from the registration.
(c) The Company shall not be required to effect a
registration pursuant to this Section 3.1:
(i) prior to the earlier of (A) one hundred eighty
(180) days following the effectiveness of the Company's Initial Offering and
(B) the third anniversary of the date hereof; or
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(ii) with respect to the Series A Initiating Holders,
after the Company has filed two (2) registration statements pursuant to this
Section 3.1, and: (A) such registration has been declared or ordered
effective; or (B) the request for such registration has been subsequently
withdrawn by the Series A Initiating Holders, unless the withdrawal is based
upon material adverse information concerning the Company of which the Series
A Initiating Holders were not aware at the time of such request; or (C) such
registration includes at least eighty percent (80%) of the Registrable
Securities of which the holders of Common Stock and Series A Holders have
requested registration pursuant to Section 3.1(a); or
(iii) with respect to the Series B Initiating Holders,
after the Company has filed two (2) registration statements pursuant to this
Section 3.1, and: (A) such registration has been declared or ordered
effective; or (B) the request for such registration has been subsequently
withdrawn by the Series B Initiating Holders, unless the withdrawal is based
upon material adverse information concerning the Company of which the Series
B Initiating Holders were not aware at the time of such request; or (C) such
registration includes at least eighty percent (80%) of the Registrable
Securities of which the Series B Holders have requested registration pursuant
to Section 3.1(a); or
(iv) if such registration is the first registration
requested pursuant to this Section 3.1 and the Initiating Holders do not
include holders of a majority of the Series B Shares then outstanding; or
(v) if within thirty (30) days of receipt of a
written request from Initiating Holders pursuant to Section 3.1(a), the
Company gives notice to the Holders of the Company's intention to make an
Initial Offering within ninety (90) days and proceeds diligently and in good
faith to see that such Initial Offering be declared effective; PROVIDED,
HOWEVER, that this clause (v) shall not affect any request by Initiating
Holdings in accordance with clause (i)(B) above; or
(vi) if the Company shall furnish to Holders
requesting a registration statement pursuant to this Section 3.1, a
certificate signed by the Chairman of the Board (or, if there is no Chairman,
a majority of the Board of Directors) stating that in the good faith judgment
of the Board of Directors of the Company, it would be seriously detrimental
to the Company and its stockholders for such registration statement to be
effected at such time, in which event the Company shall have the right to
defer such filing for a period of not more than ninety (90) days after
receipt of the request of the Initiating Holders; PROVIDED, THAT, the right
to delay a request shall be exercised by the Company not more than once in
any twelve (12) month period.
3.2 PIGGYBACK REGISTRATIONS. The Company shall notify all Holders
of Registrable Securities in writing at least thirty (30) days prior to the
filing of any registration statement under the Securities Act for purposes of
a public offering of securities of the Company (including, but not limited
to, registration statements relating to secondary offerings of securities of
the Company and to offerings of securities of the Company initiated by any
party exercising its demand registration rights, but excluding registration
statements relating to employee benefit plans and corporate reorganizations
or other transactions under Rule 145 of the Securities Act) and will afford
each such Holder an opportunity to include in such registration statement all
or
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part of such Registrable Securities held by such Holder. Each Holder
desiring to include in any such registration statement all or any part of the
Registrable Securities held by it shall, within fifteen (15) days after
receipt of the above-described notice from the Company, so notify the Company
in writing. Such notice shall state the intended method of disposition of
the Registrable Securities by such Holder. If a Holder decides not to
include all of its Registrable Securities in any registration statement
thereafter filed by the Company, such Holder shall nevertheless continue to
have the right to include any Registrable Securities in any subsequent
registration statement or registration statements as may be filed by the
Company with respect to offerings of its securities, all upon the terms and
conditions set forth herein.
If the registration statement under which the Company gives notice
under this Section 3.2 is for an underwritten offering, the Company shall so
advise the Holders of Registrable Securities. In such event, the right of
any such Holder to be included in a registration pursuant to this Section 3.2
shall be conditioned upon such Holder's participation in such underwriting
and the inclusion of such Holder's Registrable Securities in the underwriting
to the extent provided herein. All Holders proposing to distribute their
Registrable Securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any other
provision of this Agreement, if the underwriter determines in good faith that
the inclusion of such shares will materially and adversely affect the
marketing of the offering, the number of shares that may be included in the
underwriting shall be allocated as follows: (i) first, to the Company, (ii)
second, to the Holders on a pro rata basis based on the total number of
Registrable Securities held by the Holders and (iii) third, to any
stockholder of the Company (other than a Holder) on a pro rata basis. No
such reduction shall (i) reduce the securities being offered by the Company
for its own account to be included in the registration and underwriting or
(ii) reduce the amount of securities of the selling Holders included in the
registration below twenty-five percent (25%) of the total amount of
securities included in such registration, unless such offering is the Initial
Offering and such registration does not include shares of any other selling
stockholders, in which event any or all of the Registrable Securities of the
Holders may be excluded in accordance with the immediately preceding
sentence. In no event will shares of any other selling stockholder be
included in such registration which would reduce the number of shares which
may be included by the Holders. The Company shall have the right to
terminate or withdraw any registration initiated by it under this Section 3.2
prior to the effectiveness of such registration whether or not any Holder has
elected to include securities in such registration. The Registration
Expenses of such withdrawn registration shall be borne by the Company in
accordance with Section 3.4 hereof.
3.3 FORM S-3 REGISTRATION. In case the Company shall receive a
written request from the Holders of more than twenty-five percent (25%) of
the Registrable Securities then outstanding that the Company effect a
registration on Form S-3 (or any successor to Form S-3) or any similar
short-form registration statement and any related qualification or compliance
with respect to all or a part of the Registrable Securities owned by such
Holder or Holders, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other
Holders of Registrable Securities; and
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(b) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder
or Holders joining in such request as are specified in a written request
given within fifteen (15) days after receipt of such written notice from the
Company; PROVIDED, HOWEVER, that the Company shall not be obligated to
effect any such registration, qualification or compliance pursuant to this
Section 3.3:
(i) if the Company has already effected two (2)
registrations on Form S-3 for such Holders pursuant to this Section 3.3 in
any calendar year and such registration includes at least fifty percent (50%)
of the Registrable Securities of which the Holders have requested
registration pursuant to Section 3.3; or
(ii) if such registration is the first registration
requested pursuant to this Section 3.3 and the holders requesting
registration do not include holders of a majority of the Series B Shares,
Series C Shares and Series D Shares, taken together, then outstanding;
(iii) if Form S-3 (or any successor or similar form) is
not available for such offering by the Holders; or
(iv) if such Holders, together with the holders of any
other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at
an aggregate price to the public of less than $5,000,000; or
(v) if the Company shall furnish to the Holders a
certificate signed by the Chairman of the Board of Directors of the Company
(or, if there is no Chairman, a majority of the Board of Directors) stating
that, in the good faith judgment of the Board of Directors of the Company, it
would be seriously detrimental to the Company and its stockholders for such
Form S-3 Registration to be effected at such time, in which event the Company
shall have the right to defer the filing of the Form S-3 registration
statement for a period of not more than ninety (90) days after receipt of the
request of the Holder or Holders under this Section 3.3; PROVIDED, THAT, the
right to delay a request shall be exercised by the Company not more than once
in any twelve (12) month period, or
(vi) in any particular jurisdiction in which the
Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification
or compliance.
(c) Subject to the foregoing, the Company shall file a Form
S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt
of the request or requests of the Holders.
3.4 REGISTRATION EXPENSES. The Company shall bear all Registration
Expenses, except that each participating Holder shall bear its proportionate
share of all Selling Expenses. The Company shall not, however, be required
to pay for expenses of any registration proceeding begun pursuant to Sections
3.1 or 3.3, the request of which has been subsequently withdrawn by the
Holders, unless the withdrawal is based upon material adverse information
concerning the
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Company of which the Holders initiating the registration request were not
aware at the time of such request. If the Holders are required to pay their
Registration Expenses, such expenses shall be borne by the holders of
securities (including Registrable Securities) requesting such registration in
proportion to the number of shares for which registration was requested.
3.5 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective and keep such registration
statement effective for up to ninety (90) days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition of
all securities covered by such registration statement.
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities
or Blue Sky laws of such jurisdictions as shall be reasonably requested by
the Holders, PROVIDED, THAT, the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter(s) of such offering. Each
Holder participating in such underwriting shall also enter into and perform
its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by
such registration statement, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary
to make the statements therein not misleading or incomplete in the light of
the circumstances then existing.
3.6 TERMINATION OF REGISTRATION RIGHTS. All registration rights
granted under this Section 3 shall terminate and be of no further force and
effect five (5) years after the Company has completed its Initial Offering.
In addition, the right of any Holder to request inclusion of Registrable
Securities in any registration pursuant to this Section 3 shall terminate (i)
twelve (12) months following the date on which all Registrable Securities
held by and issuable to such Holder (and its affiliates, partners and former
partners) may be sold under Rule 144 during any ninety (90) day period and
(ii) when the Company has completed its Initial Offering and is subject to
the provisions of the Exchange Act.
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3.7 FURNISH INFORMATION.
(a) It shall be a condition precedent to the obligations of
the Company to take any action pursuant to this Section 3 that the selling
Holders shall furnish to the Company such information regarding themselves,
the Registrable Securities held by them and the intended method of
disposition of such securities as shall be required to effect the
registration of their Registrable Securities.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 3.1 or 3.3 if, due to the
operation of subsection 3.1(b), the anticipated aggregate offering price of
the Registrable Securities to be included in the registration does not equal
or exceed the number of shares or the anticipated aggregate offering price
required to originally trigger the Company's obligation to initiate such
registration as specified in Section 3.1 or 3.3, whichever is applicable.
3.8 DELAY OF REGISTRATION. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect
to the interpretation or implementation of this Section 3.
3.9 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 3 may be
assigned by a Holder to a transferee or assignee of Registrable Securities
which (a) is a subsidiary, parent, general partner, limited partner, retired
partner, member, retired member, affiliate or trust beneficiary of a Holder,
(b) is a Holder's family member or trust for the benefit of an individual
Holder or (c) acquires at least sixty-six thousand six hundred sixty-six
(66,666) shares of Registrable Securities (as adjusted for stock dividends,
stock splits and combinations); PROVIDED, HOWEVER, (A) the transferor shall,
within ten (10) days after such transfer, furnish to the Company written
notice of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being assigned
and (B) such transferee shall agree to be subject to all restrictions set
forth in this Agreement.
3.10 AMENDMENT OR WAIVER OF REGISTRATION RIGHTS. Any provision of
this Section 3 may be amended and the observance thereof may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and (a) the
holders of a majority of the Series B Shares, Series C Shares and Series D
Shares, taken together, or share equivalents then outstanding with respect to
Section 3.3 only, (b) the holders of a majority of the Series B Shares or
share equivalents then outstanding with respect to all other provisions of
this Section 3, and (c) the holders of a majority of the Stockholder Shares
then outstanding. Any amendment or waiver effected in accordance with this
Section 3.10 shall be binding upon each Holder and the Company. By
acceptance of any benefits under this Agreement, Holders of Registrable
Securities hereby agree to be bound by the provisions hereunder.
3.11 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. After the date
of this Agreement, the Company shall not, without the prior written consent
of the holders of at least fifty-one percent (51%) of the Series B Shares or
share equivalents then outstanding, enter into any agreement with any holder
or prospective holder of any securities of the Company that
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would grant such holder registration rights senior (as to time of exercise,
includability in any underwritten offering in connection with an
underwriters' cutback or in any other respect) to those granted to the
Holders hereunder.
3.12 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Sections 3.1, 3.2 or 3.3:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners, officers, directors
and legal counsel of each Holder, any underwriter (as defined in the
Securities Act) for such Holder and each person, if any, who controls such
Holder or underwriter within the meaning of the Securities Act or the
Exchange Act, against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Securities Act, the
Exchange Act or other federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "VIOLATION") by the Company: (i) any untrue statement or
alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or
alleged omission to state therein a material fact required to be stated
therein, or necessary to make the statements therein not misleading, or (iii)
any violation or alleged violation by the Company of the Securities Act, the
Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law in
connection with the offering covered by such registration statement; and the
Company will reimburse each such Holder, partner, officer or director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; PROVIDED, HOWEVER, that the Company shall
not be liable in any such case for any such loss, claim, damage, liability or
action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by such Holder,
partner, officer, director, underwriter or controlling person of such Holder.
(b) To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities as
to which such registration qualifications or compliance is being effected,
indemnify and hold harmless the Company, each of its directors, its officers,
and legal counsel and each person, if any, who controls the Company within
the meaning of the Securities Act, any underwriter and any other Holder
selling securities under such registration statement or any of such other
Holder's partners, directors or officers or any person who controls such
Holder, against any losses, claims, damages or liabilities (joint or several)
to which the Company or any such director, officer, controlling person,
underwriter or other such Holder, or partner, director, officer or
controlling person of such other Holder may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar as
such losses, claims, damages or liabilities (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Holder under an
instrument duly executed by such Holder and stated to be specifically for use
in connection with such registration; and each such Holder will reimburse any
legal or other expenses reasonably incurred by the Company or any such
director, officer, controlling person,
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underwriter or other Holder, or partner, officer, director or controlling
person of such other Holder in connection with investigating or defending any
such loss, claim, damage, liability or action if it is judicially determined
that there was such a Violation; PROVIDED, HOWEVER, that the indemnity
agreement contained in this Section 3.12(b) shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided further, that in no event shall any
indemnity under this Section 3.12(b) exceed the net proceeds from the
offering received by such Holder.
(c) Promptly after receipt by an indemnified party under
this Section 3.12 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 3.12,
deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in,
and, to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party; PROVIDED, HOWEVER,
that an indemnified party shall have the right to retain its own counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or reasonably likely
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party to the extent of
any liability to the indemnified party under this Section 3.12 caused by such
failure, but the omission to so deliver written notice to the indemnifying
party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 3.12.
(d) If the indemnification provided for in this Section 3.12
is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any losses, claims, damages or liabilities
referred to herein, the indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall to the extent permitted by applicable law
contribute to the amount paid or payable by such indemnified party as a
result of such loss, claim, damage or liability 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
Violation(s) that resulted in such loss, claim, damage or liability, as well
as any other relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be determined by a
court of law by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the indemnifying party or by
the indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission;
PROVIDED, THAT, in no event shall any contribution by a Holder hereunder
exceed the proceeds from the offering received by such Holder.
(e) The obligations of the Company and Holders under this
Section 3.12 shall survive completion of any offering of Registrable
Securities in a registration statement. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement which
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does not include as an unconditional term thereof the giving by the claimant
or plaintiff to such Indemnified Party of a release from all liability in
respect to such claim or litigation.
3.13 RULE 144 REPORTING. With a view to making available to the
Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those
terms are understood and defined in SEC Rule 144 or any similar or analogous
rule promulgated under the Securities Act, at all times after the effective
date of the first registration under the Securities Act filed by the Company
for an offering of its securities to the general public.
(b) File with the SEC, in a timely manner, all reports and
other documents required of the Company under the Securities Act and the
Exchange Act;
(c) So long as a Holder owns any Registrable Securities,
furnish to such Holder forthwith upon request: a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144
of the Securities Act, and of the Exchange Act (at any time after it has
become subject to such reporting requirements); a copy of the most recent
annual or quarterly report of the Company; and such other reports and
documents as a Holder may reasonably request in availing itself of any rule
or regulation of the SEC allowing it to sell any such securities without
registration.
4. COVENANTS OF THE COMPANY
4.1 BASIC FINANCIAL INFORMATION AND REPORTING.
(a) The Company will maintain true books and records of
account in which full and correct entries will be made of all its business
transactions pursuant to a system of accounting established and administered
in accordance with generally accepted accounting principles consistently
applied, and will set aside on its books all such proper accruals and
reserves as shall be required under generally accepted accounting principles
consistently applied.
(b) So long as a holder of Series A Shares, Series B Shares,
Series C Shares or Series D Shares (with its affiliates) shall own not less
than sixty-six thousand six hundred sixty-six (66,666) shares of Registrable
Securities (as adjusted for stock dividends, stock splits and combinations)
(a "MAJOR INVESTOR"), as soon as practicable after the end of each fiscal
year of the Company, and in any event within ninety (90) days thereafter, the
Company will furnish each such Major Investor and each Founder an audited
consolidated balance sheet of the Company, as at the end of such fiscal year,
an audited consolidated statement of income and an audited consolidated
statement of cash flows of the Company, for such year, all prepared in
accordance with generally accepted accounting principles and setting forth in
each case, in comparative form, the figures for the previous fiscal year, all
in reasonable detail.
(c) The Company will furnish each Major Investor and each
Founder, as soon as practicable after the end of the first, second and third
quarterly accounting periods in each fiscal year of the Company, and in any
event within forty-five (45) days thereafter, an unaudited consolidated
balance sheet of the Company as of the end of each such quarterly period, an
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unaudited consolidated statement of income and an unaudited consolidated
statement of cash flows of the Company for such period and for the current
fiscal year to date, prepared in accordance with generally accepted
accounting principles, with the exception that no notes need be attached to
such statements and year-end audit adjustments may not have been made.
Additionally, the Company will furnish each Series B Holder, as soon as
practicable after the end of the first, second and third quarterly accounting
periods in each fiscal year of the Company, and in any event within thirty
(30) days thereafter, (i) a letter from the Company's management discussing
the revenues and operations of the Company in each such period and (ii) a
compliance certificate, executed by the President or Chief Executive Officer
of the Company, to the effect that the Company has complied with the
covenants set forth in this Section 4.1 in each such period.
(d) The Company will furnish each Series B Holder, as soon
as practicable after the end of each month, and in any event within thirty
(30) days thereafter, an unaudited consolidated balance sheet of the Company
as of the end of each such month and an unaudited consolidated statement of
income and an unaudited consolidated statement of cash flows of the Company
for such month and for the current fiscal year to date, prepared in
accordance with generally accepted accounting principles, with the exception
that no notes need be attached to such statements and year-end audit
adjustments may not have been made.
(e) The Company will furnish each member of the Board of
Directors with (i) the information set forth in Sections 4.1(b)-(d) above at
the time it is distributed to the Major Investors and Founders, (ii) copies
of all filings with the SEC, (iii) information as to any pending material
litigation and any material default under any material agreement of the
Company, (iv) copies of management letters of accountants and, (v) within
thirty (30) days after the beginning of each fiscal year, an annual budget
for such fiscal year.
(f) Each Series B Holder is hereby authorized to deliver a
copy of any financial statement delivered to it pursuant to this Section 4.1
to any regulatory body having jurisdiction over it which requests such
information.
4.2 INSPECTION RIGHTS. Each Major Investor and Founder shall have
the right to visit and inspect any of the properties of the Company or any of
its subsidiaries, and to discuss the affairs, finances and accounts of the
Company or any of its subsidiaries with its officers and to review such
information as is reasonably requested all at such reasonable times and as
often as may be reasonably requested; PROVIDED, HOWEVER, that the Company
shall not be obligated under this Section 4.2 with respect to a competitor of
the Company or with respect to information which the Board of Directors
determines in good faith is confidential and should not, therefore, be
disclosed.
4.3 CONFIDENTIALITY OF RECORDS. Each Investor agrees to use, and
to use its best efforts to insure that its authorized representatives uses,
the same degree of care as such Investor uses to protect its own confidential
information to keep confidential any information furnished to it which the
Company identifies as being confidential or proprietary (so long as such
information is not in the public domain), except that such Investor may
disclose such proprietary or confidential information to any partner,
subsidiary or parent of such Investor for the purpose of
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evaluating its investment in the Company as long as such partner, subsidiary
or parent is advised of the confidentiality provisions of this Section 4.3.
4.4 RESERVATION OF COMMON STOCK. The Company will at all times
reserve and keep available, solely for issuance and delivery upon the
conversion of the Series B Stock, Series C Stock and Series D Stock, all
Common Stock issuable from time to time upon such conversion.
4.5 SEC COMPLIANCE. During any time that the Company is subject to
the reporting requirements of the Exchange Act, the Company shall timely file
all required reports pursuant to the Exchange Act. Additionally, the Company
shall make available to Investors the information contemplated by Rule 144A.
At such time that any stock held by an Investor is eligible for transfer
pursuant to Rule 144(k), the Company shall, upon the request of such
Investor, remove any restrictive legend from the applicable stock certificate
at no cost to such Investor.
4.6 MEETINGS OF THE BOARD OF DIRECTORS. The Board of Directors
shall meet as often as is necessary to review the operating results and
developments of the Company, but, in any case, not less than quarterly.
4.7 COMMITTEES. The Company agrees to maintain audit and
compensation committees with such duties and powers as are customarily
performed by such committees. Both committees shall include a representative
of each of Crest Communications Partners LP, CEA Capital Partners USA, L.P.
and Mayfield X, L.P.
4.8 CORPORATE EXISTENCE, LICENSES AND PERMITS; MAINTENANCE OF
PROPERTIES. So long as any Holder shall hold any Series B Shares, the
Company will at all times use commercially reasonable efforts to do or cause
to be done all things necessary to maintain, preserve and renew its existence
as a corporation organized under the laws of a state of the U.S., preserve
and keep in force and effect, and cause any subsidiary to apply for on a
timely basis, preserve and keep in force and effect, all licenses and permits
necessary and material to the conduct of the business of the Company and any
consolidated subsidiary, taken as a whole, and to maintain and keep, and
cause any subsidiary to maintain and keep, its and their respective
properties in good repair, working order and condition (except for normal
wear and tear), and from time to time to make all needful and proper repairs,
renewals and replacements, including, without limitation, all trade name and
trademark registration renewals, in each case so that any business material
to the Company carried on in connection therewith may be properly and
advantageously conducted.
4.9 BOARD OF DIRECTORS APPROVAL. The Company shall not, without
the approval of a majority of the Board of Directors, including at least two
(2) representatives of the holders of the Series B Stock, take any of the
following actions:
(a) incur, refinance, guarantee or assume any indebtedness
other than (i) in the ordinary course of business, PROVIDED, THAT, any such
indebtedness does not exceed $500,000 in the aggregate at any one time and
(ii) drawdowns under existing credit facilities consistent with the terms of
the budget presented to the Board of Directors pursuant to Section 4.1(e)(v)
above;
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(b) terminate any member of the Company's existing senior
management team (consisting of Leonard Allsup, Bruce Dines and Brian Gast) or
approve or alter the compensation paid to any member of the Company's
existing senior management team except such changes in benefits as may be
consistent with changes made in the Company's standard benefit plans;
(c) enter into any new line of business;
(d) enter or agree to enter into any contract or other
agreement which involves obligations of the Company in excess of $500,000;
(e) acquire or dispose of, in one or a series of
transactions within a twelve (12) months period, assets having a fair market
value in excess of $500,000 or which involve the payment to or by the Company
of consideration in excess of $500,000 (including assumption of
indebtedness), other than capital expenditures consistent with the terms of
the budget presented to the Board of Directors pursuant to Section 4.1(e)(v)
above;
(f) enter into, amend, modify, terminate or waive any
material provision of any agreement involving obligations of the Company in
excess of $500,000;
(g) adopt, amend, modify or terminate any employee benefit
plan or collective bargaining agreement or contract with any union that will,
in the aggregate, materially increase the cost of such plan or arrangement
relative to the Company's existing arrangements;
(h) initiate any litigation, or undertake any course of
defense, in connection with any litigation brought against the Company or any
of its subsidiaries, or settle any claim, litigation or insurance claim in an
amount in excess of $500,000;
(i) enter into any transaction with an affiliate of the
Company unless approved by a majority of the disinterested directors of the
Company's Board of Directors; or
(j) engage or dismiss the existing primary auditors or
existing principal corporate legal counsel of the Company or any of its
subsidiaries.
4.10 SBIC REGULATORY PROVISIONS.
(a) The Company shall notify each Series B Holder, Series C
Holder and Series D Holder who is a Small Business Investment Company (an
"SBIC HOLDER") as soon as practicable prior to taking any action after which
the number of record holders of the Company's voting stock would be increased
from fewer than fifty (50) to fifty (50) or more, and the Company shall
notify each SBIC Holder of any other action or occurrence after which the
number of record holders of the Company's voting stock was increased (or
would increase) from fewer than fifty (50) to fifty (50) or more, as soon as
practicable after the Company becomes aware that such other action or
occurrence has occurred or is proposed to occur.
(b) At the request of any SBIC Holder, the Company shall
provide each such SBIC Holder with a written statement certified by the
Company's president, chief executive officer or chief financial officer
describing in reasonable detail the use of the proceeds from the
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sale of Series B Stock, Series C Stock or Series D Stock, as applicable. In
addition to any other rights granted hereunder, the Company shall grant such
SBIC Holder and the United States Small Business Administration ("SBA")
access to the Company's records solely for the purpose of verifying the use
of such proceeds.
(c) At the request of any SBIC Holder, after the end of each
fiscal year, the Company shall deliver to each such SBIC Holder a written
assessment of the economic impact of the SBIC Holder's investment in the
Company, specifying the full-time equivalent jobs created or retained in
connection with the investment, the impact of the investment on the
businesses of the Company in terms of expanded revenue and taxes and other
economic benefits resulting from the investment (including, but not limited
to, technology development or commercialization, minority business
development, urban or rural business development and expansion of exports).
4.11 BOARD OBSERVER.
ABN AMRO, Inc. ("ABN AMRO") shall be entitled to have one (1)
observer (the "NON-VOTING OBSERVER") selected by ABN AMRO present at all
meetings of the Company's Board of Directors. Such Non-Voting Observer shall
have the same access to information concerning the business and operations of
the Company and at the same time as the directors of the Company and shall be
entitled to participate in discussions and consult with, and make proposals
and furnish advice to, the Board of Directors, without voting; PROVIDED,
HOWEVER, that the Board of Directors shall be under no obligation to take any
action with respect to any proposals made or advice furnished by such
Non-Voting Observer; and PROVIDED, FURTHER, that the provisions of this
Section 4.11(a) shall terminate at such time that ABN AMRO no longer holds at
least fifty percent (50%) of the shares of Series B Stock it holds on the
date hereof.
4.12 QUALIFIED SMALL BUSINESS. For so long as the Series C Shares
or the shares issuable upon conversion of the Series C Shares ("Conversion
Shares") are held by a Series C Holder (or a transferee in whose hands such
Series C Shares or Conversion Shares are eligible to qualify as "qualified
small business stock") as defined in Section 1202(c) of the Code, the Company
will use reasonable efforts to comply with the reporting and recordkeeping
requirements of Section 1202 of the Code, any regulations promulgated
thereunder and any similar state laws and regulations. The Company covenants
and agrees, on the reasonable request of any Series C Holder, to conduct a
reasonable investigation into the question of whether the Series C Shares or
Conversion Shares are "qualified small business stock" within the meaning of
the Code, and to thereafter deliver to such Series C Holder a duly executed
Certificate of Representations in the form attached hereto as EXHIBIT B (the
"QSBS Certificate"). If the Company is unable to deliver an executed QSBS
Certificate because representation statement 2 in the QSBS Certificate is
inaccurate, the Company covenants and agrees to deliver a statement
explaining the reasons for such inaccuracy.
4.13 TERMINATION OF COVENANTS. All covenants of the Company
contained in Section 4 of this Agreement, other than those contained in
Sections 4.4 and 4.5, shall expire and terminate as to each Investor on the
effective date of the registration statement pertaining to a Qualified
Offering and may be waived by any individual Investor as to such Investor at
any time in its sole discretion.
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5. PREEMPTIVE RIGHTS
5.1 SUBSEQUENT OFFERINGS. Each Major Investor shall have a
preemptive right to purchase up to eighty percent (80%) of its pro rata share
of all Equity Securities that the Company may, from time to time, propose to
sell and issue after the date of this Agreement, other than the Equity
Securities excluded by Section 5.6 hereof. Each Major Investor's pro rata
share is equal to the ratio of (A) the number of shares of the Company's
Common Stock (including all shares of Common Stock issued or issuable upon
conversion of the Shares) of which such Major Investor is deemed to be a
holder immediately prior to the issuance of such Equity Securities to (B) the
total number of shares of the Company's outstanding Common Stock on a
fully-diluted basis (including all shares of Common Stock issued or issuable
upon the conversion of options, warrants or convertible securities or issued
or then issuable upon the exercise of options or warrants) immediately prior
to the issuance of the Equity Securities.
5.2 EXERCISE OF RIGHTS. If the Company proposes to issue any
Equity Securities, it shall give each Major Investor written notice of its
intention, describing the Equity Securities, the price and the terms and
conditions upon which the Company proposes to issue the same. Each Major
Investor shall have fifteen (15) days from the giving of such notice to agree
to purchase its eighty percent (80%) pro rata share of the Equity Securities
for the price and upon the terms and conditions specified in the notice by
giving written notice to the Company and stating therein the quantity of
Equity Securities to be purchased. Notwithstanding the foregoing, the Company
shall not be required to offer or sell such Equity Securities to any Major
Investor who would cause the Company to be in violation of applicable federal
securities laws by virtue of such offer or sale.
5.3 ISSUANCE OF EQUITY SECURITIES TO MAJOR INVESTORS. If not all
of the Major Investors elect to purchase eighty percent (80%) of their pro
rata share of the Equity Securities, then the Company shall promptly notify
in writing the Major Investors who do so elect and shall offer such Major
Investors the right to acquire such unsubscribed shares. The Major Investors
shall have five (5) days after receipt of such notice to notify the Company
of its election to purchase all or a portion thereof of the unsubscribed
shares. If the Major Investors fail to exercise in full their preemptive
rights, the Company shall have ninety (90) days thereafter to sell the Equity
Securities in respect of which the Major Investors' rights were not
exercised, at a price and upon general terms and conditions materially no
more favorable to the purchasers thereof than specified in the Company's
notice to the Major Investors pursuant to Section 5.2 hereof. If the Company
has not sold such Equity Securities within one hundred ten (110) days of the
notice provided pursuant to Section 5.2, the Company shall not thereafter
issue or sell any Equity Securities, without first offering such securities
to the Major Investors in the manner provided above.
5.4 TERMINATION OF PREEMPTIVE RIGHTS. The preemptive rights
established by this Section 5 shall not apply to, and shall terminate upon,
the effective date of the registration statement pertaining to a Qualified
Public Offering.
5.5 TRANSFER OF PREEMPTIVE RIGHTS. The preemptive rights of each
Major Investor under this Section 5 may be transferred to the same parties,
subject to the same restrictions, as any transfer of registration rights
pursuant to Section 3.9.
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5.6 EXCLUDED SECURITIES. The preemptive rights established by this
Section 5 shall have no application to any of the following Equity Securities:
(a) shares of Common Stock (and/or options, warrants or
other Common Stock purchase rights issued pursuant to such options, warrants
or other rights) (as adjusted for stock splits, recapitalizations and the
like) issued or to be issued to employees, officers or directors of, or
consultants or advisors to the Company or any subsidiary, pursuant to stock
purchase or stock option plans or other arrangements that are approved by the
Board of Directors;
(b) stock issued pursuant to any rights, agreements,
options, warrants and convertible promissory notes outstanding as of the date
of this Agreement and referenced in the schedule of exceptions (Schedule 3.3)
to the Purchase Agreements; and stock issued pursuant to any such rights or
agreements granted after the date of this Agreement, PROVIDED, THAT, the
preemptive rights established by this Section 5 applied with respect to the
initial sale or grant by the Company of such rights or agreements;
(c) any Equity Securities issued for consideration other
than cash pursuant to a merger, consolidation, acquisition or similar
business combination approved by the Board of Directors;
(d) shares of Common Stock issued in connection with any
stock split, stock dividend or recapitalization by the Company;
(e) shares of Common Stock issued upon conversion of the
Shares;
(f) any Equity Securities that are issued by the Company
pursuant to a registration statement filed under the Securities Act; and
(g) shares of capital stock, or other securities, or
warrants, rights, options or other convertible securities, issued in any
transaction in which the price per share of Common Stock equivalents is not
less than the then-effective Series C Conversion Price, PROVIDED, THAT, the
value of shares issued do not exceed $500,000 with respect to any one
transaction and $1,500,000 in the aggregate.
6. RIGHT OF FIRST REFUSAL ON FOUNDER TRANSFERS
6.1 RIGHT OF FIRST REFUSAL ON FOUNDER TRANSFERS. No Founder shall
sell, assign, pledge, or in any manner transfer any of the Shares of the
Company held by such Founder or any right or interest therein, whether
voluntarily or by operation of law, or by gift or otherwise, except by a
transfer which meets the requirements hereinafter set forth in this Section 6
and, if applicable, Section 9.
6.2 EXERCISE OF RIGHTS. If a Founder receives from anyone a bona
fide offer acceptable to such Investor to purchase any of his Shares, then
the Founder shall first deliver written notice (the "NOTICE") thereof to the
other Founders and the Series B Holders and the Company. The Notice shall
name the proposed transferee and state the price and quantity of the Equity
Securities to be transferred, as well as all other terms and conditions of
the offer.
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6.3 ISSUANCE OF EQUITY SECURITIES TO THE NON-SELLING FOUNDERS. For
a period of fifteen (15) days following receipt of such Notice, the
non-selling Founders shall have the option to purchase all or a portion of
the Shares specified in the Notice at the price and upon the terms set forth
in such bona fide offer. In the event the non-selling Founders elect to
acquire any of the Shares of the selling Founder as specified in said selling
Founder's Notice, the purchasing Founders shall so notify the selling Founder
and settlement thereof shall be made in cash within fourteen (14) days
following receipt of said selling Founder's Notice; PROVIDED, THAT, if the
terms of payment set forth in said selling Founder's Notice were other than
cash against delivery, the purchasing Founder shall pay for said Shares on
the same terms and conditions set forth in said selling Founder's Notice.
6.4 ISSUANCE OF EQUITY SECURITIES TO THE SERIES B HOLDERS. In the
event the non-selling Founders do not elect to acquire all of the Shares
specified in the selling Founder's Notice, the selling Founder shall promptly
notify the Series B Holders of the number of Shares available for purchase by
the Series B Holders and the Series B Holders shall have the right,
exercisable upon written notice to the selling Founder within thirty (30)
days following receipt of the notice described in this Section 6.4, to
purchase all or any portion of the Shares (less any purchased by the
non-selling Founders pursuant to Section 6.3 above) on the terms and
conditions specified in the Notice. Settlement for any Shares purchased,
pursuant to this Section 6.4 shall be made in cash within forty-five (45)
days following receipt of the Notice described in this Section 6.4, PROVIDED,
THAT, if the terms of payment set forth in the selling Founder's Notice were
other than cash against delivery the Company shall pay for said Shares on the
same terms and conditions set forth in the Notice.
6.5 ISSUANCE OF EQUITY SECURITIES TO THE COMPANY. In the event
the non-selling Founders and the Series B Holders do not elect to acquire all
of the Shares specified in the selling Founder's Notice, the selling Founder
shall promptly notify the Company of the number of Shares available for
purchase by the Company and the Company shall have the right, exercisable
upon written notice to the selling Founder within forty-five (45) days
following receipt of the original Notice described in Section 6.2 above, to
purchase all or any portion of the Shares (less any purchased by the
non-selling Founders pursuant to Section 6.3 above and the Series B Holders
pursuant to Section 6.4 above) on the terms and conditions specified in the
Notice. Settlement for any Shares purchased, pursuant to this Section 6.5
shall be made in cash within sixty (60) days following receipt of the
original Notice described in Section 6.2 above, PROVIDED, THAT, if the terms
of payment set forth in the selling Founder's Notice were other than cash
against delivery the Company shall pay for said Shares on the same terms and
conditions set forth in the Notice.
6.6 NO PARTICIPATION. Subject to the provisions of Section 10
below, in the event that neither the non-selling Founders nor the Series B
Holders nor the Company elect to acquire all of the Shares specified in the
selling Founder's Notice, said selling Founder may, within the sixty (60) day
period following the expiration of the option rights granted to the Company,
sell elsewhere the Shares specified in said selling Founder's Notice which
were not acquired, in accordance with the provisions of this Section 6,
PROVIDED, THAT, said sale shall not be on terms and conditions more favorable
to the purchaser than those contained in the bona fide offer set forth in
said selling Founder's Notice; PROVIDED FURTHER, that said sale shall not be
to a competitor of the Company as determined in good faith by the Board of
Directors; and, PROVIDED FURTHER,
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HOWEVER, that the transferee of such Shares shall become a party to this
Agreement as if an Investor hereunder.
6.7 TERMINATION OF RIGHT OF FIRST REFUSAL. The right of first
refusal established by this Section 6 shall not apply to, and shall terminate
upon, the Company's consummation of an Initial Offering.
6.8 EXEMPT SECURITIES. The right of first refusal established by
this Section 6 shall not apply to (a) any transfer or transfers by any
Stockholder which, in the aggregate, over the term of this Agreement, amount
to no more than one hundred thousand (100,000) Shares (as adjusted for stock
splits, stock dividends and the like) held by such stockholder, (b) any
pledge of Shares made pursuant to a bona fide loan transaction with a
financial institution that creates a mere security interest or to the
foreclosure of such pledge, (c) any transfer to the ancestors, descendants or
spouse or to trusts, limited partnerships or limited liabilities companies
established for the benefit of such persons or the selling stockholder, or
(d) any bona fide gift (those items set forth in (a), (b), (c) and (d) above,
the "EXEMPT SECURITIES"); PROVIDED, THAT, in the event of any pledge or
transfer of Exempt Securities, the pledgee, transferee or donee shall furnish
the Company with a written agreement to be bound by and comply with all
provisions of this Agreement.
7. RIGHT OF FIRST REFUSAL ON TRANSFERS BY SERIES A HOLDERS
7.1 RIGHT OF FIRST REFUSAL ON SERIES A TRANSFERS. No Series A
Holder shall sell, assign, pledge, or in any manner transfer any of the
Shares of the Company held by such Series A Holder or any right or interest
therein, whether voluntarily or by operation of law, or by gift or otherwise,
except by a transfer which meets the requirements hereinafter set forth in
this Section 7 and, if applicable, Section 9.
7.2 RIGHT OF FIRST REFUSAL ON TRANSFERS BY SERIES A HOLDERS. If
any Series A Holder proposes to sell or transfer any Shares, then such Series
A Holder shall promptly give written notice (the "SERIES A NOTICE")
simultaneously to the Company, to each of the non-selling Series A Holders
and the Series B Holders. The Series A Notice shall describe in reasonable
detail the proposed sale or transfer including, without limitation, the
number of Shares to be sold or transferred, the nature of such sale or
transfer, the consideration to be paid, and the name and address of each
prospective purchaser or transferee.
7.3 COMPANY'S RIGHT TO PURCHASE. For a period of fifteen (15) days
following receipt of any Series A Notice described in Section 7.2, the
Company shall have the right to purchase all or a portion of the Shares
subject to such Series A Notice on the same terms and conditions as set forth
therein. The Company's purchase right shall be exercised by written notice
signed by an officer of the Company and delivered to the selling Series A
Holder with a check for payment for the Shares being purchased.
7.4 SERIES A HOLDERS' RIGHT TO PURCHASE. If the Company does not
purchase all of the Shares available pursuant to its rights under Section 7.3
within the period set forth therein, each non-selling Series A Holder shall
then have the right, exercisable upon written notice to the selling Series A
Holder within thirty (30) days of the date of the original Series A Notice
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described in Section 7.1, to purchase its pro rata share of the Shares
subject to the Notice (less shares purchased by the Company pursuant to
Section 7.3) on the same terms and conditions.
(a) Each non-selling Series A Holder may buy all or any part
of that number of shares equal to the product obtained by multiplying (x) the
aggregate number of shares of Shares covered by the Series A Notice (less
shares purchased by the Company pursuant to Section 7.3) by (y) a fraction
the numerator of which is the number of shares of Common Stock owned by the
non-selling Series A Holder (on an as-if-converted basis) at the time of the
sale or transfer and the denominator of which is the total number of shares
of Common Stock owned by all of the non-selling Series A Holders (on an
as-if-converted basis) at the time of the sale or transfer.
(b) If not all of the non-selling Series A Holders elect to
purchase their pro rata share of the Shares covered by the Series A Notice as
provided in Section 7.4(a) above, then the selling Series A Holder shall
promptly notify the non-selling Series A Holders who do so elect and shall
offer such non-selling Series A Holders the right to acquire such
unsubscribed shares. The non-selling Series A Holders who elect to
participate shall have five (5) days after receipt of such notice to notify
the selling Series A Holder of its election to purchase all or a portion
thereof of the unsubscribed shares.
7.5 SERIES B HOLDERS' RIGHT TO PURCHASE. If the Series A Holders
do not purchase all of the Shares available pursuant to its rights under
Section 7.4 within the period set forth therein, each Series B Holder shall
then have the right, exercisable upon written notice to the selling Series A
Holder within forty-five (45) days of the date of the original Series A
Notice described in Section 7.2, to purchase its pro rata share of the Shares
subject to the Notice (less shares purchased by the Company pursuant to
Section 7.3 and the Series A Holders pursuant to Section 7.4) on the same
terms and conditions.
(a) Each Series B Holder may buy all or any part of that
number of shares equal to the product obtained by multiplying (x) the
aggregate number of shares of Shares covered by the Series A Notice (less
shares purchased by the Company pursuant to Section 7.3 and Series A Holders
pursuant to Section 7.4) by (y) a fraction the numerator of which is the
number of shares of Common Stock owned by the Series B Holder (on an
as-if-converted basis) at the time of the sale or transfer and the
denominator of which is the total number of shares of Common Stock owned by
all of the Series B Holders (on an as-if-converted basis) at the time of the
sale or transfer.
(b) If not all of the Series B Holders elect to purchase
their pro rata share of the Shares covered by the Series A Notice as provided
in Section 7.5(a) above, then the selling Series A Holder shall promptly
notify the Series B Holders who do so elect and shall offer such Series B
Holders the right to acquire such unsubscribed shares. The Series B Holders
who elect to participate shall have five (5) days after receipt of such
notice to notify the selling Series A Holders of its election to purchase all
or a portion thereof of the unsubscribed shares.
7.6 SALE OF SHARES. Subject to the provisions of Section 10 below,
should any Shares remain for sale to a third-party following the exercise or
expiration of the rights of purchase described in Sections 7.3, 7.4 and 7.5,
then the selling Series A Holder may, not later than ninety
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<PAGE>
(90) days following delivery to the Company of the Series A Notice, enter
into an agreement providing for the closing of the transfer of the Shares
covered by the Series A Notice (less shares purchased pursuant to Sections
7.3, 7.4 and 7.5) within thirty (30) days of such agreement on terms and
conditions not more favorable to the transferor than those described in the
Series A Notice. Any proposed transfer on terms and conditions more
favorable than those described in the Series A Notice, as well as any
subsequent proposed transfer of any of the Shares by the selling Investor,
shall again be subject to the purchase rights of the Company and the Series A
Holders and shall require compliance by the selling Series A Holder with the
procedures described in this Section 7.
7.7 TERMINATION OF RIGHT OF FIRST REFUSAL. The right of first
refusal established by this Section 7 shall not apply to, and shall terminate
upon, the Company's consummation of an Initial Offering.
7.8 EXEMPT TRANSFERS. The right of first refusal established by
this Section 7 shall not apply to the Exempt Securities; PROVIDED, THAT, in
the event of any pledge or transfer of Exempt Securities, the pledgee,
transferee or donee shall furnish the Company with a written agreement to be
bound by and comply with all provisions of this Agreement.
8. VOTING
8.1 VOTING. The Investors agree to hold all Shares subject to, and
to vote their Shares in accordance with, the provisions of this Agreement.
8.2 ELECTION OF DIRECTORS.
(a) At each election of directors in which the Series B
Holders, voting together as a separate class on an as-converted basis, are
entitled to elect directors of the Company pursuant to Article IV(E)(2)(d) of
the Company's Restated Certificate of Incorporation, the Series B Holders
shall vote their respective Shares so as to elect (i) one (1) person
designated by Crest Communications Partners LP and (ii) one (1) person
designated by CEA Capital Partners USA, L.P.
(b) At each election of directors in which the holders of
Common Stock, Series A Holders, Series B Holders, Series C Holders and Series
D Holders, voting together as a separate class on an as-converted basis, are
entitled to elect directors of the Company pursuant to Article IV(E)(2)(d) of
the Company's Restated Certificate of Incorporation, the holders of Common
Stock, Series A Holders, Series B Holders, Series C Holders and Series D
Holders shall vote their respective Shares so as to elect the following
persons as directors: (i) the person serving as Chief Executive Officer of
the Company; (ii) one (1) person designated by the person serving as Chief
Executive Officer of the Company; (iii) one (1) person designated by Mayfield
X, L.P.; and (iv) one other independent person as are nominated by the
Company who is mutually acceptable to the existing members of the Board of
Directors.
8.3 VACANCIES. If any director is unable to serve, or once having
commenced to serve, is removed or withdrawn from the Board of Directors of
the Company, the party or parties who designated such directors will be
entitled to designate a person to fill the vacancy on the Board of Directors
of the Company so created and the holders of Common Stock, Series A
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<PAGE>
Holders, Series B Holders, Series C Holders and Series D Holders shall vote
their respective Shares to fill the vacancy so created with the person so
designated.
8.4 EXPENSES. The Company hereby agrees that the Company will pay
(a) all reasonable travel and other out-of-pocket expenses of the directors
designated by the Series B Holders, of any independent, non-employee
directors and any Non-Voting Observer and (b) such fees as are paid to
directors, severally, that are not employees of the Company or any of its
affiliates.
9. CO-SALE RIGHT.
9.1 SALES BY STOCKHOLDERS.
(a) If a Stockholder proposes to sell or transfer fifty
percent (50%) or more of the Stockholder Shares held by such Stockholder, as
calculated prior to the exercise by the Company, Series A Holders and Series
B Holders of their rights under Sections 6 and 7, as applicable, and the
Company, Stockholders and Series B Holders should fail to exercise their
respective rights to purchase all the Stockholder Shares described in the
Notice or Series A Notice, as applicable, following the exercise or
expiration of the applicable rights of purchase described in Sections 6.3,
6.4, 6.5, 7.2, 7.3, 7.4 and 7.5, then each Series B Holder and Series D
Holder shall have the right, exercisable upon written notice to the selling
Stockholder within sixty (60) days after the date of the original Notice or
Series A Notice (described in Sections 6.2 and 7.1, respectively), as
applicable, to participate in such sale of Stockholder Shares on the same
terms and conditions. Such notice shall indicate the number of Series B
Shares or Series D Shares, as applicable, such Series B Holder or Series D
Holder wishes to sell under his or her right to participate. Subject to the
provisions of subsection (c) below, to the extent one or more of the Series B
Holders or Series D Holders exercise such right of participation in
accordance with the terms and conditions set forth below, the number of
Stockholder Shares that the selling Stockholder may sell in the transaction
shall be correspondingly reduced.
(b) Each electing Series B Holder and Series D Holder (a
"PARTICIPANT") may sell all or any part of that number of Common Stock shares
equal to the product obtained by multiplying the aggregate number of Common
Stock or Stockholder Share equivalents covered by the Notice by a fraction
the numerator of which is the number of shares of Common Stock (on an
as-converted basis) owned by such Participant at the time of the sale or
transfer and the denominator of which is the total number of shares of Common
Stock equivalents (on an as-converted basis) owned by the selling Stockholder.
(c) Each Participant shall effect its participation in the
sale by promptly delivering to the selling Stockholder for transfer to the
prospective purchaser one or more certificates, properly endorsed for
transfer, which represent the type and number of shares of Common Stock or
Preferred Stock which such Participant elects to sell; PROVIDED, HOWEVER,
that if the prospective purchaser objects to the delivery of Preferred Stock
in lieu of Common Stock, such Participant shall convert such Preferred Stock
into Common Stock and deliver Common Stock. The Company agrees to make any
such conversion concurrent with the actual transfer of such shares to the
purchaser.
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<PAGE>
(d) The stock certificate or certificates that the
Participant delivers to the selling Stockholder pursuant to Section 10.1(c)
shall be transferred to the prospective purchaser in consummation of the sale
of the Common Stock or Preferred Stock pursuant to the terms and conditions
specified in the Notice or Series A Notice, as applicable, and the purchaser
or transferee shall concurrently therewith remit to such Participant that
portion of the sale proceeds to which such Participant is entitled by reason
of its participation in such sale. To the extent that any prospective
purchaser or purchasers prohibits such assignment or otherwise refuses to
purchase shares or other securities from a Participant exercising its rights
of co-sale hereunder, the selling Stockholder shall not sell to such
prospective purchaser or purchasers any Stockholder Shares unless and until,
simultaneously with such sale, the selling Stockholder shall purchase such
shares or other securities from such Participant on the same terms and
conditions specified in the Notice.
(e) In the event that the prospective purchaser(s)
purchase(s) fewer shares than set forth in the Notice, the shares sold by the
selling Stockholder and the Participants shall be reduced pro rata calculated
pursuant to Section 9.1(b), based on the number of shares they would have
been entitled to sell had the purchaser(s) purchased all the shares set forth
in the Notice.
(f) The exercise or non-exercise of the rights of the
Participants hereunder to participate in one or more sales of Stockholder
Shares made by the Stockholder shall not adversely affect their rights to
participate in subsequent sales of Stockholder Shares subject to the terms of
this Agreement.
(g) Subject to the provisions of Section 9.1(a), should any
Stockholder Shares remain for sale to a third party following the exercise or
expiration of the rights of first refusal described in Sections 6.3, 6.4,
6.5, 7.3, 7.4 and 7.5, the selling Stockholder may, not later than ninety
(90) days following delivery of the Notice or Series A Notice, as applicable,
enter into an agreement providing for the closing of the transfer of the
Stockholder Shares covered by the Notice or Series A Notice, as applicable
(less shares purchased pursuant to Sections 6.3, 6.4, 6.5, 7.3, 7.4 and 7.5)
within thirty (30) days of such agreement on terms and conditions not more
favorable to the transferor than those described in the Notice or Series A
Notice, as applicable. Any proposed transfer on terms and conditions more
favorable than those specified in the Notice or Series A Notice, as
applicable, shall again be subject to the rights of first refusal and co-sale
rights described herein.
9.2 EXEMPT TRANSFERS. The co-sale rights established by this
Section 9 shall not apply to any transfer or transfers that comply with
Section 6.8 above.
9.3 TERMINATION OF CO-SALE RIGHTS. The co-sale rights established
by this Section 10 shall not apply to, and shall terminate upon, the
Company's consummation of an Initial Offering.
9.4 PROHIBITED TRANSFERS.
(a) In the event that any Stockholder should sell any
Stockholder Shares in contravention of the co-sale rights of each Series B
Holder and Series D Holder under this
27
<PAGE>
Agreement (a "PROHIBITED TRANSFER"), each Series B Holder and Series D
Holder, in addition to such other remedies as may be available at law, in
equity or hereunder, shall have the put option provided below, and the
selling Stockholder shall be bound by the applicable provisions of such
option.
(b) In the event of a Prohibited Transfer, each Series B
Holder and Series D Holder shall have the right to sell to the selling
Stockholder the type and number of shares of Common Stock or Preferred Stock
equal to the number of shares each Series B Holder and Series D Holder would
have been entitled to transfer to the purchaser under Section 9.1(b) hereof
had the Prohibited Transfer been effected pursuant to and in compliance with
the terms hereof. Such sale shall be made on the following terms and
conditions:
(i) The price per share at which the shares are to be
sold by the selling Series B Holder and Series D Holder shall be equal to the
price per share paid by the purchaser to the selling Stockholder in such
Prohibited Transfer. The selling Stockholder shall also reimburse each
Series B Holder and Series D Holder for any and all fees and expenses,
including legal fees and expenses, incurred pursuant to the exercise or the
attempted exercise of the Series B Holder's and Series D Holder's rights
under Section 9.1 and this Section 9.4.
(ii) Within one hundred twenty (120) business days
after the date on which a Series B Holder and Series D Holder received notice
of the Prohibited Transfer or otherwise became aware of the Prohibited
Transfer, such Series B Holder and Series D Holder shall, if exercising the
option created hereby, deliver to the selling Stockholder the certificate or
certificates representing shares to be sold, each certificate to be properly
endorsed for transfer.
(iii) The selling Stockholder shall, upon receipt of
the certificate or certificates for the shares to be sold by a Series B
Holder or Series D Holder, pursuant to this Section 9.4(b), pay the aggregate
purchase price therefor and the amount of reimbursable fees and expenses, as
specified in Section 9.4(b)(i), in cash or by other means acceptable to the
Investor.
(iv) Notwithstanding the foregoing, any attempt by the
selling Stockholder to transfer Stockholder Shares in violation of Section
9.1 hereof shall be voidable at the option (which option must be exercised
within fifteen (15) business days after the date on which a Series B Holder
or Series D Holder received notice of a Prohibited Transfer) of any Series B
Holder or Series D Holder if such Series B Holder or Series D Holder does not
elect to exercise the put option set forth in this Section 9.4, and the
Company agrees it will not effect such a transfer nor will it treat any
alleged transferee as the holder of such shares without the written consent
of a majority in interest of the Series B Holders and Series D Holders.
10. APPROVED SALE.
10.1 VOTING OF SHARES. The Investors each agree to vote their
respective Shares in accordance with the provisions of this Section 10.
10.2 DRAG-ALONG PROVISION. At any time following the first
anniversary of the date of this Agreement, (a) the holders of more than
seventy-five percent (75%) of the Series B Shares then outstanding and (b)
the holders of a majority of the outstanding capital stock of the
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<PAGE>
Company then outstanding (the "REQUISITE HOLDERS") shall have the option to
compel a sale of the Company or of all or substantially all of the Company's
assets at any time (a "DRAG-ALONG SALE"); PROVIDED, THAT, in the event that
the holders of Series B Shares constitute at least a majority of the
outstanding capital stock of the Company (on an as-converted basis) the
provisions of Section 10.2(b) shall not apply. The Drag-Along Right
established by this Section 10.2 shall not apply to, and shall terminate
upon, the Company's consummation of an Initial Offering.
10.3 FORCED SALE. The Company hereby covenants and agrees that, if
the Company has not effected a Qualified Public Offering or obtained the
Minimum Trading Requirement (as defined below) prior to the fourth
anniversary of the date of this Agreement, the Company shall use commercially
reasonable efforts, including retaining an appropriate investment bank
reasonably satisfactory to a majority in interest of the Series B Holders, to
identify a suitable purchaser of the Company to be effected by means of a
merger, consolidation or sale of stock or assets, auction or otherwise at
such time (a "FORCED SALE," and, together with a Drag-Along Sale, an
"APPROVED SALE"). As used herein, the "MINIMUM TRADING REQUIREMENT" shall be
obtained following an Initial Offering on the business day following the end
of a one hundred eighty (180) consecutive day period during which the average
closing price of the Company's Common Stock on each such day exceeded the
Threshold Price.
10.4 NO OBJECTIONS. Each Investor agrees that in the event of an
Approved Sale, it shall consent to and raise no objections against the
Approved Sale, and if the Approved Sale is structured as (a) a merger or
consolidation of the Company, or a sale of all or substantially all of the
Company's assets, each such Holder shall waive any dissenters' rights,
appraisal rights or similar rights in connection with such merger,
consolidation or asset sale or (b) a sale of the stock of the Company, then
each such Investor shall agree to sell its respective Shares on the terms and
conditions approved by the Requisite Holders, PROVIDED, THAT, such terms do
not provide that the Series A Holders, Series B Holders, Series C Holders or
Series D Holders would receive less than the amount that would be distributed
to such Holders in the event of a liquidation of the Company in accordance
with the Company's Restated Certification of Incorporation. The Investors
shall each take all necessary and desirable actions approved by the Requisite
Holders, in connection with the consummation of the Approved Sale, including
the execution of such agreements and such instruments and other actions
reasonably necessary to (a) provide the representations, warranties,
indemnities, covenants, conditions, non-compete agreements, escrow agreements
and other provisions and agreements relating to such Approved Sale and (b)
effectuate the allocation and distribution of the aggregate consideration
upon the Approved Sale.
11. MISCELLANEOUS
11.1 GOVERNING LAW. This Agreement shall be construed and enforced
in accordance with the laws of the State of Colorado without regard to its
conflict-of-laws rules; PROVIDED, THAT, the provisions of Section 8 shall be
governed by the laws of the State of Delaware.
11.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs,
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<PAGE>
executors, and administrators of the parties hereto and shall inure to the
benefit of and be enforceable by each person who shall be a holder of Shares
from time to time.
11.3 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
11.4 SUBSEQUENT INVESTORS. No person or persons ("SUBSEQUENT
INVESTORS") shall acquire, either by purchase or otherwise any shares of
Series A Stock, Series B Stock, Series C Stock or Series D Stock of the
Company subsequent to the date hereof, unless such Subsequent Investors shall
become a party to this Agreement and agree to be bound by the provisions
hereof. Such Subsequent Investors shall be considered "Investors" for all
purposes hereof and all shares of capital stock of the Company held by such
Investors shall be deemed to be "Shares" for all purposes hereof. After the
date of this Agreement, the Company may, without the prior consent of the
Investors, make such Subsequent Investors a party to this Agreement by
executing an "Additional Party Signature Page" in the form set forth as
EXHIBIT C; provided that the inclusion of such additional party is approved
by the Company's board of directors. Thereafter, the shares of Series A
Stock, Series B Stock, Series C Stock or Series D Stock held by such
Subsequent Investor shall be deemed Registrable Securities and such holder
shall be a "Holder" for purposes hereof and both of such definitions shall be
deemed duly and properly amended.
11.5 AMENDMENT AND WAIVER.
(a) Except as otherwise expressly provided, this Agreement
may be amended or modified only upon the written consent of the Company and
(i) the holders of a majority of the Series B Shares, Series C Shares and
Series D Shares or share equivalents then outstanding and (ii) the holders of
a majority of the Stockholder Shares then outstanding. Notwithstanding the
foregoing, the right of a party to designate a member of the Board of
Directors pursuant to the provisions of Section 8.2 may not be amended
without such party's consent and the provisions of Sections 10.2 and 10.3 may
not be amended without the consent of the holders of a majority of the Series
B Shares.
(b) Except as otherwise expressly provided, the obligations
of the Company and the rights of the Holders under this Agreement may be
waived only with the written consent of (i) the holders of a majority of the
Series B Shares, Series C Shares and Series D Shares or share equivalents
then outstanding and (ii) the holders of a majority of the Stockholder Shares
then outstanding. Notwithstanding the foregoing, the right of any party to
designate a member of the Board of Directors pursuant to the provisions of
Section 8.2 may not be waived without such party's consent.
11.6 NOTICES, ETC. All notices required or permitted hereunder
shall be deemed effectively given: (i) upon personal delivery to the party
to be notified, (ii) when sent by confirmed telex or facsimile if sent during
normal business hours of the recipient; if not, then on the next business
day, (iii) upon receipt after having been sent by registered or certified
mail, return receipt requested, postage prepaid, or (iv) one (1) day after
deposit with a nationally recognized overnight courier, specifying next day
delivery, with written verification of receipt. All communications shall be
sent to the party to be notified at the address set forth on the
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signature pages hereto or EXHIBIT A hereto or at such other address as such
party may designate by ten (10) days advance written notice to the other
parties hereto.
11.7 ATTORNEYS' FEES. If legal action is brought to enforce or
interpret this Agreement, the prevailing party shall be entitled to recover
from the losing party all fees, costs and expenses of enforcing any rights of
such prevailing party under or with respect to this Agreement, including
without limitation, such reasonable fees and expenses of attorneys and
accountants, which shall include, without limitation, all fees, costs and
expenses of appeals.
11.8 INJUNCTIVE RELIEF. It is acknowledged that it will be
impossible to measure in money the damages that would be suffered if the
parties fail to comply with certain of the obligations imposed on them by
this Agreement and that, in the event of any such failure, an aggrieved
person will be irreparably damaged and will not have an adequate remedy at
law. Any such person shall, therefore, be entitled to injunctive relief
and/or specific performance to enforce such obligations, and if any action
should be brought in equity to enforce any of such provisions of this
Agreement, none of the parties hereto shall raise the defense that there is
an adequate remedy at law.
11.9 TITLES AND SUBTITLES. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
11.10 COMPLETE AGREEMENT. This Agreement constitutes the entire
agreement and supersedes all other prior and contemporaneous agreements and
undertakings, both written and oral, between the parties hereto with regard
to the subject matter hereof.
11.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth in the first paragraph hereof.
COMPANY: INVESTORS:
JATO COMMUNICATIONS CORP. MICROSOFT CORPORATION
By: /s/ Gerald K. Dinsmore By: /s/ John G. Connors
------------------------------- ----------------------------------
Name: Gerald K. Dinsmore Title: SVP-CFO
----------------------------- -------------------------------
Title: President
----------------------------
INVESTORS' RIGHTS AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth in the first paragraph hereof.
COMPANY: INVESTORS:
JATO COMMUNICATIONS CORP. MAYFIELD ASSOCIATES FUND IV
By: /s/ Gerald K. Dinsmore By: /s/ Todd A. Brooks
------------------------------- ----------------------------------
Name: Gerald K. Dinsmore Title: General Partner
----------------------------- -------------------------------
Title: President
----------------------------
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth in the first paragraph hereof.
COMPANY: INVESTORS:
JATO COMMUNICATIONS CORP. MAYFIELD PRINCIPALS FUND LLC
By: /s/ Gerald K. Dinsmore By: /s/ Todd A. Brooks
------------------------------- ----------------------------------
Name: Gerald K. Dinsmore Title: General Partner
----------------------------- -------------------------------
Title: President
----------------------------
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth in the first paragraph hereof.
COMPANY: INVESTORS:
JATO COMMUNICATIONS CORP. MAYFIELD X
By: /s/ Gerald K. Dinsmore By: /s/ Russell C. Hirsch
------------------------------- ----------------------------------
Name: Gerald K. Dinsmore Title: General Partner
----------------------------- -------------------------------
Title: President
----------------------------
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth in the first paragraph hereof.
COMPANY: INVESTORS:
JATO COMMUNICATIONS CORP. ABN AMRO, INC.
I EAGLE TRUST
ABN AMRO CAPITAL (USA), INC.
By: /s/ Gerald K. Dinsmore By: /s/ Daniel J. Foreman
------------------------------- ----------------------------------
Name: Gerald K. Dinsmore Title: Managing Director
----------------------------- -------------------------------
Title: President
----------------------------
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth in the first paragraph hereof.
COMPANY: INVESTORS:
JATO COMMUNICATIONS CORP. CREST COMMUNICATIONS PARTNERS LP
By: /s/ Gerald K. Dinsmore By: /s/ Gregg A. Mockenhaupt
------------------------------- ----------------------------------
Name: Gerald K. Dinsmore Title: Managing Director
----------------------------- -------------------------------
Title: President
----------------------------
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth in the first paragraph hereof.
COMPANY: INVESTORS:
JATO COMMUNICATIONS CORP. CEA CAPITAL PARTNERS USA LP
By: /s/ Gerald K. Dinsmore By: /s/ James J. Collis
------------------------------- ----------------------------------
Name: Gerald K. Dinsmore Title: Executive Vice President
----------------------------- -------------------------------
Title: President
----------------------------
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth in the first paragraph hereof.
COMPANY: INVESTORS:
JATO COMMUNICATIONS CORP. CEA CAPITAL PARTNERS USA CI, L.P.
By: /s/ Gerald K. Dinsmore By: /s/ James J. Collis
------------------------------- ----------------------------------
Name: Gerald K. Dinsmore Title: Executive Vice President
----------------------------- -------------------------------
Title: President
----------------------------
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth in the first paragraph hereof.
COMPANY: INVESTORS:
JATO COMMUNICATIONS CORP.
By: /s/ Gerald K. Dinsmore /s/ Bruce E. Dines, Jr.
------------------------------- -------------------------------------
Name: Gerald K. Dinsmore Title:
----------------------------- -------------------------------
Title: President
----------------------------
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth in the first paragraph hereof.
COMPANY: INVESTORS:
JATO COMMUNICATIONS CORP.
By: /s/ Gerald K. Dinsmore /s/ Leonard Allsup
------------------------------- -------------------------------------
Name: Gerald K. Dinsmore Title:
----------------------------- -------------------------------
Title: President
----------------------------
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth in the first paragraph hereof.
COMPANY: INVESTORS:
JATO COMMUNICATIONS CORP.
By: /s/ Gerald K. Dinsmore /s/ Brian E. Gast
------------------------------- -------------------------------------
Name: Gerald K. Dinsmore Title:
----------------------------- -------------------------------
Title: President
----------------------------
11
<PAGE>
EXHIBIT A
JATO COMMUNICATIONS CORP.
INVESTORS' RIGHTS AGREEMENT
FOUNDERS
NAME AND ADDRESS:
Leonard Allsup
1099 18th Street, Suite 700
Denver, CO 80202
Bruce E. Dines
1099 18th Street, Suite 700
Denver, CO 80202
Brian E. Gast
1099 18th Street, Suite 700
Denver, CO 80202
SERIES A HOLDERS
Leonard Allsup, as Custodian for Alexandra L. Allsup
1099 18th Street, Suite 700
Denver, CO 80202
Joe G. Allsup and Agnes A. Allsup
3708 East 85th Place
Tulsa, OK 74137
Mary Beazley
P.O. Box 62028
Colorado Springs, CO 80962
Andrew Bermingham
27 Gledhow Gardens
Number 6
London, England sw5oaz
Buck Blessing
1501 Wood Avenue
Colorado Springs, CO 80907
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<PAGE>
Edward Brokaw
c/o BT Alex. Brown
P.O. Box 2612
Greenwich, CT 06836
Charles Callaway
1616 17th Street, Suite 600
Denver, CO 80202
First Trust Corporation FBO TTEE, Randall A. Carter, acct. #x204622-0001
332 Vine Street
Denver, CO 80206
William R. Cullen
5 Diamonte Lane
Palos Verdes, CA 90275
Bruce E. Dines
2552 E. Alameda Street #23
Denver, CO 80209
Dorothy Dines
2552 E. Alameda Street #23
Denver, CO 80209
Aaron E. Gast
878 Jefferson Way
West Chester, PA 19380
Beverly S. Gast
9233 Germantown Avenue
Philadelphia, PA 19118
Gregory & Nancy Gast
1011 Hawthorne Lane
Fort Washington, PA 19034
Edverna Gilbert
6910 Sandalwood Dr.
Broomfield, MI 48301
Gilbert Family Trust
1211 Whispering Oaks Drive
Danville, CA 94506
13
<PAGE>
Trustee F.B.O. FWD Corporation Savings & Profit Sharing Trust,
James M. Green, Segregated Account
c/o - James P. Cooney, President
Pension Inc., Trustee
136 N. Maple Avenue
Green Bay, WI 54303
COPY OF ANY CORRESPONDENCE TO :
James M. Green, Segregated Account
W8397 Cloverleaf Lake Road
Clintonville, WI 54929
Ian C. and Susan D. Griffis
3519 E. Palmer Divide Road
Larkspur, CO 80118
Robert J. Grubb
7259 Longview Drive
Niwot, CO 80503
David and Brenda Hebble
11375 E. Berry Drive
Englewood, CO 80111
Michael D. Johnson
1185 River Road
Sunshine, LA 70780
Trustee F.B.O. FWD Corporation Savings & Profit Sharing Trust,
Joseph L. Kaufmann, Segregated Account
c/o - James P. Cooney, President
Pension Inc., Trustee
136 N. Maple Avenue
Green Bay, WI 54303
COPY OF ANY CORRESPONDENCE TO:
Joseph L. Kaufmann, Segregated Account
N2541 Lakeshore Drive
Bonduel, WI 54107
Gerard A. Maglio
5640 S. Bellaire Court
Greenwood Village, CO 80121
14
<PAGE>
Louise A. McConnell and Jerry McConnell
8703 East 62nd Place
Tulsa, OK 74133
David Miller
680 West Sam Houston Parkway South #3104
Houston, TX 77042
Pamela Murdock
809 Illinois Street
Golden, CO 80401
Charles O'Brien
2011 Sunnydale Road
Pittsburgh, PA 15243
John M. and Cindy K. O'Brien
9706 West 128th Terr
Overland Park, KS 66213
Lisa Pheil
213 W. Moreland Road
Hatboro, PA 19040
Jerome C. Ramsey
506 Providence Drive
Castle Rock, CO 80104
William Seybold
Retirement Accounts & Co.
FBO William R. Seybold
P.O. Box 173785
Denver, CO 80217-3785
Brent D. Smith
6649 88th Place
Tulsa, OK 74133
Larry D. Smith and Marcella M. Smith
6649 East 88th Place
Tulsa, OK 74133
Edward H. Snowden
1 Stevens Road
Marblehead, MA 01945
15
<PAGE>
Somes Ventures, LLC
P.O. Box 1981
Avon, CO 81620
John W. Street
P.O. Box 62028
Colorado Springs, CO 80962
Winterscheidt & Villiotti PC Profit Sharing Plan and Trust
5613 DTC Parkway, Suite 850
Greenwood Village, CO 80111
Hildreth Wold
920 South Beech Street
Casper, WY 82601
George F. Wood
959 S. Williams Street
Denver, CO 80209
SERIES B HOLDERS
Crest Communications Partners L.P.
320 Park Avenue
17th Floor
New York, NY 10022
Attn: Gregg Mockenhaupt
CEA Capital Partners USA, L.P.
17 State Street
35th Floor
New York, NY 10004
Attn: Steve McCall
CEA Capital Partners USA
CI, L.P.
17 State Street
35th Floor
New York, NY 10004
Attn: Steve McCall
16
<PAGE>
ABN AMRO Capital (USA), Inc.
208 S. LaSalle Street
10th Floor
Chicago, IL 60604
Attn: Daniel Forman
I Eagle Trust
208 S. LaSalle Street
10th Floor
Chicago, IL 60604
Attn: Daniel Forman
ABN AMRO Incorporated
208 S. LaSalle Street
10th Floor
Chicago, IL 60604
Attn: Daniel Forman
Access Technology Partners, L.P.
Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
Attn: Alex Sloan
Access Technology Partners
Brokers Fund, L.P.
Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
Attn: Alex Sloan
Hambrecht & Quist California
One Bush Street
San Francisco, CA 94104
Attn: Alex Sloan
Hambrecht & Quist Employee Venture Fund, L.P. II
One Bush Street
San Francisco, CA 94104
Attn: Alex Sloan
17
<PAGE>
H&Q Jato Communications
Investors, L.P.
Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
John P. Raeder, Jr. and Deborah
M. Raeder, as Joint Tenants
5625 S. Bellaire Ct.
Greenwood Village, CO 80121
Gilbert Family Trust
1211 Whispering Oaks
Danville, CA 94506
Attn: Dean Gilbert
Jeffrey D. Morgan
2883 Lee Hill Road
Boulder, CO 80302
Karin W. Morgan
2883 Lee Hill Road
Boulder, CO 80302
Marty S. Clayman
2401 Shady Oak Place
Lexington, KY 40515
Robert J. Grubb
7259 Longview Drive
Niwot, CO 80503
Richard K. Coleman, Jr.
22 Viking Drive
Englewood, CO 80110
18
<PAGE>
GC&H Investments
C/o Cooley Godward LLP
One Maritime Plaza
20th Floor
San Francisco, CA 94111
Attn: John Cardoza
Michael S. Grunwald
C/o Lehman Brothers
555 California Street
30th Floor
San Francisco, CA 94104
Mark T. Stolte
22595 Treetop Lane
Golden, CO 80401
Seybold Brothers Investments
4075 Hermitage Road
Colorado Springs, CO 80906
Attn: William Seybold
Leonard Allsup
1720 Wyncoop
Unit 203
Denver, CO 80202-1077
William J.B. Brady III
Credit Suisse First Boston
2400 Hanover Street
Palo Alto, CA 94304
Stephen S. Hyde and Lorreen L.
George, joint tenants w/right of
survivorship
31 Broadmoor Avenue
Colorado Springs, CO 80906
Frank P. Quattrone and
Denise Foderavo, Trustees
Quattrone Family Trust UTA
DTD 9/14/91
Credit Suisse First Boston
2400 Hanover Street
Palo Alto, CA 94304
19
<PAGE>
Ian C. and Susan D. Griffis
3519 E. Palmer Divide Road
Larkspur, CO 80118
Charles Calloway
1616 17th Street, Suite 600
Denver, CO 80202
Mark Mangiola
425 Broadway Street
Redwood City, CA 94063
Benefactor Funding Corp.
234 Columbine Street
Suite 240
Denver, CO 80206
Attn: Randy Carter
Richard & Julie K. Wham
JTWROS
15 Polo Club Drive
Denver, CO 80209
Gerald H. Parrick III
25 Sandlewood Drive
Novato, CA 94945
Bruce E. Dines, Jr.
825 York Street
Denver, CO 80206
Jill S. Dines
825 York Street
Denver, CO 80206
Katherine Dines
2000 Little Raven #1-C
Denver, CO 80202
Curtis J. Ahart
6090 Spruce Hill Court
Shorewood, MN 55331
Keith Bennett
16728 E. Prentice Circle
Aurora, CO 80015
20
<PAGE>
SERIES C HOLDERS
NAME AND ADDRESS
Mayfield X, L.P.
2800 Sand Hill Road
Suite 250
Menlo Park, CA 94025
Attn: Todd Brooks
Mayfield Associates Fund IV, L.P.
2800 Sand Hill Road
Suite 250
Menlo Park, CA 94025
Attn: Todd Brooks
Mayfield Principals Fund, L.L.C.
2800 Sand Hill Road
Suite 250
Menlo Park, CA 94025
Attn: Todd Brooks
Crest Communications Partners L.P.
320 Park Avenue
17th Floor
New York, NY 10022
Attn: Gregg Mockenhaupt
CEA Capital Partners USA, L.P.
17 State Street
35th Floor
New York, NY 10004
Attn: Steve McCall
CEA Capital Partners USA CI, L.P.
17 State Street
35th Floor
New York, NY 10004
Attn: Steve McCall
ABN AMRO Capital (USA), Inc.
208 S. LaSalle Street
10th Floor
21
<PAGE>
Chicago, IL 60604
Attn: Daniel Foreman
I Eagle Trust
208 S. LaSalle Street
10th Floor
Chicago, IL 60604
Attn: Daniel Foreman
ABN AMRO Incorporated
208 S. LaSalle Street
10th Floor
Chicago, IL 60604
Attn: Daniel Foreman
Access Technology Partners, L.P.
Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
Attn: Alex Sloan
Access Technology Partners Brokers Fund, L.P.
Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
Attn: Alex Sloan
Hambrecht & Quist California
Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
Attn: Alex Sloan
Hambrecht & Quist Employee
Venture Fund, L.P. II
Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
Attn: Alex Sloan
22
<PAGE>
H&Q JATO Communications Investors, L.P.
Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
Attn: Alex Sloan
TCI Satellite Entertainment, Inc.
8085 S. Chester Street
Suite 110
Englewood, CO 80112
Attn: Ken Carroll
Keith Bennett
16728 E. Prentice Circle
Aurora, CO 80015
Jeffrey D. Morgan
2883 Lee Hill Road
Boulder, CO 80302
Karin W. Morgan
2883 Lee Hill Road
Boulder, CO 80302
John P. Raeder, Jr. and Deborah
M. Raeder, as Joint Tenants
5625 S. Bellaire Ct.
Greenwood Village, CO 80121
Michael S. Grunwald
340 Lombard Street
Apt. A
San Francisco, CA 94133
23
<PAGE>
Gerald K. Dinsmore
c/o Jato Communications Corp.
1099 18th Street
Denver, CO 80202
Jerome C. Ramsey
506 Providence Drive
Castle Rock, CO 80104
Robert G. Vidal and Tina M.
Vidal, as Joint Tenants
5 Snowy Owl Lane
Littleton, CO 80127
Gerard A. Maglio
5640 S. Bellaire Court
Greenwood Village, CO 80121
Rex Humston
6889 S. Salida Street
Foxfield, CO 80016
Edward Ziehm
864 Meadow Rose Lane
Castle Rock, CO 80104
24
<PAGE>
Trustee F.B.O. FWD Corporation
Savings & Profit Sharing Trust,
James M. Green, Segregated
Account
c/o - James P. Cooney, President
Pension Inc., Trustee
136 N. Maple Avenue
Green Bay, WI 54303
COPY OF ANY CORRESPONDENCE TO :
James M. Green, Segregated Account
W8397 Cloverleaf Lake Road
Clintonville, WI 54929
Patrick M. Green
12098 W. 75th Place
Arvada, CO 80005
William D. Myers and Dana D.
Myers, as Joint Tenants
3822 South Sebring Court
Denver, CO 80237
Marty S. Clayman
2401 Shady Oak Place
Lexington, KY 40515
Bato, LLC
8136 S. Grant Way
Littleton, CO 80122
SERIES D HOLDERS
NAME AND ADDRESS
25
<PAGE>
U.S. Telesource, Inc.
555 Seventeenth Street
Denver, CO 80202
Attn:_____________
Facsimile: 303-992-1724
Microsoft Corporation
One Microsoft Way
Redmond, WA 98052
Attn: Michael Leitner
Facsimile:
26
<PAGE>
EXHIBIT B
JATO COMMUNICATIONS CORP.,
A DELAWARE CORPORATION
CERTIFICATE OF REPRESENTATIONS
REGARDING QUALIFIED SMALL BUSINESS STOCK
THIS CERTIFICATE OF REPRESENTATIONS REGARDING QUALIFIED SMALL BUSINESS STOCK
(this "Certificate") is executed as of September __, 1999 by Jato
Communications Corp., a Delaware corporation (the "Company"), for the benefit
of Mayfield ____________, a Delaware Limited Partnership ("Mayfield"). As
used herein, the term "Stock" means those shares of Company stock issued by
the Company to Mayfield and described more fully on Schedule A hereto.
REPRESENTATIONS
Subject to the limitations and qualifications set forth below, the Company
hereby represents as follows:
1. The Company has conducted a reasonable investigation into the question
of whether the Stock is "qualified small business stock" ("QSBS") within the
meaning of Section 1202(c) of the Internal Revenue Code of 1986, as amended
(the "Code"); and
2. As of the date first above written, and assuming that Mayfield has not
sold, distributed, or otherwise transferred the Stock, all of the Stock is
QSBS.
QUALIFICATIONS AND LIMITATIONS
1. Qualification of the Stock as QSBS is based, in part, on the value of
Company stock or other assets at certain relevant times. For purposes of the
representations made in this Certificate, the Company has made a good faith
determination of such values, taking into account all material facts and
circumstances, but cannot guarantee that the Internal Revenue Service will
not successfully assert that such determination is incorrect.
2. Qualification of the Stock as QSBS is based, in part, on whether the
Company has been engaged in the active conduct of one or more qualified
trades or businesses. The term "qualified trade or business" set forth in
Section 1202(e)(3) of the Code is not clearly defined in all respects. For
purposes of the representations made in this Certificate, the Company has
made a good faith effort to apply the definition of qualified trade or
business set forth in Section 1202(e)(3) of the
27
<PAGE>
Code, but cannot guarantee that the Internal Revenue Service will not
successfully assert a contrary definition.
3. Qualification of the Stock as QSBS is based, in part, on whether at
least eighty percent (by value) of the Company's assets have been used in the
active conduct of one or more qualified trades or businesses. For this
purpose, assets held as "working capital" of a qualified trade or business
within the meaning of Section 1202(e)(6) of the Code are treated as used in
the active conduct of such trade or business. The term "working capital" set
forth in Section 1202(e)(6) of the Code is not clearly defined in all
respects. For purposes of the representations made in this Certificate, the
Company has made a good faith effort to apply the definition of working
capital set forth in Section 1202(e)(6) of the Code, but cannot guarantee
that the Internal Revenue Service will not successfully assert a contrary
definition.
4. Qualification of the Stock as QSBS is based, in part, on whether the
Company purchased any of its stock from a person related to Mayfield during a
relevant testing period. For purposes of the representations made in this
Certificate, the Company has made a good faith determination that such
purchases did not occur, but cannot guarantee that the Internal Revenue
Service will not successfully assert that such determination is incorrect.
5. While the representations contained herein are made in good faith, the
Company assumes no liability for the failure of the Stock to qualify as QSBS.
IN WITNESS WHEREOF, the Company has executed this Certificate as of the date
first above written.
BY:
-----------------------------
TITLE:
--------------------------
28
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Class/Type of Stock Certificate Number Number of Shares Issue Date
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Series C Preferred Stock
</TABLE>
<PAGE>
EXHIBIT C
JATO COMMUNICATIONS CORP.
SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT,
DATED JANUARY 20, 2000
ADDITIONAL PARTY SIGNATURE PAGE
Pursuant to Section 11.4 of that certain Second Amended and Restated
Investors' Rights Agreement dated January 20, 2000 among Jato Communications
Corp. and the Investors set forth therein, the undersigned hereby executes
this Additional Party Signature Page and authorizes this signature page to be
attached as a counterpart of such agreement and agrees to be bound by such
agreement as if the undersigned had executed such agreement on the date of
its original execution.
This Additional Party Signature Page may be executed in counterparts, each of
which shall be deemed an original but all of which shall constitute one and
the same instrument.
DATE:
----------------
------------------------------
Print Name of Investor
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE>
JATO COMMUNICATIONS CORP.
SECOND AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
<PAGE>
JATO COMMUNICATIONS CORP.
SECOND AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
THIS SECOND AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT (the
"AGREEMENT") is made as of this 20th day of January, 2000, by and among JATO
COMMUNICATIONS CORP., a Delaware corporation (the "COMPANY"), the holders of
the Company's Common Stock listed on EXHIBIT A hereto (the "COMMON HOLDERS"),
the holders of the Company's Series B Preferred Stock listed on EXHIBIT B
hereto (the "SERIES B HOLDERS"), the holders of the Company's Series C
Preferred Stock listed on EXHIBIT C hereto (the "SERIES C HOLDERS") and the
holders of the Company's Series D Preferred Stock listed on EXHIBIT D hereto
(the "SERIES D HOLDERS").
RECITALS
WHEREAS, in connection with the sale of the Company's Series C Preferred
Stock to the Series C Holders, the Company, the Common Holders, the Series B
Holders and the Series C Holders entered into an Amended and Restated
Stockholders' Agreement, dated as of September 16, 1999, as amended by the
First Amendment to Amended and Restated Stockholders' Agreement, dated as of
December 22, 1999 (the "PRIOR AGREEMENT") to provide for the future voting of
their shares of the Company's capital stock;
WHEREAS, the Series D Holders are purchasing shares of the Company's
Series D Preferred Stock (the "SERIES D STOCK") pursuant to those certain
Series D Preferred Stock Purchase Agreements (the "PURCHASE AGREEMENTS");
WHEREAS, such Series D Holders were induced by the Company to purchase
the Series D Stock in part by the agreement of the Company, the Stockholders,
the Series B Holders and the Series C Holders to enter into this Agreement;
and
WHEREAS, it is a condition precedent to the obligations of the Series D
Holders to purchase the Series D Stock pursuant to the Purchase Agreements
that the parties hereto enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, the parties agree hereto as follows:
1. GENERAL
(a) AMENDMENT AND RESTATEMENT OF THE PRIOR AGREEMENT. The undersigned
parties who constitute the parties necessary to amend the Prior Agreement
hereby agree that, effective upon the date hereof, the Prior Agreement is
null and void and superseded by the rights and obligations set forth in this
Agreement.
1
<PAGE>
2. DEFINITIONS.
(a) "COMMON SHARES" shall mean all shares of capital stock of the
Company registered in the names of the Common Holders or beneficially owned
by them as of the date hereof and any and all other securities of the Company
legally acquired by the Common Holders after the date hereof.
(b) "INITIAL OFFERING" shall mean the Company's first firm commitment
underwritten public offering of its Common Stock registered under the
Securities Act of 1933.
(c) "INVESTORS" shall include the Common Holders, the Series B Holders,
the Series C Holders and the Series D Holders.
(d) "QUALIFIED PUBLIC OFFERING" shall mean a firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933 covering the offer and sale of Common Stock
for the account of the Company in which (i) the per share price is at least
equal to the "Target Percentage" (as hereinafter defined) multiplied by the
then-effective Series B Conversion Price (the "SERIES B CONVERSION PRICE"),
determined in accordance with the Company's Restated Certificate of
Incorporation, as filed with the Secretary of State of the State of Delaware
(the "THRESHOLD PRICE"), (ii) the gross cash proceeds to the Company (before
underwriting discounts, commissions and fees) are at least $30,000,000 and
(iii) the shares of Common Stock are listed on any national securities
exchange or have been registered under Section 12(g) of the Securities
Exchange Act of 1934. As used herein, "TARGET PERCENTAGE" shall mean (A) an
amount equal to the product of 2.5 and $1.50 (as adjusted for stock
dividends, combinations, splits, recapitalizations and the like) prior to the
third anniversary of the date hereof and (B) an amount equal to the product
of 3.5 and $1.50 (as adjusted for stock dividends, combinations, splits,
recapitalizations and the like) on or after the third anniversary of the date
hereof.
(e) "SERIES B SHARES" shall mean all shares of capital stock of the
Company registered in the names of the Series B Holders or beneficially owned
by them as of the date hereof and any and all other securities of the Company
legally acquired by the Series B Holders after the date hereof (including but
not limited to all shares of Common Stock issued upon conversion of, or as
dividends or other rights with respect to, the Series B Stock).
(f) "SERIES C SHARES" shall mean all shares of capital stock of the
Company registered in the names of the Series C Holders or beneficially owned
by them as of the date hereof and any and all other securities of the Company
legally acquired by the Series C Holders after the date hereof (including but
not limited to all shares of Common Stock issued upon conversion of, or as
dividends or other rights with respect to, the Series C Stock).
(g) "SERIES D SHARES" shall mean all shares of capital stock of the
Company registered in the names of the Series D Holders or beneficially owned
by them as of the date hereof and any and all other securities of the Company
legally acquired by the Series D Holders after the date hereof (including but
not limited to all shares of Common Stock issued upon conversion of, or as
dividends or other rights with respect to, the Series C Stock).
2
<PAGE>
(g) "SHARES" shall mean the Company's (i) Common Shares, (ii) the
Series B Shares, (iii) the Series C Shares, and (iv) the Series D Shares.
3. APPROVED SALE.
(a) VOTING OF SHARES. The Common Holders, the Series B Holders, the
Series C Holders and the Series D Holders each agree to vote their respective
Common Shares, Series B Shares, Series C Shares and Series D Shares in
accordance with the provisions of this Section 3.
(b) DRAG-ALONG PROVISION. At any time following the first anniversary
of the date of this Agreement, (i) the holders of more than seventy-five
percent (75%) of the Series B Shares then outstanding and (ii) the holders of
a majority of the outstanding capital stock of the Company then outstanding
(the "REQUISITE HOLDERS") shall have the option to compel a sale of the
Company or of all or substantially all of the Company's assets at any time (a
"DRAG-ALONG SALE"); PROVIDED, THAT, in the event that the holders of Series B
Shares constitute at least a majority of the outstanding capital stock of the
Company (on an as-converted basis) the provisions of Section 3(b)(ii) shall
not apply. The Drag-Along Right established by this Section 3(b) shall not
apply to, and shall terminate upon, the Company's consummation of an Initial
Offering.
(c) FORCED SALE. The Company hereby covenants and agrees that, if the
Company has not effected a Qualified Public Offering or obtained the Minimum
Trading Requirement (as defined below) prior to the fourth anniversary of the
date of this Agreement, the Company shall use commercially reasonable
efforts, including retaining an appropriate investment bank reasonably
satisfactory to a majority in interest of the Series B Holders, to identify a
suitable purchaser of the Company to be effected by means of a merger,
consolidation or sale of stock or assets, auction or otherwise at such time
(a "FORCED SALE," and, together with a Drag-Along Sale, an "APPROVED SALE").
As used herein, the "MINIMUM TRADING REQUIREMENT" shall be obtained following
an Initial Offering on the business day following the end of a one hundred
eighty (180) consecutive day period during which the average closing price of
the Company's Common Stock on each such day exceeded the Threshold Price.
(d) NO OBJECTIONS. Each Investor agrees that in the event of an
Approved Sale, it shall consent to and raise no objections against the
Approved Sale, and if the Approved Sale is structured as (i) a merger or
consolidation of the Company, or a sale of all or substantially all of the
Company's assets, each such Investor shall waive any dissenters' rights,
appraisal rights or similar rights in connection with such merger,
consolidation or asset sale or (ii) a sale of the stock of the Company, then
each such Investor shall agree to sell its respective Shares on the terms and
conditions approved by the Requisite Holders, PROVIDED, THAT, such terms do
not provide that the Series B Holders, Series C Holders or Series D Holders
would receive less than the amount that would be distributed to such Series B
Holders, Series C Holders or Series D Holders in the event of a liquidation
of the Company in accordance with the Company's Restated Certification of
Incorporation. The Investors shall each take all necessary and desirable
actions approved by the Requisite Holders, in connection with the
consummation of the Approved Sale, including the execution of such agreements
and such instruments and other actions reasonably necessary to (i) provide
the representations, warranties, indemnities, covenants, conditions,
non-compete agreements, escrow agreements and other provisions and agreements
relating to
3
<PAGE>
such Approved Sale and (ii) effectuate the allocation and distribution of the
aggregate consideration upon the Approved Sale.
4. RESTRICTIONS ON TRANSFER; LEGEND.
(a) RESTRICTIONS ON TRANSFER.
(i) Each Investor agrees not to make any disposition of all or any
portion of the Shares unless and until the transferee has agreed in writing
for the benefit of the Company to be bound by this Section 4(a) unless and
until:
(A) There is then in effect a registration statement under
the Securities Act of 1933 covering such proposed disposition and such
disposition is made in accordance with such registration statement; or
(B) (1) Such Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition and (2)
if reasonably requested by the Company, such Investor shall have furnished
the Company with an opinion of counsel, reasonably satisfactory to the
Company, that such disposition will not require registration of such shares
under the Securities Act of 1933 or any applicable state securities or Blue
Sky laws. It is agreed that the Company will not require opinions of counsel
for transactions made pursuant to Rule 144 except in unusual circumstances.
(C) Notwithstanding the provisions of paragraphs (A) and (B)
above, no such registration statement or opinion of counsel shall be
necessary for a transfer by an Investor which is (1) a partnership to any or
all of its partners or former partners, (2) a corporation to its stockholders
in accordance with their interest in the corporation, (3) a limited liability
company to its members or former members in accordance with their membership
interest, (4) by a trust to its beneficiaries in accordance with their
interests in the trust, (5) to the Investor's family member or trust for the
benefit of an individual Investor or (6) to an affiliate of the Investor;
PROVIDED, THAT, the transferee will be subject to the terms of this Agreement
to the same extent as if he were an original Investor hereunder; and
PROVIDED, FURTHER, HOWEVER, that such transfer is pursuant to an exemption
under the Securities Act of 1933.
PROVIDED, HOWEVER, that in connection with any such transfer or disposition
other than as described in paragraph (A) above, the transferee shall have
agreed in writing to be bound by the provisions of the Agreement.
(b) Each certificate representing Shares now or hereafter owned by an
Investor or issued to any person shall be endorsed with the following legend:
FIRST LEGEND:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF UNLESS AND
4
<PAGE>
UNTIL REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED.
SECOND LEGEND:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS
AND CONDITIONS OF A CERTAIN SECOND AMENDED AND RESTATED STOCKHOLDERS'
AGREEMENT WHICH PLACES CERTAIN RESTRICTIONS ON THE SHARES REPRESENTED
HEREBY. ANY PERSON ACCEPTING ANY INTEREST IN SUCH SHARES SHALL BE
DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF
SUCH AGREEMENT. COPIES OF SUCH AGREEMENT MAY BE OBTAINED WITHOUT
CHARGE UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY AT ITS
PRINCIPAL PLACE OF BUSINESS."
(c) The Investors agree that the Company may instruct its transfer
agent to impose transfer restrictions on the shares represented by
certificates bearing the legend referred to in Section 4(b) above to enforce
the provisions of this Agreement and the Company agrees to promptly do so.
The Company agrees that, during the term of this Agreement, it will not
remove, and it will not permit to be removed, the legend from any certificate
and will place or cause to be placed the legend on any new certificate issued
to represent Common Shares. The legend shall be removed upon termination of
this Agreement.
5. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be and construed and enforced
in accordance with the laws of the State of Colorado without regard to its
conflict-of-laws rules.
(b) ASSIGNS. Except as otherwise expressly provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors, and administrators of the parties
hereto and shall inure to the benefit of and be enforceable by each person
who shall be a holder of Shares from time to time.
(c) SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
(d) SUBSEQUENT COMMON HOLDERS. No person or persons ("SUBSEQUENT
COMMON HOLDER") shall acquire, either by purchase or otherwise any shares of
common stock of the Company subsequent to the date hereof, unless such
Subsequent Common Holder shall become a party to this Agreement and agree to
be bound by the provisions hereof. Such Subsequent Common Holders shall be
considered "Common Holders" for all purposes hereof and all shares of common
stock of the Company held by such Subsequent Investors shall be deemed to be
"Common Shares" for all purposes hereof. Notwithstanding anything contrary
contained herein, if the Company shall issue any Common Shares as set forth
in the previous sentence, such
5
<PAGE>
Subsequent Common Holder may become a party to this Agreement by executing
and delivering an "Additional Party Signature Page" in the form set forth as
EXHIBIT E.
(e) ADDITION OF OTHER PARTIES. After the date of this Agreement, the
Company may, without the prior consent of the Investors, make additional
persons a party to this Agreement by executing an "Additional Party Signature
Page" in the form set forth as EXHIBIT E; provided that the inclusion of such
additional party is approved by the Company's board of directors.
Thereafter, the shares of capital stock held by such person or shares
issuable upon conversion of such securities shall be deemed Shares and such
investor shall be an "Investor" for purposes hereof and both of such
definitions shall be deemed duly and properly amended.
(f) AMENDMENT.
(i) Except as otherwise expressly provided, this Agreement may be
amended or modified only upon the written consent of the Company and (A) the
holders of a majority of the Series B Shares, Series C Shares and Series D
Shares or share equivalents then outstanding and (B) the holders of a
majority of the Common Shares then outstanding; PROVIDED, HOWEVER, that the
provisions of Sections 3(b) and (c) shall not be amended without the consent
of the holders of a majority of the Series B Shares.
(ii) Except as otherwise expressly provided, the obligations of the
Company and the rights of the Holders under this Agreement may be waived only
with the written consent of (A) the holders of a majority of the Series B
Shares, Series C Shares and Series D Shares or share equivalents then
outstanding and (B) the holders of a majority of the Common Shares then
outstanding.
(g) NOTICES. All notices required or permitted hereunder shall be
deemed effectively given: (i) upon personal delivery to the party to be
notified, (ii) when sent by confirmed telex or facsimile if sent during
normal business hours of the recipient; if not, then on the next business
day, (iii) upon receipt after having been sent by registered or certified
mail, return receipt requested, postage prepaid, or (iv) one (1) day after
deposit with a nationally recognized overnight courier, specifying next day
delivery, with written verification of receipt. All communications shall be
sent to the party to be notified at the address set forth on the signature
pages hereto or the exhibits hereto or at such other address as such party
may designate by ten (10) days' advance written notice to the other parties
hereto.
(h) ATTORNEYS' FEES. If legal action is brought to enforce or
interpret this Agreement, the prevailing party shall be entitled to recover
from the losing party all fees, costs and expenses of enforcing any rights of
such prevailing party under or with respect to this Agreement, including
without limitation, such reasonable fees and expenses of attorneys and
accountants, which shall include, without limitation, all fees, costs and
expenses of appeals.
(i) COMPLETE AGREEMENT. This Agreement constitutes the entire agreement
and supersedes all other prior and contemporaneous agreements and
undertakings, both written and oral, between the parties hereto with regard
to the subject matter hereof.
6
<PAGE>
(j) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(k) TITLES AND SUBTITLES. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
(l) INJUNCTIVE RELIEF. It is acknowledged that it will be impossible to
measure in money the damages that would be suffered if the parties fail to
comply with certain of the obligations imposed on them by this Agreement and
that, in the event of any such failure, an aggrieved person will be
irreparably damaged and will not have an adequate remedy at law. Any such
person shall, therefore, be entitled to injunctive relief and/or specific
performance to enforce such obligations, and if any action should be brought
in equity to enforce any of such provisions of this Agreement, none of the
parties hereto shall raise the defense that there is an adequate remedy at
law.
7
<PAGE>
IN WITNESS WHEREOF, the foregoing SECOND AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT is hereby executed as of the date first above written.
COMPANY: HOLDERS:
JATO COMMUNICATIONS CORP. MICROSOFT CORPORATION
1099 18th Street
Denver, Colorado 80202 By: /s/ John G. Connors
-----------------------------------
By: /s/ Gerald K. Dinsmore Title: SVP-CFO
------------------------------- --------------------------------
Name: Gerald K. Dinsmore
-----------------------------
Title: President
----------------------------
SECOND AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the foregoing SECOND AMENDED AND RESTATED STOCKHOLDERS'
AGREEMENT is hereby executed as of the date first above written.
COMPANY: HOLDERS:
JATO COMMUNICATIONS CORP. MAYFIELD ASSOCIATES FUND IV
1099 18th Street
Denver, Colorado 80202 By: /s/ Todd A. Brooks
------------------------------------
By: /s/ Gerald K. Dinsmore Title: General Partner
------------------------------- --------------------------------
Name: Gerald K. Dinsmore
-----------------------------
Title: President
----------------------------
<PAGE>
IN WITNESS WHEREOF, the foregoing SECOND AMENDED AND RESTATED STOCKHOLDERS'
AGREEMENT is hereby executed as of the date first above written.
COMPANY: HOLDERS:
JATO COMMUNICATIONS CORP. MAYFIELD PRINCIPALS FUND LLC
1099 18th Street
Denver, Colorado 80202 By: /s/ Todd A. Brooks
-----------------------------------
By: /s/ Gerald K. Dinsmore Title: General Partner
------------------------------- --------------------------------
Name: Gerald K. Dinsmore
-----------------------------
Title: President
----------------------------
<PAGE>
IN WITNESS WHEREOF, the foregoing SECOND AMENDED AND RESTATED STOCKHOLDERS'
AGREEMENT is hereby executed as of the date first above written.
COMPANY: HOLDERS:
JATO COMMUNICATIONS CORP. MAYFIELD X
1099 18th Street
Denver, Colorado 80202 By: /s/ Russell C. Hirsch
-----------------------------------
By: /s/ Gerald K. Dinsmore Title: General Partner
------------------------------- --------------------------------
Name: Gerald K. Dinsmore
-----------------------------
Title: President
----------------------------
<PAGE>
IN WITNESS WHEREOF, the foregoing SECOND AMENDED AND RESTATED STOCKHOLDERS'
AGREEMENT is hereby executed as of the date first above written.
COMPANY: HOLDERS:
JATO COMMUNICATIONS CORP. ABN AMRO, INC.
1099 18th Street I EAGLE TRUST
Denver, Colorado 80202 ABN AMRO CAPITAL (USA), INC.
By: /s/ Gerald K. Dinsmore By: /s/ Daniel J. Foreman
------------------------------- -----------------------------------
Name: Gerald K. Dinsmore Title: Managing Director
----------------------------- --------------------------------
Title: President
----------------------------
<PAGE>
IN WITNESS WHEREOF, the foregoing SECOND AMENDED AND RESTATED STOCKHOLDERS'
AGREEMENT is hereby executed as of the date first above written.
COMPANY: HOLDERS:
JATO COMMUNICATIONS CORP. CREST COMMUNICATIONS PARTNERS LP
1099 18th Street
Denver, Colorado 80202 By: /s/ Gregg A. Mockenhaupt
-----------------------------------
By: /s/ Gerald K. Dinsmore Title: Managing Director
------------------------------- --------------------------------
Name: Gerald K. Dinsmore
-----------------------------
Title: President
----------------------------
<PAGE>
IN WITNESS WHEREOF, the foregoing SECOND AMENDED AND RESTATED STOCKHOLDERS'
AGREEMENT is hereby executed as of the date first above written.
COMPANY: HOLDERS:
JATO COMMUNICATIONS CORP. CEA CAPITAL PARTNERS USA LP
1099 18th Street
Denver, Colorado 80202 By: /s/ James J. Collis
-----------------------------------
By: /s/ Gerald K. Dinsmore Title: Executive Vice President
------------------------------- --------------------------------
Name: Gerald K. Dinsmore
-----------------------------
Title: President
----------------------------
<PAGE>
IN WITNESS WHEREOF, the foregoing SECOND AMENDED AND RESTATED STOCKHOLDERS'
AGREEMENT is hereby executed as of the date first above written.
COMPANY: HOLDERS:
JATO COMMUNICATIONS CORP. CEA CAPITAL PARTNERS USA CI, L.P.
1099 18th Street
Denver, Colorado 80202 By: /s/ James J. Collis
-----------------------------------
By: /s/ Gerald K. Dinsmore Title: Executive Vice President
------------------------------- --------------------------------
Name: Gerald K. Dinsmore
-----------------------------
Title: President
----------------------------
<PAGE>
IN WITNESS WHEREOF, the foregoing SECOND AMENDED AND RESTATED STOCKHOLDERS'
AGREEMENT is hereby executed as of the date first above written.
COMPANY: HOLDERS:
JATO COMMUNICATIONS CORP.
1099 18th Street
Denver, Colorado 80202 /s/ Bruce E. Dines, Jr.
--------------------------------------
By: /s/ Gerald K. Dinsmore Title:
------------------------------- --------------------------------
Name: Gerald K. Dinsmore
-----------------------------
Title: President
----------------------------
<PAGE>
IN WITNESS WHEREOF, the foregoing SECOND AMENDED AND RESTATED STOCKHOLDERS'
AGREEMENT is hereby executed as of the date first above written.
COMPANY: HOLDERS:
JATO COMMUNICATIONS CORP.
1099 18th Street
Denver, Colorado 80202 /s/ Leonard Allsup
--------------------------------------
By: /s/ Gerald K. Dinsmore Title:
------------------------------- --------------------------------
Name: Gerald K. Dinsmore
-----------------------------
Title: President
----------------------------
<PAGE>
IN WITNESS WHEREOF, the foregoing SECOND AMENDED AND RESTATED STOCKHOLDERS'
AGREEMENT is hereby executed as of the date first above written.
COMPANY: HOLDERS:
JATO COMMUNICATIONS CORP.
1099 18th Street
Denver, Colorado 80202 /s/ Brian E. Gast
--------------------------------
By: /s/ Gerald K. Dinsmore Title:
------------------------------- --------------------------------
Name: Gerald K. Dinsmore
-----------------------------
Title: President
----------------------------
<PAGE>
EXHIBIT A
COMMON HOLDERS
NAME AND ADDRESS:
Eliot Boyle
1099 18th Street, Suite 700
Denver, CO 80202
Patrick M. Green
1099 18th Street, Suite 700
Denver, CO 80202
Rex H. Humston
1099 18th Street, Suite 700
Denver, CO 80202
A-1
<PAGE>
EXHIBIT B
SERIES B HOLDERS
NAME AND ADDRESS:
Crest Communications Partners
L.P.
320 Park Avenue
17th Floor
New York, NY 10022
Attn: Gregg Mockenhaupt
CEA Capital Partners USA, L.P.
17 State Street
35th Floor
New York, NY 10004
Attn: Steve McCall
CEA Capital Partners USA
CI, L.P.
17 State Street
35th Floor
New York, NY 10004
Attn: Steve McCall
ABN AMRO Capital (USA), Inc.
208 S. LaSalle Street
10th Floor
Chicago, IL 60604
Attn: Daniel Forman
I Eagle Trust
208 S. LaSalle Street
10th Floor
Chicago, IL 60604
Attn: Daniel Forman
ABN AMRO Incorporated
208 S. LaSalle Street
10th Floor
Chicago, IL 60604
Attn: Daniel Forman
B-2
<PAGE>
Access Technology Partners, L.P.
Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
Attn: Alex Sloan
Access Technology Partners
Brokers Fund, L.P.
Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
Attn: Alex Sloan
Hambrecht & Quist California
One Bush Street
San Francisco, CA 94104
Attn: Alex Sloan
Hambrecht & Quist Employee
Venture Fund, L.P. II
One Bush Street
San Francisco, CA 94104
Attn: Alex Sloan
H&Q JATO Communications
Investors, L.P.
Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
John P. Raeder, Jr. and Deborah
M. Raeder, as Joint Tenants
5625 S. Bellaire Ct.
Greenwood Village, CO 80121
Gilbert Family Trust
1211 Whispering Oaks
Danville, CA 94506
Attn: Dean Gilbert
Jeffrey D. Morgan
2883 Lee Hill Road
Boulder, CO 80302
Karin W. Morgan
2883 Lee Hill Road
Boulder, CO 80302
B-3
<PAGE>
Marty S. Clayman
2401 Shady Oak Place
Lexington, KY 40515
Robert J. Grubb
7259 Longview Drive
Niwot, CO 80503
Richard K. Coleman, Jr.
22 Viking Drive
Englewood, CO 80110
GC&H Investments
C/o Cooley Godward LLP
One Maritime Plaza
20th Floor
San Francisco, CA 94111
Attn: John Cardoza
Michael S. Grunwald
C/o Lehman Brothers
555 California Street
30th Floor
San Francisco, CA 94104
Mark T. Stolte
22595 Treetop Lane
Golden, CO 80401
Seybold Brothers Investments
4075 Hermitage Road
Colorado Springs, CO 80906
Attn: William Seybold
Leonard Allsup
1720 Wyncoop
Unit 203
Denver, CO 80202-1077
William J.B. Brady III
Credit Suisse First Boston
2400 Hanover Street
Palo Alto, CA 94304
B-4
<PAGE>
Stephen S. Hyde and Lorreen L.
George, joint tenants w/right of
survivorship
31 Broadmoor Avenue
Colorado Springs, CO 80906
Frank P. Quattrone and
Denise Foderavo, Trustees
Quattrone Family Trust UTA DTD
9/14/91
Credit Suisse First Boston
2400 Hanover Street
Palo Alto, CA 94304
Ian C. and Susan D. Griffis
3519 E. Palmer Divide Road
Larkspur, CO 80118
Charles Calloway
1616 17th Street, Suite 600
Denver, CO 80202
Mark Mangiola
425 Broadway Street
Redwood City, CA 94063
Benefactor Funding Corp.
234 Columbine Street
Suite 240
Denver, CO 80206
Attn: Randy Carter
Richard & Julie K. Wham JTWROS
15 Polo Club Drive
Denver, CO 80209
Gerald H. Parrick III
25 Sandlewood Drive
Novato, CA 94945
Bruce E. Dines, Jr.
825 York Street
Denver, CO 80206
B-5
<PAGE>
Jill S. Dines
825 York Street
Denver, CO 80206
Katherine Dines
2000 Little Raven #1-C
Denver, CO 80202
Curtis J. Ahart
6090 Spruce Hill Court
Shorewood, MN 55331
Keith Bennett
16728 E. Prentice Circle
Aurora, CO 80015
B-6
<PAGE>
EXHIBIT C
SERIES C HOLDERS
NAME AND ADDRESS
Mayfield X, L.P.
2800 Sand Hill Road
Suite 250
Menlo Park, CA 94025
Attn: Todd Brooks
Mayfield Associates Fund IV, L.P.
2800 Sand Hill Road
Suite 250
Menlo Park, CA 94025
Attn: Todd Brooks
Mayfield Principals Fund, L.L.C.
2800 Sand Hill Road
Suite 250
Menlo Park, CA 94025
Attn: Todd Brooks
Crest Communications Partners L.P.
320 Park Avenue
17th Floor
New York, NY 10022
Attn: Gregg Mockenhaupt
CEA Capital Partners USA, L.P.
17 State Street
35th Floor
New York, NY 10004
Attn: Steve McCall
CEA Capital Partners USA CI, L.P.
17 State Street
35th Floor
New York, NY 10004
Attn: Steve McCall
ABN AMRO Capital (USA), Inc.
C-1
<PAGE>
NAME AND ADDRESS
208 S. LaSalle Street
10th Floor
Chicago, IL 60604
Attn: Daniel Foreman
I Eagle Trust
208 S. LaSalle Street
10th Floor
Chicago, IL 60604
Attn: Daniel Foreman
ABN AMRO Incorporated
208 S. LaSalle Street
10th Floor
Chicago, IL 60604
Attn: Daniel Foreman
Access Technology Partners, L.P.
Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
Attn: Alex Sloan
NAME AND ADDRESS
Access Technology Partners Brokers
Fund, L.P.
Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
Attn: Alex Sloan
Hambrecht & Quist California
Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
Attn: Alex Sloan
Hambrecht & Quist Employee Venture
Fund, L.P. II
Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
Attn: Alex Sloan
B-2
<PAGE>
NAME AND ADDRESS
H&Q JATO Communications Investors,
L.P.
Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
Attn: Alex Sloan
TCI Satellite Entertainment, Inc.
8085 S. Chester Street
Suite 110
Englewood, CO 80112
Attn: Ken
Keith Bennett
16728 E. Prentice Circle
Aurora, CO 80015
Jeffrey D. Morgan
2883 Lee Hill Road
Boulder, CO 80302
Karin W. Morgan
2883 Lee Hill Road
Boulder, CO 80302
John P. Raeder, Jr. and Deborah M.
Raeder, as Joint Tenants
5625 S. Bellaire Ct.
Greenwood Village, CO 80121
Michael S. Grunwald
340 Lombard Street
Apt. A
San Francisco, CA 94133
B-3
<PAGE>
NAME AND ADDRESS
Gerald K. Dinsmore
c/o Jato Communications Corp.
1099 18th Street
Denver, CO 80202
Jerome C. Ramsey
506 Providence Drive
Castle Rock, CO 80104
Robert G. Vidal and Tina M. Vidal,
as Joint Tenants
5 Snowy Owl Lane
Littleton, CO 80127
Gerard A. Maglio
5640 S. Bellaire Court
Greenwood Village, CO 80121
Rex Humston
6889 S. Salida Street
Foxfield, CO 80016
Ed Ziehm
864 Meadow Rose Lane
Castle Rock, CO 80104
B-4
<PAGE>
NAME AND ADDRESS
Trustee F.B.O. FWD Corporation
Savings & Profit Sharing Trust,
James M. Green, Segregated Account
c/o - James P. Cooney, President
Pension Inc., Trustee
136 N. Maple Avenue
Patrick M. Green
12098 W. 75th Place
Arvada, CO 80005
William D. Myers and Dana D.
Myers, as Joint Tenants
3822 South Sebring Court
Denver, CO 80237
Marty S. Clayman
2401 Shady Oak Place
Lexington, KY 40515
Bato, LLC
8136 S. Grant Way
Littleton, CO 80122
B-5
<PAGE>
EXHIBIT D
SERIES D HOLDERS
NAME AND ADDRESS
U.S. Telesource, Inc.
555 Seventeenth Street
Denver, CO 80202
Attn:_____________
Facsimile: 303-992-1724
Microsoft Corporation
One Microsoft Way
Redmond, WA 98052
Attn: Michael Leitner
Facsimile:
B-6
<PAGE>
EXHIBIT E
JATO COMMUNICATIONS CORP.
SECOND AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT, DATED JANUARY __, 2000
ADDITIONAL PARTY SIGNATURE PAGE
Pursuant to Section 5 [(d)] or [(e)] of that certain Second Amended and Restated
Stockholders' Agreement dated January __, 2000 among Jato Communications Corp.
and the Investors set forth therein, the undersigned hereby executes this
Additional Party Signature Page and authorizes this signature page to be
attached as a counterpart of such agreement and agrees to be bound by such
agreement as if the undersigned had executed such agreement on the date of its
original execution.
This Additional Party Signature Page may be executed in counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same instrument.
DATE:
-----------------
--------------------------------
Print Name of Investor
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
B-7
<PAGE>
[LOGO]
MASTER SERVICES AGREEMENT
THIS MASTER SERVICES AGREEMENT ("Master Agreement") is made and entered into
as of this 9th day of February, 2000 ("Effective Date") by and between QWEST
COMMUNICATIONS CORPORATION, a Delaware corporation or its Affiliates (as
defined herein) (collectively referred to as "Qwest"), having a principal
place of business at 555 Seventeenth Street, Denver, Colorado 80202
("Qwest"), and JATO COMMUNICATIONS CORP., a Delaware corporation ("Jato"),
having a principal place of business at 1099 18th Street, Suite 2200, Denver,
Colorado 80202. (Qwest and Jato are collectively referred to herein as the
"Parties", or individually as a "Party").
WHEREAS, Jato desires to purchase from Qwest, and Qwest desires to sell to
Jato, on a preferred provider basis, certain wholesale telecommunications,
Internet and data services (collectively, the "Qwest Services").
WHEREAS, Qwest desires to purchase from Jato, and Jato desires to sell to
Qwest, on a preferred provider basis, digital subscriber line ("DSL")
services (collectively, the "Jato Services").
WHEREAS, Qwest desires to purchase an equity interest in Jato.
NOW THEREFORE, the Parties agree as follows:
1. DEFINITIONS.
(1) Backbone Transport - "Backbone Transport" shall collectively refer to
Qwest's asynchronous transfer mode ("ATM") and DS-3 and OC-n leased private
line services.
(2) DSL Services - "DSL Services" shall mean those digital subscriber line
services furnished by a Party.
(3) Frame Relay Services - "Frame Relay Services" shall refer to Qwest's frame
relay services.
(4) IP Services - "IP Services" shall collectively refer to dedicated Internet
access ("DIA") services, web hosting services, and virtual private network
("VPN") services (including, without limitation, network, customer premises
equipment ("CPE"), dial and DSL).
(5) Metro Backhaul - "Metro Backhaul" shall mean local services utilized to
provide connectivity from Jato's central offices where Jato's DSL equipment
is located to Jato switching centers in cities where Qwest's backbone
service areas overlap.
(6) Qwest Agreements - "Qwest Agreements" shall collectively refer to the
Wholesale Agreement (as defined in Section 2.1(1)) and the IP Agreement (as
defined in Section 2.1(2)).
2. MASTER AGREEMENT; SERVICES.
2.1 MASTER AGREEMENT. The parties shall concurrently with the execution of
this Master Agreement enter into the following ancillary agreements: (i) the
stock purchase agreement and related documents (the "Equity Agreements"); and
(ii) the following agreements (each, a "Service Agreement," and collectively
referred to as the "Services Agreements"). The parties agree that the terms
and conditions of this Master Services Agreement will be incorporated into
the Services Agreements in full by this reference:
(1) Qwest Wholesale Services Agreement (the "Wholesale Agreement") for the
provision of Backbone Transport and Frame Relay Services by Qwest;
(2) Qwest Web Master Internet Services Agreement (the "IP Agreement") for the
provision of IP Services (other ancillary professional services furnished
by Qwest that are related to the IP Services will be handled in a separate
professional services agreement, to be negotiated in good faith by the
Parties); and
(3) Jato Services Agreement (the "Jato Agreement") for the provision of DSL
Services to Qwest by Jato.
DJS/Jato Page 1 of 6 02/09/00
QWEST CONFIDENTIAL
<PAGE>
The Parties acknowledge and agree that certain Services Agreements may not be
finalized and executed by the Parties on or before the Effective Date.
Accordingly, the Parties agree to negotiate in good faith and execute those
Services Agreements that have not been executed as of the Effective Date. If
the Parties are unable, after good faith negotiations, to execute any Service
Agreement, the Parties agree: (i) that such failure shall not constitute a
default under this Master Agreement, and (ii) that the amount of Jato's Usage
Commitment and Prepayment Amount shall be reduced pro rata by the amount of
the Qwest Agreements which the Parties were unable to execute.
2.2 QWEST DSL SERVICES. Qwest anticipates that it will be able to provide
Jato with wholesale DSL Services by Q4 2000, although Qwest's inability to
provide Jato DSL Services by such date shall not constitute a breach of this
Master Agreement or any Service Agreement. If Qwest is able to furnish Jato
with wholesale DSL Services, Qwest shall so notify Jato and the Parties will
negotiate in good faith a mutually agreeable amendment to the Wholesale
Agreement (the "DSL Amendment"). The DSL Amendment will confer upon Qwest
"preferred provider" status (as described herein) for those DSL Services
which Jato orders outside of its then-current service region, which the
Parties will mutually identify. Each DSL facility which Jato orders under the
DSL Amendment will have a minimum facility term of at least one (1) year.
Jato will use reasonable efforts, but does not guarantee, to supply Qwest
with a minimum of at least fifteen thousand (15,000) business-class DSL
subscribers during the Initial Term. Jato acknowledges and agrees that it
must meet its revenue commitment for "Allotment" DSL Services by the
appropriate milestones as provided in Section 4. In designating Qwest as its
"preferred provider" of DSL Services, Qwest will be Jato's first choice as a
DSL Service provider in the cities and central offices identified in the DSL
Amendment (that are identified as Qwest facility-based DSL networks and which
do not overlap with Jato's then-existing facilities-based DSL services).
Jato may award business to other providers if, after Qwest's "first right to
satisfy any order," Qwest is unable to meet Jato's end user service
requirements or service delivery schedules.
2.3 JATO DSL SERVICES. In the Jato Agreement, Qwest will designate Jato as
a Qwest "preferred provider" of DSL services during the Initial Term as the
"last mile" access connection to Qwest's data communication networks to be
identified by the Parties. In designating Jato its "preferred provider" of
DSL services, Jato will be Qwest's first choice as a DSL service provider in
the cities and central offices identified in the Jato Agreement, that do not
overlap with Qwest's DSL providers' existing as of the date of execution of
the Master Agreement and existing DSL footprint, and which do not overlap
areas where Qwest has deployed or plans to deploy its own facilities-based
DSL services. Qwest may award business to other providers if, after a right
of first refusal, Jato is unable to meet end customer service requirements or
service delivery schedules. Qwest shall make reasonable efforts to supply
Jato with a minimum of seventy five thousand (75,000) business-class DSL
subscribers during the Initial Term. The subscriber commitment in the
previous sentence *** a "take or pay" arrangement. Qwest will purchase each
circuit on a one (1) year term commitment. A specific requirement of pricing
is that Jato will always *** wholesale ILEC pricing for comparable services.
2.4 METRO BACKHAUL. The Parties agree to negotiate in good faith and
execute an agreement for Metro Backhaul Services within and outside the US
West, Inc. ("US West") territories. The Parties acknowledge and agree that
Qwest's ability to provide Metro Backhaul to Jato within the US West
territories is contingent upon the consummation of Qwest's proposed merger
with US West, which is subject to certain legal and regulatory approvals and
restrictions (the "US West Merger"). Jato acknowledges and agrees that
Qwest's current inability to provide Metro backhaul to Jato shall not
constitute a breach of this Master Agreement or any Qwest Agreement. In the
event the US West Merger is consummated and Qwest, as a result of such
merger, is reasonably able to provide Metro backhaul in the US West territory
to Jato, Qwest shall so notify Jato and the Parties will negotiate in good
faith a mutually agreeable amendment to an existing Qwest Agreement or new
services agreement.
3. TERM; TERMINATION.
3.1 The term of this Master Agreement shall commence on the Effective Date
and remain in effect for five and one-half (5.5) Annual Periods (as defined
herein) (the "Initial Term"). After the expiration of the Initial Term,
this Master Agreement shall continue so long as a Services Agreement remains
in effect unless and until terminated by either Party (the Initial Term and
any extension by way of existing Services Agreement shall be collectively
referred to as the "Term"). As used herein, "Annual Period" shall refer to:
(i) the twelve (12) consecutive month period commencing on the Effective Date
of this Agreement ("First Annual Period"); and (ii) to each subsequent twelve
***Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. SECTIONS 200.80(b)(4),
200.83 and 240.24b-2
DJS/Jato Page 2 of 6 02/09/00
QWEST CONFIDENTIAL
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(12) month period of the Term commencing on the anniversary date of the First
Annual Period (the last 6 month period of the Initial Term shall also be
deemed an Annual Period).
3.2 In addition to any other termination remedies set forth in the Qwest
Agreements, Jato may terminate: (i) the Master Agreement (but not the Equity
Agreement) prior to the expiration of the Initial Term if Jato has attained
its twenty-five million ($25,000,000.00) Usage Minimum (as defined below) and
has satisfied in full all minimum facility service terms associated with the
Qwest Services; or (ii) a Qwest Agreement prior to the expiration of the such
Qwest Agreement if Jato attains the minimum revenue commitment associated
with such Qwest Agreement(s) and has satisfied in full all minimum facility
service terms associated with the Qwest Services. Qwest may terminate the
Jato Agreement in accordance with its terms. A Party wishing to terminate
any agreement hereunder must give the non-terminating Party thirty (30)
calendar days prior written notice of the intended date of such termination.
4. USAGE COMMITMENTS.
4.1 USAGE MINIMUM; ANNUAL REVENUE SHORTFALL CHARGE. Jato shall pursuant to
the terms and conditions of the Qwest Agreements and this Master Agreement,
purchase Qwest Services during the Initial Term of at least twenty-five
million dollars ($25,000,000.00) ("Usage Minimum"), which is calculated as
having a present value of sixteen million dollars ($16,000,000.00) (the "PV
Usage Minimum"), which amount shall be paid to Qwest *** in accordance with
Section 5. Jato shall purchase Qwest Services in accordance with the total
amount of revenue commitments ("Annual Totals") at the Annual Period
milestones set forth in Table 4.1 below:
<TABLE>
<CAPTION>
Table 4.1 Usage Minimums for Qwest Services.
- ---------------------------------------------------------------------------------------------------------------------
Annual Period
- ---------------------------------------------------------------------------------------------------------------------
# 1 # 2 # 3 # 4 # 5 # 6
Service Months 0-12 Months 13-24 Months 25-36 Months 37-48 Months 49-60 Months 61-66 Totals
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Backbone
Transport *** *** *** *** *** *** ***
- ---------------------------------------------------------------------------------------------------------------------
Frame Relay *** *** *** *** *** *** ***
- ---------------------------------------------------------------------------------------------------------------------
IP Services *** *** *** *** *** *** ***
- ---------------------------------------------------------------------------------------------------------------------
* Overallotment
(including
Metro Backhaul,
DSL Services,
and other
services) *** *** *** *** *** *** ***
- ---------------------------------------------------------------------------------------------------------------------
Annual Totals *** *** *** *** *** *** ***
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Jato's total Actual Usage of Metro Backhaul Services shall not exceed ***
during the Initial Term.
If at the end of each Annual Period, Jato's Actual Usage as measured during
such Annual Period of the Qwest Services is less than the Annual Total
minimum set forth in Table 4.1, Jato will be liable for a shortfall charge
equal to the difference between the Annual Total minimum and Jato's
aggregate, Actual Usage (as defined herein) invoiced under the Qwest
Agreements (the "Annual Shortfall Charge"). (By way of example, and not
limitation, if Jato's aggregate, Actual Usage at the end of the second Annual
Period is ***, Jato will be liable for an Annual Shortfall Charge in the
amount of *** (calculated as ***)). Qwest shall, within a reasonable period
of time after the conclusion of the Annual Period and upon thirty (30)
calendar days written notice to Jato, reduce the Prepayment Amount by an
amount equal to the Annual Shortfall Charge, or alternatively if the
remaining Prepayment Amount is insufficient to cover the full amount of the
Annual Shortfall Charge, invoice Jato for the Annual Shortfall Charge.
4.2 ACTUAL USAGE OF SPECIFIC SERVICES DOES NOT MEET EXPECTATIONS AT THE END
OF THE INITIAL TERM. If at the end of the Initial Term, Jato's Actual Usage
(as defined herein) of any of the specific Qwest Services (except Metro
Backhaul services) is less than the Usage Minimum set forth in Table 4.1,
Qwest will invoice Jato at the conclusion of the Initial Term for the
Services Shortfall Charge (as defined herein) and Jato shall be liable for
and pay the Services Shortfall Charge within thirty (30) calendar days of
after receipt of Qwest's invoice. The Services Shortfall Charge shall be an
amount equal to the difference between the Usage Minimum and the Actual Usage
invoiced
***Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. SECTIONS 200.80(b)(4),
200.83 and 240.24b-2
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under the Qwest Agreement for specific Qwest Services, in addition to being
liable for the payment of unpaid Actual Usage charges (if any). "Actual
Usage" shall mean all recurring charges, usage charges and other qualifying
charges applicable to the Qwest Services accruing to Jato's account under the
Qwest Agreements, before application of all eligible discounts and excluding
all taxes, surcharges, fees and other amounts owing for or related to,
credits, uncollectable Jato charges, pass-through charges, installation
charges, local loops and any other charges expressly excluded in the
applicable Qwest Agreements. (By way of example, and not limitation, if
Jato's aggregate, Actual Usage of Frame Relay Services at the end of the
Initial Term is ***, Jato will be liable for a Services Shortfall Charge in
the amount of *** (calculated as ***)).
4.3 JATO TERMINATES QWEST SERVICE OR AN AGREEMENT FOR CAUSE.
If Jato terminates a Qwest Service or a Qwest Agreement for "cause" (as
described in the Qwest Agreements) prior to the end of the Initial Term and
prior to the satisfaction of the Usage Minimum during each of the Annual
Periods, the amount of revenue associated with the terminated Qwest
Service(s) or Qwest Agreement(s), as the case may be (collectively, the
"Terminated Revenue"), shall be reallocated on a pro rata basis amongst the
non-terminated Qwest Services. If as a result of terminating the Qwest
Service(s) or the Qwest Agreement(s), Jato is unable to meet its Usage
Minimum in any given Annual Period set forth in Table 4.1, Qwest shall reduce
Jato's Usage Minimum accordingly for such Annual Period by the amount of the
Terminated Revenue.
4.4 JATO TERMINATES AN AGREEMENT FOR CONVENIENCE OR QWEST TERMINATES FOR
CAUSE.
If Jato terminates the Qwest Agreements for "convenience" (i.e., for any
reason other than "cause" as described in the Qwest Agreements) or Qwest
terminates the Qwest Agreements for "cause" (as described in the Qwest
Agreements) prior to the end of the Initial Term and prior to the
satisfaction of the Usage Minimum during each of the Annual Periods, Jato
shall pay to Qwest upon termination an amount equal to: (i) the Shortfall
Charge for the terminated Qwest Services during the Annual Period in which
the Qwest Agreement is terminated; plus (ii) the Usage Minimum for the
terminated Qwest Services for each additional Annual Period remaining in the
Initial Term, in addition to being liable for the payment of unpaid Actual
Usage charges (if any). (By way of example, and not limitation, if Jato
terminates the Frame Relay Services of the Wholesale Agreement for
convenience during month fifty (50) of the Initial Term (i.e., Annual Period
#5) and has had *** of Actual Usage in Frame Relay Services as of the
effective date of such termination, Jato shall be liable for and pay an
amount equal to ***, which is calculated as follows: (i) *** (which is the
Shortfall Charge for the current Annual Period, calculated as the difference
between the Frame Relay Usage Minimum of *** minus the Frame Relay Actual
Usage of ***), plus (ii) *** (which is the Usage Minimum for the terminated
Frame Relay Services for the remaining Annual Period (i.e., Annual Period #6)
of the Initial Term.)
5. PREPAYMENT.
5.1 Subject to the completion of Jato's IPO, Jato shall prepay Qwest,
within ten (10) business days after Jato's IPO, sixteen million dollars
($16,000,000.00) (the "Prepayment Amount") to be applied against the purchase
of Qwest Services under the Wholesale Agreement and IP Agreement (and any
other Qwest Service Agreement(s) between the Parties), calculated as having a
value of twenty-five million dollars ($25,000,000.00) over the Initial Term.
Qwest shall not be liable to pay Jato any accrued interest on the Prepayment
Amount, provided however, that interest shall accrete on the Outstanding
Prepayment Balance Amount monthly (the "Accretion Interest"), such Accretion
Interest shall be calculated at an annual accretion rate of *** percent (the
"Accretion Rate"), and be added to the Prepayment Amount. Accretion will not
commence until after Qwest receives the Prepayment Amount. Upon Qwest
calculating Jato's monthly interest accretion, Qwest shall invoice Jato
monthly for Jato's use of the Qwest Services and, upon thirty (30) days after
the date of such invoice, decrease the Prepayment Amount by the undisputed
amount of Qwest's invoice. Pursuant to Section 4 herein, any undisputed
shortfall charges or early termination fees set forth in this Master
Agreement or any Qwest Agreement may be applied against and drawn down from
the Prepayment Amount, so long as Qwest gives Jato thirty (30) calendar days
prior written notice and other detailed written documentation supporting such
charges or fees. So long as the Prepayment Amount has not been fully drawn
down by Qwest, Qwest shall not be entitled to: (i) suspend the Qwest Services
or terminate the Qwest Agreements for non-payment of any invoices; or (ii)
request additional security pursuant to Section 6.3 of the
***Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. SECTIONS 200.80(b)(4),
200.83 and 240.24b-2
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Wholesale Agreement. Once the Prepayment Amount has been fully exhausted,
Jato shall be responsible for paying its Qwest invoices in accordance with
the "payment" sections of the Qwest Agreements.
5.2 Until Jato prepays the Prepayment Amount or if, during the Initial
Term, the aggregate amount of the Qwest invoices exceeds the Prepayment
Amount, Qwest shall invoice Jato monthly for Jato's use of the Qwest Services
for the balance of the Initial Term, and Jato shall be responsible for paying
such invoices in accordance with the "payment" sections of the Qwest
Agreements. The Parties shall each submit detailed quarterly reports
indicating, among other things, the amount of Jato's Actual Usage, Usage
Minimum, the Prepayment Amount, and interest accretion (although the failure
of Qwest to submit or demand such report shall not be deemed a default or any
waiver of any right hereunder).
5.3 Until Jato consummates its IPO, the provisions set forth in Section 5.1
shall not apply, and Qwest shall invoice Jato for Qwest Services used by Jato
in the manner set forth in the Qwest Agreements, and Jato shall be
responsible for complying with all of the payment provisions contained in the
Qwest Agreements. The failure of Jato to consummate its IPO shall not
relieve Jato of any of its obligations hereunder (except that Jato shall not
be responsible for providing the Prepayment Amount to Qwest). All Qwest
Services purchased by Jato, whether pre-Jato IPO or post-Jato IPO, shall
count towards and contribute to the Usage Minimums. Upon consummation of the
US West Merger, the Parties shall negotiate in good faith and execute
amendment(s) to an existing Qwest Agreement and/or new services agreement(s),
such that, any backbone transport, DSL services, frame relay services, IP
services, and metro backhaul services purchased thereafter from US West by
Jato shall count towards and contribute to the Usage Minimums, subject to the
Metro Backhaul cap of *** set forth in Section 4.1.
6. CONFIDENTIALITY.
Neither Party shall make any disclosure of this Master Agreement, the
Services Agreement, or the transactions contemplated hereby without first
obtaining the written approval of the other Party, except to the extent that
additional disclosure may be required by law, in which case, the Party
required to make such disclosure will give the other Party prior notice
thereof. The provisions of this paragraph shall be binding upon the Parties
and shall survive any termination of this Master Agreement, any or all of the
Service Agreements, or any other agreement between the Parties and shall
remain in effect for a period of twelve (12) months following conclusion of
the Term. The Parties agree that they will not make public announcements
(i.e., other than to a Party's advisors) or issue press releases regarding
this Master Agreement or the transactions contemplated hereunder without the
prior written consent of the other Party.
7. QWEST AFFILIATE.
For purposes of this Agreement, Qwest shall be considered to include any
"Qwest Affiliate," where a "Qwest Affiliate" shall mean any entity: (i) which
controls, is controlled by, or is under common control with Qwest; or (ii) in
which Qwest owns an equity interest of not less than ***.
8. MISCELLANEOUS.
(a) Any dispute relating to this Master Agreement shall be submitted for
binding arbitration under the Commercial Arbitration Rules of the American
Arbitration Association and judgment on any award entered therein may be
entered in any court of competent jurisdiction. The venue for any such
arbitration shall be Denver, Colorado.
(b) In the event that any portion of this Master Agreement is held to be
unenforceable, the unenforceable portion shall be construed as nearly as
possible to reflect the original intent of the Parties and the remainder of
the provisions shall remain in full force and effect.
(c) A Party's failure to insist upon strict performance of any provision of
this Master Agreement shall not be construed as a waiver of any of its rights
hereunder.
***Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. SECTIONS 200.80(b)(4),
200.83 and 240.24b-2
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(d) Each Party hereto is an independent contractor. Nothing in this Master
Agreement shall constitute or create a joint venture, partnership, or any
other similar arrangement between Jato and Qwest. Neither Party is
authorized to act as agent or bind the other Party except as expressly stated
in this Master Agreement.
(e) Notwithstanding anything to the contrary herein, in no event shall a
Party shall be liable to the other for any direct, indirect, consequential,
exemplary, special, incidental or punitive damages, or for any lost profits
of any kind or nature whatsoever, even if foreseeable, arising out of or
resulting from the failure to finalize or execute any or all of the Services
Agreements, even if the Party has been advised, knew or should have know of
the possibility of such damages.
(f) Subject to and without limiting any express assignment rights set forth
in the Equity Agreement or the Services Agreements, Jato shall not assign
this Master Agreement without first obtaining the prior written consent of
Qwest, which consent shall not be unreasonably withheld or delayed.
(g) This Master Agreement will be governed by and interpreted under the
laws of the State of New York, without giving effect to applicable conflicts
of law principles. Any cause of action Jato may have with respect to the
Services must be commenced within one (1) year after the claim or cause of
action arises or such claim or cause of action is barred. In any proceeding
to enforce the terms of this Master Agreement, the Party prevailing shall be
entitled to recover all of its expenses, including, without limitation,
reasonable attorney's fees.
(h) Each Party will bear its own expenses in connection with this Master
Agreement, including the Service Agreements.
(i) The terms and conditions contained in a specific Service Agreement
shall apply only to and within that Service Agreement. In the event of any
conflict between any or all of the terms and conditions contained in a
specific Service Agreement and this Master Agreement, the terms and
conditions contained in a specific Service Agreement shall prevail and be the
definitive guide to interpretation of the intent and rights and obligations
of the Parties; provided, however, the provisions of Sections 2.1, 2.4, 3.1,
3.2, 4.1, 4.2, 4.3, 4.4, 5.1, 5.2 and 5.3 of this Master Agreement shall
supplement and prevail, to the extent inconsistent, those similar terms
contained in a specific Service Agreement.
(j) This Master Agreement, including the Service Agreements which are
referenced herein, constitutes the entire agreement between Jato and Qwest
with respect to the Services. This Master Agreement may only be amended in a
written agreement executed by authorized representatives of both Parties
hereto.
The rights of Qwest set forth in this Master Agreement shall inure to Qwest
and all of its affiliates. The Parties have caused this Agreement to be
executed and warrant that their respective signatories are authorized to
execute this Agreement as of the Effective Date.
QWEST COMMUNICATIONS CORPORATION JATO COMMUNICATIONS CORP.
By: /s/ Augie Cruciotti By: /s/ William D. Myers
----------------------------- -----------------------------
Augie Cruciotti William D. Myers
Senior Vice President Chief Financial Officer
Date: 02/09/00 Date: 02/09/00
--------------------------- ---------------------------
DJS/Jato Page 6 of 6 02/09/00
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<PAGE>
JATO COMMUNICATIONS CORP.
EMPLOYMENT AGREEMENT
FOR
TERRI COMPTON
THIS EMPLOYMENT AGREEMENT ("AGREEMENT") is entered into as of the 29th
day of November 1999, by and between Terri Compton ("EXECUTIVE") and JATO
COMMUNICATIONS CORP., a Delaware corporation (the "COMPANY").
WHEREAS, the Company desires to employ Executive to provide personal
services to the Company, and wishes to provide Executive with certain
compensation and benefits in return for his services; and
WHEREAS, Executive wishes to be employed by the Company and provide
personal services to the Company in return for certain compensation and
benefits;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, it is hereby agreed by and between the parties hereto as
follows:
1. EMPLOYMENT BY THE COMPANY.
1.1 TERM. Subject to the terms set forth herein, for a period of one
(1) year the Company agrees to employ Executive in the position of Senior
Vice President, Market Operations hereby accepts such employment effective as
of the date first written above. This Agreement shall automatically renew on
a month-to-month basis unless either party gives thirty (30) days' prior
written notice to the other party. During the term of his employment with
the Company, Executive will devote his best efforts and substantially all of
his business time and attention (except for vacation periods and reasonable
periods of illness or other incapacities permitted by the Company's general
employment policies) to the business of the Company.
1.2 DUTIES. Executive shall serve in an executive capacity and shall
perform such duties as are customarily associated with his then existing
title(s), consistent with the Bylaws of the Company and as required by the
Company's Board of Directors or the Executive's supervisor (the "BOARD").
1.3 EMPLOYMENT RELATIONSHIP. The employment relationship between the
parties shall also be governed by the general employment policies and
practices of the Company, including those relating to protection of
confidential information and assignment of inventions, except that when the
terms of this Agreement differ from or are in conflict with the Company's
general employment policies or practices, this Agreement shall control.
2. COMPENSATION.
2.1 SALARY. Executive shall receive for services to be rendered
hereunder an annualized base salary of $16,667 per month reviewed annually at
the discretion of the
1
<PAGE>
Compensation Committee of the Board of Directors. Executive's base salary
shall be increased annually by an amount equal to the greater of (i) 5% of
Executive's base salary and (ii) an amount determined by the Board of
Directors.
2.2 DISCRETIONARY BONUS. Executive will be eligible for a
discretionary bonus, in an amount to be determined solely by the Compensation
Committee in its discretion, subject to the terms and conditions outlined in
a Company bonus plan, which may be established and in effect from time to
time.
2.3 STANDARD COMPANY BENEFITS. Executive shall be entitled to all
rights and benefits for which he is eligible under the terms and conditions
of the standard Company benefits and compensation practices which may be in
effect from time to time and provided by the Company to its employees in
comparable positions.
2.4 ACCELERATION OF STOCK RIGHTS. In the event that the Company
consummates an Acquisition or Asset Transfer, as those terms are defined in
the Company's Restated Certificate of Incorporation, or the employee is
terminated Without Cause, then the vesting of 100% of all stock options
and/or grants unvested at the time of such Termination, Acquisition or Asset
Transfer held by Executive shall accelerate at or above the guaranteed post
tax value of $1,300,000 dollars.
3. PROPRIETARY INFORMATION OBLIGATIONS.
3.1 AGREEMENT. Executive agrees to continue to abide by Executive's
previously executed Non-competition, Proprietary Information and Inventions
Agreement attached hereto as EXHIBIT A.
3.2 REMEDIES. Executive's duties under the Proprietary Information and
Inventions Agreement shall survive termination of his employment with the
Company. Executive acknowledges that a remedy at law for any breach or
threatened breach by him of the provisions of the Non-competition Proprietary
Information and Inventions Agreement would be inadequate, and he therefore
agrees that the Company shall be entitled to injunctive relief in case of any
such breach or threatened breach.
4. OUTSIDE ACTIVITIES. Except with the prior written consent of the
Company's Board, Executive will not, during the term of this Agreement,
undertake or engage in any other employment, occupation or business
enterprise, other than those in which Executive is a passive investor.
Executive may engage in civic and not-for-profit activities so long as such
activities do not materially interfere with the performance of his duties
hereunder.
5. TERMINATION OF EMPLOYMENT.
(a) Either the Executive or the Company may terminate the employment
relationship at any time for any reason whatsoever, with thirty (30) days'
prior written notice by the Company and with thirty (30) days' prior written
notice by the Executive with or without Cause (as defined below) or advance
notice. This at-will employment relationship cannot be changed except in a
writing approved by the Board. If the Company terminates Executive's
employment without Cause at any time, Executive will receive as severance:
(i) twelve (12) months of base
2
<PAGE>
salary, less payroll deductions and required withholdings, payable in
accordance with the standard pay schedule of the Company, and (ii) a lump sum
payment of that portion of the bonus Executive is entitled to for the
calendar year pro-rated based upon the number of full months Executive was
employed during such year in exchange for the execution of a release of all
claims against the Company. If Executive resigns or if Executive's
employment is terminated for cause, all compensation and benefits will cease
immediately, and Executive will receive no severance benefits.
For purpose of this Agreement, "CAUSE" shall mean misconduct, including: (i)
conviction of any felony or any crime involving moral turpitude or
dishonesty; (ii) participation in a fraud or act of dishonesty against the
Company; (iii) willful breach of the Company's policies; (iv) intentional
damage to the Company's property; (v) material breach of this Agreement or
Executive's Proprietary Information and Inventions Agreement; (vi) a failure
or refusal in a material respect of Executive to follow the reasonable
policies or directions of the Company as specified by the Board of Directors
after being provided with notice of such failure and an opportunity to cure
within seven (7) days of receipt of such notice; or (vii) failure to carry
out the duties of the Executive's position after being provided with notice
of such failure and an opportunity to cure. Physical or mental disability
shall not constitute "Cause."
(b) In the event of death, the Company shall pay to Executive any
earned but unpaid salary at the time of death and, at the time such amount
would otherwise have been due, a pro rata portion of a discretionary bonus,
if any, which may otherwise have been paid to Executive pursuant to Section
2.2 hereof with respect to the annual period in which the death occurs.
Furthermore, Executive shall vest in 100% of any unvested stock options as of
the date of death and the Company shall waive its repurchase rights with
respect to 100% of any unvested shares as of the date of death; PROVIDED,
HOWEVER, that Executive's estate, administrator or distributor shall become a
party to, and be subject to the provisions of, the Stockholders' Agreement.
6. CONTINUATION OF EMPLOYMENT/RESTRICTIVE COVENANT. During the term of
Executive's employment and for a period of twelve (12) months immediately
following Executive's termination for Cause or the Executive's resignation,
Executive shall not without first obtaining the prior written approval of the
Company, directly or indirectly engage or prepare to engage, in any
activities in competition with the Company, or accept employment or establish
a business relationship with a business that directly competes with the
Company in providing high speed data transmission services in a market in
which the Company has at least one (1) operational DSLAM or at least one (1)
central office colocation under construction.
7. NONSOLICITATION. While employed by the Company, and for twelve (12)
months immediately following the Executive's termination of employment,
Executive agrees not to interfere with the business of the Company by
soliciting, attempting to solicit, inducing, or otherwise causing any
employee of the Company to terminate his or her employment in order to become
an employee, consultant or independent contractor to or for any competitor of
the Company.
3
<PAGE>
8. GENERAL PROVISIONS.
8.1 NOTICES. Any notices provided hereunder must be in writing and
shall be deemed effective upon the earlier of personal delivery (including
personal delivery by telex) or the third day after mailing by first class
mail, to the Company at its primary office location and to Executive at his
address as listed on the Company's then current payroll records.
8.2 SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in
any jurisdiction, such invalidity, illegality or unenforceability will not
affect any other provision or any other jurisdiction, but this Agreement will
be reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provisions had never been contained herein.
8.3 WAIVER. If either party should waive any breach of any provisions
of this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
8.4 COMPLETE AGREEMENT. This Agreement and EXHIBIT A hereto,
constitute the entire agreement between Executive and the Company and it is
the complete, final, and exclusive embodiment of their agreement with regard
to this subject matter. It is entered into without reliance on any promise
or representation other than those expressly contained herein, and it cannot
be modified or amended except in a writing signed by an officer of the
Company.
8.5 COUNTERPARTS. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.
8.6 HEADINGS. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
8.7 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive and the Company, and
their respective successors, assigns, heirs, executors and administrators,
except that Executive may not assign any of his duties hereunder and he may
not assign any of his rights hereunder without the written consent of the
Company, which shall not be withheld unreasonably.
8.8 ATTORNEY FEES. If either party hereto brings any action to enforce
his or its rights hereunder, the prevailing party in any such action shall be
entitled to recover his or its reasonable attorneys' fees and costs incurred
in connection with such action.
8.9 CHOICE OF LAW. All questions concerning the construction, validity
and interpretation of this Agreement will be governed by the law of the State
of Delaware.
8.10 SURVIVAL. The following provisions of this Agreement shall survive
the termination of Executive's employment and the assignment of this
Agreement by the Company
4
<PAGE>
to any successor in interest or other assignee: Section 2; Section 3;
Section 6; Section 7; and Section 8.
8.11 INJUNCTIVE RELIEF. Executive acknowledges that the restrictions
set forth in Sections 3, 4, 6 and 7 above are necessary to protect the
Company's confidential proprietary information and other legitimate business
interests and are reasonable in all respects, including duration, territory
and scope of activity restricted. Executive further acknowledges that the
provisions of Sections 3, 4, 6 and 7 hereof are essential to the Company,
that the Company would not enter into this Agreement if it did not include
these provisions and that damages sustained by the Company as a result of a
breach of these provisions cannot be adequately remedied by damages, and
Executive agrees that the Company, in addition to any other remedy it may
have under this Agreement or at law, shall be entitled to injunctive and
other equitable relief to prevent or curtail any breach of Sections 3, 4, 6
and 7 of this Agreement. Executive agrees that the existence of any claim or
cause of action by Executive against the Company or its affiliates, whether
predicated on this Agreement or otherwise, shall not constitute a defense to
the enforcement by the Company of any of the provisions of Sections 3, 4, 6
and 7 hereof. Executive shall have no right to enforce any of his rights
under this Agreement by seeking or obtaining injunctive or other equitable
relief and acknowledges that damages are an adequate remedy for any breach by
the Company of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
JATO COMMUNICATIONS CORP.
By: /s/ Robert G. Vidal
--------------------------------------
Robert G. Vidal
Vice President, Human Resources
By: /s/ Terri L. Compton
--------------------------------------
Ms. Terri L. Compton
6
<PAGE>
JATO COMMUNICATIONS CORP.
EMPLOYMENT AGREEMENT
FOR
TOM HALL
THIS EMPLOYMENT AGREEMENT ("AGREEMENT") is entered into as of the 29th
day of November , 1999, by and between Tom Hall ("EXECUTIVE") and JATO
COMMUNICATIONS CORP., a Delaware corporation (the "COMPANY").
WHEREAS, the Company desires to employ Executive to provide personal
services to the Company, and wishes to provide Executive with certain
compensation and benefits in return for his services; and
WHEREAS, Executive wishes to be employed by the Company and provide
personal services to the Company in return for certain compensation and
benefits;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, it is hereby agreed by and between the parties hereto as
follows:
1. EMPLOYMENT BY THE COMPANY.
1.1 TERM. Subject to terms set forth herein, for a period of one (1)
year the Company agrees to employ Executive in the position of Vice
President, Indirect Markets hereby accepts such employment effective as of
the date first written above. This Agreement shall automatically renew on a
month-to-month basis unless either party gives thirty (30) days' prior
written notice to the other party. During the term of his employment with
the Company, Executive will devote his best efforts and substantially all of
his business time and attention (except for vacation periods and reasonable
periods of illness or other incapacities permitted by the Company's general
employment policies) to the business of the Company.
1.2 DUTIES. Executive shall serve in an executive capacity and shall
perform such duties as are customarily associated with his then existing
title(s), consistent with the Bylaws of the Company and as required by the
Company's Board of Directors or the Executive's supervisor (the "BOARD").
1.3 EMPLOYMENT RELATIONSHIP. The employment relationship between the
parties shall also be governed by the general employment policies and
practices of the Company, including those relating to protection of
confidential information and assignment of inventions, except that when the
terms of this Agreement differ from or are in conflict with the Company's
general employment policies or practices, this Agreement shall control.
2. COMPENSATION.
2.1 SALARY. Executive shall receive for services to be rendered
hereunder an annualized base salary of $12,500 per month reviewed annually at
the discretion of the
1
<PAGE>
Compensation Committee of the Board of Directors. Executive's base salary
shall be increased annually by an amount equal to the greater of (i) 5% of
Executive's base salary and (ii) an amount determined by the Board of
Directors.
2.2 DISCRETIONARY BONUS. Executive will be eligible for a
discretionary bonus, in an amount to be determined solely by the Compensation
Committee in its discretion, subject to the terms and conditions outlined in
a Company bonus plan, which may be established and in effect from time to
time.
2.3 STANDARD COMPANY BENEFITS. Executive shall be entitled to all
rights and benefits for which he is eligible under the terms and conditions
of the standard Company benefits and compensation practices which may be in
effect from time to time and provided by the Company to its employees in
comparable positions.
2.4 ACCELERATION OF STOCK RIGHTS. In the event that the Company
consummates an Acquisition or Asset Transfer, as those terms are defined in
the Company's Restated Certificate of Incorporation, then the vesting of 100%
of all stock options and/or grants unvested at the time of such Acquisition
or Asset Transfer held by Executive shall accelerate.
3. PROPRIETARY INFORMATION OBLIGATIONS.
3.1 AGREEMENT. Executive agrees to continue to abide by Executive's
previously executed Non-competition, Proprietary Information and Inventions
Agreement attached hereto as EXHIBIT A.
3.2 REMEDIES. Executive's duties under the Proprietary Information and
Inventions Agreement shall survive termination of his employment with the
Company. Executive acknowledges that a remedy at law for any breach or
threatened breach by him of the provisions of the Non-competition Proprietary
Information and Inventions Agreement would be inadequate, and he therefore
agrees that the Company shall be entitled to injunctive relief in case of any
such breach or threatened breach.
4. OUTSIDE ACTIVITIES. Except with the prior written consent of the
Company's Board, Executive will not, during the term of this Agreement,
undertake or engage in any other employment, occupation or business
enterprise, other than those in which Executive is a passive investor.
Executive may engage in civic and not-for-profit activities so long as such
activities do not materially interfere with the performance of his duties
hereunder.
5. TERMINATION OF EMPLOYMENT.
(a) Either the Executive or the Company may terminate the employment
relationship at any time for any reason whatsoever, with thirty (30) days'
prior written notice by the Company and with thirty (30) days' prior written
notice by the Executive with or without Cause (as defined below) or advance
notice. This at-will employment relationship cannot be changed except in a
writing approved by the Board. If the Company terminates Executive's
employment without Cause at any time, Executive will receive as severance:
(i) twelve (12) months of base salary, less payroll deductions and required
withholdings, payable in accordance with the standard pay schedule of the
Company, and (ii) a lump sum payment of that portion of the bonus
2
<PAGE>
Executive is entitled to for the calendar year pro-rated based upon the
number of full months Executive was employed during such year in exchange for
the execution of a release of all claims against the Company. If Executive
resigns or if Executive's employment is terminated for cause, all
compensation and benefits will cease immediately, and Executive will receive
no severance benefits.
For purpose of this Agreement, "CAUSE" shall mean misconduct, including: (i)
conviction of any felony or any crime involving moral turpitude or
dishonesty; (ii) participation in a fraud or act of dishonesty against the
Company; (iii) willful breach of the Company's policies; (iv) intentional
damage to the Company's property; (v) material breach of this Agreement or
Executive's Proprietary Information and Inventions Agreement; (vi) a failure
or refusal in a material respect of Executive to follow the reasonable
policies or directions of the Company as specified by the Board of Directors
after being provided with notice of such failure and an opportunity to cure
within seven (7) days of receipt of such notice; or (vii) failure to carry
out the duties of the Executive's position after being provided with notice
of such failure and an opportunity to cure. Physical or mental disability
shall not constitute "Cause."
(b) In the event of death, the Company shall pay to Executive any
earned but unpaid salary at the time of death and, at the time such amount
would otherwise have been due, a pro rata portion of a discretionary bonus,
if any, which may otherwise have been paid to Executive pursuant to Section
2.2 hereof with respect to the annual period in which the death occurs.
Furthermore, Executive shall vest in 100% of any unvested stock options as of
the date of death and the Company shall waive its repurchase rights with
respect to 100% of any unvested shares as of the date of death; PROVIDED,
HOWEVER, that Executive's estate, administrator or distributor shall become a
party to, and be subject to the provisions of, the Stockholders' Agreement.
6. CONTINUATION OF EMPLOYMENT/RESTRICTIVE COVENANT. During the term of
Executive's employment and for a period of twelve (12) months immediately
following Executive's termination for Cause or the Executive's resignation,
Executive shall not without first obtaining the prior written approval of the
Company, directly or indirectly engage or prepare to engage, in any
activities in competition with the Company, or accept employment or establish
a business relationship with a business that directly competes with the
Company in providing high speed data transmission services in a market in
which the Company has at least one (1) operational DSLAM or at least one (1)
central office colocation under construction.
7. NONSOLICITATION. While employed by the Company, and for twelve (12)
months immediately following the Executive's termination of employment,
Executive agrees not to interfere with the business of the Company by
soliciting, attempting to solicit, inducing, or otherwise causing any
employee of the Company to terminate his or her employment in order to become
an employee, consultant or independent contractor to or for any competitor of
the Company.
3
<PAGE>
8. GENERAL PROVISIONS.
8.1 NOTICES. Any notices provided hereunder must be in writing and
shall be deemed effective upon the earlier of personal delivery (including
personal delivery by telex) or the third day after mailing by first class
mail, to the Company at its primary office location and to Executive at his
address as listed on the Company's then current payroll records.
8.2 SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in
any jurisdiction, such invalidity, illegality or unenforceability will not
affect any other provision or any other jurisdiction, but this Agreement will
be reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provisions had never been contained herein.
8.3 WAIVER. If either party should waive any breach of any provisions
of this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
8.4 COMPLETE AGREEMENT. This Agreement and EXHIBIT A hereto,
constitute the entire agreement between Executive and the Company and it is
the complete, final, and exclusive embodiment of their agreement with regard
to this subject matter. It is entered into without reliance on any promise
or representation other than those expressly contained herein, and it cannot
be modified or amended except in a writing signed by an officer of the
Company.
8.5 COUNTERPARTS. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.
8.6 HEADINGS. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
8.7 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive and the Company, and
their respective successors, assigns, heirs, executors and administrators,
except that Executive may not assign any of his duties hereunder and he may
not assign any of his rights hereunder without the written consent of the
Company, which shall not be withheld unreasonably.
8.8 ATTORNEY FEES. If either party hereto brings any action to enforce
his or its rights hereunder, the prevailing party in any such action shall be
entitled to recover his or its reasonable attorneys' fees and costs incurred
in connection with such action.
8.9 CHOICE OF LAW. All questions concerning the construction, validity
and interpretation of this Agreement will be governed by the law of the State
of Delaware.
8.10 SURVIVAL. The following provisions of this Agreement shall survive
the termination of Executive's employment and the assignment of this
Agreement by the Company
4
<PAGE>
to any successor in interest or other assignee: Section 2; Section 3;
Section 6; Section 7; and Section 8.
8.11 INJUNCTIVE RELIEF. Executive acknowledges that the restrictions
set forth in Sections 3, 4, 6 and 7 above are necessary to protect the
Company's confidential proprietary information and other legitimate business
interests and are reasonable in all respects, including duration, territory
and scope of activity restricted. Executive further acknowledges that the
provisions of Sections 3, 4, 6 and 7 hereof are essential to the Company,
that the Company would not enter into this Agreement if it did not include
these provisions and that damages sustained by the Company as a result of a
breach of these provisions cannot be adequately remedied by damages, and
Executive agrees that the Company, in addition to any other remedy it may
have under this Agreement or at law, shall be entitled to injunctive and
other equitable relief to prevent or curtail any breach of Sections 3, 4, 6
and 7 of this Agreement. Executive agrees that the existence of any claim or
cause of action by Executive against the Company or its affiliates, whether
predicated on this Agreement or otherwise, shall not constitute a defense to
the enforcement by the Company of any of the provisions of Sections 3, 4, 6
and 7 hereof. Executive shall have no right to enforce any of his rights
under this Agreement by seeking or obtaining injunctive or other equitable
relief and acknowledges that damages are an adequate remedy for any breach by
the Company of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
JATO COMMUNICATIONS CORP.
By: /s/ Robert G. Vidal
--------------------------------------
Robert G. Vidal
Vice President, Human Resources
By: /s/ Thomas W. Hall
--------------------------------------
Mr. Thomas W. Hall
6
<PAGE>
ARTHUR ANDERSEN
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated February 9, 2000 on the consolidated financial statements of Jato
Communications Corp. as of and for the period ended December 31, 1999, and to
all references to our Firm included in this registration statement.
/s/ Arthur Andersen LLP
Denver, Colorado
February 11, 2000.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JATO
COMMUNICATION CORP.'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 15,017
<SECURITIES> 0
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<INVENTORY> 486
<CURRENT-ASSETS> 15,960
<PP&E> 37,933
<DEPRECIATION> (470)
<TOTAL-ASSETS> 55,591
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<BONDS> 16,868
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