<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 2, 1999
REGISTRATION NO. 333-70717
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
---------------------
USINTERNETWORKING, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7379 52-2078325
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
ONE USI PLAZA
ANNAPOLIS, MARYLAND 21401-7478
(410) 897-4400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
WILLIAM T. PRICE, ESQ.
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
ONE USI PLAZA
ANNAPOLIS, MARYLAND 21401-7478
(410) 897-4400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
JAMES F. ROGERS, ESQ. WILLIAM B. GANNETT, ESQ.
LATHAM & WATKINS CAHILL GORDON & REINDEL
1001 PENNSYLVANIA AVENUE, N.W., SUITE 1300 80 PINE STREET
WASHINGTON, DC 20004 NEW YORK, NY 10005-1702
(202) 637-2200 (212) 701-3000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of the 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, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /____
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /____
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /____
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Explanatory Note: This Amendment No. 2 to Form S-1 Registration Statement
(Registration No. 333-70717) of USINTERNETWORKING, Inc. is being filed solely to
include Exhibits to the Registration Statement not previously filed.
Accordingly, Part 1, the form of prospectus, has been omitted from this filing.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses, all of which will be
borne by the Registrant, in connection with the sale and distribution of the
securities being registered, other than the underwriting discounts and
commissions. All amounts shown are estimates except for the Securities and
Exchange Commission registration fee, the NASD filing fee and the Nasdaq
National Market Listing Fee.
<TABLE>
<S> <C>
SEC Registration Fee...................................................... $ 23,978
NASD Filing Fee........................................................... 9,125
Nasdaq National Market Listing Fee........................................ *
Transfer Agent Fees....................................................... *
Accounting Fees and Expenses.............................................. *
Legal Fees and Expenses................................................... *
Printing and Mailing Expenses............................................. *
Miscellaneous............................................................. *
---------
Total................................................................. $ *
</TABLE>
- ------------------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware
("Section 145") permits a Delaware corporation to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
or investigative (other than an action by or in the right of the corporation) by
reason of the fact that such person is or was a director, officer, employee, or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise, against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit, or
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful.
In the case of an action by or in the right of the corporation, Section 145
permits the corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by such person in connection with the
defense or settlement of such action or suit if he acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interest of the corporation. No indemnification may be made in respect of any
claim, issue, or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
To the extent that a present or former director or officer of a corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in the preceding two
II-1
<PAGE>
paragraphs, Section 145 requires that such person be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith.
Section 145 provides that expenses (including attorneys' fees) incurred by
an officer or director in defending any civil, criminal, administrative, or
investigative action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that such person is not entitled to
be indemnified by the corporation as authorized in Section 145.
Our Certificate provides that one of our officers or directors will not be
personally liable to us or our stockholders for monetary damages for any breach
of his fiduciary duty as an officer or director, except in certain cases where
liability is mandated by the DGCL. The provision has no effect on any
non-monetary remedies that may be available to us or our stockholders, nor does
it relieve us or our officers or directors from compliance with federal or state
securities laws. The Certificate also generally provides that we will indemnify,
to the fullest extent permitted by law, any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit, investigation, administrative hearing or any other proceeding (each, a
"Proceeding") by reason of the fact that he is or was our director or officer,
or is or was serving at our request as a director, officer, employee or agent of
another entity, against expenses incurred by him in connection with such
Proceeding. An officer or director shall not be entitled to indemnification from
us if (i) the officer or director did not act in good faith and in a manner
reasonably believed to be in, or not opposed to, our best interests, or (ii)
with respect to any criminal action or proceeding, the officer or director had
reasonable cause to believe his conduct was unlawful.
Our Bylaws provide that we will indemnify any person who is made a party to
any threatened, pending or completed action, suit or proceeding by reason of the
fact that he or she is or was our director or officer, and may indemnify any of
our employees or agents in those circumstances, against expenses, including
attorneys' fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such action, suit or
proceeding. No indemnification may be provided for any person who shall have
been finally adjudicated not to have acted honestly or in the reasonable belief
that his or her action was in or not opposed to our best interests or who had
reasonable cause to believe that his or her conduct was unlawful.
Indemnification must be provided to any of our directors, officers, employees or
agents to the extent the person succeeded, on the merits or otherwise, in
defense of any action or claim described above. Any indemnification under this
provision of the Bylaws, unless required under the Bylaws or ordered by a court,
can be made only as authorized in each specific case upon a determination by a
majority of disinterested directors or by independent legal counsel or by the
shareholders that such indemnification is appropriate under the standard set
forth in the preceding sentence.
The underwriting agreement to be filed as Exhibit 1.1 to the Registration
Statement provides for indemnification by the underwriters of USI and its
directors and certain officers, and by USI of the underwriters, for certain
liabilities arising under the Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order is information regarding all securities
sold and employee stock options granted by the Registrant since January 14,
1998. Further included is the consideration, if any, received by the Registrant
for such securities, and information relating to the section of the Securities
Act of 1933, as amended (the "Securities Act"), and the rules of the Securities
and Exchange Commission under which exemption from registration was claimed. All
awards of options did not involve any sale under the Securities Act. None of
these securities were registered under the Securities Act. Except as described
below, no sale of securities involved the use of an underwriter and no
commissions were paid in connection with the sales of any securities.
II-2
<PAGE>
1. At various times during the period from January 1998 through January 5,
1999, we have granted to employees and directors options to purchase an
aggregate of 13,458,000 shares of Common Stock with an exercise price of
$0.33. The issuance of these securities were not registered under the
Securities Act in reliance upon Rule 701 of the rules promulgated under the
Securities Act.
2. On February 13, 1998, we issued 100 shares of Common Stock to Christopher R.
McCleary.
3. On May 13, 1998, we issued 15,750,000 shares of Common Stock to Christopher
R. McCleary, Stephen E. McManus, Andrew A. Stern and Christopher Poelma at
par value. The purchase price for the Common Stock was paid with cash and
notes payable to the Company.
4. On May 13, 1998, we issued 38,333.33 shares of Series A Preferred Stock for
an aggregate purchase price of $23 million to the Initial Series A
Investors. The purchase price for such shares was paid in cash at the time
of the issuance. We simultaneously issued 1,666.67 shares of Series A
Preferred Stock for an aggregate purchase price of $1 million to Christopher
R. McCleary. The purchase price for such shares was paid by the forgiveness
by Mr. McCleary of $1 million of debt that we owed him.
5. On June 18, 1998, we issued 5,000 shares of Series A Preferred Stock for an
aggregate purchase price of $3 million to certain of the Initial Series A
Purchasers. We simultaneously issued 5,833.33 shares of Series A Preferred
Stock for $3.5 million to U S WEST. The purchase price for such shares was
paid in cash at the time of issuance.
6. On June 19, 1998, we issued 3,000 shares of Series A Preferred Stock for an
aggregate purchase price of $1.6 million to HAGC Partners, Chris Horgan (who
later transferred his interest to his affiliate, Southeastern Technology
Fund, L.P.) and the Account Management Purchasers. The purchase price for
such shares was paid in cash at the time of issuance. We simultaneously
issued 1,166.67 shares of Series A Preferred Stock for a purchase price of
$700,002 to USI Partners. The purchase price for such shares was paid in
cash at the time of issuance.
7. On September 8, 1998, we issued convertible promissory notes in the
aggregate amount of $9,095,000, together with warrants to purchase 7,795,722
shares of Common Stock for $.01 per share, to certain of the existing
holders of the Series A Preferred Stock. The purchase price for such notes
and warrants was paid in cash at the time of issuance.
8. On December 16, 1998, we issued convertible promissory notes in the
aggregate amount of $8 million to certain of the existing holders of the
Series A Preferred Stock. The purchase price for such notes was paid in cash
at the time of issuance.
9. On December 24, 1998, we issued convertible promissory notes in the amount
of $5 million to U S WEST. The purchase price for such notes was paid in
cash at the time of issuance.
10. On December 31, 1998, we issued 59,278.56 shares of Series B Preferred Stock
for an aggregate purchase price of $62,242,500 to certain holders of the
convertible promissory notes described above, certain holders of Series A
Preferred Stock, and a number of new investors. The purchase price for such
shares was paid in cash and/or by conversion of certain outstanding
convertible promissory notes at the time of issuance.
All of the shares of preferred stock described in paragraphs 3 through 10
above are being exchanged for shares of Common Stock prior to completion of this
offering. The issuances of the securities above were made in reliance on on or
more exemptions from registration under the Securities Act, including those
provided by Section 4(2) and Rule 701 thereunder. The purchasers of these
securities represented that they had adequate access, through their employment
with us or otherwise, to information about us.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1+ Amended and Restated Certificate of Incorporation of the Registrant
3.2* Form of Second Restated Certificate of Incorporation of the Registrant
3.3+ Bylaws of the Registrant
4.1* Specimen Certificate for shares of Common Stock, $.001 par value, of the Registrant
5.1* Opinion of Latham & Watkins with respect to the validity of the securities being offered.
10.1 Stock Purchase Agreement between USI and the Initial Series A Purchasers dated May 13, 1998
10.2 Stock Purchase Agreement between USI and certain of the Initial Series A Purchasers dated June 18, 1998
10.3 Stock Purchase Agreement between USI and U S WEST dated June 18, 1998
10.4 Stock Purchase Agreement between USI and the Account Management Purchasers dated June 19, 1998
10.5 Stock Purchase Agreement between USI and HAGC Partners dated June 19, 1998
10.6 Stock Purchase Agreement between USI and Chris Horgen dated June 19, 1998
10.7 Stock Purchase Agreement between USI and USI Partners, Ltd. dated June 19, 1998
10.8 Stock Purchase Agreement among USI, IIT Holding, Inc., Luis Sebastian Alegrett, Michael Mai, Carlos E.
Bravo, and Vicente Perez de Tudela dated August 28, 1998
10.9* Amended and Restated Stock Purchase Agreement among USI, Advanced Communication Resources, Inc., Matthew
D. Kanter, The Benjamin Kanter 1997 QSST Trust, The Ronald Kanter 1997 QSST Trust and David S. Walden
dated October 2, 1998
10.10* Stock Purchase Agreement between USI and certain other parties dated December 31, 1998
10.11* Amended and Restated Stockholders Agreement between USI and certain other parties dated December 31, 1998
10.12* Employment Agreement between USI and Christopher R. McCleary dated May 29, 1998
10.13* Employment Agreement between USI and Stephen E. McManus dated June 2, 1998
10.14* Employment Agreement between USI and Andrew A. Stern dated July 27, 1998
10.15* Employment Agreement between USI and Jeffrey L. McKnight dated December 15, 1998
10.16# Outsource Alliance Agreement between USI and PeopleSoft USA, Inc. dated September 28, 1998
10.17# iMAP Agreement between USI and U S WEST, Inc. dated January 15, 1999
10.18# Software License Agreement between USI and Sagent Technology, Inc. dated June 25, 1998
10.19# Software License and Service Agreement between USI and Broadvision, Inc. dated July 22, 1998
10.20* Note Purchase Agreement among USI and the Account Management Purchasers dated September 8, 1998
10.21* Note Purchase Agreement between USI and Southeastern Technology Fund, L.P. dated September 8, 1998
10.22* Note Purchase Agreement among USI and certain other parties dated September 8, 1998
10.23* Note Purchase Agreement between USI and U S WEST dated September 8, 1998
10.24* Note Purchase Agreement between USI and certain other parties dated December 16, 1998
10.25* Note Purchase Agreement between USI and U S WEST dated December 24, 1998
21.1+ Subsidiaries of the Registrant
23.1+ Consent of Mahoney Cohen & Company, P.C.
23.2+ Consent of Bassan & Associates S.C.
23.3+ Consent of Ernst & Young LLP regarding IIT financial statements
23.4+ Consent of Ernst & Young LLP regarding USI financial statements
24.1+ Power of Attorney (included on signature page)
27.1+ Financial Data Schedule
99.1+ Report of Independent Auditors
</TABLE>
- ------------------------
* To be filed by amendment.
+ Previously filed.
# Confidential treatment requested as to certain portions.
II-4
<PAGE>
(b) Schedules
All schedules have been omitted because they are not required or because the
required information is given in the Consolidated Financial Statements or Notes
thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Articles of
Incorporation, as amended, and By-Laws, as amended, of the Registrant and the
laws of the State of Delaware or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities 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
matters have 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 Securities Act and will be governed by
the final adjudication of such issue.
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.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act, 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 this offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
USINTERNETWORKING, INC. HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN ANNAPOLIS,
MARYLAND ON FEBRUARY 2, 1999.
<TABLE>
<S> <C> <C>
USINTERNETWORKING, INC.
By: /s/ WILLIAM T. PRICE
-----------------------------------------
William T. Price
VICE PRESIDENT, SECRETARY AND
GENERAL COUNSEL
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- --------------------------------------------- -------------------------------------- ----------------------
<S> <C> <C>
* Chairman of the Board and Chief
- ------------------------------------ Executive Officer February 2, 1999
Christopher R. McCleary (Principal Executive Officer)
*
- ------------------------------------ President and Director February 2, 1999
Stephen E. McManus
* Executive Vice President and Chief
- ------------------------------------ Financial Officer (Principal February 2, 1999
Andrew A. Stern Financial and Accounting Officer)
*
- ------------------------------------ Director February 2, 1999
R. Dean Meiszer
*
- ------------------------------------ Director February 2, 1999
Benjamin Diesbach
*
- ------------------------------------ Director February 2, 1999
Ray A. Rothrock
*
- ------------------------------------ Director February 2, 1999
Frank A. Adams
*
- ------------------------------------ Director February 2, 1999
William F. Earthman
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- --------------------------------------------- -------------------------------------- ----------------------
- ------------------------------------
John H. Wyant Director
<S> <C> <C>
- ------------------------------------
Joseph R. Zell Director
*
- ------------------------------------ Director February 2, 1999
Michael C. Brooks
*
- ------------------------------------ Director February 2, 1999
David J. Poulin
*By: /s/ WILLIAM T. PRICE
-------------------------------
William T. Price
Attorney-in-Fact
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1+ Amended and Restated Certificate of Incorporation of the Registrant
3.2* Form of Second Restated Certificate of Incorporation of the Registrant
3.3+ Bylaws of the Registrant
4.1* Specimen Certificate for shares of Common Stock, $.001 par value, of the Registrant
5.1* Opinion of Latham & Watkins with respect to the validity of the securities being offered.
10.1 Stock Purchase Agreement between USI and the Initial Series A Purchasers dated May 13, 1998
10.2 Stock Purchase Agreement between USI and certain of the Initial Series A Purchasers dated June 18, 1998
10.3 Stock Purchase Agreement between USI and U S WEST dated June 18, 1998
10.4 Stock Purchase Agreement between USI and the Account Management Purchasers dated June 19, 1998
10.5 Stock Purchase Agreement between USI and HAGC Partners dated June 19, 1998
10.6 Stock Purchase Agreement between USI and Chris Horgen dated June 19, 1998
10.7 Stock Purchase Agreement between USI and USI Partners, Ltd. dated June 19, 1998
10.8 Stock Purchase Agreement among USI, IIT Holding, Inc., Luis Sebastian Alegrett, Michael Mai, Carlos E.
Bravo, and Vicente Perez de Tudela dated August 28, 1998
10.9* Amended and Restated Stock Purchase Agreement among USI, Advanced Communication Resources, Inc., Matthew
D. Kanter, The Benjamin Kanter 1997 QSST Trust, The Ronald Kanter 1997 QSST Trust and David S. Walden
dated October 2, 1998
10.10* Stock Purchase Agreement between USI and certain other parties dated December 31, 1998
10.11* Amended and Restated Stockholders Agreement between USI and certain other parties dated December 31, 1998
10.12* Employment Agreement between USI and Christopher R. McCleary dated May 29, 1998
10.13* Employment Agreement between USI and Stephen E. McManus dated June 2, 1998
10.14* Employment Agreement between USI and Andrew A. Stern dated July 27, 1998
10.15* Employment Agreement between USI and Jeffrey L. McKnight dated December 15, 1998
10.16# Outsourcer Alliance Agreement between USI and PeopleSoft USA, Inc. dated September 28, 1998
10.17# iMAP Agreement between USI and U S WEST, Inc. dated January 15, 1999
10.18# Software License Agreement between USI and Sagent Technology, Inc. dated June 25, 1998
10.19# Software License and Service Agreement between USI and Broadvision, Inc. dated July 22, 1998
10.20* Note Purchase Agreement among USI and the Account Management Purchasers dated September 8, 1998
10.21* Note Purchase Agreement between USI and Southeastern Technology Fund, L.P. dated September 8, 1998
10.22* Note Purchase Agreement among USI and certain other parties dated September 8, 1998
10.23* Note Purchase Agreement between USI and U S WEST dated September 8, 1998
10.24* Note Purchase Agreement between USI and certain other parties dated December 16, 1998
10.25* Note Purchase Agreement between USI and U S WEST dated December 24, 1998
21.1+ Subsidiaries of the Registrant
23.1+ Consent of Mahoney Cohen & Company, P.C.
23.2+ Consent of Bassan & Associates S.C.
23.3+ Consent of Ernst & Young LLP regarding IIT financial statements
23.4+ Consent of Ernst & Young LLP regarding USI financial statements
24.1+ Power of Attorney (included on signature page)
27.1+ Financial Data Schedule
99.1+ Report of Independent Auditors
</TABLE>
- ------------------------
* To be filed by amendment.
+ Previously filed.
# Confidential treatment requested as to certain portions.
<PAGE>
Exhibit 10.1
EXECUTION COPY
STOCK PURCHASE AGREEMENT
by
and
among
USinternetworking, Inc.,
Blue Chip Capital Fund II Limited Partnership
Miami Valley Venture Fund L.P.
Grotech Partners IV L.P.
Grotech Partners V L.P.
Southern Venture Fund SBIC, L.P.
Southern Venture Fund II, L.P.
Venrock Associates
and
Venrock Associates II, L.P.
-------------------------
Dated as of May 13, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 1. DEFINITIONS............................................................................................1
1.1. Definitions................................................................................1
1.2. Accounting Terms; Financial Statements.....................................................4
1.3. Knowledge Standard.........................................................................4
1.4. Other Defined Terms........................................................................5
ARTICLE 2. AUTHORIZATION OF PREFERRED SHARES; PURCHASE AND SALE OF PREFERRED SHARES...............................5
2.1. Preferred Shares...........................................................................5
2.2. Purchase and Sale of Preferred Shares......................................................6
2.3. Closing....................................................................................6
2.4. Fees and Expenses..........................................................................6
ARTICLE 3. CONDITIONS TO THE OBLIGATION OF THE PURCHASERS TO PURCHASE THE PREFERRED SHARES........................6
3.1. Representations and Warranties.............................................................6
3.2. Compliance with Terms and Conditions of this Agreement.....................................7
3.3. Delivery of Certificates Evidencing the Shares.............................................7
3.4. Closing Certificates.......................................................................7
3.5. Secretary's Certificates...................................................................7
3.6. Documents..................................................................................7
3.7. Purchase Permitted by Applicable Laws......................................................7
3.8. Consents and Approvals.....................................................................8
3.9. Shareholders Agreement.....................................................................8
3.10. Certificate and By-laws...................................................................8
3.11. No Material Judgment or Order.............................................................8
3.12. Employment Agreements.....................................................................8
3.13. Legal Opinion.............................................................................8
3.14. Payment for Shares........................................................................9
3.15. SBIC Forms................................................................................9
3.16. Budget Delivery...........................................................................9
ARTICLE 4. CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE...................................................9
4.1. Representations and Warranties.............................................................9
4.2. Compliance with this Agreement.............................................................9
4.3. Closing Certificate........................................................................9
i
<PAGE>
4.4. Issuance Permitted by Applicable Laws.....................................................10
4.5. Payment of Purchase Price.................................................................10
4.6. Consents and Approvals....................................................................10
4.7. Shareholders Agreement....................................................................10
4.8. No Material Judgment or Order.............................................................10
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................................................10
5.1. Corporate Existence and Authority.........................................................11
5.2. Corporate Authorization; No Contravention.................................................11
5.3. Governmental Authorization; Third Party Consents..........................................11
5.4. Binding Effect............................................................................11
5.5. Capitalization............................................................................11
5.6. Private Offering..........................................................................12
5.7. Litigation................................................................................13
5.8. Financial Statements......................................................................13
5.9. Title and Condition of Assets.............................................................13
5.10. Contractual Obligations..................................................................13
5.11. Tax Matters..............................................................................13
5.12. Severance Arrangements...................................................................14
5.13. Investment Company/Government Regulations................................................14
5.14. Broker's, Finder's or Similar Fees.......................................................14
5.15. Labor Relations and Employee Matters.....................................................14
5.16. Employee Benefits Matters................................................................14
5.17. Outstanding Borrowings...................................................................14
5.18. Insurance Schedule.......................................................................15
5.19. Solvency.................................................................................15
5.20. No Other Agreements to Sell the Assets or Capital Stock of the Company...................15
5.21. Key Employees............................................................................15
5.22. Compliance with Law......................................................................15
5.23. Disclosure...............................................................................15
5.24. Small Business Concern; Affiliates.......................................................16
5.25. Qualified Small Business.................................................................16
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS......................................................16
6.1. Partnership or Corporate Existence and Authority..........................................16
6.2. Organization; Authorization; No Contravention.............................................17
6.3. Binding Effect............................................................................17
6.4. Purchase for Own Account..................................................................17
6.5. Financial Condition.......................................................................18
6.6. Receipt of Information....................................................................18
6.7. Broker's, Finder's or Similar Fees........................................................18
ii
<PAGE>
6.8. Governmental Authorization; Third Party Consent...........................................18
6.9. Litigation................................................................................19
ARTICLE 7. COVENANTS OF THE COMPANY WITH RESPECT TO THE PERIOD FOLLOWING THE CLOSING............................19
7.1. Reservation of Shares.....................................................................19
7.2. Intentionally omitted.....................................................................19
7.3. Intentionally omitted.....................................................................19
7.4. Issuance of Additional Preferred Shares...................................................19
7.5. Information and Reports for SBIC Purchasers...............................................20
ARTICLE 8. INDEMNIFICATION.......................................................................................20
8.1. Indemnification...........................................................................20
8.2. Notification..............................................................................21
ARTICLE 9. MISCELLANEOUS.........................................................................................22
9.1. Survival of Representations and Warranties................................................22
9.2. Notices...................................................................................22
9.3. Successors and Assigns....................................................................23
9.4. Amendment and Waiver......................................................................24
9.5. Counterparts..............................................................................24
9.6. Headings..................................................................................24
9.7. Governing Law.............................................................................24
9.8. Jurisdiction..............................................................................24
9.9. Severability..............................................................................25
9.10. Rules of Construction....................................................................25
9.11. Entire Agreement.........................................................................25
9.12. Publicity................................................................................25
9.13. Further Assurances.......................................................................25
9.14. Waiver of Jury Trial.....................................................................26
</TABLE>
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<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered
into as of this 13th day of May, 1998, by and among USinternetworking, Inc., a
Delaware corporation (the "Company"), Blue Chip Capital Fund II Limited
Partnership, an Ohio limited partnership ("Blue Chip"), Miami Valley Venture
Fund L.P., an Ohio limited partnership ("Miami"), Grotech Partners IV L.P., a
Delaware limited partnership ("Grotech"), Grotech Partners V L.P., a Delaware
limited partnership ("Grotech II") Southern Venture Fund SBIC, L.P., a Delaware
limited partnership ("Massey"), Southern Venture Fund II, L.P., a Delaware
limited partnership ("Massey II"), Venrock Associates, a New York limited
partnership ("Venrock"), and Venrock Associates II, L.P., a New York limited
partnership ("Venrock II") (Blue Chip, Miami, Grotech, Grotech II, Massey,
Massey II, Venrock and Venrock II are referred to collectively herein as the
"Purchasers" and individually as a "Purchaser").
RECITALS:
A. Upon the terms and subject to the conditions set forth in
this Agreement, the Company proposes to issue and sell shares of its Series A
Convertible Preferred Stock ("Series A Preferred Stock", as defined below) to
the Purchasers.
B. The Purchasers desire to purchase from the Company shares
of the Series A Preferred Stock as set forth on SCHEDULE 1 hereto.
C. The Purchasers and the Company desire to set forth the
objectives and agreements that will govern their relations and responsibilities
with respect to each other by entering into concurrently with the closing of the
sale and purchase of securities hereunder a Shareholders Agreement (as defined
below).
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the receipt
and adequacy of which is hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE 1.
DEFINITIONS
1.1. DEFINITIONS.
As used in this Agreement, and unless the context requires a
different meaning, the following terms have the meanings indicated:
<PAGE>
"AFFILIATE" means, with respect to any specified Person, any
Person that, directly or indirectly, controls, is controlled by, or is under
common control with, such specified Person, whether by contract, through one or
more intermediaries, or otherwise.
"BUDGET" means a fiscal year operating budget, which shall
include monthly capital and operating expense budgets, cash flow statements,
capital expenditure budgets, profit and loss projections and employee hiring
projections.
"BUSINESS DAY" shall mean a day other than a Saturday or
Sunday or any federal holiday.
"COMMISSION" means the Securities and Exchange Commission or
any similar agency then having jurisdiction to enforce the Securities Act (as
defined below).
"COMMON STOCK" means the common stock, par value $.001 per
share, of the Company, or any other capital stock of the Company into which such
stock is reclassified or reconstituted.
"CONDITION OF THE COMPANY" means the assets, business,
properties, operations, financial condition or prospects of the Company.
"EMPLOYMENT AGREEMENTS" means employment agreements between
the Company and each of the Key Employees in forms approved by the Purchasers at
the Closing, which approval will not be unreasonably withheld.
"EMPLOYEE PLANS" means all benefits arrangements, pensions
plans or welfare plans adopted by the Company for its employees.
"EMPLOYEE STOCK OPTION PLAN" means an employee stock option
plan adopted by the Compensation Committee of the Board of Directors of the
Company providing for the issuance to certain employees of the Company of
options to purchase a certain number of shares of Common Stock at a certain
exercise price per share; the total number of shares of Common Stock which may
be issued under such plan shall not exceed 6.5% of the total number of
outstanding shares of common stock calculated on a fully diluted basis, not
including the options and shares issuable or issued on exercise of options
pursuant to the Employee Stock Option Plan.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.
"GAAP" means United States generally accepted accounting
principles, in effect from time to time, consistently applied.
"GOVERNMENTAL AUTHORITY" means the government of any nation,
state, city, locality or other political subdivision of any thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any
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<PAGE>
corporation or other entity owned or controlled, through stock or capital
ownership or otherwise, by any of the foregoing.
"HOLDERS" means the Persons (other than the Purchasers) listed
as "Shareholders" on the signature page to the Shareholders Agreement.
"INDEBTEDNESS" means, as to any Person: (a) all obligations,
whether or not contingent, of such Person for borrowed money (including, without
limitation, reimbursement and all other obligations with respect to surety
bonds, letters of credit and bankers' acceptances, whether or not matured), (b)
all obligations of such Person evidenced by notes, bonds, debentures or similar
instruments, (c) all obligations of such Person representing the balance of
deferred purchase price of property or services, except trade accounts payable
and accrued commercial or trade liabilities arising in the ordinary course of
business, (d) all interest rate and currency swaps, caps, collars and similar
agreements or hedging devices under which payments are obligated to be made by
such Person, whether periodically or upon the happening of a contingency, (e)
all indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property), (f)
all obligations of such Person under leases which have been or should be, in
accordance with GAAP, recorded as capital leases, (g) all indebtedness secured
by any Lien (other than Liens in favor of lessors under leases other than leases
included in clause (f)) on any property or asset owned or held by that Person
regardless of whether the indebtedness secured thereby shall have been assumed
by that Person or is non-recourse to the credit of that Person, and (h) all
Indebtedness of any other Person referred to in clauses (a) through (f) above,
guaranteed, directly or indirectly, by that Person.
"KEY EMPLOYEES" means the individuals listed on Schedule A.
"LIEN" means any mortgage, deed of trust, pledge,
hypothecation, assignment, encumbrance, lien (statutory or other) or other
security interest of any kind or nature whatsoever (excluding preferred stock or
equity related preferences) including, without limitation, those created by,
arising under or evidenced by any conditional sale or other title retention
agreement, the interest of a lessor under a capital lease obligation, or any
financing lease having substantially the same economic effect as any of the
foregoing.
"OUTSTANDING BORROWINGS" means all Indebtedness of the Company
for borrowed money (including, without limitation, reimbursement and all other
obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured).
"PERSON" means any individual, firm, corporation, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, Governmental Authority or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.
"REQUIREMENTS OF LAW" means, as to any Person, the provisions
of the Certificate of Incorporation and By-laws or other organizational or
governing documents of such Person,
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and any law, treaty, rule, regulation, right, privilege, qualification,
license or franchise, order, judgment, or determination of an arbitrator or a
court or other Governmental Authority, in each case, applicable or binding
upon such Person or any of its property or to which such Person or any of its
property is subject or applicable to any or all of the transactions
contemplated by or referred to in the Transaction Agreements.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder.
"SERIES A PREFERRED STOCK" means the 8% Series A Convertible
Preferred Stock, par value $.01 per share, of the Company, or any other capital
stock of the Company into which such stock is reclassified or reconstituted.
"SHAREHOLDERS AGREEMENT" means the Shareholders Agreement
substantially in the form attached hereto as EXHIBIT A.
"TRANSACTION AGREEMENTS" means collectively, this Agreement
and the Shareholders Agreement.
"TRANSACTION EXPENSES" means any and all reasonable
out-of-pocket (i) legal expenses incurred by the Purchasers in connection with
the negotiation and preparation of the Transaction Agreements, the consummation
of the transactions contemplated thereby and preparation for any of the
foregoing, including, without limitation, travel expenses, reasonable fees,
charges and disbursements of counsel and any similar or related legal costs and
legal expenses, PROVIDED, HOWEVER, that the Company shall pay only for one
primary counsel of Purchasers and for the reasonable attorney fees of the
individual counsel of each Purchaser incurred by such counsel in reviewing the
Transaction Agreements, but only to the extent that the use of such individual
counsel is required by such Purchaser's institutional policies and procedures;
and (ii) other expenses incurred by the Purchasers in connection with the
negotiation, preparation and consummation of the Transaction Agreements and the
transactions contemplated thereby.
1.2. ACCOUNTING TERMS; FINANCIAL STATEMENTS.
All accounting terms used herein not expressly defined in this
Agreement shall have the respective meanings given to them in accordance with
sound accounting practice. The term "sound accounting practice" shall mean such
accounting practice as, in the opinion of the independent certified public
accountants regularly retained by the Company conforms at the time to GAAP
applied on a consistent basis except for changes with which such accountants
concur.
1.3. KNOWLEDGE STANDARD.
When used herein, the phrase "to the knowledge of" any Person,
"to the best knowledge of" any Person or any similar phrase shall mean, (i) with
respect to any individual, the actual knowledge of such Person, (ii) with
respect to any corporation, the actual knowledge
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<PAGE>
of the officers and directors of such corporation and the knowledge of such
facts that such persons should have in the exercise of their duties after
reasonable inquiry, and (iii) with respect to a partnership, the actual
knowledge of the officers and directors of the general partner of such
partnership and the knowledge of such facts that such persons should have in the
exercise of their duties after reasonable inquiry.
1.4. OTHER DEFINED TERMS.
The following terms shall have the meanings specified in the
Sections set forth below:
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Actions 5.7
Additional Preferred Shares 7.4
Certificate of Incorporation 2.1
Certificate 2.1
Certificate of Designation 2.1
Closing Date 2.2
Closing 2.3
Indemnified Party 8.2
Indemnifying Party 8.2
Liabilities 8.1
Preferred Shares 2.1
Purchase Price 2.2
Purchasing Indemnified Party 9.1
Purchasing Indemnifying Party 9.1
SBA 3.15
SBIC 7.5
Selling Indemnified Party 9.1
Selling Indemnifying Party 9.1
</TABLE>
ARTICLE 2.
AUTHORIZATION OF PREFERRED SHARES;
PURCHASE AND SALE OF PREFERRED SHARES
2.1. PREFERRED SHARES.
On or before the Closing Date, the Board of Directors of the
Company will authorize the issuance and sale of up to 51,000 shares of the
Series A Preferred Stock (the "Preferred Shares") and will duly adopt
resolutions establishing the rights, preferences, privileges and restrictions of
the Series A Preferred Stock. The Preferred Shares will have the respective
rights, preferences and privileges set forth in the Company's Amended and
Restated Certificate of Incorporation, as it will be in effect on the Closing
Date (the "Certificate of Incorporation") and the form of Certificate of
Designations, Preferences, and Other Special
-5-
<PAGE>
Rights of Preferred Stock and Qualifications, Limitations and Restrictions
Thereof set forth in EXHIBIT B hereto (the "Certificate of Designation" and
together with the Certificate of Incorporation, the "Certificate").
2.2. PURCHASE AND SALE OF PREFERRED SHARES.
Upon the terms and subject to the conditions herein contained,
on the day ten (10) Business Days after the date hereof or such earlier day as
the parties may agree (the "Closing Date"), the Company shall issue to each of
the Purchasers, and each Purchaser shall acquire from the Company, the number of
Preferred Shares set forth next to such Purchaser's name on SCHEDULE 1 hereto.
The obligation of each Purchaser to purchase the Preferred Shares shall be
several and not joint. The aggregate purchase price of such Preferred Shares, to
be paid by each Purchaser in the amount set forth next to such Purchaser's name
on SCHEDULE 1 hereto, shall be Twenty-Three Million Dollars ($23,000,000) (the
"Purchase Price").
2.3. CLOSING.
The closing of the sale to and purchase by the Purchasers of
the Preferred Shares (the "Closing") shall occur at 11 o'clock A.M., local time
on the Closing Date at the offices of the Company, 175 Admiral Cochrane Drive,
Annapolis, Maryland. At the Closing, (i) the Company shall deliver to each
Purchaser a certificate evidencing the Preferred Shares being purchased by such
Purchaser, free and clear of any Liens of any nature whatsoever, other than
those created by the Certificate or the Shareholders Agreement, registered in
such Purchaser's name, and (ii) each Purchaser shall deliver to the Company the
portion of the Purchase Price set forth next to such Purchaser's name on
SCHEDULE 1 hereto, by cashier's or certified check or wire transfer of
immediately available funds, less, in the case of Blue Chip, the amount of
principal and accrued interest of the Company's indebtedness to Blue Chip under
the Promissory Note dated as of April 24, 1998.
2.4. FEES AND EXPENSES.
Concurrently with the Closing, the Company shall reimburse the
Purchasers for the Transaction Expenses, which payment shall be made by wire
transfer of immediately available funds to an account or accounts designated by
the Purchasers.
ARTICLE 3.
CONDITIONS TO THE OBLIGATION OF THE
PURCHASERS TO PURCHASE THE PREFERRED SHARES
The obligation of each Purchaser to purchase the Preferred
Shares, to pay the purchase price therefor and to perform any of its obligations
hereunder on the Closing Date (unless otherwise specified) shall be subject to
the satisfaction of the following conditions on or before the Closing Date:
3.1. REPRESENTATIONS AND WARRANTIES.
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<PAGE>
The representations and warranties of the Company contained in
Section 5 hereof shall be true and correct in all material respects at and as of
the Closing Date, as if made at and as of such date.
3.2. COMPLIANCE WITH TERMS AND CONDITIONS OF THIS
AGREEMENT.
The Company shall have performed and complied with all of the
agreements and conditions set forth herein that are required to be performed or
complied with by the Company on or before the Closing Date.
3.3. DELIVERY OF CERTIFICATES EVIDENCING THE SHARES.
The Company shall have delivered to each Purchaser the
certificates evidencing the Preferred Shares as set forth in Section 2.3.
3.4. CLOSING CERTIFICATES.
The Company shall have delivered to each Purchaser a
certificate executed by an authorized officer of the Company, certifying that
the representations and warranties of the Company are true and correct in all
material respects on and as of the Closing Date, and that the conditions set
forth in this Section 3 to be satisfied by the Company have been satisfied on
and as of the Closing Date.
3.5. SECRETARY'S CERTIFICATES.
Each Purchaser shall have received a certificate from the
Company, dated as of the Closing Date and signed by the Secretary or an
Assistant Secretary of the Company, certifying that the attached copies of the
Certificate of Incorporation, Certificate of Designation, By-laws of the
Company, (all of which will be in form and substance consistent with this
Agreement and reasonably satisfactory to the Purchasers) and resolutions of the
Board of Directors of the Company approving the Transaction Agreements and the
transactions referred to therein, are all true, complete and correct and remain
unamended and in full force and effect.
3.6. DOCUMENTS.
Each Purchaser or one Purchaser on behalf of all Purchasers
shall have received true, complete and correct copies of such documents and such
other information as it may have reasonably requested in connection with or
relating to the sale of the Preferred Shares and the transactions required to be
performed by the Transaction Agreements.
3.7. PURCHASE PERMITTED BY APPLICABLE LAWS.
The acquisition of and payment for the Preferred Shares to be
acquired by the Purchasers hereunder and the consummation of this Agreement (a)
shall not be prohibited by any Requirements of Law, and (b) shall not conflict
with or be prohibited by any Contractual Obligation of the Company.
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<PAGE>
3.8. CONSENTS AND APPROVALS.
All consents, exemptions, authorizations, or other actions by,
or notices to, or filings with, Governmental Authorities and other Persons in
respect of all Requirements of Law and with respect to those material
Contractual Obligations of the Company necessary or required in connection with
the execution, delivery or performance (including, without limitation, the
issuance of the Preferred Shares and the issuance of the Common Stock upon
conversion of the Preferred Shares) by the Company shall have been obtained and
be in full force and effect and all waiting periods shall have lapsed without
extension or the imposition of any conditions or restrictions.
3.9. SHAREHOLDERS AGREEMENT.
The Company and the Shareholders shall have duly executed and
delivered to the Purchasers the Shareholders Agreement.
3.10. CERTIFICATE AND BY-LAWS.
The Company shall have adopted a Certificate of Incorporation
and the Certificate of Designation and the By-laws of the Company shall be
amended as may be required by the Certificate and the Shareholders' Agreement,
all in form and substance reasonably satisfactory to the Purchasers.
3.11. NO MATERIAL JUDGMENT OR ORDER.
There shall not be any judgment or order of a court of
competent jurisdiction or any ruling of any Governmental Authority or any
condition imposed under any Requirement of Law which, in the reasonable judgment
of the Purchaser, would (i) prohibit the purchase of the Preferred Shares
hereunder, (ii) subject the Purchaser to any penalty if the Preferred Shares
were to be purchased hereunder, or (iii) question the validity or legality of
the transactions required to be performed under this Agreement.
3.12. EMPLOYMENT AGREEMENTS.
The Company and the Key Employees shall have executed and
delivered the Employment Agreements.
3.13. LEGAL OPINION.
The Purchasers shall have received an opinion of counsel for
the Company in form and substance reasonably acceptable to the Purchasers.
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<PAGE>
3.14. PAYMENT FOR SHARES.
Each of the other Purchasers shall have paid the purchase
price for all Shares to be purchased at the Closing and Mr. McCleary shall have
contributed $1,000,000 of the Company's indebtedness to him for 1,666.67
Preferred Shares.
3.15. SBIC FORMS.
The Company shall have furnished to all Purchasers that are
SBICs all forms which such Purchasers shall have informed the Company are
required by the United States Small Business Administration ("SBA") in
connection with the transactions contemplated hereby, including without
limitation a Size Status Declaration on SBA Form 480, an Assurance of Compliance
on SBA Form 652-D, and a Portfolio Financing Report on SBA Form 1031, which
forms (except for execution by the respective licensee), shall be in proper form
for filing with the SBA.
3.16. BUDGET DELIVERY.
The Company shall have delivered to the Purchasers a Budget
that is reasonably acceptable to the Purchasers.
ARTICLE 4.
CONDITIONS TO THE OBLIGATION OF
THE COMPANY TO CLOSE
The obligation of the Company to issue and sell the Preferred
Shares and the other obligations of the Company hereunder, shall be subject to
the satisfaction of the following conditions on or before the Closing Date:
4.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Purchasers contained
in Section 6 hereof shall be true and correct in all material respects at and as
of the Closing Date as if made at and as of such date.
4.2. COMPLIANCE WITH THIS AGREEMENT.
The Purchasers shall have performed and complied with all of
the agreements and conditions set forth herein that are required to be performed
or complied with by the Purchasers on or before the Closing Date.
4.3. CLOSING CERTIFICATE.
Each Purchaser shall have delivered to the Company a
certificate executed by such Purchaser certifying that the representations and
warranties of such Purchaser contained in this Agreement are true and correct in
all material respects on and as of the Closing Date and
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<PAGE>
that the conditions contained in this Section 4 to be satisfied by such
Purchaser have been satisfied on and as of the Closing Date.
4.4. ISSUANCE PERMITTED BY APPLICABLE LAWS.
The issuance of the Preferred Shares to be issued by the
Company hereunder and the consummation of this Agreement (a) shall not be
prohibited by any Requirements of Law, and (b) shall not conflict with or be
prohibited by any Contractual Obligations of the Purchaser.
4.5. PAYMENT OF PURCHASE PRICE.
The Purchasers shall have tendered to the Company the Purchase
Price as set forth in Section 2.
4.6. CONSENTS AND APPROVALS.
All consents, exemptions, authorizations, or other actions by,
or notices to, or filings with, Governmental Authorities and other Persons in
respect of all Requirements of Law and with respect to those material
Contractual Obligations of the Purchasers necessary or required in connection
with the execution, delivery or performance by each Purchaser shall have been
obtained and be in full force and effect and all waiting periods shall have
lapsed without extension or imposition of any conditions or restrictions.
4.7. SHAREHOLDERS AGREEMENT.
The Purchasers shall have duly executed and delivered to the
Company the Shareholders Agreement.
4.8. NO MATERIAL JUDGMENT OR ORDER.
There shall not be any judgment or order of a court of
competent jurisdiction or any ruling of any Governmental Authority or any
condition imposed under any Requirements of Law which, in the reasonable
judgment of the Company would (i) prohibit the sale of the Shares or the
consummation of the other transactions hereunder, (ii) subject the Company to
any penalty if the Shares were to be sold hereunder or (iii) question the
validity or legality of the transactions required to be performed under this
Agreement.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to, and covenants with,
the Purchasers as of the date hereof and as of the Closing Date as follows:
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<PAGE>
5.1. CORPORATE EXISTENCE AND AUTHORITY.
The Company was incorporated on January 14, 1998 and (a) is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, (b) has all requisite corporate power and authority to
own and operate its property, to lease the property it operates as lessee and to
conduct the business in which it is currently, or is currently proposed to be,
engaged, and (c) has the corporate power and authority to execute, deliver and
perform its obligations under each Transaction Agreement to which it is or will
be a party.
5.2. CORPORATE AUTHORIZATION; NO CONTRAVENTION.
The execution, delivery and performance by the Company of each
of the Transaction Agreements and the consummation of the transactions
contemplated thereby, including, without limitation, the issuance of the
Preferred Shares, (a) on or before the Closing Date, shall have been duly
authorized by all necessary corporate action, including, if required,
stockholder action, (b) do not conflict with or contravene the terms of the
Certificate or the By-laws of the Company, or any amendment thereof; and (c)
will not violate, conflict with or result in any material breach or
contravention of (i) any Contractual Obligation of the Company or (ii) any
Requirements of Law applicable to the Company.
5.3. GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENTS.
No approval, consent, compliance, exemption, authorization, or
other action by, or notice to, or filing with, any Governmental Authority or any
other Person in respect of any applicable Requirements of Law in effect on the
date hereof, and no lapse of a waiting period under any applicable Requirements
of Law in effect on the date hereof, is necessary or required in connection with
the execution and delivery of the Transaction Agreements by the Company or the
performance by the Company or enforcement against the Company of any material
obligation by the Company under the Transaction Agreements or the transactions
to be performed hereunder.
5.4. BINDING EFFECT.
This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity relating to enforceability.
5.5. CAPITALIZATION.
(a) On the Closing Date, the capital stock of
the Company shall consist of One Hundred Fifty Million (150,000,000) shares of
Common Stock and One Hundred Thousand (100,000) shares of preferred stock, with
such shares including the Preferred Shares and the Additional Preferred Shares
(as defined in Section 7.4 below). Of the 150,000,000
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<PAGE>
authorized shares of Common Stock, immediately after the Closing, (i) Ninety-One
Million Five Hundred Thousand (91,500,000) shares of Common Stock will be
reserved for issuance upon conversion of shares of the Series A Preferred Stock
issued hereunder or which may be issued as contemplated in Section 7.4, (ii)
Five Million (5,000,000) shares of Common Stock will be reserved for issuance
pursuant to the Employee Stock Option Plan; and (iii) no more than Eighty-Eight
Million Five Hundred Thousand (88,500,000) fully diluted shares of Common Stock
will be outstanding assuming issuance of the Additional Preferred Shares
pursuant to 7.4 (ii) and 7.4 (iii), but not including any shares authorized
pursuant to 7.4(i) or shares authorized pursuant to the Employee Stock Option
Plan. As of the Closing Date, all outstanding shares of capital stock of the
Company, including the Preferred Shares, Additional Preferred Shares and the
shares of Common Stock issuable upon conversion of the Preferred Shares or the
Additional Preferred Shares (when issued in accordance with the conversion terms
thereof), will be duly authorized and validly issued, fully paid, nonassessable
and free and clear of any Liens, preferential rights, priorities, claims,
options, charges or other encumbrances or restrictions other than those created
by the Certificate, the Bylaws, and the Shareholders' Agreement.
(b) SCHEDULE 5.5 sets forth the name of
each holder of the issued and outstanding capital stock of the Company, the
number of shares of such capital stock held beneficially or of record by each
such holder, the name of each Person holding any options or other rights to
purchase any capital stock of the Company (except as may be permitted under the
Shareholders Agreement), the number, class and series of shares of capital stock
subject to each such option or right and the exercise price of each such option
or right. Except for the options under the Employee Stock Option Plan and the
Preferred Shares, and except as identified in Section 7.4, there are no
outstanding securities convertible into or exchangeable for capital stock of the
Company or options, warrants or other rights to purchase or subscribe to capital
stock of the Company or contracts, commitments, agreements, understandings or
arrangements of any kind to which the Company or any Holder is a party relating
to the issuance of any capital stock of the Company, any such convertible or
exchangeable securities or any such options, warrants or rights. The Company has
no subsidiaries.
(c) Except as set forth on SCHEDULE 5.5
and as may be provided in the Shareholders Agreement, no Person has any
preemptive rights, rights of first refusal, "tag along" rights, rights of
co-sale or any similar rights with respect to the issuance of the Preferred
Shares contemplated hereby or the issuance of any additional shares of stock by
the Company. SCHEDULE 5.5 identifies all Persons holding any such rights and
describes the material terms of all such rights.
5.6. PRIVATE OFFERING.
No form of general solicitation or general advertising was
used by the Company or its representatives in connection with the offer or sale
of the Preferred Shares. No registration of the Preferred Shares pursuant to the
provisions of the Securities Act or any state securities or "blue sky" laws will
be required by the offer, sale or issuance of the Preferred Shares pursuant to
this Agreement. The Company agrees that neither it, nor anyone authorized to act
on its behalf,
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will offer or sell the Preferred Shares or any other security so as to require
the registration of the Preferred Shares pursuant to the provisions of the
Securities Act or any state securities or "blue sky" laws, unless such Preferred
Shares are so registered.
5.7. LITIGATION.
The Company has not received any notice of any governmental
charge, complaint or action or court order, writ, injunction, judgment or decree
outstanding or any claim, suit, litigation, legal proceeding, (collectively,
"Actions") which if adversely determined would have a material adverse effect on
(i) the Company or the Condition of the Company (ii) the transactions required
to be performed by the Company under this Agreement or the Transaction
Agreements and, to the Company's knowledge, there is no valid basis therefor,
and no Action is threatened against the Company.
5.8. FINANCIAL STATEMENTS.
The Company was incorporated on January 14, 1998, and has not
yet commenced business operations. As of the date hereof, it has no assets,
except as described below, and has not prepared financial statements. SCHEDULE
5.8(A) sets forth all expenditures by or on behalf of the Company since its
formation in excess of $25,000, in any one case, or $200,000, in the aggregate.
The Company's projections attached hereto as SCHEDULE 5.8(B) were prepared by
the Company's management in good faith, are based on reasonable assumptions,
represent management's best estimates of the Company's predicted operations and
performance under its business plan and reflect actual subjective expectations
of the Company's management. The Company has no reason to believe that the
results reflected in such projections are not attainable.
5.9. TITLE AND CONDITION OF ASSETS.
The Company currently has no assets (other than cash) except
as listed on SCHEDULE 5.10. The Company has a valid and enforceable leasehold
interest in its leases listed on Schedule 5.10 pursuant to the terms of the
lease agreements and is not in default thereunder.
5.10. CONTRACTUAL OBLIGATIONS.
The Company has not entered into any contracts or agreements
or incurred any material liabilities, other than pursuant to the Transaction
Agreements and the agreements listed on SCHEDULE 5.10.
5.11. TAX MATTERS.
The Company has duly filed all tax reports and returns
required to be filed by it, including all federal, state, local and foreign tax
returns and reports and paid all taxes due with respect thereto.
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5.12. SEVERANCE ARRANGEMENTS.
Except as set forth on SCHEDULE 5.12, the Company has not
entered into any severance or similar arrangement in respect of any present or
former employee of the Company that will result in any obligation (absolute or
contingent) of the Company to make any payment to such present or former
employee of the Company following termination of employment.
5.13. INVESTMENT COMPANY/GOVERNMENT REGULATIONS.
Immediately following the Closing, after giving effect to the
transactions contemplated by the Transaction Agreements, neither the Company nor
any Person controlling, controlled by or under common control with the Company
will be an "investment company" within the meaning of the Investment Company Act
of 1940, as amended. The Company is not subject to regulation under the Public
Utility Holding Company Act of 1935, as amended, the Federal Power Act, or any
federal or state statute or regulation limiting its ability to incur
Indebtedness.
5.14. BROKER'S, FINDER'S OR SIMILAR FEES.
There are no brokerage commissions, finder's fees or similar
fees or commissions payable in connection with the transactions contemplated
hereby based on any agreement, arrangement or understanding with the Company or
any officer, director, shareholder, or Affiliate of the Company or any action
taken by any such person.
5.15. LABOR RELATIONS AND EMPLOYEE MATTERS.
(a) The Company is not and has not engaged in
any unfair labor practice.
(b) Except as set forth on SCHEDULE 5.10, the
Company is not a party to any employment agreement (other than "at will"
employment relationships), collective bargaining agreement or covenant not to
compete.
(c) No complaint under any statute or regulation
relating to employment has been filed against the Company.
5.16. EMPLOYEE BENEFITS MATTERS.
Except as set forth on Schedule 5.16, the Company has not
adopted or implemented any Employee Plan.
5.17. OUTSTANDING BORROWINGS.
SCHEDULE 5.17 lists the amount of all Outstanding Borrowings
as of the date hereof and the name of each lender thereof.
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5.18. INSURANCE SCHEDULE.
SCHEDULE 5.18 accurately summarizes all of the Company's
insurance policies or programs in effect as of the date hereof, and indicates
the insurer's name and policy number and also indicates any self-insurance
program that is in effect.
5.19. SOLVENCY.
The Company has not (i) made a general assignment for the
benefit of its creditors, (ii) filed any voluntary petition in bankruptcy or
suffered the filing of any involuntary petition in bankruptcy by its creditors,
(iii) suffered the appointment of a receiver to take possession of all or
substantially all of its assets or properties, (iv) suffered the attachment or
other judicial seizure of all or substantially all of its assets or (v) admitted
in writing its inability to pay its debts as they come due.
5.20. NO OTHER AGREEMENTS TO SELL THE ASSETS OR CAPITAL
STOCK OF THE COMPANY.
Other than as otherwise set forth in this Agreement, the
Company has no legal obligation, absolute or contingent, other than the
obligations of the Company under the Transaction Agreements, to any person or
firm to (i) sell any capital stock of the Company or, outside of the ordinary
course of business, assets, or effect any merger, consolidation or other
reorganization of the Company or (ii) enter into any agreement with respect any
of the foregoing.
5.21. KEY EMPLOYEES.
The performance by the Key Employees of their duties for the
Company as contemplated by the Company's business plan will not violate any
provision of any agreement to which any of such persons or the Company is a
party, including any agreement with any former employer of any such person, or
give rise to any obligation or liability of the Company to any third party or
limit in any way the Company's ability to conduct its business. None of the Key
Employees is engaged, directly or indirectly, nor has any interest (other than
as a shareholder of a public company) in any entity which is engaged in
competition with the Company in its planned activities.
5.22. COMPLIANCE WITH LAW.
In its conduct of its business and affairs since its
formation, the Company has complied in all material respects with all applicable
Requirements of Law.
5.23. DISCLOSURE.
The Company has, to the best of its knowledge, fully responded
to all requests for information, and the Company has accurately answered all
questions from the Purchasers concerning the Condition of the Company, and has
not knowingly withheld any facts relating thereto which it reasonably believes
to be material with respect to its Condition. No information in this Agreement
or in any Exhibit or Schedule attached to this Agreement, contains or will
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contain any untrue statement of a material fact or when considered together with
all such information delivered to the Purchasers omits to state any material
fact. The disclosures made in writing by the Company in connection with this
Agreement when read in the light of the circumstances when made and taken as a
whole, did not when made contain any untrue statement of a material fact.
5.24. SMALL BUSINESS CONCERN; AFFILIATES.
The Company, together with its "affiliates" (as that term is
defined in Title 13, United States Code of Federal Regulations, Section
121.103), if any, is a "small business concern" within the meaning of 13 C.F.R.
ss. 107.50 and which meets the size standards under 13 C.F.R. ss. 131.301(c).
SCHEDULE 5.24 hereto sets forth a complete list of such SBA affiliates, with a
brief statement describing the basis of each affiliation. The information set
forth in the SBA FORM 480, FORM 652-D and PART A OF FORM 1031 regarding the
Company, all of which will be provided prior to Closing, will be accurate and
complete.
5.25. QUALIFIED SMALL BUSINESS.
The Company represents that, as of the date of this Agreement,
it qualifies as a "Qualified Small Business" as defined in Section 1202(d) of
the Code and covenants that so long as its shares are held by the Purchasers (or
a transferee in whose hands the shares are eligible to qualify as Qualified
Small Business Stock as defined in Section 1202(c) of the Code), it will use its
reasonable efforts to cause the shares to qualify as Qualified Small Business
Stock; provided that, notwithstanding the foregoing, the Company shall not be
obligated to take any action, or refrain from any action, which in its good
faith business judgment is not in the best interests of the Company or its
stockholders. Notwithstanding the foregoing, the Purchasers acknowledge and
agree that it is in the best interests of the Company and its stockholders for
the Company at any time after the date of issuance of the Series A Preferred
Stock to pursue and obtain at least $50 million of debt financing for the
Company's working capital, operating assets, and/or investment activities.
ARTICLE 6.
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASERS
Each Purchaser, severally and not jointly, hereby represents
and warrants to the Company as of the date hereof as follows:
6.1. PARTNERSHIP OR CORPORATE EXISTENCE AND AUTHORITY.
As applicable, such Purchaser is either a limited partnership,
limited liability company, or corporation (a) duly organized, validly existing
and in good standing under the laws of the jurisdiction of its formation, (b)
has all requisite power and authority to own its assets and operate its
business, and (c) has all requisite power and authority to execute, deliver and
perform its obligations under each of the Transaction Agreements to which it is
or will be a party.
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<PAGE>
6.2. ORGANIZATION; AUTHORIZATION; NO CONTRAVENTION.
The execution, delivery and performance by such Purchaser of
the Transaction Agreements to which it is a party and the consummation of the
transactions contemplated thereby, including, without limitation, the
acquisition of the Preferred Shares: (a) is within such Purchaser's partnership,
limited liability company, or corporate power and authority, as applicable, and
has been duly authorized by all necessary action on the part of such Purchaser;
(b) does not conflict with or contravene the terms of such Purchaser's charter
or by-laws, as applicable; and (c) will not violate, conflict with or result in
any material breach or contravention of (i) any Contractual Obligation of such
Purchaser, or (ii) the Requirements of Law or any order or decree applicable to
such Purchaser.
6.3. BINDING EFFECT.
This Agreement has been duly executed and delivered by such
Purchaser, and this Agreement constitutes the legal, valid and binding
obligation of such Purchaser, enforceable against it in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws affecting the enforcement of creditors' rights
generally or by equitable principles relating to enforceability.
6.4. PURCHASE FOR OWN ACCOUNT.
The Preferred Shares, and the shares of Common Stock to be
issued upon conversion of the Preferred Shares, are being or will be acquired by
such Purchaser for its own account and with no intention of distributing or
reselling such securities or any part thereof in any transaction that would be
in violation of the securities laws of the United States of America, or any
state, without prejudice, however, to the rights of such Purchaser at all times
to sell or otherwise dispose of all or any part of the Preferred Shares or the
shares of Common Stock issuable upon conversion of the Preferred Shares under an
effective registration statement under the Securities Act, or under an exemption
from such registration available under the Securities Act, and subject,
nevertheless, to the disposition of such Purchaser's property being at all times
within its control. If such Purchaser should in the future decide to dispose of
any of the Preferred Shares or the shares of Common Stock issuable upon
conversion of the Preferred Shares, such Purchaser understands and agrees that
it may do so only in compliance with the Securities Act and applicable state
securities laws, as then in effect. Such Purchaser agrees to the imprinting, so
long as required by law, of a legend on certificates representing all of the
Preferred Shares or the shares of Common Stock to be issued upon conversion of
the Preferred Shares to the following effect:
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"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT OR SUCH LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN RESTRICTIONS SET FORTH IN A SHAREHOLDERS AGREEMENT DATED AS
OF MAY ____, 1998. A COPY OF SUCH AGREEMENT MAY BE OBTAINED FROM THE COMPANY
UPON REQUEST."
6.5. FINANCIAL CONDITION.
Such Purchaser's financial condition is such that it is able
to bear the risk of holding the Preferred Shares for an indefinite period of
time and can bear the loss of its entire investment in the Preferred Shares.
Such Purchaser has such knowledge and experience in financial and business
matters and in making high risk investments of this type that it is capable of
evaluating the merits and risks of the purchase of the Preferred Shares.
6.6. RECEIPT OF INFORMATION.
Such Purchaser has been furnished access to the business
records of the Company and such additional information and documents as such
Purchaser has requested and has been afforded an opportunity to ask questions of
and receive answers from representatives of the Company concerning the terms and
condition of this Agreement, the purchase of the Preferred Shares, the
prospective operations, market potential, capitalization, financial conditions,
and prospects of the business to be conducted by the Company, and all other
matters deemed relevant by such Purchaser.
6.7. BROKER'S, FINDER'S OR SIMILAR FEES.
There are no brokerage commissions, finder's fees or similar
fees or commissions payable in connection with the transactions contemplated
hereby based on any agreement, arrangement or understanding with such Purchaser
or any action taken by such Purchaser.
6.8. GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENT.
No approval, consent, compliance, exemption, authorization, or
other action by, or notice to, or filing with, any Governmental Authority or any
other Person in respect of any Requirements of Law, and no lapse of a waiting
period under any Requirements of Law, is necessary or required in connection
with the execution, delivery or performance by such Purchaser (including,
without limitation, the acquisition of the Shares) or enforcement against such
Purchaser of this Agreement or the Other Transaction Agreements to which it is a
party or the transactions contemplated thereby.
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<PAGE>
6.9. LITIGATION.
No Actions are pending, or to the best knowledge of such
Purchaser, threatened relating to or affecting the transactions required to be
performed by such Purchaser under the Transaction Agreements.
ARTICLE 7.
COVENANTS OF THE COMPANY WITH RESPECT
TO THE PERIOD FOLLOWING THE CLOSING
Until all Preferred Shares are no longer outstanding due to
conversion or otherwise and until the payment by the Company of all other
amounts due to the Purchasers under the Transaction Agreements or the
Certificate, the Company hereby covenants and agrees with each Purchaser as
follows:
7.1. RESERVATION OF SHARES.
The Company shall at all times reserve and keep available out
of its authorized Common Stock, solely for the purpose of issue or delivery upon
conversion of the Preferred Shares and the Additional Preferred Shares (as
defined below) as provided in the Certificate, the maximum number of shares of
Common Stock that may be issuable or deliverable upon such conversion. Such
shares of Common Stock shall, when issued or delivered in accordance with the
provisions of the Certificate, be duly authorized, validly issued and fully paid
and non-assessable. The Company shall issue such Common Stock in accordance with
the provisions of the Certificate and shall otherwise comply with the terms
thereof.
7.2. Intentionally omitted.
7.3. Intentionally omitted.
7.4. ISSUANCE OF ADDITIONAL PREFERRED SHARES.
The Company may issue (i) an additional Ten Thousand (10,000)
Preferred Shares to U.S. West or its affiliates on terms no more favorable to
such investor than the terms of the Series A Preferred Stock, or to one or more
other investors, which investors may include the Key Employees, on terms no more
favorable to the investors than the terms of the Series A Preferred Stock; (ii)
833.33 shares of Series A Preferred Stock to USi Partners, Ltd.; and (iii)
1,666.67 shares of Series A Preferred Stock to Christopher R. McCleary, as
contemplated by Section 3.14 (any or all of the foregoing, the "Additional
Preferred Shares"). In addition to the foregoing, the Additional Preferred
Shares shall have the rights, preferences and privileges as the Board of
Directors shall determine. The Purchasers, by consummating the purchase of the
Preferred Shares, thereby grant their consent, as holders of Series A Preferred
Stock and pursuant to paragraph 5(b)(12) of the Certificate of Designation, to
the above-described issuance of the Additional Preferred Shares.
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7.5. INFORMATION AND REPORTS FOR SBIC PURCHASERS.
The Company will furnish to any Purchaser that is a Small
Business Investment Company ("SBIC") such financial data and other information
relating to the business of Company as such Purchaser reasonably may request
from time to time. The Company, upon reasonable request, will cooperate fully
with such Purchaser, its representatives and counsel, in the preparation of any
document or other material which may be required by the SBA or any other
governmental agency as a predicate to or result of the transaction herein
contemplated. In addition to the foregoing, no later than ninety (90) days after
the Closing, the Company shall furnish to any Purchaser that is an SBIC a
certificate executed by the president of the Company itemizing the use of
proceeds from the sale of the Preferred Shares, and the Company shall cooperate
with such Purchaser in connection with a post-closing review. Within ninety (90)
days after the end of each fiscal year of the Company, the Company will, if
required by law, submit to any Purchaser that is an SBIC an economic impact
report in form reasonably satisfactory to such Purchaser.
ARTICLE 8.
INDEMNIFICATION
8.1. INDEMNIFICATION.
(a) In addition to all other sums due hereunder
or provided for in this Agreement, the Company (the "Selling Indemnifying
Party") shall defend, indemnify and hold harmless each Purchaser and its
Affiliates and their respective officers, directors, agents, employees,
subsidiaries, partners and assigns (each a "Purchasing Indemnified Party") to
the fullest extent permitted by law from and against any and all losses, costs,
claims, damages, expenses (including reasonable fees, disbursements and other
charges of counsel, as limited by Section 8.2 below) and other liabilities
(collectively, "Liabilities") incurred or suffered by any Purchasing Indemnified
Party resulting from or arising out of (i) any breach by any Selling
Indemnifying Party of any representation or warranty, covenant or agreement of
the Selling Indemnifying Party in this Agreement; provided, however, that no
Selling Indemnifying Party shall be liable under this Section 8.1 to any
Purchasing Indemnified Party to the extent that it is finally judicially
determined that such Liabilities resulted primarily from the material breach by
such Purchasing Indemnified Party of any representation, warranty, covenant or
other agreement of such Purchasing Indemnified Party contained in this
Agreement; or (ii) any material liability of the Company on the Closing Date not
disclosed in this Agreement.
(b) In addition to all other sums due hereunder
or provided for in this Agreement, each Purchaser (each a "Purchasing
Indemnifying Party"), severally and not jointly, shall defend, indemnify and
hold harmless the Company and its Affiliates and its officers, directors,
agents, employees, subsidiaries, partners and assigns (each a "Selling
Indemnified Party") to the fullest extent permitted by law from and against any
and all Liabilities incurred or suffered by such Selling Indemnified Parties
resulting from or arising out of any breach of any representation, warranty,
covenant or agreement of such Purchasing Indemnifying Party in this Agreement;
provided, however, that no Purchasing Indemnifying Party shall be labile under
this
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Section 8.1 to a Selling Indemnified Party to the extent that it is finally
judicially determined that such Liabilities resulted primarily from the material
breach by such Selling Indemnified Party of any representation, warranty,
covenant or other agreement of such Selling Indemnified Party contained in this
Agreement.
(c) If and to the extent that any indemnification
provided for in this Agreement is unenforceable for any reason, the Indemnifying
Parties (as defined below) obligated to indemnify any Indemnified Party (as
defined below) shall make the maximum contribution to the payment and
satisfaction of such indemnified liability which shall be permissible under
applicable laws. In connection with the obligation of the Indemnifying Parties
to indemnify for expenses as set forth herein, the Indemnifying Parties further
agree, upon presentation of appropriate invoices containing reasonable detail,
to reimburse each Indemnified Party for all such expenses (including reasonable
fees, disbursements and other charges of counsel, as limited by Section 8.2
below) as they are incurred by such Indemnified Party.
8.2. NOTIFICATION.
If any action or proceeding (including any governmental
investigation or inquiry) shall be brought or asserted against any party
entitled to indemnification pursuant to this Section 8 (an "Indemnified Party")
in respect of which indemnity may be sought from any party required to indemnify
such Indemnified Party (an "Indemnifying Party"), such Indemnified Party shall
promptly notify the Indemnifying Party in writing, and such Indemnifying Party
shall assume the defense thereof, including the employment of counsel selected
by such Indemnifying Party and reasonably satisfactory to such Indemnified Party
and the payment of all expenses; PROVIDED, HOWEVER, that any failure to so
notify such Indemnifying Party shall not impair obligations hereunder except and
only to the extent that such failure results in actual prejudice to such
Indemnifying Party. Such Indemnified Party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall be the expense of such
Indemnified Party unless (a) such Indemnifying Party agreed to pay such fees and
expenses or (b) such Indemnifying Party shall have failed to assume the defense
of such action or proceeding or has failed to employ counsel reasonably
satisfactory to such Indemnified Party in any such action or proceeding or (c)
the named parties to any such action or proceeding (including any impleaded
parties) include both such Indemnified Party and such Indemnifying Party, and
such Indemnified Party shall have been advised by counsel that there may be one
or more legal defenses available to such Indemnified Party which are different
from or additional to those available to such Indemnifying Party (in which case,
such Indemnifying Party shall employ separate counsel at the expense of such
Indemnifying Party, it being understood, however, that such Indemnifying Party
shall not, in connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys at any
time for such Indemnified Party and any other Indemnified Parties). No
Indemnifying Party shall be liable for any settlement of any such action or
proceeding effected without its written consent (which shall not be withheld
unreasonably), but if settled with its written consent, or if there be a final
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judgment for the plaintiff in any such action or proceeding, such Indemnifying
Party agrees to indemnify and hold harmless such Indemnified Party from and
against any Liabilities by reason of such settlement or judgment. No
Indemnifying Party shall agree to any settlement of any third party claim
without the consent of the Indemnified Party, which shall not be withheld if
such settlement provides only for the payment of money to be paid by the
Indemnifying Party.
ARTICLE 9.
MISCELLANEOUS
9.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All of the representations and warranties made herein shall
survive the Closing.
9.2. NOTICES.
All notices, demands and other communications provided for or
permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, courier service or
personal delivery or via facsimile:
(a) if to Purchasers:
If to Blue Chip or Miami:
Blue Chip Venture Company, Ltd.
2000 PNC Center
201 East Fifth Street
Cincinnati, Ohio 45202
Attention: John H. Wyant
If to Grotech or Grotech II:
Grotech Capital Group
9690 Deereco Road
Timonium, MD 21093
Attention: Frank A. Adams
If to Massey or Massey II:
Massey Burch Capital Corporation
310 25th Avenue North
Nashville, TN 37203
Attention: William F. Earthman
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If to Venrock or Venrock II:
Venrock Associates
Room 5506
30 Rockefeller Plaza
New York, NY 10112
Attention: Ray A. Rothrock
with a copy to:
Taft, Stettinius & Hollister LLP
1800 Star Bank Center
425 Walnut Street
Cincinnati, Ohio 45202
Attention: Gerald S. Greenberg, Esq.
(b) if to the Company:
USinternetworking, Inc.
175 Admiral Cochrane Drive
Suite 400
Annapolis, Maryland 21401
Attention: Christopher R. McCleary
with a copy to:
Latham & Watkins
1001 Pennsylvania Avenue, N.W.
Suite 1300
Washington, D.C. 20004-2505
Attention: James F. Rogers, Esq.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; when delivered
by courier, if delivered by commercial overnight courier service; if delivered
by facsimile, upon confirmation of such transmission; and five business days
after being deposited in the mail, postage prepaid, if mailed.
9.3. SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding
upon the successors and permitted assigns of the parties hereto. This Agreement
may be assigned by any Purchaser to any permitted transferee of all or part of
the Preferred Shares or the Common Stock issued upon conversion thereof. The
Company may not assign any of its rights under this Agreement without the
written consent of the Purchasers. Except as provided in this Section 9.3, no
Person
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other than the parties hereto and their successors and permitted assigns is
intended to be a beneficiary of any of the Transaction Agreements.
9.4. AMENDMENT AND WAIVER.
(a) No failure or delay on the part of the
Company or the Purchasers in exercising any right, power or remedy hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy. The remedies provided for
herein are cumulative and are not exclusive of any remedies that may be
available to the Company or the Purchasers at law, in equity or otherwise.
(b) Any amendment, supplement or modification of
or to any provision of this Agreement, any waiver of any provision of this
Agreement, and any consent to any departure by any party from the terms of any
provision of this Agreement, shall be effective (i) only if it is made or given
in writing and signed by the Company (if applicable) and the Purchasers, and
(ii) only in the specific instance and for the specific purpose for which made
or given. Except where notice is specifically required by this Agreement, no
notice to or demand on any party in any case shall entitle any party hereto to
any other or further notice or demand in similar or other circumstances.
9.5. COUNTERPARTS.
This Agreement may be executed in any number of counterparts
and by the parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
9.6. HEADINGS.
The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
9.7. GOVERNING LAW.
This Agreement shall be governed by and construed in
accordance with the laws of the State of Maryland, without regard to the
principles of conflicts of law of such state.
9.8. JURISDICTION.
Each party to this Agreement hereby irrevocably agrees that
any legal action or proceeding arising out of or relating to this Agreement or
any agreements or transactions contemplated hereby may be brought in the courts
of the State of Maryland or of the United States of America for the District of
Maryland and hereby expressly submits to the personal jurisdiction and venue of
such courts for the purposes thereof and expressly waives any claim of improper
venue and any claim that such courts are an inconvenient forum. Each party
hereby irrevocably consents to the service of process of any of the
aforementioned courts in any such
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suit, action or proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to the address set forth in Section 9.2, such
service to become effective 10 days after such mailing.
9.9. SEVERABILITY.
If any one or more of the provisions contained herein, or the
application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
9.10. RULES OF CONSTRUCTION.
Unless the context otherwise requires, "or" is not exclusive,
and references to sections or subsections refer to sections or subsections of
this Agreement.
9.11. ENTIRE AGREEMENT.
This Agreement, together with the exhibits and schedules
hereto and the other Transaction Agreements, is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein or therein. This Agreement, together with the exhibits hereto, and the
other Transaction Agreements supersede all prior agreements and understandings
between the parties with respect to such subject matter.
9.12. PUBLICITY.
Except as may be required by applicable law, none of the
parties hereto shall issue a publicity release or announcement or otherwise make
any public disclosure concerning this Agreement or the transactions contemplated
hereby, without prior approval by the other parties hereto, provided that a
Purchaser may nonetheless communicate with its partners concerning such
transactions and investment in the Company and may publish a "tombstone" in the
customary form with respect to its investment. If any announcement is required
by law to be made by any party hereto, prior to making such announcement such
party will deliver a draft of such announcement to the other parties and shall
give the other parties an opportunity to comment thereon.
9.13. FURTHER ASSURANCES.
Each of the parties shall execute such documents and perform
such further acts (including, without limitation, obtaining any consents,
exemptions, authorizations, or other actions by, or giving any notices to, or
making any filings with, any Governmental Authority or
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<PAGE>
any other Person) as may be reasonably required or desirable to carry out or to
perform the provisions of this Agreement.
9.14. WAIVER OF JURY TRIAL.
EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY
LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT,
TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered by their respective officers hereunto
duly authorized as of the date first above written.
USINTERNETWORKING, INC.
By: [ILLEGIBLE]
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
BLUE CHIP CAPITAL FUND II LIMITED
PARTNERSHIP
By: BLUE CHIP VENTURE COMPANY, LTD.
Its General Partner
By: /s/ John H. Wyant
-----------------------------------
John H. Wyant
Manager
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<PAGE>
MIAMI VALLEY VENTURE FUND L.P.
By: BLUE CHIP VENTURE COMPANY OF
DAYTON, LTD.
Its Special Limited Partner
By: /S/ John H. Wyant
------------------------------------
John H. Wyant
Manager
GROTECH PARTNERS IV L.P.
By: GROTECH CAPITAL GROUP IV, LLC
Its General Partner
By: /s/ Frank A. Adams
------------------------------------
Name: Frank A. Adams
Title: President/CEO
GROTECH PARTNERS V L.P.
By: GROTECH CAPITAL GROUP V, LLC
Its General Partner
By: /s/ Frank A. Adams
------------------------------------
Name: Frank A. Adams
Title: President/CEO
SOUTHERN VENTURE FUND SBIC, L.P.
By: SVF SBIC, L.P.
Its General Partner
By: /s/ William F. Earthman
------------------------------------
Partner
By: [ILLEGIBLE]
------------------------------------
Partner
SOUTHERN VENTURE FUND, II, L.P.
By: /s/ William F. Earthman
------------------------------------
General Partner
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<PAGE>
VENROCK ASSOCIATES
By: [ILLEGIBLE]
-----------------------------------
General Partner
VENROCK ASSOCIATES II, L.P.
By: [ILLEGIBLE]
-----------------------------------
General Partner
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<PAGE>
TABLE OF EXHIBITS AND SCHEDULES
-------------------------------
EXHIBITS
- --------
EXHIBIT A FORM OF SHAREHOLDERS AGREEMENT
EXHIBIT B FORM OF CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
OTHER SPECIAL RIGHTS OF PREFERRED STOCK AND
QUALIFICATIONS, LIMITATIONS AND DESIGNATIONS THEREOF
<PAGE>
EXHIBIT A
USINTERNETWORKING, INC.
SHAREHOLDERS' AGREEMENT
Dated as of
May [14], 1998
<PAGE>
SHAREHOLDERS' AGREEMENT
This SHAREHOLDERS' AGREEMENT ("Agreement") is entered into as of May 28,
1998 by and among USinternetworking, Inc., a Delaware corporation ("the
Company"), Blue Chip Capital Fund II Limited Partnership, an Ohio Limited
partnership ("BlueChip"), Miami Valley Venture Fund L.P., an Ohio limited
partnership ("Miami"), Grotech Partners IV L.P., a Delaware limited
partnership ("Grotech"), Grotech Partners V L.P., a Delaware limited
partnership ("Grotech II"), Southern Venture Fund SBIC, L.P., a Delaware
limited partnership ("Massey"), Southern Venture Fund II, L.P.,a Delaware
limited Partnership ("Massey II"), Venrock Associates, a New York limited
partnership ("Venrock"), and Venrock Associates II, L.P., a New York Limited
partnership ("Venrock II") (Blue Chip, Miami, Grotech, Grotech II, Massey,
Massey II, Venrock and Venrock II are referred to collectively herein as the
"Purchasers" and individually as a "Purchaser"), and Christopher McCleary,
Steve McManus and Chris M. Poelma (the "Individual Shareholders").
RECITALS:
A. Blue Chip, Miami, Grotech, Grotech II, Massey, Massey II, Venrock
and Venrock II (together, and including their permitted successors and
assigns, the "Purchasers") have agreed to purchase 38,333.33 shares of the
Series A Preferred Stock (the "Preferred Shares") pursuant to that certain
Stock Purchase Agreement dated as of May 13, 1998 (the "Stock Purchase
Agreement") by and among the Purchasers and the Company.
B. It is a condition precedent to the Closing under the Stock Purchase
Agreement that the parties hereto enter into this Agreement.
C. All of the Stockholders (as hereinafter defined) desire to enter
into this Agreement for the purpose of regulating certain aspects of the
Stockholders' relationships with regard to each other and the Company.
AGREEMENT:
NOW THEREFORE, in consideration of the mutual covenants herein contained
and for other good and valuable consideration, the Company and stockholders
agree as follows:
<PAGE>
Section 1. DEFINITIONS. As used herein, the following terms shall have
the following meanings and other defined terms in this Agreement shall have
the meanings given such terms in their respective sections and/or paragraphs:
"BUSINESS" means the acquisition of interests in, and the operation of,
companies engaged in activities related to the provision of Internet
computing services to enterprise customers worldwide, and all services
related thereto.
"COMMON STOCK" means the Common Stock, par value .001 per share, of the
Company and any other capital stock of the Company into which such Common
Stock is reclassified or reconstituted.
"COMPANY SECURITIES" means the Common Stock, Series A Preferred Stock
and any other capital stock of the Company now or hereafter issued by the
Company.
"CONDITION OF THE COMPANY" shall have the same meaning as in the Stock
Purchase Agreement.
"EMPLOYEE STOCK OPTION PLAN" shall have the same meaning as in the Stock
Purchase Agreement.
"INVESTOR" shall have the same meaning as "Purchaser" in the Stock
Purchase Agreement.
"SERIES A PREFERRED STOCK" means the 8% Series A Convertible Preferred
Stock, par value $.01 per share, of the Company, or any other capital stock
of the Company into which such Series A Preferred Stock is reclassified or
reconstituted.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time
to time, and the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
"STOCKHOLDERS" means those parties whose names appear under the heading
"Stockholders" on the signature page attached hereto and such other persons
who become parties hereto pursuant to Section 2 hereof.
Section 2. TRANSFER OF SECURITIES
(a) GENERAL PROHIBITION ON TRANSFER. No Stockholder shall sell,
assign, transfer, pledge, encumber or in any way dispose of ("Transfer") any
Company Securities unless (i) such Stockholder has complied with the
provisions of this Section 2, (ii) the transferee (if other than the Company
or a transferee of Company Securities pursuant to a transaction set forth in
clause (iv) of the definition of Exempt Transfers (as set forth in Section
2(c)) has agreed to become a party to, and be bound by the terms of, this
Agreement and has executed a supplemental
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<PAGE>
agreement hereto in form and substance reasonably satisfactory to the
Company, and (iii) such Stockholder has delivered to the Company an opinion
of such Stockholder's counsel, in form and substance reasonably satisfactory
to the Company, to the effect that such Transfer is either exempt from the
registration requirements of the Securities Act and the applicable securities
laws of any state or that such registration requirements have been complied
with.
(b) RIGHT OF FIRST OFFER
(i) If any Stockholder (a "Seller") has received and accepted a bona
fide offer (a "Transfer Offer") to purchase any or all of the Company
Securities (the "Transfer Stock") then owned by such Seller to any person
other than pursuant to an Exempt Transfer (as defined in Section 2(c) below),
then before the Seller may sell the Transfer Stock, the Seller shall provide
to the Company a written notice detailing the terms of such Transfer Offer
that the Seller has accepted with respect to such Transfer Stock (a "Transfer
Notice"). Such Transfer Notice shall identify the Transfer Stock, the price
of the Transfer Stock, the identity of the third party offeror and all the
other material terms and conditions of such Transfer Offer. The Transfer
Notice shall contain an irrevocable offer (a "First Offer") to sell the
Transfer Stock to the Company at a price equal to the price and upon
substantially the same terms as the terms contained in such Transfer Offer.
The Company shall have the irrevocable right and option (the "Right of First
Offer") exercisable as provided below, to accept the First Offer as to any or
all Company Securities of the Transfer Stock. The Company shall provide the
Seller with an irrevocable written notice of acceptance specifying the number
of Company Securities of the Transfer Stock which the Company is agreeing to
purchase pursuant to such First Offer, which shall be binding on the Company
for the number of Company Securities in such notice of acceptance, which
notice of acceptance must be provided to the Seller within fifteen (15)
business days after the date the Transfer Notice is given (the "Notice
Period").
(ii) Subject to the Seller's rights under SEction 2(b)(iii), the
closing of the purchase of the Transfer Stock by the Company pursuant to this
Section 2(b) shall take place at the principal office of the Company on the
Thirtieth (30th) business day after the expiration of the Notice Period (or
after the receipt of any required governmental consents or approvals). At
such closing, the Company shall deliver a certified check or checks in the
appropriate amount to the Seller against delivery of certificates
representing the Transfer Stock so purchased, duly endorsed in blank by the
person or persons in whose name a stock certificate is registered or
accompanied by a duly executed assignment separate from the certificate with
the signatures thereon guaranteed by a commercial bank or trust company.
(iii) Notwithstanding the exercise by the Company of its rights under
this Section 2(b), if at the end of the Notice Period the Company shall have
agreed to purchase less than all of the Transfer Stock covered thereby (a
"Partial Purchase Commitment"), the Seller shall promptly notify the Company
as to whether or not it shall accept such Partial purchase Commitment. If
such Partial Purchase Commitment is accepted, the closing for such purchase of
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<PAGE>
a portion of such Transfer Stock shall take place pursuant to Section
2(b)(ii) hereof. Upon acceptance by the Seller of the Partial Purchase
Commitment, the Seller shall have the right within the time hereinafter
specified to Transfer any Transfer Stock not included in the Partial Purchase
Commitment at a price not less than and on terms no more favorable to the
purchaser than were in the Transfer Notice. If the Seller determines not to
accept the Partial Purchase Commitment, the Seller shall have the right
within the time hereinafter specified to Transfer any or all of the Transfer
Stock at a price not less than and on terms no more favorable to the
purchaser than contained in the Transfer Notice. If the Company notifies the
Seller that it has decided not to purchase any portion of the Transfer Stock,
or the Seller has accepted a Partial Purchase Commitment and desires to
Transfer the remaining Transfer Stock, or the Seller has rejected the Partial
Purchase Commitment and desires to Transfer the Transfer Stock, the Seller
shall have 180 days from the end of the Notice Period (the "Sales Period"),
in which to Transfer any or all of the Transfer Stock at a price not less
than and on terms no more favorable than were contained in the Transfer
Notice. No sale may be made to any third party unless such third party agrees
in writing, in form and substance reasonably acceptable to the Company, to be
bound by the provisions of this Agreement, as a Stockholder. Promptly after
any sale pursuant to this Section 2(b), the Seller shall notify the Company
of the consummation thereof and shall furnish such evidence of the completion
(including time of completion) of such sale and of the terms thereof as the
Company may reasonably request. If, at the termination of the Sales Period,
the Seller has not completed the sale of all the Transfer Stock, such Seller
shall no longer be permitted to Transfer such Transfer Stock pursuant to this
Section 2(b) without again fully complying with the provisions of this
Section 2(b) and all the restrictions on Transfer contained in this Agreement
shall again be in effect with respect to all such Seller's Transfer Stock.
(c) EXEMPT TRANSFER. The following transactions shall constitute "Exempt
Transfers" for the purpose of Section 2(b): (i) a Transfer of Company
Securities by a Stockholder to the Company, (ii) a Transfer by a Stockholder
of Company Securities by will or intestate succession to such Stockholder's
executor's, administrators, testamentary trustees, legatees or beneficiaries,
(iii) a Transfer of Company Securities by a Stockholder to any Related Party
(as defined below) of such Stockholder, (iv) a Transfer of Company Securities
by a Stockholder to the public pursuant to an effective registration
statement under the Securities Act or pursuant to Rule 144 promulgated
thereunder, (v) a Transfer of Company Securities that has been approved in
writing as an Exempt Transfer by the holders of a majority of the outstanding
Common Stock and the holders of a majority of the outstanding Preferred
Stock; or (vi) a Transfer of Company Securities from one of the Stockholders
to another of the Stockholders.
(d) TAG-ALONG. In addition to the foregoing, a Stockholder may Transfer
any Company Securities pursuant to Section 2(b) only if the purchaser thereof
agrees to provide each of the other Stockholders the right (but not the
obligation) to participate in the Transfer of its Company Securities to such
purchaser upon the same terms and conditions. If the prospective purchaser
will not purchase all of the Company Securities which each of the
Stockholders wishes to sell pursuant to this Section 2(d), then the number of
shares which each of the Stockholders
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<PAGE>
may sell will be determined on a pro-rata basis. The right of a Stockholder
to participate in any Transfer of Company Securities pursuant to this Section
2(d) shall terminate unless such Stockholder shall give written notice to the
selling Stockholder of its intent to participate in such Transfer within ten
(10) days after receiving the notice described above.
(e) RELATED PARTY. As used herein, the term "Related Party" with respect
to any Stockholder means: (A) any person or entity that directly or
indirectly, through one or more intermediaries, has control of or is
controlled by, or is under common control with, the person or entity
specified (an "Affiliate"); (B) a trust, corporation, partnership or other
entity, the beneficiaries, stockholders, partners, or owners, or persons
holding a controlling interest of which consist of such Stockholder and/or
such other persons or entities referred to in the immediately preceding
clause (A), (C) with respect to any Stockholder which is an individual, such
Stockholder's spouse, siblings, children or parents, or (D) with respect to
any Stockholder which is a partnership or a limited liability company, such
Stockholders' partners or members as of the date hereof and those persons who
become partners or members of such Stockholder in the ordinary course of such
Stockholder's business.
Section 3. REGISTRATION RIGHTS.
(a) PIGGYBACK REGISTRATION RIGHTS.
(1) RIGHT TO PIGGYBACK. Subject to the last sentence of this
subsection (1), whenever the Company proposes to register any shares of
Common Stock with the Securities and Exchange Commission (the "Commission")
under the Securities Act (other than registrations on Form S-4 or Form S-8)
and the registration form to be used may be used for the registration of the
Registrable Securities (as defined in subsection (j) below) (a "Piggyback
Registration"), the Company will give written notice to all Stockholders, at
least thirty (30) days prior to the anticipated filing date, of its intention
to effect such a registration, which notice will specify the proposed
offering price, the kind and number of securities proposed to be registered,
the distribution arrangements and such other information that at the time
would be appropriate to include in such notice, and will, subject to
subsection (a)(2) below, include in such Piggyback Registration all
Registrable Securities with respect to which the Company has received written
requests for inclusion therein within twenty (20) business days after the
delivery of the Company's notice. Except as may otherwise be provided in this
Agreement, Registrable Securities with respect to which such request for
registration has been received will be registered by the Company and offered
to the public in a Piggyback Registration pursuant to this Section 3 on the
terms and conditions at least as favorable as those applicable to the
registration of the shares of Common Stock to be sold by the Company and by
any other person selling under such Piggyback Registration.
(2) PRIORITY ON PIGGYBACK REGISTRATIONS. If the managing
underwriter or underwriters, if any, advise the holders of Registrable
Securities in writing that in its or their
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<PAGE>
reasonable opinion or, in the case of a Piggyback Registration not being
underwritten, the Company shall reasonably determine (and notify the holders
of Registrable Securities of such determination), after consultation with an
investment banker of nationally recognized standing, that the number or kind
of securities proposed to be sold in such registration (including Registrable
Securities to be included pursuant to subsection (a)(1) above) will
materially adversely affect the success of such offering (including, without
limitation, an impact on the selling price), the Company will include in such
registration the number of securities, if any, which, in the opinion of such
underwriter or underwriters, or the Company, as the case may be, can be sold,
as follows: (i) first, the shares the Company proposes to sell, (ii)
second, the Registrable Securities requested to be included in
such registration by the Stockholders, pro rata among those of the requesting
Stockholders that are Purchasers on the basis of the number of shares of
Registrable Securities that each has requested to be included in such
registration and (iii) third, pro rata among all other Stockholders.
(b) DEMAND REGISTRATION RIGHTS.
(1) RIGHT TO DEMAND REGISTRATION. Stockholders holding at least
40% of the Registrable Securities then outstanding (calculated on a
fully-diluted basis) (referred to herein as a "Demanding Group") shall have
the right at any time after the date ninety (90) days after the first
registration of Common Stock under the Securities Act (other than any
registration on Form S-8 or a similar successor form) (the "Trigger Date") to
make a written request of the Company for registration with the Commission,
under and in accordance with the provisions of the Securities Act, of all or
part of their Registrable Securities (a "Demand Registration"); PROVIDED,
that (x) the Company may, if the Board of Directors determines in the
exercise of its reasonable judgment that due to a pending or contemplated
acquisition or disposition, to effect such Demand Registration at such
time would have a material adverse effect on the Company, defer such Demand
Registration for a single period not to exceed one hundred eighty (180) days
(but if the Company elects to defer any Demand Registration pursuant to the
terms of this sentence, no Demand Registration shall be deemed to have
occurred for purposes of this Agreement) and (y) the Company shall be
obligated pursuant to this Section 3(b)(1) to effect only the number of
Demand Registrations set forth in subsection 3(b)(2) below. Within ten (10)
days after receipt of the request for a Demand Registration, the Company will
send written notice (the "Notice") of such registration request and its
intention to comply therewith to all Stockholders who are holders of
Registrable Securities and, subject to subsection (3) below, the Company
will include in such registration all Registrable Securities of such
Stockholders with respect to which the Company has received written requests
for the effectiveness of the Notice. All requests made pursuant to this
subsection (b)(1) will specify the aggregate number of Registrable Securities
requested to be registered and will also specify the intended methods of
disposition thereof.
(2) NUMBER OF DEMAND REGISTRATIONS. The Stockholders shall be
entitled to two (2) Demand Registrations, and the expenses of each (including
the fees and expenses of a total of one counsel for the Demanding Group in
accordance with subsection (e)(2) below) shall
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<PAGE>
be borne by the Company. A Demand Registration shall not be counted as a
Demand Registration hereunder until such Demand Registration has been
declared effective by the Commission and maintained continuously effective for
a period of at least three months or such shorter period when all Registrable
Securities included therein have been sold in accordance with such Demand
Registration. In addition, at such time, if any, as the Company becomes
eligible to use Form S-3 under the Securities Act (or any successor form
thereto), a Demanding Group shall be entitled to one Demand Registration in
each twelve-month period, subject to the other provisions hereof.
(3) PRIORITY ON DEMAND REGISTRATIONS. If in any Demand Registration
the managing underwriter or underwriters thereof (or in the case of a Demand
Registration not being underwritten, the holders of a majority of the
Registrable Securities held by the Demanding Group after consultation with an
investment banker of nationally recognized standing), advise the Company in
writing that in its or their reasonable opinion the number of securities
proposed to be sold in such Demand Registration exceeds the number that can
be sold in such offering without having a material adverse effect on the
success of the offering (including, without limitation, an impact on the
selling price), the Company will include in such registration only the number
of securities that, in the reasonable opinion of such underwriter or
underwriters (or such holders of Registrable Securities held by the Demanding
Group, as the case may be) can be sold without having a material adverse
effect on the success of the offering, as follows: (i) first, the Registrable
Securities requested to be included in such Demand Registration by the
Demanding Group, pro rata, among such Stockholders on the basis of the number
of shares of Registrable Securities each has requested to be included in the
Demand Registration, and (ii) second, shares to be issued and sold by the
Company or shares held by persons that are Purchasers but are not in the
Demanding Group, and in either case requested to be included in such Demand
Registration, on the basis of the number of shares that such persons have
requested to be included in the Demand Registration, and (iii) shares held by
other Stockholders that are requested to be included in the Demand
Registration, on the same basis.
(c) REGISTRATION PROCEDURES. With respect to any Piggyback Registration
or Demand Registration (generically, a "Registration"), the Company will as
expeditiously as practicable:
(1) prepare and file with the Commission, within 90 days after
mailing the applicable Notice, a registration statement or registration
statements (the "Registration Statement") relating to the applicable
Registration on any appropriate form under the Securities Act, which form
shall be available for the sale of the Registrable Securities in accordance
with the intended method or methods of distribution thereof; PROVIDED that
the Company will include in any Registration Statement all information that
the holders of the Registrable Securities so to be registered shall
reasonably request and shall include all financial statements required by the
Commission to be filed therewith, cooperate and assist in any filings
required to be made with the National Association of Securities Dealers, Inc.
("NASD"), and use its best efforts to cause such Registration Statement to
become effective; PROVIDED FURTHER, that before filing a
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<PAGE>
Registration Statement or prospectus related thereto (a "Prospectus") or any
amendments or supplements thereto, the Company will furnish to the holders of
the Registrable Securities covered by such Registration Statement and the
underwriters, if any, copies of all such documents proposed to be filed,
which documents will be subject to the reasonable review of such holders and
underwriters and their respective counsel, and the Company will not file any
Registration Statement or amendment thereto or any Prospectus or any
supplement thereto to which the holders of a majority of the Registrable
Securities covered by such Registration Statement or the underwriters, if
any, shall reasonably object;
(2) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be necessary to
keep each Registration Statement effective for the applicable period, or such
shorter period which will terminate when all Registrable Securities covered
by such Registration Statement have been sold; cause each Prospectus to be
supplemented by any required Prospectus supplement, and as so supplemented to
be filed pursuant to Rule 424 under the Securities Act; and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during the applicable
period in accordance with the intended method or methods of distribution by
the sellers thereof set forth in such Registration Statement or supplement to
the Prospectus; the Company shall not be deemed to have used its best efforts
to keep a Registration Statement effective during the applicable period if it
voluntarily takes any action that would result in selling holders of the
Registrable Securities covered thereby not being able to sell such
Registrable Securities during that period unless such action is required
under applicable law, PROVIDED, that the foregoing shall not apply to actions
taken by the Company in good faith and for valid business reasons, including
without limitation the acquisition or divestiture of assets, so long as the
Company promptly thereafter complies with the requirements of subsection (11)
of this subsection (c), if applicable;
(3) notify the selling holders of Registrable Securities and the
managing underwriters, if any, promptly, and (if requested by any such person
or entity) confirm such advice in writing, (A) when the Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and, with
respect to the Registration Statement or any post-effective amendment, when
the same has become effective, (B) of any request by the Commission for
amendments or supplements to the Registration Statement or the Prospectus or
for additional information, (C) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose, (D) if at any time the
representations and warranties of the Company contemplated by subsection (14)
below cease to be true and correct in any material respect, (E) of the
receipt by the Company of any notification with respect to the suspension of
the qualification of the Registrable Securities for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose and (F)
of the happening of any event which makes any statement of a material fact
made in the Registration Statement, the Prospectus or any document
incorporated therein by reference untrue or which requires the making of any
changes in the Registration Statement, the
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<PAGE>
Prospectus or any document incorporated therein by reference in order to make
the statements of material facts contained therein not misleading;
(4) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of the Registration Statement as soon as
possible;
(5) if requested by the managing underwriter or underwriters or a
holder of Registrable Securities being sold in connection with an
underwritten offering, promptly incorporate in a Prospectus supplement or
post-effective amendment such information as the managing underwriters and
the holders of a majority of the Registrable Securities being sold agree
should be included therein relating to the plan of distribution with respect
to such Registrable Securities, including, without limitation, information
with respect to the number of Registrable Securities being sold to such
underwriters, the purchase price being paid therefor by such underwriters and
with respect to any other terms of the underwritten (or best efforts
underwritten) offering of the Registrable Securities to be sold in such
offering; and make all required filings of such Prospectus supplement or
post-effective amendment as soon as notified of the matters to be
incorporated in such Prospectus supplement or post-effective amendment;
(6) furnish to each selling holder of Registrable Securities and
each managing underwriter, without charge, at least one signed copy of the
Registration Statement and any amendment thereto, including financial
statements and schedules, all documents incorporated therein by reference and
all exhibits (including those incorporated by reference);
(7) deliver to each selling holder of Registrable Securities and
the underwriters, if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement
thereto as such selling holder of Registrable Securities and underwriters may
reasonably request; the Company consents to the use of each Prospectus or any
amendment or supplement thereto by each of the selling holders of Registrable
Securities and the underwriters, if any, in connection with the offering and
sale of the Registrable Securities covered by such Prospectus or any
amendment or supplement thereto;
(8) prior to any public offering of Registrable Securities,
register or qualify or cooperate with the selling holders of Registrable
Securities, the underwriters, if any, and their respective counsel in
connection with the registration or qualification of such Registrable
Securities for offer and sale under the securities or "blue sky" laws of such
jurisdictions as any seller or underwriter reasonably requests in writing,
considering the amount of Registrable Securities proposed to be sold in each
such jurisdiction, and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the Registrable
Securities covered by the Registration Statement; PROVIDED that the Company
will not be required to qualify generally to do business in any jurisdiction
where it is not then so qualified or to take any action that would subject it
to general service of process in any such jurisdiction where it is not then
so subject;
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(9) cooperate with the selling holders of Registrable Securities and
the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and
not bearing any restrictive legends and to be in such denominations and
registered in such names as the managing underwriters may request at least
two business days prior to any sale of Registrable Securities to the
underwriters;
(10) use its best efforts to cause the Registrable Securities covered
by the applicable Registration Statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to enable
the seller or sellers thereof or the underwriters, if any, to consummate the
disposition of such Registrable Securities;
(11) upon the occurrence of any event contemplated by subsection
(3)(F) above, prepare a supplement or post effective amendment to the
Registration Statement or the related Prospectus or any document incorporated
therein by reference or file any other required document so that, as
thereafter delivered to the purchasers of the Registrable Securities, the
Prospectus will not contain an untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not
misleading;
(12) cause all Registrable Securities covered by any Registration
Statement to be listed on each securities exchange on which similar
securities issued by the Company are then listed, or cause such Registrable
Securities to be authorized for trading on the NASDAQ National Market System
if any similar securities issued by the Company are then so authorized, if
requested by the holders of a majority of such Registrable Securities or the
managing underwriters, if any;
(13) provide a CUSIP number for all Registrable Securities, not later
than the effective date of the applicable Registration Statement;
(14) enter into such agreements (including an underwriting agreement)
and take all such other actions in connection therewith in order to expedite
or facilitate the disposition of such Registrable Securities and in such
connection, whether or not an underwriting agreement is entered into and
whether or not the Registration is an underwritten Registration (A) make such
representations and warranties to the holders of such Registrable Securities
and the underwriters, if any, in form, substance and scope as are customarily
made by issuers to underwriters in primary underwritten offerings; (B) obtain
opinions of counsel to the Company and updates thereof (which counsel and
opinions) in form, scope and substance) shall be reasonably satisfactory to
the managing underwriters, if any, and the holders of a majority of the
Registrable Securities being sold) addressed to each selling holder and the
underwriters, if any, covering the matters customarily covered in opinions
requested in underwritten offerings and such other matters as may be
reasonably requested by such holders and underwriters; (C) obtain "cold
comfort" letters and updates thereof from the Company's independent certified
public
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accountants addressed to the selling holders of Registrable Securities and
the underwriters, if any, such letters to be in customary form and covering
matters of the type customarily covered in "cold comfort" letters by
underwriters in connection with primary underwritten offerings; (D) if an
underwriting agreement is entered into, the same shall set forth in full the
indemnification provisions and procedures set forth in subsection (f) below
with respect to all parties to be indemnified pursuant to said subsection;
and (E) the Company shall deliver such documents and certificates as may be
requested by the holders of a majority of the Registrable Securities being
sold and the managing underwriters, if any, to evidence compliance with
subsection 3(F) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company. The
above shall be done at each closing under such underwriting or similar
agreement or as and to the extent required thereunder,
(15) make available for inspection by a representative of the
holders of a majority of the Registrable Securities, any underwriter
participating in any disposition pursuant to such Registration, and any
attorney or accountant retained by the sellers or underwriter, all financial
and other records, pertinent corporate documents and properties of the
Company, and cause the Company's officers, directors and employees to supply
all information reasonably requested by any such representative,
underwriter, attorney or accountant in connection with such Registration
Statement; PROVIDED, that any records, information or documents that are
designated by the Company in writing as confidential shall be kept
confidential by such Persons unless disclosure of such records, information
or documents is required by court or administrative order or any regulatory
body having jurisdiction;
(16) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders, earnings statements satisfying the
provisions of Section 11(a) of the Securities Act, no later than forty-five
(45) days after the end of any twelve (12)-month period (or ninety (90) days,
if such period is a fiscal year) (A) commencing at the end of any fiscal
quarter in which Registrable Securities are sold to underwriters in a firm or
best efforts underwritten offering, or (B) if not sold to underwriters in
such an offering, beginning with the first month of the Company's first
fiscal quarter commencing after the effective date of the Registration
Statement, which statements shall cover said twelve (12)-month periods; and
(17) promptly prior to the filing of any document that is to be
incorporated by reference into any Registration Statement or Prospectus
(after initial filing of the Registration Statement), provide copies of such
document to counsel to the selling holders of Registrable Securities and to
the managing underwriters, if any, and make the Company's representatives
available for discussion of such document.
The Company may require each seller of Registrable Securities as to which any
Registration is being effected to furnish to the Company such information
regarding the proposed distribution of such securities as the Company may
from time to time reasonably request in writing.
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Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of
the happening of any event of the kind described in subsection (3)(F) of this
subsection (c), such holder will forthwith discontinue disposition of
Registrable Securities pursuant to the Registration Statement until such
holder's receipt of copies of the supplemented or amended Prospectus as
contemplated by subsection (11) of this subsection (c), or until it is
advised in writing (the "Advice") by the Company that the use of the
Prospectus may be resumed, and has received copies of any additional or
supplemental filings that are incorporated by reference in the Prospectus,
and, if so directed by the Company, such holder will deliver to the Company
(at the Company's expense) all copies, other than permanent file copies then
in such holder's possession, of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice. In the event the
Company shall give any such notice, the time periods referred to in subsection
(2) of this subsection (c) shall be extended by the number of days during the
period from and including the date of the giving of such notice to and
including the date when each seller of Registrable Securities covered by such
Registration Statement shall have received the copies of the supplemented or
amended prospectus contemplated by subsection (11) of this subsection (c) or
the Advice.
(d) RESTRICTIONS ON PUBLIC SALE.
(1) PUBLIC SALE BY HOLDERS OF REGISTRABLE SECURITIES. To the extent
not inconsistent with applicable law, each Stockholder, if requested by the
managing underwriter or underwriters for any such Registration, agrees not to
effect any public sale or distribution of Company Securities including a sale
pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act, during the 15 business days prior to, and during the ninety
(90)-day period (or such shorter period as may be agreed to by such holders)
beginning on, the effective date of the applicable Registration Statement
(except as part of such Registration).
(2) PUBLIC SALE BY THE COMPANY AND OTHERS. If requested by the
managing underwriter or underwriters for any underwritten Registration, (i)
the Company will not effect any public sale or distribution of Company
Securities during the fifteen (15) business days prior to, and during the
ninety (90)-day period beginning on the effective date of such Registration
and (ii) the Company will cause each holder of Company Securities purchased
from the Company at any time after the date of this Agreement (other than in
a registered public offering) to agree not to effect any public sale or
distribution of any such securities during such period described in clause
(i) above (except as part of such Registration, if otherwise permitted).
(e) REGISTRATION EXPENSES.
(1) All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, including,
without limitation, all registration and filing fees, the fees and expenses
of the counsel and accountants for the Company (including
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the expenses of any "cold comfort" letters and special audits required by or
incident to the performance of such persons), all other costs and expenses of
the Company incident to the preparation, printing and filing under the
Securities Act of the Registration Statement (and all amendments and
supplements thereto) and furnishing copies thereof and of the Prospectus
included therein, the costs and expenses incurred by the Company in
connection with the qualification of the Registrable Securities under the
state securities or "blue sky" laws of various jurisdictions, the costs and
expenses associated with filings required to be made with the NASD
(including, if applicable, the fees and expenses of any "qualified
independent underwriter" and its counsel as may be required by the rules and
regulations of the NASD), the costs and expenses of listing the Registrable
Securities for trading on a national securities exchange or authorizing them
for trading on NASDAQ and all other costs and expenses incurred by the
Company in connection with any Registration hereunder, PROVIDED, that, except
as otherwise provided in subsection (2) below, each Stockholder shall bear
the costs and expenses of any underwriters' commissions, brokerage fees or
transfer taxes relating to the Registrable Securities sold by such
Stockholders and the fees and expenses of any counsel, accountants or other
representative retained by Stockholder.
(2) Notwithstanding the foregoing and except as provided below, in
connection with each Registration hereunder, the Company will reimburse the
Stockholders who are holders of Registrable Securities being registered in any
Registration hereunder for (i) the reasonable fees and disbursements of not
more than one counsel, which counsel shall be chosen (x) by the holders of a
majority of the Registrable Securities to be included therein that are held
by the Demanding Group, in the case of a Demand Registration and (y)
otherwise, by the holders of a majority of all Registrable Securities to be
included therein, and (ii) the reasonable out-of-pocket expenses of the
holders of Registrable Securities in connection with such Registration,
including travel costs (if any).
(f) INDEMNIFICATION.
(1) INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify,
to the full extent permitted by law, each Stockholder, its officers,
directors, partners and agents and each person who controls such Stockholder
(within the meaning of the Securities Act and the Securities Exchange Act of
1934, as amended (the "Exchange Act")), against all losses, claims, damages,
liabilities and expenses caused by any untrue or alleged untrue statement of
a material fact contained in any Registration Statement, Prospectus or
preliminary Prospectus or any omission or alleged omission to state therein a
material fact necessary to make the statements therein (in the case of a
Prospectus or any preliminary Prospectus, in light of the circumstances under
which they were made) not misleading, except insofar as the same are caused
by or contained in any information with respect to such Stockholder furnished
in writing to the Company by such Stockholder or its representative expressly
for use therein. The Company will also indemnify underwriters, selling
brokers, dealer managers and similar securities industry professionals
participating in the distribution, their officers and directors and each
person who
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controls such persons (within the meaning of the Securities Act) to the same
extent as provided above with respect to the indemnification of the holders
of Registrable Securities; PROVIDED, HOWEVER, if pursuant to an underwritten
public offering of Registrable Securities, the Company and any underwriters
enter into an underwriting or purchase agreement relating to such offering
that contains provisions relating to indemnification and contribution between
the Company and such underwriters, such provisions shall be deemed to govern
indemnification and contribution as between the Company and such underwriters.
(2) INDEMNIFICATION BY HOLDERS OF REGISTRABLE SECURITIES. In
connection with any Registration in which a Stockholder is participating,
each such Stockholder will furnish to the Company in writing such information
with respect to such Stockholder as the Company reasonably requests for use
in connection with any Registration Statement or Prospectus and agrees to
indemnify, to the full extent permitted by law, the Company, the directors
and officers of the Company signing the Registration Statement and each
person who controls the Company (within the meaning of the Securities Act and
the Exchange Act) against any losses, claims, damages, liabilities and
expenses resulting from any untrue statement of a material fact or any
omission to state a material fact required to be stated therein or necessary
to make the statements in the Registration Statement or Prospectus or
preliminary Prospectus (in the case of the Prospectus or any preliminary
Prospectus, in light of the circumstances under which they were made) not
misleading, to the extent, but only to the extent, that such untrue statement
or omission is contained in any information with respect to such Stockholder
so furnished in writing by such Stockholder or its representative
specifically for inclusion therein; PROVIDED, HOWEVER, that the Stockholder's
liability shall in no event exceed the net proceeds received by such
Stockholder from the sale of shares pursuant to such Registration Statement.
The Company shall be entitled to receive indemnities from underwriters,
selling brokers, dealer managers and similar securities industry
professionals participating in the distribution, to the same extent as
provided above with respect to information with respect to such persons or
entities so furnished in writing by such persons or entities or their
representatives specifically for inclusion in any Prospectus or Registration
Statement.
(3) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any person or entity
entitled to indemnification hereunder will (i) give prompt written notice to
the indemnifying party after the receipt by the indemnified party of a
written notice of the commencement of any action, suit, proceeding or
investigation or threat thereof made in writing for which such indemnified
party will claim indemnification or contribution pursuant to this Agreement;
PROVIDED, HOWEVER, that the failure of any indemnified party to give notice
as provided herein shall not relieve the indemnifying party of its
obligations under the preceding clauses (1) and (2), except to the extent
that the indemnifying party is actually prejudiced by such failure to give
notice and (ii) unless in such indemnified party's reasonable judgment a
conflict of interest may exist between such indemnified and indemnifying
parties with respect to such claim, permit such indemnifying party to assume
the defense of such claim with counsel reasonable satisfactory to the
indemnified party. Whether or not such defense is assumed by the indemnifying
party, the indemnifying
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party will not be subject to any liability for any settlement made without its
consent (but such consent will not be unreasonably withheld). No indemnifying
party will consent to the entry of any judgment or enter into any settlement
that 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 of such claim or litigation. An indemnifying party who
is not entitled to, or elects not to, assume the defense of a claim will not
be obligated to pay the fees and expenses of more than one counsel in any one
jurisdiction for all parties indemnified by such indemnifying party with
respect to such claim, unless in the reasonable judgment of any indemnified
party a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim, in which event
the indemnifying party shall be obligated to pay the fees and expenses of
such additional counsel or counsels.
(4) CONTRIBUTION. If for any reason the indemnification provided for
in the preceding clauses (1) and (2) is unavailable to an indemnified party
as contemplated by the preceding clauses (1) and (2), then the indemnifying
party in lieu of indemnification shall contribute to the amount paid or
payable by the indemnified party as a result of such loss, claim, damage,
liability or expense in such proportion as is appropriate to reflect not only
the relative benefits received by the indemnified party and the indemnifying
party, but also the relative fault of the indemnified party and the
indemnifying party, as well as any other relevant equitable considerations,
provided that no Stockholder shall be required to contribute in an amount
greater than the difference between the net proceeds received by such
Stockholder with respect to the sale of any Shares and all amounts already
contributed by such Stockholder with respect to such claims, including
amounts paid for any legal or other fees or expenses incurred by such
Stockholder.
(g) RULE 144. The Company agrees that at all times after it has filed a
registration statement pursuant to the requirements of the Securities Act
relating to any class of equity securities of the Company, it will file in a
timely manner all reports required to be filed by it pursuant to the
Securities Act and the Exchange Act and will take such further action as any
holder of Registrable Securities may reasonably request in order that such
holder may effect sales of Company Securities pursuant to Rule 144. At any
reasonable time and upon request of any Stockholder, the Company will furnish
such Stockholder and others with such information as may be necessary to
enable the Stockholder to effect sales of Company Securities pursuant to Rule
144 under the Securities Act and will deliver to such Stockholder a written
statement as to whether it has complied with such requirements.
Notwithstanding the foregoing, the Company may deregister any class of its
equity securities under Section 12 of the Exchange Act or suspend its duty to
file reports with respect to any class of its securities pursuant to Section
15(d) of the Exchange Act if it is then permitted to do so pursuant to the
Exchange Act and the rules and regulations thereunder.
(h) PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Stockholder may
participate in any underwritten Registration hereunder unless such
Stockholder (i) agrees to sell its Registrable
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Securities on the basis provided in any underwriting arrangements, and (ii)
accurately completes in a timely manner and executes all questionnaires,
powers of attorney, underwriting agreements and other documents customarily
required under the terms of such underwriting arrangements, provided that the
representations and warranties of any Stockholder therein shall be limited to
its title to the Registrable Securities to be sold and other matters within
its knowledge.
(i) OTHER REGISTRATION RIGHTS. The Company will not grant to any
person (including the Stockholders) any demand or piggyback registration
rights with respect to the Company Securities of the Company other than
piggyback registration rights that are not inconsistent with the terms of
this Section 3. To the extent that the Company grants to any person
registration rights with respect to any securities of the Company having
provisions more favorable to the holders thereof than the provisions
contained in this Agreement, the Company will confer comparable rights to the
holders of Registrable Securities under this Agreement. Except as provided
herein, the Company will not grant any registration rights that would permit
any person or entity the right to piggyback on any Demand Registration.
(j) DEFINITION OF REGISTRABLE SECURITIES. "Registrable Securities"
means any shares of Common Stock into which the Preferred Shares shall have
been converted or may be converted pursuant to the terms thereof, but with
respect to any share, only until such time as such share (i) has been
effectively registered under the Securities Act and disposed of in accordance
with the Registration Statement covering it or (ii) has been sold to the
public pursuant to Rule 144 (or any similar provision then in force) under
the Securities Act and the Legend referred to in Section 10(a) has been
removed from the certificate representing such share.
(k) AMENDMENTS AND WAIVERS. The provisions of this Section 3, including
the provisions of this sentence, may not be amended, modified or
supplemented, and waivers of or consents to departures from the provisions
hereof may not be given unless approved by the Company in writing and the
Company has obtained the written consent of Stockholders holding at least
eighty-five percent (85%) of the then outstanding Registrable Securities.
Section 4. GOVERNANCE.
(a) On the date hereof, the Board of Directors of the Company shall
consist solely of the following members: Christopher McCleary, Chris Poelma,
Steve McManus, Benjamin Diesbach, Dean Meiszer, David Poulin, Frank Adams,
John Wyant, Ray Rothrock and William Earthman (collectively, the
"Directors"). All Stockholders agree to vote or execute a written consent to
effect the election of such Directors to take office immediately upon
execution hereof.
(b) The Company's Board of Directors shall be composed of eleven
directors, and the Company and each Stockholder hereby agrees to take, at any
time and from time to time, all action necessary (including, without
limitation, voting the shares of the Company's Common
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Stock owned or controlled by such Stockholder, calling special meetings of
stockholders and executing and delivering written consents) such that:
(A) The Board of Directors shall include at all times a person
designated by each Investor (treating Blue Chip and Miami as one Investor,
Grotech and Grotech II as one Investor, Venrock and Venrock II as one
Investor, and Massey and Massey II as one Investor).
(B) Three members of the Board of Directors shall at all times be
persons designated by Christopher McCleary, so long as he is the Chief
Executive Officer of the Company. In the event that the Chief Executive
Officer and the holders of a majority of the Series A Preferred Stock agree
that a certain individual of national prominence and reputation would enhance
the stature of the board of directors, and if there is no remaining vacancy
on the board of directors, the Chief Executive Officer shall include such
individual as one of the three directors to be nominated by him.
(C) Three directors shall be elected annually and shall be
independent of the Company and of each of the Investors, as nominated
annually by Christopher McCleary, so long as he is the Chief Executive
Officer, subject to the consent of the holders of a majority of the Series A
Preferred Stock, such consent not to be unreasonably withheld.
(c) The Board of Directors shall at all times have an Executive
Committee, which shall have the right to exercise all powers of the Board of
Directors to the maximum extent permitted to be exercised by such committees
pursuant to the Delaware General Corporation Law. The Executive Committee
will meet at least monthly during the 12-month period following the date of
this Agreement. The Executive Committee of the Company's Board of Directors
shall consist at all times of five directors and each Stockholder hereby
agrees to take, at any time and from time to time, all action necessary
(including, without limitation, voting the Company Securities owned or
controlled by such Stockholder, calling special meetings of Stockholders and
delivering written consents) such that:
(A) the Executive Committee shall include at all times a person
designated by each Investor (treating Blue Chip and Miami as one Investor,
Grotech and Grotech II as one Investor, Venrock and Venrock II as one
Investor, and Massey and Massey II as one Investor); and
(B) the Chief Executive Officer of the Company shall at all times
be a member of the Executive Committee.
(d) No director or member of the Executive Committee may be removed
except by the holders of a majority of the Company Securities entitled to
appoint such director or member in accordance with Section 4(b) or Section
4(c), respectively, and each Stockholder hereby agrees to take all action
necessary (including, without limitation, voting the shares of the
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Company's voting securities owned or controlled by such Stockholder, calling
special meetings of stockholders and executing and delivering written
consents) for the purpose of accomplishing the foregoing. If a vacancy on the
Board occurs by reason of the death, removal, resignation, retirement or
election not to serve of a designee, the remaining directors and the Company
shall cause the vacancy thereby created to be filled by a new designee as soon
as possible, who is designated in the manner and by the persons specified in
Section 4(b) and the Company and each Stockholder hereby agrees to take, at
any time and from time to time, all actions necessary to accomplish the same;
PROVIDED, HOWEVER, that if any group fails to designate a representative in
accordance with Section 4(b) above for a period of thirty (30) consecutive
days, then such vacancy shall be filled by a vote of all of the shareholders
of the Company until such time as the board member is designated in
accordance with Section 4(b).
(e) Members of the Board of Directors shall be entitled to compensation
and reimbursement of expenses pursuant to policies to be adopted by the Board
of Directors. The Company shall obtain and maintain at all times during which
this Agreement remains in effect, at the cost and expense of the Company,
director liability insurance policies covering each member of the Board of
Directors. Such director liability insurance policies shall be provided by a
reputable nationally recognized insurance carrier and shall provide coverage
in such amounts and on such terms as may be reasonable acceptable to each
member of the Board of Directors.
Section 5. PREEMPTIVE RIGHTS.
If the Company proposes to issue or sell any Common Stock, or any other
class of capital stock, or any warrants, options or rights to acquire,
convertible into or exchangeable for any shares of capital stock of the
Company, or any security having a direct or indirect equity participation in
the Company (for purposes hereof, "New Securities"), other than (i) in a
public offering registered under the Securities Act, (ii) pursuant to a stock
split, dividend or the recapitalization, or (iii) pursuant to the Employee
Stock Option Plan, then the Company shall deliver written notice thereof to
each of the Stockholders setting forth the number, terms and purchase
consideration (or if such purchase consideration is not expressed in cash,
the fair market value cash equivalent thereof determined in good faith by the
Board of Directors of the Company) of the New Securities which the Company
proposes to issue. Each such Stockholder shall thereupon have the right,
unless otherwise agreed in writing by such Stockholder in advance, to elect
to purchase on the same terms and conditions (including consideration or the
cash equivalent thereof) as those offered to any third party that number of
New Securities proposed to be issued as would maintain such Investor's
relative proportional equity interest in the Company. Such Stockholder may
make such election by written notice to the Company within twenty (20) days of
receipt of notice of any proposed issuance of New Securities. If an Investor
does not elect to purchase its pro rata portion of New Securities within
twenty (20) days of the date of the foregoing notice, this pro rata purchase
right shall terminate with respect to the New Securities described in the
written notice delivered to that party, and the Company may, in its sole
discretion, sell to third parties within ninety (90) days after such
Stockholder's receipt of
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the notice of the proposed issuance of New Securities any or all of the New
Securities described in such written notice with respect to which the
purchase right was not exercised, but only on the terms and and conditions
set forth in such written notice to the Investors. The Company shall not sell
any New Securities to any Person unless such Person agrees, in form and
substance reasonably satisfactory to the Stockholders, to be bound by the
terms hereof as the Stockholders.
Section 6. INTENTIONALLY OMITTED.
Section 7. ACCESS AND REPORTS, CONFIDENTIALITY.
(a) As promptly as possible after the end of each month, quarter and
year, but not later than twenty (20) days after each month-end and
quarter-end and ninety (90) days after each year-end, the Company shall
deliver to each of the Stockholders consolidated financial statements
(consisting of a balance sheet and statements of income and cash flows and
notes thereto) for such period prepared in accordance with generally accepted
United States accounting principles, provided, however, that the monthly and
quarterly financial statements shall not be required to have footnotes and
may be subject to normal year-end adjustments, none of which will be
materially adverse. Such financial statements shall include in comparative
form any available figures as projected or planned and figures for the
corresponding periods of the previous fiscal year, all in reasonable detail.
The annual financial statements shall be accompanied by an audit opinion
thereon of an independent certified public accounting firm of national
reputation acceptable to the Investors. The quarterly and annual financial
statements shall be accompanied by management's narrative description and
analysis in reasonable detail of the Company's results of operations and
financial condition. All financial statements shall be accompanied by a
certificate of the chief financial officer, controller or chief executive
officer of the Company to the effect that (i) they are true and correct in
all material respects and accurately reflect the consolidated financial
condition of the Company and its consolidated results of operations and cash
flows at the date and for the periods indicated; (ii) neither the Company nor
any subsidiary, if any, is in default under any material agreement to which
it is a party, including this Agreement, the Company's Certificate of
Incorporation, as amended, and the Stock Purchase Agreement, (iii) all
Federal and state payroll and withholding taxes have been paid in accordance
with applicable law and (iv) there exists no event of default or event or
condition which with notice or passage of time will become on event of
default under any material agreement to which the Company or any of its
subsidiaries is a party. The Company shall at all times maintain a standard
system of accounting in accordance with generally accepted accounting
principles.
(b) The Company shall promptly provide each of the Investors with such
other financial and business information as such Investor may reasonably
request at any time and from time to time.
(c) The Company shall, upon receipt of reasonable notice, permit each
of the Investors and any of their respective representatives to visit and
inspect any of the properties or
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facilities of the Company or any subsidiary during normal business hours and
to review their respective books and records (and to make extracts therefrom)
and to discuss the Company's affairs, finances and accounts with its
officers, employees and independent public accountants.
Section 8. OTHER AFFIRMATIVE COVENANTS. Unless compliance is waived in
writing in advance by the Investors (except in the case of Section 8(h),
compliance with which shall not be subject to waiver), the Company shall
cause each of its subsidiaries to:
(a) prepare an annual fiscal year operating budget, which shall include
monthly capital and operating expense budgets, cash flow statements, capital
expenditure budgets, profit and loss projections and employee hiring
projections, and submit it for approval to the Executive Committee of its
Board of Directors at least thirty (30) days prior to the commencement of the
year covered thereby (each such budget, as approved by such Executive
Committee, a "Budget");
(b) pay when due all taxes and file any tax returns when due;
(c) comply with all laws, rules and regulations applicable to it;
(d) maintain all of its properties in good working order, ordinary wear
and tear excluded;
(e) maintain its corporate existence;
(f) maintain with credit-worthy insurers insurance in such amounts
and of such types as are maintained by prudent firms of similar size
engaged in businesses similar to the Business, and use reasonable efforts to
obtain directors liability insurance satisfactory to the Investors;
(g) obtain by September 1, 1998, and continue thereafter to maintain
with credit-worthy insurers for the benefit of the Company key-man life
insurance on the life of Christopher McCleary of not less than $10 million;
and
(h) provide each of the Investors with prompt written notice of the
occurrence of (i) any default or breach by the Company or any subsidiary or
any shareholder of any of its representations, warranties or covenants under
the Stock Purchase Agreement or this Agreement, (ii) any default under this
Agreement or violation of the Company's Certificate of Incorporation or
Bylaws, (iii) any event which, with the passage of time or notice, would
result in such a default, (iv) any material adverse change in the Condition
of the Company or (v) any event which is reasonably likely to cause any of
the matters described in clause (iv) above.
Section 9. TERMINATION AND AMENDMENT.
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The provisions of Sections 2, 4, 5, 6, 7 and 8 of this Agreement shall
terminate upon the earlier of (i) the consummation of an underwritten public
offering of Common Stock designed to achieve broad distribution of such
Common Stock and resulting in the listing of such Common Stock on a national
securities exchange or NASDAQ, or (ii) the consummation of any merger of the
Company with and into a company whose common stock is publicly traded on a
national securities exchange or NASDAQ (each an "Exchange"), in which at
least 90% of the merger consideration is composed of registered securities
listed on an Exchange and/or cash, and where as a result of such merger the
holders of the Company's equity securities immediately prior to the merger own
equity securities of the surviving publicly traded company with less than 50%
of the voting power of its outstanding securities. The provisions of this
Agreement may be modified or amended by the written agreement of the
Stockholders; PROVIDED, HOWEVER, that amendments of or modifications to
Section 3 will be subject to the requirements of Section 3(k).
Section 10. MISCELLANEOUS.
(a) LEGEND. The certificates representing the capital stock of the
Company held by each of the Stockholders shall bear the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED UNLESS THERE IS AN
EFFECTIVE REGISTRATION STATEMENT COVERING SUCH SECURITIES OR SUCH SALE
OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT AND ANY SIMILAR REQUIREMENTS OF ANY APPLICABLE
STATE SECURITIES LAW. THE SECURITIES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO CERTAIN RESTRICTIONS SET FORTH IN A SHAREHOLDERS'
AGREEMENT DATED AS OF MAY __, 1998, A COPY OF WHICH IS AVAILABLE UPON
REQUEST FROM THE SECRETARY OF THE COMPANY."
If any capital stock of the Company becomes eligible for sale pursuant to
Rule 144(k) promulgated under the Securities Act, the Company shall, upon the
request of any holder of such capital stock, remove the legend set forth in
this Section 10(a) from the certificates evidencing the shares of such
capital stock held by such holder. In addition, (i) in connection with any
Transfer of shares of any capital stock of the Company pursuant to any public
offering registered under the Securities Act or pursuant to Rule 144 or Rule
144A (or any similar rule or rules then in effect promulgated under the
Securities Act) if such rule is available or (ii) if the holder of any shares
of capital stock of the Company delivers to the Company an opinion of counsel
reasonably acceptable to the Company that no subsequent Transfer of such
shares shall require registration under the Securities Act, the Company
shall promptly upon such Transfer deliver new certificates for such shares
which do not bear the legend set forth in this Section 10(a).
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<PAGE>
(b) SUCCESSORS, ASSIGNS AND TRANSFEREES. This Agreement shall be
binding upon and inure to be benefit of the parties hereto, their respective
legal representatives, heirs, legatees, successors and permitted assigns
(including any party to which any Stockholder has Transferred Shares if such
party is required under Section 2(a) to become bound hereby). The Company
covenants and agrees that it will not issue Preferred Shares to any person
(other than pursuant to an effective Registration Statement) unless such
person, prior to such issuance, agrees in writing to be bound by this
Agreement, as amended or modified prior to the date of such issuance, to the
same extent and in the same manner as the other parties hereto. Each such
supplementary agreement shall become effective upon its execution by the
Company and such person acquiring such shares, and it shall not require the
signatures or the consent of any other party hereto. Upon such execution such
person shall be bound by all the restrictions placed on the Stockholders by
this Agreement and all actions taken by the Stockholders and the Company
pursuant to this Agreement prior to the execution of such supplementary
agreement, shall be subject to any additional restrictions set forth in such
supplementary agreement and shall enjoy only such rights as are specifically
set forth in such supplementary agreement. Notwithstanding anything to the
contrary set forth herein, shares sold to the public pursuant to an effective
Registration Statement shall no longer be subject to any of the provisions of
this Agreement.
(c) SPECIFIC PERFORMANCE, ETC. The Company and each Stockholder, in
addition to being entitled to exercise all rights provided herein, in the
Company's Certificate of Incorporation or granted by law, including recovery
of damages, will be entitled to specific performance of its rights under this
Agreement, without the requirement of bond. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason
of a breach by it of the provisions of this Agreement and hereby agrees to
waive the defense in any action for specific performance that a remedy at law
would be adequate.
(d) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal law of the State of Delaware.
(e) INTERPRETATION. The headings of the sections contained in this
Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not affect the meaning or interpretation
of this Agreement.
(f) NOTICES. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, or sent by facsimile transmission or sent by certified, registered
or express mail, postage prepaid. Any such notice shall be deemed given when
so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, three (3) business days after the date of deposit
in the United States mail, by certified mail return receipt requested, as
follows:
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<PAGE>
(i) If to the Company to:
USinternetworking, Inc.
175 Admiral Cochrane Drive
Suite 400
Annapolis, MD 21401
Attention: Christopher R. McCleary
with a copy to:
Latham & Watkins
1001 Pennsylvania Avenue, N.W.
Suite 1300
Washington, D.C. 20004-2505
Attention: James F. Rogers, Esq.
(ii) If to Blue Chip or Miami:
Blue Chip Venture Company, Ltd.
2000 PNC Center
201 East Fifth Street
Cincinnati, OH 45202
Attention: John H. Wyant
If to Grotech or Grotech II:
Grotech Capital Group
9690 Deereco Road
Timonium, MD 21093
Attention: Frank A. Adams
If to Massey or Massey II:
Massey Burch Capital Corporation
310 25th Avenue North
Nashville, TN 37203
Attention: William F. Earthman
If to Venrock or Venrock II:
Venrock Associates
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<PAGE>
Room 5506
30 Rockefeller Plaza
New York, NY 10112
Attention: Ray A. Rothrock
with a copy to:
Taft, Stettinius & Hollister LLP
1800 Star Bank Center
425 Walnut Street
Cincinnati, OH 45202
Attention: Gerald S. Greenberg, Esq.
(g) INSPECTION AND COMPLIANCE WITH LAW. Copies of this Agreement will
be available for inspection or copying by any Stockholder at the offices of
the Company through the Secretary of the Company.
(h) AMENDMENTS AND WAIVERS. The provisions of this Agreement, including
the provisions of this paragraph (h), may not be amended, modified or
supplemented, and waivers of or consents to departures from the provisions
hereof may not be given, except by a written instrument executed by all of
the parties hereto. No action taken pursuant to this Agreement, including,
without limitation, any investigation by or on behalf of any party, shall be
deemed to constitute a waiver by the party taking such action. The waiver by
any party hereto of a breach of any provision of this Agreement shall not
operate or be construed as waiver of any preceding or succeeding breach and no
failure by any party to exercise any right or privilege hereunder shall be
deemed a waiver of such party's rights or privileges hereunder or shall be
deemed a waiver of such party's rights to exercise the same at any subsequent
time or times hereunder.
(i) TRANSFERS VOID. Any Transfer of any security of the Company in
violation of this Agreement shall be null and void and the Company covenants
and agrees that it will not register or otherwise recognize a Transfer
(whether for the purposes of shareholder or voting or in connection with the
distribution of dividends or other corporate assets) of any securities which
it has reason to believe was effected in violation of this Agreement.
(j) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, by the original parties hereto and any successor in interest,
each of which shall be deemed to be an original and all of which together
shall be deemed to constitute one and the same agreement.
(i) ATTORNEY'S FEES. In any action or proceeding brought to enforce any
provision of this Agreement, or where any provision hereof is validly
asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees in addition to any other available remedy.
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<PAGE>
(l) SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any
way impaired thereby.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Shareholders'
Agreement as of the date first above written.
THE COMPANY:
USINTERNETWORKING, INC.
a Delarware corporation
By: _____________________________________
Christopher R. McCleary, President
THE STOCKHOLDERS:
BLUE CHIP CAPITAL FUND II LIMITED
PARTNERSHIP
By: BLUE CHIP VENTURE COMPANY, LTD.
Its General Partner
By: _____________________________________
John H. Wyant
Manager
MIAMI VALLEY VENTURE FUND L.P.
By: BLUE CHIP VENTURE COMPANY OF
DAYTON, LTD.
Its Special Limited Partner
By: _____________________________________
John H. Wyant
Manager
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<PAGE>
GROTECH PARTNERS IV L.P.
By: GROTECH CAPITAL GROUP IV, LLC
Its General Partner
By: _____________________________________
Name:
Title:
GROTECH PARTNERS V L.P.
By: GROTECH CAPITAL GROUP V, LLC
Its General Partner
By: _____________________________________
Name:
Title:
SOUTHERN VENTURE FUND SBIC, L.P.
By: SVF SBIC, L.P.
Its General Partner
By: _____________________________________
Partner
By: _____________________________________
Partner
SOUTHERN VENTURE FUND II, L.P.
By: _____________________________________
General Partner
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<PAGE>
VENROCK ASSOCIATES
By: _____________________________________
General Partner
VENROCK ASSOCIATES II, L.P.
By: _____________________________________
General Partner
-----------------------------------------
Christopher R. McCleary
-----------------------------------------
Steve McManus
-----------------------------------------
Chris M. Poelma
USi Partners, Ltd.
By: _____________________________________
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<PAGE>
EXHIBIT B
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL AND
OTHER SPECIAL RIGHTS OF PREFERRED
STOCK AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS THEREOF
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
USINTERNETWORKING, INC.
-----------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
-----------------------
USinternetworking Inc., a Delaware corporation (the "Corporation")
certifies that pursuant to the authority contained in Article ____ of its
Restated and Amended Certificate of Incorporation (the "Certificate of
Incorporation") and in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware, the Board of Directors of
the Corporation at a meeting duly called and held on May ___, 1998 adopted
the following resolution, which resolution remains in full force and effect
on the date hereof;
RESOLVED, that there is hereby established a series of authorized
preferred stock having a par value of $.01 per share, which series shall be
designated as "Series A Convertible Preferred Stock" (the "Series A Preferred
Stock"), shall consist of 51,000 shares and shall have the following voting
powers, preferences and relative, participating, optional and other special
rights, and qualifications, limitations and restrictions thereof as follows:
1. CERTAIN DEFINITIONS.
Unless the context otherwise requires, the terms defined in this
Section 1 shall have, for all purposes of this resolution, the meanings
herein specified (with terms defined in the singular having comparable
meanings when used in the plural).
<PAGE>
BUDGET. The term "Budget" means a fiscal year operating budget, which
shall include monthly capital and operating expense budgets, cash flow
statements, capital expenditure budgets, profit and loss projections and
employee hiring projections approved by the Executive Committee of the
Corporation's Board of Directors.
BUSINESS. The term "Business" means the acquisition of interests in,
and the operation of, companies engaged in activities related to the
provision of internet computing services to enterprise customers worldwide,
and all services related thereto.
BUSINESS DAY. The term "Business Day" shall mean a day other than a
Saturday or Sunday or any federal holiday.
COMMON EQUITY. The term "Common Equity" shall mean all shares now or
hereafter authorized of any class of common stock of the Corporation,
including the Common Stock, and any other stock of the Corporation, howsoever
designated, authorized after the Initial Issue Date, which has the right
(subject always to prior rights of any class or series of preferred stock) to
participate in the distribution of the assets and earnings of the Corporation
without limit as to per share amount.
COMMON STOCK. The term "Common Stock" shall mean the common stock, par
value $.001 per share, of the Corporation.
CONVERSION DATE. The term "Conversion Date" shall have the meaning set
forth in Subsection 4(b) below.
CONVERSION PRICE. The term "Conversion Price" shall initially mean
$0.33 and thereafter shall be subject to adjustment from time to time
pursuant to the terms of Section 4 below.
DIVIDEND PAYMENT DATE. The term "Dividend Payment Date" shall have the
meaning set forth in Subsection 2(c) below.
EMPLOYEE STOCK OPTION PLAN. The term "Employee Stock Option Plan" shall
mean an employee stock option plan adopted by the Compensation Committee of
the Board of Directors of the Company providing for the issuance of certain
employees of the Company of options to purchase a certain number of shares
of Common Stock at a certain exercise price per share; the total number of
shares of Common Stock which may be issued under such plan shall not exceed
6.5% of the total number of outstanding shares of common stock calculated on
a fully diluted basis, not including the options and shares issuable or
issued on exercise of options pursuant to the Employee Stock Option Plan.
INITIAL ISSUE DATE. The term "Initial Issue Date" shall mean the date
that shares of Series A Preferred Stock are first issued by the Corporation.
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<PAGE>
IPO. The term "IPO shall mean an initial public offering of the
Corporation's Common Stock in which the net proceeds are not less than
$30,000,000 and the price to the public is not less than $1.33 per share of
Common Stock as currently constituted.
JUNIOR STOCK. The term "Junior Stock" shall mean, for purposes of
Section 2 below, Common Equity and any class or series of stock of the
Corporation authorized after the Initial Issue Date which is not entitled to
receive any dividends unless all dividends required to have been paid or
declared and set apart for payment on the Series A Preferred Stock shall have
been so paid or declared and set apart for payment, and for purposes of
Section 3 below, shall mean Common Equity and any class or series of stock of
the Corporation authorized after the Initial Issue Date which is not entitled
to receive any assets upon a Liquidation Preference Occurrence (as defined
below) until the Series A Preferred Stock shall have received the entire
amount to which such stock is entitled upon such Liquidation Preference
Occurrence.
LIQUIDATION PREFERENCE. The term "Liquidation Preference" shall mean
$600 per share of Series A Preferred Stock.
LIQUIDATION PREFERENCE OCCURRENCE. The term "Liquidation Preference
Occurrence" shall mean the liquidation, dissolution, winding up of the
affairs of the Corporation, the sale of all or substantially all of the
assets of the Corporation, or the sale of 100% of the issued and outstanding
shares of Common Stock for cash or marketable securities, or a merger or
consolidation with the same effect as any of the foregoing.
PARITY STOCK. The term "Parity Stock" shall mean, for purposes of
Section 2 below, any class or series of stock of the Corporation authorized
after the Initial Issue Date which is entitled to receive payment of
dividends on a parity with the Series A Preferred Stock, and for purposes of
Section 3 below, shall mean any class or series of stock of the Corporation
authorized after the Initial Issue Date which is entitled to receive assets
upon Liquidation Preference Occurrences on a parity with the Series A
Preferred Stock.
PIK QUOTED PRICE. The term "PIK Quoted Price" shall have the meaning
set forth in Subsection (2)(b) below.
PIK DIVIDENDS. The term "PIK Dividends" shall have the meaning set
forth in Subsection (2)(b) below.
QUOTED PRICE. The term "Quoted Price" with respect to either the Common
Stock or Series A Preferred Stock, shall mean the last reported sales price
of the applicable security as reported by the National Association of
Securities Dealers, Inc., Automatic Quotations System, National Market
System, or, if the applicable security is listed or admitted for trading on a
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<PAGE>
securities exchange, the last reported sales price of the applicable security
on the principle exchange on which the applicable security is listed or
admitted for trading (which shall be consolidated trading if applicable to
such exchange), or if neither so reported or listed or admitted for trading,
the last reported bid price of the applicable security in the
over-the-countermarket or the Conversion Price. In the event that the Quoted
Price cannot be determined as aforesaid, the Board of Directors of the
Corporation shall determine the Quoted Price in such a manner as it in good
faith considers appropriate. Such determination may be challenged in good
faith by a majority of holders of shares of Series A Preferred Stock, and any
dispute shall be resolved at the Corporation's cost, by an investment banking
firm of recognized national standing selected by the Corporation and
acceptable to such holders of Series A Preferred Stock and shall be made in
good faith and be conclusive absent manifest error.
RECORD DATE. The term "Record Date" shall mean the date designated by the
Board of Directors of the Corporation at the time a dividend is declared for
the purpose of establishing which holders of record are entitled to receive
payment thereof; provided, however, that such Record Date shall not be more
than thirty (30) days nor less than ten (10) days prior to the respective
Dividend Payment Date or such other date designated by The Board of Directors
for the payment of dividends.
SENIOR STOCK. The term "Senior Stock" shall mean, for purposes of Section
2 below, andy class or series of stock of the Corporation authorized after
the Initial Issue Date ranking senior to the Series A Preferred Stock in
respect of the right to receive dividends, and for purposes of Section 3
below, shall mean any class or series of stock of the Corporation authorized
after the Initial Issue Date ranking senior to the Series A Preferred Stock
in respect of the right to receive dividend or to participate in any
distribution upon Liquidation Preference Occurrence.
TRADING DAY. The term "Trading Day" with respect to either the Common
Stock or Series A Preferred Stock, shall mean any day on which any market in
which the applicable security is then traded and in which a Quoted Price may
be ascertained is open for business.
2. DIVIDENDS.
(a) Subject to the prior preferences and other rights of any Senior
Stock as to dividends, the record holder of each share of Series A Preferred
Stock shall be entitled to receive dividends quarterly on the first day of
each calendar quarter, commencing January 1, 2000 (each, a "Dividend Payment
Date"), with respect to the prior calendar quarter. Notwithstanding the
foregoing, any accrued but unpaid dividends, including any dividend
applicable to the pro rata portion of the then-current dividend period, shall
be paid upon the earlier of (i) the consummation of an IPO and (ii) the
conversion of such share of Series A Preferred Stock. In any case, dividends
shall be paid only to the extent that funds are legally available for payment
of dividends. Such
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<PAGE>
dividends shall be payable at the rate of eight percent (8%) per annum of the
Liquidation Preference.
(b) Dividends on the Series A Preferred Stock shall be paid in cash, or
at the option of the Corporation, unless such dividend is payable upon
consummation of an IPO or conversion of the Series A Preferred Stock and at
such time sufficient funds are legally available for payment of such
dividends, in substitute in whole or in part for such cash, in additional
fully paid and nonassessable shares of Series A Preferred Stock legally
available for such purpose (such dividends paid in kind being herein called
"PIK Dividends"). Dividends of additional shares of Series A Preferred Stock
shall be paid by delivering to the record holders of Series A Preferred Stock
a number of shares of Series A Preferred Stock determined by dividing the
total amount of the cash dividend which otherwise would be payable on the
Dividend Payment Date to such holders (rounded to the nearest whole cent) by
the average Quoted Price per share of the Series A Preferred Stock for the
thirty(30) Trading Days immediately preceding the date on which such PIK
Dividends were accrued ("PIK Quoted Price"). The issuance of any such PIK
Dividend in such amount shall constitute full payment of such dividend. The
Corporation shall not issue fractional shares of Series A Preferred Stock to
which holders may become entitle pursuant to this subsection, but in lieu
thereof, the Corporation shall deliver its check in an amount equal to the
applicable fraction of the PIK Quoted Price. In no event shall the election
by the Corporation to pay dividends, in whole or in part, in cash or in
additional shares of Series A Preferred Stock preclude the Corporation from
making a different election with respect to all or a portion of the
dividends to be paid on the Series A Preferred Stock on any subsequent
Dividend Payment Date. Any additional shares of Series A Preferred Stock
issued pursuant to this section shall be governed by this Certificate and
shall be subject in all respects, expect as to the date of issuance and date
from which dividends accrue and cumulate as set forth below, to he same terms
as the shares of Series A Preferred Stock originally issued hereunder. All
dividends (whether payable in cash or in whole or in part in additional
shares of Series A Preferred Stock) paid pursuant to this section shall be
paid in equal pro rata proportions of such cash and/or shares of Series A
Preferred Stock to the holders entitled thereto, except with respect to cash
payable in lieu of fractional shares which would otherwise be paid as PIK
Dividends.
(c) Dividends on shares of Series A Preferred Stock shall accrue
quarterly on the first day of each calendar quarter for the prior calendar
quarter and be cumulative from the date of issuance of such shares, whether
or not funds for the payment of such dividends are legally available.
(d) So long as any shares of Series A Preferred Stock shall be
outstanding, the Corporation shall not declare, pay or set apart for payment
on any Junior Stock any dividends whatsoever, whether in cash, property or
otherwise (other than dividends payable in shares of the class or series upon
which such dividends are declared or paid, or payable in shares of Common
Stock with respect to Junior Stock other than Common Stock, together with
cash in lieu of
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<PAGE>
fractional shares), nor shall the Corporation make any distribution on any
Junior Stock, nor shall any Junior Stock be purchased, redeemed or otherwise
acquired by the Corporation or any of its subsidiaries of which it owns not
less than a majority of the outstanding voting power, nor shall any moneys be
paid or made available for a sinking fund for the purchase or redemption of
any Junior Stock, unless all dividends to which the holders of Series A
Preferred Stock shall) have been entitled for all previous periods shall have
been paid or declared and a sum of money sufficient for the payment thereof
has been set apart.
(e) In the event that full dividends are not paid or made available to
the holder of all outstanding shares of Series A Preferred Stock and of any
Parity Stock and funds available for payment of dividends shall be
insufficient to permit payment in full to holders of all such stock of the
full preferential amounts to which they are then entitled, then the entire
amount available for payment of dividends shall be distributed ratably among
all such holders of Series A Preferred Stock in proportion to the full amount
to which they would otherwise be respectively entitle. For purposes of this
subsection, the amount of legally available PIK Dividends shall be deemed
funds available for payment of dividends but shall not require payment of PIK
Dividends on Parity Stock.
(f) Notwithstanding anything contained herein to the contrary, no
dividends on shares of Series A Preferred Stock shall be declared by the
Board of Directors of the Corporation or paid or set apart for payment by the
Corporation at such time as the terms and provisions of any agreement of the
Corporation relating to its funded indebtedness prohibits such declaration,
payment or setting apart for payment or provides that such declaration,
payment or setting apart for payment would constitute a breach thereof or a
default thereunder, or if such declaration or payment shall be restricted or
prohibited by law.
3. DISTRIBUTIONS UPON LIQUIDATION DISSOLUTION OR WINDING UP.
(a) In the event of any voluntary or involuntary Liquidation Preference
Occurrence, subject to the prior preferences and other rights of any Senior
Stock as to liquidation preferences, but before any payment or distribution
shall be made to the holders of Junior Stock, the holders of Series A
Preferred Stock shall be entitled to be paid out of the assets of the
Corporation in cash Liquidation Preference per share plus an amount equal to
all dividends accrued and unpaid thereon to the date of such Liquidation
Preference Occurrence. Except as provided in this section and Section 3(b)
below, holders of Series A Preferred Stock shall not be entitled to any other
distribution in the event of a Liquidation Preference Occurrence.
(b) In addition to any amounts distributed or distributable to the
holders of shares of the Series A Preferred Stock pursuant to Section 3(a)
above, if upon a Liquidation Preference Occurrence, the Corporation's Net
Equity Value (as defined below) as of the date of such Liquidation Preference
Occurrence is less than the Trigger Amount (as defined below) (the
"Additional Preference Event"), holders of Series A Preferred Stock will be
entitled to receive an
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<PAGE>
additional amount (the "Additional Per Share Preference") per share of
Series A Preferred Stock determined in accordance with the following formula:
EDA
---------
OCS + CPS
"EDA" means (x) the Distribution Amount, minus (y) the aggregate
amount required to be distributed to the holders of all outstanding shares of
Series A Preferred Stock pursuant to Section 3(a) above.
"Distribution Amount" means the aggregate amount of cash and the
fair market value of property (as determined by the Board of Directors) of
the Corporation available for distribution to all stockholders of the
Corporation on the date of a Liquidation Preference Occurrence.
"OCS" means the number of shares of Common Stock issued and
outstanding as of such Liquidation Preference Occurrence.
"CPS" means the number of shares of Common Stock which would be
issuable upon conversion of all of the issued and outstanding shares of
Series A Preferred Stock as of the date of such Liquidation Preference
Occurrence.
"Enterprise Value" means the fair market value of the assets of the
Corporation without consideration to any obligations of the Corporation. For
purposes of this definition, Enterprise Value shall be as determined by the
Board of Directors; PROVIDED HOWEVER, that if the holders of a majority of
the Common Stock or Series A Preferred Stock object to the fair market value
determination, then Enterprise Value shall be determined by an investment
banking firm of nationally recognized standing selected by and agreeable to
both the Board of Directors and the holders of a majority of the Common Stock
or the Series A Preferred Stock and such determination shall be conclusive;
PROVIDED, FURTHER that if the Board of Directors and the holders of a
majority of the Common Stock or Series A Preferred Stock cannot agree on an
investment banking firm, then each shall select an investment banking firm
and these two firms shall select an investment banking firm of nationally
recognized standing to determine Enterprise Value and the determination of
such investment banking firm shall be conclusive.
"Net Equity Value" means the Enterprise Value of the Corporation
less Debt (as defined).
"Debt" means the aggregate principal amount of all outstanding
indebtedness of the Corporation and its consolidated subsidiaries as of the
date of such Liquidation Preference Occurrence.
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<PAGE>
"Trigger Amount" means, on any date, that Net Equity Value of the
Corporation that, assuming conversion of all of the Series A Preferred Stock,
would upon liquidation of the Corporation on such date (without application
of the provisions of this section 3(b)) return to the holders of Series A
Preferred Stock an amount equal to five times the amount originally paid to
the Company for such stock in connection with its original issuance or
issuances.
(c) If, upon any such Liquidation Preference Occurrence, the assets
of the Corporation shall be insufficient to permit the payment in full of the
Liquidation Preference per share plus an amount equal to all dividends
accrued and unpaid on the Series A Preferred Stock and/or the Additional Per
Share Preference if there is an Additional Preference Event and the full
liquidating payments on all Parity Stock, then the assets of the Corporation
remaining after the distributions to holders of any Senior Stock of the full
amounts to which they may be entitled shall be ratably distributed among the
holders of Series A Preferred Stock and of any Parity Stock in proportion to
the full amounts to which they would otherwise be respectively entitled if
all amounts thereon were paid in full provided; however, that holders of
Series A Preferred Stock shall not be entitled to receive the Additional Per
Share Preference and such Additional Per Share Preference shall not be
considered in the calculation of the amounts to which they would be entitled
to receive.
(d) All shares of Series A Preferred Stock for which payments have
been made under this Section 3 shall be retired and shall be restored to the
status of authorized and unissued shares of preferred stock, without
designation as to series and may thereafter be reissued as shares of any
series of preferred stock other than Series A Preferred Stock.
4. CONVERSION RIGHTS.
(a) A holder of shares of Series A Preferred Stock may convert such
shares into Common Stock at any time. Series A Preferred Stock will convert
automatically upon consummation of an IPO. For the purposes of conversion,
each share of Series A Preferred Stock shall be valued at the Liquidation
Preference, which shall be divided by the Conversion Price in effect on the
Conversion Date to determine the number of shares issuable upon conversion.
Immediately following such conversion, the rights of the holders of converted
Series A Preferred Stock (other than the right to receive accrued and unpaid
dividends on such conversion as provided herein) shall cease and the persons
entitled to receive the Common Stock upon the conversion of Series A
Preferred Stock shall be treated for all purposes as having become the owners
of such Common Stock.
(b) To convert Series A Preferred Stock, a holder must (i) surrender
the certificate or certificates evidencing the shares of Series A Preferred
Stock to be converted, duly endorsed in a form satisfactory to the
Corporation, at the office of the Corporation or transfer agent for the
Series A Preferred Stock, (ii) notify the Corporation at such office that he
elects to
-8-
<PAGE>
convert Series A Preferred Stock, and the number of shares he wishes to
convert, and (iii) state in writing the name or names in which he wishes the
certificate or certificates for shares of Common Stock to be issued. In the
event that a holder fails to notify the Corporation of the number of shares
of Series A Preferred Stock which he wishes to convert, he shall be deemed to
have elected to convert all shares represented by the certificate or
certificates surrendered for conversion. The date on which the holder
satisfies all those requirements is the "Conversion Date." As soon as
practical, the Corporation shall deliver a certificate for the number of full
shares of Common Stock issuable upon the conversion of the shares of Series A
Preferred Stock represented by the certificate or certificates surrendered
for conversion. The person in whose name the Common Stock certificate is
registered shall be treated as the stockholder of record on and after the
Conversion Date. However, dividends will be paid on any Dividend Payment Date
with respect to Series A Stock surrendered for conversion after a record date
for the payment of a dividend to the registered holder of Series A Preferred
Stock on such record date. If the last day on which Series A Preferred Stock
may be converted is a Legal Holiday in a place where the Corporation or the
transfer agent is located, Series Preferred Stock may be surrendered for
conversion on the next succeeding day that is not a Legal Holiday.
(c) The Corporation will not issue a fractional share of Common
Stock upon conversion of Series A Preferred Stock. Instead, the Corporation
will deliver its check for the current market value of the fractional share.
The current market value of a fraction of a share is determined as follows:
Multiply the current market price of a full share by the fraction. Round the
result to the nearest cent. The current market price of a share of Common
Stock is the Quoted Price of the Common Stock on the last Trading Day prior
to the Conversion Date.
(d) If a holder converts shares of Series A Preferred Stock, the
Corporation shall pay any documentary, stamp or similar issue or transfer tax
due on the issue of shares of Common Stock upon the conversion. However, the
holder shall pay any such tax which is due because the shares are issued in a
name other than the holder's name.
(e) The Corporation has reserved and shall continue to reserve out
of its authorized but unissued Common Stock or its Common Stock held in
treasury enough shares of Common Stock to permit the conversion of the Series
A Preferred Stock in full. All shares of Common Stock which may be issued
upon conversion of Series A Preferred Stock shall be fully paid and
nonassessable. The Corporation will endeavor to comply with all securities
laws regulating the offer and delivery of shares of Common Stock upon
conversion of Series A Preferred Stock and will endeavor to list such shares
on each national securities exchange on which the Common Stock is listed.
-9-
<PAGE>
(f) If the Corporation:
(i) pays a dividend or makes a distribution on its Common Stock in
shares of its Common Stock;
(ii) subdivides its outstanding shares of Common Stock into a
greater number of shares;
(iii) combines its outstanding shares of Common Stock into a smaller
number of shares; or
(iv) issues by reclassification of its Common Stock any shares of
its capital stock;
then the Conversion Price in effect immediately prior to such action shall be
adjusted so that the holder of Series A Preferred Stock thereafter converted
may receive the number of shares of capital stock of the Corporation which he
would have owned immediately following such action if he had converted Series
A Preferred Stock immediately prior to such action. The adjustment shall
become effective immediately after the record date in the case of dividend or
distribution and immediately after the effective date of a subdivision,
combination or reclassification. Such adjustment shall be made successively
whenever any event listed above shall occur. If, after an adjustment referred
to in clauses (i) through (iv) above, a holder of Series A Preferred Stock
upon conversion of it may receive shares of two or more classes of capital
stock of the Corporation, the Corporation shall determine the allocation of
the adjusted Conversion Price between the classes of capital stock. After
such allocation, the Conversion Price of each class of capital stock shall
thereafter be subject to adjustment on terms comparable to those applicable
to Common Stock in this Subsection (f).
(g) If the Corporation distributes any rights or warrants to all holders
of its Common Stock entitling them for a period expiring within sixty (60)
days after the record date mentioned below to purchase shares of Common Stock
at a price per share less than the current market price per share on that
record date, the Conversion Price shall be adjusted in accordance with the
formula:
N x P
-----
O + M
-----
C' = C x O + N
where:
C' = the adjusted Conversion Price.
C = the then current Conversion Price.
-10-
<PAGE>
O = the number of shares of Common Stock outstanding on the
record date, calculated on a fully diluted basis.
N = the number of additional shares of Common Stock offered.
P = the offering price per share of the additional shares of Common
Stock.
M = the current market price per share of Common Stock on the
record date.
The adjustment shall be made successively whenever any such rights or
warrants are issued and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the rights or
warrants. If at the end of the period during which such warrants or rights
are exercisable, not all warrants or rights shall have been exercised, the
Conversion Price shall be immediately readjusted to what it would have been
if "N" in the above formula had been the number actually issued.
(h) If the Corporation distributes to all holders of shares of its
Common Stock (i) any shares of any class of capital stock of the Corporation
other than its Common Stock, (ii) any evidence of indebtedness of the
Corporation or any subsidiary of the Corporation, (iii) any other assets of
the Corporation, or (iv) any rights, options or warrants to acquire any of the
foregoing (other than rights, options or warrants referred to in Subsection
4(g) above), the Conversion Price shall be adjusted in accordance with the
formula:
M - F
-----
C' = C x M
where:
C' = the adjusted Conversion Price.
C = the then current Conversion Price.
M = the current market price per share of Common Stock on the
record date mentioned below.
F = the fair market value on the record date of the capital
stock, indebtedness, rights, options or warrants applicable
to one share of Common Stock. The Board of Directors of the
Corporation shall determine the fair market value.
The adjustment shall be made successively whenever any such distribution
is made and shall become effective immediately after the record date for the
determination of stockholders entitled to receive the distribution.
(i) If the Corporation issues shares of Common Stock for a
consideration per share less than the current market price per share on the
date the
-11-
<PAGE>
Corporation fixes the offering price of such additional shares, the
Conversion Price shall be adjusted in accordance with the formula:
O + P
---
M
-----
C' = C x A
where:
C' = the adjusted Conversion Price.
C = the then current Conversion Price.
O = the number of shares outstanding immediately prior to the
issuance of such additional shares.
P = the aggregate consideration received for the issuance of
such additional shares.
M = the current market price per share on the date of issuance
of such additional shares.
A = the number of shares outstanding immediately after the
issuance of such additional shares, calculated on a fully
diluted basis.
The adjustment shall be made successively whenever any such issuance is
made, and shall become effective immediately after such issuance. This
Subsection 4(i) does not apply to (i) any transaction or issuance described
in Subsection 4(g) or 4(h) above or Subsection 4(j) below, (ii) the
conversion of Series A Preferred Stock, or the conversion, exchange or
exercise of other securities convertible into or exchangeable or exercisable
for Common Stock, (iii) Common Stock issued to the Corporation's employees
under bona fide employee benefit plans adopted by the Board of Directors of
the Corporation and approved by the holders of Common Stock when required by
law, if such Common Stock would otherwise be covered by this Subsection 4(i)
(but only to the extent that the aggregate number of shares excluded hereby
(together with the aggregate number of shares issuable upon conversion,
exchange or exercise of the securities excluded by clause (iii) of Subsection
4(j) below) and issued after the Initial Issue Date shall not exceed 5% of
the Common Stock outstanding at the time of any such issuance), (iv) Common
Stock issued to acquire, or in the acquisition of, all or any portion of a
business as a going concern, in an arm's-length transaction between the
Corporation and an unaffiliated third party, whether such acquisition shall
be effected by purchase of asets, exchange of securities, merger,
consolidation or otherwise, or (v) Common Stock issued in a bona fide public
offering pursuant to a firm commitment underwriting.
(j) If the Corporation issues any options, warrants or other
securities convertible into or exchangeable or exercisable for Common Stock
(other than Series A Preferred Stock or securities issued in transactions
described in Subsection 4(g) or 4(h) above) and for a
-12-
<PAGE>
consideration per share of Common Stock initially deliverable upon
conversion, exchange or exercise of such securities less than the current
market price per share on the date of issuance of such securities, the
Conversion Price shall be adjusted in accordance with the formula:
O + P
M
-----
C' = C x 0 + D
where:
C' = the adjusted Conversion Price.
C = the then current Conversion Price.
O = the number of shares outstanding immediately prior to the
issuance of such securities, calculated on a fully diluted
basis.
P = the aggregate consideration received for the issuance of
such securities.
M = the current market price per share on the date of issuance
of such securities.
D = the maximum number of shares deliverable upon conversion or
in exchange for or upon exercise of such securities at the
initial conversion, exchange or exercise rate.
The adjustment shall be made successively whenever any such issuance is
made, and shall become effective immediately after such issuance. If all of
the Common Stock deliverable upon conversion, exchange or exercise of such
securities has not been issued when such securities are no longer
outstanding, then the Conversion Price shall promptly be readjusted to the
Conversion Price which would then be in effect had the adjustment upon the
issuance of such securities been made on the basis of the actual number of
shares of Common Stock issued upon conversion, exchange or exercise of such
securities. This Subsection 4(j) does not apply to (i) the issuance of any
such securities to acquire, or in the acquisition of, all or any portion of a
business as a going concern, in an arm's-length transaction between the
Corporation and an unaffiliated third party, whether such acquisition shall
be effected by purchase of assets, exchange of securities, merger,
consolidation or otherwise, (ii) the issuance of any such securities in a
bona fide public offering pursuant to a firm commitment underwriting, or (iii)
the issuance of any such securities to the Corporation's employees under bona
fide employee benefit plans adopted by the Board of Directors of the
Corporation and approved by the holders of Common Stock when required by law,
if such securities would otherwise by covered by this Subsection 4(j) (but
only to the extent that the aggregate number of shares issuable upon the
conversion, exchange or exercise of the aggregate number of securities
excluded hereby (together with the aggregate number of shares excluded by
clause (iii) of Subsection 4(i) above) and issued after the
-13-
<PAGE>
Initial Issue Date shall not exceed 5% of the Common Stock outstanding at
the time of any such issuance).
(k) In Subsections 4(g), 4(h), 4(i) and 4(j) above, the current
market price per share of Common Stock on any date is the average of the
Quoted Prices for thirty (30) consecutive Trading Days commencing Forty-Five
Trading Days before the date in question.
(l) For purposes of any computation respecting consideration
received pursuant to Subsections 4(i) and 4(j) above, the following shall
apply:
(i) in case of the issuance of shares of Common Stock for
cash, the consideration shall be the net amount of such cash received by
the Corporation, after deducting all commissions, discounts or other
expenses incurred by the Corporation for any underwriting of the issue
or otherwise in connection therewith;
(ii) in the case of the issuance of shares of Common Stock for
a consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof as
determined by the Board of Directors of the Corporation (irrespective of
the accounting treatment thereof); and
(iii) in the case of the issuance of options, warrants or other
securities convertible into or exchangeable or exercisable for shares,
the aggregate consideration received therefor shall be deemed to be the
consideration received by the Corporation for the issuance of such options,
warrants or other securities plus the additional minimum consideration, if
any, to be received by the Corporation upon the conversion or exchange or
exercise thereof (the consideration in each case to be determined in the
same manner as provided in clauses (i) and (ii) of this Subsection 4(l)):
(m) No adjustment in the Conversion Price need be made unless the
adjustment would require an increase or decrease of at least 1% in the
Conversion Price. Any adjustments that are not made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under
this Section 4 shall be made to the nearest cent or to the nearest 1/100th of
a share, as the case may be.
(n) No adjustment in the Conversion Price need be made under this
Section 4 for (i) rights to purchase Common Stock pursuant to a Corporation
plan for reinvestment of dividends or interest, or (ii) any change in the par
value or no par value of the Common Stock, and in no event shall any
adjustment made under this Section 4 reduce the Conversion Price below the
par value of the Common Stock. If an adjustment is made to the Conversion
Price upon the establishment of a record date for a distribution subject to
Subsections 4(g) or 4(h)
-14-
<PAGE>
above and if such distribution is subsequently canceled, the Conversion Price
then in effect shall be readjusted, effective as of the date when the Board
of Directors of the Corporation determines to cancel such distribution, to
the Conversion Price which would have been in effect if such record date had
not been fixed. No adjustment in the Conversion Price need be made under
Subsections 4(g) and 4(h) above if the Corporation issues or distributes to
each holder of Series A Preferred Stock the shares of Common Stock, evidences
of indebtedness, assets, rights, options or warrants referred to in those
subsections which each holder would have been entitled to receive had Series
A Preferred Stock been converted into Common Stock prior to the happening of
such event or the record date with respect thereto.
(o) Whenever the Conversion Price is adjusted, the Corporation shall
promptly mail to holders of Series A Preferred Stock, first class, postage
prepaid, a notice of the adjustment. The Corporation shall file with the
transfer agent, if any, for Series A Preferred Stock a certificate from the
Corporation's independent public accountants briefly stating the facts
requiring the adjustment and the manner of computing it. Subject to
Subsection 4(t) below, the certificate shall be conclusive evidence that the
adjustment is correct.
(p) The Corporation from time to time may reduce the Conversion
Price by any amount for any period of time if the period is at least twenty
(20) Business Days and if the reduction is irrevocable during the period, but
in no event may the Conversion Price be less than the par value of a share
of Common Stock. Whenever the Conversion Price is reduced, the Corporation
shall mail to holders of Series A Preferred Stock a notice of the reduction.
The Corporation shall mail, first class, postage prepaid, the notice at least
15 days before the date the reduced conversion price takes effect. The notice
shall state the reduced conversion price and the period it will be in effect.
A reduction of the Conversion Price does not change or adjust the Conversion
Price otherwise in effect for purposes of Subsections 4(f), 4(g), 4(h), 4(i)
and 4(j) above.
(q) If:
(i) the Corporation takes any action which would require an
adjustment in the Conversion Price pursuant to Subsection 4(g) or 4(h)
above, or clause (iv) of Subsection 4(f) above;
(ii) the Corporation consolidates or mergers with, or
transfers all or substantially all of its assets to, another
corporation, and stockholders of the Corporation must approve the
transaction; or
(iii) there is a dissolution or liquidation of the
Corporation;
a holder of Series A Preferred Stock may want to convert such stock into
shares of Common Stock prior to the record date for or the effective date of
the transaction so that he may receive the rights, warrants,
-15-
<PAGE>
securities or assets which a holder of shares of Common Stock on that date
may receive. Therefore, the Corporation shall mail to such holders, first
class, postage prepaid, a notice stating the proposed record or effective
date, as the case may be. The Corporation shall mail the notice at least ten
(10) days before such date. Failure to mail the notice or any defect in it
shall not affect the validity of any transaction referred to in clause (i),
(ii), or (iii) of this Subsection 4(q).
(r) If the Corporation is party to a merger which reclassifies
or changes its Common Stock, upon consummation of such transaction Series A
Preferred Stock shall automatically become convertible into the kind and
amount of securities, cash or other assets which the holder of Series A
Preferred Stock would have owned immediately after the consolidation, merger,
transfer or lease if such holder had converted Series A Preferred Stock
immediately before the effective date of the transaction, appropriate
adjustment (as determined by the Board of Directors of the Corporation) shall
be made in the application of the provisions herein set forth with respect to
the rights and interests thereafter of the holders of Series A Preferred
Stock, to the end that the provisions set forth herein (including provisions
with respect to changes in and other adjustment of the Conversion Price)
shall thereafter be applicable, as nearly as reasonably may be, in relation
to any shares of stock or other securities or property thereafter deliverable
upon the conversion of Series A Preferred Stock. If this Subsection 4(r)
applies, Subsection 4(f) does not apply.
(s) In any case in which this Section 4 shall require that an
adjustment as a result of any event become effective from and after a record
date, the Corporation may elect to defer until after the occurrence of such
event (i) the issuance to the holder of any shares of Series A Preferred
Stock converted after such record date and before the occurrence of such
event of the additional shares of Common Stock issuable on such conversion
over and above the shares issuable on the basis of the Conversion Price in
effect immediately prior to adjustment and (ii) a check for any remaining
fractional shares of Common Stock as provided in Subsection 4(c) above.
(t) Except as provided in the immediately following sentence,
any determination that the Corporation or its Board of Directors must make
pursuant to this Section 4 shall be conclusive. Whenever the Corporation or
its Board of Directors shall be required to make a determination under this
Section 4, such determination shall be made in good faith and may be
challenged in good faith by a majority of the holders of Series A Preferred
Stock, and any dispute shall be resolved, at the Corporation's expense, by an
investment banking firm of recognized national standing selected by the
Corporation and acceptable to such holders of Series A Preferred Stock.
(u) All shares of Series A Preferred Stock converted pursuant to
this Section 4 shall be retired and shall be restored to the status of
authorized and unissued shares of preferred stock, without designation as
to series and may thereafter be reissued as shares of any series of
preferred stock other than Series A Preferred Stock.
-16-
<PAGE>
5. VOTING RIGHTS.
(a) Except as otherwise provided by law or in Section 5(b)
below, the holders of record of shares of Series A Preferred Stock shall be
entitled to vote with the Common Stock as a single class as if their shares
had been converted to shares of Common Stock, giving the Series A Preferred
Stockholders the same voting rights as the holders of Common Stock.
(b) Without the consent of the holders of two-thirds of the
outstanding shares of Series A Preferred Stock, the Corporation shall not
take, and shall not permit any subsidiary to take, the following actions:
(1) fail to continue the Business as its principal line of
business or engage in any business other than the Business;
(2) amend or otherwise alter the Corporation's Certificate
of Incorporation or Bylaws in any respect that affects the rights of the
Series A Preferred Stock;
(3) enter into any transaction with any shareholder,
director, officer or affiliate, or any relative of any of the foregoing,
other than on terms which are (i) no less favorable to the Corporation than a
similar transaction with an unaffiliated third party and (ii) are approved
by the Executive Committee of the Corporation's Board of Directors after full
disclosure;
(4) be a party to any merger or consolidation or sell,
lease, transfer, exchange or otherwise transfer all or substantially all of
its capital stock or assets, or agree to do any of the foregoing except for
the merger of a subsidiary with another subsidiary or the Corporation;
(5) enter into any material transaction that is outside the
ordinary course of its business;
(6) effect or commence any voluntary dissolution or
liquidation;
(7) establish any subsidiary other than a wholly owned
subsidiary;
(8) directly or indirectly purchase, redeem or otherwise
acquire for value any of its outstanding capital stock other than as required
by this Certificate or the Certificate of Incorporation or, directly or
indirectly declare or pay any dividend or make any distribution on its
capital stock, except for dividends on the Series A Preferred Stock and
dividends by subsidiaries payable to the Corporation or to other subsidiaries;
-17-
<PAGE>
(9) borrow or agree to borrow any funds, grant a security interest
in or lien, mortgage or other encumbrance on any of its assets or give any
guaranty of indebtedness or obligations of another, in any case in excess of
One Million Dollars ($1,000,000);
(10) buy all or substantially all of the stock or assets of any
person or any ongoing business or enter any agreement to do any of the
foregoing;
(11) grant any options exercisable for Common Stock or any other
shares of its capital stock to employees, officers, directors or independent
contractors of the Corporation or any of its subsidiaries or to any other
person; PROVIDED, HOWEVER, that the Corporation may issue options granted
pursuant to the Employee Stock Option Plan (the "Permitted Options");
(12) issue or enter into any agreement providing for the issuance
(contingent or otherwise) of any shares of its capital stock or any other
securities, other than the Permitted Options or shares of subsidiaries issued
to the Corporation or to subsidiaries of the Corporation;
(13) make or agree to make capital expenditures for property, plant
or equipment in excess of the amount set forth in the then-current Budget; or
(14) enter into or be a party to any lease providing for annual
rental payments in excess of the amount set forth in the then-current Budget.
6. EXCLUSION OF OTHER RIGHTS.
Except as may otherwise be required by law, the shares of Series A
Preferred Stock shall not have any voting powers, preferences and relative,
participating, optional or other special rights, other than those
specifically set forth in this Certificate (as such Certificate may be
amended from time to time) and in the Certificate of Incorporation. The
shares of Series A Preferred Stock shall have no preemptive or subscription
rights hereunder.
7. HEADINGS OF SUBDIVISIONS.
The headings of the various subdivisions hereof are for convenience of
reference only and shall not affect the interpretation of any of the
provisions hereof.
8. SEVERABILITY OF PROVISIONS.
If any voting powers, preferences and relative, participating, optional
and other special rights of the Series A Preferred Stock and qualifications,
limitations and restrictions
-18-
<PAGE>
thereof set forth in this Certificate (as such Certificate may be amended
from time to time) is invalid, unlawful or incapable of being enforced by
reason of any rule of law or public policy, all other voting powers,
preferences and relative, participating, optional and other special rights of
Series A Preferred Stock and qualifications, limitations and restrictions
thereof set forth in this Certificate (as so amended) which can be given
effect without the invalid, unlawful or unenforceable voting powers,
preferences and relative, participating, optional and other special rights of
Series A Preferred Stock and qualifications, limitations and restrictions
thereof shall, nevertheless, remain in full force and effect, and no voting
powers, preferences and relative, participating, optional or other special
rights of Series A Preferred Stock and qualifications, limitations and
restrictions thereof herein set forth shall be deemed dependent upon any
other such voting powers, preferences and relative, participating, optional or
other special rights of Series A Preferred Stock and qualifications,
limitations and restrictions thereof unless so expressed herein.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
duly executed by the undersigned and attested by the undersigned its
secretary, this ___ day of May, 1998.
USINTERNETWORKING, INC.
By:
---------------------------
Name:
Title:
ATTEST:
By:
----------------------------
, Secretary
-19-
<PAGE>
SCHEDULES
<PAGE>
SCHEDULE 1
SHARES BEING PURCHASED AND SOLD
SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK
BEING ISSUED BY THE COMPANY
TO EACH PURCHASER
<TABLE>
<CAPTION>
Total Purchase Price To Be
Shares of Series A Convertible Paid By Such Purchaser For
Preferred Stock Being Issued Shares Of Series A
By The Company To Each Convertible Preferred Stock
Purchaser Purchaser Issued To Each Purchaser
- --------------------------------- --------------------------------- ---------------------------------
<S> <C> <C>
Blue Chip Capital Fund II 10,625.00 $ 6,375,000
Limited Partnership
Miami Valley Venture Fund L.P. 1,875.00 1,125,000
Grotech Partners IV L.P. 6,250.00 3,750,000
Grotech Partners V L.P. 6,250.00 3,750,000
Southern Venture Fund SBIC, L.P. 3,333.00 2,000,000
Southern Venture Fund, II, L.P. 1,666.67 1,000,000
Venrock Associates 3,583.33 2,150,000
Venrock Associates II, L.P. 4,750.00 2,850,000
--------- -----------
Total 38,333.33 $23,000,000
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE A
EMPLOYMENT AGREEMENTS
1) Officer Agreement by and between USinternetworking, Inc. and Chris M.
Poelma, dated January 2, 1998.
2) Officer Agreement by and between USinternetworking, Inc. and Steve
McManus, dated as of April 1, 1998.
3) Letter Agreement between USinternetworking, Inc. and Gary Helwig, dated
April 10, 1998 (acceptance by Helwig dated April 14, 1998).
LISTING OF KEY EMPLOYEES
Christopher R. McCleary
Chris M. Poelma
Steve McManus
<PAGE>
SCHEDULE 5.5
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Holders of Issued and Outstanding Shares of Capital Stock Number of Shares of Capital Stock Held
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Christopher McCleary 5,000,000 shares of Common Stock
- ---------------------------------------------------------------------------------------------------------
Chris Poelma Under review, but in no event shall the
number of shares issued exceed 5,000,000
shares of Common Stock
- ---------------------------------------------------------------------------------------------------------
Steve McManus Under review, but in no event shall the
number of shares issued exceed 5,000,000
shares of Common Stock
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See attached for a list of employees granted stock options, which options
shall be governed by the Employee Stock Option Plan.
<PAGE>
SCHEDULE 5.8(a)
USINTERNETWORKING, INC.
STOCK PURCHASE AGREEMENT
SCHEDULE 5.8(a)
ALL EXPENDITURES IN EXCESS OF $25,000
<TABLE>
<CAPTION>
PAYEE EXPLANATION AMOUNT
----- ----------- -----------
<S> <C> <C>
Consortium One-Annapolis L.L. C. Deposit related to the lease at 175 Admiral Cochrane Drive $400,000.00
PC Connection, Inc. Computer Equipment $ 77,640.00
Computer Equipment $ 39,471.45
Computer Equipment $100,000.00
Gordon Flesch Company, Inc. Two copiers with interface boards (one color) $ 48,264.60
includes delivery, installation and taxes
</TABLE>
CONFIDENTIAL
<PAGE>
SCHEDULE 5.8(a)
USINTERNETWORKING, INC.
STOCK PURCHASE AGREEMENT
SCHEDULE 5.8(a)
AGGREGATE EXPENDITURES IN EXCESS OF $200,000
<TABLE>
<CAPTION>
PAYEE EXPLANATION AMOUNT
----- ----------- -----------
<S> <C> <C>
Consortium One-Annapolis L.L. C. Deposit related to the lease at 175 Admiral Cochrane Drive $400,000.00
PC Connection, Inc. Computer Equipment $217,111.45
</TABLE>
CONFIDENTIAL
<PAGE>
SCHEDULE 5.10
LISTING OF CONTRACTUAL OBLIGATIONS.
1) Officer Agreement by and between USinternetworking, Inc. and Christopher R.
McCleary [to be drafted]
2) Officer Agreement by and between USinternetworking, Inc. and Chris M.
Poelma, dated January 2, 1998 [to be amended as contemplated by
Section 3.12].
3) Officer Agreement by and between USinternetworking, Inc. and Steve
McManus, dated April 1, 1998 [to be amended as contemplated by
Section 3.12].
4) Sublease Agreement, by and between Exsportise, Inc. and USinternetworking,
Inc., dated February 9, 1998.
5) Agreement of Lease, by and between Consortium One-Annapolis, LLC and
USinternetworking, Inc., dated April 3, 1998.
6) Letter of Agreement between USinternetworking, Inc. and Gary Helwig, dated
April 10, 1998 (acceptance by Helwig dated April 14, 1998).
7) Please see attached Vendor Ledger.
8) Furniture Rental Agreement between Aaron Rents, Inc. and
USinternetworking, Inc., dated March 10, 1998.
In addition, please note that the Company has provided employment offers to
37 of its employees which offers set forth the amount of compensation,
among other things, for the employees, but which are not intended to
create employment contracts.
<PAGE>
SCHEDULE 5.12
LISTING OF SEVERANCE ARRANGEMENTS
See Officer Agreements and Letter Agreement listed on Schedule 5.10.
<PAGE>
SCHEDULE 5.16
EMPLOYEE PLANS
Although the Company has not adopted any formal employee benefit plans, the
contours of the employee benefit plans have been described in writing to
employees. The employee benefits are to include the following: (i) a 401(k)
plan that is to be noncontributory until January 1, 1999, and thereafter
subject to a 1:2 employer match, (ii) the Employee Stock Option Plan, and
(iii) other typical plans such as health and vacation benefit plans. The
Company has stated its intention that the Employee Stock Option Plan will be
a qualified plan that will provide for the issuance of options to purchase
shares at a discount of 20% from the then-current market price, to the extent
permissible at any time. Certain of the Company's employees have been
advised in writing, pursuant to the employment offer letters described above,
of the number of option shares the Company intends to award to them. These
option shares are listed in Schedule 5.5.
<PAGE>
SCHEDULE 5.17
LISTING OF ALL OUTSTANDING BORROWINGS
1) Senior Promissory Note, dated as of April 24, 1998, in the principal
amount of $2,000,000 payable by USinternetworking, Inc. to Blue Chip
Capital Fund II Limited Partnership
2) Loan by Chris McCleary to the Company of $1,336,268.63 (as of April 30,
1998). Mr. McCleary is contributing $1,000,000 of the Company's
indebtedness to him for 1,666.67 shares of Series A Preferred Stock
<PAGE>
SCHEDULE 5.18
LISTING OF INSURANCE POLICIES OR PROGRAMS
As of the date hereof, the Company has received only an Insurance Binder, a
copy of which has been provided to Purchasers as of the date hereof and which
is attached hereto. Such Insurance Binder satisfies the Company's disclosure
obligations as provided in Section 5.18.
<PAGE>
SCHEDULE 5.24
SBA AFFILIATES
As of the date of this Agreement, the Company does not have any SBA
affiliates.
<PAGE>
Ex. 10.2
EXECUTION COPY
STOCK PURCHASE AGREEMENT
by
and
among
USinternetworking, Inc.
Blue Chip Capital Fund II Limited Partnership
Miami Valley Venture Fund L.P.
Grotech Partners IV L.P.
and
Grotech Partners V L.P.
-------------------------
Dated as of June 18, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 1. DEFINITIONS............................................................................................1
1.1. DEFINITIONS................................................................................1
1.2. ACCOUNTING TERMS; FINANCIAL STATEMENTS.....................................................4
1.3. KNOWLEDGE STANDARD.........................................................................4
1.4. Other Defined Terms........................................................................4
ARTICLE 2. AUTHORIZATION OF PREFERRED SHARES; PURCHASE AND SALE OF PREFERRED SHARES...............................5
2.1. PREFERRED SHARES...........................................................................5
2.2. PURCHASE AND SALE OF PREFERRED SHARES......................................................6
2.3. CLOSING....................................................................................6
2.4. FEES AND EXPENSES..........................................................................6
ARTICLE 3. CONDITIONS TO THE OBLIGATION OF THE PURCHASERS TO PURCHASE THE PREFERRED SHARES........................6
3.1. REPRESENTATIONS AND WARRANTIES.............................................................7
3.2. COMPLIANCE WITH TERMS AND CONDITIONS OF THIS AGREEMENT.....................................7
3.3. DELIVERY OF CERTIFICATES EVIDENCING THE SHARES.............................................7
3.4. CLOSING CERTIFICATES.......................................................................7
3.5. SECRETARY'S CERTIFICATES...................................................................7
3.6. DOCUMENTS..................................................................................7
3.7. PURCHASE PERMITTED BY APPLICABLE LAWS......................................................8
3.8. CONSENTS AND APPROVALS.....................................................................8
3.9. CONSENTS AND WAIVERS.......................................................................8
3.10. NO MATERIAL JUDGMENT OR ORDER.............................................................8
3.11. LEGAL OPINION.............................................................................8
ARTICLE 4. CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE...................................................9
4.1. REPRESENTATIONS AND WARRANTIES.............................................................9
4.2. COMPLIANCE WITH THIS AGREEMENT.............................................................9
4.3. CLOSING CERTIFICATE........................................................................9
4.4. ISSUANCE PERMITTED BY APPLICABLE LAWS......................................................9
4.5. PAYMENT OF PURCHASE PRICE..................................................................9
4.6. CONSENTS AND APPROVALS....................................................................10
4.7. CONSENT AND WAIVER........................................................................10
4.8. NO MATERIAL JUDGMENT OR ORDER.............................................................10
<PAGE>
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................................................10
5.1. CORPORATE EXISTENCE AND AUTHORITY.........................................................10
5.2. CORPORATE AUTHORIZATION; NO CONTRAVENTION.................................................11
5.3. GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENTS..........................................11
5.4. BINDING EFFECT............................................................................11
5.5. CAPITALIZATION............................................................................11
5.6. PRIVATE OFFERING..........................................................................12
5.7. LITIGATION................................................................................13
5.8. FINANCIAL STATEMENTS......................................................................13
5.9. TITLE AND CONDITION OF ASSETS.............................................................13
5.10. CONTRACTUAL OBLIGATIONS..................................................................13
5.11. TAX MATTERS..............................................................................14
5.12. SEVERANCE ARRANGEMENTS...................................................................14
5.13. INVESTMENT COMPANY/GOVERNMENT REGULATIONS................................................14
5.14. BROKER'S, FINDER'S OR SIMILAR FEES.......................................................14
5.15. LABOR RELATIONS AND EMPLOYEE MATTERS.....................................................14
5.16. EMPLOYEE BENEFITS MATTERS................................................................15
5.17. OUTSTANDING BORROWINGS...................................................................15
5.18. INSURANCE SCHEDULE.......................................................................15
5.19. SOLVENCY.................................................................................15
5.20. NO OTHER AGREEMENTS TO SELL THE ASSETS OR CAPITAL STOCK OF THE COMPANY...................15
5.21. KEY EMPLOYEES............................................................................16
5.22. COMPLIANCE WITH LAW......................................................................15
5.23. DISCLOSURE...............................................................................16
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS......................................................16
6.1. PARTNERSHIP EXISTENCE AND AUTHORITY.......................................................16
6.2. ORGANIZATION; AUTHORIZATION; NO CONTRAVENTION.............................................17
6.3. BINDING EFFECT............................................................................17
6.4. PURCHASE FOR OWN ACCOUNT..................................................................17
6.5. FINANCIAL CONDITION.......................................................................18
6.6. RECEIPT OF INFORMATION....................................................................18
6.7. BROKER'S, FINDER'S OR SIMILAR FEES........................................................18
6.8. GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENT...........................................19
6.9. LITIGATION................................................................................19
ii
<PAGE>
ARTICLE 7. COVENANTS OF THE COMPANY WITH RESPECT TO THE PERIOD
FOLLOWING THE CLOSING..........................................................................19
7.1. RESERVATION OF SHARES.....................................................................19
7.2. ISSUANCE OF ADDITIONAL PREFERRED SHARES...................................................19
ARTICLE 8. INDEMNIFICATION.......................................................................................20
8.1. INDEMNIFICATION...........................................................................20
8.2. NOTIFICATION..............................................................................21
ARTICLE 9. MISCELLANEOUS.........................................................................................22
9.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES................................................22
9.2. NOTICES...................................................................................22
9.3. SUCCESSORS AND ASSIGNS....................................................................23
9.4. AMENDMENT AND WAIVER......................................................................24
9.5. COUNTERPARTS..............................................................................24
9.6. HEADINGS..................................................................................24
9.7. GOVERNING LAW.............................................................................24
9.8. JURISDICTION..............................................................................24
9.9. SEVERABILITY..............................................................................25
9.10. RULES OF CONSTRUCTION....................................................................25
9.11. ENTIRE AGREEMENT.........................................................................25
9.12. PUBLICITY................................................................................25
9.13. FURTHER ASSURANCES.......................................................................26
9.14. WAIVER OF JURY TRIAL.....................................................................26
</TABLE>
iii
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered
into as of this 18th day of June, 1998, by and between USinternetworking, Inc.,
a Delaware corporation (the "Company") and Blue Chip Capital Fund II Limited
Partnership ("Blue Chip"), Miami Valley Venture Fund L.P. ("Miami"), Grotech
Partners IV L.P. ("Grotech") and Grotech Partners V L.P. ("Grotech II," and,
together with Blue Chip, Miami, and Grotech, are collectively referred to herein
as the "Purchasers").
RECITALS:
A. Upon the terms and subject to the conditions set forth in
this Agreement, the Company proposes to issue and sell shares of its Series A
Convertible Preferred Stock ("Series A Preferred Stock", as defined below) to
the Purchasers.
B. The Purchasers desire to purchase from the Company shares
of the Series A Preferred Stock as set forth on SCHEDULE 1 hereto.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the receipt
and adequacy of which is hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE 1.
DEFINITIONS
1.1. DEFINITIONS.
As used in this Agreement, and unless the context requires a
different meaning, the following terms have the meanings indicated:
"AFFILIATE" means, with respect to any specified Person, any
Person that, directly or indirectly, controls, is controlled by, or is under
common control with, such specified Person, whether by contract, through one or
more intermediaries, or otherwise.
"BUSINESS DAY" shall mean a day other than a Saturday or
Sunday or any federal holiday.
<PAGE>
"COMMISSION" means the Securities and Exchange Commission or
any similar agency then having jurisdiction to enforce the Securities Act (as
defined below).
"COMMON STOCK" means the common stock, par value $.001 per
share, of the Company, or any other capital stock of the Company into which such
stock is reclassified or reconstituted.
"CONDITION OF THE COMPANY" means the assets, business,
properties, operations, financial condition or prospects of the Company.
"EMPLOYEE PLANS" means all benefits arrangements, pension
plans or welfare plans adopted by the Company for its employees.
"EMPLOYEE STOCK OPTION PLAN" means an employee stock option
plan adopted by the Compensation Committee of the Board of Directors of the
Company providing for the issuance to certain employees of the Company of
options to purchase a certain number of shares of Common Stock at a certain
exercise price per share the total number of shares of Common Stock which may be
issued under such plan shall not exceed 6.5% of the total number of outstanding
shares of common stock calculated on a fully diluted basis, not including the
options and shares issuable or issued on exercise of options pursuant to the
Employee Stock Option Plan.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.
"GAAP" means United States generally accepted accounting
principles, in effect from time to time, consistently applied.
"GOVERNMENTAL AUTHORITY" means the government of any nation,
state, city, locality or other political subdivision of any thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.
"INDEBTEDNESS" means, as to any Person: (a) all obligations,
whether or not contingent, of such Person for borrowed money (including, without
limitation, reimbursement and all other obligations with respect to surety
bonds, letters of credit and bankers' acceptances, whether or not matured), (b)
all obligations of such Person evidenced by notes, bonds, debentures or similar
instruments, (c) all obligations of such Person representing the balance of
deferred purchase price of property or services, except trade accounts payable
and accrued commercial or trade liabilities arising in the ordinary course of
business, (d) all interest rate and
2
<PAGE>
currency swaps, caps, collars and similar agreements or hedging devices under
which payments are obligated to be made by such Person, whether periodically or
upon the happening of a contingency, (e) all indebtedness created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), (f) all obligations of such Person under
leases which have been or should be, in accordance with GAAP, recorded as
capital leases, (g) all indebtedness secured by any Lien (other than Liens in
favor of lessors under leases other than leases included in clause (f)) on any
property or asset owned or held by that Person regardless of whether the
indebtedness secured thereby shall have been assumed by that Person or is
non-recourse to the credit of that Person, and (h) all Indebtedness of any other
Person referred to in clauses (a) through (f) above, guaranteed, directly or
indirectly, by that Person.
"LIEN" means any mortgage, deed of trust, pledge,
hypothecation, assignment, encumbrance, lien (statutory or other) or other
security interest of any kind or nature whatsoever (excluding preferred stock or
equity related preferences) including, without limitation, those created by,
arising under or evidenced by any conditional sale or other title retention
agreement, the interest of a lessor under a capital lease obligation, or any
financing lease having substantially the same economic effect as any of the
foregoing.
"OUTSTANDING BORROWINGS" means all Indebtedness of the Company
for borrowed money (including, without limitation, reimbursement and all other
obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured).
"PERSON" means any individual, firm, corporation, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, Governmental Authority or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.
"REQUIREMENTS OF LAW" means, as to any Person, the provisions
of the Certificate of Incorporation and By-laws or other organizational or
governing documents of such Person, and any law, treaty, rule, regulation,
right, privilege, qualification, license or franchise, order, judgment, or
determination of an arbitrator or a court or other Governmental Authority, in
each case, applicable or binding upon such Person or any of its property or to
which such Person or any of its property is subject or applicable to any or all
of the transactions contemplated by or referred to in the Transaction
Agreements.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder.
3
<PAGE>
"SERIES A PREFERRED STOCK" means the 8% Series A Convertible
Preferred Stock, par value $.01 per share, of the Company, or any other capital
stock of the Company into which such stock is reclassified or reconstituted.
"TRANSACTION EXPENSES" means any and all reasonable
out-of-pocket (i) legal expenses incurred by the Purchaser in connection with
the negotiation and preparation of the Transaction Agreements, the consummation
of the transactions contemplated thereby and preparation for any of the
foregoing, including, without limitation, travel expenses, reasonable fees,
charges and disbursements of counsel and any similar or related legal costs and
legal expenses; and (ii) other expenses incurred by the Purchaser in connection
with the negotiation and preparation of this Agreement.
1.2. ACCOUNTING TERMS; FINANCIAL STATEMENTS.
All accounting terms used herein not expressly defined in this
Agreement shall have the respective meanings given to them in accordance with
sound accounting practice. The term "sound accounting practice" shall mean such
accounting practice as, in the opinion of the independent certified public
accountants regularly retained by the Company conforms at the time to GAAP
applied on a consistent basis except for changes with which such accountants
concur.
1.3. KNOWLEDGE STANDARD.
When used herein, the phrase "to the knowledge of" any Person,
"to the best knowledge of" any Person or any similar phrase shall mean, (i) with
respect to any individual, the actual knowledge of such Person, (ii) with
respect to any corporation, the actual knowledge of the officers and directors
of such corporation and the knowledge of such facts that such persons should
have in the exercise of their duties after reasonable inquiry, and (iii) with
respect to a partnership, the actual knowledge of the officers and directors of
the general partner of such partnership and the knowledge of such facts that
such persons should have in the exercise of their duties after reasonable
inquiry.
1.4. Other Defined Terms.
The following terms shall have the meanings specified in the
Sections set forth below:
4
<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Actions 5.7
Additional Preferred Shares 7.4
Certificate of Incorporation 2.1
Certificate 2.1
Certificate of Designation 2.1
Closing Date 2.2
Closing 2.3
Indemnified Party 8.2
Indemnifying Party 8.2
Liabilities 8.1
Preferred Shares 2.1
Purchase Price 2.2
Purchasing Indemnified Party 9.1
Purchasing Indemnifying Party 9.1
Selling Indemnified Party 9.1
Selling Indemnifying Party 9.1
US West Agreement 2.2
</TABLE>
ARTICLE 2.
AUTHORIZATION OF PREFERRED SHARES;
PURCHASE AND SALE OF PREFERRED SHARES
2.1. PREFERRED SHARES.
The Board of Directors of the Company has authorized the
issuance and sale of 5,000 additional shares (the "Preferred Shares") of the
Series A Preferred Stock and has duly adopted resolutions establishing the
rights, preferences, privileges and restrictions of the Series A Preferred
Stock. The Preferred Shares will have the respective rights, preferences and
privileges set forth in the Company's Certificate of Incorporation, as amended
(the "Certificate of Incorporation") and the Certificate of Designations,
Preferences, and Other Special Rights of Preferred Stock and Qualifications,
Limitations and Restrictions Thereof filed on May 27, 1998 with respect thereto
(the "Certificate of Designation" and together with the Certificate of
Incorporation, the "Certificate").
5
<PAGE>
2.2. PURCHASE AND SALE OF PREFERRED SHARES.
Upon the terms and subject to the conditions herein contained,
on such day as the parties may agree but in any event prior to the Closing (as
defined therein) of the Stock Purchase Agreement (the "US WEST Agreement"),
dated as of June 18, 1998 by and between the Company and US WEST Communications,
Inc. (the "Closing Date"), the Company shall issue to the Purchasers and the
Purchasers shall acquire from the Company, the number of Preferred Shares set
forth next to each Purchaser's name on SCHEDULE 1 hereto. The aggregate purchase
price of such Preferred Shares, to be paid by the Purchasers in the amount set
forth next to each Purchaser's name on SCHEDULE 1 hereto, shall be Three Million
Dollars ($3,000,000) (the "Purchase Price").
2.3. CLOSING.
The closing of the sale to and purchase by the Purchasers of
the Preferred Shares (the "Closing") shall occur at 11 o'clock A.M., local time
on the Closing Date at the offices of Latham & Watkins, 1001 Pennsylvania
Avenue, N.W., Washington, D.C. 20004, or such other location as the parties may
agree. At the Closing, (i) the Company shall deliver to the Purchasers
certificates evidencing the Preferred Shares being purchased by the Purchasers,
free and clear of any Liens of any nature whatsoever, other than those created
by the Certificate or the Shareholders' Agreement, registered in the Purchasers'
name, and (ii) the Purchasers shall deliver to the Company the Purchase Price,
in the amounts as set forth next to each Purchaser's name on SCHEDULE 1 hereto,
by cashier's or certified check or wire transfer of immediately available funds.
2.4. FEES AND EXPENSES.
Concurrently with the Closing, the Company shall reimburse
each Purchaser for the Transaction Expenses, which payment shall be made by wire
transfer of immediately available funds to an account or accounts designated by
such Purchaser.
ARTICLE 3.
CONDITIONS TO THE OBLIGATION OF THE
PURCHASERS TO PURCHASE THE PREFERRED SHARES
The obligation of each of the Purchasers to purchase the
Preferred Shares, to pay the Purchase Price therefor and to perform any of its
obligations hereunder on the Closing Date (unless otherwise specified) shall be
subject to the satisfaction of the following conditions on or before the Closing
Date:
6
<PAGE>
3.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company contained in
Section 5 hereof shall be true and correct in all material respects at and as of
the Closing Date, as if made at and as of such date.
3.2. COMPLIANCE WITH TERMS AND CONDITIONS OF THIS
AGREEMENT.
The Company shall have performed and complied with all of the
agreements and conditions set forth herein that are required to be performed or
complied with by the Company on or before the Closing Date.
3.3. DELIVERY OF CERTIFICATES EVIDENCING THE SHARES.
The Company shall have delivered to the Purchasers the
certificates evidencing the Preferred Shares as set forth in Section 2.3.
3.4. CLOSING CERTIFICATES.
The Company shall have delivered to the Purchasers a
certificate executed by an authorized officer of the Company, certifying that
the representations and warranties of the Company are true and correct in all
material respects on and as of the Closing Date, and that the conditions set
forth in this Section 3 to be satisfied by the Company have been satisfied on
and as of the Closing Date.
3.5. SECRETARY'S CERTIFICATES.
The Purchasers shall have received a certificate from the
Company, dated as of the Closing Date and signed by the Secretary or an
Assistant Secretary of the Company, certifying that the attached copies of the
Certificate of Incorporation, Certificate of Designation, By-laws of the
Company, (all of which will be in form and substance consistent with this
Agreement) and resolutions of the Board of Directors of the Company approving
this transaction are all true, complete and correct and remain unamended and in
full force and effect.
3.6. DOCUMENTS.
The Purchasers shall have received true, complete and correct
copies of such documents and such other information as they may have reasonably
requested in connection with or relating to the sale of the Preferred Shares and
the transactions required to be performed herein.
7
<PAGE>
3.7. PURCHASE PERMITTED BY APPLICABLE LAWS.
The acquisition of and payment for the Preferred Shares to be
acquired by the Purchasers hereunder and the consummation of this Agreement (a)
shall not be prohibited by any Requirements of Law, and (b) shall not conflict
with or be prohibited by any Contractual Obligation of the Company.
3.8. CONSENTS AND APPROVALS.
All consents, exemptions, authorizations, or other actions by,
or notices to, or filings with, Governmental Authorities and other Persons in
respect of all Requirements of Law and with respect to those material
Contractual Obligations of the Company necessary or required in connection with
the execution, delivery or performance (including, without limitation, the
issuance of the Preferred Shares and the issuance of the Common Stock upon
conversion of the Preferred Shares) by the Company shall have been obtained and
be in full force and effect and all waiting periods shall have lapsed without
extension or the imposition of any conditions or restrictions.
3.9. CONSENTS AND WAIVERS
The shareholders that are parties to the Shareholders'
Agreement, dated as of May 28, 1998 (the "Shareholders' Agreement") and the
holders of at least two-thirds of the outstanding shares of Series A Preferred
Stock shall have duly executed and delivered to the Purchasers the Consent and
Waiver substantially in the form attached as EXHIBIT A hereto.
3.10. NO MATERIAL JUDGMENT OR ORDER.
There shall not be any judgment or order of a court of
competent jurisdiction or any ruling of any Governmental Authority or any
condition imposed under any Requirement of Law which, in the reasonable judgment
of the Purchasers, would (i) prohibit the purchase of the Preferred Shares
hereunder, (ii) subject the Purchasers to any penalty if the Preferred Shares
were to be purchased hereunder, or (iii) question the validity or legality of
the transactions required to be performed under this Agreement.
3.11. LEGAL OPINION.
The Purchasers shall have received an opinion of counsel for
the Company in the form attached as EXHIBIT B hereto.
8
<PAGE>
ARTICLE 4.
CONDITIONS TO THE OBLIGATION OF
THE COMPANY TO CLOSE
The obligation of the Company to issue and sell the Preferred
Shares and the other obligations of the Company hereunder, shall be subject to
the satisfaction of the following conditions on or before the Closing Date:
4.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Purchasers contained
in Section 6 hereof shall be true and correct in all material respects on and as
of the Closing Date as if made at and as of such date.
4.2. COMPLIANCE WITH THIS AGREEMENT.
Each of the Purchasers shall have performed and complied with
all of the agreements and conditions set forth herein that are required to be
performed or complied with by the Purchasers on or before the Closing Date.
4.3. CLOSING CERTIFICATE.
Each of the Purchasers shall have delivered to the Company a
certificate executed by the Purchaser certifying that the representations and
warranties of such Purchaser contained in this Agreement are true and correct in
all material respects on and as of the Closing Date and that the conditions
contained in this Section 4 to be satisfied by such Purchaser have been
satisfied on and as of the Closing Date.
4.4. ISSUANCE PERMITTED BY APPLICABLE LAWS.
The issuance of the Preferred Shares to be issued by the
Company hereunder and the consummation of this Agreement (a) shall not be
prohibited by any Requirements of Law, and (b) shall not conflict with or be
prohibited by any Contractual Obligations of the Purchasers.
4.5. PAYMENT OF PURCHASE PRICE.
Each of the Purchasers shall have tendered to the Company the
Purchase Price as set forth in Schedule 1 hereto.
9
<PAGE>
4.6. CONSENTS AND APPROVALS.
All consents, exemptions, authorizations, or other actions by,
or notices to, or filings with, Governmental Authorities and other Persons in
respect of all Requirements of Law and with respect to those material
Contractual Obligations of the Purchasers necessary or required in connection
with the execution, delivery or performance by the Purchasers shall have been
obtained and be in full force and effect and all waiting periods shall have
lapsed without extension or imposition of any conditions or restrictions.
4.7. CONSENT AND WAIVER
The Consent and Waiver substantially in the form set forth in
EXHIBIT A hereto shall have been executed by each of the shareholders that are a
party to the Shareholders' Agreement and by the holders of at least two-thirds
of the outstanding shares of Series A Preferred Stock.
4.8. NO MATERIAL JUDGMENT OR ORDER.
There shall not be any judgment or order of a court of
competent jurisdiction or any ruling of any Governmental Authority or any
condition imposed under any Requirements of Law which, in the reasonable
judgment of the Company would (i) prohibit the sale of the Shares or the
consummation of the other transactions hereunder, (ii) subject the Company to
any penalty if the Shares were to be sold hereunder or (iii) question the
validity or legality of the transactions required to be performed under this
Agreement.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to, and covenants with,
the Purchasers as of the date hereof and as of the Closing Date as follows:
5.1. CORPORATE EXISTENCE AND AUTHORITY.
The Company was incorporated on January 14, 1998 and (a) is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, (b) has all requisite corporate power and authority to
own and operate its property, to lease the property it operates as lessee and to
conduct the business in which it is currently, or is currently proposed to be,
engaged, and (c) has the corporate power and authority to execute, deliver and
perform its
10
<PAGE>
obligations under this Agreement and the related agreements referred to herein
to which it is or will be a party.
5.2. CORPORATE AUTHORIZATION; NO CONTRAVENTION.
The execution, delivery and performance by the Company of this
Agreement, the related agreements referred to herein and the consummation of the
transactions contemplated hereby, including, without limitation, the issuance of
the Preferred Shares, (a) have been duly authorized by all necessary corporate
action, including, if required, stockholder action, (b) do not conflict with or
contravene the terms of the Certificate or the By-laws of the Company, or any
amendment thereof; and (c) will not violate, conflict with or result in any
material breach or contravention of (i) any Contractual Obligation of the
Company or (ii) any Requirements of Law applicable to the Company.
5.3. GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENTS.
No approval, consent, compliance, exemption, authorization, or
other action by, or notice to, or filing with, any Governmental Authority or any
other Person in respect of any applicable Requirements of Law in effect on the
date hereof, and no lapse of a waiting period under any applicable Requirements
of Law in effect on the date hereof, is necessary or required in connection with
the execution and delivery of this Agreement by the Company, the related
agreements referred to herein or the performance by the Company or enforcement
against the Company of any material obligation by the Company under this
Agreement, the related agreements referred to herein or the transactions to be
performed hereunder.
5.4. BINDING EFFECT.
This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity relating to enforceability.
5.5. CAPITALIZATION.
On the Closing Date, the capital stock of the Company
shall consist of One Hundred Fifty Million (150,000,000) shares of Common Stock
and One Hundred Thousand (100,000) shares of preferred stock, with such shares
including the Preferred Shares. Of the 150,100,000 authorized shares of capital
stock of the Company, immediately after the Closing, there will be (i) 15
million shares of Common Stock issued and outstanding; (ii) Five Million
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(5,000,000) shares of Common Stock reserved for issuance pursuant to the
Employee Stock Option Plan; (iii) 46,166.67 shares of Series A Preferred Stock
issued and outstanding, not including the shares that could be issued pursuant
to Section 7.2(a) hereof; and (iv) 98,100,000 fully diluted shares of Common
Stock outstanding, assuming conversion of all of the outstanding shares of
Series A Preferred Stock mentioned in subsection (iii) above, into 83,100,000
shares of Common Stock, but not including any shares authorized pursuant to the
Employee Stock Option Plan or the shares that may be issued pursuant to Section
7.2 hereof. As of the Closing Date, all outstanding shares of capital stock of
the Company, including the Preferred Shares, and the shares of Common Stock
issuable upon conversion of the Preferred Shares (when issued in accordance with
the conversion terms thereof), will be duly authorized and validly issued, fully
paid, nonassessable and free and clear of any Liens, preferential rights,
priorities, claims, options, charges or other encumbrances or restrictions other
than those created by the Certificate, the Bylaws, and the Shareholders'
Agreement.
(a) SCHEDULE 5.5 sets forth the name of each
holder of the issued and outstanding capital stock of the Company, the number of
shares of such capital stock held beneficially or of record by each such holder,
the name of each Person holding any options or other rights to purchase any
capital stock of the Company (except as may be permitted under the Shareholders'
Agreement), the number, class and series of shares of capital stock subject to
each such option or right and the exercise price of each such option or right.
Except for the options under the Employee Stock Option Plan and the Preferred
Shares, and except as identified in Section 7.4, there are no outstanding
securities convertible into or exchangeable for capital stock of the Company or
options, warrants or other rights to purchase or subscribe to capital stock of
the Company or contracts, commitments, agreements, understandings or
arrangements of any kind to which the Company or any Holder is a party relating
to the issuance of any capital stock of the Company, any such convertible or
exchangeable securities or any such options, warrants or rights. The Company has
no subsidiaries.
(b) Except as set forth on SCHEDULE 5.5 or in
the US WEST Agreement and as may be provided in the Shareholders' Agreement, no
Person has any preemptive rights, rights of first refusal, "tag along" rights,
rights of co-sale or any similar rights with respect to the issuance of the
Preferred Shares contemplated hereby or the issuance of any additional shares of
stock by the Company. SCHEDULE 5.5 identifies all Persons holding any such
rights and describes the material terms of all such rights.
5.6. PRIVATE OFFERING.
No form of general solicitation or general advertising was
used by the Company or its representatives in connection with the offer or sale
of the Preferred Shares. No registration
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of the Preferred Shares pursuant to the provisions of the Securities Act or any
state securities or "blue sky" laws will be required by the offer, sale or
issuance of the Preferred Shares pursuant to this Agreement. The Company agrees
that neither it, nor anyone authorized to act on its behalf, will offer or sell
the Preferred Shares or any other security so as to require the registration of
the Preferred Shares pursuant to the provisions of the Securities Act or any
state securities or "blue sky" laws, unless such Preferred Shares are so
registered.
5.7. LITIGATION.
The Company has not received any notice of any governmental
charge, complaint or action or court order, writ, injunction, judgment or decree
outstanding or any claim, suit, litigation, legal proceeding, (collectively,
"Actions") which if adversely determined would have a material adverse effect on
(i) the Company or the Condition of the Company (ii) the transactions required
to be performed by the Company under this Agreement and, to the Company's
knowledge, there is no valid basis therefor, and no Action is threatened against
the Company.
5.8. FINANCIAL STATEMENTS.
The Company was incorporated on January 14, 1998, [and has not
yet commenced business operations.] As of the date hereof, it has no assets,
except as described below, and has not prepared financial statements. [SCHEDULE
5.8(a) sets forth all expenditures by or on behalf of the Company since its
formation in excess of $25,000, in any one case, or $200,000, in the aggregate.]
The Company's projections attached hereto as SCHEDULE 5.8(b) were prepared by
the Company's management in good faith, are based on reasonable assumptions,
represent management's best estimates of the Company's predicted operations and
performance under its business plan and reflect actual subjective expectations
of the Company's management. The Company has no reason to believe that the
results reflected in such projections are not attainable.
5.9. TITLE AND CONDITION OF ASSETS.
The Company currently has no assets (other than cash) except
as listed on SCHEDULE 5.10. The Company has a valid and enforceable leasehold
interest in its leases listed on SCHEDULE 5.10 pursuant to the terms of the
lease agreements and is not in default thereunder.
5.10. CONTRACTUAL OBLIGATIONS.
The Company has not entered into any contracts or agreements
or incurred any material liabilities, other than pursuant to this Agreement, the
Shareholders' Agreement and the agreements listed on SCHEDULE 5.10.
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5.11. TAX MATTERS.
The Company has duly filed all tax reports and returns
required to be filed by it, including all federal, state, local and foreign tax
returns and reports and paid all taxes due with respect thereto.
5.12. SEVERANCE ARRANGEMENTS.
Except as set forth on SCHEDULE 5.12, the Company has not
entered into any severance or similar arrangement in respect of any present or
former employee of the Company that will result in any obligation (absolute or
contingent) of the Company to make any payment to such present or former
employee of the Company following termination of employment.
5.13. INVESTMENT COMPANY/GOVERNMENT REGULATIONS.
Immediately following the Closing, after giving effect to the
transactions contemplated by this Agreement and the Shareholders' Agreement
neither the Company nor any Person controlling, controlled by or under common
control with the Company will be an "investment company" within the meaning of
the Investment Company Act of 1940, as amended. The Company is not subject to
regulation under the Public Utility Holding Company Act of 1935, as amended, the
Federal Power Act, or any federal or state statute or regulation limiting its
ability to incur Indebtedness.
5.14. BROKER'S, FINDER'S OR SIMILAR FEES.
There are no brokerage commissions, finder's fees or similar
fees or commissions payable in connection with the transactions contemplated
hereby based on any agreement, arrangement or understanding with the Company or
any officer, director, shareholder, or Affiliate of the Company or any action
taken by any such person.
5.15. LABOR RELATIONS AND EMPLOYEE MATTERS.
(a) The Company is not and has not engaged in
any unfair labor practice.
(b) Except as set forth on SCHEDULE 5.10,
the Company is not a party to any employment agreement (other than "at will"
employment relationships), collective bargaining agreement or covenant not to
compete.
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(c) No complaint under any statute or regulation
relating to employment has been filed against the Company.
5.16. EMPLOYEE BENEFITS MATTERS.
Except as set forth on SCHEDULE 5.16, the Company has not
adopted or implemented any Employee Plan.
5.17. OUTSTANDING BORROWINGS.
SCHEDULE 5.17 lists the amount of all Outstanding Borrowings
as of the date hereof and the name of each lender thereof.
5.18. INSURANCE SCHEDULE.
SCHEDULE 5.18 accurately summarizes all of the Company's
insurance policies or programs in effect as of the date hereof and indicates the
insurer's name and policy number and also indicates any self-insurance program
that is in effect.
5.19. SOLVENCY.
The Company has not (i) made a general assignment for the
benefit of its creditors, (ii) filed any voluntary petition in bankruptcy or
suffered the filing of any involuntary petition in bankruptcy by its creditors,
(iii) suffered the appointment of a receiver to take possession of all or
substantially all of its assets or properties, (iv) suffered the attachment or
other judicial seizure of all or substantially all of its assets or (v) admitted
in writing its inability to pay its debts as they come due.
5.20. NO OTHER AGREEMENTS TO SELL THE ASSETS OR CAPITAL
STOCK OF THE COMPANY.
Other than as otherwise set forth in this Agreement, the
Company has no legal obligation, absolute or contingent, other than the
obligations of the Company under this Agreement or the Shareholders' Agreement,
to any person or firm to (i) sell any capital stock of the Company or, outside
of the ordinary course of business, assets, or effect any merger, consolidation
or other reorganization of the Company or (ii) enter into any agreement with
respect any of the foregoing.
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5.21. KEY EMPLOYEES.
The performance by the Company's key employees of their duties
for the Company as contemplated by the Company's business plan will not violate
any provision of any agreement to which any of such persons or the Company is a
party, including any agreement with any former employer of any such person, or
give rise to any obligation or liability of the Company to any third party or
limit in any way the Company's ability to conduct its business. None of the
Company's key employees is engaged, directly or indirectly, or has any interest
(other than as a shareholder of a public company) in any entity which is engaged
in competition with the Company in its planned activities.
5.22. COMPLIANCE WITH LAW.
In its conduct of its business and affairs since its
formation, the Company has complied in all material respects with all applicable
Requirements of Law.
5.23. DISCLOSURE.
The Company has, to the best of its knowledge, fully responded
to all requests for information, and the Company has accurately answered all
questions from the Purchasers concerning the Condition of the Company, and has
not knowingly withheld any facts relating thereto which it reasonably believes
to be material with respect to its Condition. No information in this Agreement
or in any Exhibit or Schedule attached to this Agreement, contains or will
contain any untrue statement of a material fact or when considered together with
all such information delivered to the Purchasers omits to state any material
fact. The disclosures made in writing by the Company in connection with this
Agreement when read in the light of the circumstances when made and taken as a
whole, did not when made contain any untrue statement of a material fact.
ARTICLE 6.
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASERS
Each Purchaser, severally and not jointly, hereby represents
and warrants to the Company as of the date hereof as follows:
6.1. PARTNERSHIP EXISTENCE AND AUTHORITY
Such Purchaser (a) is a limited partnership, duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
formation, (b) has all requisite power and
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authority to own its assets and operate its business, and (c) has all requisite
power and authority to execute, deliver and perform its obligations under this
Agreement and the related agreements referred to herein to which it is or will
be a party.
6.2. ORGANIZATION; AUTHORIZATION; NO CONTRAVENTION.
The execution, delivery and performance by such Purchaser of
this Agreement and the related agreements referred to herein to which it is a
party or will be a party and the consummation of the transactions contemplated
thereby, including, without limitation, the acquisition of the Preferred Shares:
(a) is within such Purchaser's partnership authority, and has been duly
authorized by all necessary action on the part of such Purchaser; (b) does not
conflict with or contravene the terms of such charter; and (c) will not violate,
conflict with or result in any material breach or contravention of (i) any
Contractual Obligation of such Purchaser, or (ii) the Requirements of Law or any
order or decree applicable to such Purchaser.
6.3. BINDING EFFECT.
This Agreement has been duly executed and delivered by such
Purchaser, and this Agreement constitutes the legal, valid and binding
obligation of such Purchaser, enforceable against it in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws affecting the enforcement of creditors' rights
generally or by equitable principles relating to enforceability.
6.4. PURCHASE FOR OWN ACCOUNT.
The Preferred Shares, and the shares of Common Stock to be
issued upon conversion of the Preferred Shares, are being or will be acquired by
such Purchaser for its own account and with no intention of distributing or
reselling such securities or any part thereof in any transaction that would be
in violation of the securities laws of the United States of America, or any
state, without prejudice, however, to the rights of such Purchaser at all times
to sell or otherwise dispose of all or any part of the Preferred Shares or the
shares of Common Stock issuable upon conversion of the Preferred Shares under an
effective registration statement under the Securities Act, or under an exemption
from such registration available under the Securities Act, and subject,
nevertheless, to the disposition of such Purchaser's property being at all times
within its control. If such Purchaser should in the future decide to dispose of
any of the Preferred Shares or the shares of Common Stock issuable upon
conversion of the Preferred Shares, such Purchaser understands and agrees that
it may do so only in compliance with the Securities Act and applicable state
securities laws, as then in effect. Such Purchaser agrees to the imprinting, so
long as required by law, of a legend on certificates representing all of the
Preferred Shares or the
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shares of Common Stock to be issued upon conversion of the Preferred Shares to
the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT OR SUCH LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN RESTRICTIONS SET FORTH IN THE SHAREHOLDERS' AGREEMENT, DATED
AS OF MAY 28, 1998. A COPY OF SUCH AGREEMENT MAY BE OBTAINED FROM THE COMPANY
UPON REQUEST."
6.5. FINANCIAL CONDITION.
Such Purchaser's financial condition is such that it is able
to bear the risk of holding the Preferred Shares for an indefinite period of
time and can bear the loss of its entire investment in the Preferred Shares.
Such Purchaser has such knowledge and experience in financial and business
matters and in making high risk investments of this type that it is capable of
evaluating the merits and risks of the purchase of the Preferred Shares.
6.6. RECEIPT OF INFORMATION.
Such Purchaser has been furnished access to the business
records of the Company and such additional information and documents as such
Purchaser has requested and has been afforded an opportunity to ask questions of
and receive answers from representatives of the Company concerning the terms and
condition of this Agreement, the purchase of the Preferred Shares, the
prospective operations, market potential, capitalization, financial conditions,
and prospects of the business to be conducted by the Company, and all other
matters deemed relevant by such Purchaser.
6.7. BROKER'S, FINDER'S OR SIMILAR FEES.
There are no brokerage commissions, finder's fees or similar
fees or commissions payable in connection with the transactions contemplated
hereby based on any agreement, arrangement or understanding with such Purchaser
or any action taken by such Purchaser.
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6.8. GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENT.
No approval, consent, compliance, exemption, authorization, or
other action by, or notice to, or filing with, any Governmental Authority or any
other Person in respect of any Requirements of Law, and no lapse of a waiting
period under any Requirements of Law, is necessary or required in connection
with the execution, delivery or performance by such Purchaser (including,
without limitation, the acquisition of the Preferred Shares) or enforcement
against such Purchaser of this Agreement or the related agreements referred to
herein to which it is or will be a party or the transactions contemplated
thereby.
6.9. LITIGATION.
No Actions are pending, or to the best knowledge of such
Purchaser, threatened relating to or affecting the transactions required to be
performed by such Purchaser under this Agreement or the related agreements
referred to herein to which it is or will be a party.
ARTICLE 7.
COVENANTS OF THE COMPANY WITH RESPECT
TO THE PERIOD FOLLOWING THE CLOSING
Until all Preferred Shares are no longer outstanding due to
conversion or otherwise and until the payment by the Company of all other
amounts due to the Purchasers under this Agreement or the related agreements
referred to herein or the Certificate, the Company hereby covenants and agrees
with the Purchasers as follows:
7.1. RESERVATION OF SHARES.
The Company shall at all times reserve and keep available out
of its authorized Common Stock, solely for the purpose of issue or delivery upon
conversion of the Preferred Shares and the Additional Preferred Shares (as
defined below) as provided in the Certificate, the maximum number of shares of
Common Stock that may be issuable or deliverable upon such conversion. Such
shares of Common Stock shall, when issued or delivered in accordance with the
provisions of the Certificate, be duly authorized, validly issued and fully paid
and non-assessable. The Company shall issue such Common Stock in accordance with
the provisions of the Certificate and shall otherwise comply with the terms
thereof.
7.2. ISSUANCE OF ADDITIONAL PREFERRED SHARES.
The Company may issue those shares of Series A Preferred Stock
as contemplated by and pursuant to the terms and conditions of the US WEST
Agreement (such shares are
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referred to herein as the "Additional Preferred Shares"). The Purchasers by
consummating the purchase of the Preferred Shares, thereby grant their consent,
as holders of Series A Preferred Stock and pursuant to paragraph 5(b)(12) of the
Certificate of Designation, to the above-described issuance of the Additional
Preferred Shares and waive any rights, including preemptive rights, they may
have under the Shareholders' Agreement with respect to the issuance of the
Additional Preferred Shares.
ARTICLE 8.
INDEMNIFICATION
8.1. INDEMNIFICATION.
(a) In addition to all other sums due hereunder
or provided for in this Agreement, the Company (the "Selling Indemnifying
Party") shall defend, indemnify and hold harmless the Purchasers and their
Affiliates and their respective officers, directors, agents, employees,
subsidiaries, partners and assigns (each a "Purchasing Indemnified Party") to
the fullest extent permitted by law from and against any and all losses, costs,
claims, damages, expenses (including reasonable fees, disbursements and other
charges of counsel, as limited by Section 8.2 below) and other liabilities
(collectively, "Liabilities") incurred or suffered by any Purchasing Indemnified
Party resulting from or arising out of (i) any breach by any Selling
Indemnifying Party of any representation or warranty, covenant or agreement of
the Selling Indemnifying Party in this Agreement; provided, however, that no
Selling Indemnifying Party shall be liable under this Section 8.1 to any
Purchasing Indemnified Party to the extent that it is finally judicially
determined that such Liabilities resulted primarily from the material breach by
such Purchasing Indemnified Party of any representation, warranty, covenant or
other agreement of such Purchasing Indemnified Party contained in this Agreement
or (ii) any material liability of the Company on the Closing Date not disclosed
in this Agreement.
(b) In addition to all other sums due hereunder
or provided for in this Agreement, each Purchaser (the "Purchasing Indemnifying
Party"), severally and not jointly, shall defend, indemnify and hold harmless
the Company and its Affiliates and its officers, directors, agents, employees,
subsidiaries, partners and assigns (each a "Selling Indemnified Party") to the
fullest extent permitted by law from and against any and all Liabilities
incurred or suffered by such Selling Indemnified Parties resulting from or
arising out of any breach of any representation, warranty, covenant or agreement
of such Purchasing Indemnifying Party in this Agreement; provided, however, that
no Purchasing Indemnifying Party shall not be labile under this Section 8.1 to a
Selling Indemnified Party to the extent that it is finally judicially determined
that such Liabilities resulted primarily from the material breach by such
Selling Indemnified
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Party of any representation, warranty, covenant or other agreement of such
Selling Indemnified Party contained in this Agreement.
(c) If and to the extent that any
indemnification provided for in this Agreement is unenforceable for any reason,
the Indemnifying Parties (as defined below) obligated to indemnify any
Indemnified Party (as defined below) shall make the maximum contribution to the
payment and satisfaction of such indemnified liability which shall be
permissible under applicable laws. In connection with the obligation of the
Indemnifying Parties to indemnify for expenses as set forth herein, the
Indemnifying Parties further agree, upon presentation of appropriate invoices
containing reasonable detail, to reimburse each Indemnified Party for all such
expenses (including reasonable fees, disbursements and other charges of counsel,
as limited by Section 8.2 below) as they are incurred by such Indemnified Party.
8.2. NOTIFICATION.
If any action or proceeding (including any governmental
investigation or inquiry) shall be brought or asserted against any party
entitled to indemnification pursuant to this Section 8 (an "Indemnified Party")
in respect of which indemnity may be sought from any party required to indemnify
such Indemnified Party (an "Indemnifying Party"), such Indemnified Party shall
promptly notify the Indemnifying Party in writing, and such Indemnifying Party
shall assume the defense thereof, including the employment of counsel selected
by such Indemnifying Party and reasonably satisfactory to such Indemnified Party
and the payment of all expenses; PROVIDED, HOWEVER, that any failure to so
notify such Indemnifying Party shall not impair obligations hereunder except and
only to the extent that such failure results in actual prejudice to such
Indemnifying Party. Such Indemnified Party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall be the expense of such
Indemnified Party unless (a) such Indemnifying Party agreed to pay such fees and
expenses or (b) such Indemnifying Party shall have failed to assume the defense
of such action or proceeding or has failed to employ counsel reasonably
satisfactory to such Indemnified Party in any such action or proceeding or (c)
the named parties to any such action or proceeding (including any impleaded
parties) include both such Indemnified Party and such Indemnifying Party, and
such Indemnified Party shall have been advised by counsel that there may be one
or more legal defenses available to such Indemnified Party which are different
from or additional to those available to such Indemnifying Party (in which case,
such Indemnifying Party shall employ separate counsel at the expense of such
Indemnifying Party, it being understood, however, that such Indemnifying Party
shall not, in connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys at any
time for such
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Indemnified Party and any other Indemnified Parties). No Indemnifying Party
shall be liable for any settlement of any such action or proceeding effected
without its written consent (which shall not be withheld unreasonably), but if
settled with its written consent, or if there be a final judgment for the
plaintiff in any such action or proceeding, such Indemnifying Party agrees to
indemnify and hold harmless such Indemnified Party from and against any
Liabilities by reason of such settlement or judgment. No Indemnifying Party
shall agree to any settlement of any third party claim without the consent of
the Indemnified Party, which shall not be withheld if such settlement provides
only for the payment of money to be paid by the Indemnifying Party.
ARTICLE 9.
MISCELLANEOUS
9.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All of the representations and warranties made herein shall
survive the Closing.
9.2. NOTICES.
All notices, demands and other communications provided for or
permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, courier service or
personal delivery or via facsimile:
(a) If to Blue Chip or Miami:
Blue Chip Venture Company, Ltd.
2000 PNC Center
201 East Fifth Street
Cincinnati, Ohio 45202
Attn: John H. Wyant
If to Grotech or Grotech II:
Grotech Capital Group
9690 Deereco Road
Timonium, MD 21093
Attention: Frank A. Adams
with a copy to:
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Taft, Stettinius & Hollister LLP
1800 Star Bank Center
425 Walnut Street
Cincinnati, Ohio 45202
Attention: Gerald S. Greenberg, Esq.
(b) if to the Company:
USinternetworking, Inc.
175 Admiral Cochrane Drive
Suite 400
Annapolis, Maryland 21401
Attention: Christopher R. McCleary
with a copy to:
Latham & Watkins
1001 Pennsylvania Avenue, N.W.
Suite 1300
Washington, D.C. 20004-2505
Attention: James F. Rogers, Esq.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; when delivered
by courier, if delivered by commercial overnight courier service; if delivered
by facsimile, upon confirmation of such transmission; and five business days
after being deposited in the mail, postage prepaid, if mailed.
9.3. SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding
upon the successors and permitted assigns of the parties hereto. This Agreement
may be assigned by the Purchasers to any permitted transferee of all or part of
the Preferred Shares or the Common Stock issued upon conversion thereof. The
Company may not assign any of its rights under this Agreement without the
written consent of the Purchasers. Except as provided in this Section 9.3, no
Person other than the parties hereto and their successors and permitted assigns
is intended to be a beneficiary of any of this Agreement or the related
agreements referred to herein.
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9.4. AMENDMENT AND WAIVER.
(a) No failure or delay on the part of the
Company or the Purchasers in exercising any right, power or remedy hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy. The remedies provided for
herein are cumulative and are not exclusive of any remedies that may be
available to the Company or the Purchasers at law, in equity or otherwise.
(b) Any amendment, supplement or modification of
or to any provision of this Agreement, any waiver of any provision of this
Agreement, and any consent to any departure by any party from the terms of any
provision of this Agreement, shall be effective (i) only if it is made or given
in writing and signed by the Company (if applicable) and the Purchasers, and
(ii) only in the specific instance and for the specific purpose for which made
or given. Except where notice is specifically required by this Agreement, no
notice to or demand on any party in any case shall entitle any party hereto to
any other or further notice or demand in similar or other circumstances.
9.5. COUNTERPARTS.
This Agreement may be executed in any number of counterparts
and by the parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
9.6. HEADINGS.
The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
9.7. GOVERNING LAW.
This Agreement shall be governed by and construed in
accordance with the laws of the State of Maryland, without regard to the
principles of conflicts of law of such state.
9.8. JURISDICTION.
Each party to this Agreement hereby irrevocably agrees that
any legal action or proceeding arising out of or relating to this Agreement or
any agreements or transactions contemplated hereby may be brought in the courts
of the State of Maryland or of the United States of America for the District of
Maryland and hereby expressly submits to the personal
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jurisdiction and venue of such courts for the purposes thereof and expressly
waives any claim of improper venue and any claim that such courts are an
inconvenient forum. Each party hereby irrevocably consents to the service of
process of any of the aforementioned courts in any such suit, action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the address set forth in Section 9.2, such service to become
effective 10 days after such mailing.
9.9. SEVERABILITY.
If any one or more of the provisions contained herein, or the
application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
9.10. RULES OF CONSTRUCTION.
Unless the context otherwise requires, "or" is not exclusive,
and references to sections or subsections refer to sections or subsections of
this Agreement.
9.11. ENTIRE AGREEMENT.
This Agreement, together with the exhibits and schedules
hereto and the other related agreements referred to herein, is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein and therein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein or therein. This Agreement, together with the exhibits and
schedules hereto, and the other related agreements referred to herein supersede
all prior agreements and understandings between the parties with respect to such
subject matter.
9.12. PUBLICITY.
Except as may be required by applicable law, none of the
parties hereto shall issue a publicity release or announcement or otherwise make
any public disclosure concerning this Agreement or the transactions contemplated
hereby, without prior approval by the other parties hereto, provided that the
Purchasers may nonetheless communicate with their partners concerning such
transactions and investment in the Company and may publish a "tombstone" in the
customary form with respect to its investment. If any announcement is required
by law to be made by any party hereto, prior to making such announcement such
party will deliver a draft of
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such announcement to the other parties and shall give the other parties an
opportunity to comment thereon.
9.13. FURTHER ASSURANCES.
Each of the parties shall execute such documents and perform
such further acts (including, without limitation, obtaining any consents,
exemptions, authorizations, or other actions by, or giving any notices to, or
making any filings with, any Governmental Authority or any other Person) as may
be reasonably required or desirable to carry out or to perform the provisions of
this Agreement.
9.14. WAIVER OF JURY TRIAL.
EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY
LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT,
TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
26
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered by their respective officers hereunto
duly authorized as of the date first above written.
USINTERNETWORKING, INC.
By: /s/ Christopher R. McCleary
-------------------------------------
Name: Christopher R. McCleary
-----------------------------------
Title: Chairman & Chief Executive Officer
----------------------------------
BLUE CHIP CAPITAL FUND II LIMITED
PARTNERSHIP
By: BLUE CHIP VENTURE COMPANY, LTD.
Its General Partner
By: /s/ John H. Wyant
--------------------------------
John H. Wyant
Manager
MIAMI VALLEY VENTURE FUND L.P.
By: BLUE CHIP VENTURE COMPANY OF
DAYTON, LTD.
Its Special Limited Partner
By: /s/ John H. Wyant
--------------------------------
John H. Wyant
Manager
GROTECH PARTNERS IV L.P.
By: GROTECH CAPITAL GROUP IV, LLC
Its General Partner
By: /s/ Frank A. Adams
--------------------------------
Name: Frank A. Adams
Title: President & CEO
27
<PAGE>
GROTECH PARTNERS V L.P.
By: GROTECH CAPITAL GROUP V, LLC
Its General Partner
By: /s/ Frank A. Adams
--------------------------------
Name: Frank A. Adams
Title: President & CEO
28
<PAGE>
TABLE OF EXHIBITS
EXHIBITS
- --------
EXHIBIT A CONSENT AND WAIVER
EXHIBIT B FORM OF OPINION
<PAGE>
EXHIBIT A
CONSENT AND WAIVER
This CONSENT AND WAIVER is entered into on this __ day of June, 1998
by and among (i) USinternetworking, Inc., a Delaware corporation (the
"COMPANY"); (ii) BLUE CHIP CAPITAL FUND II L.P. ("BLUE CHIP"), MIAMI VALLEY
VENTURE FUND L.P. ("MIAMI VALLEY"), GROTECH PARTNERS IV, L.P. ("GROTECH"),
GROTECH PARTNERS V, L.P. ("GROTECH II"), VENROCK ASSOCIATES ("VENROCK"),
VENROCK ASSOCIATES II. L.P. ("Venrock II"), SOUTHERN VENTURE FUND SBIC, L.P.
("MASSEY"), SOUTHERN VENTURE FUND II, L.P. ("MASSEY II") and USI PARTNERS,
LTD. ("USi PARTNERS" and, together with Blue Chip, Miami Valley, Grotech,
Grotech I, Venrock, Venrock II, Massey and Massey II, the "PREFERRED
STOCKHOLDERS"); and (iii) Christopher R. McCleary, Stephen E. McManus and
Christopher M. Poelma (collectively referred to herein as the "INDIVIDUAL
STOCKHOLDERS").
WHEREAS, each of the Individual Stockholders owns 5 million shares of
Common Stock of the Company, with such shares constituting all of the issued
and outstanding Common Stock of the Company as of the date hereof;
WHEREAS, the Preferred Stockholders own shares of Series A Preferred
Stock of the Company and pursuant to Section 5(b)(12) of the Certificate of
Incorporation, as amended by the Certificate of Designation, which sets forth
the terms and conditions of the Series A Preferred Stock, the Company must
obtain the consent of the holders of two-thirds of the outstanding shares of
Series A Preferred Stock to issue additional shares of Series A Preferred
Stock;
WHEREAS, the Preferred Stockholders, the Individual Purchasers and the
Company have entered into a Shareholders' Agreement, dated as of May 28,
1998, pursuant to Section 5 of which the preferred Stockholders and the
Individual Stockholders have certain preemptive rights with respect to the
Company's issuance of additional shares of Series A Preferred Stock;
WHEREAS, the Company has entered into a Stock Purchase Agreement with
Blue Chip, Miami Valley, Grotech I and Grotech II pursuant to which the
Company has agreed to issue and sell 5,000 shares of its Series A Preferred
Stock to these investor as set forth on Exhibit A hereto (the "Additional
Investment");
WHEREAS, the Preferred Stockholders, which Preferred Stockholders
constitute all of the holders of the Series A Preferred Stock as of the date
hereof, desire to consent to the issuance of the shares of Series A Preferred
Stock for the Additional Investment as required pursuant to Section 5(b)(12)
of the Certificate of Designation; and
<PAGE>
WHEREAS, the Preferred Stockholders and the Individual Stockholders
desire to waive any rights they have under Section 5 of the Shareholders'
Agreement with respect to the issuance of shares by the Company for the
Additional Investment;
NOW, THEREFORE, in consideration of the foregoing, and the covenants
and agreements of the parties set forth herein, the parties hereto hereby
agree as follows:
1. The Preferred Stockholders do hereby consent to the
above-referenced issuance of shares of Series A Preferred Stock for the
Additional Investment.
2. The Preferred Stockholders and the Individual Stockholders do
hereby waive any rights they have under Section 5 of the Shareholders'
Agreement with respect to the issuance of shares of Series A Preferred Stock
by the Company for the Additional Investment.
[THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
2
<PAGE>
IN WITNESS WHEREOF, this written consent and waiver has been executed
by the undersigned on the __ day of June, 1998.
THE COMPANY:
USINTERNETWORKING, INC.
a Delaware corporation
By:________________________________________
Christopher R. McCleary, Chief Executive
Offer
THE PREFERRED STOCKHOLDERS:
BLUE CHIP CAPITAL FUND II LIMITED
PARTNERSHIP
By: BLUE CHIP VENTURE COMPANY, LTD.
Its General Partner
By:________________________________________
John H. Wyant
Manager
MIAMI VALLEY VENTURE FUND L.P.
By: BLUE CHIP VENTURE COMPANY
DAYTON, LTD.
Its Special Limited Partner
By: ______________________________________
John H. Wyant
Manager
3
<PAGE>
GROTECH PARTNERS IV L.P.
By: GROTECH CAPITAL GROUP IV, LLC
Its General Partner
By:______________________________
Name:
Title:
GROTECH PARTNERS V L.P.
By: GROTECH CAPITAL GROUP V, LLC
Its General Partner
By:________________________________
Name:
Title:
SOUTHERN VENTURE FUND SBIC, L.P.
By: SVF SBIC, L.P.
Its General Partner
By:_______________________________
Partner
By:_______________________________
Partner
SOUTHER VENTURE FUND II, L.P.
By:_________________________________
General Partner
4
<PAGE>
VENROCK ASSOCIATES
By:________________________________
General Partner
VENROCK ASSOCIATES II, L.P.
By:________________________________
General Partner
USi PARTNERS, LTD.
By:________________________________
THE INDIVIDUAL STOCKHOLDERS:
__________________________________
Christopher R. McCleary
__________________________________
Stephen E. McManus
__________________________________
Christopher M. Poelma
5
<PAGE>
EXHIBIT B
[LETTERHEAD]
FORM OF LEGAL OPINION
To the Purchasers Listed on Schedule A Hereto:
Re: Stock Purchase Agreement dated as of June 19, 1998 (the "Agreement")
by and among USinternetworking, Inc., a Delaware corporation, and the
Purchases, as listed on Schedule A attached hereto.
----------------------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to USinternetworking, Inc., a Delaware
corporation (the "Company"), in connection with the purchase by Purchasers of
5,000 shares of Series A Convertible Preferred Stock, par value $.01 per
share, of the Company (the "Series A Preferred Stock") pursuant to the
Agreement. This opinion is rendered to you pursuant to Section 3.11 of the
Agreement. Capitalized terms defined in the Agreement, used herein, and not
otherwise defined herein shall have the meanings given them in the Agreement.
As such counsel, we have examined such matters of fact and questions of
law as we have considered appropriate for purposes of rendering the opinions
expressed below, except where a statement is qualified as to knowledge or
awareness, in which case we have made no or limited inquiry as specified
below. We have examined, among other things, the following:
<PAGE>
LATHAM & WATKINS
To the Purchases
June __, 1998
Page 2
(a) The Agreement; and
(b) The certificate of incorporation of the Company, as
amended, and the Bylaws of the Company (the "Governing Documents").
The documents described in subsections (a) and (b) above are referred to
herein collectively as the "Documents."
In our examination, we have assumed the genuineness of all signatures
(other than those of officers of the Company on the Documents), the
authenticity of all documents submitted to us as originals, and the
conformity to authentic original documents of all documents submitted to us
as copies.
We have been furnished with, and with your consent have relied upon,
certificates of officer(s) of the Company with respect to certain factual
matters. In addition, we have obtained and relied upon such certificates and
assurances from public officials as we have deemed necessary.
We are opining herein as to the effect on the subject transaction only
of the federal laws of the United States, the internal laws of the State of
Maryland, and the General Corporation Law of the State of Delaware, and we
express no opinion with respect to the applicability thereto, or the effect
thereon, of the laws of any other jurisdiction or, in the case of Delaware,
any other laws, or as to any matters of municipal law or the laws of any
other local agencies within any state.
Our opinions set forth in clauses (i) and (iii) of paragraph 4 below are
based upon our consideration of only those statutes, rules and regulations
which, in our experience, are normally applicable to stock purchase
transactions. Whenever a statement herein is qualified by "to the best of our
knowledge" or a similar phrase, it is intended to indicate that those
attorneys in this firm who have rendered legal services in connection with
the this stock purchase transaction do not have current actual knowledge of
the inaccuracy of such statement. However, except as otherwise expressly
indicated, we have not undertaken any independent investigation to determine
the accuracy of any such statement, and no inference that we have any
knowledge of any matters pertaining to such statement should be drawn from
our representation of the Company.
Subject to the foregoing and the other matters set forth herein, it is
our opinion that, as of the date hereof:
<PAGE>
LATHAM & WATKINS
To the Purchases
June __, 1998
Page 3
1. The Company has been duly incorporated and is validly existing and
in good standing under the laws of the State of Delaware with corporate power
and authority to own and lease its properties and to conduct its business and
to execute, deliver and perform its obligations under the Agreement. Based
solely on certificates from public officials, we confirm that the Company is
qualified to do business in the State of Maryland.
2. The execution, delivery and performance of the Agreement by the
Company has been duly authorized by all necessary corporate action of the
Company, and the Agreement has been duly executed an delivered by the
Company.
3. The Agreement constitutes a legally valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms.
4. The execution and delivery of the Agreement by the Company and the
performance of the obligations of the Company under the Agreement do not:
(i) violate any federal or Maryland statute, rule or regulation applicable to
the Company or the Delaware General Corporate Law; (ii) violate the
provisions of the Governing Documents or of any agreement to which the
Company is a party identified to us by an officer of the Company as material
to the Company's business; or (iii) to the best our knowledge, require any
consents, approvals, authorizations, registrations, declarations or filings
by the Company under any federal statute, rule or regulation applicable to
the Company. No opinion is expressed in clauses (i) and (iii) of this
paragraph 4 as to the application of Section 548 of the federal Bankruptcy
Code and comparable provisions of state law or of any antifraud laws,
antitrust or trade regulation laws.
5. The shares of Series A Preferred Stock to be issued pursuant to the
Agreement have been duly authorized and, when issued to and paid for by the
Purchasers in accordance with the terms of the Agreement, will be validly
issued, fully paid and non-assessable. The issuance of shares of Common Stock
upon conversion of the Preferred Shares has been duly authorized by the
Company, and, as of the date hereof, a sufficient number of shares of the
authorized but unissued Common Stock is available for issuance upon
conversion of the Preferred Shares. The shares of Common Stock to be issued
upon conversion of the Preferred Shares have been duly authorized and, when
issued upon conversion of the Preferred Stock in accordance with the terms of
the Preferred Stock, will be validly issued, fully paid and non-assessable
6. The authorized capital stock of the Company consists of One Hundred
Fifty Million (150,000,000) shares of Common Stock, par value $0.001 per
share, and One Hundred Thousand (100,000) shares of preferred stock, par
value $0.01 per share.
<PAGE>
LATHAM & WATKINS
To the Purchasers
June , 1998
Page 4
The opinions expressed in paragraph 3 above are subject to the following
limitations, qualifications and exceptions:
(a) such opinions are subject to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting the
rights of creditors; and
(b) such opinions are subject to the exercise of judicial discretion
in accordance with general principles of equity.
To the extent that the obligations of the Company may be dependent upon
such matters, we assume for purposes of this opinion that; all parties to the
Agreement other than the Company are duly formed, validly existing and in
good standing under the laws of their respective jurisdictions of formation;
all parties to the Agreement other than the Company have the requisite
partnership power and authority to execute and deliver the Agreement and to
perform their respective obligations under the Agreement; and the Agreement
to which such parties other than the Company are a party have been duly
authorized, executed and delivered by such parties and constitute their
legally valid and binding obligations, enforceable against them in accordance
with their terms. We express no opinion as to compliance by any parties to
the Agreement with any state or federal laws or regulations applicable to the
subject transactions because of the nature of their business.
This opinion is rendered only to you and is solely for your benefit in
connection with the transactions covered hereby. This opinion may not be
relied upon by you for any other purpose, or furnished to, quoted to or
relied upon by any other person, firm or corporation for any purpose, without
our prior written consent.
Very truly yours,
<PAGE>
Schedule A
PURCHASERS
Blue Chip Capital Fund II Limited Partnership
Miami Valley Venture Fund L.P.
Grotech Partners IV L.P.
Grotech Partners V L.P.
<PAGE>
SCHEDULES
<PAGE>
SCHEDULE 1
SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK
TO BE ISSUED BY THE COMPANY
<TABLE>
<CAPTION>
Total Purchase Price To
Shares of Series A Be Paid by Such
Convertible Preferred Purchaser For Shares
Stock To Be Issued of Series A Convertible
By the Company To Preferred Stock Issued
Purchaser Each Purchaser To Each Purchaser
- --------------------------------------------------------------------------------
<S> <C> <C>
Blue Ship Capital Fund II 708.34 $ 425,000
Limited Partnership
Miami Valley Venture Fund L.P. 124.99 75,000
Grotech Partners IV, L.P. 2,083.34 1,250,000
Grotech Partners V, L.P. 2,083.33 1,250,000
-------- ----------
Total 5,000.00 $3,000,000
</TABLE>
<PAGE>
SCHEDULE 5.5
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Holders of Issued and Outstanding
Shares of Capital Stock Number of Shares of Capital Stock Held
- -------------------------------------------------------------------------------
<S> <C>
Christopher McCleary 5,000,000 shares of Common Stock
- -------------------------------------------------------------------------------
Chris Poelma 5,000,000 shares of Common Stock
- -------------------------------------------------------------------------------
Steve McManus 5,000,000 shares of Common Stock
- -------------------------------------------------------------------------------
</TABLE>
See Attached for a list of the holders of Series A Preferred Stock.
See also attached for a list of employees granted stock options, which
options shall be governed by the Employee Stock Option Plan.
<PAGE>
SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK
ISSUED BY THE COMPANY
TO EACH PURCHASER
<TABLE>
<CAPTION>
Total Purchase Price
Shares of Series A Paid By Such
Convertible Preferred Purchaser For Shares
Stock Issued By the of Series A Convertible
Company To Each Preferred Stock Issued
Purchaser Purchaser To Each Purchaser
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Blue Chip Capital Fund II 10,625.00 $ 6,375,000
Limited Partnership
Miami Valley Venture Fund L.P. 1,875.00 1,125,000
Grotech Partners IV, and 12,500.00 7,500,000
Grotech Partners V, L.P.
Southern Venture Fund SBIC, L.P. 3,333.33 2,000,000
Southern Venture Fund, II, L.P. 1,666.67 1,000,000
Venrock Associates 3,583.33 2,150,000
Venrock Associates II, L.P. 4,750.00 2,850,000
McCleary Technology Capital 1,666.67 1,000,000
USi Partners, Ltd. 1,166,67 700,000
Total 41,166.67 $24,700,000
</TABLE>
<PAGE>
Common Stock Options
<TABLE>
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Employees Options Exercise price
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
Rob Adams 50,000
- ---------------------------------------------------------------------------------------------------
William Anderson 50,000
- ---------------------------------------------------------------------------------------------------
Karen Anikis 25,000
- ---------------------------------------------------------------------------------------------------
Kerry Bailey 50,000
- ---------------------------------------------------------------------------------------------------
Christine Bradford 10,000
- ---------------------------------------------------------------------------------------------------
Chris Brown 10,000
- ---------------------------------------------------------------------------------------------------
Garrett Brown 100,000
- ---------------------------------------------------------------------------------------------------
James Brown 10,000
- ---------------------------------------------------------------------------------------------------
Lawrence Brunelle Jr. 110,000
- ---------------------------------------------------------------------------------------------------
Celeste Change 20,000
- ---------------------------------------------------------------------------------------------------
John Chen 30,000
- ---------------------------------------------------------------------------------------------------
James Chopey 20,000
- ---------------------------------------------------------------------------------------------------
Karen Clark 35,000
- ---------------------------------------------------------------------------------------------------
David Collier 50,000
- ---------------------------------------------------------------------------------------------------
Greg Conner 70,000
- ---------------------------------------------------------------------------------------------------
Sandra Crowley 20,000
- ---------------------------------------------------------------------------------------------------
Clay Damewood 25,000
- ---------------------------------------------------------------------------------------------------
Mark DeCassan 20,000
- ---------------------------------------------------------------------------------------------------
Mona DeFrawi 100,000
- ---------------------------------------------------------------------------------------------------
Susan Diegelman 7,500
- ---------------------------------------------------------------------------------------------------
Tom Dobbins 50,000
- ---------------------------------------------------------------------------------------------------
Burt Edwards 30,000
- ---------------------------------------------------------------------------------------------------
Toyan Espeut 15,000
- ---------------------------------------------------------------------------------------------------
Carlos Evans 15,000
- ---------------------------------------------------------------------------------------------------
Colin Fraser 15,000
- ---------------------------------------------------------------------------------------------------
John Geldner 30,000
- ---------------------------------------------------------------------------------------------------
John Girard 25,000
- ---------------------------------------------------------------------------------------------------
Jay Gitomer 10,000
- ---------------------------------------------------------------------------------------------------
Mary Gorman 7,500
- ---------------------------------------------------------------------------------------------------
Nick Graham 50,000
- ---------------------------------------------------------------------------------------------------
Clinton Green 10,000
- ---------------------------------------------------------------------------------------------------
Eugene Guilaran 15,000
- ---------------------------------------------------------------------------------------------------
Molly Hamilton 15,000
- ---------------------------------------------------------------------------------------------------
Mike Harper 120,000
- ---------------------------------------------------------------------------------------------------
Joane Hellebrand 15,000
- ---------------------------------------------------------------------------------------------------
Gary Helwig 100,000
- ---------------------------------------------------------------------------------------------------
Patti Johnson 10,000
- ---------------------------------------------------------------------------------------------------
Pauline Jones 7,500
- ---------------------------------------------------------------------------------------------------
Shanta Jones 1,000
- ---------------------------------------------------------------------------------------------------
William Karpovich 120,000
- ---------------------------------------------------------------------------------------------------
John Komorowski 30,000
- ---------------------------------------------------------------------------------------------------
Jennifer Lapan 15,000
- ---------------------------------------------------------------------------------------------------
John Liccione 100,000
- ---------------------------------------------------------------------------------------------------
Eric Madison 50,000
- ---------------------------------------------------------------------------------------------------
Mark J. McEneaney 100,000
- ---------------------------------------------------------------------------------------------------
Joyce McGuire 10,000
- ---------------------------------------------------------------------------------------------------
Jeffrey McKnight 200,000
- ---------------------------------------------------------------------------------------------------
Michael Meals 10,000
- ---------------------------------------------------------------------------------------------------
Carbelito Mendoza 20,000
- ---------------------------------------------------------------------------------------------------
</TABLE>
Page 1
<PAGE>
Common Stock Options
<TABLE>
- -------------------------------------------------------------------------------
<S> <C>
Linda Middleton 30,000
- -------------------------------------------------------------------------------
Eric Milhous 30,000
- -------------------------------------------------------------------------------
Jack Mitchell 15,000
- -------------------------------------------------------------------------------
Ed Moeller 15,000
- -------------------------------------------------------------------------------
Jeff Mould 10,000
- -------------------------------------------------------------------------------
Judith Newman 35,000
- -------------------------------------------------------------------------------
Wayne Odachowski 100,000
- -------------------------------------------------------------------------------
Mike Oddis 7,500
- -------------------------------------------------------------------------------
Nancy O'Haro 7,500
- -------------------------------------------------------------------------------
Michael Pelland 25,000
- -------------------------------------------------------------------------------
Matthew Piermarini 20,000
- -------------------------------------------------------------------------------
Dave Prendergast 15,000
- -------------------------------------------------------------------------------
William Price 20,000
- -------------------------------------------------------------------------------
J. Bradley Pumphrey 35,000
- -------------------------------------------------------------------------------
Raja Krishnamoorthy 10,000
- -------------------------------------------------------------------------------
Colin Rand 35,000
- -------------------------------------------------------------------------------
John Riganali 25,000
- -------------------------------------------------------------------------------
Jay W. Robertson 100,000
- -------------------------------------------------------------------------------
Marty Roger 50,000
- -------------------------------------------------------------------------------
Nathan Russ 20,000
- -------------------------------------------------------------------------------
Anthony Russo 10,000
- -------------------------------------------------------------------------------
Amy Sams 5,000
- -------------------------------------------------------------------------------
Vicki Schwallenberg 7,500
- -------------------------------------------------------------------------------
Charles Spallitta 25,000
- -------------------------------------------------------------------------------
John Steedman 30,000
- -------------------------------------------------------------------------------
Kevin Stitley 30,000
- -------------------------------------------------------------------------------
Kevin Strasser 20,000
- -------------------------------------------------------------------------------
Damien Stuart 40,000
- -------------------------------------------------------------------------------
Kevin Tahvidary 50,000
- -------------------------------------------------------------------------------
Lee Tanner 100,000
- -------------------------------------------------------------------------------
John Tomljarovic 40,000
- -------------------------------------------------------------------------------
Michael Townley 25,000
- -------------------------------------------------------------------------------
Charles Truesdale 25,000
- -------------------------------------------------------------------------------
Rhonda Truesdale 50,000
- -------------------------------------------------------------------------------
Dennis Uhler 25,000
- -------------------------------------------------------------------------------
Kristin Vick 7,500
- -------------------------------------------------------------------------------
Sam Walker 30,000
- -------------------------------------------------------------------------------
James Walsh 75,000
- -------------------------------------------------------------------------------
Angus Watson 25,000
- -------------------------------------------------------------------------------
Bob Webb 55,000
- -------------------------------------------------------------------------------
Maxine Williams 15,000
- -------------------------------------------------------------------------------
Brenda Woodsmall 110,000
- -------------------------------------------------------------------------------
Jinguln Wu 15,000
- -------------------------------------------------------------------------------
Daniel Zhang 20,000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TOTAL 3,448,500
- -------------------------------------------------------------------------------
</TABLE>
NB: The Company intends to award the above Common Stock Options pursuant to
the Employee Stock Option Plan not yet adopted. It is also expected that,
pursuant to the Employee Stock Option Plan that has yet to be adopted, the
exercise price will be $0.33 1/3 a share. This exercise price may change
once the Employee Stock Option Plan is adopted. The Company also intends to
grant 30,000 stock options to its directors who are not also employees of the
Company.
Page 2
<PAGE>
USINTERNETWORKING, inc.
STOCK PURCHASE AGREEMENT
SCHEDULE 5.8 (a)
ALL EXPENDITURES IN EXCESS OF $25,000
<TABLE>
<CAPTION>
PAYEE EXPLANATION AMOUNT
- ----- ----------- ------
<S> <C> <C>
American Express Advance payment of account $ 40,125.08
Boggs & Partners Professional Services-Architect $ 42,282.83
Coleman-Martin Computer Equipment-Laptops $ 43,417.00
Computer Equipment-Printer, deskpro, notebooks $ 29,951.00
Consortium One Annapolis L.L.C. Deposit related to the lease at 175 Admiral Cochrane Drive $ 400,000.00
May Rent for 175 Admiral Cochrane Drive $ 30,052.54
June Rent for 175 Admiral Cochrane Drive $ 30,062.54
Gordon Flesch Company Two copiers with Interface boards (one color) includes delivery, $ 48,284.50
installation and faxes.
One copier includes delivery, installation and taxes. $ 80,718.00
Christopher McCleary Partial repayment of loan $ 100,000.00
Partial repayment of loan $ 342,489.05
PC Connection, Inc Computer Equipment $ 77,840.00
Computer Equipment $ 38,471.45
Computer Equipment $ 41,809.00
Computer Equipment $ 100,000.00
Computer Equipment $ 25,618.75
Realty Association Security Deposit and First month's rent for 2661 Riva Road $ 38,398.42
</TABLE>
USi Confidential Page 1
<PAGE>
USInternetworking, Inc.
Stock Purchase Agreement
Schedule 6.8(a)
All Expenditures in Excess of $25,000
<TABLE>
<CAPTION>
Payee Explanation Amount
- ----- ----------- ------
<S> <C> <C>
American Express Advance payment of account $ 40,125.06
Boggs & Partners Professional Services-Architect $ 42,282.93
Coleman-Martin Computer Equipment-Laptops $ 43,417.00
Computer Equipment-Printer, deskpro, $ 29.951.00
notebooks
Consortium One-Annapolis L.L.C. Deposit related to the lease at
175 Admiral Cochrane Drive $400,000.00
May Rent for 175 Admiral Cochrane Drive $ 30,062.54
June Rent for 175 Admiral Cochrane Drive $ 30.052.54
Gordon Flesch Company Two copiers with interface boards
(one color) includes delivery,
installation and taxes. $ 46,284.50
One copier includes delivery,
installation and taxes $ 30,718.00
Christopher McCleary Partial repayment of loan $100,000.00
Partial repayment of loan $342,469.05
PC Connection, Inc. Computer Equipment $ 77,640.00
Computer Equipment $ 39,471.45
Computer Equipment $ 41,809.00
Computer Equipment $100,000.00
Computer Equipment $ 25,516.76
Realty Association Security Deposit and First month's $ 36,398.42
rent for 2661 Riva Road
</TABLE>
USI Confidential
Page 1
<PAGE>
USInternetworking, Inc.
Stock Purchase Agreement
Schedule 6.8(a)
Aggregate Expenditures in Excess of $200,000
<TABLE>
<CAPTION>
Payee Explanation Amount
- ----- ----------- ------
<S> <C> <C>
Consortium One-Annapolis L.L.C. Deposit and rent for $486,915.08
175 Admiral Cochrane Drive (Lease)
Christopher McCleary Payments on Loan $444,875.62
PC Connection, Inc. Computer Equipment $509,200.97
</TABLE>
Page 1
<PAGE>
SCHEDULE 5.10
LISTING OF CONTRACTUAL OBLIGATIONS
1) Officer Agreement by and between USinternetworking, Inc. and Christopher
R. McCleary dated May 29, 1998.
2) Officer Agreement by and between USinternetworking, Inc. and Chris M.
Poelma, dated June 2, 1996.
3) Officer Agreement by and between USinternetworking, Inc. and Steve
McManus, dated June 2, 1998.
4) Sublease Agreement by and between Exspartise, Inc. and USinternetworking,
Inc. dated February 9, 1998.
5) Agreement of Lease, by and between Consortium One-
Annapolis, LLC and USinternetworking, Inc., dated April 3, 1998.
6) Letter Agreement between USinternetworking, Inc. and Gary Helwig, dated
April 10, 1998 (acceptance by Helwig dated April 14, 1998).
7) Furniture Rental Agreement between Aaron Rents, Inc. and
USinternetworking, Inc., dated March 10, 1998.
8) Sublease Agreement by and between Columbia Medical Plan and
USinternetworking, Inc. dated May 8, 1998.
9) Agreement of Lease, by and between Realty Associates, Inc. and
USinternetworking, Inc., dated June 3, 1998.
10) Contract of Sale between First Church of Christ, Scientist, Seller, and
USinternetworking, Inc., Buyer, dated May 1, 1998.
In addition, please note that the Company has provided employment offers to
93 of its employees which offers set forth the amount of compensation, among
other things, for the employees, but which are not intended to create
employment contracts.
<PAGE>
SCHEDULE 5.12
LISTING OF SEVERANCE ARRANGEMENTS
See Officer Agreements and Letter Agreement listed on Schedule 5.10.
Also attached is the employment offer letter of Garrett Brown, who will
receive a $125,000 severance payment should his employment within the first
four years be involuntarily terminated without cause.
<PAGE>
[GRAPHIC]
June 15, 1998
Mr. Garrett Brown
Dear Garrett:
On behalf of USINTERNETWORKING Inc. we are pleased to offer you the position
of Vice President, Product Development, reporting to Mike Harper, Vice
President, Product and Service Development. Your anticipated start date will
be Monday, June 29, 1998. In this capacity you will be paid a monthly gross
salary of $8,333.00 and be eligible for an annual performance bonus of 20%
based upon your annualized gross base salary. The performance bonus is first
payable in January of 1999 and will be based on objectives that will be set
within the first 30 days of your employment. You will be provided a signing
bonus of $20,000.00 and an Earn-Out Bonus of $35,000.00 both of which will be
paid within 90 days of your start date, and a Recruiting Bonus of $30,000.00
($10,000.00 per new hire) recruited by you within the first year of your
employment.
Additionally you will be granted 100,000 shares of stock options at $.33 a
share. The stock will vest over a three year period beginning from your start
date, with one-year cliff vesting for the first 1/3 of the options, and 1/8
of the remaining options vesting quarterly thereafter. The terms and
conditions of the plan are subject to approval of the Board of Directors.
Should your employment be involuntarily terminated within 48 months for any
reason other than cause, then USi will provide a severance payment to you of
$125,000.00 in a lump sum within 30 days after the date of termination; plus
any earned and unused vacation pay; and any deferred compensation due you.
Further, any remaining options not vested upon your involuntary termination
for any reason other than cause will be considered fully vested 24 hours
prior to the date of your termination. Cause herein is defined as: 1)
engaging in any illegal practices or activities which can reasonably be
expected to be materially detrimental to the reputation, well-being or
properties of USi, its officers, directors, shareholders or affiliated
companies; 2) employee materially breaches this agreement; or 3) employee
manifests dishonesty, disloyalty, fraud, willful misconduct, or material
dereliction in the discharge of his duties. Should your employment be
terminated for cause, you will not be entitled to receive any compensation
other than your base salary and benefits earned but not yet paid as of the
date of termination. Additionally, should your employment be terminated for
cause or you leave the company of your own free will at any time, you would
not be eligible for the $125,000 severance payment.
In order to satisfy requirements of the Immigration Reform and Control Act,
please report to work on your first day prepared to prove your identity and
your right to work in the United States. Please bring two forms of official
identification (such as Social Security Card, Driver's License, Green Card,
etc.) that we can copy for our files.
USi will provide complete medical, dental vision, 401K, LTD, Life and
vacation benefits competitive with the technology industry. The medical plan
is a Blue Cross/Blue Shield PPN plan. The dental and vision plans were
implemented June 7, and the 401K plan will be implemented in the third
quarter. Additionally, you will receive three weeks of vacation.
- -------------------------------------------------------------------------------
401.263.8600 175 Admiral Cochrane Drive, 4th Fl.
410.263.8645 Fax Annapolis, MD 21401
www.usinternetworking.com
<PAGE>
We consider the terms of this offering to be confidential and they should not
be discussed with other USi staff, other than those involved in the hiring
process. Furthermore, your acceptance of this offer does not constitute a
contract of employment. Your employment with USi will be an employment at
will and can be terminated at any time by either party.
Garrett, we look forward to having you join the USi team, and help us create
value for our customers, shareholders and employees.
Best regards,
/s/ William T. Price
William T. Price Accepted By: /s/ Garrett Brown
Vice President ----------------------
General Counsel Date: 17 June, 1998
USinternetworking, Inc. ----------------------
CC: Grant J. Nelson, Esq.
- -------------------------------------------------------------------------------
401.263.8600 175 Admiral Cochrane Drive, 4th Fl.
410.263.8645 Fax Annapolis, MD 21401
www.usinternetworking.com
<PAGE>
SCHEDULE 5.16
EMPLOYEE PLANS
Although the Company has not adopted any formal employee benefit plans,
contours of the employee benefit plans have been described in writing to
employees. The employee benefits are to include the following: (i) a 401(k)
plan that is to be noncontributory until January 1, 1999, and thereafter
subject to a 1:2 employer match, (ii) the Employee Stock Option Plan, and
(iii) other typical plans such as health and vacation benefit plans. The
Company has stated its intention that the Employee Stock Option Plan will be
a qualified plan that will provide for the issuance of options to purchase
shares at a discount of 20% from the then-current market price, to the extent
permissible at any time. Certain of the Company's employees have been advised
in writing, pursuant to the employment offer letters, of the number of option
shares the Company intends to award to them. These option shares are listed
in Schedule 5.5.
<PAGE>
SCHEDULE 5.17
LISTING OF ALL OUTSTANDING BORROWINGS
1) $2,000,000 credit line with Cisco Systems Capital Corp. for the purchase
of Cisco Systems Products equipment. $0 outstanding at June 15, 1998.
2) $1,000,000 credit line with Hewlett-Packard Co. for the purchase of
Hewlett-Packard equipment. $651,756.06 outstanding at June 15, 1998.
<PAGE>
SCHEDULE 5.18
LISTING OF INSURANCE POLICIES OR PROGRAMS
As of the date hereof, the Company has received only an Insurance Binder.
<PAGE>
Exhibit 10.3
STOCK PURCHASE AGREEMENT
by
and
between
USinternetworking, Inc.
and
US WEST COMMUNICATIONS, INC.
-------------------------
Dated as of June ____, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1. DEFINITIONS.......................................................1
1.1. DEFINITIONS.................................................1
1.2. ACCOUNTING TERMS; FINANCIAL STATEMENTS......................4
1.3. KNOWLEDGE STANDARD..........................................4
1.4. OTHER DEFINED TERMS.........................................4
ARTICLE 2. AUTHORIZATION OF PREFERRED SHARES; PURCHASE AND SALE OF PREFERRED
SHARES...........................................................5
2.1. PREFERRED SHARES............................................5
2.2. PURCHASE AND SALE OF PREFERRED SHARES.......................5
2.3. CLOSING.....................................................6
2.4. FEES AND EXPENSES...........................................6
ARTICLE 3. CONDITIONS TO THE OBLIGATION OF THE PURCHASER TO PURCHASE THE
PREFERRED SHARES.................................................6
3.1. REPRESENTATIONS AND WARRANTIES..............................6
3.2. COMPLIANCE WITH TERMS AND CONDITIONS OF THIS
AGREEMENT..................................................6
3.3. DELIVERY OF CERTIFICATES EVIDENCING THE SHARES..............6
3.4. CLOSING CERTIFICATES........................................7
3.5. SECRETARY'S CERTIFICATES....................................7
3.6. DOCUMENTS...................................................7
3.7. PURCHASE PERMITTED BY APPLICABLE LAWS.......................7
3.8. CONSENTS AND APPROVALS......................................7
3.9. AMENDMENT TO SHAREHOLDERS'AGREEMENT.........................7
3.10. NO MATERIAL JUDGMENT OR ORDER..............................8
3.11. LEGAL OPINION..............................................8
3.12. ISSUANCE OF SHARES.........................................8
ARTICLE 4. CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE..............8
4.1. REPRESENTATIONS AND WARRANTIES..............................8
4.2. COMPLIANCE WITH THIS AGREEMENT..............................8
4.3. CLOSING CERTIFICATE.........................................8
4.4. ISSUANCE PERMITTED BY APPLICABLE LAWS.......................9
4.5. PAYMENT OF PURCHASE PRICE...................................9
4.6. CONSENTS AND APPROVALS......................................9
4.7. AMENDMENT TO SHAREHOLDERS'AGREEMENT.........................9
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4.8. NO MATERIAL JUDGMENT OR ORDER...............................9
ARTICLE 5. REPRESENTATIONS AND WARRANTIESOF THE COMPANY......................9
5.1. CORPORATE EXISTENCE AND AUTHORITY..........................10
5.2. CORPORATE AUTHORIZATION; NO CONTRAVENTION..................10
5.3. GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENTS...........10
5.4. BINDING EFFECT.............................................10
5.5. CAPITALIZATION.............................................10
5.6. PRIVATE OFFERING...........................................11
5.7. LITIGATION.................................................12
5.8. FINANCIAL STATEMENTS.......................................12
5.9. TITLE AND CONDITION OF ASSETS..............................12
5.10. CONTRACTUAL OBLIGATIONS...................................12
5.11. TAX MATTERS...............................................12
5.12. SEVERANCE ARRANGEMENTS....................................12
5.13. INVESTMENT COMPANY/GOVERNMENT REGULATIONS.................13
5.14. BROKER'S, FINDER'S OR SIMILAR FEES........................13
5.15. LABOR RELATIONS AND EMPLOYEE MATTERS......................13
5.16. EMPLOYEE BENEFITS MATTERS.................................13
5.17. OUTSTANDING BORROWINGS....................................13
5.18. INSURANCE SCHEDULE........................................13
5.19. SOLVENCY..................................................14
5.20. NO OTHER AGREEMENTS TO SELL THE ASSETS OR
CAPITAL STOCK OF THE COMPANY..............................14
5.21. KEY EMPLOYEES.............................................14
5.22. COMPLIANCE WITH LAW.......................................14
5.23. DISCLOSURE................................................14
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER..................15
6.1. LIMITED LIABILITY EXISTENCE AND AUTHORITY..................15
6.2. ORGANIZATION; AUTHORIZATION; NO CONTRAVENTION..............15
6.3. BINDING EFFECT.............................................15
6.4. PURCHASE FOR OWN ACCOUNT...................................15
6.5. FINANCIAL CONDITION........................................16
6.6. RECEIPT OF INFORMATION.....................................16
6.7. BROKER'S, FINDER'S OR SIMILAR FEES.........................16
6.8. GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENT............17
6.9. LITIGATION.................................................17
ARTICLE 7. COVENANTS WITH RESPECT TO THE PERIOD FOLLOWING THE CLOSING......17
7.1. RESERVATION OF SHARES......................................17
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
7.2. RIGHT OF FIRST OFFER.......................................17
7.3. RIGHT OF FIRST REFUSAL.....................................18
7.4. REGULATORY COMPLIANCE......................................18
ARTICLE 8. INDEMNIFICATION..................................................21
8.1. INDEMNIFICATION............................................21
8.2. NOTIFICATION...............................................22
ARTICLE 9. MISCELLANEOUS....................................................22
9.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.................22
9.2. NOTICES....................................................23
9.3. SUCCESSORS AND ASSIGNS.....................................24
9.4. AMENDMENT AND WAIVER.......................................24
9.5. COUNTERPARTS...............................................24
9.6. HEADINGS...................................................24
9.7. GOVERNING LAW..............................................24
9.8. JURISDICTION...............................................25
9.9. SEVERABILITY...............................................25
9.10. RULES OF CONSTRUCTION.....................................25
9.11. ENTIRE AGREEMENT..........................................25
9.12. PUBLICITY.................................................25
9.13. FURTHER ASSURANCES........................................26
9.14. WAIVER OF JURY TRIAL......................................26
</TABLE>
iii
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as of this
_____ day of June, 1998, by and between USinternetworking, Inc., a Delaware
corporation (the "Company") and US WEST Communications, Inc., a Colorado
corporation (the "Purchaser").
RECITALS:
A. Upon the terms and subject to the conditions set forth in this
Agreement, the Company proposes to issue and sell to the Purchaser, and the
Purchaser desires to purchase and acquire from the Company, a total of 5,833.33
shares of the Company's Series A Preferred Stock (as defined below).
B. The Purchaser and the Company desire to set forth the objectives and
agreements that will govern their relations and responsibilities with respect to
each other by entering into concurrently with the sale and purchase of
securities hereunder an amendment to the Shareholders' Agreement (as defined
below) in the form attached hereto as Exhibit A (the "Amendment").
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt and adequacy
of which is hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1.
DEFINITIONS
1.1. DEFINITIONS.
As used in this Agreement, and unless the context requires a different
meaning, the following terms have the meanings indicated:
"AFFILIATE" means, with respect to any specified Person, any Person that,
directly or indirectly, controls, is controlled by, or is under common control
with, such specified Person, whether by contract, through one or more
intermediaries, or otherwise.
"BUDGET" means a fiscal year operating budget, which shall include monthly
capital and operating expense budgets, cash flow statements, capital expenditure
budgets, profit and loss projections and employee hiring projections.
"BUSINESS DAY" shall mean a day other than a Saturday or Sunday or any
federal holiday.
<PAGE>
"COMMISSION" means the Securities and Exchange Commission or any similar
agency then having jurisdiction to enforce the Securities Act (as defined
below).
"COMMON STOCK" means the common stock, par value $.001 per share, of the
Company, or any other capital stock of the Company into which such stock is
reclassified or reconstituted.
"CONDITION OF THE COMPANY" means the assets, business, properties,
operations, financial condition or prospects of the Company.
"EMPLOYEE PLANS" means all benefits arrangements, pensions plans or welfare
plans adopted by the Company for its employees.
"EMPLOYEE STOCK OPTION PLAN" means an employee stock option plan adopted by
the Compensation Committee of the Board of Directors of the Company providing
for the issuance to certain employees of the Company of options to purchase a
certain number of shares of Common Stock at a certain exercise price per share
the total number of shares of Common Stock which may be issued under such plan
shall not exceed 6.5% of the total number of outstanding shares of common stock
calculated on a fully diluted basis, not including the options and shares
issuable or issued on exercise of options pursuant to the Employee Stock Option
Plan.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission thereunder.
"GAAP" means United States generally accepted accounting principles, in
effect from time to time, consistently applied.
"GOVERNMENTAL AUTHORITY" means the government of any nation, state, city,
locality or other political subdivision of any thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"HOLDERS" means the Persons (other than the Purchaser) listed as
"Shareholders" on the signature page to the Shareholders Agreement.
"INDEBTEDNESS" means, as to any Person: (a) all obligations, whether or not
contingent, of such Person for borrowed money (including, without limitation,
reimbursement and all other obligations with respect to surety bonds, letters of
credit and bankers' acceptances, whether or not matured), (b) all obligations of
such Person evidenced by notes, bonds, debentures or similar instruments, (c)
all obligations of such Person representing the balance of deferred purchase
price of property or services, except trade accounts payable and accrued
commercial or trade liabilities arising in the ordinary course of business, (d)
all interest rate and currency swaps, caps, collars and similar agreements or
hedging devices under which payments are obligated to be made by such Person,
whether periodically or upon the happening of a contingency, (e) all
indebtedness created or arising under any conditional sale or other title
2
<PAGE>
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property), (f)
all obligations of such Person under leases which have been or should be, in
accordance with GAAP, recorded as capital leases, (g) all indebtedness secured
by any Lien (other than Liens in favor of lessors under leases other than leases
included in clause (f)) on any property or asset owned or held by that Person
regardless of whether the indebtedness secured thereby shall have been assumed
by that Person or is non-recourse to the credit of that Person, and (h) all
Indebtedness of any other Person referred to in clauses (a) through (f) above,
guaranteed, directly or indirectly, by that Person.
"KEY EMPLOYEES" means the individuals listed on Schedule B.
"LIEN" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other) or other security interest of
any kind or nature whatsoever (excluding preferred stock or equity related
preferences) including, without limitation, those created by, arising under or
evidenced by any conditional sale or other title retention agreement, the
interest of a lessor under a capital lease obligation, or any financing lease
having substantially the same economic effect as any of the foregoing.
"OUTSTANDING BORROWINGS" means all Indebtedness of the Company for borrowed
money (including, without limitation, reimbursement and all other obligations
with respect to surety bonds, letters of credit and bankers' acceptances,
whether or not matured).
"PERSON" means any individual, firm, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
Governmental Authority or other entity of any kind, and shall include any
successor (by merger or otherwise) of such entity.
"REGULATORY AFFILIATE" has the meaning set forth in Section 7.4.
"REQUIREMENTS OF LAW" means, as to any Person, the provisions of the
Certificate of Incorporation and By-laws or other organizational or governing
documents of such Person, and any law, treaty, rule, regulation, right,
privilege, qualification, license or franchise, order, judgment, or
determination of an arbitrator or a court or other Governmental Authority, in
each case, applicable or binding upon such Person or any of its property or to
which such Person or any of its property is subject or applicable to any or all
of the transactions contemplated by or referred to in the Transaction
Agreements.
"SALE OF THE COMPANY" means (i) the sale or all or substantially all of the
Company's assets in a single transaction or series of related transactions, or
(ii) the sale of all or a controlling interest in the Company's capital stock in
a single transaction or a series of related transactions pursuant to a sale or
issuance of securities or a merger, consolidation, or other business
combination.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder.
3
<PAGE>
"SERIES A PREFERRED STOCK" means the 8% Series A Convertible Preferred
Stock, par value $.01 per share, of the Company, or any other capital stock of
the Company into which such stock is reclassified or reconstituted.
"SHAREHOLDERS AGREEMENT" means the Shareholders Agreement dated May 28,
1998 among the Company, the purchasers of the Company's Series A Preferred Stock
and other stockholders of the Company.
"TRANSACTION AGREEMENTS" means collectively, this Agreement, the Amendment
and the Shareholders Agreement.
"TRANSACTION EXPENSES" means any and all reasonable out-of-pocket (i) legal
expenses incurred by the Purchaser in connection with the negotiation and
preparation of the Transaction Agreements, the consummation of the transactions
contemplated thereby and preparation for any of the foregoing, including,
without limitation, travel expenses, reasonable fees, charges and disbursements
of counsel and any similar or related legal costs and legal expenses, and (ii)
other expenses incurred by the Purchaser in connection with the negotiation and
preparation of the Transaction Agreements.
1.2. ACCOUNTING TERMS; FINANCIAL STATEMENTS.
All accounting terms used herein not expressly defined in this Agreement
shall have the respective meanings given to them in accordance with sound
accounting practice. The term "sound accounting practice" shall mean such
accounting practice as, in the opinion of the independent certified public
accountants regularly retained by the Company conforms at the time to GAAP
applied on a consistent basis except for changes with which such accountants
concur.
1.3. KNOWLEDGE STANDARD.
When used herein, the phrase "to the knowledge of" any Person, "to the best
knowledge of" any Person or any similar phrase shall mean, (i) with respect to
any individual, the actual knowledge of such Person, (ii) with respect to any
corporation, the actual knowledge of the officers and directors of such
corporation and the knowledge of such facts that such persons should have in the
exercise of their duties after reasonable inquiry, and (iii) with respect to a
partnership, the actual knowledge of the officers and directors of the general
partner of such partnership and the knowledge of such facts that such persons
should have in the exercise of their duties after reasonable inquiry.
1.4. Other Defined Terms.
The following terms shall have the meanings specified in the Sections set
forth below:
4
<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Actions 5.7
Certificate of Incorporation 2.1
Certificate 2.1
Certificate of Designation 2.1
Closing Date 2.2
Closing 2.3
Debt Documents 7.4
Indemnified Party 8.2
Indemnifying Party 8.2
Liabilities 8.1
Preferred Shares 2.1
Purchase Price 2.2
Purchasing Indemnified Party 9.1
Purchasing Indemnifying Party 9.1
Selling Indemnified Party 9.1
Selling Indemnifying Party 9.1
</TABLE>
ARTICLE 2.
AUTHORIZATION OF PREFERRED SHARES;
PURCHASE AND SALE OF PREFERRED SHARES
2.1. PREFERRED SHARES.
On or before the Closing Date, the Board of Directors of the Company shall
have authorized the issuance and sale of 5,833.33 shares of Series A Preferred
Stock (the "Preferred Shares") to the Purchaser and has duly adopted resolutions
establishing the rights, preferences, privileges and restrictions of the Series
A Preferred Stock. The Preferred Shares will have the respective rights,
preferences and privileges set forth in the Company's Amended and Restated
Certificate of Incorporation, as it will be in effect on the Closing Date (the
"Certificate of Incorporation") and the Certificate of Designations,
Preferences, and Other Special Rights of Preferred Stock and Qualifications,
Limitations and Restrictions Thereof attached as EXHIBIT C hereto (the
"Certificate of Designation" and together with the Certificate of Incorporation,
the "Certificate").
2.2. PURCHASE AND SALE OF PREFERRED SHARES.
Upon the terms and subject to the conditions herein contained, on the day
two Business Days after all of the conditions to Closing set forth in Articles 3
and 4 have been satisfied or such other date as the parties may agree (the
"Closing Date"), the Company shall issue to the Purchaser, and the Purchaser
shall acquire from the Company, a total of 5,833.33 Preferred Shares for a cash
purchase price of $600 per Preferred Share (the "Purchase Price").
5
<PAGE>
2.3. CLOSING.
The closing of the sale to and purchase by the Purchaser of the Preferred
Shares (the "Closing") shall occur at 11 o'clock A.M., local time on the Closing
Date at the offices of the Company, 175 Admiral Cochrane Drive, Annapolis,
Maryland. At the Closing, (i) the Company shall deliver to the Purchaser a
certificate evidencing the Preferred Shares being purchased by the Purchaser,
free and clear of any Liens of any nature whatsoever, other than those created
by the Certificate or the Shareholders Agreement, registered in the Purchaser's
name, and (ii) the Purchaser shall deliver to the Company the Purchase Price, by
cashier's or certified check or wire transfer of immediately available funds.
2.4. FEES AND EXPENSES.
Concurrently with the Closing, the Company shall reimburse the
Purchaser for the Transaction Expenses, which payment shall be made by wire
transfer of immediately available funds to an account or accounts designated by
the Purchaser or, at the option of the Purchaser, may be deducted from the
Purchase Price.
ARTICLE 3.
CONDITIONS TO THE OBLIGATION OF THE
PURCHASER TO PURCHASE THE PREFERRED SHARES
The obligation of the Purchaser to purchase the Preferred Shares, to pay
the Purchase Price therefor and to perform any of its obligations hereunder on
the Closing Date (unless otherwise specified) shall be subject to the
satisfaction of the following conditions on or before the Closing Date:
3.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company contained in Section 5
hereof shall be true and correct in all material respects at and as of the
Closing Date, as if made at and as of such date.
3.2. COMPLIANCE WITH TERMS AND CONDITIONS OF THIS AGREEMENT.
The Company shall have performed and complied with all of the agreements
and conditions set forth herein that are required to be performed or complied
with by the Company on or before the Closing Date.
3.3. DELIVERY OF CERTIFICATES EVIDENCING THE SHARES.
The Company shall have delivered to the Purchaser the certificates
evidencing the Preferred Shares as set forth in Section 2.3.
6
<PAGE>
3.4. CLOSING CERTIFICATES.
The Company shall have delivered to the Purchaser a certificate executed by
an authorized officer of the Company, certifying that the representations and
warranties of the Company are true and correct in all material respects on and
as of the Closing Date, and that the conditions set forth in this Section 3 to
be satisfied by the Company have been satisfied on and as of the Closing Date.
3.5. SECRETARY'S CERTIFICATES.
The Purchaser shall have received a certificate from the Company, dated as
of the Closing Date and signed by the Secretary or an Assistant Secretary of the
Company, certifying that the attached copies of the Certificate of
Incorporation, Certificate of Designation, By-laws of the Company, and
resolutions of the Board of Directors of the Company approving the Transaction
Agreements and the transactions referred to therein, are all true, complete and
correct and remain unamended and in full force and effect.
3.6. DOCUMENTS.
The Purchaser shall have received true, complete and correct copies of such
documents and such other information as it may have reasonably requested in
connection with or relating to the sale of the Preferred Shares and the
transactions required to be performed by the Transaction Agreements.
3.7. PURCHASE PERMITTED BY APPLICABLE LAWS.
The acquisition of and payment for the Preferred Shares to be acquired by
the Purchaser hereunder and the consummation of this Agreement (a) shall not be
prohibited by any Requirements of Law, and (b) shall not conflict with or be
prohibited by any contractual obligation of the Company.
3.8. CONSENTS AND APPROVALS.
All consents, exemptions, authorizations, or other actions by, or notices
to, or filings with, Governmental Authorities and other Persons in respect of
all Requirements of Law and with respect to those material Contractual
Obligations of the Company necessary or required in connection with the
execution, delivery or performance (including, without limitation, the issuance
of the Preferred Shares and the issuance of the Common Stock upon conversion of
the Preferred Shares) by the Company shall have been obtained and be in full
force and effect and all waiting periods shall have lapsed without extension or
the imposition of any conditions or restrictions.
3.9. AMENDMENT TO SHAREHOLDERS' AGREEMENT.
The Company and the other parties thereto shall have duly executed and
delivered to the Purchaser the Amendment.
7
<PAGE>
3.10. NO MATERIAL JUDGMENT OR ORDER.
There shall not be any judgment or order of a court of competent
jurisdiction or any ruling of any Governmental Authority [or any condition
imposed under any Requirement of Law] which, in the reasonable judgment of the
Purchaser, would (i) prohibit the purchase of the Preferred Shares hereunder,
(ii) subject the Purchaser to any penalty if the Preferred Shares were to be
purchased hereunder, or (iii) question the validity or legality of the
transactions required to be performed under this Agreement.
3.11. LEGAL OPINION.
The Purchaser shall have received an opinion of counsel for the Company in
the form attached as Exhibit B hereto.
3.12. ISSUANCE OF SHARES.
The Company shall have issued (i) an additional 833.33 Preferred Shares in
the aggregate to Blue Chip Capital Fund II Limited Partnership and Miami Valley
Venture Fund L.P., and (ii) an additional 4,166.67 Preferred Shares in the
aggregate to Grotech Partners IV L.P. and Grotech Partners V L.P.
ARTICLE 4.
CONDITIONS TO THE OBLIGATION OF
THE COMPANY TO CLOSE
The obligation of the Company to issue and sell the Preferred Shares and
the other obligations of the Company hereunder shall be subject to the
satisfaction of the following conditions on or before the Closing Date:
4.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Purchaser contained in Section 6
hereof shall be true and correct in all material respects at and as of the
Closing Date as if made at and as of such date.
4.2. COMPLIANCE WITH THIS AGREEMENT.
The Purchaser shall have performed and complied with all of the agreements
and conditions set forth herein that are required to be performed or complied
with by the Purchaser on or before the Closing Date.
4.3. CLOSING CERTIFICATE.
The Purchaser shall have delivered to the Company a certificate executed by
the Purchaser certifying that the representations and warranties of the
Purchaser contained in this Agreement are true and correct in all material
respects on and as of the Closing Date and that the
8
<PAGE>
conditions contained in this Section 4 to be satisfied by the Purchaser have
been satisfied on and as of the Closing Date.
4.4. ISSUANCE PERMITTED BY APPLICABLE LAWS.
The issuance of the Preferred Shares to be issued by the Company hereunder
and the consummation of this Agreement (a) shall not be prohibited by any
Requirements of Law, and (b) shall not conflict with or be prohibited by any
Contractual Obligations of the Purchaser.
4.5. PAYMENT OF PURCHASE PRICE.
The Purchaser shall have tendered to the Company the Purchase Price as set
forth in Section 2.
4.6. CONSENTS AND APPROVALS.
All consents, exemptions, authorizations, or other actions by, or notices
to, or filings with, Governmental Authorities and other Persons in respect of
all Requirements of Law and with respect to those material Contractual
Obligations of the Purchaser necessary or required in connection with the
execution, delivery or performance by the Purchaser shall have been obtained and
be in full force and effect and all waiting periods shall have lapsed without
extension or imposition of any conditions or restrictions.
4.7. AMENDMENT TO SHAREHOLDERS' AGREEMENT.
The Purchaser shall have duly executed and delivered to the Company the
Amendment.
4.8. NO MATERIAL JUDGMENT OR ORDER.
There shall not be any judgment or order of a court of competent
jurisdiction or any ruling of any Governmental Authority or any condition
imposed under any Requirements of Law which, in the reasonable judgment of the
Company would (i) prohibit the sale of the Preferred Shares or the consummation
of the other transactions hereunder, (ii) subject the Company to any penalty if
the Preferred Shares were to be sold hereunder or (iii) question the validity or
legality of the transactions required to be performed under this Agreement.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to, and covenants with, the Purchaser
as of the date hereof and as of the Closing Date as follows:
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5.1. CORPORATE EXISTENCE AND AUTHORITY.
The Company was incorporated on January 14, 1998 and (a) is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, (b) has all requisite corporate power and authority to own
and operate its property, to lease the property it operates as lessee and to
conduct the business in which it is currently, or is currently proposed to be,
engaged, and (c) has the corporate power and authority to execute, deliver and
perform its obligations under each Transaction Agreement to which it is or will
be a party.
5.2. CORPORATE AUTHORIZATION; NO CONTRAVENTION.
The execution, delivery and performance by the Company of each of the
Transaction Agreements and the consummation of the transactions contemplated
thereby, including, without limitation, the issuance of the Preferred Shares,
(a) on or before the Closing Date, shall have been duly authorized by all
necessary corporate action, including, if required, stockholder action, (b) do
not conflict with or contravene the terms of the Certificate or the By-laws of
the Company, or any amendment thereof; and (c) will not violate, conflict with
or result in any material breach or contravention of (i) any Contractual
Obligation of the Company or (ii) any Requirements of Law applicable to the
Company.
5.3. GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENTS.
No approval, consent, compliance, exemption, authorization, or other action
by, or notice to, or filing with, any Governmental Authority or any other Person
in respect of any applicable Requirements of Law in effect on the date hereof,
and no lapse of a waiting period under any applicable Requirements of Law in
effect on the date hereof, is necessary or required in connection with the
execution and delivery of the Transaction Agreements by the Company or the
performance by the Company or enforcement against the Company of any material
obligation by the Company under the Transaction Agreements or the transactions
to be performed hereunder.
5.4. BINDING EFFECT.
This Agreement has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as enforceability may
be limited by applicable bankruptcy, insolvency or other similar laws affecting
the enforcement of creditors' rights generally and by general principles of
equity relating to enforceability.
5.5. CAPITALIZATION.
(a) On the Closing Date, assuming the consummation of the transactions
contemplated hereby, the capital stock of the Company shall consist of One
Hundred Fifty Million (150,000,000) shares of Common Stock and One Hundred
Thousand (100,000) shares of preferred stock, with such shares including the
Preferred Shares. Of the 150,100,000 authorized shares of capital stock of the
Company, immediately after the Closing, there will be
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(i) 15 million shares of Common Stock issued and outstanding; (ii) Five Million
(5,000,000) shares of Common Stock reserved for issuance pursuant to the
Employee Stock Option Plan; (iii) 52,000 shares of Series A Preferred Stock
issued and outstanding; and (iv) 108,600,000 fully diluted shares of Common
Stock outstanding, assuming conversion of all of the outstanding shares of
Series A Preferred Stock into 93,600,000 shares of common stock, but not
including any shares authorized pursuant to the Employee Stock Option Plan. As
of the Closing Date, all outstanding shares of capital stock of the Company,
including the Preferred Shares, and the shares of Common Stock issuable upon
conversion of the Preferred Shares (when issued in accordance with the
conversion terms thereof), will be duly authorized and validly issued, fully
paid, nonassessable and free and clear of any Liens, preferential rights,
priorities, claims, options, charges or other encumbrances or restrictions other
than those created by the Certificate, the Bylaws, and the Shareholders'
Agreement.
(b) SCHEDULE 5.5 sets forth the name of each holder of the issued and
outstanding capital stock of the Company, the number of shares of such capital
stock held beneficially or of record by each such holder, the name of each
Person holding any options or other rights to purchase any capital stock of the
Company (except as may be permitted under the Shareholders Agreement), the
number, class and series of shares of capital stock subject to each such option
or right and the exercise price of each such option or right. Except for the
options under the Employee Stock Option Plan and the Preferred Shares, and
except as identified in Section 7.4, there are no outstanding securities
convertible into or exchangeable for capital stock of the Company or options,
warrants or other rights to purchase or subscribe to capital stock of the
Company or contracts, commitments, agreements, understandings or arrangements of
any kind to which the Company or any Holder is a party relating to the issuance
of any capital stock of the Company, any such convertible or exchangeable
securities or any such options, warrants or rights. The Company has no
subsidiaries.
(c) Except as set forth on SCHEDULE 5.5 and as may be provided in the
Shareholders Agreement, no Person has any preemptive rights, rights of first
refusal, "tag along" rights, rights of co-sale or any similar rights with
respect to the issuance of the Preferred Shares contemplated hereby or the
issuance of any additional shares of stock by the Company. SCHEDULE 5.5
identifies all Persons holding any such rights and describes the material terms
of all such rights.
5.6. PRIVATE OFFERING.
No form of general solicitation or general advertising was used by the
Company or its representatives in connection with the offer or sale of the
Preferred Shares. No registration of the Preferred Shares pursuant to the
provisions of the Securities Act or any state securities or "blue sky" laws will
be required by the offer, sale or issuance of the Preferred Shares pursuant to
this Agreement. The Company agrees that neither it, nor anyone authorized to act
on its behalf, will offer or sell the Preferred Shares or any other security so
as to require the registration of the Preferred Shares pursuant to the
provisions of the Securities Act or any state securities or "blue sky" laws,
unless such Preferred Shares are so registered.
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5.7. LITIGATION.
The Company has not received any notice of any governmental charge,
complaint or action or court order, writ, injunction, judgment or decree
outstanding or any claim, suit, litigation, legal proceeding, (collectively,
"Actions") which if adversely determined would have a material adverse effect on
(i) the Company or the Condition of the Company (ii) the transactions required
to be performed by the Company under this Agreement or the Transaction
Agreements and, to the Company's knowledge, there is no valid basis therefor,
and no Action is threatened against the Company.
5.8. FINANCIAL STATEMENTS.
The Company was incorporated on January 14, 1998, and has not yet commenced
business operations. As of the date hereof, it has no assets, except as
described below, and has not prepared financial statements. SCHEDULE 5.8(A) sets
forth all expenditures by or on behalf of the Company since its formation in
excess of $25,000, in any one case, or $200,000, in the aggregate. The Company's
projections attached hereto as SCHEDULE 5.8(B) were prepared by the Company's
management in good faith, are based on reasonable assumptions, represent
management's best estimates of the Company's predicted operations and
performance under its business plan and reflect actual subjective expectations
of the Company's management. The Company has no reason to believe that the
results reflected in such projections are not attainable.
5.9. TITLE AND CONDITION OF ASSETS.
The Company currently has no assets (other than cash) except as listed on
SCHEDULE 5.9. The Company has a valid and enforceable leasehold interest in its
leases listed on SCHEDULE 5.9 pursuant to the terms of the lease agreements and
is not in default thereunder.
5.10. CONTRACTUAL OBLIGATIONS.
The Company has not entered into any contracts or agreements or incurred
any material liabilities, other than (i) pursuant to the Transaction Agreements,
(ii) contracts and agreements that do not obligate the Company to make
expenditures in excess of $25,000 over the life of the contract, and (iii) the
contracts and agreements listed on SCHEDULE 5.10.
5.11. TAX MATTERS.
The Company has duly filed all tax reports and returns required to be filed
by it, including all federal, state, local and foreign tax returns and reports
and paid all taxes due with respect thereto.
5.12. SEVERANCE ARRANGEMENTS.
Except as set forth on SCHEDULE 5.12, the Company has not entered into any
severance or similar arrangement in respect of any present or former employee of
the Company
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that will result in any obligation (absolute or contingent) of the
Company to make any payment to such present or former employee of the Company
following termination of employment.
5.13. INVESTMENT COMPANY/GOVERNMENT REGULATIONS.
Immediately following the Closing, after giving effect to the transactions
contemplated by the Transaction Agreements, neither the Company nor any Person
controlling, controlled by or under common control with the Company will be an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended. The Company is not subject to regulation under the Public Utility
Holding Company Act of 1935, as amended, the Federal Power Act, or any federal
or state statute or regulation limiting its ability to incur Indebtedness.
5.14. BROKER'S, FINDER'S OR SIMILAR FEES.
There are no brokerage commissions, finder's fees or similar fees or
commissions payable in connection with the transactions contemplated hereby
based on any agreement, arrangement or understanding with the Company or any
officer, director, shareholder, or Affiliate of the Company or any action taken
by any such person.
5.15. LABOR RELATIONS AND EMPLOYEE MATTERS.
(a) The Company is not and has not engaged in any unfair labor practice.
(b) Except as set forth on SCHEDULE 5.10, the Company is not a party to any
employment agreement (other than "at will" employment relationships), collective
bargaining agreement or covenant not to compete.
(c) No complaint under any statute or regulation relating to employment has
been filed against the Company.
5.16. EMPLOYEE BENEFITS MATTERS.
Except as set forth on SCHEDULE 5.16, the Company has not adopted or
implemented any Employee Plan.
5.17. OUTSTANDING BORROWINGS.
SCHEDULE 5.17 lists the amount of all Outstanding Borrowings as of the date
hereof and the name of each lender thereof.
5.18. INSURANCE SCHEDULE.
SCHEDULE 5.18 accurately summarizes all of the Company's insurance policies
or programs in effect as of the date hereof and indicates the insurer's name and
policy number and also indicates any self-insurance program that is in effect.
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5.19. SOLVENCY.
The Company has not (i) made a general assignment for the benefit of its
creditors, (ii) filed any voluntary petition in bankruptcy or suffered the
filing of any involuntary petition in bankruptcy by its creditors, (iii)
suffered the appointment of a receiver to take possession of all or
substantially all of its assets or properties, (iv) suffered the attachment or
other judicial seizure of all or substantially all of its assets or (v) admitted
in writing its inability to pay its debts as they come due.
5.20. NO OTHER AGREEMENTS TO SELL THE ASSETS OR CAPITAL STOCK OF THE
COMPANY.
Other than as otherwise set forth in this Agreement, the Company has no
legal obligation, absolute or contingent, other than the obligations of the
Company under the Transaction Agreements, to any person or firm to (i) sell any
capital stock of the Company or, outside of the ordinary course of business,
assets, or effect any merger, consolidation or other reorganization of the
Company or (ii) enter into any agreement with respect any of the foregoing.
5.21. KEY EMPLOYEES.
The performance by the Key Employees of their duties for the Company as
contemplated by the Company's business plan will not violate any provision of
any agreement to which any of such persons or the Company is a party, including
any agreement with any former employer of any such person, or give rise to any
obligation or liability of the Company to any third party or limit in any way
the Company's ability to conduct its business. None of the Key Employees is
engaged, directly or indirectly, or has any interest (other than as a
shareholder of a public company) in any entity which is engaged in competition
with the Company in its planned activities.
5.22. COMPLIANCE WITH LAW.
In its conduct of its business and affairs since its formation, the Company
has complied in all material respects with all applicable Requirements of Law.
5.23. DISCLOSURE.
The Company has, to the best of its knowledge, fully responded to all
requests for information, and the Company has accurately answered all questions
from the Purchaser concerning the Condition of the Company, and has not
knowingly withheld any facts relating thereto which it reasonably believes to be
material with respect to its Condition. No information in this Agreement or in
any Exhibit or Schedule attached to this Agreement, contains or will contain any
untrue statement of a material fact or when considered together with all such
information delivered to the Purchaser omits to state any material fact. The
disclosures made in writing by the Company in connection with this Agreement
when read in the light of the circumstances when made and taken as a whole, did
not when made contain any untrue statement of a material fact.
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ARTICLE 6.
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as of the date
hereof as follows:
6.1. LIMITED LIABILITY EXISTENCE AND AUTHORITY.
The Purchaser (a) is a Colorado corporation duly organized, validly
existing and in good standing under the laws of Colorado (b) has all requisite
power and authority to own its assets and operate its business, and (c) has all
requisite power and authority to execute, deliver and perform its obligations
under each of the Transaction Agreements to which it is or will be a party.
6.2. ORGANIZATION; AUTHORIZATION; NO CONTRAVENTION.
The execution, delivery and performance by the Purchaser of the Transaction
Agreements to which it is a party and the consummation of the transactions
contemplated thereby, including, without limitation, the acquisition of the
Preferred Shares: (a) is within the Purchaser's limited liability company
authority, and has been duly authorized by all necessary action on the part of
the Purchaser; (b) does not conflict with or contravene the terms of the
Purchaser's Articles of Organization or Operating Agreement or by-laws, as
applicable; and (c) will not violate, conflict with or result in any material
breach or contravention of (i) any Contractual Obligation of the Purchaser, or
(ii) the Requirements of Law or any order or decree applicable to the Purchaser
(provided, however, that to the extent this representation and warranty relates
to the Telecommunications Act of 1996 or the Communications Act of 1934, such
representation and warranty is made to the Purchaser's best knowledge).
6.3. BINDING EFFECT.
This Agreement has been duly executed and delivered by the Purchaser, and
this Agreement constitutes the legal, valid and binding obligation of the
Purchaser, enforceable against it in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency, or similar
laws affecting the enforcement of creditors' rights generally or by equitable
principles relating to enforceability.
6.4. PURCHASE FOR OWN ACCOUNT.
The Preferred Shares, and the shares of Common Stock to be issued upon
conversion of the Preferred Shares, are being or will be acquired by the
Purchaser for its own account and with no intention of distributing or reselling
such securities or any part thereof in any transaction that would be in
violation of the securities laws of the United States of America, or any state,
without prejudice, however, to the rights of the Purchaser at all times to sell
or otherwise dispose of all or any part of the Preferred Shares or the shares of
Common Stock issuable upon conversion of the Preferred Shares under an effective
registration statement under
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the Securities Act, or under an exemption from such registration available under
the Securities Act, and subject, nevertheless, to the disposition of the
Purchaser's property being at all times within its control. If the Purchaser
should in the future decide to dispose of any of the Preferred Shares or the
shares of Common Stock issuable upon conversion of the Preferred Shares, the
Purchaser understands and agrees that it may do so only in compliance with the
Securities Act and applicable state securities laws, as then in effect. The
Purchaser agrees to the imprinting, so long as required by law, of a legend on
certificates representing all of the Preferred Shares or the shares of Common
Stock to be issued upon conversion of the Preferred Shares to the following
effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT OR SUCH LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN RESTRICTIONS SET FORTH IN A SHAREHOLDERS' AGREEMENT (AS
AMENDED) DATED AS OF MAY 28, 1998. A COPY OF SUCH AGREEMENT MAY BE OBTAINED FROM
THE COMPANY UPON REQUEST."
6.5. FINANCIAL CONDITION.
The Purchaser's financial condition is such that it is able to bear the
risk of holding the Preferred Shares for an indefinite period of time and can
bear the loss of its entire investment in the Preferred Shares. The Purchaser
has such knowledge and experience in financial and business matters and in
making high risk investments of this type that it is capable of evaluating the
merits and risks of the purchase of the Preferred Shares.
6.6. RECEIPT OF INFORMATION.
The Purchaser has been furnished access to the business records of the
Company and such additional information and documents as the Purchaser has
requested and has been afforded an opportunity to ask questions of and receive
answers from representatives of the Company concerning the terms and condition
of this Agreement, the purchase of the Preferred Shares, the prospective
operations, market potential, capitalization, financial conditions, and
prospects of the business to be conducted by the Company, and all other matters
deemed relevant by the Purchaser.
6.7. BROKER'S, FINDER'S OR SIMILAR FEES.
There are no brokerage commissions, finder's fees or similar fees or
commissions payable in connection with the transactions contemplated hereby
based on any agreement, arrangement or understanding with the Purchaser or any
action taken by the Purchaser.
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6.8. GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENT.
No approval, consent, compliance, exemption, authorization, or other action
by, or notice to, or filing with, any Governmental Authority or any other Person
in respect of any Requirements of Law, and no lapse of a waiting period under
any Requirements of Law, is necessary or required in connection with the
execution, delivery or performance by the Purchaser (including, without
limitation, the acquisition of the Preferred Shares) or enforcement against the
Purchaser of this Agreement or the Transaction Agreements to which it is a party
or the transactions contemplated thereby.
6.9. LITIGATION.
No Actions are pending, or to the best knowledge of the Purchaser,
threatened relating to or affecting the transactions required to be performed by
the Purchaser under the Transaction Agreements.
ARTICLE 7.
COVENANTS WITH RESPECT
TO THE PERIOD FOLLOWING THE CLOSING
Until the Purchaser ceases to hold any Preferred Shares or shares of Common
Stock issued upon conversion thereof and until the payment by the Company of all
other amounts due to the Purchaser under the Transaction Agreements or the
Certificate of Designation, the Company and the Purchaser hereby covenant and
agree as follows:
7.1. RESERVATION OF SHARES.
The Company shall at all times reserve and keep available out of its
authorized Common Stock, solely for the purpose of issue or delivery upon
conversion of the Preferred Shares as provided in the Certificate, the maximum
number of shares of Common Stock that may be issuable or deliverable upon such
conversion. Such shares of Common Stock shall, when issued or delivered in
accordance with the provisions of the Certificate, be duly authorized, validly
issued and fully paid and non-assessable. The Company shall issue such Common
Stock in accordance with the provisions of the Certificate and shall otherwise
comply with the terms thereof.
7.2. RIGHT OF FIRST OFFER.
In the event that the Company proposes to effect a Sale of the Company
prior to consummation of its initial public offering of Common Stock, for a
period of 90 days prior to engaging in any discussions with any third party
concerning such transaction, the Company shall provide the Purchaser with a
summary of the economic terms on which the Company desires to effect such
transaction and shall negotiate in good faith with the Purchaser regarding the
terms of such transaction. In the event that the parties are unable to agree
upon the terms of such transaction within such 90-day period, the Company shall
be permitted within 180 days thereafter to enter into a definitive agreement
with a third party regarding a Sale of the Company
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on economic terms that, in the aggregate, are no less favorable to the Company
and its stockholders than the terms of the last good faith offer made by the
Purchaser in writing with respect to such transaction. In the event that the
Company is unable to enter into such a definitive agreement within such 180-day
period or to close such transaction within 60 days thereafter, the Company shall
again be required to comply with the provisions of this Section 7.2 prior to
effecting a Sale of the Company.
7.3. RIGHT OF FIRST REFUSAL.
In the event that the Company shall receive an offer from a third party
regarding a Sale of the Company prior to consummation of the Company's initial
public offering of Common Stock and the Company wishes to accept such offer, the
Company shall cause such offer to be reduced to writing by such third party and
shall promptly provide the Purchaser with a copy of such offer. The Purchaser
shall have a period of 30 days following receipt of such offer to commit to
effect such Sale of the Company on the material terms and conditions set forth
in such third party offer. Thereafter, the parties agree to negotiate in good
faith a definitive agreement for such transaction. In the event that the
Purchaser does not exercise its right of first refusal, the Company shall be
permitted within 180 days thereafter to enter into a definitive agreement
regarding a Sale of the Company on economic terms that, in the aggregate, are no
less favorable to the Company and its stockholders than the terms set forth in
the third-party offer. In the event that the Company is unable to enter into
such a definitive agreement within such 180-day period or to close such
transaction within 60 days thereafter, the Company shall again be required to
comply with the provisions of this Section 7.3 prior to effecting a Sale of the
Company.
7.4. REGULATORY COMPLIANCE.
(a) CERTAIN REDEMPTIONS AND ACQUISITIONS. The Company shall give the
Purchaser not less than 15 days' prior written notice of any redemption or
repurchase of its equity securities (including options, warrants and convertible
securities) and shall not redeem or repurchase any of its equity securities to
the extent that such redemption or repurchase would cause the Purchaser to hold
more than 10.0% of the Company's Common Stock (after giving effect to the
conversion of all outstanding shares of Series A Preferred Stock and all other
convertible securities of the Company) or otherwise cause the Company to become
a Regulatory Affiliate (as defined below). The Purchaser shall give the Company
15 days' prior written notice of any acquisition by it of the Company's equity
securities (including options, warrants and convertible securities) and shall
not acquire any of the Company's equity securities (whether from the Company or
from a third party) to the extent that such acquisition would cause the
Purchaser to hold more than 10.0% of the Company's Common stock (after giving
effect to the conversion of all outstanding shares of Series A Preferred Stock
and all other convertible securities of the Company) or otherwise cause the
Company to become a Regulatory Affiliate. Any transaction in violation of this
subsection shall be void. To the extent such transaction has taken place before
either the Company or the Purchaser was aware that it violated this subsection,
the parties agree to use their best commercially reasonable efforts to cause the
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transaction to be rescinded. In any event, the provisions of subsection (b)
below will apply to the extent that the Company has become a Regulatory
Affiliate.
(b) PUT AND CALL RIGHTS. In the event that the Company at any time after
the Closing Date becomes an "Affiliate" of the Purchaser, as that term is
defined in Section 3(1) of the Communications Act of 1934, as amended, 47 U.S.C.
Section 153(1)(for the purposes of this Agreement, a "Regulatory Affiliate"), by
virtue of the Purchaser's ownership of an equity interest in the Company, then
the Purchaser shall have the right to cause the Company to purchase its "Excess
Shares" (as defined below) (the "Purchaser Put") and the Company shall have the
right to cause the Purchaser to sell to the Company its Excess Shares (the
"Company Call" and, collectively with the Purchaser Put, the "Regulatory
Rights") on the following terms and conditions:
(i) The party seeking to exercise the Regulatory Rights shall give
notice to the other party promptly after the Company has become a Regulatory
Affiliate and in no event later than 30 days after such party first becomes
aware of the fact that the Company has become a Regulatory Affiliate. In the
event that the other party disagrees that the Company has become a Regulatory
Affiliate, that party shall provide notice of such disagreement within three
Business Days of the notice from the party, and both parties' regulatory counsel
shall thereupon consult with each other to come to an agreement on whether or
not the Company has become a Regulatory Affiliate seeking to exercise the
Regulatory Rights. In the event that the regulatory counsel do not reach an
agreement within ten (10) days, the matter will be submitted to expedited
arbitration by a counsel mutually agreeable to the other two counsel. The
closing of the sale of the Excess Shares shall take place within five Business
Days of the original notice (assuming no regulatory consents are required) if
the party not seeking to exercise the Regulatory Rights has not timely objected
to the notice; if the party not seeking to exercise the Regulatory Rights had
timely objected to the notice, then the closing shall take place within five
Business Days of the arbitral resolution of the dispute. In the event that the
Company exercises the Company Call and the purchase price for the Excess Shares
is not paid entirely in cash, the Purchaser shall have the right, for a period
of 60 days from the date of consummation of the purchase of the Excess Shares,
to cause the Company to sell the Excess Shares to Purchaser's designee for a
purchase price equal to the purchase price in fact paid by the Company for such
shares (that is, including the Company's promissory note as set forth in
subparagraph (iii) below as well as cash to the extent cash was included in
payment of the purchase price).
(ii) The Excess Shares shall be the minimum amount of shares of the
Company's equity securities that are required to be disposed of in order that
the Company not be deemed a Regulatory Affiliate.
(iii) The purchase price per share for the Excess Shares shall be the
Quoted Price (as defined in the Certificate of Designation, determined without
reference to the Conversion Price, as defined therein). The purchase price shall
be paid (A) in cash to the extent of the lesser of (X) the amount of cash and
marketable securities on hand on the date for closing as calculated pursuant to
subparagraph (i) above, treating for this purpose as cash on hand the amount, if
any, that can then be borrowed under the Company's revolving credit
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facilities consistent with the terms of any indentures governing the Company's
debt and the terms of any of the Company's senior and subordinated credit
facilities (collectively, the "Debt Documents"), and (Y) the amount that can
permissibly be paid to Purchaser for the Excess Shares under the terms of the
Debt Documents; and (B) the balance of the purchase price, if the purchase price
has not been paid fully in cash, shall be paid in the form of the Company's
promissory note in favor of Purchaser (the "Note"), which Note shall (w) bear
interest at a rate of 12% per annum, (x) be for a term equal to the term of the
longest of the Company's outstanding indebtedness plus one day, subject to
mandatory prepayment in the event of a Sale of the Company or the refinancing of
all or substantially all of the Company's indebtedness, (y) be freely
transferable (subject to applicable securities laws) and convertible at the
option of the holder (to the extent that the Company would not become a
Regulatory Affiliate as a result thereof) into a number of Preferred Shares
determined by dividing the unpaid principal amount of such Note by the price per
Preferred Share utilized in connection with the exercise of the Purchaser Put or
the Company Call resulting in the issuance of such Note (and the accrued but
unpaid interest shall be payable in cash), and (z) be subordinated (including as
to the payment of interest) to the minimum extent required by the Company's
senior and subordinated lenders and the terms of the Company's indentures.
(c) CERTAIN TRANSFERS. In the event that the Purchaser is required by
applicable law to dispose of some or all of the Company's equity securities that
it then holds in order to prevent the Company from becoming a Regulatory
Affiliate, the parties shall take all commercially reasonable actions to
restructure the Purchaser's investment in the Company in a manner that will
cause the Company not to be deemed a Regulatory Affiliate. In the event that
such a restructuring cannot be effectuated, the Company shall waive the
restrictions set forth in Section 2(b) of the Shareholders' Agreement to the
extent that the proposed transferee is not a direct competitor of the Company.
In any event, the provisions of subsection (b) above will apply to the extent
that the Company has become a Regulatory Affiliate.
(d) COOPERATION. In the event of any challenge by any regulatory
authority or any third party to the transactions contemplated by this Agreement,
the parties agree to vigorously defend against such challenge, to cooperate in
such defense and to provide the other party such information as it may
reasonably request to assist in such defense
7.5. ADDITIONAL PUT RIGHT.
In the event that the Company and the Purchaser shall fail to enter into a
definitive marketing agreement on or prior to September 1, 1998, the Purchaser
shall have the right, by notice given no later than October 1, 1998, to require
the Company to repurchase all, but not fewer than all, of the Preferred Shares
acquired by Purchaser hereunder, and the Company shall have the right to
purchase from the Purchaser all, but no fewer than all, of the Preferred Shares
acquired by Purchaser hereunder, at a purchase price per share equal to the
Quoted Price (determined without reference to the Conversion Price), payable on
the same terms and conditions as set forth in Section 7.4(b)(iii) above.
20
<PAGE>
ARTICLE 8.
INDEMNIFICATION
8.1. INDEMNIFICATION.
(a) In addition to all other sums due hereunder or provided for in
this Agreement, the Company (the "Selling Indemnifying Party") shall defend,
indemnify and hold harmless the Purchaser and its Affiliates and their
respective officers, directors, agents, employees, subsidiaries, partners and
assigns (each a "Purchasing Indemnified Party") to the fullest extent permitted
by law from and against any and all losses, costs, claims, damages, expenses
(including reasonable fees, disbursements and other charges of counsel, as
limited by Section 8.2 below) and other liabilities (collectively,
"Liabilities") incurred or suffered by any Purchasing Indemnified Party
resulting from or arising out of (i) any breach by any Selling Indemnifying
Party of any representation or warranty, covenant or agreement of the Selling
Indemnifying Party in this Agreement; provided, however, that no Selling
Indemnifying Party shall be liable under this Section 8.1 to any Purchasing
Indemnified Party to the extent that it is finally judicially determined that
such Liabilities resulted primarily from the material breach by such Purchasing
Indemnified Party of any representation, warranty, covenant or other agreement
of such Purchasing Indemnified Party contained in this Agreement or (ii) any
material liability of the Company on the Closing Date not disclosed in this
Agreement.
(b) In addition to all other sums due hereunder or provided for in
this Agreement, the Purchaser (the "Purchasing Indemnifying Party"), severally
and not jointly, shall defend, indemnify and hold harmless the Company and its
Affiliates and its officers, directors, agents, employees, subsidiaries,
partners and assigns (each a "Selling Indemnified Party") to the fullest extent
permitted by law from and against any and all Liabilities incurred or suffered
by such Selling Indemnified Parties resulting from or arising out of any breach
of any representation, warranty, covenant or agreement of any Purchasing
Indemnifying Party in this Agreement; provided, however, that the Purchasing
Indemnifying Party shall not be labile under this Section 8.1 to a Selling
Indemnified Party to the extent that it is finally judicially determined that
such Liabilities resulted primarily from the material breach by such Selling
Indemnified Party of any representation, warranty, covenant or other agreement
of such Selling Indemnified Party contained in this Agreement.
(c) If and to the extent that any indemnification provided for in this
Agreement is unenforceable for any reason, the Indemnifying Parties (as defined
below) obligated to indemnify any Indemnified Party (as defined below) shall
make the maximum contribution to the payment and satisfaction of such
indemnified liability which shall be permissible under applicable laws. In
connection with the obligation of the Indemnifying Parties to indemnify for
expenses as set forth herein, the Indemnifying Parties further agree, upon
presentation of appropriate invoices containing reasonable detail, to reimburse
each Indemnified Party for all such expenses (including reasonable fees,
disbursements and other charges of counsel, as limited by Section 8.2 below) as
they are incurred by such Indemnified Party.
21
<PAGE>
8.2. NOTIFICATION.
If any action or proceeding (including any governmental investigation or
inquiry) shall be brought or asserted against any party entitled to
indemnification pursuant to this Section 8 (an "Indemnified Party") in respect
of which indemnity may be sought from any party required to indemnify such
Indemnified Party (an "Indemnifying Party"), such Indemnified Party shall
promptly notify the Indemnifying Party in writing, and such Indemnifying Party
shall assume the defense thereof, including the employment of counsel selected
by such Indemnifying Party and reasonably satisfactory to such Indemnified Party
and the payment of all expenses; PROVIDED, HOWEVER, that any failure to so
notify such Indemnifying Party shall not impair obligations hereunder except and
only to the extent that such failure results in actual prejudice to such
Indemnifying Party. Such Indemnified Party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall be the expense of such
Indemnified Party unless (a) such Indemnifying Party agreed to pay such fees and
expenses or (b) such Indemnifying Party shall have failed to assume the defense
of such action or proceeding or has failed to employ counsel reasonably
satisfactory to such Indemnified Party in any such action or proceeding or (c)
the named parties to any such action or proceeding (including any impleaded
parties) include both such Indemnified Party and such Indemnifying Party, and
such Indemnified Party shall have been advised by counsel that there may be one
or more legal defenses available to such Indemnified Party which are different
from or additional to those available to such Indemnifying Party (in which case,
such Indemnifying Party shall employ separate counsel at the expense of such
Indemnifying Party, it being understood, however, that such Indemnifying Party
shall not, in connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys at any
time for such Indemnified Party and any other Indemnified Parties). No
Indemnifying Party shall be liable for any settlement of any such action or
proceeding effected without its written consent (which shall not be withheld
unreasonably), but if settled with its written consent, or if there be a final
judgment for the plaintiff in any such action or proceeding, such Indemnifying
Party agrees to indemnify and hold harmless such Indemnified Party from and
against any Liabilities by reason of such settlement or judgment. No
Indemnifying Party shall agree to any settlement of any third party claim
without the consent of the Indemnified Party, which shall not be withheld if
such settlement provides only for the payment of money to be paid by the
Indemnifying Party.
ARTICLE 9.
MISCELLANEOUS
9.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All of the representations and warranties made herein shall survive the
Closing.
22
<PAGE>
9.2. NOTICES.
All notices, demands and other communications provided for or permitted
hereunder shall be made in writing and shall be by registered or certified
first-class mail, return receipt requested, courier service or personal delivery
or via facsimile:
(a) if to the Purchaser:
US WEST Communications, Inc.
1801 California Street
Suite 5200
Denver, Colorado 80202
Attention: Joseph Zell
with copies to:
US WEST Communications, Inc.
1801 California Street
Suite 5100
Denver, Colorado 80202
Attention: Law Department, Strategic Transactions
Group
Brownstein Hyatt Farber & Strickland, P.C.
410 Seventeenth Street
Suite 2200
Denver, Colorado 80202
Attention: John R. Garrett, Esq.
(b) if to the Company:
USinternetworking, Inc.
175 Admiral Cochrane Drive
Suite 400
Annapolis, Maryland 21401
Attention: Christopher R. McCleary
with a copy to:
Latham & Watkins
1001 Pennsylvania Avenue, N.W.
Suite 1300
Washington, D.C. 20004-2505
Attention: James F. Rogers, Esq.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by
23
<PAGE>
commercial overnight courier service; if delivered by facsimile, upon
confirmation of such transmission; and five business days after being deposited
in the mail, postage prepaid, if mailed.
9.3. SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding upon the
successors and permitted assigns of the parties hereto. This Agreement may be
assigned by the Purchaser to any permitted transferee of all or part of the
Preferred Shares or the Common Stock issued upon conversion thereof. The Company
may not assign any of its rights under this Agreement without the written
consent of the Purchaser. Except as provided in this Section 9.3, no Person
other than the parties hereto and their successors and permitted assigns is
intended to be a beneficiary of any of the Transaction Agreements.
9.4. AMENDMENT AND WAIVER.
(a) No failure or delay on the part of the Company or the Purchaser in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the Company or
the Purchaser at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any provision
of this Agreement, any waiver of any provision of this Agreement, and any
consent to any departure by any party from the terms of any provision of this
Agreement, shall be effective (i) only if it is made or given in writing and
signed by the Company (if applicable) and the Purchaser, and (ii) only in the
specific instance and for the specific purpose for which made or given. Except
where notice is specifically required by this Agreement, no notice to or demand
on any party in any case shall entitle any party hereto to any other or further
notice or demand in similar or other circumstances.
9.5. COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by the
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
9.6. HEADINGS.
The headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof.
9.7. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Maryland, without regard to the principles of conflicts of
law of such state.
24
<PAGE>
9.8. ARBITRATION.
Any claim, controversy or dispute arising under this Agreement between the
parties, their employees, officers directors or affiliated agents (a "Dispute")
shall be resolved by arbitration conducted in Washington, D.C. by a single
arbitrator engaged in the practice of law and specializing in the applicable
areas of law under the then-current commercial arbitration rules of the American
Arbitration Association. The Federal Arbitration Act (and not state law) shall
govern the arbitrability of all Disputes. The arbitrator of any Dispute shall
have authority to award compensatory damages only. The arbitrator's award shall
be final and binding and may be enforced by any court having jurisdiction
thereof. Each party shall bear its own costs and attorneys' fees, and shall
share equally in the fees and expenses of the arbitrator. It is expressly agreed
that either party may seek injunctive relief in an appropriate court of law or
equity pending an award in arbitration.
9.9. SEVERABILITY.
If any one or more of the provisions contained herein, or the application
thereof in any circumstance, is held invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions hereof shall
not be in any way impaired, unless the provisions held invalid, illegal or
unenforceable shall substantially impair the benefits of the remaining
provisions hereof.
9.10. RULES OF CONSTRUCTION.
Unless the context otherwise requires, "or" is not exclusive, and
references to sections or subsections refer to sections or subsections of this
Agreement.
9.11. ENTIRE AGREEMENT.
This Agreement, together with the exhibits and schedules hereto and the
other Transaction Agreements, is intended by the parties as a final expression
of their agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein or
therein. This Agreement, together with the exhibits hereto, and the other
Transaction Agreements supersede all prior agreements and understandings between
the parties with respect to such subject matter.
9.12. PUBLICITY.
Except as may be required by applicable law, none of the parties hereto
shall issue a publicity release or announcement or otherwise make any public
disclosure concerning this Agreement or the transactions contemplated hereby,
without prior approval by the other parties hereto. If any announcement is
required by law to be made by any party hereto, prior to making such
announcement such party will deliver a draft of such announcement to the other
party and shall give the other party an opportunity to comment thereon.
Notwithstanding the foregoing,
25
<PAGE>
the Purchaser shall have the right to approve all future disclosures by the
Company to Governmental Authorities, to the public or to existing or prospective
lenders or investors that refer to the Purchaser or to the Company's
relationship with the Purchaser, provided, HOWEVER, that this right shall not
prevent the Company from making any disclosures to any Governmental Authorities
or prospective lenders or investors that are required by applicable law, and any
objections to or comments on the Company's proposed disclosures must be
reasonable and made in good faith.
9.13. FURTHER ASSURANCES.
Each of the parties shall execute such documents and perform such further
acts (including, without limitation, obtaining any consents, exemptions,
authorizations, or other actions by, or giving any notices to, or making any
filings with, any Governmental Authority or any other Person) as may be
reasonably required or desirable to carry out or to perform the provisions of
this Agreement.
9.14. WAIVER OF JURY TRIAL.
EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS SECTION.
26
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized as
of the date first above written.
USINTERNETWORKING, INC.
By: [illegible]
--------------------------------
Name:
------------------------------
Title:
-----------------------------
US West COMMUNICATIONS, INC.
By: [illegible]
--------------------------------
Name:
------------------------------
Title:
-----------------------------
27
<PAGE>
TABLE OF EXHIBITS AND SCHEDULES
EXHIBITS
EXHIBIT A FORM OF AMENDMENT TO SHAREHOLDERS AGREEMENT
EXHIBIT B FORM OF CERTIFICATE OF DESIGNATIONS, PREFERENCES AND OTHER
SPECIAL RIGHTS OF PREFERRED STOCK AND QUALIFICATIONS,
LIMITATIONS AND DESIGNATIONS THEREOF
EXHIBIT C FORM OF OPINION
<PAGE>
AMENDMENT TO SHAREHOLDERS' AGREEMENT
This AMENDMENT, dated as of June ___, 1998 (the "Amendment") is made
and entered into between US West Communications, Inc., a Colorado corporation
("US WEST"), on the one hand, and, on the other hand, the parties to the
Shareholders' Agreement dated as of May 28, 1998 (the "Agreement") by and among
USinternetworking, Inc., a Delaware corporation (the "Company"), Blue Chip
Capital Fund II Limited Partnership, an Ohio limited partnership, Miami Valley
Venture Fund L.P., an Ohio limited partnership, Grotech Partners IV L.P., a
Delaware limited partnership, Grotech Partners V L.P., a Delaware limited
partnership, Southern Venture Fund SBIC, L.P., a Delaware limited partnership,
Southern Venture Fund II, L.P., a Delaware Limited Partnership, Venrock
Associates, a New York limited partnership, Venrock Associates II, L.P., a New
York limited partnership, USi Partners, Ltd., an Ohio limited liability company,
Christopher R. McCleary, Stephen E. McManus and Chris M. Poelma (collectively,
the "Shareholders"). Capitalized terms used and not defined herein have the
meaning assigned to such terms in the Agreement.
Section 1. ADDITION OF PARTY. By its signature below, US WEST agrees to
be bound by the provisions of the Agreement. The Company and the Shareholders
hereby agree to the addition of US WEST as a party to the Agreement, and agree
that US WEST shall have all the rights and obligations of an "Investor" and a
"Stockholder" thereunder to the full extent as though US WEST were an original
signatory to the Agreement.
Section 2. AMENDMENT TO SECTION 4. Section 4 of the Agreement is hereby
amended by adding the following at the end of subparagraph (A) of subsection (b)
thereof:
"provided, however, that US WEST shall have the right to designate one
member of the Board of Directors or, in the alternative at the option
of US WEST, to designate a representative to attend all meetings of the
Board of Directors and its committees as a non-voting observer."
Section 3. AMENDMENT TO SECTION 2. The Company and the Shareholders hereby
waive the provisions of Section 2 of the Agreement to the extent that such
provisions would apply to any transfer of Company Securities by US WEST or its
Affiliates to the extent that, and in the circumstances under which, the Company
has agreed to waive such provisions pursuant to Section 7.4(c) of the Stock
Purchase Agreement.
Section 4. REMAINING PROVISIONS. Except as expressly amended hereby, all
provisions of the Agreement shall remain in full force and effect.
* * * *
IN WITNESS WHEREOF, the parties have executed this Amendment to the
Shareholders' Agreement as of the date first above written.
<PAGE>
THE COMPANY:
USINTERNETWORKING, INC.
a Delaware corporation
By:
-------------------------------------
Christopher R. McCleary,
Chairman and Chief Executive Officer
US WEST:
US WEST COMMUNICATIONS, INC.
By:
-------------------------------------
Title:
SHAREHOLDERS:
BLUE CHIP CAPITAL FUND II LIMITED
PARTNERSHIP
By: BLUE CHIP VENTURE COMPANY, LTD.
Its General Partner
By:
-------------------------------------
John H. Wyant
Manager
2
<PAGE>
MIAMI VALLEY VENTURE FUND L.P.
By: BLUE CHIP VENTURE COMPANY OF
DAYTON, LTD.
Its Special Limited Partner
By:
-------------------------------------
John H. Wyant
Manager
GROTECH PARTNERS IV L.P.
By: GROTECH CAPITAL GROUP IV, LLC
Its General Partner
By:
-------------------------------------
Name:
Title:
GROTECH PARTNERS V L.P.
By: GROTECH CAPITAL GROUP V, LLC
Its General Partner
By:
-------------------------------------
Name:
Manager
SOUTHERN VENTURE FUND SBIC, L.P.
By: SVF SBIC, L.P.
Its General Partner
By:
-------------------------------------
Partner
3
<PAGE>
SOUTHERN VENTURE FUND II, L.P.
By:
-------------------------------------
General Partner
VENROCK ASSOCIATES
By:
-------------------------------------
General Partner
VENROCK ASSOCIATES II, L.P.
By:
-------------------------------------
General Partner
USI PARTNERS, LTD.
By:
-------------------------------------
----------------------------------------
Christopher R. McCleary
----------------------------------------
Steve McManus
----------------------------------------
Chris M. Poelma
4
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "USINTERNETWORKING, INC.", FILED IN THIS OFFICE ON THE
TWENTY-SEVENTH DAY OF MAY, A.D. 1998, AT 5 O'CLOCK P.M.
[SEAL] /s/ Edward J. Freel
------------------------------------
Edward J. Freel, Secretary of State
2846066 8100 AUTHENTICATION: 9208258
981282781
DATE: 07-21-98
<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL AND
OTHER SPECIAL RIGHTS OF PREFERRED
STOCK AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS THEREOF
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
USINTERNETWORKING, INC.
-----------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
-----------------------
USinternetworking Inc., a Delaware corporation (the "Corporation")
certifies that pursuant to the authority contained in Article 4 of its Restated
and Amended Certificate of Incorporation (the "Certificate of Incorporation")
and in accordance with the provisions of Section 151 of the General Corporation
Law of the State of Delaware, the Board of Directors of the Corporation at a
meeting duly called and held on May 26, 1998 adopted the following resolution,
which resolution remains in full force and effect on the date hereof:
RESOLVED, that there is hereby established a series of authorized
preferred stock having a par value of $.01 per share, which sales shall be
designated as "Series A Convertible Preferred Stock" (the "Series A Preferred
Stock"), shall consist of 60,000 shares and shall have the following voting
powers, preferences and relative, participating, optional and other special
rights, and qualifications, limitations and restrictions thereof as follows:
1. CERTAIN DEFINITIONS.
Unless the context otherwise requires, the terms defined in this
Section 1 shall have, for all purposes of this resolution, the meanings herein
specified (with terms defined in the singular having comparable meanings when
used in the plural).
<PAGE>
BUDGET. The term "Budget" means a fiscal year operating budget, which
shall include monthly capital and operating expense budgets, cash flow
statements, capital expenditure budgets, profit and loss projections and
employee hiring projections approved by the Executive Committee of the
Corporation's Board of Directors.
BUSINESS. The term "Business" means to acquisition of interests in, and
the operation of, companies engaged in activities related to the provision of
internet computing services to enterprise customers worldwide, and all services
related thereto.
BUSINESS DAY. The term "Business Day" shall mean a day other than a
Saturday or Sunday or any federal holiday.
COMMON EQUITY. The term "Common Equity" shall mean all shares now or
hereafter authorized of any class of common stock of the Corporation, including
the Common Stock, and any other stock of the Corporation, howsoever designated,
authorized after the Initial Issue Date, which has the right (subject always to
prior rights of any class or series of preferred stock) to participate into
distribution of the assets and earnings of to Corporation without limit as to
per share amount.
COMMON STOCK. The term "Common Stock" shall mean the common stock, par
value $.001 per share, of the Corporation.
CONVERSION DATE. The term "Conversion Date" shall have the meaning set
forth in Subsection 4(b) below.
CONVERSION PRICE. The term "Conversion Price" shall initially mean
$0.33 and thereafter shall be subject to adjustment from time to time pursuant
to the terms of Section 4 below.
DIVIDEND PAYMENT DATE. The term "Dividend Payment Date" shall have the
meaning set forth in Subsection 2(c) below.
EMPLOYEE STOCK OPTION PLAN. The term "Employee Stock Option Plan" shall
mean an employee stock option plan adopted by the Compensation Committee of the
Board of Directors of the Company providing for the issuance to certain
employees of the Company of options to purchase a certain number of shares of
Common Stock at a certain exercise price per share; the total number of shares
of Common Stock which may be issued under such plan shall not exceed 6.5% of the
total number of outstanding shares of common stock calculated on a fully diluted
basis, not including the options and shares issuable or issued on exercise of
options pursuant to the Employee Stock Option Plan.
INITIAL ISSUE DATE. The term "Initial Issue Date" shall mean the date
that shares of Series A Preferred Stock are first issued by the Corporation.
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<PAGE>
IPO. The term "IPO" shall mean an initial public offering of the
Corporation's Common Stock in which the net proceeds are not less than
$30,000,000 and the price to the public is not less than $1.33 per share of
Common Stock as currently constituted.
JUNIOR STOCK. The term "Junior Stock" shall mean, for purposes of
Section 2 below, Common Equity and any class or series of stock of the
Corporation authorized after the Initial Issue Date which is not entitled to
receive any dividends unless all dividends required to have been paid or
declared and set apart for payment on the Series A Preferred Stock shall have
been so paid or declared and set apart for payment, and for purposes of Section
3 below, shall mean Common Equity and any class or series of stock of the
Corporation authorized after the Initial Issue Date which is not entitled to
receive any assets upon a Liquidation Preference Occurrence (as defined below)
until the Series A Preferred Stock shall have received the entire amount to
which such stock is entitled upon such Liquidation Preference Occurrence.
LIQUIDATION PREFERENCE. The term "Liquidation Preference" shall mean
$600 per share of Series A Preferred Stock.
LIQUIDATION PREFERENCE OCCURRENCE. The term "Liquidation Preference
Occurrence" shall mean the liquidation, dissolution, winding up of the affairs
of the Corporation, the sale of all or substantially all of the assets of the
Corporation, or the sale of 100% of the issued and outstanding shares of Common
Stock for cash or marketable securities, or a merger or consolidation with the
same effect as any of the foregoing.
PARITY STOCK. The term "Parity Stock" shall mean, for purposes of
Section 2 below, any class or series of stock of the Corporation authorized
after the Initial Issue Date which is entitled to receive payment of dividends
on a parity with the Series A Preferred Stock, and for purposes of Section 3
below, shall mean any class or series of stock of the Corporation authorized
after the Initial Issue Date which is entitled to receive assets upon
Liquidation Preference Occurrences on a parity with the Series A Preferred
Stock.
PIK QUOTED PRICE. The term "PIK Quoted Price" shall have the meaning
set forth in Subsection (2)(b) below.
PIK DIVIDENDS. The term "PIK Dividends" shall have the meaning set
forth in Subsection (2)(b) below.
QUOTED PRICE. The term "Quoted Price" with respect to either the Common
Stock or Series A Preferred Stock, shall mean the last reported sales price of
the applicable security as reported by the National Association of Securities
Dealers, Inc., Automatic Quotations System, National Market System, or if the
applicable security is listed or admitted for trading on a
3
<PAGE>
securities exchange, the last reported sales price of the applicable security on
the principle exchange on which the applicable security is listed or admitted
for trading (which shall be consolidated trading if applicable to such
exchange), or if neither so reported or listed or admitted for trading, the last
reported bid price of the applicable security in the over-the-counter market or
the Conversion Price. In the event that the Quoted Price cannot be determined as
aforesaid, the Board of Directors of the Corporation shall determine the Quoted
Price in such a manner as it in good faith considers appropriate. Such
determination may be challenged in good faith by a majority of holders of shares
of Series A Preferred Stock, and any dispute shall be resolved at the
Corporation's cost, by an investment banking firm of recognized national
standing selected by the Corporation and acceptable to such holders of Series A
Preferred Stock and shall be made in good faith and be conclusive absent
manifest error.
RECORD DATE. The term "Record Date" shall mean the date designated by
the Board of Directors of the Corporation at the time a dividend is declared for
the purpose of establishing which holders of record are entitled to receive
payment thereof; provided, however, that such Record Date shall not be more than
thirty (30) days nor less than ten (10) days prior to respective Dividend
Payment Date or such other date designated by the Board of Directors for the
payment of dividends.
SENIOR STOCK. The term "Senior Stock" shall mean, for purposes of
Section 2 below, any class or series of stock of the Corporation authorized
after the Initial Issue Date ranking senior to the Series A Preferred Stock in
respect of the right to receive dividends, and for purposes of Section 3 below,
shall mean any class or series of stock of the Corporation authorized after the
Initial Issue Date racking senior to the Series A Preferred Stock in respect of
the right to receive dividend or to participate in any distribution upon any
Liquidation Preference Occurrence.
TRADING DAY. The term "Trading Day" with respect to either the Common
Stock or Series A Preferred Stock, shall mean any day on which any market in
which the applicable security is then traded and in which a Quoted Price may be
ascertained is open for business.
2. DIVIDENDS.
(a) Subject to the prior preferences and other rights of any Senior
Stock as to dividends, the record holder of each share of Series A Preferred
Stock shall be entitled to receive dividends quarterly on the first day of each
calendar quarter, commencing January 1,2000 (each, a "Dividend Payment Date"),
with respect to the prior calendar quarter. Notwithstanding the foregoing, any
accrued but unpaid dividend including any dividend applicable to the pro rata
portion of the then-current dividend period, shall be paid upon the earlier of
(i) to consummation of an IP0 and (ii) the conversion of such share of Series A
Preferred Stock. In any case, dividends shall be paid only to the extent that
funds are legally available for payment of dividends. Such
4
<PAGE>
dividends shall be payable at the rate of eight percent (8%) per annum of the
Liquidation Preference.
(b) Dividends on the Series A Preferred Stock shall be paid in cash, or
at the option of the Corporation, unless such dividend is payable upon
consummation of an IP0 or conversion of the Series A Preferred Stock and at such
time sufficient funds are legally available for payment of such dividends, in
substitute in whole or in part for such cash, in additional fully paid and
nonassessable shares of Series A Preferred Stock legally available for such
purpose (such dividends paid in kind being herein called "PIK Dividends").
Dividends of additional shares of Series A Preferred Stock shall be paid by
delivering to the record holders of Series A Preferred Stock a number of shares
of Series A Preferred Stock determined by dividing the total amount of the cash
dividend which otherwise would be payable on the Dividend Payment Date to such
holders (rounded to the nearest whole cent) by the average Quoted Price per
share of the Series A Preferred Stock for the thirty (30) Trading Days
immediately preceding the date on which such PIK Dividends were accrued ("PIK
Quoted Price"). The issuance of any such PIK Dividend in such amount shall
constitute full payment of such dividend. The Corporation shall not issue
fractional shares of Series A Preferred Stock to which holders may become
entitle pursuant to the subsection, but in lieu thereof, the Corporation shall
deliver its check in an amount equal to the applicable fraction of the PIK
Quoted Price. In no event shall the election by the Corporation to pay
dividends, in whole or in part, in cash or in additional shares of Series A
Preferred Stock preclude the Corporation from making a different election with
respect to all or a portion of the dividends to be paid on the Series A
Preferred Stock on any subsequent Dividend Payment Date. Any additional shares
of Series A Preferred Stock issued pursuant to this section shall be governed by
this Certificate and shall be subject in all respects, expect as to the date of
issuance and date from which dividends accrue and cumulate as set forth below,
to the same terms as the shares of Series A Preferred Stock originally issued
hereunder. All dividends (whether payable in cash or in whole or in part in
additional shares of Series A Preferred Stock) paid pursuant to this section
shall be paid in equal pro rata proportions of such cash and/or shares of Series
A Preferred Stock to the holders entitled thereto, except with respect to cash
payable in lieu of fractional shares which would otherwise be paid as PIK
Dividends.
(c) Dividends on shares of Series A Preferred Stock shall accrue
quarterly on the first day of each calendar quarter for the prior calendar
quarter and be cumulative from the date of issuance of such shares, whether or
not funds for the payment of such dividends are legally available.
(d) So long as any shares of Series A Preferred Stock shall be
outstanding, the Corporation shall declare, pay or set apart for payment on any
Junior Stock any dividends whatsoever, whether in cash, property or otherwise
(other than dividends payable in shares of the class or series upon which such
dividends are declared or paid, or payable in shares of Common Stock with
respect to Junior Stock other than Common Stock, together with cash in lieu of
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fractional shares), nor shall the Corporation make any distribution on any
Junior Stock, nor shall any Junior Stock be purchased, redeemed or otherwise
acquired by the Corporation or any of its subsidiaries of which it owns not less
than a majority of the outstanding voting power, nor shall any moneys be paid or
made available for a sinking fund for the purchase or redemption of any Junior
Stock, unless all dividends to which the holders of Series A Preferred Stock
shall have been entitled for all previous periods shall have been paid or
declared and a sum of money sufficient for the payment thereof has been set
apart.
(e) In the event that full dividends are not paid or made available to
the holder of all outstanding shares of Series A Preferred Stock and of any
Parity Stock and funds available for payment of dividends shall be insufficient
to permit payment in full to holders of all such stock of the full preferential
amounts to which they are then entitled, then the entire amount available for
payment of dividends shall be distributed ratably among all such holders of
Series A Preferred Stock in proportion to the full amount to which they would
otherwise be respectively entitle. For purposes of this subsection, the amount
of legally available PIK Dividends shall be deemed funds available for payment
of dividends but shall not require payment of PIK Dividends on Parity Stock.
(f) Notwithstanding anything contained herein to the contrary, no
dividends on shares of Series A Preferred Stock shall be declared by the Board
of Directors of the Corporation or paid or set apart for payment by the
Corporation at such time as the terms and provisions of any agreement of the
Corporation relating to its funded indebtedness prohibits such declaration,
payment or setting apart for payment or provides that such declaration, payment
or setting apart for payment would constitute a breach thereof or a default
thereunder, or if such declaration or payment shall be restricted or prohibited
by law.
3. DISTRIBUTIONS UPON LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) In the event of any voluntary or involuntary Liquidation Preference
Occurrence, subject to the prior preferences and other rights of any Senior
Stock as to liquidation preferences, but before any payment or distribution
shall be made to the holders of Junior Stock, the holders of Series A Preferred
Stock shall be entitled to be paid out of the assets of the Corporation in cash
Liquidation Preference per share plus an amount equal to all dividends accrued
and unpaid thereon to the date of such Liquidation Preference Occurrence Except
as provided in this section and Section 3(b) below, holders of Series A
Preferred Stock shall not be entitled to any other distribution in the event of
a Liquidation Preference Occurrence.
(b) In addition to any amounts distributed or distributable to the
holders of shares of the Series A Preferred Stock pursuant to Section 3(a)
above, if upon a Liquidation Preference Occurrence, the Corporation's Net Equity
Value (as defined below) as of the date of such Liquidation Preference
Occurrence is less than the Trigger Amount (as defined below) (the "Additional
Preference Event"), holders of Series A Preferred Stock will be entitled to
receive an
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additional amount (the "Additional Per Share Preference") per share of Series A
Preferred Stock determined in accordance with the following formula:
EDA
---------
OCS + CPS
"EDA" means (x) the Distribution Amount, minus (y) the aggregate amount
required to be distributed to the holders of all outstanding shares of Series A
Preferred Stock pursuant to Section 3(a) above.
"Distribution Amount" means the aggregate amount of cash and the fair
market value of property (as determined by the Board of Directors) of the
Corporation available for distribution to all stockholders of the Corporation on
the date of a Liquidation Preference Occurrence.
"OCS" means the number of shares of Common Stock issued and outstanding
as of such Liquidation Preference Occurrence.
"CPS" means the number of shares of Common Stock which would be
issuable upon conversion of all of the issued and outstanding shares of Series A
Preferred Stock as of the date of such Liquidation Preference Occurrence.
"Enterprise Value" means the fair market value of the assets of the
Corporation without consideration to any obligations of the Corporation. For
purposes of this definition, Enterprise Value shall be as determined by the
Board of Directors; provided, however, that if the holders of a majority of the
Common Stock or Series A Preferred Stock object to the fair market value
determination, the Enterprise Value shall be determined by an investment banking
firm of nationally recognized standing selected by and agreeable to both the
Board of Directors and the holders of a majority of the Common Stock or the
Series A Preferred Stock and such determination shall be conclusive; provided,
further, that if the Board of Directors and the holders of a majority of the
Common Stock or Series A Preferred Stock cannot agree on an investment banking
firm, then each shall select an investment banking firm and these two firms
shall select an investment banking firm of nationally recognized standing to
determine Enterprise Value and the determination of such investment banking firm
shall be conclusive.
"Net Equity Value" means the Enterprise Value of the Corporation less
Debt (as defined).
"Debt" means the aggregate principal amount of all outstanding
indebtedness of the Corporation and its consolidated subsidiaries as of the date
of such Liquidation Preference Occurrence.
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"Trigger Amount" means, on any date, that Net Equity Value of the
Corporation that, assuming conversion of all of the Series A Preferred Stock,
would upon liquidation of the Corporation on such date (without application of
the provisions of this section 3(b)) return to the holders of Series A Preferred
Stock an amount equal to five times the amount originally paid to the Company
for such stock in connection with its original issuance or issuances.
(c) If, upon any such Liquidation Preference Occurrence, the assets of
the Corporation shall be insufficient to permit the payment in full of the
Liquidation Preference per share plus an amount equal to all dividends accrued
and unpaid on the Series A Preferred Stock and/or the Additional Per Share
Preference if there is an Additional Preference Event and the full liquidating
payments on all Parity Stock, then the assets of the Corporation remaining after
the distributions to holders of any Senior Stock of the full amounts to which
they may be entitled shall be ratably distributed among the holders of Series A
Preferred Stock and of any Parity Stock in proportion to the full amounts to
which they would otherwise be respectively entitled if all amounts thereon were
paid in full provided; however, that holders of Series A Preferred Stock shall
not be entitled to receive the Additional Per Share Preference and such
Additional Per Share Preference shall not be considered in the calculation of
the amounts to which they would be entitled to receive.
(d) All shares of Series A Preferred Stock for which payments have been
made under this Section 3 shall be retired and shall be restored to the status
of authorized and unissued shares of preferred stock, without designation as to
series and may thereafter be reissued as shares of any series of preferred stock
other than Series A Preferred Stock.
4. CONVERSION RIGHTS.
(a) A holder of shares of Series A Preferred Stock may convert such
shares into Common Stock at any time. Series A Preferred Stock will convert
automatically upon consummation of an IPO. For the purposes of conversion, each
share of Series A Preferred Stock shall be valued at the Liquidation Preference,
which shall be divided by the Conversion Price in effect on the Conversion Date
to determine the number of shares issuable upon conversion. Immediately
following such conversion, the rights of the holders of converted Series A
Preferred Stock (other than the right to receive accrued and unpaid dividends on
such conversion as provided herein) shall cease and the persons entitled to
receive the Common Stock upon the conversion of Series A Preferred Stock shall
be treated for all purposes as having become the owners of such Common Stock.
(b) To convert Series A Preferred Stock, a holder must (i) surrender
the certificate or certificates evidencing the shares of Series A Preferred
Stock to be converted, duly endorsed in a form satisfactory to the Corporation,
at the office of the Corporation or transfer agent for the Series A Preferred
Stock, (ii) notify the Corporation at such office that he elects to
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<PAGE>
convert Series A Preferred Stock, and the number of shares he wishes to convert,
and (iii) state in writing the name or names in which he wishes the certificate
or certificates for shares of Common Stock to be issued. In the event that a
holder fails to notify the Corporation of the number of shares of Series A
Preferred Stock which he wishes to convert, he shall be deemed to have elected
to convert all shares represented by the certificate or certificates surrendered
for conversion. The date on which the holder satisfies all those requirements is
the "Conversion Date." As soon as practical, the Corporation shall deliver a
certificate for the number of full shares of Common Stock issuable upon the
conversion of The shares of Series A Preferred Stock represented by the
certificate or certificates surrendered for conversion. The person in whose name
the Common Stock certificate is registered shall be treated as the stockholder
of record on and alter the Conversion Date. However, dividends will be paid on
any Dividend Payment Date with respect to Series A Stock surrendered for
conversion after a record date for the payment of a dividend to the registered
holder of Series A Preferred Stock on such record date. If the last day on which
Series A Preferred Stock may be converted is a Legal Holiday in a place where
the Corporation or the transfer agent is located, Series Preferred Stock may be
surrendered for conversion on the next succeeding day that is not a Legal
Holiday.
(c) The Corporation will not issue a fractional share of Common Stock
upon conversion of Series A Preferred Stock. Instead, the Corporation will
deliver its check for the current market value of the fractional share. The
current market value of a fraction of a share is determined as follows: Multiply
the current market price of a full share by the fraction. Round the result to
the nearest cent. The current market price of a share of Common Stock is the
Quoted Price of the Common Stock on the last Trading Day prior to the Conversion
Date.
(d) If a holder converts shares of Series A Preferred Stock, the
Corporation shall pay any documentary, stamp or similar issue or transfer tax
due on the issue of shares of Common Stock upon the conversion. However, the
holder shall pay any such tax which is due because the shares are issued in a
name other than the holder's name.
(e) The Corporation has reserved and shall continue to reserve out of
its authorized but unissued Common Stock or its Common Stock held in treasury
enough shares of Common Stock to permit the conversion of the Series A Preferred
Stock in full. All shares of Common Stock which may be issued upon conversion of
Series A Preferred Stock shall be fully paid and nonassessable. The Corporation
will endeavor to comply with all securities laws regulating the offer and
delivery of shares of Common Stock upon conversion of Series A Preferred Stock
and will endeavor to list such shares on each national securities exchange on
which the Common Stock is listed.
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<PAGE>
(f) If the Corporation:
(i) pays a dividend or makes a distribution on its Common Stock
in shares of its Common Stock;
(ii) subdivides its outstanding shares of Common Stock into a
greater number of shares;
(iii) combines its outstanding shares of Common Stock into a
smaller number of shares; or
(iv) issues by reclassification of its Common Stock any shares of
its capital stock;
then the Conversion Price in effect immediately prior to such action shall be
adjusted so that the holder of Series A Preferred Stock thereafter converted may
receive the number of shares of capital stock of the Corporation which he would
have owned immediately following such action if he had converted Series A
Preferred Stock immediately prior to such action. The adjustment shall become
effective immediately after the record date in the case of dividend or
distribution and immediately after the effective date of a subdivision,
combination or reclassification. Such adjustment shall be made successively
whenever any event listed above shall occur. If, after an adjustment referred to
in clauses (i) through (iv) above, a holder of Series A Preferred Stock upon
conversion of it may receive shares of two or more classes of capital stock of
the Corporation, the Corporation shall determine the allocation of the adjusted
Conversion Price between the classes of capital stock. After such allocation,
the Conversion Price of each class of capital stock shall thereafter be subject
to adjustment on terms comparable to those applicable to Common Stock in this
Subsection (f).
(g) If the Corporation distributes any rights or warrants to all
holders of in Common Stock entitling them for a period expiring within sixty
(60) days after the record date mentioned below to purchase shares of Common
Stock at a price per share less than the current market price per share on that
record date, the Conversion Price shall be adjusted in accordance with the
formula:
N x P
-----
O + M
-----
C1 = C x O + N
where:
C' = the adjusted Conversion Price.
C = the then current Conversion Price.
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<PAGE>
O = the number of shares of Common Stock outstanding on the
record date, calculated on a fully diluted basis.
N = the number of additional shares of Common Stock offered.
P = the offering price per share of the additional shares of
Common Stock.
M = the current market price per share of Common Stock on the
record date.
The adjustment shall be made successively whenever any such rights or warrants
are issued and shall become effective immediately after the record date for the
determination of stockholders entitled to receive the rights or warrants. If at
the end of the period during which such warrants or rights are exercisable, not
all warrants or rights shall have been exercised, the Conversion Price shall be
immediately readjusted to what it would have been if "N" in the above formula
had been the number of shares actually issued.
(h) If the Corporation distributes to all holders of shares of its
Common Stock (i) any shares of any class of capital stock of the Corporation
other than its Common Stock, (ii) any evidence of indebtedness of the
Corporation or any subsidiary of the Corporation, (iii) any other assets of the
Corporation, or (iv) any rights, options or warrants to acquire any of the
foregoing (other than rights, options or warrants referred to in Subsection 4(g)
above), the Conversion Price shall be adjusted in accordance with the formula:
C1 = C x M - F / M
where:
C1 = the adjusted Conversion Price.
C = the then current Conversion Price.
M = the current market price per share of Common Stock on the
record date mentioned below.
F = the fair market value on the record date of the capital
stock, indebtedness, rights, options or warrants applicable
to one share of Common Stock. The Board of Directors of the
Corporation shall determine the fair market value.
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders added to receive the distribution.
(i) If the Corporation issues shares of Common Stock for a
consideration per share less than the current market price per share on
the date the
-11-
<PAGE>
Corporation fixes the offering price of such additional shares, the Conversion
Price shall be adjusted in accordance with the formula:
C1 = C * O + ((P / M) / A)
where:
C1 = the adjusted Conversion Price.
C = the then current Conversion Price.
0 = the number of shares outstanding immediately prior to the
issuance of such additional shares.
P = the aggregate consideration received for the issuance of
such additional shares.
M = the current market price per share on the date of issuance
of such additional shares.
A = the number of shares outstanding immediately after the
issuance of such additional shares, calculated on a fully
diluted basis.
The adjustment shall be made successively whenever any such issuance is
made, and shall become effective immediately after such issuance. This
Subsection 4(i) does not apply to (i) any transaction or issuance described in
Subsection 4(g) or 4(h) above or Subsection 4(j) below, (ii) the conversion of
Series A Preferred Stock, or the conversion, exchange or exercise of other
securities convertible into or exchangeable or exercisable for Common Stock,
(iii) Common Stock issued to the Corporation's employees under bona fide
employee benefit plans adopted by the Board of Directors of the Corporation and
approved by the holders of Common Stock when required by law, if such Common
Stock would otherwise by covered by this Subsection 4(i) (but only to the extent
that the aggregate number of shares excluded hereby (together with the aggregate
number of shares issuable upon conversion, exchange or exercise of the
securities excluded by clause (iii) of Subsection 4(j) below) and issued after
the Initial Issue Date shall not exceed 5% of the Common Stock outstanding at
the lime of my such issuance), (iv) Common Stock issued to acquire, or in the
acquisition of, all or any portion of a business as a going concern, in an
arm's-length transaction between the Corporation and an unaffiliated third
party, whether such acquisition shall be effected by purchase of assets,
exchange of securities, merger, consolidation or otherwise, or (v) Common Stock
issued in a bona fide public offering pursuant to a firm commitment
underwriting.
(j) If the Corporation issues any options, warrants or other securities
convertible into or exchangeable or exercisable for Common Stock (other than
Series A Preferred Stock or securities issued in transactions described in
Subsection 4(g) or 4(h) above) and for a
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<PAGE>
consideration per share of Common Stock initially deliverable upon conversion,
exchange or exercise of such securities less than the current market price per
share on the date of issuance of such securities, the Conversion Price shall be
adjusted in accordance with the formula:
C1 = C * ((O + (P / M)) / (O + (D))
where:
C1 = the adjusted Conversion Price
C = the then current Conversion Price.
0 = the number of shares outstanding immediately prior to the
issuance of such securities, calculated on a fully diluted
basis.
P = the aggregate consideration received for the issuance of
such securities.
M = the current market price per share on the date of issuance
of such securities.
D = the maximum number of shares deliverable upon conversion or
in exchange for or upon exercise of such securities at the
initial conversion, exchange or exercise rate.
The adjustment shall be made successively whenever any such issuance is
made, and shall become effective immediately after such issuance. If all of the
Common Stock deliverable upon conversion, exchange or exercise of such
securities has not been issued when such securities are no longer outstanding,
then the Conversion Price shall promptly be readjusted to the Conversion Price
which would then be in effect had the adjustment upon the issuance of such
securities been made on the basis of the actual number of shares of Common Stock
issued upon conversion, exchange or exercise of such securities. This Subsection
4(j) does not apply to (i) the issuance of any such securities to acquire, or in
the acquisition of all or any portion of a business as a going concern, in an
arm's-length transaction between the Corporation and an unaffiliated third
party, whether such acquisition shall be effected by purchase of assets,
exchange of securities, merger, consolidation or otherwise, (ii) the issuance of
any such securities in a bona fide public offering pursuant to a firm commitment
underwriting, or (iii) the issuance of any such securities to the Corporation's
employees under honk fide employee benefit plans adopted by the Board of
Directors of the Corporation and approved by the holders of Common Stock when
required by law, if such securities would otherwise by covered by this
Subsection 4(j) (but only to the extent that the aggregate number of shares
issuable upon the conversion, exchange or exercise of the aggregate number of
securities excluded hereby (together with the aggregate number of shares
excluded by clause (iii) of Subsection 4(i) above) and issued after the
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<PAGE>
Initial Issue Date shall not exceed 5% of the Common Stock outstanding at the
time of any such issuance).
(k) In Subsections 4(g), 4(h), 4(1) and 4(j) above, the current market
price per share of Common Stock on any date is the average of the Quoted Prices
for thirty (30) consecutive Trading Days commencing Forty-Five (45) Trading Days
before the date in question.
(l) For purposes of any computation respecting consideration received
pursuant to Subsections 4(1) and 4(j) above, the following shall apply:
(i) in case of the issuance of shares of Common Stock for cash,
the consideration shall be the net amount of such cash received by the
Corporation, after deducting all commissions, discounts or other
expenses incurred by the Corporation for any underwriting of the issue
or otherwise in connection therewith;
(ii) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair marks value thereof as
determined by the Board of Directors of the Corporation (irrespective
of the accounting treatment thereof); and
(iii) in the case of the issuance of options, warrants or other
securities convertible into or exchangeable or exercisable for shares,
the aggregate consideration received therefor shall be deemed to be the
consideration received by the Corporation for the issuance of such
options, warrants or other securities plus the additional minimum
consideration, if any, to be received by the Corporation upon the
conversion or exchange or exercise thereof (the consideration in each
case to be determined in the same inner as provided in clauses (i) and
(ii) of this Subsection 4(1)).
(m) No adjustment in the Conversion Price need be made unless the
adjustment would require an increase or decrease oft least 1% in the Conversion
Price. Any adjustments that are not made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 4
shall be made to the nearest cent or to the nearest 1/100th of a share, as the
case may be.
(n) No adjustment in the Conversion Price need be made under this
Section 4 for (i) rights to purchase Common Stock pursuant to a Corporation plan
for reinvestment of dividends or interest, or (ii) any change in the par value
or no per value of the Common Stock, and in no event shall any adjustment made
under this Section 4 reduce the Conversion Price below the par value of the
Common Stock. If an adjustment is made to the Conversion Price upon the
establishment of a record date for a distribution subject to Subsections 4(g) or
4(h)
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<PAGE>
above and if such distribution is subsequently canceled, the Conversion Price
then in effect shall be readjusted, effective as of the date when the Board of
Directors of the Corporation determines to cancel such distribution, to the
Conversion Price which would have been in effect if such record date had not
been fixed. No adjustment in the Conversion Price need be made under Subsections
4(g) and 4(h) above if the Corporation issues or distributes to each holder of
Series A Preferred Stock the shares of Common Stock, evidences of indebtedness,
assets, rights, options or warrants referred to in those subsections which each
holder would have been entitled to receive had Series A Preferred Stock been
converted into Common Stock prior to the happening of such event or the record
date with respect thereto.
(o) Whenever the Conversion Price is adjusted, the Corporation shall
promptly mail to holders of Series A Preferred Stock, first class, postage
prepaid, a notice of the adjustment. The Corporation shall file with the
transfer agent if any, for Series A Preferred Stock a certificate from the
Corporation's independent public accountants briefly stating the facts requiring
the adjustment and the manner of computing it. Subject to Subsection 4(t) below,
the certificate shall be conclusive evidence that the adjustment is correct.
(p) The Corporation from time to time may reduce the Conversion Price
by any amount for any period of time if the period is at least twenty (20)
Business Days and if the reduction is irrevocable during the period, but in no
event may the Conversion Price be less than the par value of a share of Common
Stock. Whenever the Conversion Price is reduced, the Corporation shall mail to
holders of Series A Preferred Stock a notice of the reduction. The Corporation
shall mail, first class, postage prepaid, the notice at least 15 days before the
date the reduced conversion price takes effect. The notice shall state the
reduced conversion price and the period it will be in effect. A reduction of the
Conversion Price does not change or adjust the Conversion Price otherwise in
effect for purposes of Subsections 4(f), 4(g), 4(h), 4(i) and 4(j) above.
(q) If:
(i) the Corporation takes any action which would require an
adjustment in the Conversion Price pursuant to Subsection 4(g) or 4(h)
above, or clause (iv) of Subsection 4(1) above;
(ii) the Corporation consolidates or merges with, or transfers all
or substantially all of its assets to, another corporation, and
stockholders of the Corporation must approve the transaction; or
(iii) there is a dissolution or liquidation of the Corporation:
a holder of Series A Preferred Stock may want to convert such stock into shares
of Common Stock prior to the record date for or the effective date of the
transaction so that he may receive the rights, warrants,
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<PAGE>
securities or assets which a holder of shares of Common Stock on that date may
receive. Therefore, the Corporation shall mail to such holders, first class,
postage prepaid, a notice stating the proposed record or effective date, as the
case may be. The Corporation shall mail the notice at least ten (10) days before
such date. Failure to mail the notice or any defect in it shall not affect the
validity of any ration referred to in clause (i), (ii) or (ii) of this
Subsection 4(q).
(r) If the Corporation is party to a merger which reclassifies or
changes its Common Stock, upon consummation of such transaction Series A
Preferred Stock shall automatically become convertible into the kind and amount
of securities, cash or other assets which the holder of Series A Preferred Stock
would have owned immediately after the consolidation, merger, transfer or lease
if such holder had converted Series A Preferred Stock immediately before the
effective date of the transaction, appropriate adjustment (as determined by the
Board of Directors of the Corporation) shall be made in the application of the
provisions herein set forth with respect to the rights and interests thereafter
of the holders of Series A Preferred Stock, to the end that the provisions set
forth herein (including provisions with respect to changes in and other
adjustment of the Conversion Price) shall thereafter be applicable, as nearly as
reasonably may be, in relation to any shares of stock or other securities or
property thereafter deliverable upon the conversion of Series A Preferred Stock.
If this Subsection 4(r) applies Subsection 4(f) does not apply.
(s) In any case in which this Section 4 shall require that an
adjustment as a result of any event become effective from and after a record
date, the Corporation may elect to defer until after the occurrence of such
event (i) the issuance to the holder of any shares of Series A Preferred Stock
convened after such record dale and before the occurrence of such event of the
additional shares of Common Stock issuable upon such conversion over and above
the shares issuable on the basis of the Conversion Price in effect immediately
prior to adjustment and (ii) a check for any remaining fractional shares of
Common Stock as provided in Subsection 4(c) above.
(t) Except as provided in the immediately following sentence, any
determination that the Corporation or its Board of Directors must make pursuant
to this Section 4 shall be conclusive. Whenever the Corporation or its Board of
Directors shall be required to make a determination under this Section 4, such
determination shall be made in good faith and may be challenged in good faith by
a majority of the holders of Series A Preferred Stock, and any dispute shall be
resolved, at the Corporation's expense, by an investment banking firm of
recognized national standing selected by the Corporation and acceptable to such
holders of Series A Preferred Stock.
(u) All shares of Series A Preferred Stock converted pursuant to this
Section 4 shall be retired and shall be restored to the status of authorized and
unissued shares of preferred stock, without designation as to series and may
thereafter be reissued as shares of any series of preferred stock other than
Series A Preferred Stock.
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5. VOTING RIGHTS
(a) Except as otherwise provided by law or in Section 5(b) below, the
holders of record of shares of Series A Preferred Stock shall be entitled to
vote with the Common Stock as a single class as if their shares had been
converted to shares of Common Stock, giving the Series A Preferred Stockholders
the same voting rights as the holders of Common Stock.
(b) Without the consent of the holders of two-thirds of the outstanding
shares of Series A Preferred Stock, the Corporation shall not take, and shall
not permit any subsidiary to take, the following actions:
(1) fail to continue the Business as its principal line of
business or engage in any business other than the Business:
(2) amend or otherwise alter the Corporation's Certificate of
Incorporation or Bylaws in any respect that affects the rights of the Series A
Preferred Stock;
(3) enter into any transaction with any shareholder, director,
officer or affiliate, or any relative of any of the foregoing, other than on
terms which are (i) no less favorable to the Corporation than a similar
transaction with an unaffiliated third party and (ii) are approved by the
Executive Committee of the Corporation's Board of Directors after full
disclosure;
(4) be a party to any merger or consolidation or sell, lease,
transfer, exchange or otherwise transfer all or substantially all of its capital
stock or assets, or agree to do any of the foregoing except for the merger of a
subsidiary with another subsidiary or the Corporation;
(5) enter into any material transaction that is outside the
ordinary course of its business;
(6) effect or commence any voluntary dissolution or liquidation;
(7) establish any subsidiary other than a wholly owned subsidiary;
(8) directly or indirectly purchase, redeem or otherwise acquire
for value any of its outstanding capital stock other than as required by this
Certificate or the Certificate of Incorporation or, directly or indirectly
declare or pay any dividend or make any distribution on its capital stock;
except for dividends on the Series A Preferred Stock and dividends by
subsidiaries payable to the Corporation or to other subsidiaries;
17
<PAGE>
(9) borrow or agree to borrow any funds, grant a security interest
in or lien, mortgage or other encumbrance on any of its assets or give any
guaranty of indebtedness or obligations of another, in any case in excess of One
Million Dollars ($1,000,000);
(10) buy all or substantially all of the stock or assets of any
person or any ongoing business or enter any agreement to do any of the
foregoing;
(11) grant any options exercisable for Common Stock or any other
shares of its capital stock to employees, officers, directors or independent
contractors of the Corporation or any of its subsidiaries or to any other
person; provided, however, that the Corporation may issue options granted
pursuant to the Employee Stock Option Plan (the "Permitted Options");
(12) issue or enter into any agreement providing for the issuance
(contingent or otherwise) of any shares of its capital stock or any other
securities, other than the Permitted Options or shares of subsidiaries issued to
the Corporation or to subsidiaries of the Corporation;
(13) make or agree to make capital expenditures for property,
plant or equipment in excess of the amount set forth in the then-current Budget;
or
(14) enter into or be a party to any lease providing for annual
rental payments in excess of the amount set forth in the then-current Budget
6. EXCLUSION OF OTHER RIGHTS.
Except as may otherwise be required by law, the shares of Series A
Preferred Stock shall not have any voting powers, preferences and relative,
participating, optional or other special rights, other than those specifically
set forth in this Certificate (as such Certificate may be amended from time to
time) and in the Certificate of Incorporation. The shares of Series A Preferred
Stock shall have no preemptive or subscription rights hereunder.
7. HEADINGS OF SUBDIVISIONS.
The headings of the various subdivisions hereof are for convenience of
reference only and shall not affect the interpretation of any of the provisions
hereof.
8. SEVERABILITY OF PROVISIONS.
If any voting powers, preferences and relative, participating, optional
and other special rights of the Series A Preferred Stock and qualifications,
limitations and restrictions
18
<PAGE>
thereof set forth in this Certificate (as such Certificate may be amended from
time to time) is invalid, unlawful or incapable of being enforced by reason of
any rule of law or public policy, all other voting powers, preferences and
relative, participating, optional and other special rights of Series A Preferred
Stock and qualifications, limitations, and restrictions thereof set forth in
this Certificate (as so amended) which can be given effect without the invalid,
unlawful or unenforceable voting powers, preferences and relative,
participating, optional and other special rights of Series A Preferred Stock and
qualifications, limitations and restrictions thereof shall, nevertheless, remain
in full force and effect; and no voting powers, preferences and relative,
participating optional or other special rights of Series A Preferred Stock and
qualifications, limitations and restrictions thereof herein set forth shall be
deemed dependent upon any other such voting powers, preferences and relative,
participating, optional or other special rights of Series A Preferred Stock and
qualifications, limitations and restrictions thereof unless so expressed herein.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
duly executed by the undersigned and attested by the undersigned its secretary,
This 20 day Of May, 1998.
USINTERNETWORKING, INC.
By: /s/ Christopher R. McCleary
-------------------------------------
Name: Christopher R. McCleary
Title: Chief Executive Officer
ATTEST:
By: /s/ William T. Price
----------------------------
William T. Price, Secretary
19
<PAGE>
[Letterhead of Latham & Watkins]
July 2, 1998
US WEST Communications, Inc.
1801 California Street
Suite 1500
Denver, CO 80202
Re: Stock Purchase Agreement, dated as of June 19, 1998 (the "Agreement")
by and among USinternetworking, Inc., a Delaware corporation, and US
WEST Communications, Inc. (the "Purchaser")
--------------------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to USinternetworking, Inc., a Delaware
corporation (the "Company"), in connection with the purchase by the Purchaser of
5,833.33 shares of Series A Convertible Preferred Stock, par value $.01 per
share, of the Company (the "Series A Preferred Stock") pursuant to the
Agreement. This opinion is rendered to you pursuant to Section 3.11 of the
Agreement. Capitalized terms defined in the Agreement, used herein, and not
otherwise defined herein shall have the meanings given them in the Agreement.
As such counsel, we have examined such matters of fact and questions of
law as we have considered appropriate for purposes of rendering the opinions
expressed below, except where a statement is qualified as to knowledge or
awareness, in which case we have made no or limited inquiry as specified below.
We have examined, among other things, the following:
<PAGE>
[Letterhead of Latham & Watkins]
US WEST Communications, Inc.
July 2, 1998
Page 2
(a) The Agreement;
(b) The Shareholders' Agreement, as amended by the Amendment; and
(c) The certificate of incorporation of the Company, as amended
(including the Certificate of Designations, as amended,) and the Bylaws of the
Company (the "Governing Documents").
The documents described in subsections (a), (b) and (c) above are
referred to herein collectively as the "Documents."
In our examination, we have assumed the genuineness of all signatures
(other than those of officers of the Company on the Documents), the authenticity
of all documents submitted to us as originals, and the conformity to authentic
original documents of all documents submitted to us as copies.
We have been furnished with, and with your consent have relied upon,
certificates of officer(s) of the Company with respect to certain factual
matters. In addition, we have obtained and relied upon such certificates and
assurances from public officials as we have deemed necessary.
We are opining herein as to the effect on the subject transaction only
of the federal laws of the United States, the internal laws of the State of
Maryland, and the General Corporation Law of the State of Delaware, and we
express no opinion with respect to the applicability thereto, or the effect
thereon, of the laws of any other jurisdiction or, in the case of Delaware, any
other laws, or as to any matters of municipal law or the laws of any other local
agencies within any state.
Our opinions set forth in clauses (i) and (iii) of paragraph 4 below
are based upon our consideration of only those statutes, rules and regulations
which, in our experience, are normally applicable to stock purchase
transactions. Whenever a statement herein is qualified by "to the best of our
knowledge" or a similar phrase, it is intended to indicate that those attorneys
in this firm who have rendered legal services in connection with this stock
purchase transaction do not have current actual knowledge of the inaccuracy of
such statement. However, except as otherwise expressly indicated, we have not
undertaken any independent investigation to determine the accuracy of any such
statements, and no inference that we have any knowledge of any matters
pertaining to such statement should be drawn from our representation of the
Company.
<PAGE>
[Letterhead of Latham & Watkins]
US WEST Communications, Inc.
July 2, 1998
Page 3
Subject to the foregoing and the other matters set forth herein, it is
our opinion that, as of the date hereof:
1. The Company has been duly incorporated and is validly existing and
in good standing under the laws of the State of Delaware with corporate power
and authority to own and lease its properties and to conduct its business and to
execute, deliver and perform its obligations under the Transaction Agreements.
Based solely on certificates from public officials, we confirm that the Company
is qualified to do business in the State of Maryland.
2. The execution, delivery and performance of the Transaction
Agreements by the Company have been duly authorized by all necessary corporate
action of the Company, and the Transaction Agreements have been duly executed
and delivered by the Company.
3. The Agreement constitutes a legally valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms.
4. The execution and delivery of the Transaction Agreements by the
Company and the performance of the obligations of the Company under the
Transaction Agreements do not: (i) violate any federal or Maryland statute, rule
or regulation applicable to the Company or the Delaware General Corporation Law;
(ii) violate the provisions of the Governing Documents or of any agreement to
which the Company is a party identified to us by an officer of the Company as
material to the Company's business; or (iii) to the best our knowledge, require
any consents, approvals, authorizations, registrations, declarations or filings
by the Company under any federal or Maryland statute, rule or regulation
applicable to the Company or the Delaware General Corporation Law. No opinion is
expressed in clauses (i) and (iii) of this paragraph 4 as to the application of
Section 548 of the federal Bankruptcy Code and comparable provisions of state
law or of any antifraud laws, antitrust or trade regulation laws.
5. The shares of Series A Preferred Stock to be issued pursuant to the
Agreement have been duly authorized and, when issued to and paid for by the
Purchaser in accordance with the terms of the Agreement, will be validly issued,
fully paid and non-assessable. The issuance of shares of Common Stock upon
conversion of the Preferred Shares. The shares of Common Stock to be issued upon
conversion of the Preferred Shares have been duly authorized and, when issued
upon conversion of the Preferred Stock in accordance with the terms of the
Preferred Stock, will be validly issued, fully paid and non-assessable.
6. The authorized capital stock of the Company consists of One Hundred
Fifty Million (150,000,000) shares of Common Stock, par value $0.001 per share,
and One
<PAGE>
[Letterhead of Latham & Watkins]
US WEST Communications, Inc.
July 2, 1998
Page 4
Hundred Thousand (100,000) shares of preferred stock, par value $0.01 per share.
Based solely on our review of the Company's stock records, the Company's issued
and outstanding capital stock is as set forth on Exhibit A attached hereto.
The opinions expressed in paragraph 3 above are subject to the
following limitations, qualifications and exceptions:
(a) such opinions are subject to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting the rights
of creditors; and
(b) such opinions are subject to the exercise of judicial
discretion in accordance with general principles of equity.
To the extent that the obligations of the Company may be dependent upon
such matters, we assume for purposes of this opinion that: all parties to the
Transaction Agreements other than the Company are duly formed, validly existing
and in good standing under the laws of their respective jurisdictions of
formation; all parties to the Transaction Agreements other than the Company have
the requisite partnership power and authority to execute and deliver the
Transaction Agreements and to perform their respective obligations under the
Transaction Agreements; and the Transaction Agreements to which such parties
other than the Company are a party have been duly authorized, executed and
delivered by such parties and constitute their legally valid and binding
obligations, enforceable against them in accordance with their terms. We express
no opinion as to compliance by any parties to the Transaction Agreements with
any state or federal laws or regulations applicable to the subject transactions
because of the nature of their business.
This opinion is rendered only to you and is solely for your benefit in
connection with the transactions covered hereby. This opinion may not be relied
upon by you for any other purpose, or furnished to, quoted to or relied upon by
any other person, firm or corporation for any purpose. without our prior written
consent.
Very truly yours,
<PAGE>
Exhibit A
See attached chart.
<PAGE>
Shares of Capital Stock Issued and Outstanding
Holders of Series A Preferred Stock
<TABLE>
<CAPTION>
Shares of Series A Convertible Preferred Stock
Holders Issued by the Company To Each Holder
- --------------------------------------------------------------------------------
<S> <C>
Blue Chip Capital Fund II 11,458.33
Limited Partnership
Miami Valley Venture Fund L.P. 1,875.00
Grotech Partners IV, and 16,666.67
Grotech Partners V, L.P.
Southern Venture Fund 5610, L.P. 3,333.33
Southern Venture Fund, II, L.P. 1,666.67
Venrock Associates 3,583.33
Venrock Associates II, L.P. 4,750.00
McCleary Technology Capital 1,666.67
USi Partners, Ltd. 1,166.67
US WEST Communications, Inc. 5,833.33
--------
Total 52,000.00
</TABLE>
<TABLE>
<CAPTION>
HOLDERS OF COMMON STOCK
-----------------------
Number of Shares of Common Stock Issued by the
Holders Company
- --------------------------------------------------------------------------------
<S> <C>
Christopher R. McCleary 5,000,000
Stephen E. McManus 5,000,000
Christopher M. Poelma 5,000,000
----------
Total 15,000,000
</TABLE>
We call your attention to the fact that the Company has Informed us that it has
authorized the issuance of common stock options to certain of its employees,
which options shall be governed by the Employee Stock Option Plan, which has yet
to be adopted. As of the Closing Date, the Company has informed us that it has
agreed to issue options to purchase approximately x shares of common stock to
its employees. The Company also has agreed to issue 30,000 stock options to each
of its directors who are not employees of the Company.
<PAGE>
SCHEDULES
<PAGE>
SCHEDULE B
KEY EMPLOYEES
Christopher R. McCleary, Chairman and Chief Executive Officer
Stephen E. McManus, President
Christopher M. Poelma, Executive Vice President and Chief Technology Officer
<PAGE>
SCHEDULE 5.5
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Holders of Issued and Outstanding Number of Shares
Shares of Capital Stock Held of Capital Stock
- --------------------------------------------------------------------------------
<S> <C>
Christopher McCleary 5,000,000 shares of Common Stock
- --------------------------------------------------------------------------------
Chris Poelma 5,000,000 shares of Common Stock
- --------------------------------------------------------------------------------
Steve McManus 5,000,000 shares of Common Stock
- --------------------------------------------------------------------------------
</TABLE>
See attached for a list of the holders of Series A Preferred Stock.
See also attached for the Common Stock Options list.
<PAGE>
SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK
ISSUED BY THE COMPANY
<TABLE>
<CAPTION>
Total Purchase Price
Shares of Series A Paid By Such
Convertible Preferred Purchaser For Shares
Stock Issued By the of Series A Convertible
Company To Each Preferred Stock Issued
Purchaser Purchaser To Each Purchaser
- --------------------------------------------------------------------------------
<S> <C> <C>
Blue Chip Capital Fund II 11,458.33 $6,875,000
Limited Partnership
Miami Valley Venture Fund L.P. 1,875.00 1,125,000
Grotech Partners IV, and 16,666.67 10,000,000
Grotech Partners V. L.P.
Southern Venture Fund SBIC, L.P. 3,333.33 2,000,000
Souther Venture Fund, II, L.P. 1,666.87 1,000,000
Venrock Associates 3,583.33 2,150,000
Venrock Associates II, L.P. 4,750.00 2,850,000
USi Partners, Ltd. 1,166.67 700,002
McCleary Technology Capital 1,666.67 1,000,000
Total 46,166.67 $27,700,002
</TABLE>
It is possible that as of the Closing Date, the Company may have Issued
additional shares.
<PAGE>
USINTERNETWORKING, INC.
STOCK PURCHASE AGREEMENT
SCHEDULE 5.8 (A)
ALL EXPENDITURES IN EXCESS OF $25,000
<TABLE>
<CAPTION>
PAYEE EXPLANATION AMOUNT
- ----- ----------- ------
<S> <C> <C>
American Express Advance payment of account $ 40,125.08
Boggs & Partners Professional Services-Architect $ 42,262.93
Coleman-Martin Computer Equipment-Laptops $ 43,417.00
Computer Equipment-Printer, deskpro, notebooks $ 29,951.00
Consortium One-Annapolis L.L.C. Deposit related to the lease at 175 Admiral Cochrane Drive $ 400,000.00
May Rent for 175 Admiral Cochrane Drive $ 30,052.54
June Rent for 175 Admiral Cochrane Drive $ 30,052.54
Gordon Flesch Company Two copiers with interface boards (one color) includes delivery, $ 48,264.50
installation and taxes.
One copier includes delivery, installation and taxes. $ 80,718.00
Christopher McCleary Partial repayment of loan $ 100,000.00
Partial repayment of loan $ 342,469.05
PC Connection, Inc Computer Equipment $ 77,840.00
Computer Equipment $ 39,471.45
Computer Equipment $ 41,809.00
Computer Equipment $ 100,000.00
Computer Equipment $ 25,516.75
Realty Association Security Deposit and First month's rent for 2661 Riva Road $ 36,398.42
</TABLE>
USI Confidential Page 1
<PAGE>
USINTERNETWORKING, INC.
STOCK PURCHASE AGREEMENT
SCHEDULE 5.8 (A)
ALL EXPENDITURES IN EXCESS OF $25,000
<TABLE>
<CAPTION>
PAYEE EXPLANATION AMOUNT
- ----- ----------- ------
<S> <C> <C>
American Express Advance payment of account $ 40,125.08
Boggs & Partners Professional Services-Architect $ 42,262.93
Coleman-Martin Computer Equipment-Laptops $ 43,417.00
Computer Equipment-Printer, deskpro, notebooks $ 29,951.00
Consortium One-Annapolis L.L.C. Deposit related to the lease at 175 Admiral Cochrane Drive $ 400,000.00
May Rent for 175 Admiral Cochrane Drive $ 30,052.54
June Rent for 175 Admiral Cochrane Drive $ 30,052.54
Gordon Flesch Company Two copiers with interface boards (one color) includes delivery, $ 48,264.50
installation and taxes.
One copier includes delivery, installation and taxes. $ 80,718.00
Christopher McCleary Partial repayment of loan $ 100,000.00
Partial repayment of loan $ 342,469.05
PC Connection, Inc Computer Equipment $ 77,840.00
Computer Equipment $ 39,471.45
Computer Equipment $ 41,809.00
Computer Equipment $ 100,000.00
Computer Equipment $ 25,516.75
Realty Association Security Deposit and First month's rent for 2661 Riva Road $ 36,398.42
</TABLE>
USI Confidential Page 1
<PAGE>
USinternetworking, Inc.
Stock Purchase Agreement
Schedule 5.8 (a)
Aggregate Expenditures In Excess of $200,000
<TABLE>
<CAPTION>
Payee Explanation Amount
- ----- ----------- ------
<S> <C> <C>
Consortium One-Annapolis L.L.C. Deposit and rent for 175 Admiral Cochrane Drive (Lease) $ 465,915.08
Christopher McCleary Payments on Loan $ 444,875.62
PC Connection, Inc. Computer Equipment $ 509,200.97
</TABLE>
USI Confidential Page 1
<PAGE>
SCHEDULE 5.9
Please see leases listed on Schedule 5.10.
<PAGE>
SCHEDULE 5.10
LISTING OF CONTRACTUAL OBLIGATIONS
1) Officer Agreement by and between USinternetworking, Inc. and Christopher
R. McCleary dated May 29, 1998.
2) Officer Agreement by and between USinternetworking, Inc. and Chris M.
Poelma, dated June 2, 1998.
3) Officer Agreement by and between USinternetworking, Inc. and Steve
McManus, dated June 2, 1998.
4) Sublease Agreement, by and between Exsportise, Inc. and USinternetworking,
Inc., dated February 9,1998.
5) Agreement of Lease, by and between Consortium One-Annapolis, LLC and
USinternetworking, Inc., dated April 3,1998.
6) Letter Agreement between USinternetworking, Inc. and Gary Helwig, dated
April 10,1998 (acceptance by Helwig dated April 14, 1998).
7) Furniture Rental Agreement between Aaron Rents, Inc. and
USinternetworking, Inc., dated March 10, 1998.
8) Sublease Agreement, by and between Columbia Medical Plan and
USinternetworking, Inc. dated May 8, 1998.
9) Agreement of Lease, by and between Realty Associates, Inc. and
USinternetworking, Inc., dated June 3, 1998.
10) Contract of Sale between First Church of Christ, Scientist, Seller, and
USinternetworking, Inc., Buyer, dated May 1, 1998.
<PAGE>
SCHEDULE 5.12
LISTING OF SEVERANCE ARRANGEMENTS
See Officer Agreements and Letter Agreement listed on Schedule 5.10.
<PAGE>
SCHEDULE 5.16
EMPLOYEE PLANS
Although the Company has not adopted any formal employee benefit plans, the
contours of the employee benefit plans have been described in writing to
employees. The employee benefits are to include the following: (i) a 401(k) plan
that is to be noncontributory until January 1, 1999, and thereafter subject to a
1:2 employer match, (ii) the Employee Stock Option Plan, and (iii) other typical
plans such as health and vacation benefit plans. The Company has stated its
intention that the Employee Stock Option Plan will be a qualified plan that will
provide for the issuance of options to purchase shares at a discount of 20% from
the then-current market price, to the extent permissible at any time. Certain of
the Company's employees have been advised in writing, pursuant to the employment
offer letters, of the number of option shares the Company intends to award to
them. These option shares are listed in Schedule 5.5.
<PAGE>
SCHEDULE 5.17
LISTING OF ALL OUTSTANDING BORROWINGS
1) $2,000,000 credit line with Cisco Systems Capital Corp. for the purchase
of Cisco Systems Products equipment $0 outstanding at June 15, 1998.
2) $1,000,000 credit line with Hewlett-Packard Co. for the purchase of
Hewlett-Packard equipment. $651,756.06 outstanding at June 15,1998.
<PAGE>
SCHEDULE 5.18
LISTING OF INSURANCE POLICIES OR PROGRAMS
As of the date hereof, the Company has received only an Insurance Binder.
<PAGE>
Exhibit 10.4
STOCK PURCHASE AGREEMENT
by
and
Among
USinternetworking, Inc.
and
Richard C. Albright,
Bruce H. Brandaleone,
Christopher de Roetth,
Elisabeth de Roetth,
Peter de Roetth,
Nicholas DeWolf,
Christopher Egan,
Michael J. Egan,
Richard J. and Maureen E. Egan
Grandchildren's Trust,
Donald A. Foss,
David Friend,
Roger M. Marino,
William G. Miller,
James K. Schuler,
Carolyn H. Walter
and
Jane E. Westervelt
-----------------------------
Dated as of June 19, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1. DEFINITIONS..........................................................1
1.1. Definitions.....................................................1
1.2. Accounting Terms; Financial Statements..........................4
1.3. Knowledge Standard..............................................4
1.4. Other Defined Terms.............................................4
ARTICLE 2. AUTHORIZATION OF PREFERRED SHARES; PURCHASE AND SALE OF
PREFERRED SHARES.....................................................5
2.1. Preferred Shares................................................5
2.2. Purchase and Sale of Preferred Shares...........................5
2.3. Closing.........................................................5
2.4. Fees and Expenses...............................................6
ARTICLE 3. CONDITIONS TO THE OBLIGATION OF THE PURCHASERS TO
PURCHASE THE PREFERRED SHARES........................................6
3.1. Representations and Warranties..................................6
3.2. Compliance with Terms and Conditions of this Agreement..........6
3.3. Delivery of Certificates Evidencing the Shares..................6
3.4. [intentionally omitted].........................................6
3.5. Secretary's Certificates........................................6
3.6. Documents.......................................................7
3.7. Purchase Permitted by Applicable Laws...........................7
3.8. Consents and Approvals..........................................7
3.9. Consent and Waiver..............................................7
3.10. Joinder to the Shareholders' Agreement.........................7
3.11. No Material Judgment or Order..................................7
3.12. Legal Opinion..................................................8
ARTICLE 4. CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE.................8
4.1. Representations and Warranties..................................8
4.2. Compliance with this Agreement..................................8
4.3. [intentionally omitted].........................................8
4.4. Issuance Permitted by Applicable Laws...........................8
4.5. Payment of Purchase Price.......................................8
4.6. Consents and Approvals..........................................8
4.7. Consents and Waiver.............................................9
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4.8. Joinder to the Shareholders' Agreement..........................9
4.9. Legal Opinion...................................................9
4.10. No Material Judgment or Order..................................9
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................9
5.1. Corporate Existence and Authority...............................9
5.2. Corporate Authorization; No Contravention.......................9
5.3. Governmental Authorization; Third Party Consents...............10
5.4. Binding Effect.................................................10
5.5. Capitalization.................................................10
5.6. Private Offering...............................................11
5.7. Litigation.....................................................11
5.8. Financial Statements...........................................12
5.9. Title and Condition of Assets..................................12
5.10. Contractual Obligations.......................................12
5.11. Tax Matters...................................................12
5.12. Severance Arrangements........................................12
5.13. Investment Company/Government Regulations.....................12
5.14. Broker's, Finder's or Similar Fees............................13
5.15. Labor Relations and Employee Matters..........................13
5.16. Employee Benefits Matters.....................................13
5.17. Outstanding Borrowings........................................13
5.18. Insurance Schedule............................................13
5.19. Solvency......................................................13
5.20. No Other Agreements to Sell the Assets or Capital Stock of
the Company..................................................14
5.21. Key Employees.................................................14
5.22. Compliance with Law...........................................14
5.23. Disclosure....................................................14
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS....................14
6.1. Location of Principal Office, Qualification as an Accredited
Investor.....................................................15
6.2. Transfer Restrictions Imposed by Securities Law................15
6.3. Binding Effect.................................................15
6.4. Purchase for Own Account.......................................15
6.5. Financial Condition; Sophistication............................16
6.6. Purchaser Representative; Power of Attorney; Receipt of
Information..................................................16
6.7. Broker's, Finder's or Similar Fees.............................17
6.8. Governmental Authorization; Third Party Consent................17
6.9. Litigation.....................................................17
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE 7. COVENANTS OF THE COMPANY WITH RESPECT TO THE PERIOD
FOLLOWING THE CLOSING.............................................17
7.1. Reservation of Shares..........................................17
ARTICLE 8. INDEMNIFICATION.....................................................18
8.1. Idemnification.................................................18
8.2. Notification...................................................19
ARTICLE 9. MISCELLANEOUS.......................................................19
9.1. Survival of Representations and Warranties.....................19
9.2. Notices........................................................20
9.3. Successors and Assigns.........................................20
9.4. Amendment and Waiver...........................................21
9.5. Counterparts...................................................21
9.6. Headings.......................................................21
9.7. Governing Law..................................................21
9.8. Jurisdiction...................................................21
9.9. Severability...................................................22
9.10. Rules of Construction.........................................22
9.11. Entire Agreement..............................................22
9.12. Publicity.....................................................22
9.13. Further Assurances............................................22
9.14. Waiver of Jury Trail..........................................23
</TABLE>
iii
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as of this
19th day of June, 1998, by and between (i) USinternetworking, Inc., a Delaware
corporation (the "Company") and (ii) Richard C. Albright, Bruce H. Brandaleone,
Christopher de Roetth, Elisabeth de Roetth, Peter de Roetth, Nicholas DeWolf,
Christopher Egan, Michael J. Egan, Richard J. Egan, Richard J. and Maureen E.
Egan Grandchildren's Trust, Donald A. Foss, David Friend, Roger M. Marino,
William G. Miller, James K. Schuler, Carolyn H. Walter and Jane E. Westervelt
(collectively referred to herein as the "Purchasers").
RECITALS:
A. Upon the terms and subject to the conditions set forth in this
Agreement, the Company proposes to issue and sell shares of its Series A
Convertible Preferred Stock ("Series A Preferred Stock," as defined below) to
the Purchasers.
B. The Purchasers desire to purchase from the Company shares of the Series
A Preferred Stock as set forth on SCHEDULE 1 hereto.
C. Account Management Corporation has made certain representations in the
Certificate attached to this Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt and adequacy
of which is hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1.
DEFINITIONS
1.1 DEFINITIONS.
As used in this Agreement, and unless the context requires a different
meaning, the following terms have the meanings indicated:
"AFFILIATE" means, with respect to any specified Person, any Person that,
directly or indirectly, controls, is controlled by, or is under common control
with, such specified Person, whether by contract, through one or more
intermediaries, or otherwise.
"BUSINESS DAY" shall mean a day other than a Saturday or Sunday or any
federal holiday.
<PAGE>
"COMMISSION" means the Securities and Exchange Commission or any similar
agency then having jurisdiction to enforce the Securities Act (as defined
below).
"COMMON STOCK" means the common stock, par value $.001 per share, of the
Company, or any other capital stock of the Company into which such stock is
reclassified or reconstituted.
"CONDITION OF THE COMPANY" means the assets, business, properties,
operations, financial condition or prospects of the company.
"EMPLOYEE PLANS" means all benefits arrangements, pension plans or welfare
plans adopted by the Company for its employees.
"EMPLOYEE STOCK OPTION PLAN" means an employee stock option plan adopted by
the Compensation Committee of the Board of Directors of the Company providing
for the issuance to certain employees of the Company of options to purchase a
certain number of shares of Common Stock at a certain exercise price per share.
The total number of shares of Common Stock which may be issued under such plan
shall not exceed 6.5% of the total number of outstanding shares of common stock
calculated on a fully diluted basis, not including the options and shares
issuable or issued on exercise of options pursuant to the Employee Stock Option
Plan.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission thereunder.
"GAAP" means United States generally accepted accounting principles, in
effect from time to time, consistently applied.
"GOVERNMENTAL AUTHORITY" means the government of any nation, state, city,
locality or other political subdivision of any thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"INDEBTEDNESS" means, as to any Person: (a) all obligations, whether or
not contingent, of such Person for borrowed money (including, without
limitation, reimbursement and all other obligations with respect to surety
bonds, letters of credit and bankers' acceptances, whether or not matured),
(b) all obligations of such Person evidenced by notes, bonds, debentures or
similar instruments, (c) all obligations of such Person representing the
balance of deferred purchase price of property or services, except trade
accounts payable and accrued commercial or trade liabilities arising in the
ordinary course of business, (d) all interest rate and currency swaps, caps,
collars and similar agreements or hedging devices under which payments are
obligated to be made by such Person, whether periodically or upon the
happening of a contingency, (e) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the even of default are limited to
repossession or sale of such property), (f) all obligations of such Person
under leases which have
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been or should be, in accordance with GAAP, recorded as capital leases, (g)
all indebtedness secured by any Lien (other than Liens in favor of lessors
under leases other than leases included in clause (f)) on any property or
asset owned or held by that Person regardless of whether the indebtedness
secured thereby shall have been assumed by that Person or is non-recourse to
the credit of that Person, and (h) all Indebtedness of any other Person
referred to in clauses (a) through (f) above, guaranteed, directly or
indirectly, by that Person.
"LIEN" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other) or other security interest
of any kind or nature whatsoever (excluding preferred stock or equity related
preferences) including, without limitation, those created by, arising under
or evidenced by any conditional sale or other title retention agreement, the
interest of a lessor under a capital lease obligation, or any financing lease
having substantially the same economic effect as any of the foregoing.
"OUTSTANDING BORROWINGS" means all Indebtedness of the Company for
borrowed money (including, without limitation, reimbursement and all other
obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured).
"PERSON" means any individual, firm, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock
company, Governmental Authority or other entity of any kind, and shall
include any successor (by merger or otherwise) of such entity.
"REQUIREMENTS OF LAW" means, as to any Person, the provisions of the
Certificate of Incorporation and By-laws or other organizational or governing
documents of such Person, and any law, treaty, rule, regulation, right,
privilege, qualification, license or franchise, order, judgment, or
determination of an arbitrator or a court or other Governmental Authority, in
each case, applicable or binding upon such Person or any of its property or
to which such Person or any of its property is subject or applicable to any
or all of the transactions contemplated by or referred to in the Transaction
Agreements.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder.
"SERIES A PREFERRED STOCK" means the 8% Series A Convertible Preferred
Stock, par value $.01 per share, of the Company, or any other capital stock
of the Company into which such stock is reclassified or reconstituted.
"SHAREHOLDERS' AGREEMENT" means the Shareholders' Agreement, dated as of
May 28, 1998, by and among the Company and the Stockholders that are listed
as a party thereto and any Persons who become or became parties to the
Shareholders' Agreement whether pursuant to an amendment or otherwise.
"TRANSACTION AGREEMENTS" means this Agreement, the Joinder to the
Shareholders' Agreement (as defined in Section 3.10) and the Shareholders'
Agreement.
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"TRANSACTION EXPENSES" means any and all reasonable out-of-pocket (i)
legal expenses incurred by the Purchasers in connection with the negotiation
and preparation of the Transaction Agreements, the consummation of the
transactions contemplated thereby and preparation for any of the foregoing,
including, without limitation, travel expenses, reasonable fees, charges and
disbursements of counsel and any similar or related legal costs and legal
expenses; and (ii) other expenses incurred by the Purchasers in connection
with the negotiation and preparation of this Agreement.
1.2. ACCOUNTING TERMS; FINANCIAL STATEMENTS.
All accounting terms used herein not expressly defined in this Agreement
shall have the respective meanings given to them in accordance with sound
accounting practice. The term "sound accounting practice" shall mean such
accounting practice as, in the opinion of the independent certified public
accountants regularly retained by the Company conforms at the time to GAAP
applied on a consistent basis except for changes with which such accountants
concur.
1.3. KNOWLEDGE STANDARD
When used herein, the phrase "to the knowledge of" any Person, "to the
best knowledge of" any Person or any similar phrase shall mean, (i) with
respect to any individual, the actual knowledge of such Person, (ii) with
respect to any corporation, the actual knowledge of the officers and
directors of such corporation and the knowledge of such facts that such
persons should have in the exercise of their duties after reasonable inquiry,
and (iii) with respect to a partnership, the actual knowledge of the officers
and directors of the general partner of such partnership and the knowledge of
such facts that such persons should have in the exercise of their duties
after reasonable inquiry.
1.4. Other Defined Terms.
The following terms shall have the meanings specified in the Sections
set forth below:
<TABLE>
<CAPTION>
TERM SECTION
- ---- -------
<S> <C>
Actions 5.7
Certificate of Incorporation 2.1
Certificate 2.1
Certificate of Designation 2.1
Closing Date 2.2
Closing 2.3
</TABLE>
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<TABLE>
<S> <C>
Indemnified Party 8.2
Indemnifying Party 8.2
Liabilities 8.1
Preferred Shares 2.1
Purchase Price 2.2
Purchasing Indemnified Party 9.1
Purchasing Indemnifying Party 9.1
Selling Indemnified Party 9.1
Selling Indemnifying Party 9.1
</TABLE>
ARTICLE 2.
AUTHORIZATION OF PREFERRED SHARES;
PURCHASE AND SALE OF PREFERRED SHARES
2.1. PREFERRED SHARES.
The Board of Directors of the Company has authorized the issuance and sale
of 3,000 shares of the Series A Preferred Stock (the "Preferred Shares") and has
duly adopted resolutions establishing the rights, preferences, privileges and
restrictions of the Series A Preferred Stock. The Preferred Shares will have the
respective rights, preferences and privileges set forth in the Company's
Certificate of Incorporation, as amended (the "Certificate of Incorporation")
and the Certificate of Designations, Preferences, and Other Special Rights of
Preferred Stock and Qualifications, Limitations and Restrictions Thereof filed
on May 27, 1998 with respect thereto (the "Certificate of Designation" and
together with the Certificate of Incorporation, the "Certificate").
2.2. PURCHASE AND SALE OF PREFERRED SHARES.
Upon the terms and subject to the conditions herein contained, on the date
hereof or such other date as the parties may agree (the ("Closing Date"), the
Company shall issue to the Purchasers and the Purchasers shall acquire from the
Company, the number of Preferred Shares set forth next to each Purchaser's name
on SCHEDULE 1 hereto. The aggregate purchase price of such Preferred Shares, to
be paid by the Purchasers in the amount set forth next to each Purchaser's name
on SCHEDULE 1 hereto, shall be One Million Two Hundred Thousand Dollars
($1,200,024)(the "Purchase Price").
2.3. CLOSING
The closing of the sale to and purchase by the Purchasers of the Preferred
Shares (the "Closing") shall occur at 11 o'clock A.M., local time on the Closing
Date at the offices of Latham & Watkins, 1001 Pennsylvania Avenue, N.W.,
Washington D.C. 20004, or such other location as the parties may agree. At the
Closing, (i) the Company shall deliver to the Purchasers certificates evidencing
the Preferred Shares being purchased by the Purchasers, free and clear of any
Liens of any nature whatsoever, other than those created by the Certificate or
the Shareholders' Agreement, registered in the Purchasers' name, and (ii) the
Purchasers shall deliver to the Company the Purchase Price, in the amounts as
set forth next to each Purchaser's
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name on SCHEDULE 1 hereto, by cashier's or certified check or wire transfer of
immediately available funds.
2.4. FEES AND EXPENSES.
Concurrently with the Closing, the Company shall reimburse each Purchaser
for the Transaction Expenses, which payment shall be made by wire transfer of
immediately available funds to an account or accounts designated by such
Purchaser.
ARTICLE 3.
CONDITIONS TO THE OBLIGATION OF THE
PURCHASERS TO PURCHASE THE PREFERRED SHARES
The obligation of each of the Purchasers to purchase the Preferred Shares,
to pay the Purchase Price therefor and to perform any of its obligations
hereunder on the Closing Date (unless otherwise specified) shall be subject to
the satisfaction of the following conditions on or before the Closing Date:
3.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company contained in Section 5
hereof shall be true and correct in all material respects as of the date hereof.
3.2. COMPLIANCE WITH TERMS AND CONDITIONS OF THIS AGREEMENT.
The Company shall have performed and complied with all of the agreements
and conditions set forth herein that are required to be performed or complied
with by the Company on or before the date hereof.
3.3. DELIVERY OF CERTIFICATES EVIDENCING THE SHARES.
The Company shall have delivered to the Purchasers the certificates
evidencing the Preferred Shares as set forth in Section 2.3.
3.4. [intentionally omitted]
3.5. SECRETARY'S CERTIFICATES.
The Purchasers shall have received a certificate from the Company, dated as
of the Closing Date and signed by the Secretary or an Assistant Secretary of the
Company, certifying that the attached copies of the Certificate of
Incorporation, Certificate of Designation, By-laws of the Company, (all of
which will be in form and substance consistent with this Agreement) and
resolutions of the Board of Directors of the Company approving this transaction
are all true, complete and correct and remain unamended and in full force and
effect.
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3.6. DOCUMENTS
The Purchasers shall have received true, complete and correct copies of
such documents and such other information as they may have reasonably
requested in connection with or relating to the sale of the Preferred Shares
and the transactions required to be performed herein.
3.7. PURCHASE PERMITTED BY APPLICABLE LAWS.
The acquisition of and payment for the Preferred Shares to be acquired by
the Purchasers hereunder and the consummation of this Agreement (a) shall not be
prohibited by any Requirements of Law, and (b) shall not conflict with or be
prohibited by any Contractual Obligation of the Company.
3.8. CONSENTS AND APPROVALS
All consents, exemptions, authorizations, or other actions by, or notices
to, or filings with, Governmental Authorities and other Persons in respect of
all Requirements of Law and with respect to those material Contractual
Obligations of the Company necessary or required in connection with the
execution, delivery or performance (including, without limitation, the issuance
of the Preferred Shares and the issuance of the Common Stock upon conversion of
the Preferred Shares) by the Company shall have been obtained and be in full
force and effect and all waiting periods shall have lapsed without extension or
the imposition of any conditions or restrictions.
3.9. CONSENT AND WAIVER
The shareholders that are parties to the Shareholders' Agreement and the
holders of at least two-thirds of the outstanding shares of Series A Preferred
Stock shall have duly executed and delivered to the Purchasers the Consent and
Waiver substantially in the form attached as EXHIBIT A hereto
3.10. JOINDER TO THE SHAREHOLDERS' AGREEMENT
The shareholders that are parties to the Shareholders' Agreement shall have
duly executed and delivered to the Purchasers the Joinder to the Shareholders'
Agreement substantially in the form attached as EXHIBIT B hereto.
3.11. NO MATERIAL JUDGMENT OR ORDER
There shall not be any judgment or order of a court of competent
jurisdiction or any ruling of any Governmental Authority or any condition
imposed under any Requirement of Law which, in the reasonable judgment of the
Purchasers, would (i) prohibit the purchase of the Preferred Shares hereunder,
(ii) subject the Purchasers to any penalty if the Preferred Shares were to be
purchased hereunder, or (iii) question the validity or legality of the
transactions required to be performed under this Agreement.
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3.12. LEGAL OPINION.
The Purchasers shall have received an opinion of counsel for the Company
in the form attached as EXHIBIT C hereto.
ARTICLE 4.
CONDITIONS TO THE OBLIGATION OF
THE COMPANY TO CLOSE
The obligation of the Company to issue and sell the Preferred Shares and
the other obligations of the Company hereunder, shall be subject to the
satisfaction of the following conditions on or before the Closing Date:
4.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Purchasers contained in
Section 6 hereof shall be true and correct in all material respects on and as
of the Closing Date as if made at and as of such date.
4.2. COMPLIANCE WITH THIS AGREEMENT
Each of the Purchasers shall have performed and complied with all of the
agreements and conditions set forth herein that are required to be performed
or complied with by the Purchasers on or before the Closing Date.
4.3. [intentionally omitted]
4.4. ISSUANCE PERMITTED BY APPLICABLE LAWS.
The issuance of the Preferred Shares to be issued by the Company
hereunder and the consummation of this Agreement (a) shall not be prohibited
by any Requirements of Law, and (b) shall not conflict with or be prohibited
by any Contractual Obligations of the Purchasers.
4.5. PAYMENT OF PURCHASE PRICE.
Each of the Purchasers shall have tendered to the Company the Purchase
Price as set forth in Schedule 1 hereto.
4.6. CONSENTS AND APPROVALS.
All consents, exemptions, authorizations, or other actions by, or
notices to, or filings with, Governmental Authorities and other Persons in
respect of all Requirements of Law and with respect to those material
Contractual Obligations of the Purchasers necessary or required in connection
with the execution, delivery or performance by the Purchasers shall have been
obtained and be in full force and effect and all waiting periods shall have
lapsed without extension or imposition of any conditions or restrictions.
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4.7. CONSENT AND WAIVER.
The Consent and Waiver substantially in the form set forth in EXHIBIT A
hereto shall have been executed and delivered by each of the shareholders that
are a party to the Shareholders' Agreement and by the holders of at least
two-thirds of the outstanding shares of Series A Preferred Stock.
4.8. JOINDER TO THE SHAREHOLDERS' AGREEMENT.
The Joinder to the Shareholders' Agreement substantially in the form set
forth in EXHIBIT B hereto shall have been executed and delivered by each of the
shareholders that are a party to the Shareholders' Agreement.
4.9. LEGAL OPINION.
The Company shall have received an opinion of counsel for each of the
Purchasers in the form attached as EXHIBIT D hereto.
4.10. NO MATERIAL JUDGMENT OR ORDER.
There shall not be any judgment or order of a court of competent
jurisdiction or any ruling of any Governmental Authority or any condition
imposed under any Requirements of Law which, in the reasonable judgment of the
Company would (i) prohibit the sale of the Shares or the consummation of the
other transactions hereunder, (ii) subject the Company to any penalty if the
Shares were to be sold hereunder or (iii) question the validity or legality of
the transactions required to be performed under this Agreement.
ARTICLE 5.
REPRESENTATION AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to, and covenants with, the Purchasers
as of the date hereof as follows:
5.1. Corporate Existence and Authority.
The Company was incorporated on January 14, 1998 and (a) is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, (b) has all requisite corporate power and authority to own
and operate its property, to lease the property it operates as lessee and to
conduct the business in which it is currently, or is currently proposed to be,
engaged, and (c) has the corporate power and authority to execute, deliver and
perform its obligations under the Transaction Agreements to which it is or
will be a party.
5.2. CORPORATE AUTHORIZATION; NO CONTRAVENTION.
The execution, delivery and performance by the Company of the Transaction
Agreements to which it is or will be a party and the consummation of the
transactions
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contemplated hereby, including, without limitation, the issuance
of the Preferred Shares, (a) have been duly authorized by all necessary
corporate action, including, if required, stockholder action (b) do not conflict
with or contravene the terms of the Certificate or the By-laws of the Company,
or any amendment thereof; and (c) will not violate, conflict with or result in
any material breach or contravention of (i) any Contractual Obligation of the
Company or (ii) any Requirements of Law applicable to the Company.
5.3. GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENTS.
No approval, consent, compliance, exemption, authorization, or other
action by, or notice to, or filing with, any Governmental Authority or any
other Person in respect of any applicable Requirements of Law in effect on
the date hereof, and no lapse of a waiting period under any applicable
Requirements of Law in effect on the date hereof, is necessary or required in
connection with the execution and delivery of the Transaction Agreements to
which it is or will be a party or the performance by the Company or
enforcement against the Company of any material obligation by the Company
under the Transaction Agreements to which it is or will be a party or the
transactions to be performed thereunder.
5.4. BINDING EFFECT.
This Agreement has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity relating to enforceability.
5.5. CAPITALIZATION.
On the Closing Date, the capital stock of the Company shall consist of
at least One Hundred Fifty Million (150,000,000) shares of Common Stock and
One Hundred Thousand (100,000) shares of preferred stock, with such shares
including the Preferred Shares. Of the 150,100,000 authorized shares of
capital stock of the Company, as of the date hereof, there will be (i) 15
million shares of Common Stock issued and outstanding; (ii) at least
5,000,000 shares of Common Stock reserved for issuance pursuant to the
Employee Stock Option Plan; (iii) 52,000 shares of Series A Preferred Stock
issued and outstanding; and (iv) 108,600,000 fully diluted shares of Common
Stock outstanding, assuming conversion of all of the outstanding shares of
Series A Preferred Stock mentioned in subsection (iii) above, into 93,600,000
shares of Common Stock, but not including any shares authorized pursuant to
the Employee Stock Option Plan or otherwise. As of the Closing Date, all
outstanding shares of capital stock of the Company, including the Preferred
Shares, and the shares of Common Stock issuable upon conversion of the
Preferred Shares (when issued in accordance with the conversion terms
thereof), will be duly authorized and validly issued, fully paid,
nonassessable and free and clear of any Liens, preferential rights,
priorities, claims, options, charges or other encumbrances or restrictions
other than those created by the Certificate, the Bylaws, and the
Shareholders' Agreement.
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(a) SCHEDULE 5.5 sets forth the name of each holder of the issued
and outstanding capital stock of the Company as of June 19, 1998, the number
of shares of such capital stock held beneficially or of record by each such
holder as of June 19, 1998, the name of each Person holding any options or
other rights to purchase any capital stock of the Company as of June 19, 1998
(except as may be permitted under the Shareholders' Agreement), the number,
class and series of shares of capital stock subject to each such option or
right as of June 19, 1998, and the exercise price of each such option or
right as of June 19, 1998. Except for the options under the Employee Stock
Option Plan and the Preferred Shares, there are no outstanding securities
convertible into or exchangeable for capital stock of the Company or options,
warrants or other rights to purchase or subscribe to capital stock of the
Company or contracts, commitments, agreements, understandings or arrangements
of any kind to which the Company or any holder is a party relating to the
issuance of any capital stock of the Company, any such convertible or
exchangeable securities or any such options, warrants or rights. The Company
has no subsidiaries.
(b) Except as set forth on SCHEDULE 5.5 and as may be provided in
the Shareholders' Agreement as of June 19, 1998, no Person has any preemptive
rights, rights of first refusal, "tag along" rights, rights of co-sale or any
similar rights with respect to the issuance of the Preferred Shares
contemplated hereby or the issuance of any additional shares of stock by the
Company. SCHEDULE 5.5 identifies all Persons holding any such rights as of
June 19, 1998 and describes the material terms of all such rights.
5.6. PRIVATE OFFERING.
No form of general solicitation or general advertising was used by the
Company or its representatives in connection with the offer or sale of the
Preferred Shares. No registration of the Preferred Shares pursuant to the
provisions of the Securities Act or any state securities or "blue sky" laws
will be required by the offer, sale or issuance of the Preferred Shares
pursuant to this Agreement. The Company agrees that neither it, nor anyone
authorized to act on its behalf, will offer or sell the Preferred Shares or
any other security so as to require the registration of the Preferred Shares
pursuant to the provisions of the Securities Act or any state securities
or "blue sky" laws, unless such Preferred Shares are so registered.
5.7. LITIGATION.
As of June 19, 1998, the Company has not received any notice of any
governmental charge, complaint or action or court order, writ, injunction,
judgment or decree outstanding or any claim, suit, legal proceeding,
(collectively, "Actions") which if adversely determined would have a material
adverse effect on (i) the Company or the Condition of the Company or (ii) the
transactions required to be performed by the Company under this Agreement and,
to the Company's knowledge, there is no valid basis therefor, and no Action
is threatened against the Company.
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5.8. FINANCIAL STATEMENTS.
The Company was incorporated on January 14, 1998. As of June 19, 1998,
it has no assets, except as described below, and has not prepared financial
statements. SCHEDULE 5.8(a) sets forth all expenditures by or on behalf of
the Company since its formation through June 19, 1998 in excess of $25,000, in
any one case, or $250,000, in the aggregate. The Company's projections
attached hereto as SCHEDULE 5.8(b) are as of June 19, 1998 and were prepared
by the Company's management in good faith, are based on reasonable
assumptions, represent management's best estimates of the Company's predicted
operations and performance under its business plan and reflect actual
subjective expectations of the Company's management. The Company has no
reason to believe that the results reflected in such projections are not
attainable.
5.9. TITLE AND CONDITION OF ASSETS.
As of June 19, 1998, the Company currently has no assets (other than
cash) except as listed on SCHEDULE 5.10. As of June 19, 1998, the Company has
a valid and enforceable leasehold interest in its leases listed on SCHEDULE
5.10 pursuant to the terms of the lease agreements and is not in default
thereunder.
5.10. CONTRACTUAL OBLIGATIONS.
As of June 19, 1998, the Company has not entered into any contracts or
agreements or incurred any material liabilities, other than pursuant to this
Agreement, the Shareholder's Agreement and the agreements listed on SCHEDULE
5.10.
5.11. TAX MATTERS.
The Company has duly filed all tax reports and returns required to be
filed by it, including all federal, state, local and foreign tax returns and
reports and paid all taxes due with respect thereto.
5.12. SEVERANCE ARRANGEMENTS.
Except as set forth on SCHEDULE 5.12, as of June 19, 1998, the Company
has not entered into any severance or similar arrangement in respect of any
present or former employee of the Company that will result in any obligation
(absolute or contingent) of the Company to make any payment to such present
or former employee of the Company following termination of employment.
5.13. INVESTMENT COMPANY/GOVERNMENT REGULATIONS.
Immediately following the Closing, after giving effect to the
transactions contemplated by this Agreement and the Shareholders' Agreement
neither the Company nor any Person controlling, controlled by or under common
control with the Company will be an "investment company" within the meaning
of the Investment Company Act of 1940, as amended. The Company is not subject
to regulation under the Public Utility Holding Company Act of
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1935, as amended, the Federal Power Act, or any federal or state statue or
regulation limiting its ability to incur Indebtedness.
5.14. BROKER'S FINDER'S SIMILAR FEES.
There are no brokerage commissions, finder's fee or similar fees or
commissions payable in connection with the transactions contemplated hereby
based on any agreement, arrangement or understanding with the Company or any
officer, director, shareholder, or Affiliate of the Company or any action
taken by any such person.
5.15. LABOR RELATIONS AND EMPLOYEE MATTERS.
(a) The Company is not and has not engaged in any unfair labor
practice.
(b) Except as set forth on SCHEDULE 5.10, as of June 19, 1998,
the Company is not a party to any employment agreement (other than "at will"
employment relationships), collective bargaining agreement or covenant not to
compete.
(c) No complaint under any statute or regulation relating to
employment has been filed against the Compny.
5.16. EMPLOYEE BENEFITS MATTERS.
As of the date hereof, the Company had not adopted or implemented an
Employee Plan, execpt as described on SCHEDULE 5.16.
5.17. OUTSTANDING BORROWINGS.
SCHEDULE 5.17 lists the amount of all material Outstanding Borrowings as
of June 19, 1998 and the name of each lender thereof.
5.18. INSURANCE SCHEDULE.
SCHEDULE 5.18 accurately summarizes all of the Company's insurance
policies or programs in effect as of June 19, 1998 and indicates the
insurer's name and policy number and also indicates any self-insurance
program that is in effect.
5.19. SOLVENCY.
The Company has not (i) made a general assignment for the benefit of its
creditors, (ii) filed any voluntary petition in bankruptcy or suffered the
filing of any involuntary petition in bankruptcy by its creditors, (iii)
suffered the appointment of a receiver to take possession of all or
substantially all of its assets or properties, (iv) suffered the attachment
or other judicial seizure of all substantially all of its assets or (v)
admitted in writing its inability to pay its debts as they come due.
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5.20. NO OTHER AGREEMENTS TO SELL THE ASSETS OR CAPITAL STOCK OF THE
COMPANY.
Other than as otherwise set forth in this Agreement, the Company has no
legal obligation, absolute or contingent, other than the obligations of the
Company under this Agreement or the Shareholder's Agreement, to any person or
firm to (i) sell any capital stock of the Company or, outside of the ordinary
course of business, assets, or effect any merger, consolidation or other
reorganization of the Company or (ii) enter into any agreement with respect
to any of the foregoing.
5.21. KEY EMPLOYEES.
The performance by the Company's key employees of their duties for the
Company as contemplated by the Company's business plan will not violate any
provision of any agreement to which any of such persons or the Company is a
party, including any agreement with any former employer of any such person,
or give rise to any obligation or liability of the Company to any third party
or limit in any way the Company's ability to conduct its business. None of
the Company's key employees is engaged, directly or indirectly, or has any
interest (other than as a shareholder of a public company) in any entity
which is engaged in competition with the Company in its planned activities.
5.22. COMPLIANCE WITH LAW.
In its conduct of its business and affairs since its formation, the
Company has complied in all material respects with all applicable
Requirements of Law.
5.23. DISCLOSURE.
The Company has, to the best of its knowledge, fully responded to all
requests for information, and the Company has accurately answered all
questions from the Purchasers concerning the Condition of the Company, and
has not knowingly withheld any facts relating thereto which it reasonably
believes to be material with respect to its Condition. No information in this
Agreement or in any Exhibit or Schedule attached to this Agreement, contains
or will contain any untrue statement of a material fact or when considered
together with all such information delivered to the Purchasers omits to state
any material fact. The disclosures made in writing by the Company in
connection with this Agreement when read in the light of the circumstances
when made and taken as a whole, did not when made contain any untrue
statement of a material fact.
ARTICLE 6.
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASERS
Each Purchaser, severally and not jointly, hereby represents and
warrants to the Company as of the date hereof as follows:
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6.1. LOCATION OF PRINCIPAL OFFICE, QUALIFICATION AS AN ACCREDITED
INVESTOR.
The state in which Purchaser's principal domicile is located is the
state set forth in such Purchaser's address on SCHEDULE 2. Each Purchaser by
execution of this Agreement hereby represents that it qualifies as an
"accredited investor" for purposes of Regulation D promulgated under the
Securities Act. Such Purchaser acknowledges that the Company has made
available to such Purchaser at a reasonable time prior to the execution of
this Agreement the opportunity to ask questions and receive answers
concerning the terms and conditions of the sale of securities contemplated by
this Agreement and to obtain any additional information (which the Company
possesses or can acquire without unreasonable effort or expense) as may
be necessary to verify the accuracy of information furnished to such Purchaser.
6.2. TRANSFER RESTRICTIONS IMPOSED BY SECURITIES LAW.
Such Purchaser understand that the Preferred Shares have not been
registered under the Securities Act and applicable state securities laws,
and, therefore, cannot be resold unless they are subsequently registered
under the Securities Act and applicable state securities laws or unless an
exemption from such registration is available.
6.3. BINDING EFFECT.
This Agreement has been duly authorized by all necessary action on the
part of such Purchaser, has been duly executed and delivered by such
Purchaser, and this Agreement constitutes the legal, valid and binding
obligation of such Purchaser, enforceable against such Purchaser in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws affecting the enforcement
of creditors' rights generally or by equitable principles relating to
enforceability.
6.4. PURCHASE FOR OWN ACCOUNT.
The Preferred Shares, and the shares of Common Stock to be issued upon
conversion of the Preferred Shares, are being or will be acquired by such
Purchaser for such Purchaser's own account and with no intention of
distributing or reselling such securities or any part thereof in any
transaction that would be in violation of the securities laws of the United
States of America, or any state, without prejudice, however, to the rights of
such Purchaser at all times to sell or otherwise dispose of all or any part
of the Preferred Shares or the shares of Common Stock issuable upon
conversion of the Preferred Shares under an effective registration statement
under the Securities Act, or under an exemption from such registration
available under the Securities Act, and subject, nevertheless, to the
disposition of such Purchaser's property being at all times within such
Purchaser's control. If such Purchaser should in the future decide to
dispose of any of the Preferred Shares or the shares of Common Stock issuable
upon conversion of the Preferred Shares, such Purchaser understands and
agrees that such Purchaser may do so only in compliance with the Securities
Act and applicable state securities laws, as then in effect. Such Purchaser
agrees to the imprinting, so long as required by law, of a legend on
certificates representing all of the Preferred Shares or the shares of Common
Stock to be issued upon conversion of the Preferred Shares to the following
effect:
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"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION
REQUIREMENTS OF SUCH ACT OR SUCH LAWS. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS SET FORTH IN THE
SHAREHOLDERS' AGREEMENT, DATED AS OF MAY 28, 1998, AS AMENDED. A COPY OF
SUCH AGREEMENT MAY BE OBTAINED FROM THE COMPANY UPON REQUEST."
6.5 FINANCIAL CONDITION: SOPHISTICATION.
Such Purchaser's financial condition is such that such Purchaser is able
to bear the risk of holding the Preferred Shares for an indefinite period of
time and can bear the loss of such Purchaser's entire investment in the
Preferred Shares. Such Purchaser has such knowledge and experience in
financial and business matters and in making high risk investments of this
type that such Purchaser is capable of evaluating the merits and risks of the
purchase of the Preferred Shares and understands that there may be no
established market for the Company's capital stock.
6.6 PURCHASER REPRESENTATIVE; POWER OF ATTORNEY; RECEIPT OF INFORMATION.
Such Purchaser has appointed Account Management Corporation (the
"Purchaser Representative") as its representative for all purposes in
connection with its investment in the Company. The Purchaser Representative
is a registered investment adviser under the Investment Advisers Act of 1940,
the services of which such Purchaser has retained in connection with
investments in addition to Purchaser's investment in the Company. Mr.
Albright and Mr. Peter de Roetth are the directors, officers and, with their
families, the beneficial owners of Purchaser Representative and are also
registered investment advisers under the Investment Advisers Act of 1940.
Except for Mr. Albright and Mr. Peter de Roetth, such Purchaser has duly and
validly granted to the Purchaser Representative a power of attorney
authorizing the Purchaser Representative to execute and deliver, on behalf of
such Purchaser, this Agreement and all other agreements, instruments, and
documents that the Purchaser Representative may deem necessary, appropriate,
or desirable in connection with Purchaser's investment in the Company.
Through the Purchaser Representative, such Purchaser has been furnished
access to the business records of the Company and such additional information
and documents as such Purchaser has requested and has been afforded an
opportunity to ask questions of and receive answers from representatives of
the Company concerning the terms and conditions of this Agreement, the
purchase of the Preferred Shares, the prospective operations, market
potential, capitalization, financial conditions, and prospects of the
business to be conducted by the Company, and all other matters deemed
relevant by such Purchaser.
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<PAGE>
6.7. BROKER'S, FINDER'S OR SIMILAR FEES.
There are no brokerage commissions, finder's fees or similar fees or
commissions payable in connection with the transactions contemplated hereby
based on any agreement, arrangement or understanding with such Purchaser or
any action taken by such Purchaser.
6.8. GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENT.
No approval, consent, compliance, exemption, authorization, or other
action by, or notice to, or filing with, any Governmental Authority or any
other Person in respect of any Requirements of Law, and no lapse of a waiting
period under any Requirements of Law, is necessary or required in connection
with the execution, delivery or performance by such Purchaser (including,
without limitation, the aquisition of the Preferred Shares) or enforcement
against such Purchaser of the Transaction Agreements to which such Purchaser
is or will be a party or the transactions contemplated thereby.
6.9. LITIGATION.
No Actions are pending, or to the best knowledge of such Purchaser,
threatened relating to or affecting the transactions required to be performed
by such Purchaser under the Transaction Agreements to which such Purchaser is
or will be a party.
ARTICLE 7.
COVENANTS OF THE COMPANY WITH RESPECT
TO THE PERIOD FOLLOWING THE CLOSING
Until all Preferred Shares are no longer outstanding due to conversion
or otherwise and until the payment by the Company of all other amounts due to
the Purchasers under this Agreement or the related agreements referred to
herein or the Certificate, the Company hereby covenants and agrees with the
Purchasers as follows:
7.1. RESERVATION OF SHARES.
The Company shall at all times reserve and keep available out of its
authorized Common Stock, solely for the purpose of issue or delivery upon
conversion of the Preferred Shares as provided in the Certificate, the
maximum number of shares of Common Stock that may be issuable or deliverable
upon such conversion. Such shares of Common Stock shall, when issued or
delivered in accordance with the provisions of the Certificate, be duly
authorized, validly issued and fully paid and non-assessable. The Company
shall issue such Common Stock in accordance with the provisions of the
Certificate and shall otherwise comply with the terms thereof.
7.2. VOTING RIGHTS.
Except for Mr. Albright and Mr. Peter de Roetth, the Purchasers shall,
within 10 Business Days after the Closing Date, grant to the Purchaser
Representative its "voting proxy,"
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which proxy shall, among other things, authorize the Purchaser
Representative to cast all votes on which the holder of the Preferred Shares,
or the shares of Common Stock into which such Preferred Shares may be
converted, may be lawfully entitled to vote.
ARTICLE 8
INDEMNIFICATION
8.1 INDEMNIFICATION.
(a) In addition to all other sums due hereunder or provided for in
this Agreement, the Company (the "Selling Indemnifying Party") shall defend,
indemnify and hold harmless the Purchasers and their agents, employees, and
assigns (each a "Purchasing Indemnified Party") to the fullest extent
permitted by law from and against any and all losses, costs, claims, damages,
expenses (including reasonable fees, disbursements and other charges of
counsel, as limited by Section 8.2 below) and other liabilities
(collectively, "Liabilities") incurred or suffered by any Purchasing
Indemnified Party resulting from or arising out of (i) any breach by any
Selling Indemnifying Party of any representation or warranty, covenant or
agreement of the Selling Indemnifying Party in this Agreement; provided,
however, that no Selling Indemnifying Party shall be liable under this
Section 8.1 to any Purchasing Indemnified Party to the extent that it is
finally judicially determined that such Liabilities resulted primarily from
the material breach by such Purchasing Indemnified Party of any
representation, warranty, covenant or other agreement of such Purchasing
Indemnified Party contained in this Agreement or (ii)any material liability
of the Company on the Closing Date not disclosed in this Agreement.
In addition to all other sums due hereunder or provided for in this
Agreement, each Purchaser (the "Purchasing Indemnifying Party"), severally
and not jointly, shall defend, indemnify and hold harmless the Company and
its Affiliates and its officers, directors, agents, employees, subsidiaries,
partners and assigns (each a "Selling Indemnified Party") to the fullest
extent permitted by law from and against any and all Liabilities incurred or
suffered by such Selling Indemnified Parties resulting from or arising out of
any breach of any representation, warranty, covenant or agreement of such
Purchasing Indemnifying Party in this Agreement; provided, however, that no
Purchasing Indemnifying Party shall not be liable under this Section 8.1 to a
Selling Indemnified Party to the extent that it is finally judicially
determined that such Liabilities resulted primarily from the material breach
by such Selling Indemnified Party of any representation, warranty, covenant
or other agreement of such Selling Indemnified Party contained in this
Agreement.
(c) if and to the extent that any indemnification provided for in
this Agreement is unenforceable for any reason, the Indemnifying Parties (as
defined below) obligated to indemnify any Indemnified Party (as defined
below) shall make the maximum contribution to the payment and satisfaction of
such indemnified liability which shall be permissible under applicable laws.
In connection with the obligation of the Indemnifying Parties to indemnify
for expenses as set forth herein, the Indemnifying Parties further agree,
upon presentation of appropriate invoices containing reasonable detail, to
reimburse each Indemnified
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Party for all such expenses (including reasonable fees, disbursements and
other charges of counsel, as limited by Section 8.2 below) as they are
incurred by such Indemnified Party.
8.2. NOTIFICATION.
If any action or proceeding (including any governmental investigation or
inquiry) shall be brought or asserted against any party entitled to
indemnification pursuant to this Section 8 (an "Indemnified Party") in
respect of which indemnity may be sought from any party required to indemnify
such Indemnified Party (an "Indemnifying Party"), such Indemnified Party
shall promptly notify the Indemnifying Party in writing, and such
Indemnifying Party shall assume the defense thereof, including the employment
of counsel selected by such Indemnifying Party and reasonably satisfactory to
such Indemnified Party and the payment of all expenses; PROVIDED, HOWEVER,
that any failure to so notify such Indemnifying Party shall not impair
obligations hereunder except and only to the extent that such failure results
in actual prejudice to such Indemnifying Party. Such Indemnified Party shall
have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be the expense of such Indemnified Party unless (a) such Indemnifying
Party agreed to pay such fees and expenses or (b) such Indemnifying Party
shall have failed to assume the defense of such action or proceeding or has
failed to employ counsel reasonably satisfactory to such Indemnified Party
in any such action or proceeding or (c) the named parties to any such action
or proceeding (including any impleaded parties) include both such Indemnified
Party and such Indemnifying Party, and such Indemnified Party shall have
been advised by counsel that there may be one or more legal defenses
available to such Indemnified Party which are different from or additional
to those available to such Indemnifying Party (in which case, such
Indemnifying Party shall employ separate counsel at the expense of such
Indemnifying Party, it being understood, however, that such Indemnifying
Party shall not, in connection with any one such action or proceeding or
separate but substantially similar or related actions or proceedings in the
same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than
one separate firm of attorneys at any time for such Indemnified Party and
any other Indemnified Parties). No Indemnifying Party shall be liable for any
settlement of any such action or proceeding effected without its written
consent (which shall not be withheld unreasonably), but if settled with its
written consent, or if there be a final judgment for the plaintiff in any
such action or proceeding, such Indemnifying Party agrees to indemnify and
hold harmless such Indemnified Party from and against any Liabilities by
reason of such settlement or judgment. No Indemnifying Party shall agree to
any settlement of any third party claim without the consent of the
Indemnified Party, which shall not be withheld if such settlement provides
only for the payment of money to be paid by the Indemnifying Party.
ARTICLE 9.
MISCELLANEOUS
9.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All of the representations and warranties made herein shall survive the
Closing for a period of twelve months.
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<PAGE>
9.2. NOTICES.
All notices, demands and other communications provided for or permitted
hereunder shall be made in writing and shall be by registered or certified
first-class mail, return receipt requested, courier service or personal
delivery or via facsimile;
(a) If to Purchasers:
Account Management Corporation
Two Newbury Street
Boston, Massachusetts 02116
Attention: Peter de Roetth
with a copy to:
Ropes & Gray
1 International Place
Boston, MA 02110-2624
Attention: John Beard, Esq.
(b) if to the Company:
USinternetworking, Inc.
175 Admiral Cochrane Drive
Suite 400
Annapolis, Maryland 21401
Attention: Christopher R. McCleary
with a copy to:
Latham & Watkins
1001 Pennsylvania Avenue, N.W.
Suite 1300
Washington, D.C. 20004-2505
Attention: James F. Rogers, Esq.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; if delivered
by facsimile, upon confirmation of such transmission; and five business days
after being deposited in the mail, postage prepaid, if mailed.
9.3. SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding upon the
successors and permitted assigns of the parties hereto. This Agreement may
be assigned by the Purchasers to any permitted transferee of all or part of
the Preferred Shares or the Common Stock issued
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<PAGE>
upon conversion thereof. The Company may not assign any of its rights under
this Agreement without the written consent of the Purchasers. Except as
provided in this Section 9.3, no Person other than the parties hereto and
their successors and permitted assigns is intended to be a beneficiary of any
of the Transaction Agreements.
9.4. AMENDMENT AND WAIVER.
(a) No failure or delay on the part of the Company or the Purchasers
in exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the Company or
the Purchasers at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any provision
of this Agreement, any waiver of any provision of this Agreement, and any
consent to any departure by any party from the terms of any provision of this
Agreement, shall be effective (i) only if it is made or given in writing and
signed by the Company (if applicable) and the Purchasers, and (ii) only in
the specific instance and for the specific purpose for which made or given.
Except where notice is specifically required by this Agreement, no notice to
or demand on any party in any case shall entitle any party hereto to any
other or further notice or demand in similar or other circumstances.
9.5. COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by the
parties hereto in separate counterparts, each of which when so executed shall
be deemed to be an original and all of which taken together shall constitute
one and the same agreement.
9.6. HEADINGS.
The headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof.
9.7. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Maryland, without regard to the principles of conflicts
of law of such state.
9.8. JURISDICTION.
Each party to this Agreement hereby irrevocably agrees that any legal
action or proceeding arising out of or relating to this Agreement or any
agreements or transactions contemplated hereby may be brought in the courts
of the State of Maryland or of the United States of America for the District
of Maryland and hereby expressly submits to the personal jurisdiction and
venue of such courts for the purposes thereof and expressly waives any claim
of
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<PAGE>
improper venue and any claim that such courts are an inconvenient forum. Each
party hereby irrevocably consents to the service of process of any of the
aforementioned courts in any such suit, action or proceeding by the mailing
of copies thereof by registered or certified mail, postage prepaid, to the
address set forth in Section 9.2, such service to become effective 10 days
after such mailing.
9.9. SEVERABILITY.
If any one or more of the provisions contained herein, or the
application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions hereof shall not not be in any way impaired, unless the
provisions held invalid, illegal or unenforceable shall substantially impair
the benefits of the remaining provisions hereof.
9.10. RULES OF CONSTRUCTION.
Unless the context otherwise requires, "or" is not exclusive, and
references to sections or subsections refer to sections or subsections of
this Agreement.
9.11. ENTIRE AGREEMENT.
This Agreement, together with the exhibits and schedules hereto and the
other related agreements referred to herein, is intended by the parties as a
final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein and therein. There are no
restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein or therein. This Agreement, together with the
exhibits and schedules hereto, and the other related agreements referred to
herein supersede all prior agreements and understandings between the parties
with respect to such subject matter.
9.12. PUBLICITY.
Except as may be required by applicable law, none of the parties hereto
shall issue a publicity release or announcement or otherwise make any public
disclosure concerning this Agreement or the transactions contemplated hereby,
without prior approval by the other parties hereto, provided that the
Purchasers may nonetheless communicate with their partners concerning such
transactions and investment in the Company and may publish a "tombstone" in
the customary form with respect to its investment. If any announcement is
required by law to be made by any party hereto, prior to making such
announcement such party will deliver a draft of such announcement to the
other parties and shall give the other parties an opportunity to comment
thereon.
9.13. FURTHER ASSURANCES.
Each of the parties shall execute such documents and perform such
further acts (including, without limitation, obtaining any consents,
exemptions, authorizations, or other
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<PAGE>
actions by, or giving any notices to, or making any filing with, any
Governmental Authority or any other Person) as may be reasonably required or
desirable to carry out or to perform the provisions of this Agreement.
9.14. WAIVER OF JURY TRIAL.
EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL
PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT,
TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized
as of the data first above written.
USINTERNETWORKING, INC.
By: /s/ Christopher R. McCleary
---------------------------
Name: Christopher R. McCleary
-----------------------
Title: Chairman & Chief Executive Officer
-----------------------------------
Richard C. Albright
------------------------------------------
Bruce H. Brandaleone
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
--------------------------------------
Christopher de Roetth
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
--------------------------------------
Elisabeth de Roetth
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
--------------------------------------
Peter de Roetth
------------------------------------------
Nicholas De Wolf
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized
as of the date first above written.
USINTERNETWORKING, INC.
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
Richard C. Albright
/s/ Richard C. Albright
-----------------------
Bruce H. Brandaleone
By: ACCOUNT MANAGEMENT CORPORATION, poa
By: /s/ Peter de Roetth
------------------------
Christopher de Roetth
By: ACCOUNT MANAGEMENT CORPORATION, poa
By: /s/ Peter de Roetth
------------------
Elisabeth de Roetth
By: ACCOUNT MANAGEMENT CORPORATION, poa
By: /s/ Peter de Roetth
------------------
Peter de Roetth
/s/ Peter de Roetth
------------------
Nicholas de Roetth
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<PAGE>
By: ACCOUNT MANAGEMENT CORPORATION, poa
By: /s/ Peter de Roetth
------------------
Christopher Egan
By: ACCOUNT MANAGEMENT CORPORATION, poa
By: /s/ Peter de Roetth
------------------
Michael J. Egan
By: ACCOUNT MANAGEMENT CORPORATION, poa
By: /s/ Peter de Roetth
------------------
Richard J. Egan
By: ACCOUNT MANAGEMENT CORPORATION, poa
/s/ Peter de Roetth
------------------
Richard J. and Maureen E. Egan
Grandchildren's Trust
By: ACCOUNT MANAGEMENT CORPORATION, poa
/s/ Peter de Roetth
------------------
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<PAGE>
Donald A. Foss
By: ACCOUNT MANAGEMENT CORPORATION, poa
By: /s/ Peter de Roetth
------------------
David Friend
By: ACCOUNT MANAGEMENT CORPORATION, poa
By: /s/ Peter de Roetth
------------------
Roger G. Marino
By: ACCOUNT MANAGEMENT CORPORATION, poa
By: /s/ Peter de Roetth
------------------
William O. Miller
By: ACCOUNT MANAGEMENT CORPORATION, poa
By: /s/ Peter de Roetth
------------------
James K. Schuler
By: ACCOUNT MANAGEMENT CORPORATION, poa
By: /s/ Peter de Roetth
------------------
Carolyn H. Walter
By: ACCOUNT MANAGEMENT CORPORATION, poa
By: /s/ Peter de Roetth
------------------
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<PAGE>
James E. Westervelt
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:/s/ Peter de Roetth
-------------------
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<PAGE>
TABLE OF EXHIBITS
EXHIBITS
- --------
EXHIBIT A CONSENT AND WAIVER
EXHIBIT B JOINDER TO THE SHAREHOLDER'S AGREEMENT
EXHIBIT C FORM OF OPINION - COMPANY COUNSEL
EXHIBIT D FORM OF OPINION - PURCHASERS' COUNSEL
<PAGE>
CONSENT AND WAIVER
This CONSENT AND WAIVER is entered into this _____ day of July, 1998 by
and among (i) USinternetworking, Inc., a Delaware corporation (the "COMPANY")
(ii) BLUE CHIP CAPITAL FUND II L.P. ("BLUE CHIP"), MIAMI VALLEY VENTURE FUND
L.P. ("MIAMI VALLEY"), GROTECH PARTNERS IV, L.P. ("GROTECH"), GROTECH
PARTNERS V, L.P. ("GROTECH II"), VENROCK ASSOCIATES ("VENROCK"), VENROCK
ASSOCIATES II, L.P. ("VENROCK II"), SOUTHERN VENTURE FUND SBIC, L.P.
("MASSEY"), SOUTHERN VENTURE FUND II, L.P. ("MASSEY II"), USi Partners, Ltd.
("USI PARTNERS") and US WEST Communications, Inc. ("US WEST" and, together
with Blue Chip, Miami Valley, Grotech, Grotech II, Venrock, Venrock II,
Massey, Massey II and USi Partners, the "PREFERRED STOCKHOLDERS") and (iii)
Christopher R. McCleary, Stephen E. McManus and Christopher M. Poelma
(collectively referred to herein as the "INDIVIDUAL STOCKHOLDERS").
WHEREAS, each of the Individual Stockholders owns 5 million shares of
Common Stock of the Company, with such shares constituting all of the issued
and outstanding Common Stock of the Company as of the date hereof;
WHEREAS, the Preferred Stockholders own shares of Series A Preferred
Stock of the Company and pursuant to Section 5(b)(12) of the Certificate of
Incorporation, as amended by the Certificate of Designation, which sets forth
the terms and conditions of the Series A Preferred Stock, the Company must
obtain the consent of the holders of two-thirds of the outstanding shares of
Series A Preferred Stock to issue additional shares of Series A Preferred
Stock;
WHEREAS, the Preferred Stockholders, the Individual Stockholders and the
Company have entered into a Shareholder's Agreement, dated as of May 28,
1998, pursuant to Section 5 of which the Preferred Stockholders and the
Individual Stockholders have certain preemptive rights with respect to the
Company's issuance of additional shares of Series A Preferred Stock;
WHEREAS, the Company has entered into a Stock Purchase Agreement with
certain investors represented by Account Management Corporation (each an
"INDIVIDUAL PREFERRED STOCKHOLDER" or collectively, the "INDIVIDUAL PREFERRED
STOCKHOLDERS"), pursuant to which the Company has agreed to issue and sell up
to 3,000 shares of its Series A Preferred Stock to the Individual Preferred
Stockholders;
WHEREAS, the Preferred Stockholders, which Preferred Stockholders
constitute all of the holders of the Series A Preferred Stock as of the date
hereof, desire to consent to the issuance of the shares of Series A Preferred
Stock to each of the Individual Preferred Stockholders as required pursuant
to Section 5(b)(12) of the Certificate of Designation; and
<PAGE>
WHEREAS, the Preferred Stockholders and the Individual Stockholders
desire to waive any rights they have under Section 5 of the Shareholders'
Agreement with respect to such issuance of shares by the Company to each of
the Individual Preferred Stockholders;
NOW, THEREFORE, in consideration of the foregoing, and the covenants and
agreements of the parties set forth herein, the parties hereto hereby agree as
follows:
1. The Preferred Stockholders do hereby consent to the above-referenced
issuance of shares of Series A Preferred Stock to each of the Individual
Preferred Stockholders and to the Individual Preferred Stockholders being
bound by the terms of Shareholders' Agreement as though an original party
thereto.
2. The Preferred Stockholders and the Individual Stockholders do hereby
waive any rights they have under Section 5 of the Shareholders' Agreement
with respect to the issuance of shares of Series A Preferred Stock by the
Company to each of the Individual Preferred Stockholders.
[THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
2
<PAGE>
IN WITNESS WHEREOF, this written consent and waiver has been executed by
the undersigned as of the date first above written.
THE COMPANY:
USINTERNETWORKING, INC.
a Delaware corporation
By:
-------------------------------
Christopher R. McCleary,
Chief Executive Officer
THE PREFERRED STOCKHOLDERS:
BLUE CHIP CAPITAL FUND II LIMITED
PARTNERSHIP
By: BLUE CHIP VENTURE COMPANY,LTD.
Its General Partner
By:
-------------------------------
John H. Wyant
Manager
MIAMI VALLEY VENTURE FUND L.P.
By: BLUE CHIP VENTURE COMPANY OF
DAYTON, LTD.
Its Special Limited Partner
By:
-------------------------------
John H. Wyant
Manager
3
<PAGE>
GROTECH PARTNERS IV L.P.
By: GROTECH CAPITAL GROUP IV, LLC
Its General Partner
By:
-------------------------------
Name:
Title:
GROTECH PARTNERS V L.P.
By: GROTECH CAPITAL GROUP V, LLC
Its General Partner
By:
-------------------------------
Name:
Title:
SOUTHERN VENTURE FUND SBIC, L.P.
By: SVF SBIC, L.P.
Its General Partner
By:
-------------------------------
Partner
By:
-------------------------------
Partner
SOUTHERN VENTURE FUND II, L.P.
By:
-------------------------------
General Partner
4
<PAGE>
VENROCK ASSOCIATES
By:
---------------------------
General Partner
VENROCK ASSOCIATES II, L.P.
By:
---------------------------
General Partner
USI PARTNERS, LTD.
By:
---------------------------
Name:
Title:
US WEST COMMUNICATIONS, INC.
By:
---------------------------
Name:
Title:
THE INDIVIDUAL STOCKHOLDERS:
----------------------------
-------------------------------
Christopher R. McCleary
-------------------------------
Stephen E. McManus
-------------------------------
Christopher M. Poelma
5
<PAGE>
JOINDER AGREEMENT
This Joinder Agreement (this "JOINDER AGREEMENT") is made as of the date
written below by the undersigned (each, a "JOINING PARTY") and the parties to
the Shareholders' Agreement, dated as of May 28, 1998. Capitalized terms
used but not defined herein shall have the meanings given such terms in the
Shareholders' Agreement.
Accordingly, the Joining Party hereby acknowledges, agrees and confirms
that, by its execution of this Joinder Agreement, the Joining Party will be
deemed to be a party to the Shareholders' Agreement and shall have all of
the rights and obligations of a "STOCKHOLDER" thereunder as if it had
executed the Shareholders' Agreement. The Joining Party hereby ratifies, as of
the date hereof, and agrees to be bound by, all of the terms, provisions and
conditions contained in the Shareholders' Agreement. The execution of this
Joinder Agreement shall be a counterpart execution of the Shareholders'
Agreement, dated May 28, 1998, and the undersigned agrees to be bound by all
the terms thereof as though an original party thereto.
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement
as of the date written below.
Date:
------------------------------
Richard C. Albright
-----------------------------
Bruce H. Brandaleone
By: ACCOUNT MANAGEMENT CORPORATION,poa
By:
-----------------------------------
Christopher de Roeth
By: ACCOUNT MANAGEMENT CORPORATION,poa
By:
----------------------------------
<PAGE>
Elisabeth de Roetth
By: ACCOUNT MANAGEMENT CORPORATION,poa
By:
-----------------------------------
Peter de Roetth
--------------------------------------
Nicholas DeWolf
By: ACCOUNT MANAGEMENT CORPORATION,poa
By:
----------------------------------
Christopher Egan
By: ACCOUNT MANAGEMENT CORPORATION,poa
By:
-----------------------------------
Michael J. Egan
--------------------------------------
Richard J. Egan
By: ACCOUNT MANAGEMENT CORPORATION,poa
By:
----------------------------------
<PAGE>
Richard J. and Maureen E. Egan
Grandchildren's Trust
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
-------------------------------------
Donald A. Foss
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
-------------------------------------
David Friend
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
-------------------------------------
Roger G. Marino
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
-------------------------------------
William G. Miller
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
--------------------------------------
<PAGE>
James K. Schuler
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
---------------------------------
Carolyn H. Walter
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------
Jane E. Westervelt
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------
<PAGE>
ACCEPTED AND ACKNOWLEDGED:
THE COMPANY:
USINTERNETWORKING, INC.
a Delaware corporation
By:
-------------------
Christopher R. McCleary, Chief Executive Officer
THE STOCKHOLDERS:
BLUE CHIP CAPITAL FUND II LIMITED
PARTNERSHIP
By: BLUE CHIP VENTURE COMPANY, LTD.
Its General Partner
By:
-----------------------------
John H. Wyant
Manager
MIAMI VALLEY VENTURE FUND L.P.
By: BLUE CHIP VENTURE COMPANY OF
DAYTON, LTD.
Its Special Limited Partner
By:
----------------------------
John H. Wyant
Manager
GROTECH PARTNERS IV L.P.
By: GROTECH CAPITAL GROUP IV, LLC
Its General Partner
By:
------------------------
<PAGE>
Name:
Title:
GROTECH PARTNERS V L.P.
By: GROTECH CAPITAL GROUP V, LLC
Its General Partner
By:
---------------------------------
Name:
Title:
SOUTHERN VENTURE FUND SBIC, L.P.
By: SVF SBIC, L.P.
Its General Partner
By:
----------------------------------
Partner
By:
----------------------------------
Partner
SOUTHERN VENTURE FUND II, L.P.
By:
----------------------------------
General Partner
VENROCK ASSOCIATES
By:
----------------------------------
General Partner
<PAGE>
VENROCK ASSOCIATES II, L.P.
By:
-------------------
General Partner
- -----------------------------
Christopher R. McCleary
- -----------------------------
Steve McManus
- -----------------------------
Chris M. Poelma
USI PARTNERS, LTD.
By:
----------------------------
Name:
Title:
US WEST COMMUNICATIONS, INC.
By:
----------------------------
Name:
Title:
<PAGE>
JOINDER AGREEMENT
This Joinder Agreement (this "JOINDER AGREEMENT") is made as of the date
written below by the undersigned (each, a "JOINING PARTY") and the parties to
the Shareholders' Agreement, dated as of May 28, 1998. Capitalized terms
used but not defined herein shall have the meanings given such terms in the
Shareholders' Agreement.
Accordingly, the Joining Party hereby acknowledges, agrees and confirms
that, by its execution of this Joinder Agreement, the Joining Party will be
deemed to be a party to the Shareholders' Agreement and shall have all of
the rights and obligations of a "STOCKHOLDER" thereunder as if it had
executed the Shareholders' Agreement. The Joining Party hereby ratifies, as of
the date hereof, and agrees to be bound by, all of the terms, provisions and
conditions contained in the Shareholders' Agreement. The execution of this
Joinder Agreement shall be a counterpart execution of the Shareholders'
Agreement, dated May 28, 1998, and the undersigned agrees to be bound by all
the terms thereof as though an original party thereto.
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement
as of the date written below.
Date:
------------------------------
Richard C. Albright
-----------------------------
Bruce H. Brandaleone
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
-----------------------------------
Christopher de Roetth
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------
<PAGE>
Elisabeth de Roetth
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
-----------------------------------
Peter de Roetth
--------------------------------------
Nicholas DeWolf
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------
Christopher Egan
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
-----------------------------------
Michael J. Egan
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
-----------------------------------
Richard J. Egan
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------
<PAGE>
Richard J. and Maureen E. Egan
Grandchildren's Trust
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------------
Donald A. Foss
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------------
David Friend
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------------
Roger G. Marino
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------------
William G. Miller
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------------
<PAGE>
James K. Schuler
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------------
Carolyn H. Walter
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------------
Jane E. Westervelt
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------------
<PAGE>
ACCEPTED AND ACKNOWLEDGED:
THE COMPANY:
USINTERNETWORKING, INC.
a Delaware corporation
By:
----------------------------
Christopher R. McCleary, Chief Executive Officer
THE STOCKHOLDERS:
BLUE CHIP CAPITAL FUND II LIMITED
PARTNERSHIP
By: BLUE CHIP VENTURE COMPANY, LTD.
Its General Partner
By:
----------------------------
John H. Wyant
Manager
MIAMI VALLEY VENTURE FUND L.P.
By: BLUE CHIP VENTURE COMPANY OF
DAYTON, LTD.
Its Special Limited Partner
By:
----------------------------
John H. Wyant
Manager
GROTECH PARTNERS IV L.P.
By: GROTECH CAPITAL GROUP IV, LLC
Its General Partner
By:
----------------------------
<PAGE>
Name:
Title:
GROTECH PARTNERS V L.P.
By: GROTECH CAPITAL GROUP V, LLC
Its General Partner
By:
----------------------------
Name:
Title:
SOUTHERN VENTURE FUND SBIC, L.P.
By: SVF SBIC, L.P.
Its General Partner
By:
----------------------------
Partner
By:
----------------------------
Partner
SOUTHERN VENTURE FUND II, L.P.
By:
----------------------------
General Partner
VENROCK ASSOCIATES
By:
----------------------------
General Partner
<PAGE>
VENROCK ASSOCIATES II, L.P.
By:
-------------------------
General Partner
- ----------------------------
Christopher R. McCleary
- ----------------------------
Steve McManus
- ----------------------------
Chris M. Poelma
USI PARTNERS, LTD.
By:
-------------------------
Name:
Title:
US WEST COMMUNICATIONS, INC.
By:
-------------------------
Name:
Title:
<PAGE>
EXHIBIT C
[LETTERHEAD OF LATHAM & WATKINS]
_____, 1998
To the Purchasers Listed on Schedule A Hereto:
Re: Stock Purchase Agreement dated as of June 19, 1998 (the
"Agreement") by and among USinternetworking, Inc., a Delaware
corporation, and the Purchasers, as listed on Schedule A attached
hereto.
Ladies and Gentlemen:
We have acted as counsel to USinternetworking, Inc., a Delaware
corporation (the "Company"), in connection with the purchase by Purchasers of
2,000 shares of Series A Convertible Preferred Stock, par value $.01 per share,
of the Company (the "Series A Preferred Stock") pursuant to the Agreement. This
opinion is rendered to you pursuant to Section 3.12 of the Agreement.
Capitalized terms defined in the Agreement, used herein, and not otherwise
defined herein shall have the meanings given them in the Agreement.
As such counsel, we have examined such matters of fact and questions of
law as we have considered appropriate for purposes of rendering the opinions
expressed below, except where a statement is qualified as to knowledge or
awareness, in which case we have made no or limited inquiry as specified below.
We have examined, among other things, the following:
<PAGE>
[LETTERHEAD OF LATHAM & WATKINS]
To the Purchasers
_________, 1998
Page 2
(a) The Agreement; and
(b) The certificate of incorporation of the Company, as amended,
and the Bylaws of the Company (the "Governing Documents").
The documents described in subsections (a) and (b) above are referred
to herein collectively as the "Documents."
In our examination, we have assumed the genuineness of all signatures
(other than those of officers of the Company on the Documents), the authenticity
of all documents submitted to us as originals, and the conformity to authentic
original documents of all documents submitted to us as copies.
We have been furnished with, and with your consent have relied upon,
certificates of officer(s) of the Company with respect to certain factual
matters. In addition, we have obtained and relied upon such certificates and
assurances from public officials as we have deemed necessary.
We are opining herein as to the effect on the subject transaction only
of the federal laws of the United States, the internal laws of the State of
Maryland, and the General Corporation Law of the State of Delaware, and we
express no opinion with respect to the applicability thereto, or the effect
thereon, of the laws of any other jurisdiction or, in the case of Delaware, any
other laws, or as to any matters of municipal law or the laws of any other local
agencies within any state.
Our opinions set forth in clauses (i) and (iii) of paragraph 4 below
are based upon our consideration of only those statutes, rules and regulations
which, in our experience, are normally applicable to stock purchase
transactions. Whenever a statement herein is qualified by "to the best of our
knowledge" or a similar phrase, it is intended to indicate that those attorneys
in this firm who have rendered legal services in connection with the this stock
purchase transaction do not have current actual knowledge of the inaccuracy of
such statement. However, except as otherwise expressly indicated, we have not
undertaken any independent investigation to determine the accuracy of any such
statement, and no inference that we have any knowledge of any matters pertaining
to such statement should be drawn from our representation of the Company.
Subject to the foregoing and the other matters set forth herein, it is
our opinion that, as of the date hereof:
<PAGE>
[LETTERHEAD OF LATHAM & WATKINS]
To the Purchasers
_________, 1998
Page 3
1. The Company has been duly incorporated and is validly existing and
in good standing under the laws of the State of Delaware with corporate power
and authority to own and lease its properties and to conduct its business and to
execute, deliver and perform its obligations under the Agreement. Based solely
on certificates from public officials, we confirm that the Company is qualified
to do business in the State of Maryland.
2. The execution, delivery and performance of the Agreement by the
Company has been duly authorized by all necessary corporate action of the
Company, and the Agreement has been duly executed and delivered by the Company.
3. The Agreement constitutes a legally valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms.
4. The execution and delivery of the Agreement by the Company and the
performance of the obligations of the Company under the Agreement do not: (i)
violate any federal or Maryland statute, rule or regulation applicable to the
Company or the Delaware General Corporation Law; (ii) violate the provisions of
the Governing Documents or of any agreement to which the Company is a party
identified to us by an officer of the Company as material to the Company's
business; or (iii) to the best our knowledge, require any consents, approvals,
authorizations, registrations, declarations or filings by the Company under any
federal statute, rule or regulation applicable to the Company. No opinion is
expressed in clauses (i) and (iii) of this paragraph 4 as to the application of
Section 548 of the federal Bankruptcy Code and comparable provisions of state
law or of any antifraud laws, antitrust or trade regulation laws.
5. The shares of Series A Preferred Stock to be issued pursuant to
the Agreement have been duly authorized and, when issued to and paid for by the
Purchasers in accordance with the terms of the Agreement, will be validly
issued, fully paid and non-assessable. The issuance of shares of Common Stock
upon conversion of the Preferred Shares has been duly authorized by the Company,
and, as of the date hereof, a sufficient number of shares of the authorized but
unissued Common Stock is available for issuance upon conversion of the Preferred
Shares. The shares of Common Stock to be issued upon conversion of the Preferred
Shares have been duly authorized and, when issued upon conversion of the
Preferred Stock in accordance with the terms of the Preferred Stock, will be
validly issued, fully paid and non-assessable.
6. As of June 19, 1998, the date of the Agreement, the authorized
capital stock of the Company consisted of One Hundred Fifty Million
(150,000,000) shares of Common
<PAGE>
[LETTERHEAD OF LATHAM & WATKINS]
To the Purchasers
_________, 1998
Page 4
Stock, par value $0.001 per share, and One Hundred Thousand (100,000) shares of
preferred stock, par value $0.01 per share.
The opinions expressed in paragraph 3 above are subject to the
following limitations, qualifications and exceptions:
(a) such opinions are subject to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting the rights
of creditors; and
(b) such opinions are subject to the exercise of judicial
discretion in accordance with general principles of equity.
To the extent that the obligations of the Company may be dependent upon
such matters, we assume for purposes of this opinion that: all parties to the
Agreement other than the Company are duly formed, validly existing and in good
standing under the laws of their respective jurisdictions of formation; all
parties to the Agreement other than the Company have the requisite partnership
power and authority to execute and deliver the Agreement and to perform their
respective obligations under the Agreement; and the Agreement to which such
parties other than the Company are a party have been duly authorized, executed
and delivered by such parties and constitute their legally valid and binding
obligations, enforceable against them in accordance with their terms. We express
no opinion as to compliance by any parties to the Agreement with any state or
federal laws or regulations applicable to the subject transactions because of
the nature of their business.
This opinion is rendered only to you and is solely for your benefit in
connection with the transactions covered hereby. This opinion may not be relied
upon by you for any other purpose, or furnished to, quoted to or relied upon by
any other person, firm or corporation for any purpose, without our prior written
consent.
Very truly yours,
<PAGE>
Schedule A
PURCHASERS
Richard C. Albright
Bruce H. Brandaleone
Christopher de Roetth
Elisabeth de Roetth
Peter de Roetth
Nicholas DeWolf
Christopher Egan
Michael J. Egan
Richard J. Egan
Richard J. and Maureen E. Egan
Grandchildren's Trust
Donald A. Foss
David Friend
Roger M. Marino
William G. Miller
James K. Schuler
Carolyn H. Walter
Jane E. Westervelt
<PAGE>
DRAFT
WRITER'S DIRECT DIAL NUMBER: (617) 951-741 1
WRITERS E-MAIL ADDRESS: [email protected]
July 20, 1998
USinternetworking, Inc.
175 Admiral Cochrane Drive
Suite 400
Annapolis, MD 21401
Gentlemen:
This opinion is furnished to you pursuant to Section 4.9 of that certain
Stock Purchase Agreement (the "Purchase Agreement") dated as of June 19, 1998
between you and the purchasers named therein (the "Purchasers"). The Purchasers
consist of two individuals acting in their own behalf (the "Signing Purchasers")
and fourteen individuals and one trust (the "Agency Purchasers") represented in
the transaction by Account Management Corporation, a Massachusetts corporation
("AMC") as Agent. Pursuant to the Purchase Agreement, the Purchasers have
executed and delivered a certain "Joinder Agreement" pursuant to which they have
become parties to a certain Shareholders' Agreement dated as of May 28, 1998.
The Purchase Agreement, the Joinder Agreement and the Shareholders' Agreement
are herein together referred to as the "Transaction Agreements".
We have acted as counsel for AMC and the Purchasers in connection with the
Transaction Agreements and the transactions contemplated thereby. We have acted
as counsel to AMC for a number of years, and are generally familiar with its
legal standing and legal affairs; our relationship to the Purchasers is as
special counsel for the particular transactions contemplated by the Transaction
Agreements.
We have examined a power of attorney executed by Richard A. Egan appointing
AMC as attorney in fact for purposes of the transactions contemplated by the
Transaction Agreements, and we have been informed that like powers of attorney
have been executed and delivered to AMC by each of the other Agency Purchasers.
We have examined a document furnished to us as a copy of the Richard J. and
Maureen E. Egan Grandchildren's Trust. We have also made inquiries as to the
age, financial standing and investing experience of all Purchasers who are
individuals. We are relying on the foregoing in connection with this opinion. We
point out the fact that the Transaction Agreements provide that the governing
law of such agreements is the law of Maryland. We are not members of the bar of
the state of Maryland, but have assumed for the
<PAGE>
-2- July 20, 1998
purposes of this opinion that the law of Maryland does not differ from the law
of Massachusetts insofar as relevant to the conclusions expressed herein.
Based upon the foregoing, we are the opinion that:
1. AMC is a corporation duly incorporated, validly existing and in good
standing under the laws of The Commonwealth of Massachusetts.
2. AMC holds a valid, binding and enforceable power of attorney from each of
the Agency Purchasers.
3. The Purchase Agreement, and the Joinder Agreement have been duly executed
and delivered by or on behalf of the Purchasers, such execution and
delivery being by AMC, as agent, in the case of the Agency Purchasers.
Except as qualified by the following sentence and by the last paragraph of
this opinion, the Transaction Agreements constitute the legal valid and
binding obligations of the Purchasers, enforceable against each of them in
accordance with their terms. We express no opinion, however, on Section 4
of the Shareholders' Agreement (dealing with registration of securities
under the Securities Act of 1933, as amended, and state securities laws),
nor as to the effect of any limitations on the validity or enforceability
of that Section on other provisions of the Shareholders' Agreement.
(4) None of (i) the execution and delivery of the Transaction Agreements by
each of the Purchasers, (ii) the purchase of the Series A Preferred Stock by
each of the Purchasers, (iii) compliance with the terms and conditions of the
Transaction Agreements on the Closing Date will conflict with, breach the terms
and conditions of, constitute a default under, any judgment, decree, order,
agreement, lease or other instrument known to us to which any of the Purchasers
is a party or by which any of the Purchasers is legally bound.
(5) To our knowledge, there is no order, writ, judgment, injunction, decree,
stipulation, determination or award entered by or with any United States
federal, state or local or any foreign government, governmental, regulatory or
administrative authority, agency or commission or any court, tribunal, or
judicial or arbitral body in existence which restrains or which materially and
adversely affects the transactions contemplated by the Transaction Agreement, or
is likely to render it impossible or unlawful to consummate such transactions.
Our opinion as to the legality, validity, binding effect and enforceability
of the Purchase Agreement and the other Transaction Agreements is subject to (a)
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of contracting parties and (b)
general principles of equity, regardless whether enforcement is sought in
proceedings in equity or at law. We also express no opinion as to the
enforceability of
<PAGE>
-3- July 20, 1998
provisions relating to submission to jurisdiction, waiver of service of process,
venue or waiver of the right to trial by jury.
Very truly yours,
Ropes & Gray
JEB/aml:3318915.01
<PAGE>
SCHEDULES
<PAGE>
SCHEDULE 1
SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK
TO BE ISSUED BY THE COMPANY
TO EACH PURCHASER
<TABLE>
<CAPTION>
Total Purchase Price To
Shares of Series A Be Paid By Such
Convertible Preferred Purchaser For Shares
Stock To Be Issued of Series A Convertible
By the Company To Preferred Stock Issued
Purchaser Each Purchaser To Each Purchaser
- --------------------------------------------------------------------------------
<S> <C> <C>
Richard C. Albright 166.67 $ 100,002.00
Bruce H. Brandaleone 166.67 $ 100,002.00
Nicholas de Wolf 166.67 $ 100,002.00
Christopher de Roetth 125.00 $ 75,000.00
Elisabeth de Roetth and Peter de Roetth 166.67 $ 100,002.00
Christopher Egan 41.67 $ 25,002.00
Michael J. Egan 41.67 $ 25,002.00
Richard J. Egan 166.67 $ 100,002.00
Richard J. and Maureen E. Egan
Grandchildren's Trust 41.67 $ 25,002.00
Donald A. Foss 166.67 $ 100,002.00
David Friend 125.00 $ 75,000.00
Roger M. Marino 166.67 $ 100,002.00
William G. Miller 125.00 $ 75,000.00
James K. Schuler 125.00 $ 75,000.00
Carolyn H. Walter 41.67 $ 25,002.00
Jane E. Westervelt 166.67 $ 100,002.00
------------------------------------------
Total 2,000.04 $ 1,200,024
</TABLE>
Page 1
<PAGE>
SCHEDULE 2
Account Management Corporation
Two Newbury Street
Boston, Massachusetts 02116
<PAGE>
SCHEDULE 5.5
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Holders of Issued and Outstanding Number of Shares of Capital Stock Held
Shares of Capital Stock
- --------------------------------------------------------------------------------
<S> <C>
Christopher McCleary 5,000,000 shares of Common Stock
- --------------------------------------------------------------------------------
Chris Poelma 5,000,000 shares of Common Stock
- --------------------------------------------------------------------------------
Steve McManus 5,000,000 shares of Common Stock
- --------------------------------------------------------------------------------
</TABLE>
See attached for a list of the holders of Series A Preferred Stock.
See also attached for a list of employees granted stock options, which options
shall be governed by the Employee Stock Option Plan.
<PAGE>
SERIES A CONVERTIBLE PREFERRED STOCK
<TABLE>
<CAPTION>
Shares of Series A Convertible Preferred Stock
Holders Issued To Each Holder
- --------------------------------------------------------------------------------
<S> <C>
Blue Chip Capital Fund II 11,333.34
Limited Partnership
Miami Valley Venture Fund L.P. 1,999.99
Grotech Partners IV, and 16,666.67
Grotech Partners V, L.P.
Southern Venture Fund SBIC, L.P. 3,333.33
Southern Venture Fund, II, L.P. 1,666.67
Venrock Associates 3,583.33
Venrock Associates II, L.P. 4,750.00
Christopher R. McCleary (or McCleary Technology
Capital) 1,666.67
USI Partners, Ltd. 1,166.67
US WEST Communications, Inc. 5,833.33
Total 52,000.00
</TABLE>
Page 1
<PAGE>
<TABLE>
<CAPTION>
Common Stock Options
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Employees Options Exercise price
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
Rob Adams 50,000
- --------------------------------------------------------------------------------
William Anderson 50,000
- --------------------------------------------------------------------------------
Karen Anikis 25,000
- --------------------------------------------------------------------------------
Kerry Bailey 50,000
- --------------------------------------------------------------------------------
Christine Bradford 10,000
- --------------------------------------------------------------------------------
Chris Brown 10,000
- --------------------------------------------------------------------------------
Garrett Brown 100,000
- --------------------------------------------------------------------------------
James Brown 10,000
- --------------------------------------------------------------------------------
Lawrence Brunelle Jr. 110,000
- --------------------------------------------------------------------------------
Celeste Chance 20,000
- --------------------------------------------------------------------------------
John Chen 30,000
- --------------------------------------------------------------------------------
James Chopey 20,000
- --------------------------------------------------------------------------------
Karen Clark 35,000
- --------------------------------------------------------------------------------
David Collier 50,000
- --------------------------------------------------------------------------------
Greg Conner 70,000
- --------------------------------------------------------------------------------
Sandra Crowley 20,000
- --------------------------------------------------------------------------------
Clay Damewood 25,000
- --------------------------------------------------------------------------------
Mark DeCassan 20,000
- --------------------------------------------------------------------------------
Mona DeFrawi 100,000
- --------------------------------------------------------------------------------
Susan Diegelman 7,500
- --------------------------------------------------------------------------------
Tom Dobbins 50,000
- --------------------------------------------------------------------------------
Burt Edwards 30,000
- --------------------------------------------------------------------------------
Toyan Espeut 15,000
- --------------------------------------------------------------------------------
Carlos Evans 15,000
- --------------------------------------------------------------------------------
Colin Fraser 15,000
- --------------------------------------------------------------------------------
John Geldner 30,000
- --------------------------------------------------------------------------------
John Girard 25,000
- --------------------------------------------------------------------------------
Jay Gitomer 10,000
- --------------------------------------------------------------------------------
Mary Gorman 7,500
- --------------------------------------------------------------------------------
Nick Graham 50,000
- --------------------------------------------------------------------------------
Clinton Green 10,000
- --------------------------------------------------------------------------------
Eugene Guilaran 15,000
- --------------------------------------------------------------------------------
Molly Hamilton 15,000
- --------------------------------------------------------------------------------
Mike Harper 120,000
- --------------------------------------------------------------------------------
Joane Hellebrand 15,000
- --------------------------------------------------------------------------------
Gary Heiwig 100,000
- --------------------------------------------------------------------------------
Patti Johnson 10,000
- --------------------------------------------------------------------------------
Pauline Jones 7,500
- --------------------------------------------------------------------------------
Shanta Jones 1,000
- --------------------------------------------------------------------------------
William Karpovich 120,000
- --------------------------------------------------------------------------------
John Komorowski 30,000
- --------------------------------------------------------------------------------
Jennifer Lapan 15,000
- --------------------------------------------------------------------------------
John Liccione 100,000
- --------------------------------------------------------------------------------
Eric Madison 50,000
- --------------------------------------------------------------------------------
Mark J. McEneaney 100,000
- --------------------------------------------------------------------------------
Joyce McGuire 10,000
- --------------------------------------------------------------------------------
Jeffrey McKnight 200,000
- --------------------------------------------------------------------------------
Michael Meals 10,000
- --------------------------------------------------------------------------------
Carbelito Mendoza 20,000
- --------------------------------------------------------------------------------
</TABLE>
Page 1
<PAGE>
<TABLE>
Common Stock Options
- --------------------------------------------------------------------------------
<S> <C>
Linda Middleton 30,000
- --------------------------------------------------------------------------------
Eric Milhous 30,000
- --------------------------------------------------------------------------------
Jack Mitchell 15,000
- --------------------------------------------------------------------------------
Ed Moeller 15,000
- --------------------------------------------------------------------------------
Jeff Mould 10,000
- --------------------------------------------------------------------------------
Judith Newman 35,000
- --------------------------------------------------------------------------------
Wayne Odachowski 100,000
- --------------------------------------------------------------------------------
Mike Oddis 7,500
- --------------------------------------------------------------------------------
Nancy O'Haro 7,500
- --------------------------------------------------------------------------------
Michael Pelland 25,000
- --------------------------------------------------------------------------------
Matthew Piermarini 20,000
- --------------------------------------------------------------------------------
Dave Prendergast 15,000
- --------------------------------------------------------------------------------
William Price 20,000
- --------------------------------------------------------------------------------
J. Bradley Pumphrey 35,000
- --------------------------------------------------------------------------------
Raja Krishnamoorthy 10,000
- --------------------------------------------------------------------------------
Colin Rand 35,000
- --------------------------------------------------------------------------------
John Riganati 25,000
- --------------------------------------------------------------------------------
Jay W. Robertson 100,000
- --------------------------------------------------------------------------------
Marty Roger 50,000
- --------------------------------------------------------------------------------
Nathan Russ 20,000
- --------------------------------------------------------------------------------
Anthony Russo 10,000
- --------------------------------------------------------------------------------
Amy Sams 5,000
- --------------------------------------------------------------------------------
Vicki Schwallenberg 7,500
- --------------------------------------------------------------------------------
Charles Spallitta 25,000
- --------------------------------------------------------------------------------
John Steedman 30,000
- --------------------------------------------------------------------------------
Kevin Stitley 30,000
- --------------------------------------------------------------------------------
Kevin Strasser 20,000
- --------------------------------------------------------------------------------
Damien Stuart 40,000
- --------------------------------------------------------------------------------
Kevin Tahvildary 50,000
- --------------------------------------------------------------------------------
Lee Tanner 100,000
- --------------------------------------------------------------------------------
John Tomijarovic 40,000
- --------------------------------------------------------------------------------
Michael Townley 25,000
- --------------------------------------------------------------------------------
Charles Truesdale 25,000
- --------------------------------------------------------------------------------
Rhonda Truesdale 50,000
- --------------------------------------------------------------------------------
Dennis Uhler 25,000
- --------------------------------------------------------------------------------
Kristin Vick 7,500
- --------------------------------------------------------------------------------
Sam Walker 30,000
- --------------------------------------------------------------------------------
James Walsh 75,000
- --------------------------------------------------------------------------------
Angus Watson 25,000
- --------------------------------------------------------------------------------
Bob Webb 55,000
- --------------------------------------------------------------------------------
Maxine Williams 15,000
- --------------------------------------------------------------------------------
Brenda Woodsmall 110,000
- --------------------------------------------------------------------------------
Jinguin Wu 15,000
- --------------------------------------------------------------------------------
Daniel Zhang 20,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL 3,448,500
- --------------------------------------------------------------------------------
</TABLE>
NB: The Company intends to award the above Common Stock Options pursuant to the
Employee Stock Option Plan not yet adopted. It is also expected that, pursuant
to the Employee Stock Option Plan that has yet to be adopted, the exercise price
will be $0.33 1/3 a share. This exercise price may change once the Employee
Stock Option Plan is adopted. The Company also intends to grant 30,000 stock
options to its directors who are not also employees of the Company.
Page 2
<PAGE>
USINTERNETWORKING, INC.
STOCK PURCHASES AGREEMENT
SCHEDULE 6.8(A)
ALL EXPENDITURES IN EXCESS OF $25,000
<TABLE>
<CAPTION>
PAYEE EXPLANATION AMOUNT
- ----- ----------- ------
<S> <C> <C>
American Express Advance payment of account $ 40,125.05
Boggs & Partners Professional Services-Architect $ 42,282.93
Coleman-Martin Computer Equipment-Laptops $ 43,417.00
Computer Equipment-Printer, deskpro, notebooks $ 29,951.00
Consortium One-Annapolis L.L.C. Deposit related to the lease at 175 Admiral Cochrane Drive $ 400,000.00
May Rent for 175 Admiral Cochrane Drive $ 30,052.54
June Rent for 175 Admiral Cochrane Drive $ 30,052.54
Gordon Flesch Company Two copiers with interface boards (one color) includes delivery. $ 48,264.50
Installation and taxes.
One copier includes delivery, installation and taxes. $ 80,718.00
Christopher McCleary Partial repayment of loan $ 100,000.00
Partial repayment of loan $ 342,489.95
PC Connection, Inc Computer Equipment $ 77,640.00
Computer Equipment $ 39,471.45
Computer Equipment $ 41,809.00
Computer Equipment $ 100,000.00
Computer Equipment $ 25,518.75
Realty Association Security Deposit and First month's rent for 2661 Riva Road $ 38,398.42
</TABLE>
Page 1
<PAGE>
USINTERNETWORKING, INC.
STOCK PURCHASES AGREEMENT
SCHEDULE 5.8(A)
ALL EXPENDITURES IN EXCESS OF $25,000
<TABLE>
<CAPTION>
PAYEE EXPLANATION AMOUNT
- ----- ----------- ------
<S> <C> <C>
American Express Advance payment of account $ 40,125.05
Boggs & Partners Professional Services-Architect $ 42,282.93
Coleman-Martin Computer Equipment-Laptops $ 43,417.00
Computer Equipment-Printer, deskpro, notebooks $ 29,951.00
Consortium One-Annapolis L.L.C. Deposit related to the lease at 175 Admiral Cochrane Drive $ 400,000.00
May Rent for 175 Admiral Cochrane Drive $ 30,052.54
June Rent for 175 Admiral Cochrane Drive $ 30,052.54
Gordon Flesch Company Two copiers with interface boards (one color) includes delivery. $ 48,264.50
Installation and taxes.
One copier includes delivery, installation and taxes. $ 80,718.00
Christopher McCleary Partial repayment of loan $ 100,000.00
Partial repayment of loan $ 342,489.95
PC Connection, Inc Computer Equipment $ 77,640.00
Computer Equipment $ 39,471.45
Computer Equipment $ 41,809.00
Computer Equipment $ 100,000.00
Computer Equipment $ 25,518.75
Realty Association Security Deposit and First month's rent for 2661 Riva Road $ 38,398.42
</TABLE>
Page 1
<PAGE>
USINTERNETWORKING, INC.
STOCK PURCHASES AGREEMENT
SCHEDULE 5.8(A)
AGGEGRATE EXPENDITURES IN EXCESS OF $200,000
<TABLE>
<CAPTION>
PAYEE EXPLANATION AMOUNT
- ----- ----------- ------
<S> <C> <C>
Consortium One-Annapolis L.L.C. Deposit and rent for 175 Admiral Cochrane Drive (Lease) $ 465,915.00
Christopher McCleary Payments on Loan $ 444,875.62
PC Connection, Inc. Computer Equipment $ 509,200.97
</TABLE>
Page 1
<PAGE>
SCHEDULE 5.10
LISTING OF CONTRACTUAL OBLIGATIONS
1) Officer Agreement by and between USinternetworking, Inc. and Christopher
R. McCleary dated May 29. 1998.
2) Officer Agreement by and between USinternetworking, Inc. and Chris M.
Poelma, dated June 2, 1998.
3) Officer Agreement by and between USinternetworking, Inc. and Steve
McManus, dated June 2,1998.
4) Sublease Agreement, by and between Exsportise, Inc. and USinternetworking,
Inc., dated February 9,1998.
5) Agreement of Lease, by and between Consortium One-Annapolis, LLC and
USinternetworking, Inc., dated April 3,1998.
6) Letter Agreement between USinternetworking, Inc. and Gary Heiwig, dated
April 10, 1998 (acceptance by Heiwig dated April 14, 1998).
7) Furniture Rental Agreement between Aaron Rents, Inc. and
USinternetworking, Inc., dated March 10, 1998.
8) Sublease Agreement, by and between Columbia Medical Plan and
USinternetworking, Inc. dated May 8, 1998.
9) Agreement of Lease, by and between Realty Associates, Inc. and
USinternetworking, Inc., dated June 3, 1998
10) Contract of Sale between First Church of Christ, Scientist, Seller, and
USinternetworking, Inc., Buyer, dated May 1, 1998.
<PAGE>
SCHEDULE 5.12
LISTING OF SEVERANCE ARRANGEMENTS
See Officer Agreements and Letter Agreement listed on Schedule 5.10.
Also attached is the employment offer letter of Garrett Brown, who will receive
a $125,000 severance payment should his employment within the first four years
be involuntarily terminated without cause.
<PAGE>
[LETTERHEAD OF USINTERNETWORKING, INC.]
June 15, 1998
Mr. Garrett Brown
Dear Garret:
On behalf of USinternetworking, Inc, we are pleased to offer you the position of
Vice President, Product Development, reporting to Mike Harper, Vice President,
Product and Service Development. Your anticipated start date will be Monday,
June 29, 1998. In this capacity you will be paid a monthly gross salary of
$8,333.00 and be eligible for an annual performance bonus of 20% based upon your
annualized gross base salary. The performance bonus is first payable in January
of 1999 and will be based on objectives that will be set within the first 30
days of your employment. You will be provided a signing bonus of $20,000.00 and
an Earn-Out Bonus of $35,000.00, both of which will be paid within 90 days of
your start date, and a Recruiting Bonus of $30,000.00 ($10,000.00 per new hire)
recruited by you within the first year of your employment.
Additionally you will be granted 100,000 shares of stock options at $.33 a
share. The stock will vest over a three year period beginning from your start
date, with one-year cliff vesting for the first 1/3 of the options, and 1/8 of
the remaining options vesting quarterly thereafter. The terms and conditions of
the plan are subject to approval at the Board of Directors.
Should your employment be involuntarily terminated within 48 months for any
reason other than cause, then USi will provide a severance payment to you of
$125,000.00 in a lump sum within 30 days after the date of termination; plus any
earned and unused vacation pay; and any deferred compensation due you. Further,
any remaining options not vested upon your involuntary termination for any
reason other than cause will be considered fully vested 24 hours prior to the
date of your termination. Cause herein is defined as: 1) engaging in any illegal
practices or activities which can reasonably be expected to be materially
detrimental to the reputation, well-being or properties of Usi, its officers,
directors, shareholders or affiliated companies; 2) employee materially breaches
this agreement; or 3) employee manifests dishonesty, disloyalty, fraud, willful
misconduct, or material dereliction in the discharge of his duties. Should your
employment be terminated for cause, you will not be entitled to receive any
compensation other than your base salary and benefits earned but not yet paid as
of the date of termination. Additionally, should your employment be terminated
for cause or you leave the company of your own free will at any time, you would
not be eligible for the $125,000 severance payment.
In order to satisfy requirements of the Immigration Reform and Control Act,
please report to work on your first day prepared to prove your identity and your
right to work in the United States. Please bring two forms of official
identification (such as Social Security Card, Driver's License, Green Card,
etc.) that we can copy for our files.
USi Will provide complete medical, dental vision, 401K, LTD, Life and vacation
benefits competitive with the technology industry. The medical plan is a Blue
Cross/Blue Shield PPN plan. The denial and vision plans were implemented June 1
and the 401K plan will be implemented in the third quarter. Additionally, you
will receive three weeks of vacation.
<PAGE>
We consider the terms this offer to be confidential and they should not be
discussed with other USi staff, other than those involved in the hiring process.
Furthermore, your acceptance of this offer does not constitutes a contract of
employment. Your employment with Usi will be an at-will and can be terminated at
any time be either party.
Garrett, we look forward to having you join the Usi team, and help us create
value for our customers, shareholders and employees.
Best regards,
/s/ William T. Price
William T. Price Accepted By: /s/ Mr. Garrett Brown
Vice President ------------------------
General Counsel Date: 17 June, 1998
Usinternetworking, Inc.
Cc: Grant J. Nelson
<PAGE>
SCHEDULE 5.16
EMPLOYEE PLANS
Although the Company has not adopted any formal employee benefit plans, the
contours of the employee benefit plans have been described in writing to
employees. The employee benefits are to include the following: (i) a 401(k) plan
that is to be noncontributory until January 1, 1999, and thereafter subject to a
1:2 employer match, (ii) the Employee Stock Option Plan, and (iii) other typical
plans such as health and vacation benefit plans. The Company has stated its
intention that the Employee Stock Option Plan will be a qualified plan that will
provide for the issuance of options to purchase shares at a discount of 20% from
the then-current market price, to the extent permissible at any time. Certain of
the Company's employees have been advised in writing, pursuant to the employment
offer letters, of the number of option shares the Company intends to award to
them. These option shares are listed in Schedule 5.5.
<PAGE>
SCHEDULE 5.17
LISTING OF ALL OUTSTANDING BORROWINGS
1) $2,000,000 credit line with Cisco Systems Capital Corp. for the purchase
of Cisco Systems Products equipment. $0 outstanding at June 15, 1998.
2) $1,000,000 credit line with Hewlett-Packard Co. for the purchase of
Hewlett-Packard equipment. $651,758.06 outstanding at June 15, 1998.
<PAGE>
SCHEDULE 5.18
LISTING OF INSURANCE POLICIES OR PROGRAMS
As of the date hereof, the Company has received only an Insurance Binder.
<PAGE>
STOCK PURCHASE AGREEMENT
by
and
between
USinternetworking, Inc.
and
HAGC Partners
-------------------------
Dated as of June 19, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1. DEFINITIONS ..................................................... 1
1.1. Definitions ............................................... 1
1.2. Accounting Terms; Financial Statements .................... 4
1.3. Knowledge Standard ........................................ 4
1.4. Other Defined Terms ....................................... 4
ARTICLE 2. AUTHORIZATION OF PREFERRED SHARES; PURCHASE AND SALE OF
PREFERRED SHARES ............................................... 5
2.1. Preferred Shares .......................................... 5
2.2. Purchase and Sale of Preferred Shares ..................... 5
2.3. Closing ................................................... 5
2.4. Fees and Expenses ......................................... 5
ARTICLE 3. CONDITIONS TO THE OBLIGATION OF THE PURCHASER TO PURCHASE
THE PREFERRED SHARES ........................................... 6
3.1. Representations and Warranties ............................ 6
3.2. Compliance with Terms and Conditions of this Agreement .... 6
3.3. Delivery of Certificates Evidencing the Shares ............ 6
3.4. [intentionally omitted] ................................... 6
3.5. Secretary's Certificates .................................. 6
3.6. Documents ................................................. 6
3.7. Purchase Permitted by Applicable Laws ..................... 6
3.8. Consents and Approvals .................................... 7
3.9. Consent and Waiver ........................................ 7
3.10. Joinder to the Shareholders' Agreement ................... 7
3.11. No Material Judgment or Order ............................ 7
3.12. Legal Opinion ............................................ 7
ARTICLE 4. CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE ............ 8
4.1. Representations and Warranties ............................ 8
4.2. Compliance with this Agreement ............................ 8
4.3. [intentionally omitted] ................................... 8
4.4. issuance Permitted by Applicable Laws ..................... 8
4.5. Payment of Purchase Price ................................. 8
4.6. Consents and Approvals .................................... 8
4.7. Consent and Waiver ........................................ 8
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4.8. Joinder to the Shareholders' Agreement .................... 9
4.9. Legal Opinion ............................................. 9
4.10. No Material Judgment or Order ............................ 9
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY ................... 9
5.1. Corporate Existence and Authority ......................... 9
5.2. Corporate Authorization; No Contravention ................. 9
5.3. Governmental Authorization; Third Party Consents .......... 10
5.4. Binding Effect ............................................ 10
5.5. Capitalization ............................................ 10
5.6. Private Offering .......................................... 11
5.7. Litigation ................................................ 11
5.8. Financial Statements ...................................... 11
5.9. Title and Condition of Assets ............................. 12
5.10. Contractual Obligations .................................. 12
5.11. Tax Matters .............................................. 12
5.12. Severance Arrangements ................................... 12
5.13. Investment Company/Government Regulations ................ 12
5.14. Broker's, Finder's or Similar Fees ....................... 12
5.15. Labor Relations and Employee Matters ..................... 13
5.16. Employee Benefits Matters ................................ 13
5.17. Outstanding Borrowings ................................... 13
5.18. Insurance Schedule ....................................... 13
5.19. Solvency ................................................. 13
5.20. No Other Agreements to Sell the Assets or Capital
Stock of the Company ................................... 13
5.21. Key Employees ............................................ 14
5.22. Compliance with Law ...................................... 14
5.23. Disclosure ............................................... 14
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER ................. 14
6.1. Location of Principal Office, Qualification as an
Accredited Investor ..................................... 14
6.2. Transfer Restrictions Imposed by Securities Law ........... 15
6.3. Binding Effect ............................................ 15
6.4. Purchase for Own Account .................................. 15
6.5. Financial Condition; Sophistication ....................... 16
6.6. Receipt of Information .................................... 16
6.7. Broker's, Finder's or Similar Fees ........................ 16
6.8. Governmental Authorization; Third Party Consent ........... 16
6.9. Litigation ................................................ 16
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE 7. COVENANTS OF THE COMPANY WITH RESPECT TO THE PERIOD
FOLLOWING THE CLOSING .......................................... 17
7.1. Reservation of Shares ..................................... 17
ARTICLE 8. INDEMNIFICATION ................................................. 17
8.1. Indemnification ........................................... 17
8.2. Notification .............................................. 18
ARTICLE 9. MISCELLANEOUS ................................................... 19
9.1. Survival of Representations and Warranties ................ 19
9.2. Notices ................................................... 19
9.3. Successors and Assigns .................................... 20
9.4. Amendment and Waiver ...................................... 20
9.5. Counterparts .............................................. 20
9.6. Headings .................................................. 21
9.7. Governing Law ............................................. 21
9.8. Jurisdiction .............................................. 21
9.9. Severability .............................................. 21
9.10. Rules of Construction .................................... 21
9.11. Entire Agreement ......................................... 21
9.12. Publicity ................................................ 22
9.13. Further Assurances ....................................... 22
9.14. Waiver of Jury Trial ..................................... 22
</TABLE>
iii
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as of
this 19th day of June, 1998, by and between (i) USinternetworking, Inc., a
Delaware corporation (the "Company") and (ii) HAGC Partners, a Delaware limited
partnership (referred to herein as the "Purchaser").
RECITALS:
A. Upon the terms and subject to the conditions set forth in this
Agreement, the Company proposes to issue and sell shares of its Series A
Convertible Preferred Stock ("Series A Preferred Stock," as defined below) to
the Purchaser.
B. The Purchaser desires to purchase from the Company shares of the
Series A Preferred Stock as set forth on Schedule I hereto.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE 1.
DEFINITIONS
1.1. DEFINITIONS.
As used in this Agreement, and unless the context requires a different
meaning, the following terms have the meanings indicated:
"AFFILIATE" means, with respect to any specified Person, any Person
that, directly or indirectly, controls, is controlled by, or is under common
control with, such specified Person, whether by contract, through one or more
intermediaries, or otherwise.
"BUSINESS DAY" shall mean a day other than a Saturday or Sunday or any
federal holiday.
"COMMISSION" means the Securities and Exchange Commission or any
similar agency then having jurisdiction to enforce the Securities Act (as
defined below).
"COMMON STOCK" means the common stock, par value $.001 per share, of
the Company, or any other capital stock of the Company into which such stock is
reclassified or reconstituted.
<PAGE>
"CONDITION OF THE COMPANY" means the assets, business, properties,
operations, financial condition or prospects of the Company.
"EMPLOYEE PLANS" means all benefits arrangements, pension plans or
welfare plans adopted by the Company for its employees.
"EMPLOYEE STOCK OPTION PLAN" means an employee stock option plan
adopted by the Compensation Committee of the Board of Directors of the Company
providing for the issuance to certain employees of the Company of options to
purchase a certain number of shares of Common Stock at a certain exercise price
per share. The total number of shares of Common Stock which may be issued under
such plan shall not exceed 6.5% of the total number of outstanding shares of
common stock calculated on a fully diluted basis, not including the options and
shares issuable or issued on exercise of options pursuant to the Employee Stock
Option Plan.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder.
"GAAP" means United States generally accepted accounting principles, in
effect from time to time, consistently applied.
"GOVERNMENTAL AUTHORITY" means the government of any nation, state,
city, locality or other political subdivision of any thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.
"INDEBTEDNESS" means, as to any Person: (a) all obligations, whether or
not contingent, of such Person for borrowed money (including, without
limitation, reimbursement and all other obligations with respect to surety
bonds, letters of credit and bankers' acceptances, whether or not matured), (b)
all obligations of such Person evidenced by notes, bonds, debentures or similar
instruments, (c) all obligations of such Person representing the balance of
deferred purchase price of property or services, except trade accounts payable
and accrued commercial or trade liabilities arising in the ordinary course of
business, (d) all interest rate and currency swaps, caps, collars and similar
agreements or hedging devices under which payments are obligated to be made by
such Person, whether periodically or upon the happening of a contingency, (e)
all indebtedness created or arising under any conditional sale or other tide
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property), (f)
all obligations of such Person under leases which have been or should be, in
accordance with GAAP, recorded as capital leases, (g) all indebtedness secured
by any Lien (other than Liens in favor of lessors under leases other than leases
included in clause (f)) on any property or asset owned or held by that Person
regardless of whether the indebtedness secured thereby shall have been assumed
by that Person or is non-recourse to the credit of that Person, and (h) all
Indebtedness of any other Person referred to in clauses (a) through (f) above,
guaranteed, directly or indirectly, by that Person.
-2-
<PAGE>
"LIEN" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other) or other security interest of
any kind or nature whatsoever (excluding preferred stock or equity related
preferences) including, without limitation, those created by, arising under or
evidenced by any conditional sale or other title retention agreement, the
interest of a lessor under a capital lease obligation, or any financing lease
having substantially the same economic effect as any of the foregoing.
"OUTSTANDING BORROWINGS" means all Indebtedness of the Company for
borrowed money (including, without limitation, reimbursement and all other
obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured).
"PERSON" means any individual, firm, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
Governmental Authority or other entity of any kind, and shall include any
successor (by merger or otherwise) of such entity.
"REQUIREMENTS OF LAW" means, as to any Person, the provisions of the
Certificate of Incorporation and By-laws or other organizational or governing
documents of such Person, and any law, treaty, rule, regulation, right,
privilege, qualification, license or franchise, order, judgment, or
determination of an arbitrator or a court or other Governmental Authority, in
each case, applicable or binding upon such Person or any of its property or to
which such Person or any of its property is subject or applicable to any or all
of the transactions contemplated by or referred to in the Transaction
Agreements.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder.
"SERIES A PREFERRED STOCK" means the 8% Series A Convertible Preferred
Stock, par value $.01 per share, of the Company, or any other capital stock of
the Company into which such stock is reclassified or reconstituted.
"SHAREHOLDERS' AGREEMENT" means the Shareholders' Agreement, dated as
of May 28, 1998, by and among the Company and the Stockholders that are listed
as a party thereto and any Persons who become or became parties to the
Shareholders' Agreement whether pursuant to an amendment or otherwise.
"TRANSACTION AGREEMENTS" means this Agreement, the Joinder to the
Shareholders' Agreement (as defined in Section 3.10) and the Shareholders'
Agreement.
"TRANSACTION EXPENSES" means any and all reasonable out-of-pocket (i)
legal expenses incurred by the Purchaser in connection with the negotiation and
preparation of the Transaction Agreements, the consummation of the transactions
contemplated thereby and preparation for any of the foregoing, including,
without limitation, travel expenses, reasonable fees, charges and disbursements
of counsel and any similar or related legal costs and legal expenses; and (ii)
other expenses incurred by the Purchaser in connection with the negotiation and
preparation of this Agreement.
-3-
<PAGE>
1.2. ACCOUNTING TERMS: FINANCIAL STATEMENTS.
All accounting terms used herein not expressly defined in this
Agreement shall have the respective meanings given to them in accordance with
sound accounting practice. The term "sound accounting practice" shall mean such
accounting practice as, in the opinion of the independent certified public
accountants regularly retained by the Company conforms at the time to GAAP
applied on a consistent basis except for changes with which such accountants
concur.
1.3. KNOWLEDGE STANDARD.
When used herein, the phrase "to the knowledge of" any Person, "to the
best knowledge of' any Person or any similar phrase shall mean, (i) with respect
to any individual, the actual knowledge of such Person, (ii) with respect to any
corporation, the actual knowledge of the officers and directors of such
corporation and the knowledge of such facts that such persons should have in the
exercise of their duties after reasonable inquiry, and (iii) with respect to a
partnership, the actual knowledge of the officers and directors of the general
partner of such partnership and the knowledge of such facts that such persons
should have in the exercise of their duties after reasonable inquiry.
1.4. OTHER DEFINED TERMS.
The following terms shall have the meanings specified in the Sections
set forth below:
<TABLE>
Term Section
---- -------
<S> <C>
Actions 5.7
Certificate of Incorporation 2.1
Certificate 2.1
Certificate of Designation 2.1
Closing Date 2.2
Closing 2.3
Indemnified Party 8.2
Indemnifying Party 8.2
Liabilities 8.1
Preferred Shares 2.1
Purchase Price 2.2
Purchasing Indemnified Party 9.1
Purchasing Indemnifying Party 9.1
Selling Indemnified Party 9.1
Selling Indemnifying Party 9.1
</TABLE>
-4-
<PAGE>
ARTICLE 2.
AUTHORIZATION OF PREFERRED SHARES;
PURCHASE AND SALE OF PREFERRED SHARES
2.1. PREFERRED SHARES.
The Board of Directors of the Company has authorized the issuance and
sale of 3,000 shares of the Series A Preferred Stock (the "Preferred Shares")
and has duly adopted resolutions establishing the rights, preferences,
privileges and restrictions of the Series A Preferred Stock. The Preferred
Shares will have the respective rights, preferences and privileges set forth in
the Company's Certificate of Incorporation, as amended (the "Certificate of
Incorporation") and the Certificate of Designations, Preferences, and Other
Special Rights of Preferred Stock and Qualifications, Limitations and
Restrictions Thereof filed on May 27, 1998 with respect thereto (the
"Certificate of Designation" and together with the Certificate of Incorporation,
the "Certificate").
2.2. PURCHASE AND SALE OF PREFERRED SHARES.
Upon the terms and subject to the conditions herein contained, on the
date hereof or such other date as the parties may agree (the "Closing Date"),
the Company shall issue to the Purchaser and the Purchaser shall acquire from
the Company 33,333 Preferred Shares. The purchase price of such Preferred Shares
to be paid by the Purchaser shall be Two Hundred Thousand Dollars ($200,000)
(the "Purchase Price").
2.3. CLOSING.
The closing of the sale to and purchase by the Purchaser of the
Preferred Shares (the "Closing") shall occur at 11 o'clock A.M., local time on
the Closing Date at the offices of Latham & Watkins, 1001 Pennsylvania Avenue,
N.W., Washington, D.C. 20004, or such other location as the parties may agree.
At the Closing, (i) the Company shall deliver to the Purchaser a certificate
evidencing the Preferred Shares being purchased by the Purchaser, free and clear
of any Liens of any nature whatsoever, other than those created by the
Certificate or the Shareholders' Agreement, registered in the Purchaser's name,
and (ii) the Purchaser shall deliver to the Company the Purchase Price, by
cashier's or certified check or wire transfer of immediately available funds.
2.4. FEES AND EXPENSES.
Concurrently with the Closing, the Company shall reimburse the
Purchaser for the Transaction Expenses, which payment shall be made by wire
transfer of immediately available funds to an account or accounts designated by
the Purchaser.
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ARTICLE 3.
CONDITIONS TO THE OBLIGATION OF THE
PURCHASER TO PURCHASE THE PREFERRED SHARES
The obligation of the Purchaser to purchase the Preferred Shares, to
pay the Purchase Price therefor and to perform any of its obligations hereunder
on the Closing Date (unless otherwise specified) shall be subject to the
satisfaction of the following conditions on or before the Closing Date:
3.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company contained in Section
5 hereof shall be true and correct in all material respects as of the date
hereof.
3.2. COMPLIANCE WITH TERMS AND CONDITIONS OF THIS AGREEMENT.
The Company shall have performed and complied with all of the
agreements and conditions set forth herein that are required to be performed or
complied with by the Company on or before the date hereof
3.3. DELIVERY OF CERTIFICATES EVIDENCING THE SHARES.
The Company shall have delivered to the Purchaser the certificate
evidencing the Preferred Shares as set forth in Section 2.3.
3.4. [intentionally omitted]
3.5. SECRETARY'S CERTIFICATES.
The Purchaser shall have received a certificate from the Company, dated
as of the Closing Date and signed by the Secretary or an Assistant Secretary of
the Company, certifying that the attached copies of the Certificate of
Incorporation, Certificate of Designation, By-laws of the Company, (all of which
will be in form and substance consistent with this Agreement) and resolutions of
the Board of Directors of the Company approving this transaction are all true,
complete and correct and remain unamended and in full force and effect.
3.6. DOCUMENTS.
The Purchaser shall have received true, complete and correct copies of
such documents and such other information as they may have reasonably requested
in connection with or relating to the sale of the Preferred Shares and the
transactions required to be performed herein.
3.7. PURCHASE PERMITTED BY APPLICABLE LAWS.
The acquisition of and payment for the Preferred Shares to be acquired
by the Purchaser hereunder and the consummation of this Agreement (a) shall not
be prohibited by any
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Requirements of Law, and (b) shall not conflict with or be prohibited by any
Contractual Obligation of the Company.
3.8. CONSENTS AND APPROVALS.
All consents, exemptions, authorizations, or other actions by, or
notices to, or filings with, Governmental Authorities and other Persons in
respect of all Requirements of Law and with respect to those material
Contractual Obligations of the Company necessary or required in connection with
the execution, delivery or performance (including, without limitation, the
issuance of the Preferred Shares and the issuance of the Common Stock upon
conversion of the Preferred Shares) by the Company shall have been obtained and
be in full force and effect and all waiting periods shall have lapsed without
extension or the imposition of any conditions or restrictions.
3.9. CONSENT AND WAIVER.
The shareholders that are parties to the Shareholders' Agreement and
the holders of at least two-thirds of the outstanding shares of Series A
Preferred Stock shall have duly executed and delivered to the Purchaser the
Consent and Waiver substantially in the form attached as Exhibit A hereto.
3.10. JOINDER TO THE SHAREHOLDERS' AGREEMENT.
The shareholders that are parties to the Shareholders' Agreement shall
have duly executed and delivered to the Purchaser the Joinder to the
Shareholders' Agreement substantially in the form attached as Exhibit B hereto.
3.11. NO MATERIAL JUDGMENT OR ORDER.
There shall not be any judgment or order of a court of competent
jurisdiction or any ruling of any Governmental Authority or any condition
imposed under any Requirement of Law which, in the reasonable judgment of the
Purchaser, would (i) prohibit the purchase of the Preferred Shares hereunder,
(ii) subject the Purchaser to any penalty if the Preferred Shares were to be
purchased hereunder, or (iii) question the validity or legality of the
transactions required to be performed under this Agreement.
3.12. LEGAL OPINION.
The Purchaser shall have received an opinion of counsel for the Company
in the form attached as Exhibit C hereto.
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ARTICLE 4.
CONDITIONS TO THE OBLIGATION OF
THE COMPANY TO CLOSE
The obligation of the Company to issue and sell the Preferred Shares
and the other obligations of the Company hereunder, shall be subject to the
satisfaction of the following conditions on or before the Closing Date:
4.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Purchaser contained in
Section 6 hereof shall be true and correct in all material respects on and as of
the Closing Date as if made at and as of such date.
4.2. COMPLIANCE WITH THIS AGREEMENT.
The Purchaser shall have performed and complied with all of the
agreements and conditions set forth herein that are required to be performed or
complied with by the Purchaser on or before the Closing Date.
4.3. [intentionally omitted]
4.4. ISSUANCE PERMITTED BY APPLICABLE LAWS.
The issuance of the Preferred Shares to be issued by the Company
hereunder and the consummation of this Agreement (a) shall not be prohibited by
any Requirements of Law, and (b) shall not conflict with or be prohibited by any
Contractual Obligations of the Purchaser.
4.5. PAYMENT OF PURCHASE PRICE.
The Purchaser shall have tendered to the Company the Purchase Price as
set forth in Schedule 1 hereto.
4.6. CONSENTS AND APPROVALS.
All consents, exemptions, authorizations, or other actions by, or
notices to, or filings with, Governmental Authorities and other Persons in
respect of all Requirements of Law and with respect to those material
Contractual Obligations of the Purchaser necessary or required in connection
with the execution, delivery or performance by the Purchaser shall have been
obtained and be in fill force and effect and all waiting periods shall have
lapsed without extension or imposition of any conditions or restrictions.
4.7. CONSENT AND WAIVER.
The Consent and Waiver substantially in the form set forth in Exhibit A
hereto shall have been executed and delivered by each of the shareholders that
are a party to the
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Shareholders' Agreement and by the holders of at least two-thirds of the
outstanding shares of Series A Preferred Stock.
4.8. JOINDER TO THE SHAREHOLDERS' AGREEMENT.
The Joinder to the Shareholders' Agreement substantially in the form
set forth in Exhibit B hereto shall have been executed and delivered by each of
the shareholders that are a party to the Shareholders' Agreement.
4.9. LEGAL OPINION.
The Company shall have received an opinion of counsel for the Purchaser
in the form attached as Exhibit D hereto.
4.10. NO MATERIAL JUDGMENT OR ORDER.
There shall not be any judgment or order of a court of competent
jurisdiction or any ruling of any Governmental Authority or any condition
imposed under any Requirements of Law which, in the reasonable judgment of the
Company would (i) prohibit the sale of the Shares or the consummation of the
other transactions hereunder, (ii) subject the Company to any penalty if the
Shares were to be sold hereunder or (iii) question the validity or legality of
the transactions required to be performed under this Agreement.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to, and covenants with, the
Purchaser as of the date hereof as follows:
5.1. CORPORATE EXISTENCE AND AUTHORITY.
The Company was incorporated on January 14, 1998 and (a) is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, (b) has all requisite corporate power and authority to
own and operate its property, to lease the property it operates as lessee and to
conduct the business in which it is currently, or is currently proposed to be,
engaged, and (c) has the corporate power and authority to execute, deliver and
perform its obligations under the Transaction Agreements to which it is or will
be a party.
5.2. CORPORATE AUTHORIZATION: NO CONTRAVENTION.
The execution, delivery and performance by the Company of the
Transaction Agreements to which it is or will be a party and the consummation of
the transactions contemplated hereby, including, without limitation, the
issuance of the Preferred Shares, (a) have been duly authorized by all necessary
corporate action, including, if required, stockholder action, (b) do not
conflict with or contravene the terms of the Certificate or the By-laws of the
Company, or any amendment thereof; and (c) will not violate, conflict with or
result in any material breach
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or contravention of (i) any Contractual Obligation of the Company or (ii) any
Requirements of Law applicable to the Company.
5.3. GOVERNMENTAL AUTHORIZATION: THIRD PARTY CONSENTS.
No approval, consent, compliance, exemption, authorization, or other
action by, or notice to, or filing with, any Governmental Authority or any other
Person in respect of any applicable Requirements of Law in effect on the date
hereof, and no lapse of a waiting period under any applicable Requirements of
Law in effect on the date hereof, is necessary or required in connection with
the execution and delivery of the Transaction Agreements to which it is or will
be a party or the performance by the Company or enforcement against the Company
of any material obligation by the Company under the Transaction Agreements to
which it is or will be a party or the transactions to be performed thereunder.
5.4. BINDING EFFECT.
This Agreement has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as enforceability may
be limited by applicable bankruptcy, insolvency or other similar laws affecting
the enforcement of creditors' rights generally and by general principles of
equity relating to enforceability.
5.5. CAPITALIZATION.
On the Closing Date, the capital stock of the Company shall consist of
at least One Hundred Fifty Million (150,000,000) shares of Common Stock and One
Hundred Thousand (100,000) shares of preferred stock, with such shares including
the Preferred Shares. Of the 150,100,000 authorized shares of capital stock of
the Company, as of the date hereof, there will be (i) 15 million shares of
Common Stock issued and outstanding; (ii) at least 5,000,000 shares of Common
Stock reserved for issuance pursuant to the Employee Stock Option Plan; (iii)
52,000 shares of Series A Preferred Stock issued and outstanding; and (iv)
108,600,000 fully diluted shares of Common Stock outstanding, assuming
conversion of all of the outstanding shares of Series A Preferred Stock
mentioned in subsection (iii) above, into 93,600,000 shares of Common Stock, but
not including any shares authorized pursuant to the Employee Stock Option Plan
or otherwise. As of the Closing Date, all outstanding shares of capital stock of
the Company, including the Preferred Shares, and the shares of Common Stock
issuable upon conversion of the Preferred Shares (when issued in accordance with
the conversion terms thereof), will be duly authorized and validly issued, fully
paid. nonassessable and free and clear of any Liens, preferential rights,
priorities, claims, options, charges or other encumbrances or restrictions other
than those created by the Certificate, the Bylaws, and the Shareholders'
Agreement.
(a) Schedule 5.5 sets forth the name of each holder of the issued
and outstanding capita] stock of the Company as of June 19, 1998, the number of
shares of such capital stock held beneficially or of record by each such holder
as of June 19, 1998, the name of each Person holding any options or other rights
to purchase any capital stock of the Company as
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of June 19, 1998 (except as may be permitted under the Shareholders' Agreement),
the number, class and series of shares of capital stock subject to each such
option or right as of June 19, 1998, and the exercise price of each such option
or right as of June 19, 1998. Except for the options under the Employee Stock
Option Plan and the Preferred Shares, there are no outstanding securities
convertible into or exchangeable for capital stock of the Company or options,
warrants or other rights to purchase or subscribe to capital stock of the
Company or contracts, commitments, agreements, understandings or arrangements of
any kind to which the Company or any holder is a party relating to the issuance
of any capital stock of the Company, any such convertible or exchangeable
securities or any such options, warrants or rights. The Company has no
subsidiaries.
(b) Except as set forth on Schedule 5.5 and as may be provided in
the Shareholders' Agreement as of June 19, 1998, no Person has any preemptive
rights, rights of first refusal, "tag along" rights, rights of co-sale or any
similar rights with respect to the issuance of the Preferred Shares contemplated
hereby or the issuance of any additional shares of stock by the Company.
Schedule 5.5 identifies all Persons holding any such rights as of June 19, 1998
and describes the material terms of all such rights.
5.6. PRIVATE OFFERING.
No form of general solicitation or general advertising was used by the
Company or its representatives in connection with the offer or sale of the
Preferred Shares. No registration of the Preferred Shares pursuant to the
provisions of the Securities Act or any state securities or "blue sky" laws will
be required by the offer, sale or issuance of the Preferred Shares pursuant to
this Agreement. The Company agrees that neither it, nor anyone authorized to act
on its behalf, will offer or sell the Preferred Shares or any other security so
as to require the registration of the Preferred Shares pursuant to the
provisions of the Securities Act or any state securities or "blue sky" laws,
unless such Preferred Shares are so registered.
5.7. LITIGATION.
As of June 19, 1998, the Company has not received any notice of any
governmental charge, complaint or action or court order, writ, injunction,
judgment or decree outstanding or any claim, suit, litigation, legal proceeding,
(collectively, "Actions") which if adversely determined would have a material
adverse effect on (i) the Company or the Condition of the Company or (ii) the
transactions required to be performed by the Company under this Agreement and,
to the Company's knowledge, there is no valid basis therefor, and no Action is
threatened against the Company.
5.8. FINANCIAL STATEMENTS.
The Company was incorporated on January 14, 1998. As of June 19, 1998,
it has no assets, except as described below, and has not prepared financial
statements. Schedule 5.8(a) sets forth all expenditures by or on behalf of the
Company since its formation through June 19, 1998 in excess of $25,000, in any
one case, or $250,000, in the aggregate. The Company's projections attached
hereto as Schedule 5.8 (b) are as of June 19, 1998 and were prepared by the
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Company's management in good faith, are based on reasonable assumptions,
represent management's best estimates of the Company's predicted operations and
performance under its business plan and reflect actual subjective expectations
of the Company's management. The Company has no reason to believe That the
results reflected in such projections are not attainable.
5.9. TITLE AND CONDITION OF ASSETS.
As of June 19, 1998, the Company currently has no assets (other than
cash) except as listed on Schedule 5.10. As of June 19, 1998, the Company has a
valid and enforceable leasehold interest in its leases listed on Schedule 5.10
pursuant to the terms of the lease agreements and is not in default thereunder.
5.10. CONTRACTUAL OBLATIONS.
As of June 19, 1998, the Company has not entered into any contracts or
agreements or incurred any material liabilities, other than pursuant to this
Agreement, the Shareholders' Agreement and the agreements listed on Schedule
5.10.
5.11. TAX MATTERS.
The Company has duly filed all tax reports and returns required to be
filed by it, including all federal, state, local and foreign tax returns and
reports and paid all taxes due with respect thereto.
5.12. SEVERANCE ARRANGEMENTS.
Except as set forth on Schedule 5.12, as of June 19, 1998, the Company
has not entered into any severance or similar arrangement in respect of any
present or former employee of the Company that will result in any obligation
(absolute or contingent) of the Company to make any payment to such present or
former employee of the Company following termination of employment.
5.13. INVESTMENT COMPANY/GOVERNMENT REGULATIONS.
Immediately following the Closing, after giving effect to the
transactions contemplated by this Agreement and the Shareholders' Agreement
neither the Company nor any Person controlling, controlled by or under common
control with the Company will be an investment company `within the meaning of
the Investment Company Act of 1940, as amended. The Company is not subject to
regulation under the Public Utility Holding Company Act of 1935, as amended, the
Federal Power Act, or any federal or state statute or regulation limiting its
ability to incur Indebtedness.
5.14. BROKER'S, FINDER'S OR SIMILAR FEES.
There are no brokerage commissions, finder's fees or similar fees or
commissions payable in connection with the transactions contemplated hereby
based on any agreement,
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arrangement or understanding with the Company or any officer, director,
shareholder, or Affiliate of the Company or any action taken by any such person.
5.15. LABOR RELATIONS AND EMPLOYEE MATTERS.
(a) The Company is not and has not engaged in any unfair labor
practice.
(b) Except as set forth on Schedule 5.10 as of June 19, 1998, the
Company is not a party to any employment agreement (other than "at will"
employment relationships), collective bargaining agreement or covenant not to
compete.
(c) No complaint under any statute or regulation relating to
employment has been filed against the Company.
5.16. EMPLOYEE BENEFITS MATTERS.
As of the date hereof, the Company had not adopted or implemented an
Employee Plan, except as described on Schedule 5.16.
5.17. OUTSTANDING BORROWINGS.
Schedule 5.17 lists the amount of all material Outstanding Borrowings
as of June 19, 1998 and the name of each lender thereof.
5.18. INSURANCE SCHEDULE.
Schedule 5.18 accurately summarizes all of the Company's insurance
policies or programs in effect as of June 19, 1998 and indicates the insurer's
name and policy number and also indicates any self-insurance program that is in
effect.
5.19. SOLVENCY.
The Company has not (i) made a general assignment for the benefit of
its creditors, (ii) filed any voluntary petition in bankruptcy or suffered the
filing of any involuntary petition in bankruptcy by its creditors, (iii)
suffered the appointment of a receiver to take possession of all or
substantially all of its assets or properties, (iv) suffered the attachment or
other judicial liens of all or substantially all of its assets or (v) admitted
in writing its inability to pay its debts as they come due.
5.20. NO OTHER AGREEMENTS TO SELL THE ASSETS OR CAPITAL STOCK OF THE
COMPANY.
Other than as otherwise set forth in this Agreement the Company has no
legal obligation, absolute or contingent, other than the obligations of the
Company under this Agreement or the Shareholders' Agreement, to any person or
firm to (i) sell any capital stock of the Company or, outside of the ordinary
course of business, assets, or effect any merger,
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consolidation or other reorganization of the Company or (ii) enter into any
agreement with respect to any of the foregoing.
5.21. KEY EMPLOYEES.
The performance by the Company's key employees of their duties for the
Company as contemplated by the Company's business plan will not violate any
provision of any agreement to which any of such persons or the Company is a
party, including any agreement with any former employer of any such person, or
give rise to any obligation or liability of the Company to any third party or
limit in any way the Company's ability to conduct its business. None of the
Company's key employees is engaged, directly or indirectly, or has any interest
(other than as a shareholder of a public company) in any entity which is engaged
in competition with the Company in its planned activities.
5.22. COMPLIANCE WITH LAW.
In its conduct of its business and affairs since its formation, the
Company has complied in all material respects with all applicable Requirements
of Law.
5.23. DISCLOSURE.
The Company has, to the best of its knowledge, fully responded to all
requests for information, and the Company has accurately answered all questions
from the Purchaser concerning the Condition of the Company, and has not
knowingly withheld any facts relating thereto which it reasonably believes to be
material with respect to its Condition. No information in this Agreement or in
any Exhibit or Schedule attached to this Agreement, contains or will contain any
untrue statement of a material fact or when considered together with all such
information delivered to the Purchaser omits to state any material fact. The
disclosures made in writing by the Company in connection with this Agreement
when read in the light of the circumstances when made and taken as a whole, did
not when made contain any untrue statement of a material fact.
ARTICLE 6.
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as of the
date hereof as follows:
6.1. LOCATION OF PRINCIPAL OFFICE. QUALIFICATION AS AN ACCREDITED
INVESTOR.
The state in which Purchaser's principal domicile is located is the
state set forth in the Purchaser's address on Schedule 2. The Purchaser by
execution of this Agreement hereby represents that it qualifies as an
"accredited investor" for purposes of Regulation D promulgated under the
Securities Act. The Purchaser acknowledges that the Company has made available
to the Purchaser at a reasonable time prior to the execution of this Agreement
the opportunity to ask
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questions and receive answers concerning the terms and conditions of the sale of
securities contemplated by this Agreement and to obtain any additional
information (which the Company possesses or can acquire without unreasonable
effort or expense) as may be necessary to verify the accuracy of information
furnished to the Purchaser.
6.2. TRANSFER RESTRICTIONS IMPOSED BY SECURITIES LAW.
The Purchaser understands that the Preferred Shares have not been
registered under the Securities Act and applicable state securities laws, and,
therefore, cannot be resold unless they are subsequently registered under the
Securities Act and applicable state securities laws or unless an exemption from
such registration is available.
6.3. BINDING EFFECT.
This Agreement has been duly authorized by all necessary action on the
part of the Purchaser, has been duly executed and delivered by the Purchaser,
and this Agreement constitutes the legal, valid and binding obligation of the
Purchaser, enforceable against the Purchaser in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency, or
similar laws affecting the enforcement of creditors' rights generally or by
equitable principles relating to enforceability.
6.4. PURCHASE FOR OWN ACCOUNT.
The Preferred Shares, and the shares of Common Stock to be issued upon
conversion of the Preferred Shares, are being or will be acquired by the
Purchaser for the Purchaser's own account and with no intention of distributing
or reselling such securities or any part thereof in any transaction that would
be in violation of the securities laws of the United States of America, or any
state, without prejudice, however, to the rights of the Purchaser at all times
to sell or otherwise dispose of all or any part of the Preferred Shares or the
shares of Common Stock issuable upon conversion of the Preferred Shares under an
effective registration statement under the Securities Act, or under an exemption
from such registration available under the Securities Act, and subject,
nevertheless, to the disposition of the Purchaser's property being at all times
within the Purchaser's control. If the Purchaser should in the fixture decide to
dispose of any of the Preferred Shares or the shares of Common Stock issuable
upon conversion of the Preferred Shares, the Purchaser understands and agrees
that the Purchaser may do so only in compliance with the Securities Act and
applicable state securities laws, as then in effect. The Purchaser agrees to the
imprinting, so long as required by law, of a legend on certificates representing
all of the Preferred Shares or the shares of Common Stock to be issued upon
conversion of the Preferred Shares to the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH
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ACT OR SUCH LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS SET FORTH IN THE SHAREHOLDERS' AGREEMENT, DATED AS OF MAY
28, 1998, AS AMENDED. A COPY OF SUCH AGREEMENT MAY BE OBTAINED FROM THE COMPANY
UPON REQUEST."
6.5. FINANCIAL CONDITION: SOPHISTICATION.
The Purchaser's financial condition is such that the Purchaser is able
to bear the risk of holding the Preferred Shares for an indefinite period of
time and can bear the loss of the Purchaser's entire investment in the Preferred
Shares. The Purchaser has such knowledge and experience in financial and
business matters and in making high risk investments of this type that the
Purchaser is capable of evaluating the merits and risks of the purchase of the
Preferred Shares and understands that there may be no established market for the
Company's capital stock.
6.6. RECEIPT OF INFORMATION.
The Purchaser has been finished access to the business records of the
Company and such additional information and documents as the Purchaser has
requested and has been afforded an opportunity to ask questions of and receive
answers from representatives of the Company concerning the terms and conditions
of this Agreement, the purchase of the Preferred Shares, the prospective
operations, market potential, capitalization, financial conditions, and
prospects of the business to be conducted by the Company, and all other matters
deemed relevant by the Purchaser.
6.7. BROKER'S. FINDER'S OR SIMILAR FEES.
There are no brokerage commissions, finder's fees or similar fees or
commissions payable in connection with the transactions contemplated hereby
based on any agreement, arrangement or understanding with the Purchaser or any
action taken by the Purchaser.
6.8. GOVERNMENTAL AUTHORIZATION: THIRD PARTY CONSENT.
No approval, consent, compliance, exemption, authorization, or other
action by, or notice to, or filing with, any Governmental Authority or any other
Person in respect of any Requirements of Law, and no lapse of a waiting period
under any Requirements of Law, is necessary or required in connection with the
execution, delivery or performance by the Purchaser (including, without
limitation, the acquisition of the Preferred Shares) or enforcement against the
Purchaser of the Transaction Agreements to which the Purchaser is or will be a
party or the transactions contemplated thereby.
6.9. LITIGATION.
No Actions are pending, or to the best knowledge of the Purchaser,
threatened relating to or affecting the transactions required to be performed by
the Purchaser under the Transaction Agreements to which the Purchaser is or will
be a party.
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ARTICLE 7.
COVENANTS OF THE COMPANY WITH RESPECT
TO THE PERIOD FOLLOWING THE CLOSING
Until all Preferred Shares are no longer outstanding due to conversion
or otherwise and until the payment by the Company of all other amounts due to
the Purchaser under this Agreement or the related agreements referred to herein
or the Certificate, the Company hereby covenants and agrees with the Purchaser
as follows:
7.1. RESERVATION OF SHARES.
The Company shall at all times reserve and keep available out of its
authorized Common Stock, solely for the purpose of issue or delivery upon
conversion of the Preferred Shares as provided in the Certificate, the maximum
number of shares of Common Stock that may be issuable or deliverable upon such
conversion. Such shares of Common Stock shall, when issued or delivered in
accordance with the provisions of the Certificate, be duly authorized, validly
issued and fully paid and non-assessable. The Company shall issue such Common
Stock in accordance with the provisions of the Certificate and shall otherwise
comply with the terms thereof.
ARTICLE 8.
INDEMNIFICATION
8.1. INDEMNIFICATION.
(a) In addition to all other sums due hereunder or provided for in
this Agreement, the Company (the "Selling Indemnifying Party") shall defend,
indemnify and hold harmless the Purchaser and its agents, employees, and assigns
(each a "Purchasing Indemnified Party") to the fullest extent permitted by law
from and against any and all losses, costs, claims, damages, expenses (including
reasonable fees, disbursements and other charges of counsel, as limited by
Section 8.2 below) and other liabilities (collectively, "Liabilities") incurred
or suffered by any Purchasing Indemnified Party resulting from or arising out of
(i) any breach by any Selling Indemnifying Party of any representation or
warranty, covenant or agreement of the Selling Indemnifying Party in this
Agreement; provided, however, that no Selling Indemnifying Party shall be liable
under this Section 8.1 to any Purchasing Indemnified Party to the extent that it
is finally judicially determined that such Liabilities resulted primarily from
the material breach by such Purchasing Indemnified Party of any representation,
warranty, covenant or other agreement of such Purchasing Indemnified Party
contained in this Agreement or (ii) any material liability of the Company on the
Closing Date not disclosed in this Agreement.
(b) In addition to all other sums due hereunder or provided for in
this Agreement, the Purchaser (the "Purchasing Indemnifying Party") shall
defend, indemnify and hold harmless the Company and its Affiliates and its
officers, directors, agents, employees, subsidiaries, partners and assigns (each
a "Selling Indemnified Party") to the fullest extent permitted by law from and
against any and all Liabilities incurred or suffered by such Selling Indemnified
Parties resulting from or arising out of any breach of any representation,
warranty,
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covenant or agreement of such Purchasing Indemnifying Party in this Agreement;
provided, however, that no Purchasing Indemnifying Party shall not be liable
under this Section 8.1 to a Selling Indemnified Party to the extent that it is
finally judicially determined that such Liabilities resulted primarily from the
material breach by such Selling Indemnified Party of any representation,
warranty, covenant or other agreement of such Selling Indemnified Party
contained in this Agreement.
(c) If and to the extent that any indemnification provided for in
this Agreement is unenforceable for any reason, the Indemnifying Parties (as
defined below) obligated to indemnify any Indemnified Party (as defined below)
shall make the maximum contribution to the payment and satisfaction of such
indemnified liability which shall be permissible under applicable laws. In
connection with the obligation of the Indemnifying Parties to indemnify for
expenses as set forth herein, the Indemnifying Parties further agree, upon
presentation of appropriate invoices containing reasonable detail, to reimburse
each Indemnified Party for all such expenses (including reasonable fees,
disbursements and other charges of counsel, as limited by Section 8.2 below) as
they are incurred by such Indemnified Party.
8.2. NOTIFICATION.
If any action or proceeding (including any governmental investigation
or inquiry) shall be brought or asserted against any party entitled to
indemnification pursuant to this Section 8 (an "Indemnified Party") in respect
of which indemnity may be sought from any party required to indemnify such
Indemnified Party (an "Indemnifying Party"), such Indemnified Party shall
promptly notify the Indemnifying Party in writing, and such Indemnifying Party
shall assume the defense thereof, including the employment of counsel selected
by such Indemnifying Party and reasonably satisfactory to such Indemnified Party
and the payment of all expenses; provided however, that any failure to so notify
such Indemnifying Party shall not impair obligations hereunder except and only
to the extent that such failure results in actual prejudice to such Indemnifying
Party. Such Indemnified Party shall have the right to employ separate counsel in
any such action and to participate in the defense thereof, but the fees and
expenses of such counsel shall be the expense of such Indemnified Party unless
(a) such Indemnifying Party agreed to pay such fees and expenses or (b) such
Indemnifying Party shall have failed to assume the defense of such action or
proceeding or has failed to employ counsel reasonably satisfactory to such
Indemnified Party in any such action or proceeding or (c) the named parties to
any such action or proceeding (including any impleaded parties) include both
such Indemnified Party and such Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that there may be one or more legal defenses
available to such Indemnified Party which are different from or additional to
those available to such Indemnifying Party (in which case, such Indemnifying
Party shall employ separate counsel at the expense of such Indemnifying Party,
it being understood, however, that such Indemnifying Party shall not, in
connection with any one such action or proceeding or separate but substantially
similar or related actions or proceedings in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the reasonable
fees and expenses of more than one separate firm of attorneys at any time for
such Indemnified Party and any other Indemnified Parties). No Indemnifying Party
shall be liable for any settlement of any such action or proceeding effected
without its written consent (which shall
-18-
<PAGE>
not be withheld unreasonably), but if settled with its written consent, or if
there be a final judgment for the plaintiff in any such action or proceeding,
such Indemnifying Party agrees to indemnify and hold harmless such Indemnified
Party from and against any Liabilities by reason of such settlement or judgment.
No Indemnifying Party shall agree to any settlement of any third party claim
without the consent of the Indemnified Party, which shall not be withheld if
such settlement provides only for the payment of money to be paid by the
Indemnifying Party.
ARTICLE 9.
MISCELLANEOUS
9.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All of the representations and warranties made herein shall survive the
Closing for a period of twelve months.
9.2. NOTICES.
MI notices, demands and other communications provided for or permitted
hereunder shall be made in writing and shall be by registered or certified
first-class mail, return receipt requested, courier service or personal delivery
or via facsimile:
(a) If to The Purchaser:
HAGC Partners
711 5th Avenue
New York, New York 10022
Attention: Herbert Allen
with a copy to:
Werbel & Carnelutti
711 5th Avenue
5th Floor
New York, New York 10022
Attention: Robert Werbel
(b) if to the Company:
USinternetworking, Inc.
175 Admiral Cochrane Drive
Suite 400
Annapolis, Maryland 21401
Attention: Christopher R. McCleary
with a copy to:
-19-
<PAGE>
Latham & Watkins
1001 Pennsylvania Avenue, N.W.
Suite 1300
Washington, D.C. 20004-2505
Attention: James F. Rogers, Esq.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; if delivered by
facsimile, upon confirmation of such transmission; and five business days after
being deposited in the mail, postage prepaid, if mailed.
9.3. SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding upon the
successors and permitted assigns of the parties hereto. This Agreement may be
assigned by the The Purchaser to any permitted transferee of all or part of the
Preferred Shares or the Common Stock issued upon conversion thereof. The Company
may not assign any of its rights under this Agreement without the written
consent of the The Purchaser. Except as provided in this Section 9.3, no Person
other than the parties hereto and their successors and permitted assigns is
intended to be a beneficiary of any of the Transaction Agreements.
9.4. AMENDMENT AND WAIVER.
(a) No failure or delay on the part of the Company or the The
Purchaser in exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
Company or the The Purchaser at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this Agreement, any waiver of any provision of this Agreement, and
any consent to any departure by any party from the terms of any provision of
this Agreement, shall be effective (i) only if it is made or given in writing
and signed by the Company (if applicable) and the The Purchaser, and (ii) only
in the specific instance and for the specific purpose for which made or given.
Except where notice is specifically required by this Agreement, no notice to or
demand on any party in any case shall entitle any party hereto to any other or
further notice or demand in similar or other circumstances.
9.5. COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by the
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
-20-
<PAGE>
9.6. HEADINGS.
The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof
9.7. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Maryland, without regard to the principles of conflicts
of law of such state.
9.8. JURISDICTION.
Each party to this Agreement hereby irrevocably agrees that any legal
action or proceeding arising out of or relating to this Agreement or any
agreements or transactions contemplated hereby may be brought in the courts of
the State of Maryland or of the United States of America for the District of
Maryland and hereby expressly submits to the personal jurisdiction and venue of
such courts for the purposes thereof and expressly waives any claim of improper
venue and any claim that such courts are an inconvenient forum. Each party
hereby irrevocably consents to the service of process of any of the
aforementioned courts in any such suit, action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to the address
set forth in Section 9.2, such service to become effective 10 days after such
mailing.
9.9. SEVERABILITY.
If any one or more of the provisions contained herein, or the
application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof
9.10. RULES OF CONSTRUCTION.
Unless the context otherwise requires, "or" is not exclusive, and
references to sections or subsections refer to sections or subsections of this
Agreement.
9.11. ENTIRE AGREEMENT.
This Agreement, together with the exhibits and schedules hereto and the
other related agreements referred to herein, is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein or therein. This Agreement, together with the exhibits and schedules
hereto, and the other related agreements referred to herein supersede all prior
agreements and understandings between the parties with respect to such subject
matter.
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<PAGE>
9.12. PUBLICITY.
Except as may be required by applicable law, none of the parties hereto
shall issue a publicity release or announcement or otherwise make any public
disclosure concerning this Agreement or the transactions contemplated hereby,
without prior approval by the other parties hereto, provided that the The
Purchaser may nonetheless communicate with their partners concerning such
transactions and investment in the Company and may publish a "tombstone" in the
customary form with respect to its investment. If any announcement is required
by law to be made by any party hereto, prior to making such announcement such
party will deliver a draft of such announcement to the other parties and shall
give the other parties an opportunity to comment thereon.
9.13. FURTHER ASSURANCES.
Each of the parties shall execute such documents and perform such
further acts (including, without limitation, obtaining any consents, exemptions,
authorizations, or other actions by, or giving any notices to, or making any
filings with, any Governmental Authority or any other Person) as may be
reasonably required or desirable to carry out or to perform the provisions of
this Agreement.
9.14. WAIVER OF JURY TRIAL.
EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS SECTION.
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<PAGE>
IN WITNESS WHEREOF, executed and delivered by their respective above
written. the parties hereto have caused this Agreement to be officers hereunto
duly authorized as of the date first
USINTERNETWORKING, INC.
By: /s/ Christopher R. McCleary
--------------------------------------
Name: Christopher R. McCleary
------------------------------------
Title: Chairman & Chief Executive Officer
-----------------------------------
HAGC Partners
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized as
of the date first above written.
USINTERNETWORKING, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
HAGC Partners, L.P.
By: MBOGO INC., General Partner
HAGC Partners
By: /s/ Herbert A. Allen III
--------------------------------------
Name: Herbert A. Allen III
------------------------------------
Title: President
-----------------------------------
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<PAGE>
STOCK PURCHASE AGREEMENT
by
and
between
USinternetworking, Inc.
and
Chris Horgen
-------------------------
Dated as of June 19, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1. DEFINITIONS ..................................................... 1
1.1. DEFINITIONS ............................................... 1
1.2. ACCOUNTING TERMS; FINANCIAL STATEMENTS .................... 4
1.3. KNOWLEDGE STANDARD ........................................ 4
1.4. Other Defined Terms ....................................... 4
ARTICLE 2. AUTHORIZATION OF PREFERRED SHARES; PURCHASE AND SALE OF
PREFERRED SHARES ............................................... 5
2.1. PREFERRED SHARES .......................................... 5
2.2. PURCHASE AND SALE OF PREFERRED SHARES ..................... 5
2.3. CLOSING ................................................... 5
2.4. FEES AND EXPENSES ......................................... 5
ARTICLE 3. CONDITIONS TO THE OBLIGATION OF MR. HORGEN TO PURCHASE
THE PREFERRED SHARES ........................................... 6
3.1. REPRESENTATIONS AND WARRANTIES ............................ 6
3.2. COMPLIANCE WITH TERMS AND CONDITIONS OF THIS AGREEMENT .... 6
3.3. DELIVERY OF CERTIFICATES EVIDENCING THE SHARES ............ 6
3.4. [intentionally omitted] ................................... 6
3.5. SECRETARY'S CERTIFICATES .................................. 6
3.6. DOCUMENTS ................................................. 6
3.7. PURCHASE PERMITTED BY APPLICABLE LAWS ..................... 6
3.8. CONSENTS AND APPROVALS .................................... 7
3.9. CONSENT AND WAIVER ........................................ 7
3.10. JOINDER TO THE SHAREHOLDERS' AGREEMENT ................... 7
3.11. NO MATERIAL JUDGMENT OR ORDER ............................ 7
3.12. LEGAL OPINION ............................................ 7
ARTICLE 4. CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE ............ 8
4.1. REPRESENTATIONS AND WARRANTIES ............................ 8
4.2. COMPLIANCE WITH THIS AGREEMENT ............................ 8
4.3. [intentionally omitted] ................................... 8
4.4. ISSUANCE PERMITTED BY APPLICABLE LAWS ..................... 8
4.5. PAYMENT OF PURCHASE PRICE ................................. 8
4.6. CONSENTS AND APPROVALS .................................... 8
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4.7. CONSENT AND WAIVER ........................................ 8
4.8. JOINDER TO THE SHAREHOLDERS' AGREEMENT .................... 9
4.9. LEGAL OPINION ............................................. 9
4.10. NO MATERIAL JUDGMENT OR ORDER ............................ 9
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY ................... 9
5.1. CORPORATE EXISTENCE AND AUTHORITY ......................... 9
5.2. CORPORATE AUTHORIZATION; NO CONTRAVENTION ................. 9
5.3. GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENTS .......... 10
5.4. BINDING EFFECT ............................................ 10
5.5. CAPITALIZATION ............................................ 10
5.6. PRIVATE OFFERING .......................................... 11
5.7. LITIGATION ................................................ 11
5.8. FINANCIAL STATEMENTS ...................................... 11
5.9. TITLE AND CONDITION OF ASSETS ............................. 12
5.10. CONTRACTUAL OBLIGATIONS .................................. 12
5.11. TAX MATTERS .............................................. 12
5.12. SEVERANCE ARRANGEMENTS ................................... 12
5.13. INVESTMENT COMPANY/GOVERNMENT REGULATIONS ................ 12
5.14. BROKER'S, FINDER'S OR SIMILAR FEES ....................... 12
5.15. LABOR RELATIONS AND EMPLOYEE MATTERS ..................... 13
5.16. EMPLOYEE BENEFITS MATTERS ................................ 13
5.17. OUTSTANDING BORROWINGS ................................... 13
5.18. INSURANCE SCHEDULE ....................................... 13
5.19. SOLVENCY ................................................. 13
5.20. NO OTHER AGREEMENTS TO SELL THE ASSETS OR CAPITAL
STOCK OF THE COMPANY ................................... 13
5.21. KEY EMPLOYEES ............................................ 14
5.22. COMPLIANCE WITH LAW ...................................... 14
5.23. DISCLOSURE ............................................... 14
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER ................. 14
6.1. LOCATION OF PRINCIPAL OFFICE, QUALIFICATION AS AN
ACCREDITED INVESTOR ..................................... 14
6.2. TRANSFER RESTRICTIONS IMPOSED BY SECURITIES LAW ........... 15
6.3. BINDING EFFECT ............................................ 15
6.4. PURCHASE FOR OWN ACCOUNT .................................. 15
6.5. FINANCIAL CONDITION; SOPHISTICATION ....................... 16
6.6. RECEIPT OF INFORMATION .................................... 16
6.7. BROKER'S, FINDER'S OR SIMILAR FEES ........................ 16
6.8. GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENT ........... 16
6.9. LITIGATION ................................................ 16
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE 7. COVENANTS OF THE COMPANY WITH RESPECT TO THE PERIOD
FOLLOWING THE CLOSING .......................................... 17
7.1. Reservation of Shares ..................................... 17
ARTICLE 8. INDEMNIFICATION ................................................. 17
8.1. Indemnification ........................................... 17
8.2. Notification .............................................. 18
ARTICLE 9. MISCELLANEOUS ................................................... 19
9.1. Survival of Representations and Warranties ................ 19
9.2. Notices ................................................... 19
9.3. Successors and Assigns .................................... 20
9.4. Amendment and Waiver ...................................... 20
9.5. Counterparts .............................................. 20
9.6. Headings .................................................. 21
9.7. Governing Law ............................................. 21
9.8. Jurisdiction .............................................. 21
9.9. Severability .............................................. 21
9.10. Rules of Construction .................................... 21
9.11. Entire Agreement ......................................... 21
9.12. Publicity ................................................ 22
9.13. Further Assurances ....................................... 22
9.14. Waiver of Jury Trial ..................................... 22
</TABLE>
iii
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as of
this 19th day of June, 1998, by and between (i) USinternetworking, Inc., a
Delaware corporation (the "Company") and (ii) Chris Horgen.
RECITALS:
A. Upon the terms and subject to the conditions set forth in this
Agreement, the Company proposes to issue and sell shares of its Series A
Convertible Preferred Stock ("Series A Preferred Stock," as defined below) to
Mr. Horgen.
B. Mr. Horgen desires to purchase from the Company shares of the Series
A Preferred Stock as set forth on Schedule I hereto.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE 1.
DEFINITIONS
1.1. DEFINITIONS.
As used in this Agreement, and unless the context requires a different
meaning, the following terms have the meanings indicated:
"AFFILIATE" means, with respect to any specified Person, any Person
that, directly or indirectly, controls, is controlled by, or is under common
control with, such specified Person, whether by contract, through one or more
intermediaries, or otherwise.
"BUSINESS DAY" shall mean a day other than a Saturday or Sunday or any
federal holiday.
"COMMISSION" means the Securities and Exchange Commission or any
similar agency then having jurisdiction to enforce the Securities Act (as
defined below).
"COMMON STOCK" means the common stock, par value $.001 per share, of
the Company, or any other capital stock of the Company into which such stock is
reclassified or reconstituted.
<PAGE>
"CONDITION OF THE COMPANY" means the assets, business, properties,
operations, financial condition or prospects of the Company.
"EMPLOYEE PLANS" means all benefits arrangements, pension plans or
welfare plans adopted by the Company for its employees.
"EMPLOYEE STOCK OPTION PLAN" means an employee stock option plan
adopted by the Compensation Committee of the Board of Directors of the Company
providing for the issuance to certain employees of the Company of options to
purchase a certain number of shares of Common Stock at a certain exercise price
per share. The total number of shares of Common Stock which may be issued under
such plan shall not exceed 6.5% of the total number of outstanding shares of
common stock calculated on a fully diluted basis, not including the options and
shares issuable or issued on exercise of options pursuant to the Employee Stock
Option Plan.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder.
"GAAP" means United States generally accepted accounting principles, in
effect from time to time, consistently applied.
"GOVERNMENTAL AUTHORITY" means the government of any nation, state,
city, locality or other political subdivision of any thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.
"INDEBTEDNESS" means, as to any Person: (a) all obligations, whether or
not contingent, of such Person for borrowed money (including, without
limitation, reimbursement and all other obligations with respect to surety
bonds, letters of credit and bankers' acceptances, whether or not matured), (b)
all obligations of such Person evidenced by notes, bonds, debentures or similar
instruments, (c) all obligations of such Person representing the balance of
deferred purchase price of property or services, except trade accounts payable
and accrued commercial or trade liabilities arising in the ordinary course of
business, (d) all interest rate and currency swaps, caps, collars and similar
agreements or hedging devices under which payments are obligated to be made by
such Person, whether periodically or upon the happening of a contingency, (e)
all indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property), (f)
all obligations of such Person under leases which have been or should be, in
accordance with GAAP, recorded as capital leases, (g) all indebtedness secured
by any Lien (other than Liens in favor of lessors under leases other than leases
included in clause (0) on any property or asset owned or held by that Person
regardless of whether the indebtedness secured thereby shall have been assumed
by that Person or is non-recourse to the credit of that Person, and (h) all
Indebtedness of any other Person referred to in clauses (a) through (F) above,
guaranteed, directly or indirectly, by that Person.
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<PAGE>
"LIEN" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other) or other security interest of
any kind or nature whatsoever (excluding preferred stock or equity related
preferences) including, without limitation, those created by, arising under or
evidenced by any conditional sale or other title retention agreement, the
interest of a lessor under a capital lease obligation, or any financing lease
having substantially the same economic effect as any of the foregoing.
"OUTSTANDING BORROWINGS" means all Indebtedness of the Company for
borrowed money (including, without limitation, reimbursement and all other
obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured).
"PERSON" means any individual, firm, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
Governmental Authority or other entity of any kind, and shall include any
successor (by merger or otherwise) of such entity.
"REQUIREMENTS OF LAW" means, as to any Person, the provisions of the
Certificate of Incorporation and By-laws or other organizational or governing
documents of such Person, and any law, treaty, rule, regulation, right,
privilege, qualification, license or franchise, order, judgment, or
determination of an arbitrator or a court or other Governmental Authority, in
each case, applicable or binding upon such Person or any of its property or to
which such Person or any of its property is subject or applicable to any or all
of the transactions contemplated by or referred to in the Transaction
Agreements.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder.
"SERIES A PREFERRED STOCK" means the 8% Series A Convertible Preferred
Stock, par value $.0 1 per share, of the Company, or any other capital stock of
the Company into which such stock is reclassified or reconstituted.
"SHAREHOLDERS' AGREEMENT" means the Shareholders' Agreement, dated as
of May 28, 1998, by and among the Company and the Stockholders that are listed
as a party thereto and any Persons who become or became parties to the
Shareholders' Agreement whether pursuant to an amendment or otherwise.
"TRANSACTION AGREEMENTS" means this Agreement, the Joinder to the
Shareholders' Agreement (as defined in Section 3.10) and the Shareholders'
Agreement.
"TRANSACTION EXPENSES" means any and all reasonable out-of-pocket (i)
legal expenses incurred by Mr. Horgen in connection with the negotiation and
preparation of the Transaction Agreements, the consummation of the transactions
contemplated thereby and preparation for any of the foregoing, including,
without limitation, travel expenses, reasonable fees, charges and disbursements
of counsel and any similar or related legal costs and legal expenses; and (ii)
other expenses incurred by Mr. Horgen in connection with the negotiation and
preparation of this Agreement.
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<PAGE>
1.2. ACCOUNTING TERMS: FINANCIAL STATEMENTS.
All accounting terms used herein not expressly defined in this
Agreement shall have the respective meanings given to them in accordance with
sound accounting practice. The term "sound accounting practice" shall mean such
accounting practice as, in the opinion of the independent certified public
accountants regularly retained by the Company conforms at the time to GAAP
applied on a consistent basis except for changes with which such accountants
concur.
1.3. KNOWLEDGE STANDARD.
When used herein, the phrase "to the knowledge or' any Person, "to the
best knowledge of' any Person or any similar phrase shall mean, (i) with respect
to any individual, the actual knowledge of such Person, (ii) with respect to any
corporation, the actual knowledge of the officers and directors of such
corporation and the knowledge of such facts that such persons should have in the
exercise of their duties after reasonable inquiry, and (iii) with respect to a
partnership, the actual knowledge of the officers and directors of the general
partner of such partnership and the knowledge of such facts that such persons
should have in the exercise of their duties after reasonable inquiry.
1.4. OTHER DEFINED TERMS.
The following terms shall have the meanings specified in the Sections
set forth below:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Actions 5.7
Certificate of Incorporation 2.1
Certificate 2.1
Certificate of Designation 2.1
Closing Date 2.2
Closing 2.3
Indemnified Party 8.2
Indemnifying Party 8.2
Liabilities 8.1
Preferred Shares 2.1
Purchase Price 2.2
Purchasing Indemnified Party 9.1
Purchasing Indemnifying Party 9.1
Selling Indemnified Party 9.1
Selling Indemnifying Party 9.1
</TABLE>
-4-
<PAGE>
ARTICLE 2.
AUTHORIZATION OF PREFERRED SHARES;
PURCHASE AND SALE OF PREFERRED SHARES
2.1. PREFERRED SHARES.
The Board of Directors of the Company has authorized the issuance and
sale of 666.67 shares of the Series A Preferred Stock (the "Preferred Shares")
and has duly adopted resolutions establishing the rights, preferences,
privileges and restrictions of the Series A Preferred Stock. The Preferred
Shares will have the respective rights, preferences and privileges set forth in
the Company's Certificate of Incorporation, as amended (the "Certificate of
Incorporation") and the Certificate of Designations, Preferences, and Other
Special Rights of Preferred Stock and Qualifications, Limitations and
Restrictions Thereof filed on May 27, 1998 with respect thereto and amended on
July 2, 1998 (the "Certificate of Designation" and together with the Certificate
of Incorporation, the "Certificate").
2.2. PURCHASE AND SALE OF PREFERRED SHARES.
Upon the terms and subject to the conditions herein contained, on the
date hereof or any other date as agreed upon by the parties (the "Closing
Date"), the Company shall issue to Mr. Horgen and Mr. Horgen shall acquire from
the Company, 666.67 Preferred Shares. The purchase price of such Preferred
Shares, to be paid by Mr. Horgen is Four Hundred Thousand Dollars ($400,000)
(the "Purchase Price").
2.3. CLOSING.
The closing of the sale to and purchase by Mr. Horgen of the Preferred
Shares (the "Closing") shall occur at 11 o'clock A.M., local time on the Closing
Date at the offices of Latham & Watkins, 1001 Pennsylvania Avenue, N.W.,
Washington, D.C. 20004, or such other location as the parties may agree. At the
Closing, (i) the Company shall deliver to Mr. Horgen a certificate evidencing
the Preferred Shares being purchased by Mr. Horgen, free and clear of any Liens
of any nature whatsoever, other than those created by the Certificate or the
Shareholders' Agreement, registered in Mr. Horgen's name, and (ii) Mr. Horgen
shall deliver to the Company the Purchase Price, by cashier's or certified check
or wire transfer of immediately available funds.
2.4. FEES AND EXPENSES.
Concurrently with the Closing, the Company shall reimburse Mr. Horgen
for the Transaction Expenses, which payment shall be made by wire transfer of
immediately available funds to an account or accounts designated by Mr. Horgen.
-5-
<PAGE>
ARTICLE 3.
CONDITIONS TO THE OBLIGATION OF MR. HORGEN
TO PURCHASE THE PREFERRED SHARES
The obligation of Mr. Horgen to purchase the Preferred Shares, to pay
the Purchase Price therefor and to perform any of its obligations hereunder on
the Closing Date (unless otherwise specified) shall be subject to the
satisfaction of the following conditions on or before the Closing Date:
3.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company contained in Section
5 hereof shall be true and correct in all material respects as of the date
hereof.
3.2. COMPLIANCE WITH TERMS AND CONDITIONS OF THIS AGREEMENT.
The Company shall have performed and complied with all of the
agreements and conditions set forth herein that are required to be performed or
complied with by the Company on or before the date hereof.
3.3. DELIVERY OF CERTIFICATES EVIDENCING THE SHARES.
The Company shall have delivered to Mr. Horgen the certificates
evidencing the Preferred Shares as set forth in Section 2.3.
3.4. [intentionally omitted]
3.5. SECRETARY'S CERTIFICATES.
Mr. Horgen shall have received a certificate from the Company, dated as
of the Closing Date and signed by the Secretary or an Assistant Secretary of the
Company, certifying that the attached copies of the Certificate of
Incorporation, Certificate of Designation, By-laws of the Company, (all of which
will be in form and substance consistent with this Agreement) and resolutions of
the Board of Directors of the Company approving this transaction are all true,
complete and correct and remain unamended and in Bill force and effect.
3.6. DOCUMENTS.
Mr. Horgen shall have received true, complete and correct copies of
such documents and such other information as they may have reasonably requested
in connection with or relating to the sale of the Preferred Shares and the
transactions required to be performed herein.
3.7. PURCHASE PERMITTED BY APPLICABLE LAWS.
The acquisition of and payment for the Preferred Shares to be acquired
by Mr. Horgen hereunder and the consummation of this Agreement (a) shall not be
prohibited by any
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Requirements of Law, and (b) shall not conflict with or be prohibited by any
Contractual Obligation of the Company.
3.8. CONSENTS AND APPROVALS.
All consents, exemptions, authorizations, or other actions by, or
notices to, or filings with, Governmental Authorities and other Persons in
respect of all Requirements of Law and with respect to those material
Contractual Obligations of the Company necessary or required in connection with
the execution, delivery or performance (including, without limitation, the
issuance of the Preferred Shares and the issuance of the Common Stock upon
conversion of the Preferred Shares) by the Company shall have been obtained and
be in Bill force and effect and all waiting periods shall have lapsed without
extension or the imposition of any conditions or restrictions.
3.9. CONSENT AND WAIVER.
The shareholders that are parties to the Shareholders' Agreement and
the holders of at least two-thirds of the outstanding shares of Series A
Preferred Stock shall have duly executed and delivered to Mr. Horgen the Consent
and Waiver substantially in the form attached as Exhibit A hereto.
3.10. JOINDER TO THE SHAREHOLDERS' AGREEMENT.
The shareholders that are parties to the Shareholders' Agreement shall
have duly executed and delivered to Mr. Horgen the Joinder to the Shareholders'
Agreement substantially in the form attached as Exhibit B hereto.
3.11. NO MATERIAL JUDGMENT OR ORDER.
There shall not be any judgment or order of a court of competent
jurisdiction or any ruling of any Governmental Authority or any condition
imposed under any Requirement of Law which, in the reasonable judgment of Mr.
Horgen, would (i) prohibit the purchase of the Preferred Shares hereunder, (ii)
subject Mr. Horgen to any penalty if the Preferred Shares were to be purchased
hereunder, or (iii) question the validity or legality of the transactions
required to be performed under this Agreement.
3.12. LEGAL OPINION.
Mr. Horgen shall have received an opinion of counsel for the Company in
the form attached as Exhibit C hereto.
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ARTICLE 4.
CONDITIONS TO THE OBLIGATION OF
THE COMPANY TO CLOSE
The obligation of the Company to issue and sell the Preferred Shares
and the other obligations of the Company hereunder, shall be subject to the
satisfaction of the following conditions on or before the Closing Date:
4.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of Mr. Horgen contained in Section 6
hereof shall be true and correct in all material respects on and as of the
Closing Date as if made at and as of such date.
4.2. COMPLIANCE WITH THIS AGREEMENT.
Mr. Horgen shall have performed and complied with all of the agreements
and conditions set forth herein that are required to be performed or complied
with by Mr. Horgen on or before the Closing Date.
4.3. [intentionally omitted]
4.4. ISSUANCE PERMITTED BY APPLICABLE LAWS.
The issuance of the Preferred Shares to be issued by the Company
hereunder and the consummation of this Agreement (a) shall not be prohibited by
any Requirements of Law, and (b) shall not conflict with or be prohibited by any
Contractual Obligations of Mr. Horgen.
4.5. PAYMENT OF PURCHASE PRICE.
Mr. Horgen shall have tendered to the Company the Purchase Price as set
forth in Schedule I hereto.
4.6. CONSENTS AND APPROVALS.
All consents, exemptions, authorizations, or other actions by, or
notices to, or filings with, Governmental Authorities and other Persons in
respect of all Requirements of Law and with respect to those material
Contractual Obligations of Mr. Horgen necessary or required in connection with
the execution, delivery or performance by Mr. Horgen shall have been obtained
and be in Bill force and effect and all waiting periods shall have lapsed
without extension or imposition of any conditions or restrictions.
4.7. CONSENT AND WAIVER.
The Consent and Waiver substantially in the form set forth in Exhibit A
hereto shall have been executed and delivered by each of the shareholders that
are a party to the
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Shareholders' Agreement and by the holders of at least two-thirds of the
outstanding shares of Series A Preferred Stock.
4.8. JOINDER TO THE SHAREHOLDERS' AGREEMENT.
The Joinder to the Shareholders' Agreement substantially in the form
set forth in Exhibit B hereto shall have been executed and delivered by each of
the shareholders that are a party to the Shareholders' Agreement.
4.9. LEGAL OPINION.
The Company shall have received an opinion of counsel for Mr. Horgen
containing the opinions set forth in Exhibit D hereto.
4.10. NO MATERIAL JUDGMENT OR ORDER.
There shall not be any judgment or order of a court of competent
jurisdiction or any ruling of any Governmental Authority or any condition
imposed under any Requirements of Law which, in the reasonable judgment of the
Company would (i) prohibit the sale of the Shares or the consummation of the
other transactions hereunder, (ii) subject the Company to any penalty if the
Shares were to be sold hereunder or (iii) question the validity or legality of
the transactions required to be performed under this Agreement.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to, and covenants with, Mr. Horgen
as of the date hereof as follows:
5.1. CORPORATE EXISTENCE AND AUTHORITY.
The Company was incorporated on January 14, 1998 and (a) is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, (b) has all requisite corporate power and authority to
own and operate its property, to lease the property it operates as lessee and to
conduct the business in which it is currently, or is currently proposed to be,
engaged, and (c) has the corporate power and authority to execute, deliver and
perform its obligations under the Transaction Agreements to which it is or will
be a party.
5.2. CORPORATE AUTHORIZATION: NO CONTRAVENTION.
The execution, delivery and performance by the Company of the
Transaction Agreements to which it is or will be a party and the consummation of
the transactions contemplated hereby, including, without limitation, the
issuance of the Preferred Shares, (a) have been duly authorized by all necessary
corporate action, including, if required, stockholder action, (b) do not
conflict with or contravene the terms of the Certificate or the By-laws of the
Company, or any amendment thereof; and (c) will not violate, conflict with or
result in any material breach
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or contravention of (i) any Contractual Obligation of the Company or (ii) any
Requirements of Law applicable to the Company.
5.3. GOVERNMENTAL AUTHORIZATION: THIRD PARTY CONSENTS.
No approval, consent, compliance, exemption, authorization, or other
action by, or notice to, or filing with, any Governmental Authority or any other
Person in respect of any applicable Requirements of Law in effect on the date
hereof, and no lapse of a waiting period under any applicable Requirements of
Law in effect on the date hereof, is necessary or required in connection with
the execution and delivery of the Transaction Agreements to which it is or will
be a party or the performance by the Company or enforcement against the Company
of any material obligation by the Company under the Transaction Agreements to
which it is or will be a party or the transactions to be performed thereunder.
5.4. BINDING EFFECT.
This Agreement has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as enforceability may
be limited by applicable bankruptcy, insolvency or other similar laws affecting
the enforcement of creditors' rights generally and by general principles of
equity relating to enforceability.
5.5. CAPITALIZATION.
On the Closing Date, the capital stock of the Company shall consist of
at least One Hundred Fifty Million (150,000,000) shares of Common Stock and One
Hundred Thousand (100,000) shares of preferred stock, with such shares including
the Preferred Shares. Of the 150,100,000 authorized shares of capital stock of
the Company, as of the date hereof, there is (i) 15 million shares of Common
Stock issued and outstanding; (ii) at least 5,000,000 shares of Common Stock
reserved for issuance pursuant to the Employee Stock Option Plan; (iii) 52,000
shares of Series A Preferred Stock issued and outstanding; and (iv) 108,600,000
Billy diluted shares of Common Stock outstanding, assuming conversion of all of
the outstanding shares of Series A Preferred Stock mentioned in subsection (iii)
above, into 93,600,000 shares of Common Stock, but not including any shares
authorized pursuant to the Employee Stock Option Plan or otherwise. As of the
Closing Date, all outstanding shares of capital stock of the Company, including
the Preferred Shares, and the shares of Common Stock issuable upon conversion of
the Preferred Shares (when issued in accordance with the conversion terms
thereof), will be duly authorized and validly issued, Billy paid, nonassessable
and free and clear of any Liens, preferential rights, priorities, claims,
options, charges or other encumbrances or restrictions other than those created
by the Certificate, the Bylaws, and the Shareholders' Agreement.
(a) Schedule 5.5 sets forth the name of each holder of the issued
and outstanding capital stock of the Company as of June 19, 1998, the number of
shares of such capital stock held beneficially or of record by each such holder
as of June 19, 1998, the name of each Person holding any options or other rights
to purchase any capital stock of the Company as
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of June 19, 1998 (except as may be permitted under the Shareholders' Agreement),
the number, class and series of shares of capital stock subject to each such
option or right as of June 19, 1998, and the exercise price of each such option
or right as of June 19, 1998. Except for the options under the Employee Stock
Option Plan and the Preferred Shares, there are no outstanding securities
convertible into or exchangeable for capital stock of the Company or options,
warrants or other rights to purchase or subscribe to capital stock of the
Company or contracts, commitments, agreements, understandings or arrangements of
any kind to which the Company or any holder is a party relating to the issuance
of any capital stock of the Company, any such convertible or exchangeable
securities or any such options, warrants or rights. The Company has no
subsidiaries.
(b) Except as set forth on Schedule 5.5 and as may be provided in
the Shareholders' Agreement as of June 19, 1998, no Person has any preemptive
rights, rights of first refusal, "tag along" rights, rights of co-sale or any
similar rights with respect to the issuance of the Preferred Shares contemplated
hereby or the issuance of any additional shares of stock by the Company.
Schedule 5.5 identifies all Persons holding any such rights as of June 19, 1998
and describes the material terms of all such rights.
5.6. PRIVATE OFFERING.
No form of general solicitation or general advertising was used by the
Company or its representatives in connection with the offer or sale of the
Preferred Shares. No registration of the Preferred Shares pursuant to the
provisions of the Securities Act or any state securities or "blue sky" laws will
be required by the offer, sale or issuance of the Preferred Shares pursuant to
this Agreement. The Company agrees that neither it, nor anyone authorized to act
on its behalf, will offer or sell the Preferred Shares or any other security so
as to require the registration of the Preferred Shares pursuant to the
provisions of the Securities Act or any state securities or "blue sky" laws,
unless such Preferred Shares are so registered.
5.7. LITIGATION.
As of June 19, 1998, the Company has not received any notice of any
governmental charge, complaint or action or court order, writ, injunction,
judgment or decree outstanding or any claim, suit, litigation, legal proceeding,
(collectively, "Actions") which if adversely determined would have a material
adverse effect on (i) the Company or the Condition of the Company or (ii) the
transactions required to be performed by the Company under this Agreement and,
to the Company's knowledge, there is no valid basis therefor, and no Action is
threatened against the Company.
5.8. FINANCIAL STATEMENTS.
The Company was incorporated on January 14, 1998. As of June 19, 1998,
it has no assets, except as described below, and has not prepared financial
statements. Schedule 5.8(a) sets forth all expenditures by or on behalf of the
Company since its formation through June 19, 1998 in excess of $25,000, in any
one case, or $250,000, in the aggregate. The Company's projections attached
hereto as Schedule 5.8(b) are as of June 19, 1998 and were prepared by the
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Company's management in good faith, are based on reasonable assumptions,
represent management's best estimates of the Company's predicted operations and
performance under its business plan and reflect actual subjective expectations
of the Company's management. The Company has no reason to believe that the
results reflected in such projections are not attainable.
5.9. TITLE AND CONDITION OF ASSETS.
As of June 19, 1998, the Company currently has no assets (other than
cash) except as listed on Schedule 5.10. As of June 19, 1998, the Company has a
valid and enforceable leasehold interest in its leases listed on Schedule 5.10
pursuant to the terms of the lease agreements and is not in default thereunder.
5.10. CONTRACTUAL OBLIGATIONS.
As of June 19, 1998, the Company has not entered into any contracts or
agreements or incurred any material liabilities, other than pursuant to this
Agreement, the Shareholders' Agreement and the agreements listed on Schedule
5.10.
5.11. TAX MATTERS.
The Company has duly filed all tax reports and returns required to be
filed by it, including all federal, state, local and foreign tax returns and
reports and paid all taxes due with respect thereto.
5.12. SEVERANCE ARRANGEMENTS.
Except as set forth on Schedule 5.12 as of June 19, 1998, the Company
has not entered into any severance or similar arrangement in respect of any
present or former employee of the Company that will result in any obligation
(absolute or contingent) of the Company to make any payment to such present or
former employee of the Company following termination of employment.
5.13. INVESTMENT COMPANY/GOVERNMENT REGULATIONS.
Immediately following the Closing, after giving effect to the
transactions contemplated by this Agreement and the Shareholders' Agreement
neither the Company nor any Person controlling, controlled by or under common
control with the Company will be an "investment company" within the meaning of
the Investment Company Act of 1940, as amended. The Company is not subject to
regulation under the Public Utility Holding Company Act of 1935, as amended, the
Federal Power Act, or any federal or state statute or regulation limiting its
ability to incur Indebtedness.
5.14. BROKER'S, FINDER'S OR SIMILAR FEES.
There are no brokerage commissions, finder's fees or similar fees or
commissions payable in connection with the transactions contemplated hereby
based on any agreement,
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arrangement or understanding with the Company or any officer, director,
shareholder, or Affiliate of the Company or any action taken by any such person.
5.15. LABOR RELATIONS AND EMPLOYEE MATTERS.
(a) The Company is not and has not engaged in any unfair labor
practice.
(b) Except as set forth on Schedule 5.10 as of June 19, 1998, the
Company is not a party to any employment agreement (other than "at will"
employment relationships), collective bargaining agreement or covenant not to
compete.
(c) No complaint under any statute or regulation relating to
employment has been filed against the Company.
5.16. EMPLOYEE BENEFITS MATTERS.
As of the date hereof, the Company had not adopted or implemented an
Employee Plan, except as described on Schedule 5.16.
5.17. OUTSTANDING BORROWINGS.
Schedule 5.17 lists the amount of all material Outstanding Borrowings
as of June 19, 1998 and the name of each lender thereof.
5.18. INSURANCE SCHEDULE.
Schedule 5.18 accurately summarizes all of the Company's insurance
policies or programs m effect as of June 19, 1998 and indicates the insurer's
name and policy number and also indicates any self-insurance program that is in
effect.
5.19. SOLVENCY.
The Company has not (i) made a general assignment for the benefit of
its creditors, (ii) filed any voluntary petition in bankruptcy or suffered the
filing of any involuntary petition in bankruptcy by its creditors, (iii)
suffered the appointment of a receiver to take possession of all or
substantially all of its assets or properties, (iv) suffered the attachment or
other judicial seizure of all or substantially all of its assets or (v) admitted
in writing its inability to pay its debts as they come due.
5.20. NO OTHER AGREEMENTS TO SELL THE ASSETS OR CAPITAL STOCK OF THE
COMPANY.
Other than as otherwise set forth in this Agreement, the Company has no
legal obligation, absolute or contingent, other than the obligations of the
Company under this Agreement or the Shareholders' Agreement, to any person or
firm to (i) sell any capital stock of the Company or, outside of the ordinary
course of business, assets, or effect any merger,
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consolidation or other reorganization of the Company or (ii) enter into any
agreement with respect to any of the foregoing.
5.21. KEY EMPLOYEES.
The performance by the Company's key employees of their duties for the
Company as contemplated by the Company's business plan will not violate any
provision of any agreement to which any of such persons or the Company is a
party, including any agreement with any former employer of any such person, or
give rise to any obligation or liability of the Company to any third party or
limit in any way the Company's ability to conduct its business. None of the
Company's key employees is engaged, directly or indirectly, or has any interest
(other than as a shareholder of a public company) in any entity which is engaged
in competition with the Company in its planned activities.
5.22. COMPLIANCE WITH LAW.
In its conduct of its business and affairs since its formation, the
Company has complied in all material respects with all applicable Requirements
of Law.
5.23. DISCLOSURE.
The Company has, to the best of its knowledge, Billy responded to all
requests for information, and the Company has accurately answered all questions
from Mr. Horgen concerning the Condition of the Company, and has not knowingly
withheld any facts relating thereto which it reasonably believes to be material
with respect to its Condition. No information in this Agreement or in any
Exhibit or Schedule attached to this Agreement, contains or will contain any
untrue statement of a material fact or when considered together with all such
information delivered to Mr. Horgen omits to state any material fact. The
disclosures made in writing by the Company in connection with this Agreement
when read in the light of the circumstances when made and taken as a whole, did
not when made contain any untrue statement of a material fact.
ARTICLE 6.
REPRESENTATIONS AND
WARRANTIES OF MR. HORGEN
Mr. Horgen hereby represents and warrants to the Company as of the date
hereof as follows:
6.1. LOCATION OF PRINCIPAL OFFICE. QUALIFICATION AS AN ACCREDITED
INVESTOR.
The state in which Ms. Horgen's principal domicile is located is the
state set forth in Mr. Horgen's address on Schedule 2. Mr. Horgen, by execution
of this Agreement hereby represents that it qualifies as an "accredited
investor" for purposes of Regulation D promulgated under the Securities Act. Mr.
Horgen acknowledges that the Company has made available to Mr. Horgen at a
reasonable time prior to the execution of this Agreement the opportunity to ask
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questions and receive answers concerning the terms and conditions of the sale of
securities contemplated by this Agreement and to obtain any additional
information (which the Company possesses or can acquire without unreasonable
effort or expense) as may be necessary to verify the accuracy of information
furnished to Mr. Horgen.
6.2. TRANSFER RESTRICTIONS IMPOSED BY SECURITIES LAW.
Mr. Horgen understands that the Preferred Shares have not been
registered under the Securities Act and applicable state securities laws, and,
therefore, cannot be resold unless they are subsequently registered under the
Securities Act and applicable state securities laws or unless an exemption from
such registration is available.
6.3. BINDING EFFECT.
This Agreement has been duly authorized by all necessary action on the
part of Mr. Horgen, has been duly executed and delivered by Mr. Horgen, and this
Agreement constitutes the legal, valid and binding obligation of Mr. Horgen,
enforceable against him in accordance with its terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, or similar laws affecting
the enforcement of creditors' rights generally or by equitable principles
relating to enforceability.
6.4. PURCHASE FOR OWN ACCOUNT.
(a) The Preferred Shares, and the shares of Common Stock to be
issued upon conversion of the Preferred Shares, are being or will be acquired by
Mr. Horgen for his own account and with no intention of distributing or
reselling such securities or any part thereof in any transaction that would be
in violation of the securities laws of the United States of America, or any
state, without prejudice, however, to the rights of Mr. Horgen at all times to
sell or otherwise dispose of all or any part of the Preferred Shares or the
shares of Common Stock issuable upon conversion of the Preferred Shares under an
effective registration statement under the Securities Act, or under an exemption
from such registration available under the Securities Act, and subject,
nevertheless, to the disposition of Mr. Horgen's property being at all times
within Mr. Horgen's control. If Mr. Horgen should in the future decide to
dispose of any of the Preferred Shares or the shares of Common Stock issuable
upon conversion of the Preferred Shares, Mr. Horgen understands and agrees that
Mr. Horgen may do so only in compliance with the Securities Act and applicable
state securities laws, as then in effect. Mr. Horgen agrees to the imprinting,
so long as required by law, of a legend on certificates representing all of the
Preferred Shares or the shares of Common Stock to be issued upon conversion of
the Preferred Shares to the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH
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ACT OR SUCH LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS SET FORTH IN THE SHAREHOLDERS' AGREEMENT, DATED AS OF MAY
28, 1998, AS AMENDED. A COPY OF SUCH AGREEMENT MAY BE OBTAINED FROM THE COMPANY
UPON REQUEST."
(b) Mr. Horgen's representations in paragraph (a) above are
qualified to the extent that Mr. Horgen may create an entity to which he may
seek to transfer some or all of his Preferred Shares. Mr. Horgen acknowledges,
understands and agrees that such transfer (i) will be subject to the approval of
the Stockholders (as defined in the Shareholders' Agreement). (ii) will be
subject to the approval of the holders of at least two-thirds of the Series A
Preferred Stock; and (iii) must be in compliance with the Securities Act and
applicable state securities laws, as then in effect.
6.5. FINANCIAL CONDITION: SOPHISTICATION.
Mr. Horgen's financial condition is such that Mr. Horgen is able to
bear the risk of holding the Preferred Shares for an indefinite period of time
and can bear the loss of his entire investment in the Preferred Shares. Mr.
Horgen has such knowledge and experience in financial and business matters and
in making high risk investments of this type that he is capable of evaluating
the merits and risks of the purchase of the Preferred Shares and understands
that there may be no established market for the Company's capital stock.
6.6. RECEIPT OF INFORMATION.
Mr. Horgen has been furnished access to the business records of the
Company and such additional information and documents as Mr. Horgen has
requested and has been afforded an opportunity to ask questions of and receive
answers from representatives of the Company concerning the terms and conditions
of this Agreement, the purchase of the Preferred Shares, the prospective
operations, market potential, capitalization, financial conditions, and
prospects of the business to be conducted by the Company, and all other matters
deemed relevant by Mr. Horgen.
6.7. BROKER'S, FINDER'S OR SIMILAR FEES.
There are no brokerage commissions, finder's fees or similar fees or
commissions payable in connection with the transactions contemplated hereby
based on any agreement, arrangement or understanding with Mr. Horgen or any
action taken by Mr. Horgen.
6.8. GOVERNMENTAL AUTHORIZATION: THIRD PARTY CONSENT.
No approval, consent, compliance, exemption, authorization, or other
action by, or notice to, or filing with, any Governmental Authority or any other
Person in respect of any Requirements of Law, and no lapse of a waiting period
under any Requirements of Law, is necessary or required in connection with the
execution, delivery or performance by Mr. Horgen (including, without limitation,
the acquisition of the Preferred Shares) or enforcement against Mr. Horgen of
the Transaction Agreements to which Mr. Horgen is or will be a party or the
transactions contemplated thereby.
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6.9. LITIGATION.
No Actions are pending, or to the best knowledge of Mr. Horgen,
threatened relating to or affecting the transactions required to be performed by
Mr. Horgen under the Transaction Agreements to which Mr. Horgen is or will be a
party.
ARTICLE 7.
COVENANTS OF THE COMPANY WITH RESPECT
TO THE PERIOD FOLLOWING THE CLOSING
Until all Preferred Shares are no longer outstanding due to conversion
or otherwise and until the payment by the Company of all other amounts due to
Mr. Horgen under this Agreement or the related agreements referred to herein or
the Certificate, the Company hereby covenants and agrees with Mr. Horgen as
follows:
7.1. RESERVATION OF SHARES.
The Company shall at all times reserve and keep available out of its
authorized Common Stock, solely for the purpose of issue or delivery upon
conversion of the Preferred Shares as provided in the Certificate, the maximum
number of shares of Common Stock that may be issuable or deliverable upon such
conversion. Such shares of Common Stock shall, when issued or delivered in
accordance with the provisions of the Certificate, be duly authorized, validly
issued and fully paid and non-assessable. The Company shall issue such Common
Stock in accordance with the provisions of the Certificate and shall otherwise
comply with the terms thereof.
ARTICLE 8.
INDEMNIFICATION
8.1. INDEMNIFICATION.
(a) In addition to all other sums due hereunder or provided for in
this Agreement, the Company (the "Selling Indemnifying Party") shall defend,
indemnify and hold harmless Mr. Horgen, his agents, employees, and assigns (each
a "Purchasing Indemnified Party') to the earliest extent permitted by law from
and against any and all losses, costs, claims, damages, expenses (including
reasonable fees, disbursements and other charges of counsel, as limited by
Section 8.2 below) and other liabilities (collectively, "Liabilities") incurred
or suffered by any Purchasing Indemnified Party resulting from or arising out of
(i) any breach by any Selling Indemnifying Party of any representation or
warranty, covenant or agreement of the Selling Indemnifying Party in this
Agreement; provided, however, that no Selling Indemnifying Party shall be liable
under this Section 8.1 to any Purchasing Indemnified Party to the extent that it
is finally judicially determined that such Liabilities resulted primarily from
the material breach by such Purchasing Indemnified Party of any representation,
warranty, covenant or other agreement of such Purchasing Indemnified Party
contained in this Agreement or (ii) any material liability of the Company on the
Closing Date not disclosed in this Agreement.
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(b) In addition to all other sums due hereunder or provided for in
this Agreement, Mr. Horgen (the "Purchasing Indemnifying Party") shall defend,
indemnify and hold harmless the Company and its Affiliates and its officers,
directors, agents, employees, subsidiaries, partners and assigns (each a
"Selling Indemnified Party") to the fullest extent permitted by law from and
against any and all Liabilities incurred or suffered by such Selling Indemnified
Parties resulting from or arising out of any breach of any representation,
warranty, covenant or agreement of such Purchasing Indemnifying Party in this
Agreement; provided, however, that no Purchasing Indemnifying Party shall not be
liable under this Section 8.1 to a Selling Indemnified Party to the extent that
it is finally judicially determined that such Liabilities resulted primarily
from the material breach by such Selling Indemnified Party of any
representation, warranty, covenant or other agreement of such Selling
Indemnified Party contained in this Agreement.
(c) If and to the extent that any indemnification provided for in
this Agreement is unenforceable for any reason, the Indemnifying Parties (as
defined below) obligated to indemnify any Indemnified Party (as defined below)
shall make the maximum contribution to the payment and satisfaction of such
indemnified liability which shall be permissible under applicable laws. In
connection with the obligation of the Indemnifying Parties to indemnify for
expenses as set forth herein, the Indemnifying Parties further agree, upon
presentation of appropriate invoices containing reasonable detail, to reimburse
each Indemnified Party for all such expenses (including reasonable fees,
disbursements and other charges of counsel, as limited by Section 8.2 below) as
they are incurred by such Indemnified Party.
8.2. NOTIFICATION.
If any action or proceeding (including any governmental investigation
or inquiry) shall be brought or asserted against any party entitled to
indemnification pursuant to this Section 5 (an "Indemnified Party") in respect
of which indemnity may be sought from any party required to indemnify such
Indemnified Party (an "Indemnifying Party"), such Indemnified Party shall
promptly notify the Indemnifying Party in writing, and such Indemnifying Party
shall assume the defense thereof, including the employment of counsel selected
by such Indemnifying Party and reasonably satisfactory to such Indemnified Party
and the payment of all expenses; provided, however, that any failure to so
notify such Indemnifying Party shall not impair obligations hereunder except and
only to the extent that such failure results in actual prejudice to such
Indemnifying Party. Such Indemnified Party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall be the expense of such
Indemnified Party unless (a) such Indemnifying Party agreed to pay such fees and
expenses or (b) such Indemnifying Party shall have failed to assume the defense
of such action or proceeding or has failed to employ counsel reasonably
satisfactory to such Indemnified Party in any such action or proceeding or (c)
the named parties to any such action or proceeding (including any impleaded
parties) include both such Indemnified Party and such Indemnifying Party, and
such Indemnified Party shall have been advised by counsel that there may be one
or more legal defenses available to such Indemnified Party which are different
from or additional to those available to such Indemnifying Party (in which case,
such Indemnifying Party shall employ separate counsel at the expense of such
Indemnifying Party, it
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<PAGE>
being understood, however, that such Indemnifying Party shall not, in connection
with any one such action or proceeding or separate but substantially similar or
related actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys at any time for such
Indemnified Party and any other Indemnified Parties). No Indemnifying Party
shall be liable for any settlement of any such action or proceeding effected
without its written consent (which shall not be withheld unreasonably), but if
settled with its written consent, or if there be a final judgment for the
plaintiff in any such action or proceeding, such Indemnifying Party agrees to
indemnify and hold harmless such Indemnified Party from and against any
Liabilities by reason of such settlement or judgment. No Indemnifying Party
shall agree to any settlement of any third party claim without the consent of
the Indemnified Party, which shall not be withheld if such settlement provides
only for the payment of money to be paid by the Indemnifying Party.
ARTICLE 9.
MISCELLANEOUS
9.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All of the representations and warranties made herein shall survive the
Closing for a period of twelve months.
9.2. NOTICES.
All notices, demands and other communications provided for or permitted
hereunder shall be made in writing and shall be by registered or certified
first-class mail, return receipt requested, courier service or personal delivery
or via facsimile:
(a) If to Mr. Horgen:
Chris Horgen
7910 South Memorial Parkway
Suite F
Huntsville, AL 35802
with a copy to:
Lanier, Ford, Shaver & Payne, P.C.
200 West Side Square
Suite 5000
Huntsville, AL 35801
Attention: John Wynn
(b) if to the Company:
USinternetworking, Inc.
l75 Admiral Cochrane Drive
<PAGE>
Suite 400
Annapolis, Maryland 21401
Attention: Christopher R. McCleary
with a copy to:
Latham & Watkins
1001 Pennsylvania Avenue, NW.
Suite 1300
Washington, D.C. 20004-2505
Attention: James F. Rogers, Esq.
All such notices and communications shall be deemed to have been duly
given: when delivered by band, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; if delivered by
facsimile, upon confirmation of such transmission; and five business days after
being deposited in the mail, postage prepaid, if mailed.
9.3. SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding upon the
successors and permitted assigns of the parties hereto. This Agreement may be
assigned by Mr. Horgen to any permitted transferee of all or part of the
Preferred Shares or the Common Stock issued upon conversion thereof. The Company
may not assign any of its fights under this Agreement without the written
consent of Mr. Horgen. Except as provided in this Section 9.3, no Person other
than the parties hereto and their successors and permitted assigns is intended
to be a beneficiary of any of the Transaction Agreements.
9.4. AMENDMENT AND WAIVER.
(a) No failure or delay on the part of the Company or Mr. Horgen
in exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the Company or
Mr. Horgen at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this Agreement, any waiver of any provision of this Agreement, and
any consent to any departure by any party from the terms of any provision of
this Agreement, shall be effective (i) only if it is made or given in writing
and signed by the Company (if applicable) and Mr. Horgen, and (ii) only in the
specific instance and for the specific purpose for which made or given. Except
where notice is specifically required by this Agreement, no notice to or demand
on any party in any case shall entitle any party hereto to any other or further
notice or demand in similar or other circumstances.
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<PAGE>
9.5. COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by the
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
9.6. HEADINGS.
The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.
9.7. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Maryland, without regard to the principles of conflicts
of law of such state.
9.8. JURISDICTION.
Each party to this Agreement hereby irrevocably agrees that any legal
action or proceeding arising out of or relating to this Agreement or any
agreements or transactions contemplated hereby may be brought in the courts of
the State of Maryland or of the United States of America for the District of
Maryland and hereby expressly submits to the personal jurisdiction and venue of
such courts for the purposes thereof and expressly waives any claim of improper
venue and any claim that such courts are an inconvenient forum. Each party
hereby irrevocably consents to the service of process of any of the
aforementioned courts in any such suit, action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to the address
set forth in Section 9.2, such service to become effective 10 days after such
mailing.
9.9. SEVERABILITY.
If any one or more of the provisions contained herein, or the
application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
9.10 RULES OF CONSTRUCTION.
Unless the context otherwise requires, "or" is not exclusive, and
references to sections or subsection refer to sections or subsections of this
Agreement.
9.11. ENTIRE AGREEMENT.
This Agreement, together with the exhibits and schedules hereto and the
other related agreements referred to herein, is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and
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<PAGE>
understanding of the parties hereto in respect of the subject matter contained
herein and therein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein or therein. This
Agreement, together with the exhibits and schedules hereto, and the other
related agreements referred to herein supersede all prior agreements and
understandings between the parties with respect to such subject matter.
9.12. PUBLICITY.
Except as may be required by applicable law, none of the parties hereto
shall issue a publicity release or announcement or otherwise make any public
disclosure concerning this Agreement or the transactions contemplated hereby,
without prior approval by the other parties hereto, provided that Mr. Horgen may
nonetheless communicate with their partners concerning such transactions and
investment in the Company and may publish a "tombstone" in the customary form
with respect to its investment. If any announcement is required by law to be
made by any party hereto, prior to making such announcement such party will
deliver a draft of such announcement to the other parties and shall give the
other parties an opportunity to comment thereon.
9.13. FURTHER ASSURANCES.
Each of the parties shall execute such documents and perform such
further acts (including, without limitation, obtaining any consents, exemptions,
authorizations, or other actions by, or giving any notices to, or making any
filings with, any Governmental Authority or any other Person) as may be
reasonably required or desirable to carry out or to perform the provisions of
this Agreement.
9.14. WAIVER OF JURY TRIAL.
EACH PARTY HERETO HEREBY WAIVES. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS SECTION.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed and delivered by their respective officers hereunto duly
authorized as of the date first above written.
USINTERNETWORKING, INC.
By: /s/ CHRISTOPHER R. McCLEARY
---------------------------------------
Name: CHRISTOPHER R. McCLEARY
--------------------------------------
Title: CHANCELLOR CHIEF EXECUTIVE OFFICER
-------------------------------------
Chris Horgen
-------------------------------------------
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized as
of the date first above written.
USINTERNETWORKING, INC.
By:
---------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
Chris Horgen
/s/ Chris Horgen
-------------------------------------------
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<PAGE>
Exhibit 10.7
STOCK PURCHASE AGREEMENT
by
and
between
USinternetworking, Inc.
and
USi Partners, Ltd.
-------------------------
Dated as of June 19, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1. DEFINITIONS...................................................................1
1.1. Definitions.............................................................1
1.2. Accounting Terms; Financial Statements..................................4
1.3. Knowledge Standard......................................................4
1.4. Other Defined Terms.....................................................5
ARTICLE 2. AUTHORIZATION OF PREFERRED SHARES; PURCHASE
AND SALE OF PREFERRED SHARES..................................................5
2.1. Preferred Shares........................................................5
2.2. Purchase and Sale of Preferred Shares...................................6
2.3. Closing.................................................................6
2.4. Fees and Expenses.......................................................6
ARTICLE 3. CONDITIONS TO THE OBLIGATION OF THE PURCHASER
TO PURCHASE THE PREFERRED SHARES..............................................6
3.1. Representations and Warranties..........................................6
3.2. Compliance with Terms and Conditions of this Agreement..................7
3.3. Delivery of Certificates Evidencing the Shares..........................7
3.4. Closing Certificates....................................................7
3.5. Secretary's Certificates................................................7
3.6. Documents...............................................................7
3.7. Purchase Permitted by Applicable Laws...................................7
3.8. Consents and Approvals..................................................8
3.9. Amended and Restated Shareholders'Agreement.............................8
3.10. Certificate and By-laws.................................................8
3.11. No Material Judgment or Order...........................................8
3.12. Employment Agreements...................................................8
3.13. Legal Opinion...........................................................8
3.14. Budget Delivery.........................................................8
ARTICLE 4. CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE..........................9
4.1. Representations and Warranties..........................................9
4.2. Compliance with this Agreement..........................................9
4.3. Closing Certificate.....................................................9
4.4. Issuance Permitted by Applicable Laws...................................9
4.5. Payment of Purchase Price...............................................9
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
4.6. Consents and Approvals..................................................9
4.7. Amended and Restated Shareholders'Agreement............................10
4.8. No Material Judgment or Order..........................................10
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................10
5.1. Corporate Existence and Authority......................................10
5.2. Corporate Authorization; No Contravention..............................10
5.3. Governmental Authorization; Third Party Consents.......................11
5.4. Binding Effect.........................................................11
5.5. Capitalization.........................................................11
5.6. Private Offering.......................................................12
5.7. Litigation.............................................................12
5.8. Financial Statements...................................................13
5.9. Title and Condition of Assets..........................................13
5.10. Contractual Obligations................................................13
5.11. Tax Matters............................................................13
5.12. Severance Arrangements.................................................13
5.13. Investment Company/Government Regulations..............................14
5.14. Broker's, Finder's or Similar Fees.....................................14
5.15. Labor Relations and Employee Matters...................................14
5.16. Employee Benefits Matters..............................................14
5.17. Outstanding Borrowings.................................................14
5.18. Insurance Schedule.....................................................15
5.19. Solvency...............................................................15
5.20. No Other Agreements to Sell the Assets or Capital Stock of the
Company................................................................15
5.21. Key Employees..........................................................15
5.22. Compliance with Law....................................................15
5.23. Disclosure.............................................................15
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER..............................16
6.1. Limited Liability Existence and Authority..............................16
6.2. Organization; Authorization; No Contravention..........................16
6.3. Binding Effect.........................................................16
6.4. Purchase for Own Account...............................................17
6.5. Financial Condition....................................................17
6.6. Receipt of Information.................................................18
6.7. Broker's, Finder's or Similar Fees.....................................18
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
6.8. Governmental Authorization; Third Party Consent........................18
6.9. Litigation.............................................................18
ARTICLE 7. COVENANTS OF THE COMPANY WITH RESPECT TO THE PERIOD FOLLOWING
THE CLOSING.................................................................19
7.1. Reservation of Shares..................................................19
7.2. Intentionally omitted..................................................19
7.3. Intentionally omitted..................................................19
7.4. Issuance of Additional Preferred Shares................................19
ARTICLE 8. INDEMNIFICATION..............................................................20
8.1. Indemnification........................................................20
8.2. Notification...........................................................21
ARTICLE 9. MISCELLANEOUS................................................................22
9.1. Survival of Representations and Warranties.............................22
9.2. Notices................................................................22
9.3. Successors and Assigns.................................................23
9.4. Amendment and Waiver...................................................23
9.5. Counterparts...........................................................23
9.6. Headings...............................................................23
9.7. Governing Law..........................................................23
9.8. Jurisdiction...........................................................24
9.9. Severability...........................................................24
9.10. Rules of Construction..................................................24
9.11. Entire Agreement.......................................................24
9.12. Publicity..............................................................25
9.13. Further Assurances.....................................................25
9.14. Waiver of Jury Trial...................................................25
</TABLE>
iii
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as of
this 19th day of June, 1998, by and between USinternetworking, Inc., a Delaware
corporation (the "Company") and USi Partners, Ltd., an Ohio limited liability
company (the "Purchaser").
RECITALS:
A. Upon the terms and subject to the conditions set forth in this
Agreement, the Company proposes to issue and sell shares of its Series A
Convertible Preferred Stock ("Series A Preferred Stock", as defined below) to
the Purchaser.
B. The Purchaser desires to purchase from the Company shares of the
Series A Preferred Stock as set forth on SCHEDULE 1 hereto.
C. The Purchaser and the Company desire to set forth the objectives and
agreements that will govern their relations and responsibilities with respect to
each other by entering into concurrently with the sale and purchase of
securities hereunder a Amended and Restated Shareholders' Agreement (as defined
below).
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE 1.
DEFINITIONS
1.1. DEFINITIONS.
As used in this Agreement, and unless the context requires a different
meaning, the following terms have the meanings indicated:
"AFFILIATE" means, with respect to any specified Person, any Person
that, directly or indirectly, controls, is controlled by, or is under common
control with, such specified Person, whether by contract, through one or more
intermediaries, or otherwise.
<PAGE>
"BUDGET" means a fiscal year operating budget, which shall include
monthly capital and operating expense budgets, cash flow statements, capital
expenditure budgets, profit and loss projections and employee hiring
projections.
"BUSINESS DAY" shall mean a day other than a Saturday or Sunday or any
federal holiday.
"COMMISSION" means the Securities and Exchange Commission or any
similar agency then having jurisdiction to enforce the Securities Act (as
defined below).
"COMMON STOCK" means the common stock, par value $.001 per share, of
the Company, or any other capital stock of the Company into which such stock is
reclassified or reconstituted.
"CONDITION OF THE COMPANY" means the assets, business, properties,
operations, financial condition or prospects of the Company.
"EMPLOYMENT AGREEMENTS" means the employment agreements between the
Company and the Key Employees.
"EMPLOYEE PLANS" means all benefits arrangements, pensions plans or
welfare plans adopted by the Company for its employees.
"EMPLOYEE STOCK OPTION PLAN" means an employee stock option plan
adopted by the Compensation Committee of the Board of Directors of the Company
providing for the issuance to certain employees of the Company of options to
purchase a certain number of shares of Common Stock at a certain exercise price
per share the total number of shares of Common Stock which may be issued under
such plan shall not exceed 6.5% of the total number of outstanding shares of
common stock calculated on a fully diluted basis, not including the options and
shares issuable or issued on exercise of options pursuant to the Employee Stock
Option Plan.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder.
"GAAP" means United States generally accepted accounting principles, in
effect from time to time, consistently applied.
"GOVERNMENTAL AUTHORITY" means the government of any nation, state,
city, locality or other political subdivision of any thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any
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<PAGE>
corporation or other entity owned or controlled, through stock or capital
ownership or otherwise, by any of the foregoing.
"HOLDERS" means the Persons (other than the Purchaser) listed as
"Shareholders" on the signature page to the Amended and Restated Shareholders'
Agreement.
"INDEBTEDNESS" means, as to any Person: (a) all obligations, whether or
not contingent, of such Person for borrowed money (including, without
limitation, reimbursement and all other obligations with respect to surety
bonds, letters of credit and bankers' acceptances, whether or not matured), (b)
all obligations of such Person evidenced by notes, bonds, debentures or similar
instruments, (c) all obligations of such Person representing the balance of
deferred purchase price of property or services, except trade accounts payable
and accrued commercial or trade liabilities arising in the ordinary course of
business, (d) all interest rate and currency swaps, caps, collars and similar
agreements or hedging devices under which payments are obligated to be made by
such Person, whether periodically or upon the happening of a contingency, (e)
all indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property), (f)
all obligations of such Person under leases which have been or should be, in
accordance with GAAP, recorded as capital leases, (g) all indebtedness secured
by any Lien (other than Liens in favor of lessors under leases other than leases
included in clause (f)) on any property or asset owned or held by that Person
regardless of whether the indebtedness secured thereby shall have been assumed
by that Person or is non-recourse to the credit of that Person, and (h) all
Indebtedness of any other Person referred to in clauses (a) through (f) above,
guaranteed, directly or indirectly, by that Person.
"KEY EMPLOYEES" means the individuals listed on Schedule A.
"LIEN" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other) or other security interest of
any kind or nature whatsoever (excluding preferred stock or equity related
preferences) including, without limitation, those created by, arising under or
evidenced by any conditional sale or other title retention agreement, the
interest of a lessor under a capital lease obligation, or any financing lease
having substantially the same economic effect as any of the foregoing.
"OUTSTANDING BORROWINGS" means all Indebtedness of the Company for
borrowed money (including, without limitation, reimbursement and all other
obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured).
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<PAGE>
"PERSON" means any individual, firm, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
Governmental Authority or other entity of any kind, and shall include any
successor (by merger or otherwise) of such entity.
"REQUIREMENTS OF LAW" means, as to any Person, the provisions of the
Certificate of Incorporation and By-laws or other organizational or governing
documents of such Person, and any law, treaty, rule, regulation, right,
privilege, qualification, license or franchise, order, judgment, or
determination of an arbitrator or a court or other Governmental Authority, in
each case, applicable or binding upon such Person or any of its property or to
which such Person or any of its property is subject or applicable to any or all
of the transactions contemplated by or referred to in the Transaction
Agreements.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder.
"SERIES A PREFERRED STOCK" means the 8% Series A Convertible Preferred
Stock, par value $.01 per share, of the Company, or any other capital stock of
the Company into which such stock is reclassified or reconstituted.
"AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT" means the Amended and
Restated Shareholders' Agreement substantially in the form attached hereto as
EXHIBIT A.
"TRANSACTION AGREEMENTS" means collectively, this Agreement and the
Amended and Restated Shareholders' Agreement.
"TRANSACTION EXPENSES" means any and all reasonable out-of-pocket (i)
legal expenses incurred by the Purchaser in connection with the negotiation and
preparation of the Transaction Agreements, the consummation of the transactions
contemplated thereby and preparation for any of the foregoing, including,
without limitation, travel expenses, reasonable fees, charges and disbursements
of counsel and any similar or r elated legal costs and legal expenses; and (ii)
other expenses incurred by the Purchaser in connection with the negotiation and
preparation of the Transaction Agreements.
1.2. ACCOUNTING TERMS; FINANCIAL STATEMENTS.
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<PAGE>
All accounting terms used herein not expressly defined in this
Agreement shall have the respective meanings given to them in accordance with
sound accounting practice. The term "sound accounting practice" shall mean such
accounting practice as, in the opinion of the independent certified public
accountants regularly retained by the Company conforms at the time to GAAP
applied on a consistent basis except for changes with which such accountants
concur.
1.3. KNOWLEDGE STANDARD.
When used herein, the phrase "to the knowledge of" any Person, "to the
best knowledge of" any Person or any similar phrase shall mean, (i) with respect
to any individual, the actual knowledge of such Person, (ii) with respect to any
corporation, the actual knowledge of the officers and directors of such
corporation and the knowledge of such facts that such persons should have in the
exercise of their duties after reasonable inquiry, and (iii) with respect to a
partnership, the actual knowledge of the officers and directors of the general
partner of such partnership and the knowledge of such facts that such persons
should have in the exercise of their duties after reasonable inquiry.
1.4. OTHER DEFINED TERMS.
The following terms shall have the meanings specified in the Sections
set forth below:
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Actions 5.7
Additional Preferred Shares 7.4
Certificate of Incorporation 2.1
Certificate 2.1
Certificate of Designation 2.1
Closing Date 2.2
Closing 2.3
Indemnified Party 8.2
Indemnifying Party 8.2
Liabilities 8.1
Preferred Shares 2.1
Purchase Price 2.2
Purchasing Indemnified Party 9.1
Purchasing Indemnifying Party 9.1
Selling Indemnified Party 9.1
Selling Indemnifying Party 9.1
</TABLE>
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<PAGE>
ARTICLE 2.
AUTHORIZATION OF PREFERRED SHARES;
PURCHASE AND SALE OF PREFERRED SHARES
2.1. PREFERRED SHARES.
The Board of Directors of the Company has authorized the issuance and
sale of 1,166.67 shares (the "Preferred Shares") of the Series A Preferred Stock
and has duly adopted resolutions establishing the rights, preferences,
privileges and restrictions of the Series A Preferred Stock. The Preferred
Shares will have the respective rights, preferences and privileges set forth in
the Company's Amended and Restated Certificate of Incorporation, as it will be
in effect on the Closing Date (the "Certificate of Incorporation") and the form
of Certificate of Designations, Preferences, and Other Special Rights of
Preferred Stock and Qualifications, Limitations and Restrictions Thereof set
forth in EXHIBIT B hereto (the "Certificate of Designation" and together with
the Certificate of Incorporation, the "Certificate").
2.2. PURCHASE AND SALE OF PREFERRED SHARES.
Upon the terms and subject to the conditions herein contained, on June
22, 1998, or such other day as the parties may agree (the "Closing Date"), the
Company shall issue to the Purchaser, and the Purchaser shall acquire from the
Company, the number of Preferred Shares set forth on SCHEDULE 1 hereto. The
aggregate purchase price of such Preferred Shares, to be paid by the Purchaser
in the amount set forth next to the Purchaser's name on SCHEDULE 1 hereto, shall
be Seven Hundred Thousand Two Dollars ($700,002) (the "Purchase Price").
2.3. CLOSING.
The closing of the sale to and purchase by the Purchaser of the
Preferred Shares (the "Closing") shall occur at 11 o'clock A.M., local time on
the Closing Date at the offices of Latham & Watkins, 1001 Pennsylvania Avenue,
N.W., Washington, D.C. 20004, or such other location as the parties may agree.
At the Closing, (i) the Company shall deliver to the Purchaser a certificate
evidencing the Preferred Shares being purchased by the Purchaser, free and clear
of any Liens of any nature whatsoever, other than those created by the
Certificate or the Amended and Restated Shareholders' Agreement, registered in
the Purchaser's name, and (ii) the Purchaser shall deliver to the Company the
Purchase Price, as set forth next to the Purchaser's name on SCHEDULE 1 hereto,
by cashier's or certified check or wire transfer of immediately available funds.
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<PAGE>
2.4. FEES AND EXPENSES.
Concurrently with the Closing, the Company shall reimburse the
Purchaser for the Transaction Expenses, which payment shall be made by wire
transfer of immediately available funds to an account or accounts designated by
the Purchaser.
ARTICLE 3.
CONDITIONS TO THE OBLIGATION OF THE
PURCHASER TO PURCHASE THE PREFERRED SHARES
The obligation of the Purchaser to purchase the Preferred Shares, to
pay the Purchase Price therefor and to perform any of its obligations hereunder
on the Closing Date (unless otherwise specified) shall be subject to the
satisfaction of the following conditions on or before the Closing Date:
3.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company contained in Section
5 hereof shall be true and correct in all material respects at and as of the
Closing Date, as if made at and as of such date.
3.2. COMPLIANCE WITH TERMS AND CONDITIONS OF THIS AGREEMENT.
The Company shall have performed and complied with all of the
agreements and conditions set forth herein that are required to be performed or
complied with by the Company on or before the Closing Date.
3.3. DELIVERY OF CERTIFICATES EVIDENCING THE SHARES.
The Company shall have delivered to the Purchaser the certificates
evidencing the Preferred Shares as set forth in Section 2.3.
3.4. CLOSING CERTIFICATES.
The Company shall have delivered to the Purchaser a certificate
executed by an authorized officer of the Company, certifying that the
representations and warranties of the Company are true and correct in all
material respects on and as of the Closing Date, and that the conditions set
forth in this Section 3 to be satisfied by the Company have been satisfied on
and as of the Closing Date.
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3.5. SECRETARY'S CERTIFICATES.
The Purchaser shall have received a certificate from the Company, dated
as of the Closing Date and signed by the Secretary or an Assistant Secretary of
the Company, certifying that the attached copies of the Certificate of
Incorporation, Certificate of Designation, By-laws of the Company, (all of which
will be in form and substance consistent with this Agreement) and resolutions of
the Board of Directors of the Company approving the Transaction Agreements and
the transactions referred to therein, are all true, complete and correct and
remain unamended and in full force and effect.
3.6. DOCUMENTS.
The Purchaser shall have received true, complete and correct copies of
such documents and such other information as it may have reasonably requested in
connection with or relating to the sale of the Preferred Shares and the
transactions required to be performed by the Transaction Agreements.
3.7. PURCHASE PERMITTED BY APPLICABLE LAWS.
The acquisition of and payment for the Preferred Shares to be acquired
by the Purchaser hereunder and the consummation of this Agreement (a) shall not
be prohibited by any Requirements of Law, and (b) shall not conflict with or be
prohibited by any Contractual Obligation of the Company.
3.8. CONSENTS AND APPROVALS.
All consents, exemptions, authorizations, or other actions by, or
notices to, or filings with, Governmental Authorities and other Persons in
respect of all Requirements of Law and with respect to those material
Contractual Obligations of the Company necessary or required in connection with
the execution, delivery or performance (including, without limitation, the
issuance of the Preferred Shares and the issuance of the Common Stock upon
conversion of the Preferred Shares) by the Company shall have been obtained and
be in full force and effect and all waiting periods shall have lapsed without
extension or the imposition of any conditions or restrictions.
3.9. AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT.
The Company and the Shareholders shall have duly executed and delivered
to the Purchaser the Amended and Restated Shareholders' Agreement.
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3.10. CERTIFICATE AND BY-LAWS.
The Company shall have adopted a Certificate of Incorporation and the
Certificate of Designation and the By-laws of the Company shall be amended as
may be required by the Certificate and the Amended and Restated Shareholders'
Agreement.
3.11. NO MATERIAL JUDGMENT OR ORDER.
There shall not be any judgment or order of a court of competent
jurisdiction or any ruling of any Governmental Authority or any condition
imposed under any Requirement of Law which, in the reasonable judgment of the
Purchaser, would (i) prohibit the purchase of the Preferred Shares hereunder,
(ii) subject the Purchaser to any penalty if the Preferred Shares were to be
purchased hereunder, or (iii) question the validity or legality of the
transactions required to be performed under this Agreement.
3.12. EMPLOYMENT AGREEMENTS.
The Company and the Key Employees shall have executed and delivered the
Employment Agreements.
3.13. LEGAL OPINION.
The Purchaser shall have received an opinion of counsel for the Company
in the form attached as EXHIBIT C hereto.
3.14. BUDGET DELIVERY.
The Company shall have delivered a copy of the Budget.
ARTICLE 4.
CONDITIONS TO THE OBLIGATION OF
THE COMPANY TO CLOSE
The obligation of the Company to issue and sell the Preferred Shares
and the other obligations of the Company hereunder, shall be subject to the
satisfaction of the following conditions on or before the Closing Date:
4.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Purchaser contained in
Section 6 hereof shall be true and correct in all material respects at and as of
the Closing Date as if made at and as of such date.
4.2. COMPLIANCE WITH THIS AGREEMENT.
The Purchaser shall have performed and complied with all of the
agreements and conditions set forth herein that are required to be performed or
complied with by the Purchaser on or before the Closing Date.
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4.3. CLOSING CERTIFICATE.
The Purchaser shall have delivered to the Company a certificate
executed by the Purchaser certifying that the representations and warranties of
the Purchaser contained in this Agreement are true and correct in all material
respects on and as of the Closing Date and that the conditions contained in this
Section 4 to be satisfied by the Purchaser have been satisfied on and as of the
Closing Date.
4.4. ISSUANCE PERMITTED BY APPLICABLE LAWS.
The issuance of the Preferred Shares to be issued by the Company
hereunder and the consummation of this Agreement (a) shall not be prohibited by
any Requirements of Law, and (b) shall not conflict with or be prohibited by any
Contractual Obligations of the Purchaser.
4.5. PAYMENT OF PURCHASE PRICE.
The Purchaser shall have tendered to the Company the Purchase Price as
set forth in Section 2.
4.6. CONSENTS AND APPROVALS.
All consents, exemptions, authorizations, or other actions by, or
notices to, or filings with, Governmental Authorities and other Persons in
respect of all Requirements of Law and with respect to those material
Contractual Obligations of the Purchaser necessary or required in connection
with the execution, delivery or performance by the Purchaser shall have been
obtained and be in full force and effect and all waiting periods shall have
lapsed without extension or imposition of any conditions or restrictions.
4.7. AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT.
The Purchaser shall have duly executed and delivered to the Company the
Amended and Restated Shareholders' Agreement.
4.8. NO MATERIAL JUDGMENT OR ORDER.
There shall not be any judgment or order of a court of competent
jurisdiction or any ruling of any Governmental Authority or any condition
imposed under any Requirements of Law which, in the reasonable judgment of the
Company would (i) prohibit the sale of the Shares or the consummation of the
other transactions hereunder, (ii) subject the Company to any penalty if the
Shares were to be sold hereunder or (iii) question the validity or legality of
the transactions required to be performed under this Agreement.
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ARTICLE 5.
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to, and covenants with, the
Purchaser as of the date hereof and as of the Closing Date as follows:
5.1. CORPORATE EXISTENCE AND AUTHORITY.
The Company was incorporated on January 14, 1998 and (a) is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, (b) has all requisite corporate power and authority to
own and operate its property, to lease the property it operates as lessee and to
conduct the business in which it is currently, or is currently proposed to be,
engaged, and (c) has the corporate power and authority to execute, deliver and
perform its obligations under each Transaction Agreement to which it is or will
be a party.
5.2. CORPORATE AUTHORIZATION; NO CONTRAVENTION.
The execution, delivery and performance by the Company of each of the
Transaction Agreements and the consummation of the transactions contemplated
thereby, including, without limitation, the issuance of the Preferred Shares,
(a) on or before the Closing Date, shall have been duly authorized by all
necessary corporate action, including, if required, stockholder action, (b) do
not conflict with or contravene the terms of the Certificate or the By-laws of
the Company, or any amendment thereof; and (c) will not violate, conflict with
or result in any material breach or contravention of (i) any Contractual
Obligation of the Company or (ii) any Requirements of Law applicable to the
Company.
5.3. GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENTS.
No approval, consent, compliance, exemption, authorization, or other
action by, or notice to, or filing with, any Governmental Authority or any other
Person in respect of any applicable Requirements of Law in effect on the date
hereof, and no lapse of a waiting period under any applicable Requirements of
Law in effect on the date hereof, is necessary or required in connection with
the execution and delivery of the Transaction Agreements by the Company or the
performance by the Company or enforcement against the Company of any material
obligation by the Company under the Transaction Agreements or the transactions
to be performed hereunder.
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5.4. BINDING EFFECT.
This Agreement has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as enforceability may
be limited by applicable bankruptcy, insolvency or other similar laws affecting
the enforcement of creditors' rights generally and by general principles of
equity relating to enforceability.
5.5. CAPITALIZATION.
On the Closing Date, the capital stock of the Company shall consist of
One Hundred Fifty Million (150,000,000) shares of Common Stock and One Hundred
Thousand (100,000) shares of preferred stock, with such shares including the
Preferred Shares. Of the 150,100,000 authorized shares of capital stock of the
Company, immediately after the Closing, there will be (i) 15 million shares of
Common Stock issued and outstanding; (ii) Five Million (5,000,000) shares of
Common Stock reserved for issuance pursuant to the Employee Stock Option Plan;
(iii) 46,166.67 shares of Series A Preferred Stock issued and outstanding, not
including the shares that could be issued pursuant to Section 7.4(a) hereof; and
(iv) 98,100,006 fully diluted shares of Common Stock outstanding, assuming
conversion of all of the outstanding shares of Series A Preferred Stock
mentioned in subsection (iii) above, into 83,100,006 shares of common stock, but
not including any shares authorized pursuant to the Employee Stock Option Plan.
As of the Closing Date, all outstanding shares of capital stock of the Company,
including the Preferred Shares, and the shares of Common Stock issuable upon
conversion of the Preferred Shares (when issued in accordance with the
conversion terms thereof), will be duly authorized and validly issued, fully
paid, nonassessable and free and clear of any Liens, preferential rights,
priorities, claims, options, charges or other encumbrances or restrictions other
than those created by the Certificate, the Bylaws, and the Amended and Restated
Shareholders' Agreement.
(a) SCHEDULE 5.5 sets forth the name of each holder of the issued
and outstanding capital stock of the Company, the number of shares of such
capital stock held beneficially or of record by each such holder, the name of
each Person holding any options or other rights to purchase any capital stock of
the Company (except as may be permitted under the Amended and Restated
Shareholders' Agreement), the number, class and series of shares of capital
stock subject to each such option or right and the exercise price of each such
option or right. Except for the options under the Employee Stock Option Plan and
the Preferred Shares, and except as identified in Section 7.4, there are no
outstanding securities convertible into or exchangeable for capital stock of the
Company or options, warrants or other rights to purchase or subscribe to capital
stock of the Company or contracts, commitments, agreements, understandings or
arrangements of any kind to which the Company or any Holder is a party relating
to the
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issuance of any capital stock of the Company, any such convertible or
exchangeable securities or any such options, warrants or rights. The Company has
no subsidiaries.
(b) Except as set forth on SCHEDULE 5.5 and as may be provided in
the Amended and Restated Shareholders' Agreement, no Person has any preemptive
rights, rights of first refusal, "tag along" rights, rights of co-sale or any
similar rights with respect to the issuance of the Preferred Shares contemplated
hereby or the issuance of any additional shares of stock by the Company.
SCHEDULE 5.5 identifies all Persons holding any such rights and describes the
material terms of all such rights.
5.6. PRIVATE OFFERING.
No form of general solicitation or general advertising was used by the
Company or its representatives in connection with the offer or sale of the
Preferred Shares. No registration of the Preferred Shares pursuant to the
provisions of the Securities Act or any state securities or "blue sky" laws will
be required by the offer, sale or issuance of the Preferred Shares pursuant to
this Agreement. The Company agrees that neither it, nor anyone authorized to act
on its behalf, will offer or sell the Preferred Shares or any other security so
as to require the registration of the Preferred Shares pursuant to the
provisions of the Securities Act or any state securities or "blue sky" laws,
unless such Preferred Shares are so registered.
5.7. LITIGATION.
The Company has not received any notice of any governmental charge,
complaint or action or court order, writ, injunction, judgment or decree
outstanding or any claim, suit, litigation, legal proceeding, (collectively,
"Actions") which if adversely determined would have a material adverse effect on
(i) the Company or the Condition of the Company (ii) the transactions required
to be performed by the Company under this Agreement or the Transaction
Agreements and, to the Company's knowledge, there is no valid basis therefor,
and no Action is threatened against the Company.
5.8. FINANCIAL STATEMENTS.
The Company was incorporated on January 14, 1998, and has not yet
commenced business operations. As of the date hereof, it has no assets, except
as described below, and has not prepared financial statements. SCHEDULE 5.8(A)
sets forth all expenditures by or on behalf of the Company since its formation
in excess of $25,000, in any one case, or $200,000, in the aggregate. The
Company's projections attached hereto as SCHEDULE 5.8(B) were prepared by the
Company's management in good faith, are based on reasonable assumptions,
represent management's best estimates of the Company's predicted operations and
performance under its
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business plan and reflect actual subjective expectations of the Company's
management. The Company has no reason to believe that the results reflected in
such projections are not attainable.
5.9. TITLE AND CONDITION OF ASSETS.
The Company currently has no assets (other than cash) except as listed
on SCHEDULE 5.10. The Company has a valid and enforceable leasehold interest in
its leases listed on SCHEDULE 5.10 pursuant to the terms of the lease agreements
and is not in default thereunder.
5.10. CONTRACTUAL OBLIGATIONS.
The Company has not entered into any contracts or agreements or
incurred any material liabilities, other than pursuant to the Transaction
Agreements and the agreements listed on SCHEDULE 5.10.
5.11. TAX MATTERS.
The Company has duly filed all tax reports and returns required to be
filed by it, including all federal, state, local and foreign tax returns and
reports and paid all taxes due with respect thereto.
5.12. SEVERANCE ARRANGEMENTS.
Except as set forth on SCHEDULE 5.12, the Company has not entered into
any severance or similar arrangement in respect of any present or former
employee of the Company that will result in any obligation (absolute or
contingent) of the Company to make any payment to such present or former
employee of the Company following termination of employment.
5.13. INVESTMENT COMPANY/GOVERNMENT REGULATIONS.
Immediately following the Closing, after giving effect to the
transactions contemplated by the Transaction Agreements, neither the Company nor
any Person controlling, controlled by or under common control with the Company
will be an "investment company" within the meaning of the Investment Company Act
of 1940, as amended. The Company is not subject to regulation under the Public
Utility Holding Company Act of 1935, as amended, the Federal Power Act, or any
federal or state statute or regulation limiting its ability to incur
Indebtedness.
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5.14. BROKER'S, FINDER'S OR SIMILAR FEES.
There are no brokerage commissions, finder's fees or similar fees or
commissions payable in connection with the transactions contemplated hereby
based on any agreement, arrangement or understanding with the Company or any
officer, director, shareholder, or Affiliate of the Company or any action taken
by any such person.
5.15. LABOR RELATIONS AND EMPLOYEE MATTERS.
(a) The Company is not and has not engaged in any unfair labor
practice.
(b) Except as set forth on SCHEDULE 5.10, the Company is not a
party to any employment agreement (other than "at will" employment
relationships), collective bargaining agreement or covenant not to compete.
(c) No complaint under any statute or regulation relating to
employment has been filed against the Company.
5.16. EMPLOYEE BENEFITS MATTERS.
Except as set forth on SCHEDULE 5.16, the Company has not adopted or
implemented any Employee Plan.
5.17. OUTSTANDING BORROWINGS.
SCHEDULE 5.17 lists the amount of all Outstanding Borrowings as of the
date hereof and the name of each lender thereof.
5.18. INSURANCE SCHEDULE.
SCHEDULE 5.18 accurately summarizes all of the Company's insurance
policies or programs in effect as of the date hereof and indicates the insurer's
name and policy number and also indicates any self-insurance program that is in
effect.
5.19. SOLVENCY.
The Company has not (i) made a general assignment for the benefit of
its creditors, (ii) filed any voluntary petition in bankruptcy or suffered the
filing of any involuntary petition in bankruptcy by its creditors, (iii)
suffered the appointment of a receiver to take possession of all or
substantially all of its assets or properties, (iv) suffered the attachment or
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other judicial seizure of all or substantially all of its assets or (v) admitted
in writing its inability to pay its debts as they come due.
5.20. NO OTHER AGREEMENTS TO SELL THE ASSETS OR CAPITAL STOCK OF
THE COMPANY.
Other than as otherwise set forth in this Agreement, the Company has no
legal obligation, absolute or contingent, other than the obligations of the
Company under the Transaction Agreements, to any person or firm to (i) sell any
capital stock of the Company or, outside of the ordinary course of business,
assets, or effect any merger, consolidation or other reorganization of the
Company or (ii) enter into any agreement with respect any of the foregoing.
5.21. KEY EMPLOYEES.
The performance by the Key Employees of their duties for the Company as
contemplated by the Company's business plan will not violate any provision of
any agreement to which any of such persons or the Company is a party, including
any agreement with any former employer of any such person, or give rise to any
obligation or liability of the Company to any third party or limit in any way
the Company's ability to conduct its business. None of the Key Employees is
engaged, directly or indirectly, or has any interest (other than as a
shareholder of a public company) in any entity which is engaged in competition
with the Company in its planned activities.
5.22. COMPLIANCE WITH LAW.
In its conduct of its business and affairs since its formation, the
Company has complied in all material respects with all applicable Requirements
of Law.
5.23. DISCLOSURE.
The Company has, to the best of its knowledge, fully responded to all
requests for information, and the Company has accurately answered all questions
from the Purchaser concerning the Condition of the Company, and has not
knowingly withheld any facts relating thereto which it reasonably believes to be
material with respect to its Condition. No information in this Agreement or in
any Exhibit or Schedule attached to this Agreement, contains or will contain any
untrue statement of a material fact or when considered together with all such
information delivered to the Purchaser omits to state any material fact. The
disclosures made in writing by the Company in connection with this Agreement
when read in the light of the circumstances when made and taken as a whole, did
not when made contain any untrue statement of a material fact.
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ARTICLE 6.
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as of the
date hereof as follows:
6.1. LIMITED LIABILITY COMPANY EXISTENCE AND AUTHORITY.
As applicable, the Purchaser (a) is a limited liability company, duly
organized, validly existing and in good standing under the laws of Ohio, (b) has
all requisite power and authority to own its assets and operate its business,
and (c) has all requisite power and authority to execute, deliver and perform
its obligations under each of the Transaction Agreements to which it is or will
be a party.
6.2. ORGANIZATION; AUTHORIZATION; NO CONTRAVENTION.
The execution, delivery and performance by the Purchaser of the
Transaction Agreements to which it is a party and the consummation of the
transactions contemplated thereby, including, without limitation, the
acquisition of the Preferred Shares: (a) is within the Purchaser's limited
liability company authority, and has been duly authorized by all necessary
action on the part of the Purchaser; (b) does not conflict with or contravene
the terms of the Purchaser's Articles of Organization or Operating Agreement or
by-laws, as applicable; and (c) will not violate, conflict with or result in any
material breach or contravention of (i) any Contractual Obligation of the
Purchaser, or (ii) the Requirements of Law or any order or decree applicable to
the Purchaser.
6.3. BINDING EFFECT.
This Agreement has been duly executed and delivered by the Purchaser,
and this Agreement constitutes the legal, valid and binding obligation of the
Purchaser, enforceable against it in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency, or similar
laws affecting the enforcement of creditors' rights generally or by equitable
principles relating to enforceability.
6.4. PURCHASE FOR OWN ACCOUNT.
The Preferred Shares, and the shares of Common Stock to be issued upon
conversion of the Preferred Shares, are being or will be acquired by the
Purchaser for its own account and with no intention of distributing or reselling
such securities or any part thereof in any transaction that would be in
violation of the securities laws of the United States of America,
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or any state, without prejudice, however, to the rights of the Purchaser at all
times to sell or otherwise dispose of all or any part of the Preferred Shares or
the shares of Common Stock issuable upon conversion of the Preferred Shares
under an effective registration statement under the Securities Act, or under an
exemption from such registration available under the Securities Act, and
subject, nevertheless, to the disposition of the Purchaser's property being at
all times within its control. If the Purchaser should in the future decide to
dispose of any of the Preferred Shares or the shares of Common Stock issuable
upon conversion of the Preferred Shares, the Purchaser understands and agrees
that it may do so only in compliance with the Securities Act and applicable
state securities laws, as then in effect. The Purchaser agrees to the
imprinting, so long as required by law, of a legend on certificates representing
all of the Preferred Shares or the shares of Common Stock to be issued upon
conversion of the Preferred Shares to the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT OR SUCH LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN RESTRICTIONS SET FORTH IN THE AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT, DATED AS OF JUNE 22, 1998. A COPY OF SUCH AGREEMENT MAY
BE OBTAINED FROM THE COMPANY UPON REQUEST."
6.5. FINANCIAL CONDITION.
The Purchaser's financial condition is such that it is able to bear the
risk of holding the Preferred Shares for an indefinite period of time and can
bear the loss of its entire investment in the Preferred Shares. The Purchaser
has such knowledge and experience in financial and business matters and in
making high risk investments of this type that it is capable of evaluating the
merits and risks of the purchase of the Preferred Shares.
6.6. RECEIPT OF INFORMATION.
The Purchaser has been furnished access to the business records of the
Company and such additional information and documents as the Purchaser has
requested and has been afforded an opportunity to ask questions of and receive
answers from representatives of the Company concerning the terms and condition
of this Agreement, the purchase of the Preferred Shares, the prospective
operations, market potential, capitalization, financial conditions, and
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prospects of the business to be conducted by the Company, and all other matters
deemed relevant by the Purchaser.
6.7. BROKER'S, FINDER'S OR SIMILAR FEES.
There are no brokerage commissions, finder's fees or similar fees or
commissions payable in connection with the transactions contemplated hereby
based on any agreement, arrangement or understanding with the Purchaser or any
action taken by the Purchaser.
6.8. GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENT.
No approval, consent, compliance, exemption, authorization, or other
action by, or notice to, or filing with, any Governmental Authority or any other
Person in respect of any Requirements of Law, and no lapse of a waiting period
under any Requirements of Law, is necessary or required in connection with the
execution, delivery or performance by the Purchaser (including, without
limitation, the acquisition of the Shares) or enforcement against the Purchaser
of this Agreement or the Transaction Agreements to which it is a party or the
transactions contemplated thereby.
6.9. LITIGATION.
No Actions are pending, or to the best knowledge of the Purchaser,
threatened relating to or affecting the transactions required to be performed by
the Purchaser under the Transaction Agreements.
ARTICLE 7.
COVENANTS OF THE COMPANY WITH RESPECT
TO THE PERIOD FOLLOWING THE CLOSING
Until all Preferred Shares are no longer outstanding due to conversion
or otherwise and until the payment by the Company of all other amounts due to
the Purchaser under the Transaction Agreements or the Certificate, the Company
hereby covenants and agrees with the Purchaser as follows:
7.1. RESERVATION OF SHARES.
The Company shall at all times reserve and keep available out of its
authorized Common Stock, solely for the purpose of issue or delivery upon
conversion of the Preferred Shares and the Additional Preferred Shares (as
defined below) as provided in the Certificate, the maximum number of shares of
Common Stock that may be issuable or deliverable upon such conversion. Such
shares of Common Stock shall, when issued or delivered in accordance with
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the provisions of the Certificate, be duly authorized, validly issued and fully
paid and non-assessable. The Company shall issue such Common Stock in accordance
with the provisions of the Certificate and shall otherwise comply with the terms
thereof.
7.2. INTENTIONALLY OMITTED.
7.3. INTENTIONALLY OMITTED.
7.4. ISSUANCE OF ADDITIONAL PREFERRED SHARES.
The Company may issue (i) up to an additional Six Thousand (6,000)
Preferred Shares to US WEST or its affiliates on terms no more favorable to such
investor than the terms of the Series A Preferred Stock, or to one or more other
investors, which investors may include the Key Employees, on terms no more
favorable to the investors than the terms of the Series A Preferred Stock; (ii)
up to 44,000 shares of Series A Preferred Stock to the Purchasers (defined
below) pursuant to the Amended and Restated Stock Purchase Agreement, dated as
of June 22, 1998, by and among the Company and Blue Chip Capital Fund II Limited
Partnership ("Blue Chip"), Miami Valley Venture Fund L.P. ("Miami Valley"),
Grotech Partners IV L.P. ("Grotech"), Southern Venture Fund SBIC, L.P.
("Massey"), Southern Venture Fund II, L.P. ("Massey II"), Venrock Associates
("Venrock") and Venrock Associates II, L.P. ("Venrock II", Blue Chip, Miami
Valley, Grotech, Massey, Massey II, Venrock and Venrock II are referred to
collectively as the "Purchasers"); and (iii) 1,666.67 shares of Series A
Preferred Stock to Christopher R. McCleary (any or all of the foregoing, the
"Additional Preferred Shares"). In addition to the foregoing, the Additional
Preferred Shares shall have the rights, preferences and privileges as the Board
of Directors shall determine. The Purchaser by consummating the purchase of the
Preferred Shares, thereby grants its consent, as a holder of Series A Preferred
Stock and pursuant to paragraph 5(b)(12) of the Certificate of Designation, to
the above-described issuance of the Additional Preferred Shares.
ARTICLE 8.
INDEMNIFICATION
8.1. INDEMNIFICATION.
(a) In addition to all other sums due hereunder or provided for
in this Agreement, the Company (the "Selling Indemnifying Party") shall defend,
indemnify and hold harmless the Purchaser and its Affiliates and their
respective officers, directors, agents, employees, subsidiaries, partners and
assigns (each a "Purchasing Indemnified Party") to the fullest extent permitted
by law from and against any and all losses, costs, claims, damages, expenses
(including reasonable fees, disbursements and other charges of counsel, as
limited by Section 8.2 below) and other liabilities (collectively,
"Liabilities") incurred or suffered by any Purchasing Indemnified Party
resulting from or arising out of (i) any breach by any Selling Indemnifying
Party of any representation or warranty, covenant or agreement of the Selling
Indemnifying Party in this Agreement; provided, however, that no Selling
Indemnifying Party
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shall be liable under this Section 8.1 to any Purchasing Indemnified Party to
the extent that it is finally judicially determined that such Liabilities
resulted primarily from the material breach by such Purchasing Indemnified Party
of any representation, warranty, covenant or other agreement of such Purchasing
Indemnified Party contained in this Agreement or (ii) any material liability of
the Company on the Closing Date not disclosed in this Agreement.
(b) In addition to all other sums due hereunder or provided for
in this Agreement, the Purchaser (the "Purchasing Indemnifying Party"),
severally and not jointly, shall defend, indemnify and hold harmless the Company
and its Affiliates and its officers, directors, agents, employees, subsidiaries,
partners and assigns (each a "Selling Indemnified Party") to the fullest extent
permitted by law from and against any and all Liabilities incurred or suffered
by such Selling Indemnified Parties resulting from or arising out of any breach
of any representation, warranty, covenant or agreement of any Purchasing
Indemnifying Party in this Agreement; provided, however, that the Purchasing
Indemnifying Party shall not be labile under this Section 8.1 to a Selling
Indemnified Party to the extent that it is finally judicially determined that
such Liabilities resulted primarily from the material breach by such Selling
Indemnified Party of any representation, warranty, covenant or other agreement
of such Selling Indemnified Party contained in this Agreement.
(c) If and to the extent that any indemnification provided for in
this Agreement is unenforceable for any reason, the Indemnifying Parties (as
defined below) obligated to indemnify any Indemnified Party (as defined below)
shall make the maximum contribution to the payment and satisfaction of such
indemnified liability which shall be permissible under applicable laws. In
connection with the obligation of the Indemnifying Parties to indemnify for
expenses as set forth herein, the Indemnifying Parties further agree, upon
presentation of appropriate invoices containing reasonable detail, to reimburse
each Indemnified Party for all such expenses (including reasonable fees,
disbursements and other charges of counsel, as limited by Section 8.2 below) as
they are incurred by such Indemnified Party.
8.2. NOTIFICATION.
If any action or proceeding (including any governmental investigation
or inquiry) shall be brought or asserted against any party entitled to
indemnification pursuant to this Section 8 (an "Indemnified Party") in respect
of which indemnity may be sought from any party required to indemnify such
Indemnified Party (an "Indemnifying Party"), such Indemnified Party shall
promptly notify the Indemnifying Party in writing, and such Indemnifying Party
shall assume the defense thereof, including the employment of counsel selected
by such Indemnifying Party and reasonably satisfactory to such Indemnified Party
and the payment of all expenses; PROVIDED, HOWEVER, that any failure to so
notify such Indemnifying Party shall not impair obligations hereunder except and
only to the extent that such failure results in actual prejudice to such
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Indemnifying Party. Such Indemnified Party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall be the expense of such
Indemnified Party unless (a) such Indemnifying Party agreed to pay such fees and
expenses or (b) such Indemnifying Party shall have failed to assume the defense
of such action or proceeding or has failed to employ counsel reasonably
satisfactory to such Indemnified Party in any such action or proceeding or (c)
the named parties to any such action or proceeding (including any impleaded
parties) include both such Indemnified Party and such Indemnifying Party, and
such Indemnified Party shall have been advised by counsel that there may be one
or more legal defenses available to such Indemnified Party which are different
from or additional to those available to such Indemnifying Party (in which case,
such Indemnifying Party shall employ separate counsel at the expense of such
Indemnifying Party, it being understood, however, that such Indemnifying Party
shall not, in connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys at any
time for such Indemnified Party and any other Indemnified Parties). No
Indemnifying Party shall be liable for any settlement of any such action or
proceeding effected without its written consent (which shall not be withheld
unreasonably), but if settled with its written consent, or if there be a final
judgment for the plaintiff in any such action or proceeding, such Indemnifying
Party agrees to indemnify and hold harmless such Indemnified Party from and
against any Liabilities by reason of such settlement or judgment. No
Indemnifying Party shall agree to any settlement of any third party claim
without the consent of the Indemnified Party, which shall not be withheld if
such settlement provides only for the payment of money to be paid by the
Indemnifying Party.
ARTICLE 9.
MISCELLANEOUS
9.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All of the representations and warranties made herein shall survive the
Closing.
9.2. NOTICES.
All notices, demands and other communications provided for or permitted
hereunder shall be made in writing and shall be by registered or certified
first-class mail, return receipt requested, courier service or personal delivery
or via facsimile:
(a) if to the Purchaser:
USi Partners, Ltd.
c/o The Crisler Company
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441 Vine Street
Suite 3900
Cincinnati, Ohio 45202
Attn: R. Dean Meiszer
(b) if to the Company:
USinternetworking, Inc.
175 Admiral Cochrane Drive
Suite 400
Annapolis, Maryland 21401
Attention: Christopher R. McCleary
with a copy to:
Latham & Watkins
1001 Pennsylvania Avenue, N.W.
Suite 1300
Washington, D.C. 20004-2505
Attention: James F. Rogers, Esq.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; if delivered by
facsimile, upon confirmation of such transmission; and five business days after
being deposited in the mail, postage prepaid, if mailed.
9.3. SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding upon the
successors and permitted assigns of the parties hereto. This Agreement may be
assigned by the Purchaser to any permitted transferee of all or part of the
Preferred Shares or the Common Stock issued upon conversion thereof. The Company
may not assign any of its rights under this Agreement without the written
consent of the Purchaser. Except as provided in this Section 9.3, no Person
other than the parties hereto and their successors and permitted assigns is
intended to be a beneficiary of any of the Transaction Agreements.
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9.4. AMENDMENT AND WAIVER.
(a) No failure or delay on the part of the Company or the
Purchaser in exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
Company or the Purchaser at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this Agreement, any waiver of any provision of this Agreement, and
any consent to any departure by any party from the terms of any provision of
this Agreement, shall be effective (i) only if it is made or given in writing
and signed by the Company (if applicable) and the Purchaser, and (ii) only in
the specific instance and for the specific purpose for which made or given.
Except where notice is specifically required by this Agreement, no notice to or
demand on any party in any case shall entitle any party hereto to any other or
further notice or demand in similar or other circumstances.
9.5. COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by the
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
9.6. HEADINGS.
The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.
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9.7. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Maryland, without regard to the principles of conflicts
of law of such state.
9.8. JURISDICTION.
Each party to this Agreement hereby irrevocably agrees that any legal
action or proceeding arising out of or relating to this Agreement or any
agreements or transactions contemplated hereby may be brought in the courts of
the State of Maryland or of the United States of America for the District of
Maryland and hereby expressly submits to the personal jurisdiction and venue of
such courts for the purposes thereof and expressly waives any claim of improper
venue and any claim that such courts are an inconvenient forum. Each party
hereby irrevocably consents to the service of process of any of the
aforementioned courts in any such suit, action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to the address
set forth in Section 9.2, such service to become effective 10 days after such
mailing.
9.9. SEVERABILITY.
If any one or more of the provisions contained herein, or the
application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
9.10. RULES OF CONSTRUCTION.
Unless the context otherwise requires, "or" is not exclusive, and
references to sections or subsections refer to sections or subsections of this
Agreement.
9.11. ENTIRE AGREEMENT.
This Agreement, together with the exhibits and schedules hereto and the
other Transaction Agreements, is intended by the parties as a final expression
of their agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein or
therein. This Agreement, together with the exhibits hereto, and the other
Transaction Agreements supersede all prior agreements and understandings between
the parties with respect to such subject matter.
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<PAGE>
9.12. PUBLICITY.
Except as may be required by applicable law, none of the parties hereto
shall issue a publicity release or announcement or otherwise make any public
disclosure concerning this Agreement or the transactions contemplated hereby,
without prior approval by the other parties hereto, provided that the Purchaser
may nonetheless communicate with its partners concerning such transactions and
investment in the Company and may publish a "tombstone" in the customary form
with respect to its investment. If any announcement is required by law to be
made by any party hereto, prior to making such announcement such party will
deliver a draft of such announcement to the other parties and shall give the
other parties an opportunity to comment thereon.
9.13. FURTHER ASSURANCES.
Each of the parties shall execute such documents and perform such
further acts (including, without limitation, obtaining any consents, exemptions,
authorizations, or other actions by, or giving any notices to, or making any
filings with, any Governmental Authority or any other Person) as may be
reasonably required or desirable to carry out or to perform the provisions of
this Agreement.
9.14. WAIVER OF JURY TRIAL.
EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS SECTION.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized as
of the date first above written.
USINTERNETWORKING, INC.
By:/s/Christopher R. McCleary
-------------------------------
Name: Christopher R. McCleary
-----------------------------
Title: Cheif Executive Officer
----------------------------
USI PARTNERS, LTD.
By: /s/R. Dean Meiszer
-------------------------------
Name: R. Dean Meiszer
-----------------------------
Title: President
----------------------------
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Exhibit 10.8
EXECUTION COPY
-----------------------------------------
-----------------------------------------
STOCK PURCHASE AGREEMENT
dated as of
August 28, 1998
by and among
USINTERNETWORKING, INC.,
IIT Holding, Inc.,
Luis Sebastian Alegrett,
Michael Mai,
Carlos E. Bravo,
and
Vicente Perez de Tudela
-----------------------------------------
-----------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I. DEFINITIONS...................................................................................1
1.1. Defined Terms........................................................................1
1.2. Certain Usage........................................................................9
ARTICLE II. PURCHASE AND SALE OF SHARES...................................................................9
2.1. Purchase and Sale of Shares..........................................................9
2.2. Total Consideration and Terms.......................................................10
2.3. Contingent Payments.................................................................11
2.4. Post-Closing Adjustment.............................................................12
2.5. Noncompete..........................................................................13
2.6. Bonus Payments......................................................................13
ARTICLE III. CLOSING......................................................................................14
3.1. Closing.............................................................................14
3.2. Sellers' Closing Deliveries.........................................................14
3.3. Purchaser's Closing Deliveries......................................................14
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND SELLERS..........................................................................14
4.1. Organization........................................................................15
4.2. Subsidiaries........................................................................15
4.3. Capitalization......................................................................16
4.4. Authorization.......................................................................16
4.5. No Conflict or Violation............................................................17
4.6. Financial Statements................................................................17
4.7. Books and Records...................................................................17
4.8. Projections.........................................................................18
4.9. Undisclosed Liabilities.............................................................18
4.10. Absence of Certain Changes or Events................................................18
4.11. Contracts; No Defaults..............................................................19
4.12. Government Contracts; Backlog.......................................................21
4.13. Tangible Assets.....................................................................22
4.14. Intellectual Property...............................................................23
4.15. Real Property.......................................................................25
4.16. Litigation and Proceedings..........................................................26
4.17. Employee Benefit Plans..............................................................27
4.18. Labor Relations.....................................................................29
4.19. Legal Compliance....................................................................30
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4.20. Environmental Protection............................................................30
4.21. Taxes...............................................................................31
4.22. Governmental Authorities: Consents.................................................33
4.23. Licenses, Permits and Authorizations................................................33
4.24. Insurance...........................................................................34
4.25. Brokers'Fees........................................................................34
4.26. No Other Agreements to Sell the Shares..............................................34
4.27. Transactions with Certain Persons...................................................34
4.28. Customers, Distributors and Suppliers...............................................35
4.29. Banking Relationships...............................................................36
4.30. Accounts Receivable.................................................................36
4.31. Inventory...........................................................................36
4.32. Year 2000...........................................................................36
4.33. Investment..........................................................................37
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASER..................................................37
5.1. Organization of Purchaser...........................................................37
5.2. Authorization.......................................................................37
5.3. No Conflict or Violation............................................................38
5.4. Governmental Authorities; Consents..................................................38
5.5. Brokers'Fees........................................................................38
5.6. Warrant Shares......................................................................38
5.7. Capitalization......................................................................39
5.8. Financial Statements................................................................39
5.9. Purchaser Disclosure Material.......................................................39
ARTICLE VI. COVENANTS OF SELLERS AND THE COMPANY.........................................................39
6.1. Conduct of Business.................................................................39
6.2. HSR Act.............................................................................41
6.3. No Solicitations....................................................................41
6.4. Notice to Purchaser.................................................................42
6.5. Consents............................................................................42
6.6. Inspections.........................................................................42
6.7. Employee Benefit Plans..............................................................42
ARTICLE VII. COVENANTS OF PURCHASER.......................................................................43
7.1. Consents............................................................................43
7.2. Notice to Purchaser.................................................................43
ARTICLE VIII. COVENANTS OF SELLERS, THE COMPANY AND
PURCHASER....................................................................................43
8.1. Confidentiality.....................................................................43
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<PAGE>
8.2. Nonsolicitation of Employees........................................................44
8.3. Cooperation and Records Retention...................................................44
ARTICLE IX. CONDITIONS TO OBLIGATIONS....................................................................44
9.1. Conditions to Obligations of Purchaser, Sellers and the Company.....................44
9.2. Conditions to Obligations of Purchaser..............................................45
9.3. Conditions to the Obligations of Sellers and the Company............................46
ARTICLE X. TERMINATION..................................................................................47
10.1. Termination.........................................................................47
10.2. Effect of Termination...............................................................48
10.3. Risk of Loss........................................................................48
ARTICLE XI. DEFAULT AND REMEDIES.........................................................................48
11.1. Breach and Opportunity to Cure......................................................48
11.2. Sellers'Remedies....................................................................49
11.3. Purchaser's Remedies................................................................49
11.4. Return of Deposit...................................................................49
11.5. Escrow Deposit......................................................................49
ARTICLE XII. POST CLOSING OBLIGATIONS; SURVIVAL OF REPRESENTATION.........................................50
12.1. Indemnification.....................................................................50
12.1.1. Purchaser's Right to Indemnification....................................50
12.1.2. Seller's Right to Indemnification...........................................50
12.1.3. Conduct of Proceedings......................................................51
12.1.4. Limitations on Indemnification..............................................51
12.1.5. Indemnification Sole Remedy.................................................52
12.2. Right of Offset.....................................................................52
12.3. Survival of Representations.........................................................52
12.4. Rights of Set-Off...................................................................52
ARTICLE XIII. TAX MATTERS..................................................................................53
13.1. Allocation of Responsibility........................................................53
13.2. Payment of Taxes....................................................................53
13.3. Tax Returns.........................................................................53
13.4. Refunds.............................................................................53
13.5. Contests............................................................................54
13.6. Allocation of Taxes.................................................................54
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13.7. Treatment of Indemnity Payments.....................................................55
13.8. Indemnification.....................................................................55
13.9. Successors..........................................................................55
ARTICLE XIV. SELLER REPRESENTATIVE........................................................................55
14.1. Designation of Seller Representative................................................55
14.2. Authority and Rights of Seller Representative;
Limitations on Liability............................................................56
ARTICLE XV. MISCELLANEOUS................................................................................56
15.1. Waiver..............................................................................56
15.2. Notices.............................................................................56
15.3. Assignment..........................................................................58
15.4. Rights of Third Parties.............................................................58
15.5. Reliance............................................................................58
15.6. Transfer Taxes; Title Costs; Expenses...............................................58
15.7. Construction........................................................................58
15.8. Arbitration.........................................................................59
15.9. Attorney's Fees.....................................................................60
15.10. Captions; Counterparts..............................................................60
15.11. Entire Agreement....................................................................60
15.12. Amendments..........................................................................60
15.13. Severability........................................................................60
15.14. Publicity...........................................................................60
15.15. Further Assurances..................................................................61
</TABLE>
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<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
Exhibit A-1 Employees
Exhibit A-2 Independent Contractors
Exhibit B Pro Rata Share
Exhibit C Form of Warrant Agreement
Exhibit D Allocation of Cash Consideration
Exhibit E Form of Noncompetition Agreement
Exhibit F Form of Employment Agreement
Exhibit G Warrantholder's Agreement
</TABLE>
v
<PAGE>
SCHEDULES
<TABLE>
<CAPTION>
<S> <C>
Schedule 4.1 Foreign Qualifications
Schedule 4.2 Subsidiaries
Schedule 4.3 Capitalization
Schedule 4.6 Financial Statements
Schedule 4.8 Projections
Schedule 4.9 Undisclosed Liabilities
Schedule 4.10 Absence of Certain Changes
Schedule 4.11 Contracts
Schedule 4.12 Government Contracts
Schedule 4.14(c) Company Intellectual Property
Schedule 4.14(d) Third Party Intellectual Property
Schedule 4.15 Real Property
Schedule 4.17 Employee Benefit Plans
Schedule 4.20 Environmental Compliance
Schedule 4.20(f) Environmental Reports
Schedule 4.21 Taxes
Schedule 4.23 Licenses, Permits and Authorizations
Schedule 4.24 Insurance
Schedule 4.27 Transactions with Certain Persons
Schedule 4.28 Customers, Distributors & Suppliers
Schedule 4.29 Banking Relationships
Schedule 5.9 Purchaser Disclosure Material
</TABLE>
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<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "AGREEMENT" or "PURCHASE
AGREEMENT") is entered into by and among Luis Sebastian Alegrett, Michael Mai,
Carlos E. Bravo, and Vicente Perez de Tudela, (the "SELLERS" and each a
"SELLER"), IIT Holding, Inc., a Florida corporation (the "COMPANY") and
USinternetworking, Inc., a Delaware corporation (the "PURCHASER"), as of this
28th day of August, 1998.
RECITALS:
A. Sellers own of record and beneficially all of the issued
and outstanding shares of common stock, par value $5.00 per share (the "COMPANY
COMMON STOCK"), of the Company (the "SHARES").
B. Upon the terms and subject to the conditions set forth
herein, Sellers desire to sell to Purchaser, and Purchaser desires to purchase
from Sellers, the Shares, free and clear of any and all Encumbrances.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein, the parties hereto agree as
follows:
ARTICLE I.
DEFINITIONS
1.1 DEFINED TERMS. As used herein, the following terms shall have
the following meanings:
"ACQUIRED COMPANIES" shall mean the Company and its
Subsidiaries.
"AFFILIATE" shall mean with respect to any specified Person,
any other Person that, directly or indirectly, controls, is controlled by, or is
under common control with, such Person, through one or more intermediaries or
otherwise.
"AGREEMENT" shall have the meaning set forth in the Preamble.
"ANCILLARY AGREEMENTS" shall mean all exhibits and schedules
to the Agreement.
"ANTITRUST AUTHORITY" shall mean the Antitrust Division of the
United States Department of Justice or the United States Federal Trade
Commission.
"BALANCE SHEET" shall mean the balance sheets of each of the
Subsidiaries of the Company except IIT Technology Solutions, Inc. as of the date
indicated thereon, together with the notes thereto.
"BENEFIT ARRANGEMENT" shall have the meaning set forth in
SECTION 4.17.
<PAGE>
"BOOKS AND RECORDS" shall mean all of the following as made
and kept by the Acquired Companies (a) all records and lists pertaining to
customers, suppliers or personnel of the Acquired Companies, (b) all product,
business and marketing plans of the Acquired Companies and (c) all books,
ledgers, files, reports, plans, drawings and operating records of every kind
maintained by the Acquired Companies including, without limitation, all stock
books, stock ledgers and corporate minutes and Real Estate Records of the
Acquired Companies.
"BUSINESS" shall mean the Acquired Companies' business of
providing consulting and implementation services to users of People Soft
software.
"BUSINESS DAY" shall mean any day that is not a Saturday,
Sunday or any other day on which banks are required or authorized by law to be
closed in New York, New York.
"CASH CONSIDERATION" shall have the meaning specified in
SECTION 2.2.
"CHANGE OF CONTROL" shall mean with respect to any Person the
consummation of the first to occur of (i) the sale, lease or other transfer of
all or substantially all of the assets of such Person to any person or group (as
such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended); (ii) the consummation of a plan relating to the liquidation or
dissolution of such Person; (iii) the merger or consolidation of such Person
with or into another entity or the merger of another entity into such Person or
any subsidiary thereof with the effect that immediately after such transaction
the stockholders of such Person immediately prior to such transaction (or their
Affiliates) hold less than 50% of the total voting power of all securities
generally entitled to vote in the election of directors, managers or trustees of
the entity surviving such merger or consolidation; or (iv) the acquisition
(other than pursuant to purchase of the Shares hereunder) by any person or group
other than a stockholder (or its Affiliates) of such Person on the date hereof
of more than 50% of the voting power of all securities of such Person generally
entitled to vote in the election of directors of such Person.
"CLAIMS" shall have the meaning set forth in SECTION 12.1.1.
"CLOSING" shall have the meaning set forth in SECTION 3.1.
"CLOSING DATE" shall have the meaning set forth in
SECTION 3.1.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder.
"COMPANY" shall have the meaning set forth in the Preamble.
"COMPANY COMMON STOCK" shall have the meaning set forth in the
Recitals.
"CONTINGENT PAYMENTS" shall have the meaning set forth in
SECTION 2.3.
"CONTRACTS" shall mean, collectively, all agreements,
contracts, leases, purchase orders, memoranda of understanding and other binding
contractual commitments to which the Company is a party, including those
contracts listed on SCHEDULE 4.11.
2
<PAGE>
"DEPOSIT" shall have the meaning set forth in SECTION 2.2.
"DISCLOSURE SCHEDULE" shall mean the schedules attached
hereto.
"EBITDA" shall mean, with respect to any Person for any
period, the Net Income of such Person for such period plus (i) an amount equal
to any extraordinary loss plus any net loss realized in connection with the sale
or disposition of any asset, to the extent such losses were deducted in
computing such Net Income, plus (ii) the amounts paid during such period
pursuant to SECTION 2.6, plus (iii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent that
such provision for taxes was deducted in computing such Net Income, plus (iv)
interest expense of such Person and its Subsidiaries for such period, whether
paid or accrued and whether or not capitalized (including, without limitation,
amortization of debt issuance costs and original issue discount, non-cash
interest payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with capital lease
obligations, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to hedging obligations), to the extent that any such expense
was deducted in computing such Net Income, plus (v) depreciation, amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) and
other non-cash expenses (excluding any such non-cash expense to the extent that
it represents an accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Net Income, minus (vi) non-cash items increasing such Net Income
for such period (other than items that were accrued in the ordinary course of
business), in each case, on a consolidated basis and determined in accordance
with GAAP. Neither the payment to the Company of any portion of the Deposit nor
the use of such funds by the Company shall be considered for purposes of the
calculation of EBITDA.
"EMPLOYEE LAWS" shall have the meaning set forth in SECTION
4.18.
"EMPLOYEE PLANS" shall have the meaning set forth in SECTION
4.17(a).
"EMPLOYEE RETENTION PERCENTAGE" shall mean, the percentage
obtained by dividing (i) the aggregate number of the employees and independent
contractors of the Acquired Companies listed on EXHIBIT A-1 who are employed by
the Acquired Companies as of December 31, 1998 (plus (A) any employees of the
Acquired Companies listed on EXHIBIT A-1 who are employees of the Purchaser or
any Affiliate of the Purchaser other than the Acquired Companies as of December
31, 1998, and (B) any employees listed on EXHIBIT A-1 who are not employed by
the Acquired Companies as of December 31, 1998 because of such person's death or
disability or termination by the Acquired Companies for cause) by (ii) 53.
"ENCUMBRANCE" shall mean any mortgage, claim, charge, lien,
easement, right-of-way, covenant, condition, option, pledge, call, commitment,
security interest, conditional sales agreement, title retention agreement,
lease, and any other imperfection of title or restriction of any kind and
nature, choate or inchoate.
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"ENVIRONMENTAL CLAIMS" shall mean all accusations,
allegations, notice of violations, liens, claims, demands, suits, or causes of
action for any damage, including without limitation, personal injury, property
damage (including any depreciation of property values), lost use of property, or
consequential damages, arising directly or indirectly out of Environmental
Conditions or Environmental Laws.
"ENVIRONMENTAL CONDITIONS" shall mean the state of the
environment, including natural resources (e.g., flora and fauna), soil, surface
water, wet lands, ground water, any present or potential drinking water supply,
subsurface strata, or ambient air, regulated under Environmental Laws relating
to or arising out of the use, handling, storage, treatment, recycling,
generation, transportation, release, spilling, leaking, pumping, pouring,
emptying, discharging, injecting, escaping, leaching, disposal, dumping, or
threatened release of Hazardous Materials by the Acquired Companies or their
predecessors or successors in interest, or by their agents, representatives,
employees, or independent contractors when acting in such capacity on behalf of
the Acquired Companies. With respect to Environmental Claims by third parties,
Environmental Conditions also include the exposure of persons to Hazardous
Materials at the work place or the exposure of persons or property to Hazardous
Materials migrating from or otherwise emanating from or located on property
owned or occupied by the Acquired Companies.
"ENVIRONMENTAL EXPENSES" shall mean any liability, loss, cost,
or expense related to an Environmental Claim, incurred in compliance with any
Environmental Laws, or incurred in response to Environmental Conditions,
including without limitation the costs of any investigation, remedial or
response actions, the costs associated with posting financial assurances for the
completion of any such actions, the preparation of any closure or other plans or
analyses, the costs of health assessments or other medical studies, the costs of
retention of expert consultants or legal counsel, capital improvements,
operation and maintenance costs, testing and monitoring costs, power and utility
costs and administrative costs incurred by governmental agencies.
"ENVIRONMENTAL LAWS" shall mean any and all foreign, Federal,
state, local or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, legally binding decrees or other requirement of any
Governmental Authority (including, without limitation, common law) regulating,
relating to or imposing liability or standards of conduct concerning protection
of the environment or of human health relating to exposure of any kind of
Hazardous Materials, as has been, is now, or may at any time hereafter be, in
effect.
"ENVIRONMENTAL NONCOMPLIANCE" shall mean: (i) the release of
any Hazardous Materials into the environment, any storm drain, sewer, septic
system or publicly owned treatment works, in violation of any effluent or
emission limitations, standards or other criteria or guidelines established by
any federal, state or local law, regulation, rule, ordinance, plan or order;
(ii) any noncompliance with Environmental Laws including the failure to have
obtained permits, variances or other authorizations required under Environmental
Laws; (iii) any facility operations, procedures and/or designs which do not
conform to the statutory or regulatory requirements of Environmental Laws; and
(iv) the operation of any facility or equipment in
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violation of any permit condition, schedule of compliance, administrative or
court order and the like.
"ERISA" shall have the meaning set forth in SECTION 4.17(a).
"ERISA AFFILIATE" shall have the meaning set forth in SECTION
4.17(a).
"FINAL BALANCE SHEET" shall mean a consolidated balance sheet
of the Company and its Subsidiaries as of the Closing Date which shall be
prepared in accordance with GAAP and shall be audited by an independent
accounting firm of recognized national standing.
"FINAL NET CURRENT ASSETS" shall have the meaning set forth in
SECTION 2.4(a).
"FINANCIAL STATEMENTS" shall have the meaning set forth in
SECTION 4.6.
"FIXTURES" shall mean any fixtures, machinery, installations
and building equipment located at or on any Real Property.
"GAAP" shall mean United States generally accepted accounting
principles consistently applied.
"GOLDEN PARACHUTE PAYMENT" shall have the meaning set forth in
SECTION 4.17(c).
"GOVERNMENTAL AUTHORITY" shall mean any federal, state,
municipal or local government, governmental authority, regulatory or
administrative agency, governmental commission, department, board, bureau,
court, tribunal, arbitrator or arbitral body.
"GOVERNMENT CONTRACT" shall have the meaning set forth in
SECTION 4.12.
"GOVERNMENT ORDER" shall mean any order, writ, rule, judgment,
injunction, decree, stipulation, determination or award entered by or with any
Governmental Authority.
"HAZARDOUS MATERIALS" shall mean any hazardous substance,
gasoline or petroleum (including crude oil or any fraction thereof) or petroleum
products, polychlorinated biphenyls, ureaformaldehyde insulation, asbestos or
asbestos-containing materials, pollutants, contaminants, radioactivity, and any
other materials or substances of any kind, whether solid, liquid or gas, and
whether or not any such substance is defined as hazardous under any
Environmental Law, that is regulated pursuant to any Environmental Law or that
could give rise to liability under any Environmental law.
"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust
Improvement Act of 1976, as amended.
"IMPROVEMENTS" shall mean any right, title or interest in any
buildings, facilities, other structures and improvements, building systems and
fixtures.
"INDEMNIFIED PARTY" shall have the meaning set forth in
SECTION 12.1.3.
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"INDEMNITOR" shall have the meaning set forth in
SECTION 12.1.3.
"INDEPENDENT ACCOUNTING FIRM" shall have the meaning set forth
in SECTION 2.3(e).
"INSURANCE POLICY" shall have the meaning set forth in SECTION
4.24.
"INTELLECTUAL PROPERTY" shall mean (a) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (b)
all trademarks, service marks, trade dress, logos, trade names, and corporate
names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals), (f) all computer software (including data and related
documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"INTERIM BALANCE SHEET" shall mean the Balance Sheet dated the
Interim Balance Sheet Date.
"INTERIM BALANCE SHEET DATE" shall mean July 31, 1998.
"INTERIM FINANCIAL STATEMENTS" shall mean the Interim Balance
Sheet and the statements of operations, changes in shareholders' equity and cash
flow for the period ended on the Interim Balance Sheet Date.
"INVENTORY" shall mean all of the inventory held by the
Acquired Companies for resale, and all of the Acquired Companies' raw materials,
works in process, finished products, wrapping, supply and packaging items, in
each case wherever the same may be located.
"IRS" means the United States Internal Revenue Service.
"LIABILITIES" shall mean any direct or indirect liability,
indebtedness, obligation, commitment, expense, claim, deficiency, guaranty or
endorsement of or by any person of any type, whether accrued, absolute,
contingent, matured, unmatured or other.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect
on the business, assets, liabilities, condition (financial or otherwise),
results of operations or prospects of the Acquired Companies, taken as a whole.
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"MULTIEMPLOYER PLAN" shall have the meaning set forth in
SECTION 4.17(a).
"NET CURRENT ASSETS" shall have the meaning set forth in
SECTION 2.4(a).
"NET INCOME" shall mean with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP.
"1998 TARGET EBITDA" shall mean $1,819,684.
"1998 TARGET REVENUE" shall mean $5,426,634.
"NONCOMPETITION AGREEMENT" shall have the meaning set forth in
SECTION 2.5.
"PBGC" shall have the meaning specified in SECTION 4.17(a).
"PENSION PLAN" shall have the meaning specified in
SECTION 4.17(a).
"PERMITS" shall mean any licenses, permits, certificates of
occupancy, approvals, authorizations, variances and waivers issued by any
Governmental Authority.
"PERMITTED ENCUMBRANCE" shall mean any (i) mechanics lien,
materialmen's lien and similar Encumbrance with respect to any amounts not yet
due and payable or which are being contested in good faith through appropriate
proceedings and for which adequate reserves are maintained in accordance with
GAAP, (ii) Encumbrance for Taxes not yet due and payable or which are being
contested in good faith through appropriate proceedings, for which adequate
reserves are maintained in accordance with GAAP, and which are disclosed on the
Disclosure Schedule, (iii) routine utility easements or other non-detrimental
agreements of record affecting the Real Property which do not materially
interfere with the use, occupancy or marketability of the Real Property subject
thereto and (iv) other Encumbrances disclosed in the Schedules to this
Agreement.
"PERSON" shall mean any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization, labor union or Governmental Authority.
"PERSONNEL" shall have the meaning set forth in
SECTION 4.10(b).
"PRE-CLOSING ENVIRONMENTAL MATTER" shall mean any
Environmental Claim, Environmental Condition or any noncompliance with any
Environmental Law on the part of the Acquired Companies, their Affiliates or any
of their predecessors in interest occurring or in existence on, or arising from
actions occurring prior to, the Closing Date.
"PRE-CLOSING PARTIAL PERIOD" shall have the meaning set forth
in SECTION 13.1.
"PRIME RATE" shall have the meaning set forth in
SECTION 12.1.1.
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"PRO RATA SHARE" shall mean with respect to each Seller, such
Seller's percentage interest in the equity of the Company as set forth on
EXHIBIT B hereto.
"PROJECTIONS" shall have the meaning set forth in SECTION 4.8.
"PURCHASER" shall have the meaning set forth in the Preamble.
"PURCHASER INDEMNITEES" shall have the meaning set forth in
SECTION 12.1.1.
"REAL ESTATE RECORDS" shall mean, to the extent in the
possession or control of Sellers or the Acquired Companies, the real estate
records, files, books, blueprints, plans (as-built and otherwise), surveys,
specifications, designs, drawings, and other data associated with the Real
Property.
"REAL PROPERTY" shall have the meaning set forth in
SECTION 4.15.
"REAL PROPERTY LEASE" shall have the meaning set forth in
SECTION 4.15.
"RECIPIENTS" shall have the meaning set forth in
SECTION 4.17(c).
"REVENUE" shall mean the consolidated revenue of the Company
determined in accordance with GAAP.
"SELLER REPRESENTATIVE" shall have the meaning set forth in
SECTION 14.1.
"SELLERS" shall have the meaning set forth in the Preamble.
"SELLER INDEMNITEES" shall have the meaning set forth in
SECTION 12.1.2.
"SHARES" shall have the meaning set forth in the Recitals.
"SUBSIDIARY" shall mean any corporation, partnership, limited
liability company, joint venture or other entity in which the Company, directly
or indirectly, holds fifty percent (50%) or more of the voting power of all
equity securities or other ownership interests of such entity, or over which the
Company either directly or indirectly exercises actual control.
"TARGET NET CURRENT ASSETS" shall mean $462,000.
"TAX" or "TAXES" shall mean any federal, state, local or
foreign net or gross income, gross receipts, license, payroll, employment,
excise, severance, stamp, occupation, premium, (including taxes under Code Sec.
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax, governmental fee or like assessment or charge
of any kind whatsoever, including any interest, penalty or additions thereto and
any amount imposed by any governmental authority or arising under any Tax law or
agreement, including, without limitation, any joint venture or partnership
agreement.
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"TAX RETURNS" shall mean all reports, returns, declarations,
claims for refund or statements of any kind or nature relating to Taxes, and any
schedule or attachment thereto and any amendment thereof.
"TOTAL CONSIDERATION" shall have the meaning set forth in
SECTION 2.2(a).
"TRANSACTIONS" shall mean the transactions contemplated by
this Agreement and the Ancillary Agreements.
"WARRANTS" shall mean the warrants entitling the holders
thereof to purchase up to 400,000 shares of common stock of Purchaser at a price
of $2.00 per share, subject to the terms and conditions of the Warrant Agreement
attached hereto as EXHIBIT C.
"WELFARE PLAN" shall have the meaning set forth in
SECTION 4.17(a).
"WHOLESALE PRICE" shall mean with respect to each item of
Inventory, the manufacturer's wholesale list price for such item as of the
applicable date applying the actual volume discount to which the relevant
Acquired Company was entitled in purchasing such item under its value added
reseller agreement or other similar agreement at the time such item was
purchased from the manufacturer.
1.2 CERTAIN USAGE. As used herein the following additional terms
shall have the following meaning:
The term "including" as used herein shall be read to mean
"including, without limitation."
The term "knowledge" as used herein, shall mean with respect
to any person, those facts or circumstances actually known by such person as
well as any facts or circumstances that would be known after due inquiry by a
person holding a comparable office or job or with comparable experience or
responsibilities in a comparable organization. For purposes of this Agreement,
the knowledge of Sebastian Alegrett, Michael Mai, Carlos E. Bravo, and Vicente
Perez de Tudela shall be imputed to the Sellers and the Company, and the
knowledge of Stephen McManus and John Streeten shall be imputed to Purchaser.
ARTICLE II.
PURCHASE AND SALE OF SHARES
2.1 PURCHASE AND SALE OF SHARES. Upon the terms and subject to the
conditions contained herein, on the Closing Date, Sellers shall sell, convey and
transfer to Purchaser, and Purchaser shall purchase and acquire from Sellers,
the Shares, free and clear of all Encumbrances.
2.2 TOTAL CONSIDERATION AND TERMS.
(a) The aggregate consideration for the Shares to be purchased
by Purchaser hereunder and for the Noncompetition Agreement (the "TOTAL
CONSIDERATION")
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shall, subject to adjustment as provided in SECTION 2.2(e) and SECTIONS 2.3, 2.4
and 12.1 hereof, consist of (i) $12,887,000 in cash plus the amounts, if any,
added pursuant to Section 2.2(e) (the "CASH CONSIDERATION"); (ii) $3,800,000 in
the Contingent Payment (as defined below), subject to the rights of set-off as
provided in SECTION 12.4 hereof and subject to satisfaction of the terms and
conditions set forth below in SECTION 2.3; and (iii) the Warrants, which
Warrants the parties agree have a value of $40,000.
(b) Purchaser has previously delivered to the Company,
$225,000 as a deposit towards the Cash Consideration and Purchaser may elect
pursuant to SECTION 2.2(e) to deliver further amounts as a deposit towards the
Cash Consideration (the "DEPOSIT"). At Closing, the amount of the Deposit shall
be applied towards the payment of the Cash Consideration. The amount of the
Deposit shall be forfeited to the Sellers or returned to the Purchaser in
accordance with the provisions of SECTIONS 11.2 and 11.4, in the event that this
Agreement is terminated prior to Closing.
(c) At the Closing, Purchaser will (i) pay to each Seller by
wire transfer of immediately available funds to an account designated in writing
by such Seller an amount equal to such Seller's share as set forth on EXHIBIT D
of the Cash Consideration minus the Deposit, and (ii) deliver the Warrants in
the amounts set forth on EXHIBIT D.
(d) Upon the execution of this Agreement, Purchaser shall
deliver to an escrow account, pursuant to the Escrow Agreement dated the date
hereof, the amount of $400,000 as a deposit towards the Cash Consideration, by
wire transfer of immediately available funds to an account designated in writing
by the Company (the balance of such account, including interest accrued thereon
net of the fees of the Escrow Agent, the "ESCROW DEPOSIT"). At Closing, the
Escrow Deposit shall be applied towards the payment of the Cash Consideration.
In the event that this Agreement is terminated prior to Closing, the Escrow
Deposit shall be delivered to the Seller Representative or Purchaser in
accordance with the provisions of SECTION 11.5.
(e) Purchaser shall have the right to extend the Closing Date
by making the payments set forth below to the Sellers and the Company in equal
shares on the day following the Closing Date (as it may be extended), which
amount shall upon payment be added to the Cash Consideration:
<TABLE>
<CAPTION>
PAYMENT DATE EXTENDED CLOSING DATE AMOUNT
<S> <C> <C>
September 9, 1998 September 15, 1998 $250,000
September 16, 1998 September 22, 1998 $250,000
September 23, 1998 September 29, 1998 $250,000
</TABLE>
2.3 CONTINGENT PAYMENTS.
(a) As further consideration of the agreements set forth
herein and the sale by Sellers of the Shares, if the targets set forth below are
all achieved, Purchaser
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shall pay to each Seller such Seller's Pro Rata Share of the applicable amounts
set forth below: (the "CONTINGENT PAYMENT"):
(i) In the event that the Revenue of the Company
for the twelve months ended December 31, 1998 (the "1998 REVENUE") is greater
than the 1998 Target Revenue, Purchaser shall pay to each Seller such Seller's
Pro Rata Share of $933,333 and will pay to each Seller such Seller's Pro Rata
Share of $0.172 for each dollar by which the 1998 Revenue exceeds the 1998
Target Revenue, which additional amount will in no event exceed $400,000; and
(ii) In the event that the EBITDA of the Company
for the twelve months ended December 31, 1998 (the "1998 EBITDA") is greater
than the 1998 Target EBITDA, Purchaser shall pay to each Seller such Seller's
Pro Rata Share of $933,333 and will pay $0.513 for each dollar by which the 1998
EBITDA exceeds the 1998 Target EBITDA, which additional amount will in no event
exceed $400,000; and
(iii) In the event that the Employee Retention
Percentage as of December 31, 1998 exceeds the percentage as agreed between
Purchaser and Sellers, Purchaser shall pay to each Seller such Seller's Pro Rata
Share of $1,133,333.
(b) Within ten (10) calendar days following the date on which
Purchaser receives the Company's audited financial statements for the twelve
months ended December 31, 1998, Purchaser shall prepare and deliver to the
Seller Representative a calculation of the 1998 Revenue and 1998 EBITDA and the
Employee Retention Percentage as of December 31, 1998.
(c) The Seller Representative may dispute Purchaser's
calculation of the 1998 Revenue and the 1998 EBITDA, but only on the basis that
the amounts reflected in such calculation were not determined in accordance with
GAAP or adjusted in accordance with this Agreement. The Seller Representative
shall notify Purchaser in writing of each disputed item, specifying the amount
of each item in dispute and setting forth, in detail, the basis for each item in
dispute, within thirty (30) calendar days of the Seller Representative's receipt
of Purchaser's calculation of the Revenue. If the Seller Representative has not
notified Purchaser of any such dispute within such thirty (30) day period or has
notified Purchaser that the Sellers accept the calculation, of the 1998 Revenue,
and the 1998 EBITDA, then Purchaser's calculation shall be deemed to be final
and conclusive on the parties hereto, and any amount payable under SECTION
2.3(a) shall be paid by Purchaser by wire transfer within five (5) Business Days
thereafter.
(d) In the event of such a dispute, Purchaser and the Seller
Representative shall negotiate in good faith to reconcile their differences. If
such dispute has not been resolved within twenty (20) Business Days after
Purchaser's receipt of notice of such dispute, the Seller Representative and
Purchaser shall submit the item(s) remaining in dispute to a mutually acceptable
independent "Big Five" accounting firm (the "INDEPENDENT ACCOUNTING FIRM"),
which shall, as promptly as practical but in no event later than thirty (30)
calendar days after such submission, determine and report
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upon such remaining disputed item(s). Such determination and report shall be
final, binding and conclusive on the parties hereto and any amount payable under
SECTION 2.3(c) shall be paid by Purchaser by wire transfer within five (5)
Business Days thereafter. The fees and disbursements of the Independent
Accounting Firm shall be allocated between Purchaser and Sellers in the same
proportion that the aggregate amount of such remaining disputed item(s) so
submitted to the Independent Accounting Firm, which is unsuccessfully disputed
by each such party (as determined by the Independent Accounting Firm), bears to
the total amount of such remaining disputed item(s) so submitted.
(e) In order not to interfere with the ability of the Company
to meet the Revenue and EBITDA targets set forth in SECTION 2.3(a), prior to
January 1, 1999, Purchaser shall not transfer any of the employees, assets, or
customers of the Acquired Companies to Purchaser or any Affiliate of Purchaser
unless Purchaser first makes arrangements for the Acquired Companies to receive
an allocation of Revenue and EBITDA attributable to such employees, assets or
customers for the period prior to January 1, 1999.
(f) Notwithstanding the provisions of SECTION 2.3(a),
Purchaser shall pay to each of the Sellers such Seller's Pro Rata Share of the
full amount of the Contingent Payment in the event that the Company or Purchaser
suffers a Change of Control prior to January 1, 1999.
2.4 POST-CLOSING ADJUSTMENT.
(a) Within ninety (90) calendar days following the Closing
Date, Purchaser shall prepare and deliver to the Seller Representative (i) the
Final Balance Sheet, and (ii) a calculation of the Net Current Assets of the
Company and its Subsidiaries as set forth on the Final Balance Sheet (the "FINAL
NET CURRENT ASSETS"). The Final Balance Sheet shall be prepared in accordance
with GAAP consistent with the preparation of the Interim Financial Statements of
the Company. During the preparation of the Final Balance Sheet by Purchaser and
the period of any dispute provided for in Section 2.4(b), the Seller
Representative shall cooperate fully, and shall cause its accountants to
cooperate fully, with Purchaser and Purchaser's accountants in order to prepare
the Final Balance Sheet and to investigate the basis of any such dispute. "NET
CURRENT ASSETS" as of any date shall mean (i) the current assets of the Company
as of such date, MINUS (ii) the current liabilities of the Company as of such
date, as determined in accordance with GAAP.
(b) The Seller Representative may dispute any amounts
reflected on the Final Balance Sheet but only on the basis that the amounts
reflected on the Final Balance Sheet were not recorded in accordance with GAAP.
The Seller Representative shall notify Purchaser in writing of each disputed
item, specifying the amount of each item in dispute and setting forth, in
detail, the basis for each item in dispute, within thirty (30) calendar days of
the Seller Representative's receipt of the Final Balance Sheet. If
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<PAGE>
the Seller Representative has not notified Purchaser of any such dispute within
such thirty (30) day period, then the Final Balance Sheet shall be deemed to be
final and conclusive on the parties hereto, and any amount payable under SECTION
2.4(d) shall be paid by Purchaser or Sellers, as the case may be in accordance
with SECTION 2.4(d).
(c) In the event of such a dispute, Purchaser and the Seller
Representative shall negotiate in good faith to reconcile their differences. If
such dispute has not been resolved within twenty (20) Business Days after
Purchaser's receipt of notice of such dispute, Purchaser and the Seller
Representative shall submit the item(s) remaining in dispute to the Independent
Accounting Firm, which shall, as promptly as practicable but in no event later
than thirty (30) calendar days after such submission, determine and report upon
such remaining disputed items(s). Such determination and report shall be final,
binding and conclusive on the parties hereto. The fees and disbursements of the
Independent Accounting Firm shall be allocated between Purchaser and Sellers in
the same proportion that the aggregate amount of such remaining disputed
items(s) so submitted to the Independent Accounting Firm, which is
unsuccessfully disputed by each such party (as determined by the Independent
Accounting Firm), bears to the total amount of such remaining disputed items(s)
so submitted.
(d) If the Post-Closing Adjustment (as defined below) is a
negative number, Sellers shall, within three (3) Business Days after the final
determination of the Post-Closing Adjustment, pay to Purchaser an amount equal
to the absolute value of the Post Closing Adjustment. If the Post-Closing
Adjustment is a positive number, Purchaser shall within three (3) Business Days
after the final determination of the Post Closing Adjustment, pay to each of the
Sellers, in equal shares, in immediately available funds an amount equal to the
Post Closing Adjustment. The "POST-CLOSING ADJUSTMENT" shall be computed by
subtracting the Target Net Current Assets from the Final Net Current Assets.
2.5 NONCOMPETE. As further consideration of the agreements set
forth herein and sale by Sellers of the Shares, at the Closing, each Seller
shall enter into a noncompetition agreement with Purchaser in the form of
EXHIBIT E hereto (collectively, the "NONCOMPETITION AGREEMENTS"). The
Noncompetition Agreements shall become effective as of the Closing Date and
shall continue in effect for a period of two years after the Closing Date.
Purchaser and Sellers agree that the amount of the consideration allocable to
the Noncompetition Agreements shall be $100,000.
2.6 BONUS PAYMENTS. Purchaser shall cause to be paid a total of
up to $800,000 as follows:
(a) From time to time after Closing, Purchaser shall cause to
be paid up to $600,000 to those employees and independent contractors of the
Acquired Companies set forth on EXHIBIT A-1 who are employed by the Acquired
Companies on the Closing Date, in such amounts and to the persons as specified
in writing by the Seller Representative, in each case net of any amounts
required to be withheld by law.
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<PAGE>
(b) In the event that Sellers become entitled to the
Contingent Payment pursuant to SECTION 2.3(a)(iii), Purchaser shall cause to be
paid $200,000 to those employees and independent contractors of the Acquired
Companies set forth on EXHIBIT A-1 who are employed by the Acquired Companies on
the date Sellers become entitled to such Contingent Payment, in such amounts and
to the persons as specified in writing by the Seller Representative, in each
case net of any amounts required to be withheld by law.
ARTICLE III.
CLOSING
3.1 CLOSING. The consummation of the purchase and sale of the
Shares (the "CLOSING") shall take place at 10:00 a.m., local time, on September
8, 1998 at the offices of Latham & Watkins, 1001 Pennsylvania Avenue, N.W.,
Suite 1300, Washington, D.C., or at such other time or place as the Seller
Representative and Purchaser may agree in writing, provided, however, that
Purchaser shall have the right to extend the Closing Date to a date not later
than September 29, 1998 by payment of the amounts set forth in Section 2.2(e)
(the day on which the Closing takes place being referred to herein as the
"CLOSING DATE").
3.2 SELLERS' CLOSING DELIVERIES. At the Closing, Sellers shall
deliver to Purchaser (i) stock certificates evidencing the Shares, duly endorsed
in blank or accompanied by a stock power duly executed in blank, and (ii) the
other documents required to be delivered by Sellers pursuant to Article IX
hereof.
3.3 PURCHASER'S CLOSING DELIVERIES. At the Closing, (i) Purchaser
shall pay to each Seller such Seller's share of the Cash Consideration minus the
Deposit, as set forth on EXHIBIT D (as provided in SECTION 2.2 hereof) and (ii)
Purchaser shall deliver to Sellers the other documents required to be delivered
by Purchaser pursuant to Article IX hereof.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND SELLERS
The Company and Sellers, severally but not jointly, represent
and warrant to Purchaser as follows, which representations and warranties are,
as of the date hereof, and will be, as of the Closing Date, true and correct:
4.1 ORGANIZATION. Each of the Acquired Companies is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation with full corporate power and authority to conduct
the Business as it is presently being conducted and to own and lease its
properties and assets. Each of the Acquired Companies is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
where the character of its properties owned or leased or the nature of its
activities make such qualification necessary, except where the failure to be so
qualified or in good standing would not have a Material Adverse Effect. Copies
of the articles of incorporation and bylaws of each of the Acquired Companies,
and all amendments thereto, heretofore delivered to Purchaser are accurate and
complete as of the date hereof. SCHEDULE 4.1 contains a true, correct and
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complete list of all jurisdictions in which each of the Acquired Companies is
qualified to do business as a foreign corporation.
4.2 SUBSIDIARIES. Except as set forth on SCHEDULE 4.2, the Company
has no direct or indirect stock or other equity or ownership interest (whether
controlling or not) in any corporation, association, partnership, limited
liability company, joint venture or other entity. SCHEDULE 4.2 sets forth for
each Subsidiary of the Company (i) its name and jurisdiction of incorporation,
(ii) the number of shares of authorized capital stock of each class of its
capital stock, (iii) the number of issued and outstanding shares of each class
of its capital stock, the names of the holders thereof, and the number of shares
held by each such holder, and (iv) the number of shares of its capital stock
held in treasury. All of the issued and outstanding shares of capital stock of
each Subsidiary of the Company have been duly authorized and are validly issued,
fully paid, and nonassessable. The Company holds of record and owns beneficially
all of the outstanding shares of each Subsidiary of the Company, free and clear
of any restrictions on transfer (other than restrictions under the Securities
Act and state securities laws), Taxes, Encumbrances, options, warrants, purchase
rights, contracts, commitments, equities, claims, and demands. There are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require the Company to sell, transfer, or otherwise dispose of any
capital stock of any of its Subsidiaries or that could require any Subsidiary of
the Company to issue, sell, or otherwise cause to become outstanding any of its
own capital stock. There are no outstanding stock appreciation, phantom stock,
profit participation, or similar rights with respect to any Subsidiary of the
Company. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of any capital stock of any Subsidiary
of the Company. None of the Company and its Subsidiaries controls directly or
indirectly or has any direct or indirect equity participation in any
corporation, partnership, trust, or other business association which is not a
Subsidiary of the Company. IIT Technology Solutions, Inc. has no assets or
liabilities and has not conducted any business since its inception.
4.3 CAPITALIZATION.
(a) The authorized capital stock of the Company consists
solely of 100 shares of Company Common Stock, of which 95 shares are issued and
outstanding. All of the issued and outstanding shares of the Company Common
Stock have been duly authorized and validly issued and are fully paid and
nonassessable and are not subject to any preemptive rights. Each of the Sellers
owns of record and beneficially the number of shares of Company Common Stock as
are set forth on SCHEDULE 4.3, free and clear of all Encumbrances and such
shares of Company Common Stock constitute all of the issued and outstanding
shares of capital stock of the Company.
(b) The Company has not issued or granted any outstanding
options, warrants, rights or other securities convertible into or exchangeable
or exercisable for shares of the capital stock of the Company, any other
commitments or agreements providing for the issuance of additional shares of the
capital stock of the Company, the sale of treasury shares, or for the repurchase
or redemption of shares of the Company's
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capital stock, or any obligations arising from canceled stock. There are no
agreements of any kind which may obligate the Company to issue, purchase,
register for sale, redeem or otherwise acquire any of its securities or
interests. There are no outstanding or authorized stock appreciation, phantom
stock or similar rights with respect to the Company.
(c) There are no voting trusts, stockholder agreements,
proxies or other agreements in effect with respect to the voting or transfer of
the Shares.
4.4 AUTHORIZATION.
(a) The Company has all requisite corporate power and
authority, and has taken all corporate action necessary, to execute and deliver
this Agreement and the Ancillary Agreements to which it is a party, to
consummate the transactions contemplated hereby and thereby and to perform its
obligations hereunder and thereunder. The execution and delivery of this
Agreement and the Ancillary Agreements by the Company and the consummation by
the Company of the transactions contemplated hereby and thereby have been duly
approved by the board of directors of the Company. No other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
and the Ancillary Agreements and the transactions contemplated hereby and
thereby.
(b) This Agreement has been duly executed and delivered by the
Company and each of Sellers and is, and upon execution and delivery of the
Ancillary Agreements each such Ancillary Agreement will be, legal, valid and
binding obligations of the Company and each of Sellers enforceable against them
in accordance with its terms.
4.5 NO CONFLICT OR VIOLATION. Except as would not have a Material
Adverse Effect, neither the execution, delivery or performance of this Agreement
and the Ancillary Agreements nor the consummation of the transactions
contemplated hereby, nor compliance by each of the Acquired Companies or any of
Sellers with any of the provisions hereof, does or will violate any provision
of, or result in the breach of, any applicable law, rule or regulation of any
Governmental Authority, the articles of incorporation or bylaws of each of the
Acquired Companies, or any contract, agreement, indenture or other instrument to
which any of the Sellers or each of the Acquired Companies is a party or by
which any of the Sellers or each of the Acquired Companies may be bound, or of
any order, judgment or decree applicable to any of them, or terminate or result
in the termination of any such agreement, indenture or instrument, or result in
the creation of any lien, charge or Encumbrance upon any of the properties or
assets of each of the Acquired Companies, constitute any event which, after
notice or lapse of time or both, would result in any such violation, breach,
acceleration, termination or creation of a lien or result in a violation or
revocation of any required license, permit or approval from any Governmental
Authority or other third party.
4.6 FINANCIAL STATEMENTS. Attached as SCHEDULE 4.6 hereto are (i)
the audited balance sheets of IIT, Inc. and the unaudited balance sheets of
International Information Technology IIT, C.A. ("IIT, C.A.") as of December 31,
1997 and the related audited statements
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of earnings, shareholders equity and cash flows of IIT, Inc. and the unaudited
statements of earnings, shareholders equity and cash flows of IIT, C.A. for each
of the twelve-month periods then ended, together, in the case of IIT, Inc., with
the independent auditor's report thereon and (ii) the unaudited balance sheet of
each of IIT, Inc. and IIT, C.A. as of July 31, 1998 and the related unaudited
statements of earnings, shareholders' equity and cash flows of IIT, Inc. and
IIT, C.A. for the seven month period then ended (collectively, the "FINANCIAL
STATEMENTS"). The Financial Statements (including the notes thereto) were
prepared in accordance with GAAP, consistently applied throughout the periods
indicated, and present fairly and accurately the financial condition and results
of operation of each of IIT, Inc. and IIT, C.A. as of and for the periods
indicated; PROVIDED, HOWEVER, that the unaudited Financial Statements as of and
for the periods ending July 31, 1998 are subject to normal year-end adjustments
(which will not be material) and lack footnotes and other presentation items.
The audited financial statements of IIT, C.A. to be delivered pursuant to
SECTION 9.2(o) will be identical to the unaudited financial statements of IIT,
C.A. as of and for the period ended December 31, 1997 set forth on SCHEDULE 4.6,
except for the deletion of any qualifications and changes resulting therefrom.
4.7 BOOKS AND RECORDS. The Company has made and kept (and given
Purchaser access to) Books and Records and accounts, which, in reasonable
detail, accurately and fairly reflect the activities of each of the Acquired
Companies. The minute books of each of the Acquired Companies previously
delivered to Purchaser accurately and adequately reflect all action previously
taken by the shareholders, board of directors and committees of the board of
directors of each of the Acquired Companies. The copies of the stock book
records of each of the Acquired Companies previously delivered to Purchaser are
true, correct and complete, and accurately reflect all transactions effected in
each of the Acquired Companies' capital stock through and including the date
hereof. The Company has not engaged in any transaction, maintained any bank
account or used any corporate funds except for transactions, bank accounts and
funds which have been and are reflected in the normally maintained Books and
Records of each of the Acquired Companies.
4.8 PROJECTIONS. The Company has delivered to Purchaser projected
income statements, balance sheets and statements of cash flow of the Company for
the 1998 fiscal year (the "PROJECTIONS"), which are attached as SCHEDULE 4.8
hereto. The Projections were prepared by the officers of the Company in good
faith, are based upon the historical performance of the Company and a growth
forecast believed to be reasonable as of the date such projections were made, as
of the date hereof and as of the Closing Date, not taking into account the
effect of the transactions contemplated hereby.
4.9 UNDISCLOSED LIABILITIES. Except as set forth on SCHEDULE 4.9,
each of the Acquired Companies has no material Liabilities except for
liabilities and obligations (a) reflected or reserved for on the Interim Balance
Sheet or (b) that have arisen since the date of the Interim Balance Sheet in the
ordinary course of the operation of the business and consistent with past
practice of the Company (all of which are liabilities similar in type to those
reflected on the Interim Balance Sheet).
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4.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the Interim
Balance Sheet Date, except as disclosed on SCHEDULE 4.10, there has not been
any:
(a) as of the date hereof, material adverse change in the
business, operations, condition (financial or otherwise), assets or liabilities
of each of the Acquired Companies;
(b) (i) except for normal periodic increases in the ordinary
course of business consistent with past practice, increase in the compensation
payable or to become payable by each of the Acquired Companies to any of its
officers, employees or agents (collectively, "PERSONNEL"), (ii) bonus, incentive
compensation, service award or other like benefit granted, made or accrued,
contingently or otherwise, for or to the credit of any of the Personnel, (iii)
employee welfare, pension, retirement, profit-sharing or similar payment or
arrangement made or agreed to by each of the Acquired Companies for any
Personnel except pursuant to the existing plans and arrangements described in
the Disclosure SCHEDULES hereto, or (iv) new employment agreement to which each
of the Acquired Companies is a party;
(c) addition to or modification of the employee benefit plans,
arrangements or practices affecting Personnel other than (i) contributions made
for 1998 in accordance with the normal practices of the Company or (ii) the
extension of coverage to other Personnel who became eligible after the Interim
Balance Sheet Date;
(d) sale, assignment or transfer of any material assets of
each of the Acquired Companies other than in the ordinary course;
(e) cancellation of any indebtedness or waiver of any rights
of substantial value to each of the Acquired Companies, whether or not in the
ordinary course of business;
(f) amendment, cancellation or termination of any Contract,
license or other instrument material to any of the Acquired Companies;
(g) capital expenditure or commitments for capital
expenditures or the execution of any lease by any of the Acquired Companies,
involving payments in excess of Fifty Thousand Dollars ($50,000) in the
aggregate;
(h) failure to operate the business of any of the Acquired
Companies in the ordinary course so as to use reasonable efforts to preserve the
Business intact, to keep available the services of the Personnel, and to
preserve the goodwill of each of the Acquired Companies' suppliers, customers
and others having business relations with any of the Acquired Companies;
(i) change in accounting methods or practices by any of the
Acquired Companies;
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(j) revaluation by any of the Acquired Companies of any of its
respective assets, including without limitation, writing off notes, inventory or
accounts receivable;
(k) damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business of any of the Acquired
Companies; or
(l) indebtedness incurred by any of the Acquired Companies for
borrowed money or commitment to borrow money entered into by any of the Acquired
Companies, or any loans made or agreed to be made by any of the Acquired
Companies.
4.11 CONTRACTS; NO DEFAULTS.
(a) SCHEDULE 4.11 contains a listing of all Contracts
described in (i) through (xv) below to which any of the Acquired Companies is a
party as of the date hereof. Such listing identifies, among other things, the
parties to and the expiration date of the contracts. True, correct and complete
copies of contracts (or a summary thereof, if oral) referred to in clauses (i)
through (xv) below have been delivered to or made available to Purchaser and its
agents and representatives.
(i) Each Contract which involves performance of
services or delivery of goods and/or materials, by or to any of the Acquired
Companies of an amount or value in excess of $50,000;
(ii) Each note, debenture, other evidence of
indebtedness, guarantee, loan, letter of credit, surety-bond or financing
agreement or instrument or other contract for money borrowed, including any
agreement or commitment for future loans, credit or financing;
(iii) Each Contract not in the ordinary course of
business;
(iv) Each lease, rental or occupancy agreement,
license, installment and conditional sale agreement, and other Contract
affecting the ownership of, leasing of, title to, use of, or any leasehold or
other interest in, any real or personal property constituting fixed assets;
(v) Each material licensing agreement or other
Contract with respect to patents, trademarks, copyrights, or other intellectual
property, including agreements with current or former employees, consultants or
contractors regarding the appropriation or the nondisclosure of Intellectual
Property;
(vi) Each Contract to which any employee of any
of the Acquired Companies is bound which in any manner purports to (A) restrict
such Person's freedom to engage in any line of business or to compete with any
other Person, or (B) assign to any other Person its rights to any material
invention, improvement, or discovery;
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(vii) Each employment agreement, collective
bargaining agreement or other Contract to or with any employee or any labor
union or other employee representative of a group of employees relating to
wages, hours, and other conditions of employment;
(viii) Each joint venture Contract, partnership
agreement, limited liability company agreement or other Contract (however named)
involving a sharing of profits, losses, costs, or liabilities by any of the
Acquired Companies with any other Person;
(ix) Each Contract containing covenants which in
any way purport to restrict any of the Acquired Companies' business activity or
purport to limit the freedom of any of the Acquired Companies to engage in any
line of business or to compete with any Person;
(x) Each Contract providing for payments to or
by any Person or entity based on sales, purchases or profits, other than direct
payments for goods;
(xi) Each power of attorney granted by any of the
Acquired Companies which is currently effective and outstanding;
(xii) Each Contract under which any of the Acquired
Companies is obligated to incur capital expenditures after the date hereof in an
aggregate amount in excess of Fifty Thousand Dollars ($50,000);
(xiii) Each written warranty, guaranty or other
similar undertaking with respect to contractual performance extended by any of
the Acquired Companies;
(xiv) Each amendment, supplement, and modification
(whether written or oral) in respect of any of the foregoing.
(b) Except as set forth on SCHEDULE 4.11, all of the Contracts
listed pursuant to paragraph (a) hereof (i) are in full force and effect, (ii)
represent the legal, valid and binding obligations of each of the Acquired
Companies and are enforceable against each of the Acquired Companies in
accordance with their terms and (iii) represent the legal, valid and binding
obligations of the other parties thereto and are enforceable against such
parties in accordance with their terms, except as may be limited by bankruptcy
laws. No condition exists or event has occurred which, with notice or lapse of
time or both, would constitute a default or a basis for force majeure or the
claim of excusable delay or nonperformance under such Contracts.
(c) Except as set forth on SCHEDULE 4.11, there are no
renegotiations of, or attempts to renegotiate, or outstanding rights to
renegotiate, any material amounts paid or payable to any of the Acquired
Companies under current or completed Contracts, with any Person having the
contractual or statutory right to require such renegotiation. Neither
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Sellers, nor any of the Acquired Companies, has received any written demand for
such renegotiation in respect of any such Contract. Except as set forth on
SCHEDULE 4.11, no customer or government contracting officer has asserted that
any material adjustments are required to the terms of any Contracts.
(d) Except as specifically noted on SCHEDULE 4.11, no consent
of any party to any such Contract is required in connection with the
Transactions.
(e) Except as set forth on SCHEDULE 4.11, to the knowledge of
Sellers and the Company, neither Sellers, nor any of the Acquired Companies, has
committed any act or omission which would result in, and there has been no
occurrence which would give rise to, any material product liability or material
liability for breach of warranty on the part of any of the Acquired Companies.
4.12 GOVERNMENT CONTRACTS; BACKLOG.
(a) There is no suit or investigation pending or, to the best
knowledge of any of the Acquired Companies, threatened against any of the
Acquired Companies asserting or alleging the commission of criminal acts or
bribery by any of the Acquired Companies with respect to any Contract between
the Acquired Companies and any Governmental Authority including the United
States Government or any department or agency thereof (a "GOVERNMENT CONTRACT").
None of the Acquired Companies has ever been debarred or suspended from
participation in the award of contracts with any Governmental Authority (it
being understood that debarment and suspension does not include ineligibility to
bid for certain contracts due to generally applicable bidding requirements).
Each of the Acquired Companies is, and at all times has been, in compliance in
all material respects with all applicable laws, rules and regulations relating
to any Government Contract and none of the Acquired Companies has ever received
written notice of any kind from any Governmental Authority alleging any
violation, or notifying any of the Acquired Companies of any investigation of a
possible violation, of any applicable law, rule, or regulation by the Acquired
Companies or any act for which the Acquired Companies could be debarred or
suspended from contracting with any Governmental Authority, or prohibiting or
seeking to prohibit the Acquired Companies from conducting, or restricting or
seeking to restrict the Acquired Companies' ability to conduct, all or any part
of its business or operations or from contracting with any Governmental
Authority. No payment has been made by the Acquired Companies, or, to the best
knowledge of the Acquired Companies, by any Person acting on its behalf, to any
Person in connection with any Government Contract in violation of applicable
procurement laws or regulations or in violation of (or requiring disclosure
pursuant to) the Foreign Corrupt Practices Act.
(b) With respect to each Government Contract (i) each of the
Acquired Companies has complied with all material terms and conditions of such
Government Contract, including all clauses, provisions and requirements
incorporated expressly, by reference or by operation of law therein; (ii) each
of the Acquired Companies has
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complied with all material requirements of applicable laws pertaining to such
Government Contract; (iii) all representations and certifications executed,
acknowledged or set forth in or pertaining to such Government Contract were
complete and correct in all material respects as of their effective date, and
each of the Acquired Companies has complied in all material respects with all
such representations and certifications; and (iv) no termination for
convenience, termination for default, cure notice or show cause notice is in
effect as of the date hereof pertaining to any Government Contract.
(c) SCHEDULE 4.12 identifies each of the Acquired Companies'
current Government Contracts.
4.13 TANGIBLE ASSETS. Each of the Acquired Companies owns or leases
all buildings, machinery, equipment, and other tangible assets necessary for the
conduct of its businesses as presently conducted. Such tangible assets, in the
aggregate, are free from material defects (patent and latent), have been
maintained in accordance with normal industry practice, are in good operating
condition and repair (subject to normal wear and tear), and are suitable for the
purposes for which they presently are used.
4.14 INTELLECTUAL PROPERTY.
(a) Each of the Acquired Companies owns or has the right to
use pursuant to license, sublicense, agreement, or permission all Intellectual
Property necessary for the operation of the businesses of the Acquired Companies
as presently conducted. Each item of Intellectual Property owned or used by the
Acquired Companies immediately prior to the Closing hereunder will be owned or,
subject to the receipt of any consents identified in SCHEDULE 4.11, available
for use by the Acquired Companies on identical terms and conditions immediately
subsequent to the Closing hereunder. Each of the Acquired Companies has taken
all action reasonably necessary to maintain and protect each item of
Intellectual Property that it owns or uses.
(b) None of the Acquired Companies has interfered with,
infringed upon, misappropriated, or otherwise come into conflict in any material
respects with any Intellectual Property rights of third parties, and none of the
Sellers and the directors and officers (and employees with responsibility for
Intellectual Property matters) of the Acquired Companies has ever received any
charge, complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that the
Acquired Companies must license or refrain from using any Intellectual Property
rights of any third party). To the knowledge of the Acquired Companies, no third
party has interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any Intellectual Property rights of the Acquired Companies.
(c) SCHEDULE 4.14(c) identifies each patent or registration
which has been issued to each of the Acquired Companies with respect to any of
its Intellectual Property, identifies each pending patent application or
application for registration which each of the Acquired Companies has made with
respect to any of its Intellectual Property,
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and identifies each license, agreement, or other permission which each of the
Acquired Companies has granted to any third party with respect to any of its
Intellectual Property (together with any exceptions). Each of the Acquired
Companies has delivered to Purchaser correct and complete copies of all such
patents, registrations, applications, licenses, agreements, and permissions (as
amended to date) and have made available to Purchaser correct and complete
copies of all other written documentation evidencing ownership and prosecution
(if applicable) of each such item. SCHEDULE 4.14(c) also identifies each trade
name or unregistered trademark used by each of the Acquired Companies in
connection with any of its businesses. With respect to each item of Intellectual
Property required to be identified in SCHEDULE 4.14(c):
(i) each of the Acquired Companies possess all
right, title, and interest in and to the item, free and clear of any
Encumbrance, license, or other restriction;
(ii) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
(iii) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or, to the
Knowledge of the Sellers and the directors and officers of each of the Acquired
Companies, is threatened which challenges the legality, validity,
enforceability, use, or ownership of the item; and
(iv) none of the Acquired Companies has ever
agreed to indemnify any Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
(d) SCHEDULE 4.14(d) identifies each item of Intellectual
Property that any third party owns and that each of the Acquired Companies uses
pursuant to license, sublicense, agreement, or permission, except for
commercially available desktop applications. The Sellers have delivered to
Purchaser correct and complete copies of all such licenses, sublicenses,
agreements, and permissions (as amended to date). With respect to each item of
Intellectual Property required to be identified in SCHEDULE 4.14(d):
(i) the license, sublicense, agreement, or
permission covering the item is legal, valid, binding, enforceable, and in full
force and effect;
(ii) the license, sublicense, agreement, or
permission will continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms following the consummation of the
transactions contemplated hereby;
(iii) no party to the license, sublicense, agreement,
or permission is in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default or permit
termination, modification, or acceleration thereunder;
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(iv) no party to the license, sublicense,
agreement, or permission has repudiated any provision thereof;
(v) with respect to each sublicense, to the
knowledge of each of the Acquired Companies the representations and warranties
set forth in subsections (i) through (iv) above are true and correct with
respect to the underlying license;
(vi) the underlying item of Intellectual Property
is not subject to any outstanding injunction, judgment, order, decree, ruling,
or charge;
(vii) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or, to the
knowledge of each of the Acquired Companies, is threatened which challenges the
legality, validity, or enforceability of the underlying item of Intellectual
Property; and
(viii) none of the Acquired Companies has granted any
sublicense or similar right with respect to the license, sublicense, agreement,
or permission.
(e) To the knowledge of the Acquired Companies, none of the
Acquired Companies will interfere with, infringe upon, misappropriate, or
otherwise come into conflict with, any Intellectual Property rights of third
parties as a result of the continued operation of the Business as presently
conducted;
4.15 REAL PROPERTY.
(a) SCHEDULE 4.15 lists and describes all real property
(together with all improvements thereon, the "REAL PROPERTY") now used, operated
or occupied by the Acquired Companies and the name of the record owner thereof.
For each parcel of Real Property listed on SCHEDULE 4.15, which is owned by the
Acquired Companies, each of the Acquired Companies holds good and marketable fee
simple title to such Real Property free and clear of any Encumbrances except for
Permitted Encumbrances. For each parcel of Real Property listed on SCHEDULE
4.15, which is not owned by the Acquired Companies, the Company has made
available to Purchaser true and correct copies of the Real Property lease or
sublease (each a "REAL PROPERTY LEASE") with respect to such Real Property. Each
Real Property Lease is legal, valid, binding, enforceable, and in full force and
effect and none of the Acquired Companies has assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the leasehold or
subleasehold. Each of the Acquired Companies enjoys peaceful and undisturbed
possession of all Real Property, and each of the Acquired Companies has
fulfilled in all material respects all the obligations required to be performed
by it through the date hereof with respect to each Real Property Lease.
(b) Each of the Acquired Companies has received all required
material approvals of Governmental Authorities (including Permits and material
certificates of occupancy or other similar certificates permitting lawful
occupancy of the Real Property)
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required in connection with the present use of the Real Property and all the
Improvements thereon.
(c) All the Real Property are supplied with utilities and
other services necessary for the operation of such facilities as currently
operated.
(d) All Improvements, and all Fixtures and Equipment and other
tangible assets owned, leased, or used by the Acquired Companies on the Real
Property are in good condition and repair in all material respects, and such
Improvements and Fixtures are free from structural defects.
(e) None of the Acquired Companies has received notice of any
special assessment relating to any Real Property or any portion thereof, and
none of the Acquired Companies has knowledge of any pending or threatened
special assessment.
(f) There is not now pending, or to the knowledge of the
Company, threatened, any eminent domain or condemnation proceeding affecting the
Real Property or any portion thereof.
4.16 LITIGATION AND PROCEEDINGS. There are no lawsuits, actions,
suits, claims or other proceedings at law or in equity (including, without
limitation, investigations by any Government Authority involving any Government
Contract wherein a claim for improper charges was made), or before or by any
court or Governmental Authority or before any arbitrator pending or, to the
knowledge of the Company, threatened, against the Acquired Companies. There is
no unsatisfied judgment, order, injunction or decree binding upon the Acquired
Companies.
4.17 EMPLOYEE BENEFIT PLANS.
(a) DEFINITIONS. The following terms, when used in this
SECTION 4.17, shall have the following meanings. Any of these terms may, unless
the context otherwise requires, be used in the singular or the plural depending
on the reference.
(i) "BENEFIT ARRANGEMENT" shall mean any
employment, consulting, severance or other similar contract, arrangement or
policy and each plan, arrangement (written or oral), program, agreement or
commitment providing for insurance coverage (including without limitation any
self-insured arrangements), workers' compensation, disability benefits, fringe
benefits, supplemental unemployment benefits, vacation benefits, retirement
benefits, life, health, disability or accident benefits (including without
limitation any "voluntary employees' beneficiary association" as defined in
SECTION 501(c)(9) of the Code providing for the same or other benefits) or for
deferred compensation, profit-sharing bonuses, stock options, restricted stock,
stock appreciation rights, stock purchases or other forms of incentive
compensation or post-retirement insurance, compensation or benefits which (A) is
not a Welfare Plan, Pension Plan or Multiemployer Plan, (B) is entered into,
maintained, contributed to or required to be contributed to, as the case may be,
by the Acquired Companies, and (C) covers any
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employee or former employee of the Acquired Companies (with respect to their
relationship with the Acquired Companies).
(ii) "EMPLOYEE PLANS" shall mean all Benefit
Arrangements, Multiemployer Plans, Pension Plans and Welfare Plans.
(iii) "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended.
(iv) "ERISA AFFILIATE" shall mean any entity
which is (or at any relevant time was) a member of a "controlled group of
corporations" with, under "common control" with, a member of an "affiliated
service group" with, or otherwise required to be aggregated with, the Acquired
Companies as set forth in SECTION 414(b), (c), (m) or (o) of the Code.
(v) "MULTIEMPLOYER PLAN" shall mean any
"multiemployer plan," as defined in SECTION 4001(a)(3) of ERISA, (A) which the
Acquired Companies or any ERISA Affiliate maintains, administers, contributes to
or is required to contribute to and (B) which covers any employee or former
employee of the Acquired Companies or any ERISA Affiliate (with respect to their
relationship with such entities).
(vi) "PBGC" shall mean the Pension Benefit Guaranty
Corporation.
(vii) "PENSION PLAN" shall mean any "employee pension
benefit plan" as defined in SECTION 3(2) of ERISA (other than a Multiemployer
Plan) (A) which the Acquired Companies or any ERISA Affiliate maintains,
administers, contributes to or is required to contribute to and (B) which covers
any employee or former employee of the Acquired Companies or any ERISA Affiliate
(with respect to their relationship with such entities).
(viii) "WELFARE PLAN" shall mean any "EMPLOYEE
WELFARE BENEFIT PLAN" as defined in SECTION 3(1) of ERISA, (A) which the
Acquired Companies or any ERISA Affiliate maintains, administers, contributes to
or is required to contribute to, and (B) which covers any employee or former
employee of the Acquired Companies or any ERISA Affiliate (with respect to their
relationship with such entities).
(b) DISCLOSURE; DELIVERY OF COPIES OF RELEVANT DOCUMENTS AND
OTHER INFORMATION. SCHEDULE 4.17 contains a complete list of Employee Plans.
(c) REPRESENTATIONS. Except as set forth in SCHEDULE 4.17:
(i) PENSION PLANS.
(A) No Pension Plan is subject to Code ss.
412 or ERISA ss. 302.
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(B) Neither the Acquired Companies nor
any ERISA Affiliate is required to provide security to a Pension Plan under
SECTION 401(a)(29) of the Code.
(C) Each Pension Plan that is intended to be
qualified under Code ss. 401(a) or Code ss. 403(a) and each related trust
agreement, annuity contract or other funding instrument has been determined by
the Internal Revenue Service to be qualified and tax-exempt under the provisions
of Code SECTIONs 401(a) and 501(a).
(D) Each Pension Plan and each related trust
agreement, annuity contract or other funding instrument is in material
compliance with its terms and, both as to form and in operation, with the
requirements prescribed by any and all statutes, orders, rules and regulations
which are applicable to such plans, including without limitation ERISA and the
Code.
(E) No Pension Plan is subject to Title IV
of ERISA.
(ii) MULTIEMPLOYER PLANS. There are no
Multiemployer Plans, and neither the Acquired Companies nor any ERISA Affiliate
has ever maintained, contributed to, participated or agreed to participate in a
Multiemployer Plan.
(iii) WELFARE PLANS.
(A) Each Welfare Plan which covers or
has covered employees or former employees of the Acquired Companies (with
respect to their relationship with the Acquired Companies) is in material
compliance with its terms and, both as to form and operation, with the
requirements prescribed by any and all statutes, orders, rules and regulations
which are applicable to such Welfare Plan, including without limitation ERISA
and the Code.
(B) Neither the Acquired Companies nor
any ERISA Affiliate of the Acquired Companies has any current or projected
liability for any unfunded post-retirement medical or life insurance benefits in
connection with any Employee of the Acquired Companies or ERISA Affiliate of the
Acquired Companies.
(C) Each Welfare Plan which is a "group
health plan," as defined in SECTION 607(1) of ERISA, has been operated in
material compliance with the provisions of Part 6 of Title I, Subtitle B of
ERISA and SECTION 4980B of the Code at all times.
(iv) BENEFIT ARRANGEMENTS. Each Benefit
Arrangement is in material compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations which are
applicable to such Benefit Arrangement, including without limitation the Code.
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(v) FIDUCIARY DUTIES AND PROHIBITED
TRANSACTIONS. Neither of the Acquired Companies has any liability with respect
to any transaction in violation of SECTIONs 404 or 406 of ERISA or any
"prohibited transaction," as defined in SECTION 4975(c)(1) of the Code, for
which no exemption exists under SECTION 408 of ERISA or SECTION 4975(c)(2) or
(d) of the Code with respect to any Welfare Plan or Pension Plan. Neither of the
Acquired Companies has participated in a violation of Part 4 of Title I,
Subtitle B of ERISA by any plan fiduciary of any Welfare Plan or Pension Plan or
has any unpaid civil penalty under SECTION 502(l) of ERISA.
(vi) LITIGATION. There is no material action,
order, writ, injunction, judgment or decree outstanding or claim, suit,
litigation, proceeding, arbitral action, governmental audit or investigation
relating to or seeking benefits under any Employee Plan that is pending,
threatened or anticipated against the Acquired Companies or any ERISA Affiliate
other than routine claims for benefits.
(vii) UNPAID CONTRIBUTIONS. Neither the Acquired
Companies nor any ERISA Affiliate has any liability for unpaid contributions
with respect to any Pension Plan, Multiemployer Plan or Welfare Plan. Each of
the Acquired Companies or an ERISA Affiliate has made all required contributions
under each Employee Plan for all periods through and including the Closing Date
or proper accruals have been made and are reflected on the appropriate balance
sheet and books and records.
(viii) The Company has delivered pursuant to this
Agreement a true and complete set of copies of (a) all Employee Plans and
related trust agreements, annuity contracts or other funding instruments as in
effect immediately prior to the Closing Date, together with all amendments
thereto which shall become effective at a later date; (b) the latest Internal
Revenue Service determination letter obtained with respect to any such Employee
Plan qualified or exempt under SECTION 401 or 501 of the Code; (c) Forms 5500
and certified financial statements for the most recently completed three fiscal
years for each Employee Plan required to file such form, together with the most
recent actuarial report, if any, prepared by the Employee Plan's enrolled
actuary; (d) all summary plan descriptions for each Employee Plan required to
prepare, file and distribute summary plan descriptions; (e) all summaries
furnished employees, officers and directors of the Acquired Companies of all
incentive compensation, other plans and fringe benefits for which a summary plan
description is not required; (f) current registration statements on Form S-8 and
amendments thereto with respect to any Employee Plan; and (g) the notifications
to employees of their rights under SECTION 4980B of the Code.
(ix) No payment made to any Person who
constitutes a "disqualified individual" within the meaning of SECTION 280G(c) of
the Code with respect to the Acquired Companies ("RECIPIENTS") pursuant to any
employment contract, severance agreement or other arrangement to which either of
the Acquired Companies is a party ("GOLDEN PARACHUTE PAYMENT"), other than any
payment made or to be made under any of the Employment Agreements, will be
nondeductible to the Acquired Companies
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because of the applicability of SECTION 280G of the Code to the Golden Parachute
Payment, nor will the Acquired Companies be required to "gross up" or otherwise
compensate any Recipient because of the imposition of any excise tax (including
any interest or penalties related thereto) on the Recipient because of the
applicability of SECTIONs 280G and 4999 of the Code.
4.18 LABOR RELATIONS. The persons listed on EXHIBIT A-1 are all of
the employees of the Acquired Companies and all of the independent contractors
of IIT, C.A. as of the date of this Agreement. The persons listed on EXHIBIT A-2
are all of the independent contractors engaged by IIT, Inc. to provide software
consulting or implementation services as of the date of this Agreement. None of
the Acquired Companies is a party to any collective bargaining agreement. The
Contracts listed on SCHEDULE 4.11 also include all written employment or
severance agreements to which any of the Acquired Companies is a party with
respect to any employee or former employee and which may not be terminated at
will, or by giving notice of 30 days or less, without cost or penalty including,
without limitation, any severance payment. The Company has delivered or made
available to Purchaser true, correct and complete copies of each such Contract,
as amended to date. None of the Acquired Companies, nor to the knowledge of the
Company, the other party or parties thereto, is in breach of any term of any
such Contract. Neither of the Acquired Companies has engaged in any unfair labor
practice and there are no complaints against any of the Acquired Companies
pending before the National Labor Relations Board or any similar state or local
labor agency by or on behalf of any employee of the Acquired Companies. There
are no representation questions, arbitration proceedings, labor strikes, slow
downs or stoppages, grievances or other labor disputes pending or, to the
knowledge of the Company, threatened with respect to the employees of the
Acquired Companies, and none of the Acquired Companies has experienced any
attempt by organized labor to cause any of the Acquired Companies to comply or
conform to demands of organized labor relating to its employees. Except as
listed on SCHEDULE 4.11, none of the Acquired Companies has entered into any
severance or similar arrangement in respect of any present employee of the
Acquired Companies that will result in any obligation (absolute or contingent)
of the Acquired Companies to make any payment to any present employee of the
Acquired Companies following termination of employment. Each of the Acquired
Companies has complied in all material respects with all laws, rules and
regulations relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and health
and plant closings (hereinafter collectively referred to as the "EMPLOYMENT
LAWS"). None of the Acquired Companies is liable for the payment of taxes,
fines, penalties or other amounts, however designated, for failure to comply
with any of the foregoing Employment Laws.
4.19 LEGAL COMPLIANCE. Each of the Acquired Companies is, and at
all times has been, in compliance in all material respects with all laws
(including rules and regulations thereunder) of federal, state, and local
governments (and all agencies thereof) applicable thereto.
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4.20 ENVIRONMENTAL PROTECTION.
(a) Each of the Acquired Companies is, and at all times has
been, in compliance in all material respects with all Environmental Laws.
(b) There are no existing or threatened Environmental Claims
against the Acquired Companies, nor have the Acquired Companies received any
notification of any allegation of any actual, or potential responsibility for,
or any inquiry or investigation regarding, any disposal, release, or threatened
release at any location of any Hazardous Materials generated or transported by
the Acquired Companies.
(c) To the knowledge of the Company, (i) no underground tank
or other underground storage receptacle for Hazardous Materials is currently
located on the Real Property and there have been no releases of any Hazardous
Materials from any such underground tank or related piping; and (ii) there have
been no releases (i.e., any past or present releasing, spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, disposing, or dumping) by the Acquired Companies of Hazardous
Materials on, upon, or into the Real Property. In addition, there have been no
such releases by the Acquired Companies' corporate predecessors and no releases
on, upon, or into any Real Property in the vicinity of any of the Real Property
which, through soil or ground water contamination, has come to be located on any
of the Real Property.
(d) There are no consent decrees, consent orders, judgments,
judicial or administrative orders, agreements with, or liens by, any
Governmental Authority or quasi-governmental entity relating to any
Environmental Law which regulate, obligate, or bind the Acquired Companies.
(e) There are no written environmental reports, audits and
assessments on any of the Real Property which have been conducted, by the
Acquired Companies or any Person engaged by the Acquired Companies for such
purpose, at any facility owned or formerly owned by the Acquired Companies.
True, complete and correct copies of such reports have been delivered to
Purchaser.
(f) Neither the Acquired Companies nor any of the Sellers have
released any other Person from any claim under any Environmental Law or waived
any rights concerning any Environmental Condition.
(g) Each of the Acquired Companies has given all material
notices and warnings, made all material reports, and has kept and maintained all
material records required by, and in compliance in all material respects with,
all Environmental Laws.
4.21 TAXES.
(a) Except as otherwise disclosed in SCHEDULE 4.21:
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(i) Each of the Acquired Companies has timely
filed, or been included in, all Tax Returns required to be filed through the
date hereof and will timely file any such Tax Returns required to be filed on or
prior to the Closing Date, in each case, subject to any applicable extensions.
All such Tax Returns are complete and accurate in all material respects.
(ii) All Taxes that accrue or are payable by the
Acquired Companies (i) in respect of taxable periods that end on or before the
Closing Date and (ii) for any taxable period that begins before the Closing Date
and ends thereafter, to the extent such Taxes are attributable to the portion of
such period ending on the Closing Date under the terms of SECTION 13.6, have or
will have been timely paid on or before the Closing Date unless a reserve for
such amount has been or will be established therefor in the Final Balance Sheet
(other than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income).
(iii) The Company has not requested any extension of
time within which to file any Tax Return which is currently pending or has been
granted and is in effect and the Company has not waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency;
(iv) There are no pending, or to the best of each
Seller's knowledge, proposed or threatened (whether orally or in writing),
audits, investigations or claims for or relating to any Taxes of the Acquired
Companies, except to the extent that adequate liabilities or reserves with
respect thereto are accrued on the Final Balance Sheet in accordance with GAAP
or (i) such deficiency or claim is being contested in good faith by appropriate
proceedings, (ii) no such accrual is required by GAAP and (iii) the nature and
amount of the disputed Tax is set forth on SCHEDULE 4.21;
(v) No claim has ever been made by an authority
in a jurisdiction where any of the Acquired Companies does not file Tax Returns
that any of the Acquired Companies is or may be subject to taxation by that
jurisdiction;
(vi) None of the Acquired Companies has filed a
consent under Code Section 341(f) concerning collapsible corporations;
(vii) None of the Acquired Companies is a party to,
or is bound by, or has any obligation under any Tax allocation or sharing
agreement (including indemnity arrangements), and, after the Closing Date, none
of the Acquired Companies shall be a party to, bound by or have any obliteration
under any Tax allocation or sharing agreement or have any liability thereunder
for amounts due in respect of periods prior to the Closing Date;
(viii) None of the Acquired Companies (i) has been a
member of any affiliated group filing a consolidated federal income Tax Return
(other than a group
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the common parent of which is the Company) and (ii) has any liability for the
Taxes of any other person as defined in Section 7701(a)(1) of the Code under
Treas. Reg. ss. 1.1502-6 (or any similar provision of state, local, or foreign
law), as a transferee or successor, by contract, or otherwise;
(ix) None of the assets of the Acquired Companies
(x) are required to be treated as being owned by any other person pursuant to
the so-called safe harbor lease provisions of former Section 168(f)(8) of the
Code, (y) secures any debt the interest on which is tax-exempt under Code
Section 103(a), or (z) is tax-exempt use property within the meaning of Code
Section 168(h);
(x) None of the Acquired Companies has agreed to
or is required to make any adjustment pursuant to Code Section 481(a) by reason
of a change in accounting method initiated by the Acquired Companies and none of
the Sellers have knowledge that the IRS has proposed any such adjustment or
change in accounting method;
(xi) Except for any withholding with respect to
the bonus payments pursuant to Section 2.6, the Non-Competition Agreements and
the Employment Agreements, the transactions contemplated herein are not subject
to the Tax withholding provisions of Section 3406 of the Code, or of Subchapter
A of Chapter 3 of the Code or any other provision of law;
(xii) There are no Encumbrances related to Taxes on
any of the assets of the Acquired Companies (other than for current Taxes not
yet due and payable); and
(xiii) The Company has not been a United States real
property holding corporation within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Code Section 897(c)(1)(A)(ii).
(b) SCHEDULE 4.21 lists all federal, state, local, and foreign
income Tax Returns filed with respect to the Acquired Companies since their
inception, indicates those Tax Returns that have been audited, and indicates
those Tax Returns that currently are the subject of audit. Correct and complete
copies of all federal income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by the Acquired Companies for periods
since their inception have been delivered to Purchaser.
4.22 GOVERNMENTAL AUTHORITIES: CONSENTS. Assuming the truth and
completeness of the representations and warranties of Purchaser contained in
this Agreement, no consent, approval or authorization of, or designation,
declaration or filing with, any governmental authority or other third party is
required on the part of the Acquired Companies with respect to the Company's
execution or delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (a) any novations or consents required in
connection with Government Contracts or subcontracts thereunder, and (b) any
consents required in connection with the Contracts ("Contract Consents").
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4.23 LICENSES, PERMITS AND AUTHORIZATIONS. SCHEDULE 4.23 contains a
list of all material Permits (including without limitation, all facility
security clearances) of or with any governmental regulatory or administrative
authority, whether foreign, federal, state or local, which are held by the
Acquired Companies. All such Permits are in full force and effect and there are
no proceedings pending or to the best knowledge of the Company, threatened that
seek the revocation, cancellation, suspension or material adverse modification
thereof. Such Permits constitute all of the Permits necessary to permit the
Acquired Companies to own, operate, use and maintain their assets in the manner
in which they are now operated and maintained and to conduct the Business as
currently conducted. All required filings with respect to such Permits have been
timely made and all required applications for renewal thereof have been timely
filed.
4.24 INSURANCE.
(a) SCHEDULE 4.24 contains an accurate and complete
description of all policies of property, fire and casualty, product liability,
workers' compensation, errors and omissions and other forms of insurance held by
the Acquired Companies ("INSURANCE POLICIES"). True, correct and complete copies
of such insurance policies have been made available to Purchaser.
(b) All policies listed on SCHEDULE 4.24 (i) are valid,
outstanding, and enforceable policies, (ii) provide coverage for the assets and
the operations of the Acquired Companies for all material risks normally insured
against by a Person or entity carrying on the same business or businesses as the
Acquired Companies, and (iii) will not terminate, or lapse by reason of, the
transactions contemplated by this Agreement.
(c) None of the Acquired Companies has received (i) any notice
of cancellation of any policy described in paragraph (a) hereof or refusal of
coverage thereunder, (ii) any notice that any issuer of such policy has filed
for protection under applicable bankruptcy laws or is otherwise in the process
of liquidating or has been liquidated, or (iii) any other notice that such
policies are no longer in full force or effect or that the issuer of any such
policy is no longer willing or able to perform its obligations thereunder.
4.25 BROKERS' FEES. No broker, finder, investment banker or other
Person is entitled to any brokerage fee, finders' fee or other commission for
which Purchaser or the Acquired Companies could become liable in connection with
the transactions contemplated by this Agreement based upon arrangements made by
Sellers, the Acquired Companies or any of their respective Affiliates.
4.26 NO OTHER AGREEMENTS TO SELL THE SHARES. None of the Sellers is
subject to any commitment or legal obligation, absolute or contingent, to any
Person other than Purchaser to sell, assign, transfer or effect a sale of any of
the capital stock of the Company, to effect any merger, consolidation,
liquidation, dissolution or other reorganization of the Company, or to enter
into any agreement or cause the entering into of an agreement with respect to
any of the foregoing.
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4.27 TRANSACTIONS WITH CERTAIN PERSONS. Except as set forth on
SCHEDULE 4.27, no officer, director or employee of the Acquired Companies or any
Seller nor any member of any such person's immediate family is presently, or
within the past year has been, a party to any transaction with the Acquired
Companies, including without limitation, any contract, agreement or other
arrangement (a) providing for the furnishing of services by, (b) providing for
the rental of real or personal property from, or (c) otherwise requiring
payments to (other than for services as officers, directors or employees of the
Acquired Companies ) any such person or corporation, partnership, trust or other
entity in which any such Person has an interest as a shareholder, officer,
director, trustee or partner. Furthermore, except as set forth on SCHEDULE 4.27,
the Acquired Companies have no liability or obligation to make any payment on
behalf of or for the benefit of any of the Sellers, or any officer, director or
employee of the Acquired Companies or any such person's immediate family that is
not directly related to, and in furtherance of, the Business.
4.28 CUSTOMERS, DISTRIBUTORS AND SUPPLIERS.
(a) SCHEDULE 4.28 sets forth a complete and accurate list of
the names and addresses of the Acquired Companies' (a) 10 largest customers,
distributors and other agents and representatives, showing the approximate total
sales in dollars by the Acquired Companies to each such customer for the twelve
months ended December 31, 1997 and the seven months ended July 31, 1998; and (b)
suppliers with purchases greater than $500,000 on an annualized basis during the
last six months, showing the approximate total purchases in dollars by the
Company from each such supplier during each such calendar year. Since the
Interim Balance Sheet Date there has been no material adverse change in the
business relationship of the Acquired Companies with any customer, distributor
or supplier named on SCHEDULE 4.28. The Acquired Companies have not received any
written communication, and to the Company's knowledge any other communication,
from any customer, distributor or supplier named on SCHEDULE 4.28 notifying the
Acquired Companies of any intention to terminate or materially reduce purchases
from, or supplies to, the Acquired Companies or to take any other action which
could reasonably be expected to have a Material Adverse Effect.
(b) Each service provided or product manufactured, sold,
leased, or delivered, by the Acquired Companies has been in conformity with all
applicable contractual commitments and all express and implied warranties, and
all applicable industry standards, and the Acquired Companies have no Liability
(and there is no basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against the Acquired
Companies giving rise to any Liability) for replacement or repair thereof or
other damages in connection with such products or services subject only to the
reserve for product warranty claims set forth on the face of the Interim Balance
Sheet (rather that in any notes thereto) as adjusted for the passage of time
through the Closing Date in accordance with the past custom and practice of the
Company. No service provided or product manufactured, sold, leased, or
delivered, by the Acquired Companies is subject to any guaranty, warranty, or
other indemnity beyond the applicable standard terms and conditions of service,
sale or lease of the Company.
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SCHEDULE 4.28 includes copies of the standard terms and conditions of service or
sale for the Acquired Companies (containing applicable guaranty, warranty, and
indemnity provisions).
4.29 BANKING RELATIONSHIPS. SCHEDULE 4.29 sets forth a complete and
accurate description of all arrangements that the Acquired Companies have with
any banks, savings and loan associations or other financial institutions
providing for checking accounts, safe deposit boxes, borrowing arrangements, and
certificates of deposit or otherwise, indicating in each case account numbers,
if applicable, and the Person or Persons authorized to act or sign on behalf of
the Acquired Companies in respect of any of the foregoing.
4.30 ACCOUNTS RECEIVABLE. The amount of accounts receivable,
unbilled invoices, and other debts due or recorded in the records and books of
account of the Acquired Companies as being due to the Acquired Companies as of
the Closing Date will be, subject to the reserves reflected on the Interim
Balance Sheet and except for Accounts Receivable required to be written off due
to the insolvency of a debtor of the Acquired Companies, good and collectible in
full in the ordinary course of business and in any event not later than ninety
(90) days after the Closing Date, and to the knowledge of the Sellers and the
Company, none of such accounts receivable or other debts is subject to any
counterclaim or set-off except to the extent of any such reserve. Since the
Interim Balance Sheet Date, the Company has not made any change in its credit
policies nor has it materially deviated from its credit policies.
4.31 INVENTORY. Each item of Inventory reflected on the Financial
Statements (a) is owned by the Acquired Companies free and clear of all
Encumbrances, except for Permitted Encumbrances and purchase money liens arising
from accounts payable reflected on the Financial Statements, (b) exists in
salable condition, and (c) has a book value as reflected on the Financial
Statements of the lesser of the Acquired Companies' actual cost for such item of
Inventory and the Wholesale Price for such item of Inventory as of the date of
the Financial Statements.
4.32 YEAR 2000. The Acquired Companies have all systems and
software solutions necessary or appropriate to address and accommodate Year 2000
computer systems issues, and the Intellectual Property has been tested and is
fully capable of providing accurate results using data having date ranges
spanning the twentieth and twenty-first centuries. Without limiting the
generality of the foregoing, the Intellectual Property is able to (i) manage and
manipulate data involving all dates from the twentieth and twenty-first
centuries without functional or data abnormality related to such dates; (ii)
manage and manipulate data involving all dates from the twentieth and
twenty-first centuries without inaccurate results related to such dates; (iii)
have user interfaces and data fields formatted to distinguish between dates from
the twentieth and twenty-first centuries; and (iv) represent all data related to
include indications of the millennium, century and decade as well as the actual
year except for the failure to have or obtain such systems and software
solutions would not reasonably be expected to have in a Material Adverse Effect.
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4.33 INVESTMENT. Each of the Sellers that is receiving Warrants (i)
understands that the Warrants have not been, and will not be, registered under
the Securities Act of 1933, as amended, (the "Securities Act") or under any
state securities laws, and are being offered and sold in reliance upon federal
and state exemptions for transactions not involving any public offering, (ii) is
acquiring the Warrants solely for his own account for investment purposes, and
not with a view to the distribution thereof, (iii) is a sophisticated investor
with knowledge and experience in business and financial matters, (iv) has
received certain information concerning Purchaser and has had the opportunity to
obtain additional information as desired in order to evaluate the merits and the
risks inherent in holding the Warrants, (E) is able to bear the economic risk
and lack of liquidity inherent in holding the Warrants, and (F) is an
"Accredited Investor" as defined by Rule 501 under the Securities Act for the
reasons set forth in the Accredited Investor questionnaire previously delivered
to Purchaser by each of the Sellers.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller as follows,
which representations and warranties are, as of the date hereof, and will be, as
of the Closing Date, true and correct:
5.1 ORGANIZATION OF PURCHASER. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware with full corporate power and authority to conduct its business as it
is presently being conducted and to own and lease its properties and assets.
Purchaser is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction where the character of its properties owned
or leased or the nature of its activities make such qualification necessary,
except where the failure to be so qualified or in good standing would not have a
Material Adverse Effect on its business.
5.2 AUTHORIZATION. Purchaser has all requisite corporate power and
authority, and has taken all corporate action necessary, to execute and deliver
this Agreement and the Ancillary Agreements, to consummate the Transactions and
to perform its obligations hereunder and thereunder. The execution and delivery
of this Agreement and the Ancillary Agreements by Purchaser and the consummation
by Purchaser of the Transactions have been duly approved by the board of
directors and stockholders of Purchaser. No other corporate proceedings on the
part of Purchaser are necessary to authorize this Agreement and the Ancillary
Agreements and the transactions contemplated hereby and thereby. This Agreement
has been duly executed and delivered by Purchaser and is, and upon execution and
delivery of the Ancillary Agreements will be, legal, valid and binding
obligations of Purchaser enforceable against it in accordance with its terms.
5.3 NO CONFLICT OR VIOLATION. Neither the execution, delivery or
performance of this Agreement nor the consummation of the transactions
contemplated hereby, nor compliance by Purchaser with any of the provisions
hereof, violates any provision of, or will result in the breach of, any
applicable law, rule or regulation of any governmental body, the certificate of
incorporation, bylaws or other organizational documents of Purchaser, or any
agreement, indenture or other instrument to which Purchaser is a party or by
which Purchaser may be bound, or of any order, judgment or decree applicable to
any of them, or terminate or result in the termination of any such
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agreement, indenture or instrument, or constitute any event which, after notice
or lapse of time or both, would result in any such violation, breach,
acceleration, termination or result in a violation or revocation of any required
license, permit or approval from any Governmental Authority or other third
party.
5.4 GOVERNMENTAL AUTHORITIES; CONSENTS. Assuming the truth and
completeness of the representations and warranties of Sellers and the Company
contained in this Agreement, no consent, approval or authorization of, or
designation, declaration or filing with, any Governmental Authority or other
third party is required on the part of Purchaser with respect to Purchaser's
execution or delivery of this Agreement or the consummation of the transactions
contemplated hereby.
5.5 BROKERS' FEES. No broker, finder, investment banker or other
Person is entitled to any brokerage fee, finders' fee or other commission for
which Sellers could become liable in connection with the transactions
contemplated by this Agreement based upon arrangements made by Purchaser or any
of its Affiliates.
5.6 WARRANT SHARES. The Warrants have been duly authorized and
when issued in accordance with the terms of this Agreement will be validly
issued, fully paid and non-assessable and free of any liens and Encumbrances
except as set forth in the Warrant Agreement and not subject to any preemptive
rights. The shares of common stock, par value $.001 per share, of Purchaser (the
"Purchaser Common Stock") have been reserved for issuance in connection with the
exercise of the Warrants. The Purchaser Common Stock to be issued pursuant to
the Warrants shall, when issued, (i) be duly authorized, validly issued, fully
paid and non-assessable and free of liens and Encumbrances, (ii) be free and
clear of any transfer restrictions, liens and Encumbrances, except for the
restrictions on transfer in the Warrantholders' Agreement, and (iii) not be
subject to any pre-emptive rights created by statute, the certificate of
incorporation of the Purchaser or the Bylaws of the Purchaser.
5.7 CAPITALIZATION. The capital stock of Purchaser consists of
300,000,000 shares of Purchaser Common Stock and 200,000 shares of preferred
stock. Of the 300,200,000 authorized shares of capital stock of Purchaser, as of
the date hereof, (i) 15 million shares of Purchaser Common Stock are issued and
outstanding; (ii) 6,000,000 shares of Purchaser Common Stock are reserved for
issuance pursuant to Purchaser's employee stock option plan; (iii) 55,000.04
shares of Purchaser Series A Preferred Stock are issued and outstanding; and
(iv) 114,000,000 fully diluted shares of Purchaser Common Stock are outstanding,
assuming conversion of all of the outstanding shares of Purchaser Series A
Preferred Stock mentioned in subSECTION (iii) above, into 99,000,000 shares of
Purchaser Common Stock, but not including any shares authorized pursuant to the
Purchaser's employee stock option plan or otherwise. As of the Closing Date, all
outstanding shares of capital stock of Purchaser, including the shares of
Purchaser Common Stock issuable upon exercise of the Warrants (when issued in
accordance with the terms thereof), will be duly authorized and validly issued,
fully paid, nonassessable
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and free and clear of any Encumbrances other than those created by Purchaser's
certificate of incorporation, bylaws, and the Shareholders' Agreement dated May
28, 1998.
5.8 FINANCIAL STATEMENTS. Attached as SCHEDULE 5.8 hereto are the
unaudited balance sheet of the Purchaser as of June 30, 1998 and the related
unaudited statements of earnings, shareholders' equity and cash flows of the
Purchaser for the 6 month period then ended (collectively, the "PURCHASER
FINANCIAL Statements"). The Purchaser Financial Statements were prepared in
accordance with GAAP, consistently applied throughout the periods indicated, and
present fairly and accurately the financial condition and results of operation
of the Purchaser as of and for the periods indicated; PROVIDED, HOWEVER, that
the Purchaser Financial Statements are subject to normal year-end adjustments
(which will not be material) and lack footnotes and other presentation items.
5.9 PURCHASER DISCLOSURE MATERIAL. The information set forth on
SCHEDULE 5.9 (the "PURCHASER DISCLOSURE MATERIAL") (when read together), subject
to any assumptions contained therein, as of July 28, 1998 did not contain any
misstatement of a material fact or omit to state a material fact necessary to
make the statements made therein in light of the circumstances under which they
were made not misleading. Any assumptions contained in the Purchaser Disclosure
Material are, in view of management of the Purchaser, reasonable.
ARTICLE VI.
COVENANTS OF SELLERS AND THE COMPANY
6.1 CONDUCT OF BUSINESS.
(a) From the date hereof through the Closing Date, Sellers
agree that they shall, and shall cause the Company, except as otherwise
contemplated by this Agreement or as consented to by Purchaser in writing, to
operate the Business in the ordinary course and consistent with past practice
and not to take any action inconsistent with this Agreement. Without limiting
the generality of the foregoing, unless consented to by Purchaser in writing,
Sellers shall cause the Company not to, except as contemplated by this
Agreement:
(i) change or amend its articles of
incorporation, bylaws or other organizational documents;
(ii) declare or pay any dividends, or make any
distributions in respect of any shares of its capital stock or other equity
interests, or repurchase or redeem any issued and outstanding shares of its
capital stock or other equity interests;
(iii) issue or sell any shares of capital stock of
the Company or equity interest or any beneficial interest therein (including,
without limitation, any options or warrants);
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(iv) enter into, extend, materially modify,
terminate or renew any Contract of a type required to be listed on SCHEDULE 4.11
other than in the ordinary course of business;
(v) sell, assign, transfer, convey, lease or
otherwise dispose of any interest in the Real Property or any other material
asset;
(vi) except as otherwise required by law or
consistent with past practices, take any action with respect to the grant of any
severance or termination pay (other than pursuant to policies or agreements of
the Company as the case may be, in effect on the date hereof);
(vii) make any change in the management structure of
the Company, including, without limitation, the hiring of additional officers or
the terminations of existing officers;
(viii) acquire by merger or consolidation with, or
merge or consolidate with, or purchase substantially all of the assets of, or
otherwise acquire any material assets or business of any corporation,
partnership, association or other business organization or division thereof;
(ix) make any loans or advances to any Person;
(x) make any income tax election or settlement
or compromise with tax authorities which would affect the assets of the Company
or the Business after the Closing;
(xi) fail to maintain any material asset in
substantially its current state of repair, normal wear and tear excepted;
(xii) make any change in its accounting policies or
practices;
(xiii) make aggregate capital expenditures in excess
of Fifty Thousand Dollars ($50,000);
(xiv) waive, settle or release any claim or cause of
action of the Company;
(xv) declare or issue any bonus or other
payments, whether or not in the ordinary course of business, to any management
or executive employees of Company or its Subsidiaries; or
(xvi) enter into any agreement, or otherwise become
obligated, to do any action prohibited hereunder.
(b) Sellers and the Company agree that, prior to the Closing,
they shall use their best efforts to (i) preserve substantially intact the
business organization of the
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Company, (ii) retain in its employ all of the key employees of the Company with
respect to the periods prior to and after the Closing Date and (iii) preserve
the current relationships of the Company with the material customers and
suppliers of, and other persons which have significant business relationships
with, the Company subject in all cases to the exercise of reasonable management
discretion.
6.2 HSR ACT. In connection with the Transaction, the Company and
Sellers (if requested by Purchaser) will comply (and, to the extent required,
will cause their Affiliates to comply) with the notification and reporting
requirements of the HSR Act and shall use their respective best efforts to
obtain early termination of the waiting period under the HSR Act. Seller and the
Company shall (and, to the extent required, shall cause their Affiliates to)
substantially comply with any additional requests for information, including
requests for production of documents and production of witnesses for interviews
or depositions, by any Antitrust Authority.
6.3 NO SOLICITATIONS. From the date of this Agreement through the
Closing Date, each of the Sellers and the Company shall not, and shall not
knowingly permit any of their Affiliates, officers, directors, employees,
trustees, representatives and agents to, directly or indirectly, encourage,
solicit, participate in or initiate discussions or negotiations with, or provide
any information to, any Person or group of Persons (other than Purchaser or any
of its Affiliates) concerning any merger, sale of assets, sale of shares of
capital stock or similar transactions involving the Company. Sellers and the
Company shall (a) immediately notify Purchaser (orally and in writing) if any
discussions or negotiations are sought to be initiated, any inquiry or proposal
is made, any information is requested with respect to the Transaction or any
offer is made with respect to the Company, any Real Property, or any Shares, (b)
include in such notification the terms of any such proposal or offer that it may
receive with respect thereto (and provide Purchaser with a copy thereof in
writing), including the identity of the soliciting party and (c) keep Purchaser
informed with respect to the status of the foregoing.
6.4 NOTICE TO PURCHASER. Sellers and the Company will promptly
notify Purchaser of any circumstance, event or action by Sellers, the Company or
otherwise, that causes any statement made by Sellers or the Company in this
Agreement to be inaccurate or incomplete in any material respect or that may
have a Material Adverse Effect and which has not already been disclosed.
6.5 CONSENTS. Unless waived specifically in writing by Purchaser,
Sellers will obtain in writing any consents of any Governmental Authority or
other third party necessary for the consummation of the Transactions.
6.6 INSPECTIONS. Prior to the Closing, Sellers and the Company
shall provide Purchaser and its representatives (including, without limitation,
its engineers, surveyors, attorneys and accountants) access at all reasonable
times to the Real Property and other assets of the Company. At all times prior
to Closing, Purchaser and its representatives, upon reasonable notice to the
Company shall have the right to have access to the those employees, agents and
representatives approved in advance by the Company (which approval shall not be
unreasonably
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withheld), to review all Books and Records of the Company (including for
purposes of conducting an audit of the Company's Financial Statements),
including all the Real Estate Records, to enter onto the Real Property, and to
inspect, examine and survey the Real Property or any other reasonable business
purpose; PROVIDED that such access shall be had in such a manner so as not to
unreasonably interfere with the conduct of the Business. In addition, Purchaser
and its representatives shall have reasonable access to the customers of the
Company for purposes of performing Purchaser's due diligence investigation.
6.7 MPLOYEE BENEFIT PLANS. Sellers shall prevent the Company, and
any Welfare Plan or Pension Plan, or any trust created thereunder, from engaging
in any "prohibited transaction" (as such term is defined in Section 406 of
ERISA), and prevent the Company from (a) terminating any Pension Plan in a
manner that results in the imposition of a lien on any property of the Company
pursuant to Section 4068 of ERISA or (b) take any action that adversely affects
the qualification of any Employee Plan or its compliance with the applicable
requirements of ERISA or the Code or results in a "reportable event" (as such
term is defined in Section 4043(b) of ERISA).
ARTICLE VII.
COVENANTS OF PURCHASER
7.1 CONSENTS. Purchaser shall cooperate with Sellers in connection
with Sellers' efforts to obtain the consents required by SECTION 6.5.
7.2 NOTICE TO PURCHASER. Purchaser will promptly notify the
Company of any circumstance, event or action by Purchaser or otherwise, that
causes any statement made by Purchaser in this Agreement to be inaccurate or
incomplete in any material respect or that may have a Material Adverse Effect
and which has not already been disclosed.
ARTICLE VIII.
COVENANTS OF SELLERS, THE COMPANY AND PURCHASER
8.1 CONFIDENTIALITY.
(a) Except (i) for any governmental filings required in order
to complete the Transactions, and (ii) as Purchaser, the Company and each of the
Sellers may agree or consent in writing, all information received by Purchaser,
the Company or Sellers and their respective representatives pursuant to the
terms of this Agreement or otherwise heretofore provided to the receiving party
in connection with the transactions contemplated hereby shall be kept in
confidence by the receiving party and its representatives and shall not be used
in any manner by such party or its representatives except in connection with its
performance or preparing to perform under this Agreement; PROVIDED, HOWEVER,
that any party hereto may disclose such information to its legal and financial
advisors, lenders, financing sources and their respective legal advisors and
representatives so long as such Persons agree to maintain the confidentiality of
such information in accordance with this SECTION 8.1. If the transactions
contemplated hereby shall fail to be consummated, all copies of documents or
extracts thereof containing
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information and data as to one of the other parties, including all information
prepared by the receiving party or such receiving party's representatives, shall
be turned over to the party furnishing same, except that such information
prepared by the receiving party or such receiving party's representatives may be
destroyed at the option of the receiving party, with notice of such destruction
(or return) to be confirmed in writing to the disclosing party. Any information
not so destroyed (or returned) will remain subject to these confidentiality
provisions (notwithstanding any termination of this Agreement).
(b) The foregoing confidentiality provisions shall not apply
to such portions of the information received which (i) are or become generally
available to the public through no action by the receiving party or by such
party's representatives or (ii) are or become available to the receiving party
on a nonconfidential basis from a source, other than the disclosing party or its
representatives, which the receiving party believes, after reasonable inquiry,
is not prohibited from disclosing such portions to it by a contractual, legal or
fiduciary obligation, and, except as set forth in Section 8.1(c) below, shall
not apply to any disclosure by Purchaser or the Company after the Closing.
(c) Purchaser agrees that any disclosure of the existence of
the Employee Retention Percentage may be very detrimental to Sellers and will
take all reasonable action to keep confidential the existence of the Employee
Retention Percentage. This shall include providing information regarding the
Employee Retention Percentage (including its existence) only to those officers
of Purchaser and its advisors on a need to know basis. If it is determined that
the Employee Retention Percentage information was negligently disclosed by
Purchaser to employees of IIT, Inc. or others, and that this information had a
material affect on the ability of the Sellers to meet the employee retention
target, then Sellers shall be relieved of any obligation to meet the Employee
Retention Percentage criteria under Section 2.3(a)(iii) with regard to the
Contingent Payment to Sellers and for the Bonus Payment under Section 2.6.
8.2 NONSOLICITATION OF EMPLOYEES. Prior to the Closing, and if
this Agreement is terminated pursuant to Section 10.1(c), for a period of
twenty-four months after the date of this Agreement, Purchaser shall not (a)
solicit or induce any employee, officer, representative, consultant or other
agent of the Acquired Companies, to leave the Acquired Companies' employ or
otherwise interfere with the employment relationship between any such person and
the Acquired Companies or (b) solicit any customers of the Acquired Companies on
the date of this Agreement to provide PeopleSoft implementation services.
8.3 COOPERATION AND RECORDS RETENTION. After the Closing Date,
Sellers and the Company shall each (i) provide the other party with such
assistance as may reasonably be requested by in connection with the preparation
of any return, audit, or other examination by any taxing authority or judicial
or administrative proceedings relating to liability for any Taxes, (ii) provide
the other party with any records or other information that may be relevant to
such return, audit or examination, proceeding or determination, and (iii)
provide the other party with any final determination of any such audit or
examination, proceeding, or determination that affects any amount required to be
shown on any Tax Return of the other for any period. Without
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limiting the generality of the foregoing, the Company and Sellers shall each
retain, until the applicable statutes of limitations (including any extensions)
have expired, copies of all Tax Returns, supporting work schedules, and other
records or information that may be relevant to such returns for all tax periods
or portions thereof ending on or before the Closing Date.
ARTICLE IX.
CONDITIONS TO OBLIGATIONS
9.1 CONDITIONS TO OBLIGATIONS OF PURCHASER, SELLERS AND THE
COMPANY. The obligations of Purchaser, Sellers and the Company to consummate, or
cause to be consummated, the Transactions are subject to the satisfaction of the
following conditions, any one or more of which may be waived in writing by such
parties:
(a) There shall not be in force any order or decree, statute,
rule or regulation nor shall there be on file any complaint by a Governmental
Authority seeking an order or decree, restraining, enjoining or prohibiting the
consummation of the Transactions and none of Purchaser, any of the Sellers or
the Company shall have received notice from any Governmental Authority that it
has determined to institute any suit or proceeding to restrain or enjoin the
consummation of the Transactions or to nullify or render ineffective this
Agreement if consummated, or to take any other action which would result in the
prohibition or a material change in the terms of the Transactions.
9.2 CONDITIONS TO OBLIGATIONS OF PURCHASER. The obligations of
Purchaser to consummate, or cause to be consummated, the Transactions are
subject to the satisfaction of the following additional conditions, any one or
more of which may be waived in writing by Purchaser:
(a) Each of the representations and warranties of Sellers and
the Company contained in this Agreement shall be true and correct in all
material respects (except where such representations and warranties are
qualified by materiality) both on the date hereof and as of the Closing, as if
made at and as of that time, and each of the covenants and agreements of Sellers
and the Company to be performed as of or prior to the Closing shall have been
duly performed in all material respects.
(b) All material permits, approvals, clearances, and consents
of, and all filings with, Governmental Authorities required to be procured by
any of the Sellers or the Company in connection with the Transactions shall have
been procured.
(c) The Company shall have delivered to Purchaser a
certificate signed by an officer of the Company, dated as of the Closing Date,
certifying that, the conditions specified in SECTION 9.1, as they relate to
either or both Sellers and the Company, and SECTION 9.2(a) have been fulfilled.
(d) Any consent required for the consummation of the
Transactions under any Contract required to be listed on SCHEDULE 4.11 hereto or
for the continued
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enjoyment by the Company of the benefits of any such Contract after the Closing
shall have been obtained.
(e) All Persons who are directors or officers of the Company
shall have resigned such directorships or offices, effective as of the Closing
Date.
(f) Purchaser shall have received opinions, dated as of the
Closing Date, from counsel to the Company and counsel to Sellers, reasonably
acceptable to counsel to Purchaser.
(g) Sellers and the Company shall have delivered all
assignments, consents, approvals and other documents, certificates and
instruments as Purchaser may reasonably request for the purpose of (i)
evidencing the accuracy and completeness of any of the representations,
warranties or statements, the performance of any covenants or agreements of the
Company or the compliance by Purchaser with any of the conditions, all as
contained or referred to in this Agreement or (ii) effectuating or confirming
the consummation of the Transactions.
(h) Purchaser shall have received possession or control of all
corporate, accounting, business and tax records of the Company.
(i) Each of the Sellers shall have entered into a
Non-Competition Agreement containing the terms set forth on EXHIBIT E.
(j) Each of the Sellers shall have entered into an Employment
Agreement with the Company containing the terms set forth on EXHIBIT F.
(k) Purchaser shall have received a true and complete copy,
certified by the Secretary or an Assistant Secretary (or similar officer) of the
Company of the resolutions duly and validly adopted by the Board of Directors of
the Company evidencing its authorization of the execution and delivery of this
Agreement and the consummation of the Transactions.
(l) Sellers shall have delivered signed UCC-3 termination
statements terminating all security interests in the assets of the Company
except for security interests securing indebtedness to be assumed by Purchaser.
(m) Each of the Sellers that receives the Warrants shall have
executed and delivered the Warrantholders' Agreement in the form attached as
EXHIBIT G.
(n) The Company shall deliver to Purchaser an executed
affidavit, dated not more than thirty (30) days prior to the Closing Date, in
accordance with Code Section 1445(b)(3) and Treasury Regulation sections
1.897-2(h) and 1.1445-2(c)(3), which statement certifies that the Shares are not
U.S. real property interests.
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(o) Purchaser shall have received the audited financial
statements of IIT, C.A. as of and for the twelve month period ended December 31,
1997 identical to the unaudited financial statements of IIT, C.A. as of and for
the period ended December 31, 1997 set forth on Scheduled 4.6 except for the
deletion of any qualifications and changes resulting therefrom, provided,
however, that Purchaser's obligation to consummate the Transactions shall be
conditioned on delivery of such financial statements only if Purchaser
establishes that it was otherwise ready, willing and able to deliver the Cash
Consideration.
9.3 CONDITIONS TO THE OBLIGATIONS OF SELLERS AND THE COMPANY. The
obligations of Sellers and the Company to consummate the Transactions are
subject to the satisfaction of the following additional conditions, any one or
more of which may be waived in writing by Sellers:
(a) Each of the representations and warranties of Purchaser
contained in this Agreement shall be true and correct in all material respects
(except where such representations and warranties are qualified by materiality)
both on the date hereof and as of the Closing, as if made anew at and as of that
time, and each of the covenants and agreements of Purchaser to be performed as
of or prior to the Closing shall have been duly performed in all material
respects.
(b) Sellers shall have received an opinion, dated as of the
Closing Date, from counsel to Purchaser, reasonably acceptable to counsel to
Sellers.
(c) Purchaser shall have delivered to Sellers and the Company
a certificate signed by an officer of Purchaser, dated as of the Closing Date,
certifying that, the conditions specified in SECTION 9.1, as they relate to
Purchaser, and subsection 9.3(a) have been fulfilled.
(d) Sellers shall have received a true and complete copy,
certified by the Secretary or an Assistant Secretary (or similar officer) of
Purchaser, of the resolutions duly and validly adopted by the Board of Directors
of Purchaser evidencing its authorization of the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby.
ARTICLE X.
TERMINATION
10.1 TERMINATION. This Agreement may be terminated and the
Transactions abandoned:
(a) By mutual written consent of the parties at any time
prior to the Closing.
(b) Prior to the Closing, by written notice to Sellers from
Purchaser, (i) pursuant to SECTION 11.1, (ii) if the Closing has not occurred on
or before October 31,
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1998 and Purchaser is not in material breach of a representation, warranty,
covenant or agreement or (iii) if consummation of the Transactions is enjoined,
prohibited or otherwise restrained by the terms of a final, non-appealable order
or judgment of a court of competent jurisdiction.
(c) Prior to the Closing, by written notice to Purchaser from
Sellers, (i) pursuant to SECTION 11.1, (ii) if the Closing has not occurred on
or before October 31, 1998 and neither Sellers nor the Company are in material
breach of a representation, warranty, covenant or agreement of either Sellers or
the Company or (iii) if consummation of the Transactions is enjoined, prohibited
or otherwise restrained by the terms of a final, non-appealable order or
judgment of a court of competent jurisdiction.
10.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement pursuant to SECTION 10.1, this Agreement shall forthwith become void
and have no effect, without liability on the part of any party hereto or their
respective Affiliates, officers, directors or stockholders, other than liability
of Sellers, the Company or Purchaser as the case may be, for any
misrepresentation contained in, or any breach of, this Agreement occurring prior
to such termination. The provisions of SECTION 10.1, this SECTION 10.2 and
Article XI shall survive any termination of this Agreement.
10.3 RISK OF LOSS. If any material portion of the assets of the
Company (the "ASSETS") is destroyed or damaged by fire or any other cause on or
prior to the Closing Date, the Company shall give written notice to Purchaser as
soon as practicable after, but in any event within five (5) calendar days of,
discovery of such damage or destruction, including specification of the amount
of insurance, if any, covering such Assets and the amount, if any, which Sellers
or the Company are otherwise entitled to receive as a consequence of such damage
or destruction. Prior to the Closing, Purchaser shall have the option, which
shall be exercised by written notice to the Company within fifteen (15) business
days after receipt of the Company's notice or if there are not fifteen (15)
business days prior to the Closing Date, as soon as practicable prior to the
Closing Date, of (a) accepting such Assets in their destroyed or damaged
condition in which event Purchaser shall be entitled to the proceeds of any
insurance or other proceeds payable with respect to such loss, or the cash
equivalent thereof, and subject to Article XII, to such indemnification for any
uninsured portion of such loss pursuant to Article XII, and the full Total
Consideration shall be paid for such Assets, (b) if agreed by Sellers, excluding
such Assets from this Transaction, in which event the Total Consideration shall
be reduced by the amount allocated to such Assets and the Pro Rata Share of the
proceeds of any insurance or other proceeds payable with respect to such loss
shall be distributed to each of the Sellers, or (c) after providing Sellers and
the Company with a reasonable opportunity to cure, terminating this Agreement in
accordance with Article X, if such damage or destruction has a Material Adverse
Effect.
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ARTICLE XI.
DEFAULT AND REMEDIES
11.1 BREACH AND OPPORTUNITY TO CURE. If any party shall breach the
terms of this Agreement or default in the performance of its obligations
hereunder, the nondefaulting party shall have the right to provide the
defaulting party with notice specifying in reasonable detail the nature of such
breach or default. If such breach or default has not been cured by the earlier
of (a) the Closing Date and (b) thirty (30) days after delivery of such notice,
then the party giving such notice may (i) terminate this Agreement by giving
written notice to the defaulting party hereunder, (ii) extend the Closing Date
if such default has not been cured by the Closing Date (but no such extension
shall constitute a waiver of such nondefaulting party's right to terminate as a
result of such default), (iii) exercise the remedies available to such party
pursuant to Sections 11.2 or 11.3, subject to the right of the other party to
contest such action through appropriate proceedings, and/or (iv) proceed to
Closing, but which shall not constitute a waiver of such breach or default.
11.2 SELLERS' REMEDIES. Purchaser recognizes that if the
Transactions are not consummated solely as a result of Purchaser's default,
Sellers would incur damages, the extent of which is extremely difficult and
impractical to ascertain. The parties, therefore, agree that if this Agreement
is terminated or otherwise is not consummated solely due to the material default
of Purchaser, Purchaser shall pay to each of the Sellers an equal share of
$400,000 in addition to the amount of the Deposit, as Sellers' sole and
exclusive remedy in full settlement of any damages of any nature or kind that
Sellers may suffer or allege to suffer as the result of any default or breach by
Purchaser. The parties agree that this sum shall be in lieu of any and all other
relief to which Sellers might otherwise be entitled due to Purchaser's breach
of, or default under, this Agreement.
11.3 PURCHASER'S REMEDIES. Sellers agree that the Shares represent
unique property that cannot be readily obtained on the open market and that
Purchaser would be irreparably injured if this Agreement is not specifically
enforced after default. Therefore, Purchaser shall have the right to
specifically enforce Sellers' performance under this Agreement, and Sellers
agree to waive the defense in any such suit that Purchaser has an adequate
remedy at law and to interpose no opposition, legal or otherwise, as to the
propriety of specific performance as a remedy, and that Purchaser shall have the
right to obtain specific performance of the terms of this Agreement without
being required to prove actual damages, post bond or furnish other security. In
addition, Purchaser shall be entitled to obtain from Sellers, court costs and
reasonable attorneys' fees incurred by Purchaser in enforcing its rights
hereunder. As a condition to seeking specific performance, Purchaser shall not
be required to have tendered the Cash Consideration, but shall be ready, willing
and able to do so. In the event Purchaser elects to terminate this Agreement as
a result of Sellers' default, instead of seeking specific performance, then
Purchaser shall be entitled to recover its damages resulting from such default,
plus reasonable attorney's fees and court costs incurred by Purchaser in
enforcing its rights under this Agreement.
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11.4 RETURN OF DEPOSIT. In the event that the Closing does not
occur due to a breach by the Company or any of the Sellers, then Purchaser shall
be entitled to a return of the Deposit.
11.5 ESCROW DEPOSIT. In the event that all of the conditions to
Closing are satisfied but Purchaser fails to tender the balance of the Cash
Consideration or to purchase the Shares on the Closing Date, the $400,000 of the
liquidated damages set forth in SECTION 11.2 shall be paid to the Seller
Representative from the Escrow Deposit and the balance, if any, of the Escrow
Deposit shall be returned to Purchaser. In the event that the Closing does not
occur due to no fault or breach by Purchaser, then Purchaser shall be entitled
to a return of the Escrow Deposit.
ARTICLE XII.
POST CLOSING OBLIGATIONS; SURVIVAL OF REPRESENTATION
The parties covenant and agree as follows with respect to the
period subsequent to the Closing Date:
12.1 INDEMNIFICATION.
12.1.1. PURCHASER'S RIGHT TO INDEMNIFICATION. Subject to
Section 12.1.4, each Seller undertakes and agrees to indemnify, defend by
counsel reasonably acceptable to Purchaser, and hold harmless Purchaser, its
parent, affiliates, successors and assigns and their respective directors,
officers, employees, shareholders, representatives and agents (hereinafter
referred to collectively as "Purchaser Indemnitees") from and against and in
respect of such Seller's Pro Rata Share of any and all losses, costs,
liabilities, claims, obligations, diminution in value and expenses, including
reasonable attorneys' fees ("Claims"), incurred or suffered by a Purchaser
Indemnitee arising from (a) the claims of third parties with respect to
operation of the Company prior to Closing; (b) a breach, misrepresentation, or
other violation of any of the Sellers' or the Company's covenants, warranties or
representations contained in this Agreement excluding those that are to be
indemnified pursuant to section 13.8; (c) any breach or default by the Company
under any Contract prior to Closing; (d) any Pre-Closing Environmental Matters;
and (e) any and all actions, suits, proceedings, claims demands, assessments,
judgments, costs and expenses, incident to any of the foregoing or incurred to
oppose the imposition thereof, or in enforcing this indemnity; together with
interest at the Prime Rate (as defined below) on any such Claim from the date of
incurrence by such Purchaser Indemnitee(s) until the date of reimbursement by
Sellers. "Prime Rate" shall mean the prime rate as published in the Money Rates
column of the Eastern Edition of the Wall Street Journal (or the average of such
rates if more than one rate is indicated), in effect on the date of incurrence
of such Claim. The foregoing indemnity is intended by Sellers to cover all acts,
suits, proceedings, claims, demands, assessments, adjustments, diminution in
value, costs, and expenses with respect to any and all of the specific matters
set forth in this indemnity.
12.1.2. SELLERS' RIGHT TO INDEMNIFICATION. Purchaser
undertakes and agrees to indemnify, defend by counsel reasonably acceptable to
Sellers and hold harmless Sellers, their representatives and agents (hereinafter
referred to collectively as "Seller Indemnitees") from and
48
<PAGE>
against and in respect of any and all Claims incurred or suffered by a Seller
Indemnitee after Closing arising from: (a) a breach, misrepresentation, or other
violation of any of Purchaser's covenants, warranties or representations
contained in this Agreement excluding those that are to be indemnified pursuant
to SECTION 13.8; (b) any claims of third parties with respect to the operation
of the Company on or after the Closing Date; and (c) any and all actions, suits,
proceedings, claims, demands, assessments, judgments, costs and expenses,
incident to any of the foregoing or incurred to oppose the imposition thereof,
or in enforcing this indemnity; together with interest at the Prime Rate on any
such claim from the date of incurrence by such Seller Indemnitee(s) to the date
of reimbursement by Purchaser. The foregoing indemnity is intended by Purchaser
to cover all acts, suits, proceedings, claims, demands, assessments,
adjustments, costs, and expenses with respect to any and all of the specific
matters set forth in this indemnity.
12.1.3. CONDUCT OF PROCEEDINGS. If any claim or proceeding
covered by the foregoing agreements to indemnify and hold harmless shall arise,
the party who seeks indemnification (the "Indemnified Party") shall give written
notice thereof to the other party (the "Indemnitor") promptly after the
Indemnified Party learns of the existence of such claim or proceeding; PROVIDED,
HOWEVER, that the Indemnified Party's failure to give the Indemnitor prompt
notice shall not bar the Indemnified Party's right to indemnification unless
such failure has materially prejudiced the Indemnitor's ability to defend the
claim or proceeding. The Indemnitor shall have the right to employ counsel
reasonably acceptable to the Indemnified Party to defend against any such claim
or proceeding, or to compromise, settle or otherwise dispose of the same, if the
Indemnitor deems it advisable to do so, all at the expense of the Indemnitor;
PROVIDED that the Indemnitor shall not have the right to control the defense of
any such claim or proceeding unless it has acknowledged in writing its
obligation to indemnify the Indemnified Party fully from all liabilities
incurred as a result of such claim or proceeding and then and periodically
thereafter provides the Indemnified Party with reasonably sufficient evidence of
the ability of the Indemnitor to satisfy any such liabilities. The parties will
fully cooperate in any such action, and shall make available to each other any
books or records useful for the defense of any such claim or proceeding. If the
Indemnitor fails to acknowledge in writing its obligation to defend against or
settle such claim or proceeding within twenty (20) days after receiving notice
thereof from the Indemnified Party (or such shorter time specified in the notice
as the circumstances of the matter may dictate), the Indemnified Party shall be
free to dispose of the matter, at the expense of the Indemnitor (if the
Indemnitor is ultimately liable), in any way in which the Indemnified Party
deems to be in its best interest.
12.1.4. LIMITATIONS ON INDEMNIFICATION. Notwithstanding
anything to the contrary in this SECTION 12.1:
(a) An Indemnitor shall have no obligation with respect to any
Claims for breach of representation or warranty under this SECTION 12.1, except
for the representations set forth in SECTIONS 4.3, 4.21, and 4.27, until the
aggregate amount of all Claims against all Indemnitors exceeds $100,000 at which
time the full amount of all Claims against all Indemnitors shall be due without
regard to such threshold amount.
49
<PAGE>
(b) In no event shall any Party have any indemnity obligations
for breaches of representations or warranties under this Section 12.1 for any
Claim first asserted after the survival period set forth for such Claim in
Section 12.3.
(c) Notwithstanding any other provision contained in this
Agreement, in no event shall any Seller be liable to Purchaser or any other
Person in an amount in excess of the Total Consideration received by such
Seller.
12.1.5. INDEMNIFICATION SOLE REMEDY. The right to
indemnification under this Article XII and Article XIII, subject to the
limitations set forth in SECTION 12.1.4 and Article XIII and the right of the
Sellers to terminate the Noncompetition Agreements in the event of Purchaser's
default in the performance of its obligations under SECTION 2.3, shall be the
exclusive remedy of any party in connection with any breach by another party of
its representations, warranties, or covenants or any other default under this
Agreement, and neither party shall make or assert any claim under this Agreement
or related to the Transactions, regardless of the form of action, except under
and in accordance with this Article XII, provided that this shall not affect the
right (a) of Purchaser to make a claim for specific performance as provided in
Section 11.3, or (b) of either party to make a claim for damages arising from
the other party's fraud up to a limit equal to the Total Consideration paid to
Sellers under this Agreement.
12.2 RIGHT OF OFFSET. Each of Purchaser and Sellers shall have the
right to offset against amounts owing to the other any amounts owing to such
party pursuant to SECTION 12.1, provided such party has a good faith basis to
believe that it is entitled to indemnification for such Claims. If it is
determined that a party was not entitled to indemnification for such Claims, it
shall pay the other party interest at the Prime Rate plus 500 basis points from
the date such amount was due until paid.
12.3 SURVIVAL OF REPRESENTATIONS. The representations and
warranties contained herein shall survive for eighteen months after the Closing
without limitation and without regard to any investigation made by any of the
parties hereto; PROVIDED, HOWEVER, that the representations and warranties made
by the Company and Sellers in SECTIONS 4.1, 4.3, 4.4, and 4.20, shall survive
without limitation and the representations and warranties in SECTION 4.21 shall
survive for the period set forth in SECTION 13.8.
12.4 RIGHTS OF SET-OFF. Any Contingent Payments owed by Purchaser
to Sellers pursuant to SECTION 2.3 are subject to reduction for any Claims
pursuant to SECTION 12.1 above and SECTION 13.8, provided that Purchaser has a
good faith basis to believe that it is entitled to indemnification for such
Claims. If it is determined that Purchaser was not entitled to indemnification
for such Claims, it shall pay the Sellers interest at the Prime Rate plus 500
basis points from the date such amount was due until paid..
ARTICLE XIII.
TAX MATTERS
13.1 ALLOCATION OF RESPONSIBILITY. From and after the Closing
Date, the Sellers shall pay any Taxes payable by the Company (i) for all taxable
periods ending on or prior to the
50
<PAGE>
Closing Date, (ii) for all taxable periods beginning prior to the Closing Date
and ending after the Closing Date (a "PRE-CLOSING PARTIAL PERIOD"), for that
portion of such taxable period up to and including the Closing Date, and (iii)
as a result of any breach of any representation, warranty or covenant in Section
4.21, Section 6.1(x) or Article XIII of this Agreement. Notwithstanding the
foregoing, no payment shall be required to be paid for Taxes to the extent
reserves for such Taxes are established on the Final Balance Sheet (other than
any reserves for deferred Taxes established to reflect timing differences
between book and Tax income).
13.2 PAYMENT OF TAXES. Purchaser shall notify the Seller
Representative of any Tax obligation of the Company at least fifteen (15) days
before such obligation is due to be paid. Seller Representative shall wire
transfer funds to Purchaser for value no later than three (3) days before such
payments are due.
13.3 TAX RETURNS. The Seller Representative shall prepare or cause
to be prepared, in a manner consistent with past practices all Tax Returns for
the Company for all taxable years or periods ending on or before the Closing
Date but which are due to be filed after the Closing Date (taking into account
all applicable extensions of time for filing). The Seller Representative shall
cause such Tax Returns to be delivered to Purchaser for comment and approval,
which approval shall not be unreasonably withheld, no later than thirty (30)
days prior to the due date for filing any such Tax Return (taking into account
any applicable extensions of time to file).
13.4 REFUNDS. Sellers shall be entitled to retain, or receive
payment from Purchaser within fifteen (15) days of the receipt of any Tax
refunds or credits relating to the Company that were paid with respect to (i)
all taxable periods ending on or prior to the Closing Date and (ii) Pre-Closing
Partial Periods, for that portion of such taxable period up to and including the
Closing Date. Purchaser shall, if Seller Representative so requests and at
Seller Representative's expense, cause the Company to file for and obtain any
refund to which Seller Representative is entitled to under this Section 13.4,
provided that Seller Representative shall not file, and Purchaser shall not be
obligated to file, to obtain any refund that would have the effect of (x)
increasing any Tax liability of the Company or (y) otherwise materially and
adversely affect any item or Tax attribute of the Company, in each case for any
taxable period ending after the Closing Date, without Seller Representative
first obtaining the Company's consent, which consent shall not be unreasonably
withheld. Purchaser shall permit Seller Representative to control (at the Seller
Representative's expense) the prosecution of such refund claim, and shall cause
powers of attorney authorizing Seller Representative to represent the Company
before the relevant taxing authority with respect to such refund to be executed,
provided that Seller Representative (i) shall keep Purchaser informed regarding
the progress and substantive aspect of any such refund and (ii) shall not
compromise or settle any such refund without obtaining Purchaser's consent,
which consent shall not be unreasonably withheld, if such compromise or
settlement would have the effect of (x) increasing any Tax liability of the
Company or (y) otherwise materially and adversely affect any item or Tax
attribute of the Company, in each case for any taxable period ending after the
Closing Date. In the event that any refund or credit of Taxes for which a
payment has been made pursuant to this section 13.4 is
51
<PAGE>
subsequently reduced or disallowed, the Sellers shall indemnify and hold
Purchaser harmless for any Taxes assessed against the Company by reason of the
reduction or disallowance.
13.5 CONTESTS. Purchaser and the Seller Representative agree to
give prompt notice to each other of any proposed adjustment to Taxes for any
periods of the Company ending on or prior to the Closing Date or any Pre-Closing
Partial Period. Purchaser and the Seller Representative shall cooperate with
each other in the conduct of any audit or other proceeding involving the Company
for such periods and each party may participate at its own expense. Seller
Representative shall have the right to control the conduct of any such audit or
proceeding for which the Sellers agree that any resulting Tax allocable to any
period prior to and including the Closing Date is covered by the indemnity set
forth in Section 13.8 of this Agreement, (such audit or proceeding, a "Seller's
Contest") provided that: (i) Seller Representative shall keep Purchaser informed
regarding the progress and substantive aspects of any Seller's Contest and (ii)
Seller Representative shall not compromise or settle any Seller's Contest if
such compromise or settlement would have the effect of (x) increasing any Tax
liability of the Company or (y) otherwise materially and adversely affect any
item or Tax attribute of the Company, in each case for any taxable period ending
after the Closing Date, without obtaining Purchaser's consent, which consent
shall not be unreasonably withheld. If Seller Representative chooses to direct a
Seller's Contest, Purchaser shall cause powers of attorney authorizing Seller
Representative to represent the Company before the relevant taxing authority and
such other documents as are reasonably necessary for Seller Representative to
control the conduct of any Sellers' Contest, consistent with the terms of this
Section 13.5
13.6 ALLOCATION OF TAXES. For purposes of SECTION 4.21 and this
Article XIII, in the case of Taxes that are payable with respect to a taxable
period that begins before the Closing Date and ends after the Closing Date, the
portion of such Taxes payable for the period ending on the Closing Date shall be
(a) in the case of any Tax based upon or measured by income, and in the case of
sale or use tax, the amount which would be payable if the taxable year ended as
of the end of the Closing Date and (b) in the case of any other Tax, such as
personal or real property, the amount of such tax for the entire period
multiplied by a fraction, the numerator of which is the number of days in the
period ending on the Closing Date and the denominator of which is the number of
days in the entire period.
13.7 TREATMENT OF INDEMNITY PAYMENTS. All indemnity and other
payments made under this Agreement shall be considered to be adjustments to the
Total Consideration.
13.8 INDEMNIFICATION. The covenants and agreements of the parties
contained in this Article XIII and the representations and warranties contained
in SECTION 4.21 of this Agreement shall survive the Closing and shall remain in
full force and effect until ninety (90) days following the expiration of the
applicable statutes of limitations with respect to any Taxes that would be
indemnifiable under this Article XIII. The procedures set forth in SECTION
12.1.3 of this Agreement shall apply to any claims made by the parties to this
Agreement pursuant to this Article XIII. Subject to the limitation set forth in
Section 12.1.4(c), each Seller shall undertake and agree to indemnify, defend by
counsel reasonably acceptable to Purchaser, and hold Purchaser and the Company
harmless from and against such Seller's Pro Rata Share of all
52
<PAGE>
Claims arising out of, any breach of representation or warranty in Section 4.21
of this Agreement or any covenant made by the Sellers or Seller Representative
in this Article XIII or in Section 6.1(x) of this Agreement, together with
interest at the Prime Rate on any such Claim from the date of incurrence by the
Purchaser or the Company until the date of reimbursement by Sellers. Purchaser
undertakes and agree to indemnify, defend by counsel reasonably acceptable to
Sellers, and hold Sellers harmless from and against all Claims arising out of
breach of any covenant made by Purchaser under this Article XIII, together with
interest at the Prime Rate on any such Claim from the date of incurrence by the
Sellers until the date of reimbursement by Purchaser. Notwithstanding anything
to the contrary in this Agreement, to the extent that the provisions contained
in this Article XIII conflict with any provision of Article XII of this
Agreement, the provisions contained in this Article XIII shall control.
13.9 SUCCESSORS. For purposes of this Article XIII, all references
to the Purchaser, the Sellers and the Company shall include successors.
ARTICLE XIV.
SELLER REPRESENTATIVE
14.1 DESIGNATION OF SELLER REPRESENTATIVE. The parties agree that
it is desirable to designate a representative to act on behalf of Sellers (the
"SELLER REPRESENTATIVE"). The parties have designated L. Sebastian Alegrett and
Carlos E. Bravo, jointly, as the Seller Representative, and approval of this
Agreement by Sellers shall constitute certification and approval of such
designation.
14.2 AUTHORITY AND RIGHTS OF SELLER REPRESENTATIVE; LIMITATIONS ON
LIABILITY. The Seller Representative shall have full power, authority and
discretion to act on behalf of the Sellers for all purposes under this Agreement
and the Ancillary Agreements. The Seller Representative will have no liability
to the Sellers with respect to actions taken or omitted to be taken in its
capacity as Seller Representative, except with respect to the Seller
Representative's gross negligence or willful misconduct. The Seller
Representative shall be entitled to reimbursement, from the Sellers for all
reasonable expenses, disbursements and advances (including fees and
disbursements of its counsel, experts and other agents and consultants) incurred
by the Seller Representative in such capacity, and for indemnification against
any loss, liability or expenses arising out of actions taken or omitted to be
taken in its capacity as Seller Representative (except for those arising out of
Seller Representative's gross negligence or willful misconduct).
ARTICLE XV.
MISCELLANEOUS
15.1 WAIVER. Either party to this Agreement may, at any time prior
to the Closing, waive any of the terms or conditions of this Agreement;
PROVIDED, HOWEVER, any such waiver must be in writing, executed in the same
manner as this Agreement.
15.2 NOTICES. All notices and other communications among the
parties shall be in writing and shall be deemed to have been duly given when (i)
delivered in person, or (ii) five
53
<PAGE>
(5) days after posting in the United States mail having been sent registered or
certified mail return receipt requested, or (iii) delivered by telecopy and
promptly confirmed by delivery in person or post as aforesaid in each case, with
postage prepaid, addressed as follows:
If to Purchaser, to:
USINTERNETWORKING, INC.
175 Admiral Cochrane Drive
Annapolis, MD 21401
Attention: Stephen E. McManus
Telecopy No.: (410) 897-4400
with copies to (which shall not constitute
notice):
Latham & Watkins
1001 Pennsylvania Avenue, N.W.
Suite 1300
Washington, D.C. 20004
Attention: James F. Rogers
Telecopy No.: (202) 637-2201
If to Sellers, to:
L. Sebastian Alegrett
906 Escobar Avenue
Coral Gables, FL 33134
Michael Mai
19261 Dearborne Circle
Huntington Beach, CA 92648
Vicente Perez de Tudela
19502 Ranch Lane #102
Huntington Beach, CA 92648
Carlos E. Bravo
1421 Kirkwall Court
Inverness, IL 60010
with copies to (which shall not constitute
notice):
Stephen A. Colley
Duckor, Spradling & Metzger
401 West A Street
Suite 2400
54
<PAGE>
San Diego, CA 92101-7915
Telecopy No.: (619) 231-6629
If to Company, to:
IIT Holding, Inc.
2333 Ponce de Leon
Suite 1108
Coral Gables, FL 33134
Attention: Sebastian Alegrett
Telecopy No.: (305) 460-6899
with copies to (which shall not constitute
notice):
Stephen A. Colley
Duckor, Spradling & Metzger
401 West A Street
Suite 2400
San Diego, CA 92101-7915
Telecopy No.: (619) 231-6629
or to such other address or addresses as the parties may from time to time
designate in writing.
15.3 ASSIGNMENT. Neither party hereto may assign its rights under
this Agreement without the consent of the other party hereto; PROVIDED; HOWEVER
that Purchaser may assign its rights and obligations under this Agreement to an
Affiliate of Purchaser.
15.4 RIGHTS OF THIRD PARTIES. Nothing expressed or implied in this
Agreement is intended or shall be construed to confer upon or give any Person,
other than the parties hereto, any right or remedies under or by reason of this
Agreement.
15.5 RELIANCE. Each of the parties to this Agreement shall be
deemed to have relied upon the accuracy of the written representations and
warranties made to it in or pursuant to this Agreement, notwithstanding any
investigations conducted by or on its behalf or notice, knowledge or belief to
the contrary.
15.6 TRANSFER TAXES; TITLE COSTS; EXPENSES. Notwithstanding any
other provision hereof, Purchaser shall be solely responsible for the costs and
expenses of all recording fees (on a per-page basis or otherwise), transfer
taxes, conveyance taxes, sales and use taxes, stamp taxes and other taxes
incurred or otherwise payable in connection with the Transaction. Any filing
fees payable in connection with the parties' compliance with the HSR Act shall
be paid by Purchaser. All other costs and expenses incurred by the parties in
connection with the transactions contemplated hereby shall be borne by the party
incurring such expense.
15.7 CONSTRUCTION. This Agreement shall be construed and enforced
in accordance with the laws of the State of New York. Unless otherwise stated,
references to
55
<PAGE>
Sections, Articles, Exhibits or Schedules refer to the Sections, Articles,
Exhibits and Schedules to this Agreement. The parties to this Agreement
participated jointly in the negotiation and drafting of this Agreement. If any
ambiguity or question of intent or interpretation shall arise with respect to
this Agreement, then this Agreement shall be construed as if drafted jointly by
the parties and no presumption or burden of proof will arise favoring or
disfavoring any party to this Agreement by virtue of the authorship of any
provision of this Agreement.
15.8 ARBITRATION. The parties hereby agree to submit all
controversies, claims and matters of difference arising out of this Agreement to
arbitration in Dade County, Florida, according to the commercial rules and
practices of the American Arbitration Association ("AAA) from time to time in
force, and in accordance with the following provisions of this Section 15.8.
(a) Arbitration discovery will be conducted in accordance with
the Federal Rules of Civil Procedure, with any disputes over the scope of
discovery to be determined by the arbitrators, it being intended that the
arbitrators will allow limited, reasonable discovery prior to any hearing on the
merits.
(b) Arbitration hereunder will be by three independent and
impartial arbitrators. Each of the parties will appoint one arbitrator within 30
days after initiation of arbitration and the two arbitrators so appointed will
select a third arbitrator within 45 days after initiation of arbitration. In the
event that the parties or the arbitrators fail to select arbitrators as required
above, the AAA will select such arbitrators.
(c) The AAA will have the authority to disqualify any
arbitrator who it determines not to be independent and impartial. The
arbitrators will be entitled to a fee commensurate with their fees for
professional services requiring similar time and effort.
(d) The arbitrators will conduct a hearing no later than 60
days after initiation of the matter to arbitration, and a decision will be
rendered by the arbitrators within 30 days of the hearing. At the hearing, the
parties will present such evidence and witnesses as they may choose, with or
without counsel. Adherence to formal rules of evidence will not be required but
the arbitration panel will consider any evidence and testimony that it
determines to be relevant, in accordance with procedures that it determines to
be appropriate. The arbitration determination will be in writing and will
specify the factual and legal bases for the determination. The arbitrators may
award legal or equitable relief, including but not limited to specific
performance.
(e) The parties agree that this submission and agreement to
arbitrate will be governed by and specifically enforceable in accordance with
the laws of the State of New York. Arbitration may proceed in the absence of any
party if prior written notice of the proceedings has been given to such party.
The parties agree to abide by all decisions and determinations rendered in such
proceedings. Such decisions and determinations will be final and binding on all
parties. All decisions and determinations may be filed with the clerk of one or
more courts, state federal or foreign having jurisdiction over the party against
whom it is rendered or its property, as a basis of judgment.
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<PAGE>
(f) The arbitrators' fees and other costs of the arbitration
will be borne by the party against whom the award is rendered, except as the
arbitration panel may otherwise provide in its written opinion.
15.9 ATTORNEY'S FEES. In the event of any arbitration or litigation
arising under this Agreement, the prevailing party shall be entitled to recover
his or its reasonable attorney's fees from the other party.
15.10 CAPTIONS; COUNTERPARTS. The captions in this Agreement are for
convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Agreement. 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.
15.11 ENTIRE AGREEMENT. This Agreement (together with the Schedules
and Exhibits to this Agreement, which constitute part of this Agreement)
constitutes the entire agreement among the parties and supersede any other
agreements, whether written or oral, that may have been made or entered into by
or among any of the parties hereto or any of their respective Subsidiaries
relating to the Transactions. No representations, warranties, covenants,
understandings, agreements, oral or otherwise, relating to the transactions
contemplated by this Agreement exist between the parties except as expressly set
forth in this Agreement.
15.12 AMENDMENTS. This Agreement may be amended or modified in whole
or in part, only by a duly authorized agreement in writing executed in the same
manner as this Agreement and which makes reference to this Agreement.
15.13 SEVERABILITY. If any term or provision of this Agreement is
invalid or unenforceable in any situation in any jurisdiction, then all other
terms and provisions of this Agreement shall nevertheless remain in full force
and effect and the application of such term or provision shall be interpreted so
as reasonably to effect the intent of the parties to this Agreement.
15.14 PUBLICITY. All press releases or other public communications
of any nature whatsoever, or other notices to third parties except as
contemplated by Section 8.1 relating to the transactions contemplated by this
Agreement, and the method of the release for publication thereof, shall be
subject to the prior mutual approval of Purchaser and the Company which approval
shall not be unreasonably withheld by any party; PROVIDED, HOWEVER, that,
nothing herein shall prevent any party from publishing such press releases or
other public communications as such party may consider necessary in order to
satisfy such party's legal or contractual obligations after such consultation
with the other parties hereto as is reasonable under the circumstances.
15.15 FURTHER ASSURANCES. The parties agree to: (a) furnish upon
request to each other such further information, (b) execute and deliver such
other documents, and (c) do such other acts and things, all as the other party
may reasonably request for the purpose of carrying
57
<PAGE>
out the intent of this Agreement, including providing to Purchaser all of the
rights, benefits and services enjoyed by the Company in the operation of the
Business from whatever source.
SIGNATURE PAGE FOLLOWS
58
<PAGE>
IN WITNESS WHEREOF the parties have hereunto caused this
Agreement to be duly executed as of the date first above written.
IIT HOLDING, INC.
By: /s/ Luis Sebastian Alegrett
--------------------------------
Name: Luis Sebastian Alegrett
--------------------------
Title: PRESIDENT
--------------------------
By: /s/ Luis Sebastian Alegrett
--------------------------------
Luis Sebastian Alegrett
By: /s/ Michael Mai
--------------------------------
Michael Mai
By: /s/ Vicente Perez de Tudela
----------------------------------
Vicente Perez de Tudela
By: /s/ Carlos E. Bravo
----------------------------------
Carlos E. Bravo
USinternetworking, Inc.
By: /s/ Stephen E. McManus
----------------------------------
Name: Stephen E. McManus
-----------------------------
Title: President
------------------------------
59
<PAGE>
STOCK PURCHASE
AGREEMENT
IIT HOLDING, INC.
SCHEDULES AND EXHIBITS
<PAGE>
EXHIBITS
Exhibit A-1 Employees
Exhibit A-2 Independent Contractors
Exhibit B Pro Rata Share
Exhibit C Form of Warrant Agreement
Exhibit D Allocation of Cash Consideration, Warrants and
Disbursement Instructions
Exhibit E Form of Noncompetition Agreement
Exhibit F Form of Employment Agreement
Exhibit G Warrantholder's Agreement
<PAGE>
EXHIBIT A
<PAGE>
Exhibit A-1
Employee List
(Page 1 of 2 Pages)
<TABLE>
<CAPTION>
USA Employees
----------------------------------------------------------------
Last Name First Name Title
----------------------------------------------------------------
<S> <C> <C>
Alegrett Sebastian President
----------------------------------------------------------------
Mai Michael Senior Vice President
----------------------------------------------------------------
Perez de Tudela Vicente Vice President
----------------------------------------------------------------
Mancino Vince Managing Consultant
----------------------------------------------------------------
Dunlap Cass Senior Consultant
----------------------------------------------------------------
Kenny Cyndi Business Development Manager
----------------------------------------------------------------
Green John Senior Consultant
----------------------------------------------------------------
Slye Collin Consultant
----------------------------------------------------------------
Healy Rose Human Resources Director
----------------------------------------------------------------
Rodriguez Richard Finance Director
----------------------------------------------------------------
Webb Troy Consultant
----------------------------------------------------------------
West Kim Senior Consultant
----------------------------------------------------------------
Bravo Carlos Vice President
----------------------------------------------------------------
McKnight Mark Senior Consultant
----------------------------------------------------------------
Hayes Keith Senior Consultant
----------------------------------------------------------------
Suh Jeff Senior Consultant
----------------------------------------------------------------
Nguyen Giang Consultant
----------------------------------------------------------------
Moore Melissa Corporate Recruiter
----------------------------------------------------------------
Theobald Graig Senior Consultant
----------------------------------------------------------------
Almquist Andrew Senior Consultant
----------------------------------------------------------------
Beatteay Barbara Consultant
----------------------------------------------------------------
Burleigh Charles Associate Consultant
----------------------------------------------------------------
Leighton Thomas Senior Consultant
----------------------------------------------------------------
Shaw Chuck Senior Consultant
----------------------------------------------------------------
Mullaney Jack Senior Consultant
----------------------------------------------------------------
Elfman Howard Sales Manager
----------------------------------------------------------------
Harrison Donald Senior Accountant
----------------------------------------------------------------
Laserna Eric Consultant
----------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit A-1
Employee List
(Page 2 of 2 Pages)
<TABLE>
<CAPTION>
----------------------------------------------------------------
Last Name First Name Title
----------------------------------------------------------------
<S> <C> <C>
Tran Nadia Administrative Assistant
----------------------------------------------------------------
Thomas Brett Managing Consultant
----------------------------------------------------------------
Tcholakov Ivan Associate Consultant
----------------------------------------------------------------
Gutierrez Carlos Senior Consultant
----------------------------------------------------------------
Williams Damone Consultant
----------------------------------------------------------------
Volonte Fernando Associate Consultant
----------------------------------------------------------------
Aseel Zaid Consultant
----------------------------------------------------------------
Bezanilla Doris Senior Consultant
----------------------------------------------------------------
Narasimhan Ravi Consultant
----------------------------------------------------------------
Harper Lawrence Consultant
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Venezuela Employees
----------------------------------------------------------------
Last Name First Name
----------------------------------------------------------------
<S> <C> <C>
Amaya Ramon Lider de Proyecto
----------------------------------------------------------------
Carreno Carlos Mensajero
----------------------------------------------------------------
Garcia Alexander Consultor Senior
----------------------------------------------------------------
Gonzalez Maria loyda Consultor Funcional
----------------------------------------------------------------
Gonzalez Rosa Asistente Administrativo
----------------------------------------------------------------
Osorlo Gabriel Lider de Proyecto
----------------------------------------------------------------
Perez Sandra Recepcionista
----------------------------------------------------------------
Plazola Oswaldo Consultor Senior
----------------------------------------------------------------
Silva Henry Jefe De Proyecto
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Venezuela Independent Contractors
----------------------------------------------------------------
Last Name First Name Title
----------------------------------------------------------------
<S> <C> <C>
Ayala Jonas Gerente General
----------------------------------------------------------------
Mora Gladys Consultor
----------------------------------------------------------------
Mora Milagros Practice Manager
----------------------------------------------------------------
Sequera Daniel Consultor
----------------------------------------------------------------
Carpintiery Maria Consultor
----------------------------------------------------------------
Alegrett Eduardo Director Relaciones Corp.
----------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT A-2
INDEPENDENT CONTRACTOR LIST FOR IIT, INC.
IIT, INC. - INDEPENDENT CONTRACTORS
Phillip Nguyen
Chung Pi
Steve Kish
Ken Kish
Kathy McMahon
Kent Vuong
John Rocha
David Goldstein
Robert Stojkovic
Ross Henderson
<PAGE>
EXHIBIT B
<PAGE>
EXHIBIT B
SELLER'S PERCENTAGE INTEREST IN THE EQUITY OF THE COMPANY
(PRO RATA SHARE)
IIT Holding, Inc. Total Shares Authorized: 100
Total Shares Issued and Outstanding: 95
Distribution:
<TABLE>
<CAPTION>
SHAREHOLDER SHARES PERCENT
OWNERSHIP OWNERSHIP
-------------------------------------------------------
<S> <C> <C>
Sebastian Alegrett 50 52.631579%
Michael Mai 30 31.578947%
Vicente Perez de Tudela 10 10.526316%
Carlos E. Bravo 5 5.263158%
-------------------------------------------------------
Total 100.00%
-------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT C
<PAGE>
WARRANT AGREEMENT
BETWEEN
USinternetworking, Inc.
and
----------
------------------------------
Dated as of September __, 1998
------------------------------
<PAGE>
This WARRANT AGREEMENT is dated as of September ___, 1998, between
USINTERNETWORKING, INC., a Delaware corporation (the "Company"), and L.
Sebastian Alegrett, Michael Mai, Vicente Perez de Tudela and Carlos E. Bravo,
together with their successors and assigns (the "Holders").
WHEREAS, the Company proposes to issue to the Holders (in the amounts
set forth on Exhibit A) Common Stock Purchase Warrants, as hereinafter described
(the "Warrants"), to purchase up to 400,000 shares of Common Stock, par value
$.0l per share (the "Common Stock"), of the Company (the Common Stock issuable
on exercise of the Warrants being referred to herein as the "Warrant Shares"),
at $2.00 per share, (as adjusted from time to time pursuant to this Agreement,
the "Exercise Price") as part of the consideration for the sale by the Holders
of their shares of common stock, par value $5.00 per share of IIT Holding, Inc.
("IIT") pursuant to the Stock Purchase Agreement dated as of August 28, 1998
between the Company, IIT and the Holders (the "Stock Purchase Agreement").
NOW, THEREFORE, in consideration of the promises and the mutual
agreements herein set forth, the parties hereto agree as follows:
SECTION 1. WARRANT CERTIFICATE. The certificates evidencing the
Warrants (the "Warrant Certificates") to be delivered pursuant to this Agreement
shall be in registered form only and shall be substantially in the form set
forth in Exhibit B attached hereto.
SECTION 2. EXECUTION OF WARRANT CERTIFICATE. The Warrant Certificates
shall be signed on behalf of the Company by its Chief Executive Officer or its
President or a Vice President and by its Secretary or an Assistant Secretary
under its corporate seal. The seal of the Company may be in the form of a
facsimile thereof and may be impressed, affixed, imprinted or otherwise
reproduced on the Warrant Certificate.
In case any officer of the Company who shall have signed any of the
Warrant Certificates shall cease to be such officer before the Warrant
Certificates so signed shall have been disposed of by the Company, such Warrant
Certificates nevertheless may be delivered or disposed of as though such person
had not ceased to be such officer of the Company; and any Warrant Certificate
may be signed on behalf of the Company by any person who, at the actual date of
the execution of such Warrant Certificate, shall be a proper officer of the
Company to sign such Warrant Certificate, although at the date of the execution
of this Warrant Agreement any such person was not such officer.
SECTION 3. REGISTRATION. The Company shall number and register each
Warrant Certificate and any Warrant Certificate subsequently issued in respect
of the
1
<PAGE>
Warrants in a register as they are issued. The Company may deem and treat the
registered holder(s) of the Warrant Certificates as the absolute owner(s)
thereof (notwithstanding any notation of ownership or other writing thereon made
by anyone), for all purposes, and shall not be affected by any notice to the
contrary.
SECTION 4. RESTRICTIONS ON TRANSFERS.
The holders of the Warrants agree not to directly or indirectly sell,
transfer, assign, hypothecate, pledge or otherwise in any way alienate or
encumber any Warrants, or any right or interest therein, (a "Transfer") except
for (i) Transfers to the Company, (ii) a Transfer by a Holder of Warrants by
will or intestate succession to such Holder's executor's, administrators,
testamentary trustees, legatees or beneficiaries, or (iii) a Transfer of
Warrants by a Holder to any Related Party (as defined below) of such Holder. As
used in this Section 4, the term "Related Party" with respect to any Holder
means: (A) any person or entity that directly or indirectly, through one or more
intermediaries, has control of or is controlled by, or is under common control
with, the person or entity specified; (B) a trust, corporation, partnership or
other entity, the beneficiaries, stockholders, partners, or owners, or persons
holding a controlling interest of which consist of such Holder and/or such other
persons or entities referred to in the immediately preceding clause (A), or (C)
with respect to any Holder which is an individual, such Holder's spouse,
siblings, children or parents.
SECTION 5. WARRANTS; EXERCISE OF WARRANTS. Subject to the terms of this
Agreement, each Warrant Holder shall have the right, which may be exercised
commencing at the opening of business on September __, 1998 (the "Initial
Exercise Date") and shall only be exercisable from the Initial Exercise Date
through 5:00 p.m., New York City time, on September __, 2008 (the "Exercise
Period") to receive from the Company the number of fully paid and nonassessable
Warrant Shares (as defined below) which the Warrant Holder may at the time be
entitled to receive on exercise of such Warrants then actually held and upon
payment of the Exercise Price then in effect for such Warrant Shares. In the
alternative, each Holder may exercise its right, during the Exercise Period, to
receive Warrant Shares on a net basis, such that, without the exchange of any
funds, the Holder receives that number of Warrant Shares otherwise issuable upon
exercise of its Warrants less that number of Warrant Shares having an aggregate
fair market value (as defined below) at the time of exercise equal to the
aggregate Exercise Price that would otherwise have been paid by the Holder of
the Warrant Shares. For purposes of the foregoing sentence, "fair market value"
of the Warrant Shares will be determined in good faith by the Board of Directors
of the Company as of the date of any such exercise. Each Warrant not exercised
during the Exercise Period, shall become void and all rights thereunder and all
rights in respect thereof under this agreement shall cease
2
<PAGE>
as of such time. No adjustments as to dividends will be made upon exercise of
the Warrants.
A Warrant may be exercised upon surrender to the Company at its office
designated for such purpose (the address of which is set forth in Section 14
hereof) of the certificate or certificates evidencing the Warrants to be
exercised with the form of election to purchase on the reverse thereof duly
filled in and signed, and upon payment to the Company of the Exercise Price for
the number of Warrant Shares in respect of which such Warrants are then
exercised. Payment of the aggregate Exercise Price shall be made (i) by wire
transfer or by certified or official bank check to the order of the Company, or
(ii) in the manner provided in the first paragraph of this Section 5.
Subject to the provisions of Section 6 hereof, upon such surrender of
Warrants and payment of the Exercise Price the Company shall issue and cause to
be delivered with all reasonable dispatch to or upon the written order of the
holder and in such name or names as the Warrant Holder may designate, a
certificate or certificates for the number of full Warrant Shares issuable upon
the exercise of such Warrants; provided, however, that if any consolidation,
merger or lease or sale of assets is proposed to be effected by the Company, or
a tender offer or an exchange offer for shares of Common Stock of the Company
shall be made, upon such surrender of Warrants and payment of the Exercise Price
as aforesaid, the Company shall, as soon as possible, but in any event not later
than two business days thereafter, issue and cause to be delivered the full
number of Warrant Shares issuable upon the exercise of such Warrants in the
manner described in this sentence. Such certificate or certificates shall be
deemed to have been issued and any person so designated to be named therein
shall be deemed to have become a holder of record of such Warrant Shares as of
the date of the surrender of such Warrants and payment of the Exercise Price.
The Warrants shall be exercisable, at the election of the holders
thereof, either in full or from time to time in part and, in the event that a
certificate evidencing warrants is exercised in respect of fewer than all of the
Warrant Shares issuable on such exercise at any time prior to the date of
expiration of the Warrants, a new certificate evidencing the remaining Warrant
or Warrants will be issued and delivered pursuant to the provisions of this
Section and of Section 2 hereof.
All Warrant Certificates surrendered upon exercise of Warrants shall be
canceled and disposed of by the Company. The Company shall keep copies of this
Agreement and any notices given or received hereunder available for inspection
by the holders during normal business hours at its office.
3
<PAGE>
SECTION 6. PAYMENT OF TAXES. The Company will pay all documentary stamp
taxes attributable to the initial issuance of Warrant Shares upon the exercise
of Warrants; provided, however that the Company shall not be required to pay any
tax or taxes which may be payable in respect of any transfer involved in the
issue of any Warrant Certificates or any certificates for Warrant Shares in a
name other than that of the registered holder of a Warrant Certificate
surrendered upon the exercise of a Warrant, and the Company shall not be
required to issue or deliver such Warrant Certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
SECTION 7. MUTILATED OR MISSING WARRANT CERTIFICATES. In case any of
the Warrant Certificates shall be mutilated, lost, stolen or destroyed, the
Company shall issue, in exchange and substitution for and upon cancellation of
the mutilated Warrant Certificate, or in lieu of and substitution for the
Warrant Certificate lost, stolen or destroyed, a new Warrant Certificate of like
tenor and representing an equivalent number of Warrants, but only upon receipt
of evidence reasonably satisfactory to the Company of such loss, theft or
destruction of such Warrant Certificate and indemnity, if requested, also
reasonably satisfactory to it. Applicants for such substitute Warrant
Certificates shall also comply with such other reasonable regulations and pay
such other reasonable charges as the Company may prescribe.
SECTION 8. RESERVATION OF WARRANT SHARES. The Company will at all times
reserve and keep available, free from preemptive rights, out of the aggregate of
its authorized but unissued Common Stock or its authorized and issued Common
Stock held in its treasury, for the purpose of enabling it to satisfy any
obligation to issue Warrant Shares upon exercise of Warrants, the maximum number
of shares of Common Stock which may then be deliverable upon the exercise of all
outstanding Warrants.
The Company or, if appointed, the transfer agent for the Common Stock
(the "Transfer Agent") and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid will be irrevocably authorized and directed at all times to
reserve such number of authorized shares as shall be required for such purpose.
The Company will keep a copy of this Agreement on file with the Transfer Agent
and with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrants. The Company will furnish such Transfer Agent a copy of all notices of
adjustments and certificates related thereto, transmitted to each holder
pursuant to Section 12 hereof.
4
<PAGE>
The Company covenants that all Warrant Shares which may be issued upon
exercise of Warrants will, upon issue and payment therefor, be fully paid,
nonassessable, free of preemptive rights and free from all taxes, liens, charges
and security interests with respect to the issue thereof.
SECTION 9. OBTAINING STOCK EXCHANGE LISTINGS. The Company will from
time to time take all action which may be necessary so that the Warrant Shares,
immediately upon their issuance upon the exercise of Warrants, will be listed on
the principal securities exchanges and markets within the United States of
America, if any, on which other shares of Common Stock are then listed.
SECTION 10. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES
ISSUABLE.
(a) ADJUSTMENTS TO WARRANTS.
In the event that the outstanding shares of the Common Stock subject to
the Warrants are changed into or exchanged for a different number or kind of
shares of the Company or other securities of the Company by reason of merger,
consolidation, recapitalization, reclassification, stock split, stock dividend,
subdivision, distribution or combination of shares, the Company shall make an
appropriate and equitable adjustment in the number and kind of shares as to
which the Warrants, or portions thereof then unexercised, shall be exercisable,
to the end that after such event the Warrant Holder's proportionate interest
shall be maintained as before the occurrence of such event. Such adjustment in
the Warrant shall be made without change in the total price applicable to the
unexercised portion of the Warrant (except for any change in the aggregate price
resulting from rounding-off of share quantities or prices). Any such adjustment
made by the Company or its Board of Directors (the "Board") shall be final and
binding upon the Warrant Holder, the Company and all other interested persons.
Nothing in this Agreement shall entitle the Warrant Holder to pre-emptive or
similar rights with respect to any issuance of Common Stock or other securities
for such consideration as the Board may determine.
(b) REORGANIZATION OF THE COMPANY.
If the Company consolidates or merges with or into, or transfers or
leases all or substantially all its assets to, any person, upon consummation of
such transaction the Warrants shall automatically become exercisable for the
kind and amount of securities, cash or other assets which the holder of a
Warrant would have owned immediately after the consolidation, merger, transfer
or lease if the Warrant Holder had exercised the Warrant immediately before the
effective date of the transaction. Concurrently with the consummation of such
transaction, the corporation formed by or
5
<PAGE>
surviving any such consolidation or merger if other than the Company, or the
person to which such sale or conveyance shall have been made, shall enter into a
supplemental Warrant Agreement so providing and further providing for
adjustments which shall be as nearly equivalent as may be practical to the
adjustments provided for in this Section. The successor Company shall mail to
Warrant Holders a copy of the supplemental Warrant Agreement.
If this subsection (b) applies, subsection (a) of this Section 10 does
not apply.
(c) FRACTIONAL INTERESTS.
The Company shall not be required to issue fractional Warrant Shares on
the exercise of Warrants. If more than one Warrant shall be presented for
exercise in full at the same time by the same Warrant Holder, the number of full
Warrant Shares which shall be issuable upon the exercise thereof shall be
computed on the basis of the aggregate number of Warrant Shares purchasable on
exercise of the Warrants so presented.
SECTION 11. NOTICES TO WARRANT HOLDERS. Upon any adjustment of the
Exercise Price pursuant to Section 10, the Company shall promptly thereafter
cause to be given to each of the registered holders of the Warrant Certificates
at such holder's address appearing on the Warrant register written notice of
such adjustments by first-class mail, postage prepaid. Where appropriate, such
notice may be given in advance and included as a part of the notice required to
be mailed under the other provisions of this Section 12.
In case:
(a) the Company shall authorize the issuance to all holders of
shares of Common Stock of rights, options or warrants to subscribe for or
purchase shares of Common Stock or of any other subscription rights or warrants;
or
(b) the Company shall authorize the distribution to all holders of
shares of Common Stock of evidences of its indebtedness or assets (other than
cash dividends or cash distributions payable out of consolidated earnings or
earned surplus or dividends payable in shares of Common Stock or distributions
referred to in subsection (a) of Section 10 hereof); or
(c) of any consolidation or merger to which the Company is a party
and for which approval of any stockholders of the Company is required, or of the
conveyance or transfer of the properties and assets of the Company substantially
as an entirety, or of any reclassification or change of Common Stock issuable
upon exercise of
6
<PAGE>
the Warrants (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination), or a tender offer or exchange offer for shares of Common Stock; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then the Company shall cause to be given to each of the registered holders of
the Warrant Certificates at such holder's address appearing on the Warrant
register, at least 20 days (or 10 days in any case specified in clauses (a) or
(b) above) prior to the applicable record date hereinafter specified, or
promptly in the case of events for which there is no record date, by first-class
mail, postage prepaid, a written notice stating (i) the date as of which the
holders of record of shares of Common Stock to be entitled to receive any such
rights, options, warrants or distribution are to be determined, or (ii) the
initial expiration date set forth in any tender offer or exchange offer for
shares of Common Stock, or (iii) the date on which any such consolidation,
merger, conveyance, transfer, dissolution, liquidation or winding up is expected
to become effective or consummated, and the date as of which it is expected that
holders of record of shares of Common Stock shall be entitled to exchange such
shares for securities or other property, if any, deliverable upon such
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up. The failure to give the notice required by this
Section 11 or any defect therein shall not affect the legality or validity of
any distribution, right, option, warrant, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up, or the vote upon any action.
Nothing contained in this Agreement or in any of the Warrant
Certificates shall be construed as conferring upon the holders thereof the right
to vote or to consent or to receive notice as stockholders in respect of the
meetings of stockholders or the election of Directors of the Company or any
other matter, or any rights whatsoever as stockholders of the Company.
SECTION 12. NOTICES TO COMPANY AND WARRANT HOLDERS. Any notice or
demand authorized by this Agreement to be given or made by the registered holder
of any Warrant Certificate to or on the Company shall be sufficiently given or
made when and if deposited in the mail, first class or registered, postage
prepaid, addressed to the office of the Company expressly designated by the
Company at its office for purposes of this Agreement (until the Warrant holders
are otherwise notified in accordance with this Section by the Company), as
follows:
USinternetworking, Inc.
175 Admiral Cochrane Drive
7
<PAGE>
Annapolis, MD 21401
Attention: Chief Executive Officer
Any notice pursuant to this Agreement to be given by the Company to the
registered holder(s) of any Warrant Certificate shall be sufficiently given when
and if deposited in the mail, first-class or registered, postage prepaid,
addressed (until the Company is otherwise notified in accordance with this
Section by such holder) to such holder at the address appearing on the Warrant
register of the Company.
SECTION 13. SUPPLEMENTS AND AMENDMENTS. The Company may from time to
time supplement or amend this Agreement without the approval of any holders of
Warrant Certificates in order to cure any ambiguity or to correct or supplement
any provision contained herein which may be defective or inconsistent with any
other provision herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company may deem necessary or desirable
and which shall not in any way adversely affect the interests of the holders of
Warrant Certificates.
SECTION 14. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company shall bind and inure to the
benefit of its respective successors and assigns hereunder.
SECTION 15. TERMINATION. This Agreement shall terminate at the end of
the Exercise Period.
SECTION 16. GOVERNING LAW. This Agreement and each Warrant Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of New York and for all purposes shall be construed in accordance with the
internal laws of said State.
SECTION 17. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company and the
registered holders of the Warrant Certificates, any legal or equitable right,
remedy or claim under this Agreement; but this Agreement shall be for the sole
and exclusive benefit of the Company and the registered holders of the Warrant
Certificates.
SECTION 18. ATTORNEY'S FEES. In the event of any arbitration or
litigation arising under this Agreement, the prevailing party shall be entitled
to recover his or its reasonable attorney's fees from the other party.
SECTION 19. COUNTERPARTS. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to
8
<PAGE>
be an original, and all such counterparts shall together constitute but one and
the same instrument.
[Signature Page Follows]
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
USINTERNETWORKING, INC.,
a Delaware corporation
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
HOLDERS:
------------------------------------------
------------------------------------------
------------------------------------------
Address
------------------------------------------
------------------------------------------
------------------------------------------
Address
10
<PAGE>
------------------------------------------
------------------------------------------
------------------------------------------
Address
------------------------------------------
------------------------------------------
------------------------------------------
Address
------------------------------------------
------------------------------------------
------------------------------------------
Address
------------------------------------------
------------------------------------------
------------------------------------------
Address
------------------------------------------
------------------------------------------
------------------------------------------
Address
11
<PAGE>
EXHIBIT A
[Form of Warrant Certificate]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THEY MAY NOT BE
TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
EXCEPT (1) IN COMPLIANCE WITH THE WARRANT AGREEMENT DATED SEPTEMBER 1998 AND
(2)(A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT;
OR (B) IF THE COMPANY HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL
FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR
OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES
ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER.
EXERCISABLE ON OR BEFORE SEPTEMBER ___, 2008
No. _________ Warrants
Warrant Certificate
USINTERNETWORKING, INC.
This Warrant Certificate certifies that ____________, or registered
assigns, is the registered holder of Warrants expiring ________________ (the
"Warrants") to purchase Common Stock, par value $.01 per share (the "Common
Stock"), of USinternetworking, Inc., a Delaware corporation (the "Company").
Each Warrant entitles the holder upon exercise to receive from the Company
during the period beginning on the opening of business on September __, 1998 and
ending at 5:00 p.m., New York City time on September___, 2008 (the "Exercise
Period"), one fully paid and nonassessable share of Common Stock (a "Warrant
Share") at the initial exercise price (the "Exercise Price") of $2.00 payable in
lawful money of the United States of America
<PAGE>
upon surrender of this Warrant Certificate and payment of the Exercise Price at
the office of the Company designated for such purpose, but only subject to the
conditions set forth herein and in the Warrant Agreement referred to herein. The
Exercise Price and number of Warrant Shares issuable upon exercise of the
warrants are subject to adjustment upon the occurrence of certain events set
forth in the Warrant Agreement.
A Warrant may be exercised only during the Exercise Period, and to the
extent not exercised by the end of the Exercise Period such Warrants shall
become void.
This Warrant Certificate shall not be valid unless countersigned by the
Company, as such term is used in the Warrant Agreement.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring at the end of the Exercise Period,
entitling the holder on exercise to receive shares of Common Stock, par value
$.01 per share, of the Company (the "Common Stock"), and are issued pursuant to
a Warrant Agreement dated as of September __, 1998 (the "Warrant Agreement"),
duly executed and delivered by the Company, which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Company and the holders (the words
"holders" or "holder" meaning the registered holders or registered holder) of
the Warrants. A copy of the Warrant Agreement may be obtained by the holder
hereof upon written request to the Company.
Warrants may be exercised at any time during the Exercise Period. The
holder of Warrants evidenced by this Warrant Certificate may exercise them by
surrendering this Warrant Certificate, with the attached form of election to
purchase properly completed and executed, together with payment of the Exercise
Price in cash at the office of the Company designated for such purpose. In the
event that upon any exercise of Warrants evidenced hereby the number of Warrants
exercised shall be less than the total number of Warrants evidenced hereby,
there shall be issued to the holder hereof or his assignee a new Warrant
Certificate evidencing the number of Warrants not exercised. No adjustment shall
be made for any dividends on any Common Stock issuable upon exercise of this
Warrant.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price set forth on the face hereof may, subject to certain
conditions, be adjusted. If the Exercise Price is adjusted, the Warrant
Agreement provides that the number of shares of Common Stock issuable upon the
exercise of each Warrant shall be adjusted. No fractions of a share of Common
Stock will be issued upon the exercise of
<PAGE>
any Warrant, but the Company will pay the cash value thereof determined as
provided in the Warrant Agreement.
Warrant Certificates, when surrendered at the office of the Company by
the registered holder thereof in person or by legal representative or attorney
duly authorized in writing, may be exchanged, in the manner and subject to the
limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of like
tenor evidencing in the aggregate a like number of Warrants.
The Company may deem and treat the registered holder(s) thereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, of any distribution to the holder(s) hereof, and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
Neither the Warrants nor this Warrant Certificate entitles any holder hereof to
any rights of a stockholder of the Company.
<PAGE>
IN WITNESS WHEREOF, USinternetworking. Inc. has caused this Warrant
Certificate to be signed by its Chief Executive Officer and by its Secretary and
has caused its corporate seal to be affixed hereunto or imprinted hereon.
Dated:
USINTERNETWORKING, INC.
By:
------------------------------
Chief Executive Officer
By:
------------------------------
Secretary
<PAGE>
[Form of Election to Purchase]
(To Be Executed Upon Exercise Of Warrant)
The undersigned hereby irrevocably elects to exercise the right, represented by
this Warrant Certificate, to receive ____________ shares of Common Stock and
herewith tenders payment for such shares to the order of USinternetworking,
Inc., in the amount of $____________ in accordance with the terms hereof. The
undersigned requests that a certificate for such shares be registered in the
name of_________________ whose address is _________________ and that such shares
be delivered to _____________ whose address is_____________. If said number of
shares is less than all of the shares of Common Stock purchasable hereunder, the
undersigned requests that a new Warrant Certificate representing the remaining
balance of such shares be registered in the name of _____________ whose address
is _______________, and that such Warrant Certificate be delivered
to_______________ whose address is _________________
Date: Signature:
Signature Guaranteed:
<PAGE>
EXHIBIT D
<PAGE>
Exhibit D
Consideration Distribution
(Page 1 of 2)
STOCK SALE TOTAL CASH CONSIDERATION: $12,887,000
At Closing, the Cash Consideration, less the Deposit shall be distributed as
follows:
<TABLE>
<CAPTION>
SHAREHOLDER CASH
- --------------------------------------------------------------------------------
<S> <C>
Sebastian Alegrett $6,315,500
Michael Mai $3,915,500
Vicente Perez de Tudela $1,515,500
Carlos E. Bravo $915,500
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total $12,662,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
WARRANTS DISTRIBUTED AT CLOSING
SHAREHOLDER WARRANTS
- --------------------------------------------------------------------------------
<S> <C>
Sebastian Alegrett 205,000
Michael Mai 125,000
Vicente Perez de Tudela 45,000
Carlos E. Bravo 25,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total 400,0000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
ADDITIONAL STOCK SALE CONTINGENT PAYMENTS AFTER CLOSING
After Closing, a total of $3.8 million, or proportionally smaller amounts
subject to the terms of the Purchase Agreement, to be distributed as follows:
<TABLE>
<CAPTION>
Shareholder Percentage
- --------------------------------------------------------------------------------
<S> <C>
Sebastian Alegrett 52.631579
Michael Mai 31.578947
Vicente Perez de Tudela 10.526316
Carlos E. Bravo 5.263158
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total 100%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT D
DISBURSEMENT INSTRUCTIONS
(Page 2 of 2)
WIRE TRANSFER INSTRUCTIONS: Funds to be transferred at Closing Date to the
following accounts:
<TABLE>
<CAPTION>
SHAREHOLDER ABA ROUTING ACCOUNT #
BANK
- --------------------------------------------------------------------------------
<S> <C> <C>
Sebastian Alegrett 266086554 0080085920
Citibank
Michael Mai 122000661 0370811923
Bank of
America
Vicente Perez de Tudela 122000661 1020101116
Bank of
America
Carlos E. Bravo 071919463 07107730
Harris Bank
</TABLE>
<TABLE>
<CAPTION>
SHAREHOLDER HOME ADDRESSES AND CONTACT INFORMATION:
SHAREHOLDER ADDRESS PHONE NUMBER
- --------------------------------------------------------------------------------
<S> <C> <C>
Sebastian Alegrett 906 Escobar Avenue Home (305) 461-0592
Coral Gables, FL 33134 Office (305) 460-6855 X31
Michael Mai 19261 Dearborne Circle Home (714) 969-6523
Huntington Beach, CA 92648 Office (888) 422-2199
X101
Vicente Perez de Tudela 19502 Ranch Lane, #102 Home (714) 969-9007
Huntington Beach, CA 92648 Office (888)422-2199
X102
Carlos E. Bravo 1421 Kirkwall Court Home (847) 304-1620
Inverness, IL 60010 Office (847) 842-9948
</TABLE>
<PAGE>
EXHIBIT E
<PAGE>
FORM OF
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT ("Agreement") is made as of this
__________ day of September, 1998, by and among ________ ("Seller") and
USinternetworking, Inc., a Delaware corporation ("Purchaser").
RECITALS
A. Seller, IIT Holding, Inc. (the "Company") and Purchaser have entered
into a Stock Purchase Agreement dated August 28, 1998 (the "Stock Purchase
Agreement"), pursuant to the Company will become a wholly-owned subsidiary of
Purchaser, and Seller will receive the consideration set forth in the Stock
Purchase Agreement.
B. Seller is a selling stockholder under the Stock Purchase Agreement.
C. It is a condition to the consummation of the transactions
contemplated by Stock Purchase Agreement for the parties hereto to enter into a
non-competition agreement, upon the terms and subject to the conditions set
forth herein.
D. The parties hereto desire to enter into this non-competition
agreement upon the terms and subject to the conditions set forth herein.
AGREEMENTS
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual as set forth herein, the parties hereto agree as follows:
1. NON-COMPETITION/NON-INTERFERENCE.
a. For a period of two (2) years from the date of this Agreement
(the "NONCOMPETITION PERIOD"), Seller agrees that he will not, and he will cause
each of his Affiliates (as defined below) not to, directly or indirectly, (i)
own, manage, operate, control, join, assist, lend money to, guarantee the
obligation of, or participate in the ownership, management, operation or control
of, or be connected as consultant, stockholder, director, officer, employee, or
with, or participate in any manner with the start-up or set-up of, any
Competitive Business (as defined below), or (ii) solicit or induce any
individual during any period in which he or she is an employee of Purchaser or
any of its Affiliates to terminate such employment or employed by any person or
entity other than Purchaser or its Affiliates.
b. For purposes of this Agreement, the term "COMPETITIVE
BUSINESS" means the provision of consulting and implementation services to users
of PeopleSoft software in the Restricted Region (as defined below).
<PAGE>
c. For purposes of this Agreement, the term "RESTRICTED REGION"
any location on the United States of America or the Republic of Venezuela, it
being acknowledge that the nature of Purchaser's business renders meaningless
the use of geographic scope restrictions.
d. For purposes of this Agreement, an "AFFILIATE" of any person
or entity means any other person or entity that controls, is controlled by or is
under common control with such person or entity.
e. Notwithstanding anything herein to the contrary, the
restrictions of this Agreement shall not apply to the activities of any
publicly-held company less than five percent (5%) of the equity of which is
owned, directly or indirectly, by Seller or his Affiliates.
f. Seller acknowledges and agrees that the provisions of this
Section 1 have been specifically negotiated and carefully tailored with a view
to preventing the serious irreparable injury that Purchaser will suffer in the
event of competition by Seller with Purchaser in the Restricted Region during
the Noncompetition Period. Purchaser is providing the benefits set forth in the
Stock Purchase Agreement in part in reliance on Seller's representation that the
restrictions on him set forth in this Section 1 will not impose an undue
hardship on him. Seller further acknowledges that breach of this Section 1 will
cause irreparable injury and damage to Purchaser, the exact amount of which will
be difficult to ascertain, and that the remedies at law for any such breach
would be inadequate. Accordingly, if Seller breaches this Section 1, then
Purchaser shall be entitled, in addition to all remedies available at law, to
equitable relief, including injunctive relief, and an equitable accounting of
all losses and damages. Any such requirement of bond or undertaking is hereby
waived by Seller. If Seller violates this Section 1 and Purchaser brings legal
action for injunctive or other relief, Purchaser shall not, as a result of the
time involved in obtaining such relief, be deprived of the benefit of the full
period of noncompetition set forth in this Section 1. Accordingly, the covenant
set forth in this Section 1 shall be deemed to have the duration set forth
herein, computed from the date such relief is granted but reduced by the time
expired between the date the Noncompetition Period began to run and the date of
the first violation of Section 1 by Seller.
g. In the event that, despite the express agreement of Purchaser
and Seller, and any provision of this Section 1 shall be finally determined by
any court or other tribunal of competent jurisdiction to be unenforceable for
any reason whatsoever, the parties agree that this Section 1 shall not be
rendered void, but shall be interpreted to extend only over the maximum period
of time for which it may be enforceable, and/or over the maximum geographical
areas as to which it may be enforceable, and/or to the maximum extent in any and
all other respects as to which it may be enforceable, all as determined by such
court or tribunal.
2. NON-ASSIGNMENT. The duties of each party hereunder shall not be
assignable; PROVIDED, HOWEVER, that Purchaser may assign its rights under this
Agreement to, and this Agreement shall thereafter be binding upon and inure to
the benefit of, (i) any Affiliate of
2
<PAGE>
Purchaser and (ii) any person or entity that acquires all or substantially all
of the assets or stock of Purchaser (by asset purchase, stock purchase, merger,
liquidation, dissolution or otherwise), each such case, such assignee shall
thereupon be deemed substituted for Purchaser upon the terms and subject to the
conditions hereof.
3. TERMINATION. Seller shall have the right to terminate this
Agreement upon two business days notice to Purchaser, if Purchaser defaults in
the performance of its obligations to make the Contingent Payments under SECTION
2.3 of the Stock Purchase Agreement.
4. NOTICES. Any notice, request or other instruction or other
document to be given hereunder by any party hereto to any other party hereto
must be in writing and delivered personally (including by overnight courier or
express mail service), sent by registered or certified mail, postage or fees
prepaid or by facsimile (with an original by overnight courier delivered the
next business day):
If to Purchaser, to:
USinternetworking, Inc
One USi Plaza.
175 Admiral Cochrane Drive
Annapolis, MD 21401
Facsimile: (410) 573-1906
Attention: Chief Executive Officer
with a copy to:
James F. Rogers
Latham & Watkins
1001 Pennsylvania Avenue, N.W.
Suite 1300
Washington, D.C. 20004
Facsimile: (202) 637-2201
If to the Seller:
----------------------------------------
----------------------------------------
----------------------------------------
Facsimile:
-------------------------------
3
<PAGE>
with a copy to:
Stephen A. Colley
Duckor, Spradling & Metzger
401 West A Street
Suite 2400
San Diego, CA 92101-7915
Facsimile: (619) 231-6629
or to such other address as may be specified from time to time in a notice given
by such party. Any notice which is delivered personally in the manner provided
herein will be deemed to have been duly given to the party to whom it is
directed upon actual receipt by such party or the office of such party. Any
notice which is addressed and mailed in the manner herein provided will be
conclusively presumed to have been duly given to the party to which it is
addressed at the close of business, local time of the recipient, on the fifth
business day after the day it is placed in the mail or, if earlier, the time of
actual receipt.
5. APPLICABLE LAW. This Agreement shall be interpreted and enforced
under the laws of the State of New York, without regard to the choice of law
rules utilized in that jurisdiction.
6. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior oral and written agreements, understandings and commitments between the
parties with respect to the subject matter hereof. No amendments to this
Agreement may be made except by a writing signed by all parties hereto.
7. NO WAIVER. No failure or delay of Purchaser to exercise any of its
rights or remedies hereunder for breach of any provision hereof shall constitute
a waiver of such rights or remedies or any waiver in connection with any
subsequent breach thereof. No waiver of any provision of this Agreement shall be
effective unless in writing and signed by the party against which such waiver is
sought to be enforced.
8. ACKNOWLEDGMENTS. The Seller hereby acknowledges that he has had
the opportunity to consult independent counsel of his choosing in connection
with the execution of Agreement. The Seller further acknowledges that his
execution and delivery of this Agreement has not been obtained by any duress,
and that he freely and voluntarily has entered into it, and that he has
carefully read all of the provisions of this Agreement in their entirety and
fully understands the meaning, intent and consequences of this Agreement.
4
<PAGE>
9. COUNTERPARTS. This Agreement may be signed in multiple
counterparts, all of which together shall constitute one agreement binding on
the parties hereto, notwithstanding that all of the parties have not signed the
same counterpart.
10. ARBITRATION. Any dispute or controversy arising under or in
connection us Agreement shall be settled exclusively by arbitration, conducted
before a single arbitrator in the metropolitan area in which the Seller is then
based in accordance with the rules American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that the Company shall be entitled to seek a
restraining order or injunction in any court of competent jurisdiction to
prevent any continuation of any violation of the provisions of this Agreement.
11. ATTORNEY'S FEES. If any action in law or in equity is necessary to
enforce or interpret the provisions of this Agreement, the prevailing party
shall be entitled to reasonable attorney's fees, costs, and necessary
disbursements, in addition to any other relief to which it may be entitled.
12. CONSTRUCTION. The Section headings of this Agreement are for
convenience only and in no way modify, interpret or construe the meaning of
specific provisions of this Agreement. As used herein, the neuter gender shall
also denote the masculine and feminine, and the masculine gender shall also
denote the neuter and feminine, where the context so permits.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this NonCompetition
Agreement as of the date first written above.
SELLER:
By:
--------------------------------
PURCHASER:
USINTERNETWORKING, INC.
By:
--------------------------------
Name:
Title:
6
<PAGE>
EXHIBIT F
<PAGE>
FORM OF
EMPLOYMENT AGREEMENT
This Employment Agreement dated as of September ___, 1998, is made by
and between USinternetworking, Inc., a Delaware corporation (together with any
successor thereto, the "COMPANY") and __________ (the "EXECUTIVE").
RECITALS
A. It is the desire of the Company to assure itself of the services of
the Executive by engaging the Executive to perform such services under the terms
hereof.
B. The Executive desires to commit himself to serve the Company on the
terms herein provided.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements set forth below the parties hereto agree as follows:
1. CERTAIN DEFINITIONS.
(a) "ANNUAL BASE SALARY" shall have the meaning set forth in
Section 4.
(b) "BOARD" shall mean the Board of Directors of the Company.
(c) The Company shall have "CAUSE" to terminate the Executive's
employment hereunder upon the Executive's:
(i) failure substantially to perform his duties hereunder,
other than any such failure resulting from the Executive's Disability,
after notice and reasonable opportunity for cure, all as reasonably
determined by the Board,
(ii) conviction of a felony; or
(iii) fraud or personal dishonesty for material personal gain
involving the Company's assets.
(d) "CHANGE OF CONTROL" shall mean, with respect to any Person,
the consummation of the first to occur of (i) the sale, lease or other transfer
of all or substantially all of the assets of such Person to any person or group
(as such term is used in Section 13(d)(3) of the Securities Exchange Act of
1934, as amended); (ii) the consummation of a plan relating to liquidation or
dissolution of such Person; (iii) the merger or consolidation of such Person
with or into another entity or the merger of another entity into such Person or
any subsidiary
<PAGE>
thereof with the effect that immediately after such transaction the stockholders
of such Person immediately prior to such transaction (or their Affiliates) hold
less than 50% of the total voting power of all securities generally entitled to
vote in the election of directors, managers or trustee's of the entity surviving
such merger or consolidation; or (iv) the acquisition by any person or group
(other than a stockholder of such Person as of the date of this Agreement) of
more than 50% of the voting power of all securities of such Person generally
entitled to vote in the election of directors of such Person.
(e) "COMPANY" shall have the meaning set forth in the preamble
hereto.
(f) "COMPENSATION COMMITTEE" means the compensation committee of
the Board of Directors of the Company.
(g) "CONTRACT YEAR" shall mean each twelve month period beginning
on the effective date hereof or an annual anniversary thereof.
(h) "DATE OF TERMINATION" shall mean (i) if the Executive's
employment is terminated by his death, the date of his death, (ii) if the
Executive's employment terminated pursuant to SECTION 5(a)(ii) - (vi) the date
specified in the Notice of Termination.
(i) "DISABILITY" shall mean the absence of the Executive from the
Executive's duties to the Company on a full-time basis for a total of six months
during any twelve month period as a result of incapacity due to mental or
physical illness which is determined to be reasonably likely to extend beyond
the completion of the Term by a physician selected by the Company and acceptable
to the Executive or the Executive's legal representative (such agreement as to
acceptability not to be withheld unreasonably).
(j) "EXECUTIVE" shall have the meaning set forth in the preamble
hereto.
(k) The Executive shall have "GOOD REASON" to terminate his
employment in the event that the Company (i) fails to make any payment or
provide any benefit hereunder, (ii) commits a material breach of this Agreement
and does not cure such failure or breach after notice and a reasonable
opportunity to cure, (iii) assigns the Executive without his consent to a
position, responsibilities or duties of a materially lesser status or degree of
responsibility than his position, responsibilities or duties at the date of this
Agreement, (iv) requires the Executive to relocate his principal office outside
the _____ metropolitan area, or (v) permits a Change of Control of IIT Holding,
Inc. or International Information Technology, Inc.
(l) "NOTICE OF TERMINATION" shall have the meaning set forth in
SECTION 5(b).
(m) "PAYMENT PERIOD" shall have the meaning set forth in SECTION
7(a)(i).
2
<PAGE>
(n) "PERSON" shall mean any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock company,
trust, or unincorporated organization.
(o) "TERM" shall have the meaning set forth in Section 2.
2. EMPLOYMENT. The Company shall employ the Executive and the
Executive shall enter the employ of the Company, for the period set forth in
this SECTION 2, in the position set forth in SECTION 3 and upon the other terms
and conditions herein provided. The term of employment under this Agreement (the
"TERM") shall be for the period beginning on the effective date this Agreement
and ending on September __, 2000, unless earlier terminated as provided in
SECTION 5.
3. POSITION AND DUTIES.
(a) The Executive shall serve as a Vice President of the Company
with such customary responsibilities, duties and authority as may from time to
time be assigned to the Executive by the Board. The Executive shall devote
substantially all his working time and efforts to the business and affairs of
the Company.
(b) If elected or appointed thereto, and only for the duration of
such elected term or appointment, the Executive shall serve as a director of the
Company and any of its subsidiaries and/or in one or more executive offices of
any of such subsidiaries, provided that the Executive is indemnified for serving
in any and all such capacities on a basis consistent with that provided by the
Company to other directors of the Company or similarly situated executive
officers of any such subsidiaries.
4. COMPENSATION AND RELATED MATTERS.
(a) ANNUAL BASE SALARY. During the Term the Executive shall
receive a base salary at a rate of $175,000 per annum, subject to increase as
determined by the Compensation Committee ("ANNUAL BASE SALARY").
(b) BONUS. For each Contract Year, the Executive shall be entitled
to receive a bonus of 30% of the Annual Base Salary for such Contract Year if
Executive achieves the performance goals set forth in a plan for the Executive
for such Contract Year. Such plan will be consistent with the overall plans and
objectives for the Company and will contain financial, employee retention and
business development targets as mutually agreed upon by the Executive and the
Company.
(c) BENEFITS. The Executive shall be entitled to participate in
the other employee benefit plans, programs and arrangements of the Company
(including 15 days of vacation plus holidays) now in effect which are applicable
to the senior officers of the Company, subject to and on a basis consistent with
the terms, conditions and overall administration thereof
3
<PAGE>
(d) OPTIONS. On the date of this Agreement, the Executive shall be
granted 100,000 options with an exercise price of $0.44 per share under the
Company's Stock Option Plan (the "Options").
(e) EXPENSES. The Company shall reimburse the Executive for all
reasonable travel and other business expenses incurred by him in the performance
of his duties to the Company, in accordance with the Company's documentation and
other policies with respect thereto.
(f) RELOCATION. [For Carlos Bravo Only] The Company shall pay the
Executive's actual and reasonable relocation expenses to any location within the
United States, up to a maximum of $75,000; as outlined in the relocation policy
attached as Exhibit A.
5. TERMINATION. The Executive's employment hereunder may be
terminated by the Company or the Executive, as applicable, without any breach of
this Agreement only under the following circumstances:
(a) CIRCUMSTANCES.
(i) DEATH. The Executive's employment hereunder shall
terminate upon his death.
(ii) DISABILITY. If the Company reasonably determines in good
faith that the Executive has incurred a Disability, the Company may
give the Executive written notice of its intention to terminate the
Executive's employment. In such event, the Executive's employment with
the Company shall terminate effective on the 30th day after receipt of
such notice by the Executive, provided that within the 30 days after
such receipt, the Executive shall not have returned to full-time
performance of his duties. The Executive shall continue to receive his
Annual Base Salary until the Date of Termination.
(iii) TERMINATION FOR CAUSE. The Company may terminate the
Executive's employment hereunder for Cause.
(iv) TERMINATION WITHOUT CAUSE. The Company may terminate the
Executive's employment hereunder without Cause.
(v) RESIGNATION WITH GOOD REASON. The Executive may terminate
his employment for Good Reason.
(vi) TERMINATION WITHOUT GOOD REASON. The Executive may
resign his employment without Good Reason upon 60 days written notice
to the Company.
(b) NOTICE OF TERMINATION. Any termination of the Executive's
employment by the Company or by the Executive under this SECTION 5 (other than
termination pursuant to paragraph (a)(i)) shall be communicated by a written
notice to the other party hereto
4
<PAGE>
indicating the specific termination provision in this Agreement relied upon,
setting forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated, and specifying a Date of Termination which, except in
the case of termination for Cause, shall be at least fourteen days (or 60 days
in the case of Termination without Good Reason by the Executive) following the
date of such notice (a "Notice of Termination").
6. SEVERANCE PAYMENTS.
(a) TERMINATION WITHOUT CAUSE OR RESIGNATION FOR GOOD REASON: If
the Executive's employment shall terminate without Cause (pursuant to SECTION
5(a)(iv) or for Good Reason (pursuant to SECTION 5(a)(v)) the Company shall:
(i) pay to the Executive, in a lump sum, within five days
following the date of the termination, an amount equal to the Base
Salary provided herein that the Executive would have been entitled to
receive had he continued his employment hereunder for the remainder of
the Term; and
(ii) pay to the Executive within five days following the date
of termination a prorated amount of bonus based on the Company's
year-to-date performance in relation to the performance targets set by
the Board;
(iii) continue for the remainder of the Term the Executive's
coverage under all Company benefit plans and programs in which the
Executive was entitled to participate immediately prior to the Date of
Termination, to the extent permitted thereunder. In the event that the
Executive's participation in any such plan or program is not permitted,
the Company shall arrange to provide the Executive with benefits
substantially similar to those which the Executive would otherwise have
been entitled to receive under such plans and programs; and
(iv) the Executive's Options, if any, shall become 100%
vested as of the Date of Termination and shall remain exercisable until
the date such Option would otherwise expire without regard to this
Agreement.
(b) SURVIVAL. The expiration or termination of the Term shall not
impair the rights or obligations of any party hereto which shall have accrued
hereunder prior to such expiration.
7. COMPETITION.
(a) The Executive hereby agrees, in consideration of his
employment hereunder and in view of the confidential position to be held by the
Executive hereunder, that during the Term and during the 12 month period
beginning on the Date of Termination, the Executive will not directly or
indirectly, by or for himself, or as the agent of another, or through others as
an agent,
5
<PAGE>
(i) in any way solicit or induce or attempt to solicit or
induce any employee, officer, representative, consultant, or other
agent of the Company (whether such person is presently employed by the
Company or may hereinafter be so employed), to leave the Company's
employ or otherwise interfere with the employment relationship between
any such person and the Company; or
(ii) take any action to purchase or obtain goods or services,
from any of the Company's proprietary suppliers or other supplier with
whom the Company has developed an exclusive relationship; or
(iii) in any way solicit, or attempt to divert, take away or
call on, any customers of the Company.
(b) The Executive shall not, at any time during the Term, or (if
his employment was terminated by the Executive without Good Reason or by the
Company for Cause) during the 12 month period following the Date of Termination,
without the prior written consent of the Board, directly or indirectly engage
in, or have any interest in, or manage or operate any person, firm, corporation,
partnership or business (whether as director, officer, employee, agent,
representative, partner, security holder, consultant or otherwise) that engages
in any business which competes with any business of the Company or any
subsidiary wherever located at the date of termination; PROVIDED, HOWEVER, that
the Executive shall be permitted to acquire a stock interest in such a
corporation provided such stock is publicly traded and the stock so acquired is
not more than five percent (5%) of the outstanding shares of such corporation.
(c) In the event the terms of this SECTION 7 shall be determined
by any court of competent jurisdiction to be unenforceable by reason of its
extending for too great a period of time or over too great a geographical area
or by reason of its being too extensive in any other respect, it will be
interpreted to extend only over the maximum period of time for which it may be
enforceable, and/or over the maximum geographical area as to which it may be
enforceable and/or to the maximum extent in all other respects as to which it
may be enforceable, all as determined by such court in such action.
(d) The provisions of this SECTION 7 shall terminate upon two days
notice from Executive if the Company defaults in the performance of its
obligations under Section 2.3 of the Stock Purchase Agreement dated August 28,
1998 between the Company, Executive and the other parties thereto.
8. NONDISCLOSURE OF PROPRIETARY INFORMATION.
(a) Except as required in the faithful performance of the
Executive's duties hereunder or pursuant to subsection (c), the Executive shall,
in perpetuity, maintain in confidence and shall not directly, indirectly or
otherwise, use, disseminate, disclose or publish, or use for his benefit or the
benefit of any person, firm, corporation or other entity any confidential or
proprietary information or trade secrets of or relating to the Company,
including, without limitation, information with respect to the Company's
operations, processes, products, inventions, business practices, finances,
principals, vendors, suppliers, customers, potential
6
<PAGE>
customers, marketing methods, costs, prices, contractual relationships,
regulatory status, compensation paid to employees or other terms of employment,
or deliver to any person, firm, corporation or other entity any document,
record, notebook, computer program or similar repository of or containing any
such confidential or proprietary information or trade secrets; provided,
however, that no information otherwise in the public domain (other than by any
act of Executive in violation hereof) shall be considered confidential or
proprietary. The parties hereby stipulate and agree that as between them the
foregoing matters are important, material and confidential proprietary
information and trade secrets and affect the successful conduct of the
businesses of the Company (and any successor or assignee of the Company).
(b) Upon termination of the Executive's employment with Company
for any reason and upon the Company's request, the Executive will promptly
deliver to the Company all correspondence, drawings, manuals, letters, notes,
notebooks, reports, programs, plans, proposals, financial documents, or any
other documents concerning the Company's customers, business plans, marketing
strategies, products or processes and/or which contain proprietary information
or trade secrets.
(c) The Executive may respond to a lawful and valid subpoena or
other legal process but shall give the Company the earliest possible notice
thereof, shall, as much in advance of the return date as possible, make
available to the Company and its counsel the documents and other information
sought and shall assist such counsel in resisting or otherwise responding to
such process.
9. INJUNCTIVE RELIEF. It is recognized and acknowledged by the
Executive that a breach of the covenants contained in Sections 7 and 8 will
cause irreparable damage to Company and its goodwill, the exact amount of which
will be difficult or impossible to ascertain, and that the remedies at law for
any such breach will be inadequate. Accordingly, the Executive agrees that in
the event of a breach of any of the covenants contained in Sections 7 and 8, in
addition to any other remedy which may be available at law or in equity, the
Company will be entitled to specific performance and injunctive relief.
10. BINDING ON SUCCESSORS. This Agreement shall be binding upon and
inure to the benefit of the Company, the Executive and their respective
successors, assigns, personnel and legal representatives, executors,
administrators, heirs, distributees, devisees, and legatees, as applicable.
11. GOVERNING LAW. This Agreement shall be governed, construed,
interpreted and enforced in accordance with the substantive laws of the State of
New York.
12. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
13. NOTICES. Any notice, request, claim, demand, document and other
communication hereunder to any party shall be effective upon receipt (or refusal
of receipt) and
7
<PAGE>
shall be in writing and delivered personally or sent by telex, telecopy, or
certified or registered mail, postage prepaid, as follows:
(a) If to the Company:
USinternetworking, Inc.
One USi Plaza
175 Admiral Cochrane Drive
Annapolis, MD 21401
Attn: Chief Executive Officer
Tel. No.: (410) 897-4400
Fax No.: (410) 573-1906
(b) If to the Executive, to him at the address set forth below
under his signature;
or at any other address as any party shall have specified by notice in writing
to the other parties.
14. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same Agreement.
15. ENTIRE AGREEMENT. The terms of this Agreement are intended by the
parties to be the final expression of their agreement with respect to the
employment of the Executive by the Company and may not be contradicted by
evidence of any prior or contemporaneous agreement. The parties further intend
that this Agreement shall constitute the complete and exclusive statement of its
terms and that no extrinsic evidence whatsoever may be introduced in any
judicial, administrative, or other legal proceeding to vary the terms of this
Agreement.
16. AMENDMENTS; WAIVERS. This Agreement may not be modified, amended,
or terminated except by an instrument in writing, signed by the Executive and
the Chairman of the Board. By an instrument in writing similarly executed, the
Executive or the Company may waive compliance by the other party or parties with
any provision of this Agreement that such other party was or is obligated to
comply with or perform, provided, however, that such waiver shall not operate as
a waiver of, or estoppel with respect to, any other or subsequent failure. No
failure to exercise and no delay in exercising any right, remedy, or power
hereunder preclude any other or further exercise of any other right, remedy, or
power provided herein or by law or in equity.
17. NO INCONSISTENT ACTIONS. The parties hereto shall not voluntarily
undertake or fail to undertake any action or course of action inconsistent with
the provisions or essential intent of this Agreement. Furthermore, it is the
intent of the parties hereto to act in a fair and reasonable manner with respect
to the interpretation and application of the provisions of this Agreement.
8
<PAGE>
18. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a single arbitrator in the metropolitan area in which the
Executive is then based (or was last based during the Term if the Executive's
employment has been terminated) in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that the
Company shall be entitled to seek a restraining order or injunction in any court
of competent jurisdiction to prevent any continuation of any violation of the
provisions of SECTIONS 7 or 8 of the Employment Agreement, and provided further
that the Executive shall be entitled to seek specific performance of his right
to be paid and/or damages until the Date of Termination during the pendency of
any dispute or controversy arising under or in connection with this Agreement.
The fees and expense of the arbitrator shall be borne by the Company.
19. ATTORNEY'S FEES. In the event of any arbitration or litigation
arising under this Agreement, the prevailing party shall be entitled to recover
his or its reasonable attorney's fees from the other party.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
THE COMPANY:
USINTERNETWORKING, NC.
By:
----------------------------------------
Name:
------------------------------------
THE EXECUTIVE:
By:
----------------------------------------
Address:
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<PAGE>
EXHIBIT A
Relocation package for Carlos Bravo shall include all benefits normally
provided for executive relocation including but not limited to:
1. brokerage expenses; Payment of all sales and closing expenses
including any realtor or brokerage expenses;
2. All moving expenses such as van lines, packing, loading, unloading,
etc.
3. Temporary living expenses during the moving process and until
executive locates a suitable permanent residence up to a maximum of 45 days;
4. All finding and closing expenses and mortgage finance expenses in
locating and purchasing a new residence in the general relocation area,
including all closing expenses, realtor and brokerage expenses, normal and
reasonable mortgage fees and points, and
5. All miscellaneous "move in" expenses such as costs of utility
hook-up, etc.
<PAGE>
EXHIBIT G
<PAGE>
USINTERNETWORKING, INC.
WARRANTHOLDERS' AGREEMENT
DATED AS OF
________, 1998
<PAGE>
WARRANTHOLDERS' AGREEMENT
This WARRANTHOLDERS' AGREEMENT ("Agreement") is entered into as of
_______,1998 by and among USinternetworking, Inc., a Delaware corporation (the
"Company"), and those holders of Warrants ("Holders") listed on Schedule 1
hereto.
RECITALS:
A. The Company has agreed to issue warrants to purchase Common Stock in
connection with the acquisition of_________ pursuant to that certain Stock
Purchase Agreement dated as of August __, 1998 (the "Stock Purchase Agreement")
by and among ___ and the Company.
B. It is a condition precedent to the Closing under the Stock Purchase
Agreement that the parties hereto enter into this Agreement.
C. All of the Holders (as hereinafter defined) desire to enter into
this Agreement for the purpose of regulating certain aspects of the Holders'
ownership of Company Securities.
AGREEMENT:
NOW THEREFORE, in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the Company and Holders
agree as follows:
Section 1. DEFINITIONS. As used herein, the following terms shall have
the following meanings and other defined terms in this Agreement shall have the
meanings given such terms in their respective sections and/or paragraphs:
"COMMON STOCK" means the Common Stock, par value $.00l per share, of
the Company and any other capital stock of the Company into which such Common
Stock is reclassified or reconstituted.
"COMPANY SECURITIES" means the Common Stock, any securities convertible
into or exchangeable for Common Stock and any other capital stock of the Company
now or hereafter issued by the Company.
"HOLDERS" shall mean those individuals and entities identified as
"Holders" on Schedule I hereto and such other persons who become parties to this
Agreement pursuant to Section 2 thereof or by executing an instrument of
accession.
<PAGE>
"SECURITIES ACT" means the Securities Act of 1933, as amended from time
to time, and the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
Section 2. TRANSFER OF SECURITIES.
(a) GENERAL PROHIBITION ON TRANSFER. No Holder shall sell, assign,
transfer, pledge, encumber or in any way dispose of ("Transfer") any Company
Securities unless (i) such Holder has complied with the provisions of this
Section 2, (ii) the transferee (if other than the Company or a transferee of
Company Securities pursuant to a transaction set forth in clause (iv) of the
definition of Exempt Transfers (as set forth in Section 2(c)) has agreed to
become a party to, and be bound by the terms of, this Agreement and has executed
a supplemental agreement hereto in form and substance reasonably satisfactory to
the Company, and (iii) such Holder has delivered to the Company an opinion of
such Holder's counsel, in form and substance reasonably satisfactory to the
Company, to the effect that such Transfer is either exempt from the registration
requirements of the Securities Act and the applicable securities laws of any
state or that such registration requirements have been complied with.
(b) RIGHT OF FIRST OFFER.
(i) If any Holder (a "Seller") has received and accepted a bona
fide offer (a "Transfer Offer ") to purchase any or all of the Company
Securities (the "Transfer Stock") then owned by such Seller to any person other
than pursuant to an Exempt Transfer (as defined in Section 2(c) below), then
before the Seller may sell the Transfer Stock, the Seller shall provide to the
Company a written notice detailing the terms of such Transfer Offer that the
Seller has accepted with respect to such Transfer Stock (a "Transfer Notice").
Such Transfer Notice shall identity the Transfer Stock, the price of the
Transfer Stock, the identity of the third party offeror and all the other
material terms and conditions of such Transfer Offer. The Transfer Notice shall
contain an irrevocable offer (a "First Offer") to sell the Transfer Stock to the
Company at a price equal to the price and upon substantially the same terms as
the terms contained in such Transfer Offer. The Company shall have the
irrevocable right and option (the "Right of First Offer"), exercisable as
provided below, to accept the First Offer as to any or all Company Securities of
the Transfer Stock. The Company shall provide the Seller with an irrevocable
written notice of acceptance specifying the number of Company Securities of the
Transfer Stock which the Company is agreeing to purchase pursuant to such First
Offer, which shall be binding on the Company for the number of Company
Securities in such notice of acceptance, which notice of acceptance must be
provided to the Seller within fifteen (15) business days after the date the
Transfer Notice is given (the "Notice Period").
(ii) Subject to the Seller's rights under Section 2(b)(iii), the
closing of the purchase of the Transfer Stock by the Company pursuant to this
Section 2(b) shall take place at the principal office of the Company on the
thirtieth (30th) business day after the expiration of the Notice Period (or
after the receipt of any required governmental consents or approvals). At such
closing, the Company shall deliver a certified check or checks in the
appropriate amount to the Seller against delivery of certificates representing
the Transfer Stock so purchased, duly endorsed
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<PAGE>
in blank by the person or persons in whose name a stock certificate is
registered or accompanied by a duly executed assignment separate from the
certificate with the signatures thereon guaranteed by a commercial bank or trust
company.
(iii) Notwithstanding the exercise by the Company of its rights
under this Section 2(b), if at the end of the Notice Period the Company shall
have agreed to purchase less than all of the Transfer Stock covered thereby (a
"Partial Purchase Commitment"), the Seller shall promptly notify the Company as
to whether or not it shall accept such Partial Purchase Commitment. If such
Partial Purchase Commitment is accepted, the closing for such purchase of a
portion of such Transfer Stock shall take place pursuant to Section 2(b)(ii)
hereof. Upon acceptance by the Seller of the Partial Purchase Commitment, the
Seller shall have the right within the time hereinafter specified to Transfer
any Transfer Stock not included in the Partial Purchase Commitment at a price
not less than and on terms no more favorable to the purchaser than were in the
Transfer Notice. If the Seller determines not to accept the Partial Purchase
Commitment, the Seller shall have the right within the time hereinafter
specified to Transfer any or all of the Transfer Stock at a price not less than
and on terms no more favorable to the purchaser than contained in the Transfer
Notice. If the Company notifies the Seller that it has decided not to purchase
any portion of the Transfer Stock, or the Seller has accepted a Partial Purchase
Commitment and desires to Transfer the remaining Transfer Stock, or the Seller
has rejected the Partial Purchase Commitment and desires to Transfer the
Transfer Stock, the Seller shall have 180 days from the end of the Notice Period
(the "Sales Period"), in which to Transfer any or all of the Transfer Stock at a
price not less than and on terms no more favorable than were contained in the
Transfer Notice. No sale may be made to any third party unless such third party
agrees in writing, in form and substance reasonably acceptable to the Company,
to be bound by the provisions of this Agreement, as a Holder. Promptly after any
sale pursuant to this Section 2(b), the Seller shall notify the Company of the
consummation thereof and shall furnish such evidence of the completion
(including time of completion) of such sale and of the terms thereof as the
Company may reasonably request. If, at the termination of the Sales Period, the
Seller has not completed the sale of all the Transfer Stock, such Seller shall
no longer be permitted to Transfer such Transfer Stock pursuant to this Section
2(b) without again fully complying with the provisions of this Section 2(b) and
all the restrictions on Transfer contained in this Agreement shall again be in
effect with respect to all such Seller's Transfer Stock.
(c) EXEMPT TRANSFER. The following transactions shall constitute
"Exempt Transfers" for the purpose of Section 2(b): (i) a Transfer of Company
Securities by a Holder to the Company, (ii) a Transfer by a Holder of Company
Securities by will or intestate succession to such Holder's executor's,
administrators, testamentary trustees, legatees or beneficiaries, (iii) a
Transfer of Company Securities by a Holder to any Related Party (as defined
below) of such Holder, (iv) a Transfer of Company Securities by a Holder to the
public pursuant to an effective registration statement under the Securities Act
or pursuant to Rule 144 promulgated thereunder, (v) a Transfer of Company
Securities that has been approved in writing as an Exempt Transfer by the
holders of a majority of the outstanding Common Stock and the holders of a
majority of the outstanding shares of Series A Preferred Stock, par value $.0l
per share, of the Company; or (vi) a Transfer of Company Securities from one of
the Holders to another of the Holders.
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<PAGE>
(d) RELATED PARTY. As used herein, the term "Related Party" with
respect to any Holder means: (A) any person or entity that directly or
indirectly, through one or more intermediaries, has control of or is controlled
by, or is under common control with, the person or entity specified (an
"Affiliate"); (B) a trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, or owners, or persons holding a
controlling interest of which consist of such Holder and/or such other persons
or entities referred to in the immediately preceding clause (A), (C) with
respect to any Holder which is an individual, such Holder's spouse, siblings,
children or parents, or (D) with respect to any Holder which is a partnership or
a limited liability company, such Holders' partners or members as of the date
hereof and those persons who become partners or members of such Holder in the
ordinary course of such Holder's business.
(e) TAG-ALONG RIGHT. At any time on or after the date hereof, if one or
more holders of Common Stock ("SELLING STOCKHOLDERS") propose to Transfer (in a
sale consummated in a single Transfer or a series of related Transfers to a
single purchaser or a group of purchasers as part of a single transaction)
shares of Common Stock representing 51% or more of the outstanding shares of
Common Stock, then each of the Holders shall have the right (the "TAG-ALONG
RIGHT") to require the proposed purchaser to purchase from such Holder the same
proportion of such Holder's shares of Common Stock as the proportion of the
Selling Stockholder's shares of Common Stock proposed to be Transferred bears to
the total number of shares of Common Stock. Any shares of Common Stock purchased
from a Holder pursuant to this Section __ shall be paid for at the same price
and upon the same terms and conditions as such proposed Transfer by the Selling
Stockholder(s) (the "TRANSFER TERMS").
The Company shall promptly notify in writing the Holders in the event
Selling Stockholders propose to make a Transfer giving rise to the Tag-Along
Right, and shall furnish the Holders with the Transfer Terms and a copy of any
written offer or agreement pertaining thereto. The Tag-Along Right may be
exercised by any Holder by delivery of a written notice to the Company (the
"TAG-ALONG NOTICE") within fifteen (15) days following its receipt of such
notice from the Company. The Tag-Along Notice shall state the number of shares
of Common Stock that such Tag-Along Member proposes to include in such Transfer
to the proposed purchaser. In the event that the proposed purchaser does not
purchase the specified amount of shares of Common Stock from the Tag-Along
Members on the Transfer Terms, then the Company shall not permit the Selling
Stockholders to sell any shares of Common Stock to the proposed purchaser in the
proposed transfer.
The provisions of this Section 2(e) shall not apply to Exempt
Transfers.
(f) DRAG-ALONG RIGHT. At any time on or after the date hereof, if one
or more Selling Stockholders propose to Transfer (in a sale consummated in a
single Transfer or a series of related Transfers to a single purchaser or a
group of purchasers as part of a single transaction), shares of Common Stock
representing 51% or more of the outstanding shares of Common Stock, then the
Selling Stockholders shall have the right (the "DRAG-ALONG RIGHT"), but not the
obligation, to cause each of the Holders to tender for purchase to such
purchaser(s), at the
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<PAGE>
Transfer Terms, the same proportion of their shares of Common Stock as the
proportion of the Selling Stockholders' shares of Common Stock proposed to be
Transferred bears to the total number of shares of Common Stock owned by the
Selling Stockholders.
If the Selling Stockholder(s) elect to exercise the Drag-Along Right,
then they shall so notify the Holders (the "DRAG-ALONG NOTICE"). Each Drag-Along
Notice shall set forth the name and address of the proposed purchaser, the
proposed amount and form of consideration and other terms and conditions of
Transfer offered by the proposed purchaser, the aggregate number of shares of
Common Stock proposed to be purchased by such purchaser, and the Transfer Terms.
All Transfers pursuant to the Drag-Along Right shall be effectuated
simultaneously with the Transfer by the Selling Stockholders. Upon the receipt
of a Drag-Along Notice, each Holder shall be entitled and obligated to Transfer
such shares of Common Stock and shall execute such instruments and documents as
may reasonably be requested to Transfer such shares of Common Stock to the
proposed purchaser on the terms and for the price set forth in subsection (a)
above.
The provisions of this Section 2(f) shall not apply to Exempt
Transfers.
Section 3. PIGGYBACK REGISTRATION RIGHTS.
(a) RIGHT TO PIGGYBACK. Subject to the last sentence of this subsection
(a), whenever the Company proposes to register any shares of Common Stock with
the Securities and Exchange Commission (the "Commission") under the Securities
Act (other than registrations on Form S-4 or Form S-8) and the registration form
to be used may be used for the registration of the Registrable Securities (as
defined in subsection (j) below) (a "Piggyback Registration"), the Company will
give written notice to all Holders, at least thirty (30) days prior to the
anticipated filing date, of its intention to effect such a registration, which
notice will specify the proposed offering price, the kind and number of
securities proposed to be registered, the distribution arrangements and such
other information that at the time would be appropriate to include in such
notice, and will, subject to subsection (b) below, include in such Piggyback
Registration all Registrable Securities with respect to which the Company has
received written requests for inclusion therein within twenty (20) business days
after the delivery of the Company's notice. Except as may otherwise be provided
in this Agreement, Registrable Securities with respect to which such request for
registration has been received will be registered by the Company and offered to
the public in a Piggyback Registration pursuant to this Section 3 on the terms
and conditions at least as favorable as those applicable to the registration of
the shares of Common Stock to be sold by the Company and by any other person
selling under such Piggyback Registration.
(b) PRIORITY ON PIGGYBACK REGISTRATIONS. If the managing underwriter or
underwriters, if any, advise the holders of Registrable Securities in writing
that in its or their reasonable opinion or, in the case of a Piggyback
Registration not being underwritten, the Company shall reasonably determine (and
notify the holders of Registrable Securities of such determination), after
consultation with an investment banker of nationally recognized standing, that
the number
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<PAGE>
or kind of securities proposed to be sold in such registration (including
Registrable Securities to be included pursuant to subsection (a) above) will
materially adversely affect the success of such offering (including, without
limitation, an impact on the selling price), the Company will include in such
registration the number of securities, if any, which, in the opinion of such
underwriter or underwriters, or the Company, as the case may be, can be sold, as
follows: (i) first, the shares the Company proposes to sell, and (ii) second,
pro rata among the Holders, provided, however, if Company Securities are to be
included in a Piggyback Registration pursuant to registration rights contained
in the Shareholders' Agreement dated as of May 28, 1998 between the Company and
the parties thereto (the "Shareholders' Agreement"), then the Company will
include in such registration the number of securities, if any, which, in the
opinion of such underwriter or underwriters, or the Company, as the case may be,
can be sold, as set forth in Section 3(a)(2) of the Shareholders' Agreement,
treating the Holders for such purposes as "Stockholders" under the Shareholders'
Agreement.
(c) RESTRICTIONS ON PUBLIC SALE.
(1) PUBLIC SALE BY HOLDERS OF REGISTRABLE SECURITIES. To the
extent not inconsistent with applicable law, each Holder, if requested by the
managing underwriter or underwriters for any such Registration, agrees not to
effect any public sale or distribution of Company Securities including a sale
pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act, during the 15 business days prior to, and during the ninety
(90)-day period (or such shorter period as may be agreed to by such holders)
beginning on, the effective date of the applicable Registration Statement
(except as part of such Registration).
(2) PUBLIC SALE BY THE COMPANY AND OTHERS. If requested by the
managing underwriter or underwriters for any underwritten Registration, (i) the
Company will not effect any public sale or distribution of Company Securities
during the fifteen (15) business days prior to, and during the ninety (90)-day
period beginning on the effective date of such Registration and (ii) the Company
will cause each holder of Company Securities purchased from the Company at any
time alter the date of this Agreement (other than in a registered public
offering) to agree not to effect any public sale or distribution of any such
securities during such period described in clause (i) above (except as part of
such Registration, if otherwise permitted).
(d) REGISTRATION EXPENSES. All expenses incident to the Company's
performance of or compliance with this Agreement will be borne by the Company,
including, without limitation, all registration and filing fees, the fees and
expenses of the counsel and accountants for the Company (including the expenses
of any "cold comfort" letters and special audits required by or incident to the
performance of such persons), all other costs and expenses of the Company
incident to the preparation, printing and filing under the Securities Act of the
Registration Statement (and all amendments and supplements thereto) and
furnishing copies thereof and of the Prospectus included therein, the costs and
expenses incurred by the Company in connection with the qualification of the
Registrable Securities under the state securities or "blue sky" laws of various
jurisdictions, the costs and expenses associated with filings required to be
made with the NASD (including, if applicable, the fees and expenses of any
"qualified independent
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<PAGE>
underwriter" and its counsel as may be required by the rules and regulations of
the NASD), the costs and expenses of listing the Registrable Securities for
trading on a national securities exchange or authorizing them for trading on
NASDAQ and all other costs and expenses incurred by the Company in connection
with any Registration hereunder; PROVIDED, that, except as otherwise provided in
subsection (2) below, each Holder shall bear the costs and expenses of any
underwriters' commissions, brokerage fees or transfer taxes relating to the
Registrable Securities sold by such Holders and the fees and expenses of any
counsel, accountants or other representative retained by Holder.
(e) INDEMNIFICATION.
(1) INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify, to the full extent permitted by law, each Holder, its officers,
directors, partners and agents and each person who controls such Holder (within
the meaning of the Securities Act and the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), against all losses, claims, damages, liabilities
and expenses caused by any untrue or alleged untrue statement of a material fact
contained in any Registration Statement, Prospectus or preliminary Prospectus or
any omission or alleged omission to state therein a material fact necessary to
make the statements therein (in the case of a Prospectus or any preliminary
Prospectus, in light of the circumstances under which they were made) not
misleading, except insofar as the same are caused by or contained in any
information with respect to such Holder furnished in writing to the Company by
such Holder or its representative expressly for use therein. The Company will
also indemnify underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, their
officers and directors and each person who controls such persons (within the
meaning of the Securities Act) to the same extent as provided above with respect
to the indemnification of the holders of Registrable Securities; PROVIDED,
HOWEVER, if pursuant to an underwritten public offering of Registrable
Securities, the Company and any underwriters enter into an underwriting or
purchase agreement relating to such offering that contains provisions relating
to indemnification and contribution between the Company and such underwriters,
such provisions shall be deemed to govern indemnification and contribution as
between the Company and such underwriters.
(2) INDEMNIFICATION BY HOLDERS OF REGISTRABLE SECURITIES. In
connection with any Registration in which a Holder is participating, each such
Holder will furnish to the Company in writing such information with respect to
such Holder as the Company reasonably requests for use in connection with any
Registration Statement or Prospectus and agrees to indemnify, to the full extent
permitted by law, the Company, the directors and officers of the Company signing
the Registration Statement and each person who controls the Company (within the
meaning of the Securities Act and the Exchange Act) against any losses, claims,
damages, liabilities and expenses resulting from any untrue statement of a
material fact or any omission to state a material fact required to be stated
therein or necessary to make the statements in the Registration Statement or
Prospectus or preliminary Prospectus (in the case of the Prospectus or any
preliminary Prospectus, in light of the circumstances under which they were
made) not misleading, to the extent, but only to the extent, that such untrue
statement or omission is
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<PAGE>
contained in any information with respect to such Holder so furnished in writing
by such Holder or its representative specifically for inclusion therein;
PROVIDED, HOWEVER, that the Holder's liability shall in no event exceed the net
proceeds received by such Holder from the sale of shares pursuant to such
Registration Statement. The Company shall be entitled to receive indemnities
from underwriters, selling brokers, dealer managers and similar securities
industry professionals participating in the distribution, to the same extent as
provided above with respect to information with respect to such persons or
entities so furnished in writing by such persons or entities or their
representatives specifically for inclusion in any Prospectus or Registration
Statement.
(3) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any person or entity
entitled to indemnification hereunder will (i) give prompt written notice to the
indemnifying party after the receipt by the indemnified party of a written
notice of the commencement of any action, suit, proceeding or investigation or
threat thereof made in writing for which such indemnified party will claim
indemnification or contribution pursuant to this Agreement; PROVIDED, HOWEVER,
that the failure of any indemnified party to give notice as provided herein
shall not relieve the indemnifying party of its obligations under the preceding
clauses (1) and (2), except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest may exist between
such indemnified and indemnifying parties with respect to such claim, permit
such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. Whether or not such defense is
assumed by the indemnifying party, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent will
not be unreasonably withheld). No indemnifying party will consent to the entry
of any judgment or enter into any settlement that 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 of such claim or
litigation. An indemnifying party who is not entitled to, or elects not to,
assume the defense of a claim will not be obligated to pay the fees and expenses
of more than one counsel in any one jurisdiction for all parties indemnified by
such indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim, in which event the indemnifying party shall be obligated to pay the fees
and expenses of such additional counsel or counsels.
(4) CONTRIBUTION. If for any reason the indemnification provided
for in the preceding clauses (1) and (2) is unavailable to an indemnified party
as contemplated by the preceding clauses (1) and (2), then the indemnifying
party in lieu of indemnification shall contribute to the amount paid or payable
by the indemnified party as a result of such loss, claim, damage, liability or
expense in such proportion as is appropriate to reflect not only the relative
benefits received by the indemnified party and the indemnifying party, but also
the relative fault of the indemnified party and the indemnifying party, as well
as any other relevant equitable considerations, provided that no Holder shall be
required to contribute in an amount greater than the difference between the net
proceeds received by such Holder with respect to the sale of any Shares and all
amounts already contributed by such Holder with respect to such claims,
including amounts paid for any legal or other fees or expenses incurred by such
Holder.
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<PAGE>
(f) RULE 144. The Company agrees that at all times after it has filed a
registration statement pursuant to the requirements of the Securities Act
relating to any class of equity securities of the Company, it will file in a
timely manner all reports required to be filed by it pursuant to the Securities
Act and the Exchange Act and will take such further action as any holder of
Registrable Securities may reasonably request in order that such holder may
effect sales of Company Securities pursuant to Rule 144. At any reasonable time
and upon request of any Holder, the Company will furnish such Holder and others
with such information as may be necessary to enable the Holder to effect sales
of Company Securities pursuant to Rule 144 under the Securities Act and will
deliver to such Holder a written statement as to whether it has complied with
such requirements. Notwithstanding the foregoing, the Company may deregister any
class of its equity securities under Section 12 of the Exchange Act or suspend
its duty to file reports with respect to any class of its securities pursuant to
Section 15(d) of the Exchange Act if it is then permitted to do so pursuant to
the Exchange Act and the rules and regulations thereunder.
(g) PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Holder may
participate in any underwritten Registration hereunder unless such Holder (i)
agrees to sell its Registrable Securities on the basis provided in any
underwriting arrangements, and (ii) accurately completes in a timely manner and
executes all questionnaires, powers of attorney, underwriting agreements and
other documents customarily required under the terms of such underwriting
arrangements, provided that the representations and warranties of any Holder
therein shall be limited to its title to the Registrable Securities to be sold
and other matters within its knowledge.
(h) DEFINITION OF REGISTRABLE SECURITIES. "Registrable Securities"
means any shares of Common Stock which shall have been issued upon exercise of
the Warrants pursuant to the terms thereof, but with respect to any share, only
until such time as such share (i) has been effectively registered under the
Securities Act and disposed of in accordance with the Registration Statement
covering it or (ii) has been sold to the public pursuant to Rule 144 (or any
similar provision then in force) under the Securities Act and the Legend
referred to in Section 5(a) has been removed from the certificate representing
such share.
Section 4. TERMINATION AND AMENDMENT.
The provisions of Sections 2 of this Agreement shall terminate upon the
earlier of (i) the consummation of an underwritten public offering of Common
Stock designed to achieve broad distribution of such Common Stock and resulting
in the listing of such Common Stock on a national securities exchange or NASDAQ,
or (ii) the consummation of any merger of the Company with and into a company
whose common stock is publicly traded on a national securities exchange or
NASDAQ (each an "Exchange"), in which at least 90% of the merger consideration
is composed of registered securities listed on an Exchange and/or cash, and
where as a result of such merger the holders of the Company's equity securities
immediately prior to the merger own equity securities of the surviving publicly
traded company with less than 50% of the
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voting power of its outstanding securities. The provisions of this Agreement may
be modified or amended by the written agreement of the Holders and the Company.
Section 5. MISCELLANEOUS.
(a) LEGEND. The certificates representing the capital stock of the
Company held by each of the Holders shall bear the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT COVERING SUCH SECURITIES OR SUCH SALE OR TRANSFER
IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF
SUCH ACT AND ANY SIMILAR REQUIREMENTS OF ANY APPLICABLE STATE SECURITIES
LAW. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS SET FORTH IN A WARRANTHOLDERS' AGREEMENT DATED AS OF
________________, 1998, A COPY OF WHICH IS AVAILABLE UPON REQUEST FROM THE
SECRETARY OF THE COMPANY."
If any capital stock of the Company becomes eligible for sale pursuant to Rule
144(k) promulgated under the Securities Act, the Company shall, upon the request
of any holder of such capital stock, remove the legend set forth in this Section
5(a) from the certificates evidencing the shares of such capital sock held by
such holder. In addition, (i) in connection with any Transfer of shares of any
capital stock of the Company pursuant to any public offering registered under
the Securities Act or pursuant to Rule 144 or Rule 144A (or any similar rule or
rules then in effect promulgated under the Securities Act) if such rule is
available or (ii) if the holder of any shares of capital stock of the Company
delivers to the Company an opinion of counsel reasonably acceptable to the
Company that no subsequent Transfer of such shares shall require registration
under the Securities Act, the Company shall promptly upon such Transfer deliver
new certificates for such shares which do not bear the legend set forth in this
Section 5(a).
(b) SUCCESSORS, ASSIGNS AND TRANSFEREES. This Agreement shall be
binding upon and inure to the benefit of the parties hereto, their respective
legal representatives, heirs, legatees, successors and permitted assigns
(including any party to which any Holder has Transferred Shares if such party is
required under Section 2(a) to become bound hereby).
(c) SPECIFIC PERFORMANCE, ETC. The Company and each Holder, in addition
to being entitled to exercise all rights provided herein, in the Company's
Certificate of Incorporation or granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement,
without the requirement of bond. The Company agrees that monetary damages would
not be adequate compensation for any loss incurred by reason of a
-10-
<PAGE>
breach by it of the provisions of this Agreement and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.
(d) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal law of the State of Delaware.
(e) INTERPRETATION. The headings of the sections contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not affect the meaning or interpretation of this
Agreement.
(f) NOTICES. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, or sent by facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission or,
if mailed, three (3) business days after the date of deposit in the United
States mail, by certified mail return receipt requested, as follows:
(i) If to the Company to:
USinternetworking, Inc.
175 Admiral Cochrane Drive
Suite 400
Annapolis, MD 21401
Attention: Christopher R. McCleary
with a copy to:
Latham & Watkins
1001 Pennsylvania Avenue, N.W.
Suite 1300
Washington, D.C. 20004-2505
Attention: James F. Rogers, Esq.
(ii) If to _________________________:
(g) INSPECTION AND COMPLIANCE WITH LAW. Copies of this Agreement will
be available for inspection or copying by any Holder at the offices of the
Company through the Secretary of the Company.
(h) AMENDMENTS AND WAIVERS. The provisions of this Agreement, including
the provisions of this paragraph (h), may not be amended, modified or
supplemented, and waivers of or consents to departures from the provisions
hereof may not be given, except by a written
-11-
<PAGE>
instrument executed by all of the parties hereto. No action taken pursuant to
this Agreement, including, without limitation, any investigation by or on behalf
of any party, shall be deemed to constitute a waiver by the party taking such
action. The waiver by any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as waiver of any preceding or
succeeding breach and no failure by any party to exercise any right or privilege
hereunder shall be deemed a waiver of such party's rights or privileges
hereunder or shall be deemed a waiver of such party's rights to exercise the
same at any subsequent time or times hereunder.
(i) TRANSFERS VOID. Any Transfer of any security of the Company in
violation of this Agreement shall be null and void.
(j) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, by the original parties hereto and any successor in interest, each
of which shall be deemed to be an original and all of which together shall be
deemed to constitute one and the same agreement.
(k) ATTORNEYS' FEES. In any action or proceeding brought to enforce any
provision of this Agreement, or where any provision hereof is validly asserted
as a defense, the successful party shall be entitled to recover reasonable
attorneys' fees in addition to any other available remedy.
(l) SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Shareholders'
Agreement as of the date first above written.
THE COMPANY:
USINTERNETWORKING, INC.
a Delaware corporation
By:
--------------------------------------
Christopher R. McCleary, President
THE HOLDERS:
By:
--------------------------------------
-13-
<PAGE>
SCHEDULE 4.1
JURISDICTIONS WHERE EACH OF THE ACQUIRED COMPANIES IS QUALIFIED TO DO
BUSINESS
<TABLE>
<CAPTION>
STATES WHERE REGISTERED
COMPANY STATE OF INCORPORATION TO DO BUSINESS
- --------------------------------------------------------------------------------
<S> <C> <C>
IIT Holding, Inc. Florida Florida
(Parent Company)
International California California
Information Florida
Technology, Inc. Illinois
(Owned 100% by IIT Holding,
Inc.)
International Caracas, Venezuela Venezuela
Information
Technology, IIT, C.A
(Owned 100% by IIT Holding,
Inc.)
I.I.T. Technology Florida Florida
Solutions, Inc.
(Owned 100% by IIT Holding,
Inc.)
</TABLE>
Note: Inactive shell company with no assets and no operations
<PAGE>
SCHEDULE 4.2
LISTINGS OF SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
COMPANY STATE OF INCORPORATION STATES WHERE REGISTERED
TO DO BUSINESS
- --------------------------------------------------------------------------------
<S> <C> <C>
International California California
Information Florida
Technology, Inc. Illinois
(Owned 100% by IIT Holding,
Inc.)
International Caracas, Venezuela Venezuela
Information
Technology, IIT, C.A
(Owned 100% by IIT Holding,
Inc.)
I.I.T. Technology Florida Florida
Solutions, Inc.
(Owned 100% by IIT Holding,
Inc.)
</TABLE>
Note: Inactive shell company with no assets and no operations
<PAGE>
SCHEDULE 4.3
LISTING OF SELLER'S OWNERSHIP OF COMPANY COMMON STOCK
IIT Holding, Inc. Total Shares Authorized: 100
Total Shares Issued and Outstanding: 95
Distribution:
<TABLE>
<CAPTION>
SHAREHOLDER SHARES
OWNERSHIP
- ------------------------------------------------------------------------
<S> <C>
Sebastian Alegrett 50
Michael Mai 30
Vicente Perez de Tudela 10
Carlos E. Bravo 5
</TABLE>
<PAGE>
SCHEDULE 4.6
FINANCIAL STATEMENTS
ATTACHED
1) Audited Financials, for the periods ending December 31, 1997 and 1996 for
IIT, Inc. (9 pages)
2) Reviewed Financials, for the 6 month period ending June 30, 1998 for IIT,
Inc. (9 pages)
3) Unaudited Financial Statements for the 7 month period ending July 31, 1998
for IIT, Inc.
4) Unaudited Financials (Non-U.S. Accounting Audit but not signed), for the
periods ending December 31, 1997 and 1996 for International Information
Technology IIT, C.a. (IIT, C.A.) (23 pages)
5) Unaudited Financial Statements for the 6 month period ending June 30, 1998
for IIT, C.A. (6 pages)
<PAGE>
INTERNATIONAL INFORMATION
TECHNOLOGY, INC.
FINANCIAL STATEMENTS
AND INDEPENDENT AUDITORS' REPORT
DECEMBER 31, 1997 AND 1996
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Independent Auditors' Report ........................................ 1
Financial Statements
Balance sheets .................................................... 2
Statements of Operations and Retained Earnings .................... 3
Statements of Cash Flows .......................................... 4
Notes to Financial Statements ..................................... 5-7
</TABLE>
<PAGE>
[LETTERHEAD OF VERDEJA & GRAVIER]
INDEPENDENT AUDITORS' REPORT
Board of Directors
International Information Technology, Inc.
Coral Gables, Florida
We have audited the accompanying balance sheets of International Information
Technology, Inc. at December 31, 1997 and 1996, and the related statements of
operations and retained earnings, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of International Information
Technology, Inc. at December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Verdeja & Gravier
CERTIFIED PUBLIC ACCOUNTANTS
Coral Gables, Florida
July 22, 1998
<PAGE>
ASSETS
<TABLE>
<CAPTION>
December 31,
1997 1996
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 9,520 $ 12,379
Accounts receivable 590,246 153,769
Due from related company in Venezuela 186,030 --
Other current assets 17,690 470
-------- --------
TOTAL CURRENT ASSETS 803,486 166,618
PROPERTY AND EQUIPMENT
Computer equipment 43,954 21,578
Vehicles 45,119 45,119
-------- --------
89,073 66,697
Less accumulated depreciation (46,547) (25,650)
-------- --------
42,526 41,047
-------- --------
$846,012 $207,665
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Cash overdraft $187,121 $ --
Accounts payable and accrued expenses 311,935 75,740
Income taxes payable 11,000 --
Unsecured loan payable to stockholder,
non-interest bearing 30,060 60,061
Deferred income taxes 78,890 --
-------- --------
TOTAL CURRENT LIABILITIES 619,006 135,801
STOCKHOLDERS' EQUITY
Capital stock, $1 par value per share,
authorized issued and outstanding
1,000 shares 1,000 1,000
Retained Earnings 226,006 70,864
-------- --------
227,006 71,864
-------- --------
$846,012 $207,665
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
1997 1996
---- ----
<S> <C> <C>
Revenue
Consulting $2,963,702 $854,026
Cost of revenues 1,564,591 689,602
---------- --------
GROSS PROFIT 1,399,111 164,426
Operating expenses
General and administrative 1,072,014 99,879
Sales and marketing 62,943 73,305
Depreciation 20,897 12,940
---------- --------
1,155,854 186,124
---------- --------
243,257 (21,698)
Other income 1,775 --
---------- --------
INCOME (LOSS) BEFORE INCOME TAXES 245,032 (21,698)
Applicable income taxes (89,890) --
---------- --------
NET INCOME (LOSS) 155,142 (21,698)
Retained earnings at beginning of year 70,864 92,562
---------- --------
Retained earnings at end of year $ 226,006 $ 70,864
---------- --------
---------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
- -------------------------------------------------------------------------------
For the years ended
December 31,
1997 1996
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 155,142 $(21,698)
--------- --------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 20,897 12,940
Change in Assets and Liabilities:
Increase in accounts receivable (436,477) (1,206)
Increase in due from related company (186,030) --
Increase (decrease) in other assets (17,220) 798
Increase in cash overdraft 187,121 --
Increase in accounts payable 236,195 74,940
Increase in income taxes payable 11,000 --
Increase in deferred taxes 78,890 --
--------- --------
Total Adjustments (105,624) 87,472
--------- --------
Net Cash Provided by Operating Activities 49,518 65,774
Cash Flows from Investing Activities:
Acquisition of property and equipment (22,376) (10,545)
--------- --------
Net Cash Used by Investing Activities (22,376) (10,545)
Cash Flows from Financing Activities:
Increase in stockholder loan -- 29,000
Repayment of stockholder loan (30,001) --
Decrease in notes payable -- (21,117)
--------- --------
Net Cash Provided (Used) by Financing Activities (30,001) 7,883
--------- --------
Net increase (decrease) in cash (2,859) 63,112
Cash (overdraft) at beginning of year 12,379 (50,733)
--------- --------
Cash at end of year $ 9,520 $ 12,379
--------- --------
--------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,1997 AND 1996
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization:
International Information Technology, Inc. (hereinafter referred to
as the "Company") provides Internet and Intranet consulting, integration,
and support services principally to commercial companies located
throughout the United States and South America. International Information
Technology, Inc. was incorporated, under the laws of the State of
California in May 1994.
Property and Equipment:
Property and equipment is stated at cost. Depreciation is computed
principally on the straight-line method over the estimated useful lives of
the assets which range from 5 to 7 years for property and equipment.
Income taxes:
The Company provides for income taxes currently payable as well as
deferred taxes resulting from temporary differences between reporting
assets and liabilities for tax purposes and for financial statement
purposes using provisions of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes". Under these standards, deferred
taxes and liabilities represent the tax effects, based on current tax laws
of future deductibles or taxable amounts attributable to events that have
been recognized in the financial statements.
Supplement to Statement of cash flows:
For purposes of the statement of cash flows, the Company considers
all highly liquid debt instruments, including certificates of deposit,
purchased with a maturity of three months or less to be cash equivalents.
Interest and tax payments were approximately $2,500 and $3,500 for 1997
and $0 and $0 for 1996, respectively.
Estimates:
In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements, and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Concentration of Credit Risk:
Financial instruments that subject the Company to concentrations of
credit risks consist primarily of accounts receivable. In addition, the
Company grants credit terms in the normal course of business to its
customers. As part of its ongoing procedures, the Company monitors the
creditworthiness of its customers. The Company does not believe that it is
subject to any unusual credit risk beyond the normal credit risk inherent
in its business.
5
<PAGE>
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
For the year ended December 31, 1997, three customers accounted for
31%, 16%, and 10% of total revenues, and three customers accounted for
40%, 14%, and 11% of accounts receivable at December 31, 1997.
For the year ended December 31, 1996, three customers accounted for
50%, 25%, and 10% of total revenues, and three customers accounted for
39%, 29%, and 11% of accounts receivable at December 31, 1996.
Revenue Recognition:
Revenue is recognized in the period services are performed.
Advertising Costs:
The Company expenses advertising costs as incurred. Advertising
expense totaled $63,000 and $28,000 in 1997 and 1996, respectively.
NOTE 2 - INCOME TAXES
Significant components of the Company's deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $ -- $30,000
---- -------
Total deferred tax assets -- 10,000
Valuation allowance for deferred tax assets -- 10,000
---- -------
Net deferred tax asset -- $ --
---- -------
---- -------
</TABLE>
A Company's effective income tax rate may differ from what would be
expected if the Federal statutory rate were applied to income from
continuing operations primarily because of expenses deductible for
financial reporting purposes that are not deductible for tax purposes. For
the years ended December 31, 1997 and 1996, there were no such expenses.
NOTE 3 - LEASES
Future minimum payments under noncancelable operating leases with
initial terms of one year or more consisted of the following at December
31, 1997:
<TABLE>
<S> <C>
1998 $34,000
1999 34,000
2000 27,000
-------
Total minimum lease payments $95,000
-------
-------
</TABLE>
Rental expense for all operating leases was $21,000 and $15,000 for
1997 and 1996, respectively, and $14,000 for the six months ending June
30, 1998.
NOTE 4 - DUE FROM RELATED COMPANY IN VENEZUELA
International Information Technology, Inc. has advanced funds to a
Venezuelan company related by common ownership. These funds are unsecured
and non-interest bearing.
6
<PAGE>
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
NOTE 5 - EMPLOYEE BENEFIT PLAN
The Company established a defined contribution benefit plan
effective January 1, 1998. The plan covers substantially all employees of
the Company who are 21 years old. Participants may contribute up to 15% of
their annual compensation to the plan. The Company matches up to 3% of
annual compensation.
NOTE 6 - IMPACT OF YEAR 2000 (UNAUDITED)
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of
the Company's computer programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar
normal business activities.
Based on a recent assessment, the Company has determined that it
will not be required to modify or replace any portion of its software so
that its computer systems will function properly with respect to dates in
the year 2000 and thereafter.
NOTE 7 - SUBSEQUENT EVENTS
Sale of Stock and Assets:
Subsequent to year end, the Company entered into a letter of intent
with an unrelated entity to sell all of its stock for cash and warrants of
the acquiring company's stock.
Agreement with People Soft, Inc.:
Subsequent to year end, the Company entered into an Implementation
Partner Agreement with People Soft, Inc. for a period of one year. Under
this agreement, the Company agreed to pay People Soft, Inc., $20,000, and
serve as their implementation partner. Prior to this agreement, the
Company served as a distributor for People Soft.
Insurance:
Subsequent to year end, the Company obtained an Errors and Omissions
Policy. Prior to February 1998, the Company was not insured against errors
and omissions.
7
<PAGE>
INTERNATIONAL INFORMATION
TECHNOLOGY, INC.
FINANCIAL STATEMENTS
AND ACCOUNTANTS' REVIEW REPORT
JUNE 30, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Accountants' Review Report .......................................... 1
Financial Statements
Balance Sheet ..................................................... 2
Statement of Income and Retained Earnings ......................... 3
Statement of Cash Flows ........................................... 4
Notes to Financial Statements ..................................... 5-7
</TABLE>
<PAGE>
[LETTERHEAD OF VERDEJA & GRAVIER]
ACCOUNTANTS' REVIEW REPORT
Board of Directors
International Information Technology, Inc.
Coral Gables, Florida
We have reviewed the accompanying balance sheet of International Information
Technology, Inc. as of June 30, 1998, and the related statements of income and
retained earnings, and cash flows for the six months then ended, in accordance
with Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants. All information included in
these financial statements is the representation of the management of
International Information Technology, Inc.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
/s/ Verdeja & Gravier
CERTIFIED PUBLIC ACCOUNTANTS
Coral Gables, Florida
July 30, 1998
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY, INC.
BALANCE SHEET
JUNE 30, 1998
<TABLE>
ASSETS
<S> <C>
CURRENT ASSETS
Cash $ 147,495
Trade accounts receivable 813,753
Due from related company in Venezuela 106,876
Other current assets 29,968
----------
TOTAL CURRENT ASSETS 1,098,092
PROPERTY AND EQUIPMENT
Furniture and fixtures 27,884
Computer equipment 50,087
----------
77,971
Less accumulated depreciation (25,570)
----------
52,401
SECURITY DEPOSITS 11,613
----------
$1,162,106
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable and accrued expenses $ 686,016
Income taxes payable 106,689
Unsecured loan payable to stockholder,
non-interest bearing 22,284
Deferred income taxes 26,389
----------
TOTAL CURRENT LIABILITIES 841,378
STOCKHOLDERS' EQUITY
Capital stock, $1 par value per share,
authorized issued and outstanding
1,000 shares 1,000
Retained Earnings 319,728
----------
320,728
----------
$1,162,106
----------
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
For the six months ended June 30, 1998
<TABLE>
<S> <C>
Revenue
Consulting $2,669,187
Cost of revenue 1,351,596
----------
GROSS PROFIT 1,317,591
Operating expenses
General and administrative 1,146,678
Sales and marketing 16,336
Depreciation 6,667
----------
1,169,681
----------
INCOME BEFORE INCOME TAXES 147,910
Applicable income taxes 54,188
----------
NET INCOME 93,722
Retained earnings at beginning of period 226,006
----------
Retained earnings at end of period $ 319,728
----------
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY, INC.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net income $ 93,722
---------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 6,667
Change in Assets and Liabilities:
Increase in accounts receivable (223,507)
Decrease in due from related company 79,154
Increase in other assets (23,891)
Decrease in cash overdraft (187,121)
Increase in accounts payable and accrued expenses 374,081
Increase in income taxes payable 95,689
Decrease in deferred taxes (52,501)
---------
Total Adjustments 68,571
---------
Net Cash Provided by Operating Activities 162,293
Cash Flows from Investing Activities:
Acquisition of property and equipment (34,017)
---------
Net Cash Used by Investing Activities (34,017)
Cash Flows from Financing Activities:
Increase in stockholder loan 9,699
---------
Net Cash Provided by Financing Activities 9,699
---------
Net increase in cash 137,975
Cash at beginning of period 9,520
---------
Cash at end of period $ 147,495
---------
---------
</TABLE>
Investing and Financing Activities not Requiring Cash:
During the period ended June 30, 1998, a vehicle reported in Company books was
removed from the Company reducing property and equipment net of accumulated
depreciation in the amount of $17,475 and reducing stockholder loans and notes
payable in the amount of $7,776 and $9,669 respectively.
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization:
International Information Technology, Inc. (hereinafter referred to
as the "Company") provides Internet and Intranet consulting, integration,
and support services principally to commercial companies located
throughout the United States and South America. International Information
Technology, Inc. was incorporated, under the laws of the State of
California in May 1994.
Property and Equipment:
Property and equipment is stated at cost. Depreciation is computed
principally on the straight-line method over the estimated useful lives of
the assets which range from 5 to 7 years for property and equipment.
Income taxes:
For income tax purposes, the Company reports on the cash basis of
accounting; revenue is considered earned only when collected and expenses
recognized when paid. For financial statement purposes, the Company
reports under the accrual basis of accounting.
The Company provides for income taxes currently payable as well as
deferred taxes resulting from temporary differences between reporting
assets and liabilities for tax purposes and for financial statement
purposes using provisions of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes". Under these standards, deferred
taxes and liabilities represent the tax effects, based on current tax laws
of future deductibles or taxable amounts attributable to events that have
been recognized in the financial statements.
Supplement to Statement of cash flows:
For purposes of the statement of cash flows, the Company considers
all highly liquid debt instruments, including certificates of deposit,
purchased with a maturity of three months or less to be cash equivalents.
Interest and tax payments were approximately $0 and $11,000 for the six
months ended June 30, 1998, respectively.
Estimates:
In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements, and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Concentration of Credit Risk:
Financial instruments that subject the Company to concentrations of
credit risks consist primarily of accounts receivable. In addition, the
Company grants credit terms in the normal course of business to its
customers. As part of its ongoing procedures, the Company monitors the
creditworthiness of its customers. The Company does not believe that it is
subject to any unusual credit risk beyond the normal credit risk inherent
in its business.
5
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
For the six months ended June 30, 1998, two customers accounted for
31% and 13% of total revenues, and two customers accounted for 34% and 21%
of accounts receivable at June 30, 1998.
Revenue Recognition:
Revenue is recognized in the period services are performed.
Advertising Costs:
The Company expenses advertising costs as incurred. Advertising
expense totaled $3,985 for the six months then ended.
NOTE 2 - LEASES
Future minimum payments under noncancelable operating leases with
initial terms of one year or more consisted of the following at June 30,
1998:
<TABLE>
<S> <C>
1999 $34,000
2000 27,000
-------
Total minimum lease payments $61,000
-------
-------
</TABLE>
Rental expense for all operating leases was $14,000 for the six
months ending June 30, 1998.
NOTE 3 - DUE FROM RELATED COMPANY IN VENEZUELA
International Information Technology, Inc. has advanced funds to a
Venezuelan company related by common ownership. These funds are unsecured
and non-interest bearing.
NOTE 4 - EMPLOYEE BENEFIT PLAN
The Company established a defined contribution benefit plan
effective January 1, 1998. The plan covers substantially all employees of
the Company who are 21 years old. Participants may contribute up to 15% of
their annual compensation to the plan. The Company matches up to 3% of
annual compensation. The Company's contribution to the 401k plan during
the six months ended June 30, 1998 amounted to $27,848.
NOTE 5 - IMPACT OF YEAR 2000 (UNAUDITED)
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of
the Company's computer programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar
normal business activities.
Based on a recent assessment, the Company has determined that it
will not be required to modify or replace any portion of its software so
that its computer systems will function properly with respect to dates in
the year 2000 and thereafter.
6
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
NOTE 6 - LETTER OF INTENT TO SELL THE COMPANY'S STOCK
The Company entered into a letter of intent with an unrelated entity
to sell all of its stock for cash and warrants of the acquiring company's
stock.
NOTE 7 - AGREEMENT WITH PEOPLE SOFT, INC.
The Company entered into an Implementation Partner Agreement with
People Soft, Inc. for a period of one year. Under this agreement, the
Company agreed to pay People Soft, Inc., $20,000, and serve as their
implementation partner. Prior to this agreement, the Company served as a
distributor for People Soft.
7
<PAGE>
Schedule 4.6
International Information Technology, Inc. (USA ONLY)
Statements of Operations And Retained Earnings
For the seven months ended July 31, 1998 & Projection for YTD August 31, 1998
<TABLE>
<CAPTION>
ESTIMATED
YTD YTD DAILY AVERAGE
JULY 31, 1998 AUGUST 31,1998 AUGUST 31, 1998
<S> <C> <C> <C>
REVENUES:
Consulting 3,203,559 3,883,559 15,982
Cost of revenues 1,591,054 1,864,242 7,672
------------------------------------------------
GROSS PROFIT 1,612,505 2,019,317 8,310
-------------------------------------------------
-------------------------------------------------
GROSS PROFIT % 50.33% 52.00% 52.00%
------------------------------------------------
OPERATING EXPENSES:
General and admin. (includes Partners
Bonuses Jan 1 - Jun 30) 1,313,465 1,485,284 6,112
Sales and marketing 30,100 36,100 149
Depreciation expense 6,667 8,667 36
-------------------------------------------------
-------------------------------------------------
TOTAL EXPENSES 1,350,231 1,530,050 6,297
-------------------------------------------------
-------------------------------------------------
TOTAL EXPENSES % 42.15% 39.40% 39.40%
------------------------------------------------
Other income 0
------------------------------------------------
INCOME/(LOSS) BEFORE INCOME TAX EXPENSE 262,273 489,267 2,013
-------------------------------------------------
-------------------------------------------------
8.19% 12.60% 12.60%
------------------------------------------------
Applicable Income tax expense 134,976 195,707 805
------------------------------------------------
NET INCOME 127,297 293,560 1,208
-------------------------------------------------
-------------------------------------------------
NET INCOME % 3.97% 7.56% 7.56%
------------------------------------------------
Retained Earnings at Beginning of period 226,006 226,006 226,006
------------------------------------------------
RETAINED EARNINGS AT END OF PERIOD 353,303 519,566 227,214
------------------------------------------------
</TABLE>
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ESTIMATED
YTD YTD DAILY AVERAGE
ASSETS JULY 31, 1998 AUGUST 31, 1998 AUGUST 31, 1998
<S> <C> <C> <C>
CURRENT ASSETS
Cash 184,553 242,761 999
Accounts Receivable 1,004,760 1,067,106 4,391
Due from Venezuela 107,538 107,538 443
Other Current Assets 37,766 37,766 155
-------------------------------------------------
TOTAL CURRENT ASSETS 1,334,617 1,455,171 5,988
-------------------------------------------------
PROPERTY AND EQUIPMENT
Furniture & Fixtures / Computer equipment 79,302 79,302 326
Vehicles 0 0 0
Less accumulated depreciation (25,570) (27,570) (113)
-------------------------------------------------
TOTAL PROPERTY & EQUIPMENT 53,731 51,731 213
-------------------------------------------------
-------------------------------------------------
TOTAL ASSETS 1,388,348 1,506,903 6,201
-------------------------------------------------
-------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Cash Overdraft 0 0 0
Accounts payable and accrued expenses (Includes accrued 798,761 712,605 2,933
unpaid Partners Bonuses for second Quarter)
Income taxes payable 213,000 273,731 1,126
Loan payable to stockholder 22,284 0 0
Preferred Income taxes 0 0 0
-------------------------------------------------
TOTAL CURRENT LIABILITIES 1,034,045 986,336 4,059
-------------------------------------------------
Stockholders' Equity
Capital Stock, $1 par value per share 1,000 1,000 4
Authorized issued and outstanding
shares
RETAINED EARNINGS 353,303 519,566 2,138
-------------------------------------------------
TOTAL CAPITAL 354,303 520,566 2,142
-------------------------------------------------
-------------------------------------------------
TOTAL LIABILITIES & CAPITAL 1,388,348 1,506,902 6,201
-------------------------------------------------
-------------------------------------------------
</TABLE>
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
ESTIMATED
YTD YTD
JULY 31,1998 AUGUST 31, 1998
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES
Net income 127,297 293,560
------------------------------
------------------------------
Adjustments to reconcile net income (Loss)
to net cash provided by operating
activities:
Depreciation 6,667 8,667
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Increase in Accounts receivable (414,514) (476,860)
Increase (decrease) in Intercompany accounts 78,492 78,492
Increase in (decrease) in other assets (20,076) (20,076)
Increase (decrease) in cash overdraft (187,121) (187,121)
Increase in accounts payable 486,826 400,670
Increase (decrease) in income taxes payable 202,000 262,731
Increase in deferred Income taxes (78,890) (78,890)
------------------------------
Total Adjustments 73,383 (12,387)
------------------------------
NET CASH PROVIDE BY/(USED IN) OPERATING ACTIVITIES 200,681 281,173
------------------------------
------------------------------
Cash Flow from Investing Activities:
Acquisition of property and equipment 9,771 9,771
------------------------------
NET CASH USED IN INVESTING ACTIVITIES 9,771 9,771
------------------------------
------------------------------
CASH FLOW FROM FINANCING ACTIVITIES
Increase in stockholder loan
Repayment of stockholder loan (7,776) (30,060)
Decrease in notes payable 0 0
------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES (30,060)
------------------------------
------------------------------
NET INCREASE/(DECREASE) IN CASH 175,033 233,241
Cash (overdraft) at beginning of year 9,520 9,520
------------------------------
CASH AT END OF YEAR 184,553 242,761
------------------------------
------------------------------
</TABLE>
<PAGE>
[LETTERHEAD OF BASSAN Y ASOCIADOS CONTADORES PUBLICOS]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
U.S. INTERNETWORKING, INC.
We have audited the accompanying balance sheets of INTERNATIONAL
INFORMATION TECHNOLOGY IIT, C.A. (incorporated in Venezuela) as of December 31,
1997 and 1996, and the related statements of income (loss), changes in
shareholder's equity end changes in financial position, for the periods then
ended. These financial statements have been prepared in accordance with
generally accepted accounting principles in Venezuela, and therefore, have been
expressed in Venezuelan bolivares with purchasing power as of December 31, 1997
and 1996. 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 in Venezuela. Those standards require that we plan and perform theses
audits 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. Accounting practices used by the Company in preparing the
accompanying financial statements conform with generally accepted accounting
principles in Venezuela. We believe that our audit provides a reasonable basis
for our opinion.
As discussed in Note 2 to the financial statements, the Company has not
recorded operations with Citibank.
As discussed in Note 4 to the financial statements, the Company has not
recorded liability in regard to severance payments for terminated employees
according to labor legislation in Venezuela.
As discussed in Note 5 to the financial statements, the Company did not
register at the time, transactions regarding accounts payable to shareholders
and related companies in the amount of US $37,703, which have been included in
these financial statements.
In our opinion, except for the above mentioned third and fourth
paragraphs, the financial statements referred to above, present fairly in all
material respects, the financial position of INTERNATIONAL INFORMATION
TECHNOLOGY IIT, C.A., at December 31, 1997 and 1996, and the result of its
operations for the years then ended in accordance with generally accepted
accounting principles accepted in Venezuela.
At December 31, 1997 and 1996, the accompanying financial statements have
been prepared assuming that the Company will continue its ongoing operations,
despite of the negative stockholder's equity, which shows uncertainty about the
Company's ability to continue in operation. These financial statements do not
include any adjustments that could result as a
<PAGE>
2
The Company had not registered, or had reported operations with the town
council where it operates, and therefore has not paid municipal taxes or
recorded any provision in case of future liability in regard to this matter.
Our examination has been performed with the purpose of expressing an
opinion of the basic financial statements considered as a whole. The
supplementary financial statements in historical bolivares, annex marked I - IV
and financial statements translated to US Dollars, annex marked V - VIII, are
included for additional information or analysis, on the basis set forth in Note
1 of the annex of the supplementary information. This information is not
required as part of the basic financial statements, nor does it pretend to
comply with generally accepted accounting principles accepted in Venezuela,
since the inflationary effect is not included in this financial information.
BASSAN & ASOCIADOS S.C.
Ana Escudero de D'Aguiar
Certified Public Accountant
CPA D.F. Venezuela No. 7558
August 20, 1998
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY IIT, C.A.
BALANCE SHEETS
YEARS ENDED ON DECEMBER 31, 1,997 AND 1,996
(EXPRESSED IN BOLIVARES ADJUSTED FOR PURCHASING POWER)
<TABLE>
<CAPTION>
1997 1996
-------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash end cash equivalents 19.676.797 4.126.738
Accounts receivable 17.173.250
Other accounts receivables 195.844 259.179
Advances to suppliers 32.810.533
Income tax witholdings 1.108.950 1.325.490
----------- ----------
Total Current Assets 38.157.841 38.521.940
Fired assets (net) 14.898.294 6.136.413
Other assets 311.900 429.203
----------- ----------
TOTAL ASSETS 53.368.035 46.087.566
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable suppliers 1.268.072 44.477
Accounts payable to related companies 91.913.577
Taxes payable 1.132.192 62.435
Advances received from clients 36.623.315
----------- ----------
Total Current Liabilities 94.313.841 36.730.227
Accounts payable stockholders 16.154.325 25.128.521
----------- ----------
TOTAL LIABILITIES 110.468.166 61.858.748
SHAREHOLDERS EQUITY:
Common stock 2.500.000 2.500.000
Accounts receivable common stock (2.000.000) (2.000.000)
----------- ----------
Common stock paid 500.000 500.000
Common stock restatement 628.296 628.296
Accumulated loss (62.391.040) (22.062.101)
Inflationary Exposure Result 4.162.613 4.162.613
----------- ----------
TOTAL SHAREHOLDER'S EQUITY (57.100.131) (18.771.192)
----------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY 53.368.035 45.087.556
----------- ----------
----------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY IIT, C.A.
STATEMENT OF OPERATIONS
YEARS ENDED ON DECEMBER 31, 1,997 AND 1,996
(EXPRESSED IN BOLIVARES ADJUSTED FOR PURCHASING POWER)
<TABLE>
<CAPTION>
1997 1996
--------------------------
<S> <C> <C>
OPERATING INCOME
Professional Fees 966.032 2.496.228
Services 83.489.894
------------ -----------
TOTAL OPERATING INCOME 84.455.926 2.496.228
OPERATING EXPENSES
Selling, general and administrative expenses (137.937.822) (24.684.814)
------------ -----------
TOTAL OPERATING EXPENSES (137.937.822) (24.684.814)
OTHER INCOME (EXPENSE)
Finance expenses (56.598) (2.639)
Finance income 1.582.314 129.124
Gain from monetary position 11.629.241
------------ -----------
TOTAL OTHER INCOME (EXPENSE) 13.152.957 126.465
------------ -----------
------------ -----------
NET LOSS FOR THE YEAR (40.328.939) (22.062.101)
------------ -----------
------------ -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY IIT, C.A.
CHANGES IN STOCKHOLDER'S EQUITY
YEARS ENDED ON DECEMBER 31, 1,997 AND 1,996
(EXPRESSED IN BOLIVARES OF PURCHASING POWER)
<TABLE>
<CAPTION>
Acct. Receivable Common Stock Accumulated Inflationary
Common Stock Stockholders Paid Stock Restatement Loss Exposure Result
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of March 5, 1,996
Common stock contribution 2.500.000 (2.000.000) 500.000
Net (loss) of the period (22.062.101)
Inflationary exposure result 628.296 4.162.613
----------------------------------------------------------------------------------------
Balance as of December 31, 1,996 2.500.000 (2.000.000) 500.000 628.296 (22.062.101) 4.162.613
Net (loss) of the year (40.328.939)
----------------------------------------------------------------------------------------
Balance as of December 31, 1,997 2.500.000 (2.000.000) 500.000 628.296 (62.391.040) 4.162.613
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shareholder's
Equity
-------------
<S> <C>
Balance as of March 5, 1,996
Common stock contribution 500.000
Net (loss) of the period (22.062.101)
Inflationary exposure result 4.790.909
-------------
Balance as of December 31, 1,996 (16.771.192)
Net (loss) of the year (40.328.939)
-------------
Balance as of December 31, 1,997 (57.100.131)
-------------
-------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY IIT, C.A.
CASH FLOW
YEARS ENDED DECEMBER 31, 1,997 AND 1,996
(EXPRESSED IN BOLIVARES ADJUSTED FOR PURCHASING POWER)
<TABLE>
<CAPTION>
1,997 1,996
-------------------------
<S> <C> <C>
RESOURCES GENERATED BY (USED IN) OPERATIONS:
Net loss of the year (40.328.939) (22.082.101)
Add - Items that do not affect cash:
Inflationary Exposure Result 4.162.613
Depreciation 2.370.694 650.693
-------------------------
(37.958.245) (17.246.795)
RESOURCES GENERATED BY (USED) IN WORKING CAPITAL:
(Increase) decrease of assets:
Accounts receivable (17.173.250)
Other accounts receivables 60.335 (259.179)
Advances to suppliers 32.810.533 (32.810.533)
Income tax witholdings 216.540 (1.325.490)
Other assets 117.303 (429.203)
Increase (decrease) of liabilities:
Accounts payable suppliers 1.223.595 44.477
Accounts payable to related companies 91.913.577
Taxes payable 1.069.757 62.435
Advances received from clients (36.623.315) 36.623.315
Accounts payable stockholders (8.974.196) 25.128.521
-------------------------
RESOURCES GENERATED BY OPERATIONS 26.682.634 9.785.548
INVESTING ACTIVITIES:
Contribution to shareholder's equity 1.128.296
Additions to fixed assets (11.132.575) (6.787.106)
-------------------------
RESOURCES USED IN INVESTING ACTIVITIES (11.132.575) (5.658.810)
-------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 15.550.059 4.126.738
CASH AN CASH EQUIVALENTS:
Beginning of year 4.126.738
-------------------------
End of year 19.676.797 4.126.738
-------------------------
-------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
3
INTERNATIONAL INFORMATION TECHNOLOGY IIT, C.A.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1,997 AND 1,996
Note 1 -- Summary of significant accounting policies:
a) Incorporation and principal activity:
INTERNATIONAL INFORMATION TECHNOLOGY IIT, C.A. was incorporated under the
laws of Venezuela, and corporate existence began on the date on which the
Articles of Incorporation were filed with the Federal District and
Miranda's state Second Mercantile Registry on March 5, 1,996, registered
as Number 48, Tomo 95-A.
The Company's principal activity is serving as commission agent in the
buying of products or processes related to systems, as well as giving
professional service and assistance in the implementation and planning of
communication and information systems and projects.
b) Cash and cash equivalents:
Cash equivalents include short-term highly liquid investments with an
original maturity of three months or less.
c) Fixed assets:
Fixed assets are restated in bolivares with purchasing power as at
December 31, 1,996, net of accumulated depreciation, adjusted by the
General Price Index (GPI) factor. Depreciation is based on the estimated
useful lives of depreciable assets and is calculated by the straight-line
method. Maintenance and repair costs are charged as expenses as they are
incurred, and major repairs and costs are capitalized. When these assets
are sold, the corresponding cost and depreciation are eliminated of the
Balance Sheet and any gain or loss is reflected in the period's results.
d) Income:
Income for sales and assessor's fees are recorded when dispatched or the
assessing service is provided.
a) Transactions in foreign currency:
Transactions in foreign currency are recorded at the applicable (free
market exchange rate at the time they take place, and assets and
liabilities denominated in foreign currency are valued using an exchange
rate of Bs. 476.50 to the US Dollar, which corresponds to the official
rate published by the Central Bank of Venezuela at December 31, 1,996.
The Company's management did not value assets and liabilities denominated
in foreign currency at December 31, 1,997 and 1,996, using the official
rate of Bs. 504.75 and Bs. 476.75 to the US Dollar.
<PAGE>
4
f) Income tax:
The provisions for income taxes are calculated based upon taxable income,
applying current Venezuelan fiscal law.
g) Deferred Income taxes:
The tax effect of temporary differences that generate deferred tax assets
(liabilities) under SFAS No. 109, arise when there is a discrepancy
between accounting and fiscal criteria, in regard to the moment of
recognition of the results. Deferred tax assets ire recorded only if there
is a certainty that they will be recovered at a future time.
Company's management did not register any deferred income tax as of
December 31, 1,996.
h) Initial registration in the "Asset Restatement Registry" tax:
The Company recorded during 1,997, an expense of Bs. 6,899 belonging to
the first portion of the Asset Restatement Registry (RAR) tax. For fiscal
1,996, the Company complied with its initial registration in the Registry,
in accordance to Income Tax Law, article 92, and determined a tax payment
of 3% based on the net increase of the restatement of depreciable fixed
assets.
i) Recognition of the effects of inflation in the financial statements:
The Company restates its financial statements to reflect the purchasing
power of the Venezuelan bolivar (Bs.) as of December 31, 1,996, thereby
comprehensively recognizing the effects of inflation, in accordance to the
Bulletin DPC-10, issued by the Venezuelan Federation of Public Accountants
issued on August 9, 1,991, and subsequent bulletins.
To recognize the effects of inflation in terms of Venezuelan bolivares
with purchasing power as of December 31, 1,996 the Company restated the
financial statements applying the General Price Index (GPI) factor,
published by the Venezuelan Central Bank, by the General Price Level
method.
The GPI factors published by the Venezuelan Central Bank, used in the
recognition of the effects of inflation were:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
December 31, 11,702.70 8,504.30
Period's average 10,048.72 7,095.99
</TABLE>
A summary of the method used for restatement of the financial statements
to recognize the effects of inflation in terms of Venezuelan bolivares
with purchasing power, are as follows:
o Monetary assets and liabilities represented in cash, accounts
receivable, and accounts payable are shown at their face value,
since they represent their true monetary value at the time of the
balance sheet.
o Non-monetary assets represented by the fixed assets, were restated
applying the GPI factor at the time of purchase.
o Shareholder's equity are restated using the GPI factor, cumulative
from the date of contribution or generation.
<PAGE>
6
Note 2 -- Cash and cash equivalents:
Cash and cash equivalents consist of the following:
<TABLE>
<CAPTION>
1,997 1,996
----- -----
<S> <C> <C>
Cash Bs. 59,667 82,566
Bank 835,304 3,108,420
Investments 680,000 935,742
--------- ---------
Total cash end equivalents Bs. 1,574,971 4,126,738
--------- ---------
--------- ---------
</TABLE>
The investment is a short term interest bearing time deposit in a national
banking institution, which yields interest at the current market rates, and
guarantees the obligations set forth in the office lease contract.
The company had not registered transactions with citibank as of December 31,
1,997 and 1,996, in the amounts of US$ 1,802 and US$ 50,894 respectively, of
which as of December 31, 1,996, the amount of US$ 50.000 appeared in the
financial statements misstated as an advance to suppliers- IIT Inc.
Note 3 -- Fixed assets:
Fixed assets consist of the following:
<TABLE>
<CAPTION>
1,997 1,996 %
----- ----- ---
<S> <C> <C> <C>
Office furniture Bs. 5,789,700 571,956 20%
Office equipment 5,873,775 536,454 33,33%
Fixtures 6,256,206 5,678,696 20%
---------- ---------
Total fixed assets 17,919,681 6,787,106
Accum. Depreciation (3,021,387) (650.693)
---------- ---------
Net fixed assets Bs. 14,898,294 6,136,413
---------- ---------
---------- ---------
Depreciation expense Bs. 2,370,694 650,693
---------- ---------
---------- ---------
</TABLE>
Note 4 -- Other assets:
Other assets consist of the following:
<TABLE>
<CAPTION>
1,997 1,996
----- -----
<S> <C> <C>
Pre-operational costs (1) Bs. 166.900 229.670
Security bank deposit (2) 145.000 199.533
------- -------
Total other assets Bs. 311.900 429.203
------- -------
------- -------
</TABLE>
<PAGE>
7
(1) The Company has not amortized pre-operational costs at December 31,
1,997 and 1,996.
(2) We could not verify this amount.
Note 5- Accounts payable to related companies and shareholders
As of December 31, 1,997, the Company had not registered in its books the amount
of US$ 37,703 nor had separated the corresponding amounts or transactions of
accounts payable shareholders an related companies. These amounts have been
separated for reporting purposes as follows:
<TABLE>
<CAPTION>
Average
-------
Exchange
--------
US$ Rate Bs.
--- ---- ---
<S> <C> <C> <C>
Book Value: 177.037 490,46 86.830.261
Plus:
Amounts not recorded during 1,997 belonging to
transactions with the Citibank 37.703 480,12 18.101.826
------- -----------
214.740 488.65 104.932.067
Minus:
Payments made By Mr. Alegrett 32.100 510.34 16.382.054
------- -----------
182.640 484.83 88.650.033
Minus:
Money transferred from ITT Inc. not Recorded in
IIT Vzla. C.A. 3.000
Difference in invoice #001 from IIT Vzla. C.A. To IIT
Inc. 390
-----
Balance according to IIT, Inc. 186.030
-------
</TABLE>
Note 6 -- Labor legislation:
On June 19, 1,997 the National Executive published in the Extraordinary Official
Journal No. 5,152 the reform of the Labor Legislation Law. The most significant
changes were:
1. It eliminates retroactive labor severance due by seniority and new
parameters are set forth in the determination of severance payments based
on the employees seniority and salary.
<PAGE>
8
2. A unique and one time only compensation for "transference" to the new
system is established. Payment is based on the employee's normal salary at
December 31, 1,996. A compensation for "seniority" based on the employees
normal salary at May 30, 1,997 is also established. These compensations
can be paid up to five (5) years, the Company only having an obligation of
paying 25% of these amounts by December 18, 1,997.
3. The new "seniority compensation" will be deposited on a monthly basis, by
option of the employee in one of the following; individual financial trust
fund; severance fund; or recorded in the Company's accounting, of which
the last will bear monthly capitalized interest at the average rate
published by the Venezuelan Central Bank.
4. In case of an unjustified terminated employee, the employee has additional
compensations based on his seniority and on his salary taken into account
as a whole.
The Company has not recorded liability in regard to severance payments for
terminated employees, according to labor legislation in Venezuela.
Note 7 -- Tax environment in Venezuela:
a) Income tax regulations:
The main difference between the income and expenses for tax and book
purposes for INTERNATIONAL INFORMATION TECHNOLOGY IIT, C.A., was the
effect of the extraterritorial items. According to fiscal law and
regulations, the Company can carryforward tax losses for three (3) years,
at which time they expire.
Beginning fiscal year starting on January 1, 1,997, the Company is subject
to annual income tax, taking into consideration the taxable and deductible
effects of inflation, which indexes the non-monetary assets and
liabilities according to the GPI factor published by the Central Bank in
Venezuela, in accordance to current legislation. Taxable income is
increased or reduced by the effects of inflation on the non-monetary
items, through the inflationary component, that will be considered as
taxable income or deductible expense.
a) Business asset tax regulations:
The business asset tax (BAT) is computed at an annual rate of 1% of the
average of the tangible and intangible assets at the beginning and end of
the fiscal year. The tax is paid only to the extent that it exceeds the
income tax of the year. Any required payment of asset tax is creditable
against the excess of income taxes for the following three (3) years.
Although, in accordance with the provisions of article 3. section 5 of the
BAT and in conformity with article 7 of its regulations, the Company is
exempt from paying BAT until such time that it has completed its
pre-operating stage (which is marked by the issuance of its first invoice)
and for the following two (2) years of operations, the Company chose to
file a BAT tax form, which resulted in the payment of Bs. 18.242.
9
b) Tax loss carryforwards and recoverable asset tax:
At December 31, 1,996 the Company had tax loss carryforwards and
recoverable business asset tax carryforwards, both of which are expressed
in historical bolivares. Such carryforwards, expire as follows:
<TABLE>
<CAPTION>
Tax Loss Recoverable
Origin Carryforward Business Asset Tax Expiration
------ ------------ ------------------ ----------
<S> <C> <C> <C>
1,996 14,374,375(1) 18,242 1,999
1,997 41,228,633(1) 154,603 2,000
</TABLE>
(1) We could not verify the determination of the tax loss carryforward
according to Venezuelan fiscal legislation Fiscal tax law and
regulations, that stipulate that the percentage of non-taxable
income in relation to the total income, be applied to the total
deductible expense to determine the percentage of non-deductible
expense.
a) Municipal tax:
The Company had not registered, or had reported operations with the town
council where it operates, and therefore has not paid municipal taxes or
recorded any provision in case of future liability in regard to this
matter.
b) Value added tax (VAT):
Apples to sales of goods and services, importation of goods and services
performed in Venezuela. The statutory rates of VAT tax as of December 31,
1,997 and 1,996 are 16,5% and 12,5%, respectively, for territorial sales
and 0% for exportation of goods and services.
Note 8 - Shareholder's equity:
a) Common stock:
The number of shares outstanding at December 31, 1,996 was 500 shares with
a face value of Bs. 5,000 each, fully subscribed, 2O% paid.
Shareholders as of December 31, 1,997 and 1,996:
<TABLE>
<S> <C>
Sebastian Alegrett 499 shares
Real Alegrett 1 share
---
Total 500 shares
</TABLE>
<PAGE>
10
The net income of the company is subject to a legal provision that
requires 5% of net income for each year to be transferred to a legal
reserve, unit it equals 10% of capital stock. The reserve cannot be
distributed to the stockholders. Due to the period's loss, the Company had
no reserve at December 31, 1,997 and 1,996.
b) Net accumulated loss:
At December 31, 1,997 and 1,996 the financial statements show accumulated
net losses of Bs. 59,225,324 and Bs. 22,062,101 expressed in bolivares
with purchasing power. This amount exceeds the capital stock, and
according to the Venezuelan Civil Codicil, article 264, the Company should
declare liquidation, unless the stockholder's decide to repay the negative
shareholder's equity.
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY IIT, C.A.
ANNEX
I - VIII
The supplementary financial statements
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY ITT, C.A.
BALANCE SHEETS Annex I
YEARS ENDED ON DECEMBER 31, 1,997 AND 1,996
(EXPRESSED IN HISTORIC BOLIVARES)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents 19.676.797 2.998.882
Accounts receivable 17.173.250
Other accounts receivables 198.844 188.344
Advances to suppliers 23.843.268
Income tax witholdings 1.108.950 963.228
------------ ------------
Total Current Assets 38.157.841 27.993.722
Fixed assets (net) 11.805.902 3.769.390
Other assets 311.900 311.900
------------ ------------
TOTAL ASSETS 50.275.643 32.075.012
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable suppliers 1.268.072 32.321
Accounts payable to related companies 88.550.033
Taxes payable 1.132.192 45.371
Advances received 26.614.000
------------ ------------
Total Current Liabilities 90.950.297 26.691.692
Accounts payable stockholders 16.382.153 18.260.785
------------ ------------
TOTAL LIABILITIES 107.332.450 44.952.477
SHAREHOLDERS' EQUITY:
Common stock 2.500.000 2.500.000
Accounts receivable common stock (2.000.000) (2.000.000)
------------ ------------
Common stock paid 500.000 500.000
Accumulated loss (57.556.807) (13.377.465)
------------ ------------
TOTAL SHAREHOLDER'S EQUITY (57.056.807) (12.877.465)
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY 50.275.643 32.075.012
------------ ------------
------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY IIT, C.A.
STATEMENT OF OPERATIONS Annex II
YEARS ENDED ON DECEMBER 31, 1,997 AND 1,998
(EXPRESSED IN HISTORIC BOLIVARES)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
----------------------------
<S> <C> <C>
OPERATING INCOME
Professional Fees 829.500 1.513.600
Services 71.690.000
------------ ------------
TOTAL OPERATING INCOME 72.519.500 1.513.600
OPERATING EXPENSES
Selling, general and administrative expenses (116.007.206) (14.967.759)
------------ ------------
TOTAL OPERATING EXPENSES (118.007.206) (14.967.759)
OTHER INCOME (EXPENSE)
Finance expenses (50.317) (1.600)
Finance income 1.358.681 78.294
------------ ------------
TOTAL OTHER INCOME (EXPENSE) 1.308.364 76.694
------------ ------------
------------ ------------
NET LOSS FOR THE YEAR (44.179.342) (13.377.465)
------------ ------------
------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY IIT, C.A.
CHANGES IN STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1,997 AND 1,996 Annex III
(EXPRESSED IN HISTORIC BOLIVARES)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Acct. Receivable Accumulated Shareholder's
Common Stock Stockholders Paid Stock Loss Equity
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance as of March 5, 1,996
Common stock contribution 2.500.000 (2.000.000) 500.00 500.000
Net (loss) of the period (13.377.465) (13.377.465)
-------------------------------------------------------------------------------
Balance as of December 31, 1,996 2.500.000 (2.000.000) 500.00 (13.377.465) (12.877.465)
Net (loss) of the year (44.179.342) (44.179.342)
-------------------------------------------------------------------------------
Balance as of December 31, 1,997 2.500.000 (2.000.000) 500.00 (57.556.807) (57.056.807)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY IIT, C.A.
CASH FLOW Annex IV
YEARS ENDED DECEMBER 31, 1,997 AND 1,996
(EXPRESSED IN HISTORIC BOLIVARES)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1,997 1,996
----------------------------
<S> <C> <C>
RESOURCES GENERATED BY (USED IN) OPERATIONS:
Net loss of the year (44.179.342) (13.377.465)
Add - Items, that do not affect cash:
Depreciation 1.600.214 394.246
----------------------------
(42.579.128) (12.983.219)
RESOURCES GENERATED BY (USED) IN WORKING CAPITAL:
(Increase) decrease of assets:
Accounts receivable (17.173.250)
Other accounts receivables (10.500) (188.344)
Advances to suppliers 23.843.268 (23.843.268)
Income tax witholdings (145.722) (963.228)
Other assets (311.900)
Increase (decrease) of liabilities:
Accounts payable suppliers 1.235.750 32.321
Accounts payable to related companies 88.550.033
Taxes payable 1.086.821 45.372
Advances received from client (26.614.000) 26.614.000
Accounts payable stockholders (1.878.631) 18.260.784
----------------------------
RESOURCES GENERATED BY OPERATIONS 26.314.641 6.662.618
INVESTING ACTIVITIES:
Contribution to shareholder's equity 500.000
Additions to fixed assets (9.636.726) (4.163.636)
----------------------------
RESOURCES USED IN INVESTING ACTIVITIES (9.636.726) (3.663.636)
----------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 16.677.915 2.998.882
CASH AN CASH EQUIVALENTS:
Beginning of year 2.998.882
----------------------------
End of year 19.676.797 2.998.882
----------------------------
----------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY IIT, C.A.
BALANCE SHEETS Annex V
YEARS ENDED DECEMBER 31, 1,997 AND 1,996
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
1997 1996
--------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents 40,823 6,290
Accounts receivable 34,023
Other accounts receivables 394 395
Advances to suppliers 50,012
Income tax withholdings 2,197 2,020
-------- --------
Total Current Assets 77,438 58,718
Fixed assets (net) 24,261 7,993
Other assets 618 854
-------- --------
TOTAL ASSETS 102,316 67,365
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable suppliers 2,512 68
Accounts payable to related companies 182,640
Taxes payable 2,243 95
Advances received from clients 55,824
-------- --------
Total Current Liabilities 187,395 55,987
Accounts payable stockholders 32,100 38,303
-------- --------
TOTAL LIABILITIES 219,495 94,289
SHAREHOLDERS' EQUITY:
Common stock 8,621 8,621
Accounts receivable common stock (6,897) (6,897)
-------- --------
Common stock paid 1,724 1,724
Accumulated losses (119,559) (29,448)
Translation adjustment 656 799
-------- --------
TOTAL SHAREHOLDER'S EQUITY (117,179) (20,925)
-------- --------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY 102,316 67,365
-------- --------
-------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY IIT, C.A.
STATEMENT OF OPERATIONS Annex VI
YEARS ENDED ON DECEMBER 31, 1,997 AND 1,996
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
1997 1996
--------------------
<S> <C> <C>
OPERATING INCOME
Professional Fees 1,691 3,336
Services 146,106
-------- --------
TOTAL OPERATING INCOME 147,797 3,336
OPERATING EXPENSES
Selling, general and administrative expenses (240,575) (32,953)
-------- --------
TOTAL OPERATING EXPENSES (240,575) (32,953)
OTHER INCOME (EXPENSE)
Finance expense (103) (4)
Finance income 2,769 173
-------- --------
TOTAL OTHER INCOME (EXPENSE) 2,666 169
-------- --------
-------- --------
NET LOSS FOR THE YEAR (90,112) (29,448)
-------- --------
-------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
Schedule 4.24
Insurance
IIT, Inc.
Commercial, Property, General Liability, Business Auto, Umbrella & Workman's
Compensation through agent Supple-Merrill & Driscoll Inc. For Traveler's,
Summary of insurance attached. (2 pages)
IIT Venezuela
Theft, malicious damage, labor disturbances, fire, property damage, attached. (5
pages)
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF INSURANCE Page 1
Prepared: 08/26/98
Supple-Merrill & Driscoll Inc.
For: International Information Tech Insurance Agents and Brokers
Richard Rodriguez P.O. Box 2408
2333 Ponce De Leon, Suite 1108 Pasadena, CA
Coral Gables, FL 91102 626-795-9921
33134- 305-460-6855
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Coverage Amount Company Policy No Eff Exp
<S> <C> <C> <C> <C> <C>
Commercial Application Federal Insurance Company 3536-68-84 TIG 03/10/98 03/10/99
Premise 1 Building 1
2333 Ponce De Leon Blvd., # 1108
Coral Gables, FL
33134
Premise 1 Building 1
1 Centerpoints Dr. #440
La Palma, CA
90626
Property Federal Insurance Company 3536-68-84 TIG 03/10/98 03/10/99
Premises 1 Building 1
Contents 15,000
Coins % NIL
Valuation RC
Cause of Loss Special
Deductible 500
EDP/Computers 15,000
Coins % NIL
Valuation RC
Cause of Loss Special
Deductible 500
Biz Income 100,000
Coins % NIL
Cause of Loss Special
Premises 2 Building 1
Contents 25,000
Coins % NIL
Valuation RC
Cause of Loss Special
Deductible 500
General Liability Federal Insurance Company 3536-68-84 TIG 03/10/98 03/10/99
E & O (Claims Made)*
General Aggregate 2,000,000
Products/Completed Oper. Aggr. 2,000,000
Personal & Advertising Injury 1,000,000
Each Occurrence 1,000,000
Fire Damage (Any One Fire) included
Medical Expense (Any One Person) 10,000
E & O Coverage is written on a "claims made form"
and subject to a deductible.
All Computer Software Development
-Flat Premium - Not Auditable
Premium Basis: 3,500,000
(S) GROSS SALES - PER $1,000/SALES
Business Auto Federal Insurance Company 3536-68-84 TIG 03/10/98 03/10/99
Liability
CSL 1,000,000
Hired Autos
Non-Owned Autos
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF INSURANCE Page 2
Prepared: 08/26/98
Supple-Merrill & Driscoll Inc.
For: International Information Tech Insurance Agents and Brokers
Richard Rodriguez P.O. Box 2408
2333 Ponce De Leon, Suite 1108 Pasadena, CA
Coral Gables, FL 91102 626-795-9921
33134- 305-460-6855
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Coverage Amount Company Policy No Eff Exp
<S> <C> <C> <C> <C> <C>
Business Auto (Continued)
Other Coverages
HIRED AUTO 25,000
9
Hired Auto Physical Damage
Comprehensive Deductible 500
Collision Deductible 500
Umbrella Federal Insurance Company 7977-19-55 03/10/98 03/10/99
Liability Limit Each Occurrence 2,000,000
Liability Aggregate Limit 2,000,000 > EXCLUDES E & O
Retained Limit -0-
Workers Compensation Agricultural Insurance Co WC-9548579-00 03/10/98 03/10/99
Named States: CA FL IL
Employer's Liability
Each Accident 1,000,000
Disease - Policy Limit 1,000,000
Disease - Each Employee 1,000,000
Other States: CA FL IL
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
[LOGO OF SEGUROS LA SEQURIDAD, C.A.]
CLAUSULA DE MOTIN,
DISTURBIOS LABORALES Y DANOS MALICIOSOS
1 RIESGOS CUBIERTOS
En consideracion al pago de prima adicional correspondiente a esta cobertura y
contrariamente a lo indicado en la Clausula No. 2 de las Condiciones
Particulares de la Poliza de Incendio, LA COMPANIA indemnizara los danos o
perdidas (incluyendo los causados por Incendio o Explosion) que ocurran a los
bienes asegurados y que sean ocasionados por, o a consecuencia de:
a) Personas que tomen parte en Motines, Conmocion Civil, Disturbios Populares
o Saqueos, que no asumieren las proporciones de, o llegasen a constituir
unlevantamiento de cualquier tipo dirigido al derrocamiento del gobierno.
b) Disturbios laborales, Huelguistas, Obreros en cierre patronal, o personas
que tomen parte en conflictos de trabajo.
c) El acto malicioso de cualquier persona o grupo de personas, sea que tal
acto ocurra durante una alteracion del orden publico o no.
d) Las medidas para reprimir los actos antes mencionados que fuesen tomadas
por las autoridades constituidas.
2. DEDUCIBLES
Toda reclamacion o perdida indemnizable estara sujeta a un deducible del uno por
ciento (1%) sobre el monto de la suma asegurada bajo esta Clausula o el veinte
por ciento (20%) sobre el monto de la reclamacion o perdida, lo que resulte
mayor, sujeto a un minimo de bolivares equivalente a quince (15) veces el
salario minimo basico urbano decretado por el Gobierno Nacional.
3. INICIO DE LA COBERTURA.
La cobertura otorgada por esta Clausula tendra efecto una vez transcurridos
quince (15) dias continuos desde su contratacion, para cada uno le los casos
indicados:
a) Fecha de su inclusion en la poliza. Este plazo de espera no regira para
reemplazo o sustitucion de la poliza que incluya la cobertura otorgada por
una Clausula de Motin, Disturbios Laborales y Danos Maliciosos en la misma
u otra entidad aseguradora; por lo que dicho plazo no se aplicara en estos
casos existiendo la continuidad de la cobertura una vez que el mismo se
haya agotado.
b) Incremento de la suma asegurada por concepto de actualizacion de valores
del bien asegurado descrito en la presente poliza.
4. PERIODO DE EXPOSICION
Los danos o perdidas ocasionados por cualesquiera de los riesgos citados en el
punto Uno (1) de esta Clausula, daran origen a una reclamacion separada por cada
uno de ellos. Si varios de estos danos o perdidas, ocurren dentro del periodo de
setenta y dos (72) horas consecutivas a partir de la primera reclamacion por la
poliza a la cual se adhiere esta Clausula, los danos o perdidas ocurridos
durante tal periodo de setente y dos (72) horas seran considerados como un solo
siniesto.
5 EXCLUSIONES
a) Perdidas o dafios ocasionados por cualquiera de los riesgos que se
aseguren mediante esta cobertura, si dichas perdidas o danos en su origen
o extension fuesen ocasionados directa o indirectamente o se den en el
curso de: guerra, invasion, acto de enemigo extranjero, hostilidades u
operaciones belicas (haya habido declaracion de guerra a no),
insubordinacion militar, levantemiento militar, insurreccion, rebelion,
revolucion, guerra de guerrillas, guerra civil, poder militar o usurpacion
de poder, o cualquier acto de cualquier persona que actue en nombre de o
en relacion con cualquier organizacion con actividades dirigidas a la
destitucion por la fuerza del gobierno de jure o de facto o influenciario
mediante el terrorismo o la violencia; o fuesen la consecuencia directa o
indirecta de cualquiera de dichos eventos o sucedan en conexion con ellos.
<PAGE>
[LOGO OF SEGUROS LA SEQURIDAD, C.A.]
CUADRO DE POLIZA
Renovable x Lapsos: ANUALES Poliza: 559057280
Forma de Pago : ANUAL CON RENOVACION EN FEBREROR Pagina: 1
Emision : 12/02/1998 EMISION
Equipo : 044506 Unidad 6 No Corporativas Patr-Reg. Capita
Tipo de Moneda : BOLIVARES Fecha: 18/02/1998
DORADA DE INDUSTRIA Y COMERCIO
Asegurado: INFORMATION TECHNOLOGY
Vigencia: desde el 12/02/1998 a las 12 m.
hasta el 12/02/1999 a las 12 m.
Domicilio: AV. FCO. MIRANDA. C/PPAL. CASTELLANA
EDIF. SEDE GER. LA CASTELLA, P-3, L-3B
Productor: 7918 SANCHEZ LOPEZ, LUIS ALBERTO
Quedan cubiertos los conceptos relancionados a continuacion para los que se
inserta un limite especifico de Responsabilidad de la Compania en el renglon
correspondiente.
<TABLE>
<CAPTION>
PARTIDAS/COBERTURAS VALOR A PRIMER SUMA PRIMA
RIESGO RIESGO ASEGURADA
<S> <C> <C> <C> <C>
EDIFICACIONES 1,194,774 4,637.21
Incendio 1,194,774
Motin, lab, d. Malic. 1,194,774
Extension Cobertura 1,194,774
Danos Por Agua. 1,194,774
EXIS. Y DEMAS CONTEN. 23,390,814 90,785.59
Incendio 23,390,814
Motin, lab, d. Malic. 23,390,814
Extension Cobertura 23,390,814
Danos Por Agua 23,390,814
Conbertura Automatica 10% 2,339,081
Perd Indir Ind Y Com 10% 2,572,990
EXISTENCIAS (ROBO) 23,390,814 96,074.85
Robo 23,390,814
Asalto Y Atraco 23,390,814
Cob. Automatica Robo 10% 2,339,081
COBERTURAS ADICIONALES:
GTOS. EXTRAORDINARIOS 50,000 .00
DANOS INT. EQ. ELECTR. 16,494,787 44,535.92
</TABLE>
- Deductible(s): Segun condiciones particulares excepto:
<PAGE>
[LOGO OF SEGUROS LA SEQURIDAD, C.A.]
CUADRO DE POLIZA
Renovable x Lapsos: ANUALES Poliza: 559057280
Forma de Pago : ANUAL CON RENOVACION EN FEBREROR Pagina: 2
Emision : 12/02/1998 EMISION
Equipo : 044506 Unidad 6 No Corporativas Patr-Reg. Capita
Tipo de Moneda : BOLIVARES Fecha: 18/02/1998
DORADA DE INDUSTRIA Y COMERCIO
PARTIDAS/COBERTURAS VALOR A PRIMER SUMA PRIMA
RIESGO RIESGO ASEGURADA
Danos Int. Eq. Electr. 10% sobre la Perdida Indemnizable
sujeto a un minimo de 50000 Bs
aplicado a cada siniestro indemnizable.
Suma Asegurada : 29,547,659
Prima a Cobrar : 236,033.55
Prima Futura : 236,033.57
/s/ [ILLEGIBLE]
- ------------------ ------------------------------
El Asegurado Seguros La Seguridad. C.A.
[SEAL OF SEGUROS LA SEQURIDAD, C.A.]
NOTA: El presente cuadro sustituya los de fecha anterior.
Aprobado por la Superintendencia de Seguros, segun Oficio No. 0434 de fecha
11/02/83.
<PAGE>
[LOGO OF SEGUROS LA SEQURIDAD, C.A.]
HOJA DE ESPECIFICACIONES
Renovable x Lapsos: ANUALES Poliza: 559057280
Forma de Pago : ANUAL CON RENOVACION EN FEBREROR Pagina: 3
Emision : 12/02/1998 EMISION
Equipo : 044506 Unidad 6 No Corporativas Patr-Reg. Capita
Tipo de Moneda : BOLIVARES Fecha: 18/02/1998
DORADA DE INDUSTRIA Y COMERCIO
CARACTER STICAS DEL INMUEBLE ASEGURADO:
- Indole de Actividad del Asegurado:
PROCESAMIENTO ELECTRONICO DE DATOS VENTAS DE EQUIPOS
- Valcres a Riesgo de los Intereses Asegurados:
Partida Interes Asegurado Valores a Riesgo
Edificaciones Edificio 1,194,774
Exis.Y Demas Conten. Mobiliario 6,896,027
Equipo Electronico 16,494,787
Existencias (robo) Mobiliario 6,896,027
Equipo Electronico 16,494,787
- Localidad Principal:
Predios: AV.FCO.MIRANDA, C/PPAL. CASTELLANA
EDIF. SEDE GER. LA CASTELLA, P-3, L-3B
Tipos de Construccion para Incendio:
Estructura: RESISTENTE AL FUEGO
Techo: RESISTENTE AL FUEGO
Paredes: RESISTENTE AL FUEGO
Cantidad de Pisos: 10
Linderos. Norte: ESTACIONAMIENTO
Sur: PASILLO CIRCULACION
Este: ESCALERAS
Oaste: OFICINA 3A
Cantidad de localidades: 1
- Condiciones Especiales:
<PAGE>
[LOGO OF SEGUROS LA SEQURIDAD, C.A.]
HOJA DE ESPECIFICACIONES
Renovable x Lapsos: ANUALES Poliza: 559057280
Forma de Pago : ANUAL CON RENOVACION EN FEBREROR Pagina: 4
Emision : 12/02/1998 EMISION
Equipo : 044506 Unidad 6 No Corporativas Patr-Reg. Capita
Tipo de Moneda : BOLIVARES Fecha: 18/02/1998
DORADA DE INDUSTRIA Y COMERCIO
INDOLE DE ACTIVIDAD: COMERCIALIZACION SOFTWARE.
NOTA: SE ADHIERE LA CLAUSULA DE MOTIN APROBADA POR LA SUPERINTENDENCIA DE
SEGUROS, SEGUN RESOLUCION No. 35873, EN SUSTITUCION A LA DEL
CONDICIONADO GENERAL.
NOTA: El presente cuadro sustituya los de fecha anterior.
Aprobado por la Superintendencia de Seguros, segun Oficio No. 0434 de fecha
<PAGE>
SCHEDULE 4.27
TRANSACTIONS WITH CERTAIN PERSONS AND OTHER DISCLOSURES
DISCLOSURE OF OTHER BUSINESS INTERESTS
Shareholders Michael Mai and Vicente Perez de Tudela currently have an interest
in a separate company, MBR Inc. Their stockholdings in such company are:
o Michael Mai -- 200,000 shares (20% of the outstanding stock)
o Vicente Perez de Tudela -- 150,000 shares (15% of the outstanding
stock)
MBR is in the business of Help Desk Software Development and does not present a
conflict of interest with the operations of IIT Holding Inc. and its
subsidiaries. Messrs. Mai and Perez de Tudela are both Directors of MBR Inc. and
have no day to day participation on the operations. The president of MBR Inc. is
John Rocha, a former employee of International Information Technology, Inc.
Neither Sebastian Alegrett nor Carlos E. Bravo have any ownership or involvement
past or present in MBR Inc.
DISCLOSURE OF ANY OF SELLER'S FAMILY INVOLVEMENT IN ANY OF THE ACQUIRED
COMPANIES
Eduardo Alegrett, Sebastian Alegrett's brother, acts as Director of Corporate
Relations in the Venezuelan operations. His compensation is $1000 per month plus
5% of new sales.
Jose Raul Alegrett, Sebastian Alegrett's brother, was a minority shareholder of
International Information Technology IIT, C.A., prior to May 1998. He now has no
ownership interest in any of the acquired companies.
He is currently operating as a Treasurer and has a monthly Director's salary of
$1000.
<PAGE>
SCHEDULE 4.28
CUSTOMERS, DISTRIBUTORS AND SUPPLIERS
1) The Attached Vendor List is since inception and includes employees as
vendors due to the way the software system treats al payees as vendors (22
pages)
2) There are no Distributors
3) The Customer list is since inception (3 pages)
4) There are no suppliers who have sold $500,000 of products or services to
the Acquired Companies on an annualized basis
5) Top 10 Clients (Based on Sales)
<TABLE>
<CAPTION>
- --------------------------------------------------------------
<S> <C>
Client Total Sales
- --------------------------------------------------------------
Uni-Health $ 237,001
- --------------------------------------------------------------
Sunglass Hut International $ 248,853
- --------------------------------------------------------------
Ameritech Comm. Inc. $ 287,043
- --------------------------------------------------------------
Kaiser F Health Plan, Inc. $ 296,652
- --------------------------------------------------------------
DFS Group Limited $ 385,207
- --------------------------------------------------------------
American Protective Serv., Inc $ 564,999
- --------------------------------------------------------------
Dreyer's Grand Ice Cream $ 638,188
- --------------------------------------------------------------
Nissan $ 967,865
- --------------------------------------------------------------
Southern California Edison $ 1,005,895
- --------------------------------------------------------------
Peoplesoft, Inc. $ 1,386,102
- --------------------------------------------------------------
</TABLE>
Venezuela Customers
- -- Banco de Venezuela
- -- Molilnet
<PAGE>
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CITY ST ZIP TELEPHONE 2
FAX NUMBER
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0000 906 Escobar Avenue Net 30 Days
Luis Sebastian Alegrett 6/11/94
Coral Gables, FL 33134
0001 110 Newpot Center Dr Christi Vaughan Net 30 Days
The Executive Office Suite 200 (714) 644-4492 6/11/94
Newport Beach, CA 92660 USA
(714) 759-1853
0002 P.O Box 78522 Net 30 Days
AT&T (800) 524-2455 6/11/94
Phoenix, AZ 85062-8522 USA
0003 Payment Center Net 30 Days
Pacific Bell 714 729-3170 6/11/94
Van Nuys, CA 91388-0001 USA
0004 7061 Westminster Blvd. Net 30 Days
Westminster Journal (714) 895-3484 6/11/94
Westminster, CA 92683 USA
0006 Irvine Industrial Branch #101 Vicky, Tammy Net 30 Days
Bank Of America 4101 MacCarthur Boulevard (714) 973-8495 6/11/94
Newport Beach, CA 926660 US
0007 3300 Newport Blvd. Shirley Chenette Net Due
City Of Newport Beach (714) 644-3073 6/11/94
Newport Beach, CA 92660 USA
0008 P.O Box 6404 Robert Net 30 Days
Cort Furniture Rental (818) 244-0100 6/11/94
Glendale, CA 9 1225-0404 USA
0009 Post Office Net 30 Days
US Post Office 6/11/94
USA
0010 Galeria Mall Net 30 Days
Art Showcases 6/11/94
Glendale, CA 91206 USA
0011 I.R.C. Net 30 Days
Secretary Of State 1500 11th Street 6/11/94
Sacramento, CA 95814-5701 US
0012 1 City Boulevard West, Wayne or James Net 30 Days
WFB Suite 308 (714) 634-2522 6/11/94
Orange, CA 92668 USA
(714) 634-0686
0013 Orange County Airport Net Due
American Airlines 6/11/94
Airport, CA 92714 USA
0014 340 Portage Ave Net 30 Days
</TABLE>
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CITY ST ZIP TELEPHONE 2
FAX NUMBER
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Frys Electronics Corporate Office (415) 496-6100 6/11/94
Palo Alto, CA 94306 USA
(415) 496-6129
0015 350 S. San Fernando Rd Dorothy/Donna Net 10 Days
The Promenade Apartments (818) 954-8250 6/11/94
Burbank, CA 91502 USA
0016 P.O. Box 1140 Net 30 Days
Federal Express 6/11/94
Memphis, TN 38101-1140
0018 134 W. Magnolia Net 30 Days
Burbank - PSD (818) 953-9630 6/20/94
Burbank, CA 91502
0019 P.O Box C Net 30 Days
The Gas Company (818) 953-9630 6/20/94
Monterrey Park, CA 91756 USA
0020 10 Osprey Lane Net 30 Days
Bethany Cloud (714) 837-3089 6/20/94
Aliso Viejo, CA 92656 USA (714) 729-3170
Mother:
(310) 431-7811
0021 2416 W. Tennyson Net 30 Days
Haydee Ordonez (510) 732-1648 6/20/94
Hayward, CA 92660 USA
0022 110 Newport Center Dr Sebastian Alegrett Net 30 Days
S. Alegrett, DBA Intl Suite 200 (714) 729-3170 7/6/94
Info Tech Newport Beach, CA 92660 USA
(714) 759-1853
0023 933 S. Euclid Avenue Janet White Net 30 Days
Costa Azul Travel (714) 520-4535 9/5/94
Anaheim, CA 92802 USA
0024 5355 Orangethorpe Ave Chona Pugeda Net 30 Days
ADP Attn: Mail Stop 804 (714) 228-4142 9/5/94
La Palma, CA 90623 USA
(714) 739-6175
0025 Net 30 Days
L.A Cellular 9/5/94
0026 10615 Kirvale Dr. Michael Mai Net 30 Days
Michael Mai 9/17/94
Houston, TX 77089
0027 Net 30 Days
INC. Magazine 9/17/94
0028 Net 30 Days
U.S Latin Trade 9/17/94
</TABLE>
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- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0029 Net 30 Days
Stefania Faraone 9/17/94
Caracas Venezuela
0030 Net 30 Days
Home Depot 9/17/94
0031 Net 30 Days
Circuit City 9/17/94
0032 Net 30 Days
South West Airlines 9/17/94
0033 Net 30 Days
Bill Maxey Toyota 9/18/94
Huntington Beach, CA 92648
0034 Airport Net 30 Days
United Airlines 10/9/94
Santa Ana, CA
0035 Leslie Net 30 Days
State Compensation Ins. Fund 10/9/94
Costa Mesa, CA
0036 Geoff Wolfe Net 30 Days
PeopleSoft, Inc 12/16/94
Walnut Creek, CA
0037 122 E. Siox St. Net 30 Days
Karisa Kenyon 12/16/94
Pierre, SD 57501
0038 P.O. Box 7014 Net 30 Days
Toyota Motor Corp. 12/16/94
Anaheim, CA 92850-7014
0039 15255 S. 94th Ave. Net 30 Days
Prudential Securities 12/20/94
Orland Park, IL 60462
0040 Net 30 Days
Glendale Toyota 12/20/94
0041 P.O. Box 25004 Net 30 Days
AAA 12/20/94
Santa Ana, CA 92660-6908
</TABLE>
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CITY ST ZIP TELEPHONE 2
FAX NUMBER
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0042 Net 30 Days
Price Club 12/20/94
0043 1315-67th St. Net 30 Days
Wine Finders 12/20/94
Emeryville, CA 94608-1125
0044 P.O. Box 813080 Net 30 Days
Dell Financial Services 12/20/94
Chicago, IL 60681-3080
0045 Net 30 Days
United Rental 12/20/94
0046 Net 30 Days
Pasta Bravo 12/20/94
0047 Net 30 Days
Party World 12/20/94
0048 Net 30 Days
Trader Joes 12/20/94
0049 Net 30 Days
Parson Technology, Inc. 12/20/94
0050 Net 30 Days
Century Parking 12/20/94
0051 Net 30 Days
Good Guys 12/20/94
0052 Net 30 Days
Lise Cloud 12/20/94
0053 J. Raul Alegrett Net 30 Days
Atagrop 58-2-9792623 1/3/95
Caracas Venezuela
0054 Net 30 Days
Frances Cloud 1/3/95
</TABLE>
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- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0055 1505 Pavillion Place Net 30 Days
Peachtree Accounting Systems 1/13/95
Norcross, GA 300939901
0056 2501 E. Chapman Ave. Net 30 Days
Bob Kienis CPA Ste. 150 2/21/95
Fullerton, CA 92631
0057 2402 Michelson Dr. Holly Net 30 Days
Page One Ste. 100 714 851-1530 5/1/95
Irvine, CA 92715
714 851-3947
0058 Cindy Net 30 Days
PIP Printers CA 6/3/92
Costa Mesa, CA 92626
0059 2351 S.W. 37th Ave. Carol Net 30 Days
Gables Terrace Apt. #905 8/4/92
Miami, FL 33145
0060 4555 SW 72nd Ave. Net 30 Days
Aah Miami Mini Store-It 305 667-0926 8/25/92
Miami, FL 33155
0061 6907 Buffkin Ln. Net 30 Days
Joyce Cordingly 8/25/92
Houston, TX 77069
0062 P.O. Box 70807 Net 30 Days
Bell South 800 780-2800 8/25/92
Charlotte, NC 28272-0807
0063 33 New Montgomery Sarah Net 30 Days
Holly Travel Suite 1280 415 543-6522 8/25/92
San Francisco, CA 94105
415 495-1825
0064 5000 Arlington Centre Blvd. Net 30 Days
CompuServe P.O. Box 20212 10/3/92
Columbus, OH 43220-0212
0065 P.O. Box 628201 Net 30 Days
AT&T Wireless 11/7/92
Orlando, FL 32862-8201
0066 50 Alhambra Plaza Net 30 Days
Hyatt Regency Coral Gables (305) 441-1234 12/17/95
Coral Gables, FL 33134
(305) 443-7702
0067 19502 Ranch Lane Net 30 Days
Vicente Perez de Tudela #102 (714) 969-9007 12/17/95
Huntington Beach, CA 92648 (714) 729-3170
</TABLE>
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CITY ST ZIP TELEPHONE 2
FAX NUMBER
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0068 7000 S.W. 62nd Ave. Olga Manresa Net 30 Days
Travelers Insurance/AAA 12/17/95
South Miami, FL 33143
(305) 669-3614
0069 l6 Iris Lane Net 30 Days
Fabian Galarza (415) 329-8104 12/17/95
Menlow Park, CA 94025 (714) 729-3170
0070 Net 30 Days
Express Mail 2/20/96
0071 2200 Old Germantow Rd. Net 30 Days
Office Depot 1800-6858800 3/14/96
Delray Beach, FL 33445 305 860-9484
0072 Raul Alegrett Net 30 Days
IIT, C.A. 3/14/96
0073 Net 30 Days
Raul Alegrett 3/14/96
0074 100 Universal City Plaza Mike Colgrove Net 30 Days
Multiple Scolerosis 818 777-1000 4/26/96
Universal City, CA 91608
0075 2655 Le Jeune Rd Rolando Regato Net 30 Days
Gables Int'l Equities Corp. 305-441-9548 6/17/96
Coral Gables, FL 33134
305-445-0148
0076 Nick Net 30 Days
Cleo Tours 6/17/96
0077 Remittance Center Net 30 Days
Travelers Insurance One Tower Square 7/17/96
Hartford, CT 06183-9001
0078 2701 Le Jeune Rd. Gary Alexander Net 30 Days
Alexander & Wheeler CPA's Ste. 300 305 448-1626 7/17/96
Coral Gables, FL 33134
305 443-0309
0079 2351 SW 37th Ave Caswell Dunlap Net 30 Days
Caswell Dunlap Apt. 802 10/4/96
Miami, FL 33145 USA
0080 1055 N. Lincoln Vincent Mancino Net 30 Days
Vincent Mancino 10/4/96
Burbank, CA
0081 18749 S. DIXIE HIGHWAY Net 30 Days
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- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PIP PRINTING- MIAMI (305)255-5020 10/28/96
MIAMI, FL 33157
(305)378-5561
0082 550 El Dorado Street Dana Justin Coates Net 30 Days
Supple-Merrill & Driscoll, Inc P.O. Box 2408 (626)795-9921 11/4/96
Pasadena, CA 91102
(626)844-2126
0083 2120 S.W. 126 Ct. Net 30 Days
Maria T. Fernandez (305)551-3883 11/7/96
Miami, FL 33175
0084 CompuServe Net 30 Days
Comp U.S.A. Dept. L-742 11/18/96
Columbus, OH 43268-0742
0085 2655 LeJeune Road Carolina Ochoa Net 30 Days
Office Team (305)445-4662 11/20/96
Miami, FL 33134
(305)445-2474
0086 Net 30 Days
I.I.T. Citibank 11/25/96
0087 800 N. E. 125th Street Net 30 Days
Award Maker, Inc. 305-8938081 12/2/96
Miami,FL 33161
0088 Net 30 Days
Job Center 1/22/97
0089 Net 30 Days
Walsworth, Franklyn, Bevins & 714-6342522 2/10/97
0090 Net 30 Days
Maverick Digital 2/10/97
0091 Net 30 Days
South Florida Magazine 2/24/97
0092 Net 30 Days
P.0.V. 3/4/97
0093 Net 30 Days
EDD 3/11/97
0094 Suite 100 Net 30 Days
Paychex 8181 N.W l54th Street 3/11/97
</TABLE>
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- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Miami Lakes, FL 33016-5817
0095 Net 30 Days
David Graham 3/11/97
0096 Net 30 Days
United Parcel Service 3/14/97
0097 16530 Ventura Boulevard Net 30 Days
David M. Sturman, APC 4/8/97
Encino, CA
0098 Net 30 Days
Zebra Graphics 4/14/97
0099 Net 30 Days
Network Solutions 4/14/97
0100 Net 30 Days
Computer City 4/28/97
0102 23205 Sorrel Ct. Caroline Kish Net 30 Days
IO Consulting Inc. 5/14/97
Valencia, CA 91354
0103 Net 30 Days
Cynthia Kenny 5/20/97
0104 2134 Sunset Drive Kathy McMahon Net 30 Days
Management and Consulting Tec 310-771-6064 5/28/97
Ventura, CA 93001 805-652-0889
0105 P.O. B0X 371992 Net 30 Days
Sanwa Leasing Corp.-(Security) (800) 959-5936 6/18/97
PITTSBURG, PA 15250-7992 U
(810) 637-3570
0106 P.O. Box 371992 Net 30 Days
Sanwa Leasing Corp. (800) 959-5936 6/19/97
Pittsburg, PA. 15250-7992 USA
(810) 637-3570
0107 Net 30 Days
Logistix, Inc. 6/25/97
0108 Building & Zoning Dpt.-Cert. o Net 30 Days
City of Coral Gables P.0. Box 141549 6/25/97
Coral Gables, FL 33114-1549
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- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0109 7852 N. W. 71th street Blanca Vinas Net 30 Days
Florida Freight Forwarding Ser 305.5991493 6/25/97
Miami,FL 33166
305-5991497
0111 Net 3O Days
Nelson Chen 7/11/97
0113 Net 30 Days
Carnival Airlines 8/5/97
0114 Net 30 Days
Conference Planners 8/12/97
0115 Net 30 Days
Opts Events 8/12/97
0116 Net 30 Days
Bernardo Reitich Design 8/20/97
0117 Net 30 Days
Global Intelligence 8/20/97
0118 Net 30 Days
General Graphics 8/21/97
0119 Net 30 Days
The Barrington Group 9/3/97
0120 Net 3O Days
Vivien Hsuing 9/3/97
0121 Net 30 Days
The Sharper Image 9/3/97
0122 219 Ryan Way Net 30 Days
Charles Graphics 9/15/97
So. San Francisco, CA 94080
0124 Net 30 Days
Office Max 9/22/97
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FAX NUMBER
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0125 Net 30 Days
Lorraine Travel 9/22/97
0126 Net 30 Days
Dynamic Resources Workprocess 9/22/97
0127 Net 30 Days
Costco Wholesale 10/6/97
0128 Net 30 Days
Carlos E. Bravo 10/6/97
0129 Net 3O Days
Denise Singh 10/6/97
0130 Net 30 Days
Penni Kessler 10/6/97
0131 File 5533l Net 30 Days
Blue Shield of California 10/6/97
Los Angeles, CA 90074-5331
0132 Net 30 Days
Roadway Express 11/5/97
0133 Net 30 Days
Los Angeles Times 11/5/97
0134 Net 30 Days
The Miami Herald 11/5/97
0135 Net 30 Days
Richard Rodriguez 11/13/97
0136 Net 30 Days
San Francisco Newspaper Agency 11/13/97
0137 P.O. Box 0252l8 Net 30 Days
Dade County Tax Collector 11/14/97
Miami, FL 33102
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0138 Net 30 Days
Nissan 11/17/97
0139 2333 Ponce de Leon Blvd Net 30 Days
IBEX Colonnade Group Inc Suite 201 11/17/97
Coral Gables, FL 33134
0140 Net 30 Days
The Peninsula Beverly Hills 11/24/97
0141 1221 Brickell Avenue Net 30 Days
US Parking Limited Inc. Box 96 536-1237 12/5/97
Miami, FL 33131
0143 1901 N. Roselle Road Net 30 Days
HQ Schammburg II. Buss. Center Suite 800 12/18/97
Schaumburg, IL 60195
0144 Net 30 Days
Utah Dept. of Workforce Service 12/18/97
0145 Net 30 Days
Utah State Tax Comm. 12/18/97
0146 Net 30 Days
HA-LO Marketing 12/18/97
0147 Net 30 Days
Chicago Tribune 12/18/97
0148 PO BOX 95383 Net 3O Days
The Guardian 12/18/97
Chicago, IL 60694-5383
0149 P.O. Box 4520 Net 30 Days
Ameritech 12/23/97
Carol Stream, IL 60197-4520
0150 Net 3O Days
Computerworld 12/23/97
0151 315 Diablo Road, Suite 212 Net 30 Days
Nelson Technology Assoc. 510-855-3610 12/23/97
Danville, CA 94526
0153 Net 30 Days
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- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
American Cancer Society 12/23/97
0154 Net 30 Days
Resource Support Associates 12/24/97
0155 Net 30 Days
Careers on Line 12/24/97
0156 1215 47 Avenue #2 Nelson Chen Net 30 Days
First Webmaster, Inc. 415 731-0637 12/24/97
San Francisco, CA 94122
0158 14101 Commerce Way Jose Hernandez Net 30 Days
Ikon Office Solutions 1/8/98
Miami Lakes, FL 33016
0159 7200 N.W. 72nd Avenue Ozzi Net 30 Days
AVE Office Furniture 1/8/98
Miami, FL 33166
0161 Net 30 Days
Collin L. Slye 1/8/98
0162 233 15th Street NE Susan Tolbert Net 3O Days
Distinctive Solutions 1/15/98
Atlanta, GA 30309
0163 P.O. Box 740428 Net 30 Days
BSFS Equipment Leasing 1/20/98
Atlanta, GA 30374-0428
0164 7420 SW 48 Street Jose Net 30 Days
Altek Consulting Group 305-663-8391 1/27/98
Miami, FL 33155
305-663-9665
0165 2801 Ponce de Leon Blvd Sharon Thompson Net 30 Days
Thompson Legal Services, Inc. Suite 455 305-448-0800 1/27/98
Coral Gables, FL 33134
0166 Department of Business Service Net 30 Days
Secretary of State - IL 1/28/98
Springfield, IL 62756
0167 10943 South Dixie highway Net 30 Days
kendall Toyota 6656559 1/31/98
Miami, FL 33156
0168 A Law Corporation Suite 2400 Robert Kenny Net 30 Days
Duckor Spradling & Metzger 401 West A Street 2/4/98
</TABLE>
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CITY ST ZIP TELEPHONE 2
FAX NUMBER
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
San Diego, CA 92101-7915
0169 720 N.W. 27 Ave Daniel A. Sabin Net 30 Days
Sir Speedy Suite 104 305 541-2116 2/12/98
Miami, FL 33125
0170 Net 30 Days
Rose Anne Healy 2/12/98
0171 Stples Inc 8 Techonology Drive Net 30 Days
Staples, Inc. P.O. Box 5173 1 800 333-3330 2/12/98
Westborough, MA 01581
1 800 333-3199
0172 P.O. Box 751741 Net 3O Days
Bernard Hodes Advertising 212 935-4000 2/12/98
Charlotte, NC 28275-1741
0173 Processing Center Net 30 Days
Zephyrhills spring water P.O. Box 650640 1800-6954446 2/24/98
Dallas, TX 75265-0640
0174 P.O. Box 8646 Brian P. Kaufman Net 30 Days
PeopleSoft USA Chicago 510 468-2318 3/3/98
, IL 60680-8646
0176 11224 S.W. l89 th Terrace Denise Net 30 Days
Sterling Foliage 3/6/98
Miami, FL 33157
0177 5893 Rue Ferrari Net 30 Days
Hello Direct 3/9/98
San Jose, CA 95138-1857
0178 David Ankeny, Express HR David Ankeny Net 3O Days
Services Industry SIG 650 S. Shackleford Rd Suite 141 3/9/98
Little Rock, AR 72211
0179 7440 N Kenda11 Dr Net 30 Days
Computer City 29-4310 3/11/98
Miami, FL 33156-
0180 1 Centerpointe Drive Net 30 Days
Arden Realty Suite 420 3/12/98
La Palma, CA 90623
0181 100 SE 1st Street, #45 Net 3O Days
Compubras Ultramont Mall 305 358-8465 3/16/98
Miami, FL 33131
0182 Dept. 1039 Net 30 Days
Micron Electronics, Inc. P.O. Box 34036 3/16/98
Seattle, WA 98124-1936
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- ------------------------------------------------------------------------------------------------------------
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0183 P.O. Box 79045 Net 30 Days
BellSouth Communication Syste 3/17/98
Baltimore, MD 21279-0045
0184 5207-J Madison Avenue Net 30 Days
Pension Organizers 3/17/98
Sacramento, CA 95841-3051
0185 1964 Westwood Blvd. Net 30 Days
Jobtrak 3rd Floor 3/17/98
Los Angeles, CA 90025
0186 2140 S. Richey Net 30 Days
Office Furniture Unlimited 714 545-2004 3/18/98
Santa Ana, CA 92705
0187 396 Alhambra Circle Net 30 Days
Citibank F.S.B. 50 3/24/98
Coral Gables, FL 33134
0190 Skytel Post Office Box 3887 Net 30 Days
Skytel 3/24/98
Jackson, MS 39207-3887
0191 Dept. 0830 P.O. Box 55000 Net 30 Days
AT & T TeleConference Services 3/24/98
Detroit, MI 48255-0830
0192 5050 W. Tennessee Street Net 30 Days
Florida Dept. of Revenue 3/24/98
Tallahassee, FL 32399-0135
0193 P.O. Box 942857 Net 30 Days
California Franchise Tax Board 3/24/98
Sacramento, CA 94257-0501
0194 150 Alhambra Circle Suite 800 Net 30 Days
Verdeja And Gravier 3/24/98
Coral Gables, FL 33134
0195 999 Ponce de Leon Blvd Net 30 Days
Marco De La Cal P.A Suite 720 305-4443800 3/25/98
Coral Gables, FL 33134
0196 210 N 1950 W Net 30 Days
UTAH State Tax Commision 3/25/98
SLC, UT 84134-0190
0197 P.O. BOX 91001 Net 30 Days
Airborne Express 3/26/98
Seattle, WA 98111
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- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0198 1415 East Sunrise Blvd. Net 30 Days
Juvenile Diabetes Foundation Suite 504 3/30/98
FT. Lauderdale, FL 33304
0199 Department 77-6277 Net 3O Days
HA.LO 3/30/98
Chicago, IL 60678-6277
0200 1906 Ponce de Leon Blvd. Net 30 Days
OfficeMax 3/30/98
Coral Gables, FL 33134
0201 8260 N.W. 68th Street Blanca Net 30 Days
Florida Freight Forwarding 3/31/98
Miami, FL 33166
0202 6402 Lauren Lane DFS Net 30 Days
K2 Information Services, Inc. (281)412-9620 4/9/98
Pearland, TX 77584 (281) 244-1962
0204 Net 30 Days
Mark McKnight 4/9/98
0205 Net 30 Days
Troy Webb 4/9/98
0206 Net 30 Days
Kim Kest 4/9/98
0207 Net 30 Days
Joan Livernois 4/9/98
0208 Net 30 Days
John Green 4/9/98
0209 Net 30 Days
John Rocha 4/9/98
0210 401 South State Street Net 30 Days
Illinois Dept. of Employment 4/9/98
Chicago, IL 60605-2280
0211 P.O. Box 55695 Net 30 Days
Personel Journal Workforce 4/15/98
Boulder, CO 80322-5695
</TABLE>
<PAGE>
Page: 16
International Information Technology
Vendor Master File List
<TABLE>
<CAPTION>
Filter Criteria includes: Report order is by ID.
- ------------------------------------------------------------------------------------------------------------
VENDOR ID ADDRESS LINE 1 CONTACT TERMS
VENDOR ADDRESS LINE 2 TELEPHONE 1 VEND SINCE
CITY ST ZIP TELEPHONE 2
FAX NUMBER
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0212 2902 Evergreen Parkway Net 30 Days
HR Plus Suite 100 4/20/98
Evergreen, CO 80439
0213 4600 College Blvd Net 30 Days
AFCO Insurance Premium Financ 4/20/98
Overland PK, KS 66211-1606
0214 Net 30 Days
AEtna 4/20/98
0215 Net 30 Days
Jeff Suh 4/21/98
0216 Net 30 Days
Giang Nguyen 4/21/98
0217 3376-C Chelsea Park Lane Net 30 Days
Julie N. Marsh Norcross, Georgia 30092 4/23/98
0218 PO. Box 19468 Net 30 Days
Illinois Department of Revenue 4/27/98
Springfield, IL 62794-9468
0219 Revenue Division Net 30 Days
City of Newport Beach P.O. Box 1768 4/28/98
Newport Beach, CA 92658-8915
0220 Purchase Power Joanna Garcia Net 30 Days
Pitney Bowes P0 Box 85042 800 997 99007 4/28/98
Louisville, KY 40285
0221 P0 Box 632163 Net 30 Days
The Monster Board 508-879-4641 4/28/98
Cincinnati, OH 45263-2163
0222 Net 30 Days
Graig Theobald 4/27/98
0223 Net 30 Days
David Velasquez 4/27/98
0224 Net 30 Days
Kim West 4/27/98
0225 Net 30 Days
</TABLE>
<PAGE>
Page: 17
International Information Technology
Vendor Master File List
<TABLE>
<CAPTION>
Filter Criteria includes: Report order is by ID.
- ------------------------------------------------------------------------------------------------------------
VENDOR ID ADDRESS LINE 1 CONTACT TERMS
VENDOR ADDRESS LINE 2 TELEPHONE 1 VEND SINCE
CITY ST ZIP TELEPHONE 2
FAX NUMBER
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Soraya Matos 4/29/98
0226 4420 Rosewood Drive, Ste 500 Net 30 Days
AT&T Capital Leasing Services (510) 224-8569 4/29/98
Pleasanton, CA 94588
(800) 328-0673
0227 7900 Nova Drive, Suite 101 Net 30 Days
Select Jobs 4/30/98
Davie, FL 33324
0228 14643 Dallas Parkway, Suite 525 Net 30 Days
IHRIM, Inc. 5/1/98
Dallas, TX 75240-8805
0229 3672 Coral Way Net 30 Days
A-1 Ideal Business Mach. 5/6/98
Miami, FL 33134
0230 11 Golden Shore John Rocha Net 30 Days
MBR Technologies, Inc. (562) 495-0077 5/7/98
Long Beach, CA 90802 (562) 930-9233
(562) 495-0027
0231 15930 S.W. 105th Avenue, Net 30 Days
FEDB Computer Services 5/6/98
Miami, FL 33157
0232 7852 NW 71 Street Net 30 Days
Florida Freight Fowarding 5/12/98
Miami, FL
0233 Your Online Employment Connec Net 30 Days
E. Span 8440 Woodfield Crossing, #280 5/13/98
Indianapolis, IN 46240
0234 Net 30 Days
Internal Revenue Service 5/18/98
Atlanta, GA 39901
0235 Data Operation Center Net 30 Days
Social Secruity Administration 5/18/98
Wilkes-Barre, PA 18769 +
0236 P.O. Box 826286 California Net 30 Days
Employment Development Dept. 5/18/98
Sacramento, CA 94230-6286 +
0237 Suite 850, Sussex Place Net 30 Days
Georgia Department Of Labor 148 International Blvd. N.E. 5/21/98
Atlanta, GA 30303-1751
0238 Registration Unit Net 30 Days
Georgia Department of Revenue P.O. Box 740001 5/21/98
</TABLE>
<PAGE>
Page: 18
International Information Technology
Vendor Master File List
<TABLE>
<CAPTION>
Filter Criteria includes: Report order is by ID.
- ------------------------------------------------------------------------------------------------------------
VENDOR ID ADDRESS LINE 1 CONTACT TERMS
VENDOR ADDRESS LINE 2 TELEPHONE 1 VEND SINCE
CITY ST ZIP TELEPHONE 2
FAX NUMBER
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Atlanta, GA 30374-0001
0239 Net 30 Days
Jim Freyman 5/27/98
0240 PO Box 631l76 Net 30 Days
Online Career Center 317 293-6499 ext239 5/28/98
Cincinnati, OH 45263-1176
317 293-6692
0241 Embarcadero Center Jennifer Geer Net 30 Days
HQ Business Centers/CA Two Embarcadero Center, #200 415-835-1300 5/29/98
San Francisco, CA 94111-3834
0242 P.O. Box 485 Net 30 Days
PsiNet, Inc. 6/1/98
Herndon, VA 20172
0243 1720 Oak Street Gary Clover Net 30 Days
Micro Warehouse 6/3/98
Lakewood, NJ 08701
0244 Miramar Executive Center Net 30 Days
Corona International Computer 3600 S. State Road, Suite 369 6/3/98
Miramar, FL 33023
0245 1855 Washington #202 Net 30 Days
Jennifer Street 6/4/98
San Francisco, CA 94109
0246 Premium Audit Dept (Eastern) Net 30 Days
Hartford Insurance Group, Inc. 4401 Middle Settlement Road (800) 962-6170 6/4/98
New Hartford, NY 13413
0247 4305 Hacienda Drive Net 30 Days
PeopleSoft 6/4/98
Pleasanton, CA 94588
0248 P.O. Box 7070 Net 30 Days
D & L Online, Inc. 515-280-1144 6/5/98
Des Moines, IA 50309
0249 7900 Nova Drive Suite 101 Net 30 Days
Select Jobs 954-424-0563 6/5/98
Davie, FL 33324
954-424-6626
0250 500 North State College Blvd. Matt Degulis Net 30 Days
American Capital Group Suite 720 (714) 937-4126 6/5/98
Orange, CA 92868
0251 52 Colin P. Kelly Jr. Street Net 30 Days
Medius IV Suite 101 6/9/98
San Francisco, CA 94107
</TABLE>
<PAGE>
Page: 19
International Information Technology
Vendor Master File List
<TABLE>
<CAPTION>
Filter Criteria includes: Report order is by ID.
- ------------------------------------------------------------------------------------------------------------
VENDOR ID ADDRESS LINE 1 CONTACT TERMS
VENDOR ADDRESS LINE 2 TELEPHONE 1 VEND SINCE
CITY ST ZIP TELEPHONE 2
FAX NUMBER
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0252 200 North Milwaukee Avenue Net 30 Days
CDW 6/10/98
Vernon Hills, IL 60061
0253 1807 Ponce de Leon Blvd Net 30 Days
Mels Travel Inc. 6/12/98
Coral Gables, FL 33134
0254 Net 30 Days
Charles G. Burleigh 6/15/98
0255 Net 30 Days
Barbara Beatteay 6/15/98
0256 3025 Creek Ct. Net 30 Days
Acer Colt 6/18/98
Roswell, GA 30075
0257 70 Hilltop Road Net 30 Days
Alexander Hamilton Institute I 6/24/98
Ramsey, NJ 07446-1119
0258 8808 Knott Avenue Net 30 Days
Center Lock And Safe 6/24/98
Buena Park, CA 90620
0259 2333 Pence de Leon Blvd Net 30 Days
Intenational Information Tech Suite 1108 6/25/98
Coral Gables, FL 33134
0260 Net 30 Days
PeopleSoft. 6/25/98
0261 7822 Walker Street Net 30 Days
City of La Palma 714-523-4023 106 6/26/98
La Palma, CA 90623-1771
714-523-2141
0262 2000 Powers Ferry Road Net 30 Days
The Computer Jobs Store, Inc Suite 300 6/26/98
New York, NY 10022
0263 888 South Greenville Avenue Net 30 Days
Dell Direct Sales, LP. Suite 200 Dept. 0795 6/29/98
Richardson, TX 75081
0264 274 Sylvan Blvd. Net 30 Days
Planned Business Sales, Inc 407-647-5358 6/30/98
Winter Park, FL 32789
407-647-5386
</TABLE>
<PAGE>
Page: 20
International Information Technology
Vendor Master File List
<TABLE>
<CAPTION>
Filter Criteria includes: Report order is by ID.
- ------------------------------------------------------------------------------------------------------------
VENDOR ID ADDRESS LINE 1 CONTACT TERMS
VENDOR ADDRESS LINE 2 TELEPHONE 1 VEND SINCE
CITY ST ZIP TELEPHONE 2
FAX NUMBER
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0265 401 N. Michigan Avenue Net 30 Days
IHRIM 7/1/98
Chicago, IL 60611-4267
0266 385 Alhambra Circle Suite A Net 30 Days
Construction Services of Miami 7/7/98
Coral Gables, FL 33134
0267 255 Alhambra Circle Net 30 Days
Florida International Travel Suite 180 7/9/98
Coral Gables, FL 33131
0268 American Express Co. Net 30 Days
American Express Corporate S Travel Related S. Suite 0001 7/9/98
Chicago, IL 60679-0001
0269 Net 30 Days
Chuck Shaw 7/10/98
0270 1100 West Commercial Blvd Martha Alvarez Net 30 Days
Corporate Express 7/13/98
Fort Lauderdale, FL 33309
0271 Net 30 Days
David Seuzeneau 7/13/98
0272 Net 30 Days
Melissa Moore 7/13/98
0273 Net 30 Days
Jack Mullaney 7/13/98
0274 Agents for IBEX ColonnadeGrou Net 30 Days
Northco Management Services L P.O. Box 550592 7/15/98
Tampa, FL 33655-0592
0275 P.O. Box 620081 Net 30 Days
Admirals Club 7/29/98
Dallas, TX 75262-0081
0276 P0 BOX 57547 Philip, Nguyen Net 30 Days
PBC, Inc. 8/3/98
Webster, TX 77598
0277 10360 N.W. 5th Terr Net 3O Days
Monica Conde 8/4/98
Miami, FL 33172
</TABLE>
<PAGE>
Page: 21
International Information Technology
Vendor Master File List
<TABLE>
<CAPTION>
Filter Criteria includes: Report order is by ID.
- ------------------------------------------------------------------------------------------------------------
VENDOR ID ADDRESS LINE 1 CONTACT TERMS
VENDOR ADDRESS LINE 2 TELEPHONE 1 VEND SINCE
CITY ST ZIP TELEPHONE 2
FAX NUMBER
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0278 Paging Network of Miami Net 30 Days
PageNet 4009 Oakwood Blvd 305-267-4600 8/5/98
Hollywood, FL 33020
0279 Net 30 Days
Howard Elfman 8/5/98
0280 Net 30 Days
Thomas Leighton 8/6/98
0281 Net 30 Days
Andrew Almquist 8/6/98
0282 Net 30 Days
Donald Harrison 8/10/98
0283 Business Machines/Off Supplies Net 30 Days
MIC Systems 11457 Stonecress Avenue 626-282-5527 8/10/98
Fountain Valley, CA 92708
0284 Net 30 Days
Brett Thomas 8/17/98
0285 4900 University Avenue Net 30 Days
Business Advantage 1800-305-9004 8/17/98
West Des Moines, IA 50266-676
1800-305-8997
0286 Net Due
Carlos Gutierrez 8/17/98
0287 P.O. Box 8297 Net 30 Days
A. Management Association Int. 8/17/98
Overland Park, KS 66208
0288 8220 N.W. 25th Street Net 30 Days
DOMESA 8/18/98
Mimai, FL 33126
0289 P.O. Box 79482 Net 30 Days
HR Society for 703-548-3440 8/20/98
Baltimore, MD 2 1279-0482 1800-283-787476
703-836-0367
0290 Net 30 Days
Indoor Gardens 8/21/98
0291 2221-A East Winston rd. Net 3O Days
</TABLE>
<PAGE>
Page: 22
International Information Technology
Vendor Master File List
<TABLE>
<CAPTION>
Filter Criteria includes: Report order is by ID.
- ------------------------------------------------------------------------------------------------------------
VENDOR ID ADDRESS LINE 1 CONTACT TERMS
VENDOR ADDRESS LINE 2 TELEPHONE 1 VEND SINCE
CITY ST ZIP TELEPHONE 2
FAX NUMBER
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TCS/IDT 8/24/98
Anaheim, CA 92806
0292 Conference Planners/PeopleSoft Net 30 Days
PeopleSoft 2600 Campus Drive Suite 180 650-287-2635 8/24/98
Sam Mateo, CA 94403
</TABLE>
<PAGE>
SCHEDULE 4.29
BANKING RELATIONSHIPS:
International Information Technology, Inc.
Citibank - Operating Account, checking account # 3200323470
Authorized signers
a) Luis Sebastian Alegrett
b) Richard Rodriguez
Bank of America-- Petty Cash, checking account # 11014-11641
Authorized signers
a) Luis Sebastian Alegrett
b) Michael Mai
International Information Technology, CA Venezuela
Banco de Venezuela-- Account used for Deposits Only # 107323680-0
Authorized signers
a) Luis Sebastian Alegrett
b) Jose R. Alegrett
Banco Provincial - Checking account # 01303852-H
Authorized signers
a) Luis Sebastian Alegrett
b) Jose R. Alegrett
3) Citibank - Miami - Checking account # 320025040
Authorized signers
a) Luis Sebastian Alegrett
b) Jose R. Alegrett
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY IIT, C.A.
CHANGES IN STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1,997 AND 1,996 Annex VII
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Common Acct. Receivable Accumulated Translation Shareholder's
Stock Stockholders Paid Stock Loss Adjustment Equity
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of March 5, 1,996
Common stock contribution 8,621 (6,897) 1,724 1,724
Net (loss) of the period (29,448) (29,448)
Translation adjustment 799 799
-----------------------------------------------------------------------------------------
Balance as of December 31, 1,996 8,621 (6,897) 1,724 (29,448) 799 (26,925)
Net (loss) of the year (90,112) (90,112)
Translation adjustment (143) (143)
-----------------------------------------------------------------------------------------
Balance as of December 31, 1,997 8,621 (6,897) 1,724 (119,559) 656 (117,179)
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY IIT, C.A.
CASH FLOW Annex VII
YEARS ENDED DECEMBER 31, 1,997 AND 1,996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1,997 1,996
---------------------------
---------------------------
<S> <C> <C>
RESOURCES GENERATED BY (USED IN) OPERATIONS:
Net loss of the year (90,112) (29,448)
Add - items that do not effect cash:
Exchange rate variations (143) 799
Depreciation 3,335 836
---------------------------
---------------------------
(86,920) (27,813)
RESOURCES GENERATED BY (USED) IN WORKING CAPITAL:
(Increase) decrease of assets:
Accounts receivable (34,023)
Other accounts receivables 1 (395)
Advances to suppliers 50,012 (50,012)
Income tax witholdings (177) (2,020)
Other assets 36 (654)
Increase (decrease) of liabilities:
Accounts payable suppliers 2,444 68
Accounts payable to related companies 182,640
Taxes payable 2,148 95
Advances received from clients (55,824) 55,824
Accounts payable stockholders (6,203) 38,303
---------------------------
---------------------------
RESOURCES GENERATED BY OPERATIONS 54,134 13,396
INVESTING ACTIVITIES:
Contribution to shareholder's equity 1,724
Additions to fixed assets (19,601) (8,830)
---------------------------
---------------------------
RESOURCES USED IN INVESTING ACTIVITIES (19,601) (7,106)
---------------------------
---------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 34,533 6,290
CASH AN CASH EQUIVALENTS:
Beginning of year 6,290
---------------------------
---------------------------
End of year 40,823 6,290
---------------------------
---------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
12
INTERNATIONAL INFORMATION TECHNOLOGY IIT, C.A.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1,997 AND 1,996
BASIS OF PRESENTATION:
Financial statements in historical bolivares:
The supplementary financial statements in the annexed financial statements
marked I - IV have been prepared according to the same accounting practices
summarized in Note 1 to the financial statements prepared in bolivares with
purchasing power, except that do not include the effect of the inflation in the
financial reports, but do not conform with accounting principles generally
accepted in Venezuela.
Financial statements in US Dollars:
US Dollar amounts shown in the annexed financial statements marked V -- VII have
been included solely for the convenience of the reader and are translated from
historical Venezuelan bolivares to US Dollars at the Central Venezuelan Bank's
official rates of:
<TABLE>
<CAPTION>
1,997 1996
----- ----
<S> <C> <C>
December 31, 504.75 476.75
Period's average 490.67 453.77
</TABLE>
A summary of the method of restatement of the financial statements translated to
US Dollars, is as follows:
- - Monetary assets and liabilities were restated at the end period rate of
Bs. 504.75 and 476.75 to the US Dollar.
- - Non-monetary assets and liabilities were restated at the their historical
rates of purchase, contribution or generation.
- - The statement of operations was restated at the short-term average rate of
Bs. 490.67 Bs. 453.77 to the US Dollar, except for the depreciation of
fixed assets which was restated at its corresponding historical exchange
rates.
<PAGE>
SCHEDULE 4.8
PROJECTIONS
(Attached - 1 page)
<PAGE>
Schedule# 4.8
International Information Technology, Inc.
Forecast for 1998
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Actual Actual Actual Forecast
------------------------------------------------------------------------------------
Qtr 1/98 % Sales Apr May Jun Qtr 2 '98 % Sales
<S> <C> <C> <C> <C> <C> <C> <C>
Sales
------------------------------------------------------------------------------------
Total USA Sales: ...................... 1,233,913 84.17% 504,764 459,060 526,598 1,490,421 90.41%
------------------------------------------------------------------------------------
IIT-CA Venezuela 231,997 15.83% 49,440 50,500 58,075 158,015 9.59%
------------------------------------------------------------------------------------
Total Sales: 1,465,910 100% 554,204 509,560 584,673 1,648,436 100%
------------------------------------------------------------------------------------
Payroll & Related % Sales % Sales
------------------------------------------------------------------------------------
Total USA Payroll & Related: 602,128 48.80% 224,666 222,302 255,796 702,765 47.15%
------------------------------------------------------------------------------------
IIT-CA Venezuela 72,524 31.26% 17,304 12,120 14,519 43,943 27.81%
------------------------------------------------------------------------------------
Total Payroll & Related: 674,652 46.02% 241,970 234,422 270,315 746,708 45.30%
------------------------------------------------------------------------------------
Operating Expenses % Sales % Sales
------------------------------------------------------------------------------------
Total USA Operating Expenses: ......... 123,205 9.96% 35,201 75,703 71,070 181,974 12.21%
------------------------------------------------------------------------------------
IIT-CA Venezuela 22,719 9.79% 4,944 13,833 5,806 24,585 15.56%
------------------------------------------------------------------------------------
Total Operating Expenses: ............. 145,924 9.95% 40,145 89,536 76,878 206,558 12.53%
------------------------------------------------------------------------------------
Net Operating Profits % Sales % Sales
------------------------------------------------------------------------------------
Total USA Net Operating Profits: ...... 508,580 41.22% 244,896 161,055 199,732 605,683 40.64%
------------------------------------------------------------------------------------
IIT-CA Venezuela 136,754 58.95% 27,192 24,547 37,749 89,488 56.63%
------------------------------------------------------------------------------------
Total Net Operating Profits: .......... 645,334 44.02% 272,088 185,602 237,480 695,171 42.17%
------------------------------------------------------------------------------------
Less: Corporate A&G % Sales % Sales
------------------------------------------------------------------------------------
Total Corporate A&G: .................. 136,985 9.34% 64,537 65,451 65,000 194,988 11.83%
------------------------------------------------------------------------------------
% Total Sales % Total Sales
------------------------------------------------------------------------------------
USA Net Income (before bonuses & taxes) 371,595 25.35% 180,359 95,604 134,732 410,695 24.91%
------------------------------------------------------------------------------------
IIT-CA Venezuela 136,754 9.33% 27,192 24,547 37,749 89,488 5.43%
------------------------------------------------------------------------------------
Total Net Income: ..................... 508,349 34.68% 207,551 120,151 172,480 500,182 30.34%
------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Forecast Forecast Forecast Forecast Forecast
----------------------------------------------------------------------------------------
10% 7% 8% 25% 8% 8%
---------------------------------------------------- ----------------------
Jul Aug Sep Qtr 3 '98 % Sales Oct Nov
<S> <C> <C> <C> <C> <C> <C> <C>
Sales
----------------------------------------------------------------------------------------
Total USA Sales: ...................... 579,258 619,806 669,390 1,868,454 90.67% 722,942 780,777
----------------------------------------------------------------------------------------
IIT-CA Venezuela 60,979 64,028 67,229 192,236 9.33% 70,591 74,120
----------------------------------------------------------------------------------------
Total Sales: 640,237 683,834 736,619 2,060,689 100% 793,532 854,897
----------------------------------------------------------------------------------------
Payroll & Related % Sales
----------------------------------------------------------------------------------------
Total USA Payroll & Related: 277,926 295,806 319,471 893,203 47.80% 345,028 372,630
----------------------------------------------------------------------------------------
IIT-CA Venezuela 15,245 16,007 16,807 48,059 25.00% 24,707 25,942
----------------------------------------------------------------------------------------
Total Payroll & Related: 293,171 311,813 336,278 941,261 45.68% 369,735 398,572
----------------------------------------------------------------------------------------
Operating Expenses % Sales
----------------------------------------------------------------------------------------
Total USA Operating Expenses: ......... 75,174 75,174 75,174 225,521 12.07% 74,000 74,000
----------------------------------------------------------------------------------------
IIT-CA Venezuela 6,098 6,403 6,723 19,224 10.00% 7,059 7,412
----------------------------------------------------------------------------------------
Total Operating Expenses: ............. 81,272 81,576 81,897 244,745 11.88% 81,059 81,412
----------------------------------------------------------------------------------------
Net Operating Profits % Sales
----------------------------------------------------------------------------------------
Total USA Net Operating Profits: ...... 226,158 248,626 274,746 749,730 40.13% 303,913 334,146
----------------------------------------------------------------------------------------
IIT-CA Venezuela 39,636 41,618 43,699 124,953 65.00% 38,825 40,766
----------------------------------------------------------------------------------------
Total Net Operating Profits: .......... 265,794 290,444 318,445 874,684 42.45% 342,738 374,912
----------------------------------------------------------------------------------------
Less: Corporate A&G % Sales
----------------------------------------------------------------------------------------
Total Corporate A&G: .................. 65,000 67,000 68,000 200,000 9.71% 70,000 70,000
----------------------------------------------------------------------------------------
% Total Sales
----------------------------------------------------------------------------------------
USA Net Income (before bonuses & taxes) 161,158 181,826 206,746 549,730 26.68% 233,913 264,146
----------------------------------------------------------------------------------------
IIT-CA Venezuela 39,636 41,618 43,699 124,953 6.06% 38,825 40,766
----------------------------------------------------------------------------------------
Total Net Income: ..................... 200,794 223,444 250,445 674,684 32.74% 272,738 304,912
----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------
Forecast
-------------------------------------------------------
9% 25%
----------------------
Dec Qtr 4 '98 % Sales Total '98 %
<S> <C> <C> <C> <C> <C>
Sales
-------------------------------------------------------
Total USA Sales: ...................... 851,047 2,354,765 91.37% 6,947,553 89.62%
-------------------------------------------------------
IIT-CA Venezuela 77,826 222,537 8.63% 804,784 10.38%
-------------------------------------------------------
Total Sales: 928,873 2,577,302 100% 7,752,338 100%
-------------------------------------------------------
Payroll & Related % Sales % Sales
-------------------------------------------------------
Total USA Payroll & Related: 406,167 1,123,826 47.73% 3,321,921 47.81%
-------------------------------------------------------
IIT-CA Venezuela 27,239 77,888 35.00% 242,413 30.12%
-------------------------------------------------------
Total Payroll & Related: 433,406 1,201,714 46.63% 3,564,335 45.98%
-------------------------------------------------------
Operating Expenses % Sales % Sales
-------------------------------------------------------
Total USA Operating Expenses: ......... 74,000 222,000 9.43% 752,700 10.83%
-------------------------------------------------------
IIT-CA Venezuela 7,783 22,254 10.00% 88,781 11.03%
-------------------------------------------------------
Total Operating Expenses: ............. 81,783 244,254 9.48% 841,480 10.85%
-------------------------------------------------------
Net Operating Profits % Sales % Sales
-------------------------------------------------------
Total USA Net Operating Profits: ...... 370,880 1,008,939 42.85% 2,872,932 41.35%
-------------------------------------------------------
IIT-CA Venezuela 42,804 122,395 55.00% 473,590 58.85%
-------------------------------------------------------
Total Net Operating Profits: .......... 413,684 1,131,335 43.90% 3,346,522 43.17%
-------------------------------------------------------
Less: Corporate A&G % Sales % Sales
-------------------------------------------------------
Total Corporate A&G: .................. 75,000 215,000 8.34% 746,973 9.64%
-------------------------------------------------------
% Total Sales % Sales
-------------------------------------------------------
USA Net Income (before bonuses & taxes) 295,880 793,939 30.81% 2,125,960 27.42%
-------------------------------------------------------
IIT-CA Venezuela 42,804 122,395 4.75% 473,590 6.11%
-------------------------------------------------------
Total Net Income: ..................... 338,684 916,335 35.55% 2,599,550 33.53%
-------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 4.9
UNDISCLOSED LIABILITIES
None
<PAGE>
SCHEDULE 4.10
CERTAIN CHANGES OR EVENTS OF THE COMPANY
SPECIAL COMPENSATION OBLIGATIONS
Graig Theobald, Managing Consultant, $5,000 Bonus earned on June 30, 1999,
subject to continued employment up to and including such date.
SALES MANAGER COMPENSATION:
Cynthia Kenny, Western Region Sales Manager
Howard Elfman, Eastern Region Sales Manager
In addition to a Base Salary the sales manager receive a quarterly sales
commission.
The commission schedules are as follows:
2% of all new sales.
.5% of continuing sales
Continuing sales are sales for clients that we have serviced over 12 months.
VENEZUELAN GENERAL MANAGER COMPENSATION:
Jonas Ayala, IIT Venezuela General Manager, is paid $4,000 per month and a Bonus
equal to 20% of the EBITDA of the Venezuelan operations. This is effective as of
July 1, 1998. He works as an independent contractor.
Prior to July 1, 1998 he was receiving a base salary of $2000 per month plus a
bonus equal to 30% of the EBITDA of the Venezuelan operations.
CHANGE IN ACCOUNTING METHODS OR PRACTICES
As of January 1st, 1998 International Information Technology, Inc. tax
accounting method has been changed to an accrual accounting method internally.
The tax filing has not been changed at this point.
<PAGE>
SCHEDULE 4.11
LISTING OF ALL CONTRACTS / CONSENTS OF THE COMPANY
Office Lease Agreements:
1) Corporate Florida Office, Lease expiration date: January 31, 1999
2) Western California Office, Lease expiration date: June 1, 2000
3) Caracas, Venezuela Office, Lease expiration date is September 15, 1998
Telephone Equipment Leases:
Corporate Office: BSFS Phone system Lease
California Office: American Capital/ Bombardier Capital (Phone System Lease)
Computer & Equipment Leases:
Sanwa Leasing Corp. - Schedule A/B 10220993 / 10226225
Dell Financial Services - Lease # 003956567--001/002/003/004/005
AT&T Capital Leasing - 678052/679592
Master Lease # 680497 Schedules - 681715 / 681829 / 685813 / 685834
Add - 4.11 (vi)-Termination Agreement with John Rocka
Customer Contracts
See attached (5 pages)
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY Page 1
JOB PROFITABILITY REPORT
For the Period From Jan 1, 1998 to Jul 31, 1998
Filter Criteria includes: 1) IDs from 103-01 to NB-500. Report order is by ID.
Report is printed Summarized by GL Account.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Job Description Job ID GL Acct Description Actual Exp. Exp. Totals Rev. Totals Profit $ Profit
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Psft (Latin America) 103-01 Salaries & Wages - Billable 2,292.14
Travel & Related Expense 1,524.62
Other Income 1,962.09
----------- -------------
3,816.76 1,962.09
------------- -------------
Total 103-01 3,816.76 1,962.09 -1,854.67 -94.53
------------- ------------- --------- ------
------------- ------------- --------- ------
Dreyer's (HRIS) 110-01 H.R.- Consulting Fees 146,440.00
Salaries & Wages - Billable 50,739.26
Travel & Related Expense 783.43
Sub-Contract Fees 2,180.25
Entertainment Expenses 94.08
----------- -------------
53,797.02 146,440.00
------------- -------------
Total 110-01 53,797.02 146,440.00 92,642.98 63.26
------------- ------------- ---------- ------
------------- ------------- ---------- ------
PeopleSoft Inc. (HRIS) 111-01 H.R.- Consulting Fees 232,472.00
Salaries & Wages - Billable 91,278.14
Travel & Related Expense 4,735.19
Entertainment Expenses 36.45
Parking 265.92
----------- -------------
96,315.70 232,472.00
------------- -------------
Total 111-01 96,315.70 232,472.00 136,156.30 58.57
------------- ------------- ---------- -----
------------- ------------- ---------- -----
Nissan (HRIS) 112-01 Accrued Sub-Contractor Fees 12,962.50
H.R.- Consulting Fees 34,290.00
Sub-Contract Fees 51,347.50
----------- -------------
64,310.00 34,290.00
------------- -------------
Total 112-01 64,310.00 34,290.00 -30,020.00 -87.55
------------- ------------- ----------- ------
------------- ------------- ----------- ------
APS (HRIS) 113-01 H.R.- Consulting Fees 75,220.00
Salaries & Wages - Billable 27,265.48
Travel & Related Expense 2,708.31
Telephone Expense 126.56
Postage/Shipping Expense 39.00
Employee Incentive 42.78
----------- -------------
30,182.13 75,220.00
------------- -------------
Total 113-01 30,182.13 75,220.00 45,037.87 59.87
------------- ------------- --------- ------
------------- ------------- --------- ------
APS (Financials) 113-02 Fin. - Consulting Fees 37,100.00
Salaries & Wages - Billable 11,298.62
Travel & Related Expense 439.20
----------- -------------
11,737.82 37,100.00
------------- -------------
Total 113-02 11,737.82 37,100.00 25,362.18 63.36
------------- ------------- --------- ------
------------- ------------- --------- ------
Ameritech (Financials) 115-02 Fin. - Consulting Fees 19,920.00
Salaries & Wages - Billable 8,910.00
----------- -------------
8,910.00 19,920.00
------------- -------------
Total 115-02 8,910.00 19,920.00 11,010.00 55.27
------------- ------------- --------- ------
------------- ------------- --------- ------
</TABLE>
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY Page 2
JOB PROFITABILITY REPORT
For the Period From Jan 1, 1998 to Jul 31, 1998
Filter Criteria includes: 1) IDs from 103-01 to NB-500. Report order is by ID.
Report is printed Summarized by GL Account.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Job Description Job ID GL Acct Description Actual Exp. Exp. Totals Rev. Totals Profit $ Profit
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sunglass (HRIS) 116-01 H.R.- Consulting Fees 47,085.00
Salaries & Wages - Billable 18,441.50
----------- -------------
18,441.50 47,085.00
------------- -------------
Total 116-01 18,441.50 47,085.00 28,643.50 60.83
------------- ------------- --------- ------
------------- ------------- --------- ------
Uni-Health (HRIS) 118-01 H.R.- Consulting Fees 80,080.00
Salaries & Wages - Billable 54,087.39
Travel & Related Expense 18.39
Sub-Contract Fees 229.80
----------- -------------
54,335.58 80,080.00
------------- -------------
Total 118-01 54,335.58 80,080.00 25,744.42 32.15
------------- ------------- --------- ------
------------- ------------- --------- ------
SCE (HRIS) 119-01 H.R.- Consulting Fees 967,565.30
Salaries & Wages - Billable 313,870.47
Sal. & Wages - Non Billable 7,946.40
Travel & Related Expense 8,487.83
Telephone Expense 75.24
Sub-Contract Fees 37,196.92
Entertainment Expenses 48.40
Seminars & Education 3,150.00
----------- -------------
370,775.26 967,565.30
------------- -------------
Total 119-01 370,775.26 967,565.30 596,790.04 61.68
------------- ------------- --------- ------
------------- ------------- --------- ------
Vincam (HRIS) 122-01 H.R.- Consulting Fees 224,050.00
Salaries & Wages - Billable 76,277.47
Travel & Related Expense 93.00
Client Promotion 325.86
----------- -------------
76,696.33 224,050.00
------------- -------------
Total 122-01 76,696.33 224,050.00 147,353.67 65.77
------------- ------------- --------- ------
------------- ------------- --------- ------
Remedy (HRIS) 123-01 H.R.- Consulting Fees 189,880.00
Salaries & Wages - Billable 100,327.98
Travel & Related Expense 182.00
Entertainment Expenses 279.70
----------- -------------
100,789.68 189,880.00
------------- -------------
Total 123-01 100,789.68 189,880.00 89,090.32 46.92
------------- ------------- --------- ------
------------- ------------- --------- ------
Hambrecht & 126-01 H.R.- Consulting Fees 14,010.00
Quist (HRIS) Salaries & Wages - Billable 2,201.88
Travel & Related Expense 47.50
----------- -------------
2,249.38 14,010.00
------------- -------------
Total 126-01 2,249.38 14,010.00 11,760.62 83.94
------------- ------------- --------- ------
------------- ------------- --------- ------
Fourth Tier (HRIS) 127-01 H.R.- Consulting Fees 11,432.50
Salaries & Wages - Billable 1,910.51
Travel & Related Expense 115.20
----------- -------------
2,025.71 11,432.50
------------- -------------
Total 127-01 2,025.71 11,432.50 9,406.79 82.28
------------- ------------- --------- ------
------------- ------------- --------- ------
</TABLE>
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY Page 3
JOB PROFITABILITY REPORT
For the Period From Jan 1, 1998 to Jul 31, 1998
Filter Criteria includes: 1) IDs from 103-01 to NB-500. Report order is by ID.
Report is printed Summarized by GL Account.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Job Description Job ID GL Acct Description Actual Exp. Exp. Totals Rev. Totals Profit $ Profit
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Rural Metro (HRIS) 128-01 H.R.- Consulting Fees 67,080.00
Salaries & Wages - Billable 18,939.25
Travel & Related Expense 293.00
Telephone Expense 339.24
----------- -------------
19,571.49 67,080.00
------------- -------------
Total 128-01 19,571.49 67,080.00 47,508.51 70.82
------------- ------------- --------- ------
------------- ------------- --------- ------
Mission Energy (HRIS) 129-01 H.R.- Consulting Fees 6,560.00
Salaries & Wages - Billable 1,570.83
----------- -------------
1,570.83 6,560.00
------------- -------------
Total 129-01 1,570.83 6,560.00 4,989.17 76.05
------------- ------------- --------- ------
------------- ------------- --------- ------
DFS (HRIS) 130-01 H.R.- Consulting Fees 239,450.00
Salaries & Wages - Billable 105,925.25
Travel & Related Expense 64.18
Telephone Expense 29.38
Entertainment Expenses 130.94
Employee Incentive 102.15
----------- -------------
106,251.90 239,450.00
------------- -------------
Total 130-01 106,251.90 239,450.00 133,198.10 55.63
------------- ------------- --------- ------
------------- ------------- --------- ------
DFS Offsite (HRIS) 130-03 H.R.- Consulting Fees 139,040.00
Salaries & Wages - Billable 29,790.71
Sub-Contract Fees 48,950.00
----------- -------------
78,740.77 139,040.00
------------- -------------
Total 130-03 78,740.77 139,040.00 60,299.23 43.37
------------- ------------- --------- ------
------------- ------------- --------- ------
PeopleSoft CA 132-02 Fin. - Consulting Fees 104,760.00
(Financial Salaries & Wages - Billable 34,559.66
Travel & Related Expense 2,969.60
Entertainment Expenses 227.79
----------- -------------
37,757.05 104,760.00
------------- -------------
Total 132-02 37,757.05 104,760.00 67,002.95 63.96
------------- ------------- --------- ------
------------- ------------- --------- ------
ISI (Financials) 133-02 Fin. - Consulting Fees 127,320.00
Salaries & Wages - Billable 38,485.18
----------- -------------
38,485.18 127,320.00
------------- -------------
Total 133-02 38,485.18 127,320.00 88,834.82 69.77
------------- ------------- --------- ------
------------- ------------- --------- ------
Kaiser (HRIS) 134-01 H.R.- Consulting Fees 221,652.50
Salaries & Wages - Billable 25,347.40
Sub-Contract Fees 105,505.00
Entertainment Expenses 215.16
H.R.- Consulting Fees 35,680.00
Salaries & Wages - Billable 14,561.02
----------- -------------
145,628.58 257,332.50
------------- -------------
Total 134-01 145,628.58 257,332.50 111,703.92 43.41
------------- ------------- --------- ------
------------- ------------- --------- ------
</TABLE>
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY Page 4
JOB PROFITABILITY REPORT
For the Period From Jan 1, 1998 to Jul 31, 1998
Filter Criteria includes: 1) IDs from 103-01 to NB-500. Report order is by ID.
Report is printed Summarized by GL Account.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Job Description Job ID GL Acct Description Actual Exp. Exp. Totals Rev. Totals Profit $ Profit
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SHL System House (Fin) 135-02 Fin. - Consulting Fees 91,500.00
Salaries & Wages - Billable 29,458.65
----------- -------------
29,458.65 91,500.00
------------- -------------
Total 135-02 29,458.65 91,500.00 62,041.35 67.80
------------- ------------- --------- ------
------------- ------------- --------- ------
MBR Subcontrator 136-05 Sales From Other Region 4,732.48
----------- -------------
4,732.48
------------- -------------
Total 136-05 4,732.48 4,732.48 100.00
------------- ------------- --------- ------
------------- ------------- --------- ------
Hewitt Associates 137-01 Salaries & Wages - Billable 14,842.92
----------- -------------
14,842.92
------------- -------------
Total 137-01 14,842.92 -14,842.92
------------- ------------- --------- ------
------------- ------------- --------- ------
Hewitt Associates 137-02 Fin. - Consulting Fees 66,375.00
----------- -------------
66,375.00
------------- -------------
Total 137-02 66,375.00 66,375.00 100.00
------------- ------------- --------- ------
------------- ------------- --------- ------
PeopleSoft/USI 138-02 Fin. - Consulting Fees 6,400.00
Salaries & Wages - Billable 1,730.80
Travel & Related Expense 334.00
----------- -------------
2,064.80 6,400.00
------------- -------------
Total 138-02 2,064.80 6,400.00 4,335.20 67.74
------------- ------------- --------- ------
------------- ------------- --------- ------
Consumer HR 139-01 Fin. - Consulting Fees 11,502.00
Salaries & Wages - Billable 3,044.84
----------- -------------
3,044.84 11,502.00
------------- -------------
Total 139-01 3,044.84 11,502.00 8,457.16 73.53
------------- ------------- --------- ------
------------- ------------- --------- ------
Western Sales Office NB- Sal Employee Advances -1,778.58
Travel & Related Expense 2,120.99
Telephone Expense 1,124.30
Pager Expense 487.08
Data Processing 268.98
Postage/Shipping Expense 51.00
Office Supplies 1,067.20
Entertainment Expense 284.27
Internet Fees 141.66
Seminars & Education 250.00
Travel & Related Expense 74.52
Entertainment Expenses 57.30
Travel & Related Expense 644.62
Entertainment Expense 165.15
Travel & Related Expense 2,530.13
Entertainment Expense 76.42
----------- -------------
7,565.04
------------- -------------
Total NB- Sal 7,565.04 -7,565.04
------------- -------------
------------- -------------
</TABLE>
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY Page 5
JOB PROFITABILITY REPORT
For the Period From Jan 1, 1998 to Jul 31, 1998
Filter Criteria includes: 1) IDs from 103-01 to NB-500. Report order is by ID.
Report is printed Summarized by GL Account.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Job Description Job ID GL Acct Description Actual Exp. Exp. Totals Rev. Totals Profit $ Profit
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Western Region NB-200 Salaries & Wages - Billable 87,940.81
Travel & Related Expense 567.00
Telephone Expense 112.08
Data Processing 216.00
Postage/Shipping Expense 52.95
Office Supplies 14.83
Sub-Contract Fees 6,490.00
Entertainment Expenses 469.11
Internet Fees 39.95
Parking 3.30
Salaries & Wages - Billable 344.20
----------- -------------
96,250.23
------------- -------------
Total NB-2OO 96,250.23 -96,250.23
------------- ------------- -----------
Midwest Region NB-300 Salaries & Wages - Billable 14,973.46
Sal. & Wages - Non Billable 16,766.67
Travel & Related Expense 831.44
Telephone Expense 200.00
----------- -------------
32,771.57
------------- -------------
Total NB-300 32,771.57 -32,771.57
------------- ------------- -----------
------------- ------------- -----------
South Region NB-5OO Salaries & Wages - Billable 20,570.53
Travel & Related Expense 1,090.00
----------- -------------
21,660.53
------------- -------------
Total NB-500 21,660.53 -21,660.53
------------- ------------- -----------
------------- ------------- -----------
Total Report 1,530,047.25 3,203,558.87 1,673,511.62 52.24
------------- ------------- ----------- ------
------------- ------------- ----------- ------
</TABLE>
<PAGE>
SCHEDULE 4.12
Listing of the Acquired Companies' Current Government Contracts
None
<PAGE>
SCHEDULE 4.14(C)
PATENT REGISTRATION & TRADEMARKS
List of Patent Registration issued to each of the Acquired Companies
Not Applicable
List of each license, agreement or other permission granted to any third party
by any of the Acquired Companies
Not Applicable
List of Trade Names or Unregistered trademarks used by each of the
Acquired Companies
IIT
International Information Technology
Facsimile of IIT Logo:
[LOGO OMITTED]
<PAGE>
SCHEDULE 4.14(D)
Intellectual Property of third parties used by Acquired Companies
pursuant to License, Sublicense, Agreement or permission
1) PeopleSoft Software License
2) Various copies of Microsoft Applications Software Licenses (MS Office
97, etc.)
3) Various copies of Visio Software
4) Various copies of other "shrink-wrapped" software typically used by the
employees of the Acquired Companies such as anti-virus, Windows,
backup, etc.
<PAGE>
SCHEDULE 4.15
The three Corporate Office Leases described in Schedule 4.11
<PAGE>
SCHEDULE 4.17
EMPLOYEE BENEFIT PLANS
(c) Representations
(i) Pension Plans
(A) The company's profit sharing & 401(K) plan are subject to ERISA.
(C) The company did not receive an IRS determination. The company's profit
sharing & 401(K) plan used a standard plan under the carrier AETNA.
(E) None
Welfare Plans
(c) To be determined.
<PAGE>
SCHEDULE 4.21
TAX RETURNS
IIT, Inc.
1994-1997 - Federal Income Tax Returns
1994-1997 - State of California Income Returns
1997 - State of Florida Income Tax Returns
<PAGE>
SCHEDULE 4.23
LICENSES, PERMITS AND AUTHORIZATIONS
1) City of Coral Gables Occupational License for International Information
Technology, Inc.
2) Illinois Certificate of Authority for International Information
Technology, Inc.
3) City of Newport Beach Business Tax Certificate for International
Information Technology, Inc.
<PAGE>
Exhibit 10.16
OUTSOURCER ALLIANCE AGREEMENT
WITH
USINTERNETWORKING, INC.
This Outsourcer Alliance Agreement ("Agreement") is made as of the Effective
Date by and between PeopleSoft USA, Inc., a California corporation having
its principal place of business at 4305 Hacienda Drive, Pleasanton, CA 94588
("PeopleSoft") and USINTERNETWORKING, INC., a Delaware corporation having its
principal place of business at One USI Plaza, Annapolis, MD 21401-7478
("Service Provider"). This Agreement shall delete and supersede in their
entirety all prior contractual provisions or understandings between the
parties relating to any service bureau arrangements or any of the subject
matter relating to Outsourcing Services contemplated by this Agreement
excluding the customers of Service Provider listed on Schedule A attached
hereto; PROVIDED, HOWEVER, this this Agreement shall not have any effect upon
any contractual provisions relating to the status of Service Provider as a
Select Partner pursuant to that certain Select Partner Agreement dated as of
June 30, 1998 by and between the parties.
Whereas, the parties intend to develop a business relationship to provide
Service Provider with rights to leverage its expertise in the outsourcing
service business by hosting the Software to provide a solution within its
outsourcing business by offering the Software under sublicense as provided in
this Agreement as part of an integrated solution (the "Solution Offering");
and
Whereas, in every situation with a Designated Customer, the Designated
Customer will procure, or will have procured, either a license to use the
Software from Service Provider pursuant to a Sublicense Agreement with
payment of applicable fees indirectly to PeopleSoft, or directly from
PeopleSoft pursuant to a PeopleSoft License Agreement with payment of
applicable fees directly to PeopleSoft. Therefore, the parties agree as
follows:
1. DEFINITIONS
"APPLICATION MANAGEMENT" ("AM") means Service Provider's management of
Software for a Designated Customer on Service Provider's owned, leased, or
subcontracted for premises or premises otherwise under Service Provider's
control, such that Service Provider manages the Designated Customer's
Software, applications upgrades, performs routine maintenance, applies fixes,
performance tuning, and system enhancements, using PeopleTools, and other
functions typically performed by an in-house function and IT staff. These
services may also include the performance of such functions as DBA and OS
administration, in connection with the Software and business processes
supported by the Software. For the avoidance of doubt, Applications
Management shall not include Business Process Outsourcing.
"BUSINESS PROCESS OUTSOURCING" ("BPO") includes the functions typically
performed by staff in, for example, human resources or payroll department,
an accounting department, or
- --------------
[CONFIDENTIAL TREATMENT] means that certain confidential information has been
deleted from this document and filed separately with the Securities and
Exchange Commission.
<PAGE>
purchasing department, on a daily basis, adding, changing, deleting, or
viewing data. BPO displaces performance of this work by the Designated
Customer to premises owned or leased by Service Provider or under Service
Provider's control within a multi-client service center such that the
Designated Customers share a common infrastructure and support staff and the
Service Provider is responsible for maintenance and management of the
systems, processes, and staff using the Service Provider's systems.
"COMMERCIAL ENTERPRISE" means all enterprises within the Market Segments,
with the exception of enterprises in the higher education and government
(public sector and federal) segments where only a right of first refusal to a
third party is in effect.
"DESIGNATED CUSTOMER(S)" means only End Users which, at the date of
execution of an Outsourcing Agreement with Service Provider, is a Commercial
Enterprise.
"DEVELOPMENT CENTER" means the location(s) of facilities owned, leased,
subcontracted for, or otherwise under Service Provider's control where
Service Provider uses or utilizes the Software pursuant to the subsections
entitled INTERNAL USE LICENSE or DEVELOPMENT LICENSE.
"DOCUMENTATION" means the user guides and manuals for installation and use of
the Software in CD-ROM and bound hard copy form.
"EFFECTIVE DATE" means September 28, 1998.
"END USER" means a third party sublicensee of the Software that acquires
rights from PeopleSoft either through a sublicense from Service Provider
pursuant to section 2(f) hereof or from PeopleSoft directly, to use the
Software solely for such party's own internal business purposes and not for
distribution, further sublicensing, or other commercial purposes.
"FEES" means the Software license fee and any all other fees including, but
not limited to, implementation fees (including fit analysis, data conversion,
minor customizations, testing, reports, interfaces and any and all other
actions necessary to migrate an End User to a production environment),
infrastructure (including, but not limited to, the operations, the
connectivity, the database and the hardware), Software Maintenance and
Support and On-going fees (including, but not limited to, the application of
fixes, enhancements, releases, upgrades, call center support, and
database/performance tuning) received by Service Provider for the provision
of Outsourcing Services or Solution Offering, as the case may be.
"INTELLECTUAL PROPERTY RIGHTS" means any patent, patent application,
copyright, moral right, trade name, trademark, trade secret, copyright, and
any applications or right to apply for registration therefor, know-how, mask
work, schematics, computer software programs or applications, tangible or
intangible proprietary information, or any other intellectual property right
or proprietary information or technology, whether registered or unregistered
and whether first made or created before or after the Effective Date.
<PAGE>
"MARKET SEGMENTS" are limited under this agreement to all industries in the
Territory, with the exception of [CONFIDENTIAL TREATMENT] where only
[CONFIDENTIAL TREATMENT] is in effect.
"OUTSOURCING AGREEMENT" means a separate agreement between Service Provider and
a Designated Customer for the provision by Service Provider to the Designated
Customer of Outsourcing Services, which includes a Sublicense Agreement or
PeopleSoft License Agreement.
"OUTSOURCING CENTER" means the location(s) under Service Provider's control,
owned, leased, subcontracted for or otherwise, at which Service Provider may
perform Outsourcing Services.
"OUTSOURCING SERVICES" means the provision of Applications Management (AM)
services to a Designated Customer.
"PEOPLESOFT LICENSE AGREEMENT" means a written agreement between PeopleSoft and
an End User whereby the End User has been granted the non-exclusive,
non-transferable right to use the Software solely for such End User's internal
business purposes and in accordance with the Documentation. A PeopleSoft
License Agreement can be a binding agreement which commenced operation before
the Effective Date or PeopleSoft's pro forma standard End User license and
services agreement which is executed by an End User after the Effective Date.
"PRICE LIST" means Peoplesoft's standard commercial fee schedule that is in
effect when a software sublicense is ordered by the Designated Customer.
"SOFTWARE" means the current release or version of any and all commercially
available PeopleSoft HRMS, Financial, and Distribution and any other PeopleSoft
commercially available software programs and products, and includes updated or
enhanced versions of such programs that PeopleSoft may provide to a Designated
Customer or End User. Software does not include any third party software.
Software includes Documentation.
"SUBLICENSE" means a non-exclusive, a non-transferable right granted by
Service Provider under a Sublicense Addendum to a Designated Customer or End
User, as the case may be, to use the Software solely for such Designated
Customer's or End User's internal business purposes, in accordance with the
Documentation, and pursuant to a Sublicense Agreement.
"SUBLICENSE ADDENDUM" shall mean an addendum to this Agreement specifying
additional Sublicense terms and Sublicense rates and fees for the various types
of Sublicenses which may be granted by Service Provider.
"SUBLICENSE AGREEMENT" means a written agreement between Service Provider and
an End User whereby a Sublicense is granted, and that complies with the
provisions of Section 2(f) ("Sublicense Agreement").
<PAGE>
"SUPPORT SERVICES" means PeopleSoft's then current technical support services
for Service Provider. A statement of Support Services offered as of the
Effective Date is attached hereto as Exhibit B.
"TERRITORY" means [CONFIDENTIAL TREATMENT].
<PAGE>
2. LICENSE GRANTS
(a) INTERNAL USE LICENSE.
Subject to the terms and conditions of this Agreement (including Service
Provider's obligation to pay the fees), PeopleSoft grants to Service Provider a
worldwide, royalty-free, non-exclusive, non-transferable license during the term
of this Agreement to use and display the Software only for the following
non-production, marketing purposes in connection with the Outsourcing Services
contemplated hereby; demonstrations; technical promotion activities; and
internal education and training of employees of Service Provider. Service
Provider may copy and distribute and/or electronically distribute the Software
within Service Provider for the purposes set forth in this subsection. Service
Provider shall reproduce all titles, trademarks, and copyright and restricted
rights notices in the Software in all such copies. Except as set forth above,
Service Provider may not transfer or duplicate the Software under this grant
except for (i) temporary transfer in the event of a CPU malfunction and (ii) a
single backup and archival copy. With the exception of the limited and
restricted use license granted pursuant to this section, all other terms and
conditions of PeopleSoft's License Agreement shall govern and apply.
(b) DEVELOPMENT LICENSE.
Subject to the terms and conditions of this Agreement (including Service
Provider's obligation to pay the fees), PeopleSoft hereby grants to Service
Provider a worldwide, non-exclusive, non-transferable license during the term of
this Agreement to use the Software at one (1) Development Center per development
license for the sole purpose of providing Software development, customization
and integration services for (i) a Designated Customer or (ii) End Users who
have already entered into (a) a PeopleSoft License Agreement, and (b) a
maintenance and support agreement with PeopleSoft.
(c) OUTSOURCING SERVICES LICENSE.
Subject to the terms and conditions of this Agreement (including Service
Provider's obligation to pay the fees). PeopleSoft hereby grants to Service
Provider a worldwide, non-exclusive, non-transferable restricted license during
the term of this Agreement to use the Software solely to perform the Outsourcing
Services at at Outsourcing Center. Service Provider may copy, distribute and/or
electronically distribute the Software within Service Provider for the purposes
set forth in this subsection. Service Provider shall reproduce all titles,
trademarks, and copyright and restricted rights notices in the Software in all
such copies. Except as set forth above, Service Provider may not transfer or
duplicate the Software except for (i) temporary transfer in the event of a CPU
malfunction and (ii) a single backup and archival copy. Except as set forth
above, Service Provider will not use the Software licensed under this grant for
the processing of Service Provider's internal administrative data. If Service
Provider wishes to use the Software licensed under this grant for the processing
of Service Provider's internal administrative data. Service Provider may do so
only at PeopleSoft's then current Price List rates. Service Provider will not
allow any third party, including an employee or other representative of a
Designated Customer, to use the Software Product under this license grant.
Service Provider further agrees to use the Software only in accordance with the
Documentation, on a computer and operating system.
<PAGE>
configuration specified in the Documentation and in accordance with the
obligations imposed by this Agreement. Service Provider warrants to
PeopleSoft that it will perform the Outsourcing Services with due care and
skill and in accordance with generally accepted professional standards for
providing similar services. Service Provider will not disclose or publish to
any third party any results of benchmark tests run on the Software.
(d) RESTRICTIONS ON USE.
Service Provider agrees not to translate the Software into another computer
language, in whole or in part. Except as set forth above, Service Provider
shall not make copies or make media translations of the Software or the
Documentation, in whole or in part without PeopleSoft's prior written
approval. Service Provider agrees that if, for any reason, it comes into
possession of any Software source code, or portion thereof, for any
PeopleSoft product, which it knows or reasonably should know is source code
not generally provided by PeopleSoft as a part of the Software or provided
under the terms of a license grant in this Agreement, it will immediately
deliver all copies of such source code to PeopleSoft. Except as specifically
provided in this Agreement, Service Provider shall not (i) rent,
electronically distribute or timeshare the Software; or (ii) distribute the
Software including without limitation by interactive cable or remote
processing service. Service Provider acknowledges PeopleSoft's representation
that the Software and its structure, organization and source code constitute
valuable trade secrets that belong to PeopleSoft. Service Provider agrees
that it shall not reverse compile, disassemble or otherwise reverse engineer
the Software and that it shall not use the Software or Documentation except
as expressly permitted by this Agreement.
(e) MARKETING AS PART OF OUTSOURCING SERVICES
PeopleSoft hereby grants to Service Provider the non-exclusive,
nontransferable right to co-market the Software with PeopleSoft to End Users
solely as part of Service Provider's provision of Outsourcing Services.
Within this context, co-marketing does NOT mean that Service Provider will
have any rights to distribute, ship, Sublicense or otherwise convey any
rights or interest to any third party to use the Software except as otherwise
expressly set forth in this Agreement.
(f) SUBLICENSE TRANSACTIONS.
(1) SUBLICENSE RIGHT. As further set forth in the applicable Sublicense
Addendum and subject to the terms and conditions of this Agreement
(including Service Provider's obligation to pay the Fees), PeopleSoft
hereby grants to Service Provider a worldwide, non-exclusive, non-
transferable license during the term of this Agreement to market and grant
Sublicenses to the Software to a sublicensee (the "Sublicensee") as set
forth in such Sublicense Addendum and at the rates and fees set forth
therein ("Sublicense Transaction"). Service Provider shall only have the
right to Sublicense the Software pursuant to an effective Sublicense
Addendum between the parties hereto. PeopleSoft shall have sole authority
to set any and all rates and fees, including, but not limited to, pricing
of the Software and maintenance fees, in any Sublicense Addendum for any
Sublicense Transaction. PeopleSoft reserves the right to amend any
Sublicense Addendum as PeopleSoft, in its sole discretion, deems
reasonably necessary in the event
<PAGE>
of, inter alia, price increases for the Software or Designated User or End
User growth pursuant to PeopleSoft's then-current growth methodology.
PeopleSoft shall make available to, and Service Provider shall notify any
Sublicensee of, a migration option such that in the event that a
Sublicensee migrates from sublicensing Software from Service Provider at
the end of the term of the relevant Sublicense Agreement to licensing
Software directly from PeopleSoft pursuant to a perpetual PeopleSoft
License Agreement, such Sublicensee shall be entitled to a [CONFIDENTIAL
TREATMENT] discount from PeopleSoft's then-current license fees pursuant to
such PeopleSoft License Agreement.
(2) SUBLICENSE AGREEMENT. Service Provider shall Sublicense the Software
solely through a written Sublicense Agreement substantially in the form
of the Alliance Partner License Agreement to be provided by PeopleSoft
after the Effective Date ______; PROVIDED, HOWEVER, that in no instance
shall Service Provider execute and enter into any Sublicense Agreement
unless and until PeopleSoft has given its prior written consent to the
final draft of such proposed Sublicense Agreement. In the event that
Service Provider enters into any Sublicense Agreement in a form not
expressly consented to by PeopleSoft pursuant to the terms of this
subsection, such Sublicense Agreement shall be void AB INITIO.
3. TECHNICAL SERVICES
(a) SOFTWARE INSTALLATION.
PeopleSoft shall install the Software at a single authorized Service
Provider Outsourcing Center, at the prevailing rates for installations
taking up to five days. Under any other circumstance, installation will be at
PeopleSoft's then current standard commercial time and materials hourly or
daily rates.
(b) TRAINING.
PeopleSoft to provide Software training to Service Provider at a PeopleSoft
training center on a mutually agreeable date(s) during the first calendar year
after the Effective Date at Peoplesoft's prevailing rates. A training unit is
equivalent to one eight-hour day of training. At the Designated Customer's
request, Software training for the Designated Customer will be provided as
part of the implementation by either Service Provider, a third party, or
PeopleSoft at their respective then-current prevailing rates.
(c) IMPLEMENTATION.
Service Provider shall be responsible for the Designated Customer's Software
implementation efforts. Service Provider may choose to subcontract some or
all of the implementation to PeopleSoft but in that event, PeopleSoft, as a
subcontractor, shall be contractually obligated only to Service Provider
pursuant to the terms of the relevant subcontract, and not to any third party
and PeopleSoft's fees for such subcontract shall not be Fees as defined above
in Section 1.
(d) SUPPORT SERVICES.
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Service Provider will provide Designated Customers with the first level of
Support Services to the Designated Customers. At no additional fee to Service
Provider, PeopleSoft will provide Service Provider with Support Services and
account management as outlined in Exhibit B.
(e) CONSULTING
Service Provider will provide ongoing consulting to Designated Customers
which will include the application of Software fixes and upgrades.
(f) INCIDENTAL EXPENSES
For any on-site services requested by Service Provider, Service Provider
shall reimburse PeopleSoft for actual, reasonable travel and out-of-pocket
expenses incurred; PROVIDED, HOWEVER, that any expenses over one
thousand U.S. dollars ($1,000.00) will require the prior written approval of
Service Provider, which prior written approval shall not be unreasonably
withheld.
4. DELIVERY
All Software and Documentation for which delivery from PeopleSoft is required
under this Agreement shall be shipped by PeopleSoft FOB Peoplesoft's
manufacturing facility. Software and Documentation will be deemed accepted
upon shipment by PeopleSoft.
5. TERMS
(a) LICENSE FEES.
Service Provider shall pay Peoplesoft the applicable fees as set forth in
Exhibit A.
(b) REPORTING.
Within ten (10) days after the end of each month, Service Provider shall
provide PeopleSoft with a written report in a form reasonably acceptable to
Peoplesoft within a reasonable time after the Effective Date. Such reports
shall, at a minimum, contain information detailing (i) the number of
Development Centers and the location of each; (ii) the name, location and
number of employees for each Designated Customer and the location of the
Outsourcing Center for each such Designated Customer; and (iii) all other
information needed to calculate and verify the Fees owed to PeopleSoft during
such reporting period, broken down by month, product breakdown and on a
cumulative basis.
(c) INVOICING.
All invoiced fees shall be due and payable within thirty (30) days of receipt
of an invoice and shall be made without deductions based on any taxes or
withholdings, except where such deduction is based on PeopleSoft's net income.
<PAGE>
(d) PAYMENTS
All payments made by Service Provider shall be in United States Dollars and
directed to:
Lockbox or Wire Instructions:
(e) OVERDUE AMOUNTS AND TAXES.
Any amounts not paid within thirty (30) days of the due date will be subject
to interest of the lower of the prime rate as published by Bank of America,
NT &SA (or successor) or twelve per cent (12%) p.a. compounded quarterly,
which interest will be immediately due and payable from the due date for
payment until the date of actual receipt of the amount in cleared funds by
PeopleSoft. In addition to any other payments due under this Agreement,
Service Provider agrees to pay, indemnify and hold Peoplesoft harmless from,
any sales, use, excise, import or export, value added or similar tax or duty,
and any other tax not based on PeopleSoft's net income, including penalties
and interest and all government permit fees, license fees, customs fees and
similar fees levied upon the delivery of the Software or other deliverables
which PeopleSoft may incur in respect of this Agreement, and any costs
associated with the collection or withholding of any of the foregoing items.
(f) NEW VERSIONS.
PeopleSoft may, at its sole discretion, modify the Software. For purposes of
this Agreement, PeopleSoft shall have sole discretion as to whether a product
is deemed to be a new version of an existing Software program to be provided
to Service Provider under the terms of this Agreement, or a new product. Once
a new version of an existing Software program begins shipping, Service
Provider shall return to PeopleSoft, at Service Provider's expense, copies of
the prior version of the Software in Service Provider's inventory that were
replaced by PeopleSoft's new version installed within thirty (30) days from
the later of the first PeopleSoft shipment date of the new version to Service
Provider and the written notification date; PROVIDED, HOWEVER that
if any Designated Customers express the intent not to migrate to the new
version within such thirty (30) day time period, then Service Provider shall
not be so obligated by the foregoing and shall return such prior version
within thirty (30) days from the date PeopleSoft ceases it support of said
prior version.
<PAGE>
6. MARKETING OBLIGATIONS.
(a) PARTIES OBLIGATIONS.
(1) PeopleSoft and Service Provider shall use their best efforts to promote,
market and offer Outsourcing Services to potential Designated Customers.
(2) Service Provider shall (i) promptly refer all Software sales leads to
PeopleSoft's designated sales contact, and (ii) provide to PeopleSoft upon
execution of this Agreement, and thereafter on each anniversary date of
this Agreement, a business plan for the ensuing year containing at least
the minimum information specified in the initial business plan.
(b) JOINT MARKETING OBLIGATIONS.
(1) JOINT MARKETING. PeopleSoft and Service Provider will cooperate and
jointly invest in the marketing of the Software only for use in conjunction
with Outsourcing Services pursuant to the joint business plan adopted by
the parties within sixty (60) days of the Effective Date, including but not
limited to (a) prospecting, mailings, telemarketing, seminars, user group
meetings and trade show events, (b) joint account strategy development, and
(c) joint proposal development. Each Party shall allow the other to review
all announcements, press releases, marketing materials and product brochures
pertaining to the others products prior to their release to the public or
the press, and shall incorporate all changes that the other may reasonably
request to ensure correct usage of their trademarks and accuracy of content.
A party's failure to respond to the submission of material for approval
with any recommended changes within three (3) business days shall be an
approval of the material submitted.
(2) CO-MARKETING. Each party will provide the other with information
necessary for a mailing to the other's customer base when requested and
at their own expense.
(3) MARKETING LIAISONS. PeopleSoft and Service Provider will each appoint an
individual to act as the representative for such party in respect to
each party (the "Marketing Liaisons"). Each Marketing Liaison will have
the authority to act for and on behalf of the party which appointed it
and to make binding decisions with respect to the marketing activities
described herein. The Marketing Liaisons will meet via telephone
conferences on an ongoing basis as may be necessary to discuss the status
and implementation of such marketing activities. The Marketing Liaisons
shall have authority for approval of any material submitted pursuant to
sub-section (b)(1), above of this Section 7.
(4) ALLIANCE GOVERNANCE. PeopleSoft and Service Provider agree to allocate
the appropriate resources for ensuring the success and constant improvement
of the strategic alliance. Components will include, but not be limited to:
(a) Equal representation from PeopleSoft and Service Provider management;
and
(b) Quarterly face-to-face reviews covering the following topics (at a
minimum): (1)
<PAGE>
Market Assessment; (2) Client Acquisition Progress; (3) Pricing
Evaluation and (4) Implementation Progress Review.
(c) USE OF TRADEMARKS.
(1) TRADEMARKS. PeopleSoft hereby grants to Service Provider and Service
Provider hereby grants to PeopleSoft a non-exclusive, limited license to
use the PeopleSoft and Service Provider trademarks respectively and the
PeopleSoft and Service Provider logo respectively and the other
applicable trademarks of each party (collectively, the "Trademarks" and
singularly the "PeopleSoft Trademarks" and the "Service Provider
Trademarks") solely on the Software and in advertising and printed
materials for the Software. Each party acknowledges that utilization of
the other parties' Trademarks will not create in it, nor will it
represent it has any right, title or interest in or to the other parties'
Trademarks. Each party acknowledges the other parties' exclusive
ownership or right to use of its own Trademarks and agrees not to do
anything to impair or dilute the other party's rights in its own
Trademarks. Each party agrees to display the acknowledgment of the other
party's trademark ownership of the Trademark clearly the first time it is
used in any advertising. Service Provider agrees to include the
PeopleSoft Trademarks on all copies, advertisements, brochures, manuals,
and other appropriate uses made in the promotion, license or use of the
Software.
(2) QUALITY. Each party agrees that the nature and quality of any products
or services it supplies in connection with the Trademarks shall conform to
the standards set by the owner of the Trademark. Each party agrees to
cooperate with the other party in facilitating monitoring and control of
the nature and quality of such products and services.
7. SERVICE PROVIDER OBLIGATIONS
(a) RECORDS.
Each party agrees to maintain a complete, clear and accurate record for at
least three (3) years relating to its use and marketing of the Software and
Documentation under this Agreement in accordance with generally accepted
accounting principles.
(b) AUDIT.
Service Provider shall permit PeopleSoft or persons designated by PeopleSoft
to inspect records pertaining to the Software and any other materials
provided to Service Provider by PeopleSoft to ensure compliance by Service
Provider with its obligations to PeopleSoft. Any such inspection and audit
shall be conducted upon at least five (5) days prior written notice and not
more frequently than annually, during regular business hours and in such a
manner as not to interfere with normal business activities of Service
Provider. If an audit reveals that Service Provider has underpaid Fees to
PeopleSoft, Service Provider shall be invoiced directly for such underpaid
Fees. If the underpaid Fees are in excess of five percent (5%), the Service
Provider shall pay
<PAGE>
PeopleSoft's reasonable costs of conducting the audit. If an audit reveals
that Service Provider has overpaid Fees to PeopleSoft, PeopleSoft shall
refund any overpayments within thirty (30) days. At PeopleSoft's written
request, not more frequently than annually, Service Provider shall furnish
PeopleSoft with a signed certification verifying that the Software and
Documentation are being used pursuant to the provisions of this Agreement and
applicable Purchase Orders.
(e) NOTIFICATION OR INFRINGEMENT.
Service Provider shall immediately inform Peoplesoft by telephone, telex or
facsimile, with written confirmation by mail, if it becomes aware of any
facts indicating that any person is infringing any Intellectual Property
Rights of PeopleSoft or is engaging in unauthorized distribution of any
Software or Documentation.
(d) COMPLIANCE WITH LAWS.
In exercising its rights and performing its obligations under this Agreement,
Service Provider will comply with all applicable international, national and
local laws and regulations. Service Provider further agrees not to violate
any provisions of the U.S. Foreign Corrupt Practices Act of 1977 as amended,
which generally prohibits the payment of moneys or anything of value to
government officials in order the obtain benefits from such government
officials or their governments. Without limiting the generality of the
foregoing, Service Provider will not use or re-export, or permit any person
to use or re-exports the Software or Documentation, without all required
licenses, and Service Provider will comply, and will require all of its
customers to comply, with all applicable export and import control laws.
Service Provider will defend, indemnify and hold harmless PeopleSoft and its
successors, agents, officers, directors and employees from and against any
violation of any laws or regulations by Service Provider or any of its
agents, officers, directors, employees or customers.
8. MODIFICATIONS
The parties agree and acknowledge, subject to PeopleSoft's underlying
proprietary rights, that Service Provider may create certain Software
modifications which have no cross-industry application and apply exclusively
to Service Provider's Designated Customer's internal business
("Modifications"). Any Modification developed solely by Service Provider
shall be the property of Service Provider. To the extent that Service
Provider desires to have PeopleSoft provide support for the term of this
Agreement for such Modification, Service Provider will promptly deliver to
PeopleSoft the source and object code versions of such Modification, and any
updates or further modifications thereto, and hereby grants PeopleSoft for
the term of this Agreement an irrevocable, worldwide, fully-paid,
royalty-free, non-exclusive, non-transferable license to use and to
distribute and sublicense, directly and indirectly, through multiple tiers of
sublicensees, such Modification. For any Modification developed by Service
Provider with the assistance of PeopleSoft or any modification developed by
Service Provider, with or without the assistance of PeopleSoft, which are not
Modifications, Service Provider will promptly deliver to PeopleSoft the
source and object code versions of such modification, and any updates or
further modifications thereto, and hereby grants PeopleSoft a perpetual,
irrevocable, worldwide, fully-paid, royalty-free, non-exclusive,
non-transferable license to use and to distribute and sublicense,
<PAGE>
directly and indirectly, through multiple tiers of sublicensees, such
modification. Any modification, including without limitation Modification
developed solely by PeopleSoft shall be the property of PeopleSoft.
9. OWNERSHIP OF INTELLECTUAL PROPERTY RIGHTS
Servicer Provider acknowledges that the structure, organization and code of
the Software are proprietary to PeopleSoft and that PeopleSoft retains
exclusive ownership of the Software, Documentation and Trademarks. Service
Provider will take reasonable measures to protect PeopleSoft's Intellectual
Property Rights in the Software, Documentation and Trademarks, including such
reasonable assistance and measures as are requested by PeopleSoft from time
to time at reasonable cost to Service Provider. Except as provided herein,
Service Provider is not granted any other Intellectual Property Rights, or
any other rights, franchises or licenses, with respect to the Software,
Documentation or Trademarks.
Except as provided in the Section entitled MODIFICATIONS, any intellectual
Property Rights developed by Service Provider in connection with the license
grants under this Agreement shall be owned by PeopleSoft, and therefore
Service Provider irrevocably assigns to PeopleSoft all right, title and
interest worldwide in and to such Intellectual Property Rights. If Service
Provider has any rights to such Intellectual Property Rights that cannot be
assigned to PeopleSoft, Service Provider unconditionally and irrevocably
waives the enforcement of such rights, and all claims and causes of action of
any kind against PeopleSoft with respect to such rights, and agrees, at
PeopleSoft's request and expense, to consent to and join in any action to
enforce such rights. If Service Provider has any rights to such Intellectual
Property Rights that cannot be assigned to PeopleSoft or waived by Service
Provider, Service Provider unconditionally and irrevocably grants to
PeopleSoft during the term of such rights, an exclusive, irrevocable,
perpetual, worldwide, fully paid and royalty-free license, with rights to
sublicense through multiple levels of sublicense, to reproduce, create
derivative works of, distribute, publicly perform and publicly display by all
means now known or later developed, such rights.
Service Provider shall indemnify and hold harmless PeopleSoft from and
against any suits, actions, losses, damages and other expenses arising out of
or in connection with any claim that any software modifications, as delivered
by Service Provider infringes or violates a U.S. patent, copyright,
trademark, trade secret or other proprietary right of any third party;
provided PeopleSoft promptly notifies Service Provider of such claim and
gives Service Provider sole control and all reasonable assistance in the
settlement of the claim. If PeopleSoft's use of the modifications is
prevented in any way by an injunction or court order because of any claim of
infringement or misappropriation, Service Provider shall, at its sole
expense, use reasonable commercial efforts to: (a) replace or modify such
software so that it is no longer subject to a claim of infringement; or (b)
procure for the benefit of PeopleSoft the right to use such software. Service
Provider shall have liability for the claim of infringement based only on the
percentage or portion the infringement claim is (or alleged to be)
attributable to such software.
10. CONFIDENTIALITY
<PAGE>
During the term of this Agreement, Service Provider and PeopleSoft may be
exposed to certain information, including know-how and trade secrets,
proposed new products and services, and/or the business or affairs which are
the confidential and proprietary information of the other party and not
generally known to the public (herein "Confidential Information"). The parties
agree that during and after the term of this Agreement, they will not use or
disclose any Confidential Information to any third party without the prior
written consent of the other party. The parties hereby consent to the
disclosure of its Confidential Information to the employees, contractors or
consultants of the other party as is reasonably necessary in order to allow
the other party to perform its obligations under this Agreement and to obtain
the benefits hereof, provided that each such employee, contractor or
consultant who will have access to any confidential Information has executed
a non-disclosure agreement which prohibits the unauthorized use or disclosure
of any such Confidential Information. This section shall not apply, or shall
cease to apply, to data and information supplied by a party if the other
party can establish that such data or information: (a) were already known to
it, (b) have come into the public domain without a breach of confidence by
that party, (c) were received by that party from a third party without
restrictions on their use in favor of the other party, or (d) are required to
be disclosed pursuant to any statutory or regulatory provision or court
order, provided, however, that the party provides notice thereof to the other
party, together with the statutory or regulatory provision, or court order,
on which such disclosure, is based, as soon as practicable prior to such
disclosure so that the other party has the opportunity to obtain a protective
order to take other protective measures as it may deem necessary with respect
to such information.
11. WARRANTY AND INDEMNITY
(a) SOFTWARE WARRANTY.
For each copy of Software that Service Provider licenses and receives Support
Services hereunder, PeopleSoft warrants to Service Provider that for a period
of one year from the date on which, such Software is shipped by PeopleSoft
that the Software, unless modified by Service Provider, will perform the
functions described in the associated Documentation in all material respects
when operated on a system which meets the requirements specified by
PeopleSoft in the Documentation. PeopleSoft will undertake to correct any
reported error condition in accordance with its technical support policies.
Provided that Service Provider gives PeopleSoft written notice of a breach of
the foregoing warranty during the warranty period, Service Provider sole and
exclusive remedy shall be for PeopleSoft to correct any reproducible errors
pursuant to the Support Services terms and conditions.
(b) MEDIA WARRANTY.
PeopleSoft warrants the tapes, diskettes or other media to be free of defects
in materials and workmanship under normal use for ninety (90) days from the
date of Software is shipped by PeopleSoft. In any breach of the foregoing
warranty, and provided that Service Provider gives written notice thereof
during the warranty period, Service Provider' sole and exclusive remedy shall
be to require PeopleSoft to replace defective media returned within such
warranty period.
<PAGE>
(c) SERVICES WARRANTY.
PeopleSoft warrants any services provided hereunder shall be performed in a
professional and workmanlike manner in accordance with generally accepted
industry practices. PeopleSoft's sole and exclusive obligation pursuant to
this warranty shall be to re-perform any work not in compliance with this
warranty that is brought to its attention by written notice within thirty
(30) days after such services are performed.
(d) DISCLAIMER OF WARRANTIES.
EXCEPT AS SET FORTH IN SECTIONS ENTITLED SOFTWARE WARRANTY, MEDIA WARRANTY,
SERVICES WARRANTY, ABOVE, PEOPLESOFT EXPRESSLY DISCLAIMS TO THE EXTENT
PERMITTED BY LAW ALL WARRANTIES, WHETHER EXPRESS, IMPLIED OR STATUTORY BY ANY
TERRITORY OR JURISDICTION, RELATING TO THE SOFTWARE, DOCUMENTATION OR RELATED
SERVICES AND FURTHER EXPRESSLY EXCLUDES TO THE EXTENT PERMITTED BY LAW ANY
WARRANTY OF NON-INFRINGEMENT, TITLE, FITNESS FOR A PARTICULAR PURPOSE OR
MERCHANT ABILITY.
PeopleSoft does not warrant that the Software will operate in combinations
other than as specified in the Documentation or that the operation of the
Software will be uninterrupted or error-free. Pre-production releases of
Software are distributed "AS IS."
(e) INDEMNITY.
Subject to the limitations set forth herein below, PeopleSoft shall indemnify
and defend Service Provider with respect to all claims, suits or proceedings
with respect to any claim that the Software, as designed and licensed to
Service Provider in furtherance of this Agreement, infringe upon any U.S. and
Canadian patent, trademark, copyright or other proprietary right; provided,
however, that Service Provider (i) notifies PeopleSoft in writing within ten
(10) days of the receipt of notice of such claim, suit or proceeding, (ii)
gives PeopleSoft the right to control and direct investigation, preparation,
defense and settlement of any claim, suit or proceeding; and (iii) gives
assistance and full cooperation for the defense of same and further provided
that PeopleSoft's liability with respect to third party software embedded in
the Software will be limited to the extent PeopleSoft is indemnified by such
third parties. PeopleSoft shall pay any resulting damages, costs and expenses
finally awarded to a third party but PeopleSoft is not liable for settlements
incurred by Service Provider without Peoplesoft's written authorization. If
such claim, suit or proceeding has occurred or, in PeopleSoft's opinion, is
likely to occur, PeopleSoft may, at its election and expense, either obtain
for Service Provider the right to continue distributing such allegedly
infringing Software or replace or modify the Software so it is not infringing.
(f) EXCLUSIONS.
The provisions of the foregoing indemnity shall not apply with respect to any
instances of alleged infringement based upon or arising out of the use of
such Software in any manner for which the Software were not designed, or for
use of Software for other than the uses and
<PAGE>
distributions designated by PeopleSoft, for use of any Software which has
been modified by Service Provider or any third party, or for use of any
Software in connection with or in combination with my equipment, devices or
software which have not been supplied by PeopleSoft, where such alleged
infringement would not have occurred but for the use of such Software in
connection with or in combination with such equipment devices or software.
Notwithstanding any other provisions hereof, the foregoing indemnity shall
not apply with respect to any infringement based on Service Provider's
activities occurring subsequent to its receipt of notice of any claimed
infringement unless PeopleSoft shall have given Service Provider written
permission to continue to market and distribute the allegedly infringing
Software.
(g) ENTIRE LIABILITY.
THE FOREGOING SECTIONS ENTITLED INDEMNITY AND EXCLUSIONS STATE THE SOLE AND
EXCLUSIVE REMEDY OF SERVICE PROVIDER AND THE ENTIRE LIABILITY AND OBLIGATION
OF PEOPLESOFT WITH RESPECT TO INFRINGEMENT OR CLAIMS OF INFRINGEMENT OF ANY
INTELLECTUAL PROPERTY RIGHT BY THE SOFTWARE, BUNDLED SOFTWARE, DOCUMENTATION,
RELATED SERVICES OR ANY PART THEREOF.
(h) LIMITATIONS AND DISCLAIMER.
Service Provider shall make no warranty, express or implied, on behalf of
PeopleSoft. Nothing contained in this Agreement shall prejudice the statutory
rights of any party dealing as a consumer.
(i) INDEMNITY BY SERVICE PROVIDER.
Service Provider agrees to indemnify and hold PeopleSoft harmless from any
claims, suits, proceedings, losses, liabilities, damages, costs and expenses
(inclusive of PeopleSoft's reasonable attorneys' fees) made against or
incurred by PeopleSoft as a result of negligence, misrepresentation, error or
omission on the part of Servicer Provider or representatives of Service
Provider. Service Provider shall be solely responsible for, and shall
indemnify and hold PeopleSoft harmless from, any claims, warranties or
representations made by Service Provider or Service Provider's employees or
agents that differ from the warranty provided by PeopleSoft in its End User
Agreement; provided, however, that PeopleSoft (i) notifies Service
Provider in writing within ten (10) days of such claim, suit or proceeding,
(ii) gives Service Provider the right to control and direct the
investigation, preparation, defense and settlement of any claim suit or
proceeding; and (iii) gives assistance and full co-operation for the
defense of same. Service Provider shall pay any resulting damages, costs and
expenses finally awarded to a third party but Service Provider is not liable
for settlements incurred by PeopleSoft without Service Provider's written
authorization.
12. TERM AND TERMINATION
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(a) TERM.
The term of this Agreement shall commence as of the Effective Date of this
Agreement and continue for a term [CONFIDENTIAL TREATMENT] unless sooner
terminated as set forth below. This Agreement shall be reviewed
[CONFIDENTIAL TREATMENT] by the parties. The [CONFIDENTIAL TREATMENT] shall
include such criteria as [CONFIDENTIAL TREATMENT] and a review of the
business terms herein. This Agreement will renew for successive
[CONFIDENTIAL TREATMENT] terms unless either party gives the other party
written notice of its intent to allow the Agreement to terminate at its
expiration. Such notice shall be given not less than [CONFIDENTIAL TREATMENT]
prior to the end of the Agreements' term.
(b) TERMINATION WITH CAUSE.
Any of the following shall constitute an event of default:
(1) Either party fails to perform any of its material obligations
under this Agreement and such failure remains uncured for
forth-five (45) days after receipt of written notice thereof; or
(1) Either party ceases to conduct business, becomes or is declared
insolvent or bankrupt, is the subject of any proceeding relating
to its liquidation or insolvency which is not dismissed within
ninety (90) days or makes an assignment for the benefit or its
creditors.
If an event of a default occurs, the non-defaulting party in addition to any
other rights available to it under law or equity, may withhold its
performance hereunder or may terminate this Agreement and the licenses
granted hereunder by written notice to the defaulting party. Unless otherwise
provided in this Agreement, remedies shall be cumulative and there shall be
no obligation to exercise a particular remedy.
(c) [CONFIDENTIAL TREATMENT]
Either party may terminate this agreement [CONFIDENTIAL TREATMENT] after
giving written notice of intent to so terminate to the other party.
(d) RIGHTS UPON TERMINATION.
Upon any termination of this Agreement by PeopleSoft pursuant to Section 12(b)
hereof, all Service Provider's rights to market Outsourcing Services, to use
the Software, and grant Sublicense Agreements and any and all other rights
as provided in this Agreement shall cease immediately. Upon termination of
this Agreement by Service Provider pursuant to Section 12(b) or Section 12(c)
hereof or by expiration of this Agreement, all Service Provider's rights to
market Outsourcing Services and use the Software as set forth in this
Agreement shall cease,
<PAGE>
except that Service Provider shall be permitted to continue to use the
Software solely to fulfill existing contractual obligations for a reasonable
period of time (the "Migration Period") and PeopleSoft agrees and
acknowledges its obligations to honor such Sublicense Agreements for such
Migration Period; PROVIDED, HOWEVER, that in no event shall such Migration
Period be more than twenty four (24) months from the date of the termination
of this Agreement pursuant to Section 12(b) hereof. Upon termination of this
Agreement by PeopleSoft pursuant to Section 12(c) hereof, all Service
Provider's rights to market Outsourcing Services and use the Software as set
forth in this Agreement shall cease, except that Service Provider shall be
permitted to continue to use the Software solely to fulfill existing
contractual obligations for the term of such existing contractual
arrangements.
(c) PAYMENT UPON TERMINATION.
The payment date of all moneys due to PeopleSoft shall automatically be
accelerated as of the date of termination so that they shall become due and
payable on the effective date of termination, even if longer terms had been
provided previously. All credits previously issued to Service Provider will
be canceled as of the date of termination.
(f) LIABILITY UPON TERMINATION.
Each party understands that the rights of termination or expiration hereunder
are absolute. Neither party shall incur any liability whatsoever for any
damage, loss or expenses of any kind suffered or incurred by the other
arising from or incident to any termination of this Agreement by such party
or any expiration hereof which complies with the terms of the Agreement,
whether or not such party is aware of any such damage, loss or expenses. In
particular, without in any way limiting the foregoing, neither party shall be
entitled to any damages on account of prospective profits or anticipated
sales. Service Provider agrees to waive the benefit of any law or regulation
providing compensation to Service Provider arising from the termination or
failure to renew this Agreement and Service Provider hereby represents and
warrants that such waiver is irrevocable and enforceable by PeopleSoft.
Service Provider also indemnifies and holds harmless PeopleSoft from any and
all claims for compensation arising from the termination or failure to renew
this Agreement asserted by Service Provider's employees or any third parties
including without limitation prospective Designated Customers.
(g) SURVIVAL.
The provisions of the sections entitled CONFIDENTIALITY, WARRANTY AND
INDEMNITY, TERM AND TERMINATION, LIMITATION OF LIABILITY, and GENERAL shall
survive the expiration or termination of this Agreement by either party for
any reason.
(h) RETURN OF SOFTWARE UPON TERMINATION.
If a license granted under this Agreement expires or otherwise terminates,
Service Provider shall (a) cease using the applicable Software or
Documentation, and (b) certify to PeopleSoft within one (1) month after
expiration or termination that Service Provider has destroyed or has returned
to PeopleSoft such Software and Documentation and all copies in all forms,
partial and complete, in all types of media and computer memory, and whether
or not modified or merged into other materials; PROVIDED, HOWEVER that in the
instance of a termination pursuant to Section 12(b) hereof, Service Provider
shall, at the end of the Migration Period defined in Section 12(d) hereof,
cease using the applicable Software or Documentation, and (b) certify to
PeopleSoft within one (1) month after the end of the Migration Period that
Service Provider has destroyed or has returned to PeopleSoft such Software
and Documentation under its control and all copies in all forms, partial and
complete, in all types of media and computer memory, and whether or not
modified or merged into other materials.
13. LIMITATION OF LIABILITY
NEITHER PARTY WILL BE LIABLE TO THE OTHER FOR DAMAGES ARISING OUT OF OR
RELATED TO THIS AGREEMENT FOR ANY LOSS OF USE, INTERRUPTION OF BUSINESS, COST
OF PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY OR SERVICES AND ANY INDIRECT,
SPECIAL, INCIDENTAL, ECONOMIC OR CONSEQUENTIAL LOSS OR DAMAGE, LOSS OF
PROFITS, LOSS OF GOODWILL, LOSS OF OPPORTUNITIES OR SAVINGS, REGARDLESS OF
THE FORM OF ACTION WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT
PRODUCT LIABILITY OR ANY OTHER LEGAL OR EQUITABLE THEORY EVEN IF THEY HAVE
BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSSES OR DAMAGES. IN NO EVENT WILL
PEOPLESOFT'S AGGREGATE CUMULATIVE LIABILITY TO SERVICE PROVIDER FOR ANY
CLAIMS ARISING OUT OF OR RELATED TO THIS AGREEMENT EXCEED THE AMOUNTS PAID TO
PEOPLESOFT BY SERVICE PROVIDER PURSUANT TO THIS AGREEMENT.
14. GENERAL.
(a) NOTICES.
All notices or reports permitted or required under this Agreement shall be in
writing and shall be by personal delivery, telegram, telex, telecopier,
facsimile transmission, or by certified or registered mail, return receipt
requested, and shall be deemed given upon personal delivery, five (5) days
after deposit in the mail, or upon acknowledgment of receipt of electronic
transmission. Notices shall be sent to the addresses set forth at the
beginning of this Agreement or such other address as either party may
specify in writing. Notices shall be sent to the person bearing the title set
forth below the parties' signature to this Agreement.
(b) FORCE MAJEURE.
Neither party shall be liable hereunder by reason of any failure or delay in
the performance of its obligations hereunder (except for the payment of
money) on account of strikes, shortages, riots, insurrection, fires, flood,
storm, explosions, acts of God, war governmental action, labor
<PAGE>
conditions, earthquakes, material shortages or any other cause which is
beyond the reasonable control of such party.
(c) ASSIGNMENT.
Service Provider may not assign this Agreement, delegate any duty or assign
any right hereunder without the prior written consent of PeopleSoft. Any
assignment in violation of this section shall be void and of no effect.
(d) WAIVER.
The failure of either party to require performance by the other party of any
provision hereof shall not affect the full right to require such performance
at any time thereafter; nor shall the waiver by either party of a breach of
any provision hereof be taken or held to be a waiver of the provision itself.
(e) SEVERABILITY.
In the event that any provision of this Agreement shall be unenforceable or
invalid under any applicable law or be so held by applicable court decision,
such unenforceability or invalidity shall not render this Agreement
unenforceable or invalid as a whole and, in such event, any such provision
shall be changed and interpreted so as to best accomplish the objectives of
such unenforceable or intended provision within the limits of applicable law
or applicable court decisions.
(f) INJUNCTIVE RELIEF.
It is understood and agreed that notwithstanding any other provisions of this
Agreement, a breach by Service Provider of Section 2 ("License Grants") or by
either party of Section 10 ("Confidentiality"), will cause either party
irreparable damage for which recovery of money damages would be inadequate,
and that, in addition to any and all remedies available at law, either party
shall be entitled to seek timely injunctive relief to protect its rights
under this Agreement.
(g) CONTROLLING LAW.
This Agreement shall be governed in all respects by the laws of the United
States of America and the State of California as such laws are applied to
agreements entered into and to be performed entirely within California between
California residents. The parties agree that the United Nations Convention
on Contracts for the International Sale of Goods is specifically excluded
from application to this Agreement.
(h) NO AGENCY.
Nothing contained herein shall be construed as creating any agency,
partnership or other form of joint enterprise between the parties.
<PAGE>
(i) HEADINGS.
The section headings appearing in this Agreement are inserted only as a
matter of convenience and in no way define, limit, construe or describe the
scope or extent of such section or in any way affect such section.
(j) WARRANTY.
Each party warrants that it has full power and authority to enter into and
perform this Agreement, and that the person signing this Agreement on such
party's behalf has been duly authorized and empowered to enter into this
Agreement. Each party further acknowledges that it has read this Agreement,
understands it and agrees to be bound by it.
(k) CHOICE OF FORUM AND VENUE.
The Superior Court of Alameda County and the United States District Court for
the Northern District of California shall together have non-exclusive
jurisdiction over disputes under this Agreement. Service Provider consents to
personal jurisdiction of the above courts.
(l) CONFIDENTIALITY OF AGREEMENT.
Neither party will disclose any terms, conditions, pricing of this Agreement,
except to its employees, directors, agents and professional advisors with a
need to know or pursuant to a mutually agreeable press release or as otherwise
required by law.
(m) COUNTERPARTS.
This Agreement may be executed simultaneously in two or more counterparts,
each of which will be considered an original, but all of which together will
constitute one and the same instrument.
(n) DISCLAIMER.
The Software is not specifically developed or licensed for use in any nuclear,
aviation, mass transit or medical application or in any other inherently
dangerous applications. Service Provider agrees that PeopleSoft and its
suppliers shall not be liable for any claims or damages arising from Servicer
Provider's use of the Software for such applications. Service Provider agrees
to indemnify and hold PeopleSoft harmless from any claims for losses, costs,
damages or liability arising out of or in connection with its use of the
Software in such applications.
(o) ENTIRE AGREEMENT.
<PAGE>
This Agreement, together with any schedules, exhibits and addenda completely
and exclusively defines the agreement of the parties regarding Service
Providers' rights to host the Software to provide Outsourcing Services. In
the event of any conflict between the terms of this Agreement and an addendum
hereto, the terms of the addendum shall control with respect to the subject
matter of the addendum only. This Agreement supercedes, and its terms
govern, all prior proposals, agreements or other communications between the
parties, oral or written, regarding the subject matter of this Agreement. This
Agreement shall not be modified except by a subsequently dated written
amendment signed on behalf of PeopleSoft and Service Provider by their duly
authorized representatives, and any purchase order or other document
purporting to supplement the provisions hereof shall be void.
In Witness Whereof, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the Effective Date.
USINTERNETWORKING, INC. PeopleSoft USA, Inc.
/s/ William T. Price /s/ Ken Horowitz
- ------------------------ -----------------------------
Authorized Signature Authorized Signature
William T. Price Ken Horowitz
Printed Name Printed Name
Vice President General Counsel Vice President
Title Title
<PAGE>
Exhibit A
Fees
REVENUE SPLITS
PeopleSoft and Service Provider agree to a sharing of aggregate Fees under
this Agreement. The Fees per End User/Designated Customer shall be allocated
as follows:
PeopleSoft shall be entitled to [CONFIDENTIAL TREATMENT] of Fees received
by Service Provider from such End User or Designated Customer, as the case
may be; PROVIDED, HOWEVER, that from time to time, in the case of
certain End Users or Designated Customers, as the case may be, PeopleSoft
and Service Provider may agree to a different sharing of Fees received
from such End User or Designated Customer only, by executing an Addendum
to Exhibit A. Any such Addenda to Exhibit A shall govern over the
sharing of Fees as set forth in this Exhibit A SOLELY in the instance of
the End User or Designated Users set forth therein and not for any other
End Users or Designated Customers.
<PAGE>
Addendum to Exhibit A
With regard to the End User(s) or Designated Customer(s) listed in the table
below only, PeopleSoft and Service Provider agrees to a sharing of Fees from
such End User or Designated Customer, as the case may be, as is set forth
across from the name of such End User or Designated User in the table below:
<TABLE>
<CAPTION>
<S> <C>
End User or Designated Customer Percentage of Fees payable to PeopleSoft*
- ------------------------------- ----------------------------------------
</TABLE>
*The percentages listed in this column shall mean the percentage of Fees
received by Service Provider from the relevant End User or Designated
Customer, as the case may be, that PeopleSoft is entitled to.
For the avoidance of doubt, this Addendum to Exhibit A shall govern only in
the instances of the End Users or Designated Customers listed herein. In the
case of all other End Users or Designated Customers not expressly covered in
any Addenda to Exhibit A, Exhibit A shall continue to govern.
In Witness Whereof, the parties hereto have caused this Addendum to Exhibit A
to be executed by their duly authorized representatives as of
________________, ______.
USINTERNETWORKING, INC. PeopleSoft USA, Inc.
Authorized Signature Authorized Signature
Printed Name Printed Name
Title Title
<PAGE>
Exhibit B
Software Support Services Terms and Conditions
Software Support Services Terms and Conditions ("Support Services") are
referenced in and incorporated into the Agreement between PeopleSoft and
USINTERNETWORKING, INC. ("Service Provider"). Upon reasonable notice,
PeopleSoft reserves the right to modify the terms and conditions of Support
Services on an annual basis to reflect current market conditions.
1. Coverage
PeopleSoft provides Service Provider with Support Services for the Software
for the appropriate sites set forth in the applicable Schedule in
consideration of Service Provider's payment to PeopleSoft of the applicable
fees in exhibit A. Only designated Service Provider employees may contact
PeopleSoft for the provision of Support Services. Service Provider may
acquire Support Services for additional Service Provider sites by paying to
PeopleSoft the applicable annual fee. Support Services may be provided to
additional locations for additional fees.
2. Software Maintenance
The following technical and functional improvements will be issued
periodically by PeopleSoft to improve Software operations:
a. Fixes to Errors;
b. Updates; and
c. Enhancements contained within new releases.
3. Priority Level of Errors
PeopleSoft shall reasonably determine the priority level of Error in
accordance with the following protocols:
Priority A:
PeopleSoft promptly initiates the following procedures: (1) assign
PeopleSoft specialist(s) to correct the Error; (2) provide ongoing
communication on the status of the correction; and (3) immediately begin
to provide a Workaround or a Fix.
Priority B:
(1) PeopleSoft assigns a PeopleSoft specialist to commence correction of
Error; and (2) provide escalation procedures as reasonably determined by
PeopleSoft support staff. PeopleSoft exercises all commercially
reasonable efforts to include the Fix for the Error in the next Software
maintenance release.
Priority C:
PeopleSoft may include the Fix for the Error in the next major Software
release.
4. Telephone Support
PeopleSoft provides telephone support concerning installation and use of the
Software. Except for designated holidays, standard telephone support hours
are Monday through Friday, 4:00 a.m.
<PAGE>
to 6:30 p.m., Pacific Time. Telephone Support is also available 24-hours a
day, 7-days a week to resolve critical production problems outside of normal
support hours.
5. Account Manager
PeopleSoft assigns an account manager to assist with the on-going support
relationship between PeopleSoft and Service Provider. Service Provider will
reimburse PeopleSoft for the reasonable travel and living expenses of the
account manager for on-Site support activity.
6. PeopleSoft Customer Connection
c. The PeopleSoft Customer Connection system ("PCC") is an on-line,
self-service system which features postings by PeopleSoft and PeopleSoft
Software users regarding technical and non-technical topics of interest.
Service Provider may access PCC via the Internet. At Service Provider's
expense, Service Provider is responsible for independently acquiring
appropriate Internet access.
a. All Software maintenance releases and Fixes to the Software may be
delivered to Service Provider through PCC or by mail from PeopleSoft upon
written request by Service Provider. All information specified in PCC by
PeopleSoft is confidential and proprietary to PeopleSoft and shall only
be used in connection with Service Provider's use of the software and
informational communications with other PCC participants. PeopleSoft
reserves the right to modify information posted to PCC. PeopleSoft shall
have the right to publish and distribute only through PCC in all
languages and in association with Service Provider's name any material or
software programs provided by Service Provider to PCC. Service Provider
shall not use PCC for advertising or public relations purposes and shall
only submit information to PCC which is owned by Service Provider or
which Service Provider has third party permission to submit to PC for use
by all other PCC users.
a. In the interest of diminishing exposure to software viruses, PeopleSoft
tests and scans for software viruses all information entered by
PeopleSoft prior to submission of information to PCC. Service Provider
shall also use a reliable virus detection system on any software or
information posted to PCC, utilize backup procedures; monitor access to
PCC promptly notify PeopleSoft of any virus detected within Service
Provider's systems associated with PCC and generally exercise a
reasonable degree of caution when utilizing information from PCC. PeopleSoft
does not warrant that PCC will operate without interruption or without
errors. PeopleSoft reserves the right to modify or suspend PCC service in
connection with PeopleSoft's provision for Support Services.
7. Fees
PeopleSoft shall provide Service Provider with Support Services for the
Software for the appropriate sites set forth in the applicable Schedule in
consideration of Service Provider's payment to PeopleSoft of the applicable
fees in exhibit A. In the event Service Provider elects to receive Support
Services outside of the scope of the foregoing, Service Provider shall pay
PeopleSoft the annual fees, as set forth in Exhibit A. Service Provider shall
be responsible for all taxes associated with Support Services, exclusive of
taxes based on PeopleSoft's income. In the event Service Provider elects not
to renew Support Services and subsequently request Support
<PAGE>
Services, PeopleSoft shall reinstate Support Services only after Service
Provider pays PeopleSoft the annual then current fee plus all cumulative fees
that would have been payable had Service Provider not suspended Support
Services.
8. Term and Termination
Support Services shall be provided for the Initial Support Services Term as
set forth in the applicable Schedule, and shall be extended each additional
year unless terminated by either party. Each one (1) year term shall commence
on the anniversary of the Schedule Effective Date.
Either party may terminate the support Services provisions at the end of the
original term or at the end of any renewal term by giving the other party
written notice at least ninety (90) days prior to the end of any term.
In the event Service Provider fails to make payment pursuant to the section
titled "Fees", or in the event Service Provider breaches the support Services
provisions and such breach has not been cured within thirty (30) days of
written receipt of notice of breach, PeopleSoft may suspend or cancel Support
Services.
9. Exclusions
PeopleSoft shall have no obligation to support:
a. Altered, damaged or substantial modified Software;
b. Software that is not the then-current release, or a Previous
Sequential Release;
c. Errors caused by Service Provider's negligence, hardware malfunction,
or other causes beyond the reasonable control of PeopleSoft;
d. Software installed in a hardware or operating environment not
supported by PeopleSoft; and
e. Third party software not licensed through PeopleSoft.
10. General
All Upgrades provided to Service Provider are subject to the terms and
conditions of the Agreement.
11. Definitions
Unless otherwise defined herein, capitalized terms used herein shall have the
same meaning as set forth in the Agreement and applicable Schedule.
"Enhancement" means technical or functional additions to the Software to
improve software functionality and/or operations. Enhancements are delivered
with new releases of the Software.
"Error" means a malfunction in the Software which degrades the use of the
Software.
"Fix" means the repair or replacement of source of object or executable code
versions of the Software to remedy an Error.
<PAGE>
"Previous Sequential Release" means a release of Software for use in a
particular operating environment which has been replaced by a subsequent
release of the Software in the same operating environment. PeopleSoft will
support a Previous Sequential Release for a period of eighteen (18) months
after release of the subsequent release. Multiple Previous Sequential
Releases may be supported at any given time.
"Priority A" means an Error that: (1) renders the Software inoperative; or
(2) causes the Software to fail catastrophically.
"Priority B" means an Error that affects performance of the Software, but
does not prohibit Service Provider's use of the Software.
"Priority C" means an Error that causes only a minor impact of the use of
Software.
"Update" means all published revisions to the Documentation and one (1) copy
of the new release of the Software which are not designated by PeopleSoft as
new products for which it charges separately.
"Workaround" means a change in the procedures followed or data supplied, to
avoid an Error without significantly impairing performance of the Software.
<PAGE>
Schedule A
Prospect List and Terms
The following list represents the set of prospects that USINTERNETWORKING,
INC. may pursue under certain Select Partner Agreement dated as of June 30,
1998 by and between the parties.
Service Provider shall not directly or indirectly contact or otherwise engage
in marketing and sales activities directed at the potential Designated
Customers listed below without obtaining PeopleSoft's prior written consent:
[CONFIDENTIAL TREATMENT]
<PAGE>
Exhibit 10.17
U S WEST Contract: 9800051560
----------
USi Agreement Number: 008
---
IMAP AGREEMENT
USinternetworking, Inc. ("USi"), a Delaware corporation with its principal
office located at One USi Plaza, Annapolis, MD 21401-7428 and U S WEST INC. AND
ITS AFFILIATES ( "Client"), a Delaware corporation with its principal office
located at 1800 CALIFORNIA, DENVER CO 80111 hereby agree that the following
terms and conditions will apply to each iMAP Solution provided under this iMAP
Agreement ("Agreement").
1. SCOPE OF SERVICE
1.1 SERVICES
USi will provide the services as defined in individual Product
Schedules which will be mutually agreed upon, attached hereto and
incorporated herein as Exhibit A. The Product Schedules may be modified
by mutual written agreement. Changes or additions to work performed
under each Product Schedule may require changes in the resources
provided by USi and may result in additional costs or charges in each
Product Schedule.
1.2 PRODUCT SCHEDULES
Each Product Schedule will become a part of this Agreement, and, unless
otherwise clearly specified in writing, the terms and conditions of
each Product Schedule shall be independent of and shall have no impact
upon, the provisions of any other Product Schedule.
1.3 ADDITIONAL SERVICES
Client may order additional iMAP Solutions or add on to existing iMAP
Solutions by contacting USi. USi will send Client a Product Schedule,
based on USi's formal requirements analysis and/or proposal for the
additional services, specifying the terms of the iMAP Solution,
including the payment(s) due for each ordered item. Client may accept
the terms of the iMAP Solution by signing that Product Schedule and
returning it to USi. All executed Product Schedules will become part of
this Agreement and will be covered by all of this Agreement's terms and
conditions.
2. DEFINITIONS
2.1 "ACCEPTABLE USE POLICY" shall mean USi's policy on the use of its
Global Network. The Acceptable Use Policy is incorporated by reference
as Exhibit B.
2.2 "ADDENDA" shall mean any written document executed by both parties
which modifies the terms of this Agreement or any executed Product
Schedule.
2.3 "AFFILIATES" shall mean any company controlling, controlled by or under
common control of Client.
2.4 "AGREEMENT" shall mean this iMAP Agreement, any and all Exhibits
attached hereto and all Product Schedules attached simultaneously with
the execution of the Agreement or agreed upon and executed subsequent
hereto.
2.5 "CONSULTING AND IMPLEMENTATION SERVICES" shall mean the services
provided by USi as part of the iMAP Solution and may be set forth in
the Product Schedule as applicable.
2.6 "CONTENT" means any and all text, multimedia or images (graphics, audio
and video), data and the like provided by Client and installed on a
server, which shall be subject to the terms and conditions set forth in
the Product Schedule and Acceptable Use Policy.
2.7 "CUSTOMIZATION" shall mean any customized deliverable created by USi as
part of the iMAP Solution.
2.8 "DOCUMENTATION" shall mean the Software Application user manual(s) and
any other materials supplied by USi concurrently with the delivery of
and for use with the iMAP Solution.
2.9 "GLOBAL NETWORK" shall mean USi's Internet-based data center and
network.
2.10 "HARDWARE" shall mean any computing or networking equipment USi uses
and/or provides to Client for its use as part of the iMAP Solution.
2.11 "iMAP SOLUTION" shall mean the collective bundling of any and all
Consulting and Implementation Services, Customization, access to the
Global Network, Hardware and Software Application(s), as outlined in
each executed Product Schedule.
- ----------------------
[CONFIDENTIAL TREATMENT] means that certain confidential information has
been deleted from this document and filed separately with the Securities
and Exchange Commission.
2.12 "PRODUCT SCHEDULE" shall mean a written order for any iMAP Solution
accepted by USi and executed by both parties, which shall be subject to
the terms and conditions of this Agreement and which, at a minimum,
shall contain a description of the work to be undertaken and the
obligations and responsibilities of each party related to that Product
Schedule.
2.13 "SLA" shall mean the Service Level Agreement specified in each Product
Schedule.
2.14 "SOFTWARE APPLICATION" shall mean the Third Party computer software USi
provides to Client for its use as part of the iMAP Solution.
2.15 "THIRD PARTY" shall mean any natural person or legal entity other than
USi and Client.
2.16 "USi SOFTWARE" shall mean certain software which was developed by USi
independently of this Agreement or pursuant to the terms of this
Agreement as may be required for customization.
3. LICENSE
3.1 RIGHTS GRANTED
In accordance with the terms of this Agreement, USi grants to Client a
limited, nontransferable, non-exclusive license to use the iMAP
Solution included in the executed Product Schedules attached hereto for
the sole purpose of supporting the operations of Client's business as
described in the Product Schedule. Notwithstanding anything to the
contrary, Client may not use the iMAP Solution in a resale capacity, to
process and/or analyze the data of a Third Party as a service bureau or
on any Hardware other than as set forth in the relevant Product
Schedule.
3.2 OWNERSHIP
All components of the iMAP Solution provided to Client shall remain at
all times the property of USi and/or its Third Party Software
Application vendors and contain trade secrets and other valuable
proprietary information of USi and/or its Third Party vendor.
3.3 EFFECTIVE DATE
This Agreement shall be effective on the date it is executed by USi,
and shall remain in effect for the Term unless terminated in accordance
with the provisions set forth in this Agreement.
3.4 SOFTWARE
Client acknowledges and understands that USi may provide to Client (a)
USi Software and/or (b) Software Applications owned by Third Parties
which USi uses under license agreements from Third Parties defined in
Section 2.14 as "Software Application." Client acknowledges that (a)
title to all such USi Software and
Page 1
Proprietary & Confidential
<PAGE>
Software Application remains with and is subject to the proprietary
rights of USi or its Third Party vendor, and (b) such USi Software and
Software Application contain trade secrets and other valuable
proprietary information of USi or its Third Party vendor.
3.5 RESTRICTIONS
Client agrees it shall not: (a) alter or modify the USi or Software
Application or any part thereof; (b) copy or duplicate, or permit a
Third Party to copy or duplicate, the USi Software or Software
Application or any part thereof or (c) reverse engineer, decompile or
disassemble USi Software or Software Application, unless otherwise
provided in the relevant Product Schedule.
3.6 NON-TRANSFERABLE
Client agrees not to license, sell, transfer, lease or disclose the USi
Software or Software Application to any Third Party.
4. TERM
4.1 AGREEMENT TERM
The term of this Agreement (the "Term") shall commence on the Effective
Date and shall expire three (3) years thereafter unless (a) either
terminated pursuant to the terms of this Agreement or (b) extended by
mutual written agreement.
4.2 PRODUCT SCHEDULE
Each individual Product Schedule shall include a period of performance.
In the event that any Product Schedule period of performance extends
beyond the Term, the Term shall automatically be extended and remain in
effect until such time as the Product Schedule period of performance is
completed.
5. PAYMENTS
5.1 FEES
As compensation for the license of the iMAP Solution granted to Client
and the provisions of services as applicable, Client agrees to pay the
amount(s) specified in each executed Product Schedule. Any fee
specified in a Product Schedule will only remain in effect until the
date specified in the Product Schedule.
5.2 PAYMENT TERMS
Unless otherwise specified in the Product Schedule, payments will be
due and payable to USi within forty-five (45) days of the date of USi's
invoice. Such invoices will be generated in accordance with the terms
specified in each Product Schedule. USi reserves the right, in USi's
absolute discretion, to perform a credit check on Client.
5.3 TAXES
Client shall be responsible for the payment of all taxes associated
with this Agreement or its use of the iMAP Solution (other than taxes
based on USi's net income), including, but not limited to, personal
property taxes, import taxes, taxes on telecommunication services,
information services, data processing services or similar governmental
charges that may be assessed by any jurisdiction, whether based on
gross revenue or delivery of products or services. If USi is required
to pay any such taxes directly, Client shall, upon receipt of USi's
invoice, reimburse USi for any amount that USi has paid.
Notwithstanding the above, Client shall not be required to pay those
taxes from which Client is legally exempt.
5.4 INSURANCE
Client shall obtain and maintain adequate liability insurance and
insurance against loss or damage to USi's Hardware located on Client's
premises. Upon request, Client shall furnish to USi a Certificate of
Insurance or other evidence of insurance coverage.
5.5 INTEREST
Any payments not made when due will be subject to an interest charge of
one percent (1%) per month, unless applicable law specifies a lower
lawful rate of interest, in which case past due payments shall bear
interest at that lower maximum rate. Interest shall not be applied to
any invoice during which time such invoice is being disputed by Client.
6. WARRANTIES
6.1 PERFORMANCE WARRANTY
USi warrants that: (a) work performed to complete any Product Schedule
will be performed by qualified personnel in a professional, workmanlike
manner, consistent with the prevailing standards of the industry; and
(b) it will use commercially reasonable efforts to complete each
Product Schedule.
6.2 AUTHORITY WARRANTY
USi warrants that it has the authority to license the Software
Application(s) for the purposes set forth in this Agreement and the
Product Schedule. Client acknowledges and agrees that its sole and
exclusive remedies for breach of this warranty are set forth in Section
8.1 of this Agreement.
6.3 LIMITATION
Unless otherwise expressly provided herein or in a Product Schedule,
neither USi nor any of its service providers, licensors, employees or
agents warrant (a) that the functions contained in the iMAP Solution
provided hereunder will meet Client's requirements or (b) that the
operation of the iMAP Solution will be uninterrupted or error free or
(c) that the products or services will have the capacity to meet the
demand during specific hours. USi will not be liable for any damages
that Client may suffer arising out of use, or inability to use, the
products or services provided hereunder. USi will not be liable for
unauthorized access to or alteration, theft or destruction of Client's
data files, programs, procedures or information through accident,
fraudulent means or devices, or any other method, unless such access,
alteration, theft or destruction is caused as a result of USi's gross
negligence or intentional misconduct.
6.4 YEAR 2000 WARRANTY
USi warrants that its iMAP Solutions, as provided by USi are capable of
processing, recording, storing and presenting data containing
four-digit years after December 31, 1999 in substantially the same
manner and with substantially the same functionality as before January
1, 2000. USi assumes no responsibilities or obligations to cause Third
Party products or services to function with the iMAP Solutions. USi
will not be in breach of this warranty for any failure of the iMAP
Solutions to correctly create or process date-related data if such
failure results from the inability of any software, hardware, or
systems of Client or any Third Party either to correctly create or
process date-related data in a manner consistent with the method in
which the iMAP Solution creates or processes date-related data. In the
event of a breach of this warranty, Client's sole and exclusive remedy
and USi's sole liability shall be to use its commercially reasonable
efforts to correct errors that cause breach of this warranty or if USi
is unable to make the corrections within a reasonable period of time
considering the severity of the error and its impact on the Client as
determined by USi, Client shall be entitled to terminate this Agreement
pursuant to Section 10.1.
6.5 EXCLUSION
THE WARRANTIES ABOVE ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES
AND CONDITIONS, EXPRESSED, IMPLIED OR STATUTORY, INCLUDING, BUT NOT
LIMITED TO, THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE, TITLE OR NONINFRINGEMENT.
Page 2
Proprietary & Confidential
<PAGE>
7. CLIENT CARE
7.1 CLIENT ASSISTANCE CENTER
Under the Client Care program, USi will provide a level of service
concerning Client's iMAP Solution as outlined in each specific Product
Schedule. In all cases, Client will have availability to USi's Client
Assistance Center twenty-four (24) hours per day, seven (7) days per
week, three hundred sixty-five (365) days per year. Client acknowledges
and agrees that all calls into the Client Assistance Center are public
and may be monitored and/or recorded for quality control purposes.
7.2 SERVICE LEVEL AGREEMENTS
USi will provide a Service Level Agreement with each iMAP Solution
which will be stated in each executed Product Schedule. Specific
remedies for USi's failure to meet the applicable Service Level
Agreement will be stated in each executed Product Schedule.
7.3 MAINTENANCE WINDOW
USi has established set maintenance windows on Tuesday and Friday
mornings between the hours of 2am and 6am (ET). During this time, USi
reserves the right to take down a Client's server(s) in order to
conduct routine maintenance checks to both software and hardware. If a
Client's server(s) will be down for more than two (2) minutes within
this pre-established window, USi will advise Client of such prior to
any scheduled maintenance downtime. USi will not be responsible for any
damages or costs incurred by Client, if any, for scheduled down time.
USi reserves the right to change its maintenance window upon prior
notice to Client.
8. INDEMNITY OBLIGATIONS
8.1 USi INDEMNITY OBLIGATIONS
USi will (a) defend Client against any final claim that the products or
services delivered by USi infringe a patent, copyright, trade secret,
or other proprietary right in the United States; and (b) pay costs,
damages and attorney's fees finally awarded against Client as a result
of such claims.
(a) Infringement Remedies. In addition to defending Client as
stated above, if a claim occurs, or in USi's opinion, is
likely to occur, USi will, at its sole option and expense,
(subject to its agreement with Software Application vendors)
either (i) procure Client the right to continue using the
Software Application in question, or (ii) replace or modify
the infringing Software Application so that it becomes
noninfringing; provided that the Software Application's
functionality are not materially and adversely affected by
such replacement or modification. If neither of these
alternatives is reasonably available, Client shall return the
Software Application at issue and USi will refund the amount
paid by Client to USi for such Software Application as
depreciated. The depreciation shall be an equal amount per
year over a three (3) year life commencing with the date of
installation.
(b) Exclusions. USi shall not be liable for infringement claims
based on (i) the combination, operation or use of Software
Application with hardware, data or software not supplied by
USi if the claim would have been avoided by use of other
hardware, data or software; or (ii) modifications to Software
Application if the modifications were not made by USi.
8.2 CLIENT INDEMNITY OBLIGATIONS
Client will (a) defend USi against any claims by Third Parties arising
from Client's use of Software Application or iMAP Solution provided by
USi hereunder excluding, however, (i) proprietary rights infringement
claims under Section 8.1; and (ii) claims for bodily injury or damages
to tangible personal property proximately caused by the negligent act,
error or omission of USi and (b) pay costs, damages and attorney's fees
finally awarded against USi and any settlement costs incurred as a
result of such claims.
8.3 CONDITIONS
The indemnification obligations set forth above in Sections 8.1 and 8.2
are contingent upon compliance with the following conditions by the
party seeking indemnification:
(a) Providing prompt written notice of a claim within twenty (20)
days of its service upon Client;
(b) Providing all information
and evidence within its control which is necessary for the
indemnifying party to conduct a defense; and
(c) Providing the indemnifying party with sole control of the
defense and all related settlement negotiations. However, the
non-indemnifying party may participate in the defense or
settlement of the claim at its own expense.
8.4 LIMITATIONS OF REMEDY
This Section 8 states the entire obligations of the parties with
respect to indemnity or infringement of copyrights, patents, trade
secrets or other intellectual property or proprietary rights.
9. LIMITATION OF LIABILITY
9.1 LIMITATION OF LIABILITY
USi's entire liability and Client's exclusive remedies are set forth in
this Section 9, Section 6 WARRANTIES, Section 8 INDEMNITY OBLIGATIONS
and Section 10 TERMINATION. USi's liability to Client for damages other
than those set forth in Section 6, Section 8 or Section 10 (regardless
of the form of action, whether in contract, tort, warranty or
otherwise) shall in no event exceed the monthly fee paid by the Client
to USi under this Agreement for the one (1) month period immediately
preceding the event which caused the damage or injury.
9.2 DISCLAIMER OF DAMAGES
USi shall not be liable for any special, incidental, indirect or
consequential damages or for the loss of profit, revenue, or data, even
if USi shall have been advised of the possibility of such potential
loss or damages. Client further agrees that USi shall not be liable for
any claim or demand against Client or USi by any Third Party, except to
the extent expressly covered under Section 8 INDEMNITY OBLIGATIONS or
Section 9 LIMITATION OF LIABILITY.
10. TERMINATION
10.1 TERMINATION FOR BREACH
Either party may terminate this Agreement immediately upon written
notice to the other party if the other party materially breaches any
obligation under this Agreement and fails to cure such breach within
thirty (30) days after receiving notice of the breach. Unless otherwise
agreed in writing, termination of this Agreement shall also
automatically terminate all Product Schedules which are incomplete at
the time of termination. Termination of one Product Schedule shall have
no effect on any other Product Schedule or the Agreement so long as the
party in default of the Product Schedule being terminated complies with
the terms and conditions of the Agreement and other Product Schedules.
Notwithstanding anything to the contrary, either party shall have the
right to terminate this Agreement and the license granted herein in the
event either party (a) terminates or suspends its business, (b) becomes
subject to any bankruptcy or insolvency proceeding under Federal or
state statute, (c) becomes insolvent or becomes subject to direct
control by a trustee, receiver or similar authority, or (d) has wound
up or liquidated, voluntarily or otherwise. In the event of termination
by reason of either party's failure to comply with any part of this
Agreement, or upon any act
Page 3
Proprietary & Confidential
<PAGE>
which shall give rise to the right to terminate, USi shall have the
right, at any time, to terminate the license and take immediate
possession of the iMAP Solutions and all copies wherever located, with
thirty (30) days written notice. Within ten (10) days after termination
of the license, Client shall return to USi all tangible portions of the
iMAP Solutions, including any Hardware provided by USi and any Software
in the form provided by USi or as modified, or, upon request by USi,
destroy all tangible portions of the iMAP Solutions and all copies, and
certify in writing that they have been destroyed. Termination of this
Agreement shall not relieve either party of its obligations regarding
confidentiality under Section 12 below. Lastly, no cure period shall be
afforded in an event of a breach of Sections 3 or 12.1, for which
either party shall be entitled to all legal and equitable remedies,
including but not limited to, injunctive relief, without requirement of
bond.
10.2 EFFECT OF TERMINATION
Termination of this Agreement for any reason shall not affect any past
or future sums due USi under this Agreement or any additional remedies
provided by law or equity to either party. All rights that have been
granted to Client shall immediately be terminated and all unpaid
charges accrued under this Agreement shall become immediately due and
payable upon the happening of any event of termination. In the event of
a termination of this Agreement or any Product Schedule for default,
each party agrees to return to the other within sixty (60) days of a
request, any property, data sheets, schematics, samples, customer
lists, confidential information, in whatever form or media which are
used by a disclosing party or which are furnished to a recipient.
11. SOFTWARE AND WORK PRODUCT DEVELOLPED UNDER AGREEMENT
11.1 TITLE
Except as otherwise provided for in Section 11.2 below or as may be
expressly agreed in any Product Schedule, USi shall retain title to and
ownership of any Hardware provided by USi, any software developed under
any Product Schedule issued hereunder ("Project Software") and any
other products of its work hereunder which may consist of reports,
designs, data or similar materials ("Work Product"); provided, however,
that USi will not have ownership of Content (as defined in Section 2.6
above) incorporated into Project Software or Work Product. To the
extent that Project Software contains any USi Software or Software
Application(s), such Project Software is subject to restrictions as may
be applicable to the USi Software or Software Application(s) which is
incorporated therein.
11.2 CLIENT OWNERSHIP
Client shall retain title to and all ownership rights in Content (as
defined in Section 2.6 above) but grants USi the right to access and
use Content for the purpose of complying with its obligations under
this Agreement and any applicable Product Schedule.
12. GENERAL PROVISIONS
12.1 NONDISCLOSURE
Each party shall retain in confidence all proprietary information
transmitted to the other that the disclosing party has identified in
writing, or orally and then subsequently identified in writing, as
being proprietary and/or confidential, and will make no use of such
information except under the terms and during the term of this
Agreement. Client agrees to use all reasonable precautions and take all
necessary steps to prevent the iMAP Solution from being acquired by
unauthorized persons, and to take appropriate action, by instruction,
agreement, or otherwise, with regard to all persons permitted access to
the iMAP Solution, in order to ensure the iMAP Solution is protected.
Client shall not disclose the iMAP Solution to any person for any
purpose other than as provided in this Agreement. However, neither
party shall have an obligation to maintain the confidentiality of
information that (a) it has rightfully received from another party
prior to its receipt from the disclosing party; (b) the disclosing
party has disclosed to a Third Party without any obligation to maintain
such information in confidence, (c) enters the public domain or becomes
generally known to the public by some action other than breach of this
Agreement by the receiving party; or (d) is independently developed by
the receiving party. Each party shall safeguard proprietary and
confidential information disclosed by the other using the same degree
of care it uses to safeguard its own proprietary and confidential
information but, in no event, shall use less than a reasonable degree
of care. Each party's obligation under this paragraph shall extend for
a period of three (3) years following termination or expiration of this
Agreement.
12.2 ASSIGNMENT
Neither this Agreement nor any rights granted hereunder may be sold,
leased, assigned or otherwise transferred, in whole or in part by
either party by operation of law or otherwise, and any such attempted
assignment shall be void and of no effect without the advance written
consent of the other party, such consent not to be unreasonably
withheld or delayed; PROVIDED, HOWEVER, that such consent shall not be
required if either party assigns this Agreement to a wholly owned
subsidiary or in connection with a merger, acquisition, or sale of all
or substantially all of its assets, unless the surviving entity is a
competitor of USi.
12.3 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of Colorado, without regard to conflicts of law.
The parties to this Agreement consent to the exclusive jurisdiction and
venue of the state and federal courts sitting in or for Denver County,
Colorado.
12.4 DISPUTE RESOLUTION AND ARBITRATION
In the event that any dispute or disagreement between the parties with
respect to the interpretation of any provision of this Agreement, the
performance of either party under this Agreement, or any other matter
that is in dispute between the parties related to this Agreement, upon
the written request of either party, the parties will meet for the
purpose of resolving such dispute. The parties agree to discuss the
problem and negotiate in good faith without the necessity of any formal
proceedings related thereto. No formal proceedings for the resolution
of such dispute may be commenced until either party concludes in good
faith that the applicable resolution through continued negotiation of
the matter in issue does not appear likely. The parties further agree
that all disputes hereunder which cannot be settled in the manner
hereinbefore described (any such dispute is referred to here as a
"Dispute") will be settled by final and binding arbitration conducted
in accordance with the American Arbitration Association ("AAA") (or any
successor thereto), as amended from time to time. The Federal
Arbitration Act, 9 U.S.C. Secs. 1-16, shall govern the arbitrability of
all Disputes. Judgment upon the award rendered in any such arbitration
may be entered in any court having jurisdiction thereof, or application
may be made to such court for a judicial acceptance of the award and an
enforcement, as the law of such jurisdiction may require or allow. The
arbitrator shall not have authority to award punitive damages. All
expedited procedures prescribed by the AAA rules shall apply. The
arbitrator's decision and award shall be final and binding and judgment
may be entered in any court having jurisdiction thereof. Each party
shall bear its own costs and attorneys' fees, and shall share equally
in the fees and expenses of the arbitrator but the arbitrator shall
have the discretion to award costs and attorney's fees in his
discretion.
The arbitration panel will be composed of one single arbitrator engaged
in the practice of law, under the then current rules of the AAA. No
person may be appointed as an arbitrator unless he or she is
independent of the Applicant and Respondent, is skilled in the subject
matter of the Dispute and is not directly or indirectly carrying on or
involved in a business being carried on in competition with the
business of the parties. The decision of the arbitration panel shall be
made by the sole arbitrator. The venue for the arbitration shall be in
Washington, DC unless otherwise agreed to by the parties in writing.
Page 4
Proprietary & Confidential
<PAGE>
12.5 WAIVER
No waiver of any breach of any provisions of this Agreement shall
constitute a waiver of any other breach of the same or any other
provision of the Agreement, and no waiver shall be effective unless
made in writing.
12.6 SEVERABILITY
In the event that any term or provision of this Agreement conflicts
with the law under which this Agreement is to be construed, or if any
such provision is held invalid by a court with jurisdiction over the
parties to this Agreement, such provision shall be restated to reflect,
as nearly as possible, the original intentions of the parties in
accordance with applicable law, and the remainder of this Agreement
shall remain in full force and effect.
12.7 ENFORCEMENT
Both parties agree to pay all reasonable costs and expenses the other
party incurs in successfully enforcing this Agreement, including
reasonable attorneys' fees.
12.8 FORCE MAJEURE
Neither party shall be liable for any delay or failure in performance
due to Force Majeure, which shall mean acts of God, earthquake, labor
disputes, changes in law, regulation or government policy, riots, war,
fire, epidemics, acts or omissions of vendors or suppliers,
transportation difficulties or other occurrences which are beyond
either party's reasonable control. In the event that USi is prevented
or delayed in the delivery or installation of the iMAP Solution for
reasons beyond its control, such delivery or installation shall take
place as soon thereafter as is reasonably possible.
12.9 NOTICE
Any notice or invoice required or permitted under this Agreement shall
be in writing and delivered by hand or mailed by overnight express
charges prepaid or certified mail with return receipt requested to the
address set forth above.
Notices or invoices shall be deemed received when delivered.
12.10 HIRING
Client and USi agree that during the term of this Agreement and for one
(1) year thereafter, they will not, without prior written consent of
the other, employ or offer employment to any employee of the other who
has worked to a material extent on matters relating to this Agreement
or the provision of USi services by USi hereunder.
12.11 SURVIVAL
The terms of Sections 3, 4, 5, 8, 9, 11 and 12 shall survive the
termination or expiration of this Agreement.
12.12 ACCEPTABLE USE POLICY
Client agrees at all times, and to require and enforce its employees,
agents and contractors at all times, to comply with the USi Acceptable
Use Policy, which is included as Exhibit B to this Agreement. Client
agrees to indemnify and hold USi harmless from any damages, costs and
expenses incurred by USi caused by the breach of this provision.
12.13 THIRD PARTY RIGHTS
The provisions of this Agreement are solely for the benefit of the
parties hereto and not for the benefit of any Third Parties.
12.14 ENTIRE AGREEMENT
This Agreement (including all Product Schedules and Addenda, if any)
contains the full understanding between the parties and supercedes all
prior representations or agreements, whether oral or written, with
respect to such matters. The Agreement (including all Product Schedules
and Addenda, if any) may only be changed by a written document signed
by both parties. To the extent of any inconsistencies between the
Agreement and the Product Schedule, the Product Schedule shall control,
except if the Agreement is modified by Addenda, then the Addenda shall
control.
USinternetworking, INC. U S WEST INC.
By: /s/ William T. Price By: /s/ Cynthia J. Lewis
--------------------------------------- ------------------------------
Name: William T. Price Name: Cynthia J. Lewis, U S WEST
Business Resources, Inc.,
acting as agent for U S
WEST Inc.
Title: Vice President and General Counsel Title: Supplier Manager
Date: JANUARY 15, 1999 Date: JANUARY 15, 1999
--------------------------------- -------------------------
Page 5
Proprietary & Confidential
<PAGE>
U S WEST Contract: 9800051560
----------
USi Agreement Number: 008
---
Effective Date: JANUARY 15, 1999
-----------------
EXHIBIT A
PRODUCT SCHEDULE
This Product Schedule by and between U S WEST BUSINESS RESOURCES, INC.
("Client") and USinternetworking, Inc. ("USi") is governed by and incorporated
into the terms and conditions contained in the iMAP Agreement entered into
between USi and U S WEST INC. dated January 15, 1999. USi's Proposal to Client
dated OCTOBER 28, 1998 AND REVISED ON DECEMBER 22, 1998 (the "Proposal") is
attached as Exhibit A to this Product Schedule, although only those Sections of
the Proposal specifically referenced below shall be incorporated into the terms
and conditions of this Product Schedule.
iMAP SOLUTION: USi ENTERPRISE SALES APPLICATION POWERED BY SIEBEL
FOR UP TO [CONFIDENTIAL TREATMENT] USERS as detailed
in Section 3 of the Proposal.
For the purposes of this Product Schedule, "Users"
shall mean the name or specified (by password or
other user identification) individuals authorized by
Client to use the iMAP Solution, regardless of
whether the individual is actively using the iMAP
Solution at any given time.
PAYMENT SCHEDULE: $4,121,250 payable in thirty-six (36) monthly
installments as outlined in the table below
commencing upon Client's acceptance. Invoices shall
be issued on the 5th of the month following the
calendar month of service. All invoices are due upon
receipt. This pricing is also valid for the Initial
Period and the 1st Renewal Period (both as defined
below) and is exclusive of any applicable taxes,
tariffs, telecommunications surcharges or other
governmental fees or charges that may be imposed from
time to time by applicable law or regulation.
<TABLE>
<CAPTION>
---------------------------- ----------------- ---------------------------
CALENDAR MONTH OF SERVICE TOTAL # OF USERS MONTHLY INSTALLMENT AMOUNT
---------------------------- ----------------- ---------------------------
<S> <C> <C>
1st to 3rd [CONFIDENTIAL [CONFIDENTIAL TREATMENT]
TREATMENT]
---------------------------- ----------------- ---------------------------
4th [CONFIDENTIAL [CONFIDENTIAL TREATMENT]
TREATMENT]
---------------------------- ----------------- ---------------------------
5th to 36th [CONFIDENTIAL [CONFIDENTIAL TREATMENT]
TREATMENT]
---------------------------- ----------------- ---------------------------
37th to 60th [CONFIDENTIAL [CONFIDENTIAL TREATMENT]
TREATMENT]
---------------------------- ----------------- ---------------------------
</TABLE>
ADDITIONAL USERS: During the Initial Period and the 1st Renewal
Period (both as defined below), Client may add
additional Users, above the initial 1,000 Users, to
the iMAP Solution by executing an applicable Addenda
to this Product Schedule. Upon exercise of this
upgrade, the monthly installment fee will increase
based on the table below for each additional User for
the remaining term of the Initial Period and the 1st
Renewal Period commencing on the day the additional
User(s) is specified by Client.
<TABLE>
<CAPTION>
------------------------ ---------------------------------
USER NUMBERS ADDITIONAL MONTHLY INSTALLMENT
AMOUNT PER USER
------------------------ ---------------------------------
<S> <C>
1,001 to 1,500 $[CONFIDENTIAL TREATMENT]
------------------------ ---------------------------------
1,501 to 2,000 $[CONFIDENTIAL TREATMENT]
------------------------ ---------------------------------
2,001 to 3,000 $[CONFIDENTIAL TREATMENT]
------------------------ ---------------------------------
3,001 & above $[CONFIDENTIAL TREATMENT]
------------------------ ---------------------------------
</TABLE>
EFFECTIVE DATE OF PRODUCT SCHEDULE: The Effective Date of this Product
Schedule shall be January 15, 1999.
CLIENT ACCEPTANCE: Acceptance shall occur upon the completion of the
User Acceptance Test, which will be mutually
developed between Client and USi during the initial
implementation phase. Notwithstanding anything to the
contrary, Client's use of all or a part of the iMAP
Solution in the operation of Client's business shall
be considered Acceptance.
PERIOD OF PERFORMANCE: The Period of Performance of this Product Schedule
shall commence on the Effective Date and shall
continue for a period of thirty-six (36) months plus
the interim time period between the Effective Date
and the date of Acceptance (the "Initial Period").
Thereafter, this Product Schedule shall automatically
renew for a twenty-four (24) month period (the "1st
Renewal Period") based on the pricing shown above for
[CONFIDENTIAL TREATMENT] Users.
After the 1st Renewal Period, this Product Schedule
shall renew upon mutual agreement for successive
twelve (12) month periods (the "Subsequent Renewal
Period") on the same terms and conditions as herein
agreed, as may be amended from time to time,
including, but not limited to, monthly payments as
described below, unless and until either party
provides the other party with a notice of termination
thirty (30) days prior to the end of the Initial
Period, the 1st Renewal Period or any annual
Subsequent Renewal Period.
PRICE CHANGES: USi will notify Client sixty (60) days prior to any
Subsequent Renewal Period of any price changes which
will become effective upon such Subsequent Renewal
Period.
Page 1 January 15, 1999
Confidential. Disclose and distribute solely to those individuals who have a
need to know.
CLIENT CARE: Under the Client Care program, Client's Help Desk
will have availability to (a) USi's Client Assistance
Center twenty-four (24) hours per day, seven (7) days
per week, three hundred sixty-five (365) days per
year and (b) the assigned Client Assistance Team
during Client's designated standard business hours.
CONSULTING & IMPLEMENTATION SERVICES: USi will provide Consulting &
Implementation Services as outlined in
Section 3 of the Proposal., which will
require the approval of the U S WEST
project manager prior to implementation.
SECURITY PROCEDURES: USi has defined certain policies and procedures to
provide the level of security associated with the iMAP
Solution as set forth in Section 3 of the Proposal.
These policies and procedures will change over time to
reflect emerging technologies, business practices and
Internet-related issues. USi will provide written notice
to Client of any changes made to its security
procedures.
TERMINATION CLAUSE: Notwithstanding anything to the contrary contained
herein, commencing [CONFIDENTIAL TREATMENT] after
Client's Acceptance as noted above, Client may cancel
this Product Schedule for any reason at the time frames
stated in the chart below by providing USi with
[CONFIDENTIAL TREATMENT] written notice. Client
agrees to pay USi a termination fee based on the chart
below upon exercising its rights under this
Termination Clause.
<TABLE>
<CAPTION>
--------------------------------- ------------------------
CALENDAR MONTH OF TERMINATION TERMINATION FEE
--------------------------------- ------------------------
<S> <C>
37th to 42nd $[CONFIDENTIAL TREATMENT]
--------------------------------- ------------------------
43rd to 48th $[CONFIDENTIAL TREATMENT]
--------------------------------- ------------------------
49th to 54th $[CONFIDENTIAL TREATMENT]
--------------------------------- ------------------------
55th to 57th $[CONFIDENTIAL TREATMENT]
--------------------------------- ------------------------
</TABLE>
SERVICE LEVEL AGREEMENT:
USi's will provide for [CONFIDENTIAL TREATMENT] Availability for Services (as
herein defined) within USi's direct control where "Availability" refers to a
Users ability to access the application on the appropriate USi hosted server.
Services include network services to the ISP circuit termination point on the
Cisco router in the data facility, all network hardware, firewalls or other
security services provided in the iMAP Solution.
<PAGE>
REMEDY:
In the event USi is unable to provide:
1. [CONFIDENTIAL TREATMENT] Availability in any given calendar month, Client
shall receive a credit to their account equal to [CONFIDENTIAL TREATMENT]
of that month's service fees excluding rebilled circuit charges.
2. [CONFIDENTIAL TREATMENT] Availability in any given calendar month, Client
shall receive a credit to their account equal to [CONFIDENTIAL TREATMENT]
of that month's service fees excluding rebilled circuit charges.
3. [CONFIDENTIAL TREATMENT] Availability in any given calendar month, Client
shall receive a credit to their account equal to [CONFIDENTIAL TREATMENT]
of that month's service fees, excluding rebilled circuit charges.
If USi fails to meet [CONFIDENTIAL TREATMENT] Availability for
[CONFIDENTIAL TREATMENT] consecutive calendar months, Client may terminate
this Product Schedule without penalty, regardless of any term remaining on
the Agreement, without liability to either party for penalties or damages
associated with such termination and upon thirty (30) days prior written
notice to USi.
"Availability" percentage shall be calculated as follows:
X = [CONFIDENTIAL TREATMENT] * 100
---------------------------------------------
N
where "n" is the total number of hours in any given calendar month, and "x" is
the Availability percentage.
Specifically excluded from "n" in this calculation and exceptions to the levels
of Availability provided herein are (a) scheduled maintenance windows; (b)
reasons of Force Majeure (as defined in Section 12.8 of the Agreement); (c)
issues associated with Client's personal computers, local area networks or
Internet Service Provider connections; (d) use of unapproved or modified
Hardware or Software and/or; (e) issues arising from the misuse of the iMAP
Solution by Client, its employees, agents, customers or contractors.
In the event of a Force Majeure event, the Client shall have the option of
canceling this Product Schedule with USi if the resulting total outage time
is greater than [CONFIDENTIAL TREATMENT] consecutive days in any
[CONFIDENTIAL TREATMENT] month period, without liability to either party for
penalties or damages associated with such outages or termination and upon
thirty (30) days prior written notice to USi.
The remedies stated in this Section are Client's sole and exclusive remedies for
service interruption.
Page 2 January 15, 1999
Confidential. Disclose and distribute solely to those individuals who have a
need to know.
<PAGE>
NON-RENEWAL: Should Client elect not to renew this Product Schedule at the
end of either the Initial Period or any subsequent Renewal
Period, USi will deliver to Client (i) all data contained on
the Hardware used for the Client's iMAP Solution; (ii)
Client's Content; and (iii) all Consulting & Implementation
Services specifically created or performed for Client by USi
in support of the iMAP Solution (clause (iii) specifically
referred to as "C&I Work Product"). USi will deliver these
items to Client for no additional charge on a mutually
agreeable date and in a mutually agreeable format.
Upon non-renewal by Client, Client agrees: (i) that the C&I
Work Product shall no longer be supported by USi; and (ii)
that the C&I Work Product may only be used for the sole
purpose of supporting the operations of Client's business.
Notwithstanding anything to the contrary stated herein, USi
maintains all rights, title and interest in the C&I Work
Product and Client may not use the C&I Work Product in a
resale capacity or allow access to the C&I Work Product by any
Third Parties.
USi reserves all rights to use the C&I Work Product in
whatever manner it chooses, including support of iMAP
Solutions for other USi clients. In addition, USi retains all
rights to the web site addresses established by USi in support
of the Client's iMAP Solution.
CLIENT RESPONSIBILITIES: This section describes Client's additional
responsibilities under this Agreement.
1. Client will designate qualified personnel to act as liaisons between
Client and USi.
2. Client will adhere to and will require any Third Party having access to the
iMAP Solution to adhere to USi's Acceptable Use Policy as set forth at the
following URL: http://www.usi.net/usepolicy.
3. Client is responsible for obtaining and complying with license terms for
all Client-provided software, if any, and represents to USi that the terms
of such licenses shall allow use of the software on the Hardware, as well
as the implementation by USi of the iMAP Solution as proposed.
4. Client is solely responsible for Content, including any subsequent changes
or updates made or authorized by Client. Client represents and warrants
that Content: (a) will not infringe or violate the rights of any third
party including, but not limited to, intellectual property, privacy or
publicity rights of others; (b) is not abusive, profane or offensive to a
reasonable person; or (c) will not be hateful or threatening. Violations of
the foregoing by Client may result in early termination of services by USi.
5. Client is solely responsible for the Contents of its transmissions and the
transmissions of Third Parties accessing the iMAP Solution through Client.
Client agrees to comply with U.S. law with regard to the transmission of
technical data which is exported from the United States through the iMAP
Solution. Client further agrees not to use the iMAP Solution (a) for
illegal purposes or (b) to interfere with or disrupt other network users,
network services or network equipment. Interference or disruptions include,
but are not limited to, distribution of unsolicited advertising or chain
letters, propagation of computer worms and viruses, and use of the network
to make unauthorized entry to any other machine accessible via the network.
Violations of the foregoing by Client may result in early termination of
services by USi.
6. Upon expiration of this Product Schedule, Client must relinquish use of the
IP address or address blocks assigned to it by USi in connection with the
services.
7. Upon Client's Acceptance of the iMAP Solution, Client shall be responsible
for the administration of all end user login names and passwords for the
purpose of authenticating and authorizing Global Network access by end
users to the iMAP Solution.
8. Client shall be responsible for handling all communication, technical
support to and business relations with end users who are the customers of
Client including but not limited to responding to inquiries and questions.
9. Client shall provide USi with access to such hardware, software and
network connections as USi shall require.
10. Client shall be responsible for obtaining and maintaining the following
hardware and/or software:
A. To be determined
11. Client shall be responsible for providing to USi all information required
for the Acceptance Test in a timely manner and in form directed by USi.
Client shall participate in the Acceptance Testing in good faith and with
all due diligence.
12. Client shall indemnify, defend and hold USi harmless against any claims,
damages, costs and attorneys fees incurred by USi arising from USi's use of
software licensed by or delivered through Client for use in the iMAP
Solution, including, but not limited to, claims for infringement of
patents, copyrights, trade secrets or other proprietary rights. This
obligation shall survive termination of the Product Schedule.
13. Client shall perform the obligations set forth in the incorporated
provisions of the Proposal as Client responsibility.
Page 3 January 15, 1999
Confidential. Disclose and distribute solely to those individuals who have a
need to know.
<PAGE>
USinternetworking, INC. U S WEST BUSINESS RESOURCES, INC.
/s/ William T. Price /s/ Cynthia J. Lewis
- ---------------------------------- --------------------------------
(signature) (signature)
William T. Price Cynthia J. Lewis
Vice President and General Counsel Supplier Manager
January 15, 1999 January 15, 1999
- ---------------------------------- --------------------------------
(date) (date)
Page 4 January 15, 1999
Confidential. Disclose and distribute solely to those individuals who have a
need to know.
<PAGE>
Exhibit B
Acceptable Use Policy
USinternetworking, Inc.
Introduction
This document defines the Acceptable Use Policy ( "Policy") of products and
services provided by USinternetworking, Inc. ("USi") to all of its clients and
other users (collectively, "Client"). This Policy will ensure the integrity,
security, reliability and privacy of the USi network, systems, products,
services, server hosting facilities and data contained within (collectively, the
"USi Network"). Client is responsible for continual compliance of this Policy.
USi Network Security
Client is prohibited from violating, or attempting to violate, the security of
the USi Network. Any violations may result in criminal and civil liabilities to
the Client. USi will investigate any alleged violations and will cooperate with
law enforcement agencies if a criminal violation is suspected. Examples of
violations of the security of the USi Network include, without limitation, the
following:
- Accessing data not intended for such Client
- Logging into a server or account which the Client is not authorized
to access
- Attempting to probe, scan or test the vulnerability of a system or
network
- Breach security or authentication measures without proper
authorization
- Attempting to interfere with service to any user, host or network
including, without limitation, via means of overloading, "flooding,"
"mailbombing," or "crashing"
- Taking any action in order to obtain services to which the Client is
not entitled
Illegal Use
The USi Network may only be used for lawful purposes. For example, Client may
not use the USi Network to create, transmit, distribute, or store material that:
- Violates a trademark, copyright, trade secret or other intellectual
property rights of others
- Violates the privacy, publicity or other personal rights of others
- Impairs the privacy of communications
- Contains obscene, offensive or inappropriate content
- Constitutes pornography
- May be threatening, abusive or hateful
- Violates export control laws or regulations
- Encourages conduct that would constitute a criminal offense or give
rise to civil liability
- Causes technical disturbances to the USi Network, including, but not
limited to, introduction of viruses, worms or other destructive
mechanisms
- Violates reasonable regulations of USi or other service providers
with respect to the network o Assist or permit any persons in
engaging in any of the activities described above o Constitutes
deceptive on-line marketing.
If Client becomes aware of any such activities, Client is obligated to
immediately notify USi and take all other appropriate actions to cause such
activities to cease.
UNSOLICITED COMMUNICATIONS ("SPAM")
Posting the same or similar unsolicited e-mail messages, bulk commercial
advertising or informal announcements to one or more groups (known as "Spam") is
prohibited. Spam is not only annoying to Internet users, it seriously affects
the efficiency and cost-effectiveness of the USi Network. These unsolicited
messages can increase your costs by clogging the USi Network, rendering your web
site inaccessible and potentially leading to down time of your mission-critical
Internet applications.
In addition, both USENET AND E-MAIL USERS may not:
- send or post e-mail messages which are excessive and/or intended to
harass or annoy others
- continue to send e-mail to a recipient that has indicated that
he/she does not wish to receive it o send e-mail with forged TCP/IP
packet header information
- intentionally omit, delete, forge or misrepresent transmission
information, including headers, return addresses information
- take any other actions intended to cloak the Client's identity or
contact information
CONTENT
Client is responsible for all its content hosted by USi. USi exercises no
control over, and accepts no responsibility for, the content of the information
passing through the USi Network, including content provided on any third party
websites linked to the USi Network. Any website links are provided as Internet
navigation tools for informational purposes only and not as an endorsement by
USi of the contents of such web sites. USi does not adopt, nor warrant the
accuracy of, the content of any linked website and undertakes no responsibility
to update the content. Use of any information obtained via the USi Network is at
Client's own risk.
USi does not screen communications and is not responsible for screening or
monitoring content used by Client.
<PAGE>
Exhibit B
Acceptable Use Policy
USinternetworking, Inc.
Consequences of Unacceptable Use
USi reserves the right to suspend or terminate access to the USi Network upon
notice of a violation of this Policy.
Indirect or attempted violations of this Policy, and actual or attempted
violations by a third party on behalf of a Client, shall be considered
violations of this Policy by such Client.
INDEMNITY
Client agrees to indemnify and hold harmless USi, its officers, directors,
employees and agents from any losses, damages, costs or expenses resulting from
any third party claim or allegation ("Claim") arising out of or relating to any
use of the USi Network, including any Claim which, if true, would constitute a
violation of this Policy.
Limitation of Liability
Under no circumstances shall USi's liability for any damages to Client under
this Policy exceed the amount Client paid for one (1) month's access to the USi
Network.
Questions, Comments or Complaints
USi reserves the right to modify this Policy in the manner set forth above at
any time. If you are unsure whether any contemplated use is permitted or have
any comments regarding prohibited use or other abuse of the USi Network, please
direct questions or comments to: USinternetworking, Inc., One USi Plaza,
Annapolis, MD 21401-7478 Attn: Legal Department or [email protected].
<PAGE>
Exhibit 10.18
SAGENT TECHNOLOGY INC.
SOFTWARE LICENSE AGREEMENT
[LOGO]
AGREEMENT by and between Sagent Technology, Inc. ("Sagent") located at 2225
E. Bayshore Rd., Suite 100, Palo Alto, California 94303, and
USINTERNETWORKING, INC. 175 Admiral Cochrane Drive, Annapolis, MD 21401
including its subsidiaries and affiliates (the "Licensee").
Licensee is in the business of developing software and hardware solutions
which it leases to customers. Sagent agrees to license its Software to
Licensee to permit Licensee to develop applications and lease the
applications to Licensee's customers.
Accordingly, the parties agree as follows:
1. LICENSE
In accordance with the terms herein, Sagent grants to Licensee, and Licensee
accepts from Sagent, a perpetual non-exclusive and non-transferable license
to use the current object code version of Sagent's Software. Licensee may
install the Software for the number specified in the description of the
Software attached as Schedule A.
Under this license, Licensee is permitted to use the Software for which a
license fee has been paid as follows:
a. Develop application portfolios or stand-alone applications and use the
Software for Licensee's own use; and
b. Develop applications and lease the Software to Licensee's customers for
customer's use provided that the object code to the Software remains under
Licensee's possession at all times and Licensee requires its customers to
agree to enduser license terms that reflect the rights and restriction of
terms of this agreement.
c. Licensee may physically transfer the Software to other hardware systems
for the same customer provided the Software is only used on one computer,
network node or server at a time.
d. Once Licensee puts a particular module into production for a customer,
that particular module is fungible in that it can be assigned to another
customer subject to the following restrictions:
(i) Only four configurations may be assigned to another customer. The four
configurations may only be assigned once.
(ii) Fungibility applies only where the lease between Licensee and its
customer is terminated due to: 1) Licensee's customer has breached a lease
related to the Software with Licensee; 2) Licensee's customer has filed
for bankruptcy; or 3) at the end of the 36 month lease term.
Licensee's use is restricted so that Licensee may not:
a. Reveal bench mark tests;
b. Decompile, disassemble, reverse engineer the Software;
c. Create a derivative work of the Software;
d. Use the Software by more than the number of concurrent users that have
been licensed; or
c. Develop applications or lease the Software to more than one customer
2. COPIES
The license(s) granted herein include(s) the right to copy the Software to
use the Software as specified in Schedule "A" pursuant to this license and
for archival and back-up only. In order to protect Sagent's copyrights in the
Software, Licensee agrees to reproduce and incorporate Sagent's copyright
notice in any copy, modifications or partial copy.
3. PRICE AND PAYMENT
Licensee shall make payment to Sagent for the Software license pursuant to
the fees and payment terms set forth in Schedule A.
4. SOFTWARE OWNERSHIP
- ----------------------
[CONFIDENTIAL TREATMENT] means that certain confidential information has
been deleted from this document and filed separately with the Securities
and Exchange Commission.
Page 1
<PAGE>
Sagent represents that it has all rights required to licensee the Software
and all portions thereof and to grant Licensee the license.
5. OTHER SERVICES
Sagent may provide Licensee with consulting services, software maintenance,
and technical support through separate agreements.
6. TITLE TO SOFTWARE SYSTEMS
The Software and all copies thereof are proprietary to Sagent and title
thereto remains with Sagent. All applicable rights to patents, copyrights,
trademarks and trade secrets in the Software or any modifications or
derivative works belong to and shall remain in Sagent. Licensee shall not
sell, transfer, publish, or otherwise make available the Software or copies
thereof to others. Licensee agrees to secure and protect each module,
software product, documentation and copies thereof in a manner consistent
with the maintenance of Sagent's rights therein and to take appropriate
action by instruction or agreement with its employees or consultants who are
permitted access to each program or software product to satisfy its
obligations hereunder. All copies made by the Licensee of the Software and
other programs developed hereunder, including translations, compilations,
partial copies with modifications and updated works, are the property of
Sagent. Violation of any provision of this paragraph shall be the basis for
immediate termination of this License Agreement.
7. CONFIDENTIALITY
Each party agrees to afford the other party's Proprietary Information the
same degree of protection against unauthorized use or disclosure as each
party normally provides for its Proprietary Information, provided that each
party's obligation shall not apply to information which:
i) Is known to the receiving party at the time of disclosure by the
disclosing party;
ii) Is now or hereafter in the public domain through no fault of the
receiving party;
iii) Is developed independently by the receiving party; and
iv) Is generally known or available from third parties without
restriction; and
The term "Proprietary Information" means documented information or software
which at the time of its disclosure to the receiving party is identified as
Proprietary by an appropriate stamp or legend.
8. WARRANTY
(a) Sagent warrants that Software will conform, as to all substantial
operational features, to Sagent's current published specifications when
installed and will be free of defects which substantially affect system
performance.
(b) The Licensee must notify Sagent in writing within ninety (90) days of
delivery of the Software to the Licensee (not including delivery of any
subsequent modifications to the Software), of its claim of any such
defect. If the Software is found defective by Sagent, Sagent's sole
obligation under this warranty is to use reasonable commercial efforts to
attempt to correct or work around errors, and if the errors cannot be
corrected, Sagent will, at no extra cost to the Licensee, replace
defective media or replace the Software with functionally equivalent
Software.
(c) Sagent warrants that the Software shall not cause erroneous date
calculations due to miscalculations by the Software as a result of the
year 2000 date change. Sagent further warrants that the Software includes
the ability to manage and manipulate all data involving dates or date
fields which include indication of century to ensure year 2000
compatibility.
(d) THE ABOVE IS A LIMITED WARRANTY AND IT IS THE ONLY WARRANTY MADE BY
SAGENT. TO THE EXTENT PERMITTED BY LAW, SAGENT MAKES AND LICENSEE
RECEIVES NO WARRANTY, EXPRESS OR IMPLIED, AND THERE ARE EXPRESSLY
EXCLUDED ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE. SAGENT SHALL HAVE NO LIABILITY WITH RESPECT TO ITS OBLIGATIONS
UNDER THIS AGREEMENT FOR CONSEQUENTIAL, EXEMPLARY, OR INCIDENTAL DAMAGES
EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE
STATED EXPRESS WARRANTY IS IN LIEU OF ALL LIABILITIES OR OBLIGATIONS OF
SAGENT FOR DAMAGES ARISING OUT OF OR IN CONNECTION WITH THE
Page 2
<PAGE>
DELIVERY, USE, OR PERFORMANCE OF
THE SOFTWARE SYSTEMS.
(e) If any modifications are made to the Software by Licensee during the
warranty period, this warranty shall immediately be terminated.
Correction for difficulties or defects traceable to Licensee's errors or
systems changes shall be billed at Sagent's standard time and material
charges.
(f) Licensee agrees that Sagent's liability arising out of contract,
negligence, strict liability in tort or warranty shall not exceed any
amounts payable by Licensee for the Software identified above.
9. INDEMNITY
Sagent, at its own expense, will defend any action brought against Licensee
to the extent that it is based on a claim that any software system used
within the scope of this License Agreement infringes any U.S. patents,
copyrights, license or other property right, provided that Sagent is given
reasonable notice in writing of such claim. Sagent shall have the right to
control with Licensee the defense of all such claims, lawsuits and other
proceedings. In no event shall Licensee settle any such claim, lawsuit or
proceeding without Sagent's prior written approval.
If, as a result of any claim of infringement against any patent, copyright,
license or other property right, Sagent is enjoined from using the Software,
or if Sagent believes that the Software is likely to become the subject of a
claim of infringement, Sagent at its option and expense may procure the right
for Licensee to continue to use the Software, or replace or modify the
Software so as to make it non-infringing. If neither of these two options is
reasonably practicable Sagent may discontinue the license granted herein on
one month's written notice and refund to Licensee the unused portion of the
license fees hereunder. The foregoing states the entire liability of Sagent
with respect to infringement of any copyrights or patents by the Software or
any parts thereof.
10. TERMINATION
Unless otherwise terminated earlier by Sagent's breach of this agreement,
Licensee may terminate this agreement at any time provided payment in full
has been made and Licensee returns the original and all copies of Software to
Sagent.
Sagent shall have the right to terminate this agreement and license(s)
granted herein:
(a) Upon ten days' written notice in the event that Licensee, its officers or
employees violates any provision of this License Agreement including, but
not limited to, confidentiality and payment.
(b) In the event of termination by reason of the Licensee's failure to comply
with any part of this agreement, or upon any act which shall give rise to
Sagent's right to terminate, Sagent shall have the right, at any time, to
terminate the license(s) and upon 5 days prior written notice, take
possession of the Software and documentation and all copies wherever
located. Within five (5) days after termination of the license(s),
Licensee will return to Sagent the Software in the form provided by
Sagent or as modified by the Licensee, or upon request by Sagent to
destroy the Software and all copies, and certify in writing that they
have been destroyed. Termination under this paragraph shall not relieve
Licensee of its obligations regarding confidentiality of the Software.
(c) Without limiting any of the above provisions, in the event of termination
as a result of the Licensee's failure to comply with any of its
obligations under this License Agreement, the Licensee shall continue to
be obligated for any payments due. Termination of the license shall be in
addition to and not in lieu of any equitable remedies available to Sagent.
(d) Software sublicenses properly granted and paid for prior to termination
will also remain in effect according to their terms.
11. TAXES
Licensee shall, in addition to the other amounts payable under this License
Agreement, pay all sales and other taxes, federal, state, or otherwise,
however designated, which are levied or imposed by reason of the transactions
contemplated by this License Agreement, exclusive of taxes based on Sagent's
income. without limiting the foregoing, Licensee shall promptly pay to Sagent
an amount equal to any such items actually paid, or required to be collected
or paid by Sagent.
12. GENERAL
Page 3
<PAGE>
(a) Each party acknowledges that it has read this Agreement, it understands
it, and agrees to be bound by its terms, and further agrees that this is
the complete and exclusive statement of the Agreement between the
parties, which supersedes and merges all prior proposals, understandings
and all other agreements, oral and written, between the parties relating
to this Agreement. This Agreement may not be modified or altered except
by written instrument duly executed by both parties. You are an
independent contractor, not our agent, partner, franchisee, joint venture
or employee. Waivers not given in writing may be revoked at any time
without liability. Invalid provisions do not affect the enforceability of
the others. We are entitled to injunctive relief for violations of our
copyrights, trade secrets or other proprietary rights. We reserve all
rights not granted specifically in this Agreement. All notices shall be
in writing and in English and may be sent by cable, telecopy, or air mail,
return receipt requested, sent to the attention of the Legal Department
at the addresses first set forth above, and shall be deemed received as
follows: cable and telecopy, 24 hours after transmission; and registered
airmail, 5 business days after delivery to the postal authorities by the
party serving notice.
(b) Dates or times by which Sagent is required to make performance under this
license shall be postponed automatically to the extent that Sagent is
prevented from meeting them by causes beyond its reasonable control.
(c) This Agreement and performance hereunder shall be governed by the laws of
the State of California. Venue shall be in Santa Clara County, California.
(d) Licensee agrees that it is responsible for ensuring that any third party
usage is in accordance with the terms and conditions of this Agreement.
Notwithstanding the foregoing, Licensee shall not lease the Software to
the following competitors of Sagent:
Ardent, Informatica, Broadbase, Gentia, Microstrategy, Information
Advantage, Brio, Coguos, Business Objects.
(e) If any provision of this Agreement is invalid under any applicable
statute or rule of law, it is to that extent deemed to be omitted.
(f) The Licensee may not assign or sub-license, without the prior written
consent of Sagent, its rights, duties or obligations under this Agreement
to any person or entity, in whole or in part. A sale of substantially all
of Licensee's assets to a third party or any transfer of more than 50% of
the voting stock of Licensee to a third party shall not constitute an
assignment under this license.
(g) The prevailing party in any action related to this agreement shall have
the right to recover its reasonable expenses including attorney's fees.
(h) The waiver or failure of Sagent to exercise, in any respect, any right
provided for herein shall not be deemed a waiver of any further right
hereunder.
SAGENT TECHNOLOGY, INC.
Name: /s/ THOMAS M. LOUNIBOS
---------------------------------------------
(Print)
Address:
------------------------------------------
Signature: /s/ Thomas M. Lounibos
----------------------------------------
Title: VP Sales
--------------------------------------------
Date: 6/25/98
---------------------------------------------
Effective Date:
----------------------------------
USINTERNETWORKING, INC.
Name: /s/ STEPHEN E. MCMANUS
---------------------------------------------
(Print)
Address:
------------------------------------------
Signature: /s/ Stephen E. McManus
----------------------------------------
Title: President
--------------------------------------------
Date: 6/25/98
---------------------------------------------
Page 4
<PAGE>
SCHEDULE A
1. SOFTWARE DESCRIPTIONS
Software means the following programs in object code and related online
documentation:
SAGENT DATA LOAD SERVER
The Sagent Data Load Server performs processing for the extraction,
transformation and loading of data into data marts. It is a high
performance application server that has been designed from the
ground up to exploit 32-bit, multi-threaded computing.
SAGENT DATA ACCESS SERVER
The Sagent Data Access Server performs processing for the delivery
of information to users, whether they are accessing data via the
Web or in a client/server environment. It is a high performance
application server that has been designed from the ground up to
exploit 32-bit, multi-threaded computing.
SAGENT WEBLINK
Sagent WebLink is a server-based application for giving Web users
query, analysis and reporting capabilities.
SAGENT ADMIN
Sagent Admin is a client application that provides administrators
the ability to manage user security and metadata.
SAGENT AUTOMATION STUDIO (INCLUDES AUTOMATION SERVER AND AUTOMATION
STUDIO
SAGENT AUTOMATION SERVER
Sagent Automation Server is a server-based application that performs
powerful event-driven scheduler for automating and troubleshooting
tasks.
SAGENT AUTOMATION STUDIO
Sagent Automation Studio is a client application for defining
automation flows that will be executed by Sagent Automation Server.
SAGENT POWER USER TOOL SUITE (INCLUDES DESIGN STUDIO, SAGENT ANALYSIS,
SAGENT REPORTS)
DESIGN STUDIO
Sagent Design Studio is a client application that provides intuitive
and powerful visual tools for defining metadata and data flow plans.
SAGENT ANALYSIS
Sagent Analysis is an Information Studio module that enables users to
perform multi-dimensional analysis of data.
SAGENT REPORTS
Sagent Reports is an Information Studio module that enables users to
develop sophisticated reports that includes information stored in data
marts.
Page 5
<PAGE>
2. SOFTWARE LICENSE FEES
(a) SOFTWARE CONFIGURATION
This Software License Agreement and Schedule is for the purchase
of twelve complete Software Configurations.
Detailed below are the Software modules, including quantities and
List Price, which comprise one Software Configuration.
Qty. Software Module List Price
---- --------------- ------------
(1) Sagent Data Load Server $[CONFIDENTIAL
(includes Administration and TREATMENT]
Design Studio)
(1) Sagent Data Access [CONFIDENTIAL
(includes Administration) TREATMENT]
(1) Sagent WebLink 2 CPU [CONFIDENTIAL
(includes Administration) TREATMENT]
(1) Sagent Automation Studio [CONFIDENTIAL
TREATMENT]
(4) Power User Tools [CONFIDENTIAL
(includes Design, Analysis TREATMENT]
and Reporting)
LIST PRICE PER SOFTWARE CONFIGURATION $[CONFIDENTIAL
TREATMENT]
TOTAL LIST PRICE FOR 12 SOFTWARE CONFIGURATIONS $[CONFIDENTIAL
TREATMENT]
(b) LICENSE DISCOUNT SCHEDULE
USI will receive a [CONFIDENTIAL TREATMENT] discount off the List
Price of each Software Module included the Software Configuration
for the full term of this Agreement.
LIST PRICE PER SOFTWARE CONFIGURATION $[CONFIDENTIAL
TREATMENT]
DISCOUNTED PRICE PER SOFTWARE CONFIGURATIONS $[CONFIDENTIAL
TREATMENT]
TOTAL DISCOUNTED PRICE FOR 12 SOFTWARE CONFIGURATION $[CONFIDENTIAL
TREATMENT]
(c) LICENSE PAYMENT SCHEDULE
USI commits to full payment of [CONFIDENTIAL TREATMENT]
for 12 Software Configurations based on the following
payment schedule.
<TABLE>
<CAPTION>
Payment Date Payment Amount
------------ --------------
<S> <C>
June 30, 1998 $[CONFIDENTIAL
TREATMENT]
September 1, 1998 [CONFIDENTIAL
TREATMENT]
December 1, 1998 [CONFIDENTIAL
TREATMENT]
</TABLE>
All payments are non-refundable. Commitment to payment of full
[CONFIDENTIAL TREATMENT] for 12 Software Configurations is
irrevocable. Payment for purchase of additional Software modules
and/or Software Configurations is Net 30 days.
(d) SHIPMENT SCHEDULE
Sagent will ship the Software Configurations based on the following
Shipment Schedule.
<TABLE>
<CAPTION>
Shipment Date Quantity of Software Configurations
------------- -----------------------------------
<S> <C>
Prior to July 10, 1998 6
September 1, 1998 3
December 1, 1998 3
TOTAL CONFIGURATIONS 12
</TABLE>
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<PAGE>
(e) REPORTING AND RECORD KEEPING
USI will make records and reports of Software installations and
sublicenses. USI will make and keep, and give us not less than 10
days after the end of each calendar month, a complete and accurate
report of the type, quantities and customer information for each
copy of the Software which USI leases to its customers, including
those of USI, and those of sublicensees and other customers. This
report will also include the quantities of Software products
purchased, the amount of such purchases, and the name and address
of each sublicensee.
2. MAINTENANCE AND SUPPORT SERVICES
(a) PLATINUM ANNUAL MAINTENANCE AND SUPPORT
This Software License Agreement, Schedule A, and Exhibit B also
serve as the purchase of Sagent's PLATINUM ANNUAL MAINTENANCE AND
SUPPORT. The fee for Platinum Annual Maintenance and Support is
[CONFIDENTIAL TREATMENT] and is renewable on an annual basis. The
Platinum Annual Maintenance and Support Agreement is provided as
Exhibit B to the Software License Agreement.
USI will provide all customer support and pay Sagent an annual
fee for each sale of such services USI makes to its customers for
support of Software licenses. The annual fee will be
[CONFIDENTIAL TREATMENT] of the Software List Price.
(b) PLATINUM ANNUAL MAINTENANCE AND SUPPORT PAYMENT SCHEDULE
USI commits to full payment of [CONFIDENTIAL TREATMENT] for Platinum
Annual Maintenance and Support based on the following payment
schedule.
<TABLE>
<CAPTION>
Payment Date Payment Amount
------------ --------------
<S> <C>
June 30, 1998 $[CONFIDENTIAL
TREATMENT]
September 1, 1998 $[CONFIDENTIAL
TREATMENT]
</TABLE>
All payments are non-refundable. Commitment to payment of full
[CONFIDENTIAL TREATMENT] for Platinum Annual Maintenance and Support
is irrevocable.
(c) GENERAL TERMS
Sagent's support programs are subject to change from time to time
upon 30 days prior written notice from Sagent to Licensee. However,
in no event shall the changes made by Sagent result in diminished
support from the level of support set forth in Exhibit B.
Notwithstanding anything to the contrary set forth elsewhere in
this Agreement, USI shall provide Maintenance and Support Services
to all of its Customers as set forth in Sections 1(a) and 1(b)
below. USI may require their Customers to provide their own
First-Line Support; however, in no event shall Sagent by
responsible for First-Line or Second-Line Support. Subject to USI's
payment of Platinum Annual Maintenance and Support Fees set forth
in this Schedule, Sagent shall provide Third-Line Support to USI in
accordance with Section 1(c) below. USI shall be responsible for
all support related to any of its offerings related to the Programs.
(a) FIRST-LINE SUPPORT. USI shall either (1) provide First-Line
Support to all of its customers of the Licensed Software or
(2) inform its customers that they must provide their own
First-Line Support. First-Line Support means direct technical
support of Licensed Software, including but not limited to
(a) a direct response to User inquiries concerning the
performance, functionality or operation of the Licensed
Software, (b) a direct response to reported problems or
performance deficiencies with the Licensed
Page 7
<PAGE>
Software, (c) a diagnosis of problems or performance
deficiencies of the Licensed Software, and (d) a resolution
of problems or performance deficiencies of the Licensed
Software. First-line Support shall include the provision of
telephone and other appropriate contact points so that USI's
customers may contact USI regarding technical and support
questions and other problems regarding use of the Licensed
Software. USI shall inform its customers that if, after using
its reasonable commercial efforts, the customers are not able
to answer a support question or to correct a reported problem
in the Licensed Software, the customers may contact USI for
Second-Line Support, as provided below.
(b) SECOND-LINE SUPPORT. USI will offer second line support
("Second-Line Support") to its customers in the form of
web-based and telephone and other support at least at the level
of Second Line Support described in Sagent's then current
Maintenance and Support Services Policy. Sagent reserves the
right to alter such policies from time to time, in its
reasonable discretion, on ninety (90) days' prior notice to
USI. USI shall provide its customers, as a part of Second-Line
Support, any and all Updates that Sagent provides to USI.
(c) THIRD-LINE SUPPORT. In consideration for the payment of fees
for Maintenance Services Fees set forth in this Schedule,
Sagent shall provide USI third line support ("Third-Line
Support") for the Licensed Software in accordance with Sagent's
then current Maintenance and Support Services Policy.
Third-Line Support shall include web-based and telephone
support to respond to questions that are due solely to the
failure of the Licensed Software to perform in any material
respect the functions described in the Documentation when
operated on a Supported Platform. Before requesting Third-Line
Support, USI shall use reasonable commercial efforts to resolve
support questions and to correct reported problems in the
Licensed Software and to ensure that the issue is not related
to any other part of USI's or User's implementation. If USI
requests Sagent to provide services at a User site or at USI's
site, USI agrees to pay Sagent for such services in accordance
with Sagent's list prices for such services as of the date such
services are delivered and to reimburse Sagent for all its
reasonable out-of-pocket expenses, including travel and
accommodations, in providing such services.
3. TRAINING
USI, in order to be certified to perform sales, marketing and
implementation/integration of Sagent Software will assign a group of sales,
technical and support personnel to attend a two-week certification class as
taught by Sagent Professional Services at a mutually agreed upon location.
The list price for each two-week certification course is
[CONFIDENTIAL TREATMENT] USD. USI will receive a [CONFIDENTIAL TREATMENT]
discount on each two-week certification course, for a discounted fee of
[CONFIDENTIAL TREATMENT] per course. USI commits to purchase of (3) two-week
certification courses for a total of [CONFIDENTIAL TREATMENT].
Travel and expenses of Sagent trainers and consultants is not included in the
price of the course and will be the responsibility of USI. Each two-week
certification course is not to exceed 12 students.
Additional training on competitive intelligence, new product releases and
feature additions will be performed on an as needed basis as mutually agreed
by Sagent and USI.
Sagent and USI shall separately negotiate the terms that will govern Sagent's
provision of Training Services to Licensee's customers.
Page 8
<PAGE>
4. OTHER SERVICES
MARKETING
USI will vigorously market the Software [CONFIDENTIAL TREATMENT]
USI will maintain at all times full-time, trained sales, marketing,
technical and service staff, including at least one Sagent salesperson,
one dedicated Sagent systems engineer, and one Sagent technical support
engineer, and all appropriate equipment and software necessary to
demonstrate the Software, provide training and support, attend sales
events, and otherwise promote the software to end users.
Sagent will participate in comprehensive, integrated branding and
demand generation programs, as appropriate and within the constraints
of its existing Marketing programs. Proposed activities include press
releases and web-based marketing. Additional activities, including
data warehouse trade show participation, joint seminars, advertising
and collateral will be provided on an as available basis.
MARKETING MATERIALS
You may order marketing materials from us; there may be a standard
charge for certain materials or quantities.
5. TERM
The pricing and services on this schedule shall remain in effect for one
year from the Effective Date below unless otherwise terminated earlier. After
the initial term, this Agreement and all attached Schedules and Exhibits can
renew upon review of USI's business plan.
Page 9
<PAGE>
EXHIBIT B
PLATINUM ANNUAL MAINTENANCE AND SUPPORT
(remainder of this page intentionally left blank-
Maintenance and Support Agreement begins on next page)
Page 10
<PAGE>
SAGENT TECHNOLOGY, INC.
[LOGO] PLATINUM ANNUAL MAINTENANCE
AND SUPPORT AGREEMENT
Sagent Technology, Inc. ("Sagent") will provide the Support Services listed
below for the Software and the two contacts ("Designated Contacts") named by
Customer on page 3 of this agreement.
1. SUPPORT
Sagent will establish and maintain an organization and process to provide
support for the Software to Customer. Support shall include (i) diagnosis of
problems or performance deficiencies of the Software and (ii) a resolution of
the problem or performance deficiencies of the Software. Sagent will provide
a toll-free phone software support number on a twenty-four (24) hour, seven
(7) day per week basis. In addition Sagent's Internet based support system is
generally available seven (7) days a week, twenty-four (24) hours a day.
Sagent will use its best efforts to cure, as described below, reported and
reproducible errors in the Software. Sagent utilizes the following four (4)
severity levels to categorize reported problems:
SEVERITY 1 CRITICAL BUSINESS IMPACT
The impact of the reported deficiency is such that the customer is unable to
either use the Software or reasonably continue work using the Software.
Sagent will commence work on resolving the deficiency within one (1) hour of
notification and will engage staff until an acceptable resolution is achieved.
SEVERITY 2 SIGNIFICANT BUSINESS IMPACT
Important features of the Software are not working properly and there are no
acceptable, alternative solutions. While other areas of the Software are not
impacted, the reported deficiency has created a significant, negative impact
on the Customer's productivity or service level. Sagent will commence work on
resolving the deficiency within two (2) hours of notification until an
acceptable resolution is achieved.
SEVERITY 3 SOME BUSINESS IMPACT
Important features of the Software are unavailable, but an alternative
solution is available or non-essential features of the Software are
unavailable with no alternative solution. The customer impact, regardless of
product usage, is minimal loss of operational funtionality or implementation
resources. Sagent will commence work on resolving the deficiency within one
(1) business day of notification and will engage staff during business hours
until an acceptable resolution is achieved.
SEVERITY 4 MINIMAL BUSINESS IMPACT
Customer submits a Software information request, software enhancement or
documentation clarification which has no operational impact. The
implementation or use of the Software by the Customer is continuing and there
is no negative impact on productivity. Sagent will provide an initial
response regarding the request within one (1) business week.
The agreement is not intended as a consulting agreement for customer
services. With respect to severity one (1) reported defficiencies, Sagent may,
with the concurrence of the Customer, elect to send senior support or
development staff to the Customer location to accelerate problem resolution.
Sagent will be responsible for the costs associated with this escalated
problem resolution if the problem is determined to be related to supported
Software. If it is determined that the problem was not related to the
supported Software, the Customer agrees to pay reasonable travel and lodging
expenses in
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<PAGE>
addition to Sagent's standard consulting rates. Travel time will be charged
at consulting rates.
2. MAINTENANCE
During the term of this agreement, Sagent Technology, Inc. will provide the
Customer with copyrighted patches, updates, releases and new versions of the
Software along with other generally available technical material. These
maintenance materials including the Software may not be used to increase the
licensed number of versions or copies of the Software. The Customer agrees
not to use or transfer the prior version but to destroy or archive the prior
version of the Software. all patches, updates, release and new versions shall
be subject to the license agreement related to the Software.
3. WARRANTY
Sagent will undertake all reasonable efforts to provide technical assistance
under this agreement and to rectify or provide solutions to problems where
the Software does not function as described in the Software documentation,
but Sagent does not guarantee that the problems will be solved or that any
item will be error-free. If the problems are not solved or the Software is
not problem free, Sagent will replace the Software with functionally
equivalent Software at no extra charge to Customer. This agreement is only
applicable to Sagent Software running under the certified environments
specified in the release notes for that product. Sagent will provide the
Customer with substantially the same level of service throughout the term of
this agreement. However, Sagent may from time to time and only upon
reasonable notice to the Customer, discontinue Software products or versions
and stop supporting Software products or versions one year after
discontinuance, or otherwise discontinue any support service. EXCEPT AS
REQUIRED BY LAW, THE FOLLOWING WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES,
CONDITIONS OR PROMISES TO CUSTOMER OR ANY THIRD PARTY, EXPRESS OR IMPLIED,
INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, OR ARISING BY STATUE, LAW, COURSE OF DEALING, CUSTOM AND PRACTICE OR
TRADE USAGE. EXCEPT AS PROVIDED ABOVE, THE SERVICES AND MAINTENANCE ARE
PROVIDES "AS IS". Sagent is not liable for incidental, special or
consequential damages for any reason (including loss of data or other
business or property damage), even if forseeable or if Customer has advised
of such a claim. Our liability shall not exceed the fees that Customer has
paid us for this agreement. Customer agrees that the pricing for the services
would be substantially higher but for these limitations.
4. TERM
This agreement shall start on the Effective Date stated below. This agreement
shall run for a period of one (1) year from the Effective Date and shall
automatically renew for consecutive one (1) year periods unless either party
provides written notice of termination within sixty (60) days prior to the
anniversary date of the Effective Date. Payment for each renewal term shall
be due on the renewal date at our then current rates for the Software. This
agreement may be terminated for non-payment or material breach. Fees paid or
due are non-refundable unless Sagent has materially breached this agreement
and has failed to cure the breach after 30 days written notice.
5. GENERAL
(a) Each party acknowledges that it has read this Agreement, they understand
the agreement and agree to be bound by its terms. Further, both parties
agree that this is the complete and exclusive statement of the Agreement
between the parities, which supersedes and merges all prior proposals,
understandings and all other agreements, oral and written, between the
parties relating to this Agreement. This Agreement may not be modified
or altered except by written instrument
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<PAGE>
duly executed by both parties. The Software and the use thereof is
subject to the license agreement related to the Software.
(b) Times by which Sagent will perform under this agreement shall be
postponed automatically to the extent that we are prevented from meeting
them by acts of nature beyond reasonable control.
(c) This agreement and performance hereunder shall be governed by the laws of
the State of California. Venue shall be in Santa Clara County, California.
(d) If any provision of this Agreement is invalid under any applicable
statute or rule of law, it is to that extent, deemed to be omitted.
(e) Customer may not assign or sublicense without the prior written consent
of Sagent, Customer's rights, duties or obligations under this
Agreement to any person or entity, in whole or in part. A sale of
substantially all of Licensee's assets to a third party or any transfer
of more than 50% of the voting stock of Licensee to a third party shall
not constitute an assignment under this license.
(f) The prevailing party in any action related to this agreement shall have
the right to recover its reasonable expenses including attorney's fees.
The term "Software" as used in this agreement means:
Software Name, Version and Number of Copies
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Designated Contacts, full name followed by telephone number and e-mail
address.
CONTACT 1
Name:
-------------------------------------------------------------------------
Telephone #:
-------------------------------------------------------------------
E-mail Address:
---------------------------------------------------------------
CONTACT 2
Name:
-------------------------------------------------------------------------
Telephone #:
-------------------------------------------------------------------
E-mail Address:
---------------------------------------------------------------
During the term of this agreement, the Customer may delete and add Designated
Contacts by sending notification in writing on Customer's letter head and
addressed to Sagent's Vice President of Operations. We may rely on such
notice to make the change.
SAGENT TECHNOLOGY, INC.
Name: THOMAS M. LOUNIBOS
-------------------------------------------------------------------------
Address:
----------------------------------------------------------------------
Signature: /s/ THOMAS M. LOUNIBOS
--------------------------------------------------------------------
Title: V.P. SALES
------------------------------------------------------------------------
Date: 6/25/98
------------------------------------------------------------------------
USINTERNETWORKING, INC.
Name: STEPHEN E. MCMANUS
-------------------------------------------------------------------------
Address: ONE USI PLAZA, ANNAPOLIS, MD
----------------------------------------------------------------------
Signature: /s/ STEPHEN E. MCMANUS
--------------------------------------------------------------------
Title: PRESIDENT
------------------------------------------------------------------------
Date: 6/25/98
------------------------------------------------------------------------
The Effective Date of this agreement is:
6/25/98
-------------
Page 13
<PAGE>
Exhibit 10.19
SOFTWARE LICENSE AND SERVICES AGREEMENT
This Software License and Services Agreement ("Agreement") is made and
entered into as of this 22nd day of July, 1998, between BroadVision, Inc.
("BroadVision") and
Company USinternetworking
----------------------------
("Customer"),
Address One USi Plaza
----------------------------
Annapolis, MD 21401-7478
----------------------------
in consideration of the mutual covenants and conditions contained in this
Agreement, the parties agree as stated herein. The following attachments,
required when applicable, are also part of this Agreement:
A. Current Licensing Practices
B. Required Provisions of Sublicenses
C. [omitted]
D. [omitted]
E. Business Terms
1. LICENSE
A. BroadVision hereby grants to Customer a perpetual (unless
terminated as set forth herein), nonexeclusive, and nontransferable license,
subject to the terms and conditions of this Agreement, to use the object code
for the Software. For the purpose of this Agreement, "Software" shall mean
all versions, including current, previous, and subsequent versions, of all
software products, together with operating instructions, user manuals,
training material, and other documentation as may, in BroadVision's sole
discretion, be supplied to Customer.
B. Customer may use the Software in accordance with BroadVision's
published licensing practices in force at the time of delivery of the
applicable Software products. BroadVision's current licensing practices are
as set forth in Attachment A.
C. Customer may not (a) rent, lease, or loan the Software; (b)
electronically transmit the Software over a network except as necessary for
Customer's licensed use of the Software; (c) use run-time versions of
third-party products embedded in the Software, if any, for any use other than
the intended use of the Software, (d) modify, disassemble, decompile, or
reverse engineer the Software; (e) transfer possession of any copy of the
Software to another party, except as expressly permitted herein; or (f) use
the Software in any way not expressly provided for in this Agreement. There
are no implied licenses. Customer agrees not to exceed the scope of the
licenses granted herein.
D. BroadVision also grants to Customer the right to grant
nontransferable sublicenses to portions of the Software, where such grants
are explicity permitted by BroadVision's licensing practices. Customer shall
require each such sublicensee, before it may use or install the sublicensed
Software, to execute a written license agreement containing, at a minimum,
the required provisions specified in Attachment B. Customer shall indemnify
BroadVision for all losses, costs, damages, expenses, and liabilities caused
by a sublicensee's failure to honor the terms of such sublicense, or by
Customer's failure to include required terms in its sublicense agreements
with its sublicenses.
2. PAYMENT, PRICES.
A. Invoices shall be issued upon delivery of the products or
services, unless specified herein to the contrary, and shall be due and
payable in United States currency upon receipt by Customer. Payment shall be
overdue thirty (30) days after the delivery date specified on the invoice.
Overdue payments shall be subject to a finance charge of one and one-half
percent (1 1/2%) for each month or fraction thereof that the invoice is
overdue, or the highest interest rate permitted by applicable law, whichever
is lower. BroadVision shall also be reimbursed for its collection costs in
the event of late payments, including reasonable attorney's fees.
B. Software will be shipped POB BroadVision's facility in Redwood
City, California, U.S.A., by commercial surface transportation.
Transportation charges in excess of such rates will be billed to Customer.
Software shall be deemed accepted upon delivery.
C. The prices stated in BroadVision quotations are exclusive of any
federal, state, municipal, value-added, foreign withholding or other
governmental taxes, duties, fees, excises, or tariffs now or hereafter
imported on the production, storage, licensing, tale, transportation, import,
expect or use of the Software or any improvements, alterations, or amendments
to the Software. Customer shall be responsible for, and if necessary
reimburse, BroadVision for all such taxes, duties, fees, excises, or tariffs,
except for governmental or
- ---------------------
[CONFIDENTIAL TREATMENT] means that certain confidential information has
been deleted from this document and filed separately with the Securities
and Exchange Commission.
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local taxes imposed on BroadVision's corporate net income.
3. SOFTWARE MAINTENANCE
A. BroadVision agrees to provide Customer with software maintenance
subject to the following provisions and conditions:
i. At Customer's request, BroadVision shall provide software
maintenance at prices to be quoted to Customer. Software maintenance shall
include (i) telephone and electronic mail support provided during
BroadVision's normal working hours, and (ii) standard releases containing
improvements or modifications to the Software, where such improvements or
modifications are not priced as separate new products or options ("Standard
Release").
ii. BroadVision shall provide software maintenance for any
Standard Release until 180 days after shipment of the subsequent Standard
Release.
iii. Customer shall designate one or, with BroadVision's prior
written approval, more than one Support Contact Person, who shall be
responsible for communicating support issues to BroadVision. Customer agrees
to provide BroadVision with timely written notification containing all
details of software problems necessary for BroadVision to diagnose such
problems. Customer agrees to cooperate fully in providing BroadVision with
Customer's source code, in machine-readable form, and order materials
necessary to reproduce a reported software problem. Subject to Customer's
security requirements, Customer agrees to provide BroadVision reasonable
direct or remote access and test time on Customer's BroadVision system, for
the purpose of diagnosing reported software problems. If BroadVision provides
on-site services at Customer's request in connection with software
maintenance, Customer shall reimburse BroadVision for all travel and other
reasonable out-of-pocket expenses incurred with respect to such services.
iv. Software maintenance may also include any patch releases
("Patch Releases") that BroadVision, in its sole discretion, makes available.
Patch Releases are intended to address material deviations between the
Software and its published specifications until a Standard Release can be
made available. Customer may install Patch Releases at its option.
v. BroadVision shall not be responsible for maintaining Software
that fails to comply with its published specifications if such noncompliance
is the result of modification of the Software by Customer or third parties.
If BroadVision expands its time on a noncompliance found to be the result of
any of the preceding, Customer shall pay BroadVision for such time at
BroadVision's then-current hourly consulting rate.
B. Unless terminated by either party with at least ninety days
notice, software maintenance will automatically be renewed for successive
one-year periods at BroadVision's then-current prices for software
maintenance. In the event of termination for Customer's breach or Customer's
convenience, all maintenance fees shall be immediately due and payable
without notice; in the event of termination for any other reason, Customer
shall be entitled to a refund of maintenance fees already paid, prorated for
the unused portion of such fees.
C. Annual software maintenance renewal fees are due and payable in
advance; in all other respects payments are subject to the terms and
conditions of the Agreement.
D. If Customer initially declines software maintenance and then
subsequently elects to commence maintenance, or if maintenance for an item of
Software is discontinued at Customer's request and then subsequently renewed,
Customer shall pay the maintenance fees that would have been due for the
period during which maintenance was not provided.
4. TITLE TO SOFTWARE.
A. Customer shall include BroadVision's copyright or proprietary
rights notice on any copies of the software or associated documentation,
including copyright or proprietary rights notices of third parties that are
included on media or in documentation provided by BroadVision. Customer
acknowledges that the Software is the property of BroadVision or its
licensors.
B. Unless otherwise requested by BroadVision, Customer shall ensure
that the phrases, "Personalized by BroadVision One-To-One" shall appear
prominently on the logon screen, splash screen, or other first view of the
Customer's application seen by consumers or other end-users when they enter
such application. The above
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<PAGE>
phrase shall be a hypertext link to a URL specified by BroadVision.
Customer's use of the phrase shall be in accordance with BroadVision's
guidelines for use of the mark.
5. WARRANTY.
BroadVision warrants that the Software will conform in all material
respects to its written specifications when installed and for 90 days
thereafter. For purposes of this Agreement, the sole source of such
specifications shall be BroadVision's written user documentation. Customer
will notify BroadVision within 10 days after the expiration of the warranty
period of any other nonconformity. Where a material nonconformity exists
within the warranty period, and proper notice has been given to BroadVision,
BroadVision will, as its sole and exclusive liability to Customer, use due
diligence to correct the nonconformity and provide Customer with one copy of
any such corrected version of the Software, or, if BroadVision is unable to
correct such nonconformances within a reasonable period of time, refund all
license fees paid to it for the Software, or the most recent software
maintenance fee paid for the Software, if the nonconformity relates to a
Standard Release delivered pursuant to Section 3 herein. THIS WARRANTY IS IN
LIEU OF ALL OTHER WARRANTIES AND CONDITIONS, EXPRESSED OR IMPLIED, AND
BROADVISION EXPRESSLY DISCLAIMS ANY IMPLIED WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, TITLE, OR NONINFRINGEMENT.
6. LIMITATION OF LIABILITY.
BroadVision's liability to Customer under this Agreement or for any
other reason relating to the products and services provided under this
Agreement, including claims for contribution or indemnity, shall be limited
to the amount paid to BroadVision, or three (3) times such amount in the
event of claims made pursuant to Section 7 herein, under this Agreement,
NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE OR ANY REMEDY UNDER THIS
AGREEMENT, CUSTOMER AGREES THAT IN NO EVENT SHALL BROADVISION BE LIABLE FOR
SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES, INCLUDING LOST PROFITS OR LOSS
OF USE.
7. INTELLECTUAL PROPERTY RIGHTS INDEMNITY.
BroadVision will defend any action against Customer claiming that
the Software constitutes infringement of a duly issued patent existing or
issued prior to the intital delivery date of the applicable Software,
copyright, trademark, or trade secret. BroadVision shall indemnify Customer
for any reasonable expense incurred by Customer in connection with the
foregoing. BroadVision's obligations under this section are conditioned upon
BroadVision having sole control of any such action, and upon Customer
notifying BroadVision immediately in writing of the claim and giving
authority, information, and assistance necessary to settle or defend such
claim. If the use of the Software infringes or is enjoined, or BroadVision
believes it is likely to infringe or be enjoined, BroadVision may, at its
sole option, (i) procure for Customer the right to continue use of the
licensed Software as furnished; (ii) replace the licensed Software; (iii)
modify the licensed Software to make it non-infringing, provided that the
Software still substantially conforms to the applicable specifications; or
(iv) if BroadVision, after using all commercially reasonable efforts, is
unable to accomplish the foregoing remedies, terminate the license and refund
the license fee for the Software, less a proportional adjustment for the time
the Software was used by Customer, equal to the ratio of the time elapsed
since the delivery date to five (5) years. The indemnity provided herein
shall not apply if the alleged Infringement arises from: (a) the use of other
than a currently supported, unaltered release of the licensed Software; (b)
the use of Software that has been modified or merged with other programs by
Customer; or (c) the use of the licensed Software in combination with
software or hardware not provided under this Agreement. The foregoing states
BroadVision's sole and exclusive liability for patent, copyright, or other
proprietary rights infringement.
8. CONFIDENTIALITY OF SOFTWARE AND DOCUMENTS.
A. Customer shall not reproduce, duplicate, copy, sell, or otherwise
disclose, or disseminate the Software, including operating instructions,
user manuals, and training materials, in any medium except as authorized
herein. Customer may make copies of the Software, in machine readable form,
only as is reasonably necessary for archival and backup purposes.
B. Customer expressly undertaken, using reasonable efforts not less
than it exercises for its own confidential materials, to retain in
confidence, and to require its employees or consultants to retain the
Software in confidence, and will make no use of such information, except
under the terms and during the existence of this Agreement, and only to the
extent that such use is necessary to Customer's employees or consultants in
the course of their employment.
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<PAGE>
C. The provisions of this section shall survive the termination of
this Agreement for a period of five (5) years.
D. Customer shall not release the results of any benchmark of the
Software, or of any third party products embedded in the Software, without
BroadVision's prior written approval.
9. AUDIT RIGHTS.
At BroadVision's request, but in no event more than twice annually,
Customer shall provide BroadVision with a report detailing its use of the
Software. No more than once annually, BroadVision may, upon fifteen (15) days
prior written notice, audit Customer's records to ensure that license and
other fees have been properly paid in compliance with this Agreement. Any
such audit will be conducted during regular business hours at Customer's
offices and shall not interfere unreasonably with Customer's business
activities. If an audit reveals that Customer has underpaid its total fees by
more than five percent (5%), then Customer shall pay BroadVision's reasonable
costs of conducting the audit, in addition to the underpaid amount.
10. TERM/TERMINATION.
This Agreement is effective on the earlier of (i) the date of
shipment of the Software or (ii) the date set forth above, and continues
until terminated as provided herein, or by agreement of both parties.
BroadVision may terminate this Agreement upon: (a) any material breach of
this Agreement by Customer that is not cured within 10 days following written
notice thereof; or (b) failure by Customer to pay license fees for Software
under the payment terms specified in this Agreement or as stated on
BroadVision's invoice for such Software. Upon termination of this Agreement
for any of the above reasons, all licenses granted hereunder terminate and
Customer will immediately destroy the Software and all copies in any form.
Upon termination for any other reason, Customer may continue to use the
Software, provided that Sections 1, 2 (to the extent that any amounts are
owed to BroadVision as of the termination date), 4, 6, 7, 8, 9, and 11 shall
survive the termination of this Agreement, and BroadVision may terminate
Customer's use of the Software upon a material breach of any of the surviving
sections.
11. GENERAL.
A. WAIVER/AMENDMENT. No waiver, amendment, or modification of any
provision of this Agreement shall be effective unless in writing and signed
by the party against whom such waiver, amendment, or modification is sought
to be enforced. No failure or delay by either party in exercising any right,
power or remedy under this Agreement, except as specifically provided herein,
shall be deemed as a waiver of any such right, power, or remedy.
B. ASSIGNMENT. Either party may assign this Agreement to an entity
acquiring substantially all of its assets or merging with it, provided that
such assignee agree in writing to assume all obligations under this
Agreement. Except as set forth above, neither party may assign any of its
rights or delegate any of its obligations under this Agreement to any third
party without the express written consent of the other. Any attempted
assignment in violation of the foregoing shall be void and of no effect.
Subject to the above, this Agreement shall be binding upon and inure to the
benefit of the successors and assigns of the parties hereto.
C. DISPUTES. The rights of the parties hereunder shall be governed
by the laws of the State of California without giving effect to principles of
conflicts of laws. Any suits brought hereunder may be brought in the federal
or state courts in Santa Clara County, California, and Customer submits to
the jurisdiction thereof. The parties expressly exclude the application of
the 1980 United Nations Convention on Contracts for the international Sale of
Goods, if applicable.
Customer acknowledges that the Software contains trade secrets,
the disclosure of which would cause substantial harm to BroadVision that
could not be remedied by the payment of damages along. Accordingly,
BroadVision will be entitled to preliminary and permanent injunctive relief
and other equitable relief for any breach of BroadVision's intellectual
property rights in the Software.
D. SEVERABILITY, if any provision of this Agreement shall be held by
a court of competent jurisdiction to be contrary to law, the remaining
provisions of this Agreement shall remain in full force and effect.
E. EXPORT. Customer acknowledges that the laws and regulations of
the United States restrict the export of the Software. Customer agrees that
it will not export or re-export the Software in any form without first
obtaining the appropriate United States and foreign government approvals.
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<PAGE>
F. NOTICE. Any notice, consent, or other communication hereunder
shall be in writing, and shall be given personally, by confirmed fax or
express delivery to either party at their respective addresses:
(i) to BroadVision at:
BroadVision, Inc.
585 Broadway
Redwood City, CA 94063, USA
Attn: Chief Financial Officer
(ii) to Customer at:
------------------------------
------------------------------
Attn:-------------------------
or such other address as may be designated by written notice of either party.
Notice shall be deemed given when delivered or transmitted, or seven days
after deposit in the mail.
G. INDEPENDENT CONTRACTORS. The parties' relationship shall be
solely that of independent contractor and nothing contained in this Agreement
shall be construed to make either party an agent, partner, joint venturer, or
representative of the other for any purpose.
H. FORCE MAJEURA. If the performance of this Agreement, or any
obligation hereunder, except the making of payments, is prevented,
restricted, or interfered with by reason of any act or condition beyond the
reasonable control of the affected party, the party so affected will be
excused from performance to the extent of such prevention, restricting, or
interference.
I. ENTIRE AGREEMENT. This Agreement, including all Attachments
hereto, constitutes the complete and exclusive agreement between the parties
with respect to the subject matter hereof and supersedes all proposals, oral,
or written, all previous negotiations, and all other communications between
the parties with respect to the subject matter hereof. The terms of this
Agreement shall provide notwithstanding any different, conflicting, or
additional terms that may appear in any purchase order or other Customer
document. All products and services delivered by BroadVision to Customer are
subject to the terms of this Agreement, unless specifically addressed in a
separate agreement.
Agreed to by: BroadVision, Inc.
/s/Randall Bolten
---------------------------------
Signature
Randall Bolten
---------------------------------
Printed Name
CFO
---------------------------------
Title
Customer: USinternetworking
---------------------------------
Company Name
/s/ Stephen E. McManus
---------------------------------
Signature
Stephen E. McManus
---------------------------------
Printed Name
President
---------------------------------
Title
<PAGE>
ATTACHMENT A TO
SOFTWARE LICENSE AND SERVICES AGREEMENT
BROADVISION LICENSING PRACTICES
BroadVision's current standard licensing practices are as follows for the
products listed below. These practices are in effect as of January 1, 1998.
- BROADVISION ONE-TO-ONE DEVELOPMENT SYSTEM - licensed on a per-user
basis. In other words, each INDIVIDUAL who will use the Development
System to develop BroadVision One-To-One applications must be
separately licensed.
- BROADVISION WEBAPPS - licensed on a per-user basis, similar to the
BroadVision One-To-One Development System. WebApps currently
available include One-To-One Commerce, One-To-One Financial, and
One-To-One Knowledge.
- BROADVISION ONE-TO-ONE DEPLOYMENT SYSTEM - licensing is based on
the maximum number of profiled users permitted to be tracked by
BroadVision One-To-One application.
- DYNAMIC COMMAND CENTER ("DCC") - licensed on a per-user basis. In
other words, each INDIVIDUAL using the DCC must be separately
licensed.
- CONTENT MANAGEMENT CENTER ("CMC") - licensed on a per-user basis,
similar to the DCC.
(NOTE: The DCC and the CMC may be sublicensed to third parties
using Customer's application software in accordance with the
terms of this Agreement.)
<PAGE>
ATTACHMENT B TO
SOFTWARE LICENSE AND SERVICES AGREEMENT
REQUIRED PROVISIONS OF SUBLICENSE AGREEMENTS
Each agreement sublicensing the Software entered into between Customer and
Customer's end-users ("End-Users", "End-User License") shall, at a minimum,
state the following:
a. End-Users shall have the right to duplicate the Software only for
backup or archival purposes and to transfer the Software to a
backup computer in the event of computer malfunction. End-Users
shall not make the Software available on any timesharing or other
rental arrangements. End-Users may not transfer their rights under
the End-User License agreement without BroadVision's permission.
b. End-Users shall not cause or permit the reverse engineering,
disassembly, or decompilation of the Software.
c. Title shall not pass to the End-User.
d. The End-User License agreement shall not include warranties,
express or implied, made on behalf of BroadVision.
e. BroadVision shall not be liable for any damages, whether direct,
indirect, incidental, or consequential, arising from the use of
the Software.
f. As the termination of the End-User License, the End-User shall
discontinue use and shall destroy or return the Software to
BroadVision, including all archival or other copies.
g. The End-User License shall state that BroadVision is a thirty-party
beneficiary of the End-User License.
h. The End-User shall not publish any result of benchmark tests run on
the Software.
i. The End-User shall comply fully with all relevant regulations of
the United States Department of Commerce and with the U.S. Export
Administration to assure that the Software is not exported in
violation of the code and regulations.
<PAGE>
ATTACHMENT E
BUSINESS TERMS
This Attachment E is incorporated into the Software License and Services
Agreement (the "Agreement") dated the 22nd day of July, 1998 __between
BroadVision, Inc. ("BroadVision") and USINTERNETWORKING ("Partner"). The
terms and conditions contained herein are subject in all respects to the
terms and conditions of that Agreement, except that in the event of a
conflict between the terms of this Attachment E and the Agreement, the terms
of this Attachment E shall govern.
1. DEVELOPMENT LICENSES AND FEES: Partner agrees to purchase the following
development licenses:
_6_ Software Development Kits (SDKs) including One-To-One Knowledge;
One-To-One Commerce, One-To-One Financial, and the Dynamic Command
Center, at [CONFIDENTIAL TREATMENT] cash for a subtotal amount of
[CONFIDENTIAL TREATMENT].
_10_ Dynamic Command Centers (DCC) at [CONFIDENTIAL TREATMENT] each for
a subtotal amount of [CONFIDENTIAL TREATMENT].
_12_ Content Management Centers (CMC) at [CONFIDENTIAL TREATMENT] each for
a subtotal amount of [CONFIDENTIAL TREATMENT].
_3_ CPU deployment licenses at [CONFIDENTIAL TREATMENT] each for a
subtotal amount of [CONFIDENTIAL TREATMENT].
The above Development Licenses are discounted [CONFIDENTIAL TREATMENT]
for a subtotal of [CONFIDENTIAL TREATMENT]. Development licenses may be used
by Partner for training, demonstration, and development purposes. Development
SDK licenses are licensed on a "per developer" basis. These licenses may also
be used to develop systems for multiple projects, provided each licenses is
used by only one named developer.
In addition to the above Development Licenses purchased for
[CONFIDENTIAL TREATMENT]. Partner agrees to pre-pay [CONFIDENTIAL TREATMENT]
to purchase additional quantities of above products only, or as prepayment
against license fees, payable to BroadVision as a result of Partner hosting
applications for third parties using only the above products. This amount is
non-refundable and guaranteed. Partner will receive a [CONFIDENTIAL TREATMENT]
discount on the purchase price of such products. BroadVision agrees that
[CONFIDENTIAL TREATMENT] of the [CONFIDENTIAL TREATMENT] prepay will be spent
on marketing activities with an equal amount to be budgeted and spent by
Partner for marketing activities.
When the [CONFIDENTIAL TREATMENT] allotted for products of the
[CONFIDENTIAL TREATMENT] prepay has been depleted, Partner may purchase
additional BroadVision products. Amount paid for such products will include a
percentage discount off of BroadVision's then current local list price as
specified in the following table. BroadVision agrees that
[CONFIDENTIAL TREATMENT] of any additional net license fees will be set aside
for joint marketing activities, and partner agrees to set aside an equal
amount.
<TABLE>
<CAPTION>
NET ADDITIONAL LICENSE FEES DISCOUNT OFF OF BROADVISION'S
PAID TO BROADVISION BY PARTNER LIST PRICE
<S> <C>
- ---------------------------------- ----------------------------------
[CONFIDENTIAL TREATMENT] [CONFIDENTIAL TREATMENT]
- ---------------------------------- ----------------------------------
[CONFIDENTIAL TREATMENT] [CONFIDENTIAL TREATMENT]
- ---------------------------------- ----------------------------------
[CONFIDENTIAL TREATMENT] [CONFIDENTIAL TREATMENT]
- ---------------------------------- ----------------------------------
</TABLE>
<PAGE>
2. MAINTENANCE AND TECHNICAL SUPPORT
Partner will be the primary contact for Maintenance and Support to users of
applications built using Software ("End-Users"). For licenses purchased on
behalf of End-Users, Partner will provide first-line support to End-Users of
the integrated value-added solution, and BroadVision will provide second-line
support to Partner. First line support is the provision of services across
the interface between the End-User and the supplier for all support and
maintenance related issues. Second line support is the provision of services
across the interface between the End-User and the integrator for all support
and maintenance related issues specifically where BroadVision products are
concerned. Partner will purchase maintenance, including "9x5" or "24x7"
support, for Software licenses at the price of [CONFIDENTIAL TREATMENT] of
the then current local list price at time of license purchase. If requested,
maintenance and technical support fees for "24x7" support are available and
are [CONFIDENTIAL TREATMENT] of the then current local list price at time of
license purchase. In the case where BroadVision supplies support directly to
the End-User, BroadVision charges [CONFIDENTIAL TREATMENT] for 9x5 support,
and [CONFIDENTIAL TREATMENT] for "24x7" support, of the then current local
list price at time of license purchase. For the initial purchase of
[CONFIDENTIAL TREATMENT] in net license fees, the maintenance charge will be
[CONFIDENTIAL TREATMENT], or [CONFIDENTIAL TREATMENT], for 9x5 support.
3. TRAINING
Sales training will be provided to partner at no additional cost. Technical
training may be purchased at a [CONFIDENTIAL TREATMENT] discount from
BroadVision.
4. PAYMENT
Payment of all initial fees for the amount of [CONFIDENTIAL TREATMENT], plus
applicable taxes on licenses of [CONFIDENTIAL TREATMENT], plus
[CONFIDENTIAL TREATMENT] in maintenance, will be terms net 30 days.
5. OTHER TERMS
Partner will inform BroadVision of sales activities regarding BroadVision
applications to prospects with annual revenues greater than
[CONFIDENTIAL TREATMENT]. Partner will purchase at least
[CONFIDENTIAL TREATMENT] of licenses for each new customer using a
BroadVision application. Partner may use BroadVision current list prices as
of the date of signing until December 31st, 1998. As of January 1st, 1999,
Partner must use any new BroadVision product price lists within 45 days of
BroadVision publishing and distributing new price lists to Partner. Once
Partner puts a user of a particular application/user license into production,
it is located into inventory. That application/user license is fungible in
that it can be assigned to another client end user, but the money in the pool
of funds is not. Partner cannot exchange client/user licenses of one type for
licenses of another type after they have been put into production. For
example, Partner cannot exchange One-To-One Commerce licenses for CPU
deployment licenses.
Agreed to by:
Partner: /s/ STEPHEN E MCMANUS BroadVision: /s/ RANDALL BOLTEN
---------------------- ------------------
Stephen E. McManus Randall Bolten
---------------------- ------------------
Name Name
President CFO
---------------------- ------------------
Title Title
<PAGE>
[BROADVISION LETTERHEAD]
Mr. William Karpovich
USINTERNETWORKING
One USi Plaza
Annapolis, Maryland 21401-7478
July 22nd, 1998
Dear William,
Attachment E, "Business Terms" of the Software License and Services Agreement
dated July 22nd 1998 is amended to include the following statement which is
inserted in the second paragraph in Section 1, after the sentence "This amount
is non-refundable and guaranteed." Inserted sentence is as follows:
"Partner has unlimited use and quantities of above licenses upon request until
the prepay amount is depleted."
By signing and returning you agree to this amendment of Attachment E.
Sincerely,
USINTERNETWORKING: /s/ WILLIAM G. KARPOVICH
-------------------------
Signature
/s/ RANDALL BOLTEN
- ------------------ William G. Karpovich
RANDALL BOLTEN -------------------------
CFO Printed Name
VP Product Development
-------------------------
Title
<PAGE>
ATTACHMENT E
BUSINESS TERMS
This Attachment E is incorporated into the Software License and Services
Agreement (the "Agreement") dated the 30 day of September 1998 __ between
BroadVision, Inc. ("BroadVision") and USINTERNETWORKING ("Partner"). The
terms and conditions contained herein are subject in all respects to the
terms and conditions of that Agreement, except that in the event of a
conflict between the terms of this Attachment E and the Agreement, the terms
of this Attachment E shall govern.
1. DEVELOPMENT LICENSES AND FEES: Partner agrees to purchase the following
developmental licenses:
_11_ Software Development Kits (SDKs) including One-To-One
Knowledge, One-To-One Commerce, One-To-One Financial, and the
Dynamic Command Center, at [CONFIDENTIAL TREATMENT] each for
a subtotal amount [CONFIDENTIAL TREATMENT].
_10_ Dynamic Command Centers (DCC) at [CONFIDENTIAL TREATMENT]
each for a subtotal amount of [CONFIDENTIAL TREATMENT].
_12_ Content Management Centers (CMC) at [CONFIDENTIAL TREATMENT]
each for a subtotal amount of [CONFIDENTIAL TREATMENT].
_7_ CPU deployment licenses at [CONFIDENTIAL TREATMENT] each for a
subtotal amount of [CONFIDENTIAL TREATMENT].
The above Development Licenses are discounted [CONFIDENTIAL TREATMENT]
for a subtotal of [CONFIDENTIAL TREATMENT]. Development licenses may be used
by Partner for training, demonstration, and development purposes. Development
SDK licenses are licensed on a "per developer" basis. These licenses may also
be used to develop systems for multiple projects, provided each licenses is
used by only one named developer.
In addition to the above Development Licenses purchased for
[CONFIDENTIAL TREATMENT], Partner agrees to pre-pay [CONFIDENTIAL TREATMENT]
to purchase additional quantities of above products only, or as prepayment
against license fees, payable to BroadVision as a result of Partner hosting
applications for third parties using only the above products. This amount is
non-refundable and guaranteed. Partner will receive a [CONFIDENTIAL TREATMENT]
discount on the purchase price of such products. BroadVision agrees that
[CONFIDENTIAL TREATMENT] of the [CONFIDENTIAL TREATMENT] prepay will be spent
on marketing activities with an equal amount to be budgeted and spent by
Partner for marketing activities.
When the [CONFIDENTIAL TREATMENT] allotted for products of the
[CONFIDENTIAL TREATMENT] pre-pay has been depleted, Partner may purchase
additional BroadVision products. Amount paid for such products will include a
percentage discount off of BroadVision's then current local list price as
specified in the following table. BroadVision agrees that
[CONFIDENTIAL TREATMENT] of any additional net license fees will be set aside
for joint marketing activities, and partner agrees to set aside an equal
amount.
<PAGE>
<TABLE>
<CAPTION>
NET ADDITIONAL LICENSE FEES DISCOUNT OFF OF BROADVISION'S
PAID TO BROADVISION BY PARTNER LIST PRICE
<S> <C>
- ---------------------------------- ----------------------------------
[CONFIDENTIAL TREATMENT] [CONFIDENTIAL TREATMENT]
- ---------------------------------- ----------------------------------
[CONFIDENTIAL TREATMENT] [CONFIDENTIAL TREATMENT]
- ---------------------------------- ----------------------------------
[CONFIDENTIAL TREATMENT] [CONFIDENTIAL TREATMENT]
- ---------------------------------- ----------------------------------
</TABLE>
2. MAINTENANCE AND TECHNICAL SUPPORT
Partner will be the primary contact for Maintenace and Support to users of
applications built using Software ("End-User"). For licenses purchased on
behalf of End-Users, Partner will provide first-line support to End-Users of
the integrated value-added solution, and BroadVision will provide second-line
support to Partner. First line support is the provision of services across
the interface between the End-User and the supplier for all support and
maintenance related issues. Second line support is the provision of services
across the interface between the End-User and the integrator for all support
and maintenance related issues specifically where BroadVision products are
concerned. Partner will purchase maintenace, including "9x5" or "24x7"
support, for Software licenses at the price of [CONFIDENTIAL TREATMENT] of
the then current local list price at time of license purchase. If requested,
maintenance and technical support fees for "24x7" support are available and
are [CONFIDENTIAL TREATMENT] of the then current local list price at time of
license purchase. In the case where BroadVision supplies support directly to
the End-User, BroadVision charges [CONFIDENTIAL TREATMENT] for 9x5 support,
and [CONFIDENTIAL TREATMENT] for "24x7" support, of the then current local
list price at time of license purchase. For the initial purchase of
[CONFIDENTIAL TREATMENT] in net license fees, the maintenance charge will be
[CONFIDENTIAL TREATMENT], for 9x5 support. However, maintenance obligations
on SDKs will not commence until the licensed user (a) completes BroadVision
training or (b) commences using the SDK, whichever occurs first.
3. TRAINING
Sales training will be provided to partner at no additional cost. Technical
training may be purchased at a [CONFIDENTIAL TREATMENT] discount from
BroadVision.
4. PAYMENT
Payment of all initial fees for the amount of [CONFIDENTIAL TREATMENT], plus
applicable taxes on licenses of [CONFIDENTIAL TREATMENT], will be payable
[CONFIDENTIAL TREATMENT] immediately upon execution of this Agreement and the
balance on or before December 15, 1998.
5. OTHER TERMS
Partner will inform BroadVision of sales activities regarding hosting
BroadVision applications to prospects with annual revenues greater than
[CONFIDENTIAL TREATMENT]. Partner will purchase at least
[CONFIDENTIAL TREATMENT] of licenses for each new customer using a
BroadVision application. Partner may use BroadVision current list prices as
of the date of signing until December 31st, 1998. As of January 1st, 1999,
Partner must use any new BroadVision product price lists within 45 days of
BroadVision publishing and distributing new price lists to Partner. Once
Partner puts a user of a particular application/user license into production,
it is locked into inventory. That application/user license is fungible in
that it can be assigned to another client/end user, but the money in the pool
of funds is not. Partner cannot exchange client/user licenses of one type for
licenses of another type after they have been put into production. For
example, Partner cannot exchange One-To-One Commerce licenses for CPU
deployment licenses.
2
<PAGE>
Agreed to by:
Partner: /s/Stephen E. McManus BroadVision, /s/Randall Bolten
---------------------------- ---------------------
Signature Signature
Stephen E. McManus
---------------------------- ---------------------
Name Name
President CFO
---------------------------- ---------------------
Title Title
3
